




                SENIOR SECURED MULTIPLE DRAW TERM LOAN AGREEMENT

                          Dated as of December 13, 1999

                                      among

                   PENN NATIONAL GAMING OF WEST VIRGINIA, INC.

                                  as Borrower,

                           PENN NATIONAL GAMING, INC.

                                  as Guarantor,

                         The Lenders referred to herein

                                       and

                             BANK OF AMERICA, N.A.,

                             as Administrative Agent

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                                TABLE OF CONTENTS

                                                                         Page

Article 1
             DEFINITIONS AND ACCOUNTING TERMS        1
             1.1  Defined Terms     1
             1.2  Use of Defined Terms      23
             1.3  Accounting Terms  23
             1.4  Rounding 23
             1.5  Exhibits and Schedules    23
             1.6  References to "and its Subsidiaries"        23
             1.7  References to Times       23
             1.8  Miscellaneous Terms       23

Article 2
             LOANS25
             2.1  Loans-General     25
             2.2  Base Rate Loans   26
             2.3  LIBOR Loans       26
             2.4  Voluntary Reduction of Commitment  27
             2.5  Scheduled Reductions of Commitment 27
             2.6  Mandatory Reductions of Commitment 27
             2.7  Administrative Agent's Right to
                  Assume Funds Available for Advances   27

Article 3
             PAYMENTS AND FEES      29
             3.1  Principal and Interest    29
             3.2  Facility Fees     30
             3.3  Commitment Fees   30
             3.4  Increased Commitment Costs30
             3.5  LIBOR Costs and Related Matters    31
             3.6  Late Payments     34
             3.7  Computation of Interest and Fees   35
             3.8  Non-Business Days 35
             3.9  Manner and Treatment of Payments   35
             3.10 Funding Sources   36
             3.11 Failure to Charge Not Subsequent Waiver     36
             3.12 Administrative Agent's Right to Assume Payments
                  Will be Made by Borrower       36
             3.13 Fee Determination Detail  37
             3.14 Survival 37
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Article 4
             REPRESENTATIONS AND WARRANTIES 38
             4.1  Existence and Qualification; Power; Compliance With Laws
                           38
             4.2  Authority; Compliance With Other Agreements and Instruments
                  and Government Regulations  38
             4.3  No Governmental Approvals Required 39
             4.4  Subsidiaries      39
             4.5  Financial Statements      39
             4.6  No Material Adverse Effects        39
             4.7  Title to Property 40
             4.8  Intangible Assets 40
             4.9  Public Utility Holding Company Act 40
             4.10 Litigation        40
             4.11 Binding Obligations       40
             4.12 No Default        40
             4.13 ERISA    40
             4.14 Regulations T, U and X; Investment Company Act       41
             4.15  Disclosure       41
             4.16 Tax Liability     41
             4.17 Projections       41
             4.18 Hazardous Materials       42
             4.19 Applicable Regulations    42
             4.20 Security Interests        42
             4.21 Year 2000 Compliance      42
             4.22 Solvency 42

Article 5
             AFFIRMATIVE COVENANTS
             (OTHER THAN INFORMATION AND
             REPORTING REQUIREMENTS)        43
             5.1 Payment of Taxes and Other Potential Liens 43 5.2  Preservation
             of Existence 43 5.3 Maintenance of Properties 43 5.4 Maintenance of
             Insurance 43 5.5 Compliance  With Laws 44 5.6 Inspection  Rights 44
             5.7 Keeping of Records and Books of Account 44 5.8 Compliance  With
             Agreements44  5.9 Use of Proceeds 44 5.10 Hazardous  Materials Laws
             44
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Article 6
             NEGATIVE COVENANTS     46
             6.1  Prepayment of Indebtedness46
             6.2  Payment of Subordinated Obligations46
             6.3  Hostile Tender Offers     46
             6.4  Mergers, Sales of Assets, Etc      46
             6.5  Distributions     47
             6.6  ERISA    47
             6.7  Change in Nature of Business       48
             6.8  Liens and Negative Pledges48
             6.9  Indebtedness      48
             6.10 Contingent Obligations    49
             6.11 New Subsidiaries  49
             6.12 Transactions with Affiliates       49
             6.13 Leverage Ratio    49
             6.14 Leases   50
             6.15 Consolidated Cash Interest Coverage Ratio   50
             6.16 Consolidated Net Worth    50
             6.17 Capital Expenditures      50
             6.18 Acquisitions and Investments       50
             6.19 Amendments to Joint Venture Agreement and Charles Town
                  Operating Lease 50

Article 7
             INFORMATION AND REPORTING REQUIREMENTS  52
             7.1  Financial and Business Information 52
             7.2  Compliance Certificates   55

Article 8
             CONDITIONS    56
             8.1  The Closing Date  56
             8.2  Any Advance       58

Article 9
             EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT      60
             9.1  Events of Default 60
             9.2  Remedies Upon Event of Default     62

Article 10
             THE ADMINISTRATIVE AGENT       65
             10.1 Appointment and Authorization      65
             10.2 Administrative Agent and Affiliates65
             10.3 Proportionate Interest in any Collateral    65
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             10.4 Lenders' Credit Decisions 65
             10.5 Action by Administrative Agent     66
             10.6 Liability of Administrative Agent  67
             10.7 Indemnification   68
             10.8 Successor Administrative Agent     68
             10.9 Foreclosure on Collateral 69
             10.10No Obligations of Borrower or PNGI 69
             10.11Permitted Release of Collateral    69

Article 11
             MISCELLANEOUS 70
             11.1 Cumulative Remedies; No Waiver     70
             11.2 Amendments; Consents      70
             11.3 Costs, Expenses and Taxes 71
             11.4 Nature of Lenders' Obligations     71
             11.5 Survival of Representations and Warranties  72
             11.6 Notices  72
             11.7 Execution of Loan Documents        72
             11.8 Binding Effect; Assignment72
             11.9 Right of Setoff   74
             11.10Sharing of Setoffs        75
             11.11Indemnity by PNGI and Borrower     75
             11.12Nonliability of the Lenders        76
             11.13No Third Parties Benefitted        77
             11.14Confidentiality   77
             11.15Further Assurances        78
             11.16Integration       78
             11.17Governing Law     78
             11.18Severability of Provisions78
             11.19Headings 78
             11.20Time of the Essence       78
             11.21Foreign Lenders and Participants   79
             11.22Waiver of Right to Trial by Jury   79
             11.23Purported Oral Amendments 1




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Schedules and Exhibits

Schedule 1.1      G-Tech Equipment
Schedule 1.2      New Equipment
Schedule 4.4    PNGI's Subsidiaries
Schedule 4.8      Intangible Assets
Schedule 4.17 Projections
Schedule 6.8      Existing Liens
Schedule 6.9      Existing Indebtedness
Schedule 6.18 Existing Investments


Exhibit A   -     Assignment Agreement
Exhibit B   -     Compliance Certificate
Exhibit C   -     Note
Exhibit D   -     Request for Loan

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                SENIOR SECURED MULTIPLE DRAW TERM LOAN AGREEMENT

                          Dated as of December 13, 1999

                  This  Senior   Secured   Multiple  Draw  Term  Loan  Agreement
("Agreement")  is  entered  into  by and  among  Penn  National  Gaming  of West
Virginia, Inc., a West Virginia corporation ("Borrower"),  Penn National Gaming,
Inc., a Pennsylvania corporation,  as Guarantor ("PNGI"), each lender whose name
is set forth on the signature  pages of this Agreement and each lender which may
hereafter   become  a  party  to  this   Agreement   pursuant  to  Section  11.8
(collectively,  the "Lenders" and individually, a "Lender") and Bank of America,
N.A., as Administrative Agent.

In consideration of the mutual covenants and agreements  herein  contained,  the
parties hereto covenant and agree as follows:


 1 Article DEFINITIONS AND ACCOUNTING TERMS

Article 2 DEFINITIONS AND ACCOUNTING TERMS
       -------------------------------- ----------------------------------


1.1           Defined Terms .  As used in this Agreement, the following terms
                shall have the meanings set forth below:
                           -------------
1.2

                  "10 5/8%  Indenture"  means the Indenture dated as of December
             17, 1997 under which PNGI's 10 5/8% Senior Notes due 2004, Series A
             and 10 5/8% Senior Notes due 2004, Series B, were issued.

                  "Acquisition" means any transaction,  or any series of related
             transactions, by which Borrower directly or indirectly (i) acquires
             any going business or all or substantially all of the assets of any
             firm,  partnership,   joint  venture,  limited  liability  company,
             corporation  or  division  thereof,  whether  through  purchase  of
             assets,  merger or otherwise,  or (ii) acquires (in one transaction
             or as the most  recent  transaction  in a series  of  transactions)
             control  of at least a majority  in  ordinary  voting  power of the
             securities  of a corporation  which have ordinary  voting power for
             the election of directors,  or (iii)  acquires  control of a 50% or
             more  ownership  interest  in any  partnership,  limited  liability
             company or joint venture.

                  "Administrative  Agent" means Bank of America,  when acting in
             its  capacity  as the  Administrative  Agent  under any of the Loan
             Documents, or any successor Administrative Agent.

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                  "Administrative   Agent's  Office"  means  the  Administrative
             Agent's  address  as set  forth  on the  signature  pages  of  this
             Agreement,  or  such  other  address  as the  Administrative  Agent
             hereafter  may  designate  by written  notice to  Borrower  and the
             Lenders.

                  "Advance"  means any advance  made or to be made by any Lender
             to Borrower as provided in Article 2, and  includes  each Base Rate
             Advance and each LIBOR Advance.

                  "Affiliate"  means,  as to any Person,  any other Person which
             directly or indirectly  controls,  or is under common control with,
             or is  controlled  by,  such  Person.  As used in this  definition,
             "control" (and the  correlative  terms,  "controlled by" and "under
             common   control   with")  shall  mean   possession,   directly  or
             indirectly, of power to direct or cause the direction of management
             or policies (whether through ownership of securities or partnership
             or other ownership interests,  by contract or otherwise);  provided
             that, in any event,  any Person that owns,  directly or indirectly,
             10% or more of the securities  having ordinary voting power for the
             election of directors or other governing body of a corporation that
             has more than 100 record holders of such securities, or 10% or more
             of the partnership or other ownership interests of any other Person
             that has more than 100 record  holders of such  interests,  will be
             deemed to control such corporation, partnership or other Person.

                  "Agreement"  means this Senior Secured Multiple Draw Term Loan
             Agreement,  either as originally executed or as it may from time to
             time be supplemented, modified, amended, restated or extended.

                  "Applicable  Regulations" means all Laws pursuant to which any
             Regulatory   Board  possesses   regulatory,   licensing  or  permit
             authority over gambling,  gaming, casino, wagering,  parimutuel and
             other  similar   activities   conducted  by  PNGI  or  any  of  its
             Subsidiaries within its jurisdiction.

                  "Assignment   Agreement"   means   an   Assignment   Agreement
substantially in the form of Exhibit A.

                  "Availability Date" means

                                       74
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              the date which is the first anniversary of the Closing Date.

   "Bank of America" means Bank of America, N.A., its successors and assigns.
                   ---------------

                  "Base Rate" means, as of any date of  determination,  the rate
             per annum (rounded upwards, if necessary,  to the next 1/100 of 1%)
             equal to the  higher of (a) the  Prime  Rate in effect on such date
             and (b) the  Federal  Funds Rate in effect on such date plus 1/2 of
             1%.

                  "Base  Rate  Advance"  means an  Advance  made  hereunder  and
             specified to be a Base Rate Advance in accordance with Article 2.

                  "Base Rate Loan" means a Loan made  hereunder and specified to
be a Base Rate Loan in accordance with Article 2.

                  "Base Rate Margin" means, for the initial Pricing Period 1.75%
             and, for each subsequent  Pricing Period,  the percentage set forth
             opposite  the  Leverage  Ratio  as of the  last  day of the  Fiscal
             Quarter  ending two months  prior to the first day of that  Pricing
             Period:

                   Leverage Ratio                         Base Rate Margin
                   --------------                         ----------------
                   Greater than or equal to 3.00:1.00           1.75%
                   Less than 3.00:1.00 but greater than or      1.50%
                   equal to 2.50:1.00
                   Less than 2.50:1.00 but greater than or      1.00%
                   equal to 2.00:1.00
                   Less than 2.00:1.00 but greater than or      0.75%
                   equal to 1.50:1.00
                   Less than 1.50:1.00                          0.75%

                  "Borrower" means Penn National Gaming of West Virginia, Inc.,
 a West Virginia corporation, its successors and
                   --------
             permitted assigns.

                  "Business Day" means any Monday, Tuesday, Wednesday,  Thursday
             or  Friday,  other  than a day on which  banks  are  authorized  or
             required to be closed in California, Pennsylvania or West Virginia.

                  "Capital Expenditure" means any expenditure that is considered
             a  capital   expenditure   under  Generally   Accepted   Accounting
             Principles, including any amount which is required to be treated as
             an asset subject to a Capital Lease Obligation.
                                       75

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                  "Capital Lease Obligations" means all monetary  obligations of
             a Person  under  any  leasing  or  similar  arrangement  which,  in
             accordance  with  Generally  Accepted  Accounting  Principles,   is
             classified as a capital lease.

                  "Cash"  means,  when used in connection  with any Person,  all
             monetary  and  non-monetary  items  owned by that  Person  that are
             treated as cash in accordance  with Generally  Accepted  Accounting
             Principles, consistently applied.

                  "Cash  Equivalents"  means,  when used in connection  with any
Person, that Person's Investments in:

             (a)                    Government Securities due within one year
after the date of the making of the Investment;

             (a)  readily  marketable  direct  obligations  of any  State of the
             United States of America or any political  subdivision  of any such
             State or any public agency or instrumentality  thereof given on the
             date of such  Investment a credit  rating of at least Aa by Moody's
             Investors  Service,  Inc. or AA by Standard & Poor's Ratings Group,
             in each case due within one year from the making of the Investment;

             (a) certificates of deposit issued by, bank deposits in, eurodollar
             deposits   through,   bankers'   acceptances   of,  and  repurchase
             agreements covering  Government  Securities executed by, any Lender
             or any bank  incorporated  under the Laws of the  United  States of
             America,  any State  thereof or the District of Columbia and having
             on the  date of  such  Investment  combined  capital,  surplus  and
             undivided profits of at least $250,000,000, in each case due within
             one year after the date of the making of the Investment;

             (a) certificates of deposit issued by, bank deposits in, eurodollar
             deposits   through,   bankers'   acceptances   of,  and  repurchase
             agreements covering  Government  Securities executed by, any branch
             or  office  located  in the  United  States  of  America  of a bank
             incorporated under the Laws of any jurisdiction  outside the United
             States of America  having on the date of such  Investment  combined
             capital, surplus and undivided profits of at least $500,000,000, in
             each case due  within  one year after the date of the making of the
             Investment; and

             (a)  readily  marketable  commercial  paper of  corporations  doing
             business in and incorporated under the Laws of the United States of
             America  or any State  thereof  or of any  corporation  that is the
             holding  company  for a bank  described  in clause (c) or (d) above
             given on the date of such  Investment  a credit  rating of at least
             P-1 by Moody's Investors Service,  Inc. or A-1 by Standard & Poor's
             Ratings  Group,  in each case due  within 90 days after the date of
             the making of the Investment.
                                       76

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                  "Certificate  of a Responsible  Official"  means a certificate
             signed  by a  Responsible  Official  of the  Person  providing  the
             certificate.

                  "Change  of  Control"  means  the  occurrence  of  any  of the
following:

                  (a) individuals who on the Closing Date  constituted the Board
             of  Directors  of  PNGI  (together  with  any  new  or  replacement
             directors  whose  election  by the  Board  of  Directors,  or whose
             nomination  for election by the Board of Directors  for election by
             PNGI's  stockholders  was approved by a vote of at least a majority
             of the  directors  then still in office who were either  members of
             the  Board  of  Directors  of PNGI  on the  Closing  Date or  whose
             election or nomination  for  reelection was previously so approved)
             cease for any reason to constitute a majority of the directors then
             in office; or

                   (b) any  transaction  or series of  related  transactions  in
             which any Person or two or more Persons  (other than the  Permitted
             Holders) acting in concert acquire beneficial ownership (within the
             meaning of Rule  13d-3(a)(1)  under the Securities  Exchange Act of
             1934,  as amended),  directly or  indirectly,  of at least 25% on a
             fully  diluted  basis of the voting or economic  interest in PNGI's
             capital stock; or

                  (c) the Permitted  Holders cease to collectively  own at least
             25% on a fully diluted basis of the voting and/or economic interest
             in the capital stock of PNGI's capital stock; or

                  (d) any event  which  constitutes  a "Change  of  Control"  or
             "Change in Control" or similar  event with respect to  Indebtedness
             of PNGI or any of its  Subsidiaries in a principal  amount which is
             in excess of $1,000,000, in the aggregate which permits the holders
             thereof to accelerate the maturity of such  Indebtedness or require
             the  prepayment  thereof  prior to the  stated  or  final  maturity
             thereof; or

                  (e) any  failure of PNGI to own,  beneficially  and of record,
             100% of the  capital  stock  of  Borrower  or of  Borrower  to own,
             beneficially  and of record,  89% or more of the equity  capital of
             the Charles Town Joint Venture.

                  "Charles Town Facility"  means the Charles Town  Entertainment
             Complex a/k/a Charles Town Races,  located on Flowing  Springs Road
             in Charles Town, Jefferson County, West Virginia 25414.

                  "Charles Town Facility Expansion" means the proposed expansion
             and improvement of the Charles Town Facility by the installation of
             the New Equipment and related equipment and fixtures.
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                  "Charles  Town Joint  Venture"  means PNGI Charles Town Gaming
             Limited  Liability  Company,  a  West  Virginia  limited  liability
             company.

                  "Charles  Town   Operating   Lease"  means  the  Master  Lease
             Agreement of even date  herewith  between  Borrower and the Charles
             Town Joint Venture, as in effect on the date hereof,  together with
             all equipment  schedules  now or hereafter  delivered in connection
             therewith.

                  "Charles Town Subordination Agreement" means the Subordination
             Agreement, in form and substance satisfactory to the Administrative
             Agent,  dated as of the date hereof,  pursuant to which the Charles
             Town Joint  Venture  subordinates  its interest in the Charles Town
             Operating Lease to the Lien of the Administrative Agent.

                  "Closing  Date" means the time and  Business  Day on which the
             conditions  set forth in Section 8.1 are  satisfied or waived.  The
             Administrative  Agent shall notify  Borrower and the Lenders of the
             date that is the Closing Date.

                  "Code" means the Internal  Revenue Code of 1986, as amended or
replaced and as in effect from time to time.

                  "Collateral"  means  all  of  the  collateral  covered  by the
             Collateral  Documents,  including  without  limitation  the  G-Tech
             Equipment and the New Equipment.

                  "Collateral  Documents"  means,  collectively,   the  Security
             Agreement, and any other security agreement, pledge agreement, deed
             of trust, mortgage or other collateral security agreement hereafter
             executed and  delivered by PNGI,  Borrower or any other  Obligor to
             secure the Obligations.

                  "Commitment"  means,  subject  to any  decrease  in the amount
thereof pursuant to Sections 2.4 or 2.5, $20,000,000.

                  "Commitment  Fee Rate" means,  for the initial Pricing Period,
             0.500% and for each subsequent  Pricing Period,  the percentage set
             forth  opposite the Leverage Ratio as of the last day of the Fiscal
             Quarter  ending two months  prior to the first day of that  Pricing
             Period:

                   Leverage Ratio                            Commitment Fee Rate
                   --------------                            -------------------
                   Greater than or equal to 3.00:1.00        0.500%
                   Less than 3.00:1.00 but greater than or   0.500%
                   equal to 2.50:1.00
                   Less than 2.50:1.00 but greater           0.375%
                   than or equal to 2.00:1.00
                   Less than 2.00:1.00 but greater           0.375%
                                       78

<PAGE>

                   than or equal to 1.50:1.00
                   Less than 1.50:1.00                       0.375%

                  "Compliance  Certificate"  means a certificate  in the form of
             Exhibit B,  properly  completed  and signed by a Senior  Officer of
             Borrower.

                  "Consolidated  Cash Interest  Coverage Ratio" means, as of any
             date of determination, the ratio of (a) Consolidated EBITDA for the
             four  Fiscal  Quarter  period then ended to (b)  Consolidated  Cash
             Interest Expense for the four Fiscal Quarter period then ended.

                  "Consolidated  Cash Interest  Expense"  means,  for any fiscal
             period,  Consolidated  Interest  Expense for such period,  provided
             that there shall be excluded any non-cash interest expense for such
             period (other than any interest that has been  capitalized)  to the
             extent that the same would otherwise have been included therein.

                  "Consolidated EBIT" means, for any fiscal period, Consolidated
             Net  Income  of  PNGI  and  its  Subsidiaries  before  Consolidated
             Interest  Expense  and  provision  for  taxes for such  period  and
             without giving effect (a) to any cash extraordinary gains or losses
             not to exceed $1,000,000 in the most recent twelve-month period and
             (b) to any gains or losses  from  sales of assets  other  than from
             sales of inventory sold in the ordinary course of business.

                  "Consolidated   EBITDA"   means,   for  any   fiscal   period,
             Consolidated  EBIT for such period,  adjusted by (a) adding thereto
             the amount of all amortization of intangibles and depreciation that
             were deducted in arriving at Consolidated EBIT for such period, and
             (b)  subtracting  therefrom the amount of any payments made by PNGI
             and its  Subsidiaries  pursuant to Section 4 of the Plains  Company
             Acquisition  Agreement for such period (but only to the extent that
             such payments have not already reduced  Consolidated Net Income for
             such period),  it being  understood and agreed,  however,  that for
             purposes of this clause (b),  such payment will be treated as being
             paid in four equal  consecutive  quarterly  installments,  with the
             first such  installment  being  treated as being paid in the fiscal
             quarter of PNGI in which such payment is made.

                  "Consolidated   Indebtedness"   means,   as  of  any  date  of
             determination, the principal amount of all Indebtedness of PNGI and
             its Subsidiaries at such time other than Indebtedness in respect of
             letters of credit and Indebtedness  under Swap Agreements  unless a
             payment default has occurred thereunder.

               "Consolidated Interest Expense" means, for any fiscal period, the
          total  consolidated  interest expense of PNGI and its Subsidiaries for
          such  period  (calculated  without  regard to any  limitations  on the
          payment thereof) plus, without  duplication,  the portion of rent paid
          or payable (without  duplication) for that fiscal period under Capital
                                       79
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          Lease  Obligations  that should be treated as  interest in  accordance
          with Financial  Accounting  Standards Board Statement No. 13; provided
          that the amortization of deferred financing costs with respect to this
          Agreement or the  Indebtedness  incurred  hereunder  shall be excluded
          from  Consolidated  Interest  Expense  to the  extent  the same  would
          otherwise have been included therein.

                  "Consolidated  Net Income"  means,  with respect to any Person
             and with respect to any fiscal period,  the net income (or loss) of
             such Person and its Subsidiaries  for such period,  determined on a
             consolidated  basis (after any  deduction  for minority  interest),
             provided that (a) in determining  Consolidated  Net Income of PNGI,
             the net income of any other  Person  which is not a  Subsidiary  of
             PNGI or is accounted for by PNGI by the equity method of accounting
             shall be included only to the extent of the payment of dividends or
             distributions by such other Person to PNGI or a Subsidiary  thereof
             during  such  period  and (b) the net income (or loss) of any other
             Person  acquired by such  specified  Person or a Subsidiary of such
             Person in a pooling of interest transaction for any period prior to
             the date of such acquisition shall be excluded.

                  "Consolidated   Net   Worth"   means,   as  of  any   date  of
             determination,   the   consolidated  net  worth  of  PNGI  and  its
             Subsidiaries.

                  "Contingent  Obligation"  means,  as to any  Person,  any  (a)
             guarantee by that Person of  Indebtedness  of, or other  obligation
             performable  by, any other  Person or (b)  assurance  given by that
             Person  to an  obligee  of any other  Person  with  respect  to the
             performance of an obligation by, or the condition or maintenance of
             the  financial  condition of, such other  Person,  whether  direct,
             indirect  or  contingent,  including  any  purchase  or  repurchase
             agreement   covering  such  obligation,   any  interest  rate  swap
             agreement, forward contract or other arrangement of such Person, or
             any collateral  security  therefor,  any agreement to provide funds
             (by means of loans,  capital  contributions  or  otherwise) to such
             other Person, any agreement to support the solvency or level of any
             balance sheet item of such other Person or any "keep-well" or other
             arrangement of whatever nature given for the purpose of assuring or
             holding  harmless  such  obligee  against  loss with respect to any
             obligation of such other Person;  provided,  however, that the term
             Contingent Obligation shall not include endorsements of instruments
             for deposit or collection in the ordinary  course of business.  The
             amount of any Contingent Obligation shall be deemed to be an amount
             equal to the stated or  determinable  amount of the related primary
             obligation  (unless  the  Contingent  Obligation  is limited by its
             terms  to a lesser  amount,  in which  case to the  extent  of such
             amount) or, if not stated or determinable,  the maximum  reasonably
             anticipated  liability  in  respect  thereof as  determined  by the
             Person in good faith.

                  "Contractual   Obligation"   means,  as  to  any  Person,  any
             provision of any  outstanding  security issued by that Person or of
             any material  agreement,  instrument or  undertaking  to which that
             Person is a party or by which it or any of its Property is bound.
                                       80

<PAGE>

                  "Creditors" means, collectively,  the Administrative Agent and
the Lenders.

                  "Debtor Relief Laws" means the  Bankruptcy  Code of the United
             States of  America,  as  amended  from time to time,  and all other
             applicable liquidation,  conservatorship,  bankruptcy,  moratorium,
             rearrangement, receivership, insolvency, reorganization, or similar
             debtor relief Laws from time to time in effect affecting the rights
             of creditors generally.

                  "Default"  means  any  event  that,  with  the  giving  of any
             applicable  notice or passage of time  specified in Section 9.1, or
             both, would be an Event of Default.

                  "Default  Rate" means the interest rate  prescribed in Section
3.6.

                  "Designated  Eurodollar  Market"  means,  with  respect to any
             LIBOR Loan, (a) the London Eurodollar Market, (b) if prime banks in
             the London Eurodollar Market are at the relevant time not accepting
             deposits of Dollars or if the  Administrative  Agent  determines in
             good faith that the London  Eurodollar Market does not represent at
             the relevant time the effective pricing to the Lenders for deposits
             of Dollars  in the London  Eurodollar  Market,  the Cayman  Islands
             Eurodollar  Market  or (c) if  prime  banks in the  Cayman  Islands
             Eurodollar  Market are at the relevant time not accepting  deposits
             of Dollars or if the Administrative  Agent determines in good faith
             that the Cayman Islands Eurodollar Market does not represent at the
             relevant time the effective  pricing to the Lenders for deposits of
             Dollars  in  the  Cayman  Islands  Eurodollar  Market,  such  other
             Eurodollar  Market  as may  from  time to time be  selected  by the
             Administrative   Agent  with  the  approval  of  Borrower  and  the
             Requisite Lenders.

                  "Disbursement   Account"   means  a  deposit   account  to  be
             maintained by Borrower  with Bank of America,  as from time to time
             designated   by   Borrower   by   written   notification   to   the
             Administrative  Agent,  into which  Loans made  hereunder  shall be
             funded unless otherwise directed by the Borrower.

                  "Disposition"  means the  voluntary  sale,  transfer  or other
             disposition  of any asset of  Borrower  or any of its  Subsidiaries
             other than (a) Cash,  Cash  Equivalents,  inventory or other assets
             sold,  leased or otherwise  disposed of in the  ordinary  course of
             business of Borrower or its Subsidiaries,  (b) equipment (including
             any  aircraft)  sold or otherwise  disposed of where  substantially
             similar  equipment  in  replacement  thereof has  theretofore  been
             acquired,  or thereafter within 90 days is acquired, by Borrower or
             its  Subsidiaries,  (c)  leases of  retail  space by  Borrower,  as
             lessor, in the ordinary course of the business of Borrower and in a
             manner consistent with other similarly situated  businesses,  (d) a
             disposition  to  Borrower  or  any  of its  Subsidiaries,  and  (e)
             Distributions permitted by Section 6.5.
                                       81

<PAGE>

                  "Distribution"  means, with respect to shares of capital stock
             or any warrant or option to  purchase  an equity  security or other
             equity security issued by a Person, (i) the retirement, redemption,
             purchase,  or other  acquisition  for Cash or for  Property by such
             Person  of any such  security,  (ii) the  declaration  or  (without
             duplication)  payment by such Person of any  dividend in Cash or in
             Property  on or  with  respect  to any  such  security,  (iii)  any
             Investment  by such  Person in the holder of 5% or more of any such
             security   if  a   purpose   of  such   Investment   is  to   avoid
             characterization of the transaction as a Distribution, and (iv) any
             other  payment in Cash or Property by such  Person  constituting  a
             distribution under applicable Laws with respect to such security.

                  "Dollars" or "$" means United States dollars.

                  "Eligible  Assignee"  means,  (a)  another  Lender,  (b)  with
             respect  to any  Lender,  any  Affiliate  of that  Lender,  (c) any
             commercial   bank   having  a  combined   capital  and  surplus  of
             $100,000,000  or more,  (d) any (i) savings bank,  savings and loan
             association  or similar  financial  institution  or (ii)  insurance
             company  engaged in the  business of writing  insurance  which,  in
             either  case (A) has a net worth of  $200,000,000  or more,  (B) is
             engaged in the business of lending money and extending credit under
             credit  facilities  similar to those  extended under this Agreement
             and  (C)  is  operationally  and  procedurally  able  to  meet  the
             obligations  of  a  Lender  hereunder  to  the  same  degree  as  a
             commercial bank and (e) any other financial institution  (including
             a mutual fund or other fund) having total assets of $250,000,000 or
             more which meets the  requirements  set forth in subclauses (B) and
             (C) of clause (d) above;  provided that (I) each Eligible  Assignee
             must either (a) be organized under the Laws of the United States of
             America,  any State  thereof or the  District of Columbia or (b) be
             organized under the Laws of the Cayman Islands or any country which
             is a  member  of the  Organization  for  Economic  Cooperation  and
             Development,  or a political subdivision of such a country, and (i)
             act hereunder through a branch, agency or funding office located in
             the United States of America and (ii) be exempt from withholding of
             tax on interest and deliver the documents  related thereto pursuant
             to Section 11.21.

                  "ERISA" means the Employee  Retirement  Income Security Act of
             1974, and any regulations  issued pursuant  thereto,  as amended or
             replaced and as in effect from time to time.

                  "Eurodollar Base Rate" means,  with respect to any LIBOR Loan,
             the average per annum  interest  rate at which  deposits in Dollars
             would be offered for the applicable  Interest Period by major banks
             in the Designated  Eurodollar Market, as shown on the Telerate Page
             3750 (or such other page as may replace it) at approximately  11:00
             a.m.  London time two Market Days  before the  commencement  of the
             Interest Period.  If such rate does not appear on the Telerate Page
             3750 (or such other page that may  replace  it),  the rate for that
                                       82
<PAGE>

            interest  period will be  determined  by such  alternate  method as
             reasonably selected by the Administrative Agent. The Administrative
             Agent's   determination  of  the  Eurodollar  Base  Rate  shall  be
             conclusive in the absence of manifest error.

                  "Eurodollar Market" means a regular established market located
             outside  the United  States of  America by and among  banks for the
             solicitation,  offer  and  acceptance  of Dollar  deposits  in such
             banks.

                  "Eurodollar  Obligations" means eurocurrency  liabilities,  as
defined in Regulation D.

                  "Event of Default" shall have the meaning  provided in Section
9.1.

                  "Federal Funds Rate" means,  as of any date of  determination,
             the rate set forth in the weekly statistical  release designated as
             H.15(519),  or any successor publication,  published by the Federal
             Reserve Board (including any such successor,  "H.15(519)") for such
             date opposite the caption "Federal Funds  (Effective)".  If for any
             relevant date such rate is not yet published in H.15(519), the rate
             for such date  will be the rate set forth in the daily  statistical
             release  designated as the Composite 3:30 p.m.  Quotations for U.S.
             Government Securities,  or any successor publication,  published by
             the Federal Reserve Bank of New York (including any such successor,
             the  "Composite  3:30 p.m.  Quotations")  for such  date  under the
             caption "Federal Funds Effective Rate". If on any relevant date the
             appropriate  rate  for such  date is not yet  published  in  either
             H.15(519) or the Composite 3:30 p.m. Quotations,  the rate for such
             date  will  be the  arithmetic  mean  of the  rates  for  the  last
             transaction in overnight  Federal funds arranged prior to 9:00 a.m.
             (New York City time) on that date by each of three leading  brokers
             of Federal  funds  transactions  in New York City  selected  by the
             Administrative Agent. For purposes of this Agreement, any change in
             the Base Rate due to a change in the  Federal  Funds  Rate shall be
             effective  as of the opening of business on the  effective  date of
             such change.

                  "Fiscal   Quarter"   means  the  fiscal  quarter  of  Borrower
             consisting of a three-month  fiscal period ending on each March 31,
             June 30, September 30 and December 31.

                  "Fiscal Year" means the fiscal year of Borrower  consisting of
a twelve-month period ending on each December 31.

                  "Generally  Accepted  Accounting  Principles" means accounting
             principles,  as in effect on the Closing  Date, as (a) set forth as
             generally  accepted  in the  currently  effective  Opinions  of the
             Accounting  Principles Board of the American Institute of Certified
             Public  Accountants,  (b) set forth as  generally  accepted  in the
             currently   effective   Statements  of  the  Financial   Accounting
             Standards  Board or (c) that are  approved by such other  entity as
                                       83
<PAGE>

             may  be  approved  by  a  significant  segment  of  the  accounting
             profession in the United States of America.  The term "consistently
             applied,"  as  used  in  connection   therewith,   means  that  the
             accounting  principles  applied  are  consistent  in  all  material
             respects with those applied at prior dates or for prior periods.

                  "G-Tech  Equipment" means the  approximately 799 video lottery
             terminals and related  equipment and fixtures  described as such on
             Schedule 1.1.

                  "Government  Securities"  means readily  marketable (a) direct
             full faith and credit  obligations  of the United States of America
             or  obligations  guaranteed  by the full  faith  and  credit of the
             United  States  of  America,  or (b)  obligations  of an  agency or
             instrumentality  of, or corporation owned,  controlled or sponsored
             by, the United States of America that are  generally  considered in
             the  securities  industry to be implicit  obligations of the United
             States of America.

                  "Governmental  Agency" means (a) any  international,  foreign,
             federal,  state,  county  or  municipal  government,  or  political
             subdivision  thereof,  (b) any  governmental or  quasi-governmental
             agency,   authority,   board,   bureau,   commission,   department,
             instrumentality  or public body, or (c) any court or administrative
             tribunal of competent jurisdiction.

