SECOND AMENDMENT TO JOINT VENTURE AGREEMENT
RELATING TO NEW JERSEY ASSETS
This Second Amendment to Joint Venture Agreement (the ASecond
Amendment@) is made and entered into as of the _29 day of July, 1999, by,
between and among Greenwood New Jersey, Inc., (AGNJ@) Greenwood Racing Inc. as
successor in interest to Greenwood New Jersey, Inc. (AGRI@) (GNJ and GRI are
collectively referred to as "Greenwood") and Penn National Gaming, Inc.
("Penn"), the parties to a Joint Venture Agreement dated October 30, 1998, as
previously modified by a letter from Penn to Greenwood dated November 2, 1998
and as amended by the First Amendment to Joint Venture Agreement dated January
28, 1999 and as may be further amended or modified (the "Joint Venture
Agreement"). Certain defined terms used herein are based on the definitions of
the Asset Purchase Agreement of July 2, 1998.
The parties desire to enter into this Second Amendment to Joint Venture
Agreement, and agree as follows:
1. Subsequent Closing. Penn's admission to the Joint Venture Entities (as
defined in the First Amendment to Joint Venture Agreement) is conditioned upon
and is taking place simultaneously with the closing and funding of the Loan, as
defined below (the "Commerce Bank Closing"), which shall occur simultaneously
with the execution of this Second Amendment. In lieu of further investments as
provided in the First Amendment to Joint Venture Agreement, pursuant to which
the parties had agreed that Penn would invest an additional eleven million seven
hundred fifty thousand dollars ($11,750,000) and Greenwood would invest an
additional eleven million two hundred fifty thousand ($11,250,000) in the Joint
Venture Entities, two of the Joint Venture Entities, GS Park Racing, L.P. and FR
Park Racing, L.P. (collectively, the "Borrowers"), are simultaneously borrowing
twenty three million dollars ($23,000,000) (the "Loan") from Commerce Bank,
N.A., a national banking association (the "Lender"). A portion of the proceeds
of the Loan will be used to repay principal and any accrued interest on such
principal to certain affiliates of Greenwood which loaned nineteen million
dollars ($19,000,000) to the Joint Venture Entities in May and June 1999, with
the balance of the Loan to be used by the Joint Venture for working capital.
2. Distribution of Profits. The amount of one million four hundred fifty
thousand dollars ($1,450,000), representing an advance against the net profit of
the Joint Venture Entities for the period from January 28, 1999 through 11:59 PM
EST on the Closing Date (the "First Period"), shall be distributed at the
Commerce Bank Closing to those affiliates of Greenwood Racing Inc. which are the
partners in the Joint Venture Entities prior to the admission of the Penn
affiliates as partners in the Joint Venture Entities (the "Distribution"). All
net profit of the Joint Venture Entities shall be allocated to the Greenwood
affiliates for the First Period. The actual net profit for the First Period
shall be determined by generally accepted accounting principles not later than
forty-five (45) days after the date hereof, and an adjustment in the
Distribution to reflect such actual net profit shall be made within five (5)
days of such determination. It is currently estimated that the net profit
through the date hereof is approximately two million dollars ($2,000,000).
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3. Capitalization. At the Initial Closing, the parties to the Joint Venture
Agreement or their affiliates lent unequal amounts to the Joint Venture
Entities. The amount lent by Penn was eleven million two hundred fifty thousand
dollars ($11,250,00) and the amount lent by Greenwood affiliates was eleven
million five hundred dollars ($11,500,000). These loans are hereinafter referred
to as the "Penn Loan" and the "Greenwood Loan", respectively. The Greenwood loan
has been assigned to Rock Ltd. and Vectura Establishment. At the Commerce Bank
Closing, FR Park Racing, L.P. will reduce the principal balance of the Greenwood
Loan by two hundred fifty thousand dollars ($250,000) by payment of such amount
to equalize the principal amount of the loans. Attached hereto as Exhibit "A"
and made a part hereof, is a schedule showing the agreed upon equity and debt
structure of the Joint Venture Entities following the admission of Penn as an
owner. At the Commerce Bank Closing, the parties to the Joint Venture Agreement
or their affiliates will make aggregate equity contributions of five hundred
thousand ($500,000) to the Joint Venture Entities as set forth on Exhibit A.
4. Credit Enhancement.
(1) Pursuant to the Joint Venture Agreement, the costs, obligations,
responsibilities, liabilities and risks involved with this Joint Venture are to
be borne equally by the parties. Nothing in the First Amendment to Joint Venture
Agreement, this Second Amendment or the Joint Venture Documents is intended to
modify this provision.
(2) In consideration of the fact that the DMSA and the Greenwood Guaranties
are unequal in their nature due to a limitation on Penn's performance under the
DMSA as may be required by the Indenture dated December 12, 1997 relating to
Penn's $80 Million Senior Notes ("Indenture"), on the date hereof, and as a
condition precedent to Penn's admission as an owner, Penn will pay to Greenwood
the sum of four hundred thousand dollars ($400,000) as a credit enhancement fee.
