As filed with the Securities and Exchange Commission on January 30, 1998
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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
incorporation or organization) or Identification Number)
825 Berkshire Blvd., Suite 200
Wyomissing, Pennsylvania 19610
(610) 373-2400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Additional Registrants
are set forth on the following pages
-----------------------------------------------------
Peter M. Carlino
Chief Executive Officer
825 Berkshire Blvd., Suite 200
Wyomissing, Pennsylvania 19610
(610) 373-2400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Brian J. Lynch, Esq.
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103-6993
(215) 963-5000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Class of Securities Amount to be Maximum Offering Maximum Aggregate Amount of
to Be Registered Registered Price Per Note (1) Offering Price (1) Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 5/8% Senior Notes Due 2004 $80,000,000 100% $80,000,000 $23,600
- -----------------------------------------------------------------------------------------------------------------------------------
Guarantees Evidencing Additional
Registrants' Joint and Several
Guarantees of 10 5/8% Senior Notes due
2004. $80,000,000 (2) (2) (2)
===================================================================================================================================
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2).
(2) No additional consideration for the Guarantees of the 10 5/8% Senior Notes
will be furnished. Pursuant to Rule 457(n), no separate fee is payable with
respect to such Guarantees.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine. Information contained herein is
subject to completion or amendment. A registration statement relating to these
statements has been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This registration statement shall
not constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
================================================================================
<PAGE>
PENN NATIONAL GAMING, INC.
CROSS-REFERENCE TABLE
Pursuant to Rule 404(a) and Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item No. Form S-4 Prospectus Caption
- -------- -------- ------------------
<S> <C> <C>
Item 1 Forepart of the Registration Statement and Outside
Front.................................................... Outside Front Cover Page Prospectus
Item 2 Inside Front and Outside Back Cover Pages of Inside Front Cover and Outside Back Cover Pages
Prospectus............................................... of Prospectus
Item 3 Risk Factors, Ratio of Earnings to Fixed Charges and Summary; Risk Factors; Selected Consolidated
Other Information........................................ Financial Information
Item 4 Terms of the Transaction................................. Summary; The Exchange Offer, Description of
Exchange Notes
Item 5 Pro Forma Financial Information.......................... Not Applicable
Item 6 Material Contacts with the Company Being Acquired........ Not Applicable
Item 7 Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters............ Not Applicable
Item 8 Interests of Named Experts and Counsel.................. Legal Matters; Experts
Item 9 Disclosure of Commission Position on Indemnification
for Securities Acts Liabilities.......................... Management
Item 10 Information with Respect to S-3 Registrants.............. Summary; Risk Factors; Capitalization;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Regulatory Matters
Item 11 Incorporation of Certain Information by Reference........ Incorporation of Certain Documents by Reference
Item 12 Information with Respect to S-2 or S-3 Registrants....... Not Applicable
Item 13 Incorporation of Certain Information by Reference........ Incorporation of Certain Documents by Reference
Item 14 Information with Respect to Registrants Other than S-3
or S-2 Registrants....................................... Not Applicable
Item 15 Information with Respect to S-3 Companies................ Not Applicable
Item 16 Information with Respect to S-2 or S-3 Companies......... Not Applicable
Item 17 Information with Respect to Companies Other than S-3
or S-2 Companies......................................... Not Applicable
Item 18 Information if Proxies, Consents or Authorizations are
to be Solicited.......................................... Not Applicable
Item 19 Information if Proxies, Consents or Authorization are Management; Incorporation of Certain Documents
not to be Solicited or in an Exchange Offer.............. by Reference
</TABLE>
<PAGE>
ADDITIONAL REGISTRANTS
(Initial Guarantors of 10 5/8% Senior Notes)
<TABLE>
<CAPTION>
MOUNTAINVIEW THOROUGHBRED RACING ASSOCIATION
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Pennsylvania 7948 25-1196820
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number
R.D. #1 (P.O. Box 32)
Grantville, PA 17028
(717) 469-2910
(Name, address including zip code and telephone number, including area code, or Registrant's principal executive offices)
--------------
<CAPTION>
PENNSYLVANIA NATIONAL TURF CLUB, INC.
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Pennsylvania 7948 23-2346492
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
R.D. #1 (P.O. Box 32)
Grantville, PA 17028
(717) 469-2910
(Name, address including zip code and telephone number, including area code, or Registrant's principal executive offices)
--------------
<CAPTION>
PENN NATIONAL SPEEDWAY, INC.
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Pennsylvania 7948 25-1759895
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
R.D. #1 (P.O. Box 32)
Grantville, PA 17028
(717) 469-2910
(Name, address including zip code and telephone number, including area code, or Registrant's principal executive offices)
--------------
<CAPTION>
NORTHEAST CONCESSIONS, INC.
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Pennsylvania 5812 23-2493823
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation of organization) Classification Code Number)
Highway 1280, Route 315
Wilkes-Barre, PA 18702
(717) 825-6681
(Name, address, including zip code and telephone number, including area code, of Registrant's principal executive offices)
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE DOWNS OFF-TRACK WAGERING, INC.
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Pennsylvania 7999 23-2669470
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation of organization) Classification Code Number)
Highway 1280, Route 315
Wilkes-Barre, PA 18702
(717) 825-6681
(Name, address, including zip code and telephone number, including area code, of Registrant's principal executive offices)
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE DOWNS RACING, INC.
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Pennsylvania 7948 23-2924948
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation of organization) Classification Code Number)
Highway 1280, Route 315
Wilkes-Barre, PA 18702
(717) 825-6681
(Name, address, including zip code and telephone number, including area code, of Registrant's principal executive offices)
--------------
<CAPTION>
STERLING AVIATION INC.
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Delaware 7359 23-2818588
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation of organization) Classification Code Number)
900 Market Street, Suite 200
Wilmington, DE 19801
(302) 421-7361
(Name, address, including zip code and telephone number, including area code, of Registrant's principal executive offices)
--------------
<CAPTION>
PENN NATIONAL HOLDING COMPANY
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Delaware 7948 51-0372406
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation of organization) Classification Code Number)
900 Market Street, Suite 200
Wilmington, DE 19801
(302) 421-7361
(Name, address, including zip code and telephone number, including area code, of Registrant's principal executive offices)
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PNGI POCONO, INC.
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Delaware 7948 52-2058610
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation of organization) Classification Code Number)
900 Market Street, Suite 200
Wilmington, DE 19801
(302) 421-7361
(Name, address, including zip code and telephone number, including area code, of Registrant's principal executive offices)
--------------
<CAPTION>
PENN NATIONAL GAMING OF WEST VIRGINIA, INC.
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
West Virginia 7993 23-2839600
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation of organization) Classification Code Number)
825 Berkshire Boulevard
Suite 200
Wyomissing, PA 19610
(610) 373-2400
(Name, address, including zip code and telephone number, including area code, of Registrant's principal executive offices)
--------------
<CAPTION>
TENNESSEE DOWNS, INC.
(Exact name of Registrant as specified in its charter)
<S> <C> <C>
Tennessee 7948 62-1711858
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation of organization) Classification Code Number)
825 Berkshire Boulevard
Suite 200
Wyomissing, PA 19610
(610) 373-2400
(Name, address, including zip code and telephone number, including area code, of Registrant's principal executive offices)
--------------
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 30, 1998
Offer to Exchange
All Outstanding
10 5/8% Senior Notes due 2004
($80,000,000 principal amount outstanding)
of
PENN NATIONAL GAMING, INC.
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York
City time on _______________, 1998 (as such date may be extended, the
"Expiration Date").
PENN NATIONAL GAMING, INC. (the "Company") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 in principal amount of its 10 5/8% Senior
Notes due 2004 (the "Exchange Notes") for each $1,000 in principal amount of its
outstanding 10 5/8% Senior Notes due 2004 (the "Old Notes" and together with the
Exchange Notes, the "Notes") held by Holders (as defined) of which an aggregate
principal amount of $80,000,000 is outstanding. See "The Exchange Offer." For
purposes of the Exchange Offer, a "Holder" shall mean the registered owner of
any Registrable Notes. For purposes of the Exchange Offer, "Registrable Notes"
means each Old Note, each Exchange Note issued to the Holder that remains
restricted under federal and state securities laws, or each Private Exchange
Note (as defined) until the earliest to occur of (i) a registration statement
filed under the Securities Act of 1933, as amended (the "Securities Act")
covering such Note, Exchange Note or Private Exchange Note has been made
effective by the Securities and Exchange Commission (the "Commission") and such
Note, Exchange Note, or Private Exchange Note has been disposed of in accordance
with such effective registration statement, (ii) such Note, Exchange Note, or
Private Exchange Note may be sold in compliance with Rule 144(k) promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), (iii) such
Old Note has been exchanged for an Exchange Note or Exchange Notes pursuant to
an Exchange Offer and is entitled to be resold without complying with the
prospectus delivery requirements of the Securities Act or (iv) such Old Note,
Exchange Note, or Private Exchange Note ceases to be outstanding under the
Indenture (as defined).
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
amount of the Old Notes being tendered for exchange. However, the Exchange Offer
is subject to certain customary conditions, which may be waived by the Company,
and to the terms and provisions of the Registration Rights Agreement dated as of
December 17, 1997 among the Company, BT Alex. Brown Incorporated and Jefferies &
Company, Inc. (the "Initial Purchasers") (the "Registration Rights Agreement").
See "The Exchange Offer."
The Old Notes were issued in a transaction (the "Offering") pursuant to
which the Company issued an aggregate of $80 million principal amount of the Old
Notes. The Old Notes were sold by the Company to the Initial Purchasers on
December 17, 1997 (the "Closing Date") pursuant to a Purchase Agreement, dated
December 12, 1997 (the "Purchase Agreement") among the Company and the Initial
Purchasers. The Initial Purchasers subsequently resold the Old Notes in reliance
on Rule 144A under the Securities Act. The Company and the Initial Purchasers
also entered into the Registration Rights Agreement, pursuant to which the
Company granted certain registration rights for the benefit of the holders of
the Old Notes. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement with respect to
the Old Notes. See "The Exchange Offer -- Purpose and Effect."
The Old Notes were, and the Exchange Notes will be, issued under the
Indenture, dated as of December 17, 1997 (the "Indenture"), among the Company,
certain subsidiaries of the Company that have agreed to guarantee the Notes
(collectively, the "Subsidiary Guarantors") and State Street Bank and Trust
Company, as trustee (in such capacity, the "Trustee"). The form and terms of the
Exchange Notes will be identical in all material respects to the form and terms
of the Old Notes, except that (i) the Exchange Notes have been registered under
the terms of the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) holders of Exchange Notes will not be
entitled to the additional interest otherwise payable under the terms of the
Registration Rights Agreement in respect of Old Notes tendered in accordance
with the terms of the Exchange Offer but not exchanged for Exchange Notes prior
to the 45th day after the Exchange Offer registration statement has been
declared effective or where a Shelf Registration Statement has been declared
effective and subsequently ceases to be effective at any time during the
effectiveness period and prior to the disposition of all Old Notes thereunder
(the "Additional Interest") and (iii) holders of Exchange Notes will not be, and
upon the consummation of the Exchange Offer, Holders of Old Notes will no longer
be, entitled to certain rights under the Registration Rights Agreement intended
for the holders of unregistered securities; provided, however, that a Holder of
Old Notes who reasonably determines that (i) such Holder is prohibited by
applicable law or Commission policy from participating in the Exchange Offer, or
(ii) that such Holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and that this
Prospectus is not appropriate or available for such resales by such Eligible
Holder, or (iii) that such Eligible Holder is a broker-dealer registered under
the Exchange Act and holds the Old Notes acquired directly from the Company or
one of its affiliates, subject to reasonable verification by the Company, shall
have the right to require the Company to file a shelf registration statement
pursuant to Rule 415 under the Securities Act solely for the benefit of such
Holder of Old Notes and will be entitled to receive Additional Interest
following the occurrence of defined events of default in connection with the
filing of such shelf registration statement. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the Registrar
under the Indenture of Exchange Notes in the same aggregate principal amount as
the aggregate principal amount of Old Notes that were tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer -- Termination
of Certain Rights" and "--Procedures for Tendering Old Notes" and "Description
of Exchange Notes."
----------
(continued on next page)
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISKS THAT HOLDERS
SHOULD CONSIDER IN EVALUATING THE EXCHANGE OFFER.
----------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
----------
The date of this Prospectus is January __, 1998
<PAGE>
[PRINTER TO ADD RED HERRING LANGUAGE]
8
<PAGE>
The Exchange Notes will bear interest at a rate equal to 10 5/8% per annum
from and including their date of issuance. Interest on the Exchange Notes is
payable semiannually on June 15 and December 15 of each year (each, an "Interest
Payment Date"). Holders whose Old Notes are accepted for exchange will have the
right to receive interest accrued thereon from the date of their original
issuance or the last Interest Payment Date, as applicable to, but not including,
the date of issuance of the Exchange Notes, such interest to be payable with the
first interest payment on the Exchange Notes. Interest on the Old Notes accepted
for exchange will cease to accrue on the day prior to the issuance of the
Exchange Notes. The Exchange Notes will mature on December 15, 2004. See
"Description of Exchange Notes -- General."
The Exchange Notes will not be redeemable, in whole or in part, prior to
December 15, 2000. Thereafter, the Exchange Notes will be redeemable at the
redemption prices set forth herein, plus interest accrued thereon to the
redemption date. Upon the occurrence of a Change of Control (as defined), each
holder of Exchange Notes will have the right to require the Company to purchase
all or a portion of such holder's Exchange Notes at 101% of the principal amount
thereof, plus interest accrued thereon to the purchase.
Based on an interpretation by the Staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer to a Holder in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by such
Holder (other than (i) a broker-dealer who purchased Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the Holder is not an affiliate
of the Company, is acquiring the Exchange Notes in the ordinary course of
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the Exchange Notes. Holders
wishing to accept the Exchange Offer must represent to the Company, as required
by the Registration Rights Agreement, that such conditions have been met. Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "The Exchange Offer -- Resales of
the Exchange Notes." This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market making or other trading
activities.
As of January 27, 1998, Cede & Co. ("Cede"), as nominee for The Depository
Trust Company, New York, New York ("DTC") was the sole registered holder of the
Old Notes and held the Old Notes for ______ of its participants. The Company
believes that no such participant is an affiliate (as such term is defined in
Rule 405 under the Securities Act) of the Company. There has previously been
only a limited secondary market and no public market for the Old Notes. The Old
Notes are eligible for trading in the Private Offering, Resales and Trading
through Automatic Linkages ("PORTAL") market. In addition, the Initial
Purchasers have advised the Company that they currently intend to make a market
in the Exchange Notes, however, neither is obligated to do so and any market
making activities may be discontinued by either of the Initial Purchasers at any
time. Therefore, there can be no assurance that an active market for the
Exchange Notes will develop. If such a trading market develops for the Exchange
Notes, future trading prices will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on such factors, the Exchange Notes may
trade at a discount from their face value. See "Risk Factors--Lack of Public
Market for Exchange Notes."
The Company will not receive any proceeds from this offering, but, pursuant
to the Registration Rights Agreement, the Company will bear certain registration
expenses. No underwriter is being utilized in connection with the Exchange
Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. IN ADDITION, HOLDERS OF THE
EXCHANGE NOTES FOLLOWING THE EXCHANGE OFFER SHALL BE PROHIBITED FROM SELLING THE
EXCHANGE NOTES TO NONINSTITUTIONAL BUYERS IN THE STATES OF ALABAMA, CALIFORNIA
AND WISCONSIN IN THE ABSENCE OF REGISTRATION OF THE EXCHANGE NOTES AND THE
GUARANTEES (OR A VALID EXEMPTION THEREFROM) UNDER THE SECURITIES LAWS OF SUCH
STATES.
The Old Notes were issued originally in global form (the "Global Old
Notes"). The Global Old Note was deposited with, or on behalf of, DTC, as the
initial depository with respect to the Old Notes (in such capacity, the
"Depository"). The Global Old Note is registered in the name of Cede, as nominee
of DTC, and beneficial interests in the Global Old Note are shown on, and
transfers thereof are effected only through, records maintained by the
Depository and its participants. The use of the Global Old Note to represent
certain of the Old Notes permits the Depository's participants, and anyone
holding a beneficial interest in an Old Note registered in the name of such a
participant, to transfer interests in the Old Notes' electronically in
accordance with the Depository's established procedures without the need to
transfer a physical certificate. Except as provided below, the Exchange Notes
will also be issued initially as a note in global form (the "Global Exchange
Note," and together with the Global Old Note, the "Global Notes") and deposited
with, or on behalf of, the Depository. Notwithstanding the foregoing, holders of
Old Notes that were held, at any time, by a person that is not a qualified
institutional buyer under Rule 144A, (a "Qualified Institutional Buyer"), and
any Holder that is not a Qualified Institutional Buyer that exchanges Old Notes
in the Exchange Offer, will receive the Exchange Notes in certificated form and
is not, and will not be, able to trade such securities through the Depository,
unless the Exchange Notes are resold to a Qualified Institutional Buyer. After
the initial issuance of the Global Exchange Note, Exchange Notes in certificated
form will be issued in exchange for a holder's proportionate interest in the
Global New Note or as set forth in the Indenture.
9
<PAGE>
TABLE OF CONTENTS
Page
----
Available Information...................................................
Disclosure Regarding Forward-Looking Statements.........................
Summary.................................................................
Risk Factors............................................................
The Exchange Offer......................................................
Capitalization..........................................................
Selected Consolidated Financial Data....................................
Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................
Business................................................................
Regulatory Matters......................................................
Management..............................................................
Description of Exchange Notes...........................................
Incorporation of Certain Documents by Reference.........................
Legal Matters...........................................................
Experts.................................................................
Index to Financial Statements........................................... F-1
10
<PAGE>
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4 (together with
any amendments thereto, the "Registration Statement") with the Commission under
the Securities Act with respect to the Exchange Notes. This Prospectus, which
constitutes a part of the Registration Statement, omits certain information
contained in the Registration Statement and reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the Exchange Notes offered hereby.
This Prospectus contains summaries of the material terms and provisions of
certain documents and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, is required to file reports and other information with the
Commission. In addition, upon registration of the guarantees of the Notes in
connection with the Exchange Offer, each subsidiary of the Company that is a
guarantor of the Exchange Notes (a "Subsidiary Guarantor") will also be subject
to the reporting requirements of the Exchange Act so long as the guarantee of
the Subsidiary Guarantor remains outstanding. Upon effectiveness of the
Registration Statement, the Subsidiary Guarantors will be subject to the
reporting requirements of the Exchange Act and the interpretations issued
thereunder by the Commission staff.
All documents filed by the Company and its Subsidiary Guarantors pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the Exchange Offer to which
this Prospectus relates shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of the filing of such reports and
documents. The Company will provide a copy of any and all of such documents
(exclusive of exhibits unless such exhibits are specifically incorporated by
reference therein) without charge to each person to whom a copy of this
Prospectus is delivered, upon written or oral request to Robert S. Ippolito,
Chief Financial Officer, Wyomissing Professional Center, 825 Berkshire
Boulevard, Suite 200, Wyomissing, PA 19610, (610) 373-2400.
The Registration Statement (including the exhibits and schedules thereto)
and the periodic reports and other information filed by the Company and the
Subsidiary Guarantors with the Commission may be inspected without charge at the
Commission's principal office in Washington, D.C. or obtained from the Public
Reference Section of the Commission at 450 Fifth Street, NW, Washington, D.C.
20549. Such material may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov). The Common Stock of
the Company is traded under the symbol "PENN" on the Nasdaq National Market.
Proxy statements, reports and other information filed by the Company, on behalf
of itself, before and after the date of this Prospectus, and on behalf of the
Subsidiary Guarantors, after the date of this Prospectus, with the Commission
and other information can be inspected at the offices of the National
Association of Securities Dealers, Inc., Report Section, 17835 K Street, N.W.,
Washington, D.C. 20006.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE U.S. SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY," "RISK FACTORS,"
"THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE
COMPANY'S OPERATIONS, FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "EXPECT," "INTEND," "ESTIMATE," "ANTICIPATE," "BELIEVE," OR "CONTINUE"
OR
11
<PAGE>
THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE
COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE AT THIS TIME, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN
CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND
UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
12
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. References to "Penn National" or the "Company" include Penn National
Gaming, Inc. and its subsidiaries.
THE COMPANY
The Company, which began operations in 1972, is a diversified gaming and
pari-mutuel wagering company that owns and operates two racetracks and seven
off-track wagering facilities ("OTWs") in Pennsylvania, as well as an
entertainment complex that includes a thoroughbred racetrack and video gaming
machines ("Gaming Machines") in Charles Town, West Virginia (the "Charles Town
Entertainment Complex"). The Company's Pennsylvania racetracks include Penn
National Race Course, located outside Harrisburg, one of two thoroughbred
racetracks in Pennsylvania, and Pocono Downs Racetrack ("Pocono Downs"), located
outside Wilkes-Barre, one of two harness racetracks in Pennsylvania. The Company
intends to develop the four additional OTWs that have been allocated to it under
Pennsylvania law, after which it would operate 11 of the 23 OTWs currently
authorized in Pennsylvania. Between 1993 and 1996, the Company increased its
total wagers, including live track, simulcast and OTW wagers, at a compound
annual growth rate of 21.1% by expanding its simulcast and OTW operations. In
contrast, during the same period, total industry wagers increased at a compound
annual growth rate of 3.0%. For the twelve months ended September 30, 1997, the
Company generated $97.9 million in revenues and $15.9 million in EBITDA (as
defined).
The Company developed the Charles Town Entertainment Complex in order to
operate and market a facility that integrates Gaming Machines with the Company's
core business strengths of live racing and simulcast wagering. The Charles Town
Entertainment Complex is an approximately 60-minute drive from Baltimore,
Maryland and an approximately 70-minute drive from Washington, DC. Through
November 30, 1997, the Company has invested a total of approximately $45.2
million to acquire and develop the Charles Town Entertainment Complex, which
includes $18.1 million in acquisition costs and $27.1 million for substantial
renovations and refurbishments. In developing the Charles Town Entertainment
Complex, the Company preserved the California mission-style architecture of the
original Charles Town Races facility and incorporated extensive internal
renovations including a 1930s art deco Hollywood theater theme within the Silver
Screen Gaming area. After having been closed for approximately six months, the
Company reopened thoroughbred racing and simulcasting operations ("Charles Town
Races") at the Charles Town Entertainment Complex in April 1997. Gaming Machine
operations commenced with a soft opening on September 10, 1997, and was followed
by a grand opening on October 17, 1997. The Company owns an 89% joint venture
interest in PNGI Charles Town Gaming LLC, the entity which owns the Charles Town
Entertainment Complex (the "Charles Town Joint Venture").
BUSINESS STRATEGY
The Company intends to be a leading operator in the gaming and pari-mutuel
wagering industry by capitalizing upon its horse racing expertise and its
numerous wagering locations. The Company plans to significantly increase revenue
and EBITDA using the following strategies:
Focus on Gaming Machine Operations. The Company's primary focus at the
Charles Town Entertainment Complex is on Gaming Machine operations. The Company
commenced Gaming Machine operations with a soft opening of 223 Gaming Machines
on September 10, 1997. The Company's grand opening of Gaming Machine operations
at the Charles Town Entertainment Complex occurred on October 17, 1997 with 400
Gaming Machines in operation. As of January 30, 1998, the Company had 550 Gaming
Machines in operation. The Company intends to conclude the facility renovation
and refurbishment, which is substantially complete, and increase the number of
Gaming Machines in operation at the Charles Town Entertainment Complex to
approximately 690 by February 28, 1998 and to 1,000 during 1998, the maximum
number the Company is currently approved to operate at this complex. The Charles
Town Entertainment Complex's Gaming Machines are dollar bill-fed video gaming
machines that replicate traditional spinning reel slot machines and also feature
video card games, such as blackjack and poker. Marketing efforts, which include
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<PAGE>
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print and radio advertising, commenced in October 1997 and are focused on the
Washington, DC, Baltimore, Maryland, Northern Virginia, Eastern West Virginia
and Southern Pennsylvania markets. The Company intends to enhance these
marketing efforts by installing and operating a computerized player tracking
system to identify preferred players and encourage repeat Gaming Machine
patronage at the Charles Town Entertainment Complex.
Open Additional OTWs. The Company operates seven of the 18 OTWs now open in
Pennsylvania and has the right to operate four of the five remaining OTWs
currently authorized in Pennsylvania. The Company's OTWs are located in
Allentown, Chambersburg, Erie, Lancaster, Reading, Williamsport and York,
Pennsylvania. At OTWs, customers can place wagers on thoroughbred and harness
races simulcast from the Company's racetracks and from other tracks around the
country. Under the Pennsylvania Race Horse Industry Reform Act (the
"Pennsylvania Racing Act"), only licensed thoroughbred and harness racing
associations, such as the Company, can operate OTWs or accept customer wagers on
simulcast races at Pennsylvania racetracks. The Company will open OTWs in
Carbondale and Hazleton, Pennsylvania during the first quarter of 1998 and plans
(subject to the receipt of remaining regulatory approvals, including site
approvals) to open and operate additional OTWs in Stroudsburg and Altoona,
Pennsylvania, which would give the Company a total of 11 of the 23 OTWs
currently authorized by Pennsylvania law.
Expand Simulcasting Operations. Simulcasting involves the transmission to
or the receipt of audio and/or video signals of a live racing event through a
satellite for re-transmission at a different wagering location. The Company
transmits simulcasts of Company races to other wagering locations year-round
("export simulcasting") and receives simulcasts of races from other locations
for wagering by its customers at the Company's facilities year-round ("import
simulcasting"). Full-card import simulcasting, in which all of the races at a
non-Company track are import simulcast to a Company wagering facility, maximizes
the number of events available to a patron for wagering at the Company's
facilities. The Company currently receives import simulcasts from approximately
75 racetracks, including premier racetracks such as Arlington International,
Belmont Park, Gulfstream Park, Hollywood Park, Santa Anita and Saratoga. Export
simulcasting increases the consumer base for Company races beyond Company
racetracks and OTWs. The Company transmits export simulcasts of Company races to
approximately 98 locations and receives a flat percentage of the amounts wagered
on Company races at non-Company locations. The Company intends to increase
export simulcasting of races from Company-owned tracks to out-of-state
racetracks, OTWs, casinos and other gaming facilities. The Company also seeks to
improve the quality of its export simulcast products by increasing purse sizes
where practicable. The Company believes that the minimal incremental costs
associated with expanding import simulcasting and export simulcasting make it a
particularly desirable source of revenue and EBITDA growth.
Capitalize on Other Gaming and Pari-Mutuel Wagering Opportunities. The
Company intends to continue identifying opportunities in the gaming and
pari-mutuel wagering industries that complement the Company's core operations
and leverage its pari-mutuel management and operating strengths. Management also
intends to explore other opportunities to capitalize upon changes in gaming
legislation, including legislation relating to Gaming Machines.
RECENT DEVELOPMENTS
The Company has acquired an option to purchase approximately 100 acres of
land in northeastern Memphis, Tennessee and has submitted an application to the
Tennessee State Racing Commission to obtain a racing license to develop a
harness track and OTW facility at this site. On December 2, 1997, the Company
received approval from the Memphis City Council for the necessary zoning and
land development plans. If the Company's racing application is approved, the
Company plans to spend approximately $9.0 million in the next year to purchase
the land subject to the option and build a combined OTW and grandstand facility.
The Company estimates that total development costs, including subsequent track
construction, will be approximately $15.0 million. See "Business-- Potential
Tennessee Development Project." In addition, if the Company is awarded a racing
license, it will be permitted to pursue the development of additional OTWs in
Tennessee, provided it first obtains necessary approvals, including a public
referendum for each proposed OTW site and other necessary zoning and land
development approvals.
The Company is the successor to several businesses which have operated the
Penn National Race Course since 1972. The Company was incorporated in
Pennsylvania in 1982 as PNRC Corp. It adopted its present name in 1994. The
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Company's principal executive offices are located in the Wyomissing Professional
Center, 825 Berkshire Boulevard, Suite 200, Wyomissing, Pennsylvania 19610; its
telephone number is (610) 373-2400.
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ISSUANCE OF THE OLD NOTES
The outstanding 10 5/8% Senior Notes due 2004 (the "Old Notes") were sold
by the Company to BT Alex. Brown Incorporated and Jefferies & Company, Inc. (the
"Initial Purchasers"), on December 17, 1997 (the "Closing Date") pursuant to a
Purchase Agreement, dated December 12, 1997 (the "Purchase Agreement"), between
the Company and the Initial Purchasers. The Initial Purchasers subsequently
resold the Old Notes in reliance on Rule 144A under the Securities Act and other
available exemptions under the Securities Act. The Company and the Initial
Purchasers also entered into the Registration Rights Agreement, dated as of
December 17, 1997 (the "Registration Rights Agreement"), among the Company and
the Initial Purchasers, pursuant to which the Company granted certain
registration rights for the benefit of the holders of the Old Notes. The
Exchange Offer (as defined) is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement with respect to the Old
Notes. See "The Exchange Offer--Purpose and Effect." Capitalized terms used but
not defined in this Prospectus Summary are defined elsewhere in the Prospectus.
THE EXCHANGE OFFER
The Exchange Offer..................... The Company is offering upon the terms
and subject to the conditions set forth
herein to exchange $1,000 in principal
amount of its 10 5/8% Senior Notes due
2004 (the "Exchange Notes") for each
$1,000 in principal amount of the
outstanding Old Notes (the Old Notes and
the Exchange Notes are collectively
referred to herein as the "Notes"). As
of the date of this Prospectus, $80
million in aggregate principal amount of
the Old Notes is outstanding. As of the
Record Date, there was one registered
holder of the Old Notes, Cede & Co.
("Cede"), which held the Old Notes for
___ of its participants. See "The
Exchange Offer--Terms of the Exchange
Offer."
Expiration Date........................ 5:00 p.m., New York City time, on
__________________________, 1998 as the
same may be extended. See "The Exchange
Offer--Expiration Date; Extensions;
Amendments."
Conditions of the Exchange Offer....... The Exchange Offer is not conditioned
upon any minimum principal amount of Old
Notes being tendered for exchange.
However, the Exchange Offer is subject
to certain customary conditions,
including that (i) the Exchange Offer
does not violate applicable law or any
applicable interpretation of the staff
of the Commission, (ii) no action or
proceeding is instituted or threatened
that would be reasonably likely to
materially impair the ability of the
Company or Subsidiary Guarantors to
proceed with the Exchange Offer, and
(iii) all government approvals have been
obtained. The Company expects that the
foregoing conditions will be satisfied.
All such conditions may be waived by the
Company. See "The Exchange
Offer--Conditions of the Exchange
Offer."
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Termination of Certain Rights.......... Pursuant to the Registration Rights
Agreement and the Old Notes, Holders (as
defined) of Old Notes (i) have rights to
receive Additional Interest (as defined)
and (ii) have certain rights intended
for the holders of unregistered
securities. Holders of Exchange Notes
will not be and, upon consummation of
the Exchange Offer, Holders of Old Notes
will no longer be, entitled to (i) the
right to receive the Additional Interest
or (ii) certain other rights under the
Registration Rights Agreement intended
for holders of unregistered securities,
provided, however, that a Holder of Old
Notes who reasonably determines and
notifies the Company within 20 business
days of the consummation of the Exchange
Offer that (a) such Holder is prohibited
by applicable law or Commission policy
from participating, in the Exchange
Offer, or (b) that such Holder may not
resell the Exchange Notes acquired by it
in the Exchange Offer to the public
without delivering a prospectus and that
this Prospectus is not appropriate or
available for such resales by such
Holder,] or (c) that such Holder is a
broker-dealer registered under the
Exchange Act and holds the Old Notes
acquired directly from the Company or
one of its affiliates subject to
reasonable verification by the Company
shall have the right to require the
Company to file a shelf registration
statement pursuant to Rule 415 under the
Securities Act solely for the benefit of
such Holder of Old Notes and will be
entitled to receive the Additional
Interest following the occurrence of
defined events of default in connection
with such shelf registration statement.
The Exchange Offer shall be deemed
consummated upon the occurrence of the
delivery by the Company to the Registrar
under the Indenture of Exchange Notes in
the same aggregate principal amount as
the aggregate principal amount of Old
Notes that were tendered by holders
thereof pursuant to the Exchange Offer.
"Holder" means the registered owner of
any Old Notes that remain Transfer
Restricted Securities as reflected on
the records of State Street Bank and
Trust Company, as registrar for the Old
Notes (in such capacity, the
"Registrar"), or any person whose Old
Notes are held of record by the
Depository (as defined) as of the Record
Date (as defined). See "The Exchange
Offer--Termination of Certain Rights"
and "Procedures for Tendering Old
Notes."
Shelf Registration.................... The Company and Subsidiary Guarantors
shall be required to file a Shelf
Registration Statement pursuant to Rule
415 under the Securities Act covering
all of the Registrable Notes if (i)
because of a change in law or in
currently prevailing interpretations of
the Staff of the Commission, the Company
and Subsidiary Guarantors are not
permitted to effect an Exchange Offer,
(ii) the Exchange Offer is not
consummated within 165 days of December
17, 1997 (the "Issue Date"), (iii) the
holder of the Private Exchange Notes so
requests at any time after the
consummation of the Private Exchange, or
(iv) in the case of any Holder that
participates in the Exchange Offer, such
Holder does not receive Exchange Notes
on the date of the Exchange that may be
sold without restriction under state and
federal securities laws.
Accrued Interest on the
Old Notes.............................. The Exchange Notes will bear interest at
a rate equal to 10 5/8% per annum from
and including their date of issuance.
Holders whose Old Notes are accepted for
exchange will have the right to receive
interest accrued thereon from the date
of their original issuance or the last
Interest Payment Date, as applicable,
to, but not including, the date of
issuance of the Exchange Notes, such
interest to be payable with the first
interest payment on the Exchange Notes.
Interest on the Old Notes accepted for
exchange, which accrued at the rate of
10 5/8% per annum, will cease to accrue
on, the day prior to the issuance of the
Exchange Notes.
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<PAGE>
- --------------------------------------------------------------------------------
Additional Interest.................... Pursuant to the Registration Rights
Agreement, if (i) neither the Exchange
Offer nor Shelf Registration, if
applicable, is filed on or prior to the
respective Filing Date applicable
thereto, or (ii) neither the Exchange
Offer nor Shelf Registration, if
applicable, is declared effective prior
to the respective Effectiveness Date
applicable thereto, or (iii) neither the
Company nor the Subsidiary Guarantors
has exchanged Exchange Notes for all Old
Notes validly tendered in accordance
with the terms of the Exchange Offer on
or prior to the 45th day after the date
on which the Exchange Offer Registration
Statement has been declared effective
or, if applicable, a Shelf Registration
ceases to be effective at any time
during the Effectiveness Period and
prior to the disposition of all Old
Notes thereunder, additional interest
shall accrue for the period of any such
failure or event on the principal amount
of the Old Notes at a rate of .50% per
annum for the first 90 days after such
failure or event and shall increase by
an additional .50% for each subsequent
90-day period, provided, that such
additional interest shall not exceed in
the aggregate 1.0% per annum
("Additional Interest").
Procedures for Tendering
Old Notes.............................. Unless a tender of Old Notes is effected
pursuant to the procedures for
book-entry transfer as provided herein,
each Holder desiring to accept the
Exchange Offer must complete and sign
the Letter of Transmittal, have the
signature thereon Guaranteed if required
by the Letter of Transmittal, and mail
or deliver the Letter of Transmittal,
together with the Old Notes or a Notice
of Guaranteed Delivery and any other
required documents (such as evidence of
authority to act, if the Letter of
Transmittal is signed by someone acting
in a fiduciary or representative
capacity), to the Exchange Agent (as
defined) at the address set forth on the
back cover page of this Prospectus prior
to 5:00 p.m., New York City time, on the
Expiration Date. Any Beneficial Owner
(as defined) of the Old Notes whose Old
Notes are registered in the name of a
nominee, such as a broker, dealer,
commercial bank or trust company and who
wishes to tender Old Notes in the
Exchange Offer, should instruct such
entity or person to promptly tender on
such Beneficial Owner's behalf. See
"Exchange Offer--Procedures for
Tendering Old Notes."
Guaranteed Delivery Procedures......... Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes
are not immediately available or (ii)
who cannot deliver their Old Notes or
any other documents required by the
Letter of Transmittal to the Exchange
Agent prior to the Expiration Date (or
complete the procedure for book-entry
transfer on a timely basis), may tender
their Old Notes according to the
guaranteed delivery procedures set forth
in the Letter of Transmittal. See "The
Exchange Offer-- Guaranteed Delivery
Procedures."
Acceptance of Old Notes and Delivery
of Exchange Notes...................... Upon satisfaction or waiver of all
conditions of the Exchange Offer, the
Company will accept any and all Old
Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date.
The Exchange Notes issued pursuant to
the Exchange Offer will be delivered
promptly after acceptance of the Old
Notes. See "The Exchange
Offer--Acceptance of Old Notes for
Exchange; Delivery of Exchange Notes."
Withdrawal Rights...................... Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York
City time, on the Expiration Date. See
"The Exchange Offer--Withdrawal Rights."
The Exchange Agent..................... State Street Bank and Trust Company is
the exchange agent (in such capacity,
the "Exchange Agent"). The address and
telephone number of the Exchange Agent
are set forth in "The Exchange
Offer--The Exchange Agent; Assistance."
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Fees and Expenses...................... All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Rights
Agreement will be borne by the Company
or the Subsidiary Guarantors. The
Company will also pay certain transfer
taxes applicable to the Exchange Offer.
See "The Exchange Offer--Fees and
Expenses.
Resales of the New
Notes.................................. Based on an interpretation by the staff
of the Commission set forth in no-action
letters issued to third parties, the
Company believes that Exchange Notes
issued pursuant to the Exchange Offer to
a Holder in exchange for Old Notes may
be offered for resale, resold and
otherwise transferred by such Holder
(other than (i) a broker-dealer who
purchased Old Notes directly from the
Company for resale pursuant to Rule 144A
under the Securities Act or any other
available exemption under the Securities
Act, or (ii) a person that is an
affiliate of the Company within the
meaning of Rule 405 under the Securities
Act), without compliance with the
registration and prospectus delivery
provisions of the Securities Act,
provided that the Holder is acquiring
the Exchange Notes in the ordinary
course of business and is not
participating, and has no arrangement or
understanding with any person to
participate, in a distribution of the
Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own
account in exchange for Old Notes, where
such Old Notes were acquired by such
broker as a result of market-making, or
other trading, activities, must
acknowledge that it will deliver a
prospectus in connection with any resale
of such Exchange Notes. See "The
Exchange Offer--Resales of the Exchange
Notes" and "Plan of Distribution."
DESCRIPTION OF EXCHANGE NOTES
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the Exchange
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, (ii) holders of the Exchange
Notes will not be entitled to Additional Interest and (iii) holders of the
Exchange Notes will not be, and upon consummation of the Exchange Offer, Holders
of the Old Notes will no longer be, entitled to certain rights under the
Registration Rights Agreement intended for the holders of unregistered
securities, except in certain limited circumstances. See "Exchange
Offer--Termination of Certain Rights." The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the Registrar
under the Indenture of Exchange Notes in the same aggregate principal amount as
the aggregate principal amount of Old Notes that were tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer--Termination of
Certain Rights" and "Procedures for Tendering Old Notes," and "Description of
Exchange Notes." "Transfer Restricted Securities" means each Old Note until the
earliest to occur of (i) the date on which such Old Note has been exchanged for
an Exchange Note in the Exchange Offer, (ii) the date on which such Old Note has
been effectively registered under the Securities Act, and disposed of in
accordance with a shelf registration statement, or (iii) the date on which such
Old Note is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144(k) under the Securities Act.
Securities Offered..................... $80,000,000 aggregate principal amount
of 10 5/8% Senior Notes due 2004.
Maturity Date.......................... December 15, 2004.
Interest Payments Dates................ Interest on the Exchange Notes will
accrue from the date of original
issuance (the "Issue Date") and is
payable semi-annually in arrears on June
15 and December 15, commencing June 15,
1998.
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Ranking................................ The Exchange Notes will be senior
unsecured obligations of the Company and
will rank pari passu in right of payment
with all existing and future
unsubordinated indebtedness of the
Company and senior in right of payment
with all existing and future
subordinated indebtedness of the
Company. The Exchange Notes will be
effectively subordinated in right of
payment to all secured indebtedness of
the Company, including indebtedness
incurred under a new $12.0 million
revolving credit facility (the "Credit
Facility") entered into on December 17,
1997. As of January 30, 1998, the
Company has approximately $80.3 million
of indebtedness outstanding (and $12
million of secured indebtedness
available) under the Credit Facility.
Optional Redemption.................... The Exchange Notes will be redeemable,
in whole or in part, at the option of
the Company on or after December 15,
2001, at the redemption prices set forth
herein, plus accrued and unpaid interest
to the date of redemption. In addition,
at any time on or prior to December 15,
2000, the Company, at its option, may
redeem up to 35% of the aggregate
principal amount of the Exchange Notes
originally issued with the net cash
proceeds of one or more Public Equity
Offerings, at a redemption price equal
to 110.625% of the principal amount
thereof, plus accrued and unpaid
interest to the date of redemption;
provided that at least 65% of the
aggregate principal amount of Exchange
Notes originally issued remains
outstanding immediately after any
redemption. See "Description of Exchange
Notes--Redemption."
Change of Control...................... Upon a Change of Control, each holder of
an Exchange Note will have the right to
require the Company to repurchase such
holder's Exchange Notes at a price equal
to 101% of the principal amount thereof,
plus accrued and unpaid interest, if
any, to the date of repurchase. See
"Description of Exchange
Notes--Redemption."
Guarantees............................. The Exchange Notes will be
unconditionally guaranteed (the
"Guarantees") on a senior basis by
certain of the Company's subsidiaries
(the "Subsidiary Guarantors"). The
Guarantees will be general unsecured
obligations of the Subsidiary Guarantors
and will rank pari passu in right of
payment to any unsubordinated
indebtedness of the Subsidiary
Guarantors and will rank senior in right
of payment to all other subordinated
obligations of the Subsidiary
Guarantors. The Guarantees will be
effectively subordinated to all secured
indebtedness of the Subsidiary
Guarantors to the extent of the value of
the assets securing such indebtedness.
Certain Covenants...................... The Indenture governing the Exchange
Notes (the "Indenture") will contain
certain covenants that limit the ability
of the Company and its subsidiaries to,
among other things, incur additional
indebtedness, pay dividends or make
certain other restricted payments,
consummate certain asset sales, enter
into certain transactions with
affiliates, incur liens, impose
restrictions on the ability of a
subsidiary to pay dividends or make
certain payments to the Company and its
subsidiaries, merge or consolidate with
any other person or sell, assign,
transfer, lease, convey or otherwise
dispose of all or substantially all of
the assets of the Company. These
restrictions and qualifications are
subject to a number of important
qualifications and exceptions.
Transfer Restrictions; Absence
of a Public Market for the New
Notes.................................. The Exchange Notes are a new issue of
securities with no established market.
Accordingly, there can be no assurance
as to the development or liquidity of
any market for the Exchange Notes. The
Initial Purchasers have advised the
Company that they currently intend to
make a market in the Exchange Notes.
However, neither Initial Purchaser is
obligated to do so, and any market
making with respect to the Exchange
Notes may be discontinued at any time
without notice. The Company does not
intend to apply for listing of the
Exchange Notes on a securities exchange.
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth the summary historical consolidated
financial data of the Company. The summary historical consolidated financial
data for each of the three years in the period ended December 31, 1996 are
derived from the Company's audited consolidated financial statements. The
summary historical consolidated financial data of the Company and its
subsidiaries as of September 30, 1997 and for the nine months ended September
30, 1996 and 1997 and for the twelve months ended September 30, 1997 are
unaudited, but, in the opinion of management, all adjustments necessary to
present fairly the financial data for such periods have been made, none of which
were other than normal accruals. The results for the nine month period ended
September 30, 1997 are not necessarily indicative of the results for the full
year, or any future period. For additional information, see the consolidated
financial statements of the Company appearing elsewhere in this Prospectus. The
summary historical consolidated financial data should also be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
Twelve
Nine Months Ended Months Ended
Year Ended December 31, September 30, September 30,
------------------------------------ ------------------ -------------------------
1994 1995 1996 1996 1997(1) 1997(1)
-------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Total revenues .............................. $ 46,031 $ 57,676 $ 62,834 $ 46,474 $ 81,568 $ 97,928
Total operating expenses .................... 41,607 49,421 53,374 39,237 71,099 85,236
Income from operations ...................... 4,424 8,255 9,460 7,237 10,469 12,692
Net income .................................. 2,603 4,996 5,510 4,406 4,055 5,159
Operating Data:
Pari-mutuel wagering:
Live races .................................. $111,248 $102,145 $ 89,327 $ 69,200 $ 99,971 $120,098
Import simulcasting ......................... 93,461 142,499 170,814 122,960 228,352 276,206
Export simulcasting ......................... 40,337 72,252 112,871 84,228 132,347 160,990
-------- -------- -------- -------- -------- --------
Total pari-mutuel wagering .................. $245,046 $316,896 $373,012 $276,388 $460,670 $557,294
======== ======== ======== ======== ======== ========
Gross profit from wagering(2) ............... $ 17,963 $ 24,915 $ 27,955 $ 20,286 $ 37,398 $ 45,067
Other Data:
EBITDA(3) ................................... $ 5,123 $ 9,136 $ 10,893 $ 8,148 $ 13,170 $ 15,915
Depreciation and amortization ............... 699 881 1,433 911 2,701 3,223
Capital expenditures ........................ 2,852 3,958 6,995 4,784 26,392(4) 28,603
PRO FORMA DATA(5):
Adjusted EBITDA(6) ................................................................................................... $ 16,489
Net interest expense(7) .............................................................................................. 8,100
Ratio of Adjusted EBITDA to net interest expense ..................................................................... 2.0x
Net debt(8) .......................................................................................................... $ 71,409
Ratio of net debt to Adjusted EBITDA ................................................................................. 4.3x
</TABLE>
September 30, 1997
------------------
As
Actual Adjusted(5)
------ -----------
Balance Sheet Data:
Cash and cash equivalents ................ $ 3,951 $ 8,951
Working capital (deficiency) ............. (10,406) 5,741
Total assets ............................. 134,919 155,021
Total debt ............................... 53,860 80,360
Shareholders' equity ..................... 55,654 54,575(9)
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(1) Reflects the November 27, 1996 acquisition of Pocono Downs and the January
15, 1997 acquisition of a joint venture interest in the Charles Town
Entertainment Complex. See "Business--Acquisitions."
(2) Amounts equal total pari-mutuel revenues, less purses paid to the Horsemen
(as defined), taxes payable to Pennsylvania and simulcast commissions or
host track fees paid to other racetracks. Figures for the years ended
December 31, 1995 and 1996 and for the nine months ended September 30, 1996
do not include purses paid at Penn National Speedway.
(3) Represents income from operations before depreciation and amortization
("EBITDA"). EBITDA is presented because management believes it provides
useful information regarding a company's ability to incur and/or service
debt. EBITDA should not be considered in isolation or as a substitute for
consolidated net income, cash flows, or other income or cash flow data
prepared in accordance with generally accepted accounting principles
("GAAP") or as a measure of a company's profitability or liquidity.
(4) Includes approximately $22.8 million in capital expenditures associated
with the renovation and refurbishment of the Charles Town Entertainment
Complex. The balance of the amount relates to normal ongoing capital
expenditures at the Company's other facilities.
(5) Adjusted to give effect to the issuance of the Old Notes and the
application of net proceeds described herein.
(6) Adjusted EBITDA represents the Company's EBITDA for the twelve months ended
September 30, 1997 plus $574,000 in EBITDA of Pocono Downs from October 1,
1996 through November 27, 1996 (the date the Company acquired Pocono
Downs), as adjusted to exclude Pocono Downs' non-recurring salary
adjustment, severance and professional and advisory fees it incurred in
connection with its acquisition by the Company and excluding the losses
from operations at Charles Town Races prior to its acquisition by the
Company on January 15, 1997, as the Company believes that such
pre-acquisition operations are not comparable to current operations due to
the addition of Gaming Machines and the transformation of Charles Town
Races to the Charles Town Entertainment Complex.
(7) Net interest expense is defined as interest expense less assumed interest
income earned on pro forma cash and cash equivalents, as adjusted for the
Offering, including $5.0 million in net proceeds from the Offering
available for working capital and general corporate purposes.
(8) Net debt is defined as (i) total debt less (ii) cash and cash equivalents,
including net proceeds from the Offering reserved for working capital and
general corporate purposes.
(9) Reflects write-off ($1.1 million, net of tax) of deferred financing costs
relating to the repayment, with the proceeds of the Old Offering, of
amounts outstanding under the Company's Credit Facility.
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RISK FACTORS
In addition to the other information contained in this Prospectus, holders
of Notes should consider carefully the following risk factors affecting the
business of the Company.
Substantial Leverage and Ability to Service Debt
The Company is highly leveraged. As of December 31, 1997, the Company's
total indebtedness is approximately $80.3 million. In addition, subject to
restrictions in the Credit Facility and the Indenture, the Company may incur up
to $12.0 million of borrowings under the Credit Facility. See "Description of
Credit Facility" and "Description of Exchange Notes."
The level of the Company's indebtedness could have important consequences
to holders of the Exchange Notes, including: (i) a substantial portion of the
Company's cash flow from operations will be dedicated to debt service and may
not be available for other purposes; (ii) the Company's leveraged position may
impede its ability to obtain financing in the future for acquisitions, potential
development opportunities, working capital, capital expenditures and general
corporate purposes; and (iii) the Company's leveraged financial position may
make it more vulnerable to economic downturns and may limit its ability to
withstand competitive pressures. The Company's ability to pay interest on the
Exchange Notes and to repay portions of its long-term indebtedness (including
the Exchange Notes and the Credit Facility) will depend upon its future
operating performance and the availability of refinancing indebtedness, which
will be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond the Company's control. The Company
believes that, based on its current level of operations, it will have sufficient
capital to carry on its business and will be able to meet its scheduled debt
service requirements. However, there can be no assurance that the future cash
flow of the Company will be sufficient to meet the Company's obligations and
commitments. If the Company is unable to generate sufficient cash flow from
operations in the future to service its indebtedness and to meet its other
commitments, the Company will be required to adopt one or more alternatives,
such as refinancing or restructuring its indebtedness, selling material assets
or operations or seeking to raise additional debt or equity capital. There can
be no assurance that any of these actions could be effected on a timely basis or
on satisfactory terms or that these actions would enable the Company to continue
to satisfy its capital requirements. In addition, the terms of existing or
future debt agreements, including the Indenture (as defined) and the Credit
Facility, may prohibit the Company from adopting any of these alternatives. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of Credit Facility"
and "Description of Exchange Notes."
Ranking; Holding Company Structure
The Exchange Notes will be general unsecured senior obligations and will
rank pari passu in right of payment with all existing and future unsubordinated
Indebtedness (as defined) of the Company, including obligations under the Credit
Facility. As of December 31, 1997, the Company had approximately $80.3 million
of Indebtedness outstanding and $12.0 million of secured indebtedness available
under the Credit Facility. The Exchange Notes will be effectively subordinated
to all secured Indebtedness of the Company to the extent of the value of the
assets securing such Indebtedness. The Indebtedness of the Company and its
subsidiaries under the Credit Facility will be secured by liens upon real
property and current assets of the Company and its subsidiaries (including the
pledge of subsidiary stock), including receivables, inventory, general
intangibles and equipment. The Indenture permits the Company to incur additional
Indebtedness under both the Credit Facility and the Indenture. In the event of a
bankruptcy, liquidation or reorganization of the Company, the assets of the
Company will be available to pay obligations on the Exchange Notes only after
all secured Indebtedness of the Company has been paid in full and there may not
be sufficient assets remaining to pay amounts due on any or all of the Notes
then outstanding.
The operations of the Company are conducted through subsidiaries.
Consequently, a substantial portion of the revenues available for payment of
debt service in respect of the Exchange Notes is expected to be generated
through direct and indirect subsidiaries of the Company. The Company's cash flow
and, consequently, its ability to service debt, including the Exchange Notes,
will depend in substantial part upon the cash flow of the Company's subsidiaries
and the payment of funds by those subsidiaries to the Company in the form of
loans, dividends or otherwise. Although the Exchange Notes will be guaranteed by
the Subsidiary Guarantors, the Charles Town Joint Venture will not be a
guarantor of the Exchange Notes due to the joint venture investment structure of
this entity, and the inability of the Company to secure a Guarantee by the
Charles Town Joint Venture. Accordingly, the Exchange Notes will be structurally
subordinated to any indebtedness incurred by the Charles Town Joint Venture. In
addition, the Subsidiary Guarantors are separate and distinct legal entities and
are subject to the provisions of the Credit Facility, which may contain
limitations on the ability of the Subsidiary Guarantors to make payments in
respect of the Guarantee, particularly upon the occurrence of any
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<PAGE>
default or the insolvency of the Company or any Subsidiary Guarantor. In
addition, the laws of most jurisdictions provide suretyship defenses to
guarantors, which may limit the Subsidiary Guarantors' legal obligations to make
payments under their Guarantee.
Restrictions Imposed by the Company's Indebtedness
The Credit Facility requires the Company to maintain specified financial
ratios and satisfy certain financial tests, among other obligations, including
interest coverage and total leverage ratios. In addition, the Credit Facility
restricts, among other things, the Company's ability to incur additional
indebtedness and restricts the ability of the Company to dispose of assets,
incur additional indebtedness, incur guarantee obligations, repay indebtedness
or amend debt instruments, pay dividends, create liens on assets, 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. A failure to comply with
the restrictions contained in the Credit Facility could lead to an event of
default thereunder which could result in an acceleration of such indebtedness.
Such an acceleration could constitute an event of default under the Indenture
relating to the Exchange Notes. In addition, the Indenture restricts, among
other things, the Company's ability to incur additional indebtedness, make
certain payments and dividends or merge or consolidate. A failure to comply with
the restrictions in the Indenture could result in an event of default under the
Indenture. See "Description of Credit Facility" and "Description of Exchange
Notes."
Risks Associated with Expansion and New Gaming Machine Operations
The Company began to operate Gaming Machines at the Charles Town
Entertainment Complex with a soft opening of 223 Gaming Machines in September
1997 and, therefore, the Company's Gaming Machine management strategy at the
Charles Town Entertainment Complex is still in its early stages. This
significant expansion of the Company's business and operational scale will place
demands on the Company's administrative, operational and financial resources and
could place an additional strain on the capacity, management and operations of
the Company. Such strain, together with demands associated with any other growth
through geographic or emerging jurisdictional gaming opportunity expansion, may
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, to date, the Company has experienced
difficulty in obtaining timely delivery of the Gaming Machines it desires
because Gaming Machine manufacturers have been delayed in receiving the West
Virginia licensing approvals necessary for their machines to be installed and
operated in West Virginia. As of January 30, 1998, the Company had 550 Gaming
Machines installed and operational at the Charles Town Entertainment Complex.
Following the installation of approximately 800 Gaming Machines, the Company
will evaluate demand for Gaming Machine play at the Charles Town Entertainment
Complex and install an additional 200 Gaming Machines (to operate the maximum
1,000 Gaming Machines presently permitted) if demand warrants such installation.
Such demand will be evaluated because the Company becomes obligated to pay a
minimum licensing fee of $4.3 million per year to a third party supply and
servicing company once it has 800 or more Gaming Machines in operation at the
Charles Town Entertainment Complex. This minimum fee may have an adverse impact
on the Company's results of operations if Gaming Machine play is not significant
or is not profitable. See "Business--GTECH Gaming Machine Supply and Service
Agreement." There can be no assurance that the Company will be able to
effectively and profitably manage Gaming Machine operations since the Company
has no prior experience in operating Gaming Machines.
Decline in Live Racing Attendance
The Pennsylvania Racing Act requires the Company to schedule 200 days of
live thoroughbred racing and 150 days of live harness racing, regardless of
attendance, in order to present full-card import simulcast racing. Over the past
few years, however, there has been a substantial decline in attendance and
wagering on live racing throughout the industry, in general, and at the Penn
National Race Course, Pocono Downs and Charles Town Races, in particular, even
though the number of racing days has remained relatively constant. The Company
believes this decline is primarily a result of competition from other forms of
entertainment and gaming, including wagering at OTWs and wagering at tracks in
neighboring states where additional forms of casino-style gaming (such as video
gaming and slot machines) are available, and which are perhaps closer in
proximity to patrons who might otherwise travel to the Penn National Race
Course, Pocono Downs and the Charles Town Races. Because live racing revenues
are declining, the Company's future growth is dependent on its OTWs and Gaming
Machine operations. If not offset by increased revenues from other sources,
continued declines in live racing attendance could have a material adverse
effect on the Company's business, financial condition and results of operations
because a relatively high proportion of the Company's costs of operating its
live racing facilities are fixed. The Company intends, following receipt of all
regulatory approvals, to open OTWs in Carbondale, Hazleton, Stroudsburg and
Altoona, Pennsylvania, in addition to operating its existing OTWs. The Company's
existing OTWs may be unable to increase or maintain their current level of
profitability, and the remaining four OTWs which the Company has been allocated
under the Pennsylvania Racing Act may never be opened, or, if opened, achieve
profitability. Moreover, as with racetracks, a relatively high proportion of the
costs of operating an
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OTW are fixed, while OTW attendance is subject to significant variation based on
a variety of factors, including the quality of the races that are import
simulcast to the facility and the proximity of other live racing and OTW venues.
To the extent that attendance and wagering at existing or new OTWs is not
consistent with the Company's historical experience, the Company's business,
financial condition and results of operations may be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Racing and Pari-Mutuel Operations" and
"--Competition."
Competition
The Company faces significant competition for wagering dollars from other
racetracks and OTWs in Pennsylvania and neighboring states (some of which also
offer other forms of gaming), other gaming venues such as casinos and
state-sponsored lotteries, including the Pennsylvania Lottery and the West
Virginia Lottery. The Company may also face competition in the future from new
OTWs or from new racetracks. From time to time, Pennsylvania has considered
legislation to permit other forms of gaming. Although Pennsylvania has not
authorized any form of casino or other gaming, if additional gaming
opportunities become available in or near Pennsylvania, such gaming
opportunities could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's live races compete for wagering dollars and simulcast fees
with live races and races simulcast from other racetracks both inside and
outside Pennsylvania (including several in New York, New Jersey, West Virginia,
Ohio, Maryland and Delaware). The Company's ability to compete successfully for
wagering dollars is dependent, in part, upon the quality of its live horse
races. The quality of horse races at some racetracks that compete with the
Company, either by live races or simulcasts, is higher than the quality of
Company races. The Company believes that there has been some improvement over
the last several years in the quality of the racing at the Penn National Race
Course, due to incrementally higher purses being paid as a result of the
Company's increased simulcasting activities. However, increased purses may not
result in a continued improvement in the quality of racing at the Penn National
Race Course or in any material improvement in the quality of racing at Pocono
Downs or the Charles Town Races.
The Company's OTWs compete with the OTWs of other Pennsylvania racetracks,
and new OTWs may compete with the Company's existing or proposed wagering
facilities. Competition between OTWs increases as the distance between them
decreases. For example, the Company believes that its Allentown OTW, which was
acquired in the acquisition of Pocono Downs and which is approximately 50 miles
from the Penn National Race Course and 35 miles from the Company's Reading OTW,
has drawn some patrons from the Penn National Race Course, the Reading OTW and
the Company's telephone wagering system, and that the Company's Lancaster OTW,
which is approximately 31 miles from the Penn National Race Course and 25 miles
from the Company's York OTW, has drawn some patrons from the Penn National Race
Course, the York OTW and the Company's telephone wagering system. Moreover, the
Company believes that a competitor's new OTW in King of Prussia, Pennsylvania,
which is approximately 23 miles from the Reading OTW, has drawn some patrons
from the Reading OTW. Although only one competing OTW remains authorized by law
for future opening, the opening of a new competitive OTW in close proximity to
the Company's existing or future OTWs could have an adverse effect on the
Company's business, financial condition and results of operations.
The Company's Gaming Machine operations at the Charles Town Entertainment
Complex face competition from other Gaming Machine venues in neighboring states
(including Dover Downs in Dover, Delaware, Delaware Park in northern Delaware,
Harrington Raceway in southern Delaware and the casinos in Atlantic City, New
Jersey) and, to a lesser extent, other Gaming Machine venues in West Virginia,
which are less accessible to the Company's target market audience than Gaming
Machine venues in neighboring states. Venues in Delaware and New Jersey, in
addition to video gaming machines, currently offer mechanical slot machines that
feature traditional spinning reels, pull-handles and the ability to both accept
and pay out coins. West Virginia has not authorized, and may never approve, such
mechanical slot machines. The failure to attract or retain Gaming Machine
customers at the Charles Town Entertainment Complex, whether arising from such
competition or from other factors, could have a material adverse effect upon the
Company's business, financial condition and results of operations.