"Hazardous   Materials"  means  substances  regulated  as  hazardous  substances
pursuant to (a) the Comprehensive  -------------------  Environmental  Response,
Compensation  and  Liability  Act of 1980,  42  U.S.C.ss.  9601 et  seq.,  or as
hazardous  or toxic wastes or  pollutants  pursuant to the  Hazardous  Materials
Transportation  Act, 49 U.S.C.ss.  1801, et seq., the Resource  Conservation and
Recovery  Act,  42  U.S.C.ss.  6901,  et seq.,  or (b) any other Law  regulating
hazardous  substances  or hazardous or toxic wastes or  pollutants or regulating
the generation, use, storage, treatment,  handling or transportation of any such
substances, in each case as such Laws are amended from time to time.

                  "Hazardous  Materials Laws" means all federal,  state or local
             laws,  ordinances,  rules or  regulations  governing  the disposal,
             transfer,  generation,  storage or treatment of Hazardous Materials
             applicable to any of the Real Property.

                  "Indebtedness" means, as to any Person (without  duplication),
             (a)  indebtedness  of such  Person  for  borrowed  money or for the
             deferred  purchase  price of  Property  (excluding  trade and other
             accounts  payable in the ordinary  course of business in accordance
             with customary  trade terms),  including any Contingent  Obligation
             for any such  indebtedness,  (b) indebtedness of such Person of the
             nature  described in clause (a) that is  non-recourse to the credit
             of such  Person  but is secured  by assets of such  Person,  to the
             extent of the value of such assets,  (c) Capital Lease  Obligations
             of such  Person,  (d)  indebtedness  of such Person  arising  under
                                       84
<PAGE>

             bankers' acceptance facilities or under facilities for the discount
             of accounts receivable of such Person, (e) any direct or contingent
             obligations  of such Person under  letters of credit issued for the
             account of such Person and (f) any net  obligations  of such Person
             under a Swap Agreement.

                  "Intangible   Assets"   means   assets  that  are   considered
             intangible assets under Generally Accepted  Accounting  Principles,
             including customer lists, goodwill, computer software,  copyrights,
             trade names, trademarks and patents.

                  "Interest  Differential" means, with respect to any prepayment
             of a LIBOR Loan on a day other than the last day of the  applicable
             Interest  Period and with  respect to any failure to borrow a LIBOR
             Loan on the date or in the  amount  specified  in any  Request  for
             Loan,  (a) the per annum interest rate payable (or, with respect to
             a failure  to  borrow,  the  interest  rate  which  would have been
             payable)  pursuant to Section 3.1(c) with respect to the LIBOR Loan
             minus (b) the LIBOR on, or as near as  practicable  to, the date of
             the  prepayment  or  failure  to  borrow  for a LIBOR  Loan with an
             Interest Period  commencing on such date and ending on the last day
             of the Interest  Period of the LIBOR Loan so prepaid or which would
             have been borrowed on such date.

                  "Interest  Period"  means,  as to each LIBOR Loan,  the period
             commencing  on the date  specified by Borrower  pursuant to Section
             2.1(b) and ending 1, 2, 3 or 6 months  thereafter,  as specified by
             Borrower in the applicable Request for Loan; provided that:

            (a)      The first day of any Interest Period shall be a Market Day;

             (a) Any Interest  Period that would  otherwise end on a day that is
             not a Market Day shall be  extended to the next  succeeding  Market
             Day unless  such  Market Day falls in another  calendar  month,  in
             which case such  Interest  Period  shall end on the next  preceding
             Market Day;

             (a) Borrower may not specify an Interest Period that extends beyond
             any  Reduction  Date unless the aggregate  principal  amount of the
             LIBOR Loans having an Interest  Period ending after such  Reduction
             Date does not exceed the  Commitment  (after  giving  effect to any
             reduction  thereto  scheduled  to be made on  such  Reduction  Date
             pursuant to Section 2.5); and

             (a)     No Interest Period shall extend beyond the Maturity Date.

                  "Investment"  means,  when used in connection with any Person,
             any  investment by or of that Person,  whether by means of purchase
             or other  acquisition  of stock or other  securities  of any  other
             Person  or by means of a loan,  advance  creating  a debt,  capital
             contribution,  guaranty  or other debt or equity  participation  or
             interest in any other Person,  including any  partnership and joint
             venture  interests  of such  Person.  The amount of any  Investment
             shall be the  amount  actually  invested,  without  adjustment  for
             subsequent increases or decreases in the value of such Investment.
                                       85
<PAGE>

                  "Laws"  means,  collectively,  all  federal,  state  and local
             statutes, rules, regulations,  ordinances, codes and administrative
             or judicial  precedents,  or other matters  having the force of law
             and binding upon the parties hereto.

                  "Lenders" has the meaning set forth in the preamble hereto.

                  "Leverage  Ratio"  means,  as of the last  day of each  Fiscal
             Quarter, the ratio of (a) Consolidated Indebtedness as of such date
             to (b) Consolidated  EBITDA for the four Fiscal Quarter period then
             ended (in each case taken as one accounting period),  provided that
             for purposes of determining the Base Rate Margin,  the LIBOR Margin
             and the Commitment Fee Rate, the term  "Consolidated  Indebtedness"
             as used in the foregoing clause (a) of this definition shall be the
             sum  of  (i)  Consolidated   Indebtedness   (other  than  the  then
             outstanding  principal  amount of all Loans) on the last day of the
             applicable  Fiscal  Quarter  plus  (ii)  the  average   outstanding
             principal amount of all Loans for the Fiscal Quarter then ended.

                  "LIBOR"  means,  with  respect to any LIBOR Loan,  an interest
             rate per annum (rounded upward, if necessary,  to the nearest 1/100
             of one percent) determined pursuant to the following formula:

                           LIBOR    =              Eurodollar Base Rate

                            1.00 - Reserve Percentage

                  "LIBOR  Advance" means an Advance made hereunder and specified
to be a LIBOR Advance in accordance with Article 2.

                                       86
<PAGE>

                  "LIBOR Loan" means a Loan made hereunder and specified to be a
LIBOR Loan in accordance with Article 2.

                  "LIBOR  Margin"  means,  for the initial  Pricing Period 2.75%
             and, for each subsequent  Pricing Period,  the percentage set forth
             opposite  the  Leverage  Ratio  as of the  last  day of the  Fiscal
             Quarter  ending two months  prior to the first day of that  Pricing
             Period:

               Leverage Ratio                                 LIBOR Margin
               --------------                                ------------
               Greater than or equal to 3.00:1.00               2.75%
               Less than 3.00:1.00 but greater than or equal    2.50%
               to 2.50:1.00
               Less than 2.50:1.00 but greater than or equal    2.00%
               to 2.00:1.00
               Less than 2.00:1.00 but greater than or equal    1.75%
               to 1.50:1.00
               Less than 1.50:1.00                              1.50%


                  "LIBOR Office" means, as to each Lender,  its office or branch
             so designated by written notice to the Administrative  Agent as its
             LIBOR Office.  If no LIBOR Office is  designated  by a Lender,  its
             LIBOR  Office  shall be its office at its address  for  purposes of
             notices hereunder.

                  "License Revocation" means the revocation, failure to renew or
             suspension  of, or the  appointment  of a receiver,  supervisor  or
             similar  official  with respect to, any casino,  gambling or gaming
             license  issued by any  Regulatory  Board  covering  any  casino or
             gaming facility of PNGI or its Subsidiaries.

                  "Lien"   means   any   mortgage,   deed  of   trust,   pledge,
             hypothecation,   assignment   for  security,   security   interest,
             encumbrance,  lien  or  charge  of any  kind,  whether  voluntarily
             incurred or arising by operation of Law or otherwise, affecting any
             Property,  including any  agreement to grant any of the  foregoing,
             any conditional sale or other title retention agreement,  any lease
             in the  nature of a  security  interest,  and/or  the  filing of or
             agreement   to  give  any   financing   statement   (other  than  a
             precautionary  financing  statement with respect to a lease that is
             not in the nature of a security  interest or customary  pre-filings
             of financing  statements in connection with any refinancing)  under
             the Uniform  Commercial Code or comparable Law of any  jurisdiction
             with respect to any Property.

                  "Loan" means the  aggregate  of the  Advances  made at any one
time by the Lenders pursuant to Article 2.
                                       87

<PAGE>

                  "Loan  Documents"  means,  collectively,  this Agreement,  the
             Notes,  the PNGI Guaranty,  the Collateral  Documents,  the Charles
             Town   Subordination   Agreement,   each  Request  for  Loan,  each
             Compliance  Certificate  and any  other  agreements  of any type or
             nature  hereafter  executed and delivered by Borrower or any of its
             Subsidiaries  or Affiliates to the  Administrative  Agent or to any
             Lender in any way relating to or in furtherance of this  Agreement,
             in each case either as originally  executed or as the same may from
             time to time be supplemented, modified, amended, restated, extended
             or supplanted.

                  "Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X.

                  "Market  Day"  means any  Business  Day on which  dealings  in
             Dollar  deposits are conducted by and among banks in the Designated
             Eurodollar Market.

                  "Material  Adverse Effect" means any set of  circumstances  or
             events  which (a) has or may  reasonably  be  expected  to have any
             material   adverse   effect   whatsoever   upon  the   validity  or
             enforceability  of any Loan  Document,  (b) is or may reasonably be
             expected to be material and adverse to the condition  (financial or
             otherwise),  business  operations  or  prospects  of  PNGI  and its
             Subsidiaries,  taken as a whole,  or (c) materially  impairs or may
             reasonably be expected to materially impair the ability of PNGI and
             its Subsidiaries, taken as a whole, to perform the Obligations.

                  "Maturity Date" means the earlier of (a) December 31, 2002 and
             (b) the date which is the third anniversary of the Closing Date.

"Multiemployer  Plan" means any employee  benefit plan of the type  described in
Section 4001(a)(3) of ERISA.

                  "Negative Pledge" means a Contractual Obligation that contains
             a  covenant  binding  on  PNGI  or  any of  its  Subsidiaries  that
             prohibits Liens on any of its or their Property, other than (a) any
             such covenant contained in a Contractual Obligation granting a Lien
             permitted under Section 6.8 which affects only the Property that is
             the subject of such  permitted  Lien and (b) any such covenant that
             does not apply to Liens securing the Obligations.

                  "Net Cash Proceeds"  means with respect to any  Disposition or
             any offerings of Indebtedness  or equity  securities of PNGI or its
             Subsidiaries,  the gross  sales  proceeds  received by PNGI and its
             Subsidiaries  from such  Disposition  or  offering in Cash and Cash
             Equivalents net of brokerage commissions,  legal expenses and other
             transactional  costs  payable  by PNGI  and its  Subsidiaries  with
             respect to such Disposition and net of an amount determined in good
             faith by  Borrower  to be the  estimated  amount  of  income  taxes
             payable by PNGI  attributable to such  Disposition and any reserves
                                       88
<PAGE>

             required to be  established in accordance  with Generally  Accepted
             Accounting  Principles  by PNGI or its  Subsidiaries  as a  reserve
             against any liabilities associated with such Disposition, including
             without  limitation  pension  and  other  post-employment   benefit
             liabilities,  liabilities  related  to  environmental  matters  and
             liabilities under indemnification  obligations associated with such
             Disposition.

                  "Net Equity Proceeds" means,  with respect to each issuance or
             sale of any equity by any  Person or any  capital  contribution  to
             such Person,  the cash proceeds (net of underwriting  discounts and
             commissions  and  other  reasonable  costs  associated   therewith)
             received by such Person from the respective sale or issuance of its
             equity or from the respective capital contribution.

                  "New  Equipment"  means (a) the 565 slot  machines and related
             equipment and fixtures purchased or to be purchased by Borrower and
             leased  pursuant to the Charles Town Operating  Lease and described
             on Schedule  1.2,  and (b) any  additional  equipment  and fixtures
             financed hereunder.

                  "Note" means any of the promissory notes made by Borrower to a
             Lender  evidencing  Advances  under that Lender's Pro Rata Share of
             the Commitment,  substantially  in the form of Exhibit C, either as
             originally  executed  or as the  same  may  from  time  to  time be
             supplemented, modified, amended, renewed, extended or supplanted.

                  "Obligations"  means all  present  and future  obligations  of
             every kind or nature of Borrower  or any other  Obligor at any time
             and  from  time to time  owed to the  Administrative  Agent  or the
             Lenders  or any one or more of them,  under  any one or more of the
             Loan Documents, whether due or to become due, matured or unmatured,
             liquidated  or  unliquidated,   or  contingent  or   noncontingent,
             including  obligations  of  performance  as well as  obligations of
             payment, and including interest that accrues after the commencement
             of any  proceeding  under  any  Debtor  Relief  Law  by or  against
             Borrower or any Subsidiary or Affiliate of Borrower.

                  "Obligor"  means  Borrower,   PNGI,  the  Charles  Town  Joint
             Venture,  and each other future guarantor of the  Obligations,  and
             each  Affiliate  of PNGI  which has at any time  executed  any Loan
             Document.

                  "Opinion  of  Counsel"  means  the  favorable   written  legal
             opinions of Morgan, Lewis & Bockius, LLP, and Bowles, Rice, special
             counsel to the  Obligors,  in each case issued on the Closing  Date
             and in a  form  solely  acceptable  to  the  Administrative  Agent,
             together with copies of all factual certificates and legal opinions
             upon which such counsel have relied.
                                       89

<PAGE>

                  "Outstanding   Obligations"   means,   as  of  each   date  of
             determination,  and giving  effect to the making of any such credit
             accommodations  requested  on that date,  the  aggregate  principal
             amount of the outstanding Loans.

                  "PBGC" means the Pension Benefit  Guaranty  Corporation or any
successor thereof established under ERISA.

                  "Pension Plan" means any "employee  pension  benefit plan" (as
             such term is  defined  in  Section  3(2) of  ERISA),  other  than a
             Multiemployer  Plan,  which is  subject to Title IV of ERISA and is
             maintained  by  Borrower  or any of its  Subsidiaries  or to  which
             Borrower  or  any  of  its  Subsidiaries   contributes  or  has  an
             obligation to contribute.

                  "Permitted  Holders"  means Peter D. Carlino,  his progeny and
             his or their spouses, and any trusts over which any such Person has
             sole control (voting or otherwise) and which name as  beneficiaries
             only such Person or such Person's spouse or children.

                  "Person" means any individual or entity,  including a trustee,
             corporation,   limited  liability  company,   general  partnership,
             limited   partnership,   joint  stock   company,   trust,   estate,
             unincorporated  organization,  business  association,  firm,  joint
             venture, Governmental Agency, or other entity.

                  "Plains  Company  Acquisition  Agreement"  means the  Purchase
             Agreement  dated as of September 13, 1996 by and between the Estate
             of Joseph B. Banks and PNGI.

                  "PNGI" means Penn National Gaming, Inc.,
 a Pennsylvania corporation.
                   ----

                  "PNGI Credit  Agreement" means the Second Amended and Restated
             Credit  Agreement  among  PNGI,  various  Banks,  and  First  Union
             National  Bank, as Agent,  dated January 28, 1999, as amended on or
             prior  to the  date  hereof  and in  effect  on  the  date  hereof,
             including the amendment thereto effective concurrently herewith.

                  "PNGI Credit  Party" means any "Credit  Party" as such term is
defined in the PNGI Credit Agreement.

                  "PNGI Guaranty" means the unconditional guaranty or guaranties
             of the Obligations delivered by PNGI, either as originally executed
             or as it may from time to time be supplemented,  modified, amended,
             or supplanted.

                  "Pricing Period" means (a) the period beginning on the Closing
             Date  and  ending  on  February  29,  2000,  and  (b)  each  of the
             succeeding  three month periods  beginning on each March 1, June 1,
             September 1 and December 1.
                                       90

<PAGE>

                  "Prime  Rate"  means the rate of interest  publicly  announced
             from time to time by Bank of America  as its "prime  rate." It is a
             rate set by Bank of America  based upon various  factors  including
             Bank of  America's  costs  and  desired  return,  general  economic
             conditions and other factors,  and is used as a reference point for
             pricing some loans,  which may be priced at,  above,  or below such
             announced  rate.  Any change in the Prime Rate announced by Bank of
             America  shall take  effect at the  opening of  business on the day
             specified in the public announcement of such change.

                  "Projections" means the financial  projections attached hereto
as Schedule 4.17.

                  "Property"  means  any  interest  in any kind of  property  or
             asset, whether real, personal or mixed, or tangible or intangible.

                  "Pro Rata Share" means, as of each date of  determination  and
             with respect to each Lender, the percentage of the Commitment owned
             by that Lender  (or, if the  Commitment  has been  terminated,  the
             percentage of the Outstanding Obligations owned by that Lender). As
             of the  Closing  Date,  the Pro Rata Share of each Lender is as set
             forth  on  the  signature   pages   hereto.   The  records  of  the
             Administrative Agent shall be presumed to correctly reflect the Pro
             Rata Share of the Lenders then party to this Agreement.

                  "Quarterly  Payment  Date"  means  each  March  31,  June  30,
             September  30 and December 31 to occur  following  the date of this
             Agreement.

                  "Real Property"  means, as of any date of  determination,  all
             real Property then or theretofore owned, leased or occupied by PNGI
             or any of its Subsidiaries.

                  "Reduction Amount" means, with respect to each Reduction Date,
             the amount set forth in the matrix below  opposite  that  Reduction
             Date in the column headed "Reduction  Amount" or such lesser amount
             to which that  Reduction  Amount may be reduced in accordance  with
             the second sentence of Section 2.4:

                                       91
<PAGE>



                               Reduction Dates               Reduction Amount
                               ---------------               ----------------
                               03/31/00                  $  1,250,000
                               06/30/00                  $  1,250,000
                               09/30/00                  $  1,250,000
                               12/31/00                  $  1,250,000
                               03/31/01                  $  1,250,000
                               06/30/01                  $  1,250,000
                               09/30/01                  $  1,250,000
                               12/31/01                  $  1,250,000
                               03/31/02                  $  1,250,000
                               06/30/02                  $  1,250,000
                               09/30/02                  $  1,250,000
                               12/31/02                  $  6,250,000

                  "Reduction  Date"  means March 31,  2000,  and the last day of
             each  succeeding  June,  September,  December and March through the
             Maturity Date.

                  "Regulation D" means Regulation D, as at any time amended,  of
             the Board of Governors of the Federal Reserve System,  or any other
             regulation in substance substituted therefor.

                  "Regulations  T, U and X" means  Regulations T, U and X, as at
             any time amended,  of the Board of Governors of the Federal Reserve
             System, or any other regulations in substance substituted therefor.

                  "Regulatory Board" means,  collectively,  (a) the Pennsylvania
             Horse  Racing   Commission,   the   Pennsylvania   Harness   Racing
             Commission,  the West Virginia Racing Commission, the West Virginia
             Lottery  Commission,  and (b) any other  Governmental  Agency  that
             holds  regulatory,  licensing or permit  authority  over  gambling,
             gaming  or  casino  activities  conducted  by  PNGI  or  any of its
             Subsidiaries within its jurisdiction.

                  "Request  for  Loan"  means  a  written  request  for  a  Loan
             substantially  in the form of  Exhibit D,  signed by a  Responsible
             Official  of  Borrower  and  properly   completed  to  provide  all
             information required to be included therein.

                  "Requirement of Law" means, as to any Person,  the articles or
             certificate of incorporation and by-laws or other organizational or
             governing  documents  of such  Person,  and any Law,  or  judgment,
             award,  decree, writ or determination of a Governmental  Agency, in
             each case  applicable  to or binding upon such Person or any of its
             Property or to which such Person or any of its Property is subject.
                                       92
<PAGE>

                  "Requisite  Lenders" means,  as of each date of  determination
             (a) if the  Commitment is then in effect,  Lenders  having Pro Rata
             Shares  constituting  66 2/3% of the  Commitment  (but if there are
             only two Lenders, both Lenders), and (b) if the Commitment has then
             been  terminated  and there are then any  Obligations  outstanding,
             Lenders holding 66 2/3% or more of the Outstanding Obligations (but
             if there are only two Lenders, both Lenders).

                  "Reserve  Percentage"  means,  with respect to any LIBOR Loan,
             the maximum  reserve  percentage  (expressed as a decimal,  rounded
             upward,  if necessary,  to the nearest  1/100th of 1%) in effect on
             the date the Eurodollar Base Rate for that LIBOR Loan is determined
             (whether or not applicable to any Lender) under regulations  issued
             from time to time by the Federal  Reserve Board for determining the
             maximum reserve requirement (including any emergency,  supplemental
             or other marginal reserve requirement) with respect to eurocurrency
             funding  (currently  referred  to  as  "eurocurrency  liabilities")
             having a term  comparable  to the  Interest  Period  for such LIBOR
             Loan.  The  determination  by  the  Administrative   Agent  of  any
             applicable Reserve Percentage shall be conclusive in the absence of
             manifest error.

                  "Responsible Official" means (a) when used with reference to a
             Person  other  than an  individual,  any  officer  of such  Person,
             general  partner of such  Person,  officer of a  corporate  general
             partner of such Person, or corporate officer of a corporate general
             partner of a partnership  that is a general partner of such Person,
             or any other  responsible  official  thereof  duly acting on behalf
             thereof,  and (b) when used with  reference  to a Person  who is an
             individual, such Person. Any document or certificate hereunder that
             is signed or executed by a Responsible  Official of another  Person
             shall be  conclusively  presumed  to have  been  authorized  by all
             necessary corporate, partnership and/or other action on the part of
             such other Person.

                  "Right of Others" means,  as to any Property in which a Person
             has an  interest,  any  legal or  equitable  right,  title or other
             interest  (other  than a Lien)  held by any  other  Person  in that
             Property,  and any  option  or right  held by any  other  Person to
             acquire any such right,  title or other  interest in that Property,
             including any option or right to acquire a Lien.

                  "Scheduled Expense" means the proposed expenditures to be made
             by Borrower for New Equipment and Leasehold  Improvements described
             on Schedule  1.2, the amounts of which shall not exceed the amounts
             listed under the column labeled "Unpaid as of December 13, 1999" on
             Schedule 1.2.

                  "Security  Agreement" means a security  agreement executed and
             delivered by Borrower in favor of the Administrative  Agent for the
             benefit of the  Creditors,  either as originally  executed or as it
             may from time to time be supplemented,  modified, amended, extended
             or supplanted.
                                       93
<PAGE>

                  "Senior  Officer" means the (a) chief executive  officer,  (b)
             president, (c) any vice president, (d) chief financial officer, (e)
             treasurer or (f) assistant treasurer of the Person designated.

                  "Significant  Transaction" means any (a) Acquisition following
             the Closing Date by PNGI or its  Subsidiaries  of another Person or
             group of Persons for a consideration  in excess of $10,000,000,  or
             any   Investment   following  the  Closing  Date  by  PNGI  or  its
             Subsidiaries in any other Person in an amount which is in excess of
             $10,000,000,  (b) any purchase,  lease or other acquisition by PNGI
             or any  of its  Subsidiaries  of  capital  or  fixed  assets  for a
             consideration  which is in  excess  of  $10,000,000,  in each  case
             whether   in  a  single   transaction   or  a  series  of   related
             transactions,  but in any event excluding Capital Expenditures made
             to improve or expand assets owned by PNGI or its Subsidiaries as of
             the Closing Date.  Execution of any agreement requiring PNGI or its
             Subsidiaries to enter into a Significant  Transaction  shall not be
             deemed to constitute a Significant  Transaction unless or until the
             underlying transactions are consummated.

                  "Solvent"  means, as of any date of  determination,  and as to
             any Person, that on such date: (a) the fair valuation of the assets
             of such Person is greater than the fair  valuation of such Person's
             probable  liability in respect of existing  debts;  (b) such Person
             does not intend to, and does not believe that it will,  incur debts
             beyond such Person's ability to pay as such debts mature;  (c) such
             Person is not  engaged in a  business  or  transaction,  and is not
             about to engage in a business  or  transaction,  which  would leave
             such   Person  with  assets   remaining   which  would   constitute
             unreasonably small capital after giving effect to the nature of the
             particular  business  or  transaction;   and  (d)  such  Person  is
             generally  paying its debts as they become due. For purposes of the
             foregoing  (1) the "fair  valuation" of any assets means the amount
             realizable within a reasonable time,  either through  collection or
             sale,  of such assets at their regular  market value,  which is the
             amount  obtainable  by a capable and diligent  businessman  from an
             interested   buyer   willing  to  purchase  such  assets  within  a
             reasonable  time  under  ordinary  circumstances;  and (2) the term
             "debts" includes any legal liability  whether matured or unmatured,
             liquidated or unliquidated, absolute, fixed or contingent.

                  "Special LIBOR Circumstance" means the application or adoption
             after the Closing Date of any Law or interpretation,  or any change
             after the Closing Date therein or thereof,  or any change after the
             Closing Date in the interpretation or administration thereof by any
             Governmental  Agency,  central bank or comparable authority charged
             with the interpretation or administration thereof, or compliance by
             any  Lender or its  LIBOR  Office  with any  request  or  directive
             (whether  or not having the force of Law) of any such  Governmental
             Agency,  central  bank or  comparable  authority  issued  after the
             Closing Date, or the existence or occurrence after the Closing Date
             of  circumstances   affecting  the  Designated   Eurodollar  Market
             generally that are beyond the reasonable control of the Lenders.
                                       94
<PAGE>

                  "Subordinated  Obligations" means any Indebtedness of Borrower
             which is subordinated in right of payment to the  Obligations,  the
             terms of which are  approved by the  Administrative  Agent,  acting
             with the consent of the Requisite Lenders, in writing.

                  "Subsidiary"  means, as of any date of determination  and with
             respect to any Person,  any corporation,  limited liability company
             or partnership  (whether or not, in either case,  characterized  as
             such or as a "joint  venture"),  whether now  existing or hereafter
             organized or acquired:  (a) in the case of a corporation or limited
             liability  company,  of which a majority of the  securities  having
             ordinary  voting  power  for the  election  of  directors  or other
             governing  body  (other than  securities  having such power only by
             reason  of  the  happening  of  a  contingency)  are  at  the  time
             beneficially  owned by such Person and/or one or more  Subsidiaries
             of such  Person,  or (b) in the case of a  partnership,  of which a
             majority of the partnership or other ownership interests are at the
             time  beneficially  owned by such Person  and/or one or more of its
             Subsidiaries.

                  "Swap  Agreement" means a written  agreement  between Borrower
             and one or more financial institutions providing for "swap", "cap",
             "collar" or other  interest  rate  protection  with  respect to any
             Indebtedness.

                  "to  the  best   knowledge   of"  means,   when   modifying  a
             representation, warranty or other statement of any Person, that the
             fact or situation  described therein is known by the Person (or, in
             the  case of a  Person  other  than a  natural  Person,  known by a
             Responsible  Official of that  Person)  making the  representation,
             warranty or other statement, or with the exercise of reasonable due
             diligence under the  circumstances (in accordance with the standard
             of what a  reasonable  Person in similar  circumstances  would have
             done)  would have been known by the  Person  (or,  in the case of a
             Person  other  than a natural  Person,  would  have been known by a
             Responsible Official of that Person).

                  "type",  when used with respect to any Loan or Advance,  means
             the designation of whether such Loan or Advance is a Base Rate Loan
             or Advance, or a LIBOR Loan or Advance.

                  "Venue"  means  any  gaming,  pari-mutuel,   racing  or  other
             entertainment venue now or hereafter operated by PNGI or any of its
             Subsidiaries.

                  "Wholly-Owned  Subsidiary"  means,  as to any Person,  (i) any
             corporation  100% of whose  capital  stock  (other than  director's
             qualifying  shares) is at the time owned by such Person  and/or one
             or more  Wholly-Owned  Subsidiaries  of such  Person  and  (ii) any
             partnership,  association,  joint  venture or other entity in which
             such Person and/or one or more  Wholly-Owned  Subsidiaries  of such
             Person has a 100% equity interest at such time.
                                       95
<PAGE>

                  "Year 2000 Issue" means failure of computer software, hardware
             and firmware systems,  and equipment  containing  embedded computer
             chips, to properly receive, transmit, process,  manipulate,  store,
             retrieve,  re-transmit  or  in  any  other  way  utilize  data  and
             information due to the occurrence of the year 2000 or the inclusion
             of dates on or after January 1, 2000.

1.1 Use of Defined  Terms . Any defined  term used in the plural  shall refer to
all members of the  relevant  class,  and any defined  term used in the singular
shall refer to any one or more of the members of the relevant class.

1.2

1.3 Accounting  Terms . All accounting  terms not  specifically  defined in this
Agreement shall be construed in conformity with, and all financial data required
to be  submitted  by this  Agreement  shall  be  prepared  in  conformity  with,
Generally  Accepted  Accounting  Principles  as in effect on the  Closing  Date,
applied on a consistent basis.

1.4

1.5 Rounding . Any  financial  ratios  required to be  maintained by Borrower or
PNGI pursuant to this Agreement  shall be calculated by dividing the appropriate
component by the other component, carrying the result to one place more than the
number of places by which such ratio is expressed in this Agreement and rounding
the result up or down to the  nearest  number  (with a  round-up  if there is no
nearest number) to the number of places by which such ratio is expressed in this
Agreement.

1.6

1.7 Exhibits  and  Schedules . All  Exhibits  and  Schedules to this  Agreement,
either  as  originally  existing  or as the  same  may  from  time  to  time  be
supplemented,  modified or amended, are incorporated herein by this reference. A
matter disclosed on one Schedule shall be deemed disclosed on all Schedules.

1.8

1.9  References to "and its  Subsidiaries"  . Any  reference  herein to "and its
Subsidiaries"  or the like shall refer solely to the subject  Person during such
times as the  subject  Person  shall  have no  Subsidiaries.  No use of the term
"Subsidiary" or any derivative thereof in the Loan Documents shall imply a right
in any Person to make any Investments in or Acquisitions of any other Person.

1.10

1.11 References to Times . Each reference to a time of day set forth in the Loan
Documents shall, unless expressly stated to the contrary,  be a reference to the
then prevailing California local time.

1.12

1.13  Miscellaneous  Terms . The term  "or" is  disjunctive;  the term  "and" is
conjunctive.  The term  "shall"  is  mandatory;  the term  "may" is  permissive.
Masculine terms also apply to females;  feminine terms also apply to males.  The
term "including" is by way of example and not limitation.

1.14

                                       96
<PAGE>


                                  Article LOANS

                                 Article 3 LOANS

                              1.1 Loans-General .
                                  -------------
1.2

             (a)  Subject  to  the  terms  and  conditions  set  forth  in  this
             Agreement,  on  the  Closing  Date  each  Lender  shall,  pro  rata
             according to that  Lender's  Pro Rata Share of the then  applicable
             Commitment,  make an Advances to Borrower  under the  Commitment in
             the  aggregate  amount  of  $9,100,000.  Subject  to the  terms and
             conditions  set  forth in this  Agreement,  from the  Closing  Date
             through the Availability Date each Lender shall, pro rata according
             to that Lender's Pro Rata Share of the then applicable  Commitment,
             make  further  Advances to Borrower  under the  Commitment  against
             Scheduled  Expenses in such amounts as Borrower may request that do
             not result in the  Outstanding  Obligations  being in excess of the
             Commitment.  Unless the  Administrative  Agent otherwise  requests,
             Borrower shall not request any Loan which results in an increase in
             the aggregate principal amount of the Outstanding  Obligations more
             frequently  than once in each calendar  month.  The proceeds of all
             Advances made hereunder  shall be used as set forth in Section 5.9.
             Amounts repaid under the Commitment may not be reborrowed.  Subject
             to the limitations  set forth herein,  Borrower may repay under the
             Commitment without premium or penalty.
                                       97
<PAGE>

             (a) Subject to the next sentence,  each Loan shall be made pursuant
             to a Request for Loan which shall (i) specify the requested date of
             such Loan,  type of Loan,  amount of such Loan and in the case of a
             LIBOR Loan, the Interest  Period for such Loan, (ii) in the case of
             each Loan made  following  the  Closing  Date  which  results in an
             increase in the  Outstanding  Obligations,  describe the  Scheduled
             Expenses  made by  Borrower  which  are to be  financed  using  the
             proceeds of the requested  Loan and attach  photocopies of invoices
             for such Scheduled Expenses, and (iii) in the case of any Scheduled
             Expense for the purchase of New  Equipment,  attach a duly executed
             Schedule to the Charles Town Operating Lease pursuant to which such
             New Equipment has been accepted by the Charles Town Joint  Venture,
             as Lessee under the Charles  Town  Operating  Lease.  The amount of
             each Loan made  following  the Closing Date which will result in an
             increase in the amount of the Outstanding Obligations shall also be
             subject  to the  conditions  set forth in Section  8.2.  Unless the
             Administrative  Agent  has  previously  notified  Borrower  to  the
             contrary  (which  notice  may be given  in the  sole  and  absolute
             discretion of the Administrative  Agent), Loans may be requested by
             telephone  by a  Responsible  Official of  Borrower,  in which case
             Borrower  shall  confirm  such  request by  promptly  delivering  a
             Request  for Loan in  person  or by  telecopier  conforming  to the
             preceding  sentence  to  the  Administrative   Agent.  Neither  the
             Administrative  Agent nor any  Lender  shall  incur  any  liability
             whatsoever  hereunder in acting upon any  telephonic  request for a
             Loan purportedly made by a Responsible Official of Borrower,  which
             hereby agrees to indemnify the Administrative Agent and the Lenders
             from any loss, cost, expense or liability as a result of so acting.
                                       98
<PAGE>

             (a)  Promptly   following  receipt  of  a  Request  for  Loan,  the
             Administrative  Agent  shall  notify each  Lender by  telephone  or
             telecopier (and if by telephone,  promptly confirmed by telecopier)
             of the date and type of the Loan, the applicable  Interest  Period,
             and that Lender's Pro Rata Share of the Loan.  Not later than 11:00
             a.m. on the date specified for any Loan, each Lender shall make its
             Pro Rata Share of the Loan in immediately available funds available
             to the Administrative  Agent at the Administrative  Agent's Office.
             Upon satisfaction or waiver of the applicable  conditions set forth
             in  Article  8, all  Advances  shall be  credited  on that  date in
             immediately  available funds to the Disbursement Account for direct
             use by Borrower for the purposes described in Section 5.9.

             (a) Unless the Requisite Lenders otherwise consent, each Loan shall
             be in an amount which is an integral  multiple of $100,000 which is
             not less than $500,000.

             (a)The Advances made by each Lender shall be evidenced by that
Lender's Note.

             (a) A Request for Loan shall be irrevocable upon the Administrative
             Agent's  receipt  thereof (or, in the case of a telephonic  request
             for Loan referred to in the second sentence of Section 2.1(b), upon
             the Administrative Agent's receipt of that telephone call).

