AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 8, 2001
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PENN NATIONAL GAMING, INC.
(Exact Name of Registrant as Specified in Its Charter)
PENNSYLVANIA 7948 23-2234473
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
825 BERKSHIRE BOULEVARD, SUITE 200
WYOMISSING, PENNSYLVANIA 19610
610-373-2400
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
PETER M. CARLINO
CHIEF EXECUTIVE OFFICER
PENN NATIONAL GAMING, INC.
825 BERKSHIRE BOULEVARD, SUITE 200
WYOMISSING, PENNSYLVANIA 19610
610-373-2400
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
PETER S. SARTORIUS, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP
1701 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
215-963-5000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PRINCIPAL AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
11 1/8% Series B Senior Subordinated Notes
due 2008................................... $200,000,000 100% $200,000,000 $50,000
Guarantees Evidencing Additional Registrants'
Joint and Several Guarantees of 11 1/8%
Senior Subordinated Notes due 2008......... $200,000,000 (2) (2) (2)
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act, as amended, based
on the book value on May 31, 2001 of the notes to be received by the
Registrant pursuant to the exchange offer described herein.
(2) In accordance with Rule 457(n), no separate fee for the registration of the
guarantees is required.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL REGISTRANTS:
EXACT NAME OF REGISTRANT AS STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBER IDENTIFICATION NO.
- --------------------------- ------------------------------ --------------------------- ------------------
BACKSIDE, INC. Pennsylvania 5810 23-2713417
BSL, INC. Mississippi 7011 62-1807073
BTN, INC. Mississippi 7993 62-1807074
CHC CASINOS CORP. Florida 8741 65-0681528
CRC HOLDINGS, INC. Florida 8741 51-0399430
THE DOWNS RACING, INC. Pennsylvania 7948 23-2924948
EBETUSA.COM, INC. Delaware 7999 51-0393062
LOUISIANA CASINO CRUISES, Louisiana 7999 72-1196619
INC.
MILL CREEK LAND, INC. Pennsylvania 6500 23-2312561
MOUNTAINVIEW THOROUGHBRED Pennsylvania 7948 25-1196820
RACING ASSOCIATION
NORTHEAST CONCESSIONS, INC. Pennsylvania 5812 23-2493823
PENN NATIONAL GAMING OF West Virginia 7993 23-2839600
WEST VIRGINIA, INC.
PENN NATIONAL GSFR, INC. Delaware 7999 51-0392451
PENN NATIONAL HOLDING Delaware 7948 51-0372406
COMPANY
PENN NATIONAL SPEEDWAY, Pennsylvania 7948 25-1759895
INC.
PENNSYLVANIA NATIONAL TURF Pennsylvania 7948 23-2346492
CLUB, INC.
ADDRESS, INCLUDING ZIP CODE, AND
EXACT NAME OF REGISTRANT AS TELEPHONE NUMBER, INCLUDING AREA CODE,
SPECIFIED IN ITS CHARTER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES
- --------------------------- -------------------------------------------
BACKSIDE, INC. 1280 Highway 315
Wilkes-Barre, PA 18702
717-825-6681
BSL, INC. 825 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
610-373-2400
BTN, INC. 825 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
610-373-2400
CHC CASINOS CORP. 3250 Mary Street, Suite 500
Miami, FL 33133
305-445-4290
CRC HOLDINGS, INC. 3250 Mary Street, Suite 500
Miami, FL 33133
305-445-4290
THE DOWNS RACING, INC. 1280 Highway 315
Wilkes-Barre, PA 18702
717-825-6681
EBETUSA.COM, INC. 300 Delaware Avenue
9th Floor
Wilmington, DE 19801
302-552-3137
LOUISIANA CASINO CRUISES, 1717 River Road North
INC. Baton Rouge, LA 70802
225-709-7777
MILL CREEK LAND, INC. 1280 Highway 315
Wilkes-Barre, PA 18702
717-825-6681
MOUNTAINVIEW THOROUGHBRED R.D. #1 (P.O. Box 32)
RACING ASSOCIATION Exit 28 off Interstate 81
Grantville, PA 17551
717-469-2910
NORTHEAST CONCESSIONS, INC. 1280 Highway 315
Wilkes-Barre, PA 18702
717-825-6681
PENN NATIONAL GAMING OF 825 Berkshire Blvd., Suite 200
WEST VIRGINIA, INC. Wyomissing, PA 19610
610-373-2400
PENN NATIONAL GSFR, INC. 300 Delaware Avenue
9th Floor
Wilmington, DE 19801
302-552-3137
PENN NATIONAL HOLDING 300 Delaware Avenue
COMPANY 9th Floor
Wilmington, DE 19801
302-552-3137
PENN NATIONAL SPEEDWAY, R.D. #1 (P.O. Box 32)
INC. Exit 28 off Interstate 81
Grantville, PA 17551
717-469-2910
PENNSYLVANIA NATIONAL TURF R.D. #1 (P.O. Box 32)
CLUB, INC. Exit 28 off Interstate 81
Grantville, PA 17551
717-469-2910
EXACT NAME OF REGISTRANT AS STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBER IDENTIFICATION NO.
- --------------------------- ------------------------------ --------------------------- ------------------
PNGI CHARLES TOWN FOOD & West Virginia 5810 034-05460-
BEVERAGE LIMITED LIABILITY 001(WV)
COMPANY
PNGI CHARLES TOWN GAMING West Virginia 7999 23-2839601
LIMITED LIABILITY COMPANY
PNGI POCONO, INC. Delaware 7948 52-2058610
STERLING AVIATION INC. Delaware 7359 23-2818588
TENNESSEE DOWNS, INC. Tennessee 7948 62-1711858
WILKES BARRE DOWNS, INC. Pennsylvania 7999 Applied for.
ADDRESS, INCLUDING ZIP CODE, AND
EXACT NAME OF REGISTRANT AS TELEPHONE NUMBER, INCLUDING AREA CODE,
SPECIFIED IN ITS CHARTER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES
- --------------------------- -------------------------------------------
PNGI CHARLES TOWN FOOD & Flowing Springs Road
BEVERAGE LIMITED LIABILITY P.O. Box 551
COMPANY Charles Town, WV 25414
304-725-7001
PNGI CHARLES TOWN GAMING Flowing Springs Road
LIMITED LIABILITY COMPANY P.O. Box 551
Charles Town, WV 25414
304-725-7001
PNGI POCONO, INC. 300 Delaware Avenue
9th Floor
Wilmington, DE 19801
302-552-3137
STERLING AVIATION INC. 300 Delaware Avenue
9th Floor
Wilmington, DE 19801
302-552-3137
TENNESSEE DOWNS, INC. 825 Berkshire Blvd., Suite 200
Wyomissing, PA 19610
610-373-2400
WILKES BARRE DOWNS, INC. 1280 Highway 315
Wilkes-Barre, PA 18702
717-825-6681
SUBJECT TO COMPLETION, DATED JUNE 8, 2001
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
PENN NATIONAL GAMING, INC.
OFFER TO EXCHANGE
11 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
FOR
ANY AND ALL OUTSTANDING
11 1/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
($200,000,000 IN AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
------------------------
THE EXCHANGE OFFER
We hereby offer to exchange all Penn National 11 1/8% Series A Senior
Subordinated Notes due 2008 tendered in accordance with the procedures described
in this prospectus, and not withdrawn, for an equal principal amount of Penn
National 11 1/8% Series B Senior Subordinated Notes due 2008. You may withdraw
tendered Series A notes at any time before the expiration of the exchange offer.
The exchange offer is not conditioned upon a minimum aggregate principal
amount of outstanding notes being tendered. The exchange offer, however, is
subject to certain conditions including that it not violate applicable laws or
any applicable interpretation of the staff of the Securities and Exchange
Commission.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 2001 UNLESS EXTENDED.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
------------------------
THE SERIES B NOTES
The terms of the Series B notes to be issued in the exchange offer are
identical to the outstanding Series A notes, except that we have registered the
Series B notes with the Securities and Exchange Commission. In addition, the
Series B notes will not be subject to the transfer restrictions applicable to
the Series A notes. We will not apply for listing any of the Series B notes on
any securities exchange or arrange for them to be quoted on any quotation
system.
The Series B notes will be our general unsecured obligations and will be
guaranteed on a senior subordinated basis by substantially all of our current
and future wholly-owned domestic securities. The Series B notes will rank
equally with our future senior subordinated debt and junior to our senior debt,
including debt under our senior credit facility. In addition, the Series B notes
will be effectively junior to any indebtedness of our non-U.S. subsidiaries,
none of which will guarantee the Series B notes.
Interest on the Series B notes will accrue from March 12, 2001 or, if later,
from the most recent date of payment of interest on the Series A notes, at the
rate of 11 1/8% per year, payable semiannually on March 1 and September 1 of
each year.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2001.
TABLE OF CONTENTS
PAGE
--------
Where You Can Find More Information......................... ii
Incorporation By Reference.................................. ii
Disclosure Regarding Forward-Looking Statements............. iii
Prospectus Summary.......................................... 1
Risk Factors................................................ 11
The Exchange Offer.......................................... 20
Use of Proceeds............................................. 30
Capitalization.............................................. 30
Business.................................................... 31
Regulation.................................................. 44
Description of Series B Notes............................... 54
Certain United States Federal Tax Consequences.............. 95
Plan of Distribution........................................ 100
Legal Matters............................................... 101
Experts..................................................... 101
------------------------
You should rely only upon the information contained in, or incorporated
into, this prospectus. 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 prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this document. See
"Incorporation By Reference" on page ii of this prospectus.
i
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith we file
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information may be inspected and copied at
the Commission's Public Reference Room, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. Copies of such material can be obtained from the Commission by
mail at prescribed rates. Requests should be directed to the Securities and
Exchange Commission's Public Reference Room, 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, the Commission maintains a website (http:/
/www.sec.gov) that contains such reports and other information that we have
filed. Information also may be obtained from us at Penn National Gaming, Inc.,
825 Berkshire Boulevard, Suite 200, Wyomissing, Pennsylvania 19610, Attention:
Robert S. Ippolito, telephone (610) 373-2400.
INCORPORATION BY REFERENCE
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 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 Commission under Sections 13(a), 13(c), 14, or 15(d) of
the Exchange Act until the exchange offer is completed:
- Annual Report on Form 10-K for the year ended December 31, 2000;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001; and
- Current Reports on Form 8-K filed on May 7, 2001 and on Form 8-K/A filed
on October 20, 2000 and June 8, 2001.
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). TO OBTAIN TIMELY
DELIVERY OF THIS INFORMATION, WE MUST RECEIVE YOUR REQUEST NO LATER THAN FIVE
(5) BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER.
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 and will be incorporated by
reference into it, include "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
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. Forward-looking statements in this document
include, among others, statements concerning:
- projections of future results of operations or financial condition;
- our expectations for our Mississippi and Louisiana 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 made herein, or made in the documents incorporated by reference into
it, are set forth under the caption "Risk Factors," elsewhere in this prospectus
and in the documents incorporated by reference and include, without limitation,
risks related to the following:
- our ability to 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 Showboat option at the Charles Town Entertainment Complex;
- 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;
and
- our credit agreement.
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 might not occur.
iii
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS AND THE INFORMATION WE
HAVE REFERRED YOU TO BEFORE DECIDING WHETHER TO PARTICIPATE IN THE EXCHANGE
OFFER. IN THIS PROSPECTUS, THE TERM "NOTES" REFERS TO BOTH THE SERIES A NOTES
AND THE SERIES B NOTES.
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 EBITDA would have been $496.1
million and $112.9 million, respectively, for the year ended December 31, 2000
and $94.9 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
TYPE OF SQUARE GAMING TABLE
PROPERTY LOCATION FACILITY FOOTAGE MACHINES GAMES
- -------------------- --------------------- --------------------- -------- --------- --------
OWNED OR LEASED:
Charles Town Charles Town, WV Land-based gaming/ 58,000 1,974 --
Entertainment Thoroughbred racing
Complex
Casino Magic Bay St. Bay St. Louis, MS Dockside gaming 39,500 1,163 38
Louis
Boomtown Biloxi Biloxi, MS Dockside gaming 33,600 1,142 27
Casino Rouge Baton Rouge, LA Cruising riverboat 28,000 980 42
Penn National Race Harrisburg, PA (1) Thoroughbred racing -- -- --
Course
Pocono Downs Wilkes-Barre, PA (1) Harness racing -- -- --
------- ----- ---
TOTALS 159,100 5,259 107
======= ===== ===
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
1
August 8, 2000, we completed our acquisition of the Casino Magic Bay St. Louis
casino and the 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. We
refer to these two casinos as the "Mississippi properties." Casino Magic Bay St.
Louis in Bay St. Louis, Mississippi, offers approximately 39,500 square feet of
gaming space, with approximately 1,163 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 1,142
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., or
LCCI, not owned by CRC prior to our acquisition, for approximately
$181.3 million, including amounts required to repay existing debt. We refer to
this transaction as the "CRC acquisition." 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, we operate through a wholly owned subsidiary, Casino
Rama, located on the lands of the Mnjikaning First Nation, on behalf of the
Ontario Lottery and Gaming Corporation, an agency of the Province of Ontario, in
return for a base fee of two percent of gross revenues and an incentive fee
equal to five percent of net operating margins at the casino. 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 29, 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
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
BACKGROUND OF THE SERIES A
NOTES................................ On March 12, 2001, we issued $200,000,000 aggregate
principal amount of our 11 1/8% Senior Subordinated Notes
due 2008 to Lehman Brothers Inc. and CIBC World Markets
Corp. in a private placement. We refer to Lehman Brothers
Inc. and CIBC World Markets Corp. as the "initial
purchasers." The initial purchasers then sold the Series A
notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act. Because they have been
sold pursuant to exemptions from registration under the
Securities Act, the Series A notes are subject to transfer
restrictions. In connection with the issuance of the
Series A notes, we entered into a registration rights
agreement with the initial purchasers in which we agreed
to file with the Commission a registration statement
covering the Series B notes, use our best efforts to cause
the registration statement to become effective under the
Securities Act, and upon effectiveness of the Registration
Statement, complete the exchange offer.
THE EXCHANGE OFFER..................... We are offering to exchange up to $200,000,000 principal
amount of Series B notes for an identical principal amount
of Series A notes. Series A notes may be exchanged only in
$1,000 increments. The terms of the Series B notes are
identical in all material respects to the terms of the
Series A notes except that the Series B notes have been
registered under the Securities Act and will not bear
legends restricting their transfer. The Series B Notes
will evidence the same debt as the Series A notes and will
be issued under and entitled to the benefits of the same
indenture that governs the Series A notes. Because we have
registered the Series B notes, the Series B notes will not
be subject to transfer restrictions and holders of Series
B notes will have no registration rights.
RESALE OF SERIES B NOTES............... We believe you may offer for resale, resell or otherwise
transfer the Series B notes you receive in the exchange
offer without further compliance with the registration and
prospectus delivery provisions of the Securities Act
unless you:
- are an "affiliate" of ours within the meaning of
Rule 405 under the Securities Act;
- are a broker-dealer who purchased Series A notes
directly from us for resale under Rule 144A or
Regulation S or any other exemption under the
Securities Act;
- acquired the Series B notes other than in the
ordinary course of your business; or
- have an arrangement with any person to engage in the
distribution of Series B notes.
3
Each broker-dealer who is issued Series B notes in the
exchange offer for its own account in exchange for Series
A notes acquired by the broker-dealer as a result of
market-making or other trading activities must acknowledge
that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of the
Series B notes issued in the exchange offer. A
broker-dealer may use this prospectus for an offer to
resell, a resale or any other transfer of the Series B
notes issued to it in the exchange offer.
EXPIRATION DATE........................ 5:00 p.m., New York City time, on , 2001, unless we
extend the exchange offer, in which case the expiration
date shall be the latest date to which the exchange offer
is extended. It is possible that we will extend the
exchange offer until all outstanding Series A notes are
tendered. You may withdraw Series A notes you tendered at
any time before 5:00 p.m., New York City time, on the
expiration date. See "The Exchange
Offer--Expiration Date; Extensions; Amendments."
WITHDRAWAL RIGHTS...................... You may withdraw Series A notes you tendered by furnishing
a notice of withdrawal to the exchange agent or by
complying with DTC's Automated Tender Offer Program System
(ATOP) withdrawal procedures at any time before 5:00 p.m.
New York City time on the expiration date. See "The
Exchange
Offer--Withdrawal of Tenders."
ACCRUED INTEREST ON THE SERIES B
NOTES AND THE SERIES A NOTES......... The Series B notes will bear interest from March 12, 2001
or, if later, from the most recent date of payment of
interest on the Series A notes.
CONDITIONS TO THE EXCHANGE
OFFER................................ The exchange offer is subject only to the following
conditions:
- the compliance of the exchange offer with applicable
securities laws;
- the proper tender of the Series A notes;
- our receipt of certain representations made by the
holders of the Series A notes, as described below; and
- no judicial or administrative proceeding shall have
been threatened that would limit us from proceeding
with the exchange offer.
REPRESENTATIONS........................ By participating in the exchange offer, you will represent
to us that, among other things:
- you will acquire the Series B notes you receive in
the exchange offer in the ordinary course of your
business;
- you are not engaging in and do not intend to engage
in a distribution of the Series B notes;
4
- you do not have an arrangement or understanding with
any person to participate in the distribution of the
Series B notes; and
- you are not an "affiliate," as defined under Rule
405 of the Securities Act, of ours.
PROCEDURES FOR TENDERING
SERIES A NOTES....................... To accept the exchange offer, you must send the exchange
agent either
- a properly completed and validly executed letter of
transmittal; or
- a computer-generated agent's message transmitted
pursuant to DTC's ATOP Program; and either
- tendered Series A notes held in certificated form;
or
- a timely confirmation of book-entry transfer of your
Series A notes into the exchange agent's account at
DTC.
Additional documents may be required if you tender
pursuant to the guaranteed delivery procedures described
below. For more information, see "The Exchange
Offer--Procedures for Tendering."
TENDERS BY BENEFICIAL OWNERS........... If you are a beneficial owner whose Series A notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee or are held in
book-entry form and wish to tender those Series A notes in
the exchange offer, you should contact the registered
holder as soon as possible and instruct the registered
holder to tender on your behalf. See "The Exchange
Offer--Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES........................... If you are unable to comply with the procedures for
tendering, you may tender your Series A notes according to
the guaranteed delivery procedures described in this
prospectus under the heading "The Exchange
Offer--Guaranteed Delivery Procedures."
CERTAIN UNITED STATES FEDERAL TAX
CONSEQUENCES......................... See "Certain United States Federal Tax Consequences" for a
discussion of U.S. federal income tax considerations you
should consider before tendering Series A notes in the
exchange offer.
EXCHANGE AGENT......................... State Street Bank and Trust Company is serving as exchange
agent for the exchange offer. The address and telephone
number for the exchange agent is listed under "The
Exchange Offer--Exchange Agent."
5
SUMMARY OF THE TERMS OF THE SERIES B NOTES
The terms of the Series B notes to be issued in the exchange offer are
identical to the terms of the outstanding Series A notes except that we have
registered the Series B notes under the Securities Act. The notes issued in the
exchange offer will evidence the same debt as the Series A notes, and both the
Series A notes and the Series B notes are governed by the same indenture. We
define capitalized terms used in this summary in the "Description of Series B
Notes--Certain Definitions" section of this prospectus.
SECURITIES OFFERED........................ $200,000,000 of 11 1/8% Series B Senior Subordinated
Notes due 2008.
ISSUER.................................... Penn National Gaming, Inc.
MATURITY DATE............................. March 1, 2008.
INTEREST PAYMENT DATES.................... March 1 and September 1, commencing on September 1,
2001.
GUARANTEES................................ All payments with respect to the notes will be fully,
unconditionally and irrevocably guaranteed on a senior
subordinated basis, jointly and severally, by
substantially all of our current and future wholly owned
domestic subsidiaries. If we cannot make payment on the
notes when they are due, the subsidiary guarantors must
make them instead.
OPTIONAL REDEMPTION....................... On or after March 1, 2005, we may redeem some or all of
the notes at any time at the redemption prices listed in
the section "Description of Series B Notes--Optional
Redemption."
Before March 1, 2004, we may redeem up to 35% of the
notes with the proceeds of certain sales of our equity
securities at 11 1/8% of the principal amount, plus
accrued and unpaid interest, if any, to the date of
redemption. See "Description of Series B Notes--Optional
Redemption."
