Document:

Exhibit 10.16

 

AGREEMENT

 

THIS
AGREEMENT, made and entered into this 20th day of
February, 2009, by and between PNGI
CHARLES TOWN GAMING LIMITED LIABILITY COMPANY, a West Virginia Limited Liability Company
(hereinafter “Charles Town Races”), and CHARLES TOWN HBPA, INC., a
West Virginia not-for-profit corporation (hereinafter “HBPA”).

 

W I T N E S S E T H:

 

WHEREAS,
Charles Town Races is licensed by the West Virginia Racing Commission, pursuant
to Chapter 19, Article 23-1, et seq., of the West Virginia Code, to
conduct live thoroughbred horse racing with pari-mutuel wagering and, in
accordance with that licensure, Charles Town Races owns and operates a
thoroughbred racing facility under the trade name Charles Town Races
(hereinafter the physical facility will be referred to as the “Racetrack”); and

 

WHEREAS,
the HBPA is an Association comprised of owners, trainers and owner-trainers
(the “members”) of thoroughbred racing horses; and

 

WHEREAS,
the HBPA provides benevolent programs and other services for its members and
their employees who are engaged in live thoroughbred racing at the Racetrack;
and

 

WHEREAS,
Charles Town Races and the HBPA validly extended the prior Agreement between
the parties through February 28, 2009 and cooperatively worked toward a
new agreement; and

 

WHEREAS,
the parties desire to reaffirm their mutual interest in the promotion,
preservation, and enhancement of live thoroughbred racing at the Racetrack; and

 

 

WHEREAS,
the parties hereto reaffirm their support for quality live thoroughbred racing
activities and reaffirm their desire for the promotion of such
activities in the State of West Virginia; and

 

WHEREAS,
Charles Town Races acknowledges that the HBPA is the exclusive bargaining agent
and representative of its members, as certified by the West Virginia Racing
Commission. Charles Town Races shall only negotiate with the exclusive
bargaining agent and representatives of the Horsemen as certified by the West
Virginia Racing Commission during the term of this Agreement and any amendments
thereto or any Agreement which shall supersede this Agreement for the provision
of services in connection with live thoroughbred racing activities, safety and
back stretch conditions; and

 

WHEREAS,
the parties hereto desire to memorialize and set forth in writing the
contractual agreements by and between Charles Town Races and the HBPA
concerning live thoroughbred racing at the Racetrack.

 

NOW,
THEREFORE, in consideration of the promises and the mutual covenants contained
herein, the parties desire to be legally bound, do agree as follows:

 

1.                                       Term of Agreement. This Agreement shall become effective as of March 1,
2009, and shall remain in full force and effect until December 31, 2011
(the “ Initial Term”). At the end of the Initial Term, the term of this Agreement
shall automatically be extended under the
same terms and conditions for a period of one (1) year (hereinafter
the “First Extension Term”) unless either party shall give notice to the other
party, in writing, of its intent to terminate the Agreement not later than September 30,
2011. At the end of the First Extension Term, the term of the Agreement shall
automatically be extended under the same terms and conditions for a period of
an additional one (1) year (hereinafter the

 

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“Second
Extension Term”), unless either party shall give notice to the other party, in
writing, of its intent to terminate the Agreement not later than September 30,
2012.

 

Notwithstanding
the term of this Agreement or anything else in this Agreement to the contrary,
in the event of a cessation of Video Lottery activity at Charles Town Races for
any reason, the obligations of the parties under this Agreement are suspended
for such period of inactivity. For clarity, neither Charles Town Races nor any
of its affiliates shall be responsible for any expenses or lost profits of the
HBPA or its members during any such period of inactivity.

 

2.                                       Exclusive Representation. The HBPA is currently recognized by the West
Virginia Racing Commission as the duly qualified and exclusive representative
of the owners, trainers, and owner-trainers of live thoroughbred horse racing
at the Racetrack as certified by the West Virginia Racing Commission. Charles
Town Races shall only negotiate with the exclusive bargaining agent and
representative of the Horsemen as certified by the West Virginia Racing
Commission. Any negotiation or discussion of the terms and provisions of this
Agreement, or any amendment thereto, or any Agreement which shall supersede the
terms and provisions of this Agreement with any person, entity or
representative of an entity that is not the exclusive bargaining agent and
representative of the Horsemen, as certified by the West Virginia Racing
Commission, shall constitute a breach of this Agreement.

 

Charles
Town Races agrees that it shall negotiate with and conduct any and all business
which is the subject of this Agreement and any matters reasonably related to
any provision of this Agreement with the duly elected officers of the HBPA or
their duly designated representatives.

 

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The
HBPA agrees that it shall provide to Charles Town Races, in writing, on an
annual basis, the name and address of each and every duly elected member of the
Board of Directors, the name and address of each duly elected officer of the
HBPA who shall have the authority to negotiate with the Charles Town Races, and
the name and address of each representative duly designated by the Board of
Directors of the HBPA to negotiate on its behalf.

 

3.                                       Racing Schedule. During the term of this Agreement, Charles
Town Races shall request a license each year from the West Virginia Racing
Commission to conduct racing, and in fact conduct racing, for not less than the
minimum number of days required by the West Virginia Code, which is currently
two hundred twenty (220) days per year. Charles Town Races shall provide a copy
of its Annual License Application filed with the West Virginia Racing
Commission to the HBPA within three (3) days of the date of its filing.
Notwithstanding the first sentence of this paragraph, it is understood and
agreed that, subject to receiving approval from the West Virginia Racing
Commission, Charles Town Races shall schedule a total of 235 racing days, with
not less than 9 races per racing day, during each year of this Agreement. Any
reduction in race days below 235 shall be subject to the prior approval of the
HBPA, which shall not be unreasonably withheld or unduly delayed, and the West
Virginia Racing Commission In the event racing days are cancelled due to
weather, track conditions, unavailability of horses or any other reason beyond
the reasonable control of Charles Town Races, any such cancellation and the
fact that 235 racing days are not held, shall not be considered a breach of
this Agreement.

 

Charles
Town Races shall reschedule such race day and provide notice to the HBPA of the
rescheduled date as soon as practicable.

 

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Charles
Town Races agrees that it will not discontinue racing for a period of more than
one (1) three (3) week period in any calendar year, unless agreed
upon by the HBPA, except in the event of an act of God or other catastrophe, or
conditions beyond the reasonable control of Charles Town Races.

 

4.                                     Minimum Purse and Purse
Scheduling.

 

A.                                   Minimum Daily Purses. With respect to the daily minimum purse distribution,
Charles Town Races shall make reasonable efforts to maintain a ratio of the
then current minimum daily purse schedule for a given month to the then
current amount generated for
daily purses for that month that is equal to the historical ratio of One
Hundred Twenty-Five Thousand Dollars ($125,000) to the average daily amount
generated for purses between January 1, 2005 and December 31, 2008.

 

It
is mutually agreed that, as far as possible and consistent with the foregoing,
the principle of “better purse for better horses” shall be followed in
establishing the purse payable for any one race. Charles Town Races further
agrees that, if necessary, better purses will be reduced to maintain minimum
purse schedules.

 

Notwithstanding
anything in this Agreement to the contrary, it is understood and agreed that
the funding of purses shall be solely in accordance with applicable provisions
of W.Va. Code §19-23-1, et seq., Horse and Dog Racing; W.Va. Code §29-22-A-1,
et seq., The Racetrack Video Lottery Act; W.Va. Code 29-22C-1, West Virginia
Lottery Table Games Act, and  any such
further legislation that may be enacted which provides for the payment of
monies into the purse fund as more fully provided for in Section 7 of this
Agreement, and that Charles Town Races shall not be required to otherwise fund
the payment of purses.

 

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Except
as provided below with respect to Stake Races, Charles Town agrees to pay one
hundred dollars ($100.00) to the owner’s account for horses finishing in places
seven through ten which shall be paid from the purse fund.

 

B.                                     Purse
Schedule Distribution. Charles
Town Races and HBPA will establish and publish a purse schedule distribution,
which shall show the purse distribution planned for various classes of horses
at various distances. Such schedule shall be updated as necessary. Said
schedule with any amendments thereto shall be posted in the Racing Secretary’s
office and the Condition Book. In the event of a purse schedule distribution
decrease, the purses for bottom claiming races shall not be reduced unless the
purses for all races are also reduced (though not necessarily by the same
percentage).

 

C.                                     Stakes
Schedule. Each year purses for
Stake races shall not exceed, in the aggregate, eight percent (8%) of the total
purses paid, from the purse account, in the immediately preceding calendar year
excluding the amounts paid for stake races and amounts received for sponsorship
of races unless otherwise authorized by the HBPA. Charles Town Races shall
determine the number of and purses for stake races and submit the stakes
schedule to HBPA for written comment prior to submission of the stakes schedule
to the West Virginia Racing Commission.

 

D.                                    Charles Town Races agrees to pay purses for
Stakes Races back through not less than five (5) places.

 

E.                                      It is understood by both parties that purse
schedules shall not be in conflict with the rules of racing of the West
Virginia Racing Commission as presently constituted or as may be
reconstituted..

 

F.                                      West
Virginia Accredited Races. Charles
Town Races shall include in its Condition Book a minimum of two (2) races
on every live racing day devoted exclusively for

 

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West
Virginia accredited horses unless sufficient horses and purse funds are not
available therefore, in accordance with the requirements of the West Virginia
Racing Commission pursuant to the provisions of §19-23-13(b) of the West
Virginia Code. Races devoted exclusively for West Virginia accredited horses
shall be run if no less than seven (7) betting interests have been entered
therein.

 

5.                                       Purse Funds.

 

A.                                   During the term of this Agreement, Charles
Town Races shall allocate and pay purse moneys as required by applicable state
law

 

B.                                     In the event any Underpayment Money exists in
the purse account at the end of any calendar year, then said Underpayment Money
shall be added to the sum available for the payment of purses for the next
year.

 

C.                                     This is the Agreement regarding the proceeds
from video lottery terminals as provided in West Virginia Code §29-22A-7(a) (6).

 

6.                                       Simulcasting.   Charles
Town Races shall conduct simulcasting, both import and export, in accordance
with applicable provisions of State and Federal Law, including the West
Virginia Horse Racing Statute, §19-23-1 et seq, and the Interstate Horseracing
Act of 1978, as amended, 15 U.S.C. §3001, et seq.

 

With
respect to obtaining the approval of the HBPA of each simulcast contract,
Charles Town Races shall make commercially reasonable efforts to get either the
proposed contract or a summary of the principal terms of the contract,
including the name and location of the entity, any secondary recipients of said
entity for exports, commission rates charged to, for exports, or from, for
imports, the simulcast entity and the term of the contract to the HBPA for its
review and approval not less than fifteen

 

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(15)
days prior to the commencement date of the contract. The HBPA shall have
seventy-two (72) hours from receipt of the proposed contracts to either approve
or disapprove. The HBPA agrees not to unreasonably withhold or unduly delay its
approval of simulcast contracts and, in the event it elects to disapprove a
contract, to promptly support its disapproval with the detailed written reasons
therefore. Charles Town Races shall provide the HBPA with copies of any contract
for which it has provided the HBPA a summary of contract terms, within two days
of receipt.

 

To
enable the HBPA to verify receipts for simulcasting, commissions retained or
deducted, costs of transmission, taxes paid and payments into the purse fund,
Charles Town Races shall provide the HBPA with copies of any and all
documentation within its possession or under its control or which it is able to
obtain by written request, reflecting such payments and expenses.

 

7.                                       Revenue
from Off-Track Betting, Telephone Wagering, Table Gaming, or any other form of
Gaming. In the event additional
revenue or payments from telephone wagering, off-track betting, table gaming,
or any other form of gaming of any kind or nature is available as a result of
legislation, the percentage distribution as set forth in the legislation shall
determine the party’s interest in such additional revenue. In the event there
is no division of revenue in the statutory legislation, the parties agree to
negotiate in good faith whether a division of revenue is to occur and if so,
the amount thereof.

 

8.                                       Condition
Book. The HBPA shall create a
condition book committee which shall be comprised of not less than three nor
more than five individuals, being trainers and owners who are actively racing a
cross section of thoroughbred horses at Charles Town Races (“the HBPA Condition
Book Committee”). Charles Town Races

 

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will
provide the HBPA Condition Book Committee with a draft copy of each Condition
Book not less than five days prior to the printing date and the HBPA Condition
Book Committee shall have three days from receipt to review and provide its recommendations
to the Charles Town Races Racing Secretary for inclusion in the Charles Town
Races Condition Book. Charles Town Races promises to give good faith
consideration and not unreasonably refuse the recommendations of the HBPA
Condition Book Committee. However, the decision of Charles Town Races with
respect to the contents of the Condition Books shall be final and unappealable.

 

9.                                      Horsemen’s
Bookkeeper. A Horsemen’s
Bookkeeper shall be employed by Charles Town Races and shall be subject to the
policies generally applicable to Charles Town Races’ employees. The Horsemen’s
Bookkeeper shall perform those functions set forth from time to time by statute
and the West Virginia Rules of Racing, and Charles Town Races shall
provide such equipment as shall be reasonably necessary for the performance of
the Horsemen’s Bookkeeper’s statutory duties.

 

10.                                Segregated
Bank Accounts. The following
bank accounts shall be maintained by Charles Town Races in a bank approved by
the West Virginia Racing Commission. Currently, the approved bank is United
Bank.

 

A.                                   Purse Account. Charles Town Races shall establish and maintain
a separate overnight investment account and a separate checking account into
which all monies received for the future payment of purses are to be deposited.
All disbursements from these accounts shall be solely for the payment of earned
purses and such other disbursements as may be authorized by law or as otherwise
directed by the West Virginia Racing Commission. All interest earned on this
Purse Account shall be added to the funds available for the payment of purses.
These accounts shall be subject to inspection and

 

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audit
by the Racing Commission at any time. The HBPA shall also be permitted to
review these accounts upon request during normal business hours.