Thereafter, on July 30, 2000 and each quarterly anniversary thereof, Penn will
pay to Greenwood an additional credit enhancement fee in the amount of one-half
of one percent (0.5%) of the outstanding principal balance of the Loan, plus the
amount of any Loan repayments by Greenwood or an affiliate of Greenwood under
the Greenwood Guaranties, reduced by the amount of any required compensating
balances, calculated as of each quarterly date on which each payment is being
made; provided, however, that the credit enhancement fee payments will cease
upon the first of the following to occur: (i) the obligation under the Greenwood
Guaranties is no longer in existence; (ii) the obligations of Penn under the
DMSA are equal in dollar amount and in all other material respects to the
obligation of the Greenwood Guaranties, and not limited by the Indenture or any
provision of Penn's loan from First Union, or any other contractual obligation
of Penn; or (iii) Penn has, from its own assets, paid to the holder of the Loan,
an amount equal to one-half of the balance of the Loan in accordance with the
DMSA, or otherwise, and the Loan balance has been reduced by such amount.
5. Purchase of Commerce Bank Obligation.
(1) Until one or more of the conditions to the elimination of the credit
enhancement fee set forth in Paragraph 4(b) has occurred, Penn acknowledges that
any member of the Greenwood Group, following a default by borrowers under the
Loan, or if Greenwood has a reasonable basis for concluding that a default under
the Loan is likely to occur in the near term, may purchase from the Lender the
obligations of the Joint Venture Entities to the Lender, and that Greenwood or
its affiliates may exercise all rights of the Lender, without consultation with
Penn, and in doing so will not breach any duty or obligation owed to Penn or its
affiliates.
(1)
(2) If one or more of the conditions to the elimination of the credit
enhancement fee set forth in Paragraph 4(b) has occurred, either Penn or
Greenwood (or an affiliate of Greenwood) may
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purchase the Loan or an interest in the Loan if the purchasing party gives
the other joint venture party (including Greenwood affiliates by notice to
Greenwood, in the case of Greenwood), the option to acquire an equal interest in
the Loan.
(3) Both GRI and Penn, under their respective Subordination and Intercreditor
Agreements with Commerce Bank, have rights to acquire Freehold Raceway and/or
the Garden State Assets from Commerce Bank under certain circumstances. The
right is first offered to GRI and the parties agree that any offer submitted to
Commerce Bank shall be submitted as a joint offer on behalf of the Joint Venture
to Commerce Bank, unless either Penn or GRI determine that it does not desire to
participate in such joint offer. If Penn determines that it does not agree to
participate in the joint offer, GRI may exercise its rights and may make an
offer for itself. If GRI determines that it does not agree to participate in the
joint offer, Penn may exercise its rights and may make an offer for itself. In
the event that after the submission of the joint offer, either party fails to
perform its obligation as a purchaser, the non-breaching party may proceed to
purchase Freehold Raceway and/or the Garden State Assets for itself.
6. Structure of Joint Venture. The parties to the Joint Venture Agreement hereby
acknowledge and agree that the Joint Venture will be structured in accordance
with the chart attached hereto as Exhibit "B" and made a part hereof.
7. Future Capital Requirements of the Joint Venture. The parties to the Joint
Venture Agreement acknowledge that additional capital may be required in
connection with the operations of the Joint Venture, including, but not limited
to, the development of off-track wagering facilities and telephone wagering
networks, if permitted by New Jersey legislation ("Development"). An Amendment
to the Indenture of Penn dated May 19, 1999 obtained by Penn (the "Amended
Indenture") permits Penn to invest up to four million dollars ($4,000,000) for
Development (the "Restricted Funds"). In addition, pursuant to a formula in the
Indenture, Penn may have funds available under its "Restricted Payments" basket
for investment without restrictions (the "Restricted Payments Basket"). In
connection with future capital requirements, the parties agree as follows:
(1) Penn presently has available not less than two million dollars ($2,000,000)
of its Restricted Payments Basket which it agrees to restrict for a possible
equity investment in or to fund capital requirements of the Joint Venture
Entities (the "Unrestricted Funds"), in addition to the Restricted Funds
presently available under the Amended Indenture. At all time from the date
hereof and until the earlier of (i) Development is complete following
authorizing legislation, or (ii) efforts to obtain authorizing legislation is
abandoned by the Joint Venture (the "Development Period"), Penn will have
available both the Restricted Funds or the otherwise Unrestricted Funds for
Development purposes. During the Development Period, Penn will refrain from
making any investment or other use of the funds that would diminish either the
level of Unrestricted Funds or Restricted Funds, except to the extent that such
Restricted Funds or Unrestricted Funds are diminished by Penn's investment in
the Joint Venture, subsequent to the investment by Penn through the time of the
Commerce Bank Closing ("Subsequent Investment"). Any Subsequent Investment must
first be made from Unrestricted Funds until two million dollars ($2,000,000) has
been invested from Unrestricted Funds, after which Subsequent Investment will be
made from Restricted Funds.