The notes are subject to mandatory disposition or
redemption in the event of certain determinations by
gaming authorities. See "Description of Series B
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 at the
price listed in the "Description of Series B Notes." See
"--Repurchase at the Option of Holders--Change of
Control" and "--Asset Sales."
6
RANKING................................... The notes and the subsidiary guarantees are senior
subordinated debts. 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 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. On March 31, 2001, these notes and the
subsidiary guarantees would have been subordinated to
approximately $308.9 million of senior indebtedness, and
approximately $30.9 million of senior debt would have
been available for borrowing under our revolving credit
facility.
CERTAIN COVENANTS......................... We will issue the Series B notes under the indenture
among us, the subsidiary guarantors and State Street
Bank and Trust Company, as trustee. The indenture, among
other things, restricts our ability and the ability of
our restricted subsidiaries to:
- incur additional indebtedness;
- pay dividends on or purchase our 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 Series B
Notes--Certain Covenants."
USE OF PROCEEDS........................... We will not receive any proceeds upon completion of the
exchange offer.
RISK FACTORS
For a discussion of certain factors that you should consider in connection
with your participation in the exchange offer, see "Risk Factors."
7
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data for the
years ended December 31, 1996, 1997, 1998, 1999 and 2000, except for Other data,
are derived from our financial statements that have been audited by BDO Seidman,
LLP, independent certified public accountants. The selected consolidated and
operating data as of and for the three months ended March 31, 2000 and 2001 is
unaudited, but has been prepared on the same basis as the data derived from the
audited financial statements and, in the opinion of management, contains all
adjustments necessary for the fair presentation of the results of operations for
such periods and financial positions as of such dates. The selected consolidated
financial and operating data should be read in conjunction with our consolidated
financial statements and Notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information,
all of which have been incorporated by reference herein.
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1996 1997(1) 1998 1999 2000(2) 2000 2001(2)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenue
Gaming............................ $ -- $ 5,730 $ 37,665 $ 55,415 $159,589 $22,324 $ 70,609
Racing............................ 55,066 98,402 106,850 102,827 113,230 26,967 27,123
Other............................. 7,768 7,404 9,550 13,216 21,304 3,420 8,497
------- -------- -------- -------- -------- ------- --------
Total revenues...................... 62,834 111,536 154,065 171,458 294,123 52,711 106,229
------- -------- -------- -------- -------- ------- --------
Operating expenses:
Gaming............................ -- 4,134 26,544 34,952 94,087 13,479 39,069
Racing............................ 36,114 65,810 70,303 68,808 77,063 18,131 18,474
Selling, general and
administrative.................. 13,881 26,234 29,680 38,709 58,310 10,439 26,080
Other............................. 3,379 5,623 8,080 11,173 18,776 2,813 7,228
------- -------- -------- -------- -------- ------- --------
Total operating expenses............ 53,374 101,801 134,607 153,642 248,236 44,862 90,851
Income from operations.............. 9,460 9,735 19,458 17,816 45,887 7,849 15,378
Other expenses...................... 156 3,658 7,436 7,307 17,175 2,086 8,151
------- -------- -------- -------- -------- ------- --------
Income before income taxes and
extraordinary item................ 9,304 6,077 12,022 10,509 28,712 5,763 7,227
Taxes on income..................... 3,794 2,308 4,519 3,777 10,137 2,141 2,611
------- -------- -------- -------- -------- ------- --------
Income before extraordinary item.... 5,510 3,769 7,503 6,732 18,575 3,622 4,616
Extraordinary item--loss on early
extinguishment of debt, net of
income taxes of $1,001 in 1997 and
$4,615 in 2000.................... -- 1,482 -- -- 6,583 -- --
------- -------- -------- -------- -------- ------- --------
Net income.......................... $ 5,510 $ 2,287 $ 7,503 $ 6,732 $ 11,992 $ 3,622 $ 4,616
======= ======== ======== ======== ======== ======= ========
PER SHARE DATA:
Basic income per share before
extraordinary item.............. $ 0.41 $ 0.25 $ 0.50 $ 0.45 $ 1.24 $ 0.24 $ 0.31
Basic net income per share........ $ 0.41 $ 0.15 $ 0.50 $ 0.45 $ 0.80 $ 0.24 $ 0.31
Diluted income per share before
extraordinary item.............. $ 0.40 $ 0.24 $ 0.49 $ 0.44 $ 1.20 $ 0.24 $ 0.30
Diluted net income per share...... $ 0.40 $ 0.15 $ 0.49 $ 0.44 $ 0.78 $ 0.24 $ 0.30
Weighted shares
outstanding--basic.............. 13,302 14,925 15,015 14,837 14,968 14,898 15,044
Weighted shares
outstanding--diluted............ 13,822 15,458 15,374 15,196 15,443 15,212 15,524
8
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1996 1997(1) 1998 1999 2000(2) 2000 2001(2)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
OTHER DATA:
Depreciation and amortization..... $ 1,433 $ 4,040 $ 5,748 $ 8,679 $ 13,594 $ 2,176 $ 6,935
Interest expense.................. 506 4,591 8,374 8,667 19,089 2,382 8,598
EBITDA(3)......................... 10,893 13,775 25,206 26,495 59,481 10,025 22,313
Capital expenditures.............. 6,995 29,196 22,333 13,243 27,295 1,851 4,015
Ratio of earnings to fixed
charges(4)...................... 11.7x 2.2x 2.3x 1.8x 2.1x 2.3x 1.7x
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------- -------------------
1996 1997(1) 1998 1999 2000(2) 2000 2001(2)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 5,634 $ 21,854 $ 6,826 $ 9,434 $ 23,287 $ 11,430 $ 29,045
Total assets.................. 96,723 158,878 160,798 189,712 439,900 197,579 641,788
Total debt.................... 47,517 80,336 78,256 91,213 309,299 95,452 508,924
Shareholders' equity.......... 27,881 53,856 59,036 66,272 79,221 69,961 81,520
- ------------------------
(1) Reflects our November 27, 1996 acquisition of Pocono Downs and our
January 15, 1997 acquisition of a joint venture interest in the Charles Town
Entertainment Complex.
(2) Reflects the August 8, 2000 acquisition of the Mississippi properties.
(3) EBITDA consists of income from operations plus depreciation and
amortization. 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.
(4) 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 estimate of
interest included in rental expense.
9
SUMMARY UNAUDITED CONSOLIDATED PRO FORMA DATA
(IN THOUSANDS)
The following summary unaudited pro forma consolidated statement of
operations data for the year ended December 31, 2000 has been prepared giving
effect to the CRC acquisition, the acquisition of the Mississippi properties,
our offering of the Series A notes and the tender offer to purchase all of the
LCCI 11% senior secured notes as if they occurred on January 1, 2000.
The following summary unaudited pro forma consolidated statement of
operations for the three months ended March 31, 2001 has been prepared giving
effect to the CRC acquisition, our offering of the Series A notes and the tender
offer of the LCCI 11% senior secured notes as if they occurred on January 1,
2001.
The following summary unaudited pro forma consolidated balance sheet data at
March 31, 2001 has been prepared as if the CRC acquisition and the tender offer
of the LCCI 11% senior secured notes occurred on March 31, 2001.
This pro forma financial information is based on, 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, all of which have been incorporated by reference into this
prospectus. This pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the Mississippi acquisition, the issuance
of the Series A notes and the CRC acquisition had occurred in an earlier period,
nor is it necessarily indicative of our future operating results or financial
position.
PRO FORMA AS ADJUSTED FOR ACQUISITIONS
--------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2000 MARCH 31, 2001
----------------- ------------------
INCOME STATEMENT DATA:
Revenues................................. $496,097 $133,312
Income from operations................... 81,272 21,320
Interest expense......................... 50,330 12,056
Income from continuing operations........ 20,540 6,062
OTHER DATA:
EBITDA(1)................................ 112,912 31,232
Depreciation and amortization............ 31,640 9,912
AS OF MARCH 31, 2001
--------------------
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 40,179
Total assets............................................ 68,062
Total long-term debt.................................... 491,563
Shareholders' equity.................................... 80,548
- ------------------------
(1) EBITDA consists of income from operations plus depreciation and
amortization. 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.
10
RISK FACTORS
YOUR PARTICIPATION IN THE EXCHANGE OFFER AND OWNERSHIP OF THE SERIES B NOTES
IS SUBJECT TO A NUMBER OF RISKS. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS, AS WELL AS ALL ADDITIONAL INFORMATION CONTAINED IN THIS PROSPECTUS OR
INCORPORATED HEREIN.
RISKS RELATED TO OUR BUSINESS
WE HAVE LIMITED EXPERIENCE OPERATING CASINOS AND, PRIOR TO AUGUST 2000, HAVE NOT
MANAGED CASINO OPERATIONS SUCH AS OUR MISSISSIPPI PROPERTIES OR THOSE INVOLVED
IN THE CRC ACQUISITION.
We have limited experience in operating full-scale casino operations like
those associated with our Mississippi properties and the CRC acquisition. Our
Charles Town Entertainment Complex features gaming machines, but does not
include the full complement of casino, entertainment and other amenities
available at Casino Magic Bay St. Louis, Boomtown Biloxi, Casino Rouge or Casino
Rama. In addition, the Charles Town Entertainment Complex faces limited direct
competition, unlike the substantial competition faced by the operations at
Casino Magic Bay St. Louis, Boomtown Biloxi, Casino Rouge and Casino Rama. We
cannot be sure that we will be successful in managing and operating our business
in response to the new challenges of conducting full-scale casino operations in
highly competitive gaming markets. The significant expansion of our business and
the operational and geographic expansion associated with the Mississippi and CRC
acquisitions will place demands on our administrative, operational and financial
resources. Such strain, together with demands related to our contemplated
expansion of the Charles Town Entertainment Complex and Casino Magic Bay St.
Louis properties, may have a material adverse effect on our business, financial
condition and results of operations.
WE MAY FACE DISRUPTION IN INTEGRATING OUR OPERATIONS AFTER THE CRC ACQUISITION
AND IN MANAGING FACILITIES WE MAY ACQUIRE OR EXPAND.
The integration of the recently acquired CRC operations will require the
dedication of management resources that may temporarily detract attention from
our day-to-day business. The process of integrating this organization also may
interrupt the activities of that business, 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 the acquisition.
In addition, we may pursue expansion and acquisition opportunities in the
future and would face significant challenges not only in managing and
integrating the combined operations, but also in managing our expansion projects
and any other gaming operations that we might acquire in the future. Management
of such new projects will require that we increase our managerial resources. If
we fail to manage our growth effectively it could materially adversely affect
our operating results.
WE FACE RISKS RELATED TO THE DEVELOPMENT AND EXPANSION OF OUR CURRENT
PROPERTIES.
We will use a portion of our available cash for capital expenditures at the
Charles Town Entertainment Complex and Casino Magic Bay St. Louis, including the
construction of new hotels at each of these facilities. The construction of
hotels 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 or site
deterioration after construction has begun, and the emergence of competition
from unanticipated sources. The opening of the new hotels will be contingent
upon, among other things, receipt of all required licenses, permits and
authorizations. The scope of the approvals required for a new hotel 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
11
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.
In addition to the new hotels, we are planning enhancements at the Charles
Town Entertainment Complex, including the expansion of the gaming floor and the
construction of a structured parking lot and an entertainment venue; at Casino
Magic Bay St. Louis, we are planning to reconfigure the gaming floor and
construct three new restaurants. 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 hotels and the other proposed enhancements also will
require the establishment of new work forces of significant sizes. We cannot be
certain that management will be able to hire and retain a sufficient number of
employees to operate these facilities at their optimum levels. The failure to
employ the proper work force could result in inadequate customer service that
could ultimately harm profitability.
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 within the
United States and Canada may legalize gaming in the near future through the
introduction of proposals to legalize gaming in their legislatures. 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 can be expected to 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 also offer significantly higher stakes for their gaming
machines than 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.
Per-pull limits in West Virginia are only $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 as of December 31, 2000. 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 Mississippi gaming market is significantly more
intense than the competition our gaming operations face in West Virginia,
Louisiana and Ontario, Canada or our pari-mutuel operations face in Pennsylvania
and New Jersey. We cannot be sure that we will succeed in the competitive
Mississippi
12
Gulf Coast gaming market. The failure to do so would have a material adverse
effect on our business, financial condition and results of operations.
Mississippi law does not limit the number of gaming licenses that may be
granted. A number of operators have completed or announced new construction or
expansions of existing casinos that will directly compete with us. The
development of the Biloxi and Gulf Coast gaming markets has resulted in market
dilution and any additional casinos could dilute gaming win even further, each
of which could have a material adverse effect on our operations.
LOUISIANA. Our operation of the 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 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. Fourteen
of the fifteen available riverboat licenses are currently issued and the
fifteenth license currently is under consideration.
The principal competitor to the Casino Rouge is the Belle of Baton Rouge,
owned by Argosy Gaming, which is the only other licensed riverboat casino in
Baton Rouge. In February 2001, Argosy opened a new 300-room Sheraton hotel at
the casino. We also face competition from three major riverboat casinos and one
land-based casino in the New Orleans area, which is 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 that are authorized to operate up to 50 video poker
machines each. We may face competition from Louisiana horse racing facilities
some of which have been authorized to operate gaming machines.
ONTARIO. Our operation of Casino Rama through our wholly-owned subsidiary,
CHC Casinos Canada Limited, faces 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 thirteen racetracks with
gaming machines in the Province of Ontario. In 2001, two additional racetracks
in Ontario are planning to open gaming machine facilities. 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. Currently, there are five racetracks with gaming machine facilities
and one charity casino within a 150-mile radius of 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. Woodbine Racetrack,
located approximately 95 miles from Casino Rama, near Toronto, has 1,700 gaming
machines.
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, there are no
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
13
casinos and state-sponsored lotteries, including the Pennsylvania, New Jersey,
Delaware and West Virginia lotteries. We may also 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 in or 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 relatively close in distance to 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.
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
Pennsylvania State Horse Racing Commission, the Pennsylvania State Harness
Racing Commission, the New Jersey Racing Commission, the New Jersey Casino
Control Commission, the West Virginia Racing Commission, the West Virginia
Lottery Commission, the Mississippi Gaming Commission, the Louisiana Gaming
Control Board and the Alcohol and Gaming Commission of Ontario 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 laws or regulations. Any of these
events could have a material adverse effect on our business, financial condition
and results of operation.
We have demonstrated suitability to obtain and have obtained 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. If we expand our gaming operations in West Virginia,
Mississippi, Louisiana, Pennsylvania, New Jersey, Ontario 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 can generally require that any
beneficial owner of our securities, including holders of the Series A or
Series B notes, file an application for a finding of suitability. If a gaming
authority requires a record or beneficial owner of a Series A or Series B note
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, either by law or the terms
of the notes, to dispose of the notes. See "Description of Series B
Notes--Optional Redemption." In addition, the issuance of the notes offered
hereby is subject to approval by the West Virginia Racing Commission and the
West Virginia Lottery Commission.
14
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. We believe that the prospect of significant additional revenue is
one of the primary reasons that jurisdictions permit legalized gaming. As a
result, gaming companies are typically subject to significant taxes and fees in
addition to normal federal, 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. 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 officers and key employees. 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 the Casino Rouge riverboat are subject to risks in addition to
those associated with land-based casinos, including loss of service due to
casualty, mechanical failure, extended or extraordinary maintenance, flood,
hurricane or other severe weather conditions. The Casino Rouge also is subject
to risks associated with the movement of vessels on inland waterways, including
risks of casualty due to river turbulence and 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. In March 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
15
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 are currently in effect at this
facility.
WE OPERATE CASINO RAMA UNDER A DEVELOPMENT AND OPERATING AGREEMENT THAT IS
TERMINABLE IF WE FAIL TO ATTAIN SPECIFIC OPERATING RESULTS.
As the operator of Casino Rama under a Development and Operating Agreement,
CHC Casinos Canada Limited, our wholly owned subsidiary, is entitled to a base
fee equal to two percent of gross revenues at Casino Rama and an incentive fee
equal to five percent of the net operating margins at the casino. The term of
the agreement extends until July 31, 2011, but may be terminated by the Ontario
Lottery and Gaming Corporation prior to that date if certain events occur.
Specifically, the Ontario Lottery and Gaming Corporation may terminate the
agreement if, in any three of five consecutive years, Casino Rama's actual gross
revenues for the year are less than 85% of budgeted gross revenue for the same
period. The termination of the Development and Operating Agreement prior to
July 31, 2011 could have a material adverse effect on our business, financial
condition and results of operations.
RISKS RELATED TO OUR CAPITAL STRUCTURE AND THE NOTES
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have a significant amount of indebtedness. As of March 31, 2001, we had
total indebtedness of approximately $508.9 million (excluding unused commitments
under the credit facility) and total shareholders' equity of $81.5 million. In
addition, we had ratios of earnings to fixed charges of 2.1x and 2.3x for the
year ended December 31, 2000 and the three months ended March 31, 2001,
respectively.
Our substantial indebtedness could have important consequences to you. 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;
- 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.
16
Any of the above-listed factors could have a material adverse effect on our
business, financial condition and results of operations. See "Description of
Series B Notes."
DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY STILL BE ABLE TO INCUR SUBSTANTIALLY
MORE DEBT, WHICH COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We may be able to incur substantial additional indebtedness in the future.
The terms of the indenture do not fully prohibit us from doing so. We may incur
new debt if we have a fixed charge coverage ratio of at least 2.0x. If new debt
is added to our current debt levels, the related risks that we now face could
intensify. See "Description of Series B Notes."
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 Series B 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.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES OR UNDER THE SUBSIDIARY GUARANTEES
IS JUNIOR TO OUR OTHER INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS.
The notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' other 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
17
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.
As of March 31, 2001, the notes and the subsidiary guarantees would have
been subordinated to approximately $308.9 million of senior debt and
approximately $30.9 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 THE INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes. However, it is
possible that we will not have sufficient funds at the time of such a change of
control to make the required repurchase of notes or that restrictions in our
credit facility will not allow such repurchases. Certain important corporate
events, such as leveraged recapitalizations that would increase the level of our
indebtedness, would not constitute a "Change of Control" under the indenture.
See "Description of Series B 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.
18
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.
RISKS RELATED TO THE EXCHANGE OFFER
IF YOU DO NOT PROPERLY TENDER YOUR SERIES A NOTES, YOU WILL CONTINUE TO HOLD
UNREGISTERED SERIES A NOTES AND YOUR ABILITY TO TRANSFER SERIES A NOTES WILL BE
ADVERSELY AFFECTED.
We will only issue Series B notes in exchange for Series A notes that are
timely received by the exchange agent together with all required documents,
including a properly completed and signed letter of transmittal. Therefore, you
should allow sufficient time to ensure timely delivery of the Series A notes and
you should carefully follow the instructions on how to tender your Series A
notes. Neither we nor the exchange agent are required to tell you of any defects
or irregularities with respect to your tender of the Series A notes. If you do
not tender your Series A notes or if we do not accept your Series A notes
because you did not tender your Series A notes properly, then, after we
consummate the exchange offer, you may continue to hold Series A notes that are
subject to the existing transfer restrictions. In addition, if you tender your
Series A notes for the purpose of participating in a distribution of the
Series B notes, you will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Series B notes. If you are a broker-dealer that receives Series B
notes for your own account in exchange for Series A notes that you acquired as a
result of market-making activities or any other trading activities, you will be
required to acknowledge that you will deliver a prospectus in connection with
any resale of such Series B notes. After the exchange offer is consummated, if
you continue to hold any Series A notes, you may have difficulty selling them
because there will be less Series A notes outstanding. In addition, if a large
amount of Series A notes are not tendered or are tendered improperly, the
limited amount of Series B notes that would be issued and outstanding after we
consummate the exchange offer could lower the market price of such Series B
notes.
THERE MAY NOT BE A LIQUID MARKET FOR RESALE OF THE SERIES B NOTES.
The Series B notes are new securities for which there currently is no
market. Although the initial purchasers have informed us that they intend to
make a market in the Series B notes, they are not obligated to do so and any
such market marking may be discontinued at any time without notice. In addition,
the market making activity may be limited during the pendency of the Series B
offer.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the Series B notes. We do not intend to apply for listing of the
Series B notes on any securities exchange or for quotation through the Nasdaq
National Market.
The liquidity of, and trading market for, the Series B notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of our financial performance and prospects.
19
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On March 12, 2001, we issued $200,000,000 aggregate principal amount of
Series A notes to the initial purchasers in transactions not registered under
the Securities Act in reliance on an exemption from registration under that act.
