10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003
Commission file number 001-13641
PINNACLE ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
95-3667491
(IRS Employer Identification No.)
3800 Howard Hughes Parkway, Suite 1800, Las Vegas, Nevada		89109
(Address of Principal Executive Offices)		(Zip Code)
(702) 784-7777
(Registrant’s Telephone Number, Including Area Code)

          Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

YES   x NO   o

          Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES   x NO   o

          The number of outstanding shares of the registrant’s common stock, as of the close of business on May 9, 2003: 25,934,261.

PINNACLE ENTERTAINMENT, INC.

TABLE OF CONTENTS

Part I
Item 1.	Financial information
	Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002	1
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Results of Operations	19
	Liquidity and Capital Resources	21
	Other Supplemental Data	23
	Contractual Obligations and Other Commitments	24
	Factors Affecting Future Operating Results	24
	Critical Accounting Policies	25
	Recently Issued Accounting Standards	25
	Forward-Looking Statements and Risk Factors	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Control Procedures	27
Part II
Item 1.	Legal Proceedings	28
Item 6.	Exhibits and Reports on Form 8-K	29
Signatures		30

Item 1.  Financial Information

PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the three months ended March 31,
	2003			2002
	(in thousands, unaudited)
Revenues:
Gaming	$	113,508		$	105,771
Food and beverage		6,753			7,011
Truck stop and service station		4,647			3,611
Hotel and recreational vehicle park		3,121			3,150
Other income		4,063			3,962
		132,092			123,505
Expenses:
Gaming		65,168			61,537
Food and beverage		8,035			8,096
Truck stop and service station		4,325			3,322
Hotel and recreational vehicle park		2,064			2,201
Selling, general and administrative		27,866			26,598
Depreciation and amortization		11,479			11,162
Other		2,433			2,181
		121,370			115,097
Operating income		10,722			8,408
Interest income		(481	)		(634	)
Interest expense, net of capitalized interest		12,357			12,633
Loss before income taxes and cumulative effect of a change in accounting principle		(1,154	)		(3,591	)
Income tax benefit		(307	)		(1,293	)
Loss before cumulative effect of a change in accounting principle		(847	)		(2,298	)
Cumulative effect of a change in accounting principle, net of income tax benefit		0			56,704
Net loss	$	(847	)	$	(59,002	)
Loss per common share—basic and diluted
Loss before cumulative effect of a change in accounting principle	$	(0.03	)	$	(0.09	)
Cumulative effect of a change in accounting principle		0.00			(2.23	)
Net loss per common share—basic and diluted	$	(0.03	)	$	(2.32	)
Number of shares—basic and diluted		25,934			25,444

See accompanying notes to the condensed consolidated financial statements.

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PINNACLE ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2003			December 31, 2002
	(in thousands, except share data, unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	103,344		$	114,286
Restricted cash—Argentina		3,301			3,155
Receivables, net		9,247			9,857
Income tax receivable		6,064			6,364
Inventories		5,182			5,320
Prepaid expenses and other assets		13,820			16,314
Deferred income taxes		6,110			5,549
Assets held for sale		12,160			12,160
Total current assets		159,228			173,005
Restricted cash		30,100			30,100
Property, plant and equipment, net		582,895			586,083
Goodwill		19,558			19,558
Gaming licenses, net of amortization		22,113			21,944
Debt issuance costs, net of amortization		8,025			8,679
Other assets		854			1,069
	$	822,773		$	840,438
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	14,311		$	15,615
Accrued interest		6,248			17,129
Accrued compensation		15,275			17,208
Other accrued liabilities		31,339			35,515
Current portion of notes payable		2,295			2,419
Total current liabilities		69,468			87,886
Notes payable, less current maturities		490,518			491,079
Deferred income taxes		14,539			12,987
Stockholders’ Equity:
Capital stock—
Preferred—$1.00 par value, authorized 250,000 shares; none issued and outstanding in 2003 and 2002		0			0
Common—$0.10 par value, authorized 40,000,000 shares; 25,934,261 shares issued and outstanding as of March 31, 2003 and December 31, 2002		2,615			2,615
Capital in excess of par value		224,232			224,195
Accumulated other comprehensive loss		(9,911	)		(10,483	)
Retained earnings		31,312			32,159
Total stockholders’ equity		248,248			248,486
	$	822,773		$	840,438

See accompanying notes to the condensed consolidated financial statements.

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PINNACLE ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the three months ended March 31,
	2003			2002
	(in thousands, unaudited)
Cash flows from operating activities:
Net loss	$	(847	)	$	(59,002	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		11,479			11,162
Cumulative effect of a change in accounting principle		0			56,704
Other changes that provided (used) cash:
Receivables, net		610			519
Income tax receivable		300			4,200
Prepaid expenses and other assets		2,632			327
Accounts payable		(1,304	)		(5,582	)
Accrued interest		(10,881	)		(11,101	)
Accrued liabilities		(6,109	)		2,801
All other, net		2,385			281
Net cash (used in) provided by operating activities		(1,735	)		309
Cash flows from investing activities:
Restricted cash		(146	)		2,466
Additions to property, plant and equipment		(8,501	)		(10,300	)
All other, net		79			43
Net cash used in investing activities		(8,568	)		(7,791	)
Cash flows from financing activities:
Payment of notes payable		(685	)		(695	)
Net cash used in financing activities		(685	)		(695	)
Effect of exchange rate changes on cash		46			(1,460	)
Decrease in cash and cash equivalents		(10,942	)		(9,637	)
Cash and cash equivalents at beginning of period		114,286			153,187
Cash and cash equivalents at end of period	$	103,344		$	143,550
Supplemental Cash Flow Information
Cash paid during the three months for:
Interest	$	22,384		$	22,638
Income taxes received, net of income taxes paid		(832	)		(4,043	)
Non-cash currency translation rate adjustment		(572	)		5,143

See accompanying notes to condensed consolidated financial statements.

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PINNACLE ENTERTAINMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1—Organization, Basis of Presentation and Summary of Significant Accounting Policies

General   Pinnacle Entertainment, Inc. (the “Company” or “Pinnacle Entertainment”) owns and operates gaming entertainment facilities in several growing gaming markets. These include five properties in the United States, located in southeastern Indiana (“Belterra Casino Resort”); Reno, Nevada (“Boomtown Reno”); Bossier City and New Orleans, Louisiana (“Boomtown Bossier City” and “Boomtown New Orleans”, respectively); and Biloxi, Mississippi (“Casino Magic Biloxi”). In addition, the Company operates two casinos in Argentina (“Casino Magic Argentina”) and receives lease income from two card clubs and owns 97 acres of vacant land in southern California. The Company is also developing a hotel and casino resort in Lake Charles, Louisiana.

Basis of Presentation   The accompanying interim condensed consolidated financial statements have been prepared by the Company’s management in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the interim condensed consolidated financial statements presented herein reflect all adjustments of a normal and recurring nature which are considered necessary for a fair presentation of the results for the interim periods presented and all inter company accounts and transactions have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Certain prior year amounts have been reclassified to conform to the current period’s presentation, including the costs associated with the Company’s coin coupon offerings that were previously recorded as a casino expense.  The Company has reclassified the amounts as a reduction of casino revenue.  The amount totaled $3,750,000 for the three months ended March 31, 2002.

Depreciation Expense   Depreciation expense for the three months ended March 31, 2003 and 2002 was $11,386,000 and $10,953,000, respectively.

Amortization of Debt Issuance Costs   Amortization of debt issuance costs included in interest expense was $967,000 for the three months ended March 31, 2003 and 2002. Accumulated amortization as of March 31, 2003 and December 31, 2002 was $16,301,000 and $15,334,000, respectively.

Gaming Revenues and Promotional Allowances   The estimated cost of providing promotional allowances (which is included in gaming expenses) was $10,034,000 and $9,221,000 for the three months ended March 31, 2003 and 2002, respectively.

Use of Estimates   The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. Estimates used by the Company include, among other things, (i) the evaluation of the non-impairment of property, plant, equipment and other long-term assets, (ii) the evaluation of the future realization of deferred tax assets, (iii) the adequacy of reserves associated with asset sales and the Indiana regulatory settlement, and in determining litigation reserves and other obligations, and (iv) the valuation of funds held in Argentine banks. Actual results could differ from those estimates.

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Comprehensive Income   Statement of Financial Accounting Standards No. 130 “Reporting Comprehensive Income” (“SFAS No. 130”) requires that a company disclose other comprehensive income (loss) and the components of such income (loss). The Company’s only such item was the foreign currency translation adjustments reported in the accompanying financial statements. Therefore, comprehensive income (loss) was computed as follows:

	For the three months ended March 31,
	2003			2002
	(in thousands)
Net loss	$	(847	)	$	(59,002	)
Foreign currency translation income (loss)		572			(5,413	)
Comprehensive loss	$	(275	)	$	(64,415	)

Earnings per Share   Diluted earnings per share assume exercise of in-the-money stock options (those options with exercise prices at or below the weighted average market price for the periods presented) outstanding at the beginning of the year or at the date of the issuance, unless the assumed exercises are antidilutive.  There were no in-the-money stock options as of March 31, 2003.  There were 115,000 potentially dilutive in-the-money stock options as of March 31, 2002; however, as the Company incurred a net loss for the period, the effect of stock options outstanding were not included in the diluted calculation.

Statement of Financial Accounting Standards No. 145 (“SFAS No. 145”)   In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”, which the Company adopted on January 1, 2003. SFAS No. 145 did not have an impact on the Company’s financial position or results of operations as there were no such extraordinary items in the first quarter of 2003 and 2002. The most significant provisions of this statement relate to the rescission of Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt”. Under this new statement, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods that does not meet certain defined criteria must be reclassified as non-extraordinary.

Statement of Financial Accounting Standards No. 146 (“SFAS No. 146”)   In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which the Company adopted on January 1, 2003.  SFAS No. 146 did not have an impact on the Company’s financial position or results of operations. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. An entity’s commitment to a plan, by itself, does not create a liability. The provisions of this statement are required for exit or disposal activities that are initiated after December 31, 2002.

Statement of Financial Accounting Standards No. 148 (“SFAS No. 148”)   The Company accounts for its stock-based compensation under Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” and follows the disclosure provisions of SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123” issued in December 2002.  SFAS No. 148, among other things, requires disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the pro forma effect of the method used on reporting results.

In estimating the pro forma effect of stock-based compensation, the Company used an option-pricing model.  Such model requires the use of highly subjective assumptions, including the expected life of the option, the expected volatility of the underlying stock, the expected dividend on the stock, and the risk-free interest rate for the expected term of the option.

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In computing the pro forma stock-based compensation, the following assumptions were made:

	Risk- Free Interest Rate			Original Expected Life		Expected Volatility			Expected Dividends
Options granted in the following periods:
March 31, 2002		4.5	%		5 years		51.1	%		None
March 31, 2003		3.0	%		5 years		54.4	%		None

The following sets forth the pro forma financial results related to the Company’s employee stock-based compensation plans, with respect to the options’ estimated fair value, based on the Company’s stock price at the grant date:

	For the three months ended March 31,
	2003			2002
	(in thousands, except per share data)
Loss before cumulative effect of a change in accounting principle and pro forma stock-based compensation expense	$	(847	)	$	(2,298	)
Pro forma stock-based compensation expense, net of taxes		567			332
Pro forma loss before cumulative effect of a change in accounting principle		(1,414	)		(2,630	)
Cumulative effect of a change in accounting principle		0			56,704
Pro forma loss	$	(1,414	)	$	(59,334	)
Pro forma loss per common share—basic and diluted
Pro forma loss before cumulative effect of a change in accounting principle	$	(0.05	)	$	(0.10	)
Cumulative effect of a change in accounting principle		0.00			(2.23	)
Pro forma loss per share—basic	$	(0.05	)	$	(2.33	)
Number of shares—basic and diluted		25,934			25,444

Note 2—Goodwill and Intangible Assets

Goodwill   Goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in business combinations.  Pursuant to the implementation of Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”) on January 1, 2002, goodwill is no longer amortized. Instead, goodwill is subject to an annual assessment for impairment by applying a fair-value-based test, which analysis the Company completes during the third quarter of each year. 

Gaming Licenses   Boomtown Bossier City.  In connection with the acquisition of Casino Magic Corp. in 1998, a portion of the purchase price was allocated to the Bossier City gaming license, which license permits the Company to conduct the gaming operations of Boomtown Bossier City.  Pursuant to the implementation of SFAS No. 142 on January 1, 2003 and based on the classification of the gaming license as a non-amortizing intangible asset, such asset is no longer amortized. Instead, the asset is subject to an annual assessment for impairment by applying a fair-value-based test, which analysis the Company completes during the third quarter of each year.

Casino Magic Argentina. A portion of the acquisition price of Casino Magic Corp. in 1998 was allocated to a concession agreement to operate two casinos in Argentina. Such costs are being amortized, based on the straight-line method, over the extended life of the concession agreement through 2016. The original concession agreement expires in 2006, but an extension signed in 2001 extends this concession agreement through 2016, provided Casino Magic Argentina, among other things, invests in the development of new facilities and related amenities in accordance with the terms of the extension agreement. The dollar-denominated cost of such investment has been reduced significantly to approximately US$3,322,000 at March 31, 2003 as a result of the Argentine

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government’s conversion of all contracts into peso-denominated contracts in January 2002, and the subsequent devaluation of the Argentine currency. The extension also provided that the agreement would be extended an additional five years to 2021 if the Company elected to invest at least US$1,661,000 (also converted from pesos) for construction of new hotel facilities. The Company, except as described in the next paragraph, is in compliance with the provisions of the concession agreement and extension agreement.

