SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
/X/Filed by the Registrant :
/ /Filed by a Party other than the Registrant
/ /Check the appropriate box:
/ /Preliminary Proxy Statement
/ /Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e(2)
/X/Definitive Proxy Statement
/ /Definitive Additional Materials
/ /Soliciting Material Pursuant to 240.14a- I I (c) or 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 17, 2000
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 17, 2000, 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 an
until their successors are duly elected and qualified.
2. To consider and act upon a proposal to amend the Company's
1994 Stock Option Plan, as amended and restated.
3. To consider and act upon a proposal to ratify the appointment of BDO
Seidman, LLP as independent public accountants for the Company for the fiscal
year ending December 31, 2000.
4 . To consider and transact such other business as may properly come
before the Annual Meeting or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting.
Only shareholders of record at the close of business on March 28, 2000
are entitled to notice of and to vote at the Annual Meeting and any postponement
or adjournment thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. Any shareholder attending the Annual Meeting may vote in person even if
such shareholder previously signed and returned a proxy.
FOR THE BOARD OF DIRECTORS
Robert S. Ippolito
Secretary
Wyomissing, Pennsylvania
April 20, 2000
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 17, 2000
This Proxy Statement and the enclosed Proxy are first being sent or
given to shareholders of Penn National Gaming, Inc. (the "Company") on or about
April 20, 2000, in connection with the solicitation of proxies for use at the
Company's Annual Meeting of Shareholders ("Annual Meeting") to be held May 17,
2000, 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, 38th 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 28,
2000, 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, 14,907,975 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 approval of an amendment to
the 1994 Stock Option Plan, as amended and restated (the "Plan"); (iii) the
<PAGE>
ratification of BDO Seidman, LLP as the Company's independent public
accountant's for the year ending December 31, 2000; and (iv) the approval of any
other matters which may properly come before the Annual Meeting or any
postponement or adjournment thereof. For purposes of determining the number of
votes cast, only those cast "for" or "against" are counted. Abstentions and
broker non-votes are counted only for purposes of determining whether a quorum
is present at the Annual Meeting. Under Pennsylvania law, a quorum is required
to conduct business at the Annual Meeting.
It is expected that the solicitation of proxies will be conducted
primarily by mail. Proxies may also be solicited personally or by telephone,
telegraph, or telecopy. The cost of this solicitation will be borne by the
Company. In addition, the Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain directors, officers and employees of the Company, 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 2003, 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>
David A. Handler 35 Managing Director of Corporate 1994 2003
Finance of Jefferies & Company,
Inc.
John M. Jacquemin 53 President Mooring Financial Group 1995 2003
</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 Managing Director at Jefferies & Company, Inc. From 1991 to 1995, he
was a Vice President of 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.
2
<PAGE>
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>
Peter M. Carlino 53 Chairman of the Board and Chief 1994 2002
Executive Officer
Harold Cramer 72 Counsel to Mesirov Gelman Jaffe Cramer & 1994 2002
Jamieson, LLP
William J. Bork 66 President and Chief Operating Officer of 1995 2001
the Company
Robert P. Levy 63 Chairman of the Board of the Atlantic 1995 2001
City Racing Association
</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. Since 1976 he has been President of Carlino Financial Corporation
("Carlino Financial"), a holding company which owns and operates various Carlino
family businesses.
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.
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 of
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 six meetings during the fiscal year ended
December 31, 1999. Each Director attended 100% 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 Plan. One meeting of
each of the Audit Committee and the Compensation Committee was held in 1999. 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, 1999, each outside Director
received an annual fee of $18,000, plus $1,500 for each Board meeting attended
and reimbursement for out-of-pocket expenses in connection with his attendance
at such meetings.
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.
Compensation Plan
To determine appropriate levels of executive compensation, the
Compensation Committee periodically reviews the executive compensation programs
and policies of the Company's competitors, in addition to a broader group of
companies in its marketplace, to ensure that the Company's plans and practices
are competitive and appropriately based on the Company's performance and
compensation philosophy.
4
<PAGE>
Base Salary
The objective for computing executive base salaries is to structure
salaries that are competitive with those of similarly situated companies. In
setting base salary levels for individual executives in the future, the
Compensation Committee will consider such factors as the executive's scope of
responsibility, current performance, future potential and overall competitive
positioning relative to comparable positions at other companies. The base
salaries for Peter M. Carlino, William J. Bork, and Robert S. Ippolito are set
pursuant to employment agreements and currently are $380,000, $245,000, and
$150,000 per year, respectively.