The initial purchasers then sold the Series A notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act. Because they have been
sold pursuant to exemptions from registration, the Series A notes are subject to
transfer restrictions.
In connection with the issuance of the Series A notes, we entered into a
registration rights agreement with the initial purchasers that requires us to:
- file with the Commission a registration statement under the Securities Act
covering the Series B notes;
- use our best efforts to cause the registration statement to become
effective under the Securities Act; and
- complete the exchange offer upon effectiveness of the registration
statement.
A copy of the registration rights agreement with the initial purchasers has
been filed as an exhibit to our Form 10-Q for the quarter ended March 31, 2001
filed with the Commission and incorporated by reference into this prospectus.
Any discussion of the terms of the registration rights agreement is qualified by
reference to the complete agreement.
Following the completion of the exchange offer, holders of the Series A
notes not tendered will not have any further registration rights other than as
set forth in the paragraphs below, and those Series A notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Series A notes may be adversely affected. Additionally, upon
completion of the exchange offer, holders of Series B notes will have no
registration rights.
RESALE OF SERIES B NOTES
Based on existing interpretations of the Securities Act by the staff of the
Commission described in several no-action letters to third parties, we believe
that, subject to the exceptions set forth below, the Series B notes issued in
the exchange offer may be offered for resale, resold and otherwise transferred
by you without further compliance with the registration and prospectus delivery
provisions of the Securities Act unless you:
- are an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act;
- are a broker-dealer who purchased Series A notes directly from us for
resale under Rule 144A or Regulation S or any other available exemption
under the Securities Act;
- acquired the Series B notes other than in the ordinary course of your
business; or
- have an arrangement with any person to engage in the distribution of
Series B notes.
Broker-dealers that are receiving Series B notes for their own account must
have acquired the Series A notes as a result of market-making or other trading
activities in order to participate in the exchange offer. Each broker-dealer
that receives Series B notes for its own account under the exchange offer must
acknowledge that it will deliver a prospectus in connection with any resale of
the Series B notes. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be admitting that it is
an "underwriter" within the meaning of the Securities Act. We are required to
allow broker-dealers to use this prospectus following the exchange offer in
connection with the resale of Series B notes received in exchange for Series A
notes acquired by broker-dealers for their own account as a result of
market-making or other trading activities. If
20
required by applicable securities laws, we will, upon written request, make this
prospectus available to any broker-dealer for use in connection with a resale of
Series B notes for a period of 90 days after the consummation of the exchange
offer. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions stated in this prospectus and
in the letter of transmittal, we will accept all Series A notes validly tendered
by you and not withdrawn before 5:00 p.m. New York City time on the expiration
date. After authentication of the Series B notes by the trustee or an
authenticating agent, we will issue $1,000 principal amount of Series B notes in
exchange for each $1,000 principal amount of Series A notes accepted in the
exchange offer. You may tender some or all of your Series A notes pursuant to
the exchange offer. However, Series A notes may be tendered only in integral
multiples of $1,000 in principal amount.
The terms of the Series B notes are identical in all material respects to
the terms of the Series A notes except that the Series B notes have been
registered under the Securities Act and will not bear legends restricting
transfer. The Series B notes will evidence the same debt as the Series A notes
and will be issued under and entitled to the benefits of the same indenture.
As of the date of this prospectus, $200,000,000 aggregate principal amount
of the Series A notes was outstanding.
By tendering your Series A notes for Series B notes in the exchange offer
and signing or agreeing to be bound by the letter of transmittal, you will
represent to us that:
- you will acquire the Series B notes you receive in the exchange offer in
the ordinary course of your business;
- you are not engaging in and do not intend to engage in a distribution of
the Series B notes;
- you do not have an arrangement or understanding with any person to
participate in the distribution of the Series B notes; and
- you are not an "affiliate," as defined under Rule 405 of the Securities
Act, of ours.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of the Series A notes. There will
be no fixed record date for determining registered holders of Series A notes
entitled to participation in the exchange offer.
We intend to conduct the exchange offer as required by the Exchange Act, and
the rules and regulations of the Commission under the Exchange Act, including
Rule 14e-1, to the extent applicable. Rule 14e-1 describes unlawful tender
practices under the Exchange Act. This section requires us, among other things:
- to hold our exchange offer open for at least twenty business days;
- to give ten days notice of any change in certain terms of this offer; and
- to issue a press release in the event of an extension of the exchange
offer.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of Series A notes being tendered.
We shall be considered to have accepted Series A notes tendered according to
the procedures in this prospectus when, as and if we have given oral or written
notice of acceptance to the exchange agent. See "--Exchange Agent." The exchange
agent will act as agent for the tendering holders for the purpose of receiving
Series B notes from us and delivering Series B notes to those holders.
21
If any tendered Series A notes are not accepted for exchange because of an
invalid tender or the occurrence of other events described in this prospectus,
certificates for these unaccepted Series A notes will be returned, at our cost,
to the tendering holder of the Series A notes or, in the case of Series A notes
tendered by book-entry transfer, into the holder's account at DTC according to
the procedures described below, as soon as practicable after the expiration
date.
If you tender Series A notes in the exchange offer, you will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes related to the exchange of Series A notes
in the exchange offer. We will pay all charges and expenses, other than
applicable taxes, in connection with the exchange offer. See "--Solicitation of
Tenders; Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on
, 2001, unless we, in our sole discretion, extend the exchange
offer, in which case the term "expiration date" shall mean the latest date to
which the exchange offer is extended.
We expressly reserve the right, in our sole discretion:
- to delay acceptance of any Series A notes or to terminate the exchange
offer and to refuse to accept Series A notes not previously accepted, if
any of the conditions described below shall have occurred and shall not
have been waived by us;
- to extend the expiration date of the exchange offer;
- to amend the terms of the exchange offer in any manner;
- to purchase or make offers for any Series A notes that remain outstanding
subsequent to the expiration date; and
- to the extent permitted by applicable law, to purchase Series A notes in
the open market, in privately negotiated transactions or otherwise.
Any delay in acceptance, termination, extension, or amendment will be
followed as promptly as practicable by oral or written notice to the exchange
agent and by making a public announcement. If the exchange offer is amended in a
manner determined by us to constitute a material change, we will promptly
disclose the amendment in a manner reasonably calculated to inform you of the
amendment. Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, termination, extension, or amendment
of the exchange offer, we shall have no obligation to publish, advise, or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
You are advised that we may extend the exchange offer because some of the
holders of the Series A notes do not tender on a timely basis. In order to give
these noteholders the ability to participate in the exchange and to avoid the
significant reduction in liquidity associated with holding an unexchanged note,
we may elect to extend the exchange offer until all outstanding Series A notes
are tendered.
INTEREST ON THE SERIES B NOTES
The Series B notes will bear interest from March 12, 2001 or, if later, from
the most recent date of payment of interest on the Series A notes. Accordingly,
if you tender Series A notes that are accepted for exchange, you will not
receive interest that is accrued but unpaid on the Series A notes at the time of
tender. Interest on the Series B notes will be payable semi-annually on each
March 1 and September 1, commencing on the next interest payment date.
22
PROCEDURES FOR TENDERING
Only a holder of Series A notes may tender Series A notes in the exchange
offer. If you are a beneficial owner whose Series A notes are registered in the
name of your broker, dealer, commercial bank, trust company or other nominee or
are held in book-entry form and wish to tender, you should contact the
registered holder promptly and instruct the registered holder to tender on your
behalf. If you are a beneficial owner and wish to tender on your own behalf, you
must, before completing and executing the letter of transmittal and delivering
your Series A notes, either make appropriate arrangements to register ownership
of the Series A notes in your name or obtain a properly completed bond power
from the registered holder. The transfer of record ownership may take
considerable time.
Your tender will constitute an agreement between you and us according to the
terms and subject to the conditions described in this prospectus and in the
letter of transmittal.
If you desire to tender Series A notes and cannot comply with the procedures
set forth herein for tender on a timely basis or your Series A notes are not
immediately available, you must comply with the procedures for guaranteed
delivery set forth in "--Guaranteed Delivery Procedures."
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
DELIVERY OF SUCH DOCUMENTS WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE EXCHANGE AGENT OR DEEMED RECEIVED UNDER THE ATOP PROCEDURES DESCRIBED BELOW.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SERIES A
NOTES SHOULD BE SENT TO US. YOU MAY ALSO REQUEST THAT YOUR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES EFFECT THE TENDER FOR YOU
IN EACH CASE AS DESCRIBED IN THIS PROSPECTUS AND IN THE LETTER OF TRANSMITTAL.
SERIES A NOTES HELD IN CERTIFICATED FORM
For you to validly tender Series A notes held in physical form, the exchange
agent must receive, before 5:00 p.m. New York city time on the expiration date,
at its address set forth in this prospectus:
- a properly completed and validly executed letter of transmittal, or a
manually signed facsimile thereof, together with any signature guarantees
and any other documents required by the instructions to the letter of
transmittal, and
- certificates for tendered Series A notes.
SERIES A NOTES HELD IN BOOK-ENTRY FORM
We understand that the exchange agent will make a request promptly after the
date of the prospectus to establish accounts for the Series A notes at DTC for
the purpose of facilitating the exchange offer, and subject to their
establishment, any financial institution that is a participant in DTC may make
book-entry delivery of Series A notes by causing DTC to transfer the Series A
notes into the exchange agent's account for the Series A notes using DTC's
procedures for transfer.
If you desire to transfer Series A notes held in book-entry form with DTC,
the exchange agent must receive, before 5:00 p.m. New York City time on the
expiration date, at its address set forth in this prospectus, a confirmation of
book-entry transfer of the Series A notes into the exchange agent's account at
DTC, which is referred to in this prospectus as a "book-entry confirmation,"
and:
- a properly completed and validly executed letter of transmittal, or
manually signed facsimile thereof, together with any signature guarantees
and other documents required by the instructions in the letter of
transmittal; or
- an agent's message transmitted pursuant to DTC's Automated Tender Offer
Program.
23
TENDER OF SERIES A NOTES USING DTC'S AUTOMATED TENDER OFFER PROGRAM (ATOP)
The exchange agent and DTC have confirmed that the exchange offer is
eligible for DTC's Automated Tender Offer Program. Accordingly, DTC participants
may electronically transmit their acceptance of the exchange offer by causing
DTC to transfer Series A notes held in book-entry form to the exchange agent in
accordance with DTC's ATOP procedures for transfer. DTC will then send a
book-entry confirmation, including an agent's message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, which states
that DTC has received an express acknowledgment from the participant in DTC
tendering Series A notes that are the subject of that book-entry confirmation
that the participant has received and agrees to be bound by the terms of the
letter of transmittal, and that we may enforce such agreement against such
participant. If you use ATOP procedures to tender Series A notes you will not be
required to deliver a letter of transmittal to the exchange agent, but you will
be bound by its terms just as if you had signed it.
SIGNATURES
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an "eligible institution" unless the Series A
notes tendered with the letter of transmittal are tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" in the
letter of transmittal; or
- for the account of an "eligible institution."
An "eligible institution" is a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.;
a commercial bank or trust company having an office or correspondent in the
United States; an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act; or an "eligible institution" that is a
participant in a recognized medallion guarantee program.
If the letter of transmittal is signed by a person other than the registered
holder or DTC participant who is listed as the owner, the Series A notes must be
endorsed or accompanied by appropriate bond powers which authorize the person to
tender the Series A notes on behalf of the registered holder or DTC participant
who is listed as the owner, in either case signed as the name of the registered
holder(s) who appears on the Series A notes or the DTC participant who is listed
as the owner. If the letter of transmittal or any Series A notes or bond powers
are signed or endorsed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, those persons should so indicate when signing, and
unless waived by us, evidence satisfactory to us of their authority to so act
must be submitted with the letter of transmittal.
If you tender your notes through ATOP, signatures and signature guarantees
are not required.
DETERMINATIONS OF VALIDITY
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered Series A notes will be
determined by us in our sole discretion. This determination will be final and
binding. We reserve the absolute right to reject any and all Series A notes not
properly tendered or any Series A notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the absolute right to waive
any defects, irregularities or conditions of tender as to particular Series A
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all
24
parties. Unless waived, any defects or irregularities in connection with tenders
of Series A notes must be cured within the time we shall determine. Although we
intend to notify holders of defects or irregularities related to tenders of
Series A notes, neither we, the exchange agent nor any other person shall be
under any duty to give notification of defects or irregularities related to
tenders of Series A notes nor shall any of them incur liability for failure to
give notification. Tenders of Series A notes will not be considered to have been
made until such defects or irregularities have been cured or waived. Any
Series A notes received by the exchange agent that we determine are not properly
tendered or the tender of which is otherwise rejected by us and as to which the
defects or irregularities have not been cured or waived by us will be returned
by the exchange agent to the tendering holder unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your Series A notes and:
- your Series A notes are not immediately available;
- you cannot complete the procedure for book-entry transfer on a timely
basis;
- you cannot deliver your Series A notes, the letter of transmittal or any
other required documents to the exchange agent before the expiration date;
or
- you cannot complete a tender of Series A notes held in book-entry form
using DTC's ATOP procedures on a timely basis,
you may effect a tender if you tender through an eligible institution as defined
under "--Procedures for Tendering--Signatures," or if you tender using ATOP's
guaranteed delivery procedures.
A tender of Series A notes made by or through an eligible institution will
be accepted if:
- before 5:00 p.m., New York City time, on the expiration date, the exchange
agent receives from an eligible institution a properly completed and duly
executed notice of guaranteed delivery, by facsimile transmittal, mail or
hand delivery, that: (1) sets forth the name and address of the holder,
the certificate number or numbers of the holder's Series A notes and the
principal amount of the Series A notes tendered, (2) states that the
tender is being made, and (3) guarantees that, within five business days
after the expiration date, a properly completed and validly executed
letter of transmittal or facsimile, together with a certificate(s)
representing the Series A notes to be tendered in proper form for
transfer, or a book-entry confirmation, and any other documents required
by the letter of transmittal will be deposited by the eligible institution
with the exchange agent; and
- the properly completed and executed letter of transmittal or a facsimile,
together with the certificate(s) representing all tendered Series A notes
in proper form for transfer, or a book-entry confirmation, and all other
documents required by the letter of transmittal are received by the
exchange agent within five business days after the expiration date.
A tender made through DTC's Automated Tender Offer Program will be accepted
if:
- before 5:00 p.m., New York City time, on the expiration date, the exchange
agent receives an agent's message from DTC stating that DTC has received
an express acknowledgment from the participant in DTC tendering the
Series A notes that they have received and agree to be bound by the notice
of guaranteed delivery; and
- the exchange agent receives, within five business days after the
expiration date, either: (1) a book-entry confirmation transmitted via
DTC's ATOP procedures; or (2) a properly completed
25
and executed letter of transmittal or a facsimile, together with the
certificate(s) representing all tendered Series A notes in proper form for
transfer, or a book-entry confirmation, and all other documents required
by the letter of transmittal.
Upon your request, the exchange agent will send to you a notice of
guaranteed delivery so that you may tender your Series A notes according to the
guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
You may withdraw Series A notes you tendered at any time before 5:00 p.m.
New York City time on the expiration date. To withdraw a tender of Series A
notes in the exchange offer:
- a written or facsimile transmission of a notice of withdrawal must be
received by the exchange agent at its address listed below before
5:00 p.m., New York City time, on the expiration date; or
- you must comply with the appropriate DTC ATOP procedures.
Any notice of withdrawal must:
- specify the name of the person having deposited the Series A notes to be
withdrawn;
- identify the Series A notes to be withdrawn, including the certificate
number or numbers and principal amount of the Series A notes or, in the
case of Series A notes transferred by book-entry transfer, the name and
number of the account at the depositary to be credited;
- be signed by the same person and in the same manner as the original
signature on the letter of transmittal by which the Series A notes were
tendered, including any required signature guarantee, or be accompanied by
documents of transfer sufficient to permit the trustee for the Series A
notes to register the transfer of the Series A notes into the name of the
person withdrawing the tender; and
- specify the name in which any of these Series A notes are to be
registered, if different from that of the person who deposited the
Series A notes to be withdrawn.
All questions as to the validity, form and eligibility, including time of
receipt, of the withdrawal notices will be determined by us, and such
determination shall be final and binding on all parties. Any Series A notes so
withdrawn will be judged not to have been tendered according to the procedures
in this prospectus for purposes of the exchange offer, and no Series B notes
will be issued in exchange for those Series A notes unless you validly retender
the Series A notes so withdrawn. If your Series A notes that have been tendered
are not accepted for exchange, they will be returned to you without cost to you
or, in the case of Series A notes tendered by book-entry transfer, into your
account at DTC according to the procedures described above. This return or
crediting will take place as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. You may retender properly withdrawn
Series A notes by following one of the procedures described above under
"--Procedures for Tendering" at any time before the Expiration Date.
CONDITIONS
The exchange offer is subject only to the following conditions:
- the compliance of the exchange offer with securities laws;
- the proper tender of the Series A notes;
26
- our receipt of the required representations by the holders of the
Series A notes described above; and
- no judicial or administrative proceeding is pending or shall have been
threatened that would limit us from proceeding with the exchange offer.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. The failure by us at any time to exercise any of the forgoing rights
shall not constitute a waiver of that right. Each of these rights will be deemed
an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any Series A notes tendered,
and no Series B notes will be issued in exchange for those Series A notes, if at
such time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
State Street Bank and Trust Company, the trustee under the indenture, has
been appointed as exchange agent for the exchange offer. In this capacity, the
exchange agent has no fiduciary duties and will be acting solely on the basis of
our directions. You should direct requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal to the
exchange agent at the address below. You should send certificates for Series A
notes, letters of transmittal and any other required documents to the exchange
agent addressed as follows:
FOR INFORMATION CALL:
(617) 662-1603
BY MAIL: BY OVERNIGHT COURIER:
State Street Bank and Trust
State Street Bank and Trust Company
Company Two Avenue de Lafayette
P.O. Box 778 BY FACSIMILE TRANSMISSION Boston, Massachusetts 02110
Boston, Massachusetts 02102 (FOR ELIGIBLE INSTITUTIONS ONLY): Attn: Corporate Trust Department,
Attn: Corporate Trust Department, (617) 662-1452 5th Floor
Meaghan Haight Attn: Corporate Trust Department Meaghan Haight
CONFIRM BY TELEPHONE:
(617) 662-1603
BY HAND: IN NEW YORK (AS DROP
AGENT) BY HAND: IN BOSTON
State Street Bank and Trust
State Street Bank and Trust Company
Company, N.A. Two Avenue de Lafayette
61 Broadway, 15th Floor Boston, Massachusetts 02110
Corporate Trust Window Attn: Corporate Trust Department,
New York, New York 10006 5th Floor
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS LISTED
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS DESCRIBED
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
27
SOLICITATION OF TENDERS; FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
under the exchange offer is being made by mail. Our officers and regular
employees and our affiliates may make additional solicitations in person, by
telegraph, telephone or telecopier.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket costs and expenses in connection
with the exchange offer and will indemnify the exchange agent for all losses and
claims incurred by it as a result of the exchange offer.
We will pay the expenses to be incurred in connection with the exchange
offer, including fees and expenses of the exchange agent and trustee, accounting
and legal fees and printing costs.
TRANSFER TAXES
You will not be obligated to pay any transfer tax in connection with the
exchange, except if you instruct us to register Series B notes in the name of,
or request that notes not tendered or not accepted in the exchange offer be
returned to, a person other than you, you will be responsible for the payment of
any applicable transfer tax.
ACCOUNTING TREATMENT
The Series B notes will be recorded at the same carrying value as the
Series A notes, as reflected in our accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by us upon the closing of the exchange offer. We will amortize the
expenses of the exchange offer over the term of the Series B notes.
PARTICIPATION IN THE EXCHANGE OFFER; UNTENDERED NOTES
Participation in the exchange offer is voluntary. Holders of the Series A
notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
Series A notes tendered under the terms of, this exchange offer, we will have
fulfilled a covenant contained in the terms of the registration agreement. If
you do not tender your Series A Notes in the exchange offer, you will continue
to hold your Series A notes and will be entitled to all the rights, subject to
the limitations, applicable to the Series A notes under the indenture. Holders
of Series A notes will no longer be entitled to any rights under the
registration agreement that by their term terminate or cease to have further
effect as a result of the making of this exchange offer. All untendered
Series A notes will continue to be subject to the restrictions on transfer
described in the indenture. To the extent that Series A notes are tendered and
accepted in the exchange offer, the trading market for untendered Series A notes
could be adversely affected. This is because there will probably be many fewer
remaining Series A notes outstanding following the exchange, significantly
reducing the liquidity of the untendered notes.
