FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
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: 0-24206
Penn National Gaming, Inc.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2234473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Penn National Gaming, Inc.
825 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
(Address of principal executive offices) (Zip code)
610-373-2400
(Registrant's telephone number including area code)
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
- ----
1
<PAGE>
(Applicable only to corporate registrants)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding as of November 13, 1998
Common stock par value .01 per share 14,735,630
----------
This report contains forward-looking statements that inherently involve risks
and uncertainties. The Company's actual result could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those discussed in this Quarterly Report and those discussed
in the Company's Annual Report on Form 10-K. References to "Penn National
Gaming" or the "Company" include Penn National Gaming, Inc. and its
subsidiaries.
2
<PAGE>
Penn National Gaming, Inc. and Subsidiaries
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements 4-5
Consolidated Statements of Income -
Nine Months Ended September 30, 1998 and 1997 (unaudited) 6-7
Consolidated Statements of Income -
Three Months Ended September 30, 1998 and 1997 (unaudited) 8-9
Consolidated Statement of Shareholder's Equity -
Nine Months Ended September 30, 1998, (unaudited) 10
Consolidated Statement of Cash Flow -
Nine Months Ended September 30, 1998 and 19 (unaudited) 11-12
Notes to Consolidated Financial Statements 13-20
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 21-24
Item 3. Changes in Information about Market Risk 24
- ------------------------------------------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
- ----------------------------------------
Signature Page 26
Exhibit Index 27
3
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
-------------- -------------
<S> <C> <C>
Assets
Current asset
Cash and cash equivalents $ 9,412 $ 21,854
Investment in marketable securities 3,092 -
Accounts receivable 6,503 2,257
Prepaid expenses and other current assets 2,333 1,441
Deferred income taxes 523 469
Prepaid income taxes 472 3,003
-------------- ---------------
Total current assets 22,335 29,024
-------------- ---------------
Property, plant and equipment, at cost
Land and improvements 26,629 24,643
Building and improvements 66,848 56,298
Furniture, fixtures and equipment 16,548 13,847
Transportation equipment 479 490
Leasehold improvements 9,567 6,778
Leased equipment under capitalized lease 824 824
Construction in progress 532 11,288
-------------- ---------------
121,427 114,168
Less accumulated depreciation and
amortization 14,485 11,007
-------------- ---------------
Net property, plant and equipment 106,942 103,161
-------------- ---------------
Other assets
Excess of cost over fair market value of
net assets acquired(net of accumulated
amortization of $1,848 and $1,389,
respectively) 22,596 23,055
Deferred financing costs 2,477 3,014
Miscellaneous 1,036 624
-------------- ---------------
Total other assets 26,109 26,693
-------------- ---------------
$ 155,386 $ 158,878
============== ===============
</TABLE>
See accompanying notes to consolidated financial statement
4
<PAGE>
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
----------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt
and capital lease obligations $ 175 $ 204
Accounts payable 9,395 7,405
Purses due horsemen 757 -
Uncashed pari-mutuel tickets 1,342 1,504
Accrued interest 2,156 326
Accrued expenses 886 2,427
Accrued salaries & wages 993 813
Customer deposits 681 470
Taxes, other than income taxes 921 649
------------ -------------
Total current liabilities 17,306 13,798
------------ -------------
Long term liabilities
Long-term debt and capital lease
obligations
net of current maturities 69,105 80,132
Deferred income taxes 11,410 11,092
------------ -------------
Total long-term liabilities
80,515 91,224
------------ -------------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value authorized
1,000,000 shares; None issued - -
Common stock,$.01 par value, authorized
20,000,000 shares, 15,160,330 less
treasury stock 424,700 and 15,152,580
issued respectively 152 152
Additional paid in capital 38,012 37,969
Treasury Stock, 424,700 shares at cost (2,379) -
Retained earnings 21,780 15,735
------------ -------------
Total Shareholders' equity 57,565 53,856
------------ -------------
$ 155,386 $ 158,878
============ =============
</TABLE>
See accompanying notes to consolidated financial statement
5
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
-------------------------
<S> <C> <C>
Revenue
Pari-mutuel revenues
Live races $ 20,962 $ 18,234
Import simulcasting 50,994 46,766
Export simulcasting 4,403 5,701
Gaming Revenue 26,995 909
Admissions, programs and other racing revenue 4,558 4,388
Concession revenues 7,102 5,570
------------ -----------
Total revenues 115,014 81,568
Operating expenses
Purses, stakes, and trophies 21,821 16,550
Direct salaries, payroll taxes and employee benefits 14,265 12,034
Simulcast expenses 10,479 9,836
Pari-mutuel taxes 7,013 6,917
Lottery taxes and administration 10,613 298
Other direct meeting expenses 17,823 12,878
Off-track wagering concession expenses 5,646 4,283
Other operating expenses 7,879 5,475
Site development and restructuring expense - 599
Depreciation and Amortization 4,292 2,828
------------ -----------
Total operating expenses 99,831 71,698
------------ -----------
Income from operations 15,183 9,870
------------ -----------
Other income (expenses)
Interest (expense) (6,326) (2,652)
Interest income 627 296
Other (including $140,000 of unrealized
investment gain) 110 17
------------ -----------
Total other (expenses) (5,589) (2,339)
Income before income taxes and
extraordinary item 9,594 7,531
Taxes on income 3,549 3,093
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------------------------------
<S> <C> <C>
Income before extraordinary item 6,045 4,438
Extraordinary Item
Loss of early extinguishment of debt,
net of income taxes of $264 - 383
-------------- -------------
Net income $ 6,045 $ 4,055
============== =============
Per share data
Basic
Income before extraordinary item $ 0.40 $ 0.29
Extraordinary item - 0.03
-------------- -------------
Net income $ 0.40 $ 0.26
============== =============
Diluted
Income before extraordinary item $ 0.39 $ 0.29
Extraordinary item 0.03 -
Net income $ 0.39 $ 0.26
============== =============
Weighted average shares outstanding
Basic 15,108 14,851
Diluted 15,463 15,444
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
-----------------------------
<S> <C> <C>
Revenue
Pari-mutuel revenues
Live races $ 8,034 $ 6,837
Import simulcasting 16,881 15,428
Export simulcasting 1,576 2,306
Gaming Revenue 10,835 909
Admissions, programs and other racing revenue 1,573 1,564
Concession revenues 2,675 2,120
----------- -------------
Total revenues 41,574 29,164
----------- -------------
Operating expenses
Purses, stakes, and trophies 7,875 6,232
Direct salaries, payroll taxes and
employee benefits 5,002 4,614
Simulcast expenses 3,583 3,955
Pari-mutuel taxes 3,328 2,498
Lottery taxes and administration 3,407 298
Other direct meeting expenses 6,260 4,379
Off-track wagering concession expenses 2,193 1,643
Other operating expenses 2,855 2,194
Site development and restructuring expense - 599
Depreciation and Amortization 1,451 674
----------- -------------
Total operating expenses 35,954 27,086
----------- -------------
Income from operations 5,620 2,078
----------- -------------
Other income (expenses)
Interest (expense) (2,082) (977)
Interest income 176 138
Other (including $140,000 of unrealized
investment gain) 110 21
----------- -------------
Total other (expenses) (1,796) (818)
----------- -------------
Income before income taxes 3,824 1,260
Taxes on income 1,451 542
----------- -------------
Net income $ 2,373 $ 718
=========== =============
</TABLE>
See accompanying notes to consolidated financial statements
8
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
----------------------------------------
<S> <C> <C>
Per share data
Basic
Net income $ 0.16 $ 0.05
============= =============
------------- -------------
Diluted
Net income $ 0.16 $ 0.05
============= =============
------------- -------------
Weighted average shares outstanding
Basic 15,021 15,127
Diluted 15,279 15,715
</TABLE>
See accompanying notes to consolidated financial statements
9
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Treasury Retained
Shares Amounts Capital Stock Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1998 15,152,580 $ 152 $ 37,969 $ - $ 15,735 $ 53,856
Issuance of
common stock 7,750 - 43 - - 43
Purchase of
treasury stock (424,700) - - (2,379) - (2,379)
Net income for
the nine months
ended September
30, 1998 - - - - 6,045 6,045
-------------------------------------------------------------------
Balance,
September
30, 1998 14,735,630 $ 152 $ 38,012 $ (2,379) $ 21,780 $ 57,565
===================================================================
</TABLE>
See accompanying notes to consolidated financial statements
10
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
--------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 6,045 $ 4,055
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 4,292 2,701
Extraordinary item, loss on early
extinguishment of debt, before income tax
benefit - 642
Deferred income taxes 264 204
Decrease (Increase) in
Accounts receivable (4,246) 1,133
Investment in marketable securities (3,092) -
Prepaid expenses and other current assets (892) (1,305)
Prepaid income taxes 2,531 -
Miscellaneous other assets (412) (166)
Increase (decrease) in
Accounts payable 1,990 3,652
Purses due horsemen 757 (834)
Uncashed pari-mutuel tickets (162) (134)
Accrued expenses (1,541) 190
Accrued interest 1,830 -
Accrued salaries & wages 180 -
Customers deposits 211 242
Taxes other than income taxes payable 272 156
Income taxes payble - 636
----------- ---------
Net cash provided by operating activities 8,027 11,172
----------- ---------
Cash flows from investing activities
Expenditures for property, plant and
equipment (7,320) (26,392)
Acquisition of business
(Primarily property and equipment) - (16,000)
Prepaid acquisition costs - (310)
------------ ---------
Net cash (used in) investing activities (7,320) (42,702)
------------ ---------
</TABLE>
11
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Cash flows from financing activities
Proceeds from sale of common stock $ 43 $ 23,145
Purchase of treasury stock (2,379) -
Tax benefit related to stock option
exercised - 573
Proceeds from long term debt - 25,667
Principal payments on long-term debt
and capital lease obligations (11,056) (19,324)
Increase (decrease)in unamortized financing
cost 243 (214)
----------- -----------
Net cash provided by (used) in financing
activities (13,149) 29,847
----------- -----------
Net (decrease) in cash (12,442) (1,683)
Cash, at beginning of period 21,854 5,634
----------- -----------
Cash, at end of period $ 9,412 $ 3,951
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
12
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Financial Statement Presentation
The accompanying consolidated financial statements are
unaudited and include the accounts of Penn National Gaming, Inc.,
(Penn) and its wholly and majority owned subsidiaries, (collectively,
the "Company"). All significant intercompany transactions and balances
have been eliminated. Certain prior year amounts have been reclassified
to conform to current year presentation.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) which have been made are necessary to
present fairly the financial position of the Company as of September
30, 1998 and the results of its operations for the nine and three month
periods ended September 30, 1998 and 1997. The results of operations
for the nine month period ended September 30, 1998 are not necessarily
indicative of the results to be experienced for the fiscal year ended
December 31, 1998.
2. Wagering Information (in thousands)
<TABLE>
<CAPTION>
Three months ended September 30, 1998
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state
on company live races $ 21,351 $ 7,806 $ 7,068 $ 36,225
---------------------------------------------
Pari-mutuel wagering on
simulcasting:
Import simulcasting from other
racetracks 41,738 34,022 12,129 87,889
Export simulcasting to out of
Pennsylvania wagering facilities 43,999 9,084 - 53,083
---------------------------------------------
85,737 43,106 12,129 140,972
---------------------------------------------
Total pari-mutuel wagering $ 107,088 $ 50,912 $ 19,197 $ 177,197
=============================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Three months ended September 30, 1997
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state
on company live races $ 22,142 $ 9,520 $ 6,852 $ 38,514
----------------------------------------------
Pari-mutuel wagering on
simulcasting:
Import simulcasting from other
racetracks 39,014 29,710 7,630 76,354
Export simulcasting to out of
Pennsylvania wagering facilities 37,026 10,133 - 47,159
----------------------------------------------
76,040 39,843 7,630 123,513
----------------------------------------------
Total pari-mutuel wagering $ 98,182 $ 49,363 $ 14,482 $162,027
==============================================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1998
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state
on company live races $ 62,566 $ 16,131 $ 16,710 $ 95,407
--------------------------------------------
Pari-mutuel wagering on
simulcasting:
Import simulcasting from other
racetracks 129,132 101,340 34,159 264,631
Export simulcasting to out of
Pennsylvania wagering facilities 130,583 16,846 - 147,429
--------------------------------------------
259,715 118,186 34,159 412,060
--------------------------------------------
Total pari-mutuel wagering $ 322,281 $ 134,317 $ 50,869 $507,467
=============================================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1997
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state
on company live races $ 69,716 $ 18,763 $ 11,492 $ 99,971
-------------------------------------------
Pari-mutuel wagering on
simulcasting:
Import simulcasting from other
racetracks 124,857 89,220 14,275 228,352
Export simulcasting to out of
Pennsylvania wagering
facilities 113,387 18,960 - 132,347
-------------------------------------------
238,244 108,180 14,275 360,699
-------------------------------------------
Total pari-mutuel wagering $ 307,960 $ 126,943 $ 25,767 $460,670
===========================================
</TABLE>
3. Commitments
At September 30, 1998, the Company was contingently obligated
under letters of credit with principal amounts aggregating $2,041,000.
This amount consists of $1,786,000 for the horsemen's account balances,
$100,000 for Pennsylvania pari-mutuel taxes and $155,000 for purses.
4. Supplemental Disclosures of Cash Flow Information
Cash paid during the nine months ended September 30, 1998 and
1997 for interest was $4,496,000 and $3,010,000 respectively.
Cash paid during the nine months ended September 30, 1998 and
1997 for income taxes was $2,646,000 and $2,741,000, respectively.
15
<PAGE>
5. Potential Tennessee Development Project
In June 1997, the Company acquired twelve one-month options to
purchase approximately 100 acres of land in Memphis, Tennessee. Since
such time, the Company, through its subsidiary, Tennessee Downs, Inc.
("Tennessee Downs"), has pursued the development of a harness track and
simulcast facility on this option site, which is located in the
northeastern section of Memphis (The "Tennessee Development Project").
