Exhibit 10.2

 

PURCHASE AGREEMENT

 

BY AND AMONG

 

PNGI POCONO CORP.,

 

PNGI, LLC, AND

 

THE MOHEGAN TRIBAL GAMING AUTHORITY

 

 

as of October 14, 2004

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Table of Contents

 

               Page

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1.

  

Purchase Price Deposit; Sale and Purchase of Partnership Interests.

   2

2.

  

Closing

   2

3.

  

Deliveries at Closing.

   2

4.

  

Post-Closing Adjustment to Purchase Price.

   3

5.

  

Representations and Warranties of Sellers

   5     

5.1

  

Ownership; Authority

   5     

5.2

  

Validity of Contemplated Transactions

   5     

5.3

  

No Claims By Sellers Against any Pocono Downs Company

   5     

5.4

  

Corporate Existence

   5     

5.5

  

Capitalization

   6     

5.6

  

The Pocono Downs Companies

   6     

5.7

  

Capitalization of Subsidiaries

   6     

5.8

  

Ownership of Subsidiaries

   7     

5.9

  

Financial Statements

   7     

5.10

  

Accounts Receivable

   8     

5.11

  

Inventory and Equipment

   8     

5.12

  

Absence of Undisclosed Liabilities

   8     

5.13

  

Existing Condition

   8     

5.14

  

Assets and Properties.

   9     

5.15

  

Taxes and Tax Returns and Reports

   12     

5.16

  

Legal Proceedings

   13     

5.17

  

Compliance with Law.

   13     

5.18

  

Validity of Contemplated Transactions

   14     

5.19

  

Insurance

   14     

5.20

  

Contracts and Commitments

   15     

5.21

  

Additional Information

   16     

5.22

  

Labor Matters; Owners and Trainers

   17     

5.23

  

Benefit Plans and Arrangements.

   17     

5.24

  

Environmental Matters.

   19     

5.25

  

Intellectual Property.

   21     

5.26

  

No Third Party Options

   23     

5.27

  

Schedules: Delivery of Documents; Corporate Records

   23     

5.28

  

Racing License

   23     

5.29

  

Patriot Act

   24     

5.30

  

Disclosure

   24

6.

  

Representations and Warranties of Buyer

   24     

6.1

  

Existence

   24     

6.2

  

Power and Authorization

   24     

6.3

  

Validity of Contemplated Transactions

   24     

6.4

  

Investment Only

   25     

6.5

  

Patriot Act

   25

 

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7.

  

Covenants.

   25     

7.1

  

Covenants of Sellers Pending Closing

   25     

7.2

  

No Solicitation

   30     

7.3

  

Covenants of Buyer Pending Closing.

   31     

7.4

  

Mutual Covenants.

   32     

7.5

  

Remediation of Environmental Matters.

   32     

7.6

  

Tax Matters.

   34     

7.7

  

Transition

   35     

7.8

  

Employee Benefits Covenant

   36

8.

  

Conditions Precedent to Buyer’s Obligations

   37     

8.1

  

Representations and Warranties: Performance of Obligations

   37     

8.2

  

Legal Matters

   37     

8.3

  

Harness Commission

   37     

8.4

  

Third Party Consents

   38     

8.5

  

Release of Financial Obligation

   38     

8.6

  

Material Adverse Changes

   38     

8.7

  

Title and Survey

   38     

8.8

  

Sellers Legal Opinion

   38

9.

  

Conditions Precedent to Sellers’ Obligations

   38     

9.1

  

Representations and Warranties; Performance of Obligations

   38     

9.2

  

Legal Matters

   39     

9.3

  

Harness Commission

   39     

9.4

  

Buyer Legal Opinion

   39

10.

  

Indemnification.

   39     

10.1

  

Indemnification by Sellers

   39     

10.2

  

Indemnification by Buyer

   40     

10.3

  

Limitations on Liability.

   41     

10.4

  

Survival of Representations and Warranties

   42     

10.5

  

Exclusive Remedy; Exceptions to Limitations

   42     

10.6

  

Payment of Indemnification Obligations

   42     

10.7

  

Indemnification Procedure

   42     

10.8

  

Mitigation

   44     

10.9

  

Caps on Indemnification and Environmental Costs

   44

11.

  

Miscellaneous.

   45     

11.1

  

Termination

   45     

11.2

  

Effect of Termination

   45     

11.3

  

Expenses

   46     

11.4

  

No Brokers’ or Finders’ Fees.

   46     

11.5

  

Put Option:

   47     

11.6

  

Knowledge

   48     

11.7

  

Entire Agreement

   48     

11.8

  

Assignment and Binding Effect

   48     

11.9

  

Waiver

   48     

11.10

  

Notices

   48     

11.11

  

Public Announcements

   49

 

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11.12

  

Specific Performance

   49    

11.13

  

Pennsylvania Law to Govern

   49    

11.14

  

No Benefit to Others: Persons Having Knowledge

   49    

11.15

  

Headings; Gender; “Person”

   50    

11.16

  

Further Assurances

   50    

11.17

  

Exhibits; Schedules

   50    

11.18

  

Severability

   50    

11.19

  

Counterparts

   50    

11.20

  

Resolution Procedure

   50

 

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PURCHASE AGREEMENT

 

This Purchase Agreement (this “Agreement”) is made and entered into as of the
14th day of October, 2004 by and between PNGI Pocono Corp., a Nevada corporation
(“PNGI Nevada”), PNGI, LLC, a Nevada limited liability company (“PNGI LLC” and,
together with PNGI Nevada, “Sellers”), and the Mohegan Tribal Gaming Authority,
an instrumentality of the Mohegan Tribe of Indians of Connecticut (the “Tribe”)
created by an ordinance pursuant to the Tribe’s constitution (“Buyer”). PNGI
Nevada, PNGI LLC and Buyer each are sometimes referred to herein individually as
a “Party” and collectively as the “Parties”.

 

The Downs Racing, Inc., a Pennsylvania corporation (“Downs Racing”), conducts
harness racing with pari-mutuel wagering at Pocono Downs Racetrack in
Wilkes-Barre, Pennsylvania and operates five off-track wagering facilities
located in Pennsylvania.

 

Penn National Gaming, Inc., a Pennsylvania corporation (“Parent”), owns all of
the issued and outstanding shares of capital stock of Penn National Holding
Company, a Delaware corporation, which owns all of the issued and outstanding
shares of capital stock of PNGI Pocono, Inc., a Delaware corporation (“PNGI
Delaware”), which owns all of the issued and outstanding shares of capital stock
of PNGI Nevada, which is the sole member of PNGI LLC. PNGI Nevada owns all of
the issued and outstanding shares of Downs Racing. Downs Racing owns all of the
issued and outstanding shares of capital stock of Backside, Inc., Mill Creek
Land, Inc. and Northeast Concessions, Inc., all Pennsylvania corporations
(collectively, the “Corporate Subsidiaries”).

 

As a material inducement to Buyer to acquire the Partnership Interests (as
hereinafter defined) under the terms and subject to the conditions of this
Agreement, PNGI Nevada, PNGI LLC, Downs Racing and the Corporate Subsidiaries
have executed and delivered the certain Omnibus Plan of Reorganization, dated as
of the date hereof, in the form attached hereto as Exhibit A (the “Plan of
Reorganization”), pursuant to which prior to the closing hereunder each of the
following transactions (collectively, the “Reorganization”) will be consummated:
(A) the Corporate Subsidiaries will be merged with and into three separate
Pennsylvania limited partnerships (collectively, the “Partnership
Subsidiaries”); and (B) Downs Racing will be merged with and into another
separate, newly-formed Pennsylvania limited partnership (“Pocono Downs” and,
together with Downs Racing, the Corporate Subsidiaries and the Partnership
Subsidiaries, the “Pocono Downs Companies”).

 

Upon consummation of the Reorganization, (i) PNGI LLC will be the sole general
partner of and will hold a 0.01% partnership interest in each of the Partnership
Subsidiaries and Pocono Downs; and (ii) PNGI Nevada will be the sole limited
partner of and will hold a 99.99% partnership interest in each of the
Partnership Subsidiaries and Pocono Downs.

 

Buyer desires to purchase all of the issued and outstanding limited partnership
interests in the Partnership Subsidiaries (the “Partnership LP Interests”) and
Pocono Downs (the “Pocono Downs LP Interest” and, together with the Partnership
LP Interests, the “LP Interests”) from PNGI Nevada, and Buyer desires to
purchase all of the issued and outstanding general partnership interests in the
Partnership Subsidiaries (the “Partnership GP Interests”) and Pocono

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Downs (the “Pocono Downs GP Interest” and, together with the Partnership GP
Interests, the “GP Interests”) from PNGI LLC, provided that prior to Closing,
Buyer shall assign the right to purchase such GP Interests to a wholly-owned
limited liability company (“MTGA Sub”), and Sellers desire to sell such LP
Interests and GP Interests (together, the “Partnership Interests”) to Buyer in
accordance with the provisions of this Agreement.

 

NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree
as follows:

 

1. Purchase Price Deposit; Sale and Purchase of Partnership Interests.

 

1.1 Buyer will, by not later than two business days after the date hereof,
deliver 5% of Purchase Price described in Section 1.2 hereof (the “Deposit”) to
an account designated by Sellers, to be released and delivered as provided in
Section 1.2 hereof.

 

1.2 Subject to the terms and conditions of this Agreement and on the basis of
and in reliance upon the representations, warranties, covenants and agreements
set forth herein, on the Closing Date (as defined in Section 2 hereof) Sellers
shall sell to Buyer, and Buyer shall purchase from Sellers, all of the
Partnership Interests in exchange for an aggregate cash purchase price of
$280,000,000 (the “Purchase Price”), subject to adjustment after the Closing
pursuant to Section 4 hereof. The Purchase Price, less the Deposit, plus or
minus the preliminary Purchase Price Adjustment shall be paid by Buyer to
Sellers at the Closing by wire transfer to such account as shall be designated
by Sellers. At least five business days before the Closing, Sellers shall
deliver to Buyer a preliminary Closing Balance Sheet (prepared as of the end of
the most recent calendar month available) and a schedule of the preliminary
Purchase Price Adjustment all in accordance with the provisions of Section 4
(except timing).

 

2. Closing. The closing (the “Closing”) of the sale and purchase of the
Partnership Interests described in Section 1 hereof shall take place at the
offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street,
Philadelphia, Pennsylvania, commencing at 10:00 a.m., local time, promptly after
the last of the conditions set forth in Sections 8 and 9 hereof has been
satisfied or waived, but no later than January 7, 2005, or at such other place,
time or date as may be agreed upon in writing by the Parties. The date of the
Closing is sometimes herein referred to as the “Closing Date”. The Parties
acknowledge that if the Closing has not occurred by 6:00 p.m. Philadelphia local
time on January 7, 2005 (subject to extension as set forth in Section 11.1),
this Agreement shall terminate, the Deposit shall be distributed in accordance
with the provisions of Section 11.2 hereof, and the Parties shall have no
further obligation to each other except as provided in Section 11.2 hereof;
provided, however, that if the Parties, in their sole and absolute discretion,
so agree in writing, the period for Closing shall be extended to such date as
the Parties mutually determine.

 

3. Deliveries at Closing.

 

3.1 At the Closing, Sellers shall assign, transfer and deliver to Buyer (or,
without relieving Buyer of its obligations hereunder, to one or more
wholly-owned direct or indirect subsidiaries or affiliates of Buyer designated
in writing at least five days prior to the Closing) the certificates for the
Partnership Interests to be purchased by Buyer (duly endorsed or

 

2

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with separate duly signed securities transfer powers attached thereto) free and
clear of all pledges, liens, encumbrances, claims and other charges thereon of
every kind (provided that Buyer acknowledges that ownership of the Pocono Downs
GP Interest and the Pocono Downs LP Interest (collectively, the “Pocono Downs
Interests”) will be subject to securities laws and laws applicable to “licensed
corporations” (as defined in the Pennsylvania Race Horse Industry Reform Act
(the “Pennsylvania Act”)) and owners of “race-tracks” or “non-primary locations”
(as defined in the Pennsylvania Act)), in exchange for the delivery of the
Purchase Price in the manner provided in Section 1.2 above.

 

3.2 At the Closing, Sellers shall make available to Buyer the written
resignations of all the officers of the then-existing Pocono Downs Companies
effective as of the Closing, and shall cause to be made available to the
successor officers of the Pocono Downs Companies (the “post-Closing officers”)
all partnership agreements, minute books, ownership record books, books of
account, official seals, leases, contracts, agreements, securities, bank,
checking and money market accounts, other investments, deposits, customer lists,
files and other documents, instruments and papers belonging to the Pocono Downs
Companies and shall cause possession and control of all of the assets and
properties of every kind and nature, tangible and intangible, of the Pocono
Downs Companies and of all other things and matters pertaining to the operation
of the business of the Pocono Downs Companies to be made available to the
post-Closing officers. At the Closing, Sellers shall also deliver to Buyer, and
Buyer shall deliver to Sellers, the certificates and other instruments and
documents referred to in Sections 8 and 9 hereof, respectively, and such other
customary closing certificates and documents as Buyer or Sellers, as the case
may be, may reasonably request.

 

3.3 The Purchase Price shall be allocated as mutually agreed between Buyer and
Sellers in writing between the date hereof and the date of the Closing. Buyer
and Sellers each agree to report the sale and purchase of the Partnership
Interests for all federal, state, local, foreign and other tax purposes in a
manner consistent with such allocation.

 

4. Post-Closing Adjustment to Purchase Price.

 

4.1 As soon as reasonably practical following (but not more than 60 days after)
the Closing Date, Sellers and Buyer shall jointly prepare a consolidated balance
sheet of the Pocono Downs Companies as of the Closing Date (the “Closing Balance
Sheet”). The Closing Balance Sheet shall be prepared in accordance with
generally accepted accounting principles using the same methods and criteria
employed by the Pocono Downs Companies in connection with the preparation of
their annual financial statements.

 

4.2 The Closing Balance Sheet shall become final and binding upon the parties
unless within 60 days following the Closing Date, the Parties have been unable
to agree on a final Closing Balance Sheet, in which case Sellers and Buyer shall
negotiate in good faith to resolve any differences for an additional 30 days. If
by the end of the additional 30 day period such differences have not been
resolved, they shall be resolved by the Philadelphia, Pennsylvania office of an
accounting firm mutually acceptable to the Parties, and such firm’s opinion
thereon and the resulting Closing Balance Sheet shall be final, binding and not
subject to any appeal. The fees and expenses of such accounting firm in
connection with any such resolution shall be paid one-half by Sellers and
one-half by Buyer.

 

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4.3 Within 10 days following the final determination of the Closing Balance
Sheet, an adjustment to the Purchase Price (the “Purchase Price Adjustment”)
shall be made and paid as follows: (a) if the Current Assets (as defined below)
as of the Closing Date are less than the Current Liabilities (as defined below)
as of the Closing Date, then Sellers shall promptly pay, or cause to be paid to
Buyer, in cash, an amount equal to (i) the difference between such Current
Assets and the Current Liabilities minus (ii) the amount of any preliminary
Purchase Price Adjustment already applied pursuant to Section 1.2 above to
reduce the Purchase Price or plus the amount of any preliminary Purchase Price
Adjustment already applied pursuant to Section 1.2 above to increase the
Purchase Price, and (b) if the sum of Current Assets as of the Closing Date is
greater than the sum of Current Liabilities as of the Closing Date, then Buyer
shall promptly pay, or cause to be paid to Sellers, in cash, an amount equal to
(i) the difference between such Current Assets and Current Liabilities minus
(ii) the amount of any preliminary Purchase Price Adjustment already applied
pursuant to Section 1.2 above to increase the Purchase Price or plus the amount
of any preliminary Purchase Price Adjustment already applied pursuant to Section
1.2 above to reduce the Purchase Price.

 

As used herein, the terms:

 

(i) “Current Assets” means the sum of the balance sheet entries on the Closing
Balance Sheet for the following items: (i) cash and cash equivalents, (ii)
overpaid purses, (iii) prepaid real estate taxes, (iv) net accounts receivable
(excluding all receivables from Sellers or any affiliate of Sellers that are not
incurred in the ordinary course of business), (v) food and beverage inventory,
(vi) miscellaneous inventory, (vii) deposits to the extent they are available to
a Pocono Downs Company after the Closing, (vii) interest receivable, and (ix)
prepaid expenses; and

 

(ii) “Current Liabilities” means the sum of the balance sheet entries on the
Closing Balance Sheet for the following items: (i) accounts payable (excluding
accounts payable to Sellers or any affiliate thereof that are not incurred in
the ordinary course of business, which shall be paid in full prior to the
Closing), (ii) uncashed tickets, (iii) Dial-A-Bet® Customer deposits, (iv)
underpaid purses, (v) accrued wages and salaries (including the employee bonuses
that are the subject of Section 7.8.3 hereof and the accrued vacation and sick
or other paid leave that is the subject of Section 7.8.5 hereof), (vi) accrued
expenses (excluding any expenses payable to Sellers or any affiliate thereof
that are not incurred in the ordinary course of business, which shall be paid or
satisfied in full prior to the Closing), (vii) taxes other than income and
Pennsylvania capital stock—franchise taxes, and (viii) Players’ Choice® club
reserve.

 

4.4 Nothing in this Section 4 shall preclude any party from exercising, or shall
adversely affect or otherwise limit in any respect the exercise of, any right or
remedy available to it hereunder for any misrepresentation or breach of warranty
hereunder, but neither Buyer nor Sellers shall have any right to dispute the
Closing Balance Sheet or any portion thereof once it has been finally determined
in accordance with Section 4.2 hereof.

 

4

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5. Representations and Warranties of Sellers. Sellers represent and warrant to
Buyer as follows:

 

5.1 Ownership; Authority. Sellers are, or will be at Closing, the lawful owners
of record and beneficially of the Partnership Interests, except that ownership
of the Pocono Downs Interests is subject to securities laws and laws applicable
to “licensed corporations” (as defined in the Pennsylvania Act) and owners of
“racetracks” or “non-primary locations” (as defined in the Pennsylvania Act)
free and clear of all pledges, liens, encumbrances, claims and other charges and
restrictions thereon of every kind which will not have been removed on or before
the Closing Date, including without limitation any agreements, subscriptions,
options, warrants, calls, proxies, commitments or rights (contingent or
otherwise) of any character granting to any person, except as provided herein,
any interest in or right to vote or acquire from Sellers at any time, or upon
the happening of any stated event, any Partnership Interests. Sellers have full
right, power and authority to execute, deliver and perform this Agreement. This
Agreement has been duly executed and delivered by each Seller and constitutes
the legal, valid and binding obligation of such Seller enforceable against it in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws
affecting the enforcement of creditors’ rights in general, and except that the
enforceability of this Agreement is subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

 

5.2 Validity of Contemplated Transactions. Except as set forth on Schedule 5.2
hereof, the execution, delivery and performance hereof by each Seller will not
contravene or violate (a) any law, rule or regulation to which such Seller is
subject or (b) any judgment, order, writ, injunction or decree of any court,
arbitrator or governmental or regulatory official, body or authority which is
applicable to such Seller; nor will such execution, delivery or performance
violate, be in conflict with or result in the breach (with or without the giving
of notice or lapse of time, or both) of any term, condition or provision of, or
require the consent of any other party to, any contract, commitment, agreement,
lease, license, permit, authorization, document or other understanding, oral or
written, to or by which such Seller is a party or otherwise bound or affected.
Except as set forth on Schedule 5.2 hereof, no authorization, approval or
consent of, and no registration or filing with, any governmental or regulatory
official, body or authority is required in connection with the execution,
delivery and performance hereof by either Seller.