If you do not exchange your restricted notes for registered notes pursuant
to the exchange offer, you will continue to be subject to the restrictions on
transfer of the restricted notes as described in the legend on the notes. In
general, the restricted notes may be offered or sold only if registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. We do
not currently anticipate that we will register the
28
restricted notes under the Securities Act. However, under limited circumstances
we may be required to file with the Commission a shelf registration statement to
cover resales of the restricted notes by the holders of Series A notes who
satisfy conditions relating to the provision of information in connection with
the shelf registration statement.
We may in the future seek to acquire untendered Series A notes in the open
market or through privately negotiated transactions, through subsequent exchange
offers or otherwise. The terms of any such purchases or offers could differ from
the terms of the exchange offer. We intend to make any acquisitions of Series A
notes following the applicable requirements of the Exchange Act, and the rules
and regulations of the Commission under the Exchange Act, including Rule 14e-1,
to the extent applicable. We have no present plan to acquire any Series A notes
that are not tendered in the exchange offer or to file a registration statement
to permit resales of any Series A notes that are not tendered in the exchange
offer.
29
USE OF PROCEEDS
We will not receive any cash proceeds upon completion of the exchange offer.
We used the majority of the net proceeds from the sale of the Series A
notes, which were approximately $194.3 million, to consummate the CRC
acquisition. The balance of the net proceeds were used to pay down a portion of
our existing indebtedness under our senior secured credit facility.
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of March 31, 2001 and on a pro forma basis giving effect
to the consummation of the CRC acquisition as if it occurred on March 31, 2001.
You should read this information in conjunction with the sections "Use of
Proceeds" and "Selected Consolidated Historical Financial Data," and with our
financial statements and Notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information,
all of which have been incorporated by reference herein.
AS OF MARCH 31, 2001
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 29,045 $ 40,179
Long-term debt, including current portion
Senior secured credit facility:
Revolving credit facility............................... 41,000 23,639
Term loans.............................................. 267,875 267,875
Other long-term debt...................................... 49 49
11 1/8% senior subordinated notes due 2008................ 200,000 200,000
-------- --------
Total long-term debt.................................... 508,924 491,563
Less: current portion................................... (12,327) (12,327)
-------- --------
Total long-term debt, excluding current portion......... 496,597 479,236
-------- --------
Shareholders' equity........................................ 81,520 80,548
-------- --------
Total capitalization...................................... $590,444 $572,111
======== ========
30
BUSINESS
INTRODUCTION
We are a diversified gaming and pari-mutuel wagering company with operations
in West Virginia, Mississippi, Louisiana, Pennsylvania and Ontario, Canada. On
April 27, 2001, we completed the acquisition of all of the gaming assets of CRC
Holdings, Inc. for approximately $181.3 million, including amounts required to
refinance certain existing indebtedness, which expanded our gaming operations
into Louisiana and Ontario, Canada.
BUSINESS STRATEGY
Our business strategy is to create a broad, diversified base of gaming and
pari-mutuel properties that provides our customers with high quality experiences
that build significant customer loyalty. We continue to improve our gaming
operations to take advantage of their higher margins and less seasonal cash flow
compared to our pari-mutuel operations, while we seek expansion in the more
profitable areas of the pari-mutuel business, such as OTWs and at-home wagering.
We intend to integrate our gaming properties to exploit operating synergies and
marketing and promotional activities. We have focused strategies for Charles
Town, the Mississippi properties, Casino Rouge, Casino Rama and the racetracks
and related assets are as follows:
- CHARLES TOWN ENTERTAINMENT COMPLEX--The Charles Town Entertainment Complex
has provided us with substantial internal growth over the past two years.
Revenue at the property grew from $80.0 million for the year ended
December 31, 1999 to $135.3 million for the year ended December 31, 2000.
Charles Town currently has 1,974 gaming machines and a customer database
with over 126,000 people. We intend to continue to capitalize on the
strong demographics of the mid-Atlantic gaming market and the property's
leading position in the Baltimore and Washington D.C. markets by adding
amenities such as a hotel, entertainment venue, showroom and structured
parking facility. A hotel at Charles Town should allow us to create a
regional destination that will attract customers from a broader geographic
area. Additionally, we believe we can increase the length of stay from
existing customers with these additional amenities. Finally, on April 21,
2001, the West Virginia legislature passed a law increasing the maximum
per pull wagering limit for gaming machines from $2 per pull to $5 per
pull. We are in the process of reconfiguring our gaming machines for this
change and expect to begin operating machines with the new wagering limit
in July 2001. We believe that the net impact of this change, even after an
increase in taxes on the additional revenue, will positively impact our
cash flow.
- CASINO MAGIC BAY ST. LOUIS AND BOOMTOWN BILOXI--Casino Magic Bay St. Louis
and Boomtown Biloxi provide us with the opportunity to cross-sell to a
large database of local casino customers. Each of the properties has
operated in the Gulf Coast market for over 6 years. We believe the
properties have loyal employee and local customer bases, and offer
superior customer service through focused marketing and promotional
campaigns. While both properties are primarily aimed at local residents,
we feel that Casino Magic Bay St. Louis provides us with the ability to
create a regional destination property where we can reward loyal customers
from any Penn National facility with a quality casino, hotel and golf
experience. We have established a plan to add a new 300-room hotel, new
restaurants and a reconfigured gaming floor at Casino Magic Bay St. Louis
collectively anticipated to cost $35 million and be completed within two
years. Construction on the hotel began in April 2001. We intend to drive
our returns on invested capital at Casino Magic Bay St. Louis by
cross-selling the expanded property to customers in the databases of all
of the Penn National facilities.
- PENN NATIONAL RACE COURSE AND POCONO DOWNS AND THEIR OTWS--We believe that
our racetracks and OTWs will continue to provide us with strong, stable
cash flows. While pari-mutuel
31
operations are an increasingly smaller component of our business, the
pari-mutuel business may provide us with significant upside if certain
legislative initiatives are adopted. These initiatives include permitting
OTW and account wagering in New Jersey and at-home wagering, including
telephone wagering, throughout the country. Coupled with our existing
OTWs, these initiatives would provide us with significant high growth,
high margin opportunities. Additionally, we have implemented a casino
style customer tracking system throughout our pari-mutuel facilities that
should permit us to increase customer loyalty and attract new customers.
- CASINO ROUGE AND CASINO RAMA--Our purchase of the CRC gaming division
continues our strategy of acquiring strong assets in emerging gaming
markets at attractive valuations. The Casino Rouge caters to a local and,
we believe, loyal customer base. The property continues to be the market
leader in Baton Rouge in gaming revenue and admissions. We intend to
cross-sell the Casino Magic Bay St. Louis property to the Casino Rouge's
customer base as a regional destination opportunity thereby generating
additional returns on our Bay St. Louis investment. Casino Rama draws its
customers from the Toronto metropolitan area and has been successful in
drawing patrons through targeted bus and marketing programs. A 5,000-seat
entertainment complex and 300-room hotel are currently under construction
at the property. We anticipate that this expansion will increase the
average customer's length of stay, as there is a lack of overnight
accommodations in the area. The Casino Rama operating agreement provides
us with an additional source of income without any capital requirements by
us.
THE CHARLES TOWN ENTERTAINMENT COMPLEX
The Charles Town Entertainment Complex is located in Charles Town, West
Virginia, and is a leading gaming facility in the Baltimore, Maryland and
Washington, D.C. area. The facility is approximately a 60-minute drive from
Baltimore and a 70-minute drive from Washington, D.C. There is a total
population of approximately 3.1 million persons within a 50-mile radius, and
approximately 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. The average household income within this 100-mile radius is
approximately $66,000 a year.
The Charles Town Entertainment Complex features gaming machines, live
racing, simulcast wagering and dining. Since we began operating gaming machines
at the facility in September 1997, we have experienced strong growth at the
facility and have increased the number of gaming machines from 400 machines at
September 1997 to 1,974 at March 2001. Currently, there is no statutory cap on
the number of gaming machines that may be installed at a location, although any
increases in the number of gaming machines is subject to regulatory approval.
Given the success of the Charles Town Entertainment Complex, we have undertaken
certain property enhancements and have formulated plans for other improvements.
Specifically, in November 2000, we completed our expansion of the gaming
facility to nearly 60,000 square feet of gaming space, opened a new 150-seat
restaurant and bar and increased the number of gaming machines at the facility
from 1,500 to approximately 2,000 machines. In the next phase of the expansion,
which we anticipate completing by early 2003, we intend to construct additional
gaming space, a structured parking facility, a 300-room hotel with meeting rooms
and conference space and an entertainment venue, at an estimated cost of
$55 million.
Of the 1,974 machines at March 31, 2001, approximately 1,300 machines are
coin out gaming machines that we installed since the passage of legislation in
West Virginia in April 1999 permitting this type of gaming machine. The
remaining gaming machines are dollar bill-fed video gaming machines that
replicate traditional spinning reel gaming machines and video card games, such
as blackjack and poker. We intend to convert some or all of the remaining video
gaming machines to coin out spinning reel machines and hope to increase the
total number of gaming machines beyond our current level, pending approval by
the West Virginia Lottery Commission. On April 21, 2001, the West Virginia
legislature passed a law increasing the maximum per pull wagering limit for
gaming machines operated
32
in the state from $2 per pull to $5 per pull. We are in the process of
reconfiguring our gaming machines for this change and expect to begin operating
machines with the new wagering limit in July 2001. Revenues resulting from the
limit increase are subject to taxes at a slightly higher rate. We believe that
the net impact of these legislative changes will positively impact our cash
flow.
Our marketing efforts at the Charles Town Entertainment Complex include
print and radio advertising and are focused on the Washington, D.C., Baltimore,
Maryland, Northern Virginia, Eastern West Virginia and Southern Pennsylvania
markets. In 1999, we installed a computerized player tracking system called
Player's Choice at the Charles Town Entertainment Complex. This system has
helped to further refine our marketing efforts and our database now consists of
approximately 126,000 players as of February 1, 2001. Our marketing efforts also
include a bus program and cash and merchandise give-aways.
THE MISSISSIPPI PROPERTIES
The Mississippi Gulf Coast has a long tradition as a vacation destination.
Boomtown Biloxi and Casino Magic Bay St. Louis are within 65 and 46 miles of New
Orleans, Louisiana and 63 and 90 miles of Mobile, Alabama, respectively. The
Gulf Coast area draws an estimated two million visitors annually, primarily from
Louisiana, Mississippi, Alabama, Florida and Georgia. The Gulf Coast area also
boasts a local population of approximately 350,000, of which 66% are over the
age of 20, an average household income of approximately $33,000 and a median age
of 33. Approximately 6.3 million people live within a 200-mile radius around
Biloxi and Bay St. Louis with an average age of 32. Gross casino gaming revenues
on the Mississippi Gulf Coast totaled approximately $1,030 million and
$814 million in 1999 and 1998, respectively, a year over year increase of
approximately 27%.
CASINO MAGIC BAY ST. LOUIS CASINO AND RESORT
The Casino Magic Bay St. Louis casino and resort commenced operation in
September 1992, as the first dockside casino in Mississippi to operate on a
barge rather than a traditional riverboat. The casino is located on a 17-acre
marina with the adjoining land-based facilities situated on 591 acres. Casino
Magic Bay St. Louis offers approximately 39,500 square feet of gaming space,
with approximately 1,163 slot machines and 38 table games. The three story
land-based building houses a steak and seafood restaurant, buffet-style
restaurant, cafe, gift shop and live entertainment lounge. The property has a
200-room hotel that includes 24 suites, banquet and meeting space and an outdoor
pool. The Casino Magic Bay St. Louis complex also includes an 1,800 seat arena
for concerts and sporting events, a 100-space recreational vehicle park, a child
entertainment center, and the Bridges Golf Resort, an 18-hole Arnold
Palmer-designed championship golf course that includes a clubhouse, pro shop,
and a casual dining restaurant.
We are planning a number of focused enhancements to the Casino Magic Bay St.
Louis property, including plans to construct a 300-room hotel adjacent to the
property that we anticipate could be completed by mid 2002. We believe that the
new hotel will enhance mid-week business at the facility and will geographically
extend the casino's target market. Construction on the hotel began in April
2001. We also are planning to add two new restaurant venues to the property to
meet customer needs, to improve access to the gaming floor by adding new
escalators and elevators and to expand available parking facilities.
Casino Magic Bay St. Louis is located 1.5 miles north of U.S. Highway 90,
approximately nine miles south of Interstate 10, the main thoroughfare
connecting New Orleans, Louisiana and Mobile, Alabama.
33
BOOMTOWN BILOXI CASINO
Boomtown Biloxi commenced operations in July 1994 and occupies nine acres on
Biloxi, Mississippi's historic back bay. The dockside property consists of a
land-based facility which houses all non-gaming operating space and an
approximately 33,600 square foot casino constructed on a 400 by 100-foot barge
permanently moored to the land-based building. There is approximately 14,000
square feet on the barge that remains available for development. The casino
offers 1,142 gaming machines, 27 table games and other non-gaming amenities
including a full service buffet/menu service restaurant, a 120 seat deli-style
restaurant, a full-service bakery, a western dance hall/cabaret and a 20,000
square foot family entertainment center. The western-themed family entertainment
center, complete with a dynamic motion theater, distinguishes Boomtown Biloxi
from other casinos on the Mississippi Gulf Coast as a destination offering
entertainment for the entire family.
Boomtown Biloxi offers gaming and entertainment amenities to primarily
middle income, value-oriented customers. The casino has an "old west" theme with
western memorabilia in its interior decor, country/western music and employees
dressed in western attire. We believe Boomtown Biloxi has a relaxed and friendly
environment and a broad and loyal customer base. We intend to continue to focus
on this target market by providing moderately priced, high value amenities and
by utilizing a broad array of marketing programs, including charter flights and
bus programs, among others.
Boomtown Biloxi is located one-half mile from Interstate 110, the main
highway connecting Interstate 10 and the Gulf of Mexico. Interstate 10 is the
main thoroughfare connecting New Orleans, Louisiana and Mobile, Alabama.
According to the Mississippi Department of Transportation, over 12 million
vehicles travel past the Boomtown Biloxi site on Interstate 110 each year. The
site is easily accessible by car when approaching from the north due to its
immediate proximity to the Interstate 110 spur from Interstate 10, which
provides the bulk of traffic to the Gulf Coast region. Boomtown Biloxi is
constructed in the Back Bay and is the first casino visible to auto traffic
traveling south on Interstate 110.
We have an exclusive license to use the Boomtown Biloxi name, logo and
internet world wide web address. The term of the license is contingent upon
certain events, but in no event will it be for less than two years from
August 2000. If our license to use the Boomtown Biloxi name expires, we would
have to identify an alternative name for this casino.
CASINO ROUGE
Our wholly-owned subsidiary, Louisiana Casino Cruises, Inc., or LCCI, owns
and operates Casino Rouge, a Baton Rouge, Louisiana riverboat gaming facility.
The Casino Rouge opened on December 28, 1994, and is one of two riverboat gaming
facilities authorized to operate in Baton Rouge. For fiscal year 1999, LCCI's
share of the Baton Rouge gaming market was 61.7% of casino revenues and 59.2% of
admissions, as reported by the Louisiana Gaming Control Board.
The Casino Rouge features a four-story, 47,000 square foot riverboat casino,
replicating a 19th century Mississippi River paddlewheel steamboat, and a
two-story, 58,000 square foot dockside embarkation building. The riverboat has a
capacity of 1,800 customers and emphasizes spaciousness with its ample aisle
space, 15-foot ceilings, a large central atrium and specially designed lighting.
The overall effect avoids the cramped atmosphere found in many riverboat
casinos. Patrons are offered a selection of 980 gaming machines and 42 table
games in 28,000 square feet of gaming space spread over three decks. The
dockside embarkation facility offers a panoramic view of the Mississippi River
and features a variety of amenities, including a 268-seat "International
Marketplace Buffet," an array of food, bar and lounge areas, meeting and
planning space and a gift shop. All of the facilities are open seven days a
week, 24 hours a day.
34
The 23-acre site is located on the east bank of the Mississippi River in the
East Baton Rouge Downtown Development District less than one-quarter mile from
the state capital complex. The site is within approximately one mile of both
Interstate 10 and Interstate 110, two major highways in the area. In addition,
the site has convenient parking for approximately 1,650 cars adjacent to the
embarkation facility.
CASINO RAMA
CHC Casinos Canada Limited, our wholly-owned subsidiary, operates Casino
Rama on behalf of the Ontario Lottery and Gaming Corporation under a Development
and Operating Agreement with the Mnjikaning First Nation, the Ontario Lottery
and Gaming Corporation and certain other parties. Casino Rama is a full service
gaming and entertainment facility located on the lands of the Mnjikaning First
Nation near Orillia, Ontario approximately 90 miles north of Toronto, Ontario.
Casino Rama consists of 75,000 square feet of gaming space that includes 2,202
gaming machines and 122 table games. The casino opened in July of 1996 and is
open 24 hours a day, 7 days a week. There is an adult population of
approximately 1.1 million persons within 100-miles of Casino Rama.
The Development and Operating Agreement under which CHC Casinos operates the
facility sets out the duties, rights and obligations of CHC Casinos. As the
operator, CHC Casinos is entitled to a base fee equal to two percent of gross
revenues of the casino and an incentive fee equal to five percent on the
casino's net operating margin. The agreement terminates on July 31, 2011, unless
otherwise terminated earlier in accordance with the termination provisions of
the Development and Operating Agreement. The Ontario Lottery and Gaming
Corporation has the option to extend the term of the Development and Operating
Agreement and CHC Casinos' appointment as operator for two successive periods of
five years commencing on August 1, 2011.
Under a Casino Rama Expansion Project and Development Agreement dated
June 12, 2000 among the Ontario Lottery and Gaming Corporation, Mnjikaning First
Nation, CRC, CHC Casinos and certain other parties, the parties have agreed that
certain components of Casino Rama will be renovated and expanded, including the
construction of a 5,000 seat entertainment center expected to open in July 2001
and a 300-room hotel expected to open in February 2002 located near the casino.
The majority of the capital necessary for this expansion will be financed by an
affiliate of the Mnjikaning First Nation to be repaid out of the revenue of
Casino Rama pursuant to the terms of the Development and Operating Agreement.
RACING AND PARI-MUTUEL OPERATIONS
Our racing and pari-mutuel revenues are derived from:
- wagering on our live races at our racetracks, at our OTWs, at other
Pennsylvania racetracks and their OTWs and through telephone account
wagering, as well as wagering at our racetracks on certain stakes races
run at out-of-state racetracks;
- wagering on full-card import simulcasts at our racetracks and OTWs and
through telephone account wagering; and
- fees from wagering on export simulcasting our races at out-of-state
locations.
We also derive revenues from admissions, program sales, food and beverage
sales and concessions and certain other ancillary activities.
Pari-mutuel wagering on thoroughbred or harness racing is pooled wagering in
which a pari-mutuel wagering system totals the amounts wagered and adjusts the
payouts to reflect the relative amounts bet on different horses and various
possible outcomes. The pooled wagers are paid out to bettors as winnings in
accordance with the payoffs determined by the pari-mutuel wagering system, paid
to the
35
applicable regulatory or taxing authorities and distributed to the track's
horsemen in the form of "purses" which encourage owners and trainers to enter
their horses in that track's live races. The balance of the pooled wagers is
retained by the wagering facility. Pari-mutuel wagering is currently authorized
in more than 40 states in the United States, all provinces in Canada and
approximately 100 other countries around the world.
We are seeking to increase wagering by broadening our customer base and
increasing the wagering activity of our existing customers. To attract new
customers, we seek to increase the racing knowledge of our customers through our
television programming, and by providing "user friendly" automated wagering
systems and comfortable surroundings. We also seek to attract new customers by
offering various types of promotions including family fun days, premium
give-away programs, contests and handicapping seminars.
LIVE RACING
THE PENN NATIONAL RACE COURSE. The Penn National Race Course is located on
approximately 225 acres approximately 15 miles northeast of Harrisburg, 100
miles west of Philadelphia and 200 miles east of Pittsburgh. There is a total
population of approximately 1.4 million persons within a radius of approximately
35 miles around the Penn National Race Course and approximately 2.2 million
persons within a 50-mile radius. The property includes a one-mile all-weather
thoroughbred racetrack and a 7/8-mile turf track. The property also includes
approximately 400 acres surrounding the Penn National Race Course that are
available for future expansion or development.
