This filing is made pursuant to Rule 424(b)(2) under the Securities Act
of 1933 in connection with Registration No. 333-63780
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 30, 2001)
$175,000,000
[LOGO]
PENN NATIONAL GAMING, INC.
8 7/8% SENIOR SUBORDINATED NOTES DUE 2010
----------------
We are offering $175,000,000 of 8 7/8% Senior Subordinated Notes due 2010.
Interest is payable on March 15 and September 15 of each year, beginning
September 15, 2002. These notes will mature on March 15, 2010.
We may redeem all or part of the notes on or after March 15, 2006. Prior to
March 15, 2005, we may redeem up to 35% of the notes from the proceeds of
certain sales of our equity securities. Redemption prices are specified in this
prospectus supplement under "Description of Notes--Optional Redemption." The
notes also are subject to redemption requirements imposed by state and local
gaming laws and regulations.
The notes will be our general unsecured obligations and will be guaranteed
on a senior subordinated basis by all of our current and future wholly-owned
domestic subsidiaries that are guarantors under our existing indenture. The
notes will rank equally with our existing and future senior subordinated debt
and junior to our senior debt, including debt under our senior credit facility.
For a more detailed description of the notes, see "Description of Notes"
beginning on page S-29.
FOR A DISCUSSION OF RISKS YOU SHOULD CONSIDER IN DECIDING WHETHER TO BUY OUR
NOTES SEE "RISK FACTORS" BEGINNING ON PAGE S-9.
--------------------------
Offering price: 99.287% of principal plus accrued interest, if any from February
28, 2002.
--------------------------
None of the Securities and Exchange Commission or any state securities
commission, or the Louisiana Gaming Control Board, the Mississippi State Tax
Commission, the New Jersey Casino Control Commission, the New Jersey Racing
Commission, the Alcohol and Gaming Commission of Ontario, the Pennsylvania State
Horse Racing Commission, the Pennsylvania State Harness Racing Commission, the
West Virginia Racing Commission, the West Virginia Lottery Commission or any
other gaming authority, has passed upon the accuracy or adequacy of this
prospectus supplement or the accompanying prospectus or the investment merits of
the notes offered hereby. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the notes to purchasers on or about
February 28, 2002.
--------------------------
JOINT BOOK-RUNNING MANAGERS
BEAR, STEARNS & CO. INC. MERRILL LYNCH & CO.
JOINT LEAD MANAGER
CIBC WORLD MARKETS
---------------
The date of this prospectus supplement is February 21, 2002.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
--------
About This Prospectus Supplement............................ S-i
Where You Can Find More Information......................... S-ii
Disclosure Regarding Forward-Looking Statements............. S-iii
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-9
Use of Proceeds............................................. S-18
Ratio of Earnings to Fixed Charges.......................... S-18
Capitalization.............................................. S-19
Unaudited Pro Forma Consolidated Statements of Operations... S-20
Description of Existing Indebtedness........................ S-27
Description of Notes........................................ S-29
Certain United States Federal Income Tax Consequences....... S-69
Underwriting................................................ S-74
Legal Matters............................................... S-75
Experts..................................................... S-75
PROSPECTUS
PAGE
--------
About This Prospectus....................................... i
Where You Can Find More Information......................... ii
Disclosure Regarding Forward-Looking Statements............. iii
The Company................................................. 1
Use of Proceeds............................................. 3
Ratio of Earnings to Fixed Charges.......................... 3
Description of Capital Stock................................ 4
Description of Debt Securities.............................. 10
Selling Shareholders........................................ 17
Plan of Distribution........................................ 18
Legal Matters............................................... 19
Experts..................................................... 19
------------------------
ABOUT THIS PROSPECTUS SUPPLEMENT
We provide information to you about the notes in two separate documents that
offer varying levels of detail:
- the accompanying prospectus, which provides general information, some of
which may not apply to the notes; and
- this prospectus supplement, which provides a summary of the specific terms
of the notes.
This offering of common stock is being made under our existing shelf
registration statement that we filed with the Securities and Exchange
Commission.
You should rely only upon the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
their respective dates. Our business, financial condition, results of operations
and prospects may have changed since these dates.
--------------------------
None of Penn National Gaming, the underwriters or any of their respective
representatives is making any representation to you regarding the legality of an
investment in the notes by you under applicable law. You should consult with
your own advisors as to the legal, tax, business, financial and related aspects
of a purchase of the notes.
S-i
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith we file reports
and other information. Such reports and other information may be inspected and
copied at the public reference rooms of the Securities and Exchange Commission
located at 450 Fifth Street, N.W., Washington, D.C. 20549 and regional offices
in New York, New York and Chicago, Illinois. Copies of such material can be
obtained from the Commission by mail at prescribed rates. Please call the
Commission at 1-800-SEC-0330 (1-800-732-0330) for further information on the
public reference rooms. In addition, the Commission maintains a website
(http://www.sec.gov) that contains such reports, proxy statements and other
information that we have filed. Information may be obtained from us at the
address specified below.
We have "incorporated by reference" into this prospectus supplement and the
accompanying prospectus certain information that we file with the Commission.
This means that we can disclose important business, financial and other
information in this prospectus by referring you to the documents containing this
information. All information incorporated by reference is part of this
prospectus supplement and the accompanying prospectus, unless and until that
information is updated and superseded by the information contained in this
prospectus supplement and the accompanying prospectus or any information filed
with the Commission and incorporated later. Any information that we subsequently
file with the Securities and Exchange Commission that is incorporated by
reference will automatically update and supersede any previous information that
is part of this prospectus supplement and the accompanying prospectus.
We incorporate by reference our documents listed below and any future
filings we make with the Securities and Exchange Commission under Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act until the time that we sell all
of the securities offered by this prospectus supplement and the accompanying
prospectus:
- Annual Report on Form 10-K/A for the fiscal year ended December 31, 2000;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001,
June 30, 2001 and September 30, 2001;
- Current Reports on Form 8-K filed on October 20, 2000, March 2, 2001,
May 7, 2001, June 8, 2001, August 23, 2001, February 8, 2002 and
February 20, 2002;
- The description of our common stock included in our registration statement
on Form 8-A as filed on May 26, 1994; and
- The description of our preferred share purchase rights included in our
registration statement on Form 8-A as filed on March 16, 1999.
We will provide without charge to each person to whom a copy of this
prospectus supplement and the accompanying prospectus is delivered upon the
written or oral request of such person, a copy of any or all of the documents
incorporated by reference (other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference into the information that
this prospectus supplement and the accompanying prospectus incorporates).
Requests should be directed to:
Penn National Gaming, Inc.
825 Berkshire Boulevard, Suite 200
Wyomissing, PA 19610
Attention: Robert S. Ippolito
Telephone (610) 373-2400
S-ii
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, accompanying prospectus and the documents that
are incorporated by reference herein and therein, include "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Exchange Act, regarding, among other things, our
business strategy, our prospects and our financial position. These statements
can be identified by the use of forward-looking terminology such as "believes,"
"estimates," "expects," "intends," "may," "will," "should" or "anticipates" or
the negative or other variation of these or similar words, or by discussions of
strategy or risks and uncertainties. Specifically, forward-looking statements
may include, among others, statements concerning:
- our expectations of future results of operations or financial condition;
- our expectations for our properties and the facility that we manage in
Canada;
- the timing, cost and expected impact on our market share and results of
operations of our planned capital expenditures;
- the timing of completion of our acquisition of Bullwhackers casino;
- the impact of our regional diversification;
- our expectations with regard to further acquisitions and the integration
of any companies we may acquire;
- the outcome and financial impact of the litigation in which we are
involved;
- the actions of regulatory authorities with regard to our business and the
impact of any such actions;
- the expected effect of regulatory changes that we are pursuing; and
- expectations of the continued availability of capital resources.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, they are inherently subject to risks, uncertainties
and assumptions about us and our subsidiaries and, accordingly, we cannot assure
you that such expectations will prove to be correct. Important factors that
could cause actual results to differ materially from the forward-looking
statements include, without limitation, risks related to the following:
- capital projects at our gaming and pari-mutuel facilities;
- the activities of our competitors;
- the existence of attractive acquisition candidates;
- our ability to maintain regulatory approvals for our existing businesses
and to receive regulatory approvals for our new businesses;
- our dependence on key personnel;
- the maintenance of agreements with our horsemen and pari-mutuel clerks;
- the risk factors and other risks and uncertainties described from time to
time in our filings with the Securities and Exchange Commission, including
those documents incorporated by reference therein and herein; and
- other risks and uncertainties that have not been identified at this time.
All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements included in this document. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise, except as required by law. In
light of these risks, uncertainties and assumptions, the forward-looking events
discussed in this prospectus supplement, accompanying prospectus and the
documents incorporated by reference may not occur.
S-iii
PROSPECTUS SUPPLEMENT SUMMARY
EXCEPT WHERE OTHERWISE NOTED, THE WORDS, "WE," "US," "OUR" AND SIMILAR
TERMS, AS WELL AS REFERENCES TO "PENN NATIONAL" OR THE "COMPANY" REFER TO PENN
NATIONAL GAMING, INC. AND ALL OF ITS SUBSIDIARIES. WITH RESPECT TO THE
DISCUSSION OF THE TERMS OF THE NOTES ON THE COVER PAGE AND IN THE SECTION
ENTITLED "PROSPECTUS SUPPLEMENT SUMMARY--THE OFFERING" "WE," "OUR," AND "US"
REFER ONLY TO PENN NATIONAL GAMING, INC. AND ONLY THOSE OF ITS SUBSIDIARIES THAT
ARE GUARANTORS UNDER THE NOTES. THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION
ABOUT THIS OFFERING. IT LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS
IMPORTANT TO YOU. BEFORE MAKING AN INVESTMENT DECISION, YOU SHOULD READ THIS
ENTIRE PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU.
THE COMPANY
We are a leading diversified, multi-jurisdictional owner and operator of
gaming properties, as well as horse racetracks and associated off-track wagering
facilities, which we refer to in this document as our pari-mutuel operations. We
own or operate five gaming properties located in West Virginia, Mississippi,
Louisiana and Ontario, Canada that are focused primarily on serving customers
within driving distance of our properties. We also own two racetracks and eleven
off-track wagering facilities in Pennsylvania. We believe our portfolio of
assets provides us with diversified cash flow. We intend to pursue the expansion
of our gaming operations through both the implementation of a disciplined
capital expenditure program at our existing properties and the continued pursuit
of strategic acquisitions of gaming properties in attractive regional markets.
In 1997, we began our transition from a pari-mutuel company to a diversified
gaming company with the introduction of video lottery terminals at our Charles
Town Entertainment Complex. In 1999, we expanded our offerings at Charles Town
with the introduction of reel-spinning, coin-in/coin-out machines. We continued
our transition through a series of strategic acquisitions in four different
regional markets. In August 2000, we acquired Casino Magic Bay St. Louis in Bay
St. Louis, Mississippi and Boomtown Biloxi in Biloxi, Mississippi for an
aggregate purchase price of approximately $200 million and, in April 2001, we
acquired Casino Rouge in Baton Rouge, Louisiana and the management contract for
Casino Rama in Orillia, Ontario, Canada for approximately $180 million. In
addition, we have signed an agreement to acquire the operations of Bullwhackers
Casino, the adjoining Bullpen Sports Casino and Silver Hawk Saloon and Casino in
Black Hawk, Colorado. We are also in the process of implementing significant
capital improvement plans at Charles Town and Bay St. Louis. These projects
include the construction of additional floor space and a parking facility at
Charles Town and the development of an additional hotel in Bay St. Louis. We
believe these projects will broaden the customer appeal of these properties.
On a pro forma basis reflecting our recent acquisitions, our revenues would
have been $537.0 million and $483.5 million for the twelve months ended
September 30, 2001 and 2000, respectively, and our EBITDA (as defined on page
S-8) would have been $119.4 million and $109.4 million for the twelve months
ended September 30, 2001 and 2000, respectively.
S-1
OUR PROPERTIES
The following table summarizes certain features of our owned or leased
properties and our managed facility as of January 31, 2002:
PRO FORMA
PROPERTY LEVEL
EBITDA(1) FOR
TWELVE
GAMING MONTHS ENDED
TYPE OF SQUARE GAMING TABLE SEPTEMBER 30,
PROPERTY LOCATION FACILITY FOOTAGE MACHINES GAMES 2001
-------- -------- -------- ------- -------- ----- --------------
OWNED OR LEASED: (IN THOUSANDS)
Charles Town Entertainment Charles Town, WV Land-based gaming/ 50,000 2,000 -- $ 47,971
Complex Thoroughbred racing
Casino Magic Bay St. Louis Bay St. Louis, MS Dockside gaming 39,500 1,158 37 18,565
Boomtown Biloxi Biloxi, MS Dockside gaming 33,600 1,152 27 12,739
Casino Rouge Baton Rouge, LA Dockside gaming 28,000 1,029 38 21,142
Penn National Race Course(2) Harrisburg, PA Thoroughbred racing -- -- -- 7,907
Pocono Downs(2) Wilkes-Barre, PA Harness racing -- -- -- 6,783
OPERATED:
Casino Rama Orillia, Ontario Land-based gaming 75,000 2,202 122 11,098
-------- ----- --- --------
Total 226,100 7,541 224 $126,205
======== ===== === ========
------------------------------
(1) Excludes corporate overhead expense of $9.2 million and earnings from
unconsolidated affiliates of $2.1 million.
(2) In addition to our racetracks, Penn National Race Course and Pocono Downs
operate six and five off-track wagering facilities, respectively, located
throughout Pennsylvania. Property level EBITDA at these properties includes
the results of associated OTWs.
CHARLES TOWN ENTERTAINMENT COMPLEX. The Charles Town Entertainment Complex
in Charles Town, West Virginia features 2,000 gaming machines, a thoroughbred
racetrack, simulcast wagering, entertainment and dining. The facility is located
within driving distance of Baltimore, Maryland and Washington, D.C. and is a
leading gaming property serving the area. There is a total population of
approximately 3.1 million and 10.0 million persons within a 50 and 100-mile
radius, respectively, of the property. We have experienced strong growth at the
facility and have increased the number of gaming machines from 400 in
September 1997 to their current levels. A change in law in March 2001 increased
the maximum per pull wagering limit on the machines from $2 to $5. We have
undertaken a number of initiatives to drive growth at this property. In November
2000, we expanded the gaming area to over 50,000 square feet and opened a
150-seat restaurant and bar. We also have begun construction of a 1,500-space
structured parking facility that is expected to open in the second quarter of
2002 and we are expanding the gaming floor space to accommodate additional
gaming machines and patrons. The first phase of our expansion will add 41,000
square feet of space and will enable us to install 500 additional gaming
machines. We expect to complete this phase of the expansion in July 2002.
Subject to regulatory approval, we expect to install 500 machines in 2002 and an
additional 1,000 machines in 2003, for a total of 3,500 machines.
CASINO MAGIC BAY ST. LOUIS. Casino Magic Bay St. Louis offers approximately
39,500 square feet of gaming space, with approximately 1,158 slot machines and
37 table games. The facility is located in the Gulf Coast gaming market and is
within driving distance of New Orleans, Louisiana, Mobile, Alabama and other
cities in the Southeast. The property includes a 201-room hotel with banquet and
meeting space, 1,800-seat arena, 18-hole Arnold Palmer-designed championship
golf course, steak and seafood restaurant, a buffet-style restaurant and a live
entertainment lounge. We are constructing a 300-room hotel with conference
facilities, which we expect to open in the late second quarter of 2002. The
hotel, which is attached to the casino, will be comprised of 236 deluxe rooms,
46 junior suites and 9 one-bedroom suites with attached parlors. We believe the
new hotel will enable us to enhance our status as a regional destination
property.
S-2
BOOMTOWN BILOXI. Boomtown Biloxi, also located in the Gulf Coast gaming
market, offers approximately 33,600 square feet of gaming space, with 1,152 slot
machines and 27 table games, as well as other gaming amenities including a full
service buffet/menu service restaurant, 120-seat deli-style restaurant,
full-service bakery, western dance hall/cabaret and 20,000-square foot family
entertainment center. We believe that the property offers a relaxed and friendly
environment and has a broad and loyal customer base. There is an adult
population of approximately 665,000 and 2.2 million persons within a 50 and
100-mile radius, respectively, of the Gulf Coast market.
CASINO ROUGE. Casino Rouge is one of two dockside riverboat gaming
facilities operating in Baton Rouge, Louisiana. The property features a
four-story, 47,000-square foot riverboat casino, replicating a nineteenth
century Mississippi River paddlewheel steamboat, and a two-story, 58,000-square
foot dockside embarkation building. The riverboat features approximately 28,000
square feet of gaming space, 1,029 gaming machines and 38 table games and has a
capacity of 1,800 customers. The dockside embarkation facility offers a variety
of amenities, including a steakhouse, a 268-seat buffet, food and bar service,
lounge areas, meeting and planning space and a gift shop. There is an adult
population of approximately 650,000 and 2.1 million persons within a 50 and
100-mile radius, respectively, of the Baton Rouge market.
CASINO RAMA. We operate Casino Rama, a full service gaming and
entertainment facility, on behalf of the Ontario Lottery and Gaming Corporation,
an agency of the Province of Ontario. Casino Rama, located on the lands of the
Mnjikaning First Nation, is approximately 90 miles north of Toronto, Canada, and
has approximately 75,000 square feet of gaming space, 2,202 gaming machines and
122 table games. A 5,000-seat entertainment facility opened in July 2001 and a
300-room hotel currently is under construction at the property and is expected
to open in the second quarter of 2002. We have not and are not required to
commit any of our capital to these projects. Under our operating agreement,
which expires in 2011, we are entitled to a base fee equal to two percent of
gross revenue of the casino and an incentive fee equal to five percent on the
casino's net operating profit.
PENN NATIONAL RACE COURSE, POCONO DOWNS AND OTHER PARI-MUTUEL ASSETS. In
addition to our gaming facilities, we own and operate Penn National Race Course,
located outside of Harrisburg, one of two thoroughbred racetracks in
Pennsylvania, and Pocono Downs, located outside of Wilkes-Barre, one of two
harness racetracks in Pennsylvania. There is a total population of approximately
2.2 million persons within a 50-mile radius of Penn National Race Course. There
is a total population of approximately 1.5 million persons within a 50-mile
radius of Pocono Downs. In addition to our racetracks, we operate eleven
off-track wagering facilities, or OTWs, in Pennsylvania and hold a 50% interest
in Pennwood Racing, Inc., a joint venture that owns and operates Freehold
Raceway in New Jersey.
In August 2001, we entered into a definitive agreement to acquire the
operations of Bullwhackers Casino in Black Hawk, Colorado for $6.5 million cash.
The Bullwhackers properties include 20,700 square feet of gaming space, 1,002
slot machines, 16 table games and a 475-car parking area. The properties are
located on leased land as well as 3.25 acres of land included in the
acquisition, much of which is utilized for parking. We expect to close the
acquisition in the second quarter of 2002.
BUSINESS STRATEGY AND STRENGTHS
We seek to provide our customers with high quality gaming, racing, lodging,
dining and entertainment offerings. Our strategy is to expand our gaming
operations through both internal growth and the selective acquisition of
strategic gaming properties in attractive gaming markets.
We believe that the following key competitive strengths will contribute to
the successful implementation of our strategy:
- LEADING PROPERTIES IN ESTABLISHED REGIONAL MARKETS. Each of our properties
is located in established regional markets and has a population of at
least two million people within a
S-3
100-mile radius. We believe that our properties occupy a niche position in
each market in which we operate. Charles Town, with $193.6 million in
revenue for the twelve months ended September 30, 2001, is positioned as
the dominant operator in its market. Bay St. Louis, with its current
expansion and existing golf course, is evolving into a complete overnight
destination resort with what we believe is the broadest offering of
amenities on the Gulf Coast. Boomtown is the leading locals property in
the Biloxi market. Casino Rouge, with a 55% market share of 2001 revenue,
has consistently been the top performing property in Baton Rouge. Through
the introduction of additional amenities, and the implementation of our
capital improvement plans, we believe we can further improve the relative
market share of each of our existing properties.
- HISTORICALLY STABLE CASH FLOWS FROM EXISTING PROPERTIES. Because each of
our properties caters predominantly to local customers who tend to visit
our properties on a regular basis, our properties historically have
generated relatively stable cash flows. Moreover, the majority of our
gross gaming revenues comes from either video lottery terminal or slot
machine play, which typically are more predictable and stable sources of
revenue than other forms of gaming revenues. Each of our owned properties
has been in operation for a minimum of seven years and each is an
established venue for entertainment in its respective market. We believe
the capital development plans we are implementing will help us improve the
cash flow generating capabilities of our properties in the future.
- DIVERSIFIED PROPERTY PORTFOLIO. In addition to our established properties
in West Virginia and Pennsylvania, during the last 18 months we have
acquired three gaming properties in three regional markets and the right
to operate a fourth property in another regional market, enabling us to
develop a diversified portfolio of gaming properties. We believe this
regional diversification helps insulate us from softness in any one
market, while providing us with an opportunity to build a diversified
database of gaming customers to whom we can cross-market and promote all
of the properties within our portfolio. We intend to broaden the
diversification of our property portfolio through the continued pursuit of
strategic acquisitions in attractive markets.
- SUCCESSFUL ACQUISITION TRACK RECORD. During the past five years, we have
successfully transformed ourselves from an operator of racetracks and
off-track wagering facilities, into an operator of diversified gaming
properties. In implementing this transformation, we have positioned our
properties to achieve meaningful operating synergies, while simultaneously
building an experienced casino management team. We believe we have a
strong operational platform from which to pursue the continued growth of
our gaming operations.
- WELL-POSITIONED TO PURSUE GROWTH OPPORTUNITIES. According to the National
Association of State Budget Officers, there currently are more than
thirty-five states in the United States with projected budget deficits.
Many states are considering legislation that would introduce or broaden
gaming activities to help address these budget deficit problems. With
casino gaming, VLT or racetrack and off-track wagering operations in six
regional markets in North America, we believe we are a leading
multi-jurisdictional operator of a diversified mix of gaming properties.
We believe that our Pennsylvania and New Jersey pari-mutuel businesses may
provide us with significant growth opportunities if certain initiatives
are implemented. Pennsylvania currently has five bills pending in the
state legislature that would authorize the operation of slot machines at
racetracks. New Jersey recently has approved the introduction of off-track
wagering and telephone-account wagering. Pending the negotiation of a
participation agreement between our joint venture and the New Jersey
Sports Authority, and the final adoption of applicable regulations, we
expect that our joint venture will open its first off-track wagering
facility in late 2003.
- EXPERIENCED MANAGEMENT TEAM. Our senior management team has an average
industry tenure of more than 20 years and an established record of
acquiring, integrating and operating gaming and pari-mutuel facilities.
S-4
RECENT DEVELOPMENTS
FINANCIAL RESULTS
On February 4, 2002, we announced fourth quarter 2001 results. Revenues for
the quarter rose 48.1% to $136.0 million, compared to $91.8 million in the
fourth quarter of 2000. Fourth quarter 2001 EBITDA rose 72.6% to $28.7 million,
from $16.6 million in the fourth quarter of 2000. Net income in the fourth
quarter of 2001 rose 105.2% to $5.6 million, or $0.35 per diluted share,
compared to net income of $2.7 million, or $0.18 per diluted share, in the
fourth quarter of 2000.
For the full year 2001, revenues rose 78.0% to $519.4 million, compared to
$291.8 million in 2000. EBITDA in 2001 rose 90.4% to $113.3 million, from
$59.5 million in 2000. Income before extraordinary item in 2001 rose 31.2% to
$24.4 million, or $1.53 per diluted share, compared to income before
extraordinary item of $18.6 million, or $1.20 per diluted share, in 2000.
SHOWBOAT LITIGATION
On February 13, 2002, Showboat Development Company filed a lawsuit against
us in the United States District Court for the Eastern District of Pennsylvania.
The substance of this lawsuit is substantially similar to Showboat's previous
claim filed in the United States District Court of Nevada, which was dismissed
for lack of personal jurisdiction on January 25, 2002. That suit, filed in July
2001, alleged, among other claims, that the operation of our Charles Town
facility constitutes the operation of a casino, thereby triggering an option
Showboat holds to manage a casino at the facility. We intend to vigorously
defend ourselves against all of Showboat's claims. See "Risk Factors--Risks
Related to Our Business--We are involved in legal proceedings that, if adversely
adjudicated or settled, could impact our financial condition."
EQUITY OFFERING
On February 20, 2002, we completed the sale of 4,600,000 shares of our
common stock in a public offering, of which 3,350,000 shares were sold by us and
1,250,000 shares were sold by The Carlino Family Trust. We realized net proceeds
from the offering, after deducting underwriting discounts and related expenses,
of approximately $96.1 million. We did not receive any proceeds from the sale of
the shares by The Carlino Family Trust. We intend to use the net proceeds from
this equity offering to repay indebtedness under our credit facility.
------------------------
We are the successor to several businesses that have operated the Penn
National Race Course since 1972. We were incorporated in Pennsylvania in 1982 as
PNRC Corp. and adopted our present name in 1994. Our principal executive offices
are located in the Wyomissing Professional Center, 825 Berkshire Boulevard,
Suite 200, Wyomissing, Pennsylvania 19610; our telephone number is
(610) 373-2400.
S-5
THE OFFERING
WE PROVIDE THE FOLLOWING SUMMARY SOLELY FOR YOUR CONVENIENCE. THIS SUMMARY
IS NOT A COMPLETE DESCRIPTION OF THE NOTES. YOU SHOULD READ THE FULL TEXT AND
MORE SPECIFIC DETAILS CONTAINED ELSEWHERE IN THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT. FOR A MORE DETAILED DESCRIPTION OF THE NOTES, SEE THE SECTION
ENTITLED "DESCRIPTION OF NOTES" IN THIS PROSPECTUS SUPPLEMENT AND THE SECTION
ENTITLED "DESCRIPTION OF DEBT SECURITIES" IN THE ACCOMPANYING PROSPECTUS.
Issuer.................................... Penn National Gaming, Inc.
Securities Offered........................ $175,000,000 of 8 7/8% Senior Subordinated Notes due
2010.
Maturity Date............................. March 15, 2010.
Interest Payment Dates.................... March 15 and September 15, commencing on September 15,
2002.
Guarantees................................ All payments with respect to the notes will be fully,
unconditionally and irrevocably guaranteed on a senior
subordinated basis, jointly and severally, by all of our
current and future wholly-owned domestic subsidiaries
that are guarantors under our existing indenture.