In January 2003, the Company reached an understanding with the Province, subject to definitive documentation, to modify the conditions relating to the extension of the concession agreement to 2016 subject to construction of a new gaming and entertainment facility in the city of Neuquen, Argentina. In addition, among other things, these modifications will result in the Company receiving the 10-year extension of the agreement to 2016, provided that it makes an investment in new gaming facilities that exceeds the sum of approximately US$3,000,000 plus the net income generated by Casino Magic Argentina in 2003 through 2006. As of March 31, 2003, the Company had cash in excess of US$3,000,000 held in Argentine banks that is not needed for day-to-day operations. The Company anticipates entering into a written agreement reflecting the understanding with the Province in the 2003 second or third quarter. In accordance with the understanding with the Province, the concession agreement will be extended for an additional five years through 2021 if the Company also invests at least US$1,661,000 in new hotel facilities.

The unamortized gaming license costs related to Casino Magic Argentina as of March 31, 2003 and December 31, 2002 were $2,248,000 and $2,079,000, respectively, and amortization expense was $93,000 and $100,000 for the three months ended March 31, 2003 and 2002, respectively. Accumulated amortization was $1,509,000 and $1,257,000 at March 31, 2003 and December 31, 2002, respectively.

Summary The following summarizes the gaming licenses activities between December 31, 2002 and March 31, 2003:

	Balance as of December 31, 2002		Foreign Currency Adjustment		Amortization Expense			Balance as of March 31, 2003
	(in thousands)
Gaming Licenses:
Boomtown Bossier City non-amortizing gaming license	$	19,865	$	0	$	0		$	19,865
Casino Magic Argentina amortizing gaming license		2,079		262		(93	)		2,248
Cumulative gaming licenses	$	21,944	$	262	$	(93	)	$	22,113

Note 3—Assets Held For Sale

At March 31, 2003 and December 31, 2002, assets held for sale consisted of 97 acres of unimproved land adjacent to the Hollywood Park Race Track in Inglewood, California. In June 2002, the Company entered into an agreement for the sale of 60 acres for $36,000,000 in cash, before income taxes, to a national retail development company. The close of escrow is scheduled for the second half 2003, subject to the buyer obtaining the necessary entitlements to develop the land. In addition, the buyer has the right to extend the close of escrow under certain circumstances. The Company has also entered into an agreement to sell the remaining 37 acres for $22,200,000 in cash, before income taxes, to a regional home builder. The close of this escrow is scheduled for the second half of 2003, again subject to the buyer obtaining the necessary entitlements to develop the land. The approximate book value of the 97 acres of real property as of March 31, 2003 and December 31, 2002 was $12,160,000.

Note 4—Expansion and Development

Lake Charles Project   The Company plans to build a destination resort that will include approximately 700 guestrooms (including suites), approximately 28,000 square feet of meeting space, five restaurants serving regional cuisine, a championship golf course, an expansive outdoor pool area, retail shops and a full-service spa.

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The dockside casino riverboat will be on one level, surrounded on three sides by the hotel and restaurant. The casino is expected to have more than 1,500 slot machines and 60 table games.

Issuance of the gaming license is subject to continued compliance with certain conditions finalized with the Louisiana Gaming Control Board in November 2001.  In March 2003, the Company submitted the required major construction contracts to the Louisiana Gaming Control Board.  Remaining conditions include, but are not limited to: (i) demonstrating the availability of the financial resources to commence the project within 10 days of the Louisiana Gaming Control Board's approval of the construction contracts (to consist in part of the proposed bank credit facility discussed in note 5 below); (ii) beginning construction within 30 days of the Louisiana Gaming Control Board’s approval of the construction contracts (subject to customary permitting and U.S. Army Corp of Engineer approval); (iii) completing the project within 18 months of beginning construction; and (iv) other construction milestone dates.  The Company believes the necessary approvals required to commence construction will be obtained in the second quarter of 2003. However, there are no assurances that the Company will be successful in obtaining all necessary approvals, or continue to satisfy the conditions. In the event the Company does not meet all of the conditions, the Louisiana Gaming Control Board may retract their selection of the Company for the fifteenth and final gaming license that can be issued under current law in Louisiana.

All costs incurred by the Company related to obtaining this license have been expensed as incurred.

Belterra   In February 2003, the Company broke ground on a $37,000,000 expansion project at the Belterra Casino Resort that will add 300 guestrooms, for a total of 608, and will also give the property approximately 33,000 square feet of meeting and conference space, a year-round swimming pool and other amenities.  Construction is proceeding on schedule for completion in the first half of 2004. The Company does not anticipate significant construction disruption to its existing operations.

Note 5—Secured and Unsecured Notes Payable

Notes payable at March 31, 2003 and December 31, 2002 consisted of the following:

	March 31, 2003		December 31, 2002
	(unaudited - in thousands)
Secured notes payable, Credit Facility	$	0	$	0
Unsecured 9.25% Notes		350,000		350,000
Unsecured 9.5% Notes		125,000		125,000
Hollywood Park-Casino debt obligation		16,347		16,866
Other secured notes payable		1,316		1,482
Other unsecured notes payable		150		150
		492,813		493,498
Less current maturities		2,295		2,419
	$	490,518	$	491,079

Secured Credit Facility  On March 2, 2003, two major banks agreed to lead syndication efforts for a $225,000,000 amended and restated bank credit facility, comprised of a $100,000,000 reducing revolver and a $125,000,000 term loan (the "Proposed Credit Facility"). The Company anticipates finalizing the Proposed Credit Facility by the end of May 2003 in the amount of $235,000,000 due to oversubscription of the revolver facility. The Proposed Credit Facility would mature in August 2006, which maturity date can be extended under certain circumstances. The Proposed Credit Facility would be used to finance the construction and opening of the Lake Charles casino resort, the 300-guestroom tower expansion at Belterra Casino Resort and general corporate purposes. Availability under the Proposed Credit Facility would be significantly limited until the Company deposits $40,000,000 of minimum cash proceeds from asset sales or equity capital raising efforts into a completion reserve account. The Company expects the source of these cash proceeds to be the two pending sales of unimproved land adjacent to the Hollywood Park Race Track (aggregating $58,200,000 - see Note 3). Among other alternatives, the Company could sell some or all of its surplus land in Reno, St. Louis or elsewhere, although the Company cannot ensure that it will be able to do so on a timely basis or on favorable terms. In the event that such $40,000,000 in cash proceeds is not deposited by June 30, 2004, the unfunded revolving credit commitment would be cancelled and the Proposed Credit Facility would mature on

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September 30, 2004. Additionally, availability under the Proposed Credit Facility would be significantly limited until the Company shall have demonstrated that it has, during the period following September 30, 2002, expended not less than $90,000,000 of its excess cash to finance the Lake Charles project and the Belterra tower expansion (and, subject to certain limitations, other enhancements to the Company's properties) as well as transactional expenses associated with the Proposed Credit Facility.

The Proposed Credit Facility would have, among other things, restrictive financial covenants and capital spending limits, would be secured by all the assets of the Company (other than the Argentine subsidiaries) and require the Company to demonstrate sufficient liquidity to complete the Lake Charles project. Interest rates on borrowings under the Proposed Credit Facility would be based on customary financial ratios tied to the LIBOR or the Prime Rate. The Company would also pay a quarterly commitment fee on the unused balance of the Proposed Credit Facility. The Proposed Credit Facility would allow for interest rate swap agreements or other interest rate protection agreements. Presently, the Company does not use such financial instruments.

The Company maintains a $103,333,000 bank credit facility, which facility has scheduled commitment reductions and has remained unused since February 1999. This facility is scheduled to mature in December 2003, if not replaced by the Proposed Credit Facility.

Note 6—Commitments and Contingencies

Employment Contracts   During the three months ended March 31, 2003, the Company entered into a five-year employment agreement with its newly retained Chief Financial Officer and a four-year employment agreement with its Chief Operating Officer, as well as various other employment contracts that range in term from two to four years. These agreements, as well as the existing employment agreements with the Company’s Chief Executive Officer, General Counsel and other key employees, in general grant the employee the right to receive his or her annual salary for up to the balance of the employment agreement, plus extension of certain benefits and the immediate vesting of stock options, if the employee terminates his or her employment for good reason or the Company terminates the employee without cause (both as defined in the respective agreements). Upon certain events (including the employee's termination of his or her employment after a diminution of his or her responsibilities or after the Company's failure to pay a minimum bonus, or the Company's termination of the employee) (each a "Severance Trigger") following a change in control (as defined in the various agreements), the employee is entitled to (i) a lump-sum payment equal to two times the largest annual salary and incentive compensation that was paid to the employee during the two years preceding the change in control (or in the case of the Chief Executive Officer, Chief Financial Officer and General Counsel, a lump sum payment equal to their annual salary through the end of the term, or if the balance of the contract is less than one year, for one year), (ii) the extension of certain benefits for at least one year after termination, and (iii) the immediate vesting of the employee’s stock options. In the case of the CEO, he may terminate his employment following a change of control and receive such payments, benefits and option vesting without the requirement that there be a subsequent Severance Trigger.  The aggregate amount to be paid to this group of employees in the event of a change in control and subsequent severance trigger is approximately $13,036,000.

Construction Commitments   As described in Note 4, the Company is in the early stages of developing and building projects in Louisiana and Indiana. The total costs of such projects are estimated to be $362,000,000, inclusive of capitalized interest and pre-opening costs. At March 31, 2003, the Company had expended approximately $9,316,000 of this amount and had entered into agreements related to design, development and construction for approximately $39,745,000 ($9,065,000 of which was expended through March 31, 2003).  The Company has set aside $22,500,000 for the benefit of the Lake Charles project and deposited $5,000,000 into an escrow account for the benefit of the Belterra project, and classified such amounts as “Restricted Cash” on the Condensed Consolidated Balance Sheets at March 31, 2003 and December 31, 2002.

Legal   Astoria Entertainment Litigation    In November 1998, Astoria Entertainment, Inc. filed a complaint in the United States District Court for the Eastern District of Louisiana. Astoria, an unsuccessful applicant for a license to operate a riverboat casino in Louisiana, attempted to assert a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), seeking damages allegedly resulting from its failure to obtain a license. Astoria named several companies and individuals as defendants, including Hollywood Park, Inc. (the predecessor to Pinnacle Entertainment), Louisiana Gaming Enterprises, Inc. (“LGE”), a wholly-owned subsidiary of Pinnacle Entertainment, and an employee of Boomtown, Inc. The Company believed the RICO claim against it had no merit and, indeed, Astoria voluntarily dismissed its RICO claim against Hollywood Park, LGE, and the Boomtown employee.

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On March 1, 2001, Astoria amended its complaint. Astoria’s amended complaint added new legal claims, and named Boomtown, Inc. and LGE as defendants. Astoria claims that the defendants (i) conspired to corrupt the process for awarding licenses to operate riverboat casinos in Louisiana, (ii) succeeded in corrupting the process, (iii) violated federal and Louisiana antitrust laws, and (iv) violated the Louisiana Unfair Trade Practices Act. The amended complaint asserts that Astoria would have obtained a license to operate a riverboat casino in Louisiana, but for these alleged improper acts. On August 21, 2001, the court dismissed Astoria’s federal claims with prejudice and its state claims without prejudice. On September 21, 2001, Astoria appealed those dismissals to the U.S. Court of Appeals for the Fifth Circuit. On October 3, 2001, Boomtown, Inc. and LGE filed a cross-appeal on the grounds that the state claims should have been dismissed with prejudice. Astoria subsequently voluntarily dismissed its appeal. In May 2002, Astoria refiled its state claims in the Civil District Court for the Parish of Orleans, Louisiana. On January 7, 2003, the Fifth Circuit Court of Appeals affirmed the lower court’s dismissal of plaintiff’s state law claims without prejudice. While the Company cannot predict the outcome of this litigation, management intends to defend it vigorously.

Poulos Lawsuit   A class action lawsuit was filed on April 26, 1994, in the United States District Court, Middle District of Florida (the “Poulos Lawsuit”), naming as defendants 41 manufacturers, distributors and casino operators of video poker and electronic slot machines, including Casino Magic. The lawsuit alleges that the defendants have engaged in a course of fraudulent and misleading conduct intended to induce people to play such games based on false beliefs concerning the operation of the gaming machines and the extent to which there is an opportunity to win. The suit alleges violations of RICO, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks damages in excess of $6 billion. On May 10, 1994, a second class action lawsuit was filed in the United States District Court, Middle District of Florida (the “Ahern Lawsuit”), naming as defendants the same defendants who were named in the Poulos Lawsuit and adding as defendants the owners of certain casino operations in Puerto Rico and the Bahamas, who were not named as defendants in the Poulos Lawsuit. The claims in the Ahern Lawsuit are identical to the claims in the Poulos Lawsuit. Because of the similarity of parties and claims, the Poulos Lawsuit and Ahern Lawsuit were consolidated into one case file (the “Poulos/Ahern Lawsuit”) in the United States District Court, Middle District of Florida. On December 9, 1994 a motion by the defendants for change of venue was granted, transferring the case to the United States District Court for the District of Nevada, in Las Vegas. In an order dated April 17, 1996, the court granted motions to dismiss filed by Casino Magic and other defendants and dismissed the complaint without prejudice. The plaintiffs then filed an amended complaint on May 31, 1996 seeking damages against Casino Magic and other defendants in excess of $1 billion and punitive damages for violations of RICO and for state common law claims for fraud, unjust enrichment and negligent misrepresentation.