POCONO DOWNS. Pocono Downs is located on approximately 400 acres in Plains
Township, outside Wilkes-Barre, Pennsylvania. There is a total population of
approximately 785,000 persons within a radius of approximately 35 miles around
Pocono Downs and approximately 1.5 million persons within a 50-mile radius. The
property includes a 5/8-mile all-weather, lighted harness track.
THE CHARLES TOWN RACES. The Charles Town Races at the Charles Town
Entertainment Complex is located on a portion of a 250-acre parcel in Charles
Town, West Virginia. The property includes a 3/4-mile thoroughbred racetrack.
The property surrounding the Charles Town Entertainment Complex, including the
site of the former Shenandoah Downs Racetrack, is available for future expansion
or development. In addition, we have a right of first refusal for an additional
250 acres that are adjacent to the Charles Town Entertainment Complex.
36
OTWS
Our OTWs provide areas for viewing import simulcasts and televised sporting
events, placing pari-mutuel wagers and dining. The facilities also provide
convenient parking. We presently operate 11 of the 20 OTWs now open in
Pennsylvania. There are two remaining OTWs that have been authorized in
Pennsylvania for our competitors. Some states, such as New York, operate
off-track betting locations that are independent of racetracks. Under the
Pennsylvania Racehorse Industry Reform Act, only licensed racing associations,
such as Penn National, can operate OTWs or accept customer wagers on simulcast
races at Pennsylvania racetracks. The following is a list of our OTW locations:
FACILITY/LOCATION DATE OPENED
- ----------------- -----------
PENN NATIONAL FACILITIES:
Reading, PA................................................ May 1992
Chambersburg, PA........................................... April 1994
York, PA................................................... March 1995
Lancaster, PA.............................................. July 1996
Williamsport, PA........................................... February 1997
Johnstown, PA.............................................. September 1998
POCONO DOWNS FACILITIES:
Erie, PA................................................... May 1991
Allentown, PA.............................................. July 1993
Carbondale, PA............................................. March 1998
Hazleton, PA............................................... March 1998
East Stroudsburg, PA....................................... July 2000
We have been transmitting simulcasts of our races to other wagering
locations and receiving simulcasts of races from other locations for wagering by
our customers at our facilities year-round for more than seven years. During the
year ended December 31, 2000, we received import simulcasts from approximately
96 racetracks, including premier racetracks such as Belmont Park, Church Hill
Downs, Gulfstream Park, Hollywood Park, Santa Anita and Saratoga and transmitted
export simulcasts of our races to approximately 116 locations.
TELEPHONE ACCOUNT WAGERING/INTERNET WAGERING
In 1983, we pioneered Telebet-Registered Trademark-, Pennsylvania's first
telephone account wagering system. A Telebet customer opens an account by
depositing funds with us. Account holders can then place wagers by telephone on
Penn National races and import simulcast races to the extent of the funds on
deposit in the account; any winnings are posted to the account and are available
for withdrawal or future wagers. In December 1995, Pocono Downs instituted
Dial-A-Bet-Registered Trademark-, a similar telephone account betting system.
eBetUSA.com, Inc., our wholly owned subsidiary, is a closed-loop,
subscriber-based system that operates a pari-mutuel wagering platform across the
Internet. eBetUSA.com operates in selected jurisdictions with the approval of
the Pennsylvania State Horse Racing Commission and the Pennsylvania State
Harness Racing Commission. The website technology is provided under a license
agreement with eBet Limited of Australia.
In April 2001 we entered into an agreement with Playboy.com, Inc., a wholly
owned subsidiary of Playboy Enterprises, Inc., to develop PlayRacingUSA.com, an
online pari-mutuel horseracing wagering site. Under the terms of the agreement,
we are responsible for day-to-day operations of the site and Playboy will be
responsible for marketing related services, user interface, design and content.
The site is expected to begin operations in the third quarter of 2001 and will
be licensed and operated in
37
Pennsylvania. Bettors from around the world will be able to access the site,
however, the site will have safeguards to prevent the acceptance of wagering
from jurisdictions where online pari-mutuel wagering is prohibited.
NEW JERSEY JOINT VENTURE--PENNWOOD RACING, INC.
On October 30, 1998, we formed a 50%-50% joint venture with Greenwood New
Jersey, Inc., a subsidiary of Greenwood Racing, Inc. (the owner of Philadelphia
Park Race Track) to acquire certain assets of Garden State Park and Freehold
Raceway from International Thoroughbred Breeders, Inc. In January 1999,
Greenwood New Jersey consummated the acquisition on behalf of the joint venture.
On July 29, 1999, after receiving New Jersey Racing Commission approval, we
completed our investment in the New Jersey joint venture through our interest in
Pennwood Racing, Inc. The purchase price for the acquisition was $46 million,
however, if the joint venture receives various approvals for off-track wagering
or phone betting in New Jersey, it will be required to pay additional purchase
price of up to $10 million.
Through our interest in Pennwood Racing, Inc., we own Freehold Raceway in
Freehold, New Jersey and held a leasehold interest in Garden State Park in
Cherry Hill, New Jersey. Freehold Raceway is located on a 51-acre site in
western Monmouth County, New Jersey and is the nation's oldest harness track.
Daytime racing has been conducted at Freehold Raceway since 1853; pari-mutuel
wagering commenced in 1941. The grandstand at Freehold Raceway is an
approximately 150,000 square foot, five level, steel frame, enclosed, fully
heated and air conditioned facility constructed in 1986 that can accommodate up
to 10,000 spectators. The grandstand also has a sit-down restaurant and seven
concession stands. Freehold Raceway is located less than 50 miles from New York
City and less than 30 miles from Princeton and Trenton, New Jersey.
On November 30, 2000, the owner of Garden State Park, International
Thoroughbred Breeders, Inc., announced that it had completed the sale of the
Garden State Park property, excluding a 10-acre parcel owned by our joint
venture, to Realen-Turnberry Cherry Hill, LLC. As a result of the sale and a
decision by the new owner to develop the property for non-racing uses, our joint
venture's lease at Garden State Park was terminated on May 29, 2001 and Garden
State Park was closed. We do not believe that the termination of the Garden
State Park lease and the cessation of racing at that facility has had or will
have a material adverse effect on our business, financial conditions or results
of operations.
We have agreed to guarantee up to 50% of the obligations of the New Jersey
joint venture, including, but not limited to, the $10 million contingent
purchase price due to International Thoroughbred Breeders if the joint venture
receives various approvals for off-track wagering or phone betting in New
Jersey, and the obligations of the joint venture under its original $23 million
credit facility with Commerce Bank, N.A.
AGREEMENTS WITH HORSEMEN AND PARI-MUTUEL CLERKS
We have agreements with the horsemen at each of our racetracks. The
continuation of these agreements is required to allow us to conduct live racing
and export and import simulcasting. 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 six of our OTW facilities. As a result of the closure, our
operations at Penn National Race Course 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
operations. In March 1999, we signed a new
38
agreement with the Pennsylvania Thoroughbred Horsemen that has an initial term
that expires on January 1, 2004.
In December 1999, we signed a new horsemen agreement with the Pennsylvania
Harness Horsemen that expires on January 16, 2003. We also have an agreement
with the Charles Town Horsemen that expires on December 31, 2002.
In addition to our horsemen agreements, in order to operate gaming machines
in West Virginia, we are required to enter into written agreements regarding the
proceeds of our gaming machines at the Charles Town Entertainment Complex with
the pari-mutuel clerks at Charles Town. Our agreement with the pari-mutuel
clerks at Charles Town expires on December 31, 2004.
In addition, our New Jersey joint venture, Pennwood Racing, must maintain
written agreements with the horsemen at Freehold Raceway in order to simulcast
races to the Atlantic City casinos. Horsemen agreements are currently in effect
at this facility.
OPTION TO MANAGE THE CHARLESTOWN ENTERTAINMENT COMPLEX
We acquired the Charles Town Entertainment Complex by exercising an option
previously held by a subsidiary of Showboat, Inc., now a wholly owned subsidiary
of Harrah's Entertainment, Inc. In assigning the option, Showboat retained the
right to operate a casino at the Charles Town Entertainment Complex in return
for a management fee, to be negotiated at the time of exercise, based on
reasonable rates payable for similar properties. The express terms of the
Showboat option do not specify what activities at the Charles Town Entertainment
Complex would constitute operation of a casino. We do not believe that our
installation and operation of gaming devices linked to the West Virginia lottery
at the Charles Town Entertainment Complex constitutes the operation of a casino
under the Showboat option or under West Virginia law or triggers Showboat's
right to exercise the Showboat option. The rights under the Showboat option
extend until November 2001.
EMPLOYEES AND LABOR RELATIONS
As of April 30, 2001, we had 8,312 permanent employees, of whom 6,425 were
full-time and 1,887 were part-time. Our employees in the admissions department
and pari-mutuel department at Penn National Race Course, Pocono Downs and our
OTWs are represented under collective bargaining agreements between us and the
Sports Arena Employees' Union Local 137. The agreements extend until
September 30, 2002 for track employees and September 30, 2001 for OTW employees.
The pari-mutuel clerks at Pocono Downs voted to unionize in June 1997. We have
held negotiations with this union, but do not have a contract to date. The
failure to reach an agreement with this union would not result in the suspension
or termination of our license to operate live racing at Pocono Downs or to
conduct simulcast or OTW operations.
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 our horse breeders. We have an agreement with the Charles Town
Horsemen that expires on December 31, 2002. The pari-mutuel clerks at Charles
Town are represented under a collective bargaining agreement with the West
Virginia Division of Mutuel Clerks, which expires on December 31, 2004.
39
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 within the
United States and Canada may legalize gaming in the near future through the
introduction of proposals to legalize gaming in their legislatures. 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 can be expected to 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 also offer significantly higher stakes for their gaming
machines than 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.
Per-pull limits in West Virginia are only $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 casinos as of December 31, 2000. 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 Mississippi gaming market is significantly more intense than
the competition our gaming operations face in West Virginia, Louisiana and
Ontario, Canada 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.
Mississippi law does not limit the number of gaming licenses that may be
granted. A number of operators have completed or announced new construction or
expansions of existing casinos that will directly compete with us. The
development of the Biloxi and Gulf Coast gaming markets has resulted in market
dilution and any additional casinos could dilute gaming win even further, each
of which could have a material adverse effect on our operations.
LOUISIANA. Our operation of the 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. Fourteen of the fifteen available riverboat licenses are currently
issued and the fifteenth license is currently under consideration. None of the
three applicants for the fifteenth license under consideration plan to operate
in Baton Rouge.
40
The principal competitor to the Casino Rouge is the Belle of Baton Rouge,
owned by Argosy Gaming, which is the only other licensed riverboat casino in
Baton Rouge. In February 2001, Argosy opened a new 300-room Sheraton hotel at
the casino. We also face competition from three major riverboat casinos and one
land-based casino in the New Orleans area, which is 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 that are authorized to operate up to 50 video poker
machines each. We may face competition from Louisiana horse racing facilities
some of which have been authorized to operate gaming machines.
ONTARIO. Our operation of Casino Rama through our wholly-owned subsidiary,
CHC Casinos Canada Limited, faces 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 thirteen racetracks with
gaming machines in the Province of Ontario. In 2001, two additional racetracks
in Ontario are planning to open gaming machine facilities. 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. Currently, there are five racetracks with gaming machine facilities
and one charity casino within a 150-mile radius of 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. Woodbine Racetrack,
located approximately 95 miles from Casino Rama, near Toronto, has 1,700 gaming
machines.
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, there are no
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 may also 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 in or 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 relatively close in distance to 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.
41
PROPERTIES
The following describes our principal real estate properties:
CHARLES TOWN ENTERTAINMENT COMPLEX. We own a 250-acre parcel in Charles
Town, West Virginia, a portion of which contains the Charles Town Entertainment
Complex. The property also includes a 3/4-mile thoroughbred racetrack and an
enclosed grandstand/clubhouse. We have a right of first refusal for an
additional 250 acres that are adjacent to the facility.
CASINO MAGIC BAY ST. LOUIS. We own approximately 591 acres in the city of
Bay St. Louis, Mississippi, including the 17-acre marina where the gaming barge
is moored. The property includes an 18-hole golf course, a hotel, and other
land-based facilities, all of which we own.
BOOMTOWN BILOXI. We lease substantially all of the 19 acres on which
Boomtown Biloxi is located under a 99-year lease that began in 1994. The lease
stipulates base rent based on gaming revenue with a minimum of $500,000 and a
maximum of $2 million annually, plus 5 percent of gaming revenues in excess of
$25 million but less than $50 million. If gaming revenue exceeds $50 million
dollars, the percentage rent increases to 11% of all gaming revenue over
$50 million. For the year ended December 31, 2000, rental payments totaled
$3.8 million. In addition, we lease property for parking under several lease
agreements ranging from 10 to 25 years. We also lease approximately 5.1 acres of
submerged tidelands at the casino site from the State of Mississippi under a
ten-year lease with a five-year option to renew. We own the barge on which the
casino is located and all of the land-based facilities.
CASINO ROUGE. LCCI owns five acres of a 23-acre site on the east bank of
the Mississippi River in the East Baton Rouge Downtown Development District less
than one-quarter mile from the state capital complex. The remaining 18 acres of
the site are currently leased. The property site serves as the dockside
embarkation for the Casino Rouge and features a two-story, 58,000 square foot
building. The Casino Rouge is a four-story 47,000 square foot riverboat casino.
CASINO RAMA. Under the Development and Operating Agreement among the
Ontario Lottery and Gaming Corporation, the Mnjikaning First Nation, CRC, CHC
Casinos and certain other parties, CHC Casinos operates Casino Rama on behalf of
the Ontario Lottery and Gaming Corporation. CRC and its wholly owned subsidiary,
CHC Casinos, the operator of Casino Rama, do not own any of the land located at
or near the casino. In addition, Casino Rama's facilities and equipment are
owned by the Ontario Lottery and Gaming Corporation. The Ontario Lottery and
Gaming Corporation has a long-term ground lease with an affiliate of the
Mnjikaning First Nation, for the land on which Casino Rama is situated. Under
the Development and the Operating Agreement, CHC Casinos has been granted a
license coupled with an interest in land pursuant to which it, as the operator,
has been granted full access to Casino Rama during the term of the Development
and Operating Agreement to perform its services under the Agreement.
PENN NATIONAL RACE COURSE. We own approximately 225 acres in Grantville,
Pennsylvania where the Penn National Race Course is located. The property
includes a one mile all-weather thoroughbred racetrack and a 7/8-mile turf
track. The property also includes approximately 400 acres surrounding the Penn
National Race course that are available for future expansion or development.
POCONO DOWNS. We own approximately 400 acres in Plains Township, outside of
Wilkes-Barre, Pennsylvania where Pocono Downs is located. The property includes
a 5/8-mile all weather, lighted harness track, a grandstand and a clubhouse. A
two-story 14,000 square foot building that houses the Pocono Downs office is
also located on the property.
42
FREEHOLD RACEWAY. Through our joint venture, we own a 51-acre site in
Freehold in Western Monmouth County, New Jersey where Freehold Raceway in
located. The property features a half-mile oval harness track and a 150,000
square foot grandstand.
OTWS. We own four of our existing OTW facilities and lease the remaining
seven facilities.
OTHER. We lease 6,674 square feet of office space in an office building in
Wyomissing, Pennsylvania for our executive offices. The office building is owned
by an affiliate of Peter M. Carlino, our Chairman and Chief Executive Officer.
We also lease an aircraft from a company owned by one of our directors. We
believe that the lease terms for both the executive office and aircraft are not
less favorable than such lease terms that could have been obtained from
unaffiliated third parties.
LEGAL PROCEEDINGS
We are from time to time involved in litigation that we believe is ordinary
and customary in our industry. We do not believe that any of our pending or
threatened litigation will result in an outcome that will materially affect our
business, financial condition or results of operations.
43
REGULATION
GENERAL
We are subject to federal, state, local and, in Canada, provincial
regulations related to our current live racing, pari-mutuel, gaming machine and
casino operations. The following description of the regulatory environment in
which we operate is only a summary and not a complete recitation of all
applicable regulatory laws. Moreover, our current and proposed operations could
be subjected at any time to additional or more restrictive regulations, or
banned entirely.
WEST VIRGINIA RACING AND GAMING REGULATION
Our operations at the Charles Town Entertainment Complex are subject to
regulation by the West Virginia Racing Commission under the West Virginia Horse
and Dog Racing Act, and by the West Virginia Lottery Commission under the West
Virginia Racetrack Video Lottery Act. The powers and responsibilities of the
West Virginia Racing Commission under the West Virginia Horse and Dog Racing Act
extend to the approval and/or oversight of all aspects of racing and pari-mutuel
wagering operations. We have obtained from the West Virginia Racing Commission a
license to conduct racing and pari-mutuel wagering at the Charles Town
Entertainment Complex. Pursuant to the West Virginia Racetrack Video Lottery
Act, we have obtained approval for and currently are operating approximately
2,000 gaming machines and video lottery terminals at the Charles Town
Entertainment Complex. In addition to licensing, in West Virginia, the legality
of gaming machine operation in a particular county is determined by local option
election in the county where the racetrack is located. The West Virginia
Racetrack Video Lottery Act further provides that 5% of the qualified voters in
the county where gaming machines have been permitted by local option election
can petition for another election that may be held no sooner than five years
after the first election.
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.
The issuance of the Series A notes were approved by the West Virginia
Lottery Commission and the West Virginia Racing Commission.
On April 21, 2001, the West Virginia legislature passed a law increasing the
maximum per pull wagering limit for gaming machines operated in the state from
$2 per pull to $5 per pull. We are in the process of reconfiguring our gaming
machines for this change and expect to begin operating machines with the new
wagering limit in July 2001. Revenues resulting from the limit increase are
subject to taxes at a slightly higher rate. We believe that the net impact of
these legislative changes will positively impact our cash flow.
MISSISSIPPI REGULATORY COMPLIANCE
Our operation of the Casino Magic Bay St. Louis casino and Boomtown Biloxi
casino is subject to Mississippi regulatory compliance, a summary of which is
provided below.
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulation primarily through the licensing
and regulatory control of the Mississippi Gaming Commission and the Mississippi
State Tax Commission. We must register and be licensed under the Mississippi
Gaming Control Act, or the Mississippi Act, and our gaming operations are
subject to the regulatory control of the Mississippi Gaming Commission, the
Mississippi State Tax Commission and various local, city and county regulatory
agencies. The Mississippi Act, which legalized
44
dockside casino gaming in Mississippi, was enacted on June 29, 1990 and,
effective October 29, 1991, the Mississippi Gaming Commission adopted
regulations in furtherance of the Mississippi Act.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to: (1) prevent unsavory or unsuitable
persons from having direct or indirect involvement with gaming at any time or in
any capacity; (2) establish and maintain responsible accounting practices and
procedures; (3) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission; (4) prevent
cheating and fraudulent practices; (5) provide a source of state and local
revenues through taxation and licensing fees; and (6) ensure that gaming
licensees, to the extent practicable, employ Mississippi residents. The
regulations are subject to amendment and interpretation by the Mississippi
Gaming Commission.
The Mississippi Act provides for legalized dockside gaming at the discretion
of the 14 counties that either border the Gulf Coast or the Mississippi River
but only if the voters in such counties have not voted to prohibit gaming in
that county. Dockside gaming is permissible in nine of the 14 eligible counties
in the state and gaming operations have commenced in Adams, Coahoma, Hancock,
Harrison, Tunica, Warren and Washington counties. The law permits unlimited
stakes gaming on permanently moored vessels on a 24-hour basis and does not
restrict the percentage of space that may be utilized for gaming. There are no
limitations on the number of gaming licenses which may be issued in Mississippi.
The legal age for gaming in Mississippi is 21.
We are required to submit detailed financial, operating and other reports to
the Mississippi Gaming Commission and Mississippi State Tax Commission. We must
report or seek approval for substantially all loans, leases, sales of securities
and similar financing transactions.
We have been investigated and on August 8, 2000, the Mississippi Gaming
Commission issued us a gaming operator's license for Boomtown Biloxi and for
Casino Magic Bay St. Louis. In addition, the Mississippi Gaming Commission has
found certain of our key principals suitable.
Each of our directors, officers and key employees who are actively and
directly engaged in the administration or supervision of gaming, or who have any
other significant involvement with our activities must be found suitable
therefor, and may be required to be licensed by the Mississippi Gaming
Commission. The finding of suitability is comparable to licensing, and both
require submission of detailed personal financial information followed by a
thorough investigation. In addition, any individual who is found to have a
material relationship to, or material involvement with, us may be investigated
in order to be found suitable or to be licensed as a business associate of ours.