 

B.                                     Horsemen’s Trust Accounts. Charles Town Races shall establish and maintain
a separate investment account (the “Horsemen’s Investment Account”) and a
separate checking account (the “Horsemen’s Daily Account”) (collectively
hereafter the “Horsemen’s Trust Accounts”) into which the Horsemen’s Bookkeeper
shall receive, maintain and disburse the purses of each race and all stakes,
entrance money, jockey fees, purchase money in claiming races, along with all
applicable taxes and other monies that properly come into the Horsemen’s
Bookkeepers’ possession in accordance with the provisions of the Racing
Commission Rules.

 

All
of the funds in Horsemen’s Trust Accounts are recognized as being trust funds
held for the benefit of all of the respective account owners, as reflected by
the records maintained by the Horsemen’s Bookkeeper.

 

Charles
Town Races agrees to transfer from the Purse Account and deposit into the
Horsemen’s Daily Account the full amount of daily earned purses within two (2) business
days. Purse winnings will be posted within two (2) business days and made
available to the earners thereof when the race results are declared official,
i.e. once drug test results have been received; provided further, however, that
in the event of any dispute as to the result of a race due to a drug test or
other regulatory inquiry, the purse money shall not be made available to the
earners thereof until there has been a final non-appealable resolution thereof
by the Charles Town Races Stewards, the West Virginia Racing Commission, or a
court of competent jurisdiction, as the case may be.

 

The
Horsemen’s Bookkeeper will deduct from the owner ledger accounts, jockey fees,
pony fees, track lasix fees, nomination fees, entry fees, starting fees,
photographs,

 

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veterinary
lasix charges, and sales tax on claiming amounts. No other deductions shall be
made by the Horsemen’s Bookkeeper unless requested in writing by the person,
persons or entities to whom such monies are payable, or to his, her or its duly
authorized representative, or as required by order of the Charles Town Races
Stewards, the West Virginia Racing Commission, or a court of competent
jurisdiction. Notwithstanding the preceding clause, nothing herein shall be
construed as requiring the Horsemen’s Bookkeeper to provide personal accounting
services to any horseman and/or the payment of any expenses of any horsemen not
contemplated by the provision of this paragraph, even if authorized in writing.

 

The
Horsemen’s Trust Accounts shall be subject to inspection by the Racing
Commission at any time and may be examined by the President of the HBPA or his
or her duly designated representative at the offices of Charles Town Races at
such reasonable time or times as shall be determined upon the mutual agreement of
Charles Town Races and the HBPA. Such consent shall not be unreasonably
withheld.

 

The
interest earned on monies invested in the Horsemen’s Investment Account will be
transferred to the Horsemen’s Daily Account and paid to a joint account to be
set up by the HBPA Welfare Benefit Trust and the HBPA as more fully set forth
in a written agreement between the HBPA and the Charles Town Welfare Benefit
Trust , a copy of which will be provided to Charles Town Races. The HBPA and
the HBPA Welfare Benefit Trust shall jointly establish a bank account dedicated
to the receipt of the funds paid by Charles Town Races pursuant to this section
and divide the money between them pursuant to that agreement..

 

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11.                                 Racing Committee.

 

Charles
Town Races and the HBPA shall organize and maintain a joint committee
(hereinafter the “Racing Committee”) to address issues related to and
associated with live thoroughbred racing at the Racetrack. The HBPA and Charles
Town shall each appoint three (3) representatives to the Racing Committee.
This Committee shall meet at the request of any member of the Racing Committee.
The Racing Committee shall have no authority to alter the terms and conditions
of this Agreement.

 

12.                                 Stalls.

 

A.                                   Charles Town Races shall make available a
minimum of 1,148 stalls, free of charge, to Horsemen each race meeting. It is
recognized by both parties that effective stall utilization is important to
Charles Town Races management and that equitable allocation is essential to the
livelihood of Horsemen. During the Initial Term of this Agreement, Charles Town
Races agrees that it will not tear down or demolish the existing Charles Town
stalls unless required to do so as a result of governmental order or an act of
God beyond the reasonable control of Charles Town Races.

 

B.                                     Charles Town Races shall not discriminate in
the allocation of stalls by reason of HBPA membership or activity or condone
its representatives or employees discriminating in the allocation of stalls.
Subject to this limitation, the allocation of stalls shall be in the discretion
of Charles Town Races.

 

C.                                     Charles Town Races shall establish a cut-off
date for stall applications. Charles Town Races shall make every effort to
provide Horsemen with five (5) days prior notice of the acceptance or
rejection of stall applications and may demand immediate confirmation from the
Horsemen of their intent to use allotted stalls.

 

D.                                    The terms and conditions for all stall
applications shall be determined by and set forth in an application by Charles
Town Races. Charles Town Races shall send to the

 

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HBPA,
not later than ten (10) days prior to the first day of each Race Meeting, a copy of its current
Stall Application Agreement.

 

E.                                      Charles Town Races agrees to provide the
stall and shed row area with proper fill within a reasonable time period, upon
written request of HBPA.

 

13.                                 Barn Area.

 

A.                                   The Barn area will be available to Horsemen
at all times and the Racetrack will be available to Horsemen during scheduled
training times (including scheduled training times during the period racing is
discontinued).

 

B.                                     The HBPA recognizes an obligation of Horsemen
and backside personnel to maintain the stable area in a sanitary condition,
free from litter and other foreign objects. HBPA will use its best efforts to
ensure that Horsemen and their employees fulfill their obligations in this
regard. Horse washing will only be permitted in certain areas designated by
Charles Town Races for such purposes, which is consistent with the Rules of
the West Virginia Department of Environment Protection. Charles Town Races
retains its right to discipline (including removal) Horsemen or
their employees who fail to obey Charles Town Races’ published rules and
regulations.

 

C.                                     Charles Town Races shall maintain all barn
area restroom facilities in a safe and healthy environment.

 

D.                                    During winter months, Charles Town Races
agrees to maintain both main roads leading to and from the Racetrack, between
all barns and all Horsemen parking lots, for both training and racing purposes. Charles Town Races further
agrees to make necessary repairs
to the backside and stall areas as Charles Town Races considers appropriate
giving consideration to any input provided by the HBPA.

 

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E.                                      Charles Town Races agrees to remove all
manure from the barn area at no cost to the Horsemen.

 

F.                                      Charles Town Races, in conjunction with the
HBPA, shall establish Barn Area Rules and Regulations for the purpose of
promoting safety and security on the backstretch, which shall remain in full
force and effect and shall be binding upon the parties pursuant to their own
terms and provisions during the term or terms of these agreements. Charles Town
Races agrees to provide a copy of barn area rules to the HBPA and post the
rules in the Track kitchen.

 

14.                                 Racing Surfaces.

 

A.                                   The Track Surface Committee, consisting of
two Horsemen, two jockeys (appointed by their respective associations), the
Charles Town Races’ Superintendent, at least one steward, and a representative
of Charles Town Races, shall meet pursuant to a published schedule to assess
track surface conditions. Charles Town Races shall maintain the Racetrack as it
determines to be appropriate giving consideration to input provided by the
Track Surface Committee.

 

B.                                     Trainers shall have the right to enter onto
the Racetrack for the purpose of determining the safety of the racing surface.

 

15.                                 Racetrack Facilities. The racing strip, the barns, and related
backside facilities at the Racetrack (collectively known as the “backside
facilities”) necessary for training purposes shall be made available by Charles
Town Races without charge to Horsemen who have horses training for the immediate
upcoming live race meet. Charles Town Races will, at its own expense, make
water, hot water, tack room heating, and electricity available to each barn in
use and keep the racing surface harrowed and watered.

 

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The
racing strip, barns, tack rooms and other facilities of Charles Town Races
useful for training purposes, shall be made available for Horsemen without
charge. Charles Town Races agrees that these facilities shall be made available
to Horsemen during reasonable hours for training purposes, subject to weather
conditions.

 

At
least thirty (30) days written notice shall be given to the HBPA of any
intended shut-down of the Racetrack. Included with such notice shall be the
date of closing, the date of re-opening, and any plans concerning the
availability of stalls in the stable area during the shutdown. The notice
period shall be calculated from the last scheduled race meeting day of the then
current race meeting.

 

16.                                 Training
Facility. The track surface of
the Training Facility shall be the same as the track surface on the Charles
Town track. There shall be a chute with a small starting gate together with a
necessary crew of not less than three (3) individuals for training
purposes only as well as a warning system for loose horses. An outrider during
training hours, a general shack for trainers and proper guards to manage the
facility shall likewise be provided. Charles Town agrees to provide the HBPA’s
consultant with a copy of the design plans for review.

 

17.                                 Training Track Gate. Charles Town Races agrees to allow ingress
and egress to the training track, main track and barn area of horses on foot
through a gate to be constructed on the Northwest side of 5th Avenue
(“the Training Track Gate”), subject to the following conditions:

 

a)                                      the HBPA will reimburse Charles Town Races
its actual cost of constructing and installing the gate and constructing and
outfitting a guard shack at the Training Track Gate. Charles Town Races will
provide the HBPA with a detailed accounting of its costs associated with the
construction and outfitting of the guard shack

 

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and
the HBPA will reimburse Charles Town Races within fifteen (15) days of receipt
of such accounting;

 

b)                                     the HBPA shall reimburse Charles Town Races
each calendar quarter its costs of operating the Training Track Gate including,
but not limited to, Charles Town Races labor costs to man the Training Track
Gate, and for maintenance, repair and replacement of the guard shack and
equipment. Charles Town Races will provide the HBPA with a detailed accounting
of all operating costs for which it seeks reimbursement;

 

c)                                      ingress and egress through the Training Track
Gate may only take place during training hours and such other times as may be
specified by Charles Town Races;

 

d)                                     ingress and egress shall be subject to
reasonable policies and procedures established by Charles Town Races and
provided to the HBPA in writing which are designed to ensure the biosecurity of
the track, enforce the health certificate and Coggins rules of the State
of West Virginia, and

 

e)                                      initial and continuing approval of the West
Virginia Department of Agriculture and/or any other governmental agency having
jurisdiction over Charles Town Races, of the use of the Training Track Gate and
the policies and procedures in place.
In the event the West Virginia Department of Agriculture and/or any other
governmental agency having jurisdiction over Charles Town Races, disapproves of
the use of the Training Track Gate, the parties shall use their reasonable
efforts to promptly obtain such approval and shall implement such procedures as
may be required to keep the training gate open during the approval process.

 

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18.                                 Racetrack Kitchen. Charles Town Races has constructed a new
Racetrack kitchen which has received the approval of the HBPA and which
includes a seating area, for use by the Horsemen. Charles Town Races shall
continue to provide and not reduce the size of the Racetrack kitchen during the
Term of this Agreement. The Racetrack kitchen shall continue to be equipped
with customary fixtures and equipment for the operation of a food service
operation of its type. It is understood and agreed that the space provided for
the Racetrack kitchen and the fixtures and equipment shall be provided by
Charles Town Races at no cost to the HBPA or the operator of the kitchen. The
HBPA shall be permitted to select an operator of its choice to provide provisions
and prepare food, subject to the approval of Charles Town Races which shall not
be unreasonably withheld or unduly delayed. The Racetrack kitchen must be
operated in compliance with all health, sanitation and regulatory requirements
for the legal and safe operation of the Racetrack kitchen. The operator
selected by the HBPA shall be required to have general liability and personal
injury insurance coverage in amounts customarily required of similarly situated
vendors conducting business on Charles Town Races’ property. Evidence of such
coverage shall be provided and the operator shall be required to name Charles
Town Races and the HBPA as an additional insured on such policy(ies).

 

19                                    Paddock Blacksmith. Charles Town Races shall provide a paddock blacksmith
to be available in the paddock for each and every race day.

 

20.                                 HBPA Amenities.

 

A.                                 Charles Town Races shall provide one (1) grandstand
box with twelve (12) seats available to Horsemen on each racing day.

 

B.                                   Charles Town Races shall provide parking consisting
of seventy-five (75) spaces designated for trainers only.

 

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C.                                   Charles Town Races shall provide seventy-five
(75) parking spaces for owners.

 

D.                                  Charles Town Races shall provide the HBPA
with at least two hundred (200) programs each racing day during the week and
three hundred (300) programs on each racing day that falls on a Saturday,
Sunday, or holiday at an agreed upon location.

 

21.                                 Other Agreements. The parties shall also use their best efforts
to address and resolve in a timely and expeditious manner the following matters
of mutual concern to the parties:

 

A.                                 Rodent and pest control and eradication.

 

B.                                   Uniform rules and regulations concerning
the operation of all vending or concession enterprises in the stable area.

 

C.                                   Creation and continuing maintenance of a
common fund for the payment of rewards for information leading to a conviction
for theft, conversion, or malicious destruction of personal property belonging
to Horsemen or their employees, Charles Town Races or its employees, and the
general public.

 

22                                    Racing Officials. Charles Town Races shall mail the President
of the HBPA a written list of the persons appointed by Charles Town Races to
serve as racing officials during any race meeting on the same date that it
submits said list to the West Virginia Racing Commission in accordance with the
provisions of the West Virginia Rules of Racing.

 

23.                                 HBPA Administrative Fund. In accordance with Chapter 19, Article 23,
Section 9(b) (1) of the West Virginia Code, Charles Town Races
agrees to pay to HBPA during the term of this Agreement an amount equal to two
percent (2%) of regular purses actually paid during the preceding month from
the special fund required by this section, i.e.,

 

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“purse
account”, (excluding, however, all purses funded from sources other than the
purse account, including by way of example and not limitation accredited stakes
races and other sponsored races, and as may be otherwise excluded by applicable
law) to be divided between the HBPA Welfare Benefit Trust for backstretch
personnel and the HBPA for administrative fees, as more fully set forth in a
written agreement between the HBPA and the HBPA Welfare benefit Trust, a copy of
which will be provided to Charles Town Races. The HBPA and the HBPA Welfare
Benefit Trust shall jointly establish a bank account dedicated to the receipt
of the funds paid by Charles Town Races pursuant to this section which shall be
promptly paid after the end of each month.