At a December 13, 1996 status conference, the Poulos/Ahern Lawsuit was consolidated with two other class action lawsuits (one on behalf of a smaller, more defined class of plaintiffs and one against additional defendants) involving allegations substantially identical to those in the Poulos/Ahern Lawsuit (collectively, the “Consolidated Lawsuits”) and all pending motions in the Consolidated Lawsuits were deemed withdrawn without prejudice. The plaintiffs in the Consolidated Lawsuits filed a consolidated amended complaint on February 14, 1997, which the defendants moved to dismiss. On December 19, 1997, the court granted the defendants’ motion to dismiss certain allegations in the RICO claim, but denied the motion as to the remainder of such claim; granted the defendants’ motion to strike certain parts of the consolidated amended complaint; denied the defendants’ remaining motions to dismiss and to stay or abstain; and permitted the plaintiffs to substitute one of the class representatives. On January 9, 1998, the plaintiffs filed a second consolidated amended complaint containing claims nearly identical to those in the previously dismissed complaints. The defendants answered, denying the substantive allegations of the second consolidated amended complaint. On June 21, 2002, the court denied plaintiffs’ motion for class certification. On July 11, 2002, the plaintiffs’ filed a petition for permission to appeal the court’s denial of the plaintiffs’ motion for class certification. On August 15, 2002, the United States Court of Appeals for the Ninth Circuit granted plaintiffs’ petition. On August 23, 2002, the plaintiffs filed their notice of appeal with the U.S. District Court for the District of Nevada.   On or about April 30, 2003, the plaintiffs filed their opening brief on appeal.  Defendants’ answering brief is due to be filed by July 31, 2003.

10

The claims are not covered under the Company’s insurance policies. While the Company cannot predict the outcome of this action, management intends to defend it vigorously.

Casino Magic Biloxi Patron Incident   On January 13, 2001, three Casino Magic Biloxi patrons sustained injuries as a result of an assault by another Casino Magic Biloxi patron, who then killed himself. Several other patrons sustained injuries while attempting to exit the casino. On August 1, 2001, two of the casino patrons injured during the January 13, 2001 incident filed a complaint in the Circuit Court of Harrison County, Mississippi, Second Judicial District. The complaint alleges that Biloxi Casino Corp. failed to exercise reasonable care to keep its patrons safe from foreseeable criminal acts of third persons and seeks unspecified compensatory and punitive damages. The plaintiffs filed an amended complaint on August 17, 2001. The amended complaint added an allegation that Biloxi Casino Corp. violated a Mississippi statute by serving alcoholic beverages to the perpetrator who was allegedly visibly intoxicated and that Biloxi Casino Corp.’s violation of the statute was the proximate cause of or contributing cause to plaintiffs’ injuries. On March 20, 2002, the third injured victim filed a complaint in the Circuit Court of Harrison County, Mississippi, Second Judicial District. The allegations in the complaint are substantially similar to those contained in the August 1, 2001 lawsuit. The trial for the August 1, 2001 lawsuit has been set for July 21, 2003. No trial date has been set for the subsequent suit. While the Company cannot predict the outcome of these actions, the Company, together with its applicable insurers, intends to defend them vigorously.

Actions by Greek Authorities   In 1995, a subsidiary of Casino Magic Corp., Casino Magic Europe B.V. (“CME”), performed management services for Porto Carras Casino, S.A. (“PCC”), a joint venture in which CME had a minority interest. Effective December 31, 1995, CME, with the approval of PCC, assigned its interests and obligations under the PCC management agreement to a Greek subsidiary, Casino Magic Hellas S.A. (“Hellas”). Hellas issued invoices to PCC for management fees that accrued during 1995, but had not been billed by CME.

In September 1996, local Greek tax authorities in Thessaloniki assessed a penalty of approximately $3.5 million against Hellas, and an equal amount against PCC, arising out of the presentation and payment of the invoices. The Thessaloniki tax authorities asserted that the Hellas invoices were fictitious, representing an effort to reduce the taxable income of PCC.

PCC and Hellas each appealed their respective assessments. The assessment of the fine against PCC was overturned by the Administrative Court of Thessaloniki on December 11, 2000. The court determined that the actions taken by Hellas and PCC were not fictitious but constituted a legitimate business transaction and accordingly overturned the assessment of the fine. Hellas’s appeal was dismissed for technical procedural failures and has not been reinstated; presumably, however, the rationale of the court in the PCC fine matter would apply equally to the Hellas fine matter.

During the first quarter of 2001, the Greek taxing authorities appealed the December 11, 2000 decision by the Administrative Court of Thessaloniki overturning the assessment of the fine against PCC. On March 31, 2003, the Administrative Court of Appeals affirmed the Administrative Court of Thessaloniki’s decision.  It is unknown whether the taxing authorities will appeal such ruling.

Under Greek law, shareholders are not liable for the liabilities of a Greek company in which they hold shares, even if the entity is later liquidated or dissolved, and assessments such as the PCC and Hellas fines generally are treated as liabilities of the company. Additionally, all of PCC’s stock was sold to an unrelated company in December of 1996, and the buyer assumed all of PCC’s liabilities. Therefore, management does not expect that this matter will have a materially adverse effect on the financial condition or results of operations of the Company.

In June 2000, Greek authorities issued a warrant to appear at a September 29, 2000 criminal proceeding to Marlin Torguson (a member of the Company’s board of directors and Chairman of the Board of CME in 1995) and Robert Callaway (former Associate General Counsel for the Company and, prior to its acquisition by the Company, CME’s General Counsel). They were charged under Greek law, and convicted inabsentia, as being culpable criminally for corporate misconduct based solely on their status as alleged executive board members of

11

PCC. The Company is advised that they are not, and have never been, managing (active) executive directors of PCC. Accordingly, the Company believes that they were improperly named in the proceedings. The defendants have a right of appeal for a de novo trial under Greek law.

On March 30, 2001, appeals on behalf of Messrs. Torguson and Callaway were filed. The hearing before the three-member Court of Misdemeanors of Thessaloniki was held on April 10, 2003. At the conclusion of the hearing, the court ruled in favor of Messrs. Torguson and Callaway and overturned their criminal convictions.  At this time, it is unknown whether the government will appeal such ruling. 

Shareholder Derivative Action   On December 13, 2002, William T. Kelsey, an individual shareholder of the Company, filed a derivative lawsuit purportedly on behalf of the Company against the Company’s former Chairman R.D. Hubbard, former CEO Paul R. Alanis, Chairman and CEO Daniel R. Lee, various other current and former directors of the Company, and against the Company itself as a nominal defendant. The lawsuit, brought in California Superior Court in Los Angeles County, alleges, among other things, breaches of fiduciary duty, negligence, mismangement and violations of the RICO Act by the defendants in connection with the events surrounding a golf tournament held at the Company’s Belterra Casino Resort in June 2001. The complaint alleges that the Company is entitled to recover unspecified damages in excess of $10 million, plus exemplary, punitive and treble damages and the plaintiff’s fees and costs. The Company has empowered a Special Committee of two independent directors to perform an investigation and determine whether pursuit of this derivative lawsuit is in the best interests of the Company and its shareholders. The Court has entered a stay of the litigation until June 8, 2003 to allow the directors to conduct a good faith investigation in this respect.

Alanis Suit   On or about December 3, 2002, Paul Alanis filed a lawsuit against the Company, R. D. Hubbard and Daniel R. Lee, claiming, among other things, wrongful termination and defamation. He seeks unspecified compensatory and punitive damages. On February 11, 2003, the court granted the Company’s motion to send the matter to arbitration, with the exception of the defamation claims against Mr. Lee, and stayed the entire action pending such arbitration. While the outcome of this action cannot be predicted, the Company and Mr. Lee intend to defend it vigorously.

New Hampshire Insurance Company Lawsuit   On July 31, 2000, a collision occurred between the M/V Miss Belterra and the M/V Elizabeth Ann riverboats. On or about August 15, 2002, New Hampshire Insurance Company filed suit against the Company in the U.S. District Court, District of California alleging, among other things, that New Hampshire Insurance Company overpaid the Company in excess of $2 million dollars, on the Company’s business interruption claim arising out of the collision. The plaintiff is seeking restitution of the sums that it has allegedly overpaid the Company, a judicial declaration of the amount, if any, that it has overpaid the Company, a judicial declaration of the rights and duties of the parties and costs of suit. On October 4, 2002, the Company filed an answer, counterclaim and request for jury trial setting claim, among other things, that the plaintiff’s payments to the Company fall short of its obligation by at least $1.75 million, that plaintiff breached its insurance contract, that plaintiff has acted in bad faith and seeking a judicial determination of the respective rights and duties of the parties. The Company has also requested attorneys’ fees, costs of suit and interest. While the Company cannot predict the outcome of this action, it intends to defend it vigorously and pursue its counterclaims.

Other   The Company is party to a number of other pending legal proceedings, though management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on the Company’s financial results.

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Note 7—Consolidating Condensed Financial Information

The Company’s subsidiaries (excluding Casino Magic Argentina and certain non-material subsidiaries) have fully and unconditionally guaranteed the payment of all obligations under the 9.25% Notes and the 9.5% Notes. Separate financial statements and other disclosures regarding the subsidiary guarantors are not included herein because management has determined that such information is not material to investors. In lieu thereof, the Company includes the following:

	Pinnacle Entertainment, Inc.			Wholly Owned Guarantor Subsidiaries(a)			Wholly Owned Non- Guarantor Subsidiaries(b)			Consolidating and Eliminating Entries			Pinnacle Entertainment, Inc. Consolidated
	(in thousands)
As of and for the three months ended March 31, 2003
Balance Sheet
Current assets	$	87,999		$	66,205		$	5,024		$	0		$	159,228
Property, plant and equipment, net		19,451			562,304			1,140			0			582,895
Other non-current assets		38,125			29,426			2,248			10,851			80,650
Investment in subsidiaries		523,626			(129	)		0			(523,497	)		0
Inter-company		172,354			61,386			0			(233,740	)		0
	$	841,555		$	719,192		$	8,412		$	(746,386	)	$	822,773
Current liabilities	$	21,631			45,048		$	2,789		$	0		$	69,468
Notes payable, long term		489,297			1,221			0			0			490,518
Other non-current liabilities		26,745			0			0			(12,206	)		14,539
Inter-company		55,634			172,354			5,752			(233,740	)		0
Equity		248,248			500,569			(129	)		(500,440	)		248,248
	$	841,555		$	719,192		$	8,412		$	(746,386	)	$	822,773
Statement of Operations
Revenues:
Gaming	$	0		$	111,274		$	2,234		$	0		$	113,508
Food and beverage		0			6,589			164			0			6,753
Equity in subsidiaries		10,176			227			0			(10,403	)		0
Other		1,500			10,321			10			0			11,831
		11,676			128,411			2,408			(10,403	)		132,092
Expenses:
Gaming		0			64,558			610			0			65,168
Food and beverage		0			7,881			154			0			8,035
Administrative and other		4,524			31,134			1,030			0			36,688
Depreciation and Amortization		595			10,733			151			0			11,479
		5,119			114,306			1,945			0			121,370
Operating income		6,557			14,105			463			(10,403	)		10,722
Interest expense (income), net		12,058			(181	)		(1	)		0			11,876
(Loss) income before inter-company activity and income taxes		(5,501	)		14,286			464			(10,403	)		(1,154	)
Management fee & inter-company interest expense (income)		(4,110	)		4,110			0			0			0
Income tax (benefit) expense		(544	)		0			237			0			(307	)
Net (loss) income	$	(847	)	$	10,176		$	227		$	(10,403	)	$	(847	)
Statement of Cash Flows
Net cash provided by (used in) operating activities	$	(12,814	)	$	10,211		$	868		$	0		$	(1,735	)
Net cash provided by (used in) investing activities		(346	)		(7,840	)		(382	)		0			(8,568	)
Net cash provided by (used in) financing activities		(520	)		(165	)		0			0			(685	)
Effect of exchange rate changes		0			0			46			0			46

13

	Pinnacle Entertainment, Inc.			Wholly Owned Guarantor Subsidiaries(a)			Wholly Owned Non- Guarantor Subsidiaries(b)			Consolidating and Eliminating Entries		Pinnacle Entertainment, Inc. Consolidated
	(in thousands)
For the three months ended March 31, 2002
Statement of Operations
Revenues:
Gaming	$	0		$	103,888		$	1,883		$	0	$	105,771
Food and beverage		0			6,858			153			0		7,011
Equity in subsidiaries		(16,063	)		422			0			15,641		0
Other		1,500			9,209			14			0		10,723
		(14,563	)		120,377			2,050			15,641		123,505
Expenses:
Gaming		0			60,846			582			0		61,428
Food and beverage		0			7,957			139			0		8,096
Administrative and other		4,539			29,921			(49	)		0		34,411
Depreciation and Amortization		604			10,382			176			0		11,162
		5,143			109,106			848			0		115,097
Operating (loss) income		(19,706	)		11,271			1,202			15,641		8,408
Interest expense (income), net		11,994			10			(5	)		0		11,999
(Loss) income before inter-company activity and income taxes		(31,700	)		11,261			1,207			15,641		(3,591	)
Management fee & inter-company interest expense (income)		(4,843	)		4,843			0			0		0
Income tax (benefit) expense		(2,078	)		0			785			0		(1,293	)
(Loss) income before cumulative effect of a change in accounting principle		(24,779	)		6,418			422			15,641		(2,298	)
Cumulative effect of a change in accounting principle		34,223			22,481			0			0		56,704
Net (loss) income	$	(59,002	)	$	(16,063	)	$	422		$	15,641	$	(59,002	)
Statement of Cash Flows
Net cash provided by (used in) operating activities	$	(5,028	)	$	4,590		$	747		$	0	$	309
Net cash provided by (used in) investing activities		902			(10,200	)		1,507			0		(7,791	)
Net cash provided by (used in) financing activities		(466	)		(229	)		0			0		(695	)
Effect of exchange rate changes		0			0			(1,460	)		0		(1,460	)

14

PINNACLE ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Pinnacle Entertainment,  Inc.		Wholly Owned Guarantor Subsidiaries(a)			Wholly Owned Non- Guarantor Subsidiaries(b)			Consolidating and Eliminating Entries			Pinnacle Entertainment, Inc. Consolidated
	(in thousands)
As of December 31, 2002
Balance Sheet
Current assets	$	101,865	$	67,116		$	4,024		$	0		$	173,005
Property, plant and equipment, net		22,850		562,233			1,000			0			586,083
Other non-current assets		38,779		29,642			2,078			10,851			81,350
Investment in subsidiaries		512,877		(927	)		0			(511,950	)		0
Inter-company		171,028		52,159			0			(223,187	)		0
	$	847,399	$	710,223		$	7,102		$	(724,286	)	$	840,438
Current liabilities	$	37,652	$	48,142		$	2,092		$	0		$	87,886
Notes payable, long term		489,846		1,233			0			0			491,079
Other non-current liabilities		25,193		0			0			(12,206	)		12,987
Inter-company		46,222		171,028			5,937			(223,187	)		0
Equity		248,486		489,820			(927	)		(488,893	)		248,486
	$	847,399	$	710,223		$	7,102		$	(724,286	)	$	840,438

(a)

The following subsidiaries are treated as guarantors of both the 9.5% Notes and 9.25% Notes: Belterra Resort Indiana LLC, Boomtown, Inc., Boomtown Hotel & Casino, Inc., Louisiana—I Gaming, Louisiana Gaming Enterprises, Inc., Casino Magic Corp., Biloxi Casino Corp., PNK (Bossier City), Inc., Casino One Corporation, Casino Parking, Inc., St. Louis Casino Corp., HP/Compton, Inc. and Crystal Park Hotel and Casino Development Company, LLC.