             (a) If no Request for Loan (or telephonic request for Loan referred
             to in the second  sentence of Section  2.1(b),  if applicable)  has
             been made within the requisite  notice periods set forth in Section
             2.2 or 2.3 in  connection  with a Loan  which,  if made and  giving
             effect  to the  application  of the  proceeds  thereof,  would  not
             increase the outstanding  principal  Indebtedness  evidenced by the
             Notes,  then Borrower shall be deemed to have requested,  as of the
             date upon which the related then  outstanding  Loan is due pursuant
             to  Section  3.1(e),  a Base Rate  Loan in an  amount  equal to the
             amount  necessary to cause the outstanding  principal  Indebtedness
             evidenced  by the Notes to remain  the same and the  Lenders  shall
             make the  Advances  necessary  to make  such  Loan  notwithstanding
             Sections 2.1(b) and 2.2.

1.1 Base Rate  Loans . Each  request by  Borrower  for a Base Rate Loan shall be
made  pursuant to a Request for Loan (or  telephonic  or other  request for loan
referred to in the second sentence of Section 2.1(b), if applicable) received by
the Administrative  Agent, at the Administrative  Agent's Office, not later than
10:00 a.m. on the date (which must be the first  Business Day of a month) of the
requested  Base Rate Loan.  All Loans shall  constitute  Base Rate Loans  unless
properly designated as LIBOR Loans pursuant to Section 2.3.
                                       99
<PAGE>

1.1                        LIBOR Loans .
                           -----------
1.2

             (a)  Each  request  by  Borrower  for a LIBOR  Loan  shall  be made
             pursuant to a Request for Loan (or  telephonic or other request for
             Loan  referred  to in the second  sentence  of Section  2.1(b),  if
             applicable)   received  by  the   Administrative   Agent,   at  the
             Administrative  Agent's Office,  not later than 10:00 a.m. at least
             three Market Days before the first day of the  applicable  Interest
             Period.

             (a) On the date  which is two Market  Days  before the first day of
             the applicable  Interest  Period,  the  Administrative  Agent shall
             confirm  its   determination   of  the   applicable   LIBOR  (which
             determination shall be conclusive in the absence of manifest error)
             and  promptly  shall give  notice of the same to  Borrower  and the
             Lenders by telephone or telecopier  (and if by telephone,  promptly
             confirmed by telecopier).

             (a)  Unless  the  Administrative  Agent and the  Requisite  Lenders
             otherwise  consent,  no  more  than  three  LIBOR  Loans  shall  be
             outstanding at any one time.

             (a)                    No LIBOR Loan may be requested where a
Default or Event of Default has occurred and remains
             continuing.

             (a)                    Nothing contained herein shall require
any Lender to fund any LIBOR Advance in the Designated
             Eurodollar Market.

1.1 Voluntary  Reduction of Commitment . Borrower  shall have the right,  at any
time and from time to time prior to the  Availability  Date,  without penalty or
charge,  upon at least three  Business Days' prior written notice by Borrower to
the Administrative Agent, to voluntarily reduce, permanently and irrevocably, in
amounts which are integral  multiples of $1,000,000,  or to terminate,  all or a
portion of the then undisbursed portion of the Commitment. Concurrently with the
making of any such  reduction in the  Commitment,  Borrower may specify that the
Reduction  Amounts  for one or  more  Reduction  Dates  will  be  reduced  in an
aggregate  amount  which  is the  same as the  amount  of the  reduction  of the
Commitment,  provided  that in the  absence  of a timely  specification  to this
effect by Borrower, each such reduction shall be applied to Reduction Amounts in
the inverse order of their occurrence.  The Administrative  Agent shall promptly
notify the Lenders of any reduction or termination of the Commitment  under this
Section, and of any changes to the Reduction Amounts.

1.2

1.3 Scheduled  Reductions of Commitment . The Commitment shall automatically and
permanently reduce on each Reduction Date by the related Reduction Amount.

1.4
                                      100
<PAGE>

1.5 Mandatory Reductions of Commitment . The Commitment shall permanently reduce
in the amount of any mandatory  prepayments required pursuant to Section 3.1(f).
Any  reduction  of the  Commitment  pursuant  to this  Section  2.6  shall be in
addition to the scheduled reductions described in Section 2.5.

1.6

1.7 Administrative Agent's Right to Assume Funds Available for Advances . Unless
the Administrative  Agent shall have been notified by a Lender no later than the
Business Day prior to the funding by the  Administrative  Agent of any Loan that
such Lender does not intend to make available to the  Administrative  Agent such
Lender's Pro Rata Share of that Loan, the  Administrative  Agent may assume that
such Lender has made such amount  available to the  Administrative  Agent on the
date of the Loan  and the  Administrative  Agent  may,  in  reliance  upon  such
assumption,   make  available  to  Borrower  a  corresponding   amount.  If  the
Administrative  Agent  has  made  funds  available  to  Borrower  based  on such
assumption  and such  corresponding  amount is not in fact made available to the
Administrative  Agent by such Lender, the Administrative Agent shall be entitled
to recover such corresponding  amount on demand from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Administrative Agent's
demand  therefor,  the  Administrative  Agent promptly shall notify Borrower and
Borrower shall pay such corresponding  amount to the  Administrative  Agent. The
Administrative Agent also shall be entitled to recover from such Lender interest
on such  corresponding  amount  in  respect  of each  day  from  the  date  such
corresponding  amount was made available by the Administrative Agent to Borrower
to the date such corresponding amount is recovered by the Administrative  Agent,
at a rate per annum equal to (a) the  Federal  Funds Rate for the first two days
following a demand by the Administrative  Agent and (b) thereafter,  the rate of
interest  then payable by Borrower with respect to Base Rate  Advances.  Nothing
herein shall be deemed to relieve any Lender from its  obligation to fulfill its
share of the  Commitment  or to prejudice  any rights  which the  Administrative
Agent or Borrower may have against any Lender as a result of any default by such
Lender hereunder.

1.8

                                      101
<PAGE>


                            Article PAYMENTS AND FEES

                           Article 3 PAYMENTS AND FEES

1.1                        Principal and Interest .
                           ----------------------
1.2

             (a)  Interest  shall be payable  on the  outstanding  daily  unpaid
             principal  amount  of each  Advance  from  the date  thereof  until
             payment  in full is made and shall  accrue  and be  payable  at the
             rates set forth or provided  for herein  before and after  default,
             before and after maturity,  before and after  judgment,  and before
             and after  the  commencement  of any  proceeding  under any  Debtor
             Relief Law, with  interest on overdue  interest at the Default Rate
             to the fullest extent permitted by applicable Laws.

             (a)  Interest  accrued  on each Base  Rate  Loan on each  Quarterly
             Payment  Date,  and on the  date  of any  prepayment  of the  Notes
             pursuant  to  Section  3.1(f) or Section  3.1(g),  shall be due and
             payable on that day.  Except as otherwise  provided in Section 3.6,
             the  unpaid  principal  amount of each Base  Rate Loan  shall  bear
             interest  at a  fluctuating  rate per annum  equal to the Base Rate
             plus the Base Rate Margin.  Each change in the interest  rate under
             this  Section  3.1(b)  due to a change in the Base Rate  shall take
             effect  simultaneously  with the  corresponding  change in the Base
             Rate.

             (a)  Interest  accrued  on each  LIBOR  Loan which is for a term of
             three  months or less  shall be due and  payable on the last day of
             the related Interest  Period.  Interest accrued on each other LIBOR
             Loan shall be due and  payable  on the date  which is three  months
             after the date such  LIBOR Loan was made and on the last day of the
             related Interest Period.  Except as otherwise  provided in Sections
             3.1(d) and 3.6, the unpaid principal amount of any LIBOR Loan shall
             bear interest at a rate per annum equal to the LIBOR for that LIBOR
             Loan plus the LIBOR Margin.

             (a) During the  existence  of a Default  or Event of  Default,  the
             Requisite  Lenders may determine  that any or all then  outstanding
             LIBOR Loans shall be converted to Base Rate Loans.  Such conversion
             shall be  effective  upon  notice to  Borrower  from the  Requisite
             Lenders  (or  from  the  Administrative  Agent  on  behalf  of  the
             Requisite  Lenders)  and shall  continue so long as such Default or
             Event of Default continues to exist.

             (a)                    If not sooner paid, the principal
Indebtedness evidenced by the Notes shall be payable as follows:

                      (i) the  principal  amount  of each  LIBOR  Loan  shall be
                      payable  on the last day of the  Interest  Period for such
                                      102

<PAGE>

                      Loan  (provided  that such  principal  amount  may be paid
                      using the  proceeds  of a Base Rate Loan made  pursuant to
                      Section 2.1(g));

                      (i)                   the amount, if any, by which the
Outstanding Obligations at any time exceed the
                      Commitment shall be payable immediately; and

                      (i)                   the principal Indebtedness
evidenced by the Notes shall in any event be payable on the
                      Maturity Date.

             (a) The Notes shall be prepaid on or before the fifth  Business Day
             following  the  receipt by PNGI or any of its  Subsidiaries  of Net
             Cash Proceeds from the sale,  transfer or other  disposition of any
             Collateral.

             (a) The Notes may,  at any time and from time to time,  voluntarily
             be paid or prepaid in whole or in part without  premium or penalty,
             except that with  respect to any  voluntary  prepayment  under this
             Section, (i) any partial prepayment shall be not less than $500,000
             and in integral  multiples  of  $100,000,  (ii) the  Administrative
             Agent shall have received written notice of any prepayment by 10:00
             a.m. on the Business  Day  immediately  preceding  the date of such
             prepayment  (which  must be a  Business  Day) in the case of a Base
             Rate Loan,  and,  in the case of a LIBOR  Loan,  three  Market Days
             before the date of prepayment, which notice shall identify the date
             and amount of the  prepayment  and the Loans being  prepaid,  (iii)
             each  prepayment of principal  shall be  accompanied  by payment of
             interest  accrued to the date of payment on the amount of principal
             paid and (iv) any payment or  prepayment  of all or any part of any
             LIBOR  Loan on a day  other  than the  last  day of the  applicable
             Interest Period shall be subject to Section 3.5(d).

1.1 Facility Fees . On the Closing Date and on each  anniversary  of the Closing
Date,  Borrower  shall pay to the  Administrative  Agent a facility fee equal to
0.50% of the then effective  Commitment (less any reduction thereto scheduled to
occur on the next succeeding December 31). The facility fees are for the ratable
account of the Lenders according to their Pro Rata Shares. The facility fees are
for the credit  facilities  provided to Borrower  under this  Agreement  and are
nonrefundable.

1.2

1.3  Commitment  Fees  .  From  the  Closing  Date,  Borrower  shall  pay to the
Administrative Agent, for the ratable accounts of the Lenders according to their
Pro  Rata  Shares,  an  unused  commitment  fee  equal  to the  then  applicable
Commitment  Fee Rate per annum times the average  daily  amount by which (a) the
Commitment exceeds (b) the aggregate  principal  Indebtedness  outstanding under
the Notes.  Unused commitment fees shall be payable quarterly in arrears on each
Quarterly Payment Date, on the date of any termination of the Commitment, and on
the Maturity Date.

1.4
                                      103
<PAGE>

1.5  Increased  Commitment  Costs . If any Lender shall  determine in good faith
that the  introduction  after the  Closing  Date of any  applicable  law,  rule,
regulation or guideline regarding capital adequacy, or any change therein or any
change in the  interpretation or  administration  thereof by any central bank or
other  Governmental  Agency charged with the  interpretation  or  administration
thereof,  or compliance by such Lender (or its LIBOR Office) or any  corporation
controlling  the Lender,  with any request,  guideline  or  directive  regarding
capital  adequacy  (whether or not having the force of law) of any such  central
bank or other authority,  affects or would affect the amount of capital required
or expected to be maintained by such Lender or any corporation  controlling such
Lender and  (taking  into  consideration  such  Lender's  or such  corporation's
policies with respect to capital  adequacy and such Lender's  desired  return on
capital)  determines in good faith that the amount of such capital is increased,
or the rate of return on capital is reduced, as a consequence of its obligations
under this  Agreement,  then,  within  ten  Business  Days after  demand of such
Lender,  Borrower  shall pay to such  Lender,  from time to time as specified in
good faith by such Lender,  additional  amounts  sufficient to  compensate  such
Lender in light of such  circumstances,  to the extent  reasonably  allocable to
such  obligations  under this  Agreement.  Each Lender's  determination  of such
amounts shall be conclusive in the absence of manifest error.
                                      104
<PAGE>

1.1                        LIBOR Costs and Related Matters .
                           -------------------------------
1.2

             (a)                    If, after the date hereof, the existence
or occurrence of any Special LIBOR Circumstance:

                      (1) shall  subject  any Lender or its LIBOR  Office to any
                      tax,  duty or other  charge  or cost with  respect  to any
                      LIBOR Advance,  any of its Notes evidencing LIBOR Loans or
                      its obligation to make LIBOR Advances, or shall change the
                      basis of taxation  of payments to any Lender  attributable
                      to the  principal  of or interest on any LIBOR  Advance or
                      any other  amounts due under this  Agreement in respect of
                      any LIBOR Advance, any of its Notes evidencing LIBOR Loans
                      or its obligation to make LIBOR  Advances,  excluding,  in
                      the case of each Lender, the Administrative Agent and each
                      Eligible  Assignee,  and any  Affiliate  or  LIBOR  Office
                      thereof,  (i) taxes  imposed on or measured in whole or in
                      part by its  overall  net  income,  gross  income or gross
                      receipts or capital and franchise  taxes imposed on it, by
                      (A) any jurisdiction (or political subdivision thereof) in
                      which it is organized or maintains its principal office or
                      LIBOR  Office  or  (B)  any   jurisdiction  (or  political
                      subdivision  thereof)  in  which  it is  "doing  business"
                      (unless   it  would   not  be  doing   business   in  such
                      jurisdiction (or political subdivision thereof) absent the
                      transactions  contemplated  hereby),  (ii) any withholding
                      taxes or other taxes based on gross income  imposed by the
                      United States of America (other than withholding taxes and
                      taxes  based  on gross  income  resulting  solely  from or
                      attributable  to any change in any law, rule or regulation
                      or any change in the  interpretation  or administration of
                      any law, rule or regulation by any Governmental Agency) or
                      (iii) any withholding  taxes or other taxes based on gross
                      income  imposed  by the United  States of America  for any
                      period  with  respect  to which it has  failed to  provide
                      Borrower with the  appropriate  form or forms  required by
                      Section 11.21,  to the extent such forms are then required
                      by applicable Laws;

                      (1) shall impose,  modify or deem  applicable  any reserve
                      not  applicable  or deemed  applicable  on the date hereof
                      (including, without limitation, any reserve imposed by the
                      Board of  Governors  of the Federal  Reserve  System,  but
                      excluding  the Reserve  Percentage  taken into  account in
                      calculating  the  LIBOR),  special  deposit,   capital  or
                      similar  requirements  against assets of, deposits with or
                      for the account of, or credit  extended  by, any Lender or
                      its LIBOR Office; or

                      (1) shall  impose on any Lender or its LIBOR Office or the
                      Designated LIBOR Market any other condition  affecting any
                      LIBOR Advance,  any of its Notes  evidencing  LIBOR Loans,
                      its obligation to make LIBOR  Advances or this  Agreement,
                      or shall otherwise affect any of the same;
                                      105
<PAGE>

             and the result of any of the foregoing, as determined in good faith
             by such  Lender,  increases  the cost to such  Lender  or its LIBOR
             Office of making or maintaining  any LIBOR Advance or in respect of
             any LIBOR Advance,  any of its Notes  evidencing LIBOR Loans or its
             obligation to make LIBOR  Advances or reduces the amount of any sum
             received  or  receivable  by such  Lender or its LIBOR  Office with
             respect to any LIBOR  Advance,  any of its Notes  evidencing  LIBOR
             Loans or its  obligation  to make  LIBOR  Advances  (assuming  such
             Lender's  LIBOR Office had funded 100% of its LIBOR  Advance in the
             Designated  LIBOR  Market),  then,  within five Business Days after
             demand by such Lender  (with a copy to the  Administrative  Agent),
             Borrower shall pay to such Lender such additional amount or amounts
             as will compensate such Lender for such increased cost or reduction
             (determined as though such Lender's LIBOR Office had funded 100% of
             its LIBOR Advance in the Designated LIBOR Market).  Borrower hereby
             indemnifies  each  Lender  against,  and agrees to hold each Lender
             harmless  from and  reimburse  such Lender within ten (10) Business
             Days after demand for (without  duplication)  all costs,  expenses,
             claims, penalties,  liabilities,  losses, reasonable legal fees and
             damages  incurred or  sustained by each Lender in  connection  with
             this Agreement,  or any of the rights,  obligations or transactions
             provided  for or  contemplated  herein,  as a direct  result of the
             existence  or  occurrence  of any  Special  LIBOR  Circumstance.  A
             statement of any Lender claiming compensation under this subsection
             and setting forth in  reasonable  detail the  additional  amount or
             amounts  to be paid to it  hereunder  shall  be  conclusive  in the
             absence of manifest error.  Each Lender agrees to endeavor promptly
             to notify  Borrower of any event of which it has actual  knowledge,
             occurring after the Closing Date, which will entitle such Lender to
             compensation  pursuant to this  Section,  and agrees to designate a
             different LIBOR Office if such  designation will avoid the need for
             or reduce the amount of such compensation and will not, in the good
             faith   judgment   of  such   Lender,   otherwise   be   materially
             disadvantageous  to such Lender. If any Lender claims  compensation
             under this  Section,  Borrower may at any time,  upon at least four
             (4) Market Days' prior notice to the Administrative  Agent and such
             Lender and upon payment in full of the amounts provided for in this
             Section  through the date of such payment plus any  prepayment  fee
             required by Section 3.5(d), pay in full the affected LIBOR Advances
             of such Lender or request that such LIBOR  Advances be converted to
             Base Rate Advances.

             (a) If, after the date hereof,  the  existence or occurrence of any
             Special LIBOR Circumstance  shall, in the good faith opinion of any
             Lender, make it unlawful or impossible for such Lender or its LIBOR
             Office to make,  maintain or fund its portion of any LIBOR Loan, or
             materially  restrict  the  authority  of such Lender to purchase or
             sell,  or to take  deposits  of,  Dollars in the  Designated  LIBOR
             Market,  or to  determine or charge  interest  rates based upon the
             LIBOR,  and such Lender shall so notify the  Administrative  Agent,
             then such  Lender's  obligation  to make  LIBOR  Advances  shall be
             suspended for the duration of such illegality or impossibility  and
                                      106
<PAGE>

             the Administrative Agent forthwith shall give notice thereof to the
             other  Lenders  and  Borrower.  Upon  receipt of such  notice,  the
             outstanding  principal  amount  of such  Lender's  LIBOR  Advances,
             together  with accrued  interest  thereon,  automatically  shall be
             converted to Base Rate Advances with Interest Periods corresponding
             to the LIBOR  Loans of which  such  LIBOR  Advances  were a part on
             either (1) the last day of the  Interest  Period(s)  applicable  to
             such  LIBOR  Advances  if such  Lender  may  lawfully  continue  to
             maintain  and  fund  such  LIBOR  Advances  to such  day(s)  or (2)
             immediately  if such Lender may not  lawfully  continue to fund and
             maintain such LIBOR Advances to such day(s),  provided that in such
             event  the  conversion  shall  not  be  subject  to  payment  of  a
             prepayment fee under Section 3.5(d). Each Lender agrees to endeavor
             promptly  to notify  Borrower  of any event of which it has  actual
             knowledge,  occurring after the Closing Date, which will cause that
             Lender  to notify  the  Administrative  Agent  under  this  Section
             3.5(b),  and agrees to  designate a different  LIBOR Office if such
             designation  will avoid the need for such  notice and will not,  in
             the good faith  judgment of such Lender,  otherwise  be  materially
             disadvantageous  to such  Lender.  In the event  that any Lender is
             unable, for the reasons set forth above, to make,  maintain or fund
             its portion of any LIBOR Loan,  such Lender  shall fund such amount
             as a Base Rate Advance for the same period of time, and such amount
             shall be treated in all respects as a Base Rate Advance. Any Lender
             whose  obligation to make LIBOR Advances has been  suspended  under
             this Section 3.5(b) shall promptly notify the Administrative  Agent
             and  Borrower of the  cessation of the Special  LIBOR  Circumstance
             which gave rise to such suspension.

             (a)                    If, with respect to any proposed LIBOR Loan:

                      (1) the Administrative  Agent reasonably  determines that,
                      by reason of circumstances  affecting the Designated LIBOR
                      Market generally that are beyond the reasonable control of
                      the  Lenders,  deposits  in  Dollars  (in  the  applicable
                      amounts)  are  not  being  offered  to any  Lender  in the
                      Designated  LIBOR  Market  for  the  applicable   Interest
                      Period; or

                      (1) the Requisite Lenders advise the Administrative  Agent
                      that the LIBOR as determined by the  Administrative  Agent
                      (i) does  not  represent  the  effective  pricing  to such
                      Lenders for  deposits in Dollars in the  Designated  LIBOR
                      Market in the relevant amount for the applicable  Interest
                      Period, or (ii) will not adequately and fairly reflect the
                      cost  to such  Lenders  of  making  the  applicable  LIBOR
                      Advances;

             then the  Administrative  Agent forthwith shall give notice thereof
             to Borrower and the  Lenders,  whereupon  until the  Administrative
             Agent notifies Borrower that the circumstances  giving rise to such
             suspension no longer exist,  the  obligation of the Lenders to make
             any future LIBOR  Advances  shall be  suspended.  If at the time of
             such notice there is then pending a Request for Loan that specifies
             a LIBOR  Loan,  such  Request for Loan shall be deemed to specify a
             Base Rate Loan.
                                      107
<PAGE>

             (a) Upon payment or prepayment of any LIBOR Advance  (other than as
             the result of a conversion required under Section 3.5(b)), on a day
             other than the last day in the applicable  Interest Period (whether
             voluntarily,   involuntarily,   by  reason  of   acceleration,   or
             otherwise),  or upon the  failure of Borrower  (for a reason  other
             than the  failure of a Lender to make an  Advance) to borrow on the
             date or in the amount specified for a LIBOR Loan in any Request for
             Loan,  Borrower shall pay to the appropriate Lender within ten (10)
             Business  Days after demand a  prepayment  fee or failure to borrow
             fee,  as the case may be  (determined  as though  100% of the LIBOR
             Advance had been funded in the  Designated  LIBOR  Market) equal to
             the sum of:

                      (1) the principal  amount of the LIBOR Advance  prepaid or
                      not borrowed, as the case may be, times the number of days
                      between the date of  prepayment  or failure to borrow,  as
                      applicable,  and the last day in the  applicable  Interest
                      Period,  divided  by 360,  times the  applicable  Interest
                      Differential  (provided  that the product of the foregoing
                      formula must be a positive number); plus

                      (1) all reasonable  out-of-pocket expenses incurred by the
                      Lender reasonably attributable to such payment, prepayment
                      or failure to borrow.

             Each Lender's  determination  of the amount of any  prepayment  fee
             payable  under  this  Section  3.5(d)  shall be  conclusive  in the
             absence of manifest error.

1.1 Late Payments . If any Event of Default occurs and remains  continuing,  the
Loans shall  thereafter  bear  interest,  to the  fullest  extent  permitted  by
applicable  Laws at a fluctuating  interest rate per annum at all times equal to
(a) with respect to any payment of  principal  or interest,  2% in excess of the
rate of interest otherwise payable or (b) with respect to all other amounts, the
sum of (i) the Base Rate plus (ii) the  applicable  Base Rate  Margin plus (iii)
2%.  Accrued  and  unpaid  interest  on past  due  amounts  (including,  without
limitation,  interest on past due interest) shall be compounded  monthly, on the
last day of each calendar month,  to the fullest extent  permitted by applicable
Laws.

1.2

1.3  Computation  of Interest  and Fees .  Computation  of interest on Base Rate
Loans shall be calculated on the basis of a year of 365 or 366 days, as the case
may be, and the actual number of days elapsed;  computation of interest on LIBOR
Loans and all fees under this  Agreement  shall be  calculated on the basis of a
year of 360 days and the actual  number of days elapsed.  Borrower  acknowledges
that such latter calculation method will result in a higher yield to the Lenders
than a method based on a year of 365 or 366 days.  Interest shall accrue on each
                                      108
<PAGE>

Loan for the day on which the Loan is made; interest shall not accrue on a Loan,
or any portion  thereof,  for the day on which the Loan or such portion is paid.
Any Loan that is repaid on the same day on which it is made shall bear  interest
for one day.

1.4

1.5  Non-Business  Days . If any  payment  to be made by  Borrower  or any other
Obligor  under any Loan  Document  shall come due on a day other than a Business
Day, payment shall instead be considered due on the next succeeding Business Day
and the extension of time shall be reflected in computing interest and fees.

1.1                        Manner and Treatment of Payments .
                           --------------------------------
1.2

             (a) Each payment  hereunder  (except payments  pursuant to Sections
             3.4, 3.5, 11.3, 11.11 and 11.22) or on the Notes or under any other
             Loan Document  shall be made to the  Administrative  Agent,  at the
             Administrative  Agent's  Office,  for  the  account  of each of the
             Lenders  or the  Administrative  Agent,  as the  case  may  be,  in
             immediately available funds not later than 11:00 a.m. on the day of
             payment (which must be a Business Day). All payments received after
             11:00 a.m. on any  Business  Day,  shall be deemed  received on the
             next succeeding  Business Day. The amount of all payments  received
             by the Administrative Agent for the account of each Lender shall be
             immediately  paid by the  Administrative  Agent  to the  applicable
             Lender in  immediately  available  funds and,  if such  payment was
             received  by the  Administrative  Agent by 11:00 a.m. on a Business
             Day and not so made  available  to the  account of a Lender on that
             Business Day, the Administrative  Agent shall reimburse that Lender
             for the cost to such Lender of funding  the amount of such  payment
             at the Federal  Funds Rate.  All  payments  shall be made in lawful
             money of the United States of America.

             (a) Each  payment  or  prepayment  on  account of any Loan shall be
             applied pro rata according to the outstanding Advances made by each
             Lender comprising such Loan.

             (a) Each  Lender  shall  use its best  efforts  to keep a record of
             Advances  made by it and  payments  received by it with  respect to
             each of its Notes  and,  subject to Section  10.6(g),  such  record
             shall, as against Borrower,  be presumptive evidence of the amounts
             owing.  Notwithstanding the foregoing sentence,  no Lender shall be
             liable to any Obligor for any failure to keep such a record.

             (a) Each  payment of any amount  payable by  Borrower  or any other
             Obligor under this  Agreement or any other Loan  Document  shall be
             made free and clear of,  and  without  reduction  by reason of, any
             taxes,  assessments  or other charges  imposed by any  Governmental
             Agency,  central bank or comparable  authority,  excluding,  in the
             case of each Lender,  the  Administrative  Agent and each  Eligible
             Assignee,  and any  Affiliate  or LIBOR Office  thereof,  (i) taxes
             imposed  on or  measured  in  whole or in part by its  overall  net
                                      109
<PAGE>

             income,  gross  income or gross  receipts or capital and  franchise
             taxes  imposed on it,  (ii) any  withholding  taxes or other  taxes
             based on gross  income  imposed  by the  United  States of  America
             (other  than  withholding  taxes  and taxes  based on gross  income
             resulting  solely  from or  attributable  to any change in any law,
             rule  or  regulation  or  any  change  in  the   interpretation  or
             administration  of any law, rule or regulation by any  Governmental
             Agency)  or (iii) any  withholding  taxes or other  taxes  based on
             gross income imposed by the United States of America for any period
             with  respect to which it has failed to provide  Borrower  with the
             appropriate  form or forms required by Section 11.21, to the extent
             such  forms  are  then  required  by  applicable   Laws  (all  such
             non-excluded taxes,  assessments or other charges being hereinafter
             referred to as "Taxes").  To the extent that  Borrower is obligated
             by applicable  Laws to make any deduction or withholding on account
             of  Taxes  from  any  amount  payable  to  any  Lender  under  this
             Agreement,  Borrower  shall (i) make such  deduction or withholding
             and pay the same to the relevant  Governmental  Agency and (ii) pay
             such additional  amount to that Lender as is necessary to result in
             that Lender's  receiving a net after-Tax amount equal to the amount
             to which that Lender would have been entitled  under this Agreement
             absent such deduction or  withholding.  If and when receipt of such
             payment  results in an excess  payment or credit to that  Lender on
             account of such  Taxes,  that  Lender  shall  promptly  refund such
             excess to Borrower.

1.1 Funding  Sources . Nothing in this Agreement shall be deemed to obligate any
Lender to obtain the funds for any Loan or Advance  in any  particular  place or
manner or to constitute a  representation  by any Lender that it has obtained or
will obtain the funds for any Loan or Advance in any particular place or manner.

1.2

1.3 Failure to Charge Not Subsequent Waiver . Any decision by the Administrative
Agent or any Lender not to require payment of any interest  (including  interest
arising  under Section  3.6),  fee, cost or other amount  payable under any Loan
Document,  or to calculate  any amount  payable by a particular  method,  on any
occasion  shall in no way  limit or be  deemed  a waiver  of the  Administrative
Agent's  or  such  Lender's  right  to  require  full  payment  of any  interest
(including  interest  arising  under  Section  3.6),  fee,  cost or other amount
payable under any Loan  Document,  or to calculate an amount  payable by another
method that is not inconsistent with this Agreement,  on any other or subsequent
occasion.

1.4

1.5  Administrative  Agent's Right to Assume Payments Will be Made by Borrower .
Unless the  Administrative  Agent shall have been notified by Borrower  prior to
the date on which  any  payment  to be made by  Borrower  hereunder  is due that
Borrower does not intend to remit such payment, the Administrative Agent may, in
its  discretion,  assume that Borrower has remitted such payment when so due and
the  Administrative  Agent may,  in its  discretion  and in  reliance  upon such
assumption,  make  available to each Lender on such payment date an amount equal
to such  Lender's  share of such  assumed  payment.  If Borrower has not in fact
remitted such payment to the  Administrative  Agent, each Lender shall forthwith
on demand repay to the  Administrative  Agent the amount of such assumed payment
                                      110
<PAGE>

made available to such Lender, together with interest thereon in respect of each
day  from  and  including  the  date  such  amount  was  made  available  by the
Administrative  Agent to such  Lender to the date  such  amount is repaid to the
Administrative Agent at the Federal Funds Rate.

1.6

1.7 Fee Determination  Detail . The  Administrative  Agent and each Lender shall
provide  reasonable detail to Borrower  regarding the manner in which the amount
of any payment of fees or costs to the Administrative  Agent and the Lenders, or
that Lender,  under Article 3 has been determined,  concurrently with demand for
such payment.

1.8

1.9 Survival . All of Borrower's  obligations  under Sections 3.4, 3.5 and 11.22
shall  survive for ninety days  following  the date on which the  Commitment  is
terminated, and all Loans hereunder are fully paid.

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                     Article REPRESENTATIONS AND WARRANTIES

                     Article 3 PRESENTATIONS AND WARRANTIES

                  Each of PNGI  and  Borrower  represents  and  warrants  to the
Creditors that:

1.1 Existence and  Qualification;  Power;  Compliance  With Laws . Borrower is a
corporation duly formed, validly existing and in good standing under the Laws of
West Virginia.  PNGI is a corporation duly formed,  validly existing and in good
standing under the Laws of Pennsylvania. Borrower and each other Obligor is duly
qualified or  registered  to transact  business and is in good  standing in each
other  jurisdiction  in which the conduct of its  business or the  ownership  or
leasing of its Properties makes such  qualification  or registration  necessary,
except  where the failure so to qualify or register  and to be in good  standing
may not  reasonably be expected to have Material  Adverse  Effect.  Borrower and
each other Obligor has all requisite corporate or other organizational power and
authority  to  conduct  its  business,  to own and lease its  Properties  and to
execute and deliver each Loan Document to which it is a party and to perform its
Obligations.  All  outstanding  shares of the capital stock of Borrower and each
other  Obligor  are  duly  authorized  and  validly   issued,   fully  paid  and
non-assessable,  and no holder thereof has any  enforceable  right of rescission
under any applicable state or federal  securities Laws. PNGI and each Subsidiary
is in compliance  with all Laws and other legal  requirements  applicable to its
business, has obtained all authorizations, consents, approvals, orders, licenses
and  permits  from,  and  has  accomplished  all  filings,   registrations   and
qualifications  with, or obtained exemptions from any of the foregoing from, any
Governmental  Agency that are  necessary  for the  transaction  of its business,
except  where the  failure  so to  comply,  file,  register,  qualify  or obtain
exemptions may not reasonably be expected to have a Material Adverse Effect.

1.2

1.3 Authority;  Compliance With Other  Agreements and Instruments and Government
Regulations . The execution,  delivery and  performance of the Loan Documents by
PNGI, Borrower and each other Obligor have been duly authorized by all necessary
corporate action, and do not and will not:

1.4

             (a) Require any consent or approval not heretofore  obtained of any
             director,  stockholder,  security  holder  or (in  the  case of any
             Creditor  except  where the  failure to obtain any such  creditor's
             consent may not reasonably be expected to have any Material Adverse
             Effect) any creditor of such Obligor;

             (a)                    Violate or conflict with any provision of
 such Obligor's articles of incorporation or bylaws;

             (a) Except to the extent contemplated by the Loan Documents, result
             in or require the  creation or  imposition  of any Lien or Right of
             Others upon or with  respect to any Property now owned or leased or
             hereafter acquired by such Obligor;
                                      112
<PAGE>

             (a)                    Violate any Requirement of Law applicable
 to such Obligor in any material respect;

             (a) Result in a breach of or constitute a default  under,  or cause
             or permit  the  acceleration  of any  obligation  owed  under,  any
             indenture  or loan or credit  agreement  or any  other  Contractual
             Obligation   involving   Property  or   obligations  in  excess  of
             $1,000,000 to which PNGI or any of its  Subsidiaries  is a party or
             by which PNGI or any of its  Subsidiaries or any of its Property is
             bound  or  affected,  including  without  limitation  the  10  5/8%
             Indenture and the PNGI Credit Agreement;

and neither PNGI,  Borrower nor any of its  Subsidiaries  is in violation of, or
default  under,  any  Requirement  of  Law  or  Contractual  Obligation,  or any
indenture,  loan or credit agreement described in Section 4.2(e), in any respect
that may  reasonably  be expected  to have a Material  Adverse  Effect.  Without
limiting the  foregoing  provisions  of this Section,  Borrower  represents  and
warrants to the Lenders that each Loan made hereunder is a permissible "Purchase
Money  Loan" or a  permitted  "Refinancing"  of  indebtedness  as such terms are
defined in the 10 5/8% Indenture.

1.1 No Governmental  Approvals Required . Except as previously obtained or made,
no material authorization,  consent, approval, order, license or permit from, or
material filing,  registration or qualification with, any Governmental Agency is
or will be required to authorize or permit under  applicable Laws the execution,
delivery and  performance by Borrower or any other Obligor of the Loan Documents
to  which  it  is a  party.  All  authorizations  from,  or  filings  with,  any
Governmental  Agency will be  accomplished  as of the Closing Date or such other
date.

