FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-24206
Penn National Gaming, Inc.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2234473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Penn National Gaming, Inc.
825 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
(Address of principal executive offices) (Zip code)
610-373-2400
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
<PAGE>
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding as of May 10, 2000
Common Stock Par value $.01 per share 14,925,975
THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS REPORT LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S
OPERATIONS, FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECT", "INTEND",
"ESTIMATE", "ANTICIPATE", "BELIEVE" OR "CONTINUE" OR 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 ("CAUTIOUNARY STATEMENTS") ARE
DISCLOSED IN THIS REPORT AND IN OTHER MATERIALS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. 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.
References to "Penn National Gaming" or the "Company" include Penn National
Gaming, Inc. and its subsidiaries.
2
<PAGE>
Penn National Gaming, Inc. and Subsidiaries
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements
Consolidated Balance Sheets -
March 31, 2000 (unaudited) and December 31, 1999 4-5
Consolidated Statements of Income -
Three Months Ended March 31, 2000
and 1999 (unaudited) 6
Consolidated Statements of Shareholders' Equity -
Three Months Ended March 31, 2000 (unaudited) 7
Consolidated Statements of Cash Flow -
Three Months Ended March 31, 2000 and 1999 (unaudited) 8
Notes to Consolidated Financial Statements 9-15
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-18
Item 3 - Changes in Information About Market Risk 19
- -------------------------------------------------
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 20
- -----------------------------------------
Signature Page 21
</TABLE>
3
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited)
----------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 11,430 $ 9,434
Accounts receivable 4,410 4,779
Prepaid expenses and other current assets 2,192 1,793
Deferred income taxes 669 888
Prepaid income taxes - 1,088
----------------------------------------
Total current assets 18,701 17,982
----------------------------------------
Property, plant and equipment, at cost
Land and improvements 27,878 27,988
Building and improvements 72,114 70,870
Furniture, fixtures and equipment 37,870 36,195
Transportation equipment 887 860
Leasehold improvements 9,806 9,802
Construction in progress 991 1,980
----------------------------------------
149,546 147,695
Less accumulated depreciation and amortization 22,479 20,824
----------------------------------------
Net property, plant and equipment 127,067 126,871
----------------------------------------
Other assets
Investment in and advances to unconsolidated affiliate 13,449 12,862
Investment in minority interest purchase 5,845 -
Cash in escrow 5,000 5,000
Excess of cost over fair market value of net assets acquired
(net of accumulated amortization of $2,762 and $2,611,
respectively) 21,430 21,582
Deferred financing costs 4,825 5,014
Miscellaneous 1,262 1,289
----------------------------------------
Total other assets 51,811 45,747
----------------------------------------
$ 197,579 $ 190,600
----------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PENN NATIONAL GAMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited)
--------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt and
capital lease obligations $ 5,160 $ 5,160
Accounts payable 5,346 10,210
Purses due horsemen 3,601 2,114
Uncashed pari-mutuel tickets 1,641 1,351
Accrued expenses 1,485 2,694
Accrued interest 2,302 433
Accrued salaries and wages 930 1,098
Customer deposits 946 800
Taxes, other than income taxes 2,189 1,491
Income taxes 845 -
--------------------------------------
Total current liabilities 24,445 25,351
--------------------------------------
Long-term liabilities
Long-term debt and capital lease obligations,
net of current maturities 90,292 86,053
Deferred income taxes 12,881 12,924
--------------------------------------
Total long-term liabilities 103,173 98,977
--------------------------------------
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 15,332,675 and 15,314,175, respectively 153 153
Treasury stock, 424,700 shares at cost (2,379) (2,379)
Additional paid in capital 38,597 38,527
Retained earnings 33,590 29,971
--------------------------------------
Total shareholders' equity 69,961 66,272
--------------------------------------
$ 197,579 $ 190,600
--------------------------------------
</TABLE>
See accompanying note to consolidated financial statements.
5
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
Three Months Ending March 31,
2000 1999
---------------------------------
<S> <C> <C>
Revenue
Pari-mutuel revenues
Live races $ 4,065 $ 2,414
Import simulcasting 19,816 15,301
Export simulcasting 1,594 511
Gaming revenue 22,166 11,297
Admissions, programs and other racing revenue 1,656 1,120
Concessions revenues 3,378 2,146
Earnings from unconsolidated affiliates 587 -
---------------------------------
Total revenues 53,262 32,789
---------------------------------
Operating expenses
Purses, stakes, and trophies 9,571 5,711
Direct salaries, payroll taxes and employee benefits 5,372 3,715
Simulcast expenses 3,501 2,387
Pari-mutuel taxes 2,322 1,669
Lottery taxes and administration 8,748 4,489
Other direct meeting expenses 6,315 4,592
Concessions expenses 2,974 2,022
Other operating expenses 4,437 3,074
Horsemen's action expenses - 1,250
Depreciation and amortization 2,176 2,015
---------------------------------
Total operating expenses 45,416 30,924
---------------------------------
Income from operations 7,846 1,865
---------------------------------
Other income (expense)
Interest (expense) (2,382) (2,125)
Interest income 450 209
Other (154) -
---------------------------------
Total other (expense) (2,086) (1,916)
---------------------------------
Income (loss) before income taxes 5,760 (51)
Taxes (benefit) on income 2,141 (73)
---------------------------------
Net income $ 3,619 $ 22
=================================
Per share data
Basic $ .24 $ .00
Diluted $ .24 $ .00
Weighted average shares outstanding
Basic 14,898 14,762
Diluted 15,212 15,079
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Treasury Paid-In Retained
Shares Amount Stock Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 15,314,175 $ 153 $ (2,379) $ 38,527 $ 29,971 $ 66,272
Issuance of common stock 18,500 - - 70 - 70
Net income for the three
months ended March 31, 2000 - - - - 3,619 3,619
- ------------------------------------ ------------ ------------- ------------- ------------- ------------- -----------
Balance, March 31, 2000 15,332,675 $ 153 $ (2,379) $ 38,597 $ 33,590 $ 69,961
==================================== ============ ============= ============= ============= ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
----------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,619 $ 22
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,176 2,015
Income from unconsolidated affiliates (587) -
Deferred income taxes 176 232
Decrease (increase) in
Accounts receivable 369 533
Prepaid expenses (498) (149)
Prepaid income taxes 1,088 (482)
Miscellaneous other assets 25 (9)
Increase (decrease) in
Accounts payable (4,865) (562)
Purses due horsemen 1,487 871
Uncashed pari-mutuel tickets 290 152
Accrued expenses (1,209) 639
Accrued interest 1,869 1,975
Accrued salaries & wages (168) 40
Customer deposit 146 2
Taxes, other than income payable 698 (152)
Income taxes 845 -
----------------------------------
Net cash provided by operating activities 5,461 5,127
----------------------------------
Cash flows from investing activities
Expenditures for property, plant and equipment (1,851) (1,458)
Note receivable - (11,250)
Minority interest purchase (5,845) -
----------------------------------
Net cash (used) in investing activities (7,696) (12,708)
----------------------------------
Cash flows from financing activities
Proceeds from sale of common stock 70 29
Proceeds from long-term debt 4,247 11,500
Principal payments on long-term debt and capital lease (8) (17)
obligations
Increase in unamortized deferred financing costs (78) (579)
----------------------------------
Net cash provided by financing activities 4,231 10,933
----------------------------------
Net increase in cash and cash equivalents 1,996 3,352
Cash and cash equivalents, at beginning of period 9,434 6,826
----------------------------------
Cash and cash equivalents, at end of period $ 11,430 $ 10,178
==================================
See accompanying notes to consolidated financial statements
</TABLE>
8
<PAGE>
PENN NATIONAL GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Financial Statement Presentation
The accompanying consolidated financial statements are unaudited and
include the accounts of Penn National Gaming, Inc., ("Penn") and its wholly and
majority owned subsidiaries, (collectively, the "Company"). All significant
intercompany transactions and balances have been eliminated. Certain prior year
amounts have been reclassified to conform to current year presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made which are necessary to present fairly the
financial position of the Company as of March 31, 2000 and the results of its
operations for the three month periods ended March 31, 2000 and 1999. The
results of operations experienced for the three month period ended March 31,
2000 are not necessarily indicative of the results to be experienced for the
fiscal year ended December 31, 2000.
The statements and related notes have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The accompanying notes
should therefore be read in conjunction with the Company's December 31, 1999
annual financial statements.
2. Wagering Information (in thousands)
<TABLE>
<CAPTION>
Three months ended March 31, 2000
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state on
company live races $ 13,345 $ - $ 5,770 $ 19,115
----------------------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 49,710 32,672 12,598 94,980
Export simulcasting to out of
State wagering facilities 38,190 - 14,693 52,883
----------------------------------------------------------------
87,900 32,672 27,291 147,863
----------------------------------------------------------------
Total pari-mutuel wagering $ 101,245 $32,672 $ 33,061 $ 166,978
================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Three months ended March 31, 1999
Penn Pocono Charles
National Downs Town Total
<S> <C> <C> <C> <C>
Pari-mutuel wagering in-state on
company live races $ 6,679 $ - $ 5,043 $ 11,722
----------------------------------------------------------------
Pari-mutuel wagering on simulcasting:
Import simulcasting from other racetracks 27,605 35,164 12,599 75,368
Export simulcasting to out of
State wagering facilities
17,154 - - 17,154
----------------------------------------------------------------
44,759 35,164 12,599 92,522
----------------------------------------------------------------
Total pari-mutuel wagering $ 51,438 $35,164 $ 17,642 $ 104,244
================================================================
</TABLE>
3. Commitments
At March 31, 2000, the Company was contingently obligated under letters
of credit with face amounts aggregating $1,970,000. These amounts consisted of
$1,727,000 relating to horsemen's account balances, $104,000 for Pennsylvania
pari-mutuel taxes and $139,000 for other items.