Conditions................................ Among other customary closing conditions, before we
consummate this offering, we must amend our existing
credit facility to permit us to incur additional
subordinated indebtedness. If we are unable to either
obtain this amendment or terminate the existing credit
facility and obtain and have available a new revolving
credit facility in an amount equal to at least
$75.0 million, we will not consummate this offering.
Optional Redemption....................... On or after March 15, 2006, we may redeem some or all of
the notes at any time at the redemption prices listed in
the section "Description of Notes--Optional Redemption."
Before March 15, 2005, we may redeem up to 35% of the
notes issued in this offering with the proceeds of
certain sales of our equity securities at 108.875% of
the principal amount, plus accrued and unpaid interest,
if any, to the date of redemption. See "Description of
Notes--Optional Redemption."
The notes are subject to mandatory disposition or
redemption in the event of certain determinations by
gaming authorities. See "Description of Notes--Optional
Redemption."
Change of Control Offer and
Asset Sale Offer.......................... If we experience specific kinds of changes in control
and, under certain circumstances, if we sell certain
assets, we must offer to repurchase the notes. See "
--Repurchase at the Option of Holders--Change of
Control" and " --Asset Sales."
Ranking................................... These notes and the subsidiary guarantees are senior
subordinated indebtedness. They rank behind all of our
and our guarantor subsidiaries' existing and future
senior indebtedness for money borrowed and other similar
extensions of credit other than our trade payables and
any indebtedness that expressly provides that it is not
senior to these notes and the subsidiary guarantees.
They rank equally with all of our
S-6
existing and future senior subordinated indebtedness and
that of our subsidiary guarantors. The notes will be
effectively junior to all indebtedness of our current
and future foreign subsidiaries, partially owned
subsidiaries and any subsidiaries we designate as
unrestricted subsidiaries. Assuming we had completed
this offering on September 30, 2001 and applied the
proceeds of our recently completed equity offering and
of this offering as described under "Use of Proceeds,"
these notes and the subsidiary guarantees would have
been subordinated to approximately $4.4 million of
senior indebtedness (including amounts under outstanding
letters of credit), and approximately $70.6 million of
senior debt would have been available for borrowing
under our revolving credit facility.
Certain Covenants......................... We will issue the notes under an indenture among us, the
subsidiary guarantors and State Street Bank and Trust
Company, as trustee. The indenture will, among other
things, restrict our ability and the ability of our
restricted subsidiaries to:
- incur additional indebtedness;
- pay dividends on or purchase our capital stock;
- make investments;
- use assets as security in other transactions;
- place restrictions on distributions and other payments
from restricted subsidiaries;
- issue or sell preferred stock of restricted
subsidiaries;
- sell certain assets or merge with or into other
entities; and
- enter into transactions with affiliates.
These covenants are subject to exceptions, and certain
of our future subsidiaries may not be subject to the
covenants in the indenture. See "Description of
Notes--Certain Covenants."
No Prior Market........................... The notes will be new securities for which there is
currently no market. Although the underwriters have
informed us of their intentions to make a market in the
notes, they are not obligated to do so and may
discontinue market-making at any time without notice.
Accordingly, we cannot assure you of the development or
liquidity of any market for the notes.
Use of Proceeds........................... We plan to use the entire net proceeds from the offering
of the notes, after deducting expenses, to repay the
outstanding balances under the Tranche A and Tranche B
term loans under our existing credit facility and to pay
certain prepayment costs associated therewith. See "Use
of Proceeds."
Risk Factors.............................. An investment in the notes involves risk. You should
carefully consider the information under "Risk Factors"
in this prospectus supplement and in our Annual Report
on Form 10-K/A for the year ended December 31, 2000
identified in the section of this prospectus supplement
called "Where You Can Find More Information" and all
other information included or incorporated by reference
in this prospectus supplement and the accompanying
prospectus.
S-7
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA DATA
The following summary historical financial and operating data of Penn
National for the year ended December 31, 1999 and 2000, and Other data, are
derived from financial statements that have been audited by BDO Seidman, LLP,
independent certified public accountants. The summary consolidated financial and
Other data of Penn National for the nine months ended September 30, 2000 and
2001 have been prepared on the same basis as the historical information derived
from the audited financial statements and, in the opinion of management, contain
all adjustments, consisting only of normal recurring accruals, necessary for the
fair presentation of the results of operations for such periods.
The following summary unaudited consolidated pro forma data presented below
for the nine months ended September 30, 2000 and 2001 and the twelve months
ended September 30, 2000 and 2001 were prepared by consolidating our historical
results with the historical results of operations of Casino Magic Bay St. Louis,
Boomtown Biloxi, Casino Rouge and Casino Rama acquired for such periods. We
refer to Casino Magic Bay St. Louis and Boomtown Biloxi as the Mississippi
properties and Casino Rouge and Casino Rama as the CRC properties.
The following financial information is based on in part, and should be read
in conjunction with, the historical consolidated financial statements and
related notes of Penn National, Mardi Gras Casino Corp. (d/b/a Casino Magic Bay
St. Louis), Mississippi-I Gaming, L.P. (d/b/a Boomtown Biloxi) and CRC
Holdings, Inc.--Gaming Division and the unaudited pro forma consolidated
financial statements incorporated by reference in this prospectus supplement and
the accompanying prospectus. This pro forma information is presented for
illustrative purposes only and is not necessarily indicative of our operating
results that would have occurred if the Mississippi and CRC acquisitions had
occurred in an earlier period, nor is it necessarily indicative of our future
operating results.
HISTORICAL RESULTS PRO FORMA RESULTS
----------------------------------------- -----------------------------------------
FOR THE YEAR FOR THE NINE FOR THE NINE FOR THE TWELVE
ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------- ------------------- -------------------
1999 2000 2000 2001 2000 2001 2000 2001
-------- -------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenues................................ $170,360 $291,801 $200,017 $383,425 $376,724 $419,399 $483,515 $536,955
Income from operations.................. 16,719 43,565 32,149 57,533 58,789 66,302 68,458 79,225
Interest expense........................ 8,667 19,089 11,004 32,461 33,319 33,319 44,425 44,425
Income before extraordinary item........ 6,733 18,575 15,848 18,813 19,196 23,852 18,987 24,244
Net income.............................. 6,733 11,992 9,265 18,813 19,196 23,852 18,987 24,244
Diluted earnings per share before
extraordinary item.................... $ 0.44 $ 1.20 $ 1.03 $ 1.19 $ 1.25 $ 1.51 $ 1.23 $ 1.53
Diluted earnings per share.............. $ 0.44 $ 0.78 $ 0.60 $ 1.19 $ 1.25 $ 1.51 $ 1.23 $ 1.53
OTHER DATA:
EBITDA(1)............................... $ 26,496 $ 59,481 $ 42,850 $ 84,632 $ 89,589 $ 96,878 $109,357 $119,394
Capital expenditures.................... 13,243 27,295 17,348 22,967 25,692 25,868 40,515 37,014
AS OF
SEPTEMBER 30, 2001
-------------------
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................................................................ $ 36,401
Total assets............................................................................................. 670,268
Total long-term debt..................................................................................... 454,518
Shareholders' equity..................................................................................... 96,514
------------------------------
(1) EBITDA consists of income from operations plus depreciation and amortization
and earnings from joint venture. EBITDA is presented because we believe it
is frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in our industry. However, other
companies in our industry may calculate EBITDA differently than we do.
EBITDA is not a measurement of financial performance under generally
accepted accounting principles and should not be considered as an
alternative to cash flow from operating activities or as a measure of
liquidity or an alternative to net income as an indicator of operating
performance or any other measure of performance derived in accordance with
generally accepted accounting principles.
S-8
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS BEFORE DECIDING TO
INVEST IN THE NOTES.
RISKS RELATED TO OUR BUSINESS
A SUBSTANTIAL PORTION OF OUR REVENUES AND EBITDA IS DERIVED FROM OUR CHARLES
TOWN FACILITY.
Approximately 37.4% and 46.0% of our revenue and EBITDA, respectively, for
the nine months ended September 30, 2001 was derived from our Charles Town
operations. If, among other things, new competitors enter the market, economic
conditions in the region deteriorate or a business interruption occurs, our
operating revenues and cash flow could decline significantly.
WE MAY FACE DISRUPTION IN INTEGRATING AND MANAGING FACILITIES WE MAY ACQUIRE OR
EXPAND.
We expect to continue pursuing expansion and acquisition opportunities and
could face significant challenges in managing and integrating the expanded or
combined operations. For example, in August 2001, we signed a definitive
agreement to acquire all of the assets of the Bullwhackers casino operations in
Black Hawk, Colorado. We currently expect the acquisition will close in the
second quarter of 2002. Management of new properties, especially in new
geographic areas, may require that we increase our managerial resources. If we
fail to effectively manage any growth we may have, it could materially adversely
affect our operating results.
The integration of the Bullwhackers operations and any other properties we
may acquire will require the dedication of management resources that may
temporarily detract attention from our day-to-day business. The process of
integrating Bullwhackers, and potentially other properties, also may interrupt
the activities of those businesses, which could have a material adverse effect
on our business, financial condition and results of operations. We cannot assure
you that we will be able to manage the combined operations effectively or
realize any of the anticipated benefits of our acquisitions.
Our ability to achieve our objectives in connection with any acquisition we
may consummate may be highly dependent on, among other things, our ability to
retain the senior property level management teams of such acquisition
candidates. If, for any reason, we are unable to retain these management teams
following such acquisitions or if we fail to attract new capable executives, our
operations after consummation of such acquisitions could be materially adversely
affected.
WE FACE RISKS RELATED TO THE DEVELOPMENT AND EXPANSION OF OUR CURRENT
PROPERTIES.
We expect to use a portion of our cash on hand, cash flow from operations
and available borrowings under our revolving credit facility for capital
expenditures at the Charles Town Entertainment Complex and at Casino Magic Bay
St. Louis, including the construction of the new hotel at the latter facility.
The construction of the hotel at Casino Magic Bay St. Louis involves substantial
risks, including the possibility of construction cost over-runs and delays due
to various factors (including regulatory approvals, inclement weather and labor
or material shortages), market deterioration after construction has begun, and
the emergence of competition from unanticipated sources. The opening of the new
hotel at Bay St. Louis will be contingent upon, among other things, receipt of
all required licenses, permits and authorizations. The scope of the approvals
required for the new hotel at Bay St. Louis is extensive, including, without
limitation, state and local land-use permits, building and zoning permits and
health and safety permits. In addition, unexpected changes or concessions
required by local, regulatory and state authorities could involve significant
additional costs and could delay or prevent the completion of construction or
the opening of a new hotel. We cannot be sure that we will obtain the necessary
permits, licenses and approvals for the construction and operation of the new
hotels, or that we will obtain such permits, licenses and approvals within the
anticipated time frame.
S-9
We also are implementing enhancements at the Charles Town Entertainment
Complex, including the expansion of the gaming floor and the construction of a
structured parking lot. These planned enhancements involve similar risks to
hotel construction risks including cost over-runs, delays, market deterioration
and receipt of required licenses, permits or authorizations, among others.
The opening of the new hotel at Bay St. Louis and the other proposed
enhancements also will require us to significantly increase the size of our
existing work force at the property. We cannot be certain that management will
be able to hire and retain a sufficient number of employees to operate these
facilities at their optimal levels. The failure to employ the necessary work
force could result in inadequate customer service which could ultimately harm
profitability.
PRIOR TO AUGUST 2000, OUR GAMING EXPERIENCE DID NOT INCLUDE CASINO OPERATIONS.
Our Charles Town Entertainment Complex has featured gaming machines since
1997, but does not include the full complement of casino, entertainment and
other amenities available at traditional casinos. Through acquisitions beginning
August 2000, however, we began operating and managing full-scale casinos in
Mississippi, Louisiana and Canada. We cannot be sure that we will be successful
in managing and operating our business in response to the challenges of
conducting full-scale casino operations in highly competitive gaming markets.
These challenges are made more difficult as a result of the ongoing expansion of
our Charles Town and Bay St. Louis properties. Our failure to meet these
challenges may have a material adverse effect on our business, financial
condition and results of operations.
WE FACE SIGNIFICANT COMPETITION.
GAMING OPERATIONS
The gaming industry is highly fragmented and characterized by a high degree
of competition among a large number of participants, many of which have
financial and other resources that are greater than our resources. Competitive
gaming activities include casinos, video lottery terminals and other forms of
legalized gaming in the United States and other jurisdictions.
Legalized gambling is currently permitted in various forms throughout the
United States and in several Canadian provinces. Other jurisdictions may
legalize gaming in the near future. In addition, established gaming
jurisdictions could award additional gaming licenses or permit the expansion of
existing gaming operations. New or expanded operations by other persons will
increase competition for our gaming operations and could have a material adverse
impact on us.
CHARLES TOWN, WEST VIRGINIA. Our gaming machine operations at the Charles
Town Entertainment Complex face competition from other gaming machine venues in
West Virginia and in neighboring states (including Dover Downs, Delaware Park
and Harrington Raceway in Delaware and the casinos in Atlantic City, New
Jersey). These venues offer significantly higher stakes for their gaming
machines than are permitted in West Virginia. Atlantic City, New Jersey does not
have a per-pull limit on its gaming machines, while Delaware has a $25 per-pull
limit. The per-pull limit in West Virginia is currently $5 per gaming machine.
In addition to existing competition, both Pennsylvania and Maryland have in the
past considered legislation to expand gaming in their respective states. 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 on our business, financial
condition and results of operations.
MISSISSIPPI GULF COAST. Dockside gaming has grown rapidly on the
Mississippi Gulf Coast, increasing from no dockside casinos in March 1992 to 12
operating dockside casinos at December 31, 2001. Nine of these facilities are
located in Biloxi, two are located in Gulfport and one is located in Bay St.
Louis. Our Mississippi casino operations have numerous competitors, many of
which have greater name recognition and financial and marketing resources than
we have. Competition in the
S-10
Mississippi gaming market is significantly more intense than the competition our
gaming operations face in West Virginia or our pari-mutuel operations face in
Pennsylvania and New Jersey. We cannot be sure that we will succeed in the
competitive Mississippi Gulf Coast gaming market. The failure to do so would
have a material adverse effect on our business, financial condition and results
of operations.
LOUISIANA. Our Casino Rouge riverboat faces competition from land-based and
riverboat casinos throughout Louisiana and on the Mississippi Gulf Coast,
casinos on Native American lands and from non-casino gaming opportunities within
Louisiana. The Louisiana Riverboat Economic Development and Gaming Control Act
limits the number of gaming casinos in Louisiana to fifteen riverboat casinos
statewide and one land-based casino in New Orleans. All fifteen riverboat
licenses are currently issued.
The principal competitor to Casino Rouge is the Belle of Baton Rouge, which
is the only other licensed riverboat casino in Baton Rouge. In February 2001, a
new 300-room Sheraton hotel opened at the Belle of Baton Rouge. We also face
competition from three major riverboat casinos and one land-based casino in the
New Orleans area, which is approximately 75 miles from Baton Rouge, and from
three Native American casinos in Louisiana. The two closest Native American
casinos are land-based facilities located approximately 45 miles southwest and
approximately 65 miles northwest of Baton Rouge. We also face competition from
several truck stop gaming facilities located in certain surrounding parishes,
each of which are authorized to operate up to 50 video poker machines.
ONTARIO. Our operation of Casino Rama through CHC Casinos Canada Limited
will face competition in Ontario from a number of casinos and racetracks with
gaming machine facilities. Currently, there are two other commercial casinos,
five charity casinos and at least fifteen racetracks with gaming machines in the
province of Ontario. All of the casinos and gaming machine facilities are
operated on behalf of the Ontario Lottery and Gaming Corporation, an agency of
the Province of Ontario. The Ontario Lottery and Gaming Corporation also
operates several province-wide lotteries.
Casino Rama is located near Orillia, Ontario, approximately 90 miles north
of Toronto. There is one charity casino and three racetracks with gaming machine
facilities that directly affect Casino Rama. The charity casino has 40 gaming
tables and 450 gaming machines. The number of gaming machines at the racetracks
range from 100 to 1,700 each.
There is an interim commercial casino located in Niagara Falls, Ontario, 80
miles southwest of Toronto with approximately 135 gaming tables and 2,000 gaming
machines. It is contemplated that Niagara Falls will have a permanent casino
with a similar number of gaming tables and gaming machines as the interim casino
that is scheduled to be completed by the spring of 2002. In addition, it has
been proposed in connection with the City of Toronto's waterfront revitalization
project that a casino be located in downtown Toronto. However, we are not aware
of any definitive plans for the development of such a casino.
RACING AND PARI-MUTUEL OPERATIONS
Our racing and pari-mutuel operations face significant competition for
wagering dollars from other racetracks and OTWs (some of which also offer other
forms of gaming), other gaming venues such as casinos and state-sponsored
lotteries, including the Pennsylvania, New Jersey, Delaware and West Virginia
lotteries. We also may face competition in the future from new OTWs or from new
racetracks. From time to time, states consider legislation to permit other forms
of gaming. If additional gaming opportunities become available near our racing
and pari-mutuel operations, such gaming opportunities could have a material
adverse effect on our business, financial condition and results of operations.
Our OTWs compete with the OTWs of other Pennsylvania racetracks, and new
OTWs may compete with our existing wagering facilities. Our competitors have a
number of OTW facilities that are near our OTWs. Although only two competing
OTWs remain authorized by law for future opening, the opening of a new OTW in
close proximity to our existing or future OTWs could have a material adverse
effect on our business, financial condition and results of operations.
S-11
WE ARE INVOLVED IN LEGAL PROCEEDINGS THAT, IF ADVERSELY ADJUDICATED OR SETTLED,
COULD IMPACT OUR FINANCIAL CONDITION.
On August 20, 2001, Showboat Development Company brought a lawsuit against
us and certain other parties related to the Charles Town Entertainment Complex.
The suit alleges, among other things, that our operation of coin-out video
lottery terminals at the Charles Town facility constitutes the operation of a
casino, thereby triggering Showboat's option to manage the casino. The suit also
alleges that our March 2000 acquisition of the 11% minority interest in Charles
Town Races from BDC Group, our former joint venture partner, was made in
violation of a right of first refusal that Showboat holds from BDC covering the
sale of any interest in any casino at Charles Town Races. We have filed in
federal district court in Nevada a motion to dismiss this action for lack of
personal jurisdiction and, in the alternative, a motion to transfer the case to
the state of West Virginia. On January 25, 2002, the district court granted our
motion to dismiss. On February 13, 2002, Showboat filed a lawsuit in the United
States District Court for the Eastern District of Pennsylvania. The substance of
the lawsuit is substantially similar to Showboat's previous claim filed in
Nevada. We continue to believe that each of Showboat's claims is without merit,
and we intend to vigorously defend ourselves against them. Even if there
ultimately is a judgment against us in this case, we do not believe that it will
have a material adverse effect on our financial condition or results of
operations.
In July 2001, a lawsuit was filed against us by certain surveillance
employees at the Charles Town facility claiming that our surveillance of those
employees during working hours was improper. The lawsuit claims damages of
$7.0 million and punitive damages of $14.0 million. We currently are conducting
discovery in the case but, at this time, believe that all of the claims of the
employees are without merit. On February 12, 2002, we filed a motion for summary
judgment that is pending before the court. We intend to vigorously defend
ourselves against this action and do not believe that this action will have a
material adverse effect on our financial condition or results of operations.
In January 2002, an employee at our Charles Town facility initiated a suit
against us alleging invasion of privacy. The employee claims in the suit that
she was subjected to an involuntary strip search by other Charles Town employees
as part of a theft investigation and is seeking punitive damages. The lawsuit
claims damages of $0.5 million and punitive damages of $3.5 million. We believe
we have meritorious defenses and intend to vigorously defend ourselves against
this suit.
We also are parties to certain other litigation but do not believe it will
have a material adverse effect on our financial condition or results of
operations if any of these legal proceedings were adversely adjudicated or
settled. Furthermore, the nature of our business subjects us to the risk of
lawsuits filed by customers and others.
WE FACE EXTENSIVE REGULATION FROM GAMING AUTHORITIES.
LICENSING REQUIREMENTS. As owners and operators of gaming and pari-mutuel
betting facilities, we are subject to extensive state, local and, in Canada,
provincial regulation. State, local and provincial authorities require us and
our subsidiaries to demonstrate suitability to obtain and retain various
licenses and require that we have registrations, permits and approvals to
conduct gaming operations. Various regulatory authorities, including the
Louisiana Gaming Control Board, the Mississippi Gaming Commission, the New
Jersey Casino Control Commission, the New Jersey Racing Commission, the Alcohol
and Gaming Commission of Ontario, the Pennsylvania State Horse Racing
Commission, the Pennsylvania State Harness Racing Commission, the West Virginia
Racing Commission and the West Virginia Lottery Commission may, for any reason
set forth in the applicable legislation, limit, condition, suspend or revoke a
license or registration to conduct gaming operations or prevent us from owning
the securities of any of our gaming subsidiaries. Like all gaming operators in
the jurisdictions in which we operate, we must periodically apply to renew our
gaming licenses or registrations. We cannot assure you that we will be able to
obtain such renewals. Regulatory authorities may also levy substantial fines
against or seize the assets of our company, our subsidiaries or the people
involved in violating gaming
S-12
laws or regulations. Any of these events could have a material adverse effect on
our business, financial condition and results of operations.
We have demonstrated suitability to obtain and have obtained all
governmental licenses, registrations, permits and approvals necessary for us to
operate our existing gaming facilities. We cannot assure you that we will be
able to retain them or demonstrate suitability to obtain any new licenses,
registrations, permits or approvals, including those required for us to
consummate the Bullwhackers acquisition. If we expand our gaming operations in
West Virginia, Mississippi, Louisiana, Pennsylvania, New Jersey, Canada or to
new areas, we will have to meet suitability requirements and obtain additional
licenses, registrations, permits and approvals from gaming authorities in these
jurisdictions. The approval process can be time-consuming and costly and we
cannot be sure that we will be successful.
Gaming authorities in the United States generally can require that any
beneficial owner of our securities, including holders of our common stock file
an application for a finding of suitability. If a gaming authority requires a
record or beneficial owner of our common stock to file a suitability
application, the owner must apply for a finding of suitability within 30 days or
at an earlier time prescribed by the gaming authority. The gaming authority has
the power to investigate an owner's suitability and the owner must pay all costs
of the investigation. If the owner is found unsuitable, then the owner may be
required by law to dispose of our common stock.
POTENTIAL CHANGES IN REGULATORY ENVIRONMENT. From time to time, legislators
and special interest groups have proposed legislation that would expand,
restrict or prevent gaming operations in the jurisdictions in which we operate.
Any expansion of gaming or restriction on or prohibition of our gaming
operations could have a material adverse effect on our operating results.
TAXATION. State and local authorities raise a significant amount of revenue
through taxes and fees on gaming activities. We believe that the prospect of
significant 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, state, local and
provincial income taxes, and such taxes and fees are subject to increase at any
time. We pay substantial taxes and fees with respect to our operations. From
time to time, federal, state, local and provincial legislators and officials
have proposed changes in tax laws, or in the administration of such laws,
affecting the gaming industry. In addition, worsening economic conditions could
intensify the efforts of state and local governments to raise revenues through
increases in gaming taxes. 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 our business,
financial condition and results of operations.
COMPLIANCE WITH OTHER LAWS. We are also subject to a variety of other rules
and regulations, including zoning, environmental, construction and land-use laws
and regulations governing the serving of alcoholic beverages.
WE DEPEND ON OUR KEY PERSONNEL.
We are highly dependent on the services of Peter M. Carlino, our Chairman
and Chief Executive Officer, and other members of our senior management team. We
have entered into employment agreements with Mr. Carlino and certain other
officers. However, the loss of the services of any of these individuals could
have a material adverse effect on our business, financial condition and results
of operations.
INCLEMENT WEATHER AND OTHER CONDITIONS COULD SERIOUSLY DISRUPT OUR OPERATIONS.
The operations of our facilities are subject to disruptions or reduced
patronage as a result of severe weather conditions. Our dockside facilities in
Mississippi and Louisiana are subject to risks in addition to those associated
with land-based casinos, including loss of service due to casualty,
S-13
mechanical failure, extended or extraordinary maintenance, flood, hurricane or
other severe weather conditions. Reduced patronage and the loss of a dockside
casino or riverboat from service for any period of time due to severe weather
could adversely affect our business, financial condition and results of
operations.
WE DEPEND ON AGREEMENTS WITH OUR HORSEMEN AND PARI-MUTUEL CLERKS TO OPERATE OUR
BUSINESS.
The Federal Horseracing Act, the West Virginia Racing Act and the
Pennsylvania Racing Act require that, in order to simulcast races, we have
written agreements with the horse owners and trainers at our West Virginia and
Pennsylvania race tracks. In addition, in order to operate gaming machines in
West Virginia, we are required to enter into written agreements regarding the
proceeds of the gaming machines with a representative of a majority of the horse
owners and trainers, a representative of a majority of the pari-mutuel clerks
and a representative of a majority of the horse breeders. On March 23, 1999, we
signed a new horsemen agreement with the Pennsylvania Thoroughbred Horsemen at
Penn National Race Course with an initial term that expires on January 1, 2004.
Our agreement with the Pennsylvania Harness Horsemen was entered into in
November 1999 and expires on January 16, 2003. At the Charles Town Entertainment
Complex, we have an agreement with the Charles Town Horsemen that expires on
December 31, 2002. Our agreement with the pari-mutuel clerks at Charles Town
expires on December 31, 2004.
If we fail to maintain operative agreements with the horsemen at a track, we
will not be permitted to conduct live racing and export and import simulcasting
at that track, and, in West Virginia, we will not be permitted to operate our
gaming machines. In addition, our simulcasting agreements are subject to the
horsemen's approval. In February 1999, the Pennsylvania Thoroughbred Horsemen
stopped racing at Penn National Race Course and withdrew their permission for us
to import simulcast races from other racetracks, resulting in the closure of
Penn National Race Course and its six OTWs. As a result of this action, our
operations at Penn National Race Course and its OTWs were suspended for more
than five weeks, we lost 46 race days at Penn National Race Course, and it took
nearly six months from the beginning of the action before we returned to
pre-action levels of racing and operations. If we fail to renew or modify
existing agreements on satisfactory terms, this failure could have a material
adverse effect on our business, financial condition and results of operations.
In addition, pursuant to the New Jersey Simulcasting Racing Act, our New
Jersey joint venture, Pennwood Racing, Inc., must maintain written agreements
with the horsemen at Freehold Raceway in order to simulcast races to the
Atlantic City casinos. Horsemen agreements currently are in effect at both
facilities.
