SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
Preliminary Proxy Statement / /
Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2) / /
Definitive Proxy Statement /X/
Definitive Additional Materials / /
Soliciting Material Pursuant to ss.240.14a- I I (c) or ss.240.14a- 1 2 / /
PENN NATIONAL GAMING, INC.
(Name of Registrant as Specified In Its Charter)
PENN NATIONAL GAMING, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-1 I (set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0- I I (a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement no.:
3) Filing Party:
4) Date Filed:
<PAGE>
PENN NATIONAL GAMING, INC.
825 Berkshire Boulevard
Suite 200
Wyomissing, Pennsylvania 19610
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held May 25, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Penn
National Gaming, Inc. (the "Company"), a Pennsylvania corporation, will be held
on May 25, 1999, at 10:00 AM, local time, at the offices of Mesirov, Gelman,
Jaffe, Cramer, & Jamieson, LLP. 38th Floor, 1735 Market Street, Philadelphia,
Pennsylvania 19103 for the following purposes:
1. To elect two Class III Directors for a term of three years and until
their successors are duly elected and qualified.
2. To consider and act upon a proposal to ratify the appointment of BDO
Seidman, LLP as independent public accountants for the Company for the fiscal
year ending December 31, 1999.
3 . To consider and transact such other business as may properly come
before the Annual Meeting or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting.
Only shareholders of record at the close of business on March 19, 1999
are entitled to notice of and to vote at the Annual Meeting and any postponement
or adjournment thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. Any shareholder attending the Annual Meeting may vote in person even if
such shareholder previously signed and returned a proxy.
FOR THE BOARD OF DIRECTORS
Robert S. Ippolito
Secretary
Wyomissing, Pennsylvania
April 22, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
PROVIDED FOR THAT PURPOSE TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
<PAGE>
PENN NATIONAL GAMING, INC.
Wyomissing Professional Center
825 Berkshire Boulevard, Suite 200
Wyomissing, Pennsylvania 19610
(610) 373-2400
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
MAY 25, 1999
This Proxy Statement and the enclosed Proxy are first being sent or
given to shareholders of Penn National Gaming, Inc. (the "Company") on or about
April 22, 1999, in connection with the solicitation of proxies for use at the
Company's Annual Meeting of Shareholders ("Annual Meeting") to be held May 25,
1999, at 10:00 a.m., local time, or at any adjournment or postponement thereof,
for the purposes set forth herein and in the accompanying Notice of Annual
Meeting. The Annual Meeting will be held at the offices of Mesirov, Gelman,
Jaffe, Cramer, & Jamieson, LLP, 38' Floor, 1735 Market Street, Philadelphia,
Pennsylvania 19103. This solicitation is being made on behalf of the Board of
Directors of the Company.
INFORMATION CONCERNING SOLICITATION AND VOTING
Record Date and Shares Outstanding
The Board of Directors has fixed the close of business on March 19,
1999, as the record date ("Record Date") for the determination of shareholders
of the Company entitled to notice of, and to vote at, the Annual Meeting. At the
Record Date, 14,757,059 shares of the Company's Common Stock were issued and
outstanding and entitled to vote at the Annual Meeting.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
Voting and Solicitation
The presence, in person or by proxy, of shareholders entitled to cast
at least a majority of the votes which all shareholders are entitled to cast is
necessary for a quorum to be present at the Annual Meeting. Each share of the
Company's Common Stock outstanding is entitled to one vote on each matter which
may be brought before the Annual Meeting.
Proxies given in the form enclosed, unless previously revoked, will
be voted at the Annual Meeting in accordance with the instructions contained
therein, and if no choice is specified, will be voted in favor of the proposals
set forth in the notice of meeting. Assuming a quorum is present, the
affirmative vote of a majority of the votes cast at the Annual Meeting is
required for (i) the election of directors; (ii) the ratification of BDO
Seidman, LLP as the independent public accountants for the year ending December
31, 1999; and (iii) the approval of any other matters which may properly come
<PAGE>
before the Annual Meeting or any postponement or adjournment thereof. For
purposes of determining the number of votes cast, only those cast "for" or
"against" are counted. Abstentions and broker non-votes are counted only for
purposes of determining whether a quorum is present at the Annual Meeting.