4. Supplemental Disclosures of Cash Flow Information
Cash paid during the three months ended March 31, 2000 and 1999 for
interest was $422,000 and $67,000, respectively.
Cash paid during the three months ended March 31, 2000 and 1999 for
income taxes was $29,800 and $199,000, respectively.
10
<PAGE>
5. Subsidiary Guarantors
Summarized financial information for the three month period ended March
31, 2000 and 1999 for Penn National Gaming, Inc., ("Parent"), the Subsidiary
Guarantors and Subsidiary Nonguarantors is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Subsidiary
Parent Subsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of March 31, 2000
Consolidated Balance Sheet (In Thousands)
Current assets $ 3,316 $ 8,283 $ 8,125 $ (1,023) $ 18,701
Net property, plant and
equipment 822 79,226 47,019 - 127,067
Other assets 119,026 172,364 7,609 (247,188) 51,811
- -----------------------------------------------------------------------------------------------------------------
Total $ 123,164 $ 259,873 $ 62,753 $ (248,211) $ 197,579
- -----------------------------------------------------------------------------------------------------------------
Current liabilities $ 2,358 $ 26,491 $ 6,985 $ (11,389) $ 24,445
Long-term liabilities 81,995 96,180 53,449 (128,451) 103,173
Shareholders' equity 38,811 137,202 2,319 (108,371) 69,961
- -----------------------------------------------------------------------------------------------------------------
Total $ 123,164 $ 259,873 $ 62,753 $ (248,211) $ 197,579
- -----------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000
Consolidated Statement of Income (In Thousands)
Total revenues $ 6 $ 26,890 $ 28,718 $ (2,352) $ 53,262
Total operating expenses (1,469) 24,855 24,382 (2,352) 45,416
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Income from operations 1,475 2,035 4,336 - 7,846
Other income(expenses) (1,181) 411 (1,162) (154) (2,086)
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 294 2,446 3,174 (154) 5,760
Taxes on income 126 2,067 - (52) 2,141
- -----------------------------------------------------------------------------------------------------------------
Net income $ 168 $ 379 $ 3,174 $ (102) $ 3,619
- -----------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000
Consolidated Statement of Cash Flow (In Thousands)
Net cash provided by
(used in) operating
activities $ (3,780) $ (4,711) $ (3,893) $ 17,845 $ 5,461
Net cash provided by
(used in) investing
activities 2,841 2,606 (1,298) (11,845) (7,696)
Net cash provided by
(used in) financing
activities 320 3,920 5,991 (6,000) 4,231
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in cash and cash equivalents (619) 1,815 800 - 1,996
Cash and cash equivalents
at January 1, 2000 2,544 2,538 4,352 - 9,434
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at March 31, 2000 $ 1,925 $ 4,353 $ 5,152 $ - $ 11,430
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Subsidiary
Parent Subsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of March 31, 1999
Consolidated Balance Sheet (In Thousands)
Current assets $ 6,667 $ 6,613 $ 4,687 $ (418) $ 17,549
Net property, plant and
equipment 13,200 62,510 44,778 - 120,488
Other assets 114,009 154,037 1,804 (232,371) 37,479
- -----------------------------------------------------------------------------------------------------------------
Total $ 133,876 $ 223,160 $ 51,269 $ (232,789) $ 175,516
- -----------------------------------------------------------------------------------------------------------------
Current liabilities $ 8,520 $ 14,165 $ 7,886 $ (10,410) $ 20,161
Long-term liabilities 87,735 78,313 47,559 (117,339) 96,268
Shareholders' equity
(deficiency) 37,621 130,682 (4,176) (105,040) 59,087
- -----------------------------------------------------------------------------------------------------------------
Total $ 133,876 $ 223,160 $ 51,269 $ (232,789) $ 175,516
- -----------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999
Consolidated Statement of Income (In Thousands)
Total revenues $ 3,696 $ 13,852 $ 16,365 $ (1,124) $ 32,789
Total operating expenses 2,019 15,179 14,850 (1,124) 30,924
- -----------------------------------------------------------------------------------------------------------------
Income from operations 1,677 (1,327) 1,515 - 1,865
Other income(expenses) (1,506) 755 (1,165) - (1,916)
- -----------------------------------------------------------------------------------------------------------------
Income(loss)before
income taxes 171 (572) 350 - (51)
Taxes (benefit) on
income 89 (324) 162 - (73)
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) $ 82 $ (248) $ 188 $ - $ 22
- -----------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999
Consolidated Statement of Cash Flow (In Thousands)
Net cash provided by
(used in) operating
activities $ 2,506 $ 1,763 $ 858 $ - $ 5,127
Net cash provided by
(used in) investing
activities (11,379) (716) (613) - (12,708)
Net cash provided by
(used in) financing
activities 11,529 (596) - - 10,933
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in cash and cash equivalents 2,656 451 245 - 3,352
Cash and cash equivalents
at January 1, 1999 2,001 1,705 3,120 - 6,826
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at March 31, 1999 $ 4,657 $ 2,156 $ 3,365 $ - $ 10,178
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
6. Mississippi Agreement
On December 10, 1999, the Company entered into two definitive
agreements to purchase all of the assets of the Casino Magic hotel, casino, golf
resort, recreational vehicle (RV) park and marina in Bay St. Louis, Mississippi
and the Boomtown Biloxi casino in Biloxi, Mississippi, from Pinnacle
Entertainment, Inc. formerly Hollywood Park, Inc. (NYSE:PNK) for $195 million.
These agreements are contingent upon each other. In addition to acquiring all of
the operating assets and related operations of the Casino Magic Bay St. Louis
and Boomtown Biloxi properties (the "Mississippi Acquisitions"), the Company
will enter into a licensing agreement to use Boomtown and Casino Magic names and
marks at the properties being acquired. The transaction is subject to certain
closing conditions including the approval of the Mississippi Gaming Commission,
financing and expiration of the applicable Hart-Scott-Rodino waiting period. As
part of the agreement, the Company paid a deposit of $5 million to an escrow
account, which is refundable if certain conditions are not met. In connection
with financing the Mississippi acquisition, the Company will explore a number of
financing alternatives, which may include repaying or redeeming its existing
debt. The Company received approval for a gaming license from the Mississippi
Gaming Commission on April 20, 2000.
7. New Jersey Joint Venture
On January 28, 1999, pursuant to a First Amendment to an Asset Purchase
Agreement by and among Greenwood New Jersey, Inc. ("Greenwood"), International
Thoroughbred Breeders Inc., Garden State Race Track Inc., Freehold Racing
Association, Atlantic City Harness, Inc. and Circa 1850, Inc., the original
parties to an Asset Purchase Agreement entered into as of July 2, 1998 and the
Company (the "Agreement"), and pursuant to which the Company entered into a
joint venture ("Joint Venture"), the Company, along with its Joint Venture
partner, Greenwood, agreed to purchase certain assets of the Garden State Race
Track and Freehold Raceway, both located in New Jersey (the "Acquisition").
The purchase price for the Acquisition was approximately $46 million
(subject to reduction of certain disputed items, for which amounts have been
placed in escrow). The purchase price consisted of $23 million in cash and $23
million pursuant to two deferred purchase price promissory notes in the amount
of $22 million and $1 million each. On July 29, 1999, after receiving the
necessary consents from the holders of its 10.625% Senior Notes due 2004, Series
B, the Company completed its investment in the Joint Venture, pursuant to which
Pennwood, Inc. was formed with Greenwood New Jersey, Inc. (a wholly-owned
subsidiary of Greenwood Racing, Inc. the owner of Philadelphia Park Race Track).
Pursuant to the Joint Venture Agreement, the Company agreed to guarantee
severally: (i) up to 50% of the obligation of the Joint Venture under its Put
Option Agreement ($17.5 million) with Credit Suisse First Boston Mortgage
Capital LLC ("CSFB"); (ii) up to 50% of the Joint Venture obligation for the
seven year lease at Garden State Park and; (iii) up to 50% of the Joint Venture
obligation to International Thoroughbred Breeders, Inc. for the contingent
purchase price notes ($10.0 million) relating to the operation subject to
passage by the New Jersey legislature, by the Joint Venture of OTWs and
telephone wagering accounts in New Jersey. In conjunction with the closing, the
Company entered into a Debt Service Maintenance Agreement with Commerce Bank,
N.A. for the funding of a $23.0 million credit facility to the Joint Venture.
The Joint Venture Agreement provides for a limited obligation of the Company of
$11.5 million subject to limitations provided for in the Company's 10.625%
Senior Notes Indenture. The Company's investment in the Joint Venture is
accounted for under the equity method, original investments are recorded at cost
and adjusted by the Company's share of income or losses of the Joint Venture.
The income for the three months ended March 31, 2000 of the Joint Venture is
included in earnings of unconsolidated affiliates in the accompanying
Consolidated Statements of Income for the three months ended March 31, 2000.