(b)

The Company’s only material non-guarantor of both the 9.5% Notes and the 9.25% Notes is Casino Magic Neuquen S.A. and its subsidiary Casino Magic Support Services.

Note 8—Segment Information

The following table reconciles the Company’s segment activity to its consolidated results of operations for the three months ended March 31, 2003 and 2002 and financial position as of March 31, 2003 and December 31, 2002.

	For the three months ended March 31,
	2003		2002
	(in thousands)
Revenues and expenses
Boomtown New Orleans
Revenues	$	26,858	$	25,791
Expenses, excluding depreciation and amortization		19,406		18,794
Depreciation and amortization		1,629		1,553
Net operating income—Boomtown New Orleans	$	5,823	$	5,444
Boomtown Bossier City
Revenues	$	28,747	$	26,254
Expenses, excluding depreciation and amortization		23,689		21,800
Depreciation and amortization		1,953		1,927
Net operating income—Boomtown Bossier City	$	3,105	$	2,527

15

	For the three months ended March 31,
	2003			2002
	(in thousands)
Belterra Casino Resort
Revenues	$	31,080		$	27,580
Expenses, excluding depreciation and amortization		26,296			25,197
Depreciation and amortization		3,341			3,242
Net operating income (loss)—Belterra Casino Resort	$	1,443		$	(859	)
Casino Magic Biloxi
Revenues	$	21,952		$	21,896
Expenses, excluding depreciation and amortization		17,305			16,695
Depreciation and amortization		1,934			1,860
Net operating income—Casino Magic Biloxi	$	2,713		$	3,341
Boomtown Reno
Revenues	$	19,487		$	18,374
Expenses, excluding depreciation, and amortization		16,814			16,004
Depreciation and amortization		1,776			1,800
Net operating income—Boomtown Reno	$	897		$	570
Casino Magic Argentina
Revenues	$	2,408		$	2,050
Expenses, excluding depreciation and amortization		1,794			1,822
Depreciation and amortization		151			176
Net operating income—Casino Magic Argentina	$	463		$	52
Card Clubs
Revenues	$	1,560		$	1,560
Expenses, excluding depreciation and amortization		63			87
Depreciation and amortization		677			576
Net operating income—Card Clubs	$	820		$	897
Total Reportable Segments
Revenues	$	132,092		$	123,505
Expenses, excluding depreciation and amortization		105,367			100,399
Depreciation and amortization		11,461			11,134
Net operating income—Total Reportable Segments	$	15,264		$	11,972
Reconciliation to Consolidated Net Loss
Total net operating income for reportable segments	$	15,264		$	11,972
Unallocated income and expenses
Corporate		4,542			3,564
Interest income		(481	)		(634	)
Interest expense, net of capitalized interest		12,357			12,633
Loss before income taxes and cumulative effect of a change in accounting principle		(1,154	)		(3,591	)
Income tax benefit		(307	)		(1,293	)
Loss before cumulative effect of a change in accounting principle		(847	)		(2,298	)
Cumulative effect of a change in accounting principle, net of taxes		0			56,704
Net loss	$	(847	)	$	(59,002	)

16

	For the three months ended March 31,
	2003			2002
	(in thousands)
EBITDA(a)
Boomtown New Orleans	$	7,452		$	6,997
Boomtown Bossier City		5,058			4,454
Belterra Casino Resort		4,784			2,383
Casino Magic Biloxi		4,647			5,201
Boomtown Reno		2,673			2,370
Casino Magic Argentina		614			228
Card Clubs		1,497			1,473
Corporate		(4,524	)		(3,536	)
	$	22,201		$	19,570

(a) The Company defines EBITDA as earnings before net interest expense, provision for income taxes, depreciation, amortization and cumulative effect of a change in accounting principle.  EBITDA is presented solely as a supplemental disclosure as management believes it to be a relevant and useful measure to compare operating results among its properties. Additionally, management believes some investors, as well as the Company’s lenders, consider EBITDA to be a useful measure in determining a company’s ability to service or incur indebtedness and for estimating a company’s underlying cash flow from operations before capital costs, taxes and capital expenditures.  However, EBITDA is not a measure of financial performance under the promulgations of the accounting industry known as “generally accepted accounting principles”, or “GAAP.”  EBITDA should not be considered in isolation from, or as a substitute for, net income (loss), operating income (loss) or cash flow from operations determined in accordance with GAAP.  Finally, EBITDA is not calculated in the same manner by all companies and accordingly, may not be an appropriate measure for comparing performance amongst different companies.  The following table is a reconciliation of net loss to EBITDA:

	For the three months ended March 31,
	2003			2002
	(in thousands)
Net loss	$	(847	)	$	(59,002	)
Cumulative effect of a change in accounting principle		0			56,704
Loss before cumulative effect of a change in accounting principle		(847	)		(2,298	)
Income tax benefit		(307	)		(1,293	)
Loss before cumulative effect of a change in accounting principle and income taxes		(1,154	)		(3,591	)
Interest expense, net of capitalized interest and interest income		11,876			11,999
Operating income		10,722			8,408
Depreciation and amortization		11,479			11,162
EBITDA	$	22,201		$	19,570

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	March 31, 2003		December 31, 2002
	(in thousands)
Total Assets
Boomtown New Orleans	$	81,373	$	82,010
Boomtown Bossier City		131,654		133,822
Belterra Casino Resort		220,565		221,979
Casino Magic Biloxi		102,211		103,814
Boomtown Reno		93,222		90,159
Casino Magic Argentina		8,412		7,102
Card Clubs		6,009		6,100
Corporate		179,327		195,452
Total Reportable Segments and Corporate	$	822,773	$	840,438

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and the notes thereto and other financial information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, and other filings with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

The following table highlights the Company’s results of operations for the three months ended March 31, 2003 and 2002.  

	For the three months ended March 31,
	2003			2002
	(in thousands)
Revenues
Boomtown New Orleans	$	26,858		$	25,791
Boomtown Bossier City		28,747			26,254
Belterra Casino Resort		31,080			27,580
Casino Magic Biloxi		21,952			21,896
Boomtown Reno		19,487			18,374
Casino Magic Argentina		2,408			2,050
Card Clubs		1,560			1,560
Revenues	$	132,092		$	123,505
Operating income (loss)
Boomtown New Orleans	$	5,823		$	5,444
Boomtown Bossier City		3,105			2,527
Belterra Casino Resort		1,443			(859	)
Casino Magic Biloxi		2,713			3,341
Boomtown Reno		897			570
Casino Magic Argentina		463			52
Card Clubs		820			897
Corporate		(4,542	)		(3,564	)
Operating income	$	10,722		$	8,408
Revenue by Property as% of Total Revenue
Boomtown New Orleans		20.3	%		20.8	%
Boomtown Bossier City		21.8	%		21.3	%
Belterra Casino Resort		23.5	%		22.3	%
Casino Magic Biloxi		16.6	%		17.7	%
Boomtown Reno		14.8	%		14.9	%
Casino Magic Argentina		1.8	%		1.7	%
Card Clubs		1.2	%		1.3	%
		100.0	%		100.0	%
Operating margins(a)
Boomtown New Orleans		21.7	%		21.1	%
Boomtown Bossier City		10.8	%		9.6	%
Belterra Casino Resort		4.6	%		(3.1	)%
Casino Magic Biloxi		12.4	%		15.3	%
Boomtown Reno		4.6	%		3.1	%
Casino Magic Argentina		19.2	%		2.5	%
Card Clubs		52.6	%		57.5	%

(a)   Operating margin by property is calculated by dividing operating income (loss) by revenue by location.

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Comparisons of the Three Months Ended March 31, 2003 and  2002

Operating Results   Revenues grew by 7.0%, or $8,587,000, in the 2003 first quarter versus the 2002 first quarter, with each of the five key properties increasing revenues over the prior year quarter.  Operating income also climbed for the quarter, increasing by 27.5%, or $2,314,000, with four of the five properties posting improved operating margins. Each property’s contribution to these results is as follows:

The Company’s Boomtown New Orleans property continues to produce consistent results. Revenues improved by $1,067,000, or 4.1%, and operating income grew by $379,000, or 7.0%, for the three months ended March 31, 2003 compared to the three months ended March 31, 2002.  For the first quarter 2003, the property increased its gaming market share to 19.4% from 18.5% in the prior year first quarter (Source: Louisiana Gaming Commission website), led by slot revenue that grew 6.6% in the quarter.  Offsetting the revenue growth were increased gaming taxes of approximately $530,000 on the increased gaming revenue and a loss on the disposition of assets of approximately $210,000. 

At Boomtown Bossier City, results for the 2003 first quarter reflect the benefit of the $24,000,000 re-branding and renovation project that was completed in the fourth quarter of 2002, as revenues improved $2,493,000, or 9.5%.  Slot coin-in increased by over 11%, which translated into an increase in slot revenue of approximately $2,144,000.  The remaining revenue growth came from additional food venues open in the 2003 first quarter, as compared to the prior-year first quarter that had a number of outlets closed for the renovation project.  For the quarter, operating income grew by $578,000, or 22.9%, with gaming taxes and complimentary costs offsetting some of the revenue increase.

For the Company’s Belterra Casino Resort, the 2003 first quarter marks the fifth consecutive quarter versus prior-year-quarter improvement for the property, as revenues grew by $3,500,000, or 12.7%, and operating income grew by $2,302,000, or 268.0%, despite some inclement weather during the quarter.  The continued effectiveness of the marketing programs and the introduction of dockside gaming in August 2002 contributed to the revenue growth, while property management’s focus on costs has contributed to the dramatic improvement in operating margin.

At Casino Magic Biloxi, construction of the new high-roller gaming area is underway, with a scheduled opening in late May, in time for the peak summer gaming season.  For the 2003 first quarter, gaming revenues were essentially flat compared with prior-year results, consistent with the soft Biloxi gaming market.  Operating income declined, however, as some of the successful marketing programs introduced in 2002 were not as cost-effective in the 2003 first quarter.  The property began revamping the programs in the quarter to better reflect market conditions.

At Boomtown Reno, revenues for the 2003 first quarter increased by $1,113,000, or 6.1%, while operating income improved by $327,000, or 57.4%.  A majority of the revenue increase is attributed to increased retail fuel prices at the property’s two gas stations, which price increases are driven by increased wholesale costs to the property.  Overall, the profit margins on fuel sales are much smaller than those of the gaming operations.  The improved operating income is primarily due a reduction in administrative and other non-operating costs.

At Casino Magic Argentina, peso-denominated year-over-year revenue growth was 71.5%, due in part to continued high inflation for the region but also reflecting an improved economic and political environment.  However, as the peso-to-dollar exchange rate exceeded 3:1 in March 2003 compared to approximately 2.2:1.0 in March 2002, the dollar denominated revenues showed a more modest 17.5% improvement.  Operating income also improved over 2002, due to the improved 2003 quarterly results and additional expenses in the 2002 first quarter.

Card Club revenue and operating income were consistent with like-period results in 2002, as there was no change to the lease agreements and ownership costs.

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Corporate Costs    Corporate overhead increased by $978,000, or 27.4%, over the three months ended March 31, 2002, due primarily to an increase in legal costs and the timing of certain expenses.

Interest Income   Interest income for the three months ended March 31, 2003 decreased by $153,000, or 24.1%, compared to the same period in 2002, primarily due to lower interest rates on invested funds and lower investable funds.

Interest Expense   Interest expense for the three months ended March 31, 2003 before capitalized interest was essentially flat to the 2002 first quarter.  Capitalized interest was $166,000 in the 2003 first quarter for the Lake Charles and Belterra projects, with no such item recorded in the 2002 first quarter.

Income Tax Benefit   The effective tax rate used in the 2003 first quarter was 26.6%, or a tax benefit of $307,000, compared to an effective tax rate of 36% in the first quarter of 2002, or a tax benefit of $1,293,000.