1.2

1.3  Subsidiaries  .  As of  the  Closing  Date,  Borrower  does  not  have  any
Subsidiaries  which are not described on Schedule 4.4 and, other than Borrower's
Investment in the Charles Town Joint Venture,  Borrower does not own any capital
stock,  equity interest or debt security which is convertible,  or exchangeable,
for capital stock or equity interests in any Person.

1.4

1.5 Financial  Statements . Borrower has furnished (a) the audited  consolidated
and  consolidating  financial  statements of PNGI and its  Subsidiaries  for the
Fiscal Year ended  December 31, 1998,  and (b) the  unaudited  consolidated  and
consolidating  financial  statements of PNGI and its  Subsidiaries  for the nine
month fiscal period ended  September 30, 1999, to the  Administrative  Agent and
the Lenders,  which financial statements fairly present the financial condition,
results  of  operations  and  changes  in  financial  position  of PNGI  and its
Subsidiaries  as of such dates and for such periods in conformity with Generally
Accepted Accounting Principles, consistently applied.

1.6

1.7 No Material  Adverse  Effects . As of the Closing Date, no  circumstance  or
event has occurred that constitutes a Material Adverse Effect since December 31,
1998.

1.8
                                      113
<PAGE>

1.9  Title  to  Property  . On the  Closing  Date and on each  subsequent  date,
Borrower holds the lessor's  interest  under the Charles Town  Operating  Lease,
free and clear of all Liens and Rights of Others,  other than Liens or Rights of
Others permitted by Section 6.8.

1.10

1.11 Intangible  Assets . Each of PNGI and its  Subsidiaries  owns, or possesses
the  right  to use to the  extent  necessary  in its  respective  business,  all
material trademarks,  trade names, copyrights,  patents, patent rights, computer
software,  licenses and other Intangible Assets which are used in the conduct of
its  business  as now  operated,  and no  such  Intangible  Asset,  to the  best
knowledge  of  Borrower,   conflicts  with  the  valid  trademark,  trade  name,
copyright,  patent,  patent right or Intangible Asset of any other Person to the
extent that such conflict may reasonably be expected to have a Material  Adverse
Effect.  Each  registered  patent,  trademark or copyright owned by PNGI and its
Subsidiaries, or as to which any of them is a licensee, is described on Schedule
4.8.

1.12

1.13  Public  Utility  Holding  Company  Act .  Neither  PNGI  nor  any  of  its
Subsidiaries  is a "holding  company",  or a "subsidiary  company" of a "holding
company",  or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.

1.14

1.15  Litigation . There are no actions,  suits,  proceedings or  investigations
pending as to which  PNGI or any of its  Subsidiaries  have been  served or have
received  notice or, to the best  knowledge of Borrower,  threatened  against or
affecting  PNGI  or any of its  Subsidiaries  or  any  Property  of any of  them
(including  the  Real  Property)  before  any  Governmental  Agency,  which  may
reasonably  be  expected  to  have a  monetary  impact  which  is in  excess  of
$1,000,000, and no such action, suit, proceeding or investigation may reasonably
be expected to have a Material Adverse Effect.

1.16

1.17 Binding  Obligations . Each of the Loan  Documents to which Borrower or any
other  Obligor is a party will,  when  executed and  delivered by such  Obligor,
constitute the legal, valid and binding obligation of such Obligor,  enforceable
against such Obligor in accordance with its terms,  except as enforcement may be
limited by Debtor Relief Laws,  Applicable  Regulations or equitable  principles
relating to the granting of specific performance and other equitable remedies as
a matter of judicial discretion.

1.18

1.19                       No Default .  No event has occurred and is
 continuing that is a Default or Event of Default.
                           ----------
                                      114
<PAGE>

1.1                        ERISA .
                           -----
1.2

             (a)                    With respect to each Pension Plan:

                      (i) such  Pension Plan  complies in all material  respects
                      with  ERISA and any other  applicable  Laws to the  extent
                      that  noncompliance  may  reasonably be expected to have a
                      Material Adverse Effect;

                      (i) such Pension  Plan has not  incurred any  "accumulated
                      funding  deficiency"  (as defined in Section 302 of ERISA)
                      that may reasonably be expected to have a Material Adverse
                      Effect;

                      (i)                   no "reportable event" (as defined
in Section 4043 of ERISA) has occurred that may
                      reasonably be expected to have a Material Adverse Effect;
and

                      (i) neither PNGI nor any of its  Subsidiaries  has engaged
                      in any non-exempt "prohibited  transaction" (as defined in
                      Section 4975 of the Code) that may  reasonably be expected
                      to have a Material Adverse Effect.

             (a)  Neither  PNGI  nor any of its  Subsidiaries  has  incurred  or
             expects to incur any withdrawal liability to any Multiemployer Plan
             that may reasonably be expected to have a Material Adverse Effect.

1.1 Regulations T, U and X; Investment  Company Act . No part of the proceeds of
any Loan  hereunder  will be used to purchase or carry,  or to extend  credit to
others for the purpose of purchasing or carrying,  any Margin Stock in violation
of  Regulations  T, U and X. Neither PNGI nor any of its  Subsidiaries  is or is
required  to be  registered  as an  "investment  company"  under the  Investment
Company Act of 1940.

1.2

1.3  Disclosure . No statement  made by Borrower or any of its Affiliates to the
Administrative  Agent or any Lender in  connection  with this  Agreement,  or in
connection with any Loan, as of the date thereof  contained any untrue statement
of a material  fact or omitted a material  fact  necessary to make the statement
made not misleading in light of all the  circumstances  existing at the date the
statement was made.

1.4

1.5 Tax Liability . PNGI and its  Subsidiaries  have filed all tax returns which
are required to be filed,  and have paid, or made  provision for the payment of,
all taxes with respect to the periods,  Property or transactions covered by said
returns,  or  pursuant  to  any  assessment  received  by  PNGI  or  any  of its
Subsidiaries,  except (a) such  taxes,  if any, as are being  contested  in good
faith by appropriate  proceedings  and as to which  adequate  reserves have been
established and maintained and (b) immaterial  taxes so long as no material item
or portion of  Property  of PNGI or any of its  Subsidiaries  is in  jeopardy of
being seized, levied upon or forfeited.
                                      115
<PAGE>

1.6

1.7 Projections . As of the Closing Date, to the best knowledge of Borrower, the
assumptions set forth in the Projections are reasonable and consistent with each
other and with all facts known to Borrower,  and the  Projections are reasonably
based on such  assumptions.  Nothing in this  Section  shall be  construed  as a
representation or covenant that the Projections in fact will be achieved.

1.8

1.9 Hazardous  Materials . Except as would not  individually or in the aggregate
have a Material Adverse Effect,  (a) to the best knowledge of Borrower,  none of
PNGI nor any of its  Subsidiaries  nor any of their  affiliated  predecessors in
interest at any time has disposed of,  discharged,  released or  threatened  the
release  of any  Hazardous  Materials  on,  from or under any Real  Property  in
violation of any Hazardous Materials Law, (b) to the best knowledge of Borrower,
no condition exists that violates any Hazardous  Material Law affecting any Real
Property,  (c) to the best  knowledge  of  Borrower,  no Real  Property  nor any
portion thereof is or has been utilized by PNGI or any of its  Subsidiaries as a
site for the  manufacture of any Hazardous  Materials and (d) to the extent that
any  Hazardous  Materials  are used,  generated  or stored by PNGI or any of its
Subsidiaries on any Real Property,  or transported to or from any Real Property,
such use,  generation,  storage  and  transportation  are in  compliance  in all
material respects with all Hazardous Materials Laws.

1.10

1.11 Applicable Regulations . PNGI and its Subsidiaries are in compliance in all
material respects with all Applicable Regulations that are applicable to them.

1.12

1.13 Security  Interests . Upon the execution and delivery thereof,  each of the
Security  Agreement  will create  valid  security  interests  in the  Collateral
described therein securing the Obligations,  and all action necessary to perfect
the  security  interests  so created , other than filing of the UCC-1  financing
statements  delivered to the  Administrative  Agent pursuant to Section 8.1 with
the appropriate  Governmental Agency, shall have been taken and completed to the
fullest  extent that such Liens may be perfected  by filing.  Upon the making of
such filings,  the security interests granted to the Administrative Agent by the
Security Agreement will be perfected and of first priority,  subject only to the
matters disclosed on Schedule 6.8 or permitted by Section 6.8(e) and (f), to the
fullest extent that such Liens may be perfected by filing.

1.14

1.15 Year 2000 Compliance . PNGI and its  Subsidiaries  have reviewed the effect
of the Year 2000 Issue on the computer  software,  hardware and firmware systems
and equipment  containing  embedded  microchips owned or operated by or for PNGI
and  its   Subsidiaries.   The  costs  to  PNGI  and  its  Subsidiaries  of  any
reprogramming  required  as a result of the Year 2000 Issue to permit the proper
functioning of such systems and equipment and the proper processing of data, and
the  testing of such  reprogramming,  and of  required  systems  changes are not
reasonably expected to result in a Default or a Material Adverse Effect.
                                      116
<PAGE>

1.16

1.17  Solvency  . After  giving  effect to this  Agreement  and the  other  Loan
Documents  (including after giving effect to Advances under this Agreement as of
the Closing Date), Borrower shall be Solvent.

1.18

1.19 The  Schedules . (a)  Schedule  1.1  correctly  lists by serial  number the
G-Tech Equipment, all of which is owned by Borrower and in the possession of the
Charles Town Joint Venture at the Charles Town Facility  pursuant to the Charles
Town Operating Lease. As of the Closing Date, all of the New Equipment listed on
Schedule 1.2 (other than that  described as "1500 CDS Player  Tracking  System,"
"700 Coin  Conversion  Kits," "Casino  Signage" and a portion of the "Count Room
Equipment") is owned by Borrower and in the possession of the Charles Town Joint
Venture at the Charles  Town  Facility  pursuant to the Charles  Town  Operating
Lease,  and  Borrower has made each of the  expenditures  listed on Schedule 1.2
under the column headed "Paid as of December 13, 1999."

1.20

1.21 (b) As of each date subsequent to the Closing Date, all such New Equipment,
and any additional New Equipment  delivered  following the Closing Date is owned
by  Borrower  and in the  possession  of the Charles  Town Joint  Venture at the
Charles Town Facility pursuant to the Charles Town Operating Lease.


                                      117
<PAGE>


Article AFFIRMATIVE COVENANTS(OTHER THAN INFORMATION ANDREPORTING REQUIREMENTS)
Article AFFIRMATIVE COVENANTS(OTHER THAN INFORMATION
         --------------------- ------------------------------------------------
         --------------------- ----------------------
             AND1 REPORTING REQUIREMENTS)(OTHER THAN INFORMATION AND

1 REPORTING REQUIREMENTS) ------------------------


                  So long as any Advance remains unpaid, or any other Obligation
remains  unpaid or  unperformed,  or any  portion of the  Commitment  remains in
force,  PNGI and Borrower shall,  and each shall cause each of its  Subsidiaries
and each other  Obligor to,  unless the  Administrative  Agent (with the written
approval of the Requisite Lenders) otherwise consents:

1.1 Payment of Taxes and Other Potential Liens . Pay and discharge  promptly all
taxes,  assessments and governmental charges or levies imposed upon any of them,
upon their  respective  Property or any part  thereof and upon their  respective
income or profits or any part  thereof,  except  that PNGI and its  Subsidiaries
shall not be required to pay or cause to be paid (a) any tax, assessment, charge
or levy  that is not yet  past  due,  or is  being  contested  in good  faith by
appropriate  proceedings  so long as the  relevant  entity has  established  and
maintains  adequate  reserves for the payment of the same or (b) any  immaterial
tax so long as no  material  item or portion of  Property  of PNGI or any of its
Subsidiaries is in jeopardy of being seized, levied upon or forfeited.

1.2

1.3   Preservation  of  Existence  .  Preserve  and  maintain  their  respective
existences   in  the   jurisdiction   of  their   formation   and  all  material
authorizations,  rights, franchises,  privileges,  consents,  approvals, orders,
licenses,  permits,  or  registrations  from any  Governmental  Agency  that are
necessary for the  transaction of their  respective  business,  except where the
failure to so preserve  and maintain the  existence  of any  Subsidiary  or such
authorizations  would not constitute a Material Adverse Effect;  and qualify and
remain  qualified  to  transact  business  in each  jurisdiction  in which  such
qualification is necessary in view of their respective business or the ownership
or leasing of their respective Properties except where the failure to so qualify
or remain  qualified would not constitute a Material  Adverse  Effect.  Borrower
shall at all times be a Wholly-Owned Subsidiary of PNGI.

1.4

1.5  Maintenance  of  Properties .  Maintain,  preserve and protect all of their
respective depreciable  Properties in good order and condition,  subject to wear
and tear in the  ordinary  course  of  business,  and not  permit  any  waste or
unreasonable  deterioration  of their  respective  Properties,  except  that the
failure to  maintain,  preserve  and protect a  particular  item of  depreciable
Property  that  is not of  significant  value,  either  intrinsically  or to the
operations of PNGI and its Subsidiaries,  taken as a whole, shall not constitute
a violation of this covenant.

1.1 Maintenance of Insurance . Maintain liability,  casualty and other insurance
(subject to customary  deductibles and retentions)  with  responsible  insurance
                                      118
<PAGE>

companies in such  amounts and against  such risks as is carried by  responsible
companies engaged in similar businesses and owning similar assets in the general
areas in which PNGI and its Subsidiaries operate.

1.2

1.3  Compliance  With Laws . Comply,  within the time period,  if any, given for
such compliance by the relevant Governmental Agency or Agencies with enforcement
authority,  with all Requirements of Law noncompliance  with which constitutes a
Material Adverse Effect,  except that PNGI and its Subsidiaries  need not comply
with a  Requirement  of Law then being  contested  in good faith by  appropriate
proceedings.

1.4

1.5  Inspection  Rights  Borrower shall permit the  Administrative  Agent or any
Lender, or any authorized employee, agent or representative thereof, to examine,
audit and make  copies and  abstracts  from the records and books of account of,
and to visit and inspect the Properties of, Borrower and its Subsidiaries and to
discuss the affairs, finances and accounts of Borrower and its Subsidiaries with
any  of  their  officers,  key  employees  or  accountants.  All  rights  of the
Administrative  Agent and the Lenders  under this Section may be exercised  upon
reasonable  advance notice and at any time during regular  business hours and as
often as reasonably  requested  (but not so as to materially  interfere with the
business  of  Borrower  or any of  its  Subsidiaries).  The  costs  of all  such
monitoring,  examining,  auditing and  inspection  by and at the requests of the
Administrative Agent or any Lender shall be borne by the Borrower.

1.6

1.7 Keeping of Records and Books of Account . Keep adequate records and books of
account  reflecting  all financial  transactions  in conformity  with  Generally
Accepted Accounting Principles, consistently applied, and in material conformity
with all applicable  requirements of any Governmental  Agency having  regulatory
jurisdiction over PNGI or any of its Subsidiaries.

1.8

1.9 Compliance  With Agreements . Promptly and fully comply with all Contractual
Obligations under all material agreements, indentures, leases and/or instruments
to which any one or more of them is a party,  whether such material  agreements,
indentures,  leases or instruments are with a Lender or another  Person,  except
for any such Contractual  Obligations (a) the performance of which would cause a
Default or (b) then being  contested by any of them in good faith by appropriate
proceedings or if the failure to comply with such agreements, indentures, leases
or instruments does not constitute a Material Adverse Effect.

1.10

1.11 Use of Proceeds . Use the proceeds of the Loans solely (a) to refinance the
purchase money  indebtedness of PNGI incurred in connection with PNGI's purchase
of the video lottery terminals and other gaming equipment the ownership of which
is to be  transferred  to  Borrower  as of the  Closing  Date and  which are the
subject of the Charles  Town  Operating  Lease and (b) to finance  the  purchase
price of the New  Equipment  and the costs of the  installation  thereof  in the
Charles Town Facility,  and related construction and improvement associated with
the Charles Town Facility  Expansion  pursuant to transactions  which qualify as
purchase  money  Indebtedness  pursuant to Section 4.17 of the 10 5/8% Indenture
and which are Scheduled Expenses.
                                      119
<PAGE>

1.12

1.13  Hazardous  Materials  Laws . Keep and maintain all Real  Property and each
portion  thereof in  compliance  in all material  respects  with all  applicable
Hazardous Materials Laws and promptly notify the Administrative Agent in writing
(attaching a copy of any pertinent written material) of (a) any and all material
enforcement,  cleanup,  removal  or other  governmental  or  regulatory  actions
instituted, completed or threatened in writing by a Governmental Agency pursuant
to any applicable Hazardous Materials Laws with regard to the Real Property, (b)
any and all material  claims made or threatened in writing by any Person against
PNGI or any of its Subsidiaries relating to damage, contribution, cost recovery,
compensation,  loss or injury resulting from any Hazardous Materials with regard
to the Real Property,  and (c) any Senior Officer of Borrower  receives  written
notice or other clear  evidence of any material  occurrence  or condition on any
real  property  adjoining or in the vicinity of such Real Property and affecting
the Real Property that may reasonably be expected to cause such Real Property or
any part thereof to be subject to any restrictions on the ownership,  occupancy,
transferability  or use of such Real  Property  under any  applicable  Hazardous
Materials Laws.

1.14

1.15 Year 2000.  Borrower  shall use its best efforts to promptly  make,  and to
cause PNGI and each of its Subsidiaries to make, all required systems changes in
computer  software,  hardware  and  firmware  systems and  equipment  containing
embedded  microchips  owned or  operated  by or for  PNGI  and its  Subsidiaries
required as a result of the Year 2000 Issue to permit the proper  functioning of
such computer systems and other equipment, except to the extent that the failure
to take any such action would not  reasonably be expected to result in a Default
or a Material  Adverse  Effect.  At the  request of any Lender,  Borrower  shall
provide,  and shall cause PNGI and each of its Subsidiaries to provide,  to such
Lender reasonable assurance of its compliance with the preceding sentence.

                                      120
<PAGE>


             Article NEGATIVE COVENANTSArticle 3 NEGATIVE COVENANTS

                  So long as any Advance remains unpaid, or any other Obligation
remains  unpaid or  unperformed,  or any  portion of the  Commitment  remains in
force,  PNGI and  Borrower  shall  not,  and each  shall not  permit  any of its
Subsidiaries or any other Obligor to, unless the Administrative  Agent (with the
written  approval of the  Requisite  Lenders or, if required by Section 11.2, of
all of the Lenders) otherwise consents:

1.1 Prepayment of  Indebtedness . Other than as to the Obligations and revolving
payments  with  respect to the PNGI Credit  Agreement,  prepay any  principal or
interest on any  Indebtedness  of PNGI or any of its  Subsidiaries  prior to the
date when due,  or make any  payment  or deposit  with any  Person  that has the
effect of providing for the  satisfaction of any  Indebtedness of PNGI or any of
its Subsidiaries  prior to the date when due, in each case if a Default or Event
of Default then exists or would result therefrom.

1.2

1.3  Payment  of  Subordinated  Obligations  . Prepay any  principal  (including
sinking fund  payments)  or any other  amount with  respect to any  Subordinated
Obligation,  or  purchase  or redeem  any  Subordinated  Obligation  except  for
regularly   scheduled   payments  of  interest  with  respect  to   Subordinated
Obligations, to the extent permitted by the subordination provisions thereof.

1.4

1.5 Hostile Tender Offers . Make any offer to purchase or acquire, or consummate
a purchase or acquisition of, 5% or more of the capital stock of any corporation
or other  business  entity  if the  board of  directors  or  management  of such
corporation or business entity has notified PNGI or any of its Subsidiaries that
it opposes  such offer or  purchase  and such notice has not been  withdrawn  or
superseded.

1.1 Mergers,  Sales of Assets,  Etc . Wind up, liquidate or dissolve its affairs
or enter into any transaction of merger or consolidation, or convey, sell, lease
or otherwise dispose of all or any part of its property or assets, or enter into
any sale-leaseback  transactions,  or purchase or otherwise acquire (in one or a
series of related  transactions)  any part of the property or assets (other than
purchases or other  acquisitions  of  inventory,  materials and equipment in the
ordinary  course of business) of any Person (or agree to do any of the foregoing
at any future time),  except that, (i) to the extent that no Default or Event of
Default  exists or would  result  therefrom,  and (ii) as a result  thereof,  no
Change  of  Control  or  Significant  Transaction  has  occurred,  PNGI  and its
Subsidiaries may:

                  (a)      make Capital Expenditures permitted by Section 6.17;

                  (b)  sell  assets   (other  than  the  capital  stock  of  any
             Subsidiary,  the Collateral,  or the equity interest in the Charles
             Town Joint  Venture) in an  arm's-length  transaction  in which (i)
                                      121
<PAGE>

             PNGI or any of its Subsidiaries,  as applicable,  receives at least
             fair  market  value (as  determined  in good  faith by PNGI or such
             Subsidiary of PNGI),  (ii) at least 85% of the total  consideration
             received by PNGI or any of its Subsidiaries, as applicable, is cash
             and is paid at the time of the closing of such sale,  and (iii) the
             aggregate  amount of the  proceeds  received  from all assets  sold
             during any Fiscal Year does not exceed $3,000,000;

               (c) make Investments to the extent permitted by Section 6.18;

               (d) lease (as lessee)  real or personal  property (so long as any
          such lease does not create a Capitalized  Lease  Obligation  except to
          the extent permitted by Section 6.14);

               (e) make sales of inventory in the ordinary course of business;

               (f) sell  obsolete  or worn-out  equipment  or  materials  in the
          ordinary course of business;

               (g) grant leases or subleases to other Persons of Property  other
          than the Collateral;

               (h) in the ordinary course of business,  license,  as licensor or
          licensee, patents, trademarks,  copyrights and know-how to and/or from
          third Persons; and

               (i) Except for mergers  involving  Borrower  and the Charles Town
          Joint Venture, merge with PNGI or any other Wholly-Owned Subsidiary.

1.1                        Distributions .  Make any Distribution, whether from
capital, income or otherwise, and whether in Cash or
                           -------------
other Property, other than:
                ----- ----
1.2
             (a)                    Distributions from any Subsidiary of
Borrower to Borrower or from any Subsidiary of PNGI to PNGI;
             and

             (a)  Distributions  payable  solely in capital stock of PNGI of the
             same class as that to which such Distributions are payable.

1.1 ERISA . (a) At any time,  permit  any  Pension  Plan to:  (i)  engage in any
non-exempt  "prohibited  transaction"  (as defined in Section 4975 of the Code);
(ii) fail to comply  with ERISA or any other  applicable  Laws;  (iii) incur any
material  "accumulated funding deficiency" (as defined in Section 302 of ERISA);
or (iv) terminate in any manner, which, with respect to each event listed above,
may  reasonably  be  expected  to result in a Material  Adverse  Effect,  or (b)
withdraw,  completely or partially,  from any Multiemployer Plan if to do so may
reasonably be expected to result in a Material Adverse Effect.
                                      122
<PAGE>

1.2

1.3  Change in Nature of  Business  . Engage  (directly  or  indirectly)  in any
business  other  than the  businesses  in which  PNGI and its  Subsidiaries  are
engaged in as of the date hereof and  reasonable  extensions  thereof,  it being
understood and agreed that,  except as provided below, in no event shall PNGI or
any of its Subsidiaries engage in any business or enter into any agreement which
requires PNGI or any of its Subsidiaries to make any payments under Section 4 of
the  Plains  Company  Acquisition  Agreement;  provided,  however,  PNGI and its
Subsidiaries  may operate slot  machines at the Penn  National  Race Track,  the
Pocono Downs Race Track and at any Non-Primary  Location (as defined in the PNGI
Credit  Agreement)  operated  by PNGI  and its  Subsidiaries  and may  make  the
required  payments  pursuant  to  Section 4 of the  Plains  Company  Acquisition
Agreement in connection therewith.

1.4

1.5 Liens and Negative  Pledges . Create,  incur,  assume or suffer to exist any
Lien or Negative  Pledge upon or with respect to any property or assets (real or
personal, tangible or intangible) of PNGI or any of its Subsidiaries whether now
owned or hereafter  acquired,  or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets  (including sales of accounts  receivable with recourse to PNGI or any
of its Subsidiaries), or assign any right to receive income or permit the filing
of any  financing  statement  under  the  Uniform  Commercial  Code or any other
similar notice of Lien under any similar  recording or notice statute;  provided
that the provisions of this Section shall not prevent the creation,  incurrence,
assumption  or  existence of the  following  (Liens  described  below are herein
referred to as "Permitted Liens"):

1.6

                  (a)      the Liens and Negative Pledges under the Security
 Agreement;

                  (b) Liens expressly  permitted under the PNGI Credit Agreement
             (as  in  effect  on the  date  of  this  Agreement)  including  any
             refinancings  thereof permitted thereby,  provided that no Liens or
             Negative Pledges on the Collateral other than those in favor of the
             Administrative  Agent and the Lenders under this Agreement shall be
             permitted.

1.1                        Indebtedness .  Contract, create, incur, assume or
suffer to exist any Indebtedness, except:
                           ------------
1.2

                  (a)      Indebtedness incurred pursuant to this Agreement
and the PNGI Credit Agreement (but not refinancings
             thereof); and

                  (b) Indebtedness outstanding on January 28, 1999 and listed on
             Schedule 6.9,  without giving effect to any  subsequent  extension,
             renewal or  refinancing  thereof  except to the extent set forth on
             Schedule 6.9,  provided that the aggregate  principal amount of the
             Indebtedness  to  be  extended,  renewed  or  refinanced  does  not
             increase  from  that  amount  outstanding  at the  time of any such
             extension, renewal or refinancing; and
                                      123
<PAGE>

                  (c)      Indebtedness permitted by the PNGI Credit Agreement
as in effect on the date of this Agreement;

Notwithstanding anything to the contrary contained in this Section or in Section
6.8  until  such  time as the  Charles  Town  Joint  Venture  is a  Wholly-Owned
Subsidiary of PNGI,  Borrower shall not permit the Charles Town Joint Venture to
incur any  Indebtedness  other than  existing  Indebtedness  of the Charles Town
Joint  Venture which is also listed on Schedule  6.9, it being  understood  that
this  prohibition  shall extend to the making of any  intercompany  loans to the
Charles Town Joint Venture.

1.1  Contingent  Obligations  . Guarantee or assume to agree to become liable in
any way,  either  directly or  indirectly,  for any additional  Indebtedness  or
liabilities of others except to endorse checks or drafts in the ordinary  course
of business, or otherwise assume any Contingent Obligation.

1.2

1.3 New  Subsidiaries  . Permit PNGI or any of its  Subsidiaries  to  establish,
create or acquire any Subsidiary without the consent of the Administrative Agent
and the Requisite Lenders.

1.4

1.5  Transactions  with  Affiliates  . Enter into any  transaction  or series of
related  transactions,  whether or not in the ordinary course of business,  with
any  Affiliate  of PNGI or any of its  Subsidiaries,  other than in the ordinary
course of business  and on terms and  conditions  substantially  as favorable to
PNGI or such Subsidiary of PNGI as would  reasonably be obtained by PNGI or such
Subsidiary of PNGI at that time in a comparable arm's-length  transaction with a
Person other than an Affiliate,  except that the following in any event shall be
permitted:

1.6

 (i)                   Distributions may be paid to the extent provided in
Section 6.5;

 (i)                   loans may be made and other transactions may be entered
into by PNGI and each Subsidiary
 of PNGI to the extent permitted by Sections 6.4, 6.9 and 6.17;

 (i)                   customary fees may be paid to non-officer directors of
PNGI and its Subsidiaries; and

 (i)                   the Subsidiaries of PNGI may pay management fees to PNGI.

1.1 Leverage  Ratio . Permit the Leverage Ratio as of the last day of any Fiscal
Quarter  described in the matrix set forth below,  to exceed the ratio set forth
opposite that Fiscal Quarter:

1.2
                                      124
<PAGE>

1.3    Fiscal Quarters Ending                      Maximum Ratio

1.4

1.5    Closing Date through

1.6    December 31, 1999                           4.00:1.00
1.7

1.8    March 31, 2000 through
1.9    December 31, 2000                           3.50:1.00
1.10

1.11   Thereafter                                  3.00:1.00
1.12

1.13 Leases . Permit the aggregate payments (including,  without limitation, any
property taxes paid as additional  rent or lease payments) made by PNGI and each
of PNGI's  Subsidiaries on a consolidated  basis under all agreements to rent or
lease any real or  personal  property  (or any  extension  or  renewal  thereof)
(excluding  Capital Lease  Obligations) to exceed  $1,600,000  during any Fiscal
Year.

1.14

1.15  Consolidated  Cash Interest  Coverage Ratio . Permit the Consolidated Cash
Interest Coverage Ratio as of the last day of any Fiscal Quarter to be less than
3.00:1.00.

1.16

1.17 Consolidated Net Worth . Permit  Consolidated Net Worth, as of the last day
of any Fiscal Quarter,  to be less than the sum of (i) $53,856,000 plus (ii) 50%
of  Consolidated  Net Income  (without  reduction for any net loss in any Fiscal
Quarter) for the period from January 1, 1999 through and  including the last day
of such Fiscal Quarter,  plus (iii) 75% of Net Equity Proceeds  received by PNGI
or any of its  Subsidiaries  during the period from  January 1, 1999 through and
including the last day of such Fiscal Quarter.

1.18

1.19                       Capital Expenditures .
                           --------------------
1.20

                                    (i)  Make  or  commit  to make  any  Capital
                      Expenditure  during  any Fiscal  Year  other than  Capital
                      Expenditures in an aggregate amount that do not exceed the
                      amount indicated below for the applicable Fiscal Year:

                                    Fiscal Year Ending        Maximum Amount

                                    December 31, 1999         $15,000,000
                                    December 31, 2000         $24,000,000
                                    December 31, 2001         $20,000,000
                                    December 31, 2002         $10,000,000

                                    (ii)  In  addition  to  the  foregoing,  the
                      Borrower   and   its   Subsidiaries   may   make   Capital
                      Expenditures  with the  amount of any  insurance  proceeds
                      received  by the  Borrower  or its  Subsidiaries  from any
                      casualty  insurance  policy with respect to any  Property,
                      provided that such insurance  proceeds are used to finance
                      the purchase of similar Property within the 270 day period
                      following their receipt.
                                      125
<PAGE>

1.1  Acquisitions  and Investments . Make any Acquisition or make any Investment
other than  Acquisitions  and Investments  permitted by Section 8.05 of the PNGI
Credit Agreement which do not constitute Significant Transactions.

1.2

1.3  Amendments to Joint Venture  Agreement and Charles Town  Operating  Lease .
Amend, modify or change the Charles Town Joint Venture Agreement or Charles Town
Operating  Lease,  other than any such  amendment,  modification or change which
could not  reasonably  be expected to be adverse to the interests of the Lenders
in any material  respect (it being understood and agreed,  however,  that in any
event  PNGI or a  Wholly-Owned  Subsidiary  thereof  shall  at all  times be the
managing  member of the Charles Town Joint Venture and shall own at least 89% of
the equity interest therein).


                                      126

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Article  INFORMATION  AND  REPORTING  REQUIREMENTS
Article  3  INFORMATION  AND
REPORTING REQUIREMENTS

-------------------------------------- ----------------------------------------


1.1 Financial and Business  Information . So long as any Advance remains unpaid,
or any other  Obligation  remains unpaid or  unperformed,  or any portion of the
Commitment remains in force, PNGI and Borrower shall,  unless the Administrative
Agent (with the written approval of the Requisite Lenders)  otherwise  consents,
at their sole expense,  deliver to the Administrative Agent, a sufficient number
of copies for all of the Lenders, of the following:

1.2

             (a) Within 35 days after the end of each fiscal month of PNGI,  the
             consolidated  and  consolidating  balance  sheet  of  PNGI  and its
             Subsidiaries  as at the end of such  fiscal  month and the  related
             consolidated  and  consolidating  statements of income and retained
             earnings and  statement of cash flows for such fiscal month and for
             the  elapsed  portion of the fiscal year ended with the last day of
             such fiscal month, in each case setting forth  comparative  figures
             for the  corresponding  fiscal  month in the prior  fiscal year and
             comparable budgeted figures for such fiscal month;

             (a)  Within 50 days  after the close of the first  three  quarterly
             accounting   periods  in  each  fiscal   year  of  PNGI,   (i)  the
             consolidated  and  consolidating  balance  sheets  of PNGI  and its
             Subsidiaries as at the end of such quarterly  accounting period and
             the related consolidated and consolidating statements of income and
             retained  earnings and  statement of cash flows for such  quarterly
             accounting  period and for the  elapsed  portion of the fiscal year
             ended with the last day of such  quarterly  accounting  period,  in
             each case setting forth comparative figures for the related periods
             in the prior  fiscal  year,  all of which shall be certified by the
             Chief Financial  Officer of PNGI,  subject to normal year-end audit
             adjustments  and (ii)  management's  discussion and analysis of the
             important   operational  and  financial   developments  during  the
             quarterly and year-to-date periods;

             (a) Within 95 days after the close of each fiscal year of PNGI, (i)
             the consolidated and  consolidating  balance sheets of PNGI and its
             Subsidiaries  as at the end of such  fiscal  year  and the  related
             consolidated  and  consolidating  statements of income and retained
             earnings  and of cash  flows for such  fiscal  year  setting  forth
             comparative figures for the preceding fiscal year and certified, in
             the case of the consolidated financial statements,  by BDO Seidman,
             LLP or such  other  independent  certified  public  accountants  of
             recognized   national   standing   reasonably   acceptable  to  the
             Administrative  Agent,  together  with a report of such  accounting
             firm  stating  that  in the  course  of its  regular  audit  of the
                                      127
<PAGE>

             financial statements of PNGI and its Subsidiaries,  which audit was
             conducted in accordance with generally accepted auditing standards,
             such  accounting  firm  obtained no  knowledge of any Default or an
             Event of Default which has occurred and is continuing or, if in the
             opinion of such  accounting firm such a Default or Event of Default
             has  occurred  and is  continuing,  a  statement  as to the  nature
             thereof and in the case of the consolidating  financial statements,
             by the  Chief  Financial  Officer  of PNGI  and  (ii)  management's
             discussion and analysis of the important  operational and financial
             developments during the respective fiscal year.

             (a)  Promptly  after  PNGI's  or any of its  Subsidiaries'  receipt
             thereof,  a copy  of any  "management  letter"  received  from  its
             certified public accountants and management's response thereto.