13
<PAGE>
Summarized balance sheet information for the Joint Venture as of March 31, 2000
is as follows (in thousands):
Current assets $ 9,604
Property, plant and equipment, net 30,473
Other 17,983
---------------------
Total assets $ 58,060
=====================
Current liabilities $ 8,070
Long-term liabilities 46,221
Members' equity 3,769
---------------------
Total liabilities and members' equity $ 58,060
=====================
Summarized results of operations of the unconsolidated Joint Venture for the
three months ended March 31, 2000 is as follows (in thousands):
Revenues $ 14,679
Operating expenses 11,813
-------------------
EBITDA* 2,866
-------------------
Net Income $ 1,174
-------------------
* Earnings before interest, taxes, depreciation and amortization.
8. Trackpower, Inc. and eBet Limited
In July 1999, the Company entered into an agreement with Trackpower,
Inc. (OTC BB: TPWR) ("Trackpower") to serve as the exclusive pari-mutuel
wagering hub operator for Trackpower. Trackpower provides direct-to-home
digital satellite transmissions of horse racing to its subscriber base. The
initial term of the contract is for five years with an additional five-year
option available. The Company pays Trackpower a commission on all new revenues
earned from their subscriber base. As an additional incentive to enter into the
contract, the Company received warrants to purchase 5,000,000 shares of common
stock of Trackpower at prices ranging from $1.58 per share to $2.58 per share.
The warrants vest at 20% per year and expire on April 30, 2004. The fair market
value of the warrants issued will be amortized over the vesting period or one
year from the anniversary date of the agreement. As a result of the transition
of operations in 1999, the amount to be amortized as a reduction of commissions
earned in 1999 by Trackpower was not material.
In March 2000, the Company entered into a letter of intent with
Trackpower and eBet Limited ("eBet") which, if a definitive agreement is
executed, will replace and restate the above described agreement between the
Company and Trackpower. Under the terms of the letter of intent, the Company and
eBet will contribute various assets, equipment, management agreements relating
to our telephone account wagering systems and business operations to Trackpower.
Under the proposed agreement, the Company will continue to receive the same
level of income as in 1999, the Company and eBet will each receive 18,000,000
shares of Trackpower common stock as well as warrants to purchase additional
shares exercisable at $1.00 per share. Upon completion of the proposed
transaction the Company and eBet will each own 26.5% of Trackpower not including
future exercise of options or warrants. The proposed agreement is subject to due
diligence, regulatory and other approvals.
14
<PAGE>
9. Minority Interest Purchase
On March 15, 2000, the Company purchased from the BDC Group ("BDC"),
its joint venture partner in West Virginia, BDC's 11% interest in PNGI Charles
Town Gaming Limited Liability Company, which owns and operates Charles Town
Races for $6.0 million in cash. The investment is recorded net of the minority
interest tax liability of $155,000 or $5.845 million. The Company is in the
process of determining the allocation of the purchase price to the various
property, plant and equipment accounts. The allocation will be based on the
results of an appraisal that is to be completed in June. As a result of the
purchase, Charles Town Races is now a 100%-owned subsidiary of the Company.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The percentage of the Company's revenue derived from gaming operations
has increased over the last few years as a result of the gaming operations at
the Charles Town Entertainment Complex. The Company expects that the Mississippi
Acquisition and the continued expansion of the Charles Town Entertainment
Complex will cause this trend to continue. In the future the Company expects to
alter the presentation of certain of its financial information to better capture
this trend. An example of a type of presentation that the Company is likely to
use is presented below.
The results of operations for the three months ended March 31, 1999 and 2000 by
property level are summarized as follows:
<TABLE>
<CAPTION>
Charles Town Racing Penn National and Pocono Downs and OTWs
and Gaming OTWs
(in thousands)
1999 2000 1999 2000 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues
Gaming $11,399 $ 22,372 $ - $ - $ - $ -
Racing 3,964 4,628 7,795 15,101 7,623 7,501
Other 1,002 1,718 635 1,171 509 490
------------------------- ------------------------ -------------------------
Total revenues 16,365 28,718 8,430 16,272 8,132 7,991
Expenses
Gaming 8,593 16,416 - - - -
Racing 4,060 4,673 6,497 11,191 4,941 5,323
Other* 1,699 2,796 1,825 2,317 964 1,078
------------------------- ------------------------ -------------------------
Total expenses 14,352 23,885 8,322 13,508 5,905 6,401
EBITDA
Gaming 2,806 5,956 - - - -
Racing (96) (45) 1,298 3,910 2,682 2,178
Other (697) (1,078) (1,190) (1,146) (455) (588)
------------------------- ------------------------ -------------------------
Total EBITDA $ 2,013 $ 4,833 $ 108 $ 2,764 $ 2,227 $ 1,590
========================= ======================== =========================
</TABLE>
* Other expenses include property level general and administrative expenses and
excludes corporate overhead and non-recurring expenses.
15
<PAGE>
Three Months Ended March 31, 2000 Compared To Three Months Ended March 31, 1999
Revenues for the three months ended March 31, 2000 increased by
approximately $20.5 million or 62.4% to $53.3 million from $32.8 million for the
three months ended March 31, 1999. The increase in revenues is attributed to
Penn National Race Course running 48 live race days in the year 2000 compared to
18 live race days during a Horsemen action in the first quarter in 1999, the
addition of 663 slot and video lottery machines at Charles Town and simulcast of
race broadcasts from Charles Town in 2000. Operating expenses for the three
months ended March 31, 2000 increased by approximately $14.5 million or 46.8% to
$45.4 million from $30.9 million for the three months ended March 31, 1999.
Included in operating expenses were non-recurring expenses for the three months
ended March 31, 1999 for the Horsemen's action at Penn National Race Course
($1.3 million). Income from operations increased by $6.0 million to $7.8 million
for the three months ended March 31, 2000 from $1.8 million for the three months
ended March 31, 1999. Other expenses for the three months ended March 31, 2000
and 1999 consisted of approximately $2.1 million and $2.0 million, respectively,
of net interest primarily due to the 10.625% Senior Notes, the Bank of America
term loan and the revolving Credit Facility with First Union National Bank.
Taxes on income increased by $2.2 million to $2.1 million for the three months
ended March 31, 2000 from a credit of $.1 million for the three months ended
March 31, 1999. Net income increased by $3.6 million to $3.6 million for the
three months ended March 31, 2000 from $22,000 for the three months ended March
31, 1999 due to the factors described above.
Charles Town Entertainment Complex
Revenues increased at Charles Town by approximately $12.3 million or
75.5% to $28.7 million in 2000 from $16.4 million in 1999. Gaming revenue
increased by $11.0 million or 96.2% to $22.4 million in 2000 from $11.4 million
in 1999 due to the addition of 136 new video lottery machines and 565 new reel
spinning, coin-out slot machines since the first quarter of last year. The
average number of machines in play increased to 1,464 in 2000 from 837 in 1999
and the average win per machine increased to $169 in 2000 from $150 in 1999.
Racing revenue increased by $.7 million or 16.7% to $4.6 million in 2000 from
$3.9 million in 1999. The live meet consisted of 45 race days in 2000 compared
to 39 race days in 1999 and a change in the schedule from a Wednesday afternoon
race program to a Thursday evening race program to accommodate export
simulcasting. Charles Town began exporting its live race program to tracks
across the country on June 5, 1999 and generated export simulcasting revenues of
$.5 million for the quarter. Concession revenues increased by approximately $.7
million or 71.4% to $1.7 million in 2000 from $1.0 million in 1999 due to
increased attendance for gaming and racing and the expansion of the concession
areas, dining room and buffet area. Operating expenses increased by $9.5 million
or 66.4 % to $23.9 million in 2000 from $14.4 million in 1999. The increase was
due to an increase in direct costs associated with additional wagering on horse
racing and gaming machine play, the addition of gaming machines and floor space
(new temporary facility for gaming machines), export simulcast expenses and
expanded concession and dining capability and capacity.
Penn National Race Course and OTW Facilities (Penn National Race Course)
Penn National Race Course had an increase in revenue of approximately
$7.9 million or 93.0% to $16.3 million in 2000 from $8.4 million in 1999. The
increase in revenues is attributed to Penn National Race Course running 48 live
race days in 2000 compared to 18 live race days during a Horsemen action in the
first quarter that resulted in the closure of the facilities from February 16 to
March 24, 1999. Operating expenses increased by approximately $5.2 million or
62.3% to $13.5 million in 2000 from $8.3 million in 1999 as a result of the
increased race days. Included in the 1999 expenses is $1.3 million for the
Horsemen's action.
16
<PAGE>
Pocono Downs and OTW Facilities (Pocono Downs)
Revenues at Pocono Downs decreased by $.1 million or 1.7% to $8.0
million in 2000 from $8.1 million in 1999. Revenue decreased at Allentown OTW
($.3 million) and Hazleton OTW ($.1 million) due to loss of Penn National Race
Course customers wagering at Pocono Downs sites during the 1999 action. The
revenue decrease was partially offset by revenue increases at Erie OTW,
Carbondale OTW and the Pocono Downs racetrack. Expenses increased by
approximately $.5 million or 8.4% to $6.4 million in 2000 from $5.9 million in
1999.
New Jersey Joint Venture
On July 29, 1999, after receiving the necessary approvals from the New
Jersey Racing Commission and the necessary consents from the holders of its
10.625% Senior Notes due 2004, Series B, the Company completed its investment in
the Joint Venture. The Joint Venture operates Freehold Raceway and Garden State
Race Track. Summarized results of operations of the unconsolidated Joint Venture
for the three months ended March 31, 2000 include $14.7 million in revenue,
$11.8 million in operating expenses and net income of $1.2 million. The
Company's 50% share of net income or $.6 million is recorded as "Earnings from
unconsolidated affiliates" on the income statement.