Under Pennsylvania law, a quorum is required to conduct business at the Annual
Meeting.
It is expected that the solicitation of proxies will be conducted
primarily by mail. Proxies may also be solicited personally or by telephone,
telegraph, or telecopy. The cost of this solicitation will be borne by the
Company. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and employees, without
additional compensation, personally or by telephone, telegram, or telecopy.
ELECTION OF DIRECTORS
Information about Nominees and Other Directors
Two Class III Directors will be elected at the Annual Meeting to hold
office, subject to the provisions of the Company's By-Laws, until the annual
meeting of shareholders of the Company to be held in the year 2002, and until
their respective successors are duly elected and qualified.
The following table sets forth the name, age, principal occupation, and
respective service date of each person who has been nominated to be a Director
of the Company:
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since Term Expires
<S> <C> <C> <C> <C>
Peter M. Carlino 52 Chairman of the Board and 1994 2002
Chief Executive Officer
Harold Cramer 71 Counsel to Mesirov, Gelman, 1994 2002
Jaffe, Cramer, & Jamieson,
LLP
</TABLE>
Peter M. Carlino. Mr. Carlino has served as Chairman of the Board and
Chief Executive Officer of the Company since April 1994, and has devoted a
significant amount of time to the activities of the Company as a Director since
1991. From 1984 to 1994, Mr. Carlino devoted a substantial portion of his
business time to developing, building and operating residential and commercial
real estate projects located primarily in Central Pennsylvania. Since 1976 he
has been President of Carlino Financial Corporation ("Carlino Financial"), a
holding company which owns and operates various Carlino family businesses, in
which capacity he has been continuously active in strategic planning for the
Company and monitoring its operations. From 1972 until 1976, Mr. Carlino served
as President of Mountainview Thoroughbred Racing Association, a subsidiary of
the Company ("Mountainview").
(2)
<PAGE>
Harold Cramer. Mr. Cramer has been a Director of the Company since 1994.
Since November 1996, Mr. Cramer has been Counsel to Mesirov Gelman Jaffe Cramer
& Jamieson, LLP, a Philadelphia law firm which provides legal services to the
Company. From November 1995 until November 1996, Mr. Cramer was Chairman of the
Board and Chief Executive Officer of HSI Management Co., Inc. From 1989 until
November 1995, Mr. Cramer was Chairman of the Board and Chief Executive Officer
of Graduate Health System, Inc. ("GHS") and has been a Director of GHS n/k/a/
Philadelphia Health Care Trust since November 1996. He also serves as a Director
of several subsidiaries of the Company.
The following table sets forth the name, age, principal occupation, and
respective service date of each Director whose term of office extends beyond the
date of the Annual Meeting:
<TABLE>
<CAPTION>
Name Age Principal Occupation Director Since Term Expires
<S> <C> <C> <C> <C>
David A. Handler 34 Senior Vice President of Corporate 1994 2000
Finance of Jefferies & Company, Inc.
John M. Jacquemin 52 President Mooring Financial Group 1995 2000
William J. Bork 65 President and Chief Operating Officer of 1995 2001
the Company
Robert P. Levy 62 Chairman of the Board of the Atlantic 1995 2001
City Racing Association
</TABLE>
David A. Handler. Mr. Handler has been a Director of the Company since
1994. From 1995 to the present, Mr. Handler has been an investment banker and is
currently a Senior Vice President of Corporate Finance at Jefferies & Company,
Inc. From 1991 to 1995, he was a Vice President at Fahnestock & Co., Inc.
John M. Jacquemin. Mr. Jacquemin has been a Director of the Company since
1995 and is President of Mooring Financial Corporation, a financial services
group specializing in the purchase and administration of commercial loan
portfolios and equipment leases. Mr. Jacquemin joined Mooring Financial
Corporation in 1982 and has served as its President since 1987.