The Company submitted an application to the Tennessee State Racing
Commission (the "Tennessee Commission") in October 1997 for an initial
license for the development and operation of a harness track and OTW
facility at this site. A land use plan for the construction of a 5/8
-mile harness track, clubhouse and grandstand area were approved in
October 1997 by the Land Use Hearing Board for the City of Memphis and
County of Shelby. Tennessee Downs was determined to be financially
suitable by the Tennessee Commission and a public comment hearing
before the Tennessee Commission was held in November 1997. In December
1997, the Company received the necessary zoning and land development
approvals from the Memphis City Council.
In April 1998, the Tennessee Commission granted a license to
the Company, which would expire on the earlier of (I) December 31, 2000
or (ii)the expiration of Tennessee Racing Commission's term on June 30,
1998, if such term is not extended by the Tennessee. On May 1, 1998,
the Tennessee State Legislature voted against extending the life of the
Tennessee Commission, allowing the Tennessee Commission's term to
expire on June 30, 1998. The Tennessee Commission held a meeting on May
29, 1998 at which it rejected the Company's request: (I) to grant the
Company an extension-time frame for the effectiveness of its racing
license; (ii) for racing days for the periods ending December 31, 2000;
and (iii) to operate a temporary simulcast facility. On July 28, 1998,
the Company filed for a preliminary injunction and a declaratory ruling
on the legal status of racing in Memphis with the Chancery Court in
Shelby County. A full hearing was held before Judge Peete of Shelby
County on September 17, 1998. As of November 13, 1998, the Company had
not received an opinion from Judge Peete. The Company intends to
continue its efforts to obtain a racing license that does not hinge on
the existence of a racing commission.There can be no assurance that the
Company's efforts to obtain a racing license will be successful.
16
<PAGE>
6. Subsidiary Guarantors
Summarized financial information as of September 30, 1998 and
for three and nine months ended September 30, 1998 for Penn National
Gaming, Inc. ("Parent"), the Subsidiary Guarantors and Subsidiary
Nonguarantors is as follows:
<TABLE>
<CAPTION>
September 30, 1998
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Current assets $ 6,872 $ 9,881 $ 5,289 $ 293 $ 22,335
Net property 703 62,666 43,572 1 106,942
Other assets 103,872 152,925 1,655 (232,343) 26,109
--------- ---------- ------------- ------------- -------------
Total 111,447 225,472 50,516 (232,049) 155,386
--------- ---------- ------------- ------------- -------------
Current liabilities 1,893 16,986 7,311 (8,884) 17,306
Long-term liabilities 72,084 78,895 47,661 (118,125) 80,515
Shareholders' equity 37,470 129,591 (4,456) (105,040) 57,565
--------- ---------- ------------- ------------- -------------
Total $111,447 $225,472 $ 50,516 $(232,049) $ 155,386
--------- ---------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Three months ended September 30, 1998
<S> <C> <C> <C> <C> <C>
Total revenues $ 2,690 $ 21,830 $ 16,353 $ 701 $ 41,574
Total operating
expenses 1,258 19,726 14,269 701 35,954
--------- ----------- ------------- ------------- -------------
Income from
operations 1,432 2,104 2,084 - 5,620
Other income (expenses) (1,316) 719 (1,199) - (1,796)
--------- ----------- ------------- ------------- -------------
Income before income
taxes 116 2,823 885 - 3,824
Taxes on income 28 1,423 - - 1,451
========= =========== ============= ============= =============
Net income $ 88 $ 1,400 $ 885 $ - $ 2,373
========= =========== ============= ============= =============
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1998
<S> <C> <C> <C> <C> <C>
Total revenues $ 7,865 $ 64,253 $ 41,050 $ 1,846 $ 115,014
Total operating
expenses 3,189 57,724 37,072 1,846 99,831
----------- ---------- ---------- ----------- -----------
Income from
operations 4,676 6,529 3,978 - 15,183
Other income
(expenses) (4,094) 2,064 (3,559) - (5,589)
----------- ----------- ---------- ----------- -----------
Income before
income taxes 582 8,593 419 - 9,594
Taxes on income 55 3,494 - - 3,549
----------- ----------- ---------- ----------- -----------
Net income $ 527 $ 5,099 $ 419 $ - $ 6,045
=========== =========== ========== =========== ===========
</TABLE>
Summarized financial information as of September 30, 1997 and
for the three and nine months ended September 30, 1997, have not been
presented. Separate financial statements of the Subsidiary Guarantors
and Subsidiary Nonguarantors are not presented because management does
not believe such statements are material to investors.
7. Year 2000 Compliance
The "Year 2000 Issue" is typically the result of software and
hardware being writtem using two digits rather than four to define the
applicable year. If the Company's software and hardware with
date-sensitive functions are not Year 2000 compliant, these systems may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, interruptions
in pari-mutuel wagering or the inability to operate the Company's video
lottery machines.
The Company is currently conducting a review of all systems and
contacting all software suppliers to determine major areas of exposure
to Year 2000 issues. The Company believes that, with minor
modifications and testing of its systems, the Year 2000 issue will not
pose a significant operations problem. The Compnay is using its
internal resources to reprogram or replace and test its software
for Year 2000 modificaitons. If the Company is unable to make the
required modifications to existing software or convert to new
software in a timely manner, the Year 2000 Issue could have a
material adverse impact on the Company's operations.
The Company has initiated formal communication with
significant suppliers and third party vendors to determine the extent
to which the Company's operations are vulnerable to those third
parties' failure to remediate their own Year 2000 hardware and
software issues. Most of these parties state that they intend to be
Year 2000 compliant by 2000. In the event that any of the Company's
significant suppliers are unable to become Year 2000 compliant,
the Company's business or operations could be adversely affected.
There can be no assurance that the systems of other companies
on which the Company relies will be compliant by the year 2000 and
would not have an adverse effect on operations.
The Company does not expect the total cost associated with
required modifications to become Year 2000 compliant to be
material to its financial position.
The Company has not yet fully developed a comprehensive
contingency plan addressing situations that may result if the Company
is unable to achieve Year 2000 readiness of its critical operations.
Contingency plan development is in process and the Company expects
to finalize its plan during the remainder of 1998. There can be no
assurance that the Company will be able to develop a contingency plan
that will adequately address issues that may arise in the year 2000.
18
<PAGE>
8. Johnstown OTW Facility
On July 7, 1998, the Company entered into an agreement with
Ladbroke Racing Management-Pennsylvania (Ladbroke) to purchase their
Johnstown, Pennsylvania OTW facility. The agreement provides for a
purchase price of $1,225,000 for the assignment of the facility lease
and the sale of assets and is subject to numerous contingencies,
including approval by the Pennsylvania State Horse Racing Commission.
Approval for the sale and transfer of the Johnstown OTW was received
from the State Harness Racing Commission on August 14, 1998 and the
State Horse Racing Commission on August 20, 1998. Under the terms of
the agreements, the Company will sub-lease the facility from Ladbroke
and operate the facility from September 1, 1998, the effective date of
the agreement, through January 4, 1999, the closing date of the
agreement, for $12,500 per month, at which time the Company will assume
full rights and ownership in the facility. The Johnstown facility will
replace the Company's proposed Altoona, Pennsylvania OTW facility.
9. Treasury Stock
From August 21, 1998 to September 10, 1998, the Company
purchased 424,700 shares of its commonstock in public market
trading. The total cost of these transactions were $2,378,465 or
$5.60 per share average price.
10. 10 5/8% Senior Notes
On September 3, 1998, the Company repurchased $11,000,000 of
10 5/8% Senior Notes due 2004 at 97.25% in the principal amount
($10,697,500) plus accrual interest of $253,229 in public market
trading. In conjunction with the repurchase of the Notes, the Company
recorded a write-off of $337,719 for deferred finance fees associated
with this portion of the long-term debt and the recognition of
discounts income of $302,500.
11. Investment in Marketable Securities
During the period July 20, 1998 to October 9, 1998, the
Company purchased 1,400,000 shares of Casino Magic Corp. stock on the
open market at prices ranging from $2.11 to $2.17 per share. Prior to
the purchase of Casino Magic stock by the company, Casino Magic and
Hollywood Park Inc. shareholders had approved the purchase of Casino
Magic by Hollywood Park for $2.27 per share. The purchase was completed
on October 20, 1998 and the Company received $3,178,000 for its shares
on that date. At September 30, 1998, the Company recorded an unrealized
gain on investment in marketable securities of $140,000 to account for
this transaction.
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12. East Stroudsburg Lease
On July 14, 1998, the Company entered into a lease agreement
for an OTW facility in East Stroudsburg. The lease is for approximately
14,000 square feet at the Eagle's Glen Shopping Plaza located in East
Stroudsburg, Pennsylvania. The initial term of the lease is for ten
years with two additional five-year renewal options available. The
agreement is subject to numerous contingencies, including approval by
the Pennsylvania State Harness Racing Commission. On November 6, 1998,
the Company submitted its application for such approval. If approved by
the Racing Commission, the Company expects to have the facility
constructed and operational by the end of 1999.
13. Subsequent Events
On October 30, 1998, the Company entered into a joint venture
agreement with Greenwood New Jersey, Inc. (GNJI), which has a
definitive agreement to purchase Freehold Raceway and secure a
long-term lease on Garden State Park, the principal racetrack assets of
International Thoroughbred Breeders, Inc. (ITB) for $45 million and an
additional $12.5 million contingent upon the expansion of these
facilities. GNJI is a wholly-owned subsidiary of Greenwood Racing,
Inc., the owner of Philadelphia Park Racetrack. Pursuant to the joint
venture, Penn National will acquire a 50% interest in the New Jersey
entity, which is purchasing the ITB assets. GNJI has provided notice
to the Board of Directors of ITB that it has entered into the
joint venture agreement with Penn National. Under the terms of the
joint venture agreement, Penn National and GNJI will acquire
certain assets of ITB for up to $57.5 million in cash and notes. Penn
National intends to fund its portion of the cash payment from cash on
hand and available bank lines. The joint venture parties will operate
Garden State Park under a lease from ITB, and will share equally in the
income and losses derived from Garden State Park and Freehold Raceway.
GNJI and Penn National will apply for licensing from the New Jersey
Racing Commission and seek other regulatory approvals and they intend
to close on the transaction immediately upon securing such approvals.
On November 3, 1998 New Jersey voters passed a Referendum
granting the State Legislature decision-making power to approve
off-track wagering (OTW) and telephone wagering.
20
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Item 2. Management's Discussion and Analysis of Financial and Results of
Operations
Three months ended September 30, 1998 compared to three months ended
September 30, 1997
Total revenue increased by approximately $12.4 million or 42.6% from
$29.2 million for the three months ended September 30, 1997 to $41.6 million for
the three months ended September 30, 1998. The majority of the gain was
attributable to a 230.4% or $11.4 million revenue increase at the Charles Town
Races facility which began video lottery machines operations on September 10,
1997. Revenues at Penn National Race Course and its OTW facilities increased by
approximately $400,000 due to an 18.4% increase in export simulcast wagering on
Penn National races and the addition of the Johnstown OTW facility on September
1, 1998. Revenues at Pocono Downs and its OTW facilities increased by
approximately $600,000. The net increase was due to a full quarter of operations
for the new facilities at Hazleton and Carbondale ($1.5 million) offset a
decrease in revenue at the Wilkes-Barre racetrack ($.9million) due to the
opening of the two new OTW facilities.
Total operating expenses increased by $8.9 million or 32.7% from $27.1
million for the three months ended September 30, 1997 to $36.0 million for the
three months ended September 30, 1998. Charles Town Races accounted for $8.7
million of the increase due primarily to the video lottery operation and the
operation of the racing simulcast center. Penn National Race Course and its OTW
facilities had a net decrease in operating expenses of approximately $100,000
due to an increase in expenses from the addition of the Johnstown OTW facility
($171,000) that was offset by a decrease in expenses at the other facilities.
($271,000)Pocono Downs and its OTW facilities had an increase in
expenses due to a full quarter of operations for the new facilities at
Hazleton and Carbondale ($1.2 million) that was offset by a decrease in
expenses at the Wilkes-Barre racetrack ($1.1 million) due to decreased revenue.
Depreciation and amortization increased by $776,000 or 115.1% from $674,000 for
the three months ended September 30, 1997 to $1,450,000 for the three months
ended September 30, 1998. The increase was due primarily to depreciation
associated with new facilities for Charles Town Gaming (September 1997),
Charles Town Simulcast Facility (January 1998), Hazleton OTW (March 1998)
and Carbondale OTW (March 1998). Site development expenses for the three
months ended September 30, 1997 consisted of a non-recurring pre-tax charge
of $599,000 associated with the Company's failure to obtain approval for the
Downingtown OTW and discontinued site development efforts in Indiana.
Other expenses increased by 1.0 million from $.8 million in net
interest expense for the three months ended September 30, 1997 to $1.8 million
in net interest expense for the three months ended September 30, 1998 (primarily
due to the 10 5/8% Senior Notes issued during December 1997).
Income tax expense increased approximately $910,000 or 167.9% from
$542,000 for the three months ended September 30, 1997 to $1,452,000 for the
three months ended September 30, 1998 due to the increase in net income for the
period.
Net income increased approximately $1.7 or 242.9% from $.7 million for
the three months ended September 30, 1997 to $2.4 million for the three months
ended September 30, 1998 due to the factors described above.
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Nine months ended September 30, 1998 compared to nine months ended September 30,
1997
Total revenue increased by approximately $33.4 million or 41.0% from
$81.6 million for the nine months ended September 30, 1997 to $115.0 million for
the nine months ended September 30, 1998. Charles Town Races, which was
purchased in January of 1997 and began racing operations on April 30, 1997 and
video lottery machines operations on September 10, 1997, accounted for $33.2
million of the increase. Revenues at Penn National Race Course and its OTW
facilities decreased by approximately $.7 million due to a decrease in revenues
at its Chambersburg OTW ($.6 million) resulting from the opening of the
Charles Town Facility and at the Reading OTW ($.2 million) due to competition in
the Reading area. Revenue increased at the Williamsport OTW ($.2 million)due to
a full period of operations in 1998 compared to eight months in 1997 and at the
Johnstown OTW that opened September 1, 1998. Revenues at Pocono Downs and its
OTW facilities resulted in a net increase of approximately $.8 million primarily
due to the opening of new facilities in Hazleton and Carbondale ($3.3 million).