 

24.                                 Indemnification. The HBPA shall indemnify and save harmless
Charles Town Races, its agents, representatives, employees, officers, directors
and shareholders, and their respective successors and assigns, and all persons
acting by, through, under or in concert with any of them, from any and all
loss, costs or expenses (including reasonable attorneys’ fees), arising out of
any claim of a person or entity pertaining to the Charles Town Race’s
performance, excluding Charles Town Race’s negligence or willful misconduct,
under paragraph 23 of this Agreement relating to contributions to the HBPA,

 

25.                            No
Monopoly on Goods and Services.
Charles Town Races shall not establish or impose upon Horsemen a monopoly,
restriction or requirement regarding the use of blacksmiths, feed men, track
suppliers, veterinarians or other services customarily used by Horsemen.
Charles Town Races will permit any supplier of commodities or services to enter
the stable area; provided, however, that such supplier of services or
commodities has received a clearance from management and the West Virginia
Racing Commission, which will authorize admission to the stable area. Charles
Town Races

 

19

 

agrees
not to unreasonably withhold said clearance. Any owner or trainer stabled on
grounds will be permitted at any time to haul in hay or grain for his own use
only.

 

26.                                 Security. Charles Town Races agrees to provide and
maintain reasonable security at its main gate and such other gates providing
ingress and egress to its stable areas.

 

27.                                 Starting Gate.

 

A.                                 Charles Town Races agrees to provide a
minimum of ten (10) assistant starters for the safety of jockeys and
horses for each and every race and on each and every race day.

 

B.                                   Unless prohibited by applicable law, Charles
Town Races agrees to double load horses into the starting gate for each and
every race.

 

28.                                 Daily Meeting Figures. The pari-mutuel handle and
purse distribution figures as
well as the percentage figures which represent the relationship between purses
and the total of pari-mutuel handle, shall be provided to the HBPA office each
day of a race meet in progress.

 

29.                                 Valuable Property Right. Charles Town Races recognizes that the
horses and participants in races and related events occurring prior or
subsequent to the running of a race are valuable property rights belonging to
the owners and trainers, and Charles Town Races will not produce or exhibit
still or motion pictures, videotapes, radio or television programs, or
authorize or license others to make or exhibit motion pictures or television
programs of any of said events without prior consultation and written agreement
of the HBPA. Notwithstanding the preceding sentence, it is understood and
agreed that Charles Town Races shall have the right to use pictures, still or
moving, of the horses and

 

20

 

participants
to advertise and/or promote the Racetrack facility at no cost and without prior
consultation and written agreement of the HBPA.

 

30.                                 HBPA
Fire and Hazard Insurance.
Charles Town Races agrees to pay to HBPA’s national office on or before May 15th
of each year during the term of this Agreement, its proportional share of the
total annual premium as determined annually by the National HBPA for a national
policy of fire and other hazards insurance covering horses and tack belonging
to HBPA members stabled at Charles Town Races or at locations covered by such
HBPA policy. It is understood, however, by and between the parties, that the
limits and types of coverage and the annual premium amount will not be
increased without the prior written consent of Charles Town Races.

 

31.                                 Dead
Horse Removal. The cost of
removing dead horses from the racing strip shall be paid  by Charles Town Races. The cost of removing
dead horses from the Racetrack facility generally shall be paid one-half by the
HBPA and one-half by Charles Town Races.

 

32.                                 Arbitration. Any all disputes between the parties arising
out of this Agreement or the alleged breach thereof, which the parties are
unable to amicably resolve on their own, shall, upon the written demand of
either party, be submitted to arbitration by the American Arbitration
Association (“AAA”). The arbitration shall be conducted in accordance with rules and
guidelines of the AAA, with each party selecting an arbitrator from the list of
qualified arbitrators provided by the AAA. The two chosen arbitrators shall
select a third arbitrator from the same list. If they cannot agree to a
selection, the AAA shall make the selection for them. Each party shall bear the
costs of its arbitrator and shall share equally the costs of the third
arbitrator and the arbitration process. A decision agreed to by two of the
arbitrators shall be binding and

 

21

 

enforceable
by a court of competent of competent jurisdiction. The locale for all arbitration
proceedings shall be Charles Town, West Virginia, unless otherwise agreed to by
the parties.

 

By
execution of this Agreement, the parties acknowledge that arbitration is
intended to be the exclusive means of resolving grievances, disputes and
disagreements between the parties arising out of this Agreement, except that
this provision shall not foreclose a party from obtaining initial equitable
relief from a court of compentent jurisdiction pending outcome of arbitration.

 

33.                                 Right
to Terminate. Each party may
terminate this Agreement upon the other party’s failure to substantially
perform its duties and obligations as required under the terms and provisions
of this Agreement, and such failure continues for thirty (30) days following
the date in which written notice of default is mailed in accordance with
paragraph 36, Notices, of this
Agreement. Such termination shall not constitute an election of remedy, nor
shall it constitute a waiver of a party’s other remedies at law or in equity.

 

34.                                 Further
Assurances. The HBPA and
Charles Town Races shall execute such instruments and documents, and give such
further assurances as may be necessary to accomplish the purposes and intent of
this Agreement.

 

35.                                 Counter-part
Originals. This Agreement may
be executed in two or more counter-part originals, each of which shall be
deemed an original, but all of which shall constitute one and the same
instrument.

 

36.                                 Notices. All notices, requests, demands or other communications which may be
required by this Agreement shall be in writing, and if mailed, shall be mailed
by certified mail, return receipt requested, and shall be deemed to have been
given when received by

 

22

 

personal
delivery or otherwise. A courtesy copy of such communication shall also be sent
via facsimile to the last known facsimile number of the other party. Current
addresses of the persons to whom communications are to be sent are as follows:

 

	
   

  	
  Charles Town RACES:

  	
  General
  Manager

  Charles Town Races

  U. S. Route 340
 P. O. Box 551
 Charles Town, WV 25414

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Copy
  to:

  	
  President

  Penn National Gaming, Inc.
 Wyomissing Professional Center

  825 Berkshire Blvd., Suite 203

  Wyomissing, PA 19610

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Copy
  to:

  	
  VP/Deputy
  General Counsel

  Penn National Gaming, Inc.

  Wyomissing Professional Center

  825 Berkshire Blvd., Suite 203

  Wyomissing, PA 19610

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Copy
  to:

  	
  VP/Legal
  Affairs

  Charles Town Races
 P. O. Box 551
 Charles Town, WV 25414

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  HBPA:

  	
  President

  Charles Town HBPA, Inc.

  P. O. Box 581
 Charles Town, WV 25414

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Copy
  to:

  	
  Clarence
  E. Martin, Esq.

  Martin & Seibert

  P. O. Box 1286
 Martinsburg, WV 25402

  	
   

  

 

37.                                 Waivers. No waiver of any breach of this Agreement or
any term hereof shall be effective unless such waiver is in writing. No waiver
of any breach shall be deemed a waiver of any other or subsequent breach.

 

23

 

38.                                 Applicable
Law. This Agreement shall be
executed and delivered by the parties hereto in the State of West Virginia, and
shall be interpreted, construed and enforced in accordance with the laws of the
State of West Virginia. Nothing in this Agreement is intended to or has the
effect of contradicting, superseding or construing the provision of Article 23,
Chapter 19 (§§19-23-1 et seq.), Horse and Dog Racing,Article 29, Chapter
22A (§§22-A-1 et seq.) The Racetrack Video Lottery Act, and/or Article 29,
Chapter 22C (§§29-22C-1, et seq.) Reference in this Agreement to the West
Virginia Racing Commission will refer to the present Commission or to any
successor regulatory body having jurisdiction over thoroughbred racing at
Charles Town Races.

 

39.                                 Severability. If any provision of this Agreement is
declared invalid by any Court of competent jurisdiction, or becomes invalid or
inoperative by the operation of law, the remaining provisions of this Agreement
shall not be affected thereby and shall remain in full force and effect.

 

40.                                 Entire
Agreement; Modification. This
Agreement contains the entire agreement between the parties and, as of the date
of this Agreement, supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject hereof. No modification, variation or amendment of this
Agreement shall be effective unless
such modification, variation or
amendment shall be in writing and has been signed by all parties to this
Agreement.

 

41.                                 Binding
Effect. This Agreement shall be
binding upon the parties, their successors and assigns.

 

WITNESS
the following signatures:

 

SIGNATURE PAGES FOLLOW

 

24

 

CHARLES TOWN H.B.P.A., INC.

 

	
  By:

  	
  /s/ Raymond J. Funkhouser

  	
   

  
	
   

  	
  Raymond J.
  Funkhouser

  	
   

  
	
   

  	
  President

  	
   

  

 

STATE OF WEST VIRGINIA

 

COUNTY OF JEFFERSON, to wit:

 

 

I, Patricia
M. Evans, a notary public for
the County and State aforesaid, certify that Raymond J. Funkhouser, whose
name is signed to the foregoing Agreement by and between PNGI Charles Town
Gaming, Limited Liability Company and Charles Town H.B.P.A., Inc. as the
President of the Charles Town H.B.P.A., Inc., a West Virginia
not-for-profit Corporation, dated the
20th day
of February, 2009, acknowledged the same on behalf of
the Corporation before me in the County aforesaid.

 

 

Given under my hand and official seal this 20th day
of February, 2009.

 

 

	
  Patricia M. Evans

  	
   

  
	
  Notary
  Public

  	
   

  

 

 

My commission expires on September 18, 2016.

 

 

 

 

PNGI
CHARLES TOWN GAMING LIMITED LIABILITY COMPANY

 

 

	
  By:

  	
  /s/ Albert Britton

  	
   

  
	
   

  	
  Albert
  Britton

  	
   

  
	
   

  	
  General
  Manager

  	
   

  

 

 

STATE
OF WEST VIRGINIA

 

COUNTY
OF JEFFERSON, to wit:

 

I, Margaret
A Fineagan, a notary public for the County and State aforesaid, certify
that Albert Britton, whose name is signed to the foregoing
Agreement by and between PNGI Charles Town Gaming, Limited Liability Company
and the Charles Town HBPA, Inc. as the General Manager of PNGI Charles Town
Gaming, Limited Liability Company, a West Virginia Limited Liability Company,
dated the 20th day of
February 2009, acknowledged the same on behalf of the Limited Liability
Company before me in the County aforesaid.

 

 

Given under my hand and official seal this 20th day of February, 2009.

 

 

	
  Margaret A Fineagan

  	
   

  
	
  Notary Public

  	
   

  

 

 

My commission expires on June 21, 2012.Exhibit 10.32

 

PENN NATIONAL GAMING, INC.

 

2008 LONG TERM INCENTIVE

COMPENSATION PLAN

 

(Effective
November 12, 2008)

 

 

Table of
Contents

 

	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE I PURPOSE

  	
  1

  
	
   

  	
   

  
	
  ARTICLE II DEFINITIONS AND
  CONSTRUCTION

  	
  1

  
	
  Section 2.1                      Definitions

  	
  1

  
	
  Act

  	
  1

  
	
  Award

  	
  1

  
	
  Award Agreement

  	
  1

  
	
  Beneficiary

  	
  1

  
	
  Board

  	
  2

  
	
  Cause

  	
  2

  
	
  Chairman

  	
  2

  
	
  Change of Control

  	
  2

  
	
  Code

  	
  3

  
	
  Committee

  	
  3

  
	
  Common Stock

  	
  3

  
	
  Company

  	
  3

  
	
  Date of Grant

  	
  3

  
	
  Director

  	
  4

  
	
  Disability

  	
  4

  
	
  Effective Date

  	
  4

  
	
  Employee

  	
  4

  
	
  Fair Market Value

  	
  4

  
	
  Grantee

  	
  4

  
	
  Grantor

  	
  4

  
	
  Holder

  	
  4

  
	
  Incentive Stock Option or ISO

  	
  4

  
	
  Non-Qualified Stock Option

  	
  4

  
	
  Nonreporting Person

  	
  4

  
	
  Option or Stock Option

  	
  4

  
	
  Option Period

  	
  4

  
	
  Option Price

  	
  5

  
	
  Other Award

  	
  5

  
	
  Performance Goals

  	
  5

  
	
  Phantom Stock Unit

  	
  5

  
	
  Phantom Stock Unit Award

  	
  5

  
	
  Plan

  	
  5

  
	
  Reporting Person

  	
  5

  
	
  Restricted Period

  	
  5

  
	
  Restricted Stock

  	
  5

  
	
  Restricted Stock Award

  	
  5

  
	
  Retirement

  	
  6

  

 

i

 

	
  Rule 16b-3

  	
  6

  
	
  SAR Base Amount

  	
  6

  
	
  Stock Appreciation Right or SAR

  	
  6

  
	
  Stock Appreciation Right Award

  	
  6

  
	
  Stock Option Award

  	
  6

  
	
  Subsidiary

  	
  6

  
	
  Ten Percent Shareholder

  	
  6

  
	
  Section 2.2                      Construction

  	
  6

  
	
   

  	
   

  
	
  ARTICLE III STOCK AVAILABLE FOR AWARDS

  	
  7

  
	
  Section 3.1                      Common Stock

  	
  7

  
	
  Section 3.2                      Number of Shares Deliverable

  	
  7

  
	
  Section 3.3                      Reusable Shares

  	
  7

  
	
   

  	
   

  
	
  ARTICLE IV AWARDS AND AWARD AGREEMENTS

  	
  7

  
	
  Section 4.1                      General

  	
  7

  
	
  Section 4.2                      Eligibility

  	
  8

  
	
  Section 4.3                      Terms and Conditions; Award Agreements

  	
  8

  
	
  4.3.1
  Terms and Conditions

  	
  8

  
	
  4.3.2
  Award Agreements

  	
  9

  
	
   

  	
   

  
	
  ARTICLE V OPTIONS

  	
  9

  
	
  Section 5.1                      Award of Options

  	
  9

  
	
  5.1.1
  Grants

  	
  9

  
	
  5.1.2 Types of Options

  	
  9

  
	
  5.1.3
  Maximum Award To An Individual

  	
  9

  
	
  5.1.4
  Internal Revenue Code Limits

  	
  9

  
	