William J. Bork. Mr. Bork was elected President, Chief Operating Officer
and a Director in June 1995. From 1987 to June 1995 he was Vice President for
Ladbroke Racing Corporation. Prior to working with Ladbroke, Mr. Bork served as
Vice President of Operations of racetracks previously owned by Ogden Corporation
including Fairmount Park in Collinsville, Illinois; Mountaineer Park in Chester,
West Virginia; Wheeling Downs in Wheeling, West Virginia; and Suffolk Downs in
Boston, Massachusetts.
Robert P. Levy. Mr. Levy has been a Director of the Company since 1995. He
is Chairman of the Board of the Atlantic City Racing Association and served a
two-year term from 1989 to 1990 as President of the Thoroughbred Racing
Association. Mr. Levy has served as the Chairman of the Board of DRT Industries,
Inc., a diversified business based in the Philadelphia metropolitan area, since
1960. Mr. Levy owns the Robert P. Levy Stable, a thoroughbred racing and
breeding operation which has bred and owned several award-winning horses,
including the 1987 Belmont Stakes winner, Bet Twice.
(3)
<PAGE>
Meetings of the Board of Directors and Information About Board Committees
The Board of Directors held four meetings during the fiscal year ended
December 31, 1998. Each Director attended at least 75% of all meetings of the
Board and all meetings of Board committees on which he served.
The Company has two standing Committees: the Audit and Compensation
Committees. David A. Handler and John M. Jacquemin are members of the Audit
Committee, and Harold Cramer and Robert P. Levy are members of the Compensation
Committee. The principal functions of the Audit Committee are to recommend
engagement of the Company's independent auditors, to consult with the Company's
auditors concerning the scope of the audit, to review with the auditors the
results of the examination, to review and approve any material accounting policy
changes affecting the Company's operating results, and to review the Company's
financial control procedures and personnel. The Compensation Committee reviews
compensation and benefits for the Company's executives and administers the grant
of stock options to executive officers under the Company's 1994 Stock Option
Plan. One meeting of each of the Audit Committee and the Compensation Committee
was held in 1998. The Board of Directors does not have a nominating committee.
The Company pays director's fees to each Director who is not an employee
of the Company. During the year ending December 31, 1998, each outside Director
received an annual fee of $14,000, plus $1,000 for each Board meeting attended
before September 1, 1998 and $1,500 for each board meeting attended after
September 1, 1998 and reimbursement for out-of-pocket expenses in connection
with his attendance at such meetings. In addition, in 1998 each non-employee
Director was granted an option to purchase 15,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
the grant. All grants of options to non-employee Directors vest in four equal
annual installments, commencing on the first anniversary of the date of grant.
COMPENSATION COMMITTEE REPORT
The Company's executive officer compensation program is administered and
reviewed by the Compensation Committee of the Board of Directors. The
Compensation Committee consists of two independent, non-employee Directors of
the Company.
Policies and Mission
The Compensation Committee has determined that compensation of executive
officers should include a mixture of short and long range compensation plans
which attract, motivate and retain competent executive personnel, increase
executive ownership interests in the Company and encourage increases in the
Company's productivity and profitability. As such, the Company's policy is that
executive compensation should be directly and materially related to the
short-term and long-term operating performance and objectives of the Company. To
achieve these ends, executive compensation, including base salary and stock
option grants, is to a significant extent dependent upon the Company's financial
performance and the return on its Common Stock. However, to ensure that the
Company is strategically and competitively positioned for the future, the
Compensation Committee also attributes significant weight to other factors in
determining executive compensation, such as maintaining competitiveness,
implementing capital improvements, expanding markets and achieving other
long-range business and operating objectives.
(4)
<PAGE>
Compensation Plan
To determine appropriate levels of executive compensation, the
Compensation Committee periodically reviews the executive compensation programs
and policies of the Company's competitors, in addition to a broader group of
companies in its marketplace, to ensure that the Company's plans and practices
are competitive and appropriately based on the Company's performance and
compensation philosophy.
Base Salary
The objective for computing executive base salaries is to structure
salaries that are competitive with those of similarly situated companies. In
setting base salary levels for individual executives in the future, the
Compensation Committee will consider such factors as the executive's scope of
responsibility, current performance, future potential and overall competitive
positioning relative to comparable positions at other companies. The base
salaries for Peter M. Carlino, William J. Bork, and Robert S. Ippolito are set
pursuant to employment agreements and currently are $355,000, $245,000, and
$143,000 per year, respectively.