Risks Associated with the Charles Town Joint Venture and Charles Town
Entertainment Complex
The Charles Town Joint Venture acquired its option to purchase the Charles
Town Entertainment Complex from its 11% joint venture partner, Bryant
Development Company and its affiliates ("Bryant"); Bryant, in turn, acquired the
option from Showboat Operating Company ("Showboat"). Showboat retained an option
(the "Showboat Option") to operate any casino at the Charles Town Entertainment
Complex in return for a management fee (to be negotiated at the time, based on
rates payable for similar properties). Showboat has also retained a right of
first refusal to purchase or lease the site of any casino at the Charles Town
Entertainment Complex proposed to be leased or sold and to purchase any interest
proposed to be sold in any such casino (on the same terms offered
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by a third party or otherwise negotiated with the Charles Town Joint Venture).
The rights retained by Showboat extend for a period of five years from November
6, 1996, the date that the Charles Town Joint Venture exercised its option to
purchase Charles Town Races, and expire thereafter unless legislation to permit
casino gaming at the Charles Town Entertainment Complex has been adopted prior
to the end of the five-year period. If such legislation has been adopted prior
to such time, then the rights of Showboat continue for a reasonable time (not
less than 24 months) to permit completion of negotiations.
While the agreement with Showboat does not specify what activities at the
Charles Town Entertainment Complex would constitute operation of a casino,
Showboat has agreed that the installation and operation of Gaming Machines at
the Charles Town Entertainment Complex's racetrack would not trigger the
Showboat Option. If West Virginia law were to permit casino gaming at the
Charles Town Entertainment Complex and if Showboat were to exercise the Showboat
Option, the Company would be required to pay a management fee to Showboat for
the operation of the casino.
Regulation and Taxation
General. All of the Company's current and proposed operations are subject
to extensive regulations and could be subjected at any time to additional or
more restrictive regulations, or banned entirely. The Company is authorized to
conduct thoroughbred racing and harness racing in Pennsylvania under the
Pennsylvania Racing Act. The Company is also authorized, under the Pennsylvania
Racing Act and the Federal Interstate Horseracing Act of 1978 (the "Federal
Horseracing Act"), to conduct import and export simulcast wagering. The Company
is also subject to the provisions of West Virginia law that govern the conduct
of thoroughbred horse racing in West Virginia (the "West Virginia Racing Act")
and the operation of Gaming Machines in West Virginia (the "West Virginia Gaming
Machine Act"). The Company's live racing, pari-mutuel wagering and Gaming
Machine operations are contingent upon the continued governmental approval of
such operations as forms of legalized gaming. The Company also may be adversely
affected by legislation of additional forms of gaming, or expanded licensure,
within or near the Company's present or future markets.
Pennsylvania Racing Regulations. The Company's horse racing operations at
the Penn National Race Course and Pocono Downs are subject to extensive
regulation under the Pennsylvania Racing Act, which established the Pennsylvania
State Horse Racing Commission and the Pennsylvania State Harness Racing
Commission (together, the "Pennsylvania Racing Commissions"). The Pennsylvania
Racing Commissions are responsible for, among other things, (i) granting
permission annually to maintain racing licenses and schedule race meets, (ii)
approving, after a public hearing, the opening of additional OTWs, (iii)
approving simulcasting activities, (iv) licensing all officers, directors,
racing officials and certain other employees of the Company and (v) approving
all contracts entered into by the Company affecting racing, pari-mutuel wagering
and OTW operations.
As in most states, the regulations and oversight applicable to the
Company's operations in Pennsylvania are intended primarily to safeguard the
legitimacy of the sport and its freedom from inappropriate or criminal
influences. The Pennsylvania Racing Commissions have broad authority to regulate
in the best interests of racing and may, to that end, disapprove the involvement
of certain personnel in the Company's operations or withhold permission for a
proposed OTW site for a variety of reasons, including community opposition. The
Pennsylvania legislature also has reserved the right to revoke the power of the
Pennsylvania Racing Commissions to approve additional OTWs and could, at any
time, terminate pari-mutuel wagering as a form of legalized gaming in
Pennsylvania or subject such wagering to additional restrictive regulation; such
termination would, and any further restrictions could, have a material adverse
effect upon the Company's business, financial condition and results of
operations.
The Company may not be able to obtain all necessary approvals for the
operation or expansion of its business. The Company has had continued permission
from the Pennsylvania State Horse Racing Commission to conduct live racing at
the Penn National Race Course since it commenced operations in 1972, and has
obtained permission from the Pennsylvania State Harness Racing Commission to
conduct live racing at Pocono Downs beginning with the 1997 season. Currently,
the Company has approval from the Pennsylvania Racing Commissions to operate 11
OTWs. A Commission may refuse to grant permission to continue to operate
existing facilities. The failure to obtain required regulatory approvals would
have a material adverse effect upon the Company's business, financial condition
and results of operations.
The Pennsylvania Racing Act provides that no corporation licensed to
conduct thoroughbred racing shall be licensed to conduct harness racing and that
no corporation licensed to conduct harness racing shall be licensed to conduct
thoroughbred racing. The Company's harness and thoroughbred licenses are held by
separate corporations, each of which is a wholly owned subsidiary of the
Company. Moreover, the Pennsylvania State Harness Racing Commission has reissued
the Pocono Downs harness racing license and has found, in connection with the
reissuance, that it is not "inconsistent with the best interests, convenience or
necessity or with
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the best interests of racing generally" that a subsidiary of the Company
beneficially owns Pocono Downs. The Company thus believes that the arrangement
under which it holds both a harness and a thoroughbred license complies with
applicable regulations.
West Virginia Racing and Gaming Regulation. The Company's operations at the
Charles Town Entertainment Complex are subject to regulation by the West
Virginia State Racing Commission (the "West Virginia Racing Commission") under
the West Virginia Racing Act, and by the West Virginia Lottery Commission under
the West Virginia Gaming Machine Act. The powers and responsibilities of the
West Virginia Racing Commission are substantially similar in scope and effect to
those of the Pennsylvania Racing Commissions and extend to the approval and/or
oversight of all aspects of racing and pari-mutuel wagering operations. The
Company has received all necessary approvals to conduct races and OTW operations
and operate 1,000 Gaming Machines at the Charles Town Entertainment Complex;
however, such approvals are subject to renewal and approval annually. The
failure to receive or retain approvals or renewals of approvals, or a delay in
receiving such approvals and renewals, could cause the reduction or suspension
of racing and pari-mutuel wagering, as well as of Gaming Machine operations, at
the Charles Town Entertainment Complex and have a material adverse effect upon
the Company's business, financial condition and results of operations.
Pursuant to the West Virginia Gaming Machine Act, each of the two West
Virginia horse racetracks and two West Virginia dog racetracks licensed prior to
January 1, 1994 and which conduct a minimum number of days of live racing, may
apply for an annual license to operate video lottery terminals at its racetrack.
The West Virginia Gaming Machine Act requires that the operator of the Charles
Town Entertainment Complex be subject to a written agreement with the horse
owners, breeders and trainers who race horses at that facility (the "Charles
Town Horsemen") in order to conduct Gaming Machine operations. The Company is
party to the requisite agreement with the Charles Town Horsemen, which expires
on December 31, 2000. The West Virginia Gaming Machine Act also requires that
the operator of the Charles Town Entertainment Complex be subject to a written
agreement with the pari-mutuel clerks in order to operate Gaming Machines.
Although this agreement expired on December 31, 1997, the Company continues to
conduct negotiations for a new contract and anticipates entering into a new
contract which would operate through December 31, 2000. The absence of an
agreement with the Charles Town Horsemen or the pari-mutuel clerks at the
Charles Town Entertainment Complex, or the termination or non-renewal of such
agreement, would have a material adverse effect on the Company's business,
financial condition and results of operations. The West Virginia Lottery
Commission has broad powers to approve and monitor all operations of the video
lottery terminals, the specification of the terminals and the interface between
the terminals and the West Virginia central lottery system. In addition, the
Commission licenses all persons who control the licensed entity or are key
personnel of the video lottery operation to ensure their integrity and absence
of any criminal involvement.
State and Federal Simulcast Regulation. The Federal Horseracing Act, the
West Virginia Racing Act and the Pennsylvania Racing Act require that, in order
to simulcast races, the Company have written agreements, and the Company
therefore is party to agreements (collectively, the "Horsemen Agreements"), with
the horse owners and trainers (the "Thoroughbred Horsemen Agreement") who race
horses at the Penn National Race Course and Charles Town Races (the
"Thoroughbred Horsemen") and with the horse owners and trainers (the "Harness
Horsemen Agreement") at Pocono Downs (the "Harness Horsemen" and, together with
the Thoroughbred Horsemen, the "Horsemen"). In accordance with the Horsemen
Agreements, the Company has agreed upon the allocations of the Company's
revenues from import simulcast wagering to the purse funds for the Penn National
Race Course, Charles Town Races and Pocono Downs. Because the Company cannot
conduct import simulcast wagering in the absence of the Horsemen Agreements, the
termination or non-renewal of any Horsemen Agreement could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Potential Federal Regulation. In August 1996, the United States Congress
passed legislation, which President Clinton signed, creating the National
Gambling Impact and Policy Commission to conduct a comprehensive study of all
matters relating to the economic and social impact of gaming in the United
States. The legislation provides that, not later than two years after the
enactment of such legislation, the commission must issue a report to the
President and to Congress containing its findings and conclusions, together with
recommendations for legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the gaming industry
and have a material adverse effect on the Company's business or results of
operations. The Company is unable to predict whether this study will result in
legislation that would impose additional regulations on gaming industry
operators, including the Company, or whether such legislation, if any, would
have a material adverse effect on the Company. Additionally, from time to time,
certain federal legislators have proposed the imposition of a federal tax on
gaming revenues. Any such tax could have a material adverse effect on the
Company's financial condition or results of operations.
Taxation. The Company believes that the prospect of significant additional
revenue is one of the primary reasons that jurisdictions permit legalized
gaming. As a result, gaming companies are typically subject to significant taxes
and fees in addition to normal federal and state income taxes, and such taxes
and fees are subject to increase at any time. The Company pays substantial taxes
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and fees with respect to its operations. From time to time, federal legislators
and officials have proposed changes in tax laws, or in the administration of
such laws, affecting the gaming industry. It is not possible to determine with
certainty the likelihood of changes in tax laws or in the administration of such
laws. Such changes, if adopted, could have a material adverse effect on the
Company's business, financial condition and results of operations.
Compliance with Other Laws. The Company and its OTWs are also subject to a
variety of other rules and regulations, including zoning, construction and
land-use laws and regulations in Pennsylvania and West Virginia governing the
serving of alcoholic beverages. Currently, Pennsylvania laws and regulations
permit the construction of off-track wagering facilities, but may affect the
selection of a particular OTW site because of parking, traffic flow and other
similar considerations, any of which may serve to delay the opening of future
OTWs in Pennsylvania. By contrast, West Virginia law does not permit the
operation of OTWs. The Company derives a significant portion of its other
revenues from the sale of alcoholic beverages to patrons of its facilities. Any
interruption or termination of the Company's existing ability to serve alcoholic
beverages would have a material adverse effect on the Company's business,
financial condition and results of operations.
Restrictions on Share Ownership and Transfer. The Pennsylvania Racing Act
requires that any shareholder proposing to transfer beneficial ownership of 5%
or more of the Company's shares file an affidavit with the Company setting forth
certain information about the proposed transfer and transferee, a copy of which
the Company is required to furnish to the Pennsylvania Racing Commission. The
certificates representing the Company shares owned by 5% beneficial shareholders
are required to bear certain legends prescribed by the Pennsylvania Racing Act.
In addition, under the Pennsylvania Racing Act, the Pennsylvania Racing
Commission has the authority to order a 5% beneficial shareholder of the Company
to dispose of the shareholder's common stock of the Company if it determines
that continued ownership would be inconsistent with the public interest,
convenience or necessity or the best interest of racing generally. The West
Virginia Gaming Machine Act provides that a transfer of more than 5% of the
voting stock of a corporation which controls the license may only be to persons
who have met the licensing requirements of the West Virginia Gaming Machine Act
or which transfer has been pre-approved by the West Virginia Lottery Commission.
Any transfer that does not comply with this requirement voids the license.
Potential Tennessee Development Regulatory Compliance. If the Company
successfully completes the development of its potential Tennessee harness track
and OTWs, the Company will likely face regulatory requirements that are similar
to the requirements affecting its existing operations; however, given the
absence of horse racing within Tennessee at this time, the Company may face more
burdensome regulatory approvals or compliance in light of the absence of
significant regulations, interpretation and administrative action at this time.
Effect of Inclement Weather and Seasonality
Because horse racing is conducted outdoors, variable weather contributes to
the seasonality of the Company's business. Weather conditions, particularly
during the winter months, may cause races to be canceled or may curtail
attendance. Because a substantial portion of the Penn National Race Course,
Pocono Downs and Charles Town Races expenses are fixed, the loss of scheduled
racing days could have a material adverse effect on the Company's business,
financial condition and results of operations.
For the twelve months ended December 31, 1997, the Company has canceled a
total of five racing days because of inclement weather. The severe winter
weather in 1996 resulted in the closure of the Company's OTW facilities for two
days in January 1996. Because of the Company's growing dependence upon OTW
operations, severe weather that causes the Company's OTWs to close could have an
adverse effect upon the Company's business, financial condition and results of
operations.
Attendance and wagering at the Company's facilities have been favorably
affected by special racing events which stimulate interest in horse racing, such
as the Triple Crown races in May and June and the heavier racing schedule
throughout the country during the second and third quarters. As a result, the
Company's revenues and net income have been greatest in the second and third
quarters of the year and lowest in the first and fourth quarters of the year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Effect of Inclement Weather and Seasonality."
Limitations and Restrictions of Contracts with Horsemen
The Penn National Race Course Horsemen Agreement was entered into in
February 1996, expires in February 1999 and is subject to automatic renewal for
successive one year terms unless either party gives notice of termination at
least 90 days prior to the end of any such period. The Pocono Downs Horsemen
Agreement was entered into in November 1994, became effective in January
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1995 and expires in January 2000. The Charles Town Horsemen Agreement was
entered into on May 7, 1997 and expires on December 31, 2000. The future success
of the Company depends, in part, on its ability to maintain a good relationship
with the Horsemen and to obtain renewal of the Horsemen Agreements on
satisfactory terms. Failure to do so could lead to an interruption in live
racing, simulcast or OTW operations or, at the Charles Town Entertainment
Complex, Gaming Machine operations. The Company may not be able to renew or
modify the Horsemen Agreements on satisfactory terms, and failure to obtain
satisfactory renewal terms could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Purses;
Agreements with Horsemen" and "--Regulation and Taxation."
Potential Environmental Liabilities
As a result of the acquisition of Pocono Downs, the Company owns a solid
waste landfill (the "Landfill") located outside Wilkes-Barre, Pennsylvania on a
parcel of land adjacent to Pocono Downs. The Landfill was operated by the East
Side Landfill Authority (the "Landfill Authority"), which disposed of municipal
waste in the Landfill from 1970 until 1982 on behalf of four municipalities. The
Landfill is currently subject to a closure order, issued by the Pennsylvania
Department of Environmental Resources ("PADER"), which the four municipalities
are required to implement pursuant to a 1986 Settlement Agreement among the
former trustee in bankruptcy for Pocono Downs, the Landfill Authority, the
municipalities and PADER (the "Settlement Agreement"). According to the
Company's environmental engineering consulting firm, the Landfill closure is
substantially complete. To date the municipalities have been substantially
fulfilling their obligations under the Settlement Agreement. However, there can
be no assurance that the municipalities will continue to meet their obligations
under the Settlement Agreement or that the terms of the Settlement Agreement
will not be amended in the future. In addition, as the owner of the property,
the Company may be liable for future claims with respect to the Landfill under
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and analogous state laws. The Company may incur expenses in
connection with the Landfill in the future, which expenses may not be reimbursed
by the municipalities. Any such expenses could have a material adverse effect on
the Company's business, financial condition and results of operations.
Concentration of Ownership
The Company's executive officers and directors own beneficially an
aggregate of approximately 43.7% of the outstanding common stock of the Company.
Peter M. Carlino, the Company's Chairman and Chief Executive Officer, has voting
control, directly and indirectly through a family trust (the "Carlino Family
Trust") and another corporation, of approximately 40.3% of the outstanding
common stock. The Company's officers and directors if acting together, and Mr.
Carlino acting alone, may be able to significantly influence the election of
directors and the business and affairs of the Company. Under certain
circumstances, including the sale of all or substantially all of the assets of
the Company or a merger, consolidation or liquidation of the Company, other
trustees of the Carlino Family Trust, including Harold Cramer, who is a director
of the Company, may have voting power over approximately 34.1% of the shares of
common stock outstanding.
Dependence on Key Personnel
The Company is highly dependent on the services of Peter M. Carlino, the
Company's Chairman and Chief Executive Officer, and other officers and key
employees. The loss of the services of any of these individuals could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has entered into employment agreements with
Mr. Carlino and certain other officers. See Note 6 of the Notes to the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
Limitations on Change of Control
In the event of a Change of Control, the Company will be required to make
an offer for cash to purchase the Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest, to the repurchase date. A Change of Control
will result in an event of default under the Credit Facility and may result in a
default under other indebtedness of the Company that may be incurred in the
future. The Credit Facility prohibits the purchase of outstanding Exchange Notes
prior to repayment of the borrowings under the Credit Facility and any exercise
by the holders of the Exchange Notes of their right to require the Company to
repurchase the Exchange Notes will cause an event of default under the Credit
Facility. Finally, there can be no assurance that the Company will have the
financial resources necessary to repurchase the Exchange Notes upon a Change of
Control. See "Description of Exchange Notes--Change of Control."
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Fraudulent Conveyance
If the Company or any Subsidiary Guarantor receives less than reasonably
equivalent value in exchange for its issuance of the Exchange Notes or, as the
case may be, its Guarantee or the incurrence of liabilities pursuant thereto,
the Exchange Notes or such Guarantee, or any payments made in respect thereof,
could be avoided under federal or applicable state fraudulent transfer law,
regardless of whether the Company or any Subsidiary Guarantor was subject to any
bankruptcy or insolvency proceedings. In particular, to the extent that any
Subsidiary Guarantor becomes liable for any obligations of the Company in excess
of the value actually received by the Subsidiary Guarantor, the relevant
Guarantee could be subject to avoidance as a fraudulent transfer if, at the time
of, or as a result of, either the issuance of such Guarantee or any payment
thereunder, (i) the Subsidiary Guarantor was or became insolvent, (ii) the
Subsidiary Guarantor had unreasonably small capital to conduct its business as
then conducted or contemplated to be conducted or (iii) the Subsidiary Guarantor
was unable or was rendered unable, to meet its probable liabilities as they
matured and became due and payable. If any Guarantee is avoided, the holders
could lose the benefit of the Guarantee, and the holders could also be required
to return to the Subsidiary Guarantor or its estate the amount of any payment or
other property received in respect of the Exchange Notes.
The Indenture provides that certain future subsidiaries of the Company will
be required to guarantee the Exchange Notes. If certain bankruptcy or insolvency
proceedings are initiated by or against the new subsidiaries within 90 days (or,
possibly, one year) after any such guaranty, grant or assignment, or if any
Subsidiary Guarantor incurs obligations under its Guarantee in anticipation of
insolvency, all or a portion of the affected Guarantee could be avoided as a
preferential transfer under federal bankruptcy or applicable state law. In
addition, a court could require holders to return all payments made under any
such Guarantee within such 90 day period (or, possibly, one year) as
preferential transfers.
The Company believes that it will receive equivalent value at the time the
indebtedness represented by the Exchange Notes is incurred. In addition, the
Company does not believe that the Company and the Subsidiary Guarantors, as a
result of the issuance of the Exchange Notes, (i) will be insolvent or rendered
insolvent under the foregoing standards, (ii) will be engaged in a business or
transaction for which its remaining assets constitute unreasonably small capital
or (iii) intends to incur, or believes that it will incur, debts beyond its
ability to pay such debts as they mature. These beliefs are based on the
Company's and the Subsidiary Guarantors' operating history, net worth and
management's analysis of internal cash flow projections and estimated values of
assets and liabilities of such entities at the time of this Offering. There can
be no assurance, however, that a court passing on these issues would make the
same determination.
Absence of Public Market for the Exchange Notes
The Exchange Notes are a new issue of securities for which there is
currently no established trading market. The Company does not intend to apply to
list the Exchange Notes on any stock exchange. It is expected that the Exchange
Notes will be eligible for trading in the PORTAL Market. The Company has been
advised by the Initial Purchasers that they currently intend to make a market in
the Exchange Notes. However, they are not obligated to do so and any
market-making activities with respect to the Exchange Notes may be discontinued
at any time without notice. In addition, such market-making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act, and
may be limited during this Exchange Offer and the pendency of any Shelf
Registration. There can be no assurance that an active trading market for the
Exchange Notes will develop or be maintained. If a market for the Exchange Notes
does not develop, holders may not be able to resell the Exchange Notes for an
extended period of time, if at all. If a market were to exist, the Exchange
Notes could trade at prices that may be lower than the initial offering price
thereof depending on many factors, including prevailing interest rates and the
markets for similar securities, general economic conditions and the financial
condition and performance of, and prospects for, the Company.
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THE EXCHANGE OFFER
Purpose and Effect
The Old Notes were sold by the Company to the Initial Purchasers on
December 17, 1997, pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act. The Company and the Initial Purchasers also entered into the Registration
Rights Agreement, pursuant to which the Company agreed, with respect to the Old
Notes and subject to the Company's determination that the Exchange Offer is
permitted under applicable law, to (i) cause to be filed, on or prior to
February 1, 1998, a registration statement with the Commission under the
Securities Act concerning the Exchange Offer, (ii) use all reasonable efforts
(a) to cause such registration statement to be declared effective by the
Commission as soon as practicable and (b) to cause the Exchange Offer to remain
open for a period of not less than twenty (20) business days. This Exchange
Offer is intended to satisfy the Company's exchange offer obligations under the
Registration Rights Agreement.
Terms of the Exchange Offer
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the Exchange Notes for each $1,000 in principal amount of
the outstanding Old Notes. The Company will accept for exchange any and all Old
Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on
the Expiration Date. Tenders of the Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain customary
conditions which may be waived by the Company, and to the terms and provisions
of the Registration Rights Agreement. See "--Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $80 million in aggregate principal
amount of the Old Notes were outstanding. As of the Record Date, there was one
registered holder of the Old Notes, Cede, which held the Old Notes for of its
participants. Solely for reasons of administration (and for no other purpose),
the Company has fixed the close of business on January ___, 1998, as the record
date (the "Record Date") for purposes of determining the persons to whom this
Prospectus and the Letter of Transmittal will be mailed initially. Only a Holder
of the Old Notes (or such Holder's legal representative or attorney-in-fact) may
participate in the Exchange Offer. There will be no fixed record date for
determining Holders of the Old Notes entitled to participate in the Exchange
Offer. The Company believes that as of the date of this Prospectus, no such
Holder is an affiliate (as defined in Rule 405 under the Securities Act) of the
Company.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Old Notes and for the purposes of receiving the Exchange Notes from the
Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Expiration Date; Extensions; Amendments
The Expiration Date shall be __________ __,1998 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 10:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent, and (iv)
to amend the terms of the Exchange Offer in any manner. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes.
Conditions of the Exchange Offer
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, notwithstanding any other
provisions of the Exchange Offer, the Company shall not be required to accept
for exchange, or to issue the Exchange Notes in exchange for, any Old Notes, if
any of the following events shall occur, which occurrence, in the sole judgment
of the Company and regardless of the circumstances (including any action by the
Company) giving rise to any such events, makes it inadvisable to proceed with
the Exchange Offer:
(i) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (a) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking
damages as a result thereof or (b) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer or which, in the judgment of
the Company, might result in the holders of the Exchange Notes having
obligations with respect to resales and transfers of Exchange Notes that
are other than those described in "--Resales of the Exchange Notes" or
which would otherwise in the judgment of the Company make it inadvisable to
proceed with the Exchange Offer, provided, however, that the Company will
use reasonable efforts to modify or amend the Exchange Offer or to take
such other reasonable steps in order to effectuate the Exchange Offer, (ii)
any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
Exchange Offer or any of the transactions contemplated by the Exchange
Offer by any domestic or foreign government or governmental authority, or
any action shall have been taken, proposed or threatened by any domestic or
foreign government or governmental authority that in the judgement of the
Company, might directly or indirectly result in any of the consequences
referred to in clauses (i)(a) or (i)(b) above or which, in the judgment of
the Company, might result in the holders of the Exchange Notes having
obligations with respect to resales and transfers of Exchange Notes that
are greater than those described in "--Resales of the Exchange Notes" or
which would otherwise in the judgment of the Company make it inadvisable to
proceed with the Exchange Offer, provided, however, that the Company will
use reasonable efforts to modify, or amend the Exchange Offer or to take
such other reasonable steps in order to effectuate the Exchange Offer;
(ii) there shall have occurred (a) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States or any limitation by any governmental agency or authority which
adversely affects the extension of credit or (b) a commencement of wars,
armed hostilities or other similar international calamity directly or
indirectly involving the United States, or, in the event any of the
foregoing exist at the time of the commencement of the Exchange Offer, a
material acceleration or worsening thereof; or
(iii) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
set forth above are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the Expiration
Date, subject however, to the rights of Holders to withdraw such Old Notes as
described in "--Withdrawal Rights," or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all validly tendered Old Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver by means of a
public announcement and a prospectus supplement that will be distributed to the
registered holders.
The Company expects that the foregoing conditions will be satisfied. The
foregoing conditions are for the sole benefit of the Company and may be waived
by the Company in whole or in part at any time and from time to time in its sole
discretion. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of such rights and each such right
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shall be deemed an ongoing right which may be asserted at any time and from time
to time. Any determination by the Company concerning the events described above
will be final and binding upon all parties.
Termination of Certain Rights
The Registration Rights Agreement provides that, subject to certain
expectations, in the event of a Registration Default (as defined below), Holders
of Old Notes are entitled to receive Liquidated Damages of $.10 per week per
$1,000 principal amount of Old Notes held by such Holders. A "Registration
Default" with respect to the Exchange Offer shall occur if (i) the registration
statement concerning the exchange offer (the "Registration Statement") has not
been filed with the Commission on or prior to June 1, 1998 or (ii) the Exchange
Offer is not consummated by October 14, 1998, or (iii) the Registration
Statement or shelf registration statement required by the Registration Rights
Agreement is filed and declared effective but shall thereafter cease to be
effective without being succeeded within 30 days by an additional registration
statement filed and declared effective under the Securities Act. Holders of
Exchange Notes will not be and, upon consummation of the Exchange Offer, Holders
of Old Notes will no longer be, entitled to (i) the right to receive the
Liquidated Damages or (ii) certain other rights under the Registration Rights
Agreement intended for holders of Transfer Restricted Securities; provided,
however, that a Holder of Old Notes who reasonable determines and notifies the
Company within 20 business days of the consummation of the Exchange Offer that
(i) such Holder is prohibited by applicable law or Commission policy from
participating in the Exchange Offer, or (ii) that such Holder may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and that this Prospectus is not appropriate or available
for such resales by such Holder, or (iii) that such Holder is a broker-dealer
registered under the Exchange Act and holds the Old Notes acquired directly from
the Company or one of its affiliates, subject to reasonable verification by the
Company, will retain the right to require the Company to file a shelf
registration statement pursuant to Rule 415 under the Securities Act solely for
the benefit of such Holder of Old Notes and will be entitled to receive the
Liquidated Damages following the occurrence of defined events of default in
connection with the filing of such shelf registration statement. The Exchange
Offer shall be deemed consummated upon the occurrence of the delivery by the
Company to the Registar under the Indenture of Exchange Notes in the same
aggregate principal amount as the aggregate principal amount of Old Notes that
were tendered by holders thereof pursuant to the Exchange Offer.
Accrued Interest on the Old Notes
The Exchange Notes will bear interest at a rate equal to 10 5/8% per annum
from and including their date of issuance. Holders whose Old Notes are accepted
for exchange will have the right to receive interest accrued thereon from the
date of their original issuance or the last Interest Payment Date, as
applicable, to, but not including, the date of issuance of the Exchange Notes,
such interest to be payable with the first interest payment on the Exchange
Notes. Interest on the Old Notes accepted for exchange, which interest accrued
at the rate of 10 5/8% per annum, will cease to accrue on the day prior to the
issuance of the Exchange Notes. See "Description of Exchange Notes --Principal,
Maturity and Interest."
Procedures for Tendering Old Notes
The tender of a Holder's Old Notes as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
Holder and the Company upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a Holder who wishes to tender Old Notes for exchange pursuant to
the Exchange Offer must transmit such Old Notes, together with a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to the Exchange Agent at the address set
forth on the back cover page of this Prospectus prior to 5:00 p.m., New York
City time, on the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedures for such transfer. In connection with a
book-entry transfer, a Letter of Transmittal need not be transmitted to the
Exchange Agent, provided that the book-entry transfer procedure must be complied
with prior to 5:00 p.m., New York City time, on the Expiration Date.
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Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
by an Eligible Institution (as defined). In the event that a signature on a
Letter of Transmittal or a notice of withdrawal, as the case may be, is required
to be guaranteed, such guarantee must be by a firm which is a member of a
registered national securities exchange or the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible Guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is signed
by a person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature thereon guaranteed by an Eligible Institution, or (ii) be
accompanied by a bond power, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution. The term "registered
holder" as used herein with respect to the Old Notes means any person in whose
name the Old Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not property tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company, or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and Conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. The Company
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor. administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and, unless waived by the Company, proper
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker-dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
By tendering, each registered holder will represent to the Company that,
among other things (i) the Exchange Notes to be acquired in connection with the
Exchange Offer by the Holder and each Beneficial Owner of the Old Notes are
being acquired by the Holder and each Beneficial Owner in the ordinary course of
business of the Holder and each Beneficial Owner, (ii) the Holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iii) the Holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the staff of the Commission set forth in
no-action letters that are discussed herein under "--Resales of Exchange Notes,"
(iv) that if the Holder is a broker-dealer that acquired Old Notes as a result
of market making or other trading activities, it will deliver a prospectus in
connection with any resale of Exchange Notes acquired in the Exchange Offer, (v)
the Holder and each Beneficial Owner understand that a secondary, resale
transaction described in clause (iii) above should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 of Regulation S-K of the Commission, and (vi) neither the
Holder nor any Beneficial Owner is an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company except as otherwise disclosed to the Company
in writing. In connection with a book-entry transfer, each participant will
confirm that it makes the representations and warranties contained in the Letter
of Transmittal.
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Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the Guaranteed delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder; (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within four (4) business days after the date of delivery of
the Notice of Guaranteed Delivery, the tendered Old Notes, a duly executed
Letter of Transmittal and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed documents required by the Letter of Transmittal and the tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at DTC) must be received by
the Exchange Agent within four (4) business days after the Expiration Date. Any
Holder who wishes to tender Old Notes pursuant to the Guaranteed Delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery and Letter of Transmitting, relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The Exchange Notes issued pursuant to the Exchange Offer will be delivered
promptly after acceptance of the Old Notes. For purposes of the Exchange Offer,
the Company shall be deemed to have accepted validly tendered Old Notes, when,
as, and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents (or of
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC); provided, however, that the Company reserves the
absolute right to waive any defects or irregularities in the tender or
conditions of the Exchange Offer. If any tendered Old Notes are not accepted for
any reason, such unaccepted Old Notes will be returned without expense to the
tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Withdrawal Rights
Tenders of the Old Notes may be withdrawn by delivery of a written notice
to the Exchange Agent at its address set forth on the back cover page of this
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by a bond power in the name of the
person withdrawing the tender, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon Guaranteed by an Eligible Institution together with the other
documents required upon transfer by the Indenture, and (iv) specify the name in
which such Old Notes are to be re-registered, if different from the Depositor,
pursuant to such documents of transfer. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, in its sole discretion. The Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are withdrawn will be returned to the Holder thereof without cost to such Holder
as soon as practicable after withdrawal. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Old Notes" at any time on or prior to the Expiration Date.
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<PAGE>
The Exchange Agent; Assistance
State Street Bank and Trust Company is the Exchange Agent. All tendered Old
Notes, executed Letters of Transmittal and other related documents should be
directed to the Exchange Agent. Questions and requests for assistance and
requests for additional copies of the Prospectus, the Letter of Transmittal and
other related documents should be addressed to the Exchange Agent as follows:
By Hand, Registered or Certified Mail or Overnight Courier:
State Street Bank and Trust Company
Goodwin Square
225 Asylum Street
Hartford, CT 06103
------
By Facsimile:
(860) 244-1889
Attention: Corporate Trust Administration
Confirm by Telephone (---) --- ----
Fees and Expenses
All fees and expenses incident to the performance of or compliance with the
Registration Rights Agreement by the Company will be borne by the Company or the
Subsidiary Guarantors whether or not the Exchange Offer or a Shelf Registration
is filed or becomes effective, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings to be made with the National Association of Securities
Dealers, Inc. in connection with an underwritten offering and (B) fees and
expenses for compliance with state securities or Blue Sky laws, (including,
without limitation, the fees and disbursements of counsel in connection with
Blue Sky qualifications of the Registrable Notes or Exchange Notes and
determination of the eligibility of the Registrable Notes or Exchange Notes for
investment under the laws of such jurisdictions (x) where the holders of
Registrable Notes are located, in the case of Exchange Notes, or (y) where,
subject to certain limitations, the Holder or Participating Broker -Dealer may
reasonably request, in the case of Registrable Notes or Exchange Notes to be
sold by a broker-dealer that received Exchange Notes in the Exchange Offer
during the period not to exceed 180 days after the consummation of the Exchange
Offer)) (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form eligible
for deposit with The Depository Trust Company and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriter or
underwriters, if any, by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or Prospectus
sold by any broker-dealer that received Exchange Notes in the Exchange Offer
during the period not to exceed 180 days after the consummation of the Exchange
Offer, as the case may be, (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company and the Subsidiary
Guarantors and, in the case of a Shelf Registration, fees and disbursements of
special counsel for the sellers of Registrable Notes, (v) fees and disbursements
of all independent certified public accountants required (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) rating agency fees, if any,
and any fees associated with making the Registrable Notes or Exchange Notes
eligible for trading through the Depository Trust Company, (vii) Securities Act
liability insurance, if the Company desires such insurance, (viii) fees and
expenses of all other persons retained by the Company or Subsidiary Guarantors,
(ix) internal expenses of the Company or Subsidiary Guarantors (including,
without limitation, all salaries and expenses of officers and employees of the
Company or Subsidiary Guarantors performing legal or accounting duties, (x) the
expense of any annual audit, (xi) the fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
if applicable, (xii) the expenses relating to printing, word processing and
distributing of all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary to comply with
the Registration Rights Agreement.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
-36-
<PAGE>
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss will be recognized by the Company for
accounting purposes. The expenses of the Exchange Offer will be amortized over
the term of the Exchange Notes.
Resales of the Exchange Notes
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer to a Holder in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by such
Holder (other than (i) a broker-dealer who purchased Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act, or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that the Holder is acquiring the Exchange Notes
in the ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate, in the distribution
of the Exchange Notes. However, if any Holder acquires Exchange Notes in the
Exchange Offer for the purpose of distributing or participating in a
distribution of the Exchange Notes, such Holder cannot rely on the position of
the staff of the Commission enunciated in Morgan Stanley & Co., Incorporated
(available June 5, 1991) and Exxon Capital Holdings Corporation (available April
13, 1989), or interpreted in the Commission's letter to Shearman and Sterling
(available June 2, 1993), or similar no-action or interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption for resale is otherwise available. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
-37-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 and as adjusted to give effect to the Offering and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the consolidated financial statements of the Company, which
are included elsewhere in this Prospectus. See "Selected Consolidated Financial
Data."
SEPTEMBER 30, 1997
------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents(1) ...................... $ 3,951 $ 8,951
======== ========
Long-term debt (including current portion):
Old Credit Facility(2) ............................ $ 53,500 $ --
Credit Facility ................................... -- --
Old Notes ......................................... -- 80,000
Other debt ........................................ 360 360
-------- --------
Total debt ........................................ 53,860 80,360
Total shareholders' equity ........................ 55,654 54,575(3)
-------- --------
Total capitalization .............................. $109,514 $134,935
======== ========
(1) As adjusted, amount includes $5.0 million in Offering proceeds available
for working capital and general corporate purposes.
(2) Excludes letters of credit in the face amount of $1.8 million renewed under
the Credit Facility.
(3) Reflects write-off ($1.1 million, net of tax) of deferred financing costs
relating to repayment of amounts outstanding under the Old Credit Facility
with the proceeds of the Offering.
-38-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's financial position as of December 31, 1995 and 1996 and its results of
operations for each of the three years in the period ended December 31, 1996 has
been derived from the audited consolidated financial statements of the Company
appearing elsewhere in this Prospectus. The selected consolidated financial data
with respect to the Company's results of operations for the years ended December
31, 1992 and 1993 and with respect to the Company's financial position as of
December 31, 1992, 1993 and 1994 has been derived from audited financial
statements of the Company that are not included in this Prospectus. The selected
consolidated financial data for each of the nine-month periods ended September
30, 1996 and 1997 are derived from the Company's unaudited financial statements,
which, in the opinion of management, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of such periods. The results for the nine-month period ended September 30, 1997
are not necessarily indicative of results for the full year, or any future
period. The selected consolidated financial data should be read in conjunction
with the consolidated financial statements of the Company and Notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1992(1) 1993(1) 1994 1995 1996 1996 1997(2)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Pari-mutuel revenues
Live races ....................................... $ 31,967 $ 29,224 $ 23,428 $ 21,376 $ 18,727 $ 14,495 $ 18,234
Import simulcasting .............................. 5,764 9,162 16,968 27,254 32,992 23,596 46,766
Export simulcasting .............................. 306 383 1,187 2,142 3,347 2,479 5,701
Gaming Machine revenue ........................... -- -- -- -- -- -- 909
Admissions, programs and other racing
revenues ......................................... 2,502 2,485 2,563 3,704 4,379 3,403 4,388
Concession revenues .............................. 1,285 1,410 1,885 3,200 3,389 2,501 5,570
-------- -------- -------- -------- -------- -------- --------
Total revenues ................................... 41,824 42,664 46,031 57,676 62,834 46,474 81,568
Operating expenses
Purses, stakes and trophies ...................... 9,581 9,719 10,674 12,091 12,874 9,744 16,550
Direct salaries, payroll taxes and employee
benefits ......................................... 5,939 6,394 6,707 7,699 8,669 6,211 12,034
Simulcast expenses ............................... 10,403 10,136 8,892 9,084 9,215 6,920 9,836
Pari-mutuel taxes ................................ 3,504 3,568 4,054 4,963 5,356 3,954 6,917
Lottery taxes and administration ................. -- -- -- -- -- -- 298
Other direct meeting expenses .................... 5,835 6,046 6,375 8,214 9,583 6,932 12,878
OTW concession expenses .......................... 541 806 1,231 2,221 2,451 1,766 4,283
Management fees paid to related entity ........... 1,366 1,208 345 -- -- -- --
Other operating expenses ......................... 2,354 2,331 3,329 5,149 5,226 3,710 8,303
-------- -------- -------- -------- -------- -------- --------
Total operating expenses ......................... 39,523 40,208 41,607 49,421 53,374 39,237 71,099
-------- -------- -------- -------- -------- -------- --------
Income from operations ........................... 2,301 2,456 4,424 8,255 9,460 7,237 10,469
Other income (expenses)
Interest income (expense), net ................... (917) (962) (340) 198 (156) 185 (2,356)
Site development (expenses) ...................... -- -- -- -- -- -- (599)
Other ............................................ 56 6 15 10 -- -- 17
-------- -------- -------- -------- -------- -------- --------
Total other income (expenses) .................... (861) (956) (325) 208 (156) 185 (2,938)
-------- -------- -------- -------- -------- -------- --------
</TABLE>
-39-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes and extraordinary
item ......................................................... 1,440 1,500 4,099 8,463 9,304 7,422 7,531
Taxes on income .............................................. 150 42 1,381 3,467 3,794 3,016 3,093
------ ------ ------ ------ ------ ------ ------
Income before extraordinary item ............................. 1,290 1,458 2,718 4,996 5,510 4,406 4,438
Extraordinary item loss on early extinguishment
of debt, net of income taxes of $83 and $259,
respectively ................................................. -- -- 115 -- -- -- 383
------ ------ ------ ------ ------ ------ ------
Net income ................................................... $1,290 $1,458 $2,603 $4,996 $5,510 $4,406 $4,055
====== ====== ====== ====== ====== ====== ======
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1992(1) 1993(1) 1994 1995 1996 1996 1997(2)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Pari-mutuel wagering
Live races ......................................... $153,332 $138,939 $111,248 $102,145 $ 89,327 $ 69,200 $ 99,971
Import simulcasting ................................ 42,159 58,252 93,461 142,499 170,814 122,960 228,352
Export simulcasting ................................ 10,202 12,746 40,337 72,252 112,871 84,228 132,347
-------- -------- -------- -------- -------- -------- --------
Total pari-mutuel wagering ......................... $205,693 $209,937 $245,046 $316,896 $373,012 $276,388 $460,670
======== ======== ======== ======== ======== ======== ========
Gross profit from wagering(3) ...................... $ 14,549 $ 15,346 $ 17,936 $ 24,915 $ 27,955 $ 20,286 $ 37,398
OTHER DATA:
EBITDA(4) .......................................... $ 2,876 $ 3,096 $ 5,123 $ 9,136 $ 10,893 $ 8,148 $ 13,170
Depreciation and amortization ...................... 575 640 699 881 1,433 911 2,701
Capital expenditures ............................... 2,359 412 2,852 3,958 6,995 4,784 26,392(5)
Ratio of earnings to fixed charges(6) .............. 2.3x 2.3x 6.9x 29.7x 11.7x 32.3x 2.9x
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ........... $ 937 $ 1,002 $ 5,502 $ 7,514 $ 5,634 $ 5,602 $ 3,951
Working capital (deficiency) ........ (4,700) (4,549) 2,074 4,134 (509) 2,994 (10,406)
Total assets ........................ 18,071 18,373 21,873 27,532 96,723 33,733 134,919
Total debt .......................... 11,716 10,422 516 390 47,517 302 53,860
Shareholders' equity ................ 2,516 3,418 15,627 20,802 27,881 26,694 55,654
</TABLE>
(1) The Consolidated Financial Statements of the Company include entities
which, prior to a recapitalization which occurred in 1994 shortly before
the Company's initial public offering, were affiliated through common
ownership and control. See Note 1 of the Notes to the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
(2) Reflects the November 27, 1996 acquisition of Pocono Downs and the January
15, 1997 acquisition of a joint venture interest in the Charles Town
Entertainment Complex. See "Business--Acquisitions."
(3) Amounts equal total pari-mutuel revenues, less purses paid to Horsemen,
taxes payable to Pennsylvania and simulcast commissions or host track fees
paid to other racetracks. Figures for the years ended December 31, 1995 and
1996 and for the nine months ended September 30, 1996 do not include purses
paid at Penn National Speedway.
(4) EBITDA is presented because management believes it provides useful
information regarding a company's ability to incur and/or service debt.
EBITDA should not be considered in isolation or as a substitute for
consolidated net income, cash flows, or other income or cash flow data
prepared in accordance with GAAP or as a measure of a company's
profitability or liquidity.
(5) Includes approximately $22.8 million in capital expenditures associated
with the renovation and refurbishment of the Charles Town Entertainment
Complex. The balance of the amount relates to normal ongoing capital
expenditures at the Company's other facilities.
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<PAGE>
(6) For the purpose of determining the ratio of earnings to fixed charges,
"earnings" consists of pre-tax income from continuing operations. "Fixed
charges" consist of interest expense (both capitalized and expensed), which
includes the amortization of deferred debt issuance costs and the interest
portion of the Company's rent expense (assumed to be one third of rent
expense).
-42-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Disclosure Regarding
Forward-Looking Statements," "Risk Factors" and elsewhere in this Prospectus.
Overview
The Company's pari-mutuel revenues have been derived from (i) wagering on
the Company's live races (a) at the Penn National Race Course, (b) at the
Company's OTWs, (c) at other Pennsylvania racetracks and OTWs and (d) through
telephone wagering, as well as wagering at the Company's racetracks on certain
stakes races run at out-of-state racetracks (collectively, referred to in the
Company's financial statements as "pari-mutuel revenues from Penn National
races"), (ii) wagering on full-card import simulcasts at the Company's
racetracks and OTWs and through telephone wagering (collectively, referred to in
the Company's financial statements as "pari-mutuel revenues from import
simulcasting") and (iii) fees from wagering on export simulcasting Company races
at out-of-state locations (referred to in the Company's financial statements as
"pari-mutuel revenues from export simulcasting"). The Company's other revenues
have been derived from admissions, program sales and certain other ancillary
activities, food and beverage sales and concessions and, beginning in September
1997, Gaming Machines.
Over the past several years, attendance at live racing, on an industry-wide
basis, has generally declined. Prior to the inception of OTWs, declining live
racing attendance at a track translated directly into lower purses at that
track. As the size of the purses declined, the quality of live racing at the
track would suffer, leading in turn to further reductions in attendance.
However, the Company believes that increased contributions to the purse pool
from wagers placed at OTWs affiliated with racetracks have significantly offset
the effects of declining live racing attendance on race quality, and thereby
improved the marketability of many tracks' export simulcast products. Indeed,
despite declining live racing attendance, total pari-mutuel wagering on horse
races in the United States has remained relatively constant in recent years.
Moreover, a number of states have recently begun to authorize the installation
of slot machines, video lottery terminals or other gaming machines at live
racing venues such as thoroughbred horse tracks, harness tracks and dog tracks.
The revenue from these gaming opportunities and from the higher volume of wagers
placed at these venues has not only increased total revenues for the tracks at
which they are installed, but has generally further increased purse size and
thereby resulted in higher quality races that can command higher simulcast
revenues.
The amount of revenue to the Company from a wager depends upon where the
race is run and where the wagering takes place. Pari-mutuel revenues from
Company races and import simulcasting of out-of-state races have consisted of
the total amount wagered, less the amount paid as winning wagers. Pari-mutuel
revenues from wagering at the Company's racetracks or the Company's OTWs on
import simulcasting from other Pennsylvania racetracks have consisted of the
total amount wagered, less the amounts paid as winning wagers, amounts payable
to the host racetrack and pari-mutuel taxes to Pennsylvania. Pari-mutuel
revenues from export simulcasting have consisted of amounts payable to the
Company by the out-of-state racetracks with respect to wagering on live races at
the Company's racetracks. Operating expenses have included purses payable to the
Thoroughbred Horsemen, commissions to other racetracks with respect to wagering
at their facilities on races at the Company's racetracks, pari-mutuel taxes on
races at the Company's racetracks and export simulcasting and other direct and
indirect operating expenses.
The Pennsylvania Racing Act specifies the maximum percentages of each
dollar wagered on horse races in Pennsylvania which may be retained by the
Company (prior to required payments to the Thoroughbred Horsemen and applicable
taxing authorities). The percentages vary, based on the type of wager; the
average percentage is approximately 20%. The balance of each dollar wagered must
be paid out to the public as winning wagers. With the exception of revenues
derived from wagers at the Company's racetracks or the Company's OTWs, the
Company's revenues on each race are determined pursuant to such maximum
percentage and agreements with the other racetracks and OTWs at which wagering
is taking place. Amounts payable to the Thoroughbred Horsemen are determined
under agreements with the Thoroughbred Horsemen and vary depending upon where
the wagering is conducted and the racetrack at which such races take place. The
Thoroughbred Horsemen receive their share of such wagering as race purses. The
Company retains a higher percentage of wagers made at its own facilities than of
wagers made at other locations. See "Business--Purses; Agreements with
Horsemen."
On November 27, 1996, the Company acquired Pocono Downs for an aggregate
purchase price of $48.2 million plus approximately $730,000 in
acquisition-related fees and expenses. Pocono Downs conducts harness racing and
pari-mutuel wagering
-43-
<PAGE>
at its track outside Wilkes-Barre, Pennsylvania, export simulcasting of Pocono
Downs races to locations throughout the United States, pari-mutuel wagering at
Pocono Downs and at OTWs in Allentown and Erie, Pennsylvania on Pocono Downs
races and on import simulcast races from other racetracks and telephone account
wagering on live and import simulcast races. The Company applied and was
approved by the Pennsylvania Harness Commission for a new racing license and
1998 harness racing dates at Pocono Downs. This approval entitles the Company to
reduce, for a period of four years, its pari-mutuel tax by one-half percent with
respect to wagering at Pocono Downs and the Company's OTWs in Allentown,
Carbondale, Erie, Hazleton and Stroudsburg, Pennsylvania.
Prior to the acquisition of Pocono Downs, the Company operated four OTWs in
Chambersburg, Lancaster, Reading and York, Pennsylvania. The Company added the
OTWs in Allentown and Erie, Pennsylvania in November 1996 through the
acquisition of Pocono Downs and an additional OTW through the opening of the
Williamsport OTW in February 1997. The Company has obtained approvals to
operate, and expects to open during the first quarter of 1998, OTWs in
Carbondale and Hazleton, Pennsylvania. Subject to the receipt of all regulatory
approvals, the Company anticipates opening additional OTWs in Stroudsburg and
Altoona, Pennsylvania, at which time the Company would operate 11 of the 23
OTWs, authorized under Pennsylvania law.
On January 15, 1997, the Company acquired for a net purchase price of
approximately $18.1 million (including acquisition costs) a controlling joint
venture interest in Charles Town Races. After substantially completing a major
renovation and refurbishment of the property, the Company reopened Charles Town
Races as the Charles Town Entertainment Complex which features Gaming Machines,
live racing, simulcast wagering and dining. The Company currently owns an 89%
joint venture interest in the Charles Town Joint Venture. Racing operations
reopened at the Charles Town Entertainment Complex in April 1997. Gaming Machine
operations commenced with a soft opening on September 10, 1997, followed by the
Company's grand opening on October 17, 1997. The Company operated an average of
approximately 300 Gaming Machines in September 1997, and increased the number of
Gaming Machines in operation to 550 as of October 31, 1997. The Company expects
to increase the number of Gaming Machines in operation at the Charles Town
Entertainment Complex to 690 by February 28, 1998. The Company ultimately
intends to operate at the Charles Town Entertainment Complex 1,000 Gaming
Machines, the maximum number it is currently permitted to operate by law.
Results of Operations
The following table sets forth certain data from the Consolidated
Statements of Income of the Company as a percentage of total revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- --------------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues
Pari-mutuel revenues
Live races ................................................... 50.9% 37.1% 29.8% 31.2% 22.4%
Import simulcasting .......................................... 36.9 47.3 52.5 50.8 57.3
Export simulcasting .......................................... 2.6 3.7 5.3 5.3 7.0
Gaming Machine revenues ...................................... -- -- -- -- 1.1
Admissions, programs and other racing
revenues ..................................................... 5.5 6.4 7.0 7.3 5.4
Concession revenues .......................................... 4.1 5.5 5.4 5.4 6.8
----- ----- ----- ----- -----
Total revenues ................................... 100.0 100.0 100.0 100.0 100.0
Operating expenses
Purses, stakes and trophies .................................. 23.2 21.0 20.5 21.0 20.3
Direct salaries, payroll taxes and employee
benefits ..................................................... 14.6 13.3 13.8 13.3 14.8
Simulcast expenses ........................................... 19.3 15.8 14.7 14.9 12.1
Pari-mutuel taxes ............................................ 8.8 8.6 8.5 8.5 8.5
Lottery taxes and administration ............................. -- -- -- -- 0.2
Other direct meeting expenses ................................ 13.8 14.2 15.3 14.9 15.8
OTW concession expenses ...................................... 2.7 3.9 3.9 3.8 5.3
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Management fee paid to related entity .......................... 0.8 -- -- -- --
Other operating expenses ....................................... 7.2 8.9 8.3 8.0 10.2
---- ---- ---- ---- ----
Total operating expenses ....................................... 90.4 85.7 84.9 84.4 87.2
---- ---- ---- ---- ----
Income from operations ......................................... 9.6 14.3 15.1 15.6 12.8
Other income (expenses)
Interest income (expense), net ................................. (0.7) 0.4 (0.2) 0.4 (2.9)
Site development (expense) ..................................... -- -- -- -- (0.7)
---- ---- ---- ---- ----
Total other income (expense) ....................... (0.7) 0.4 (0.2) 0.4 (3.6)
---- ---- ---- ---- ----
Income before income taxes and extraordinary
item ........................................................... 8.9 14.7 14.9 16.0 9.2
---- ---- ---- ---- ----
Net income ..................................................... 5.7% 8.7% 8.8% 9.5% 5.0%
==== ==== ==== ==== ====
</TABLE>
Nine Months Ended September 30, 1997 compared to Nine Months Ended September 30,
1996
Total revenue increased by approximately $35.1 million, or 75.5%, to $81.6
million for the nine months ended September 30, 1997 as compared to the nine
months ended September 30, 1996. Pocono Downs, which was acquired in the fourth
quarter of 1996 under the purchase method, accounted for $26.2 million of the
increase. Charles Town Races, which was purchased in January 1997, accounted for
$7.8 million of the increase. The Company renovated and refurbished the Charles
Town Entertainment Complex following its acquisition and commenced racing
operations on April 30, 1997 and Gaming Machine operations, with a soft opening,
on September 10, 1997. The remaining revenue increase of $1.1 million was
primarily due to an increase of approximately $5.9 million associated with the
opening of the Penn National OTW facility in Williamsport in February 1997 and a
full period of operations at the Lancaster OTW facility; this increase was
offset by a decrease in revenues of approximately $4.2 million at the Company's
OTW facilities in Reading and York and at the Penn National Race Course.
Management believes that the decrease in revenues at these facilities was
primarily due to the opening of a competitor's OTW facility and the opening of
the Company's Lancaster OTW facility in July 1996. The Company also had a
decrease of $600,000 relating to the closing of Penn National Speedway in
Grantville at the end of 1996.
Total operating expenses increased by approximately $31.9 million, or
81.2%, to $71.1 million for the nine months ended September 30, 1997, as
compared to the nine months ended September 30, 1996. Pocono Downs and Charles
Town Races, which the Company did not operate in the corresponding prior period,
accounted for $21.4 million and $8.2 million of this increase, respectively.
Operating expenses also increased by $1.2 million primarily due to an increase
of $3.9 million associated with the opening of the Company's new OTW facility in
Williamsport in February 1997 and a full period of operations at the Lancaster
OTW facility, which was offset by a decrease in operating expenses of
approximately $1.7 million at the Company's OTW facilities in Reading and York
and at the Penn National Race Course associated with lower revenues at those
facilities. In addition, there was a decrease of approximately $800,000 due to
the closing of Penn National Speedway. The increase in corporate expenses of
$1.0 million was due to increased personnel, office space and other
administrative expense necessary to support the expansion of the Company.
Income from operations increased by approximately $3.2 million, or 44.7%,
to $10.5 million due to the factors described above. Other expenses for the nine
months ended September 30, 1997 consisted of approximately $2.7 million in
interest expense (primarily due to the financing of the Pocono Downs and Charles
Town acquisitions) compared to $44,000 in interest expense for the nine months
ended September 30, 1996. Site development expenses for the nine months ended
September 30, 1997 consist of a non-recurring pre-tax charge of approximately
$599,000 due to the Company's failure to obtain the approval for the Downingtown
OTW facility and related expenses from discontinued site development efforts in
Indiana.
The extraordinary item consisted of a loss on the early extinguishment of
debt in the amount of $383,000, net of the income taxes. This resulted from the
Company's receiving approximately $23.0 million as proceeds from the February
1997 equity offering and using approximately $19.0 million to reduce long-term
debt.
Net income decreased by approximately $351,000, or 8.0%, to $4.1 million
for the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996 based on the factors described above.
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Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total revenues increased by approximately $5.2 million, or 8.9%, from $57.7
million in 1995 to $62.8 million in 1996. The increase was attributable to an
increase in import and export simulcasting revenues, offset in part by a
decrease in pari-mutuel revenues on live races at the Penn National Race Course.
The increases in pari-mutuel revenues from import simulcasting, admissions,
programs and other racing revenues and concession revenue were due primarily to
operating the York OTW facility for twelve months in 1996 compared to nine
months in 1995, the opening of the Lancaster OTW facility in July 1996, and the
additional revenue from the acquisition of Pocono Downs since November 28, 1996.
The increase in export simulcasting revenue of $1.2 million or 56.3% from $2.1
million to $3.3 million resulted from the marketing of the Penn National Race
Course races to additional out-of-state locations. The decrease in pari-mutuel
revenues on the Penn National Race Course races was due to increased import
simulcasting revenue from wagering on other racetracks at Company facilities and
inclement winter weather conditions throughout the state of Pennsylvania during
the first quarter. For the year, the Penn National Race Course was scheduled to
run 217 live race days but canceled eleven in the first quarter due to weather.
In 1995, the Penn National Race Course ran 204 live race days and had six
cancellations.
Total operating expenses increased by approximately $4.0 million, or 8.0%,
from $49.4 million in 1995 to $53.4 million in 1996. The increase in operating
expenses resulted from a full year of operations for the York OTW compared to
nine months in 1995, six months of operating expenses for the new Lancaster OTW,
one month of operating expenses at Pocono Downs and the expansion of the
corporate staff and office facility at Wyomissing in June of 1995.
Income from operations increased by approximately $1.2 million, or 14.6%,
from $8.3 million in 1995 to $9.5 million in 1996 due to the factors described
above.
The Company had other operating expenses of $156,000 in 1996 compared to
other operating income of $208,000 in 1995, primarily as a result of increased
interest expense. The increase in interest expense is due to the company
incurring bank debt of $47 million on November 27, 1996 for the purchase of
Pocono Downs.
Net income increased $514,000 or 10.3%, from $5.0 million in 1995 to $5.5
million in 1996 reflecting the factors described above. Income tax expense
increased from $3.5 million to $3.8 million due to the increase in income for
the year.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues increased by approximately $11.6 million, or 25.3%, from
$46.0 million to $57.7 million in 1995. This increase was primarily attributable
to an increase in import and export simulcasting revenues, admissions programs,
other racing revenues and concession revenues. The increase in revenues resulted
from a full year of operations at the Chambersburg OTW compared to eight months
of operations in 1994, the opening of the York OTW in March 1995, and an
increase of approximately $955,000, or 80.5%, from $1.2 million to $2.1 million
in export simulcasting revenues due to live races at Penn National Race Course
being broadcast to additional out-of-state locations. The decrease in
pari-mutuel revenues from live races at the Penn National Race Course was due to
the decrease in the number of live race days from 219 race days in 1994 to 204
race days in 1995.
Total operating expenses increased by approximately $7.8 million, or 18.8%,
from $41.6 million to $49.4 million in 1995. The increase in operating expenses
resulted from a full year of operations at the Chambersburg OTW, the opening of
the York OTW and the expansion of the corporate staff and office facility in
Wyomissing. The decrease in management fees was a result of the management fees
being discontinued when the Company completed its initial public offering in
1994.
Income from operations increased by approximately $3.8 million, or 86.6%,
from $4.4 million to $8.3 million due to the factors described above.
Total other income (expense) increased by approximately $533,000 due to the
investment of available cash reserves and the decrease in interest expense as a
result of repayment of all bank debt with the proceeds of the Company's initial
public offering in May 1994.
Net income increased by approximately $2.4 million, or 91.9%, from $2.6
million to $5.0 million reflecting the factors described above. Income tax
expenses increased from $1.4 million to $3.5 million due to the increased income
for the year.
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<PAGE>
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 from issuances of equity securities.
Net cash provided from operating activities for the nine months ended
September 30, 1997 ($11.2 million) consisted of net income and non-cash expenses
($7.6 million), the repayment of the Charles Town Entertainment Complex
receivable in January 1997 ($1.3 million) and other changes in certain assets
and liabilities ($2.3 million).
Cash flows used in investing activities for the nine months ended September
30, 1997 ($42.7 million) consisted of the acquisition of the Charles Town Races
($16.0 million), construction in progress and renovation and refurbishment of
the Charles Town Races ($22.8 million), and $3.9 million in capital
expenditures, including approximately $700,000 for the completion of the
Williamsport OTW facility.
