1317774 B.C. Ltd. and Penn National Gaming, Inc., 2021 CanLII 115272

Ontario Commission des 22^nd Floor 22e étage

Securities valeurs mobilières 20 Queen Street West 20, rue Queen ouest

Commission de l’Ontario Toronto ON M5H 3S8 Toronto ON M5H 3S8

October 18, 2021

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)

AND

IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF 1317774 B.C. Ltd. (the Purchaser) Penn National Gaming, Inc. (Penn National, and together, the Applicants)

DECISION DOCUMENT

Background

The principal regulator in the Jurisdiction has received an application (the Application) from the Applicants for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the Purchaser be exempt from the following:

a) the continuous disclosure obligations (Continuous Disclosure Requirements) under National Instrument 51-102 – Continuous Disclosure Obligations (NI 51-102), provided certain requirements are met (the Continuous Disclosure Relief);

b) the requirements for the certification of disclosure in annual and interim filings (Certification of Disclosure Requirements) contained in National Instrument 52-109 – Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), provided certain requirements are met (the Certification of Disclosure Relief);

c) the requirements relating to the composition and obligations of audit committees (Audit Committee Requirements) contained in National Instrument 52-110 – Audit Committees (NI 52-110), provided certain requirements are met (the Audit Committee Relief); and

d) the requirements (Corporate Governance Disclosure Requirements and together with the Continuous Disclosure Requirements, the Certification of Disclosure Requirements and the Audit Committee Requirements, the Reporting Issuer Requirements) contained in National Instrument 58-101 – Disclosure of Corporate Governance Practices (NI 58-101), provided certain requirements are met (the Corporate Governance Disclosure Relief).

The Continuous Disclosure Relief, the Certification of Disclosure Relief, the Audit Committee Relief and the Corporate Governance Disclosure Relief are collectively referred to as the Exemption Sought.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

a) the Ontario Securities Commission is the principal regulator for this Application; and

b) the Applicants have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island and Saskatchewan (the Reporting Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102, NI 41-101, NI 44-101 and NI 51-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Applicants:

1. The Purchaser, Penn National and Score Media and Gaming Inc. (theScore) have entered into an arrangement agreement dated August 4, 2021, (the Arrangement Agreement) pursuant to which Penn National, through the Purchaser, intends to indirectly acquire via plan of arrangement (the Plan of Arrangement) under the Business Corporations Act (British Columbia) (the BCBCA) all of the Class A subordinate voting shares (the Class A Shares) and all of the special voting shares of theScore (the Special Voting Shares, and together with the Class A Shares, the Score Shares) that are not currently owned by Penn National or any of its subsidiaries (the Arrangement) in exchange for US$17.00 in cash and either (a) 0.2398 of an exchangeable share in the capital of the Purchaser (an Exchangeable Share) or (b) 0.2398 of a share of Penn National’s common stock (each whole share, a Penn Share), per Score Share.

Score Media and Gaming Inc.

2. theScore is a corporation governed by the BCBCA with its principal business office located in 500 King Street West, Fourth Floor, Toronto, ON, M5V 1L9.

3. The issued and outstanding capital of theScore consists of the Class A Shares, which are currently listed on the Toronto Stock Exchange (the TSX) and the NASDAQ, in each case under the symbol “SCR” and the Special Voting Shares, which are unlisted.

4. theScore is a reporting issuer in the Reporting Jurisdictions.

Penn National

5. Penn National is a U.S. corporation organized under the laws of the Commonwealth of Pennsylvania

6. The Penn Shares currently trade on the NASDAQ under the symbol “PENN”.

7. Upon completion of the Arrangement, Penn National will become a reporting issuer in the Reporting Jurisdictions that is (i) an SEC foreign issuer, as such term is defined in National Instrument 71-102 – Continuous Disclosure and Other Exemptions Relating to Foreign Issuers (NI 71-102) and in National Instrument 52-107 – Acceptable Accounting Principles and Auditing Standards (NI 52-107) and (ii) entitled to rely on the modified reporting requirements for SEC foreign issuers set out in NI 71-102 and NI 52-107.

