SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X: ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
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)
Wyomissing Professional Center
825 Berkshire Blvd., Suite 200
PENNSYLVANIA 23-2234473 Wyomissing, Pennsylvania 19610
---------------------- ---------- ------------------------- -----
(State or other jurisdiction of (I.R.S. Employer (Address of principal executive
incorporation or organization) Identification No.) offices) (Zip Code)
Registrant's telephone number, including area code 610-373-2400
------------
Securities registered pursuant to Section
12(b) of the Act:
None
Securities registered pursuant to Section
12(g) of the Act:
Title of Each Class
Common stock par value .01 per share
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>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Aggregate market value of the voting common stock held by nonaffiliates of the
Registrant as of March 14, 2000 was approximately $111,809,813.
Number of Shares of Common Stock outstanding as of March 14, 2000 - 14,907,975
Documents Incorporated by Reference
Registrants Definitive Proxy Statement with respect to annual meeting of
Shareholders to be held on May 17, 2000.
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.
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PART 1
ITEM 1 BUSINESS
GENERAL
The Company, which began operations in 1972, is a diversified gaming
and pari-mutuel wagering company that owns an 89% interest in the Charles Town
entertainment complex which includes 1,500 gaming machines and a thoroughbred
racetrack in Charles Town, West Virginia. The Company also owns and operates two
racetracks and ten off-track wagering facilities ("OTWs") in Pennsylvania, and a
50% owned joint venture, Pennwood Racing Group, which owns and operates Freehold
Raceway and under a long-term lease operates Garden State Park in New Jersey.
The Company's Pennsylvania racetracks include Penn National Race Course, located
outside Harrisburg, one of two thoroughbred racetracks in Pennsylvania, and
Pocono Downs, located outside Wilkes-Barre, one of two harness racetracks in
Pennsylvania. The Company intends to develop one additional OTW that has been
allocated to it under Pennsylvania law, after which it will operate 11 of the 23
OTWs currently authorized in Pennsylvania. Between 1994 and 1999, the Company
increased total wagers at a compound annual growth rate of 8.4% by expanding its
simulcast and OTW operations.
STRATEGY
The Company has been a leading operator in the pari-mutuel wagering
industry through its horse racing expertise and its numerous wagering locations.
In developing its existing locations, the Company will, when possible, expand
them to include gaming machines, entertainment facilities and other amenities to
increase customer satisfaction and broaden market penetration of these
facilities. The Company plans to increase revenue significantly by focusing on
the following strategic objectives:
Focus on Gaming Machine Operations. The Company continues to seek
legislation to permit it to operate gaming machines at its racetracks where they
are not now permitted and to expand legislation in West Virginia to create
additional gaming opportunities. Legislation has been passed in West Virginia
which allows for coin out and reel slot machines at race tracks. In December
1999 the Company installed an additional 565 coin out, reel slot machines at the
Charles Town Entertainment Complex. The Company intends to convert some or all
of its current machines to coin out and, as demand dictates, increase the
maximum number of machines with reel slot machines.
Continue Development of Existing Facilities. Based on increasing demand
at the Company's Charles Town Entertainment Complex, the Company intends to
implement a master planned development of this facility in an effort to further
penetrate the primary market for this facility and to broaden its appeal as a
destination based entertainment facility serving the Baltimore/Washington DC
metropolitan area.
Acquisitions. The Company intends to grow it's gaming and entertainment
industry presence through select acquisitions of regional properties in emerging
gaming markets. In evaluating acquisition candidates, the Company intends to
focus its resources on under-developed properties which, with management's
focus, can generate improved operating performance by encouraging customer
loyalty among value conscious regional customers and by upgrading the amenities
offered at these facilities. In expanding the Company's gaming and destination
based entertainment offerings, the Company expects to diversify its revenue base
and to broaden its geographical presence. In implementing this strategy, the
Company intends to complete the recently announced acquisitions of the Casino
Magic Bay St. Louis and the Boomtown Biloxi properties in Mississippi. (See
pending Mississippi acquisition below.)
Expand Pari-mutuel Operations. The Company plans (subject to the
receipt of remaining regulatory approvals, including site approvals) to open and
operate an additional OTW in East Stroudsburg, Pennsylvania. We also intend to
seek legislation in other jurisdictions, principally New Jersey through the
Company's investment in Pennwood Group to operate additional OTWs. Additionally,
during the past five years, the Company has expanded its simulcasting operations
and taken advantage of favorable changes in pari-mutuel wagering and
simulcasting laws in various states and the expanded use of simulcasting
3
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technology. In order to promote wagering, the Company has increased and expects
to continue to increase full-card import simulcasts from premier racetracks. The
Company also intends to increase export simulcasting of races from Company-owned
tracks to out-of-state racetracks, OTWs, casinos and other gaming facilities.
PENDING MISSISSIPPI ACQUISITION
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 known as Hollywood Park, Inc. (NYSE:PNK) for $195
million. The 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 Company will enter into a licensing
agreement to use the 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.
Casino Magic Bay St. Louis started operations in September 1992 on a
permanently moored barge in a 17 acre marina with the adjoining land based
facilities situated on 591 acres. The facility in Bay St. Louis offers
approximately 39,500 square feet of gaming space, with 1,132 slot machines and
42 table games. The land based building is three stories with a restaurant,
buffet, snack bar, gift shop, and a live entertainment lounge. In December 1994,
Casino Magic Bay St. Louis also opened the Casino Magic Inn; a 201 room hotel,
including four deluxe and 20 junior suites. The property also contains an 1,800
seat arena, which hosts approximately 50 events annually, including televised
boxing matches, concerts and other special events. With the late 1997 addition
of the 18 hole Bridges Golf Resort, Casino Magic Bay St. Louis is positioned as
a full vacation resort destination.
Boomtown Biloxi, which occupies nine acres on Biloxi, Mississippi's
back bay, is located one-half mile from Interstate 110, the main highway
connecting Interstate 10 (the main thoroughfare connecting New Orleans,
Louisiana and Mobile, Alabama) and the Gulf of Mexico. Boomtown Biloxi, began
operations in July 1994, and consists of a land-based facility that houses
non-gaming operations and 33,000 square foot casino constructed on a 400 x 100
foot barge permanently moored to the land-based building. The casino offers
1,030 slot machines, 37 table games and other gaming amenities including
restaurants, a western dance hall/cabaret and a 20,000 square foot family
entertainment center.
TRACKPOWER
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 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 that, if a definitive agreement is executed,
will replace and restate the above agreement. 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 prior to considering the exercises of options or warrants. The
agreement is subject to due diligence, regulatory and other approvals.
4
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ACQUISITIONS
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). 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, 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;
(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. The Owner of
Garden State Park, International Thoroughbred Breeders, Inc., announced on
January 25, 2000 that it had entered into an agreement for the sale of the
Garden State Park property, excluding a 10-acre parcel owned by our joint
venture, to Turnbury/Cherry Hill, LLC. The closing of this agreement of sale is
scheduled to occur on or before April 15, 2000. If the sale of Garden State Park
is completed, our lease at Garden State Park will be terminated 180 days
following the closing of the sale. 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 or
loss of the Joint Venture is included in earnings of unconsolidated affiliates
in the accompanying Consolidated Statements of Income for the year ended
December 31, 1999.
GAMING MACHINE OPERATIONS AT CHARLES TOWN ENTERTAINMENT COMPLEX
On November 5, 1996, Jefferson County, West Virginia approved a referendum
authorizing the installation and operation of gaming machines at the Charles
Town Entertainment Complex. As a result, the Company consummated the Charles
Town Acquisition on January 15, 1997. In April 1997, the Company reopened the
Charles Town Entertainment Complex, featuring live racing, dining and simulcast
wagering. In September 1997, the Company expanded wagering opportunities by
installing gaming machines at the Charles Town Entertainment Complex. Since that
time, we have increased the number of slot machines from 400 machines to 1,500
machines as of March 14, 2000. We intend to increase the number of slot machines
if demand warrants and if approved by the West Virginia Lottery Commission.
Presently, there is no statutory cap on the number of slot machines that may be
installed at a location. Of the 1,500 machines, 565 machines are coin out, reel
slot machines that we installed following the passage of legislation in West
Virginia in April 1999 permitting this type of gaming machine. The remaining 935
slot machines are dollar bill-fed video slot machines that replicate traditional
spinning reel slot machines and also feature video card games, such as blackjack
and poker. We intend to convert some or all of the 935 video slot machines to
coin out to increase the number of machines with reel slot machines.
5
<PAGE>
RACING AND PARI-MUTUEL OPERATIONS
Pari-mutuel wagering on thoroughbred or harness racing is pooled wagering
in which a pari-mutuel wagering system totals the amounts wagered and adjusts
the payouts to reflect the relative amounts bet on different horses and various
possible outcomes. The pooled wagers are (i) paid out to bettors as winnings in
accordance with the payoffs determined by the pari-mutuel wagering system, (ii)
paid to the applicable regulatory or taxing authorities and (iii) distributed to
the track's horsemen in the form of "purses" which encourage owners and trainers
to enter their horses in that track's live races. The balance of the pooled
wagers is retained by the wagering facility. Pari-mutuel wagering is currently
authorized in more than 40 states in the United States, all provinces in Canada
and approximately 100 other countries around the world.
Gaming and wagering companies, such as the Company, that focus on
pari-mutuel horse race wagering derive revenue through wagers placed at their
own tracks, at their OTWs and on their own races at the tracks and OTWs of
others. While some states, such as New York, operate off-track betting locations
that are independent of racetracks, in other states (such as Pennsylvania)
racetrack ownership and operation is a precondition to OTW ownership and
operation. Owning a racetrack in such a state, then, is akin to an "admission
ticket" to the OTW business. Over the past several years, attendance at live
racing has generally declined; however the decline in revenues from live racing
has been more than offset by an increase in telephone wagering, off-track
wagering and gaming machine operations.
The Company's racing and pari-mutuel revenues have been derived from (i)
wagering on the Company's live races (a) at the Company's racetracks, (b) at the
Company's OTWs, (c) at other Pennsylvania racetracks and OTWs and (d) through
telephone wagering, as well as wagering at the Company's racetracks on certain
stakes races run at out-of-state racetracks (collectively, referred to in the
Company's financial statements as "pari-mutuel revenues from live races"), (ii)
wagering on full-card import simulcasts at the Company's racetracks and OTWs and
through telephone wagering (collectively, referred to in the Company's financial
statements as "pari-mutuel revenues from import simulcasting") and (iii) fees
from wagering on export simulcasting Company races at out-of-state locations
(referred to in the Company's financial statements as "pari-mutuel revenues from
export simulcasting"). The Company's other revenues have been derived from
admissions, program sales, food and beverage sales and concessions and certain
other ancillary activities.
Pari-Mutuel Revenues
Revenues from Company races consist of the total amount wagered, less the
amount paid as winning wagers. Of the amount not returned to bettors as winning
wagers, a portion is paid to the state in which the track is located, a portion
is distributed to the track's horsemen in the form of "purses" and the balance
is retained by the wagering facility. The Pennsylvania Racing Act specifies the
maximum percentages of each dollar wagered on horse races in Pennsylvania which
can be retained by the Company (prior to required payments to the horse owners
(the "Horsemen") in Pennsylvania and applicable taxing authorities). The
percentages vary, based on the type of wager; the average percentage which is
retained by the Company has approximated 20%. The balance of each dollar wagered
must be paid out to the public as winning wagers. With the exception of revenues
derived from wagers at the Company's racetracks and OTWs, the Company's revenues
on each race are determined pursuant to such maximum percentage and agreements
with the other racetracks and OTWs at which wagering is taking place. Amounts
payable to the Pennsylvania Horsemen are determined under agreements ("Horsemen
Agreements") with the Pennsylvania Horsemen and vary depending upon where the
wagering is conducted and the racetrack at which such races take place. The
Pennsylvania Horsemen receive their share of such wagering as race purses. The
Company retains a higher percentage of wagers made at its own facilities than of
wagers made at other locations. The West Virginia Racing Act provides for a
similar disposition of pari-mutuel wagers placed at the Charles Town
Entertainment Complex, with the average percentage of wagers retained by the
Company having been approximately 20% (prior to required payments to the Charles
Town Horsemen and to applicable West Virginia taxing authorities and other
mandated beneficiary organizations).
Simulcasting
The Company has been transmitting simulcasts of its races to other wagering
locations and receiving simulcasts of races from other locations for wagering by
its customers at Company facilities year-round for more than five years. When
customers place wagers on import simulcast races, the Company receives revenue
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and incurs expense in substantially the same manner as it would if the race had
been run at one of the Company's own tracks: of the amount not returned to
bettors as winning wagers, a portion is paid to the state in which the Company
wagering facility is located, a portion is paid to the purse fund for the horse
owners or trainers (thoroughbred or harness) of the Company's racetrack with
which the wagering facility is associated, a portion is paid to the racetrack
from which the race is simulcast and the balance is retained by the Company. The
Company believes that full-card import simulcasting, in which all of the races
at a non-Company track are import simulcast to a Company wagering facility, has
improved the wagering opportunities for its customers and thereby increased the
amount wagered at Company facilities. When the Company export simulcasts Company
races for wagering at non-Company locations, it receives a fixed percentage of
the amounts wagered on that race from the location to which the simulcast is
exported, while incurring minimal additional expense. During the years ended
December 31, 1998 and 1999, respectively, the Company received import simulcasts
from approximately 77 and 89 racetracks, respectively, including premier
racetracks such as Belmont Park, Church Hill Downs, Gulfstream Park, Hollywood
Park, Santa Anita and Saratoga and transmitted export simulcasts of Company
races to 126 and 108 locations, respectively.
Pursuant to an agreement among the members of the Pennsylvania Racing
Association, the Company and the two other Pennsylvania racetracks provide
simulcasts of all their races to all of each other's facilities and set the
commissions payable on such races. In addition, the Company has short-term
agreements with various racetracks throughout the United States to import
simulcast from, and export simulcast to, their facilities; these agreements
include import simulcasts of major stakes races. The Company believes that
import simulcasting of out-of-state races, including full card import
simulcasting, is beneficial economically to the Company because it makes
available wagering on higher quality races which tends to increase the size of
the average wager.
Telephone Wagering
In 1983, the Company pioneered Telebet, Pennsylvania's first telephone
account wagering system. A telebet customer opens an account by depositing funds
with the Company. Account holders can then place wagers by telephone on Company
races and import simulcast races to the extent of the funds on deposit in the
account; any winnings are posted to the account and are available for withdrawal
or future wagers. In December 1995, Pocono Downs instituted Dial-A-Bet, a
similar telephone account betting system.
OTWs
The Company operates ten of the 20 OTWs now open in Pennsylvania and has
the right to operate one of the three remaining OTWs that have been authorized
in Pennsylvania. The Company's OTWs are located in Allentown, Carbondale,
Chambersburg, Erie, Hazleton, Johnstown, Lancaster, Reading, Williamsport and
York, Pennsylvania. At OTWs, customers can place wagers on thoroughbred and
harness races simulcast from the Company's racetracks and on import simulcast
races from other tracks around the country. Under the Pennsylvania Racing Act,
only licensed thoroughbred and harness racing associations, such as the Company,
can operate OTWs or accept customer wagers on simulcast races at Pennsylvania
racetracks.
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Operating Data of the Company
The following table summarizes certain key operating statistics for the
Company's pari-mutuel operations and their respective OTWs, including the pro
forma presentation of data assuming the acquisition of Pocono Downs occurred on
January 1, 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE DAILY PURSES)
<S> <C> <C> <C> <C> <C>
NUMBER OF LIVE RACING DAYS:
Penn National Race Course 204 206 212 206 153
Pocono Downs 135 134 134 135 130
Charles Town Races - - 159 206 213
TOTAL ATTENDANCE: (4)
Penn National Race Course (1) 430,128 370,898 339,487 304,220 209,364
Pocono Downs (1) 242,870 377,830 370,090 263,591 200,368
Reading OTW 246,012 214,314 178,237 159,818 123,126
Chambersburg OTW 143,554 132,447 125,448 105,384 86,894
York OTW 232,109 238,610 225,672 213,929 170,677
Lancaster OTW - 92,641 158,003 142,027 115,519
Williamsport OTW - - 81,797 66,378 54,257
Johnstown OTW - - - 25,411 68,794
Erie OTW 116,367 113,169 94,429 99,726 96,543
Allentown OTW 272,491 271,706 252,909 258,237 228,933
Carbondale OTW - - - 62,757 77,580
Hazleton OTW - - - 60,706 66,328
-------------------------------------------------------------------
Total paid attendance (1) 1,683,531 1,811,615 1,826,072 1,762,184 1,498,383
===================================================================
TOTAL WAGERING: (1) (2)
Penn National Race Course $ 85,661 $ 75,708 $ 69,687 $ 70,155 $ 60,018
Pocono Downs 57,784 53,190 47,217 38,867 33,134
Charles Town Races - - 40,195 69,659 79,847
Reading OTW 42,810 41,320 30,811 29,178 25,312
Chambersburg OTW 24,365 25,024 24,899 22,336 21,083
York OTW 42,140 49,864 45,245 43,873 38,470
Lancaster OTW - 13,079 29,292 29,131 24,964
Williamsport OTW - - 9,684 10,461 8,865
Johnstown OTW - - - 3,977 10,931
Erie OTW 29,379 27,200 21,767 20,737 19,795
Allentown OTW 56,440 56,216 58,681 56,719 53,397
Carbondale OTW - - - 10,284 16,430
Hazleton OTW - - - 9,926 13,474
Penn National Telebet 8,281 8,423 9,473 10,333 11,839
Pocono Downs Dial-A-Bet 75 5,510 8,179 9,088 12,145
Export simulcasting:
Penn National Race Course 113,639 148,702 181,281 194,939 130,719
Pocono Downs 30,121 32,493 26,426 23,986 17,764
Charles Town Races - - - - 22,876
-------------------------------------------------------------------
Total wagering $ 490,695 $ 536,729 $ 602,836 $ 653,649 $ 601,063
===================================================================
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE DAILY PURSES)
<S> <C> <C> <C> <C> <C>
AVERAGE DAILY PURSES:
Penn National Race Course $ 57,897 $ 62,328 $ 60,623 $ 63,374 $ 74,523
Pocono Downs 42,314 42,313 40,149 41,363 42,677
Charles Town Races - - 25,805 50,985 67,329
-------------------------------------------------------------------
Total average daily purse $ 100,211 $ 104,641 $ 126,577 $ 155,722 $ 184,529
===================================================================
GROSS MARGIN FROM WAGERING: (3)
Penn National Race Course $ 24,915 $ 27,955 $ 28,669 $ 29,068 $ 24,761
Pocono Downs 17,838 17,805 16,920 18,820 19,151
Charles Town Races - - 3,099 5,878 6,995
-------------------------------------------------------------------
Total gross margin from wagering $ 42,753 $ 45,760 $ 48,688 $ 53,766 $ 50,907
-------------------------------------------------------------------
- --------------------------------------
</TABLE>
(1) Does not reflect attendance for wagering on simulcasts when live racing
is not conducted (i) for all periods presented, in the case of Penn
National Race Course (ii) for the year ended December 31, 1995, in the
case of Pocono Downs.
(2) Wagering on certain stakes races is included in wagering on the Penn
National Race Course races.
(3) Amounts equal total pari-mutuel revenues, less purses paid to the
Horsemen, taxes payable and simulcast commissions or host track fees
paid to other racetracks.
(4) Does not include attendance for Charles Town Races.
Live Racing
The following table summarizes the Company and its affiliates live racing
facilities:
<TABLE>
<CAPTION>
RACING FACILITY LOCATION DATE OPENED/STATUS OPERATIONS CONDUCTED
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Penn National Race Course Grantville, PA Constructed in 1972; Live thoroughbred racing;
operated by the Company simulcast wagering; dining;
since 1972 telephone account wagering
Pocono Downs Plains Township, PA Constructed in 1965; Live harness racing;
operated by the Company simulcast wagering; dining;
since November 1996 telephone account wagering
Charles Town Races Charles Town, WV Charles Town Races was Gaming operations;
at the Charles Town constructed in 1933; Live thoroughbred racing;
Entertainment Complex acquired by Charles Town simulcast wagering; dining
Joint Venture on January
15, 1997; refurbished in
1997 and reopened as the
Charles Town Entertainment
Complex
</TABLE>
<TABLE>
<CAPTION>
AFFILIATE FACILITY LOCATION DATE OPENED/STATUS OPERATIONS CONDUCTED
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Freehold Raceway Freehold, NJ Freehold Raceway was Live harness racing; simulcast
constructed in 1986; wagering; dining
acquired by Pennwood
Racing, our 50% owned
Joint Venture
Garden State Park Cherry Hill, NJ Constructed in 1985; Leased by Live thoroughbred and harness racing;
Pennwood Racing, our 50% simulcast wagering; dining
owned Joint Venture
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The Penn National Race Course is located on approximately 225 acres
approximately 15 miles northeast of Harrisburg, 100 miles west of Philadelphia
and 200 miles east of Pittsburgh. There is a total population of approximately
1.4 million persons within a 35 mile radius and approximately 2.2 million
persons within a 50-mile radius of the Penn National Race Course. The property
includes a one mile all-weather thoroughbred racetrack and a 7/8-mile turf
track. The property also includes approximately 400 acres surrounding the Penn
National Race Course which are available for future expansion or development.
The Penn National Race Course's main building is the
grandstand/clubhouse, which is completely enclosed and heated and, at the
clubhouse level, fully air-conditioned. The building has a capacity of
approximately 15,000 persons with seating for approximately 9,000, including
1,400 clubhouse dining seats. Several other dining facilities and numerous food
and beverage stands are situated throughout the facility. Television sets for
viewing live racing and simulcasts are located throughout the facility. The
pari-mutuel wagering areas are divided between those available for on-track
wagering and those available for simulcast wagering.
The Penn National Race Course includes stables for approximately 1,250
horses, a blacksmith shop, veterinarians' quarters, jockeys' quarters, a paddock
building, living quarters for grooms, a cafeteria and recreational building in
the backstretch area and water and sewage treatment plants. Parking facilities
for approximately 6,500 vehicles adjoin the Penn National Race Course.
The Company has conducted live racing at Penn National Race Course
since 1972, and has held at least 204 days of live racing at the facility in
each of the last five years except 1999, in which only 153 days of live racing
were held as a result of a Horsemen action. The Horsemen action was settled on
March 23, 1999. Penn National Race Course is one of only two thoroughbred
racetracks in Pennsylvania. Post time at Penn National Race Course is 7:30 p.m.
on Wednesdays, Fridays and Saturdays and 5:00 p.m. on Sundays and holidays.
On November 27, 1996, the Company acquired Pocono Downs for an
aggregate purchase price of $48.2 million plus approximately $730,000 in
acquisition-related fees and expenses. In addition, pursuant to the terms of the
purchase agreement, the Company will be required to pay the sellers of Pocono
Downs an additional $10.0 million if, within five years after the consummation
of the acquisition of Pocono Downs, Pennsylvania authorizes any additional form
of gaming in which the Company may participate. The $10.0 million payment is
payable in annual installments of $2.0 million a year for five years, beginning
on the date that the Company first offers such additional form of gaming. As of
March 7, 2000, no such additional form of gaming in Pennsylvania has been
adopted, therefore no such payment is due at this time.
Pocono Downs is located on approximately 400 acres in Plains Township,
outside Wilkes-Barre, Pennsylvania. There is a total population of approximately
785,000 persons within a 35 mile radius and approximately 1.5 million persons
within a 50-mile radius of Pocono Downs. The property includes a 5/8-mile
all-weather, lighted harness track. Pocono Downs's main buildings are the
grandstand and the clubhouse. The clubhouse is completely enclosed, heated and
fully air-conditioned. The grandstand has enclosed, heated and air-conditioned
seating for approximately 500 persons and permanent open-air stadium-style
seating for approximately 2,500 persons. The clubhouse is a tiered dining and
wagering facility that seats approximately 1,000 persons. The clubhouse dining
area seats 500 persons. Television sets for viewing live racing and simulcasts
are located throughout the facility along with pari-mutuel wagering areas.
A two-story 14,000 square foot building which houses the Pocono Downs
offices is located on the property. Pocono Downs also includes stables for
approximately 950 horses, five paddock stables, quarters for grooms, two
blacksmith shops and a cafeteria for the Harness Horsemen. Parking facilities
for approximately 5,000 vehicles adjoin the track.
The acquisition of Pocono Downs was consummated following the last day
of racing at Pocono Downs for the 1996 season. The Company resumed live racing
at Pocono Downs in April 1997. The Company conducted 135 and 130 days of live
harness racing at the facility during 1998 and 1999 racing seasons,
respectively. Post time at Pocono Downs is 7:15 p.m.
On January 15, 1997, the Charles Town Joint Venture acquired
substantially all of the assets of Charles Town Races for an aggregate net
purchase price of approximately $16.0 million plus approximately $2.2 million in
acquisition-related fees and expenses. Prior to its acquisition by the Charles
Town Joint Venture, Charles Town Races conducted live thoroughbred horse racing,
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on-site pari-mutuel wagering on live races run at Charles Town Races and
wagering on import simulcast races. The Company has refurbished and reopened the
facility as the Charles Town Entertainment Complex, which features live racing,
dining, simulcast wagering and, effective September 1997, gaming machines. The
cost of the refurbishment, exclusive of the cost of the gaming machines, was
approximately $27.8 million.
The Charles Town Entertainment Complex is located on a portion of a
250-acre parcel in Charles Town, West Virginia, which is approximately a
60-minute drive from Baltimore, Maryland and a 70-minute drive from Washington,
D.C. There is a total population of approximately 3.1 million persons within a
50-mile radius and approximately 9.0 million persons within a 100-mile radius of
the Charles Town Entertainment Complex. The property includes a 3/4-mile
thoroughbred racetrack. The Charles Town Entertainment Complex's main building
is the grandstand/clubhouse, which is completely enclosed and heated. The
clubhouse dining room has seating for 600. Additional food and beverage areas
are situated throughout the facility. The property surrounding the Charles Town
Entertainment Complex, including the site of the former Shenandoah Downs
Racetrack, is available for future expansion or development. In addition, the
Company has a right of first refusal for an additional 250 acres that are
adjacent to the Charles Town Entertainment Complex. The Charles Town
Entertainment Complex also includes stables, ample parking and water and sewage
treatment facilities.
The Charles Town Races reopened in April 1997. The Company conducted
206 and 213 days of thoroughbred racing at the facility during 1998 and 1999
racing seasons, respectively. Post time at the Charles Town Races is 7:15 p.m.
on Thursdays, Fridays and Saturdays and 1:00 p.m. on Sundays. Although other
regional racetracks offer nighttime thoroughbred racing, Penn National Race
Course and Charles Town Races are the only racetracks in the Eastern time zone
conducting year-round nighttime thoroughbred horse racing, which the Company
believes increases its opportunities to export simulcast its races during
periods in which other racetracks are not conducting live racing.
The Freehold Raceway was constructed in 1986 and the grandstand is an
approximately 150,000 square foot, five level, steel frame, enclosed, fully
heated and air conditioned facility. The grandstand can accommodate up to 10,000
spectators, including seating for approximately 2,500 spectators, and has a
sit-down restaurant as well as seven food concession stands. Additional
facilities include receiving barns with an adjacent paddock area, parking lots
to accommodate 2,500 vehicles and a two story administration building.
The Garden State Park was constructed in 1985 and the reconstructed
grandstand and clubhouse is an approximately 500,000 square foot, seven level,
steel frame, glass enclosed, fully heated and air-conditioned facility with an
adjacent multi-level glass thoroughbred paddock area. The clubhouse can
accommodate up to 24,000 spectators, including seating for approximately 9,500
spectators, and contains three sit-down restaurants as well as 17 food
concession stands. The Company is not currently using a portion of the clubhouse
due to a decrease in business levels at Garden State Park over the last few
years as a result of year-round simulcasting and less live racing at Garden
State Park. The backstretch area includes 27 barns and stables capable of
accommodating approximately 1,500 horses, a harness paddock, a training track,
dormitories, cafeteria and recreation buildings for backstretch personnel, an
administration building and other service buildings. Reconstruction also
included restoration of the main dirt and turf tracks, installation of lighting
for nighttime racing, paving of parking facilities to accommodate approximately
4,000 automobiles, landscaping, fencing and other amenities. The approximately
56,000 square foot, 1-1/2 story pavilion is used by the Company for closed
circuit television events (racing as well as other sporting events and
non-sporting events), wagering, concerts, special events, concessions and other
conveniences. The pavilion has seating capacity for approximately 1,500
spectators.
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OTWs
The Company's OTWs provide areas for viewing import simulcasts and
televised sporting events, placing pari-mutuel wagers and dining. The facilities
also provide convenient parking.
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FACILITY/LOCATION DATE OPENED/STATUS SIZE (SQ.FT.) COST (1) OWNED/LEASED
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Penn National Facilities
Lancaster, PA Opened 7/96 24,000 $ 2,700,000 Leased
Reading, PA Opened 5/92 22,500 $ 2,100,000 Leased
Williamsport, PA Opened 2/97 14,000 $ 3,000,000 Owned
York, PA Opened 3/95 25,000 $ 2,200,000 Leased
Chambersburg, PA Opened 4/94 12,500 $ 1,500,000 Leased
Johnstown, PA Opened 9/98 14,220 $ 1,300,000 Leased
Pocono Downs Facilities
Allentown, PA Opened 7/93 28,500 $ 5,207,000 Owned
Carbondale, PA Opened 3/98 13,000 $ 2,661,000 Owned
Erie, PA Opened 5/91 22,500 $ 3,575,000 Owned
Hazleton, PA Opened 3/98 13,000 $ 1,868,000 Leased
East Stroudsburg, PA License authorized; approval to 12,000 $ 2,000,000 Leased (2)
operate pending; site selected (estimated)
</TABLE>
(1) Consists of original construction costs, equipment and, for owned
properties, the cost of land and building.
(2) The Company is licensed to operate one additional OTW and has identified a
site to operate the OTW facility in Stroudsburg, Pennsylvania, subject to
receipt of all applicable approvals to operate this site.
The Company considers its properties adequate for its presently
anticipated purposes.
MARKETING AND ADVERTISING
The Company seeks to increase wagering by broadening its customer base
and increasing the wagering activity of its existing customers. To attract new
customers, the Company seeks to increase the racing knowledge of its customers
through its television programming, and by providing "user friendly" automated
wagering systems and comfortable surroundings. The Company also seeks to attract
new customers by offering various types of promotions including family fun days,
premium give-away programs, contests and handicapping seminars.
Charles Town Gaming Machine Marketing and Player Tracking Programs
Our marketing efforts, at the Charles Town Entertainment Complex
include print and radio advertising and are focused on the Washington, D.C.,
Baltimore, Maryland, Northern Virginia, Eastern West Virginia and Southern
Pennsylvania markets. In 1999, we installed a computerized player tracking
system, called Player's Choice, at the Charles Town Entertainment Complex, which
has helped to further refine our marketing efforts. This system is the first
player tracking system installed in West Virginia. Our database consists of
approximately 70,000 players as of March 3 2000. Our marketing efforts also
include a bus program and numerous cash and merchandise give-aways.
Pari-mutuel Player Tracking Program
In 1999, we installed a computerized player tracking for all of the
Company's pari-mutuel locations. This system, called Player's Choice, allows
customer to accumulate points, at any of our facilities which are redeemable for
admission, programs, food and beverage etc. Our database consists of
approximately 15,000 players as of March 3, 2000.
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Televised Racing Program
The Company's Racing Alive program is televised by satellite
transmission commencing approximately one hour before post time on each live
racing day at the Penn National Race Course. The program provides color
commentary on the races at the Penn National Race Course (including wagering
odds, past performance information and handicapper analysis), general education
on betting and handicapping, interviews with racing personalities and featured
races from other thoroughbred racetracks across the country. The Racing Alive
program is shown at the Penn National Race Course and on various cable
television systems in Pennsylvania and is transmitted to all OTWs that receive
the Penn National Race Course races. The Company has expanded Racing Alive and
created additional televised programming to cover racing at Pocono Downs and at
other harness racing venues throughout the United States. The Company's
satellite transmissions are encoded so that only authorized facilities can
receive the program.
Automated Wagering Systems
To make wagering more "user friendly" to the novice and more efficient
for the expert, the Company leases Autotote Corporation's automated wagering
equipment. These wagering systems enable the customer to choose a variety of
ways to place a bet through touch-screen interactive terminals and personalized
portable wagering terminals, provide current odds information and enable
customers to place bets and credit winning tickets to their accounts. Currently,
more than 35% of all wagers at Penn National are processed through these
self-service terminals and Telebet.
Modern Facilities
The Company provides a comfortable, upscale environment at each of its
OTWs, including a full bar, a range of restaurant services and an area devoted
to televised sporting events. The Company believes that its attractive
facilities appeal to its current customers and to new customers, including those
who have not previously visited a racetrack.
PURSES; AGREEMENTS WITH HORSEMEN
The agreements with the Horsemen at each of the Company's racetracks set
forth the purses. The continuation of these agreements is required to allow the
Company to conduct live racing and export and import simulcasting. (See "Racing
and Pari-Mutuel Operations").
The Penn National Race Course Thoroughbred Horsemen Agreement was entered
into in February 1996, and expired on February 15, 1999. After failing to reach
an agreement, the Pennsylvania Thoroughbred Horsemen stopped racing at Penn
National Race Course on February 16, 1999 and withdrew their permission for the
Company to import simulcast races from other racetracks. This resulted in the
closure of Penn National Race Course and its six OTW facilities at Reading,
Chambersburg, York, Lancaster, Williamsport and Johnstown. The Company continued
its efforts to negotiate a new agreement with the Pennsylvania Thoroughbred
Horsemen and on March 23, 1999 the Company signed a new Horsemen agreement with
the Pennsylvania Thoroughbred Horsemen with an initial term that expires on
January 1, 2004. As a result of the action the Company incurred a non-recurring
$1,250,000 expense, primarily related to costs incurred to maintain the closed
facilities inclusive of employee salaries and rents, for Horsemen's Action
Expense. Live racing at the Penn National Race Course resumed on April 23, 1999.
We believe that this new agreement will not have a material impact on our
operating expenses at the Penn National Race Course and its OTWs. The
Pennsylvania Harness Horsemen Agreement was entered into in November 1994,
became effective in January 1995 and expired in January 2000. On December 17,
1999 the Company signed a new Horsemen Agreement with the Pennsylvania Harness
Horsemen which became effective January 16, 2000 and expires on January 16,
2003. The Company has an agreement with the Charles Town Horsemen which expires
on December 31, 2000. On February 24, 2000 the Charles Town Horsemen agreed to
extend the contract to December 31, 2002. See Management's Discussion and
Analysis of Financial Condition and Results of Operations - "Liquidity and
Capital Resources."
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COMPETITION
The Company faces significant competition for wagering dollars from other
racetracks and OTWs in Pennsylvania and neighboring states (some of which also
offer other forms of gaming), other gaming venues such as casinos and
state-sponsored lotteries, including the Pennsylvania Lottery and the West
Virginia Lottery. The Company may also face competition in the future from new
OTWs or from new racetracks. From time to time, Pennsylvania has considered
legislation to permit other forms of gaming. Although Pennsylvania has not
authorized any form of casino or other gaming, if additional gaming
opportunities become available in or near Pennsylvania, such gaming
opportunities could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's live races compete for wagering dollars and simulcast fees
with live races and races simulcast from other racetracks both inside and
outside Pennsylvania (including several in New York, New Jersey, West Virginia,
Ohio, Maryland and Delaware). The Company's ability to compete successfully for
wagering dollars is dependent, in part, on the quality of its live horse races.
The quality of horse races at some racetracks that compete with the Company,
either by live races or simulcasts, is higher than the quality of Company races.
The Company believes that there has been some improvement over the last several
years in the quality of the horses racing at the Penn National Race Course, due
to higher purses being paid as a result of the Company's increased simulcasting
activities, however, there can be no assurance that the Company can continue
such improvement.
The Company's OTWs compete with the OTWs of other Pennsylvania racetracks,
and new OTWs may compete with the Company's existing or proposed wagering
facilities. Competition between OTWs increases as the distance between them
decreases. For example, the Company believes that its Allentown OTW, which was
acquired in the acquisition of Pocono Downs and which is approximately 50 miles
from the Penn National Race Course and 35 miles from the Company's Reading OTW,
has drawn some patrons from the Penn National Race Course, the Reading OTW and
the Company's telephone wagering system; and, the Company's Lancaster OTW, which
is approximately 31 miles from the Penn National Race Course and 25 miles from
the Company's York OTW, has drawn some patrons from the Penn National Race
Course, the York OTW and the Company's telephone wagering system. Moreover, the
Company believes that a competitor's OTW in King of Prussia, Pennsylvania, which
is approximately 23 miles from the Reading OTW, has drawn some patrons from the
Reading OTW. Although only two competing OTWs remain authorized by law for
future opening, the opening of a new OTW in close proximity to the Company's
existing or future OTWs could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's gaming machine operations face competition from other gaming
machine venues in West Virginia and in neighboring states (including Dover Downs
in Dover, Delaware, Delaware Park in northern Delaware, Harrington Raceway in
southern Delaware and the casinos in Atlantic City, New Jersey). Venues in
Delaware and New Jersey, in addition to video gaming machines, currently offer
mechanical slot machines that feature physical spinning reels, pull-handles and
the ability to both accept and pay out coins. Legislation has been passed in
West Virginia, which allows for coin out and reel slot machines at race tracks.
In December 1999, the Company installed 565 coin out, reel slot machines. The
Company intends to convert some or all of its current machines to coin out and
increase the maximum number of machines with reel slot machines. The failure to
attract or retain gaming machine customers at the Charles Town Entertainment
Complex, whether arising from such competition or from other factors, could have
a material adverse effect upon the Company's business, financial condition and
results of operations.
EFFECT OF INCLEMENT WEATHER AND SEASONALITY
Because horse racing is conducted outdoors, variable weather contributes to
the seasonality of the Company's business. Weather conditions, particularly
during the winter months, may cause races to be canceled or may curtail
attendance. Because a substantial portion of the Company's racetrack expenses
are fixed, the loss of scheduled racing days could have a material adverse
effect on the Company's business, financial condition and results of operations.
For the year ended December 31, 1999, the Company canceled a total of 15
racing days because of inclement weather. The severe winter weather in 1996
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resulted in the closure of the Company's OTW facilities for two days in January
1996. Because of the Company's growing dependence upon OTW operations, severe
weather that causes the Company's OTWs to close could have an adverse effect
upon the Company's business, financial condition and results of operations.
Attendance and wagering at the Company's facilities have been favorably
affected by special racing events which stimulate interest in horse racing, such
as the Triple Crown races in May and June and the heavier racing schedule
throughout the country during the second and third quarter of the year. As a
result, the Company's revenues and net income have been greatest in the second
and third quarters of the year, and lowest in the first and fourth quarters of
the year.
REGULATION AND TAXATION
General
Certain of the Company's subsidiaries are authorized to conduct
thoroughbred racing and harness racing in Pennsylvania under the Pennsylvania
Racing Act. Such subsidiaries are also authorized, under the Pennsylvania Racing
Act and the Federal Horseracing Act, to conduct import simulcast wagering. The
Charles Town Joint Venture is subject to the provisions of the West Virginia
Racing Act, which governs the conduct of thoroughbred horse racing in West
Virginia, and the West Virginia Video Lottery Act, which governs the operation
of gaming machines in West Virginia. The Company's live racing, pari-mutuel
wagering and gaming machine operations are contingent upon the continued
governmental approval of such operations as forms of legalized gaming. All of
the Company's current and proposed operations are subject to extensive
regulations and could be subjected at any time to additional or more restrictive
regulations, or banned entirely.
Pennsylvania Racing Regulations
The Company's horse racing operations at Penn National Race Course and
Pocono Downs are subject to extensive regulation under the Pennsylvania Racing
Act, which established the Pennsylvania State Horse Racing Commission and the
State Harness Racing Commission (together, the "Pennsylvania Racing
Commissions") which are responsible for, among other things, (i) granting
permission annually to maintain racing licenses and schedule race meets, (ii)
approving, after a public hearing, the opening of additional OTWs, (iii)
approving simulcasting activities, (iv) licensing all officers, directors,
racing officials and certain other employees of the Company and (v) approving
all contracts entered into by the Company affecting racing, pari-mutuel wagering
and OTW operations.
As in most states, the regulations and oversight applicable to the
Company's operations in Pennsylvania are intended primarily to safeguard the
legitimacy of the sport and its freedom from inappropriate or criminal
influences. The Pennsylvania Racing Commissions have broad authority to regulate
in the best interests of racing and may, to that end, disapprove the involvement
of certain personnel in the Company's operations, deny approval of certain
acquisitions following their consummation or withhold permission for a proposed
OTW site for a variety of reasons, including community opposition. For example,
the Pennsylvania State Thoroughbred Racing Commission withheld approval for the
Company's initial site for its Lancaster OTW, but the Company applied and was
ultimately approved for another site in Lancaster, which opened in July 1996.
The Pennsylvania legislature also has reserved the right to revoke the power of
the Pennsylvania Racing Commissions to approve additional OTWs and could, at any
time, terminate pari-mutuel wagering as a form of legalized gaming in
Pennsylvania or subject such wagering to additional restrictive regulation; such
termination would, and any further restrictions could, have a material adverse
effect upon the Company's business, financial condition and results of
operations.
The Company may not be able to obtain all necessary approvals for the
continued operation or expansion of its business. Even if all such approvals are
obtained, the regulatory process could delay implementation of the Company's
plans to open additional OTWs. The Company has had continued permission from the
Pennsylvania State Horse Racing Commission to conduct live racing at the Penn
National Race Course since it commenced operations in 1972, and has obtained
permission from the Pennsylvania State Harness Racing Commission to conduct live
racing at Pocono Downs. Currently, the Company has approval from the
Pennsylvania Racing Commissions to operate the ten OTWs that are currently open
and the one additional OTW the Company proposes to open. A Commission may refuse
to grant permission to open additional OTWs or to continue to operate existing
facilities. The failure to obtain required regulatory approvals would have a
material adverse effect upon the Company's business, financial condition and
results of operations.
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West Virginia Racing and Gaming Regulation
The Company's operations at the Charles Town Entertainment Complex are
subject to regulation by the West Virginia Racing Commission under the West
Virginia Racing Act, and by the West Virginia Lottery Commission under the West
Virginia Video Lottery Act. The powers and responsibilities of the West Virginia
Racing Commission under the West Virginia Racing Act are substantially similar
in scope and effect to those of the Pennsylvania Racing Commissions and extend
to the approval and/or oversight of all aspects of racing and pari-mutuel
wagering operations. The Charles Town Joint Venture has obtained from the West
Virginia Racing Commission a license to conduct racing and pari-mutuel wagering
at the Charles Town Entertainment Complex. Pursuant to the West Virginia Video
Lottery Act, the Company has obtained approval for the installation and
operation of a total of 1,500 gaming machines at the Charles Town Entertainment
Complex. The Company purchased and installed 565 reel spinning, coin-out
machines, which were open to the public on December 16, 1999 bringing the
Company's total gaming machines at the Charles Town Entertainment Complex to
1,500. Installing and operating additional machines would require approval
pursuant to the West Virginia Lottery act.
State and Federal Simulcast Regulation
The Federal Interstate Horseracing Act, the Pennsylvania Racing Act and the
West Virginia Racing Act require that the Company have a written agreement with
each applicable horsemen's organization in order to simulcast races. The Company
has entered into the Horsemen Agreements, and in accordance therewith has agreed
on the allocations of the Company's revenues from import simulcast wagering to
the purse funds for the Penn National Race Course, Charles Town Races and Pocono
Downs. Because the Company cannot conduct import simulcast wagering in the
absence of the Horsemen Agreements, the termination or non-renewal of such
Horsemen Agreements could have a material adverse effect on the Company's
business, financial condition and results of operations.
Taxation and Fees
The Company believes that the prospect of significant additional revenue is
one of the primary reasons that jurisdictions permit legalized gaming. As a
result, gaming companies are typically subject to significant taxes and fees in
addition to normal federal and state income taxes, and such taxes and fees are
subject to increase at any time. The Company pays substantial taxes and fees
with respect to its operations. From time to time, federal legislators and
officials have proposed changes in tax laws, or in the administration of such
laws, affecting the gaming industry. It is not possible to determine with
certainty the likelihood of changes in tax laws or in the administration of such
laws. Such changes, if adopted, could have a material adverse effect on the
Company's business, financial condition and results of operations.
Compliance with Other Laws
The Company and its OTWs are also subject to a variety of other rules and
regulations, including zoning, construction and land-use laws and regulations in
Pennsylvania and West Virginia governing the serving of alcoholic beverages.
Currently, Pennsylvania laws and regulations permit the construction of
off-track wagering facilities, but may affect the selection of a particular OTW
site because of parking, traffic flow and other similar considerations, any of
which may serve to delay the opening of future OTWs in Pennsylvania. By
contrast, West Virginia law does not permit the operation of OTWs. The Company
derives a significant portion of its other revenues from the sale of alcoholic
beverages to patrons of its facilities. Any interruption or termination of the
Company's existing ability to serve alcoholic beverages would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Restrictions on Share Ownership and Transfer
The Pennsylvania Racing Act requires that any shareholder proposing to
transfer beneficial ownership of 5% or more of the Company's shares file an
affidavit with the Company setting forth certain information about the proposed
transfer and transferee, a copy of which the Company is required to furnish to
the Pennsylvania Racing Commissions. The certificates representing the Company
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shares owned by 5% beneficial shareholders are required to bear certain legends
prescribed by the Pennsylvania Racing Act. In addition, under the Pennsylvania
Racing Act, the Pennsylvania Racing Commissions have the authority to order a 5%
beneficial shareholder of the Company to dispose of his Common Stock of the
Company if it determines that continued ownership would be inconsistent with the
public interest, convenience or necessity or the best interest of racing
generally. The West Virginia Video Lottery Act provides that a transfer of more
than 5% of the voting stock of a corporation which controls the license may only
be to persons who have met the licensing requirements of the West Virginia Video
Lottery Act or which transfer has been pre-approved by the West Virginia Lottery
Commission. Any transfer that does not comply with this requirement voids the
license.
Internal Revenue Service Regulations
The Internal Revenue Service, or IRS, requires operators of casinos located
in the United States to file information returns for U.S. citizens, including
names and addresses of winners, for keno and slot machine winnings in excess of
certain amounts. The IRS also requires operators to withhold taxes on certain
keno, bingo and slot machine winnings of nonresident aliens. We are unable to
predict the extent, if any, to which such requirements, if extended, might
impede or otherwise adversely affect operations of, and/or income from, such
other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
United States Treasury Department and the gaming regulatory authorities in
certain domestic jurisdictions in which we operate casinos, or in which we have
applied for licensing to operate a casino, require the reporting of currency
transactions in excess of $10,000 occurring within a gaming day, including
identification of the patron by name and social security number. This reporting
obligation commenced in May 1985 and may have resulted in the loss of casino
revenues to jurisdictions outside the United States which are exempt from such
regulations.
ITEM 2 PROPERTIES
See, ITEM 1 - BUSINESS - "RACING AND PARI-MUTUEL OPERATIONS"
A solid waste landfill ("Landfill") is on a parcel of land we own that is
adjacent to Pocono Downs. The East Side Landfill Authority (the "Landfill
Authority"), which operated the Landfill from 1970 until 1982, disposed of
municipal waste on behalf of four municipalities. The Landfill is currently
subject to a closure order issued by the Pennsylvania Department of
Environmental Resources ("PADER") which the four municipalities are required to
implement pursuant to a 1986 Settlement Agreement among the former trustee in
bankruptcy for Pocono Downs, the Landfill Authority, the municipalities and
PADER (the "Settlement Agreement"). According to the Company's environmental
consulting firm, the Landfill closure is substantially complete. To date, the
municipalities obligated to implement the closure order pursuant to the
Settlement Agreement have been fulfilling their obligations under the Settlement
Agreement. In addition, the Company may be liable for future claims with respect
to the Landfill under the federal Comprehensive Environmental Response,
Compensation and Liability Act and analogous state laws. The Company may incur
expenses in connection with the Landfill in the future, which expenses may not
be reimbursed by the municipalities. Any such expenses could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Other Property and Equipment
The Company currently leases 5,974 square feet of office space in an office
building in Wyomissing, Pennsylvania for the Company's executive offices. The
lease expires in April 2000 and provides for an annual minimum rental of
$97,968. The office building is owned by an affiliate of Peter M. Carlino, the
Chairman and Chief Executive Officer of the Company. The Company believes that
the lease terms are not less favorable than lease terms that could have been
obtained from an unaffiliated third party.
The Company currently leases an aircraft from a company owned by John
Jacquemin, a director of the Company. The lease expires in September 2007 and
provides for monthly payments of $8,356. The Company believes that the lease
terms are not less favorable than lease terms that could have been obtained from
an unaffiliated third party.
17
<PAGE>
EMPLOYEES AND LABOR RELATIONS
At March 1, 2000, the Company had 1,870 permanent employees, of whom 1,252
were full-time and 618 part-time. Employees of the Company who work in the
admissions department and pari-mutuels department at the Penn National Race
Course, Pocono Downs and the OTWs are represented under collective bargaining
agreements between the Company and Sports Arena Employees' Union Local 137. The
agreements extend until September 30, 2002 for track employees and September 30,
2001 for OTW employees. The pari-mutuel clerks at Pocono Downs voted to unionize
in June 1997. The Company has held negotiations with this union, but does not
have a contract to date. Failure to reach agreement with this union would not
result in the suspension or termination of the Company's license to operate live
racing at Pocono Downs or to conduct simulcast or OTW operations. The
pari-mutuel clerks and racing valets at Charles Town are represented under a
collective bargaining agreement with the West Virginia Division of Mutuel
Clerks, which expires on December 31, 2000. The West Virginia Video Lottery Act
also requires that the operator of the Charles Town Entertainment Complex be
subject to a written agreement with the pari-mutuel clerks in order to operate
gaming machines, this agreement expires on December 31, 2000. The Company
believes that its relations with its employees are satisfactory.
ITEM 3 LEGAL PROCEEDINGS
In December 1997, Amtote international, Inc. ("Amtote"), filed an
action against the Company and the Charles Town Joint Venture in the United
States District Court for the Northern District of West Virginia. In its
complaint, Amtote (i) states that the Company and the Charles Town Joint Venture
allegedly breached certain contracts with Amtote and its affiliates when it
entered into a wagering services contract with a third party (the "Third Party
Wagering Services Contract"), and not with Amtote, effective January 1, 1998,
(ii) sought preliminary and injunctive relief through a temporary restraining
order seeking to prevent Charles Town Joint Venture from (a) entering into a
wagering services contract with a party other than Amtote and (b) having a third
party provide such wagering services, (iii) sought declaratory relief through
September 2004 and (iv) sought unspecified compensatory damages, legal fees and
costs associated with the action and other legal and equitable relief as the
Court deemed just and appropriate. On December 24, 1997, a temporary restraining
order was issued, which prescribed performance under the Third Party Wagering
Contract. On January 14, 1998, a hearing was held to rule on whether a
preliminary injunction should have been issued or whether the temporary
restraining order should have been lifted. On February 20, 1998, the temporary
restraining order was lifted by the court. The Company then pursued legal
remedies in order to terminate Amtote and proceed under the Third Party Wagering
Services Contract. This matter was tried before the State Court of West Virginia
on June 17, 1999. On September 30, 1999 the United States District Court for the
Northern District of West Virginia rendered a decision in favor of Amtote. The
Court awarded liquidated damages to Amtote in connection with the Company's
cancellation of the Amtote contract, which cancellation enabled the Company to
enter into a computerized pari-mutuel wagering service contract with another
company to provide such services to three of its racetracks and its ten
off-track wagering facilities. On February 11, 2000, the Company and Amtote
entered into a settlement agreement in which the Company paid Amtote in full
satisfaction of the judgment the sum of $1.5 million.
The Company submitted an application to the Tennessee State Racing
Commission (the "Tennessee Commission") in October 1997 for an initial license
for the development and operation of a harness track and an OTW at a site in the
city of Memphis (the "Tennessee Development Project"). A land use plan for the
construction of a 5/8-mile harness track, clubhouse and grandstand area was
approved in October 1997 by the Land Use Hearing Board for the City of Memphis
and County of Shelby. Tennessee Downs, Inc. ("Tennessee Downs"), a subsidiary of
the Company, was determined to be financially suitable by the Tennessee
Commission and a public comment hearing before the Tennessee Commission was held
in November 1997. In December 1997, the Company received the necessary zoning
and land development approvals from the Memphis City Council. In April 1998, the
Tennessee Commission granted a license to Tennessee Downs, which would expire on
the earlier of: (i) December 31, 2000 or (ii) the expiration of Tennessee
Commission's term on June 30, 1998, if such term was not extended by the
Tennessee State Legislature. The Tennessee State Legislature voted against
extending the life of the Tennessee Commission, allowing the Tennessee
Commission's term to expire on June 30, 1998. The Tennessee Commission held a
meeting on May 29, 1998 at which it rejected the Company's request: (i) to grant
Tennessee Downs an extended timeframe for the effectiveness of its racing
license; and (ii) to operate a temporary simulcast facility. On July 28, 1998,
18
<PAGE>
Tennessee Downs filed for a preliminary injunction and a declaratory ruling on
the legal status of racing in Memphis. On November 23, 1998, the court ruled
that the Tennessee Racing Control Act had not been repealed and cannot be
repealed by implication by dissolving the Tennessee Commission. It was the
opinion of the court that because the Tennessee Racing Control Act is still in
force, horse-racing and pari-mutuel betting is a legal unregulated activity in
Tennessee. This decision was appealed by the Tennessee Attorney General and a
hearing was held before the Court of Appeals on June 21, 1999. On July 30, 1999,
the Court of Appeals in Tennessee dissolved the injunction. The appellate court
reversed the lower court ruling on the basis of jurisdiction. On September 28,
1999, Tennessee Downs filed its application for Permission to Appeal and brief
to the Supreme Court of Tennessee. Tennessee Downs took a direct appeal to the
Supreme Court of the State of Tennessee so that it may continue its efforts to
develop and operate a harness track in Tennessee. In the appeal, Tennessee Downs
asked the Supreme Court to take the jurisdictional question from the appellate
court and to review the substantive issue of whether pari-mutuel wagering on
horse racing is lawful in Tennessee under the existing statute without the
Tennessee Commission. Costs incurred as of December 31, 1999 regarding the
Tennessee license amounted to $534,135. On February 11, 2000, the Tennessee
Supreme Court denied Tennessee Down's application for permission to appeal the
decision of the Court of Appeals. As a result of this decision, Tennessee Downs
has taken a charge against earnings in 1999 of $535,000 for costs incurred for
its Tennessee racing license and does not anticipate future involvement in
Tennessee.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on The Nasdaq National Market
under the symbol "PENN". The following table sets forth for the periods
indicated the high and low sales prices per share of the Company's Common Stock
as reported on The Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C> <C>
1997
First Quarter $ 18.250 $ 14.000
Second Quarter 19.625 13.750
Third Quarter 20.125 14.625
Fourth Quarter 19.250 8.750
1998
First Quarter $ 13.125 $ 8.875
Second Quarter 12.000 6.813
Third Quarter 9.125 5.125
Fourth Quarter 10.313 5.500
1999
First Quarter $ 10.000 $ 5.813
Second Quarter 9.938 7.250
Third Quarter 10.375 8.250
Fourth Quarter 9.563 7.500
</TABLE>
The closing sale price per share of Common Stock on The Nasdaq National
Market on March 14, 2000, was $7.50. As of March 14, 2000, there were 692
holders of record of Common Stock.