Revenue decreased at Allentown OTW ($.4 million) and Erie OTW ($.3 million)
due to a decrease in wagering at the Wilkes-Barre racetrack ($1.8 million)
due to the proximity of the two new OTW facilities.
Total operating expenses increased by $28.1 million or 39.2% from $71.7
million for the nine months ended September 30, 1997 to $99.8 million for the
nine months ended September 30, 1998. Charles Town Races accounted for $27.4
million of the increase due primarily to the video lottery operation and the
opening of the racing simulcast center. Penn National Race Course and its OTW
facilities had a decrease in operating expenses of approximately $1.2 million
due to the decrease in revenues. Pocono Downs and its OTW facilities had an
increase of approximately $225,000 in expenses due to six months of operations
at Hazleton and Carbondale ($2.6 million) offset by decreases at its other
facilities ($2.4 million) due to decreased revenue. Corporate expenses increased
by $325,000 due to the hiring of additional staff for OTW facility management
and human resource management and the leasing of additional office space.
Depreciation and amortization increased by $1.8 million or 72.0% from $2.5
million for the nine months ended September 30, 1997 to $4.3 million for the
nine months ended September 30, 1998. The increase was due primarily to
depreciation associated with new facilities for Charles Town Gaming (September
1997), Charles Town Simulcast Facility (January 1998), Hazleton OTW (March 1998)
and Carbondale OTW (March 1998). Site development expenses for the nine months
ended September 30, 1997 consisted of a non-recurring pre-tax charge of $599,000
associated with the Company's failure to obtain approval for the Downingtown OTW
and discontinued site development efforts in Indiana.
Other expenses increased by $3.3 million from $2.3 million in net
interest expense for the nine months ended September 30, 1997 to $5.6 million in
net interest expense.consisted of for the nine months ended September 30, 1998
(primarily due to the 10 5/8% Senior Notes issued December 1997).
Income tax expense increased approximately $456,000 or 14.7% from $3.1
million for the nine months ended September 30, 1997 to $3.5 for the nine months
ended September 30, 1998 due to the increase in net income for the period.
The extraordinary item in 1997 consisted of a loss on the early
extinquishment of debt in the amount of $383,000 net of income taxes. The
Company used approximately $19 million of the $23 million in proceeds from the
February 1997 equity offering to reduce long-term debt, resulting in a write-off
of $647,000 for fees associated with the early extinquishment of debt.
Net income increased approximately $2.0 million or 49.2% from $4.0
million for the nine months ended September 30, 1997 to $6.0 million for the
nine months ended September 30, 1998 due to the factors described above.
22
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Liquidity and Capital Resources
Historically, the Company's primary sources of liquidity and capital
resources have been cash flow from operations, borrowings from banks and
proceeds form issuance of equity securities.
Net cash provided from operating activities for the nine months ended
September 30, 1998 ($8.0 million), consisted of net income and non-cash expenses
($10.3 million), an increase in investment in marketable securities ($3.1
million) for 1,4000,000 shares of Casino Magic common stock, a decrease in
prepared income taxes ($2.5 million), an increase in accounts receivable ($4.2
million) from other racetracks primarily due to totalisator settlement delays,
an increase in accounts payable ($2.0 million), and a decrease in other changes
in working capital ($.5 million).
Cash flows used in investing activities ($7.3 million) consisted of
renovations and refurbishment of the Charles Town facility and race track
surface ($1.1 million), completion of the Hazleton and Carbondale facilities
($3.2 million), the purchase of the Johnstown OTW facility ($1.3 million), and
($1.7 million) in capital expenditures at the other facilities.
Cash flows from financing activities ($13.1 million) consisted of the
purchase of 424,700 shares of the Company's common stock ($2.4 million) and the
repurchase of $11 million of 10 5/8% Senior Notes at 97.25% of the principal
amount ($10.7 million).
The Company is subject to possible liabilities arising from the
environmental condition at the landfill adjacent to Pocono Downs. Specifically,
the Company may incur expenses in connection with this landfill in the future.
Such expenses may not be reimbursed by the four municipalities that are parties
to the settlement agreement. The Company is unable to estimate the amount, if
any, that it may be required to expend.
During the fourth quarter of 1998, the Company anticipates capital
expenditures of approximately $1.9 million. For the existing racetracks and OTW
facilities at Penn National Race Course and Pocono Downs, the Company plans to
spend an additional $500,000 and $400,000 respectively, on building improvements
and equipment. The Company anticipates expending approximately $1.0 million on
the refurbishment of the Charles Town Entertainment Complex (excluding the cost
of Gaming Machines). If approval of the Tennessee license beyond September 30,
1998 is ultimately received, the Company anticipates expending $9.0 million to
complete the first phase of the project.
The Company entered into a credit facility in December 1997 (the
"Credit Facility") with Bankers Trust Company, as agent. The Credit Facility
provides for, subject to certain terms and conditions, a $12.0 million revolving
credit facility and has a five-year term from its closing. The Credit Facility,
under certain circumstances, requires the Company to make mandatory prepayments
and commitment reductions and to comply with certain covenants, including
financial ratios and maintenance tests. In addition, the Company may make
optional prepayments and commitment reductions pursuant to the terms of the
Credit Facility. Borrowings under the Credit Facility will accrue interest, at
the option of the Company, at either a base rate plus an applicable margin of up
to 2.0% or a eurodollar rate plus an applicable margin of up to 3.0%. The Credit
Facility contains certain covenants that, among additional indebtedness, incur
guarantee obligations, repay indebtedness, make investments, make acquisitions,
engage in mergers or consolidations, make capital expenditures, or engage in
certain transactions with subsidiaries and affiliates and otherwise restrict
corporate activities. The Credit Facility is secured by the assets of the
Company and certain financial ratios and maintenance tests.
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On September 30, 1998, the Company was in compliance with all
applicable ratios. As of November 13, 1998, the Company had not drawn any
portion of the Credit Facility (although a $2.0 million letter of credit was
issued against such Credit Facility) and had adequate capital resources even
without consideration of the Credit Facility.
A portion of the net proceeds of the offering of the 10 5/8% Senior
Notes was used to repay amount outstanding immediately prior to the offering
under a preexisting, credit facility. The Company currently estimates that
proceeds from the offering, cash generated from operations and available
borrowings under the Credit Facility will be sufficient to finance its current
operations, planned capital expenditure requirements and the costs associated
with the Tennessee development project. The Company intends to fund its portion
of the joint venture agreement with Greenwood New Jersey, Inc. (up to $28.75
million) from cash on hand, available credit lines and seller financing.
There can be no assurance, however, that the Company will not be required to
seek additional capital through public or private financing, including
equity financing, in addition to that available from the foregoing sources.
There can be no assurance that adequate funding will be available as needed
or, if available, on terms acceptable to the Company.
Item 3. Changes in Information about Market Risk
All of the Company's debt obligations at September 30, 1998, were fixed
rate obligations and Management, therefore, does not believe that the Company
has any material market risk from its debt obligations.
24
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Part II. Other Information
Item 1. Legal Proceedings
In December 1997, Amtote International, Inc. ("Amtote"), filed an
action against the Company and the Charles Town Joint Venture in the United
States District Court for the Northern District of West Virginia. In its
complaint, Amtote (I) states that the Company and the Charles Town Joint Venture
allegedly breached certain contracts with Amtote and its affiliates when it
entered into a wagering services contract with a third party (the "Third Party
Wagering Services Contract"), and not with Amtote, effective January 1, 1998,
(ii) sought preliminary and injunctive relief through a temporary restraining
order seeking to prevent the Charles Town Joint Venture from (a) entering into a
wagering services contract with a party other than Amtote and (b) having a third
party provide such wagering services, (iii) seeks declaratory relief that
certain contracts allegedly bind the Charles Town Joint Venture to retain Amtote
for wagering services through September 2004, and (iv) seeks unspecified
compensatory damages, legal fees and costs associated with the action and other
legal and equitable relief as the Court deems just and appropriate. On December
24, 1997, a temporary restraining order was issued, which prescribes performance
under the Third Party Wagering Contract. On January 14, 1998, a hearing was held
to rule on whether a preliminary injunction should be issued or whether the
temporary restraining order should be lifted. On February 20, 1998, the
temporary restraining order was lifted by the court, and the Company terminated
the Amtote Agreement and proceeded under the Third Party Wagering Services
Contract. Amtote is continuing its litigation against the Company for monetary
damages. The Company believes that this action and any resolution thereof, will
not have any material adverse impact upon its financial condition, results, or
the operations of either the Charles Town Joint Venture of the Company.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.78 Lease agreement dated July 14, 1998 between Penn
National Gaming, Inc. and Eagle Valley Realty.
10.79 Joint Venture Agreement dated October 30, 1998
between Penn National Gaming, Inc. and
Greenwood New Jersey, Inc.
10.80 Amendment dated November 2, 1998 to Joint Venture
Agreement between Penn National Gaming, Inc.
and Greenwood New Jersey, Inc.
(B) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Penn National Gaming, Inc.
November 13, 1998 By: /S/ Robert S. Ippolito
- -----------------------
Date Robert S. Ippolito,
Chief Financial Officer &
Treasurer/Secretary
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EXHIBIT INDEX
Exhibit Nos. Description of Exhibits Page No.
Lease agreement 28-54
between Penn National Gaming,
Inc. and Eagle Valley Realty
dated July 14, 1998
Joint Venture agreement dated 55-56
October 30, 1998 between Penn
National Gaming, Inc. and Greenwood
New Jersey, Inc.
Amendment dated November 2, 1998 57
To joint venture agreement between
Penn National Gaming, Inc. and
Greenwood New Jersey, Inc.
27
LEASE AGREEMENT
THIS LEASE made and entered into this 14th day of July 1998, between
EAGLE VALLEY REALTY, a Pennsylvania general partnership (hereinafter called
"Landlord") and PENN NATIONAL GAMING, INC., a Pennsylvania corporation
(hereinafter called "Tenant").
DEMISED PREMISES; DEMISE
Landlord is the owner of shopping center known as the Eagle's Glen
Shopping Plaza (the "Shopping Center") located in East Stroudsburg Borough (the
"Borough"), Monroe County, Pennsylvania. The current configuration and location
of the improvements constituting the Shopping Center are depicted on the site
plan (the "Current Site Plan") attached hereto as Exhibit "A". Landlord will
seek approval from the relevant governmental bodies to expand the Shopping
Center (the "New Plan Approval") by constructing an additional building
containing approximately 28,000 square feet (the "Additional Building") and
related parking and site improvements (together with the Additional Building,
the "Additional Improvements"), which Additional Improvements are depicted on
the site plan attached hereto as Exhibit "B" (the "New Site Plan"). Landlord
desires to lease to Tenant, and Tenant desires to rent from Landlord,
approximately 14,000 square feet of space in the Shopping Center (the "Demised
Premises") for use by Tenant as a restaurant and off-track wagering facility, as
more particularly described herein.
Landlord has leased approximately 45,600 square feet of the Shopping
Center, in the space designated on the Current Site Plan as "Supermarket" (the
"BiLo Space"), to a tenant operating a BiLo supermarket ("BiLo"). Subject to the
terms of this Article, Landlord shall use its best efforts to enter into an
agreement with BiLo, within sixty (60) days after Tenant notifies Landlord that
it has satisfied or waived all of the Conditions Precedent (as hereinafter
defined) set forth in Article 40 (such date is hereinafter referred to as the
"Satisfaction Date"), pursuant to which BiLo and Landlord agree to terminate the
existing lease between BiLo and Landlord, which termination and BiLo's vacation
of the BiLo Space must occur within four (4) months after the execution of such
agreement (the "BiLo Termination Agreement"). The date by which Landlord is
obligated to enter into a BiLo Termination Agreement as provided in the previous
sentence is hereinafter referred to the "BiLo Termination Date". If the
Termination Agreement is executed by Landlord and BiLo, and BiLo vacates the
BiLo Space within four (4) months after the execution of the BiLo Termination
Agreement, the Demised Premises shall be comprised of approximately 14,000
square feet of the BiLo Space in the location shown cross-hatched on the Current
Site Plan. If Tenant satisfies or waives the Conditions Precedent, but Landlord
is unable, despite using its best efforts, to enter into a Termination Agreement
with BiLo before the BiLo Termination Date, or if BiLo has not vacated the BiLo
Space within four (4) months after the execution of the BiLo Termination
Agreement, Landlord will be obligated to commence construction of the Additional
Improvements as provided in Article 3, in which case the Demised Premises shall
be comprised of approximately 14,000 square feet of the Additional Building in
the area shown cross-hatched on the New Site Plan. Landlord shall not be
obligated to execute a BiLo Termination date until the occurrence of the
Satisfaction Date. In addition, Landlord's "best efforts" in entering into a
BiLo Termination Agreement shall not be interpreted to require Landlord to make
any payments of money to BiLo.
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In consideration of the covenants and conditions set forth herein,
Landlord does hereby demise and lease to Tenant (for the Term hereinafter
stipulated) the Demised Premises, the location of which shall be determined in
accordance with the foregoing terms, together with the right to use all parking
areas, driveways, roads, alleys, means of ingress and egress and other portions
of the Common Areas (as hereafter defined) as reflected on the New Site Plan, in
common with the other tenants and occupants of the Shopping Center, and Landlord
and Tenant, intending to be legally bound, further agree as follows:
ARTICLE 1
TERM AND USE
A. The primary term (the "Primary Term") shall begin on (the
"Commencement Date") the earlier of (a) the date on which Tenant opens for
business in the Shopping Center and (b) one hundred fifty (150) days after the
later to occur of (x) the date on which Landlord completes Landlord's Work and
(y) the Satisfaction Date, and such Primary Term shall expire on the last day of
the month in which the tenth (10th) anniversary of the Commencement Date occurs.