  Section 5.2                      Option Price

  	
  9

  
	
  Section 5.3                      Option Periods

  	
  10

  
	
  Section 5.4                      Exercisability

  	
  10

  
	
  5.4.3
  Method of Exercise

  	
  10

  
	
  Section 5.5                      Time and Method of Payment for Options

  	
  10

  
	
  5.5.1
  Form of Payment

  	
  10

  
	
  5.5.2
  Time of Payment

  	
  10

  
	
  5.5.3
  Methods for Tendering Shares

  	
  10

  
	
  Section 5.6                      Delivery of Shares Pursuant to Exercise of Option

  	
  11

  
	
   

  	
   

  
	
  ARTICLE VI STOCK APPRECIATION RIGHTS

  	
  11

  
	
  Section 6.1                      Award of SARs

  	
  11

  
	
  6.1.1
  Grants

  	
  11

  
	
  6.1.2
  Maximum Award To An Individual

  	
  11

  
	
  6.1.3
  SAR Base Amount

  	
  11

  
	
  Section 6.2                      SAR Periods

  	
  11

  
	
  Section 6.3                      Exercisability

  	
  11

  

 

ii

 

	
  Section 6.4                      Method of Exercise

  	
  12

  
	
  Section 6.5                      Payment Amount, Time and Method of Payment With
  Respect to SARs

  	
  12

  
	
  Section 6.6                      Nature of SARs

  	
  12

  
	
   

  	
   

  
	
  ARTICLE VII RESTRICTED STOCK AWARDS

  	
  13

  
	
  Section 7.1                      Grants

  	
  13

  
	
  Section 7.2                      Maximum Award to An Individual

  	
  13

  
	
  Section 7.3                      Restricted Period

  	
  13

  
	
  Section 7.4                      Restrictions and Forfeiture

  	
  13

  
	
  Section 7.5                      Issuance of Stock and Stock Certificate(s)

  	
  13

  
	
  7.5.1
  Issuance

  	
  13

  
	
  7.5.2
  Custody and Registration

  	
  14

  
	
  Section 7.6                      Shareholder Rights

  	
  14

  
	
  Section 7.7                      Delivery of Shares

  	
  14

  
	
   

  	
   

  
	
  ARTICLE VIII PHANTOM STOCK UNIT AWARDS

  	
  14

  
	
  Section 8.1                      Grants

  	
  14

  
	
  Section 8.2                      Maximum Award to An Individual

  	
  15

  
	
  Section 8.3                      Vesting of Phantom Stock Unit Awards

  	
  15

  
	
  Section 8.4                      Cash Value of Phantom Stock Unit Payments

  	
  15

  
	
  Section 8.5                      Time of Payment

  	
  15

  
	
  Section 8.6                      Nature of Phantom Stock Units

  	
  15

  
	
   

  	
   

  
	
  ARTICLE IX OTHER AWARDS

  	
  15

  
	
  Section 9.1                      Grants

  	
  15

  
	
  Section 9.2                      Maximum Award to An Individual

  	
  16

  
	
  9.2.1
  Awards Denominated or Payable with Reference to Common Stock

  	
  16

  
	
  9.2.2
  Awards Denominated or Payable with Reference to Cash

  	
  16

  
	
  Section 9.3                      Description of Other Awards

  	
  16

  
	
   

  	
   

  
	
  ARTICLE X TERMINATION OF EMPLOYMENT OR
  CESSATION OF BOARD SERVICE

  	
  16

  
	
  Section 10.1                Stock Options and SARs

  	
  16

  
	
  Section 10.2                Restricted Stock and Phantom Stock Units

  	
  17

  
	
  Section 10.3                Date of Termination of Employment

  	
  17

  
	
  Section 10.4                Specified Employee Restriction

  	
  17

  
	
  Section 10.5                Immediate Forfeiture; Acceleration

  	
  17

  
	
  Section 10.6                Terms of Award Agreement

  	
  17

  
	
   

  	
   

  
	
  ARTICLE XI CERTAIN TERMS APPLICABLE TO ALL
  AWARDS

  	
  18

  
	
  Section 11.1                Withholding Taxes

  	
  18

  
	
  Section 11.2                Adjustments to Reflect Capital Changes

  	
  18

  

 

iii

 

	
  11.2.1
  Recapitalization, etc

  	
  18

  
	
  11.2.2
  Sale or Reorganization

  	
  18

  
	
  11.2.3
  Options to Purchase Stock of Acquired Companies

  	
  19

  
	
  Section 11.3                Failure to Comply with Terms and Conditions

  	
  19

  
	
  Section 11.4                Regulatory Approvals and Listing

  	
  19

  
	
  Section 11.5                Restrictions Upon Resale of Stock

  	
  20

  
	
  Section 11.6                Reporting Person Limitation

  	
  20

  
	
   

  	
   

  
	
  ARTICLE XII ADMINISTRATION OF THE PLAN

  	
  20

  
	
  Section 12.1                Committee

  	
  20

  
	
  Section 12.2                Committee Actions

  	
  20

  
	
  Section 12.3                Designation of Beneficiary

  	
  20

  
	
  Section 12.4                No Right to an Award or to Continued Employment

  	
  21

  
	
  Section 12.5                Discretion of the Grantor

  	
  21

  
	
  Section 12.6                Indemnification and Exculpation

  	
  21

  
	
  12.6.1
  Indemnification

  	
  21

  
	
  12.6.2
  Exculpation

  	
  22

  
	
  Section 12.7                Unfunded Plan

  	
  22

  
	
  Section 12.8                Inalienability of Rights and Interests

  	
  22

  
	
  Section 12.9                Awards Not Includable for Benefit Purposes

  	
  23

  
	
  Section 12.10          No Issuance of Fractional Shares

  	
  23

  
	
  Section 12.11          Modification for International Grantees

  	
  23

  
	
  Section 12.12          Leaves of Absence

  	
  23

  
	
  Section 12.13          Communications

  	
  24

  
	
  12.13.1
  Communications by the Grantor

  	
  24

  
	
  12.13.2
  Communications by the Directors, Employees, and Others

  	
  24

  
	
  Section 12.14          Parties in Interest

  	
  24

  
	
  Section 12.15          Severability

  	
  24

  
	
  Section 12.16          Compliance with Laws

  	
  24

  
	
  Section 12.17          No Strict Construction

  	
  25

  
	
  Section 12.18          Modification

  	
  25

  
	
  Section 12.19          Governing Law

  	
  25

  
	
   

  	
   

  
	
  ARTICLE XIII CHANGE OF CONTROL

  	
  25

  
	
  Section 13.1                Options and SARS

  	
  25

  
	
  Section 13.2                Restricted Stock Awards and Phantom Stock Unit Awards

  	
  25

  
	
   

  	
   

  
	
  ARTICLE XIV AMENDMENT AND TERMINATION

  	
  26

  
	
  Section 14.1                Amendment; No Repricing

  	
  26

  
	
  Section 14.2                Suspension or Termination

  	
  26

  
	
   

  	
   

  
	
  ARTICLE XV SECTION 409A

  	
  26

  

 

iv

 

	
  ARTICLE XVI EFFECTIVE DATE AND TERM OF THE
  PLAN

  	
  27

  

 

v

 

PENN NATIONAL GAMING, INC.

2008 LONG TERM INCENTIVE COMPENSATION PLAN

 

ARTICLE I 

PURPOSE

 

The 2008 Long Term Incentive Compensation Plan is
intended to advance the interests of Penn National Gaming, Inc., a
Pennsylvania corporation, and its shareholders by providing a means by which
the Company and its subsidiaries and affiliates shall be able to motivate
directors and selected key employees (including officers) to direct their
efforts to those activities that will contribute materially to the Company’s
success.  The Plan is also intended to
serve the best interests of the shareholders by linking remunerative benefits
paid to employees who have substantial responsibility for the successful operation,
administration and management of the Company and/or its subsidiaries and
affiliates with the enhancement of shareholder value while such key employees
increase their proprietary interest in the Company.  Finally, the Plan is intended to enable the
Company to attract and retain in its service highly qualified persons for the
successful conduct of its business.

 

ARTICLE II 

DEFINITIONS AND CONSTRUCTION

 

Section 2.1                                   Definitions

 

The following words and phrases when used in the
Plan with an initial capital letter, unless their context clearly indicates to
the contrary, shall have the respective meanings set forth below in this Section 2.1:

 

Act.  The Securities Exchange Act of 1934, as now
in effect or as hereafter amended from time to time. References to any Section or
Subsection of the Act are to such Section or Subsection as the same may
from time to time be amended or renumbered and/or any comparable or succeeding
provisions of any legislation that amends, supplements or replaces such Section or
Subsection.

 

Award.  A grant of one of the following under the
Plan: “Stock Option Award”; “Stock Appreciation Right Award”; “Restricted Stock
Award”; “Phantom Stock Unit Award”; and “Other Award”; all as further defined
herein.

 

Award Agreement.  The written instrument delivered by the
Company to a Grantee evidencing an Award, and setting forth such terms and
conditions of the Award as may be deemed appropriate by the Grantor. The Award
Agreement shall be in a form approved by the Grantor, and once executed, shall
be amended from time to time to include such additional or amended terms and
conditions as the Grantor may specify after the execution in the exercise of
his or its, as the case may be, powers under the Plan.

 

Beneficiary.  Any individual, estate or trust who or which
by designation of the a Holder pursuant to Section 12.3 or operation of
law succeeds to the rights and obligations of the Holder under the Plan and one
or more Award Agreements.

 

1

 

Board.  The Board of Directors of the Company, as it
may be constituted from time to time.

 

Cause.  Fraud, embezzlement, theft or dishonesty
against the Company, conviction of a felony, willful misconduct, being found
unsuitable by a regulatory authority having jurisdiction over the Company,
willful and wrongful disclosure of confidential information, engagement in
competition with the Company and any other conduct defined as cause in any
agreement between a Grantee and the Company or any Subsidiary, in each case during
employment with the Company and all Subsidiaries or service as a Director, as
the case may be.

 

Chairman.  The Chairman of the Board of the Company or
his designee(s).

 

Change of Control.

 

(a)                                  With respect to Awards that
are not “deferred compensation” under Section 409A of the Code, any of the
following events shall constitute a Change of Control for purposes of this
Plan:

 

(i)                                     the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Act) (a “Person”) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Act) of fifty percent (50%) or
more of either (A) the then outstanding shares of the Company (the “Outstanding
Company Shares”) or (B) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however,
that for purposes of this Subsection (i), the following acquisitions shall
not constitute a Change of Control: (1) any acquisition directly from the
Company; (2) any acquisition by the Company; (3) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company; or (4) any
acquisition pursuant to a transaction which complies with clauses (A), (B) and
(C) of Subsection (iii) below; or

 

(ii)                                  approval by the shareholders
of the Company of a complete liquidation or dissolution of the Company; or

 

(iii)                               consummation of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition of assets of
another entity (each, a “Corporate Transaction”), in each case, unless,
following such Corporate Transaction, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Shares and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction beneficially own, directly or
indirectly, more than fifty percent (50%) of, respectively, the then
outstanding shares and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation or other entity resulting from such Corporate
Transaction (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company’s
assets either directly or through 

 

2

 

one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction of the
Outstanding Company Shares and Outstanding Company Voting Securities, as the
case may be, (B) no Person (excluding any employee benefit plan or related
trust of the Company or such corporation resulting from such Corporate
Transaction) beneficially owns, directly or indirectly, twenty percent (20%) or
more of, respectively, the then outstanding shares of the corporation resulting
from such Corporate Transaction or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that
such ownership of the Company existed prior to the Corporate Transaction and (C) at
least a majority of the members of the board of directors of the corporation
(or other governing board of a non-corporate entity) resulting from such
Corporate Transaction were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Corporate Transaction; or

 

(iv)                              individuals who, as of the
Effective Date, constitute the Board (the “Incumbent Board”) cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Effective Date whose
election, or nomination for election by the Company’s shareholders, was
approved by a vote of at least two-thirds (2/3) of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board.

 

(b)                                 With respect to Awards that
are “deferred compensation” under Section 409A of the Code, each of the
foregoing events shall only be deemed to be a Change of Control for purposes of
the Plan to the extent such event qualifies as a “change in control event” for
purposes of Section 409A of the Code. The Grantor shall be entitled to
amend or interpret the terms of any Award to the extent necessary to avoid
adverse Federal income tax consequences to a Grantee under Section 409A of
the Code.

 

Code.  The Internal Revenue Code of 1986, amended
from time to time, and any successor thereto, the Treasury Regulations
thereunder and other relevant interpretive guidance issued by the Internal
Revenue Service or the Treasury Department. Reference to any specific section
of the Code shall be deemed to include such regulations and guidance, as well
as any successor provision of the Code.

 

Committee.  The Compensation Committee of the Board.

 

Common Stock.  Common stock of the Company, par value $.01.

 

Company.  Penn National Gaming, Inc., a
Pennsylvania corporation, and its successors and assigns.

 

Date of Grant.  The date as of which the Grantor grants an
Award.

 

3

 

Director.  A member of the Board who is not also an
employee of the Company or any Subsidiary.

 

Disability.  A physical or mental impairment sufficient to
make the Grantee who is an Employee eligible for benefits under the Company’s
or Subsidiary’s long-term disability plan in which the Grantee is a
participant. A Grantee who is a Director shall be treated as having a
Disability if a physical or mental impairment would have made the Director
eligible for benefits under the Company’s long-term disability plan had the
Director been an Employee.

 

Effective Date.  November 12, 2008, the date on which the
shareholders of the Company approved the Plan.

 

Employee.  An employee of the Company or any Subsidiary
or “parent corporation” within the meaning of Section 424(e) of the
Code.

 

Fair Market
Value.  With respect
to the Common Stock on any day, (i) the closing sales price on the
immediately preceding business day of a share of Common Stock as reported on
the principal securities exchange on which shares of Common Stock are then
listed or admitted to trading, or (ii) if the Common Stock is not listed
or admitted to trading on a securities exchange, as determined in a manner
specified by the Committee determined in accordance with Section 409A of
the Code. A “business day” is any day on which the relevant market is open for
trading.