Capital Expenditures
The Company had capital expenditures of $1.8 million in 2000 compared
to $1.5 million in 1999. Capital expenditures at Charles Town were approximately
$1.3 million for machinery, equipment and improvements. Capital expenditures at
Penn National and its OTW facilities ($.2 million) and Pocono Downs and its OTW
facilities ($.3 million) were for equipment replacement and leasehold
improvements. As a result, depreciation and amortization increased $.2 million
or 8.9% to $2.2 million in 2000 from $2.0 million in 1999.
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 issuance of equity securities.
Net cash provided from operating activities was $5.5 million for the
period ended March 31, 2000. This consisted of net income and non-cash expenses
($5.2 million), a decrease in prepaid income taxes ($1.1 million) and an
increase in corporate income tax liability ($.9 million) due to an increase in
taxable income, a decrease in accounts payable and accrued expenses due to
completion of construction for the temporary facility at Charles Town ($6.1
million), an increase in purses due horsemen ($1.5 million), an increase in
taxes, other than income taxes ($.7 million) due to a change in payment
schedules for Pennsylvania pari-mutuel taxes, an increase in accrued interest
for the 10.625% Senior Notes ($1.9 million) and other changes in certain assets
and liabilities ($.3 million).
Cash flows used in investing activities for the period ended March 31,
2000 ($7.7 million) consisted of the Company's buyout of the 11% interest in
Charles Town that was owned by other investors ($5.9 million), machinery,
equipment and improvements at Charles Town ($1.3 million), and equipment
replacement and building improvements at Penn National ($.2 million) and Pocono
Downs ($.3 million) facilities.
Cash flows provided by financing activities ($4.2 million) consisted of
borrowings under the credit facility ($4.2 million) for Charles Town expansion
and proceeds from the exercise of stock options and warrants ($.1 million). This
was offset by an increase in financing costs ($.1 million) for amending the
credit facility.
The Company is subject to possible liabilities arising from the
17
<PAGE>
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.
In 2000, the Company anticipates spending approximately $21.5 million
on capital expenditures at its racetrack and OTW facilities. The Company
anticipates expending approximately $18.2 million at the Charles Town
Entertainment Complex for player tracking ($.7 million), new slot machines and
conversion kits ($2.1 million), paddock casino and interior renovations ($7.4
million), machinery and equipment ($2.0 million) and other projects including
construction of a structured parking facility, design and planning for a new
hotel ($6.0 million). The Company also plans to spend approximately $261,000 at
Pocono Downs, $550,000 at Penn National, $400,000 at the OTW facilities for
building improvements and equipment and $2.0 million on building improvements
and equipment for its new OTW facility in East Stroudsburg, Pennsylvania. The
Company spent approximately $1.8 million on these projects in the first quarter.
The Company entered into its Credit Facility with Bankers Trust
Company, as Agent in 1996. This Credit Facility was amended and restated on
January 29, 1999 with First Union National Bank replacing Bankers Trust Company,
as Agent. The Credit Facility, as amended, provides for a $20 million revolving
Credit Facility, including a $3 million sub-limit for standby letters of credit
and a $5 million term loan. Under the terms of the Credit Facility, as amended,
the Company borrowed an additional $11.5 million which was used to finance its
share of the New Jersey Joint Venture (see Note 4). The revolving Credit
Facility is secured by substantially all of the assets of the Company, except
for the assets of the Charles Town Entertainment Complex. The revolving Credit
Facility provides for certain covenants, including those of a financial nature.
The $5.0 million term loan was repaid on December 16, 1999. At the Company's
option, the revolving facility may 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% or the revolving facility may also bear interest at a rate
tied to a eurodollar rate plus an applicable margin of up to 3%. The outstanding
amount under this Credit Facility as of March 31, 2000 was $12.9 million at an
interest rate of 8.75%. Mandatory repayments of 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 balance of the revolving facility and
the Company's leverage ratio. 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.
On December 13, 1999, the Company entered into a $20.0 million Senior
Secured Multiple Draw Term Loan with Bank of America, as an Agent for a bank
group. The term loan is payable in quarterly installments of $1.3 million
principle plus interest. The loan is secured by gaming equipment and
improvements at the Charles Town Entertainment Complex. Part of the term loan
was used to repay the $5.0 million First Union term loan and the balance will be
used to finance gaming equipment and improvements at the Charles Town
Entertainment Complex. At the Company's option the term loan may 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 1.75% or the facility may
also bear interest at a rate tied to a eurodollar rate plus an applicable margin
of up to 2.75%. The outstanding amount under this credit facility as of March
31, 2000 was $ 13.3 million at an interest rate of 8.89%.
In connection with the Company's agreement to acquire all of the assets
of Casino Magic Bay St. Louis and Boomtown Biloxi, the Company is exploring a
number of financing alternatives, which may involve repaying or redeeming its
existing debt. The Company expects to use part of the proceeds from any
refinancing to make certain improvements to the Mississippi properties.
The Company currently estimates that the cash generated from operations
and available borrowings under the credit facilities will be sufficient to
finance its current operations and planned capital expenditure requirements, not
including the Mississippi Acquisition. 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.
18
<PAGE>
Item 3. Changes in Information about Market Risk
Most of the Company's debt obligations at March 31, 2000 were fixed
rate obligations, and management, therefore, does not believe that the Company
has any material risk from its debt obligations.
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Purchase Agreement dated March 15, 2000, between PNGI Charles
Town Gaming, LLC and BDC Group.
Amendment No. 1 to Term Loan Agreement between the Company
and Bank of America, dated March 29, 2000.
Amendment No. 4 to Loan Agreement between the Company and
First Union National Bank dated March 29, 2000.
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Penn National Gaming, Inc.
May 12, 2000 By: /s/Robert S. Ippolito
- ------------ ------------------------
Date Chief Financial Officer,
Secretary/Treasurer
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
10.18a Purchase Agreement dated March 15, 2000, between PNGI
Charles Town Gaming, LLC and BDC Group. 23-36
10.19a Amendment No. 1 to Term Loan Agreement between the Company
and Bank of America, dated March 29, 2000. 37-38
10.20a Amendment No. 4 to Loan Agreement between the Company and
First Union National Bank dated March 29, 2000. 39-48
</TABLE>
22
AGREEMENT FOR SALE OF MEMBERSHIP INTERESTS
IN PNGI CHARLES TOWN GAMING LIMITED LIABILITY COMPANY
Agreement made as of this 15th day of March, 2000, by, between and
among Thomas Hale Boggs, Jr., William C. Bryant, James A. Reeder, Sun Mountain
Development, LLC and Timber Nation Limited Partnership (hereinafter individually
a "Seller" and collectively the "Sellers" or the "BDC Group"), Penn National
Gaming of West Virginia, Inc., a West Virginia Corporation, or its affiliated
designee, (hereinafter "Buyer"), PNGI Charles Town Gaming Limited Liability
Company, a West Virginia limited liability company (hereinafter the "LLC"), Penn
National Gaming, Inc., a Pennsylvania Corporation (hereinafter "PENN"), and Dr.
Henry G. Jarecki (hereinafter "Jarecki").
BACKGROUND:
The BDC Group owns eleven percent of the Membership Interests in the
LLC (collectively the "BDC Membership Interest" and individually a "Seller's
Membership Interest").
The BDC Group desires to sell to the Buyer the BDC Membership Interest
in accordance with that certain Second Amended and Restated Operating Agreement
of the LLC dated as of October 17, 1997 among the BDC Group, the Buyer, the LLC
and Bryant Development Company, Nominee (the "Operating Agreement").
The Buyer desires to purchase the BDC Membership Interest in accordance
with the Operating Agreement and the terms and provisions hereof.
A G R E E M E N T
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF THE BDC MEMBERSHIP INTEREST
1.1 Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to and does hereby purchase from each Seller
and each Seller agrees to and does hereby sell to the Buyer his or its Seller's
Membership Interest, collectively constituting the entire BDC Membership
Interest, for the consideration specified in this Article I.
1.2 Purchase Price. The Buyer agrees to pay to the Sellers Six Million
($6,000,000) Dollars (the "Purchase Price") in immediately available funds at
the Closing (defined below) by wire transfer to such accounts and divided among
the Sellers as set forth on Schedule 1.2.1, Column A, attached hereto and made a
part hereof; provided that to the extent any amount is owed to Jarecki by any
member of the BDC Group, the amount which is set forth on Schedule 1.2.1, Column
B for such member shall be deducted by the Buyer from the amount otherwise
payable to such member of the BDC Group and shall be paid by the Buyer to
Jarecki at the Closing. The net amount payable by the Buyer to each BDC Group
member and Jarecki is set forth on Schedule 1.2.1, Column C.
1.3 The Closing. The closing of the transaction contemplated by this
Agreement (the "Closing") shall take place promptly after each party has
executed and delivered this Agreement to PENN, but not later than March 31,
2000, or such other date as the parties hereto may agree (the "Closing Date").