RISKS RELATED TO OUR CAPITAL STRUCTURE AND THIS OFFERING
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
After the offering, we will have a significant amount of indebtedness. On a
pro forma basis after giving effect to this offering, net of discount, and our
recently completed equity offering as of September 30, 2001 and applying the net
proceeds thereof, we would have had total indebtedness of approximately
$373.8 million (excluding unused commitments and outstanding letters of credit
under the credit facility) and total shareholders' equity of $187.3 million. In
addition, on a pro forma basis after giving effect to this offering and our
recently completed equity offering, we would have a ratio of earnings to fixed
charges of 3.0 for the twelve-month period ended September 30, 2001.
Our substantial indebtedness could have important consequences to our
financial health. For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
S-14
- require us to dedicate a substantial portion of our cash flow from
operations to debt service, thereby reducing the availability of our cash
flow to fund working capital, capital expenditures, and other general
corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
A failure to comply with those covenants could result in an event of
default.
Any of the above-listed factors could have a material adverse effect on our
business, financial condition and results of operations. In addition, we may
incur substantial additional indebtedness in the future. The terms of our
existing indebtedness and the indenture relating to the notes do not fully
prohibit us from doing so. If new debt is added to our current debt levels, the
related risks that we now face could intensify. See "Description of Notes" and
"Description of Existing Indebtedness."
OUR INDEBTEDNESS IMPOSES RESTRICTIVE COVENANTS ON US.
The credit facility requires us, among other obligations, to maintain
specified financial ratios and satisfy certain financial tests, including
interest coverage and total leverage ratios. In addition, our credit facility
restricts, among other things, our ability to incur additional indebtedness,
incur guarantee obligations, repay indebtedness or amend debt instruments, pay
dividends, create liens on assets, make investments, make acquisitions, engage
in mergers or consolidations, make capital expenditures, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities. A failure to comply with the restrictions contained in the credit
facility could lead to an event of default thereunder which could result in an
acceleration of such indebtedness. Such an acceleration could constitute an
event of default under the indenture relating to the notes. In addition, the
indenture restricts, among other things, our ability to incur additional
indebtedness (excluding certain indebtedness under the senior credit facility),
make certain payments and dividends or merge or consolidate. A failure to comply
with the restrictions in the indenture could result in an event of default under
the indenture. See "Description of Existing Indebtedness" and "Description of
Notes."
TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, WHICH
DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Based on our current level of operations and anticipated revenue growth, we
believe our cash flow from operations, available cash and available borrowings
under our credit facility will be adequate to meet our future liquidity needs
for the next few years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that our anticipated revenue growth will be realized,
or that future borrowings will be available to us under our credit facility in
amounts sufficient to enable us to pay our indebtedness, including the notes, or
to fund our other liquidity needs. In addition, if we consummate significant
acquisitions in the future, our cash requirements may increase significantly. We
may need to refinance all or a portion of our debt, including the notes, on or
before maturity. We cannot assure you that we will be able to refinance any of
our debt, including our credit facility and the notes, on attractive terms,
commercially reasonable terms or at all. Our future operating performance and
our ability to service or refinance the notes and to service, extend or
refinance the credit facility will be subject to future economic conditions and
to financial, business and other factors, many of which are beyond our control.
S-15
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES OR UNDER THE SUBSIDIARY GUARANTEES
IS JUNIOR TO OUR EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE
BORROWINGS.
The notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing indebtedness and all of our and their future
borrowings, except any future indebtedness that expressly provides that it ranks
equal with, or subordinated in right of payment to, the notes and the
guarantees. As a result, upon any distribution to our creditors or the creditors
of any of the subsidiary guarantors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or any of the subsidiary
guarantors or our or their property, the holders of our or the subsidiary
guarantor's senior indebtedness will be entitled to be paid in full before any
payment may be made with respect to the notes or the subsidiary guarantees.
In addition, all payments on the notes and the subsidiary guarantees will be
blocked in the event of a payment default on senior debt and may be blocked for
up to 179 of 360 consecutive days in the event of certain non-payment defaults
on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the notes will
participate with trade creditors and all other holders of our subordinated
indebtedness and the guarantors in the assets remaining after we and the
subsidiary guarantors have paid all of the senior debt. However, because the
indenture requires that amounts otherwise payable to holders of the notes in a
bankruptcy or similar proceeding be paid to holders of senior debt instead,
holders of the notes may receive less, ratably, than holders of trade payables
in any such proceeding. In any of these cases, we and the subsidiary guarantors
may not have sufficient funds to pay all of our creditors and holders of notes
may receive less, ratably, than the holders of senior debt.
On a pro forma basis after giving effect to this offering and our recently
completed equity offering as of September 30, 2001 and applying the net proceeds
thereof, the notes and the subsidiary guarantees would be subordinated to
approximately $4.4 million of senior debt (including amounts under outstanding
letters of credit) and approximately $70.6 million would have been available for
borrowing as additional senior debt under our credit facility. We will be
permitted to borrow substantial additional indebtedness, including senior debt,
in the future under the terms of the indenture.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THIS INDENTURE OR THE TERMS OF OUR OTHER
INDEBTEDNESS.
Upon the occurrence of certain change of control events, we will be required
to offer to purchase all outstanding notes and other outstanding debt. If a
change of control were to occur, we cannot assure you that we would have
sufficient funds to pay the purchase price for all the notes tendered by the
holders or such other indebtedness. Our existing credit facility and existing
indenture contain, and any future agreements relating to indebtedness to which
we become a party may contain, provisions restricting our ability to purchase
notes or providing that an occurrence of a change of control constitutes an
event of default, or otherwise requiring payment of amounts borrowed under those
agreements. If a change of control occurs at a time when we are prohibited from
purchasing the notes, we could seek the consent of our then existing lenders and
other creditors to the purchase of the notes or could attempt to refinance the
indebtedness that contains the prohibition. If we do not obtain such a consent
or repay such indebtedness, we would remain prohibited from purchasing the
notes. In that case, our failure to purchase tendered notes would constitute a
default under the terms of other indebtedness that we may enter into from time
to time. See--"Description of Notes--Repurchase at the Option of Holders."
IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THESE NOTES, YOU MAY NOT BE
ABLE TO RESELL THEM.
The notes are a new issue of securities without an established trading
market. While the notes have been registered under the Securities Act of 1933,
we do not intend to list the notes on any
S-16
national securities exchange or to seek the admission of the notes for quotation
through the Nasdaq Stock Market, Inc. We have been informed by the underwriters
that they intend to make a market in the notes after this offering is completed.
However, the underwriters may cease their market-making at any time. In
addition, the liquidity of the trading market in the notes, and the market price
quoted for the notes, may be adversely affected by changes in the overall market
for high yield securities and by changes in our financial performance or
prospects or in the prospects for companies in our industry generally. As a
result, you cannot be sure that an active trading market will develop for the
notes.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES, SUBORDINATE CLAIMS IN RESPECT OF THE NOTES AND REQUIRE NOTE HOLDERS
TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a court could void a guarantee or claims related to
the notes or subordinate a guarantee to all of our other debts or all other
debts of a guarantor if, among other things, we or the guarantor, at the time we
or it incurred the indebtedness evidenced by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness; and
- we were or the guarantor was insolvent or rendered insolvent by reason of
such incurrence;
- we were or the guarantor was engaged in a business or transaction for
which our or the guarantor's remaining assets constituted unreasonably
small capital; or
- we or the guarantor intended to incur, or believed that we or it would
incur, debts beyond our or its ability to pay such debts as they mature.
In addition, a court could void any payment by us or the guarantor pursuant
to the notes or a guarantee and require that payment to be returned to us or the
guarantor, or to a fund for the benefit of our creditors or the creditors of the
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets,
- if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature, or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that we and each subsidiary guarantor, after
giving effect to its guarantee of these notes, will not be insolvent, will not
have unreasonably small capital for the business in which we are or it is
engaged and will not have incurred debts beyond our or its ability to pay such
debts as they mature. There can be no assurance, however, as to what standard a
court would apply in making such determinations or that a court would agree with
our or the subsidiary guarantors' conclusions in this regard.
S-17
USE OF PROCEEDS
We plan to use the entire net proceeds from the offering of the notes,
approximately $170.5 million after underwriting discounts and commissions and
expenses, together with a majority of the proceeds from our recently completed
equity offering, to repay the outstanding balances under the Tranche A and
Tranche B term loans under our existing credit facility. The term loans were
entered into as of August 8, 2000. At September 30, 2001, the applicable Tranche
A and Tranche B term loan rates were 6.7% and 7.3%, respectively.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets for our ratio of earnings to fixed charges for the
periods indicated:
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------
1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- -------------
Ratio of earnings to fixed charges(1)............. 11.7 2.2 2.3 2.1 2.1 3.0
------------------------------
(1) In computing the ratio of earnings to fixed charges: (i) earnings were
calculated as the sum of income from continuing operations, before income
taxes and fixed charges, less capitalized interest; and (ii) fixed charges
were computed as the sum of interest expense, amortization of capitalized
debt costs and premium on debt, capitalized interest and the estimated
interest included in rental expense.
We completed our acquisition of Casino Magic Bay St. Louis and Boomtown
Biloxi in August 2000 and Casino Rouge and the management contract for Casino
Rama in April 2001. On a pro forma basis assuming completion of these
acquisitions as of January 1, 2000, our ratio of earnings to fixed charges would
have been 2.8 and 3.2 for the year ended December 31, 2000 and the nine months
ended September 30, 2001, respectively.
S-18
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization (i) on an actual basis as of September 30, 2001, (ii) on an
as adjusted basis to reflect our recently completed sale of 3,350,000 shares of
our common stock at an offering price of $30.50 per share (less underwriting
discounts, commissions and offering expenses) and (iii) on an as further
adjusted basis to reflect the sale of the notes, as if each occurred on
September 30, 2001. You should read this information in conjunction with the
consolidated financial statements and related notes and other financial
information incorporated by reference into this prospectus supplement.
AS OF SEPTEMBER 30, 2001
----------------------------------------
AS ADJUSTED AS FURTHER
FOR THE ADJUSTED
SALE OF FOR THIS
ACTUAL COMMON STOCK OFFERING
----------- ------------ -----------
(IN THOUSANDS)
Cash and cash equivalents............................ $ 36,401 $ 36,401 $ 34,481
======== ======== ========
Long-term debt, including current portion
Senior secured credit facility(1)(2)............... $268,687 $172,450 $ --
Other debt......................................... 35 35 35
11 1/8% senior subordinated notes due 2008......... 200,000 200,000 200,000
Notes offered hereby, net of discount(3)........... -- -- 173,752
-------- -------- --------
Total long-term debt(4).......................... 468,722 372,485 373,787
-------- -------- --------
Shareholders' equity
Preferred stock, $.01 par value, authorized
1,000,000 shares; no shares issued and
outstanding...................................... -- -- --
Common stock, $.01 par value, authorized
200,000,000 shares; 15,901,300 shares issued,
actual; 19,251,300 shares issued, as adjusted and
as further adjusted.............................. 159 193 193
Treasury stock, at cost, 427,700 shares............ (2,379) (2,379) (2,379)
Additional paid-in capital......................... 44,348 140,729 140,729
Retained earnings.................................. 60,776 59,122 55,161
Other comprehensive income......................... (6,358) (6,358) (6,358)
Cumulative translation adjustment.................. (32) (32) (32)
-------- -------- --------
Total shareholders' equity....................... 96,514 191,275 187,314
-------- -------- --------
Total capitalization............................... $565,236 $563,760 $561,101
======== ======== ========
------------------------
(1) Before we consummate this transaction, we must obtain a waiver under our
existing credit agreement to permit us to incur additional subordinated
indebtdness. See "Description of Existing Indebtedness."
(2) As of the date of this prospectus supplement, there is approximately
$258.9 million and $162.7 million outstanding on an actual basis and as
adjusted for the sale of the common stock, respectively, under our existing
credit facility. We also have approximately $70.6 million available for
borrowing under our revolving credit facility.
(3) Reflects offering price of 99.287% of par value of notes.
(4) We have entered into a number of arrangements that impose financial
obligations on us, but do not appear as liabilities on our balance sheet. As
of January 31, 2002, they include:
- A $100 million, notional amount, interest rate swap agreement that
converts a portion of our floating rate interest obligation into a fixed
LIBOR of 5.835% plus an applicable margin up to 4% per annum. This
instrument matures in December 2003.
- A $36 million, notional amount, interest rate swap agreement that fixes
LIBOR at 4.8125% plus an applicable margin up to 4% per annum. This
instrument matures in June 2004.
- Four letters of credit totaling approximately $4.4 million.
- A guarantee of up to 50% of a term loan obligation of our New Jersey joint
venture. Our obligation under our guaranty of the term loan is limited to
approximately $10.3 million.
S-19
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying unaudited pro forma consolidated statements of operations
for the nine months ended September 30, 2000 and 2001 and the twelve months
ended September 30, 2000 and 2001 were prepared giving effect to the acquisition
of the Mississippi properties and CRC as if each event occurred on October 1,
1999. In the pro forma consolidated statements of operations, we have
consolidated our historical results with the historical results of operations of
the Mississippi and CRC properties acquired for such periods.
You should read the following pro forma consolidated statements of
operations in conjunction with the historical consolidated financial statements
of Penn National, Mardi Gras Casino Corp. (d/b/a/ Casino Magic Bay St. Louis),
Mississippi-I Gaming, L.P. (d/b/a Boomtown Biloxi) and CRC Holdings,
Inc.--Gaming Division incorporated herein by reference. The unaudited pro forma
consolidated statements of operations are presented for illustrative purposes
only and are not necessarily indicative of the operating results that would have
occurred if all of the events as described above had occurred on the first day
of the respective periods presented, nor are they necessarily indicative of our
future operating results.
S-20
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
PRO FORMA
FOR
MISSISSIPPI
PROPERTIES
PENN MISSISSIPPI CRC PRO FORMA AND CRC
NATIONAL PROPERTIES ACQUISITION ADJUSTMENTS ACQUISITION
(1) (2) (3) (4) (5)
-------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Gaming.................................... $ 99,895 $ 84,840 $ 67,751 $ -- $252,486
Racing.................................... 87,913 -- -- -- 87,913
Management servicing fees................. -- -- 10,177 -- 10,177
Other..................................... 12,209 12,362 1,577 -- 26,148
-------- -------- -------- -------- --------
Total revenues.............................. 200,017 97,202 79,505 -- 376,724
-------- -------- -------- -------- --------
Operating expenses
Gaming.................................... 59,050 47,516 31,603 -- 138,169
Racing.................................... 59,065 -- -- -- 59,065
Other operating expenses.................. 11,980 9,078 908 (269)(c) 21,697
General and administrative................ 29,316 17,987 25,315 (2,170)(d) 70,448
Depreciation and amortization............. 8,457 5,070 3,833 11,196 (a) 28,556
-------- -------- -------- -------- --------
Total operating expenses.................... 167,868 79,651 61,659 8,757 317,935
-------- -------- -------- -------- --------
Income from operations...................... 32,149 17,551 17,846 (8,757) 58,789
Interest income............................. 1,334 3 1,237 -- 2,574
Interest expense............................ (11,004) (93) (5,486) (16,736)(b) (33,319)
Earnings income from joint venture.......... 2,244 -- -- -- 2,244
Other income (expense), net................. 1 (301) (364) -- (664)
-------- -------- -------- -------- --------
Income before income taxes, minority
interest and extraordinary item........... 24,724 17,160 13,233 (25,493) 29,624
Income tax expense.......................... 8,876 3,946 5,466 (7,860)(e) 10,428
-------- -------- -------- -------- --------
Income before minority interest and
extraordinary item........................ 15,848 13,214 7,767 (17,633) 19,196
Minority interest........................... -- -- (2,346) 2,346 (f) --
-------- -------- -------- -------- --------
Income before extraordinary item............ 15,848 13,214 5,421 (15,287) 19,196
Extraordinary item.......................... (6,583) -- -- 6,583 (g) --
-------- -------- -------- -------- --------
Net income.................................. $ 9,265 $ 13,214 $ 5,421 $ (8,704) $ 19,196
======== ======== ======== ======== ========
Diluted earnings per share
Income before extraordinary item.......... $ 1.03 $ 1.25
======== ========
Net income................................ $ 0.60 $ 1.25
======== ========
EBITDA...................................... $ 42,850 $ 89,589
======== ========
S-21
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
PRO
FORMA
FOR
PENN CRC PRO FORMA CRC
NATIONAL ACQUISITION ADJUSTMENTS ACQUISITION
(1) (3) (4) (5)
-------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Gaming.......................................... $267,264 $31,480 $ -- $298,744
Racing.......................................... 85,508 -- -- 85,508
Management servicing fees....................... 5,480 4,494 -- 9,974
Other........................................... 25,173 -- -- 25,173
-------- ------- ------- --------
Total revenues.................................... 383,425 35,974 419,399
-------- ------- ------- --------
Operating expenses
Gaming.......................................... 146,940 12,401 -- 159,341
Racing.......................................... 59,511 -- -- 59,511
Other operating expenses........................ 25,847 13,429 -- 39,276
General and administrative...................... 68,515 -- (2,102)(d) 66,413
Depreciation and amortization................... 25,079 1,756 1,721 (a) 28,556
-------- ------- ------- --------
Total operating expenses.......................... 325,892 27,586 (381) 353,097
-------- ------- ------- --------
Income from operations............................. 57,533 8,388 381 66,302
------- ------- ------ --------
Interest income.................................... 2,654 447 -- 3,101
Interest expense................................... (32,461) (2,138) 1,280 (b) (33,319)
Earnings from joint venture........................ 2,020 -- -- 2,020
Other (expense), net............................... (729) (565) -- (1,294)
------- ------- ------ --------
Income before income taxes, minority interest and
extraordinary item............................... 29,017 6,132 1,661 36,810
Income tax expense................................. 10,204 2,611 143 (e) 12,958
------- ------- ------ --------
Income before minority interest and extraordinary
item............................................. 18,813 3,521 1,518 23,852
Minority interest.................................. -- (1,323)(f) 1,323 (f) --
------- ------- ------ --------
Income before extraordinary item................... 18,813 2,198 2,841 23,852
------- ------- ------ --------
Extraordinary item............................... -- -- -- --
Net income......................................... $18,813 $ 2,198 $2,841 $ 23,852
======= ======= ====== ========
Diluted earnings per share
Income before extraordinary item................. $ 1.19 $ 1.51
======= ========
Net income....................................... $ 1.19 $ 1.51
======= ========
EBITDA............................................. $84,632 $ 96,878
======= ========
S-22
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 2000
PRO FORMA
FOR
MISSISSIPPI
PROPERTIES
PENN MISSISSIPPI CRC PRO FORMA AND CRC
NATIONAL PROPERTIES ACQUISITION ADJUSTMENTS ACQUISITION
(1) (2) (3) (4) (5)
-------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Gaming................................... $115,241 $117,288 $ 88,001 $ -- $320,530
Racing................................... 114,678 -- -- -- 114,678
Management servicing fees................ -- -- 14,173 -- 14,173
Other.................................... 15,234 16,741 2,159 -- 34,134
-------- -------- -------- -------- --------
Total revenues............................. 245,153 134,029 104,333 -- 483,515
-------- -------- -------- -------- --------
Operating expenses
Gaming................................... 68,800 66,028 41,401 -- 176,229
Racing................................... 77,090 -- -- -- 77,090
Other operating expenses................. 14,958 12,853 1,206 (269)(c) 28,748
General and administrative............... 38,466 25,057 33,843 (2,448)(d) 94,918
Depreciation and amortization............ 10,667 7,487 5,328 14,590 (a) 38,072
-------- -------- -------- -------- --------
Total operating expenses................... 209,981 111,425 81,778 11,873 415,057
-------- -------- -------- -------- --------
Income from operations..................... 35,172 22,604 22,555 (11,873) 68,458
Interest income............................ 1,727 113 1,726 -- 3,566
Interest expense........................... (13,163) (274) (7,415) (23,573)(b) (44,425)
Earnings from joint venture................ 2,827 -- -- -- 2,827
Other income (expense), net................ -- (210) (914) -- (1,124)
-------- -------- -------- -------- --------
Income before income taxes, minority
interest and extraordinary item.......... 26,563 22,233 15,952 (35,446) 29,302
Income tax expense......................... 9,382 4,534 6,836 (10,437)(e) 10,315
-------- -------- -------- -------- --------
Income before minority interest and
extraordinary item....................... 17,181 17,699 9,116 (25,009) 18,987
Minority interest.......................... -- -- (2,397) 2,397 (f) --
-------- -------- -------- -------- --------
Income before extraordinary item........... 17,181 17,699 6,719 (22,612) 18,987
Extraordinary item......................... (6,583) -- -- 6,583 (g) --
-------- -------- -------- -------- --------
Net income................................. $ 10,598 $ 17,699 $ 6,719 $(16,029) $ 18,987
======== ======== ======== ======== ========
Diluted earnings per share
Income before extraordinary item......... $ 1.12 $ 1.23
======== ========
Net income............................... $ 0.69 $ 1.23
======== ========
EBITDA..................................... $ 48,666 $109,357
======== ========
S-23
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 2001
PRO FORMA
PENN CRC PRO FORMA FOR CRC
NATIONAL ACQUISITION ADJUSTMENTS ACQUISITION
(1) (3) (4) (5)
-------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues
Gaming........................................ $326,958 $53,928 $ -- $380,886
Racing........................................ 110,826 -- -- 110,826
Management servicing fees..................... 5,480 7,815 -- 13,295
Other......................................... 31,948 -- -- 31,948
-------- ------- ------- --------
Total revenues.................................... 475,212 61,743 -- 536,955
-------- ------- ------- --------
Operating expenses
Gaming........................................ 181,977 30,991 -- 212,968
Racing........................................ 77,512 -- -- 77,512
Other operating expenses...................... 32,644 -- -- 32,644
General and administrative.................... 83,916 15,027 (2,409)(d) 96,534
Depreciation and amortization................. 30,216 2,964 4,892 (a) 38,072
-------- ------- ------- --------
Total operating expenses.......................... 406,265 48,982 2,483 457,730
-------- ------- ------- --------
Income from operations............................ 68,947 12,761 (2,483) 79,225
-------- ------- ------- --------
Interest income................................... 3,195 (1,296) -- 1,899
Interest expense.................................. (40,546) (1,359) (2,520)(b) (44,425)
Earnings from joint venture....................... 2,097 -- -- 2,097
Other (expense), net.............................. (691) (691) -- (1,382)
-------- ------- ------- --------
Income before income taxes, minority interest and
extraordinary item.............................. 33,002 9,415 (5,003) 37,414
Income tax expense................................ 11,465 4,058 (2,353)(e) 13,170
-------- ------- ------- --------
Income before minority interest and extraordinary
item............................................ 21,537 5,357 (2,650) 24,244
Minority interest................................. -- (2,062) 2,062 (f) --
-------- ------- ------- --------
Income before extraordinary item.................. 21,537 3,295 (588) 24,244
-------- ------- ------- --------
Extraordinary item.............................. -- -- -- --
Net income........................................ $ 21,537 $ 3,295 $ (588) $ 24,244
======== ======= ======= ========
Diluted earnings per share
Income before extraordinary item................ $ 1.36 $ 1.53
======== ========
Net income...................................... $ 1.36 $ 1.53
======== ========
EBITDA............................................ $101,260 $119,394
======== ========
S-24
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following notes describe the column headings in the pro forma
consolidated statement of operations and the pro forma adjustments that have
been made to the unaudited pro forma consolidated statements of operations.
(1) Reflects the consolidated historical statements of operations of Penn
National Gaming, Inc. and subsidiaries.
(2) Represents the combined historical statements of operations for Casino
Magic and Boomtown Biloxi for each of the periods presented. We acquired
the Mississippi properties on August 8, 2000. As a result, the operating
results of the Mississippi properties for the period from August 8, 2000
through September 30, 2001 are included in our operating results.
(3) Represents the historical statements of operations of CRC Holdings, Inc.
- Gaming Division, and the minority interest in LCCI not owned by CRC
prior to our acquisition. We acquired CRC on April 27, 2001. As a result,
the operating results of CRC for the period from April 27, 2001 through
September 30, 2001 are included in our operating results for the nine
months ended and twelve months ended September 30, 2001. For the nine
months ended September 30, 2000, the operating results for CRC are for
the period from December 1, 1999 to August 31, 2000. For the twelve
months ended September 30, 2000, the operating results for CRC are for
the period September 1, 1999 to August 31, 2000.
(4) Reflects the following pro forma adjustments to the operating results:
(a) Adjustments to reflect the acquisitions of Mississippi properties and
CRC:
NINE NINE TWELVE TWELVE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2001 2000 2001
-------------- ------------- ------------- -------------
(IN THOUSANDS)
Net increase in expense
resulting from the
depreciation of $86.4 million
and $116.9 million of
property related to
Mississippi properties and
CRC, respectively, using
lives ranging from 5 to 39
years........................ $ 4,854 $ 86 $ 8,248 $1,435
Net increase in amortization
expense of goodwill related
to Mississippi properties and
CRC of $78.3 million and
$59.1 million, respectively,
using a life of 40 years..... 2,852 664 2,852 1,652
Net increase in expense
resulting from the
amortization of $17.0 million
in deferred financing costs
over the term of the
Company's debt obligations... 1,042 203 1,042 425
Amortization of fair value of
management contract of $25.7
million over its 10 1/4-year
term......................... 2,448 768 2,448 1,380
------- ------- ------- ------
$11,196 $ 1,721 $14,590 $4,892
======= ======= ======= ======
S-25
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(b) Reflects net increase in interest expense resulting from the increase in
debt related to the Mississippi properties and CRC acquisitions.
(c) Adjustment to reflect elimination of legal fees and other expenses paid
by CRC in connection with the acquisition.
(d) Reflects pro forma adjustments relating to the CRC acquisition to
reflect the elimination of:
NINE MONTHS NINE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2001 2000 2001
------------- ------------- ------------- -------------
(IN THOUSANDS)
Management fees.............. $ 455 $ 178 $ 574 $ 352
Royalty fees................. 515 172 674 305
Management bonus............. 1,000 1,452 1,000 1,452
Other charges................ 200 300 200 300
------ ------ ------ ------
$2,170 $2,102 $2,448 $2,409
====== ====== ====== ======
(e) Reflects the net income tax adjustments associated with the pro forma
adjustments described in (a), (b), (c), and (d) above.
(f) Adjustment to reflect elimination of minority interest in LCCI.