 

Grantee.  An Employee or former Employee of the Company
or any Subsidiary to whom an Award is or has been granted. With respect to an
Award, other than an Incentive Stock Option, a Director to whom an Award is or
has been granted is also a Grantee.

 

Grantor.  With respect to an Award granted to an
Employee, the Committee or the Chairman, as the case may be, that grants the
Award. With respect to an Award granted to a Director, the Board or Committee
is the Grantor.

 

Holder.  The individual who holds an Award, who shall
be the Grantee or a Beneficiary.

 

Incentive Stock
Option or ISO.  An Option
that is intended to meet, and structured with a view to satisfying, the
requirements of Section 422 of the Code and is designated by the Grantor
as an Incentive Stock Option.

 

Non-Qualified
Stock Option.  An Option
that is not designated by the Grantor as an Incentive Stock Option, or an
Option that is designated by the Grantor as an Incentive Stock Option if it
does not satisfy the requirements of Section 422 of the Code.

 

Nonreporting
Person.  A Grantee
who is not subject to Section 16 of the Act.

 

Option or Stock
Option.  A right
granted pursuant to Article V.

 

Option Period.  The period beginning on the Date of Grant of
an Option and ending on the date the Option terminates.

 

4

 

Option Price.  The per share price at which shares of Common
Stock may be purchased upon exercise of a particular Option.

 

Other Award.  Awards granted pursuant to Article IX.

 

Performance
Goals.  One or more
of the following performance criteria, either individually, alternatively or in
any combination, applied to either the Company as a whole or to a business unit
or related company, and measured either annually or cumulatively over a period
of years, on an absolute basis or relative to a pre-established target, to a
previous year’s results or to a designated comparison group, in each case as
specified by the Grantor in the Award: free cash flow, EBITDA, sales, revenue,
revenue growth, income, operating income, net income, net earnings, earnings
per share, return on total capital, return on equity, cash flow, operating
profit and margin rate, gross margins, debt leverage (debt to capital), market
capitalization, total enterprise value (market capitalization plus debt), total
shareholder return and stock price. With respect to any Award that is intended
to be “performance-based compensation” under Section 162 of the Code, (i) the
outcome of the Performance Goals must be substantially uncertain at the time
the Grantor establishes the Performance Goals, and (ii) to the extent
consistent with Section 162 of the Code, the Grantor shall appropriately
adjust any Performance Goal to take into account the impact of any of the
following events on the Company that occurs during the period to which such
Performance Goal is applied: asset write-downs; litigation, claims, judgments,
settlements; currency fluctuations and other non-cash charges; changes in
applicable law, rule or regulation or accounting principles; accruals for
reorganization and restructuring programs; costs incurred in the pursuit of
acquisition opportunities; strikes, delays or similar disruptions by organized
labor, guilds or horsemen’s organizations; national macroeconomic conditions;
terrorism and other international hostilities; significant regional weather
events; and any other extraordinary, unusual or non-recurring as described in
Accounting Principles Board Opinion No. 30 and/or management’s discussion
and analysis of financial condition and results of operations appearing in the
Company’s securities filings. Any Award may be granted subject to the
attainment of such Performance Goals as determined by the Grantor.

 

Phantom Stock
Unit.  A right
granted under Article VIII.

 

Phantom Stock
Unit Award.  An Award of
Phantom Stock Units under Article VIII.

 

Plan.  Penn National Gaming, Inc. 2008 Long
Term Incentive Compensation Plan, as set forth herein and as amended from time
to time.

 

Reporting Person.  A Grantee who is subject to Section 16
of the Act.

 

Restricted
Period.  The period
of time beginning with the Date of Grant of a Restricted Stock Award or Phantom
Stock Unit Award and ending when the Restricted Stock or Phantom Stock Unit is
forfeited or when all conditions for vesting are satisfied.

 

Restricted Stock.  Shares of Common Stock issued pursuant to a
Restricted Stock Award.

 

Restricted Stock
Award.  An Award of
Restricted Stock under Article VII.

 

5

 

Retirement.  Termination of service by the Grantee on or
after the normal retirement date under a plan maintained by the Company or a
Subsidiary in which the Grantee is a participant or under an applicable Company
policy or procedure or as otherwise agreed to by the Company.

 

Rule 16b-3.  Rule 16b-3 of the General Rules and
Regulations under the Act, or any law, rule, regulation or other provision that
may hereafter replace such Rule.

 

SAR Base Amount.  An amount set forth in the Award Agreement
for a SAR.

 

Stock
Appreciation Right or SAR.  A right granted under Article VI.

 

Stock
Appreciation Right Award.  An Award of Stock Appreciation Rights under Article VI.

 

Stock Option
Award.  An Award of
Options under Article V.

 

Subsidiary.  Any corporation, partnership, joint venture
or other entity in which the Committee has determined that the Company had
made, directly or indirectly through one or more intermediaries, a substantial
investment or commitment, including, without limit, through the purchase of
equity or debt or the entering into of a management agreement or joint
operating agreement. In the case of Incentive Stock Options, Subsidiary shall
mean any entity that qualifies as a “subsidiary corporation” of the Company under
Section 424(f) of the Code.

 

Ten Percent
Shareholder.  A person
owning shares possessing more than 10% of the total combined voting power of
all classes of shares of the Company, any subsidiary corporation (within the
meaning of Section 424(f) of the Code) or parent corporation (within
the meaning of Section 424(e) of the Code).

 

Section 2.2                                   Construction

 

Whenever any words are used herein in the masculine
gender, they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form they shall be construed as though they were also
used in the plural form in all cases where they would so apply. Headings of
Sections and Subsections of the Plan are inserted for convenience of reference,
are not a part of the Plan, and are not to be considered in the construction
hereof. The words “hereof”, “herein”, “hereunder” and other similar compounds
of the word “here” shall mean and refer to the entire Plan, and not to any
particular provision or Section. The words “includes”, “including” and other
similar compounds of the word “include” shall mean and refer to including
without limitation. All references herein to specific Articles, Sections or
Subsections shall mean Articles, Sections or Subsections of this document
unless otherwise qualified.

 

6

 

ARTICLE III 

STOCK AVAILABLE FOR AWARDS

 

Section 3.1                                   Common Stock

 

Shares of Common Stock may
be delivered under the Plan, such shares to be made available from authorized
but unissued shares or from shares reacquired by the Company, including shares
purchased in the open market.

 

Section 3.2                                   Number of
Shares Deliverable

 

Subject to adjustments as provided in Section 11.2,
no more than 6,900,000 shares of Common Stock may be issued under the Plan. Any
shares of Common Stock issued under Options or Stock Appreciation Rights shall
be counted against this limit as one (1) share of Common Stock. Any shares
of Common Stock issued under Awards other than Options or Stock Appreciation
Rights shall be counted against this limit as two and sixteen one hundredths
(2.16) shares of Common Stock. Any Awards that are not settled in shares of
Common Stock shall not count against this limit.

 

Section 3.3                                   Reusable
Shares

 

Shares of Common Stock subject to an Award that are
forfeited to the Company shall again be available for issuance under the Plan.

 

ARTICLE IV 

AWARDS AND AWARD AGREEMENTS

 

Section 4.1                                   General

 

4.1.1                        Subject to the provisions of
the Plan, the Committee may at any time and from time to time (i) determine
and designate those Reporting Persons who are Employees to whom Awards are to
be granted; (ii) determine the time or times when Awards to Reporting
Persons who are Employees shall be granted; (iii) determine the form or
forms of Awards to be granted to any Reporting Person who is an Employee; (iv) determine
the number of shares of Common Stock or dollar amounts subject to or
denominated by each Award to be granted to any Reporting Person who is an
Employee; (v) determine the terms and conditions of each Award to a
Reporting Person who is an Employee; (vi) determine the maximum aggregate
number of shares or, for purposes of Other Awards payable in cash, the
aggregate amount of cash subject to Awards to be granted to Nonreporting
Persons, as a group, who are Employees; and (vii) determine the general
form or forms of Awards to be granted to Nonreporting Persons who are
Employees.

 

4.1.2                        The Committee or the
Chairman, subject to the provisions of the Plan and authorization by the
Committee, may, at any time and from time to time, (i) determine and
designate at any time and from time to time those Nonreporting Persons who are
Employees to whom Awards are to be granted; (ii) determine the time or
times when Awards to Nonreporting Persons who are Employees shall be granted; (iii) determine
the form or forms of Award to be granted to any Nonreporting Person who is an
Employee, from among the form or forms 

 

7

 

approved by the Committee; (iv) determine
the number of shares of Common Stock or dollar amounts subject to or
denominated by each Award to be granted to any Nonreporting Person who is an
Employee; and (v) determine the terms and conditions of each Award to a
Nonreporting Person who is an Employee.

 

4.1.3                        Subject to the provisions of
the Plan, the Board or Committee may, at any time and from time to time, (i) determine
and designate at any time and from time to time those Directors to whom Awards,
other than Incentive Stock Options, are to be granted; (ii) determine the
time or times when Awards to Directors shall be granted; (iii) determine
the form or forms of Awards to be granted to any Director; (iv) determine
the number of shares of Common Stock or dollar amounts subject to or
denominated by each Award to be granted to a Director; and (v) determine
the terms and condition of each Award to a Director.

 

4.1.4                        Awards may be granted
singly, in combination or in tandem and may be made in combination or in tandem
with or in replacement of, or as alternatives to awards or grants under any
other employee plan maintained by the Company or its Subsidiaries. No Awards
shall be granted under the Plan after the tenth anniversary of the Effective Date.

 

Section 4.2                                   Eligibility

 

Any Director or Employee, including any officer who
is an Employee and any director who is an Employee, and, except with respect to
Stock Options and SARs, an individual who has accepted the Company’s or a
Subsidiary’s offer of employment but who has not commenced performing services
for the Company or a Subsidiary, shall be eligible to receive Awards under the
Plan.

 

Section 4.3                                   Terms and
Conditions; Award Agreements

 

4.3.1   Terms and Conditions.  Each Award granted pursuant to the Plan shall
be subject to all of the terms, conditions and restrictions provided in the
Plan and such other terms, conditions and restrictions, if any, as may be
specified by the Grantor with respect to the Award at the time of the making of
the Award or as may be amended or specified thereafter by the Grantor in the
exercise of its or his, as the case may be, powers under the Plan. Without
limiting the foregoing, it is understood that the Grantor may, at any time and
from time to time after the granting of an Award hereunder, specify such
amended or additional terms, conditions and restrictions with respect to such
Award as may be deemed necessary or appropriate to ensure compliance with any
and all applicable laws, including, but not limited to, compliance with Federal
and state securities laws, compliance with Federal and state gaming or racing
laws, compliance with Federal and state tax laws that would otherwise result in
adverse and unintended tax consequences for a Grantee, the Company or any Subsidiary
and methods of withholding or providing for the payment of required taxes. The
terms, conditions and restrictions with respect to any Award, Grantee or Award
Agreement need not be identical with the terms, conditions and restrictions
with respect to any other Award, Grantee or Award Agreement.

 

8

 

4.3.2   Award Agreements. 
Except as otherwise provided in the Plan, each Award granted pursuant to
the Plan shall be evidenced by an Award Agreement and shall comply with, and be
subject to, the provisions of the Plan.

 

ARTICLE V 

OPTIONS

 

Section 5.1                                   Award of
Options

 

5.1.1   Grants.  From time to time, the Committee may grant
Stock Option Awards to such Reporting Persons who are Employees as the
Committee may select in its sole discretion. From time to time, the Committee
or the Chairman may grant Stock Option Awards in such number as the Committee
or the Chairman may determine to such Nonreporting Persons who are Employees as
the Committee or the Chairman may select in its or his, as the case may be,
sole discretion; provided, however, each and all
such grants shall be subject to any maximum aggregate amount of Awards in
general and Options in particular (if any) established by the Committee for
grants under the Plan for Nonreporting Persons who are Employees as a group.
From time to time, the Board or Committee may grant Options to such Directors
as the Board or Committee may select in its sole discretion. The Grantor shall
determine the number of shares of Common Stock to which each Option relates. A
Stock Option entitles the holder thereof to purchase full shares of Common
Stock at a stated price for a specified period of time.

 

5.1.2   Types of Options

 

5.1.2.1   Employees.  Options granted to Employees pursuant to the
Plan may be either in the form of Incentive Stock Options or in the form of
Non-Qualified Stock Options.

 

5.1.2.2   Directors.  Options granted to Directors pursuant to the
Plan will be in the form of Non-Qualified Stock Options.

 

5.1.3   Maximum Award To An
Individual.  No individual
shall be granted in any calendar year Options to purchase more than 1,000,000
shares of Common Stock.

 

5.1.4   Internal Revenue Code
Limits.  Options designated as
Incentive Stock Options shall not be eligible for treatment under the Code as
“incentive stock options” (and will be deemed to be Non-Qualified Stock
Options) to the extent that either (1) the aggregate Fair Market Value of
Shares (determined as of the time of grant) with respect to which such Options
are exercisable for the first time by the Grantee during any calendar year
(under all plans of the Company and any Subsidiary) exceeds $100,000, taking
Options into account in the order in which they were granted or (2) such
Options otherwise remain exercisable but are not exercised within three (3)
months of termination of employment (or such other period of time provided in
Section 422 of the Code).

 

Section 5.2                                   Option Price

 

The Option Price of Common Stock covered by each
Option shall be determined by the Grantor, but shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the Date of Grant, provided, however,
in the case of an Incentive Stock Option granted to Ten 

 

9

 

Percent Shareholder, the Option
Price shall be no less than 110% of the Fair Market Value of the of a share of
Common Stock on the Date of Grant.

 

Section 5.3                                   Option
Periods

 

The Grantor shall, from time
to time, determine the term of each Option which shall be reflected in the
Award Agreement. No Option may be exercised after the expiration of its term.
Subject to earlier termination as provided in the Plan, the term shall not
exceed seven (7) years from the Date of Grant; provided, that the term of an Incentive
Stock Option granted to a Ten Percent Shareholder shall not exceed
5 years.

