STOCK PURCHASE AGREEMENT

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           STOCK PURCHASE AGREEMENT, dated as of July 3, 2008 (this “ Agreement ”), by and among PENN NATIONAL GAMING, INC., a Pennsylvania corporation (the “ Company ”) and the PURCHASERS NAMED IN THE ATTACHED EXHIBIT A (each, a “ Purchaser ” and collectively, the “ Purchasers ”).

           WHEREAS, the Company intends to sell to the Purchasers, and the Purchasers intend to purchase from the Company, as an investment in the Company, shares of Series B Preferred Stock of the Company (the “ Preferred Stock ”), subject to the terms and conditions set forth herein.

          NOW THEREFORE, in consideration of the mutual agreements, representations, warranties and covenants in this Agreement contained, the parties agree as follows:

          1.       Definitions . As used in this Agreement, the following terms shall have the following respective meanings:

          “ Affiliate ” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person.

          “ Board of Directors ” means the Board of Directors of the Company.

           “ Business Day ” means any day other than the days on which banks in New York, New York are required or authorized to close.

            “ Code ” means the Internal Revenue Code of 1986, as amended.

           “ Common Stock ” means the common stock of the Company, par value $0.01 per share.

            “ Company Options ” means outstanding options to acquire shares of Common Stock from the Company granted to employees of the Company under the Company Stock Plans or otherwise.

            “ Company Restricted Shares ” means each share of Common Stock granted subject to vesting or other lapse restrictions pursuant to the Company Stock Plans or any applicable restricted stock award agreements.

           “ Gaming Approvals ” means all licenses, permits, approvals, authorizations, registrations, findings of suitability, franchises, entitlements, waivers and exemptions issued by any Gaming Authority required to permit the parties to consummate the Transactions or necessary to permit Purchasers to own the Preferred Stock.

            “ Gaming Authority ” means any Governmental Authority with regulatory control or jurisdiction over casino, pari-mutuel, lottery or other gaming activities and operations.

           “ Governmental Authority ” means any nation or government or any agency, public or regulatory authority, instrumentality, department, commission, court, arbitrator, ministry,

tribunal or board of any nation or any government or political subdivision thereof, in each case, whether national, federal, tribal, provincial, state, regional, local or municipal, or any self-regulatory organization.

          “ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended.

          “ Investor Rights Agreement ” means the Investor Rights Agreement by and among the Company and the Purchasers substantially in the form attached hereto as Exhibit B .

          “ Law ” means applicable statutes, common law, rules, ordinances, regulations, codes, licensing requirements, orders, judgments, injunctions, writs, decrees, licenses, governmental guidelines or interpretations having the force of law, permits, rules and bylaws, in each case, of a Governmental Authority.

          “ Material Adverse Effect ” means a material adverse event, change, effect, development, condition or occurrence on or with respect to the business, operations or financial condition of the Company and its Subsidiaries, taken as a whole; provided , however , except (other than in clauses (A), (B), (C), (D), (H), (I) and (J) below) to the extent such changes have a materially disproportionate effect on the Company and its Subsidiaries, taken as a whole, when compared to other companies operating in the same industries in which the Company or its Subsidiaries operate, that Material Adverse Effect shall not be deemed to include any event, change, effect, development, condition or occurrence to the extent resulting from any one or more of the following: (A) changes in general economic conditions, the securities or financial markets, the gaming industry generally or in any specific jurisdiction or regulatory, legislative or other political conditions or developments; (B) public disclosure of the Transaction Agreements or of the transactions contemplated by the Transaction Agreements (the “ Transactions ”); (C) any taking of any action specifically required by the Transaction Agreements; (D) changes in Law (other than a change in Law enacted by the State of Illinois, the State of Indiana, the State of West Virginia or the Commonwealth of Pennsylvania prohibiting all gaming activities which are currently permitted therein) or GAAP, or the interpretation thereof; (E) any outbreak or escalation of hostilities or war or any act of terrorism; (F) any weather-related or other force majeure event; (G) any outbreak of illness or other public health-related event; (H) any divestiture or disposition of any assets or operations of the Company or any of its Subsidiaries which, as of the date of this Agreement, the Company and its Subsidiaries have committed to make to satisfy any Gaming Authority; (I) changes in the share price or trading volume of the Common Stock or the failure of the Company to meet projections or forecasts (unless due to a circumstance which would separately constitute a Material Adverse Effect); or (J) any litigation alleging breach of fiduciary duty or other violation of applicable Law relating to the Merger Agreement, the Merger, the Transaction Agreements or the Transactions.

          “ Merger Agreement ” means the Agreement and Plan of Merger dated June 15, 2007, by and among the Company, Parent and Merger Sub.