19
<PAGE>
DIVIDEND POLICY
Since the Company's initial public offering of Common Stock in May
1994, the Company has not paid any cash dividends on its Common Stock. The
Company intends to retain all of its earnings to finance the development of the
Company's business, and thus, does not anticipate paying cash dividends on its
Common Stock for the foreseeable future. Payment of any cash dividends in the
future will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions. Moreover, the Company's existing credit facility (the
"Credit Facility") prohibits the Company from authorizing, declaring or paying
any dividends until the Company's commitments under the Credit Facility have
been terminated and all amounts outstanding thereunder have been repaid. In
addition, future financing arrangements may prohibit the payment of dividends
under certain conditions.
20
<PAGE>
ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company for
the years ended December 31, 1995, 1996, 1997, 1998 and 1999, except for
Operating Data, are derived from financial statements that have been audited by
BDO Seidman, LLP independent certified public accountants, adjusted as described
in the notes below. The selected consolidated financial data should be read in
conjunction with the consolidated financial statements of the Company and Notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1995 1996 1997 (1) 1998 1999
------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue
Pari-mutuel revenues
Live races $ 21,376 $ 18,727 $ 27,653 $ 26,893 $ 20,760
Import simulcasting 27,254 27,653 59,810 68,136 71,369
Export simulcasting 2,142 3,347 5,279 5,810 4,733
Gaming revenue - - 5,712 37,396 55,125
Admissions, programs and other racing revenue 3,704 4,379 5,678 6,280 6,256
Concessions revenues 3,200 3,389 7,404 9,550 12,117
Earnings from unconsolidated affiliates - - - - 1,098
------------------------------------------------------------
Total revenues 57,676 62,834 111,536 154,065 171,458
------------------------------------------------------------
OPERATING EXPENSES
Purses, stakes, and trophies 12,091 12,874 22,335 29,141 31,290
Direct salaries, payroll taxes and employee benefits 7,699 8,669 16,200 19,134 19,519
Simulcast expenses 9,084 9,215 12,982 13,809 13,422
Pari-mutuel taxes 4,963 5,356 9,506 9,281 8,895
Lottery taxes and administration - - 1,874 14,749 21,545
Other direct meeting expenses 7,576 8,536 18,087 24,029 22,916
Concessions expenses 2,125 2,349 5,605 7,929 11,030
Other operating expenses 5,002 4,942 8,735 10,787 13,060
Horsemen's action expenses - - - - 1,250
Depreciation and amortization 881 1,433 4,040 5,748 8,679
Litigation expense - - - - 1,500
Site development and restructuring changes - - 2,437 - 535
------------------------------------------------------------
Total operating expenses 49,421 53,374 101,801 134,607 153,641
------------------------------------------------------------
Income from operations 8,255 9,460 9,735 19,458 17,817
------------------------------------------------------------
Other income (expenses)
Interest income (expense), net 198 (156) (3,656) (7,549) (7,299)
Other 10 - (2) 113 (8)
------------------------------------------------------------
Total other income (expenses) 208 (156) (3,658) (7,436) (7,307)
------------------------------------------------------------
Income before income taxes and extraordinary item 8,463 9,304 6,077 12,022 10,510
Taxes on income 3,467 3,794 2,308 4,519 3,777
------------------------------------------------------------
Income before extraordinary item 4,996 5,510 3,769 7,503 6,733
Extraordinary item - loss on early extinquishment of debt,
net of income taxes of $1,001. - - - 1,482 -
------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1995 1996 1997 (1) 1998 1999
------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net income $ 4,996 $ 5,510 $ 2,287 $ 7,503 $ 6,733
============================================================
PER SHARE DATA:
Basic income per share before extraordinary item $ 0.39 $ 0.41 $ 0.25 $ 0.50 $ .45
Basic net income per share $ 0.39 $ 0.41 $ 0.15 $ 0.50 $ .45
Diluted income per share before extraordinary item $ 0.38 $ 0.40 $ 0.24 $ 0.49 $ .44
Diluted net income per share $ 0.38 $ 0.40 $ 0.15 $ 0.49 $ .44
WEIGHTED SHARES OUTSTANDING:
Basic 12,906 13,302 14,925 15,015 14,889
Diluted 13,017 13,822 15,458 15,374 15,223
OPERATING DATA: (Unaudited)
Pari-mutuel wagering
Live races $ 102,145 $ 89,327 $ 128,090 $ 122,686 $ 96,238
Import simulcasting 142,499 170,814 298,459 336,191 345,650
Export simulcasting 72,252 112,871 176,287 194,772 159,175
------------------------------------------------------------
Total pari-mutuel wagering $ 316,896 $ 373,012 $ 602,836 $ 653,649 $ 601,063
============================================================
Gross profit from wagering (2) $ 24,915 $ 27,955 $ 48,688 $ 53,766 $ 50,907
============================================================
BALANCE SHEET DATA as of DECEMBER 31:
Cash and cash equivalents $ 7,514 $ 5,634 $ 21,854 $ 6,826 $ 9,434
Working capital (deficiency) 4,134 (509) 15,226 1,911 (7,369)
Total assets 27,532 96,723 158,878 160,798 190,600
Total debt 390 47,517 80,336 78,256 91,213
Shareholders' equity 20,802 27,881 53,856 59,036 66,272
- ------------------------------------------
</TABLE>
Management believes that the following calculation of Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") and adjusted EBITDA are relevant
to shareholders:
<TABLE>
<S> <C> <C> <C> <C> <C>
Income from operations $ 8,255 $ 9,460 $ 9,735 $ 19,458 $ 17,817
add back depreciation and amortization 881 1,433 4,040 5,748 8,679
----------- ----------- ----------- ----------- ----------
EBITDA 9,136 10,893 13,775 25,206 26,496
add back Horsemens action expense -- -- -- -- 1,250
Litigation expense -- -- -- -- 1,500
Site development and restructuring charges -- -- 2,437 -- 535
----------- ----------- ----------- ----------- ----------
Adjusted EBITDA $ 9,136 $ 10,893 $ 16,212 $ 25,206 $ 29,781
=========== =========== =========== =========== ==========
</TABLE>
EBITDA is not a measure of financial performance under Generally
Accepted Accounting Principles ("GAAP"), but is used by some investors to
determine a company's ability to service or incur indebtedness. EBITDA and
Adjusted EBITDA are not calculated by all entities in the same fashion and
accordingly, may not be an appropriate measure of performance. Neither EBITDA
nor Adjusted EBITDA should be considered in isolation from, or as a substitute
for, net income (loss), cash flows from operations, or cash flow data prepared
in accordance with GAAP.
(1) Reflects the November 27, 1996 acquisition of Pocono Downs and the
January 15, 1997 acquisition of a joint venture interest in
the Charles Town Entertainment Complex. See "Business-Acquisitions."
(2) Amounts equal total pari-mutuel revenues, less purses paid to Horsemen,
taxes payable to Pennsylvania and simulcast commissions or host track fees
paid to other racetracks. Figures for the years ended December 31, 1995
and 1996 do not include purses paid at Penn National Speedway.
22
<PAGE>
ITEM 7 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 by property level are summarized as follows:
<TABLE>
<CAPTION>
Charles Town Racing and Gaming Penn National and OTWs Pocono Downs and OTWs
1997 1998 1999 1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Gaming $ 5,739 $37,716 $55,564 $ - $ - $ - $ - $ - $ -
Racing 9,211 15,382 18,954 60,261 60,281 51,302 31,203 33,121 33,767
Other 1,533 3,785 5,254 3,302 3,339 4,308 2,255 2,455 2,555
--------------------------------- -------------------------------- -------------------------------
Total revenues 16,483 56,883 79,772 63,563 63,620 55,610 33,458 35,576 36,322
Expenses
Gaming 5,446 28,958 38,672 - - - - - -
Racing 9,566 15,585 18,766 45,815 45,276 41,441 22,203 22,748 23,169
Other* 2,111 5,237 6,554 5,329 5,305 6,334 3,784 4,109 4,199
--------------------------------- -------------------------------- -------------------------------
Total expenses 17,123 49,780 63,992 51,144 50,581 47,775 25,987 26,857 27,368
EBITDA
Gaming 293 8,758 16,892 - - - - - -
Racing (355) (203) 188 14,446 15,005 9,861 9,000 10,373 10,598
Other (578) (1,452) (1,300) (2,027) (1,966) (2,026) (1,529) (1,654) (1,644)
---------------------------------- -------------------------------- -------------------------------
Total EBITDA $ (640) $ 7,103 $15,780 $ 12,419 $13,039 $ 7,835 $ 7,471 $ 8,719 $ 8,954
================================== ================================ ===============================
- ----------------
</TABLE>
*Other expenses includes property level general and administrative expenses and
excludes corporate overhead and non-recurring expenses.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues in 1999 increased by approximately $17.4 million or 11.3% to
$171.5 million from $154.1 million in 1998. Operating expenses in 1999 increased
by approximately $19.0 million or 14.1% to $153.6 million from $134.6 million in
1998. Included in operating expenses were non-recurring expenses in 1999 for the
Horsemen's strike ($1.3 million) at Penn National Race Course, Tennessee
development and licensing expenses ($.5 million) and litigation expenses ($1.5
million) to settle a lawsuit with a totalisator company. Income from operations
decreased by $1.6 million or 8.4% to $17.8 million in 1999 from $19.4 million in
1998 due to the Horsemen's strike and non-recurring expenses. Other expenses for
the year ended December 31, 1999 and 1998 consisted of approximately $7.3
million and $7.4 million, respectively, of net interest primarily due to the
10.625% Senior Notes and the Revolving Credit Facility. Taxes on income
decreased by $.7 million to $3.8 million in 1999 from $4.5 million in 1998 and
net income decreased by $.8 million or 10.3% to $6.7 million in 1999 from $7.5
million in 1998 due substantially to the factors described.
23
<PAGE>
Charles Town Entertainment Complex
Revenues increased at Charles Town by approximately $22.9 million or
40.2% to $79.8 million in 1999 from $56.9 million in 1998. Gaming revenue
increased by $17.8 million or 47.3% to $55.6 million in 1999 from $37.7 million
in 1998 due to the addition of 136 new video lottery machines and 565 new reel
spinning, coin-out slot machines during the year. At year-end there were 1,500
gaming machines in operation compared to 799 machines in 1998. The average
number of machines increased to 923 in 1999 from 704 in 1998 and the average win
per machine increased to $163 in 1999 from $145 in 1998. Racing revenue
increased by $3.5 million or 23.0% to $18.9 million in 1999 from $15.4 million
in 1998. The live meet consisted of 213 race days in 1999 compared to 206 race
days in 1998 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 $.9 million for
the year. Concession revenues increased by approximately $1.5 million or 40.0%
to $5.3 million in 1999 from $3.8 million in 1998 due to increased attendance
for gaming, racing, and the expansion of the concession areas, dining room and
buffet area. Operating expenses increased by $14.2 million or 28.6% to $64.0
million in 1999 from $49.8 million in 1998 due to the 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 gaming facility),
export simulcast expenses and expanded concession and dining capability and
capacity. In addition to the operating expenses, Charles Town had a
non-recurring expense of $1.5 million in litigation settlement expenses for the
settlement of a lawsuit involving a former totalisator company vendor.
Penn National Race Course and its OTW Facilities (Penn National Race Course)
Penn National Race Course had a decrease in revenue of approximately
$8.0 million or 12.6% to $55.6 million in 1999 from $63.6 million in 1998. The
decrease was due primarily to the expiration of the Horsemen's Agreement that
resulted in the closure of the facilities from February 16 to March 24, 1999.
Penn National re-opened for simulcast wagering on March 25, live racing on a
limited basis on April 23 and resumed a full live racing schedule the week of
June 26, 1999. For the year 1999, Penn National ran 153 live race days compared
to 206 live race days in 1998 and has run nine-race cards instead of ten-race
cards since the April reopening. Of the scheduled 210 live races for 1999, 46
race days were lost due to the strike and 11 days were cancelled due to weather
compared to 4 days cancelled due to weather in 1998. Expenses decreased by
approximately $2.8 million or 5.6% to $47.8 million in 1999 from $50.6 million
in 1998. Included in the 1999 expenses is $1.3 million for the Horsemen's
strike. The results of operations also includes the operation of the Johnstown
OTW facility for 12 months in 1999 compared to 3 months in 1998.
Pocono Downs and its OTW Facilities (Pocono Downs)
Pocono Downs live race meet, which runs from April to November,
consisted of 130 race days in 1999 compared to 135 races days in 1998. Revenues
at Pocono Downs increased by $.7 million or 2.1% to $36.3 million in 1999 from
$35.6 million in 1998. The increase resulted from a full year of operations at
the Carbondale ($1.4 million) and Hazleton ($.8 million) OTWs that was offset by
a decrease in revenue at the Pocono Downs Racetrack ($1.0 million). The decrease
was due to the close proximity of the two new OTWs to the track. Revenue also
decreased at the racetrack due to a 7.1% decrease in export simulcast wagering
on Pocono live races due to the temporary closing of the barn area last winter
due to the Company making improvements to the track that resulted in starting
the racing season with a shortage of horses. Expenses increased by approximately
$.5 million or 1.9% to $27.4 million in 1999 from $26.9 million in 1998.
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
(commencing on July 30, 1999) for the period ended December 31, 1999 include
$28.0 million in revenue, $23.0 million in operating expenses $5.0 million in
EBITDA and net income of $2.2 million. The Company's 50% share of the net income
or $1.1 million is recorded as "Earnings from unconsolidated affiliates" on the
income statement.
24
<PAGE>
Capital Expenditures
The Company had capital expenditures of $13.2 million in 1999 compared
to $22.3 million in 1998. Capital expenditures at Charles Town were
approximately $12.1 million for the construction of a new outdoor paddock, the
purchase and construction of a new temporary gaming facility, and the purchase
of additional gaming machines and player tracking system and other projects.
Capital expenditures at Penn National and its OTW facilities ($.6 million) and
Pocono Downs and its OTW facilities ($.5 million) were for normal equipment
replacement and leasehold improvements. As a result, depreciation and
amortization increased $2.9 million or 51.0% to $8.7 million in 1999 from $5.8
million in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenue in 1998 increased by approximately $42.5 million or 38.1% to
$154.0 million in 1998 from $111.5 million in 1997. Operating expenses in 1998
increased by approximately $32.8 million or 32.2% to $134.6 million from $101.8
million in 1997. Included in operating expenses were non-recurring charges for
site development and restructuring expenses of $2.4 million in 1997. Income from
operations increased by approximately $9.7 million or 100.0 % to $19.4 million
in 1998 from $9.7 million in 1997. Other expenses increased by approximately
$3.8 million of 106.4 % to $7.4 million in 1998 from $3.6 million in 1997. Net
interest expense increased by $3.9 million (primarily due to the 10 5/8% Senior
Notes issued December 1997). Other income in 1998 of $113,000 consisted of a
gain on the sale of Casino Magic Corporation stock of $148,000 offset by a loss
on the repurchase of the Company's Senior Notes in the amount of $35,000. Taxes
on income increased by approximately $2.2 million to $4.5 million in 1998 from
$$2.3 million in 1997. The extraordinary item in 1997 consisted of a loss on the
early extinquishment of debt in the amount of $1,482,000, net of income taxes.
The loss consists primarily of write-offs of deferred finance costs associated
with the retired bank notes and legal and bank fees relating to the early
extinquishment of the debt. Net income increased by approximately $5.2 million
to $7.5 million in 1998 from $2.3 million in 1997 due to the factors described
above.
Charles Town Races
Charles Town Races was purchased in January of 1997 and began racing
operations on April 30, 1997 and video lottery machine operations on September
10, 1997. Revenues at Charles Town increased by $40.4 million or 276.3% to $56.9
million in 1998 from $15.1 million in 1997. Video lottery machines increased by
$32.0 million as a result of a full year of operations in 1998 compared to three
and one-half months of operations in 1997. Racing revenues increased by $6.2
million due to a racing season of 206 live race days at the Charles Town Races
in 1998 compared to 159 live races days in 1997 and the opening of the new
simulcast-racing center in January 1998. Concession and other revenues increased
by $2.2 million due to the increased attendance and the opening of the new
buffet area during the year. Operating expenses increased at Charles Town Races
by $32.6 million or 190.7% to $49.8 million in 1998 from $17.1 million in 1997.
The increase was due primarily to the video lottery operations ($23.5 million),
racing operations ($6.0 million) and concession and other operating expenses
($3.1 million).
Penn National Race Course and its OTW Facilities (Penn National Race Course)
Penn National Race Course had a small increase in revenue of
approximately $57,000 or .1% to $63.6 million in 1998 from $63.5 million in
1997. Revenues increased at the track ($.3 million) due to an increase in
on-track wagering and export simulcast wagering and the purchase and opening of
the Johnstown OTW ($.9 million) on September 1, 1998. The increases were offset
by a decrease in revenues at Chambersburg OTW ($.6 million) due to the opening
of the Charles Town Facility, Reading ($.3 million) and York ($.3 million). Penn
National Race Course had a net decrease in operating expenses of $.6 million or
1.1% to $50.6 million in 1998 from $51.1 million in 1997. The net decrease in
operating expenses was due to an increase in expenses at the new Johnstown OTW
($.8 million) offset by a decrease in operating expenses at the racetrack and
other OTW facilities ($1.4 million).
Pocono Downs and its OTW Facilities (Pocono Downs)
Revenues at Pocono Downs resulted in a net increase of $2.1 million or
6.3% to $35.6 million in 1998 from $33.5 million in 1997. The increase in
revenue was primarily due to the opening of new facilities in Hazleton ($2.2
25
<PAGE>
million) and Carbondale ($2.4 million). This was offset by a decrease at the
Wilkes-Barre racetrack ($2.1 million) due to the proximity of the two new OTW
facilities and decreases at Allentown OTW ($.3 million) and Erie OTW ($.2
million). Pocono Downs had a net increase in operating expenses of $.9 million
or 3.3% to $26.9 million in 1998 from $26.0 million in 1997. The net increase in
operating expenses was due to the opening of the Hazleton OTW ($1.9 million) and
the Carbondale OTW ($1.8 million). The increase was offset by a decrease in
operating expenses at the Wilkes-Barre racetrack ($1.8 million), Allentown OTW
($.6 million) and Erie OTW ($.4 million).
Capital Expenditures
The Company had capital expenditures of $22.3 million in 1998 compared
to $29.4 million in 1997. Capital expenditures in 1998 consisted of renovation
and refurbishment of the Charles Town facility and racetrack ($1.1 million),
completion of the Hazleton and Carbondale OTW facilities ($3.2 million), the
purchase of the Johnstown facility ($1.3 million), the purchase of the GTech
video lottery machines and central monitoring system ($13.0 million), and $3.7
million in capital expenditures at other facilities. Depreciation and
amortization increased by $1.7 million or 42.3% to $5.7 million in 1998 from
$4.0 million in 1997. The increase was due primarily to depreciation associated
with new facilities for Charles Town Gaming (September 1997), Charles Town
Simulcast Center (January 1998), Hazleton and Carbondale OTW facilities (March
1998) and Johnstown OTW (September 1998).
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 $22.5 million for the year
ended December 31, 1999. This consisted of net income and non-cash expenses
($14.3 million), an increase in accounts receivable ($1.0 million) due from
other tracks, an increase in accounts payable and accrued expenses due to
construction at Charles Town ($5.6 million), an increase in purses due horsemen
($1.2 million) an increase in taxes, other than income taxes ($1.0 million) due
to a change in payment schedules for Pennsylvania pari-mutuel taxes and other
changes in certain assets and liabilities (-$.6 million).
Cash flows used in investing activities for the year ended December 31,
1999 ($29.8 million) consisted of the Company's investment in and advance to the
New Jersey Joint Venture ($11.7 million), a cash escrow deposit for the purchase
of the Mississippi casinos ($5.0 million), capital expenditures at Charles Town
for the outdoors paddock and jockey quarters ($.9 million), new temporary
structure for slot machines ($1.8 million) additional gaming machines ($4.9
million) player tracking system ($1.3 million) and other projects ($3.1 million)
and equipment replacement and building improvements at Penn National ($.6
million) and Pocono Downs ($.5 million) facilities.
Cash flows provided by financing activities ($9.9 million) consisted of
borrowings under the credit facility ($24.3 million) for the New Jersey Joint
Venture ($11.5 million), Charles Town expansion ($9.7 million), and to fund part
of the escrow deposit ($3.1 million) for the purchase of the Mississippi assets,
proceeds from the exercise of stock options and warrants ($.5 million). This was
offset by principal payments on long-term debt ($11.4 million), and an increase
in financing costs ($3.5 million) for amending the credit facility and
bondholder agreement.
The Company is subject to possible liabilities arising from the
environmental condition at the Landfill adjacent to Pocono Downs. Specifically,
the Company may incur expenses in connection with the landfill in the future,
which expenses may not be reimbursed by the four municipalities, which are
parties to the Settlement Agreement. The Company is unable to estimate the
amount, if any, that it may be required to expend.
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
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. 26
<PAGE>
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 December 31, 1999 was $12.9 million at
an interest rate of 8.93%. 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 facility. The term loan is being used to repay
the $5.0 million First Union term loan and finance gaming equipment and
improvements at the Charles Town facility. 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 December 31, 1999 was $ 9.1 million at an interest rate of 8.91%.
On March 23, 1999, the Company signed a new agreement with the
Pennsylvania Thoroughbred Horsemen, replacing the previous agreement that
expired on February 16, 1999. This new contract will result in an increase in
future operating expenses, which expenses may be offset in whole or in part by
changes in revenue mix or revenue increases going forward. These developments,
therefore, may decrease earnings before interest, taxes, depreciation and
amortization ("EBITDA") in future periods; however, management believes that
such decreases, if any, will not result in any material decrease in EBITDA.
In connection with the Company's agreement to acquire all of the assets
of Casino Magic Bay St. Louis and Boomtown Biloxi, the Company will explore a
number of financing alternatives, which may involve repaying or redeeming its
existing debt. The Company would expect to use part of the proceeds from the
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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
All of the Company's debt obligations at December 31, 1999 were fixed
rate obligations, and Management, therefore, does not believe that the Company
has any material market risk from its debt obligations.
27
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Page No.
Report of Independent Certified Public Accountants 29
Consolidated financial statements
Balance sheets 30-31
Statements of income 32-33
Statements of shareholders' equity 34
Statements of cash flows 35-36
Notes to consolidated financial statements 37-38
28
<PAGE>
Report of Independent Certified Public Accountants
Penn National Gaming, Inc.
and Subsidiaries
Wyomissing, Pennsylvania
We have audited the accompanying consolidated balance sheets of Penn National
Gaming, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Penn National
Gaming, Inc. and Subsidiaries at December 31, 1998 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania \s\ BDO Seidman, LLP
--------------------
February 29, 2000 except BDO Seidman, LLP
for Note 11 which is as of
March 7, 2000
29
<PAGE>
Penn National Gaming, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, 1998 1999
-----------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 6,826 $ 9,434
Accounts receivable 3,840 4,779
Prepaid expenses and other current assets 2,131 1,793
Deferred income taxes 458 888
Prepaid income taxes 859 1,088
-----------------------------
Total current assets 14,114 17,982
-----------------------------
Property, plant and equipment, at cost
Land and improvements 26,969 27,988
Building and improvements 66,918 70,870
Furniture, fixtures and equipment 29,772 36,195
Transportation equipment 527 860
Leasehold improvements 9,579 9,802
Leased equipment under capitalized lease 824 -
Construction in progress 1,847 1,980
-----------------------------
136,436 147,695
Less accumulated depreciation and amortization 15,684 20,824
-----------------------------
Net property, plant and equipment 120,752 126,871
-----------------------------
Other assets
Investment in and advances to unconsolidated affiliate - 12,862
Cash in escrow - 5,000
Excess of cost over fair market value of net assets acquired
(net of accumulated amortization of $2,002 and $2,611,
respectively) 22,442 21,582
Deferred financing costs 2,403 5,014
Miscellaneous 1,087 1,289
-----------------------------
Total other assets 25,932 45,747
-----------------------------
$ 160,798 $ 190,600
-----------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
30
<PAGE>
Penn National Gaming, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, 1998 1999
---------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt and
capital lease obligations $ 168 $ 5,160
Accounts payable 6,217 10,210
Purses due horsemen 887 2,114
Uncashed pari-mutuel tickets 1,597 1,351
Accrued expenses 1,063 2,694
Accrued interest 468 433
Accrued salaries and wages 752 1,098
Customer deposits 548 800
Taxes, other than income taxes 503 1,491
---------------------------
Total current liabilities 12,203 25,351
---------------------------
Long-term liabilities
Long-term debt and capital lease obligations,
net of current maturities 78,088 86,053
Deferred income taxes 11,471 12,924
---------------------------
Total long-term liabilities 89,559 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 and outstanding 15,164,080 and 15,314,175, respectively 152 153
Treasury stock, 424,700 shares at cost (2,379) (2,379)
Additional paid-in capital 38,025 38,527
Retained earnings 23,238 29,971
---------------------------
Total shareholders' equity 59,036 66,272
---------------------------
$ 160,798 $ 190,600
---------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
31
<PAGE>
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1998 1999
--------------------------------------------
<S> <C> <C> <C>
Revenues
Pari-mutuel revenues
Live races $ 27,653 $ 26,893 $ 20,760
Import simulcasting 59,810 68,136 71,369
Export simulcasting 5,279 5,810 4,733
Gaming revenue 5,712 37,396 55,125
Admissions, programs and other racing revenues 5,678 6,280 6,256
Concessions revenues 7,404 9,550 12,117
Earnings from unconsolidated affiliates - - 1,098
--------------------------------------------
Total revenues 111,536 154,065 171,458
--------------------------------------------
Operating expenses
Purses, stakes and trophies 22,335 29,141 31,290
Direct salaries, payroll taxes and employee benefits 16,200 19,134 19,519
Simulcast expenses 12,982 13,809 13,422
Pari-mutuel taxes 9,506 9,281 8,895
Lottery taxes and administration 1,874 14,749 21,545
Other direct meet expenses 18,087 24,029 22,916
Concessions expenses 5,605 7,929 11,030
Other operating expenses 8,735 10,787 13,060
Horsemen's action expenses - - 1,250
Depreciation and amortization 4,040 5,748 8,679
Litigation settlement - - 1,500
Site development and restructuring charges 2,437 - 535
--------------------------------------------
Total operating expenses 101,801 134,607 153,641
--------------------------------------------
Income from operations 9,735 19,458 17,817
--------------------------------------------
Other income (expenses)
Interest (expense) (4,591) (8,374) (8,667)
Interest income 935 825 1,368
Other (2) 113 (8)
--------------------------------------------
Total other (expenses) (3,658) (7,436) (7,307)
--------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
32
<PAGE>
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1998 1999
--------------------------------------------
<S> <C> <C> <C>
Income before income taxes and extraordinary item $ 6,077 $ 12,022 $ 10,510
Taxes on income 2,308 4,519 3,777
--------------------------------------------
Income before extraordinary item 3,769 7,503 6,733
Extraordinary item
Loss on early extinguishment of debt,
net of income taxes of $1,001 1,482 - -
--------------------------------------------
Net income $ 2,287 $ 7,503 $ 6,733
--------------------------------------------
Per share data
Basic
Income before extraordinary item $ .25 $ .50 $ .45
Extraordinary item .10 - -
--------------------------------------------
Net income $ .15 $ .50 $ .45
--------------------------------------------
Diluted
Income before extraordinary item $ .24 $ .49 $ .44
Extraordinary item .09 - -
--------------------------------------------
Net income $ .15 $ .49 $ .44
--------------------------------------------
Weighted shares outstanding
Basic 14,925 15,015 14,837
Diluted 15,458 15,374 15,196
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
33
<PAGE>
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)
<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, 1997 13,355,290 $ 134 $ - $ 14,299 $ 13,448 $ 27,881
Issuance of common stock 1,725,000 17 - 22,914 - 22,931
Exercise of stock options and warrants 72,290 1 - 154 - 155
Tax benefit related to -
stock options exercised - - 602 - 602
Net income for the year - - - - 2,287 2,287
------------------------------------------------------------------------------
Balance, December 31, 1997 15,152,580 152 - 37,969 15,735 53,856
Exercise of stock options and warrants 11,500 - - 56 - 56
Acquisition of treasury stock - - (2,379) - - (2,379)
Net income for the year - - - - 7,503 7,503
------------------------------------------------------------------------------
Balance, December 31, 1998 15,164,080 152 (2,379) 38,025 23,238 59,036
Exercise of stock options and warrants 150,095 1 - 502 - 503
Net income for the year - - - - 6,733 6,733
------------------------------------------------------------------------------
Balance, December 31, 1999 15,314,175 $ 153 $ (2,379) $ 38,527 $ 29,971 $ 66,272
------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
34
<PAGE>
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1998 1999
--------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,287 $ 7,503 $ 6,733
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 4,040 5,748 8,679
Write-off of deferred financing costs - 376 -
Income from unconsolidated affiliates - - (1,098)
Extraordinary loss relating to early
extinguishment of debt, before income
tax benefit 2,483 - -
Deferred income taxes (benefit) (97) 390 1,023
Decrease (increase) in
Accounts receivable 2,036 (1,583) (939)
Prepaid expenses and other current assets 111 (690) 338
Prepaid income taxes (3,003) 2,144 (229)
Miscellaneous other assets (258) (463) (202)
Increase (decrease) in
Accounts payable 2,339 (1,188) 3,993
Purses due horsemen (1,421) 887 1,227
Uncashed pari-mutuel tickets 168 93 (246)
Accrued expenses 1,155 (1,364) 1,631
Accrued interest 225 142 (35)
Accrued salaries and wages 306 (61) 346
Customer deposits 50 78 252
Taxes, other than income taxes 257 (146) 988
--------------------------------------------
Net cash provided by operating activities 10,678 11,866 22,461
--------------------------------------------
Cash flows from investing activities
Expenditures for property, plant and equipment (29,196) (22,333) (13,243)
Acquisition of business, net of cash acquired (18,248) - -
(Increase) in prepaid acquisition costs (176) - -
Investment in and advances to unconsolidated affiliate - - (11,764)
Cash in escrow - - (5,000)
Other - - 251
--------------------------------------------
Net cash (used in) investing activities (47,620) (22,333) (29,756)
--------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
35
<PAGE>
Penn National Gaming, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1998 1999
--------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from sale of common stock $ 23,086 $ 56 $ 503
Acquisition of treasury stock - (2,379) -
Tax benefit related to stock options exercised 602 - -
Proceeds from long-term debt 111,167 9,000 24,350
Principal payments on long-term debt
and capital lease obligations (78,348) (11,080) (11,393)
(Increase) in unamortized financing costs (3,345) (158) (3,557)
--------------------------------------------
Net cash provided by (used in) financing activities 53,162 (4,561) 9,903
--------------------------------------------
Net (decrease) increase in cash and cash equivalents 16,220 (15,028) 2,608
Cash and cash equivalents at beginning of period 5,634 21,854 6,826
--------------------------------------------
Cash and cash equivalents at end of period $ 21,854 $ 6,826 $ 9,434
--------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
36
<PAGE>
1. Summary of Basis of Presentation
Significant
Accounting
Policies
The consolidated financial statements include the accounts of
Penn National Gaming, Inc. and its subsidiaries (collectively the
"Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior
years' amounts have been reclassified to conform to the 1999
presentation.
Description of Business
The Company provides pari-mutuel wagering opportunities on live
and simulcast thoroughbred and harness horse races at two
racetracks and ten off-track wagering facilities ("OTWs") located
in Pennsylvania and pari-mutuel wagering opportunities and video
gaming machines at Charles Town Races, the Company's Charles
Town, West Virginia thoroughbred racetrack. The Company's sole
operating segment is gaming activities.
At each of its three racetracks, the Company conducts pari-mutuel
wagering on thoroughbred and harness races from the Company's
racetracks and simulcasts from other racetracks. The Company also
simulcasts its Penn National Race Course and Pocono Downs races
for wagering at other racetracks and OTWs, including all
Pennsylvania racetracks and OTWs and locations outside
Pennsylvania. Wagering on Penn National Race Course and Pocono
Downs races and races simulcast from other racetracks also occurs
through the Company's Pennsylvania racetracks' telephone account
betting network.
Glossary of Terminology
The following is a listing of terminology used throughout the
financial statements:
The Company's racetracks - Penn National Race Course near
Harrisburg, Pennsylvania, Pocono Downs near Wilkes-Barre,
Pennsylvania and Charles Town Races in Charles Town, West
Virginia.
Gaming machines - Video lottery terminal and coin operated gaming
machines.
OTW - Off-track wagering location.
Pari-mutuel wagering - All wagering at the Company's racetracks,
at the Company's OTWs and all wagering on the Company's races at
other racetracks and OTWs.
Telebet - Telephone account wagering.
Totalisator services - Computer services provided to the Company
by various totalisator companies for processing pari-mutuel
betting odds and wagering proceeds. 37
<PAGE>
Pari-mutuel revenues -
Live races - The Company's share of pari-mutuel wagering on live
races within Pennsylvania and West Virginia and certain stakes
races from racetracks outside of Pennsylvania and West Virginia
after payment of the amount returned as winning wagers.
Import simulcasting - The Company's share of wagering at the
Company's racetracks, at the Company's OTWs and by Telebet on
full cards of races simulcast from other racetracks.
Export simulcasting - The Company's share of wagering at
out-of-state locations on live races conducted by the Company.
Gaming revenue - The Company's share of net winnings from gaming
wins and losses.
A summary of pari-mutuel wagering for the periods indicated is as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1998 1999
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Pari-mutuel wagering on
the Company's live races $ 128,090 $ 122,686 $ 96,238
Pari-mutuel wagering on
simulcasting
Import simulcasting from
other racetracks 298,459 336,191 345,650
Export simulcasting to out
of Pennsylvania
wagering facilities 176,287 194,772 159,175
---------------------------------------------
Total pari-mutuel wagering $ 602,836 $ 653,649 $ 601,063
---------------------------------------------
</TABLE>
Racing Meet
The racing seasons for the past three years
consisted of the following number of live
race days:
Year ended December 31, 1997 1998 1999
--------------------------------------------------------------------
Penn National Race Course 212 206 153
Pocono Downs 134 135 130
Charles Town Races 159 206 213
38
<PAGE>
Depreciation and Amortization
Depreciation of property, plant and equipment and amortization of
leasehold improvements are computed by the straight-line method
at rates adequate to allocate the cost of applicable assets over
their estimated useful lives. Depreciation and amortization for
the years ended 1997, 1998 and 1999, amounted to $3,193,000,
$4,705,000, and $7,124,000, respectively.
The excess of cost over fair value of net assets acquired is
being amortized on the straight-line method over a forty-year
period. Amortization expense for 1997, 1998 and 1999, amounted to
$578,000, $613,000, and $609,000, respectively. The Company
evaluates the recoverability of the goodwill quarterly, or more
frequently whenever events and circumstances warrant revised
estimates and considers whether the goodwill should be completely
or partially written off or the amortization period accelerated.
The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever
events or changes in circumstances indicates that the carrying
amount of the assets may not be recoverable based on undiscounted
estimated future operating cash flows. As of December 31, 1999,
the Company has determined that no impairment has occurred.
Income Taxes
The Company recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial
statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse.
Customer Deposits
Customer deposits represent amounts held by the Company for
telephone wagering.
Cash and Cash Equivalents
The Company considers all cash balances and highly liquid
investments with original maturities of three months or less to
be cash equivalents.
Net Income Per Common Share
Basic net income per share includes no dilution and is calculated
by dividing net income by the weighted average number of common
shares outstanding for the period. Dilutive net income per share
reflects the potential dilution of securities that could share in
the net income of the Company which consist of stock options and
warrants (using the treasury stock method).
Deferred Financing Costs
Deferred financing costs which are incurred by the Company in
connection with debt are charged to operations over the life of
the underlying indebtedness using the interest
39
<PAGE>
method adjusted to give effect to any early repayments. In 1999,
the Company paid a consent fee to the holders of its 10.625%
Senior Notes in the amount of $2,243,000 for approval of its
investment in the New Jersey Joint Venture (see Note 3).
Amortization of deferred financing costs for 1997, 1998 and 1999,
amounted to $269,000, $430,000, and $946,000, respectively.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
credit risk consist of cash equivalents and accounts receivable.
The Company's policy is to limit the amount of credit exposure to
any one financial institution and place investments with
financial institutions evaluated as being creditworthy, or in
short-term money market and tax-free bond funds which are exposed
to minimal interest rate and credit risk. At December 31, 1999,
the Company had bank deposits which exceeded federally insured
limits by approximately $5,235,000 and money market and tax-free
bond funds of approximately $400,000. Concentration of credit
risk, with respect to accounts receivable, is limited due to the
Company's credit evaluation process. The Company does not require
collateral from its customers. The Company's receivables consist
principally of amounts due from other racetracks and their OTWs.
Historically, the Company has not incurred any significant
credit-related losses.
Fair Value of Financial Instruments
The following methods and assumptions are used to estimate the
fair value of each class of financial instruments for which it is
practical to estimate.
Cash and Cash Equivalents: The carrying amount approximates the
fair value due to the short maturity of the cash equivalents.
Long-Term Debt and Capital Lease Obligations: The fair value of
the Company's long-term debt and capital lease obligations is
estimated based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for
debt of the same remaining maturities. The carrying amount
approximates fair value since the Company's interest rates
approximate current interest rates.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses at the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments" ("SFAS 133 as amended by SFAS 137").
SFAS 137 delays the effective date of implementation of SFAS 133
by one year. SFAS 133 establishes accounting and
40
<PAGE>
reporting standards for derivative instruments and for hedging
activities. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities and measure those
instruments at fair market value. Presently, the Company does not
use derivative instruments either in hedging activities or as
investments. Accordingly, the Company believes that adoption of
SFAS 133 will have no impact on its financial position or results
of operations.
The Company has no comprehensive income items as defined in
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income".
<TABLE>
<CAPTION>
2. Long-Term Debt Long-term debt and capital lease obligations are as follows:
and Capital Lease
Obligations
December 31, 1998 1999
--------------------------
(In thousands)
<S> <C> <C> <C>
Long-term debt
$80 million Senior Notes,
due December 15, 2004 with interest at
10.625% per annum payable semi-annually.
The notes are unsecured and are
unconditionally guaranteed by certain
subsidiaries of the Company.
$ 69,000 $ 69,000
Revolving credit facility payable to a bank
group (see additional information below
under Credit Facilities). 9,000 12,900
Term loan payable to a bank group due
on December 31, 2002 with interest at
various rates. This note is secured by certain
assets of the Company (see additional
information below under Term Loan). - 9,100
Other notes payable 246 213
Capital lease obligations 10 -
--------------------------
78,256 91,213
Less current maturities 168 5,160
--------------------------
$ 78,088 $ 86,053
--------------------------
</TABLE>
Credit Facilities
On January 28, 1999, the Company entered into a second amendment
and restatement of the Credit Facility. The Credit Facility, as
amended, provides for a $20 million revolving credit facility,
including a $3 million sublimit for standby letters of credit,
which matures in December 2002 and a $5 million term loan. Under
the terms of the Credit Facility, as amended, the Company
borrowed an additional $11.5 million, of which $11.2 million of
the proceeds was used to finance its share of the New Jersey
Joint Venture (see Note 3). The revolving credit facility is
secured by substantially all of the assets of the Company, except
for the assets of the Charles Town facility. 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. 41
<PAGE>
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 December 31, 1999 was $12.9 million at an
interest rate of 8.93%.
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.
At December 31, 1999, the Company was contingently obligated
under letters of credit with face amounts aggregating $2,015,000.
This amount includes $1,786,000 relating to the horsemens'
account balances, and $100,000 for Pennsylvania pari-mutuel
taxes.
Term Loan
On December 13, 1999 the Company entered into a $20.0 million
Senior Secured Multiple Draw Term Loan with Bank of America as
Agent for a bank group. The term loan is payable in quarterly
installments of $1.3 million principal plus interest. The loan is
secured by 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)1/2of 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)1/2of 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 December 31, 1999 was $ 9.1 million at
an interest rate of 8.91%.
Debt Offering
On December 12, 1997, the Company and certain of its subsidiaries
(as guarantors) entered into a purchase agreement for the sale
and issuance of $80,000,000 aggregate principal amount of its
10.625% Senior Notes due 2004 (the "Offering"). The net proceeds
of the Offering were used for repayment of existing indebtedness,
for capital expenditures and for general corporate purposes.
Interest on the notes will accrue from their date of original
issuance (the "Issue Date") and will be payable semi-annually,
and commenced in 1998. The notes will be redeemable, in whole or
in part, at the option of the Company in 2001 or thereafter at
the redemption prices set forth in the Offering, plus accrued and
unpaid interest to the date of redemption.
The notes are general unsecured senior obligations of the Company
and rank equally in right of payment to any existing and future
unsubordinated indebtedness of the Company and senior in right of
payment with
42
<PAGE>
all existing and future subordinated indebtedness of the Company.
The notes are unconditionally guaranteed (the "Guarantees") on a
senior basis by certain of the Company's existing subsidiaries
(the "Subsidiary Guarantors"). The Guarantees are general
unsecured obligations of the Subsidiary Guarantors and rank
equally in right of payment to any unsubordinated indebtedness of
the Subsidiary Guarantors and rank senior in right of payment to
all other subordinated obligations of the Subsidiary Guarantors.
The notes are effectively subordinated in right of payment to all
secured indebtedness of the Company, including indebtedness
incurred under the amended $20 million revolving credit facility.
On September 3, 1998, the Company repurchased $11 million of the
10.625% Senior Notes due 2004 at 97.25% of the principal amount
($10,697,500) plus accrued interest of $253,229 in public market
trading. In conjunction with the repurchase of the notes, the
Company recorded a write-off of deferred financing costs
associated with this portion of the long-term debt. The
extinguishment of these notes did not result in any material net
loss.
The following is a schedule of future minimum
repayments of long-term debt as of December
31, 1999:
December 31,
(In thousands)
2000 $ 5,160
2001 4,138
2002 12,915
2003 -
2004 69,000
-------------
Total minimum payments 91,213
Current maturities 5,160
-------------
Total noncurrent maturities $ 86,053
-------------
3. Commitments
and
Contingencies
Operating Agreements
In November 1997, the Company signed a new Totalisator services
and equipment agreement for all of its subsidiaries. Effective
November 1, 1999 the terms of the contract were amended and the
contract was extended through May 31, 2005. The amended agreement
provides for annual payments based on a specified percentage of
the total amount wagered at the Company's facilities with no
minimum annual payment.
The Company is also liable under numerous operating leases for
automobiles, other equipment and buildings, which expire through
2004. Total rental expense under these agreements was $807,000,
$1,169,000, and $1,296,000 for the years ended December 31, 1997,
1998, and 1999, respectively.
The future lease commitments relating to
noncancelable operating leases as of December
31, 1999 are as follows:
(In thousands)
2000 $ 1,468
2001 1,387
2002 1,218
2003 1,124
2004 1,069
Thereafter 1,794
--------
$ 8,060
--------
43
<PAGE>
On February 26, 1996, the Company entered into a joint venture
agreement (the "Charles Town Joint Venture") with Bryant
Development Company and its affiliates ("Bryant"), the holder of
an option to purchase substantially all of the assets of Charles
Town Racing Limited Partnership and Charles Town Races, Inc.
(together, "Charles Town") relating to the Charles Town Race
Track and Shenandoah Downs (together, the "Charles Town
Entertainment Complex") in Jefferson County, West Virginia.
Bryant had acquired its option from Showboat Operating Company
("Showboat"). Showboat has retained an option (the "Showboat
Option") to operate any casino at the Charles Town Entertainment
Complex in return for a management fee (to be negotiated at the
time, based on rates payable for similar properties) and a right
of first refusal to purchase or lease the site of any casino at
the Charles Town Entertainment Complex proposed to be leased or
sold and to purchase any interest proposed to be sold in any such
casino on the same terms offered by a third party or otherwise
negotiated with the Charles Town Joint Venture. The rights
retained by Showboat under the Showboat Option extend for a
period of five years from November 6, 1996, the date that the
Charles Town Joint Venture exercised its option to purchase the
Charles Town Races, and expires thereafter unless legislation to
permit casino gaming at the Charles Town Entertainment Complex
has been adopted prior to the end of the five-year period. If
such legislation has been adopted prior to such time, then the
rights of Showboat continue for a reasonable time (not less than
24 months) to permit completion of negotiations.
While the express terms of the Showboat Option do not specify
which activities at the Charles Town Entertainment Complex would
constitute operation of a casino, Showboat has agreed that the
installation and operation of gaming devices linked to the
lottery (like the gaming machines the Company has installed and
will continue to install) at the Charles Town Entertainment
Complex's racetrack would not trigger Showboat's right to
exercise the Showboat Option.
Pursuant to the terms of the Pocono Downs purchase agreement
dated November 27, 1996, the Company will be required to pay the
sellers of Pocono Downs an additional $10 million if, within five
years after the consummation of the Pocono Downs acquisition,
Pennsylvania authorizes any additional form of gaming in which
the Company may participate. The $10 million payment would be
payable in annual installments of $2 million for five years,
beginning on the date that the Company first offers such
additional form of gaming.
Profit Sharing Plans
The Company has a profit sharing plan under the provisions of
Section 401(k) of the Internal Revenue Code, called The Penn
National Gaming, Inc. Profit Sharing Plan (the "Penn National
401(k) Plan") that cover all eligible employees who are not
members of a bargaining unit. The plan enables employees choosing
to participate to defer a portion of their salary in a retirement
fund to be administered by the Company. The Company's
contributions to the Penn National 401(k) Plan are set at 50% of
employees elective salary deferrals which may be made up to a
maximum of 6% of employee compensation for employees of Penn
National Race Course and Pocono Downs. Charles Town employees
receive an annual employer contribution based on an allocation
formula that is derived from a total retirement expense
calculated as .25% of the daily mutual handle and .5% of the net
44
<PAGE>
video lottery revenues. The Company made contributions to the
plan of approximately $145,000, $172,000 and $169,000, for the
years ended December 31, 1997, 1998 and 1999, respectively.
The Company also has a defined contribution plan called the
Charles Town Races Future Service Retirement Plan covering
substantially all of its union employees. Charles Town makes
monthly contributions equal to the amount accrued for retirement
expense, which is calculated as .25% of the daily mutual handle
and .5% of the net video lottery revenues. Total contributions
for the years ended December 31, 1997, 1998 and 1999 were
$114,000, $185,000 and $239,000, respectively.
OTW and Operating Facilities
On July On July 14, 1998, the Company entered into a lease
agreement for an OTW facility in East Stroudsburg. The lease is
for approximately 14,000 square feet at the Eagle's Glen Shopping
Plaza located in East Stroudsburg, Pennsylvania. The initial term
of the lease is for ten years with two additional five-year
renewal options available. On November 6, 1998, the Company
submitted its application for approval by the Pennsylvania
Harness Racing Commission. The Pennsylvania Harness Racing
Commission approved the application on February 23, 1999. The
Company was denied building and zoning permits by the zoning
office of the Borough of East Stroudsburg and filed suit on
November 13, 1998 to obtain the permits. On May 17, 1999, the
Court of Common Pleas of Monroe County granted a peremptory
judgment in favor of the Company that directed the Borough of
East Stroudsburg and its zoning officer to issue the required
building and zoning permits to construct the OTW facility. The
Company started construction on the $2 million facility in
February 2000 with a projected opening date in the second quarter
of 2000.
On March 23, 1999, the Company entered into a new four-year,
nine-month purse agreement with the Horsemen's Benevolent and
Protection Association, which represents the horsemen at the
Company's Penn National Race Course facility in Grantville,
Pennsylvania. The agreement ended an action by the horsemen which
began on February 16, and caused the Company to close Penn
National Race Course and its six affiliated OTWs. As a result of
the action the Company incurred a non-recurring $1,250,000
expense, primarily related to costs incurred to maintain the
closed facilities inclusive of employee salaries and rents, for
Horsemen's Action Expense. The initial term of the agreement ends
on January 1, 2004 and automatically renews for another two year
period, without change, unless notice is given by either party at
least ninety days prior to the end of the initial term. 45
<PAGE>
On June 30, 1999, all the race tracks in West Virginia (the
"Tracks"), entered into a hardware and software purchase
agreement (the "Agreement") with International Game Technology
("IGT"), for the purchase of a new video lottery central control
computer system. The aggregate cost of the new system is $5.5
million of which PNGI Charles Town Gaming LLC is obligated to pay
$1.4 million. On July 22, 1999, the Company submitted a check in
the amount of $257,000 as the initial deposit and issued a letter
of credit in the amount of $1,156,000 to secure the remaining
payments due. In addition, the Tracks agreed to collectively
acquire from IGT at least one thousand video lottery terminals by
September 30, 1999. (Charles Town is to acquire 400 new
terminals). The Agreement also requires each track to pay to IGT
the sum of $7.50 per terminal, per day for each video lottery
terminal offering progressive games operated through the IGT
central system. Installation of the new central system was
substantially complete on December 31, 1999.
On December 17, 1999, the Company entered into a new three-year
purse agreement with the Pennsylvania Harness Horsemen's
Association, Inc. which represents the owners, trainers, and
drivers at the Company's The Downs Racing, Inc. facility in
Wilkes-Barre, Pennsylvania. The contract term begins on January
16, 2000 and ends on January 15, 2003.
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 which
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 Company will
enter into a licensing agreement to use the 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.
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").
46
<PAGE>
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 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, 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; (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 from July 30, 1999 through December 31, 1999
of the Joint Venture is included in earnings of unconsolidated
affiliates in the accompanying Consolidated Statements of Income
for the year ended December 31, 1999.
Summarized balance sheet information for
the Joint Venture as of December 31, 1999
is as follows (in thousands):
<TABLE>
<S> <C> <C>
Current assets $ 7,324
Property, plant and equipment, net 30,786
Other 18,158
-------------
Total assets $ 56,268
=============
Current liabilities $ 7,453
Long-term liabilities 46,221
Members' equity 2,594
-------------
Total liabilities and members' equity $ 56,268
=============
</TABLE>
47
<PAGE>
Summarized results of operations of the
unconsolidated Joint Venture (commencing on
July 30, 1999) for the year ended December
31, 1999 is as follows (in thousands):
Revenues $ 27,982
-------------
Operating expenses 23,005
-------------
EBITDA* 4,977
-------------
Net Income 2,196
-------------
* Earnings before interest, depreciation, taxes, and amortization.
<TABLE>
<CAPTION>
4. Income Taxes The provision for income taxes charged to operations was as follows:
Year ended December 31, 1997 1998 1999
------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Current tax expense
Federal $ 2,006 $ 3,374 $ 2,759
State 399 755 108
----------------------------------
Total current 2,405 4,129 2,867
----------------------------------
Deferred tax expense (benefit)
Federal (56) 378 (317)
State (41) 12 1,227
----------------------------------
Total deferred (97) 390 910
----------------------------------
Total provision $ 2,308 $ 4,519 $ 3,777
----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Deferred tax assets and liabilities are comprised of the following:
December 31, 1998 1999
--------------------------
<S> <C> <C> <C>
Deferred tax assets
Reserve for debit balances of
horsemens' accounts, bad debts
restructuring charges and
litigation $ 458 $ 888
--------------------------
Deferred tax liabilities
Property, plant and equipment $ 11,471 $ 12,924
--------------------------
</TABLE>
48
<PAGE>
The following is a reconciliation of the statutory federal income tax rate to
the actual effective income tax rate for the following periods:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1998 1999
--------------------------------------
<S> <C> <C> <C> <C>
Percent of pretax income
Federal tax rate 34.0 % 34.0 % 34.0 %
Increase in taxes resulting from
state and local income taxes,
net of federal tax benefit 3.9 4.2 2.0
Permanent difference relating to
amortization of goodwill .9 .4 .2
Other miscellaneous items (.8) (1.0) (.3)
--------------------------------------
38.0 % 37.6 % 35.9 %
--------------------------------------
</TABLE>
5. Supplemental
Disclosures of
Cash Flow
Information
Cash paid during the year for interest was $4,346,000,
$8,192,000 and $8,742,000 in 1997, 1998 and 1999,
respectively.
Cash paid during the year for income taxes was $3,649,000,
$4,207,000, and $2,970,000 in 1997, 1998 and 1999,
respectively.
6. Common Stock
On February 18, 1997, the Company completed a secondary
public offering of 1,725,000 shares of its common stock. The
net proceeds of $23 million were used to reduce $19 million
of the Term Loan amounts outstanding under the Credit
Facility with the balance of the proceeds used to finance a
portion of the cost of the refurbishment of the Charles Town
Entertainment Complex (see Note 2 for Acquisitions).
In 1998, the Company purchased 424,700 shares of its common
stock in public market trading. The total cost of these
transactions was $2,378,465 or $5.60 per share average
price.