Stock Options
Stock options are granted under the provisions of the Company's Plan.
Stock options are granted to reinforce the importance of improving shareholder
value over the long-term and to encourage and facilitate executive stock
ownership. Stock options are granted at not less than 100% of the fair market
value of the stock on the date of grant to ensure that executives can only be
rewarded for appreciation in the price of the Common Stock where the Company's
shareholders are similarly benefited. For future grants, the Compensation
Committee will establish levels of participation for the stock option program
based upon each executive officer's or other employee's position in the Company.
The number of options to be granted to each executive officer will be contingent
on the individual executive's performance, tenure and future potential.
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 CEOs 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 performance, profitability, profit
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 1998. Also taken into account were other
factors, including the significant acquisition activity to support
implementation of the Company's business strategy.
5
<PAGE>
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 1998 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 28, 2000, 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.
Amount and Nature of
<TABLE>
<CAPTION>
Beneficial Ownership of
Common Stock
Percentage of
Number of Outstanding
Name and Address (1) Shares Shares
-------------------- ------ ------
<S> <C> <C> <C>
Peter D. Carlino (2) 5,154,909 34.6%
Peter M. Carlino (3) 6,177,335 39.7%
David E. Carlino (4) 5,030,065 33.7%
Richard J. Carlino (5) 4,987,231 33.5%
Harold Cramer (6) 5,166,909 34.6%
Carlino Family Trust (7) 4,953,331 33.2%
William J. Bork 280,667 1.8%
David A. Handler 78,895 *
Robert S. Ippolito 79,350 *
John M. Jacquemin 30,600 *
Robert P. Levy 30,000 *
Robert Abraham 18,750 *
Joseph A. Lashinger Jr. 16,250 *
George A. Connolly 3,950 *
Friedman, Billings, Ramsey Group, Inc. 1,171,815 7.9%
Potomac Tower, 1001 Nineteenth Street
North, Arlington, Virginia 22209 (8)
PAR Capital Management, Inc. 1,089,800 7.3%
One Financial Center, Suite 1600
Boston, MA 02111 (9)
All executive officers and directors 6,929,375 46.5%
as a group (10 persons)(3)(6)
* Less than 1%
</TABLE>
6
<PAGE>
(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. and PAR Capital
Management, 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 28, 2000 pursuant to stock options.
(2) The number of shares in the table includes 4,953,331 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.
(3) The number of shares in the table includes 4,953,331 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 581,754
shares owned jointly by Mr. Carlino and his wife, Marshia Carlino.
(4) The number of shares in the table includes 4,953,331 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 5,765 shares
owned beneficially by David E. Carlino's children as to which he disclaims
beneficial ownership.
(5) The number of shares in the table includes 4,953,331 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 4,953,331 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 14, 2000.
(9) The information in the table is based on information contained in a
Statement of Schedule 13G filed by PAR Capital Management, Inc. with the
Securities and Exchange Commission dated February 10, 2000.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid or
accrued by the Company for services rendered for the last three fiscal years to
the Company's Chief Executive Officer and each executive officer whose aggregate
cash compensation in 1999 exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS (1) COMPENSATION (2)
- ------------------ ---- ------ ----- ------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Peter M. Carlino 1999 $ 379,560 $ 126,000 - 50,000 $ 5,000
Chairman of the Board 1998 $ 361,670 $ 126,000 - 53,000 $ 5,000
Chief Executive Officer 1997 $ 15,341 $ 126,000 - - $ 4,750
William J. Bork 1999 $ 253,780 $ 60,000 - 20,000 $ 5,000
President and Chief 1998 $ 246,071 $ 65,000 - 24,000 $ 5,000
Operating Officer 1997 $ 223,666 $ 84,000 - - $ 4,750
Philip T. O'Hara 1999 $ 201,500 $ 20,000 - - $ 5,000
Vice President 1998 $ 194,947 $ 20,000 - - $ 5,000
General Manager 1997 $ 179,087 $ 25,000 - - $ 3,357
Robert S. Ippolito 1999 $ 147,920 $ 20,000 - 10,000 $ 4,172
Chief Financial Officer 1998 $ 144,095 $ 20,000 - 6,000 $ 2,881
Secretary/Treasurer 1997 $ 127,902 $ 40,000 - - $ 3,357
Joseph A. Lashinger, Jr. 1999 $ 173,577 $ 25,000 - 10,000 $ 4,959
Vice President/General 1998 $ 153,520 $ 15,000 - 5,000 $ 3,260
Counsel 1997(3) $ 65,769 $ - - - $ -
</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.