(2) Penn's Chief Financial Officer shall within forty-five (45) days after the
end of each of Penn's fiscal quarters during the Development Period certify to
Greenwood the amount of Unrestricted Funds and Restricted Funds available for
Development. At any time that the aggregate Unrestricted Funds and Restricted
Funds available for Development do not equal at least six million dollars
($6,000,000), less Penn's Subsequent Investment, upon Greenwood's written notice
to Penn of
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not less than fifteen (15) days, the voting rights of Greenwood and Penn in
Pennwood Racing, Inc.
shall be automatically immediately modified to provide Greenwood with sixty
percent (60%) of the voting rights and Penn with forty percent (40%) of the
voting rights; and the composition of Pennwood Racing, Inc.=s Board of Directors
will be changed to four (4) representatives of Greenwood and three (3)
representatives of Penn. The voting rights of Greenwood and Penn shall be
restored to a 50-50 relationship and the Board composition to Pennwood restored
to an even representation on the fifteenth (15th) day following the date that
the aggregate Unrestricted Funds and Restricted Funds available for Development
equal at least six million dollars ($6,000,000) diminished only by Penn=s
Subsequent Investment, and Penn=s Chief Financial Officer certifies that fact in
writing to Greenwood.
(3) Each year, prior to November 30, Xxx Xxxxxx, Xxxx Xxxx, Xxxx Xxxxx, Xxxxxx
Xxxxxxxx, and in each case, their successors in office in the event they are no
longer serving as officers of Greenwood or Penn, shall in good faith, develop a
business plan for the Joint Venture Entities for the year which will commence on
the subsequent January 1. The Business Plan will include a good faith estimate
of capital which will be required from the Joint Venture partners, if any,
during the year for which the Business Plan is developed. The parties agree to
use their best efforts to have available the capital required for effecting the
Business Plan.
8. Additional Conditions. In order for the Joint Venture to be reinstated and
Penn admitted to ownership in the Joint Venture Entities concurrently with the
execution hereof, the following additional conditions precedent must be
satisfied, as determined by Greenwood in its reasonable opinion:
(1) Penn has received the approval of its noteholders and of all other persons,
parties or entities whose approval would be required, to perform its obligations
pursuant to the following documents, or in the case of subparagraph (iii) below,
does not require any such approvals:
(1) The Contingent Guaranty, executed by Penn
for the benefit of International
Thoroughbred Breeders, Inc., dated January
28, 1999 (the "Contingent Guaranty");
(2) The Trigger Guaranty by, between and among
Greenwood, Penn and Credit Suisse First
Boston Mortgage Capital LLC ("CSFB"), dated
January 28, 1999 (the "Trigger Guaranty");
and
(3) The Joint Venture documents identified on
Schedule I to Exhibit "C" attached hereto.
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(2) All conditions to the effectiveness of the Contingent Guaranty as set forth
in Section 1 of the Contingent Guaranty have been satisfied.
(3) All conditions to the effectiveness of the Trigger Guaranty as set forth in
Section 20 of the Trigger Guaranty have been satisfied.
(4) Xxxxxx, Xxxxx & Xxxxxxx, LLP shall have delivered its opinion to Greenwood,
in the form attached hereto as Exhibit "C". -----------
9. Scope of the Joint Venture. Paragraph 5 of the Joint Venture Agreement dated
October 30, 1998 is hereby amended and restated so as to read in its entirety:
"The joint venture provided for in this Joint Venture Agreement relates to the
ownership and operation of (a) Freehold Raceway, (b) Garden State Race Track,
and (c) OTB Facilities and phone betting operations to be operated in New Jersey
to the extent such OTB Facilities and phone betting operations are permitted by
New Jersey legislation to be conducted as a result of the holding of licenses to
conduct racing at Freehold Raceway and Garden State Race Track. However, each
party conducts other related businesses outside of New Jersey, including
competing businesses, and this Agreement shall not apply to any such other
activities; nor shall it prevent the parties from individually engaging in
additional activities both within and outside of New Jersey which are not
related to the ownership and operation of Freehold Raceway and Garden State Race
Track, including without limitation, the ownership and operation of one or more
additional racetracks in New Jersey, or OTB Facilities not operated as a result
of the holding of licenses to conduct racing at Freehold Raceway or Garden State
Race Track.@
In all other respects, the Joint Venture Agreement is hereby ratified
and affirmed.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Joint Venture Agreement as of the date first above written.
GREENWOOD NEW JERSEY, INC.
By: /s/ Xxxxxx X.
Xxxxxx
Xxxxxx X. Xxxxxx, President
GREENWOOD RACING INC.
By: /s/ Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx, President
PENN NATIONAL GAMING, INC.
By: /s/ Xxxxxx X.
Xxxxxxxx
Xxxxxx X. Xxxxxxxx, Secretary and Treasurer
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