             (a) No later  than  thirty  days  following  the  first day of each
             fiscal  year  of  PNGI,  a  budget  in  form  satisfactory  to  the
             Administrative  Agent (including  budgeted statements of income and
             sources and uses of cash and balance  sheets)  prepared by PNGI for
             each of the months of such fiscal year prepared in detail;

             (a)  Promptly  after  request  by the  Administrative  Agent or any
             Lender, copies of any detailed audit reports, management letters or
             recommendations  submitted to PNGI by  independent  accountants  in
             connection  with  the  accounts  or  books  of  PNGI  or any of its
             Subsidiaries, or any audit of any of them;

             (a) Promptly  after the filing or delivery  thereof,  copies of all
             financial  information,  proxy materials and reports, if any, which
             PNGI  or any of its  Subsidiaries  shall  publicly  file  with  the
             Securities and Exchange  Commission or its Successors or deliver to
             holders  of  its   Indebtedness   pursuant  to  the  terms  of  the
             documentation governing such Indebtedness (or any trustee, agent or
             other representative therefor);

             (a) Promptly  after the same are  available,  copies of any written
             communication  to PNGI,  Borrower or any other  Subsidiary  of PNGI
             from  any  Regulatory  Board  advising  it  of a  violation  of  or
             non-compliance with any Applicable  Regulation by PNGI, Borrower or
             any other Subsidiary of PNGI;

             (a)                    Notice in writing within 30 days after any
change of PNGI's or Borrower's senior management
             personnel;

             (a) Promptly after an officer of any Credit Party obtains knowledge
             thereof,  notice  of one or  more  of the  following  environmental
             matters,  unless such environmental matters could not, individually
             or when aggregated with all other such  environmental  matters,  be
             reasonably   expected  to  materially  and  adversely   affect  the
             business,  operations,  property,  assets,  liabilities,  condition
             (financial or otherwise) or prospects of PNGI and its  Subsidiaries
             taken as a whole:
                                      128
<PAGE>

(i)  any pending or  threatened  Environmental  Claim against PNGI or any of its
     Subsidiaries  or any Real Property  owned or operated by PNGI or any of its
     Subsidiaries;

                      (i) any  condition  or  occurrence  on or arising from any
                      Real  Property  owned  or  operated  by PNGI or any of its
                      Subsidiaries  that (a) results in noncompliance by PNGI or
                      any of its Subsidiaries with any applicable  Environmental
                      Law or (b)  could  be  expected  to form  the  basis of an
                      Environmental   Claim   against   PNGI   or   any  of  its
                      Subsidiaries or any such Real Property;.

                      (i) any condition or occurrence on any Real Property owned
                      or operated by PNGI or any of its Subsidiaries  that could
                      be expected  to cause such Real  Property to be subject to
                      any  restrictions  on  the  ownership,  occupancy,  use or
                      transferability by PNGI or any of its Subsidiaries of such
                      Real Property under any Environmental Law; and

                      (i) the  taking  of any  removal  or  remedial  action  in
                      response  to  the  actual  or  alleged   presence  of  any
                      Hazardous  Material on any Real Property owned or operated
                      by  PNGI or any of its  Subsidiaries  as  required  by any
                      Environmental   Law   or   any   governmental   or   other
                      administrative  agency;  provided,  that in any event PNGI
                      shall deliver to each Lender all notices  received by PNGI
                      or  any  of  its  Subsidiaries   from  any  government  or
                      governmental  agency  under,  or pursuant to, CERCLA which
                      identify PNGI or any of its  Subsidiaries  as  potentially
                      responsible   parties  for  remediation   costs  or  which
                      otherwise  notify  PNGI  or  any of  its  Subsidiaries  of
                      potential liability under CERCLA.

             All such notices shall describe in reasonable  detail the nature of
             the  claim,  investigation,  condition,  occurrence  or  removal or
             remedial action and PNGI's or such Subsidiary's response thereto.

             (a) Promptly after (i) PNGI or any of its Subsidiaries receives any
             correspondence or other written  communication  from any Regulatory
             Board  (other than  correspondence  relating  to routine  operating
             matters of PNGI or any of its  Subsidiaries  in the ordinary course
             of business) or (ii) PNGI or any of its  Subsidiaries  delivers any
             correspondence  or other written  communication  to any  Regulatory
             Board  (other than  correspondence  relating  to routine  operating
             matters of PNGI or any of its  Subsidiaries),  PNGI  shall  deliver
             copies of any such correspondence or other written communication to
             each of the Lenders;
                                      129
<PAGE>

             (a)  Promptly  after  request  by the  Administrative  Agent or any
             Lender,  copies of any other material report or other document that
             was filed by PNGI or any of its Subsidiaries  with any Governmental
             Agency;

             (a)  Promptly,  and in any event  within ten  Business  Days upon a
             Senior  Officer  becoming  aware,  of the  occurrence  of  any  (i)
             "reportable  event" (as such term is  defined  in  Section  4043 of
             ERISA) or (ii) "prohibited transaction" (as such term is defined in
             Section  406 of ERISA or  Section  4975 of the Code) in  connection
             with any Pension Plan or any trust created  thereunder,  telephonic
             notice  specifying  the  nature  thereof,  and,  no more  than five
             Business Days after such  telephonic  notice,  written notice again
             specifying the nature  thereof and  specifying  what action PNGI or
             any of its  Subsidiaries is taking or proposes to take with respect
             thereto,  and, when known, any action taken by the Internal Revenue
             Service with respect thereto;

             (a) Promptly  upon,  and in any event within  three  Business  Days
             after,  an officer of any Credit Party obtains  knowledge  thereof,
             notice of (i) the  occurrence  of any  event  which  constitutes  a
             Default or an Event of Default; (ii) any litigation or governmental
             investigation  or  proceeding  (including  without  limitation  any
             Regulatory Board  investigation or proceeding)  pending (x) against
             PNGI or any of its Subsidiaries  which could reasonably be expected
             to  materially  and  adversely  affect  the  business,  operations,
             property, assets,  liabilities,  condition (financial or otherwise)
             or prospects  of PNGI and its  Subsidiaries  taken as a whole,  (y)
             with  respect to any  material  indebtedness  of PNGI or any of its
             Subsidiaries;  and (iii) any actual or  alleged  failure of PNGI or
             any Subsidiary to fail to comply with or perform,  breach,  violate
             or  suffer a default  under  any  local,  state or  federal  law or
             regulation,  or under the terms of any franchise,  license or grant
             of  authority,  or the  occurrence  or  existence  of any  facts or
             circumstances which, with the passage of time, the giving of notice
             or otherwise  could  create such a breach,  violation or default or
             could occasion the  termination of any franchise,  license or grant
             of authority; and

             (a) Such  other  data and  information  as from time to time may be
             reasonably  requested  by  the  Administrative  Agent,  any  Lender
             (through the Administrative Agent) or the Requisite Lenders.

1.1 Compliance  Certificates . For so long as any Advance  remains  unpaid,  any
other Obligation remains unpaid or unperformed, or any portion of the Commitment
remains  outstanding,  Borrower  shall deliver to the  Administrative  Agent for
distribution  by it to the Lenders  concurrently  with the financial  statements
required pursuant to Sections 7.1(a) a properly completed Compliance Certificate
signed by a Senior Officer.
                                      130
<PAGE>


                     Article CONDITIONSArticle 3 CONDITIONS

1.1 The Closing Date . The obligation of each Lender to make the initial Advance
to be made by it on the Closing  Date,  is subject to the  following  conditions
precedent,  each of which shall be satisfied  prior to the making of the initial
Advances  (unless all of the  Lenders,  in their sole and  absolute  discretion,
shall agree otherwise): 1.2

             (a)  The  Administrative  Agent  shall  have  received  all  of the
             following,  each of  which  shall  be  originals  unless  otherwise
             specified, each properly executed by a Responsible Official of each
             party  thereto,  each dated as of the Closing Date and each in form
             and  substance  satisfactory  to the  Administrative  Agent and its
             legal counsel  (unless  otherwise  specified or, in the case of the
             date  of any of the  following,  unless  the  Administrative  Agent
             otherwise agrees or directs):

(1)  executed   counterparts  of  this  Agreement,   sufficient  in  number  for
     distribution to the Lenders and Borrower;

(1)  Notes issued to each Lender in the  principal  amount of that  Lender's Pro
     Rata Share;

(1)  the PNGI Guaranty, executed by PNGI;

(1)  the Security Agreement,  executed by Borrower together with UCC-1 financing
     statements for filing in each appropriate jurisdiction;

(1)  the Charles  Town  Subordination  Agreement,  executed by the Charles  Town
     Joint Venture;

                      (1) such documentation with respect to PNGI,  Borrower and
                      each other Obligor as the Administrative Agent may require
                      to establish  its due  organization,  valid  existence and
                      good standing,  its qualification to engage in business in
                      each  material  jurisdiction  in  which it is  engaged  in
                      business or required to be so qualified,  its authority to
                      execute,  deliver  and  perform  the Loan  Documents,  the
                      identity,  authority  and  capacity  of  each  Responsible
                      Official   thereof   authorized  to  act  on  its  behalf,
                      including  certified  copies of articles of  incorporation
                      and amendments  thereto,  bylaws and  amendments  thereto,
                      certificates  of good  standing  and/or  qualification  to
                      engage   in   business,   tax   clearance    certificates,
                      certificates  of  corporate  resolutions,  and  incumbency
                      certificates;

                      (1)                   the Opinions of Counsel;
                                      131
<PAGE>

                      (1) Such  assurances  as the  Administrative  Agent  deems
                      appropriate  that  the  relevant  Regulatory  Boards  have
                      approved the credit facilities to be provided hereunder to
                      the extent that such  approval  is required by  Applicable
                      Regulations;

(1)  a Certificate of a Responsible  Official signed by a Senior Officer of PNGI
     and Borrower certifying that:

                                            (a)   attached   thereto  are  true,
                              current  and  complete   copies  of  the  10  5/8%
                              Indenture,  the  PNGI  Credit  Agreement  and  the
                              Charles Town Operating  Lease,  each as amended to
                              date; and

(b)  the conditions specified in Sections 8.1(c) and 8.1(d) have been satisfied;

                      (1) Evidence that the  $5,000,000  "Term Loan" (as defined
                      in the PNGI Credit  Agreement) has been repaid in full and
                      any   applicable    commitments   with   respect   thereto
                      terminated;

                      (1) An amendment to the PNGI Credit  Agreement in form and
                      substance  acceptable to the Lenders pursuant to which the
                      requisite  lenders  thereunder  agree to (A) the  removal,
                      waiver  or  modification  of any  provisions  in the  PNGI
                      Credit Agreement which would otherwise prohibit the credit
                      facilities  and related  security  interests  contemplated
                      hereby and by the other Loan  Documents,  and (B) agree to
                      subordinate  their  interest  in the  Collateral  and  the
                      proceeds thereof to the Liens of the Administrative  Agent
                      in the Collateral and the proceeds thereof;

(1)  such other assurances, certificates, documents, consents or opinions as the
     Administrative Agent reasonably may require.

(a)  Evidence  that the security  interests of the  Administrative  Agent in the
     Collateral are of first
             priority.

(a)  The  representations  and  warranties  of PNGI and  Borrower  contained  in
     Article 4 shall be true and correct.

             (a) PNGI,  Borrower and any other  Obligors  shall be in compliance
             with all the terms and provisions of the Loan Documents,  and after
             giving  effect  to the  initial  Advance,  no  Default  or Event of
             Default shall have occurred and be continuing.

(a)  The fees due and  payable on the Closing  Date  pursuant to Article 3 shall
     have been paid.
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             (a) The  Administrative  Agent and the Lenders  shall have reviewed
             and found  satisfactory  information  confirming  that PNGI and its
             Subsidiaries  are taking all necessary and  appropriate  steps,  if
             any, to address the Year 2000 Issue.

(a)  No Material Adverse Effect shall have occurred since December 31, 1998.

             (a) PNGI shall have  transferred  to Borrower the  ownership of the
             G-Tech Equipment and all New Equipment  heretofore  delivered,  and
             Borrower  (and shall have  delivered  a copy of the bill of sale or
             other appropriate  evidence of such transfer to the  Administrative
             Agent) and the Charles Town Joint  Venture  shall have entered into
             the Charles Town Operating Lease with respect thereto.

             (a) All  legal  matters  relating  to the Loan  Documents  shall be
             satisfactory to Sheppard,  Mullin,  Richter & Hampton, LLP, special
             counsel to the Administrative Agent.

1.1  Any Advance . The obligation of each Lender to make any Advance which would
     increase  the  Outstanding   -----------  Obligations  is  subject  to  the
     conditions  precedent that: 1.2 (a) except as disclosed by the Obligors and
     approved  in writing by the  Requisite  Lenders,  the  representations  and
     warranties contained in Article 4 (other than the representations set forth
     in  Sections  4.4,  4.10 and 4.17) shall be true and correct on the date of
     such Advance as though made on that date;

             (a) There  shall not be any  pending or  threatened  action,  suit,
             proceeding  or   investigation   affecting   PNGI  or  any  of  its
             Subsidiaries  before any  Governmental  Agency that  constitutes  a
             Material Adverse Effect;

             (a) except as provided for in Section  2.1(g),  the  Administrative
             Agent shall have timely  received a Request for Loan in  compliance
             with Article 2 (or telephonic or other request for Loan referred to
             in the second sentence of Section 2.1(b), if applicable);

(a)  no Default or Event of Default shall have occurred and remain continuing or
     will result from such Advance;

             (a) the amount of the increase in the Outstanding Obligations shall
             not exceed the amount of the  Scheduled  Expenses  made by Borrower
             during the one month period  preceding  the making of the requested
             Loan (which  Scheduled  Expenses  shall not have been the basis for
             any prior such Loan), the invoices for such Scheduled Expenses (and
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             in the case of those relating to the purchase of New Equipment, the
             lease schedule to the Charles Town Operating Lease) attached to the
             related  Request  for Loan shall be  reasonably  acceptable  to the
             Administrative Agent;

             (a)  Borrower  shall have  delivered  to the  Administrative  Agent
             amendments  to its Uniform  Commercial  Code  financing  statements
             describing  the New  Equipment  purchased  with the proceeds of the
             Loan;

             (a) no portion of the New  Equipment  shall have been  delivered to
             the  Borrower  more than 20 days  prior to the date of the  related
             Loans,  and the  Collateral  shall be subject be subject to a first
             priority perfected security interest in favor of the Administrative
             Agent; and

             (a) the  Administrative  Agent  shall  have  received,  in form and
             substance  satisfactory  to the  Administrative  Agent,  such other
             assurances,  certificates,  documents  or  consents  related to the
             foregoing  as the  Administrative  Agent or the  Requisite  Lenders
             reasonably may require, including without limitation any assurances
             which the  Administrative  Agent may require to establish  that the
             proposed  Loan is  permitted  under  the  terms of the PNGI  Credit
             Agreement and the 10 5/8 Indenture.



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Article EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT Article 3 EVENTS OF
DEFAULT       AND        REMEDIES        UPON       EVENT       OF       DEFAULT
----------------------------------------------------
------------------------------------------------------


1.1  Events of Default . The  existence or  occurrence of any one or more of the
     following events, whatever the -----------------  reason therefor and under
     any circumstances whatsoever, shall constitute an Event of Default:
1.2
(a)  Borrower  fails to pay any  principal  on any of the Notes,  or any portion
     thereof, on the date when due; or

             (a) Borrower fails to pay any interest on any of the Notes,  or any
             fees under Sections 3.2 or 3.3 or any portion  thereof,  within two
             Business  Days  after the date when due;  or fails to pay any other
             fee or amount  payable to the Lenders under any Loan  Document,  or
             any  portion  thereof,  within  five  Business  Days  after  demand
             therefor; or

(a)  PNGI or Borrower  fail to comply  with any of the  covenants  contained  in
     Article 6; or

             (a) PNGI, Borrower or any other Obligor fails to perform or observe
             any other  covenant or agreement (not specified in clauses (a), (b)
             or (c)  above)  contained  in any Loan  Document  on its part to be
             performed or observed  within thirty Business Days after the giving
             of notice by the  Administrative  Agent on behalf of the  Requisite
             Lenders of such Default; or

             (a) Any  representation or warranty of PNGI,  Borrower or any other
             Obligor made in any Loan Document,  or in any  certificate or other
             writing delivered by Borrower pursuant to any Loan Document, proves
             to have been incorrect when made or reaffirmed; or

             (a) PNGI or any of its Subsidiaries (i) fails to pay the principal,
             or any principal installment, of any present or future Indebtedness
             for  borrowed  money of  $1,000,000  or more,  or any  guaranty  of
             present or future  Indebtedness for borrowed money of $1,000,000 or
             more, on its part to be paid,  when due (or within any stated grace
             period),  whether at the stated  maturity,  upon  acceleration,  by
             reason of required prepayment,  the exercise of any "put" exercised
             by the holder of such  Indebtedness  or  otherwise or (ii) fails to
             perform or observe any other term,  covenant  or  agreement  on its
             part to be performed or observed, or suffers any event to occur, in
             connection  with any present or future  Indebtedness  for  borrowed
             money of  $1,000,000  or more,  or of any  guaranty  of  present or
             future indebtedness for borrowed money of $1,000,000 or more, if as
             a result of such  failure  or  sufferance  any  holder  or  holders
             thereof  (or an agent or  trustee on its or their  behalf)  has the
             right to declare such  indebtedness due before the date on which it
             otherwise would become due; or
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             (a) Any event  occurs  which  gives the  holder or  holders  of any
             Subordinated  Obligation  (or an agent or  trustee  on its or their
             behalf)  the right to  declare  such  Subordinated  Obligation  due
             before the date on which it  otherwise  would  become  due,  or the
             right to require the issuer thereof to redeem or purchase, or offer
             to redeem  or  purchase,  all or any  portion  of any  Subordinated
             Obligation; or

             (a) Any Loan Document, at any time after its execution and delivery
             and for any  reason  other  than the  agreement  of the  Lenders or
             satisfaction  in full of all the  Obligations  ceases to be in full
             force  and  effect  or  is  declared   by  a  court  of   competent
             jurisdiction to be null and void,  invalid or  unenforceable in any
             respect which,  in any such event in the reasonable  opinion of the
             Requisite  Lenders,  is materially  adverse to the interests of the
             Lenders;  or any Obligor  thereto denies that it has any or further
             liability or  obligation  under any Loan  Document,  or purports to
             revoke, terminate or rescind same; or

             (a) A final  judgment  against PNGI or any of its  Subsidiaries  is
             entered  for the  payment of money in excess of  $1,000,000  (other
             than any money judgment  covered in full by insurance)  and, absent
             procurement  of  a  stay  of  execution,   such  judgment   remains
             unsatisfied  for  sixty  calendar  days  after the date of entry of
             judgment, or in any event later than five days prior to the date of
             any proposed sale thereunder;  or any writ or warrant of attachment
             or execution or similar  process is issued or levied against all or
             any part of the  Property of any such  Person and is not  released,
             vacated or fully bonded within sixty  calendar days after its issue
             or levy; or

             (a) PNGI or any of its  Subsidiaries  institutes or consents to the
             institution of any proceeding under a Debtor Relief Law relating to
             it or to all or any part of its Property, or is unable or admits in
             writing its inability to pay its debts as they mature,  or makes an
             assignment for the benefit of creditors; or applies for or consents
             to  the   appointment   of  any   receiver,   trustee,   custodian,
             conservator, liquidator, rehabilitator or similar officer for it or
             for all or any  part of its  Property;  or any  receiver,  trustee,
             custodian,  conservator,   liquidator,   rehabilitator  or  similar
             officer is  appointed  without the  application  or consent of that
             Person and the appointment  continues  undischarged or unstayed for
             sixty calendar  days; or any  proceeding  under a Debtor Relief Law
             relating to any such  Person or to all or any part of its  Property
             is  instituted  without the  consent of that  Person and  continues
             undismissed or unstayed for sixty calendar days; or

(a)  The  occurrence of an Event of Default (as such term is or may hereafter be
     specifically  defined  in any other  Loan  Document)  under any other  Loan
     Document; or
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<PAGE>

(a)  Any  determination  is made by a court of competent  jurisdiction  that any
     Subordinated Obligation is
            not subordinated in accordance with its terms to the Obligations; or

             (a) Any Pension Plan maintained by PNGI or any of its  Subsidiaries
             is determined to have an "accumulated  funding  deficiency" as that
             term is  defined  in  Section  302 of  ERISA  and the  result  is a
             Material Adverse Effect; or

             (a) The  occurrence  of any  License  Revocation  at  Charles  Town
             Facility or the  occurrence of any License  Revocation at any other
             Venue of PNGI or its Subsidiaries which continues for five days; or

(a)  The occurrence of any Change of Control or any Significant Transaction.

1.1  Remedies  Upon  Event of  Default . Without  limiting  any other  rights or
remedies of the  Administrative  Agent or the Lenders  provided for elsewhere in
this  Agreement,  or in the other Loan  Documents,  or by applicable  Law, or in
equity, or otherwise:

1.2

(a)  Upon the occurrence,  and during the  continuance,  of any Event of Default
     other than an Event of ----- ---- Default described in Section 9.1(j):

                      (1)  the   Commitment  to  make  Advances  and  all  other
                      obligations  of the  Creditors  to the  Obligors  and  all
                      rights of Borrower and the other  Obligors  under the Loan
                      Documents  shall be suspended  without notice to or demand
                      upon  Borrower,  which are  expressly  waived by Borrower,
                      except  that all of the Lenders or the  Requisite  Lenders
                      (as the case may be, in accordance  with Section 11.2) may
                      waive an Event of Default or, without waiving,  determine,
                      upon terms and conditions  satisfactory  to the Lenders or
                      Requisite  Lenders,  as the case may be, to reinstate  the
                      Commitment  and make  further  Advances,  which  waiver or
                      determination shall apply equally to, and shall be binding
                      upon, all the Lenders; and

                      (1) the Requisite  Lenders may request the  Administrative
                      Agent to, and the  Administrative  Agent thereupon  shall,
                      terminate the  Commitment  and may declare all or any part
                      of the unpaid principal of the Notes, all interest accrued
                      and unpaid thereon and all other amounts payable under the
                      Loan Documents to be forthwith due and payable,  whereupon
                      the same shall  become and be  forthwith  due and payable,
                      without protest,  presentment,  notice of dishonor, demand
                      or further  notice of any kind, all of which are expressly
                      waived by Borrower.
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<PAGE>

(a)  Upon the occurrence of any Event of Default described in Section 9.1(j):

                      (1)  the   Commitment  to  make  Advances  and  all  other
                      obligations  of the  Creditors  to the  Obligors  and  all
                      rights of Borrower and any other  Obligors  under the Loan
                      Documents shall terminate without notice to or demand upon
                      Borrower,  which are expressly waived by Borrower,  except
                      that all the  Lenders  may waive the Event of Default  or,
                      without  waiving,  determine,  upon  terms and  conditions
                      satisfactory   to  all  the  Lenders,   to  reinstate  the
                      Commitment and make further Advances,  which determination
                      shall apply equally to, and shall be binding upon, all the
                      Lenders; and

                      (1)  the  unpaid  principal  of all  Notes,  all  interest
                      accrued and unpaid  thereon and all other amounts  payable
                      under  the  Loan  Documents  shall  be  forthwith  due and
                      payable, without protest, presentment, notice of dishonor,
                      demand or  further  notice  of any kind,  all of which are
                      expressly waived by Borrower.

             (a) Upon the occurrence and during the  continuance of any Event of
             Default, the Lenders and the Administrative  Agent, or any of them,
             without  notice to (except as  expressly  provided  for in any Loan
             Document) or demand upon  Borrower,  which are expressly  waived by
             Borrower (except as to notices  expressly  provided for in any Loan
             Document),  may proceed (but only with the consent of the Requisite
             Lenders) to protect, exercise and enforce their rights and remedies
             under the Loan Documents against Borrower and any other Obligor and
             such other rights and remedies as are provided by Law or equity.

             (a) The order and manner in which the Lenders'  rights and remedies
             are to be exercised shall be determined by the Requisite Lenders in
             their  sole   discretion,   and  all   payments   received  by  the
             Administrative  Agent  and the  Lenders,  or any of them,  shall be
             applied  first to the  costs  and  expenses  (including  reasonable
             attorneys'  fees and  disbursements  and the  reasonably  allocated
             costs of attorneys employed by the  Administrative  Agent or by any
             Lender)  of  the  Administrative  Agent  and of  the  Lenders,  and
             thereafter  paid pro rata to the  Lenders  in the same  proportions
             that the aggregate  Obligations  owed to each Lender under the Loan
             Documents  bear to the  aggregate  Obligations  owed under the Loan
             Documents to all the Lenders,  without priority or preference among
             the Lenders.  Regardless of how each Lender may treat  payments for
             the purpose of its own  accounting,  for the  purpose of  computing
             Borrower's  Obligations  hereunder  and under the  Notes,  payments
             shall  be  applied  first,   to  the  costs  and  expenses  of  the
             Administrative  Agent and the Lenders, as set forth above,  second,
             to the  payment of accrued and unpaid  interest  due under any Loan
             Documents to and including the date of such  application  (ratably,
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<PAGE>

             and  without  duplication,  according  to the  accrued  and  unpaid
             interest due under each of the Loan  Documents),  and third, to the
             payment of all other  amounts  (including  principal and fees) then
             owing to the  Administrative  Agent or the  Lenders  under the Loan
             Documents.  No  application  of  payments  will  cure any  Event of
             Default, or prevent  acceleration,  or continued  acceleration,  of
             amounts payable under the Loan Documents,  or prevent the exercise,
             or  continued  exercise,  of  rights  or  remedies  of the  Lenders
             hereunder or thereunder or at Law or in equity.



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Article  THE   ADMINISTRATIVE   AGENT
 Article  3  THE   ADMINISTRATIVE   AGENT
------------------------ --------------------------


1.1  Appointment  and  Authorization  . Subject to Section  10.8,  each Creditor
hereby irrevocably appoints and authorizes the Administrative Agent to take such
action as  administrative  agent on its behalf and to exercise such powers under
the Loan  Documents as are  delegated to the  Administrative  Agent by the terms
thereof or are reasonably incidental, as determined by the Administrative Agent,
thereto.  This appointment and  authorization is intended solely for the purpose
of facilitating  the servicing of the Loans and does not constitute  appointment
of the  Administrative  Agent  as a  trustee  or  agent  for  any  Lender  or as
representative  of any Lender for any other purpose and,  except as specifically
set forth in the Loan Documents to the contrary,  the Administrative Agent shall
take  such  action  and  exercise  such  powers  only in an  administrative  and
ministerial capacity.

1.2

1.3  Administrative  Agent and  Affiliates . Bank of America (and each successor
Administrative Agent) has the same rights and powers under the Loan Documents as
any  other  Lender  and  may  exercise  the  same  as  though  it  were  not the
Administrative  Agent,  and the term  "Lender"  or  "Lenders"  includes  Bank of
America  in its  individual  capacity.  Bank  of  America  (and  each  successor
Administrative Agent) and its Affiliates may accept deposits from, lend money to
and generally  engage in any kind of banking,  trust or other business with PNGI
or any of its  Subsidiaries  as if it were  not  the  Administrative  Agent  and
without  any duty to account  therefor to the other  Creditors.  Bank of America
(and each successor Administrative Agent) need not account to any other Creditor
for any monies  received by it for  reimbursement  of its costs and  expenses as
Administrative Agent hereunder, or for any monies received by it in its capacity
as a Lender hereunder.  The  Administrative  Agent shall not be deemed to hold a
fiduciary trust or other special  relationship or any other special relationship
with any other Creditor and no implied covenants,  functions,  responsibilities,
duties,  obligations  or  liabilities  shall  be read  into  this  Agreement  or
otherwise exist against the Administrative Agent.

1.4

1.5  Proportionate  Interest in any Collateral . The  Administrative  Agent,  on
behalf of all the  Creditors,  shall hold in accordance  with the Loan Documents
all  items  of any  collateral  or  interests  therein  received  or held by the
Administrative   Agent.   Subject  to  the   Administrative   Agent's  right  to
reimbursement  for  its  costs  and  expenses  hereunder  (including  reasonable
attorneys'  fees and  disbursements  and  other  professional  services  and the
reasonably  allocated costs of attorneys employed by the  Administrative  Agent)
and subject to the  application of payments in accordance  with Section  9.2(d),
each Lender shall have an interest in the Collateral or interests therein in the
same proportions that the aggregate  Obligations owed such Lender under the Loan
Documents bear to the aggregate Obligations owed under the Loan Documents to all
the Lenders, without priority or preference among the Lenders.

1.6

1.7 Lenders' Credit Decisions . Each Creditor agrees that it has,  independently
and without reliance on any other Creditor or the directors,  officers,  agents,
employees  or  attorneys  thereof,  and  instead in  reliance  upon  information
                                      140
<PAGE>

supplied to it by or on behalf of the Obligors  and upon such other  information
as it has deemed  appropriate,  made its own  independent  credit  analysis  and
decision  to enter  into  this  Agreement.  Each  Lender  agrees  that it shall,
independently  and without  reliance upon any other  Creditor or the  directors,
officers,  agents,  employees  or  attorneys  thereof,  continue to make its own
independent credit analyses and decisions in acting or not acting under the Loan
Documents.

1.1                        Action by Administrative Agent .
                           ------------------------------
1.2

             (a) Absent  actual  knowledge  of the  Administrative  Agent of the
             existence  of a Default  or Event of  Default,  the  Administrative
             Agent may assume that no Default or Event of Default  has  occurred
             and is  continuing,  unless the  Administrative  Agent has received
             notice from the  Obligors  stating the nature of the Default or has
             received notice from a Lender stating the nature of the Default and
             that such Lender  considers  the Default to have occurred and to be
             continuing.

(a)  The  Administrative  Agent  has  only  those  obligations  under  the  Loan
     Documents as are expressly set forth therein.

             (a)  Except  for any  obligation  expressly  set  forth in the Loan
             Documents and as long as the  Administrative  Agent may assume that
             no  Event  of  Default  has   occurred  and  is   continuing,   the
             Administrative  Agent may, but shall not be required  to,  exercise
             its   discretion  to  act  or  not  act,   provided  that  (i)  the
             Administrative  Agent  shall be required to act or not act upon the
             instructions  of the Requisite  Lenders (or of all the Lenders,  to
             the extent required by Section 11.2) and those  instructions  shall
             be  binding  upon the  Administrative  Agent  and all of the  other
             Creditors,  and (ii) the Administrative Agent shall not be required
             to  act or  not  act if to do so  would  be  contrary  to any  Loan
             Document or to applicable  Law or would result,  in the  reasonable
             judgment  of the  Administrative  Agent,  in  substantial  risk  of
             liability to the Administrative Agent.

             (a) If the Administrative  Agent has received a notice specified in
             clause (a), the Administrative  Agent shall immediately give notice
             thereof  to  the  Lenders  and  shall  act  or  not  act  upon  the
             instructions  of the Requisite  Lenders (or of all the Lenders,  to
             the  extent  required  by  Section  11.2),  provided  that  (i) the
             Administrative  Agent shall not be required to act or not act if to
             do so would be contrary to any Loan Document or to  applicable  Law
             or would result, in the reasonable  judgment of the  Administrative
             Agent,  in  substantial  risk of  liability  to the  Administrative
             Agent,  and (ii) if the Requisite  Lenders (or all the Lenders,  if
             required under Section 11.2) fail, for five Business Days after the
             receipt of notice from the  Administrative  Agent,  to instruct the
             Administrative  Agent, then the  Administrative  Agent, in its sole
             discretion,  may  act or not  act as it  deems  advisable  for  the
             protection of the interests of the Lenders.
                                      141
<PAGE>

             (a)  The  Administrative  Agent  shall  have  no  liability  to any
             Creditor for acting,  or not acting, as instructed by the Requisite
             Lenders (or all the  Lenders,  if  required  under  Section  11.2),
             notwithstanding any other provision hereof.

1.1 Liability of Administrative Agent . Neither the Administrative Agent nor any
of its directors,  officers,  agents, employees or attorneys shall be liable for
any  action  taken or not  taken by them  under or in  connection  with the Loan
Documents, except for their own gross negligence or willful misconduct.  Without
limitation  on the  foregoing,  the  Administrative  Agent  and  its  directors,
officers, agents, employees and attorneys:

1.2

             (a) May treat the payee of any Note as the holder thereof until the
             Administrative  Agent receives notice of the assignment or transfer
             thereof,  in form satisfactory to the Administrative  Agent, signed
             by the  payee,  and may  treat  each  Lender  as the  owner of that
             Lender's  interest  in the  Obligations  for all  purposes  of this
             Agreement  until the  Administrative  Agent receives  notice of the
             assignment  or  transfer  thereof,  in  form  satisfactory  to  the
             Administrative Agent, signed by that Lender.

             (a) May  consult  with  legal  counsel  (including  in-house  legal
             counsel),  accountants  (including in-house  accountants) and other
             professionals  or experts  selected  by it, or with legal  counsel,
             accountants  or  other  professionals  or  experts  for PNGI or its
             Subsidiaries or the Lenders, and shall not be liable for any action
             taken or not  taken  by it in good  faith  in  accordance  with any
             advice of such legal counsel, accountants or other professionals or
             experts.

             (a) Shall not be  responsible  to any Creditor  for any  statement,
             warranty or representation  made in any of the Loan Documents or in
             any  notice,  certificate,   report,  request  or  other  statement
             (written or oral) given or made in connection  with any of the Loan
             Documents.

             (a) Except to the extent expressly set forth in the Loan Documents,
             shall  have no  duty to ask or  inquire  as to the  performance  or
             observance  by any  Obligor  of any of  the  terms,  conditions  or
             covenants of any of the Loan Documents or to inspect any Collateral
             or  the  Property,   books  or  records  of  PNGI  or  any  of  its
             Subsidiaries.

             (a) Will not be  responsible to any Creditor for the due execution,
             legality,  validity,  enforceability,  genuineness,  effectiveness,
             sufficiency or value of any Loan Document,  any other instrument or
             writing furnished pursuant thereto or in connection  therewith,  or
             any Collateral.

             (a) Will not  incur  any  liability  by  acting  or not  acting  in
             reliance  upon any Loan  Document,  notice,  consent,  certificate,
             statement, request or other instrument or writing believed by it to
             be genuine and signed or sent by the proper party or parties.
                                      142
<PAGE>

             (a) Will not  incur any  liability  for any  arithmetical  error in
             computing  any amount  paid or  payable  by any  Obligor or paid or
             payable to or received or receivable from any Lender under any Loan
             Document,  including,  without  limitation,   principal,  interest,
             commitment fees, Advances and other amounts.