 

Section 5.4                                   Exercisability

 

5.4.1                        Subject to
Article X and XIII, each Option shall be exercisable at any time or times
during the term of the Option and in such amount or amounts and subject to such
conditions, including, without limitation, attainment of one or more
Performance Goals, as the Grantor may prescribe in the applicable Award
Agreement.

 

5.4.2                        Except as
provided in Article X, or as otherwise provided in an Award Agreement, an
Option may be exercised only during the Grantee’s employment with the Company
or any of its Subsidiaries or service as a Director. No Option may be exercised
for a fractional share.

 

5.4.3   Method of Exercise.  A Holder may exercise an Option, in whole or
from time to time in part, by giving notice of exercise to the Company, in a
form and manner acceptable to the Company.

 

Section 5.5                                   Time and
Method of Payment for Options

 

5.5.1   Form of Payment.  The Holder shall pay the Option Price in cash
(including a personal check) or, with the Grantor’s permission and according to
such rules as it may prescribe, by delivering shares of Common Stock already
owned by the Holder having a Fair Market Value on the date of exercise equal to
the Option Price, or a combination of cash and such shares. The Grantor may
also permit payment in accordance with a cashless exercise program under which,
if so instructed by the Holder, shares of Common Stock may be issued directly
to the Holder’s broker or dealer who in turn will sell the shares and pay the
Option Price in cash to the Company from the sale proceeds. Finally, the
Grantor may permit payment by reducing the number of shares of Common Stock
delivered upon exercise by an amount equal to the largest number of whole shares
of Common Stock with a Fair Market Value that does not exceed the Option Price,
with the remainder of the Option Price being payable in cash.

 

5.5.2   Time of Payment.  Except in the case where exercise is
conditioned on a simultaneous sale of the Option shares pursuant to a cashless
exercise, the Holder shall pay the Option Price before an Option is exercised.

 

5.5.3   Methods for Tendering
Shares.  The Grantor shall
determine acceptable methods for tendering shares of Common Stock as payment
upon exercise of an Option and may impose 

 

10

 

such limitations and
restrictions on the use of shares of Common stock to exercise an Option as it
or he, as the case may be, deems appropriate.

 

Section 5.6                                   Delivery of
Shares Pursuant to Exercise of Option

 

No shares of Common Stock
shall be delivered pursuant to the exercise, in whole or in part, of any
Option, unless and until (i) payment in full of the Option Price for such
shares is received by the Company and (ii) compliance with all applicable
requirements and conditions of the Plan, the Award Agreement and such rules and
regulations as may be established by the Grantor, that are preconditions to
delivery. Following exercise of the Option and payment in full of the Option
Price and compliance with the conditions described in the preceding sentence,
the Company shall promptly effect the issuance to the Grantee of such number of
shares of Common Stock as are subject to the Option exercise.

 

ARTICLE VI 

STOCK APPRECIATION RIGHTS

 

Section 6.1                                   Award of
SARs

 

6.1.1   Grants.  From time to time the Committee may grant
Stock Appreciation Rights Awards to such Reporting Persons who are Employees as
the Committee may select in its sole discretion. From time to time, the
Committee or the Chairman may grant Stock Appreciation Rights Awards in such
number as the Committee or the Chairman may determine to such Nonreporting
Persons who are Employees as the Committee or the Chairman may select in its or
his, as the case may be, sole discretion; provided, however,
each and all such grants shall be subject to any maximum aggregate amount of
Awards in general and SARs in particular (if any) established by the Committee
for grants under the Plan for Nonreporting Persons who are Employees as a
group. From time to time, the Board or Committee may grant Stock Appreciation
Rights to such Directors as the Board or Committee may select in its sole
discretion. The Grantor shall determine the number of shares of Common Stock to
which each SAR relates.

 

6.1.2   Maximum Award To An Individual. 
No individual shall be granted in any calendar year SARs to purchase
more than 1,000,000 shares of Common Stock.

 

6.1.3   SAR Base Amount. 
The SAR Base Amount with respect to each SAR shall be determined by the
Grantor, but shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the Date of Grant.

 

Section 6.2                                   SAR Periods

 

The Grantor shall, from time to time, determine the
term of each SAR. No SAR may be exercised after the expiration of its term.
Subject to earlier termination as provided in the Plan, the term shall not
exceed seven (7) years from the Date of Grant.

 

11

 

Section 6.3                                   Exercisability

 

6.3.1                        Subject to Articles X
and XIII, each SAR shall be exercisable at any time or times during the term of
the SAR and in such amount or amounts and subject to such conditions,
including, without limitation, attainment of one or more Performance Goals, as
the Grantor may, from time to time, prescribe in the applicable Award
Agreement.

 

6.3.2                        Except as provided in Article X,
or as otherwise provided in an Award Agreement, a SAR may be exercised only
during the Grantee’s employment with the Company or any of its Subsidiaries or
service as a Director.

 

Section 6.4                                   Method of
Exercise

 

A Holder may exercise a SAR, in whole or from time
to time in part, by giving notice of exercise to the Company, in a form and
manner acceptable to the Company.

 

Section 6.5                                   Payment
Amount, Time and Method of Payment With Respect to SARs

 

6.5.1                        A SAR entitles the Holder
thereof, upon the Holder’s exercise of the SAR, to receive an amount equal to
the product of (i) the amount by which the Fair Market Value on the
exercise date of one share of Common Stock exceeds the SAR Base Amount for such
SAR, and (ii) the number of shares covered by the SAR, or portion thereof,
that is exercised.

 

6.5.2                        Any payment which may become
due from the Company by reason of a Grantee’s exercise of a SAR may be paid to
the Grantee all in cash, all in shares of Common Stock or partly in shares and
partly in cash, as determined by the Grantor and as provided in the Award
Agreement.

 

6.5.3                        In the event that all or a
portion of the payment is made in shares of Common Stock, the number of shares
of Common Stock received shall be determined by dividing the amount of the
payment by the Fair Market Value of a share of Common Stock on the exercise
date of the SAR. Cash will be paid in lieu of any fractional share of Common
Stock.

 

6.5.4                        Amounts payable in
connection with a SAR shall be paid to the Holder, as determined by the Grantor
and as set forth in the applicable Award Agreement or in accordance with such
rules, regulations and procedures as may be adopted by the Committee or
Grantor.

 

Section 6.6                                   Nature of
SARs

 

SARs shall be used solely as a device for the
measurement and determination of the amount to be paid on behalf of Grantees as
provided in the Plan. SARs shall not constitute or be treated as property or as
a trust fund of any kind. All amounts at any time attributable to the SARs
shall be and remain the sole property of the Company and all Grantees’ rights
hereunder are limited to the rights to receive cash and shares of Common Stock
as provided in the Plan.

 

12

 

ARTICLE VII 

RESTRICTED STOCK AWARDS

 

Section 7.1                                   Grants

 

From time to time, the Committee may grant
Restricted Stock Awards in such number as it may determine to such Reporting
Persons who are Employees as the Committee may select in its sole discretion.
From time to time, the Committee or the Chairman may grant in such number as
the Committee or the Chairman may determine Restricted Stock Awards to such
Nonreporting Persons who are Employees as the Committee or the Chairman may
select in its or his, as the case may be, sole discretion; provided, however, each and all such
grants shall be subject to any maximum aggregate number of Awards in general
and shares of Restricted Stock in particular established by the Committee for
grants under the Plan for Nonreporting Persons who are Employees as a group.
From time to time, the Board or Committee may grant Restricted Stock Awards to
such Directors as the Board or Committee may select in its sole discretion. A
Restricted Stock Award is a grant of shares of Common Stock subject to those
conditions, if any, set forth in the Plan and the Award Agreement.

 

Section 7.2                                   Maximum
Award to An Individual

 

No individual shall be granted or receive in any
calendar year a Restricted Stock Award of more than 1,000,000 shares of Common
Stock.

 

Section 7.3                                   Restricted
Period

 

The Grantor may, from time to time, establish any
condition or conditions on which the Restricted Stock Award will vest and no
longer be subject to forfeiture. Such conditions may include, without
limitation, continued employment by the Grantee or service as a Director, as
the case may be, for a period of time specified in the Award Agreement or the
attainment of one or more Performance Goals within a time period specified in
the Award Agreement. A Restricted Stock Award may, if the Grantor in its sole
discretion decides, provide for an unconditioned grant.

 

Section 7.4                                   Restrictions
and Forfeiture

 

Except as otherwise provided in the Plan or the
applicable Award Agreement, the Restricted Stock shall be subject to the
following restrictions until the expiration or termination of the Restricted
Period: (i) a Holder shall not be entitled to delivery of a certificate
evidencing the shares of Restricted Stock until the end of the Restricted
Period and the satisfaction of any and all other conditions specified in the
Award Agreement applicable to such Restricted Stock and (ii) none of the
Restricted Stock may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of during the Restricted Period, and until the
satisfaction of any and all other conditions specified in the Award Agreement
applicable to such Restricted Stock. Upon the forfeiture of any Restricted
Stock, such forfeited shares shall be transferred to the Company without further
acts by the Holder.

 

Section 7.5                                   Issuance of
Stock and Stock Certificate(s)

 

7.5.1   Issuance.  As soon as practicable after the Date of
Grant of a Restricted Stock Award, the Company shall cause to be issued in the
name of the Grantee (and held by the Company, if applicable, under Section 7.4)
such number of shares of Common Stock as constitutes the Restricted Stock
awarded under the Restricted Stock Award. Each such issuance

 

13

 

shall be subject throughout the Restricted Period to the terms,
conditions and restrictions contained in the Plan and/or the Award Agreement.

 

7.5.2   Custody and Registration.  Any issuance of Restricted Stock may be
evidenced in such manner as the Grantor may deem appropriate, including,
without limitation, book-entry registration or issuance of a stock certificate
or certificates. In the event any stock certificate is issued in respect of
Restricted Stock, such certificate shall be registered in the name of the
Grantee and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Restricted Stock.

 

Section 7.6                                   Shareholder
Rights

 

Following registration in the Grantee’s name, during
the Restricted Period, the Grantee shall have the entire beneficial interest
in, and all rights and privileges of a shareholder as to, such shares of Common
Stock covered by the Restricted Stock Award, including, but not limited to, the
right to vote such shares and the right to receive dividends, subject to the
restrictions and forfeitures set forth herein. Any shares of Common Stock
distributed as a dividend or otherwise with respect to any shares of Restricted
Stock as to which the restrictions have not yet lapsed shall be subject to the
same restrictions as such Restricted Stock shares.

 

Section 7.7                                   Delivery of
Shares

 

Upon the expiration (without a forfeiture) or
earlier termination of the Restricted Period or at such earlier time as
provided under the Plan, all shares of Restricted Stock shall be released from
all restrictions and forfeiture provisions hereunder, any similar restrictions
and forfeiture provisions under the Award Agreement applicable to such shares
and all other restrictions and forfeiture provisions of the Plan or such Award
Agreement. No payment will be required from the Holder upon the delivery of any
shares of Restricted Stock, except that any amount necessary to satisfy
applicable Federal, state or local tax requirements shall be paid by the Holder
in accordance with the requirements of the Plan.

 

ARTICLE VIII 

PHANTOM STOCK UNIT AWARDS

 

Section 8.1                                   Grants

 

From time to time, the Committee may grant Phantom
Stock Unit Awards to such Reporting Persons who are Employees as the Committee
may select in its sole discretion. From time to time, the Committee or the
Chairman may grant Phantom Stock Unit Awards in such number as the Committee or
the Chairman may determine to such Nonreporting Persons as the Committee or the
Chairman may select in its or his, as the case May be, sole discretion who
are Employees; provided, however,
each and all such grants shall be subject to any maximum aggregate number of
Awards in general and Phantom Stock Unit Awards in particular established by
the Committee for grants under the Plan for Nonreporting Persons who are
Employees as a group. From time to time, the Board or Committee may grant
Phantom Stock Unit Awards to such Directors as the Board or Committee may
select in its sole discretion. A Phantom Stock Unit represents the right to
receive, without payment to the Company, shares of 

 

14

 

Common Stock, an amount of cash
equal to the value of a share of Common Stock on a future date or any
combination thereof, as determined by the Grantor.

 

Section 8.2                                   Maximum
Award to An Individual

 

No individual shall be
granted or receive in any calendar year a combination of Phantom Stock Unit
Awards representing more than 1,000,000 shares of Common Stock.

 

Section 8.3                                   Vesting of
Phantom Stock Unit Awards

 

Phantom Stock Units shall become vested as
determined by the Grantor, from time to time, and as set forth in the
applicable Award Agreement, unless otherwise described in the Plan.

 

Section 8.4                                   Cash Value
of Phantom Stock Unit Payments

 

The amount payable with respect to each vested
Phantom Stock Unit payable in cash shall be an amount determined by multiplying
the number of Phantom Stock Units by the Fair Market Value of one share of
Common Stock as of the date of payment.

 

Section 8.5                                   Time of Payment

 

Amounts payable in connection with a Phantom Stock
Unit shall be paid to the Holder, as determined by the Grantor and as set forth
in the applicable Award Agreement or in accordance with such rules, regulations
and procedures as may be adopted by the Grantor but in no event later than two
and one-half months following the end of the calendar year in which a
restriction lapses or a vesting condition is met.

 

Section 8.6                                   Nature of
Phantom Stock Units

 

Phantom Stock Units shall be used solely as a device
for the measurement and determination of the amount to be paid on behalf of
Grantees as provided in the Plan. Phantom Stock Units shall not constitute or
be treated as property or as a trust fund of any kind. All amounts at any time
attributable to the Phantom Stock Units shall be and remain the sole property
of the Company and all Grantees’ rights hereunder are limited to the rights to
receive cash or shares of Common Stock as provided in the Plan.