Key employees, controlling persons or others who exercise significant influence
upon our management or affairs may also be deemed to have such a relationship or
involvement. There can be no assurance that such persons will be found suitable
by, and maintain such a suitability finding from, the Mississippi Gaming
Commission. An application for licensing may be denied for any cause deemed
reasonable by the Mississippi Gaming Commission. Changes in licensed positions
must be reported to the Mississippi Gaming Commission. In addition to its
authority to deny an application for a license, the Mississippi Gaming
Commission has jurisdiction to disapprove a change in a corporate position. If
the Mississippi Gaming Commission were to find a director, officer or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with us, we would have to suspend, dismiss and sever all
relationships with such person. We would have similar obligations with regard to
any person who refuses to file appropriate applications. Each gaming employee
must obtain a work permit that may be revoked upon the occurrence of certain
specified events.
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
45
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 these notes, 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 such
as the notes to be investigated 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
46
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.
We may not engage in gaming activities in Mississippi while also conducting
gaming operations outside of Mississippi without approval of the Mississippi
Gaming Commission. Such approvals were initially granted to us by the
Mississippi Gaming Commission as part of the original licensure process, and
additional approvals must be obtained on a jurisdiction-by-jurisdiction basis.
The failure to obtain or retain any such approval could have a material adverse
effect on us.
We may not transfer any of our licenses and we must renew each license every
three years. There can be no assurance that any of our renewal applications will
be approved. The Mississippi Gaming Commission may at any time dissolve,
suspend, condition, limit or restrict a license or approval to own equity
interests in us for any cause it deems reasonable. We may have substantial fines
levied against us in Mississippi for each violation of gaming laws or
regulations. A violation under any gaming license held by us may be deemed a
violation of the Mississippi licenses held by us. Suspension or revocation of
the Mississippi licenses or of the Mississippi Gaming Commission's approval of
us would have a material adverse effect upon our business.
In October 1994, the Mississippi Gaming Commission adopted a regulation
requiring, as a condition of licensure or license renewal, that a gaming
establishment's site development plan include an approved 500-car parking
facility in close proximity to the casino complex, and infrastructure facilities
that amount to at least 25% of the casino cost. Such facilities may include any
of the following: a 250-room hotel of at least a two star rating, as defined by
the current edition of the Mobil Travel Guide; a theme park; a golf course;
marinas; a tennis complex; entertainment facilities; or any other such facility
as approved by the Mississippi Gaming Commission as infrastructure. Parking
facilities, roads, sewage and water systems or facilities normally provided by
governmental entities are excluded. The Mississippi Gaming Commission may, in
its discretion, reduce the number of hotel rooms required where it is shown, to
the satisfaction of the Mississippi Gaming Commission, that sufficient rooms are
available to accommodate the anticipated visitor load. Such reduction in the
number of rooms does not affect the 25% investment requirement imposed by the
regulation. Casino Magic Bay St. Louis, Boomtown Biloxi and related facilities
have complied with these requirements. In January 1999, the Mississippi Gaming
Commission amended its infrastructure regulation thereby increasing the minimum
level of infrastructure investment from 25% to 100% of the casino cost. However,
the 100% infrastructure investment requirement would apply only to new casino
developments and existing casino developments that are not in operation at the
time of their acquisition or purchase, and therefore does not apply to Casino
Magic Bay St. Louis and Boomtown Biloxi. In any event, Casino Magic Bay St.
Louis and Boomtown Biloxi will attempt to comply with such requirements.
License fees and taxes are payable to the State of Mississippi and to the
counties and cities in which our Mississippi subsidiaries operate. One of the
license fees payable to the state of Mississippi is based upon gross revenue of
the licensee (generally defined as gaming receipts less payout to customers as
winnings) and equals 4% of gross revenue of $50,000 or less per month, 6% of
gross revenue over $50,000 and less than $134,000 per calendar month, and 8% of
gross revenue over $134,000 per calendar month. The foregoing license fees are
allowed as a credit against the licensee's Mississippi income tax liability for
the year paid. Additionally, a licensee must pay a $5,000 annual license fee and
an annual fee based upon the number of games it operates. Mississippi
communities and counties may impose fees on licensees equaling 0.4% of gross
revenue of $50,000 or less per calendar month, 0.6%
47
of gross revenue over $50,000 and less than $134,000 per calendar month and 0.8%
of gross revenue over $134,000 per calendar month. These fees have been imposed
in, among other cities and counties, Biloxi, Vicksburg, Tunica County and
Coahoma County. Certain local and private laws of the State of Mississippi may
impose fees or taxes on our Mississippi subsidiaries in addition to the fees
described above.
The Mississippi Gaming Commission requires, as a condition of licensure or
license renewal, that casino vessels on the Mississippi Gulf Coast that are not
self-propelled must be moored to withstand a Category 4 hurricane with 155
mile-per-hour winds and 15-foot tidal surge. We believe that all of our
Mississippi gaming operations currently meet this requirement. A 1996
Mississippi Gaming Commission regulation prescribes the hurricane emergency
procedure to be used by the Mississippi Gulf Coast casinos.
The sale of alcoholic beverages, including beer and wine, at Casino Magic
Bay St. Louis and Boomtown Biloxi is subject to licensing, control and
regulation by the Mississippi State Tax Commission. The Miscellaneous Tax
Division of the Mississippi State Tax Commission regulates the sale of beer and
light wine. The Alcoholic Beverage Control Division of the Mississippi State Tax
Commission, or the ABC, regulates the sale of alcoholic beverages containing
more than 5% alcohol by weight. The ABC requires that all equity owners and
managers file personal record forms and fingerprint cards for their licensing
process. In addition, owners of more than 5% of Casino Magic Bay St. Louis or
Boomtown Biloxi equity as well as officers and managers must submit detailed
financial information to the ABC for licensing. All such licenses are revocable
and are non-transferable. The Mississippi State Tax Commission has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could, and revocation would, have a material adverse effect on the
operations of Casino Magic Bay St. Louis and Boomtown Biloxi.
LOUISIANA REGULATION
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.
In July 1991, the Louisiana legislature adopted legislation permitting
certain types of gaming activity on certain rivers and waterways in Louisiana.
Since May 1, 1999, the Louisiana Gaming Control Board, or the Louisiana Board,
has regulated such gaming activities.
The Louisiana Riverboat Economic Development and Gaming Control Act
authorized the issuance of up to fifteen licenses to conduct gaming activities
on a riverboat of new construction in accordance with applicable law. However,
no more than six licenses may be granted to riverboats operating from any one
parish. Of the fifteen available licenses, thirteen are currently in operation,
one is being relocated and one has been returned to the state.
Riverboat gaming licenses in Louisiana are issued for an initial five-year
term with five year renewals thereafter. In issuing or renewing a license, the
Louisiana Board must find that the applicant is a person of good character,
honesty and integrity and that the applicant is a person whose prior activities,
criminal record, if any, reputation, habits and associations do not pose a
threat to the public interest of the State of Louisiana or to the effective
regulation and control of gaming, or create or enhance the dangers of
unsuitable, unfair or illegal practices, methods and activities in the conduct
of gaming or the carrying on of business and financial arrangements in
connection therewith. The Louisiana Board will grant or renew a license if it
finds that: (a) the applicant can demonstrate the capability, either through
training, education, business experience, or a combination of the above, to
operate a gaming casino; (b) the proposed financing of the riverboat and the
gaming operation is adequate for the nature of the proposed operation and from a
source suitable and acceptable to the Louisiana Board; (c) the applicant
demonstrates a proven ability to operate a vessel of comparable size, capacity
and complexity to a riverboat so as to ensure the safety of its passengers, with
each employee
48
being appropriately United States Coast Guard certified; (d) the applicant
submits a detailed plan of design of the riverboat in its application for a
license; (e) the applicant designates the docking facilities to be used by the
riverboat; (f) the applicant shows adequate financial ability to construct and
maintain a riverboat; and (g) the applicant has a good faith plan to recruit,
train and upgrade minorities in all employment classifications.
LCCI's original five-year gaming license for the Casino Rouge expired in
July 1999. On June 15, 1999, LCCI received conditional license approval from the
Louisiana Board until the completion of the investigation and approval by the
Board with respect to the renewal. On March 29, 2001, in addition to approving
the CRC acquisition, the Louisiana Board renewed LCCI's license through
June 2005, subject to several conditions. The first condition involves the
landlord of the property where Casino Rouge is located. The landlord of the
property, Capitol Lake Properties, Inc., or CLP, currently receives 1.25% of
gross revenues generated on the property from LCCI. On or about November 29,
2000, in accordance with indications from Louisiana regulators that the same
would be a condition of its renewal, LCCI filed suit for Declaratory Judgment in
the 19th Judicial District Court of Louisiana against CLP seeking a
determination whether CLP, as a matter of law, must submit to the suitability
investigation of the division, and what, if any, obligation CLP has under the
lease agreement, to submit to suitability. The condition requires that LCCI
continues to prosecute such lawsuit to final resolution and to report its
progress monthly to Louisiana regulators. The other conditions imposed by the
Louisiana Board have either already been complied with or are voluntary and
standard procurement of employment conditions routinely imposed on licensees in
the state of Louisiana.
Other regulations imposed by the Louisiana Act or rules adopted pursuant
thereto include, but are not limited to, the following: (a) LCCI, which includes
CRC, must periodically submit financial and operating reports to the Louisiana
Board; (b) owners holding greater than a 5% interest in LCCI must be found
suitable by the Louisiana Board; (c) any individual who is found to have a
material relationship to, or involvement with, LCCI may be required to be
investigated for suitability; (d) if a director, officer, or key employee were
found to be unsuitable, LCCI would have to sever all relationships with that
person; (e) the transfer of a license or permit or an interest in a license or
permit is prohibited without prior approval; (f) LCCI must notify the Louisiana
Board of any withdrawals of capital, loans, advances, or distributions in excess
of 5% of retained earnings upon completion of such transaction; and (g) LCCI
must give prior notification to the Louisiana Board if it applies or receives,
accepts or modifies the terms of any loan or other financing transaction. In
some cases, the Louisiana Board will be required to investigate the reported
transaction and to either approve or disapprove the transaction.
The Louisiana Act or rules adopted pursuant thereto contain certain
restrictions and conditions relating to the operation of riverboat gaming,
including the following: (a) agents of the Louisiana Board are permitted on
board at any time during gaming operations; (b) gaming devices, equipment and
supplies may only be purchased or leased from permitted suppliers; (c) gaming
may only take place in the designated gaming area while the riverboat is upon a
designated river or waterway; (d) gaming equipment may not be possessed,
maintained or exhibited by any person on a riverboat except in the specifically
designated gaming area, or a secure area used for inspection, repair or storage
of such equipment; (e) wagers may be received only from a person present on a
licensed riverboat; (g) persons under 21 are not permitted on gaming vessels;
(h) except for slot machine play, wagers may be made only with tokens, chips or
electronic cards purchased from the licensee aboard a riverboat; (i) licensees
may only use docking facilities for which they are licensed and may only board
and discharge passengers at the riverboat's licensed berth; (j) licensees must
have adequate protection and indemnity insurance; (k) licensees must have all
necessary federal and state licenses, certificates and other regulatory
approvals prior to operating a riverboat; and (l) gaming may only be conducted
in accordance with the terms of the license, the Louisiana Act and the rules and
regulations adopted by the Louisiana Board.
49
Fees for conducting gaming activities on a riverboat pursuant to the
Louisiana Act include (i) $50,000 per riverboat for the first year of operation
and $100,000 per year per riverboat thereafter plus (ii) 21.5% of net gaming
proceeds. The Louisiana Act also authorizes the local governing body to assess a
boarding fee up to $2.50 in East Baton Rouge Parish. The City of Baton Rouge has
imposed an admission fee of $2.50 for each patron boarding the vessel. For
fiscal year ended November 30, 1999, LCCI's boarding fee expense was $3,924,000.
For LCCI's competitive reasons, LCCI and its Baton Rouge competitor have elected
not to collect boarding fees from patrons and instead pay those fees from their
respective earnings.
Proposals to amend or supplement the Louisiana Act are frequently introduced
in the Louisiana State legislature. In addition, the state legislature from time
to time considers proposals to repeal the Louisiana Act, which would effectively
prohibit riverboat gaming in the State of Louisiana. Although LCCI does not
believe that a prohibition of riverboat gaming in Louisiana is likely, no
assurance can be given that changes in the Louisiana gaming law will not occur
or that such changes will not have a material adverse affect on LCCI's business.
On November 5, 1996, in the six parishes in which riverboats are currently
located, including East Baton Rouge Parish, voters approved the continuation of
riverboat gaming. In East Baton Rouge Parish and the six parishes as a whole,
the vote in favor of riverboat gaming was 59% and 66%, respectively. Legislation
may be proposed that could involve the repeal of dockside gaming or an increase
in taxes, either of which could have a negative impact on our future gaming
revenue.
In March 2001, Louisiana passed Act 3 of the 1st Extraordinary Legislative
Session which allows Riverboat gaming licenses to operate dockside. Prior to the
legislation, LCCI was required to maintain up to eight cruises daily, subject to
weather and other conditions. In consideration of this change, the tax on gross
gaming revenues was increased from 18.5% to 21.5%, effective April 1, 2001. We
cannot be sure that the additional revenues generated by dockside gaming will
offset the additional tax burden.
ONTARIO REGULATION
Our gaming operations in Ontario at Casino Rama are subject to the
regulatory control of the Alcohol and Gaming Commission of Ontario pursuant to
the Gaming Control Act and the contractual provisions in the Development and
Operating Agreement among CRC, CHC Casinos, the Ontario Lottery and Gaming
Corporation, the Mnjikaning First Nation and certain other parties.
Our wholly-owned subsidiary, CHC Casinos, is required under the Gaming
Control Act to be registered as a casino operator with the Alcohol and Gaming
Commission of Ontario and must operate in accordance with the terms and
conditions of its registration.
Pursuant to the Gaming Control Act and the terms of CHC Casinos'
registration, the Registrar of Alcohol and Gaming must approve any change in the
directors or officers of CHC Casinos. The Alcohol and Gaming Commission of
Ontario may require the submission of informational material from any person who
has an interest in CHC Casinos. This includes parent companies and their
directors and officers.
The Registrar of Alcohol and Gaming has the power, subject to the Gaming
Control Act, to grant, renew, suspend or revoke registrations. The Registrar is
entitled to make such inquiries and conduct such investigations as are necessary
to determine that applicants for registration meet the requirements of the
Gaming Control Act and to require information or material from any person who
has an interest in an applicant for registration. The criteria to be considered
in connection with registration under the Gaming Control Act include the
financial responsibility, integrity and honesty of the applicant, and the public
interest. The Registrar may, at any time, revoke, suspend or refuse to renew CHC
Casinos' registration for any reason that would have disentitled it to
registration.
50
In addition, any person who supplies a casino with goods and services must
be registered with the Alcohol and Gaming Commission of Ontario. Key employees
who engage in the administration or supervision of gaming or the operation of
gaming premises must also be registered with this agency.
The Development and Operating Agreement imposes certain obligations on CHC
Casinos relating to the operation of Casino Rama including obtaining all
necessary government consents required to operate various components of the
casino in accordance with applicable law and ensuring that all persons retained
by it for the provision of goods and services to the various components of the
casino are also registered as required by law.
PENNSYLVANIA RACING REGULATIONS
Our horse racing operations at Penn National Race Course and Pocono Downs
are subject to extensive regulation under the Pennsylvania Racing Act, which
established the Pennsylvania State Horse Racing Commission and the Pennsylvania
State Harness Racing Commission (referred to herein as the Pennsylvania Racing
Commissions) which are responsible for, among other things:
- granting permission annually to maintain racing licenses and schedule
races;
- approving, after a public hearing, the opening of additional OTWs;
- approving simulcasting activities;
- licensing all officers, directors, racing officials and certain other
employees of a company; and
- approving all contracts entered into by a company affecting racing,
pari-mutuel wagering and OTW operations.
As in most states, the regulations and oversight applicable to our
operations in Pennsylvania are intended primarily to safeguard the legitimacy of
the sport and its freedom from inappropriate or criminal influences. The
Pennsylvania Racing Commissions have broad authority to regulate in the best
interests of racing and may, to that end, disapprove the involvement of certain
personnel in our operations, deny approval of certain acquisitions following
their consummation or withhold permission for a proposed OTW site for a variety
of reasons, including community opposition. The Pennsylvania legislature also
has reserved the right to revoke the power of the Pennsylvania Racing
Commissions to approve additional OTWs and could, at any time, terminate
pari-mutuel wagering as a form of legalized gaming in Pennsylvania or subject
such wagering to additional restrictive regulation; such termination would, and
any further restrictions could, have a material adverse effect upon our
business, financial condition and results of operations.
We may not be able to obtain all necessary approvals for the continued
operation or expansion of our business. Even if all such approvals are obtained,
the regulatory process could delay implementation of our plans to open
additional OTWs. We have had continued permission from the Pennsylvania State
Horse Racing Commission to conduct live racing at the Penn National Race Course
since we commenced operations in 1972, and have obtained permission from the
Pennsylvania State Harness Racing Commission to conduct live racing at Pocono
Downs. Currently, we have approval from the Pennsylvania Racing Commissions to
operate the eleven OTWs that are currently open. A Commission may refuse to
grant permission to open additional OTWs or to continue to operate existing
facilities. The failure to obtain or maintain required regulatory approvals
could have a material adverse effect upon our business, financial condition and
results of operations.
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
51
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.
NEW JERSEY REGULATION
Our joint venture's operations at Freehold Raceway in New Jersey are subject
to regulation (i) by the New Jersey Racing Commission under the Racing Act of
1940, as amended and supplemented and the rules and regulations of the Racing
Commission and (ii) by the New Jersey Casino Control Commission under the Casino
Control Act and Casino Simulcasting Act.
Under the Racing Act, all pari-mutuel employees and all others who are
connected with the training of horses or the conduct of races, must be licensed
by the Racing Commission. In addition, no person may hold or acquire, directly
or indirectly, beneficial ownership of 5% or more of the voting securities of
the joint venture without the prior approval of the Racing Commission.
At least 85% of the persons employed by the New Jersey joint venture at
Freehold Raceway must be residents of New Jersey (excluding jockeys, drivers or
apprentices, exercise boys, owners, trainers, clockers, governing and managing
officials and heads of departments of the track). The Racing Commission has the
authority to require that the joint venture discharge any employee who:
(i) fails or refuses for any reason to comply with the rules and regulations of
the Racing Commission; (ii) in the opinion of the Racing Commission is guilty of
fraud, dishonesty or incompetency; (iii) has been convicted of a crime involving
moral turpitude; or (iv) fails or refuses for any reason to comply with any of
the provisions of the Racing Act.
Additional restrictions and/or requirements imposed by the Racing Commission
on the joint venture's racetrack operations include, but are not limited to, the
setting of the admission price required to be charged by the joint venture, a
requirement that the joint venture (and all other racetracks operating in New
Jersey) must schedule at least one race per day limited to registered New
Jersey-bred foals and the methods the joint venture may use to distribute
pari-mutuel pools and "breaks" (the odd cents remaining after computing the
amount due holders of winning pari-mutuel tickets). The Racing Commission also
regulates the manner of keeping of certain of the joint venture's books and
records.
The Racing Commission is also responsible for the allocation of racing dates
based upon the annual application of the permit holder. The joint venture is
entitled to race the same number of dates as in the preceding year, when it is
in the public interest to do so, or for such other dates, not exceeding
100 days in the aggregate for harness racing and 75 days in the aggregate for
thoroughbred racing, as the Racing Commission shall designate; provided, however
that if another permit holder rejects any of the dates to which they may be
entitled the Racing Commission may allot those dates among other permitholders.
The Racing Commission has discretion to allot harness race permitholders an
additional 200 days and thoroughbred race permitholders an additional 100 days.
The failure to comply with the Racing Act and the rules and regulations of
the Racing Commission could result in monetary fines, operations restrictions or
the loss of our license.
Because the joint venture simulcasts to Atlantic City casinos, the joint
venture's simulcasting agreements are required to be filed with and approved by
the Casino Control Commission and the New Jersey Racing Commission. In addition,
the joint venture is required to be approved and licensed by the Casino Control
Commission as a non-gaming casino service industry. Certain of the joint
venture's employees and its directors and significant stockholders are also
required to be approved by the Casino Control Commission. As of the date hereof,
all of the joint venture's employees and directors required to be approved have
been approved by the Casino Control Commission or have filed
52
applications seeking such approval. There can be no assurance that all parties
seeking Casino Control Commission approval will obtain such approval or the
effect on the joint venture if such approvals are not obtained.