(g) Reflects elimination of extraordinary item included in the Penn National
historical financial statements.
(5) Reflects unaudited pro forma consolidated statement of operations of Penn
National as adjusted for Mississippi acquisitions and CRC acquisition.
S-26
DESCRIPTION OF EXISTING INDEBTEDNESS
CREDIT FACILITY
The following is a summary of our existing credit facility. This summary is
qualified in its entirety by reference to the credit facility, which has been
filed with the Securities and Exchange Commission. See the section entitled
"Where You Can Find More Information."
On August 8, 2000, we entered into a $350 million senior secured credit
facility agreement with a syndicate of lenders led by Lehman Brothers Inc. and
CIBC World Markets Corp. The credit facility is comprised of a $75 million
revolving credit facility maturing on August 8, 2005, a $75 million Tranche A
term loan maturing on August 8, 2005 and a $200 million Tranche B term loan
maturing on August 8, 2006. Up to $10 million of the revolving credit facility
may be used for the issuance of standby letters of credit, of which
$4.4 million was outstanding at January 31, 2002. In addition, up to
$10 million of the revolving credit facility may be used for short term credit
to be provided to us on a same-day basis, which must be repaid within five days.
Immediately prior to our recently completed equity offering, approximately
$61.9 million was outstanding on the Tranche A term loan, $197.0 million was
outstanding on the Tranche B term loan and no amounts were outstanding under the
revolving credit portion of the facility. We expect to use the entire net
proceeds of this offering, together with a majority of the proceeds from our
recently completed equity offering, to repay the amounts outstanding under the
Tranche A and Tranche B term loans described above and to pay certain prepayment
costs associated therewith.
Before we may consummate this offering, we must amend our existing credit
facility to permit us to incur additional subordinated indebtedness. If we are
unable to either obtain this required amendment or terminate the existing credit
facility and obtain and have available a new revolving credit facility in an
amount equal to at least $75 million, we will not consummate this offering.
We are the borrower under the credit facility pursuant to which all of our
present and future direct and indirect wholly-owned subsidiaries (other than
certain foreign subsidiaries) are guarantors on a senior basis. The credit
facility is secured by the following:
- substantially all of our tangible and intangible assets and the assets of
all of our direct and indirect wholly-owned subsidiaries; and
- a pledge of all of the capital stock of each of Penn National's present
and future direct and indirect domestic subsidiaries and 65% of the
capital stock of certain of its first-tier foreign subsidiaries.
The documentation for the credit facility contains representations and
warranties, affirmative, negative and financial covenants and events of default
customary for credit facilities of a size and type similar to the credit
facility and other terms deemed appropriate by the lenders. Financial covenants
include minimum EBITDA, minimum fixed charge coverage, minimum consolidated net
worth and maximum total leverage covenants.
If we raise funds through the issuance of equity securities the credit
facility agreement requires us to make prepayments on the outstanding
indebtedness under the facility of 50% of the cash proceeds raised through the
issuance. If we raise funds through the incurrence of certain new indebtedness
(including the notes), the credit facility agreement requires us to make
prepayments on the outstanding indebtedness under the facility of 100% of the
cash proceeds. In addition, we may make optional prepayments on the outstanding
indebtedness under the credit facility without penalty or premium.
S-27
11 1/8% SENIOR SUBORDINATED NOTES DUE 2008
On March 12, 2001, we completed an offering of $200,000,000 of our 11 1/8%
Senior Subordinated Notes due 2008. Interest on the 11 1/8% notes is payable on
March 1 and September 1 of each year, beginning September 1, 2001. The 11 1/8%
notes mature on March 1, 2008. As of the date of this prospectus supplement, all
of the principal amount of the 11 1/8% notes are outstanding.
We may redeem all or part of the 11 1/8% notes on or after March 1, 2005 at
certain specified redemption prices. Prior to March 1, 2004, we may redeem up to
35% of the 11 1/8% notes from proceeds of certain sales of our equity
securities. The 11 1/8% notes also are subject to redemption requirements
imposed by state and local gaming laws and regulations.
The 11 1/8% notes are general unsecured obligations and are guaranteed on a
senior subordinated basis by all of our current and future wholly owned domestic
subsidiaries. The 11 1/8% notes rank equally with our future senior subordinated
debt, including the notes offered hereby and junior to its senior debt,
including debt under our senior credit facility. In addition, the 11 1/8% notes
will be effectively junior to any indebtedness of our non-U.S. or unrestricted
subsidiaries, none of which guarantee the 11 1/8% notes.
The 11 1/8% notes and guarantees were originally issued in a private
placement pursuant to an exemption from the registration requirements of the
Securities Act of 1933. On July 30, 2001, we completed an offer to exchange the
11 1/8% notes and guarantees for 11 1/8% notes and guarantees registered under
the Securities Act having substantially identical terms.
S-28
DESCRIPTION OF NOTES
You can find the definitions of certain capitalized terms used in this
section under the subheading "--Certain Definitions." In this description, "Penn
National" refers only to Penn National Gaming, Inc. and not to any of its
subsidiaries.
Penn National will issue the 8 7/8% senior subordinated notes due 2010 under
an indenture among itself, the Guarantors and State Street Bank and Trust
Company, as trustee. The terms of the notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because the indenture, and not this description, defines your
rights as Holders of the notes. Certain defined terms used in this description
but not defined below under "--Certain Definitions" have the meanings assigned
to them in the indenture.
The registered Holder of a note will be treated as the owner of it for all
purposes. Only registered Holders will have rights under the indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE SUBSIDIARY GUARANTEES
THE NOTES
The notes:
- are general unsecured obligations of Penn National;
- are subordinated in right of payment to payment in full in cash or Cash
Equivalents of all Senior Debt of Penn National;
- are PARI PASSU in right of payment with any existing senior subordinated
Indebtedness of Penn National;
- are senior or PARI PASSU in right of payment with any future subordinated
Indebtedness of Penn National; and
- are unconditionally guaranteed on a senior subordinated basis by the
Guarantors.
THE SUBSIDIARY GUARANTEES
The notes are guaranteed by all of Penn National's Subsidiaries that are
guarantors under our existing indenture.
Each guarantee of the notes:
- is a general unsecured obligation of the Guarantor;
- is subordinated in right of payment to all Senior Debt of that Guarantor;
- is PARI PASSU in right of payment with any existing senior subordinated
Indebtedness of that Guarantor; and
- is senior or PARI PASSU in right of payment with any future senior
subordinated Indebtedness of that Guarantor.
Assuming we had completed this offering of notes and applied the net
proceeds of this offering and our recently completed equity offering as of
September 30, 2001, Penn National and the Guarantors would have had total Senior
Debt of approximately $4.4 million (including amounts under outstanding letters
of credit). As indicated above and as discussed in detail below under the
caption
S-29
"--Subordination," payments on the notes and under these guarantees will be
subordinated to the payment of Senior Debt. The indenture will permit us and the
Guarantors to incur additional Senior Debt.
As of the date of the indenture, all of our Subsidiaries will be "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "--Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our Subsidiaries as
"Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will not be subject
to many of the restrictive covenants in the indenture. Our Unrestricted
Subsidiaries will not guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
Subject to Penn National's compliance with the covenant described below
under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," Penn National may issue notes under the indenture in an
unlimited aggregate principal amount, of which $175.0 million is being issued in
this offering. Penn National will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on March 15, 2010.
Interest on the notes will accrue at the rate of 8 7/8% per annum and will
be payable semi-annually in arrears on March 15 and September 15, commencing on
September 15, 2002. Penn National will make each interest payment to the Holders
of record on the immediately preceding March 1 and September 1.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder of at least $1,000,000 in principal amount of the Notes has
given wire transfer instructions to Penn National, Penn National will pay all
principal, interest and premium on that Holder's notes in accordance with those
instructions. All other payments on notes will be made at the office or agency
of the paying agent and registrar within the City and State of New York unless
Penn National elects to make interest payments by check mailed to the Holders at
their respective addresses set forth in the register of Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. Penn National
may change the paying agent or registrar without prior notice to the Holders of
the notes, and Penn National or any of its Subsidiaries may act as paying agent
or registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a Holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders will be required to pay all taxes due on transfer. Penn National is not
required to transfer or exchange any note selected for redemption. Also, Penn
National is not required to transfer or exchange any note for a period of
15 days before a selection of notes to be redeemed.
SUBSIDIARY GUARANTEES
The notes will be guaranteed by each of the Guarantors. These Subsidiary
Guarantees will be joint and several obligations of the Guarantors. Each
Subsidiary Guarantee will be subordinated to the prior
S-30
payment in full of all Senior Debt of that Guarantor. The obligations of each
Guarantor under its Subsidiary Guarantee are intended to be limited as necessary
to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--Federal and state statutes allow
courts, under specific circumstances, to void guarantees, subordinate claims in
respect of the notes and require note holders to return payments received from
guarantors."
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than Penn National or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or Event
of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
assumes all the obligations of that Guarantor under the indenture and
its Subsidiary Guarantee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Guarantor to a Person that is not (either
before or after giving effect to such transaction) a Subsidiary of Penn
National, if the sale or other disposition complies with the "Asset Sale"
provisions of the indenture;
(2) in connection with any sale of all of the Capital Stock of a Guarantor
(including by way of merger or consolidation) to a Person that is not
(either before or after giving effect to such transaction) a Subsidiary
of Penn National, if the sale complies with the "Asset Sale" provisions
of the indenture; or
(3) if Penn National properly designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary in accordance with the applicable
provisions of the indenture.
See "--Repurchase at the Option of Holders--Asset Sales."
SUBORDINATION
The payment of all Obligations in respect of the notes will be subordinated
to the prior payment in full in cash or Cash Equivalents of all Senior Debt of
Penn National, including Senior Debt incurred after the date of the indenture.
The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt) and all outstanding letters of credit under Credit
Facilities shall either have been terminated or cash collateralized in
accordance with the terms thereof before the Holders of notes will be entitled
to receive any payment on, or distribution with respect to, the notes (except
that Holders of notes may receive and retain Permitted Junior Securities and
payments made from the trust described under "--Legal Defeasance and Covenant
Defeasance"), in the event of any distribution to creditors of Penn National:
(1) in a liquidation or dissolution of Penn National;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Penn National or its property;
S-31
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of Penn National's assets and liabilities.
Penn National also may not make any payment on, or distribution with respect
to, the notes (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior Debt
to accelerate its maturity and the trustee receives a notice of such
default (a "Payment Blockage Notice") from the Credit Agent or Penn
National or any holder of any Designated Senior Debt.
Payments on the notes may and will be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in the case of a nonpayment default, upon the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is effective,
unless the maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the trustee will be, or be made, the basis for
a subsequent Payment Blockage Notice unless such default has been cured or
waived for a period of not less than 90 consecutive days.
Notwithstanding the foregoing, Penn National will be permitted to
repurchase, redeem, repay or prepay any or all of the notes to the extent
required to do so by any Gaming Authority, as described under "--Optional
Redemption" below.
If the trustee or any Holder of the notes receives a payment in respect of
the notes (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the trustee or the Holder has actual knowledge that the payment is
prohibited
the trustee or the Holder, as the case may be, will hold the payment in trust
for the benefit of the holders of Senior Debt and shall immediately deliver the
amounts in trust to the holders of Senior Debt or their proper representative in
the form received with any necessary or requested endorsement.
Penn National must promptly notify holders of Senior Debt if payment of the
notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of Penn National, Holders of notes
may recover less ratably than creditors of Penn National who are holders of
Senior Debt. See "Risk Factors--Your right to receive payments on the notes or
under the subsidiary guarantees is junior to our existing indebtedness and
possibly all of our future borrowings."
S-32
OPTIONAL REDEMPTION
At any time prior to March 15, 2005, Penn National may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes originally
issued under the indenture at a redemption price of 108.875% of the principal
amount, plus accrued and unpaid interest to the redemption date, with the net
cash proceeds of one or more Equity Offerings; PROVIDED that:
(1) at least 65% of the aggregate principal amount of notes issued under the
indenture remains outstanding immediately after the occurrence of such
redemption (excluding notes held by Penn National and its Subsidiaries);
and
(2) the redemption occurs within 90 days of the date of the closing of such
Equity Offering.
Except as described above, the notes will not be redeemable at Penn
National's option prior to March 15, 2006. On and after March 15, 2006, Penn
National may redeem all or a part of the notes upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest on the notes
redeemed, to the applicable redemption date, if redeemed during the twelve-month
period beginning on March 15 of the years indicated below:
YEAR PERCENTAGE
---- ----------
2006........................................................ 104.438%
2007........................................................ 102.958%
2008........................................................ 101.479%
2009 and thereafter......................................... 100.000%
In addition to the foregoing, if any Gaming Authority requires that a holder
or beneficial owner of Notes must be licensed, qualified or found suitable under
any applicable Gaming Laws and such holder or beneficial owner:
(1) fails to apply for a license, qualification or a finding of suitability
within 30 days (or such shorter period as may be required by the
applicable Gaming Authority) after being requested to do so by the Gaming
Authority, or
(2) is denied such license or qualification or not found suitable,
Penn National shall have the right, at its option:
(1) to require any such holder or beneficial owner to dispose of its Notes
within 30 days (or such earlier date as may be required by the applicable
Gaming Authority) of receipt of such notice or finding by such Gaming
Authority, or
(2) to call for the redemption of the Notes of such holder or beneficial
owner at a redemption price equal to the least of:
(A) the principal amount thereof, together with accrued interest to the
earlier of the date of redemption or the date of the denial of
license or qualification or of the finding of unsuitability by such
Gaming Authority,
(B) the price at which such holder or beneficial owner acquired the
Notes, together with accrued interest to the earlier of the date of
redemption or the date of the denial of license or qualification or
of the finding of unsuitability by such Gaming Authority, or
(C) such other lesser amount as may be required by any Gaming Authority.
Penn National shall notify the Trustee in writing of any such redemption as
soon as practicable. The holder or beneficial owner applying for license,
qualification or a finding of suitability must pay all costs of the licensure or
investigation for such qualification or finding of suitability.
S-33
NO MANDATORY REDEMPTION
Penn National is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of notes will have the right to
require Penn National to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that Holder's notes pursuant to a Change of
Control Offer on the terms set forth in the indenture. In the Change of Control
Offer, Penn National will offer a Change of Control Payment in cash equal to
101% of the aggregate principal amount of notes repurchased plus accrued and
unpaid interest on the notes repurchased, to the date of purchase. Within
30 days following any Change of Control, Penn National will mail a notice to
each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase notes on the Change of Control
Payment Date specified in the notice, which date will be no earlier than
30 days and no later than 60 days from the date such notice is mailed, pursuant
to the procedures required by the indenture and described in such notice. Penn
National will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent those
laws and regulations are applicable in connection with the repurchase of the
notes as a result of a Change of Control. To the extent that the provisions of
any securities laws or regulations conflict with the Change of Control
provisions of the indenture, Penn National will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Change of Control provisions of the indenture by virtue of
such conflict.
On the Change of Control Payment Date, Penn National will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions of notes properly tendered;
and
(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by Penn
National.
The paying agent will promptly mail to each Holder of notes properly
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; PROVIDED that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, Penn
National will either repay all outstanding Senior Debt in cash or Cash
Equivalents or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt to permit the repurchase of notes required by
this covenant. Penn National will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The provisions described above that require Penn National to make a Change
of Control Offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described above
with respect to a Change of Control, the indenture does not
S-34
contain provisions that permit the Holders of the notes to require that Penn
National repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
Penn National will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by Penn National
and purchases all notes properly tendered and not withdrawn under the Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of Penn National and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes to require Penn National to repurchase its notes as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of the
assets of Penn National and its Subsidiaries taken as a whole to another Person
or group may be uncertain.
ASSET SALES
Penn National will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Penn National (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to
the fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) the fair market value is determined by Penn National's Board of
Directors and evidenced by a resolution of the Board of Directors set
forth in an officers' certificate delivered to the trustee; and
(3) at least 75% of the consideration received in the Asset Sale by Penn
National or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following will
be deemed to be cash:
(a) any liabilities, as shown on Penn National's or such Restricted
Subsidiary's most recent balance sheet, of Penn National or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or any
Subsidiary Guarantee) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases Penn
National or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Penn National
or any such Restricted Subsidiary from such transferee that are
contemporaneously, subject to ordinary settlement periods, converted
by Penn National or such Restricted Subsidiary into cash or Cash
Equivalents, to the extent of the cash or Cash Equivalents received
in that conversion.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Penn National may apply those Net Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit
Indebtedness, to correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business;
(3) to make capital expenditures; or
S-35
(4) to acquire other long-term assets that are used or useful in a Permitted
Business.
Pending the final application of any Net Proceeds, Penn National may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5 million, Penn National will make
an Asset Sale Offer to all Holders of notes and all holders of other
Indebtedness that is PARI PASSU with the notes containing provisions similar to
those set forth in the indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount of
notes and such other PARI PASSU Indebtedness that may be purchased out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100%
of principal amount plus accrued and unpaid interest to the date of purchase,
and will be payable in cash. If any Excess Proceeds remain after consummation of
an Asset Sale Offer, Penn National may use those Excess Proceeds for any purpose
not otherwise prohibited by the indenture. If the aggregate principal amount of
notes and other PARI PASSU Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the trustee will select the notes and
such other PARI PASSU Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset
at zero.
Notwithstanding the foregoing, Penn National or a Restricted Subsidiary will
be permitted to consummate an Asset Sale without complying with the foregoing
provisions if:
(1) Penn National or its Restricted Subsidiary receives consideration at the
time of such Asset Sale at least equal to the fair market value of the
assets or other property sold, issued or otherwise disposed of (as
evidenced by a resolution of the Board of Penn National) as set forth in
an officers' certificate delivered to the trustee,
(2) the transaction constitutes a "like-kind exchange" of the type
contemplated by Section 1031 of the Internal Revenue Code, and
(3) the consideration for such Asset Sale constitutes assets that the Board
of Directors in its good faith judgment at the time of the sale
determines will be used or useful in a Permitted Business; provided that
any non-cash consideration not constituting assets that the Board of
Directors in its good faith judgment at the time of the sale determines
will be used or useful in a Permitted Business received by Penn National
or a Restricted Subsidiary in connection with such Asset Sale that is
converted into or sold or otherwise disposed of for cash or Cash
Equivalents at any time within 360 days after such Asset Sale and any
cash or Cash Equivalents received by Penn National or a Restricted
Subsidiary in connection with such Asset Sale shall constitute Net
Proceeds subject to the provisions set forth above.
Penn National will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indenture, Penn National will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
conflict.
The agreements governing Penn National's outstanding Senior Debt currently
prohibit Penn National from purchasing any notes, and also provide that certain
change of control or asset sale events with respect to Penn National would
constitute a default under these agreements. Any future credit agreements or
other agreements relating to Senior Debt to which Penn National becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control or Asset Sale occurs at a
S-36
time when Penn National is prohibited from purchasing notes, Penn National could
seek the consent of its senior lenders to the purchase of notes or could attempt
to refinance the borrowings that contain such prohibition. If Penn National does
not obtain such a consent or repay such borrowings, Penn National will remain
prohibited from purchasing notes. In such case, Penn National's failure to
purchase tendered notes would constitute an Event of Default under the indenture
which would, in turn, constitute a default under such Senior Debt. In such
circumstances, the subordination provisions in the indenture would likely
restrict payments to the Holders of notes.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange, on a
pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
No notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a defeasance of the
notes or a satisfaction and discharge of the indenture. Notices of redemption
may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the Holder of notes
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
Penn National will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other distribution on account of
Penn National's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment from funds or property of
Penn National or any of its Restricted Subsidiaries in connection with
any merger or consolidation involving Penn National or any of its
Restricted Subsidiaries) or to the direct or indirect holders of Penn
National's or any of its Restricted Subsidiaries' Equity Interests in
their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of Penn National or to
Penn National or a Restricted Subsidiary of Penn National);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, any payment from funds or property of Penn National
or any of its Restricted Subsidiaries in connection with any merger or
consolidation involving Penn National) any Equity Interests of Penn
National or any direct or indirect parent of Penn National;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the Subsidiary Guarantees, except a payment
of interest or principal at the Stated Maturity thereof; or
S-37
(4) make any Restricted Investment (all such payments and other actions set
forth in these clauses (1) through (4) above being collectively referred
to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or would
occur as a consequence of such Restricted Payment; and
(2) Penn National would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Penn National and its Restricted Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted
by clauses (2), (3) and (4) of the next succeeding paragraph), is less
than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Penn National for the period
(taken as one accounting period) from the beginning of the fiscal
quarter commencing on April 1, 2001 to the end of Penn National's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), PLUS
(b) 100% of the aggregate net cash proceeds received by Penn National
since March 12, 2001 as a contribution to its common equity capital
or from the issue or sale of Equity Interests of Penn National (other
than Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of Penn National that have been converted into or
exchanged for such Equity Interests (other than Equity Interests (or
Disqualified Stock or debt securities) sold to a Subsidiary of Penn
National), PLUS
(c) to the extent that any Restricted Investment that was made after
March 12, 2001 is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (i) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and
(ii) the initial amount of such Restricted Investment, PLUS
(d) to the extent that any Unrestricted Subsidiary of Penn National is
redesignated as a Restricted Subsidiary in compliance with the
covenant "--Designation of Restricted and Unrestricted Subsidiaries"
after the date of the issuance of the notes, the lesser of (i) the
fair market value of Penn National's Investment in such Subsidiary as
of the date of such redesignation or (ii) such fair market value as
of the date on which such Subsidiary was originally designated as an
Unrestricted Subsidiary.
S-38
The preceding provisions will not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable
redemption within 60 days after the date of declaration of the dividend
or giving of the redemption notice, as applicable, if at the date of
declaration or giving of the redemption notice, as the case may be, the
dividend or redemption payment would have complied with the provisions of
the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness of Penn National or any Guarantor or of
any Equity Interests of Penn National in exchange for, or out of the net
cash proceeds of the substantially concurrent sale (other than to a
Restricted Subsidiary of Penn National) of, Equity Interests of Penn
National (other than Disqualified Stock); PROVIDED that the amount of any
such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition will be excluded
from clause (3) (b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Penn National or any Guarantor with the net
cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of Penn National
to the holders of its Equity Interests on a pro rata basis;
(5) redemptions, repurchases or repayments to the extent required by any
Gaming Authority having jurisdiction over Penn National or any Restricted
Subsidiary or deemed necessary by the Board of Directors of Penn National
in order to avoid the suspension, revocation or denial of a gaming
license by any Gaming Authority;
(6) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Penn National or any Restricted Subsidiary of
Penn National held by any member of Penn National's (or any of its
Restricted Subsidiaries') management pursuant to any management equity
subscription agreement, stock option agreement or similar agreement;
PROVIDED that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests may not exceed $750,000 in
any twelve-month period;
(7) other Restricted Payments not to exceed $5 million in the aggregate
since the Issue Date;
(8) the declaration and payment of dividends to holders of Penn National's
Disqualified Stock or the preferred stock of a Guarantor, in each case
issued in accordance with the covenant entitled "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; or
(9) repurchases of Equity Interests deemed to occur upon exercise of stock
options if such Equity Interests represent a portion of the exercise
price of such options.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Penn National or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
assets or securities that are required to be valued by this covenant will be
determined by the Board of Directors whose resolution with respect thereto will
be delivered to the trustee. The Board of Directors' determination must be based
upon an opinion or appraisal issued by an accounting, appraisal or investment
banking firm of national standing if the fair market value exceeds $5 million.
Not later than 30 days after the date of making any Restricted Payment, Penn
National will deliver to the trustee an officers' certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this "Restricted Payments" covenant were computed,
together with a copy of any fairness opinion or appraisal required by the
indenture.
S-39
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Penn National will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and Penn
National will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that
Penn National may incur Indebtedness (including Acquired Debt) or issue
Disqualified Stock, and the Guarantors may incur Indebtedness or issue preferred
stock, if the Fixed Charge Coverage Ratio for Penn National's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock or preferred stock is issued would have
been at least 2.0 to 1.0 determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the preferred stock or Disqualified Stock had been issued,
as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Penn National and/or any of the Guarantors of
Indebtedness and letters of credit pursuant to the Credit Facilities;
provided that the aggregate principal amount of all Indebtedness then
classified as having been incurred in reliance upon this clause (1) that
remains outstanding under Credit Facilities after giving effect to such
incurrence does not exceed $350 million, less the aggregate amount of all
Net Proceeds of Asset Sales that have been applied by Penn National or
any of its Restricted Subsidiaries since the date of the indenture to
repay any Indebtedness under a Credit Facility (and to reduce commitments
with respect thereto in the case of any such Indebtedness that is
revolving credit Indebtedness) pursuant to the covenant described above
under the caption "--Repurchase at Option of Holders--Asset Sales;"
provided, however, that the maximum amount permitted to be outstanding
under this clause (1) shall not be deemed to limit additional
Indebtedness under the Credit Facilities to the extent the incurrence of
such additional Indebtedness is permitted pursuant to any of the other
provisions under this heading "--Incurrence of Indebtedness and Issuance
of Preferred Stock;"
(2) the incurrence by Penn National and its Restricted Subsidiaries of the
Existing Indebtedness;
(3) the incurrence by Penn National and the Guarantors of Indebtedness
represented by the notes to be issued on the date of the indenture in the
principal amount of $175 million and the related Subsidiary Guarantees;
(4) the incurrence by Penn National or any of the Guarantors of Indebtedness
represented by Purchase Money Indebtedness and Capital Lease Obligations
incurred in connection with the purchase or capital lease of video gaming
machines, slot machines or other gaming equipment in an aggregate
principal amount or accreted value, as applicable, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (4), not to
exceed $20 million at any time outstanding;
(5) the incurrence by Penn National or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness that was
permitted by the indenture to be incurred under the first paragraph of
this covenant or clauses (2), (3), (4), or (12) of this paragraph;
S-40
(6) the incurrence by Penn National or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Penn National and any of its
Restricted Subsidiaries; PROVIDED, HOWEVER, that:
(a) if Penn National or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of Penn National, or the Subsidiary Guarantee, in
the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Penn National or a Restricted Subsidiary of Penn National and
(ii) any sale or other transfer of any such Indebtedness to a Person
that is not either Penn National or a Restricted Subsidiary of Penn
National will be deemed, in each case, to constitute an incurrence of
such Indebtedness by Penn National or such Subsidiary, as the case
may be, that was not permitted by this clause (6);
(7) the incurrence by Penn National or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk or currency exchange risk with respect to any
floating rate Indebtedness or non-U.S. dollar-denominated Indebtedness
that is permitted by the terms of the indenture to be outstanding;
(8) the guarantee by Penn National or any of the Guarantors of Indebtedness
of Penn National or a Restricted Subsidiary of Penn National that was
permitted to be incurred by another provision of this covenant;
(9) the incurrence by Penn National's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event
shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of Penn National that was not permitted by this
clause;
(10) Indebtedness incurred by Penn National or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including
without limitation to letters of credit in respect to workers'
compensation claims or self-insurance, or other Indebtedness with respect
to reimbursement type obligations regarding workers' compensation claims;
provided, however, that upon the drawing of such letters of credit or the
incurrence of such Indebtedness, such obligations are reimbursed within
30 days following such drawing or incurrence;
(11) obligations in respect of performance and surety bonds and completion
guarantees provided by Penn National or any Restricted Subsidiary in the
ordinary course of business;
(12) the incurrence by Penn National or any of its Restricted Subsidiaries
of Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in
the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(13) incurrence of Indebtedness by Penn National or any of its Restricted
Subsidiaries (in addition to Existing Indebtedness) consisting of
Guarantees of Indebtedness of Pennwood in an aggregate principal amount
at any time outstanding not to exceed $20 million;
(14) the incurrence by Penn National or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
other Indebtedness incurred pursuant to this clause (14), not to exceed
$20 million; and
S-41
(15) the borrowing from time to time by the Company or any Guarantor of up
to $30 million under that certain Loan Agreement dated February 20, 2001
between Mississippi Business Finance Corporation and BSL, Inc. where such
loan is pledged by Mississippi Business Finance Corporation to secure the
Revenue Bonds held by the Company or any of its Restricted Subsidiaries
and the net proceeds of the loan are used for the acquisition,
construction, installation and equipping of a hotel and related
facilities adjacent to the Casino Magic Bay St. Louis casino and to pay
customary costs and expenses associated with the issuance of the
Mississippi Revenue Bonds and the construction of such hotel.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (15) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, Penn National will be
permitted to classify such item of Indebtedness on the date of its incurrence in
any manner that complies with this covenant. In addition, Penn National may, at
any time, change the classification of an item of Indebtedness (or any portion
thereof) to any other clause or to the first paragraph of this covenant provided
that Penn National would be permitted to incur such item of Indebtedness (or
portion thereof) pursuant to such other clause or the first paragraph of this
covenant, as the case may be, at such time of reclassification. Indebtedness
under the Senior Credit Facilities outstanding on the date on which notes are
first issued and authenticated under the indenture will be deemed to have been
incurred on such date in reliance on the exception provided by clause (1) of the
definition of Permitted Debt.