Cash flows from financing activities for the nine months ended September
30, 1997 ($29.9 million) consisted principally of $23.1 million in proceeds from
a secondary equity offering in February 1997 and $16.5 million in proceeds from
long-term debt used as payment for the acquisition of Charles Town Races on
January 15, 1997. The Company used the proceeds from the equity offering to
repay $19.0 million of its bank debt (including borrowings from the acquisition
of the Charles Town Races facility), and the remaining amount was used for the
refurbishment of the Charles Town Entertainment Complex. The Company received an
additional $6.5 million in proceeds from long-term debt during the third quarter
to use for the refurbishment of the Charles Town Entertainment Complex. The
Company had a $5.0 million revolving credit facility which included a $2.0
million sublimit for standby letters of credit for periods of up to twelve
months. At September 30, 1997, the Company borrowed $2.5 million of the
revolving credit facility for the refurbishment of the Charles Town
Entertainment Complex. On October 30, 1997, the revolving credit facility was
increased to $10.0 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 the landfill in the future,
which expenses may not be reimbursed by the four municipalities which are
parties to the settlement agreement. The Company is unable to estimate the
amount, if any, that it may be required to expend. See "Risk Factors--Potential
Environmental Liabilities."
During the fourth quarter of 1997 and during 1998, respectively, the
Company anticipates capital expenditures of approximately $4.0 million and $3.6
million to construct four additional OTW facilities. The Company also
anticipates approximately $200,000 in other capital expenditures and
improvements to existing facilities for the Penn National Race Course and Pocono
Downs. The Company anticipates expending approximately $29.0 million on the
refurbishment of the Charles Town Entertainment Complex (excluding the cost of
gaming machines), of which $22.8 million had already been expended through
September 30, 1997.
Concurrently with the Offering, the Company entered into a 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 will be secured by
the assets of the Company and certain of its subsidiaries and guaranteed by all
subsidiaries, except the Charles Town Joint Venture.
The net proceeds of the Offering, together with cash generated from
operations and borrowings under the Credit Facility, were sufficient to repay
amounts outstanding under the Old Credit Facility, and, the Company currently
estimates, will be sufficient to finance its current operations, planned capital
expenditure requirements, and the costs associated with the Tennessee
development project. See "Business--Potential Tennessee Development Project."
There can be no assurance, however, that the Company will not be required to
seek additional capital, in addition to that available from the foregoing
sources. The Company may, from time to time, seek additional funding through
public or private financing, including equity financing. There can be no
assurance that adequate funding will be available as needed or, if available, on
terms acceptable to the Company.
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<PAGE>
Effect of Inclement Weather and Seasonality
Because horse racing is conducted outdoors, variable weather contributes to
the seasonality of the Company's business. Weather conditions, particularly
during the winter months, may cause races to be canceled or may curtail
attendance. During the year ended December 31, 1996, the Company lost 11
scheduled racing days due to weather conditions and during the nine-month period
ended September 30, 1997, the Company lost four scheduled racing days due to
weather conditions. Over the previous five years, the Company lost an average of
four days per year due to inclement weather. Because a substantial portion of
the Company's Penn National Race Course and Pocono Downs expenses are fixed, the
loss of scheduled racing days could have a material adverse effect on the
Company's business, financial condition and results of operations.
The severe winter weather in 1996 also resulted in the closure of the
Company's OTW facilities for two days in January 1996. Although weather
conditions reduced attendance at OTWs, the reduction in attendance at OTWs on
days when both the Penn National Race Course and the OTWs were open was
proportionately less than the reduction in attendance at the Penn National Race
Course. Because of the Company's growing dependence upon OTW operations, severe
weather that causes the Company's OTWs to close could have a material adverse
effect on the Company's business, financial condition and results of operations.
Attendance and wagering at the Company's facilities have been favorably
affected by special racing events which stimulate interest in horse racing, such
as the Triple Crown races in May and June and the heavier racing schedule
throughout the country during the second and third quarter. As a result, the
Company's revenues and net income have been greatest in the second and third
quarters of the year and lowest in the first and fourth quarters of the year.
Recent Accounting Pronouncements
During 1995, the Financial Accounting Standards Board ("FASB") adopted
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The Company adopted the provisions of SFAS 121 during the year ended
December 31, 1995. SFAS 121 establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Any long-lived assets held for disposal are reported at the lower
of their carrying amounts or fair value less cost to sell.
During 1995, the FASB also adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," which
has recognition provisions that establish a fair value based method of
accounting for stock-based employee compensation plans and established fair
value as the measurement basis for transactions in which an entity acquires
goods or services from nonemployees in exchange for equity instruments. SFAS 123
also has certain disclosure provisions. Adoption of the recognition provisions
of SFAS 123 with regard to these transactions with nonemployees was required for
all such transactions entered into after December 15, 1995 and the Company
adopted these provisions as required. The recognition provision with regard to
the fair value based method of accounting for stock-based employee compensation
plans is optional. The Company has decided to continue to apply Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees," for its stock-based employee compensation arrangements. APB 25 uses
what is referred to as an intrinsic value based method of accounting. In
accordance with SFAS 123, the Company disclosed the effects of employee stock
options issued for the year ended December 31, 1995 and 1996.
On March 3, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share " ("SFAS 128"). This pronouncement is
effective for financial statements issued for periods ended after December 16,
1997 and provides a different method of calculating earnings per share than is
currently used in accordance with APB 15, "Earnings per Share." SFAS 128
provides for the calculation of "Basic" and "Diluted" earnings per share. Basic
earnings per share includes no dilution and is calculated by dividing net income
by the common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could share in the earnings
of an entity, similar to fully diluted earnings per share. The Company does not
feel that the adoption of SFAS 128 will have a material effect in 1997.
Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure ("SFAS 129"), effective for periods ending
after December 15, 1997, establishes standards for disclosing information about
an entity's capital structure. SFAS 129 requires disclosure of the pertinent
rights and privileges of various securities outstanding (stock, options,
warrants,
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<PAGE>
preferred stock, debt and participation rights) including dividend and
liquidation preferences, participant rights, call prices and dates, conversion
or exercise prices and redemption requirements. Adoption of SFAS 129 will have
no effect on the Company because it currently discloses the information
specified.
In June 1997, the FASB issued two new disclosure standards. The Company's
results of operations and financial position will be unaffected by
implementation of these new standards.
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"), establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements.
Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of a Business Enterprise ("SFAS 131"), establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of an enterprise about which separate financial information is
available and that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
Both SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
BUSINESS
General
The Company, which began operations in 1972, is a diversified gaming and
pari-mutuel wagering company that owns and operates two racetracks and seven
OTWs in Pennsylvania, as well as an entertainment complex that includes a
thoroughbred racetrack and Gaming Machines in Charles Town, West Virginia. The
Company's Pennsylvania racetracks include the Penn National Race Course, located
outside Harrisburg, one of two thoroughbred racetracks in Pennsylvania, and
Pocono Downs, located outside Wilkes-Barre, one of two harness racetracks in
Pennsylvania. The Company intends to develop the four additional OTWs that have
been allocated to it under Pennsylvania law, after which it would operate 11 of
the 23 OTWs currently authorized in Pennsylvania. Between 1993 and 1996, the
Company increased total wagers at a compound annual growth rate of 21.1% by
expanding its simulcast and OTW operations. In contrast, during the same period,
total industry wagers increased at a compound annual growth rate of 3.0% based
upon industry data. For the twelve months ended September 30, 1997, the Company
generated $97.9 million in revenues and $15.9 million in EBITDA.
The Company developed the Charles Town Entertainment Complex in order to
operate and market a facility that integrates Gaming Machines with the Company's
core business strengths of live racing and simulcast wagering. The Charles Town
Entertainment Complex is an approximately 60-minute drive from Baltimore,
Maryland and an approximately 70-minute drive from Washington, DC. Through
November 30, 1997, the Company has invested a total of approximately $45.2
million to acquire and develop the Charles Town Entertainment Complex, which
includes $18.1 million in acquisition costs and $27.1 million for substantial
renovations and refurbishments. In developing the Charles Town Entertainment
Complex, the Company preserved the California mission-style architecture of the
original Charles Town Races facility and incorporated extensive internal
renovations including a 1930s art deco Hollywood theater theme within the Silver
Screen Gaming area. After having been closed for approximately six months, the
Company reopened thoroughbred racing and simulcasting operations at the Charles
Town Entertainment Complex in April 1997. Gaming Machine operations commenced
with a soft opening on September 10, 1997, followed by a grand opening on
October 17, 1997. The Company owns an 89% joint venture interest in the Charles
Town Joint Venture.
Industry Overview
Pari-mutuel wagering on thoroughbred or harness racing is pooled wagering,
in which a pari-mutuel wagering system totals the amounts wagered and adjusts
the payouts to reflect the relative amounts bet on different horses and various
possible outcomes.
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The pooled wagers are (i) paid out to bettors as winnings in accordance with the
payoffs determined by the pari-mutuel wagering system, (ii) paid to the
applicable regulatory or taxing authorities and (iii) distributed to the track's
horsemen in the form of "purses" which encourage owners and trainers to enter
their horses in that track's live races. The balance of the pooled wagers is
retained by the wagering facility. Pari-mutuel wagering is currently authorized
in more than 40 states in the United States, all provinces in Canada and
approximately 100 other countries around the world.
Gaming and wagering companies, such as the Company, that focus on
pari-mutuel horse race wagering derive revenue through wagers placed at their
own tracks, at their OTWs and on their own races at the tracks and OTWs of
others. While some states, such as New York, operate off-track betting locations
that are independent of racetracks, in other states (such as Pennsylvania)
racetrack ownership and operation is a precondition to OTW ownership and
operation. A racetrack in such a state, then, is akin to an "admission ticket"
to the OTW business.
Over the past several years, attendance at live racing has generally
declined. Prior to the inception of OTWs, declining live racing attendance at a
track translated directly into lower purses at that track. As the size of the
purses declined, the quality of live racing at the track would suffer, leading
in turn to further reductions in attendance. The Company believes that increased
contributions to the purse pool from wagers placed at OTWs affiliated with
racetracks have significantly offset the effects of declining live racing
attendance on race quality, and thereby improved the marketability of many
tracks' export simulcast products. Indeed, despite declining live racing
attendance, total pari-mutuel wagering on horse races in the United States has
remained relatively constant in recent years increasing slightly from
approximately $13.7 billion in 1993 to approximately $15.0 billion in 1996,
according to industry data; an increase in simulcast, inter-track and off-track
wagering from approximately $7.6 billion to approximately $11.0 billion during
that period has offset declining wagering at tracks on live races. Given that
many pari-mutuel wagering companies, such as the Company, face the necessary
precondition of conducting live racing operations as their entree into the
industry, the Company believes that its opportunities for success can be
maximized through OTW operations, import and export simulcasting and the
operation of Gaming Machines, to the extent permitted.
A number of states have recently begun to authorize the installation of
slot machines, video lottery terminals or other gaming machines ("Gaming
Wagering") at live racing venues such as thoroughbred horse tracks, harness
tracks and dog tracks. The revenue from these gaming opportunities and from the
higher volume of wagers placed at these venues has not only increased total
revenues for the tracks at which they are installed, but has generally further
increased purse size and thereby resulted in higher quality races that can
command higher simulcast revenues. The Company has taken advantage of this
development by acquiring Charles Town Races shortly after West Virginia
authorized the operation of Gaming Machines at Charles Town Races. Since
pari-mutuel wagering companies, such as the Company, possess the necessary
precondition of conducting live racing operations to offer OTW wagering
opportunities and Gaming Wagering (where permitted by law), the Company believes
that its opportunities for success can be maximized through OTW operations,
import simulcasting and export simulcasting and the operation of Gaming
Machines, to the extent permitted. At present, more than 40 states authorize
inter-state and/or intra-state pari-mutuel wagering, which may involve the
simulcasting of such races.
Strategy
The Company intends to be a leading operator in the gaming and pari-mutuel
wagering industry by capitalizing upon its horse racing expertise and its
numerous wagering locations. The Company plans to significantly increase revenue
and EBITDA using the following strategies:
Focus on Gaming Machine Operations. The Company's primary focus at the
Charles Town Entertainment Complex is on Gaming Machine operations. The Company
commenced Gaming Machine operations with a soft opening of 223 Gaming Machines
on September 10, 1997. The Company's grand opening of Gaming Machine operations
at the Charles Town Entertainment Complex occurred on October 17, 1997 with 400
Gaming Machines in operation. As of January 30, 1998, the Company had 550 Gaming
Machines in operation. The Company intends to increase the number of Gaming
Machines in operation at the Charles Town Entertainment Complex to 1,000 during
1998, the maximum number the Company is currently approved to operate at this
complex. The Charles Town Entertainment Complex's Gaming Machines are dollar
bill-fed video gaming machines that replicate traditional spinning reel slot
machines and also feature video card games, such as blackjack and poker.
Marketing efforts, which include print and radio advertising, commenced in
October 1997 and are focused on the Washington, DC, Baltimore, Maryland,
Northern Virginia, Eastern West Virginia and Southern Pennsylvania markets. The
Company intends to enhance these marketing efforts by installing and operating a
computerized player tracking system, in order to identify preferred players and
encourage repeat Gaming Machine patronage at the Charles Town Entertainment
Complex.
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Open Additional OTWs. The Company operates seven of the 18 OTWs now open in
Pennsylvania and has the right to operate four of the five remaining OTWs that
have been authorized in Pennsylvania. The Company's OTWs are located in
Allentown, Chambersburg, Erie, Lancaster, Reading, Williamsport and York,
Pennsylvania. At OTWs, customers can place wagers on thoroughbred and harness
races simulcast from the Company's racetracks and on import simulcast races from
other tracks around the country. Under the Pennsylvania Racing Act, only
licensed thoroughbred and harness racing associations, such as the Company, can
operate OTWs or accept customer wagers on simulcast races at Pennsylvania
racetracks. The Company will open OTWs in Carbondale and Hazleton, Pennsylvania
during the first quarter of 1998 and plans (subject to the receipt of remaining
regulatory approvals, including site approvals) to open and operate additional
OTWs in Stroudsburg and Altoona, Pennsylvania, which would give the Company a
total of 11 of the 23 OTWs currently authorized by Pennsylvania law.
Expand Simulcasting Operations. Simulcasting involves the transmission to,
or the receipt of, the audio and/or video signals of a live racing event through
a satellite for re-transmission at a different wagering location. The Company
transmits simulcasts of Company races to other wagering locations year-round and
receives simulcasts of races from other locations for wagering by its customers
at the Company's facilities year-round for more than five years. During this
period, the Company expanded its simulcasting operations and took advantage of
favorable changes in pari-mutuel wagering and simulcasting laws in various
states and the expanded use of simulcasting technology. Import simulcasting
generates revenue and EBITDA for the Company by maximizing the number of events
available to a patron for wagering at the Company's facilities by utilizing idle
time between races at Company racetracks and OTWs. When customers place wagers
on import simulcast races, of the amount not returned to bettors as winning
wagers, a portion is paid to the state in which the Company's wagering facility
is located, a portion is paid to the "purse" fund for the horse owners and
trainers of the Company's racetrack with which the wagering facility is
associated, a portion is paid as a simulcast fee to the originating track and
the balance is retained by the wagering facility and/or track. In order to
promote wagering, the Company has increased and expects to continue to increase
full-card import simulcasts from premier racetracks. The Company currently
receives import simulcasts from approximately 75 racetracks, including premier
racetracks such as Arlington International, Belmont Park, Gulfstream Park,
Hollywood Park, Santa Anita and Saratoga. The Company believes that "full-card"
import simulcasting, in which all of the races at a non-Company track are import
simulcast to a Company wagering facility, has improved the wagering
opportunities for its customers and thereby increased the amount wagered at
Company facilities. Export simulcasting generates revenue and EBITDA for the
Company by increasing the consumer base for Company races beyond Company
racetracks and OTWs. The Company transmits export simulcasts of Company races to
approximately 98 locations and receives a flat percentage of the amounts wagered
on Company races at non-Company locations, while incurring minimal additional
expense. The Company intends to increase export simulcasting of races from
Company-owned tracks to out-of-state racetracks, OTWs, casinos and other gaming
facilities. The Company also seeks to improve the quality of its export
simulcast products by increasing purse sizes where practicable. The Company
believes that the minimal incremental costs associated with expanding import
simulcasting and export simulcasting make it a particularly desirable source of
revenue and EBITDA growth.
Capitalize on Other Gaming and Pari-Mutuel Wagering Opportunities. The
Company intends to continue identifying opportunities in the gaming and
pari-mutuel wagering industries which complement the Company's core operations
and leverage its pari-mutuel management and operating strengths. Management also
intends to explore other opportunities to capitalize upon changes in gaming
legislation, including legislation relating to Gaming Machines.
Acquisitions
Pocono Downs Acquisition
On November 27, 1996, the Company acquired Pocono Downs for an aggregate
purchase price of $48.2 million plus approximately $730,000 in
acquisition-related fees and expenses. In addition, pursuant to the terms of the
purchase agreement, the Company will be required to pay the sellers of Pocono
Downs an additional $10.0 million if, within five years after the consummation
of the acquisition of Pocono Downs, Pennsylvania authorizes any additional form
of gaming in which the Company may participate. The $10.0 million payment is
payable in annual installments of $2.0 million a year for five years, beginning
on the date that the Company first offers such additional form of gaming.
Prior to the Company's acquisition, Pocono Downs conducted harness racing
at Pocono Downs, located outside Wilkes-Barre, Pennsylvania, export simulcasting
of Pocono Downs races to locations throughout the United States, pari-mutuel
wagering at Pocono Downs and at OTWs in Allentown and Erie, Pennsylvania on
Pocono Downs races and on import simulcast races from other racetracks and
telephone account wagering on live and import simulcast races.
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<PAGE>
Charles Town Acquisition
On January 15, 1997, the Charles Town Joint Venture acquired substantially
all of the assets of Charles Town Races for an aggregate net purchase price of
approximately $16.0 million plus approximately $2.1 million in acquisition-
related fees and expenses. Prior to its acquisition by the Charles Town Joint
Venture, Charles Town Races conducted live thoroughbred horse racing, on-site
pari-mutuel wagering on live races run at Charles Town Races and wagering on
import simulcast races. The Company has refurbished and reopened the facility as
the Charles Town Entertainment Complex, which features live racing, dining,
simulcast wagering and, effective September 1997, Gaming Machines. The cost of
the refurbishment, exclusive of the cost of the lease of the Gaming Machines, is
approximately $22.8 million as of September 30, 1997. See "--GTECH Gaming
Machine Supply and Service Agreement."
Gaming Machine Operations at Charles Town Entertainment Complex
On November 5, 1996, Jefferson County, West Virginia approved a referendum
authorizing the installation and operation of Gaming Machines at the Charles
Town Entertainment Complex. As a result, the Company consummated the Charles
Town Acquisition on January 15, 1997. In April 1997, the Company reopened the
Charles Town Entertainment Complex, featuring live racing, dining and simulcast
wagering. In September 1997, the Company expanded wagering opportunities by
installing Gaming Machines at the Charles Town Entertainment Complex. The Gaming
Machines are dollar bill-fed video gaming machines that replicate traditional
spinning reel slot machines and also feature video card games, such as blackjack
and poker. The West Virginia Gaming Machine Act specifies a 20% maximum
percentage of each dollar wagered on Gaming Machines which can be retained by
the Company. The balance of each dollar wagered must be paid out to the public
as winning wagers. Of the portion retained by the Company, a portion is paid to
taxing authorities and other beneficiary organizations mandated by the State of
West Virginia and a portion is paid to the Charles Town Horsemen in the form of
purses. The Company has installed and is operating, as of January 31, 1998, 550
Gaming Machines at the Charles Town Entertainment Complex, and anticipates that
the Charles Town Entertainment Complex will install 140 additional Gaming
Machines by February 28, 1998. The Company has obtained all necessary approvals
for the installation and operation of a total of 1,000 Gaming Machines at the
Charles Town Entertainment Complex. After installing 800 Gaming Machines, the
Company will evaluate demand for its Gaming Machines and install an additional
200 Gaming Machines if demand warrants such installation.
Racing and Pari-Mutuel Operations
The Company's racing and pari-mutuel revenues have been derived from (i)
wagering on the Company's live races (a) at the Penn National Race Course, (b)
at the Company's OTWs, (c) at other Pennsylvania racetracks and OTWs and (d)
through telephone wagering, as well as wagering at the Company's racetracks on
certain stakes races run at out-of-state racetracks (collectively, referred to
in the Company's financial statements as "pari-mutuel revenues from Penn
National races"), (ii) wagering on full-card import simulcasts at the Company's
racetracks and OTWs and through telephone wagering (collectively, referred to in
the Company's financial statements as "pari-mutuel revenues from import
simulcasting") and (iii) fees from wagering on export simulcasting Company races
at out-of-state locations (referred to in the Company's financial statements as
"pari-mutuel revenues from export simulcasting"). The Company's other revenues
have been derived from admissions, program sales and certain other ancillary
activities, food and beverage sales and concessions.
Pro Forma Pennsylvania Operating Data of the Company
The following table summarizes certain key operating statistics for the
Company's Pennsylvania pari-mutuel operations related to Penn National Race
Course, Pocono Downs and their respective OTWs, including the pro forma
presentation of data assuming the acquisition of Pocono Downs occurred on
January 1, 1992:
<TABLE>
<CAPTION>
PENN NATIONAL GAMING, INC.
WAGERING SUMMARY
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT ATTENDANCE DATA AND AVERAGE DAILY PURSES)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF LIVE RACING DAYS:
Penn National Race Course ............... 247 238 219 204 206 154 160
Pocono Downs ............................ 149 147 143 135 134 110 114
TOTAL ATTENDANCE:
Penn National Race Course(1) ............ 619,359 548,085 485,224 430,128 370,898 293,967 266,700
Pocono Downs(1) ......................... 257,249 211,629 253,521 242,870 377,830 307,062 306,903
Reading OTW ............................. 166,210 251,540 253,183 246,012 214,314 169,398 138,119
Chambersburg OTW ........................ -- -- 110,075 143,554 132,447 98,682 99,609
York OTW ................................ -- -- -- 232,109 238,610 186,860 173,527
Lancaster OTW ........................... -- -- -- -- 92,641 54,041 123,105
Williamsport OTW ........................ -- -- -- -- -- -- 64,646
Erie OTW ................................ 141,108 135,617 129,074 116,367 113,169 89,755 75,020
Allentown OTW ........................... -- 136,620 275,118 272,491 271,706 211,821 197,760
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total paid attendance(1) ........ 1,183,926 1,283,491 1,506,195 1,683,531 1,811,615 1,411,586 1,445,389
========== ========== ========== ========== ========== ========== ==========
TOTAL WAGERING(1)(2):
Penn National Race Course ............... $ 92,238 $ 87,485 $ 91,898 $ 85,661 $ 75,708 $ 59,146 $ 53,513
Pocono Downs ............................ 45,864 45,956 51,980 57,784 53,190 42,628 37,733
Reading OTW ............................. 20,829 33,518 39,714 42,810 41,320 32,778 23,813
Chambersburg OTW ........................ -- -- 14,589 24,365 25,024 18,402 19,829
York OTW ................................ -- -- -- 42,140 49,864 39,550 34,242
Lancaster OTW ........................... -- -- -- -- 13,079 6,489 22,370
Williamsport OTW ........................ -- -- -- -- -- -- 7,230
Erie OTW ................................ 18,361 20,452 26,404 29,379 27,200 21,979 17,156
Allentown OTW ........................... -- 21,130 52,676 56,440 56,216 43,225 45,463
Penn National Telebet ................... 7,733 8,103 7,967 8,281 8,423 6,500 7,359
Pocono Downs Dial-A-Bet ................. -- -- -- 75 5,510 4,217 6,586
Export simulcasting:
Penn National Race Course ............... 84,892 80,832 90,878 113,639 148,702 111,762 141,807
Pocono Downs ............................ 20,871 20,173 25,723 30,121 32,493 28,388 26,002
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total wagering .......................... $ 290,788 $ 317,649 $ 401,829 $ 490,695 $ 536,729 $ 415,064 $ 443,103
========== ========== ========== ========== ========== ========== ==========
AVERAGE DAILY PURSES:
Penn National Race Course ............... $ 38,746 $ 40,834 $ 48,560 $ 57,897 $ 62,328 $ 61,101 $ 61,362
Pocono Downs ............................ 22,448 26,022 35,790 42,314 42,313 44,545 38,226
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total average daily purse ............... $ 61,194 $ 66,856 $ 84,350 $ 100,211 $ 104,641 $ 105,645 $ 99,588
========== ========== ========== ========== ========== ========== ==========
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
GROSS MARGIN FROM WAGERING(3):
Penn National Race Course ............... $14,549 $15,346 $17,963 $24,915 $27,955 $20,286 $21,900
Pocono Downs ............................ 8,101 10,918 16,653 17,838 17,805 14,086 13,398
------- ------- ------- ------- ------- ------- -------
Total gross margin from
wagering ................................ $22,650 $26,264 $34,616 $42,753 $45,760 $34,372 $35,298
======= ======= ======= ======= ======= ======= =======
</TABLE>
(1) Does not reflect attendance for wagering on simulcasts when live racing is
not conducted (i) for all periods presented, in the case of Penn National
Race Course and (ii) for the years ended December 31, 1992-1995, in the
case of Pocono Downs.
(2) Wagering on certain imported stakes races is included in Wagering on the
Penn National Race Course races.
(3) Amounts equal total pari-mutuel revenues, less purses paid to the Horsemen,
taxes payable to Pennsylvania and simulcast commissions or host track fees
paid to other racetracks.
Live Racing
The following table summarizes the Company's live racing facilities:
<TABLE>
<CAPTION>
RACING FACILITY LOCATION DATE OPENED/STATUS OPERATIONS CONDUCTED
- --------------- -------- ------------------ --------------------
<S> <C> <C> <C>
Penn National Race Course Grantville, PA Constructed in 1972; Live thoroughbred racing;
operated by the Company simulcast wagering; dining;
since 1972 telephone account wagering
Pocono Downs Plains Township, PA Constructed in 1965; Live harness racing;
operated by the Company simulcast wagering; dining;
since November 1996 telephone account wagering
Charles Town Races Charles Town, WV Charles Town Races was Live thoroughbred racing; at the Charles Town
constructed in 1933; simulcast wagering; dining Entertainment
Complex acquired by Charles Town (this facility is adjacent
Joint Venture on January to Gaming Machine
15, 1997; refurbished in operations)
1997 and reopened as the
Charles Town Entertainment
Complex
</TABLE>
The Penn National Race Course is located on approximately 225 acres
approximately 15 miles northeast of Harrisburg, 100 miles west of Philadelphia
and 200 miles east of Pittsburgh. There is a total population of approximately
1.4 million persons within a radius of approximately 35 miles around the Penn
National Race Course and approximately 2.2 million persons within a 50-mile
radius. The property includes a one mile all-weather thoroughbred racetrack and
a 7/8-mile turf track. The property also includes approximately 400 acres
surrounding the Penn National Race Course which are available for future
expansion or development.
The Penn National Race Course's main building is the grandstand/clubhouse,
which is completely enclosed and heated and, at the clubhouse level, fully
air-conditioned. The building has a capacity of approximately 15,000 persons
with seating for approximately 9,000, including 1,400 clubhouse dining seats.
Several other dining facilities and numerous food and beverage stands are
situated throughout the facility. Television sets for viewing live racing and
simulcasts are located throughout the facility. The pari-mutuel wagering areas
are divided between those available for on-track wagering and those available
for simulcast wagering.
The Penn National Race Course includes stables for approximately 1,250
horses, a blacksmith shop, veterinarians' quarters, jockeys' quarters, a paddock
building, living quarters for grooms, a cafeteria and recreational building in
the backstretch area and water and sewage treatment plants. Parking facilities
for approximately 6,500 vehicles adjoin the Penn National Race Course.
The Company has conducted live racing at the Penn National Race Course
since 1972, and has held at least 204 days of live racing at the facility in
each of the last five years. The Penn National Race Course is one of only two
thoroughbred racetracks in
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<PAGE>
Pennsylvania. Although other regional racetracks offer nighttime thoroughbred
racing, the Penn National Race Course is the only racetrack in the Eastern time
zone conducting year-round nighttime thoroughbred horse racing, which the
Company believes increases its opportunities to export simulcast its races
during periods in which other racetracks are not conducting live racing. Post
time at the Penn National Race Course is 7:30 p.m. on Wednesdays, Fridays and
Saturdays, and 1:30 p.m. on Sundays and holidays.
Pocono Downs is located on approximately 400 acres in Plains Township,
outside Wilkes-Barre, Pennsylvania. There is a total population of approximately
785,000 persons within a radius of approximately 35 miles around Pocono Downs
and approximately 1.5 million persons within a 50-mile radius. The property
includes a 5/8-mile all-weather, lighted harness track. Pocono Downs's main
buildings are the grandstand and the clubhouse. The clubhouse is completely
enclosed and heated and fully air-conditioned. The grandstand has enclosed,
heated and air-conditioned seating for approximately 500 persons and permanent
open-air stadium-style seating for approximately 2,500 persons. The clubhouse is
a tiered dining and wagering facility that seats approximately 1,000 persons.
The clubhouse dining area seats 500 persons. Television sets for viewing live
racing and simulcasts are located throughout the facility along with pari-mutuel
wagering areas.
A two-story 14,000 square foot building which houses the Pocono Downs
offices is located on the property. Pocono Downs also includes stables for
approximately 950 horses, five paddock stables, quarters for grooms, two
blacksmith shops and a cafeteria for the Harness Horsemen. Parking facilities
for approximately 5,000 vehicles adjoin the track.
The acquisition of Pocono Downs was consummated following the last day of
racing at Pocono Downs for the 1996 season. The Company resumed live racing at
Pocono Downs in April 1997 and expects to conduct 134 days of live harness
racing at the facility in the 1997 season. Post time at Pocono Downs is 7:30
p.m.
The Charles Town Entertainment Complex is located on a portion of a
250-acre parcel in Charles Town, West Virginia, which is approximately a
60-minute drive from Baltimore, Maryland and a 70-minute drive from Washington,
D.C. There is a total population of approximately 3.1 million persons within a
50-mile radius and approximately 9.0 million persons within a 100-mile radius of
the Charles Town Entertainment Complex. The property includes a 3/4-mile
thoroughbred racetrack. The Charles Town Entertainment Complex's main building
is the grandstand/clubhouse, which is completely enclosed and heated. The
clubhouse dining room has seating for 600. Additional food and beverage areas
are situated throughout the facility. The property surrounding the Charles Town
Entertainment Complex, including the site of the former Shenandoah Downs
Racetrack, is available for future expansion or development. In addition, the
Company has a right of first refusal for an additional 250 acres that are
adjacent to the Charles Town Entertainment Complex. The Charles Town
Entertainment Complex also includes stables, an indoor paddock, ample parking
and water and sewage treatment facilities.
The Charles Town Races reopened in April 1997 and the Company expects to
conduct 159 days of thoroughbred racing at the facility in the 1997 season. Post
time at the Charles Town Races is 7:30 p.m. on Fridays and Saturdays and 1:30
p.m. on Wednesdays and Sundays.
OTWs
The Company's OTWs provide areas for viewing import simulcasts and
televised sporting events, placing pari-mutuel wagers and dining. The facilities
also provide convenient parking.
<TABLE>
<CAPTION>
FACILITY/ SIZE OWNED OR
LOCATION DATE OPENED/STATUS (SQ. FT.) COST(1) LEASED
- -------- ------------------ --------- ------- ------
<S> <C> <C> <C> <C>
Allentown, PA Opened 7/93 28,500 $5,207,000 Owned
Chambersburg, PA Opened 4/94 12,500 1,500,000 Leased
Erie, PA Opened 5/91 22,500 3,575,000 Owned
Lancaster, PA Opened 7/96 24,000 2,700,000 Leased
Reading, PA Opened 5/92 22,500 2,100,000 Leased
Williamsport, PA Opened 2/97 14,000 3,000,000 Owned
York, PA Opened 3/95 25,000 2,200,000 Leased
Carbondale, PA Approval obtained; expected to 13,000 2,300,000) Owned(2)
open in first quarter 1998 (estimated
Hazleton, PA Approval obtained; expected to 13,000 2,000,000) Leased(2)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
open in first quarter 1998 (estimated
Stroudsburg, PA License authorized; approval to 12,000 2,000,000) Leased(2)
operate pending; site selected (estimated
Altoona, PA License authorized; approval to 14,220 2,000,000) Leased(2)
operate pending; site selected (estimated
</TABLE>
(1) Consists of original construction costs, equipment and, for owned
properties, the cost of land and building.
(2) The Company has purchased land and is in the process of constructing its
proposed Carbondale OTW and has entered into arrangements to lease space
for its Hazleton, Pennsylvania OTW. All necessary approvals for operating
such facilities have been obtained. The Company expects to open the
Carbondale and Hazleton OTWs in the first quarter of fiscal 1998. The
Company is licensed to operate two additional OTWs and has identified sites
to operate OTW locations in Stroudsburg and Altoona, Pennsylvania, subject
to receipt of all applicable approvals to operate these sites.
The Company considers its properties adequate for its presently anticipated
purposes.
Pari-Mutuel Revenues
Revenues from Company races consist of the total amount wagered, less the
amount paid as winning wagers. Of the amount not returned to bettors as winning
wagers, a portion is paid to the state in which the track is located, a portion
is distributed to the track's horsemen in the form of "purses" and the balance
is retained by the wagering facility. The Pennsylvania Racing Act specifies the
maximum percentages of each dollar wagered on horse races in Pennsylvania which
can be retained by the Company (prior to required payments to the Pennsylvania
Horsemen and applicable taxing authorities). The percentages vary, based on the
type of wager; the average percentage is approximately 20%, which is retained by
the Company. The balance of each dollar wagered must be paid out to the public
as winning wagers. With the exception of revenues derived from wagers at the
Company's racetracks and OTWs, the Company's revenues on each race are
determined pursuant to such maximum percentage and agreements with the other
racetracks and OTWs at which wagering is taking place. Amounts payable to the
Pennsylvania Horsemen are determined under agreements with the Pennsylvania
Horsemen and vary depending upon where the wagering is conducted and the
racetrack at which such races take place. The Pennsylvania Horsemen receive
their share of such wagering as race purses. The Company retains a higher
percentage of wagers made at its own facilities than of wagers made at other
locations. The West Virginia Racing Act provides for a similar disposition of
pari-mutuel wagers placed at the Charles Town Entertainment Complex, with the
average percentage of wagers retained by the Company having been approximately
20% (prior to required payments to the Charles Town Horsemen and to applicable
West Virginia taxing authorities and other mandated beneficiary organizations).
Simulcasting
The Company has been transmitting simulcasts of its races to other wagering
locations and receiving simulcasts of races from other locations for wagering by
its customers at Company facilities year-round, for more than five years. When
customers place wagers on import simulcast races, the Company receives revenue
and incurs expense in substantially the same manner as it would if the race had
been run at one of the Company's own tracks: of the amount not returned to
bettors as winning wagers, a portion is paid to the state in which the Company
wagering facility is located, a portion is paid to the purse fund for the horse
owners or trainers (thoroughbred or harness) of the Company's racetrack with
which the wagering facility is associated, a portion is paid to the racetrack
from which the race is simulcast and the balance is retained by the Company. The
Company believes that full-card import simulcasting, in which all of the races
at a non-Company track are import simulcast to a Company wagering facility, has
improved the wagering opportunities for its customers and thereby increased the
amount wagered at Company facilities. When the Company export simulcasts Company
races for wagering at non-Company locations, it receives a fixed percentage of
the amounts wagered on that race from the location to which the simulcast is
exported, while incurring minimal additional expense. During the year ended
December 31, 1996 and 1997, respectively, the Company received import simulcasts
from approximately 57 and 75 racetracks, respectively, including premier
racetracks such as Arlington International Racecourse, Belmont Park, Gulfstream
Park, Hollywood Park, Santa Anita and Saratoga and transmitted export simulcasts
of Company races to 63 and 98 locations, respectively.
Pursuant to an agreement among the members of the Pennsylvania Racing
Association, the Company and the two other Pennsylvania racetracks provide
simulcasts of all their races to all of each other's facilities and set the
commissions payable on such races. In addition, the Company has short-term
agreements with various racetracks throughout the United States to import
simulcast from, and export simulcast to, their facilities; these agreements
include import simulcasts of major stakes races. The Company believes
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<PAGE>
that import simulcasting of out-of-state races, including full card import
simulcasting, is beneficial economically to the Company because it makes
available wagering on higher quality races and which tends to increase the size
of the average wager.
Telephone Wagering
In 1983, the Company pioneered Telebet, Pennsylvania's first telephone
account wagering system. Telebet customers open an account by depositing funds
with the Company at one of its locations. Account holders can then place wagers
by telephone on Company races and import simulcast races to the extent of the
funds on deposit in the account; any winnings are posted to the account and are
available for future wagers. In December 1995, Pocono Downs instituted
Dial-A-Bet, a similar telephone account betting system.
Charles Town Joint Venture; Operating Terms
Pursuant to the original operating agreement governing the Charles Town
Joint Venture, the Company held an 80% ownership interest in the Charles Town
Joint Venture and was obligated to contribute 80% of the purchase price of the
Charles Town Acquisition and 80% of the cost of refurbishing the Charles Town
Entertainment Complex. In consideration of the fact that the Company contributed
100% of the purchase price of the Charles Town Acquisition and 100% of the cost
of refurbishing the Charles Town Entertainment Complex, the Company has amended
its operating agreement with Bryant to, among other things, increase the
Company's ownership interest in the Charles Town Joint Venture to 89% and
decrease Bryant's interest to 11%. In addition, the amendment provided that the
entire amount the Company has contributed, and will contribute, to the Charles
Town Joint Venture for the acquisition and refurbishment of the Charles Town
Entertainment Complex would be treated, as between the parties, as a loan to the
Charles Town Joint Venture from the Company. Accordingly, prior to the
distribution of any profits pursuant to the Charles Town Joint Venture, the
Company must be repaid in full all such contributions or loans, plus accrued
interest, which as of November 20, 1997, equaled $40.9 million.
The Charles Town Joint Venture acquired its option to purchase the Charles
Town Entertainment Complex from Bryant; Bryant, in turn, acquired the option
from Showboat. Showboat has retained an option to operate any casino at the
Charles Town Entertainment Complex in return for a management fee (to be
negotiated at the time, based on rates payable for similar properties) and a
right of first refusal to purchase or lease the site of any casino at the
Charles Town Entertainment Complex proposed to be leased or sold and to purchase
any interest proposed to be sold in any such casino on the same terms offered by
a third party or otherwise negotiated with the Charles Town Joint Venture. The
rights retained by Showboat under the Showboat Option extend for a period of
five years from November 6, 1996, the date that the Charles Town Joint Venture
exercised its option to purchase the Charles Town Entertainment Complex, and
expire thereafter unless legislation to permit casino gaming at the Charles Town
Entertainment Complex has been adopted prior to the end of the five-year period.
If such legislation has been adopted prior to such time, then the rights of
Showboat continue for a reasonable time (not less than 24 months) to permit
completion of negotiations.
While the express terms of the Showboat Option do not specify what
activities at the Charles Town Entertainment Complex would constitute operation
of a casino, Showboat has agreed that the installation and operation of video
lottery terminals (like the Gaming Machines the Company has installed and will
continue to install) at the Charles Town Entertainment Complex's race track
would not trigger Showboat's right to exercise the Showboat Option. If West
Virginia law were to permit casino gaming at the Charles Town Entertainment
Complex and if Showboat were to exercise the Showboat Option, the Company would
be required to pay a management fee to Showboat for the operation of the casino.
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 Company
submitted an application to the Tennessee 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. Tennessee Downs has
been found financially suitable by the Tennessee Commission and a public comment
hearing before the Tennessee Commission was held on November 15, 1997. The
Tennessee Commission plans to have its portion of the application review
completed in February 1998. 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. On
December 2, 1997, the Company received the necessary zoning and land development
approvals from the Memphis City Council.
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<PAGE>
If the Company is awarded a racing license, the Company plans to spend
approximately $9.0 million in the next year to purchase the land subject to the
option and build a combined OTW and grandstand facility. The Company estimates
that total development costs, including subsequent track construction, will be
approximately $15.0 million. In addition, if the Company is awarded a racing
license, it will be permitted to pursue the development of additional OTWs in
Tennessee, provided it first obtains necessary approvals, including a public
referendum for each proposed OTW site and other necessary zoning and land
development approvals.
If the Company's application is approved by the Tennessee Commission, the
Company plans to exercise its option to purchase the site and build the track
and OTW facility at an estimated cost of $15 million. If this development
project is pursued, the physical plant will be completed in two phases as
described below. The Tennessee Horse Racing Act permits the construction of both
a simulcast facility and a primary facility within the same enclosure. Upon the
approval of the racing license by the Tennessee State Horse Racing Commission,
Tennessee Downs plans to initiate the pre-construction site improvements and
move forward with the construction of the simulcast facility. This portion of
the project will include infrastructure improvements, the actual simulcast
facility and related parking. Estimated construction costs for the first phase,
along with development and land acquisition costs, are estimated to be
approximately $9.0 million. The second phase of the project will include
construction of the track, barns, paddock area and other racing related
amenities. Following timely receipt of all applicable approvals, Tennessee Downs
would initiate construction in the second or third quarter of fiscal 1998 with
the opening of the simulcast facility planned for January, 1999. Construction of
the second phase would follow during the spring/summer of 1999 with an
anticipated opening for live racing sometime in early 2000. The second phase of
the project is estimated to cost approximately $6.0 million.
Marketing and Advertising
The Company seeks to increase wagering by broadening its customer base and
increasing the wagering activity of its existing customers. To attract new
customers, the Company seeks to increase the racing knowledge of its customers
through its television programming, and by providing "user friendly" automated
wagering systems and comfortable surroundings. The Company also seeks to attract
new customers by offering various types of promotions including family fun days,
premium give-away programs, contests and handicapping seminars.
Charles Town Gaming Machine Marketing Programs
The Company's marketing efforts, which include print and radio advertising,
commenced in October 1997 and are focused on the Washington, D.C., Baltimore,
Maryland, Northern Virginia, Eastern West Virginia and Southern Pennsylvania
markets. The Company has established at the Charles Town Entertainment Complex
the Silver Screen Video Slots Club, a manual player tracking system designed to
reward frequent and active customers. In 1998, the Company intends to purchase
and install a computerized player tracking system at the Charles Town
Entertainment Complex, which will further focus the Company's marketing efforts.
The Company has also implemented a coupon program where customers who visit the
Charles Town Entertainment Complex can redeem the coupons for $5. From these
coupons, the Company has compiled a database of customers that will be targeted
for future marketing programs.
Televised Racing Program
The Company's Racing Alive program is televised by satellite transmission
commencing approximately one hour before post time on each live racing day at
the Penn National Race Course. The program provides color commentary on the
races at the Penn National Race Course (including wagering odds, past
performance information and handicapper analysis), general education on betting
and handicapping, interviews with racing personalities and featured races from
other thoroughbred racetracks across the country. The Racing Alive program is
shown at the Penn National Race Course and on various cable television systems
in Pennsylvania and is transmitted to all OTWs that receive the Penn National
Race Course races. The Company intends to expand Racing Alive and/or to create
additional televised programming to cover racing at Pocono Downs and at other
harness racing venues throughout the United States. The Company's satellite
transmissions are encoded so that only authorized facilities can receive the
program.
Automated Wagering Systems
To make wagering more "user friendly" to the novice and more efficient for
the expert, the Company leases Autotote Corporation's automated wagering
equipment. These wagering systems enable the customer to choose a variety of
ways to place a bet through touch-screen interactive terminals and personalized
portable wagering terminals, provide current odds information and enable
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customers to place bets and credit winning tickets to their accounts. Currently,
more than 35% of all wagers at Penn National are processed through these
self-service terminals and Telebet.
Modern Facilities
The Company provides a comfortable, upscale environment at each of its
OTWs, including a full bar, a range of restaurant services and an area devoted
to televised sporting events. The Company believes that its attractive
facilities appeal to its current customers and to new customers, including those
who have not previously visited a racetrack.
GTECH Gaming Machine Supply and Service Agreement
In June 1997, the Charles Town Joint Venture, which is operated as PNGI
Charles Town Gaming, LLC, an 89% subsidiary of the Company, entered into an
agreement (the "GTECH Agreement") with GTECH Corporation ("GTECH") relating to
the lease, installation and service of a video lottery system ("VLS") at the
Charles Town Entertainment Complex. The GTECH Agreement provides that GTECH will
be the exclusive provider of VLS and related services, including video lottery
terminals and slot machines, if any, at the Charles Town Entertainment Complex;
provided, however, the Charles Town Joint Venture has retained management
control over the VLS. The GTECH Agreement has a term of five years from the
first date on which 400 Gaming Machines are installed, operational and
generating "Net Win," defined as the total of all cash inserted into, or game
credits played on, a video lottery terminal minus the total value of all prizes
paid. On September 26, 1997, the Charles Town Joint Venture had 400 Gaming
Machines installed, operational and generating Net Win at the Charles Town
Entertainment Complex. Pursuant to the GTECH Agreement, the Charles Town Joint
Venture has agreed to pay GTECH a fee which can range between 4% and 10% of
Gaming Machine gross revenue. The Company generally is obligated to pay a lower
percentage of Gaming Machine gross revenue to GTECH at higher levels of average
win per day per machine and a higher percentage of Gaming Machine gross revenue
at lower levels of average win per day per machine; provided, however, the
Charles Town Joint Venture is obligated to pay GTECH the greater of the
percentage fee described above or a minimum annual fee of $4.3 million if more
than 800 Gaming Machines are in operation at the Charles Town Entertainment
Complex. At the end of the term of the GTECH Agreement, the Charles Town Joint
Venture will purchase the VLS from GTECH for a cash purchase price equal to the
net unamortized residual value of the VLS. In the event GTECH terminates the
agreement because of the Charles Town Joint Venture's material misrepresentation
and/or breach of the GTECH Agreement, the Charles Town Joint Venture must
purchase the VLS from GTECH at a price equal to the net unamortized residual
value of the VLS at that time and pay an additional one-time fee as follows: for
such termination in the first year of the term, $8,500,000; for such termination
in the second year of the term, $6,600,000; for such termination in the third
year of the term, $5,000,000; for such termination in the fourth year of the
term, $3,700,000; and for such termination in the fifth year of the term,
$2,500,000. In the GTECH Agreement, the Charles Town Joint Venture covenants to
maintain tangible net worth equal to at least 105% of the amounts payable as
additional fees in the event of a termination as set forth in the preceding
sentence.
Purses; Agreements with Horsemen
The Horsemen Agreements set forth the amounts to be paid to the
Pennsylvania Horsemen as racing purses. Revenues from wagering at the Penn
National Race Course and Pocono Downs, except for wagering on races simulcast
from outside Pennsylvania, are divided approximately equally between the Company
and the Pennsylvania Horsemen. Revenues from all other sources (all wagering at
the Company's OTWs and on races simulcast from outside Pennsylvania) are shared
such that the Pennsylvania Horseman generally receive between 3.0% and 7.5% of
total wagering at the OTWs.
The Company sets the purses paid on Company races, based on projected
wagering and in accordance with the terms of the Horsemen Agreements. Because
the amount of the purses is based on projections, at any given point in time the
Pennsylvania Horsemen will have either been overpaid or underpaid. The agreement
with the Thoroughbred Horsemen also permits the Thoroughbred Horsemen to require
immediate purse adjustments should the amount of revenues to be paid to them as
purses, and remaining unpaid, exceed $100,000. The amount of underpaid or
overpaid purses varies from time to time, and the Company believes that further
action to reduce the amount of underpaid purses will not affect its ability to
increase purses in an orderly manner. In setting future purses the Company
seeks, over time, to adjust for the under or over-payments, but no assurance can
be given that any such adjustment will be accurate or adequate.
During the years ended December 31, 1994, 1995 and 1996, the Thoroughbred
Horsemen earned an aggregate of approximately $15.9 million, $16.3 million and
$16.4 million in purses, respectively. The average daily purses earned by the
Thoroughbred Horsemen during the three-year period increased from approximately
$77,100 to approximately $84,300. The average
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daily purses at Charles Town Races during such period decreased from
approximately $28,538 to approximately $21,977. During the nine months ended
September 30, 1996 and 1997, the Thoroughbred Horsemen earned an aggregate of
approximately $12.8 million and $12.2 million in purses, respectively. The
Company believes that the increases in daily purses have contributed to an
incremental increase in the quality of horses racing at the Penn National Race
Course. The average daily purses earned by the Thoroughbred Horsemen who race at
Penn National Race Course for calendar 1996 and the nine months ended September
30, 1997 were approximately $62,300 and $61,400 per day, respectively. During
the years ended December 31, 1994, 1995 and 1996, the Harness Horsemen earned an
aggregate of approximately $6.0 million, $6.5 million and $5.7 million in
purses, respectively. The average daily purses earned by the Harness Horsemen
during the three-year period increased from approximately $35,800 to
approximately $42,300. During the nine months ended September 30, 1996 and 1997,
the Harness Horsemen earned an aggregate of approximately $5.0 million and $4.4
million in purses, respectively. The average daily purses earned by the Harness
Horsemen for calendar 1996 and the nine months ended September 30, 1997 were
approximately $42,300 and $38,200 per day, respectively.
The Penn National Race Course Thoroughbred Horsemen Agreement was entered
into in February 1996, expires in February 1999 and is subject to automatic
renewal for successive one year terms unless either party gives notice of
termination at least 90 days prior to the end of any such period. The Harness
Horsemen Agreement was entered into in November 1994, became effective in
January 1995 and expires in January 2000. The Company is party to the requisite
agreement with the Charles Town Horsemen, which expires on December 31, 2000.
The West Virginia Gaming Machine Act also requires that the operator of the
Charles Town Entertainment Complex be subject to a written agreement with the
pari-mutuel clerks in order to operate Gaming Machines, although this agreement
expired on December 31, 1997.
Competition
The Company faces significant competition for wagering dollars from other
racetracks and OTWs in Pennsylvania and neighboring states (some of which also
offer other forms of gaming), other gaming venues such as casinos and
state-sponsored lotteries, including the Pennsylvania Lottery and the West
Virginia Lottery. The Company may also face competition in the future from new
OTWs or from new racetracks. From time to time, Pennsylvania has considered
legislation to permit other forms of gaming. Although Pennsylvania has not
authorized any form of casino or other gaming, if additional gaming
opportunities become available in or near Pennsylvania, such gaming
opportunities could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's live races compete for wagering dollars and simulcast fees
with live races and races simulcast from other racetracks both inside and
outside Pennsylvania (including several in New York, New Jersey, West Virginia,
Ohio, Maryland and Delaware). The Company's ability to compete successfully for
wagering dollars is dependent, in part, upon the quality of its live horse
races. The quality of horse races at some racetracks that compete with the
Company, either by live races or simulcasts, is higher than the quality of
Company races. The Company believes that there has been some improvement over
the last several years in the quality of the horses racing at the Penn National
Race Course, due to incrementally higher purses being paid as a result of the
Company's increased simulcasting activities. However, increased purses may not
result in a continued improvement in the quality of racing at the Penn National
Race Course or in any material improvement in the quality of racing at Pocono
Downs or the Charles Town Races.
The Company's OTWs compete with the OTWs of other Pennsylvania racetracks,
and new OTWs may compete with the Company's existing or proposed wagering
facilities. Competition between OTWs increases as the distance between them
decreases. For example, the Company believes that its Allentown OTW, which was
acquired in the acquisition of Pocono Downs and which is approximately 50 miles
from the Penn National Race Course and 35 miles from the Company's Reading OTW,
has drawn some patrons from the Penn National Race Course, the Reading OTW and
the Company's telephone wagering system and that the Company's Lancaster OTW,
which is approximately 31 miles from the Penn National Race Course and 25 miles
from the Company's York OTW, has drawn some patrons from the Penn National Race
Course, the York OTW and the Company's telephone wagering system. Moreover, the
Company believes that a competitor's new OTW in King of Prussia, Pennsylvania,
which is approximately 23 miles from the Reading OTW, has drawn some patrons
from the Reading OTW. Although only one competing OTW remains authorized by law
for future opening, the opening of a new OTW in close proximity to the Company's
existing or future OTWs could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's Gaming Machine operations face competition from other Gaming
Machine venues in West Virginia and in neighboring states (including Dover Downs
in Dover, Delaware, Delaware Park in northern Delaware, Harrington Raceway in
southern Delaware and the casinos in Atlantic City, New Jersey). Venues in
Delaware and New Jersey, in addition to video gaming machines, currently offer
mechanical slot machines that feature physical spinning reels, pull-handles and
the ability to both accept and pay out
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coins. West Virginia has not authorized, and may never approve, such mechanical
slot machines. The failure to attract or retain Gaming Machine customers at the
Charles Town Entertainment Complex, whether arising from such competition or
from other factors, could have a material adverse effect upon the Company's
business, financial condition and results of operations.
Effect of Inclement Weather and Seasonality
Because horse racing is conducted outdoors, variable weather contributes to
the seasonality of the Company's business. Weather conditions, particularly
during the winter months, may cause races to be canceled or may curtail
attendance. Because a substantial portion of the Company's racetrack expenses
are fixed, the loss of scheduled racing days could have a material adverse
effect on the Company's business, financial condition and results of operations.
For the year ended December 31, 1997, the Company has canceled a total of
five racing days because of inclement weather. The severe winter weather in 1996
resulted in the closure of the Company's OTW facilities for two days in January
1996. Because of the Company's growing dependence upon OTW operations, severe
weather that causes the Company's OTWs to close could have an adverse effect
upon the Company's business, financial condition and results of operations.
Attendance and wagering at the Company's facilities have been favorably
affected by special racing events which stimulate interest in horse racing, such
as the Triple Crown races in May and June and the heavier racing schedule
throughout the country during the second and third quarter. As a result, the
Company's revenues and net income have been greatest in the second and third
quarters of the year, and lowest in the first and fourth quarters of the year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Effect of Inclement Weather and Seasonality."
Regulation and Taxation
General
The Company is authorized to conduct thoroughbred racing and harness racing
in Pennsylvania under the Pennsylvania Racing Act. The Company is also
authorized, under the Pennsylvania Racing Act and the Federal Horseracing Act,
to conduct import simulcast wagering. The Company is also subject to the
provisions of the West Virginia Racing Act, which governs the conduct of
thoroughbred horse racing in West Virginia, and West Virginia Gaming Machine
Act, which governs the operation of Gaming Machines in West Virginia. The
Company's live racing, pari-mutuel wagering and Gaming Machine operations are
contingent upon the continued governmental approval of such operations as forms
of legalized gaming. All of the Company's current and proposed operations are
subject to extensive regulations and could be subjected at any time to
additional or more restrictive regulations, or banned entirely.
Pennsylvania Racing Regulations
The Company's horse racing operations at the Penn National Race Course and
Pocono Downs are subject to extensive regulation under the Pennsylvania Racing
Act, which established the Pennsylvania Racing Commissions. The Pennsylvania
Racing Commissions are responsible for, among other things, (i) granting
permission annually to maintain racing licenses and schedule race meets, (ii)
approving, after a public hearing, the opening of additional OTWs, (iii)
approving simulcasting activities, (iv) licensing all officers, directors,
racing officials and certain other employees of the Company and (v) approving
all contracts entered into by the Company affecting racing, pari-mutuel wagering
and OTW operations.
As in most states, the regulations and oversight applicable to the
Company's operations in Pennsylvania are intended primarily to safeguard the
legitimacy of the sport and its freedom from inappropriate or criminal
influences. The Pennsylvania Racing Commissions have broad authority to regulate
in the best interests of racing and may, to that end, disapprove the involvement
of certain personnel in the Company's operations, deny approval of certain
acquisitions following their consummation or withhold permission for a proposed
OTW site for a variety of reasons, including community opposition. For example,
the Pennsylvania State Thoroughbred Racing Commission withheld approval for the
Company's initial site for its Lancaster OTW, but the Company applied and was
ultimately approved for another site in Lancaster, which opened in July 1996.The
Pennsylvania legislature also has reserved the right to revoke the power of the
Pennsylvania Racing Commissions to approve additional OTWs and could, at
anytime, terminate pari-mutuel wagering as a form of legalized gaming in
Pennsylvania or subject such wagering to additional restrictive regulation; such
termination would, and any further restrictions could, have a material adverse
effect upon the Company's business, financial condition and results of
operations.
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The Company may not be able to obtain all necessary approvals for the
operation or expansion of its business. Even if all such approvals are obtained,
the regulatory process could delay implementation of the Company's plans to open
additional OTWs. The Company has had continued permission from the Pennsylvania
State Horse Racing Commission to conduct live racing at the Penn National Race
Course since it commenced operations in 1972, and has obtained permission from
the Pennsylvania State Harness Racing Commission to conduct live racing at
Pocono Downs. Currently, the Company has approval from the Pennsylvania Racing
Commissions to operate the seven OTWs that are presently open and the four
additional OTWs the Company proposed to open. A Commission may refuse to grant
permission to open additional OTWs or to continue to operate existing
facilities. The failure to obtain required regulatory approvals would have a
material adverse effect upon the Company's business, financial condition and
results of operations.
The Pennsylvania Racing Act provides that no corporation licensed to
conduct thoroughbred racing shall be licensed to conduct harness racing and that
no corporation licensed to conduct harness racing shall be licensed to conduct
thoroughbred racing. The Company's harness and thoroughbred licenses are held by
separate corporations, each of which is a wholly owned subsidiary of the
Company. Moreover, the Pennsylvania State Harness Racing Commission has reissued
the Pocono Downs harness racing license and has found, in connection with the
reissuance, that it is not "inconsistent with the best interests, convenience or
necessity or with the best interests of racing generally," that a subsidiary of
the Company beneficially owns Pocono Downs. The Company thus believes that the
arrangement under which it holds both a harness and a thoroughbred license
complies with applicable regulations.
West Virginia Racing and Gaming Regulation
The Company's operations at the Charles Town Entertainment Complex are
subject to regulation by the West Virginia Racing Commission under the West
Virginia Racing Act, and by the West Virginia Lottery Commission under the West
Virginia Gaming Machine Act. The powers and responsibilities of the West
Virginia Racing Commission under the West Virginia Racing Act are substantially
similar in scope and effect to those of the Pennsylvania Racing Commissions and
extend to the approval and/or oversight of all aspects of racing and pari-mutuel
wagering operations. The Charles Town Joint Venture has obtained from the West
Virginia Racing Commission a license to conduct racing and pari-mutuel wagering
at the Charles Town Entertainment Complex. Pursuant to the West Virginia Gaming
Machine Act, the Company has obtained approval for the installation and
operation of a total of 1,000 Gaming Machines at the Charles Town Entertainment
Complex.
State and Federal Simulcast Regulations
Both the Federal Horseracing Act and the Pennsylvania Racing Act require
that the Company have a written agreement with the Thoroughbred Horsemen and
with the Harness Horsemen in order to simulcast races. The Company has entered
into the Horsemen Agreements, and in accordance therewith has agreed upon the
allocations of the Company's revenues from import simulcast wagering to the
purse funds for the Penn National Race Course, Charles Town Races and Pocono
Downs. Because the Company cannot conduct import simulcast wagering in the
absence of the Horsemen Agreements, the termination or non-renewal of either
Horsemen Agreement could have a material adverse effect on the Company's
business, financial condition and results of operations.
Taxation
The Company believes that the prospect of significant additional revenue is
one of the primary reasons that jurisdictions permit legalized gaming. As a
result, gaming companies are typically subject to significant taxes and fees in
addition to normal federal and state income taxes, and such taxes and fees are
subject to increase at any time. The Company pays substantial taxes and fees
with respect to its operations. From time to time, federal legislators and
officials have proposed changes in tax laws, or in the administration of such
laws, affecting the gaming industry. It is not possible to determine with
certainty the likelihood of changes in tax laws or in the administration of such
laws. Such changes, if adopted, could have a material adverse effect on the
Company's business, financial condition and results of operations.
Compliance with Other Laws
The Company and its OTWs are also subject to a variety of other rules and
regulations, including zoning, construction and land-use laws and regulations in
Pennsylvania and West Virginia governing the serving of alcoholic beverages.
Currently, Pennsylvania laws and regulations permit the construction of
off-track wagering facilities, but may affect the selection of a particular OTW
site because of parking, traffic flow and other similar considerations, any of
which may serve to delay the opening of future OTWs in Pennsylvania. By
contrast, West Virginia law does not permit the operation of OTWs. The Company
derives a significant portion of
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its other revenues from the sale of alcoholic beverages to patrons of its
facilities. Any interruption or termination of the Company's existing ability to
serve alcoholic beverages would have a material adverse effect on the Company's
business, financial condition and results of operations.
Restrictions on Share Ownership and Transfer
The Pennsylvania Racing Act requires that any shareholder proposing to
transfer beneficial ownership of 5% or more of the Company's shares file an
affidavit with the Company setting forth certain information about the proposed
transfer and transferee, a copy of which the Company is required to furnish to
the Pennsylvania Racing Commission. The certificates representing the Company
shares owned by 5% beneficial shareholders are required to bear certain legends
prescribed by the Pennsylvania Racing Act. In addition, under the Pennsylvania
Racing Act, the Pennsylvania Racing Commission has the authority to order a 5%
beneficial shareholder of the Company to dispose of his Common Stock of the
Company if it determines that continued ownership would be inconsistent with the
public interest, convenience or necessity or the best interest of racing
generally. The West Virginia Gaming Machine Act provides that a transfer of more
than 5% of the voting stock of a corporation which controls the license may only
be to persons who have met the licensing requirements of the West Virginia
Gaming Machine Act or which transfer has been pre-approved by the West Virginia
Lottery Commission. Any transfer that does not comply with this requirement
voids the license.