STATE AND FEDERAL SIMULCAST REGULATION
The Federal Interstate Horseracing Act, the Pennsylvania Racing Act, the
West Virginia Racing Act and the New Jersey Simulcasting Racing Act require that
we have a written agreement with each applicable horsemen's organization in
order to simulcast races. We have entered into the horsemen agreements, and in
accordance therewith have agreed on the allocations of our revenues from import
simulcast wagering to the purse funds for the Penn National Race Course, Charles
Town Races, Pocono Downs and Freehold Raceway. Because we cannot conduct import
simulcast wagering in the absence of the horsemen agreements, the termination or
non-renewal of such horsemen agreements could have a material adverse effect on
our business, financial condition and results of operations.
TAXATION
We believe that the prospect of significant additional revenue is one of the
primary reasons that jurisdictions permit legalized gaming. As a result, gaming
companies are typically subject to significant taxes and fees in addition to
normal federal, state, local and, in Canada, 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. 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.
IRS REGULATIONS AND CURRENCY TRANSACTION REPORTING
The Internal Revenue Service, or IRS, requires operators of casinos located
in the United States to file information returns for U.S. citizens, including
names and addresses of winners, for all winnings in excess of stipulated
amounts. The IRS also requires operators to withhold taxes on certain winnings
of nonresident aliens. We are unable to predict the extent, if any, to which
such requirements, if extended, might impede or otherwise adversely affect
operations of, and/or income from, such other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in certain domestic
jurisdictions in which we operate casinos require the reporting of currency
transactions in excess of $10,000 occurring within a gaming day, including
identification of the patron by name and social security number. This reporting
obligation commenced in May 1985 and may have resulted in the loss of casino
revenues to jurisdictions outside the United States that are exempt from the
ambit of such regulations. The operation of Casino Rama is subject to similar
requirements under Canadian federal law and provincial gaming legislation.
COMPLIANCE WITH OTHER LAWS
Our operations 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 derive a significant portion of
our non-racing revenues from the sale of alcoholic beverages to patrons of our
facilities. Any interruption or termination of our existing ability to serve
alcoholic beverages would have a material adverse effect on our business,
financial condition and results of operations.
53
DESCRIPTION OF SERIES B 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 Series B notes under the indenture dated
March 12, 2001 among itself, the Guarantors and State Street Bank and Trust
Company, as trustee. References to the "notes" include both the Series B notes
and any Series A notes that remain outstanding following completion of the
exchange offer. 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 those agreements in their entirety. We urge you
to read the indenture because it, and not this description, define 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 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, and will be, guaranteed by substantially all of Penn
National's Wholly-Owned Domestic Subsidiaries.
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;
and
- is senior or PARI PASSU in right of payment with any future senior
subordinated Indebtedness of that Guarantor.
As of March 31, 2001, Penn National and the Guarantors had total Senior Debt
of approximately $308.9 million. As indicated above and as discussed in detail
below under the caption "--Subordination," payments on the notes and under these
guarantees are subordinated to the payment of Senior Debt. The indenture permits
us and the Guarantors to incur additional Senior Debt.
As of the date of the exchange offer, 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 are permitted to designate certain of our
54
Subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries are
not subject to many of the restrictive covenants in the indenture. Our
Unrestricted Subsidiaries do not guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
Penn National will issue Series B notes with a maximum aggregate principal
amount of $200 million in denominations of $1,000 and integral multiples of
$1,000. The notes will mature on March 1, 2008.
Interest on the notes will accrue at the rate of 11 1/8% per annum and will
be payable semi-annually in arrears on March 1 and September 1, commencing on
September 1, 2001. Penn National will make each interest payment to the Holders
of record on the immediately preceding February 15 and August 15.
Interest on the notes will accrue from the date of issuance of the Series A
notes or, if interest has already been paid on the Series A notes, 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 and Liquidated Damages, if any, 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 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."
55
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,
its Subsidiary Guarantee and the registration rights agreement
pursuant to a supplemental indenture satisfactory to the trustee; 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;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of Penn National's assets and liabilities.
56
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 received,
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."
OPTIONAL REDEMPTION
At any time prior to March 1, 2004, Penn National may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes issued
under the indenture at a redemption price of
57
111.125% of the principal amount, plus accrued and unpaid interest and
Liquidated Damages, if any, 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 1, 2005. On and after March 1, 2005, 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 and
Liquidated Damages, if any, on the notes redeemed, to the applicable redemption
date, if redeemed during the twelve-month period beginning on March 1 of the
years indicated below:
YEAR PERCENTAGE
- ---- ----------
2005........................................................ 105.563%
2006........................................................ 102.781%
2007 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 and
Liquidated Damages, if any, 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 and Liquidated Damages, if any,
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.
58
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 and Liquidated Damages, if any, 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
59
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;
60
(3) to make capital expenditures; or
(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 and Liquidated Damages, if
any, 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
61
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 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;
62
(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
(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 first
fiscal quarter commencing after the date of the indenture 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 the date of the indenture 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 the
date of the indenture 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 Issue Date, 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.
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,
63
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.
64
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 and the related Subsidiary Guarantees to be
issued on the date of the indenture and the Series B notes and the
related Subsidiary Guarantees to be issued pursuant to the Registration
Rights Agreement and offered hereby;
(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;
65
(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) Indebtedness of CRC Holdings, Inc. and its Subsidiaries existing at the
time of the CRC Acquisition that is substantially concurrently
repurchased, repaid or otherwise retired or defeased;
(14) 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;
66
(15) 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 (15), not to exceed
$20 million; and
(16) 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 (16) 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.
67
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
(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;
68
(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
(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, the indenture and the
Registration Rights Agreement 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
69
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.
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;
70
(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).
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.
71
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.
In addition, following the consummation of the exchange offer, whether or
not required by the Commission, Penn National will file a copy of all of the
information and reports referred to in clauses (1) and (2) above with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such a
filing, in which event Penn National will make such information available to
securities analysts and prospective investors upon request). In addition, Penn
National and the Guarantors have agreed that, for so long as any notes remain
outstanding, they will furnish to the Persons entitled thereto, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
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
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, or
Liquidated Damages with respect to, 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
72
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.
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 or Liquidated Damages.
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 or Liquidated Damages 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 1,
2005, 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 1, 2005, 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
73
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 and Liquidated
Damages, if any, 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, registration of 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.
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 and
Liquidated Damages, if any, 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
74
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.
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, or Liquidated Damages, if any, 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;
75
(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 or Liquidated Damages, if any, 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;
(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 Liquidated
Damages, if any, and accrued interest to the date of maturity or
redemption;
76
(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.
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.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Series B notes will be issued in registered,
global form in minimum denominations of $1,000 and integral multiples of $1,000
in excess of $1,000. Series B Notes will be issued at the closing of the
exchange offer only upon tender of Series A notes in accordance with the
procedures set forth in this Prospectus and the Letter of Transmittal.
The Series B Notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the "Global
Notes"). The Global Notes will be deposited upon issuance with the trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of notes in certificated
form.
77
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and Clearstream are provided solely as a matter of convenience. These operations
and procedures are solely within the control of the respective settlement
systems and are subject to changes by them. We take 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, 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).
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 and
Liquidated Damages, if any, 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, DTC, 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
78
(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.
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.
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 these procedures, and may
discontinue these 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 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.
79
SAME DAY SETTLEMENT AND PAYMENT
Penn National will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. Penn National will make all payments of
principal, interest and premium and Liquidated Damages, if any, with respect to
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The notes represented by the Global Notes are expected to trade in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by DTC to be settled
in immediately available funds. Penn National expects that secondary trading in
any Certificated Notes will also be settled in immediately available funds.
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 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;
80
(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.
"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;
81
(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;
(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
82
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
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.
83
"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."
"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) 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
84
(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, 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.
85
"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
(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.
86
"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 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."
"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.
87
"LIQUIDATED DAMAGES" means the amounts payable under the Registration Rights
Agreement.
"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.
"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.
88
"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;
(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;
89
(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;
(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;
90
(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 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.
91
"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.
"REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement
dated as of the date of the indenture between Penn National and the Initial
Purchasers.
"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 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:
(1) all Indebtedness of Penn National or any Guarantor outstanding under
Credit Facilities and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of Penn National or any Guarantor permitted to be
incurred under the terms of the indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the notes or any
Subsidiary Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
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.
92
"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;
(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
93
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.
94
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
SCOPE OF DISCUSSION
The following general discussion summarizes certain United States federal
income tax consequences that apply to "United States Holders" and certain United
States federal income and estate tax consequences that apply to "Non-United
States Holders" who acquire the notes at their original issue price for cash and
hold the notes as "capital assets," 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.
EXCHANGE OF SERIES A NOTES PURSUANT TO THE EXCHANGE OFFER
The exchange of Series A notes for Series B notes pursuant to the exchange
offer will not be a taxable event for United States federal income tax purposes.
You will not recognize gain or loss upon the receipt of Series B notes. If you
are not exempt from United States federal income tax, you will be subject to
such tax on the same amount, in the same manner and at the same time as you
would have been as a result of holding the Series A notes. If you are a
cash-basis holder who is exchanging Series A notes for Series B notes, you will
not recognize in income any accrued and unpaid interest on the Series A notes by
reason of the exchange. The basis and holding period of the Series B notes will
be the same as the basis and holding period of the corresponding Series A notes.
95
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.
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 if the trust was in
existence on August 20, 1996 and 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.
MARKET DISCOUNT. If a United States Holder of a note, other than a holder
who purchased the note upon original issuance, acquires the note for an amount
that is less than its principal amount (i.e., at a market discount), and such
difference exceeds a statutorily-defined DE MINIMIS amount, and the United
States Holder thereafter recognizes gain upon a disposition or retirement of the
note, then the United States Holder will recognize ordinary income at the time
of the disposition in the amount of the lesser of the gain recognized and the
portion of the market discount that accrued on a ratable basis (or, if elected,
on a constant interest rate basis). In addition, market discount with respect to
a note may be taxable to a United States Holder to the extent of appreciation in
the value of the note at the time of certain otherwise nontaxable transactions
(i.e., gifts). Absent an election to include market discount in income as it
accrues, a United States Holder of a market discount note may be required to
defer a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry such note until the
United States Holder disposes of the note in a taxable transaction.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless the United
States Holder elects to accrue the market discount using a constant interest
method. A United States Holder may elect to include market discount in income
currently as it accrues (on either a ratable or constant interest method), in
which case the rule described above regarding deferral of interest deductions
will not apply. This election to
96
include market discount in income currently, once made, applies to all market
discount obligations acquired after the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service.
BOND PREMIUM. A United States Holder that purchases a note for an amount in
excess of the principal amount will be considered to have purchased the note at
a premium equal to such excess, and may elect to amortize the premium over the
remaining term of the note using a constant yield method. However, if the note
is purchased at a time when Penn National has the option to redeem the note for
an amount that is in excess of its principal amount, special rules may apply
that could result in a deferral of the amortization of bond premium until later
in the term of the note. The amount amortized in any year will be treated as a
reduction of the United States Holder's interest income from the note. A United
States Holder that elects to amortize bond premium must reduce its tax basis in
the note by the premium amortized. Bond premium on a note held by a United
States Holder that does not make this election will decrease the gain or
increase the loss otherwise recognized on the disposition of the note. The
election to amortize premium using the constant yield method, once made, applies
to all obligations held or subsequently acquired by the electing United States
Holder on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service.
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 (which amounts will be taxed as ordinary income),
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.
LIQUIDATED DAMAGES/EXCHANGE WITH REGISTERED NOTES. We intend to take the
position that the likelihood of our failing to exchange the notes with the
registered notes pursuant to the registration rights and this exchange offer is
remote. However, if we fail to exchange the notes pursuant to the registration
rights and this exchange offer, you must include the payment of liquidated
damages as ordinary income only when such payment is accrued or paid, in
accordance with your own method of accounting. The exchange of notes with the
registered notes pursuant to the registration rights and this exchange offer
will not be a taxable event. Your basis in the notes will carry over to the
registered notes received and the holding period of the registered notes will
include the holding period of the notes surrendered.
BACKUP WITHHOLDING. You may be subject to a 31% 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, corporations,
financial institutions and certain tax-exempt organizations) are generally not
subject to backup withholding. In addition, the 31% backup withholding tax will
not apply to you if you provide your social security or other taxpayer
identification number, or TIN, using a Form W-9, 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; or
- you fail to certify under penalties of perjury that you are not subject to
backup withholding.
97
If the 31% 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 (a Non-United States
Holder that is treated as a partnership for United States federal income
tax purposes must provide a Form W-8IMY and attach a certification from
each beneficial owner of interests in the Non-United States Holder); 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.
98
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.
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 31% 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." Form W-8BEN must also be filed by beneficial owners of
interests in a Non-United States Holder that is treated as a partnership for
United States federal income tax purposes.
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
99
withholding, if the payment is made by a foreign office of a custodian, nominee,
agent or broker that (i) is a United States person; (ii) is a controlled foreign
corporation for United States federal income tax purposes; (iii) is a foreign
partnership if, at any time during its tax year, one or more of its partners are
United States persons who, in the aggregate, hold more than 50 percent of the
income or capital interest of the partnership or if, at any time during its
taxable year, the partnership is engaged in the conduct of a U.S. trade or
business; or (iv) 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.
Backup withholding is not an additional tax. Any amounts so withheld may be
credited against the United States federal income tax liability of the holder or
refunded if the amounts withheld exceed such liability, provided that the
required information is furnished to the Internal Revenue Service. The
information reporting requirements may apply regardless of whether withholding
is required. Copies of the applicable information returns may be made available
to the tax authorities in the country in which a Non-United States Holder is a
resident under the provisions of an applicable income tax treaty or agreement.
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.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Series B notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Series B notes received in exchange for private notes
where such private notes were acquired as a result of market-making activities
or other trading activities. We have agreed that, for at least 180 days after
the exchange offer is completed, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 2001, all dealers effecting transactions in
the Series B notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of Series B notes by
brokers-dealers. Series B notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Series B notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Series B notes. Any
broker-dealer that resells Series B notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such Series B notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Series B notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the exchange offer is completed, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holder of the
private notes) other
100
than commissions or concessions of any brokers or dealers and the fees of any
advisors or experts retained by holders of Series A notes, and will indemnify
the holders of the private notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain matters with respect to the notes will be passed upon for us by
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated 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 and have been
incorporated by reference in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements for Mardi Gras Casino Corp. as of
December 31, 1999 and 1998, and 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, and 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, 2000 and 1999, 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.
101
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PENN NATIONAL GAMING, INC.
OFFER TO EXCHANGE
11 1/8% SERIES B SENIOR SUBORDINATED NOTES
DUE 2008
FOR
ANY AND ALL OUTSTANDING
11 1/8% SERIES A SENIOR SUBORDINATED NOTES
DUE 2008
$200,000,000 AGGREGATE PRINCIPAL AMOUNT
------------------
PROSPECTUS
, 2001
------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our bylaws require us to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed proceeding
by reason of the fact that he is or was one of our directors or officers or any
other person designated by our Board of Directors (which may include any person
serving at our request as a director, officer, employee, agent, fiduciary or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other entity or enterprise), in each case, against certain
liabilities (including, damages, judgments, amounts paid in settlement, fines,
penalties and expenses (including attorneys' fees and disbursements)), except
where such indemnification is expressly prohibited by applicable law, where such
person has engaged in willful misconduct or recklessness or where such
indemnification has been determined to be unlawful. Such indemnification as to
expenses is mandatory to the extent the individual is successful on the merits
of the matter. Pennsylvania law permits us to provide similar indemnification to
our employees and agents who are not directors or officers. The determination of
whether an individual meets the applicable standard of conduct may be made by
the disinterested directors, independent legal counsel or the shareholders.
Pennsylvania law also permits indemnification in connection with a proceeding
brought by us or in our right to procure a judgment in our favor. Insofar as
indemnification for liabilities arising under the Securities Act of may be
permitted to directors, officers, or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in that Act and is therefore unenforceable.
We have in force and effect policies insuring our directors and officers
against losses which they or any of them will become legally obligated to pay by
reason of any actual or alleged error or misstatement or misleading statement or
act or omission or neglect or breach of duty by the directors and officers in
the discharge of their duties, individually or collectively, or any matter
claimed against them solely by reason of their being directors or officers. Such
coverage is limited by the specific terms and provisions of the insurance
policies.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1* Indenture dated as of March 12, 2001 by and among Penn
National Gaming, Inc., certain guarantors and State Street
Bank and Trust Company relating to the Series A and Series B
11 1/8% Senior Subordinated Notes due 2008.
4.2* Form of Penn National Gaming, Inc. Series A 11 1/8% Senior
Subordinated Note due 2008 (included as part of the
Indenture at Exhibit 4.1).
4.3* Form of Penn National Gaming, Inc. Series B 11 1/8% Senior
Subordinated Note due 2008 (included as part of the
Indenture at Exhibit 4.1).
4.4* Registration Rights Agreement dated as of March 12, 2001 by
and among Penn National Gaming, Inc., certain of its
subsidiaries, and Lehman Brothers Inc. and CIBC World
Markets Corp.
5.1 Opinion of Morgan, Lewis & Bockius LLP.
12.1+ Statements re computation of ratios.
23.1+ Consent of BDO Seidman LLP.
23.2+ Consent of Arthur Andersen LLP.
23.3+ Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Morgan, Lewis & Bockius LLP (included in
Exhibit 5.1).
24.1+ Powers of Attorney (included on the signature page of this
Registration Statement).
II-1
EXHIBIT NO. DESCRIPTION
- ----------- -----------
25.1+ Statement of Eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal and Notice of Guaranteed
Delivery.
- ------------------------
* Previously filed as an exhibit to the Registrant's Form 10-Q for the quarter
ended March 31, 2001 and incorporated by reference herein.
+ Filed herewith.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
PENN NATIONAL GAMING, INC.
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
Gaming, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statements, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO Chairman of the Board and Chief
-------------------------------------- Executive Officer (Principal June 8, 2001
Peter M. Carlino Executive Officer)
Chief Financial Officer,
/s/ ROBERT S. IPPOLITO Secretary and Treasurer
-------------------------------------- (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
/s/ WILLIAM J. BORK
-------------------------------------- Director June 8, 2001
William J. Bork
/s/ HAROLD CRAMER
-------------------------------------- Director June 8, 2001
Harold Cramer
II-3
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ DAVID A. HANDLER
-------------------------------------- Director June 8, 2001
David A. Handler
/s/ JOHN M. JACQUEMIN
-------------------------------------- Director June 8, 2001
John M. Jacquemin
/s/ ROBERT P. LEVY
-------------------------------------- Director June 8, 2001
Robert P. Levy
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
BACKSIDE, INC.
By: /s/ RICHARD E. ORBANN
-----------------------------------------
Richard E. Orbann
PRESIDENT, SECRETARY, TREASURER AND
DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by
Backside, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statements, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the securities act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
President, Secretary, Treasurer
/s/ RICHARD E. ORBANN and Director (Principal
-------------------------------------- Executive, Financial and June 8, 2001
Richard E. Orbann Accounting Officer)
/s/ PETER M. CARLINO
-------------------------------------- Director June 8, 2001
Peter M. Carlino
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
BSL, INC.
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
CHIEF EXECUTIVE OFFICER AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by BSL, Inc., a
Mississippi corporation, in which the undersigned holds offices, and any
amendments to the registration statements, and to file any and all of the same,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO Chief Executive Officer and
-------------------------------------- Director (Principal Executive June 8, 2001
Peter M. Carlino Officer)
/s/ ROBERT S. IPPOLITO Secretary and Treasurer
-------------------------------------- (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
/s/ KEVIN DESANCTIS
-------------------------------------- President and Director Kevin June 8, 2001
Kevin Desanctis DeSanctis
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
BTN, INC.
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
CHIEF EXECUTIVE OFFICER AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by BTN, Inc., a
Mississippi corporation, in which the undersigned holds offices, and any
amendments to the registration statements, and to file any and all of the same,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO Chief Executive Officer and
-------------------------------------- Director (Principal Executive June 8, 2001
Peter M. Carlino Officer)
/s/ ROBERT S. IPPOLITO Secretary and Treasurer
-------------------------------------- (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
/s/ KEVIN DESANCTIS
-------------------------------------- President and Director Kevin June 8, 2001
Kevin Desanctis DeSanctis
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
CHC CASINOS CORP.