8
<PAGE>
GRANT OF STOCK OPTIONS IN 1999
<TABLE>
<CAPTION>
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 50,000 34.60% $ 6.88 1/4/09 $ 216,183 $ 547,849
William J. Bork 20,000 13.84% $ 6.88 1/4/09 $ 86,473 $ 219,140
Robert S. Ippolito 10,000 6.92% $ 6.88 1/4/06 $ 27,988 $ 65,224
Joseph A. Lashinger, Jr. 10,000 6.92% $ 6.88 1/4/06 $ 27,988 $ 65,224
- ----------------------------- -------------- ----------------- ------------ ------------- -------------- -------------
</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.
9
<PAGE>
EXERCISE OF STOCK OPTIONS IN 1999
The following table provides information with respect to the named
executive officers concerning the exercise of stock options during 1999 and
unexercised options held as of December 31, 1999. 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, 1999 at December 31, 1999
---------------------------- --------------------
------------------------------------ ---------------------------------
------------------------------------ ---------------------------------
Shares
Acquired Value
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Peter M. Carlino -- $ -- 618,000 85,000 $ 1,721,777 $ 171,581
William J. Bork -- $ -- 261,000 33,000 $ 637,810 $ 68,120
Robert S. Ippolito -- $ -- 75,000 17,000 $ 377,843 $ 32,779
Philip T. O'Hara, Jr. -- $ -- 56,250 -- $ 318,750 $ --
Joseph A. Lashinger, Jr. -- $ -- 13,750 26,250 $ 3,203 $ 30,858
</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 initially effective beginning June 1, 1994 and
terminated on June 30, 1999 and were amended on June 1, 1999. Effective June 1,
1999, Mr. Carlino's annual base salary was increased to $380,000, and effective
June 1, 1999, Mr. Ippolito's annual base salary was increased to $150,000. Each
agreement prohibits the respective employee from competing with the Company
during its term and for one year thereafter and requires a death benefit payment
by the Company based on the employee's annual salary in effect at the time of
his death.
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. Effective June 1, 1999, Mr. Bork's annual base salary was
increased to $255,000. 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 1999 the Company paid premiums of
$1,367,000 for such insurance.
10
<PAGE>
In August 1994, the Company signed a consulting agreement with Peter D.
Carlino, former Chairman of the Company. Pursuant to the consulting agreement,
as amended, Peter D. Carlino receives an annual fee of $135,000.
The Company currently leases 5,974 square feet of office space in an
office building in Wyomissing, Pennsylvania for the Company's executive offices.
The lease expires in April 2005 and provides for an annual rental of $97,968
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 1999, 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 Securities and Exchange Commission (SEC) and the NASD. Executive
officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of Forms 3, 4 and 5 furnished
to the Company, or written representations from certain reporting persons that
no such Forms were required to be filed by such persons, the Company believes
that all its executive officers, directors and greater than 10% shareholders
complied with all filing requirements applicable to them during 1999.
11
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph compares the cumulative total shareholder return for
the Company's Common Stock since January 1, 1995 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.,
Hollywood Casino Corp., Pinnacle Entertainment, Inc., International Gaming
Technologies, and Mirage 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 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ------ ----------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
__*__ Penn National Gaming, Inc. 100.00 198.07 657.35 449.76 322.91 415.17
- --=-- Nasdaq Market Index 100.00 129.71 161.18 197.16 278.08 490.46
- --+-- Peer Group 100.00 112.09 154.75 183.57 145.15 139.62
</TABLE>
Notes:
A. The lines represent annual index levels, assuming reinvestment of all
dividends paid during the measurement period.
B. The indexes are re-weighted daily, using the market capitalization on the
previous trading day.