Stock Options
Stock options are granted under the provisions of the Company's 1994
Stock Option Plan (the "Plan") as amended and restated. Stock options are
granted to reinforce the importance of improving shareholder value over the
long-term and to encourage and facilitate executive stock ownership. Stock
options are granted at not less than 100% of the fair market value of the stock
on the date of grant to ensure that executives can only be rewarded for
appreciation in the price of the Common Stock where the Company's shareholders
are similarly benefitted. For future grants, the Compensation Committee will
establish levels of participation for the stock option program based upon each
executive officer's or other employee's position in the Company. The number of
options to be granted to each executive officer will be contingent on the
individual executive's performance, tenure and future potential.
Annual Bonus
Annual bonus awards recognize an executive's contribution to each
year's annual business results as measured against competitors and against the
Company's operational plans. Company and individual performance are assessed in
relation to the following major factors, listed in order of importance:
individual executive performance, revenue growth, earnings and cost management.
Performance, as measured by these factors, which meets operational plans
and equals the results of the competition, provided for bonus opportunities that
are comparable to the bonus level at other gaming and horse racing companies.
Better to worse performance can result in payments that are higher or lower than
such comparable companies. An individual's bonus, reflecting personal
contribution to business results, can range from 0 to 200% of the bonuses of
comparable companies for the individual's job.
Performance Evaluation
For the Chief Executive Officer ("CEO"), approximately 70% of the
total compensation opportunity target is base salary and approximately 30% is
variable compensation that is at risk and tied to competitive corporate business
results. The CEO's current base salary approximates the median salary of CEO's
of comparably-sized companies. The CEO's total compensation opportunity is also
consistent with the median compensation for CEO's in comparable companies.
Factors reviewed by the Compensation Committee's assessment of the Company's and
the CEO's performance include individual performnce, profitability, profit
(5)
<PAGE>
improvement, growth in revenue, and expense management. The Compensation
Committee determined that the objective performance goals established by the
Company had been met and decided to grant a bonus to the CEO based on the
Company's earnings performance in 1997. Also taken into account were other
factors, including the significant acquisition activity to support
implementation of the Company's business strategy.
For the CEO, the awards of stock options are also shown in the Summary
Compensation Table. The option awards recognize the total shareholder return
achieved in 1997 as well as the Company's long-term needs and were intended to
link the CEO's future compensation opportunity to the creation of additional
shareholder value.
Compensation Committee of the Board of Directors
Harold Cramer and Robert P. Levy
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 19, 1999, by (i)
each person known to the Company to own beneficially more than five percent of
the Company's outstanding Common Stock, (ii) each director, (iii) the chief
executive officer and each of the four other most highly compensated executive
officers of the Company, and (iv) all of the executive officers and directors of
the Company as a group.
(6)
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership of
Common Stock
Percentage of
Number of Outstanding
Name and Address (1) Shares Shares
<S> <C> <C>
Peter D. Carlino (2) 5,428,814 36.8%
Peter M. Carlino (3) 6,314,984 41.4%
David E. Carlino (4) 5,308,464 36.0%
Richard J. Carlino (5) 5,266,405 35.7%
Harold Cramer (6) 5,445,314 36.9%
Carlino Family Trust (7) 5,239,236 35.5%
William J. Bork 232,666 1.6%
Philip T. O'Hara, Jr. 56,250 *
David A. Handler 84,979 *
Robert S. Ippolito 72,850 *
John M. Jacquemin 19,350 *
Robert P. Levy 18,750 *
Robert Abraham 12,750 *
Joseph A. Lashinger Jr. 6,650 *
George A. Connolly 1,450 *
Friedman, Billings, Ramsey Group, Inc. 1,189,310 8.1%
Potomac Tower, 1001 Nineteenth Street
North, Arlington, Virginia 22209 (8)
All executive officers and directors 7,056,757 47.8%
as a group (11 persons)(3)(6)
</TABLE>
* Less than 1%
(1) The persons named in the above table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by them
except as otherwise shown in the succeeding footnotes, and the address of each
such person other than Friedman, Billings, Ramsey Group, Inc. is c/o the
Company, 825 Berkshire Boulevard, Suite 200, Wyomissing, Pennsylvania 19610. The
number of shares included in the table as to each person(s) also includes shares
which may be acquired by such person(s) within sixty days of March 19, 1999
pursuant to stock options.
