Penn National Gaming and PNG Terminate Merger Agreement

. October 14, 2008

JULY 3, 2008. Penn National Gaming, Inc. (Nasdaq: PENN) ("the Company") announced today it has entered into an agreement with PNG Acquisition Company Inc., an entity indirectly owned by certain funds managed by affiliates of Fortress Investment Group LLC (NYSE: FIG) ("Fortress") and Centerbridge Partners, L.P. ("Centerbridge"), to terminate the proposed merger agreement whereby Penn National Gaming was to be acquired by PNG Acquisition Company for $67.00 per share. In connection with the termination of the merger agreement, Penn National Gaming will receive $1.475 billion, which will consist of a $225 million cash termination fee and the purchase of $1.25 billion of Penn National Gaming's redeemable preferred equity due 2015, by affiliates of Fortress, affiliates of Centerbridge, affiliates of Wachovia, and affiliates of Deutsche Bank (collectively "Equity Purchasers").

Based on discussions between Penn National Gaming and PNG Acquisition Company, it became apparent to Penn National Gaming and its Board of Directors that the proposed merger transaction would not be completed without significant and lengthy litigation which is inherently unpredictable. Further, it also became apparent to the Company and its Board that a re-negotiated, reduced purchase price was not a viable option.

The management and Board of Directors of Penn National Gaming concluded that the likelihood of successfully navigating the remaining regulatory approvals, credit facility conditions for funding and likely litigation required to complete these tasks was highly uncertain. Accordingly, Penn National Gaming, in consultation with external legal and financial advisors, determined that terminating the agreement under the aforementioned terms brings the most certain value to Penn National Gaming shareholders given current economic conditions, the state of the capital markets and the gaming industry outlook.

The economics for Penn National Gaming of the agreements relating to the termination of the merger agreement and the equity purchase are as follows:

-- The Company receives a $225 million termination fee; and,

-- The Company receives an aggregate of $1.25 billion in connection with a sale of redeemable preferred stock to Fortress and Centerbridge (including $45 million of such amount to be purchased by Deutsche Bank and Wachovia, entities which had originally agreed to make indirect minority co-investments in the Company if the merger had closed) under the following terms:

---|- The preferred equity does not have a yield associated with it;

---|- To the extent the Company pays a dividend, the preferred equity holders will also receive a dividend on a pro rata fully converted basis;

---|- The preferred equity will remain outstanding until its maturity in June 2015, unless there is a change in control transaction involving payments of cash or property to all holders of common stock;

---|- At maturity, Penn National Gaming will redeem the outstanding redeemable preferred equity for, at the Company's election, cash, common stock or any combination in an amount based on the trading price of the Company's common stock at such time;

---|- If the Company elects to redeem the preferred equity with common shares at maturity, the Company would issue between 18.7 million shares and 27.8 million shares of its common stock if Penn National Gaming shares are trading between $67 per share and $45 per share, with no further adjustments if the common shares are trading above or below such range. The Company also has the option to pay cash based on the converted value.

-- The preferred equity has no voting rights (other than in regard to adverse changes to the rights and privileges of the preferred equity or certain business combination transactions);

-- The Equity Purchasers have agreed to a broad standstill and voting agreement which expires in certain circumstances.

-- Penn National Gaming has agreed to register the redeemable preferred equity with the Securities and Exchange Commission to allow the security to be publicly traded and has provided certain of the purchasers with preemptive rights.

Penn National Gaming will receive, from a combination of PNG Acquisition Company, Deutsche Bank and Wachovia, the $1.475 billion payment as follows:

-- $700 million as a non-refundable deposit to be wired to Penn National Gaming on July 3, 2008;

-- $775 million to the escrow agent by July 18, 2008 with funds released to Penn National Gaming upon the issuance of the Series B Redeemable Preferred in accordance with the terms of the stock purchase agreement, including customary regulatory approvals.

The foregoing is a summary of which is qualified in its entirety by definitive agreements among the parties that will be filed by Penn National Gaming with the Securities and Exchange Commission on Form 8-K.

Upon receipt of the initial $700 million, all of the parties to the proposed merger transactions and equity and debt financing arrangements entered into mutual releases of liability with respect to these matters. In the event the conditions to this stock purchase agreement are not satisfied, the Company is entitled to retain the initial $700 million payment and no equity will be issued to Equity Purchasers.

Penn National Gaming intends to use the net proceeds from the investment and the after tax proceeds from the termination fee to repay existing debt, to acquire or develop pari-mutuel and gaming facilities and for such other uses as may be authorized from time to time by the Board of Directors, including repurchases of its common stock. As of May 31, 2008 Penn National Gaming had outstanding debt of approximately $2.97 billion.

Penn National's Board of Directors has authorized the repurchase of up to $200 million of the Company's common stock over the next 24 months. Purchases may be made from time to time in the open market or in privately negotiated transactions in accordance with applicable securities laws. The actual number of shares to be purchased will depend upon market conditions. All shares purchased will be held in the Company's treasury for possible future use. As of June 30, 2008, the Company had approximately 86.9 million shares issued and outstanding.

Peter M. Carlino, Chief Executive Officer of Penn National commented, "We are extremely disappointed that the Company's shareholders will not receive the $67 per share merger consideration. Our decision to enter into the agreements announced today follows a thorough evaluation of a wide range of alternatives for consummating the transaction. The prospect of employing litigation to enforce performance of the merger agreement would inherently expose the Company to the significant risk related to a protracted legal process. We may be in the gaming business, but we would never gamble the Company's future and our shareholders' best interest in this or any other circumstance.

"This transaction represents the Company's best alternative to the uncertainty of litigation and delivers immediate tangible and material value to our stockholders. Importantly, we are confident that we can very effectively deploy this capital to generate significant value for our stockholders based on our well established track record of delivering long-term growth through a focus on return on investment and disciplined financial and risk management. In this regard, we believe the substantial capital infusion will enable Penn National to be aggressively opportunistic at a time when gaming industry valuations appear very attractive. Our ability to structure and integrate accretive, strategic acquisitions has been an important driver of Penn National's long-term financial growth and any such future activity would complement our current operations -- including our recently opened facilities in Pennsylvania and Maine -- and staggered pipeline of announced development projects including those in Indiana and Kansas. Finally, we are initiating guidance today for 2008 EBITDA of approximately $682 million and believe that this metric should be considered in conjunction with the considerable economic value of the settlement and our 14 year track record of creating value for shareholders to determine an appropriate value for Penn National Gaming's assets, operations and growth prospects."

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