As used herein, the term "Lease Year" shall mean the twelve (12) month period
beginning on the Commencement Date and ending twelve (12) months thereafter, and
each twelve (12) month period thereafter, except that, if the Commencement Date
is other than the first day of the month, the first Lease Year shall commence on
the Commencement Date and end on the last day of the month in which the one (1)
year anniversary of the Commencement Date occurs.
B. Provided Tenant is not in default of any term, condition or covenant
contained in this Lease at the time of exercise of an option to renew the Lease
Term beyond any period for curing same, Tenant shall have the option of renewing
this Lease for two (2) additional terms of five (5) years each ("Renewal Terms")
on the same terms and conditions as provided herein except for the rental as
shown in Article 3 and Article 13.
Notice of the exercise of such option shall be given by Tenant
to Landlord in writing not later than six (6) months prior to expiration of the
Primary Term or the previous Renewal Term.
C. The Demised Premises may be used and occupied for the purpose of
operating an off-track wagering facility and restaurant that sells and serves
alcoholic beverages, or for any other use permitted under applicable law (the
"Permitted Use"), provided that Tenant's use of the Demised Premises (other than
as an off-track wagering facility and restaurant) does not violate the exclusive
uses currently in existence at the Shopping Center, which are attached hereto as
Exhibit "C". Notwithstanding the exclusives set forth in Exhibit "C", Tenant
shall be permitted to sell and serve Italian cuisine and pizza as an incidental
part of its business. In addition, if Tenant intends to change its then current
use of the Demised Premises, Tenant shall notify Landlord of the use that Tenant
intends to make of the Demised Premises (the "Changed Use"), and Tenant shall
have the right to operate such use unless Landlord notifies Tenant that it has
entered into a lease or a binding letter of intent with an unrelated party
pursuant to which Landlord has agreed to give the tenant under such lease or
letter of intent the exclusive right to operate the Changed Use in the Shopping
Center. If Tenant fails to commence operating the Changed Use within six (6)
months after Tenant notifies Landlord of the same, Tenant may not operate the
Changed Use without repeating the foregoing procedure. Tenant shall have no
obligation to open for business or to operate a business in the Demised
Premises. Landlord represents and warrants to Tenant that there is no tenant or
29
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other occupant of the Shopping Center that has the right to object to Tenant's
use of the Demised Premises as on off-track wagering facility and restaurant,
and Landlord shall defend, at Landlord's expense, any actions brought against
Landlord or Tenant to enjoin such use. If any such action to enjoin or otherwise
interrupt such use is successful in a manner that prohibits, interrupts or
affects in any way Tenant's right to use the Demised Premises as an off-track
wagering facility and restaurant, Tenant shall have the right to terminate this
Lease.
D. Notwithstanding anything herein to the contrary, including
subsection C. above, Landlord covenants and agrees that during the Primary Term
and any Renewal Term, Tenant shall have the exclusive right to conduct a
business operating an off-track wagering facility in the Shopping Center. This
covenant shall run with the land on which the Shopping Center is located.
Landlord agrees to enforce this exclusive use covenant against other tenants in
the Shopping Center using all reasonable legal means. In the event of a breach
by Landlord of this covenant, Tenant shall have the right to terminate this
Lease, in addition to any other remedy permitted at law or in equity.
E. Tenant has entered into this Lease in reliance upon representations
by Landlord that the Shopping Center is and will remain primarily retail in
character, and, further, no part of same shall be used as a massage parlor,
adult book or adult video tape store.
ARTICLE 2
EXHIBITS AND ORIGINAL CONSTRUCTION
A. The exhibits listed below and attached to this Lease are
incorporated herein by reference:
EXHIBIT "A" - Current Site Plan
EXHIBIT "B" - New Site Plan
EXHIBIT "C" - Existing Exclusives
EXHIBIT "D" - Landlord's Work
B. Promptly after the execution of this Lease, Landlord shall file
applications and submit plans to the necessary governmental bodies to obtain the
following, all of which shall be pursued simultaneously by Landlord:
(i) the New Plan Approval;
(ii) approval for the additional parking spaces added to the
Shopping Center by Landlord's recent restriping of the parking lot; and
(iii) approval to increase the number of parking spaces shown
on the New Site Plan to the amount of spaces that will be required if Tenant
operates the Permitted Use at the Shopping Center.
The foregoing approvals referred to in (ii) and (iii) are hereinafter referred
to as the "Parking Approvals", and the New Plan Approval and Parking Approvals
30
<PAGE>
are hereinafter collectively referred to as the "Landlord Approvals". If the
Landlord has not obtained the Landlord Approvals on or before the Permit Date
(as defined in Article 40), the Tenant shall have the right to terminate this
Lease.
C. Landlord agrees, at Landlord's expense, to construct the Demised
Premises as necessary to deliver to Tenant a "vanilla shell," with the
dimensions and configuration shown on Exhibit "A" (if the Demised Premises will
be located in the BiLo Space) or Exhibit "B" (if the Demised Premises will be
located in the New Building) ("Landlord's Work"). Landlord's Work is described
more particularly in Exhibit "D" attached hereto. Landlord shall not remove any
existing piping, duct-work or other similar facilities that may be used to
furnish HVAC, plumbing and electric service in the Demised Premises.
D. Landlord shall substantially complete Landlord's Work within 90 days
after the "Landlord's Construction Commencement Date", in the case that the
Demised Premises will be located in the BiLo Space, and within one (1) year in
the event that the Demised Premises is located in the New Building (such date of
substantial completion is hereinafter referred to as the "Completion Date"). The
term "Landlord's Construction Commencement Date" shall be determined as follows:
(i) If Landlord enters into a BiLo Termination Agreement, and
BiLo vacates the Existing Building within four (4) months after execution
thereof, "Landlord's Construction Commencement Date" shall be ten (10) days
after BiLo vacates the Existing Building;
(ii) If Landlord enters into a BiLo Termination Agreement, and
BiLo does not vacate the Existing Building within four (4) months after
execution thereof, "Landlord's Construction Commencement Date" shall mean the
date that is ten (10) days after the expiration of such four (4) month period;
(iii) If Landlord is unable to enter into a BiLo Termination
Agreement before the BiLo Termination Date, "Landlord's Construction
Commencement Date" shall be the date that is ten (10) days after the BiLo
Termination Date.
Notwithstanding anything herein to the contrary, if Landlord has not obtained
the Landlord Approvals by Landlord's Construction Commencement Date, as
determined above, and Tenant has not terminated this Agreement, Landlord's
Construction Commencement Date shall be extended until the date on which
Landlord obtains the Landlord Approvals.
E. Upon completion of Landlord's Work, Tenant may commence Tenant's
Work, as described herein, in accordance with Tenant's Plans (hereinafter
defined). Prior to commencing Tenant's Work, Tenant shall submit a detailed set
of plans and drawings ("Tenant's Plans") to Landlord depicting the work that may
be performed by Tenant in order to renovate the Demised Premises for Tenant's
use ("Tenant's Work"). Within ten (10) days after receipt of Tenant's Plans,
Landlord shall notify Tenant of whether it approves of the same. Landlord's
approval right, however, shall only apply to changes to the structure of the
Demised Premises and the building in which the Demised Premises are located.
Landlord shall have no right to consent or otherwise comment on interior
renovations or renovations that do not affect the structure of the building. If
Landlord fails to reject or approve Tenant's Plans within such ten (10) day
period, Tenant's Plans shall be deemed approved. If Landlord rejects Tenant's
Plans within the time period described above, and provided
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Landlord has the right to object to such plans as described herein, Landlord
shall notify Tenant of the reasons for such disapproval, and Tenant shall revise
such plans within ten (10) days after receipt of Landlord's rejection notice.
The foregoing procedure shall be repeated until Landlord and Tenant agree on
Tenant's Plans. Notwithstanding the foregoing, if Landlord and Tenant are unable
to agree on Tenant's Plans within sixty (60) days after Tenant's first
submission of such plans, Tenant shall have the right to terminate this Lease.
Tenant may not commence Tenant's Work unless and until Landlord approves
Tenant's Plans as provided in this section. If Landlord has not substantially
completed Landlord's Work in accordance with Exhibit "D" on or before the
Completion Date, Tenant shall have the right, but not the obligation, to either
(i) terminate this Lease or (ii) perform Landlord's Work, in which latter event,
Tenant may offset Tenant's reasonable costs in completing the same against the
next payments of Annual Base Rent.
F. The term "substantially complete", "substantial completion" and
words of similar import shall mean that Landlord's Work is completed in
accordance this Exhibit "D", except minor punch list items that do not adversely
affect Tenant's ability to open and operate its business in the Demised Premises
without interruption or interference. If a punch list is generated, Landlord
shall use its best efforts to complete the items on such punch list within
thirty (30) days after substantial completion.
ARTICLE 3
DATE ON WHICH RENT BEGINS
A. The Annual Base Rent (as defined herein) and all additional charges
shall begin to accrue on the Commencement Date. If the Commencement Date is
other than the first day of the month, Annual Base Rent shall commence on the
first day of the following month, and rent for the initial partial month shall
be paid at that time.
B. Tenant does hereby covenant and agree to pay to Landlord, for the
use and occupancy of the Demised Premises, at the times and in the manner
hereinafter provided, the following sums of money ("Annual Base Rent"):
YEARS PER SQUARE FOOT
1-5 $ 8.50
6-10 $ 9.00
11-15 $10.00
16-20 $11.00
to be paid in U.S. dollars, in advance, without notice or invoice from Landlord,
on the first day of each and every month during the Term hereof, commencing upon
the date on which rental is determined to commence under the provisions of this
Article 3 hereof and ending upon the termination date of this Lease. Within ten
(10) days after Landlord completes Landlord's Work, Landlord shall cause its
architect to measure the Demised Premises in accordance with the following
criteria: measurements shall be taken from the exterior face of exterior walls,
and from the center of demising walls; and mezzanine space, basement space and
other space not designed for usable square footage shall be excluded from the
calculation of the size of the Demised Premises. If Tenant disputes such
measurement, Tenant shall have the right to confirm such measurement by its
architect. If Tenant's architect calculates a different square footage, and the
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parties cannot resolve any differences, then Landlord and Tenant shall select a
third, neutral architect to measure the Demised Premises, whose costs will be
shared by Landlord and Tenant, and such third architect's measurement shall
govern. The square footage of the Demised Premises as determined in accordance
with this Section shall be used for the purpose of calculating Annual Base Rent
and other charges due under this Lease. In the event such rental shall be
determined under the provisions of Article 3 hereof to commence on a day other
than the first day of a month, then the Annual Base Rent for the period from
such rent Commencement Date until the first day of the month next following
shall be prorated accordingly. All payments in this Lease provided for (those
hereinafter stipulated as well as Annual Base Rent) shall be paid or mailed to:
Eagle Valley Realty
P.O. Box 460
Tunkhannock, PA 18657
or to such other payee or address as Landlord may designate, in writing to
Tenant.
ARTICLE 4
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
A. Tenant's obligations hereunder shall be contingent upon, among other
things, Landlord causing any existing mortgagee and/or ground lesser to enter
into a non-disturbance agreement with Tenant in form and substance acceptable to
Tenant. In addition, upon written request of Landlord, or any future mortgagee
or beneficiary of Landlord, Tenant will in writing, subordinate its rights
hereunder to the interest of any future ground lessor of the land upon which the
Demised Premises are situated and to the lien of any future mortgage or deed of
trust now or hereafter in force against the land and building of which the
Demised Premises are a part, and upon any building hereafter placed upon the
land of which the Demised Premises are a part and to all advances made or
hereafter to be made upon the security thereof; provided, however, that such
subordination shall not be effective unless the ground lessor, or the mortgagee
or trustee named in said mortgage or deed of trust shall enter into a
non-disturbance agreement with Tenant in form and substance that is commercially
reasonable and satisfactory to Tenant and Landlord's lender.
B. In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of trust
upon any such foreclosure or sale Tenant agrees to recognize such beneficiary or
purchaser as the Landlord under this Lease, provided Tenant's rights under this
Lease continue unabated.
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ARTICLE 5
REPAIRS AND MAINTENANCE
Landlord covenants and agrees, at its expense without reimbursement or
contribution by Tenant, to keep, maintain, repair and replace, if necessary, the
foundations, the exterior, structural systems including, without limitation, the
roof, roof covering (including interior ceiling if damaged by leakage) and
load-bearing walls and floor slabs and exterior masonry walls in good condition
and repair, and Landlord shall replace the same as and when necessary. Except
for Landlord's obligations, Tenant shall be responsible for all interior
maintenance and repairs in the Demised Premises which are required throughout
the Term, including, without limitation, all mechanical, plumbing and electrical
repairs and maintenance which are required to fixtures or systems located wholly
within the Demised Premises. In the event the Demised Premises become or are out
of repair and not in good condition due to the failure of Landlord to comply
with the terms of this Article 5, and if such repairs are not completed within
ten (10) days after Landlord has received written notice from Tenant of such
state of disrepair or if such repairs cannot reasonably be completed within such
ten (10) day period and Landlord shall fail to commence such repairs within ten
(10) days after notice and proceed diligently thereafter, then Tenant may
prosecute such repairs itself and apply the cost of such repairs against the
next maturing monthly installment or installments of rent due hereunder.
Notwithstanding the foregoing, in the case of an emergency, Tenant shall have
the right to immediately prosecute any and all necessary repairs and shall
deliver contemporaneous notification to Landlord of the emergency and related
repairs, provided further that if contemporaneous notice is not practicable, as
determined by Tenant in its sole judgment, then Tenant shall provide such notice
as soon thereafter as reasonably practicable.
ARTICLE 6
ENVIRONMENTAL MATTERS
A. Landlord represents and warrants that any handling, transportation,
storage, treatment or usage of hazardous or toxic substances that has occurred
or will occur on the Shopping Center has been and shall be in compliance with
all applicable federal, state and local laws, regulations and ordinances.
