Document:

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “Agreement”)
is entered into on this 28th day of April, 2010 (the “Commencement
Date”) by and between Penn National Gaming, Inc., a Pennsylvania
corporation (the “Company”), and Peter M. Carlino, an individual residing in
Pennsylvania (“Executive”).

 

WHEREAS, Executive and Company previously
entered into an Employment Agreement dated December 31, 2008 (the “Prior
Agreement”); and

 

WHEREAS, the parties wish to renew and update
the Prior Agreement with the terms set forth below in this Agreement.

 

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 Chairman of the Board and Chief Executive
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 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 the fifth anniversary of the Commencement Date (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.  In addition, that portion of Section 3.4(b) relating
to the payment of severance upon non-renewal of this Agreement will be deemed
to survive the Employment Term to the extent necessary to accomplish its
intended purpose.

 

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 (including Carlino Development Group and its affiliates)
and the Carlino Family Trust and its affiliates, so long as such service does
not materially interfere with Executive’s duties hereunder.

 

 

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 One Million
Six Hundred Fifty Five Thousand and Four Dollars ($1,655,004), 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 of the Code (“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 six (6) 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.

 

2.7.                              Automobile.  During the
term of this Agreement, the Company shall provide Executive with an automobile
of such make and model consistent with the Company’s policy for its provision
of automobiles to Peer Executives.  The
Company shall reimburse Executive for all expenses arising from or related to
the maintenance, repair and daily operation of such automobile 

 

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in
carrying out Executive’s duties hereunder, including but not limited to, fuel,
service and insurance costs, provided that Executive presents vouchers
evidencing such expenses as required by the Company.

 

2.8.                              Perquisites. 
The Company shall continue to reimburse Executive for annual membership
fees and assessments for a country club of Executive’s choice.  The Company shall pay the premiums for a life
insurance policy in an amount to be determined by the Company and Executive.

 

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).  The Company and Executive, however, recognize
and agree that they mutually agreed upon the term of this Agreement and that
Executive is expected to complete fully the Employment Term.

 

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.

 

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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.

 

(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, if
Executive resigns with Good Reason (as defined below), or if Executive delivers
a written notice of resignation within 30 days after the expiration of the
Employment Term and 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) 36 months (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 

 

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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 and other equity incentive awards 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.  Each such option, and any other stock option
that was already vested immediately prior to the Termination Date, will survive
until the later of (A) the end of the post-termination exercise period
otherwise applicable under the terms of that option, or (B) the end of the
120th day following the end of the Severance Period
(but in either case, no later than the end of the full original option
term).  Any otherwise unvested option or
equity incentive award that would not have vested during the Severance Period
shall terminate on the Termination Date.

 

(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.  To provide
sufficient time for Executive to review such release, and for such release to
become irrevocable once executed and delivered, any payment of severance pay or
benefit subsidies sooner due under subsection (b) hereof shall be delayed
until the 35th day following the Termination Date.

 

(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 

 

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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.

 

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) (other
than resignation for Good Reason).  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 terminate the Restriction Period 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

 

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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 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 

 

7

 

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 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: (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) following any Change of Control, any
travel requirements materially greater than Executive’s travel requirements
prior to the Change of Control; (iv) any failure of Executive to continue
to serve as a member and Chairman of the Board, other than as a result of his
voluntary resignation, refusal to stand for re-election or removal under Section 4.05(c)(1) or
(c)(3)(A) of the Company’s By-Laws; or (iv) breach by the Company of
any material term of this Agreement, or any other Agreement between Executive
and the Company.  The foregoing
notwithstanding, an event or condition will only constitute Good Reason if
Executive provides the Company with written objection to the event or condition
within 90 days following the occurrence thereof, the event or condition is not
reversed or otherwise cured by the Company within 30 days of receipt of that
written objection, and Executive resigns his employment within 240 days
following the expiration of that cure period.