(2) The number of shares in the table includes 5,239,236 shares owned by an
irrevocable trust (the "Family Trust") among Peter D. Carlino and his eight
children, as settlors, and certain trustees, as to which Peter D. Carlino has
shared investment and voting power with respect to certain matters; 7,000 shares
held by PennTitle, Inc. f/k/a Penn Title Insurance Company ("PennTitle") as to
which Peter D. Carlino has voting and investment power; and 182,578 shares owned
by a marital trust for the benefit of Peter D. Carlino and by a residuary trust
for the benefit of Peter D. Carlino's children as to both of which Peter D.
Carlino has shared investment power and shared voting power.
(footnotes continued on following page)
(7)
<PAGE>
(footnotes continued from preceding page)
(3) The number of shares in the table includes 5,239,236 shares owned by the
Family Trust as to which Peter M. Carlino has sole voting power for the election
of directors and certain other matters, shared voting power with respect to
certain matters, and shared investment power; 7,000 shares held by PennTitle as
to which Peter M. Carlino has shared voting and investment power and 559,248
shares owned jointly by Mr. Carlino and his wife, Marshia Carlino.
(4) The number of shares in the table includes 5,239,236 shares owned by the
Family Trust, as to which David E. Carlino has shared investment power and
shared voting power as to certain matters; 7,000 shares held by PennTitle as to
which David E. Carlino has shared voting and investment power and 182,578 shares
owned beneficially by David E. Carlino's children as to which he disclaims
beneficial ownership.
(5) The number of shares in the table includes 5,239,236 shares of Common Stock
owned by the Family Trust, as to which Richard J. Carlino has shared investment
power and shared voting power as to certain matters.
(6) The number of shares in the table includes 5,239,236 shares owned by the
Family Trust, and an aggregate of 182,578 shares owned by a marital trust for
the benefit of Peter D. Carlino and by a residuary trust for the benefit of
Peter D. Carlino's children as to both of which Harold Cramer has shared
investment power and shared voting power.
(7) See note (2).
(8) The information in the table is based on information contained in a
Statement on Schedule 13G filed by Friedman, Billings Ramsey Group, Inc. with
the Securities and Exchange Commission dated February 16, 1999.
(8)
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid or
accrued by the Company for services rendered for the last three fiscal years to
the Company's Chief Executive Officer and each executive officer whose aggregate
cash compensation in 1998 exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION AWARDS OPTIONS(1)
COMPENSATION(2)
YEAR SALARY BONUS
<S> <C> <C> <C> <C> <C> <C>
Peter M. Carlino 1998 $ 361,670 $126,000 -- 53,000 $5,000
Chairman of the Board and 1997 $ 315,341 $126,000 -- -- $4,750
Chief Executive Officer 1996 $ 274,997 $ 25,000 -- 300,000 $4,750
William J. Bork 1998 $ 246,071 $65,000 -- 24,000 $5,000
President and Chief 1997 $ 223,666 $84,000 -- -- $4,750
Operating Officer 1996 $ 205,958 -- -- 100,000 $1,615
Philip T. O'Hara, Jr. 1998 $ 194,947 $ 20,000 -- -- $5,000
Vice President 1997 $ 179,087 $ 25,000 -- -- $3,357
General Manager 1996 $ 149,501 $ 25,000 -- -- $2,987
Robert S. Ippolito 1998 $ 144,095 $ 20,000 -- 6,000 $2,881
Chief Financial Officer 1997 $ 127,902 $ 40,000 -- -- $3,357
Secretary/Treasurer 1996 $ 110,385 $ 18,600 -- 10,000 $2,959
Joseph A. Lashinger, Jr. 1998 $ 153,520 $ 15,000 -- 5,000 $3,260
Vice President/General 1997(3) $ 65,769 -- -- -- --
Counsel 1996 -- -- -- -- --
</TABLE>
(1) Adjusted for all stock splits to date.