23
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
CONCERNING THE TRANSACTION
2.1 Representations and Warranties of the Sellers.
Each Seller individually represents and warrants to the Buyer as
-----------------------------------------------
follows as of the date hereof and as of the Closing Date:
2.1.1 Authorization of Transaction. Each Seller has full power
and authority to execute and deliver this Agreement and to perform his or its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of each Seller enforceable in accordance with its terms. Each Seller
has given notice to, made any filing with or obtained any authorization, consent
or approval of any person, firm, corporation or federal or state government
agency, commissioner or board (hereinafter referred to as a "Person") necessary
in order to consummate the transaction contemplated by this Agreement.
2.1.2 Noncontravention. Neither the execution and the delivery
of this Agreement nor the consummation of the transaction contemplated hereby
will violate any judgment, order, decree, ruling, charge or other restriction of
any government, governmental agency or court to which any Seller is subject or
conflict with or result in a breach of or constitute a default under any
agreement, contract, instrument or other arrangement to which any Seller is a
party or by which any Seller or any of any Seller's assets is subject.
2.1.3 Broker's Fees. No Seller has any liability or obligation
to pay any fees or commission to any broker, finder or agent with respect to the
transaction contemplated by this Agreement for which the Buyer could become
liable or obligated.
2.1.4 Seller Membership Interest. Except for the promissory
notes executed by various BDC Group members to Jarecki, which promissory notes
will be extinguished at the Closing when the amounts set forth on Schedule
1.2.1., Column B are paid to Jarecki pursuant to the provisions of Section 1.2
above, each Seller owns the Seller's Membership Interest of record and
beneficially and has not issued or granted to any person, firm or corporation
any present or future right to acquire the Seller's Membership Interest or any
interest therein except as set forth in the Operating Agreement. The Sellers'
Membership Interests in the aggregate constitute all the BDC Membership Interest
and individually the entire Membership Interest of each Seller in the LLC.
2.1.5No Seller Action. No Seller has taken any action or incurred any
liability on behalf of the LLC. ----------------
2.1.6 No Litigation. No action, suit or proceeding is pending
or threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (i)
prevent consummation of the transactions contemplated by this Agreement, (ii)
cause the transaction contemplated by this Agreement to be rescinded following
the consummation, or (iii) adversely affect the right of the Buyer to own each
Seller's Membership Interest (and no such injunction, judgment, order, decree,
ruling or charge is in effect).
2.2 Representations and Warranties of the Buyer. The Buyer and PENN,
jointly and severally, represent and warrant to the Sellers as follows as of the
date of this Agreement and as of the Closing Date:
2.2.1 Organization and Qualification. PENN and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
24
<PAGE>
conducted. PENN and each of its subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a material adverse
effect. The Buyer is an indirect wholly owned subsidiary of PENN.
2.2.2 Authorization of Transaction. The Buyer and PENN have
full power and authority to execute and deliver this Agreement and to perform
their respective obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Buyer and PENN enforceable in accordance with
its terms and conditions. The Buyer and PENN have given notice to, made any
filing with or obtained any authorization, consent or approval of any Person
necessary in order to consummate the transaction contemplated by this Agreement.
2.2.3 Noncontravention. Neither the execution and the delivery
of this Agreement nor the consummation of the transaction contemplated hereby
will violate any judgment, order, decree, ruling, charge or other restriction of
any government, governmental agency or court to which Buyer or PENN is subject
or conflict with or result in a breach of or constitute a default under any
agreement, contract, instrument or other arrangement to which Buyer or PENN is a
party or by which Buyer or PENN or any of their assets is subject.
2.2.4 Broker's Fees. Neither Buyer nor PENN has any liability
or obligation to pay any fees or commission to any broker, finder or agent with
respect to the transaction contemplated by this Agreement for which any of the
Sellers could become liable or obligated.
2.2.5 Investment. The Buyer is not acquiring the BDC
Membership Interest with a view to or for sale in connection with any
distribution in violation of the Securities Act of 1933, as amended (the "Act").
2.2.6 Full Knowledge. The Buyer is the Managing Member of the
LLC and has full and complete knowledge of the assets, liabilities and financial
affairs of the LLC and is not relying on any representations or warranties of
the Sellers (other than those specifically set forth herein) in reaching its
decision to enter into this Agreement.
2.2.7 No Litigation. No action, suit or proceeding is pending
or threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (i)
prevent consummation of the transactions contemplated by this Agreement, or (ii)
cause the transaction contemplated by this Agreement to be rescinded following
the consummation (and no such injunction, judgment, order, decree, ruling or
charge is in effect).
ARTICLE 3
TAX MATTERS
3.1 In the case of termination of the LLC for tax purposes (or if such
a termination is deemed to occur) at Closing, a final federal income tax return
shall be filed through March 15, 2000, the effective date hereof. Except in the
event of such termination (or a deemed termination), and in the case of state
and local income tax returns, if there is no deemed termination for such tax
purposes, with respect to each of the Sellers, the LLC shall close its books as
of the Closing Date to determine each Seller's distributive share of income,
gain, loss, deduction or credit for the year in which the Closing occurs.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 The obligation of Sellers to close hereunder shall be subject to
the satisfaction or waiver of the following conditions on or prior to Closing:
25
<PAGE>
4.1.1 Buyer shall have delivered to the Sellers and Jarecki,
respectively, the cash amounts set forth on Schedule 1.2.1, Column C, by
wire transfer, as more fully set forth on Schedule 1.2.1.
4.1.2 Buyer and PENN shall have delivered to each Seller a release
substantially in the form of Exhibit "A", attached hereto and made a part
hereof.
4.1.3 Each of the representations and warranties of Buyer and
PENN contained in Section 2.2 above shall be true and correct on and as of the
Closing Date to the same extent as if made on and as of the Closing Date.
4.2 The obligation of Buyer and PENN to close hereunder shall be
subject to the satisfaction of the following conditions on or prior to Closing:
4.2.1 Each of the representations and warranties of each of
the Sellers contained in Section 2.1 above shall be true and correct on and as
of the Closing Date to the same extent as if made on and as of the Closing Date.
4.2.2 Each Seller shall have delivered to Buyer and PENN a
release substantially in the form of Exhibit "B" attached hereto and made a part
hereof.
ARTICLE 5
COVENANTS
5.1 Further Action. In case at any time, either before or after the
Closing, any further action is necessary to carry out the purpose of this
Agreement, each of the parties will take such further commercially reasonable
action, including the execution and delivery of such further instruments and
documents, as any other party may reasonably request.
5.2 Dissociation. Effective the close of business on March 15, 2000,
each Seller shall be deemed to have dissociated from the LLC in accordance with
Article 6 of the West Virginia Uniform Limited Liability Company Act and the
Operating Agreement and shall thereafter cease to have any rights or obligations
under the Operating Agreement or otherwise as a "Member" of the LLC.
5.3 Public Announcements. Neither party shall make any pubic
announcement of the existence of this Agreement or the transaction contemplated
hereby without the prior approval of the other parties; provided, however, if
PENN determines it is required to make a public announcement pursuant to the
Rules of the NASD or the Securities Exchange Act of 1934, as amended, it may do
so.
5.4 Delivery of K-1's. The Buyer and PENN agree to furnish all BDC
Group members with K-1's and any other necessary tax related information
pertaining to the LLC concerning the period through March 15, 2000, prior to the
filing of the LLC's federal tax return concerning such period; and each Seller
shall be given a reasonable opportunity to review and comment on such tax return
before it is filed by the LLC. Within 90 days after the Closing, the Buyer will
provide each Seller with a reasonable estimate of the information that will
appear in such Seller's final K-1 with respect to the LLC.
5.5. PENN Guaranty. PENN agrees that it shall cause the Buyer to
perform all of its agreements and obligations under this Agreement, including,
but not limited to, the purchase of the BDC Group Membership Interest pursuant
to this Agreement.
ARTICLE 6
REMEDIES FOR BREACH OF THIS AGREEMENT
6.1 Survival. All the representations, warranties and covenants of the
parties contained in this Agreement shall survive the Closing hereunder (even if
the other party knew or had reason to know of any misrepresentation or breach of
26
<PAGE>
any warranty at the time of Closing) and continue in full force and effect for
the period of the applicable statute of limitations.
6.2 Indemnification Provision for the Benefit of the Buyer and PENN. In
the event any Seller breaches any of his or its representations, warranties and
covenants contained herein, provided that if the Buyer or PENN makes a written
claim for indemnification against such Seller within the applicable survival
period, then such Seller agrees to indemnify the Buyer from and against the
entirety of any adverse consequences the Buyer or PENN may suffer (including
legal fees and any adverse consequences the Buyer may suffer after the end of
the applicable survival period) resulting from, arising out of, or relating to
or caused by the breach.
6.3 Indemnification Provision for the Benefit of each Seller. In the
event Buyer or PENN breaches any of their representations, warranties and
covenants contained herein, provided that if one or more Sellers makes a written
claim for indemnification against Buyer or PENN within the applicable survival
period, then Buyer and PENN agree to indemnify such Sellers from and against the
entirety of any adverse consequences such Sellers may suffer (including legal
fees and any adverse consequences the Seller may suffer after the end of the
applicable survival period) resulting from, arising out of, or relating to or
caused by the breach.
ARTICLE 7
MISCELLANEOUS
7.1 No Third Party Beneficiaries. This Agreement shall not confer any
right or remedy upon any Persons other than the
----------------------------- parties hereto and their respective
successors and assigns.