Change in Accounting Principle   The charge in the first quarter of 2002 for the cumulative effect of a change in accounting principle of $56,704,000 related to the write-down of goodwill and other intangible assets. This charge reflected the adoption of SFAS 142 as of January 1, 2002.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2003, the Company had $136,745,000 of cash, cash equivalents and restricted cash.  Management currently estimates that approximately $45,000,000 is needed to fund the Company’s casino cages, slot machines, operating accounts and day-to-day working capital needs.

Included in cash, cash equivalents and restricted cash at March 31, 2003 and December 31, 2002 is restricted cash of $33,401,000 and $33,255,000, respectively. As of both dates, the amounts include $22,500,000 set aside for future Lake Charles project construction costs, $5,000,000 in an escrow account to ensure the completion of the new 300-guestroom tower at Belterra Casino Resort and $2,600,000 for a cash-collateralized letter of credit for self-insurance purposes.  In addition, the period ended balances include funds held in Argentina banks in the amount of $3,301,000 and $3,155,000 as of March 31, 2003 and December 31, 2002, respectively. Cash held in the Argentine subsidiary is considered restricted by the Company due to the currency restrictions imposed by the Argentine government.

Working capital for the Company (current assets less current liabilities) was $89,760,000 at March 31, 2003, versus $85,119,000 at December 31, 2002, the increase being primarily attributed to the timing of current asset collections versus current liability payments.

For the three months ended March 31, 2003, the Company invested $8,501,000 in property, plant and equipment, primarily for the Lake Charles and Belterra projects. Cash flow from operations is generally lower in the first and third quarters of each year compared to the second and fourth quarters, reflecting the $22,125,000 in interest payments on the Company’s two senior subordinated bond issues.  During the 2003 first quarter, cash used by operations was $1,735,000.  As a result of the investment in the Company’s properties and the timing of cash flow from operations, cash and cash equivalents declined $10,942,000 from the year-end balance.

For the three months ended March 31, 2002, the Company invested $10,300,000 in property, plant and equipment, primarily related to the Boomtown Bossier City expansion and renovation.  Cash provided by operations was $309,000 in the 2002 first quarter, reflecting the bond interest payments of $22,125,000, partially offset by a cash income tax refund of $4,200,000.  As a result of the invested capital and the timing of cash flow from operations, cash and cash equivalents declined by $9,637,000.

As of March 31, 2003 the Company’s debt consists principally of two issues of senior subordinated indebtedness: $350,000,000 principal amount of 9.25% Senior Subordinated Notes due February 2007, and $125,000,000 principal amount of 9.50% Senior Subordinated Notes due August 2007. The 9.50% notes became callable at a premium over their face amount on August 1, 2002; the 9.25% notes became callable at a premium over their face

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amount on February 15, 2003. Such premiums decline periodically as the bonds near their respective maturities. Neither series of notes has any required sinking fund or other principal payments prior to their maturities in 2007. Both series of notes permit the Company to have in the aggregate up to $350,000,000 of senior indebtedness, none of which is currently outstanding. The Company also has a $2,600,000 stand-by letter of credit outstanding at March 31, 2003, which letter of credit is cash collateralized and for the benefit of the Company’s self-insured workers compensation program.

On March 2, 2003, two major banks agreed to lead syndication efforts for a $225,000,000 amended and restated bank credit facility, comprised of a $100,000,000 reducing revolver and a $125,000,000 term loan (the "Proposed Credit Facility"). The Company anticipates finalizing the Proposed Credit Facility by the end of May 2003 in the amount of $235,000,000 due to oversubscription of the revolver facility. The Proposed Credit Facility would mature in August 2006, which maturity date can be extended under certain circumstances. The Proposed Credit Facility would be used to finance the construction and opening of the Lake Charles casino resort, the 300-guestroom tower expansion at Belterra Casino Resort and general corporate purposes. Availability under the Proposed Credit Facility would be significantly limited until the Company deposits $40,000,000 of minimum cash proceeds from asset sales or equity capital raising efforts into a completion reserve account. The Company expects the source of these cash proceeds to be the two pending sales of unimproved land adjacent to the Hollywood Park Race Track (aggregating $58,200,000). Among other alternatives, the Company could sell some or all of its surplus land in Reno, St. Louis or elsewhere, although the Company cannot ensure that it will be able to do so on a timely basis or on favorable terms. In the event that such $40,000,000 in cash proceeds is not deposited by June 30, 2004, the unfunded revolving credit commitment would be cancelled and the Proposed Credit Facility would mature on September 30, 2004. Additionally, availability under the Proposed Credit Facility would be significantly limited until the Company shall have demonstrated that it has, during the period following September 30, 2002, expended not less than $90,000,000 of its excess cash to finance the Lake Charles project and the Belterra tower expansion (and, subject to certain limitations, other enhancements to the Company's properties) as well as transactional expenses associated with the Proposed Credit Facility.

The Proposed Credit Facility would have, among other things, restrictive financial covenants and capital spending limits, would be secured by all the assets of the Company (other than the Argentine subsidiaries) and require the Company to demonstrate sufficient liquidity to complete the Lake Charles project. Interest rates on borrowings under the Proposed Credit Facility would be based on customary financial ratios tied to the LIBOR or the Prime Rate. The Company would also pay a quarterly commitment fee on the unused balance of the Proposed Credit Facility. The Proposed Credit Facility would allow for interest rate swap agreements or other interest rate protection agreements. Presently, the Company does not use such financial instruments.

The Company maintains a $103,333,000 bank credit facility, which facility has remained unused since February 1999. This facility is scheduled to mature in December 2003, if not replaced by the Proposed Credit Facility.

The Company intends to continue to maintain its current properties in good condition and estimates that this will require maintenance and miscellaneous capital spending of approximately $20,000,000 to $25,000,000 per year. The Company is also adding a 300-guestroom hotel tower, conference and meeting facilities and a swimming pool area at its Belterra Casino Resort at an estimated cost of approximately $37,000,000, including capitalized interest. The Company does not expect the pre-opening costs for this project to be material. Finally, the Company has plans to build a major resort in Lake Charles, Louisiana, estimated to cost approximately $325,000,000, including capitalized interest and pre-opening costs, of which approximately $7,200,000 had been spent or incurred at March 31, 2003. The Company expects to break ground in the 2003 second quarter and open this resort in the fourth quarter of 2004. However, the Company does not intend, nor is it permitted under its agreement with the Louisiana Gaming Control Board (“Gaming Control Board”), to begin construction of the Lake Charles facility unless and until it has sufficient resources to complete the facility.

The Company currently believes that, for at least the next 12 months, its existing cash resources and cash flows from operations will be sufficient to fund operations, maintain existing properties, make necessary debt service payments and fund construction of the tower at the Belterra Casino Resort. The Company further believes that the availability under the Proposed Credit Facility and planned asset sales would be more than sufficient to fund the construction costs anticipated over the next 12 months for the Lake Charles facility.

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In October 2002, the Company’s shelf registration with the Securities and Exchange Commission became effective. This permits the Company to issue up to $500,000,000 of debt, equity or other securities, apart from the credit facility being expanded. There can be no assurance, however, that the Company will be able to issue any of such securities on terms acceptable to the Company.

The Company’s selection for the fifteenth and final Louisiana riverboat license is conditioned on its continued compliance with certain conditions designed to ensure that the Lake Charles facility is actually built and successfully opened. In November 2002, the Gaming Control Board approved the project’s detailed architectural plans. On March 19, 2003, the Company submitted the project construction contracts to the Gaming Control Board and anticipates the Gaming Control Board will review such contracts at the May 19, 2003 regularly scheduled meeting. If approved, the Company must demonstrate shortly thereafter that it has available the resources to complete the facility (to consist in part of the Proposed Credit Facility noted above) and begin construction 30 days after the approval of the contracts. The Company must then complete the facility within 18 months of the date that it starts construction. Management intends to continue to meet all of these conditions. There can be no assurance, however, that all conditions will be met. In the event that the Company does not meet all these conditions, the Gaming Control Board may opt to retract their selection of the Company for the fifteenth license.

OTHER SUPPLEMENTAL DATA

The Company defines EBITDA as earnings before net interest expense, provision for income taxes, depreciation, amortization and cumulative effect of a change in accounting principle.  EBITDA is presented solely as a supplemental disclosure as management believes it to be a relevant and useful measure to compare operating results among its properties. Additionally, management believes some investors, as well as the Company’s lenders, consider EBITDA to be a useful measure in determining a company’s ability to service or incur indebtedness and for estimating a company’s underlying cash flow from operations before capital costs, taxes and capital expenditures.  However, EBITDA is not a measure of financial performance under the promulgations of the accounting industry known as “generally accepted accounting principles”, or “GAAP.” Additionally, EBITDA is presented because it is used as a performance measure to analyze the performance of the Company’s business segments (see Note 8 to the Condensed Consolidated Financial Statements).  EBITDA should not be considered in isolation from, or as a substitute for, net income (loss), operating income (loss) or cash flow from operations determined in accordance with GAAP.  Finally, EBITDA is not calculated in the same manner by all companies and accordingly, may not be an appropriate measure for comparing performance amongst different companies.  Below is a reconciliation of operating income (loss), as presented in the “—Results of Operations” table above, to EBITDA.

	Operating Income  (Loss)			Depreciation and Amortization		EBITDA
	(in thousands)
For the three months ended March 31, 2003
Boomtown New Orleans	$	5,823		$	1,629	$	7,452
Boomtown Bossier City		3,105			1,953		5,058
Belterra Casino Resort		1,443			3,341		4,784
Casino Magic Biloxi		2,713			1,934		4,647
Boomtown Reno		897			1,776		2,673
Casino Magic Argentina		463			151		614
Card Clubs		820			677		1,497
Corporate		(4,542	)		18		(4,524	)
	$	10,722		$	11,479	$	22,201

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	Operating Income (Loss)			Depreciation and Amortization		EBITDA
	(in thousands)
For the three months ended March 31, 2002
Boomtown New Orleans	$	5,444		$	1,553	$	6,997
Boomtown Bossier City		2,527			1,927		4,454
Belterra Casino Resort		(859	)		3,242		2,383
Casino Magic Biloxi		3,341			1,860		5,201
Boomtown Reno		570			1,800		2,370
Casino Magic Argentina		52			176		228
Card Clubs		897			576		1,473
Corporate		(3,564	)		28		(3,536	)
	$	8,408		$	11,162	$	19,570

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

As of March 31, 2003, there were no material changes to the information contained in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, except as respects design and development commitments.  During the three months ended March 31, 2003, the Company executed additional construction contracts for the design and development of the Lake Charles and Belterra projects.  As of March 31, 2003, design and development commitments totaled approximately $30,680,000, of which $21,562,000 is estimated to be paid in less than one year and the balance paid in one to three years.

FACTORS AFFECTING FUTURE OPERATING RESULTS

Legislation Regarding Dockside Gaming in Indiana   Effective August 1, 2002, the Company converted its Belterra Casino Resort to dockside operation, which was the first date permitted by Indiana law enacted on July 1, 2002. Such legislation also enacted a new graduated tax structure for dockside riverboats. In addition, such legislation set an admission fee of $3 per customer admitted to the dockside riverboat casino, replacing the per-person per-cruise fee previously required for cruising riverboat casinos.

Lake Charles   In connection with the Lake Charles project, in August 2002, the Company exercised its options to lease from the Lake Charles Harbor and Terminal District (the “District”) 227 acres of unimproved land upon which the proposed project will be constructed. Effectiveness of the lease agreements is subject to the satisfaction of various conditions, including obtaining all of the necessary permits and approvals to construct the project. The leases call for annual payments of $835,600, commencing upon opening of the resort complex, with a maximum annual increase thereafter of 5%. Upon effectiveness, the leases will have initial terms of 10 years with six renewal options of 10 years each. In addition, the Company entered into a Cooperative Endeavor Agreement with the City of Lake Charles, Calcasieu Parish and the District requiring the Company to make infrastructure improvements, including, among other things, a road extension and utility improvements, and pay non-specific impact fees, which, collectively, are expected to approximate $11,400,000 ($1,200,000 of which was paid in April 2003). The Company also entered into an option to lease an additional 75 acres of unimproved land adjacent to the 227 acres. The lease option is for a one-year period, with three one-year renewal options, at a cost of $37,500 per option period. The terms of the lease, if the option were exercised, would be substantially similar to the terms of the leases for the 227 acres.

Belterra Casino Resort   In February 2003, the Company broke ground on the $37,000,000 Belterra Casino Resort expansion project that will add 300 guestrooms, meeting and conference space and other amenities. The project is expected to have limited construction disruption to existing operations and be completed in the first half of 2004.

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Assets Held for Sale   In 2002, the Company entered into agreements to sell the 97 acres of real property it currently owns adjacent to the Hollywood Park Race Track in Inglewood, California. The combined purchase price is $58,200,000. The close of escrows are scheduled for the second half of 2003, subject to the buyers obtaining the necessary entitlements to develop the land. In addition, the buyers have the right to extend the close of escrow under certain circumstances.

Contingencies   The Company assesses its exposures to loss contingencies including legal and income tax matters and provides for an exposure if it is judged to be probable and estimable. If the actual loss from a contingency differs from management’s estimate, operating results could be affected.

CRITICAL ACCOUNTING POLICIES

A description of the Company’s critical accounting policies and estimates can be found in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.  For a more extensive discussion of the Company’s accounting policies, see Note 1 “Summary of Significant Accounting Policies”, in the Notes to the Consolidated Financial Statements in the Company’s 2002 Annual Report on Form 10-K.

RECENTLY ISSUED ACCOUNTING STANDARDS

Recently issued accounting standards adopted by the Company in the three months ended March 31, 2003 are included in Note 1 to the Condensed Consolidated Financial Statements. The following recently issued accounting standard will be implemented in a future period.