 

9.             Certain
Tax Matters.

 

9.1.          Generally.  In the event Executive becomes entitled to
receive the payments provided under Section 3 or Section 8 hereof or
under any other plan or arrangement providing for payments (including, without
limitation, accelerated vesting of equity incentive awards) under circumstances
similar to those contemplated by such sections (the “Severance Payments”), 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.

 

8

 

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 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 March 15
of the 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
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 five (5) business days following the date on 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 

 

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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 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: President

 

10

 

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.

 

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 Prior
Agreement.  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.

 

11

 

16.4.        The Company will
promptly reimburse Executive for all reasonable legal fees and expenses
incurred by him in good faith in connection with (a) the negotiation and
drafting of this Agreement, and (b) the application and enforcement of
this Agreement.

 

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.

 

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.  If a
cessation of employment or service giving rise to payments described in Section 3.4(b)(i) is
not a “Separation from Service” within the meaning of Treas. Reg. §1.409A-1(h)(1) (or
any successor provision) (“Separation from Service”), then the amounts
otherwise payable pursuant to that section will be deferred until the Executive
experiences a Separation from Service. 
In addition, to the extent compliance with the requirements of Treas.
Reg. §1.409A-3(i)(2) (or any successor provision) is necessary to avoid
the application of an additional tax under Section 409A of the Code to
payments due to the Executive upon or following his Separation from Service,
then notwithstanding any other provision of this Agreement (or any otherwise
applicable plan, policy, agreement or arrangement), any such payments that are
otherwise due within six months following the Executive’s Separation from
Service (taking into account the preceding sentence) will be deferred without
interest and paid to the Executive in a lump sum immediately following that six
month period.  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 

 

12

 

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.

 

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

 

	
   

  	
  PENN NATIONAL GAMING,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert S. Ippolito

  
	
   

  	
  Name:

  	
  Robert S. Ippolito

  
	
   

  	
  Title:

  	
  Vice President,
  Secretary and Treasurer

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Peter M. Carlino

  
	
   

  	
  Peter M. Carlino

  
				

 

13

 

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 

 

A-1

 

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. 
Notwithstanding the foregoing, this Agreement will not release any right
of Employee (x) in his capacity as a shareholder or owner in the Company
or any of its affiliates, (y) to be indemnified for any act or omission in
his capacity as an employee, officer or director of the Company or any of its
affiliates (whether arising under contract, the governing documents of the
entity, state law or otherwise), or (z) in respect of vested benefits
under the Company’s retirement or deferred compensation plans.

 

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.

 

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, as amended).  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 

 

A-2

 

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.

 

14.                                 Employee acknowledges that
he is signing this Agreement voluntarily, with full knowledge of the nature and
consequences of its terms.

 

A-3

 

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:

  	
   

  	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  
							

 

A-4Exhibit 10.1

 

2010 Executive Short-Term
Incentive Program

 

Set forth below is a description of the 2010 Executive Short-Term
Incentive Program:

 

On January 18, 2010, the Compensation Committee of Force
Protection, Inc. (the “Company”) adopted the 2010 Executive Short-Term
Incentive Program for performance during 2010 (the “2010 Short-Term Incentive
Program”).  All executive officers and
certain other management of the Company, including the Company’s named
executive officers as defined by Item 402 of Regulation S-K, are eligible to
earn a bonus payment under the 2010 Short-Term Incentive Program.

 

Each executive officer’s target opportunity to receive a bonus payment
under the 2010 Short-Term Incentive Program is set as a percentage of the
executive officer’s base salary determined by taking into account the
participant’s authority level within the Company and median-to-market
benchmarks.  For 2010, the target
opportunity for the executive officers, other than the Chief Executive Officer,
has been set at 75% of his or her base salary. 
The target opportunity for the Company’s Chief Executive Officer has
been set at 100% of his base salary.