Potential Tennessee Development Regulatory Compliance.
If the Company successfully completes the development of its potential
Tennessee harness track and OTWs, the Company will likely face regulatory
requirements that are similar to the requirements affecting its existing
operations; however, given the absence of horse racing within Tennessee at this
time, the Company may face more burdensome regulatory approvals or compliance in
light of the absence of significant regulations, interpretation and
administrative action at this time.
Other Leases
The Company currently leases 6,183 square feet of office space in an office
building in Wyomissing, Pennsylvania for the Company's executive offices. The
lease is for a ten-year term expiring April 2000 with an annual minimum rental
of $71,100. The office building is owned by an affiliate of Peter M. Carlino.
The Company believes that the lease terms are not less favorable than lease
terms that could have been obtained from an unaffiliated third party.
The Company currently leases an aircraft from a company owned by John
Jacquemin, a director of the Company. The lease is for a ten-year term with
monthly payments of $8,356. The Company believes that the lease terms are not
less favorable than lease terms that could have been obtained from an
unaffiliated third party.
Employees
At December 31, 1997, the Company had 1,660 permanent employees, of whom
894 were full-time and 766 part-time. Employees of the Company who work in the
admissions department and pari-mutuels department at the Penn National Race
Course, Pocono Downs and the OTWs are represented under collective bargaining
agreements between the Company and Sports Arena Employees' Union Local 137. The
agreements extend until October 3, 1999 for track employees and until May 20,
1998 for OTW employees. The pari-mutuel clerks at Pocono Downs voted to unionize
in June 1997. The Company has held negotiations with this union, but does not
have a contract to date. Failure to reach agreement with this union would not
result in the suspension or termination of the Company's license to operate live
racing at Pocono Downs or to conduct simulcast or OTW operations. The Company
believes that its relations with its employees are satisfactory.
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,
on November 19, 1997, a wagering services contract with a third party (the
"Third Party Wagering Services Contract"), and not 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
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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, and a
ruling is expected shortly. The Company intends to pursue legal remedies in
order to terminate Amtote and proceed under the Third Party Wagering Services
Contract. 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 or the Company.
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MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are:
NAME AGE POSITION
- ---- --- --------
Peter M. Carlino................... 51 Chairman of the Board and Chief
Executive Officer
William J. Bork.................... 64 President, Chief Operating Officer
and Director
Robert S. Ippolito................. 46 Chief Financial Officer, Secretary
and Treasurer
Philip T. O'Hara, Jr............... 45 Vice President and General Manager
Joseph A. Lashinger, Jr............ 44 Vice President
Robert E. Abraham.................. 45 Vice President and Corporate
Controller
Harold Cramer...................... 70 Director
David A. Handler................... 33 Director
Robert P. Levy..................... 66 Director
John M. Jacquemin.................. 51 Director
Peter M. Carlino. Mr. Carlino has served as Chairman of the Board and Chief
Executive Officer of the Company since April 1994, and has devoted a significant
amount of time to the activities of the Company as a director since 1991. From
1984 to 1994, Mr. Carlino devoted a substantial portion of his business time to
developing, building and operating residential and commercial real estate
projects located primarily in Central Pennsylvania. He has been President of
Carlino Financial Corporation ("Carlino Financial"), a holding company which
owns and operates various Carlino family businesses, since 1976, in which
capacity he has been continuously active in strategic planning for the Company
and monitoring its operations. From 1972 until 1976, Mr. Carlino served as
President of Mountainview Thoroughbred Racing Association ("Mountainview"), a
predecessor in interest of the Company.
William J. Bork. Mr. Bork was elected President, Chief Operating Officer
and a director in June 1995. From 1987 to June 1995 he was Vice President for
Ladbroke Racing Corporation. Prior to working with Ladbroke, Mr. Bork served as
Vice President of Operations of racetracks previously owned by Ogden Corporation
including Fairmount Park in Collinsville, Illinois; Mountaineer Park in Chester,
West Virginia; Wheeling Downs in Wheeling, West Virginia; and Suffolk Downs in
Boston, Massachusetts.
Robert S. Ippolito. Mr. Ippolito, a certified public accountant, was
elected Chief Financial Officer, Secretary and Treasurer of the Company in April
1994. He was Corporate Controller and Secretary of Carlino Financial and certain
of its affiliates between June 1987 and May 1994, and from 1979 to 1987 was
engaged in public accounting.
Philip T. O'Hara, Jr. Mr. O'Hara has been Vice President and General
Manager since January 1989. Mr. O'Hara joined the Company in April 1985 and has
served in various management capacities, including Director of Marketing and
Assistant General Manager. He has been a Director of the Thoroughbred Racing
Association since 1990.
Joseph A. Lashinger, Jr., Esquire. Mr. Lashinger was elected Vice President
of the Company in June 1997. Prior to joining the Company, Mr. Lashinger served
as a consultant to the Company from 1996 to 1997. From 1978 to 1990, Mr.
Lashinger was elected to seven consecutive terms in the Pennsylvania House of
Representatives as representative from the 150th Legislative District in
Montgomery County, Pennsylvania. From 1981 to 1992, Mr. Lashinger was a partner
in the law firm of Fox, Differ, Callahan, Sheridan, O'Neil and Lashinger. Mr.
Lashinger has also served as director of government affairs, development
director and counsel to several major casino companies including Sands Casino,
Hollywood Casino Corporation and Bally Entertainment.
Robert E. Abraham. Mr. Abraham was elected Vice President and Corporate
Controller of the Company in January 1997. Mr. Abraham joined the Company in
1986 as Controller of Mountainview and Pennsylvania National Turf Club. Mr.
Abraham's prior experience includes six years in public accounting serving on
audit and management advisory services engagements.
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Harold Cramer. Mr. Cramer has been a director of the Company since 1994.
Since November 1996, Mr. Cramer has been of counsel to Mesirov, Gelman, Jaffe,
Cramer & Jamieson, a Philadelphia law firm which provides legal services to the
Company. From November 1995 until November 1996, Mr. Cramer was Chairman of the
Board and Chief Executive Officer of HSI Management Co., Inc. From 1989 until
November 1995, Mr. Cramer was Chairman of the Board and Chief Executive Officer
of Graduate Health System, Inc. ("GHS"), and has been a Director of GHS since
November 1996. He also serves as a director of Mountainview and as a director of
Pennsylvania National Turf Club, Inc., a subsidiary of the Company.
David A. Handler. Mr. Handler has been a director of the Company since
1994. From 1995 to the present, Mr. Handler has been an investment banker and is
currently a Senior Vice President of Corporate Finance at Jefferies & Company,
Inc. From 1991 to 1995, Mr. Handler was a Vice President at Fahnestock & Co.,
Inc.
Robert P. Levy. Mr. Levy has been a director of the Company since 1995. He
is Chairman of the Board of the Atlantic City Racing Association and served a
two-year term as President from 1989 to 1990 of the Thoroughbred Racing
Association. Mr. Levy has served as the Chairman of the Board of DRT Industries,
Inc., a diversified business based in the Philadelphia metropolitan area, since
1960. Mr. Levy owns the Robert P. Levy Stable, a thoroughbred racing and
breeding operation which has bred and owned several award-winning horses,
including the 1987 Belmont Stakes winner, Bet Twice.
John M. Jacquemin. Mr. Jacquemin has been a director of the Company since
1995 and is President of Mooring Financial Corporation, a financial services
group specializing in the purchase and administration of commercial loan
portfolios and equipment leases. Mr. Jacquemin joined Mooring Financial
Corporation in 1982 and has served as its President since 1987.
DESCRIPTION OF CREDIT FACILITY
Concurrently with the Offering, the Company amended and replaced its
existing credit facility with a new facility (the "Credit Facility") arranged by
Bankers Trust Company as agent (the "Agent"). The following is a summary
description of the principal terms of the Credit Facility and is subject to, and
qualified in its entirety by reference to, the definitive Credit Facility,
copies of which will be made available upon request to the Company.
The Credit Facility provides for, subject to certain terms and conditions,
a $12.0 million revolving credit facility with a five-year term. The Credit
Facility, under certain circumstances, requires the Company to make mandatory
prepayments and commitment reductions. In addition, the Company may make
optional prepayments and commitment reductions pursuant to the terms of the
Credit Facility. Borrowings under the Credit Facility accrue interest, at the
option of the Company, at either the Agent's 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 other things,
restrict the ability of the Company and its subsidiaries to dispose of assets,
incur additional indebtedness, incur guarantee obligations, repay indebtedness
or amend debt instruments, pay dividends, create liens on assets, 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 will
be secured by the assets of the Company and certain of its subsidiaries and
guaranteed by all of the subsidiaries except the Charles Town Joint Venture. In
addition, the Credit Facility requires the Company to comply with certain
financial ratios and maintenance tests.
DESCRIPTION OF EXCHANGE NOTES
General
The Exchange Notes will be issued under an indenture (the "Indenture"),
dated as of December 17, 1997, by and among the Company, the Subsidiary
Guarantors and State Street Bank and Trust Company, as Trustee (the "Trustee").
The following summary of certain provisions of the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Indenture (a copy of the form of which may be obtained from
the Company), including the definitions of certain terms therein and those terms
made a part of the Indenture by reference to the TIA as in effect on the date of
the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "--Certain Definitions." For
purposes of this section, references to the "Company" include only the Company
and not its Subsidiaries.
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The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The
Exchange Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
holders of the Exchange Notes (the "Holders"). The Company will pay principal
(and premium, if any) on the Exchange Notes at the Trustee's corporate office in
New York, New York. At the Company's option, interest may be paid at the
Trustee's corporate trust office or by check mailed to the registered address of
Holders. Any Old Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with this
Exchange Offer, will be treated as a single class of securities under the
Indenture.
Principal, Maturity and Interest
The Exchange Notes are unsecured senior obligations of the Company. The
Indenture is limited in aggregate principal amount to $150,000,000, of which
$80,000,000 will be issued in the Exchange Offering. The Exchange Notes will
mature on December 15, 2004. Additional amounts may be issued in one or more
series from time to time subject to the limitations set forth under "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness" and restrictions
contained in the Credit Facility. Interest on the Exchange Notes will accrue at
the rate of 10 5/8% per annum and will be payable semiannually in cash on June
15 and December 15, commencing on June 15, 1998, to the persons who are
registered Holders at the close of business on the June 1 and December 1
immediately preceding the applicable interest payment date. Interest on the
Exchange Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from and including the date of issuance.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
Redemption
Optional Redemption. The Exchange Notes will be redeemable, at the
Company's option, in whole at any time or in part from time to time, on and
after December 15, 2001, upon not less than 30 nor more than 60 days notice, at
the following redemption prices (expressed as percentages of the principal
amount thereof) if redeemed during the twelve-month period commencing on
December 15 of the year set forth below, plus, in each case, accrued and unpaid
interest thereon to the date of redemption:
YEAR PERCENTAGE
- ---- ----------
2001............................................... 105.313%
2002............................................... 102.656%
2003 and thereafter................................ 100.000%
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, on or prior to December 15, 2000, the Company may, at its option, use
the net cash proceeds of one or more Public Equity Offerings (as defined below)
to redeem up to 35% of the Exchange Notes at a redemption price equal to
110.625% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of redemption; provided that at least 65% of the principal
amount of Exchange Notes originally issued remains outstanding immediately after
any such redemption. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 90 days after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
Selection and Notice of Redemption
In the event that less than all of the Exchange Notes are to be redeemed at
any time, selection of such Exchange Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Exchange Notes are listed or, if such Exchange
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Exchange Notes of a principal amount of $1,000 or
less shall be redeemed in part; provided, further, that if a partial redemption
is made with the proceeds of a Public Equity Offering, selection of the Exchange
Notes or portions thereof for redemption shall be made by the Trustee only on a
pro rata basis or on as nearly a pro rata basis as is practicable (subject to
DTC procedures), unless such method is otherwise
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prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Exchange
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Exchange Notes or portions
thereof called for redemption as long as the Company has deposited with the
Paying Agent funds in satisfaction of the applicable redemption price pursuant
to the Indenture.
Guarantees
Each Subsidiary Guarantor will unconditionally guarantee, on a senior
unsecured basis, jointly and severally, to each Holder and the Trustee, the full
and prompt performance of the Company's obligations under the Indenture and the
Exchange Notes, including the payment of principal of and interest on the
Exchange Notes. The Guarantees will be effectively subordinated in right of
payment to all existing and future secured Indebtedness of the related
Subsidiary Guarantor to the extent of the value of the assets securing such
Indebtedness.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount which, after giving effect to all other contingent and fixed liabilities
of such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Subsidiary Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law.
Each Subsidiary Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in an amount pro rata, based on the net assets of each Subsidiary
Guarantor, determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company without limitation, or with other Persons
upon the terms and conditions set forth in the Indenture. See "--Certain
Covenants--Merger, Consolidation and Sale of Assets." In the event all of the
Capital Stock of a Subsidiary Guarantor is (or all or substantially all of the
assets of a Subsidiary Guarantor are) sold by the Company and the sale complies
with the provisions set forth in "--Certain Covenants--Limitation on Asset
Sales" the Subsidiary Guarantor's Guarantee will be released.
Separate financial statements of the Subsidiary Guarantors are not included
herein because such Subsidiary Guarantors are jointly and severally liable with
respect to the Company's obligations pursuant to the Exchange Notes, and the
aggregate net assets, earnings and equity of the Subsidiary Guarantors and the
Company are substantially equivalent to the net assets, earnings and equity of
the Company on a consolidated basis.
Change of Control
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Exchange Notes pursuant to the offer described below
(the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
purchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have an Exchange Note purchased pursuant to
a Change of Control Offer will be required to surrender the Exchange Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the third business day prior to the Change of
Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Exchange Notes that might be delivered by Holders
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Exchange Notes pursuant to a Change of Control
Offer,
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the Company expects that it would seek third party financing to the extent it
does not have available funds to meet its purchase obligations. However, there
can be no assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
The Change of Control purchase feature of the Exchange Notes may make more
difficult or discourage a takeover of the Company, and, thus, the removal of
incumbent management. The Change of Control purchase feature is a result of
negotiations between the Company and the Initial Purchasers. Except as described
herein with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Exchange Notes to require the Company
to repurchase or redeem the Exchange Notes in the event of a takeover,
recapitalization or similar restructuring. Restrictions in the Indenture
described herein on the ability of the Company and its Restricted Subsidiaries
to incur additional Indebtedness, to grant liens on its property, to make
Restricted Payments and to make Asset Sales may also make more difficult or
discourage a takeover of the Company, whether favored or opposed by the
management of the Company. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the Exchange Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries by the management of the Company. While
such restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not afford
the Holders of Exchange Notes protection in all circumstances from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring, merger
or similar transaction.
The phrases "all or substantially all" of the assets of the Company or "all
or substantially all of the Company's assets whether as an entirety or
substantially as an entirety," as used in the Indenture has no clearly
established meaning under New York law (which governs the Indenture), has been
the subject of limited judicial interpretation in few jurisdictions and will be
interpreted based upon the particular facts and circumstances. As a result,
there may be a degree of uncertainty in ascertaining whether a sale or transfer
of "all or substantially all" of the assets of the Company has occurred and
therefore whether a Change of Control has occurred.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act, if applicable, and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Subsidiary Guarantor may
incur Indebtedness (including, without limitation, Acquired Indebtedness) if on
the date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than (i) 2.25 to 1.0 if the date of such incurrence is on or prior to
December 15, 1998 or (ii) 2.50 to 1.0 if the date of such incurrence is after
December 15, 1998.
The Company will not, and will not permit any Subsidiary Guarantor to,
directly or indirectly, in any event incur any Indebtedness which by its terms
(or by the terms of any agreement governing such Indebtedness) is subordinated
to any other Indebtedness of the Company or of such Subsidiary Guarantor, as the
case may be, unless such Indebtedness is also by its terms (or by the terms of
any agreement governing such Indebtedness) made expressly subordinate to the
Notes or the Guarantees of such Subsidiary Guarantor, as the case may be, to the
same extent and in the same manner as such Indebtedness is subordinated pursuant
to subordination provisions that are most favorable to the holders of any other
Indebtedness of the Company or of such Subsidiary Guarantor, as the case may be.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock,
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(b) purchase, redeem or otherwise acquire or retire for value any Capital Stock
of the Company or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock, (c) make any principal payment on, purchase,
defease, redeem, prepay, decrease or otherwise acquire or retire for value,
prior to any scheduled maturity, scheduled or mandatory repayment or scheduled
sinking fund payment, any Indebtedness of the Company or its Subsidiaries that
is subordinate or junior in right of payment to the Notes, or (d) make any
Investment (other than Permitted Investments) (each of the foregoing actions set
forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after giving
effect thereto, (i) a Default or an Event of Default shall have occurred and be
continuing or (ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the covenant
described under "--Limitation on Incurrence of Additional Indebtedness" or (iii)
the aggregate amount of Restricted Payments (including such proposed Restricted
Payment) made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of such property as
determined reasonably and in good faith by the Board of Directors of the
Company) shall exceed the sum of: (i) $1,000,000 plus (2) (w) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned commencing on
the first day of the fiscal quarter including the Issue Date, to and including
the last day of the latest fiscal quarter ended immediately prior to the date of
each such calculation subsequent to the Issue Date and on or prior to the date
the Restricted Payment occurs (the "Reference Date") (treating such period as a
single accounting period); plus (x) 100% of the aggregate net cash proceeds
received by the Company from any Person (other than a Subsidiary of the Company)
from the issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of the Company plus (y) without
duplication of any amounts included in clause (iii)(x) above, 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock (excluding, in the case of clauses
(iii)(x) and (y), any net cash proceeds from a Public Equity Offering to the
extent used to redeem the Notes); plus (z) an amount equal to the sum of (1) any
net reduction subsequent to the Issue Date, in Investments in Unrestricted
Subsidiaries resulting from dividends, repayments of loans or advances or other
transfers of assets by any Unrestricted Subsidiary to the Company or any
Restricted Subsidiary or the receipt of proceeds by the Company or any
Restricted Subsidiary from the sale or other disposition of any portion of the
Capital Stock of any Unrestricted Subsidiary, in each case occurring subsequent
to the Issue Date (but without duplication of any such amount included in
Consolidated Net Income), and (2) the consolidated net Investments on the date
of Revocation made by the Company or any of the Restricted Subsidiaries in any
Subsidiary of the Company that has been designated an Unrestricted Subsidiary
after the Issue Date upon its redesignation as a Restricted Subsidiary in
accordance with the covenant described under "--Limitation on Designations of
Unrestricted Subsidiaries."
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or giving of such irrevocable redemption notice if
the dividend or redemption payment, as the case may be, would have been
permitted on the date of declaration or the giving of the irrevocable redemption
notice; (2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of Capital Stock of the Company,
either (i) solely in exchange for shares of Qualified Capital Stock of the
Company or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of the Company)
of shares of Qualified Capital Stock of the Company; (3) if no Default or Event
of Default shall have occurred and be continuing, the acquisition of any
Indebtedness of the Company or a Subsidiary of the Company that is subordinate
or junior in right of payment to the Notes either (i) solely in exchange for
shares of Qualified Capital Stock of the Company, or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Restricted Subsidiary of the Company) of (A) shares of Qualified
Capital Stock of the Company or (B) Refinancing Indebtedness; (4) so long as no
Default or Event of Default shall have occurred and be continuing, repurchases
by the Company of Common Stock of the Company or options or warrants to purchase
Common Stock of the Company, stock appreciation rights or any similar equity
interest in the Company from directors and employees of the Company or any of
its Subsidiaries (or their authorized representatives upon the death, disability
or termination of employment of such employees) in an aggregate amount not to
exceed $500,000 in any calendar year; and (5) an investment in PNGI Charlestown
Gaming LLC in an amount not to exceed $5.0 million to be funded with the
proceeds of the offering of the Notes, provided, however, that $4.0 million of
such investment will be funded within 60 days of the Issue Date and the
remaining $1.0 million within 180 days of the Issue Date or as soon as
practicable thereafter or as is permitted by any applicable regulatory
organization. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2)(ii),
(3)(ii)(A), (4) and (5) of this paragraph shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
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Limitation on Asset Sales. The Company will not, and will not permit any of
the Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 80% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; provided, however, that the amount of (A) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or the notes thereto), of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes) that are assumed by the transferee in such Asset Sale and from which the
Company or such Restricted Subsidiary is released and (B) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are converted within 10 business days by the Company or such
Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash
or Cash Equivalents received), shall be deemed to be cash for the purposes of
this provision; and (iii) upon the consummation of an Asset Sale, the Company
shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt thereof either (A) to
prepay any Indebtedness ranking at least pari passu with the Notes and, in the
case of any such Indebtedness under any revolving credit facility, effect a
permanent reduction in the availability under such revolving credit facility,
(B) to make an investment in properties and assets that replace the properties
and assets that were the subject of such Asset Sale or in properties and assets
that will be used in the business of the Company and the Restricted Subsidiaries
as existing on the Issue Date or in businesses reasonably related thereto
("Replacement Assets"), or (C) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 271st day after
an Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Restricted Subsidiary determines not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B)
and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount at a
price equal to 100% of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the date of purchase; provided,
however, that if at any time any non-cash consideration received by the Company
or any Restricted Subsidiary, as the case may be, in connection with any Asset
Sale is converted into or sold or otherwise disposed of for cash (other than
interest received with respect to any such non-cash consideration), then such
conversion or disposition shall be deemed to constitute an Asset Sale hereunder
and the Net Cash Proceeds thereof shall be applied in accordance with this
covenant. The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $5.0
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, not just the amount in excess of $5.0
million, shall be applied as required pursuant to this paragraph). To the extent
the aggregate amount of the Notes tendered pursuant to the Net Proceeds Offer is
less than the Net Proceeds Offer Amount, the Company may use such deficiency for
general corporate purposes. Upon completion of such offer to purchase, the Net
Proceeds Offer Amount shall be reset at zero.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and the Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets received by the Company or any of the Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
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The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act, if applicable, and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
"Asset Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary; or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law; (2) the
Indenture and the Notes; (3) customary non-assignment provisions of (y) any
contract concerning a Restricted Subsidiary or (z) any lease governing a
leasehold interest of any Restricted Subsidiary; (4) any instrument governing
Acquired Indebtedness, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired (including, but not limited to,
such Person's direct and indirect Subsidiaries); (5) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date (including the Credit Facility); (6) restrictions on the transfer of
assets subject to any Lien permitted under the Indenture imposed by the holder
of such Lien; (7) any agreement or instrument governing the payment of dividends
or other distributions on or in respect of Capital Stock of any Person that is
acquired; or (8) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) above; provided, however, that the provisions relating to
such encumbrance or restriction contained in any such Indebtedness are no less
favorable to the Company in any material respect as determined by the Board of
Directors of the Company in its reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (4) or (5).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary) or permit
any Person (other than the Company or a Wholly Owned Restricted Subsidiary) to
own any Preferred Stock of any Restricted Subsidiary.
Limitation on Liens. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens upon any property or assets of the
Company or any of the Restricted Subsidiaries whether owned on the Issue Date or
acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise
convey any right to receive income or profits therefrom unless (i) in the case
of Liens securing Indebtedness that is expressly subordinate or junior in right
of payment to the Exchange Notes or any Guarantee, the Exchange Notes and the
Guarantees are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens and (ii) in all other cases, the Notes and the
Guarantees are secured on an equal and ratable basis, except for (a) Liens
existing as of the Issue Date to the extent and in the manner such Liens are in
effect on the Issue Date; (b) Liens securing Indebtedness under the Credit
Facility; (c) Liens securing the Exchange Notes; (d) Liens of the Company or a
Restricted Subsidiary on assets of any Restricted Subsidiary of the Company; (e)
Liens securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
provided, however, that such Liens (A) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (B) do not extend to
or cover any property or assets of the Company or any of the Restricted
Subsidiaries not securing the Indebtedness so Refinanced; (f) Liens in favor of
the Company; and (g) Permitted Liens.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary to sell, assign, transfer, lease,
convey or otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Exchange Notes and
the performance of every covenant of the Exchange Notes, the Indenture
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and the Registration Rights Agreement on the part of the Company to be performed
or observed; (ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (i)(2)(y) above (including giving effect to
any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company or
such Surviving Entity, as the case may be, (1) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (2) shall be able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "--Limitation on Incurrence of Additional
Indebtedness"; (iii) immediately before and immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied. For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture and the
Exchange Notes with the same effect as if such Surviving Entity had been named
as such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales") will not, and the Company will not cause or
permit any Subsidiary Guarantor to, consolidate with or merge with or into any
Person other than the Company or any other Subsidiary Guarantor unless: (i) the
entity formed by or surviving any such consolidation or merger is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Subsidiary Guarantor on the Guarantee; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (iv) immediately after giving
effect to such transaction and the use of any proceeds therefrom on a pro forma
basis, the Company could satisfy the provisions of clause (ii) of the first
paragraph of this covenant. Any merger or consolidation of a Subsidiary
Guarantor with and into the Company (with the Company being the surviving
entity) or another Subsidiary Guarantor that is a Wholly Owned Restricted
Subsidiary of the Company need only comply with clause (iv) of the first
paragraph of this covenant.
Limitations on Transactions with Affiliates. The Company will not, and will
not permit any of the Restricted Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $1,000,000 shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted Subsidiary enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $5,000,000, the Company or such Restricted Subsidiary, as the case may be,
shall, prior to the consummation thereof, obtain an opinion stating that such
transaction or series of related transactions are fair to the Company or the
relevant Restricted Subsidiary, as the case may be, from a financial point of
view, from an Independent Financial Advisor.
The restrictions set forth in the preceding paragraph shall not apply to
(i) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary as determined in good faith by the Company's Board of
Directors; (ii) transactions exclusively between or among the Company and any of
its Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture; (iii) any agreement as in effect as of the Issue Date or any
amendment thereto or any transaction
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contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacements
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement as in effect on the Issue Date; and (iv) Restricted
Payments permitted by the Indenture.
Additional Subsidiary Guarantees. If the Company or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any Restricted Subsidiary that
is not a Subsidiary Guarantor, or if the Company or any of the Restricted
Subsidiaries shall organize, acquire or otherwise invest in or hold an
Investment in another Restricted Subsidiary having total consolidated assets
with a book value in excess of $500,000, then such transferee or acquired or
other Restricted Subsidiary shall (a) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Notes and the Indenture on the terms set forth
in the Indenture and (b) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary
shall be a Subsidiary Guarantor for all purposes of the Indenture. In the event
PNGI Charlestown Gaming LLC is not prohibited from entering into a Guarantee
pursuant to restrictions contained in its operating or other similar agreement
in existence on the Issue Date it shall become a Subsidiary Guarantor as
provided in this paragraph at the time such restriction is no longer applicable.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or related to the
businesses in which the Company and its Restricted Subsidiaries are engaged on
the Issue Date.
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate any Subsidiary of the Company (other than a Subsidiary of the Company
which owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of
such Designation) in an amount (the "Designation Amount") equal to the
sum of (i) fair market value of the Capital Stock of such Subsidiary
owned by the Company and the Restricted Subsidiaries on such date and
(ii) the aggregate amount of other Investments of the Company and the
Restricted Subsidiaries in such Subsidiary on such date; and
(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under "--Limitation on Incurrence of Additional
Indebtedness" at the time of Designation (assuming the effectiveness
of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under
"--Limitation on Restricted Payments."
The Indenture will further provide that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time,
have been permitted to be incurred for all purposes of the Indenture.
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All Designations and Revocations must be evidenced by Board Resolutions of
the Company certifying compliance with the foregoing provisions.
Reports to Holders. The Company will deliver to the Trustee within 15 days
after the filing of the same with the Commission, copies of the quarterly and
annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. The Indenture further provides that,
notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and
Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of TIA Section 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Exchange Notes when the same
becomes due and payable and the default continues for a period of 30
days;
(ii) the failure to pay the principal on any Exchange Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase
Exchange Notes tendered pursuant to a Change of Control Offer or a Net
Proceeds Offer);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying
the default (and demanding that such default be remedied) from the
Trustee or the Holders of at least 25% of the outstanding principal
amount of the Exchange Notes (except in the case of a default with
respect to the covenant described under "-- Certain Covenants--Merger,
Consolidation and Sale of Assets," which will constitute an Event of
Default with such notice requirement but without such passage of time
requirement);
(iv) the failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary, or the
acceleration of the final stated maturity of any such Indebtedness if
the aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure
to pay principal at final maturity or which has been accelerated,
aggregates $5,000,000 or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5,000,000
(to the extent not covered by third-party insurance as to which the
insurance company has acknowledged coverage) shall have been rendered
against the Company or any of the Significant Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60
days after such judgment or judgments become final and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees of a Subsidiary Guarantor that is a Significant
Subsidiary ceases to be in full force and effect or any of such
Guarantees is declared to be null and void and unenforceable or any of
such Guarantees is found to be invalid, in each case by a court of
competent jurisdiction in a final non-appealable judgment, or any of
such Subsidiary Guarantors denies its liability under its Guarantee
(other than by reason of release of any such Subsidiary Guarantor in
accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding
Exchange Notes may declare the principal of and accrued interest on all the
Exchange Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default, and the same shall become
immediately due and payable. If an Event of Default specified in clause (vi)
above relating to the Company occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of the
outstanding Exchange Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
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The Indenture provides that, at any time after a declaration of
acceleration with respect to the Exchange Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Exchange Notes
may rescind and cancel such declaration and its consequences (i) if the
rescission would not conflict with any judgment or decree, (ii) if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration, (iii) to the
extent the payment of such interest is lawful, interest on overdue installments
of interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid, (iv) if the Company has paid the
Trustee its reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Exchange Notes may
waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Exchange Notes.
Holders of the Exchange Notes may not enforce the Indenture or the Exchange
Notes except as provided in the Indenture and under the TIA. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Exchange Notes have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Exchange Notes ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Exchange Notes, except
for (i) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Exchange Notes when such payments are
due, (ii) the Company's obligations with respect to the Exchange Notes
concerning issuing temporary Exchange Notes, registration of Exchange Notes,
mutilated, destroyed, lost or stolen Exchange Notes and the maintenance of an
office or agency for payments, (iii) the rights, powers, trust, duties and
immunities of the Trustee and the Company's obligations in connection therewith
and (iv) the Legal Defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Exchange Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, reorganization and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Exchange Notes on the stated
date for payment thereof or on the applicable redemption date, as the case may
be; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same
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amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default with respect to the Indenture resulting from the
incurrence of Indebtedness, all or a portion of which will be used to defease
the Exchange Notes concurrently with such incurrence), or insofar as Events of
Default from bankruptcy or insolvency events are concerned at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under the Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an officers' certificate stating that the deposit
was not made by the Company with the intent of preferring the Holders over any
other creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others; (vii) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with; (viii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable federal, New York or
Pennsylvania bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (ix) certain other customary conditions
precedent are satisfied. Notwithstanding the foregoing, the opinion of counsel
required by clauses (ii)(A) and (iii) above need not be delivered if all the
Exchange Notes not theretofore delivered to the Trustee for cancellation (i)
have become due and payable, (ii) will become due and payable on the maturity
date within one year, or (iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by such Trustee in the name, and at the expense, of the Company.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Exchange Notes, as expressly provided for in the Indenture) as to all
outstanding Exchange Notes when (i) either (a) all the Exchange Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Exchange Notes which have been replaced or paid and Exchange Notes for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust) have been delivered to the Trustee for cancellation or (b) all
Exchange Notes not theretofore delivered to the Trustee for cancellation have
become due and payable and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Indebtedness on the Exchange Notes not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and interest on the
Exchange Notes to the date of deposit together with irrevocable instructions
from the Company directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be; (ii) the Company has paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
Modification of the Indenture
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies, so
long as such change does not, in the opinion of the Trustee, adversely affect
the rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such evidence
as it deems appropriate, including, without limitation, solely on an opinion of
counsel. Other modifications and amendments of the Indenture may be made with
the consent of the Holders of a majority in principal amount of the then
outstanding Exchange Notes issued under the Indenture, except that, without the
consent of each Holder affected thereby, no amendment may: (i) reduce the amount
of Exchange Notes whose Holders must consent to an amendment; (ii) reduce the
rate of or change or have the effect of changing the time for payment of
interest, including defaulted interest, on any Exchange Notes; (iii) reduce the
principal of or change or have the effect of changing the fixed maturity of any
Exchange Notes, or change the date on which any Exchange Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Exchange Notes payable in money other than that stated in the
Exchange Notes; (v) make any change in provisions of the Indenture protecting
the right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of Exchange Notes to
waive Defaults or Events of Default; (vi) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate a
Net Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; (vii) modify
or change any provision of the Indenture or the related definitions affecting
the ranking of the Exchange Notes or any
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Guarantee in a manner which adversely affects the Holders or (viii) release any
Subsidiary Guarantor from any of its obligations under its Guarantee of the
Indenture otherwise than in accordance with the terms of the Indenture.
Governing Law
The Indenture will provide that it, the Exchange Notes and the Guarantees
will be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the law of another jurisdiction would be
required thereby.
The Trustee
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company or of a
Subsidiary of the Company, to obtain payments of claims in certain cases or to
realize on certain property received in respect of any such claim as security or
otherwise. Subject to the TIA, the Trustee will be permitted to engage in other
transactions; provided that if the Trustee acquires any conflicting interest as
described in the TIA, it must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or is assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
the Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Restricted Subsidiary of (a) any Capital
Stock of any Restricted Subsidiary; or (b) any other property or assets of the
Company or any Restricted Subsidiary other than in the ordinary course of
business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or the
Restricted Subsidiaries receive aggregate consideration of less than $500,000,
(ii) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted under "--Certain
Covenants--Merger, Consolidation and Sale of Assets," (iii) disposals or
replacements of obsolete equipment in the ordinary course of business, (iv) the
sale, lease, conveyance, disposition or other transfer by the Company or any
Restricted Subsidiary of assets or property to the Company or one or more
Restricted Subsidiaries, (v) sale or discount, in each case without recourse, of
accounts receivable in the ordinary course of business, but only in connection
with the compromise or collection thereof and (vi) sales, transfers
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or other dispositions of assets which are Restricted Payments permitted by the
provisions described under "--Limitations on Restricted Payments."
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons (other than to a Permitted
Holder) for purposes of Section 13(d) of the Exchange Act (a "Group"), together
with any Affiliates thereof (whether or not otherwise in compliance with the
provisions of the Indenture); (ii) the approval by the holders of Capital Stock
of the Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of the
Indenture); (iii) any Person or Group, other than a Permitted Holder, shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing more than 50% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of the Company; or (iv) the replacement
of a majority of the Board of Directors of the Company over a two-year period
from the directors who constituted the Board of Directors of the Company at the
beginning of such period, and such replacement shall not have been approved by a
vote of at least a majority of the Board of Directors of the Company then still
in office who either were members of any such Board of Directors at the
beginning of such period or whose election as a member of any such Board of
Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income
has been reduced thereby, (A) all income taxes of the Company and the Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring gains or
losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (B) Consolidated Interest Expense and (C) Consolidated
Non-cash Charges less any non-cash items increasing Consolidated Net Income for
such period, all as determined on a consolidated basis for the Company and the
Restricted Subsidiaries in accordance with GAAP.
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"Consolidated Fixed Charge Coverage Ratio" means the ratio of Consolidated
EBITDA during the four full fiscal quarters (the "Four Quarter Period") ending
on or prior to the date of the transaction giving rise to the need to calculate
the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to
Consolidated Fixed Charges for the Four Quarter Period. In addition to and
without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis (including any non-recurring expenses
associated with the transactions described in clause (i) and (ii) below and pro
forma expense and cost reductions, in each case, calculated on a basis
consistent with Regulation S-X under the Securities Act in effect on the Issue
Date) basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of the Company or any of the Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also including
any Consolidated EBITDA (provided that such Consolidated EBITDA shall be
included only to the extent includable pursuant to the definition of
"Consolidated Net Income") attributable to the assets which are the subject of
the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability for
any such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If the Company or any of the Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if the
Company or any such Restricted Subsidiary had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements. For the purpose of this definition, "Asset Sale" shall include
clause (v) under the definition "Asset Sale".
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount, (b) the net costs or benefit
under Interest Swap Obligations, (c) all capitalized interest and (d) the
interest portion of any deferred payment obligation; and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by the Company and the Restricted Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains or losses, (c)
the net income (or loss) of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or is
merged or consolidated with the Company or any Restricted Subsidiary, (d) the
net income (but not loss) of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract, operation of law or otherwise, (e)
the net income of any Person, other than the Company or a Restricted Subsidiary,
except to the extent of cash dividends or
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distributions paid to the Company or to a Restricted Subsidiary by such Person,
(f) any restoration to income of any contingency reserve, except to the extent
that provision for such reserve was made out of Consolidated Net Income accrued
at any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), (h) in the case of a successor to the Company by consolidation or
merger or as a transferee of the Company's assets, any net income of the
successor corporation prior to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and the Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (including deferred rent but excluding any such charge which requires
an accrual of or a reserve for cash charges for any future period).
"Covenant Defeasance" has the meaning set forth under "--Legal Defeasance
and Covenant Defeasance."
"Credit Facility" means the Amended and Restated Credit Agreement dated as
of December 17, 1997 among the Company, the lenders party thereto in their
capacities as lenders thereunder, Bankers Trust Company, as agent, and
CoreStates Bank, N.A., as co-agent, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder adding Restricted Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial
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Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession of the
United States, which are in effect as of the Issue Date.
"Guarantee" means the guarantee of the Notes by the Subsidiary Guarantors.
"Incur" has the meaning set forth under "--Certain Covenants--Limitation on
Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) above which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (viii) all Obligations under currency agreements and
interest swap agreements of such Person and (ix) all Disqualified Capital Stock
issued by such Person with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuers
of such Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect material financial interest in the Company and (ii) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and the Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. If the Company or any Restricted Subsidiary
sells or otherwise disposes of any Common Stock of any direct or indirect
Restricted Subsidiary such that, after giving effect to any such sale or
disposition, it ceases to be a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"Issue Date" means the date of original issuance of the Exchange Notes.
"Legal Defeasance" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion
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of any such deferred payment constituting interest) received by the Company or
any of the Restricted Subsidiaries from such Asset Sale net of (a) reasonable
out-of-pocket expenses and fees relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale and (d) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holder" means Peter M. Carlino, and each of his immediate family
members, the Carlino Family Trust, trustees of the Carlino Family Trust or
similar trusts, entities or arrangements for the benefit of the foregoing
persons and entities.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness incurred on the Issue Date under the Notes, the Indenture
and the Guarantees, and other Indebtedness and Guarantees of such
Indebtedness under the Indenture properly incurred in accordance with
the "--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness" covenant;
(ii) Indebtedness incurred pursuant to the Credit Facility in an aggregate
principal amount at any time outstanding not to exceed $20.0 million,
less any required permanent repayment pursuant to the provisions set
forth under "Certain Covenants--Limitation on Asset Sales";
(iii) other Indebtedness (including Capitalized Lease Obligations) of the
Company and the Restricted Subsidiaries outstanding on the Issue Date
reduced by the amount of any scheduled amortization payments or
mandatory prepayments when actually paid or permanent reductions
thereon;
(iv) Purchase Money Indebtedness and Capitalized Lease Obligations incurred
in connection with the purchase or capital lease of video gaming
machines, slot machines or similar gaming equipment in an aggregate
amount for all Indebtedness incurred by the Company or any Restricted
Subsidiary pursuant to this subclause (iv) not to exceed $20.0 million
outstanding at any one time;
(v) Interest Swap Obligations of the Company or a Restricted Subsidiary
covering Indebtedness of the Company or any of the Restricted
Subsidiaries; provided, however, that such Interest Swap Obligations
are entered into to protect the Company and the Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap
Obligation relates;
(vi) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and the
Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(vii) Indebtedness of a Wholly Owned Restricted Subsidiary to the Company
or to a Wholly Owned Restricted Subsidiary for so long as such
Indebtedness is held by the Company or a Wholly Owned Restricted
Subsidiary, in each case subject to no Lien (other than Liens securing
the Credit Facility) held by a Person other than the Company or a
Wholly Owned Restricted Subsidiary; provided that if as of any date
any Person other than the Company or a Wholly Owned Restricted
Subsidiary owns or holds any such Indebtedness or holds a Lien in
respect of such Indebtedness, such date shall be deemed the incurrence
of Indebtedness not constituting Permitted Indebtedness by the issuer
of such Indebtedness;
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(viii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
for so long as such Indebtedness is held by a Wholly Owned Restricted
Subsidiary, in each case subject to no Lien; provided that (a) any
Indebtedness of the Company to any Wholly Owned Restricted Subsidiary
is unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Indenture and the Notes and (b) if as
of any date any Person (other than lenders under the Credit Facility)
other than a Wholly Owned Restricted Subsidiary owns or holds any such
Indebtedness or any Person holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the Company;
(ix) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(x) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or
such Restricted Subsidiary, as the case may be, in order to provide
security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary
course of business;
(xi) Guarantees by the Company and the Subsidiary Guarantors of each
other's Indebtedness; provided that such Indebtedness is permitted to
be incurred under the Indenture;
(xii) Refinancing Indebtedness;
(xiii) Indebtedness of the Company or any Restricted Subsidiary incurred to
finance the payments to the seller of Pocono Downs Racetrack in an
amount not to exceed $10.0 million in the event Pennsylvania
authorizes any additional form of gaming in which the Company may
participate and any Refinancing thereof; and
(xiv) Additional Indebtedness of the Company in an aggregate principal
amount not to exceed $10.0 million at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Wholly Owned Restricted Subsidiary or that will merge or
consolidate into the Company or a Wholly Owned Restricted Subsidiary, (ii)
Investments in the Company by any Restricted Subsidiary; provided that any
Indebtedness incurred by the Company evidencing such Investment is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and the Indenture; (iii) investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of the Company
and the Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $500,000 at any one time outstanding; (v)
Currency Agreements and Interest Swap Obligations entered into in the ordinary
course of the Company's or a Restricted Subsidiary's businesses and otherwise in
compliance with the Indenture; (vi) other Investments, including Investments in
Unrestricted Subsidiaries not to exceed $10.0 million at any one time
outstanding; (vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (viii) guarantees
by the Company or any Subsidiary Guarantor of Indebtedness otherwise permitted
to be incurred by the Company or any Subsidiary Guarantor under the Indenture;
and (ix) Investments made by the Company or the Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made in
compliance with the covenant described under "--Certain Covenants--Limitation on
Asset Sales".
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or the Restricted Subsidiaries
shall have set aside on its books such reserves as may be required
pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed
by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof;
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<PAGE>
(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money);
(iv) Judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(v) Easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in
any material respect with the ordinary conduct of the business of the
Company or any of the Restricted Subsidiaries;
(vi) Any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) Purchase money Liens to finance property or assets of the Company or
any Restricted Subsidiary acquired after the Issue Date; provided,
however, that (A) the related Purchase Money Indebtedness shall not
exceed the cost of such property or assets and shall not be secured by
any property or assets of the Company or any Restricted Subsidiary
other than the property and assets so acquired and (B) the Lien
securing such Indebtedness shall be created within 90 days of such
acquisition;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or
other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating
to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the
Company or any of the Restricted Subsidiaries, including rights of
offset and set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under
the Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in accordance with the
covenant described under "--Certain Covenants--Limitation on
Incurrence of Additional Indebtedness" and liens securing any
Refinancing of Acquired Indebtedness; provided that (A) such Liens
secured such Acquired Indebtedness at the time of and prior to the
incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary and (B) such Liens do not extend to
or cover any property or assets of the Company or of any of the
Restricted Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary and
are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary;
(xiv) Leases or subleases granted to others not interfering in any material
respect with the business of the Company or any Restricted Subsidiary;
and
(xv) Liens arising from filing UCC financing statements for precautionary
purposes in connection with true leases of personal property that are
otherwise permitted under the Indenture and under which the Company or
any Restricted Subsidiary is lessee.
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<PAGE>
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries incurred for the purpose of financing all or any part of
the purchase price or the cost of installation, construction or improvement of
any property and any Refinancing thereof.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Reference Date" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments."
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with the covenant
described under "--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness" (other than pursuant to clause (ii), (iv), (v), (vi), (vii),
(viii), (ix), (x), (xi), (xiii) or (xiv) of the definition of Permitted
Indebtedness), in each case that does not (1) result in an increase in the
aggregate principal amount of Indebtedness of such Person as of the date of such
proposed Refinancing (plus the amount of any premium required to be paid under
the terms of the instrument governing such Indebtedness and plus the amount of
reasonable expenses incurred by the Company or any Restricted Subsidiary in
connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted
Average Life to Maturity that is less than the Weighted Average Life to Maturity
of the Indebtedness being Refinanced or (B) a final maturity earlier than the
final maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company or a Subsidiary
Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely of
the Company and/or a Subsidiary Guarantor and (y) if such Indebtedness being
Refinanced is subordinate or junior to the Notes, then such Refinancing
Indebtedness shall be subordinate to the Notes at least to the same extent and
in the same manner as the Indebtedness being Refinanced.
"Registration Rights Agreement" means the Registration Rights Agreement
dated December 17, 1997 among the Company, the Subsidiary Guarantors and the
Initial Purchasers.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain Covenants--Limitation on
Designations of Unrestricted Subsidiaries." Any such Designation may be revoked
by a Board Resolution of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
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<PAGE>
"Subsidiary Guarantor" means (i) each of The Plains Company, a Pennsylvania
corporation, Mountainview Thoroughbred Racing Association, a Pennsylvania
corporation, Pennsylvania National Turf Club, Inc., a Pennsylvania corporation,
Penn National Speedway, Inc., a Pennsylvania corporation, Penn National Holding
Company, a Delaware Corporation, Penn National Gaming of West Virginia, Inc., a
West Virginia corporation, Sterling Aviation Inc., a Delaware corporation,
Pocono Downs, Inc., a Pennsylvania corporation, Northeast Concessions, Inc., a
Pennsylvania corporation, The Downs Off-Track Wagering, Inc., a Pennsylvania
corporation, The Downs Racing, Inc., a Pennsylvania corporation, Penn National
Gaming of Indiana, Inc., a Delaware corporation, PNGI Pocono, Inc., a Delaware
Corporation and Tennessee Downs, Inc., a Tennessee corporation, and (ii) each of
the Company's Restricted Subsidiaries that in the future executes a supplemental
indenture in which such Restricted Subsidiary agrees to be bound by the terms of
the Indenture as a Subsidiary Guarantor; provided that any Person constituting a
Subsidiary Guarantor as described above shall cease to constitute a Subsidiary
Guarantor when its respective Guarantee is released in accordance with the terms
of the Indenture.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries." Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities (other than in the case of a foreign
Restricted Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by the Company or another Wholly Owned Restricted Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes and the
related Guarantees initially will be represented by one or more permanent global
certificates in definitive, fully registered form (the "Global Exchange Notes").
The Global Exchange Notes will be deposited on the Issue Date with, or on behalf
of, The Depository Trust Company, New York, New York ("DTC") and registered in
the name of a nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign purchasers"
(as defined in "Transfer Restrictions") or (ii) held by QIBs or Accredited
Investors who are not QIBs who elect to take physical delivery of their
certificates instead of holding their interests through the Global Notes (and
which are thus ineligible to trade through DTC) (collectively referred to herein
as the "Non-Global Purchasers") will be issued in registered form (the
"Certificated Security"). Upon the transfer to a QIB of any Certificated
Security initially issued to a Non-Global Purchaser, such Certificated Security
will, unless the transferee requests otherwise or the Global Note has previously
been exchanged in whole for Certificated Securities, be exchanged for an
interest in the Global Note. For a description of the restrictions on the
transfer of Certificated Securities and any interest in the Global Notes, see
"Transfer Restrictions."
The Global Exchange Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Exchange Notes, DTC or
its custodian will credit, on its internal system, the principal amount of Notes
of the individual beneficial interests represented by such Global Exchange Notes
to the respective accounts of persons who have accounts with such depositary and
(ii) ownership of beneficial interests in the Global Exchange Notes will be
shown on, and the transfer of such ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Such accounts initially will be designated by
or on behalf of the Initial Purchasers and ownership of beneficial interests in
the Global Exchange Notes will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. QIBs and
Accredited Investors may hold their interests in the Global Exchange Notes
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Exchange Notes for all
purposes under the
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<PAGE>
Indenture. No beneficial owner of an interest in the Global Exchange Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any), interest (including
Additional Interest) on, the Global Exchange Notes will be made to DTC or its
nominee, as the case may be, as the registered owner thereof. None of the
Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Exchange Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Additional Interest) on the
Global Exchange Notes, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Global Exchange Notes as shown on the records of DTC or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in the Global Exchange Notes held through such participants
will be governed by standing instructions and customary practice, as is now the
case with securities held for the accounts of customers registered in the names
of nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Exchange Notes to
persons in states which require physical delivery of the Exchange Notes, or to
pledge such securities, such holder must transfer its interest in the Global
Exchange Note, in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of Exchange Notes as
to which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will exchange
the Global Exchange Notes for Certificated Securities, which it will distribute
to its participants and which will be legended as set forth under the heading
"Transfer Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Notes among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Exchange Notes and a successor
depositary is not appointed by the Company within 90 days, Certificated
Securities will be issued in exchange for the Global Exchange Note.
PLAN OF DISTRIBUTION
Each broker-dealer that holds Old Notes that were acquired for its own
account as a result of market-making or other trading (other than Old Notes
acquired directly from the Company), may exchange Old Notes for Exchange Notes
in the Exchange Offer. However, any such broker-dealer may be deemed to be an
"underwriter" within the meaning of such term under the Securities Act and must,
therefore, acknowledge that it will deliver a prospectus in connection with any
resale of Exchange Notes received in the
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<PAGE>
Exchange Offer. This prospectus delivery requirement may be satisfied by the
delivery by such broker-dealer of this Prospectus, as it may be amended or
supplemented from time to time. The Company has agreed that, for a period of 180
days after the consummation of the Exchange Offer, it will make this Prospectus,
as amended or supplemented, available to any broker-dealer for use in connection
with any such sale. The Company will not receive any proceeds from any sales of
Exchange Notes by broker-dealers. Any resales of Exchange Notes by
broker-dealers may be made directly to a purchaser or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such Exchange Notes.
Any broker-dealer that resells Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on such
resales of Exchange Notes and any commissions or concessions received by such
persons may be deemed to be underwriting compensation under the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer other
that commissions or concessions of any brokers or dealers and will indemnify
Holders (including broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference, the following documents filed
with the Commission under the Exchange Act:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1996, and the Company's Quarterly Reports on Form 10-Q for the
periods ended March 31, 1997, June 30, 1997 and September 30, 1997;
(b) The description of the Company's Common Stock contained in the
Company's Form 8-A filed by the Company to register such securities
under the Exchange Act, including all amendments and reports filed for
the purpose of updating such description prior to the termination of
the Exchange Offer;
(c) The information under the caption entitled "Certain Transactions"
contained within the Company's Proxy Statement dated March 28, 1997,
relating to its 1997 Annual Meeting of Stockholders;
(d) The Company's Current Reports on Form 8-K/A dated March 25, 1997 and
February 6, 1997 and Current Reports on Form 8-K dated January 30,
1997 and January 21, 1997 (concerning acquisition and reorganization
plans); and
(e) All documents and reports subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to termination of the Exchange
Offer, shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing such
documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded, except as so modified or superseded, shall
not be deemed to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the oral or written request of such
person, a copy of any and all the documents incorporated herein by reference,
other than exhibits to such documents unless they are specifically incorporated
by reference into such documents. Requests for such copies should be directed
to: Robert S. Ippolito, Chief Financial Officer, Wyomissing Professional Center,
825 Berkshire Boulevard, Suite 200, Wyomissing, PA 19610, (610) 373-2400.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Morgan, Lewis & Bockius LLP,
Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for each of the three years ended December 31, 1994, 1995 and
1996 included in this Prospectus have been audited by BDO Seidman, LLP,
independent certified
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<PAGE>
public accountants, to the extent and for the periods set forth in their report
included herein, and are included herein in reliance upon such report given upon
the authority of said firm as experts in accounting and auditing.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
PENN NATIONAL GAMING, INC. Report of Independent Certified Public
Accountants............................................................ F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Income......................................... F-4
Consolidated Statements of Shareholders' Equity........................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Penn National Gaming, Inc.
and Subsidiaries
Wyomissing, Pennsylvania
We have audited the accompanying consolidated balance sheets of Penn
National Gaming, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material aspects, the financial position of Penn National
Gaming, Inc. and Subsidiaries at December 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
February 25, 1997
F-2
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<TABLE>
<CAPTION>
DECEMBER 31,
------------
SEPTEMBER 30,
1995 1996 1997
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .......................... $ 7,514 $ 5,634 $ 3,951
Accounts receivable ................................ 1,618 4,293 3,160
Prepaid expenses and other current assets .......... 600 1,552 2,857
Deferred income taxes .............................. 104 90 58
-------- -------- --------
Total current assets ............................... 9,836 11,569 10,026
-------- -------- --------
Property, plant and equipment, at cost
Land and improvements .............................. 3,336 15,728 18,736
Building and improvements .......................... 8,651 30,484 63,570
Furniture, fixtures and equipment .................. 4,696 8,937 14,445
Transportation equipment ........................... 309 366 505
Leasehold improvements ............................. 4,363 6,680 6,727
Leased equipment under capitalized lease ........... 824 1,626 824
Construction in progress ........................... 255 2,926 4,332
-------- -------- --------
22,434 66,747 109,139
Less accumulated depreciation and amortization ..... 6,728 8,029 10,113
-------- -------- --------
Net property and equipment ......................... 15,706 58,718 99,026
-------- -------- --------
Other assets
Excess of cost over fair market value of
net assets acquired (net of accumulated
amortization of $713, $811 and $1,237,
respectively) ...................................... 1,898 21,885 23,532
Prepaid acquisition costs .......................... -- 1,764 --
Deferred financing costs ........................... -- 2,416 1,798
Miscellaneous ...................................... 92 371 537
-------- -------- --------
Total other assets ................................. 1,990 26,436 25,867
-------- -------- --------
$ 27,532 $ 96,723 $134,919
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt and capital
lease obligations .................................. $ 250 $ 1,563 $ 6,009
Accounts payable ................................... 1,395 5,066 8,718
Purses due horsemen ................................ 1,293 1,421 587
Uncashed pari-mutuel tickets ....................... 704 1,336 1,202
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Accrued expenses ................................... 702 1,880 2,070
Customer deposits .................................. 315 420 662
Income taxes ....................................... 797 -- 636
Taxes, other than income taxes ..................... 246 392 548
-------- -------- --------
Total current liabilities .......................... 5,702 12,078 20,432
-------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Long-term liabilities
Long-term debt and capital lease obligations, net of
current maturities ................................. 140 45,954 47,851
Deferred income taxes .............................. 888 10,810 10,982
-------- -------- --------
Total long-term liabilities ........................ 1,028 56,764 58,833
-------- -------- --------
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value: authorized
1,000,000 shares; issued none ...................... -- -- --
Common stock, $.01 par value: authorized
20,000,000 shares; issued and outstanding
12,945,000, 13,355,290 and 15,129,470,
respectively ....................................... 43 134 151
Additional paid-in capital ......................... 12,821 14,299 38,072
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Retained earnings ............................. 7,938 13,448 17,503
Treasury stock, 4,320 shares of common stock at
cost .......................................... -- -- (72)
--------- --------- ---------
Total shareholders' equity .................... 20,802 27,881 55,654
--------- --------- ---------
$ 27,532 $ 96,723 $ 134,919
========= ========= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Pari-mutuel revenues
Live races ......................................... $ 23,428 $ 21,376 $ 18,727 $ 14,495 $ 18,234
Import simulcasting ................................ 16,968 27,254 32,992 23,596 46,766
Export simulcasting ................................ 1,187 2,142 3,347 2,479 5,701
Gaming revenue ..................................... -- -- -- -- 909
Admissions, programs and other racing
revenues ........................................... 2,563 3,704 4,379 3,403 4,388
Concession revenues ................................ 1,885 3,200 3,389 2,501 5,570
------------ ------------ ------------ ------------ ------------
Total revenues ..................................... 46,031 57,676 62,834 46,474 81,568
------------ ------------ ------------ ------------ ------------
Operating expenses
Purses, stakes and trophies ........................ 10,674 12,091 12,874 9,744 16,550
Direct salaries, payroll taxes and
employee
benefits ........................................... 6,707 7,699 8,669 6,211 12,034
Simulcast expenses ................................. 8,892 9,084 9,215 6,920 9,836
Pari-mutuel taxes .................................. 4,054 4,963 5,356 3,954 6,917
Lottery taxes and administration ................... -- -- -- -- 298
Other direct meeting expenses ...................... 6,375 8,214 9,583 6,932 12,878
Off-track wagering concession expenses ............. 1,231 2,221 2,451 1,766 4,283
Management fees paid to related party .............. 345 -- -- -- --
Other operating expenses ........................... 3,329 5,149 5,226 3,710 8,303
------------ ------------ ------------ ------------ ------------
Total operating expenses ........................... 41,607 49,421 53,374 39,237 71,099
------------ ------------ ------------ ------------ ------------
Income from operations ............................. 4,424 8,255 9,460 7,237 10,469
------------ ------------ ------------ ------------ ------------
Other income (expenses)
Interest (expense) ................................. (465) (71) (506) (44) (2,652)
Interest income .................................... 125 269 350 229 296
Site development (expenses) ........................ -- -- -- -- (599)
Other .............................................. 15 10 -- -- 17
------------ ------------ ------------ ------------ ------------
Total other income (expense) ....................... (325) 208 (156) 185 (2,938)
------------ ------------ ------------ ------------ ------------
Income before income taxes and
extraordinary
item ............................................... 4,099 8,463 9,304 7,422 7,531
Taxes on income .................................... 1,381 3,467 3,794 3,016 3,093
------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Income before extraordinary item ................... 2,718 4,996 5,510 4,406 4,438
Extraordinary item
Loss on early extinguishment of debt, net
of
income taxes of $83 and $259,
respectively ....................................... 115 -- -- -- 383
------------ ------------ ------------ ------------ ------------
Net income ......................................... $ 2,603 $ 4,996 $ 5,510 $ 4,406 $ 4,055
============ ============ ============ ============ ============
Net income per share before extraordinary
item ............................................... $ 0.38 $ 0.39 $ 0.32 $ 0.29
============ ============ ============ ============
Net income per share ............................... $ 0.38 $ 0.39 $ 0.32 $ 0.26
============ ============ ============ ============
Supplemental pro forma
Historical net income before taxes on
income ............................................. 4,099
Supplemental pro forma adjustments ................. 625
------------
Supplemental pro forma income before taxes
on income .......................................... 4,724
Supplemental pro forma taxes on income ............. 2,000
------------
Supplemental pro forma net income .................. $ 2,724
------------
Supplemental pro forma net income per
share .............................................. $ .22
============
Weighted average common shares
outstanding ........................................ 12,663,000 13,104,000 14,020,000 13,754,000 15,400,000
============ ============ ============ ============ ============
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 ............ 8,400,000 $ 28 -- $ -- $ 2 $ 3,388 $ 3,418
Deferred income taxes of S
corporations and partnerships ....... -- -- -- -- (302) -- (302)
Distributions to shareholders ....... -- -- -- -- -- (3,049) (3,049)
Issuance of common stock ............ 4,500,000 15 -- -- 12,942 -- 12,957
Net income for the year ended
December 31, 1994 ................... -- -- -- -- -- 2,603 2,603
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 .......... 12,900,000 43 -- -- 12,642 2,942 15,627
Issuance of common stock ............ 45,000 -- -- -- 179 -- 179
Net income for the year ended
December 31, 1995 ................... -- -- -- -- -- 4,996 4,996
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 .......... 12,945,000 43 -- -- 12,821 7,938 20,802
Issuance of common stock ............ 410,290 4 -- -- 1,565 -- 1,569
Stock splits ........................ -- 87 -- -- (87) -- --
Net income for the year ended
December 31, 1996 ................... -- -- -- -- -- 5,510 5,510
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 .......... 13,355,290 134 -- -- 14,299 13,448 27,881
Issuance of common stock
(unaudited) ......................... 1,774,180 17 -- -- 23,200 -- 23,217
Purchase of treasury stock at cost
(unaudited) ......................... -- -- 4,320 (72) -- -- (72)
Tax benefit related to stock
options exercised (unaudited) ....... -- -- -- -- 573 -- 573
Net income for the nine months
ended September 30, 1997
(unaudited) ......................... -- -- -- -- -- 4,055 4,055
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1997
(unaudited) ......................... 15,129,470 $ 151 4,320 $ (72) $ 38,072 $ 17,503 $ 55,654
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income .............................................. $ 2,603 $ 4,996 $ 5,510 $ 4,406 $ 4,055
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ........................... 699 881 1,433 911 2,701
Extraordinary loss related to early
extinguishment of debt, before income tax
benefit ................................................. 198 -- -- -- 642
Deferred income taxes ................................... 493 20 228 144 204
Decrease (increase) in:
Accounts receivable ..................................... (309) (362) (1,870) (350) 1,133
Prepaid expenses and other current assets ............... (60) (158) 871 (732) (1,305)
Miscellaneous other assets .............................. (56) 5 (255) (197) (166)
Increase (decrease) in:
Accounts payable ........................................ (228) (15) 1,288 473 3,652
Purses due horsemen ..................................... 85 297 (248) 36 (834)
Uncashed pari-mutuel tickets ............................ (12) 184 632 (88) (134)
Accrued expenses ........................................ 196 (376) 1,092 (85) 190
Customer deposits ....................................... (10) 16 105 200 242
Taxes other than income taxes ........................... (147) 239 146 81 156
Income taxes ............................................ 607 190 (985) (324) 636
-------- -------- -------- -------- --------
Net cash provided by operating activities ............... 4,059 5,917 7,947 4,475 11,172
-------- -------- -------- -------- --------
Cash flows from investing activities
Expenditures for property and equipment ................. (2,852) (3,958) (6,995) (4,784) (26,392)
Decrease in advances to related parties ................. 3,688 -- -- -- --
(Increase) in prepaid acquisition costs ................. -- -- (1,514) (3,001) (310)
Acquisition of business, net of cash acquired ........... -- -- (47,320) -- (16,000)
-------- -------- -------- -------- --------
Net cash (used in) provided by investing
activities .............................................. 836 (3,958) (55,829) (7,785) (42,702)
-------- -------- -------- -------- --------
Cash flows from financing activities
Proceeds from sale of common stock ...................... 12,957 179 1,569 1,486 23,145
Tax benefit related to stock option exercise ............ -- -- -- -- 573
Principal payments on notes payable, banks .............. (1,289) -- -- -- --
Proceeds from notes payable, related party .............. 178 -- -- -- --
Principal payments on notes payable, related
party ................................................... (361) -- -- -- --
Proceeds of long-term debt .............................. 800 -- 47,000 -- 25,667
Principal payments on long-term debt and
capitalized lease obligations ........................... (9,433) (126) (123) (88) (19,324)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Increase in unamortized financing cost .................. (182) -- (2,444) -- (214)
Distributions to shareholders ........................... (3,049) -- -- -- --
(Decrease) in advances from related parties ............. (16) -- -- -- --
-------- -------- -------- -------- --------
Net cash (used in) provided by financing
activities .............................................. (395) 53 46,002 1,398 29,847
-------- -------- -------- -------- --------
Net increase (decrease) in cash ......................... 4,500 2,012 (1,880) (1,912) (1,683)
Cash, at beginning of period ............................ 1,002 5,502 7,514 7,514 5,634
-------- -------- -------- -------- --------
Cash, at end of period .................................. $ 5,502 $ 7,514 $ 5,634 $ 5,602 $ 3,951
======== ======== ======== ======== ========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND RECAPITALIZATION
The consolidated financial statements include the following entities of
Penn National Gaming, Inc. (collectively, the "Company") prior to the
Recapitalization, as described below, and which were affiliated through common
ownership and control.