Financial Accounting Standards Board Interpretation No. 46 (“FIN 46”)   In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 addresses consolidation by business enterprises where equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred to as “special purpose entities.” The Company does not have any such “special purpose entities” and therefore the adoption of FIN 46 will not have a material impact on the Company’s financial position and results of operations.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Except for the historical information contained herein, the matters addressed in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Words such as, but not limited to, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “could”, “may”, “should” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements, which may include, without limitation, statements regarding expansion plans, cash needs, cash reserves, liquidity, operating and capital expenses, financing options, expense reductions, operating results and pending regulatory matters, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated by the Company. From time to time, verbal or written forward-looking statements are also included in Pinnacle Entertainment’s other periodic reports on Forms 10-K, 10-Q and 8-K, press releases and other materials released to the public.

Actual results may differ materially from those that might be anticipated from forward-looking statements. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that may cause actual performance of the Company to differ materially from that contemplated by such forward-looking statements include, among others:

• any failure to comply with the conditions of the Louisiana Gaming Control Board for the Company’s casino development project in Lake Charles, Louisiana, and its ability to complete the project on time and on budget;

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•	development of the Lake Charles project, expansion of the Belterra Resort Casino and other capital intensive projects could strain financial resources and might not provide for a sufficient return;
•	many factors, some of which are beyond the Company’s control, could prevent the Company from completing its construction and development projects within budget and on time, including:
	(i)	shortages of materials, including slot machines or other gaming equipment;
	(ii)	shortages of skilled labor or work stoppages;
	(iii)	unforeseen construction scheduling, engineering, environmental, geological or archaeological problems;
	(iv)	weather interference, floods, fires or other casualty losses;
	(v)	unanticipated cost increases, or incorrect cost estimates; and
	(vi)	the availability of sufficient funds under the Company’s credit facilities which is dependent upon satisfaction of covenants and conditions.
•	the effectiveness of the planned new hotel tower and other expansion plans at the Belterra Casino Resort in enhancing Belterra Casino Resort’s status as a regional resort property and in increasing utilization of its casino and other facilities;
•	additional costs in connection with the settlement of the Indiana Gaming Commission investigation, including a failure to complete on a timely basis the new 300-guestroom tower at Belterra Casino Resort;
•	changes in gaming laws and regulations, including the expansion of legalized casino gaming in jurisdictions in which the Company operates or in nearby jurisdictions;
•	the effectiveness of the renovation and re-branding project completed in 2002 at Boomtown Bossier City in drawing additional customers to the property despite significant competition in the local market;
•	failure to complete the sale of excess land in Inglewood, California on a timely basis, which could affect the Company’s ability to access funds under its proposed new bank credit facility;
•	the effect of current and future weather conditions and other natural events affecting the Company’s key markets;
•	concentration of suppliers in the slot machine manufacturing industry, which poses significant risk of higher prices and could result in increased costs to the Company;
•	the impact of fuel and transportation costs on the willingness of customers to travel to the Company’s casino properties;
•	any failure to obtain or retain gaming licenses or regulatory approvals, or the limitation, conditioning, suspension or revocation of any existing gaming license;
•	risks associated with the Company’s substantial indebtedness, leverage and debt service;
•	loss or retirement of key executives;
•	risks related to pending litigation and the possibility of future litigation against the Company or the gaming industry in general;
•	significant competition facing the Company in all of its markets, including from casino operators who have more resources and have built or are building competitive casino properties;
•	increases in existing, or imposition of new, taxes or fees;

26

• adverse changes in the public perception and acceptance of gaming and the gaming industry;

• pursuit of strategic expansions or acquisitions that could have an adverse impact on its business if unsuccessful; and,

• other adverse changes in the gaming markets in which the Company operates.

In addition, these statements could be affected by general domestic and international economic and political conditions, including terrorism or war, public health crises, slowdowns in the economy, uncertainty as to the future direction of the economy and vulnerability of the economy to domestic or international incidents, as well as market conditions in the Company’s industry.

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. For more information on the potential factors that could affect the Company’s operating results and financial condition, see “—Factors Affecting Future Operating Results” above and review the Company’s other filings with the Securities and Exchange Commission.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

As of March 31, 2003, there were no material changes to the information contained in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, which is hereby incorporated by this reference, except for the fair value of the Company’s two senior subordinated notes.  At May 6, 2003, the estimated fair value of the 9.25% Notes and 9.5% Notes were $341,250,000 and $121,875,000, respectively, whereas the estimated fair value of the 9.25% Notes and 9.5% Notes were $303,625,000 and $108,750,000, respectively, at March 31, 2003.

Item 4.   Controls and Procedures

The Company’s management, under the supervision and with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), performed an evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-14(c) of the Exchange Act). Based on that evaluation, the CEO and CFO concluded that, as of March 31, 2003 (the “Evaluation Date”), the Company’s disclosure controls and procedures were designed to provide a reasonable level of assurance that all material information required to be filed in this annual report has been made known to them as appropriate to allow timely decisions regarding required disclosures and were effective in reaching that reasonable level of assurance.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the Evaluation Date. Although there were no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the Evaluation Date, the Company’s senior management, in conjunction with its Board of Directors, continuously reviews overall Company policies and improves documentation of important financial reporting and internal control matters. The Company is committed to continuously improving the state of its internal controls, corporate governance and financial reporting.

The Company’s management, including the CEO and CFO, does not expect that its disclosure or internal controls will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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Part II
Other Information

Item 1.   Legal Proceedings

There have been no material developments during the three months ended March 31, 2003 to the litigation entitled “Astoria Entertainment Litigation”, the “Casino Magic Biloxi Patron Incident” or the “Shareholder Derivative Action” in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2002 under the heading “Legal Proceedings”.

During the three months ended March 31, 2003, material developments occurred with respect to the following litigation, which is further described in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2002 under the heading “Legal Proceedings” and to which reference should be made.

Poulos Lawsuit.  On or about April 30, 2003, the plaintiffs filed their opening brief on appeal.  Defendants’ answering brief is due to be filed by July 31, 2003.

Casino America Litigation.  Casino America did not file an appeal of the denial of its Motion for a New Trial by April 10, 2003, the deadline for such an appeal.  Accordingly, the Company has concluded this litigation has terminated.

Actions by Greek Authorities.  During the first quarter of 2001, the Greek taxing authorities appealed the December 11, 2000 decision by the Administrative Court of Thessaloniki overturning the assessment of the fine against PCC.  On March 31, 2003, the Administrative Court of Appeals affirmed the Administrative Court of Thessaloniki’s decision.  It is unknown whether the taxing authorities will appeal such ruling.

On March 30, 2001, appeals on behalf of Messrs. Torguson and Callaway were filed. The hearing before the three-member Court of Misdemeanors of Thessaloniki was held on April 10, 2003.  At the conclusion of the hearing, the court ruled in favor of Messrs. Torguson and Callaway and overturned their criminal convictions.  At this time, it is unknown whether the government will appeal such ruling.

Other. The Company is party to a number of other pending legal proceedings, though management does not expect that the outcome of such proceedings, either individually or in the aggregate, will have a material effect on the Company’s financial results.

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Item 6.   Exhibits and Reports on Form 8-K

         (a)  Exhibits

Exhibit Number	Description of Exhibit
10.1*	Employment Agreement, dated as of January 11, 2003, between the Company and Stephen H. Capp.
10.2*	Employment Agreement, dated as of March 14, 2003, between the Company and Wade W. Hundley.
10.3*	Lease Agreement, dated September 10, 1999, between Churchill Downs California Company and the Company.
10.4*	Commercial Lease, dated September 10, 1996, between State of Louisiana, State Land Office and PNK (Bossier City), Inc. (f/k/a Casino Magic of Louisiana, Corp.).
11*	Statement re Computation of Per Share Earnings
99.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002—CEO.
99.2*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002—CFO.
*   Filed herewith
(b)  Reports on Form 8-K:
On January 17, 2003, a Form 8-K was filed indicating that a shareholder of the Company had filed a derivative lawsuit on behalf of the Company against certain former and current officers and directors.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

PINNACLE ENTERTAINMENT, INC.
(Registrant)
By:	/s/ STEPHEN H. CAPP
	Stephen H. Capp Executive Vice President and Chief Financial Officer (Authorized Officer and Principal Financial and Accounting Officer)
		Dated: May 14, 2003

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CERTIFICATIONS

	I, Daniel R. Lee, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Pinnacle Entertainment, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ DANIEL R. LEE
Daniel R. Lee Chief Executive Officer
	Dated: May 14, 2003

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	I, Stephen H. Capp, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Pinnacle Entertainment, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ STEPHEN H. CAPP
Stephen H. Capp Chief Financial Officer
	Dated: May 14, 2003

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made effective as of January 11, 2003, by and between PINNACLE ENTERTAINMENT, INC., a Delaware corporation (“Company”), and STEPHEN H. CAPP, an individual (“Executive”), with respect to the following facts and circumstances:

RECITALS

Company desires to employ Executive as of the date hereof and to retain Executive as Executive Vice President and Chief Financial Officer of Company commencing on or about January 11, 2003, on the terms and conditions set forth herein. Executive desires to be retained by Company in such capacities, on the terms and conditions and for the consideration set forth below.

NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein, the parties hereto agree as follows:

ARTICLE 1

EMPLOYMENT AND TERM

1.1 Employment. Company agrees to employ Executive and to engage Executive in the capacity as Executive Vice President and Chief Financial Officer of the Company, and Executive hereby accepts such engagement by Company upon the terms and conditions specified below.

1.2 Term. The term of this Agreement (the “Term”) shall commence on the date hereof and shall continue in force until January 11, 2007, unless earlier terminated under Article 6 below.

ARTICLE 2

DUTIES OF EXECUTIVE

2.1 Duties. Executive shall perform all the duties and obligations generally associated with the position of Executive Vice President and Chief Financial Officer, as chief financial officer with responsibility for supervision of the financial, financial reporting and accounting functions of the Company and its affiliates, including any parent(s) thereof, subject to the control and supervision of the Chief Executive Officer, and such other executive duties consistent with the foregoing as may be assigned to him from time to time by the Chief Executive Officer of Company. Executive shall report to the Chief Executive Officer and shall be appointed by the Board of Directors as a corporate executive officer of the Company at all times during the Term. Executive shall perform the services contemplated herein faithfully, diligently, to the best of his ability and in the best interests of Company. Executive shall devote all his business time and efforts to the rendition of such services. Executive shall, at all times perform such services in compliance with, and to the

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extent of his authority, shall to the best of his ability cause Company to be in compliance with any and all laws, rules and regulations applicable to Company of which Executive is aware. Executive shall, at all times during the Term, in all material respects adhere to and obey any and all written internal rules and regulations governing the conduct of Company’s employees, as established or modified from time to time; provided, however, in the event of any conflict between the provisions of this Agreement and any such rules or regulations, the provisions of this Agreement shall control.

2.2 Location of Services. Executive’s principal place of employment shall be at Company’s office in Las Vegas, Nevada. Executive understands he will be required to travel to Company’s various operations and offices as part of his employment.

2.3 Exclusive Service. Except as otherwise expressly provided herein, Executive shall devote his entire business time, attention, energies, skills, learning and best efforts to the business of Company. Executive may participate in social, civic, charitable, religious, business, educational or professional associations and, with the prior approval of the Chief Executive Officer, serve on the boards of directors of companies, so long as such participation does not materially interfere with the duties and obligations of Executive hereunder. This Section 2.3, however, shall not be construed to prevent Executive from making passive outside investments so long as such investments do not require material time of Executive or otherwise interfere with the performance of Executive’s duties and obligations hereunder. Executive shall not make any investment in an enterprise that competes with Company without the prior written approval of Company after full disclosure of the facts and circumstances; provided, however, that this sentence shall not preclude Executive from owning up to one percent (1%) of the securities of a publicly traded entity (a “Permissible Investment”). During the Term, Executive shall not directly or indirectly work for or provide services to or, except as permitted above, own an equity interest in any person, firm or entity engaged in the casino gaming, card club, or horse racing business. In this regard, Executive acknowledges that the gaming industry is national in scope and that accordingly this covenant shall apply throughout the world generally, and particularly in the United States, Canada, Europe, the Caribbean, Mexico and South America. This Section 2.3 shall also not be construed to prevent Executive from consulting with and assisting the firm of Bear, Stearns & Co. Inc. or its successor (the “Firm”) for a reasonable period of time in transitioning files and client matters that Executive has been working on or been responsible for while associated with the Firm, provided, however, that Executive shall not be involved in any matters with the Firm that conflict with or are adverse to the Company’s business.

ARTICLE 3

COMPENSATION

3.1 Salary. In consideration for Executive’s services hereunder, Company shall pay Executive an annual salary at the rate of Three Hundred Sixty Thousand Dollars ($360,000) per year during each of the years of the Term; payable in accordance with Company’s regular payroll schedule from time to time (less any deductions required for Social Security, state, federal and local withholding taxes, and any other authorized or

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mandated withholdings), such salary to commence on the date Executive becomes Executive Vice President and Chief Financial Officer of the Company.

3.2 Bonus. Executive shall be entitled to earn bonuses with respect to each year of the Term during which Executive is employed under this Agreement of up to One Hundred Eighty Thousand Dollars ($180,000) per year in the discretion of the Chief Executive officer or Board of Directors, as applicable, provided, however, that for the first two years of Executive’s employment, Executive shall be entitled to receive a bonus of not less than One Hundred Forty Thousand Dollars ($140,000) per year. Any such bonuses received or earned by Executive shall be paid annually within ninety (90) days after the conclusion of Company’s fiscal year. The amount of and criteria for earning bonuses may be adjusted by mutual agreement of Executive and the Company. Bonuses relative to partial years (or a termination caused by death or disability) shall be prorated.

3.3 Starting and Relocation Bonus. Upon execution of this Agreement, Company shall pay to Executive a one-time starting and relocation bonus in the amount of Fifty Thousand Dollars ($50,000).