NO SENIOR SUBORDINATED DEBT
Penn National will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of Penn National and senior in any respect in right
of payment to the notes. No Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to the Senior Debt of such Guarantor and senior in
any respect in right of payment to such Guarantor's Subsidiary Guarantee.
LIENS
Penn National will not and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind securing Indebtedness or trade payables
(other than Permitted Liens) upon any of their property or assets, now owned or
hereafter acquired, unless all payments due under the indenture and the notes
are secured on an equal and ratable basis with the obligations so secured until
such time as such obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
Penn National will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
Penn National or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or
pay any indebtedness owed to Penn National or any of its Restricted
Subsidiaries;
(2) make loans or advances to Penn National or any of its Restricted
Subsidiaries; or
S-42
(3) transfer any of its properties or assets to Penn National or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and Credit Facilities as in
effect on the date of the indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings,
restructurings, replacements or refinancings of those agreements,
PROVIDED that the amendments, modifications, restatements, renewals,
increases, supplements, refundings, restructurings, replacements or
refinancings are no more restrictive, taken as a whole, with respect to
such dividend and other payment restrictions than those contained in
those agreements on the date of the indenture;
(2) the indenture, the notes and the Subsidiary Guarantees;
(3) applicable law or requirements of any Gaming Authority;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Penn National or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness or Capital Stock was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired, PROVIDED that, in the case of Indebtedness, such Indebtedness
was permitted by the terms of the indenture to be incurred;
(5) customary non-assignment provisions in any purchase money financing
contracts or leases entered into in the ordinary course of business and
consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on that property of the nature
described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, PROVIDED that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred under the
provisions of the covenant described above under the caption "--Liens"
that limit the right of the debtor to dispose of the assets subject to
such Liens;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, assets sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary
course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(12) Senior Debt, provided that the restrictions contained in the agreements
governing such Senior Debt are no more restrictive, taken as a whole,
than those contained in the Senior Credit Facilities;
(13) Indebtedness and related Guarantees by the Guarantors that ranks PARI
PASSU with the notes and the guarantees of the notes by the Guarantors;
provided that the restrictions contained in the agreements governing such
indebtedness and related Guarantees are no more restrictive, taken as a
whole, than those contained in the indenture; and
S-43
(14) Indebtedness incurred, or preferred stock issued, by Foreign
Subsidiaries, provided that the restrictions contained in the agreements
or instruments governing such Indebtedness or preferred stock:
(a) apply only in the event of a payment default or a default with
respect to a financial covenant contained in the terms of such
Indebtedness or preferred stock or will not materially affect Penn
National's ability to make principal or interest payments on the
notes as determined by the Board of Directors of Penn National, whose
determination shall be conclusive; and
(b) are not materially more disadvantageous to holders of the notes than
is customary in comparable financings as determined in good faith by
the Board of Directors, whose determination shall be conclusive.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Penn National may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not Penn National is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of Penn National and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person unless:
(1) either: (a) Penn National is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than Penn National) or to which such sale, assignment, transfer,
conveyance or other disposition has been made is a corporation organized
or existing under the laws of the United States, any state of the United
States or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than Penn National) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made assumes all the
obligations of Penn National under the notes and the indenture pursuant
to agreements reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) Penn National or the Person formed by or surviving any such
consolidation or merger (if other than Penn National), or to which such
sale, assignment, transfer, conveyance or other disposition has been made
will, on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
In addition, Penn National may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
Upon any sale, assignment, transfer, conveyance or other disposition of all
or substantially all of Penn National's and its Restricted Subsidiaries' assets,
taken as a whole, in compliance with the provisions of this "Merger,
Consolidation or Sale of Assets" covenant, Penn National will be released from
the obligations under the notes and the indenture except with respect to any
obligations that arise from, or are related to, such transaction.
This "Merger, Consolidation or Sale of Assets" covenant will not apply to a
sale, assignment, transfer, conveyance or other disposition of assets between or
among Penn National and any of its Wholly-Owned Restricted Subsidiaries.
S-44
TRANSACTIONS WITH AFFILIATES
Penn National will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to Penn
National or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Penn National or such
Restricted Subsidiary with an unrelated Person; and
(2) Penn National delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$2 million, a resolution of the Board of Directors set forth in an
officers' certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreements or arrangements and benefit plans or
arrangements, and any transactions contemplated by any of the foregoing
relating to the compensation and employee benefits matters, in each case
in respect of employees, officers or directors entered into by Penn
National or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of Penn National or such
Restricted Subsidiary;
(2) transactions between or among Penn National and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of Penn National solely
because Penn National owns an Equity Interest in such Person;
(4) payment of reasonable directors fees and indemnity provided on behalf of
officers, directors or employees of Penn National or any of its
Restricted Subsidiaries;
(5) sales of Equity Interests (other than Disqualified Stock) to Affiliates
of Penn National; and
(6) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "--Restricted Payments."
ADDITIONAL SUBSIDIARY GUARANTEES
If Penn National or any of its Restricted Subsidiaries that is a Guarantor
acquires or creates another Wholly-Owned Domestic Subsidiary after the date of
the indenture that has assets with a book value in excess of $1 million, then,
subject to applicable Gaming Laws, that newly acquired or created Wholly-Owned
Domestic Subsidiary will become a Guarantor and execute a supplemental indenture
and deliver an opinion of counsel satisfactory to the trustee within 30 Business
Days of the date on which it was acquired or created (except if that
Wholly-Owned Domestic Subsidiary has been properly designated as an Unrestricted
Subsidiary in accordance with the indenture for so long as it continues to
constitute an Unrestricted Subsidiary).
S-45
The obligation of any Wholly-Owned Domestic Subsidiary to execute a
Subsidiary Guarantee will be subject to the receipt of required prior approvals
from any applicable Gaming Authority, which Penn National and its Restricted
Subsidiaries have agreed to use all commercially reasonable efforts to obtain.
However, we cannot assure you as to whether and to what extent the notes will be
guaranteed in the future.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary (other than
an owner of a Principal Property) to be an Unrestricted Subsidiary if that
designation would not cause a Default. If a Restricted Subsidiary is designated
as an Unrestricted Subsidiary, the aggregate fair market value of all
outstanding Investments owned by Penn National and its Restricted Subsidiaries
in the Subsidiary properly designated will be deemed to be an Investment made as
of the time of the designation and will constitute Restricted Investments under
the first paragraph of the covenant described above under the caption
"--Restricted Payments" or, if eligible, Permitted Investments, as determined by
Penn National. That designation will only be permitted if the Investment would
be permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. The Board of Directors may redesignate
any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation
would not cause a Default.
BUSINESS ACTIVITIES
Penn National will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to Penn National and its Restricted Subsidiaries taken as
a whole.
PAYMENTS FOR CONSENT
Penn National will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture or the notes unless such consideration is offered to be paid
and is paid to all Holders of the notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
REPORTS
Whether or not required by the Commission, so long as any notes are
outstanding, Penn National will furnish to the trustee for mailing to the
Holders of notes, within 15 days after the time periods specified in the
Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if
Penn National were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by Penn National's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Penn National were required to file such
reports.
If Penn National has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
S-46
Operations, of the financial condition and results of operations of Penn
National and its Restricted Subsidiaries separate from the financial condition
and results of operations of the Unrestricted Subsidiaries of Penn National.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the notes
whether or not prohibited by the subordination provisions of the
indenture;
(2) default in payment when due of the principal of, or premium, if any, on
the notes, whether or not prohibited by the subordination provisions of
the indenture;
(3) failure by Penn National or any of its Restricted Subsidiaries to comply
with the provisions described under the captions "--Repurchase at the
Option of Holders--Change of Control," "--Repurchase at the Option of
Holders--Asset Sales," "--Certain Covenants--Restricted Payments,"
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" or "--Certain Covenants--Merger, Consolidation or Sale
of Assets;"
(4) failure by Penn National or any of its Restricted Subsidiaries for
60 days after notice from the trustee or Holders of at least 25% in
principal amount of the notes then outstanding to comply with any of the
other agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Penn National or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Penn National or
any of its Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the indenture, if
that default:
(a) is caused by a failure to pay principal on such Indebtedness at final
maturity (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5 million or more;
(6) failure by Penn National or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $5 million, which judgments are
not paid, discharged or stayed for a period of 60 days; and
(7) except as permitted by the indenture, any Subsidiary Guarantee of any
Significant Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect or any Guarantor shall deny or disaffirm its obligations
under its Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency described in the indenture
with respect to Penn National or any of its Restricted Subsidiaries that
is a Significant Subsidiary.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to Penn National, any Restricted Subsidiary that is
a Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary, all outstanding notes will become due
and payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the trustee or the Holders of at least 25% in
principal amount of the then outstanding notes may declare all the notes to be
due and payable immediately.
S-47
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from Holders of the
notes notice of any continuing Default or Event of Default if it determines that
withholding notice is in their interest, except a Default or Event of Default
relating to the payment of principal or interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Penn National with the
intention of avoiding payment of the premium that Penn National would have had
to pay if Penn National then had elected to redeem the notes pursuant to the
optional redemption provisions of the indenture, an equivalent premium will also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the notes. If an Event of Default occurs prior to March 15,
2006, by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of Penn National with the intention of avoiding the prohibition on
redemption of the notes prior to March 15, 2006, then the premium specified in
the indenture will also become immediately due and payable to the extent
permitted by law upon the acceleration of the notes.
Penn National is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Penn National is required to deliver to the trustee, as well
to the West Virginia Lottery Commission and the West Virginia Racing Commission,
a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Penn National
or any Guarantor, as such, will have any liability for any obligations of Penn
National or the Guarantors under the notes, the indenture, or the Subsidiary
Guarantees, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Penn National may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes and all obligations
of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium on such notes when
such payments are due from the trust referred to below;
(2) Penn National's obligations with respect to the notes concerning issuing
temporary notes, mutilated, destroyed, lost or stolen notes and the
maintenance of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
Penn National's and the Guarantor's obligations in connection therewith;
and
(4) the Legal Defeasance provisions of the indenture.
S-48
In addition, Penn National may, at its option and at any time, elect to have
the obligations of Penn National and the Guarantors released with respect to
certain covenants that are described in the indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "--Events of
Default and Remedies" will no longer constitute an Event of Default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Penn National must irrevocably deposit with the trustee, in trust, for
the benefit of the Holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, or interest and premium on
the outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and Penn National must specify
whether the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, Penn National has delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a) Penn National has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
of the indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel will confirm that, the Holders of the outstanding
notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, Penn National has delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the Holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is continuing on the
date of such deposit (other than a Default or Event of Default resulting
from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than the indenture) to which Penn National or any of
its Subsidiaries is a party or by which Penn National or any of its
Subsidiaries is bound;
(6) Penn National must deliver to the trustee an officers' certificate
stating that the deposit was not made by Penn National with the intent of
preferring the Holders of notes over the other creditors of Penn National
or with the intent of defeating, hindering, delaying or defrauding
creditors of Penn National or others; and
(7) Penn National must deliver to the trustee an officers' certificate and
an opinion of counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
S-49
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium on the notes (except a rescission of acceleration of
the notes by the Holders of at least a majority in aggregate principal
amount of the notes and a waiver of the payment default that resulted
from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of Holders of notes to receive payments of
principal of, or interest or premium on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the indenture, except in accordance with the terms of the
indenture; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the indenture
relating to subordination that adversely affects the rights of the Holders of
the notes will require the consent of the Holders of at least 75% in aggregate
principal amount of notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of notes,
Penn National, the Guarantors and the trustee may amend or supplement the
indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Penn National's obligations to Holders
of notes in the case of a merger or consolidation or sale of all or
substantially all of Penn National's assets;
(4) to comply with the rules of any applicable securities depository;
S-50
(5) to make any change that would provide any additional rights or benefits
to the Holders of notes or that does not adversely affect the legal
rights under the indenture of any such Holder; or
(6) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and, if provided for in the
indenture, thereafter repaid to Penn National, have been delivered to
the trustee for cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing of
a notice of redemption or otherwise or will become due and payable
within one year and Penn National or any Guarantor has irrevocably
deposited or caused to be deposited with the trustee as trust funds
in trust solely for the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be
sufficient without consideration of any reinvestment of interest, to
pay and discharge the entire indebtedness on the notes not delivered
to the trustee for cancellation for principal, premium and accrued
interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which Penn National or any
Guarantor is a party or by which Penn National or any Guarantor is bound;
(3) Penn National or any Guarantor has paid or caused to be paid all other
sums payable by it under the indenture; and
(4) Penn National has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of
the notes at maturity or the redemption date, as the case may be.
In addition, Penn National must deliver an officers' certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Penn National or any Guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
S-51
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of notes, unless such Holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus supplement and accompanying prospectus
may obtain a copy of the indenture without charge by writing to Penn National
Gaming, Inc., Wyomissing Professional Center, 825 Berkshire Boulevard, Suite
200, Wyomissing, PA 19610, Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The notes offered and sold under this prospectus supplement and accompanying
prospectus will initially be issued in the form of one or more global notes
("Global Notes"). The Global Notes will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of DTC or its
nominee, who will be the Global Notes Holder. Except as set forth below, the
Global Notes may be transferred, in whole and not in part, only to DTC or
another nominee of DTC. Investors may hold their beneficial interests in the
Global Notes directly through DTC if they are participating organizations or
"participants" in such system or indirectly through organizations that are
participants in such system.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC is
provided solely as a matter of convenience. The operations and procedures are
solely within the control of and are subject to changes by DTC. Penn National
takes no responsibility for these operations and procedures and urges investors
to contact the system or their participants directly to discuss these matters.
DTC has advised Penn National that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised Penn National that, pursuant to procedures established
by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and
the transfer of ownership of these interests will be effected only
through, records maintained by DTC (with respect to the Participants) or
by the Participants and the Indirect Participants (with respect to other
owners of beneficial interest in the Global Notes).
S-52
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations which are Participants in such system. All interests in a Global
Note, may be subject to the procedures and requirements of DTC. The laws of some
states require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a Person having beneficial interests in
a Global Note to pledge such interests to Persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium on a
Global Note registered in the name of DTC or its nominee will be payable to DTC
in its capacity as the registered Holder under the indenture. Under the terms of
the indenture, Penn National and the trustee will treat the Persons in whose
names the notes, including the Global Notes, are registered as the owners of the
notes for the purpose of receiving payments and for all other purposes.
Consequently, neither Penn National, the trustee nor any agent of Penn National
or the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised Penn National that its current practice, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the trustee or Penn National. Neither Penn
National nor the trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the notes, and Penn
National and the trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds.
DTC has advised Penn National that it will take any action permitted to be
taken by a Holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the right
to exchange the Global Notes for legended notes in certificated form, and to
distribute such notes to its Participants.
S-53
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among participants in DTC, they are under no
obligation to perform or to continue to perform such procedures, and may
discontinue such procedures at any time. Neither Penn National nor the trustee
nor any of their respective agents will have any responsibility for the
performance by DTC, or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies Penn National that it is unwilling or unable to
continue as depositary for the Global Notes and Penn National fails to
appoint a successor depositary or (b) has ceased to be a clearing agency
registered under the Exchange Act;
(2) Penn National, at its option, notifies the trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default with
respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend referred to in
"Notice to Investors," unless that legend is not required by applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes. See "Notice to Investors."
SAME DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the notes represented
by the Global Notes (including principal, premium, if any, and interest) be made
by wire transfer of immediately available funds to the accounts specified by the
Global Notes Holder. With respect to certificated securities, Penn National will
make all payments of principal, premium, if any, and interest by wire transfer
of immediately available funds to the accounts specified by the Holders thereof
or, if no such account is specified, by mailing a check to each such Holder's
registered address.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or becomes a Subsidiary of such specified Person,
whether or not such Indebtedness is
S-54
incurred in connection with, or in contemplation of, such other Person
merging with or into, or becoming a Subsidiary of, such specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights; PROVIDED that the sale, conveyance or other disposition of all or
substantially all of the assets of Penn National and its Subsidiaries
taken as a whole will be governed by the provisions of the indenture
described above under the caption "--Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under
the caption "--Certain Covenants--Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of Penn National's Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $2 million;
(2) a transfer of assets between or among Penn National and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to Penn
National or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents; and
(6) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.
"BOARD OF DIRECTORS" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"BUSINESS DAY" means any day other than a Legal Holiday.
S-55
"CAPITAL LEASE OBLIGATION" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the United
States government (PROVIDED that the full faith and credit of the United
States is pledged in support of those securities) having maturities of
not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case, with any lender party to the Senior Credit Facilities or with
any domestic commercial bank having capital and surplus in excess of $500
million and a Thomson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and
(3) above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within six months after the date of acquisition; and
(6) money market funds substantially all of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of
this definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of Penn National and its Restricted Subsidiaries taken as a whole
to any "person" (as that term is used in Section 13(d)(3) of the Exchange
Act) other than a Principal or a Related Party of a Principal;
(2) the adoption by shareholders of a plan relating to the liquidation or
dissolution of Penn National;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 50% of
the Voting Stock of Penn National, measured by voting power rather than
number of shares;
S-56
(4) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that the Principals and
their Related Parties (or any one of them) becomes the Beneficial Owner,
directly or indirectly, of more than 66 2/3% of the Voting Stock of Penn
National, measured by voting power rather than number of shares; or
(5) the first day on which a majority of the members of the Board of
Directors of Penn National are not Continuing Directors.
"CONSOLIDATED CASH FLOW" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period PLUS:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; PLUS
(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; PLUS
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect
of all payments made or received pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated
Net Income; PLUS
(4) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Restricted
Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, other than
S-57
limitations imposed by Gaming Laws generally applicable to all Person
operating business similar to that of such Restricted Subsidiary; and
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will be
excluded; and
(4) the cumulative effect of a change in accounting principles will be
excluded; and
(5) the Net Income (and loss) of any Unrestricted Subsidiary will be
excluded, whether or not distributed to the specified Person or one of
its Subsidiaries.
For purposes of calculating Consolidated Net Income, any non-recurring
charges or expenses of an acquired company or business incurred in connection
with the purchase or acquisition of such acquired company or business by such
Person will be added to the Net Income of such Person, to the extent any such
charges or expenses were deducted in computing such Net Income of such Person.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of Penn National who:
(1) was a member of such Board of Directors on the date of the indenture; or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.
"CREDIT FACILITIES" means, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced, restructured
or refinanced in whole or in part from time to time.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DESIGNATED SENIOR DEBT" means:
(1) any Indebtedness outstanding under the Senior Credit Facilities; and
(2) after payment in full of all Obligations under the Senior Credit
Facilities, any other Senior Debt permitted under the indenture the
principal amount of which is $25 million or more and that has been
designated by Penn National as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require Penn
National to repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale will not constitute Disqualified Stock if the terms of
such Capital Stock provide that Penn National may not repurchase or redeem any
such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with the covenant described above under the caption
"--Certain Covenants--Restricted Payments."
S-58
"DOMESTIC SUBSIDIARY" means any Restricted Subsidiary of Penn National that
was formed under the laws of the United States or any state of the United States
or the District of Columbia or that guarantees or otherwise provides direct
credit support for any Indebtedness of Penn National.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" means an offering of the Equity Interests (other than
Disqualified Stock) of Penn National that results in net proceeds to Penn
National of at least $25 million.
"EVENT OF DEFAULT" means an event described under the caption "--Events of
Default and Remedies."
"EXISTING INDEBTEDNESS" means the existing Guarantees of Penn National with
respect to the Indebtedness of Pennwood and up to $500,000 in aggregate
principal amount of other Indebtedness of Penn National and its Subsidiaries
(other than Indebtedness under the Senior Credit Facilities and under Penn
National's 11 1/8% senior subordinated notes due 2008 and the Guarantees related
thereto) in existence on the date of the indenture, until such amounts are
repaid.
"FIXED CHARGES" means, with respect to any specified Person and its
Restricted Subsidiaries for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net of the effect of all payments
made or received pursuant to Hedging Obligations; PLUS
(2) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period; PLUS
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon
(provided that interest expense on the Pennwood Debt will not be counted
pursuant to this clause (3) except to the extent that Penn National or
any of its Restricted Subsidiaries actually makes payments on such
Pennwood Debt); PLUS
(4) the product of (a) all dividends, whether paid or accrued and whether or
not in cash, on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, other than dividends on Equity Interests
payable solely in Equity Interests of Penn National (other than
Disqualified Stock) or to Penn National or a Restricted Subsidiary of
Penn National, times (b) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person and
its Restricted Subsidiaries for any period, the ratio of the Consolidated Cash
Flow of such Person and its Restricted Subsidiaries for such period to the Fixed
Charges of such Person for such period. In the event that the specified Person
or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays,
repurchases or redeems any Indebtedness (other than ordinary working capital
borrowings) or issues, repurchases or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated and on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect
to such incurrence, assumption,
S-59
Guarantee, repayment, repurchase or redemption of Indebtedness, or such
issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior
to the Calculation Date will be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period will be calculated on a
pro forma basis in accordance with Regulation S-X under the Securities
Act, but without giving effect to clause (3) of the proviso set forth in
the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, will be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, will be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations
of the specified Person or any of its Restricted Subsidiaries following
the Calculation Date.
"FOREIGN SUBSIDIARY" means any Subsidiary of Penn National that
(1) is not organized under the laws of the United States, any state thereof
or the District of Columbia, and
(2) conducts substantially all of its business operations outside the United
States of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"GAMING APPROVAL" means any governmental approval relating to any gaming
business (including pari-mutuel betting) or enterprise.
"GAMING AUTHORITY" means any governmental authority with regulatory
oversight of, authority to regulate or jurisdiction over any gaming businesses
or enterprises, including the Mississippi Gaming Commission, the Pennsylvania
State Horse Racing Commission, the Pennsylvania State Harness Racing Commission,
the West Virginia Racing Commission, the West Virginia Lottery Commission, the
New Jersey Racing Commission, the New Jersey Casino Control Commission, the
Louisiana Gaming Control Board, the Ontario Lottery and Gaming Corporation and
the Ontario Alcohol and Gaming Commission, with regulatory oversight of,
authority to regulate or jurisdiction over any racing or gaming operation (or
proposed gaming operation) owned, managed or operated by Penn National or any
Guarantor.
"GAMING LAWS" means all applicable provisions of all:
(1) constitutions, treaties, statutes or laws governing gaming operations
(including without limitation card club casinos and pari mutuel race
tracks) and rules, regulations and ordinances of any Gaming Authority,
(2) Gaming Approvals, and
S-60
(3) orders, decisions, judgments, awards and decrees of any Gaming
Authority.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"GUARANTORS" means each of:
(1) all Subsidiaries of Penn National on the date of the indenture; and
(2) any other Subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the indenture;
and their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, currency swap agreement, interest rate
cap agreements and interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency exchange rates.
"INDEBTEDNESS" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued expense
or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness
issued with original issue discount; and
(2) the principal amount of the Indebtedness, together with any interest on
the Indebtedness that is more than 30 days past due, in the case of any
other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If Penn
National or
S-61
any Restricted Subsidiary of Penn National sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of Penn
National such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of Penn National, Penn National will
be deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments." The acquisition by Penn National or any
Restricted Subsidiary of Penn National of a Person that holds an Investment in a
third Person will be deemed to be an Investment by Penn National or such
Restricted Subsidiary in such third Person in an amount equal to the fair market
value of the Investment held by the acquired Person in such third Person in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Certain Covenants--Restricted Payments."
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"MISSISSIPPI REVENUE BONDS" means the Mississippi Business Finance
Corporation Industrial Revenue Bonds, Series 2001 (Bay St. Louis Project) issued
pursuant to the Trust Indenture dated February 20, 2001 between the Mississippi
Business Finance Corporation and The Peoples Bank, Biloxi, Mississippi, as
Trustee.