1.1 Indemnification . Each Lender shall, ratably in accordance with its Pro Rata
Share,  indemnify and hold the Administrative  Agent, and each of its directors,
officers,   agents,  employees  and  attorneys  harmless  against  any  and  all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or disbursements of any kind or nature  whatsoever  (including,
without limitation,  attorneys' fees and disbursements and reasonably  allocated
costs of attorneys employed by the Administrative Agent) that may be imposed on,
incurred by or asserted against it or them in any way relating to or arising out
of the  Loan  Documents  or any  action  taken or not  taken by such  indemnitee
thereunder,  except  such as result  from its own gross  negligence  or  willful
misconduct. Without limitation on the foregoing, each Lender shall reimburse the
Administrative  Agent  upon  demand  for that  Lender's  Pro  Rata  Share of any
out-of-pocket cost or expense incurred by the Administrative Agent in connection
with the  negotiation,  preparation,  execution,  delivery,  amendment,  waiver,
restructuring,   reorganization   (including   a   bankruptcy   reorganization),
enforcement or attempted  enforcement of the Loan Documents,  to the extent that
any Obligor is required by Section 11.3 to pay that cost or expense but fails to
do so upon demand.

1.2

1.3 Successor  Administrative  Agent . The Administrative  Agent may, and at the
request of the Requisite  Lenders  shall,  resign as  Administrative  Agent upon
thirty days' notice to the Lenders and  Borrower.  If the  Administrative  Agent
resigns as  Administrative  Agent under this  Agreement,  the Requisite  Lenders
shall  appoint from among the Lenders a successor  administrative  agent for the
Lenders.  If no  successor  administrative  agent  is  appointed  prior  to  the
effective  date  of  the   resignation   of  the   Administrative   Agent,   the
Administrative Agent may appoint a successor administrative agent from among the
Lenders.  Upon the  acceptance of its  appointment  as successor  administrative
agent hereunder,  such successor  administrative  agent shall succeed to all the
rights,  powers and  duties of the  retiring  Administrative  Agent and the term
"Administrative  Agent" shall mean such successor  administrative  agent and the
retiring Administrative Agent's appointment, powers and duties as Administrative
Agent shall be terminated. After any retiring Administrative Agent's resignation
hereunder  as  Administrative  Agent,  the  provisions  of this  Article 10, and
Sections  11.3,  11.11 and 11.22,  shall  inure to its benefit as to any actions
taken or  omitted  to be taken by it while it was  Administrative  Agent.  If no
successor  administrative agent has accepted appointment as Administrative Agent
by the date  which is  thirty  (30) days  following  a  retiring  Administrative
Agent's notice of resignation,  the retiring  Administrative Agent's resignation
shall nevertheless  thereupon become effective and the Lenders shall perform all
of the duties of the Administrative  Agent hereunder until such time, if any, as
the Requisite Lenders appoint a successor  administrative  agent as provided for
above.
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1.4

1.5  Foreclosure  on Collateral . In the event of  foreclosure or enforcement of
the Lien created by any of the  Collateral  Documents,  title to the  Collateral
covered  thereby  shall be taken  and held by the  Administrative  Agent (or any
designee  thereof)  pro rata for the benefit of the Lenders in  accordance  with
their Pro Rata Shares and shall be  administered in accordance with the standard
form of collateral  holding  participation  agreement used by the Administrative
Agent in comparable syndicated credit facilities.

1.6

1.7 No  Obligations  of Borrower or PNGI . Nothing  contained in this Article 10
shall be deemed to impose upon PNGI or Borrower any obligation in respect of the
due and punctual  performance by the Administrative  Agent of its obligations to
the Lenders under any provision of this  Agreement,  and PNGI and Borrower shall
have no liability to the  Administrative  Agent or any of the Lenders in respect
of any failure by the  Administrative  Agent or any Lender to perform any of its
obligations to the Administrative Agent or the Lenders under this Agreement.

1.8

1.9  Permitted  Release  of  Collateral  . The  Administrative  Agent is  hereby
authorized  to  release  its Lien on any  Collateral  which is the  subject of a
disposition permitted hereunder,  and each Lender shall confirm upon request the
authority of the Administrative Agent to make any such release of Collateral.



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                  Article MISCELLANEOUSArticle 3 MISCELLANEOUS

1.1 Cumulative Remedies; No Waiver . The rights, powers, privileges and remedies
of the Creditors  provided herein,  in the Notes and in the other Loan Documents
are  cumulative  and not  exclusive  of any right,  power,  privilege  or remedy
provided  by Law or equity.  No failure or delay on the part of any  Creditor in
exercising any right, power, privilege or remedy may be, or may be deemed to be,
a waiver thereof;  nor may any single or partial  exercise of any right,  power,
privilege or remedy  preclude  any other or further  exercise of the same or any
other right,  power,  privilege or remedy. The terms and conditions of Article 8
are inserted for the sole  benefit of the  Creditors;  the same may be waived in
whole or in part,  with or without terms or  conditions,  in respect of any Loan
without  prejudicing the Creditors' rights to assert them in whole or in part in
respect of any other Loan.

1.2

1.3 Amendments; Consents . No amendment,  modification,  supplement,  extension,
termination  or waiver of any  provision  of this  Agreement  or any other  Loan
Document, no approval or consent thereunder,  and no consent to any departure by
any Obligor therefrom, may in any event be effective unless in writing signed or
approved in writing by the Requisite Lenders or by the Administrative Agent with
the  consent  of the  Requisite  Lenders  (and,  in the  case of any  amendment,
modification  or  supplement  to (i)  Article 10,  signed by the  Administrative
Agent, and (ii) to any Loan Document, signed by the Obligors party thereto), and
then only in the  specific  instance and for the specific  purpose  given;  and,
without  the  approval  in  writing  of all the  Lenders  affected  thereby,  no
amendment,  modification,  supplement,  termination,  waiver or  consent  may be
effective: 1.4

             (a) To amend or modify the principal of, or the amount of principal
             or principal prepayments on any Note, to increase the amount of the
             Commitment or the Pro Rata Share of any Lender  without the consent
             of that Lender,

             (a) Without the consent of the  affected  Lenders,  to decrease the
             rate of interest or amount of any fee payable to any Lender,  or to
             decrease  the amount of any unused  commitment  fee  payable to any
             Lender,  or to  decrease  any other fee or  amount  payable  to any
             Lender under the Loan Documents;

             (a) To postpone any date  (including  the Maturity  Date) fixed for
             any payment of  principal  of,  prepayment  of  principal of or any
             installment  of  interest  on, any Note or any  installment  of any
             unused commitment fee, or to extend the term of the Commitment,  or
             to release the PNGI Guaranty  (except as otherwise  provided in any
             Loan Document);

(a)  To release  any  portion of the  Collateral  having an  aggregate  value in
     excess  of  $100,000  (except  ------  as  expressly  provided  in any Loan
     Document);
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(a)  To release or otherwise terminate the Charles Town Subordination Agreement;

(a)  To amend the provisions of the definition of "Requisite  Lenders",  Section
     8.2, Section 8.3 or this ----------------- Section 11.2; or

(a)  To amend any  provision  of this  Agreement  that  expressly  requires  the
     consent or approval of all the Lenders.

Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 11.2 shall apply equally to, and shall be binding  upon,  all of
the Creditors.

1.1 Costs,  Expenses and Taxes . PNGI shall pay within ten  Business  Days after
demand,  accompanied by an invoice therefor, the reasonable  out-of-pocket costs
and expenses of the  Administrative  Agent in connection  with the  negotiation,
preparation,  syndication,  administration,  execution  and delivery of the Loan
Documents. Borrower shall pay within ten Business Days after demand, accompanied
by an invoice therefor,  the reasonable  out-of-pocket costs and expenses of the
Administrative  Agent in connection  with any amendment to the Loan Documents or
any waiver of the terms thereof,  and the  reasonable  costs and expenses of the
Administrative  Agent and, after a Default,  the Lenders in connection  with the
refinancing,    restructuring,    reorganization    (including    a   bankruptcy
reorganization) and enforcement or attempted  enforcement of the Loan Documents,
and any matter related  thereto.  The foregoing costs and expenses shall include
the actual  environmental  review  fees,  filing  fees,  recording  fees,  title
insurance   premiums  and  fees,   appraisal   fees,   search  fees,  and  other
out-of-pocket expenses and the reasonable fees and out-of-pocket expenses of any
legal counsel (including reasonably allocated costs of legal counsel employed by
the  Administrative  Agent or any Lender),  independent  public  accountants and
other  outside  experts  retained  by the  Administrative  Agent or any  Lender,
whether  or not  such  costs  and  expenses  are  incurred  or  suffered  by the
Administrative  Agent or any Lender in  connection  with or during the course of
any bankruptcy or insolvency proceedings of any Obligor. Such costs and expenses
shall also include, in the case of any amendment or waiver of any Loan Document,
the  administrative  costs of the Administrative  Agent reasonably  attributable
thereto. Borrower shall pay any and all documentary,  recording, stamp and other
taxes,  and all costs,  expenses,  fees and charges  payable or determined to be
payable in connection with the filing or recording of this Agreement,  any other
Loan Document or any other  instrument  or writing to be delivered  hereunder or
thereunder,  or in connection with any  transaction  pursuant hereto or thereto.
Any amount payable to the Administrative  Agent or any Lender under this Section
11.3 shall bear  interest  from the date of demand  for  payment at the  Default
Rate.

1.2

1.3 Nature of Lenders'  Obligations . The  obligations of the Lenders  hereunder
are  several  and not  joint or joint and  several.  Nothing  contained  in this
Agreement  or any  other  Loan  Document  and no  action  taken by any  Creditor
pursuant hereto or thereto may, or may be deemed to, make any of the Creditors a
partnership,  an  association,  a joint  venture or other  entity,  either among
                                      146
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themselves or with PNGI or any of its Subsidiaries.  Each Lender's obligation to
make any Advance  pursuant hereto is several and not joint or joint and several,
and in the case of the initial Advance only, is conditioned upon the performance
by all other Lenders of their obligations to make initial Advances. A default by
any Lender will not increase the Pro Rata Share of the  Commitment  attributable
to any other  Lender.  Any Lender not in default  may, if it desires,  assume in
such proportion as the nondefaulting Lenders agree the obligations of any Lender
in default, but is not obligated to do so.

1.4

1.5  Survival  of  Representations  and  Warranties  . All  representations  and
warranties contained herein or in any other Loan Document, or in any certificate
or other  writing  delivered by or on behalf of any one or more of the Obligors,
will survive the making of the Loans hereunder and the execution and delivery of
the  Notes,   and  have  been  or  will  be  relied   upon  by  each   Creditor,
notwithstanding any investigation made by the Creditors or on their behalf.

1.6

1.7 Notices . Except as otherwise expressly provided in the Loan Documents,  all
notices,  requests,  demands,  directions and other communications  provided for
hereunder  or under any  other  Loan  Document  must be in  writing  and must be
mailed,  telecopied,  dispatched  by  commercial  courier  or  delivered  to the
appropriate  party  at the  address  set  forth on the  signature  pages of this
Agreement  or other  applicable  Loan  Document  or, as to any party to any Loan
Document,  at any other address as may be  designated by it in a written  notice
sent to all other parties to such Loan Document in accordance with this Section.
Except as  otherwise  expressly  provided in any Loan  Document,  if any notice,
request,  demand,  direction or other communication required or permitted by any
Loan Document is given by mail it will be effective on the earlier of receipt or
the third  calendar day after deposit in the United States mail with first class
or airmail postage prepaid; if given by telecopier,  when sent; if dispatched by
commercial  courier,  on the  scheduled  delivery  date; or if given by personal
delivery, when delivered.

1.8

1.9 Execution of Loan Documents . This Agreement and any other Loan Document may
be executed in any number of  counterparts  and any party  hereto or thereto may
execute any  counterpart,  each of which when  executed  and  delivered  will be
deemed to be an original and all of which  counterparts of this Agreement or any
other Loan  Document,  as the case may be, when taken together will be deemed to
be but one and the same instrument. The execution of this Agreement or any other
Loan  Document by any party  hereto or thereto will not become  effective  until
counterparts  hereof or thereof,  as the case may be, have been  executed by all
the parties hereto or thereto.
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<PAGE>

1.1                        Binding Effect; Assignment .
                           --------------------------
1.2

             (a) This  Agreement  and the  other  Loan  Documents  to which  any
             Obligor is a party will be binding upon and inure to the benefit of
             the  relevant  Obligor  and the  Creditors,  and  their  respective
             successors  and  assigns,  except that the  Obligors may not assign
             their rights  hereunder  or  thereunder  or any interest  herein or
             therein without the prior written consent of all the Lenders.  Each
             Lender  represents that it is not acquiring its Note with a view to
             the  distribution  thereof within the meaning of the Securities Act
             of 1933, as amended (subject to any requirement that disposition of
             such Note must be within the  control of such  Lender).  Any Lender
             may at any time pledge its Note or any other instrument  evidencing
             its rights as a Lender under this  Agreement  to a Federal  Reserve
             Bank,  but no such  pledge  shall  release  that  Lender  from  its
             obligations  hereunder  or grant to such  Federal  Reserve Bank the
             rights of a Lender hereunder absent foreclosure of such pledge.

             (a) From time to time  following the Closing Date,  each Lender may
             assign to one or more Eligible  Assignees all or any portion of its
             Pro Rata Share;  provided that (i) such Eligible  Assignee,  if not
             then a Lender or an Affiliate  of the  assigning  Lender,  shall be
             approved by the Administrative Agent and Borrower (neither of which
             approvals shall be unreasonably withheld or delayed), provided that
             the consent of Borrower to  assignments  shall not be required when
             any  Default  or  Event  of  Default  has   occurred   and  remains
             continuing,   (ii)  such  assignment   shall  be  evidenced  by  an
             Assignment  Agreement,  a copy of which shall be  furnished  to the
             Administrative Agent as provided below, (iii) except in the case of
             an assignment to an Affiliate of the assigning  Lender,  to another
             Lender  or of the  entire  remaining  Commitment  of the  assigning
             Lender,  the  assignment  shall not  assign a Pro Rata Share of the
             Commitment  equivalent  to  less  than  $1,000,000,  and  (iv)  the
             effective date of any such assignment  shall be as specified in the
             Assignment  Agreement,  but not earlier than the date which is five
             Business Days after the date the Administrative  Agent has received
             the  Assignment   Agreement.   Upon  the  effective  date  of  such
             Assignment Agreement,  the Eligible Assignee named therein shall be
             a Lender  for all  purposes  of this  Agreement,  with the Pro Rata
             Share  therein set forth and, to the extent of such Pro Rata Share,
             the assigning Lender shall be released from its further obligations
             under the Loan Documents. Borrower agrees that it shall execute and
             deliver  (against  delivery by the assigning  Lender to Borrower of
             its Note) to such assignee  Lender, a Note evidencing that assignee
             Lender's  Pro  Rata  Share,  and to the  assigning  Lender,  a Note
             evidencing  the  remaining  balance Pro Rata Share  retained by the
             assigning Lender.

             (a) By  executing  and  delivering  an  Assignment  Agreement,  the
             Eligible  Assignee  thereunder  acknowledges  and agrees that:  (i)
             other than the representation and warranty that it is the legal and
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<PAGE>

             beneficial  owner of the Pro Rata Share being assigned thereby free
             and clear of any adverse  claim,  the assigning  Lender has made no
             representation  or  warranty  and  assumes no  responsibility  with
             respect to any statements, warranties or representations made in or
             in  connection  with this  Agreement  or the  execution,  legality,
             validity,  enforceability,   genuineness  or  sufficiency  of  this
             Agreement or any other Loan Document; (ii) the assigning Lender has
             made no  representation  or warranty and assumes no  responsibility
             with  respect  to  the  financial  condition  of  Borrower  or  the
             performance by Borrower of the Obligations; (iii) it has received a
             copy of this  Agreement,  together  with  copies of the most recent
             financial  statements  delivered  pursuant  to Section 7.1 and such
             other  documents and  information  as it has deemed  appropriate to
             make its own  credit  analysis  and  decision  to enter  into  such
             Assignment  Agreement;  (iv) it  will,  independently  and  without
             reliance upon the  Administrative  Agent or any Lender and based on
             such documents and information as it shall deem  appropriate at the
             time,  continue to make its own credit  decisions  in taking or not
             taking action under this Agreement;  (v) it appoints and authorizes
             the  Administrative  Agent to take such action and to exercise such
             powers  under this  Agreement  and the other Loan  Documents as are
             delegated to the Administrative  Agent by this Agreement;  and (vi)
             it  will  perform  in  accordance  with  their  terms  all  of  the
             obligations which by the terms of this Agreement are required to be
             performed by it as a Lender.

             (a) Each Lender may from time to time grant  participations  to one
             or more banks or other financial  institutions  (including  another
             Lender)  in all or a  portion  of its  Pro  Rata  Share;  provided,
             however,  that (i) such Lender's  obligations  under this Agreement
             shall  remain  unchanged,  (ii) such  Lender  shall  remain  solely
             responsible to the other parties hereto for the performance of such
             obligations,  (iii)  the  participating  banks or  other  financial
             institutions  shall  not be a  Lender  hereunder  for  any  purpose
             except,  if  the  participation  Agreement  so  provides,  for  the
             purposes  of  Sections  3.4,  3.5,  11.11 and 11.22 but only to the
             extent that the cost of such  benefits to Borrower  does not exceed
             the cost  which  Borrower  would have  incurred  in respect of such
             Lender absent the participation,  (iv) Borrower, the Administrative
             Agent and the other  Lenders  shall  continue  to deal  solely  and
             directly with such Lender in connection  with such Lender's  rights
             and  obligations  under  this  Agreement,   (v)  the  participation
             interest  shall  be  expressed  as a  percentage  of  the  granting
             Lender's Pro Rata Share as it then exists and shall not restrict an
             increase in the  Commitment,  or in the granting  Lender's Pro Rata
             Share, so long as the amount of the  participation  interest is not
             affected  thereby  and  (vi)  the  consent  of the  holder  of such
             participation  interest  shall not be required  for  amendments  or
             waivers of provisions of the Loan Documents  other than those which
             (A)  extend  the  Maturity  Date or any other  date upon  which any
             payment  of money is due to the  Lenders,  (B)  reduce  the rate of
             interest payable with respect to the participation,  any fee or any
             other monetary  amount payable to the  participant,  (C) reduce the
             amount of any  installment  of  principal  due under the Notes in a
             manner which affects the  participant,  or (D) release any material
             portion of the Collateral.
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             (a) Notwithstanding  anything in this Section 11.8 to the contrary,
             the  rights  of the  Lenders  to make  assignments  of,  and  grant
             participations in, their Pro Rata Shares of the Commitment shall be
             subject to the  approval of any  Regulatory  Board  (including  the
             approval of the identity of any proposed  assignee or participant),
             to the extent required by Applicable Regulations.

1.1 Right of Setoff . If an Event of Default  has  occurred  and is  continuing,
each Creditor may (but only with the consent of the Requisite  Lenders) exercise
its rights under Article 9 of the Uniform  Commercial Code and other  applicable
Laws and, to the extent  permitted by  applicable  Laws,  apply any funds in any
deposit account  maintained with it by PNGI and Borrower or any Property of PNGI
and Borrower in its possession against the Obligations.

1.2

1.3 Sharing of Setoffs . Each Lender  severally  agrees that if it,  through the
exercise  of any right of setoff,  banker's  lien or  counterclaim  against  any
Obligor,  or otherwise,  receives  payment of the Obligations held by it that is
ratably more than any other  Lender,  through any means,  receives in payment of
the Obligations  held by that Lender,  then,  subject to applicable Laws (a) the
Lender  exercising  the  right  of  setoff,  banker's  lien or  counterclaim  or
otherwise  receiving  such payment shall  purchase,  and shall be deemed to have
simultaneously   purchased,  from  the  other  Lender  a  participation  in  the
Obligations  held by the  other  Lender  and  shall  pay to the  other  Lender a
purchase  price in an amount so that the share of the  Obligations  held by each
Lender after the exercise of the right of setoff,  banker's lien or counterclaim
or receipt of payment shall be in the same  proportion that existed prior to the
exercise of the right of setoff,  banker's  lien or  counterclaim  or receipt of
payment; and (b) such other adjustments and purchases of participations shall be
made from time to time as shall be  equitable  to ensure that all of the Lenders
share any payment  obtained in respect of the Obligations  ratably in accordance
with each Lender's share of the  Obligations  immediately  prior to, and without
taking into  account,  the payment;  provided  that,  if all or any portion of a
disproportionate  payment  obtained as a result of the  exercise of the right of
setoff,  banker's lien,  counterclaim or otherwise is thereafter  recovered from
the  purchasing  Lender  by  any  Obligor  or any  Person  claiming  through  or
succeeding to the rights of any Obligor,  the purchase of a participation  shall
be rescinded  and the purchase  price thereof shall be restored to the extent of
the recovery,  but without interest.  Each Lender that purchases a participation
in the  Obligations  pursuant  to this  Section  11.10  shall from and after the
purchase have the right to give all notices, requests,  demands,  directions and
other  communications  under this  Agreement  with respect to the portion of the
Obligations  purchased to the same extent as though the  purchasing  Lender were
the original owner of the Obligations purchased. Each Obligor expressly consents
to the foregoing arrangements and agrees that any Lender holding a participation
in an  Obligation  so  purchased  may  exercise  any and all  rights of  setoff,
banker's lien or counterclaim  with respect to the  participation as fully as if
the Lender were the original owner of the Obligation purchased.

1.4
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1.5  Indemnity  by PNGI and  Borrower  . Each of PNGI  and  Borrower  agrees  to
indemnify,  save and hold harmless the Creditors and their directors,  officers,
agents,  attorneys  and  employees  (collectively  the  "Indemnitees")  from and
against:  (a) any and all claims,  demands,  actions or causes of action, if the
claim,  demand,  action  or cause of  action  arises  out of or  relates  to the
Commitment,  the  use or  contemplated  use of  proceeds  of  any  Loan,  or the
relationship between any such Person and the Creditors under this Agreement; (b)
any  administrative  or  investigative  proceeding  by any  Governmental  Agency
arising  out of or  related  to a claim,  demand,  action  or  cause  of  action
described in clause (a) above; and (c) any and all liabilities, losses, costs or
expenses  (including  reasonable  attorneys'  fees and the reasonably  allocated
costs  of  attorneys  employed  by any  Indemnitee  and  disbursements  of  such
attorneys and other professional services) that any Indemnitee suffers or incurs
as a result of the assertion of any foregoing claim, demand,  action or cause of
action; provided that no Indemnitee shall be entitled to indemnification for any
loss caused by its own gross negligence or willful misconduct or as to any claim
asserted by that Indemnitee  against PNGI or Borrower to the extent that PNGI or
Borrower prevails on that claim in a final and non-appealable determination by a
court  of  competent  jurisdiction  or an  arbitrator  appointed  in  accordance
herewith.  If any claim,  demand,  action or cause of action is asserted against
any Indemnitee, such Indemnitee shall promptly notify PNGI and Borrower, but the
failure to so promptly  notify  PNGI and  Borrower  shall not affect  PNGI's and
Borrower's  obligations  under  this  Section  unless  such  failure  materially
prejudices  PNGI's or  Borrower's,  as  applicable,  right to participate in the
contest  of such  claim,  demand,  action  or cause of  action,  as  hereinafter
provided. Each Indemnitee may contest the validity,  applicability and amount of
such claim,  demand,  action or cause of action with counsel of its own choosing
and  shall  permit  PNGI  and  Borrower  to  participate  in such  contest.  Any
Indemnitee  that  proposes to settle or compromise  any claim or proceeding  for
which PNGI or Borrower  may be liable for payment of indemnity  hereunder  shall
give PNGI and Borrower  written notice of the terms of such proposed  settlement
or compromise  reasonably in advance of settling or  compromising  such claim or
proceeding.  In  connection  with any claim,  demand,  action or cause of action
covered  by this  Section  11.11  against  more  than one  Indemnitee,  all such
Indemnitees  shall be  represented by the same legal counsel (which may be a law
firm engaged by the  Indemnitees  or attorneys  employed by an  Indemnitee  or a
combination  of the  foregoing)  selected  by  the  Indemnitees  and  reasonably
acceptable to PNGI and Borrower; provided, that if such legal counsel determines
in good faith that  representing all such Indemnitees would or could result in a
conflict of interest under Laws or ethical  principles  applicable to such legal
counsel or that a defense or  counterclaim is available to an Indemnitee that is
not available to all such Indemnitees,  then to the extent reasonably  necessary
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<PAGE>

to avoid such a conflict of interest or to permit unqualified  assertion of such
a defense  or  counterclaim,  each  Indemnitee  shall be  entitled  to  separate
representation  by legal  counsel  selected by that  Indemnitee  and  reasonably
acceptable  to PNGI and Borrower,  with all such legal counsel using  reasonable
efforts  to  avoid  unnecessary   duplication  of  effort  by  counsel  for  all
Indemnitees;   and  further  provided  that  the  Administrative  Agent  (as  an
Indemnitee)  shall at all times be entitled to  representation by separate legal
counsel. Any obligation or liability of PNGI or Borrower to any Indemnitee under
this  Section  11.11  shall  survive  the  expiration  or  termination  of  this
Agreement,  the repayment of all Loans,  and the payment and  performance of all
other Obligations owed to the Lenders.

1.6

1.7  Nonliability  of the Lenders . Each of PNGI and Borrower  acknowledges  and
     agrees that: --------------------------- 1.8

             (a) Any  inspections of any Property of PNGI or Borrower made by or
             through the  Creditors  are for purposes of  administration  of the
             Loans only and PNGI and  Borrower are not entitled to rely upon the
             same;

             (a) By  accepting or  approving  anything  required to be observed,
             performed, fulfilled or given to the Creditors pursuant to the Loan
             Documents,  no  Creditor  shall  be  deemed  to have  warranted  or
             represented  the  sufficiency,  legality,  effectiveness  or  legal
             effect of the same, or of any term, provision or condition thereof,
             and such  acceptance  or approval  thereof  shall not  constitute a
             warranty or  representation  to anyone with respect  thereto by any
             Creditor;

             (a) The  relationship  between each Obligor and  Creditors  is, and
             shall at all times remain,  solely that of borrower and lenders; no
             Creditor shall under any  circumstance be construed to be a partner
             or joint  venturer with the Obligors;  no creditor  shall under any
             circumstance  be deemed to be in a  relationship  of  confidence or
             trust  or a  fiduciary  or  other  special  relationship  with  the
             Obligors, or to owe any fiduciary duty or other special duty to the
             Obligors;  no Creditor  undertakes or assumes any responsibility or
             duty  to  PNGI  or  its  Affiliates  to  select,  review,  inspect,
             supervise,  pass judgment upon or inform the Obligors of any matter
             in  connection  with  their  Property  or  the  operations  of  the
             Obligors;  the Obligors shall rely entirely upon their own judgment
             with  respect  to  such  matters;   and  any  review,   inspection,
             supervision,   exercise  of  judgment  or  supply  of   information
             undertaken  or assumed by the  Creditors  in  connection  with such
             matters is solely for the  protection  of the Creditors and neither
             the Obligors nor any other Person is entitled to rely thereon; and

             (a) The Creditors  shall not be responsible or liable to any Person
             for any loss,  damage,  liability or claim of any kind  relating to
             injury or death to  Persons  or damage  to  Property  caused by the
             actions,  inaction  or  negligence  of the  Obligors  and  PNGI and
             Borrower each hereby  indemnifies and holds each Creditor  harmless
             from any such loss, damage, liability or claim.

1.1 No Third  Parties  Benefitted  . This  Agreement  is made for the purpose of
defining  and  setting  forth  certain  obligations,  rights and duties of PNGI,
Borrower and the Creditors in connection with the Loans and is made for the sole
benefit of PNGI,  Borrower,  the Creditors  and the  Creditors'  successors  and
assigns.  Except as provided in Sections 11.8,  11.11 and 11.14, no other Person
shall have any rights of any nature hereunder or by reason hereof.

1.2
                                      152
<PAGE>

1.3  Confidentiality  . Each Lender agrees to hold any confidential  information
that it may receive from PNGI and its Subsidiaries pursuant to this Agreement in
confidence,  except for disclosure:  (i) to other Lenders; (ii) to legal counsel
and  accountants  for PNGI and its  Subsidiaries  or any Lender;  (iii) to other
professional advisors to PNGI and its Subsidiaries or any Lender,  provided that
the  recipient  has  accepted  such  information  subject  to a  confidentiality
Agreement  substantially  similar  to this  Section  11.14;  (iv) to  regulatory
officials  having  jurisdiction  over that Lender;  (v) to any Regulatory  Board
having regulatory  jurisdiction over PNGI or its Subsidiaries;  (vi) as required
by Law or legal process or in connection with any legal proceeding to which that
Lender and PNGI or any of its  Subsidiaries  are adverse  parties;  and (vii) to
another  financial  institution  in connection  with a  disposition  or proposed
disposition  to that  financial  institution  of all or  part  of that  Lender's
interests  hereunder or a participation  interest in its Note, provided that the
recipient has accepted  such  information  subject to a written  confidentiality
Agreement. For purposes of the foregoing,  "confidential information" shall mean
any information respecting PNGI or any of its Subsidiaries reasonably considered
by them to be confidential, other than (i) information previously filed with any
Governmental  Agency and available to the public,  (ii)  information  previously
published in any public medium from a source other than, directly or indirectly,
that Lender,  and (iii) information  previously  disclosed by PNGI or any of its
Subsidiaries   to  any  Person  not  associated   with   themselves   without  a
confidentiality  Agreement or obligation  substantially  similar to this Section
11.14.  Nothing in this Section shall be construed to create or give rise to any
fiduciary  duty or other special duty on the part of any Creditor to PNGI or any
of its Subsidiaries.

1.4

1.5  Further  Assurances  . Each  Obligor  shall,  at their  expense and without
expense  to the  Creditors,  do,  execute  and  deliver  such  further  acts and
documents as any Creditor from time to time reasonably requires for the assuring
and  confirming  unto the Creditors of the rights hereby created or intended now
or hereafter so to be, or for carrying  out the  intention or  facilitating  the
performance of the terms of any Loan Document.

1.6

1.7  Integration  . This  Agreement,  together  with the other  Loan  Documents,
comprises  the complete and  integrated  Agreement of the parties on the subject
matter  hereof and  supersedes  all prior  agreements,  written or oral,  on the
subject  matter hereof.  In the event of any conflict  between the provisions of
this  Agreement  and those of any other Loan  Document,  the  provisions of this
Agreement shall control and govern;  provided that the inclusion of supplemental
rights or remedies in favor of the  Creditors in any other Loan  Document  shall
not be deemed a conflict  with this  Agreement.  Each Loan  Document was drafted
with the joint  participation  of the  respective  parties  thereto and shall be
construed  neither  against nor in favor of any party,  but rather in accordance
with the fair meaning thereof.

1.8

1.9 Governing Law . Except to the extent otherwise  provided therein,  each Loan
Document  shall be governed by, and construed  and enforced in accordance  with,
the  local  Laws  of  California,  without  reference  to the  choice  of law or
conflicts of laws provisions thereof.

1.10
                                      153
<PAGE>

1.11  Severability  of  Provisions . Any  provision in any Loan Document that is
held to be  inoperative,  unenforceable  or  invalid  as to any  party or in any
jurisdiction   shall,  as  to  that  party  or  jurisdiction,   be  inoperative,
unenforceable  or invalid  without  affecting  the  remaining  provisions or the
operation, enforceability or validity of that provision as to any other party or
in any other jurisdiction,  and to this end the provisions of all Loan Documents
are declared to be severable.

1.12

1.13  Headings . Article and Section  headings in this  Agreement  and the other
Loan  Documents are included for  convenience of reference only and are not part
of this Agreement or the other Loan Documents for any other purpose.

1.14

1.15 Time of the  Essence  .  Time  is of the  essence  of the  Loan  Documents.
     ------------------- 1.16

1.17  Foreign  Lenders  and  Participants  . Each  Lender,  and each holder of a
participation interest herein, that is incorporated or otherwise organized under
the Laws of a jurisdiction  other than the United States of America or any State
thereof or the District of Columbia  shall  deliver to Borrower  (with a copy to
the Administrative  Agent) on the Closing Date (or after accepting an assignment
or  receiving a  participation  interest  herein  pursuant to Section  11.8,  if
applicable)   either  Form  W8-ECI  or  other  Internal  Revenue  Service  forms
satisfactory to Borrower and the Administrative  Agent that no withholding under
the federal income tax laws is required with respect to such Person.  Thereafter
and from time to time,  each such Person shall (a)  promptly  submit to Borrower
(with a copy to the  Administrative  Agent) such  additional  duly completed and
signed  copies of one of such forms as may then be available  under then current
United States laws and regulations to avoid, or such evidence as is satisfactory
to Borrower and the Administrative Agent of any available exemption from, United
States withholding taxes in respect of all payments to be made to such Person by
Borrower  pursuant  to this  Agreement  and (b) take such  steps as shall not be
materially disadvantageous to it, in the reasonable judgment of such Lender, and
as may be  reasonably  necessary  (including  the  re-designation  of its  LIBOR
Office,  if any) to avoid any  requirement of applicable Laws that Borrower make
any deduction or withholding for taxes from amounts payable to such Person.

1.18

1.19  Waiver  of Right to Trial by Jury . EACH  PARTY TO THIS  AGREEMENT  HEREBY
EXPRESSLY  WAIVES  ANY RIGHT TO TRIAL BY JURY OF ANY  CLAIM,  DEMAND,  ACTION OR
CAUSE OF ACTION  ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES  HERETO OR ANY OF THEM WITH
RESPECT TO ANY LOAN DOCUMENT,  OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER  ARISING,  AND WHETHER SOUNDING IN CONTRACT OR
TORT OR  OTHERWISE;  AND EACH PARTY  HEREBY  AGREES AND  CONSENTS  THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN  EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

1.20
1.1

                                      154
<PAGE>


1.21 Purported Oral Amendments . EACH OBLIGOR  EXPRESSLY  ACKNOWLEDGES THAT THIS
AGREEMENT AND THE OTHER LOAN  DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED,  OR THE
PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN WRITING
THAT COMPLIES WITH SECTION  11.2.  BORROWER  AGREES THAT IT WILL NOT RELY ON ANY
COURSE OF DEALING,  COURSE OF PERFORMANCE,  OR ORAL OR WRITTEN STATEMENTS BY ANY
CREDITOR OR ITS REPRESENTATIVES THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT
AN AMENDMENT,  MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS.