Mountainview Thoroughbred Racing Association ("Mountainview")
Pennsylvania National Turf Club, Inc. ("Turf Club")
PNRC Reading, Inc. (An S corporation)
PNRC Chambersburg, Inc. (An S corporation)
PNRC Limited Partnership
Carlino Family Partnership
Penn National Gaming, Inc., formerly called PNRC Corp. (An S corporation)
The consolidated financial statements for the periods prior to the
Recapitalization have been prepared as if the entities had operated as a single
consolidated group assuming that the Recapitalization had taken place. After the
Recapitalization, the consolidated financial statements include Penn National
Gaming, Inc. and its subsidiaries (collectively referred to as the "Company").
All significant intercompany accounts and transactions have been eliminated in
consolidation.
RECAPITALIZATION
The Company completed an initial public offering on May 25, 1994 by selling
4,500,000 shares of its common stock.
On April 11, 1994, the Company entered into an agreement and plan of
Recapitalization, pursuant to which, on May 24, 1994: (1) Penn National Gaming,
Inc. ("Parent") acquired all of the outstanding stock of Mountainview, Turf
Club, PNRC Reading, Inc. and PNRC Chambersburg, Inc., (2) Penn National Gaming,
Inc. acquired the limited partners' interests in PNRC Limited Partnership and
all of the partnership interests in Carlino Family Partnership, and these
partnerships were liquidated into the Company. In exchange for the stock and
assets acquired in the transactions, the Company issued 8,400,000 shares of its
common stock. Pursuant to the Recapitalization, Turf Club, Mountainview, PNRC
Reading, Inc. and PNRC Chambersburg, Inc. became wholly-owned subsidiaries of
the Parent. Subsequent to the Recapitalization, the Company merged PNRC Reading,
Inc. and PNRC Chambersburg, Inc. into Mountainview in accordance with a
statutory merger, leaving Turf Club and Mountainview as the only subsidiaries of
the Company.
The transaction was treated similar to a pooling of interests and the
exchange of stock and partnership interests was a tax-free exchange.
DESCRIPTION OF BUSINESS
The Company, which began operations in 1972, provides pari-mutuel wagering
opportunities on both live and simulcast thoroughbred and harness horse races at
two racetracks and seven off-track wagering facilities ("OTWs") located
principally in Eastern and Central Pennsylvania and pari-mutuel wagering
opportunities and video gaming machines at Charles Town Races, the Company's
Charles Town, West Virginia thoroughbred race track. Prior to the consummation
of the acquisition of Pocono Downs (see Note 2) and Charles Town Races (see Note
2), the Company owned and operated Penn National Race Course located outside
Harrisburg, Pennsylvania ("Penn National"), and four OTWs in Chambersburg,
Lancaster, Reading and York, Pennsylvania. On November 27, 1996, the Company
consummated the acquisition of Pocono Downs (the "Pocono Downs Acquisition"),
and as a result acquired Pocono Downs Racetrack, located outside Wilkes-Barre,
Pennsylvania ("Pocono Downs"), and OTWs in Allentown and Erie, Pennsylvania.
On January 15, 1997, a joint venture, in which the Company holds an 89%
interest, acquired substantially all of the assets relating to Charles Town
Races, a thoroughbred racing facility in Jefferson County, West Virginia (the
"Charles Town Acquisition") (see Note 2).
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
The Company refurbished and reopened the Charles Town facility as an
entertainment complex featuring live racing, dining, simulcast wagering and,
effective September 1997, Gaming Machines.
At each of its three racetracks, the Company conducts pari-mutuel wagering
on thoroughbred and harness races from the Company's racetracks and simulcasts
from other racetracks. The Company also simulcasts its races for wagering at
other racetracks and OTWs, including all Pennsylvania racetracks and OTWs and
locations outside Pennsylvania. Wagering on Company races and races simulcast
from other racetracks also occurs through the Company's telephone account
betting network.
GLOSSARY OF TERMINOLOGY
The following is a listing of terminology used throughout the financial
statements:
The Company's Racetracks -- Penn National in Grantville, Pennsylvania and
Pocono Downs near Wilkes-Barre, Pennsylvania (see Note 2).
Gaming Machines -- Video lottery terminal gaming machines.
OTW -- Off-track wagering location.
Pari-mutuel wagering -- All wagering at Penn National's racetracks, at Penn
National's OTWs and all wagering on Penn National's races at other
racetracks and their OTWs.
Telebet -- Telephone account wagering.
Totalisator Services -- Computer services provided to Penn National by
Autotote Enterprises, Inc. for processing pari-mutuel betting odds and
wagering proceeds.
Pari-mutuel Revenues:
Live Races -- The Company's share of pari-mutuel wagering on live races
within Pennsylvania and West Virginia and certain stakes races from racetracks
outside of Pennsylvania and West Virginia after payment of the amount returned
as winning wagers.
Import Simulcasting -- Penn National's share of wagering at Penn National
racetrack, at the Company's OTWs and by Telebet on full cards of races
simulcast from other racetracks.
Export Simulcasting -- Penn National's share of wagering at out-of-state
locations on Penn National races. A summary of pari-mutuel wagering for the
periods indicated is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Pari-mutuel wagering on the Company's live races ............. $111,248 $102,145 $ 89,327 $ 69,200 $ 99,971
Pari-mutuel wagering on simulcasting
Import simulcasting from other racetracks .................... 93,461 142,499 170,814 122,960 228,352
Export simulcasting to out of Pennsylvania wagering
facilities ................................................... 40,337 72,252 112,871 84,228 132,347
-------- -------- -------- -------- --------
133,798 214,751 283,685 207,188 360,699
-------- -------- -------- -------- --------
Total pari-mutuel wagering ................................... $245,046 $316,896 $373,012 $276,388 $460,670
======== ======== ======== ======== ========
</TABLE>
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
RACING MEET
The Penn National Race Course racing seasons for the years ended December
31, 1994, 1995 and 1996 totaled 219, 204 and 206 live race days, respectively.
The Penn National Race Course racing seasons for the nine month periods ended
September 30, 1996 and 1997 totaled 154 and 160 live race days, respectively.
For the nine months ended September 30, 1997, the Pocono Downs and Charles Town
Races racing seasons totaled 97 and 94 live race days, respectively.
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment and amortization of leasehold
improvements are computed by the straight-line method at rates adequate to
allocate the cost of applicable assets over their estimated useful lives.
Depreciation and amortization for the years ended December 31, 1994, 1995 and
1996 amounted to $612,000, $814,000 and $1,301,000, respectively. Depreciation
and amortization for the nine month periods ended September 30, 1996 and 1997
amounted to $861,000 and $2,080,000, respectively.
The excess of cost over fair value of net assets acquired is being
amortized on the straight-line method over a forty year period. Amortization
expense for 1994, 1995 and 1996 amounted to $67,000, $67,000 and $98,000,
respectively. Amortization expense for the nine month periods ended September
30, 1996 and 1997 amounted to $50,250 and $426,000, respectively. The Company
evaluates the recoverability of the goodwill quarterly, or more frequently
whenever events and circumstances warrant revised estimates, and considers
whether the goodwill should be completely or partially written off or the
amortization period accelerated.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of " during the year ended
December 31, 1995. SFAS 121 establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company reviews the carrying
values of its long-lived and identifiable intangible assets for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable based on undiscounted
estimated future operating cash flows. As of September 30, 1997, the Company has
determined that no impairment has occurred.
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
INCOME TAXES
Prior to the Recapitalization, certain entities included within these
financial statements were partnerships and "S" corporations. Therefore, no
provision had been made for income taxes since such taxes, if any, were the
liabilities of the individual partners and shareholders.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
a company to recognize deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
CASH AND CASH EQUIVALENTS
The Company considers all cash balances and highly liquid investments with
original maturities of three months or less to be cash equivalents.
NET INCOME PER COMMON SHARE
Net income and supplemental pro forma net income per share are calculated
by dividing net income or supplemental pro forma net income by the weighted
average number of common stock outstanding (see Note 8) adjusted by the dilutive
effect of common stock equivalents, which consist of stock options (using the
treasury stock method) and warrants. All net income per share calculations
reflect all stock splits (see Note 10).
DEFERRED FINANCING COSTS
Deferred financing costs, which were incurred by the Company in connection
with the new credit facility (see Note 3), are charged to operations as
additional interest expense over the life of the underlying indebtedness using
the interest method adjusted to give effect to any early repayments.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist of cash equivalents and accounts receivable.
The Company's policy is to limit the amount of credit exposure to any one
financial institution and place investments with financial institutions
evaluated as being creditworthy, or in short-term (less than seven days) money
market and tax free bond funds which are exposed to minimal interest rate and
credit risk. At December 31, 1995 and 1996 and September 30, 1997, the Company
had bank deposits which exceeded federally insured limits by approximately
$248,000, $499,000 and $898,000, respectively, and money market and tax free
bond funds of approximately $6,400,000, $2,553,000 and $663,000, respectively.
Concentration of credit risk, with respect to accounts receivable, is limited
due to the Company's credit evaluation process. The Company does not require
collateral from its customers. The Company's receivables consist principally of
amounts due from other racetracks and OTWs. Historically, the Company has not
incurred any significant credit related losses.
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1995 and 1996 and September 30, 1997, the following
methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practical to estimate:
Cash and Cash Equivalents: The carrying amount approximates the fair value
due to the short maturity of the cash equivalents.
Long-Term Debt and Capital Lease Obligations: The fair value of the
Company's long-term debt and capital lease obligations is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The carrying
amount approximates fair value since the Company's interest rates approximate
current interest rates.
PREPAID ACQUISITION COSTS
Prepaid acquisition costs, which were incurred by the Company substantially
in connection with the Charles Town Acquisition (see Note 2), are included in
the purchase price of the Charles Town Acquisition and allocated to the
appropriate assets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS:
POCONO DOWNS ACQUISITION
On November 27, 1996, the Company purchased all of the capital stock of The
Plains Company and the limited partnership interests in The Plains Company's
affiliated entities (together, "Pocono Downs") for an aggregate purchase price
of $48.2 million plus acquisition-related fees and expenses of $730,000. Pocono
Downs conducts live harness racing at the harness racetrack located outside
Wilkes-Barre, Pennsylvania, export simulcasting of Pocono Downs races to
locations throughout the United States, pari-mutuel wagering at Pocono Downs and
at OTWs in Allentown and Erie, Pennsylvania on Pocono Downs races and on import
simulcast races from other racetracks, and telephone account wagering on live
and import simulcast races.
The Pocono Downs Acquisition was accounted for using the purchase method of
accounting. Accordingly, a portion of the purchase price was allocated to the
net assets acquired based on their estimated fair values. In accordance with
SFAS 109, the Company recorded an additional increase to goodwill of
approximately $9.7 million and a corresponding increase to a deferred tax
liability, representing the difference between the financial and tax bases of
certain assets acquired.
The results of operations of Pocono Downs have been included in the
Company's consolidated financial statements since the effective date of the
acquisition. The balance of the purchase price was
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
2. ACQUISITIONS:--(CONTINUED)
recorded as cost over net assets acquired as goodwill, approximately $10.4
million, and is being amortized over forty years on a straight-line basis. The
Company used its Old Credit Facility (see Note 3) and cash of Pocono Downs to
fund the acquisition.
The following unaudited pro forma financial information for the Company
gives effect to the Pocono Downs Acquisition as if it had taken place at the
beginning of the fiscal year for each of the periods presented:
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
---- ----
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Revenues...................................... $91,530 $93,849
Net income.................................... 6,546 6,306
Net income per share.......................... .50 .45
Shares used in computation.................... 13,104 14,020
The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisition been in effect for the
periods presented, nor do they purport to be indicative of the results that will
be obtained in the future.
In addition, pursuant to the terms of the purchase agreement, the Company
will be required to pay the sellers of Pocono Downs an additional $10 million
if, within five years after the consummation of the Pocono Downs Acquisition,
Pennsylvania authorizes any additional form of gaming in which the Company may
participate. The $10 million payment would be payable in annual installments of
$2 million for five years, beginning on the date that the Company first offers
such additional form of gaming.
CHARLES TOWN ACQUISITION
On February 26, 1996, the Company entered into a joint venture agreement
(the "Charles Town Joint Venture") with Bryant Development Company ("Bryant"),
the holder of an option to purchase substantially all of the assets of Charles
Town Racing Limited Partnership and Charles Town Races, Inc. (together, "Charles
Town") relating to the Charles Town Race Track and Shenandoah Downs (together,
the "Charles Town Entertainment Complex") in Jefferson County, West Virginia. In
connection with the Charles Town Joint Venture agreement, Bryant assigned the
option to the Charles Town Joint Venture. In November 1996, the Charles Town
Joint Venture and Charles Town entered into an amended and restated option
agreement. On November 5, 1996, Jefferson County, West Virginia approved a
referendum permitting installation of gaming machines at the Charles Town
Entertainment Complex. On January 15, 1997 the Charles Town Joint Venture
acquired substantially all of the assets of Charles Town for approximately $16.0
million plus acquisition-related fees and expenses of approximately $2.1
million.
Pursuant to the original operating agreement governing the Charles Town
Joint Venture, the Company held an 80% ownership interest in the Charles Town
Joint Venture and was obligated to contribute 80% of the purchase price of the
Charles Town Acquisition and 80% of the cost of refurbishing the Charles Town
Entertainment Complex. In consideration of the fact that the Company contributed
100% of the purchase price of the Charles Town Acquisition and 100% of the cost
of refurbishing the Charles Town Entertainment Complex, the Company amended its
operating agreement
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
2. ACQUISITIONS:--(CONTINUED)
with Bryant to, among other things, increase the Company's ownership interest in
the Charles Town Joint Venture to 89% and decrease Bryant's interest to 11%. In
addition, the amendment provided that the entire amount the Company has
contributed, and will contribute, to the Charles Town Joint Venture for the
acquisition and refurbishment of the Charles Town Entertainment Complex would be
treated, as between the parties, as a loan to the Charles Town Joint Venture
from the Company. Accordingly, prior to the distribution of any profits pursuant
to the Charles Town Joint Venture, the Company must be repaid in full all such
contributions or loans, plus accrued interest, which as of September 30, 1997,
equaled $38.2 million.
The Charles Town Joint Venture acquired its option to purchase the Charles
Town Entertainment Complex from Bryant; Bryant, in turn, acquired the option
from Showboat Operating Company ("Showboat"). Showboat has retained an option
(the "Showboat Option") to operate any casino at the Charles Town Entertainment
Complex in return for a management fee (to be negotiated at the time, based on
rates payable for similar properties) and a right of first refusal to purchase
or lease the site of any casino at the Charles Town Entertainment Complex
proposed to be leased or sold and to purchase any interest proposed to be sold
in any such casino on the same terms offered by a third party or otherwise
negotiated with the Charles Town Joint Venture. The rights retained by Showboat
under the Showboat Option extend for a period of five years from November 6,
1996, the date that the Charles Town Joint Venture exercised its option to
purchase the Charles Town Races, and expires thereafter unless legislation to
permit casino gaming at the Charles Town Entertainment Complex has been adopted
prior to the end of the five-year period. If such legislation has been adopted
prior to such time, then the rights of Showboat continue for a reasonable time
(not less than 24 months) to permit completion of negotiations.
While the express terms of the Showboat Option do not specify what
activities at the Charles Town Entertainment Complex would constitute operation
of a casino, Showboat has agreed that the installation and operation of video
lottery terminals (like the Gaming Machines the Company has installed and will
continue to install) at the Charles Town Entertainment Complex's racetrack would
not trigger Showboat's right to exercise the Showboat Option. If West Virginia
law were to permit casino gaming at the Charles Town Entertainment Complex and
if Showboat were to exercise the Showboat Option, the Company would be required
to pay a management fee to Showboat for the operation of the casino.
The Charles Town Joint Venture refurbished and reopened the Charles Town
Entertainment Complex as an entertainment complex that features live racing,
dining, simulcast wagering and, effective September 1997, the installation of
gaming machines. The cost of the refurbishment is approximately $22.8 million
inclusive of $614,000 of capitalized interest and exclusive of the costs of the
lease of gaming machines, as of September 30, 1997.
Effective June 4, 1996, the Charles Town Joint Venture entered into a Loan
and Security Agreement with Charles Town. The Loan and Security Agreement
provided for a working capital line of credit in the amount of $1,250,000 and a
requisite reduction of the purchase price under the option, by $1.60 for each
dollar borrowed under that line. Upon consummation of the Charles Town
Acquisition, Charles Town Races, Inc. repaid the loan. The parties agreed that
$936,000 of the amount borrowed was eligible for the $1.60 purchase price
reduction and are negotiating the applicability of the purchase price reduction
to the remaining $219,000 that was borrowed.
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
2. ACQUISITIONS:--(CONTINUED)
The Charles Town Acquisition was accounted for using the purchase method of
accounting. Accordingly, a portion of the purchase price was allocated to the
net assets acquired based on their estimated fair values. The Company recorded
an additional increase to goodwill of approximately $2.1 million.
The results of operations of Charles Town have been included in the
Company's consolidated financial statements since January 15, 1997, the
effective date of the acquisition. The balance of the purchase price was
recorded as cost over net assets acquired as goodwill, approximately $2.1
million, and is being amortized over forty years on a straight-line basis. The
Company used its credit facility (see Note 3) and cash from operations to fund
the acquisition.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-Term Debt
Term loans payable to a bank group in
quarterly installments with interest at
8.625% at December 31, 1996 and floating
rates through 2001. The term loans are
collateralized by substantially all of
the Company's assets (see additional
information below under Credit
Facilities) ................................... $ -- $47,000 $53,500
Term Loan payable to a bank in monthly
installments of $3,434, including
interest at 1% over bank's prime rate .........
The note is due May 2002 and is
uncollateralized .............................. -- -- 158
Notes payable to former minority
stockholders of Pennsylvania National
Turf Club, Inc. upon demand ................... 132 130 128
Note payable to Bryant Development Co.,
Charles Town Joint Venture partner. The
note was due April 1, 1998 and accrued
interest at 8% per annum. The note was
paid in April 1997 ............................ -- 250 --
Capital Lease Obligations ..................... 258 137 74
------- ------- -------
390 47,517 53,860
Less current maturities ....................... 250 1,563 6,009
------- ------- -------
$ 140 $45,954 $47,851
======= ======= =======
</TABLE>
CREDIT FACILITIES
At December 31, 1996 and September 30, 1997, the Company was contingently
obligated under letters of credit with face amounts aggregating $1,436,000 and
$1,803,700, respectively. These amounts consisted of $1,336,000 and $1,703,700,
respectively, relating to the horsemens' account balances and $100,000 for
Pennsylvania pari-mutuel taxes in each period.
In November 1996, the Company entered into an agreement with a bank group
which provides an aggregate of $75 million of credit facilities ("Credit
Facility"). Simultaneously with the closing of the Old Credit Facility, the
Company repaid amounts outstanding under its previous facility and replaced it.
The credit facilities consist of two term loan facilities of $47 million and $23
million (together, the "Term Loans") which were used for the Pocono Downs and
Charles Town acquisitions,
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:-- (CONTINUED)
respectively, and which were used for a portion of the cost of refurbishment of
the Charles Town Entertainment Complex, and a revolving credit facility of $5
million (together, the "Loans"). The credit facilities mature in November 2001.
The Loans are secured by substantially all of the assets of the Company. The Old
Credit Facility provides for certain covenants, including those of a financial
nature.
Funding of the first $47 million term loan took place on November 27, 1996
in conjunction with the Pocono Downs acquisition. On January 15, 1997, the
Charles Town Acquisition was consummated and, in accordance with the terms of
the Credit Facility, the second $23 million term loan was made available for
utilization by the Company. The Company borrowed $16.5 million of the $23
million term loan on January 15, 1997.
The $5 million revolving credit facility (the "Revolving Facility")
includes a $2 million sublimit for standby letters of credit for periods of up
to twelve months. Up to $3 million of the Revolving Facility was made available
on November 27, 1996. The remaining $2 million was made available upon
completion of the Charles Town Acquisition on January 15, 1997. On October 30,
1997, the Company increased its Revolving Facility with its banks to $10.0
million.
At the Company's option, the Loans may be maintained from time to time as
Base Rate Loans, which shall bear interest at the highest of: (1) 1/2 of 1% in
excess of the federal reserve reported certificate of deposit rate, (2) the rate
that the bank group announces from time to time as its prime lending rate and
(3) 1/2 of 1% in excess of the federal funds rate plus an applicable margin of
up to 2%. The Loans may also be maintained as Reserve Adjusted Eurodollar Loans,
which bear interest at a rate tied to a eurodollar rate plus an applicable
margin of up to 3%.
Mandatory repayments of the Term Loans and the Revolving Facility are
required in an amount equal to a percentage of the net cash proceeds from any
issuance or incurrence of equity or funded debt by the Company, that percentage
to be dependent upon the then outstanding balances of the Term Loans and the
Revolving Facility and the Company's leverage ratio; however, the Existing
Credit Facility, as amended, permitted the Company to retain up to the first $8
million of proceeds from an offering of the Company's equity securities.
Mandatory repayments of varying percentages are also required in the event of
either asset sales in excess of stipulated amounts or defined excess cash flow.
Commencing on December 31, 1997 according to the Existing Credit Facility,
the Term Loans will amortize on a quarterly basis with payments thereunder to be
split proportionately between the Term Loans in annual aggregate amounts as
follows (assuming the Term Loans are fully drawn):
YEAR AMOUNT
(IN THOUSANDS)
1997.................................................................$2,000
1998..................................................................8,000
1999.................................................................20,000
2000.................................................................20,000
2001.................................................................20,000
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:--(CONTINUED)
DEBT OFFERING
On December 12, 1997, the Company and certain of its subsidiaries (as
guarantors) entered into a purchase agreement concerning the sale and issuance
of $80,000,000 aggregate principal amount of its 10.625% Senior Notes due 2004
(the "Offering"). The net proceeds of the Offering were used for repayment of
existing indebtedness, for capital expenditures and for general corporate
purposes. Pursuant to a registration rights agreement (the "Registration Rights
Agreement") among the Company, the Subsidiary Guarantors and the Initial
Purchasers, the Company and the Subsidiary Guarantors have agreed (i) to file a
registration statement (the "Exchange Offer Registration Statement") with
respect to an offer to exchange the Old Notes (the "Exchange Offer") for senior
notes of the Company, guaranteed by the Subsidiary Guarantors, with
substantially identical terms to the Old Notes (the "Exchange Notes") (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions) within 45 days after the Issue Date, (ii) to use their best
efforts to cause such registration statement to become effective under the
Securities Act within 135 days after the Issue Date and (iii) upon the Exchange
Offer Registration Statement being declared effective, to offer the Exchange
Notes in exchange for surrender of the Old Notes. Interest on the notes will
accrue from their date of original issuance (the "Issue Date") and will be
payable semi-annually, commencing in 1998. The notes will be redeemable, in
whole or in part, at the option of the Company in 2001 or thereafter at the
redemption prices set forth in the Offering, plus accrued and unpaid interest to
the date of redemption.
Concurrent with the Offering, a new $12 million revolving credit facility
was established (the "Credit Facility").
The notes will be general unsecured senior obligations of the Company and
will rank pari passu in right of payment to any existing and future
unsubordinated indebtedness of the Company and senior in right of payment with
all existing and future subordinated indebtedness of the Company. The notes will
be unconditionally guaranteed (the "Guarantees") on a senior basis by certain of
the Company's existing subsidiaries (the "Subsidiary Guarantors"). The
Guarantees (as defined) will be general unsecured obligations of the Subsidiary
Guarantors and will rank pari passu in right of payment to any unsubordinated
indebtedness of the Subsidiary Guarantors and will rank senior in right of
payment to all other subordinated obligations of the Subsidiary Guarantors. The
notes are effectively subordinated in right of payment to all secured
indebtedness of the Company, including indebtedness incurred under the Credit
Facility.
The following is a schedule of future minimum lease payments under
capitalized leases and repayments of long-term debt, as of December 31, 1996:
<TABLE>
<CAPTION>
CAPITALIZED TERM LOANS AND
DECEMBER 31, LEASES NOTES PAYABLE TOTAL
- ------------ ------ ------------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
1997 .......................................... $ 90 $ 1,473 $ 1,563
1998 .......................................... 51 5,621 5,672
1999 .......................................... 10 13,429 13,439
2000 .......................................... -- 13,429 13,429
2001 .......................................... -- 13,428 13,428
------- ------- -------
Total minimum payments ........................ 151 47,380 47,531
Less interest discount amount ................. 14 -- 14
------- ------- -------
Total present value of net minimum lease
payments and total notes payable .............. 137 47,380 47,517
Current portion ............................... 90 1,473 1,563
------- ------- -------
Total non-current portion ..................... $ 47 $45,907 $45,954
======= ======= =======
</TABLE>
On February 18, 1997, the Company completed a secondary public offering of
1,725,000 shares of common stock and used $19 million of the $23 million
proceeds therefrom to reduce the then outstanding Term Loan amounts (see Note
10).
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
4. RELATED PARTY TRANSACTIONS:
Management fees of $345,000 were paid in 1994 to a related company.
In August 1994, the Company signed a consulting agreement with its former
Chairman expiring in August 1999 at an annual payment of $125,000.
5. CUSTOMER DEPOSITS:
Customer deposits represent amounts held by the Company for telephone
wagering.
6. COMMITMENTS AND CONTINGENCIES:
The Company is liable for Totalisator Services and equipment under two
five-year agreements expiring March 31, 1998. The agreements provide for annual
payments based on a specified percentage of the total amount wagered at the
Company's racetracks, with minimum annual payments of $500,000.
The Company is also liable under numerous operating leases for automobiles,
other equipment and buildings, which expire through 2004. Total rental expense
under these agreements was $636,000, $672,000 and $1,001,000 for the years ended
December 31, 1994, 1995 and 1996, respectively. Total rental expense under these
agreements was $578,000 and $594,000 for the nine month periods ended September
30, 1996 and 1997, respectively.
The future lease commitments relating to non-cancelable operating leases as
of December 31, 1996 are as follows:
(IN THOUSANDS)
--------------
1997..................................................................$1,010
1998.....................................................................886
1999.....................................................................616
2000.....................................................................615
2001.....................................................................624
Thereafter.............................................................2,267
------
$6,018
======
On July 11, 1996, the Company opened its Lancaster OTW facility. The
Company entered into a ten-year lease agreement for the 24,050 square feet
Lancaster OTW facility. The Lancaster OTW lease provides for minimum annual
lease payments of $192,400 in years one through five and $211,640 in years six
through ten. The table presented above does not reflect this lease commitment.
On April 12, 1994, the Company entered into employment agreements with its
Chairman and Chief Financial Officer at annual base salaries of $225,000 and
$95,000, respectively. The agreements became effective June 1, 1994 and, as
amended, terminate on June 30, 1999. Each agreement prohibits the employee from
competing with the Company during its term and for one year thereafter, and
requires a death benefit payment by the Company equal to 50% of the employee's
annual salary in effect at the time of death.
On June 1, 1995, the Company entered into an employment agreement with its
President and Chief Operating Officer at an annual base salary of $210,000. The
agreement terminates on June 12, 1998. The agreement prohibits the employee from
competing with the Company during its term and for
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
two years thereafter, and requires a death benefit payment by the Company equal
to 50% of the employee's annual salary in effect at the time of his death.
Under an agreement between the Company and its former president, the former
president received options to purchase 150,000 shares of common stock at $3.33
per share expiring May 31, 2000.
Effective January 1, 1990, the Company adopted a profit sharing plan under
the provisions of Section 401(k) of the Internal Revenue Code covering all
eligible employees who are not members of a bargaining unit. The Company's
contributions are set at 50% of employees' elective salary deferrals which may
be made up to a maximum of 6% of employee compensation. The Company made
contributions to the plan of approximately $60,000, $70,000 and $89,000 for the
years ended December 31, 1994, 1995 and 1996, respectively. The Company made
contributions to the plan of approximately $64,000 and $191,000 for the nine
month periods ended September 30, 1996 and 1997, respectively.
On December 11, 1996, GTECH Corporation ("GTECH") commenced an action in
the United States District Court for the Northern District of West Virginia
against Charles Town Races, the Company, Penn National Gaming of West Virginia,
Inc. a wholly-owned subsidiary of the Company, and Bryant. In June 1997, the
Company and GTECH settled the action and the Charles Town Joint Venture, which
is operated as PNGI Charles Town Gaming, LLC, an 89% subsidiary of the Company
entered into an agreement (the "GTECH Agreement") with GTECH relating to the
lease, installation and service of a video lottery system ("VLS") at the Charles
Town Entertainment Complex. The GTECH Agreement provides that GTECH will be the
exclusive provider of VLS and related services, including video lottery
terminals and slot machines, if any, at the Charles Town Entertainment Complex;
provided, however, the Charles Town Joint Venture has retained management
control over the VLS. The GTECH Agreement has a term of five years from the
first date on which 400 Gaming Machines are installed, operational and
generating net win (total of all cash inserted into, or game credits played on,
a video lottery terminal minus the total value of all prizes paid). Pursuant to
the GTECH Agreement, the Charles Town Joint Venture has agreed to pay GTECH a
fee which can range between 4% and 10% of Gaming Machine gross revenue. The
Company generally is obligated to pay a lower percentage of Gaming Machine gross
revenue to GTECH at higher levels of average win per day per machine and a
higher percentage of Gaming Machine gross revenue at lower levels of average win
per day per machine; provided, however, the Charles Town Joint Venture is
obligated to pay GTECH the greater of the percentage fee described above or a
minimum annual fee of $4.3 million if more than 800 Gaming Machines are in
operation at the Charles Town Entertainment Complex. At the end of the term of
the GTECH Agreement, the Charles Town Joint Venture will purchase the VLS from
GTECH for a cash purchase price equal to the net unamortized residual value of
the VLS. In the event GTECH terminates the agreement because of the Charles Town
Joint Venture's material misrepresentation and/or breach of the GTECH Agreement,
the Charles Town Joint Venture must purchase the VLS from GTECH at a price equal
to the net unamortized residual value of the VLS at that time and pay an
additional one-time fee as follows: for such termination in the first year of
the term, $8,500,000; for such termination in the second year of the term,
$6,600,000; for such termination in the third year of the term, $5,000,000; for
such termination in the fourth year of the term, $3,700,000; and for such
termination in the fifth year of the Term, $2,500,000. In the GTECH Agreement,
the Charles Town Joint Venture covenants to maintain tangible net worth equal to
at least 105% of the amounts payable as additional fees in the event of a
termination as set forth in the preceding sentence.
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
On March 26, 1997, the Company entered into an agreement to purchase
property for its Carbondale, Pennsylvania OTW facility. The agreement provides
for a purchase price of $200,000 and is subject to numerous contingencies,
including approval by the Pennsylvania State Harness Racing Commission (the
"Harness Racing Commission"). On June 5, 1997, the Company's application was
approved by the Harness Racing Commission. The Company expects to have the
facility constructed and operational in the first quarter of 1998.
On June 20, 1997, the Company acquired options to purchase approximately
100 acres of land in Memphis, Tennessee for an aggregate purchase price of $2.7
million. The Company paid $11,000 to acquire the options and has the right to
extend the options from month to month until June 20, 1998 upon the payment of
$11,000 per month. The Company has filed an application to the Tennessee State
Racing Commission for the proposed development of a harness racetrack and
off-track wagering facility at the site on October 9, 1997. A public hearing on
the Tennessee racing license application was held on November 15, 1997.
On July 9, 1997, the Company entered into a lease agreement for its
Hazleton OTW facility. The lease is for 13,000 square feet at the Laurel Mall in
Hazleton, 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 Harness Racing Commission. On
September 26, 1997, the Company's application was approved by the Harness Racing
Commission. The Company expects to have the facility constructed and operational
in the first quarter of 1998.
On September 9, 1997, the Company entered into a lease agreement for its
Stroudsburg, Pennsylvania OTW facility. 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 Harness Racing
Commission. On November 6, 1997, the Company's application was approved by the
Harness Racing Commission. The Company expects to have the facility renovated
and operational in the third quarter of 1998.
On September 26, 1997, the Company entered into a lease agreement for its
proposed Altoona, Pennsylvania OTW facility. The lease is for 14,220 square feet
at the Pleasant Valley Shopping Center in Altoona, Pennsylvania. The initial
term of the lease is for ten years with two additional five-year renewal options
available. The agreement is subjected to numerous contingencies, including
approval by the Pennsylvania State Thoroughbred Racing Commission. On September
26, 1997, the Company submitted its application for such approval. If approved,
the Company expects to have the facility operational in the third quarter of
1998.
During the nine months ended September 30, 1997, the Company took a
non-recurring pre-tax charge of approximately $599,000 for site development
expenses associated with the Company's failure to obtain the approval for the
Downington OTW facility and discontinued site development efforts in Indiana.
The Company is subject to possible liabilities arising from environmental
conditions at the landfill adjacent to Pocono Downs racetrack. Specifically, the
Company may incur expenses in connection with the landfill in the future, which
expenses may not be reimbursed by the four municipalities which are parties to
an existing settlement agreement. The Company is unable to estimate the amount,
if any, that it may be required to expend.
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
7. INCOME TAXES:
The provision for income taxes charged to operations was as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current tax expense
Federal........................................................... $511 $2,605 $2,686 $2,166 $2,186
State............................................................. 377 842 880 707 694
------ ------ ------ ------ ------
Total current..................................................... 888 3,447 3,566 2,873 2,880
------ ------ ------ ------ ------
Deferred tax expense
Federal........................................................... 485 15 178 108 161
State............................................................. 8 5 50 35 52
- - -- -- --
Total deferred.................................................... 493 20 228 143 213
------ ------ ------ ------ ------
Total provision................................................... $1,381 $3,467 $3,794 $3,016 $3,093
====== ====== ====== ====== ======
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
SEPTEMBER 30,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets
Reserve for debit balances of horsemens'
accounts, bad debts and litigation.......................... $104 $90 $58
---- ------- --------
Deferred tax liabilities
Property, plant and equipment............................... $888 $10,810 $10,982
==== ======= =======
</TABLE>
<PAGE>
The following is a reconciliation of the statutory federal income tax
rate to the actual effective income tax rate for the following periods:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Percent of Pretax Income
Federal tax rate ........................................ 34.0% 34.0% 34.0% 34.0% 34.0%
Increase in taxes resulting from state and local income
taxes, net of federal tax benefit ....................... 6.2 6.7 6.6 6.4 6.5
Permanent difference relating to amortization of goodwill 0.6 0.3 0.2 0.2 0.6
Entities previously taxed as S corporations and
partnerships ............................................ (9.2) -- -- -- --
Other ................................................... 2.1 -- -- -- --
---- ---- ---- ---- ----
33.7% 41.0% 40.8% 40.6% 41.1%
==== ==== ==== ==== ====
</TABLE>
8. SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE:
Supplemental pro forma amounts for the year ended December 31, 1994
reflect: (i) the elimination of $345,000 in management fees paid to a related
entity; (ii) the inclusion of $133,000 in executive compensation; (iii) the
elimination of $413,000 of interest expense
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
8. SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE:--(CONTINUED)
on Company debt which was repaid with the proceeds of the initial public
offering, and (iv) a provision for income taxes of $377,000 as if the S
corporations and partnerships comprising part of the Company had been taxed as a
C corporation. There were no supplemental pro forma adjustments for any
subsequent periods.
Supplemental pro forma net income per share is based on the weighted
average number of shares of common stock outstanding, plus the number of shares
the Company would have needed to sell to fund the retirement of debt and the
number of shares the Company would have needed to sell to fund $1,190,000 of
distributions of undistributed S corporation earnings.
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest was $535,000, $71,000 and $506,000
in 1994, 1995 and 1996, respectively. Cash paid during the nine month periods
ended September 30, 1996 and 1997 for interest was $44,000 and $3,010,000,
respectively.
Cash paid during the year for income taxes was $250,000, $2,839,000 and
$2,490,000 in 1994, 1995 and 1996, respectively. Cash paid during the nine month
periods ended September 30, 1996 and 1997 for income taxes was $3,196,000 and
$2,741,000, respectively.
Non-cash investing and financing activities were as follows:
The Company purchased Pocono Downs for an aggregate purchase price of
$47,320,000, net of cash acquired. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired................................... $53,150,000
Cash paid for the capital stock and the limited
partnership interests............................................ 47,320,000
-----------
Liabilities assumed.............................................. $5,830,000
===========
During 1994, capital lease obligations of $199,000 were incurred to lease
new equipment.
During 1996, the Company issued a $250,000 long-term note payable for the
incurrence of prepaid Charles Town Acquisition costs.
10. SHAREHOLDERS' EQUITY:
COMMON STOCK
On June 3, 1994, the Company completed its initial public offering. The
proceeds, net of expenses, amounted to $12,957,000 for 4,500,000 shares of
common stock issued. The initial public offering price per share was $3.33.
On February 18, 1997, the Company completed a secondary public offering of
1,725,000 shares of its common stock. The net proceeds of $23 million were used
to reduce $19 million of the Term Loan amounts outstanding under the Existing
Credit Facility with the balance of the proceeds to be used to finance a portion
of the cost of the refurbishment of the Charles Town Entertainment Complex (see
Note 2 for Acquisitions).
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
10. SHAREHOLDERS' EQUITY:--(CONTINUED)
STOCK OPTIONS AND WARRANTS
In April 1994, the Company's Board of Directors and shareholders adopted
and approved the Stock Option Plan ("Plan"). The Plan permits the grant of
options to purchase up to 1,290,000 shares of Common Stock, subject to
antidilution adjustments, at a price per share no less than 100% of the fair
market value of the Common Stock on the date an option is granted with respect
to incentive stock options only. The price would be no less than 110% of fair
market value in the case of an incentive stock option granted to any individual
who owns more than 10% of the total combined voting power of all classes of
outstanding stock. The Plan provides for the granting of both incentive stock
options intended to qualify under Section 422 of the Internal Revenue Code of
1986, and non-qualified stock options which do not so qualify. Unless the Plan
is terminated earlier by the Board of Directors, the Plan will terminate in
April 2004.
Stock options that expire between May 26, 2001 and October 23, 2006 have
been granted to officers and directors to purchase Common Stock at prices
ranging from $3.33 to $17.63 per share.
All options were granted at market prices. The following table contains
information on stock options issued under the Plan for the three year period
ended December 31, 1996 and the nine month period ended September 30, 1997:
<TABLE>
<CAPTION>
OPTION PRICE RANGE
SHARES PER SHARE AVERAGE PRICE
------ --------- -------------
<S> <C> <C> <C>
Outstanding at January 1, 1994................... -- $-- $--
Granted.......................................... 765,000 3.33 3.33
Canceled......................................... (300,000) 3.33 3.33
--------- ---- -----
Outstanding at December 31, 1994................. 465,000 3.33 3.33
Granted.......................................... 345,000 3.33 to 5.58 5.51
--------- ---- -----
Outstanding at December 31, 1995................. 810,000 3.33 to 5.58 3.82
Granted.......................................... 280,000 5.63 to 17.63 12.99
Exercised........................................ (110,250) 3.33 3.33
--------- ---- -----
Outstanding at December 31, 1996................. 979,750 3.33 to 17.63 9.10
Granted.......................................... 65,000 15.50 to 16.63 15.59
Exercised........................................ (35,500) 3.33 to 5.63 4.01
--------- ---- -----
Outstanding at September 30, 1997................ 1,009,250 3.33 to 17.63 7.17
========= ============= =====
</TABLE>
In addition, 300,000 common stock options were issued outside the Plan on
October 23, 1996. These options were issued at $17.63 per share and are
exercisable through October 23, 2006.
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
PRICE RANGE AVERAGE
OPTION SHARES PER SHARE PRICE
------------- --------- -----
<S> <C> <C> <C>
Exercisable at year-end:
1994........................................... 150,000 $3.33 $3.33
1995........................................... 270,000 3.33 to 5.58 3.33
1996........................................... 337,250 3.33 to 17.63 3.71
</TABLE>
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
10. SHAREHOLDERS' EQUITY:--(CONTINUED)
1994 PLAN
---------
Options available for future grant:
1994................................................................. 825,000
1995................................................................. 480,000
1996................................................................. 200,000
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
RANGES TOTAL
------ -----
$3.33 $5.58 $3.33
RANGE OF EXERCISE PRICES TO 5.50 TO 17.63 TO 17.63
- ------------------------ ------- -------- --------
<S> <C> <C> <C>
Outstanding options:
Number outstanding at December 31, 1996..................... 669,750 310,000 979,750
Weighted average remaining contractual life
(years)..................................................... 6.04 7.97 6.96
Weighted average exercise price............................. $3.81 $14.91 $9.10
Exercisable options:
Number outstanding at December 31, 1996..................... 329,750 7,500 337,250
Weighted average exercise price............................. $3.66 $5.58 $3.71
</TABLE>
Warrants outstanding have been granted to the underwriters of the Company's
initial public offering and to certain officers and directors to purchase Common
Stock at prices ranging from $3.33 to $4.00 per share which expire on June 2,
1999 and May 31, 2000. During 1995, the Company canceled 300,000 warrants which
were granted to a former officer of the Company at a price of $3.33 per share
and were to expire on May 31, 2000. The 300,000 canceled warrants were replaced
with 300,000 shares of common stock purchase options at an exercise price of
$3.33 per share. A summary of the warrant transactions follows:
<PAGE>
<TABLE>
<CAPTION>
EXERCISE PRICE
WARRANT RANGE WEIGHTED
SHARES PER SHARE AVERAGE PRICE
------ --------- -------------
<S> <C> <C> <C>
Warrants outstanding at January 1, 1994.............. -- $-- $--
Warrants granted..................................... 690,000 3.33 to 4.00 3.85
------- ------------ ----
Warrants outstanding at December 31,
1994................................................. 690,000 3.33 to 4.00 3.85
Warrants canceled.................................... (150,000) 3.33 3.33
Warrants exercised................................... (45,000) 4.00 4.00
-------- ---- ----
Warrants outstanding at December 31,
1995................................................. 495,000 4.00 4.00
Warrants exercised................................... (300,000) 4.00 4.00
--------- ---- ----
Warrants outstanding at December 31,
1996................................................. 195,000 4.00 4.00
Warrants exercised................................... (21,000) 4.00 4.00
-------- ---- ----
Warrants outstanding at September 30,
1997................................................. 174,000 4.00 4.00
======= ==== ====
</TABLE>
During 1995, the FASB adopted Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", which has
recognition provisions that establish a fair value based method of accounting
for stock-based employee compensation plans and established fair value as the
measurement basis for transactions in which an entity acquires goods or services
from nonemployees in exchange for equity instruments. SFAS 123 also has certain
disclosure provisions. Adoption of the recognition provisions
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND 1997 IS UNAUDITED)
10. SHAREHOLDERS' EQUITY:--(CONTINUED)
of SFAS 123 with regard to these transactions with nonemployees was required for
all such transactions entered into after December 15, 1995, and the Company
adopted these provisions as required. The recognition provision with regard to
the fair value based method of accounting for stock-based employee compensation
plans is optional. Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employers" ("APB 25") uses what is referred to as an intrinsic
value based method of accounting. The Company has decided to continue to apply
APB 25 for its stock-based employee compensation arrangements. Accordingly, no
compensation cost has been recognized. Had compensation cost for the Company's
employee stock option plan been determined based on the fair value at the grant
date for awards under the plan consistent with the method of SFAS 123, the
Company's net income and net income per share would have been reduced to the pro
forma amounts indicated below:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
Net income
As reported.................................... $5,510,000 $4,996,000
Pro forma...................................... 5,020,000 4,984,000
Net income per share
As reported.................................... $0.39 $0.38
Pro forma...................................... $0.36 $0.38
STOCK SPLITS
The Board of Directors authorized a three-for-two stock split on April 18,
1996 on its Common Stock to shareholders of record on May 3, 1996, which was
paid on May 23, 1996. On November 13, 1996, the Board of Directors authorized a
two-for-one stock split on its Common Stock that was paid on December 20, 1996
to shareholders of record on November 22, 1996. In addition, authorized shares
of Common Stock were increased from 10,000,000 to 20,000,000. All references in
the financial statements to number of shares, net income per share amounts and
market prices of the Company's Common Stock have been retroactively restated to
reflect the increased number of shares of Common Stock shares outstanding.
11. LOSS FROM RETIREMENT OF DEBT:
In 1994 and 1997, the Company recorded extraordinary losses of $115,000 and
$383,000, respectively after taxes for the early retirement of debt. The
extraordinary losses consist primarily of write-offs of deferred finance costs
associated with the retired notes, and legal and bank fees relating to the early
extinguishment of the debt.
<PAGE>
================================================================================
All tendered Old Notes, executed Letters of
Transmittal and other related documents
should be directed to the Exchange
Agent. Questions and requests for assistance and requests
for additional copies of the Prospectus, the Letter of
Transmittal and other related documents
should be addressed to the Exchange
Agent as follows:
By Hand, Registered or Certified Mail
or Overnight Carrier:
State Street Bank and Trust Company
Goodwin Square
225 Asylum Street
Hartford, CT 06103
By Facsimile:
(860) 244-1889
Attention:
Confirm by telephone: (xxx) xxx-xxxx
(Originals of all documents submitted by facsimile should be sent
promptly by hand, overnight courier, or registered or certified mail)
No person has been authorized to give any
information or to make any representation
other than those contained in this Prospectus
and the accompanying Letter of Transmittal, and,
if given or made, such information or representation must
not be relied upon as having been authorized. Neither this
Prospectus nor the accompanying letter of Transmittal nor
both together constitute an offer to sell at the solicitation of
an offer to buy any securities other than the securities to
which such offer of solicitation is unlawful. Neither the
delivery of this Prospectus or the Letter of Transmittal or
both together nor any exchange made hereunder shall, under
any circumstances, create any implication that there has
been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as
of any time subsequent to its date.
Until __________, 1998 (25 days after the date of this
Exchange Offer), all dealers effecting transactions in the
new Notes, whether or not participating in this Exchange
Offer, may be required to deliver a Prospectus.
================================================================================
================================================================================
10 5/8% Senior Notes Due 2004
($80,000,000 Principal Amount)
PENN NATIONAL GAMING, INC.
Payment of Principal and
Interest Unconditionally
Guaranteed by Certain
of its Subsidiaries
----------------
PROSPECTUS
----------------
January __, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
The Company's Articles of Incorporation and By-laws require it to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed proceeding by reason of the fact that he is or
was a director or officer of the Company or any other person designated by the
Board of Directors (which may included any person serving at the request of the
Company as a director, officer, employee, agent, fiduciary or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
entity or enterprise), in each case, against certain liabilities (including,
damages, judgments, amounts paid in settlement, fines, penalties and expenses
(including attorneys' fees and disbursements)), except where such
indemnification is expressly prohibited by applicable law, where such person has
engaged in willful misconduct or recklessness or where such indemnification has
been determined to be unlawful. Such indemnification as to expenses is mandatory
to the extent the individual is successful on the merits of the matter.
Pennsylvania law permits the Company to provide similar indemnification to
employees and agents who are not directors or officers. The determination of
whether an individual meets the applicable standard of conduct may be made by
the disinterested directors, independent legal counsel or the stockholders.
Pennsylvania law also permits indemnification in connection with a proceeding
brought by or in the right of the Company to procure a judgment in its favor.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Act") may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is
therefore unenforceable. The Company expects to obtain a directors and officers
liability insurance policy prior to the effective date of this Registration
Statement.
ITEM 21. Exhibits
Exhibit Index
Exhibit
Number Description
- ------ -----------
4.1* --Indenture.
4.2* --Registration Rights Agreement dated as of December 17, 1997 among
the Company, certain subsidiaries, BT Alex. Brown Incorporated and
Jefferies & Company, Inc.
5** --Opinion of Morgan, Lewis & Bockius LLP regarding validity of
Exchange Notes.
10.1 --Amended and Restated Credit Facility dated as of December 17, 1997
among the Company, certain lenders, Bankers Trust Company, as agent,
and CoreState Bank, N.A., as co-agent.
10.2(1) --Second Amended and Restated Operating Agreement of PNGI Charles Town
Gaming Limited Liability Company dated October 17, 1997.
10.3(1) --Fourth Amendment, Waiver and Consent among Company, CoreState Bank,
N.A. and Bankers Trust Company dated 10/30/97.
10.4(2) --Agreement dated June 25, 1997 by and between GTECH Corporation and
PNGI Charles Town Gaming, LLC.
10.5(2) --Option to Purchase Real Property dated June 20, 1997 between
Roosevelt Boyland Devisees and the Company.
10.6(2) --Option to Purchase Real Property dated June 20, 1997 between Joyce
M. Peck and the Company.
10.7(2) --Option to Purchase Real Property dated June 20, 1997 between Alan J.
Aste and the Company.
10.8(3) --Standard Form of Agreement dated March 26, 1997 between the Company
and Myers Building Systems, Inc. with respect to the construction of
Horse Barns for the Charles Town Race Track.
10.9(4) --Standard Form of Agreement dated December, 1996 between the Company
and Warfel Construction Company with respect to renovations to the
Charles Town Race Track.
10.10(5) --Amended and Restated Option Agreement.
10.10(5) --Amended and Restated Operating Agreement of PNGI Charles Town Gaming
Limited Liability Company dated December 31, 1996.
10.10(5) --Term Sheet to First Amendment to Amended and Restated Operating
Agreement of PNGI Charles Town Gaming Limited Liability Company.
21(6) --Subsidiaries of Penn National Gaming, Inc.
23.1** --Consent of Morgan, Lewis & Bockius (included in Exhibit 5)
II - 1
<PAGE>
23.2* --Consent of BDO Seidman, LLP
24.1 --Powers of Attorney (included on signature pages hereof)
- ----------
* Filed herewith.
** To be filed by Amendment
(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-Q for the
year ended December 31, 1996 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Form 8-K dated January 30, 1997 and
incorporated herein by reference.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-K for fiscal
1996, and incorporated herein by reference.
ITEM 22. Undertakings
The undersigned registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
II - 2
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II - 3
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
PENN NATIONAL GAMING, INC.
By: /s/ PETER M. CARLINO
----------------------
Peter M. Carlino,
Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
Gaming, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statement, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ PETER M. CARLINO Chairman of the Board and Chief Executive January 30, 1998
- -------------------------------- Officer (Principal Executive Officer)
Peter M. Carlino
/s/ WILLIAM J. BORK President, Chief Operating Officer and Director January 30, 1998
- --------------------------------
William J. Bork
/s/ PHILIP T. O'HARA, JR. Vice President and General Manager January 30, 1998
- --------------------------------
Philip T. O'Hara, Jr.
/s/ HAROLD CRAMER Director January 30, 1998
- --------------------------------
Harold Cramer
/s/ DAVID A. HANDLER Director January 30, 1998
- --------------------------------
David A. Handler
/s/ ROBERT P. LEVY Director January 30, 1998
- --------------------------------
Robert P. Levy
/s/ JOHN M. JACQUEMIN Director January 30, 1998
- --------------------------------
John M. Jacquemin
/s/ JOSEPH A. LASHINGER, JR. Vice President January 30, 1998
- --------------------------------
Joseph A. Lashinger, Jr.
/s/ ROBERT S. IPPOLITO Chief Financial Officer, Secretary and January 30, 1998
- -------------------------------- Treasurer (Principal Financial Officer)
Robert S. Ippolito
/s/ ROBERT E. ABRAHAM Vice President and Corporate Controller January 30, 1998
- -------------------------------- (Principal Accounting Officer)
Robert E. Abraham
</TABLE>
II - 4
<PAGE>
II - 5
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
MOUNTAINVIEW THOROUGHBRED RACING
ASSOCIATION
By: /s/ PETER M. CARLINO
----------------------------
Peter M. Carlino,
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Mountainview
Thoroughbred Racing Association, a Pennsylvania corporation, in which the
undersigned holds offices, and any amendments to the registration statement, and
to file any and all of the same, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents or any of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ PETER M. CARLINO President and Director (Principal Executive January 30, 1998
- ------------------------------- Officer)
Peter M. Carlino
/s/ ROBERT S. IPPOLITO Chief Financial Officer (Principal Financial January 30, 1998
- ------------------------------- Officer and Principal Accounting Officer)
Robert S. Ippolito
/s/ HAROLD CRAMER Director January 30, 1998
- -------------------------------
Harold Cramer
</TABLE>
II - 6
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
PENNSYLVANIA NATIONAL TURF CLUB, INC.
By: /s/ PETER M. CARLINO
--------------------------------
Peter M. Carlino,
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Pennsylvania
National Turf Club, Inc., a Pennsylvania corporation, in which the undersigned
holds offices, and any amendments to the registration statement, and to file any
and all of the same, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents or any of them full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ PETER M. CARLINO President and Director (Principal Executive January 30, 1998
- --------------------------- Officer)
Peter M. Carlino
/s/ ROBERT S. IPPOLITO Secetary and Treasurer (Principal Financial January 30, 1998
- --------------------------- Officer and Principal Accounting Officer)
Robert S. Ippolito
/s/ HAROLD CRAMER Director January 30, 1998
- ---------------------------
Harold Cramer
</TABLE>
II - 7
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
PENN NATIONAL SPEEDWAY, INC.
By: /s/ WILLIAM J. BORK
---------------------------------
William J. Bork,
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
Speedway, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statement, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ PETER M. CARLINO President and Director (Principal Executive January 30, 1998
- ----------------------------- Officer)
Peter M. Carlino
/s/ ROBERT S. IPPOLITO Secretary and Treasurer (Principal Financial January 30, 1998
- ----------------------------- Officer and Principal Accounting Officer)
Robert S. Ippolito
/s/ WILLIAM J. BORK Director January 30, 1998
- -----------------------------
William J. Bork
/s/ HAROLD CRAMER Director January 30, 1998
- -----------------------------
Harold Cramer
</TABLE>
II - 8
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
NORTHEAST CONCESSIONS, INC.
By: /s/ PETER M. CARLINO
---------------------------------
Peter M. Carlino,
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Northeast
Concessions, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statement, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ WILLIAM J. BORK President and Director (Principal Executive January 30, 1998
- ------------------------------- Officer)
William J. Bork
/s/ ARTHUR E. MANUEL Treasurer (Principal Financial January 30, 1998
- ------------------------------- Officer and Principal Accounting Officer)
Arthur E. Manuel
/s/ HAROLD CRAMER Director January 30, 1998
- -------------------------------
Harold Cramer
</TABLE>
II - 9
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
THE DOWNS OFF-TRACK WAGERING, INC.
By: /s/ PETER M. CARLINO
------------------------------
Peter M. Carlino,
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by The Downs
Off-Track Wagering, Inc., a Pennsylvania corporation, in which the undersigned
holds offices, and any amendments to the registration statement, and to file any
and all of the same, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents or any of them full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ WILLIAM J. BORK President and Director (Principal Executive January 30, 1998
- ------------------------------- Officer)
William J. Bork
/s/ ARTHUR E. MANUEL Treasurer (Principal Financial January 30, 1998
- ------------------------------- Officer and Principal Accounting Officer)
Arthur E. Manuel
/s/ HAROLD CRAMER Director January 30, 1998
- -------------------------------
Harold Cramer
</TABLE>
II - 10
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
THE DOWNS RACING, INC.
By: /s/ JOSEPH A. LASHINGER, JR.
----------------------------------
Joseph A. Lashinger, Jr.
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by The Downs
Racing, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statement, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ JOSEPH A. LASHINGER, JR. President, Treasurer, Secretary and Director January 30, 1998
- ------------------------------- (Principal Executive Officer, Principal
Joseph A. Lashinger, Jr. Financial Officer and Principal Accounting
Officer)
</TABLE>
II - 11
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
STERLING AVIATION INC.
By: /s/ PETER M. CARLINO
--------------------------------
Peter M. Carlino,
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Sterling
Aviation Inc., a Delaware corporation, in which the undersigned holds offices,
and any amendments to the registration statement, and to file any and all of the
same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ PETER M. CARLINO President and Director (Principal Executive January 30, 1998
- -------------------------------- Officer)
Peter M. Carlino
/s/ ROBERT S. IPPOLITO Secretary and Treasurer (Principal Financial January 30, 1998
- -------------------------------- Officer and Principal Accounting Officer)
Robert S. Ippolito
/s/ HAROLD CRAMER Director January 30, 1998
- --------------------------------
Harold Cramer
</TABLE>
II - 12
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
PENN NATIONAL HOLDING COMPANY
By: /s/ PETER M. CARLINO
-------------------------------
Peter M. Carlino,
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
Holding Company, a Delaware corporation, in which the undersigned holds offices,
and any amendments to the registration statement, and to file any and all of the
same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ WILLIAM J. BORK President and Director (Principal Executive January 30, 1998
- ------------------------------ Officer)
William J. Bork
/s/ ROBERT S. IPPOLITO Treasurer, Secretary and Director (Principal Financial January 30, 1998
- ------------------------------ Officer and Principal Accounting Officer)
Robert S. Ippolito
/s/ PETER M. CARLINO Director January 30, 1998
- ------------------------------
Peter M. Carlino
</TABLE>
II - 13
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
PNGI POCONO, INC.
By: /s/ WILLIAM J. BORK
-------------------------
William J. Bork,
President and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by PNGI Pocono,
Inc., a Delaware corporation, in which the undersigned holds offices, and any
amendments to the registration statement, and to file any and all of the same,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ WILLIAM J. BORK President and Director (Principal Executive January 30, 1998
- ------------------------------- Officer)
William J. Bork
/s/ ROBERT S. IPPOLITO Treasurer and Secretary (Principal Financial January 30, 1998
- ------------------------------- Officer and Principal Accounting Officer)
Robert S. Ippolito
</TABLE>
II - 14
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
PENN NATIONAL GAMING OF WEST VIRGINIA, INC.