The Purchaser

8. The Purchaser is a corporation governed by the BCBCA and was incorporated by a subsidiary of Penn National on June 30, 2021 for the purposes of effecting the Arrangement.

9. The head office of the Purchaser is located at 825 Berkshire Blvd., Suite 200 Wyomissing, Pennsylvania, USA, 19610, and the registered office of the Purchaser is located at Suite 2600, Three Bentall Centre, P.O. Box 49314, 595 Burrard Street, Vancouver, British Columbia, V7X 1L3.

10. Penn National, through its wholly owned subsidiary, Penn Interactive Ventures, LLC, owns all of the issued and outstanding shares of 1317769 B.C. Ltd., a British Columbia corporation (Callco), Callco in turn owns all of the issued and outstanding common shares in the capital of the Purchaser.

11. In connection with the acquisition structure and funding of the Arrangement and the transactions contemplated thereby, the Purchaser may issue a series of non-voting, fixed liquidation preference preferred stock (the Preferred Stock) to be held by a third-party financial institution in an amount not currently expected to exceed US$25 million.

12. The Purchaser has no intention of (i) accessing the capital markets in the future by issuing any further securities to the public; and (ii) issuing any securities other than those that will be outstanding upon completion of the Arrangement.

13. Other than holding the interests in theScore upon closing of the Arrangement, the Purchaser will have no business besides administering the Exchangeable Shares pursuant to their terms.

14. Upon completion of the Arrangement, the Purchaser will become a reporting issuer in the Reporting Jurisdictions.

15. The common shares of the Purchaser are not listed or posted for trading on any stock exchange, and Penn National and the Purchaser do not intend to apply to list any of the Purchaser’s shares (including the Exchangeable Shares and any Preferred Stock) on any stock exchange in connection with the Arrangement.

The Arrangement

16. Pursuant to the Arrangement, and in accordance with the terms of the Arrangement Agreement and the Plan of Arrangement, Penn National, through the Purchaser, intends to indirectly acquire all of the Score Shares that are not currently owned by Penn National or any of its subsidiaries via the Plan of Arrangement, utilizing a customary cross-border “exchangeable share” structure.

17. Pursuant to the Arrangement, and in accordance with the terms of the Arrangement Agreement and the Plan of Arrangement, each outstanding Score Share, other than those held by Penn National or any of its subsidiaries, will be transferred by the holder thereof to the Purchaser, in exchange for US$17.00 in cash and, at the election of the holder of such Score Share, either 0.2398 of a Penn Share or 0.2398 of an Exchangeable Share.

18. Only holders of Score Shares who are Eligible Holders (as such term is defined in the Arrangement Agreement) may elect to receive Exchangeable Shares.

19. Upon completion of the Arrangement, all of the Score Shares will be owned by the Purchaser, (other than those held by Penn National and its subsidiaries), the Class A Shares will be delisted from the TSX and NASDAQ, theScore intends to apply to cease to be a reporting issuer in the Reporting Jurisdictions and the Score Shares will be deregistered under the Securities Exchange Act of 1934 and theScore will no longer be required to file reports with the United States Securities and Exchange Commission.

20. Based on elections received for Exchangeable Shares, upon completion of the Arrangement the percentage of the issued and outstanding Penn Shares that former holders of the Scores Shares will hold through Exchangeable Shares is expected to be less than 1%.