Landlord further represents and warrants that there is no asbestos or asbestos
containing materials in the Demised Premises, and no leak, spill, discharge,
emission or disposal of hazardous or toxic substances has occurred or will occur
on the Shopping Center, and that the soil and groundwater on or under the
Shopping Center is and will continue to be free of toxic or hazardous
substances. Landlord agrees to indemnify, defend and hold Tenant and its
officers, employees and agents harmless from any claims, judgments, damages,
fines, penalties, costs. liabilities (including sums paid in settlement of
claims) or loss suffered or incurred by Tenant, including attorney's fees,
consultant's fees, and expert fees, which arise during or after the Term or any
Renewal Term, or in connection with the presence or suspected presence of toxic
or hazardous substances in the soil or groundwater, on or under the Shopping
Center, except to the extent that such toxic or hazardous substances are present
as the result of the negligence or wilful misconduct of Tenant, its officers,
employees or agents. Without limiting the generality of the foregoing, this
indemnification specifically covers costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of the presence or suspected presence of toxic or
hazardous substances in the soil or groundwater on or under the Shopping Center,
unless the toxic or hazardous substances are present as the result of the
negligence or wilful misconduct of Tenant, its officers, agents or employees.
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Without limiting the generality of the foregoing, this indemnification shall
also specifically cover costs in connection with:
1. Toxic or hazardous substances present or suspected
to be present in the soil or ground water on or under the Shopping Center before
the date hereof; or
2. Toxic or hazardous substances that migrate, flow,
percolate, diffuse or in any way move onto or under the Shopping Center after
the date hereof; or
3. Toxic or hazardous substances present on or under the
Shopping Center as a result of any discharge, dumping, spilling (accidental or
otherwise) onto the Shopping Center during or after the Term or any Renewal Term
by any person or entity.
B. If Tenant discovers any asbestos or other hazardous materials
present on or under the Demised Premises during Tenant's Work or the Primary
Term or any Renewal Term, and the presence of the same is not caused by Tenant,
Landlord shall promptly remove the same in accordance with all applicable laws,
at Landlord's sole cost and expense. If Tenant's use of the Demised Premises is
interrupted or affected in any way during such removal, rent and all other
charges due hereunder shall abate until full use of the Demised Premises is
restored to Tenant. If any of Tenant's personal property, furniture, fixtures or
equipment is damaged or removed during such removal, Landlord shall be
responsible for reimbursement to Tenant for all such damages and for restoring
any such furniture, fixtures, equipment and property.
ARTICLE 7
ALTERATIONS
Except as hereinafter set forth and except for Tenant's Work, Tenant
shall not make structural alterations in any portion of the Demised Premises
without, in each instance, first obtaining the written consent of Landlord which
shall not be unreasonably withheld or delayed. Tenant shall have the right to
make any and all interior non-structural alterations or additions as deemed
appropriate by Tenant, all without Landlord's consent. Tenant shall have the
right to install satellite dishes, antennae and other equipment on the roof of
the Demised Premises, and Tenant may make roof penetrations for the purpose of
installing and maintaining the same. Tenant shall have access to the roof at all
times for the purpose of operating and maintaining any roof structures. Tenant
shall have the right to make a "roof cut" for the purpose of obtaining access to
the roof from the interior of the Demises Premises. Tenant shall be responsible
for any damage caused directly by Tenant's use of the roof. Tenant shall notify
Landlord forty-eight (48) hours prior to making any roof penetrations, and
Landlord shall have the right to have its roofing contractor present during any
such work. Tenant shall perform work on the roof in a manner that does not
violate any roof warranty that Landlord possesses, so long as Landlord has
provided Tenant, in advance, a copy of any such warranties.
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ARTICLE 8
FIXTURES AND PERSONAL PROPERTY
Any trade fixtures, lifts, equipment, inventory, trademarked items,
signs, decorative soffit, counters, shelving, showcases, kitchen equipment and
other removable personal property installed in or on the Demised Premises by
Tenant, at its expense, shall remain the property of the Tenant. Landlord agrees
that Tenant shall have the right, at any time or from time to time, to remove
any and all of such items, and Tenant shall be obligated to remove all such
items upon the expiration or earlier termination of this Lease. Tenant at its
expense shall immediately repair any damage occasioned by the removal of its
fixtures, signs and other personal property, and upon expiration or earlier
termination of this Lease, shall leave the Demised Premises in a neat and clean
condition, free of debris, normal wear and tear excepted. Tenant shall pay
before delinquency all taxes, assessments, license fees and public charges
levied, assessed or imposed upon its business operation in the Demised Premises
as well as upon its trade fixtures, merchandise and other personal property in,
or upon the Demised Premises. If any such items of property are assessed with
property of Landlord, then such assessment shall be equitably divided between
Landlord and Tenant to the end that Tenant shall pay only its equitable portion
of such assessment. Landlord shall determine the basis of so prorating any such
assessments and such determination shall be binding upon both Landlord and
Tenant.
ARTICLE 9
SIGNAGE
It is expressly understood and agreed that as an inducement for Tenant
to enter into this Lease, Tenant shall have the right, at Tenant's sole cost and
expense, to install, subject to applicable law, Tenant's exterior signage. The
size, design and location of Tenant's signage shall be determined by Tenant in
its sole discretion, so long as the same complies with applicable law. In
addition, although there is presently no space available on the existing pylon
sign for the Shopping Center, Tenant shall have the right to install a sign
panel on any new or additional pylon or monument signs hereafter serving the
Shopping Center. Such panel shall be located in the highest position on the
pylon or monument sign. Upon expiration or termination of this Lease, all of
Tenant's signs shall be removed at Tenant's sole cost and expense and all damage
caused by such removal shall be repaired at Tenant's sole cost and expense.
ARTICLE 10
LIENS
Tenant shall not permit to be created nor to remain undischarged any
lien, encumbrance or charge arising out of any work or claim of any contractor,
mechanic, laborer or material supplied by a materialman which might be, or
become, a lien or encumbrance or charge upon the Demised Premises or the
Shopping Center of which the Demised Premises is a part and Tenant shall not
suffer any other matter or thing whereby the estate, right and interest of
Landlord in the Demised Premises or in the Shopping Center of which the Demised
Premises is a part might be impaired. If any lien or notice of lien on account
of an alleged debt of Tenant or any notice of contract by a party engaged by
Tenant or Tenant's contractor to work in the Demised Premises shall be filed
against the Demised Premises or the Shopping Center of which the Demised
Premises is a part, Tenant shall, within thirty (30) days after notice of the
filing thereof, cause the same to be discharged of record by payment, deposit or
bond. If Tenant shall fail to cause such lien or notice of lien to be discharged
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by either paying the amounts claimed to be due or by procuring the discharge of
such lien by deposit or by bonding proceedings, Landlord shall, in addition to
such other remedies as may exist under this Lease by reason of a default by
Tenant, be entitled, if Landlord so elects, to defend any prosecution of an
action for foreclosure of such lien by the lienor. Any money paid by Landlord
and all costs and expenses, including attorney's fees, incurred by Landlord in
connection therewith, together with ten percent (10%) interest thereon from the
respective dates of Landlord's payment or incurring of the cost or expense,
shall be paid by Tenant to Landlord on demand. In the event Tenant diligently
contests any such claim, Tenant agrees to indemnify, defend, and hold harmless
Landlord from any and all costs, liability and damages, including reasonable
attorney's fees resulting therefrom, and, if requested, upon demand, immediately
to deposit with Landlord cash or surety bond in form and with a company
satisfactory to Landlord in an amount equal to the amount of such contested
claim.
ARTICLE 11
LAWS AND ORDINANCES
A. Tenant and Landlord agree to comply with all laws, ordinances orders
and regulations affecting the use and occupancy of the Demised Premises and the
cleanliness, safety or operation thereof, provided that Tenant shall not be
obligated to make any structural repairs or replacements to the Demised
Premises. Tenant agrees to comply with the reasonable regulations and
requirements of any insurance underwriter, inspection bureau or similar agency
with respect to that portion of the Demised Premises for which Tenant is
responsible to make necessary repairs, provided that Tenant shall not be
obligated to make any structural repairs or replacements to the Demised
Premises. Tenant also agrees to permit Landlord to comply with such
recommendations and requirements with respect to that portion of the Demised
Premises for which Landlord is responsible to make necessary repairs. Landlord
shall, at its sole cost and expense, comply with all laws and governmental
requirements affecting the Common Area and the building of which the Demised
Premises are a part.
B. Tenant agrees not to (i) permit any illegal practice to be carried
on or committed on the Demised Premises; (ii) make use of or allow the Demised
Premises to be used for any purpose that might invalidate or increase the rate
of insurance therefor over and above the rates customarily applicable to
Tenant's business (iii) use the Demised Premises for any purpose whatsoever
which might create a nuisance; (iv) deface or injure the building of the Demised
Premises; (v) overload the floor; (vi) commit or suffer any waste; or (vii)
install any electrical equipment that overloads lines; it being agreed by
Landlord that Tenant's use of the Demised Premises as an off-track wagering
facility and restaurant shall not cause a violation of this section.
C. In connection with the installation of any electrical equipment,
Tenant shall, at Tenant's own expense, make from time to time whatever changes
are necessary to comply with the requirements of the insurance inspectors,
underwriters, government authorities and codes.
ARTICLE 12
SERVICES
A. Landlord agrees to cause the necessary mains, conduits and other
facilities to be provided to make water, sewer, gas, phone and electricity
available to the exterior of the Demised Premises and other occupied space in
the Shopping Center so that Tenant can tie into such facilities to obtain
service for the Demised Premises.
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B. Tenant shall be solely responsible for and shall promptly pay all
charges which are separately metered to the Demised Premises for the use and
consumption of sewer, gas, electricity, water, phone and all other utility
services used within the Demised Premises.
C. Tenant shall contract for and pay for collection and disposal of
trash and refuse from the Demised Premises.
D. Landlord shall not be liable to Tenant in damages or otherwise if
the said utilities or services are interrupted or terminated because of
necessary repairs, installations, or improvements, or any cause beyond the
Landlord's reasonable control, unless such interruption is caused by Landlord's
negligence, nor shall any such interruption or termination relieve Tenant of the
performance of any of its obligations hereunder, except that if Tenant is unable
to operate its business in whole or in part as a result thereof, there shall be
an abatement of Tenant's rental obligations hereunder so long as and to the
extent that Tenant is unable to operate its business. Tenant shall operate the
Demised Premises in such a manner as not to waste electricity, water, heating or
air conditioning.
ARTICLE 13
COMMON AREAS
A. Landlord covenants and agrees that it shall maintain, repair and
replace Common Areas in good order and repair at all times. The "Common Areas"
as herein referred to, shall consist of all parking areas, landscaped areas,
streets, sidewalks, driveways, loading platforms, washrooms, lounges and
shelters and other facilities available for joint use of all the tenants in the
Shopping Center, their employees, agents, customers, licensees and invitees. If
Landlord fails to perform its oblations hereunder within thirty (30) days after
written notice from Tenant, or such longer time as may be reasonable under the
circumstances so long as Landlord is diligently pursuing such repair, Tenant may
make such repair or replacement and deduct its costs in connection therewith
against the next payments of rent due hereunder. Notwithstanding the foregoing,
in the event a repair is necessary in the Common Area to cure an emergency or to
abate a condition that materially and adversely affects Tenant's use of the
Premises, Tenant may make such repair without giving prior notice to Landlord it
its intent to do so.
B. Landlord agrees to provide adequate lighting of the Common Areas
including the parking lot from thirty (30) minutes before dusk until thirty (30)
minutes after Tenant's normal close of business. Landlord acknowledges and
agrees that Tenant may remain open until 2:00 A.M. to the extent permitted by
applicable law.
C. Tenant shall pay to Landlord, as additional rent, its proportionate
share (as defined below) of Landlord's CAM Costs (as hereinafter defined) (such
amount is hereinafter referred to as the "CAM Sum"). The CAM Sum shall be
payable on an annual basis, in equal monthly installments payable with each
monthly installment of Annual Base Rent. Notwithstanding the foregoing, until
the end of the fifth (5th) Lease Year, Tenant's CAM Sum payable in any year
shall not exceed an amount equal to $2.00 for each square foot of space in the
Demised Premises. Within 120 days after the end of each calendar year, Landlord
shall furnish to Tenant a detailed statement (the "Statement"), certified by
Landlord to be true, complete and correct, which itemizes (i) the actual CAM
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Costs incurred by Landlord in the previous year, (ii) the difference between the
actual CAM Sum paid by Tenant during such previous year and the amount of
payments actually made by Tenant and (iii) Landlord's estimate of Tenant's
proportionate share of CAM Costs for following year. If the Statement reflects
that Tenant has overpaid or underpaid the CAM Sum for the previous year, any
overpayments shall be credited against future payment, or any underpayments
shall be paid by Tenant within thirty (30) days after receipt of the Statement,
as the case may be. Until Tenant receives the Statement, it shall continue to
pay the CAM Sum payable during the previous year. After receipt of the
Statement, Tenant shall pay any underpayments with, or shall deduct any
overpayments from, the next payments of the CAM Sum, based upon the new CAM Sum
determined as provided above. "Tenant's proportionate share" shall mean a
fraction, the numerator of which is the leasable square footage of the Demised
Premises, and the denominator of which is the leasable square footage of the
Shopping Center. Landlord shall maintain its books and records for the CAM Costs
for the previous three (3) years, and Tenant shall have the right to audit and
copy Landlord's books and records. If Tenant determines that Landlord has
overcharged Tenant, such overcharge shall be credited against future payments of
the CAM Sum, and if Landlord overcharged Tenant by more than seven percent (7%),
Landlord shall pay the costs of Tenant's audit.