By: /s/ PETER M. CARLINO
-------------------------------------
Peter M. Carlino,
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
Gaming of West Virginia, Inc., a West Virginia corporation, in which the
undersigned holds offices, and any amendments to the registration statement, and
to file any and all of the same, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents or any of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ WILLIAM J. BORK President (Principal Executive Officer) January 30, 1998
- -------------------------------
William J. Bork
/s/ ROBERT S. IPPOLITO Secretary and Treasurer (Principal Financial January 30, 1998
- ------------------------------- Officer and Principal Accounting Officer)
Robert S. Ippolito
/s/ PETER M. CARLINO Director January 30, 1998
- -------------------------------
Peter M. Carlino
/s/ HAROLD CRAMER Director January 30, 1998
- -------------------------------
Harold Cramer
</TABLE>
II - 15
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wyomissing, State of Pennsylvania on January 30,
1998.
TENNESSEE DOWNS, INC.
By: /s/ PETER M. CARLINO
-------------------------------
Peter M. Carlino,
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Tennessee
Downs, Inc., a Tennessee corporation, in which the undersigned holds offices,
and any amendments to the registration statement, and to file any and all of the
same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ WILLIAM J. BORK President and Director (Principal Executive January 30, 1998
- ------------------------------- Officer)
William J. Bork
/s/ ROBERT S. IPPOLITO Treasurer, Secretary and Director (Principal January 30, 1998
- -------------------------------
Robert S. Ippolito Financial Officer and Principal Accounting
Officer)
/s/ PETER M. CARLINO Director January 30, 1998
- -------------------------------
Peter M. Carlino
/s/ JOSEPH A. LASHINGER, JR. Director January 30, 1998
- -------------------------------
Joseph A. Lashinger, Jr.
</TABLE>
II - 16
================================================================================
PENN NATIONAL GAMING, INC., as Company,
each of the Subsidiary Guarantors named herein
and
STATE STREET BANK AND TRUST COMPANY,
as Trustee
--------------------
INDENTURE
Dated as of December 17, 1997
--------------------
up to $150,000,000
10 5/8% Senior Notes due 2004, Series A
10 5/8% Senior Notes due 2004, Series B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
310(a)(1).................................................... 7.10
(a)(2).................................................... 7.10
(a)(3).................................................... N.A.
(a)(4).................................................... N.A.
(a)(5).................................................... 7.10
(b)....................................................... 7.08; 7.10;
10.02
(c)....................................................... N.A.
311(a)....................................................... 7.11
(b)....................................................... 7.11
(c)....................................................... N.A.
312(a)....................................................... 2.05
(b)....................................................... 10.03
(c)....................................................... 10.03
313(a)....................................................... 7.06
(b)(1).................................................... N.A.
(b)(2).................................................... 7.06
(c)....................................................... 7.06; 10.02
(d)....................................................... 7.06
314(a)....................................................... 4.06; 4.08;
10.02
(b)....................................................... N.A.
(c)(1).................................................... 10.04
(c)(2).................................................... 10.04
(c)(3).................................................... N.A.
(d)....................................................... N.A.
(e)....................................................... 10.05
(f)....................................................... N.A.
315(a)....................................................... 7.01(b)
(b)....................................................... 7.05; 10.02
(c)....................................................... 7.01(a)
(d)....................................................... 7.01(c)
(e)....................................................... 6.11
316(a)(last sentence)........................................ 2.09
(a)(1)(A)................................................. 6.05
(a)(1)(B)................................................. 6.04
(a)(2).................................................... N.A.
(b)....................................................... 6.07
(c)....................................................... 9.04
317(a)(1).................................................... 6.08
(a)(2).................................................... 6.09
(b)....................................................... 2.04
318(a)....................................................... 10.01
(c)....................................................... 10.01
N.A. means Not Applicable.
- -----------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
Page
----
<S> <C> <C> <C>
SECTION 1.01. Definitions............................................................. 1
SECTION 1.02. Incorporation by Reference of TIA ...................................... 27
SECTION 1.03. Rules of Construction................................................... 27
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating......................................................... 28
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount................ 29
SECTION 2.03. Registrar and Paying Agent.............................................. 31
SECTION 2.04. Paying Agent To Hold Assets in Trust.................................... 31
SECTION 2.05. Holder Lists............................................................ 32
SECTION 2.06. Transfer and Exchange................................................... 32
SECTION 2.07. Replacement Notes....................................................... 33
SECTION 2.08. Outstanding Notes....................................................... 33
SECTION 2.09. Treasury Notes.......................................................... 34
SECTION 2.10. Temporary Notes......................................................... 34
SECTION 2.11. Cancellation............................................................ 35
SECTION 2.12. Defaulted Interest...................................................... 35
SECTION 2.13. CUSIP Numbers........................................................... 36
SECTION 2.14. Deposit of Monies....................................................... 36
SECTION 2.15. Restrictive Legends..................................................... 37
SECTION 2.16. Book-Entry Provisions for Global Security............................... 39
SECTION 2.17. Special Transfer Provisions............................................. 40
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee...................................................... 43
SECTION 3.02. Selection of Notes To Be Redeemed....................................... 44
SECTION 3.03. Optional Redemption..................................................... 45
SECTION 3.04. Notice of Redemption.................................................... 45
SECTION 3.05. Effect of Notice of Redemption.......................................... 47
SECTION 3.06. Deposit of Redemption Price............................................. 47
SECTION 3.07. Notes Redeemed in Part.................................................. 47
-i-
<PAGE>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes........................................................ 48
SECTION 4.02. Maintenance of Office or Agency......................................... 48
SECTION 4.03. Corporate Existence..................................................... 48
SECTION 4.04. Payment of Taxes and Other Claims....................................... 49
SECTION 4.05. Maintenance of Properties and Insurance................................. 49
SECTION 4.06. Compliance Certificate; Notice of Default............................... 50
SECTION 4.07. Compliance with Laws.................................................... 51
SECTION 4.08. Reports to Holders...................................................... 51
SECTION 4.09. Waiver of Stay, Extension or Usury Laws................................. 52
SECTION 4.10. Limitation on Restricted Payments....................................... 52
SECTION 4.11. Limitations on Transactions with Affiliates............................. 55
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness..................... 56
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries......................................................... 56
SECTION 4.14. Change of Control....................................................... 57
SECTION 4.15. Limitation on Asset Sales............................................... 59
SECTION 4.16. Limitation on Preferred Stock of Restricted Subsidiaries................ 64
SECTION 4.17. Limitation on Liens..................................................... 64
SECTION 4.18. Additional Subsidiary Guarantees........................................ 65
SECTION 4.19. Limitation on Designations of Unrestricted Subsidiaries................. 65
SECTION 4.20. Conduct of Business..................................................... 67
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets................................ 67
SECTION 5.02. Successor Corporation Substituted....................................... 69
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default....................................................... 69
SECTION 6.02. Acceleration............................................................ 71
SECTION 6.03. Other Remedies.......................................................... 72
SECTION 6.04. Waiver of Past Defaults................................................. 72
SECTION 6.05. Control by Majority..................................................... 73
- ii -
<PAGE>
SECTION 6.06. Limitation on Suits..................................................... 73
SECTION 6.07. Right of Holders To Receive Payment..................................... 74
SECTION 6.08. Collection Suit by Trustee.............................................. 74
SECTION 6.09. Trustee May File Proofs of Claim........................................ 74
SECTION 6.10. Priorities.............................................................. 75
SECTION 6.11. Undertaking for Costs................................................... 75
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee....................................................... 76
SECTION 7.02. Rights of Trustee....................................................... 77
SECTION 7.03. Individual Rights of Trustee............................................ 79
SECTION 7.04. Trustee's Disclaimer.................................................... 79
SECTION 7.05. Notice of Default....................................................... 79
SECTION 7.06. Reports by Trustee to Holders........................................... 79
SECTION 7.07. Compensation and Indemnity.............................................. 80
SECTION 7.08. Replacement of Trustee.................................................. 81
SECTION 7.09. Successor Trustee by Merger, Etc........................................ 82
SECTION 7.10. Eligibility; Disqualification........................................... 82
SECTION 7.11. Preferential Collection of Claims Against Company....................... 83
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations.................................... 83
SECTION 8.02. Application of Trust Money.............................................. 86
SECTION 8.03. Repayment to the Company................................................ 87
SECTION 8.04. Reinstatement........................................................... 87
SECTION 8.05. Acknowledgment of Discharge by Trustee.................................. 88
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. Without Consent of Holders.............................................. 88
SECTION 9.02. With Consent of Holders................................................. 89
SECTION 9.03. Compliance with TIA..................................................... 90
SECTION 9.04. Revocation and Effect of Consents....................................... 91
SECTION 9.05. Notation on or Exchange of Notes........................................ 91
SECTION 9.06. Trustee To Sign Amendments, Etc......................................... 92
- iii -
<PAGE>
ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01. Unconditional Guarantee................................................. 92
SECTION 10.02. Limitations on Guarantees............................................... 94
SECTION 10.03. Execution and Delivery of Guarantee..................................... 94
SECTION 10.04. Release of Subsidiary Guarantors........................................ 95
SECTION 10.05. Waiver of Subrogation................................................... 96
SECTION 10.06. Immediate Payment....................................................... 96
SECTION 10.07. Obligations Continuing.................................................. 97
SECTION 10.08. Obligations Reinstated.................................................. 97
SECTION 10.09. Obligations Not Affected................................................ 97
SECTION 10.10. Waiver.................................................................. 98
SECTION 10.11. No Obligation To Take Action Against the Company........................ 98
SECTION 10.12. Dealing with the Company and Others..................................... 98
SECTION 10.13. Default and Enforcement................................................. 99
SECTION 10.14. Amendment, Etc.......................................................... 99
SECTION 10.15. Acknowledgment.......................................................... 99
SECTION 10.16. Costs and Expenses...................................................... 99
SECTION 10.17. No Waiver; Cumulative Remedies.......................................... 100
SECTION 10.18. Survival of Obligations................................................. 100
SECTION 10.19. Guarantee in Addition to Other Obligations.............................. 100
SECTION 10.20. Severability............................................................ 100
SECTION 10.21. Successors and Assigns.................................................. 101
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls............................................................ 101
SECTION 11.02. Notices................................................................. 101
SECTION 11.03. Communications by Holders with Other Holders............................ 102
SECTION 11.04. Certificate and Opinion as to Conditions Precedent...................... 103
SECTION 11.05. Statements Required in Certificate or Opinion........................... 103
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar............................... 104
SECTION 11.07. Legal Holidays.......................................................... 104
SECTION 11.08. Governing Law........................................................... 104
SECTION 11.09. No Adverse Interpretation of Other Agreements........................... 104
SECTION 11.10. No Personal Liability................................................... 104
SECTION 11.11. Successors.............................................................. 105
SECTION 11.12. Duplicate Originals..................................................... 105
SECTION 11.13. Severability............................................................ 105
SECTION 11.14. Independence of Covenants............................................... 105
- iv -
<PAGE>
Exhibit A -Form of Initial Note................................................... A-1
Exhibit B -Form of Exchange Note.................................................. B-1
Exhibit C -Form of Certificate To Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors............................ C-1
Exhibit D -Form of Certificate To Be Delivered in Connection with
Transfers Pursuant to Regulation S................................... D-1
Exhibit E -Form of Guarantee...................................................... E-1
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture
</TABLE>
v
<PAGE>
INDENTURE, dated as of December 17, 1997, among PENN NATIONAL GAMING,
INC., a Pennsylvania corporation (the "Company"), each of the Subsidiary
Guarantors named herein, as guarantors, and STATE STREET BANK AND TRUST COMPANY,
as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of
10-5/8% Senior Notes due 2004, Series A to be issued initially in the principal
amount of $80,000,000 and thereafter in an additional principal amount, if any,
up to $70,000,000 subject to the terms and conditions contained herein, and
10-5/8% Senior Notes due 2004, Series B, to be issued in exchange for the
10-5/8% Senior Notes due 2004, Series A, pursuant to a Registration Rights
Agreement (as defined) and, to provide therefor, the Company has duly authorized
the execution and delivery of this Indenture. All things necessary to make the
Notes (as defined), when duly issued and executed by the Company and
authenticated and delivered hereunder, the valid and binding obligations of the
Company and to make this Indenture a valid and binding agreement of the Company,
have been done.
Each party hereto agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Company's
10-5/8% Senior Notes due 2004, Series A and Series B:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or is assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary or such acquisition, merger or consolidation.
"Additional Interest" shall have the meaning set forth in the
Registration Rights Agreement.
<PAGE>
"Affiliate" means, with respect to any specified Person, any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Affiliate Transaction" has the meaning provided in Section 4.11.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Agent Members" has the meaning provided in Section 2.16.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
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"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Restricted Subsidiary of the Company of
(a) any Capital Stock of any Restricted Subsidiary or (b) any other property or
assets of the Company or any Restricted Subsidiary, other than in the ordinary
course of business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $500,000,
(ii) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted under Section 5.01,
(iii) disposals or replacements of obsolete equipment in the ordinary course of
business, (iv) the sale, lease, conveyance, disposition or other transfer by the
Company or any Restricted Subsidiary of assets or property to the Company or one
or more Restricted Subsidiaries, (v) the sale or discount, in each case without
recourse, of accounts receivable in the ordinary course of business, but only in
connection with the compromise or collection thereof and (vi) sales, transfers
or other dispositions of assets which are Restricted Payments permitted by the
provisions described under Section 4.10.
"Authenticating Agent" has the meaning provided in Section 2.02.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the secretary or an assistant secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any other
day on which commercial banking institutions in the City of New York or the city
in which the Trustee is located are required or authorized by law or other
governmental action to be closed.
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"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations
of such Person under a lease that are required to be classified and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
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"Certificated Securities" means Notes in definitive registered form.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons (other than
to a Permitted Holder) for purposes of Section 13(d) of the Exchange Act (a
"Group"), together with any Affiliates thereof (whether or not otherwise in
compliance with the provisions of this Indenture); (ii) the approval by the
holders of the Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of this Indenture); (iii) any Person or Group,
other than a Permitted Holder, shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 50% of the aggregate
ordinary voting power represented by the issued and outstanding Capital Stock of
the Company; or (iv) the replacement of a majority of the Board of Directors of
the Company over a two-year period from the directors who constituted the Board
of Directors of the Company at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a majority of the
Board of Directors of the Company then still in office who either were members
of any such Board of Directors at the beginning of such period or whose election
as a member of any such Board of Directors was previously so approved. The
phrases "all or substantially all" of the assets of the Company or "all or
substantially all of the Company's assets whether as an entirety or
substantially as an entirety," as used in this definition has no clearly
established meaning under New York law, has been the subject of limited judicial
interpretation in few jurisdictions and will be interpreted based upon the
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred and therefore whether a Change of
Control has occurred.
"Change of Control Offer" has the meaning provided in Section 4.14.
"Change of Control Payment Date" has the meaning provided in Section
4.14.
"Commission" means the U.S. Securities and Exchange Commission.
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"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means Penn National Gaming, Inc., a Pennsylvania corporation.
"Consolidated EBITDA" means, for any period, the sum (without
duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated
Net Income has been reduced thereby, (A) all income taxes of the Company and its
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or non-recurring
gains or losses or taxes attributable to sales or dispositions outside the
ordinary course of business), (B) Consolidated Interest Expense and (C)
Consolidated Non-cash Charges less any non-cash items increasing Consolidated
Net Income for such period, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of
Consolidated EBITDA during the four full fiscal quarters (the "Four Quarter
Period") ending on or prior to the date of the transaction giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction
Date") to Consolidated Fixed Charges for the Four Quarter Period. In addition to
and without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis (including any non-recurring expenses
associated with the transactions described in clauses (i) and (ii) below and pro
forma expense and cost reductions, in each case, calculated on a basis
consistent with Regulation S-X under the Securities Act in effect on the Issue
Date) basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of the Company or any of the Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
6
<PAGE>
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also including
any Consolidated EBITDA (provided that such Consolidated EBITDA shall be
included only to the extent includable pursuant to the definition of
"Consolidated Net Income") attributable to the assets which are the subject of
the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability for
any such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If the Company or any of the Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if the
Company or any such Restricted Subsidiary had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements. For the purpose of this definition, "Asset Sale" shall include
clause (v) under the definition "Asset Sale."
7
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"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of the Company, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for
any period, the sum of, without duplication: (i) the aggregate of the interest
expense of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including, without
limitation, (a) any amortization of debt discount, (b) the net costs under
Interest Swap Obligations, (c) all capitalized interest and (d) the interest
portion of any deferred payment obligation; and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or non-recurring gains or losses,
(c) the net income (or loss) of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or is
merged or consolidated with the Company or any Restricted Subsidiary, (d) the
net income (but not loss) of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract, operation of law or otherwise, (e)
the net income of any Person, other than the Company or a Restricted Subsidiary,
except to the extent of cash dividends or distributions paid to the Company or
to a Restricted Subsidiary by such Person, (f) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following the Issue
Date, (g) income or loss attributable to discontinued operations (including,
8
<PAGE>
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued) and (h) in the case of a
successor to the Company by consolidation or merger or as a transferee of the
Company's assets, any net income of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to the Company, for
any period, the aggregate depreciation, amortization and other non-cash expenses
of the Company and the Restricted Subsidiaries reducing Consolidated Net Income
of the Company for such period, determined on a consolidated basis in accordance
with GAAP (including deferred rent but excluding any such charge which requires
an accrual of or a reserve for cash charges for any future period).
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at Goodwin Square, 225 Asylum Street, Hartford, CT 06103.
"Covenant Defeasance" has the meaning set forth in Section 8.01.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Depository" means The Depository Trust Company, its nominees and
successors and any institution that succeeds the Depository Trust Company as
depository and Holder of Global Notes hereunder.
9
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"Designation" has the meaning provided in Section 4.19.
"Designation Amount" has the meaning provided in Section 4.19.
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof, on or prior to the final maturity date of the Notes.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"Exchange Notes" means the 10 5/8% Senior Notes due 2004, Series B to
be issued in exchange for the Initial Notes pursuant to the Registration Rights
Agreement or, with respect to Initial Notes issued under this Indenture
subsequent to the Issue Date pursuant to Section 2.02.
"Exchange Offer Registration Statement" means the registration
statement filed by the Company pursuant to the Registration Rights Agreement.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of the
Board of Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession
of the United States, which are in effect as of the Issue Date.
10
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"Global Note" has the meaning provided in Section 2.01.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantee" means the guarantee of the Notes by the Subsidiary
Guarantors.
"Holder" means a holder of Notes.
"incur" has the meaning set forth in Section 4.12.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, bankers' acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) above which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (viii) all Obligations under currency agreements and
interest swap agreements of such Person and (ix) all Disqualified Capital Stock
issued by such Person with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
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Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
this Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuers
of such Disqualified Capital Stock.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Independent Financial Advisor" means a firm (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect material financial interest in the Company and (ii) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Initial Notes" means, collectively, (i) the 10 5/8% Senior Notes due
2004, Series A, of the Company issued on the Issue Date and (ii) one or more
series of 10 5/8% Senior Notes due 2004 that are issued under this Indenture
subsequent to the Issue Date pursuant to Section 2.02, in an aggregate principal
amount up to $70,000,000, in each case for so long as such securities constitute
Restricted Notes.
"Initial Purchasers" means BT Alex. Brown Incorporated and Jefferies &
Company, Inc. or any other original purchasers of any Initial Notes issued after
the Issue Date.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1)(2),(3) or (7)
under the Securities Act.
"interest" when used with respect to any Note means the amount of all
interest accruing on such Note, including any applicable defaulted interest
pursuant to Section 2.12 and any Additional Interest pursuant to the
Registration Rights Agreement.
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"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and the Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. If the Company or any Restricted Subsidiary
sells or otherwise disposes of any Common Stock of any direct or indirect
Restricted Subsidiary such that, after giving effect to any such sale or
disposition, it ceases to be a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"Issue Date" means December 17, 1997.
"Legal Defeasance" has the meaning set forth in Section 8.01.
"Legal Holiday" has the meaning provided in Section 11.07.
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"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Maturity Date" means December 15, 2004.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth in Section 4.15.
"Net Proceeds Offer Amount" has the meaning set forth in Section 4.15.
"Net Proceeds Offer Payment Date" has the meaning set forth in Section
4.15.
"Net Proceeds Offer Trigger Date" has the meaning set forth in Section
4.15.
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"New Credit Facility" means the Amended and Restated Credit Agreement
dated as of November 27, 1996 and amended and restated as of December 17, 1997
among the Company, the lenders party thereto in their capacities as lenders
thereunder, Bankers Trust Company, as agent, and CoreStates Bank, N.A., as
co-agent, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder or adding Restricted Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
"Notes" means, collectively, the Initial Notes, the Private Exchange
Notes, if any, and the Exchange Notes, treated as a single class of securities,
as amended or supplemented from time to time in accordance with the terms of
this Indenture, that are issued pursuant to this Indenture.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the confidential Offering Memorandum dated
December 12, 1997 of the Company relating to the offering of the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board
of Directors, the Chief Executive Officer, the President, any Vice President,
the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of
such Person, or any other officer designated by the Board of Directors serving
in a similar capacity.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer or any Treasurer of such Person that
shall comply with applicable provisions of this Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of Sections
11.04 and 11.05, as they relate to the giving of an Opinion of Counsel.
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"Paying Agent" has the meaning provided in Section 2.03.
"Permitted Holder" means Peter M. Carlino, and each of his immediate
family members, the Carlino Family Trust, trustees of the Carlino Family Trust
or similar trusts, entities or arrangements for the benefit of the foregoing
persons and entities.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness incurred on the Issue Date under the Notes, this
Indenture and the Guarantees and other Indebtedness and Guarantees of
such Indebtedness under this Indenture properly incurred in accordance
with Section 4.12;
(ii) Indebtedness incurred pursuant to the New Credit Facility in an
aggregate principal amount at any time outstanding not to exceed $20.0
million, less any required permanent repayment provisions pursuant to
the provisions set forth under Section 4.15;
(iii) other Indebtedness (including Capitalized Lease Obligations) of
the Company and the Restricted Subsidiaries outstanding on the Issue
Date reduced by the amount of any scheduled amortization payments or
mandatory prepayments when actually paid or permanent reductions
thereof;
(iv) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred in connection with the purchase or capital lease of video
gaming machines, slot machines or similar gaming equipment in an
aggregate amount for all Indebtedness incurred by the Company or any
Restricted Subsidiary pursuant to this subclause (iv) not to exceed
$20.0 million outstanding at any one time;
(v) Interest Swap Obligations of the Company or a Restricted
Subsidiary covering Indebtedness of the Company or any of the
Restricted Subsidiaries; provided, however, that such Interest Swap
Obligations are entered into to protect the Company and the Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with this Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap
Obligation relates;
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(vi) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and the
Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(vii) Indebtedness of a Wholly Owned Restricted Subsidiary to the
Company or to a Wholly Owned Restricted Subsidiary for so long as such
Indebtedness is held by the Company or a Wholly Owned Restricted
Subsidiary, in each case subject to no Lien (other than Liens securing
the New Credit Facility) held by a Person other than the Company or a
Wholly Owned Restricted Subsidiary; provided that if as of any date any
Person other than the Company or a Wholly Owned Restricted Subsidiary
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(viii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary, in each case subject to no Lien (other than
Liens securing the New Credit Facility); provided that (a) any
Indebtedness of the Company to any Wholly Owned Restricted Subsidiary
is unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under this Indenture and the Notes and (b) if as
of any date any Person (other than lenders under the New Credit
Facility) other than a Wholly Owned Restricted Subsidiary owns or holds
any such Indebtedness or any Person holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the Company;
(ix) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided,
however, that such Indebtedness is extinguished within two business
days of incurrence;
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(x) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security
for workers' compensation claims, payment obligations in connection
with self-insurance or similar requirements in the ordinary course of
business;
(xi) guarantees by the Company and the Subsidiary Guarantors of each
other's Indebtedness; provided that such Indebtedness is permitted to
be incurred under this Indenture;
(xii) Refinancing Indebtedness;
(xiii) Indebtedness of the Company or any Restricted Subsidiary
incurred to finance the payments to the seller of Pocono Downs
Racetrack in an amount not to exceed $10.0 million in the event
Pennsylvania authorizes any additional form of gaming in which the
Company may participate and any Refinancing thereof; and
(xiv) additional Indebtedness of the Company in an aggregate amount
not to exceed $10.0 million at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Wholly Owned Restricted Subsidiary or that will merge or
consolidate into the Company or a Wholly Owned Restricted Subsidiary; (ii)
Investments in the Company by any Restricted Subsidiary; provided that any
Indebtedness incurred by the Company evidencing such Investment is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and this Indenture; (iii) investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of the Company
and the Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $500,000 at any one time outstanding; (v)
Currency Agreements and Interest Swap Obligations entered into in the ordinary
course of the Company's or a Restricted Subsidiary's businesses and otherwise in
compliance with this Indenture; (vi) other Investments, including Investments in
Unrestricted Subsidiaries not to exceed $10.0 million at any one time
outstanding; (vii) Investments in securities of trade creditors or customers
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received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (viii) guarantees
by the Company or any Subsidiary Guarantor of Indebtedness otherwise permitted
to be incurred by the Company or any Subsidiary Guarantor under this Indenture;
(ix) Investments made by the Company or the Restricted Subsidiaries as a result
of consideration received in connection with an Asset Sale made in compliance
with the covenant described under Section 4.12 and (x) an investment in PNGI
Charlestown Gaming LLC in an amount not to exceed $5.0 million to be funded with
the proceeds of the offering of the Notes, provided, however, that $4.0 million
of such investment will be funded within 60 days of the Issue Date and the
remaining $1.0 million within 180 days of the Issue Date or as soon as
practicable thereafter or as is permitted by any applicable regulatory
organization, provided, further, however, that the aggregate amount permitted
under clause (5) under Section 4.10 and pursuant to this clause (x) does not
exceed $5.0 million.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (A) not delinquent or (B) contested in good faith by appropriate
proceedings and as to which the Company or the Restricted Subsidiaries
shall have set aside on its books such reserves as may be required
pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by
law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
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(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment
shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in
any material respect with the ordinary conduct of the business of the
Company or any of the Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
asset which is not leased property subject to such Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary acquired after the Issue Date;
provided, however, that (A) the related Purchase Money Indebtedness
shall not exceed the cost of such property or assets and shall not be
secured by any property or assets of the Company or any Restricted
Subsidiary other than the property and assets so acquired and (B) the
Lien securing such Indebtedness shall be created within 90 days of such
acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person
to facilitate the purchase, shipment or storage of such inventory or
other goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds
thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the
Company or any of the Restricted Subsidiaries, including rights of
offset and set-off;
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(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under
this Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with Section 4.12 and Liens securing any Refinancing of Acquired
Indebtedness; provided that (A) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and
were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary and (B) such Liens do not extend to or cover any property or
assets of the Company or of any of the Restricted Subsidiaries other
than the property or assets that secured the Acquired Indebtedness
prior to the time such Indebtedness became Acquired Indebtedness of the
Company or a Restricted Subsidiary and are no more favorable to the
lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary;
(xiv) Leases or subleases granted to others not interfering in any
material respect with the business of the Company or any Restricted
Subsidiary; and
(xv) Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases of personal
property that are otherwise permitted under this Indenture and under
which the Company or any Restricted Subsidiary is lessee.
"Person" means an individual, partnership, corporation, unincorporated
organization, limited liability company, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"plan of liquidation" means, with respect to any Person, a plan
(including by operation of law) that provides for, contemplates or the
effectuation of which is preceded or accompanied by (whether or not
substantially contemporaneously) (a) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of such Person otherwise
than as an entirety or substantially as an entirety and (b) the distribution of
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all or substantially all of the proceeds of such sale, lease, conveyance or
other disposition and all or substantially all of the remaining assets of such
Person to holders of Capital Stock of such Person.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"principal" of any Indebtedness (including the Notes) means the
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Private Exchange Notes" has the meaning set forth in the Registration
Rights Agreement.
"Private Placement Legend" means the legend initially set forth on the
Initial Notes and the Private Exchange Notes in the form set forth in Section
2.15.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act, as determined by the
Board of Directors of the Company in consultation with its independent public
accountants.
"Public Equity Offering" means an underwritten public offering of
Qualified Capital Stock of the Company pursuant to a registration statement
filed with the Commission in accordance with the Securities Act.
"Purchase Money Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries incurred for the purpose of financing all or any part of
the purchase price or the cost of installation, construction or improvement of
any property and any Refinancing thereof.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
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"Record Date" means the Record Date specified in the Notes.
"Redemption Date," when used with respect to any Note to be redeemed,
means the date fixed for such redemption pursuant to this Indenture and the
Notes.
"redemption price," when used with respect to any Note to be redeemed,
means the price fixed for such redemption, including principal and premium, if
any, pursuant to this Indenture and the Notes.
"Reference Date" has the meaning set forth in Section 4.10.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with Section 4.12
(other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (x),
(xi), (xiii) or (xiv) of the definition of Permitted Indebtedness), in each case
that does not (1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company or any Restricted Subsidiary in connection with such Refinancing)
or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is
less than the Weighted Average Life to Maturity of the Indebtedness being
Refinanced or (B) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced; provided that (x) if such Indebtedness being
Refinanced is Indebtedness of the Company or a Subsidiary Guarantor, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and/or a
Subsidiary Guarantor and (y) if such Indebtedness being Refinanced is
subordinate or junior to the Notes, then such Refinancing Indebtedness shall be
subordinate to the Notes at least to the same extent and in the same manner as
the Indebtedness being Refinanced.
"Registrar" has the meaning provided in Section 2.03.
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"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Issue Date among the Company, the Subsidiary Guarantors and the
Initial Purchasers and any other registration rights agreement covering similar
matters that may be executed and delivered by the Company and the Subsidiary
Guarantors in connection with the issuance of any Initial Notes after the Issue
Date.
"Regulation S" means Regulation S under the Securities Act.
"Replacement Assets" has the meaning provided in Section 4.15.
"Restricted Payment" shall have the meaning set forth in Section 4.10.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with Section 4.19. Any such Designation may be revoked by a
Board Resolution of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Revocation" has the meaning set forth in Section 4.19.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"S&P" means Standard & Poor's Rating Services, a division of The McGraw
Hill Companies, Inc., and its successors.
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"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Significant Subsidiary" shall have the meaning set forth in Rule
1.02(w) of Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means (i) each of The Plains Company, a
Pennsylvania corporation, Mountainview Thoroughbred Racing Association, a
Pennsylvania corporation, Pennsylvania National Turf Club, Inc., a Pennsylvania
corporation, Penn National Speedway, Inc., a Pennsylvania corporation, Penn
National Holding Company, a Delaware corporation, Penn National Gaming of West
Virginia, Inc., a West Virginia corporation, Sterling Aviation Inc., a Delaware
corporation, Pocono Downs, Inc., a Pennsylvania corporation, Northeast
Concessions, Inc., a Pennsylvania corporation, The Downs Off-Track Wagering,
Inc., a Pennsylvania corporation, The Downs Racing, Inc., a Pennsylvania
corporation, Penn National Gaming of Indiana, Inc., a Delaware corporation, PNGI
Pocono, Inc., a Delaware corporation, and Tennessee Downs, Inc., a Tennessee
corporation, and (ii) each of the Company's Restricted Subsidiaries that in the
future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of this Indenture as a Subsidiary Guarantor;
provided that any Person constituting a Subsidiary Guarantor as described above
shall cease to constitute a Subsidiary Guarantor when its respective Guarantee
is released in accordance with the terms of this Indenture.
"Surviving Entity" shall have the meaning set forth in Section 5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
ss.77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except
as otherwise provided in Section 9.03.
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"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer this Indenture, or in the case of a
successor trustee, an officer assigned to the department, division or group
performing the corporation trust work of such successor and assigned to
administer this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 4.19. Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of Section 4.19.
"U.S. Government Obligations" mean direct obligations of, and
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities (other than in the case of a foreign
Restricted Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by the Company or any Wholly Owned Restricted Subsidiary.
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SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the Indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP of any date of determination;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(6) any reference to a statute, law or regulation means that statute,
law or regulation as amended and in effect from time to time and includes any
successor statute, law or regulation; provided, however, that any reference to
the Bankruptcy Law shall mean the Bankruptcy Law as applicable to the relevant
case.
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ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Initial Notes and the Trustee's certificate of authentication
relating thereto shall be substantially in the form of Exhibit A. The Exchange
Notes and the Trustee's certificate of authentication relating thereto shall be
substantially in the form of Exhibit B. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or depository rule or usage.
The Company and the Trustee shall approve the form of the Notes and any
notation, legend or endorsement on them. If required, the Notes may bear the
appropriate legend regarding any original issue discount for federal income tax
purposes. Each Note shall be dated the date of its issuance and shall show the
date of its authentication. Each Note shall have an executed Guarantee from each
of the Subsidiary Guarantors endorsed thereon or attached thereto substantially
in the form of Exhibit E hereto.
The terms and provisions contained in the Notes, annexed hereto as
Exhibits A and B, shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Company, the Subsidiary
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A and Notes offered and
sold in reliance on Regulation S shall be issued initially in the form of one or
more permanent global Notes in registered form, substantially in the form set
forth in Exhibit A (the "Global Note"), deposited with the Trustee, as custodian
for the Depository, duly executed by the Company (and having an executed
Guarantee from each of the Subsidiary Guarantors endorsed thereon) and
authenticated by the Trustee as hereinafter provided and shall bear all the
legends set forth in Section 2.15. The aggregate principal amount of the Global
Note may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depository, as hereinafter
provided.
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Notes issued in exchange for interests in a Global Note pursuant to
Section 2.16 may be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "Physical
Notes") and shall bear the first legend set forth in Section 2.15. All Notes
offered and sold in reliance on Regulation S shall remain in the form of a
Global Note until the consummation of the Exchange Offer pursuant to the
Registration Rights Agreement; provided, however, that all of the time periods
specified in the Registration Rights Agreement to be complied with by the
Company have been so complied with.
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer or an Assistant Secretary (each of whom shall, in each case, have
been duly authorized by all requisite corporate actions) shall attest to, the
Notes for the Company, and the Guarantees for the Subsidiary Guarantors, by
manual or facsimile signature.
If an Officer or Assistant Secretary whose signature is on a Note or a
Guarantee, as the case may be, was an Officer or Assistant Secretary at the time
of such execution but no longer holds that office or position at the time the
Trustee authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue in
the aggregate principal amount not to exceed $150,000,000 in one or more series,
provided that the aggregate principal amount of Initial Notes on the Issue Date
is $80,000,000, (ii) Private Exchange Notes from time to time only in exchange
for a like principal amount of Initial Notes and (iii) Exchange Notes from time
to time only in exchange for (A) a like principal amount of Initial Notes or (B)
a like principal amount of Private Exchange Notes, in each case upon a written
order of the Company in the form of an Officers' Certificate of the Company.
Each such written order shall specify the amount of Notes to be authenticated
and the date on which the Notes are to be authenticated, whether the Notes are
to be Initial Notes, Private Exchange Notes or Exchange Notes and whether
(subject to Section 2.01) the Notes are to be issued as Physical Notes or Global
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Notes or such other information as the Trustee may reasonably request. In
addition, with respect to authentication pursuant to clause (iii) of the first
sentence of this paragraph, the first such written order from the Company shall
be accompanied by an Opinion of Counsel of the Company in a form reasonably
satisfactory to the Trustee stating that the issuance of the Exchange Notes does
not give rise to an Event of Default, complies with this Indenture and has been
duly authorized by the Company. The aggregate principal amount of Notes
outstanding at any time may not exceed $150,000,000, except as provided in
Sections 2.07 and 2.08.
In the event that the Company shall issue and the Trustee shall
authenticate any Notes issued under this Indenture subsequent to the Issue Date
pursuant to clauses (i) and (iii) of the first sentence of the immediately
preceding paragraph, the Company shall use its reasonable efforts to obtain the
same "CUSIP" number for such Notes as is printed on the Notes outstanding at
such time; provided, however, that if any series of Notes issued under this
Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of
Counsel of the Company in a form reasonably satisfactory to the Trustee to be a
different class of security than the Notes outstanding at such time for federal
income tax purposes, the Company may obtain a "CUSIP" number for such Notes that
is different than the "CUSIP" number printed on the Notes then outstanding.
Notwithstanding the foregoing, all Notes issued under this Indenture
shall vote and consent together on all matters (as to which any of such Notes
may vote or consent) as one class and no series of Notes will have the right to
vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent (the "Authenticating
Agent") reasonably acceptable to the Company to authenticate Notes. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with the
Company or with any Affiliate of the Company.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
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SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan in the City of New York, State of New York) where
(a) Notes may be presented or surrendered for registration of transfer or for
exchange ("Registrar"), (b) Notes may be presented or surrendered for payment
("Paying Agent") and (c) notices and demands to or upon the Company in respect
of the Notes and this Indenture may be served. The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company, upon
prior written notice to the Trustee, may have one or more co-Registrars and one
or more additional paying agents reasonably acceptable to the Trustee. The term
"Paying Agent" includes any additional Paying Agent. The Company may act as its
own Paying Agent, except that for the purposes of payments on the Notes pursuant
to Sections 4.14 and 4.15, neither the Company nor any Affiliate of the Company
may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Trustee, in advance, of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such and shall be entitled to appropriate compensation in accordance with
Section 7.07.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of demands and notices in connection with the Notes, until
such time as the Trustee has resigned or a successor has been appointed. Any of
the Registrar, the Paying Agent or any other agent may resign upon 30 days'
notice to the Company. The office of the Paying Agent and Registrar for purposes
of this Section 2.03 shall be at 61 Broadway, 15th Floor, New York, New York
10006.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that such Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, premium, if any, or interest on, the Notes (whether such assets
have been distributed to it by the Company or any other obligor on the Notes),
and the Company and the Paying Agent shall notify the Trustee of any Default by
the Company (or any other obligor on the Notes) in making any such payment. The
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Company at any time may require a Paying Agent to distribute all assets held by
it to the Trustee and account for any assets disbursed and the Trustee may at
any time during the continuance of any payment Default, upon written request to
a Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders. If the Trustee is not the Registrar, the Company shall furnish or
cause the Registrar to furnish to the Trustee five (5) Business Days before each
Interest Payment Date and at such other times as the Trustee may request in
writing a list as of such date and in such form as the Trustee may reasonably
require of the names and addresses of the Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
When Notes are presented to the Registrar or a co-Registrar with a
request to register the transfer of such Notes or to exchange such Notes for an
equal principal amount of Notes or other authorized denominations, the Registrar
or co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; provided, however, that the Notes
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Company, the Trustee and the Registrar or co-Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Notes (and each of the Subsidiary Guarantors shall
execute a Guarantee thereon). No service charge shall be made for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax, fee or similar governmental charge
payable in connection therewith (other than any such transfer taxes or similar
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governmental charge payable upon exchanges or transfers pursuant to Sections
2.10, 3.04, 4.14, 4.15 or 9.05, in which event the Company shall be responsible
for the payment of such taxes).
The Registrar or co-Registrar shall not be required to register the
transfer of or exchange of any Note (i) during a period beginning at the opening
of business 15 days before the mailing of a notice of redemption of Notes and
ending at the close of business on the day of such mailing,(ii) selected for
redemption in whole or in part pursuant to Article Three, except the unredeemed
portion of any Note being redeemed in part or (iii) between a Record Date and
the next succeeding Interest Payment Date.
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Notes may be effected only through a book entry system maintained by
the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a book
entry system.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder of a
Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note and
each of the Subsidiary Guarantors shall execute a Guarantee thereon if the
Trustee's requirements are met. If required by the Trustee or the Company, such
Holder must provide satisfactory evidence of such loss, destruction or taking,
and an indemnity bond or other indemnity of reasonable tenor, sufficient in the
reasonable judgment of the Company, the Subsidiary Guarantors and the Trustee,
to protect the Company, the Subsidiary Guarantors, the Trustee or any Agent from
any loss which any of them may suffer if a Note is replaced. Every replacement
Note shall constitute an obligation of the Company and the Subsidiary
Guarantors. The Company and the Trustee each may charge such Holder for its
expenses in replacing such Note.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those canceled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
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to the provisions of Section 2.09, a Note does not cease to be outstanding
because an Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a mutilated
Note surrendered for replacement), it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Note is held by a
bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of
such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date the Paying Agent holds
U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the
principal, premium, if any, and interest due on the Notes payable on that date
and is not prohibited from paying such money to the Holders thereof pursuant to
the terms of this Indenture, then on and after that date such Notes shall be
deemed not to be outstanding and interest on them shall cease to accrue.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver, consent or notice, Notes owned by
the Company or an Affiliate of the Company shall be considered as though they
are not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes which a Trust Officer of the Trustee actually knows are so owned
shall be so considered. The Company shall notify the Trustee, in writing, when
it or, to its knowledge, any of its Affiliates repurchases or otherwise acquires
Notes, of the aggregate principal amount of such Notes so repurchased or
otherwise acquired and such other information as the Trustee may reasonably
request and the Trustee shall be entitled to rely thereon.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes and the Subsidiary Guarantors
shall prepare temporary Guarantees thereon upon receipt of a written order of
the Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of temporary Notes to be authenticated and the date on
which the temporary Notes are to be authenticated. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
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Company considers appropriate for temporary Notes and so indicate in the
Officers' Certificate. Without unreasonable delay, the Company shall prepare and
execute, the Trustee shall authenticate, and the Subsidiary Guarantors shall
execute Guarantees on, upon receipt of a written order of the Company pursuant
to Section 2.02, definitive Notes in exchange for temporary Notes.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Company, shall dispose,
in its customary manner, of all Notes surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.07, the Company may not issue new
Notes to replace Notes that it has paid or delivered to the Trustee for
cancellation. If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
The Company will pay interest on overdue principal from time to time on
demand at the rate of interest then borne by the Notes. The Company shall, to
the extent lawful, pay interest on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
of interest then borne by the Notes. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months, and, in the case of a partial
month, the actual number of days elapsed.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest, to the Persons who are Holders on a subsequent special
record date, which special record date shall be the fifteenth day next preceding
the date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. The Company shall
notify the Trustee in writing of the amount of defaulted interest proposed to be
paid on each Note and the date of the proposed payment (a "Default Interest
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Payment Date"), and at the same time the Company shall deposit with the Trustee
an amount of money equal to the aggregate amount proposed to be paid in respect
of such defaulted interest or shall make arrangements satisfactory to the
Trustee for such deposit on or prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such defaulted interest as provided in this Section; provided, however, that
in no event shall the Company deposit monies proposed to be paid in respect of
defaulted interest later than 11:00 a.m. New York City time of the proposed
Default Interest Payment Date. At least 15 days before the subsequent special
record date, the Company shall mail (or cause to be mailed) to each Holder, as
of a recent date selected by the Company, with a copy to the Trustee, a notice
that states the subsequent special record date, the payment date and the amount
of defaulted interest, and interest payable on such defaulted interest, if any,
to be paid. Notwithstanding the foregoing, any interest which is paid prior to
the expiration of the 30-day period set forth in Section 6.01(a) shall be paid
to Holders as of the regular record date for the Interest Payment Date for which
interest has not been paid. Notwithstanding the foregoing, the Company may make
payment of any defaulted interest in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange.
SECTION 2.13. CUSIP Numbers.
The Company in issuing the Notes may use one or more "CUSIP" numbers,
and, if so, the Trustee shall use the CUSIP numbers in notices of redemption or
exchange as a convenience to Holders; provided, however, that no representation
is hereby deemed to be made by the Trustee as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Notes, and that reliance may be
placed only on the other identification numbers printed on the Notes. The
Company shall promptly notify the Trustee of any change in the CUSIP numbers.
SECTION 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest Payment Date,
Maturity Date, Redemption Date, Change of Control Payment Date and Net Proceeds
Offer Payment Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
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on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control
Payment Date and Net Proceeds Offer Payment Date, as the case may be, in a
timely manner which permits the Paying Agent to remit payment to the Holders on
such Interest Payment Date, Maturity Date, Redemption Date, Change of Control
Payment Date and Net Proceeds Offer Payment Date, as the case may be.
SECTION 2.15. Restrictive Legends.
Each Global Note and Physical Note that constitutes a Restricted
Security or is sold in compliance with Regulation S shall bear the following
legend (the "Private Placement Legend") on the face thereof until after the
second anniversary of the later of the Issue Date and the last date on which the
Company or any Affiliate of the Company was the owner of such Note (or any
predecessor security) (or such shorter period of time as permitted by Rule
144(k) under the Securities Act or any successor provision thereunder) (or such
longer period of time as may be required under the Securities Act or applicable
state securities laws in the opinion of counsel for the Company, unless
otherwise agreed by the Company and the Holder thereof):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS TWO YEARS
AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE COMPANY THEREOF OR ANY SUBSIDIARY THEREOF, (B) INSIDE
THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE
144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) (AN "ACCREDITED INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
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FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE
ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND
THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER
OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Each Global Note shall also bear the following legend on the face
thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.17 OF THE INDENTURE GOVERNING THIS NOTE.
SECTION 2.16. Book-Entry Provisions for Global Security.
(a) The Global Notes initially shall (i) be registered in the name of
the Depository or the nominee of such Depository, (ii) be delivered to the
Depository or its custodian and (iii) bear legends as set forth in Section 2.15.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Notes, and the Depository may be treated by the Company, the Trustee and
any Agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any Agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers in whole,
but not in part, to the Depository, its successors or their respective nominees.
Interests of beneficial owners in a Global Note may be transferred or exchanged
for Physical Notes in accordance with the rules and procedures of the Depository
and the provisions of Section 2.17. In addition, Physical Notes shall be
transferred to all beneficial owners in exchange for their beneficial interests
in a Global Note if (i) the Depository notifies the Company that it is unwilling
or unable to continue as Depository for the Global Notes and a successor
Depository is not appointed by the Company within 90 days of such notice or (ii)
an Event of Default has occurred and is continuing and the Registrar has
received a written request from the Depository to issue Physical Notes.
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(c) In connection with any transfer or exchange of a portion of the
beneficial interest in a Global Note to beneficial owners pursuant to paragraph
(b), the Registrar shall (if one or more Physical Notes are to be issued)
reflect on its books and records the date and a decrease in the principal amount
of such Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Company shall execute and
the Trustee shall authenticate and deliver, one or more Physical Notes of like
tenor and amount.
(d) In connection with the transfer of an entire Global Note to
beneficial owners pursuant to paragraph (b), such Global Note shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
the Subsidiary Guarantors shall execute Guarantees on and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depository
in exchange for its beneficial interest in the Global Note, an equal aggregate
principal amount of Physical Notes of authorized denominations registered in the
names of such beneficial owners.
(e) Any Physical Note constituting a Restricted Security delivered in
exchange for an interest in a Global Note pursuant to paragraph (b) or (c)
shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section
2.17, bear the Private Placement Legend applicable to the Physical Notes set
forth in Section 2.15.
(f) The Holder of a Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and
Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note constituting
a Restricted Security, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after the second anniversary of the
Issue Date (provided, however, that neither the Company nor any Affiliate of the
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Company has held any beneficial interest in such Note, or portion thereof, at
any time on or prior to the second anniversary of the Issue Date) or (y) (1) in
the case of a transfer to an Institutional Accredited Investor which is not a
QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the
Registrar a certificate substantially in the form of Exhibit C and any legal
opinions and certifications required thereby or (2) in the case of a transfer to
a Non-U.S. Person, the proposed transferor has delivered to the Registrar a
certificate substantially in the form of Exhibit D; and
(ii) if the proposed transferor is an Agent Member holding a beneficial
interest in the Global Note, upon receipt by the Registrar of (x) the
certificate, if any, required by paragraph (i) above and (y) written
instructions given in accordance with the Depository's and the Registrar's
procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of such Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note constituting a
Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer of any Restricted Note,
whether or not such Note bears the Private Placement Legend, if (x) the
requested transfer is after the second anniversary of the Issue Date; provided,
however, that neither the Company nor any Affiliate of the Company has held any
beneficial interest in such Note, or portion thereof, at any time on or prior to
the second anniversary of the Issue Date or (y) if such transfer is being made
by a proposed transferor who has checked the box provided for on the form of
Note stating, or has otherwise advised the Company and the Registrar in writing,
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that the sale has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of Note
stating, or has otherwise advised the Company and the Registrar in writing, that
it is purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such account
is a QIB within the meaning of Rule 144A, and is aware that the sale to it is
being made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the Notes to be
transferred consist of Physical Notes which after transfer are to be evidenced
by an interest in a Global Note, upon receipt by the Registrar of written
instructions given in accordance with the Depository's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date and an
increase in the principal amount of such Global Note in an amount equal to the
principal amount of the Physical Notes to be transferred, and the Trustee shall
cancel the Physical Notes so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless (i) the requested transfer is after the second anniversary of the Issue
Date (provided, however, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Note, or portion thereof, prior
to or on the second anniversary of the Issue Date), or (ii) there is delivered
to the Registrar an Opinion of Counsel reasonably satisfactory to the Company
and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
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The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.16 or this Section 2.17.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time during the
Registrar's normal business hours upon the giving of reasonable written notice
to the Registrar.
(e) Transfers of Notes Held by Affiliates. Any certificate (i)
evidencing a Note that has been transferred to an Affiliate of an Company within
two years after the Issue Date, as evidenced by a notation on the Assignment
Form for such transfer or in the representation letter delivered in respect
thereof or (ii) evidencing a Note that has been acquired from an Affiliate
(other than by an Affiliate) in a transaction or a chain of transactions not
involving any public offering, shall, until two years after the last date on
which either the Company or any Affiliate of the Company was an owner of such
Note, in each case, bear a legend in substantially the form set forth in Section
2.15, unless otherwise agreed by the Company (with written notice thereof to the
Trustee).
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 5 of the
Notes and Section 3.03, it shall notify the Trustee and the Paying Agent in
writing of the Redemption Date and the principal amount of the Notes to be
redeemed.
The Company shall give each notice provided for in this Section 3.01 at
least 30 but not more than 60 days before the Redemption Date (unless a shorter
notice period shall be satisfactory to the Trustee, as evidenced in a writing
signed on behalf of the Trustee), together with an Officers' Certificate stating
that such redemption shall comply with the conditions contained herein and in
the Notes, the Redemption Date, the redemption price and the principal amount of
the Notes to be redeemed.
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If the Company is required to make an offer to redeem Notes pursuant to
the provisions of Section 4.14 or 4.15 hereof, it shall furnish to the Trustee
at least 30 days but not more than 60 days before a Redemption Date (or such
shorter period as may be agreed to by the Trustee in writing), an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the redemption shall occur, (ii) the Redemption Date, (iii) the principal amount
of Notes to be redeemed, (iv) the redemption price and (v) a statement to the
effect that (a) the Company or one of its Subsidiaries has effected an Asset
Sale and the conditions set forth in Section 4.15 have been satisfied or (b) a
Change of Control has occurred and the conditions set forth in Section 4.14 have
been satisfied, as applicable.
SECTION 3.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed as certified to the Trustee by the
Company, or, if such Notes are not then listed on a national securities
exchange, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; provided, however, that no Notes of a principal
amount of U.S. $1,000 or less shall be redeemed in part; provided, further, that
if a partial redemption is made with the proceeds of a Public Equity Offering,
selection of the Notes or portions thereof for redemption shall be made by the
Trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to this Indenture.
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SECTION 3.03. Optional Redemption.
(a) The Notes will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after December 15, 2001, upon not
less than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on December 15 of the year set forth below,
plus, in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
Year Percentage
---- ----------
2001............................ 105.313%
2002............................ 102.656%
2003 and thereafter............. 100.000%
(b) At any time, or from time to time, on or prior to December 15,
2000, the Company may, at its option, use the net cash proceeds of one or more
Public Equity Offerings to redeem up to 35% of the Notes at a redemption price
equal to 110.625% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided that at least 65%
of the principal amount of Notes originally issued remains outstanding
immediately after any such redemption. In order to effect the foregoing
redemption with the proceeds of any Public Equity Offering, the Company shall
make such redemption not more than 90 days after the consummation of any such
Public Equity Offering.
SECTION 3.04. Notice of Redemption.
At least 30 days but not more than 60 days before the Redemption Date,
the Company shall mail or cause to be mailed a notice of redemption by first
class mail to each Holder of Notes to be redeemed at its registered address,
with a copy to the Trustee and any Paying Agent. At the Company's request, the
Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. The Company shall provide such notices of redemption to the
Trustee at least five days before the intended mailing date. In any case,
failure to give such notice or any defect in the notice to the holder of any
Note shall not affect the validity of the proceeding for the redemption of any
other Note.
Each notice of redemption shall identify (including the CUSIP number)
the Notes to be redeemed and shall state:
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(1) the Redemption Date;
(2) the redemption price and the amount of accrued interest, if any, to
be paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such redemption is
being made;
(5) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price plus accrued interest, if any;
(6) that, unless the Company defaults in making the redemption payment,
interest on Notes or applicable portions thereof called for redemption ceases to
accrue on and after the Redemption Date, and the only remaining right of the
Holders of such Notes is to receive payment of the redemption price plus accrued
interest as of the Redemption Date, if any, upon surrender to the Paying Agent
of the Notes redeemed;
(7) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the Redemption Date, and upon
surrender of such Note, a new Note or Notes in the aggregate principal amount
equal to the unredeemed portion thereof will be issued; and
(8) if fewer than all the Notes are to be redeemed, the identification
of the particular Notes (or portion thereof) to be redeemed, as well as the
aggregate principal amount of Notes to be redeemed and the aggregate principal
amount of Notes to be outstanding after such partial redemption.
No representation is made as to the accuracy of the CUSIP numbers
listed in such notice or printed on the Notes.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Notes.
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SECTION 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.04,
such notice of redemption shall be irrevocable and Notes called for redemption
become due and payable on the Redemption Date and at the redemption price plus
accrued interest as of such date, if any. Upon surrender to the Trustee or
Paying Agent, such Notes called for redemption shall be paid at the redemption
price plus accrued interest thereon to the Redemption Date, but installments of
interest, the maturity of which is on or prior to the Redemption Date, shall be
payable to Holders of record at the close of business on the relevant record
dates referred to in the Notes. Interest shall accrue on or after the Redemption
Date and shall be payable only if the Company defaults in payment of the
redemption price.
SECTION 3.06. Deposit of Redemption Price.
On or before 11:00 a.m. New York City time on the Redemption Date and
in accordance with Section 2.14, the Company shall deposit with the Paying Agent
U.S. Legal Tender sufficient to pay the redemption price plus accrued interest,
if any, of all Notes to be redeemed on that date. The Paying Agent shall
promptly return to the Company any U.S. Legal Tender so deposited which is not
required for that purpose, except with respect to monies owed as obligations to
the Trustee pursuant to Article Seven.
Unless the Company fails to comply with the preceding paragraph and
defaults in the payment of such redemption price plus accrued interest, if any,
interest on the Notes to be redeemed will cease to accrue on and after the
applicable Redemption Date, whether or not such Notes are presented for payment.
SECTION 3.07. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the Trustee
shall authenticate for the Holder a new Note or Notes equal in principal amount
to the unredeemed portion of the Note surrendered.
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ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
(a) The Company shall pay the principal of, premium, if any, and
interest on the Notes on the dates and in the manner provided in the Notes and
in this Indenture.
(b) An installment of principal of or interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
the Company or any of its Affiliates) holds, prior to 11:00 a.m. New York City
time on that date, U.S. Legal Tender designated for and sufficient to pay in a
timely manner the installment in full and is not prohibited from paying such
money to the Holders pursuant to the terms of this Indenture or the Notes.
(c) Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required under Section
2.03. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02.
SECTION 4.03. Corporate Existence.
Except as provided in Article Five, the Company shall do or shall cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence and the corporate, partnership or other existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Restricted Subsidiary and
the material rights (charter and statutory) and franchises of the Company and
each such Restricted Subsidiary; provided, however, that the Company shall not
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be required to preserve, with respect to itself, any material right or franchise
and, with respect to any of its Restricted Subsidiaries, any such existence,
material right or franchise, if the Board of Directors of the Company shall
determine in good faith that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries, taken as a
whole.
SECTION 4.04. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon the Company or any of the
Restricted Subsidiaries or properties of the Company or any of the Restricted
Subsidiaries and (ii) all material lawful claims for labor, materials and
supplies that, if unpaid, might by law become a Lien upon the property of the
Company or any of the Restricted Subsidiaries; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate negotiations or
proceedings properly instituted and diligently conducted for which adequate
reserves, to the extent required under GAAP, have been taken.
SECTION 4.05. Maintenance of Properties and Insurance.
(a) The Company shall cause all material properties owned by or leased
to it and its Restricted Subsidiaries and used or useful in the conduct of their
business to be maintained and kept in normal condition, repair and working order
and supplied with all necessary equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company or such Restricted Subsidiary may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company or any of its Restricted
Subsidiaries from discontinuing the use, operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposal is,
in the judgment of the Board of Directors of the Company or of the Board of
Directors of the Restricted Subsidiary concerned, or of an officer (or other
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agent employed by the Company or any of its Restricted Subsidiaries) of the
Company or such Restricted Subsidiary having managerial responsibility for any
such property, desirable in the conduct of the business of the Company or any of
its Restricted Subsidiaries.
(b) The Company shall cause to be provided insurance (including
appropriate self-insurance) against loss or damage of the kinds that, in the
good faith judgment of the Board of Directors or other governing body or officer
of the Company or its Restricted Subsidiaries, as the case may be, are adequate
and appropriate for the conduct of the business of the Company or such
Restricted Subsidiaries, as the case may be, with reputable insurers or with the
government of the United States of America or an agency or instrumentality
thereof, in such amounts, with such deductibles, and by such methods as shall be
customary, in the good faith judgment of the Board of Directors or other
governing body or officer of the Company or such Restricted Subsidiary, as the
case may be, for companies similarly situated in the industry.
SECTION 4.06. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each of the Company's fiscal years, an Officers' Certificate (signed by
the principal executive officer, principal financial officer or principal
accounting officer) stating that a review of its activities and the activities
of its Restricted Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing officers with a view to determining whether
it has kept, observed, performed and fulfilled its obligations under this
Indenture and further stating, as to each such officer signing such certificate,
that to the best of such officers' knowledge the Company during such preceding
fiscal year has kept, observed, performed and fulfilled each and every such
obligation and no Default or Event of Default occurred during such year and at
the date of such certificate there is no Default or Event of Default that has
occurred and is continuing or, if such signers do know of such Default or Event
of Default, the certificate shall describe the Default or Event of Default and
its status with particularity. The Officers' Certificate shall also notify the
Trustee should the Company elect to change the manner in which it fixes its
fiscal year end.
(b) The annual financial statements delivered pursuant to Section 4.08
shall be accompanied by a written report of the Company's independent certified
public accountants (who shall be a firm of established national reputation)
stating (A) that their audit examination has included a review of the terms of
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this Indenture and the form of the Notes as they relate to accounting matters,
and (B) whether, in connection with their audit examination, any Default or
Event of Default has come to their attention and if such a Default or Event of
Default has come to their attention, specifying the nature and period of
existence thereof; provided, however, that, without any restriction as to the
scope of the audit examination, such independent certified public accountants
shall not be liable by reason of any failure to obtain knowledge of any such
Default or Event of Default that would not be disclosed in the course of an
audit examination conducted in accordance with generally accepted auditing
standards.
(c) So long as any of the Notes are outstanding (i) if any Default or
Event of Default has occurred and is continuing or (ii) if any Holder seeks to
exercise any remedy hereunder with respect to a claimed Default under this
Indenture or the Notes, the Company shall promptly deliver to the Trustee by
registered or certified mail or by telegram, telex or facsimile transmission
followed by hard copy by registered or certified mail an Officers' Certificate
specifying such event, notice or other action within five Business Days of its
becoming aware of such occurrence.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each of its Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as could not singly or in the
aggregate reasonably be expected to have a material adverse effect on the
financial condition, business, prospects or results of operations of the Company
and its Restricted Subsidiaries taken as a whole.
SECTION 4.08. Reports to Holders.
The Company will deliver to the Trustee within 15 days after the filing
of the same with the Commission, copies of the quarterly and annual reports and
of the information, documents and other reports, if any, which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be subject to the
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reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will
also comply with the other provisions of TIA ss.314(a).
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury law
or other law that would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it shall not hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been enacted.