C. If the annual interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to 100.0 on 1/1/95.
12
<PAGE>
PROPOSAL TO AMEND THE PLAN TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF
COMMON STOCK FROM 2,000,000 TO 3,000,000 AS TO WHICH
OPTIONS MAY BE GRANTED
Currently, the number of shares reserved for issuance under the Plan is
2,000,000. The current number of shares of Common Stock which remain available
to be covered by future option grants is 541,750. The Company believes it is
necessary and appropriate to increase the number of authorized shares of Common
Stock under the Plan and to broaden the number of employees expected to receive
options where appropriate and to create additional incentives to enhance their
performance for the Company. The purpose of the proposed amendment to the Plan
is to further the stated purpose of the Plan, which is to help the Company
attract, retain and motivate individuals to make substantial contributions to
the success of the Company. Accordingly, shareholders are asked to approve an
amendment to the Plan increasing the number of authorized shares of Common Stock
underlying stock options to be granted thereunder from 2,000,000 shares to
3,000,000 shares.
The summary of the Plan set forth below is qualified by reference to
the full text of the Plan.
Administration
The Plan is administered by the Board of Directors (the "Board" or the
"Committee) which complies with Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Board determines the recipients of
options granted under the Plan ("Options"), the time at which Options will be
granted and will set forth the terms, conditions and limitations subject to each
Option granted under the Plan. The Board has full and exclusive power to
interpret the Plan, to adopt rules, regulations and guidelines relating to the
Plan, to grant waivers of plan restrictions permissible under applicable law and
to make all of the determinations necessary for its administration. The Board
may at any time and from time to time accelerate the time at which all or a part
of an Option may be exercised.
Effective Date and Term of the Plan
The Plan was adopted in April 1994 and amended and restated as of
February 19, 1997. The Plan will terminate ten years after its effective date,
subject to earlier termination by the Board. No option may be granted under the
Plan after the termination of the Plan, but options previously granted may
extend beyond that date.
Shares Subject to the Plan
The maximum aggregate number of shares of Common Stock that may be
delivered for all purposes under the Plan is currently 2,000,000, subject to
certain anti-dilution provisions. If any Option is canceled or terminates
without having been exercised in full, the number of shares of Common Stock as
to which such Option was not exercised will be available for future grants. A
summary of the material terms of the Plan is as follows:
Nature of Options. An Option is an award entitling the holder
("Participant") to purchase a specified number of shares of Common Stock
at a specified exercise price. Only "incentive stock options" ("ISO") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended,
and nonqualified stock options ("NQSO") may be granted under the Plan.
13
<PAGE>
Exercise Price. The exercise price of each Option is determined by the
Board, but will not be less than 100% of the fair market value of a share
at that date with respect to any Option which is an ISO (or 110% of such
fair market value if the Option is awarded to the beneficial owner of 10%
or more of total combined voting power of all classes of outstanding
Capital Stock of the Company).
Duration of Options. In no case will an ISO be exercisable more than ten
years from the date the ISO was granted.
Exercise of Options and Conditions. Options become exercisable at such
time or times, and on and subject to such conditions, as the Board may
specify, except that no Option may be exercised prior to the three hundred
sixty-fifth (365th) day after such Option was granted. The aggregate fair
market value (determined as of the date an Option is granted) of the stock
with respect to which Incentive Stock Options are exercisable for the
first time by any individual in any calendar year (under the Plan and all
other plans maintained by the Corporation) shall not exceed $100,000.
Payment for and Delivery of Stock. Full payment for shares acquired
pursuant to the exercise of Options will be made at the time of exercise
of the Option. Payment of the purchase price will be made in cash or in
such other form as the Board may approve, including, without limitation,
delivery of shares of Common Stock.
Amendments and Termination
The Board has the authority to make such amendments to any terms and
conditions applicable to Options issued under the Plan as are consistent with
the Plan provided that, except for certain anti-dilution adjustments, no such
action will modify such Options in a manner adverse to the Participant without
the Participant's consent except as such modification is provided for or
contemplated in the terms of the Option.
The Board may suspend or terminate the Plan except that no such action
may be taken without shareholder approval which would effectuate any change for
which shareholder approval is required pursuant to Section 16 of the Exchange
Act.
Certain Federal Income Tax Consequences of the Plan
The following description of certain Federal income tax consequences of
the Plan is based upon the Internal Revenue Code of 1986, as amended ("Code"),
the Treasury Regulations and interpretations thereunder, and does not include
state or local income tax consequences applicable to a person who receives stock
based compensation under the Plan.
Neither the option holder nor the Company incurs any Federal income tax
consequences as a result of the grant of an ISO under the Plan.