D. The term "CAM Costs" shall mean Landlord's actual and reasonable
out-of-pocket expenses incurred in operating, maintaining, repairing and
insuring the Common Areas, including, but not limited to, cleaning and
repairing; lighting, snow, ice, rubbish and garbage removal; painting and
striping; landscaping; maintenance, paving, repair of utilities systems
(including septic) and parking lots; sign maintenance; the providing of
security, including security personnel; the providing of public liability,
property damage, fire and extended coverage insurance (except as otherwise
provided herein) and such other insurance as Landlord reasonably deems
appropriate; fire protection charges; licenses and permit fees; rent paid for
the leasing of any such equipment, and an administrative charge equal to five
percent (5%) of the total amount paid by Tenant for common area costs for
Landlord in maintaining and operating the common area and facilities, not
including, however, real estate taxes and insurance costs. CAM Costs shall not
include (i) any capital expenses incurred by Landlord, including any expenses
incurred in Landlord's planned renovation of the Shopping Center, (ii)
administrative expenses, home office expenses, management fees or other similar
expenses, (iii) salaries, wages or other payments to Landlord's employees,
except to the extent (based upon the percentage of time employed with respect to
the Shopping Center) such employees work for the Shopping Center, (iv) repairs
for which Landlord is obligated to maintain insurance, or for which Landlord is
eligible to receive condemnation awards, (v) repairs or replacements necessary
to comply with applicable laws, (vi) repairs made for the benefit of particular
tenants or which are required to be made under tenant leases, (vii) legal fees,
leasing commissions, accounting fees and other professional fees and payments,
(viii) debt service payments or ground lease payments, (ix) real estate taxes,
(x) depreciation, or (xi) any other payments or expenses not typically treated
as reimbursable common area maintenance costs in community shopping centers in
the geographic area of the Shopping Center. In addition, CAM Costs shall
specifically include real estate taxes levied or assessed upon the Demises
Premises, the Shopping Center and the land on which the same are located, but in
no event shall the CAM Sum include Landlord's income taxes, franchise taxes,
gross rent taxes, inheritance tax, capital stock tax or estate tax. If Landlord
obtains any tax abatements, refunds or reduction in real estate taxes, Tenant
shall receive a credit for the same to the extent such taxes were included in
the CAM Sum. Landlord shall include copies of all tax bills for the most recent
tax year with any Statements (as hereinafter defined) delivered to Tenant.
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E. The Common Areas as shown on the New Site Plan are a material
consideration for Tenant entering into this Lease, and no structures shall be
erected, and no changes shall be made (except landscaping required by the
Borough, which will be completed simultaneously with Landlord's Work), by
Landlord within that portion of the Common Areas of the Shopping Center which
are designated by cross-hatching on the Current Site Plan if the Demised
Premises will be located in the BiLo Space, or in the area cross-hatched on the
New Site Plan in the event the Demised Premises are located in the New Building.
In addition, Landlord shall not change the existing driveways, curb-cuts and
entrance-ways to the Shopping Center without the prior written consent of
Tenant. However, Landlord may make other changes to the Common Areas, including
but not limited to the configuration of the Common Areas, lighting, curbing,
building heights and stories, and the height of landscaping, without the consent
of Tenant, provided that such changes do not substantially affect Tenant's
visibility, access or parking availability.
ARTICLE 14
DAMAGE TO PREMISES
In the event the Demised Premises are hereafter damaged or destroyed or
rendered partially untenantable for their accustomed use, by fire or other
casualty insured or which should have been insured under the coverage which
Landlord is obligated to carry pursuant to Article 15(A) hereof, then Landlord
shall within sixty (60) days after such casualty commence repair of said Demised
Premises and within one hundred eighty (180) days after commencement of such
repair restore the same to substantially the condition in which it was delivered
to Tenant in accordance with Article 2 above, except that Landlord shall also
restore any work performed by Tenant to the extent the same is covered by
Landlord's insurance policy. In no event shall Landlord be required to repair or
replace Tenant's stock in trade, fixtures, equipment, furniture, furnishings,
wall covering, carpeting and drapes (except as provided in the foregoing
sentence). From the date of such casualty until the Demised Premises are so
repaired and restored, Annual Base Rent payments and all other charges and items
payable hereunder shall abate in such proportion as the part of the Demised
Premises thus destroyed or rendered untenantable bears to the total Demised
Premises. In the event that fifty percent (50%) or more of the Demised Premises
is destroyed or rendered untenantable by fire or other casualty (based upon the
cost to replace the Demised Premises damaged or destroyed as compared with the
market value of the improvements on said premises immediately prior to such fire
or other casualty as shown by certificate of Landlord's architect), or if the
Demised Premises cannot be fully restored within 240 days after such casualty,
or if the Demised Premises are damaged or destroyed in the last two (2) years of
the Primary Term or any Renewal Term, Tenant shall have right to terminate this
Lease effective as of the date of the casualty, by giving Landlord, within
thirty (30) days of such casualty, written notice of termination. Furthermore,
Tenant shall have the right to terminate this Lease in the event of a fire or
other casualty which destroys fifty percent (50%) or more of the leasable square
footage in the Shopping Center by giving written notice of such termination
within thirty (30) days after such casualty, and such termination shall be
effective as of the date of the casualty. If said notice of termination is given
within this thirty (30) day period, the Lease shall terminate and Annual Base
Rent and all other charges shall abate as aforesaid from the date of such
casualty, and Landlord shall promptly repay to Tenant any rent paid in advance
which has not been earned as of the date of such casualty. If said notice is not
given and Landlord is required or elects to repair or rebuild the Demised
Premises as herein provided, then Tenant shall repair and replace its
merchandise, trade fixtures, furnishings and equipment to at least their
condition prior to the damage or destruction. Except as herein expressly
provided to the contrary, this Lease shall not terminate nor shall there be any
abatement of rent or other charges or items of additional rent as the result of
a fire or other casualty.
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ARTICLE 15
INSURANCE
A. Landlord agrees to carry, or cause to be carried, during the term
hereof, Comprehensive General Liability insurance on the Common Areas, providing
coverage of not less than Three Million Dollars ($3,000,000.00), combined bodily
injury and property damage liability, naming Tenant as an additional insured.
Landlord also agrees to carry, during the term hereof, all
risk property insurance covering fire and extended coverage, vandalism and
malicious mischief, sprinkler leakage and all other perils of direct physical
loss or damage insuring the improvements and betterments located in the Shopping
Center, including the Demised Premises and all appurtenances thereto (excluding
Tenant's merchandise, trade fixtures, furnishings, equipment and personal
property) for the full replacement value thereof.
B. Tenant agrees to carry Comprehensive General Liability insurance on
the Demised Premises during the term hereof covering both Tenant and Landlord as
their interest may appear. Such insurance shall be for limits of not less than
One Million Dollars ($l,000,000.00) combined bodily injury and property damage
liability.
Tenant further agrees to carry all risk property insurance
covering fire and extended coverage, vandalism and malicious mischief, sprinkler
leakage and all other perils of direct physical loss or damage for at least
eighty percent (80%) of the replacement value of all of Tenant's merchandise,
trade fixtures, furnishings, wall coverings, carpeting, drapes, equipment, and
all other items of personal property of Tenant located on or within the Demised
Premises.
C. Landlord and Tenant and all parties claiming under them mutually
release and discharge each other from all claims and liabilities arising from or
caused by any casualty or hazards covered or required hereunder to be covered in
whole or in part by insurance, even if caused by the negligence of either party,
and Landlord and Tenant waive any right of subrogation which might otherwise
exist in or accrue to any person on account thereof.
D. Tenant shall be responsible for the maintenance and replacement of
the plate glass in or on the Demised Premises.
E. The company or companies writing any insurance which either party is
required to carry and maintain or cause to be carried or maintained pursuant to
this Lease, shall be licensed to do business in Pennsylvania and shall have an
A.M. Best Rating of A or better and a size class of VII or larger. Comprehensive
general liability insurance policies evidencing such insurance shall name the
other party and/or its designee(s) as additional insured. All policies shall be
primary and non-contributory, and shall also contain a provision by which the
insurer agrees that such policy shall not be cancelled, materially changed or
not renewed without at least thirty (30) days' advance notice to the other
party. Each such policy, or a certificate thereof, shall be deposited with the
other party promptly upon commencement of this Lease.
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ARTICLE 16
INDEMNIFICATION
A. Tenant hereby indemnifies and holds Landlord harmless from and
against any and all claims, demands, liabilities, and expenses, including
attorney's fees, arising from Tenant's obligations or use of the Demised
Premises or from any act permitted, or any omission to act, in or about the
Demised Premises by Tenant or its agents, employees, or contractors, or from any
breach or default by Tenant of this Lease, except to the extent the same is
caused by Landlord's negligence or willful misconduct. In the event any action
or proceeding shall be brought against Landlord by reason of any such claim,
Tenant shall defend the same at Tenant's expense by counsel reasonably
satisfactory to Landlord.
B. Landlord hereby indemnifies and holds Tenant harmless from and
against any and all claims, demands, liabilities and expenses, including
attorney's fees, arising from Landlord's obligations or use of the Shopping
Center or Common Areas or from any act permitted, or any omission to act, in or
about the Shopping Center or Common Areas by Landlord or its agents, employees,
contractors, or invitees, or from any breach or default by Landlord of this
Lease, except to the extent the same is caused by Tenant's negligence or willful
misconduct. In the event any action or proceeding shall be brought against
Tenant by reason of any such claim, Landlord shall defend the same at Landlord's
expense by counsel reasonably satisfactory to Tenant.
ARTICLE 17
ASSIGNMENT, SUBLETTING AND OWNERSHIP
Tenant shall have the right to assign, mortgage, pledge, encumber or
otherwise transfer its interest in this Lease, and/or sublet, license or
concession all or any part of the Demised Premises, to any party, with
Landlord's approval, which approval shall not be unreasonably withheld, delayed
or conditioned. Notwithstanding the foregoing, Tenant shall have the right to
assign this Lease or sublease all or any part of the Demised Premises to
Tenant's parent, subsidiary or affiliated corporations or entities, or in
connection with (i) a sale by Tenant of all or substantially all of its stock or
assets or (ii) the merger, consolidation or other reorganization of Tenant, as
long as Tenant remains fully liable for full performance of all its obligations
under this Lease. In the event of any assignment hereunder, the assignee shall
be bound by all of the terms of this Lease, including Article 1.
ARTICLE 18
ACCESS TO PREMISES
Upon reasonable prior notice, but in no event less than twenty four
(24) hours (except in the case of an emergency), Landlord may enter the Demised
Premises during Tenant's business hours for purposes of inspection, to show the
Demised Premises to prospective purchasers and lenders, or to perform
maintenance and repair obligations imposed upon Landlord by this Lease. Should
Landlord unreasonably interfere with Tenant's business by such entry so as to
render the Tenant unable to use the Demised Premises for a period in excess of
twenty-four (24) hours, then in addition to any other rights Tenant may have,
Tenant shall be entitled to an abatement in rent and other charges proportionate
to the degree of interference with its business in connection with Landlord's
entry into the Demised Premises.
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ARTICLE 19
DEFAULTS BY TENANT
A. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:
(i) Any failure by Tenant to pay the rental or make any other
payment required to be made by Tenant hereunder within ten (10) days after
receipt of written notice from the Landlord.
(ii) A failure by Tenant to observe and perform any other
material provision of this Lease to be observed or performed by the Tenant,
where such failure continues for thirty (30) days after written notice thereof
by Landlord to Tenant, except that this thirty (30) day period shall be extended
for a reasonable period of time if the alleged default is not reasonably capable
of cure within said thirty (30) day period and Tenant proceeds to diligently
cure the default.
(iii) The making by Tenant of any general assignment for the
benefit of creditors, the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt, or a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within sixty (60) days); the appointment
of a trustee or receiver to take possession that is not restored to Tenant
within thirty (30) days, or the attachment, execution or other judicial seizure
that is not discharged within thirty (30) days.
B. In the event of any such default by Tenant, thereupon at the option
of Landlord, this Lease shall be terminated and become absolutely void without
any right on the part of Tenant to reinstate the Lease by the payment of any sum
due or by other performance of any condition, term or covenant broken, whereupon
Landlord shall be entitled to recover damages for such breach in an amount equal
to the present value of the amount of rent reserved for the balance of the term
of this Lease less the fair rental value of the Demised Premises for the
remainder of the term, except that if Tenant shall continue to pay Landlord on a
monthly basis all rentals and charges due hereunder, Landlord shall not have the
right to terminate this Lease. In the alternative, if Landlord elects to not
terminate this Lease, Landlord shall have the right to sue Tenant for rents and
other charges due hereunder as and when the same become payable under this
Lease, without the right to accelerate rents.
C. In the event of default as above set forth, Landlord, or anyone
acting on Landlord's behalf, at Landlord's option:
(i) May rent the Demised Premises or any part thereof to such
person or persons as Landlord may determine in its sole discretion, and Tenant
shall be liable for the loss of rent for the balance of the then current term.
Any such re-entry or re-letting by Landlord under the terms hereof shall be
without prejudice to Landlord's claim for actual damages and shall under no
circumstances release Tenant from liability for such damages arising out of the
breach of any of the covenants, terms and conditions of this Lease;
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(ii) May have and exercise any and all other rights and/or
remedies granted or allowed landlords by any existing or future statute, act or
other law of this state in cases where a landlord seeks to enforce rights
arising out of a lease agreement against a tenant who has defaulted or otherwise
breached the terms of such lease agreement, subject, however, to all other
rights granted or created by any such statute, act or other law of its state
existing for the protection and benefit of such tenants and subject to the terms
of this Lease to the contrary; and
(iii) May have and exercise any and all other rights and
remedies to which Landlord may be entitled at law or in equity, subject to the
terms of this Lease to the contrary.
D. If Landlord obtains possession of the Demised Premises as a result
of the Tenant's abandonment of same or by a decree from a court of competent
jurisdiction, this shall not be construed as an election to terminate this Lease
unless Landlord provides Tenant with a written notice of this election.
E. Notwithstanding anything herein to the contrary, in the event of a
default by Tenant and Landlord terminates this Lease or Tenant's right to
possession of the Demised Premises, Landlord shall use reasonable efforts to
re-let the Demised Premises.