1.22

1.23 IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
     duly executed as of the date first above written. 1.24

1.25                                                 "Borrower"
1.26
1.1

                                      155
<PAGE>


PENN NATIONAL GAMING OF WEST VIRGINIA, INC., a West Virginia corporation

By:      _____________________________

         -----------------------------
                  [Printed name and title]
"Guarantor"

PENN NATIONAL GAMING, INC., a Pennsylvania corporation

<PAGE>



By:      _____________________________

         -----------------------------
                  [Printed name and title]

Address for notices:

Penn National Gaming, Inc.
Penn National Gaming of West Virginia, Inc.
==========================
Attention: ________________
Telecopier:_________________
Telephone:_________________


BANK OF AMERICA  N.A., as Administrative Agent and Issuing Lender




By: __________________________________
         Janice Hammond, Vice President

Address:

Bank of America, N.A.
555 South Flower Street
Los Angeles, California 90071
Attn:  Janice Hammond, Vice President

Telecopier:  (213) 228-2299
Telephone:   (213) 222-9861
                                      156
<PAGE>

BANK OF AMERICA, N.A., as a Lender

Pro Rata Share $10,000,000 (50%)


By: __________________________________
         Scott L. Faber, Principal

Address:

Bank of America, N.A.
555 South Flower Street, #3283
Los Angeles, California  90071
Attn: Scott L. Faber, Principal
Telecopier:  (213) 228-2641
Telephone:   (213) 228-2768

With a copy to:

Bank of America, N.A.
555 South Flower Street (LA-5777)
Los Angeles, California  90071
Attn:  William Newby, Managing Director
Telecopier:  (213) 228-3145
Telephone:   (213) 228-2438

FIRST UNION NATIONAL BANK

Pro Rata Share $10,000,000 (50%)

By: ______________________________

Title: _____________________________

Address for notices:

===============================
-------------------------------
Attn:
Telephone:
Telecopier:

                                      157
<PAGE>


                               SECURITY AGREEMENT

                  This SECURITY  AGREEMENT  ("Agreement"),  dated as of December
13,  1999,  is made by Penn  National  Gaming  of West  Virginia,  Inc.,  a West
Virginia  corporation  ("Grantor"),  whose address is 825 Berkshire Blvd., Suite
200,  Wyomissing,  Pennsylvania 19610, in favor of Bank of America,  N.A., whose
address  is  555  South   Flower  St.,  Los  Angeles,   California   90071,   as
Administrative  Agent under the Loan  Agreement  hereafter  referred  to, and in
favor of each of the Lenders therein named  (collectively  referred to herein as
"Secured Party"), with reference to the following facts:

                                    RECITALS

A. Pursuant to the Senior Secured Multiple Draw Term Loan Agreement of even date
herewith by and among  Grantor,  Penn  National  Gaming,  Inc.,  a  Pennsylvania
corporation,  as  Guarantor,  the  lenders  from  time  to  time  party  thereto
(collectively,   the  "Lenders"   and   individually,   a  "Lender"),   and  the
Administrative  Agent  (as  such  agreement  may from  time to time be  amended,
extended,  renewed,  supplemented or otherwise modified,  the "Loan Agreement"),
the Lenders have agreed to extend certain credit facilities to Grantor.

A. The Loan  Agreement  provides,  as a condition  of the  availability  of such
credit facilities,  that Grantor shall enter into this Agreement and shall grant
security interests to Secured Party as herein provided.

                                    AGREEMENT

                  NOW,  THEREFORE,  in order to induce the Lenders to extend the
aforementioned credit facilities, and for other good and valuable consideration,
the  receipt  and  adequacy  of which  hereby is  acknowledged,  Grantor  hereby
represents, warrants, covenants, agrees, assigns and grants as follows:

1. Definitions. This Agreement is the Security Agreement referred to in the Loan
Agreement. This Agreement is one of the "Loan Documents" referred to in the Loan
Agreement. Terms defined in the Loan Agreement and not otherwise defined in this
Agreement shall have the meanings defined for those terms in the Loan Agreement.
Terms  defined  in the  California  Uniform  Commercial  Code and not  otherwise
defined in this  Agreement  or in the Loan  Agreement  shall  have the  meanings
defined for those terms in the California  Uniform  Commercial  Code. As used in
this  Agreement,  the following terms shall have the meanings  respectively  set
forth after each:

2.

                  "Agreement" means this Security Agreement, and any extensions,
         modifications,   renewals,  restatements,   supplements  or  amendments
         hereof.
                                      158
<PAGE>

                  "Collateral"  means and includes all present and future right,
         title and interest of Grantor in or to the following Property:

                           (a) the  equipment  and other  property  described on
         Schedule  1.1 and  Schedule  1.2  hereto,  and all  the  video  lottery
         terminals,  slot machines, and other gaming equipment,  lights, chairs,
         rails,  and related support  equipment and all fixtures  related to any
         such equipment and located at the Charles Town Facility;

                           (b) all rights of Grantor  under that certain  Master
         Lease Agreement of even date herewith  between Grantor and PNGI Charles
         Town  Gaming  Limited  Liability   Company,  a  West  Virginia  limited
         liability company,  including all rights to receive the payment of rent
         thereunder (the "Lease");

                           (c)  any  and  all  equipment,   fixtures  and  other
         property which may hereafter become subject to the Lease by delivery of
         additional  lease  schedules   thereunder  (it  being  understood  that
         concurrently  with the  delivery  of any  such  lease  schedule  to the
         Administrative  Agent by  Borrower in  connection  with any Request for
         Loan under the Loan Agreement, such additional equipment,  fixtures and
         other  property  will  automatically  and  without  further  action  by
         Borrower or any other Person become  Collateral  subject to the Lien of
         this Security Agreement);

                           (d) all present and future books and records  related
         to the Collateral,  including, without limitation, books of account and
         ledgers of every kind and  nature,  all  electronically  recorded  data
         relating to the  Collateral,  all  receptacles  and containers for such
         records, and all files and correspondence;

                           (e) all present and future accessions, appurtenances,
         components,   repairs,   repair  parts,   spare  parts,   replacements,
         substitutions,  additions,  issue and/or  improvements to or of or with
         respect to any of the foregoing;

(f)  all rights,  remedies,  powers and/or privileges of Grantor with respect to
     any of the foregoing; and

                           (g) any and all  proceeds  and products of any of the
         foregoing,  including, without limitation, all money, accounts, general
         intangibles,  deposit accounts, documents,  instruments, chattel paper,
         goods,  insurance  proceeds,  and  any  other  tangible  or  intangible
         property received upon the sale or disposition of any of the foregoing.

                  "Secured  Obligations"  means any and all  present  and future
Obligations of every kind or nature of Grantor at any time and from time to time
owed to Secured  Party or any one or more of them,  under any one or more of the
Loan Documents,  whether due or to become due, matured or unmatured,  liquidated
or  unliquidated,  or  contingent or  noncontingent,  including  Obligations  of
performance  as well as  Obligations  of payment,  and  including  interest that
                                      159
<PAGE>

accrues after the  commencement of any proceeding under any Debtor Relief Law by
or against Grantor.

1.  Further  Assurances.  At any time and from  time to time at the  request  of
Secured  Party,  Grantor  shall  execute and  deliver to Secured  Party all such
financing  statements and other  instruments and documents in form and substance
satisfactory  to  Secured  Party as shall be  necessary  or  desirable  to fully
perfect, when filed and/or recorded,  Secured Party's security interests granted
pursuant  to  Section  3 of this  Agreement.  At any time and from time to time,
Secured Party shall be entitled to file and/or record any or all such  financing
statements,  instruments  and documents  held by it, and any or all such further
financing  statements,  documents  and  instruments,  and to take all such other
actions,  as  Secured  Party may deem  appropriate  to perfect  and to  maintain
perfected the security interests granted in Section 3 of this Agreement.  Before
and after the occurrence of any Event of Default,  at Secured  Party's  request,
Grantor shall execute all such further  financing  statements,  instruments  and
documents,  and  shall do all such  further  acts and  things,  as may be deemed
necessary or desirable by Secured  Party to create and perfect,  and to continue
and preserve,  an indefeasible  security  interest in the Collateral in favor of
Secured  Party,  or  the  priority  thereof.  With  respect  to  any  Collateral
consisting of instruments,  documents,  certificates of title or the like, as to
which Secured  Party's  security  interest need be perfected by, or the priority
thereof need be assured by,  possession  of such  Collateral,  Grantor will upon
demand of Secured Party deliver  possession of same in pledge to Secured  Party.
With  respect  to  any  Collateral   consisting  of   securities,   instruments,
partnership or joint venture interests or the like,  Grantor hereby consents and
agrees  that the  issuers  of,  or  obligors  on,  any such  Collateral,  or any
registrar  or  transfer  agent  or  trustee  for any such  Collateral,  shall be
entitled to accept the  provisions of this  Agreement as conclusive  evidence of
the  right of  Secured  Party to  effect  any  transfer  or  exercise  any right
hereunder  or with  respect to any such  Collateral,  notwithstanding  any other
notice or direction to the contrary  heretofore or hereafter given by Grantor or
any other  Person to such issuers or such  obligors or to any such  registrar or
transfer agent or trustee. 2.

3. Security Agreement.  For valuable  consideration,  Grantor hereby assigns and
pledges to Secured  Party,  and grants to Secured Party a security  interest in,
all presently  existing and hereafter acquired  Collateral,  as security for the
timely  payment and  performance of the Secured  Obligations,  and each of them.
This  Agreement is a continuing  and  irrevocable  agreement and all the rights,
powers,  privileges  and remedies  hereunder  shall apply to any and all Secured
Obligations,  including those arising under successive  transactions which shall
either continue the Secured Obligations, increase or decrease them, or from time
to  time  create  new  Secured  Obligations  after  all  or  any  prior  Secured
Obligations have been satisfied,  and  notwithstanding the bankruptcy of Grantor
or any other Person or any other event or proceeding affecting any Person.

4.

5. Grantor's  Representations,  Warranties and  Agreements.  Except as otherwise
disclosed to Secured Party in writing concurrently herewith, Grantor represents,
warrants and agrees that: (a) Grantor will pay, prior to delinquency, all taxes,
charges, Liens and assessments against the Collateral, except such as are timely
                                      160
<PAGE>

contested  in good faith,  and upon its failure to pay or so contest such taxes,
charges, Liens and assessments, Secured Party at its option may pay any of them,
and Secured  Party shall be the sole judge of the  legality or validity  thereof
and the amount  necessary to discharge the same; (b) the Collateral  will not be
used for any unlawful purpose or in material violation of any Law, regulation or
ordinance,  nor used in any way that will void or impair any insurance  required
to be  carried  in  connection  therewith;  (c)  Grantor  will,  to  the  extent
consistent with good business  practice,  keep the Collateral in reasonably good
repair, working order and condition,  and from time to time make all needful and
proper repairs, renewals, replacements,  additions and improvements thereto and,
as appropriate  and  applicable,  will otherwise deal with the Collateral in all
such ways as are  considered  good  practice  by owners  of like  Property;  (d)
Grantor will take all reasonable  steps to preserve and protect the  Collateral;
(e) Grantor will  maintain,  with  responsible  insurance  companies,  insurance
covering the Collateral against such insurable losses as is required by the Loan
Agreement  and as is consistent  with sound  business  practice,  and will cause
Secured  Party to be  designated  as an  additional  insured and loss payee with
respect to all insurance  (whether or not required by the Loan Agreement),  will
obtain the written  agreement of the insurers that such  insurance  shall not be
canceled,  terminated or  materially  modified to the detriment of Secured Party
without at least 30 days prior written notice to Secured Party, and will furnish
copies of such insurance policies or certificates to Secured Party promptly upon
request  therefor;  (f) Grantor will promptly notify Secured Party in writing in
the event of any  substantial  or  material  damage to the  Collateral  from any
source  whatsoever,  and,  except for the  disposition of collections  and other
proceeds  of the  Collateral  permitted  by Section 6 hereof,  Grantor  will not
remove or permit to be removed any part of the Collateral  from the Charles Town
Facility,  without the prior written  consent of Secured Party,  except for such
items of the Collateral as are removed in the ordinary  course of business or in
connection with any transaction or disposition  otherwise  permitted by the Loan
Documents;  and (g) in the event  Grantor  changes  its name or its  address  as
either  are set  forth  herein or in the Loan  Agreement,  Grantor  will  notify
Secured Party of such name and/or  address  change  promptly,  but in any event,
within thirty days.

6.

7. Secured Party's Rights Re Collateral.  Without limitation upon the inspection
and audit rights granted to Secured Party under the Loan Agreement,  if an Event
of Default has occurred and remains continuing,  then at any time without notice
or demand and at the sole expense of Grantor,  Secured  Party may, to the extent
it may be necessary or desirable to protect the security hereunder,  but Secured
Party shall not be obligated to: (a) enter upon any premises on which Collateral
is situated and examine the same or (b) perform any  obligation of Grantor under
this Agreement or any  obligation of any other Person under the Loan  Documents.
At any time and from time to time, at the expense of Grantor, Secured Party may,
to the  extent  it  may be  necessary  or  desirable  to  protect  the  security
hereunder,  but Secured Party shall not be obligated to: (i) notify  obligors on
the Collateral  that the Collateral has been assigned to Secured Party;  (ii) at
any time and from time to time request from obligors on the  Collateral,  in the
name of Grantor  or in the name of Secured  Party,  information  concerning  the
                                      161
<PAGE>

Collateral and the amounts owing thereon; and (iii) while an Event of Default is
continuing  cause the  Collateral to be registered in the name of Secured Party,
as legal owner.  Grantor shall at any time at Secured  Party's  request mark the
Collateral  and/or  Grantor's  ledger cards,  books of account and other records
relating to the Collateral with  appropriate  notations  satisfactory to Secured
Party  disclosing that they are subject to Secured Party's  security  interests.
Secured Party shall be under no duty or obligation whatsoever to take any action
to protect or preserve the  Collateral or any rights of Grantor  therein,  or to
make  collections  or  enforce  payment  thereon,   or  to  participate  in  any
foreclosure or other proceeding in connection therewith.

8.

9.  Collections  on the  Collateral.  Except as  otherwise  provided in any Loan
Document,  Grantor  shall  have  the  right  to use  and  to  continue  to  make
collections on and receive dividends and other proceeds of all of the Collateral
in the  ordinary  course of business  so long as no Event of Default  shall have
occurred and be continuing. Upon the occurrence and during the continuance of an
Event of  Default,  at the  option of  Secured  Party,  Grantor's  right to make
collections on and receive dividends and other proceeds of the Collateral and to
use or dispose of such collections and proceeds shall terminate, and any and all
dividends, proceeds and collections, including all partial or total prepayments,
then held or thereafter received on or on account of the Collateral will be held
or received by Grantor in trust for Secured Party and  immediately  delivered in
kind to Secured Party. Any remittance  received by Grantor from any Person shall
be presumed  to relate to the  Collateral  and to be subject to Secured  Party's
security  interests.  Upon the occurrence and during the continuance of an Event
of Default,  Secured Party shall have the right at all times to receive, receipt
for, endorse,  assign,  deposit and deliver,  in the name of Secured Party or in
the name of Grantor, any and all checks, notes, drafts and other instruments for
the  payment of money  constituting  proceeds  of or  otherwise  relating to the
Collateral;  and Grantor hereby authorizes  Secured Party to affix, by facsimile
signature or otherwise, the general or special endorsement of it, in such manner
as Secured Party shall deem  advisable,  to any such instrument in the event the
same has been  delivered  to or obtained by Secured  Party  without  appropriate
endorsement,  and Secured Party and any collecting bank are hereby authorized to
consider such endorsement to be a sufficient, valid and effective endorsement by
Grantor,  to the same  extent as though it were  manually  executed  by the duly
authorized officer of Grantor, regardless of by whom or under what circumstances
or by what authority such facsimile  signature or other endorsement  actually is
affixed,  without  duty of inquiry or  responsibility  as to such  matters,  and
Grantor  hereby  expressly  waives  demand,  presentment,  protest and notice of
protest or dishonor and all other  notices of every kind and nature with respect
to any such instrument.

10.

11.  Possession  of Collateral by Secured  Party.  Any or all of the  Collateral
delivered   to  Secured   Party   consisting   of  Cash  shall  be  held  in  an
interest-bearing  account and,  when an Event of Default  exists,  Secured Party
may,  in its  discretion,  apply any such  interest  to payment  of the  Secured
Obligations.   Nothing  herein  shall  obligate  Secured  Party  to  invest  any
Collateral or obtain any  particular  return  thereon.  Upon the  occurrence and
during the continuance of an Event of Default, whenever any of the Collateral is
in Secured  Party's  possession,  custody  or  control,  Secured  Party may use,
operate and consume the Collateral, whether for the purpose of preserving and/or
protecting  the  Collateral  or for the purpose of  performing  any of Grantor's
obligations  with  respect  thereto.  Secured  Party may at any time  deliver or
                                      162
<PAGE>

redeliver the Collateral or any part thereof to Grantor,  and the receipt of any
of the same by Grantor shall be complete and full acquittance for the Collateral
so  delivered,  and  Secured  Party  thereafter  shall  be  discharged  from any
liability  or  responsibility  therefor.  So long  as  Secured  Party  exercises
reasonable  care with respect to any  Collateral in its  possession,  custody or
control, Secured Party shall have no liability for any loss of or damage to such
Collateral,  and  in no  event  shall  Secured  Party  have  liability  for  any
diminution in value of Collateral occasioned by economic or market conditions or
events.  Secured Party shall be deemed to have exercised  reasonable care within
the meaning of the  preceding  sentence  if the  Collateral  in the  possession,
custody or control of Secured Party is accorded treatment substantially equal to
that which  Secured Party accords its own  property,  it being  understood  that
Secured Party shall not have any  responsibility  for (a) ascertaining or taking
action with respect to calls,  conversions,  exchanges,  maturities,  tenders or
other matters relating to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters,  or (b) taking any necessary  steps to
preserve rights against any Person with respect to any Collateral.

12.

13. Rights Upon Event of Default. Upon the occurrence and during the continuance
of an Event of Default,  Secured  Party shall have,  in any  jurisdiction  where
enforcement  hereof is sought, in addition to all other rights and remedies that
Secured Party may have under applicable Law or in equity or under this Agreement
(including,  without  limitation,  all  rights set forth in Section 6 hereof) or
under any other Loan Document,  all rights and remedies of a secured party under
the Uniform  Commercial Code as enacted in any  jurisdiction,  and, in addition,
the following rights and remedies, all of which may be exercised with or without
notice to Grantor and without  affecting the Obligations of Grantor hereunder or
under any other Loan Document,  or the  enforceability of the Liens and security
interests  created  hereby:  (a) to foreclose  the Liens and security  interests
created hereunder or under any other agreement relating to any Collateral by any
available  judicial  procedure  or without  judicial  process;  (b) to enter any
premises  where any  Collateral  may be located  for the  purpose  of  securing,
protecting,   inventorying,   appraising,   inspecting,  repairing,  preserving,
storing, preparing,  processing,  taking possession of or removing the same; (c)
to sell,  assign,  lease or  otherwise  dispose  of any  Collateral  or any part
thereof, either at public or private sale or at any broker's board, in lot or in
bulk,  for cash,  on credit or  otherwise,  with or without  representations  or
warranties and upon such terms as shall be acceptable to Secured  Party;  (d) to
notify  obligors on the  Collateral  that the  Collateral  has been  assigned to
Secured  Party  and  that  all  payments  thereon  are to be made  directly  and
exclusively to Secured Party;  (e) to collect by legal  proceedings or otherwise
all dividends, distributions, interest, principal or other sums now or hereafter
payable upon or on account of the Collateral;  (f) to cause the Collateral to be
registered in the name of Secured Party,  as legal owner;  (g) to enter into any
extension,  reorganization,  deposit, merger or consolidation  agreement, or any
other  agreement  relating to or affecting  the  Collateral,  and in  connection
therewith  Secured  Party may  deposit or  surrender  control of the  Collateral
and/or  accept  other  Property in exchange for the  Collateral;  (h) to settle,
                                      163
<PAGE>

compromise  or release,  on terms  acceptable to Secured  Party,  in whole or in
part,  any amounts  owing on the  Collateral  and/or any  disputes  with respect
thereto; (i) to extend the time of payment,  make allowances and adjustments and
issue credits in connection  with the Collateral in the name of Secured Party or
in the name of  Grantor;  (j) to enforce  payment  and  prosecute  any action or
proceeding  with respect to any or all of the Collateral  and take or bring,  in
the name of Secured Party or in the name of Grantor, any and all steps, actions,
suits or  proceedings  deemed by Secured Party  necessary or desirable to effect
collection  of or to realize  upon the  Collateral,  including  any  judicial or
nonjudicial foreclosure thereof or thereon, and Grantor specifically consents to
any nonjudicial  foreclosure of any or all of the Collateral or any other action
taken by Secured Party which may release any obligor from personal  liability on
any of the Collateral,  and Grantor waives any right not expressly  provided for
in this  Agreement  to  receive  notice of any  public or  private  judicial  or
nonjudicial  sale or foreclosure of any security or any of the  Collateral;  and
any money or other  property  received by Secured  Party in  exchange  for or on
account of the  Collateral,  whether  representing  collections  or  proceeds of
Collateral,  and  whether  resulting  from  voluntary  payments  or  foreclosure
proceedings  or other  legal  action  taken by Secured  Party or Grantor  may be
applied by Secured Party without notice to Grantor to the Secured Obligations in
such order and manner as Secured Party in its sole discretion  shall  determine;
(k) to insure, process and preserve the Collateral;  (l) to exercise all rights,
remedies,  powers or privileges provided under any of the Loan Documents; (m) to
remove, from any premises where the same may be located,  the Collateral and any
and all  documents,  instruments,  files and records,  and any  receptacles  and
cabinets containing the same, relating to the Collateral, and Secured Party may,
at the  cost and  expense  of  Grantor,  use  such of its  supplies,  equipment,
facilities  and  space  at  its  places  of  business  as may  be  necessary  or
appropriate to properly administer, process, store, control, prepare for sale or
disposition  and/or sell or dispose of the Collateral or to properly  administer
and control the handling of collections and  realizations  thereon,  and Secured
Party  shall be deemed to have a  rent-free  tenancy of  premises of Grantor for
such  purposes  and for such periods of time as  reasonably  required by Secured
Party;  (n) to receive,  open and dispose of all mail  addressed  to Grantor and
notify  postal  authorities  to change the address for delivery  thereof to such
address as Secured Party may designate;  provided that Secured Party agrees that
it will promptly  deliver over to Grantor such opened mail as does not relate to
the  Collateral;  and (o) to exercise all other rights,  powers,  privileges and
remedies of an owner of the  Collateral;  all at Secured Party's sole option and
as Secured Party in its sole  discretion  may deem  advisable.  Grantor will, at
Secured  Party's  request,  assemble  the  Collateral  and make it  available to
Secured  Party at places  which  Secured  Party may  designate,  whether  at the
premises of Grantor or elsewhere, and will make available to Secured Party, free
of cost,  all premises,  equipment and  facilities of Grantor for the purpose of
Secured Party's taking  possession of the Collateral or storing same or removing
or putting the Collateral in salable form or selling or disposing of same.

14.

15.  Upon the  occurrence  and during the  continuance  of an Event of  Default,
Secured  Party also shall have the right,  without  notice or demand,  either in
person, by agent or by a receiver to be appointed by a court (and Grantor hereby
expressly consents upon the occurrence and during the continuance of an Event of
Default  to the  appointment  of such a  receiver),  and  without  regard to the
adequacy of any security for the Secured Obligations,  to take possession of the
Collateral  or any part  thereof and to collect  and receive the rents,  issues,
profits,  income and proceeds thereof. Taking possession of the Collateral shall
                                      164
<PAGE>

not cure or waive any Event of Default or notice  thereof or invalidate  any act
done  pursuant to such notice.  The rights,  remedies and powers of any receiver
appointed by a court shall be as ordered by said court.

16.

17. Any public or private sale or other  disposition  of the  Collateral  may be
held at any office of Secured Party, or at Grantor's  places of business,  or at
any other place  permitted by  applicable  Law, and without the necessity of the
Collateral's being within the view of prospective purchasers.  Secured Party may
direct the order and manner of sale of the Collateral,  or portions thereof,  as
it in its sole and absolute  discretion  may  determine,  and Grantor  expressly
waives  any right to direct  the  order  and  manner of sale of any  Collateral.
Secured  Party or any Person on Secured  Party's  behalf may bid and purchase at
any such sale or other  disposition.  The net cash proceeds  resulting  from the
collection,  liquidation,  sale,  lease or other  disposition  of the Collateral
shall be applied,  first, to the expenses (including  reasonable attorneys' fees
and disbursements) of retaking,  holding, storing,  processing and preparing for
sale or lease, selling, leasing, collecting,  liquidating and the like, and then
to the  satisfaction  of the  Secured  Obligations  in such  order  as  shall be
determined by Secured Party in its sole and absolute discretion. Grantor and any
other Person then  obligated  therefor  shall pay to Secured Party on demand any
deficiency  with regard  thereto which may remain after such sale,  disposition,
collection or  liquidation  of the  Collateral.  Any surplus held by the Secured
Party and remaining after payment in full of all the Secured  Obligations  shall
immediately  be  reassigned  and  redelivered  to  Grantor,  or to the person or
persons otherwise legally entitled thereto.

18.

19. Unless the  Collateral  is  perishable  or threatens to decline  speedily in
value or is of a type  customarily  sold on a recognized  market,  Secured Party
will send or otherwise make available to Grantor  reasonable  notice of the time
and  place of any  public  sale  thereof  or of the time on or after  which  any
private sale thereof is to be made. The requirement of sending reasonable notice
conclusively  shall be met if such notice is mailed,  first class mail,  postage
prepaid, to Grantor at its address set forth in the Loan Agreement, or delivered
or  otherwise  sent to Grantor,  at least five days before the date of the sale.
Grantor  expressly  waives any right to receive  notice of any public or private
sale of any Collateral or other security for the Secured  Obligations  except as
expressly provided for in this paragraph.

20.

1.

                                      165
<PAGE>




                                       13

                  Upon consummation of any sale of Collateral hereunder, Secured
Party shall have the right to assign,  transfer and deliver to the  purchaser or
purchasers  thereof the Collateral so sold. Each such purchaser at any such sale
shall hold the Collateral so sold  absolutely  free from any claim or right upon
the part of Grantor  or any other  Person,  and  Grantor  hereby  waives (to the
extent  permitted  by  applicable  Laws)  all  rights  of  redemption,  stay and
appraisal  which it now has or may at any time in the future have under any rule
of Law or statute now existing or hereafter  enacted.  If the sale of all or any
part of the Collateral is made on credit or for future  delivery,  Secured Party
shall not be  required  to apply any  portion of the sale  price to the  Secured
Obligations  until such amount  actually is received by Secured  Party,  and any
Collateral so sold may be retained by Secured Party until the sale price is paid
in full by the  purchaser or purchasers  thereof.  Secured Party shall not incur
any liability in case any such purchaser or purchasers shall fail to pay for the
Collateral so sold, and, in case of any such failure, the Collateral may be sold
again.

10. Attorney-in-Fact.  Grantor hereby irrevocably nominates and appoints Secured
Party  as  its  attorney-in-fact  for  the  following  purposes:  (a)  upon  the
occurrence  and during the  continuance  of an Event of  Default,  to  preserve,
process, develop,  maintain and protect the Collateral;  (b) upon the occurrence
and during the continuance of an Event of Default, to do any and every act which
Grantor is obligated to do under this  Agreement,  at the expense of Grantor and
without any obligation to do so; (c) to prepare,  sign, file and/or record,  for
Grantor,  in the name of  Grantor,  any  financing  statement,  application  for
registration,  or like  paper,  and to take any other  action  deemed by Secured
Party  necessary  or  desirable  in order to perfect or maintain  perfected  the
security  interests  granted hereby;  and (d) upon the occurrence and during the
continuance  of an  Event  of  Default,  to  execute  any  and  all  papers  and
instruments  and do all other  things  necessary  or  desirable  to preserve and
protect  the  Collateral  and to  protect  Secured  Party's  security  interests
therein;  provided,  however,  that Secured  Party shall be under no  obligation
whatsoever to take any of the foregoing actions, and, absent bad faith or actual
malice,  Secured  Party shall have no  liability or  responsibility  for any act
taken or omission with respect thereto.

11.

12. Statute of Limitations and Other Laws. Until the Secured  Obligations  shall
have been paid and  performed in full,  the power of sale and all other  rights,
privileges,  powers  and  remedies  granted  to Secured  Party  hereunder  shall
continue  to exist and may be  exercised  by Secured  Party at any time and from
time to time  irrespective  of the fact that any of the Secured  Obligations may
have become barred by any statute of limitations.  Grantor  expressly waives the
benefit of any and all statutes of  limitation,  and any and all Laws  providing
for  exemption of property from  execution or for  valuation and appraisal  upon
foreclosure, to the maximum extent permitted by applicable Law.

13.

14. Other Agreements. Nothing herein shall in any way modify or limit the effect
of terms or  conditions  set  forth in any  other  security  or other  agreement
executed by Grantor or in connection with the Secured Obligations,  but each and
every term and condition  hereof shall be in addition  thereto.  All  provisions
contained in the Loan  Agreement or any other Loan  Document  that apply to Loan
Documents  generally are fully applicable to this Agreement and are incorporated
herein by this reference. 15.

16.

                                      166
<PAGE>


Counterparts.  This Agreement may be executed in one or more counterparts,  each
     of which shall be deemed an original  ------------ and all of which,  taken
     together,  shall  constitute one and the same agreement.  17. 18. GOVERNING
     LAW. THIS AGREEMENT  SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
     GOVERNED  BY THE LAWS  -------------  OF THE  STATE OF  CALIFORNIA  WITHOUT
     REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF.

IN   WITNESS WHEREOF, Grantor has executed this Agreement by its duly authorized
     officer as of the date first written above.





"Grantor"

PENN NATIONAL GAMING OF WEST VIRGINIA, INC., a West Virginia corporation


By:      ______________________________

         ------------------------------
                  [Printed name and title]


                                      167
<PAGE>


ACCEPTED AND AGREED
AS OF THE DATE FIRST
ABOVE WRITTEN:

"Secured Party"

BANK OF AMERICA , N.A.,
as Administrative Agent, and
for and on behalf of the Lenders


By:      _________________________

         -------------------------
               [Printed name and title]

168
<PAGE>

                             SUBORDINATION AGREEMENT

                  This Subordination  Agreement ("Agreement") is entered into as
of December 13, 1999 by and among Bank of America, N.A., as Administrative Agent
for the  Lenders  under the Senior  Secured  Multiple  Draw Term Loan  Agreement
described below ("Agent"),  Penn National Gaming of West Virginia,  Inc., a West
Virginia  corporation  ("Lessor") and PNGI Charles Town Gaming Limited Liability
Company, a West Virginia limited liability company ("Lessee").

                                 R E C I T A L S

         WHEREAS, pursuant to a Senior Secured Multiple Draw Term Loan Agreement
dated as of December 13, 1999 among  Lessor,  Penn  National  Gaming,  Inc.,  as
Guarantor,  the Lenders named therein,  and Agent, the Lenders have made certain
credit  facilities  available to Lessor (as such agreement may from time to time
be amended,  extended,  renewed,  supplemented or otherwise modified,  the "Loan
Agreement").  Capitalized  terms used but not defined in this Agreement have the
meanings set forth for those terms in the Loan Agreement.

         WHEREAS, Lessor's obligations under the Loan Agreement are secured by a
Security  Agreement  made by Lessor in favor of Agent and the  Lenders  (as such
agreement may from time to time be amended, extended,  renewed,  supplemented or
otherwise  modified,  the "Security  Agreement") in which Lessor gave a security
interest  to  Agent  and the  Lenders  (collectively,  "Secured  Party")  in the
personal  property of Lessor  described on Exhibit A attached  hereto and made a
part hereof ("Assets").

         WHEREAS,  Lessor proposes to lease the Assets to Lessee pursuant to the
terms, conditions and agreements contained in the Master Lease Agreement of even
date herewith between Lessor and Lessee (as such agreement may from time to time
be amended, extended, renewed, supplemented or otherwise modified, the "Lease").

         WHEREAS,  it is a  condition  to the making of the Loans under the Loan
Agreement and to Lessor's purchase of the Assets that the Lessee subordinate its
right to the  Assets  under the  Lease to the Lien of  Secured  Party  under the
Security Agreement on the terms and conditions in this Agreement.

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
sufficiency  of which are hereby  acknowledged,  Agent and  Lessee  acknowledge,
represent and agree for the benefit of the other,  with knowledge that the other
is fully relying thereon, as follows:

                                      169
<PAGE>




1.                Agent consents to the Lease between Lessor and Lessee.
2.

3. 2. Lessee acknowledges that the Lease is an operating lease and that title to
the Assets at all times  during the term of the Lease  shall  remain with Lessor
and that Lessee shall only have the rights of a lessee of the Assets. All rights
and  interests  of Lessee in and to the Assets  pursuant  to the Lease  shall be
subject  and  subordinate  to the  lien  of the  Security  Agreement  and to any
renewals,  modifications,  consolidations,  replacements  and  extensions of the
Security  Agreement  to the full  extent of the  principal  sum  secured  by the
Security  Agreement  including  any  interest.  In the event of any assertion by
Secured Party of its Lien under the Security Agreement, Lessee shall immediately
surrender possession of the Assets to Agent or its designee, notwithstanding the
Lease, or shall attorn to the Agent or its designee in accordance with Section 3
hereof, as elected by the Agent. 4.

5. 3. If Lessor's  interest is  transferred to and owned by Secured Party or any
successor of Secured  Party or their  designee  ("Acquiring  Party")  because of
foreclosure  or other  proceedings  brought  by Secured  Party,  or by any other
manner and Secured Party succeeds to Lessor's  interest under the Lease,  Lessee
shall be bound to the  Acquiring  Party  until such time as  Acquiring  Party or
Lessee shall choose to terminate the Lease, or the Lease  otherwise  terminates,
pursuant to the terms thereof,  with the same effect as if Acquiring  Party were
Lessor under the Lease. Lessee agrees to attorn to Acquiring Party as the Lessor
during  the  term  of  the  Lease,  with  the  attornment  being  effective  and
self-operable  immediately  upon Acquiring  Party  succeeding to the interest of
Lessor under the Lease,  all without the execution by the parties of any further
instruments. The respective rights and obligations of Lessee and Acquiring Party
upon attornment,  to the extent of the then remaining balance of the term of the
Lease, shall be the same as in the Lease.

6.

7. 4. Immediately  upon request by Acquiring  Party,  Lessee and Acquiring Party
shall enter into a new written  lease for the  remainder of the original term of
the  Lease on the  same  terms  and  conditions  as the  Lease,  except  for any
non-material  changes made necessary  because of the  substitution  of Acquiring
Party in place of Lessor.

8.

9. 5. The term "Agent" or any similar term shall  include  Agent and any agents,
successors, or assigns of Agent and the term "Lenders" or any similar term shall
include Lenders and any agents,  successors, or assigns of Lenders, including in
each case any party that  succeeds to Lessor's  interest by  foreclosure  of the
Security  Agreement or by any other proceeding.  The term "Lessor" shall include
Lessor and the successors,  assigns, and sublessors of Lessor. The term "Lessee"
shall include Lessee and the successors, assigns, and sublessees of Lessee.

10.

11. 6. Lessor and Lessee agree not to change,  alter, amend, or otherwise modify
the  Lease  without  the  prior  written  consent  of Agent  which  shall not be
unreasonably   withheld,   conditioned  or  delayed.  Any  change,   alteration,
amendment,  or other modification to the Lease without the prior written consent
of Agent shall be void as to Secured Party,  but shall not otherwise  affect the
terms of this Agreement.