Upon the exercise of a NQSO, the difference between the exercise price
and the fair market value of the shares on the Income Recognition Date (defined
below) is taxable as ordinary income to the option holder as of such Income
Recognition Date. The Income Recognition Date for shares received upon exercise
of a NQSO under the Plan is the date of exercise (except in cases of persons
subject to Section 16(b) of the Exchange Act, in which case the Income
Recognition Date is generally the later of the date of exercise or the date six
(6) months after the date of grant, unless the option holder elects to recognize
income as of the exercise date).
14
<PAGE>
At the time of a subsequent sale of any shares of Common Stock obtained
upon the exercise of an NQSO under the Plan, any gain or loss generally will be
a capital gain or loss to the option holder. Such capital gain or loss will be
long-term gain or loss if the sale occurs more than one (1) year after the
Income Recognition Date and short-term gain or loss if the sale occurs one (1)
year or less after the Income Recognition Date.
The Company is entitled to a deduction for Federal income tax purposes
at the same time and in the same amount that the holder of an NQSO recognizes
ordinary income, to the extent that such income is considered reasonable
compensation under the Code, and provided that the Company satisfies the
applicable income reporting requirements. The Company is not entitled to a
deduction with respect to any payment that constitutes an "excess parachute
payment" pursuant to Section 280G of the Code or does not qualify as reasonable
compensation pursuant to Section 162 of the Code. Such payments subject to
Section 280G of the Code subject the participant to a 20% excise tax.
An option holder will not recognize any income, and the Company will
not be entitled to a deduction, upon the exercise of an ISO during the option
holder's employment with the Company or within three (3) months after
termination of employment (or longer in the event of termination by reason of
death or disability); however, in certain circumstances, upon the exercise of an
ISO, the option holder may be subject to the alternative minimum tax.
Assuming that the option holder does not dispose of the shares of Stock
received within the stock option holding period, which is both two years after
the ISO was granted or one (1) year from the date that the shares were
transferred to the option holder upon exercise, any gain recognized by the
option holder on the sale or exchange of the shares of Common Stock will be
treated as long-term capital gain and any loss sustained will be a long-term
capital loss. If the shares of Common Stock acquired upon exercise of an ISO are
disposed of before the end of the stock option holding period, the disposition
may cause the option holder to recognize ordinary income.
The affirmative vote of the holders of a majority of the shares of
Common Stock entitled to notice of, and to vote at, the Annual Meeting is
required in order to approve the amendment of the Plan to authorize an
additional 1,000,000 shares of the Company's Common Stock for a total of
3,000,000 shares, as to which options may be granted.
Unless otherwise instructed, the proxy holders will vote for approval
of the plan.
The board unanimously recommends a vote "for" approval of the amendment
to the plan.
15
<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 ending December 31, 2000. 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 the Company's Independent Public Accountants
for the year ended December 31, 2000.
Other Matters
The Company has mailed a 1999 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 28, 2000. 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 2001 Annual Meeting of Shareholders must submit the
same to the Company on or before December 10, 2000, 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 2001 Annual Meeting.
16
<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 20, 2000 Secretary
17
<PAGE>
PENN NATIONAL GAMING, INC.
The undersigned hereby appoints Peter M. Carlino and Harold Cramer, and
each of them, the attorneys and proxies of the undersigned, with full power of
substitution, to vote on behalf of the undersigned all of the shares of Common
Stock of Penn National Gaming, Inc., which the undersigned is entitled to vote
at the Annual Meeting of Shareholders thereof to be held on May 17, 2000 and at
any and all postponements and adjournments thereof, upon the following matters:
1 For the election of David Handler and John Jacquemin to serve as Class
III Directors until the Annual Meeting of Shareholders of the Company to be
held in the year 2003 and until their successors are elected and qualified:
/ /For Both Nominees / /Against Both Nominees
(INSTRUCTIONS:TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME BELOW):
David Handler John Jacquemin
[over]
2. To approve the amendment of the Companys 1994 Stock Option Plan, as
amended and restated, to authorize Options to purchase the Companys Common
Stock for a total of 3,000,000 shares, as to which Options may be granted.
/ /For / /Against / /Abstain
3. To ratify the appointment of BDO Seidman, LLP as independent public
accountants of the Company for the year ending December 31, 2000.
/ /For / /Against / /Abstain
4. In their discretion such other business as may properly come before the
annual meeting and any and all adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS NOS. 1, 2 and 3.
IF NO SPECIFICATION IS MADE, SUCH PROXY WILL BE VOTED "FOR" EACH SUCH ITEM.
Dated , 2000
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.