In April 1994, the Company's Board of Directors and
shareholders adopted and approved the Stock Option Plan (the
"Plan"). On April 30, 1997, the shareholders and the Board
of Directors approved an increase in the number of
authorized shares underlying stock options to be granted
from 1,290,000 to 2,000,000 shares. Therefore, the Plan
permits the grant of options to purchase up to 2,000,000
shares of Common Stock, subject to antidilution adjustments,
at a price per share no less than 100% of the fair market
value of the Common Stock on the date an option is granted
with respect to incentive stock options only. The price
would be no less than 110% of fair market value in the case
of an incentive stock option granted to any individual who
owns more than 10% of the total combined voting power of all
classes of outstanding stock. The Plan provides for the
granting of both incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code of 1986, and
nonqualified stock options which do not so qualify. Unless
the Plan is terminated earlier by the Board of Directors,
the Plan will terminate in April 2004.
49
<PAGE>
Stock options that expire between August 20, 2000 and
January 4, 2009 have been granted to officers and directors
to purchase Common Stock at prices ranging from $3.33 to
$17.63 per share. All options and warrants were granted at
market prices at date of grant. The following table contains
information on stock options issued under the Plan for the
three-year period ended December 31, 1999:
<TABLE>
<CAPTION>
Exercise
Option Price Range Average
Shares Per Share Price
------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at
January 1, 1997 979,750 $ 3.33 to 17.63 $ 9.10
Granted 100,000 11.50 to 16.63 15.59
Exercised (39,250) 3.33 to 5.63 4.01
------------------------------------------------
Outstanding at
December 31, 1997 1,040,500 3.33 to 17.63 7.31
Granted 195,000 6.44 to 15.50 9.06
Exercised (11,500) 3.33 to 5.63 4.88
Canceled (39,500) 5.63 to 15.50 13.36
------------------------------------------------
Outstanding at
December 31, 1998 1,184,500 3.33 to 17.63 9.50
Granted 144,500 6.88 to 9.13 6.98
Exercised (27,000) 5.63 5.63
Canceled (31,750) 5.63 to 15.50 13.40
------------------------------------------------
Outstanding at
December 31, 1999 1,270,250 $ 3.33 to 17.63 $ 7.27
------------------------------------------------
</TABLE>
In addition, 300,000 Common Stock options were issued to the
Chairman outside the Plan on October 23, 1996. These options
were issued at $17.63 per share and are exercisable through
October 23, 2006.
<TABLE>
<CAPTION>
Exercisable at year-end:
Exercise Weighted
Option Price Range Average
Shares Per Share Price
------------------------------------------------------
<S> <C> <C> <C> <C>
1997 653,833 $ 3.33 to 17.63 $ 7.08
1998 1,034,666 3.33 to 17.63 8.36
1999 1,242,625 3.33 to 17.63 9.49
------------------------------------------------------
Options available for future grant: 1994 Plan
-------------
1999 541,750
-------------
</TABLE>
50
<PAGE>
The following table summarizes information about stock
options outstanding at December 31, 1999
<TABLE>
<CAPTION>
Ranges Total
--------------------------------------------
<S> <C> <C> <C> <C>
$3.33 $5.58 $3.33
Range of exercise prices to $5.50 to $17.63 to $17.63
--------------------------------------------
Outstanding options
Number outstanding at
December 31, 1999 637,250 933,000 1,570,250
Weighted average remaining
contractual life (years) 3.84 5.94 5.09
Weighted average exercise
price $ 3.84 $ 12.94 $ 9.25
Exercisable options
Number outstanding at
December 31, 1999 637,250 605,375 1,242,625
Weighted average exercise
price $ 3.84 $ 15.44 $ 9.49
</TABLE>
Warrants were granted to the underwriters of the Company's
initial public offering at a price of $4.00 per share and
were all exercised prior to their expiration on June 2,
1999.
A summary of the warrant transactions follows:
<TABLE>
<CAPTION>
Exercise
Price Weighted
Warrant Range Average
Shares Per Share Price
---------------------------------------------
<S> <C> <C> <C> <C>
Warrants outstanding at
January 1, 1997 195,000 $ 4.00 $ 4.00
Warrants exercised (43,000) 4.00 4.00
---------------------------------------------
Warrants outstanding at
December 31, 1997 152,000 4.00 4.00
Warrants exercised (3,000) 4.00 4.00
---------------------------------------------
Warrants outstanding
at December 31, 1998 149,000 4.00 4.00
Warrants exercised (149,000) 4.00 4.00
---------------------------------------------
Warrants outstanding at
December 31, 1999 -
---------------------------------------------
</TABLE>
During 1995, the Financial Accounting Standards Board
adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"),
which has recognition provisions that establish a fair value
based method of accounting for stock-based employee
compensation plans and established fair value as the
measurement basis for transactions in which an entity
51
<PAGE>
acquires goods or services from nonemployees in exchange for
equity instruments. SFAS 123 also has certain disclosure
provisions. Adoption of the recognition provisions of SFAS
123 with regard to these transactions with nonemployees was
required for all such transactions entered into after
December 15, 1994, and the Company adopted these provisions
as required. The recognition provision with regard to the
fair value based method of accounting for stock-based
employee compensation plans is optional. Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employers" ("APB 25"), uses what is referred to as
an intrinsic value based method of accounting. The Company
has decided to continue to apply APB 25 for its stock-based
employee compensation arrangements. Accordingly, no
compensation cost has been recognized. Had compensation cost
for the Company's employee stock option plan been determined
based on the fair value at the grant date for awards under
the plan consistent with the method of SFAS 123, the
Company's net income and net income per share would have
been reduced to the pro forma amounts indicated below:
Year ended December 31, 1997 1998 1999
------------------------------------------------
Net income
As reported $ 2,287,000 $ 7,503,000 $ 6,733,000
Pro forma 1,660,000 6,827,000 6,143,000
Basic net income
per share
As reported $ .15 $ .50 $ .45
Pro forma .11 .45 .41
Diluted net income
per share
As reported $ .15 $ .49 $ .44
Pro forma .11 .44 .40
The fair value of each option and warrant grant is estimated
on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used
for grants in 1997, 1998 and 1999: dividend yield of 0%;
expected volatility of 20%; risk-free interest rate of 6%;
and expected lives of five years. The effects of applying
SFAS 123 in this pro forma disclosure are not indicative of
future amounts. SFAS 123 does not apply to awards prior to
1995. Additional awards in future years are anticipated.
7. Shareholder
Rights Plan
On May 20, 1998, the Board of Directors of the Company
authorized and declared a dividend distribution of one
Preferred Stock purchase right (the "Rights") for each
outstanding share of the Company's common stock, par value
$.01 per share (the "Common Shares"), payable to
shareholders of record at the close of business on March 19,
1999. Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share (a "Preferred
Stock Fraction"), or a combination of securities and assets
of equivalent value, at a purchase price of $40.00 per
Preferred Stock Fraction (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set
forth in a Rights Agreement (the "Rights Agreement") dated
March 2, 1999 between the Company and Continental Stock
Transfer and Trust Company as Rights Agent. All terms not
otherwise defined herein are used as defined in the Rights
Agreement.
The Rights will be exercisable only if a person or group
acquires 15% or more of the Company's common stock (the
"Stock Acquisition Date"), announces a tender or exchange
offer that will result in such person or group acquiring 20%
52
<PAGE>
or more of the outstanding common stock or is a beneficial
owner of a substantial amount of Common Shares (at least
10%) whose ownership may have a material adverse impact
("Adverse Person") on the business or prospects of the
Company. The Company will be entitled to redeem the Rights
at a price of $.01 per Right (payable in cash or stock) at
anytime until 10 days following the Stock Acquisition Date
or the date on which a person has been determined to be an
Adverse Person. If the Company is involved in certain
transactions after the Rights become exercisable, a Holder
of Rights (other than Rights owned by a shareholder who has
acquired 15% or more of the Company's outstanding common
stock or is determined to be an Adverse Person, which Rights
become void) is entitled to buy a number of the acquiring
company's Common Shares or the Company's common stock, as
the case may be, having a market value of twice the exercise
price of each Right. A potential dilutive effect may exist
upon the exercise of the Rights. Until a Right is exercised,
the holder will have no rights as a stockholder of the
Company, including, without limitations, the right to vote
as a stockholder or to receive dividends. The Rights are not
exercisable until the Distribution Date and will expire at
the close of business on March 18, 2009, unless earlier
redeemed or exchanged by the Company.
8. Loss From
Retirement
of Debt
In 1997, the Company recorded an extraordinary loss of
$1,482,000 after taxes for the early retirement of debt. The
extraordinary loss consists primarily of write-offs of
deferred finance costs associated with the retired notes and
legal and bank fees relating to the early extinguishment of
the debt.
9. Site Development
and Restructuring
Charges
During 1997, the Company incurred site development
($1,735,000) and restructuring ($702,000) charges of
$2,437,000. The site development charges consist of $800,000
related to the Charles Town Races facility and $935,000
related to the abandonment of certain proposed operating
sites during 1997. The restructuring charges primarily
consist of: $350,000 in severance termination benefits and
other charges at the Charles Town Races facility; $300,000
for the restructuring of the Erie, Pennsylvania OTW facility
and $52,000 of property and equipment written off in
connection with the discontinuation of Penn National
Speedway, Inc. operations during 1997. These charges, net of
income taxes, decreased the 1997 net income and diluted net
income per share by $1,462,000 and $.09 per share,
respectively.
On February 11, 2000, the Tennessee Supreme Court denied the
Company's application for permission to appeal the decision
of the Court of Appeals. In the appeal, the Company was
asking the Supreme Court to take the jurisdictional question
from the Appellate Court and to review the substantive issue
of whether pari-mutuel wagering on horse racing is lawful in
Tennessee under the existing statute without the Tennessee
Commission. As a result of this decision, the Company has
taken a charge against earnings in the year 1999 of $535,000
for costs incurred for its Tennessee racing license.
10. Litigation Settlement
In December 1997, Amtote international, Inc. ("Amtote"),
filed an action against the Company and the Charles Town
Joint Venture in the United States District Court for the
Northern District of West Virginia. In its complaint, Amtote
stated that the Company and the Charles Town Joint Venture
allegedly breached certain contracts with Amtote and its
affiliates when it entered into a wagering services contract
with a third party. On September 30, 1999 the United States
District Court for the Northern District of West Virginia
rendered a decision which awarded liquidated damages to
Amtote. On February 11, 2000, the Company and Amtote entered
into a settlement agreement in which the Company which paid
Amtote in full satisfaction of the judgement the sum of $1.5
million, which is included in accrued expenses.
53
<PAGE>
11. Subsequent Events
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 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 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 that, if a
definitive agreement is executed, will replace and restate
the above agreement. 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 prior to considering the
exercises of options or warrants. The agreement is subject
to due diligence, regulatory and other approvals.
54
<PAGE>
12. Subsidiary
Guarantors
Summarized financial information for years ended December 31, 1997, 1998,
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
Year ended December 31, 1997
Consolidated Statement of Income (In Thousands)
<S> <C> <C> <C> <C> <C>
Total revenues $ 6,887 $ 90,320 $ 16,484 $ (2,155) $ 111,536
Total operating expenses 3,434 81,822 18,700 (2,155) 101,801
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Income from operations 3,453 8,498 (2,216) -- 9,735
Other income(expenses) (3,565) 1,612 (1,705) -- (3,658)
- ----------------------------- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Income before income taxes (112) 10,110 (3,921) -- 6,077
Taxes on income (38) 3,909 (1,563) -- 2,308
Extraordinary item (142) (768) (572) (1,482)
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Net income (loss) $ (216) $ 5,433 $ (2,930) $ -- $ 2,287
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Consolidated Statement of Cash Flows (In Thousands)
Net cash provided by
(used in) operating
activities $ 2,559 $ (169,422) $ 882 $ 176,659 $ 10,678
Net cash provided by
(used in) investing
activities (8,995) 68,529 40 (107,194) (47,620)
Net cash provided by
(used in) financing
activities 22,361 100,266 -- (69,465) 53,162
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Net increase (decrease)
in cash and cash
equivalents 15,925 (627) 922 -- 16,220
Cash and cash
equivalents at
beginning of period 3,015 2,597 22 -- 5,634
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Cash and cash
equivalents at end of
period $ 18,940 $ 1,970 $ 944 $ -- $ 21,854
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Subsidiary
Parent Subsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
As of December 31, 1998
Consolidated Balance Sheet (In Thousands)
<S> <C> <C> <C> <C> <C>
Current assets $ 3,558 $ 6,944 $ 4,204 $ (592) $ 14,114
Net property, plant and
equipment 13,576 62,598 44,578 -- 120,752
Other assets 102,400 153,818 1,779 (232,065) 25,932
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Total $ 119,534 $ 223,360 $ 50,561 $ (232,657) $ 160,798
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Current liabilities $ 1,000 $ 13,961 $ 7,520 $ (10,278) $ 12,203
Long-term liabilities 81,037 78,527 47,334 (117,339) 89,559
Shareholders' equity
(deficiency) 37,497 130,872 (4,293) (105,040) 59,036
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Total $ 119,534 $ 223,360 $ 50,561 $ (232,657) $ 160,798
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Year ended December 31, 1998
Consolidated Statement of Income (In Thousands)
Total revenues $ 10,789 $ 89,142 $ 56,883 $ (2,749) $ 154,065
Total operating expenses 4,612 81,187 51,557 (2,749) 134,607
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Income from operations 6,177 7,955 5,326 -- 19,458
Other income(expenses) (5,535) 2,842 (4,743) -- (7,436)
- ----------------------------- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Income before income taxes 642 10,797 583 -- 12,022
Taxes on income 100 4,186 233 -- 4,519
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Net income $ 542 $ 6,611 $ 350 $ -- $ 7,503
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Year ended December 31, 1998
Consolidated Statement of Cash Flows (In Thousands)
Net cash provided by
(used in) operating
activities $ (2,072) $ (4,121) $ 1,267 $ 16,792 $ 11,866
Net cash provided by
(used in) investing
activities (13,387) 290 909 (10,145) (22,333)
Net cash provided by
(used in) financing
activities (1,480) 3,566 -- (6,647) (4,561)
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Net increase (decrease)
in cash and cash
equivalents (16,939) (265) 2,176 -- (15,028)
Cash and cash
equivalents at
beginning of period 18,940 1,970 944 -- 21,854
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
Cash and cash
equivalents at end of
period $ 2,001 $ 1,705 $ 3,120 $ -- $ 6,826
- ------------------------- --- ------------- -- ------------- -- ------------- --- ------------ --- --------------
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Subsidiary
Parent Subsidiary Non- Elimin- Consoli-
Company Guarantors Guarantors ations dated
- -----------------------------------------------------------------------------------------------------------------
As of December 31, 1999
Consolidated Balance Sheet (In Thousands)
<S> <C> <C> <C> <C> <C>
Current assets $ 3,651 $ 7,669 $ 6,523 $ 139 $ 17,982
Net property, plant and
equipment 813 79,932 46,126 -- 126,871
Other assets 116,170 155,509 1,620 (227,552) 45,747
- -----------------------------------------------------------------------------------------------------------------
Total $ 120,634 $ 243,110 $ 54,269 $ (227,413) $ 190,600
- -----------------------------------------------------------------------------------------------------------------
Current liabilities $ (29) $ 25,731 $ 7,664 $ (8,015) $ 25,351
Long-term liabilities 82,091 86,556 47,459 (117,129) 98,977
Shareholders' equity
(deficiency) 38,572 130,823 (854) (102,269) 66,272
- -----------------------------------------------------------------------------------------------------------------
Total $ 120,634 $ 243,110 $ 54,269 $ (227,413) $ 190,600
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999
Consolidated Statement of Income (In Thousands)
Total revenues $ 4,147 $ 93,651 $ 79,772 $ (6,112) $ 171,458
Total operating expenses (3,393) 91,448 71,698 (6,112) 153,641
- -----------------------------------------------------------------------------------------------------------------
Income from operations 7,540 2,203 8,074 -- 17,817
Other income(expenses) (5,693) 3,020 (4,634) -- (7,307)
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 1,847 5,223 3,440 -- 10,510
Taxes on income 642 3,135 -- -- 3,777
- -----------------------------------------------------------------------------------------------------------------
Net income $ 1,205 $ 2,088 $ 3,440 $ -- $ 6,733
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999
Consolidated Statement of Cash Flows (In Thousands)
Net cash provided by
(used in) operating
activities $ 6,287 $ 14,842 $ 4,313 $ (2,981) $ 22,461
Net cash provided by
(used in) investing
activities (6,516) (20,245) (3,205) 210 (29,756)
Net cash provided by
financing activities 772 6,236 124 2,771 9,903
- -----------------------------------------------------------------------------------------------------------------
Net increase in cash
and cash equivalents 543 833 1,232 -- 2,608
Cash and cash
equivalents at
beginning of period 2,001 1,705 3,120 -- 6,826
- -----------------------------------------------------------------------------------------------------------------
Cash and cash
equivalents at end of
period $ 2,544 $ 2,538 $ 4,352 $ -- $ 9,434
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
ITEM 9 CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by
reference from the Company's definitive proxy statement with
respect to the Company's Annual Meeting of Shareholders to be
held on May 17, 2000. Such proxy statement shall be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, within 120 days after the
end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 11 EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by
reference from the Company's definitive proxy statement with
respect to the Company's Annual Meeting of Shareholders to be
held on May 17, 2000. Such proxy statement shall be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, within 120 days after the
end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 12 is incorporated by
reference from the Company's definitive proxy statement with
respect to the Company's Annual Meeting of Shareholders to be
held on May 17, 2000. Such proxy statement shall be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, within 120 days after the
end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by
reference from the Company's definitive proxy statement with
respect to the Company's Annual Meeting of Shareholders to be
held on May 17, 2000. Such proxy statement shall be filed
pursuant to Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, within 120 days after the
end of the fiscal year covered by this Annual Report on Form
10-K.
58
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) (1) The Financial Statements included in the Index to Part II,
Item 8, are filed as part of this Report
(2) List of Exhibits
EXHIBIT
NOS. DESCRIPTION OF EXHIBIT
1. Purchase Agreement dated December 12, 1997 between Penn National Gaming,
Inc. and BT Alex Brown Incorporated and Jefferies & Company, Inc.
2.1 Agreement and Plan of Reorganization dated April 11, 1994 among Penn
National Gaming, Inc., Carlino Family Partnership, Carlino Financial
Corporation and the shareholders and general partners of the entities now
comprising Penn National Gaming, Inc. (Incorporated by reference to the
Company's registration statement on Form S-1, File #33-77758, dated May 26,
1994.)
2.1 First Amendment to Asset Purchase Agreement dated as of January 28, 1999 by
and between among Greenwood New Jersey, Inc., International Thoroughbred
Breeders, Inc., Garden State Race Track, Inc., Freehold Racing Association,
Atlantic City Harness Inc., Circa 1850, Inc., and Penn National Gaming,
Inc. (Incorporated by reference to the Company's current report on Form
8-K, dated February 12, 1999.)
2.1.1Amendment to Agreement and Plan of Reorganization dated April 26, 1994
among Penn National Gaming, Inc., Carlino Family Partnership, Carlino
Financial Corporation and the shareholders and general partners of the
entities now comprising Penn National Gaming, Inc. (Incorporated by
reference to the Company's registration statement on Form S-1, File
#33-77758, dated May 26, 1994.)
2.2 Agreement and Plan of Reorganization dated April 11, 1994 between Penn
National Gaming, Inc. and Thomas J. Gorman. (Incorporated by reference to
the Company's registration statement on Form S-1, File #33-77758, dated May
26, 1994.)
2.2 First Amendment to Joint Venture Agreement dated as of January 28, 1999, by
and between Greenwood New Jersey, Inc., and Penn National Gaming, Inc.
(Incorporated by reference to the Company's current report on Form 8-K,
dated February 12, 1999.)
2.2.1Amendment to Agreement and Plan of Reorganization dated April 26, 1994
between Penn National Gaming, Inc. and Thomas J. Gorman. (Incorporated by
reference to the Company's registration statement on Form S-1, File
#33-77758, dated May 26, 1994.)
2.3 Closing Agreement dated January 15, 1997 among Charles Town Races, Inc.,
Charles Town Racing Limited Partnership, and PNGI Charles Town Gaming
Limited Liability Company. (Incorporated by reference to the Company's
current report on Form 8-K, dated January 30, 1997.)
2.4 Amended and Restated Operating Agreement dated as of December 31, 1996
among Penn National Gaming of West Virginia, Inc., Bryant Development
Company and PNGI Charles Town Gaming limited Liability Company.
(Incorporated by reference to the Company's current report on Form 8-K,
dated January 30, 1997.)
2.5 Letter dated January 14, 1997 from Peter M. Carlino to James A. Reeder
(Incorporated by reference to the Company's current report on Form 8-K,
dated January 30, 1997.)
2.6 First Amendment and Consent dated as of January 7, 1997 among Penn National
Gaming, Inc., Bankers Trust Company as Agent, CoreStates Bank, N.A. as
Co-Agent, and certain banks party to the Credit Agreement dated as of
November 27, 1996 (Incorporated by reference to the current report on Form
8-K, dated January 30, 1997.)
59
<PAGE>
2.7 Amended and Restated Option Agreement dated as of February 17, 1995 among
Charles Town Races, Inc., Charles Town Racing Limited Partnership, and PNGI
Charles Town Gaming limited Liability Company (Incorporated by reference to
Exhibit 2.1 of the Company's current report on Form 8-K, dated January 30,
1997.)
2.8 Transfer, Assignment and Assumption Agreement and Bill of Sale dated
January 15, 1997 among Charles Town Races, Inc., Charles Town Racing
Limited Partnership, and PNGI Charles Town Limited Liability Company
(Incorporated by reference to Exhibit 2.2 of the Company's Form 10-Q, dated
November 14, 1997.)
2.9 Second Amended and Restated Operating Agreement dated as of October 17,
1997, among Penn National Gaming of West Virginia, Inc., BDC Group and PNGI
Charles Town Gaming Limited Liability Company (Incorporated by reference to
the Company's Form 10-Q, dated November 14, 1997.)
2.10 Purchase Agreement dated September 13, 1996 between Penn National Gaming,
Inc. and the Estate of Joseph B. Banks for the purchase of Pocono Downs
Race Track and two related OTW facilities. (Incorporated by reference to
the Company's Form 10-Q, dated November 13, 1996.)
3.1 Amended and Restated Articles of Incorporation of Penn National Gaming,
Inc., filed with the Pennsylvania Department of State on April 12, 1994.
(Incorporated by reference to the Company's registration statement on Form
S-1, File #33-77758, dated May 26, 1994.)
3.2 By-laws of Penn National Gaming, Inc. (Incorporated by reference to the
Company's registration statement on Form S-1, File #33-77758, dated May 26,
1994.)
4. Rights Agreement dated as of March 2, 1999, between Penn National Gaming,
Inc. and Continental Stock Transfer and Trust Company. (Incorporated by
reference to the Company's current report on Form 8-K, dated March 17,
1999.)
4.1 Indenture dated December 17, 1997 between Penn National Gaming, Inc. and
State Street Bank and Trust Company. (Incorporated by reference to the
Company's registration statement on Form S-4, File #333-45337, dated
January 30, 1998.)
9.1 Form of Trust Agreement of Peter D. Carlino, Peter M. Carlino, Richard J.
Carlino, David E. Carlino, Susan F. Harrington, Anne de Lourdes Irwin,
Robert M. Carlino, Stephen P. Carlino and Rosina E. Carlino Gilbert.
(Incorporated by reference to the Company's registration statement on Form
S-1, File #33-77758, dated May 26, 1994.)
10.1 1994 Stock Option Plan. (Incorporated by reference to the Company's
registration statement on Form S-1, File #33-77758, dated May 26, 1994.)
10.2 Employment Agreement dated April 12, 1994 between Penn National Gaming,
Inc. and Peter M. Carlino. (Incorporated by reference to the Company's
registration statement on Form S-1, File #33-77758, dated May 26, 1994.)
10.3 Credit Agreement, dated as of November 27, 1996, among Penn National
Gaming, Inc., various banks, CoreStates bank, N.A., as Co-Agent and Bankers
Trust Company, as Agent. (Incorporated by reference to Exhibit 10.1 of the
Company's current report on Form 8-K, dated December 12, 1996.)
10.4 Employment Agreement dated April 12, 1994 between the Registrant and Robert
S. Ippolito. (Incorporated by reference to the Company's registration
statement on Form S-1, File #33-77758, dated May 26, 1994.)
10.8 Consolidation of PRA Agreement dated May 18, 1992 and PRA Amendment dated
February 9, 1993 among all members of the Pennsylvania Racing Association.
(Incorporated by reference to the Company's registration statement on Form
S-1, File #33-77758, dated May 26, 1994.)
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<PAGE>
10.11Lease dated March 7, 1991 between Shelbourne Associated and PNRC Limited
Partnership. (Incorporated by reference to the Company's registration
statement on Form S-1, File #33-77758, dated May 26, 1994.)
10.13.1 Lease dated June 30, 1993 between John E. Kyner, Jr. and Sandra R.
Kyner, and PNRC Chambersburg, Inc. (Incorporated by reference to the
Company's registration statement on Form S-1, File #33-77758, dated May 26,
1994.)
10.38Consulting Agreement dated August 29, 1994, between Penn National Gaming,
Inc. and Peter D. Carlino. (Incorporated by reference to the Company's Form
10-K, dated March 23, 1995.)
10.39Lease dated July 7, 1994, between North Mall Associates and Penn National
Gaming, Inc. for the York OTW. (Incorporated by reference to the Company's
Form 10-K, dated March 23, 1995.)
10.41.1 Lease dated March 31, 1995 between Wyomissing Professional Center III,
LP and Penn National Gaming, Inc. for the Wyomissing Corporate Office.
(Incorporated by reference to the Company's Form 10-K, dated March 20,
1996.)
10.42Employment agreement dated June 1, 1995 between Penn National Gaming, Inc.
and William J. Bork. (Incorporated by reference to the Company's Form 10-K,
dated March 20, 1996.)
10.43Lease dated July 17, 1995 between E. Lampeter Associates and Pennsylvania
National Turf Club, Inc. for the Lancaster OTW, as amended. (Incorporated
by reference to the Company's Form 10-K, dated March 20, 1996.)
10.44Agreement dated September 1, 1995 between Mountainview Thoroughbred racing
Association and Pennsylvania National Turf Club, Inc. and Sports Arena
Employees' Union Local 137 (non-primary location.) (Incorporated by
reference to the Company's Form 10-K, dated March 20, 1996.)
10.45Agreement dated December 27, 1995 between Pennsylvania National Turf Club,
Inc. and Teleview Racing Patrols, Inc. (Incorporated by reference to the
Company's Form 10-K, dated March 20, 1996.)
10.50Formation Agreement dated February 26, 1996 between Penn National Gaming,
Inc. and Bryant Development Company. (Incorporated by reference to the
Company's Form 10-K, dated March 20, 1996.)
10.51Assignment of Agreement of Sale dated March 6, 1996 between Penn National
Gaming, Inc. and Montgomery Realty Growth Fund, Inc. (Incorporated by
reference to the Company's Form 10-Q, dated May 14, 1996.)
10.56Amended and Restated Option Agreement dated as of February 17, 1995
between the PNGI Charles Town Gaming Limited Liability Company (The Joint
Venture) and Charles Town Racing Limited Partnership and Charles Town
Races, Inc. (Incorporated by reference to the Company's Form 10-Q, dated
November 13,1996.)
10.58Agreement dated March 19, 1997, between PNGI Charles Town Gaming Limited
Liability Company and the Charles Town HBPA, Inc. (Incorporated by
reference to the Company's Form 10-K, dated March 27, 1997.)
10.59Agreement dated March 21, 1997, between PNGI Charles Town Gaming Limited
Liability Company and The West Virginia Thoroughbred Breeders Association.
(Incorporated by reference to the Company's Form 10-K, dated March 27,
1997.)
10.60Agreement between PNGI Charles Town Gaming Limited Liability Company and
The West Virginia Union of Mutuel Clerks, Local 533, Service Employees
International Union, AFL-CIO. (Incorporated by reference to the Company's
Form 10-K, File #0-24206, dated March 27, 1997.)
10.66Fourth Amendment Waiver and Consent dated as of October 20, 1997, among
Penn National Gaming, Inc., Bankers Trust, as Agent, CoreStates Bank, N.A.
as Co-Agent and certain banks party to the Credit Agreement dated as of
November 17, 1996. (Incorporated by reference to the Company's Form 10-Q,
dated November 14, 1997.)
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<PAGE>
10.67Agreement dated October 2, 1996 between Pennsylvania National Turf Club,
Inc., Mountainview Racing Association and Sports Arena Employees' Union
Local No. 137 (Primary Location.) (Incorporated by reference to the
Company's Form 10-K, dated March 27, 1998.)
10.68Lease dated July 1, 1997 between Laurel Mall Associated and the Downs
Off-Track Wagering, Inc. (Incorporated by reference to the Company's Form
10-K, dated March 27, 1998.)
10.72Totalisator Agreement dated November 19, 1997, between Penn National
Gaming, Inc. and AutoTote Systems, Inc. (Incorporated by reference to the
Company's Form 10-K, dated March 27, 1998.)
10.73Amended and Restated Credit Facility dated as of December 17, 1997, among
Penn National Gaming, Inc., certain lenders, Bankers Trust Company, as
Agent, and CoreStates Bank, N.A., as Co-Agent. (Incorporated by reference
to the Company's Form 10-K, dated March 27, 1998.)
10.74Waiver dated March 25, 1998, between Penn National Gaming, Inc., certain
lenders, Bankers Trust Company as Agent, and CoreStates Bank, N.A., as
Co-Agent. (Incorporated by reference to the Company's Form 10-K, dated
March 27, 1998.)
10.76First Amendment and Waiver dated May 15, 1998, among Penn National Gaming,
Inc., CoreStates Bank, N.A. and Bankers Trust Company. (Incorporated by
reference to the Company's Form 10-Q, dated March 31, 1998.)
10.77Purchase Agreement dated July 7, 1998, between Ladbroke Racing Management
- Pennsylvania and Mountainview Thoroughbred Racing Association.
(Incorporated by reference to the Company's Form 10-Q, dated June 30,
1998.)
10.78Lease Agreement between Penn National Gaming, Inc. and Eagle Valley Realty
dated July 14, 1998. (Incorporated by reference to the Company's Form 10-Q,
dated September 30, 1998.)
10.79Joint Venture Agreement dated October 30, 1998 between Penn National
Gaming, Inc. and Greenwood New Jersey, Inc. (Incorporated by reference to
the Company's Form 10-Q, dated September 30, 1998.)
10.80Amendment dated November 2, 1998 to Joint Venture Agreement between Penn
National Gaming, Inc. and Greenwood New Jersey, Inc. (Incorporated by
reference to the Company's Form 10-Q, dated September 30, 1998.)
10.82First Amendment to Asset Purchase Agreement dated as of January 28, 1999 by
and among Greenwood New Jersey, Inc., International Thoroughbred Breeders,
Inc., Garden State Race Track, Inc., Freehold Racing Association, Atlantic
City Harness Inc., Circa 1850, Inc., and Penn National Gaming, Inc.
(Incorporated by reference to the Company's current report on Form 8-K,
dated January 28, 1999.)
10.83First Amendment to Joint Venture Agreement dated as of January 28, 1999, by
and between Greenwood New Jersey, Inc. and Penn National Gaming, Inc.
(Incorporated by reference to the Company's current report on Form 8-K,
dated January 28, 1999.)
10.85Assignment and Assumption of Lease Agreement dated December 31, 1998
between Mountainview Thoroughbred Racing Association and Ladbroke Racing
Management-Pennsylvania. (Incorporated by reference to the Company's Form
10K, dated March 30, 1999.)
10.86Subordination, Non-Disturbance and Attornment Agreement dated December 31,
1998 between Mountainview Thoroughbred Racing Association and CRIIMI MAE
Services Limited Partnership. (Incorporated by reference to the Company's
Form 10-K, dated March 30, 1999.)
10.87Second Amended and Restated Credit Agreement dated as of January 28, 1999
between Penn National Gaming, Inc. and various banks, First Union National
Bank, as Agent. (Incorporated by reference to the Company's Form 10-K,
dated March 30, 1999.)
10.88Live Racing Agreement dated March 23, 1999 between Pennsylvania National
Turf Club, Inc. and Mountainview Thoroughbred Racing Association and
Pennsylvania Horsemen's Benevolent and Protection Association, Inc.
(Incorporated by reference to the Company's Form 10-K, dated March 30,
1999.)
62
<PAGE>
10.89Amendment to Employment Agreement dated June 1, 1999, between Penn National
Gaming, Inc. and Peter M.Carlino. (Incorporated by reference to the
Company's Form 10-Q, dated August 12, 1999.)
10.90Amendment to Employment Agreement dated June 1, 1999, between Penn National
Gaming, Inc. and Robert S. Ippolito. (Incorporated by reference to the
Company's Form 10-Q, dated August 12, 1999.)
10.91Second Amendment to Joint Venture Agreement dated as of July 29, 1999,
between Penn National Gaming, Inc. and Greenwood Racing, Inc. (Incorporated
by reference to the Company's Form 10-Q, dated August 12, 1999.)
10.92Shareholder's Agreement dated July 29, 1999, between Penn National Holding
Company and Greenwood Racing, Inc. (Incorporated by reference to the
Company's Form 10-Q, dated August 12, 1999.)
10.93Amended and Restated Limited Partnership Agreement dated July 29, 1999,
between FR Park Racing, L.P., Pennwood Racing, Inc. and Penn National GSFR,
Inc. (Incorporated by reference to the Company's Form 10-Q, dated August
12, 1999.)
10.94Amended and Restated Limited Partnership Agreement dated July 29, 1999,
between FR Park Services, L.P., Pennwood Racing, Inc. and Penn National
GSFR, Inc. (Incorporated by reference to the Company's Form 10-Q, dated
August 12, 1999.)
10.95Amended and Restated Limited Partnership Agreement dated July 29, 1999,
between GS Park Racing, L.P., Pennwood Racing, Inc. and Penn National GSFR,
Inc. (Incorporated by reference to the Company's Form 10-Q, dated August
12, 1999.)
10.96Amended and Restated Limited Partnership Agreement dated July 29, 1999,
between GS Park Services, L.P., Pennwood Racing, inc. and Penn National
GSFR, Inc. (Incorporated by reference to the Company's Form 10-Q, dated
August 12, 1999.)
10.97Amendment No. 1 to Second Amended and Restated Credit Agreement dated July
29, 1999, between Penn National Gaming, Inc. and First Union National Bank.
(Incorporated by reference to the Company's Form 10-Q, dated August 12,
1999.)
10.98Amendment No. 2 to Second Amended and Restated Credit Agreement dated July
29, 1999, Penn National Gaming, Inc. and First Union National Bank.
(Incorporated by reference to the Company's Form 10-Q, dated August 12,
1999.)
10.99Agreement dated July 9, 1999, between Penn National Gaming, Inc. and
American Digital Communications, Inc. (Portions of this Exhibit have been
omitted pursuant to a request for confidential treatment.) (Incorporated by
reference to the Company's Form 10-Q, dated August 12, 1999.)
10.01a Subordination and Intercreditor Agreement dated July 29, 1999, between
Penn National Gaming, Inc., FR Park Racing, L.P., and Commerce Bank, N.A.
(Incorporated by reference to the Company's Form 10-Q, dated August 12,
1999.)
10.02a Debt Service Maintenance Agreement dated July 29, 1999, between Penn
National Gaming, Inc. and Commerce Bank, N.A. (Incorporated by reference to
the Company's Form 10-Q, dated August 12, 1999.)
10.03a First Supplemental Indenture dated May 19, 1999, between Penn National
Gaming, Inc. and State Street Bank and Trust Company, Trustee.
(Incorporated by reference to the Company's Form 10-Q, dated August 12,
1999.)
10.04a Asset Purchase Agreement between BSL., Inc. and Casino Magic Corp. dated
December 9, 1999. (Filed as exhibit 99.2 to the Company's current report on
Form 8-K, dated December 17, 1999.)
10.05a Guaranty of Penn National Gaming, Inc. to Casino Magic Corp. dated
December 9, 1999 (Filed as exhibit 99.3 to the Company's current report on
Form 8-K, dated December 17, 1999.)
63
<PAGE>
10.06a Guaranty of Hollywood Park, Inc. to BSL, Inc. dated December 9, 1999.
(Filed as exhibit 99.4 to the Company's current report on Form 8-K, dated
December 17, 1999.)
10.07a First Amendment to Asset Purchase Agreement between BSL, Inc. and Casino
Magic Corp. dated December 17, 1999. (Filed as exhibit 99.5 to the
Company's current report on Form 8-K, dated December 17, 1999.)
10.08a Asset Purchase Agreement between BTN, Inc. and Boomtown, Inc. dated
December 9, 1999 (Filed as exhibit 99.6 to the Company's current report on
Form 8-K, dated December 17, 1999.)
10.09a Guaranty of Penn National Gaming, Inc. to Boomtown, Inc. dated December
9, 1999 (Filed as exhibit 99.7 to the Company's current report on Form 8-K,
dated December 17, 1999.)
10.10a Guaranty of Hollywood Park, Inc. to BTN, Inc. dated December 9, 1999.
(Filed as exhibit 99.8 to the Company's current report on Form 8-K, dated
December 17, 1999.)
10.11a First Amendment to Asset Purchase Agreement between BTN, Inc. and
Boomtown, inc. dated December 17, 1999. (Filed as exhibit 99.9 to the
Company's current report on Form 8-K, dated December 17, 1999.)
10.12a Senior secured multiple draw term loan dated December 13, 1999 between
Penn National Gaming of West Virginia, Inc. and Bank of America.
10.13a Amendment No. 3 and Consent and Waiver under Second Amended and Restated
Credit Agreement dated December 13, 1999 between Penn National Gaming, Inc.
and First Union National Bank, as Agent.
10.14a Harness horsemen agreement dated December 17, 1999 between The Downs
Racing, Inc. and the Pennsylvania Harness Horsemen.
10.15a Settlement agreement dated February 11, 2000 between Penn National
Gaming, Inc. and Amtote International, Inc.
10.16a Thoroughbred horsemen letter dated February 24, 2000 between PNGI Charles
Town Gaming, LLC and the Charles Town thoroughbred horsemen.
10.17a Agreement dated March 7, 2000 between Penn National Gaming, Inc. and
Trackpower, Inc. and eBet Limited, Inc.
21 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
(B) Reports on Form 8-K
The Company filed the following reports on Form 8K during the fourth
quarter 1999:
On December 10, 1999, the Company filed a current report on Form 8K which
reflected the definitive agreement to purchase all of the assets of Casino Magic
hotel, etc.
64
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/Peter M. Carlino
Peter M. Carlino, Chairman of the Board
Dated: March 20, 2000
Pursuant to the requirements of the Securities Act of 1934 this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
Chief Executive Officer and
Director (Principal Executive
/s/Peter M. Carlino Officer) March 20, 2000
- --------------------------------------
Peter M. Carlino
Chief Operating Officer and
Director (Principal Operating
/s/William J. Bork Officer) March 20, 2000
- --------------------------------------
William J. Bork
Chief Financial Officer
/s/Robert S. Ippolito (Principal Financial Officer) March 20, 2000
- --------------------------------------
Robert S. Ippolito
/s/Harold Cramer Director March 20, 2000
- --------------------------------------
Harold Cramer
/s/David A. Handler Director March 20, 2000
- --------------------------------------
David A. Handler
/s/Robert P. Levy Director March 20, 2000
- --------------------------------------
Robert P. Levy
/s/ John M. Jacquemin Director March 20, 2000
- --------------------------------------
John M. Jacquemin
65
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Nos. Description of Exhibits Page No.
- ------- ------------------------------ -- -------- --------
<S> <C> <C>
10.04a Senior secured multiple draw term loan dated December
13, 1999 between Penn National Gaming of West
Virginia, Inc. and Bank of America. 67-186
10.13a Amendment No. 3 and Consent and Waiver under Second Amended 187-196
and Restated Credit Agreement dated December 13, 1999 between
Penn National Gaming, Inc. and First Union National Bank, as Agent.
10.05a Harness horsemen agreement dated December 17, 1999 between 197-205
The Downs Racing, Inc. and the Pennsylvania Harness Horsemen.
10.06a Settlement agreement dated February 11, 2000 between Penn National 206-208
Gaming, Inc. and Amtote International, Inc.
10.07a Thoroughbred horsemen letter dated February 24, 2000
between PNGI 209 Charles Town Gaming, LLC and the
Charles Town thoroughbred horsemen.
10.08a Agreement dated March 7, 2000 between Penn National Gaming, Inc. 210-218
and Trackpower, Inc. and eBet Limited, Inc.
66
</TABLE>
SENIOR SECURED MULTIPLE DRAW TERM LOAN AGREEMENT
Dated as of December 13, 1999
among
PENN NATIONAL GAMING OF WEST VIRGINIA, INC.
as Borrower,
PENN NATIONAL GAMING, INC.
as Guarantor,
The Lenders referred to herein
and
BANK OF AMERICA, N.A.,
as Administrative Agent
67
<PAGE>
TABLE OF CONTENTS
Page
Article 1
DEFINITIONS AND ACCOUNTING TERMS 1
1.1 Defined Terms 1
1.2 Use of Defined Terms 23
1.3 Accounting Terms 23
1.4 Rounding 23
1.5 Exhibits and Schedules 23
1.6 References to "and its Subsidiaries" 23
1.7 References to Times 23
1.8 Miscellaneous Terms 23
Article 2
LOANS25
2.1 Loans-General 25
2.2 Base Rate Loans 26
2.3 LIBOR Loans 26
2.4 Voluntary Reduction of Commitment 27
2.5 Scheduled Reductions of Commitment 27
2.6 Mandatory Reductions of Commitment 27
2.7 Administrative Agent's Right to
Assume Funds Available for Advances 27
Article 3
PAYMENTS AND FEES 29
3.1 Principal and Interest 29
3.2 Facility Fees 30
3.3 Commitment Fees 30
3.4 Increased Commitment Costs30
3.5 LIBOR Costs and Related Matters 31
3.6 Late Payments 34
3.7 Computation of Interest and Fees 35
3.8 Non-Business Days 35
3.9 Manner and Treatment of Payments 35
3.10 Funding Sources 36
3.11 Failure to Charge Not Subsequent Waiver 36
3.12 Administrative Agent's Right to Assume Payments
Will be Made by Borrower 36
3.13 Fee Determination Detail 37
3.14 Survival 37
68
<PAGE>
Article 4
REPRESENTATIONS AND WARRANTIES 38
4.1 Existence and Qualification; Power; Compliance With Laws
38
4.2 Authority; Compliance With Other Agreements and Instruments
and Government Regulations 38
4.3 No Governmental Approvals Required 39
4.4 Subsidiaries 39
4.5 Financial Statements 39
4.6 No Material Adverse Effects 39
4.7 Title to Property 40
4.8 Intangible Assets 40
4.9 Public Utility Holding Company Act 40
4.10 Litigation 40
4.11 Binding Obligations 40
4.12 No Default 40
4.13 ERISA 40
4.14 Regulations T, U and X; Investment Company Act 41
4.15 Disclosure 41
4.16 Tax Liability 41
4.17 Projections 41
4.18 Hazardous Materials 42
4.19 Applicable Regulations 42
4.20 Security Interests 42
4.21 Year 2000 Compliance 42
4.22 Solvency 42
Article 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS) 43
5.1 Payment of Taxes and Other Potential Liens 43 5.2 Preservation
of Existence 43 5.3 Maintenance of Properties 43 5.4 Maintenance of
Insurance 43 5.5 Compliance With Laws 44 5.6 Inspection Rights 44
5.7 Keeping of Records and Books of Account 44 5.8 Compliance With
Agreements44 5.9 Use of Proceeds 44 5.10 Hazardous Materials Laws
44
69
<PAGE>
Article 6
NEGATIVE COVENANTS 46
6.1 Prepayment of Indebtedness46
6.2 Payment of Subordinated Obligations46
6.3 Hostile Tender Offers 46
6.4 Mergers, Sales of Assets, Etc 46
6.5 Distributions 47
6.6 ERISA 47
6.7 Change in Nature of Business 48
6.8 Liens and Negative Pledges48
6.9 Indebtedness 48
6.10 Contingent Obligations 49
6.11 New Subsidiaries 49
6.12 Transactions with Affiliates 49
6.13 Leverage Ratio 49
6.14 Leases 50
6.15 Consolidated Cash Interest Coverage Ratio 50
6.16 Consolidated Net Worth 50
6.17 Capital Expenditures 50
6.18 Acquisitions and Investments 50
6.19 Amendments to Joint Venture Agreement and Charles Town
Operating Lease 50
Article 7
INFORMATION AND REPORTING REQUIREMENTS 52
7.1 Financial and Business Information 52
7.2 Compliance Certificates 55
Article 8
CONDITIONS 56
8.1 The Closing Date 56
8.2 Any Advance 58
Article 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT 60
9.1 Events of Default 60
9.2 Remedies Upon Event of Default 62
Article 10
THE ADMINISTRATIVE AGENT 65
10.1 Appointment and Authorization 65
10.2 Administrative Agent and Affiliates65
10.3 Proportionate Interest in any Collateral 65
70
<PAGE>
10.4 Lenders' Credit Decisions 65
10.5 Action by Administrative Agent 66
10.6 Liability of Administrative Agent 67
10.7 Indemnification 68
10.8 Successor Administrative Agent 68
10.9 Foreclosure on Collateral 69
10.10No Obligations of Borrower or PNGI 69
10.11Permitted Release of Collateral 69
Article 11
MISCELLANEOUS 70
11.1 Cumulative Remedies; No Waiver 70
11.2 Amendments; Consents 70
11.3 Costs, Expenses and Taxes 71
11.4 Nature of Lenders' Obligations 71
11.5 Survival of Representations and Warranties 72
11.6 Notices 72
11.7 Execution of Loan Documents 72
11.8 Binding Effect; Assignment72
11.9 Right of Setoff 74
11.10Sharing of Setoffs 75
11.11Indemnity by PNGI and Borrower 75
11.12Nonliability of the Lenders 76
11.13No Third Parties Benefitted 77
11.14Confidentiality 77
11.15Further Assurances 78
11.16Integration 78
11.17Governing Law 78
11.18Severability of Provisions78
11.19Headings 78
11.20Time of the Essence 78
11.21Foreign Lenders and Participants 79
11.22Waiver of Right to Trial by Jury 79
11.23Purported Oral Amendments 1
71
<PAGE>
Schedules and Exhibits
Schedule 1.1 G-Tech Equipment
Schedule 1.2 New Equipment
Schedule 4.4 PNGI's Subsidiaries
Schedule 4.8 Intangible Assets
Schedule 4.17 Projections
Schedule 6.8 Existing Liens
Schedule 6.9 Existing Indebtedness
Schedule 6.18 Existing Investments
Exhibit A - Assignment Agreement
Exhibit B - Compliance Certificate
Exhibit C - Note
Exhibit D - Request for Loan
72
<PAGE>
SENIOR SECURED MULTIPLE DRAW TERM LOAN AGREEMENT
Dated as of December 13, 1999
This Senior Secured Multiple Draw Term Loan Agreement
("Agreement") is entered into by and among Penn National Gaming of West
Virginia, Inc., a West Virginia corporation ("Borrower"), Penn National Gaming,
Inc., a Pennsylvania corporation, as Guarantor ("PNGI"), each lender whose name
is set forth on the signature pages of this Agreement and each lender which may
hereafter become a party to this Agreement pursuant to Section 11.8
(collectively, the "Lenders" and individually, a "Lender") and Bank of America,
N.A., as Administrative Agent.
In consideration of the mutual covenants and agreements herein contained, the
parties hereto covenant and agree as follows:
1 Article DEFINITIONS AND ACCOUNTING TERMS
Article 2 DEFINITIONS AND ACCOUNTING TERMS
-------------------------------- ----------------------------------
1.1 Defined Terms . As used in this Agreement, the following terms
shall have the meanings set forth below:
-------------
1.2
"10 5/8% Indenture" means the Indenture dated as of December
17, 1997 under which PNGI's 10 5/8% Senior Notes due 2004, Series A
and 10 5/8% Senior Notes due 2004, Series B, were issued.
"Acquisition" means any transaction, or any series of related
transactions, by which Borrower directly or indirectly (i) acquires
any going business or all or substantially all of the assets of any
firm, partnership, joint venture, limited liability company,
corporation or division thereof, whether through purchase of
assets, merger or otherwise, or (ii) acquires (in one transaction
or as the most recent transaction in a series of transactions)
control of at least a majority in ordinary voting power of the
securities of a corporation which have ordinary voting power for
the election of directors, or (iii) acquires control of a 50% or
more ownership interest in any partnership, limited liability
company or joint venture.
"Administrative Agent" means Bank of America, when acting in
its capacity as the Administrative Agent under any of the Loan
Documents, or any successor Administrative Agent.
73
<PAGE>
"Administrative Agent's Office" means the Administrative
Agent's address as set forth on the signature pages of this
Agreement, or such other address as the Administrative Agent
hereafter may designate by written notice to Borrower and the
Lenders.
"Advance" means any advance made or to be made by any Lender
to Borrower as provided in Article 2, and includes each Base Rate
Advance and each LIBOR Advance.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with,
or is controlled by, such Person. As used in this definition,
"control" (and the correlative terms, "controlled by" and "under
common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise); provided
that, in any event, any Person that owns, directly or indirectly,
10% or more of the securities having ordinary voting power for the
election of directors or other governing body of a corporation that
has more than 100 record holders of such securities, or 10% or more
of the partnership or other ownership interests of any other Person
that has more than 100 record holders of such interests, will be
deemed to control such corporation, partnership or other Person.
"Agreement" means this Senior Secured Multiple Draw Term Loan
Agreement, either as originally executed or as it may from time to
time be supplemented, modified, amended, restated or extended.
"Applicable Regulations" means all Laws pursuant to which any
Regulatory Board possesses regulatory, licensing or permit
authority over gambling, gaming, casino, wagering, parimutuel and
other similar activities conducted by PNGI or any of its
Subsidiaries within its jurisdiction.
"Assignment Agreement" means an Assignment Agreement
substantially in the form of Exhibit A.
"Availability Date" means
74
<PAGE>
the date which is the first anniversary of the Closing Date.
"Bank of America" means Bank of America, N.A., its successors and assigns.
---------------
"Base Rate" means, as of any date of determination, the rate
per annum (rounded upwards, if necessary, to the next 1/100 of 1%)
equal to the higher of (a) the Prime Rate in effect on such date
and (b) the Federal Funds Rate in effect on such date plus 1/2 of
1%.
"Base Rate Advance" means an Advance made hereunder and
specified to be a Base Rate Advance in accordance with Article 2.
"Base Rate Loan" means a Loan made hereunder and specified to
be a Base Rate Loan in accordance with Article 2.
"Base Rate Margin" means, for the initial Pricing Period 1.75%
and, for each subsequent Pricing Period, the percentage set forth
opposite the Leverage Ratio as of the last day of the Fiscal
Quarter ending two months prior to the first day of that Pricing
Period:
Leverage Ratio Base Rate Margin
-------------- ----------------
Greater than or equal to 3.00:1.00 1.75%
Less than 3.00:1.00 but greater than or 1.50%
equal to 2.50:1.00
Less than 2.50:1.00 but greater than or 1.00%
equal to 2.00:1.00
Less than 2.00:1.00 but greater than or 0.75%
equal to 1.50:1.00
Less than 1.50:1.00 0.75%
"Borrower" means Penn National Gaming of West Virginia, Inc.,
a West Virginia corporation, its successors and
--------
permitted assigns.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday
or Friday, other than a day on which banks are authorized or
required to be closed in California, Pennsylvania or West Virginia.
"Capital Expenditure" means any expenditure that is considered
a capital expenditure under Generally Accepted Accounting
Principles, including any amount which is required to be treated as
an asset subject to a Capital Lease Obligation.
75
<PAGE>
"Capital Lease Obligations" means all monetary obligations of
a Person under any leasing or similar arrangement which, in
accordance with Generally Accepted Accounting Principles, is
classified as a capital lease.
"Cash" means, when used in connection with any Person, all
monetary and non-monetary items owned by that Person that are
treated as cash in accordance with Generally Accepted Accounting
Principles, consistently applied.
"Cash Equivalents" means, when used in connection with any
Person, that Person's Investments in:
(a) Government Securities due within one year
after the date of the making of the Investment;
(a) readily marketable direct obligations of any State of the
United States of America or any political subdivision of any such
State or any public agency or instrumentality thereof given on the
date of such Investment a credit rating of at least Aa by Moody's
Investors Service, Inc. or AA by Standard & Poor's Ratings Group,
in each case due within one year from the making of the Investment;
(a) certificates of deposit issued by, bank deposits in, eurodollar
deposits through, bankers' acceptances of, and repurchase
agreements covering Government Securities executed by, any Lender
or any bank incorporated under the Laws of the United States of
America, any State thereof or the District of Columbia and having
on the date of such Investment combined capital, surplus and
undivided profits of at least $250,000,000, in each case due within
one year after the date of the making of the Investment;
(a) certificates of deposit issued by, bank deposits in, eurodollar
deposits through, bankers' acceptances of, and repurchase
agreements covering Government Securities executed by, any branch
or office located in the United States of America of a bank
incorporated under the Laws of any jurisdiction outside the United
States of America having on the date of such Investment combined
capital, surplus and undivided profits of at least $500,000,000, in
each case due within one year after the date of the making of the
Investment; and
(a) readily marketable commercial paper of corporations doing
business in and incorporated under the Laws of the United States of
America or any State thereof or of any corporation that is the
holding company for a bank described in clause (c) or (d) above
given on the date of such Investment a credit rating of at least
P-1 by Moody's Investors Service, Inc. or A-1 by Standard & Poor's
Ratings Group, in each case due within 90 days after the date of
the making of the Investment.
76
<PAGE>
"Certificate of a Responsible Official" means a certificate
signed by a Responsible Official of the Person providing the
certificate.