12.
                                      170
<PAGE>

13.  7. Lessee  agrees that it shall not make any  prepayment  of rent under the
     Lease more than one calendar  month in advance of the date when due without
     the prior written consent of the Agent,  and that any prepayment made prior
     to such date or  without  the  written  consent  of the Agent  shall not be
     binding  upon  Secured  Party or any  Acquiring  Party.  14.  15.  8.  This
     Agreement may not be modified  other than by an agreement in writing signed
     by the parties or by their respective successors in interest. 16. 17. 9. If
     any party  commences  any  action  against  any other  party  based on this
     Agreement,  the  prevailing  party shall be entitled to recover  reasonable
     attorney  fees,  expenses,  and costs of suit.  18. 10. In this  Agreement,
     wherever it is required or permitted that notice and demand be given by any
     party to another party, that notice or demand shall be given in writing and
     personally  delivered or sent by certified  mail or  nationally  recognized
     overnight courier addressed as follows: 19.

20.               For Lessor:      Penn National Gaming of West Virginia, Inc.
21.                                         _______________________
22.                                         _______________________
23.                                         Attn: __________________
24.

                  For Agent:        Bank of America, N.A.
                                    Agency Management
                                    #20529
                                    Bank of America, N.A.
                                    555 South Flower Street, 11th Floor
                                    Los Angeles, California  90071
                                    Attn:  Janice Hammond

                  For Lessee: PNGI Charles Town Gaming Limited Liability Company

                                    ======================
                                    ----------------------
                                    Attn:  _________________

                  Any party may  change an  address  given for  notice by giving
written notice of that change by notice as herein provided to all other parties.

         11.      This Agreement shall be binding on and inure to the benefit
of the parties and their respective successors and
assigns.

         12.      This Agreement may be executed in one or more counterparts,
each of which is an original, but all of which shall
constitute one and the same instrument.
                                      171
<PAGE>


         13.      This Agreement shall be construed in accordance with and
governed by California law.


                  IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement as of the day and year first written
above.

AGENT:                                    LESSEE:
<TABLE>
<CAPTION>

BANK OF AMERICA, N.A.,                    PNGI CHARLES TOWN GAMING LIMITED LIABILITY COMPANY,
as Administrative Agent for the Lenders   a West Virginia limited liability company
<S>                                       <C>
By:________________________________
Name: _____________________________       By:_______________________________
Title: ______________________________     Name: ____________________________
                                          Title: _____________________________
</TABLE>



LESSOR:

PENN NATIONAL GAMING OF WEST VIRGINIA, INC.,
a West Virginia corporation

By:________________________________
Name: _____________________________
Title: ______________________________



                                      172
<PAGE>


                                    GUARANTY

                  This GUARANTY ("Guaranty"),  dated as of December 13, 1999, is
made by Penn National Gaming, Inc., a Pennsylvania corporation  ("Guarantor") in
favor of Bank of America,  N.A., as Administrative  Agent for the benefit of the
Banks that are party to the Loan Agreement referred to below  (collectively with
the Lenders, "Lender"), with reference to the following facts:

                                    RECITALS

A. Pursuant to the Senior Secured  Multiple Draw Term Loan Agreement dated as of
December 13, 1999 by and among Penn National  Gaming of West  Virginia,  Inc., a
West Virginia corporation (the "Borrower"),  Guarantor, the lenders from time to
time party thereto (collectively,  the "Banks" and individually,  a "Bank"), and
Bank of America,  N.A., as Administrative Agent (as such agreement may from time
to time be extended,  modified, renewed, restated,  supplemented or amended, the
"Loan Agreement"),  the Banks are making certain credit facilities  available to
Borrower.

     A. As a condition to the availability of such credit facilities,  Guarantor
is  required  to  enter  into  this  Guaranty  and to  guaranty  the  Guarantied
Obligations as hereinafter  provided.  B. C. Guarantor expects to realize direct
and indirect  benefits as the result of the  availability of the  aforementioned
credit facilities to Borrower.

                                    AGREEMENT

                  NOW,  THEREFORE,  in order to induce the Banks to  continue to
extend the  aforementioned  credit  facilities,  and for other good and valuable
consideration,  the  receipt  and  adequacy  of which  hereby are  acknowledged,
Guarantor  hereby  represents,  warrants,  covenants,  agrees and  guaranties as
follows:

1.  Definitions.  This  Guaranty  is the PNGI  Guaranty  referred to in the Loan
Agreement and is one of the Loan Documents.  Terms defined in the Loan Agreement
and not otherwise  defined in this Guaranty  shall have the meanings given those
terms  in  the  Loan  Agreement  when  used  herein  and  such  definitions  are
incorporated  herein as though set forth in full.  In addition,  as used herein,
the following terms shall have the meanings respectively set forth after each:

2.

                      "Guarantied  Obligations"  means all  present  and  future
                      Obligations  of every  kind or nature of  Borrower  at any
                      time and from time to time owed to Lender under any one or
                      more of the Loan Documents,  whether due or to become due,
                                      173
<PAGE>

                      matured  or  unmatured,  liquidated  or  unliquidated,  or
                      contingent  or  noncontingent,  including  Obligations  of
                      performance  as  well  as  Obligations  of  payment,   and
                      including  interest that accrues after the commencement of
                      any  proceeding  under any Debtor Relief Law by or against
                      Guarantor,   Borrower,  any  Subsidiary  or  Affiliate  of
                      Borrower or any other Person.

       "Guarantor" means Penn National Gaming, Inc., a Pennsylvania corporation.
                   ---------

                      "Guaranty"  means  this  Guaranty,   and  any  extensions,
                      modifications,  renewals,  restatements,   reaffirmations,
                      supplements or amendments hereof.

                      "Lender"  means the  Administrative  Agent  (acting as the
                      Administrative  Agent and/or on behalf of the Banks),  and
                      the Banks,  and each of them, and any one or more of them.
                      Subject  to the terms of the Loan  Agreement,  any  right,
                      remedy,  privilege  or power of Lender may be exercised by
                      the Administrative  Agent, or by the Requisite Lenders, or
                      by any Bank  acting  with  the  consent  of the  Requisite
                      Lenders.

1.   Guaranty  of  Guarantied   Obligations.   Guarantor   hereby   irrevocably,
unconditionally  guaranties  and  promises  to pay and  perform  on  demand  the
Guarantied Obligations and each and every one of them, including all amendments,
modifications,  supplements, renewals or extensions of any of them, whether such
amendments, modifications,  supplements, renewals or extensions are evidenced by
new or  additional  instruments,  documents or  agreements or change the rate of
interest on any Guarantied Obligation or the security therefor, or otherwise.

2.

     3. Nature of Guaranty.  This  Guaranty is  irrevocable  and  continuing  in
nature and relates to any Guarantied ------------------ Obligations now existing
or hereafter arising. This Guaranty is a guaranty of prompt and punctual payment
and performance and is not merely a guaranty of collection. 4.

5. Relationship to Other  Agreements.  Nothing herein shall in any way modify or
limit  the  effect  of terms or  conditions  set  forth in any  other  document,
instrument  or  agreement  executed  by  Guarantor  or in  connection  with  the
Guarantied Obligations, but each and every term and condition hereof shall be in
addition  thereto.  All provisions  contained in the Loan Agreement or any other
Loan Document  that apply to Loan  Documents  generally are fully  applicable to
this Guaranty and are incorporated herein by this reference.
                                      174
<PAGE>

     1. Subordination of Indebtedness of Borrower to Guarantor to the Guarantied
Obligations.                           Guarantor                          agrees
--------------------------------------------------------------------------------
that: 2.

(a)  Any  indebtedness of Borrower now or hereafter owed to Guarantor  hereby is
     subordinated to the
             Guarantied Obligations.

             (a) If Lender so  requests,  upon the  occurrence  and  during  the
             continuance  of any  Event of  Default,  any such  indebtedness  of
             Borrower now or hereafter  owed to  Guarantor  shall be  collected,
             enforced  and received by Guarantor as trustee for Lender and shall
             be  paid  over to  Lender  in kind  on  account  of the  Guarantied
             Obligations,  but without  reducing or  affecting in any manner the
             obligations  of  Guarantor  under  the  other  provisions  of  this
             Guaranty.

             (a)  Should   Guarantor   fail  to  collect  or  enforce  any  such
             indebtedness of Borrower now or hereafter owed to Guarantor and pay
             the  proceeds  thereof to Lender in  accordance  with  Section 5(b)
             hereof, Lender as Guarantor's attorney-in-fact may do such acts and
             sign  such  documents  in  Guarantor's  name  as  Lender  considers
             necessary  or  desirable  to effect  such  collection,  enforcement
             and/or payment.

1. Statutes of  Limitations  and Other Laws.  Until the  Guarantied  Obligations
shall have been paid and performed in full, all the rights,  privileges,  powers
and  remedies  granted to Lender  hereunder  shall  continue to exist and may be
exercised by Lender at any time and from time to time  irrespective  of the fact
that any of the Guarantied  Obligations may have become barred by any statute of
limitations.  Guarantor  expressly waives the benefit of any and all statutes of
limitation,  and any and all Laws  providing  for  exemption  of  property  from
execution or for  evaluation  and  appraisal  upon  foreclosure,  to the maximum
extent permitted by applicable Laws.

2.

3. Waivers and Consents.  Guarantor acknowledges that the obligations undertaken
herein  involve the guaranty of obligations of Persons other than Guarantor and,
in full  recognition  of that fact,  consents and agrees that Lender may, at any
time and from time to time,  without notice or demand, and without affecting the
enforceability  or continuing  effectiveness  hereof:  (a)  supplement,  modify,
amend, extend, renew, accelerate or otherwise change the time for payment or the
terms of the Guarantied Obligations or any part thereof,  including any increase
or decrease of the rate(s) of interest thereon; (b) supplement, modify, amend or
waive, or enter into or give any agreement, approval or consent with respect to,
the Guarantied  Obligations or any part thereof, or any of the Loan Documents to
which Guarantor is not a party or any additional security or guaranties,  or any
condition,  covenant,  default, remedy, right, representation or term thereof or
thereunder; (c) accept new or additional instruments, documents or agreements in
exchange  for  or  relative  to  any of the  Loan  Documents  or the  Guarantied
Obligations or any part thereof;  (d) accept partial  payments on the Guarantied
Obligations;  (e) receive and hold  additional  security or  guaranties  for the
Guarantied  Obligations or any part thereof; (f) release,  reconvey,  terminate,
                                      175
<PAGE>

waive, abandon, fail to perfect,  subordinate,  exchange,  substitute,  transfer
and/or enforce any security or guaranties, and apply any security and direct the
order or manner of sale  thereof as Lender in its sole and  absolute  discretion
may determine;  (g) release any Person from any personal  liability with respect
to the Guarantied  Obligations or any part thereof; (h) settle, release on terms
satisfactory to Lender or by operation of applicable Laws or otherwise liquidate
or enforce any Guarantied  Obligations and any security or guaranty  therefor in
any manner,  consent to the transfer of any security and bid and purchase at any
sale;  and/or (i) consent to the merger,  change or any other  restructuring  or
termination  of the  corporate  existence  of  Borrower,  Guarantor or any other
Person, and correspondingly restructure the Guarantied Obligations, and any such
merger,  change,  restructuring or termination shall not affect the liability of
Guarantor or the continuing  effectiveness  hereof, or the enforceability hereof
with respect to all or any part of the Guarantied Obligations.

4.

5. Upon the  occurrence  and during  the  continuance  of any Event of  Default,
Lender may enforce this Guaranty independently as to Guarantor and independently
of any  other  remedy  or  security  Lender  at any  time  may  have  or hold in
connection with the Guarantied Obligations. Guarantor expressly waives any right
to  require  Lender to marshal  assets in favor of  Guarantor,  and agrees  that
Lender may proceed against Borrower or any other Person,  or upon or against any
security or remedy, before proceeding to enforce this Guaranty, in such order as
it shall  determine  in its  sole and  absolute  discretion.  Lender  may file a
separate action or actions against Borrower or any other Person and/or Guarantor
without  respect to whether action is brought or prosecuted  with respect to any
security or against any other  Person,  or whether any other Person is joined in
any such  action or actions.  Guarantor  agrees that  Lender,  Borrower  and any
Affiliates  of  Borrower  may  deal  with  each  other  in  connection  with the
Guarantied Obligations or otherwise, or alter any contracts or agreements now or
hereafter existing between any of them, in any manner whatsoever, all without in
any way altering or affecting  the security of this  Guaranty.  Lender's  rights
hereunder  shall be  reinstated  and  revived,  and the  enforceability  of this
Guaranty shall continue,  with respect to any amount at any time paid on account
of the Guarantied  Obligations which thereafter shall be required to be restored
or returned by Lender  upon the  bankruptcy,  insolvency  or  reorganization  of
Borrower or any other Person,  or  otherwise,  all as though such amount had not
been paid. The rights of Lender created or granted herein and the enforceability
of this Guaranty  with respect to Guarantor at all times shall remain  effective
to guaranty the full amount of all the  Guarantied  Obligations  even though the
Guarantied  Obligations,  or any  part  thereof,  or any  security  or  guaranty
therefor,  may be or hereafter may become invalid or otherwise  unenforceable as
against  Borrower or any other  guarantor  or surety and whether or not Borrower
shall have any personal  liability with respect  thereto.  To the maximum extent
permitted  by law,  Guarantor  expressly  waives  any and  all  defenses  now or
hereafter  arising or asserted by reason of (a) any  disability or other defense
of Borrower with respect to the Guarantied Obligations, (b) the unenforceability
or invalidity of any security or guaranty for the Guarantied  Obligations or the
lack of  perfection  or  continuing  perfection  or failure of  priority  of any
security  for the  Guarantied  Obligations,  (c)  the  cessation  for any  cause
whatsoever  of the  liability  of  Borrower  (other  than by  reason of the full
payment  and  performance  of all  Guarantied  Obligations),  (d) any failure of
Lender to marshal assets in favor of Borrower or any other Person, (e) except as
otherwise  provided  in this  Guaranty,  any failure of Lender to give notice of
sale or other  disposition of Collateral to Guarantor or any other Person or any
defect  in any  notice  that  may be  given  in  connection  with  any  sale  or
disposition of Collateral,  (f) any failure of Lender to comply with  applicable
Laws in connection with the sale or other disposition of any Collateral or other
security  for any  Guarantied  Obligation,  including  without  limitation,  any
failure of Lender to conduct a commercially reasonable sale or other disposition
of any Collateral or other security for any Guarantied  Obligation,  (g) any act
or omission of Lender or others that directly or  indirectly  results in or aids
                                      176
<PAGE>

the  discharge  or release of  Borrower  or the  Guarantied  Obligations  or any
security or guaranty  therefor by  operation  of law or  otherwise,  (h) any Law
which  provides  that the  obligation  of a surety or guarantor  must neither be
larger  in  amount  nor in  other  respects  more  burdensome  than  that of the
principal or which reduces a surety's or guarantor's obligation in proportion to
the principal  obligation,  (i) any failure of Lender to file or enforce a claim
in any  bankruptcy  or other  proceeding  with  respect to any  Person,  (j) the
election  by  Lender,  in  any  bankruptcy  proceeding  of  any  Person,  of the
application  or  non-application  of Section  1111(b)(2)  of the  United  States
Bankruptcy  Code,  (k) any  extension  of credit or the grant of any Lien  under
Section 364 of the United States Bankruptcy Code, (l) any use of cash collateral
under Section 363 of the United  States  Bankruptcy  Code,  (m) any agreement or
stipulation  with  respect  to  the  provision  of  adequate  protection  in any
bankruptcy  proceeding of any Person,  (n) the avoidance of any Lien in favor of
Lender  for  any  reason,  (o)  any  bankruptcy,   insolvency,   reorganization,
arrangement,   readjustment  of  debt,  liquidation  or  dissolution  proceeding
commenced by or against any Person,  including  any discharge of, or bar or stay
against  collecting,  all or any of the Guarantied  Obligations (or any interest
thereon) in or as a result of any such proceeding,  (p) to the extent permitted,
the benefits of any form of  one-action  rule, or (q) any action taken by Lender
that is authorized by this Section or any other  provision of any Loan Document.
Guarantor  expressly waives all setoffs and  counterclaims and all presentments,
demands for payment or  performance,  notices of nonpayment  or  nonperformance,
protests,  notices of  protest,  notices of  dishonor  and all other  notices or
demands  of any  kind  or  nature  whatsoever  with  respect  to the  Guarantied
Obligations, and all notices of acceptance of this Guaranty or of the existence,
creation or incurrence of new or additional Guarantied Obligations.

6.

7. Condition of Borrower and Borrower's  Subsidiaries.  Guarantor represents and
warrants to Lender that  Guarantor has  established  adequate means of obtaining
from Borrower and Borrower's Subsidiaries,  on a continuing basis, financial and
other  information  pertaining  to  the  businesses,  operations  and  condition
(financial  and  otherwise) of Borrower and  Borrower's  Subsidiaries  and their
Properties,  and Guarantor now is and hereafter will be completely familiar with
the businesses,  operations and condition  (financial and otherwise) of Borrower
and Borrower's  Subsidiaries  and their  Properties.  Guarantor hereby expressly
waives and  relinquishes  any duty on the part of Lender  (should  any such duty
exist) to  disclose  to  Guarantor  any  matter,  fact or thing  related  to the
businesses,  operations  or condition  (financial  or  otherwise) of Borrower or
Borrower's  Subsidiaries  or their  Properties,  whether now known or  hereafter
known by Lender  during the life of this  Guaranty.  With  respect to any of the
Guarantied  Obligations,  Lender need not inquire into the powers of Borrower or
any  Subsidiaries  thereof or the officers or employees  acting or purporting to
act on their  behalf,  and all  Guarantied  Obligations  made or created in good
faith  reliance  upon the  professed  exercise of such  powers  shall be secured
hereby.
                                      177

<PAGE>

8.

9. Liens on Real  Property.  In the event that all or any part of the Guarantied
Obligations  at any  time  are  secured  by any one or more  deeds  of  trust or
mortgages or other  instruments  creating or granting  Liens on any interests in
real Property,  Guarantor  authorizes Lender,  upon the occurrence of and during
the continuance of any Event of Default,  at its sole option,  without notice or
demand and without affecting any Obligations of Guarantor, the enforceability of
this Guaranty,  or the validity or  enforceability of any Liens of Lender on any
Collateral, to foreclose any or all of such deeds of trust or mortgages or other
instruments  by judicial or nonjudicial  sale.  Guarantor  expressly  waives any
defenses to the  enforcement of this Guaranty or any rights of Lender created or
granted hereby or to the recovery by Lender against Borrower or any other Person
liable therefor of any deficiency after a judicial or nonjudicial foreclosure or
sale because all or any part of the  Guarantied  Obligations  is secured by real
Property.  This means, among other things: (1) Lender may collect from Guarantor
without first foreclosing on any real or personal Property collateral pledged by
Borrower,  and (2) If the  Lender  forecloses  on any real  Property  collateral
pledged by Borrower: (A) The amount of the Guarantied Obligations may be reduced
only by the price for which that  collateral  is sold at the  foreclosure  sale,
even if the collateral is worth more than the sale price, and (B) The Lender may
collect from Guarantor  even if the Lender,  by foreclosing on the real Property
collateral, has destroyed any right Guarantor may have to collect from Borrower.
This is an  unconditional  and  irrevocable  waiver of any rights  and  defenses
Guarantor  may have  because all or any part of the  Guarantied  Obligations  is
secured by real Property.  Guarantor  expressly  waives any defenses or benefits
that may be derived from California Code of Civil Procedure  ss.ss.  580a, 580b,
580d or 726, or comparable provisions of the Laws of any other jurisdiction, and
all other suretyship  defenses it otherwise might or would have under California
Law or other  applicable Law.  Guarantor  expressly  waives any right to receive
notice of any judicial or  nonjudicial  foreclosure or sale of any real Property
or interest  therein  subject to any such deeds of trust or  mortgages  or other
instruments  and  Guarantor's or any other Person's  failure to receive any such
notice shall not impair or affect Guarantor's  Obligations or the enforceability
of this Guaranty or any rights of Lender created or granted hereunder.

10.

11. Waiver of Rights of  Subrogation.  Notwithstanding  anything to the contrary
elsewhere contained herein or in any other Loan Document to which Guarantor is a
party,  unless and until all  Obligations  have been paid and performed in full,
Guarantor  hereby  expressly  waives with respect to Borrower and its successors
and assigns  (including  any surety) and any other  Person  which is directly or
indirectly a creditor of Borrower or any surety for Borrower, any and all rights
at Law or in  equity  to  subrogation,  to  reimbursement,  to  exoneration,  to
contribution,  to setoff or to any other  rights  that could  accrue to a surety
against  a  principal,  to a  guarantor  against  a  maker  or  obligor,  to  an
accommodation party against the party accommodated, or to a holder or transferee
against a maker,  and which  Guarantor  may have or  hereafter  acquire  against
Borrower  or any  other  such  Person  in  connection  with  or as a  result  of
Guarantor's execution, delivery and/or performance of this Guaranty or any other
                                      178
<PAGE>

Loan Document to which Guarantor is a party.  Guarantor agrees that it shall not
have or assert any such rights against Borrower or its successors and assigns or
any other  Person  (including  any surety)  which is directly  or  indirectly  a
creditor  of  Borrower  or any surety for  Borrower,  either  directly  or as an
attempted  setoff to any action  commenced  against  Guarantor  by Borrower  (as
borrower or in any other  capacity),  Lender or any other such Person unless and
until all  Obligations  have been paid and performed in full.  Guarantor  hereby
acknowledges  and agrees that this waiver is  intended to benefit  Borrower  and
Lender and shall not limit or otherwise affect Guarantor's  liability hereunder,
under  any  other  Loan  Document  to  which   Guarantor  is  a  party,  or  the
enforceability hereof or thereof. 12.

13. Understandings With Respect to Waivers and Consents.  Guarantor warrants and
agrees that each of the waivers and consents set forth herein are made with full
knowledge of their  significance and consequences,  with the understanding  that
events  giving  rise to any  defense or right  waived may  diminish,  destroy or
otherwise  adversely  affect rights which  Guarantor  otherwise may have against
Borrower,  Lender or others,  or against  any  Collateral,  and that,  under the
circumstances,  the waivers and  consents  herein given are  reasonable  and not
contrary  to public  policy or Law.  Guarantor  acknowledges  that it has either
consulted  with legal  counsel  regarding  the effect of this  Guaranty  and the
waivers and consents set forth herein,  or has made an informed  decision not to
do so. If this Guaranty or any of the waivers or consents  herein are determined
to be  unenforceable  under or in violation of applicable Law, this Guaranty and
such waivers and consents shall be effective to the maximum extent  permitted by
Law. 14.

     15.  Representations and Warranties.  Guarantor hereby makes each and every
representation   and  warranty   ------------------------------   applicable  to
Guarantor  set forth in Article 4 of the Loan  Agreement as if set forth in full
herein. ---------
16.
17. Costs and Expenses. Guarantor agrees to pay to Lender all costs and expenses
(including,  without limitation,  reasonable  attorneys' fees and disbursements)
incurred by Lender in the enforcement or attempted enforcement of this Guaranty,
whether or not an action is filed in  connection  therewith,  and in  connection
with any waiver or  amendment  of any term or provision  hereof.  All  advances,
charges,   costs  and  expenses,   including  reasonable   attorneys'  fees  and
disbursements (including the reasonably allocated cost of legal counsel employed
by Lender), incurred or paid by Lender in exercising any right, privilege, power
or  remedy  conferred  by this  Guaranty,  or in the  enforcement  or  attempted
enforcement  thereof,  shall be subject  hereto  and shall  become a part of the
Guarantor's  Obligations  and shall be paid to Lender by Guarantor,  immediately
upon demand,  together with interest  thereon at the rate(s)  provided for under
the Loan Agreement.

18.

19.  Liability.  Notwithstanding  anything to the contrary  elsewhere  contained
herein or in any Loan  Document to which  Guarantor  is a party,  the  aggregate
liability of Guarantor  hereunder for payment and  performance of the Guarantied
Obligations  shall not exceed an amount which,  in the aggregate,  is $1.00 less
than that amount which if so paid or performed  would  constitute or result in a
"fraudulent  transfer",  "fraudulent  conveyance",  or terms of similar  import,
under applicable state or federal Law, including without limitation, Section 548
of the United States  Bankruptcy  Code. The liability of Guarantor  hereunder is
independent of any other guaranties at any time in effect with respect to all or
any part of the Guarantied Obligations,  and Guarantor's liability hereunder may
be enforced regardless of the existence of any such guaranties.  Any termination
                                      179
<PAGE>

by or  release  of any  guarantor  in  whole or in part  shall  not  affect  the
continuing  liability  of  Guarantor  hereunder,  and  no  notice  of  any  such
termination or release shall be required.  The execution  hereof by Guarantor is
not founded upon an  expectation or  understanding  that there will be any other
guarantor of the Guarantied Obligations.

20.

21. WAIVER OF JURY TRIAL.  GUARANTOR AND LENDER EXPRESSLY WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM, DEMAND,  ACTION OR CAUSE OF ACTION BASED
UPON OR ARISING  OUT OF OR RELATED TO THIS  GUARANTY,  THE LOAN  AGREEMENT,  THE
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS  CONTEMPLATED  HEREBY OR THEREBY IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR PARTIES,  WHETHER NOW EXISTING OR  HEREAFTER  ARISING
AND  WHETHER  WITH  RESPECT TO  CONTRACT  CLAIMS,  TORT  CLAIMS,  OR  OTHERWISE.
GUARANTOR  AND LENDER  AGREE  THAT ANY SUCH  CLAIM,  DEMAND,  ACTION OR CAUSE OF
ACTION  SHALL BE TRIED BY A COURT TRIAL  WITHOUT A JURY.  WITHOUT  LIMITING  THE
FOREGOING,  THE PARTIES FURTHER AGREE THAT THEIR  RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS  SECTION AS TO ANY ACTION,  COUNTERCLAIM  OR
OTHER  PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS GUARANTY,  THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS
OR ANY PROVISION  HEREOF OR THEREOF.  THIS WAIVER SHALL APPLY TO ANY  SUBSEQUENT
AMENDMENTS,  RENEWALS,  SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY,  THE LOAN
AGREEMENT  AND THE OTHER LOAN  DOCUMENTS.  ANY PARTY HERETO MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN  EVIDENCE OF THE
CONSENT OF  GUARANTOR  AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
22.

23.
THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF

                                      180
<PAGE>


THE STATE OF CALIFORNIA  WITHOUT  REFERENCE TO THE CONFLICT OF LAWS OR CHOICE OF
LAW PRINCIPLES THEREOF.

                  IN WITNESS WHEREOF, Guarantor has executed this Guaranty by

its duly authorized officer as of the date first written
above.




"Guarantor"

PENN NATIONAL GAMING, INC.,
a Pennsylvania corporation

By:___________________________

     ---------------------------
        [Printed Name and Title]

Address:
===============================
Telephone:  _____________________



                                      181
<PAGE>


                                      NOTE

                          $10,000,000 December 13, 1999



                             Los Angeles, California

                  FOR VALUE  RECEIVED,  the  undersigned  promises to pay to the
order of BANK OF AMERICA,  N.A. ("Lender"),  the principal amount of TEN MILLION
AND NO/00 DOLLARS  ($10,000,000)  or such lesser aggregate amount of Advances as
may be  made by the  Lender  with  respect  to the  Commitment  under  the  Loan
Agreement  referred to below,  together with interest on the principal amount of
each Advance made hereunder and remaining unpaid from time to time from the date
of each such Advance until the date of payment in full,  payable as  hereinafter
set forth.

                  Reference  is made to the Senior  Secured  Multiple  Draw Term
Loan Agreement dated as of December 13, 1999, by and among the  undersigned,  as
Borrower, Penn National Gaming, Inc., a Pennsylvania corporation,  as Guarantor,
the  lenders  from time to time party  thereto,  and Bank of America,  N.A.,  as
Administrative Agent (the "Loan Agreement"). Terms defined in the Loan Agreement
and not otherwise  defined herein are used herein with the meanings  defined for
those terms in the Loan  Agreement.  This is one of the Notes referred to in the
Loan  Agreement,  and  any  holder  hereof  is  entitled  to all of the  rights,
remedies,  benefits  and  privileges  provided  for in  the  Loan  Agreement  as
originally executed or as it may from time to time be supplemented,  modified or
amended.  The Loan  Agreement,  among  other  things,  contains  provisions  for
acceleration  of the maturity hereof upon the happening of certain stated events
upon the terms and conditions therein specified.

                  The  principal  indebtedness  evidenced  by this Note shall be
payable as provided in the Loan Agreement and in any event on the Maturity Date.

                  Interest  shall be payable  on the  outstanding  daily  unpaid
principal amount of Advances from the date of each such Advance until payment in
full and shall  accrue and be payable at the rates and on the dates set forth in
the Loan  Agreement  both before and after default and before and after maturity
and judgment,  with interest on overdue  principal and interest to bear interest
at the rate set  forth in  Section  3.6 of the Loan  Agreement,  to the  fullest
extent permitted by applicable Law.

                  Each  payment  hereunder  shall be made to the  Administrative
Agent at the  Administrative  Agent's  Office  for the  account of the Lender in
immediately  available  funds not later than  11:00  a.m.  on the day of payment
(which must be a Business  Day).  All payments  received after 11:00 a.m. on any
                                      182
<PAGE>

Business Day shall be deemed received on the next  succeeding  Business Day. All
payments shall be made in lawful money of the United States of America.

                  The  Lender  shall  use its best  efforts  to keep a record of
Advances made by it and payments  received by it with respect to this Note,  and
such record shall be presumptive evidence of the amounts owing under this Note.

                  The undersigned  hereby promises to pay all costs and expenses
of any holder  hereof  incurred  in  collecting  the  undersigned's  obligations
hereunder or in enforcing or attempting  to enforce any of such holder's  rights
hereunder,  including reasonable  attorneys' fees and disbursements,  whether or
not an action is filed in connection therewith.

                  The undersigned hereby waives presentment, demand for payment,
dishonor, notice of dishonor, protest, notice of protest and any other notice or
formality, to the fullest extent permitted by applicable Laws.

                  This Note shall be  delivered to and accepted by the Lender in
the State of California, and shall be governed by, and construed and enforced in
accordance with, the local Laws thereof.



PENN NATIONAL GAMING OF WEST VIRGINIA, INC.,
a West Virginia corporation

By: _____________________________

       -----------------------------
        [Printed Name and Title]

                                       183
<PAGE>



                       SCHEDULE OF COMMITTED ADVANCES AND

                              PAYMENTS OF PRINCIPAL

                                      184
<PAGE>



<TABLE>
<S>        <C>                 <C>                        <C>                  <C>               <C>
Date       Amount              Interest Period            Amount of            Unpaid            Notation
          of Advance                                      Principal            Principal         Made by
                                                          Paid                 Balance

</TABLE>

                                      NOTE

$10,000,000       December 13, 1999
                    Los Angeles, California

                  FOR VALUE  RECEIVED,  the  undersigned  promises to pay to the
order of FIRST UNION  NATIONAL  BANK  ("Lender"),  the  principal  amount of TEN
MILLION  AND NO/00  DOLLARS  ($10,000,000)  or such lesser  aggregate  amount of
Advances as may be made by the Lender with respect to the  Commitment  under the
Loan Agreement referred to below, together with interest on the principal amount
of each Advance made  hereunder and remaining  unpaid from time to time from the
date of each  such  Advance  until  the  date of  payment  in full,  payable  as
hereinafter set forth.

                  Reference  is made to the Senior  Secured  Multiple  Draw Term
Loan Agreement dated as of December 13, 1999, by and among the  undersigned,  as
Borrower, Penn National Gaming, Inc., a Pennsylvania corporation,  as Guarantor,
the  lenders  from time to time party  thereto,  and Bank of America,  N.A.,  as
Administrative Agent (the "Loan Agreement"). Terms defined in the Loan Agreement
and not otherwise  defined herein are used herein with the meanings  defined for
those terms in the Loan  Agreement.  This is one of the Notes referred to in the
Loan  Agreement,  and  any  holder  hereof  is  entitled  to all of the  rights,
remedies,  benefits  and  privileges  provided  for in  the  Loan  Agreement  as
originally executed or as it may from time to time be supplemented,  modified or
amended.  The Loan  Agreement,  among  other  things,  contains  provisions  for
acceleration  of the maturity hereof upon the happening of certain stated events
upon the terms and conditions therein specified.

                  The  principal  indebtedness  evidenced  by this Note shall be
payable as provided in the Loan Agreement and in any event on the Maturity Date.

                  Interest  shall be payable  on the  outstanding  daily  unpaid
principal amount of Advances from the date of each such Advance until payment in
full and shall  accrue and be payable at the rates and on the dates set forth in
the Loan  Agreement  both before and after default and before and after maturity
and judgment,  with interest on overdue  principal and interest to bear interest
at the rate set  forth in  Section  3.6 of the Loan  Agreement,  to the  fullest
extent permitted by applicable Law.

                  Each  payment  hereunder  shall be made to the  Administrative
Agent at the  Administrative  Agent's  Office  for the  account of the Lender in
immediately  available  funds not later than  11:00  a.m.  on the day of payment
                                      185
<PAGE>

(which must be a Business  Day).  All payments  received after 11:00 a.m. on any
Business Day shall be deemed received on the next  succeeding  Business Day. All
payments shall be made in lawful money of the United States of America.

                  The  Lender  shall  use its best  efforts  to keep a record of
Advances made by it and payments  received by it with respect to this Note,  and
such record shall be presumptive evidence of the amounts owing under this Note.

                  The undersigned  hereby promises to pay all costs and expenses
of any holder  hereof  incurred  in  collecting  the  undersigned's  obligations
hereunder or in enforcing or attempting  to enforce any of such holder's  rights
hereunder,  including reasonable  attorneys' fees and disbursements,  whether or
not an action is filed in connection therewith.

                  The undersigned hereby waives presentment, demand for payment,
dishonor, notice of dishonor, protest, notice of protest and any other notice or
formality, to the fullest extent permitted by applicable Laws.

                  This Note shall be  delivered to and accepted by the Lender in
the State of California, and shall be governed by, and construed and enforced in
accordance with, the local Laws thereof.


PENN NATIONAL GAMING OF WEST VIRGINIA, INC.,
a West Virginia corporation

By: _____________________________

       -----------------------------
        [Printed Name and Title]


                                      186
<PAGE>


                       SCHEDULE OF COMMITTED ADVANCES AND

                              PAYMENTS OF PRINCIPAL

                                      187
<PAGE>


LA:LFJ\OTHER\BN1\70099161.1


Date      Amount        Interest Period       Amount of     Unpaid      Notation
          of Advance                          Principal     Principal   Made by
                                              Paid          Balance






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