7.2 Entire Agreement. This Agreement, including the documents and
schedules referred to herein, constitute the entire agreement among the parties
with respect to the subject matter hereof and supersedes any prior
understandings, agreements or representations by and among the parties, written
or oral, to the extent they relate in any way to the subject matter hereof.
7.3 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of his
rights, interests or obligations hereunder without the prior approval of the
other parties, which consent shall not be unreasonably withheld.
7.4 Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
7.5 Headings. The Section headings contained are inserted for
convenience only and shall not affect in any way the -------- meaning or
interpretation of this Agreement.
7.6 Notices. All written notices, demands and requests of any kind
which a party may be required or may desire to serve upon the other parties
hereto in connection with this Agreement shall be delivered only by nationally
recognized overnight courier or other means of personal service which provides
written verification of receipt (a "Notice"). All Notices shall be addressed to
each of the parties to be served as follows:
Buyer or PENN
Peter M. Carlino, Chairman
Wyomissing Professional Center
825 Berkshire Boulevard, Suite 200
Wyomissing, Pennsylvania 19610
All Notices with a copy to:
27
<PAGE>
Robert P. Krauss, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street, 38th Floor
Philadelphia, Pennsylvania 19103-7598
Sellers and Jarecki (all such Notices to go to one or more of the
following, as appropriate) -------------------
James A. Reeder, with an address at:
---------------
c/o Patton Boggs, L.L.P.
2550 M Street, N.W.
Washington, D.C. 20037
28
<PAGE>
Thomas Hale Boggs, Jr., with an address at:
----------------------
c/o Patton Boggs, L.L.P.
2550 M Street, N.W.
Washington, D.C. 20037
William C. Bryant, with an address at:
-----------------
c/o James A. Reeder
Patton Boggs, L.L.P.
2550 M. Street, N.W.
Washington, D.C. 20037
Sun Mountain Development, LLC, with an address at:
c/o Gerald L. Diddy
8525 N. 84th Place
Scottsdale, AZ 85258-2401
Timber Nation Limited Partnership or Jarecki, with an address at:
c/o Falconwood Corporation
565 Fifth Avenue, 3rd Floor
New York, NY 10017
All Notices to Timber Nation Limited Partnership or Jarecki with a
copy to:
Nancy A. Lieberman, Esquire
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
or other such address as shall be furnished in writing by any such party to the
other parties, and such Notice shall be effective and be deemed to have been
given as of the date actually received.
29
<PAGE>
7.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without giving
effect to any choice or conflict of law provisions or rules that would cause the
application of the laws of any jurisdiction other than the Commonwealth of
Pennsylvania.
7.8 Amendment and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer, PENN, each Seller and Jarecki. No waiver by any party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or effect
in any way any right arising by virtue of any prior or subsequent such
occurrence.
7.9 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof, or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
7.10 Expenses. Each of the parties shall bear his or its own costs or
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transaction contemplated hereby.
7.11 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed to also refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
30
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement on
the date first written above.
SELLERS:
__/s/Thomas Hale Boggs_______
Thomas Hale Boggs, Jr.
Resident of Maryland
_/s/William C. Bryant____________
William C. Bryant
Resident of Virginia
___/s/James A. Reeder______________
James A. Reeder
Resident of Virginia
SUN MOUNTAIN DEVELOPMENT,
LLC, a Nevada Limited Liability Company
By:___/s/Gerald L. Diddy____________
Gerald L. Diddy, Member
TIMBER NATION LIMITED
PARTNERSHIP, a Delaware
Limited Partnership
By:__/s/Henry G. Jarecki_____________
Dr. Henry G. Jarecki,
General Partner
____/s/Henry G. Jarecki_____
Dr. Henry G. Jarecki
31
<PAGE>
BUYER
PENN NATIONAL GAMING OF
WEST VIRGINIA, INC.
By:_/s/William J. Bork______________
William J. Bork, President
PENN NATIONAL GAMING, INC.
By:__/s/Peter M. Carlino____________
Peter M. Carlino,
Chairman and
Chief Executive Officer
PNGI CHARLES TOWN GAMING
LIMITED LIABILITY COMPANY
By: PENN NATIONAL GAMING OF
WEST VIRGINIA, INC.,
MANAGING MEMBER
By:__/s/William J. Bork_____________
William J. Bork, President
32
<PAGE>
EXHIBIT A
RELEASE
For and in consideration of the execution and delivery of that certain
Agreement for Sale of Membership Interests dated as of March 15, 2000 (the "Sale
Agreement") among the undersigned and others pertaining to the purchase and sale
of Membership Interests in PNGI Charles Town Gaming Limited Liability Company,
and a mutual Release being received by the undersigned on the date hereof, the
undersigned does hereby remise, release and forever discharge PNGI Charles Town
Gaming Limited Liability Company, Penn National Gaming of West Virginia, Inc.
and Penn National Gaming, Inc. and their respective officers, directors,
employees, successors and assigns (collectively referred to herein as the
"Releasees") of and from any and all actions and causes of action, claims and
demands whatsoever, at law or in equity, whether known or unknown, which the
undersigned ever had, now has, or which the undersigned's heirs, executors,
administrators, successors or assigns, or any of them, hereinafter can, shall or
may have, for or by reason of or related to the undersigned having been a Member
of PNGI Charles Town Gaming Limited Liability Company or any rights under the
Second Amended and Restated Operating Agreement of PNGI Charles Town Gaming
Limited Liability Company dated as of October 17, 1997 or of the undersigned
arising out of or with respect to having been such a Member, from the beginning
of the world to the date hereof, provided, however, that notwithstanding
anything to the contrary in this Release, none of the undersigned are releasing
any of the Releasees from any of their duties or obligations under the Sale
Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Release as of
this 15th day of March, 2000.
___/s/Thomas Hale Boggs_________
Thomas Hale Boggs, Jr.
____/s/William C. Bryant____
William C. Bryant
____/s/James A. Reeder_____
James A. Reeder
SUN MOUNTAIN DEVELOPMENT,
LLC
By:/s/Gerald L. Diddy
Gerald L. Diddy, Member
TIMBER NATION LIMITED
PARTNERSHIP
By:_/s/Dr. Henry G. Jarecki _
Dr. Henry G. Jarecki, General Partner
33
<PAGE>
EXHIBIT B
RELEASE
For and in consideration of the execution and delivery of that certain
Agreement for Sale of Membership Interests dated as of March 15, 2000 (the "Sale
Agreement") among the undersigned and others pertaining to the purchase and sale
of Membership Interests in PNGI Charles Town Gaming Limited Liability Company,
and a mutual Release being received by the undersigned on the date hereof, the
undersigned does hereby remise, release and forever discharge Thomas Hale Boggs,
Jr., William C. Bryant, James A. Reeder, Sun Mountain Development, LLC, Timber
Nation Limited Partnership and their respective officers, directors, members,
partners, employees, successors and assigns (collectively referred to herein as
the "Releasees") of and from any and all actions and causes of action, claims
and demands whatsoever, at law or in equity, whether known or unknown, which the
undersigned ever had, now has, or which the undersigned's successors or assigns,
or any of them, hereinafter can, shall or may have, for or by reason of or
related to the Releasees having been a Member of PNGI Charles Town Gaming
Limited Liability Company, including, but not limited to, any obligations of the
Releasees with respect to any financial or other obligations of PNGI Charles
Town Gaming Limited Liability Company or any obligations of the Releasees under
that certain Second Amended and Restated Operating Agreement of PNGI Charles
Town Gaming Limited Liability Company dated October 17, 1997, as amended, or any
rights of the Releasees arising out of or with respect to having been such a
Member, from the beginning of the world to the date hereof, provided, however,
that notwithstanding anything to the contrary in this Release, none of the
undersigned are releasing any of the Releasees from any of their duties or
obligations under the Sale Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Release as of
this 15th day of March, 2000.
PENN NATIONAL GAMING OF WEST VIRGINIA, INC.
By:/s/William J. Bork
William J. Bork, President
PENN NATIONAL GAMING, INC.
By: /s/Peter M. Carlino
Peter M. Carlino,
Chairman and
Chief Executive Officer
PNGI CHARLES TOWN GAMING
LIMITED LIABILITY COMPANY
By: PENN NATIONAL GAMING OF
WEST VIRGINIA, INC.,
MANAGING MEMBER
By:__/s/William J. Bork
William J. Bork, President
34
<PAGE>
SCHEDULE 1.2.1
I. Cash portion of the Purchase Price:
----------------------------------
Name Column A Column B Column C
Thomas Hale Boggs, Jr. 2.9167% $1,590,909 $(149,888) 1,441,021
William C. Bryant 1.25% 681,818 (41,816) 640,002
James A. Reeder 2.9166% 1,590,909 (149,888) 1,441,021
Sun Mountain
Development, LLC 1.00% 545,455 (30,096) 515,359
Timber Nation Limited
Partnership 2.9167% 1,590,909 1,590,909
Dr. Henry G. Jarecki 371,688 371,688
Total 11% 6,000,000 _____ 6,000,000
II. Wire Instructions
Phone Fax Wire Amount
Thomas Boggs 202-457-6040 202-457-6315 $1,441,021
First Union Natl Bank
ABA# 054001220
A/C Thomas Boggs
A/C# 100050335274
James Reeder 202-457-5616 202-457-6315 $1,441,021
Chase Manhattan Bank
ABA # 021000021
A/C James A. Reeder
A/C # 066-296390
35
<PAGE>
Phone Fax Wire Amount
William L. Bryant 703-430-3100 703-444-1052 $ 640,002
First Union Natl Bank
Herndon Junction
47040 Community Plaza
Sterling, VA 20164
ABA# 051400549
A/C William L. Bryant
A/C# 1050000847115
Jerry Diddy
Sun Mountain Development 480-948-6725 480-948-0065 $ 515,359
Western Security Bank
7401 E. Camelback Road
Scottsdale, AZ 85251
ABA# 122105184
A/C Sun Mountain Development, LLC
A/C# 6376701021
Timber National LP 212-984-1444 212-984-1442 $1,590,909
Chase Manhattan Bank
ABA# 021000021
A/C Henry G. Jarecki
A/C# 910-1-590157
Dr. Henry G. Jarecki 212-984-1444 212-984-1442 $ 371,688
Chase Manhattan Bank
ABA# 021000021
A/C Henry G. Jarecki
A/C# 910-1-590157
36
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement (this "Amendment") is
entered into with reference to the Senior Secured Multiple Draw Term Loan
Agreement dated as of December 13, 1999 among Penn National Gaming of West
Virginia, Inc. ("Borrower"), the Lenders party thereto and Bank of America,
N.A., as Administrative Agent (as heretofore amended, the "Loan Agreement").