"Change of Control" means the occurrence of any of the
following:
(a) individuals who on the Closing Date constituted the Board
of Directors of PNGI (together with any new or replacement
directors whose election by the Board of Directors, or whose
nomination for election by the Board of Directors for election by
PNGI's stockholders was approved by a vote of at least a majority
of the directors then still in office who were either members of
the Board of Directors of PNGI on the Closing Date or whose
election or nomination for reelection was previously so approved)
cease for any reason to constitute a majority of the directors then
in office; or
(b) any transaction or series of related transactions in
which any Person or two or more Persons (other than the Permitted
Holders) acting in concert acquire beneficial ownership (within the
meaning of Rule 13d-3(a)(1) under the Securities Exchange Act of
1934, as amended), directly or indirectly, of at least 25% on a
fully diluted basis of the voting or economic interest in PNGI's
capital stock; or
(c) the Permitted Holders cease to collectively own at least
25% on a fully diluted basis of the voting and/or economic interest
in the capital stock of PNGI's capital stock; or
(d) any event which constitutes a "Change of Control" or
"Change in Control" or similar event with respect to Indebtedness
of PNGI or any of its Subsidiaries in a principal amount which is
in excess of $1,000,000, in the aggregate which permits the holders
thereof to accelerate the maturity of such Indebtedness or require
the prepayment thereof prior to the stated or final maturity
thereof; or
(e) any failure of PNGI to own, beneficially and of record,
100% of the capital stock of Borrower or of Borrower to own,
beneficially and of record, 89% or more of the equity capital of
the Charles Town Joint Venture.
"Charles Town Facility" means the Charles Town Entertainment
Complex a/k/a Charles Town Races, located on Flowing Springs Road
in Charles Town, Jefferson County, West Virginia 25414.
"Charles Town Facility Expansion" means the proposed expansion
and improvement of the Charles Town Facility by the installation of
the New Equipment and related equipment and fixtures.
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<PAGE>
"Charles Town Joint Venture" means PNGI Charles Town Gaming
Limited Liability Company, a West Virginia limited liability
company.
"Charles Town Operating Lease" means the Master Lease
Agreement of even date herewith between Borrower and the Charles
Town Joint Venture, as in effect on the date hereof, together with
all equipment schedules now or hereafter delivered in connection
therewith.
"Charles Town Subordination Agreement" means the Subordination
Agreement, in form and substance satisfactory to the Administrative
Agent, dated as of the date hereof, pursuant to which the Charles
Town Joint Venture subordinates its interest in the Charles Town
Operating Lease to the Lien of the Administrative Agent.
"Closing Date" means the time and Business Day on which the
conditions set forth in Section 8.1 are satisfied or waived. The
Administrative Agent shall notify Borrower and the Lenders of the
date that is the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended or
replaced and as in effect from time to time.
"Collateral" means all of the collateral covered by the
Collateral Documents, including without limitation the G-Tech
Equipment and the New Equipment.
"Collateral Documents" means, collectively, the Security
Agreement, and any other security agreement, pledge agreement, deed
of trust, mortgage or other collateral security agreement hereafter
executed and delivered by PNGI, Borrower or any other Obligor to
secure the Obligations.
"Commitment" means, subject to any decrease in the amount
thereof pursuant to Sections 2.4 or 2.5, $20,000,000.
"Commitment Fee Rate" means, for the initial Pricing Period,
0.500% and for each subsequent Pricing Period, the percentage set
forth opposite the Leverage Ratio as of the last day of the Fiscal
Quarter ending two months prior to the first day of that Pricing
Period:
Leverage Ratio Commitment Fee Rate
-------------- -------------------
Greater than or equal to 3.00:1.00 0.500%
Less than 3.00:1.00 but greater than or 0.500%
equal to 2.50:1.00
Less than 2.50:1.00 but greater 0.375%
than or equal to 2.00:1.00
Less than 2.00:1.00 but greater 0.375%
78
<PAGE>
than or equal to 1.50:1.00
Less than 1.50:1.00 0.375%
"Compliance Certificate" means a certificate in the form of
Exhibit B, properly completed and signed by a Senior Officer of
Borrower.
"Consolidated Cash Interest Coverage Ratio" means, as of any
date of determination, the ratio of (a) Consolidated EBITDA for the
four Fiscal Quarter period then ended to (b) Consolidated Cash
Interest Expense for the four Fiscal Quarter period then ended.
"Consolidated Cash Interest Expense" means, for any fiscal
period, Consolidated Interest Expense for such period, provided
that there shall be excluded any non-cash interest expense for such
period (other than any interest that has been capitalized) to the
extent that the same would otherwise have been included therein.
"Consolidated EBIT" means, for any fiscal period, Consolidated
Net Income of PNGI and its Subsidiaries before Consolidated
Interest Expense and provision for taxes for such period and
without giving effect (a) to any cash extraordinary gains or losses
not to exceed $1,000,000 in the most recent twelve-month period and
(b) to any gains or losses from sales of assets other than from
sales of inventory sold in the ordinary course of business.
"Consolidated EBITDA" means, for any fiscal period,
Consolidated EBIT for such period, adjusted by (a) adding thereto
the amount of all amortization of intangibles and depreciation that
were deducted in arriving at Consolidated EBIT for such period, and
(b) subtracting therefrom the amount of any payments made by PNGI
and its Subsidiaries pursuant to Section 4 of the Plains Company
Acquisition Agreement for such period (but only to the extent that
such payments have not already reduced Consolidated Net Income for
such period), it being understood and agreed, however, that for
purposes of this clause (b), such payment will be treated as being
paid in four equal consecutive quarterly installments, with the
first such installment being treated as being paid in the fiscal
quarter of PNGI in which such payment is made.
"Consolidated Indebtedness" means, as of any date of
determination, the principal amount of all Indebtedness of PNGI and
its Subsidiaries at such time other than Indebtedness in respect of
letters of credit and Indebtedness under Swap Agreements unless a
payment default has occurred thereunder.
"Consolidated Interest Expense" means, for any fiscal period, the
total consolidated interest expense of PNGI and its Subsidiaries for
such period (calculated without regard to any limitations on the
payment thereof) plus, without duplication, the portion of rent paid
or payable (without duplication) for that fiscal period under Capital
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Lease Obligations that should be treated as interest in accordance
with Financial Accounting Standards Board Statement No. 13; provided
that the amortization of deferred financing costs with respect to this
Agreement or the Indebtedness incurred hereunder shall be excluded
from Consolidated Interest Expense to the extent the same would
otherwise have been included therein.
"Consolidated Net Income" means, with respect to any Person
and with respect to any fiscal period, the net income (or loss) of
such Person and its Subsidiaries for such period, determined on a
consolidated basis (after any deduction for minority interest),
provided that (a) in determining Consolidated Net Income of PNGI,
the net income of any other Person which is not a Subsidiary of
PNGI or is accounted for by PNGI by the equity method of accounting
shall be included only to the extent of the payment of dividends or
distributions by such other Person to PNGI or a Subsidiary thereof
during such period and (b) the net income (or loss) of any other
Person acquired by such specified Person or a Subsidiary of such
Person in a pooling of interest transaction for any period prior to
the date of such acquisition shall be excluded.
"Consolidated Net Worth" means, as of any date of
determination, the consolidated net worth of PNGI and its
Subsidiaries.
"Contingent Obligation" means, as to any Person, any (a)
guarantee by that Person of Indebtedness of, or other obligation
performable by, any other Person or (b) assurance given by that
Person to an obligee of any other Person with respect to the
performance of an obligation by, or the condition or maintenance of
the financial condition of, such other Person, whether direct,
indirect or contingent, including any purchase or repurchase
agreement covering such obligation, any interest rate swap
agreement, forward contract or other arrangement of such Person, or
any collateral security therefor, any agreement to provide funds
(by means of loans, capital contributions or otherwise) to such
other Person, any agreement to support the solvency or level of any
balance sheet item of such other Person or any "keep-well" or other
arrangement of whatever nature given for the purpose of assuring or
holding harmless such obligee against loss with respect to any
obligation of such other Person; provided, however, that the term
Contingent Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the related primary
obligation (unless the Contingent Obligation is limited by its
terms to a lesser amount, in which case to the extent of such
amount) or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by the
Person in good faith.
"Contractual Obligation" means, as to any Person, any
provision of any outstanding security issued by that Person or of
any material agreement, instrument or undertaking to which that
Person is a party or by which it or any of its Property is bound.
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"Creditors" means, collectively, the Administrative Agent and
the Lenders.
"Debtor Relief Laws" means the Bankruptcy Code of the United
States of America, as amended from time to time, and all other
applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar
debtor relief Laws from time to time in effect affecting the rights
of creditors generally.
"Default" means any event that, with the giving of any
applicable notice or passage of time specified in Section 9.1, or
both, would be an Event of Default.
"Default Rate" means the interest rate prescribed in Section
3.6.
"Designated Eurodollar Market" means, with respect to any
LIBOR Loan, (a) the London Eurodollar Market, (b) if prime banks in
the London Eurodollar Market are at the relevant time not accepting
deposits of Dollars or if the Administrative Agent determines in
good faith that the London Eurodollar Market does not represent at
the relevant time the effective pricing to the Lenders for deposits
of Dollars in the London Eurodollar Market, the Cayman Islands
Eurodollar Market or (c) if prime banks in the Cayman Islands
Eurodollar Market are at the relevant time not accepting deposits
of Dollars or if the Administrative Agent determines in good faith
that the Cayman Islands Eurodollar Market does not represent at the
relevant time the effective pricing to the Lenders for deposits of
Dollars in the Cayman Islands Eurodollar Market, such other
Eurodollar Market as may from time to time be selected by the
Administrative Agent with the approval of Borrower and the
Requisite Lenders.
"Disbursement Account" means a deposit account to be
maintained by Borrower with Bank of America, as from time to time
designated by Borrower by written notification to the
Administrative Agent, into which Loans made hereunder shall be
funded unless otherwise directed by the Borrower.
"Disposition" means the voluntary sale, transfer or other
disposition of any asset of Borrower or any of its Subsidiaries
other than (a) Cash, Cash Equivalents, inventory or other assets
sold, leased or otherwise disposed of in the ordinary course of
business of Borrower or its Subsidiaries, (b) equipment (including
any aircraft) sold or otherwise disposed of where substantially
similar equipment in replacement thereof has theretofore been
acquired, or thereafter within 90 days is acquired, by Borrower or
its Subsidiaries, (c) leases of retail space by Borrower, as
lessor, in the ordinary course of the business of Borrower and in a
manner consistent with other similarly situated businesses, (d) a
disposition to Borrower or any of its Subsidiaries, and (e)
Distributions permitted by Section 6.5.
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"Distribution" means, with respect to shares of capital stock
or any warrant or option to purchase an equity security or other
equity security issued by a Person, (i) the retirement, redemption,
purchase, or other acquisition for Cash or for Property by such
Person of any such security, (ii) the declaration or (without
duplication) payment by such Person of any dividend in Cash or in
Property on or with respect to any such security, (iii) any
Investment by such Person in the holder of 5% or more of any such
security if a purpose of such Investment is to avoid
characterization of the transaction as a Distribution, and (iv) any
other payment in Cash or Property by such Person constituting a
distribution under applicable Laws with respect to such security.
"Dollars" or "$" means United States dollars.
"Eligible Assignee" means, (a) another Lender, (b) with
respect to any Lender, any Affiliate of that Lender, (c) any
commercial bank having a combined capital and surplus of
$100,000,000 or more, (d) any (i) savings bank, savings and loan
association or similar financial institution or (ii) insurance
company engaged in the business of writing insurance which, in
either case (A) has a net worth of $200,000,000 or more, (B) is
engaged in the business of lending money and extending credit under
credit facilities similar to those extended under this Agreement
and (C) is operationally and procedurally able to meet the
obligations of a Lender hereunder to the same degree as a
commercial bank and (e) any other financial institution (including
a mutual fund or other fund) having total assets of $250,000,000 or
more which meets the requirements set forth in subclauses (B) and
(C) of clause (d) above; provided that (I) each Eligible Assignee
must either (a) be organized under the Laws of the United States of
America, any State thereof or the District of Columbia or (b) be
organized under the Laws of the Cayman Islands or any country which
is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of such a country, and (i)
act hereunder through a branch, agency or funding office located in
the United States of America and (ii) be exempt from withholding of
tax on interest and deliver the documents related thereto pursuant
to Section 11.21.
"ERISA" means the Employee Retirement Income Security Act of
1974, and any regulations issued pursuant thereto, as amended or
replaced and as in effect from time to time.
"Eurodollar Base Rate" means, with respect to any LIBOR Loan,
the average per annum interest rate at which deposits in Dollars
would be offered for the applicable Interest Period by major banks
in the Designated Eurodollar Market, as shown on the Telerate Page
3750 (or such other page as may replace it) at approximately 11:00
a.m. London time two Market Days before the commencement of the
Interest Period. If such rate does not appear on the Telerate Page
3750 (or such other page that may replace it), the rate for that
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interest period will be determined by such alternate method as
reasonably selected by the Administrative Agent. The Administrative
Agent's determination of the Eurodollar Base Rate shall be
conclusive in the absence of manifest error.
"Eurodollar Market" means a regular established market located
outside the United States of America by and among banks for the
solicitation, offer and acceptance of Dollar deposits in such
banks.
"Eurodollar Obligations" means eurocurrency liabilities, as
defined in Regulation D.
"Event of Default" shall have the meaning provided in Section
9.1.
"Federal Funds Rate" means, as of any date of determination,
the rate set forth in the weekly statistical release designated as
H.15(519), or any successor publication, published by the Federal
Reserve Board (including any such successor, "H.15(519)") for such
date opposite the caption "Federal Funds (Effective)". If for any
relevant date such rate is not yet published in H.15(519), the rate
for such date will be the rate set forth in the daily statistical
release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by
the Federal Reserve Bank of New York (including any such successor,
the "Composite 3:30 p.m. Quotations") for such date under the
caption "Federal Funds Effective Rate". If on any relevant date the
appropriate rate for such date is not yet published in either
H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such
date will be the arithmetic mean of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that date by each of three leading brokers
of Federal funds transactions in New York City selected by the
Administrative Agent. For purposes of this Agreement, any change in
the Base Rate due to a change in the Federal Funds Rate shall be
effective as of the opening of business on the effective date of
such change.
"Fiscal Quarter" means the fiscal quarter of Borrower
consisting of a three-month fiscal period ending on each March 31,
June 30, September 30 and December 31.
"Fiscal Year" means the fiscal year of Borrower consisting of
a twelve-month period ending on each December 31.
"Generally Accepted Accounting Principles" means accounting
principles, as in effect on the Closing Date, as (a) set forth as
generally accepted in the currently effective Opinions of the
Accounting Principles Board of the American Institute of Certified
Public Accountants, (b) set forth as generally accepted in the
currently effective Statements of the Financial Accounting
Standards Board or (c) that are approved by such other entity as
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may be approved by a significant segment of the accounting
profession in the United States of America. The term "consistently
applied," as used in connection therewith, means that the
accounting principles applied are consistent in all material
respects with those applied at prior dates or for prior periods.
"G-Tech Equipment" means the approximately 799 video lottery
terminals and related equipment and fixtures described as such on
Schedule 1.1.
"Government Securities" means readily marketable (a) direct
full faith and credit obligations of the United States of America
or obligations guaranteed by the full faith and credit of the
United States of America, or (b) obligations of an agency or
instrumentality of, or corporation owned, controlled or sponsored
by, the United States of America that are generally considered in
the securities industry to be implicit obligations of the United
States of America.
"Governmental Agency" means (a) any international, foreign,
federal, state, county or municipal government, or political
subdivision thereof, (b) any governmental or quasi-governmental
agency, authority, board, bureau, commission, department,
instrumentality or public body, or (c) any court or administrative
tribunal of competent jurisdiction.
"Hazardous Materials" means substances regulated as hazardous substances
pursuant to (a) the Comprehensive ------------------- Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C.ss. 9601 et seq., or as
hazardous or toxic wastes or pollutants pursuant to the Hazardous Materials
Transportation Act, 49 U.S.C.ss. 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C.ss. 6901, et seq., or (b) any other Law regulating
hazardous substances or hazardous or toxic wastes or pollutants or regulating
the generation, use, storage, treatment, handling or transportation of any such
substances, in each case as such Laws are amended from time to time.
"Hazardous Materials Laws" means all federal, state or local
laws, ordinances, rules or regulations governing the disposal,
transfer, generation, storage or treatment of Hazardous Materials
applicable to any of the Real Property.
"Indebtedness" means, as to any Person (without duplication),
(a) indebtedness of such Person for borrowed money or for the
deferred purchase price of Property (excluding trade and other
accounts payable in the ordinary course of business in accordance
with customary trade terms), including any Contingent Obligation
for any such indebtedness, (b) indebtedness of such Person of the
nature described in clause (a) that is non-recourse to the credit
of such Person but is secured by assets of such Person, to the
extent of the value of such assets, (c) Capital Lease Obligations
of such Person, (d) indebtedness of such Person arising under
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bankers' acceptance facilities or under facilities for the discount
of accounts receivable of such Person, (e) any direct or contingent
obligations of such Person under letters of credit issued for the
account of such Person and (f) any net obligations of such Person
under a Swap Agreement.
"Intangible Assets" means assets that are considered
intangible assets under Generally Accepted Accounting Principles,
including customer lists, goodwill, computer software, copyrights,
trade names, trademarks and patents.
"Interest Differential" means, with respect to any prepayment
of a LIBOR Loan on a day other than the last day of the applicable
Interest Period and with respect to any failure to borrow a LIBOR
Loan on the date or in the amount specified in any Request for
Loan, (a) the per annum interest rate payable (or, with respect to
a failure to borrow, the interest rate which would have been
payable) pursuant to Section 3.1(c) with respect to the LIBOR Loan
minus (b) the LIBOR on, or as near as practicable to, the date of
the prepayment or failure to borrow for a LIBOR Loan with an
Interest Period commencing on such date and ending on the last day
of the Interest Period of the LIBOR Loan so prepaid or which would
have been borrowed on such date.
"Interest Period" means, as to each LIBOR Loan, the period
commencing on the date specified by Borrower pursuant to Section
2.1(b) and ending 1, 2, 3 or 6 months thereafter, as specified by
Borrower in the applicable Request for Loan; provided that:
(a) The first day of any Interest Period shall be a Market Day;
(a) Any Interest Period that would otherwise end on a day that is
not a Market Day shall be extended to the next succeeding Market
Day unless such Market Day falls in another calendar month, in
which case such Interest Period shall end on the next preceding
Market Day;
(a) Borrower may not specify an Interest Period that extends beyond
any Reduction Date unless the aggregate principal amount of the
LIBOR Loans having an Interest Period ending after such Reduction
Date does not exceed the Commitment (after giving effect to any
reduction thereto scheduled to be made on such Reduction Date
pursuant to Section 2.5); and
(a) No Interest Period shall extend beyond the Maturity Date.
"Investment" means, when used in connection with any Person,
any investment by or of that Person, whether by means of purchase
or other acquisition of stock or other securities of any other
Person or by means of a loan, advance creating a debt, capital
contribution, guaranty or other debt or equity participation or
interest in any other Person, including any partnership and joint
venture interests of such Person. The amount of any Investment
shall be the amount actually invested, without adjustment for
subsequent increases or decreases in the value of such Investment.
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"Laws" means, collectively, all federal, state and local
statutes, rules, regulations, ordinances, codes and administrative
or judicial precedents, or other matters having the force of law
and binding upon the parties hereto.
"Lenders" has the meaning set forth in the preamble hereto.
"Leverage Ratio" means, as of the last day of each Fiscal
Quarter, the ratio of (a) Consolidated Indebtedness as of such date
to (b) Consolidated EBITDA for the four Fiscal Quarter period then
ended (in each case taken as one accounting period), provided that
for purposes of determining the Base Rate Margin, the LIBOR Margin
and the Commitment Fee Rate, the term "Consolidated Indebtedness"
as used in the foregoing clause (a) of this definition shall be the
sum of (i) Consolidated Indebtedness (other than the then
outstanding principal amount of all Loans) on the last day of the
applicable Fiscal Quarter plus (ii) the average outstanding
principal amount of all Loans for the Fiscal Quarter then ended.
"LIBOR" means, with respect to any LIBOR Loan, an interest
rate per annum (rounded upward, if necessary, to the nearest 1/100
of one percent) determined pursuant to the following formula:
LIBOR = Eurodollar Base Rate
1.00 - Reserve Percentage
"LIBOR Advance" means an Advance made hereunder and specified
to be a LIBOR Advance in accordance with Article 2.
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"LIBOR Loan" means a Loan made hereunder and specified to be a
LIBOR Loan in accordance with Article 2.
"LIBOR Margin" means, for the initial Pricing Period 2.75%
and, for each subsequent Pricing Period, the percentage set forth
opposite the Leverage Ratio as of the last day of the Fiscal
Quarter ending two months prior to the first day of that Pricing
Period:
Leverage Ratio LIBOR Margin
-------------- ------------
Greater than or equal to 3.00:1.00 2.75%
Less than 3.00:1.00 but greater than or equal 2.50%
to 2.50:1.00
Less than 2.50:1.00 but greater than or equal 2.00%
to 2.00:1.00
Less than 2.00:1.00 but greater than or equal 1.75%
to 1.50:1.00
Less than 1.50:1.00 1.50%
"LIBOR Office" means, as to each Lender, its office or branch
so designated by written notice to the Administrative Agent as its
LIBOR Office. If no LIBOR Office is designated by a Lender, its
LIBOR Office shall be its office at its address for purposes of
notices hereunder.
"License Revocation" means the revocation, failure to renew or
suspension of, or the appointment of a receiver, supervisor or
similar official with respect to, any casino, gambling or gaming
license issued by any Regulatory Board covering any casino or
gaming facility of PNGI or its Subsidiaries.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest,
encumbrance, lien or charge of any kind, whether voluntarily
incurred or arising by operation of Law or otherwise, affecting any
Property, including any agreement to grant any of the foregoing,
any conditional sale or other title retention agreement, any lease
in the nature of a security interest, and/or the filing of or
agreement to give any financing statement (other than a
precautionary financing statement with respect to a lease that is
not in the nature of a security interest or customary pre-filings
of financing statements in connection with any refinancing) under
the Uniform Commercial Code or comparable Law of any jurisdiction
with respect to any Property.
"Loan" means the aggregate of the Advances made at any one
time by the Lenders pursuant to Article 2.
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"Loan Documents" means, collectively, this Agreement, the
Notes, the PNGI Guaranty, the Collateral Documents, the Charles
Town Subordination Agreement, each Request for Loan, each
Compliance Certificate and any other agreements of any type or
nature hereafter executed and delivered by Borrower or any of its
Subsidiaries or Affiliates to the Administrative Agent or to any
Lender in any way relating to or in furtherance of this Agreement,
in each case either as originally executed or as the same may from
time to time be supplemented, modified, amended, restated, extended
or supplanted.
"Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X.
"Market Day" means any Business Day on which dealings in
Dollar deposits are conducted by and among banks in the Designated
Eurodollar Market.
"Material Adverse Effect" means any set of circumstances or
events which (a) has or may reasonably be expected to have any
material adverse effect whatsoever upon the validity or
enforceability of any Loan Document, (b) is or may reasonably be
expected to be material and adverse to the condition (financial or
otherwise), business operations or prospects of PNGI and its
Subsidiaries, taken as a whole, or (c) materially impairs or may
reasonably be expected to materially impair the ability of PNGI and
its Subsidiaries, taken as a whole, to perform the Obligations.
"Maturity Date" means the earlier of (a) December 31, 2002 and
(b) the date which is the third anniversary of the Closing Date.
"Multiemployer Plan" means any employee benefit plan of the type described in
Section 4001(a)(3) of ERISA.
"Negative Pledge" means a Contractual Obligation that contains
a covenant binding on PNGI or any of its Subsidiaries that
prohibits Liens on any of its or their Property, other than (a) any
such covenant contained in a Contractual Obligation granting a Lien
permitted under Section 6.8 which affects only the Property that is
the subject of such permitted Lien and (b) any such covenant that
does not apply to Liens securing the Obligations.
"Net Cash Proceeds" means with respect to any Disposition or
any offerings of Indebtedness or equity securities of PNGI or its
Subsidiaries, the gross sales proceeds received by PNGI and its
Subsidiaries from such Disposition or offering in Cash and Cash
Equivalents net of brokerage commissions, legal expenses and other
transactional costs payable by PNGI and its Subsidiaries with
respect to such Disposition and net of an amount determined in good
faith by Borrower to be the estimated amount of income taxes
payable by PNGI attributable to such Disposition and any reserves
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required to be established in accordance with Generally Accepted
Accounting Principles by PNGI or its Subsidiaries as a reserve
against any liabilities associated with such Disposition, including
without limitation pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under indemnification obligations associated with such
Disposition.
"Net Equity Proceeds" means, with respect to each issuance or
sale of any equity by any Person or any capital contribution to
such Person, the cash proceeds (net of underwriting discounts and
commissions and other reasonable costs associated therewith)
received by such Person from the respective sale or issuance of its
equity or from the respective capital contribution.
"New Equipment" means (a) the 565 slot machines and related
equipment and fixtures purchased or to be purchased by Borrower and
leased pursuant to the Charles Town Operating Lease and described
on Schedule 1.2, and (b) any additional equipment and fixtures
financed hereunder.
"Note" means any of the promissory notes made by Borrower to a
Lender evidencing Advances under that Lender's Pro Rata Share of
the Commitment, substantially in the form of Exhibit C, either as
originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted.
"Obligations" means all present and future obligations of
every kind or nature of Borrower or any other Obligor at any time
and from time to time owed to the Administrative Agent or the
Lenders or any one or more of them, under any one or more of the
Loan Documents, whether due or to become due, matured or unmatured,
liquidated or unliquidated, or contingent or noncontingent,
including obligations of performance as well as obligations of
payment, and including interest that accrues after the commencement
of any proceeding under any Debtor Relief Law by or against
Borrower or any Subsidiary or Affiliate of Borrower.
"Obligor" means Borrower, PNGI, the Charles Town Joint
Venture, and each other future guarantor of the Obligations, and
each Affiliate of PNGI which has at any time executed any Loan
Document.
"Opinion of Counsel" means the favorable written legal
opinions of Morgan, Lewis & Bockius, LLP, and Bowles, Rice, special
counsel to the Obligors, in each case issued on the Closing Date
and in a form solely acceptable to the Administrative Agent,
together with copies of all factual certificates and legal opinions
upon which such counsel have relied.
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"Outstanding Obligations" means, as of each date of
determination, and giving effect to the making of any such credit
accommodations requested on that date, the aggregate principal
amount of the outstanding Loans.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereof established under ERISA.
"Pension Plan" means any "employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA), other than a
Multiemployer Plan, which is subject to Title IV of ERISA and is
maintained by Borrower or any of its Subsidiaries or to which
Borrower or any of its Subsidiaries contributes or has an
obligation to contribute.
"Permitted Holders" means Peter D. Carlino, his progeny and
his or their spouses, and any trusts over which any such Person has
sole control (voting or otherwise) and which name as beneficiaries
only such Person or such Person's spouse or children.
"Person" means any individual or entity, including a trustee,
corporation, limited liability company, general partnership,
limited partnership, joint stock company, trust, estate,
unincorporated organization, business association, firm, joint
venture, Governmental Agency, or other entity.
"Plains Company Acquisition Agreement" means the Purchase
Agreement dated as of September 13, 1996 by and between the Estate
of Joseph B. Banks and PNGI.
"PNGI" means Penn National Gaming, Inc.,
a Pennsylvania corporation.
----
"PNGI Credit Agreement" means the Second Amended and Restated
Credit Agreement among PNGI, various Banks, and First Union
National Bank, as Agent, dated January 28, 1999, as amended on or
prior to the date hereof and in effect on the date hereof,
including the amendment thereto effective concurrently herewith.
"PNGI Credit Party" means any "Credit Party" as such term is
defined in the PNGI Credit Agreement.
"PNGI Guaranty" means the unconditional guaranty or guaranties
of the Obligations delivered by PNGI, either as originally executed
or as it may from time to time be supplemented, modified, amended,
or supplanted.
"Pricing Period" means (a) the period beginning on the Closing
Date and ending on February 29, 2000, and (b) each of the
succeeding three month periods beginning on each March 1, June 1,
September 1 and December 1.
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"Prime Rate" means the rate of interest publicly announced
from time to time by Bank of America as its "prime rate." It is a
rate set by Bank of America based upon various factors including
Bank of America's costs and desired return, general economic
conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such
announced rate. Any change in the Prime Rate announced by Bank of
America shall take effect at the opening of business on the day
specified in the public announcement of such change.
"Projections" means the financial projections attached hereto
as Schedule 4.17.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Pro Rata Share" means, as of each date of determination and
with respect to each Lender, the percentage of the Commitment owned
by that Lender (or, if the Commitment has been terminated, the
percentage of the Outstanding Obligations owned by that Lender). As
of the Closing Date, the Pro Rata Share of each Lender is as set
forth on the signature pages hereto. The records of the
Administrative Agent shall be presumed to correctly reflect the Pro
Rata Share of the Lenders then party to this Agreement.
"Quarterly Payment Date" means each March 31, June 30,
September 30 and December 31 to occur following the date of this
Agreement.
"Real Property" means, as of any date of determination, all
real Property then or theretofore owned, leased or occupied by PNGI
or any of its Subsidiaries.
"Reduction Amount" means, with respect to each Reduction Date,
the amount set forth in the matrix below opposite that Reduction
Date in the column headed "Reduction Amount" or such lesser amount
to which that Reduction Amount may be reduced in accordance with
the second sentence of Section 2.4:
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Reduction Dates Reduction Amount
--------------- ----------------
03/31/00 $ 1,250,000
06/30/00 $ 1,250,000
09/30/00 $ 1,250,000
12/31/00 $ 1,250,000
03/31/01 $ 1,250,000
06/30/01 $ 1,250,000
09/30/01 $ 1,250,000
12/31/01 $ 1,250,000
03/31/02 $ 1,250,000
06/30/02 $ 1,250,000
09/30/02 $ 1,250,000
12/31/02 $ 6,250,000
"Reduction Date" means March 31, 2000, and the last day of
each succeeding June, September, December and March through the
Maturity Date.
"Regulation D" means Regulation D, as at any time amended, of
the Board of Governors of the Federal Reserve System, or any other
regulation in substance substituted therefor.
"Regulations T, U and X" means Regulations T, U and X, as at
any time amended, of the Board of Governors of the Federal Reserve
System, or any other regulations in substance substituted therefor.
"Regulatory Board" means, collectively, (a) the Pennsylvania
Horse Racing Commission, the Pennsylvania Harness Racing
Commission, the West Virginia Racing Commission, the West Virginia
Lottery Commission, and (b) any other Governmental Agency that
holds regulatory, licensing or permit authority over gambling,
gaming or casino activities conducted by PNGI or any of its
Subsidiaries within its jurisdiction.
"Request for Loan" means a written request for a Loan
substantially in the form of Exhibit D, signed by a Responsible
Official of Borrower and properly completed to provide all
information required to be included therein.
"Requirement of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any Law, or judgment,
award, decree, writ or determination of a Governmental Agency, in
each case applicable to or binding upon such Person or any of its
Property or to which such Person or any of its Property is subject.
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"Requisite Lenders" means, as of each date of determination
(a) if the Commitment is then in effect, Lenders having Pro Rata
Shares constituting 66 2/3% of the Commitment (but if there are
only two Lenders, both Lenders), and (b) if the Commitment has then
been terminated and there are then any Obligations outstanding,
Lenders holding 66 2/3% or more of the Outstanding Obligations (but
if there are only two Lenders, both Lenders).
"Reserve Percentage" means, with respect to any LIBOR Loan,
the maximum reserve percentage (expressed as a decimal, rounded
upward, if necessary, to the nearest 1/100th of 1%) in effect on
the date the Eurodollar Base Rate for that LIBOR Loan is determined
(whether or not applicable to any Lender) under regulations issued
from time to time by the Federal Reserve Board for determining the
maximum reserve requirement (including any emergency, supplemental
or other marginal reserve requirement) with respect to eurocurrency
funding (currently referred to as "eurocurrency liabilities")
having a term comparable to the Interest Period for such LIBOR
Loan. The determination by the Administrative Agent of any
applicable Reserve Percentage shall be conclusive in the absence of
manifest error.
"Responsible Official" means (a) when used with reference to a
Person other than an individual, any officer of such Person,
general partner of such Person, officer of a corporate general
partner of such Person, or corporate officer of a corporate general
partner of a partnership that is a general partner of such Person,
or any other responsible official thereof duly acting on behalf
thereof, and (b) when used with reference to a Person who is an
individual, such Person. Any document or certificate hereunder that
is signed or executed by a Responsible Official of another Person
shall be conclusively presumed to have been authorized by all
necessary corporate, partnership and/or other action on the part of
such other Person.
"Right of Others" means, as to any Property in which a Person
has an interest, any legal or equitable right, title or other
interest (other than a Lien) held by any other Person in that
Property, and any option or right held by any other Person to
acquire any such right, title or other interest in that Property,
including any option or right to acquire a Lien.
"Scheduled Expense" means the proposed expenditures to be made
by Borrower for New Equipment and Leasehold Improvements described
on Schedule 1.2, the amounts of which shall not exceed the amounts
listed under the column labeled "Unpaid as of December 13, 1999" on
Schedule 1.2.
"Security Agreement" means a security agreement executed and
delivered by Borrower in favor of the Administrative Agent for the
benefit of the Creditors, either as originally executed or as it
may from time to time be supplemented, modified, amended, extended
or supplanted.
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"Senior Officer" means the (a) chief executive officer, (b)
president, (c) any vice president, (d) chief financial officer, (e)
treasurer or (f) assistant treasurer of the Person designated.
"Significant Transaction" means any (a) Acquisition following
the Closing Date by PNGI or its Subsidiaries of another Person or
group of Persons for a consideration in excess of $10,000,000, or
any Investment following the Closing Date by PNGI or its
Subsidiaries in any other Person in an amount which is in excess of
$10,000,000, (b) any purchase, lease or other acquisition by PNGI
or any of its Subsidiaries of capital or fixed assets for a
consideration which is in excess of $10,000,000, in each case
whether in a single transaction or a series of related
transactions, but in any event excluding Capital Expenditures made
to improve or expand assets owned by PNGI or its Subsidiaries as of
the Closing Date. Execution of any agreement requiring PNGI or its
Subsidiaries to enter into a Significant Transaction shall not be
deemed to constitute a Significant Transaction unless or until the
underlying transactions are consummated.
"Solvent" means, as of any date of determination, and as to
any Person, that on such date: (a) the fair valuation of the assets
of such Person is greater than the fair valuation of such Person's
probable liability in respect of existing debts; (b) such Person
does not intend to, and does not believe that it will, incur debts
beyond such Person's ability to pay as such debts mature; (c) such
Person is not engaged in a business or transaction, and is not
about to engage in a business or transaction, which would leave
such Person with assets remaining which would constitute
unreasonably small capital after giving effect to the nature of the
particular business or transaction; and (d) such Person is
generally paying its debts as they become due. For purposes of the
foregoing (1) the "fair valuation" of any assets means the amount
realizable within a reasonable time, either through collection or
sale, of such assets at their regular market value, which is the
amount obtainable by a capable and diligent businessman from an
interested buyer willing to purchase such assets within a
reasonable time under ordinary circumstances; and (2) the term
"debts" includes any legal liability whether matured or unmatured,
liquidated or unliquidated, absolute, fixed or contingent.
"Special LIBOR Circumstance" means the application or adoption
after the Closing Date of any Law or interpretation, or any change
after the Closing Date therein or thereof, or any change after the
Closing Date in the interpretation or administration thereof by any
Governmental Agency, central bank or comparable authority charged
with the interpretation or administration thereof, or compliance by
any Lender or its LIBOR Office with any request or directive
(whether or not having the force of Law) of any such Governmental
Agency, central bank or comparable authority issued after the
Closing Date, or the existence or occurrence after the Closing Date
of circumstances affecting the Designated Eurodollar Market
generally that are beyond the reasonable control of the Lenders.
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"Subordinated Obligations" means any Indebtedness of Borrower
which is subordinated in right of payment to the Obligations, the
terms of which are approved by the Administrative Agent, acting
with the consent of the Requisite Lenders, in writing.
"Subsidiary" means, as of any date of determination and with
respect to any Person, any corporation, limited liability company
or partnership (whether or not, in either case, characterized as
such or as a "joint venture"), whether now existing or hereafter
organized or acquired: (a) in the case of a corporation or limited
liability company, of which a majority of the securities having
ordinary voting power for the election of directors or other
governing body (other than securities having such power only by
reason of the happening of a contingency) are at the time
beneficially owned by such Person and/or one or more Subsidiaries
of such Person, or (b) in the case of a partnership, of which a
majority of the partnership or other ownership interests are at the
time beneficially owned by such Person and/or one or more of its
Subsidiaries.
"Swap Agreement" means a written agreement between Borrower
and one or more financial institutions providing for "swap", "cap",
"collar" or other interest rate protection with respect to any
Indebtedness.
"to the best knowledge of" means, when modifying a
representation, warranty or other statement of any Person, that the
fact or situation described therein is known by the Person (or, in
the case of a Person other than a natural Person, known by a
Responsible Official of that Person) making the representation,
warranty or other statement, or with the exercise of reasonable due
diligence under the circumstances (in accordance with the standard
of what a reasonable Person in similar circumstances would have
done) would have been known by the Person (or, in the case of a
Person other than a natural Person, would have been known by a
Responsible Official of that Person).
"type", when used with respect to any Loan or Advance, means
the designation of whether such Loan or Advance is a Base Rate Loan
or Advance, or a LIBOR Loan or Advance.
"Venue" means any gaming, pari-mutuel, racing or other
entertainment venue now or hereafter operated by PNGI or any of its
Subsidiaries.
"Wholly-Owned Subsidiary" means, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's
qualifying shares) is at the time owned by such Person and/or one
or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which
such Person and/or one or more Wholly-Owned Subsidiaries of such
Person has a 100% equity interest at such time.
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"Year 2000 Issue" means failure of computer software, hardware
and firmware systems, and equipment containing embedded computer
chips, to properly receive, transmit, process, manipulate, store,
retrieve, re-transmit or in any other way utilize data and
information due to the occurrence of the year 2000 or the inclusion
of dates on or after January 1, 2000.
1.1 Use of Defined Terms . Any defined term used in the plural shall refer to
all members of the relevant class, and any defined term used in the singular
shall refer to any one or more of the members of the relevant class.
1.2
1.3 Accounting Terms . All accounting terms not specifically defined in this
Agreement shall be construed in conformity with, and all financial data required
to be submitted by this Agreement shall be prepared in conformity with,
Generally Accepted Accounting Principles as in effect on the Closing Date,
applied on a consistent basis.
1.4
1.5 Rounding . Any financial ratios required to be maintained by Borrower or
PNGI pursuant to this Agreement shall be calculated by dividing the appropriate
component by the other component, carrying the result to one place more than the
number of places by which such ratio is expressed in this Agreement and rounding
the result up or down to the nearest number (with a round-up if there is no
nearest number) to the number of places by which such ratio is expressed in this
Agreement.
1.6
1.7 Exhibits and Schedules . All Exhibits and Schedules to this Agreement,
either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference. A
matter disclosed on one Schedule shall be deemed disclosed on all Schedules.
1.8
1.9 References to "and its Subsidiaries" . Any reference herein to "and its
Subsidiaries" or the like shall refer solely to the subject Person during such
times as the subject Person shall have no Subsidiaries. No use of the term
"Subsidiary" or any derivative thereof in the Loan Documents shall imply a right
in any Person to make any Investments in or Acquisitions of any other Person.
1.10
1.11 References to Times . Each reference to a time of day set forth in the Loan
Documents shall, unless expressly stated to the contrary, be a reference to the
then prevailing California local time.
1.12
1.13 Miscellaneous Terms . The term "or" is disjunctive; the term "and" is
conjunctive. The term "shall" is mandatory; the term "may" is permissive.
Masculine terms also apply to females; feminine terms also apply to males. The
term "including" is by way of example and not limitation.
1.14
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Article LOANS
Article 3 LOANS
1.1 Loans-General .
-------------
1.2
(a) Subject to the terms and conditions set forth in this
Agreement, on the Closing Date each Lender shall, pro rata
according to that Lender's Pro Rata Share of the then applicable
Commitment, make an Advances to Borrower under the Commitment in
the aggregate amount of $9,100,000. Subject to the terms and
conditions set forth in this Agreement, from the Closing Date
through the Availability Date each Lender shall, pro rata according
to that Lender's Pro Rata Share of the then applicable Commitment,
make further Advances to Borrower under the Commitment against
Scheduled Expenses in such amounts as Borrower may request that do
not result in the Outstanding Obligations being in excess of the
Commitment. Unless the Administrative Agent otherwise requests,
Borrower shall not request any Loan which results in an increase in
the aggregate principal amount of the Outstanding Obligations more
frequently than once in each calendar month. The proceeds of all
Advances made hereunder shall be used as set forth in Section 5.9.
Amounts repaid under the Commitment may not be reborrowed. Subject
to the limitations set forth herein, Borrower may repay under the
Commitment without premium or penalty.
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(a) Subject to the next sentence, each Loan shall be made pursuant
to a Request for Loan which shall (i) specify the requested date of
such Loan, type of Loan, amount of such Loan and in the case of a
LIBOR Loan, the Interest Period for such Loan, (ii) in the case of
each Loan made following the Closing Date which results in an
increase in the Outstanding Obligations, describe the Scheduled
Expenses made by Borrower which are to be financed using the
proceeds of the requested Loan and attach photocopies of invoices
for such Scheduled Expenses, and (iii) in the case of any Scheduled
Expense for the purchase of New Equipment, attach a duly executed
Schedule to the Charles Town Operating Lease pursuant to which such
New Equipment has been accepted by the Charles Town Joint Venture,
as Lessee under the Charles Town Operating Lease. The amount of
each Loan made following the Closing Date which will result in an
increase in the amount of the Outstanding Obligations shall also be
subject to the conditions set forth in Section 8.2. Unless the
Administrative Agent has previously notified Borrower to the
contrary (which notice may be given in the sole and absolute
discretion of the Administrative Agent), Loans may be requested by
telephone by a Responsible Official of Borrower, in which case
Borrower shall confirm such request by promptly delivering a
Request for Loan in person or by telecopier conforming to the
preceding sentence to the Administrative Agent. Neither the
Administrative Agent nor any Lender shall incur any liability
whatsoever hereunder in acting upon any telephonic request for a
Loan purportedly made by a Responsible Official of Borrower, which
hereby agrees to indemnify the Administrative Agent and the Lenders
from any loss, cost, expense or liability as a result of so acting.
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(a) Promptly following receipt of a Request for Loan, the
Administrative Agent shall notify each Lender by telephone or
telecopier (and if by telephone, promptly confirmed by telecopier)
of the date and type of the Loan, the applicable Interest Period,
and that Lender's Pro Rata Share of the Loan. Not later than 11:00
a.m. on the date specified for any Loan, each Lender shall make its
Pro Rata Share of the Loan in immediately available funds available
to the Administrative Agent at the Administrative Agent's Office.
Upon satisfaction or waiver of the applicable conditions set forth
in Article 8, all Advances shall be credited on that date in
immediately available funds to the Disbursement Account for direct
use by Borrower for the purposes described in Section 5.9.
(a) Unless the Requisite Lenders otherwise consent, each Loan shall
be in an amount which is an integral multiple of $100,000 which is
not less than $500,000.
(a)The Advances made by each Lender shall be evidenced by that
Lender's Note.
(a) A Request for Loan shall be irrevocable upon the Administrative
Agent's receipt thereof (or, in the case of a telephonic request
for Loan referred to in the second sentence of Section 2.1(b), upon
the Administrative Agent's receipt of that telephone call).
(a) If no Request for Loan (or telephonic request for Loan referred
to in the second sentence of Section 2.1(b), if applicable) has
been made within the requisite notice periods set forth in Section
2.2 or 2.3 in connection with a Loan which, if made and giving
effect to the application of the proceeds thereof, would not
increase the outstanding principal Indebtedness evidenced by the
Notes, then Borrower shall be deemed to have requested, as of the
date upon which the related then outstanding Loan is due pursuant
to Section 3.1(e), a Base Rate Loan in an amount equal to the
amount necessary to cause the outstanding principal Indebtedness
evidenced by the Notes to remain the same and the Lenders shall
make the Advances necessary to make such Loan notwithstanding
Sections 2.1(b) and 2.2.
1.1 Base Rate Loans . Each request by Borrower for a Base Rate Loan shall be
made pursuant to a Request for Loan (or telephonic or other request for loan
referred to in the second sentence of Section 2.1(b), if applicable) received by
the Administrative Agent, at the Administrative Agent's Office, not later than
10:00 a.m. on the date (which must be the first Business Day of a month) of the
requested Base Rate Loan. All Loans shall constitute Base Rate Loans unless
properly designated as LIBOR Loans pursuant to Section 2.3.
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1.1 LIBOR Loans .
-----------
1.2
(a) Each request by Borrower for a LIBOR Loan shall be made
pursuant to a Request for Loan (or telephonic or other request for
Loan referred to in the second sentence of Section 2.1(b), if
applicable) received by the Administrative Agent, at the
Administrative Agent's Office, not later than 10:00 a.m. at least
three Market Days before the first day of the applicable Interest
Period.
(a) On the date which is two Market Days before the first day of
the applicable Interest Period, the Administrative Agent shall
confirm its determination of the applicable LIBOR (which
determination shall be conclusive in the absence of manifest error)
and promptly shall give notice of the same to Borrower and the
Lenders by telephone or telecopier (and if by telephone, promptly
confirmed by telecopier).
(a) Unless the Administrative Agent and the Requisite Lenders
otherwise consent, no more than three LIBOR Loans shall be
outstanding at any one time.
(a) No LIBOR Loan may be requested where a
Default or Event of Default has occurred and remains
continuing.
(a) Nothing contained herein shall require
any Lender to fund any LIBOR Advance in the Designated
Eurodollar Market.
1.1 Voluntary Reduction of Commitment . Borrower shall have the right, at any
time and from time to time prior to the Availability Date, without penalty or
charge, upon at least three Business Days' prior written notice by Borrower to
the Administrative Agent, to voluntarily reduce, permanently and irrevocably, in
amounts which are integral multiples of $1,000,000, or to terminate, all or a
portion of the then undisbursed portion of the Commitment. Concurrently with the
making of any such reduction in the Commitment, Borrower may specify that the
Reduction Amounts for one or more Reduction Dates will be reduced in an
aggregate amount which is the same as the amount of the reduction of the
Commitment, provided that in the absence of a timely specification to this
effect by Borrower, each such reduction shall be applied to Reduction Amounts in
the inverse order of their occurrence. The Administrative Agent shall promptly
notify the Lenders of any reduction or termination of the Commitment under this
Section, and of any changes to the Reduction Amounts.
1.2
1.3 Scheduled Reductions of Commitment . The Commitment shall automatically and
permanently reduce on each Reduction Date by the related Reduction Amount.
1.4
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1.5 Mandatory Reductions of Commitment . The Commitment shall permanently reduce
in the amount of any mandatory prepayments required pursuant to Section 3.1(f).
Any reduction of the Commitment pursuant to this Section 2.6 shall be in
addition to the scheduled reductions described in Section 2.5.
1.6
1.7 Administrative Agent's Right to Assume Funds Available for Advances . Unless
the Administrative Agent shall have been notified by a Lender no later than the
Business Day prior to the funding by the Administrative Agent of any Loan that
such Lender does not intend to make available to the Administrative Agent such
Lender's Pro Rata Share of that Loan, the Administrative Agent may assume that
such Lender has made such amount available to the Administrative Agent on the
date of the Loan and the Administrative Agent may, in reliance upon such
assumption, make available to Borrower a corresponding amount. If the
Administrative Agent has made funds available to Borrower based on such
assumption and such corresponding amount is not in fact made available to the
Administrative Agent by such Lender, the Administrative Agent shall be entitled
to recover such corresponding amount on demand from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent promptly shall notify Borrower and
Borrower shall pay such corresponding amount to the Administrative Agent. The
Administrative Agent also shall be entitled to recover from such Lender interest
on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to Borrower
to the date such corresponding amount is recovered by the Administrative Agent,
at a rate per annum equal to (a) the Federal Funds Rate for the first two days
following a demand by the Administrative Agent and (b) thereafter, the rate of
interest then payable by Borrower with respect to Base Rate Advances. Nothing
herein shall be deemed to relieve any Lender from its obligation to fulfill its
share of the Commitment or to prejudice any rights which the Administrative
Agent or Borrower may have against any Lender as a result of any default by such
Lender hereunder.
1.8
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Article PAYMENTS AND FEES
Article 3 PAYMENTS AND FEES
1.1 Principal and Interest .
----------------------
1.2
(a) Interest shall be payable on the outstanding daily unpaid
principal amount of each Advance from the date thereof until
payment in full is made and shall accrue and be payable at the
rates set forth or provided for herein before and after default,
before and after maturity, before and after judgment, and before
and after the commencement of any proceeding under any Debtor
Relief Law, with interest on overdue interest at the Default Rate
to the fullest extent permitted by applicable Laws.
(a) Interest accrued on each Base Rate Loan on each Quarterly
Payment Date, and on the date of any prepayment of the Notes
pursuant to Section 3.1(f) or Section 3.1(g), shall be due and
payable on that day. Except as otherwise provided in Section 3.6,
the unpaid principal amount of each Base Rate Loan shall bear
interest at a fluctuating rate per annum equal to the Base Rate
plus the Base Rate Margin. Each change in the interest rate under
this Section 3.1(b) due to a change in the Base Rate shall take
effect simultaneously with the corresponding change in the Base
Rate.
(a) Interest accrued on each LIBOR Loan which is for a term of
three months or less shall be due and payable on the last day of
the related Interest Period. Interest accrued on each other LIBOR
Loan shall be due and payable on the date which is three months
after the date such LIBOR Loan was made and on the last day of the
related Interest Period. Except as otherwise provided in Sections
3.1(d) and 3.6, the unpaid principal amount of any LIBOR Loan shall
bear interest at a rate per annum equal to the LIBOR for that LIBOR
Loan plus the LIBOR Margin.
(a) During the existence of a Default or Event of Default, the
Requisite Lenders may determine that any or all then outstanding
LIBOR Loans shall be converted to Base Rate Loans. Such conversion
shall be effective upon notice to Borrower from the Requisite
Lenders (or from the Administrative Agent on behalf of the
Requisite Lenders) and shall continue so long as such Default or
Event of Default continues to exist.
(a) If not sooner paid, the principal
Indebtedness evidenced by the Notes shall be payable as follows:
(i) the principal amount of each LIBOR Loan shall be
payable on the last day of the Interest Period for such
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Loan (provided that such principal amount may be paid
using the proceeds of a Base Rate Loan made pursuant to
Section 2.1(g));
(i) the amount, if any, by which the
Outstanding Obligations at any time exceed the
Commitment shall be payable immediately; and
(i) the principal Indebtedness
evidenced by the Notes shall in any event be payable on the
Maturity Date.
(a) The Notes shall be prepaid on or before the fifth Business Day
following the receipt by PNGI or any of its Subsidiaries of Net
Cash Proceeds from the sale, transfer or other disposition of any
Collateral.
(a) The Notes may, at any time and from time to time, voluntarily
be paid or prepaid in whole or in part without premium or penalty,
except that with respect to any voluntary prepayment under this
Section, (i) any partial prepayment shall be not less than $500,000
and in integral multiples of $100,000, (ii) the Administrative
Agent shall have received written notice of any prepayment by 10:00
a.m. on the Business Day immediately preceding the date of such
prepayment (which must be a Business Day) in the case of a Base
Rate Loan, and, in the case of a LIBOR Loan, three Market Days
before the date of prepayment, which notice shall identify the date
and amount of the prepayment and the Loans being prepaid, (iii)
each prepayment of principal shall be accompanied by payment of
interest accrued to the date of payment on the amount of principal
paid and (iv) any payment or prepayment of all or any part of any
LIBOR Loan on a day other than the last day of the applicable
Interest Period shall be subject to Section 3.5(d).
1.1 Facility Fees . On the Closing Date and on each anniversary of the Closing
Date, Borrower shall pay to the Administrative Agent a facility fee equal to
0.50% of the then effective Commitment (less any reduction thereto scheduled to
occur on the next succeeding December 31). The facility fees are for the ratable
account of the Lenders according to their Pro Rata Shares. The facility fees are
for the credit facilities provided to Borrower under this Agreement and are
nonrefundable.
1.2
1.3 Commitment Fees . From the Closing Date, Borrower shall pay to the
Administrative Agent, for the ratable accounts of the Lenders according to their
Pro Rata Shares, an unused commitment fee equal to the then applicable
Commitment Fee Rate per annum times the average daily amount by which (a) the
Commitment exceeds (b) the aggregate principal Indebtedness outstanding under
the Notes. Unused commitment fees shall be payable quarterly in arrears on each
Quarterly Payment Date, on the date of any termination of the Commitment, and on
the Maturity Date.
1.4
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1.5 Increased Commitment Costs . If any Lender shall determine in good faith
that the introduction after the Closing Date of any applicable law, rule,
regulation or guideline regarding capital adequacy, or any change therein or any
change in the interpretation or administration thereof by any central bank or
other Governmental Agency charged with the interpretation or administration
thereof, or compliance by such Lender (or its LIBOR Office) or any corporation
controlling the Lender, with any request, guideline or directive regarding
capital adequacy (whether or not having the force of law) of any such central
bank or other authority, affects or would affect the amount of capital required
or expected to be maintained by such Lender or any corporation controlling such
Lender and (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy and such Lender's desired return on
capital) determines in good faith that the amount of such capital is increased,
or the rate of return on capital is reduced, as a consequence of its obligations
under this Agreement, then, within ten Business Days after demand of such
Lender, Borrower shall pay to such Lender, from time to time as specified in
good faith by such Lender, additional amounts sufficient to compensate such
Lender in light of such circumstances, to the extent reasonably allocable to
such obligations under this Agreement. Each Lender's determination of such
amounts shall be conclusive in the absence of manifest error.
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1.1 LIBOR Costs and Related Matters .