 

The 2010 Short-Term Incentive Program is comprised of four
metrics:  (i) Revenue, (ii) Net
Cash (used in) Provided by Operating Activities, (iii) New Orders and (iv) Personal
Metrics.  The first three metrics are
referred to as the “Shared Executive Metrics” and the last metric is referred
to as the “Personal Metric.”  The Shared
Executive Metrics are weighted at 66% of the payout opportunity and the
Personal Metric is weighted at 34% of the payout opportunity.  Each individual Shared Executive Metric is
weighted at 22% of the payout opportunity.

 

An award for any of the Shared Executive Metrics requires the
achievement of a minimum threshold Earning Per Share (diluted) (“EPS”).  If this threshold EPS is not achieved, then
no payment for the Shared Executive Metrics shall be awarded.  If the threshold EPS is achieved, then actual
performance of the Shared Executive Metrics will be determined by a range of
performance achieved for each metric as established by the Compensation
Committee.  The table below sets forth
the ranges for each metric, as aligned with the Company’s 2010 annual budget
and 2010-2014 Corporate Strategic Plan.

 

Performance Range

 

	
  Metric

  	
   

  	
  Budget

  	
   

  	
  Stretch

  	
   

  	
  Maximum

  	
   

  
	
  Revenue

  	
   

  	
  100

  	
  %

  	
  115

  	
  %

  	
  130

  	
  %

  
	
  Net Cash (used in) Provided by Operating
  Activities

  	
   

  	
  100

  	
  %

  	
  115

  	
  %

  	
  130

  	
  %

  
	
  New Orders

  	
   

  	
  100

  	
  %

  	
  115

  	
  %

  	
  130

  	
  %

  

 

To
determine the actual percentage payout, the actual performance for each metric
is compared to the performance range (100% to 130% of the performance target)
for each metric.  If the actual
performance is lower than budget, there is no payout for that metric.  If the actual performance is greater than the
budget, but less than the stretch, the payout shall be determined on a linear
basis from 50% up to 100% as indicated in the table below.  If the actual performance is greater than the
stretch and less than or equal to the performance maximum, the payout shall be
determined on a linear basis from 100% up to 175%, or the maximum payout.  Performance above maximum is paid out at the
maximum payout opportunity for that Shared Executive Metric.  As a result, the Company’s executive
officers, including 

 

 

the
Chief Executive Officer, may be eligible to receive a payment up to 175% of the
executive officer’s individual target opportunity for the Shared Executive
Metrics.

 

Eligible Target Opportunity
Percentage Payout

 

	
  Metric

  	
   

  	
  Budget

  	
   

  	
  Stretch

  	
   

  	
  Maximum

  	
   

  
	
  Revenue

  	
   

  	
  50

  	
  %

  	
  100

  	
  %

  	
  175

  	
  %

  
	
  Net Cash (used in) Provided
  by Operating Activities

  	
   

  	
  50

  	
  %

  	
  100

  	
  %

  	
  175

  	
  %

  
	
  New Orders

  	
   

  	
  50

  	
  %

  	
  100

  	
  %

  	
  175

  	
  %

  

 

The
Personal Metrics for the Chief Executive Officer shall be determined and
assessed by the Compensation Committee, and are to be established in the first
quarter in conjunction with the annual performance assessment discussion.  The Personal Metrics for the other executive
officers will be determined by the Chief Executive Officer in the first quarter
in conjunction with each executive’s performance assessment discussion.  Any award for a Personal Metric requires the
achievement of a minimum threshold EPS. 
The payout for the achievement of the Personal Metrics for each executive
officer shall be assessed by the Chief Executive Officer and paid out of the
pool of available funds with concurrence from the Compensation Committee.

 

In
order to be eligible to receive any payment under the 2010 Short-Term Incentive
Program, the participant must be employed by the Company at the time the final
award is determined, subject to any employment agreement.  Any 2010 Short-Term Incentive Program award
shall be determined and paid by March 15, 2011.

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