Capitalized terms used but not defined herein are used with the meanings set
forth for those terms in the Loan Agreement.
Borrower and the Lenders hereby agree to amend the Loan
Agreement as follows:
1. Definitions. Section 1.1 of the Loan Agreement is hereby amended to
add the following definition:
"Charles Town Purchase Agreement" means the agreement for sale of
membership interests in PNGI Charles Town Gaming Limited Liability
Company, copies of which have been distributed to the Banks.
2. Consent to Charles Town Buy-Out. Section 6.18 of the Loan Agreement
is hereby amended to read in full as follows:
"6.18 Acquisitions and InvestmentsAcquisitions and
InvestmentsAcquisitions and Investments. Make any Acquisition or make
any Investment other than (a) Acquisitions and Investments permitted by
Section 8.05 of the PNGI Credit Agreement which do not constitute
Significant Transactions and (b) Investments consisting of the purchase
of the remaining ownership of PNGI Charles Town Gaming Limited
Liability Company not owned by Borrower as of the Closing Date pursuant
to the Charles Town Purchase Agreement."
3. Acknowledgment Regarding Casino Magic. Borrower confirms that it
has entered into an agreement to purchase the Casino
Magic Bay St. Louis and
Boomtown Biloxi properties from Pinnacle Entertainment, Inc. (formerly
known as "Hollywood Park Corporation"). Borrower acknowledges that the
consummation of the proposed purchase will constitute a "Significant
Transaction" as defined in the Loan Agreement and will require the
concurrent repayment in full of all of the Obligations and the termination
of the Commitment.
4. Expenses. Borrower confirms that pursuant to Section 11.3 of the
Loan Agreement, it has agreed to pay all reasonable
out-of-pocket cost and expenses of the Administrative Agent in connection
with this Amendment.
5. Representations and Warranties. Borrower represents and warrants to
the Administrative Agent and the Lenders that:
(a) no Default or Event of Default has occurred and remains continuing
or will result from the consummation of the transactions contemplated
by the Charles Town Purchase Agreement. (b) Borrower has delivered a
true, correct and complete copy of the Charles Town Purchase Agreement
to each of the Banks..
6. Confirmation. In all other respects, the terms of the Loan
Agreement and the other Loan Documents are hereby confirmed.
37
<PAGE>
IN WITNESS WHEREOF, Borrower and the Administrative Agent have
executed this Amendment as of March 29, 2000 by their duly authorized
representatives.
PENN NATIONAL GAMING OF WEST VIRGINIA, INC.
By: __/s/Robert S. Ippolito
Title: _Secretary/Treasurer________
BANK OF AMERICA, N.A.
By: _/s/Jeff Bailard___________________
Title: _Vice President_________________
FIRST UNION NATIONAL BANK
By: _/s/_Lynn B. Eagleson____________
Title: __Vice President______________
The undersigned hereby consent to the foregoing:
PENN NATIONAL GAMING, INC.
By: __/s/Robert S. Ippolito
Title: _Secretary/Treasurer________
PNGI CHARLES TOWN GAMING LIMITED LIABILITY COMPANY
By: __/s/Robert S. Ippolito
Title: _Secretary/Treasurer________
38
AGREEMENT FOR CONSENT AND WAIVER UNDER
SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
THIS AGREEMENT FOR CONSENT AND WAIVER UNDER SECOND AMENDED AND
RESTATED CREDIT AGREEMENT (this Agreement) is made this 31st day of March,
2000 by and among PENN NATIONAL GAMING, INC., a Pennsylvania corporation
(Borrower); PENN NATIONAL GAMING OF WEST VIRGINIA, INC., a West Virginia
corporation (PNGIWV); FIRST UNION NATIONAL BANK, a national banking
association (for itself and in its capacity as agent hereunder, Agent); the
banks signatory to this Agreement (together with the Agent, each
individually a Bank and individually and collectively, the Banks) and PNGI
CHARLES TOWN GAMING LIMITED LIABILITY COMPANY, a West Virginia limited
liability company (Charles Town).
BACKGROUND
Borrower and Banks entered into a Second Amended and Restated Credit
Agreement dated January 28, 1999, as amended by Amendment No. 1 to Second
Amended and Restated Credit Agreement and Joinder of Subsidiary Guarantor
dated July 22, 1999, Amendment No. 2 to and Consent under Second Amended
and Restated Credit Agreement dated July 29, 1999 and Amendment No. 3 to
and Consent and Waiver under Second Amended and Restated Credit Agreement
(Amendment No. 3) dated December 13, 1999 (and as may be further amended
from time to time, the Credit Agreement) for the purposes of providing a
revolving credit facility, for the financing of a loan from Borrower to FR
Park Racing L.P., the refinancing of certain then- existing indebtedness of
Borrower, the issuance of letters of credit for the benefit of Borrower,
and for the working capital needs and general corporate purposes of the
Borrower.
PNGIWV, a wholly-owned Subsidiary of Borrower and a Subsidiary
Guarantor, will acquire the eleven percent (11%) Minority Interest of
Charles Town for a purchase price of Six Million Dollars ($6,000,000) in
cash (the Purchase), after which Charles Town will become a wholly-owned
Subsidiary of PNGIWV.
In consideration of the foregoing and the premises and the agreements
hereinafter set forth, and intending to be legally bound hereby, the
parties hereto agree as follows:
39
<PAGE>
1. Consent and Waiver.
a. Section 8.02 of the Credit Agreement prohibits the Borrower and the
Credit Parties from acquiring any part of the property or assets of any
Person. Section 8.05 of the Credit Agreement prohibits the Borrower from
making Investments; however Section 8.05(ix) of the Credit Agreement allows
the Borrower and the Credit Parties to invest up to $47,566,077 plus
accrued interest in Charles Town. After the Purchase, PNGIWVs Investment
in Charles Town will exceed $47,566,077 plus accrued interest. Therefore,
the Purchase is not permitted by Sections 8.02 and 8.05 of the Credit
Agreement. Banks hereby consent to the Purchase and waive any Default or
Event of Default resulting thereby.
b. Section 8.17(iii) of the Credit Agreement prohibits the Borrower or
a Wholly-Owned Subsidiary from establishing, creating or acquiring any
Subsidiary unless such Subsidiary executes a counterpart to the
Subsidiaries Guaranty, the Pledge Agreement and the Security Agreement.
Section 8.17(x) of the Credit Agreement requires any new Wholly-Owned
Subsidiary to execute and deliver all documentation such Wholly-Owned
Subsidiary would have had to deliver if it were a Credit Party on the
Restatement Effective Date. Section 8.17(y) requires the Borrower, at such
time as Charles Town becomes a Wholly-Owned Subsidiary of Borrower, to
cause Charles Town to execute the Subsidiaries Guaranty, the Pledge
Agreement and Security Agreement, to execute and deliver all documentation
required by Section 8.17(x) of the Credit Agreement and deliver all
additional collateral required by Agent or Required Banks. Banks hereby
consent to the establishment of Charles Town as a Wholly-Owned Subsidiary
of a Subsidiary and waive the requirements of Sections 8.17(iii), 8.17(x)
and 8.17(y) with respect thereto; provided, however, that such waiver shall
cease to be effective on or after June 30, 2000, on which date Borrower
agrees to comply with the terms of Paragraph 3 hereof.
40
<PAGE>
2. Acknowledgments.
a. PNGIWV, as evidenced by its signature below, hereby acknowledges
and agrees that the interests it owns of Charles Town constitute Collateral
(as defined in the Pledge Agreement) and are pledged to Agent, for the
benefit of Banks, under the Pledge Agreement. Annex G to the Pledge
Agreement, which lists the pledged limited liability company interests, is
hereby amended and restated in its entirety as set forth on Exhibit A
attached hereto.
b. Section 8.12(ii) prohibits modifications of the Charles Town Joint
Venture Agreement, other than modifications that could reasonably be
expected to be adverse to the interests of the Banks in any material
respect. Banks hereby acknowledge the Purchase for purposes of Section
8.12(ii) of the Credit Agreement.