ARTICLE 20
DEFAULTS BY LANDLORD
If Landlord should be in default in the performance of any of its
obligations under this Lease, which default continues for a period of more than
thirty (30) days after receipt of written notice from Tenant specifying such
default, or if such default is of a nature to require more than thirty (30) days
for remedy and continues beyond the time reasonably necessary to cure (and
Landlord has not undertaken procedures to cure the default within such thirty
(30) day period and diligently pursued such efforts to complete cure), Tenant
may terminate this Lease and/or, in addition to any other remedy available at
law or in equity, at its option, upon written notice, incur any expense
necessary to perform the obligation of Landlord specified in such notice and
deduct such expense from the rents or other charges next becoming due. Tenant
may not terminate this Lease, however, unless an arbitration panel appointed as
provided below determines that Tenant's use of the Demised Premises is
materially and adversely affected, which may include, without limitation,
inability of Tenant or its customers to obtain access to the Shopping Center or
the Premises, or a material obstruction of parking in or visibility of the
Premises. In the event that Tenant elects to terminate this Lease as provided
herein, Tenant shall notify Landlord, whereupon Landlord or Tenant shall file
formal demand for arbitration with the office of the American Arbitration
Association ("AAA") in the county in which the Shopping Center is located. Each
party shall thereafter conform with the schedule for the selection of
arbitrators (who shall be three in number unless the parties otherwise agree)
imposed by AAA; and thereafter the parties shall conform with such schedule and
rules of procedure as shall be determined by AAA or such selected arbitrators,
including without limitation such schedule as may be determined for any and all
discovery, and for the presentation of the case by each. The scope of permitted
discovery, and the rules of discovery and procedure to be followed by the
parties, shall be determined exclusively by the arbitrators, after consultation
with the parties; and the judgment of such arbitrators concerning such rules and
scope shall be final. Such arbitrators shall render their determination whether
Tenant's use of the Demised Premises has been materially and adversely affected.
If so, Tenant may terminate this Lease. If such arbitrators determine that use
of the Demised Premises has not been materially and adversely affected, Tenant
may not terminate this Lease, and Tenant's remedies shall be limited to those
available under this Lease (except termination) or those available at law or in
equity.
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ARTICLE 21
SURRENDER OF PREMISES
Tenant shall, upon expiration of the Term granted herein, or any
earlier termination of this Lease for any cause, surrender to Landlord the
Demised Premises, including, without limitation, all building apparatus and
equipment then upon the Demised Premises, and all alterations, improvements and
other additions which may be made or installed by either party to, in, upon or
about the Demised Premises, other than trade fixtures, signs, and other personal
property which, remain the property of Tenant as provided in Article 8 hereof,
without any damage, injury or disturbance thereto, or payment therefor.
ARTICLE 22
EMINENT DOMAIN
A. (i) In the event that any portion of the Demised Premises shall be
appropriated or taken under the power of eminent domain by any public or
quasi-public authority, then at the election of Tenant, this Lease shall
terminate and expire as of the date of such taking, and both Landlord and Tenant
shall thereupon be released from any liability thereafter accruing hereunder.
(ii) In the event that more than ten percent (10%) of the
square footage of the parking area within 300 feet of the Demised Premises is
taken under the power of eminent domain by any public or quasi-public authority,
or if Tenant shall not have access to at least 200 parking spaces directly in
front of or adjacent to the Demised Premises, or if any accessway or driveway to
the Shopping Center is condemned, or if more than thirty percent (30%) of the
leasable square footage of the Shopping Center is taken, then in any of such
events Tenant shall have the right to terminate this Lease as of the date of the
taking. If less than thirty percent (30%) of the applicable parking is so taken
by eminent domain, then the Landlord shall provide adequate substitute parking
to the Tenant that is reasonably satisfactory to the Tenant.
(iii) Notice of any termination relating to such eminent
domain proceeding must be made by the party electing to terminate the Lease
within sixty (60) days after receipt of written notice of such taking.
(iv) In the event of such termination, both Landlord and
Tenant shall thereupon be released from any liability thereafter accruing
hereunder.
B. Whether or not this Lease is terminated, nothing herein shall be
deemed to affect Tenant's right to receive compensation or damages separately
awarded to Tenant for its fixtures and personal property. If this Lease is
terminated as herein above provided, all items of rent, additional rent and
other charges for the last month of Tenant's occupancy shall be prorated and
Landlord agrees to refund to Tenant any rent, additional rent or other charges
paid in advance.
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C. If both Landlord and Tenant elect not to so terminate this Lease,
Tenant shall remain in that portion of the Demised Premises which shall not have
been appropriated or taken as herein provided, and Landlord agrees, at
Landlord's cost and expense, to, as soon as reasonably possible, restore the
remaining portion of the Demised Premises to a complete unit of like quality and
character as existed prior to such appropriation or taking, and thereafter all
rental and payment obligations of Tenant shall be adjusted on an equitable
basis, taking into account the relative value of the portion taken as compared
to the portion remaining. For the purpose of this Article, a voluntary sale or
conveyance in lieu of condemnation, but under threat or condemnation shall be
deemed an appropriation or taking under the power of eminent domain.
D. Tenant shall have the right to pursue its own claim for damages in
connection with any eminent domain proceeding.
ARTICLE 23
ATTORNEY'S FEES
In the event that at any time during the term of this Lease either
Landlord or Tenant shall institute any action or proceeding against the other
relating to the provisions of this Lease, or any default hereunder, the
unsuccessful party in such action or proceeding agrees to reimburse the
successful party for the reasonable expenses of attorney's fees and paralegal
fees and disbursements incurred therein by the successful party. Such
reimbursement shall include all legal expenses incurred prior to trial, at trial
and at all levels of appeal and post judgment proceedings.
ARTICLE 24
NOTICES
Notices and demands required, or permitted, to be sent to those listed
hereunder shall not be effective unless sent in writing by certified mail,
return receipt requested, postage prepaid, or by Federal Express or other
reputable overnight courier service and shall be deemed to have been given upon
the date the same is postmarked if sent by certified mail or the day deposited
with Federal Express or such other reputable overnight courier service, but
shall not be deemed received until one (l) business day following deposit with
Federal Express or other reputable overnight courier service or three (3) days
following deposit in the United States Mail if sent by certified mail to the
address shown below, and addressed to:
If to TENANT:
Penn National Gaming, Inc.
825 Berkshire Blvd.
Wyomissing, PA
With a copy to:
Jeffrey L. Silberman, Esquire
KAPLIN STEWART MELOFF REITER & STEIN, P.C.
P. O. Box 3037
Blue Bell, PA 19422
If to LANDLORD:
EAGLE VALLEY REALTY
490 North Main Street
Pittston, PA 18460
With a copy to:
R.W. Piper
P.O. Box 460
Tunkhannock, PA 18657
or at such other address requested in writing by either party upon thirty (30)
days notice to the other party.
ARTICLE 25
REMEDIES
All rights and remedies of Landlord and Tenant herein created or
otherwise extending at law are cumulative, and the exercise of one or more
rights or remedies may be exercised and enforced concurrently or consecutively
and whenever and as often as deemed desirable.
ARTICLE 26
SUCCESSORS AND ASSIGNS
All covenants, promises, conditions, representations and agreements
herein contained shall be binding upon, apply and inure to the parties hereto
and their respective heirs, executors, administrators, successors and assigns;
it being understood and agreed, however, that the provisions of Article 17 are
in nowise impaired by this Article 26.
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ARTICLE 27
WAIVER
The failure of either Landlord or Tenant to insist upon strict
performance by the other of any of the covenants, conditions, and agreements of
this Lease shall not be deemed a waiver of any subsequent breach or default in
any of the covenants, conditions and agreements of this Lease. No surrender of
the Demised Premises by Tenant shall be affected by Landlord's acceptance of
rental or by other means whatsoever unless the same is evidenced by Landlord's
written acceptance of the surrender.
ARTICLE 28
HOLDING OVER
If Tenant or any party claiming under Tenant remains in possession of
the Demised Premises or any part thereof after any termination or expiration of
this Lease, Landlord, in Landlord's sole discretion, may treat such holdover as
an automatic renewal of this Lease for a month to month tenancy subject to all
the terms and conditions of this Lease provided herein on the terms that existed
immediately prior to such holdover.
ARTICLE 29
INTERPRETATION
The parties hereto agree that it is their intention hereby to create
only the relationship of Landlord and Tenant, and no provision hereof, or act of
either party hereunder, shall ever be construed as creating the relationship of
principal and agent, or a partnership, or a joint venture or enterprise between
the parties hereto.
ARTICLE 30
COVENANT OF TITLE AND QUIET ENJOYMENT
Landlord covenants that it has full right, power and authority to make
this Lease, subject to the rights of beneficiaries of deeds of trust or
mortgagees for which non-disturbance and attornment agreements have been
executed, and that Tenant or any permitted assignee or sublessee of Tenant, upon
the payment of the rentals and performance of the covenants hereunder, shall and
may peaceably and quietly have, hold and enjoy the Demised Premises and
improvements thereon during the Term or any renewal or extension thereof.
Additionally, Landlord shall take no action that will
interfere with Tenant's intended usage of the Demised Premises.
ARTICLE 31
ESTOPPEL
At any time and from time to time either party, upon request of the
other party, will execute, acknowledge and deliver an instrument, stating, if
the same be true, that this Lease is a true and exact copy of the Lease between
the parties hereto, that there are no amendments hereof (or stating what
amendments there may be), that the same is then in full force and effect and
that, to the best of its knowledge, there are no offsets, defense or
counterclaims with respect to the payment of rent reserved hereunder or in the
performance of the other terms, covenants and conditions hereof on the part of
Tenant or Landlord, as the case may be, to be performed, and that as of such
date no default has been declared hereunder by either party or if not,
specifying the same. Such instrument will be executed by the other party and
delivered to the requesting party within fifteen (15) days of receipt, or else
the statements made in the proposed estoppel request shall be deemed to be
correct.
ARTICLE 32
RECORDING
Tenant shall not record this Lease. The parties shall join in the
execution of a memorandum or so-called "short-form" of this Lease for the
purposes of recordation. Any recording costs associated with the memorandum or
short form of this Lease shall be borne by the party requesting recordation.
ARTICLE 33
FORCE MAJEURE
In the event that either party hereto shall be delayed or hindered in
or prevented from performance required hereunder by reason of strikes, lockouts,
labor troubles, failure of power, riots, insurrection, war, acts of God, or
other reason of like nature not the fault of the party delayed in performing
work or doing the acts, such party shall be excused for the period of delay. The
period for the performance of any such act shall then be extended for the period
of such delay. The foregoing shall not apply to the "DEMISED PREMISES; DEMISE"
section of this Lease or Article 1 hereof.
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ARTICLE 34
CONSENT
Wherever in this Lease Landlord or Tenant is required to give its
consent or approval, such consent or approval shall not be unreasonably
withheld, conditioned or delayed. Except as otherwise provided in this Lease, if
no written response to a consent or request for approval is provided within ten
(10) days from the receipt of the request, then the consent shall be presumed to
have been given. Any such request for approval or consent shall be accompanied
by a statement that Article 34 is being invoked and a failure to respond within
ten (10) days shall result in the approval or request being granted by the other
party.
ARTICLE 35
ZONING, DEED RESTRICTIONS, ETC.
Landlord further covenants, warrants, represents and agrees to fully
cooperate and provide assistance which shall include, but not be limited to,
assistance in obtaining certificates of occupancy, building permits, sign
permits and any variances.
ARTICLE 36
SEVERABILITY
Any provision of this Lease which shall prove to be invalid, void or
illegal shall in no way affect, impair or invalidate any other provisions hereof
and such other provisions shall remain in full force and effect.
ARTICLE 37
GOVERNING LAW AND VENUE
This Lease shall be governed by the laws of the state in which the
Shopping Center is located.
ARTICLE 38
BROKERS
Tenant and Landlord represent that they have had no dealing with any
real estate brokers or agents in connection with the negotiation of this Lease.
Landlord and Tenant will indemnify and hold each other harmless from and against
any and all liability and cost which Landlord or Tenant may suffer in connection
with real estate brokers claiming by, through, or under either party seeking any
commission, fee or payment in connection with this Lease.
ARTICLE 39
ENTIRE AGREEMENT
This Lease contains all of the agreements of the parties hereto with
respect to matters covered or mentioned in this Lease and no prior agreement,
letters, representations, warranties, promises, or understandings pertaining to
any such matters shall be effective for any such purpose. The Lease may be
amended or added to only by an agreement in writing signed by the parties hereto
or their respective successors in interest.
ARTICLE 40
CONDITIONS PRECEDENT
Tenant's obligation to lease the Demised Premises is contingent, in its
entirety, on the satisfaction by Tenant of the conditions set forth in this
Article 40, subparagraphs A. through H., inclusive ("Conditions Precedent").
A. Variances, Waivers and Special Exceptions. The Tenant shall have
obtained all final and unappealable variances, approvals of conditional uses,
special exceptions, and/or waivers required to lawfully improve and operate the
Demised Premises. If the Tenant is unable to obtain any such variance, waiver,
approval of conditional use or special exception, the Tenant may either lease
the Demised Premises despite not having obtained such variance, waiver, approval
of conditional use or special exception or terminate this Lease.
B. Zoning Permit. Landlord and Tenant submitted an application to the
Borough's zoning officer (the "Zoning Officer") to obtain a zoning permit to
operate the Permitted Use in the portion of the BiLo Space proposed to be leased
to Tenant. By letter dated May 20, 1998 from the Zoning Officer to Landlord and
Tenant, the Borough rejected the zoning application and stated that the parties
require a special exception from the Borough to operate the Permitted Use.
Tenant has appealed the Zoning Officer's decision to the Borough's Zoning
Hearing Board ("ZHB"). A hearing is scheduled for Thursday, July 16, 1998 to
consider such appeal. If the appeal is rejected, Tenant shall appeal such
decision to the Monroe County Court of Common Pleas, and Tenant shall have the
right to prosecute such other actions to obtain the zoning permits necessary to
operate the Permitted Use.