 

ARTICLE IX 

OTHER AWARDS

 

Section 9.1                                   Grants

 

From time to time, the Committee may grant Other
Awards to such Reporting Persons who are Employees as the Committee may select
in its sole discretion. From time to time, the Committee or the Chairman may
grant Other Awards to such Nonreporting Persons who are Employees as the
Committee or the Chairman may select in its or his, as the case may be, sole
discretion; provided, however,
each and all such grants shall be subject to any maximum aggregate amount of
Awards in general and Other Awards in particular (if any) established by the
Committee for grants under the Plan for Nonreporting Persons who are Employees
as a 

 

15

 

group. From time to time, the
Board or Committee may grant Other Awards to such Directors as the Board or
Committee may select in its sole discretion. An Other Award may or may not be
evidenced by an Award Agreement.

 

Section 9.2                                   Maximum
Award to An Individual

 

9.2.1   Awards Denominated or
Payable with Reference to Common Stock.  No individual shall be granted or receive in
any calendar year Other Awards denominated or payable in, valued in whole or in
part by reference to, or otherwise based on or related to shares of Common
Stock (including, without limitation, securities convertible into shares of Common
Stock) representing more than 1,000,000 shares of Common Stock.

 

9.2.2   Awards Denominated or
Payable with Reference to Cash. 
No individual shall be granted or receive in any calendar year Other
Awards denominated by or payable in cash representing more than $6,000,000.

 

Section 9.3                                   Description
of Other Awards

 

An Other Award may be a grant of a type of
equity-based, equity-related, or cash based Award not otherwise described by
the terms of the Plan in such amounts and subject to such terms and conditions
as determined by the Grantor, from time to time, under the Plan, including but
not limited to being subject to Performance Goals. Such Awards may provide for
the payment of shares of Common Stock or cash or any combination thereof to a
Grantee. The value of a cash-based Other Award shall be determined by the
Grantor.

 

ARTICLE X 

TERMINATION OF EMPLOYMENT OR CESSATION OF BOARD SERVICE

 

Section 10.1                            Stock
Options and SARs

 

If a Grantee who was an Employee or Director, as the
case may be, when the Grantee received the Options or SARs ceases to be an
Employee or Director of the Company and all Subsidiaries for any reason, then
the Grantee’s Options and SARs that are exercisable as of the termination or
cessation date shall be cancelled and forfeited at the end of the 120th day after such date
and all Options and SARs that are not exercisable as of the termination or
cessation date shall be forfeited and cancelled as of such date except in cases
of where such termination of employment or cessation of service is a result of (i) the
Grantee’s death or Disability, in which case the Grantee’s Options or SARs that
are not then exercisable shall thereupon become exercisable and all Options and
SARs shall remain exercisable for the balance of their respective terms, (ii) resignation
(other than for Retirement) by the Employee or Director, in which case the
Grantee’s Options or SARs that are exercisable as of such termination or
cessation date shall be cancelled and forfeited at the end of the 30th day
after such date and (iii) termination for Cause by the Company, a
Subsidiary, or the Board, in which case all of the Grantee’s Options and SARs,
whether or not then exercisable, shall be cancelled and forfeited as of such
termination date.

 

16

 

Section 10.2                            Restricted
Stock and Phantom Stock Units

 

If a Grantee who was an Employee or Director, as the
case may be, when the Grantee received the Restricted Stock or Phantom Stock
Units ceases to (i) be employed by the Company and all Subsidiaries or (ii) serve
as a Director, then all of the Grantee’s Restricted Stock and Phantom Stock
Units that remain subject to restriction or vesting at such time shall be
cancelled and forfeited except in cases of such Grantee’s death or Disability,
in which case any remaining restriction or vesting shall thereupon lapse.

 

Section 10.3                            Date of
Termination of Employment

 

Termination of employment of a Grantee for any of
the reasons enumerated in this Article X shall, for purposes of the Plan,
be deemed to have occurred as of the date which is recorded in the ordinary
course in the Company’s or a Subsidiary’s books and records in accordance with
the then-prevailing procedures and practices of the Company or the Subsidiary
or, if earlier with respect to Awards that are “deferred compensation” under Section 409A
of the Code, when a Grantee has a “separation from service” as defined in the
regulations promulgated under Section 409A of the Code.

 

Section 10.4                            Specified
Employee Restriction

 

Notwithstanding anything in this Plan to the
contrary, with respect to any Award that constitutes “nonqualified deferred
compensation” subject to Section 409A of the Code, any payments (whether
in cash, shares of Common Stock or other property) to be made with respect to
such Award upon the Holder’s termination of employment or service shall be
delayed until the first day of the seventh month following his “separation from
service” as defined under Section 409A of the Code, if the Holder is a “specified
employee” within the meaning of Section 409A of the Code (as determined in
accordance with the uniform policy adopted by the Committee with respect to all
of the arrangements subject to Section 409A of the Code maintained by the
Company and its Subsidiaries).

 

Section 10.5                            Immediate
Forfeiture; Acceleration

 

Except as otherwise provided in this Article X
or in an Award Agreement or as otherwise determined by the Grantor, once a
Grantee’s employment terminates or Board service ceases, as the case may be,
any Award that is not then exercisable or vested or as to which any
restrictions have not lapsed shall be cancelled and forfeited to the Company;
provided, however, that the Grantor may, subject to the provisions of Sections
5.3 and 6.2, extend the periods during which Awards may be exercised or provide
for acceleration or continuation of the exercise or vesting date or the lapse
of restrictions of such Awards to such extent and under such terms and
conditions as such Grantor deems appropriate.

 

Section 10.6                            Terms of
Award Agreement

 

The terms of any Award Agreement may address any of
the issues provided for in this Article. In the event of a discrepancy between
such terms and the terms of this Article, the terms of the Award Agreement
shall apply.

 

17

 

ARTICLE XI 

CERTAIN TERMS APPLICABLE TO ALL AWARDS

 

Section 11.1                            Withholding
Taxes

 

The Company and any
Subsidiary shall be authorized to withhold from any Award granted or any
payment due or transfer made under any Award or under the Plan the amount (in
cash, shares of Common Stock, other securities, or other Awards) of withholding
taxes due in respect of an Award, its exercise, or any payment or transfer
under such Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company or a Subsidiary to satisfy statutory
withholding obligations for the payment of such taxes.

 

Section 11.2                            Adjustments
to Reflect Capital Changes

 

11.2.1   Recapitalization, etc.  In the event that the Committee shall
determine that any dividend or other distribution (whether in the form of cash,
shares of Common Stock or other securities), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares of Common Stock, other securities
of the Company, issuance of warrants or other rights to purchase shares of
Common Stock or other securities of the Company, or other similar corporate
transaction or event constitutes an equity restructuring transaction, as that
term is defined in Statement of Financial Accounting Standards No. 123
(revised), or otherwise affects the shares of Common Stock, then the Committee
shall adjust the following in a manner that is determined by the Committee to
be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan:

 

11.2.1.1   the number and type of shares of Common
Stock or other securities which thereafter may be made the subject of Awards,
including the aggregate and individual limits specified in the Plan (other than
the individual limits set forth in Sections 5.1.3, 6.1.2, 7.2, 8.2 and
9.2.1, which shall not be subject to adjustment unless such adjustment can be
made in a manner that satisfies the requirements of Section 162(m) of
the Code);

 

11.2.1.2   the number and type of shares of Common
Stock or other securities subject to outstanding Awards;

 

11.2.1.3   the grant, purchase, SAR Base Amount or
Option Price with respect to any Award, or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; and

 

11.2.1.4   other value determinations applicable to
outstanding Awards.

 

11.2.2   Sale or Reorganization.  After any reorganization, merger or
consolidation whether or not the Company is the surviving corporation and
unless there is a provision in the sale or reorganization agreement to the
contrary, each Grantee shall, at no additional cost, be entitled upon any
exercise of an Option or receipt of other Award to receive (subject to any
required action by shareholders), in lieu of the number of shares of Common
Stock receivable or exercisable pursuant to such Award, the number and class of
shares of stock or other securities to which such Grantee would have been
entitled pursuant to the terms of the reorganization, merger or consolidation
if, at the time of such reorganization, merger or consolidation, such Grantee
had been the holder of record of a number of shares of stock equal to the
number of shares receivable 

 

18

 

or exercisable pursuant to such
Award. Comparable rights shall accrue to each Grantee in the event of
successive reorganizations, mergers or consolidations of the character
described above.

 

11.2.3   Options to Purchase Stock
of Acquired Companies.  After
any reorganization, merger or consolidation in which the Company or a
Subsidiary shall be a surviving corporation, the Committee may grant
substituted options under the provisions of the Plan, pursuant to Section 424
of the Code, replacing old options granted under a plan of another party to the
reorganization, merger or consolidation whose stock subject to the old options
may no longer be issued following such merger or consolidation. The foregoing
adjustments and manner of application of the foregoing provisions shall be
determined by the Committee in its sole discretion. Any such adjustments may
provide for the elimination of any fractional shares which might otherwise become
subject to any Options.

 

Section 11.3                            Failure to
Comply with Terms and Conditions

 

Notwithstanding any other provision of the Plan, any
outstanding Awards, including, without limit, any rights of payment or delivery
or any other rights of a Holder with respect to any Award shall, unless
otherwise determined by the Grantor, be immediately forfeited and cancelled if
the Holder:

 

(i)                                     breaches
any term, restriction and/or condition of the Plan, any Award Agreement or any
employment, separation or other agreement between the Holder and the Company or
its Subsidiaries; or

 

(ii)                                  while
serving as a Director or an Employee, is employed by or serves as a director of
a competitor of the Company or its Subsidiaries, or shall be engaged in any
activity in competition with the Company or its Subsidiaries; or

 

(iii)                               within
one (1) year of the Grantee’s termination of employment or cessation of
Board service with the Company and its Subsidiaries, solicits or assists in
soliciting, directly or in any manner, any person employed by the Company or a
Subsidiary to leave such employment or recruit, make an offer of employment to,
or hire any such person; or

 

(iv)                              divulges
at any time any confidential information belonging to the Company or any
Subsidiary.

 

The determination of the Grantor as to the
occurrence of any of the events specified in this Section 11.3 shall be
conclusive and binding upon all persons for all purposes.

 

Section 11.4                            Regulatory
Approvals and Listing

 

The Company shall not be required to issue any certificate
or certificates for shares of Common Stock under the Plan prior to (i) obtaining
any approval from any governmental agency which the Company shall, in its
discretion, determine to be necessary or advisable, (ii) the admission of
such shares to listing on any national securities exchange on which the Company’s
Common Stock may be listed, and (iii) the completion of any registration
or other qualification of such shares of Common Stock under any state or
Federal law or ruling or regulations of any 

 

19

 

governmental body which the
Company shall, in its discretion, determine to be necessary or advisable.

 

Section 11.5                            Restrictions
Upon Resale of Stock

 

If the shares of Common Stock that have been issued
to a Holder pursuant to the terms of the Plan are not registered under the
Securities Act of 1933, as amended (“Securities Act”), pursuant to an effective
registration statement, such Holder, if the Committee shall deem it advisable,
may be required to represent and agree in writing (i) that any such shares
acquired by such Holder pursuant to the Plan will not be sold except pursuant
to an effective registration statement under the Securities Act, or pursuant to
an exemption from registration under the Securities Act and, (ii) that
such Holder is acquiring such shares for his own account and not with a view to
the distribution thereof.

 

Section 11.6                            Reporting
Person Limitation

 

Notwithstanding any other provision of the Plan, to
the extent required to qualify for the exemption provided by Rule 16b-3
under the Act and any successor provision, any Common Stock or other equity
security offered under the Plan to a Reporting Person may not be sold for at
least six (6) months after the earlier of acquisition of the security or
the date of grant of the derivative security, if any, pursuant to which the
Common Stock or other equity security was acquired.

 

ARTICLE XII 

ADMINISTRATION OF THE PLAN

 

Section 12.1                            Committee

 

The Plan shall be administered by or under the direction
of the Committee.

 

Section 12.2                            Committee
Actions

 

Except for matters required by the terms of the Plan
to be decided by the Board or the Chairman, the Committee shall have full power
and authority to interpret and construe the Plan, to prescribe, amend and
rescind rules, regulations, policies and practices, to impose such conditions
and restrictions on Awards as it deems appropriate and to make all other
determinations necessary or desirable in connection with the administration of,
or the performance of its responsibilities under, the Plan.

 

Section 12.3                            Designation
of Beneficiary

 

Each Holder may file with the Company a written
designation of one or more persons as the Beneficiary who shall be entitled to
receive the Award, if any, payable under the Plan upon his death. A Holder may
from time to time revoke or change his Beneficiary designation without the
consent of any prior Beneficiary by filing a new designation with the Company.
The last such designation received by the Company shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the Company
prior to the Holder’s death, and in no event shall it be effective as of a date
prior to such receipt. 

 

20

 

If no such Beneficiary
designation is in effect at the time of a Holder’s death, or if no designated
Beneficiary survives the Holder or if such designation conflicts with law, the
Holder’s estate shall be entitled to receive the Award, if any, payable under
the Plan upon his death. If the Committee is in doubt as to the right of any
person to receive such Award, the Company may retain such Award, without
liability for any interest thereon, until the Committee determines the rights
thereto, or the Company may pay such Award into any court of appropriate
jurisdiction and such payment shall be a complete discharge of the liability of
the Company therefore.

 

Section 12.4                            No Right to
an Award or to Continued Employment

 

No Grantee or other person
shall have any claim or right to be granted an Award under the Plan. Neither
the action of the Company in establishing the Plan, nor any provisions hereof,
nor any action taken by the Company, any Subsidiary, the Board, the Committee
or the Chairman pursuant to such provisions shall be construed as creating in
any employee or class of employees any right with respect to continuation of
employment by the Company or any of its Subsidiaries, and they shall not be
deemed to interfere in any way with the Company’s or any Subsidiary’s right to
employ, discipline, discharge, terminate, lay off or retire any Grantee, with
or without cause, to discipline any employee, or to otherwise affect the
Company’s or a Subsidiary’s right to make employment decisions with respect to
any Grantee.