-------------------------------
1.2
(a) If, after the date hereof, the existence
or occurrence of any Special LIBOR Circumstance:
(1) shall subject any Lender or its LIBOR Office to any
tax, duty or other charge or cost with respect to any
LIBOR Advance, any of its Notes evidencing LIBOR Loans or
its obligation to make LIBOR Advances, or shall change the
basis of taxation of payments to any Lender attributable
to the principal of or interest on any LIBOR Advance or
any other amounts due under this Agreement in respect of
any LIBOR Advance, any of its Notes evidencing LIBOR Loans
or its obligation to make LIBOR Advances, excluding, in
the case of each Lender, the Administrative Agent and each
Eligible Assignee, and any Affiliate or LIBOR Office
thereof, (i) taxes imposed on or measured in whole or in
part by its overall net income, gross income or gross
receipts or capital and franchise taxes imposed on it, by
(A) any jurisdiction (or political subdivision thereof) in
which it is organized or maintains its principal office or
LIBOR Office or (B) any jurisdiction (or political
subdivision thereof) in which it is "doing business"
(unless it would not be doing business in such
jurisdiction (or political subdivision thereof) absent the
transactions contemplated hereby), (ii) any withholding
taxes or other taxes based on gross income imposed by the
United States of America (other than withholding taxes and
taxes based on gross income resulting solely from or
attributable to any change in any law, rule or regulation
or any change in the interpretation or administration of
any law, rule or regulation by any Governmental Agency) or
(iii) any withholding taxes or other taxes based on gross
income imposed by the United States of America for any
period with respect to which it has failed to provide
Borrower with the appropriate form or forms required by
Section 11.21, to the extent such forms are then required
by applicable Laws;
(1) shall impose, modify or deem applicable any reserve
not applicable or deemed applicable on the date hereof
(including, without limitation, any reserve imposed by the
Board of Governors of the Federal Reserve System, but
excluding the Reserve Percentage taken into account in
calculating the LIBOR), special deposit, capital or
similar requirements against assets of, deposits with or
for the account of, or credit extended by, any Lender or
its LIBOR Office; or
(1) shall impose on any Lender or its LIBOR Office or the
Designated LIBOR Market any other condition affecting any
LIBOR Advance, any of its Notes evidencing LIBOR Loans,
its obligation to make LIBOR Advances or this Agreement,
or shall otherwise affect any of the same;
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and the result of any of the foregoing, as determined in good faith
by such Lender, increases the cost to such Lender or its LIBOR
Office of making or maintaining any LIBOR Advance or in respect of
any LIBOR Advance, any of its Notes evidencing LIBOR Loans or its
obligation to make LIBOR Advances or reduces the amount of any sum
received or receivable by such Lender or its LIBOR Office with
respect to any LIBOR Advance, any of its Notes evidencing LIBOR
Loans or its obligation to make LIBOR Advances (assuming such
Lender's LIBOR Office had funded 100% of its LIBOR Advance in the
Designated LIBOR Market), then, within five Business Days after
demand by such Lender (with a copy to the Administrative Agent),
Borrower shall pay to such Lender such additional amount or amounts
as will compensate such Lender for such increased cost or reduction
(determined as though such Lender's LIBOR Office had funded 100% of
its LIBOR Advance in the Designated LIBOR Market). Borrower hereby
indemnifies each Lender against, and agrees to hold each Lender
harmless from and reimburse such Lender within ten (10) Business
Days after demand for (without duplication) all costs, expenses,
claims, penalties, liabilities, losses, reasonable legal fees and
damages incurred or sustained by each Lender in connection with
this Agreement, or any of the rights, obligations or transactions
provided for or contemplated herein, as a direct result of the
existence or occurrence of any Special LIBOR Circumstance. A
statement of any Lender claiming compensation under this subsection
and setting forth in reasonable detail the additional amount or
amounts to be paid to it hereunder shall be conclusive in the
absence of manifest error. Each Lender agrees to endeavor promptly
to notify Borrower of any event of which it has actual knowledge,
occurring after the Closing Date, which will entitle such Lender to
compensation pursuant to this Section, and agrees to designate a
different LIBOR Office if such designation will avoid the need for
or reduce the amount of such compensation and will not, in the good
faith judgment of such Lender, otherwise be materially
disadvantageous to such Lender. If any Lender claims compensation
under this Section, Borrower may at any time, upon at least four
(4) Market Days' prior notice to the Administrative Agent and such
Lender and upon payment in full of the amounts provided for in this
Section through the date of such payment plus any prepayment fee
required by Section 3.5(d), pay in full the affected LIBOR Advances
of such Lender or request that such LIBOR Advances be converted to
Base Rate Advances.
(a) If, after the date hereof, the existence or occurrence of any
Special LIBOR Circumstance shall, in the good faith opinion of any
Lender, make it unlawful or impossible for such Lender or its LIBOR
Office to make, maintain or fund its portion of any LIBOR Loan, or
materially restrict the authority of such Lender to purchase or
sell, or to take deposits of, Dollars in the Designated LIBOR
Market, or to determine or charge interest rates based upon the
LIBOR, and such Lender shall so notify the Administrative Agent,
then such Lender's obligation to make LIBOR Advances shall be
suspended for the duration of such illegality or impossibility and
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the Administrative Agent forthwith shall give notice thereof to the
other Lenders and Borrower. Upon receipt of such notice, the
outstanding principal amount of such Lender's LIBOR Advances,
together with accrued interest thereon, automatically shall be
converted to Base Rate Advances with Interest Periods corresponding
to the LIBOR Loans of which such LIBOR Advances were a part on
either (1) the last day of the Interest Period(s) applicable to
such LIBOR Advances if such Lender may lawfully continue to
maintain and fund such LIBOR Advances to such day(s) or (2)
immediately if such Lender may not lawfully continue to fund and
maintain such LIBOR Advances to such day(s), provided that in such
event the conversion shall not be subject to payment of a
prepayment fee under Section 3.5(d). Each Lender agrees to endeavor
promptly to notify Borrower of any event of which it has actual
knowledge, occurring after the Closing Date, which will cause that
Lender to notify the Administrative Agent under this Section
3.5(b), and agrees to designate a different LIBOR Office if such
designation will avoid the need for such notice and will not, in
the good faith judgment of such Lender, otherwise be materially
disadvantageous to such Lender. In the event that any Lender is
unable, for the reasons set forth above, to make, maintain or fund
its portion of any LIBOR Loan, such Lender shall fund such amount
as a Base Rate Advance for the same period of time, and such amount
shall be treated in all respects as a Base Rate Advance. Any Lender
whose obligation to make LIBOR Advances has been suspended under
this Section 3.5(b) shall promptly notify the Administrative Agent
and Borrower of the cessation of the Special LIBOR Circumstance
which gave rise to such suspension.
(a) If, with respect to any proposed LIBOR Loan:
(1) the Administrative Agent reasonably determines that,
by reason of circumstances affecting the Designated LIBOR
Market generally that are beyond the reasonable control of
the Lenders, deposits in Dollars (in the applicable
amounts) are not being offered to any Lender in the
Designated LIBOR Market for the applicable Interest
Period; or
(1) the Requisite Lenders advise the Administrative Agent
that the LIBOR as determined by the Administrative Agent
(i) does not represent the effective pricing to such
Lenders for deposits in Dollars in the Designated LIBOR
Market in the relevant amount for the applicable Interest
Period, or (ii) will not adequately and fairly reflect the
cost to such Lenders of making the applicable LIBOR
Advances;
then the Administrative Agent forthwith shall give notice thereof
to Borrower and the Lenders, whereupon until the Administrative
Agent notifies Borrower that the circumstances giving rise to such
suspension no longer exist, the obligation of the Lenders to make
any future LIBOR Advances shall be suspended. If at the time of
such notice there is then pending a Request for Loan that specifies
a LIBOR Loan, such Request for Loan shall be deemed to specify a
Base Rate Loan.
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(a) Upon payment or prepayment of any LIBOR Advance (other than as
the result of a conversion required under Section 3.5(b)), on a day
other than the last day in the applicable Interest Period (whether
voluntarily, involuntarily, by reason of acceleration, or
otherwise), or upon the failure of Borrower (for a reason other
than the failure of a Lender to make an Advance) to borrow on the
date or in the amount specified for a LIBOR Loan in any Request for
Loan, Borrower shall pay to the appropriate Lender within ten (10)
Business Days after demand a prepayment fee or failure to borrow
fee, as the case may be (determined as though 100% of the LIBOR
Advance had been funded in the Designated LIBOR Market) equal to
the sum of:
(1) the principal amount of the LIBOR Advance prepaid or
not borrowed, as the case may be, times the number of days
between the date of prepayment or failure to borrow, as
applicable, and the last day in the applicable Interest
Period, divided by 360, times the applicable Interest
Differential (provided that the product of the foregoing
formula must be a positive number); plus
(1) all reasonable out-of-pocket expenses incurred by the
Lender reasonably attributable to such payment, prepayment
or failure to borrow.
Each Lender's determination of the amount of any prepayment fee
payable under this Section 3.5(d) shall be conclusive in the
absence of manifest error.
1.1 Late Payments . If any Event of Default occurs and remains continuing, the
Loans shall thereafter bear interest, to the fullest extent permitted by
applicable Laws at a fluctuating interest rate per annum at all times equal to
(a) with respect to any payment of principal or interest, 2% in excess of the
rate of interest otherwise payable or (b) with respect to all other amounts, the
sum of (i) the Base Rate plus (ii) the applicable Base Rate Margin plus (iii)
2%. Accrued and unpaid interest on past due amounts (including, without
limitation, interest on past due interest) shall be compounded monthly, on the
last day of each calendar month, to the fullest extent permitted by applicable
Laws.
1.2
1.3 Computation of Interest and Fees . Computation of interest on Base Rate
Loans shall be calculated on the basis of a year of 365 or 366 days, as the case
may be, and the actual number of days elapsed; computation of interest on LIBOR
Loans and all fees under this Agreement shall be calculated on the basis of a
year of 360 days and the actual number of days elapsed. Borrower acknowledges
that such latter calculation method will result in a higher yield to the Lenders
than a method based on a year of 365 or 366 days. Interest shall accrue on each
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Loan for the day on which the Loan is made; interest shall not accrue on a Loan,
or any portion thereof, for the day on which the Loan or such portion is paid.
Any Loan that is repaid on the same day on which it is made shall bear interest
for one day.
1.4
1.5 Non-Business Days . If any payment to be made by Borrower or any other
Obligor under any Loan Document shall come due on a day other than a Business
Day, payment shall instead be considered due on the next succeeding Business Day
and the extension of time shall be reflected in computing interest and fees.
1.1 Manner and Treatment of Payments .
--------------------------------
1.2
(a) Each payment hereunder (except payments pursuant to Sections
3.4, 3.5, 11.3, 11.11 and 11.22) or on the Notes or under any other
Loan Document shall be made to the Administrative Agent, at the
Administrative Agent's Office, for the account of each of the
Lenders or the Administrative Agent, as the case may be, in
immediately available funds not later than 11:00 a.m. on the day of
payment (which must be a Business Day). All payments received after
11:00 a.m. on any Business Day, shall be deemed received on the
next succeeding Business Day. The amount of all payments received
by the Administrative Agent for the account of each Lender shall be
immediately paid by the Administrative Agent to the applicable
Lender in immediately available funds and, if such payment was
received by the Administrative Agent by 11:00 a.m. on a Business
Day and not so made available to the account of a Lender on that
Business Day, the Administrative Agent shall reimburse that Lender
for the cost to such Lender of funding the amount of such payment
at the Federal Funds Rate. All payments shall be made in lawful
money of the United States of America.
(a) Each payment or prepayment on account of any Loan shall be
applied pro rata according to the outstanding Advances made by each
Lender comprising such Loan.
(a) Each Lender shall use its best efforts to keep a record of
Advances made by it and payments received by it with respect to
each of its Notes and, subject to Section 10.6(g), such record
shall, as against Borrower, be presumptive evidence of the amounts
owing. Notwithstanding the foregoing sentence, no Lender shall be
liable to any Obligor for any failure to keep such a record.
(a) Each payment of any amount payable by Borrower or any other
Obligor under this Agreement or any other Loan Document shall be
made free and clear of, and without reduction by reason of, any
taxes, assessments or other charges imposed by any Governmental
Agency, central bank or comparable authority, excluding, in the
case of each Lender, the Administrative Agent and each Eligible
Assignee, and any Affiliate or LIBOR Office thereof, (i) taxes
imposed on or measured in whole or in part by its overall net
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income, gross income or gross receipts or capital and franchise
taxes imposed on it, (ii) any withholding taxes or other taxes
based on gross income imposed by the United States of America
(other than withholding taxes and taxes based on gross income
resulting solely from or attributable to any change in any law,
rule or regulation or any change in the interpretation or
administration of any law, rule or regulation by any Governmental
Agency) or (iii) any withholding taxes or other taxes based on
gross income imposed by the United States of America for any period
with respect to which it has failed to provide Borrower with the
appropriate form or forms required by Section 11.21, to the extent
such forms are then required by applicable Laws (all such
non-excluded taxes, assessments or other charges being hereinafter
referred to as "Taxes"). To the extent that Borrower is obligated
by applicable Laws to make any deduction or withholding on account
of Taxes from any amount payable to any Lender under this
Agreement, Borrower shall (i) make such deduction or withholding
and pay the same to the relevant Governmental Agency and (ii) pay
such additional amount to that Lender as is necessary to result in
that Lender's receiving a net after-Tax amount equal to the amount
to which that Lender would have been entitled under this Agreement
absent such deduction or withholding. If and when receipt of such
payment results in an excess payment or credit to that Lender on
account of such Taxes, that Lender shall promptly refund such
excess to Borrower.
1.1 Funding Sources . Nothing in this Agreement shall be deemed to obligate any
Lender to obtain the funds for any Loan or Advance in any particular place or
manner or to constitute a representation by any Lender that it has obtained or
will obtain the funds for any Loan or Advance in any particular place or manner.
1.2
1.3 Failure to Charge Not Subsequent Waiver . Any decision by the Administrative
Agent or any Lender not to require payment of any interest (including interest
arising under Section 3.6), fee, cost or other amount payable under any Loan
Document, or to calculate any amount payable by a particular method, on any
occasion shall in no way limit or be deemed a waiver of the Administrative
Agent's or such Lender's right to require full payment of any interest
(including interest arising under Section 3.6), fee, cost or other amount
payable under any Loan Document, or to calculate an amount payable by another
method that is not inconsistent with this Agreement, on any other or subsequent
occasion.
1.4
1.5 Administrative Agent's Right to Assume Payments Will be Made by Borrower .
Unless the Administrative Agent shall have been notified by Borrower prior to
the date on which any payment to be made by Borrower hereunder is due that
Borrower does not intend to remit such payment, the Administrative Agent may, in
its discretion, assume that Borrower has remitted such payment when so due and
the Administrative Agent may, in its discretion and in reliance upon such
assumption, make available to each Lender on such payment date an amount equal
to such Lender's share of such assumed payment. If Borrower has not in fact
remitted such payment to the Administrative Agent, each Lender shall forthwith
on demand repay to the Administrative Agent the amount of such assumed payment
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made available to such Lender, together with interest thereon in respect of each
day from and including the date such amount was made available by the
Administrative Agent to such Lender to the date such amount is repaid to the
Administrative Agent at the Federal Funds Rate.
1.6
1.7 Fee Determination Detail . The Administrative Agent and each Lender shall
provide reasonable detail to Borrower regarding the manner in which the amount
of any payment of fees or costs to the Administrative Agent and the Lenders, or
that Lender, under Article 3 has been determined, concurrently with demand for
such payment.
1.8
1.9 Survival . All of Borrower's obligations under Sections 3.4, 3.5 and 11.22
shall survive for ninety days following the date on which the Commitment is
terminated, and all Loans hereunder are fully paid.
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Article REPRESENTATIONS AND WARRANTIES
Article 3 PRESENTATIONS AND WARRANTIES
Each of PNGI and Borrower represents and warrants to the
Creditors that:
1.1 Existence and Qualification; Power; Compliance With Laws . Borrower is a
corporation duly formed, validly existing and in good standing under the Laws of
West Virginia. PNGI is a corporation duly formed, validly existing and in good
standing under the Laws of Pennsylvania. Borrower and each other Obligor is duly
qualified or registered to transact business and is in good standing in each
other jurisdiction in which the conduct of its business or the ownership or
leasing of its Properties makes such qualification or registration necessary,
except where the failure so to qualify or register and to be in good standing
may not reasonably be expected to have Material Adverse Effect. Borrower and
each other Obligor has all requisite corporate or other organizational power and
authority to conduct its business, to own and lease its Properties and to
execute and deliver each Loan Document to which it is a party and to perform its
Obligations. All outstanding shares of the capital stock of Borrower and each
other Obligor are duly authorized and validly issued, fully paid and
non-assessable, and no holder thereof has any enforceable right of rescission
under any applicable state or federal securities Laws. PNGI and each Subsidiary
is in compliance with all Laws and other legal requirements applicable to its
business, has obtained all authorizations, consents, approvals, orders, licenses
and permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing from, any
Governmental Agency that are necessary for the transaction of its business,
except where the failure so to comply, file, register, qualify or obtain
exemptions may not reasonably be expected to have a Material Adverse Effect.
1.2
1.3 Authority; Compliance With Other Agreements and Instruments and Government
Regulations . The execution, delivery and performance of the Loan Documents by
PNGI, Borrower and each other Obligor have been duly authorized by all necessary
corporate action, and do not and will not:
1.4
(a) Require any consent or approval not heretofore obtained of any
director, stockholder, security holder or (in the case of any
Creditor except where the failure to obtain any such creditor's
consent may not reasonably be expected to have any Material Adverse
Effect) any creditor of such Obligor;
(a) Violate or conflict with any provision of
such Obligor's articles of incorporation or bylaws;
(a) Except to the extent contemplated by the Loan Documents, result
in or require the creation or imposition of any Lien or Right of
Others upon or with respect to any Property now owned or leased or
hereafter acquired by such Obligor;
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(a) Violate any Requirement of Law applicable
to such Obligor in any material respect;
(a) Result in a breach of or constitute a default under, or cause
or permit the acceleration of any obligation owed under, any
indenture or loan or credit agreement or any other Contractual
Obligation involving Property or obligations in excess of
$1,000,000 to which PNGI or any of its Subsidiaries is a party or
by which PNGI or any of its Subsidiaries or any of its Property is
bound or affected, including without limitation the 10 5/8%
Indenture and the PNGI Credit Agreement;
and neither PNGI, Borrower nor any of its Subsidiaries is in violation of, or
default under, any Requirement of Law or Contractual Obligation, or any
indenture, loan or credit agreement described in Section 4.2(e), in any respect
that may reasonably be expected to have a Material Adverse Effect. Without
limiting the foregoing provisions of this Section, Borrower represents and
warrants to the Lenders that each Loan made hereunder is a permissible "Purchase
Money Loan" or a permitted "Refinancing" of indebtedness as such terms are
defined in the 10 5/8% Indenture.
1.1 No Governmental Approvals Required . Except as previously obtained or made,
no material authorization, consent, approval, order, license or permit from, or
material filing, registration or qualification with, any Governmental Agency is
or will be required to authorize or permit under applicable Laws the execution,
delivery and performance by Borrower or any other Obligor of the Loan Documents
to which it is a party. All authorizations from, or filings with, any
Governmental Agency will be accomplished as of the Closing Date or such other
date.
1.2
1.3 Subsidiaries . As of the Closing Date, Borrower does not have any
Subsidiaries which are not described on Schedule 4.4 and, other than Borrower's
Investment in the Charles Town Joint Venture, Borrower does not own any capital
stock, equity interest or debt security which is convertible, or exchangeable,
for capital stock or equity interests in any Person.
1.4
1.5 Financial Statements . Borrower has furnished (a) the audited consolidated
and consolidating financial statements of PNGI and its Subsidiaries for the
Fiscal Year ended December 31, 1998, and (b) the unaudited consolidated and
consolidating financial statements of PNGI and its Subsidiaries for the nine
month fiscal period ended September 30, 1999, to the Administrative Agent and
the Lenders, which financial statements fairly present the financial condition,
results of operations and changes in financial position of PNGI and its
Subsidiaries as of such dates and for such periods in conformity with Generally
Accepted Accounting Principles, consistently applied.
1.6
1.7 No Material Adverse Effects . As of the Closing Date, no circumstance or
event has occurred that constitutes a Material Adverse Effect since December 31,
1998.
1.8
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1.9 Title to Property . On the Closing Date and on each subsequent date,
Borrower holds the lessor's interest under the Charles Town Operating Lease,
free and clear of all Liens and Rights of Others, other than Liens or Rights of
Others permitted by Section 6.8.
1.10
1.11 Intangible Assets . Each of PNGI and its Subsidiaries owns, or possesses
the right to use to the extent necessary in its respective business, all
material trademarks, trade names, copyrights, patents, patent rights, computer
software, licenses and other Intangible Assets which are used in the conduct of
its business as now operated, and no such Intangible Asset, to the best
knowledge of Borrower, conflicts with the valid trademark, trade name,
copyright, patent, patent right or Intangible Asset of any other Person to the
extent that such conflict may reasonably be expected to have a Material Adverse
Effect. Each registered patent, trademark or copyright owned by PNGI and its
Subsidiaries, or as to which any of them is a licensee, is described on Schedule
4.8.
1.12
1.13 Public Utility Holding Company Act . Neither PNGI nor any of its
Subsidiaries is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
1.14
1.15 Litigation . There are no actions, suits, proceedings or investigations
pending as to which PNGI or any of its Subsidiaries have been served or have
received notice or, to the best knowledge of Borrower, threatened against or
affecting PNGI or any of its Subsidiaries or any Property of any of them
(including the Real Property) before any Governmental Agency, which may
reasonably be expected to have a monetary impact which is in excess of
$1,000,000, and no such action, suit, proceeding or investigation may reasonably
be expected to have a Material Adverse Effect.
1.16
1.17 Binding Obligations . Each of the Loan Documents to which Borrower or any
other Obligor is a party will, when executed and delivered by such Obligor,
constitute the legal, valid and binding obligation of such Obligor, enforceable
against such Obligor in accordance with its terms, except as enforcement may be
limited by Debtor Relief Laws, Applicable Regulations or equitable principles
relating to the granting of specific performance and other equitable remedies as
a matter of judicial discretion.
1.18
1.19 No Default . No event has occurred and is
continuing that is a Default or Event of Default.
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1.1 ERISA .
-----
1.2
(a) With respect to each Pension Plan:
(i) such Pension Plan complies in all material respects
with ERISA and any other applicable Laws to the extent
that noncompliance may reasonably be expected to have a
Material Adverse Effect;
(i) such Pension Plan has not incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA)
that may reasonably be expected to have a Material Adverse
Effect;
(i) no "reportable event" (as defined
in Section 4043 of ERISA) has occurred that may
reasonably be expected to have a Material Adverse Effect;
and
(i) neither PNGI nor any of its Subsidiaries has engaged
in any non-exempt "prohibited transaction" (as defined in
Section 4975 of the Code) that may reasonably be expected
to have a Material Adverse Effect.
(a) Neither PNGI nor any of its Subsidiaries has incurred or
expects to incur any withdrawal liability to any Multiemployer Plan
that may reasonably be expected to have a Material Adverse Effect.
1.1 Regulations T, U and X; Investment Company Act . No part of the proceeds of
any Loan hereunder will be used to purchase or carry, or to extend credit to
others for the purpose of purchasing or carrying, any Margin Stock in violation
of Regulations T, U and X. Neither PNGI nor any of its Subsidiaries is or is
required to be registered as an "investment company" under the Investment
Company Act of 1940.
1.2
1.3 Disclosure . No statement made by Borrower or any of its Affiliates to the
Administrative Agent or any Lender in connection with this Agreement, or in
connection with any Loan, as of the date thereof contained any untrue statement
of a material fact or omitted a material fact necessary to make the statement
made not misleading in light of all the circumstances existing at the date the
statement was made.
1.4
1.5 Tax Liability . PNGI and its Subsidiaries have filed all tax returns which
are required to be filed, and have paid, or made provision for the payment of,
all taxes with respect to the periods, Property or transactions covered by said
returns, or pursuant to any assessment received by PNGI or any of its
Subsidiaries, except (a) such taxes, if any, as are being contested in good
faith by appropriate proceedings and as to which adequate reserves have been
established and maintained and (b) immaterial taxes so long as no material item
or portion of Property of PNGI or any of its Subsidiaries is in jeopardy of
being seized, levied upon or forfeited.
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1.6
1.7 Projections . As of the Closing Date, to the best knowledge of Borrower, the
assumptions set forth in the Projections are reasonable and consistent with each
other and with all facts known to Borrower, and the Projections are reasonably
based on such assumptions. Nothing in this Section shall be construed as a
representation or covenant that the Projections in fact will be achieved.
1.8
1.9 Hazardous Materials . Except as would not individually or in the aggregate
have a Material Adverse Effect, (a) to the best knowledge of Borrower, none of
PNGI nor any of its Subsidiaries nor any of their affiliated predecessors in
interest at any time has disposed of, discharged, released or threatened the
release of any Hazardous Materials on, from or under any Real Property in
violation of any Hazardous Materials Law, (b) to the best knowledge of Borrower,
no condition exists that violates any Hazardous Material Law affecting any Real
Property, (c) to the best knowledge of Borrower, no Real Property nor any
portion thereof is or has been utilized by PNGI or any of its Subsidiaries as a
site for the manufacture of any Hazardous Materials and (d) to the extent that
any Hazardous Materials are used, generated or stored by PNGI or any of its
Subsidiaries on any Real Property, or transported to or from any Real Property,
such use, generation, storage and transportation are in compliance in all
material respects with all Hazardous Materials Laws.
1.10
1.11 Applicable Regulations . PNGI and its Subsidiaries are in compliance in all
material respects with all Applicable Regulations that are applicable to them.
1.12
1.13 Security Interests . Upon the execution and delivery thereof, each of the
Security Agreement will create valid security interests in the Collateral
described therein securing the Obligations, and all action necessary to perfect
the security interests so created , other than filing of the UCC-1 financing
statements delivered to the Administrative Agent pursuant to Section 8.1 with
the appropriate Governmental Agency, shall have been taken and completed to the
fullest extent that such Liens may be perfected by filing. Upon the making of
such filings, the security interests granted to the Administrative Agent by the
Security Agreement will be perfected and of first priority, subject only to the
matters disclosed on Schedule 6.8 or permitted by Section 6.8(e) and (f), to the
fullest extent that such Liens may be perfected by filing.
1.14
1.15 Year 2000 Compliance . PNGI and its Subsidiaries have reviewed the effect
of the Year 2000 Issue on the computer software, hardware and firmware systems
and equipment containing embedded microchips owned or operated by or for PNGI
and its Subsidiaries. The costs to PNGI and its Subsidiaries of any
reprogramming required as a result of the Year 2000 Issue to permit the proper
functioning of such systems and equipment and the proper processing of data, and
the testing of such reprogramming, and of required systems changes are not
reasonably expected to result in a Default or a Material Adverse Effect.
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1.16
1.17 Solvency . After giving effect to this Agreement and the other Loan
Documents (including after giving effect to Advances under this Agreement as of
the Closing Date), Borrower shall be Solvent.
1.18
1.19 The Schedules . (a) Schedule 1.1 correctly lists by serial number the
G-Tech Equipment, all of which is owned by Borrower and in the possession of the
Charles Town Joint Venture at the Charles Town Facility pursuant to the Charles
Town Operating Lease. As of the Closing Date, all of the New Equipment listed on
Schedule 1.2 (other than that described as "1500 CDS Player Tracking System,"
"700 Coin Conversion Kits," "Casino Signage" and a portion of the "Count Room
Equipment") is owned by Borrower and in the possession of the Charles Town Joint
Venture at the Charles Town Facility pursuant to the Charles Town Operating
Lease, and Borrower has made each of the expenditures listed on Schedule 1.2
under the column headed "Paid as of December 13, 1999."
1.20
1.21 (b) As of each date subsequent to the Closing Date, all such New Equipment,
and any additional New Equipment delivered following the Closing Date is owned
by Borrower and in the possession of the Charles Town Joint Venture at the
Charles Town Facility pursuant to the Charles Town Operating Lease.
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Article AFFIRMATIVE COVENANTS(OTHER THAN INFORMATION ANDREPORTING REQUIREMENTS)
Article AFFIRMATIVE COVENANTS(OTHER THAN INFORMATION
--------------------- ------------------------------------------------
--------------------- ----------------------
AND1 REPORTING REQUIREMENTS)(OTHER THAN INFORMATION AND
1 REPORTING REQUIREMENTS) ------------------------
So long as any Advance remains unpaid, or any other Obligation
remains unpaid or unperformed, or any portion of the Commitment remains in
force, PNGI and Borrower shall, and each shall cause each of its Subsidiaries
and each other Obligor to, unless the Administrative Agent (with the written
approval of the Requisite Lenders) otherwise consents:
1.1 Payment of Taxes and Other Potential Liens . Pay and discharge promptly all
taxes, assessments and governmental charges or levies imposed upon any of them,
upon their respective Property or any part thereof and upon their respective
income or profits or any part thereof, except that PNGI and its Subsidiaries
shall not be required to pay or cause to be paid (a) any tax, assessment, charge
or levy that is not yet past due, or is being contested in good faith by
appropriate proceedings so long as the relevant entity has established and
maintains adequate reserves for the payment of the same or (b) any immaterial
tax so long as no material item or portion of Property of PNGI or any of its
Subsidiaries is in jeopardy of being seized, levied upon or forfeited.
1.2
1.3 Preservation of Existence . Preserve and maintain their respective
existences in the jurisdiction of their formation and all material
authorizations, rights, franchises, privileges, consents, approvals, orders,
licenses, permits, or registrations from any Governmental Agency that are
necessary for the transaction of their respective business, except where the
failure to so preserve and maintain the existence of any Subsidiary or such
authorizations would not constitute a Material Adverse Effect; and qualify and
remain qualified to transact business in each jurisdiction in which such
qualification is necessary in view of their respective business or the ownership
or leasing of their respective Properties except where the failure to so qualify
or remain qualified would not constitute a Material Adverse Effect. Borrower
shall at all times be a Wholly-Owned Subsidiary of PNGI.
1.4
1.5 Maintenance of Properties . Maintain, preserve and protect all of their
respective depreciable Properties in good order and condition, subject to wear
and tear in the ordinary course of business, and not permit any waste or
unreasonable deterioration of their respective Properties, except that the
failure to maintain, preserve and protect a particular item of depreciable
Property that is not of significant value, either intrinsically or to the
operations of PNGI and its Subsidiaries, taken as a whole, shall not constitute
a violation of this covenant.
1.1 Maintenance of Insurance . Maintain liability, casualty and other insurance
(subject to customary deductibles and retentions) with responsible insurance
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companies in such amounts and against such risks as is carried by responsible
companies engaged in similar businesses and owning similar assets in the general
areas in which PNGI and its Subsidiaries operate.
1.2
1.3 Compliance With Laws . Comply, within the time period, if any, given for
such compliance by the relevant Governmental Agency or Agencies with enforcement
authority, with all Requirements of Law noncompliance with which constitutes a
Material Adverse Effect, except that PNGI and its Subsidiaries need not comply
with a Requirement of Law then being contested in good faith by appropriate
proceedings.
1.4
1.5 Inspection Rights Borrower shall permit the Administrative Agent or any
Lender, or any authorized employee, agent or representative thereof, to examine,
audit and make copies and abstracts from the records and books of account of,
and to visit and inspect the Properties of, Borrower and its Subsidiaries and to
discuss the affairs, finances and accounts of Borrower and its Subsidiaries with
any of their officers, key employees or accountants. All rights of the
Administrative Agent and the Lenders under this Section may be exercised upon
reasonable advance notice and at any time during regular business hours and as
often as reasonably requested (but not so as to materially interfere with the
business of Borrower or any of its Subsidiaries). The costs of all such
monitoring, examining, auditing and inspection by and at the requests of the
Administrative Agent or any Lender shall be borne by the Borrower.
1.6
1.7 Keeping of Records and Books of Account . Keep adequate records and books of
account reflecting all financial transactions in conformity with Generally
Accepted Accounting Principles, consistently applied, and in material conformity
with all applicable requirements of any Governmental Agency having regulatory
jurisdiction over PNGI or any of its Subsidiaries.
1.8
1.9 Compliance With Agreements . Promptly and fully comply with all Contractual
Obligations under all material agreements, indentures, leases and/or instruments
to which any one or more of them is a party, whether such material agreements,
indentures, leases or instruments are with a Lender or another Person, except
for any such Contractual Obligations (a) the performance of which would cause a
Default or (b) then being contested by any of them in good faith by appropriate
proceedings or if the failure to comply with such agreements, indentures, leases
or instruments does not constitute a Material Adverse Effect.
1.10
1.11 Use of Proceeds . Use the proceeds of the Loans solely (a) to refinance the
purchase money indebtedness of PNGI incurred in connection with PNGI's purchase
of the video lottery terminals and other gaming equipment the ownership of which
is to be transferred to Borrower as of the Closing Date and which are the
subject of the Charles Town Operating Lease and (b) to finance the purchase
price of the New Equipment and the costs of the installation thereof in the
Charles Town Facility, and related construction and improvement associated with
the Charles Town Facility Expansion pursuant to transactions which qualify as
purchase money Indebtedness pursuant to Section 4.17 of the 10 5/8% Indenture
and which are Scheduled Expenses.
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1.12
1.13 Hazardous Materials Laws . Keep and maintain all Real Property and each
portion thereof in compliance in all material respects with all applicable
Hazardous Materials Laws and promptly notify the Administrative Agent in writing
(attaching a copy of any pertinent written material) of (a) any and all material
enforcement, cleanup, removal or other governmental or regulatory actions
instituted, completed or threatened in writing by a Governmental Agency pursuant
to any applicable Hazardous Materials Laws with regard to the Real Property, (b)
any and all material claims made or threatened in writing by any Person against
PNGI or any of its Subsidiaries relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials with regard
to the Real Property, and (c) any Senior Officer of Borrower receives written
notice or other clear evidence of any material occurrence or condition on any
real property adjoining or in the vicinity of such Real Property and affecting
the Real Property that may reasonably be expected to cause such Real Property or
any part thereof to be subject to any restrictions on the ownership, occupancy,
transferability or use of such Real Property under any applicable Hazardous
Materials Laws.
1.14
1.15 Year 2000. Borrower shall use its best efforts to promptly make, and to
cause PNGI and each of its Subsidiaries to make, all required systems changes in
computer software, hardware and firmware systems and equipment containing
embedded microchips owned or operated by or for PNGI and its Subsidiaries
required as a result of the Year 2000 Issue to permit the proper functioning of
such computer systems and other equipment, except to the extent that the failure
to take any such action would not reasonably be expected to result in a Default
or a Material Adverse Effect. At the request of any Lender, Borrower shall
provide, and shall cause PNGI and each of its Subsidiaries to provide, to such
Lender reasonable assurance of its compliance with the preceding sentence.
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Article NEGATIVE COVENANTSArticle 3 NEGATIVE COVENANTS
So long as any Advance remains unpaid, or any other Obligation
remains unpaid or unperformed, or any portion of the Commitment remains in
force, PNGI and Borrower shall not, and each shall not permit any of its
Subsidiaries or any other Obligor to, unless the Administrative Agent (with the
written approval of the Requisite Lenders or, if required by Section 11.2, of
all of the Lenders) otherwise consents:
1.1 Prepayment of Indebtedness . Other than as to the Obligations and revolving
payments with respect to the PNGI Credit Agreement, prepay any principal or
interest on any Indebtedness of PNGI or any of its Subsidiaries prior to the
date when due, or make any payment or deposit with any Person that has the
effect of providing for the satisfaction of any Indebtedness of PNGI or any of
its Subsidiaries prior to the date when due, in each case if a Default or Event
of Default then exists or would result therefrom.
1.2
1.3 Payment of Subordinated Obligations . Prepay any principal (including
sinking fund payments) or any other amount with respect to any Subordinated
Obligation, or purchase or redeem any Subordinated Obligation except for
regularly scheduled payments of interest with respect to Subordinated
Obligations, to the extent permitted by the subordination provisions thereof.
1.4
1.5 Hostile Tender Offers . Make any offer to purchase or acquire, or consummate
a purchase or acquisition of, 5% or more of the capital stock of any corporation
or other business entity if the board of directors or management of such
corporation or business entity has notified PNGI or any of its Subsidiaries that
it opposes such offer or purchase and such notice has not been withdrawn or
superseded.
1.1 Mergers, Sales of Assets, Etc . Wind up, liquidate or dissolve its affairs
or enter into any transaction of merger or consolidation, or convey, sell, lease
or otherwise dispose of all or any part of its property or assets, or enter into
any sale-leaseback transactions, or purchase or otherwise acquire (in one or a
series of related transactions) any part of the property or assets (other than
purchases or other acquisitions of inventory, materials and equipment in the
ordinary course of business) of any Person (or agree to do any of the foregoing
at any future time), except that, (i) to the extent that no Default or Event of
Default exists or would result therefrom, and (ii) as a result thereof, no
Change of Control or Significant Transaction has occurred, PNGI and its
Subsidiaries may:
(a) make Capital Expenditures permitted by Section 6.17;
(b) sell assets (other than the capital stock of any
Subsidiary, the Collateral, or the equity interest in the Charles
Town Joint Venture) in an arm's-length transaction in which (i)
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PNGI or any of its Subsidiaries, as applicable, receives at least
fair market value (as determined in good faith by PNGI or such
Subsidiary of PNGI), (ii) at least 85% of the total consideration
received by PNGI or any of its Subsidiaries, as applicable, is cash
and is paid at the time of the closing of such sale, and (iii) the
aggregate amount of the proceeds received from all assets sold
during any Fiscal Year does not exceed $3,000,000;
(c) make Investments to the extent permitted by Section 6.18;
(d) lease (as lessee) real or personal property (so long as any
such lease does not create a Capitalized Lease Obligation except to
the extent permitted by Section 6.14);
(e) make sales of inventory in the ordinary course of business;
(f) sell obsolete or worn-out equipment or materials in the
ordinary course of business;
(g) grant leases or subleases to other Persons of Property other
than the Collateral;
(h) in the ordinary course of business, license, as licensor or
licensee, patents, trademarks, copyrights and know-how to and/or from
third Persons; and
(i) Except for mergers involving Borrower and the Charles Town
Joint Venture, merge with PNGI or any other Wholly-Owned Subsidiary.
1.1 Distributions . Make any Distribution, whether from
capital, income or otherwise, and whether in Cash or
-------------
other Property, other than:
----- ----
1.2
(a) Distributions from any Subsidiary of
Borrower to Borrower or from any Subsidiary of PNGI to PNGI;
and
(a) Distributions payable solely in capital stock of PNGI of the
same class as that to which such Distributions are payable.
1.1 ERISA . (a) At any time, permit any Pension Plan to: (i) engage in any
non-exempt "prohibited transaction" (as defined in Section 4975 of the Code);
(ii) fail to comply with ERISA or any other applicable Laws; (iii) incur any
material "accumulated funding deficiency" (as defined in Section 302 of ERISA);
or (iv) terminate in any manner, which, with respect to each event listed above,
may reasonably be expected to result in a Material Adverse Effect, or (b)
withdraw, completely or partially, from any Multiemployer Plan if to do so may
reasonably be expected to result in a Material Adverse Effect.
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1.2
1.3 Change in Nature of Business . Engage (directly or indirectly) in any
business other than the businesses in which PNGI and its Subsidiaries are
engaged in as of the date hereof and reasonable extensions thereof, it being
understood and agreed that, except as provided below, in no event shall PNGI or
any of its Subsidiaries engage in any business or enter into any agreement which
requires PNGI or any of its Subsidiaries to make any payments under Section 4 of
the Plains Company Acquisition Agreement; provided, however, PNGI and its
Subsidiaries may operate slot machines at the Penn National Race Track, the
Pocono Downs Race Track and at any Non-Primary Location (as defined in the PNGI
Credit Agreement) operated by PNGI and its Subsidiaries and may make the
required payments pursuant to Section 4 of the Plains Company Acquisition
Agreement in connection therewith.
1.4
1.5 Liens and Negative Pledges . Create, incur, assume or suffer to exist any
Lien or Negative Pledge upon or with respect to any property or assets (real or
personal, tangible or intangible) of PNGI or any of its Subsidiaries whether now
owned or hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable with recourse to PNGI or any
of its Subsidiaries), or assign any right to receive income or permit the filing
of any financing statement under the Uniform Commercial Code or any other
similar notice of Lien under any similar recording or notice statute; provided
that the provisions of this Section shall not prevent the creation, incurrence,
assumption or existence of the following (Liens described below are herein
referred to as "Permitted Liens"):
1.6
(a) the Liens and Negative Pledges under the Security
Agreement;
(b) Liens expressly permitted under the PNGI Credit Agreement
(as in effect on the date of this Agreement) including any
refinancings thereof permitted thereby, provided that no Liens or
Negative Pledges on the Collateral other than those in favor of the
Administrative Agent and the Lenders under this Agreement shall be
permitted.
1.1 Indebtedness . Contract, create, incur, assume or
suffer to exist any Indebtedness, except:
------------
1.2
(a) Indebtedness incurred pursuant to this Agreement
and the PNGI Credit Agreement (but not refinancings
thereof); and
(b) Indebtedness outstanding on January 28, 1999 and listed on
Schedule 6.9, without giving effect to any subsequent extension,
renewal or refinancing thereof except to the extent set forth on
Schedule 6.9, provided that the aggregate principal amount of the
Indebtedness to be extended, renewed or refinanced does not
increase from that amount outstanding at the time of any such
extension, renewal or refinancing; and
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(c) Indebtedness permitted by the PNGI Credit Agreement
as in effect on the date of this Agreement;
Notwithstanding anything to the contrary contained in this Section or in Section
6.8 until such time as the Charles Town Joint Venture is a Wholly-Owned
Subsidiary of PNGI, Borrower shall not permit the Charles Town Joint Venture to
incur any Indebtedness other than existing Indebtedness of the Charles Town
Joint Venture which is also listed on Schedule 6.9, it being understood that
this prohibition shall extend to the making of any intercompany loans to the
Charles Town Joint Venture.
1.1 Contingent Obligations . Guarantee or assume to agree to become liable in
any way, either directly or indirectly, for any additional Indebtedness or
liabilities of others except to endorse checks or drafts in the ordinary course
of business, or otherwise assume any Contingent Obligation.
1.2
1.3 New Subsidiaries . Permit PNGI or any of its Subsidiaries to establish,
create or acquire any Subsidiary without the consent of the Administrative Agent
and the Requisite Lenders.
1.4
1.5 Transactions with Affiliates . Enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of PNGI or any of its Subsidiaries, other than in the ordinary
course of business and on terms and conditions substantially as favorable to
PNGI or such Subsidiary of PNGI as would reasonably be obtained by PNGI or such
Subsidiary of PNGI at that time in a comparable arm's-length transaction with a
Person other than an Affiliate, except that the following in any event shall be
permitted:
1.6
(i) Distributions may be paid to the extent provided in
Section 6.5;
(i) loans may be made and other transactions may be entered
into by PNGI and each Subsidiary
of PNGI to the extent permitted by Sections 6.4, 6.9 and 6.17;
(i) customary fees may be paid to non-officer directors of
PNGI and its Subsidiaries; and
(i) the Subsidiaries of PNGI may pay management fees to PNGI.
1.1 Leverage Ratio . Permit the Leverage Ratio as of the last day of any Fiscal
Quarter described in the matrix set forth below, to exceed the ratio set forth
opposite that Fiscal Quarter:
1.2
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1.3 Fiscal Quarters Ending Maximum Ratio
1.4
1.5 Closing Date through
1.6 December 31, 1999 4.00:1.00
1.7
1.8 March 31, 2000 through
1.9 December 31, 2000 3.50:1.00
1.10
1.11 Thereafter 3.00:1.00
1.12
1.13 Leases . Permit the aggregate payments (including, without limitation, any
property taxes paid as additional rent or lease payments) made by PNGI and each
of PNGI's Subsidiaries on a consolidated basis under all agreements to rent or
lease any real or personal property (or any extension or renewal thereof)
(excluding Capital Lease Obligations) to exceed $1,600,000 during any Fiscal
Year.
1.14
1.15 Consolidated Cash Interest Coverage Ratio . Permit the Consolidated Cash
Interest Coverage Ratio as of the last day of any Fiscal Quarter to be less than
3.00:1.00.
1.16
1.17 Consolidated Net Worth . Permit Consolidated Net Worth, as of the last day
of any Fiscal Quarter, to be less than the sum of (i) $53,856,000 plus (ii) 50%
of Consolidated Net Income (without reduction for any net loss in any Fiscal
Quarter) for the period from January 1, 1999 through and including the last day
of such Fiscal Quarter, plus (iii) 75% of Net Equity Proceeds received by PNGI
or any of its Subsidiaries during the period from January 1, 1999 through and
including the last day of such Fiscal Quarter.
1.18
1.19 Capital Expenditures .
--------------------
1.20
(i) Make or commit to make any Capital
Expenditure during any Fiscal Year other than Capital
Expenditures in an aggregate amount that do not exceed the
amount indicated below for the applicable Fiscal Year:
Fiscal Year Ending Maximum Amount
December 31, 1999 $15,000,000
December 31, 2000 $24,000,000
December 31, 2001 $20,000,000
December 31, 2002 $10,000,000
(ii) In addition to the foregoing, the
Borrower and its Subsidiaries may make Capital
Expenditures with the amount of any insurance proceeds
received by the Borrower or its Subsidiaries from any
casualty insurance policy with respect to any Property,
provided that such insurance proceeds are used to finance
the purchase of similar Property within the 270 day period
following their receipt.
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1.1 Acquisitions and Investments . Make any Acquisition or make any Investment
other than Acquisitions and Investments permitted by Section 8.05 of the PNGI
Credit Agreement which do not constitute Significant Transactions.
1.2
1.3 Amendments to Joint Venture Agreement and Charles Town Operating Lease .
Amend, modify or change the Charles Town Joint Venture Agreement or Charles Town
Operating Lease, other than any such amendment, modification or change which
could not reasonably be expected to be adverse to the interests of the Lenders
in any material respect (it being understood and agreed, however, that in any
event PNGI or a Wholly-Owned Subsidiary thereof shall at all times be the
managing member of the Charles Town Joint Venture and shall own at least 89% of
the equity interest therein).
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Article INFORMATION AND REPORTING REQUIREMENTS
Article 3 INFORMATION AND
REPORTING REQUIREMENTS
- -------------------------------------- ----------------------------------------
1.1 Financial and Business Information . So long as any Advance remains unpaid,
or any other Obligation remains unpaid or unperformed, or any portion of the
Commitment remains in force, PNGI and Borrower shall, unless the Administrative
Agent (with the written approval of the Requisite Lenders) otherwise consents,
at their sole expense, deliver to the Administrative Agent, a sufficient number
of copies for all of the Lenders, of the following:
1.2
(a) Within 35 days after the end of each fiscal month of PNGI, the
consolidated and consolidating balance sheet of PNGI and its
Subsidiaries as at the end of such fiscal month and the related
consolidated and consolidating statements of income and retained
earnings and statement of cash flows for such fiscal month and for
the elapsed portion of the fiscal year ended with the last day of
such fiscal month, in each case setting forth comparative figures
for the corresponding fiscal month in the prior fiscal year and
comparable budgeted figures for such fiscal month;
(a) Within 50 days after the close of the first three quarterly
accounting periods in each fiscal year of PNGI, (i) the
consolidated and consolidating balance sheets of PNGI and its
Subsidiaries as at the end of such quarterly accounting period and
the related consolidated and consolidating statements of income and
retained earnings and statement of cash flows for such quarterly
accounting period and for the elapsed portion of the fiscal year
ended with the last day of such quarterly accounting period, in
each case setting forth comparative figures for the related periods
in the prior fiscal year, all of which shall be certified by the
Chief Financial Officer of PNGI, subject to normal year-end audit
adjustments and (ii) management's discussion and analysis of the
important operational and financial developments during the
quarterly and year-to-date periods;
(a) Within 95 days after the close of each fiscal year of PNGI, (i)
the consolidated and consolidating balance sheets of PNGI and its
Subsidiaries as at the end of such fiscal year and the related
consolidated and consolidating statements of income and retained
earnings and of cash flows for such fiscal year setting forth
comparative figures for the preceding fiscal year and certified, in
the case of the consolidated financial statements, by BDO Seidman,
LLP or such other independent certified public accountants of
recognized national standing reasonably acceptable to the
Administrative Agent, together with a report of such accounting
firm stating that in the course of its regular audit of the
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financial statements of PNGI and its Subsidiaries, which audit was
conducted in accordance with generally accepted auditing standards,
such accounting firm obtained no knowledge of any Default or an
Event of Default which has occurred and is continuing or, if in the
opinion of such accounting firm such a Default or Event of Default
has occurred and is continuing, a statement as to the nature
thereof and in the case of the consolidating financial statements,
by the Chief Financial Officer of PNGI and (ii) management's
discussion and analysis of the important operational and financial
developments during the respective fiscal year.
(a) Promptly after PNGI's or any of its Subsidiaries' receipt
thereof, a copy of any "management letter" received from its
certified public accountants and management's response thereto.
(a) No later than thirty days following the first day of each
fiscal year of PNGI, a budget in form satisfactory to the
Administrative Agent (including budgeted statements of income and
sources and uses of cash and balance sheets) prepared by PNGI for
each of the months of such fiscal year prepared in detail;
(a) Promptly after request by the Administrative Agent or any
Lender, copies of any detailed audit reports, management letters or
recommendations submitted to PNGI by independent accountants in
connection with the accounts or books of PNGI or any of its
Subsidiaries, or any audit of any of them;
(a) Promptly after the filing or delivery thereof, copies of all
financial information, proxy materials and reports, if any, which
PNGI or any of its Subsidiaries shall publicly file with the
Securities and Exchange Commission or its Successors or deliver to
holders of its Indebtedness pursuant to the terms of the
documentation governing such Indebtedness (or any trustee, agent or
other representative therefor);
(a) Promptly after the same are available, copies of any written
communication to PNGI, Borrower or any other Subsidiary of PNGI
from any Regulatory Board advising it of a violation of or
non-compliance with any Applicable Regulation by PNGI, Borrower or
any other Subsidiary of PNGI;
(a) Notice in writing within 30 days after any
change of PNGI's or Borrower's senior management
personnel;
(a) Promptly after an officer of any Credit Party obtains knowledge
thereof, notice of one or more of the following environmental
matters, unless such environmental matters could not, individually
or when aggregated with all other such environmental matters, be
reasonably expected to materially and adversely affect the
business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of PNGI and its Subsidiaries
taken as a whole:
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(i) any pending or threatened Environmental Claim against PNGI or any of its
Subsidiaries or any Real Property owned or operated by PNGI or any of its
Subsidiaries;
(i) any condition or occurrence on or arising from any
Real Property owned or operated by PNGI or any of its
Subsidiaries that (a) results in noncompliance by PNGI or
any of its Subsidiaries with any applicable Environmental
Law or (b) could be expected to form the basis of an
Environmental Claim against PNGI or any of its
Subsidiaries or any such Real Property;.
(i) any condition or occurrence on any Real Property owned
or operated by PNGI or any of its Subsidiaries that could
be expected to cause such Real Property to be subject to
any restrictions on the ownership, occupancy, use or
transferability by PNGI or any of its Subsidiaries of such
Real Property under any Environmental Law; and
(i) the taking of any removal or remedial action in
response to the actual or alleged presence of any
Hazardous Material on any Real Property owned or operated
by PNGI or any of its Subsidiaries as required by any
Environmental Law or any governmental or other
administrative agency; provided, that in any event PNGI
shall deliver to each Lender all notices received by PNGI
or any of its Subsidiaries from any government or
governmental agency under, or pursuant to, CERCLA which
identify PNGI or any of its Subsidiaries as potentially
responsible parties for remediation costs or which
otherwise notify PNGI or any of its Subsidiaries of
potential liability under CERCLA.
All such notices shall describe in reasonable detail the nature of
the claim, investigation, condition, occurrence or removal or
remedial action and PNGI's or such Subsidiary's response thereto.
(a) Promptly after (i) PNGI or any of its Subsidiaries receives any
correspondence or other written communication from any Regulatory
Board (other than correspondence relating to routine operating
matters of PNGI or any of its Subsidiaries in the ordinary course
of business) or (ii) PNGI or any of its Subsidiaries delivers any
correspondence or other written communication to any Regulatory
Board (other than correspondence relating to routine operating
matters of PNGI or any of its Subsidiaries), PNGI shall deliver
copies of any such correspondence or other written communication to
each of the Lenders;
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(a) Promptly after request by the Administrative Agent or any
Lender, copies of any other material report or other document that
was filed by PNGI or any of its Subsidiaries with any Governmental
Agency;
(a) Promptly, and in any event within ten Business Days upon a
Senior Officer becoming aware, of the occurrence of any (i)
"reportable event" (as such term is defined in Section 4043 of
ERISA) or (ii) "prohibited transaction" (as such term is defined in
Section 406 of ERISA or Section 4975 of the Code) in connection
with any Pension Plan or any trust created thereunder, telephonic
notice specifying the nature thereof, and, no more than five
Business Days after such telephonic notice, written notice again
specifying the nature thereof and specifying what action PNGI or
any of its Subsidiaries is taking or proposes to take with respect
thereto, and, when known, any action taken by the Internal Revenue
Service with respect thereto;
(a) Promptly upon, and in any event within three Business Days
after, an officer of any Credit Party obtains knowledge thereof,
notice of (i) the occurrence of any event which constitutes a
Default or an Event of Default; (ii) any litigation or governmental
investigation or proceeding (including without limitation any
Regulatory Board investigation or proceeding) pending (x) against
PNGI or any of its Subsidiaries which could reasonably be expected
to materially and adversely affect the business, operations,
property, assets, liabilities, condition (financial or otherwise)
or prospects of PNGI and its Subsidiaries taken as a whole, (y)
with respect to any material indebtedness of PNGI or any of its
Subsidiaries; and (iii) any actual or alleged failure of PNGI or
any Subsidiary to fail to comply with or perform, breach, violate
or suffer a default under any local, state or federal law or
regulation, or under the terms of any franchise, license or grant
of authority, or the occurrence or existence of any facts or
circumstances which, with the passage of time, the giving of notice
or otherwise could create such a breach, violation or default or
could occasion the termination of any franchise, license or grant
of authority; and
(a) Such other data and information as from time to time may be
reasonably requested by the Administrative Agent, any Lender
(through the Administrative Agent) or the Requisite Lenders.