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In addition, the parties are aware that the Borough is contemplating an
amendment to its zoning ordinance to regulate off-track wagering facilities in a
manner that would prohibit the operation of the Permitted Use at the Shopping
Center (the "Ordinance Amendment"). If the Ordinance Amendment is used a basis
on which to interfere with the operation of the Permitted Use at the Shopping
Center, Tenant shall file suit in the Court of Common Pleas contesting the
authority of the Borough to regulate the location of off-track wagering
facilities or the number of parking spaces required for off-track wagering
facilities.
Accordingly, it shall be a condition of Tenant's obligations hereunder
that Tenant obtains the final and unappealable zoning permits necessary to
operate the Permitted Use in the Shopping Center.
C. Building Permits. The Tenant shall have obtained all final and
unappealable building permits from the Borough necessary to permit the
renovation of the Demised Premises for Tenant's Permitted Use.
D. Department of Labor and Industry Approval. The Tenant shall have
obtained final and unappealable use and occupancy certificates and approvals
from the Pennsylvania Department of Labor and Industry to construct Tenant's
Work and to operate and occupy the improvements on the Demised Premises for the
Permitted Use.
E. Utility Service. The Tenant shall have obtained written confirmation
that electric, cable television, telephone, sanitary sewer, water and all other
utility services are readily available with adequate capacity to serve the
Demised Premises at standard costs and rates of the companies serving that
portion of East Stroudsburg Borough in which the Demised Premises is located.
F. Harness Racing Commission Approval. The Tenant shall have obtained
final and unappealable approvals and permits from the Pennsylvania State Harness
Racing Commission to operate the Permitted Use at the Demised Premises.
G. Other Approval and Permits. The Tenant shall have obtained all other
final and unappealable permits, approvals, and agreements required to be
obtained in order to construct and operate the Permitted Use in the Demised
Premises. For purposes of this Lease, the approvals and permits shall not be
deemed final and unappealable, unless and until 35 days have elapsed without an
appeal of any kind having been filed, or if an appeal has been filed, it has
been dismissed.
H. 1. Due Diligence. Commencing upon the execution of this Lease and
for a period of sixty (60) days consecutive days thereafter ( the "Due Diligence
Period") Tenant shall have the right at Tenant's sole cost and expense, to enter
upon the Demised Premises at all times to conduct engineering studies, insurance
inspections, surveys, soil borings, and other examinations of the Demised
Premises, and to determine the feasibility of operating the Permitted Use at the
Demised Premises. Tenant acknowledges that Landlord may not be able to provide
access to the BiLo Space during the time that BiLo's lease is in effect, but
Landlord agrees to use diligent efforts to obtain BiLo's permission to give
Tenant access to the BiLo Space.
2. Cooperation of Landlord and Tenant. The Landlord shall
reasonably cooperate with the Tenant and will not act in any manner to hinder,
obstruct, delay or prevent Tenant from obtaining all necessary permits and
approvals for the Permitted Use upon the Demised Premises. The Landlord agrees
to join with the Tenant as a petitioner or applicant whenever required on any
applications to obtain the approvals and permits described above, provided that
the Landlord shall not be obligated to incur any material costs or expenses in
connection therewith. The Landlord hereby grants to Tenant the necessary
permission to execute on behalf of Landlord such applications as may be required
to obtain such approvals and permits as are necessary for the project.
3. Right to Terminate. If the Tenant is not able to obtain the
satisfaction of all Conditions Precedent within 180 days after the date hereof
(the "Permit Period"), in Tenant's sole discretion, then and in such event,
Tenant may terminate this Lease at any time before the expiration of the Permit
Period by written notice to Landlord, whereupon this Lease shall terminate and
the parties shall have no further rights or obligations hereunder. If all of the
Conditions Precedent have not been satisfied within twenty-four (24) months
after the date hereof, either Landlord or Tenant may terminate this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the
day and year first mentioned, the corporate party or parties by its or their
proper officers thereto duly authorized.
LANDLORD:
EAGLE VALLEY REALTY
By: /S/ Leonard Insalaco
TENANT:
PENN NATIONAL GAMING, INC., a Pennsylvania
corporation
By: /S/ Joseph Lashinger
Attest:/S/Tina Seger
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LIST OF EXHIBITS
EXHIBIT "A" - Current Site Plan
EXHIBIT "B" - New Site Plan
EXHIBIT "C" - Existing Exclusives
EXHIBIT "D" - Landlord's Work
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EXHIBIT "A"
CURRENT SITE PLAN
See Attached
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EXHIBIT "B"
NEW SITE PLAN
SEE ATTACHED
52
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EXHIBIT "C"
EXCLUSIVES
SEE ATTACHED
53
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EXHIBIT "D"
LANDLORD'S WORK
SEE ATTACHED
54
JOINT VENTURE AGREEMENT
RELATING TO NEW JERSEY ASSETS
This Joint Venture Agreement is made and entered into as of the 30th
day of October, 1998 by and between GREENWOOD NEW JERSEY, INC., a New Jersey
corporation ("GNJ") and PENN NATIONAL GAMING, INC., a Pennsylvania corporation
("PNG").
BACKGROUND
GNJ, as Buyer, is a party to an Asset Purchase Agreement dated July 2,
1998, wherein International Thoroughbred Breeders, Inc. ("ITB") and certain
subsidiaries of ITB have agreed to sell to GNJ substantially all of the assets
of the Sellers related to the operation of Garden State Park in Cherry Hill, New
Jersey ("GSP") and Freehold Raceway in Freehold, New Jersey ("Raceway"); and the
operation of pari-mutuel wagering at GSP and Raceway, including the real estate
associated with the operation of Freehold Raceway, all on the terms and
conditions set forth in the Asset Purchase Agreement. Certain terms herein are
defined in the Asset Purchase Agreement, and shall have the same meaning herein
as defined in the Asset Purchase Agreement.
GNJ and PNG have agreed that they desire to act jointly in connection
with the acquisition of the Assets and subsequent operation of the Business.
This Joint Venture Agreement sets forth the basis on which the parties will
cooperate and act to accomplish this objective.
This Joint Venture Agreement contemplates that GNJ will consummate its
acquisition as soon as all conditions to that acquisition have been met and
closing is feasible. Thereafter, PNG will be sold an interest in GNJ, or
otherwise will acquire 50% interest in the entities that acquire the Assets and
conduct the Business. However, if possible, and if all conditions to permit PNG
to acquire a 50% interest in the Asset Purchase Agreement prior to the closing,
the transactions will be structured in that manner (the "Restructuring"). This
Restructuring may require, among other things, the approval of ITB and the
Sellers, and New Jersey governmental approvals, any of which may preclude the
Restructuring prior to the closing of the transactions under the Asset Purchase
Agreement. It is the intention of the parties that this Joint Venture Agreement
not delay the possible closing of the acquisition contemplated by the Asset
Purchase Agreement beyond the earliest possible date for such closing.
NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING and the mutual
covenants contained herein, and intending to be legally bound, the parties agree
as follows:
1. Joint Ownership. Regardless of the specific form of the transactions
necessary to accomplish the objective, GNJ and PNG agree that the acquisition of
the Assets and the operation of the Business will be as a joint equally owned
venture with the obligations, costs, responsibilities, liabilities and risks
borne equally by the parties.
2. Most Likely Scenario. PNG will cooperate with GNJ to assist GNJ's
obtaining all necessary consents, approvals and meeting all conditions to the
purchase of the Assets. GNJ will consummate the closing under the Asset Purchase
Agreement as promptly as possible. Thereafter, and upon the obtaining of any and
all necessary approvals and meeting all conditions to permit PNG to acquire a
50% interest in each entity which acquires any of the assets and to thereafter
have a 50% ownership and participation in the Business, the parties will take
all necessary actions, transfers and steps to accomplish this result (the "Joint
Venture Closing"). PNG will at the Joint Venture Closing, in this scenario,
reimburse GNJ 50% of all cash payments made by GNJ at the ITB closing, and will
assume 50% of all obligations assumed at the ITB closing. Conditions to the
admission of PNG for this purpose might include, but shall not be limited to,
New Jersey, regulatory approvals, Hart-Scott-Rodino compliance, creditor
approvals and approvals by the Sellers and ITB (the "Joint Venture Approvals").
The parties will cooperate in a prompt and diligent manner to pursue each of
these conditions.
3. Alternative Scenario. To the extent all conditions set forth herein
can be met and all Joint Venture Approvals are obtained prior to GNJ's
consummation of the purchase of the assets, PNG will be admitted as a party to
the Asset Purchase Agreement and will participate at the closing of the
transactions contemplated by the Asset Purchase Agreement as a 50% participant.
55
<PAGE>
4. Operation of the Business. The Business will be operated as a joint
venture and all entities controlling any of the Assets related to the Business
or any aspect of the Business will be under the joint ownership and control of
the parties. Representation on any board of directors, management committees,
and other governing provisions will reflect this equal joint ownership.
Concurrent with the Joint Venture Closing, the parties will enter into such
shareholder agreements, partnership agreements or other documents necessary and
appropriate to implement the concept set forth herein.
5. Scope of the Business. The joint venture provided for in this Joint
Venture Agreement relates to the Business and Assets being acquired. This joint
venture shall also be applicable to any OTB Facilities permitted to be operated
in New Jersey now or hereafter by virtue of the operation of the Business in New
Jersey. It shall also apply to any phone betting operations established in New
Jersey, as permitted now or hereafter due to the operation of the Business in
New Jersey. However, each party conducts other related businesses outside of New
Jersey, including competing businesses, and this Agreement shall not apply to
any such other activities; nor shall it prevent the parties from individually
engaging in additional activities both within and outside of New Jersey which
are not related to the Business.
6. Indemnification; Assumption of Liabilities. This joint venture is
intended to result in the parties having equal responsibilities and liabilities
and each will indemnify the other for any losses assumed by either related to
the Business of the joint venture. For example, the guarantee of the Purchase
Price Notes referred to in the Asset Purchase Agreement by Greenwood Racing,
Inc. could result in payments by Greenwood Racing, Inc. to the Sellers. In that
event, PNG would reimburse Greenwood Racing, Inc. to the extent of 50% of any
such payments.
7. Lincoln Property Company. PNG has advised GNJ that it is a party to
a letter agreement with Lincoln Property Company ("Lincoln") concerning a joint
proposal to acquire the Assets and the Business by submission of a Superior
Proposal to ITB and the Sellers which would substitute for GNJ's Asset Purchase
Agreement. PNG has further advised it intends to discuss with Lincoln a
modification of the letter agreement to permit PNG to proceed with the Joint
Venture with GNJ. PNG agrees to use its best efforts to obtain the approval of
Lincoln and any other approvals required and to proceed in accordance with this
Joint Venture Agreement. GNJ has no objection to Lincoln's acquisition of the
GSP real estate, subject to Buyer's rights set forth in the GSP Lease. In the
event that PNG is unable to obtain the approval of Lincoln to modify the letter
agreement by 11:59 PM on Monday, November 2, 1998 this Joint Venture Agreement
will automatically terminate.
8. Due Diligence to Date. PNG has and it will continue to conduct its
own due diligence in connection with its participation in the joint venture and
is not relying upon GNJ's due diligence. Furthermore, GNJ is making no
representation or warranty as to the contemplated transactions, the Assets, the
future prospects of the Business or otherwise inducing PNG to enter into this
joint venture. Upon the creation of the joint venture, PNG will reimburse GNJ
for 50% of all out-of-pocket expenses incurred by GNJ in the connection with the
Asset Purchase Agreement through the date hereof, exclusive of legal fees which
have been incurred by GNJ. Following the date hereof, the parties will each bear
their own expenses in connection with the joint venture, except for expenses of
the joint venture borne directly by the joint venture.
9. Governing Law; Counterparts. This joint venture agreement shall be
governed by the laws of the Commonwealth of Pennsylvania. This joint venture
agreement may be signed in one or more counterparts, all of which taken together
shall be deemed one original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
first date above written.
GREENWOOD NEW JERSEY, INC.
By: /S/ HAL HANDEL
Hal Handel, President
PENN NATIONAL GAMING, INC.
By: /S/ WILLIAM J. BORK
William J. Bork, President
56
PENN NATIONAL GAMING, INC.
Wyomissing Professional Center
825 Berkshire Boulevard, Suite 203
Wyomissing, PA 19610
November 2, 1998
Hal Handel, President
Greenwood New Jersey, Inc.
3001 Street Road
P. O. Box 1000
Bensalem, PA 19020-8512
Re: Joint Venture Agreement relating to New Jersey Assets
Dear Mr. Handel:
In connection with our Joint Venture Agreement entered into on Friday,
October 30, 1998, we have further reviewed our memorandum of understanding with
Lincoln Property Company ("Lincoln") referred to in our Joint Venture Agreement.
For a variety of reasons, including the fact that our joint venture does not
preclude Lincoln from obtaining the economic benefit sought in our memorandum of
understanding, the fact that the joint proposal of Lincoln and Penn National to
ITB has not been accepted by ITB, and other factors, Penn National has
determined that it does not require the prior consent of Lincoln to proceed with
the joint venture with Greenwood New Jersey.
Therefore, we are hereby eliminating as a condition of our Joint
Venture Agreement the approval of Lincoln, or any action by Lincoln to enable us
to proceed with the joint venture with you.
We understand that you have had no prior agreement with Lincoln and
that Penn National Gaming, Inc. shall remain responsible for any liabilities
associated with its prior arrangements with Lincoln. Specifically, Penn National
will indemnify Greenwood New Jersey and its affiliates from any and all claims,
liabilities, losses, damages, costs and expenses, including reasonable counsel
fees and costs related thereto, arising from any claim related to the prior
arrangements between Penn National and Lincoln relating to the New Jersey
assets.
Assuming that the foregoing is acceptable to you, we would appreciate
your signing below and faxing to us a copy of this letter containing your
signature.
We look forward to proceeding with our joint venture.
Very truly yours,
/S/ WILLIAM J. BORK
William J. Bork, President
Agreed to, this 2nd day of November, 1998.
GREENWOOD NEW JERSEY, INC.
By: /S/ HAL HANDEL
Hal Handel, President
57
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