 

Section 12.5                            Discretion
of the Grantor

 

Whenever the terms of the
Plan provide for or permit a decision to be made or an action to be taken by a
Grantor, such decision may be made or such action taken in the sole and absolute
discretion of such Grantor and shall be final, conclusive and binding on all
persons for all purposes; provided, however, that the Board may review any
decision or action of the Grantor and it may reverse or modify such Award,
decision or act as it deems appropriate. The Grantor’s determinations under the
Plan, including, without limitation the determination of any person to receive
awards and the amount of such awards, need not be uniform.

 

Section 12.6                            Indemnification
and Exculpation

 

12.6.1   Indemnification.  Each person who is or shall have been a
member of the Board or the Committee and each director, officer or employee of
the Company or any Subsidiary to whom any duty or power related to the
administration or interpretation of the Plan may be delegated (each, an
“Indemnified Person”), shall be indemnified and held harmless by the Company
against and from any and all loss, cost, liability or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit or proceeding to which he may be or become a party or
in which he may be or become involved by reason of any action taken or failure
to act under the Plan and against and from any and all amounts paid by him in
settlement thereof (with the Company’s written approval) or paid by him in
satisfaction of a judgment in any such action, suit or proceeding, except a
judgment in favor of the Company based upon a finding of his bad faith;
subject, however, to the condition that upon the institution of any claim,
action, suit or proceeding against him, he shall in writing give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of, and shall be in addition to, any
other right to which such person may be 

 

21

 

entitled under the Company’s
charter or bylaws, as a matter of law or otherwise, or any power that the
Company may have to indemnify him or hold him harmless.

 

12.6.2   Exculpation.  No Indemnified Person shall be personally
liable by reason of any contract or other instrument executed by him or on his
behalf in his capacity as an Indemnified Person hereunder, nor for any mistake
of judgment made in good faith, unless otherwise provided by law. Each
Indemnified Person shall be fully justified in relying or acting upon in good
faith any information furnished in connection with the administration of the Plan
by any appropriate person or persons other than himself. In no event shall any
Indemnified Person be liable for any determination made or other action taken
or any omission to act in reliance upon such report or information, for any
action (including the furnishing of information) taken or any failure to act,
if in good faith.

 

Section 12.7                            Unfunded
Plan

 

The Plan is intended to constitute an unfunded,
long-term incentive compensation plan for certain selected employees. No
special or separate fund shall be established and no segregation of assets
shall be made to assure payment of such amounts. The Company may, but shall not
be obligated to, acquire shares of its Common Stock from time to time in
anticipation of its obligations under the Plan, but no Grantee shall have any
right in or against any shares of stock so acquired. All such stock shall
constitute general assets of the Company and may be disposed of by the Company
at such time and for such purposes as it may deem appropriate. No obligation or
liability of the Company to any Grantee with respect to any right to receive a
distribution or payment under the Plan shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company.

 

Section 12.8                            Inalienability
of Rights and Interests

 

The rights and interests of a Holder under the Plan
are personal to the Holder and to any person or persons who may become entitled
to distribution or payments under the Plan by reason of death of the Holder,
and the rights and interests of the Holder or any such person (including,
without limitation, any Award distributable or payable under the Plan) shall
not be subject in any manner to alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any such attempted action shall be void and no such
benefit or interest shall be in any manner liable for or subject to debts,
contracts, liabilities, engagements or torts of any Holder, provided that
transfers pursuant to a qualified domestic relations order shall be allowable.
If any Holder shall attempt to alienate, sell, transfer, assign, pledge,
encumber or charge any of his rights or interests under the Plan, (including
without limitation, any Award payable under the Plan) then the Committee may
hold or apply such benefit or any part thereof to or for the benefit of such
Holder in such manner and in such proportions as the Committee may consider
proper. Notwithstanding the foregoing, the Holder, subject to the approval of
the Company may elect to irrevocably transfer some or all of an Award to a
family member. For this purpose, a family member shall refer to one or more of
the Holder’s spouse, children or grandchildren, or to a trust established
solely for the benefit of, or to a partnership whose partners are, the Holder’s
spouse, children and grandchildren; provided, however, that:

 

22

 

(i)                                     the
Award, once transferred, may not again be transferred except by will or by the
laws of descent and distribution;

 

(ii)                                  the
Award, once transferred, shall remain subject to the same terms and conditions
of the Award in effect before the transfer and the transferee of the Award (the
“Transferee”) must comply with all other provisions of the Award; and

 

(iii)                               the
Holder receives no consideration for such transfer. No transferred Award shall
be exercisable following a transfer, as provided for herein, unless the
Committee receives written notice from the Holder in a form and manner
satisfactory to the Committee, in its sole discretion, to the effect that a transfer
of the Award has occurred and the notice identifies the Award transferred, the
identity of the Transferee and his relationship to the Holder.

 

Section 12.9                            Awards Not
Includable for Benefit Purposes

 

Except as otherwise set forth in any applicable 401(k) plan,
payments received by a Grantee pursuant to the provisions of the Plan shall not
be included in the determination of benefits under any pension, group insurance
or other benefit plan applicable to the Grantee which are maintained by the
Company or any of its Subsidiaries, except as may be determined by the
Committee.

 

Section 12.10                     No Issuance
of Fractional Shares

 

The Company shall not be required to deliver any
fractional share of Common Stock but, as determined by the Committee, may pay a
cash amount to the Holder in lieu thereof, except as otherwise provided in the
Plan, equal to the Fair Market Value (determined as of an appropriate date
determined by the Committee) of such fractional share.

 

Section 12.11                     Modification
for International Grantees

 

Notwithstanding any provision to the contrary, the
Committee may incorporate such provisions, or make such modifications or
amendments in Award Agreements of Grantees who reside or are employed outside
of the United States of America, or who are citizens of a country other than
the United States of America, as the Committee deems necessary or appropriate
to accomplish the purposes of the Plan with respect to such Grantee in light of
differences in applicable law, tax policies or customs, and to ascertain
compliance with all applicable laws.

 

Section 12.12                     Leaves of
Absence

 

The Committee shall be entitled to make such rules,
regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence taken by the recipient of any Award. Without
limiting the generality of the foregoing, the Grantor shall be entitled to
determine (a) whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan and, (b) the
impact, if any, of any such leave of absence on awards under the Plan
theretofore made to any recipient who takes such leave of absence.
Notwithstanding the foregoing, with respect to Awards that are “deferred
compensation” under Section 409A of the Code, any leave of absence taken
by the recipient shall 

 

23

 

constitute a termination of
employment within the meaning of the Plan when the recipient has a “separation
from service” as defined in the regulations promulgated under Section 409A
of the Code.

 

Section 12.13                     Communications

 

12.13.1   Communications by the
Grantor.  All notices,
statements, reports and other communications made, delivered or transmitted to
a Holder or other person under the Plan shall be deemed to have been duly
given, made or transmitted, when sent electronically to a Company or Subsidiary
e-mail address, when delivered to, or when mailed by first-class mail, postage
prepaid and addressed to, such Holder or other person at his address last
appearing on the records of the Company.

 

12.13.2   Communications by the
Directors, Employees, and Others. 
All elections, designations, requests, notices, instructions and other
communications made, delivered or transmitted by the Company, a Subsidiary,
Grantee, Beneficiary or other person to the Committee required or permitted
under the Plan shall be transmitted by any means authorized by the Committee or
shall be mailed by first-class mail or delivered to the Company’s principal
office to the attention of the Company’s Secretary or such other location as
may be specified by the Committee, and shall be deemed to have been given and
delivered only upon actual receipt thereof by the Committee at such location.

 

Section 12.14                     Parties in
Interest

 

The provisions of the Plan and the terms and
conditions of any Award shall, in accordance with their terms, be binding upon,
and inure to the benefit of, all successors of each Grantee, including, without
limitation, such Grantee’s estate and the executors, administrators, or trustees
thereof, heirs and legatees, and any receiver, trustee in bankruptcy or
representative of creditors of such Grantee. The obligations of the Company
under the Plan shall be binding upon the Company and its successors and
assigns.

 

Section 12.15                     Severability

 

Whenever possible, each provision in the Plan and
every Award at any time granted under the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Award at any time granted under the Plan shall be held to be
prohibited by or invalid under applicable law, then (a) such provision
shall be deemed amended to accomplish the objectives of the provision as
originally written to the fullest extent permitted by law, and (b) all other
provisions of the Plan and every other Award at any time granted under the Plan
shall remain in full force and effect.

 

Section 12.16                     Compliance
with Laws

 

The Plan and the grant of Awards shall be subject to
all applicable Federal and state laws, rules and regulations and to such
approvals by any government or regulatory agency as may be required. It is
intended that the Plan be applied and administered in compliance with Rule 16b-3.
If any provision of the Plan would be in violation of Rule 16b-3 if applied
as written, such provision shall not have effect as written and shall be given
effect so as to comply with 

 

24

 

Rule 16b-3, as determined
by the Committee. The Board is authorized to amend the Plan and to make any
such modifications to Award Agreements to comply with Rule 16b-3, and to
make any such other amendments or modifications as it deems necessary or
appropriate to better accomplish the purposes of the Plan in light of any
amendments made to Rule 16b-3.

 

Section 12.17                     No Strict
Construction

 

No rule of strict construction shall be implied
against the Company, the Committee, the Chairman or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the
Plan or any rule or procedure established by the Committee or the Board.

 

Section 12.18                     Modification

 

This document contains all of the provisions of the
Plan and no provisions may be waived, modified or otherwise altered except in a
writing adopted by the Board.

 

Section 12.19                     Governing
Law

 

All questions pertaining to validity, construction
and administration of the Plan and the rights of all persons hereunder shall be
determined with reference to, and the provisions of the Plan shall be governed
by and shall be construed in conformity with, the internal laws of the
Commonwealth of Pennsylvania without regard to any of its conflict of laws
principles.

 

ARTICLE XIII 

CHANGE OF CONTROL

 

Section 13.1                            Options and
SARS

 

In the event of a Change of Control, all Options and
SARs outstanding on the date of such Change of Control shall become immediately
and fully exercisable, provided that in the case of any outstanding Options or
SARs subject to a performance-based vesting schedule, performance shall be
deemed to have been achieved at the target level or, if greater, the actual
level of achievement as of the date of the Change of Control, annualized for
the entire performance period, if appropriate, and, in the case of SARs, if
payable in cash, shall be paid within thirty (30) days after a Change of
Control to all Grantees who have been granted such Award. In all other respects
not inconsistent with such acceleration, the Options and SARs shall continue to
be governed by the terms of their Award Agreements and the Plan.

 

Section 13.2                            Restricted
Stock Awards and Phantom Stock Unit Awards

 

In the event of a Change of Control, all
restrictions with respect to Restricted Stock Awards and Phantom Stock Unit
Awards shall immediately lapse, provided that in the case of any outstanding
Restricted Stock Awards or Phantom Stock Unit Awards with restrictions subject
to the achievement of certain performance-based goals, performance shall be
deemed to have been achieved at the target level or, if greater, the actual
level of achievement as of the date of the Change of Control, annualized for
the entire performance period, if appropriate, and, if payable in cash, shall
be paid within thirty (30) days after a Change of Control to all Grantees
who have been granted such Award.

 

25

 

ARTICLE XIV 

AMENDMENT AND TERMINATION

 

Section 14.1                            Amendment;
No Repricing

 

The Board with respect to
the Plan, and the Grantor with respect to any Award Agreement, reserve the
right at any time or times to modify, alter or amend, in whole or in part, any
or all of the provisions of the Plan or any Award Agreement to any extent and
in any manner that it or he, as the case may be, may deem advisable, and no
consent or approval by the shareholders of the Company, by any Grantee or
Beneficiary, or by any other person, committee or entity of any kind shall be
required to make any modification, alteration or amendment; provided, however, that the Board shall
not, without the requisite affirmative approval of the shareholders of the
Company, make any modification, alteration or amendment that requires
shareholders’ approval under any applicable law, the Code or stock exchange
requirements. No modification, alteration or amendment of the Plan or any Award
Agreement may, without the consent of the Grantee (or the Grantee’s
Beneficiaries in case of the Grantee’s death) to whom any Award shall
theretofore have been granted under the Plan, adversely affect any right of
such Grantee under such Award, except in accordance with the provisions of the
Plan and/or any Award Agreement applicable to any such Award. Subject to the
provisions of this Section 14.1, any modification, alteration or amendment
of any provisions of the Plan may be made retroactively. Except as otherwise
provided in Section 11.2 hereof, neither the Committee nor the Board shall
reduce the SAR Base Amount or Option Price, as applicable, of Stock Options or
SARS previously awarded to any Grantee, whether through amendment, cancellation
or replacement grant, or any other means, without the requisite prior
affirmative approval of the shareholders of the Company.

 

Section 14.2                            Suspension
or Termination

 

The Board reserves the right at any time to suspend
or terminate, in whole or in part, any or all of the provisions of the Plan for
any reason and without the consent of or approval by the shareholders of the
Company, any Holder or any other person, committee or entity of any kind; provided, however, that no such suspension
or termination shall adversely affect any right or obligation with respect to
any Award theretofore made except as herein otherwise provided.

 

ARTICLE XV 

SECTION 409A

 

It is the intention of the Company that no Award
shall constitute a “nonqualified deferred compensation plan” subject to Section 409A
of the Code, unless and to the extent that the Grantor specifically determines
otherwise as provided in the immediately following sentence, and the Plan and
the terms and conditions of all Awards shall be interpreted accordingly. The
terms and conditions governing any Awards that the Grantor determines will be
subject to Section 409A of the Code, including any rules for elective
or mandatory deferral of the delivery of cash or shares pursuant thereto and
any rules regarding treatment of such Awards in the event of a Change of
Control, shall be set forth in the applicable Award Agreement, and shall comply
in all respects with Section 409A of the Code.

 

26

 

ARTICLE XVI 

EFFECTIVE DATE AND TERM OF THE PLAN

 

The Plan shall become effective on the Effective
Date if it is approved by the shareholders of the Company. No Award shall be
granted under the Plan after the date specified in Section 4.1.4. The Plan
will continue in effect for existing Awards as long as any such Awards are
outstanding.

 

27

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