 

5.3 No Claims By Sellers Against any Pocono Downs Company. Except as set forth
on Schedule 5.3 hereto, neither Seller has any claim, whether accrued, absolute,
contingent or otherwise and whether known or unknown, fixed or unfixed, choate
or inchoate, liquidated or unliquidated, secured or unsecured, against any
Pocono Downs Company for any reason.

 

5.4 Corporate Existence. As of the date hereof, Downs Racing (i) is a
corporation duly incorporated and validly existing under the laws of the
Commonwealth of Pennsylvania, (ii) has all requisite corporate power and
authority and all necessary licenses, permits and authorizations to carry on its
business as it has been and is now being conducted and to own, lease and operate
the properties used in connection therewith, and (iii) is not, and is not
required to be, qualified as a foreign corporation authorized to do business in
any other jurisdiction. As of the Closing Date, Pocono Downs will (x) be a
limited partnership duly formed and validly existing under the laws of the
Commonwealth of Pennsylvania, (y) have all requisite partnership

 

5

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power and authority and all necessary licenses, permits and authorizations to
carry on its business as it is being conducted and to own, lease and operate the
properties used in connection therewith, and (z) not be, and will not be
required to be, qualified as a foreign limited partnership authorized to do
business in any other jurisdiction.

 

5.5 Capitalization. As of the date hereof, the total authorized capital stock of
Downs Racing consists of 1,000 shares of common stock, no par value per share,
of which 100 of such shares are issued and outstanding (all such issued and
outstanding shares, the “Shares”). All of the Shares have been duly authorized
and validly issued, are fully paid and non-assessable, were not issued in
violation of the terms of any agreement or other understanding binding upon
Downs Racing and were issued in compliance with all applicable charter documents
of Downs Racing and all applicable federal, state and foreign securities laws,
rules and regulations. As of the Closing Date, the Pocono Downs Interests will
have been duly authorized for issuance, validly issued in compliance with all
applicable organizational documents of Pocono Downs and all applicable federal,
state and foreign securities laws, rules and regulations and fully paid, and
will not have been issued in violation of the terms of any agreement or other
understanding binding upon Pocono Downs.

 

5.6 The Pocono Downs Companies. As of the date hereof, the Corporate
Subsidiaries are the only direct or indirect subsidiaries of Downs Racing, and
each of the Corporate Subsidiaries (i) is a corporation duly organized and
validly existing under the laws of the Commonwealth of Pennsylvania, (ii) has
all requisite corporate power and authority and all necessary licenses, permits
and authorizations to carry on its business as it has been and is now being
conducted and to own, lease and operate the properties used in connection
therewith, and (iii) is not, and is not required to be, qualified as a foreign
corporation authorized to do business in any other jurisdiction. As of the
Closing Date, each of the Partnership Subsidiaries will (x) be a limited
partnership duly formed and validly existing under the laws of the Commonwealth
of Pennsylvania, (y) have all requisite partnership power and authority and all
necessary licenses, permits and authorizations to carry on its business as it is
being conducted and to own, lease and operate the properties used in connection
therewith, and (z) not be, and will not be required to be, qualified as a
foreign limited partnership authorized to do business in any other jurisdiction.

 

5.7 Capitalization of Subsidiaries. As of the date hereof, (i) the authorized,
issued and outstanding capital stock of each Corporate Subsidiary is listed on
Schedule 5.7 hereof, (ii) all of such issued and outstanding shares of capital
stock have been duly authorized and validly issued, are fully paid and
non-assessable, were not issued in violation of the terms of any agreement or
other understanding binding upon any Corporate Subsidiary and were issued in
compliance with all applicable charter documents of the Corporate Subsidiaries
and all applicable federal and state laws, rules and regulations, and (iii)
there are no outstanding subscriptions, options, warrants, convertible
securities, calls, commitments, agreements or rights (contingent or otherwise)
of any character to purchase or otherwise acquire from any Corporate Subsidiary
any shares of, or any securities convertible into, the capital stock of any
Corporate Subsidiary. As of the Closing Date, the issued and outstanding
partnership interests of each Partnership Subsidiary will have been duly
authorized for issuance, validly issued in compliance with all applicable
organizational documents of such Partnership Subsidiary and all applicable
federal, state and foreign securities laws, rules and regulations and fully
paid, and will not have been issued in violation of the terms of any agreement
or other understanding binding upon such Partnership Subsidiary.

 

6

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5.8 Ownership of Subsidiaries. As of the date hereof, Downs Racing is the lawful
owner of record and beneficially of all of the issued and outstanding shares of
capital stock of the Corporate Subsidiaries, in each case (except as set forth
on Schedule 5.8 hereof) free and clear of all pledges, liens, encumbrances,
claims and other charges and restrictions thereon of every kind, including
without limitation any agreements, subscriptions, options, warrants, calls,
proxies, commitments or rights (contingent or otherwise) of any character
granting to any person any interest in or right to vote or acquire from any
Corporate Subsidiary at any time, or upon the happening of any stated event, any
equity securities of any Corporate Subsidiary. As of the Closing Date, PNGI LLC
will be the sole general partner and PNGI Nevada will be the sole limited
partner of each of the Partnership Subsidiaries and in each case will own the
respective partnership interests of each such Partnership Subsidiary free and
clear of all pledges, liens, encumbrances, claims and other charges and
restrictions thereon of every kind, including without limitation any agreements,
subscriptions, options, warrants, calls, proxies, commitments or rights
(contingent or otherwise) of any character granting to any person any interest
in or right to vote or acquire from any Partnership Subsidiary at any time, or
upon the happening of any stated event, any partnership interests of any
Partnership Subsidiary. No Pocono Downs Company owns or will own as of the
Closing Date any shares of capital stock or securities of any corporation other
than as set forth in Schedule 5.8 hereof and no Pocono Downs Company has or will
have as of the Closing Date any other ownership or other investment interest,
either of record, beneficially or equitably, in any association, partnership,
joint venture or legal entity, except for bank, checking and money market
accounts and other cash equivalent investments.

 

5.9 Financial Statements. Sellers have delivered to Buyer prior to the date
hereof internally prepared (i) consolidated balance sheets of the Pocono Downs
Companies as of December 31, 2003, 2002 and 2001 and the related consolidated
statements of income, retained earnings and cash flows for the 12-month periods
then ended (the “Pocono Downs Financials”) and (ii) the consolidated balance
sheet of the Pocono Downs Companies as of June 30, 2004 (the “Interim Balance
Sheet”) and the related consolidated statement of income for the six-month
period then ended (collectively with the Interim Balance Sheet, the “Interim
Financials”; and together with the Pocono Downs Financials, the “Financials”).
The Financials, correct and complete copies of all of which are attached hereto
as Schedule 5.9, were prepared in accordance with the books and records of the
Pocono Downs Companies and present fairly the consolidated financial position
and assets and liabilities of the Pocono Downs Companies as of their respective
dates and the results of their consolidated operations for the periods then
ended, in conformity with generally accepted accounting principles applied on a
consistent basis except for the omission of footnote information and, in the
case of the Interim Financials, statements of retained earnings and cash flows,
and normal year-end audit adjustments which in the aggregate will not be
material in terms of their overall impact on the Interim Financials. The
accounting books and records maintained by the Pocono Downs Companies, and upon
which the Financials are based, accurately reflect all of their material items
of income and expense, assets and liabilities. The Pocono Downs Companies
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles.

 

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5.10 Accounts Receivable. All accounts receivable of the Pocono Downs Companies
are valid and genuine, arise out of bona fide sales and deliveries of goods,
performance of services or other business transactions, and, to the knowledge of
Sellers, are not subject to valid defenses, set-offs or counterclaims other than
in the ordinary course of business. All accounts receivable reflected on the
Interim Balance Sheet, less (a) reasonable allowance for doubtful accounts and
(b) employee receivables (not to exceed $10,000 in the aggregate) not deemed to
be collectible for purposes of the Closing Financial Statements, are collectible
in full within 90 days after the Closing Date with customary collection effort.

 

5.11 Inventory and Equipment. All inventory and equipment of the Pocono Downs
Companies reflected on the Interim Balance Sheet, and all inventory and
equipment owned by the Pocono Downs Companies as of the date hereof, (a)
consisted and consists of items of a quality and quantity useable in the
ordinary course of their businesses consistent with past practice, subject to
normal wear and tear and routine maintenance, (b) was and is valued in
conformity with generally accepted accounting principles applied on a consistent
basis and (c) conformed and conforms in all material respects to all applicable
laws, ordinances, codes, rules and regulations relating thereto and to the
construction, use, operation and maintenance thereof. Such inventory and
equipment has been maintained in accordance with the regular business practices
of the Pocono Downs Companies, is in good working order for use in the ordinary
course of business as now conducted by the Pocono Downs Companies and includes
everything needed for the conduct of the business as currently conducted.

 

5.12 Absence of Undisclosed Liabilities. Except as set forth in Schedule 5.12
hereto, none of the Pocono Downs Companies are liable for or subject to any
liability except for:

 

5.12.1 those liabilities reflected on the face of the Interim Balance Sheet and
not heretofore paid or discharged;

 

5.12.2 those liabilities incurred, consistent with its past practice, in the
ordinary course of its business and either not required to be shown on the
Interim Balance Sheet or arising since June 30, 2004, which liabilities in the
aggregate are, taken as a whole, of a character and magnitude consistent with
its past practice.

 

5.12.3 To the knowledge of Sellers, there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint or demand
against any of the Pocono Downs Companies giving rise to any liabilities that
would have a material adverse effect, either individually or in the aggregate,
on the business, operations or operating results, assets or properties of the
Pocono Downs Companies.

 

For purposes of this Section 5.12 only, the term “liabilities” shall mean only
items required to be reflected as liabilities on a balance sheet prepared in
accordance with generally accepted accounting principles.

 

5.13 Existing Condition. Except as disclosed on Schedule 5.13 hereto, since June
30, 2004, the Pocono Downs Companies have not:

 

5.13.1 sold, assigned or transferred any of their material assets or properties
except in the ordinary course of their businesses consistent with past practice;

 

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5.13.2 created, incurred, assumed or guaranteed any indebtedness for money
borrowed or obligations under capital leases;

 

5.13.3 suffered any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting their businesses, operations or
operating results, assets or properties;

 

5.13.4 suffered any material adverse change in their businesses, operations or
operating results, assets, properties, condition (financial or otherwise) other
than changes generally affecting the racing industry in the northeast quadrant
of the Commonwealth of Pennsylvania or nationally;

 

5.13.5 made any capital expenditure or capital addition or betterment or any
series thereof except for such as may be involved in the ordinary repair,
maintenance and replacement of their assets or are otherwise consistent with
past practice or requirements of law;

 

5.13.6 other than in the ordinary course of business consistent with past
practice, increased the salaries or other compensation of, or made any advance
(excluding advances for ordinary and necessary business expenses) or loan to, or
entered any contracts with any of their directors, officers or employees, or to
Sellers, Parent or any affiliate of Parent, or made any increase in, or any
addition to, other benefits to which any of their directors, officers or
employees may be entitled;

 

5.13.7 made or authorized any change in their charter documents or bylaws,
except as previously approved by Buyer in writing;

 

5.13.8 declared, set aside, or paid any dividend or made any distribution with
respect to their capital stock (whether in case or in kind) or redeemed,
purchased, or otherwise acquired any of their capital stock, except as
previously approved by Buyer in writing;

 

5.13.9 entered into any material transaction; or

 

5.13.10 agreed or committed to agree to any of the foregoing.

 

Except as disclosed on Schedule 5.13 hereto, since August 31, 2004, the Pocono
Downs Companies have not made or suffered, except in the ordinary course of
business, any material amendment to or termination of any material contract or
commitment to which they or any of them is or was a party or by which they or
any of their properties are or were bound.

 

5.14 Assets and Properties.

 

5.14.1 Schedule 5.14.1 is a true and complete list of each parcel of real
property owned, leased or subleased by any Pocono Downs Company or in which any
Pocono Downs Company has any real estate interest and lists each lease agreement
under which any Pocono Downs Company has any direct or indirect leasehold
interest in any real property (collectively, “Real Property”). Schedule 5.14.1
hereto also contains a list of all fixed assets owned by the Pocono Downs
Companies as of June 30, 2004, and will include in each case the book and tax
basis thereof. With respect to each parcel of Real Property, true and complete
copies of title reports and policies, leases, subleases, lease agreements and
amendments thereto, as applicable, have been delivered to Buyer.

 

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(a) With respect to the owned Real Property, (i) a Pocono Downs Company is the
sole owner of good, valid, fee simple title to the owned Real Property
including, without limitation, all buildings, structures, fixtures and
improvements located thereon in each case, free and clear of all mortgages,
liens, pledges, security interests and other encumbrances, except as set forth
on Schedule 5.14.1; (ii) except with respect to that certain Settlement
Agreement by and between Parent, PNGI Delaware, Penn National Racecourse,
Mountainview Thoroughbred Racing Association, Pennsylvania National Turf Club,
Inc. and MTR Gaming Group, Inc., dated June, 2003 (the “Settlement Agreement”),
as set forth on Exhibit B, and as set forth on Schedule 5.14.1, none of the Real
Property owned by Sellers or any Pocono Downs Company is subject to any option,
right of first refusal, contract or other restriction of any nature whatsoever
preventing or limiting Sellers’ right to sell, transfer, convey or use the real
property; and (iii) except as disclosed on Schedule 5.14.1, there are no parties
(other than the respective Pocono Downs Company) in possession of the owned real
property and there are no leases, subleases, licenses, concessions or other
agreements granting to any party the right of use or occupancy of any portion of
the owned real property.

 

(b) With respect to the Real Property subject to any lease or sublease, (i) no
Seller nor any Pocono Downs Company has received notice from the other party to
any lease agreement notifying such Seller or Pocono Downs Company of the
termination thereof; (ii) except as set forth on Schedule 5.14.1, each lease may
be assigned by a Seller or the respective Pocono Downs Company, as applicable,
to Buyer without the consent or approval of any third party; (iii) except as set
forth on Schedule 5.14.1, no Seller nor any Pocono Downs Company, as applicable,
has assigned, sublet, transferred or encumbered its leasehold interest; and (iv)
each Seller or Pocono Downs Company, as applicable, has, and immediately after
the Closing, Buyer will have, good and valid title to each leasehold estate,
free and clear of any encumbrances except as set forth on Schedule 5.14.1.

 

(c) With respect to the Real Property, (i) each Seller or Pocono Downs Company,
as applicable, has received all approvals required in connection with the
ownership (or leasing, as applicable) and operation of the property and such
property has, in all material respects, been operated and maintained in
accordance with, and, to Sellers’ knowledge, is not in violation of, applicable
laws, statutes and similar legal requirements and (ii) no Seller has knowledge
of or has not received written notice that there is existing, pending or
threatened condemnation proceedings against any part of the Real Property.

 

5.14.2 The Pocono Downs Companies own outright and have good and marketable
title to all owned properties and assets including, without limitation, all of
the properties and assets reflected on the Interim Balance Sheet and those
acquired since June 30, 2004 (except in each case for properties and assets sold
or otherwise disposed of since such date in the ordinary course of the business
consistent with past practice, subsurface coal rights and except that Pocono
Downs’ off-track wagering facility in Erie, Pennsylvania is under an agreement
of sale pursuant to the terms and provisions of the Settlement Agreement
attached hereto as Exhibit B), free and clear of all mortgages, liens, pledges,
security interests, charges, claims, restrictions and other encumbrances and
defects of title of any nature whatsoever, except

 

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liens for current taxes not yet due and payable or being contested in good faith
by appropriate proceedings (and which have been fully accrued for) and items
disclosed on Schedule 5.14.1 hereto. All leases, subleases, licenses, permits
and authorizations in any manner related to the Real Property, fixed assets,
business of the Pocono Downs Companies and all other instruments, documents and
agreements pursuant to which any Pocono Downs Company has obtained the right to
use any real or personal property are valid and effective in accordance with
their respective terms, and there is not under any of such leases, subleases,
licenses, permits, authorizations, instruments, documents or agreements any
existing material default or event which with the giving of notice or lapse of
time, or both, would constitute a default.

 

5.14.3 Except as disclosed on Schedule 5.14.3 hereto, all facilities, buildings,
vehicles, equipment, furniture and fixtures, leasehold improvements and other
material items of tangible personal property owned or used by any Pocono Downs
Company are in good operating condition and repair, subject to normal wear and
tear and routine maintenance, are useable in the regular and ordinary course of
their businesses and substantially conform to all applicable laws, ordinances,
codes, rules and regulations relating thereto and to the construction, use,
operation and maintenance thereof.

 

5.14.4 Located on the Real Property is all machinery, equipment, appliances and
fixtures necessary or useful for the proper supply of heat, ventilation, air
conditioning, electricity, water service, fire protection, gas and lighting
service to the buildings used to operate the Real Property.

 

5.14.5 Except as disclosed on Schedule 5.14.5 hereto, since January 1, 2001, no
notice has been received by any Seller or Pocono Downs Company from the holder
of any mortgage or from any insurance company that has issued a policy with
respect to the Real Property or by any Board of Fire Underwriters, or other body
exercising similar functions, claiming any defects or deficiencies with respect
to the Real Property, or requesting performance of any demolition, repairs,
alterations or other work to the Real Property.

 

5.14.6 The Real Property is connected to sanitary sewer, storm sewer, water,
electricity, gas, telephone and all other necessary utilities and services, and
to the knowledge of Sellers and the Pocono Downs Companies there are no material
circumstances or conditions which exist which would result in termination of
such connections.

 

5.14.7 There is, to the knowledge of Sellers and the Pocono Downs Companies, no
present, or threatened, ban, moratorium or other limitation of any kind on new
connections or additional flows to the sewage treatment plant serving or to
serve the Real Property.

 

5.14.8 Except as set forth on Schedule 5.14.8 hereto, no work has been or will
be performed at, and no materials have been or will be furnished to, the Real
Property which might give rise to any mechanics’, materialmen’s or other lien
against the Real Property in excess of $50,000.

 

5.14.9 Plans of all buildings, seating stands and other structures at Pocono
Downs have been approved by the Pennsylvania Harness Commission to the extent
required by such Commission.

 

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5.15 Taxes and Tax Returns and Reports. With respect to the Pocono Downs
Companies (each referred to in this Section as a “Taxpayer”): (a) all reports,
returns, statements (including without limitation estimated reports, returns or
statements), and other similar filings required to be filed on or before the
Closing Date by any Taxpayer (the “Tax Returns”) with respect to any Taxes have
been timely filed with the appropriate governmental agencies in all
jurisdictions in which such Tax Returns are required to be filed, and all such
Tax Returns correctly reflect the liability of each Taxpayer for Taxes for the
periods, properties or events covered thereby, (b) all Taxes payable with
respect to the Tax Returns will have been paid in full prior to the Closing
Date, (c) no deficiency in respect of any Taxes which has been assessed against
any Taxpayer remains unpaid and neither Taxpayers nor any Seller has knowledge
of any unassessed Tax deficiencies or of any audits (other than routine annual
audits by the Pennsylvania Department of Revenue) or investigations pending or
threatened against any Taxpayer with respect to any Taxes, (d) except as set
forth in Schedule 5.15 hereto, there is in effect no extension for the filing of
any Tax Return, no Taxpayer has extended or waived the application of any
statute of limitations of any jurisdiction regarding the assessment or
collection of any Tax, and no power of attorney granted by any Taxpayer with
respect to any tax matters is currently in force, (e) to the knowledge of each
Seller and each Taxpayer, no claim has ever been made by any Tax authority in a
jurisdiction in which any Taxpayer does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction, (f) there are no liens for Taxes
upon any asset of any Taxpayer except for liens for current Taxes not yet due,
(g) no issues have been raised in any examination by any Tax authority with
respect to any Taxpayer which, by application of similar principles, reasonably
could be expected to result in a proposed deficiency for any other period not so
examined, (h) except for the obligations established by this Agreement or
Schedule 5.15, no Taxpayer is a party to any Tax allocation or sharing agreement
or otherwise under any obligation to indemnify any person with respect to any
Taxes, (i) no Taxpayer is or has ever been a holder of any equity interests in
any joint venture, partnership or other arrangement that is treated as a
partnership for federal income tax purposes, (j) there are no accounting method
changes or proposed accounting method changes of any Taxpayer that could give
rise to an adjustment under Section 481 of the Internal Revenue Code of 1986, as
amended (the “Code”), for periods after the Closing Date, (k) there are no
requests for rulings in respect of any Tax pending between any Taxpayer and any
Tax authority, (l) since 1998, no Taxpayer has been a member of any affiliated
group other than the affiliated group of which Sellers’ ultimate parent is the
common parent, (m) each Taxpayer has timely made all deposits required by law to
be made with respect to employees’ withholding and other employment taxes, and
(n) Schedule 5.15 sets forth all federal tax elections that required explicit
written elections (and explicitly not including any election made by selecting a
filing position on a filed tax return) that currently are in effect with respect
to any Taxpayer and all such elections for purposes of foreign, state or local
Taxes and all such consents or Agreements for purposes of federal, foreign,
state or local Taxes in each case that reasonably could be expected to affect or
be binding upon any Taxpayer or their respective Assets or operations after the
Closing.

 

For purposes of this Agreement, “Taxes” means any taxes, duties, assessments,
fees, levies or similar governmental charges, together with any interest,
penalties and additions to tax, imposed by any taxing authority, wherever
located (i.e. whether federal, state, local, municipal or foreign), including
without limitation all net income, gross income, gross receipts, net receipts,
sales, use, transfer, capital stock, franchise, privilege, profits, social
security, disability, withholding, payroll, unemployment, employment, excise,
severance, property, windfall profits, pari-mutuel or other similar taxes, value
added, ad valorem, occupation or any other similar governmental charge or
imposition.

 

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5.16 Legal Proceedings. Except as disclosed on Schedule 5.16 hereto, there are
no disputes, claims, charges, actions, complaints, suits or proceedings
(including without limitation local zoning or building ordinance proceedings),
arbitrations or investigations, either administrative, including before the
National Labor Relations Board, or judicial, pending, or to the knowledge of any
Seller or Pocono Downs Company threatened, by or against any Pocono Downs
Company or their assets or businesses, before or by any court or governmental or
regulatory official, body or authority, or before an arbitrator of any kind.
Except as disclosed on Schedule 5.16 hereto, no Seller nor any Pocono Downs
Company has any knowledge of any condition or state of facts or the occurrence
of any event that such Seller or Pocono Downs Company believes is likely to form
the basis of any material dispute, claim, charge, action, complaint, suit,
proceeding or arbitration against such Seller or any Pocono Downs Company.
Except as disclosed on Schedule 5.16 hereto, no Seller nor any Pocono Downs
Company is a party to the provisions of any judgment, order, writ, injunction or
decree of any court, arbitrator or governmental or regulatory official, body or
authority.

 

5.17 Compliance with Law.

 

5.17.1 Except as disclosed on Schedule 5.17.1 hereto, the Pocono Downs Companies
have complied in all material respects with each, and are not in violation in
any material respect of any, law, rule or regulation to which they or their
businesses are, or their operations, assets or properties are, subject and have
not failed to obtain or substantially adhere to the requirements of any license,
permit or other authorization necessary to the ownership of their assets and
properties or to the conduct of their businesses. Without limiting the
generality of the foregoing, except as disclosed on Schedule 5.17.1 hereto since
January 1, 2001 (a) neither any Seller nor any Pocono Downs Company, or any
director, officer, employee or agent of or any consultant to any Seller or any
Pocono Downs Company, or any other person authorized to act on behalf of any
Seller or any Pocono Downs Company, has unlawfully offered, paid or agreed to
pay, directly or indirectly, any money or anything of value to or for the
benefit of any individual who is or was an official or employee or candidate for
office of the government of any country or any political subdivision, agency or
instrumentality thereof or any employee or agent of any customer or supplier or
any Seller and (b) each Seller and each Pocono Downs Company is in substantial
compliance with all applicable federal, state and local laws, and, to the
knowledge of such Seller, no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed or commenced against
any of them alleging any failure to so comply.

 

5.17.2 Prior to the date hereof, Downs Racing has not annually provided the
Pennsylvania Harness Commission with a complete list of all its shareholders,
indicating the number of shares held by each shareholder. On or about March 1,
2004, Downs Racing placed on deposit with the Pennsylvania Harness Commission an
irrevocable letter of credit equivalent to its average weekly purse total from
the immediate prior year. Downs Racing has submitted to the Pennsylvania Harness
Commission copies of weekly payrolls of all personnel employed at the track
during its current or most recent race meeting, including any applicable state
license number, address and title of each employee. Downs Racing has submitted
copies of all written

 

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contracts and agreements and a summary of all verbal contracts and agreements
required to be submitted to the Pennsylvania Harness Commission. Downs Racing
maintains separate general ledgers and books of original entries for each
calendar or fiscal year. At the close of each racing meet and at the close of
its fiscal year, Downs Racing has submitted to the Pennsylvania Harness
Commission a Statement of Assets and Liabilities and a Statement of Profit and
Loss and Surplus. Downs Racing has also submitted all interim and daily
financial reports to the Pennsylvania Harness Commission to the extent requested
by such Commission. At least 85% of the persons employed each day in the
operation of Downs Racing is a citizen of the United States of America and a
resident of the Commonwealth of Pennsylvania for at least 2 years prior to the
start of their employment. Downs Racing has adopted the uniform system of
accounts to the extent required by the Pennsylvania Department of Revenue. Downs
Racing has paid through the Pennsylvania Department of Revenue for credit to the
State Racing Fund all taxes it is required to pay, including the tax of the
amount wagered each day and the tax on the admission price of tickets sold or
otherwise disposed of and it has done so within the time limits imposed by the
Pennsylvania Act or related regulations promulgated by the Pennsylvania Harness
Commission.

 

5.18 Validity of Contemplated Transactions. The execution, delivery and, except
as set forth on Schedule 5.18 hereto, performance hereof by Sellers will not
contravene or violate (a) any law, rule or regulation to which any Pocono Downs
Company is subject, (b) any judgment, order, writ, injunction or decree of any
court, arbitrator or governmental or regulatory official, body or authority
which is applicable to any Pocono Downs Company or (c) the charter,
organizational or governing documents of any Pocono Downs Company; nor, except
as set forth on Schedule 5.18 hereto, will such execution, delivery or
performance violate, be in conflict with or result in the breach (with or
without the giving of notice or lapse of time, or both) of any term, condition
or provision of, or require the consent of any other party to, any material
contract, commitment, agreement, lease, license, permit, authorization, document
or other understanding, oral or written, to or by which any Pocono Downs Company
is a party or otherwise bound or by which any of the assets or properties of any
Pocono Downs Company may be bound or give any party with rights thereunder the
right to terminate, modify, accelerate, renegotiate or otherwise change any of
the existing rights or obligations of any Pocono Downs Company thereunder.

 

5.19 Insurance. Schedule 5.19 hereto contains a true and complete list of the
insurance coverage in effect with respect to the Pocono Downs Companies and
their businesses and properties, together with a description of each insurance
claim in excess of $50,000 made by the Pocono Downs Companies during the past
two years not set forth on Schedule 5.16 hereto. The Pocono Downs Companies have
at all times during the past three years maintained insurance coverage
substantially similar to the insurance coverage currently in effect. There has
been no material default under any such coverage, nor has there been any failure
to give any notice or present any claim under any such coverage in a timely
fashion or in the manner or detail required by the policy or binder. There are
no outstanding unpaid premiums other than premiums accrued but not yet payable
in the ordinary course of business of the Pocono Downs Companies and there are
no provisions in any insurance coverage of the Pocono Downs Companies for
retroactive or retrospective premium adjustments.

 

No notice of cancellation or nonrenewal with respect to, or disallowance of any
claim under, any such coverage has been received by any Pocono Downs Company.
Except as

 

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disclosed on Schedule 5.19 hereto, there are no outstanding performance bonds or
other surety arrangements covering or issued for the benefit of either the
Pocono Downs Companies or their businesses or as to which the Pocono Downs
Companies have or may incur any liability.

 

5.20 Contracts and Commitments. Except as listed and described on Schedule 5.20
hereto or, in the case of benefit plans and arrangements, Schedule 5.23 hereto,
none of the Pocono Downs Companies is a party to or otherwise bound by any
written or oral:

 

5.20.1 agreement, contract or commitment with Parent or any affiliate of Parent
or any present or former shareholder, director or officer of any such Pocono
Downs Company or any Seller; or any agreement, contract or commitment with any
employee or consultant or for the employment of any person, including without
limitation any consultant;

 

5.20.2 agreement, contract, commitment or arrangement with any labor union or
other representative of any employee or horseman;

 

5.20.3 agreement, contract or commitment for the purchase of, or payment for,
supplies or products, or for the performance of services by a third party,
involving in any one case supplies, products or services having a value of
$50,000 or more;

 

5.20.4 agreement, contract or commitment to sell or supply products or to
perform services, involving in any one case products or services having a value
of $50,000 or more;

 

5.20.5 agreement, contract or commitment (i) providing for payments based upon
the revenues or profits of any Pocono Downs Company or any other entity or (ii)
continuing over a period of more than six months from the date hereof or
exceeding $50,000 in value;

 

5.20.6 capital or operating lease under which it is either lessor or lessee of
real property (not listed in Schedule 5.14.1) or any material personal property;

 

5.20.7 note, debenture, bond, conditional sale agreement, equipment trust
agreement, letter of credit agreement, loan agreement or other agreement or
contract, commitment or arrangement for the borrowing or lending of money
(including without limitation loans to or from officers, directors or any
Seller); or agreement, contract, commitment or arrangement for a line of credit
or guarantee, pledge or undertaking in any manner whatsoever of the indebtedness
of any other person;

 

5.20.8 agreement, contract or commitment with any governmental agency,
commission, department or other governmental body;

 

5.20.9 agreement, contract or commitment for any capital expenditure in excess
of $50,000;

 

5.20.10 agreement, contract or commitment limiting or restraining it from
engaging or competing in any lines of business with any person, nor to the
knowledge of any Seller or any Pocono Downs Company is any officer or employee
of any Pocono Downs Company subject to any such agreement;

 

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5.20.11 material license, franchise, distributorship or other similar agreement,
contract or commitment, including without limitation those which relate in whole
or in part to any patent, trademark, trade name, service mark or copyright or to
any ideas, technical assistance or other know-how of or used by any Pocono Downs
Company; or

 

5.20.12 material agreement, contract or commitment not made in the ordinary
course of its business.

 

Except as may be disclosed on Schedule 5.20 hereto, each of the agreements,
contracts, commitments, arrangements, leases and other instruments, documents
and undertakings listed on Schedule 5.20 hereto is, as to the Pocono Downs
Company party thereto and, to the knowledge of Sellers and the Pocono Downs
Companies, the other parties thereto, valid and enforceable in accordance with
its terms (except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws); the Pocono Downs Company
party thereto, as the case may be, (and to the knowledge of Sellers and the
Pocono Downs Companies, the other parties thereto) are in substantial compliance
with and are not in default in the performance, observance or fulfillment of any
material obligation, covenant or condition contained therein; and to the
knowledge of Sellers and the Pocono Downs Companies, no event has occurred which
with or without the giving of notice or lapse of time, or both, would constitute
a material default thereunder.

 

5.21 Additional Information. Schedule 5.21 hereto contains, to the extent not
described in some other Schedule hereto, accurate lists and, in respect of items
not fully set forth in a document previously provided to Buyer or its
representatives, summary descriptions of the following:

 

5.21.1 the names of all directors of each Pocono Downs Company;

 

5.21.2 the names and current bi-weekly salaries of all employees of each Pocono
Downs Company as of September 18, 2004 together with a statement of the full
amount of any bonuses, profit sharing or other remuneration paid to each such
person and to any director during the current or the last fiscal year or payable
to each such person in the future and the basis therefor;

 

5.21.3 the names and addresses of each bank and other financial institution or
fund in which any Pocono Downs Company maintains an account (whether checking,
savings, money market or otherwise), lock box or safe deposit box, and the
account numbers and names of persons having signing authority or other access
with respect thereto;

 

5.21.4 a listing of all cash equivalent items held by any Pocono Downs Company;

 

5.21.5 a listing of all material licenses, permits and governmental
authorizations of each Pocono Downs Company;

 

5.21.6 the names of all persons holding powers of attorney executed by any
Pocono Downs Company and a summary statement of the terms thereof; and

 

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5.21.7 a listing of all accounts payable of each Pocono Downs Company as of
August 31, 2004 in excess of $50,000 individually.

 

5.22 Labor Matters; Owners and Trainers. Except as set forth on Schedule 5.22
hereto, during the last 12 months, (a) there are no labor controversies,
disturbances, or disputes pending, or to the knowledge of a Seller or a Pocono
Downs Company, threatened against any Pocono Downs Company, and neither any
Seller nor any Pocono Downs Company has knowledge of any facts that would be
likely to give rise to such a controversy, disturbance, or dispute; (b) there is
no union representing the interests of any employees of any Pocono Downs
Company; (c) to the knowledge of the Pocono Downs Companies and Sellers, there
are no employees of any Pocono Downs Company seeking union representation; and
(d) to the knowledge of Sellers and the Pocono Downs Companies, there is no
union seeking to represent such employees. The relations of the Pocono Downs
Companies with their employees, and with owners and trainers who have
participated in racing at Pocono Downs within the past 12 months, are
satisfactory, and neither any Seller nor any Pocono Downs Company has knowledge
of any facts that would be likely to affect adversely such relations.

 

5.23 Benefit Plans and Arrangements.

 

5.23.1 Schedule 5.23 hereto lists each employee benefit plan (within the meaning
of section 3(3) of ERISA), and each other deferred compensation, equity
compensation, pension, retirement, profit-sharing, medical, health, vision,
dental, prescription drug, life insurance, disability, or other employee or
retiree benefit plan, fund, program, agreement, arrangement or understanding, in
each case, that is sponsored, maintained, contributed to or required to be
contributed to by one or more of the Pocono Downs Companies, or an ERISA
Affiliate, for the benefit of any employee or former employee, or any
beneficiary of any employee or former employee, of a Pocono Downs Company (the
“Plans”).

 

5.23.2 With respect to each Plan, the Pocono Downs Companies have made (or as of
the Closing Date will make) all contributions thereto which they have accrued on
their financial statements and other books and records as a liability and except
as disclosed on Schedule 5.23. Sellers have delivered or made available to Buyer
true, accurate and complete copies of (i) all documents governing such Plans,
and all amendments thereto, (ii) all annual Form 5500 tax returns filed, for the
three plan years ending on or immediately preceding the Closing Date, with
respect to such Plans with the United States Department of Labor, (iii) all
summary plan descriptions, notices and other material reporting and disclosure
material furnished to participants in any of such Plans, (iv) all actuarial,
accounting and financial reports, if any, prepared with respect to any of such
Plans for the three plan years ending on or immediately preceding the Closing
Date and (v) all currently effective IRS determination letters on any of such
Plans and any pending IRS determination letter applications for any such Plans.

 

5.23.3 Except as disclosed on Schedule 5.23, each Plan has been administered in
material compliance with its terms and with the applicable provisions of the
Code, ERISA, and all other applicable statutes and governmental rules and
regulations.

 

5.23.4 Except as disclosed on Schedule 5.23, each Plan that is intended to be
qualified under section 401(a) of the Code is so qualified (except to the extent
that failure to be

 

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so qualified would not reasonably be expected to result in a material liability
of Buyer) and has either (i) received a current, favorable determination letter
as to such qualification from the IRS, (ii) been submitted to the IRS for such
determination letter within the applicable remedial amendment period under
section 401(b) of the Code, or (iii) the applicable remedial amendment period
has not expired.

 

5.23.5 Except as disclosed on Schedule 5.23, there is no action, claim or demand
of any kind (other than routine claims for benefits) which has been brought or,
to the knowledge of any Pocono Downs Company, threatened, against any Plan or
the assets thereof, or against any fiduciary of any such Plan.

 

5.23.6 Except as disclosed on Schedule 5.23, (i) no Plan is, or has been (A)
subject to Title IV of ERISA, (B) a multiemployer plan, as that term is defined
in section 3(37) of ERISA (a “Multiemployer Plan”), or (C) a plan providing
life, health or medical benefits to retired or terminated employees (other than
as required by sections 601-608 of ERISA); (ii) no Pocono Downs Company has
contributed to or ever has been obligated to contribute to a Multiemployer Plan;
and (iii) no prohibited transactions described in section 406 of ERISA or
section 4975 of the Code have occurred with respect to any Plan which would
result in any material liability to a Pocono Downs Company. No Plan subject to
Title IV of ERISA has suffered an “accumulated funding deficiency” as defined in
Section 412(a) of the Code. Neither the Pocono Downs Companies nor any ERISA
Affiliate has incurred any withdrawal liability, within the meaning of Section
4201 of ERISA, nor any contingent withdrawal liability under Section 4204 of
ERISA, to any Multiemployer Plan, which liability could reasonably be expected
to become a liability of Buyer.

 

5.23.7 With respect to any Plan that is an employee welfare benefit plan (within
the meaning of section 3(1) of ERISA) (a “Welfare Plan”), (i) each Welfare Plan
for which contributions are claimed as deductions under any provision of the
Code is in material compliance with all applicable requirements pertaining to
such deductions and (ii) any Welfare Plan that is a group health plan (within
the meaning of section 5000(b)(l) of the Code) is, and at all times has been, in
material compliance with section 4980B of the Code.

 

5.23.8 Except as disclosed on Schedule 5.23, Sellers have not made any
commitment regarding the continuation of any Plan and Buyer will be free, in its
sole discretion, to cause the applicable Pocono Downs Company, subject to the
requirements of applicable law, to amend, cancel, terminate or otherwise modify
in any and all respects any such Plan.

 

5.23.9 Except as disclosed on Schedule 5.23, the consummation of the sale and
purchase of the Partnership Interests effectuated by this Agreement shall not
impose upon any Pocono Downs Company any obligation with respect to the payment
of any severance benefits, parachute payments or any other similar type of
payment to any employee or any other person.

 

5.23.10 Except as disclosed on Schedule 5.23, neither the Pocono Downs Companies
nor any Plan have any material liability under the Code, ERISA, or other
applicable statutes, governmental rules or regulations with respect to any
employee benefit plan maintained by an ERISA Affiliate. For purposes of this
Section 5.23 only, the term “ERISA Affiliate” shall include (i) any corporation
which is a member of a controlled group of corporations (as defined in Section
414(b) of the Code) which includes a Pocono Downs Company, (ii) any trade or
business (whether or not incorporated) which is under common control (as defined

 

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in Section 414(c) of the Code) with a Pocono Downs Company, (iii) any
organization (whether or not incorporated) which is a member of an affiliated
service group (as defined in Section 414(m) of the Code) which includes a Pocono
Downs Company and (iv) any other entity required to be aggregated with a Pocono
Downs Company pursuant to the regulations issued under Section 414(o) of the
Code.

 

5.24 Environmental Matters. All the representations and warranties contained in
this Section 5.24 are subject to, and qualified in their entirety by, the
information disclosed on Schedule 5.24:

 

5.24.1 Each of the Pocono Downs Companies is and has been in compliance in all
material respects with all applicable Environmental Laws and has obtained all
Environmental Permits to operate its business as currently operated, and
Schedule 5.24 sets forth a true and correct list of all such Environmental
Permits.

 

5.24.2 There has not been any Release or threatened Release of any Hazardous
Material, that has, or will require cleanup, at, in, on, or from any Real
Property owned, operated or leased by any Pocono Downs Company.

 

5.24.3 No Environmental Claims have been made, or are pending or, to Sellers’
knowledge, have been threatened against any Pocono Downs Company with respect to
either the Real Property owned, operated or leased by any Pocono Downs Company
or such Pocono Downs Company’s operations thereon.

 

5.24.4 There is no use or storage of any Hazardous Material that contains levels
exceeding any applicable regulatory criteria that would cause an Environmental
Claim, and no other materials, including asbestos containing material, toxic
mold, lead paint, polychlorinated biphenyl, landfill or dump, is present at, in
or on any Real Property or facility owned or operated in connection with the
business of any Pocono Downs Company.

 

5.24.5 To the knowledge of Sellers, as of the Closing Date, no Pocono Downs
Company has arranged, by contract, agreement or otherwise, for the treatment or
disposal of Hazardous Materials in connection with its business such that it is
or could be liable for Remediation under Environmental Laws.

 

5.24.6 Sellers have no actual knowledge that any Pocono Downs Company has
received any written notice or complaint from the Pennsylvania Department of
Environmental Protection or the U.S. Environmental Protection Agency related to
environmental conditions or claims with respect to the Real Property, and to
Sellers’ actual knowledge, the Pocono Downs Companies have disclosed to or
otherwise made available for inspection by Buyer all written reports and
material correspondence received prior to the date hereof from any environmental
consultant or environmental contracting firm identifying or discussing actual or
potential environmental conditions with respect to the Real Property.

 

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5.24.7 For purposes of this Agreement, the following terms shall have the
meanings set forth below:

 

“Environmental Claims” means any and all administrative or judicial actions,
sanctions, suits, orders, claims, liens, notices, investigations, violations or
proceedings related to any applicable Environmental Law or any Environmental
Permit brought, issued or asserted by a governmental authority or any other
person (other than Buyer or its affiliates) for compliance, damages, penalties,
removal, response, Remediation or other action pursuant to any applicable
Environmental Law or for personal injury or property damage (other than to Buyer
or its affiliates) resulting from a Hazardous Material at, to or from any
facility or property of any Pocono Downs Company or any facility or property at
which any Pocono Downs Company disposed or arranged for the disposal or
treatment (with a transporter or otherwise) of Hazardous Materials, including
without limitation past, present or future employees of any Pocono Downs Company
seeking damages for exposure to Hazardous Materials;

 

“Environmental Laws” means all federal, state and local laws, statutes,
ordinances, codes, rules and regulations related to the environment, natural
resources, safety or health or the handling, use, recycle, generation,
treatment, storage, transportation or disposal of Hazardous Materials, and any
common law cause of action relating to the environment, natural resources,
safety, health or the management of or exposure to Hazardous Materials including
without limitation, Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. §§ 9601, et seq.); the Superfund
Amendments and Reauthorization Act (42 U.S.C. §§ 9601, et seq.); the Hazardous
Materials Transportation Act, as amended (49 U.S.C. §§ 5101, et seq.); the
Resource Conservation and Recovery Act, as amended, (42 U.S.C. §§ 6901, et
seq.); the Clean Water Act, as amended (33 U.S.C. §§ 1251, et seq.); the Clean
Air Act, as amended (42 U.S.C. §§ 7401, et seq.); the Federal Insecticide,
Fungicide and Rodenticide Act (7 U.S.C. §§ 136, et seq.); the Toxic Substances
Control Act (15 U.S.C. §§ 2601, et seq.); the Surface Mining Control and
Reclamation Act of 1977 (30 U.S.C. §§ 1201, et seq.); Emergency Planning and
Community Right to Know Act of 1986 (42 U.S.C. §§ 11001, et seq.); the
Occupational Safety and Health Act, as amended (29 U.S.C. §§ 651 et seq.); Solid
Waste Disposal Act, (42 U.S.C. §§ 6941 et seq.); the Endangered Species Act (7
U.S.C. § 136;16 U.S.C. § 460, et seq. (1973)); the Oil Pollution Act of 1990 (33
U.S.C. §§ 2702 to 2761), all amendments to any of the foregoing statutes, and
all regulations promulgated by any federal or state agencies, including the
Environmental Protection Agency, regulations of the Nuclear Regulatory Agency,
and similar regulations of any state department of natural resources or state
environmental protection agency now or at any time hereafter in effect,
including the Pennsylvania Solid Waste Management Act of July 7, 1980 (35 P.S.
§§ 6018.101¨ 6018.1003); the Low Level Radioactive Waste Disposal Act of
February 9, 1988 (35 P.S. §§ 7110.1 et seq.); the Infectious and
Chemotherapeutic Waste Act of July 13, 1988 (35 P.S. §§ 6019.1 et seq..);
Municipal Waste Planning, Recycling and Waste Reduction Act of July 28, 1988 (53
P.S. §§ 4000.100 et seq.); the Hazardous Sites Cleanup Act of October 18, 1988
(35 P.S. §§ 6020.101 et seq.); the Clean Streams Law of June 22, 1937 (35 P.S.
§§691.1¨691.1001); the Air Pollution Control Act of January 8, 1960 (35 P.S. §§
4001-4015); the Surface Mining Conservation & Reclamation Act of May 31, 1945
(52 P.S. §§ 1396.1-1396.31); the Noncoal Surface Mining Conservation &
Reclamation Act (52 P.S. §§ 3301-3326); and the Dam Safety and Encroachments Act
of November 26, 1978 (32 P.S. §§ 693.1-693.27); and all rules and regulations
implementing any of the foregoing.

 

“Environmental Permits” means all permits, licenses, approvals, authorizations
or consents required by any governmental authority under any applicable
Environmental Law and includes any and all orders or consent orders issued or
entered into by a governmental authority under any applicable Environmental Law;
and

 

20

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“Hazardous Material” means any substance, material or waste that is listed,
regulated or defined under any Environmental Law and including, without
limitation, any substance, mater or waste that is defined or designated a
“hazardous substance,” “hazardous waste,” “regulated substance,” or “solid
waste” under any Environmental Laws, petroleum, petroleum-like products or
wastes, asbestos, or polychlorinated biphenyls.

 

“Release” means any presence, spilling, migrating, seeping, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing of any Hazardous Material into the indoor or outdoor environment,
including, without limitation, the abandonment or discarding of barrels, drums,
containers, tanks and other receptacles containing or previously containing any
Hazardous Material.

 

“Remediation” means any investigation, clean-up, removal action, remedial
action, restoration, repair, response action, corrective action, monitoring,
sampling and analysis, installation, reclamation, closure, or post-closure in
connection with any Hazardous Material.

 

5.25 Intellectual Property.

 

5.25.1 Sellers have identified on Schedule 5.25.1: (i) all trademarks and
servicemarks and trade names that, with respect to trademarks and servicemarks,
have been registered with the U.S. Patent and Trademark Office or any state
trademark registration office, and with respect to trade names, have been
recorded in a governmental office, all as specified on Schedule 5.25.1, and that
are used in connection with the business of the Pocono Downs Companies, as well
as all current trademarks or servicemarks for which applications for
registration have been filed with the U.S. Patent and Trademark Office or any
state trademark registration office, as specified on Schedule 5.25.1, and that
are used in connection with the business of the Pocono Downs Companies, and all
unregistered trademarks, service marks and trade names that are material to, and
used in connection with, the business of the Pocono Downs Companies; (ii) all
copyrights registered with the U.S. Copyright Office in connection with the
business of the Pocono Downs Companies and all unregistered copyrights that are
material to, and used in connection with, the business of the Pocono Downs
Companies; and (iii) all domain names used in connection with the business of
the Pocono Downs Companies (collectively, “Intellectual Property”). The
registered owner of all registered, issued and applied for Intellectual
Property, and all domain names used in connection with the business of the
Pocono Downs Companies is identified on Schedule 5.25.1.

 

5.25.2 Sellers have identified on Schedule 5.25.2 all material computer software
(other than any commercially available shrink-wrap or click-wrap computer
software). With respect to all such computer software, Sellers or the Pocono
Downs Companies either (A) own all right, title and interest, including all
copyright rights, in and to such computer software, including access to and use
of the source code therefore; or (B) have all necessary rights and licenses to
use such computer software as currently used in connection with the business of
the Pocono Downs Companies pursuant to a third party license (a “Third Party
License”), and have complied in all material respects with all of the provisions
of such Third Party Licenses and are not in default thereunder.

 

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5.25.3 Sellers has identified on Schedule 5.25.3 all material warranty,
maintenance and support agreements currently in place with respect to computer
software and computer hardware (collectively, “Maintenance Agreements”). Neither
Sellers nor any Pocono Downs Companies are in breach under any Maintenance
Agreement, nor has any event occurred under any Maintenance Agreement that would
reasonably be expected to limit or void the applicable vendor’s or service
provider’s warranty, maintenance or support obligations thereunder.

 

5.25.4 Except as set forth in Schedule 5.25.4, neither Sellers nor any Pocono
Downs Companies are obligated to pay any amount, whether as a royalty, license
fee or other payment, to any person in order to use any of the Intellectual
Property, computer hardware or computer software, and all amounts due with
respect to Third Party Licenses and Maintenance Agreements have been paid.

 

5.25.5 Sellers and the Pocono Downs Companies have sufficient right, title and
ownership of all Intellectual Property, computer hardware and computer software,
and sufficient Third Party Licenses and Maintenance Agreements for the conduct
of the business of the Pocono Downs Companies. To the knowledge of the Sellers,
the conduct of the business of the Pocono Downs Companies (including, without
limitation, the Intellectual Property) does not infringe any patent, trademark,
service mark, copyright, trade secret or other intellectual property right of
any third party. To the knowledge of the Sellers, none of the Intellectual
Property or other intellectual property right used in connection with the
business of the Pocono Downs Companies is being infringed upon by others.

 

5.25.6 There is no claim or demand of any person pertaining to, or any
prosecution, suit, action or proceeding pending or threatened, that challenges
the right of Sellers or any Pocono Downs Company to use the Intellectual
Property, computer hardware or computer software, and no aspect of the
Intellectual Property, computer hardware or computer software is subject to any
outstanding order, ruling, decree, judgment, settlement, injunction or
stipulation.

 

5.25.7 All Intellectual Property, computer hardware and computer software will
be fully transferable, alienable, or licensable by Sellers or the Pocono Downs
Companies without restriction and without payment of any kind to any third
party. The consummation of this transaction does not and will not conflict with,
alter, or impair any rights. The assignment of any contracts or agreements to
which any Seller or Pocono Downs Company is a party, by operation of law or
otherwise, will not result in (i) such party granting to any third party any
right to Intellectual Property, computer hardware or computer software owned by
or licensed to it, (ii) such party being bound by, or subject to, any
non-compete or other restriction on the operation or scope of the business of
the Pocono Downs Companies, (iii) such party being obligated to pay any
royalties or other amounts to any third party in excess of those payable by such
party prior to the Closing, or (iv) any loss of material benefit to such party
under any contract, agreement, or license.

 

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5.26 No Third Party Options. Except as set forth on Exhibit B, there are no
existing agreements, options, commitments or rights with, to or in any third
person to acquire any of the assets or properties of any Pocono Downs Company or
any interest therein, except for those contracts entered into in the ordinary
course of business consistent with past practice for the sale of such assets and
properties.

 

5.27 Schedules: Delivery of Documents; Corporate Records. Sellers have delivered
or made available to Buyer the originals or true and complete copies of all
documents, including without limitation all amendments, supplements or
modifications thereof or waivers currently in effect thereunder, referred to on
the Schedules hereto and have also delivered or will deliver prior to the
Closing, as applicable, to Buyer copies of the Articles of Incorporation, and
all amendments thereto, and the By-Laws, as amended, and any other certificates
of formation or organization or partnership agreement or other governing
documents of each Pocono Downs Company. The minute and stock and partnership
record books of each Pocono Downs Company, which have been made available to
Buyer for its inspection, contain complete and correct copies of all charter
documents and the records of all meetings and consents in lieu of meeting of the
Boards of Directors (and any committees thereof) and shareholders or partners,
as applicable, of each Pocono Downs Company since January 1, 1997.

 

5.28 Racing License. Downs Racing has been granted permission to conduct harness
racing with pari-mutuel wagering pursuant to Sections 203, 207 and 209 of the
Pennsylvania Act. Downs Racing has also received permission from the
Pennsylvania Harness Commission to own and operate five non-primary facilities
pursuant to Sections 218 and 218(a) of the Pennsylvania Act and to conduct
interstate simulcasting pursuant to Section 216 of the Pennsylvania Act and
intrastate simulcasting pursuant to Section 234 of the Pennsylvania Act. The
location and description of each non-primary location is set forth on Section
5.14.1 hereto. Reference is made to Exhibit B. In the conduct of its racing
activities, Downs Racing has complied in all material respects with the rules
and regulations adopted by the Pennsylvania Harness Commission thereunder and,
except as disclosed on Schedule 5.28 hereto, the Seller and the Pocono Downs
Companies have not:

 

5.28.1 falsified answers or made misrepresentations to the Pennsylvania Harness
Commission in any document required to be filed under the Pennsylvania Act;

 

5.28.2 failed to properly maintain its track and plant in good condition or
failed to make adequate provisions for rehabilitation and capital improvements
to its track and plant;

 

5.28.3 issued or caused to be issued false or misleading advertisement;

 

5.28.4 knowingly or carelessly permitted on its grounds or within the enclosure
of its race track, illegal lotteries, pool selling, touting or bookmaking or any
other kind of illegal gambling;

 

5.28.5 aided or knowingly permitted or conspired to permit any public officer,
public employee or party officer to hold any office or employment with any
Seller or the Pocono Downs Companies; or

 

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5.28.6 issued free passes, cards or badges without admission tax except to those
persons permitted by Section 231 of the Pennsylvania Act.

 

Downs Racing has issued free passes, cards or badges for special promotional
programs and seasonal discount ticket programs without the approval of the
Pennsylvania Harness Commission.

 

5.29 Patriot Act. Sellers certify that, to the knowledge of Sellers and the
Pocono Downs Companies, the Pocono Downs Companies have not been designated as,
and are not owned or controlled by, a “suspected terrorist” as defined in
Executive Order 13224. None of the cash or property owned by the Pocono Downs
Companies has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and no contribution or payment by the
Pocono Downs Companies has been, and this Agreement will not cause the Pocono
Downs Companies to be, in violation of the United States Bank Secrecy Act, the
United States International Money Laundering Control Act of 1986 or the United
Stated International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001.

 

5.30 Disclosure. The representations and warranties contained in this Section 5
do not knowingly or recklessly contain any untrue statement of a material fact
or knowingly or recklessly omit to state any material fact necessary in order to
make the statements and information contained in this Section 5 not misleading.

 

6. Representations and Warranties of Buyer. Buyer represents and warrants to
Sellers as follows:

 

6.1 Existence. The MTGA is an instrumentality of the Mohegan Tribe of Indians of
Connecticut (the “Tribe”) created by an ordinance pursuant to the Tribe’s
constitution. As of the Closing Date, MTGA Sub will (x) be a limited liability
company duly formed and validly existing under the laws of the Commonwealth of
Pennsylvania.

 

6.2 Power and Authorization. Buyer has the full power to execute, deliver and
perform this Agreement. The execution, delivery and performance hereof by Buyer
have been duly authorized by all necessary action on their behalf. This
Agreement is a legal, valid and binding obligation of Buyer and is enforceable
against Buyer in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws affecting the enforcement of creditors’ rights in general, and except
that the enforceability of this Agreement is subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law). As of the Closing Date, MTGA Sub will have the full power
to execute, deliver and perform the obligations of MTGA Sub set forth herein.

 

6.3 Validity of Contemplated Transactions. The execution and delivery and
performance hereof by Buyer will not contravene or violate (a) any law, rule or
regulation to which Buyer is subject, (b) any judgment, order, writ, injunction
or decree of any court, arbitrator or governmental or regulatory official, body
or authority to which Buyer is subject or (c) the formation or organizational
documents of Buyer; nor will such execution, delivery or performance violate, be
in conflict with or result in the breach (with or without the giving of

 

24

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notice or lapse of time, or both) of any term, condition or provision of, or
require the consent, approval or agreement of any person, entity, party, court,
government or governmental agency, including, without limitation, any consent,
approval or agreement of any federal agency or authority pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
“Hart-Scott-Rodino Act”), except with respect to the approval of the
Pennsylvania Harness Commission addressed in Section 7.3.2 of this Agreement.

 

6.4 Investment Only. Buyer is acquiring the Partnership Interests for its own
account and not with the intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws. Buyer acknowledges that the Partnership Interests are not
registered under the Securities Act of 1933, as amended, or any state securities
law, and must be held indefinitely unless they are subsequently so registered or
unless an exemption from registration is available.

 

6.5 Patriot Act. Buyer certifies that, to Buyer’s knowledge, Buyer has not been
designated as, and is not owned or controlled by, a “suspected terrorist” as
defined in Executive Order 13224. None of the cash or property owned by Buyer
has been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and no contribution or payment by either Buyer
has been, and this Agreement will not cause Buyer to be, in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United Stated International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001.

 

7. Covenants.

 

7.1 Covenants of Sellers Pending Closing. Sellers covenant and agree that,
except as may be approved in writing by an executive officer of Buyer, between
the date hereof and the Closing Date:

 

7.1.1 the Pocono Downs Companies will conduct and operate their businesses in a
manner consistent with past practices and, to the extent consistent with such
operation, use their reasonable commercial efforts to (i) preserve intact their
current business organizations, (ii) keep available the services of their
present employees, subject to their present terms and conditions of employment,
(iii) continue normal purchasing, rental, leasing, financing, marketing,
advertising, promotional and maintenance expenditures and (iv) preserve existing
business relationships with all lessors, lessees, suppliers, customers and other
persons having business dealings with them, it being understood and acknowledged
that Sellers are uncertain as to the effect of the prospective sale of the
Partnership Interests on the foregoing, and do all things that the Pocono Downs
Companies would have done in the ordinary course of their business had this
Agreement not been executed.

 

7.1.2 the Pocono Downs Companies will, at their own expense, maintain in a
manner consistent with past practices (i) all of the material properties used or
useful in their businesses in current operating condition and repair, ordinary
wear and tear excepted and (ii) all insurance covering their business, employees
and assets in full force and effect until 12:01 A.M. on the first day following
the Closing Date with responsible companies, comparable in amount, scope and
coverage to that in effect on the date hereof.

 

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7.1.3 the Pocono Downs Companies will (i) use their reasonable commercial
efforts consistent with past practices to duly comply with all laws, ordinances,
codes, rules and regulations (including, but not limited to the Pennsylvania Act
and Rules and Regulations of the Pennsylvania Harness Commission thereunder)
applicable to them, (ii) use their reasonable commercial efforts to perform all
of their material obligations, including obligations under any collective
bargaining agreements, and liabilities without default, (iii) except as required
by the Reorganization, maintain their corporate existence in good standing in
their jurisdictions of incorporation or organization and their due qualification
in good standing in all jurisdictions in which they are so qualified and (iv)
maintain all of their books and records in the usual, regular and ordinary
manner on a basis consistent with past practices.

 

7.1.4 the Pocono Downs Companies will give to Buyer and its counsel,
accountants, investment bankers and other representatives access during normal
business hours to the premises of the business, personnel, counsel, accounts and
other representatives of the Pocono Downs Companies and furnish to Buyer and
such representatives all such additional documents and information with respect
to the businesses of the Pocono Downs Companies as Buyer may from time to time
reasonably request.

 

7.1.5 Sellers will cause each of the Pocono Downs Companies to give any notices
to third parties, and will cause each of them to use their reasonable commercial
efforts to obtain any third-party consents referred to in Section 5.2 above and
those items set forth on Schedule 5.18. Except with respect to the approval of
the Pennsylvania Harness Commission addressed in Section 7.3.2 of this
Agreement, Sellers will (and Sellers will cause each of the Pocono Downs
Companies to) give any notices to, make any filings with, and use its reasonable
commercial efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the transactions
contemplated by this Agreement.

 

7.1.6 no Pocono Downs Company will (i) make any change in its organizational
documents or its authorized, issued or outstanding capital stock, (ii) grant any
options or other rights to acquire, whether directly or contingently, any of its
capital stock or (iii) except as may be provided herein, sell, rent, lease or
otherwise dispose of any of their assets, except in the case of this
subparagraph (iii), in the ordinary course of business consistent with past
practices or as otherwise described herein.

 

7.1.7 neither any Seller nor any Pocono Downs Company will (i) make any capital
expenditures or commitments for capital expenditures in excess of $75,000 other
than in accordance with written approval from Buyer, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, (iii) enter
into any employment contract, increase the rate of compensation payable or to
become payable by it to any officer or any other executive employee or make any
general increase in the compensation or rate of compensation payable or to
become payable to hourly employees or salaried employees except as required by
existing contracts or (iv) accrue or pay to any of its officers or employees any
bonus, profit-sharing, retirement pay, insurance, death benefit, fringe benefit
or other compensation, except in accordance with existing benefit plans,
programs and arrangements disclosed on Schedule 5.23.

 

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7.1.8 no Pocono Downs Company will modify, terminate or renew any agreement,
contract or commitment or waive, release or dispose of any right or claim of
value accruing to it in excess of $75,000.

 

7.1.9 neither any Seller nor any Pocono Downs Company will enter into any
transaction or take any action or fail to take any action which is intended to
result in any of the representations and warranties contained in this Agreement
being untrue and incorrect in any material respect.

 

7.1.10 no Pocono Downs Company will take any other action or suffer or permit
any other action to occur which could reasonably be expected to have a material
adverse effect on the business, management, operations, results of operations,
assets, liabilities, properties or condition (financial or otherwise) of any
Pocono Downs Company.

 

7.1.11 neither any Seller nor any Pocono Downs Company will agree or commit to
do any of the foregoing.

 

7.1.12 notwithstanding any other provision hereof, between the date hereof and
the Closing Date, the Pocono Downs Companies shall be entitled to pay dividends
and make other distributions and make other transfers (including without
limitation through redemption) to equity holders of cash, cash equivalents or
marketable securities in the ordinary course of business consistent with past
practice without prior notice to or approval of Buyer;

 

7.1.13 Sellers and, to the extent required, Parent, shall take all actions
necessary to ensure that all indebtedness, guarantees, letters of credit and
other financial obligations, contingent or non-contingent, matured or unmatured,
of the Pocono Downs Companies identified on Schedule 7.1.13 will be terminated,
and all liens, security interests and other encumbrances of any nature
whatsoever securing any such obligations or securing any other obligations or
otherwise encumbering the Partnership Interests, capital stock or assets of any
Pocono Downs Company will be released.

 

7.1.14 Sellers shall cause Downs Racing or Pocono Downs, as applicable, to
continue to operate race meets at its race track in fulfillment of its
allocation of racing days by the Pennsylvania Harness Commission and its
obligations under its agreement with its horsemen. Sellers shall cause Downs
Racing or Pocono Downs, as applicable, to apply for an allocation of racing days
pursuant to Section 207 of the Pennsylvania Act to conduct race meetings with
pari-mutuel wagering in 2005. The number of racing days sought shall be
approximately 146 or such other number as Downs Racing or Pocono Downs, as
applicable, and its horsemen agree.

 

7.1.15 Sellers will cause each Pocono Downs Company to maintain the Real
Property owned by it as identified on Schedule 5.14, including all of the
buildings, structures, fixtures and improvements located thereon, in
substantially the same condition as existed on the date of this Agreement,
ordinary wear and tear excepted, and shall not demolish or remove any of the
existing Improvements, or erect new improvements on the Real Property or any
portion thereof, without the prior written consent of Buyer.

 

7.1.16 Sellers will not cause or permit any of the leases identified on Schedule
5.14.1 to be amended, modified, extended, renewed or terminated, nor shall the
Pocono Downs Company party thereto enter into any new lease, sublease, license
or other agreement for the use or occupancy of any Real Property.

 

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7.1.17 Title and Survey.

 

(a) Notwithstanding any provision herein to the contrary, Title to the Real
Property at the Closing shall be (i) good and marketable and free and clear of
all liens, encumbrances, restrictions, easements and other exceptions or
objections to title, except for the Permitted Exceptions (as hereinafter
defined), and (ii) insurable as aforesaid by one or more reputable title
insurance companies of Buyer’s selection licensed to do business in the
Commonwealth of Pennsylvania (collectively, the “Title Company”) at regular
standard rates pursuant to a 1992 ALTA Owner’s Policy Form (10-17-92) (“Title
Policy”). As a further condition, the Title Company shall be willing to provide
affirmative insurance, subject to the payment by Buyer of any applicable premium
or surcharge, that (i) any covenants or restrictive covenants included among the
Permitted Encumbrances have not been violated, and that any future violation
thereof will not result in a forfeiture or reversion of title; and (ii) the
exception for real estate taxes shall apply only to the real estate taxes not
yet due and payable as of the Closing Date, subject to the allocation and
adjustment of real estate taxes for other periods in accordance with this
Agreement. Seller will provide such customary title affidavits as the Title
Company shall require in order to down-date the title insurance commitment to
the date of Closing, to remove the printed exceptions for liens and encumbrances
recorded prior to Closing and to provide non-imputation endorsements to the
Title Policy. Sellers agree to use reasonable commercial efforts to cooperate
with Buyer and the Title Company with respect to the issuance of the foregoing,
and to provide such title affidavits and other documents, consistent with local
practice, customarily provided by a seller in connection therewith including,
without limitation, such affidavits and documents necessary to induce the Title
Company to provide non-imputation endorsements to the Title Policy.

 

(b) Promptly after the execution hereof, Buyer may, at its option and expense,
seek to cause the Title Company to issue title commitments to provide owner’s
policies of title insurance, endorsements and affirmative coverages (the
“Commitment”), and Buyer also may obtain, at Buyer’s option and expense, an
updated survey (“Survey”) of the Real Property. Seller agrees to use reasonable
commercial efforts to cooperate with Buyer and Buyer’s surveyor with respect to
the issuance of such Survey, and to produce such documentation and to execute
such affidavits and other documents, consistent with local practice, customarily
produced or executed by a seller in connection therewith. Promptly upon receipt,
Buyer shall furnish to Seller a copy of the Commitment and Survey. Buyer shall
use its commercially reasonable efforts to obtain any and all Commitments and
Surveys as promptly as possible following execution of this Agreement. No later
than five (5) days after the receipt of the last Commitment and Survey, Buyer
shall give written notice to Seller of any matters affecting title to the Real
Property and disclosed in the Commitment or the Survey (or which would have been
shown by a Survey if obtained, if Buyer neglects to obtain or elects not to
obtain a Survey) which are disapproved by Buyer and not otherwise expressly
permitted as exceptions to title under the terms of this Agreement. No such
notice need be given concerning unpaid real estate taxes or assessments or water
and sewer rents, all of which Seller shall be responsible to remove at Closing
in accordance with the allocations set forth herein. The failure of Buyer to
deliver any such written notice of disapproval within the aforesaid period shall
be deemed to constitute

 

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Buyer’s approval of the condition of title of the Real Property as shown in the
Commitment or the Survey (and those which would have been shown by a Survey if
obtained, if Buyer neglects to obtain or elects not to obtain a Survey),
excepting Liquidated Liens (as hereinafter defined), which Liquidated Liens
Seller shall be responsible to pay and satisfy (or otherwise obtain the
discharge and release of the Real Property therefrom) at Closing. “Liquidated
Liens” means all unpaid mortgages, judgments, mechanic’s liens and claims (filed
or unfiled), whether or not any of the same shall be contested, and comparable
liens, claims, encumbrances and other defects of title of a nature susceptible
of satisfaction, discharge, release or removal at or prior to Closing by the
payment of an ascertainable and liquidated sum of money or by the posting of a
judicial bond for an ascertainable and liquidated sum of money, and otherwise
without any judicial or quasi-judicial proceedings on the part of Seller, and
all of Seller’s share of real estate taxes, assessments and utility charges as
otherwise allocated to, and to be borne by, Seller pursuant to the express terms
set forth elsewhere in this Agreement.

 

(c) If Buyer disapproves of any matter or matters shown in the Commitment or the
Survey by delivering timely written notice of such disapproval to Seller, as
provided above, and if Seller notifies Buyer within five (5) business days after
receipt of Buyer’s written notice of disapproval that Seller is unwilling or
unable by the exercise of its reasonable efforts to eliminate such matters, and
if the Title Company does not agree to insure over, any such matter or matters,
Buyer may elect as Buyer’s sole remedy, by written notice to Seller delivered
within five (5) business days after written notice from Seller of Seller’s
unwillingness or inability to eliminate such matter(s), but not later than the
final date for Closing hereunder, either:

 

(i) to waive such disapproval and to accept title to the Real Property subject
to such uncorrected title matters disclosed by the Commitment (without abatement
of the Purchase Price, but subject to Seller’s obligation, nevertheless, to
eliminate Liquidated Liens, as provided above); or

 

(ii) to terminate this Agreement, in which event the Deposit shall be
immediately returned to Buyer by Seller, with any interest earned thereon,
whereupon this Agreement shall be null and void and the parties hereto shall
have no further rights, duties, obligations or liabilities hereunder.

 

All title matters disclosed by the Commitment and either approved or deemed to
be approved by Buyer pursuant to this Section, together with any leases
affecting the Real Property, public and private rights and easements within
adjoining public streets and public rights of way, utility easements for service
to the Real Property, and standard printed “Exclusions from Coverage” under
Buyer’s policy of title insurance, and also including any survey exception or
exclusion and coal rights and other sub-surface rights disclosed on the title
insurance policies referenced in Schedule 5.14.1, shall be “Permitted
Exceptions” for purposes of this Agreement. Buyer shall exercise its discretion
to approve or disapprove any other title matter reasonably and in good faith.

 

7.1.18 Sellers shall use their reasonable commercial efforts to deliver to Buyer
an estoppel certificate executed by the landlord under each Real Property lease,
in form reasonably satisfactory to Buyer and Buyer’s lenders.

 

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7.1.19 Sellers hereby grant Buyer access to the Real Property for purpose of
conducting environmental site assessments, including a Phase II environmental
site assessment, in accordance with this Section. Any such environmental site
assessments shall be performed by a qualified environmental engineer (the
“Environmental Engineer”). Buyer agree to cause the Environmental Engineer to
render a final report with respect to any such environmental site assessments
not later than 30 days from the date hereof. Buyer agrees to cause the final
report given by the Environmental Engineer to Buyer to be given concurrently
therewith to Sellers, and to cause the Environmental Engineer to issue to
Sellers a letter entitling Sellers to rely on the information contained in such
final report to the same extent as Buyer. Buyer shall also provide Sellers with
a reasonable opportunity to comment upon a draft of such final report before it
is finalized by the Environmental Engineer. Sellers shall have the right to make
any requests for information directly to Environmental Engineer so long as a
representative of Buyer is present, and Buyer agrees to cooperate with Sellers
in connection therewith. The final report or reports prepared by the
Environmental Engineer are hereinafter collectively referred to as the
“Environmental Report.” The cost of any environmental site assessments shall be
borne by Buyer. Buyer agrees that, if this Agreement is terminated prior to
Closing for whatever reason, with respect to the environmental site assessments
performed on behalf of Buyer, Buyer will repair or replace any damaged
vegetation, and shall close any groundwater monitoring wells installed by Buyer
in accordance with all applicable legal requirements unless it is agreed, in
writing, by the parties that the wells should remain open.

 

7.1.20 Parent and its affiliates shall cancel or otherwise terminate all
intercompany accounts and intercompany obligations (including accounts payable,
accounts receivable, and profit and loss sharing obligations) in existence
between Parent or any of its affiliates and any of the Pocono Downs Companies on
or before the Closing Date; provided that the foregoing shall not apply to
accounts and obligations that arise out of any agreements to be continued for
the benefit of the Buyer following the Closing as contemplated by Section 7.7
hereof.

 

7.1.21 Sellers and Parent shall assign to Buyer the rights of Sellers and Parent
and its affiliates in and to the Settlement Agreement.

 

7.1.22 PNGI Nevada, PNGI LLC, Downs Racing and the Corporate Subsidiaries shall,
prior to the Closing hereunder, consummate the Reorganization in the steps
contemplated by the Plan of Reorganization.

 

7.2 No Solicitation. Prior to Closing:

 

7.2.1 Sellers shall not, and shall not permit any Pocono Downs Company to,
directly or through another person, make, solicit, initiate, negotiate or
encourage submission of proposals or offers from any persons relating to any
liquidation, dissolution, recapitalization, merger, consolidation or acquisition
or purchase of all or substantially all of the assets of, or equity interest in,
the Pocono Downs Companies or any other similar transaction or business
combination. Sellers shall, and shall cause the Pocono Downs Companies to
immediately cease and cause to be terminated all contracts, negotiations and
communications with third parties with respect to the foregoing, if any,
existing on the date hereof. Sellers shall request the financial and other
advisors and representatives of Sellers and the Pocono Downs Companies to comply
with each of the covenants contained in this Section 7.2; and

 

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7.2.2 Sellers shall not, and shall not permit the Pocono Downs Companies to,
directly or indirectly, participate in any negotiations regarding, or furnish to
any other person any information with respect to, or otherwise cooperate in any
way with, or assist, any effort or attempt by any other person to do or seek any
of the activities referred to in Section 7.2.1 hereof.

 

7.3 Covenants of Buyer Pending Closing.

 

7.3.1 Buyer shall use reasonable commercial efforts to satisfy the conditions
set forth in Section 9 hereof and shall cooperate with Sellers in their efforts
to obtain any required third party consents to the consummation of the
transactions contemplated by this Agreement. Except with respect to the approval
of the Pennsylvania Harness Commission addressed in Section 7.3.2 of this
Agreement, Buyer will give any notices to, make any filings with, and use its
reasonable commercial efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
transactions contemplated by this Agreement.

 

7.3.2 Buyer shall, within 10 business days after the date hereof, file with the
Sellers, who shall immediately thereafter file same with the Pennsylvania
Harness Commission, the affidavit required pursuant to Section 204 of the
Pennsylvania Act. In addition, both Buyer and Sellers shall furnish to such
commission such other information, financial statements and other documentation
as such commission requires concerning Buyer or Sellers and any affiliates of
Buyer or Sellers and will make available representatives of Buyer or Sellers to
meet with the Pennsylvania Harness Commission, or its staff, in order to
expedite the ability of the Pennsylvania Harness Commission to complete its work
and make the determinations required by sections 8.3 and 9.3 of this Agreement
in as short a time as is practicable. Buyer and Sellers shall make available to
each other upon reasonable request copies of all such materials (except
confidential or commercially sensitive material) together with evidence of
filing. Buyer and Sellers agree not to take any action that could reasonably be
expected to impede or delay the issuance by the Pennsylvania Harness Commission
of the determination required by sections 8.3 and 9.3 of this Agreement. From
time to time, and upon each reasonable request, Buyer and Sellers shall update
each other on the status of communications between themselves and the
Pennsylvania Harness Commission.

 

7.3.3 In addition, if requested, Buyer and Sellers each will use reasonable
commercial efforts to promptly make available or file with the Pennsylvania
Gaming Board such information as it or its staff may request under the
Pennsylvania Race Horse Development and Gaming Act (the “Gaming Act”). From time
to time, and upon each reasonable request, Buyer and Sellers shall update each
other on the status of communications between themselves and the Pennsylvania
Gaming Board. Also, Buyer and Sellers shall comply in all material respects with
all provisions of the Gaming Act which apply to the consummation of the
transactions contemplated hereby.

 

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7.4 Mutual Covenants.

 

7.4.1 Sellers and Buyer agree that the information contained in this Agreement
(including the Exhibits and Schedules hereto) or provided to either of them in
connection with the investigation, negotiation, consummation and carrying to
fruition of the transactions contemplated hereby is confidential in nature and,
except as may be required by subpoena, civil investigation, demand or other
similar process or as required for transferring the Partnership Interests, each
agrees not to disclose to any person (excluding its directors, employees,
lenders, potential lenders, and/or consultants and representatives, in each case
who agree to keep such information confidential, all on a need-to-know basis)
any such confidential information, any of the terms or conditions of this
Agreement or any discussions or negotiations of transactions or information
furnished in connection therewith, without the prior written consent of the
Party which furnished such information. Each Party agrees that if it discloses
such information to its affiliates, directors, employees, lenders or potential
lenders, counsel and/or consultants and representatives, such Party shall be
responsible for any breach of this Section 7.4.1 by such person. No information
will be deemed confidential and subject to this Section 7.4.1 if it is developed
independently by a Party or becomes or was generally available to the public,
but information provided to or filed with the Pennsylvania Harness Commission,
or any other government agency shall not be deemed to be available to the public
by virtue of such filing or submission or accessibility to review. If Closing
does not occur, Buyer shall not disclose or use confidential information
provided by or on behalf of Sellers, including confidential information relevant
to the Pocono Downs Companies, and Sellers shall not disclose or use
confidential information provided by or on behalf of Buyer. If Closing does
occur, neither Sellers nor Parent or any affiliate thereof shall disclose or use
confidential information provided by or on behalf of Buyer, including
confidential information relevant to the Pocono Downs Companies on or after the
Closing, and Buyer shall not disclose or use confidential information provided
by or on behalf of Sellers that is not relevant to the Pocono Downs Companies on
or after the Closing. The provisions of this Section 7.4.1 will survive the
Closing or the termination of this Agreement for a period of two years after
such termination or Closing, as the case may be.

 

7.5 Remediation of Environmental Matters.

 

7.5.1 Between the date hereof and the Closing, Sellers and the Pocono Downs
Companies shall commence, diligently pursue, and be solely responsible for the
costs of each of the “corrective actions” described on Schedule 7.5.1 hereof,
subject to certain temporal and dollar limitations set forth in Section 10.9.2
hereof, and agree to engage an engineer reasonably satisfactory to Buyer to
perform such Remediation in accordance with a written plan reasonably
satisfactory to Buyer. In performing such corrective actions, Sellers and the
Pocono Downs Companies shall (A) allow Buyer or its agent access to the property
for purposes of observing the corrective actions, so long as Buyer or its agent
do not interfere with the corrective actions or the operations of the business
of Sellers or any Pocono Downs Company, (B) keep Buyer reasonably informed of
the progress of any such corrective actions and the schedule for completing such
corrective actions; (C) within 5 business days of receipt, submit to Buyer
copies of all written communications, filings, reports, correspondence or other
writings, photographs or materials received from any person, entity or
governmental agency in connection with any such corrective actions; (D) provide
Buyer with a reasonable opportunity to comment in advance upon any written
communications, filings, reports, correspondence or other writings given to any
governmental agency in connection with such corrective actions and will consider
timely provided comments in good faith; (E) perform the corrective actions in
accordance with applicable law; and (F) to the extent possible, provide Buyer
with a reasonable opportunity to participate in any meetings with any

 

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governmental entity regarding the Remediation. Upon Closing, Buyer shall, at its
discretion and upon written notice to Sellers, have the option of managing the
corrective action identified on Schedule 7.5.1, but Sellers shall remain liable,
for a period of three years, for the costs of such corrective actions, subject
to the temporal and dollar limitations set forth in Section 10.9.2, and Buyer
shall comply with Paragraphs (A)-(F) of this Section 7.5.1 as though the term
“Buyer” was replaced with “Sellers.” If after Closing Buyer does not assume
management of the corrective actions, Buyer hereby grants Sellers reasonable
access to the Real Property for purpose of performing the corrective actions.

 

7.5.2 To the extent Remediation, in addition to the list of corrective actions
set forth on Schedule 7.5.1 hereto, is required in connection with or as a
result of (i) any requirement, request or order of any governmental agency, (ii)
any third-party claims for which Buyer is entitled to make a claim for
indemnification from Sellers pursuant to Section 10.1.1(iv) hereof, or (iii)
Hazardous Materials identified in the Environmental Report prepared pursuant to
Section 7.1.19 hereof or discovered in the course of the reasonable development
of the Property in concentrations that exceed published standards of a
governmental agency with jurisdiction over the Property or, if there is no
published standard, otherwise posing an imminent threat to human health or the
environment, Buyer shall (A) provide written notification to Sellers that it
intends to perform Remediation, (B) use reasonable best efforts to minimize
costs in conducting the Remediation in accordance with applicable Environmental
Laws; (C) apply risk-based cleanup standards and employ deed restrictions and
institutional and engineering controls to the extent commercially reasonable;
(D) employ cost-effective remedial methods that are commercially reasonable
under the circumstances; (E) utilize any materials excavated from the parking
lot area as on-site fill material to the extent allowed under any Environmental
Law, the Pennsylvania Land Recycling and Environmental Remediation Standards Act
(“Act 2”), 35 P.S. §6026.101 et seq., or any policy, guidance, or manual
published pursuant to Act 2; and (F) allow Sellers or their agent reasonable
access to the property for purposes of observing the Remediation, so long as
Sellers or such agent do not interfere with the Remediation or Buyer’s
operations. Any Remediation conducted by Buyer in accordance with the
requirements of a governmental entity overseeing the Remediation shall be deemed
to satisfy the requirements of (C) through (E).

 

In conducting any Remediation pursuant to this Section 7.5.2, Buyer shall (I)
except in an emergency, provide reasonable advance notice to Sellers of the
planned Remediation prior to undertaking it; (II) keep Sellers reasonably
informed of the progress of any such Remediation and the schedule for completing
such Remediation; (III) within 5 business days of receipt, submit to Sellers
copies of all written communications, filings, reports, correspondence or other
writings, photographs or materials received from any person, entity or
governmental agency in connection with any such Remediation; (IV) provide
Sellers with a reasonable opportunity to comment in advance upon any written
communications, filings, reports, correspondence or other writings given to any
governmental agency in connection with such Remediation and will consider timely
provided comments in good faith; (V) perform the Remediation in accordance with
applicable Environmental Laws, and guidance; (VI) to the extent possible,
provide Sellers with a reasonable opportunity to participate in any meetings
with

 

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any governmental entity regarding the Remediation, and (VII) if the Remediation
results in a “no action” letter, liability protection, or other approval or
protection of any governmental agency or body, take reasonable actions to
include Sellers and the Pocono Downs Companies as co-recipients of such
protections and approvals, provided that such inclusion shall not be deemed to
release Sellers and the Pocono Downs Companies from any liability they would
otherwise have under this Agreement. In the event that the Remediation described
by this Section 7.5.2 can be undertaken or commenced prior to the Closing,
Sellers shall promptly commence and diligently pursue such Remediation through
the Closing and shall comply with Paragraphs (A)-(F) and (I) through (VII) of
this Section 7.5.2 as though the term “Sellers” was replaced with “Buyers” and
the term “Buyers” was replaced with “Sellers.” The performance of any
Remediation or corrective action work, whether undertaken by Buyer or Sellers,
shall be at Sellers’ sole expense, subject to the temporal and dollar
limitations set forth in Section 10.9.2 hereof.

 

7.6 Tax Matters.

 

7.6.1 For all taxable periods ending on or before the Closing Date, Sellers
shall cause Downs Racing and the Corporate Subsidiaries to join in Parent’s
consolidated federal income tax return (and any consolidated, affiliated,
combined, unitary or similar other tax return where required or previously
filed) and shall cause all other Pocono Downs Companies to file separately all
required federal income tax returns and, in jurisdictions where a Pocono Downs
Company separately reports, Sellers shall cause to be filed with respect to a
Pocono Downs Company separate state and local income tax returns and shall cause
to be timely paid any Taxes imposed on the Pocono Downs Companies. All such tax
returns shall be prepared and filed in a manner consistent with prior practice,
except as required by a change in applicable law or regulation. Buyer shall have
the right, at its expense, to review and comment on any such tax returns
prepared by Sellers. Buyer shall cause the Pocono Downs Companies to furnish
information to Sellers as reasonably requested by Sellers to allow Sellers to
satisfy its obligations under this Section in accordance with past custom and
practice. Buyer shall consult and cooperate with Sellers as to any elections to
be made on tax returns of the Pocono Downs Companies for periods from January 1,
2004 and ending on or before the Closing Date. Buyer and Sellers shall, and
shall each cause its affiliates to, provide to the other such cooperation and
information, as and to the extent reasonably requested, in connection with the
filing of any tax return, determination of liability for Taxes, or conduct of
any audit, litigation or other proceeding with respect to Taxes, which
cooperation and information shall include providing copies of all relevant tax
returns, together with relevant accompanying schedules and workpapers.

 

7.6.2 Sellers shall allow any Pocono Downs Company and its counsel to
participate, at such Pocono Downs Company’s expense, in any audit of Sellers’ or
Parent’s consolidated federal income tax returns to the extent that such audit
relates to a Pocono Downs Company. Sellers shall not permit Parent to settle any
such audit in a manner that would adversely affect a Pocono Downs Company after
the Closing Date without the prior written consent of Buyer, which consent shall
not be unreasonably withheld or delayed.

 

7.6.3 Sellers shall, and shall cause the Pocono Downs Companies to, take all
necessary actions such that all tax sharing agreements or similar agreements
with respect to or involving the Pocono Downs Companies shall be terminated as
of the Closing Date and such that, after the Closing Date, each Pocono Downs
Company shall not be bound thereby or have any liability thereunder.

 

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7.6.4 Buyer shall not, and shall not cause, any tax return of the Pocono Downs
Companies for any period ending on or before the Closing Date to be amended
without the prior written consent of Parent, which consent will not be
unreasonably withheld or delayed.

 

7.6.5 Buyer shall not make, and shall not cause any election to be made, with
respect to the Pocono Downs Companies that could increase the Tax liability of
any Pocono Downs Companies for any period or portion thereof ending on or before
the Closing Date to the extent such election would cause any Pocono Downs
Company or Seller to pay additional Taxes (excluding for this purpose any
election that would result solely in any reduction in any net operating loss
carryforward attributable to the Pocono Downs Companies for periods ending after
the Closing Date).

 

7.6.6 Sellers shall not make, and shall not cause any election to be made, with
respect to a Pocono Downs Company that could increase the Tax liability of any
Pocono Downs Companies for any period or portion thereof ending on or after the
Closing Date to the extent such election would cause the Pocono Downs Companies
or Buyer to pay additional Taxes (including for this purpose any election that
would result solely in any reduction in any net operating loss carryforward
attributable to the Pocono Downs Companies for periods ending on or before the
Closing Date).

 

7.6.7 The Parties intend that (A) for U.S. federal and Pennsylvania income tax
purposes the sale of the Partnership Interests to the Buyer as set forth in this
Agreement will be treated in accordance with Revenue Ruling 99-6, 1999-1 C.B.
432, as a sale of all of the interests in the Partnerships to a single owner
resulting in each of the Partnerships being treated thereafter as a disregarded
entity for federal and Pennsylvania income tax purposes, and (B) the mergers of
the Corporate Subsidiaries and Downs Racing into the Partnership Subsidiaries
and Pocono Downs, as applicable, shall occur prior to such sale of the
Partnership Interests and any federal, state, local or other taxes resulting
from such mergers or any other transactions incident thereto shall be the sole
responsibility of the Sellers and its consolidated group. No Party shall take a
position on any tax return or reports inconsistent with the foregoing.

 

7.7 Transition. At the request of Buyer, Sellers and Parent shall furnish to
Buyer at full cost (including documented costs associated with Sellers’
termination of the services described in this paragraph, provided that Sellers
shall take all commercially reasonable efforts to mitigate any such costs of
termination), for a period requested by Buyer not to exceed one year after the
Closing Date unless mutually agreed to by all parties, such services as Downs
Racing purchased from Sellers and Parent and its affiliates prior to the Closing
Date, including Parent’s Call Center in the operation of Pocono Downs’
Dial-A-Bet® system (a true and correct list of the accounts maintained by Downs
Racing in such system as of October 14, 2004 has been supplied to Buyer),
Parent’s combined Auto-Tote system in connection with the operation of on-track
and off-track pari-mutuel wagering, employee benefits, printing services, and
food and beverage services. To the extent such transition services require
consent or approval of vendors or other contractual partners of Sellers or
Parent, as the case may be, Sellers and Parent will use reasonable commercial
efforts to assist Buyer in obtaining any required consents and approvals,

 

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and it is acknowledged that the provision of the transition services will in any
such case be subject to applicable contract provisions and legal restrictions
pertaining thereto. The Parties agree and acknowledge that, during any such
transition period, they shall continue to provide such services to the public
and allocate or assign the accounts, handle or revenues generated thereby in a
manner consistent with past practices in place on the date hereof.

 

7.8 Employee Benefits Covenant

 

7.8.1 As soon as practicable after the Closing Date, Seller shall transfer in
accordance with Section 414(l) of the Code all account balances in the Seller’s
401(k) Plan and records relating thereto, attributable to transferred employees
and former employees of the Pocono Downs Companies (“Transferred Employees”) to
a 401(k) Plan that Buyer shall cause to be established by Pocono Downs (the
“Pocono Downs 401(k) Plan”) on behalf of Transferred Employees, and Buyer shall
cause Pocono Downs to accept such account balances and records. No contributions
with respect to Transferred Employees attributable to periods after the Closing
Date shall be made to the Seller’s 401(k) Plan. Buyer shall cause Pocono Downs
to take appropriate steps to permit participation in the Pocono Downs 401(k)
Plan following the Closing Date by Transferred Employees who, immediately prior
to the Closing Date, were participants in the Seller’s 401(k) Plan.

 

7.8.2 From and after the Closing Date and for eligibility and vesting purposes
under the Pocono Downs 401(k) Plan, each Transferred Employee shall receive full
credit from Pocono Downs and its ERISA Affiliates (as such term is generally
defined in Section 5.23 hereof) for all service credited under the Seller 401(k)
Plan immediately prior to the Closing Date.

 

7.8.3 Provided that the Closing hereunder shall have occurred by each such date,
Buyer shall (i) no later than December 31, 2004, cause Pocono Downs to pay or
cause to be paid the full amount of any unpaid annual bonuses set forth on
Schedule 5.23 to Transferred Employees eligible to receive such bonuses, and
(ii) no later than January 31, 2005, cause to be paid the full amount of any
unpaid quarterly bonuses set forth on Schedule 5.23 to Transferred Employees
eligible to receive such bonuses.

 

7.8.4 Immediately following the Closing Date, Buyer shall cause Pocono Downs to
be make available to Transferred Employees health and other welfare benefits
which are substantially similar to those in which Transferred Employees are
generally eligible to participate on the date hereof (“Buyer H&W Plans”). Buyer
shall cause Pocono Downs to take appropriate action to waive any waiting period,
pre-existing condition or requirement for evidence of insurability otherwise
imposed under any such Buyer H&W Plan with respect to any Transferred Employee
who was covered by a Seller or Parent plan providing similar benefits prior to
the Closing Date. Buyer shall cause Pocono Downs to give credit to all
Transferred Employees and their covered dependents for all year-to-date
deductibles, co-pays and out-of-pocket expense limitations incurred by the
Transferred Employees and their covered dependents under the Seller plans.

 

7.8.5 Pocono Downs shall not reduce the accrued vacation and sick or other paid
leave of any Transferred Employee as of the Closing Date.

 

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8. Conditions Precedent to Buyer’s Obligations. The obligations of Buyer under
this Agreement to purchase the Partnership Interests are subject to the
fulfillment or satisfaction, prior to or at the Closing, of each of the
following conditions precedent:

 

8.1 Representations and Warranties: Performance of Obligations. All of the
representations and warranties of Sellers contained in this Agreement shall be
true and correct in all material respects (except for such representations and
warranties as are by their terms qualified by materiality, which shall be true
and correct in all respects taking into account the materiality qualifications
therein) on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (or, if
expressly made as of any other date, as of such other date); all of the terms,
covenants, agreements and conditions of this Agreement to be complied with,
performed or satisfied by Sellers on or before the Closing Date shall have been
duly complied with, performed or satisfied in all material respects including,
without limitation, the consummation of the Reorganization contemplated by the
Plan of Reorganization by the parties thereto; and Buyer shall have received a
certificate dated the Closing Date and signed on behalf of the President or any
Vice President of each Seller to the foregoing effects.

 

8.2 Legal Matters. No claim, action, suit, arbitration, investigation or other
proceeding shall be pending or threatened; no legislation shall have been
enacted and shall remain in effect, no regulation shall have been adopted and
remain in effect and no temporary restraining order, preliminary or permanent
injunction or other ruling, judgment, decree, charge or order shall have been
issued by any court, administrative agency (including, without limitation, the
Pennsylvania Harness Commission or the Pennsylvania Gaming Control Board) or
other governmental or regulatory official, body or authority and which shall
remain in effect which would have or has had, as applicable, the effect of (i)
restraining or prohibiting the consummation of the transactions contemplated
hereunder, (ii) causing any of the transactions contemplated hereunder to be
rescinded following completion thereof, (iii) having a material adverse affect
on the right of Buyer to own the Partnership Interests and to control the Pocono
Downs Companies following completion of the transactions contemplated hereunder,
(iv) having a material adverse affect on the right of any Pocono Downs Company
to own its respective assets or operate its respective business, or (v) having a
material adverse effect on the ability of Pocono Downs to obtain a Category 1
license under the Gaming Act or to operate a permanent facility at the Pocono
Downs Racetrack site containing at least 3,000 slot machines no later than July
1, 2006.

 

8.3 Harness Commission. A final and non-appealable order from the Pennsylvania
Harness Commission shall have been issued to the effect that: (a) it is not
inconsistent with the public interest, convenience, or necessity, or with the
best interest of racing generally, that the Pocono Downs Companies complete the
Reorganization and that the Buyer acquire and continue to hold the Pocono Downs
Interests and (b) there is not pending, and nothing has come to the attention of
such Commission which could reasonably be expected to give rise to, any
proceeding before such Commission to revoke or suspend the racing license issued
to Pocono Downs. Sellers shall have received confirmation from such Commission
that the items identified on the letters from Sellers’ counsel dated October 7,
2004 and October 13, 2004, true and correct copies of which have been supplied
to Buyer, shall not have any effect on the racing license issued to Downs
Racing.

 

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8.4 Third Party Consents. All consents and approvals from, and all filings and
registrations with, all courts, governmental agencies and bodies and other third
parties listed on Schedule 8.4 hereto, shall have been obtained and made on
terms and conditions, if any, reasonably acceptable to Buyer.

 

8.5 Release of Financial Obligation. Sellers and Parent shall have delivered
such pay-off letters, releases of liens, termination letters and such other
evidence as Buyer may reasonably request to demonstrate the satisfaction by
Sellers and Parent of their obligations under Section 7.1.13.

 

8.6 Material Adverse Changes. Between the date hereof and the Closing Date,
there shall not have been any material adverse change in the business,
management, operations, results of operations, assets, liabilities, properties
or condition (financial or otherwise) of the Pocono Downs Companies, taken as a
whole, except for changes generally affecting the racing or gaming industry in
the northeast quadrant of the Commonwealth of Pennsylvania.

 

8.7 Title and Survey. Title to the Real Property at the Closing shall be good
and marketable and free and clear of all liens, encumbrances, restrictions,
easements and other exceptions or objections to title, except for the Permitted
Exceptions. Upon payment of the applicable title insurance premium, at Closing,
Buyer shall be able to obtain marked-up Title Commitments relating to, and
irrevocably committing to insure in accordance with the marked-up Title
Commitments, the Real Property, subject only to the Permitted Exceptions and
containing the affirmative coverages and endorsements described in Section
7.1.17.

 

8.8 Sellers Legal Opinion. Buyer shall have received from Sellers’ counsel an
opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to Buyer and its counsel, covering matters identified on Exhibit C
attached hereto.

 

Buyer shall be deemed to have waived any condition specified in this Section 8
if Buyer, (i) executes a writing at or prior to the Closing so stating or (ii)
consummates the transaction contemplated by this Agreement.

 

9. Conditions Precedent to Sellers’ Obligations. The obligations of Sellers
under this Agreement to sell the Partnership Interests are subject to the
fulfillment or satisfaction, prior to or at the Closing, of each of the
following conditions precedent:

 

9.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects (except for such representations and
warranties as are by their terms qualified by materiality, which shall be true
and correct in all respects taking into account the materiality qualification
therein) on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (or, if
expressly made as of any other date, as of such other date); all of the terms,
covenants, agreements and conditions of this Agreement to be complied with,
performed or satisfied by Buyer on or before the Closing Date shall have been
duly complied with, performed or satisfied in all material respects; and Sellers
shall have received a certificate dated the Closing Date and signed by an
authorized officer of Buyer to the foregoing effects.

 

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9.2 Legal Matters. No claim, action, suit, arbitration, investigation or other
proceeding shall be pending or shall have been brought which seeks to restrain
the transactions contemplated hereby; and no temporary restraining order,
preliminary or permanent injunction or other order issued by any court or other
governmental or regulatory official, body or authority restraining or
prohibiting the consummation of the transactions contemplated hereby shall be in
effect.

 

9.3 Harness Commission. A final and non-appealable order from the Pennsylvania
Harness Commission shall have been issued to the effect that: (a) it is not
inconsistent with the public interest, convenience, or necessity, or with the
best interest of racing generally, that the Pocono Downs Companies complete the
Reorganization and that the Buyer acquire and continue to hold the Pocono Downs
Interests and (b) there is not pending, and nothing has come to the attention of
such Commission which could reasonably be expected to give rise to, any
proceeding before such Commission to revoke or suspend the racing license issued
to Pocono Downs.

 

9.4 Buyer Legal Opinion. Sellers shall have received from Buyer’s counsel an
opinion or opinions, dated as of the Closing Date, in form and substance
reasonably satisfactory to Sellers and their counsel, covering matters
identified on Exhibit C attached hereto (except that such matters shall pertain
to Buyer and not Sellers) and matters related to the Hart-Scott-Rodino Act.

 

Sellers are deemed to have waived any condition specified in this Section 9 if
PNGI Nevada, acting on behalf of both Sellers, (i) executes a writing at or
prior to the Closing so stating or (ii) consummates the transaction contemplated
by this Agreement.

 

10. Indemnification.

 

10.1 Indemnification by Sellers. From and after the Closing, subject to the
limitations and procedures set forth in this Section 10, Sellers shall
reimburse, defend, indemnify and hold harmless Buyer from, against and in
respect of:

 

10.1.1 any and all liabilities, losses, claims, damages, charges, actions,
complaints, suits, proceedings, demands, assessments, adjustments, deficiencies,
costs and out-of-pocket expenses (including without limitation reasonable
attorneys’ fees and expenses) (collectively, “Losses”) suffered, sustained,
incurred or paid by Buyer or any of its affiliates (including without limitation
after the Closing the Pocono Downs Companies) in connection with, resulting from
or arising out of:

 

(i) any breach of any representation or warranty of Sellers in this Agreement or
in any certificate or other writing prepared in connection with the transactions
contemplated by this Agreement and delivered by or on behalf of Sellers or any
Pocono Downs Company, in connection therewith;

 

(ii) any breach or nonfulfillment of any covenant or agreement on the part of
Sellers set forth in this Agreement;

 

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(iii) any liability of the Pocono Downs Companies for any Taxes of any Pocono
Downs Company (including without limitation Taxes with respect to the Tax
Returns described in Section 5.15, the U.S. federal and Pennsylvania income
taxes described in Section 7.6 hereof and Pennsylvania capital stock – franchise
taxes for which Sellers shall remain liable) with respect to any period or
portion thereof ending on, immediately before or with the Closing (or for any
period beginning before and ending after the Closing Date, to the extent
allocable to the portion of such period beginning before and ending on the
Closing), except to the extent such Taxes are attributable to elections under
applicable Tax Laws or transactions entered into by any Pocono Downs Company
after the Closing or by Buyer, provided that no Claim Notice (hereinafter
defined) may be given in respect of a claim for indemnification under this
Section 10.1.1(iii) commencing 30 days after the applicable statute of
limitations in respect of the Taxes for which indemnification is sought has
expired, unless an extension or waiver of such statute of limitations has been
agreed to by Sellers; and

 

(iv) Hazardous Materials arising from or relating to any activity occurring,
condition existing, omission to act or other matter existing or initiated before
the Closing, subject to the limits and thresholds set forth in Section 7.5.2(i)
through (iii), except to the extent caused by, contributed to or exacerbated by
any action of Buyer, its agents or consultants (provided that the conduct of the
environmental site assessments described in Section 7.1.19 and Buyer’s
reasonable development of the Property shall be deemed not to cause, contribute
to or exacerbate any of the foregoing, provided further that such environmental
site assessments are conducted in accordance with commercially reasonable
practices). Notwithstanding anything contained in this Section 10.1.1, any claim
for indemnification brought pursuant to Section 10.1 relating to an
Environmental Claim, Remediation, or to the corrective action work described in
Section 7.5 shall be subject to and limited by Section 10.9.2.

 

10.1.2 any and all actions, suits, claims, proceedings, investigations, costs
and other expenses (including without limitation reasonable attorneys’ fees and
expenses which may be awarded to the substantially prevailing party) incident to
the enforcement of this Section 10.1.

 

10.2 Indemnification by Buyer. From and after the Closing, subject to the
limitations and procedures set forth in this Section 10, Buyer shall reimburse,
defend, indemnify and hold harmless Sellers from, against and in respect of:

 

10.2.1 any and all Losses suffered, sustained, incurred or paid by Sellers in
connection with, resulting from or arising out of:

 

(i) any breach of any representation or warranty of Buyer in this Agreement or
in any certificate or other writing delivered by or on behalf of Buyer in
connection herewith;

 

(ii) any breach or nonfulfillment of any covenant or agreement on the part of
Buyer set forth in this Agreement;

 

(iii) the operation of the Pocono Downs Companies after the Closing (except to
the extent that any such Losses relate to a pre-Closing agreement, commitment,
action, other circumstance or condition or other matter for which Buyer are
entitled to indemnification from Sellers under Section 10.1 hereof); and

 

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(iv) Hazardous Materials arising from or relating to any activity occurring,
condition existing, omission to act or other matter existing or initiated after
the Closing, subject to the limits and thresholds set forth in Section 7.5.2(i)
through (iii), except for Losses described by Section 10.1.1(iv) hereof.

 

10.2.2 any and all actions, suits, claims, proceedings, investigations, costs
and other expenses (including without limitation reasonable attorneys’ fees and
expenses, which may be awarded to the substantially prevailing party) incident
to the enforcement of this Section 10.2.

 

10.3 Limitations on Liability.

 

10.3.1 No liability for indemnification shall arise on the part of Sellers under
Section 10.1 with respect to any claim for indemnification based upon Section
10.1 until the aggregate amount of Losses suffered by Buyer exceeds $1,500,000,
and then only for Losses in excess thereof; provided, however, that such
deductible shall not apply with respect to (A) the inaccuracy or breach of any
representation or warranty (i) that was actually known to be untrue by any
Seller when made or (ii) contained in any of Sections 5.1, 5.2, 5.3, 5.4, 5.5,
5.6, 5.7, 5.15, 5.18, 5.24 or 11.4.1 hereof, (B) any Losses arising or resulting
from Environmental Claims described in Section 10.1.1(iv), (C) any Losses
arising or resulting from fraud or willful misconduct on the part of any Seller
or any affiliate or advisor of any Seller or Parent, or (D) the performance by
Sellers of their obligations under Section 11.5 hereof if required pursuant to
the terms thereof.

 

10.3.2 No liability for indemnification shall arise on the part of Buyer under
Section 10.2 with respect to any claim for indemnification based upon Section
10.2 until the aggregate amount of Losses suffered by Sellers exceeds
$1,500,000, and then only for Losses in excess thereof; provided, however, that
such deductible shall not apply with respect to (A) any indemnification claim
arising under or with respect to the payment of the Purchase Price, (B) the
inaccuracy or breach of any representation or warranty (i) that was actually
known to be untrue by Buyer when made or (ii) contained in Sections 6.1, 6.2,
6.3, 6.5 or 11.4.2 hereof, (C) any Losses arising or resulting from
Environmental Claims described in 10.2.1(iv), or (D) any Losses arising or
resulting from fraud or willful misconduct on the part of Buyer or any affiliate
of Buyer.

 

10.3.3 It is specifically acknowledged and agreed by Buyer that except for
Sellers’ obligations under Sections 7.1.19, 7.5 and 10.1 hereof, Sellers shall
have no liability or obligation of any kind with respect to Environmental Claims
or Environmental Laws. Notwithstanding the foregoing, Buyers’ right to
indemnification or other remedy based upon any breach of the representations set
forth in Section 5.24, the performance by the Parties of their respective
obligations under Section 7.5 hereof or otherwise under Section 10.1.1(iv)
hereof shall not be affected by any investigation, including the Environmental
Report, conducted with respect to, or any knowledge acquired or capable of being
acquired by Buyers at any time, whether before or after the execution and
delivery of this Agreement or the Closing Date, with respect to the accuracy or
inaccuracy of or compliance with such representations or obligations.

 

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10.4 Survival of Representations and Warranties. The representations and
warranties of Sellers or Buyer in this Agreement or in any certificate or other
writing prepared in connection with the transactions contemplated by this
Agreement and delivered by or on behalf of Sellers or Buyer shall survive until
18 months following the date of the Closing (the “General Survival Period”) and
shall thereafter terminate and be of no further force or effect and no
indemnification claim can be made in respect of such representations or
warranties after such termination, except that (a) all representations and
warranties relating to Taxes and Tax Returns (as defined in Section 5.15 hereof)
shall survive the Closing for the period of the applicable statutes of
limitation plus 30 days plus any extensions or waivers thereof agreed to by
Sellers and shall thereafter terminate, (b) the representations and warranties
set forth in Section 5.24 shall survive until the third anniversary of the
Closing (the “Environmental Survival Period”) and shall thereafter terminate and
(c) any representation or warranty as to which a Claim Notice shall have been
given in accordance with Section 10.7 (including a contingent claim, subject to
the limitation on contingent claims in Section 10.7.3) during the applicable
survival period shall continue in effect with respect to the claim, until such
claim shall have been finally resolved or settled. The Parties hereto
acknowledge that the representations and warranties set forth herein are made as
of the date hereof and, if Closing occurs, are made once again as of the date
thereof by delivery of the certificates referred to in Sections 8.1 and 9.1
hereof (as set forth in such Sections).

 

10.5 Exclusive Remedy; Exceptions to Limitations. After the Closing, the
indemnification provided under this Section 10 shall be the exclusive remedy of
the Parties hereto for any breach or non-compliance with any of the terms of
this Agreement, except (i) in cases involving allegations of fraud or
intentional misrepresentation by or on behalf of the allegedly breaching or
non-compliant Party, or (ii) as may be required pursuant to the terms of Section
11.5 hereof.

 

10.6 Payment of Indemnification Obligations. In the event that Sellers or Buyer
are required to make any payment under this Section 10, such Party shall
promptly pay Buyer or Sellers, as the case may be, the amount of such indemnity
obligation. If there should be a dispute as to the amount of such indemnity
obligation, Sellers or Buyer, as the case may be, shall nevertheless pay when
due such portion, if any, of the obligation as shall not be subject to dispute.
Disputed amounts shall be paid when and as resolved by agreement of the Parties
or by a final and unappealable decision of a court of competent jurisdiction.

 

10.7 Indemnification Procedure. Except with respect to Remediation undertaken or
required in accordance with Section 7.5.2 hereof, all claims for indemnification
under Sections 10.1 and 10.2 hereof shall be asserted and resolved as follows:

 

10.7.1 In the event that any claim for which a party (the “Indemnifying Party”)
may be liable to the other party (the “Indemnified Party”) hereunder (a “Claim”)
is asserted against an Indemnified Party by a third party, the Indemnified Party
shall with reasonable promptness notify the Indemnifying Party of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such Claim) (the “Claim Notice”). The Indemnifying Party
shall have 30 days from the receipt of the Claim Notice (the “Notice Period”) to
notify the Indemnified Party (i) whether or not the Indemnifying Party disputes
the Indemnifying Party’s

 

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liability to the Indemnified Party hereunder with respect to such Claim and (ii)
whether or not the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend against such Claim. In the event that the
Indemnifying Party notifies the Indemnified Party within the Notice Period that
the Indemnifying Party desires to defend the Indemnified Party against such
Claim, the Indemnifying Party shall have the right to defend by appropriate
proceedings, which proceedings shall be promptly settled or prosecuted by the
Indemnifying Party to a final conclusion. Notwithstanding the foregoing, an
Indemnified Party shall have the right to assume the defense and employ separate
counsel, reasonably acceptable to the Indemnifying Party, of any Claim in which
the parties (including any impleaded parties) include both the Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party or that
there may be legal defenses available to such Indemnified Party that are
different from or in addition to those available to the Indemnifying Party, and
the Indemnifying Party shall be liable, in such action or substantially similar
but related actions, for the fees and expenses of one separate firm of attorneys
(in addition to any local counsel) for the Indemnified Party. The Indemnifying
Party may not settle any Claim without the consent of the Indemnified Party,
which consent may not be unreasonably withheld. If the Indemnified Party desires
to participate in, but not control, any such defense or settlement the
Indemnified Party may do so at the Indemnified Party’s sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against such
Claim, whether by not giving the Indemnified Party timely notice as provided
above or otherwise, then the Indemnified Party, without waiving any rights
against the Indemnifying Party, may settle or defend against any such Claim in
the Indemnified Party’s sole discretion and, if it is ultimately determined that
the Indemnifying Party is responsible therefor under this Section 10, then the
Indemnified Party shall be entitled to recover from the Indemnifying Party the
amount of any settlement or judgment and all indemnifiable costs and expenses of
the Indemnified Party with respect thereto. If the Indemnifying Party has
defended or settled any such Claim and it is ultimately determined that the
Indemnifying Party is not responsible therefor under this Section 10, the
Indemnified Party shall promptly pay to the Indemnifying Party the amount of the
judgment or settlement paid by the Indemnifying Party.

 

10.7.2 In the event the Indemnified Party should have a Claim against the
Indemnifying Party hereunder which does not involve a Claim being asserted
against or sought to be collected by a third party, the Indemnified Party shall
with reasonable promptness send a Claim Notice with respect to such claim to the
Indemnifying Party. The Indemnifying Party shall notify the Indemnified Party in
writing within the Notice Period that the Indemnifying Party accepts or disputes
such Claim. If the Indemnifying Party disputes any such Claim, the dispute shall
be resolved pursuant to the Resolution Procedure set forth in Section 11.19
hereof.

 

10.7.3 Nothing herein shall be deemed to prevent the Indemnified Party from
making a Claim hereunder for contingent Claims provided the Claim Notice sets
forth the specific basis for any such contingent Claim to the extent then
feasible and the Indemnified Party has reasonable grounds to believe that such a
Claim may be made, and the Indemnified Party sets forth with reasonable detail
the basis for such belief, provided that if no such Claim is in fact made within
one year after the contingent Claim relating thereto is made, such Claim shall
not be qualified for indemnification hereunder. The Indemnified Party’s failure
to give reasonably prompt notice to the Indemnifying Party of any actual,
threatened or contingent Claim which

 

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may give rise to a right of indemnification hereunder shall not relieve the
Indemnifying Party of any liability which the Indemnifying Party may have to the
Indemnified Party unless the failure to give such notice materially and
adversely prejudiced the Indemnifying Party.

 

10.7.4 In connection with any Claim, the Indemnified Party shall give the
Indemnifying Party reasonable access to the books, records and assets of the
Indemnified Party or the Pocono Downs Companies which relate to the act,
omission or occurrence giving rise to such Claim and the right, upon prior
notice during normal business hours, to interview any appropriate personnel of
the Indemnified Party or the Pocono Downs Companies with respect thereto and
Indemnified Party otherwise shall cooperate with Indemnifying Party (and with
its insurance company, if applicable) in defending a Claim.

 

10.8 Mitigation. In computing the amount to be paid pursuant to this Article 10,
Losses shall be calculated net of insurance proceeds or any recovery from third
parties relating to any Losses which mitigates such Losses. If, after the
payment of any indemnification hereunder, the amount of a Loss shall be reduced
beyond the amount that the Loss has previously been reduced pursuant to the
preceding sentence, then the amount of such additional reduction in Loss (less
any expenses incurred in connection with such reduction) shall promptly be
repaid to the party that made the payment to which the reduction relates.
Notwithstanding the foregoing, no Party shall be required to obtain insurance
for the purpose of mitigating indemnifiable Losses hereunder or to make any
claim under any insurance policy maintained by such Party prior to making any
claim for indemnification against any Losses in accordance with the terms of
this Section 10.

 

10.9 Caps on Indemnification and Environmental Costs

 

10.9.1 General Indemnification Cap. The aggregate amount of indemnification
payments from Sellers under Section 10.1.1 hereof other than those required to
be made under Section 10.1.1(iv), or from Buyer under Section 10.2.1 hereof,
(whether in the form of cash payments from the Indemnifying Party or offsets
against sums due to the Indemnifying Party) shall not exceed $20,000,000 (the
“General Indemnification Amount”). Notwithstanding anything to the contrary
herein, if Buyer seeking, or is entitled to seek, indemnification from any of
the Indemnifying Parties for Losses due to (i) fraud or willful misconduct on
the part of any Seller or any affiliate or advisor of any Seller or Parent,
and/or (ii) Sellers’ breach of any of the representations or warranties set
forth in Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, 5.15, 5.18, 5.24, 11.4.1 or
11.5 hereof, as applicable, the limitations in this Section 10.9.1 shall not be
applicable to, or otherwise limit Buyer’s recovery for, any such claim. Any
claim by Buyer for breach of Sellers’ representations and warranties under
Section 5.24 hereof shall be governed by Section 10.9.2 below.

 

10.9.2 Environmental Costs Cap. The aggregate amount of costs to be borne by
Sellers as a result of corrective actions undertaken pursuant to Section 7.5.1,
Remediation required in accordance with Section 7.5 hereof, claims for
indemnification by Buyer arising under Section 10.1.1(iv), claims for
indemnification by Buyer for breach of Sellers’ representations and warranties
under Section 5.24 hereof, or Environmental Claims, (any of the foregoing,
“Environmental Costs”) shall not exceed the following: (A) aggregate
Environmental Costs up to and including $1,000,000, to the extent (x) a notice
of intent to perform Remediation

 

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is given by Buyer to Seller or (y) a claim for indemnification arising under
Section 10.1.1(iv) hereof is asserted (either of the foregoing (x) or (y), an
“Environmental Notice”) within the first three years following the Closing
hereunder; (B) aggregate Environmental Costs greater than $2,000,000 but less
than or equal to $7,000,000 to the extent an Environmental Notice is given or
asserted within the first three years following the Closing hereunder, and (C)
aggregate Environmental Costs greater than $7,000,000 but less than or equal to
$12,000,000 to the extent an Environmental Notice is given or asserted within
the General Survival Period; provided that any amounts paid by Sellers to Buyer
in accordance with this part (C) shall reduce, dollar for dollar, the available
General Indemnification Amount. It is expressly understood and agreed by the
parties that Sellers shall not be responsible to indemnify Buyer for the
aggregate amount of any Environmental Costs greater than $1,000,000 but less
than or equal to $2,000,000.

 

11. Miscellaneous.

 

11.1 Termination. This Agreement shall terminate with the effect herein provided
automatically and without any notice or action whatever if the Closing shall not
have occurred on or before 6:00 p.m. Philadelphia local time on the date set
forth in Section 2 hereof, provided that, if a proceeding contemplated by
Section 8.2 herein has been initiated and is continuing at January 7, 2005, then
the Closing Date shall be automatically extended to no later than March 31, 2005
to allow for the satisfaction of the conditions in Section 8.2 hereof, and if
the Closing shall not have occurred on or before 6:00 p.m. Philadelphia local
time on March 31, 2005, then this Agreement shall terminate as provided in this
Section 11.1. In addition, this Agreement may be terminated:

 

11.1.1 by mutual written consent of Buyer and Sellers;

 

11.1.2 by Sellers, on the one hand, or by Buyer, on the other hand, if there is
or has been a material breach or material default on the part of the other Party
(i) of any of the representations and warranties contained herein or (ii) in the
due and timely performance of any of the covenants or agreements contained
herein which continues for more than 15 days after written notice of such
material breach or material default has been given in accordance with the
provisions of Section 11.10 hereof; or

 

11.2 Effect of Termination. In the event of the termination of this Agreement
pursuant to Section 11.1 hereof, this Agreement shall forthwith become void
(except for this Section 11.2 and Sections 7.4.1, 11.4, 11.7, 11.8, 11.10,
11.12, 11.13, 11.14 and 11.17 through 11.20), and there shall be no liability or
obligation on the part of any party hereto (except, to the extent relevant, with
respect to such excluded sections). Notwithstanding the foregoing:

 

11.2.1 if such termination is by Sellers under Section 11.1.2 hereof, then
Sellers shall be entitled to the Deposit and, in addition, Buyer shall be liable
to Seller for (i) reasonable expenses incurred by Sellers in connection with
this Agreement and the transactions contemplated hereby, (ii) other monetary
damages in accordance with applicable law and (iii) all of Sellers’ reasonable
costs and other expenses (including without limitation attorneys’ fees and
expenses) incident to the enforcement of this Section 11.2.1;

 

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11.2.2 if such termination is by Buyer under Section 11.1.2 hereof, then Sellers
shall be liable to Buyer for the Deposit and (i) reasonable expenses incurred by
Buyer in connection with this Agreement and the transactions contemplated
hereby, (ii) other monetary damages in accordance with applicable law and (iii)
all of Buyer’s reasonable costs and other expenses (including without limitation
attorneys’ fees and expenses) incident to the enforcement of this Section
11.2.2; and

 

11.2.3 if such termination is a result of the failure to satisfy the condition
precedent set forth in Section 8.2, then Sellers shall be liable to Buyer solely
for the Deposit.

 

11.2.4 if such termination is a result of the failure to satisfy the condition
precedent set forth in Section 8.6, then Sellers shall be liable to Buyer solely
for the Deposit plus reasonable and documented expenses incurred by Buyer in
connection with the transactions contemplated herein up to a maximum of
$1,000,000.

 

11.3 Expenses. Buyer and Sellers shall each pay their expenses incidental to the
preparation hereof and, through the Closing, the carrying out of the provisions
hereof and the consummation of the transactions contemplated hereby. Except with
respect to (i) the fees and expenses of Sellers’ financial advisor, which shall
be the responsibility of Parent, and (ii) the fees and expenses of any
Environmental Engineer engaged by Sellers for the Remediation described in
Section 7.5 hereof, Pocono Downs may pay Sellers’ expenses incidental to the
preparation hereof and, through the Closing, the carrying out of the provisions
hereof and the consummation of the transactions contemplated hereby, but, if it
does so, any amounts owing in respect thereof at the time of the Closing shall
be fully reflected in the Closing Balance Sheet.

 

11.4 No Brokers’ or Finders’ Fees.

 

11.4.1 Sellers represent and warrant to Buyer that all negotiations relative to
this Agreement have been carried on by it directly without the intervention of
any person who may be entitled to any brokerage or finder’s fee or other
commission in respect hereof or the consummation of the transactions
contemplated hereby, except for Bear, Stearns & Co., Inc. whose fees and
expenses are the sole responsibility of Parent, and Sellers agree to indemnify
and hold harmless Buyer against any and all Claims which may be asserted against
or incurred or paid by it or any of its affiliates (including without limitation
after the Closing the Pocono Downs Companies) as a result of any dealings,
arrangements or agreements of Sellers or any Pocono Downs Company with any such
person.

 

11.4.2 Buyer represents and warrants to Sellers that all negotiations relative
to this Agreement have been carried on by Buyer directly without the
intervention of any person who may be entitled to any brokerage or finder’s fee
or other commission in respect hereof or the consummation of the transactions
contemplated hereby, except for SG Americas Securities LLC whose fees and
expenses are the sole responsibility of Buyer, and Buyer agrees to indemnify and
hold harmless Sellers against any and all Claims which may be asserted against
or incurred or paid by Sellers, or other person making payment on behalf of
Sellers as a result of Buyer’s or any of its affiliates’ dealings, arrangements
or agreements with any such person.

 

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11.5 Put Option: Sellers agree and acknowledge that one of Buyer’s motives in
executing and delivering this Agreement, and in performing its obligations
hereunder through the payment of the Purchase Price at the Closing, is Buyer’s
desire to obtain a Category 1 license to place and operate slot machines at
Pocono Downs Race Track under the Gaming Act and thereafter to develop and
operate slot machines in a facility to be located on the Pocono Downs Racetrack
site. As such, the Parties hereto agree and acknowledge that (i) if, by July 1,
2006, following application made by Buyer and/or Pocono Downs, as applicable,
for such Category 1 license, such license (A) has been denied or (B) is not
issued, by the Pennsylvania Gaming Control Board as a direct result of the
conduct of Sellers or Parent or its affiliates, or (ii) if, by July 1, 2006, no
conditional or permanent gaming licenses have been issued by the Pennsylvania
Gaming Control Board, Buyer shall have the option (the “Option”) to require
Sellers, Parent or any affiliate thereof to repurchase the Partnership Interests
from Buyer. In order for the Option to vest under section (i)(B) above, Buyer
must have used commercially reasonable efforts to have satisfied the conditions
necessary to obtain a Category 1 license and must have used commercially
reasonable efforts to exhaust all available remedies, challenges and appeals in
pursuing the issuance of such license. If vested, the Option may be exercised by
written notice thereof given by Buyer to Sellers and Parent, and the closing
thereunder shall take place within ninety (90) days after the notice of exercise
has been delivered in accordance with the provisions hereof, at such time and
place as shall be mutually determined. At such closing, Buyer and MTGA Sub shall
deliver the Partnership Interests to Sellers, duly endorsed for transfer and
free and clear of all liens and encumbrances other than those to which the
Partnership Interests were subject when purchased by Buyer, and Sellers shall
pay therefor by wire transfer of immediately available funds to an account or
accounts designated by Buyer not less than five business days before the
scheduled closing date an amount of cash equal to the Purchase Price, plus or
minus the Purchase Price Adjustment (the “Put Amount”), as adjusted, plus or
minus, according to the conventions set forth in Section 4.3 herein except that
references to “Closing Date” therein shall be deemed to mean the date of the
closing contemplated by this Section 11.5. In the event the real and personal
property purchased by Buyer in connection with the transactions contemplated in
this Agreement are not returned to Sellers pursuant to this Section 11.5 in not
worse condition (except for ordinary wear and tear) as existed on the Closing
Date, then the Put Amount shall be reduced by the cost to Sellers (including any
attorneys fees to enforce this provision) to repair, replace or remedy any
defect, deficiency or impairment to such property. Notwithstanding the
foregoing, if the closing does not occur within ninety (90) days after notice of
exercise of the Option has been delivered by Buyer in accordance with the
provisions hereof, Buyer shall have the option to require Sellers to remit to
Buyer, as a reduction of the Purchase Price hereunder, an amount equal to the
difference between the Put Amount and the appraised value of the Partnership
Interests as of the date of exercise of the Option, as determined by a
third-party appraiser selected by mutual agreement of the Parties, less (i) the
proceeds from the sale, transfer, assignment or disposal of (A) any Partnership
Interests and (B) any assets of Pocono Downs or any Partnership Subsidiary other
than (1) assets sold in the ordinary course of business and having an aggregate
value not in excess of $250,000 or (2) assets subsequently replaced with
comparable assets to be used for the same or similar purposes, and (ii) any
amount received by Buyer in connection with the Settlement Agreement.
Notwithstanding the foregoing, the Option described in this paragraph shall
expire upon the approval of Penn National Racecourse for a conditional or
permanent Category 1 license by the Pennsylvania Gaming Control Board, except in
the event that Penn National Racecourse is sold or otherwise transferred to an
unaffiliated

 

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third party. For the avoidance of doubt, Sellers shall have the right to assign
their rights and obligations under this Section 11.5 to any affiliated entity,
provided that no such assignment shall have any effect on Parent’s guarantee of
performance hereunder by Sellers or any assignee if required following any
exercise of the Option pursuant to the terms hereof.

 

11.6 Knowledge. As used herein, the term “knowledge” as to any Seller or any
Pocono Downs Company means the actual knowledge of (i) Peter Carlino, Chairman
of the Board and Chief Executive Officer of Parent, Kevin DeSanctis, President
and Chief Operating Officer of Parent, or Robert Ippolito, Vice President,
Secretary and Treasurer of Parent, and (ii) after a commercially reasonable
investigation, of Conrad Sobkowiak, General Manager, Ed Granci, Controller, or
Dennis Brown, Director of OTW Operations (limited to OTWs).

 

11.7 Entire Agreement. This Agreement sets forth the entire understanding and
agreement of the parties hereto with respect to the transactions contemplated
hereby. This Agreement may not be amended or modified except by a written
instrument duly executed by the Parties hereto. Any and all previous or
contemporaneous agreements and understandings between or among the Parties
regarding the subject matter hereof, whether written or oral are superseded by
this Agreement.

 

11.8 Assignment and Binding Effect. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the beneficiaries, successors and assigns of the Parties hereto. Prior to the
Closing, Buyer may not assign any of its rights or obligations hereunder to any
person or entity, except that any Buyer (without relieving such Buyer of any of
its obligations hereunder) may assign its right to pay for or acquire its
respective Partnership Interests to one or more wholly-owned direct or indirect
subsidiaries of the MTGA designated in writing delivered to Sellers at least
five days prior to Closing. After the Closing, either Party may assign any of
its rights and obligations hereunder, provided that no such assignment of
obligations shall relieve the assigning Party of any of its obligations
hereunder.

 

11.9 Waiver. Any term or provision of this Agreement may be waived at any time
by the Party entitled to the benefit thereof by a written instrument duly
executed by such Party.

 

11.10 Notices. Any notice, request, claim, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given if delivered personally or sent by telefax (with
confirmation of receipt and promptly confirmed by certified mail or recognized
overnight courier service), by registered or certified mail, postage prepaid, or
by recognized overnight courier service, as follows:

 

If to Buyer, to:

 

 

If to Sellers, to:

 

Penn National Gaming, Inc.

825 Berkshire Boulevard, Suite 200

Wyomissing, PA 19610

Attention: General Counsel

Facsimile: 610-373-4710

 

Mohegan Tribal Gaming Authority

1 Mohegan Sun Blvd.

Uncasville, CT 06382

Attention: Chief Financial Officer

Facsimile: 860-862-6162

 

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with a required copy to:

 

 

with a required copy to:

 

Ballard Spahr Andrews & Ingersoll, LLP

1735 Market Street, 51st Floor

Philadelphia, PA 19103-7599

Attention: Robert P. Krauss, Esquire

Facsimile: 215-864-9478

 

Hogan & Hartson L.L.P.

555 Thirteenth Street, NW

Washington, DC 20004-1109

Attention: Carol Weld King, Esquire

Facsimile: 202-637-5910

 

or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered or telefaxed, five
business days after the date mailed, one business day after dispatch by
recognized overnight courier service or, if given by any other means, shall be
deemed given only when actually received by the addressee.

 

11.11 Public Announcements. Following execution and delivery of this Agreement,
and again following the Closing hereunder (or termination of this Agreement if
there shall not be a Closing), the MTGA and Parent and their respective
affiliates shall use reasonable commercial efforts to jointly agree on and cause
the publication of any press release or other public announcement with respect
thereto and shall further cooperate as to any filings required under applicable
federal securities laws, including without limitation any Forms 8-K, or the
rules of any national security exchange.

 

11.12 Specific Performance. Each Party hereto acknowledges that the other Party
will be irreparably harmed and that there will be no adequate remedy at law for
any violation by the other Party of certain covenants and agreements contained
in this Agreement. Accordingly, if all conditions set forth in Sections 8 and 9
hereof have been timely satisfied (or in the case of Section 8, waived by
Buyer), and Sellers refuse to consummate Closing, Buyer may be entitled, in
addition to any other remedies which shall be available upon such breach, to
seek injunctive relief to restrain such breach of, or to compel Sellers to
perform, and otherwise to specific performance of, Sellers’ obligation to
consummate Closing; and Sellers shall be entitled to seek injunctive remedies
and/or remedies at law to compel Buyer to perform Buyer’s obligation to
consummate Closing (assuming the conditions set forth in Section 8 hereof have
been satisfied) or to prevent or redress any breach of Section 7.4.1 hereof.
Otherwise, in the event Closing shall not have occurred and this Agreement is
terminated, remedies shall be limited to the enforcement of obligations, if any,
expressly set forth (or referred to) in Section 11.2 hereof. Remedies following
Closing shall be restricted as set forth in Section 10 hereof.

 

11.13 Pennsylvania Law to Govern. This Agreement shall be governed by and
interpreted and enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania.

 

11.14 No Benefit to Others: Persons Having Knowledge. The representations,
warranties, covenants and agreements contained in this Agreement are for the
sole benefit of the Parties hereto and their beneficiaries, successors and
assigns, and they shall not be construed as conferring any rights on any other
persons.

 

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11.15 Headings; Gender; “Person”. All section headings contained in this
Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation hereof.
Words used herein, regardless of the number and gender specifically used, shall
be deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context requires. Any
reference to a “person” herein shall include an individual, firm, corporation,
partnership, trust, estate, governmental authority or body, association,
unincorporated organization or any other entity.

 

11.16 Further Assurances. The Parties shall each use their reasonable commercial
efforts to do all such acts and things as may be reasonably necessary to
effectuate the transactions contemplated herein by the Closing Date and, any
time and from time to time, whether before or after the Closing, the Parties
agree to cooperate with each other, to execute and deliver such other documents,
instruments of transfer or assignment, files, books and records and do all such
further acts and things as may be reasonably required to carry out the intent of
the parties hereunder with respect to the transfer of the Partnership Interests.

 

11.17 Exhibits; Schedules. The Exhibits hereto and the Schedules referred to
herein and therein are intended to be and hereby are specifically made a part of
this Agreement.

 

11.18 Severability. If any provision of this Agreement or the application
thereof to any person or circumstance is held invalid or unenforceable in any
jurisdiction, the remainder hereof, and the application of such provision to
such person or circumstance in any other jurisdiction or to other persons or
circumstances in any jurisdiction, shall not be affected thereby, and to this
end the provisions of this Agreement shall be severable.

 

11.19 Counterparts. This Agreement may be executed in any number of counterparts
and any Party hereto may execute any such counterpart, each of which when
executed and delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same instrument.
This Agreement shall become binding when one or more counterparts taken together
shall have been executed and delivered by the Parties. It shall not be necessary
in making proof of this Agreement or any counterpart hereof to produce or
account for any of the other counterparts. Any facsimile signature shall be
deemed to be an original signature.

 

11.20 Resolution Procedure. Any dispute between the Parties shall be resolved in
accordance with the following procedure: (1) the Parties shall negotiate in good
faith to resolve any such dispute within a thirty day period; (2) if resolution
is not reached within a thirty day period, the Parties shall submit the dispute
to non-binding mediation by mutual agreement of the Parties, or, if no agreement
is reached within 10 business days after a request by either Party for
mediation, by the Philadelphia, Pennsylvania branch of the American Arbitration
Association; and (3) if the Parties still have not resolved the dispute after
mediation, the subject matter of the mediation shall be litigated before a court
of competent jurisdiction.

 

[SIGNATURE PAGE TO FOLLOW]

 

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IN WITNESS WHEREOF, the Parties hereto have duly executed this Purchase
Agreement on the date first written.

 

PNGI POCONO CORP. By:  

/s/ Robert Ippolito

--------------------------------------------------------------------------------

Name:   Robert Ippolito Title:   Vice President PNGI, LLC By: PNGI Pocono Corp.
    By:  

/s/ Robert Ippolito

--------------------------------------------------------------------------------

    Name:   Robert Ippolito     Title:   Vice President MOHEGAN TRIBAL GAMING
AUTHORITY By:  

/s/ Mark F. Brown

--------------------------------------------------------------------------------

Name:   Mark F. Brown Title:   Chairman, Management Board

--------------------------------------------------------------------------------

GUARANTY AND JOINDER

 

For value received and to induce Buyer to enter into the Agreement set forth
above, Parent hereby guarantees to and for the benefit of Buyer the prompt
payment and performance of each of the Sellers’ financial obligations under such
Agreement (including, without limitation, any obligations arising pursuant to
Section 10.1.1 or 11.5 thereof) in accordance with the terms and conditions
thereof. To such end, Parent agrees it will either (a) cause Sellers to make all
such payments to Buyer as and when the Sellers are required to do so under the
Agreement or (b) make or cause to be made directly to Buyer all such payments as
and when required under the Agreement.

 

Parent agrees to join the Agreement and be bound by the covenants, agreements
and acknowledgments attributable to Parent in Sections 7.1.13, 7.1.20, 7.1.21,
7.4.1, 7.5, 7.6, 7.7, 8.5, 10.7, 11.3, 11.4.1, 11.5 and 11.10 of the Agreement
to perform all obligations and duties required of it under such Sections.

 

PENN NATIONAL GAMING, INC.

By:

 

/s/ Robert Ippolito

--------------------------------------------------------------------------------

Name:

 

Robert Ippolito

Title:

 

Vice President