3. Affirmative Covenant. Borrower, PNGIWV and Charles Town each hereby
covenant and agree that if: (i) any Banks Commitment under the Credit
Agreement remains effective or (ii) any Indebtedness under the Credit
Agreement remains outstanding, in each case on June 30, 2000, then Charles
Town will (and Borrower and PNGIWV hereby agree to cause Charles Town to)
deliver on or before June 30, 2000 the following documents to Agent:
a. a duly executed joinder to the Subsidiaries Guaranty, Security
Agreement and Pledge Agreement, in form and substance satisfactory to
Banks; b. executed UCC-1 financing statement to be filed against Charles
Town in those jurisdictions required by Agent;
c. any and all pledged intercompany notes from or for the benefit of
Charles Town;
d. a duly executed mortgage or deed of trust, in favor of Agent for
the benefit of Banks, on each parcel of real property owned by Charles
Town;
e. a marked-up title report of a title insurance company satisfactory
to Agent, representing such title insurance companys commitment to issue
in favor of Agent for the benefit of Banks, at Borrowers expense, a
standard form title insurance policy insuring the lien of each mortgage
delivered pursuant to subparagraph (e) above, subject to no other liens
except as listed therein and acceptable to Agent;
41
<PAGE>
f. a Phase I environmental report with respect to each property for
which a mortgage is delivered pursuant to subparagraph (e) above, in form
and substance satisfactory to Agent and prepared by a qualified
environmental professional acceptable to Agent;
g. an opinion of counsel to Charles Town, in form and substance
satisfactory to Agent;
h. a certificate of good standing dated as of a recent date for
Charles Town in the jurisdiction of its formation;
i. a certificate from the secretary of Charles Town: (i) attaching the
operating agreement of Charles Town or certifying that the operating
agreement has not been modified since it was last delivered to Banks; (ii)
attaching resolutions from the [board of managers] of Charles Town
authorizing the execution by Charles Town of each mortgage and the joinder
to the Security Agreement and Pledge Agreement; and (iii) attaching an
incumbency certificate; and
j. such additional documents as Agent shall reasonably request.
4. Negative Covenants. Charles Town hereby covenants and agrees to
comply with the terms of the negative covenants set forth in Section 8 of
the Credit Agreement as if Charles Town were a Subsidiary Guarantor. PNGIWV
hereby covenants and agrees to cause Charles Town to comply with the terms
of the negative covenants set forth in Section 8 of the Credit Agreement as
if Charles Town were a Subsidiary Guarantor.
5. Representations and Warranties. Borrower and each Subsidiary
Guarantor hereby represents and warrants to Banks as follows:
a. Representations. The representations and warranties set forth in
Section 6 of the Credit Agreement are true and correct in all material
respects as of the date hereof, including as applied to Charles Town as a
Subsidiary; there is no Event of Default or Default under the Credit
Agreement, as amended hereby; and there has been no material adverse change
in the financial condition or business of Borrower or any Subsidiary from
the date on which Borrower last delivered financial statements to Banks.
b. Power and Authority. Borrower, PNGIWV and Charles Town each has the
power and authority under the laws of each of their states of incorporation
or formation and under their articles or certificates of incorporation and
bylaws or other formation documents or other formation documents to enter
into and perform this Agreement and the other documents and agreements
required hereunder (collectively, the Agreement Documents); all actions
(corporate or otherwise) necessary or appropriate for the execution and
performance by each of Borrower, PNGIWV and Charles Town of the Agreement
Documents have been taken; and that each of the Agreement Documents and the
Credit Agreement constitute the valid and binding obligations of Borrower,
PNGIWV, Charles Town and each other Subsidiary, enforceable in accordance
with their respective terms.
c. No Violations of Law or Agreements. The making and performance of
the Agreement Documents by Borrower, PNGIWV and Charles Town will not (i)
violate any provisions of any law or regulation, federal, state or local,
or the articles or certificates of incorporation or bylaws or other
formation documents of any of Borrower, PNGIWV or Charles Town or (ii)
result in any breach or violation of, or constitute a default or require
the obtaining of any consent under, any agreement or instrument by which
any of Borrower, PNGIWV or Charles Town or any of their property may be
bound.
42
<PAGE>
6. Conditions to Effectiveness of Amendment. This Agreement shall be
effective upon Agents receipt of the following documents, each in form and
substance satisfactory to Agent:
a. Agreement. This Agreement duly executed by Borrower, PNGIWV,
Charles Town, Agent and Banks.
b. Opinion of Counsel to Charles Town. An opinion letter from counsel
to Charles Town in form and substance satisfactory to Agent.
c. Purchase Agreement. A duly executed copy of the Agreement for Sale
of Membership Interest in PNGI Charles Town Gaming Limited Liability
Company dated the ____ day of March, 2000 by and between Thomas Hale Boggs,
Jr., William C. Bryant, James A. Reeder, Sun Mountain Development, LLC and
Timber Nation Limited Partnership, PNGIWV, or its affiliated designee,
Charles Town and Borrower.
d. Consents and Approvals. Receipt by Borrower, PNGIWV and Charles
Town of all necessary regulatory and other consents and approvals for the
Purchase. e. Lien Searches against Charles Town. As soon as available,
updated lien searches against Charles Town in such locations as Agent shall
reasonably request.
f. Certificates of Membership Interest. Any and all certificate(s) of
membership interest of
Charles Town.
g. Other Documents. Such additional documents as Agent may reasonably
request.
7. Affirmations. Borrower, PNGIWV and Charles Town hereby: (i)affirm
all the provisions of the Credit Agreement, Security Agreement, Pledge
Agreement and Contribution and Indemnification Agreement and (ii)agree
that the terms and conditions of the Credit Agreement, Security Agreement,
Pledge Agreement and Contribution and Indemnification Agreement shall
continue in full force and effect.
43
<PAGE>
8. Miscellaneous.
a. Borrower agrees to pay or reimburse Agent for all reasonable fees
and expenses (including without limitation reasonable fees and expenses of
counsel) incurred by Agent in connection with the preparation, execution
and delivery of this Agreement.
b. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania, without regard to
conflicts-of-law or choice-of-law rules.
c. All terms and provisions of this Agreement shall be for the benefit
of and be binding upon and enforceable by the respective successors and
assigns of the parties hereto.
d. This Agreement may be executed in any number of counterparts with
the same effect as if all the signatures on such counterparts appeared on
one document and each such counterpart shall be deemed an original.
e. Except as expressly set forth herein, neither the execution,
delivery and performance of this Agreement, nor anything contained herein
shall be construed as or shall operate as a consent to or waiver of any
provision of, or any right, power or remedy of Banks under the Credit
Agreement and the agreements and documents executed in connection
therewith.
44
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the day and year first above written.
PENN NATIONAL GAMING, INC.
By: /s/Robert S. Ippolito_____
Name: Robert S. Ippolito
Title: Secretary/Treasurer
PENN NATIONAL GAMING OF WEST
VIRGINIA, INC., as a Subsidiary Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
PNGI CHARLES TOWN GAMING LIMITED
LIABILITY COMPANY
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
[EXECUTIONS CONTINUED]
45
<PAGE>
FIRST UNION NATIONAL BANK, as Agent
By: /s/Lynn B. Eagleson________
Name: Lynn B. Eagleson
Title: Vice President
SUMMIT BANK
By: /s/Mary R. Balciar___________
Name: Mary R. Balciar
Title: Vice President
Accepted and Agreed:
MOUNTAINVIEW THOROUGHBRED
RACING ASSOCIATION, as a Subsidiary
Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
PENNSYLVANIA NATIONAL TURF
CLUB, INC., as a Subsidiary Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
[EXECUTIONS CONTINUED]
46
<PAGE>
PENN NATIONAL SPEEDWAY,
INC., as a Subsidiary Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
STERLING AVIATION, INC.,
as a Subsidiary Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
PENN NATIONAL HOLDING
COMPANY, as a Subsidiary
Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
PNGI POCONO, INC.,
as a Subsidiary Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
47
[EXECUTIONS CONTINUED]
<PAGE>
TENNESSEE DOWNS, INC.,
as a Subsidiary Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
THE DOWNS RACING, INC.,
as a Subsidiary Guarantor
By: /s/Joseph A. Lashinger
Name: Joseph A. Lashinger
Title: President/Secretary/Treasurer
NORTHEAST CONCESSIONS, INC.,
as a Subsidiary Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title: Vice President/Treasurer
BACKSIDE, INC.,
as a Subsidiary Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title: Assistant Secretary
MILL CREEK LAND, INC.,
as a Subsidiary Guarantor
By: /s/Robert S. Ippolito__
Name: Robert S. Ippolito
Title:Secretary/Treasurer
WILKES BARRE DOWNS, INC.,
as a Subsidiary Guarantor
By: /s/Robert E. Abraham
Name:Robert E. Abraham
Title:President/Secretary/Treasurer
48
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 11,430
<SECURITIES> 0
<RECEIVABLES> 4,410
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,701
<PP&E> 149,546
<DEPRECIATION> 22,479
<TOTAL-ASSETS> 197,579
<CURRENT-LIABILITIES> 24,445
<BONDS> 69,000
0
0
<COMMON> 153
<OTHER-SE> 69,808
<TOTAL-LIABILITY-AND-EQUITY> 197,579
<SALES> 53,262
<TOTAL-REVENUES> 53,262
<CGS> 40,979
<TOTAL-COSTS> 40,979
<OTHER-EXPENSES> 4,437
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,382
<INCOME-PRETAX> 5,760
<INCOME-TAX> 2,141
<INCOME-CONTINUING> 3,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,619
<EPS-BASIC> .24
<EPS-DILUTED> .24
</TABLE>