1.1 Compliance Certificates . For so long as any Advance remains unpaid, any
other Obligation remains unpaid or unperformed, or any portion of the Commitment
remains outstanding, Borrower shall deliver to the Administrative Agent for
distribution by it to the Lenders concurrently with the financial statements
required pursuant to Sections 7.1(a) a properly completed Compliance Certificate
signed by a Senior Officer.
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Article CONDITIONSArticle 3 CONDITIONS
1.1 The Closing Date . The obligation of each Lender to make the initial Advance
to be made by it on the Closing Date, is subject to the following conditions
precedent, each of which shall be satisfied prior to the making of the initial
Advances (unless all of the Lenders, in their sole and absolute discretion,
shall agree otherwise): 1.2
(a) The Administrative Agent shall have received all of the
following, each of which shall be originals unless otherwise
specified, each properly executed by a Responsible Official of each
party thereto, each dated as of the Closing Date and each in form
and substance satisfactory to the Administrative Agent and its
legal counsel (unless otherwise specified or, in the case of the
date of any of the following, unless the Administrative Agent
otherwise agrees or directs):
(1) executed counterparts of this Agreement, sufficient in number for
distribution to the Lenders and Borrower;
(1) Notes issued to each Lender in the principal amount of that Lender's Pro
Rata Share;
(1) the PNGI Guaranty, executed by PNGI;
(1) the Security Agreement, executed by Borrower together with UCC-1 financing
statements for filing in each appropriate jurisdiction;
(1) the Charles Town Subordination Agreement, executed by the Charles Town
Joint Venture;
(1) such documentation with respect to PNGI, Borrower and
each other Obligor as the Administrative Agent may require
to establish its due organization, valid existence and
good standing, its qualification to engage in business in
each material jurisdiction in which it is engaged in
business or required to be so qualified, its authority to
execute, deliver and perform the Loan Documents, the
identity, authority and capacity of each Responsible
Official thereof authorized to act on its behalf,
including certified copies of articles of incorporation
and amendments thereto, bylaws and amendments thereto,
certificates of good standing and/or qualification to
engage in business, tax clearance certificates,
certificates of corporate resolutions, and incumbency
certificates;
(1) the Opinions of Counsel;
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(1) Such assurances as the Administrative Agent deems
appropriate that the relevant Regulatory Boards have
approved the credit facilities to be provided hereunder to
the extent that such approval is required by Applicable
Regulations;
(1) a Certificate of a Responsible Official signed by a Senior Officer of PNGI
and Borrower certifying that:
(a) attached thereto are true,
current and complete copies of the 10 5/8%
Indenture, the PNGI Credit Agreement and the
Charles Town Operating Lease, each as amended to
date; and
(b) the conditions specified in Sections 8.1(c) and 8.1(d) have been satisfied;
(1) Evidence that the $5,000,000 "Term Loan" (as defined
in the PNGI Credit Agreement) has been repaid in full and
any applicable commitments with respect thereto
terminated;
(1) An amendment to the PNGI Credit Agreement in form and
substance acceptable to the Lenders pursuant to which the
requisite lenders thereunder agree to (A) the removal,
waiver or modification of any provisions in the PNGI
Credit Agreement which would otherwise prohibit the credit
facilities and related security interests contemplated
hereby and by the other Loan Documents, and (B) agree to
subordinate their interest in the Collateral and the
proceeds thereof to the Liens of the Administrative Agent
in the Collateral and the proceeds thereof;
(1) such other assurances, certificates, documents, consents or opinions as the
Administrative Agent reasonably may require.
(a) Evidence that the security interests of the Administrative Agent in the
Collateral are of first
priority.
(a) The representations and warranties of PNGI and Borrower contained in
Article 4 shall be true and correct.
(a) PNGI, Borrower and any other Obligors shall be in compliance
with all the terms and provisions of the Loan Documents, and after
giving effect to the initial Advance, no Default or Event of
Default shall have occurred and be continuing.
(a) The fees due and payable on the Closing Date pursuant to Article 3 shall
have been paid.
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(a) The Administrative Agent and the Lenders shall have reviewed
and found satisfactory information confirming that PNGI and its
Subsidiaries are taking all necessary and appropriate steps, if
any, to address the Year 2000 Issue.
(a) No Material Adverse Effect shall have occurred since December 31, 1998.
(a) PNGI shall have transferred to Borrower the ownership of the
G-Tech Equipment and all New Equipment heretofore delivered, and
Borrower (and shall have delivered a copy of the bill of sale or
other appropriate evidence of such transfer to the Administrative
Agent) and the Charles Town Joint Venture shall have entered into
the Charles Town Operating Lease with respect thereto.
(a) All legal matters relating to the Loan Documents shall be
satisfactory to Sheppard, Mullin, Richter & Hampton, LLP, special
counsel to the Administrative Agent.
1.1 Any Advance . The obligation of each Lender to make any Advance which would
increase the Outstanding ----------- Obligations is subject to the
conditions precedent that: 1.2 (a) except as disclosed by the Obligors and
approved in writing by the Requisite Lenders, the representations and
warranties contained in Article 4 (other than the representations set forth
in Sections 4.4, 4.10 and 4.17) shall be true and correct on the date of
such Advance as though made on that date;
(a) There shall not be any pending or threatened action, suit,
proceeding or investigation affecting PNGI or any of its
Subsidiaries before any Governmental Agency that constitutes a
Material Adverse Effect;
(a) except as provided for in Section 2.1(g), the Administrative
Agent shall have timely received a Request for Loan in compliance
with Article 2 (or telephonic or other request for Loan referred to
in the second sentence of Section 2.1(b), if applicable);
(a) no Default or Event of Default shall have occurred and remain continuing or
will result from such Advance;
(a) the amount of the increase in the Outstanding Obligations shall
not exceed the amount of the Scheduled Expenses made by Borrower
during the one month period preceding the making of the requested
Loan (which Scheduled Expenses shall not have been the basis for
any prior such Loan), the invoices for such Scheduled Expenses (and
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in the case of those relating to the purchase of New Equipment, the
lease schedule to the Charles Town Operating Lease) attached to the
related Request for Loan shall be reasonably acceptable to the
Administrative Agent;
(a) Borrower shall have delivered to the Administrative Agent
amendments to its Uniform Commercial Code financing statements
describing the New Equipment purchased with the proceeds of the
Loan;
(a) no portion of the New Equipment shall have been delivered to
the Borrower more than 20 days prior to the date of the related
Loans, and the Collateral shall be subject be subject to a first
priority perfected security interest in favor of the Administrative
Agent; and
(a) the Administrative Agent shall have received, in form and
substance satisfactory to the Administrative Agent, such other
assurances, certificates, documents or consents related to the
foregoing as the Administrative Agent or the Requisite Lenders
reasonably may require, including without limitation any assurances
which the Administrative Agent may require to establish that the
proposed Loan is permitted under the terms of the PNGI Credit
Agreement and the 10 5/8 Indenture.
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Article EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT Article 3 EVENTS OF
DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
- ----------------------------------------------------
- ------------------------------------------------------
1.1 Events of Default . The existence or occurrence of any one or more of the
following events, whatever the ----------------- reason therefor and under
any circumstances whatsoever, shall constitute an Event of Default:
1.2
(a) Borrower fails to pay any principal on any of the Notes, or any portion
thereof, on the date when due; or
(a) Borrower fails to pay any interest on any of the Notes, or any
fees under Sections 3.2 or 3.3 or any portion thereof, within two
Business Days after the date when due; or fails to pay any other
fee or amount payable to the Lenders under any Loan Document, or
any portion thereof, within five Business Days after demand
therefor; or
(a) PNGI or Borrower fail to comply with any of the covenants contained in
Article 6; or
(a) PNGI, Borrower or any other Obligor fails to perform or observe
any other covenant or agreement (not specified in clauses (a), (b)
or (c) above) contained in any Loan Document on its part to be
performed or observed within thirty Business Days after the giving
of notice by the Administrative Agent on behalf of the Requisite
Lenders of such Default; or
(a) Any representation or warranty of PNGI, Borrower or any other
Obligor made in any Loan Document, or in any certificate or other
writing delivered by Borrower pursuant to any Loan Document, proves
to have been incorrect when made or reaffirmed; or
(a) PNGI or any of its Subsidiaries (i) fails to pay the principal,
or any principal installment, of any present or future Indebtedness
for borrowed money of $1,000,000 or more, or any guaranty of
present or future Indebtedness for borrowed money of $1,000,000 or
more, on its part to be paid, when due (or within any stated grace
period), whether at the stated maturity, upon acceleration, by
reason of required prepayment, the exercise of any "put" exercised
by the holder of such Indebtedness or otherwise or (ii) fails to
perform or observe any other term, covenant or agreement on its
part to be performed or observed, or suffers any event to occur, in
connection with any present or future Indebtedness for borrowed
money of $1,000,000 or more, or of any guaranty of present or
future indebtedness for borrowed money of $1,000,000 or more, if as
a result of such failure or sufferance any holder or holders
thereof (or an agent or trustee on its or their behalf) has the
right to declare such indebtedness due before the date on which it
otherwise would become due; or
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(a) Any event occurs which gives the holder or holders of any
Subordinated Obligation (or an agent or trustee on its or their
behalf) the right to declare such Subordinated Obligation due
before the date on which it otherwise would become due, or the
right to require the issuer thereof to redeem or purchase, or offer
to redeem or purchase, all or any portion of any Subordinated
Obligation; or
(a) Any Loan Document, at any time after its execution and delivery
and for any reason other than the agreement of the Lenders or
satisfaction in full of all the Obligations ceases to be in full
force and effect or is declared by a court of competent
jurisdiction to be null and void, invalid or unenforceable in any
respect which, in any such event in the reasonable opinion of the
Requisite Lenders, is materially adverse to the interests of the
Lenders; or any Obligor thereto denies that it has any or further
liability or obligation under any Loan Document, or purports to
revoke, terminate or rescind same; or
(a) A final judgment against PNGI or any of its Subsidiaries is
entered for the payment of money in excess of $1,000,000 (other
than any money judgment covered in full by insurance) and, absent
procurement of a stay of execution, such judgment remains
unsatisfied for sixty calendar days after the date of entry of
judgment, or in any event later than five days prior to the date of
any proposed sale thereunder; or any writ or warrant of attachment
or execution or similar process is issued or levied against all or
any part of the Property of any such Person and is not released,
vacated or fully bonded within sixty calendar days after its issue
or levy; or
(a) PNGI or any of its Subsidiaries institutes or consents to the
institution of any proceeding under a Debtor Relief Law relating to
it or to all or any part of its Property, or is unable or admits in
writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors; or applies for or consents
to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer for it or
for all or any part of its Property; or any receiver, trustee,
custodian, conservator, liquidator, rehabilitator or similar
officer is appointed without the application or consent of that
Person and the appointment continues undischarged or unstayed for
sixty calendar days; or any proceeding under a Debtor Relief Law
relating to any such Person or to all or any part of its Property
is instituted without the consent of that Person and continues
undismissed or unstayed for sixty calendar days; or
(a) The occurrence of an Event of Default (as such term is or may hereafter be
specifically defined in any other Loan Document) under any other Loan
Document; or
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(a) Any determination is made by a court of competent jurisdiction that any
Subordinated Obligation is
not subordinated in accordance with its terms to the Obligations; or
(a) Any Pension Plan maintained by PNGI or any of its Subsidiaries
is determined to have an "accumulated funding deficiency" as that
term is defined in Section 302 of ERISA and the result is a
Material Adverse Effect; or
(a) The occurrence of any License Revocation at Charles Town
Facility or the occurrence of any License Revocation at any other
Venue of PNGI or its Subsidiaries which continues for five days; or
(a) The occurrence of any Change of Control or any Significant Transaction.
1.1 Remedies Upon Event of Default . Without limiting any other rights or
remedies of the Administrative Agent or the Lenders provided for elsewhere in
this Agreement, or in the other Loan Documents, or by applicable Law, or in
equity, or otherwise:
1.2
(a) Upon the occurrence, and during the continuance, of any Event of Default
other than an Event of ----- ---- Default described in Section 9.1(j):
(1) the Commitment to make Advances and all other
obligations of the Creditors to the Obligors and all
rights of Borrower and the other Obligors under the Loan
Documents shall be suspended without notice to or demand
upon Borrower, which are expressly waived by Borrower,
except that all of the Lenders or the Requisite Lenders
(as the case may be, in accordance with Section 11.2) may
waive an Event of Default or, without waiving, determine,
upon terms and conditions satisfactory to the Lenders or
Requisite Lenders, as the case may be, to reinstate the
Commitment and make further Advances, which waiver or
determination shall apply equally to, and shall be binding
upon, all the Lenders; and
(1) the Requisite Lenders may request the Administrative
Agent to, and the Administrative Agent thereupon shall,
terminate the Commitment and may declare all or any part
of the unpaid principal of the Notes, all interest accrued
and unpaid thereon and all other amounts payable under the
Loan Documents to be forthwith due and payable, whereupon
the same shall become and be forthwith due and payable,
without protest, presentment, notice of dishonor, demand
or further notice of any kind, all of which are expressly
waived by Borrower.
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(a) Upon the occurrence of any Event of Default described in Section 9.1(j):
(1) the Commitment to make Advances and all other
obligations of the Creditors to the Obligors and all
rights of Borrower and any other Obligors under the Loan
Documents shall terminate without notice to or demand upon
Borrower, which are expressly waived by Borrower, except
that all the Lenders may waive the Event of Default or,
without waiving, determine, upon terms and conditions
satisfactory to all the Lenders, to reinstate the
Commitment and make further Advances, which determination
shall apply equally to, and shall be binding upon, all the
Lenders; and
(1) the unpaid principal of all Notes, all interest
accrued and unpaid thereon and all other amounts payable
under the Loan Documents shall be forthwith due and
payable, without protest, presentment, notice of dishonor,
demand or further notice of any kind, all of which are
expressly waived by Borrower.
(a) Upon the occurrence and during the continuance of any Event of
Default, the Lenders and the Administrative Agent, or any of them,
without notice to (except as expressly provided for in any Loan
Document) or demand upon Borrower, which are expressly waived by
Borrower (except as to notices expressly provided for in any Loan
Document), may proceed (but only with the consent of the Requisite
Lenders) to protect, exercise and enforce their rights and remedies
under the Loan Documents against Borrower and any other Obligor and
such other rights and remedies as are provided by Law or equity.
(a) The order and manner in which the Lenders' rights and remedies
are to be exercised shall be determined by the Requisite Lenders in
their sole discretion, and all payments received by the
Administrative Agent and the Lenders, or any of them, shall be
applied first to the costs and expenses (including reasonable
attorneys' fees and disbursements and the reasonably allocated
costs of attorneys employed by the Administrative Agent or by any
Lender) of the Administrative Agent and of the Lenders, and
thereafter paid pro rata to the Lenders in the same proportions
that the aggregate Obligations owed to each Lender under the Loan
Documents bear to the aggregate Obligations owed under the Loan
Documents to all the Lenders, without priority or preference among
the Lenders. Regardless of how each Lender may treat payments for
the purpose of its own accounting, for the purpose of computing
Borrower's Obligations hereunder and under the Notes, payments
shall be applied first, to the costs and expenses of the
Administrative Agent and the Lenders, as set forth above, second,
to the payment of accrued and unpaid interest due under any Loan
Documents to and including the date of such application (ratably,
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and without duplication, according to the accrued and unpaid
interest due under each of the Loan Documents), and third, to the
payment of all other amounts (including principal and fees) then
owing to the Administrative Agent or the Lenders under the Loan
Documents. No application of payments will cure any Event of
Default, or prevent acceleration, or continued acceleration, of
amounts payable under the Loan Documents, or prevent the exercise,
or continued exercise, of rights or remedies of the Lenders
hereunder or thereunder or at Law or in equity.
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Article THE ADMINISTRATIVE AGENT
Article 3 THE ADMINISTRATIVE AGENT
- ------------------------ --------------------------
1.1 Appointment and Authorization . Subject to Section 10.8, each Creditor
hereby irrevocably appoints and authorizes the Administrative Agent to take such
action as administrative agent on its behalf and to exercise such powers under
the Loan Documents as are delegated to the Administrative Agent by the terms
thereof or are reasonably incidental, as determined by the Administrative Agent,
thereto. This appointment and authorization is intended solely for the purpose
of facilitating the servicing of the Loans and does not constitute appointment
of the Administrative Agent as a trustee or agent for any Lender or as
representative of any Lender for any other purpose and, except as specifically
set forth in the Loan Documents to the contrary, the Administrative Agent shall
take such action and exercise such powers only in an administrative and
ministerial capacity.
1.2
1.3 Administrative Agent and Affiliates . Bank of America (and each successor
Administrative Agent) has the same rights and powers under the Loan Documents as
any other Lender and may exercise the same as though it were not the
Administrative Agent, and the term "Lender" or "Lenders" includes Bank of
America in its individual capacity. Bank of America (and each successor
Administrative Agent) and its Affiliates may accept deposits from, lend money to
and generally engage in any kind of banking, trust or other business with PNGI
or any of its Subsidiaries as if it were not the Administrative Agent and
without any duty to account therefor to the other Creditors. Bank of America
(and each successor Administrative Agent) need not account to any other Creditor
for any monies received by it for reimbursement of its costs and expenses as
Administrative Agent hereunder, or for any monies received by it in its capacity
as a Lender hereunder. The Administrative Agent shall not be deemed to hold a
fiduciary trust or other special relationship or any other special relationship
with any other Creditor and no implied covenants, functions, responsibilities,
duties, obligations or liabilities shall be read into this Agreement or
otherwise exist against the Administrative Agent.
1.4
1.5 Proportionate Interest in any Collateral . The Administrative Agent, on
behalf of all the Creditors, shall hold in accordance with the Loan Documents
all items of any collateral or interests therein received or held by the
Administrative Agent. Subject to the Administrative Agent's right to
reimbursement for its costs and expenses hereunder (including reasonable
attorneys' fees and disbursements and other professional services and the
reasonably allocated costs of attorneys employed by the Administrative Agent)
and subject to the application of payments in accordance with Section 9.2(d),
each Lender shall have an interest in the Collateral or interests therein in the
same proportions that the aggregate Obligations owed such Lender under the Loan
Documents bear to the aggregate Obligations owed under the Loan Documents to all
the Lenders, without priority or preference among the Lenders.
1.6
1.7 Lenders' Credit Decisions . Each Creditor agrees that it has, independently
and without reliance on any other Creditor or the directors, officers, agents,
employees or attorneys thereof, and instead in reliance upon information
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supplied to it by or on behalf of the Obligors and upon such other information
as it has deemed appropriate, made its own independent credit analysis and
decision to enter into this Agreement. Each Lender agrees that it shall,
independently and without reliance upon any other Creditor or the directors,
officers, agents, employees or attorneys thereof, continue to make its own
independent credit analyses and decisions in acting or not acting under the Loan
Documents.
1.1 Action by Administrative Agent .
------------------------------
1.2
(a) Absent actual knowledge of the Administrative Agent of the
existence of a Default or Event of Default, the Administrative
Agent may assume that no Default or Event of Default has occurred
and is continuing, unless the Administrative Agent has received
notice from the Obligors stating the nature of the Default or has
received notice from a Lender stating the nature of the Default and
that such Lender considers the Default to have occurred and to be
continuing.
(a) The Administrative Agent has only those obligations under the Loan
Documents as are expressly set forth therein.
(a) Except for any obligation expressly set forth in the Loan
Documents and as long as the Administrative Agent may assume that
no Event of Default has occurred and is continuing, the
Administrative Agent may, but shall not be required to, exercise
its discretion to act or not act, provided that (i) the
Administrative Agent shall be required to act or not act upon the
instructions of the Requisite Lenders (or of all the Lenders, to
the extent required by Section 11.2) and those instructions shall
be binding upon the Administrative Agent and all of the other
Creditors, and (ii) the Administrative Agent shall not be required
to act or not act if to do so would be contrary to any Loan
Document or to applicable Law or would result, in the reasonable
judgment of the Administrative Agent, in substantial risk of
liability to the Administrative Agent.
(a) If the Administrative Agent has received a notice specified in
clause (a), the Administrative Agent shall immediately give notice
thereof to the Lenders and shall act or not act upon the
instructions of the Requisite Lenders (or of all the Lenders, to
the extent required by Section 11.2), provided that (i) the
Administrative Agent shall not be required to act or not act if to
do so would be contrary to any Loan Document or to applicable Law
or would result, in the reasonable judgment of the Administrative
Agent, in substantial risk of liability to the Administrative
Agent, and (ii) if the Requisite Lenders (or all the Lenders, if
required under Section 11.2) fail, for five Business Days after the
receipt of notice from the Administrative Agent, to instruct the
Administrative Agent, then the Administrative Agent, in its sole
discretion, may act or not act as it deems advisable for the
protection of the interests of the Lenders.
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(a) The Administrative Agent shall have no liability to any
Creditor for acting, or not acting, as instructed by the Requisite
Lenders (or all the Lenders, if required under Section 11.2),
notwithstanding any other provision hereof.
1.1 Liability of Administrative Agent . Neither the Administrative Agent nor any
of its directors, officers, agents, employees or attorneys shall be liable for
any action taken or not taken by them under or in connection with the Loan
Documents, except for their own gross negligence or willful misconduct. Without
limitation on the foregoing, the Administrative Agent and its directors,
officers, agents, employees and attorneys:
1.2
(a) May treat the payee of any Note as the holder thereof until the
Administrative Agent receives notice of the assignment or transfer
thereof, in form satisfactory to the Administrative Agent, signed
by the payee, and may treat each Lender as the owner of that
Lender's interest in the Obligations for all purposes of this
Agreement until the Administrative Agent receives notice of the
assignment or transfer thereof, in form satisfactory to the
Administrative Agent, signed by that Lender.
(a) May consult with legal counsel (including in-house legal
counsel), accountants (including in-house accountants) and other
professionals or experts selected by it, or with legal counsel,
accountants or other professionals or experts for PNGI or its
Subsidiaries or the Lenders, and shall not be liable for any action
taken or not taken by it in good faith in accordance with any
advice of such legal counsel, accountants or other professionals or
experts.
(a) Shall not be responsible to any Creditor for any statement,
warranty or representation made in any of the Loan Documents or in
any notice, certificate, report, request or other statement
(written or oral) given or made in connection with any of the Loan
Documents.
(a) Except to the extent expressly set forth in the Loan Documents,
shall have no duty to ask or inquire as to the performance or
observance by any Obligor of any of the terms, conditions or
covenants of any of the Loan Documents or to inspect any Collateral
or the Property, books or records of PNGI or any of its
Subsidiaries.
(a) Will not be responsible to any Creditor for the due execution,
legality, validity, enforceability, genuineness, effectiveness,
sufficiency or value of any Loan Document, any other instrument or
writing furnished pursuant thereto or in connection therewith, or
any Collateral.
(a) Will not incur any liability by acting or not acting in
reliance upon any Loan Document, notice, consent, certificate,
statement, request or other instrument or writing believed by it to
be genuine and signed or sent by the proper party or parties.
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(a) Will not incur any liability for any arithmetical error in
computing any amount paid or payable by any Obligor or paid or
payable to or received or receivable from any Lender under any Loan
Document, including, without limitation, principal, interest,
commitment fees, Advances and other amounts.
1.1 Indemnification . Each Lender shall, ratably in accordance with its Pro Rata
Share, indemnify and hold the Administrative Agent, and each of its directors,
officers, agents, employees and attorneys harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including,
without limitation, attorneys' fees and disbursements and reasonably allocated
costs of attorneys employed by the Administrative Agent) that may be imposed on,
incurred by or asserted against it or them in any way relating to or arising out
of the Loan Documents or any action taken or not taken by such indemnitee
thereunder, except such as result from its own gross negligence or willful
misconduct. Without limitation on the foregoing, each Lender shall reimburse the
Administrative Agent upon demand for that Lender's Pro Rata Share of any
out-of-pocket cost or expense incurred by the Administrative Agent in connection
with the negotiation, preparation, execution, delivery, amendment, waiver,
restructuring, reorganization (including a bankruptcy reorganization),
enforcement or attempted enforcement of the Loan Documents, to the extent that
any Obligor is required by Section 11.3 to pay that cost or expense but fails to
do so upon demand.
1.2
1.3 Successor Administrative Agent . The Administrative Agent may, and at the
request of the Requisite Lenders shall, resign as Administrative Agent upon
thirty days' notice to the Lenders and Borrower. If the Administrative Agent
resigns as Administrative Agent under this Agreement, the Requisite Lenders
shall appoint from among the Lenders a successor administrative agent for the
Lenders. If no successor administrative agent is appointed prior to the
effective date of the resignation of the Administrative Agent, the
Administrative Agent may appoint a successor administrative agent from among the
Lenders. Upon the acceptance of its appointment as successor administrative
agent hereunder, such successor administrative agent shall succeed to all the
rights, powers and duties of the retiring Administrative Agent and the term
"Administrative Agent" shall mean such successor administrative agent and the
retiring Administrative Agent's appointment, powers and duties as Administrative
Agent shall be terminated. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Article 10, and
Sections 11.3, 11.11 and 11.22, shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent. If no
successor administrative agent has accepted appointment as Administrative Agent
by the date which is thirty (30) days following a retiring Administrative
Agent's notice of resignation, the retiring Administrative Agent's resignation
shall nevertheless thereupon become effective and the Lenders shall perform all
of the duties of the Administrative Agent hereunder until such time, if any, as
the Requisite Lenders appoint a successor administrative agent as provided for
above.
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1.4
1.5 Foreclosure on Collateral . In the event of foreclosure or enforcement of
the Lien created by any of the Collateral Documents, title to the Collateral
covered thereby shall be taken and held by the Administrative Agent (or any
designee thereof) pro rata for the benefit of the Lenders in accordance with
their Pro Rata Shares and shall be administered in accordance with the standard
form of collateral holding participation agreement used by the Administrative
Agent in comparable syndicated credit facilities.
1.6
1.7 No Obligations of Borrower or PNGI . Nothing contained in this Article 10
shall be deemed to impose upon PNGI or Borrower any obligation in respect of the
due and punctual performance by the Administrative Agent of its obligations to
the Lenders under any provision of this Agreement, and PNGI and Borrower shall
have no liability to the Administrative Agent or any of the Lenders in respect
of any failure by the Administrative Agent or any Lender to perform any of its
obligations to the Administrative Agent or the Lenders under this Agreement.
1.8
1.9 Permitted Release of Collateral . The Administrative Agent is hereby
authorized to release its Lien on any Collateral which is the subject of a
disposition permitted hereunder, and each Lender shall confirm upon request the
authority of the Administrative Agent to make any such release of Collateral.
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Article MISCELLANEOUSArticle 3 MISCELLANEOUS
1.1 Cumulative Remedies; No Waiver . The rights, powers, privileges and remedies
of the Creditors provided herein, in the Notes and in the other Loan Documents
are cumulative and not exclusive of any right, power, privilege or remedy
provided by Law or equity. No failure or delay on the part of any Creditor in
exercising any right, power, privilege or remedy may be, or may be deemed to be,
a waiver thereof; nor may any single or partial exercise of any right, power,
privilege or remedy preclude any other or further exercise of the same or any
other right, power, privilege or remedy. The terms and conditions of Article 8
are inserted for the sole benefit of the Creditors; the same may be waived in
whole or in part, with or without terms or conditions, in respect of any Loan
without prejudicing the Creditors' rights to assert them in whole or in part in
respect of any other Loan.
1.2
1.3 Amendments; Consents . No amendment, modification, supplement, extension,
termination or waiver of any provision of this Agreement or any other Loan
Document, no approval or consent thereunder, and no consent to any departure by
any Obligor therefrom, may in any event be effective unless in writing signed or
approved in writing by the Requisite Lenders or by the Administrative Agent with
the consent of the Requisite Lenders (and, in the case of any amendment,
modification or supplement to (i) Article 10, signed by the Administrative
Agent, and (ii) to any Loan Document, signed by the Obligors party thereto), and
then only in the specific instance and for the specific purpose given; and,
without the approval in writing of all the Lenders affected thereby, no
amendment, modification, supplement, termination, waiver or consent may be
effective: 1.4
(a) To amend or modify the principal of, or the amount of principal
or principal prepayments on any Note, to increase the amount of the
Commitment or the Pro Rata Share of any Lender without the consent
of that Lender,
(a) Without the consent of the affected Lenders, to decrease the
rate of interest or amount of any fee payable to any Lender, or to
decrease the amount of any unused commitment fee payable to any
Lender, or to decrease any other fee or amount payable to any
Lender under the Loan Documents;
(a) To postpone any date (including the Maturity Date) fixed for
any payment of principal of, prepayment of principal of or any
installment of interest on, any Note or any installment of any
unused commitment fee, or to extend the term of the Commitment, or
to release the PNGI Guaranty (except as otherwise provided in any
Loan Document);
(a) To release any portion of the Collateral having an aggregate value in
excess of $100,000 (except ------ as expressly provided in any Loan
Document);
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(a) To release or otherwise terminate the Charles Town Subordination Agreement;
(a) To amend the provisions of the definition of "Requisite Lenders", Section
8.2, Section 8.3 or this ----------------- Section 11.2; or
(a) To amend any provision of this Agreement that expressly requires the
consent or approval of all the Lenders.
Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 11.2 shall apply equally to, and shall be binding upon, all of
the Creditors.
1.1 Costs, Expenses and Taxes . PNGI shall pay within ten Business Days after
demand, accompanied by an invoice therefor, the reasonable out-of-pocket costs
and expenses of the Administrative Agent in connection with the negotiation,
preparation, syndication, administration, execution and delivery of the Loan
Documents. Borrower shall pay within ten Business Days after demand, accompanied
by an invoice therefor, the reasonable out-of-pocket costs and expenses of the
Administrative Agent in connection with any amendment to the Loan Documents or
any waiver of the terms thereof, and the reasonable costs and expenses of the
Administrative Agent and, after a Default, the Lenders in connection with the
refinancing, restructuring, reorganization (including a bankruptcy
reorganization) and enforcement or attempted enforcement of the Loan Documents,
and any matter related thereto. The foregoing costs and expenses shall include
the actual environmental review fees, filing fees, recording fees, title
insurance premiums and fees, appraisal fees, search fees, and other
out-of-pocket expenses and the reasonable fees and out-of-pocket expenses of any
legal counsel (including reasonably allocated costs of legal counsel employed by
the Administrative Agent or any Lender), independent public accountants and
other outside experts retained by the Administrative Agent or any Lender,
whether or not such costs and expenses are incurred or suffered by the
Administrative Agent or any Lender in connection with or during the course of
any bankruptcy or insolvency proceedings of any Obligor. Such costs and expenses
shall also include, in the case of any amendment or waiver of any Loan Document,
the administrative costs of the Administrative Agent reasonably attributable
thereto. Borrower shall pay any and all documentary, recording, stamp and other
taxes, and all costs, expenses, fees and charges payable or determined to be
payable in connection with the filing or recording of this Agreement, any other
Loan Document or any other instrument or writing to be delivered hereunder or
thereunder, or in connection with any transaction pursuant hereto or thereto.
Any amount payable to the Administrative Agent or any Lender under this Section
11.3 shall bear interest from the date of demand for payment at the Default
Rate.
1.2
1.3 Nature of Lenders' Obligations . The obligations of the Lenders hereunder
are several and not joint or joint and several. Nothing contained in this
Agreement or any other Loan Document and no action taken by any Creditor
pursuant hereto or thereto may, or may be deemed to, make any of the Creditors a
partnership, an association, a joint venture or other entity, either among
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themselves or with PNGI or any of its Subsidiaries. Each Lender's obligation to
make any Advance pursuant hereto is several and not joint or joint and several,
and in the case of the initial Advance only, is conditioned upon the performance
by all other Lenders of their obligations to make initial Advances. A default by
any Lender will not increase the Pro Rata Share of the Commitment attributable
to any other Lender. Any Lender not in default may, if it desires, assume in
such proportion as the nondefaulting Lenders agree the obligations of any Lender
in default, but is not obligated to do so.
1.4
1.5 Survival of Representations and Warranties . All representations and
warranties contained herein or in any other Loan Document, or in any certificate
or other writing delivered by or on behalf of any one or more of the Obligors,
will survive the making of the Loans hereunder and the execution and delivery of
the Notes, and have been or will be relied upon by each Creditor,
notwithstanding any investigation made by the Creditors or on their behalf.
1.6
1.7 Notices . Except as otherwise expressly provided in the Loan Documents, all
notices, requests, demands, directions and other communications provided for
hereunder or under any other Loan Document must be in writing and must be
mailed, telecopied, dispatched by commercial courier or delivered to the
appropriate party at the address set forth on the signature pages of this
Agreement or other applicable Loan Document or, as to any party to any Loan
Document, at any other address as may be designated by it in a written notice
sent to all other parties to such Loan Document in accordance with this Section.
Except as otherwise expressly provided in any Loan Document, if any notice,
request, demand, direction or other communication required or permitted by any
Loan Document is given by mail it will be effective on the earlier of receipt or
the third calendar day after deposit in the United States mail with first class
or airmail postage prepaid; if given by telecopier, when sent; if dispatched by
commercial courier, on the scheduled delivery date; or if given by personal
delivery, when delivered.
1.8
1.9 Execution of Loan Documents . This Agreement and any other Loan Document may
be executed in any number of counterparts and any party hereto or thereto may
execute any counterpart, each of which when executed and delivered will be
deemed to be an original and all of which counterparts of this Agreement or any
other Loan Document, as the case may be, when taken together will be deemed to
be but one and the same instrument. The execution of this Agreement or any other
Loan Document by any party hereto or thereto will not become effective until
counterparts hereof or thereof, as the case may be, have been executed by all
the parties hereto or thereto.
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1.1 Binding Effect; Assignment .
--------------------------
1.2
(a) This Agreement and the other Loan Documents to which any
Obligor is a party will be binding upon and inure to the benefit of
the relevant Obligor and the Creditors, and their respective
successors and assigns, except that the Obligors may not assign
their rights hereunder or thereunder or any interest herein or
therein without the prior written consent of all the Lenders. Each
Lender represents that it is not acquiring its Note with a view to
the distribution thereof within the meaning of the Securities Act
of 1933, as amended (subject to any requirement that disposition of
such Note must be within the control of such Lender). Any Lender
may at any time pledge its Note or any other instrument evidencing
its rights as a Lender under this Agreement to a Federal Reserve
Bank, but no such pledge shall release that Lender from its
obligations hereunder or grant to such Federal Reserve Bank the
rights of a Lender hereunder absent foreclosure of such pledge.
(a) From time to time following the Closing Date, each Lender may
assign to one or more Eligible Assignees all or any portion of its
Pro Rata Share; provided that (i) such Eligible Assignee, if not
then a Lender or an Affiliate of the assigning Lender, shall be
approved by the Administrative Agent and Borrower (neither of which
approvals shall be unreasonably withheld or delayed), provided that
the consent of Borrower to assignments shall not be required when
any Default or Event of Default has occurred and remains
continuing, (ii) such assignment shall be evidenced by an
Assignment Agreement, a copy of which shall be furnished to the
Administrative Agent as provided below, (iii) except in the case of
an assignment to an Affiliate of the assigning Lender, to another
Lender or of the entire remaining Commitment of the assigning
Lender, the assignment shall not assign a Pro Rata Share of the
Commitment equivalent to less than $1,000,000, and (iv) the
effective date of any such assignment shall be as specified in the
Assignment Agreement, but not earlier than the date which is five
Business Days after the date the Administrative Agent has received
the Assignment Agreement. Upon the effective date of such
Assignment Agreement, the Eligible Assignee named therein shall be
a Lender for all purposes of this Agreement, with the Pro Rata
Share therein set forth and, to the extent of such Pro Rata Share,
the assigning Lender shall be released from its further obligations
under the Loan Documents. Borrower agrees that it shall execute and
deliver (against delivery by the assigning Lender to Borrower of
its Note) to such assignee Lender, a Note evidencing that assignee
Lender's Pro Rata Share, and to the assigning Lender, a Note
evidencing the remaining balance Pro Rata Share retained by the
assigning Lender.
(a) By executing and delivering an Assignment Agreement, the
Eligible Assignee thereunder acknowledges and agrees that: (i)
other than the representation and warranty that it is the legal and
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beneficial owner of the Pro Rata Share being assigned thereby free
and clear of any adverse claim, the assigning Lender has made no
representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or
in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness or sufficiency of this
Agreement or any other Loan Document; (ii) the assigning Lender has
made no representation or warranty and assumes no responsibility
with respect to the financial condition of Borrower or the
performance by Borrower of the Obligations; (iii) it has received a
copy of this Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 7.1 and such
other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such
Assignment Agreement; (iv) it will, independently and without
reliance upon the Administrative Agent or any Lender and based on
such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under this Agreement; (v) it appoints and authorizes
the Administrative Agent to take such action and to exercise such
powers under this Agreement and the other Loan Documents as are
delegated to the Administrative Agent by this Agreement; and (vi)
it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be
performed by it as a Lender.
(a) Each Lender may from time to time grant participations to one
or more banks or other financial institutions (including another
Lender) in all or a portion of its Pro Rata Share; provided,
however, that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) the participating banks or other financial
institutions shall not be a Lender hereunder for any purpose
except, if the participation Agreement so provides, for the
purposes of Sections 3.4, 3.5, 11.11 and 11.22 but only to the
extent that the cost of such benefits to Borrower does not exceed
the cost which Borrower would have incurred in respect of such
Lender absent the participation, (iv) Borrower, the Administrative
Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights
and obligations under this Agreement, (v) the participation
interest shall be expressed as a percentage of the granting
Lender's Pro Rata Share as it then exists and shall not restrict an
increase in the Commitment, or in the granting Lender's Pro Rata
Share, so long as the amount of the participation interest is not
affected thereby and (vi) the consent of the holder of such
participation interest shall not be required for amendments or
waivers of provisions of the Loan Documents other than those which
(A) extend the Maturity Date or any other date upon which any
payment of money is due to the Lenders, (B) reduce the rate of
interest payable with respect to the participation, any fee or any
other monetary amount payable to the participant, (C) reduce the
amount of any installment of principal due under the Notes in a
manner which affects the participant, or (D) release any material
portion of the Collateral.
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(a) Notwithstanding anything in this Section 11.8 to the contrary,
the rights of the Lenders to make assignments of, and grant
participations in, their Pro Rata Shares of the Commitment shall be
subject to the approval of any Regulatory Board (including the
approval of the identity of any proposed assignee or participant),
to the extent required by Applicable Regulations.
1.1 Right of Setoff . If an Event of Default has occurred and is continuing,
each Creditor may (but only with the consent of the Requisite Lenders) exercise
its rights under Article 9 of the Uniform Commercial Code and other applicable
Laws and, to the extent permitted by applicable Laws, apply any funds in any
deposit account maintained with it by PNGI and Borrower or any Property of PNGI
and Borrower in its possession against the Obligations.
1.2
1.3 Sharing of Setoffs . Each Lender severally agrees that if it, through the
exercise of any right of setoff, banker's lien or counterclaim against any
Obligor, or otherwise, receives payment of the Obligations held by it that is
ratably more than any other Lender, through any means, receives in payment of
the Obligations held by that Lender, then, subject to applicable Laws (a) the
Lender exercising the right of setoff, banker's lien or counterclaim or
otherwise receiving such payment shall purchase, and shall be deemed to have
simultaneously purchased, from the other Lender a participation in the
Obligations held by the other Lender and shall pay to the other Lender a
purchase price in an amount so that the share of the Obligations held by each
Lender after the exercise of the right of setoff, banker's lien or counterclaim
or receipt of payment shall be in the same proportion that existed prior to the
exercise of the right of setoff, banker's lien or counterclaim or receipt of
payment; and (b) such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that all of the Lenders
share any payment obtained in respect of the Obligations ratably in accordance
with each Lender's share of the Obligations immediately prior to, and without
taking into account, the payment; provided that, if all or any portion of a
disproportionate payment obtained as a result of the exercise of the right of
setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Lender by any Obligor or any Person claiming through or
succeeding to the rights of any Obligor, the purchase of a participation shall
be rescinded and the purchase price thereof shall be restored to the extent of
the recovery, but without interest. Each Lender that purchases a participation
in the Obligations pursuant to this Section 11.10 shall from and after the
purchase have the right to give all notices, requests, demands, directions and
other communications under this Agreement with respect to the portion of the
Obligations purchased to the same extent as though the purchasing Lender were
the original owner of the Obligations purchased. Each Obligor expressly consents
to the foregoing arrangements and agrees that any Lender holding a participation
in an Obligation so purchased may exercise any and all rights of setoff,
banker's lien or counterclaim with respect to the participation as fully as if
the Lender were the original owner of the Obligation purchased.
1.4
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1.5 Indemnity by PNGI and Borrower . Each of PNGI and Borrower agrees to
indemnify, save and hold harmless the Creditors and their directors, officers,
agents, attorneys and employees (collectively the "Indemnitees") from and
against: (a) any and all claims, demands, actions or causes of action, if the
claim, demand, action or cause of action arises out of or relates to the
Commitment, the use or contemplated use of proceeds of any Loan, or the
relationship between any such Person and the Creditors under this Agreement; (b)
any administrative or investigative proceeding by any Governmental Agency
arising out of or related to a claim, demand, action or cause of action
described in clause (a) above; and (c) any and all liabilities, losses, costs or
expenses (including reasonable attorneys' fees and the reasonably allocated
costs of attorneys employed by any Indemnitee and disbursements of such
attorneys and other professional services) that any Indemnitee suffers or incurs
as a result of the assertion of any foregoing claim, demand, action or cause of
action; provided that no Indemnitee shall be entitled to indemnification for any
loss caused by its own gross negligence or willful misconduct or as to any claim
asserted by that Indemnitee against PNGI or Borrower to the extent that PNGI or
Borrower prevails on that claim in a final and non-appealable determination by a
court of competent jurisdiction or an arbitrator appointed in accordance
herewith. If any claim, demand, action or cause of action is asserted against
any Indemnitee, such Indemnitee shall promptly notify PNGI and Borrower, but the
failure to so promptly notify PNGI and Borrower shall not affect PNGI's and
Borrower's obligations under this Section unless such failure materially
prejudices PNGI's or Borrower's, as applicable, right to participate in the
contest of such claim, demand, action or cause of action, as hereinafter
provided. Each Indemnitee may contest the validity, applicability and amount of
such claim, demand, action or cause of action with counsel of its own choosing
and shall permit PNGI and Borrower to participate in such contest. Any
Indemnitee that proposes to settle or compromise any claim or proceeding for
which PNGI or Borrower may be liable for payment of indemnity hereunder shall
give PNGI and Borrower written notice of the terms of such proposed settlement
or compromise reasonably in advance of settling or compromising such claim or
proceeding. In connection with any claim, demand, action or cause of action
covered by this Section 11.11 against more than one Indemnitee, all such
Indemnitees shall be represented by the same legal counsel (which may be a law
firm engaged by the Indemnitees or attorneys employed by an Indemnitee or a
combination of the foregoing) selected by the Indemnitees and reasonably
acceptable to PNGI and Borrower; provided, that if such legal counsel determines
in good faith that representing all such Indemnitees would or could result in a
conflict of interest under Laws or ethical principles applicable to such legal
counsel or that a defense or counterclaim is available to an Indemnitee that is
not available to all such Indemnitees, then to the extent reasonably necessary
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to avoid such a conflict of interest or to permit unqualified assertion of such
a defense or counterclaim, each Indemnitee shall be entitled to separate
representation by legal counsel selected by that Indemnitee and reasonably
acceptable to PNGI and Borrower, with all such legal counsel using reasonable
efforts to avoid unnecessary duplication of effort by counsel for all
Indemnitees; and further provided that the Administrative Agent (as an
Indemnitee) shall at all times be entitled to representation by separate legal
counsel. Any obligation or liability of PNGI or Borrower to any Indemnitee under
this Section 11.11 shall survive the expiration or termination of this
Agreement, the repayment of all Loans, and the payment and performance of all
other Obligations owed to the Lenders.
1.6
1.7 Nonliability of the Lenders . Each of PNGI and Borrower acknowledges and
agrees that: --------------------------- 1.8
(a) Any inspections of any Property of PNGI or Borrower made by or
through the Creditors are for purposes of administration of the
Loans only and PNGI and Borrower are not entitled to rely upon the
same;
(a) By accepting or approving anything required to be observed,
performed, fulfilled or given to the Creditors pursuant to the Loan
Documents, no Creditor shall be deemed to have warranted or
represented the sufficiency, legality, effectiveness or legal
effect of the same, or of any term, provision or condition thereof,
and such acceptance or approval thereof shall not constitute a
warranty or representation to anyone with respect thereto by any
Creditor;
(a) The relationship between each Obligor and Creditors is, and
shall at all times remain, solely that of borrower and lenders; no
Creditor shall under any circumstance be construed to be a partner
or joint venturer with the Obligors; no creditor shall under any
circumstance be deemed to be in a relationship of confidence or
trust or a fiduciary or other special relationship with the
Obligors, or to owe any fiduciary duty or other special duty to the
Obligors; no Creditor undertakes or assumes any responsibility or
duty to PNGI or its Affiliates to select, review, inspect,
supervise, pass judgment upon or inform the Obligors of any matter
in connection with their Property or the operations of the
Obligors; the Obligors shall rely entirely upon their own judgment
with respect to such matters; and any review, inspection,
supervision, exercise of judgment or supply of information
undertaken or assumed by the Creditors in connection with such
matters is solely for the protection of the Creditors and neither
the Obligors nor any other Person is entitled to rely thereon; and
(a) The Creditors shall not be responsible or liable to any Person
for any loss, damage, liability or claim of any kind relating to
injury or death to Persons or damage to Property caused by the
actions, inaction or negligence of the Obligors and PNGI and
Borrower each hereby indemnifies and holds each Creditor harmless
from any such loss, damage, liability or claim.
1.1 No Third Parties Benefitted . This Agreement is made for the purpose of
defining and setting forth certain obligations, rights and duties of PNGI,
Borrower and the Creditors in connection with the Loans and is made for the sole
benefit of PNGI, Borrower, the Creditors and the Creditors' successors and
assigns. Except as provided in Sections 11.8, 11.11 and 11.14, no other Person
shall have any rights of any nature hereunder or by reason hereof.
1.2
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1.3 Confidentiality . Each Lender agrees to hold any confidential information
that it may receive from PNGI and its Subsidiaries pursuant to this Agreement in
confidence, except for disclosure: (i) to other Lenders; (ii) to legal counsel
and accountants for PNGI and its Subsidiaries or any Lender; (iii) to other
professional advisors to PNGI and its Subsidiaries or any Lender, provided that
the recipient has accepted such information subject to a confidentiality
Agreement substantially similar to this Section 11.14; (iv) to regulatory
officials having jurisdiction over that Lender; (v) to any Regulatory Board
having regulatory jurisdiction over PNGI or its Subsidiaries; (vi) as required
by Law or legal process or in connection with any legal proceeding to which that
Lender and PNGI or any of its Subsidiaries are adverse parties; and (vii) to
another financial institution in connection with a disposition or proposed
disposition to that financial institution of all or part of that Lender's
interests hereunder or a participation interest in its Note, provided that the
recipient has accepted such information subject to a written confidentiality
Agreement. For purposes of the foregoing, "confidential information" shall mean
any information respecting PNGI or any of its Subsidiaries reasonably considered
by them to be confidential, other than (i) information previously filed with any
Governmental Agency and available to the public, (ii) information previously
published in any public medium from a source other than, directly or indirectly,
that Lender, and (iii) information previously disclosed by PNGI or any of its
Subsidiaries to any Person not associated with themselves without a
confidentiality Agreement or obligation substantially similar to this Section
11.14. Nothing in this Section shall be construed to create or give rise to any
fiduciary duty or other special duty on the part of any Creditor to PNGI or any
of its Subsidiaries.
1.4
1.5 Further Assurances . Each Obligor shall, at their expense and without
expense to the Creditors, do, execute and deliver such further acts and
documents as any Creditor from time to time reasonably requires for the assuring
and confirming unto the Creditors of the rights hereby created or intended now
or hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document.
1.6
1.7 Integration . This Agreement, together with the other Loan Documents,
comprises the complete and integrated Agreement of the parties on the subject
matter hereof and supersedes all prior agreements, written or oral, on the
subject matter hereof. In the event of any conflict between the provisions of
this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of the Creditors in any other Loan Document shall
not be deemed a conflict with this Agreement. Each Loan Document was drafted
with the joint participation of the respective parties thereto and shall be
construed neither against nor in favor of any party, but rather in accordance
with the fair meaning thereof.
1.8
1.9 Governing Law . Except to the extent otherwise provided therein, each Loan
Document shall be governed by, and construed and enforced in accordance with,
the local Laws of California, without reference to the choice of law or
conflicts of laws provisions thereof.
1.10
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1.11 Severability of Provisions . Any provision in any Loan Document that is
held to be inoperative, unenforceable or invalid as to any party or in any
jurisdiction shall, as to that party or jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining provisions or the
operation, enforceability or validity of that provision as to any other party or
in any other jurisdiction, and to this end the provisions of all Loan Documents
are declared to be severable.
1.12
1.13 Headings . Article and Section headings in this Agreement and the other
Loan Documents are included for convenience of reference only and are not part
of this Agreement or the other Loan Documents for any other purpose.
1.14
1.15 Time of the Essence . Time is of the essence of the Loan Documents.
------------------- 1.16
1.17 Foreign Lenders and Participants . Each Lender, and each holder of a
participation interest herein, that is incorporated or otherwise organized under
the Laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia shall deliver to Borrower (with a copy to
the Administrative Agent) on the Closing Date (or after accepting an assignment
or receiving a participation interest herein pursuant to Section 11.8, if
applicable) either Form W8-ECI or other Internal Revenue Service forms
satisfactory to Borrower and the Administrative Agent that no withholding under
the federal income tax laws is required with respect to such Person. Thereafter
and from time to time, each such Person shall (a) promptly submit to Borrower
(with a copy to the Administrative Agent) such additional duly completed and
signed copies of one of such forms as may then be available under then current
United States laws and regulations to avoid, or such evidence as is satisfactory
to Borrower and the Administrative Agent of any available exemption from, United
States withholding taxes in respect of all payments to be made to such Person by
Borrower pursuant to this Agreement and (b) take such steps as shall not be
materially disadvantageous to it, in the reasonable judgment of such Lender, and
as may be reasonably necessary (including the re-designation of its LIBOR
Office, if any) to avoid any requirement of applicable Laws that Borrower make
any deduction or withholding for taxes from amounts payable to such Person.
1.18
1.19 Waiver of Right to Trial by Jury . EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH
RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
1.20
1.1
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1.21 Purported Oral Amendments . EACH OBLIGOR EXPRESSLY ACKNOWLEDGES THAT THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED, OR THE
PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN WRITING
THAT COMPLIES WITH SECTION 11.2. BORROWER AGREES THAT IT WILL NOT RELY ON ANY
COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS BY ANY
CREDITOR OR ITS REPRESENTATIVES THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT
AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS.
1.22
1.23 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written. 1.24
1.25 "Borrower"
1.26
1.1
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PENN NATIONAL GAMING OF WEST VIRGINIA, INC., a West Virginia corporation
By: _____________________________
-----------------------------
[Printed name and title]
"Guarantor"
PENN NATIONAL GAMING, INC., a Pennsylvania corporation
<PAGE>
By: _____________________________
-----------------------------
[Printed name and title]
Address for notices:
Penn National Gaming, Inc.
Penn National Gaming of West Virginia, Inc.
==========================
Attention: ________________
Telecopier:_________________
Telephone:_________________
BANK OF AMERICA N.A., as Administrative Agent and Issuing Lender
By: __________________________________
Janice Hammond, Vice President
Address:
Bank of America, N.A.
555 South Flower Street
Los Angeles, California 90071
Attn: Janice Hammond, Vice President
Telecopier: (213) 228-2299
Telephone: (213) 222-9861
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BANK OF AMERICA, N.A., as a Lender
Pro Rata Share $10,000,000 (50%)
By: __________________________________
Scott L. Faber, Principal
Address:
Bank of America, N.A.
555 South Flower Street, #3283
Los Angeles, California 90071
Attn: Scott L. Faber, Principal
Telecopier: (213) 228-2641
Telephone: (213) 228-2768
With a copy to:
Bank of America, N.A.
555 South Flower Street (LA-5777)
Los Angeles, California 90071
Attn: William Newby, Managing Director
Telecopier: (213) 228-3145
Telephone: (213) 228-2438
FIRST UNION NATIONAL BANK
Pro Rata Share $10,000,000 (50%)
By: ______________________________
Title: _____________________________
Address for notices:
===============================
- -------------------------------
Attn:
Telephone:
Telecopier:
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<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT ("Agreement"), dated as of December
13, 1999, is made by Penn National Gaming of West Virginia, Inc., a West
Virginia corporation ("Grantor"), whose address is 825 Berkshire Blvd., Suite
200, Wyomissing, Pennsylvania 19610, in favor of Bank of America, N.A., whose
address is 555 South Flower St., Los Angeles, California 90071, as
Administrative Agent under the Loan Agreement hereafter referred to, and in
favor of each of the Lenders therein named (collectively referred to herein as
"Secured Party"), with reference to the following facts:
RECITALS
A. Pursuant to the Senior Secured Multiple Draw Term Loan Agreement of even date
herewith by and among Grantor, Penn National Gaming, Inc., a Pennsylvania
corporation, as Guarantor, the lenders from time to time party thereto
(collectively, the "Lenders" and individually, a "Lender"), and the
Administrative Agent (as such agreement may from time to time be amended,
extended, renewed, supplemented or otherwise modified, the "Loan Agreement"),
the Lenders have agreed to extend certain credit facilities to Grantor.
A. The Loan Agreement provides, as a condition of the availability of such
credit facilities, that Grantor shall enter into this Agreement and shall grant
security interests to Secured Party as herein provided.
AGREEMENT
NOW, THEREFORE, in order to induce the Lenders to extend the
aforementioned credit facilities, and for other good and valuable consideration,
the receipt and adequacy of which hereby is acknowledged, Grantor hereby
represents, warrants, covenants, agrees, assigns and grants as follows:
1. Definitions. This Agreement is the Security Agreement referred to in the Loan
Agreement. This Agreement is one of the "Loan Documents" referred to in the Loan
Agreement. Terms defined in the Loan Agreement and not otherwise defined in this
Agreement shall have the meanings defined for those terms in the Loan Agreement.