          “ Merger Sub ” means PNG Merger Sub Inc., a Pennsylvania corporation and a wholly owned subsidiary of Parent.

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     “ Other Statutes ” means Subchapters 25H, 25I and 25J of the Pennsylvania Business Corporation Law of 1988, as amended.

     “ Parent ” means PNG Acquisition Company Inc., a Delaware corporation.

     “ Pennsylvania Control Share Statute ” means Subchapter 25G of the Pennsylvania Business Corporation Law of 1988, as amended.

     “ Person ” means any individual, corporation, company, limited liability company, partnership, association, trust, joint venture, group or any other entity or organization, including any government or political subdivision or any agency or instrumentality thereof.

      “ Purchase Price ” means $1,250,000,000, which constitutes the aggregate amount of all Deposits and Balance Payments to be paid to the Company under Section 2.2 hereof.

     “ Rights ” has the meaning set forth in the Rights Agreement.

      “ Rights Agreement ” means that certain rights agreement, dated as of March 17, 1999, entered into by and between the Company and Continental Stock Transfer & Trust Company.

      “ Securities ” shall mean the Preferred Stock and the Common Stock or other securities issuable in respect of the Preferred Stock, upon redemption or in connection with a Business Combination (as defined in the Certificate of Designations).

      “ Securities Act ” shall mean the Securities Act of 1933, as amended, and all of the rules and regulations promulgated thereunder.

      “ Subsidiary ” means, with respect to any Person, any other Person of which the first Person owns, directly or indirectly, securities or other ownership interests having voting power to elect a majority of the board of directors or other persons performing similar functions (or, if there are no such voting interests, more than 50% of the equity interests of the second Person).

      “ Termination and Settlement Agreement ” means the Termination and Settlement Agreement, dated as of the date of this Agreement, by and among the Company, Parent, Merger Sub and the other parties thereto.

      “ Transaction Agreements ” shall mean this Agreement, the Investor Rights Agreement, the Termination and Settlement Agreement and the Escrow Agreement.

     2. Authorization, Purchase and Sale of Stock .

      2.1 Authorization, Purchase and Sale . The Company has authorized the sale and issuance to the Purchasers of the 12,500 shares of Preferred Stock. Subject to and upon the terms and conditions set forth in this Agreement, at the Closing, the Company shall issue and sell to each Purchaser, and each Purchaser, severally, shall purchase from the Company the number of shares of Preferred Stock set forth opposite the name of such Purchaser under the heading “Shares of Preferred Stock to be Purchased” on Exhibit A (the “ Investment ”). The terms, limitations and relative rights and preferences of the Preferred Stock are set forth in a Statement

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with Respect to Shares of Series B Preferred Stock of the Company in the form set forth as Exhibit C hereto, subject to such ministerial changes thereto as the counsel to the Company and the Purchasers agree to be necessary or desirable (the “ Certificate of Designations ”), which will be filed by the Company on or before the Closing Date with the Department of State of the Commonwealth of Pennsylvania.

      2.2      Purchase Price .

          (a) Prior to 12:00 noon EDT on the first Business Day after the date hereof, each Purchaser shall deliver by wire transfer of immediately available United States funds to the Company the nonrefundable cash amount set forth opposite the name of such Purchaser on Exhibit A hereto under the heading “Signing Date Payment” (collectively, the “ Deposit ”); provided , however , that if the Company has not executed and delivered to the other parties thereto the Termination and Settlement Agreement on the date hereof, the Company shall refund the full amount of the Deposit to each Purchaser in the amount set forth opposite the name of such Purchaser on Exhibit A by 3:00 p.m. on the second Business Day immediately following the date hereof.

          (b) Prior to 10:00 a.m. EDT on July 21, 2008 (the “ Balance Payment Date ”), each Purchaser shall deposit with First American Title Insurance Company (the “ Escrow Agent ”) pursuant to an escrow agreement dated as of the date hereof in substantially the form attached hereto as Exhibit D (the “ Escrow Agreement ”) the cash amount set forth opposite the name of such Purchaser on Exhibit A hereto under the heading “Balance Payment” (each, a “ Balance Payment ”).

       2.3      Closing . The closing of the purchase and sale of the Preferred Stock (the “ Closing ”) shall take place (i) at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019 or (ii) at such other place and at such date and time as the Company and the Purchasers may agree (the actual date of the Closing, the “ Closing Date ”), as soon as reasonably practicable but, in any event, no later than the third (3 ^rd ) Business Day after the day on which the last condition set forth in Section 6 is satisfied or waived (other than those conditions that by their nature cannot be satisfied until the Closing Date, but subject to the satisfaction or waiver of such conditions). At the Closing, the Company shall deliver to each Purchaser certificates representing the shares of Preferred Stock purchased by such Purchaser and the Escrow Agent shall release the Balance Payment to the Company pursuant to the terms of the Escrow Agreement.