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by CHC Casinos
Corp., a Florida corporation, in which the undersigned holds offices, and any
amendments to the registration statements, and to file any and all of the same,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO President and Chief Executive
-------------------------------------- Officer (Principal Executive June 8, 2001
Peter M. Carlino Officer)
/s/ ROBERT S. IPPOLITO Secretary, Treasurer and
-------------------------------------- Director (Principal Financial June 8, 2001
Robert S. Ippolito and Accounting Officer)
/s/ JOSEPH A. LASHINGER, JR.
-------------------------------------- Vice President and Director June 8, 2001
Joseph A. Lashinger, Jr.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
CRC HOLDINGS, INC
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by CRC
Holdings, Inc., a Florida corporation, in which the undersigned holds offices,
and any amendments to the registration statements, and to file any and all of
the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO President and Chief Executive
------------------------------------ Officer (Principal Executive June 8, 2001
Peter M. Carlino Officer)
/s/ ROBERT S. IPPOLITO Secretary, Treasurer and Director
------------------------------------ (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
/s/ JOSEPH A. LASHINGER, JR.
------------------------------------ Vice President and Director June 8, 2001
Joseph A. Lashinger, Jr.
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
THE DOWNS RACING, INC.
By: /s/ JOSEPH A. LASHINGER, JR.
-----------------------------------------
Joseph A. Lashinger, Jr.
PRESIDENT, SECRETARY AND TREASURER AND
SOLE DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by The Downs
Racing, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statements, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
President, Secretary, Treasurer
/s/ JOSEPH A. LASHINGER, JR. and Sole Director (Principal
------------------------------------ Executive, Financial and June 8, 2001
Joseph A. Lashinger, Jr. Accounting Officer)
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
EBETUSA.COM, INC.
By: /s/ JOSEPH A. LASHINGER, JR.
-----------------------------------------
Joseph A. Lashinger, Jr.
PRESIDENT AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by
eBetUSA.com, Inc., a Delaware corporation, in which the undersigned holds
offices, and any amendments to the registration statements, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ JOSEPH A. LASHINGER, JR.
------------------------------------ President and Director June 8, 2001
Joseph A. Lashinger, Jr. (Principal Executive Officer)
/s/ ROBERT S. IPPOLITO Secretary, Treasurer and Director
------------------------------------ (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
/s/ PETER M. CARLINO
------------------------------------ Director June 8, 2001
Peter M. Carlino
/s/ KEVIN DESANCTIS
------------------------------------ Vice President and Director June 8, 2001
Kevin DeSanctis
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
LOUISIANA CASINO CRUISES, INC.
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Louisiana
Casino Cruises, Inc., a Louisiana corporation, in which the undersigned holds
offices, and any amendments to the registration statements, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO President and Chief Executive
------------------------------------ Officer June 8, 2001
Peter M. Carlino (Principal Executive Officer)
/s/ ROBERT S. IPPOLITO Secretary, Treasurer and Director
------------------------------------ (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
/s/ JOSEPH A. LASHINGER, JR.
------------------------------------ Vice President and Director June 8, 2001
Joseph A. Lashinger, Jr.
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
MILL CREEK LAND, INC.
By: /s/ RICHARD E. ORBANN
-----------------------------------------
Richard E. Orbann
PRESIDENT AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Mill Creek
Land, Inc., a Pennsylvania corporation, in which the undersigned holds offices,
and any amendments to the registration statements, and to file any and all of
the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ RICHARD E. ORBANN
------------------------------------ President and Director (Principal June 8, 2001
Richard E. Orbann Executive Officer)
/s/ ROBERT S. IPPOLITO
------------------------------------ Secretary and Treasurer (Principal June 8, 2001
Robert S. Ippolito Financial and Accounting Officer)
/s/ PETER M. CARLINO
------------------------------------ Director June 8, 2001
Peter M. Carlino
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
MOUNTAINVIEW THOROUGHBRED RACING ASSOCIATION
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
PRESIDENT AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Mountainview
Thoroughbred Racing Association, a Pennsylvania corporation, in which the
undersigned holds offices, and any amendments to the registration statements,
and to file any and all of the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents or any of them full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO
------------------------------------ President and Director (Principal June 8, 2001
Peter M. Carlino Executive Officer)
/s/ ROBERT S. IPPOLITO
------------------------------------ Secretary and Treasurer (Principal June 8, 2001
Robert S. Ippolito Financial and Accounting Officer)
/s/ HAROLD CRAMER
------------------------------------ Director June 8, 2001
Harold Cramer
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
NORTHEAST CONCESSIONS, INC.
By: /s/ RICHARD E. ORBANN
-----------------------------------------
Richard E. Orbann
PRESIDENT, SECRETARY AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Northeast
Concessions, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statements, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ RICHARD E. ORBANN
------------------------------------ President, Secretary and Director June 8, 2001
Richard E. Orbann (Principal Executive Officer)
/s/ ROBERT S. IPPOLITO Vice President and Treasurer
------------------------------------ (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
/s/ PETER M. CARLINO
------------------------------------ Director June 8, 2001
Peter M. Carlino
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
PENN NATIONAL GAMING OF
WEST VIRGINIA, INC.
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
PRESIDENT AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
Gaming of West Virginia, Inc., a West Virginia corporation, in which the
undersigned holds offices, and any amendments to the registration statements,
and to file any and all of the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents or any of them full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO
------------------------------------ President and Director (Principal June 8, 2001
Peter M. Carlino Executive Officer)
/s/ ROBERT S. IPPOLITO
------------------------------------ Secretary and Treasurer (Principal June 8, 2001
Robert S. Ippolito Financial and Accounting Officer)
/s/ HAROLD CRAMER
------------------------------------ Director June 8, 2001
Harold Cramer
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
PENN NATIONAL GSFR, INC.
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
GSFR, Inc., a Delaware corporation, in which the undersigned holds offices, and
any amendments to the registration statements, and to file any and all of the
same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO Chairman of the Board and Chief
------------------------------------ Executive Officer (Principal June 8, 2001
Peter M. Carlino Executive Officer)
/s/ ROBERT S. IPPOLITO
------------------------------------ Secretary and Treasurer (Principal June 8, 2001
Robert S. Ippolito Financial and Accounting Officer)
/s/ RICHARD E. ORBANN
------------------------------------ President, Chief Operating Officer June 8, 2001
Richard E. Orbann and Director
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
PENN NATIONAL HOLDING COMPANY
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
Holding Company, a Delaware corporation, in which the undersigned holds offices,
and any amendments to the registration statements, and to file any and all of
the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO Chairman of the Board, President
------------------------------------ and Chief Executive Officer June 8, 2001
Peter M. Carlino (Principal Executive Officer)
/s/ ROBERT S. IPPOLITO Secretary, Treasurer and Director
------------------------------------ (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
PENN NATIONAL SPEEDWAY, INC.
By: /s/ RICHARD CARLINO
-----------------------------------------
Richard Carlino
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
Speedway, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statements, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ RICHARD CARLINO Chief Executive Officer (Principal
------------------------------------ Executive, Financial and June 8, 2001
Richard Carlino Accounting Officer)
/s/ PETER M. CARLINO
------------------------------------ Director June 8, 2001
Peter M. Carlino
/s/ RICHARD E. ORBANN
------------------------------------ Director June 8, 2001
Richard E. Orbann
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
PENN NATIONAL TURF CLUB, INC.
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
PRESIDENT AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Penn National
Turf Club, Inc., a Pennsylvania corporation, in which the undersigned holds
offices, and any amendments to the registration statements, and to file any and
all of the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO
------------------------------------ President and Director (Principal June 8, 2001
Peter M. Carlino Executive Officer)
/s/ ROBERT S. IPPOLITO
------------------------------------ Secretary and Treasurer (Principal June 8, 2001
Robert S. Ippolito Financial and Accounting Officer)
/s/ HAROLD CRAMER
------------------------------------ Director June 8, 2001
Harold Cramer
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
PNGI CHARLES TOWN FOOD & BEVERAGE LLC
By: PNGI CHARLES TOWN GAMING LIMITED LIABILITY
COMPANY (its sole member)
By: PENN NATIONAL GAMING OF WEST
VIRGINIA, INC. (its sole managing member)
By: /s/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
PRESIDENT AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by PNGI Charles
Town Food & Beverage LLC, a West Virginia limited liability company, in which
the undersigned holds offices, and any amendments to the registration
statements, and to file any and all of the same, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents or any of
them full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ RICHARD L. MOORE Sole Manager (Principal
------------------------------------------- Executive, Financial and June 8, 2001
Richard L. Moore Accounting Officer)
By: Penn National Gaming of West Virginia, Inc., in
its capacity as sole managing member of PNGI Charles
Town Gaming Limited Liability Company, in its
capacity as sole member of PNGI Charles Town Food &
Beverage LLC
/s/ PETER M. CARLINO President and Director
------------------------------------------- June 8, 2001
Peter M. Carlino
By: Penn National Gaming of West Virginia, Inc., in
its capacity as sole managing member of PNGI Charles
Town Gaming Limited Liability Company, in its
capacity as sole member of PNGI Charles Town Food &
Beverage LLC
/s/ HAROLD CRAMER Director
------------------------------------------- June 8, 2001
Harold Cramer
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
PNGI CHARLES TOWN GAMING LIMITED LIABILITY
COMPANY
BY: PENN NATIONAL GAMING OF WEST
VIRGINIA, INC. (ITS MANAGING SOLE MEMBER)
BY: /S/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
PRESIDENT AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by PNGI Charles
Town Gaming Limited Liability Company, a West Virginia limited liability
company, in which the undersigned holds offices, and any amendments to the
registration statements, and to file any and all of the same, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents or any of them full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
By: Penn National Gaming of West Virginia, Inc., in
its capacity as sole managing member of PNGI Charles
Town Gaming Limited Liability Company
/s/ PETER M. CARLINO President and Director June 8, 2001
------------------------------------------- (Principal Executive
Peter M. Carlino Officer)
By: Penn National Gaming of West Virginia, Inc., in
its capacity as sole managing member of PNGI Charles
Town Gaming Limited Liability Company
/s/ ROBERT S. IPPOLITO Secretary and Treasurer June 8, 2001
------------------------------------------- (Principal Financial and
Robert S. Ippolito Accounting Officer)
By: Penn National Gaming of West Virginia, Inc., in
its capacity as sole managing member of PNGI Charles
Town Gaming Limited Liability Company
/s/ HAROLD CRAMER Director June 8, 2001
-------------------------------------------
Harold Cramer
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
PNGI POCONO, INC.
BY: /S/ RICHARD E. ORBANN
-----------------------------------------
Richard E. Orbann
PRESIDENT AND SOLE DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by PNGI
Pocono, Inc., a Delaware corporation, in which the undersigned holds offices,
and any amendments to the registration statements, and to file any and all of
the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ RICHARD E. ORBANN President and Sole Director
------------------------------------------- (Principal Executive June 8, 2001
Richard E. Orbann Officer)
/s/ ROBERT S. IPPOLITO Secretary and Treasurer
------------------------------------------- (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
STERLING AVIATION INC.
BY: /S/ PETER M. CARLINO
-----------------------------------------
Peter M. Carlino
PRESIDENT AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Sterling
Aviation Inc., a Delaware corporation, in which the undersigned holds offices,
and any amendments to the registration statements, and to file any and all of
the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ PETER M. CARLINO President and Director
------------------------------------------- (Principal Executive June 8, 2001
Peter M. Carlino Officer)
/s/ ROBERT S. IPPOLITO Secretary and Treasurer
------------------------------------------- (Principal Financial and June 8, 2001
Robert S. Ippolito Accounting Officer)
/s/ HAROLD CRAMER Director
------------------------------------------- June 8, 2001
Harold Cramer
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
TENNESSEE DOWNS, INC.
BY: /S/ RICHARD E. ORBANN
-----------------------------------------
Richard E. Orbann
PRESIDENT AND DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Tennessee
Downs, Inc., a Tennessee Corporation, in which the undersigned holds offices,
and any amendments to the registration statements, and to file any and all of
the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
President and Director
/s/ RICHARD E. ORBANN (Principal Executive,
------------------------------------------- Financial and Accounting June 8, 2001
Richard E. Orbann Officer)
/s/ PETER M. CARLINO Director
------------------------------------------- June 8, 2001
Peter M. Carlino
/s/ ROBERT S. IPPOLITO Secretary and Director
------------------------------------------- June 8, 2001
Robert S. Ippolito
/s/ JOSEPH A. LASHINGER, JR. Vice President and Director
------------------------------------------- June 8, 2001
Joseph A. Lashinger, Jr.
II-25
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-4 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wyomissing, Commonwealth of Pennsylvania on June 8, 2001.
WILKES BARRE DOWNS, INC.
BY: /S/ ROBERT E. ABRAHAM
-----------------------------------------
Robert E. Abraham
PRESIDENT, SECRETARY, TREASURER AND SOLE
DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter M. Carlino and Robert S. Ippolito his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all registration statements filed by Wilkes Barre
Downs, Inc., a Pennsylvania corporation, in which the undersigned holds offices,
and any amendments to the registration statements, and to file any and all of
the same, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
President, Secretary,
/s/ ROBERT E. ABRAHAM Treasurer and Sole Director
------------------------------------------- (Principal Executive, June 8, 2001
Robert E. Abraham Financial and Accounting
Officer)
II-26
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------------- ----------------------
4.1* Indenture dated as of March 12, 2001 by and among Penn
National Gaming, Inc., certain guarantors and State Street
Bank and Trust Company relating to the Series A and Series B
11 1/8% Senior Subordinated Notes due 2008.
4.2* Form of Penn National Gaming, Inc. Series A 11 1/8% Senior
Subordinated Note due 2008 (included as part of the
Indenture at Exhibit 4.1).
4.3* Form of Penn National Gaming, Inc. Series B 11 1/8% Senior
Subordinated Note due 2008 (included as part of the
Indenture as Exhibit 4.1).
4.4* Registration Rights Agreement dated as of March 12, 2001 by
and among Penn National Gaming, Inc., certain of its
subsidiaries, and Lehman Brothers Inc. and BIBC World
Markets Corp.
5.1 Opinion of Morgan, Lewis & Bockius LLP.
12.1+ Statements re computation of ratios.
23.1+ Consent of BDO Seidman, LLP.
23.2+ Consent of Arthur Andersen LLP.
23.3+ Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit
5.1).
24.1+ Powers of Attorney (included on the signature page of this
Registration Statement).
25.1+ Statement of Eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal and Notice of Guaranteed
Delivery.
- ------------------------
* Previously filed as an exhibit to the Registrant's Form 10-Q for the quarter
ended March 31, 2001 and incorporated by reference herein.
+ Filed herewith.
EXHIBIT 12.1
PENN NATIONAL GAMING, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
Earnings, as defined:
Income from continuing operations
before provision for income taxes $ 9,304 $ 6,077 $12,022 $10,510 $28,712 $ 5,763 $ 7,227
Add:
Interest expense 506 4,591 8,374 11,828 22,843 3,237 9,487
Estimate of interest included in
rental expense 334 269 390 524 1,178 571 132
Amortization of capitalized debt
costs and premium on debt 34 296 430 946 1,555 466 266
------- ------- ------- ------- ------- ------- -------
Earnings, as defined $10,178 $11,233 $21,216 $23,808 $54,288 $10,037 $17,112
======= ======= ======= ======= ======= ======= =======
Fixed Charges:
Interest expense $ 506 $ 4,591 $ 8,374 $11,828 $22,843 $ 3,237 $ 9,487
Estimate of interest included in
rental expense 334 269 390 524 1,178 571 132
Amortization of capitalized debt costs
and premium on debt 34 296 430 946 1,555 466 266
Capitalized interest -- -- -- -- 229 28 --
------- ------- ------- ------- ------- ------- -------
Total fixed charges $ 874 $ 5,156 $ 9,194 $13,298 $25,805 $ 4,302 $ 9,885
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 11.7 2.2 2.3 1.8 2.1 2.3 1.7
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Penn National Gaming, Inc.
Wyomissing, Pennsylvania
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement on Form S-4 of our report
dated March 12, 2001, relating to the consolidated financial statements of
Penn National Gaming, Inc. and subsidiaries for the year ended December 31,
2000 appearing in the Company's Annual Report on Form 10-K.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman, LLP
Philadelphia, Pennsylvania
June 6, 2001
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 8,
2000, relating to the financial statements of Mardi Gras Casino Corp. and our
report dated February 8, 2000 relating to the financial statements of
Mississippi-I Gaming, L.P., which appear in Penn National Gaming, Inc.'s
Current Report on Form 8-K/A filed on October 20, 2000 and to all references
to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
New Orleans, Louisiana
June 8, 2001
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Penn National Gaming, Inc. of our report dated
February 2, 2001 relating to the financial statements of CRC Holdings, Inc.
- - Gaming Division, which appears in Penn National Gaming, Inc.'s Current
Report on Form 8-K/A filed on June 8, 2001. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
June 8, 2001
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
STATE STREET BANK AND TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
Massachusetts 04-1867445
(JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
225 Franklin Street, Boston, Massachusetts 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
PENN NATIONAL GAMING, INC.
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-2234473
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
825 BERKSHIRE BLVD., SUITE 200 WYOMISSING,PENNSYLVANIA 19610
(Address of principal executive offices) (Zip Code)
11 1/8% SENIOR SUBORDINATED NOTES DUE 2008
(TITLE OF INDENTURE SECURITIES)
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its parent, State
Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of Massachusetts
that no certificate of authority for the trustee to commence business
was necessary or issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED IN
PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise corporate trust
powers is on file with the Securities and Exchange Commission as
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Eastern Edison Company (File No.
33-37823) and is incorporated herein by reference thereto.
1
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY SECTION
321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the MAY 18, 2OO1.
STATE STREET BANK AND TRUST COMPANY
By: /s/ PHILIP G. KANE, JR.
-----------------------------
NAME: PHILIP G. KANE, JR.
TITLE: VICE PRESIDENT
2
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by PENN NATIONAL
GAMING, INC.. of its 11 1/8% SENIOR SUBORDINATED NOTES DUE 2008, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ PHILIP G. KANE, JR.
-------------------------------
NAME: PHILIP G. KANE, JR.
TITLE: VICE PRESIDENT
DATED: MAY 18, 2001
3
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 2000
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
Thousands of
ASSETS Dollars
------------
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .................................................... 1,347,968
Interest-bearing balances ............................................................................. 21,288,864
Securities ..................................................................................................... 13,723,461
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ................................................................... 16,900,197
Loans and lease financing receivables:
Loans and leases, net of unearned income .......................... 6,174,061
Allowance for loan and lease losses ............................... 57,068
Allocated transfer risk reserve ................................... 0
Loans and leases, net of unearned income and allowances ............................................... 6,116,993
Assets held in trading accounts ................................................................................ 2,752,899
Premises and fixed assets ...................................................................................... 494,719
Other real estate owned ........................................................................................ 0
Investments in unconsolidated subsidiaries ..................................................................... 22,982
Customers' liability to this bank on acceptances outstanding ................................................... 176,110
Intangible assets .............................................................................................. 268,301
Other assets ................................................................................................... 1,551,417
-----------
Total assets ................................................................................................... 64,643,911
===========
LIABILITIES
Deposits:
In domestic offices ................................................................................... 12,016,147
Noninterest-bearing ...................................... 9,775,257
Interest-bearing ......................................... 2,240,890
In foreign offices and Edge subsidiary ................................................................ 26,349,940
Noninterest-bearing ...................................... 263,170
Interest-bearing ......................................... 26,086,770
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ................................................................... 18,554,650
Demand notes issued to the U.S. Treasury ....................................................................... 160,411
Trading liabilities ........................................................................... 2,097,229
Other borrowed money ........................................................................................... 2,274
Subordinated notes and debentures .............................................................................. 0
Bank's liability on acceptances executed and outstanding ....................................................... 176,110
Other liabilities .............................................................................................. 1,704,145
Total liabilities .............................................................................................. 61,060,906
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus .................................................................. 0
Common stock ................................................................................................... 29,931
Surplus ........................................................................................................ 561,973
Undivided profits and capital reserves/Net unrealized holding gains (losses)................................... 2,990,125
Net unrealized holding gains (losses) on available-for-sale securities ........................ 19,231
Cumulative foreign currency translation adjustments ............................................................ (18,255)
Total equity capital ........................................................................................... 3,583,005
-----------
Total liabilities and equity capital ........................................................................... 64,643,911
-----------
4
I, Frederick P. Baughman, Senior Vice President and Comptroller of the
above named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Frederick P. Baughman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Ronald E. Logue
David A. Spina
Truman S. Casner
5