"NET INCOME" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with: (a) any Asset
Sale; or (b) the disposition of any securities by such Person or any of
its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by Penn National
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result of the Asset Sale, taxes paid or payable as a result of the
Asset Sale, in each case, after taking into account any available tax credits or
deductions and any tax sharing arrangements, and amounts required to be applied
to the repayment of Indebtedness, other than Indebtedness pursuant to the Senior
Credit Facilities, secured by a Lien on the asset or assets that were the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
S-62
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither Penn National nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or
(c) constitutes the lender;
(2) no default with respect to which (including any rights that the holders
of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both
any holder of any other Indebtedness (other than the notes) of Penn
National or any of its Restricted Subsidiaries to declare a default on
such other Indebtedness or cause the payment of the Indebtedness to be
accelerated or payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of Penn National or any of its
Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities and obligations
payable under the documentation governing any Indebtedness, including, without
limitation, interest after the commencement of any bankruptcy proceeding at the
rate specified in the applicable instrument governing or evidencing Senior Debt.
"PENNWOOD" collectively, means Pennwood Racing, Inc., a Delaware
corporation, and its subsidiaries, including, without limitation, GS Park
Services, L.P., FR Park Services, L.P., GS Park Racing, L.P. and FR Park Racing,
L.P.
"PENNWOOD DEBT" means the existing Indebtedness of Pennwood Racing, Inc.
pursuant to that certain Term Loan and Security Agreement dated July 29, 1999,
by and among FR Park Racing, L.P., GS Park Racing, L.P. and Commerce Bank, N.A.,
that is guaranteed by Penn National.
"PERMITTED BUSINESS" means any business in which Penn National and its
Restricted Subsidiaries are engaged on the date of the indenture or any business
reasonably related, incidental or ancillary thereto.
"PERMITTED INVESTMENTS" means:
(1) any Investment in Penn National or in a Restricted Subsidiary of Penn
National that is a Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by Penn National or any Subsidiary of Penn National in a
Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Penn National and also
is a Guarantor; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Penn National or a Restricted Subsidiary of Penn
National that is a Guarantor;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales;"
(5) any Investment solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of Penn National or made with the
proceeds of a substantially concurrent sale of such Equity Interests made
for such purpose;
S-63
(6) any Investments received in compromise of obligations of such persons
incurred in the ordinary course of trade creditors or customers that were
incurred in the ordinary course of business, including pursuant to any
plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of any trade creditor or customer;
(7) Hedging Obligations;
(8) the extension of credit to customers of Penn National or its Restricted
Subsidiaries consistent with gaming industry practice in the ordinary
course of business;
(9) loans and advances to officers, directors and employees for
business-related travel expenses, moving or relocation expenses and other
similar expenses, in each case, incurred in the ordinary course of
business;
(10) loans and advances to officers, directors and employees other than
incurred pursuant to clause (9) of this definition in an aggregate amount
not to exceed $250,000 extended during any one fiscal year or $1 million
outstanding at any time;
(11) Guarantees that constitute Permitted Debt;
(12) investments in Pennwood arising from any payment in respect of the
Existing Indebtedness related to Pennwood;
(13) investments of any Person (other than Indebtedness of such Person) in
existence at the time such Person becomes a Subsidiary of Penn National
provided such Investment was not made in connection with or anticipation
of such Person becoming a Subsidiary of Penn National;
(14) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (14) since the date of the
indenture that remain outstanding not to exceed $20 million; and
(15) any Investment by the Company or any Guarantor from time to time in the
Mississippi Revenue Bonds in an aggregate principal amount of up to $30
million, the proceeds of which are loaned by the Mississippi Business
Finance Corporation to BSL, Inc. for the acquisition, construction,
installation and equipping of a hotel and related facilities adjacent to
the Casino Magic Bay St. Louis casino and to pay customary costs and
expenses associated with the issuance of the Mississippi Revenue Bonds
and the construction of such hotel.
(16) the notes and Indebtedness under the Senior Credit Facilities.
"PERMITTED JUNIOR SECURITIES" means:
(1) Equity Interests in Penn National or any Guarantor; or
(2) debt securities of Penn National or any Guarantor that are subordinated
to all Senior Debt and any debt securities issued in exchange for Senior
Debt to substantially the same extent as, or to a greater extent than,
the notes and the Subsidiary Guarantees are subordinated to Senior Debt
under the indenture.
"PERMITTED LIENS" means:
(1) Liens of Penn National and any Guarantor securing Indebtedness and other
Obligations under Credit Facilities that were securing Senior Debt that
was permitted by the terms of the indenture to be incurred;
(2) Liens in favor of Penn National or the Guarantors;
S-64
(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with Penn National or any Subsidiary of Penn
National or otherwise becomes a Subsidiary of Penn National; PROVIDED
that such Liens were not granted in connection with, or in anticipation
of, such merger or consolidation or acquisition and do not extend to any
assets other than those of such Person merged into or consolidated with
Penn National or the Subsidiary;
(4) Liens on property existing at the time of acquisition of the property by
Penn National or any Subsidiary of Penn National, PROVIDED that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such
Indebtedness;
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED that any reserve or other appropriate provision as is required
in conformity with GAAP has been made therefor;
(9) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been initiated for the review of such judgment shall not have been
fully terminated or the period within such proceedings may be initiated
shall not have expired;
(10) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business in connection therewith;
(11) Liens incurred in the ordinary course of business of Penn National or
any Subsidiary of Penn National with respect to obligations that do not
exceed $5 million at any one time outstanding; and
(12) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Penn National
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of Penn National or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); PROVIDED that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued
interest on the Indebtedness and the amount of all expenses and premiums
incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the
S-65
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the notes on terms at least as favorable to the Holders of notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Penn National or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"PRINCIPAL PROPERTY" means any and all rights, title and interest in the
property, assets, accounts, and operations of Pocono Downs in Wilkes-Barre,
Pennsylvania, the Charles Town Entertainment Complex in Charles Town, West
Virginia, Casino Magic Bay St. Louis in Bay St. Louis, Mississippi, Boomtown
Biloxi in Biloxi, Mississippi, Penn National Race Course in Harrisburg,
Pennsylvania, and Casino Rouge in Baton Rouge, Louisiana, and the Development
and Operating Agreement among the Ontario Lottery and Gaming Corporation, the
Chippewas of Rama First Nation and certain of their affiliates, and CRC
Holdings Inc. and certain of its affiliates, dated March 18, 1996, as amended on
April 15, 1996 and June 12, 2000.
"PRINCIPALS" means Peter D. Carlino, Peter M. Carlino, Richard T. Carlino,
Harold Cramer and The Carlino Family Trust.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of Penn National or any of
its Restricted Subsidiaries incurred for the purpose of financing all or any
part of the purchase price or cost of installation, construction or improvement
of any property.
"RELATED PARTY" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal;
or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or
more controlling interest of which consist of any one or more Principals
and/or such other Persons referred to in the immediately preceding
clause (1).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person that
is not an Unrestricted Subsidiary.
"SENIOR CREDIT FACILITIES" means the Credit Agreement dated as of August 8,
2000 between Penn National, as borrower, the several lenders from time to time
party thereto and Lehman Brothers Inc., as Lead Arranger and Book-Running
Manager, CIBC World Markets Corp., as Co-Lead Arranger and Co-Book Running
Manager, Lehman Commercial Paper Inc., as Syndication Agent, Canadian Imperial
Bank of Commerce, as Administrative Agent and the CIT Group/Equipment
Financing Inc., First Union National Bank and Wells Fargo Bank, N.A., as
Documentation Agents, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, restructured, replaced or
refinanced from
S-66
time to time including increases in principal amount (whether the same are
provided by the original agents and lenders under such Senior Credit Facilities
or other agents or other lenders).
"SENIOR DEBT" means, with respect to Penn National in any Guarantor, as
applicable:
(1) any Indebtedness of Penn National or such Guarantor, as the case may be,
under the Credit Facilities or otherwise permitted to be incurred under
the terms of the indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it shall not be senior
in right of payment to any Indebtedness of Penn National or such
Guarantor, as the case may be; and
(2) all Obligations with respect to the items listed in the preceding clause
(1).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing by
Penn National;
(2) any Indebtedness of Penn National to any of its Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of the
indenture.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of the corporation,
association or other business entity is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Penn National (other than
a Subsidiary that is an owner of a Principal Property) that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary:
(1) has, or will have after giving effect to such designation, no
Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Penn National or any Restricted Subsidiary of Penn National unless
the terms of any such agreement, contract, arrangement or understanding
are no less favorable to Penn National or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not
Affiliates of Penn National;
S-67
(3) is a Person with respect to which neither Penn National nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Penn National or any of its Restricted
Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of Penn National or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of Penn National or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Penn National as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary
will be deemed to be incurred by a Restricted Subsidiary of Penn National as of
such date and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," Penn
National will be in default of such covenant. The Board of Directors of Penn
National may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation will be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of Penn National of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
will only be permitted if (1) such Indebtedness is permitted under the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period;
and (2) no Default or Event of Default would be in existence following such
designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the
making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY-OWNED DOMESTIC SUBSIDIARY" of any specified Person means a Domestic
Subsidiary of such Person all of the outstanding Capital Stock and other
ownership interests of which (other than directors' qualifying shares) will at
the time be owned by such Person or by one or more Wholly-Owned Domestic
Subsidiaries of such Person.
S-68
CERTAIN UNITED STATED FEDERAL INCOME TAX CONSEQUENCES
SCOPE OF DISCUSSION
The following general discussion summarizes certain United States federal
income and estate tax consequences that apply to "United States Holders" who
acquire the notes at their original issue price for cash and hold the notes as a
"capital asset," generally, for investment, under Section 1221 of the Internal
Revenue Code of 1986, as amended. This summary, however, does not consider
state, local or foreign tax laws. In addition, it does not include all of the
rules which may affect the United States tax treatment of your investment in the
notes. For example, special rules not discussed here may apply to you if you
are:
- a broker-dealer, a dealer in securities or a financial institution;
- an S corporation;
- a bank;
- a thrift;
- an insurance company;
- a tax-exempt organization;
- subject to the alternative minimum tax provisions of the Code;
- holding the notes as part of a hedge, straddle or other risk reduction or
constructive sale transaction;
- a person with a "functional currency" other than the U.S. dollar; or
- a United States expatriate.
This discussion only represents our best attempt to describe certain United
States federal income tax consequences that may apply to you based on current
United States federal tax law. We have not and will not seek any rulings from
the Internal Revenue Service regarding the matters discussed below. This
discussion may in the end inaccurately describe the federal income tax
consequences which are applicable to you because the law may change, possibly
retroactively, and because the IRS or any court may disagree with this
discussion. If you are a partner in a partnership, you should consult your own
tax advisor regarding special rules that may apply.
THIS SUMMARY MAY NOT COVER YOUR PARTICULAR CIRCUMSTANCES BECAUSE IT DOES NOT
CONSIDER FOREIGN, STATE OR LOCAL TAX RULES, DISREGARDS CERTAIN FEDERAL TAX
RULES, AND DOES NOT DESCRIBE FUTURE CHANGES IN FEDERAL TAX RULES. PLEASE CONSULT
YOUR TAX ADVISOR RATHER THAN RELYING ON THIS GENERAL DESCRIPTION.
UNITED STATES HOLDERS
If you are a "United States Holder," as defined below, this section applies
to you. Otherwise, the next section, "Non-United States Holders," applies to
you.
S-69
DEFINITION OF UNITED STATES HOLDER. You are a "United States Holder" if you
hold the notes and you are:
- a citizen or resident of the United States, including an alien individual
who is a lawful permanent resident of the United States or meets the
"substantial presence" test under Section 7701(b) of the Code;
- a corporation or partnership created or organized in the United States or
under the laws of the United States or of any political subdivision of the
United States (except that under regulations to be published, certain
partnerships created or organized under the foreign laws may be classified
as domestic partnerships if such classification is more appropriate);
- an estate, the income of which is subject to United States federal income
tax regardless of its source;
- a trust, if a United States court can exercise primary supervision over
the administration of the trust and one or more United States persons can
control all substantial decisions of the trust, or (i) if the trust was in
existence on August 20, 1996; (ii) before such date the trust was treated
as a domestic trust; and (iii) the trust has elected to continue to be
treated as a United States person; or
- otherwise subject to United States federal income tax on your worldwide
income on a net income basis.
TAXATION OF STATED INTEREST. Generally, you must include the interest on
the notes in ordinary income:
- when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
- when you receive it, if you use the cash method of accounting for United
States federal income tax purposes.
SALE OR OTHER TAXABLE DISPOSITION OF THE NOTES. You must recognize taxable
gain or loss on the sale, exchange, redemption, retirement or other taxable
disposition of a note. The amount of your gain or loss equals the difference
between the amount you receive for the Note (in cash or other property, valued
at fair market value), except to the extent amounts received are attributable to
accrued interest on the note, minus your adjusted tax basis in the note. Your
initial tax basis in a note equals the price you paid for the note.
Your gain or loss will generally be a long-term capital gain or loss if you
have held the note for more than one year. Otherwise, it will be a short-term
capital gain or loss. Payments attributable to accrued interest which you have
not yet included in income will be taxed as ordinary interest income.
BACKUP WITHHOLDING. You may be subject to a 30% backup withholding tax when
you receive interest payments on the note or proceeds upon the sale or other
disposition of a note. Certain holders (including, among others, certain
corporations, certain financial institutions and certain tax-exempt
organizations) are generally not subject to backup withholding. In addition, the
30% backup withholding tax will not apply to you if you provide your social
security or other taxpayer identification number, or TIN, in the prescribed
manner unless:
- the IRS notifies us or our paying agent that the TIN you provided is
incorrect;
- you underreport interest and dividend payments that you receive on your
tax return and the IRS notifies us or our paying agent that withholding is
required; and
- you fail to certify under penalties of perjury that you are not subject to
backup withholding.
S-70
If the 30% backup withholding tax does apply to you, you may use the amounts
withheld as a refund or credit against your United States federal income tax
liability as long as you provide certain information to the IRS.
United States Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedures for
obtaining such exemption.
NON-UNITED STATES HOLDERS
The following general discussion is limited to the United States federal
income and estate tax consequences relevant to a "Non-United States Holder." A
"Non-United States Holder" is any person other than a United States Holder.
INTEREST
PORTFOLIO INTEREST EXEMPTION. You will generally not have to pay United
States federal income tax on interest paid on the notes because of the
"portfolio interest exemption" if either:
- you represent that you are not a United States person for United States
federal income tax purposes and you provide your name and address to us or
our paying agent on a properly executed IRS Form W-8BEN (or a suitable
substitute form) signed under penalties of perjury; or
- a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its business
holds the note on your behalf, certifies to us or our paying agent under
penalties of perjury that it has received IRS Form W-8BEN (or a suitable
substitute) from you or from another qualifying financial institution
intermediary, and provides a copy of the Form W8-BEN (or a suitable
substitute) to us or our paying agent.
You will not, however, qualify for the portfolio interest exemption
described above if:
- you own, actually or constructively, 10% or more of the total combined
voting power of all classes of our capital stock;
- you are a controlled foreign corporation with respect to which we are a
"related person" within the meaning of Section 864(d)(4) of the Code;
- you are a bank receiving interest described in Section 881(c)(3)(A) of the
Code; or
- the interest received in connection with the Notes constitutes (or the IRS
determines that such interest constitutes) contingent interest as
described in Section 871(h)(4) of the Code.
WITHHOLDING TAX IF THE INTEREST IS NOT PORTFOLIO INTEREST. If you do not
claim, or do not qualify for, the benefit of the portfolio interest exemption,
you may be subject to a 30% withholding tax on interest payments made on the
notes.
However, if the payments of interest on a note are effectively connected
with the conduct by you of a trade or business in the United States, such
payments will be subject to United States federal income tax on a net basis at
the rates applicable to United States persons generally (and, if paid to
corporate holders, may also be subject to a 30% branch profits tax). If payments
are subject to United States federal income tax on a net basis in accordance
with the rules described in the preceding sentence, such payments will not be
subject to United States withholding tax so long as you provide us or our paying
agent with a properly executed IRS Form W-8ECI.
Non-United States Holders should consult any applicable income tax treaties,
which may provide for a lower rate of withholding tax, exemption from or
reduction of the branch profits tax, or other rules different from those
described above. Generally, in order to claim any treaty benefits you must
submit a properly executed IRS Form W-8BEN.
S-71
REPORTING. We may report annually to the IRS and to you the amount of
interest paid to, and the tax withheld, if any, with respect to you.
SALE OR OTHER DISPOSITION OF THE NOTES. You will generally not be subject
to United States federal income tax or withholding tax on gain recognized on a
sale, exchange, redemption, retirement, or other disposition of a note unless:
- such gain is effectively connected with the conduct by you of a trade or
business within the United States, in which case such gain will be subject
to United States federal income tax on a net basis at the rates applicable
to United States persons generally; or
- you are an individual who was present in the United States for 183 days or
more in the taxable year of the disposition and certain other conditions
are satisfied, in which case you will generally be required to pay a
United States federal income tax of 30% (or a reduced treaty rate) on such
gain.
UNITED STATES FEDERAL ESTATE TAXES. If you qualify for the portfolio
interest exemption under the rules described above when you die, the notes will
not be included in your estate for United States federal estate tax purposes,
unless the income on the notes is effectively connected with the conduct by you
of a trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
PAYMENTS FROM UNITED STATES OFFICE. If you receive payments of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, there is a possibility that you will be subject to
both backup withholding at a rate of 30% and information reporting.
With respect to interest payments made on the note, however, backup
withholding and information reporting will not apply if you certify, generally
on a Form W-8BEN (or Form W-8ECI) or substitute form, that you are not a United
States person in the manner described above under the heading "NON-UNITED STATES
HOLDERS--INTEREST."
Moreover, with respect to proceeds received on the sale, exchange,
redemption, or other disposition of a note, backup withholding or information
reporting generally will not apply if you properly provide, generally on
Form W-8BEN (or Form W-8ECI) (or a suitable substitute form), a statement that
you are an "exempt foreign person" for purposes of the broker reporting rules,
and other required information. If you are not subject to United States federal
income or withholding tax on the sale or other disposition of a note, as
described above under the heading "NON-UNITED STATES HOLDERS--SALE OR OTHER
DISPOSITION OF NOTES," you will generally qualify as an "exempt foreign person"
for purposes of the broker reporting rules.
PAYMENTS FROM FOREIGN OFFICE. If payments of principal and interest are
made to you outside the United States by or through the foreign office of your
foreign custodian, nominee or other agent, or if you receive the proceeds of the
sale of a note through a foreign office of a "broker," as defined in the
pertinent United States Treasury Regulations, you will generally not be subject
to backup withholding or information reporting. You will, however, be subject to
backup withholding and information reporting if the foreign custodian, nominee,
agent or broker has actual knowledge or reason to know that you are a United
States person. You will also be subject to information reporting, but not backup
withholding, if the payment is made by a foreign office of a custodian, nominee,
agent or broker that is a United States person or a controlled foreign
corporation for United States federal income tax purposes, or that derives 50%
or more of its gross income from the conduct of a United States trade or
business for a specified three year period, unless the broker has in its records
documentary evidence that you are a Non-United States Holder and certain other
conditions are met.
S-72
REFUNDS. Any amounts withheld under the backup withholding rules may be
refunded or credited against the Non-United States Holder's United States
federal income tax liability, provided that the required information is
furnished to the IRS.
WITHHOLDING REGULATIONS. The regulations relating to the withholding of tax
on income paid to foreign persons have recently been amended and are generally
effective for payments made after December 31, 2000, subject to certain
transition rules. The withholding regulations modify and, in general, unify the
way in which you establish your status as a non-United States "beneficial owner"
eligible for withholding exemptions, including the portfolio interest exemption,
a reduced treaty rate or an exemption from backup withholding. New forms have
been created for these purposes. For example, a Non-United States Holder must
use Form W-8BEN to claim a benefit under an income tax treaty or to establish
foreign status. Form W-8IMY is now used by foreign intermediaries to represent
that they are foreign persons and that they are intermediaries. Foreign
partnerships also use this form to establish their foreign status or the foreign
status of their partners. A Non-United States Holder claiming treaty benefits
may be required to obtain a taxpayer identification number in connection with
furnishing a Form W-8BEN. Upon the purchase of notes, a Non-United States Holder
will be required to submit the required certifications pursuant to the
withholding regulations.
This summary does not completely describe the withholding regulations.
Please consult your tax advisor to determine how the withholding regulations
apply to your particular circumstances.
S-73
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement dated
February 21, 2002 (the "Purchase Agreement"), we have agreed to sell to Bear,
Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and CIBC
World Markets Corp. (collectively, the "Underwriters"), and each of the
Underwriters has severally agreed to purchase, the principal amount of notes set
forth opposite its name below. In the Purchase Agreement, the Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Notes offered hereby if any of the notes are purchased. In the event of
default by an Underwriter, the Purchase Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriter may be
increased or the Purchase Agreement may be terminated.
PRINCIPAL
UNDERWRITER AMOUNT
----------- ------------
Bear, Stearns & Co. Inc..................................... $ 58,334,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................... 58,334,000
CIBC World Markets Corp..................................... 58,332,000
------------
Total............................................. $175,000,000
============
The notes are a new issue of securities with no established trading market.
We have been advised by the Underwriters that they intend to make a market in
the notes but are not obligated to do so and may discontinue any market making
at any time without notice. We cannot assure you that a liquid trading market
for the notes will be established or maintained.
We and the guarantors have agreed to indemnify the Underwriters against, or
to contribute to payments that the Underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
We have agreed that for a period of 90 days from the date hereof, we will
not, without the prior written consent of Bear Stearns and Merrill Lynch,
directly or indirectly, issue, sell, offer or contract to sell, grant any option
for the sale of, or otherwise transfer or dispose of, any of our debt
securities.
Certain of the Underwriters have from time to time provided investment
banking and other services to us and have received customary fees for these
services. Affiliates of certain of the Underwriters have from time to time
provided commercial banking and other services to us and have received customary
fees for these services. In addition, affiliates of certain of the Underwriters
are lenders under our credit facility and will receive their pro rata share of
the repayment of outstanding debt described under "Use of Proceeds."
In connection with the offering and after the offering, certain persons
participating in the offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the notes. Specifically, the
Underwriters may bid for and purchase the notes in the open market to stabilize
the price of the notes. The Underwriters may also overallot the offering,
creating a syndicate short position, and may bid for and purchase the notes in
the open market to cover the syndicate short position. In addition, the
Underwriters may bid for and purchase the notes in market-making transactions
and impose penalty bids. These activities may stabilize or maintain the market
price of the notes above market levels that may otherwise prevail. The
Underwriters are not required to engage in these activities and may end these
activities at any time.
It is expected that delivery of the notes will be made against payment
therefor on or about the date specified in the last paragraph of the cover page
of this prospectus supplement, which is the fifth business day following the
date hereof. Under Rule 15c6-1 of the U.S. Securities and Exchange
S-74
Commission under the Exchange Act, trades in the secondary market generally are
required to settle in three business days, unless the parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to trade notes on
the date hereof or the day thereafter will be required by virtue of the fact
that the notes initially will settle in T+5, to specify an alternate settlement
cycle at the time of any such trade to prevent a failed settlement. Purchasers
of notes who wish to trade notes on the date hereof or the day thereafter should
consult their own advisor.
LEGAL MATTERS
Certain legal matters in connection with the noted offered hereby will be
passed upon for us by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania,
and for the underwriters by Cahill Gordon & Reindel, New York, New York.
EXPERTS
The financial statements for Penn National Gaming, Inc. and subsidiaries as
of December 31, 2000 and 1999, and for each of the three years in the period
ended December 31, 2000, incorporated by reference into this prospectus
supplement and the accompanying prospectus, have been audited by BDO Seidman,
LLP, independent public accountants, as indicated in their report incorporated
herein by reference, given on the authority of said firm as experts in
accounting and auditing.
The financial statements for Mardi Gras Casino Corp. as of December 31, 1999
and 1998, for each of the three years in the period ended December 31, 1999,
incorporated by reference into this prospectus supplement and the accompanying
prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report appearing therein, given on the
authority of said firm as experts in accounting and auditing.
The financial statements for Mississippi-I Gaming, L.P. as of December 31,
1999 and 1998, for each of the three years in the period ended December 31,
1999, incorporated by reference into this prospectus supplement and the
accompanying prospectus, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report appearing therein, given on the
authority of said firm as experts in accounting and auditing.
The financial statements of CRC Holdings, Inc.--Gaming Division as of
November 30, 1999 and 2000, and for each of the three years in the period ended
November 30, 2000 incorporated by reference into this prospectus supplement and
the accompanying prospectus, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as stated in their report appearing therein, given on
the authority of said firm as experts in accounting and auditing.
S-75
PROSPECTUS
$300,000,000
[LOGO]
PENN NATIONAL GAMING, INC.
COMMON STOCK, PREFERRED STOCK AND
DEBT SECURITIES
------------------------
We may use this prospectus to offer and sell securities from time to time.
The types of securities we may sell include:
- common stock;
- preferred stock; and
- debt securities.
Certain of our shareholders also may offer and sell common stock under this
prospectus.
We will provide the specific terms of these securities in supplements to
this prospectus prepared in connection with each offering. The securities
offered will contain other significant terms and conditions. Any debt securities
we offer and sell may be guaranteed by our subsidiaries. Please read this
prospectus and the applicable prospectus supplement carefully before you invest.
Our common stock trades on The Nasdaq National Market under the symbol
"PENN." We have not yet determined whether any of the other securities offered
hereby will be listed on any exchange or over-the-counter market. If we decide
to seek listing of any such securities, a prospectus supplement relating thereto
will disclose such exchange or market.
INVESTING IN THESE SECURITIES INVOLVES RISKS. YOU SHOULD CAREFULLY REVIEW
THE INFORMATION THAT WILL BE CONTAINED IN THE PROSPECTUS SUPPLEMENT UNDER THE
HEADING "RISK FACTORS."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY, NOR HAVE
THEY DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 30, 2001.
TABLE OF CONTENTS
PAGE
--------
About This Prospectus....................................... i
Where You Can Find More Information......................... ii
Disclosure Regarding Forward-Looking Statements............. iii
The Company................................................. 1
Use of Proceeds............................................. 3
Ratio of Earnings to Fixed Charges.......................... 3
Description of Capital Stock................................ 4
Description of Debt Securities.............................. 10
Selling Shareholders........................................ 17
Plan of Distribution........................................ 18
Legal Matters............................................... 19
Experts..................................................... 19
------------------------
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, we may, from time to time, sell any combination of the
securities described in this prospectus in one or more offerings up to a total
dollar amount of $300,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement also may add, update
or change information contained in this prospectus. You should read this
prospectus and the applicable prospectus supplement together with the additional
information described below under the heading "Where You Can Find More
Information."
