THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Penn National Gaming, Inc. (PENN)

4/28/2006 Proxy Information

In August 1994, the Company signed a consulting agreement with Peter D. Carlino, former Chairman of the Company. Pursuant to the consulting agreement, as amended, Peter D. Carlino receives an annual fee of $135,000. Peter D. Carlino is the father of Peter M. Carlino, the Chairman of the Board and Chief Executive Officer of the Company (the “CEO”).

The Company has paid premiums on life insurance policies (the “Policies”) on behalf of certain irrevocable trusts (the “Trusts”) created by the CEO. The policies cover the CEO’s life and that of his spouse. The Trusts are the owners and beneficiaries of the policies and are obligated to reimburse the Company for all premiums paid when the insurance matures or upon death. To secure the Company’s interest in each of the Policies, the Trusts have executed a collateral assignment of each of the Policies to the Company. At December 31, 2005, the Company has recorded a receivable in other assets from the Trusts in the amount of $2,146,363. The Company paid premiums for these policies totaling $238,000, $238,000 and $249,000 in 2005, 2004 and 2003, respectively.

The Company currently leases 26,596 square feet of office and warehouse space for buildings in Wyomissing, Pennsylvania for its executive offices from affiliates of the CEO. Rent expense for the years ended December 31, 2005, 2004 and 2003 amounted to $465,000, $369,000 and $326,000, respectively. The leases for the office space expire in June 2008, March 2012 and May 2012, and the lease for the warehouse space expires in August 2006. The Company also paid $400,000 in construction costs related to these leased facilities to these same affiliates in 2005. Based on its research, the Company believes that the lease terms of the leases are not less favorable than lease terms available from an unaffiliated third party. In addition, the Company believes that construction services were performed on terms no less favorable than the terms that could have been obtained from an unaffiliated third party.

During 2005, Bear Stearns performed certain financial advisory, banking and investment banking services for the Company. David A. Handler, a director of the Company, is a Senior Managing Director of Bear Stearns. The Company anticipates that Bear Stearns will continue to be retained to perform services in 2006. The services performed during 2005 were provided to the Company on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties, and Bear Stearns compensation in connection with such services did not exceed 5% of Bear Stearns’ consolidated gross revenues for its last full fiscal year.

Eric Schippers, the Vice President, Public Affairs of the Company is the son-in-law of the CEO. Mr. Schippers joined the Company in 2003. From 1998 to 2003, Mr. Schippers was President of the Alexandria, Virginia-based Center for Individual Freedom, a non-partisan constitutional advocacy group. Mr. Shippers has also worked for Burson-Marsteller, one of the world’s largest international public relations firms, representing numerous Fortune 500 clients in the areas of media relations, public affairs, crisis communications and constituency relations. In 2005, Mr. Schippers received a salary of $220,000, a bonus of $105,000 and options to purchase 15,000 shares of the Company’s Common stock.

John Walborn, the Vice President, Quality Assurance of the Company is the brother-in-law of the CEO. Mr. Walborn joined the Company in 1998 as Director of Quality and Facility Operations where he was responsible for overseeing off track wagering business needs and opportunities. Mr. Walborn was promoted in January 2002 to his present position of Vice President of Quality Assurance. Prior to joining the Company, Mr. Walborn held positions as President of Pretzel Gourmet, President of Scarborough Fair, and President and Chief Executive Officer of Ko-Ord Services, an operational division of a chain of Arby’s Roast Beef franchises. In 2005, Mr. Walborn received a salary of $130,000, a bonus of $30,000 and options to purchase 30,000 shares of the Company’s Common stock.

Richard J. Carlino, the brother of the CEO, was the President of Penn National Speedway, Inc., a wholly owned subsidiary of the Company from 1995 and until April 1, 2006. In connection with the planned demolition of the speedway to build the new integrated racing and gaming facility at Penn National Race Course, Mr. Carlino’s position was eliminated. From 1986 to 1995, Mr. Carlino worked in various positions at the Penn National Race Course, including as Starter and Director of Construction for Off-Track Wagering. Mr. Carlino received a salary of $75,000 in 2005.

4/29/2005 Proxy Information

In August 1994, the Company signed a consulting agreement with Peter D. Carlino, former Chairman of the Company. Pursuant to the consulting agreement, as amended, Peter D. Carlino receives an annual fee of $135,000. Peter D. Carlino is the father of Peter M. Carlino, the Chairman of the Board and Chief Executive Officer of the Company.

The Company paid premiums on life insurance policies (the "Policies") on behalf of certain irrevocable trusts (the "Trusts") created by the Company's Chief Executive Officer ("CEO"). The policies cover the CEO's life and that of his spouse. The Trusts are the owners and beneficiaries of the policies and are obligated to reimburse the Company for all premiums paid when the insurance matures or upon death. As of December 31, 2004, the Company has recorded receivables from such trusts in the amount of $1,908,000. The Company paid premiums of $227,000, $249,000 and $238,000 in 2002, 2003 and 2004, respectively.

The Company currently leases 21,096 square feet of office space in two office buildings in Wyomissing, Pennsylvania for the Company's executive offices, that have lease terms expiring in March and May, 2012, respectively.

In addition, the Company has entered into a lease for 5,500 square feet of office space in an office building in Wyomissing, Pennsylvania for additional office space and for temporary offices during renovation of the Company's primary offices, with a term of three years that will commence on the date the Company takes occupancy of the space following fit-out of the space. The Company also has a three year lease for 1,042 square feet of storage space in a building in Wyomissing, Pennsylvania that expires in August, 2006. The office buildings and storage space are owned by an affiliate of Peter M. Carlino, the Company's Chairman and Chief Executive Officer. In 2004, payments totaling $347,000 were made in connection with the leases, not including the lease for the 5,500 square feet of office space which has not yet commenced. Based on its research, the Company believes that the lease terms of both leases are not less favorable than lease terms available from an unaffiliated third party.

On April 5, 2005, the Company entered into a Letter Agreement for the Construction of Certain Improvements (the "Letter Agreement") with CDG Commercial Builders, Inc. in the amount of $77,582 for the construction of improvements to the Company's for the 5,500 square feet of additional office space and for temporary offices. Such improvements include materials, labor and permits for the installation of an emergency generator. CDG Commercial Builders, Inc. is owned by an affiliate of Peter M. Carlino, the Company's Chairman and Chief Executive Officer. The Company believes that the terms of the Letter Agreement are not less favorable than the terms that could have been obtained from an unaffiliated third party.

During 2004, Bear Stearns and Co., Inc. performed certain financial advisory and investment banking services for the Company. David A. Handler, a director of the Company, is a Senior Managing Director of Bear Stearns and Co., Inc. The Company anticipates that Bear Stearns and Co. will continue to be retained to perform services in 2005. The services performed during 2004 were provided to the Company on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties, and Bear Stearns and Co.'s compensation in connection with such services did not exceed five percent (5%) of Bear Stearns and Co.'s consolidated gross revenues for its last full fiscal year.