     3.      Representations and Warranties of the Company . The Company hereby represents and warrants to each of the Purchasers as follows:

     3.1    Corporate Existence and Power . Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction, except where the failure to be in good standing has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

     3.2    Capitalization .

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      (a)      As of May 31, 2008, the authorized capital stock of the Company consists of:

      (i)      200,000,000 shares of Common Stock, of which 86,940,520 shares were issued and outstanding (including 380,000 outstanding Company Restricted Shares);

      (ii)      1,000,000 shares of preferred stock, par value $.01 per share, none of which were issued and outstanding; and

      (iii)      outstanding Company Options to purchase an aggregate of 7,173,405 shares of Common Stock, with a weighted average exercise price of $27.68 per share.

      All outstanding shares of Common Stock are duly authorized, validly issued, fully paid and non-assessable, and are not subject to and were not issued in violation of any preemptive or similar right, purchase option, call or right of first refusal or similar right, other than as provided for in the Transaction Agreements. As of May 31, 2008, 1,698,800 shares of Common Stock were held in the treasury of the Company.

              (b)      Except as set forth in Section 3.2(a) and except for 3,224,475 shares of Common Stock reserved for issuance pursuant to the Company Stock Plans and except for the Rights, as of the date of this Agreement, there have not been reserved for issuance, and there are no outstanding: (i) shares of capital stock or other voting securities of the Company; (ii) securities of the Company or any of its Subsidiaries convertible into or exchangeable for shares of capital stock or voting securities of the Company; (iii) Company Options or other rights or options to acquire from the Company, or obligations of the Company to issue, any shares of capital stock, voting securities or securities convertible into or exchangeable for shares of capital stock or voting securities of the Company; or (iv) equity equivalent interests in the ownership or earnings of the Company or other similar rights in respect of the Company (the securities described in clauses (i) through (iv) are collectively referred to as the “ Company Securities ”). There are no outstanding obligations of the Company or any Subsidiary to repurchase, redeem or otherwise acquire any Company Securities. There are no preemptive rights of any kind which obligate the Company or any of its Subsidiaries to issue or deliver any Company Securities. There are no shareholder agreements, voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party or by which it is bound relating to the voting or registration of any shares of capital stock of the Company or preemptive rights with respect thereto.

    3.3      Authorization . The Company has all requisite corporate power to enter into the Transaction Agreements and to carry out and perform its obligations under the terms of the Transaction Agreements. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization of the Preferred Stock, and the filing of the Certificate of Designations, the authorization, execution, delivery and performance of the Transaction Agreements and the consummation of the Transactions has been taken. Except for any stockholder approval that may be required to approve the issuance of Common Stock in redemption of or exchange for the Preferred Stock pursuant to the rules of Nasdaq (or, if the Common Stock is not listed or quoted on Nasdaq, the principal national or regional exchange or market on which the Common Stock is then listed or quoted), the execution, delivery and

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performance of the Transaction Agreements by the Company and the consummation of the Transactions do not require any approval of the Company’s stockholders. Assuming this Agreement constitutes the legal and binding agreement of the Purchasers, this Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or fraudulent conveyance and similar laws relating to or affecting creditors generally or by general equity principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

         3.4       Valid Issuance . The Preferred Stock being purchased by the Purchasers pursuant to this Agreement will, upon issuance pursuant to the terms of this Agreement and upon payment therefor, be duly authorized, validly issued, fully paid and non-assessable. Subject to the accuracy of the representations made by the Purchasers in Section 4, the Preferred Stock will be issued to the Purchasers in compliance with applicable exemptions from the registration and prospectus delivery requirements of the Securities Act.

          3.5       No Conflict . No material consent, approval, order or authorization of any third party that is not a Governmental Authority is required for the execution, delivery and performance of this Agreement by the Company. The execution, delivery and performance of the Transaction Agreements by the Company and the consummation of the other transactions contemplated hereby will not (i) conflict with or result in any violation of any provision of the articles of incorporation or by-laws of the Company or (ii) conflict with or violate any applicable Law, other than, in the case of (ii) above, as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

          3.6       Anti-Takeover Provisions . No “fair price,” “merger moratorium,” “control share acquisition,” or other anti-takeover or similar statute or regulation applies or purports to apply to this Agreement, the Transactions, or the issuance to the Purchasers of shares of Common Stock upon any redemption of Preferred Stock (the “ Common Stock Issuance ”), except for (i) those which have been made not applicable to this Agreement or the Transactions by valid action of