The registration statement that contains this prospectus (including the
exhibits) contains additional information about us and the securities offered by
this prospectus. Specifically, we have filed certain legal documents that
control the terms of the securities offered by this prospectus as exhibits to
the registration statement. We will file certain other legal documents that
control the terms of the securities offered by this prospectus as exhibits to
reports we file with the SEC. That registration statement and the other reports
can be read at the SEC web site or at the SEC offices mentioned under the
heading "Where You Can Find More Information."
You should rely only upon the information contained in, or incorporated
into, this document. We have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume the information appearing in this document is accurate only as of
the date on the front cover of this document. Our business, financial condition,
results of operations and prospects may have changed since that date.
i
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith we file reports
and other information. Such reports and other information may be inspected and
copied at the public reference rooms of the Securities and Exchange Commission
located at 450 Fifth Street, N.W., Washington, D.C. 20549 and regional offices
in New York, New York and Chicago, Illinois. Copies of such material can be
obtained from the Commission by mail at prescribed rates. Please call the
Commission at 1-800-SEC-0330 (1-800-732-0330) for further information on the
public reference rooms. In addition, the Commission maintains a website
(http://www.sec.gov) that contains such reports, proxy statements and other
information that we have filed. Information may be obtained from us at the
address specified below.
We have "incorporated by reference" into this prospectus certain information
that we file with the Commission. This means that we can disclose important
business, financial and other information in this prospectus by referring you to
the documents containing this information. All information incorporated by
reference is part of this prospectus, unless and until that information is
updated and superseded by the information contained in this prospectus or any
information filed with the Commission and incorporated later. Any information
that we subsequently file with the Securities and Exchange Commission that is
incorporated by reference will automatically update and supersede any previous
information that is part of this prospectus.
We incorporate by reference our documents listed below and any future
filings we make with the Securities and Exchange Commission under Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act until the time that we sell all
of the securities offered by this prospectus:
- Annual Report on Form 10-K/A for the fiscal year ended December 31, 2000;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001;
- Current Reports on Form 8-K, as amended, filed on October 20, 2000,
March 2, 2001, May 7, 2001 and June 8, 2001;
- The description of our common stock included in our registration statement
on Form 8-A as filed on May 26, 1994; and
- The description of our preferred share purchase rights included in our
registration statement on Form 8-A as filed on March 16, 1999.
We will provide without charge to each person to whom a copy of this
prospectus is delivered upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into the information that this prospectus incorporates). Requests should be
directed to:
Penn National Gaming, Inc.
828 Berkshire Boulevard, Suite 200
Wyomissing, PA 19610
Attention: Robert S. Ippolito
Telephone (610) 373-2400
ii
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents that are incorporated by reference herein,
include "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Exchange Act,
regarding, among other things, our business strategy, our prospects and our
financial position. These statements can be identified by the use of
forward-looking terminology such as "believes," "estimates," "expects,"
"intends," "may," "will," "should," or "anticipates" or the negative or other
variation of these or similar words, or by discussions of strategy or risks and
uncertainties. Specifically, forward-looking statements may include, among
others, statements concerning:
- projections of future results of operations or financial condition;
- our expectations for our properties and the facility that we manage in
Canada;
- the timing, cost and expected impact on our results of operations of our
planned capital expenditures;
- the expected effect of regulatory changes that we are pursuing; and
- expectations of the continued availability of capital resources.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, they are inherently subject to risks, uncertainties
and assumptions about us and our subsidiaries and, accordingly, we cannot assure
you that such expectations will prove to be correct. Important factors that
could cause actual results to differ materially from the forward-looking
statements include, without limitation, risks related to the following:
- our ability to fully integrate the full-scale casino operations of the
Mississippi and Louisiana properties and the managed Canadian facility
into our business;
- capital expansions at our gaming and pari-mutuel facilities;
- the activities of our competitors;
- our ability to maintain regulatory approvals for our existing businesses
and to receive regulatory approvals for our new businesses;
- our dependence on key personnel;
- the maintenance of agreements with our horsemen and pari-mutuel clerks;
- other risks and uncertainties described from time to time in our filings
with the Securities and Exchange Commission;
- the risk factors or uncertainties listed herein or listed from time to
time in prospectus supplements or any document incorporated by reference
herein or therein; and
- other risks and uncertainties that have not been identified at this time.
All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements included in this document. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
document may not occur.
iii
THE COMPANY
We are a diversified gaming and pari-mutuel wagering company with operations
in West Virginia, Mississippi, Louisiana, Pennsylvania and Ontario, Canada. On a
pro forma basis reflecting our Mississippi and CRC acquisitions completed in
2000 and 2001, respectively, our revenues and adjusted EBITDA would have been
$496.1 million and $112.9 million, respectively, for the year ended
December 31, 2000, and $133.3 million and $31.2 million, respectively, for the
three months ended March 31, 2001.
The following table sets forth certain features of our owned or leased
properties and our managed facility:
GAMING
SQUARE GAMING TABLE
PROPERTY LOCATION TYPE OF FACILITY FOOTAGE MACHINES GAMES
-------- ------------------ --------------------------- -------- -------- --------
OWNED OR LEASED:
Charles Town Entertainment Charles Town, WV Land-based gaming/ 58,000 1,974 --
Complex Thoroughbred racing
Casino Magic Bay St. Louis Bay St. Louis, MS Dockside gaming 39,500 1,158 38
Boomtown Biloxi Biloxi, MS Dockside gaming 33,600 1,060 27
Casino Rouge Baton Rouge, LA Cruising riverboat 28,000 980 42
Penn National Race Course Harrisburg, PA(1) Thoroughbred racing -- -- --
Pocono Downs Wilkes-Barre, Harness racing -- -- --
PA(1)
------- ----- ---
TOTALS 159,100 5,172 107
======= ===== ===
OPERATED:
Casino Rama Orillia, Ontario Land-based gaming 75,000 2,202 122
--------------------------
(1) In addition to our racetracks, Penn National Race Course and Pocono Downs
have six and five off-track wagering facilities, respectively, located
throughout Pennsylvania.
Our Charles Town Entertainment Complex in Charles Town, West Virginia
features 1,974 gaming machines, a thoroughbred racetrack, simulcast wagering,
entertainment and dining. The facility is located within easy driving distance
of Baltimore, Maryland and Washington, D.C. and is the leading gaming property
serving those areas. There is a total population of approximately 3.1 million
persons within a 50-mile radius, and approximately 10.0 million persons within a
100-mile radius of the Charles Town Entertainment Complex, of which
approximately 7.2 million persons are over the age of 20. We have experienced
strong growth at the facility and have increased the number of gaming machines
from 400 machines in September 1997 to 1,974 machines as of December 31, 2000.
We recently expanded the gaming area to nearly 60,000 square feet and opened a
150-seat restaurant and bar. In addition, since receiving regulatory approval
permitting the operation of reel-spinning, coin-out machines in April 1999, we
have increased the number of reel-spinning machines relative to the number of
paper ticket video lottery terminals, or VLTs. As a result of these initiatives,
our monthly gaming revenues at Charles Town have grown from approximately
$9.4 million in May 2000 to approximately $13.3 million in May 2001.
Our business strategy is focused on exploiting the higher margins and more
stable cash flows associated with gaming operations compared to pari-mutuel
operations. As part of this strategy, on August 8, 2000, we completed our
acquisition of the Casino Magic Bay St. Louis casino and the
1
Boomtown Biloxi casino from Pinnacle Entertainment, Inc. for an aggregate
purchase price of approximately $201.3 million. Both properties operate in the
Gulf Coast gaming market and are within easy driving distance of New Orleans,
Louisiana, Mobile, Alabama and other points in the Southeast. Casino Magic Bay
St. Louis in Bay St. Louis, Mississippi offers approximately 39,500 square feet
of gaming space, with approximately 1,158 slot machines and 38 table games, a
201-room hotel, an 1,800 seat arena, a recreational vehicle park and an 18-hole
Arnold Palmer-designed championship golf course. Boomtown Biloxi in Biloxi,
Mississippi, offers approximately 33,600 square feet of gaming space, with 1,060
slot machines, 27 table games and other gaming amenities including restaurants
and a 20,000 square foot entertainment center.
On April 27, 2001, we completed the acquisition by merger of CRC
Holdings, Inc., and the minority interest in Louisiana Casino Cruises, Inc.,
which we refer to as LCCI, not owned by CRC prior to our acquisition, for
approximately $181.3 million, including amounts required to repay existing debt.
Immediately prior to the closing, CRC divested itself of all of its non-gaming
assets. LCCI is the owner of Casino Rouge, the leading riverboat gaming facility
in Baton Rouge, Louisiana. Casino Rouge features a four-story riverboat casino
with approximately 28,000 square feet of gaming space, 980 gaming machines and
42 table games. In addition to the Casino Rouge property, a wholly owned
subsidiary of CRC operates Casino Rama, located on the lands of the Mnjikaning,
on behalf of the Ontario Lottery and Gaming Corporation, an agency of the
Province of Ontario. Casino Rama is a casino and full-service entertainment
facility located approximately 90 miles north of Toronto, Canada, with
approximately 75,000 square feet of gaming space, 2,202 gaming machines and 122
table games.
In addition to our gaming facilities, we own and operate Penn National Race
Course, located outside of Harrisburg, one of two thoroughbred racetracks in
Pennsylvania, and Pocono Downs, located outside of Wilkes-Barre, one of two
harness racetracks in Pennsylvania. We also operate eleven off-track wagering
facilities, or OTWs, in Pennsylvania and hold a 50% interest in Pennwood
Racing, Inc., a joint venture that owns and operates Freehold Raceway and
operated Garden State Park in New Jersey until May 2001.
------------------------
We are the successor to several businesses that have operated the Penn
National Race Course since 1972. We were incorporated in Pennsylvania in 1982 as
PNRC Corp. and adopted our present name in 1994. Our principal executive offices
are located in the Wyomissing Professional Center, 825 Berkshire Boulevard,
Suite 200, Wyomissing, Pennsylvania 19610; our telephone number is
(610) 373-2400.
2
USE OF PROCEEDS
Unless otherwise set forth in a prospectus supplement, we intend to use the
net proceeds of any securities sold for general corporate purposes, which may
include financing of capital expenditures, additions to working capital,
reductions of our indebtedness, potential acquisitions and the repurchase of our
common stock. Funds not immediately required for such purposes may be invested
in short-term investment grade securities.
We will not receive any proceeds from the sale of common stock by any
selling shareholders.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets for our ratio of earnings to fixed charges for the
periods indicated:
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------------------
2000 1999 1998 1997 1996 2001 2000
-------- -------- -------- -------- -------- ---- ----
Ratio of earnings to fixed
charges(1)........................... 2.1 1.8 2.3 2.2 11.7 1.7 2.3
------------------------
(1) In computing the ratio of earnings to fixed charges: (i) earnings were
calculated as the sum of income from continuing operations, before income
taxes and fixed charges, less capitalized interest; and (ii) fixed charges
were computed as the sum of interest expense, amortization of capitalized
debt costs and premium on debt, capitalized interest and the estimated
interest included in rental expense.
We completed our acquisitions of the Casino Magic Bay St. Louis and Boomtown
Biloxi casinos in August 2000 and the Casino Rouge casino and management
contract for the Casino Rama casino in April 2001. On a pro forma basis assuming
the completion of these acquisitions as of January 1, 2000, our ratio of
earnings to fixed charges would have been 1.6 and 1.7 for the year ended
December 31, 2000 and the three months ended March 31, 2001, respectively.
3
DESCRIPTION OF CAPITAL STOCK
The total number of shares of all classes of capital stock that we currently
have authority to issue is 201,000,000, consisting of 200,000,000 shares of
common stock, par value $.01 per share, and 1,000,000 shares of preferred stock,
par value $.01 per share.
As of May 31, 2001, there were approximately 15.5 million shares of common
stock outstanding held of record by 599 persons. Approximately 2.6 million
shares of common stock are reserved for issuance upon the exercise of
outstanding stock options. We have authorized and reserved for issuance 400,000
shares of preferred stock in connection with the preferred share purchase rights
plan described below.
In the discussion that follows, we have summarized selected provisions of
our articles of incorporation and our bylaws relating to our capital stock. You
should read our articles of incorporation and bylaws as currently in effect for
more details regarding the provisions we describe below and for other provisions
that may be important to you. We have filed copies of those documents with the
Commission, and they are filed with or incorporated by reference as exhibits to
this registration statement. Please read "Where You Can Find More Information."
COMMON STOCK
The holders of our common stock are entitled to one vote for each share held
of record on each matter submitted to a vote of shareholders and do not have
cumulative voting rights. Holders of common stock are entitled to receive
ratably those dividends, if any, as may be declared from time to time by the
Board of Directors, in its discretion, out of funds legally available therefor,
subject to any preferential dividend rights of outstanding preferred stock. In
the event of a liquidation, dissolution or winding up of Penn National, the
holders of our common stock are entitled to share ratably in all assets
remaining after the payment of all of our liabilities and subject to the
liquidation preferences of any outstanding preferred stock. Our common stock
does not carry preemptive rights, is not redeemable, does not have any
conversion rights, is not subject to further calls and is not subject to any
sinking fund provisions. The outstanding shares of common stock are and the
shares offered by us in this offering will be, when issued and paid for, fully
paid and nonassessable. Except in certain circumstances as discussed below under
"--Possible Antitakeover Effect of Certain Charter, Bylaw and Other Provisions,"
our common stock is not subject to discriminatory provisions based on ownership
thresholds.
The rights, preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of the Series A Preferred Stock, if issued, and any series of preferred
stock that we may designate and issue in the future. See "--Preferred Stock."
PREFERRED STOCK
Our articles of incorporation authorize the issuance of up to 1,000,000
shares of preferred stock. The Board of Directors is authorized, subject to any
limitations prescribed by law, to issue such shares of preferred stock in one or
more series, with such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be established by the Board of
Directors at the time of issuance. The Board of Directors has designated 400,000
shares of preferred stock as Series A Preferred Stock, par value $.01 per share,
for issuance in connection with the Preferred Share Purchase Rights Plan
described below.
The prospectus supplement relating to any series of preferred stock we may
offer will include specific terms relating to the offering. The description of
the terms of the preferred stock to be set forth in an applicable prospectus
supplement will not be complete and will be subject to and qualified by the
statement with respect to shares of the applicable series of preferred stock.
You should read that
4
document for provisions that may be important to you. We will include that
document as an exhibit to a filing with the Commission in connection with the
offering of preferred stock.
The authorized shares of preferred stock, as well as shares of common stock,
are available for issuance without further action by our shareholders, unless
shareholder action is required by the rules of any stock exchange or
over-the-counter market on which our securities are listed or traded. If the
approval of our shareholders is not required for the issuance of shares of
preferred stock or common stock, the Board of Directors may determine not to
seek shareholders approval.
The issuance of preferred stock by the Board of Directors could adversely
affect the rights of holders of common stock. For example, the issuance of
shares of preferred stock could result in securities outstanding that would have
preference over the common stock with respect to dividends and in liquidation
and that could (upon conversion or otherwise) enjoy all of the rights of the
common stock.
The authority possessed by the Board of Directors to issue preferred stock
could potentially be used to discourage attempts by third persons to obtain
control of the Company through merger, tender offer, proxy or consent
solicitation or otherwise, by making such attempts more difficult to achieve or
more costly. The Board of Directors may issue preferred stock with voting rights
that could adversely affect the voting power of holders of our common stock. See
"--Possible Antitakeover Effect of Certain Charter, Bylaw and Other Provisions."
PREFERRED SHARE PURCHASE RIGHTS
Our preferred share purchase rights plan is currently associated with each
outstanding share of our common stock. Each of these rights entitles the
registered holder to purchase from us one-hundredth of a share of our Series A
preferred stock or a combination of securities and assets of equivalent value,
at a purchase price of $40.00 per one-hundredth of a share, subject to
adjustment.
These rights are exercisable only upon the first to occur of the following
events:
- the close of business on the third business day following a public
announcement that a person or group has acquired or obtained 15% or more
of our outstanding common stock;
- the close of business on the tenth business day following the commencement
of a tender offer that would result in a person or group owning 20% or
more of our outstanding common stock; or
- the close of business on the tenth business day after a determination by
at least a majority of members of our Board of Directors whom have been
members prior to May 2, 1999 (referred to herein as Continuing Directors)
that any person or group, alone or together with its affiliates, has
become the holder of a substantial amount of our common stock:
(i) and such ownership is intended to cause Penn National to repurchase
the common stock owned by such person or group or to cause pressure
on Penn National to take action or enter into a transaction or
series of transactions intended to provide such person or group with
short-term financial gain under circumstances where at least a
majority of the Continuing Directors determines that the best
long-term interests of Penn National and our shareholders would not
be served by taking such action or entering into such transaction or
series of transactions at that time, or
(ii) and such ownership is causing or reasonably likely to cause a
material adverse impact (including, but not limited to, impairment
of relationships with customers or impairment of our ability to
maintain our competitive position) on our business or prospects.
5
Upon the first to occur of the above events, the preferred purchase rights
will separate and be distributed to each registered holder of our common stock.
The rights will expire on March 18, 2009, unless earlier redeemed or exchanged
as provided in the preferred share purchase rights plan.
Based on the approximately 15.5 million shares of common stock outstanding
as of May 31, 2001, the outstanding rights could be exercisable for up to
approximately 155,000 shares of preferred stock. Our articles of incorporation
authorize the issuance of 1,000,000 shares of preferred stock. Based on the
200,000,000 shares of common stock that we are authorized to issue, we could
issue up to 100,000,000 shares of common stock and still reserve sufficient
preferred stock to cover the exercise of outstanding rights. However, any shares
of preferred stock issued in transactions registered under this shelf
registration statement or otherwise would reduce the number of preferred stock
shares available for issuance under the preferred share purchase rights plan.
Fewer available preferred stock shares would reduce the maximum number of common
stock shares that we could issue while still reserving the shares of preferred
stock necessary under the preferred share purchase rights plan.
The rights will have anti-takeover effects. The rights could cause
substantial dilution to a person or group that attempts to acquire us and effect
a change in the composition of our Board of Directors on terms not approved by
the Board of Directors, including by means of a tender offer at a premium to the
market price. The rights should not interfere with any merger or business
combination approved by the Board of Directors because we may redeem the rights
at the redemption price prior to the time that person has become an acquiring
person.
POSSIBLE ANTITAKEOVER EFFECT OF CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
Our articles of incorporation, as amended, and bylaws provide that the Board
of Directors is to consist of three classes of directors, each comprised as
nearly as practicable of one-third of the Board, and that one-third of the Board
is to be elected each year. At each annual meeting, only directors of the class
whose term is expiring are voted upon, and upon election each such director
serves a three-year term. Our articles of incorporation provide that a director
may be removed with or without cause only by the affirmative vote of the holders
of 75% of the voting power of all shares of our capital stock entitled to vote
generally in the election of directors, voting as a single class; our bylaws
provide that a director may only be removed without cause by written consent of
the shareholders and not at a meeting.
Our articles of incorporation provide that shareholder-proposed nominations
for election of directors and shareholder-proposed business at meetings of
shareholders is subject to the advance notice requirements contained in the
bylaws, which may be amended by the directors.
The provisions of our articles of incorporation with respect to
classification of the Board of Directors and shareholder approval of the removal
of directors with or without cause may not be altered, amended or repealed
without the affirmative vote of the holders of at least 75% of the voting power
of all shares of our capital stock entitled to vote generally in the election of
directors, voting as a single class.
The Pennsylvania Business Corporation Law, or BCL, contains a number of
interrelated provisions that are designed to support the validity of actions
taken by the Board of Directors in response to takeover bids, including
specifically the Board's authority to "accept, reject or take no action" with
respect to a takeover bid, and permitting the unfavorable disparate treatment of
a takeover bidder. One provision requires that mergers with or sales of assets
to an "interested shareholder" (which includes a shareholder who is a party to
the proposed transaction) be approved by a majority of voting shares
outstanding, other than those held by the interested shareholder, unless, prior
to the date on which the interested shareholder became an interested
shareholder, the transaction has been approved by a majority of the
corporation's directors who are not affiliated with the interested shareholder,
or the transaction results in the payment to all other shareholders of an amount
not less than the highest amount paid for shares by the interested shareholder.
Another provision of the BCL gives the directors
6
broad discretion in considering the best interests of the corporation, including
a provision that permits the Board, in taking any action, to consider various
corporate interests, including employees, suppliers, clients and communities in
which the corporation is located, the short and long-term interests of the
corporation, and the resources, intent and conduct of any person seeking to
acquire control of the corporation. Another provision prohibits, subject to
certain exceptions, a "business combination" with a shareholder or group of
shareholders beneficially owning more than 20% of the voting power of a public
corporation (excluding certain shares) for a five-year period following the date
on which the holder became an interested shareholder.
The effect of the BCL's antitakeover provisions may be to deter unsolicited
takeover attempts or other attempts to accumulate our stock. This may promote
stability in our business, management and control, and in the price of our
capital stock. However, by discouraging open market accumulation of our capital
stock and non-solicited, non-negotiated takeover attempts, shareholders may be
disadvantaged by foregoing the opportunity to participate in such transactions,
which may be in excess of the prevailing market price for our capital stock. In
addition, while the antitakeover provisions may encourage a party considering
accumulating stock in or acquiring Penn National to negotiate with the Board,
and place the Board in a better position to defend against actions it believes
not to be in the best interests of Penn National and its shareholders, the
provisions may also make it more difficult to accomplish a transaction requiring
shareholder approval if the Board disapproves (even if the shareholders may be
in favor of such a transaction).
The restrictions imposed by gaming and regulatory authorities to which we
are subject on share ownership and transfer may also discourage or make it more
difficult for a party to accumulate stock in or acquire us, as many of these
entities have broad discretion in approving our activities and approving our
shareholders. See "--Certain Restrictions on Share Ownership and Transfer."
POSSIBLE ANTITAKEOVER EFFECTS STEMMING FROM CONCENTRATED SHAREHOLDER BASE
Peter M. Carlino, our Chairman of the Board and Chief Executive Officer, by
virtue of his ability to vote the shares of common stock held by him and the
Carlino Family Trust, may be able significantly to influence the election of
directors and our business and affairs. The trustees of the Carlino Family
Trust, by virtue of their ability to vote the shares of common stock held in the
Carlino Family Trust in certain circumstances, may be able to significantly
influence the approval or disapproval of the sale of all or substantially all of
our assets or a merger, consolidation or liquidation. In addition, in the event
the Carlino Family Trust proposes to sell common stock representing more than 3%
of our outstanding common stock, Peter M. Carlino and other Carlino siblings
have the right to acquire such common stock on the price and terms proposed.
Peter M. Carlino's control position and certain other provisions of the Carlino
Family Trust could deter unsolicited takeover attempts to the same or greater
extent than any provisions of the BCL or applicable gaming and racing
regulations.
CERTAIN RESTRICTIONS ON OWNERSHIP AND TRANSFER OF OUR SECURITIES
We are subject to federal, state and local regulations that relate to our
current live racing, pari-mutuel, gaming machine and casino operations, and that
impose certain restrictions on the ownership and transfer of our securities. The
following description of the regulatory environment regarding restrictions on
ownership and transfer of our securities is only a summary and not a complete
recitation of all applicable regulatory laws. Moreover, ownership and transfer
of our securities could be subjected at any time to additional or more
restrictive regulations, including regulation in applicable jurisdictions where
there are no current restrictions on the ownership and transfer of our
securities.
7
WEST VIRGINIA
The West Virginia Racetrack Video Lottery Act provides that the transfer of
more than 5% of the voting stock of a corporation that holds a gaming machine
license, or that controls another entity that holds such a license, or the
transfer of the assets of a license holder may only be to persons who have met
the licensing requirements of the West Virginia Racetrack 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. If
the number of shares that we intend to issue pursuant to a particular offering
under this registration statement exceeds 5% of our outstanding voting stock at
the time of such offering, we may be required to seek approval by the West
Virginia Lottery Commission and the West Virginia Racing Commission. The
issuance of preferred stock and debt securities pursuant to this prospectus and
any prospectus supplement also may be subject to the approval of the West
Virginia Lottery Commission and the West Virginia Racing Commission.
MISSISSIPPI
Mississippi statutes and regulations give the Mississippi Gaming Commission
the discretion to require a suitability finding with respect to anyone who
acquires any of our securities, regardless of the percentage of ownership. The
current policy of the Mississippi Gaming Commission is to require anyone
acquiring 5% or more of any voting securities of a public company with a
licensed subsidiary or private company licensee to be found suitable. However,
the Mississippi Gaming Commission generally permits certain "institutional"
investors to beneficially own up to 15% of the voting securities of a registered
public company without a finding of suitability. If the owner of voting
securities who is required to be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any owner of voting securities found unsuitable and who holds, directly or
indirectly, any beneficial ownership of our equity interests beyond such period
of time as may be prescribed by the Mississippi Gaming Commission may be guilty
of a misdemeanor. Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days of being ordered to do so by the
Mississippi Gaming Commission may be found unsuitable. We are subject to
disciplinary action if we, after receiving notice that a person is unsuitable to
be an owner of or to have any other relationship with us, (1) pay the unsuitable
person any dividends or interest upon any of our securities or any payments or
distribution of any kind whatsoever, (2) recognize the exercise, directly or
indirectly, of any voting rights of our securities by the unsuitable person, or
(3) pay the unsuitable person any remuneration in any form for services rendered
or otherwise, except in certain limited and specific circumstances. In addition,
if the Mississippi Gaming Commission finds any owner of voting securities
unsuitable, such owner must immediately surrender all securities to us, and we
must purchase the securities so offered for cash at fair market value within
10 days.
We will be required to maintain current ownership ledgers in the State of
Mississippi that may be examined by the Mississippi Gaming Commission at any
time. If any securities are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Mississippi Gaming Commission. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. We are also required to render
maximum assistance in determining the identity of the beneficial owner. We may
be required to disclose to the Mississippi Gaming Commission, upon request, the
identities of the holders of certain of our indebtedness. In addition, the
Mississippi Gaming Commission under the Mississippi Act may, in its discretion,
(1) require holders of debt securities, including the debt securities that may
be issued under this prospectus and any prospectus supplement, to file
applications, (2) investigate such holders, and (3) require such holders to be
found suitable to own such debt securities. Although the Mississippi Gaming
Commission generally does not require the individual holders of obligations to
be investigated
8
and found suitable, the Mississippi Gaming Commission retains the discretion to
do so for any reason, including but not limited to a default, or where the
holder of the debt instrument exercises a material influence over the gaming
operations of the entity in question. Any holder of the debt securities required
to apply for a finding of suitability must pay all investigative fees and costs
of the Mississippi Gaming Commission in connection with such an investigation.