Terms defined in the California Uniform Commercial Code and not otherwise
defined in this Agreement or in the Loan Agreement shall have the meanings
defined for those terms in the California Uniform Commercial Code. As used in
this Agreement, the following terms shall have the meanings respectively set
forth after each:
2.
"Agreement" means this Security Agreement, and any extensions,
modifications, renewals, restatements, supplements or amendments
hereof.
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"Collateral" means and includes all present and future right,
title and interest of Grantor in or to the following Property:
(a) the equipment and other property described on
Schedule 1.1 and Schedule 1.2 hereto, and all the video lottery
terminals, slot machines, and other gaming equipment, lights, chairs,
rails, and related support equipment and all fixtures related to any
such equipment and located at the Charles Town Facility;
(b) all rights of Grantor under that certain Master
Lease Agreement of even date herewith between Grantor and PNGI Charles
Town Gaming Limited Liability Company, a West Virginia limited
liability company, including all rights to receive the payment of rent
thereunder (the "Lease");
(c) any and all equipment, fixtures and other
property which may hereafter become subject to the Lease by delivery of
additional lease schedules thereunder (it being understood that
concurrently with the delivery of any such lease schedule to the
Administrative Agent by Borrower in connection with any Request for
Loan under the Loan Agreement, such additional equipment, fixtures and
other property will automatically and without further action by
Borrower or any other Person become Collateral subject to the Lien of
this Security Agreement);
(d) all present and future books and records related
to the Collateral, including, without limitation, books of account and
ledgers of every kind and nature, all electronically recorded data
relating to the Collateral, all receptacles and containers for such
records, and all files and correspondence;
(e) all present and future accessions, appurtenances,
components, repairs, repair parts, spare parts, replacements,
substitutions, additions, issue and/or improvements to or of or with
respect to any of the foregoing;
(f) all rights, remedies, powers and/or privileges of Grantor with respect to
any of the foregoing; and
(g) any and all proceeds and products of any of the
foregoing, including, without limitation, all money, accounts, general
intangibles, deposit accounts, documents, instruments, chattel paper,
goods, insurance proceeds, and any other tangible or intangible
property received upon the sale or disposition of any of the foregoing.
"Secured Obligations" means any and all present and future
Obligations of every kind or nature of Grantor at any time and from time to time
owed to Secured Party or any one or more of them, under any one or more of the
Loan Documents, whether due or to become due, matured or unmatured, liquidated
or unliquidated, or contingent or noncontingent, including Obligations of
performance as well as Obligations of payment, and including interest that
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accrues after the commencement of any proceeding under any Debtor Relief Law by
or against Grantor.
1. Further Assurances. At any time and from time to time at the request of
Secured Party, Grantor shall execute and deliver to Secured Party all such
financing statements and other instruments and documents in form and substance
satisfactory to Secured Party as shall be necessary or desirable to fully
perfect, when filed and/or recorded, Secured Party's security interests granted
pursuant to Section 3 of this Agreement. At any time and from time to time,
Secured Party shall be entitled to file and/or record any or all such financing
statements, instruments and documents held by it, and any or all such further
financing statements, documents and instruments, and to take all such other
actions, as Secured Party may deem appropriate to perfect and to maintain
perfected the security interests granted in Section 3 of this Agreement. Before
and after the occurrence of any Event of Default, at Secured Party's request,
Grantor shall execute all such further financing statements, instruments and
documents, and shall do all such further acts and things, as may be deemed
necessary or desirable by Secured Party to create and perfect, and to continue
and preserve, an indefeasible security interest in the Collateral in favor of
Secured Party, or the priority thereof. With respect to any Collateral
consisting of instruments, documents, certificates of title or the like, as to
which Secured Party's security interest need be perfected by, or the priority
thereof need be assured by, possession of such Collateral, Grantor will upon
demand of Secured Party deliver possession of same in pledge to Secured Party.
With respect to any Collateral consisting of securities, instruments,
partnership or joint venture interests or the like, Grantor hereby consents and
agrees that the issuers of, or obligors on, any such Collateral, or any
registrar or transfer agent or trustee for any such Collateral, shall be
entitled to accept the provisions of this Agreement as conclusive evidence of
the right of Secured Party to effect any transfer or exercise any right
hereunder or with respect to any such Collateral, notwithstanding any other
notice or direction to the contrary heretofore or hereafter given by Grantor or
any other Person to such issuers or such obligors or to any such registrar or
transfer agent or trustee. 2.
3. Security Agreement. For valuable consideration, Grantor hereby assigns and
pledges to Secured Party, and grants to Secured Party a security interest in,
all presently existing and hereafter acquired Collateral, as security for the
timely payment and performance of the Secured Obligations, and each of them.
This Agreement is a continuing and irrevocable agreement and all the rights,
powers, privileges and remedies hereunder shall apply to any and all Secured
Obligations, including those arising under successive transactions which shall
either continue the Secured Obligations, increase or decrease them, or from time
to time create new Secured Obligations after all or any prior Secured
Obligations have been satisfied, and notwithstanding the bankruptcy of Grantor
or any other Person or any other event or proceeding affecting any Person.
4.
5. Grantor's Representations, Warranties and Agreements. Except as otherwise
disclosed to Secured Party in writing concurrently herewith, Grantor represents,
warrants and agrees that: (a) Grantor will pay, prior to delinquency, all taxes,
charges, Liens and assessments against the Collateral, except such as are timely
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contested in good faith, and upon its failure to pay or so contest such taxes,
charges, Liens and assessments, Secured Party at its option may pay any of them,
and Secured Party shall be the sole judge of the legality or validity thereof
and the amount necessary to discharge the same; (b) the Collateral will not be
used for any unlawful purpose or in material violation of any Law, regulation or
ordinance, nor used in any way that will void or impair any insurance required
to be carried in connection therewith; (c) Grantor will, to the extent
consistent with good business practice, keep the Collateral in reasonably good
repair, working order and condition, and from time to time make all needful and
proper repairs, renewals, replacements, additions and improvements thereto and,
as appropriate and applicable, will otherwise deal with the Collateral in all
such ways as are considered good practice by owners of like Property; (d)
Grantor will take all reasonable steps to preserve and protect the Collateral;
(e) Grantor will maintain, with responsible insurance companies, insurance
covering the Collateral against such insurable losses as is required by the Loan
Agreement and as is consistent with sound business practice, and will cause
Secured Party to be designated as an additional insured and loss payee with
respect to all insurance (whether or not required by the Loan Agreement), will
obtain the written agreement of the insurers that such insurance shall not be
canceled, terminated or materially modified to the detriment of Secured Party
without at least 30 days prior written notice to Secured Party, and will furnish
copies of such insurance policies or certificates to Secured Party promptly upon
request therefor; (f) Grantor will promptly notify Secured Party in writing in
the event of any substantial or material damage to the Collateral from any
source whatsoever, and, except for the disposition of collections and other
proceeds of the Collateral permitted by Section 6 hereof, Grantor will not
remove or permit to be removed any part of the Collateral from the Charles Town
Facility, without the prior written consent of Secured Party, except for such
items of the Collateral as are removed in the ordinary course of business or in
connection with any transaction or disposition otherwise permitted by the Loan
Documents; and (g) in the event Grantor changes its name or its address as
either are set forth herein or in the Loan Agreement, Grantor will notify
Secured Party of such name and/or address change promptly, but in any event,
within thirty days.
6.
7. Secured Party's Rights Re Collateral. Without limitation upon the inspection
and audit rights granted to Secured Party under the Loan Agreement, if an Event
of Default has occurred and remains continuing, then at any time without notice
or demand and at the sole expense of Grantor, Secured Party may, to the extent
it may be necessary or desirable to protect the security hereunder, but Secured
Party shall not be obligated to: (a) enter upon any premises on which Collateral
is situated and examine the same or (b) perform any obligation of Grantor under
this Agreement or any obligation of any other Person under the Loan Documents.
At any time and from time to time, at the expense of Grantor, Secured Party may,
to the extent it may be necessary or desirable to protect the security
hereunder, but Secured Party shall not be obligated to: (i) notify obligors on
the Collateral that the Collateral has been assigned to Secured Party; (ii) at
any time and from time to time request from obligors on the Collateral, in the
name of Grantor or in the name of Secured Party, information concerning the
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Collateral and the amounts owing thereon; and (iii) while an Event of Default is
continuing cause the Collateral to be registered in the name of Secured Party,
as legal owner. Grantor shall at any time at Secured Party's request mark the
Collateral and/or Grantor's ledger cards, books of account and other records
relating to the Collateral with appropriate notations satisfactory to Secured
Party disclosing that they are subject to Secured Party's security interests.
Secured Party shall be under no duty or obligation whatsoever to take any action
to protect or preserve the Collateral or any rights of Grantor therein, or to
make collections or enforce payment thereon, or to participate in any
foreclosure or other proceeding in connection therewith.
8.
9. Collections on the Collateral. Except as otherwise provided in any Loan
Document, Grantor shall have the right to use and to continue to make
collections on and receive dividends and other proceeds of all of the Collateral
in the ordinary course of business so long as no Event of Default shall have
occurred and be continuing. Upon the occurrence and during the continuance of an
Event of Default, at the option of Secured Party, Grantor's right to make
collections on and receive dividends and other proceeds of the Collateral and to
use or dispose of such collections and proceeds shall terminate, and any and all
dividends, proceeds and collections, including all partial or total prepayments,
then held or thereafter received on or on account of the Collateral will be held
or received by Grantor in trust for Secured Party and immediately delivered in
kind to Secured Party. Any remittance received by Grantor from any Person shall
be presumed to relate to the Collateral and to be subject to Secured Party's
security interests. Upon the occurrence and during the continuance of an Event
of Default, Secured Party shall have the right at all times to receive, receipt
for, endorse, assign, deposit and deliver, in the name of Secured Party or in
the name of Grantor, any and all checks, notes, drafts and other instruments for
the payment of money constituting proceeds of or otherwise relating to the
Collateral; and Grantor hereby authorizes Secured Party to affix, by facsimile
signature or otherwise, the general or special endorsement of it, in such manner
as Secured Party shall deem advisable, to any such instrument in the event the
same has been delivered to or obtained by Secured Party without appropriate
endorsement, and Secured Party and any collecting bank are hereby authorized to
consider such endorsement to be a sufficient, valid and effective endorsement by
Grantor, to the same extent as though it were manually executed by the duly
authorized officer of Grantor, regardless of by whom or under what circumstances
or by what authority such facsimile signature or other endorsement actually is
affixed, without duty of inquiry or responsibility as to such matters, and
Grantor hereby expressly waives demand, presentment, protest and notice of
protest or dishonor and all other notices of every kind and nature with respect
to any such instrument.
10.
11. Possession of Collateral by Secured Party. Any or all of the Collateral
delivered to Secured Party consisting of Cash shall be held in an
interest-bearing account and, when an Event of Default exists, Secured Party
may, in its discretion, apply any such interest to payment of the Secured
Obligations. Nothing herein shall obligate Secured Party to invest any
Collateral or obtain any particular return thereon. Upon the occurrence and
during the continuance of an Event of Default, whenever any of the Collateral is
in Secured Party's possession, custody or control, Secured Party may use,
operate and consume the Collateral, whether for the purpose of preserving and/or
protecting the Collateral or for the purpose of performing any of Grantor's
obligations with respect thereto. Secured Party may at any time deliver or
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redeliver the Collateral or any part thereof to Grantor, and the receipt of any
of the same by Grantor shall be complete and full acquittance for the Collateral
so delivered, and Secured Party thereafter shall be discharged from any
liability or responsibility therefor. So long as Secured Party exercises
reasonable care with respect to any Collateral in its possession, custody or
control, Secured Party shall have no liability for any loss of or damage to such
Collateral, and in no event shall Secured Party have liability for any
diminution in value of Collateral occasioned by economic or market conditions or
events. Secured Party shall be deemed to have exercised reasonable care within
the meaning of the preceding sentence if the Collateral in the possession,
custody or control of Secured Party is accorded treatment substantially equal to
that which Secured Party accords its own property, it being understood that
Secured Party shall not have any responsibility for (a) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relating to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters, or (b) taking any necessary steps to
preserve rights against any Person with respect to any Collateral.
12.
13. Rights Upon Event of Default. Upon the occurrence and during the continuance
of an Event of Default, Secured Party shall have, in any jurisdiction where
enforcement hereof is sought, in addition to all other rights and remedies that
Secured Party may have under applicable Law or in equity or under this Agreement
(including, without limitation, all rights set forth in Section 6 hereof) or
under any other Loan Document, all rights and remedies of a secured party under
the Uniform Commercial Code as enacted in any jurisdiction, and, in addition,
the following rights and remedies, all of which may be exercised with or without
notice to Grantor and without affecting the Obligations of Grantor hereunder or
under any other Loan Document, or the enforceability of the Liens and security
interests created hereby: (a) to foreclose the Liens and security interests
created hereunder or under any other agreement relating to any Collateral by any
available judicial procedure or without judicial process; (b) to enter any
premises where any Collateral may be located for the purpose of securing,
protecting, inventorying, appraising, inspecting, repairing, preserving,
storing, preparing, processing, taking possession of or removing the same; (c)
to sell, assign, lease or otherwise dispose of any Collateral or any part
thereof, either at public or private sale or at any broker's board, in lot or in
bulk, for cash, on credit or otherwise, with or without representations or
warranties and upon such terms as shall be acceptable to Secured Party; (d) to
notify obligors on the Collateral that the Collateral has been assigned to
Secured Party and that all payments thereon are to be made directly and
exclusively to Secured Party; (e) to collect by legal proceedings or otherwise
all dividends, distributions, interest, principal or other sums now or hereafter
payable upon or on account of the Collateral; (f) to cause the Collateral to be
registered in the name of Secured Party, as legal owner; (g) to enter into any
extension, reorganization, deposit, merger or consolidation agreement, or any
other agreement relating to or affecting the Collateral, and in connection
therewith Secured Party may deposit or surrender control of the Collateral
and/or accept other Property in exchange for the Collateral; (h) to settle,
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compromise or release, on terms acceptable to Secured Party, in whole or in
part, any amounts owing on the Collateral and/or any disputes with respect
thereto; (i) to extend the time of payment, make allowances and adjustments and
issue credits in connection with the Collateral in the name of Secured Party or
in the name of Grantor; (j) to enforce payment and prosecute any action or
proceeding with respect to any or all of the Collateral and take or bring, in
the name of Secured Party or in the name of Grantor, any and all steps, actions,
suits or proceedings deemed by Secured Party necessary or desirable to effect
collection of or to realize upon the Collateral, including any judicial or
nonjudicial foreclosure thereof or thereon, and Grantor specifically consents to
any nonjudicial foreclosure of any or all of the Collateral or any other action
taken by Secured Party which may release any obligor from personal liability on
any of the Collateral, and Grantor waives any right not expressly provided for
in this Agreement to receive notice of any public or private judicial or
nonjudicial sale or foreclosure of any security or any of the Collateral; and
any money or other property received by Secured Party in exchange for or on
account of the Collateral, whether representing collections or proceeds of
Collateral, and whether resulting from voluntary payments or foreclosure
proceedings or other legal action taken by Secured Party or Grantor may be
applied by Secured Party without notice to Grantor to the Secured Obligations in
such order and manner as Secured Party in its sole discretion shall determine;
(k) to insure, process and preserve the Collateral; (l) to exercise all rights,
remedies, powers or privileges provided under any of the Loan Documents; (m) to
remove, from any premises where the same may be located, the Collateral and any
and all documents, instruments, files and records, and any receptacles and
cabinets containing the same, relating to the Collateral, and Secured Party may,
at the cost and expense of Grantor, use such of its supplies, equipment,
facilities and space at its places of business as may be necessary or
appropriate to properly administer, process, store, control, prepare for sale or
disposition and/or sell or dispose of the Collateral or to properly administer
and control the handling of collections and realizations thereon, and Secured
Party shall be deemed to have a rent-free tenancy of premises of Grantor for
such purposes and for such periods of time as reasonably required by Secured
Party; (n) to receive, open and dispose of all mail addressed to Grantor and
notify postal authorities to change the address for delivery thereof to such
address as Secured Party may designate; provided that Secured Party agrees that
it will promptly deliver over to Grantor such opened mail as does not relate to
the Collateral; and (o) to exercise all other rights, powers, privileges and
remedies of an owner of the Collateral; all at Secured Party's sole option and
as Secured Party in its sole discretion may deem advisable. Grantor will, at
Secured Party's request, assemble the Collateral and make it available to
Secured Party at places which Secured Party may designate, whether at the
premises of Grantor or elsewhere, and will make available to Secured Party, free
of cost, all premises, equipment and facilities of Grantor for the purpose of
Secured Party's taking possession of the Collateral or storing same or removing
or putting the Collateral in salable form or selling or disposing of same.
14.
15. Upon the occurrence and during the continuance of an Event of Default,
Secured Party also shall have the right, without notice or demand, either in
person, by agent or by a receiver to be appointed by a court (and Grantor hereby
expressly consents upon the occurrence and during the continuance of an Event of
Default to the appointment of such a receiver), and without regard to the
adequacy of any security for the Secured Obligations, to take possession of the
Collateral or any part thereof and to collect and receive the rents, issues,
profits, income and proceeds thereof. Taking possession of the Collateral shall
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not cure or waive any Event of Default or notice thereof or invalidate any act
done pursuant to such notice. The rights, remedies and powers of any receiver
appointed by a court shall be as ordered by said court.
16.
17. Any public or private sale or other disposition of the Collateral may be
held at any office of Secured Party, or at Grantor's places of business, or at
any other place permitted by applicable Law, and without the necessity of the
Collateral's being within the view of prospective purchasers. Secured Party may
direct the order and manner of sale of the Collateral, or portions thereof, as
it in its sole and absolute discretion may determine, and Grantor expressly
waives any right to direct the order and manner of sale of any Collateral.
Secured Party or any Person on Secured Party's behalf may bid and purchase at
any such sale or other disposition. The net cash proceeds resulting from the
collection, liquidation, sale, lease or other disposition of the Collateral
shall be applied, first, to the expenses (including reasonable attorneys' fees
and disbursements) of retaking, holding, storing, processing and preparing for
sale or lease, selling, leasing, collecting, liquidating and the like, and then
to the satisfaction of the Secured Obligations in such order as shall be
determined by Secured Party in its sole and absolute discretion. Grantor and any
other Person then obligated therefor shall pay to Secured Party on demand any
deficiency with regard thereto which may remain after such sale, disposition,
collection or liquidation of the Collateral. Any surplus held by the Secured
Party and remaining after payment in full of all the Secured Obligations shall
immediately be reassigned and redelivered to Grantor, or to the person or
persons otherwise legally entitled thereto.
18.
19. Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Secured Party
will send or otherwise make available to Grantor reasonable notice of the time
and place of any public sale thereof or of the time on or after which any
private sale thereof is to be made. The requirement of sending reasonable notice
conclusively shall be met if such notice is mailed, first class mail, postage
prepaid, to Grantor at its address set forth in the Loan Agreement, or delivered
or otherwise sent to Grantor, at least five days before the date of the sale.
Grantor expressly waives any right to receive notice of any public or private
sale of any Collateral or other security for the Secured Obligations except as
expressly provided for in this paragraph.
20.
1.
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13
Upon consummation of any sale of Collateral hereunder, Secured
Party shall have the right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Each such purchaser at any such sale
shall hold the Collateral so sold absolutely free from any claim or right upon
the part of Grantor or any other Person, and Grantor hereby waives (to the
extent permitted by applicable Laws) all rights of redemption, stay and
appraisal which it now has or may at any time in the future have under any rule
of Law or statute now existing or hereafter enacted. If the sale of all or any
part of the Collateral is made on credit or for future delivery, Secured Party
shall not be required to apply any portion of the sale price to the Secured
Obligations until such amount actually is received by Secured Party, and any
Collateral so sold may be retained by Secured Party until the sale price is paid
in full by the purchaser or purchasers thereof. Secured Party shall not incur
any liability in case any such purchaser or purchasers shall fail to pay for the
Collateral so sold, and, in case of any such failure, the Collateral may be sold
again.
10. Attorney-in-Fact. Grantor hereby irrevocably nominates and appoints Secured
Party as its attorney-in-fact for the following purposes: (a) upon the
occurrence and during the continuance of an Event of Default, to preserve,
process, develop, maintain and protect the Collateral; (b) upon the occurrence
and during the continuance of an Event of Default, to do any and every act which
Grantor is obligated to do under this Agreement, at the expense of Grantor and
without any obligation to do so; (c) to prepare, sign, file and/or record, for
Grantor, in the name of Grantor, any financing statement, application for
registration, or like paper, and to take any other action deemed by Secured
Party necessary or desirable in order to perfect or maintain perfected the
security interests granted hereby; and (d) upon the occurrence and during the
continuance of an Event of Default, to execute any and all papers and
instruments and do all other things necessary or desirable to preserve and
protect the Collateral and to protect Secured Party's security interests
therein; provided, however, that Secured Party shall be under no obligation
whatsoever to take any of the foregoing actions, and, absent bad faith or actual
malice, Secured Party shall have no liability or responsibility for any act
taken or omission with respect thereto.
11.
12. Statute of Limitations and Other Laws. Until the Secured Obligations shall
have been paid and performed in full, the power of sale and all other rights,
privileges, powers and remedies granted to Secured Party hereunder shall
continue to exist and may be exercised by Secured Party at any time and from
time to time irrespective of the fact that any of the Secured Obligations may
have become barred by any statute of limitations. Grantor expressly waives the
benefit of any and all statutes of limitation, and any and all Laws providing
for exemption of property from execution or for valuation and appraisal upon
foreclosure, to the maximum extent permitted by applicable Law.
13.
14. Other Agreements. Nothing herein shall in any way modify or limit the effect
of terms or conditions set forth in any other security or other agreement
executed by Grantor or in connection with the Secured Obligations, but each and
every term and condition hereof shall be in addition thereto. All provisions
contained in the Loan Agreement or any other Loan Document that apply to Loan
Documents generally are fully applicable to this Agreement and are incorporated
herein by this reference. 15.
16.
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Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original ------------ and all of which, taken
together, shall constitute one and the same agreement. 17. 18. GOVERNING
LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS ------------- OF THE STATE OF CALIFORNIA WITHOUT
REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF.
IN WITNESS WHEREOF, Grantor has executed this Agreement by its duly authorized
officer as of the date first written above.
"Grantor"
PENN NATIONAL GAMING OF WEST VIRGINIA, INC., a West Virginia corporation
By: ______________________________
------------------------------
[Printed name and title]
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ACCEPTED AND AGREED
AS OF THE DATE FIRST
ABOVE WRITTEN:
"Secured Party"
BANK OF AMERICA , N.A.,
as Administrative Agent, and
for and on behalf of the Lenders
By: _________________________
-------------------------
[Printed name and title]
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SUBORDINATION AGREEMENT
This Subordination Agreement ("Agreement") is entered into as
of December 13, 1999 by and among Bank of America, N.A., as Administrative Agent
for the Lenders under the Senior Secured Multiple Draw Term Loan Agreement
described below ("Agent"), Penn National Gaming of West Virginia, Inc., a West
Virginia corporation ("Lessor") and PNGI Charles Town Gaming Limited Liability
Company, a West Virginia limited liability company ("Lessee").
R E C I T A L S
WHEREAS, pursuant to a Senior Secured Multiple Draw Term Loan Agreement
dated as of December 13, 1999 among Lessor, Penn National Gaming, Inc., as
Guarantor, the Lenders named therein, and Agent, the Lenders have made certain
credit facilities available to Lessor (as such agreement may from time to time
be amended, extended, renewed, supplemented or otherwise modified, the "Loan
Agreement"). Capitalized terms used but not defined in this Agreement have the
meanings set forth for those terms in the Loan Agreement.
WHEREAS, Lessor's obligations under the Loan Agreement are secured by a
Security Agreement made by Lessor in favor of Agent and the Lenders (as such
agreement may from time to time be amended, extended, renewed, supplemented or
otherwise modified, the "Security Agreement") in which Lessor gave a security
interest to Agent and the Lenders (collectively, "Secured Party") in the
personal property of Lessor described on Exhibit A attached hereto and made a
part hereof ("Assets").
WHEREAS, Lessor proposes to lease the Assets to Lessee pursuant to the
terms, conditions and agreements contained in the Master Lease Agreement of even
date herewith between Lessor and Lessee (as such agreement may from time to time
be amended, extended, renewed, supplemented or otherwise modified, the "Lease").
WHEREAS, it is a condition to the making of the Loans under the Loan
Agreement and to Lessor's purchase of the Assets that the Lessee subordinate its
right to the Assets under the Lease to the Lien of Secured Party under the
Security Agreement on the terms and conditions in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Agent and Lessee acknowledge,
represent and agree for the benefit of the other, with knowledge that the other
is fully relying thereon, as follows:
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1. Agent consents to the Lease between Lessor and Lessee.
2.
3. 2. Lessee acknowledges that the Lease is an operating lease and that title to
the Assets at all times during the term of the Lease shall remain with Lessor
and that Lessee shall only have the rights of a lessee of the Assets. All rights
and interests of Lessee in and to the Assets pursuant to the Lease shall be
subject and subordinate to the lien of the Security Agreement and to any
renewals, modifications, consolidations, replacements and extensions of the
Security Agreement to the full extent of the principal sum secured by the
Security Agreement including any interest. In the event of any assertion by
Secured Party of its Lien under the Security Agreement, Lessee shall immediately
surrender possession of the Assets to Agent or its designee, notwithstanding the
Lease, or shall attorn to the Agent or its designee in accordance with Section 3
hereof, as elected by the Agent. 4.
5. 3. If Lessor's interest is transferred to and owned by Secured Party or any
successor of Secured Party or their designee ("Acquiring Party") because of
foreclosure or other proceedings brought by Secured Party, or by any other
manner and Secured Party succeeds to Lessor's interest under the Lease, Lessee
shall be bound to the Acquiring Party until such time as Acquiring Party or
Lessee shall choose to terminate the Lease, or the Lease otherwise terminates,
pursuant to the terms thereof, with the same effect as if Acquiring Party were
Lessor under the Lease. Lessee agrees to attorn to Acquiring Party as the Lessor
during the term of the Lease, with the attornment being effective and
self-operable immediately upon Acquiring Party succeeding to the interest of
Lessor under the Lease, all without the execution by the parties of any further
instruments. The respective rights and obligations of Lessee and Acquiring Party
upon attornment, to the extent of the then remaining balance of the term of the
Lease, shall be the same as in the Lease.
6.
7. 4. Immediately upon request by Acquiring Party, Lessee and Acquiring Party
shall enter into a new written lease for the remainder of the original term of
the Lease on the same terms and conditions as the Lease, except for any
non-material changes made necessary because of the substitution of Acquiring
Party in place of Lessor.
8.
9. 5. The term "Agent" or any similar term shall include Agent and any agents,
successors, or assigns of Agent and the term "Lenders" or any similar term shall
include Lenders and any agents, successors, or assigns of Lenders, including in
each case any party that succeeds to Lessor's interest by foreclosure of the
Security Agreement or by any other proceeding. The term "Lessor" shall include
Lessor and the successors, assigns, and sublessors of Lessor. The term "Lessee"
shall include Lessee and the successors, assigns, and sublessees of Lessee.
10.
11. 6. Lessor and Lessee agree not to change, alter, amend, or otherwise modify
the Lease without the prior written consent of Agent which shall not be
unreasonably withheld, conditioned or delayed. Any change, alteration,
amendment, or other modification to the Lease without the prior written consent
of Agent shall be void as to Secured Party, but shall not otherwise affect the
terms of this Agreement.
12.
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13. 7. Lessee agrees that it shall not make any prepayment of rent under the
Lease more than one calendar month in advance of the date when due without
the prior written consent of the Agent, and that any prepayment made prior
to such date or without the written consent of the Agent shall not be
binding upon Secured Party or any Acquiring Party. 14. 15. 8. This
Agreement may not be modified other than by an agreement in writing signed
by the parties or by their respective successors in interest. 16. 17. 9. If
any party commences any action against any other party based on this
Agreement, the prevailing party shall be entitled to recover reasonable
attorney fees, expenses, and costs of suit. 18. 10. In this Agreement,
wherever it is required or permitted that notice and demand be given by any
party to another party, that notice or demand shall be given in writing and
personally delivered or sent by certified mail or nationally recognized
overnight courier addressed as follows: 19.
20. For Lessor: Penn National Gaming of West Virginia, Inc.
21. _______________________
22. _______________________
23. Attn: __________________
24.
For Agent: Bank of America, N.A.
Agency Management
#20529
Bank of America, N.A.
555 South Flower Street, 11th Floor
Los Angeles, California 90071
Attn: Janice Hammond
For Lessee: PNGI Charles Town Gaming Limited Liability Company
======================
----------------------
Attn: _________________
Any party may change an address given for notice by giving
written notice of that change by notice as herein provided to all other parties.
11. This Agreement shall be binding on and inure to the benefit
of the parties and their respective successors and
assigns.
12. This Agreement may be executed in one or more counterparts,
each of which is an original, but all of which shall
constitute one and the same instrument.
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13. This Agreement shall be construed in accordance with and
governed by California law.
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement as of the day and year first written
above.
AGENT: LESSEE:
<TABLE>
<CAPTION>
BANK OF AMERICA, N.A., PNGI CHARLES TOWN GAMING LIMITED LIABILITY COMPANY,
as Administrative Agent for the Lenders a West Virginia limited liability company
<S> <C>
By:________________________________
Name: _____________________________ By:_______________________________
Title: ______________________________ Name: ____________________________
Title: _____________________________
</TABLE>
LESSOR:
PENN NATIONAL GAMING OF WEST VIRGINIA, INC.,
a West Virginia corporation
By:________________________________
Name: _____________________________
Title: ______________________________
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GUARANTY
This GUARANTY ("Guaranty"), dated as of December 13, 1999, is
made by Penn National Gaming, Inc., a Pennsylvania corporation ("Guarantor") in
favor of Bank of America, N.A., as Administrative Agent for the benefit of the
Banks that are party to the Loan Agreement referred to below (collectively with
the Lenders, "Lender"), with reference to the following facts:
RECITALS
A. Pursuant to the Senior Secured Multiple Draw Term Loan Agreement dated as of
December 13, 1999 by and among Penn National Gaming of West Virginia, Inc., a
West Virginia corporation (the "Borrower"), Guarantor, the lenders from time to
time party thereto (collectively, the "Banks" and individually, a "Bank"), and
Bank of America, N.A., as Administrative Agent (as such agreement may from time
to time be extended, modified, renewed, restated, supplemented or amended, the
"Loan Agreement"), the Banks are making certain credit facilities available to
Borrower.
A. As a condition to the availability of such credit facilities, Guarantor
is required to enter into this Guaranty and to guaranty the Guarantied
Obligations as hereinafter provided. B. C. Guarantor expects to realize direct
and indirect benefits as the result of the availability of the aforementioned
credit facilities to Borrower.
AGREEMENT
NOW, THEREFORE, in order to induce the Banks to continue to
extend the aforementioned credit facilities, and for other good and valuable
consideration, the receipt and adequacy of which hereby are acknowledged,
Guarantor hereby represents, warrants, covenants, agrees and guaranties as
follows:
1. Definitions. This Guaranty is the PNGI Guaranty referred to in the Loan
Agreement and is one of the Loan Documents. Terms defined in the Loan Agreement
and not otherwise defined in this Guaranty shall have the meanings given those
terms in the Loan Agreement when used herein and such definitions are
incorporated herein as though set forth in full. In addition, as used herein,
the following terms shall have the meanings respectively set forth after each:
2.
"Guarantied Obligations" means all present and future
Obligations of every kind or nature of Borrower at any
time and from time to time owed to Lender under any one or
more of the Loan Documents, whether due or to become due,
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matured or unmatured, liquidated or unliquidated, or
contingent or noncontingent, including Obligations of
performance as well as Obligations of payment, and
including interest that accrues after the commencement of
any proceeding under any Debtor Relief Law by or against
Guarantor, Borrower, any Subsidiary or Affiliate of
Borrower or any other Person.
"Guarantor" means Penn National Gaming, Inc., a Pennsylvania corporation.
---------
"Guaranty" means this Guaranty, and any extensions,
modifications, renewals, restatements, reaffirmations,
supplements or amendments hereof.
"Lender" means the Administrative Agent (acting as the
Administrative Agent and/or on behalf of the Banks), and
the Banks, and each of them, and any one or more of them.
Subject to the terms of the Loan Agreement, any right,
remedy, privilege or power of Lender may be exercised by
the Administrative Agent, or by the Requisite Lenders, or
by any Bank acting with the consent of the Requisite
Lenders.
1. Guaranty of Guarantied Obligations. Guarantor hereby irrevocably,
unconditionally guaranties and promises to pay and perform on demand the
Guarantied Obligations and each and every one of them, including all amendments,
modifications, supplements, renewals or extensions of any of them, whether such
amendments, modifications, supplements, renewals or extensions are evidenced by
new or additional instruments, documents or agreements or change the rate of
interest on any Guarantied Obligation or the security therefor, or otherwise.
2.
3. Nature of Guaranty. This Guaranty is irrevocable and continuing in
nature and relates to any Guarantied ------------------ Obligations now existing
or hereafter arising. This Guaranty is a guaranty of prompt and punctual payment
and performance and is not merely a guaranty of collection. 4.
5. Relationship to Other Agreements. Nothing herein shall in any way modify or
limit the effect of terms or conditions set forth in any other document,
instrument or agreement executed by Guarantor or in connection with the
Guarantied Obligations, but each and every term and condition hereof shall be in
addition thereto. All provisions contained in the Loan Agreement or any other
Loan Document that apply to Loan Documents generally are fully applicable to
this Guaranty and are incorporated herein by this reference.
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1. Subordination of Indebtedness of Borrower to Guarantor to the Guarantied
Obligations. Guarantor agrees
- --------------------------------------------------------------------------------
that: 2.
(a) Any indebtedness of Borrower now or hereafter owed to Guarantor hereby is
subordinated to the
Guarantied Obligations.
(a) If Lender so requests, upon the occurrence and during the
continuance of any Event of Default, any such indebtedness of
Borrower now or hereafter owed to Guarantor shall be collected,
enforced and received by Guarantor as trustee for Lender and shall
be paid over to Lender in kind on account of the Guarantied
Obligations, but without reducing or affecting in any manner the
obligations of Guarantor under the other provisions of this
Guaranty.
(a) Should Guarantor fail to collect or enforce any such
indebtedness of Borrower now or hereafter owed to Guarantor and pay
the proceeds thereof to Lender in accordance with Section 5(b)
hereof, Lender as Guarantor's attorney-in-fact may do such acts and
sign such documents in Guarantor's name as Lender considers
necessary or desirable to effect such collection, enforcement
and/or payment.
1. Statutes of Limitations and Other Laws. Until the Guarantied Obligations
shall have been paid and performed in full, all the rights, privileges, powers
and remedies granted to Lender hereunder shall continue to exist and may be
exercised by Lender at any time and from time to time irrespective of the fact
that any of the Guarantied Obligations may have become barred by any statute of
limitations. Guarantor expressly waives the benefit of any and all statutes of
limitation, and any and all Laws providing for exemption of property from
execution or for evaluation and appraisal upon foreclosure, to the maximum
extent permitted by applicable Laws.
2.
3. Waivers and Consents. Guarantor acknowledges that the obligations undertaken
herein involve the guaranty of obligations of Persons other than Guarantor and,
in full recognition of that fact, consents and agrees that Lender may, at any
time and from time to time, without notice or demand, and without affecting the
enforceability or continuing effectiveness hereof: (a) supplement, modify,
amend, extend, renew, accelerate or otherwise change the time for payment or the
terms of the Guarantied Obligations or any part thereof, including any increase
or decrease of the rate(s) of interest thereon; (b) supplement, modify, amend or
waive, or enter into or give any agreement, approval or consent with respect to,
the Guarantied Obligations or any part thereof, or any of the Loan Documents to
which Guarantor is not a party or any additional security or guaranties, or any
condition, covenant, default, remedy, right, representation or term thereof or
thereunder; (c) accept new or additional instruments, documents or agreements in
exchange for or relative to any of the Loan Documents or the Guarantied
Obligations or any part thereof; (d) accept partial payments on the Guarantied
Obligations; (e) receive and hold additional security or guaranties for the
Guarantied Obligations or any part thereof; (f) release, reconvey, terminate,
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waive, abandon, fail to perfect, subordinate, exchange, substitute, transfer
and/or enforce any security or guaranties, and apply any security and direct the
order or manner of sale thereof as Lender in its sole and absolute discretion
may determine; (g) release any Person from any personal liability with respect
to the Guarantied Obligations or any part thereof; (h) settle, release on terms
satisfactory to Lender or by operation of applicable Laws or otherwise liquidate
or enforce any Guarantied Obligations and any security or guaranty therefor in
any manner, consent to the transfer of any security and bid and purchase at any
sale; and/or (i) consent to the merger, change or any other restructuring or
termination of the corporate existence of Borrower, Guarantor or any other
Person, and correspondingly restructure the Guarantied Obligations, and any such
merger, change, restructuring or termination shall not affect the liability of
Guarantor or the continuing effectiveness hereof, or the enforceability hereof
with respect to all or any part of the Guarantied Obligations.
4.
5. Upon the occurrence and during the continuance of any Event of Default,
Lender may enforce this Guaranty independently as to Guarantor and independently
of any other remedy or security Lender at any time may have or hold in
connection with the Guarantied Obligations. Guarantor expressly waives any right
to require Lender to marshal assets in favor of Guarantor, and agrees that
Lender may proceed against Borrower or any other Person, or upon or against any
security or remedy, before proceeding to enforce this Guaranty, in such order as
it shall determine in its sole and absolute discretion. Lender may file a
separate action or actions against Borrower or any other Person and/or Guarantor
without respect to whether action is brought or prosecuted with respect to any
security or against any other Person, or whether any other Person is joined in
any such action or actions. Guarantor agrees that Lender, Borrower and any
Affiliates of Borrower may deal with each other in connection with the
Guarantied Obligations or otherwise, or alter any contracts or agreements now or
hereafter existing between any of them, in any manner whatsoever, all without in
any way altering or affecting the security of this Guaranty. Lender's rights
hereunder shall be reinstated and revived, and the enforceability of this
Guaranty shall continue, with respect to any amount at any time paid on account
of the Guarantied Obligations which thereafter shall be required to be restored
or returned by Lender upon the bankruptcy, insolvency or reorganization of
Borrower or any other Person, or otherwise, all as though such amount had not
been paid. The rights of Lender created or granted herein and the enforceability
of this Guaranty with respect to Guarantor at all times shall remain effective
to guaranty the full amount of all the Guarantied Obligations even though the
Guarantied Obligations, or any part thereof, or any security or guaranty
therefor, may be or hereafter may become invalid or otherwise unenforceable as
against Borrower or any other guarantor or surety and whether or not Borrower
shall have any personal liability with respect thereto. To the maximum extent
permitted by law, Guarantor expressly waives any and all defenses now or
hereafter arising or asserted by reason of (a) any disability or other defense
of Borrower with respect to the Guarantied Obligations, (b) the unenforceability
or invalidity of any security or guaranty for the Guarantied Obligations or the
lack of perfection or continuing perfection or failure of priority of any
security for the Guarantied Obligations, (c) the cessation for any cause
whatsoever of the liability of Borrower (other than by reason of the full
payment and performance of all Guarantied Obligations), (d) any failure of
Lender to marshal assets in favor of Borrower or any other Person, (e) except as
otherwise provided in this Guaranty, any failure of Lender to give notice of
sale or other disposition of Collateral to Guarantor or any other Person or any
defect in any notice that may be given in connection with any sale or
disposition of Collateral, (f) any failure of Lender to comply with applicable
Laws in connection with the sale or other disposition of any Collateral or other
security for any Guarantied Obligation, including without limitation, any
failure of Lender to conduct a commercially reasonable sale or other disposition
of any Collateral or other security for any Guarantied Obligation, (g) any act
or omission of Lender or others that directly or indirectly results in or aids
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the discharge or release of Borrower or the Guarantied Obligations or any
security or guaranty therefor by operation of law or otherwise, (h) any Law
which provides that the obligation of a surety or guarantor must neither be
larger in amount nor in other respects more burdensome than that of the
principal or which reduces a surety's or guarantor's obligation in proportion to
the principal obligation, (i) any failure of Lender to file or enforce a claim
in any bankruptcy or other proceeding with respect to any Person, (j) the
election by Lender, in any bankruptcy proceeding of any Person, of the
application or non-application of Section 1111(b)(2) of the United States
Bankruptcy Code, (k) any extension of credit or the grant of any Lien under
Section 364 of the United States Bankruptcy Code, (l) any use of cash collateral
under Section 363 of the United States Bankruptcy Code, (m) any agreement or
stipulation with respect to the provision of adequate protection in any
bankruptcy proceeding of any Person, (n) the avoidance of any Lien in favor of
Lender for any reason, (o) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, liquidation or dissolution proceeding
commenced by or against any Person, including any discharge of, or bar or stay
against collecting, all or any of the Guarantied Obligations (or any interest
thereon) in or as a result of any such proceeding, (p) to the extent permitted,
the benefits of any form of one-action rule, or (q) any action taken by Lender
that is authorized by this Section or any other provision of any Loan Document.
Guarantor expressly waives all setoffs and counterclaims and all presentments,
demands for payment or performance, notices of nonpayment or nonperformance,
protests, notices of protest, notices of dishonor and all other notices or
demands of any kind or nature whatsoever with respect to the Guarantied
Obligations, and all notices of acceptance of this Guaranty or of the existence,
creation or incurrence of new or additional Guarantied Obligations.
6.
7. Condition of Borrower and Borrower's Subsidiaries. Guarantor represents and
warrants to Lender that Guarantor has established adequate means of obtaining
from Borrower and Borrower's Subsidiaries, on a continuing basis, financial and
other information pertaining to the businesses, operations and condition
(financial and otherwise) of Borrower and Borrower's Subsidiaries and their
Properties, and Guarantor now is and hereafter will be completely familiar with
the businesses, operations and condition (financial and otherwise) of Borrower
and Borrower's Subsidiaries and their Properties. Guarantor hereby expressly
waives and relinquishes any duty on the part of Lender (should any such duty
exist) to disclose to Guarantor any matter, fact or thing related to the
businesses, operations or condition (financial or otherwise) of Borrower or
Borrower's Subsidiaries or their Properties, whether now known or hereafter
known by Lender during the life of this Guaranty. With respect to any of the
Guarantied Obligations, Lender need not inquire into the powers of Borrower or
any Subsidiaries thereof or the officers or employees acting or purporting to
act on their behalf, and all Guarantied Obligations made or created in good
faith reliance upon the professed exercise of such powers shall be secured
hereby.
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8.
9. Liens on Real Property. In the event that all or any part of the Guarantied
Obligations at any time are secured by any one or more deeds of trust or
mortgages or other instruments creating or granting Liens on any interests in
real Property, Guarantor authorizes Lender, upon the occurrence of and during
the continuance of any Event of Default, at its sole option, without notice or
demand and without affecting any Obligations of Guarantor, the enforceability of
this Guaranty, or the validity or enforceability of any Liens of Lender on any
Collateral, to foreclose any or all of such deeds of trust or mortgages or other
instruments by judicial or nonjudicial sale. Guarantor expressly waives any
defenses to the enforcement of this Guaranty or any rights of Lender created or
granted hereby or to the recovery by Lender against Borrower or any other Person
liable therefor of any deficiency after a judicial or nonjudicial foreclosure or
sale because all or any part of the Guarantied Obligations is secured by real
Property. This means, among other things: (1) Lender may collect from Guarantor
without first foreclosing on any real or personal Property collateral pledged by
Borrower, and (2) If the Lender forecloses on any real Property collateral
pledged by Borrower: (A) The amount of the Guarantied Obligations may be reduced
only by the price for which that collateral is sold at the foreclosure sale,
even if the collateral is worth more than the sale price, and (B) The Lender may
collect from Guarantor even if the Lender, by foreclosing on the real Property
collateral, has destroyed any right Guarantor may have to collect from Borrower.
This is an unconditional and irrevocable waiver of any rights and defenses
Guarantor may have because all or any part of the Guarantied Obligations is
secured by real Property. Guarantor expressly waives any defenses or benefits
that may be derived from California Code of Civil Procedure ss.ss. 580a, 580b,
580d or 726, or comparable provisions of the Laws of any other jurisdiction, and
all other suretyship defenses it otherwise might or would have under California
Law or other applicable Law. Guarantor expressly waives any right to receive
notice of any judicial or nonjudicial foreclosure or sale of any real Property
or interest therein subject to any such deeds of trust or mortgages or other
instruments and Guarantor's or any other Person's failure to receive any such
notice shall not impair or affect Guarantor's Obligations or the enforceability
of this Guaranty or any rights of Lender created or granted hereunder.
10.
11. Waiver of Rights of Subrogation. Notwithstanding anything to the contrary
elsewhere contained herein or in any other Loan Document to which Guarantor is a
party, unless and until all Obligations have been paid and performed in full,
Guarantor hereby expressly waives with respect to Borrower and its successors
and assigns (including any surety) and any other Person which is directly or
indirectly a creditor of Borrower or any surety for Borrower, any and all rights
at Law or in equity to subrogation, to reimbursement, to exoneration, to
contribution, to setoff or to any other rights that could accrue to a surety
against a principal, to a guarantor against a maker or obligor, to an
accommodation party against the party accommodated, or to a holder or transferee
against a maker, and which Guarantor may have or hereafter acquire against
Borrower or any other such Person in connection with or as a result of
Guarantor's execution, delivery and/or performance of this Guaranty or any other
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Loan Document to which Guarantor is a party. Guarantor agrees that it shall not
have or assert any such rights against Borrower or its successors and assigns or
any other Person (including any surety) which is directly or indirectly a
creditor of Borrower or any surety for Borrower, either directly or as an
attempted setoff to any action commenced against Guarantor by Borrower (as
borrower or in any other capacity), Lender or any other such Person unless and
until all Obligations have been paid and performed in full. Guarantor hereby
acknowledges and agrees that this waiver is intended to benefit Borrower and
Lender and shall not limit or otherwise affect Guarantor's liability hereunder,
under any other Loan Document to which Guarantor is a party, or the
enforceability hereof or thereof. 12.
13. Understandings With Respect to Waivers and Consents. Guarantor warrants and
agrees that each of the waivers and consents set forth herein are made with full
knowledge of their significance and consequences, with the understanding that
events giving rise to any defense or right waived may diminish, destroy or
otherwise adversely affect rights which Guarantor otherwise may have against
Borrower, Lender or others, or against any Collateral, and that, under the
circumstances, the waivers and consents herein given are reasonable and not
contrary to public policy or Law. Guarantor acknowledges that it has either
consulted with legal counsel regarding the effect of this Guaranty and the
waivers and consents set forth herein, or has made an informed decision not to
do so. If this Guaranty or any of the waivers or consents herein are determined
to be unenforceable under or in violation of applicable Law, this Guaranty and
such waivers and consents shall be effective to the maximum extent permitted by
Law. 14.
15. Representations and Warranties. Guarantor hereby makes each and every
representation and warranty ------------------------------ applicable to
Guarantor set forth in Article 4 of the Loan Agreement as if set forth in full
herein. ---------
16.
17. Costs and Expenses. Guarantor agrees to pay to Lender all costs and expenses
(including, without limitation, reasonable attorneys' fees and disbursements)
incurred by Lender in the enforcement or attempted enforcement of this Guaranty,
whether or not an action is filed in connection therewith, and in connection
with any waiver or amendment of any term or provision hereof. All advances,
charges, costs and expenses, including reasonable attorneys' fees and
disbursements (including the reasonably allocated cost of legal counsel employed
by Lender), incurred or paid by Lender in exercising any right, privilege, power
or remedy conferred by this Guaranty, or in the enforcement or attempted
enforcement thereof, shall be subject hereto and shall become a part of the
Guarantor's Obligations and shall be paid to Lender by Guarantor, immediately
upon demand, together with interest thereon at the rate(s) provided for under
the Loan Agreement.
18.
19. Liability. Notwithstanding anything to the contrary elsewhere contained
herein or in any Loan Document to which Guarantor is a party, the aggregate
liability of Guarantor hereunder for payment and performance of the Guarantied
Obligations shall not exceed an amount which, in the aggregate, is $1.00 less
than that amount which if so paid or performed would constitute or result in a
"fraudulent transfer", "fraudulent conveyance", or terms of similar import,
under applicable state or federal Law, including without limitation, Section 548
of the United States Bankruptcy Code. The liability of Guarantor hereunder is
independent of any other guaranties at any time in effect with respect to all or
any part of the Guarantied Obligations, and Guarantor's liability hereunder may
be enforced regardless of the existence of any such guaranties. Any termination
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by or release of any guarantor in whole or in part shall not affect the
continuing liability of Guarantor hereunder, and no notice of any such
termination or release shall be required. The execution hereof by Guarantor is
not founded upon an expectation or understanding that there will be any other
guarantor of the Guarantied Obligations.
20.
21. WAIVER OF JURY TRIAL. GUARANTOR AND LENDER EXPRESSLY WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE LOAN AGREEMENT, THE
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR PARTIES, WHETHER NOW EXISTING OR HEREAFTER ARISING
AND WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
GUARANTOR AND LENDER AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS GUARANTY, THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS
OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE LOAN
AGREEMENT AND THE OTHER LOAN DOCUMENTS. ANY PARTY HERETO MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF GUARANTOR AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
22.
23.
THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF
180
<PAGE>
THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE CONFLICT OF LAWS OR CHOICE OF
LAW PRINCIPLES THEREOF.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty by
its duly authorized officer as of the date first written
above.
"Guarantor"
PENN NATIONAL GAMING, INC.,
a Pennsylvania corporation
By:___________________________
---------------------------
[Printed Name and Title]
Address:
===============================
Telephone: _____________________
181
<PAGE>
NOTE
$10,000,000 December 13, 1999
Los Angeles, California
FOR VALUE RECEIVED, the undersigned promises to pay to the
order of BANK OF AMERICA, N.A. ("Lender"), the principal amount of TEN MILLION
AND NO/00 DOLLARS ($10,000,000) or such lesser aggregate amount of Advances as
may be made by the Lender with respect to the Commitment under the Loan
Agreement referred to below, together with interest on the principal amount of
each Advance made hereunder and remaining unpaid from time to time from the date
of each such Advance until the date of payment in full, payable as hereinafter
set forth.
Reference is made to the Senior Secured Multiple Draw Term
Loan Agreement dated as of December 13, 1999, by and among the undersigned, as
Borrower, Penn National Gaming, Inc., a Pennsylvania corporation, as Guarantor,
the lenders from time to time party thereto, and Bank of America, N.A., as
Administrative Agent (the "Loan Agreement"). Terms defined in the Loan Agreement
and not otherwise defined herein are used herein with the meanings defined for
those terms in the Loan Agreement. This is one of the Notes referred to in the
Loan Agreement, and any holder hereof is entitled to all of the rights,
remedies, benefits and privileges provided for in the Loan Agreement as
originally executed or as it may from time to time be supplemented, modified or
amended. The Loan Agreement, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
upon the terms and conditions therein specified.
The principal indebtedness evidenced by this Note shall be
payable as provided in the Loan Agreement and in any event on the Maturity Date.
Interest shall be payable on the outstanding daily unpaid
principal amount of Advances from the date of each such Advance until payment in
full and shall accrue and be payable at the rates and on the dates set forth in
the Loan Agreement both before and after default and before and after maturity
and judgment, with interest on overdue principal and interest to bear interest
at the rate set forth in Section 3.6 of the Loan Agreement, to the fullest
extent permitted by applicable Law.
Each payment hereunder shall be made to the Administrative
Agent at the Administrative Agent's Office for the account of the Lender in
immediately available funds not later than 11:00 a.m. on the day of payment
(which must be a Business Day). All payments received after 11:00 a.m. on any
182
<PAGE>
Business Day shall be deemed received on the next succeeding Business Day. All
payments shall be made in lawful money of the United States of America.
The Lender shall use its best efforts to keep a record of
Advances made by it and payments received by it with respect to this Note, and
such record shall be presumptive evidence of the amounts owing under this Note.
The undersigned hereby promises to pay all costs and expenses
of any holder hereof incurred in collecting the undersigned's obligations
hereunder or in enforcing or attempting to enforce any of such holder's rights
hereunder, including reasonable attorneys' fees and disbursements, whether or
not an action is filed in connection therewith.
The undersigned hereby waives presentment, demand for payment,
dishonor, notice of dishonor, protest, notice of protest and any other notice or
formality, to the fullest extent permitted by applicable Laws.
This Note shall be delivered to and accepted by the Lender in
the State of California, and shall be governed by, and construed and enforced in
accordance with, the local Laws thereof.
PENN NATIONAL GAMING OF WEST VIRGINIA, INC.,
a West Virginia corporation
By: _____________________________
-----------------------------
[Printed Name and Title]
183
<PAGE>
SCHEDULE OF COMMITTED ADVANCES AND
PAYMENTS OF PRINCIPAL
184
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Date Amount Interest Period Amount of Unpaid Notation
of Advance Principal Principal Made by
Paid Balance
</TABLE>
NOTE
$10,000,000 December 13, 1999
Los Angeles, California
FOR VALUE RECEIVED, the undersigned promises to pay to the
order of FIRST UNION NATIONAL BANK ("Lender"), the principal amount of TEN
MILLION AND NO/00 DOLLARS ($10,000,000) or such lesser aggregate amount of
Advances as may be made by the Lender with respect to the Commitment under the
Loan Agreement referred to below, together with interest on the principal amount
of each Advance made hereunder and remaining unpaid from time to time from the
date of each such Advance until the date of payment in full, payable as
hereinafter set forth.