SECTION 4.10. Limitation on Restricted Payments.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled maturity, scheduled or mandatory repayment or scheduled sinking fund
payment, any Indebtedness of the Company or its Subsidiaries that is subordinate
or junior in right of payment to the Notes, or (d) make any Investment (other
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than Permitted Investments) (each of the foregoing actions set forth in clauses
(a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the
time of such Restricted Payment or immediately after giving effect thereto, (i)
a Default or an Event of Default shall have occurred and be continuing or (ii)
the Company is not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with Section 4.12 or (iii) the
aggregate amount of Restricted Payments (including such proposed Restricted
Payment) made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of such property as
determined reasonably and in good faith by the Board of Directors of the
Company) shall exceed the sum of: (1) $1,000,000; plus (2)(w) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned commencing on
the first day of the fiscal quarter including the Issue Date, to and including
the last day of the latest fiscal quarter ended immediately prior to the date of
each such calculation subsequent to the Issue Date and on or prior to the date
the Restricted Payment occurs (the "Reference Date") (treating such period as a
single accounting period); plus (x) 100% of the aggregate net cash proceeds
received by the Company from any Person (other than a Subsidiary of the Company)
from the issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of the Company; plus (y) without
duplication of any amounts included in clause (iii)(x) above, 100% of the
aggregate net cash proceeds of any equity contribution received by the Company
from a holder of the Company's Capital Stock (excluding, in the case of clauses
(iii)(x) and (y), any net cash proceeds from a Public Equity Offering to the
extent used to redeem the Notes); plus (z) an amount equal to the sum of (1) any
net reduction subsequent to the Issue Date in Investments in Unrestricted
Subsidiaries resulting from dividends, repayments of loans or advances or other
transfers of assets by any Unrestricted Subsidiary to the Company or any
Restricted Subsidiary or the receipt of proceeds by the Company or any
Restricted Subsidiary from the sale or other disposition of any portion of the
Capital Stock of any Unrestricted Subsidiary, in each case occurring subsequent
to the Issue Date (but without duplication of any such amount included in
Consolidated Net Income), and (2) the consolidated net Investments on the date
of Revocation made by the Company or any of the Restricted Subsidiaries in any
Subsidiary of the Company that has been designated an Unrestricted Subsidiary
after the Issue Date upon its redesignation as a Restricted Subsidiary in
accordance with Section 4.19.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
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or consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or giving of such irrevocable redemption notice if
the dividend or redemption payment, as the case may be, would have been
permitted on the date of declaration or the giving of the irrevocable redemption
notice; (2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of Capital Stock of the Company,
either (i) solely in exchange for shares of Qualified Capital Stock of the
Company or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of the Company)
of shares of Qualified Capital Stock of the Company; (3) if no Default or Event
of Default shall have occurred and be continuing, the acquisition of any
Indebtedness of the Company or a Subsidiary of the Company that is subordinate
or junior in right of payment to the Notes either (i) solely in exchange for
shares of Qualified Capital Stock of the Company, or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Restricted Subsidiary of the Company) of (A) shares of Qualified
Capital Stock of the Company or (B) Refinancing Indebtedness; (4) so long as no
Default or Event of Default shall have occurred and be continuing, repurchases
by the Company of Common Stock of the Company or options to purchase Common
Stock of the Company, stock appreciation rights or any similar equity interest
in the Company from directors and employees of the Company or any of its
Subsidiaries (or their authorized representatives upon the death, disability or
termination of employment of such employees) in an aggregate amount not to
exceed $500,000 in any calendar year; and (5) an investment in PNGI Charlestown
Gaming LLC in an amount not to exceed $5.0 million to be funded with the
proceeds of the offering of the Notes, provided, however, that $4.0 million of
such investment will be funded within 60 days of the Issue Date and the
remaining $1.0 million within 180 days of the Issue Date or as soon as
practicable thereafter or as is permitted by any applicable regulatory
organization. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2)(ii),
(3)(ii)(A), (4) and (5) above shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
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SECTION 4.11. Limitations on Transactions with Affiliates.
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
the Company or such Restricted Subsidiary. All Affiliate Transactions (and each
series of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other property with a fair market value in
excess of $1.0 million shall be approved by the Board of Directors of the
Company or such Restricted Subsidiary, as the case may be, such approval to be
evidenced by a Board Resolution stating that such Board of Directors has
determined that such transaction complies with the foregoing provisions. If the
Company or any Restricted Subsidiary enters into an Affiliate Transaction (or a
series of related Affiliate Transactions related to a common plan) that involves
an aggregate fair market value of more than $5.0 million, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain an opinion stating that such transaction or series of related
transactions are fair to the Company or the relevant Restricted Subsidiary, as
the case may be, from a financial point of view, from an Independent Financial
Advisor.
(b) The restrictions set forth in clause (a) above shall not apply to
(i) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Restricted Subsidiary as determined in good faith by the Company's Board of
Directors; (ii) transactions exclusively between or among the Company and any of
the Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by this
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Indenture; (iii) any agreement as in effect as of the Issue Date or any
amendment thereto or any transaction contemplated thereby (including pursuant to
any amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacements agreement is not more disadvantageous to the Holders
in any material respect than the original agreement as in effect on the Issue
Date; and (iv) Restricted Payments permitted by this Indenture.
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "incur") any Indebtedness
(other than Permitted Indebtedness); provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company or any
Subsidiary Guarantor may incur Indebtedness (including, without limitation,
Acquired Indebtedness) if on the date of the incurrence of such Indebtedness,
after giving effect to the incurrence thereof, the Consolidated Fixed Charge
Coverage Ratio of the Company is greater than (i) 2.25 to 1.0 if the date of
such incurrence is on or prior to December 15, 1998 or (ii) 2.50 to 1.0 if the
date of such incurrence is after December 15, 1998.
The Company will not and will not permit any Subsidiary Guarantor to,
directly or indirectly, in any event incur any Indebtedness which by its terms
(or by the terms of any agreement governing such Indebtedness) is subordinated
to any other Indebtedness of the Company or of such Subsidiary Guarantor, as the
case may be, unless such Indebtedness is also by its terms (or by the terms of
any agreement governing such Indebtedness) made expressly subordinate to the
Notes or the Guarantees of such Subsidiary Guarantor, as the case may be, to the
same extent and in the same manner as such Indebtedness is subordinated pursuant
to subordination provisions that are most favorable to the holders of any other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
SECTION 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
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exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on or
in respect of its Capital Stock; (b) make loans or advances or to pay any
Indebtedness or other obligation owed to the Company or any other Restricted
Subsidiary; or (c) transfer any of its property or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of: (1) applicable law; (2) this Indenture and the
Notes; (3) customary non-assignment provisions of (y) any contract concerning a
Restricted Subsidiary or (z) any lease governing a leasehold interest of any
Restricted Subsidiary; (4) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or assets of the
Person so acquired (including, but not limited to, such Person's direct and
indirect Subsidiaries); (5) agreements existing on the Issue Date to the extent
and in the manner such agreements are in effect on the Issue Date (including the
New Credit Facility); (6) restrictions on the transfer of assets subject to any
Lien permitted under this Indenture imposed by the holder of such Lien; (7) any
agreement or instrument governing the payment of dividends or other
distributions on or in respect of Capital Stock of any Person that is acquired;
or (8) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (4) or (5) above; provided, however, that the provisions relating to
such encumbrance or restriction contained in any such Indebtedness are no less
favorable to the Company in any material respect as determined by the Board of
Directors of the Company in its reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (4) or (5).
SECTION 4.14. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder shall have
the right to require that the Company purchase all or a portion of such Holder's
Notes pursuant to the offer described below (the "Change of Control Offer"), at
a purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, thereon to the date of purchase.
(b) Within 30 days following the date upon which the Change of Control
occurred, the Company shall send, by first class mail, a notice to each Holder
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at such Holder's last registered address, with a copy to the Trustee, which
notice shall govern the terms of the Change of Control Offer. The notice to the
Holders shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Change of Control Offer. Such notice
shall state:
(i) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Notes tendered and not withdrawn shall be accepted for
payment;
(ii) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 30 days nor later than 45 days
from the date such notice is mailed, other than as may be required by law) (the
"Change of Control Payment Date");
(iii) that any Note not tendered shall continue to accrue interest;
(iv) that, unless the Company defaults in making payment therefor, any
Note accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Payment Date;
(v) that Holders electing to have a Note purchased pursuant to a Change
of Control Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date;
(vi) that Holders shall be entitled to withdraw their election if the
Paying Agent receives, not later than the second business day prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the Notes
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased;
(vii) that Holders whose Notes are purchased only in part shall be
issued new Notes in a principal amount equal to the unpurchased portion of the
Notes surrendered; provided, however, that each Note purchased and each new Note
issued shall be in an original principal amount of $1,000 or integral multiples
thereof; and
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(viii) the circumstances and relevant facts regarding such Change of
Control.
On the Change of Control Payment Date, the Company shall, to the extent
permitted by law, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the aggregate Change of Control Payment in respect of
all Notes or portions thereof so tendered and (iii) deliver, or cause to be
delivered, to the Trustee for cancellation the Notes so accepted together with
an Officers' Certificate stating that such Notes or portions thereof have been
tendered to and purchased by the Company. The Paying Agent will promptly either
(x) pay to the Holder against presentation and surrender (or, in the case of
partial payment, endorsement) of the Global Notes or (y) in the case of
Certificated Securities, mail to each Holder of Notes the Change of Control
Payment for such Notes, and the Trustee will promptly authenticate and deliver
to the Holder of the Global Notes a new Global Note or Notes or, in the case of
Physical Notes, mail to each Holder new Certificated Securities, as applicable,
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any, provided that each new Certificated Security will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will notify the
Trustee and the Holders of the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.
Neither the Board of Directors of the Company nor the Trustee may waive
the provisions of this Section 4.14 relating to the Company's obligation to make
a Change of Control Offer or a Holder's right to redemption upon a Change of
Control.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.14, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the provisions of this Section 4.14 by virtue thereof.
SECTION 4.15. Limitation on Asset Sales.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or the
applicable Restricted Subsidiary, as the case may be, receives consideration at
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the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors); (ii) at least 80% of the consideration received
by the Company or the Restricted Subsidiary, as the case may be, from such Asset
Sale shall be in the form of cash or Cash Equivalents and is received at the
time of such disposition; provided, however, that the amount of (A) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or the notes thereto), of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes) that are assumed by the transferee in such Asset Sale and from which the
Company or such Restricted Subsidiary is released and (B) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are converted within 10 business days by the Company or such
Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash
or Cash Equivalents received), shall be deemed to be cash for the purposes of
this provision; and (iii) upon the consummation of an Asset Sale, the Company
shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt thereof either (A) to
prepay any Indebtedness ranking at least pari passu with the Notes or the
Guarantees and, in the case of any such Indebtedness under any revolving credit
facility, effect a permanent reduction in the availability under such revolving
credit facility, (B) to make an investment in properties and assets that replace
the properties and assets that were the subject of such Asset Sale or in
properties and assets that will be used in the business of the Company and its
Restricted Subsidiaries as existing on the Issue Date or in businesses
reasonably related thereto ("Replacement Assets"), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii)(A) and
(iii)(B). On the 271st day after an Asset Sale or such earlier date, if any, as
the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence
(each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash
Proceeds which have not been applied on or before such Net Proceeds Offer
Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next
preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the
Company or such Restricted Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than
30 nor more than 45 days following the applicable Net Proceeds Offer Trigger
Date, from all Holders on a pro rata basis, that amount of Notes equal to the
Net Proceeds Offer Amount at a price equal to 100% of the principal amount of
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the Notes to be purchased, plus accrued and unpaid interest thereon, if any, to
the date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary, as the case
may be, in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect to any such
non-cash consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this Section 4.15. The Company may defer the Net
Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount
equal to or in excess of $5.0 million resulting from one or more Asset Sales (at
which time the entire unutilized Net Proceeds Offer Amount, not just the amount
in excess of $5.0 million, shall be applied as required pursuant to this
paragraph). To the extent the aggregate amount of the Notes tendered pursuant to
the Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company
may use such deficiency for general corporate purposes. Upon completion of such
offer to purchase, the Net Proceeds Offer Amount shall be reset at zero.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and the Restricted Subsidiaries not so transferred for purposes of
this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value of such properties and assets of the Company or the Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company
and its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets received by the Company or any of the Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
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this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown
on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering
Holders will be purchased on a pro rata basis (based on amounts tendered). A Net
Proceeds Offer shall remain open for a period of 20 business days or such longer
period as may be required by law.
The notice, which shall govern the terms of the Net Proceeds Offer,
shall include such disclosures as are required by law and shall state:
(i) that the Net Proceeds Offer is being made pursuant to this Section
4.15;
(ii) the purchase price (including the amount of accrued interest, if
any) to be paid for Notes purchased pursuant to the Net Proceeds Offer and the
Net Proceeds Payment Date;
(iii) that any Note not tendered for payment will continue to accrue
interest in accordance with the terms thereof;
(iv) that, unless the Company defaults on making the payment, any Note
accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue
interest after the Net Proceeds Payment Date;
(v) that Holders accepting the Offer to have their Notes purchased
pursuant to the Net Proceeds Offer will be required to surrender their Notes to
the Paying Agent at the address specified in the notice prior to the close of
business on the Net Proceeds Payment Date;
(vi) that Holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the second
Business Day prior to the Net Proceeds Payment Date, a facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the Notes
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the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased;
(vii) that Holders whose Notes are purchased only in part will be
issued new Notes in a principal amount equal to the unpurchased portion of the
Notes surrendered; provided that each Note purchased and each such new Note
issued shall be in an original principal amount in denominations of $1,000 and
integral multiples thereof;
(viii) any other procedures that a Holder must follow to accept a Net
Proceeds Offer or effect withdrawal of such acceptance; and
(ix) the name and address of the Paying Agent.
On the Net Proceeds Payment Date, the Company shall (i) accept for
payment Notes or portions thereof tendered pursuant to the Net Proceeds Offer in
accordance with this Section 4.15, (ii) deposit timely with the Paying Agent
U.S. Legal Tender sufficient to pay the purchase price, plus accrued interest,
if any, of all Notes to be purchased in accordance with this Section 4.15 and
(iii) deliver to the Trustee Notes so accepted together with an Officers'
Certificate stating the Notes or portions thereof tendered to and accepted for
payment by the Company.
For purposes of this Section 4.15, the Trustee shall act as the Paying
Agent. The Paying Agent shall promptly mail or deliver to the Holders of Notes
so accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such Holders, a new Note equal in principal amount to any
unpurchased portion of the Note surrendered; provided that each such new Note
shall be issued in an original principal amount in denominations of $1,000 and
integral multiples thereof. The Company will send to the Trustee and the Holders
of Notes on or as soon as practicable after the Net Proceeds Payment Date a
notice setting forth the results of the Net Proceeds Offer. Any Notes not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act, if applicable, and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent
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that the provisions of any securities laws or regulations conflict with the
"Asset Sale" provisions of this Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 4.15 by virtue thereof.
SECTION 4.16. Limitation on Preferred Stock of Restricted Subsidiaries.
The Company shall not permit any of its Restricted Subsidiaries to
issue any Preferred Stock (other than to the Company or to a Wholly Owned
Restricted Subsidiary) or permit any Person (other than the Company or a Wholly
Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted
Subsidiary.
SECTION 4.17. Limitation on Liens.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens upon any property or assets of the Company
or any of its Restricted Subsidiaries whether owned on the Issue Date or
acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise
convey any right to receive income or profits therefrom unless (i) in the case
of Liens securing Indebtedness that is expressly subordinate or junior in right
of payment to the Notes or any Guarantee, the Notes and the Guarantees are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (ii) in all other cases, the Notes and the Guarantees
are secured on an equal and ratable basis, except for (a) Liens existing as of
the Issue Date to the extent and in the manner such Liens are in effect on the
Issue Date; (b) Liens securing Indebtedness under the New Credit Facility; (c)
Liens securing the Notes; (d) Liens of the Company or a Restricted Subsidiary on
assets of any Restricted Subsidiary of the Company; (e) Liens securing
Refinancing Indebtedness which is incurred to Refinance any Indebtedness which
has been secured by a Lien permitted under this Indenture and which has been
incurred in accordance with the provisions of this Indenture; provided, however,
that such Liens (A) are no less favorable to the Holders and are not more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being Refinanced and (B) do not extend to or cover
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any property or assets of the Company or any of its Restricted Subsidiaries not
securing the Indebtedness so Refinanced; (f) Liens in favor of the Company; and
(g) Permitted Liens.
SECTION 4.18. Additional Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property to any Restricted Subsidiary that is not a Subsidiary
Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in or hold an Investment in another
Restricted Subsidiary having total consolidated assets with a book value in
excess of $500,000, then such transferee or acquired or other Restricted
Subsidiary shall (a) execute and deliver to the Trustee a supplemental indenture
in form reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the Notes and this Indenture on the terms set forth in this Indenture and
(b) deliver to the Trustee an Opinion of Counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Restricted
Subsidiary and constitutes a legal, valid, binding and enforceable obligation of
such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Subsidiary Guarantor for all purposes of this Indenture. In the event PNGI
Charlestown Gaming LLC is not prohibited from entering into a Guarantee pursuant
to restrictions contained in its operating or other similar agreement in
existence on the Issue Date it shall become a Subsidiary Guarantor as provided
in this paragraph at the time such restriction is no longer applicable.
SECTION 4.19. Limitation on Designations of Unrestricted Subsidiaries.
The Company may designate any Subsidiary of the Company (other than a
Subsidiary of the Company which owns Capital Stock of a Restricted Subsidiary)
as an Unrestricted Subsidiary under this Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under this Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of (i)
fair market value of the Capital Stock of such Subsidiary owned by the Company
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and the Restricted Subsidiaries on such date and (ii) the aggregate amount of
other Investments of the Company and the Restricted Subsidiaries in such
Subsidiary on such date; and
(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12 at the
time of Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
4.10 for all purposes of this Indenture in the Designation Amount. The Company
shall not, and shall not permit any Restricted Subsidiary to, at any time (x)
provide direct or indirect credit support for or a guarantee of any Indebtedness
of any Unrestricted Subsidiary (including of any undertaking, agreement or
instrument evidencing such Indebtedness), (y) be directly or indirectly liable
for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or
indirectly liable for any Indebtedness which provides that the holder thereof
may (upon notice, lapse of time or both) declare a default thereon or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity upon the occurrence of a default with respect to any Indebtedness of
any Unrestricted Subsidiary (including any right to take enforcement action
against such Unrestricted Subsidiary), except, in the case of clause (x) or (y),
to the extent permitted under Section 4.10
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of this Indenture.
All Designations and Revocations must be evidenced by Board Resolutions
of the Company certifying compliance with the foregoing provisions.
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SECTION 4.20. Conduct of Business.
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or related to the businesses in which
the Company and its Restricted Subsidiaries are engaged on the Issue Date.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation
and Sale of Assets.
(a) The Company shall not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and the Restricted Subsidiaries) whether as
an entirety or substantially as an entirety to any Person unless (i) either (a)
the Company shall be the surviving or continuing corporation or (b) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, transfer,
lease, conveyance or other disposition the properties and assets of the Company
and of the Restricted Subsidiaries substantially as an entirety (the "Surviving
Entity") (x) shall be a corporation organized and validly existing under the
laws of the United States, any state thereof or the District of Columbia and (y)
shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the due and
punctual payment of the principal of, and premium, if any, and interest on all
of the Notes and the performance of every covenant of the Notes, this Indenture,
and the Registration Rights Agreement on the part of the Company to be performed
or observed; (ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (i)(b)(y) above (including giving effect to
any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company or
such Surviving Entity, as the case may be, (1) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately
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prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to Section
4.12; (iii) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(b)(y) above
(including, without limitation giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred and be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of this Indenture
and that all conditions precedent in this Indenture relating to such transaction
have been satisfied.
(b) For purposes of this Section 5.01, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries of the Company the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
(c) Each Subsidiary Guarantor (other than any Subsidiary Guarantor
whose Guarantee is to be released in accordance with the terms of the Guarantee
and this Indenture in connection with any transaction complying with the
provisions of Section 4.15) will not, and the Company will not cause or permit
any Subsidiary Guarantor to, consolidate with or merge with or into any Person
other than the Company or any other Subsidiary Guarantor unless: (i) the entity
formed by or surviving any such consolidation or merger is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Subsidiary Guarantor on the Guarantee; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (iv) immediately after giving
effect to such transaction and the use of any proceeds therefrom on a pro forma
basis, the Company could satisfy the provisions of clause (ii) of the first
paragraph of this Section 5.01. Any merger or consolidation of a Subsidiary
Guarantor with and into the Company (with the Company being the
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surviving entity) or another Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company need only comply with clause (iv) of the
first paragraph of this Section 5.01. The Company or the surviving entity shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of this Indenture and that all
conditions precedent in this Indenture relating to such transaction have been
satisfied.
SECTION 5.2. Successor Corporation Substituted.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.01
in which the Company is not the Surviving Entity, the Surviving Entity shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture and the Notes with the same effect as if such
Surviving Entity had been named as such.
ARTICLE SIX
REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" means any of the following events:
(a) the failure to pay interest on any Notes when the same
becomes due and payable and the default continues for a period of 30
days;
(b) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
(c) a default in the observance or performance of any other
covenant or agreement contained in this Indenture which default
continues for a period of 30 days after the Company receives written
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notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Notes (except in the case of a
default with respect to Section 5.01, which will constitute an Event of
Default with such notice requirement but without such passage of time
requirement);
(d) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal
amount of any Indebtedness of the Company or any Restricted Subsidiary
or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has
been accelerated, aggregates $5,000,000 or more at any time;
(e) one or more judgments in an aggregate amount in excess of
$5,000,000 (to the extent not covered by third-party insurance as to
which the insurance company has acknowledged coverage) shall have been
rendered against the Company or any of its Significant Subsidiaries and
such judgments remain undischarged, unpaid or unstayed for a period of
60 days after such judgment or judgments become final and
non-appealable;
(f) the Company or any of its Significant Subsidiaries
pursuant to or under or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding;
(iii) consents to the appointment of a Custodian of
it or for all or substantially all of its property; or
(iv) makes a general assignment for the benefit of
its creditors;
(g) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
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(i) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case or proceeding,
(ii) appoints a Custodian of the Company or any of
its Significant Subsidiaries for all or substantially all of
their properties taken as a whole, or
(iii) orders the liquidation of the Company, the
Company or any of their Significant Subsidiaries,
and in each case the order or decree remains unstayed and in effect for
60 days; or
(h) any of the Guarantees of a Subsidiary Guarantor that is a
Significant Subsidiary ceases to be in full force and effect or any of
such Guarantees is declared to be null and void and unenforceable or
any of such Guarantees is found to be invalid, in each case by a court
of competent jurisdiction in a final non-appealable judgment, or any of
such Subsidiary Guarantors denies its liability under its Guarantee
(other than by reason of release of any such Subsidiary Guarantor in
accordance with the terms of this Indenture).
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
Section 6.01 (f) or (g) with respect to the Company) shall occur and be
continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding Notes may declare the principal of and accrued interest on all the
Notes to be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and the same shall become immediately
due and payable. If an Event of Default specified in Section 6.01 (f) or (g)
with respect to the Company occurs and is continuing, then all unpaid principal
of, and premium, if any, and accrued and unpaid interest on all of the
outstanding Notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration with respect to the
Notes as described in the preceding paragraph, the Holders of a majority in
principal amount of the Notes may rescind and cancel such declaration and its
consequences (a) if the rescission would not conflict with any judgment or
decree, (b) if all existing Events of Default have been cured or waived except
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nonpayment of principal or interest that has become due solely because of the
acceleration, (c) to the extent the payment of such interest is lawful, interest
on overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (d) if the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (e) in the event of the
cure or waiver of an Event of Default of the type described in Section 6.01, the
Trustee shall have received an Officers' Certificate and an opinion of counsel
that such Event of Default has been cured or waived. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies.
(a) If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of the principal of, premium, if any, or interest on the Notes or to
enforce the performance of any provision of the Notes or this Indenture.
(b) All rights of action and claims under this Indenture or the Notes
may be enforced by the Trustee even if it does not possess any of the Notes or
does not produce any of them in the proceeding. A delay or omission by the
Trustee or any Holder in exercising any right or remedy accruing upon an Event
of Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Prior to the acceleration of the Notes, the Holders of a majority in
aggregate principal amount of the Notes then outstanding by notice to the
Trustee may, on behalf of the Holders of all the Notes, waive any existing
Default or Event of Default and its consequences under this Indenture, except a
Default or Event of Default specified in Section 6.01(a) or (b) or in respect of
any provision hereof which cannot be modified or amended without the consent of
the Holder so affected pursuant to Section 9.02. When a Default or Event of
Default is so waived, it shall be deemed cured and shall cease to exist. This
Section 6.04 shall be in lieu of ss.316(a)(1)(B) of the TIA and such ss.
316(a)(1)(B) of the TIA is hereby expressly excluded from this Indenture and the
Notes, as permitted by the TIA.
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SECTION 6.05. Control by Majority.
Holders of the Notes may not enforce this Indenture or the Notes except
as provided in this Article Six and under the TIA. The Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee, provided, however, that the Trustee may refuse to follow any direction
(a) that conflicts with any rule of law or this Indenture, (b) that the Trustee,
in its sole discretion, determines may be unduly prejudicial to the rights of
another Holder, or (c) that may expose the Trustee to personal liability for
which adequate indemnity provided to the Trustee against such liability is not
reasonably assured to it; provided, further, however, that the Trustee may take
any other action deemed proper by the Trustee that is not inconsistent with such
direction or this Indenture. This Section 6.05 shall be in lieu of ss.
316(a)(1)(A) of the TIA, and such ss.316(a)(1)(A) of the TIA is hereby
expressly excluded from this Indenture and the Notes, as permitted by the TIA.
SECTION 6.06. Limitation on Suits.
No Holder of any Notes shall have any right to institute any proceeding
with respect to this Indenture or the Notes or any remedy hereunder, unless the
Holders of at least 25% in aggregate principal amount of the outstanding Notes
have made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee under the Notes and this Indenture, the
Trustee has failed to institute such proceeding within 30 days after receipt of
such notice, request and offer of indemnity and the Trustee, within such 30-day
period, has not received directions inconsistent with such written request by
Holders of a majority in aggregate principal amount of the outstanding Notes.
The foregoing limitations shall not apply to a suit instituted by a
Holder of a Note for the enforcement of the payment of the principal of,
premium, if any, or interest on, such Note on or after the respective due dates
expressed or provided for in such Note.
A Holder may not use this Indenture to prejudice the rights of any
other Holders or to obtain priority or preference over such other Holders.
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SECTION 6.07. Right of Holders To Receive Payment.
Notwithstanding any other provision in this Indenture, the right of any
Holder of a Note to receive payment of the principal of, premium, if any, and
interest on such Note, on or after the respective due dates expressed or
provided for in such Note, or to bring suit for the enforcement of any such
payment on or after the respective due dates, is absolute and unconditional and
shall not be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default specified in clause (a) or (b) of Section 6.01
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company, or any other obligor on the
Notes for the whole amount of the principal of, premium, if any, and accrued
interest remaining unpaid, together with interest on overdue principal and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum provided for by the
Notes and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and any other
amounts due the Trustee pursuant to the provisions of Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents, counsel, accountants and experts) and
the Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
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deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six it shall
pay out such money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the
cost and expenses of collection;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Notes for interest;
Third: to Holders for the principal amounts (including any
premium) owing under the Notes, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Notes for
the principal (including any premium); and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court may in its discretion require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to any suit by the Trustee, any suit by a
Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than
10% in aggregate principal amount of the outstanding Notes.
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise thereof as a prudent
person would exercise or use under the circumstances in the conduct of his own
affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to the
Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions that by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
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(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01 and
Section 7.02.
(f) The Trustee shall not be liable for interest on any money or assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in
acting or refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel of its selection and may require an Officers'
Certificate or an Opinion of Counsel, which shall conform to Sections
11.04 and 11.05. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Trustee may consult with counsel
and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in
respect to any action taken, suffered or omitted by it hereunder in
good faith and in reliance thereon.
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(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action that it
takes or omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent,
order, bond, debenture, or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled, upon reasonable notice to the Company, to examine the books,
records, and premises of the Company, personally or by agent or
attorney and to consult with the officers and representatives of the
Company, including the Company's accountants and attorneys.
(f) The Trustee shall be under no obligation to exercise any
of its rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders pursuant to the provisions of
this Indenture, unless such Holders have offered to the Trustee
reasonable indemnity satisfactory to the Trustee against the costs,
expenses and liabilities which may be incurred by it in compliance with
such request, order or direction.
(g) The Trustee shall not be required to give any bond or
surety in respect of the performance of its powers and duties
hereunder.
(h) Delivery of reports, information and documents to the
Trustee under Section 4.08 is for informational purposes only and the
Trustee's receipt of the foregoing shall not constitute constructive
notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with
any of their covenants hereunder (as to which the Trustee is entitled
to rely exclusively on Officers' Certificates).
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SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company, the Company,
or any of the Subsidiaries, or their respective Affiliates with the same rights
it would have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Notes, and it shall not be accountable for the Company's
use of the proceeds from the Notes, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement of the Company in this
Indenture or the Notes other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if it
is known to a Trust Officer, the Trustee shall mail to each Holder notice of the
uncured Default or Event of Default within 90 days after obtaining knowledge
thereof. Except in the case of a Default or an Event of Default in payment of
principal of, or interest on, any Note, including an accelerated payment, a
Default in payment on the Change of Control Payment Date pursuant to a Change of
Control Offer or on the Net Proceeds Offer Payment Date pursuant to a Net
Proceeds Offer and a Default in compliance with Article Five hereof, the Trustee
may withhold the notice if and so long as its Board of Directors, the executive
committee of its Board of Directors or a committee of its directors and/or Trust
Officers in good faith determines that withholding the notice is in the interest
of the Holders. The foregoing sentence of this Section 7.05 shall be in lieu of
the proviso to ss.315(b) of the TIA and such proviso to ss.315(b) of the TIA
is hereby expressly excluded from this Indenture and the Notes, as permitted by
the TIA.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after May 15 of each year beginning with 1998, the
Trustee shall, to the extent that any of the events described in TIA ss.313(a)
occurred within the previous twelve months, but not otherwise, mail to each
Holder a brief report dated as of such date that complies with TIA ss.313(a).
The Trustee also shall comply with TIA ss.313(b), (c) and (d).
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A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the Commission and each stock exchange, if
any, on which the Notes are listed.
The Company shall promptly notify the Trustee if the Notes
become listed on any stock exchange and the Trustee shall comply with TIA
ss.313(d).
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its services as has been agreed to in writing signed by the
Company and the Trustee. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it in connection with the performance of its duties under
this Indenture. Such expenses shall include the reasonable fees and expenses of
the Trustee's agents, counsel, accountants and experts.
The Company shall indemnify each of the Trustee (or any predecessor
Trustee) and its agents, employees, stockholders, Affiliates and directors and
officers for, and hold them each harmless against, any and all loss, liability,
damage, claim or expense (including reasonable fees and expenses of counsel),
including taxes (other than taxes based on the income of the Trustee) incurred
by them except for such actions to the extent caused by any negligence, bad
faith or willful misconduct on their part, arising out of or in connection with
the acceptance or administration of this trust including the reasonable costs
and expenses of defending themselves against any claim or liability in
connection with the exercise or performance of any of their rights, powers or
duties hereunder. The Trustee shall notify the Company promptly of any claim
asserted against the Trustee for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
Obligations hereunder except to the extent such failure shall have prejudiced
the Company. At the Trustee's sole discretion, the Company shall defend the
claim and the Trustee shall cooperate and may participate in the defense;
provided, however, that any settlement of a claim shall be approved in writing
by the Trustee if such settlement would result in an admission of liability by
the Trustee or if such settlement would not be accompanied by a full release of
the Trustee for all liability arising out of the events giving rise to such
claim. Alternatively, the Trustee may at its option have separate counsel of its
own choosing and the Company shall pay the reasonable fees and expenses of such
counsel.
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To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all assets or money held or
collected by the Trustee, in its capacity as Trustee, except assets or money
held in trust to pay principal of or premium, if any, or interest on particular
Notes.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(f) occurs, such expenses and the compensation
for such services are intended to constitute expenses of administration under
any Bankruptcy Law.
The provisions of this Section 7.07 shall survive the termination of
this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee and appoint a successor Trustee with the Company's consent, by so
notifying the Company and the Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in aggregate principal
amount of the outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The Company shall mail notice of such successor Trustee's appointment
to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in aggregate principal amount of the outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding any resignation or replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, however, that
such corporation shall be otherwise qualified and eligible under this Article
Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA ss.310(a)(1), (2) and (5). The Trustee (or, in the case
of a Trustee that is a subsidiary of another Bank or a corporation included in a
bank holding company system, the related bank or bank holding company) shall
have a combined capital and surplus of at least $100,000,000 million as set
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forth in its most recent published annual report of condition, and have a
Corporate Trust Office in the City of New York. In addition, if the Trustee is a
subsidiary of another Bank or a corporation included in a bank holding company
system, the Trustee, independently of such bank or bank holding company, shall
meet the capital requirements of TIA ss.310(a)(2). The Trustee shall comply
with TIA ss.310(b); provided, however, that there shall be excluded from the
operation of TIA ss.310(b)(1) any indenture or indentures under which other
securities, or certificates of interest or participation in other securities, of
the Company are outstanding, if the requirements for such exclusion set forth in
TIA ss.310(b)(1) are met. The provisions of TIA ss.310 shall apply to the
Company, as obligor of the Notes.
SECTION 7.11. Preferential Collection of
Claims Against Company.
The Trustee shall comply with TIA ss.311(a), excluding any creditor
relationship listed in TIA ss.311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss.311(a) to the extent indicated therein.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of Company's Obligations.
This Indenture will be discharged and will cease to be of further
effect (except as to surviving rights or registration of transfer or exchange of
the Notes, as expressly provided for in this Indenture) as to all outstanding
Notes when (a) either (i) all Notes, theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient in the opinion of a nationally recognized firm of independent public
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accountants, to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (b)
the Company has paid all other sums payable under this Indenture by the Company;
and (c) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with; provided, however, that such counsel may rely, as to matters of fact, on a
certificate or certificates of officers of the Company.
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for (a) the rights of
Holders to receive payments in respect of the principal of, premium, if any, and
interest on the Notes when such payments are due, (b) the Company's obligations
with respect to the Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
office or agency for payments, (c) the rights, powers, trust, duties and
immunities of the Trustee and the Company's obligations in connection therewith
and (d) the Legal Defeasance provisions of this Section 8.01. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company released with respect to covenants contained in Sections 4.04, 4.08 and
4.10 through 4.19 and Article Five ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event of Covenant Defeasance, those
events described under Section 6.01 (except those events described in Section
6.01(a),(b),(f) and (g)) will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders cash in United States dollars,
non-callable U.S. Government Obligations, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
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recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable Redemption Date, as the case may
be;
(b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and in
either case, and (iii) the Holders will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event
of Default with respect to this Indenture resulting from the incurrence
of Indebtedness, all or a portion of which will be used to defease the
Notes concurrently with such incurrence) or insofar as Events of
Default under Section 6.01(f) or (g) from bankruptcy or insolvency
events are concerned at any time in the period ending on the 91st day
after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture (other than a Default or Event of Default with respect to
this Indenture resulting from the incurrence of Indebtedness, all or a
portion of which will be used to defease the Notes concurrently with
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such incurrence) or any other material agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance, as the case may be, have been complied
with; and
(h) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that, subject to customary assumptions and
conclusions after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable federal, New York
or Pennsylvania bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally.
Notwithstanding the foregoing, the opinion of counsel required by
clauses (b)(i) and (c) above need not be delivered if all the Notes not
theretofore delivered to the Trustee for cancellation (i) have become due and
payable, (ii) will become due and payable on the maturity date within one year,
or (iii) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by such
Trustee in the name, and at the expense, of the Company.
SECTION 8.02. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or
U.S. Government Obligations deposited with it pursuant to Section 8.01, and
shall apply the deposited U.S. Legal Tender and the money from U.S. Government
Obligations in accordance with this Indenture to the payment of the principal of
and interest on the Notes. The Trustee shall be under no obligation to invest
said U.S. Legal Tender or U.S. Government Obligations.
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The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Legal Tender or U.S. Government
Obligations deposited pursuant to Section 8.01 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of outstanding Notes.
SECTION 8.03. Repayment to the Company.
Subject to Sections 7.07 and 8.01, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess U.S. Legal Tender or
U.S. Government Obligations held by them at any time and thereupon shall be
relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for one year;
provided, however, that the Company shall, if requested by the Trustee or Paying
Agent, give to the Trustee or Paying Agent, indemnification reasonably
satisfactory to it against any and all liability which may be incurred by it by
reason of such paying; provided, further, that the Trustee or such Paying Agent,
before being required to make any payment, may at the expense of the Company
cause to be published once in a newspaper of general circulation in the City of
New York or mail to each Holder entitled to such money notice that such money
remains unclaimed and that after a date specified therein which shall be at
least 30 days from the date of such publication or mailing any unclaimed balance
of such money then remaining will be repaid to the Company. After payment to the
Company, Holders entitled to such money must look to the Company for payment as
general creditors unless an applicable law designates another Person, and all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
SECTION 8.04. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender
or U.S. Government Obligations in accordance with Section 8.01 by reason of any
legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to Section
8.01 until such time as the Trustee or Paying Agent is permitted to apply all
such U.S. Legal Tender or U.S. Government Obligations in accordance with Section
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8.01; provided, however, that if the Company has made any payment of interest on
or principal of any Notes because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the U.S. Legal Tender or U.S. Government Obligations
held by the Trustee or Paying Agent.
SECTION 8.05. Acknowledgment of
Discharge by Trustee.
After (i) the conditions of Section 8.01 have been satisfied, (ii) the
Company has paid or caused to be paid all other sums payable hereunder by the
Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified in Section 8.01,
provided the legal counsel delivering such Opinion of Counsel may rely as to
matters of fact on one or more Officers' Certificates of the Company.
ARTICLE NINE
MODIFICATION OF THE INDENTURE
SECTION 9.01. Without Consent of Holders.
Subject to the provisions of Section 9.02, the Company, the Subsidiary
Guarantors and the Trustee may amend, waive or supplement this Indenture without
notice to or consent of any Holder: (a) to cure any ambiguity, defect or
inconsistency; (b) to comply with Section 5.01 of this Indenture; (c) to provide
for uncertificated Notes in addition to certificated Notes; (d) to comply with
any requirements of the Commission in order to effect or maintain the
qualification of this Indenture under the TIA; or (e) to make any change that
would provide any additional benefit or rights to the Holders or that does not
adversely affect the rights of any Holder. Notwithstanding the foregoing, the
Trustee, the Subsidiary Guarantors and the Company may not make any change
pursuant to this Section 9.01 that adversely affects the rights of any Holder
under this Indenture without the consent of such Holder. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such evidence
as it deems appropriate, including, without limitation, solely on an Opinion of
Counsel.
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Upon the request of the Company and the Subsidiary Guarantors
accompanied by a Board Resolution authorizing the execution of any such amended
or supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06, the Trustee shall join with the Company and the
Subsidiary Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations which may be therein contained, but the
Trustee may but shall not be obligated to enter into such amended or
supplemental Indenture which affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.02. With Consent of Holders.
The Company, the Subsidiary Guarantors and the Trustee may amend or
supplement this Indenture or the Notes or any amended or supplemental Indenture
with the written consent of the Holders of Notes of not less than a majority in
aggregate principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Upon the request of the Company and the Subsidiary Guarantors
accompanied by a Board Resolution authorizing the execution of any such amended
or supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 9.06, the
Trustee shall join with the Company and the Subsidiary Guarantors in the
execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its sole
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
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After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amended or supplemental Indenture
or waiver. Subject to Sections 6.04 and 6.07, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance in
a particular instance by the Company with any provision of this Indenture or the
Notes. However, without the consent of each Holder of the Notes affected
thereby, an amendment or waiver may not, directly or indirectly: (i) reduce the
amount of Notes whose Holders must consent to an amendment; (ii) reduce the rate
of or change or have the effect of changing the time for payment of premium, if
any, and interest, including defaulted interest, on any Notes; (iii) reduce the
principal of or change or have the effect of changing the fixed maturity of any
Notes, or change the date on which any Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor; (iv) make any
Notes payable in money other than that stated in the Notes; (v) make any change
in provisions of this Indenture protecting the right of each Holder to receive
payment of premium, if any, principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment, or permitting
Holders of a majority in principal amount of the Notes to waive Defaults or
Events of Default; (vi) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control which has occurred or make and consummate a Net
Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; (vii) modify
or change any provision of this Indenture or the related definitions affecting
the ranking of the Notes or any Guarantee in a manner which adversely affects
the Holders; or (viii) release any Subsidiary Guarantor from any of its
obligations under its Guarantee of this Indenture otherwise than in accordance
with the terms of this Indenture.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect; provided, however, that this
Section 9.03 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
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SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver. An amendment, supplement
or waiver becomes effective upon receipt by the Trustee of such Officers'
Certificate and evidence of consent by the Holders of the requisite percentage
in principal amount of outstanding Notes.
The Company may, but shall not be obligated to, fix a Record Date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a Record Date is fixed, then notwithstanding the second
sentence of the immediately preceding paragraph, those Persons who were Holders
at such Record Date (or their duly designated proxies), and only those Persons,
shall be entitled to revoke any consent previously given, whether or not such
Persons continue to be Holders after such Record Date. No such consent shall be
valid or effective for more than 90 days after such Record Date unless consents
from Holders of the requisite percentage in principal amount of outstanding
Notes required hereunder for the effectiveness of such consents shall have also
been given and not revoked within such 90-day period.
SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of such Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determine, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms.
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SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided, however, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. In executing such amendment, supplement or waiver the Trustee shall
be entitled to receive indemnity reasonably satisfactory to it, and shall be
fully protected in relying upon an Opinion of Counsel and an Officers'
Certificate of the Company, stating that no Event of Default shall occur as a
result of such amendment, supplement or waiver and that the execution of such
amendment, supplement or waiver is authorized or permitted by this Indenture,
provided, however, that the legal counsel delivering such Opinion of Counsel may
rely as to matters of fact on one or more Officers' Certificates of the Company.
Such Opinion of Counsel shall not be an expense of the Trustee.
ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01. Unconditional Guarantee.
Subject to the provisions of this Article Ten, each Subsidiary
Guarantor hereby, jointly and severally, unconditionally and irrevocably
guarantees, on a senior unsecured basis (such guarantee to be referred to herein
as a "Guarantee") to each Holder of a Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of this Indenture, the Notes or the obligations of
the Company or any other Subsidiary Guarantor to the Holders or the Trustee
hereunder or thereunder, that: (a) the principal of, premium, if any, and
interest on the Notes (and any Additional Interest payable thereon) shall be
duly and punctually paid in full when due, whether at maturity, upon redemption
at the option of Holders pursuant to the provisions of the Notes relating
thereto, by acceleration or otherwise, and interest on the overdue principal and
(to the extent permitted by law) interest, if any, on the Notes and all other
obligations of the Company or the Subsidiary Guarantors to the Holders or the
Trustee hereunder or thereunder (including amounts due the Trustee under Section
7.07) and all other obligations shall be promptly paid in full or performed, all
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in accordance with the terms hereof and thereof; and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, the same shall be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed,
or failing performance of any other obligation of the Company to the Holders
under this Indenture or under the Notes, for whatever reason, each Subsidiary
Guarantor shall be obligated to pay, or to perform or cause the performance of,
the same immediately. An Event of Default under this Indenture or the Notes
shall constitute an event of default under this Guarantee, and shall entitle the
Holders of Notes to accelerate the obligations of the Subsidiary Guarantors
hereunder in the same manner and to the same extent as the obligations of the
Company.
Each of the Subsidiary Guarantors hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, any release of any other Subsidiary
Guarantor, the recovery of any judgment against the Company, any action to
enforce the same, whether or not a Guarantee is affixed to any particular Note,
or any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a Subsidiary Guarantor. Each of the Subsidiary
Guarantors hereby waives the benefit of diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenants that its Guarantee
shall not be discharged except by complete performance of the obligations
contained in the Notes, this Indenture and this Guarantee. This Guarantee is a
guarantee of payment and not of collection. If any Holder or the Trustee is
required by any court or otherwise to return to the Company or to any Subsidiary
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or such Subsidiary Guarantor, any amount paid
by the Company or such Subsidiary Guarantor to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Subsidiary Guarantor further agrees that, as between it,
on the one hand, and the Holders of Notes and the Trustee, on the other hand,
(a) subject to this Article Ten, the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Six for the purposes of this
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Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (b) in
the event of any acceleration of such obligations as provided in Article Six,
such obligations (whether or not due and payable) shall forthwith become due and
payable by the Subsidiary Guarantors for the purpose of this Guarantee.
No stockholder, officer, director, employee or incorporator, past,
present or future, or any Subsidiary Guarantor, as such, shall have any personal
liability under this Guarantee by reason of his, her or its status as such
stockholder, officer, director, employee or incorporator.
Each Subsidiary Guarantor that makes a payment or distribution under
its Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor, determined in accordance with GAAP.
SECTION 10.02. Limitations on Guarantees.
The obligations of any Subsidiary Guarantor under its Guarantee are
limited to the maximum amount which, after giving effect to all other contingent
and fixed liabilities of the Subsidiary Guarantor will result in the obligations
of the Subsidiary Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under any laws of the United States, any state
of the United States or the District of Columbia.
SECTION 10.03. Execution and Delivery of
Guarantee.
To further evidence the Guarantee set forth in Section 10.01, each
Subsidiary Guarantor hereby agrees that a notation of such Guarantee,
substantially in the form of Exhibit E, shall be endorsed on each Note
authenticated and delivered by the Trustee. Such Guarantee shall be executed on
behalf of each Subsidiary Guarantor by either manual or facsimile signature of
one Officer of the Subsidiary Guarantor, who shall have been duly authorized to
so execute by all requisite corporate action. The validity and enforceability of
any Guarantee shall not be affected by the fact that it is not affixed to any
particular Note. Each of the Subsidiary Guarantors hereby agrees that its
Guarantee set forth in Section 10.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Guarantee.
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If an Officer of a Subsidiary Guarantor whose signature is on this
Indenture or a Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which such Guarantee is endorsed or at any time
thereafter, such Subsidiary Guarantor's Guarantee of such Note shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of each Subsidiary Guarantor.
SECTION 10.04. Release of Subsidiary Guarantors.
(a) If no Default or Event of Default exists under this Indenture or
would be caused thereby, upon (i) the sale or other disposition of all of the
Capital Stock of any Subsidiary Guarantor (or all or substantially all of the
assets of any Subsidiary Guarantor) by the Company or any of its Restricted
Subsidiaries, or (ii) the sale or disposition of all or substantially all of the
assets of any Subsidiary Guarantor in compliance with all of the terms of this
Indenture, such Subsidiary Guarantor's Guarantee shall be released, and such
Subsidiary Guarantor shall be deemed released from all obligations under this
Article Ten without any further action required on the part of the Trustee or
any Holder. If such Subsidiary Guarantor is not so released such Subsidiary
Guarantor or the entity surviving such Subsidiary Guarantor, as applicable,
shall remain or be liable under its Guarantee as provided in this Article Ten.
(b) The Trustee shall deliver an appropriate instrument evidencing the
release of the Subsidiary Guarantor upon receipt of a request by the Company or
the Subsidiary Guarantor accompanied by an Officers' Certificate and an Opinion
of Counsel certifying as to the compliance with this Section 10.04, provided the
legal counsel delivering such Opinion of Counsel may rely as to matters of fact
on one or more Officers Certificates of the Company.
The Trustee shall execute any documents reasonably requested by the
Company or the Subsidiary Guarantor in order to evidence the release of the
Subsidiary Guarantor from its obligations under its Guarantee endorsed on the
Notes and under this Article Eleven.
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Except as set forth in Articles Four and Five and this Section 10.04,
nothing contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of the Subsidiary Guarantor with or into the Company or
shall prevent any sale or conveyance of the property of the Subsidiary Guarantor
as an entirety or substantially as an entirety to the Company.
SECTION 10.05. Waiver of Subrogation.
Until this Indenture is discharged and all of the Notes are discharged
and paid in full, each Subsidiary Guarantor hereby irrevocably waives and agrees
not to exercise any claim or other rights which it may now or hereafter acquire
against the Company that arise from the existence, payment, performance or
enforcement of the Company's obligations under the Notes or this Indenture and
such Subsidiary Guarantor's obligations under this Guarantee and this Indenture,
in any such instance including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, and any right to
participate in any claim or remedy of the Holders against the Company, whether
or not such claim, remedy or right arises in equity, or under contract, statute
or common law, including, without limitation, the right to take or receive from
the Company, directly or indirectly, in cash or other property or by set-off or
in any other manner, payment or security on account of such claim or other
rights. If any amount shall be paid to any Subsidiary Guarantor in violation of
the preceding sentence and any amounts owing to the Trustee or the Holders of
Notes under the Notes, this Indenture, or any other document or instrument
delivered under or in connection with such agreements or instruments, shall not
have been paid in full, such amount shall have been deemed to have been paid to
such Subsidiary Guarantor for the benefit of, and held in trust for the benefit
of, the Trustee or the Holders and shall forthwith be paid to the Trustee for
the benefit of itself or such Holders to be credited and applied to the
obligations in favor of the Trustee or the Holders, as the case may be, whether
matured or unmatured, in accordance with the terms of this Indenture. Each
Subsidiary Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and that
the waiver set forth in this Section 10.05 is knowingly made in contemplation of
such benefits.
SECTION 10.06. Immediate Payment.
Each Subsidiary Guarantor agrees to make immediate payment to the
Trustee on behalf of the Holders of all Obligations owing or payable to the
respective Holders upon receipt of a demand for payment therefor by the Trustee
to such Subsidiary Guarantor in writing.
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SECTION 10.07. Obligations Continuing.
The obligations of each Subsidiary Guarantor hereunder shall be
continuing and shall remain in full force and effect until all the obligations
have been paid and satisfied in full. Each Subsidiary Guarantor agrees with the
Trustee that it will from time to time deliver to the Trustee suitable
acknowledgments of this continued liability hereunder.
SECTION 10.08. Obligations Reinstated.
The obligations of each Subsidiary Guarantor hereunder shall continue
to be effective or shall be reinstated, as the case may be, if at any time any
payment which would otherwise have reduced the obligations of any Subsidiary
Guarantor hereunder (whether such payment shall have been made by or on behalf
of the Company or by or on behalf of a Subsidiary Guarantor) is rescinded or
reclaimed from any of the Holders upon the insolvency, bankruptcy, liquidation
or reorganization of the Company or any Subsidiary Guarantor or otherwise, all
as though such payment had not been made. If demand for, or acceleration of the
time for, payment by the Company is stayed upon the insolvency, bankruptcy,
liquidation or reorganization of the Company, all such Indebtedness otherwise
subject to demand for payment or acceleration shall nonetheless be payable by
each Subsidiary Guarantor as provided herein.
SECTION 10.09. Obligations Not Affected.
The obligations of each Subsidiary Guarantor hereunder shall not be
affected, impaired or diminished in any way by any act, omission, matter or
thing whatsoever, occurring before, upon or after any demand for payment
hereunder (and whether or not known or consented to by any Subsidiary Guarantor
or any of the Holders) which, but for this provision, might constitute a whole
or partial defense to a claim against any Subsidiary Guarantor hereunder or
might operate to release or otherwise exonerate any Subsidiary Guarantor from
any of its obligations hereunder or otherwise affect such obligations, whether
occasioned by default of any of the Holders or otherwise.
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SECTION 10.10. Waiver.
Without in any way limiting the provisions of Section 10.01 hereof,
each Subsidiary Guarantor hereby waives notice or proof of reliance by the
Holders upon the obligations of any Subsidiary Guarantor hereunder, and
diligence, presentment, demand for payment on the Company, protest or notice of
dishonor of any of the Obligations, or other notice or formalities to the
Company of any kind whatsoever.
SECTION 10.11. No Obligation To Take Action
Against the Company.
Neither the Trustee nor any other Person shall have any obligation to
enforce or exhaust any rights or remedies or to take any other steps under any
security for the Obligations or against the Company or any other Person or any
property of the Company or any other Person before the Trustee is entitled to
demand payment and performance by any or all Subsidiary Guarantors of their
liabilities and obligations under their Guarantees or under this Indenture.
SECTION 10.12. Dealing with the Company and Others.
The Holders, without releasing, discharging, limiting or
otherwise affecting in whole or in part the obligations and liabilities of any
Subsidiary Guarantor hereunder and without the consent of or notice to any
Subsidiary Guarantor, may
(a) grant time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person;
(b) take or abstain from taking security or collateral from
the Company or from perfecting security or collateral of the Company;
(c) release, discharge, compromise, realize, enforce or
otherwise deal with or do any act or thing in respect of (with or
without consideration) any and all collateral, mortgages or other
security given by the Company or any third party with respect to the
obligations or matters contemplated by this Indenture or the Notes;
(d) accept compromises or arrangements from the Company;
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(e) apply all monies at any time received from the Company or
from any security upon such part of the Obligations as the Holders may
see fit or change any such application in whole or in part from time to
time as the Holders may see fit; and
(f) otherwise deal with, or waive or modify their right to
deal with, the Company and all other Persons and any security as the
Holders or the Trustee may see fit.
SECTION 10.13. Default and Enforcement.
If any Subsidiary Guarantor fails to pay in accordance with Section
10.06, the Trustee may proceed in its name as trustee hereunder in the
enforcement of the Guarantee of any such Subsidiary Guarantor and such
Subsidiary Guarantor's obligations thereunder and hereunder by any remedy
provided by law, whether by legal proceedings or otherwise, and to recover from
such Subsidiary Guarantor the obligations.
SECTION 10.14. Amendment, Etc.
No amendment, modification or waiver of any provision of this Indenture
relating to any Subsidiary Guarantor or consent to any departure by any
Subsidiary Guarantor or any other Person from any such provision will in any
event be effective unless it is signed by such Subsidiary Guarantor and the
Trustee.
SECTION 10.15. Acknowledgment.
Each Subsidiary Guarantor hereby acknowledges communication of the
terms of this Indenture and the Notes and consents to and approves of the same.
SECTION 10.16. Costs and Expenses.
Each Subsidiary Guarantor shall pay on demand by the Trustee any and
all costs, fees and expenses (including, without limitation, legal fees on a
solicitor and client basis) incurred by the Trustee, its agents, advisors and
counsel or any of the Holders in enforcing any of their rights under any
Guarantee.
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SECTION 10.17. No Waiver; Cumulative
Remedies.
No failure to exercise and no delay in exercising, on the part of the
Trustee or the Holders, any right, remedy, power or privilege hereunder or under
this Indenture or the Notes, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder or
under this Indenture or the Notes preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges in the Guarantee and under this Indenture, the
Notes and any other document or instrument between a Subsidiary Guarantor and/or
the Company and the Trustee are cumulative and not exclusive of any rights,
remedies, powers and privilege provided by law.
SECTION 10.18. Survival of Obligations.
Without prejudice to the survival of any of the other obligations of
each Subsidiary Guarantor hereunder, the obligations of each Subsidiary
Guarantor under Section 10.01 and shall be enforceable against such Subsidiary
Guarantor without regard to and without giving effect to any right of offset or
counterclaim available to or which may be asserted by the Company or any
Subsidiary Guarantor.
SECTION 10.19. Guarantee in Addition to Other
Obligations.
The obligations of each Subsidiary Guarantor under its Guarantee and
this Indenture are in addition to and not in substitution for any other
obligations to the Trustee or to any of the Holders in relation to this
Indenture or the Notes (including the Purchase Agreement and the Registration
Rights Agreement).
SECTION 10.20. Severability.
Any provision of this Article Ten which is prohibited or unenforceable
in any jurisdiction shall not invalidate the remaining provisions and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction unless its removal
would substantially defeat the basic intent, spirit and purpose of this
Indenture and this Article Ten.
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SECTION 10.21. Successors and Assigns.
Each Guarantee shall be binding upon and inure to the benefit of each
Subsidiary Guarantor and the Trustee and the other Holders and their respective
successors and permitted assigns, except that no Subsidiary Guarantor may assign
any of its obligations hereunder or thereunder.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control; provided, however, that this Section 11.01
shall not of itself require that this Indenture or the Trustee be qualified
under the TIA or constitute any admission or acknowledgment by any party hereto
that any such qualification is required prior to the time this Indenture and the
Trustee are required by the TIA to be so qualified.
SECTION 11.02. Notices.
Any notices or other communications required or permitted
hereunder shall be in writing, and shall be sufficiently given if made by hand
delivery, by telex, by telecopier or registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company or the Subsidiary Guarantors:
Penn National Gaming, Inc.
825 Berkshire Boulevard
Wyomissing, PA 19610
Facsimile No. (610) 376-2842
Attention: Chief Financial Officer
with a copy to:
Morgan Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Facsimile No. (215) 963-5299
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Attention: Brian Lynch
if to the Trustee:
State Street Bank and Trust Company
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Facsimile No.: (860) 244-1889
Attention: Corporate Trust Administration
The Company, the Subsidiary Guarantors and the Trustee by written
notice to the other may designate additional or different addresses for notices
to such Person. Any notice or communication to the Company, the Subsidiary
Guarantors or the Trustee shall be deemed to have been given or made as of the
date so delivered if hand delivered; when answered back, if telexed; when
receipt is acknowledged, if faxed; one (1) business day after mailing by
reputable overnight courier and five (5) calendar days after mailing if sent by
registered or certified mail, postage prepaid (except that a notice of change of
address shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication mailed to a Holder shall be mailed to him
by first class mail or other equivalent means at his address as it appears on
the registration books of the Registrar ten (10) days prior to such mailing and
shall be sufficiently given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 11.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA ss.312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and any other Person shall have the protection of TIA
ss.312(c).
102
<PAGE>
SECTION 11.04. Certificate and Opinion as
to Conditions Precedent.
Upon any request or application by the Company or the Subsidiary
Guarantors to the Trustee to take any action under this Indenture, the Company
shall furnish to the Trustee:
(1) an Officers' Certificate, in form and substance
satisfactory to the Trustee, stating that, in the opinion of the
signers, all conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Company,
if any, provided for in this Indenture relating to the proposed action
have been complied with (which counsel, as to factual matters, may rely
on an Officers' Certificate).
SECTION 11.05. Statements Required in
Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture, other than the Officers' Certificate
required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is reasonably necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with.
103
<PAGE>
SECTION 11.06. Rules by Trustee, Paying
Agent, Registrar.
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Holders. The Paying Agent
or Registrar may make reasonable rules for its functions.
SECTION 11.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment is
a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of payment are not required to be open. If a payment date
is a Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 11.08. Governing Law.
This Indenture, the Notes and the Guarantees shall be governed by and
construed in accordance with the laws of the State of New York but without
giving effect to applicable principles of conflicts of law.
SECTION 11.09. No Adverse Interpretation
of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.10. No Personal Liability.
No director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Notes, the
Guarantees, this Indenture or the Registration Rights Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Notes.
104
<PAGE>
SECTION 11.11. Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 11.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 11.13. Severability.
In case any one or more of the provisions in this Indenture or in the
Notes shall be held invalid, illegal or unenforceable, in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions shall not in any way be affected
or impaired thereby, it being intended that all of the provisions hereof shall
be enforceable to the full extent permitted by law.
SECTION 11.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Notes shall be
given independent effect so that if any particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
105
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
PENN NATIONAL GAMING, INC.,
By:
--------------------------------------
Name:
Title:
THE PLAINS COMPANY, as
Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
MOUNTAINVIEW THOROUGHBRED RACING
ASSOCIATION, as Subsidiary
Guarantor
By:
--------------------------------------
Name:
Title:
PENNSYLVANIA NATIONAL TURF
CLUB, INC., as Subsidiary
Guarantor
By:
--------------------------------------
Name:
Title:
<PAGE>
PENN NATIONAL SPEEDWAY, INC.,
as Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
PENN NATIONAL HOLDING COMPANY,
as Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
PENN NATIONAL GAMING OF WEST
VIRGINIA, INC., as Subsidiary
Guarantor
By:
--------------------------------------
Name:
Title:
STERLING AVIATION INC.,
as Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
POCONO DOWNS, INC., as
Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
<PAGE>
NORTHEAST CONCESSIONS, INC.,
as Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
THE DOWNS OFF-TRACK WAGERING,
INC., as Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
THE DOWNS RACING, INC., as
Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
PENN NATIONAL GAMING OF INDIANA,
INC., as Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
PNGI POCONO, INC., as
Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
<PAGE>
TENNESSEE DOWNS, INC., as
Subsidiary Guarantor
By:
--------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
CUSIP No.: [ ]
PENN NATIONAL GAMING, INC.
10 5/8% SENIOR NOTE DUE 2004, SERIES A
No. [ ] $
PENN NATIONAL GAMING, INC., a Pennsylvania corporation (the "Company")
for value received promises to pay to Cede & Co. or registered assigns the
principal sum of Dollars on [ ], 2004.