(2) Includes amounts contributed by the Company to its profit sharing and
401 (k) plan for the account of such executive
officers.
(3) Represents compensation from July 1, 1997 through December 31, 1997.
(9)
<PAGE>
<TABLE>
<CAPTION>
GRANT OF STOCK OPTIONS IN 1998
Potential Realizable
value at Assumed
Individual Grants Annual Rates of Stock
Price Appreciation for
Option Term
Number of Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
NAME Granted (1) Fiscal Year Share(2) Date 5% (3) 10% (3)
- ---- ----------- ----------- ----- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Carlino 19,000 9.7% $ 15.38 4/15/07 $ 183,716 $ 465,572
Peter M. Carlino 34,000 17.5% $ 6.44 8/6/08 $ 137,660 $ 348,857
William J. Bork 9,000 4.6% $ 15.38 4/15/07 $ 87,023 $ 220,534
William J. Bork 15,000 7.7% $ 6.44 8/6/08 $ 60,732 $ 153,908
Robert S. Ippolito 6,000 3.1% $ 6.44 8/6/05 $ 15,725 $ 36,647
Joseph A. Lashinger, Jr. 5,000 2.6% $ 6.44 8/6/05 $ 13,105 $ 30,539
- ----------------------------- -------------- ----------------- ------------ ------------- -------------- -------------
</TABLE>
(1) Options granted to Mr. Bork vest one-third on the first anniversary of the
date of grant, and one-third on each succeeding such anniversary. Options
granted to Mr. Carlino, Mr. Ippolito and Mr. Lashinger vest one-quarter on
the first anniversary of the date of grant, and one-quarter on each
succeeding such anniversary.
(2) The exercise price is equal to the closing price of the Company's Common
Stock on the date of grant.
(3) Potential realizable value is based on an assumption that the market price
of the stock appreciates at the stated rates compounded annually, from the
date of grant until the end of the respective option term. These values are
calculated based on requirements promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
appreciation.
(10)
<PAGE>
EXERCISE OF STOCK OPTIONS IN 1998
The following table provides information with respect to the named
executive officers concerning the exercise of stock options during 1998 and
unexercised options held as of December 31, 1998. There are no outstanding stock
appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at December 31, 1998 at December 31, 1998
---------------------------- --------------------
Shares
Acquired Value
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Peter M. Carlino -- $ -- 504,750 148,250 $ 1,100,000 $ 19,108
William J. Bork -- $ -- 219,666 54,334 $ 225,000 $ 8,430
Robert S. Ippolito -- $ -- 71,000 11,000 $ 242,000 $ 3,372
Philip T. O'Hara, Jr. -- $ -- 56,250 -- $ 206,250 $ --
Joseph A. Lashinger, Jr. -- $ -- 6,250 23,750 $ -- $ 2,810
</TABLE>
Employment Agreements
On April 12, 1994, the Company entered into employment agreements with
Peter M. Carlino, its Chairman and Chief Executive Officer, and Robert S.
Ippolito, its Chief Financial Officer, Secretary, and Treasurer, at annual base
salaries of $225,000 and $95,000, respectively. The agreements with Messrs.
Carlino and Ippolito were effective beginning June 1, 1994 and terminate on June
30, 1999. Effective June 1, 1998, Mr. Carlino's annual base salary was increased
to $355,000, and effective June 1, 1998, Mr. Ippolito's annual base salary was
increased to $143,000. Each agreement prohibits the applicable employee from
competing with the Company during its term and for one year thereafter and
requires a death benefit payment by the Company equal to 50% of the employee's
annual salary in effect at the time of his death. Pursuant to his employment
agreement, Mr. Carlino agreed to devote his full time to the Company, except
that Mr. Carlino may complete and monitor certain real estate investments in
which he has a substantial interest and which were previously commenced by him,
as long as such activities do not materially interfere with his duties to the
Company.