Reference is made to the Senior Secured Multiple Draw Term
Loan Agreement dated as of December 13, 1999, by and among the undersigned, as
Borrower, Penn National Gaming, Inc., a Pennsylvania corporation, as Guarantor,
the lenders from time to time party thereto, and Bank of America, N.A., as
Administrative Agent (the "Loan Agreement"). Terms defined in the Loan Agreement
and not otherwise defined herein are used herein with the meanings defined for
those terms in the Loan Agreement. This is one of the Notes referred to in the
Loan Agreement, and any holder hereof is entitled to all of the rights,
remedies, benefits and privileges provided for in the Loan Agreement as
originally executed or as it may from time to time be supplemented, modified or
amended. The Loan Agreement, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
upon the terms and conditions therein specified.
The principal indebtedness evidenced by this Note shall be
payable as provided in the Loan Agreement and in any event on the Maturity Date.
Interest shall be payable on the outstanding daily unpaid
principal amount of Advances from the date of each such Advance until payment in
full and shall accrue and be payable at the rates and on the dates set forth in
the Loan Agreement both before and after default and before and after maturity
and judgment, with interest on overdue principal and interest to bear interest
at the rate set forth in Section 3.6 of the Loan Agreement, to the fullest
extent permitted by applicable Law.
Each payment hereunder shall be made to the Administrative
Agent at the Administrative Agent's Office for the account of the Lender in
immediately available funds not later than 11:00 a.m. on the day of payment
185
<PAGE>
(which must be a Business Day). All payments received after 11:00 a.m. on any
Business Day shall be deemed received on the next succeeding Business Day. All
payments shall be made in lawful money of the United States of America.
The Lender shall use its best efforts to keep a record of
Advances made by it and payments received by it with respect to this Note, and
such record shall be presumptive evidence of the amounts owing under this Note.
The undersigned hereby promises to pay all costs and expenses
of any holder hereof incurred in collecting the undersigned's obligations
hereunder or in enforcing or attempting to enforce any of such holder's rights
hereunder, including reasonable attorneys' fees and disbursements, whether or
not an action is filed in connection therewith.
The undersigned hereby waives presentment, demand for payment,
dishonor, notice of dishonor, protest, notice of protest and any other notice or
formality, to the fullest extent permitted by applicable Laws.
This Note shall be delivered to and accepted by the Lender in
the State of California, and shall be governed by, and construed and enforced in
accordance with, the local Laws thereof.
PENN NATIONAL GAMING OF WEST VIRGINIA, INC.,
a West Virginia corporation
By: _____________________________
-----------------------------
[Printed Name and Title]
186
<PAGE>
SCHEDULE OF COMMITTED ADVANCES AND
PAYMENTS OF PRINCIPAL
187
<PAGE>
LA:LFJ\OTHER\BN1\70099161.1
Date Amount Interest Period Amount of Unpaid Notation
of Advance Principal Principal Made by
Paid Balance
Telecopier: _____________________
188
AMENDMENT NO. 3 TO AND CONSENT AND WAIVER UNDER
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 3 TO AND CONSENT AND WAIVER UNDER SECOND
AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment No. 3") is made this 13th
day of December, 1999 by and among PENN NATIONAL GAMING, INC., a Pennsylvania
corporation ("Borrower"); FIRST UNION NATIONAL BANK, a national banking
association (for itself and in its capacity as agent hereunder, "Agent"); and
the banks signatory to this Amendment No. 3 (together with the Agent, each
individually a "Bank" and individually and collectively, the "Banks").
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 and Amendment No. 2 to and Consent under Second Amended and
Restated Credit Agreement dated July 29, 1999 (as amended hereby 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 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.
Borrower has informed Agent and Banks of the intent
of Penn National Gaming of West Virginia, Inc.
("PNGWV"), a subsidiary of Borrower, to enter into a three year senior secured
multiple draw term credit facility (the "Bank of America Facility") in the
original principal amount of $20,000,000 with Bank of America, N.A., as
Administrative Agent ("BA"), and lenders to be determined. The Bank of America
Facility will be used solely to finance or refinance the purchase by Borrower
and/or PNGWV of gaming equipment through: (i) the refinancing of the Term Loan
under the Credit Agreement and (ii) the payment of the purchase price for
additional gaming equipment and gaming-related fixtures and furniture for use at
the Charles Town Race Track, together with related construction and
improvements. The obligations of PNGWV under the Bank of America Facility will
be: (i) guaranteed by the Borrower, under a guaranty of payment in favor of BA,
for the benefit of lenders under the Bank of America Facility (the "Bank of
America Guaranty") and (ii) secured by a grant to BA, for the benefit of all
lenders under the Bank of America Facility of: (A) a first priority security
interest in all gaming equipment and gaming-related fixtures and furniture
located at the Charles Town Race Track, including without limitation the Charles
Town Video Lottery Terminals (the "West Virginia Assets"), and (B) a pledge of
PNGWV's lessor interest under the operating lease (the "West Virginia Lease") of
such gaming equipment to the Charles Town Joint Venture,
For approximately $200,000,000 Borrower, through a Mississippi
subsidiary, will acquire the operating assets and operations of Casino Magic Bay
St. Louis and Boomtown Casino in Biloxi. The price is subject to adjustment. The
assets include approximately 590 acres of land in Bay St. Louis, Mississippi.
Contained thereon is a casino, 200 room hotel, 18 hole golf course, river park
and marina. Boomtown is a leasehold interest improved with approximately 33,000
square feet of casino space, a theatre, restaurants and other amenities. These
facilities are currently licensed and operated by Hollywood Park, Inc. Borrower
will pay a $5,000,000 deposit for such transaction (collectively the "Hollywood
Park Transaction").
Borrower and Banks have agreed to make certain amendments to
the Credit Agreement, and Banks have agreed to permit Borrower to enter into the
Bank of America Facility, all as set forth herein and subject to the terms and
conditions hereof.
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:
Definitions
189
<PAGE>
General Rule. Unless otherwise defined herein, terms used herein which are
defined in the Credit ------------ Agreement shall have the meanings assigned to
them in the Credit Agreement.
Additional Definitions. The following definitions are hereby added to
Section 10 of the Credit ---------------------- Agreement to read in their
entirety as follows:
"Amendment No. 3" means the Amendment No. 3 to and Consent and Waiver under
Second Amended and --------------- Restated Credit Agreement by and among
Borrowers and Banks dated December 13, 1999.
"Amendment No. 3 Effective Date" means the date on which the conditions set
forth in Paragraph 5 ------------------------------ of Amendment No. 3 have been
satisfied.
"Bank of America Security Agreement" means the
Security Agreement dated the date hereof by Penn National
Gaming of West Virginia, Inc. in favor of Bank of America,
N.A, as administrative agent for the benefit of the lenders
under the Bank of America Term Loan Agreement.
"Bank of America Term Loan Agreement" means the
Senior Secured Multiple Draw Term Loan Agreement dated the
date hereof by and among Penn National Gaming of West
Virginia, Inc., as borrower; Borrower, as guarantor; the
lenders referred to therein and Bank of America, N.A, as
administrative agent.
"Hollywood Park Transaction" shall have the meaning set forth
- -------------------------- in the recitals of Amendment No. 3.
Amended Definition. The following definition found in Section 10 of the
Credit Agreement is hereby amended ------------------ and restated in its
entirety
"Asset Sale" shall mean any sale, transfer or other
disposition by the Borrower or any Credit Party to any Person
(including by-way-of redemption of such Person) other than to
the Borrower or a Wholly-Owned Subsidiary of the Borrower of
any asset (including, without limitation, any capital stock or
other securities of, or equity interests in, another Person)
if: (i) such asset constitutes Collateral under (and as
defined in) the Security Agreement or Collateral under (and as
defined in) the Pledge Agreement and (ii) such asset does not
constitute Collateral under the Bank of America Security
Agreement. The term "Asset Sale" shall not include sales of
assets permitted pursuant to Sections 8.02(v) (sales of
inventory in the ordinary course), (vi) (sales of obsolete
items), (vii) (certain leases) or (viii) (certain licenses)
hereof.
. Acknowledgment by Banks. On the Amendment No. 3 Effective Date, Banks
acknowledge:
-----------------------
That the $5,000,000 deposit required under the Hollywood Park Transaction
to be paid on or before December 15, 1999 may be borrowed under the Revolving
Loans Commitment.
That the Borrowers may sell the Premises (as defined in the Agreement of
Sale for Real Estate dated September 20, 1999 by and between The Downs Racing,
Inc. and Chester M. Burns, Trustee for Chester E. Burns Trust, the "Burns
Agreement") as provided in the Burns Agreement for $154,000, and further that no
mandatory prepayment under the Credit Agreement shall be required in connection
with such Transaction.
190
<PAGE>
Consents, Waivers and Amendments.
--------------------------------
The security PNGWV will grant to BA to
secure the Bank of America Facility on the West Virginia
Assets will include a Lien on assets with a value exceeding $250,000, and
because such security extends beyond a Lien on the West Virginia Assets to
include an assignment of PNGWV's rights under the West Virginia Lease, BA's Lien
on the West Virginia Assets is not permitted by the exception set forth in
Section 8.01(viii) of the Credit Agreement and is not otherwise permitted by the
Credit Agreement. Banks hereby consent to PNGWV's grant of a security interest
to BA in the West Virginia Assets.
BA's Lien on the West Virginia Assets is not permitted by the exception set
forth in Section 8.01(viii) of the Credit Agreement, and therefore, by
cross-reference, the West Virginia Indebtedness is not purchase money
indebtedness permitted by Section 8.04(iv) of the Credit Agreement. Banks hereby
consent to the Borrower's incurrence of the West Virginia Indebtedness.
The security PNGWV will grant to BA for the
West Virginia Assets (including without limitation the
Charles Town Video Lottery Terminals) is broader than a Lien on the West
Virginia Assets and includes, inter alia, an assignment of PNGWV's rights under
the West Virginia Lease, BA's Lien on the Charles Town Video Lottery Terminals
is not permitted by the exceptions set forth in Section 8.01(xiv) of the Credit
Agreement and is not otherwise permitted by the Credit Agreement. Banks hereby
consent to Borrower's grant of a Lien and negative pledge to BA on the Charles
Town Video Lottery Terminals to the extent set forth in the documents evidencing
the Bank of America Facility as in effect on the date of this Amendment No. 3.
PNGWV's pledge to BA of its lessor interest under the West Virginia Lease
is not permitted due to Section 8.01 of the Credit Agreement. Banks hereby
consent to PNGWV's pledge of its rights under the West Virginia Lease to BA.
The sale of the Charles Town Video Lottery
Terminals must be in compliance with Sections 8.02 and
8.06 of the Credit Agreement. Banks hereby consent to the Borrower's sale of the
Charles Town Video Lottery Terminals to PNGWV free and clear of any liens;
provided, however, that Borrower complies with the provisions of Sections
8.02(x) and (y) of the Credit Agreement and Section 8.06 of the Credit
Agreement.
. Sections 8.04 and 8.16 of the Credit Agreement prohibit the Borrower from
entering into the Bank of America Guaranty. Banks hereby consent to Borrower's
entering into the Bank of America Guaranty.
<PAGE>
Banks hereby waive any mandatory prepayment which may be due to Banks under
Sections 3.03(b) or (c) of the Credit Agreement in connection with Borrower's
entering into the Bank of America Facility or the West Virginia Lease or the
Borrower's sale of the Charles Town Video Lottery Terminals to PNGWV,
respectively.
Section 8.07 of the Credit Agreement (Leases) is hereby amended so that the
final word in the section is "$1,600,000" instead of "$1,400,000."
Section 8.08 of the Credit Agreement (Capital Expenditures) is hereby
amended so that the penultimate word in clause (a)(x) is "$10,000,000" and not
"$9,000,000"; and pursuant to clause (a)(y) of Section 8.08 of the Credit
Agreement, the Required Banks hereby approve $17,000,000 as permitted Capital
Expenditures for the fiscal year 2000.
191
<PAGE>
a. The Banks hereby acknowledge that borrowings under the Revolving Credit
Commitment may be used by the Borrowers to finance deposits for acquisitions of
assets.
1. Representations and Warranties. Borrowers hereby represent and warrant
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; 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 and each Subsidiary 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 Amendment No. 3 and the other
documents and agreements required hereunder (collectively, the "Amendment
Documents"); all actions (corporate or otherwise) necessary or appropriate for
the execution and performance by Borrower and each Subsidiary of the Amendment
Documents have been taken; and the Amendment Documents and the Credit Agreement,
as amended, each constitute the valid and binding obligations of Borrower and
each Subsidiary, enforceable in accordance with their respective terms.
c. No Violations of Law or Agreements. The making and performance of the
Amendment Documents by ---------------------------------- Borrower and each
Subsidiary 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 Borrower or Subsidiary 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 Borrower or
Subsidiary or its property may be bound.
2. Conditions to Effectiveness of Amendment. This
Amendment No. 3 shall be effective upon Agent's receipt of
----------------------------------------
the following, each in form and substance satisfactory to Agent:
a. Amendment No. 3. This Amendment No. 3
duly executed by Borrower, Agent, Banks and Subsidiary
---------------
Guarantors.
b. Bank of America Facility; Security Documents.
(i) An executed copy of the Bank of America
--------------------------------------------
Facility; (ii) an executed copy of the security agreement to be entered into by
PNGWV in favor of BA (the "BA Security Agreement"); and (iii) copies of all
UCC-1 financing statements to be filed by BA to perfect the security interest
granted to it under the BA Security Agreement.
c. Opinion Letter. An opinion letter from
counsel to Borrower, which may be addressed to BA, but on
--------------
which Agent and Banks may rely, which includes an opinion, in form and substance
satisfactory to Agent, that the terms of the Bank of America Facility do not
conflict with, or constitute a default under, the Senior Note Indenture, the
Senior Notes, or any document in connection therewith.
d. Payoff of Term Loan. Payment in full of
the Obligations outstanding under the Term Loan pursuant
-------------------
to the payoff letter dated December 10, 1999 from the Agent to the Borrower (the
"Payoff Letter").
192
<PAGE>
e. Waiver Fee. Payment of a waiver fee for
the benefit of Banks of one-eighth of one percent (1/8%)
----------
of each Bank's Commitment, to be shared between the Banks on a pro rata basis.
f. Other Documents. Such additional documents
as Agent may reasonably request.
---------------
3. Limited Release of Banks' and First Union's Security
Interest. Upon the effectiveness of this Amendment and the receipt by the Agent
of all amounts due pursuant to the Payoff Letter: (i) First Union will release,
relinquish and no longer claim to hold a security interest in or a lien on the
Charles Town Video Lottery Terminals and all of the Security Agreement Term Loan
Collateral; (ii) Agent and Banks will release, relinquish and not claim to hold
a security interest in or a lien on any of the West Virginia Assets and (iii)
Agent and First Union will deliver all documents reasonably requested by BA to
evidence the payoff of the Term Loan and the release of First Union's security
interest in the Charles Town Video Lottery Terminals, the other Security
Agreement Term Loan Collateral, and the West Virginia Assets, which includes
without limitation the equipment listed on Schedules 1.1 and 1.2 attached
hereto.
4. Affirmations. Borrower hereby: (i) affirms all the
provisions of the Credit Agreement, Security Agreement,
------------
Pledge Agreement and Contribution and Indemnification Agreement, as amended
or modified by this Amendment No. 3 (including without limitation Paragraph 6
hereof), and (ii) agrees 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 as modified, supplemented or
amended by this Amendment No. 3 (including without limitation Paragraph 6
hereof).
5. 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 Amendment No. 3.
b. This Amendment No. 3 shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
c. All terms and provisions of this Amendment No. 3 shall be for the
benefit of and be binding upon and enforceable by the respective successors and
assigns of the parties hereto.
d. This Amendment No. 3 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 Amendment No. 3, any of the Banks' consents or waivers
set forth herein, nor anything contained herein shall be construed as or shall
operate as a consent to or waiver of any further provision of, or any right,
power or remedy of Banks under the Credit
193
<PAGE>
Agreement and the agreements and documents executed in connection therewith. The
consents and waivers granted hereby are limited to the matters set forth herein.
IN WITNESS WHEREOF, the undersigned have executed this
Amendment No. 3 the day and year first above written.
PENN NATIONAL GAMING, INC.
By: _/s/Robert S. Ippolito______________________
Name: Robert S. Ippolito
Title: Chief Financial Officer
FIRST UNION NATIONAL BANK, as Agent
By: _/s/Lynn b. Eagleson__________________________
Name: Lynn B. Eagleson
Title: Vice President
SUMMIT BANK
By: _/s/Scott A. Wickel_________________________
Name: Scott A. Wickel
Title: Regional 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
[EXECUTIONS CONTINUED]
194
<PAGE>
PENNSYLVANIA NATIONAL TURF
CLUB, INC., as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary
PENN NATIONAL SPEEDWAY,
INC., as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary
STERLING AVIATION, INC.,
as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary
PENN NATIONAL HOLDING
COMPANY, as a Subsidiary
Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary
PENN NATIONAL GAMING OF WEST
VIRGINIA, INC., as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary
[EXECUTIONS CONTINUED]
195
<PAGE>
PNGI POCONO, INC.,
as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary/Treasurer
TENNESSEE DOWNS, INC.,
as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary
THE DOWNS RACING, INC.,
as a Subsidiary Guarantor
By: /s/Joseph A. Lashinger_______________________
Name: Joseph A. Lashinger
Title:
NORTHEAST CONCESSIONS, INC.,
as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary
BACKSIDE, INC.,
as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary
[EXECUTIONS CONTINUED]
196
<PAGE>
MILL CREEK LAND, INC.,
as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Assistant Secretary
WILKES BARRE DOWNS, INC.,
as a Subsidiary Guarantor
By: /s/ Robert E. Abraham_______________________
Name: Robert E. Abraham
Title: President
PENN NATIONAL GSFR, INC.,
as a Subsidiary Guarantor
By: _/s/Robert S. Ippolito__________________________
Name: Robert S. Ippolito
Title: Secretary
197
AGREEMENT BETWEEN THE DOWNS RACING, INC. AND
PENNSYLVANIA HARNESS HORSEMEN'S ASSOCIATION, INC.
THIS AGREEMENT is made and entered into on the 17 day of December, 1999, by
and between THE DOWNS RACING, INC. (hereinafter called "The Downs") and THE
PENNSYLVANIA HARNESS HORSEMEN'S ASSOCIATION, INC., a Pennsylvania Corporation
(hereinafter called "PHHA") and,
WITNESSETH THAT: WHEREAS, The Downs is licensed to conduct and is engaged
in the business of conducting harness racing meetings, simulcasting and account
wagering of races to and from other locations, at, to and from The Downs, and
WHEREAS, PHHA's membership consists of owners, trainers, and drivers of
harness horses participating in harness race meetings at The Downs and elsewhere
in the United States and Canada, and PHHA has been organized and exists for the
purpose of promoting the sport of harness racing; improving the lot of owners,
trainers, drivers, breeders and grooms of harness racing horses participating in
race meetings; establishing health, welfare and insurance programs for drivers,
trainers and grooms of harness racing horses; negotiating with harness racing
tracks on behalf of owners, trainers, drivers and grooms of harness racing
horses; and generally rendering assistance to them whenever and wherever
possible; and
WHEREAS, the parties hereto believe that the amount of pari-mutuel
wagering at The Downs is the best basis upon which to fix the financial
arrangements between the parties, and
WHEREAS, the parties have agreed that all existing agreements shall
remain in full force and effect until the effective date of this agreement
(January 16, 2000 - 12:01 AM).
NOW, THEREFORE, in consideration of the promises and covenants
contained herein, it is agreed as follows:
1. TERM OF AGREEMENT
The provisions of this Agreement shall apply to and govern every harness racing
meeting and all simulcasting conducted at, from or to The Downs from 12:00 AM on
January 16, 2000 (Effective Date) through 12:00AM January 15, 2003.
2. PURSE DISTRIBUTION
A. The parties hereto have agreed that The Downs shall pay to the PHHA
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horsemen's account a fixed percentage of 4.25% (for the term through
January 15, 2002 with the sum elevating to 4.3% for
the balance of the term beginning January 15, 2002
through January 15, 2003) of total system handle.
Total system handle shall mean all wagering conducted
at the primary location, all non-primary locations
and all telephone wagering.
(1) Interactive Wagering - All interactive
wagering conducted via an authorized personal
computer connection to The Downs (eBetUSA or its
equivalent) will be handled.
Separately from the formula for
total system handle. The parties
hereto agree that net commissions
for this purpose will also be less
host fees paid to other tracks or
trade organizations and less any
service charges from an interactive
company. For this section only, The
Downs agrees to pay PHHA purses
equal to the following percentages
of the net commissions for this
product:
Year 1 - 32%
Year II - 32 2/3%
Year III - 33 1/3%
B. RACES CONDUCTED AT POCONO DOWNS RACETRACK
Throughout the Term of this Agreement, The Downs shall distribute to the
PHHA purse account fifty percent (50%) of breakage from wagering at The Downs on
live races conducted at The Downs.
(1) Each Contract Year, (12:00 AM January 16, 2000 through 12:00AM on
January 15, 2003) during the Term of this Agreement, The Downs shall pay to the
PHHA the sum of Three Hundred Sixty Thousand Dollars ($360,000) to be used for
the purposes described in paragraph 5 below.
(2) Each Contract Year, the balance of
the amounts determined under
paragraph 2A, after deducting the
amounts payable under (1) above,
shall be paid in racing purses.
(3) The amount due to the PHHA annually
shall be accrued at the rate of
Thirty Thousand Dollars ($30,000)
per month every Contract year.
Payment shall be made in equal
monthly payments to the PHHA to be
used for purposes described in
paragraph 5 below and shall not
exceed the amounts stated in (1)
above. At the written request of
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the PHHA, The Downs shall make direct payments for insurance or for other
purposes allowed under paragraph 5 below, or shall make direct payment to the
PHHA up to any amount payable to the PHHA. However, the total amount paid out in
any Contract Year to or on behalf of the PHHA for purposes described in
paragraph 5 below may, by mutual agreement of the parties hereto, exceed Three
Hundred Sixty Thousand Dollars ($360,000).
(4) A maximum of three percent (3%) of
the total overnight purse payments
in each Contract Year may be paid
out in racing purses for early and
late closing events and stake
events. Stake events requiring
funding exceeding the three percent
(3%) limit herein may be scheduled
if agreed to by both parties.
C. INTERSTATE SIMULCASTING
(1) In addition to the amounts otherwise provided for in this Agreement, The
Downs shall distribute in racing purses during each Contract Year
throughout the Term of this Agreement, 1% of the first Twelve Million
Dollars ($12,000,000) in fees earned by The Downs for live programs
simulcast to wagering locations outside Pennsylvania (export signal) and
50% of any amount over Twelve Million Dollars ($12,000,000).
(2) It is also specifically understood
and agreed that if the host track
(e.g. the track from which the live
racing is being broadcast) requires
written agreement or permission from
PHHA for receipt of a simulcast for
any race(s), then PHHA will normally
automatically and immediately
provide its written agreement and/or
permission (whichever is required)
on the forms required. The PHHA's
granting of such agreement or
permission or its prompt execution
of the forms supplied to it, as
referenced above, will not be
unreasonably withheld or delayed. If
The Downs believes that PHHA has
unreasonably withheld or delayed
such agreement or permission or
execution, then it shall have the
right to initiate an immediate
expedited arbitration to resolve
such dispute.
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D. INTRASTATE SIMULCASTING
In addition to the amount (s) otherwise provided for
in Paragraph 2, The Downs shall distribute in racing
purses the following amounts based upon handle on
racing conducted within Pennsylvania and simulcast to
Primary Locations within Pennsylvania.
(1) Two and one-half (2 1/2%) percent of the
total handle on The Downs live races
simulcast to the Primary Location of another
Pennsylvania Racetrack shall be distributed,
throughout the entire Term of this
Agreement.
E. NON-PRIMARY LOCATIONS
The percentage to be applied to the purses from wagering at other
Pennsylvania Racing Associations Non-Primary Locations is as provided by
applicable Pennsylvania statute.
3. MINIMUM PURSES/MAXIMUM PURSES
A. During the Term of this Agreement the minimum purse
payable by The Downs for any pari-mutuel betting race
shall be One Thousand Two Hundred Dollars ($1,200.00)
unless circumstances warrant a change which shall be
mutually agreeable to both parties.
B. During the Term of this Agreement, the maximum purse payable by The Downs
for any overnight pari-mutuel race from the purse account created by this
Agreement shall be Ten Thousand Dollars ($10,000.00) unless circumstances
warrant a change which shall be mutually agreed upon by both parties.
4. RACING SCHEDULE
A. The Downs will schedule a minimum of one hundred
thirty-five (135) race days and one thousand three
hundred fifty (1,350) live overnight races at The
Downs during each race season during the Term of this
Agreement, subject however to conditions beyond its
control. The PHHA membership waives the provisions of
the Race Horse Industry Reform Act to require more
than one thousand three hundred fifty (1,350) live
overnight races
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annually. The PHHA membership also waives the
provisions of the Race Horse Industry Reform Act to
require more than one hundred thirty-five (135) race
days annually.
The parties hereto agree that said waiver shall
continue for the life of this Contract only and
agreed upon extensions scheduling a minimum of one
hundred thirty-five (135) race days and one thousand
three hundred fifty (1,350) live overnight races at
The Downs in accordance with this Sub- paragraph A of
Paragraph 4 of this Agreement.
B. The Downs management will prepare a weekly schedule
showing the number of live races and simulcast races
to be presented each day during a given week. That
schedule will be presented to the PHHA at least two
weeks prior to the first racing day of the scheduled
week. If the live overnight races do not fill, then
his will be considered a condition beyond the control
of The Downs and the minimum number of 1,350 live
overnight races will be reduced by the number of
races not filled.
5. ARRANGEMENTS WITH PHHA
A. As per Paragraph 2 (B) (3) of this Agreement said
amounts shall be used for:
(1) To defray PHHA's operating expenses;
(2) To pay PHHA's dues to any national organization of horsemen to
which it belongs;
(3) To pay premiums for a group health and medical insurance policy
for drivers, trainers and grooms;
(4) To pay premiums for an accident and
disability insurance policy which covers
trainers and drivers that are involved in
accidents while training or racing;
B. The Downs shall provide an office for the use of the PHHA representative on
its racing grounds.
C. Representatives of The Downs and PHHA will be available to consult with
each other at reasonably convenient times concerning any matters pertaining
to the operation of race meetings of The Downs or the provisions of this
Agreement. Specifically, representatives of The
Downs and PHHA shall meet before each racing season and
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throughout the same on a bi-weekly basis whenever
possible to discuss and agree on racing dates, purse
structures and races offered on the condition sheet
and qualifying standards.
6. STALL ASSIGNMENTS
Nothing in this Agreement shall be deemed to limit or restrict
in any manner the absolute discretion of The Downs to assign
stalls to owners and trainers whether or not members of PHHA,
except that stall space shall not be denied by reason of
membership in, or activity on behalf of, PHHA or duly
constituted horsemen's committees, or as otherwise prohibited
or restricted by law.
7. RACING APPLICATION
Each owner and/or trainer having horses racing at The Downs shall be
required to complete a racing application that details the complete inventory of
horses in that owner's or trainer's racing stable. Such form may be required to
be updated on a monthly basis.
8. PENNSYLVANIA-OWNED AND/OR SIRED RACES OR HORSES WHO
HAVE RACED A NUMBER OF TIMES AT THE MEET
A. At the request of PHHA, The Downs shall offer on each weekly condition
sheet up to six (6) Pennsylvania-Owned and/or Sired Races or races for
horses that have started a certain number of times at the meet per live
race week during the Term of this Agreement. Pennsylvania- Owned or Sired
Races shall carry a purse enhancement of a minimum of ten percent (10%)
over the base purse for such condition or claiming race.
"Pennsylvania-Owned Races" when used above means
races restricted to horses which are (a) wholly owned
and declared by Pennsylvania resident (s) or (b)
wholly owned by Pennsylvania resident (s) and
declared by a Pennsylvania resident lessee of the
horse.
"Pennsylvania Sired Races": Pennsylvania Harness Racing Commission
Regulations/definitions shall govern.
"Pennsylvania Residence" shall be established by
presentation, on request of The Downs and/or PHHA
representative, of (a) a valid Pennsylvania
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Vehicle Registration and a valid Pennsylvania
Driver's License or (b) Pennsylvania State Income Tax
Return showing permanent domicile in Pennsylvania.
9. INDEMNITY AND COOPERATION - HOLD HARMLESS
A. PHHA hereby agrees to indemnify and hold The Downs harmless of, from and
against any and all claims, losses, expenses, judgments, penalties or extra
distributions imposed upon or suffered by The Downs arising from claims
made by another organization that represents the horsemen participating in
any meeting of The Downs and is entitled to receive some or all of the
payments previously provided to PHHA, or in connection with, the payment
provided in Paragraphs 2 and 5 above. In the event any other organization
shall claim to represent the horsemen participating in any meeting of The
Downs during the Term of this Agreement, The Downs and PHHA shall there
upon take all necessary and proper steps to cooperate with and support each
other in sustaining and preserving the effectiveness of this Agreement.
B. The PHHA agrees to indemnify and save and hold The
Downs harmless from any liability for bodily injury
or property damage to any owner, driver, trainer or
his property, arising out of or related to practicing
for or participating in harness racing at The Downs
except where such damage or injury is the result of
gross negligence on the part of The Downs.
10. CONTROLLING LAW AND REGULATIONS: ARBITRATION
A. The interpretation of the provisions of this Agreement shall be governed by
the laws of Pennsylvania.
B. The performance and operation of this Agreement, during the entire term
hereof, shall be subject in all respects to the provisions of the
Pennsylvania Race Horse Industry Reform Act, all the Commonwealth's rules
and regulations, and subject to the approval of the Pennsylvania State
Harness Racing Commission.
C. This is the entire agreement between the parties. Any modification or
amendment to this Agreement must be in writing and signed by the parties or
their duly authorized representatives.
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D. Any and all disputes between the parties hereto
arising out of or relating to this Agreement or any
breach thereof shall be resolved by arbitration to be
held in Wilkes-Barre, Pennsylvania, in accordance
with the Rules of the American Arbitration
Association then in effect. Any award rendered by the
arbitrator (s) may be entered in any court having
jurisdiction thereof. The costs of such arbitration
shall be borne equally by the parties hereof.
11. ASSIGNMENT, TRANSFER, ADOPTION OF AGREEMENT
Any assignment of all the rights and obligations of The Downs
or transfer or adoption of this Agreement shall not require
PHHA's consent and upon such assignment, transfer or adoption,
such assignee of transferee shall be substituted as a party to
this Agreement.
12. NINE HORSE FIELDS
Nine horse or larger fields with one or more horse trailers
may be permitted in any overnight, early or late closer or stake race only with
the permission of the PHHA. The purse for a nine horses overnight race field
shall carry a ten percent (10%) increase on the base purse. There will be no
nine horse fields for maidens or non- winners of two (2) pari-mutuel races
lifetime.
13. NEW INCOME SOURCES
If The Downs becomes aware of a new source of wagering or
simulcasting income not addressed in this Agreement, The Downs
will notify the PHHA of such income source and PHHA will enter
negotiations concerning such income source.
IN WITNESS WHEREOF, with the intention of being legally bound, the
parties by their respective chief officers who are authorized and empowered to
bind the respective parties, have caused this Agreement to be duly executed as
of this _17____ day of December 1999.
[Next Page is Signature Page Only]
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Signature Page
206
SETTLEMENT AGREEMENT
This settlement agreement ("Agreement") is entered into this 11th day of
February, 2000 among AMTOTE INTERNATIONAL, INC. ("AmTote"), PNGI CHARLES TOWN
GAMING LIMITED LIABILITY COMPANY ("PNGI"), and PENN NATIONAL GAMING, INC. ("Penn
National").
RECITAL
A. AmTote sued PNGI and Penn National in the United States
District Court for the Northern District of West Virginia for claims arising out
of certain contracts relating to the Charles Town Race Track, ("the
Litigation"). Judgment ("Judgment") was awarded in AmTote's favor.
B. PNGI and Penn National have filed an appeal ("the Appeal") of that
Judgment in the United States Court of Appeals for the Fourth Circuit. C.
AmTote, PNGI and Penn National have reached an agreement with respect to all of
their disputes arising from or relating to the Litigation, the Judgment and
Appeal and/or to operations at the Charles Town Race Track.
NOW THEREFORE, in consideration of the mutual promises
contained herein and other good an valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Penn National and PNGI shall pay AmTote in full
satisfaction of the Judgment the sum of $1,500,000.00 on or before the close of
business on February 25, 2000 by wire transfer to such account as shall have
been designated by AmTote.
2. PNGI and Penn National agree to dismiss with prejudice the Appeal, with
each party to bear its own costs.
3. AmTote, on behalf of itself, its predecessors, successors, and assignees
has released and discharged and by these presents does hereby remise, release,
acquit, quit claim and forever discharge PNGI and Penn National, their
predecessors, trustees, directors, officers, agents, representatives, employees,
shareholders, attorneys, successors and assigns, as well as their parents,
subsidiaries and affiliates of and from any and all claims, demands, causes of
action, suits in law or in equity, judgments, obligations, debts, agreements,
covenants, liens, damages, expenses, losses and liabilities of whatever kind and
nature, whether known or unknown, which AmTote now owns or holds or has at any
other time previously owned or held or had which refer, relate or otherwise
pertain to the Litigation, the Judgment, the Appeal or to Charles Town Race
Track.
4. PNGI and Penn National on behalf of their predecessors,
trustees, directors, officers, agents, representatives, employees, shareholders,
attorneys, successors and assigns, as well as their parents, subsidiaries and
affiliates have released and discharged and by these presents does hereby
remise, release, acquit, quit claim and forever discharge AmTote, its
predecessors, successors, and assignees of and from any and all claims, demands,
causes of action, suits in law or in equity, judgments, obligations, debts,
agreements, covenants, liens, damages, expenses, losses and liabilities of
whatever kind and nature, whether known or unknown, which AmTote now owns or
holds or has at any other time previously owned or held or had which refer,
relate or otherwise pertain to the Litigation, the Judgment, the Appeal or to
Charles Town Race Track.
5. This Agreement represents a compromise of disputed claims and shall not
in any way be considered an admission of liability by any person or entity named
or described herein.
6. This Agreement is entered into without reliance upon any
statement, representation, promise, inducement or agreement not expressly
contained herein, and constitutes the entire agreement between the parties, and
supersedes all prior oral or written agreements concerning the settlement of
claims among them.
7. This Agreement shall binding upon and inure to the benefit of the
parties, their respective, heirs, beneficiaries, successors and assigns.
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8. This
Agreement may not be amended, modified or supplemented except by an instrument
in writing signed by the parties hereto. 9. Each party agrees to execute such
further and additional documents, instruments or writings as may be necessary,
proper, required, desirable or convenient for the purpose of fully effecting the
terms and provisions of this agreement, including but not limited to a paper
dismissing with prejudice the Appeal.
10. This Agreement shall be governed and construed in accordance with the
laws of the State of Maryland.
AMTOTE INTERNATIONAL, INC.
By: /s/Edmund T. Mudge
Edmund T. Mudge, IV, President
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, Vice President
PENN NATIONAL GAMING, INC.
By: /s/William J. Bork
William J. Bork
President and Chief Operating Officer
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THE DOWNS, INC. PENNSYLVANIA HARNESS
HORSEMEN'S ASSOCIATION, INC.
By: __/s/Joseph A. Lashinger Jr. By: _____________________________
---------------------------
Joseph A. Lashinger, Jr., Esq. President
By: _____________________________ By: _____________________________
Secretary Secretary
(Corporate Seal) (Corporate Seal)
Attest: ___________________________ Attest: ___________________________
209
February 24, 2000
Mr. William Bork, Sr.
President
Penn National Gaming, Inc.
825 Berkshire Blvd.
Wyomissing, PA 19610
Dear Bill,
I refer to the contract dated May 7, 1997 between and among PNGI
Charles Town Gaming, LLC and the Charles Town HBPA, Inc. The term of this
contract is in full force until December 31, 2000 (initial term). There are two
one-year rollover terms called first and second extension terms. Notice to
terminate, must be given, by either party, prior to September 30, 2000 or
September 30, 2001, whichever is applicable.
The Charles Town HBPA, Inc. hereby waives it's right to terminate this
contract either the first or second extension term. This waiver is irrevocable
and thus to insure understanding the Charles Town HBPA, Inc. agrees to abide by
the provisions of aforesaid contract until the end of the second extension
period.
Sincerely,
/s/Richard C. Watson
Richard C. Watson
President
Charles Town HBPA, Inc.
RCW/pe
cc: Jim Buchanan
Richard L. Moore
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Joint Venture Agreement
Between: eBet Limited
(ACN 056 210 774)
Level 4, 500 Pacific Highway
St Leonards NSW 2065
Australia; and
TrackPower, Inc
580 Granite Court
Pickering Ontario L1W3Z4
Canada; and
Penn National Gaming, Inc
825 Berkshire Boulevard
Wyomissing Pennsylvania 19610
USA
1. Background:
1.1 eBet Limited ("eBet") and certain of its subsidiaries ("eBet Group")
develop, operate and market interactive gaming & wagering systems
("eBet System") to facilitate, among other things, the online
distribution of race wagering products and services via the Internet
and other distribution networks ("eBet Race Wagering Business"). For
the avoidance of doubt eBet group does not include eBet subsidiaries
not involved in development, operation and marketing of interactive
gaming and wagering systems.
1.2 eBet Group holds copyright, title and proprietary rights to the eBet
System and its interfaces to various gaming & wagering systems.
1.3 eBet Group is a party to a contract with New Zealand TAB ("NZ TAB
Contract") to distribute the NZ TAB's pari-mutuel race betting and
fixed-odds sports betting products on an agency basis.
1.4 eBet Group owns various Internet domain names including, among
others, eBetRacing.com and eBet USA.com ("eBet Racing Domains").
1.5 eBet Group is in negotiations with various international race betting
operators to provide various services and/or act as an agent on their
behalf ("eBet Race Negotiations")
1.6 eBet Group is a party to a license agreement with Penn National
Gaming, Inc ("Penn") to establish an operating entity to be known as
eBet USA Inc ("eBetUSA Contract") to offer Internet wagering on
racing events hubbed by Penn.
1.7 TrackPower, Inc ("TrackPower") is a NASDAQ OTCBB ("OTCBB") listed
company that, among other things, operates a satellite broadcast
business, which broadcasts horseracing to subscribers of the US-based
Dish Network ("Dish") ("TrackPower Business").
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1.8 TrackPower is a party to various contracts ("TrackPower Contracts")
with racetracks, broadcasters, technology developers, satellite
operators and Penn which facilitate the operation of the TrackPower
Business.
1.9 TrackPower owns various Internet domain names including, among others,
TrackPower.com ("TrackPower Domains").
1.10 Penn holds a license ("Wagering License") to operate, among other
things, telephone wagering services whereby it facilitates the
placing of wagers by customers ("Penn Customers") via the telephone
("Penn Phone Wagering Business").
2. Establishment of TrackPower Joint Venture
2.1 eBet Group, TrackPower and Penn ("The Parties") intend to consolidate
the TrackPower Business, the management and operation of the Penn
Phone Wagering Business, the eBetUSA Contract, the NZ TAB Contract in
part and the eBet Race Wagering Business ("Consolidation").
2.2 To facilitate Consolidation, by way of the issue of its shares and
warrants, TrackPower will acquire various assets, interests,
contracts and licenses from eBet Group and Penn. Specifically,
TrackPower will acquire, directly or indirectly, subject to the
provisions of this Agreement and on an on-going basis relevant
regulatory, horsemen and shareholder approvals ("Approvals"):
2.2.1 From eBet Group:
a) Subject to any necessary shareholder approvals, an exclusive,
perpetual worldwide license to operate the eBet System for
pari-mutuel race wagering applications and on a non-exclusive
basis, fixed odds race wagering applications ("eBet System
License"); and
b) subject to the approval of NZ TAB, all rights and obligations of
the NZ TAB contract with respect to race wagering; and
c) the eBet Race Wagering Business and eBet Racing Domains; and
d) rights and obligations in other contracts and eBet Race
Negotiations necessary and relevant to the operation of the eBet
Race Wagering Business,
in consideration of the issue of 18,000,000 fully paid common shares in
the capital of TrackPower, and 5,000,000 warrants to acquire shares in
the capital of TrackPower at an exercise price of US$1.00 per share
exercisable at any time for a period of two years from the date of this
Agreement issued on terms, and with rights, no less favourable than any
other TrackPower shares or warrants on issue at the time of this
Agreement.
eBet Group is not obliged to transfer to TrackPower:
e) any interest in any fixed odds race wagering business conducted
by eBet Group as principal using the eBet System; or
f) any interest eBet Group has in any contract relating to any fixed
odds race wagering or sports betting conducted by New Zealand TAB
using the eBet System.
g) for the avoidance of doubt the eBet System License is a perpetual
license to use, develop and sub-license the source code necessary
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to conduct the eBet Race Wagering Business ("eBet Race Wagering
System"). TrackPower acquires no right, title or interest in the
intellectual property rights to the source code, object code or
any other part of the technology necessary to conduct the eBet
Race Wagering System except as provided for by this Agreement.
2.2.2 From Penn:
a) Subject to any on-going necessary horsemen or regulatory
approvals, a worldwide, perpetual license and management contract
("Management Contract") to manage the Penn Phone Wagering
Business, whereby TrackPower will assume the management, marketing
and operation of all facets of the Penn Phone Wagering Business on
an exclusive basis in accordance with the Wagering License,
in consideration for the issue of 18,000,000 fully paid common shares in
the capital of TrackPower; and 1,000,000 warrants to acquire shares in
the capital of TrackPower at an exercise price of US$1.00, exercisable
at any time for a period of one year from the date of this Agreement
and issued on terms, and with rights, no less favourable than any other
TrackPower shares or warrants on issue at the time of this Agreement.
b) For the avoidance of doubt, Penn must make available to TrackPower
all information relating to the customers of and suppliers to Penn
and its affiliates relating to the Penn Phone Wagering Business to
enable TrackPower to manage all aspects of that business.
TrackPower is entitled to all revenue and profits ("Revenues")
derived from the conduct of that business.
For the avoidance of doubt Revenues to TrackPower will be net of
horsemen percentages, simulcast fees, taxes, and any source market fees
or TrackPower will be obligated to pay such fees and taxes.
c) This Management Contract will be on terms customary for management
of gaming operations. Penn must, at its own expense, provide to
TrackPower all necessary equipment and facilities currently in
place and necessary for the operation of the Penn Phone Wagering
Business. TrackPower will meet all capital expenditure and working
capital requirements in respect of the Penn Phone Wagering
Business from the date of execution of the Long Form Agreements
referred to below.
d) The Management Contract may be terminated by Penn if an insolvency
event occurs with respect to TrackPower, TrackPower fails to
operate in a manner so as to preserve licenses held by Penn to
conduct the Penn Phone Wagering Business or otherwise fails to use
its best efforts to promote and manage that business. In return
for its appointment of TrackPower as manager, Penn will be
entitled to a fee ("Account Wagering Fee") that will be:
(i) the first US$150,000 per month of Revenues.
For the avoidance of doubt, the maximum annual account wagering fee
payable shall be US$1,800,000 per annum.
2.2.3 TrackPower.
For the avoidance of doubt TrackPower will retain and must preserve:
a) the TrackPower Business; and
b) all rights and obligation in the TrackPower Contracts, including,
but not limited to, those with Dish and Penn; and
c) other such contracts and negotiations relevant to the operation
of the TrackPower Business; and
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d) the TrackPower Domain Names.
2.3 It is the intention of the Parties that the terms of this Agreement
be reflected in long form agreements ("Long Form Agreements") which
will set out the relationship between the Parties in greater detail.
The Parties will negotiate in good faith to agree the terms of Long
Form Agreements as soon as possible and in any event within 90 days
of the date of this Agreement. However, until such Long Form
Agreements are executed, this Agreement is legally binding on the
Parties. If the Long Form Agreements are not executed within this
timeframe or should all necessary shareholder, regulatory, Horsemen,
contractual or other approvals not be gained within the same
timeframe, unless otherwise agreed by the Parties, this Agreement
terminates and each Party is released from all obligations under this
agreement. Any such release is without prejudice to any rights a
party may have against another in respect of any breach that occurs
prior to termination. The confidentiality undertakings set out in
Part 8 survive termination of this Term Sheet.
2.3.1 The Parties must negotiate in good faith to settle the terms of
the Long Form Agreements within 90 days of execution of this
Agreement including, but not limited to providing access to due
diligence material as customary in completion of transactions of
the nature contemplated by this Agreement.
2.4 Each Party must not and must ensure that none of its affiliates do
not provide any information to a third party in relation to
encouraging, soliciting, negotiating or otherwise being involved in
any transaction that may in any way prejudice its ability to complete
the transactions contemplated by this Agreement.
2.5 No Party may be involved in and must procure that its affiliates are
not involved in any way (including without limitation, as shareholder,
unit holder, principal, agent, manager, consultant, service provider or
adviser) in any race wagering business similar to that conducted by
TrackPower anywhere in the world from the date of completion of the
transfers under Clause 2.2 until the date 2 years after that Party
ceases to hold at least 10% of the issued share capital of TrackPower.
This restriction does not restrict eBet Group from:
a) conducting a fixed odds race wagering business as principal
using the Bet System; or
b) eBet Group making the eBet System available to the New Zealand
TAB to enable it to conduct a fixed odds race wagering business
under the NZ TAB Contract.
3. TrackPower Management
3.1 The board of directors of TrackPower ("TrackPower Board") will be
comprised of initially six members("Initial Board") during the period
between this Agreement and execution of the Long Form Agreement or
ninety (90) days whichever occurs earlier, and when the New Board,
referred to below, is constituted, seven members.
3.2 eBet Group and Penn will have the right to nominate a representative
to the TrackPower Board and TrackPower must secure requisite
resignations and/or approvals to facilitate this so as such
appointments coincide with the execution of the Long Form Agreements.
3.2.1 Upon execution of the Long Form Agreements, unless otherwise
agreed by eBet and Penn, all of the TrackPower Board other
than John Simmonds, and the nominees of eBet and TrackPower
referred to above, must tender their resignations for
consideration by the remaining board members to facilitate the
formation of a new TrackPower board ("New Board"), with the
nominees to be agreed by the parties.
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3.2.2 Upon formation, the New Board will:
a) elect a chairman by unanimous vote; and
b) the independent nominees will by unanimous vote elect a further
independent director; and
c) determine the terms, conditions and timing of the Secondary Offering
and NASDAQ Listing referred to below.
3.2.3 Until formation of the New Board TrackPower agrees not to:
a) issue any securities including, without limitation, options to acquire
any shares in the capital of TrackPower; or
b) pay any dividend or undertake any other distribution; or
c) dispose of any material asset or grant any security or other third
party interest over any asset; or
d) permit the amendment of the constituent documents of TrackPower; or
e) proceed with the Secondary Offering or NASDAQ Listing, referred to below,
without the written consent of eBet and Penn.
3.3 The Parties will each nominate an executive management representative
to the executive management team of TrackPower ("TrackPower
Executive") with such nominations to be confirmed by the TrackPower
Board and CEO. For the avoidance of doubt, Penn shall nominate a
suitably qualified North American racing executive: the identity of
each executive nominee must be approved by all the parties.
3.3.1 The TrackPower Executive will be responsible for, among other
things:
a) the development and coordination of the Long Form
Agreements; and
b) the development and coordination of the Business Plan,
referred to below in 5.3; and
c) the coordination and management of the Secondary Offering
and NASDAQ listing; and
d) other such duties as are customary in the operation of a
company such as TrackPower and as agreed between the Parties
and/or as directed by the TrackPower Board .
3.3.2 TrackPower will be headed by the TrackPower Chief Executive
Officer ("CEO"), who shall report directly to the TrackPower
Board.
3.3.3 eBet Group shall appoint the CEO on terms reasonably
acceptable to the Parties. The identity of the CEO must be
approved by all the Parties.
4. Secondary Offering and NASDAQ Listing
215
<PAGE>
4.1 It is the intention of the Parties to secure an underwriting or
sponsorship agreement ("Underwriting Agreement") from an investment
bank/s satisfactory to all Parties in preparation for a secondary
offering of securities in TrackPower to raise capital ("Secondary
Offering") and NASDAQ listing or listing on an alternative exchange,
by way of application to the relevant exchange and/or regulatory
bodies, to give effect to a transference of TrackPower's OTCBB
listing..
4.2 The Long Form Agreements to give effect to this Agreement, and
without limitation, the parts of Clause 2 of this Agreement, shall be
conditional upon the TrackPower Board [and, if necessary, TrackPower
Shareholder,] passing any and all necessary resolutions to give
effect to the Secondary Offering and NASDAQ listing on terms
acceptable to the Parties.
5. Current Operations and Business Plan
5.1 Prior to execution of the Long Form Agreements the Parties:
a) will continue to operate their business activities, referred to
in the parts of Clause 2 of this Agreement, using prudent
business practices and their best endeavours to maximize growth
opportunities and ensure compliance with contracts,
regulations, and legislation relevant to those business
activities; and
b) the current contractual arrangements between the Parties shall
remain enforceable until the execution of the Long Form
Agreements or upon termination of this Agreement if termination
is in accordance with the terms of this Agreement.
5.2 Each Party agrees that their respective employees are critical to the
day to day operation of their businesses. Given this, the Parties
agree to avoid any discussions concerning the hiring of the other's
employees. Any contact or discussions concerning an offer of
employment to the other Party's employee/s shall have the prior
approval of an officer of that employee's employer.
5.3 The Parties intend that TrackPower will be operated in accordance
with a business plan ("Business Plan") that will address, among other
things, corporate and business development, financing, operations,
marketing, expenditure and revenue budgeting, compliance and
staffing.
5.4 The Parties will use their best endeavours to develop and agree to
the terms of the Business Plan within 60 days of this Agreement. This
Business Plan will form an exhibit to the Long Form Agreements
representing the agreed Business Plan for TrackPower.
6. No Assignment
6.1 The rights of the Parties under this Agreement may not be assigned or
otherwise
made available to any third party except as expressly provided for by
this Agreement with the written consent of the other parties such to
not be unreasonably withheld.
7. Representations and Warranties
7.1 Each Party will grant the other customary representations and
warranties. Without limitation, each Party represents and warrants to
the other as follows:
a) it has the full power, right and authority to enter into this Agreement and
to perform its obligations under this Agreement;
b) this Agreement has been duly authorized by all requisite corporate action
and is a valid and legally binding obligation of that Party;
216
<PAGE>
c) it has no prior commitments, arrangements or agreements with
any other person, entity or corporation which might interfere
with or preclude it from carrying out its obligations;
(d) it is able to pay its debts as and when they fall due;
(e) it holds all necessary assets to perform its obligations in accordance with
this Agreement;
(f) the audited financial statements in respect of it which it has
provided to the other Parties provide a true and fair view of
its financial position as at the balance date referable to
those accounts; and
(g) other than as has been disclosed to another party or has been
disclosed to the securities exchange on which its securities
are traded, there has been no material adverse change in the
financial circumstances of the Party since the balance date
for the last financial statements referred to in Clause
7.1(f).
8. Confidential Information
8.1 The Parties acknowledge all information relating to the other Parties
and their respective businesses, including, without limitation, each
others' business plans, operations, contracts, negotiations, and
technology not in the public domain and all information in the public
domain which has been made public by a Party in breach of this Part 8
("Confidential Information") is confidential. Each Party will be
required to make available such Confidential Information for, among
other things, the development of the Business Plan and the due
diligence enquiries of each of the other Parties.
8.2 Each Party will use its best endeavours to ensure that Confidential
Information is maintained in confidence. A Party need not comply with
clause 8.2 to the extent that:
(a) disclosure is required by applicable law; or
(b) disclosure is made to an employee, agent, consultant or
adviser provided such disclosure is limited to disclosure
required on a "need-to-know" basis and that third party
undertakes to be bound by the confidentiality undertakings
under this Part 8.
8.2.1 Notwithstanding Clause 8.2 a), the parties must use their best
endeavours to provide advance notice to the other parties as
to any disclosure, and the form of such disclosure, required
by applicable law prior to its release.
8.3 Each recognizes that the other is obliged by the listing rules of the
stock exchange on which its shares are traded ("Listing Rules") and
other applicable law to disclose material information relevant to its
business.
8.4 If a Party is required by applicable law or the Listing Rules of the
exchange on which its shares are quoted to disclose any Confidential
Information, it must consult fully with the other Parties with
respect to the form, content and timing of that disclosure. Any Party
so required to disclose Confidential Information must in good faith
have regard to the reasonable requests of the others regarding the
form, content and timing of the release of that Confidential
Information. In relation to the form, content and timing of that
disclosure, however, the determination of the Party obliged to make
disclosure will be final.
9. Governing Law
217
<PAGE>
9.1 This Term Sheet is governed by the laws of the State of Wyoming, United
States of America and the Federal laws in force in that State.
Executed as an Agreement
Dated this...............6..... Day of......March, 2000......................
Signed for and on behalf of: Signed for and on behalf of:
EBET LIMITED TRACKPOWER, INC
(ACN 056 210 774)
Signature /s/Keith R. Cullen Signature /s/John G. Simmonds
NAME: Keith R. Cullen NAME: John G. Simmonds
POSITION: Managing Director.............POSITION:...Chairman/CEO......
In the presence of: In the presence of:
Signature ................ Signature
218
<PAGE>
Signed for and on behalf of:
PENN NATIONAL GAMING, INC
Signature .../s/Joseph A. Lashinger
NAME: Joseph A. Lashinger In the Presence of:
POSITION: .Vice President/General Counsel..................................
Signature .../s/Colleen A. Kline..............
Witness
219
Schedule 21
Penn National Gaming, Inc.
Mountainview Thoroughbred Racing Association
Pennsylvania National Turf Club
Penn National Holding Company
Penn National Gaming of West Virginia, Inc.
PNGI Charles Town Gaming, Limited Liability Company.
PNGI Charles Town Food & Beverage, LLC.
Tennessee Downs, Inc.
Penn National GSFR, Inc.
PNGI Pocono, Inc.
The Downs Racing, Inc.
Northeast Concessions, Inc.
Mill Creek Land, Inc.
Backside, Inc.
Wilkes Barre Downs, Inc.
Casino Holding, Inc.
BSL, Inc.
BTN, Inc.
eBetUSA.com, Inc.
Penn National Speedway, Inc.
Sterling Aviation, Inc.
220
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<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 0
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0
0
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