The regulations provide that we may not engage in any transaction that would
result in a change of our control without the prior approval of the Mississippi
Gaming Commission. Mississippi law prohibits us from making a public offering or
private placement of our securities without the approval of or waiver of
approval by the Mississippi Gaming Commission if any part of the proceeds of the
offering is to be used to finance the construction, acquisition or operation of
gaming facilities in Mississippi, or to retire or extend obligations incurred
for one or more of such purposes. The Mississippi Gaming Commission has the
authority to grant a continuous approval of securities offerings and has granted
us such approval, subject to an annual renewal.
Regulations of the Mississippi Gaming Commission prohibit certain
repurchases of securities of publicly traded corporations registered with the
Mississippi Gaming Commission without prior approval of the Mississippi Gaming
Commission. Transactions covered by these regulations are generally aimed at
discouraging repurchases of securities at a premium over market price from
certain holders of greater than 3% of the outstanding securities of the
registered publicly traded corporation. The regulations of the Mississippi
Gaming Commission also require prior approval for a "plan of recapitalization"
as defined in such regulations.
The Mississippi Act requires that certificates representing our securities
bear a legend to the general effect that the securities are subject to the
Mississippi Act and regulations of the Mississippi Gaming Commission. The
Mississippi Gaming Commission through the power to regulate licensees, has the
power to impose additional restrictions on the holders of our securities at any
time.
LOUISIANA
We are subject to regulation by the State of Louisiana as a result of our
ownership of LCCI, the operator of the Casino Rouge riverboat. Certain
regulations imposed by the Louisiana Riverboat Economic Development and Gaming
Control Act or rules adopted pursuant thereto require that owners holding
greater than a 5% interest in LCCI must be found suitable by the Louisiana
Gaming Control Board.
PENNSYLVANIA
Our horse racing operations at Penn National Race Course and Pocono Downs
are subject to extensive regulation under the Pennsylvania Racing Act. The
Pennsylvania Racing Act requires that any shareholder proposing to transfer
beneficial ownership of 5% or more of our shares file an affidavit with us
setting forth certain information about the proposed transfer and transferee, a
copy of which we are required to furnish to the Pennsylvania Racing Commissions.
The certificates representing our 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 a company to dispose
of his common stock of such company if it determines that continued ownership
would be inconsistent with the public interest, convenience or necessity or the
best interest of racing generally.
9
DESCRIPTION OF DEBT SECURITIES
The following provides a general description of the terms of the debt
securities that we may issue. The particular terms of any debt securities
offered by any prospectus supplement and the extent, if any, to which the
general provisions set forth below may not apply will be described in the
prospectus supplement relating to those debt securities.
We filed a form of indenture as an exhibit to the registration statement of
which this prospectus is a part. The debt securities will be issued under one or
more indentures, each dated as of a date on or before the issuance of the debt
securities to which it relates and in the form filed, subject to any amendments
or supplements as we may adopt from time to time. Each indenture will be entered
into between us, as obligor, a trustee chosen by us and qualified to act as a
trustee under the Trust Indenture Act of 1939, and any of our subsidiaries which
guarantee our obligations under the indenture. You should read the indenture
because it, and not this description, will control your rights as a holder of
debt securities. The terms of the indenture are also governed by the Trust
Indenture Act.
GENERAL
The debt securities will be our direct obligations, which will be unsecured,
rank subordinate to our credit facilities, of which approximately
$308.9 million was outstanding on March 31, 2001 and may rank subordinate to,
equally with or senior to our other indebtedness, including our senior
subordinated notes due 2008, of which $200 million was outstanding on March 31,
2000. The indenture provides that unsecured subordinated debt securities may be
issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time in or pursuant to authority granted
by a resolution from our board of directors or as established in one or more
indentures supplemental to the indenture. All debt securities of one series do
not need to be issued at the same time. Additionally, unless otherwise provided,
a series may be reopened, without the consent of the holders of the debt
securities of such series, for issuances of additional debt securities of such
series.
TERMS OF THE DEBT SECURITIES
You should refer to the prospectus supplement for some or all of the
following terms of each series of the debt securities in respect of which this
prospectus is being delivered:
- the designation, aggregate principal amount and authorized denominations
of the series;
- the issue price as a percentage of the principal amount at which the
series will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity or upon redemption thereof and the rate or
rates at which original issue discount will accrue;
- the date or dates on which the series will mature;
- the rate or rates per annum, if any, at which the series will bear
interest;
- the times from which any interest will accrue, be payable and the record
dates pertaining thereto;
- the place or places where the principal and interest, if any, on the
series will be payable;
- any redemption or other special terms;
- the events of default and covenants relating to the debt securities which
are in addition to, modify or delete those described herein;
10
- whether the debt securities will be issued in certificated or book-entry
form, and the denominations thereof;
- if applicable, the terms of any right to convert debt securities into
shares of our common stock or other securities or property;
- provisions, if any, for the defeasance or discharge of certain of our
obligations with respect to such debt securities, which provisions may be
in addition to, in substitution for, or in modification of (or any
combination of the foregoing), the provisions of the indenture;
- the manner in which the amounts of payment of principal of, premium, if
any, or any interest on such debt securities will be determined, if such
amounts may be determined by reference to an index based on a currency or
currencies other than that in which such debt securities are denominated
or designated to be payable or by reference to a commodity, commodity
index, stock exchange index or financial index;
- a discussion of any material and/or special United States federal income
tax considerations applicable to such debt securities;
- any depositaries, trustees, interest rate calculation agents, exchange
rate calculation agents or other agents with respect to the debt
securities other than those originally appointed;
- whether such debt securities will be issued in the form of one or more
global securities and whether such global securities are to be issuable in
a temporary global form or permanent global form;
- the terms, if any, on which such debt securities will be subordinate to
other debt;
- any listing or intended listing of the debt securities on a securities
exchange;
- the provisions, if any, relating to any guarantees of the debt securities;
and
- any other terms of the debt securities, which will not be inconsistent
with the provisions of the indenture.
Our debt securities may be sold at a discount below their principal amount.
Even if our debt securities are not issued at a discount below their principal
amount, these securities may, for United States federal income tax purposes, be
deemed to have been issued with original issue discount because of certain
interest payment or other characteristics. Special United States federal income
tax considerations applicable to debt securities issued with original issue
discount will be described in more detail in any applicable prospectus
supplement. In addition, special United States federal tax considerations or
other restrictions or terms applicable to any debt securities offered
exclusively to foreigners or denominated in a currency other than United States
dollars will also be set forth in the prospectus supplement, if applicable.
INFORMATION ABOUT THE TRUSTEE
Our indenture provides that there may be more than one trustee, each with
respect to one or more series of debt securities. Any trustee under our
indenture may resign at any time or be removed with respect to one or more
series of debt securities, and a successor trustee may be appointed to act with
respect to such series. If two or more persons are acting as trustees with
respect to different series of debt securities, each trust shall be separate and
apart from the trust administered by any other trustee. Except as indicated in
this prospectus or any prospectus supplement, any action to be taken by the
trustee may be taken only with respect to the one or more series of debt
securities for which it is trustee under the indenture.
11
MERGER, CONSOLIDATION OR SALE OF ASSETS
Our indenture does not allow us to consolidate or merge with or into, or
sell, assign, convey, transfer or lease our properties and assets, substantially
in their entirety, as computed on a consolidated basis, to another corporation,
person or entity unless:
- either we are the surviving person, in the case of a merger or
consolidation, or the successor or transferee is a corporation organized
under the laws of the United States, or any state thereof or the District
of Columbia and the successor or transferee corporation expressly assumes,
by supplemental indenture, all of our obligations under the debt
securities and the indenture; and
- no default or event of default exists immediately after such transaction.
DENOMINATIONS
Unless we specify in the prospectus supplement, the debt securities of any
series will be issuable only as debt securities in denominations of $1,000, and
any integral multiples thereof, and will be payable only in U.S. dollars. The
indenture also provides that debt securities of a series may be issuable in
global form. See "Global Securities" below.
REGISTRATION AND TRANSFER
If you surrender for transfer your registered debt securities at the office
or agency we maintain for such purpose, we will deliver, in the name you have
designated as transferee, one or more new debt securities of the same series of
like aggregate principal amount in such denominations as are authorized for debt
securities of such series and of a like maturity and with like terms and
conditions. You will not incur a service charge for any transfer or exchange of
debt securities, but we may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection with the transfer or
exchange.
We will not be required to:
- register, transfer or exchange debt securities of any series during a
period beginning with the opening of business 15 days before the day of
the transmission of a notice of redemption of debt securities of such
series selected for redemption, and ending at the close of business on the
day of the transmission; or
- register, transfer or exchange any debt security so selected for
redemption in whole or in part, except the unredeemed portion of any debt
security being redeemed in part.
EVENTS OF DEFAULT
Unless we inform you otherwise in the prospectus supplement, events of
default means any of the following:
- default in the payment of any interest upon any debt security of that
series when it becomes due and payable, and continuance of such default
for a period of 30 days;
- default in the payment of principal of or premium, if any, on any debt
security of that series when due;
- if applicable, default in the deposit of any sinking fund payment, when
and as due in respect of any debt security of that series;
- default in the performance, or breach, of any covenants or warranties in
the indenture if the default continues uncured for a period of 60 days
after written notice to us by the applicable trustee or to us and the
applicable trustee by the holders of at least 25% in principal amount of
the outstanding debt securities of that series as provided in the
indenture; and
- certain events of bankruptcy, insolvency or reorganization.
12
If an event of default for any series of debt securities, which are at that
time outstanding, occurs and continues, then the applicable trustee or the
holders of not less than 25% in principal amount of the outstanding debt
securities of that series may, by a notice in writing to us, and to the
applicable trustee if given by the holders, declare to be due and payable
immediately the principal, or, if the debt securities of that series are
discount securities, such portion of the principal amount as may be specified in
the terms of that series and premium, if any, of all debt securities of that
series.
At any time after a declaration of acceleration with respect to debt
securities of any series has been made, but before a judgment or decree for
payment of the money due has been obtained by the applicable trustee, the
holders of a majority in principal amount of the outstanding debt securities of
that series may, subject to our having paid or deposited with the trustee a sum
sufficient to pay overdue interest and principal which has become due other than
by acceleration and certain other conditions, rescind and annul such
acceleration if all events of default, other than the non-payment of accelerated
principal and premium, if any, with respect to debt securities of that series,
have been cured or waived as provided in the indenture. For information as to
waiver of defaults see the discussion set forth below under "Modification and
Waiver."
You should refer to our prospectus supplement with regard to any series of
debt securities that are discount securities for the particular provisions
relating to acceleration of a portion of the principal amount of such discount
securities upon the occurrence and continuation of an event of default.
The indenture provides that the trustee is not obligated to exercise any of
its rights or powers under the indenture at the request of any holder of
outstanding debt securities, unless the trustee receives indemnity satisfactory
to it against any loss, liability or expense. Subject to certain rights of the
trustee, the holders of a majority in principal amount of the outstanding debt
securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee with respect to the debt
securities of that series.
No holder of any debt security of any series will have any right to
institute any proceeding, judicial or otherwise with respect to the indenture or
for the appointment of a receiver or trustee, or for any remedy under the
indenture, unless such holder shall have previously given to the applicable
trustee written notice of a continuing event of default with respect to debt
securities of that series and the holders of at least 25% in principal amount of
the outstanding debt securities of that series shall have made written request,
and offered reasonable indemnity, to such trustee to institute such proceeding
as trustee, and the trustee shall not have received from the holders of a
majority in principal amount of the outstanding debt securities of that series
direction inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, the holder of any debt security will have an
absolute and unconditional right to receive payment of the principal of,
premium, if any, and any interest on such debt security on or after the due
dates expressed in such debt security and to institute suit for the enforcement
of any such payment.
We are required by the indenture, within 120 days after the end of each
fiscal year, to furnish to the trustee a statement as to compliance with the
indenture. The indenture provides that the trustee with respect to any series of
debt securities may withhold notice to the holders of debt securities of such
series of any default or event of default (except a default in payment on any
debt securities of such series) with respect to debt securities of such series
if and so long as a committee of its trust officers, in good faith, determines
that withholding such notice is in the interest of the holders of debt
securities of such series.
13
MODIFICATION AND WAIVER
We and the applicable trustee, at any time and from time to time, may modify
the indenture without prior notice to or consent of any holder of any series of
debt securities for any of the following purposes:
- to permit a successor corporation to assume our covenants and obligations
under the indenture and in such series of debt securities in accordance
with the terms of the indenture;
- to add to our covenants for the benefit of the holders of any series of
debt securities (and if the covenants are to be for the benefit of less
than all the series, we shall state that the covenants are expressly being
included solely for the benefit of the applicable series);
- to surrender any of our rights or powers conferred in the indenture;
- to add any additional events of default (and if the events of default are
to be applicable to less than all series, we shall state that the events
of default are expressly being included solely for the benefit of the
applicable series);
- to add to, change or eliminate any of the provisions of the indenture in a
manner that will become effective only when there is no outstanding debt
security which is entitled to the benefit of the provision and as to which
the modification would apply;
- to secure a series of debt securities or to provide that our obligations
under a series of debt securities or the indenture will be guaranteed and
the terms and conditions for the release or substitution of the security
or guarantee;
- to supplement any of the provisions of the indenture to the extent needed
to permit or facilitate the defeasance and discharge of a series of debt
securities in a manner that will not adversely affect the interests of the
holders of debt securities of that series or any other series of debt
securities issued under the indenture in any material respect;
- to establish the form or terms of debt securities as permitted by the
indenture;
- to provide for the acceptance of appointment by a successor trustee
regarding one or more series of debt securities and to add to or change
any of the provisions of the indenture as is necessary to provide for the
administration of the trusts by more than one trustee;
- to comply with the requirements of the Securities and Exchange Commission
in connection with qualification of the indenture under the Trust
Indenture Act;
- to cure any ambiguity;
- to correct or supplement any provision in the indenture which may be
defective or inconsistent with any other provision in the indenture;
- to eliminate any conflict between the terms of the indenture and the debt
securities and the Trust Indenture Act; or
- to make any other provisions with respect to matters or questions arising
under the indenture which will not be inconsistent with any provision of
the indenture as long as the new provisions do not adversely affect in any
material respect the interests of the holders of any outstanding debt
securities of any series created prior to the modification.
We may also modify the indenture for any other purpose if we receive the
written consent of the holders of not less than a majority in principal amount
of the outstanding debt securities of each series affected by such modification
voting separately. However, we may not, without the consent of the holder of
each outstanding debt security of each series affected:
- change the stated maturity or reduce the principal amount or the rate of
interest, or extend the time for payment of interest of any debt security
or any premium payable upon the redemption of any debt security, or change
the stated maturity of, or reduce the amount of the principal of a
14
discount security that would be due and payable upon a declaration of
acceleration of the maturity of a discount security or impair the right to
institute suit for the enforcement of any payment on or after the due date
thereof (including, in the case of redemption, on or after the redemption
date), or alter any redemption provisions in a manner adverse to the
holders of such series of debt securities;
- reduce the percentage in principal amount of the outstanding debt
securities of a series where the consent of the holder is required for any
such amendment, supplemental indenture or waiver which is provided for in
the indenture;
- if applicable, adversely affect the right of a holder to convert any debt
security;
- modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the indenture
cannot be modified or waived without the consent of the holder of each
outstanding debt security which would be affected; or
- modify any provision described in the prospectus supplement as requiring
the consent of each affected holder of debt securities.
A modification that changes or eliminates any covenant or other provision of
the indenture with respect to one or more particular series of debt securities,
or that modifies the rights of the holders of debt securities of a series with
respect to such covenant or other provision, shall be deemed not to affect the
rights under the indenture of the holders of debt securities of any other
series.
The indenture provides that the holders of not less than a majority in
aggregate principal amount of the then outstanding debt securities of any
series, by notice to the relevant trustee, may on behalf of the holders of the
debt securities of such series waive any default and its consequences under the
indenture, except (1) a continuing default in the payment of interest on,
premium, if any, or the principal of, any such debt security held by a
nonconsenting holder or (2) a default in respect of a covenant or provision
hereof which cannot be modified or amended without the consent of the holder of
each outstanding debt security of each series affected.
DEFEASANCE OF DEBT SECURITIES OR CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
DEFEASANCE AND DISCHARGE. The indenture provides that we may be discharged
from any and all obligations under any debt securities other than:
- certain obligations to pay additional amounts, if any, upon the occurrence
of certain tax, assessment or governmental charge events regarding
payments on debt securities;
- to register the transfer or exchange of debt securities;
- to replace stolen, lost or mutilated debt securities; or
- to maintain paying agencies and to hold money for payment in trust.
We may only defease and discharge all of our obligations under the debt
securities of any series if:
- we irrevocably deposit with the trustee, in trust, the amount, as
certified by an officers' certificate, of money and/or U.S. government
obligations that, through the payment of interest and principal in respect
thereof in accordance with their terms, will be sufficient to pay and
discharge each installment of principal and premium, if any and any
interest on, and any mandatory sinking fund payments in respect of, the
debt securities of such series on the dates such payments are due; and
- we deliver to the trustee an opinion of counsel or a ruling from the
United States Internal Revenue Service, in either case to the effect that
holders of the debt securities of such series will not recognize income,
gain or loss for United States federal income tax purposes as a result of
such deposit, defeasance and discharge.
15
DEFEASANCE OF CERTAIN COVENANTS. Upon compliance with certain conditions,
we may omit to comply with certain restrictive covenants contained in the
indenture or in the applicable prospectus supplement or any other restrictive
covenant relating to any series of debt securities provided for in a board
resolution or supplemental indenture which by its terms may be defeased pursuant
to the terms of such series of debt securities. Any omission to comply with our
obligations or covenants shall not constitute a default or event of default with
respect to any debt securities. In that event, you would lose the protection of
these covenants, but would gain the protection of having money and/or U.S.
government obligations set aside in trust to repay the series of debt
securities. We may only defease any covenants if, among other requirements:
- we deposit with the trustee money and/or U.S. government obligations that,
through the payment of interest and principal in respect to such
obligations, in accordance with their terms, will provide money in an
amount, as certified by an officers' certificate, sufficient to pay
principal, premium, if any, and any interest on and any mandatory sinking
fund payments in respect of the debt securities of such series on the
dates such payments are due; and
- we deliver to the trustee an opinion of counsel or a ruling from the
United States Internal Revenue Service to the effect that the holders of
the debt securities of such series will not recognize income, gain or
loss, for United States federal income tax purposes, as a result of the
covenant defeasance.
LIMITED LIABILITY OF CERTAIN PERSONS
The indenture provides that none of our past, present or future
stockholders, incorporators, employees, officers or directors, or of any
successor corporation or any of our affiliates shall have any personal liability
in respect of our obligations under the indenture or the debt securities by
reason of his, her or its status as such stockholder, incorporator, employee,
officer or director.
MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
The indenture provides that each holder and beneficial owner, by accepting
any of the debt securities subject thereto, shall be deemed to have agreed that
if the gaming authority of any jurisdiction of which we or any of our
subsidiaries conducts or proposes to conduct gaming, requires that a person who
is a holder or the beneficial owner of the debt securities be licensed,
qualified or found suitable under applicable gaming laws, such holder or
beneficial owner, as the case may be, shall apply for a license, qualification
or a finding of suitability within the required time period. If such person
fails to apply or become licensed or qualified or is found unsuitable, we shall
have the right, at our option:
- to require such person to dispose of its debt securities or beneficial
interest therein within 30 days of receipt of notice of our election or
such earlier date as may be requested or prescribed by such gaming
authority; or
- to redeem such debt securities at a redemption price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
earlier of the redemption date or the date of the finding of
unsuitability, which may be less than 30 days following the notice of
redemption if so requested or prescribed by the applicable gaming
authority or such lesser amount as may be required by applicable law or by
order of any gaming authority.
We shall notify the trustee in writing of any such redemption as soon as
practicable. We shall not be responsible for any costs or expenses any such
holder may incur in connection with its application for a license, qualification
or a finding of suitability.
16
CONVERSION RIGHTS
The terms and conditions, if any, upon which the debt securities are
convertible into common stock or other securities or property will be set forth
in the applicable prospectus supplement. Such terms will include the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at our option or at the option of the holders, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such debt securities.
GUARANTEE
The indenture provides that one or more of our subsidiaries may be a
guarantor and may "guarantee" the performance and punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all of our
obligations under the debt securities of any series and the indenture. The
liability of the guarantors will be independent of and not in consideration of
or contingent upon our liability or any other party obligated under the debt
securities or the indenture. A separate action or actions may be brought or
prosecuted against us or any other party obligated under the debt securities or
the indenture whether or not we or any other party obligated under the debt
securities or the indenture are joined in any such action or actions. However,
any guarantee will be limited to an amount not to exceed the maximum amount that
can be guaranteed by the guarantor without rendering the guarantee, as it
relates to such guarantor, original issue discountable under Section 548 of the
Federal Bankruptcy Code or any applicable provision of comparable state law.
This guarantee will be a continuing guarantee and will remain in full force and
effect until payment in full of all of the guaranteed obligations.
PAYMENT AND PAYING AGENTS
We covenant and agree, for the benefit of each series of debt securities,
that we will duly and punctually pay the principal of, premium, if any, and any
interest on the debt securities in accordance with the terms of the debt
securities and the indenture. We will maintain an office or agency where debt
securities of that series may be presented or surrendered for payment, where
debt securities of that series may be surrendered for registration of transfer
or exchange and where notices and demands to or upon us in respect of the debt
securities of that series and the indenture may be served.
GLOBAL SECURITIES
The debt securities of any series may be issued in whole or in part in the
form of one or more global securities that will be deposited with, or on behalf
of, a depositary identified in the applicable prospectus supplement relating to
such series. Global securities will be in registered form and may be issued in
either temporary or permanent form. The specific terms of the depositary
arrangement regarding a series of debt securities will be described in the
applicable prospectus supplement relating to such series.
SELLING SHAREHOLDERS
Certain of our shareholders may offer and sell shares of common stock
pursuant to this prospectus. We will identify any selling shareholders in a
prospectus supplement, along with other information about their ownership
holdings both before and after such sale.
17
PLAN OF DISTRIBUTION
We and, with respect to a portion of the common stock offered hereby, the
selling shareholders may sell the offered securities as follows:
- directly to one or more purchasers;
- through agents;
- to and through one or more dealers;
- to and through one or more underwriters; or
- through a combination of any such methods of sale.
The distribution of the offered securities pursuant to any applicable
prospectus supplement may be effected from time to time in one or more
transactions either:
- at a fixed price or prices which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to such prevailing market prices; or
- at negotiated prices.
Offers to purchase the offered securities may be solicited directly by us.
Offers to purchase may also be solicited by agents designated by us from time to
time. Any such agent, who may be deemed to be an "underwriter" as that term is
defined in the Securities Act, involved in the offer or sale of the offered
securities in respect of which this prospectus is delivered will be named, and
any commissions which shall be payable by us to such agent will be set forth, in
the applicable prospectus supplement.
If a dealer is utilized in the sale of the offered securities, we will sell
the securities to the dealer, as principal. The dealer, who may be deemed to be
an "underwriter" as that term is defined in the Securities Act, may then resell
the securities to the public at varying prices to be determined by such dealer
at the time of resale.
If an underwriter is, or underwriters are, utilized in the sale of the
offered securities, we will execute an underwriting agreement with such
underwriters at the time of such sale to them and the names of the underwriters
will be set forth in the applicable prospectus supplement, which will be used by
the underwriters to make resales of the offered securities. In connection with
the sale of offered securities, such underwriters may be deemed to have received
compensation from us in the form of underwriting discounts or commissions and
may also receive commissions from purchasers of debt securities and common stock
for whom they may act as agents. Underwriters may sell offered securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents. Any underwriting
compensation paid by us to underwriters in connection with the offering of
securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
prospectus supplement.
Underwriters, dealers, agents and other persons may be entitled, under
agreements that may be entered into with us, to indemnification by us against
certain civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which they may be required to make in
respect thereof. Underwriters and agents may also engage in transactions with,
or perform services for us in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters, dealers or other persons to solicit offers by certain institutions
to purchase offered securities from us pursuant to contracts providing for
payment and delivery on a future date or dates set forth in the applicable
18
prospectus supplement. Institutions with which such contracts may be made may
include, but are not limited to, commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others. The obligations of any purchaser under any such
contract will not be subject to any conditions except that the purchase of
offered securities shall not at the time of delivery be prohibited under the
laws of the jurisdiction to which such purchaser is subject, and if the offered
securities are also being sold to underwriters, we shall have sold to such
underwriters the offered securities not sold for delayed delivery. The
underwriters, dealers and such other persons will not have any responsibility in
respect to the validity or performance of such contracts. The prospectus
supplement relating to such contracts will set forth the price to be paid for
offered securities pursuant to such contracts, the commissions payable for
solicitation of such contracts and the date or dates in the future for delivery
of offered securities pursuant to such contracts.
The anticipated date of delivery of offered securities will be set forth in
the applicable prospectus supplement relating to each offer.
LEGAL MATTERS
Certain matters with respect to the securities offered hereby will be passed
upon for us by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
EXPERTS
The financial statements for Penn National Gaming, Inc. and subsidiaries as
of December 31, 2000 and 1999, and for each of the three years in the period
ended December 31, 2000, incorporated by reference into this prospectus, have
been audited by BDO Seidman, LLP, independent public accountants, as indicated
in their report appearing therein.
The financial statements for Mardi Gras Casino Corp. as of December 31, 1999
and 1998, for each of the three years in the period ended December 31, 1999,
incorporated by reference into this prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
appearing therein.
The financial statements for Mississippi-I Gaming, L.P. as of December 31,
1999 and 1998, for each of the three years in the period ended December 31,
1999, incorporated by reference into this prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report appearing therein.
The financial statements of CRC Holdings, Inc.--Gaming Division as of
November 30, 1999 and 2000, and for each of the three years in the period ended
November 30, 2000 incorporated by reference into this prospectus, have been so
incorporated by reference in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
19
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$175,000,000
[LOGO]
PENN NATIONAL GAMING, INC.
8 7/8% SENIOR SUBORDINATED NOTES DUE 2010
---------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
BEAR, STEARNS & CO. INC.
MERRILL LYNCH & CO.
CIBC WORLD MARKETS
FEBRUARY 21, 2002
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------