(11)
<PAGE>
On June 1, 1995, the Company entered into an employment agreement with
William J. Bork, its president and chief operating officer, at an annual base
salary of $210,000. The agreement was to terminate on June 12, 1998, but has
been extended until June 1, 1999. Effective June 12, 1998, Mr. Bork's annual
base salary was increased to $245,000. The agreement prohibits Mr. Bork from
competing with the Company during its term and for two years thereafter, and
requires a death benefit payment by the Company equal to 50% of the employee's
annual salary in effect at the time of his death.
Certain Transactions
James A. Irwin, the husband of Anne Carlino Irwin, a beneficiary of the
Family Trust, is an officer, director and minority shareholder in USI
MidAtlantic, Inc., the insurance agency, which is the broker for all of the
Company's property and casualty insurance. In 1998 the Company paid premiums of
$1,367,000 for such insurance.
In August 1994, the Company signed a five-year consulting agreement with
Peter D. Carlino, former Chairman of the Company, at an annual fee of $125,000.
On July 1, 1998 the consulting agreement was amended to increase the annual
payment to $135,000.
The Company currently leases 6,183 square feet of office space in an
office building in Wyomissing, Pennsylvania for the Company's executive offices.
The lease expires in April 2000 and provides for an annual rental of $74,076
plus common area expenses and electric utility charges. The office building is
owned by an affiliate of Peter M. Carlino, the Chairman and Chief Executive
Officer of the Company. The Company believes that the lease terms are not less
favorable than lease terms that could have been obtained from an unaffiliated
third party.
The Company currently leases an aircraft from a company owned by John
Jacquemin, a director of the Company. The lease expires in August 2007, and
provides for monthly payments of $8,356. The Company believes that the lease
terms are not less favorable than lease terms that could have been obtained from
an unaffiliated third party.
The Company has agreed to pay the premiums on four life insurance
policies, two payable when Peter M. Carlino dies and two payable when the
survivor of Peter M. Carlino and his wife, Marshia W. Carlino, dies, under a
"split-dollar" arrangement by which certain irrevocable trusts established by
Peter M. Carlino are obligated to reimburse the Company for all premiums paid
when the insurance matures or possibly sooner. The owners and beneficiaries of
the life insurance policies are the irrevocable trusts. In 1998, the Company
paid a total of $239,000 in premiums on the life insurance policies pursuant to
this arrangement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
executive officers and directors and persons who own more than ten percent of
the Company's Common Stock to file reports of ownership and changes in ownership
of the Company's Common Stock and any other equity securities of the Company
with the Security and Exchange Commission (SEC) and the NASD. Executive
officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
(12)
<PAGE>
Based solely on its review of the copies of Forms 3, 4 and 5 furnished
to the Company, or written representations from certain reporting persons that
no such Forms were required to be filed by such persons, the Company believes
that all its executive officers, directors and greater than 10% shareholders
complied with all filing requirements applicable to them during 1998.
(13)
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total shareholder return for
the Company's Common Stock since the Company's initial public offering of shares
of Common Stock on May 26, 1994 to the cumulative total returns of (I) the
NASDAQ Market Index and (ii) a Peer Group Index comprised of the following
gaming and thoroughbred horse racing companies: Churchill Downs, Inc., Global
Casinos, Inc., Hollywood Casino Corp., Hollywood Park, Inc., International
Gaming Technologies, International Thoroughbred Racing Inc., Mirage Resorts,
Inc., President Casinos, Inc., and Primadonna Resorts, Inc.
[GRAPHIC]
IN THE PRINTED VERSION OF THE DOCUMENT, A LINE GRAPH APPEARS WHICH DEPICTS THE
FOLLOWING PLOT POINTS.
<TABLE>
<CAPTION>
- ------------ ------------------------------- ----------- ----------- ------------ ----------- ----------- ------------
Legend
Year Ended
Symbol Index Description 05/26/94 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C> <C>
- --*-- Penn National Gaming, Inc. 100.0 65.0 128.8 427.3 292.35 209.90
- --=-- Nasdaq Market Index 100.0 101.3 131.4 163.3 135.43 281.71
- --+-- Peer Group 100.0 85.0 86.12 115.9 199.73 104.91
</TABLE>
Notes:
A. The lines represent annual index levels, assuming reinvestment of all
dividends paid during the measurement period.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day. C. If the annual interval, based on the fiscal
year-end, is not a trading day, the preceding trading day is used.