Interest Payment Dates: June 15 and December 15, commencing June 15,
1998
Record Dates: June 1 and December 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
PENN NATIONAL GAMING, INC.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
Dated:
A-1
<PAGE>
Certificate of Authentication
This is one of the 10 5/8% Senior Notes, Series A due 2004 referred to
in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
--------------------------------------
Authorized Signatory
Date of Authentication:
A-2
<PAGE>
(REVERSE OF SECURITY)
10 5/8% Senior Note due 2004, Series A
1. Interest. PENN NATIONAL GAMING, INC., a Pennsylvania corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate per annum shown above. Interest on the Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from December 17, 1997. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing June 15, 1998. Interest will
be computed on the basis of a 360-day year of twelve 30-day months and, in the
case of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are cancelled on registration of transfer or registration
of exchange (including pursuant to an Exchange Offer (as defined in the
Registration Rights Agreement)) after such Record Date. Holders must surrender
Notes to a Paying Agent to collect principal payments. The Company shall pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by its check payable in such
U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, State Street Bank and Trust
Company (the "Trustee") will act as Paying Agent and Registrar. The Company may
change any Paying Agent, Registrar or co-Registrar without notice to the
Holders.
4. Indenture. The Company issued the Notes under an Indenture, dated as
of December 17, 1997 (the "Indenture"), among the Company, each of the
Subsidiary Guarantors named therein and the Trustee. This Note is one of a duly
authorized issue of Initial Notes of the Company designated as its 10 5/8%
Senior Notes due 2004, Series A (the "Initial Notes"). The Notes are limited
(except as otherwise provided in the Indenture) in aggregate principal amount to
A-3
<PAGE>
$150,000,000, which may be issued under the Indenture; provided the principal
amount of Initial Notes issued on the Issue Date is $80,000,000. The Notes
include the Initial Notes, Private Exchange Notes and the Exchange Notes (as
defined in the Indenture) issued in exchange for the Initial Notes pursuant to
the Registration Rights Agreement. The Initial Notes and the Exchange Notes are
treated as a single class of securities under the Indenture. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
ss.77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the Company.
Each Holder, by accepting a Note, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time in accordance with its terms.
5. Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after December 15,
2001, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on December 15 of the year
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption:
Year Percentage
---- ----------
2001.................................. 105.313%
2002.................................. 102.656%
2003 and thereafter................... 100.000%
At any time, or from time to time, on or prior to December 15, 2000,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to 35% of the Notes at a redemption price equal to
110.625% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided that at least 65% of the
principal amount of Notes originally issued remains outstanding immediately
after any such redemption. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 90 days after the consummation of any such Public Equity Offering.
A-4
<PAGE>
6. Notice of Redemption. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such Redemption Date, then, unless the Company defaults in the
payment of such redemption price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Holders of such Notes will be to receive payment of
the redemption price plus accrued interest, if any.
7. Offers to Purchase. Sections 4.14 and 4.15 of the Indenture provide
that, after certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
8. Registration Rights. Pursuant to a Registration Rights Agreement
among the Company, the Subsidiary Guarantors and the Initial Purchasers, the
Company and the Subsidiary Guarantors will be obligated to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for Exchange Notes, which have been registered under the
Securities Act, in like principal amount and having terms identical in all
material respects as the Initial Notes. The Holders of the Initial Notes shall
be entitled to receive certain additional interest payments in the event such
exchange offer is not consummated and upon certain other conditions, all
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
9. Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, and in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Notes or portions thereof selected for redemption.
A-5
<PAGE>
10. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, and including, under certain
circumstances, its obligation to pay the principal of and interest on the Notes
but without affecting the rights of the Holders to receive such amounts from
such deposits).
13. Amendment; Supplement; Waiver. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of a majority in aggregate
principal amount of the Notes then outstanding, and any past Default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in aggregate principal amount of the Notes
then outstanding. Without notice to or consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency, provide for uncertificated
Notes in addition to or in place of certificated Notes, comply with any
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the TIA or comply with Article Five of the Indenture or
make any other change that does not adversely affect the rights of any Holder of
a Note.
14. Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Company and its Subsidiaries to, among other things, incur
additional Indebtedness, pay dividends or make certain other Restricted
Payments, consummate certain Asset Sales, enter into certain transactions with
Affiliates, incur liens, impose restrictions on the ability of a Subsidiary to
pay dividends or make certain payments to the Company and its Subsidiaries,
merge or consolidate with any other Person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of the
Company. Such limitations are subject to a number of important qualifications
and exceptions. Pursuant to Section 4.06 of the Indenture, the Company must
annually report to the Trustee on compliance with such limitations.
A-6
<PAGE>
15. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
16. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest when due, for any reason or a
Default in compliance with Article Five of the Indenture) if it determines that
withholding notice is in their interest.
17. Trustee Dealings with the Company and Its Subsidiaries. The Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company, its
Subsidiaries or their respective Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No director, officer, employee or
shareholder, as such, of the Company shall have any liability for any obligation
of the Company under the Notes, the Indenture or the Registration Rights
Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
19. Guarantees. This Note will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
A-7
<PAGE>
20. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
21. Governing Law. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Note.
22. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST
(= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
23. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture, which has the text of this Note.
Requests may be made to: Penn National Gaming, Inc., 825 Berkshire Boulevard,
Suite 200, Wyomissing, PA 19610.
A-8
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and social security or tax ID number
of assignee)
and irrevocably appoint ,
- --------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
-------------- ---------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
----------------------------------------------------------
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the Commission
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) December 17, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer:
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities Act of
1933, as amended; or
A-9
<PAGE>
(3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act of 1933, as amended) that has
furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be obtained
from the Trustee); or
(4) __ outside the United states to a "foreign person" in compliance with Rule
904 of Regulation S under the Securities Act of 1933, as amended; or
(5) __ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the Securities Act
of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
/ / The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to register
any of the Notes evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if item (3), (4),
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Notes, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
A-10
<PAGE>
If none of the foregoing items are checked, the Trustee or Registrar
shall not be obligated to register this Note in the name of any person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.17 of the Indenture shall have
been satisfied.
Dated: Signed:
---------------------- ------------------------------------------
(Sign exactly as name appears
side of this Note)
Signature Guarantee:
---------------------------------------------------------
A-11
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
------------------ --------------------------------------------
NOTICE: To be executed by an executive
officer
A-12
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate
box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
-------------------
Dated:
---------------- -------------------------------------
NOTICE: The signature on this
assignment must correspond with the
name as it appears upon the face of
the within Note in every particular
without alteration or enlargement
or any change whatsoever and be
guaranteed.
Signature Guarantee:
-------------------------------
A-13
<PAGE>
EXHIBIT B
CUSIP No.: [ ]
PENN NATIONAL GAMING, INC.
10 5/8% SENIOR NOTE DUE 2004, SERIES B
No. [ ] $
PENN NATIONAL GAMING, INC., a Pennsylvania corporation (the "Company"),
for value received, promises to pay to Cede & Co. or registered assigns the
principal sum of Dollars on December 15, 2004.
Interest Payment Dates: June 15 and December 15, commencing June 15,
1998
Record Dates: June 1 and December 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
PENN NATIONAL GAMING, INC.
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
Dated:
B-1
<PAGE>
Certificate of Authentication
This is one of the 10 5/8% Senior Notes, Series B due 2004, Series B
referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
-------------------------------------
Authorized Signatory
Date of Authentication:
B-2
<PAGE>
(REVERSE OF SECURITY)
10 5/8% Senior Note due 2004, Series B
1. Interest. PENN NATIONAL GAMING, INC., a Pennsylvania corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate per annum shown above. Interest on the Notes will accrue from the
most recent date on which interest has been paid or, if no interest has been
paid, from December 17, 1997. The Company will pay interest semi-annually in
arrears on each Interest Payment Date, commencing June 15, 1998. Interest will
be computed on the basis of a 360-day year of twelve 30-day months and, in the
case of a partial month, the actual number of days elapsed.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are canceled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, State Street Bank and Trust
Company (the "Trustee") will act as Paying Agent and Registrar. The Company may
change any Paying Agent, Registrar or co-Registrar without notice to the
Holders.
4. Indenture. The Company issued the Notes under an Indenture, dated as
of December 17, 1997 (the "Indenture"), among the Company, each of the
Subsidiary Guarantors named therein and the Trustee. This Note is one of a duly
authorized issue of Exchange Notes of the Company designated as its 10 5/8%
Senior Notes due 2004, Series B (the "Exchange Notes"). The Notes include the 10
5/8% Notes due 2004, Series A (the "Initial Notes") and the Exchange Notes,
issued in exchange for the Initial Notes pursuant to a Registration Rights
Agreement. The Notes are limited (except as otherwise provided in the Indenture)
B-3
<PAGE>
in aggregate principal amount to $150,000,000, which may be issued under the
Indenture; provided the principal amount of Initial Notes issued on the Issue
Date was $80,000,000. The Initial Notes and the Exchange Notes are treated as a
single class of securities under the Indenture. Capitalized terms herein are
used as defined in the Indenture unless otherwise defined herein. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
ss.77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and said Act for
a statement of them. The Notes are general unsecured obligations of the Company.
Each Holder, by accepting a Note, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time in accordance with its terms.
5. Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after December 15,
2001, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on December 15 of the years
set forth below, plus, in each case, accrued and unpaid interest, if any,
thereon to the date of redemption:
Year Percentage
---- ----------
2001............................. 105.313%
2002............................. 102.656%
2003 and thereafter.............. 100.000%
At any time, or from time to time, on or prior to December 15, 2000,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to 35% of the Notes at a redemption price equal to
110.625% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided that at least 65% of the
principal amount of Notes originally issued remains outstanding immediately
after any such redemption. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 90 days after the consummation of any such Public Equity Offering.
B-4
<PAGE>
6. Notice of Redemption. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such Redemption Date, then, unless the Company defaults in the
payment of such redemption price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Holders of such Notes will be to receive payment of
the redemption price plus accrued interest, if any.
7. Offers to Purchase. Sections 4.14 and 4.15 of the Indenture provide
that, after certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
8. Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, and in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Notes or portions thereof selected for redemption.
9. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption and
complies with the other provisions of the Indenture relating thereto, the
B-5
<PAGE>
Company will be discharged from certain provisions of the Indenture and the
Notes (including certain covenants, and including, under certain circumstances,
its obligation to pay the principal of and interest on the Notes but without
affecting the rights of the Holders to receive such amounts from such deposit).
12. Amendment; Supplement; Waiver. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of a majority in aggregate
principal amount of the Notes then outstanding, and any past Default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of a majority in aggregate principal amount of the Notes
then outstanding. Without notice to or consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency, provide for uncertificated
Notes in addition to or in place of certificated Notes, comply with any
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the TIA or comply with Article Five of the Indenture or
make any other change that does not adversely affect the rights of any Holder of
a Note.
13. Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Company and its Subsidiaries to, among other things, incur
additional Indebtedness, pay dividends or make certain other Restricted
Payments, consummate certain Asset Sales, enter into certain transactions with
Affiliates, incur liens, impose restrictions on the ability of a Subsidiary to
pay dividends or make certain payments to the Company and its Subsidiaries,
merge or consolidate with any other Person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of the
Company. Such limitations are subject to a number of important qualifications
and exceptions. Pursuant to Section 4.06 of the Indenture, the Company must
annually report to the Trustee on compliance with such limitations.
14. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
15. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
B-6
<PAGE>
or the Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest when due, for any reason or a
Default in compliance with Article Five of the Indenture) if it determines that
withholding notice is in their interest.
16. Trustee Dealings with the Company and Its Subsidiaries. The Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company, its
Subsidiaries or their respective Affiliates as if it were not the Trustee.
17. No Recourse Against Others. No director, officer, employee or
shareholder, as such, of the Company shall have any liability for any obligation
of the Company under the Notes, the Indenture or the Registration Rights
Agreement or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
18. Guarantees. This Note will be entitled to the benefits of certain
Guarantees, if any, made for the benefit of the Holders. Reference is hereby
made to the Indenture for a statement of the respective rights, limitations of
rights, duties and obligations thereunder of the Subsidiary Guarantors, the
Trustee and the Holders.
19. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
20. Governing Law. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Note.
B-7
<PAGE>
21. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST
(= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture, which has the text of this Note.
Requests may be made to: Penn National Gaming, Inc., 825 Berkshire Boulevard,
Suite 200, Wyomissing, PA 19610.
B-8
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and social security or tax ID number
of assignee)
and irrevocably appoint ,
- --------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
-------------- ---------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
----------------------------------------------------------
B-9
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate
box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
-------------------
Dated:
---------------- -------------------------------------
NOTICE: The signature on this
assignment must correspond with the
name as it appears upon the face of
the within Note in every particular
without alteration or enlargement
or any change whatsoever and be
guaranteed.
Signature Guarantee:
-------------------------------
B-10
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
[ ], [ ]
State Street Bank and Trust Company
c/o Fleet Bank
777 Main Street, 11th Floor
Hartford, CT 06115
Ladies and Gentlemen:
In connection with our proposed purchase of 10 5/8% Senior Notes due
2004 (the "Notes") of Penn National Gaming, Inc., a Pennsylvania corporation
(the "Company"), we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated December 12, 1997, relating to the Notes
and such other information as we deem necessary in order to make our
investment decision. We acknowledge that we have read and agreed to the
matters stated in the section entitled "Transfer Restrictions" of such
Offering Memorandum.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the
Indenture relating to the Notes (the "Indenture") as described in the
Offering Memorandum and the undersigned agrees to be bound by, and not
to resell, pledge or otherwise transfer the Notes except in compliance
with, such restrictions and conditions and the Securities Act of 1933,
as amended (the "Securities Act"), and all applicable State securities
laws.
3. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be
offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence.
We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell any Notes, we
will do so only (i) to the Company or any subsidiary thereof, (ii)
inside the United States in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined in Rule
144A promulgated under the Securities Act), (iii) inside the United
C-1
<PAGE>
States to an institutional "accredited investor" (as defined below)
that, prior to such transfer, furnishes (or has furnished on its behalf
by a U.S. broker-dealer) to the Trustee (as defined in the Indenture) a
signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Notes (the form of
which letter can be obtained from the Trustee), (iv) outside the United
States in accordance with Rule 904 of Regulation S promulgated under
the Securities Act to non-U.S. persons, (v) pursuant to the exemption
from registration provided by Rule 144 under the Securities Act (if
available), or (vi) pursuant to an effective registration statement
under the Securities Act, and we further agree to provide to any person
purchasing any of the Notes from us a notice advising such purchaser
that resales of the Notes are restricted as stated herein.
4. We understand that, on any proposed resale of any Notes, we
will be required to furnish to the Trustee and the Company such
certification, legal opinions and other information as the Trustee and
the Company may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that
the Notes purchased by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or their
investment, as the case may be.
6. We are acquiring the Notes purchased by us for our account
or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
C-2
<PAGE>
You, the Company, the Trustee and others are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a copy hereof to
any interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
------------------------------------
Name:
Title:
C-3
<PAGE>
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
[ ], [ ]
State Street Bank and Trust Company
c/o Fleet Bank
777 Main Street, 11th Floor
Hartford, CT 06115
Re: Penn National Gaming, Inc.
(the "Company") 10 5/8%
Senior Notes due 2004 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of aggregate principal amount of
the Notes, we confirm that such sale has been effected pursuant to and in
accordance with Regulation S under the U.S. Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Notes.
D-1
<PAGE>
You, the Company and counsel for the Company are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
-------------------------------------
Authorized Signature
D-2
<PAGE>
EXHIBIT E
FORM OF GUARANTEE
For value received, the undersigned hereby unconditionally
guarantees, as principal obligor and not only as a surety, to the Holder of this
Note the cash payments in United States dollars of principal of, premium, if
any, and interest on this Note (and including Additional Interest payable
thereon) in the amounts and at the times when due and interest on the overdue
principal, premium, if any, and interest, if any, of this Note, if lawful, and
the payment or performance of all other obligations of the Company under the
Indenture (as defined below) or the Notes, to the Holder of this Note and the
Trustee, all in accordance with and subject to the terms and limitations of this
Note, Article Ten of the Indenture and this Guarantee. This Guarantee will
become effective in accordance with Article Ten of the Indenture and its terms
shall be evidenced therein. The validity and enforceability of any Guarantee
shall not be affected by the fact that it is not affixed to any particular Note.
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Indenture dated as of December 17, 1997, among Penn National
Gaming, Inc., a Pennsylvania corporation, as Company (the "Company"), each of
the Subsidiary Guarantors named therein and State Street Bank and Trust Company,
as Trustee (the "Trustee"), as amended or supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Notes and to the
Trustee pursuant to this Guarantee and the Indenture are expressly set forth in
Article Ten of the Indenture and reference is hereby made to the Indenture for
the precise terms of the Guarantee and all of the other provisions of the
Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. Each Subsidiary Guarantor hereby agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
E-1
<PAGE>
IN WITNESS WHEREOF, each Subsidiary Guarantor has caused its
Guarantee to be duly executed.
Date:
---------------
THE PLAINS COMPANY, as
Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
MOUNTAINVIEW THOROUGHBRED RACING
ASSOCIATION, as Subsidiary
Guarantor
By:
-------------------------------------
Name:
Title:
PENNSYLVANIA NATIONAL TURF
CLUB, INC., as Subsidiary
Guarantor
By:
-------------------------------------
Name:
Title:
PENN NATIONAL SPEEDWAY, INC.,
as Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
E-2
<PAGE>
PENN NATIONAL HOLDING COMPANY,
as Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
PENN NATIONAL GAMING OF WEST
VIRGINIA, INC., as Subsidiary
Guarantor
By:
-------------------------------------
Name:
Title:
STERLING AVIATION INC.,
as Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
POCONO DOWNS, INC., as
Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
E-3
<PAGE>
NORTHEAST CONCESSIONS, INC.,
as Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
THE DOWNS OFF-TRACK WAGERING, INC.,
as Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
THE DOWNS RACING, INC., as
Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
PENN NATIONAL GAMING OF INDIANA,
INC., as Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
PNGI POCONO, INC., as
Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
TENNESSEE DOWNS, INC., as
Subsidiary Guarantor
By:
-------------------------------------
Name:
Title:
E-4
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of December 17, 1997
Among
PENN NATIONAL GAMING, INC.
and
THE SUBSIDIARY GUARANTORS NAMED HEREIN
as Issuers
and
BT ALEX. BROWN INCORPORATED
and
JEFFERIES & COMPANY, INC.
as Initial Purchasers
================================================================================
$80,000,000
10 5/8% SENIOR NOTES DUE 2004
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions...............................................................1
2. Exchange Offer............................................................5
3. Shelf Registration........................................................9
4. Additional Interest......................................................10
5. Registration Procedures..................................................12
6. Registration Expenses....................................................23
7. Indemnification..........................................................24
8. Rule 144 and 144A........................................................29
9. Underwritten Registrations...............................................29
10. Miscellaneous...........................................................30
(a) No Inconsistent Agreements.........................................30
(b) Adjustments Affecting Registrable Notes............................30
(c) Amendments and Waivers.............................................30
(d) Notices............................................................31
(e) Successors and Assigns.............................................32
(f) Counterparts.......................................................32
(g) Headings...........................................................32
(h) Governing Law......................................................32
(i) Severability.......................................................32
(j) Securities Held by the Issuers or Their Respective Affiliates......33
(k) Third Party Beneficiaries..........................................33
(l) Entire Agreement...................................................33
<PAGE>
-1-
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
December 17, 1997 between Penn National Gaming, Inc., a Pennsylvania corporation
(the "Company") as Issuer, The Plains Company, a Pennsylvania corporation,
Mountainview Thoroughbred Racing Association, a Pennsylvania corporation,
Pennsylvania National Turf Club, Inc., a Pennsylvania corporation, Penn National
Speedway, Inc., a Pennsylvania corporation, Penn National Holding Company, a
Delaware corporation, Penn National Gaming of West Virginia, Inc., a West
Virginia corporation, Sterling Aviation Inc., a Delaware corporation, Pocono
Downs, Inc., a Pennsylvania corporation, Northeast Concessions, Inc., a
Pennsylvania corporation, The Downs Off-Track Wagering, Inc., a Pennsylvania
corporation, The Downs Racing, Inc., a Pennsylvania corporation, Penn National
Gaming of Indiana, Inc., a Delaware corporation, PNGI Pocono, Inc., a Delaware
corporation and Tennessee Downs, Inc., a Tennessee corporation, as guarantors
(the "Subsidiary Guarantors" and together with the Company, the "Issuers") and
BT Alex. Brown and Jefferies & Company, Inc., as initial purchasers (the
"Initial Purchasers").
This Agreement is entered into in connection with the Purchase Agreement,
dated as of December 12, 1997, between the Issuers and the Initial Purchasers
(the "Purchase Agreement") that provides for the sale by the Issuers to the
Initial Purchasers of $80,000,000 aggregate principal amount of the Company's 10
5/8% Senior Notes due 2004 (the "Notes"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Issuers have agreed to
provide the registration rights set forth in this Agreement for the benefit of
the Initial Purchasers and their direct and indirect transferees and assigns.
The execution and delivery of this Agreement is a condition to the Initial
Purchasers' obligation to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Additional Interest: See Section 4(a) hereof.
Advice: See the last paragraph of Section 5 hereof.
<PAGE>
-2-
Agreement: See the first introductory paragraph hereto.
Applicable Period: See Section 2(b) hereof.
Closing Date: The Closing Date as defined in the Purchase Agreement.
Company: See the first introductory paragraph hereto.
Effectiveness Date: The date that is within 135 days after the Issue Date;
provided, however, that with respect to any Shelf Registration, the
Effectiveness Date shall be the 105th day after the Filing Date with respect
thereto.
Effectiveness Period: See Section 3(a) hereof.
Event Date: See Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a) hereof.
Exchange Offer: See Section 2(a) hereof.
Exchange Registration Statement: See Section 2(a) hereof.
Filing Date: (A) If no Exchange Registration Statement has been filed by
the Issuers pursuant to this Agreement, the 45th day after the Issue Date; and
(B) in each case (which may be applicable notwithstanding the consummation of
the Exchange Offer), the 30th day after the delivery of a Shelf Notice..
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of December 17, 1997 by and
among the Issuers and State Street Bank and Trust Company, as Trustee, pursuant
to which the Notes are being issued, as amended or supplemented from time to
time in accordance with the terms thereof.
<PAGE>
-3-
Initial Purchasers: See the first introductory paragraph hereto.
Inspectors: See Section 5(o) hereof.
Issue Date: The date on which the original Notes were sold to the Initial
Purchasers pursuant to the Purchase Agreement.
Issuers: See the first introductory paragraph hereto.
NASD: See Section 5(t) hereof.
Notes: See the second introductory paragraph hereto.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2(b) hereof.
Person: An individual, trustee, corporation, partnership, limited liability
company, joint stock company, trust, unincorporated association, union, business
association, firm or other legal entity.
Private Exchange: See Section 2(b) hereof.
Private Exchange Notes: See Section 2(b) hereof.
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph hereto.
<PAGE>
-4-
Records: See Section 5(o) hereof.
Registrable Notes: Each Note upon original issuance of the Notes and at all
times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof
is applicable upon original issuance and at all times subsequent thereto and
each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until in the case of any such Note, Exchange Note or Private
Exchange Note, as the case may be, the earliest to occur of (i) a Registration
Statement (other than, with respect to any Exchange Note as to which Section
2(c)(iv) hereof is applicable, the Exchange Registration Statement) covering
such Note, Exchange Note or Private Exchange Note, as the case may be, has been
declared effective by the SEC and such Note, Exchange Note or Private Exchange
Note, as the case may be, has been disposed of in accordance with such effective
Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note,
as the case may be, may be sold in compliance with Rule 144(k), (iii) such Note
has been exchanged for an Exchange Note or Exchange Notes pursuant to an
Exchange Offer and is entitled to be resold without complying with the
prospectus delivery requirements of the Securities Act or (iv) such Note,
Exchange Note or Private Exchange Note, as the case may be, ceases to be
outstanding for purposes of the Indenture.
Registration Statement: Any registration statement of the Issuers,
including, but not limited to, the Exchange Registration Statement and any
registration statement filed in connection with a Shelf Registration, filed with
the SEC pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
<PAGE>
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Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
Shelf Registration: See Section 3(a) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if existent, the trustee
under any indenture governing the Exchange Notes and Private Exchange Notes (if
any).
Underwritten registration or underwritten offering: A registration in which
securities of one or more of the Issuers are sold to an underwriter for
reoffering to the public.
2. Exchange Offer
(a) The Issuers shall file with the SEC no later than the Filing Date an
offer to exchange (the "Exchange Offer") any and all of the Registrable Notes
(other than the Private Exchange Notes, if any) for a like aggregate principal
amount of debt securities of the Company, guaranteed by the Subsidiary
Guarantors, that are identical in all material respects to the Notes (the
"Exchange Notes") (and that are entitled to the benefits of the Indenture or a
trust indenture that is identical in all material respects to the Indenture
(other than such changes to the Indenture or any such identical trust indenture
as are necessary to comply with any requirements of the SEC to effect or
maintain the qualification thereof under the TIA) and that, in either case, has
been qualified under the TIA), except that the Exchange Notes (other than
Private Exchange Notes, if any) shall have been registered pursuant to an
effective Registration Statement under the Securities Act and shall contain no
restrictive legend thereon. The Exchange Offer shall be registered under the
Securities Act on the appropriate form (the "Exchange Registration Statement")
and shall comply with all applicable tender offer rules and regulations under
the Exchange Act. The Issuers agree to use their best efforts to (x) cause the
Exchange Registration Statement to be
<PAGE>
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declared effective under the Securities Act on or before the Effectiveness
Date; (y) keep the Exchange Offer open for not less than 20 business days (or
longer if required by applicable law) after the date that notice of the Exchange
Offer is mailed to Holders; and (z) consummate the Exchange Offer within 165
days of the Issue Date. If after such Exchange Registration Statement is
declared effective by the SEC, the Exchange Offer or the issuance of the
Exchange Notes thereunder is interfered with by any stop order, injunction or
other order or requirement of the SEC or any other governmental agency or court,
such Exchange Registration Statement shall be deemed not to have become
effective for purposes of this Agreement. Each Holder who participates in the
Exchange Offer will be required to represent that any Exchange Notes received by
it will be acquired in the ordinary course of its business, that at the time of
the consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any Person to participate in the distribution of the Exchange
Notes in violation of the provisions of the Securities Act and that such Holder
is not an affiliate of the Issuers within the meaning of the Securities Act and
is not acting on behalf of any persons or entities who could not truthfully make
the foregoing representations. Upon consummation of the Exchange Offer in
accordance with this Section 2, the provisions of this Agreement shall continue
to apply, mutatis mutandis, solely with respect to Registrable Notes that are
Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers,
and the Issuers shall have no further obligation to register Registrable Notes
(other than Private Exchange Notes and other than in respect of any Exchange
Notes as to which clause 2(c)(v) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included in the Exchange
Registration Statement.
(b) The Issuers shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, that shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"), whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in the
judgment of the Initial Purchasers, represent the prevailing views of the Staff
of the SEC. Such "Plan of Distribution" section shall also expressly permit the
use of the Prospectus by all Persons subject to the prospectus deliv-
<PAGE>
-7-
ery requirements of the Securities Act, including all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Notes.
The Issuers shall use their best efforts to keep the Exchange Registration
Statement effective and to amend and supplement the Prospectus contained therein
in order to permit such Prospectus to be lawfully delivered by all Persons
subject to the prospectus delivery requirements of the Securities Act for such
period of time as is necessary to comply with applicable law in connection with
any resale of the Exchange Notes; provided, however, that such period shall not
exceed 180 days after the consummation of the Exchange Offer (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
If, prior to consummation of the Exchange Offer, either of the Initial
Purchasers holds any Notes acquired by it and having, or that are reasonably
likely to be determined to have, the status of an unsold allotment in the
initial distribution, the Company, upon the request of either of the Initial
Purchasers simultaneously with the delivery of the Exchange Notes in the
Exchange Offer, shall issue and deliver to such Initial Purchaser in exchange
(the "Private Exchange") for such Notes held by such Initial Purchaser a like
principal amount of debt securities of the Company, guaranteed by the Subsidiary
Guarantors, that are identical in all material respects to the Exchange Notes
(the "Private Exchange Notes") (and that are issued pursuant to the same
indenture as the Exchange Notes), except for the placement of a restrictive
legend on such Private Exchange Notes. The Private Exchange Notes shall bear the
same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes will accrue
from the last interest payment date on which interest was paid on the Notes
surrendered in exchange therefor or, if no interest has been paid on the Notes,
from the Issue Date.
In connection with the Exchange Offer, the Issuers shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
<PAGE>
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(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the Private
Exchange, as the case may be, the Issuers shall:
(1) accept for exchange all Notes properly tendered and not validly
withdrawn pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted for
exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may
be, equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Offer and the Private Exchange shall not be subject to any
conditions, other than that (i) the Exchange Offer or Private Exchange, as the
case may be, does not violate applicable law or any applicable interpretation of
the staff of the SEC, (ii) no action or proceeding shall have been instituted or
threatened in any court or by any governmental agency which would be reasonably
likely to materially impair the ability of the Issuers to proceed with the
Exchange Offer or the Private Exchange, and no material adverse development
shall have occurred in any existing action or proceeding with respect to the
Issuers which could produce similar consequences and (iii) all governmental
approvals shall have been obtained, which approvals the Issuers deem necessary
for the consummation of the Exchange Offer or Private Exchange.
The Exchange Notes and the Private Exchange Notes may be issued under (i)
the Indenture or (ii) an indenture identical in all material respects to the
Indenture, which in either event shall provide that (1) the Exchange Notes shall
not be
<PAGE>
-9-
subject to the transfer restrictions set forth in the Indenture and (2) the
Private Exchange Notes shall be subject to the transfer restrictions set forth
in the Indenture. The Indenture or such indenture shall provide that the
Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent
together on all matters as one class and that neither the Exchange Notes, the
Private Exchange Notes or the Notes will have the right to vote or consent as a
separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Issuers are not permitted to effect
an Exchange Offer, (ii) the Exchange Offer is not consummated within 165 days of
the Issue Date, (iii) the holder of Private Exchange Notes so requests at any
time after the consummation of the Private Exchange, or (iv) in the case of any
Holder that participates in the Exchange Offer, such Holder does not receive
Exchange Notes on the date of the exchange that may be sold without restriction
under state and federal securities laws (other than due solely to the status of
such Holder as an affiliate of the Issuers within the meaning of the Securities
Act), then the Issuers shall promptly as practicable deliver written notice
thereof (the "Shelf Notice") to the Trustee and in the case of clauses (i) and
(ii), all Holders, in the case of clause (iii), the Holders of the Private
Exchange Notes and in the case of clause (iv), the affected Holder, and shall
file a Shelf Registration pursuant to Section 3 hereof.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c) hereof,
then:
(a) Shelf Registration. The Issuers shall as promptly as practicable file
with the SEC a Registration Statement for an offering to be made on a continuous
basis pursuant to Rule 415 covering all of the Registrable Notes (the "Shelf
Registration"). If the Issuers shall not have yet filed an Exchange Registration
Statement, the Issuers shall use their best efforts to file with the SEC the
Shelf Registration on or prior to the Filing Date. The Shelf Registration shall
be on Form S-1 or another appropriate form permitting registration of such
Registrable Notes for resale by Holders in the manner or manners designated by
them (including, without limitation, one or more underwritten offerings). The
Issuers shall not permit any securities other than the Registrable Notes to be
included in the Shelf Registration.
<PAGE>
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The Issuers shall use their best efforts to cause the Shelf Registration to
be declared effective under the Securities Act on or prior to the Effectiveness
Date and to keep the Shelf Registration continuously effective under the
Securities Act until the date that is two years from the Issue Date (the
"Effectiveness Period"), or such shorter period ending when all Registrable
Notes covered by the Shelf Registration have been sold in the manner set forth
and as contemplated in the Shelf Registration; provided, however, that the
Effectiveness Period in respect of the Shelf Registration shall be extended to
the extent required to permit dealers to comply with the applicable prospectus
delivery requirements of Rule 174 under the Securities Act and as otherwise
provided therein.
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to be
effective for any reason at any time during the Effectiveness Period (other than
because of the sale of all of the securities registered thereunder), the Issuers
shall use their best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof.
(c) Supplements and Amendments. The Issuers shall promptly supplement and
amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested by
the Holders of a majority in aggregate principal amount of the Registrable Notes
covered by such Registration Statement or by any underwriter of such Registrable
Notes.
4. Additional Interest
(a) The Issuers and the Initial Purchasers agree that the Holders of
Registrable Notes will suffer damages if the Issuers fail to fulfill their
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Issuers agree to pay, as liquidated damages, additional interest on the
Notes ("Additional Interest") under the circumstances and to the extent set
forth below (without duplication):
(i) if (A) neither the Exchange Offer Registration Statement nor the
Shelf Registration has been filed on or prior to the Filing Date applicable
thereto or (B) notwithstanding that the Issuers have consummated or will
consummate the Exchange Offer, the Issuers are required to file a Shelf
Registration and such Shelf Registration is
<PAGE>
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not filed on or prior to the Filing Date applicable thereto, then,
commencing on the day after such applicable Filing Date, Additional
Interest shall accrue on the principal amount of the Notes so affected at a
rate of 0.50% per annum for the first 90 days immediately following each
such applicable Filing Date, and such Additional Interest rate shall
increase by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor the
Shelf Registration is declared effective by the SEC on or prior to the
Effectiveness Date applicable thereto or (B) notwithstanding that the
Issuers have consummated or will consummate the Exchange Offer, the Issuers
are required to file a Shelf Registration and such Shelf Registration is
not declared effective by the SEC on or prior to the 60th day following the
date such Shelf Registration was filed, then, commencing on such
Effectiveness Date, Additional Interest shall accrue on the principal
amount of the Notes so affected at a rate of 0.50% per annum for the first
90 days immediately following the day after such Effectiveness Date, and
such Additional Interest rate shall increase by an additional 0.50% per
annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Issuers have not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to the 45th day after the date on which the Exchange Offer
Registration Statement relating thereto was declared effective or (B) if
applicable, a Shelf Registration has been declared effective and such Shelf
Registration ceases to be effective at any time during the Effectiveness
Period (other than after such time as all Notes have been disposed of
thereunder), then Additional Interest shall accrue on the principal amount
of the Notes so affected at a rate of 0.50% per annum for the first 90 days
commencing on the (x) 46th day after such effective date, in the case of
(A) above, or (y) the day such Shelf Registration ceases to be effective in
the case of (B) above, such Additional Interest rate shall increase by an
additional 0.50% per annum at the beginning of each such subsequent 90-day
period;
provided, however, that the Additional Interest rate on any affected Note may
not exceed at any one time in the aggregate 1.0% per annum; and provided,
further, however, that (1) upon the filing of the Exchange Registration
Statement or a Shelf
<PAGE>
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Registration (in the case of clause (i) of this Section 4(a)), (2) upon the
effectiveness of the Exchange Registration Statement or the Shelf Registration
(in the case of clause (ii) of this Section 4(a)), or (3) upon the exchange of
Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this
Section 4(a)), or upon the effectiveness of the Shelf Registration which had
ceased to remain effective (in the case of (iii)(B) of this Section 4(a)),
Additional Interest on the Notes as a result of such clause (or the relevant
subclause thereof), as the case may be, shall cease to accrue.
(b) The Issuers shall notify the Trustee within one business day after each
and every date on which an event occurs in respect of which Additional Interest
is required to be paid (an "Event Date"). Any amounts of Additional Interest due
pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in
cash semi-annually on each June 15 and December 15 (to the holders of record on
the June 1 and December 1 immediately preceding such dates), commencing with the
first such date occurring after any such Additional Interest commences to
accrue. The amount of Additional Interest will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the Registrable
Notes, multiplied by a fraction, the numerator of which is the number of days
such Additional Interest rate was applicable during such period (determined on
the basis of a 360-day year consisting of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed) and the denominator of
which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement pursuant to
Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit
the sale of the securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by the Issuers hereunder, the Issuers
shall:
(a) Prepare and file with the SEC on or prior to the Filing Date, a
Registration Statement or Registration Statements as prescribed by Sections
2 or 3 hereof, and use its best efforts to cause each such Registration
Statement to become effective and remain effective as provided herein;
provided, however, that, if (1) such filing is pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under
<PAGE>
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the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, before filing any Registration
Statement or Prospectus or any amendments or supplements thereto, the
Issuers shall furnish to and afford the Holders of the Registrable Notes
covered by such Registration Statement or each such Participating
Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed (in each
case at least five business days prior to such filing). The Issuers shall
not file any Registration Statement or Prospectus or any amendments or
supplements thereto if the Holders of a majority in aggregate principal
amount of the Registrable Notes covered by such Registration Statement, or
any such Participating Broker-Dealer, as the case may be, or their counsel,
or the managing underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement,
as the case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be supplemented
by any prospectus supplement required by applicable law, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions
then in force) promulgated under the Securities Act; and comply with the
provisions of the Securities Act and the Exchange Act applicable to it with
respect to the disposition of all securities covered by such Registration
Statement as so amended or in such Prospectus as so supplemented and with
respect to the subsequent resale of any securities being sold by a
Participating Broker-Dealer covered by any such Prospectus; the Issuers
shall be deemed not to have used their respective best efforts to keep a
Registration Statement effective during the Applicable Period if any Issuer
voluntarily takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking
to sell Exchange Notes not being able to sell such Registrable Notes or
such Exchange Notes during that period, unless such action is required by
applicable regulators or law or permitted by this Agreement.
<PAGE>
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(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, notify the selling Holders of
Registrable Notes, or each such Participating Broker-Dealer, as the case
may be, their counsel and the managing underwriters, if any, within one
business day and confirm such notice in writing, (i) when a Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and,
with respect to a Registration Statement or any post-effective amendment,
when the same has become effective under the Securities Act (including in
such notice a written statement that any Holder may, upon request, obtain,
at the sole expense of the Issuers, one conformed copy of such Registration
Statement or post-effective amendment including financial statements and
schedules, documents incorporated or deemed to be incorporated by reference
and exhibits), (ii) of the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose, (iii) if at any time when a prospectus is
required by the Securities Act to be delivered in connection with sales of
the Registrable Notes or resales of Exchange Notes by Participating
Broker-Dealers the representations and warranties of the Issuers contained
in any agreement (including any underwriting agreement concerning sales or
resales), contemplated by Section 5(n) hereof cease to be true and correct,
(iv) of the receipt by any Issuer of any notification with respect to the
suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Notes or the Exchange
Notes to be sold by any Participating Broker-Dealer for offer or sale in
any jurisdiction, or the initiation or written threat of any proceeding for
such purpose, (v) of the happening of any event, the existence of any
condition or any information becoming known that makes any statement made
in such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or that requires the making of any changes in or
amendments or supplements to such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement (including
documents incorporated by reference), it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and that in the case of the Prospectus (including documents
incorporated by reference), it will not contain any untrue state-
<PAGE>
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ment of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading and (vi) of
the Issuers' determination that a post-effective amendment to a
Registration Statement would be appropriate.
(d) Use its reasonable best efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Notes or the Exchange Notes for sale in any jurisdiction and, if any such
order is issued, to use their best efforts to obtain the withdrawal of any
such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters, if any, or the
Holders of a majority in aggregate principal amount of the Registrable
Notes being sold in connection with an underwritten offering, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters, if any, such
Holders or counsel for any of them determine is reasonably necessary to be
included therein, (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after an
Issuer has received notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment and (iii) supplement or
make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, furnish to each selling Holder
of Registrable Notes and to each such Participating Broker-Dealer who so
requests and to their respective counsel and each managing underwriter, if
any,
<PAGE>
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at the sole expense of the Issuers, one conformed copy of the
Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules and, if
requested, all documents incorporated or deemed to be incorporated therein
by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, deliver to each selling Holder
of Registrable Notes, or each such Participating Broker-Dealer, as the case
may be, their respective counsel and the underwriters, if any, at the sole
expense of the Issuers, as many copies of the Prospectus or Prospectuses
(including each form of preliminary prospectus) and each amendment or
supplement thereto and any documents incorporated by reference therein as
such Persons may reasonably request; and, subject to the last paragraph of
this Section 5, the Issuers hereby consent to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders of
Registrable Notes or each such Participating Broker-Dealer, as the case may
be, and the underwriters or agents, if any, and dealers, if any, in
connection with the offering and sale of the Registrable Notes covered by,
or the sale by Participating Broker-Dealers of the Exchange Notes pursuant
to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or Exchange
Notes or any delivery of a Prospectus contained in the Exchange
Registration Statement by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, to use its best efforts to
register or qualify and to cooperate with the selling Holders of
Registrable Notes or each such Participating Broker-Dealer, as the case may
be, the managing underwriter or underwriters, if any, and their respective
counsel in connection with the registration or qualification (or exemption
from such registration or qualification) of such Registrable Notes for
offer and sale under the securities or Blue Sky laws of such jurisdictions
within the United States as any selling Holder, Participating Broker-Dealer
or the managing underwriter or underwriters reasonably request in writing;
provided, however,
<PAGE>
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that where Exchange Notes held by Participating Broker-Dealers or
Registrable Notes are offered other than through an underwritten offering,
the Issuers agree to cause their counsel to perform Blue Sky investigations
and file registrations and qualifications required to be filed pursuant to
this Section 5(h); keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration
Statement is required to be kept effective and do any and all other acts or
things necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Registrable Notes covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C)
subject itself to taxation in any such jurisdiction where it is not then so
subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Notes to be sold,
which certificates shall not bear any restrictive legends and shall be in a
form eligible for deposit with The Depository Trust Company; and enable
such Registrable Notes to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
request.
(j) Use their best efforts to cause the Registrable Notes covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
Holders thereof or the underwriter or underwriters, if any, to consummate
the disposition of such Registrable Notes, except as may be required solely
as a consequence of the nature of such selling Holder's business, in which
case the Issuers will cooperate in all respects with the filing of such
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2
<PAGE>
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hereof is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event contemplated by
paragraph 5(c)(v) or 5(c)(vi), hereof, as promptly as practicable prepare
and (subject to Section 5(a) hereof) file with the SEC, at the Issuers'
sole expense, a supplement or post-effective amendment to the Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, or file any
other required document so that, as the Prospectus (as so amended or
supplemented) is thereafter delivered to the purchasers of the Registrable
Notes being sold thereunder or to the purchasers of the Exchange Notes to
whom such Prospectus will be delivered by a Participating Broker-Dealer,
any such Prospectus will not contain (including documents incorporated by
reference) an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(l) Use its best efforts to cause the Registrable Notes covered by a
Registration Statement or the Exchange Notes, as the case may be, to be
rated with the appropriate rating agencies, if so requested by the Holders
of a majority in aggregate principal amount of Registrable Notes covered by
such Registration Statement or the Exchange Notes, as the case may be, or
the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes or Exchange Notes, as the case may
be, in a form eligible for deposit with The Depository Trust Company and
(ii) provide a CUSIP number for the Registrable Notes or Exchange Notes, as
the case may be.
(n) In connection with any underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as
is customary in underwritten offerings of debt securities similar to the
Notes and take all such other actions as are reasonably requested by the
managing underwriter or underwriters in order to expedite or facilitate the
registration or the disposition of such Registrable Notes and, in such
connection, (i) make such representations and warranties to, and
<PAGE>
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covenants with, the underwriters with respect to the business of the
Issuers and their respective affiliates (including any acquired business,
properties or entity, if applicable) and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated
by reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings of debt securities similar to the
Notes, and confirm the same in writing if and when requested; (ii) obtain
the written opinion of counsel to the Company and written updates thereof
in form, scope and substance reasonably satisfactory to the managing
underwriter or underwriters, addressed to the underwriters covering the
matters customarily covered in opinions requested in underwritten offerings
of debt similar to the Notes and such other matters as may be reasonably
requested by the managing underwriter or underwriters; (iii) obtain "cold
comfort" letters and updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters from
the independent certified public accountants of the Issuers (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Issuers or of any business acquired by the Issuers for
which financial statements and financial data are, or are required to be,
included or incorporated by reference in the Registration Statement),
addressed to each of the underwriters, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings of debt securities
similar to the Notes and such other matters as reasonably requested by the
managing underwriter or underwriters as permitted by the Statement on
Auditing Standards No. 72; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures no
less favorable than those set forth in Section 7 hereof (or such other
provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of Registrable Notes covered by such Registration
Statement and the managing underwriter or underwriters or agents) with
respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting agreement, or
as and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3 hereof
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the
Securities
<PAGE>
-20-
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period, make available for inspection by any selling
Holder of such Registrable Notes being sold, or each such Participating
Broker-Dealer, as the case may be, any underwriter participating in any
such disposition of Registrable Notes, if any, and any attorney, accountant
or other agent retained by any such selling Holder or each such
Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept,
during reasonable business hours, all financial and other records,
pertinent corporate documents and instruments of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary
to enable them to exercise any applicable due diligence responsibilities,
and cause the respective officers, directors and employees of the Company
and its subsidiaries to supply all information reasonably requested by any
such Inspector in connection with such Registration Statement and
Prospectus. Records that the Company determines, in good faith, to be
confidential and any Records that it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such Registration Statement and Prospectus, (ii) the release
of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction, (iii) disclosure of such information is,
in the opinion of counsel for any Inspector, necessary or advisable in
connection with any action, claim, suit or proceeding, directly or
indirectly, involving or potentially involving such Inspector and arising
out of, based upon, relating to or involving this Agreement or the Purchase
Agreement, or any transactions contemplated hereby or thereby or arising
hereunder or thereunder or (iv) the information in such Records has been
made generally available to the public. Each selling Holder of such
Registrable Notes and each such Participating Broker-Dealer will be
required to agree that information obtained as a result of such inspections
shall be deemed confidential and shall not be used by it as the basis for
any market transactions in the securities of the Company unless and until
such information is generally available to the public. Each selling Holder
of such Registrable Notes and each such Participating Broker-Dealer will be
required to further agree that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company to under-
<PAGE>
-21-
take appropriate action to prevent disclosure of the Records deemed
confidential at the Company's sole expense.
(p) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange
Offer or the first Registration Statement relating to the Registrable
Notes; and in connection therewith, cooperate with the trustee under any
such indenture and the Holders of the Registrable Notes, to effect such
changes to such indenture as may be required for such indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use
their best efforts to cause such trustee to execute, all documents as may
be required to effect such changes and all other forms and documents
required to be filed with the SEC to enable such indenture to be so
qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 60 days after the end of any fiscal quarter (or 120 days
after the end of any fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm
commitment or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said fiscal periods.
(r) Upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company, who may, at the Company's
election, be internal counsel to the Company, in a form customary for
underwritten transactions, addressed to the Trustee for the benefit of all
Holders of Registrable Notes participating in the Exchange Offer or the
Private Exchange, as the case may be, that the Exchange Notes or Private
Exchange Notes, as the case may be, and the related indenture constitute
legal, valid and binding obligations of the Issuers, enforceable against
the Issuers in accordance with its respective terms, subject to customary
exceptions and qualifications.
<PAGE>
-22-
(s) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, the Company shall
mark, or cause to be marked, on such Registrable Notes that such
Registrable Notes are being cancelled in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be; in no event shall such
Registrable Notes be marked as paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(u) Use their best efforts to take all other steps necessary or
advisable to effect the registration of the Registrable Notes covered by a
Registration Statement contemplated hereby.
The Company may require each Holder of Registrable Notes as to which any
registration is being effected to furnish to the Company such information
regarding such Holder and the distribution of such Registrable Notes as the
Company may, from time to time, reasonably request and in such event shall have
no further obligation under this Agreement (including, without limitation,
obligations under Section 4 hereof) with respect to such Holder or any
subsequent holder of such Registrable Notes. The Company may exclude from such
registration the Registrable Notes of any Holder who unreasonably fails to
furnish such information within a reasonable time after receiving such request
and in such event shall have no further obligation under this Agreement
(including, without limitation, obligations under Section 4 hereof) with respect
to such seller or any subsequent holder of such Registrable Notes. Each seller
as to which any Shelf Registration is being effected agrees to furnish promptly
to the Company all information required to be disclosed in order to make the
information previously furnished to the Company by such seller not materially
misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Bro-
<PAGE>
-23-
ker-Dealer, as the case may be, that, upon actual receipt of any notice
from the Company of the happening of any event of the kind described in Sections
5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi) hereof, such Holder will forthwith
discontinue disposition of such Registrable Notes covered by such Registration
Statement or Prospectus or Exchange Notes to be sold by such Holder or
Participating Broker-Dealer, as the case may be, until such Holder's or
Participating Broker-Dealer's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(k) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amendments or
supplements thereto. In the event that the Company shall give any such notice,
each of the Effectiveness Period and the Applicable Period shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Registrable Notes
covered by such Registration Statement or Exchange Notes to be sold by such
Participating Broker-Dealer, as the case may be, shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 5(k)
hereof or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Issuers shall be borne by the Issuers whether or not the
Exchange Offer or a Shelf Registration is filed or becomes effective, including,
without limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with the NASD
in connection with an underwritten offering and (B) fees and expenses of
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel in connection with Blue Sky
qualifications of the Registrable Notes or Exchange Notes and determination of
the eligibility of the Registrable Notes or Exchange Notes for investment under
the laws of such jurisdictions (x) where the holders of Registrable Notes are
located, in the case of the Exchange Notes, or (y) as provided in Section 5(h)
hereof, in the case of Registrable Notes or Exchange Notes to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses, including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriter or underwriters, if any,
<PAGE>
-24-
by the Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or Prospectus sold by any
Participating Broker-Dealer during the Applicable Period, as the case may be,
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Issuer and, in the case of a Shelf Registration Statement, fees
and disbursements of special counsel for the sellers of Registrable Notes
(subject to the provisions of Section 6(b) hereof), (v) fees and disbursements
of all independent certified public accountants referred to in Section 5(n)(iii)
hereof (including, without limitation, the expenses of any special audit and
"cold comfort" letters required by or incident to such performance), (vi) rating
agency fees, if any, and any fees associated with making the Registrable Notes
or Exchange Notes eligible for trading through the Depository Trust Company,
(vii) Securities Act liability insurance, if the Company desires such insurance,
(viii) fees and expenses of all other Persons retained by the Issuers, (ix)
internal expenses of the Issuers (including, without limitation, all salaries
and expenses of officers and employees of the Issuers performing legal or
accounting duties), (x) the expense of any annual audit, (xi) the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange, if applicable, and (xii) the expenses
relating to printing, word processing and distributing of all Registration
Statements, underwriting agreements, securities sales agreements, indentures and
any other documents necessary to comply with this Agreement.
(b) The Issuers shall (i) reimburse the Holders of the Registrable Notes
being registered in a Shelf Registration for the reasonable fees and
disbursements of not more than one counsel (in addition to appropriate local
counsel) chosen by the Holders of a majority in aggregate principal amount of
the Registrable Notes to be included in such Registration Statement and (ii)
reimburse out-of-pocket expenses (other than legal expenses) of Holders of
Registrable Notes incurred in connection with the registration and sale of the
Registrable Notes pursuant to a Shelf Registration Statement or in connection
with the exchange of Registrable Notes pursuant to the Exchange Offer.
7. Indemnification
(a) Each of the Issuers, jointly and severally, agrees to indemnify and
hold harmless each Holder of Registrable Notes offered pursuant to a Shelf
Registration Statement and each Participating Broker-Dealer selling Exchange
Notes during the Applicable Period, the officers, directors, employ-
<PAGE>
-25-
ees and agents of each such Person or their affiliates, and each other
Person, if any, who controls any such Person or their affiliates within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act (each, a "Participant"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, the legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Registrable Notes or Exchange
Notes, as the case may be, is registered (or any amendment thereto) or related
Prospectus (or any amendments or supplements thereto) or any related preliminary
prospectus, or caused by, arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Issuers
will not be required to indemnify a Participant if (i) such losses, claims,
damages or liabilities are caused by any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information relating to any Participant furnished to the Company in writing by
or on behalf of such Participant expressly for use therein or (ii) if such
Participant sold to the person asserting the claim the Registrable Notes or
Exchange Notes that are the subject of such claim and such untrue statement or
omission or alleged untrue statement or omission was contained or made in any
preliminary prospectus and corrected in the Prospectus or any amendment or
supplement thereto and the Prospectus does not contain any other untrue
statement or omission or alleged untrue statement or omission of a material fact
that was the subject matter of the related proceeding and it is established by
the Company in the related proceeding that such Participant failed to deliver or
provide a copy of the Prospectus (as amended or supplemented) to such Person
with or prior to the confirmation of the sale of such Registrable Notes or
Exchange Notes sold to such Person if required by applicable law, unless such
failure to deliver or provide a copy of the Prospectus (as amended or
supplemented) was a result of noncompliance by the Company with Section 5 of
this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Issuers, their respective officers, directors, employees and
agents and each Person who controls each Issuer within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act
<PAGE>
-26-
to the same extent as the foregoing indemnity from the Issuers to each
Participant, but only (i) with reference to information relating to such
Participant furnished to the Company in writing by or on behalf of such
Participant expressly for use in any Registration Statement or Prospectus, any
amendment or supplement thereto or any preliminary prospectus or (ii) with
respect to any untrue statement or representation made by such Participant in
writing to the Company. The liability of any Participant under this paragraph
shall in no event exceed the proceeds received by such Participant from sales of
Registrable Notes or Exchange Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the fees and expenses actually incurred by such counsel related to such
proceeding; provided, however, that the failure to so notify the Indemnifying
Person shall not relieve it of any obligation or liability that it may have
hereunder or otherwise (unless and only to the extent that such failure directly
results in the loss or compromise of any material rights or defenses by the
Indemnifying Person and the Indemnifying Person was not otherwise aware of such
action or claim). In any such proceeding, any Indemnified Person shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Person unless (i) the Indemnifying Person
and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person shall have failed within a reasonable
period of time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicting interests between them. It
is understood that, unless there exists a conflict among Indemnified Persons,
the Indemnifying Person shall not, in connection with any one such proceeding or
separate but substantially similar related proceeding in the same jurisdiction
arising out of the same general allegations, be liable for the fees and ex-
<PAGE>
-27-
penses of more than one separate firm (in addition to any local counsel)
for all Indemnified Persons, and that all such fees and expenses shall be
reimbursed promptly as they are incurred. Any such separate firm for the
Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable Notes and
Exchange Notes sold by all such Participants and any such separate firm for the
Issuers, their officers, directors, employees and agents and such control
Persons of such Issuer shall be designated in writing by such Issuer and shall
be reasonably acceptable to the Participants.
The Indemnifying Person shall not be liable for any settlement of any
proceeding effected without its prior written consent, which consent shall not
be unreasonably withheld, but if settled with such consent or if there be a
final non-appealable judgment for the plaintiff for which the Indemnified Person
is entitled to indemnification pursuant to this Agreement, the Indemnifying
Person agrees to indemnify and hold harmless each Indemnified Person from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Person
shall have requested an Indemnifying Person to reimburse the Indemnified Person
for fees and expenses actually incurred by counsel as contemplated by the third
sentence of this paragraph, the Indemnifying Person agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 60 days after receipt by such
Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person
shall not have reimbursed the Indemnified Person in accordance with such request
prior to the date of such settlement; provided, however, that the Indemnifying
Person shall not be liable for any settlement effected without its consent
pursuant to this sentence if the Indemnifying Person is contesting, in good
faith, the request for reimbursement. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement (A) includes
an unconditional written release of such Indemnified Person, in form and
substance reasonably satisfactory to such Indemnified Person, from all liability
on claims that are the subject matter of such proceeding and (B) does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of any Indemnified Person.
<PAGE>
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(d) If the indemnification provided for in the first and second paragraphs
of this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuers on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses actually incurred by such Indemnified Person in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, in no event shall a Participant be required to
contribute any amount in excess of the amount by which proceeds received by such
Participant from sales of Registrable Notes or Exchange Notes, as the case may
be, exceeds the amount of any damages that such Participant has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securi-
<PAGE>
-29-
ties Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability that the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above.
8. Rule 144 and 144A
Each of the Issuers covenants and agrees that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder in a timely manner in
accordance with the requirements of the Securities Act and the Exchange Act and,
if at any time such Issuer is not required to file such reports, such Issuer
will, upon the request of any Holder or beneficial owner of Registrable Notes,
make publicly available annual reports and such information, documents and other
reports of the type specified in Sections 13 and 15(d) of the Exchange Act. Each
of the Issuers further covenants and agrees for so long as any Registrable Notes
remain outstanding, to make available to any Holder or beneficial owner of
Registrable Notes in connection with any sale thereof and any prospective
purchaser of such Registrable Notes from such Holder or beneficial owner the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Registrable Notes pursuant to Rule 144A.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration are to be
sold in an underwritten offering, the investment banker or investment bankers
and manager or managers that will manage the offering will be selected by the
Holders of a majority in aggregate principal amount of such Registrable Notes
included in such offering and reasonably acceptable to the Issuers.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
<PAGE>
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10. Miscellaneous
(a) No Inconsistent Agreements. The Issuers have not, as of the date
hereof, and shall not, after the date of this Agreement, enter into any
agreement with respect to any of its securities that is inconsistent with the
rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of any of the Issuers' other issued and
outstanding securities under any such agreements. The Issuers have not entered
and will not enter into any agreement with respect to any of its securities that
will grant to any Person piggy-back registration rights with respect to a
Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Issuers shall not,
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (A) the Holders of not less than a majority in aggregate principal
amount of the then outstanding Registrable Notes, or (B) in circumstances that
would adversely affect the Participating Broker-Dealers, the Participating
Broker-Dealers holding not less than a majority in aggregate principal amount of
the Exchange Notes held by all Participating Broker-Dealers; provided, however,
that Section 7 and this Section 10(c) may not be amended, modified or
supplemented without the prior written consent of each Holder and each
Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case
may be, disposed of pursuant to any Registration Statement) affected by any such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate
<PAGE>
-31-
principal amount of the Registrable Notes being sold by such Holders
pursuant to such Registration Statement.
(d) Notices. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture, with a copy in like manner to the Initial
Purchasers as follows:
BT ALEX. BROWN INCORPORATED
130 Liberty Street
New York, New York 10006
Facsimile No.: (212) 250-7200
Attention: Corporate Finance Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: William M. Hartnett, Esq.
2. if to the Initial Purchasers, at the addresses specified in
Section 10(d)(1);
3. if to the Issuers, at the address as follows:
PENN NATIONAL GAMING, INC.
Wyomissing Professional Center
825 Berkshire Boulevard, Suite 200
Wyomissing, PA 19610
Facsimile No.: (610) 376-2842
Attention: Chief Financial Officer
<PAGE>
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with a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Facsimile No.: (215) 963-5299
Attention: Brian Lynch, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign holds Registrable Notes.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of compe-
<PAGE>
-33-
tent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
(j) Securities Held by the Issuers or Their Respective Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Notes is required hereunder, Registrable Notes held by the Issuers or their
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Notes and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase Agreement
and the Indenture, is intended by the parties as a final and exclusive statement
of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Initial Purchasers on
the one hand and the Issuers on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
PENN NATIONAL GAMING, INC.
By:
------------------------------------
Name:
Title:
THE PLAINS COMPANY, as
Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
MOUNTAINVIEW THOROUGHBRED RACING
ASSOCIATION, as Subsidiary
Guarantor
By:
------------------------------------
Name:
Title:
PENNSYLVANIA NATIONAL TURF
CLUB, INC., as Subsidiary
Guarantor
By:
------------------------------------
Name:
Title:
<PAGE>
PENN NATIONAL SPEEDWAY, INC., as
Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
PENN NATIONAL HOLDING COMPANY,
as Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
PENN NATIONAL GAMING OF WEST
VIRGINIA, INC., as Subsidiary
Guarantor
By:
------------------------------------
Name:
Title:
STERLING AVIATION INC., as
Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
<PAGE>
POCONO DOWNS, INC., as
Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
NORTHEAST CONCESSIONS, INC.,
as Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
THE DOWNS OFF-TRACK WAGERING,
INC., as Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
THE DOWNS RACING, INC., as
Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
<PAGE>
PENN NATIONAL GAMING OF INDIANA,
INC., as Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
PNGI POCONO, INC., as
Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
TENNESSEE DOWNS, INC., as
Subsidiary Guarantor
By:
------------------------------------
Name:
Title:
BT ALEX. BROWN INCORPORATED
JEFFERIES & COMPANY, INC.,
as Initial Purchasers
By: BT. ALEX BROWN INCORPORATED
------------------------------------
Name:
Title:
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Penn National Gaming, Inc.
and Subsidiaries
Wyomissing, Pennsylvania
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 25, 1997, relating to the
consolidated financial statements of Penn National Gaming, Inc. and Subsidiaries
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman
-------------------------
BDO Seidman, LLP
Philadelphia, Pennsylvania
January 30, 1998