The Exchangeable Shares

21. The Exchangeable Shares will have certain economic rights, privileges, restrictions and conditions attaching to them (Exchangeable Share Provisions) that are intended to be, as nearly as possible, except for tax implications, equivalent to those of the Penn Shares for which they are exchangeable. In particular, Holders of Exchangeable Shares will be entitled:

a) at any time without any conditions, to exchange one Exchangeable Share for, as of the effective date of the Arrangement (the Effective Date), one Penn Share. Following the Effective Date, the number of Penn Shares to which a holder of Exchangeable Shares will be entitled may be cumulatively adjusted from time to time (an Exchange Ratio Adjustment) by the board of directors of the Purchaser in certain circumstances in the event that the board of directors of Penn National pays any dividend or other distribution on the Penn Shares and the board of directors of the Purchaser determines to effect an Exchange Ratio Adjustment in lieu of paying an equivalent dividend or other distribution on the Exchangeable Shares;

b) to dividends and distributions equal to the dividends and distributions, if any, declared from time to time by the board of directors of Penn National on the Penn Shares; provided that, as noted above, the board of directors of the Purchaser may determine to effect an Exchange Ratio Adjustment in lieu of paying any such dividend or other distribution on the Exchangeable Shares in certain circumstances; and

c) in the event of the liquidation, dissolution or winding-up of the Purchaser or any other distribution of the assets of the Purchaser among its shareholders for the purpose of winding up its affairs, to receive from the assets of the Purchaser in respect of each Exchangeable Share held by such holder on the effective date of such liquidation, dissolution, winding-up or other distribution, before any distribution of any part of the assets of the Purchaser among the holders of the common shares of the Purchaser or any other shares ranking junior to the Exchangeable Shares an amount per share equal to:

i) the current market price of one Penn Share at such time (as adjusted for any cumulative Exchange Ratio Adjustments); plus

ii) the full amount of all dividends, payable and unpaid, at such time, on such Exchangeable Share; plus

iii) the full amount of all dividends declared and payable in respect of each Penn Share (as adjusted for any Exchange Ratio Adjustments) which have not, at such time, been paid on such Exchangeable Share or for which no Exchange Ratio Adjustment has occurred;

which will be satisfied in full by the Purchaser delivering or causing to be delivered to such holder the applicable number of Penn Shares and any applicable dividend amounts (and without any right to any of the other assets or funds of the Purchaser).

22. Holders of Exchangeable Shares will not be entitled to receive notice of or to attend any meeting of the shareholders of Penn National or to vote at any such meeting. Except as required by applicable laws and in respect of certain limited matters as further described in the Exchangeable Share Provisions, holders of Exchangeable Shares will not be entitled to receive notice of or to attend any meeting of the shareholders of the Purchaser or to vote at any such meeting. Without limiting the generality of the foregoing, the holders of the Exchangeable Shares will not be entitled to class votes except as required by applicable law.

23. The Exchangeable Shares will not be listed or posted for trading on any stock exchange, and neither Penn National nor the Purchaser have any current intention to do so.

24. Although the situation of the Purchaser is closely analogous to issuers under the exchangeable security structures that are exempted from the Continuous Disclosure Requirements pursuant to the provisions of Section 13.3 of NI 51-102, the Purchaser cannot rely on the exemption available in section 13.3 of NI 51-102 for issuers of exchangeable securities because (i) the Exchangeable Shares are not “designated exchangeable securities” as defined in NI 51-102 as none of the holders of the Exchangeable Shares will have voting rights in Penn National in their capacity as holders of Exchangeable Shares, and (ii) the Purchaser may have issued and outstanding securities (the Preferred Stock) in addition to those described in Section 13.3(2) of NI 51-102.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

a) Immediately following the Arrangement, the Purchaser does not have any securities outstanding (including debt securities), other than common shares indirectly held by Penn National, the Preferred Stock (if any), and the Exchangeable Shares, and that the Purchaser does not issue any securities, including debt securities, other than: (i) pursuant to the Arrangement; (ii) additional Exchangeable Shares that may be issued only as necessary for such shares to maintain economic equivalence with Penn Shares; and

b) Except as modified by the granting of the Exemption Sought, the Purchaser and Penn National, as applicable, will comply with section 13.3 of NI 51-102.

“Michael Balter”

Michael Balter

Manager, Corporate Finance

Ontario Securities Commission