C. If the annual interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to 100.0 on 05/26/94.
- ------------ -----------------------------------------------------------
(14)
<PAGE>
APPROVAL OF THE APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board, which is composed entirely of
non-employee Directors, has selected BDO Seidman, LLP as certified public
accountants to audit the books, records and accounts of Penn National Gaming,
Inc., and its subsidiaries for the year 1999. The Board has endorsed this
appointment and it is being presented to the shareholders for approval.
All audit services provided by BDO Seidman, LLP are approved by the
Audit Committee.
Representatives of BDO Seidman, LLP will be present at the Annual
Meeting, will have an opportunity to make statements if they desire, and will be
available to respond to appropriate questions.
If the shareholders do not approve the appointment of BDO Seidman, LLP,
the Audit Committee will select another firm of auditors for the ensuing year.
The Board of Directors recommends that Shareholders vote FOR the
appointment of BDO Seidman, LLP as Independent Public Accountants.
Other Matters
The Company has mailed a 1998 Annual Report to Shareholders and a proxy
card together with this proxy statement to all shareholders of record at the
close of business on March 19, 1999. The Board of Directors does not know of any
other business, which will be presented for consideration at the Annual Meeting.
Except as the Board of Directors may otherwise permit, only the business set
forth and discussed in the Notice of Annual Meeting and Proxy Statement may be
acted on at the Annual Meeting. If any other business does properly come before
the Meeting or any postponement or adjournment thereof, the proxy holders will
vote in regard thereto according to their discretion insofar as such proxies are
not limited to the contrary.
SHAREHOLDER PROPOSALS
Shareholders who wish to submit proposals for inclusion in the Proxy
Statement for the Company's 2000 Annual Meeting of Shareholders must submit the
same to the Company on or before December 10, 1999, at the Company's principal
executive office, Wyomissing Professional Center, 825 Berkshire Blvd., Suite
200, Wyomissing, Pennsylvania 19610, directed to the attention of the Secretary.
The Board of Directors will review any shareholder proposals that are filed as
required and will determine whether such proposals meet applicable criteria for
inclusion in the Company Proxy noted for the 2000 Annual Meeting.
(15)
<PAGE>
FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED BY THIS
PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K INCLUDING FINANCIAL STATEMENTS AND THE
SCHEDULES THERETO. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO THE COMPANY AT
825 BERKSHIRE BOULEVARD, SUITE 200, WYOMISSING, PENNSYLVANIA 19610, ATTENTION:
CORPORATE SECRETARY.
Please sign, date and return your Proxy Card as soon as possible.
By Order of the Board of Directors
/s/ Robert S. Ippolito
April 22, 1999 Secretary
(16)
<PAGE>
PENN NATIONAL GAMING, INC.
The undersigned hereby appoints David A. Handler and John M. Jacquemin,
and each of them, the attorneys and proxies of the undersigned, with full power
of substitution, to vote on behalf of the undersigned all of the shares of
Common Stock of Penn National Gaming, Inc., which the undersigned is entitled to
vote at the Annual Meeting of Shareholders thereof to be held on May 25, 1999
and at any and all postponements and adjournments thereof, upon the following
matters:
1 . For the election of Peter M. Carlino and Harold Cramer to serve as
Class III Directors until the Annual Meeting of Shareholders of the Company to
be held in the year 2002 and until their successors are elected and qualified:
/ / For Both Nominees / / Against Both Nominees
(INSTRUCTIONS:
TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S
NAME BELOW):
Peter M. Carlino Harold Cramer
[over]
2. To ratify the appointment of BDO Seidman, LLP as independent auditors of
the Company for the year ending December 31, 1999.
/ / For / / Against / / Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NO. 1 and 2. IF NO
SPECIFICATION IS MADE, SUCH PROXY WILL BE VOTED "FOR" EACH SUCH ITEM.
Dated , 1999
Signature of Shareholder
Signature of Shareholder
Please sign exactly as name appears.
For joint accounts, each joint owner
must sign.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY
