Exhibit 10.4

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into on this 31st day of
December, 2008 (the “Commencement Date”) by and between Penn National
Gaming, Inc., a Pennsylvania corporation (the “Company”), and William J.
Clifford, an individual residing in Pennsylvania (“Executive”).

 

WHEREAS, Executive and Company are party to that certain Employment Agreement
dated June 10, 2005 (the “Existing Agreement”).

 

WHEREAS, the parties wish to replace the Existing Agreement with the terms set
forth below in this Agreement, which are intended to be in compliance with the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended
(“Section 409A”, see also Section 21 hereof).

 

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

 

1.                                       Employment.  The Company hereby agrees
to employ Executive and Executive hereby accepts such employment, in accordance
with the terms, conditions and provisions hereinafter set forth.

 

1.1.                              Duties and Responsibilities.  Executive shall
serve as Senior Vice President and Chief Financial Officer of the Company. 
Executive shall perform all duties and accept all responsibilities incident to
such position as may be reasonably assigned to him by the Chief Executive
Officer and the Board of Directors of the Company (the “Board”). Executive’s
principal place of employment shall be in Wyomissing, Pennsylvania.

 

1.2.                              Term. The term of this Agreement shall begin
on the date hereof and shall terminate at the close of business on June 10, 2011
(the “Initial Term”), unless earlier terminated in accordance with Section 3
hereof.  The term of this Agreement may be renewed for additional periods (each,
a “Renewal Term” and, together with the Initial Term, the “Employment Term”)
only upon the execution of a written renewal by the parties hereto. 
Notwithstanding the foregoing to the contrary, Sections 5 through 21 shall
survive any termination of the Employment Term until the expiration of any
applicable time periods set forth in Sections 5, 6 and 7

 

1.3.                              Extent of Service.  Executive agrees to use
Executive’s best efforts to carry out Executive’s duties and responsibilities
and, consistent with the other provisions of this Agreement, to devote
substantially all of Executive’s business time, attention and energy thereto. 
The foregoing shall not be construed as preventing Executive from serving on the
board of philanthropic organizations, or providing oversight with respect to his
personal investments, so long as such service does not materially interfere with
Executive’s duties hereunder.

 

CONFIDENTIAL

 

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2.                                       Compensation.  For all services
rendered by Executive to the Company, the Company shall compensate Executive as
set forth below.

 

2.1.                              Base Salary.  The Company shall pay Executive
a base salary (“Base Salary”), commencing on the Commencement Date, at the
annual rate of at least Seven Hundred Twenty Eight Thousand Dollars ($728,000),
payable in installments at such times as the Company customarily pays its other
senior executives (“Peer Executives”).  Executive’s performance and Base Salary
shall be reviewed annually.  Any increase in Base Salary or other compensation
shall be made at the discretion of the Board or the compensation committee of
the Board (the “Compensation Committee”).

 

2.2.                              Cash Bonuses.  Executive shall participate in
the Company’s annual incentive compensation plan applicable to Peer Executives. 
Each annual bonus award earned in a fiscal year shall be paid pursuant to the
terms of the annual incentive plan document (if any) by March 15 of the
immediately following fiscal year, unless the written bonus plan provides for a
different payment date or unless Executive shall elect to defer the receipt of
such bonus award pursuant to an arrangement that meets the requirements of
Section 409A.

 

2.3.                              Equity Compensation.  The Company may grant to
Executive options or other equity compensation pursuant to, and subject to the
terms and conditions of, the then current equity compensation plan of Penn
National Gaming, Inc.  The Compensation Committee shall set the amount and terms
of such options or other equity compensation.

 

2.4.                              Other Benefits.  Executive shall be entitled
to participate in all other employee benefit plans and programs, including,
without limitation, health, vacation, retirement, deferred compensation or SERP,
made available to other Peer Executives, as such plans and programs may be in
effect from time to time and subject to the eligibility requirements of the each
plan.  Nothing in this Agreement shall prevent the Company from amending or
terminating any retirement, welfare or other employee benefit plans or programs
from time to time, as the Company deems appropriate.

 

2.5.                              Vacation, Sick Leave and Holidays.  Executive
shall be entitled in each calendar year to four (4) weeks of paid vacation
time.  Each vacation shall be taken by Executive at such time or times as agreed
upon by the Company and Executive, and any portion of Executive’s allowable
vacation time not used during the calendar year shall be subject to the
Company’s payroll policies regarding carryover vacation.  Executive shall be
entitled to holiday and sick leave in accordance with the Company’s holiday and
other pay for time not worked policies.

 

2.6.                              Reimbursement of Expenses.  Executive shall be
provided with reimbursement of reasonable expenses related to Executive’s
employment by the Company on a basis no less favorable than that authorized from
time to time for Peer Executives.  Such reimbursements shall be made in such
manner and at such times as provided in the reimbursement policies applicable to
Peer Executives.

 

CONFIDENTIAL

 

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3.                                       Termination.  Executive’s employment
may be terminated prior to the end of the Employment Term in accordance with,
and subject to the terms and conditions, set forth below.

 

3.1.                              Termination by the Company.

 

(a)                                  Without Cause.  The Company may terminate
Executive’s employment at any time without Cause (as such term is defined in
subsection (b) below) upon delivery of written notice to Executive, which notice
shall set forth the effective date of such termination.

 

(b)                                 With Cause.  The Company may terminate
Executive’s employment at any time for Cause effective immediately upon delivery
of written notice to Executive.  As used herein, the term “Cause” shall mean:

 

(i)                                     Executive shall have been convicted of a
felony or any misdemeanor involving allegations of fraud, theft, perjury or
conspiracy;

 

(ii)                                  Executive is found disqualified or not
suitable to hold a casino or other gaming license by a governmental gaming
authority in any jurisdiction where Executive is required to be found qualified,
suitable or licensed;

 

(iii)                               Executive materially breaches any material
Company policy or any material term hereof, including, without limitation,
Sections 4 through 7 and, in each case, fails to cure such breach within 15 days
after receipt of written notice thereof; or

 

(iv)                              Executive misappropriates corporate funds as
determined in good faith by the Board.

 

3.2.                              Termination by the Executive.  Executive may
voluntarily terminate employment for any reason effective upon 60 days’ prior
written notice to the Company, unless the Company waives such notice requirement
(in which case the Company shall notify Executive in writing as to the effective
date of termination).

 

3.3.                              Termination for Death or Disability.  In the
event of the death or total disability of Executive, Executive’s employment
shall terminate effective as of the date of Executive’s death or disability. 
The term “disability” shall have the definition set forth in the Company’s Long
Term Disability Insurance Policy in effect at the time of such determination.

 

3.4.                              Payments Due Upon Termination.

 

(a)                                  Already Accrued Base Salary and Expense. 
Upon any termination of employment during the Employment Term, Executive shall
be entitled to receive any amounts due for Base Salary accrued but unpaid
through the effective date of termination, and such amounts shall be paid in
accordance with the Company’s then current payroll system for Peer Executives. 
Any expenses incurred but not reimbursed through the effective date of
termination shall be paid at such time and in such manner as provided under the
Company’s expense reimbursement policy applicable to Peer Executives.

 

CONFIDENTIAL

 

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(b)                                 Severance Pay and Benefits.  Subject to the
conditions in subsection (c) hereof, if Executive’s employment is terminated
under Section 3.1(a) or Section 3.3 or if Executive delivers a written notice of
resignation within 30 days after the expiration of the Employment Term, the
Company does not offer to renew the Employment Term during such 30-day period on
terms no less favorable in the aggregate to the Executive than those contained
herein and Executive thereupon terminates his employment at the end of such
30-day period, then Executive will be entitled to receive, and the Company will
provide Executive with, the following severance pay and benefits (in addition to
any amounts payable under subsection (a) hereof); provided, for purposes of
Section 409A, each payment (whether an installment or lump sum) of severance pay
under this subsection (b) shall be considered a separate payment:

 

(I)                                     AMOUNT OF POST-EMPLOYMENT BASE SALARY
AND BONUS.  THE COMPANY SHALL PAY TO EXECUTIVE AN AMOUNT EQUAL TO THE PRODUCT OF
(A) THE SUM OF (1) EXECUTIVE’S MONTHLY BASE SALARY AT THE HIGHEST RATE IN EFFECT
DURING THE 24-MONTH PERIOD IMMEDIATELY PRECEDING THE DATE OF EXECUTIVE’S
TERMINATION OF EMPLOYMENT (THE “TERMINATION DATE”), AND (2) EXECUTIVE’S MONTHLY
BONUS VALUE (DETERMINED BY DIVIDING BY 12 THE HIGHEST AMOUNT OF ANNUAL CASH
BONUS COMPENSATION PAID TO EXECUTIVE IN RESPECT OF EITHER THE FIRST OR SECOND
FULL CALENDAR YEAR IMMEDIATELY PRECEDING THE TERMINATION DATE; AND (B) THE
GREATER OF (1) THE NUMBER OF FULL AND PARTIAL MONTHS REMAINING IN THE EMPLOYMENT
TERM AS OF THE TERMINATION DATE, AND (2) 24 (WITH THE PERIOD DESCRIBED IN CLAUSE
(B) HEREOF BEING REFERRED TO AS THE “SEVERANCE PERIOD”).

 

(ii)                                  Payment of Post-Employment Base Salary and
Bonus.  The amount described in subsection (b)(i) shall be paid to Executive in
cash in two lump-sum payments as follows: (A) 75% of such amount shall be paid
within 15 days after the Termination Date but no later than March 15 of the
calendar year following the year in which this payment vests; and (B) the
remaining 25% of such amount shall be paid in a lump sum by March 15 of the
calendar year following the calendar year in which this payment vests.

 

(iii)                               Continued Medical Benefits Coverage.  During
the Severance Period, the Company shall provide Executive, and, if any,
Executive’s spouse and dependents with medical benefits coverage substantially
similar to the coverage in effect on the effective date of termination.  After
the Severance Period, Executive and his dependents will have the opportunity
under the provisions of the Consolidated Omnibus Budget Reconciliation Act of
1986 (“COBRA”) to elect COBRA continuation coverage.  If elected in a timely
manner, COBRA coverage generally will commence as of the first day of the next
calendar month after the end of the Severance Period and will end on the last
day of the 18th month thereafter (unless an earlier end date or an extension is
required under COBRA).

 

(iv)                              Vesting of Stock Options.  All options granted
to Executive that would have vested during the Severance Period shall vest as of
the Termination Date, provided, however, that any such options may not be
exercised during the Severance Period until the same time(s) as such options
would have vested had Executive continued to be employed through the Severance
Period.  Any options that would not have vested during the Severance Period
shall terminate on the Termination Date.

 

CONFIDENTIAL

 

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(c)                                  Release Agreement.  Executive’s entitlement
to any severance pay and benefit subsidies under Section 3(b) is conditioned
upon Executive’s first entering into a release agreement in substantially the
form attached hereto as Exhibit “A”; provided, such release agreement shall be
delivered to Executive within 7 days after the Termination Date.  Any payment of
severance pay or benefit subsidies due under subsection (b) hereof shall be
delayed until after the expiration of the 7-day revocation period required for
an effective age-based release, and any amount otherwise due under said
subsection (b) before the end of such revocation period shall be paid upon the
day after the end of such period in a single lump-sum payment, but not later
than March 15 of the calendar year following the calendar year in which the
Termination Date occurs.

 

(d)                                 No Other Payments or Benefits.  Except as
otherwise provided in this Section 3.4, Section 8 or Section 9, no other
payments or benefits shall be due under this Agreement to Executive

 

3.5.                              Notice of Termination.  Any termination of
Executive’s employment shall be communicated by a written notice of termination
delivered within the time period specified in this Section 3.  The notice of
termination shall (i) indicate the specific termination provision in this
Agreement relied upon, (ii) briefly summarize the facts and circumstances deemed
to provide a basis for a termination of employment and the applicable provision
hereof, and (iii) specify the termination date in accordance with the
requirements of this Agreement.

 

4.                                       No Conflicts of Interest.  Executive
agrees that throughout the period of Executive’s employment hereunder or
otherwise, Executive will not perform any activities or services, or accept
other employment that would materially interfere with or present a conflict of
interest concerning Executive’s employment with the Company.  Executive agrees
and acknowledges that Executive’s employment by the Company is conditioned upon
Executive adhering to and complying with the business practices and requirements
of ethical conduct set forth in writing from time to time by the Company in its
employee manual or similar publication.  Executive represents and warrants that
no other contract, agreement or understanding to which Executive is a party or
may be subject will be violated by the execution of this Agreement by Executive.

 

5.                                       Confidentiality.  Executive recognizes
and acknowledges that Executive will have access to certain confidential
information of the Company and that such information constitutes valuable,
special and unique property of the Company (including, but not limited to,
information such as business strategies, identity of acquisition or growth
targets, marketing plans, customer lists, and other business related information
for the Company’s customers).  Executive agrees that Executive will not, for any
reason or purpose whatsoever, during or after the term of employment, disclose
any of such confidential information to any party, and that Executive will keep
inviolate and secret all confidential information or knowledge which Executive
has access to by virtue of Executive’s employment with the Company, except as
otherwise may be necessary in the ordinary course of performing Executive’s
duties with the Company.

 

CONFIDENTIAL

 

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6.                                       Non-Competition.

 

(a)                                  As used herein, the term “Restriction
Period” shall mean a period equal to: (i) the remainder of the Employment Term
in effect on the effective date of termination if Executive resigns other than
for Good Reason, or (ii) the Severance Period if Executive’s employment is
terminated for one of the events specified in Section 3.4(b).  In the event the
Executive is terminated by the Company for one of the events specified in
Section 3.4(b), during the Severance Period Executive may elect to terminate the
Restriction Period at any time by delivering written notice to the Company that
Executive has made such election and that, in consideration therefore, is
forfeiting the right to receive any payment or the right to receive any future
payments under Section 3.4(b) or an equivalent amount under Section 8; provided
however, if Executive elects to reduce the geographic limitation of this
non-competition provision, and Executive has already received payment pursuant
to Section 3.4(b) or an equivalent amount under Section 8, Executive shall
reimburse the Company for that portion of the severance payments already
received by Executive which relates to the number of days left in the Severance
Period.  For clarity, regardless of whether Executive shall receive payments
pursuant to Section 3.4(b) or Section 8 of this Agreement in order to reduce the
Restriction Period, Executive shall only be required to forfeit or re-pay the
amounts that Executive would have received pursuant to Section 3.4(b).  In that
case, Executive may nevertheless receive payments and/or need not reimburse the
Company for any amounts paid to Executive pursuant to Section 8 which are in
excess of the payments and benefits that Executive would have been entitled to
receive under Section 3.4(b).  If Executive terminates his employment for good
Reason, then Executive shall not be subject to the provisions of this Section 6.

 

(b)                                 During Executive’s employment by the Company
and for the duration of the Restriction Period thereafter, Executive shall not,
except with the prior written consent of the Company, directly or indirectly,
own, manage, operate, join, control, finance or participate in the ownership,
management, operation, control or financing of, or be connected as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise with, or use or permit Executive’s name to be used in connection with,
any business or enterprise which owns or operates, or is actively seeking to own
or operate, a gaming or pari-mutuel located within North America.

 

(c)                                  The foregoing restrictions shall not be
construed to prohibit Executive’s ownership of less than 5% of any class of
securities of any corporation which is engaged in any of the foregoing
businesses and has a class of securities registered pursuant to the Securities
Exchange Act of 1934, provided that such ownership represents a passive
investment and that neither Executive nor any group of persons including
Executive in any way, either directly or indirectly, manages or exercises
control of any such corporation, guarantees any of its financial obligations,
otherwise takes any part in its business, other than exercising Executive’s
rights as a shareholder, or seeks to do any of the foregoing.

 

(d)                                 Executive acknowledges that the covenants
contained in Sections 5 through 7 hereof are reasonable and necessary to protect
the legitimate interests of the Company and its affiliates and, in particular,
that the duration and geographic scope of such covenants are reasonable given
the nature of this Agreement and the position that Executive will hold within

 

CONFIDENTIAL

 

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the Company.  Executive further agrees to disclose the existence and terms of
such covenants to any employer that Executive works for during the Restriction
Period.

 

7.                                       Non-Solicitation.  During Executive’s
employment by the Company and for a period equal to the greater of the
Restriction Period or one year after the effective date of termination,
Executive will not, except with the prior written consent of the Company,
(i) directly or indirectly, solicit or hire, or encourage the solicitation or
hiring of, any person who is, or was within a six month period prior to such
solicitation or hiring, an executive or management employee of the Company or
any of its affiliates for any position as an employee, independent contractor,
consultant or otherwise or (ii) divert or attempt to divert any existing
business of the Company or any of its affiliates.

 

8.                                       Change of Control.

 

8.1.                              Consideration

 

(a)                                  Change of Control.  In the event of a
Change of Control (as defined below), Executive shall be entitled to receive a
cash payment in an amount equal to the product of three times the sum of (i) the
highest annual rate of Base Salary in effect for Executive during the 24-month
period immediately preceding the effective date of the Change in Control (the
“Trigger Date”) and (ii) the highest amount of annual cash bonus compensation
paid to Executive in respect of either the first or second full calendar year
immediately preceding the Trigger Date.

 

(b)                                 Restrictive Provisions.  As consideration
for the foregoing payments, Executive agrees not to challenge the enforceability
of any of the restrictions contained in Sections 5, 6 or 7 of this Agreement
upon or after the occurrence of a Change of Control.

 

8.2.                              Payment Terms.  This change of control payment
shall be made in two lump sum payments as follows: (i) 75% of such amount shall
be paid to Executive in a lump-sum cash payment upon the Trigger Date; and
(ii) 25% of such amount shall be paid to Executive in a lump-sum cash payment
upon the 75th day following the Trigger Date, but not later than March 15 of the
calendar year following the calendar year in which the Trigger Date occurs. 
Notwithstanding any of the foregoing to the contrary, the payment contemplated
by clause (ii) shall be paid immediately upon the earlier occurrence of any of
the following: (a) Executive’s employment is terminated by the Company; or
(b) Executive terminates employment for Good Reason (as defined below).

 

8.3.                              Certain Other Terms.  In the event payments
are being made to Executive under this Section 8, no payments shall be due under
Section 3.4(b)(i) with respect to any termination of Executive’s employment
following a Change of Control.  At the option of the Company, the Company may
require Executive to execute the release attached hereto as Exhibit A; provided,
however, that this requirement shall not in any way alter the timing of the
payments to be made under Section 8.2.  In the event that the Company announces
that it has signed a definitive agreement with respect to a Change of Control,
the provisions of this Section 8 shall continue to apply to Executive if, during
the period after the public announcement and immediately preceding the date such
transaction is consummated or terminated, the Company terminates

 

CONFIDENTIAL

 

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Executive’s employment without Cause or due to a disability; provided, however,
that, in such event, any amount payable under this Section 8 shall be reduced by
any payments received pursuant to Section 3.4(b)(i).

 

8.4.                              Defined Terms.

 

(a)                                  The term Change of Control shall have the
meaning given to such term in the Company’s 2008 Long Term Incentive
Compensation Plan, as such may be amended or modified.

 

(b)                                 Good Reason.  The occurrence of any of the
following events that the Company fails to cure within 10 days after receiving
written notice thereof from Executive: (i) assignment to Executive of any duties
inconsistent in any material respect with Executive’s position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities or inconsistent with Executive’s legal or fiduciary
obligations; (ii) any reduction in Executive’s compensation or substantial
reduction in Executive’s benefits taken as a whole; (iii) any travel
requirements materially greater than Executive’s travel requirements prior to
the Change of Control; or (iv) breach of any material term of this Agreement by
the Company.

 

9.                                       Certain Tax Matters.

 

9.1.                              Generally.  In the event Executive becomes
entitled to receive the payments (the “Severance Payments”) provided under
Section 3 or Section 8 hereof or under any other plan or arrangement providing
for payments under circumstances similar to those contemplated by such sections,
and if any of the Severance Payments will be subject to the tax (the “Excise
Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the “Code”), the Company shall pay to Executive at the time specified for such
payments, an additional amount (the “Gross-Up Payment”) such that the net amount
retained by Executive shall be equal to the amount of the Severance Payments
after deducting normal and ordinary taxes but not deducting (a) the Excise Tax
and (b) any federal, state and local income tax and Excise Tax payable on the
payment provided for by this Section 9.

 

9.2.                              Illustration.  For example, if the Severance
Payments are $1,000,000 and if Executive is subject to the Excise Tax, then the
Gross-Up Payment will be such that Executive will retain an amount of $1,000,000
less only any normal and ordinary taxes on such amount. The Excise Tax and
federal, state and local taxes and any Excise Tax on the payment provided by
this Section 9 will not be deemed normal and ordinary taxes.

 

9.3.                              Certain Terms.  For purposes of determining
whether any of the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, the following will apply:

 

(a)                                  Any other payments or benefits received or
to be received by Executive in connection with a Change in Control of the
Company or Executive’s termination of employment (whether pursuant to the terms
of this Agreement or any other plan, arrangement or agreement with the Company
shall be treated as “parachute payments” within the meaning of
Section 280G(b)(2) of the Code, and all “excess parachute payments” within the
meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax

 

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counsel selected by the Company’s Compensation Committee and acceptable to
Executive, such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax;

 

(b)                                 The amount of the Severance Payments which
shall be treated as subject to the Excise Tax shall be equal to the lesser of
(y) the total amount of the Severance Payments or (z) the amount of excess
parachute payments within the meaning of Section 280G(b)(1) (after applying
subsection (a), above); and

 

(c)                                  The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Company’s independent
auditors in accordance with proposed, temporary or final regulations under
Sections 280G(d)(3) and (4) of the Code or, in the absence of such regulations,
in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, Executive shall be
deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rate of taxation in the
state and locality of Executive on the Trigger Date, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes; and

 

(d)                                 In the event that the amount of Excise Tax
attributable to Severance Payments is subsequently determined to be less than
the amount taken into account hereunder at the time of determination then,
subject to applicable law, appropriate adjustments will be made with respect to
future payment(s) hereunder (if any).  If Executive becomes entitled to a
Gross-Up Payment in excess of the amount initially determined and paid under
Section 9.1, the Company shall pay the additional Gross-Up Payment within five
(5) business days of the date on which the Company is notified of the amount of
the Gross-Up Payment, but only to the extent that the Gross-Up Payment would be
made by the March 15 following the calendar year in which the Executive would be
considered to have vested in the Gross-Up Payment for purposes of Section 409A. 
To the extent any Gross-Up Payment is greater than initially determined and paid
under Section 9.1 and cannot be made by the March 15 following the end of the
calendar year in which the Executive vests in such payment, then the Company
shall instead make the payment promptly following the date on which the
Executive remits the taxes to which the Gross-Up Payment relates to the
applicable taxing authority, and in no event later than the last day of the
calendar year following the calendar year in which such taxes are remitted;
provided, however, that if the Executive is a key employee (within the meaning
of Section 409A) and the Gross-Up Payment would be considered deferred
compensation payable on account of Executive’s separation from service (as
defined in Section 409A), payment will in no event be made prior to 6 months
after the date of Executive’s separation from service.

 

9.4.                              Fees and Expenses.  The Company shall
reimburse Executive for all reasonable legal fees and expenses incurred by
Executive in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code or any regulations
pertaining thereto to any payment or benefit provided hereunder.  Any expense
reimbursements

 

CONFIDENTIAL

 

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made to satisfy the terms of this section shall be paid as soon as practicable
but no later than 90 days after Employee submits evidence of such expenses to
the Company (which payment date shall in no event be later than the last day of
the calendar year following the calendar year in which the expense was
incurred).  The amount of such reimbursements during any calendar year shall not
affect the benefits provided in any other calendar year, and the right to any
benefits under this paragraph shall not be subject to liquidation or exchange
for another benefit.

 

10.                                 Document Surrender.  Upon the termination of
Executive’s employment for any reason, Executive shall immediately surrender and
deliver to the Company all documents, correspondence and any other information,
of any type whatsoever, from the Company or any of its agents, servants,
employees, suppliers, and existing or potential customers, that came into
Executive’s possession by any means whatsoever, during the course of employment.

 

11.                                 Governing Law.  This Agreement shall be
governed by and construed in accordance with the internal laws (and not the law
of conflicts) of the Commonwealth of Pennsylvania.

 

12.                                 Jurisdiction.  The parties hereby
irrevocably consent to the jurisdiction of the courts of the Commonwealth of
Pennsylvania for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be commenced, prosecuted and continued only in the
state or federal courts having jurisdiction for matters arising in Wyomissing,
Pennsylvania, which shall be the exclusive and only proper forum for
adjudicating such a claim.

 

13.                                 Notices.  All notices and other
communications required or permitted under this Agreement or necessary or
convenient in connection herewith shall be in writing and shall be deemed to
have been given when hand delivered, delivered by guaranteed next-day delivery
or sent by facsimile (with confirmation of transmission) or shall be deemed
given on the third business day when mailed by registered or certified mail, as
follows (provided that notice of change of address shall be deemed given only
when received):

 

If to the Company, to:

 

Penn National Gaming, Inc.
825 Berkshire Boulevard, Suite 200
Wyomissing, PA 19610

Fax: (610) 376-2842

Attention: Chairman

 

If to Executive, to:

 

His then current home address.

 

or to such other names or addresses as the Company or Executive, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.

 

CONFIDENTIAL

 

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14.                                 Contents of Agreement; Amendment and
Assignment.

 

14.1.                        This Agreement sets forth the entire understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior or contemporaneous agreements or understandings with
respect to thereto, including without limitation, the Initial Agreement which is
hereby terminated.  This Agreement cannot be changed, modified, extended, waived
or terminated except upon a written instrument signed by the party against which
it is to be enforced.

 

14.2.                        Executive may not assign any of his rights or
obligations under this Agreement.  The Company may assign its rights and
obligations under this Agreement to any successor to all or substantially all of
its assets or business by means of liquidation, dissolution, merger,
consolidation, transfer of assets or otherwise.

 

15.                                 Severability.  If any provision of this
Agreement or application thereof to anyone or under any circumstances is
adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect any other provision or application of this
Agreement which can be given effect without the invalid or unenforceable
provision or application and shall not invalidate or render unenforceable such
provision or application in any other jurisdiction.  If any provision is held
void, invalid or unenforceable with respect to particular circumstances, it
shall nevertheless remain in full force and effect in all other circumstances. 
In addition, if any court determines that any part of Sections 5, 6 or 7 hereof
is unenforceable because of its duration, geographical scope or otherwise, such
court will have the power to modify such provision and, in its modified form,
such provision will then be enforceable.

 

16.                                 Remedies.

 

16.1.                        No remedy conferred upon a party by this Agreement
is intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given under
this Agreement or now or hereafter existing at law or in equity.

 

16.2.                        No delay or omission by a party in exercising any
right, remedy or power under this Agreement or existing at law or in equity
shall be construed as a waiver thereof, and any such right, remedy or power may
be exercised by such party from time to time and as often as may be deemed
expedient or necessary by such party in its sole discretion.

 

16.3.                        Executive acknowledges that money damages would not
be a sufficient remedy for any breach of this Agreement by Executive and that
the Company shall be entitled to specific performance and injunctive relief as
remedies for any such breach, in addition to all other remedies available at law
or equity to the Company.

 

17.                                 Construction.  This Agreement is the result
of thoughtful negotiations and reflects an arms’ length bargain between two
sophisticated parties, each represented by counsel.  The parties agree that, if
this Agreement requires interpretation, neither party should be considered “the
drafter” nor be entitled to any presumption that ambiguities are to be resolved
in his or her favor.

 

CONFIDENTIAL

 

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18.                                 Beneficiaries/References.  Executive shall
be entitled, to the extent permitted under any applicable law, to select and
change a beneficiary or beneficiaries to receive any compensation or benefit
payable under this Agreement following Executive’s death by giving the Company
written notice thereof.  In the event of Executive’s death or a judicial
determination of Executive’s incompetence, reference in this Agreement to
Executive shall be deemed, where appropriate, to refer to Executive’s
beneficiary, estate or other legal representative.

 

19.                                 Withholding.  All payments under this
Agreement shall be made subject to applicable tax withholding, and the Company
shall withhold from any payments under this Agreement all federal, state and
local taxes, as the Company is required to withhold pursuant to any law or
governmental rule or regulation.  Except as specifically provided otherwise in
this Agreement, Executive shall bear all expense of, and be solely responsible
for, all federal, state and local taxes due with respect to any payment received
under this Agreement.

 

20.                                 Regulatory Compliance.  The terms and
provisions hereof shall be conditioned on and subject to compliance with all
laws, rules, and regulations of all jurisdictions, or agencies, boards or
commissions thereof, having regulatory jurisdiction over the employment or
activities of Executive hereunder.

 

21.                                 Section 409A.  This Agreement is intended to
comply with the requirements of Section 409A and shall be construed
accordingly.  Any payments or distributions to be made to Employee under this
Agreement upon a separation from service (as defined in Section 409A) of amounts
classified as “nonqualified deferred compensation” for purposes of Code
Section 409A, shall in no event be made or commence until 6 months after such
separation from service.  Each payment of nonqualified deferred compensation
under this Agreement shall be treated as a separate payment for purposes of Code
Section 409A.  Any reimbursements made pursuant to this Agreement shall be paid
as soon as practicable but no later than 90 days after Employee submits evidence
of such expenses to Corporation (which payment date shall in no event be later
than the last day of the calendar year following the calendar year in which the
expense was incurred).  The amount of such reimbursements during any calendar
year shall not affect the benefits provided in any other calendar year, and the
right to any such benefits shall not be subject to liquidation or exchange for
another benefit.

 

CONFIDENTIAL

 

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IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.

 

 

 

PENN NATIONAL GAMING, INC.

 

 

 

 

 

By:

/s/ Peter M. Carlino

 

Name:

Peter M. Carlino

 

Title:

Chairman and Chief Executive Officer

 

 

 

 

 

 

EXECUTIVE

 

 

 

 

 

/s/ William J. Clifford

 

William J. Clifford

 

CONFIDENTIAL

 

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Exhibit A

 

SEPARATION AGREEMENT AND GENERAL RELEASE

 

This is a Separation Agreement and General Release (hereinafter referred to as
the “Agreement”) between                            (hereinafter referred to as
the “Employee”) and Penn National Gaming, Inc. (hereinafter referred to as the
“Employer”).  In consideration of the mutual promises and commitments made in
this Agreement, and intending to be legally bound, Employee, on the one hand,
and the Employer on the other hand, agree to the terms set forth in this
Agreement.

 

1.                                       Employer and Employee hereby
acknowledge that [the Company notified Employee/Employee notified the Company on
                                       that Executive’s employment pursuant to
that certain Employment Agreement executed on                           
(“Employment Agreement”) would be terminated as of [                    ].  Upon
the termination of the Employment Agreement, Employee will be subject to the
obligations and be the beneficiary of the surviving benefits, all as described
in the Employment Agreement.  Employee’s last day of work will be
                        .

 

2.                                       (a)                                 
When used in this Agreement, the word “Releasees” means the Employer and all or
any of its past and present parent, subsidiary and affiliated corporations,
companies, partnerships, joint ventures and other entities and their groups,
divisions, departments and units, and their past and present directors,
trustees, officers, managers, partners, supervisors, employees, attorneys,
agents and consultants, and their predecessors, successors and assigns.

 

(b)                                 When used in this Agreement, the word
“Claims” means each and every claim, complaint, cause of action, and grievance,
whether known or unknown and whether fixed or contingent, and each and every
promise, assurance, contract, representation, guarantee, warranty, right and
commitment of any kind, whether known or unknown and whether fixed or
contingent.

 

3.                                       IN CONSIDERATION OF THE PROMISES OF THE
EMPLOYER SET FORTH IN THIS AGREEMENT AND THE EMPLOYMENT AGREEMENT, AND INTENDING
TO BE LEGALLY BOUND, EMPLOYEE HEREBY IRREVOCABLY REMISES, RELEASES AND FOREVER
DISCHARGES ALL RELEASEES OF AND FROM ANY AND ALL CLAIMS THAT HE (ON BEHALF OF
EITHER HIMSELF OR ANY OTHER PERSON OR PERSONS) EVER HAD OR NOW HAS AGAINST ANY
AND ALL OF THE RELEASEES, OR WHICH HE (OR HIS HEIRS, EXECUTORS, ADMINISTRATORS
OR ASSIGNS OR ANY OF THEM) HEREAFTER CAN, SHALL OR MAY HAVE AGAINST ANY AND ALL
OF THE RELEASEES, FOR OR BY REASON OF ANY CAUSE, MATTER, THING, OCCURRENCE OR
EVENT WHATSOEVER THROUGH THE EFFECTIVE DATE OF THIS AGREEMENT.  EMPLOYEE
ACKNOWLEDGES AND AGREES THAT THE CLAIMS RELEASED IN THIS PARAGRAPH INCLUDE, BUT
ARE NOT LIMITED TO, (A) ANY AND ALL CLAIMS BASED ON ANY LAW, STATUTE OR
CONSTITUTION OR BASED ON CONTRACT OR IN TORT ON COMMON LAW, AND (B) ANY AND ALL
CLAIMS BASED ON OR ARISING UNDER ANY CIVIL RIGHTS LAWS, SUCH AS ANY PENNSYLVANIA
EMPLOYMENT LAWS, OR TITLE VII OF THE CIVIL RIGHTS ACT OF 1964 (42 U.S.C. § 2000E
ET SEQ.), OR THE FEDERAL AGE DISCRIMINATION IN EMPLOYMENT ACT (29 U.S.C. § 621
ET SEQ.) (HEREINAFTER REFERRED TO AS THE “ADEA”), AND (C) ANY AND ALL CLAIMS
UNDER ANY GRIEVANCE OR COMPLAINT PROCEDURE OF ANY KIND, AND (D) ANY AND ALL
CLAIMS BASED ON OR ARISING OUT OF OR RELATED TO HIS RECRUITMENT BY, EMPLOYMENT
WITH, THE TERMINATION OF HIS EMPLOYMENT WITH, HIS PERFORMANCE OF ANY SERVICES IN
ANY CAPACITY FOR, OR ANY BUSINESS TRANSACTION WITH, EACH OR ANY OF THE
RELEASEES.  EMPLOYEE ALSO UNDERSTANDS, THAT BY SIGNING THIS AGREEMENT, HE IS
WAIVING ALL CLAIMS AGAINST ANY AND ALL OF THE RELEASEES RELEASED BY THIS
AGREEMENT; PROVIDED, HOWEVER, THAT AS SET FORTH IN SECTION 7 (F) (1) (C) OF THE
ADEA, AS ADDED BY THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, NOTHING IN
THIS AGREEMENT CONSTITUTES OR SHALL (I) BE CONSTRUED TO CONSTITUTE A WAIVER BY
EMPLOYEE OF ANY RIGHTS OR CLAIMS THAT MAY ARISE AFTER THIS AGREEMENT IS EXECUTED
BY EMPLOYEE, OR (II) IMPAIR EMPLOYEE’S RIGHT TO FILE A CHARGE WITH THE U.S.
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION (“EEOC”) OR ANY STATE AGENCY OR TO
PARTICIPATE IN AN INVESTIGATION OR PROCEEDING CONDUCTED BY THE EEOC OR ANY STATE
AGENCY.

 

4.                                       In consideration of the promises of the
Employee set forth in this Agreement and the Employment Agreement and intending
to be legally bound, Employer hereby irrevocably remises, releases and forever
discharges Employee and his heirs, successors and assigns from any and all
Claims that the Employer ever had or now has though the effective date of this
Agreement.

 

CONFIDENTIAL

 

14

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5.                                       EMPLOYEE AND EMPLOYER COVENANT AND
AGREE NOT TO SUE EACH OTHER OR ANY OF THE RELEASEES FOR ANY CLAIMS RELEASED BY
THIS AGREEMENT AND TO WAIVE ANY RECOVERY RELATED TO ANY CLAIMS COVERED BY THIS
AGREEMENT.

 

6.                                       EMPLOYEE AGREES TO PROVIDE REASONABLE
TRANSITION ASSISTANCE TO EMPLOYER (INCLUDING WITHOUT LIMITATION ASSISTANCE ON
REGULATORY MATTERS, OPERATIONAL MATTERS AND IN CONNECTION WITH LITIGATION) FOR A
PERIOD OF ONE YEAR FROM THE EXECUTION OF THIS AGREEMENT AT NO ADDITIONAL COST;
PROVIDED, SUCH ASSISTANCE SHALL NOT UNREASONABLY INTERFERE WITH EMPLOYEE’S
PURSUIT OF GAINFUL EMPLOYMENT OR RESULT IN EMPLOYEE NOT HAVING A SEPARATION FROM
SERVICE (AS DEFINED IN SECTION 409A OF THE INTERNAL REVENUE CODE OF 1986).  ANY
ASSISTANCE BEYOND THIS PERIOD WILL BE PROVIDED AT A MUTUALLY AGREED COST. 
EMPLOYEE FURTHER AGREES THAT HE WILL RETURN TO THE EMPLOYER ALL PROPERTY IN HIS
POSSESSION, INCLUDING, BUT NOT LIMITED TO, KEYS, IDENTIFICATION CARDS AND CREDIT
CARDS, FILES, RECORDS, PUBLICATIONS, ADDRESS LISTS AND DOCUMENTS THAT BELONG TO
EACH OR ANY OF THE RELEASEES.  SUCH DOCUMENTS ALSO INCLUDE, WITHOUT LIMITATION,
ANY DOCUMENTS CREATED OR MADE BY EMPLOYEE DURING HIS EMPLOYMENT WITH THE
EMPLOYER. 

 

7.                                       EMPLOYEE AGREES THAT, EXCEPT AS
SPECIFICALLY PROVIDED IN THIS AGREEMENT AND THE EMPLOYMENT AGREEMENT, THERE ARE
NO COMPENSATION, BENEFITS, OR OTHER PAYMENTS DUE OR OWED TO HIM BY EACH OR ANY
OF THE RELEASEES.

 

8.                                       EXCEPT WHERE DISCLOSURE HAS BEEN MADE
BY THE COMPANY PURSUANT TO APPLICABLE FEDERAL OR STATE LAW, RULE OR REGULATION,
EMPLOYEE AGREES THAT THE TERMS OF THIS AGREEMENT ARE CONFIDENTIAL AND THAT HE
WILL NOT DISCLOSE OR PUBLICIZE THE TERMS OF THIS AGREEMENT AND THE AMOUNTS PAID
OR AGREED TO BE PAID PURSUANT TO THIS AGREEMENT TO ANY PERSON OR ENTITY, EXCEPT
TO HIS SPOUSE, HIS ATTORNEY, HIS ACCOUNTANT, AND TO A GOVERNMENT AGENCY FOR THE
PURPOSE OF PAYMENT OR COLLECTION OF TAXES OR APPLICATION FOR UNEMPLOYMENT
COMPENSATION BENEFITS.  EMPLOYEE AGREES THAT HIS DISCLOSURE OF THE TERMS OF THIS
AGREEMENT TO HIS SPOUSE, HIS ATTORNEY AND HIS ACCOUNTANT SHALL BE CONDITIONED
UPON HIS OBTAINING AGREEMENT FROM THEM, FOR THE BENEFIT OF THE EMPLOYER, NOT TO
DISCLOSE OR PUBLICIZE TO ANY PERSON OR ENTITY THE TERMS OF THIS AGREEMENT AND
THE AMOUNTS PAID OR AGREED TO BE PAID UNDER THIS AGREEMENT. FURTHER, EMPLOYER
AND EMPLOYEE AGREE NOT TO MAKE ANY FALSE, MISLEADING, DEFAMATORY OR DISPARAGING
COMMUNICATIONS ABOUT THE OTHER PARTY (INCLUDING WITHOUT LIMITATION EMPLOYER’S
PRODUCTS, SERVICES, PARTNERS, INVESTORS OR PERSONNEL) AND TO REFRAIN FROM TAKING
ANY ACTION DESIGNED TO HARM THE PUBLIC PERCEPTION OF THE OTHER PARTY OR THE
RELEASEES.  EMPLOYEE FURTHER AGREES THAT HE HAS DISCLOSED TO EMPLOYER ALL
INFORMATION, IF ANY, IN HIS POSSESSION, CUSTODY OR CONTROL RELATED TO ANY LEGAL,
COMPLIANCE OR REGULATORY OBLIGATIONS OF EMPLOYER AND ANY FAILURES TO MEET SUCH
OBLIGATIONS.

 

9.                                       THE TERMS OF THIS AGREEMENT ARE NOT TO
BE CONSIDERED AS AN ADMISSION ON BEHALF OF EITHER PARTY.  NEITHER THIS AGREEMENT
NOR ITS TERMS SHALL BE ADMISSIBLE AS EVIDENCE OF ANY LIABILITY OR WRONGDOING BY
EACH OR ANY OF THE RELEASEES IN ANY JUDICIAL, ADMINISTRATIVE OR OTHER PROCEEDING
NOW PENDING OR HEREAFTER INSTITUTED BY ANY PERSON OR ENTITY.  THE EMPLOYER IS
ENTERING INTO THIS AGREEMENT SOLELY FOR THE PURPOSE OF EFFECTUATING A MUTUALLY
SATISFACTORY SEPARATION OF EMPLOYEE’S EMPLOYMENT.

 

10.                                 ALL PROVISIONS OF THIS AGREEMENT ARE
SEVERABLE AND IF ANY OF THEM IS DETERMINED TO BE INVALID OR UNENFORCEABLE FOR
ANY REASON, THE REMAINING PROVISIONS AND PORTIONS OF THIS AGREEMENT SHALL BE
UNAFFECTED THEREBY AND SHALL REMAIN IN FULL FORCE TO THE FULLEST EXTENT
PERMITTED BY LAW.

 

11.                                 THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED UNDER AND IN ACCORDANCE WITH THE LAWS OF PENNSYLVANIA.  ANY SUIT,
CLAIM OR CAUSE OF ACTION ARISING UNDER OR RELATED TO THIS AGREEMENT SHALL BE
SUBMITTED BY THE PARTIES HERETO TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF
PENNSYLVANIA OR TO THE FEDERAL COURTS LOCATED THEREIN IF THEY OTHERWISE HAVE
JURISDICTION.  THE BREACH OF ANY PROMISE IN THIS AGREEMENT BY ANY PARTY SHALL
NOT INVALIDATE THIS AGREEMENT OR THE RELEASE AND SHALL NOT BE A DEFENSE TO THE
ENFORCEMENT OF THE AGREEMENT AGAINST ANY PARTY.

 

12.                                 THIS AGREEMENT CONSTITUTES A COMPLETE AND
FINAL AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES AND REPLACES ALL PRIOR OR
CONTEMPORANEOUS AGREEMENTS, OFFER LETTERS, NEGOTIATIONS, OR DISCUSSIONS RELATING
TO THE SUBJECT MATTER OF THIS AGREEMENT.  WITH THE EXCEPTION OF THE EMPLOYMENT
AGREEMENT, NO OTHER AGREEMENT SHALL BE BINDING UPON EACH OR ANY OF THE
RELEASEES, INCLUDING, BUT NOT LIMITED TO, ANY AGREEMENT MADE HEREAFTER, UNLESS
IN WRITING AND SIGNED BY AN OFFICER OF THE EMPLOYER, AND ONLY SUCH AGREEMENT
SHALL BE BINDING AGAINST THE EMPLOYER.

 

13.                                 EMPLOYEE IS ADVISED, AND ACKNOWLEDGES THAT
HE HAS BEEN ADVISED, TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT.

 

CONFIDENTIAL

 

15

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14.                                 EMPLOYEE ACKNOWLEDGES THAT HE IS SIGNING
THIS AGREEMENT VOLUNTARILY, WITH FULL KNOWLEDGE OF THE NATURE AND CONSEQUENCES
OF ITS TERMS.

 

15.                                 ALL EXECUTED COPIES OF THIS AGREEMENT AND
PHOTOCOPIES THEREOF SHALL HAVE THE SAME FORCE AND EFFECT AND SHALL BE AS LEGALLY
BINDING AND ENFORCEABLE AS THE ORIGINAL.

 

16.                                 EMPLOYEE ACKNOWLEDGES THAT HE HAS BEEN GIVEN
UP TO TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER THIS AGREEMENT BEFORE
SIGNING IT.  SUBJECT TO PARAGRAPH 17 BELOW, THIS AGREEMENT WILL BECOME EFFECTIVE
ON THE DATE OF EMPLOYEE’S SIGNATURE HEREOF.

 

17.                                 FOR A PERIOD OF SEVEN (7) CALENDAR DAYS
FOLLOWING HIS SIGNATURE OF THIS AGREEMENT, EMPLOYEE MAY REVOKE THE AGREEMENT,
AND THE AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE SEVEN
(7) DAY REVOCATION PERIOD HAS EXPIRED.  EMPLOYEE MAY REVOKE THIS AGREEMENT AT
ANY TIME WITHIN THAT SEVEN (7) DAY PERIOD, BY SENDING A WRITTEN NOTICE OF
REVOCATION TO THE                                                   .  SUCH
WRITTEN NOTICE MUST BE ACTUALLY RECEIVED BY THE EMPLOYER WITHIN THAT SEVEN
(7) DAY PERIOD IN ORDER TO BE VALID.  IF A VALID REVOCATION IS RECEIVED WITHIN
THAT SEVEN (7) DAY PERIOD, THIS AGREEMENT SHALL BE NULL AND VOID FOR ALL
PURPOSES.  PAYMENT OF THE SEVERANCE PAY AMOUNT SET FORTH IN THE EMPLOYMENT
AGREEMENT WILL BE PAID IN THE MANNER AND AT THE TIME(S) DESCRIBED IN THE
EMPLOYMENT AGREEMENT.

 

IN WITNESS WHEREOF, the Parties have read, understand and do voluntarily execute
this Separation Agreement and General Release which consists of four pages.

 

 

EMPLOYER

 

EMPLOYEE

 

 

 

By:

 

 

 

 

 

 

 

Date:

 

 

Date:

 

 

CONFIDENTIAL

 

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