3.4 Stock Options. As an additional element of compensation to Executive, in consideration of the services to be rendered hereunder, Company shall grant to Executive options to purchase Two Hundred Eighty Six Thousand Seven Hundred Thirty Nine (286,739) shares of the Company’s common stock, which shall have an exercise price equal to the fair market value of such stock on the date hereof. The options shall vest in five equal consecutive annual installments of twenty percent (20%) each, with the first twenty percent (20%) vested on the first anniversary of the date hereof. In the event of a termination caused by death or disability, the options shall vest as of the date of death or disability (in addition to any vesting that previously occurred) with respect to a percentage of the shares subject to this Option determined by multiplying twenty percent (20%) by a fraction, the numerator of which is the number of days from the first day of the year in which such death or disability occurs until the date of such death or disability, and the denominator of which is 365. The terms and conditions of such options shall be governed by the stock option agreement of even date herewith.

3.5 Long Term Bonus. Executive understands that shareholder approval may be required relative to the issuance of certain shares covered by the option specified in Section 3.4 above under applicable rules of the New York Stock Exchange. Company agrees that if such approval has not been secured by the date on which Executive wishes to exercise the option or the end of the Term, whichever is sooner, then Executive shall be paid a cash bonus equal, with respect to each option as to which shareholder approval was required and not obtained, to the difference between Six Dollars and Five Cents ($6.05) and the Fair Market Value of the Company’s common stock on the relevant date or dates. Such bonus shall be payable, however, only to the extent that Executive could have exercised such options under the terms of the governing stock option agreement, disregarding the requirement of shareholder approval. If the outstanding shares of the Common Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company or a successor entity, or for other property (including, without limitation, cash), through reorganization, recapitalization,

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reclassification, stock combination, stock dividend, stock split, reverse stock split, spin-off or other similar transaction, an appropriate and proportionate adjustment will be made in such bonus corresponding to the adjustment that would have been made in the options under Section 5.1 of the governing stock option agreement. Fair Market Value shall mean the closing sales price for the Company’s Common Stock on the principal exchange on which the Company’s common stock is then listed.

3.6 Moving Expenses. Company shall pay for the reasonable expenses of moving Executive and his family, personal belongings and vehicles to Las Vegas, Nevada in accordance with Company’s normal relocation policy. Executive shall submit to Company a reasonable quote from a moving company and Company will arrange for direct billing.

ARTICLE 4

EXECUTIVE BENEFITS

4.1 Vacation. In accordance with the general policies of Company applicable generally to other senior executives of Company pursuant to Company’s personnel policies from time to time, Executive shall be entitled to four weeks vacation each calendar year, without reduction in compensation.

4.2 Company Employee Benefits. Executive shall receive all group insurance and pension plan benefits and any other benefits on the same basis as they are available generally to other senior executives of Company under Company personnel policies in effect from time to time.

4.3 Conferences and Seminars. Executive will attend conferences and seminars from time to time as a representative of the Company upon the approval of the Chief Executive Officer. The Company shall pay on behalf of Executive, or reimburse Executive for, all reasonable costs and expenses of Executive in connection with such conferences, seminars and events.

4.4 Benefits. Executive shall receive all other such fringe benefits as Company may offer generally to other senior executives of Company under Company personnel policies in effect from time to time, such as health and disability insurance coverage and paid sick leave. In the event that the Company’s group health plan does not cover the annual physical examination of Executive the Company shall bear the cost of such examinations.

4.5 Indemnification. Executive shall have the benefit of indemnification to the fullest extent permitted by applicable law, which indemnification shall continue after the termination of this Agreement for such period as may be necessary to continue to indemnify Executive for his acts during the term hereof. Company shall cause Executive to be covered by the current policies of directors and officers liability insurance covering directors and officers of Company, copies of which have been provided to Executive, in accordance with their terms, to the maximum extent of the coverage available for any director or officer of Company. Company shall use commercially reasonable efforts to cause the current policies

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of directors and officers liability insurance covering directors and officers of Company to be maintained throughout the term of Executive’s employment with Company and for such period thereafter as may be necessary to continue to cover acts of Executive during the term of his employment (provided that Company may substitute therefor, or allow to be substituted therefor, policies of at least the same coverage and amounts containing terms and conditions which are, in the aggregate, no less advantageous to the insured in any material respect).

ARTICLE 5

REIMBURSEMENT FOR EXPENSES

5.1 Executive shall be reimbursed by Company for all ordinary and necessary expenses incurred by Executive in the performance of his duties or otherwise in furtherance of the business of Company in accordance with the policies of Company in effect from time to time. Executive shall keep accurate and complete records of all such expenses, including but not limited to, proof of payment and purpose. Executive shall account fully for all such expenses to Company.

ARTICLE 6

TERMINATION

6.1 Termination for Cause. Without limiting the generality of Section 6.2, Company shall have the right to terminate Executive’s employment, without further obligation or liability to Executive, upon the occurrence of any one or more of the following events, which events shall be deemed termination for cause.

6.1.1 Failure to Perform Duties. If Executive neglects to perform the material duties of his employment under this Agreement in a professional and businesslike manner after having received written notice specifying such failure to perform and a reasonable opportunity to perform.

6.1.2 Willful Breach. If Executive willfully commits a material breach of this Agreement or a material willful breach of his fiduciary duty to Company.

6.1.3 Wrongful Acts. If Executive is convicted of a felony involving acts of moral turpitude or commits fraud, misrepresentation, embezzlement or other acts of material misconduct against the Company (including violating or condoning the violation of any material rules or regulations of gaming authorities which could have a material adverse effect on the Company) that would make the continuance of his employment by Company materially detrimental to Company.

6.1.4 Disability. If Executive is physically or mentally disabled from the performance of a major portion of his duties for a continuous period of one hundred twenty (120) days or greater, which determination shall be made in the reasonable exercise of Company’s judgment, provided, however, if Executive’s disability is the result of a serious health condition as defined by the federal Family and Medical Leave Act (or its Nevada

5

equivalent) (“FMLA”), Executive’s employment shall not be terminated due to such disability at any time during or after any period of FMLA-qualified leave except as permitted by FMLA. If there should be a dispute between Company and Executive as to Executive’s physical or mental disability for purposes of this Agreement, the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or their representatives, or if the parties cannot agree within ten (10) days after a request for designation of such party, then a physician or psychiatrist designated by Company. The certification of such physician or psychiatrist as to the questioned dispute shall be final and binding upon the parties hereto.

6.1.5 Failure To Be Licensed. Executive shall apply for all applicable gaming licenses within ninety (90) days of the date hereof. If Executive fails to be licensed in all jurisdictions in which the Company or its subsidiaries has gaming facilities within the date required by any jurisdiction, or if any of such licenses shall be revoked or suspended at any time during the Term, then the Company may by written notice to Executive terminate the Agreement for cause. Executive agrees to promptly submit to the licensing requirements of all jurisdictions in which the Company or its subsidiaries does business. The Company shall bear all expenses incurred in connection with such licenses.

6.2 Termination Without Cause. Notwithstanding anything to the contrary herein, Company shall have the right to terminate Executive’s employment under this Agreement at any time without cause by giving notice of such termination to Executive.

6.3 Termination by Executive for Good Reason. Executive may terminate his employment under this Agreement on thirty (30) days prior notice to Company for good reason. For purposes of this Agreement, “good reason” shall mean and be limited to (a) a material breach of this Agreement by Company (including without limitation any material reduction in the authority or duties of Executive, or any relocation of his or its principal place of business outside the greater Las Vegas metropolitan area (without Executive’s consent) and the failure of Company to remedy such breach within thirty (30) days after written notice (or as soon thereafter as practicable so long as it commences effectuation of such remedy within such time period and diligently pursues such remedy to completion as soon as practicable); or (b) a “change of control” with respect to the Company followed by (i) any diminution of Executive’s authority, duties or responsibilities as set forth in Section 2.1; or (ii) during the first twelve (12) months following a change in control, the failure of the Company to award Executive an annual bonus equal to at least seventy-five percent (75%) of the average amount of the annualized bonus paid to Executive for the last two (2) full years; or (iii) his termination by the Company. For purposes of this Agreement, a change of control shall mean (i) a sale of all or substantially all of the property of the Company, or (ii) a sale to any one person, corporation, entity or group of stock possessing more than thirty percent (30%) of the aggregate voting power of the then outstanding stock of Company to another person, corporation or entity, or (iii) a change in the majority of the Board of Directors which is not approved by a majority of the members of the Board of Directors as of the date of this Agreement or directors whose election or appointment to the Board of Directors is approved by directors, or (iv) the dissolution for liquidation of Company, or (v) the reorganization, merger or combination of the Company with one or more corporations or entities unless the Company’s shareholders or lenders immediately

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before such reorganization, merger or combination own stock or equity possessing more than fifty percent (50%) of the voting power of the stock or equity of the surviving corporation or entity in substantially the same proportions after such reorganization, merger or combination as they owned in the Company immediately before such reorganization, merger, or combination.

6.4 Effectiveness on Notice. Any termination under this Section 6 shall be effective upon receipt of notice by Executive or Company, as the case may be, of such termination or upon such other later date as may be provided herein or specified by Company or Executive in the notice (the “Termination Date”), except as otherwise provided in this Section 6.

6.5 Effect of Termination.

6.5.1 Payment of Salary and Expenses Upon Termination. If the Term of this Agreement is terminated, all benefits provided to Executive by Company hereunder shall thereupon cease and Company shall pay or cause to be paid to Executive all accrued but unpaid salary and vacation benefits. In addition, promptly upon submission by Executive of his unpaid expenses incurred prior to the Termination Date and owing to Executive pursuant to Article 5, reimbursement for such expenses shall be made. If the Term of the Agreement is terminated for “cause,” Executive shall not be entitled to receive any payments other than as specified in this Section 6.5.1, and provided that Executive may exercise any vested options.

(a) Termination for Disability. In the event of a termination under Section 6.1.4 (for disability), Executive may be eligible for benefits under the applicable State Disability Insurance program for his first six months of disability. In addition, Executive shall be eligible for benefits provided for and shall immediately thereafter be eligible for the benefits under any long term disability insurance policy which Company may have as in effect from time to time. Eligibility and benefits with regard to either insurance program shall be governed by the provisions of the insurance program or policy and shall not be the responsibility of Company. In the event of a termination under Section 6.1.4, the “Covenant Not to Compete” set forth in Section 7.4 below shall not apply in any respect to Executive and the term of the “No Hire Away Policy” in Section 7.5 shall be limited to six (6) months from the date of termination.

6.5.2 Termination Without Cause or Termination by Executive for Good Reason. If Company terminates Executive without cause or Executive terminates for good reason, the following shall apply:

(a) So long as Executive does not compete with Company or its subsidiaries in the gaming business prior to the end of the

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Term, Executive shall be entitled to receive an amount equal to Three Hundred Sixty Thousand Dollars ($360,000) per year (plus unpaid guaranteed bonuses applicable to the first two (2) years of Executive’s employment, plus, in the event of a “change in control” of the Company as defined in Section 6.3(b) in the middle of a year, any bonus or prorated portion thereof that Executive is otherwise entitled to for that year) through the end of the Term, or, if the remaining portion of the Term is less than one (1) year, for one year (the “Severance Benefit”), payable in accordance with Company’s regular salary payment schedule from time to time, plus any amounts payable under Section 6.5.1 above, plus a continuation of health and disability insurance coverage as specified in Section 6.5.2(c), provided that in the event Executive’s employment is terminated by the Company or by Executive after a “change in control” of the Company, as defined in Section 6.3(b) followed by (i) Executive’s termination by the Company, or (ii) any diminution of Executive’s authority, duties or responsibilities as set forth in Section 2.1, or (iii) during the first twelve (12) months following a change in control, the failure of the Company to award Executive an annual bonus equal to at least seventy-five percent (75%) of the average amount of the annualized bonus paid to Executive for the last two (2) full years, the Severance Benefit shall be payable to Executive in a lump sum as soon as practicable, but in no event later than thirty (30) days after the termination of Executive’s employment. If the Company terminates Executive without cause other than in connection with a “change in control” of the Company, Executive shall have an affirmative obligation to mitigate his Severance Benefit, except with respect to two (2) year’s base salary plus one year’s guaranteed bonus to the extent such guaranteed bonuses have not already been paid to Executive. Executive shall have no obligation to mitigate to the extent he is entitled to receive a lump sum Severance Benefit. Should Executive compete with Company or its subsidiaries prior to the end of the Term, Executive shall not be entitled to receive any additional payments from Company with respect to periods after the commencement of any such competitive activity under this Section 6.5.2 or otherwise and all such obligations shall be extinguished.

(b) In addition to those already vested, all unvested stock options held by Executive shall be deemed immediately and fully vested and exercisable by Executive;

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(c) So long as Executive does not compete with Company or its subsidiaries in the gaming business prior to the end of the Term, Executive will also be entitled to receive health benefits coverage for Executive and his dependents, and disability insurance coverage for Executive, under the same plan(s) or arrangement(s) under which Executive was covered immediately before his termination of employment or plan(s) established or arrangement(s) provided by the Company or any of its Subsidiaries thereafter for the benefit of senior executives. Such health benefits and disability coverage shall be paid for by the Company to the same extent as if Executive were still employed by the Company, and Executive will be required to make such payments as Executive would be required to make if Executive were still employed by the Company. The benefits provided under this Section 6.5.2(c) shall continue until the earlier of (a) the end of the Term, or, if the remaining portion of the Term is less than one (1) year, for one year following Executive’s termination of employment with the Company and all of its Subsidiaries, (b) the date Executive becomes covered under any other group health plan or group disability plan (as the case may be) not maintained by the Company or any of its Subsidiaries; provided, however, that if such other group health plan excludes any pre-existing condition that Executive or Executive’s dependents may have when coverage under such group health plan would otherwise begin, coverage under this Section 6.5.2(c) shall continue (but not beyond the period described in clause (a) of this sentence) with respect to such pre-existing condition until such exclusion under such other group health plan lapses or expires. In the event Executive is required to make an election under Sections 601 through 607 of the Employee Retirement Income Security Act of 1974, as amended (commonly known as COBRA) to qualify for the benefits described in this Section 6.5.2(c), the obligations of the Company and its Subsidiaries under this Section 6.5.2(c) shall be conditioned upon Executive’s timely making such an election.

(d) The “Covenant Not to Compete” set forth in Section 7.4 below shall not apply in any respect to Executive (except as the same may affect his entitlement to payments under Section 6.5.2(a) hereof) and the term of the “No Hire Away Policy” in Section 7.5 shall be limited to six (6) months from the date of termination.

6.6 Suspension. In lieu of terminating Executive’s employment hereunder for cause under Section 6.1, Company shall have the right, at its sole election, to suspend the performance of duties by Executive under this Agreement during the continuance of events

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or circumstances under Section 6.1 for an aggregate of not more than thirty (30) days during the Term (the “Default Period”) by giving Executive written notice of Company’s election to do so at any time during the Default Period. Company shall have the right to extend the Term beyond its normal expiration date by the period(s) of any suspension(s). Company’s exercise of its right to suspend the operation of this Agreement shall not preclude Company from subsequently terminating Executive’s employment hereunder. Executive shall not render services to any other person, firm or corporation in the casino business during any period of suspension. Executive shall be entitled to continued compensation and benefits pursuant to the provisions of this Agreement during the Default Period.

6.7 Exercisability of Options. As provided in the stock option agreements, all vested options will terminate on the earlier of (a) the expiration of the ten (10) year term of such options, or (b) one (1) year after the termination of Executive’s employment with the Company, regardless of the cause of such termination, except that, in the event of a termination for “Cause” or Executive’s termination without good reason, all vested options will terminate on the earlier of (i) the expiration of the ten (10) year term of such options, or (ii) ninety (90) days after the termination. As provided in the stock option agreements, unvested options will terminate on the termination of Executive’s employment with the Company, except to the extent that such options become vested as a result of such termination.

ARTICLE 7

CONFIDENTIALITY

7.1 Nondisclosure of Confidential Material. In the performance of his duties, Executive may have access to confidential records, including, but not limited to, development, marketing, organizational, financial, managerial, administrative and sales information, data, specifications and processes presently owned or at any time hereafter developed or used by Company or its agents or consultants that is not otherwise part of the public domain (collectively, the “Confidential Material”). All such Confidential Material is considered secret and is disclosed to Executive in confidence. Executive acknowledges that the Confidential Material constitutes proprietary information of Company which draws independent economic value, actual or potential, from not being generally known to the public or to other persons who could obtain economic value from its disclosure or use, and that Company has taken efforts reasonable under the circumstances, of which this Section 7.1 is an example, to maintain its secrecy. Except in the performance of his duties to Company or as required by a court order, Executive shall not, directly or indirectly for any reason whatsoever, disclose, divulge, communicate, use or otherwise disclose any such Confidential Material, unless such Confidential Material ceases to be confidential because it has become part of the public domain (not due to a breach by Executive of his obligations hereunder). Executive shall also take all reasonable actions appropriate to maintain the secrecy of all Confidential Information. All records, lists, memoranda, correspondence, reports, manuals, files, drawings, documents, equipment, and other tangible items (including computer software), wherever located, incorporating the Confidential Material, which Executive shall prepare, use or encounter, shall be and remain Company’s sole and exclusive property and shall be included in the Confidential Material. Upon termination of

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this Agreement, or whenever requested by Company, Executive shall promptly deliver to Company any and all of the Confidential Material, not previously delivered to Company, that is in the possession or under the control of Executive.

7.2 Assignment of Intellectual Property Rights. Any ideas, processes, know-how, copyrightable works, maskworks, trade or service marks, trade secrets, inventions, developments, discoveries, improvements and other matters that may be protected by intellectual property rights, that relate to Company’s business and are the results of Executive’s efforts during the Term (collectively, the “Executive Work Product”), whether conceived or developed alone or with others, and whether or not conceived during the regular working hours of Company, shall be deemed works made for hire and are the property of Company. In the event that for whatever reason such Executive Work Product shall not be deemed a work made for hire, Executive agrees that such Executive Work Product shall become the sole and exclusive property of Company, and Executive hereby assigns to Company his entire right, title and interest in and to each and every patent, copyright, trade or service mark (including any attendant goodwill), trade secret or other intellectual property right embodied in Executive Work Product. Company shall also have the right, in its sole discretion to keep any and all of Executive Work Product as Company’s Confidential Material. The foregoing work made for hire and assignment provisions are and shall be in consideration of this agreement of employment by Company, and no further consideration is or shall be provided to Executive by Company with respect to these provisions. Executive agrees to execute any assignment documents Company may require confirming Company’s ownership of any of Executive Work Product. Executive also waives any and all moral rights with respect to any such works, including without limitation any and all rights of identification of authorship and/or rights of approval, restriction or limitation on use or subsequent modifications. Executive promptly will disclose to Company any Executive Work Product.

7.3 No Unfair Competition After Termination of Agreement. Executive hereby acknowledges that the sale or unauthorized use or disclosure of any of Company’s Confidential Material obtained by Executive by any means whatsoever, at any time before, during or after the Term shall constitute unfair competition. Executive shall not engage in any unfair competition with Company either during the Term or at any time thereafter.

7.4 Covenant Not to Compete. In the event this Agreement is terminated by Company for cause under Section 6.1 above, or by Executive, for a reason other than one specified in Section 6.3 above, then for a period of one (1) year after the effective date of such termination, Executive shall not, directly or indirectly, work for or provide services to or own an equity interest (except for a Permissible Investment) in any person, firm or entity engaged in the casino gaming, card club or horseracing business which competes against Company in any “market” in which Company owns or operates a casino, card club or horseracing facility. For purposes of this Agreement, “market” shall be defined as the area within a one hundred (100) mile radius of any casino, card club or horseracing facility owned or operated by Company.

7.5 No Hire Away Policy. In the event this Agreement is terminated prior to the normal expiration of the Term, either by Company for cause under Section 6.1 above, or by

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Executive, for a reason other than one specified in Section 6.3 above, then for a period of one (1) year after the effective date of such termination, Executive shall not, directly or indirectly, for himself or on behalf of any entity with which he is affiliated or employed, hire any person known to, or who should have been known to Executive to be an employee of Company or any of its subsidiaries (or any person known to, or who should have been known to Executive to have been such an employee within six (6) months prior to such occurrence). Executive shall not be deemed to hire any such person so long as he did not directly or indirectly engage in, participate in or encourage such hiring.

7.6 No Solicitation. During the Term and for a period of one (1) year thereafter, or for a period of one (1) year after earlier termination of this Agreement prior to expiration of the Term, and regardless of the reason for such termination (whether by Company or Executive), Executive shall not directly or indirectly, for himself or on behalf of any entity with which he is affiliated or employed, solicit or recruit any employee of Company or any of its subsidiaries (or any person who was such an employee within six (6) months prior to such occurrence) or encourage or advise any such employee to leave the employment of Company or any of its subsidiaries.

7.7 Non-Solicitation of Customers. During the Term and for a period of one (1) year thereafter, or for a period of one (1) year after the earlier termination of this Agreement prior to the expiration of the Term, and regardless of the reason for such termination (whether by Company or Executive), Executive shall not use customer lists or Confidential Material to solicit any customers of Company or its subsidiaries or any of their respective casinos or card clubs, or knowingly encourage, solicit or persuade any such customers to leave Company’s casinos or card clubs or knowingly encourage, solicit or persuade any such customers to use the facilities or services of any competitor of Company or its subsidiaries.

7.8 Irreparable Injury. The promised service of Executive under this Agreement and the other promises of this Article 7 are of special, unique, unusual, extraordinary, or intellectual character, which gives them peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law.

7.9 Remedies for Breach. Executive agrees that money damages will not be a sufficient remedy for any breach of the obligations under this Article 7 and Article 2 hereof and that Company shall be entitled to injunctive relief (which shall include, but not be limited to, restraining Executive from directly or indirectly working for or having an ownership interest (except for a Permissible Investment in any person engaged in the casino, gaming or horseracing businesses in any market which Company or its affiliates owns or operates any such business, using or disclosing the Confidential Material) and to specific performance as remedies for any such breach. Executive agrees that Company shall be entitled to such relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of proving actual damages and without the necessity of posting a bond or making any undertaking in connection therewith. Any such requirement of a bond or undertaking is hereby waived by Executive and Executive acknowledges that in the absence of such a waiver, a bond or undertaking might otherwise be required by the court. Such remedies shall not be deemed to be the exclusive remedies

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for any breach of the obligations in this Article 7, but shall be in addition to all other remedies available at law or in equity.

ARTICLE 8

ARBITRATION

8.1 General. Except for a claim for injunctive relief under Section 7.9, any controversy, dispute, or claim between the parties to this Agreement, including any claim arising out of, in connection with, or in relation to the formation, interpretation, performance or breach of this Agreement shall be settled exclusively by arbitration, before a single arbitrator, in accordance with this Article 8 and the then most applicable rules of the American Arbitration Association. This agreement to arbitrate shall survive the expiration of this agreement and shall cover all issues relevant to the employment of Executive by Company. Judgment upon any award rendered by the arbitrator may be entered by any state or federal court having jurisdiction thereof. Such arbitration shall be administered by the American Arbitration Association. Arbitration shall be the exclusive remedy for determining any such dispute, regardless of its nature. Notwithstanding the foregoing, either party may in an appropriate matter apply to a court for provisional relief, including a temporary restraining order or a preliminary injunction, on the ground that the award to which the applicant may be entitled in arbitration may be rendered ineffectual without provisional relief. Unless mutually agreed by the parties otherwise, any arbitration shall take place in Clark County, Nevada.

8.2 Selection of Arbitrator. In the event the parties are unable to agree upon an arbitrator, the parties shall select a single arbitrator from a list of nine arbitrators drawn by the parties at random from the “Independent” (or “Gold Card”) list of retired judges or, at the option of Executive, from a list of nine (9) persons (which shall be retired judges or corporate or litigation attorneys experienced in executive employment agreements) provided by the office of the American Arbitration Association having jurisdiction over Clark County, Nevada. If the parties are unable to agree upon an arbitrator from the list so drawn, then the parties shall each strike names alternately from the list, with the first to strike being determined by lot. After each party has used four strikes, the remaining name on the list shall be the arbitrator. If such person is unable to serve for any reason, the parties shall repeat this process until an arbitrator is selected.

8.3 Applicability of Arbitration; Remedial Authority. This agreement to resolve any disputes by binding arbitration shall extend to claims against any parent, subsidiary or affiliate of each party, and, when acting within such capacity, any officer, director, stockholder, employee or agent of each party, or of any of the above, and shall apply as well to claims arising out of state and federal statutes and local ordinances as well as to claims arising under the common law. In the event of a dispute subject to this paragraph the parties shall be entitled to reasonable discovery subject to the discretion of the arbitrator. The remedial authority of the arbitrator (which shall include the right to grant injunctive or other equitable relief) shall be the same as, but no greater than, would be the remedial power of a court having jurisdiction over the parties and their dispute. The arbitrator shall, upon an appropriate motion, dismiss any claim without an evidentiary hearing if the party bringing

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the motion establishes that he or it would be entitled to summary judgement if the matter had been pursued in court litigation. In the event of a conflict between the applicable rules of the American Arbitration Association and these procedures, the provisions of these procedures shall govern.

8.4 Fees and Costs. Any filing or administrative fees shall be borne initially by the party requesting arbitration. The Company shall be responsible for the costs and fees of the arbitration, unless Executive wishes to contribute (up to fifty percent (50%)) of the costs and fees of the arbitration. Notwithstanding the foregoing, the prevailing party in such arbitration, as determined by the arbitrator, and in any enforcement or other court proceedings, shall be entitled, to the extent permitted by law, to reimbursement from the other party for all of the prevailing party’s costs (including but not limited to the arbitrator’s compensation), expenses, and attorneys’ fees.

8.5 Award Final and Binding. The arbitrator shall render an award and written opinion, and the award shall be final and binding upon the parties. If any of the provisions of this paragraph, or of this Agreement, are determined to be unlawful or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Agreement, and this Agreement shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible and to insure that the resolution of all conflicts between the parties, including those arising out of statutory claims, shall be resolved by neutral, binding arbitration. If a court should find that the arbitration provisions of this Agreement are not absolutely binding, then the parties intend any arbitration decision and award to be fully admissible in evidence in any subsequent action, given great weight by any finder of fact, and treated as determinative to the maximum extent permitted by law.

ARTICLE 9

MISCELLANEOUS

9.1 Amendments. The provisions of this Agreement may not be waived, altered, amended or repealed in whole or in part except by the signed written consent of the parties sought to be bound by such waiver, alteration, amendment or repeal.

9.2 Entire Agreement. This Agreement and the Non-Qualified Stock Option Agreement of even date herewith constitute the total and complete agreement of the parties and supersedes all prior and contemporaneous understandings and agreements heretofore made, and there are no other representations, understandings or agreements.

9.3 Counterparts. This Agreement may be executed in one of more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. Facsimile signatures shall be deemed original so long as the manually executed signature is delivered as soon as practicable.

9.4 Severability. Each term, covenant, condition or provision of this Agreement shall be viewed as separate and distinct, and in the event that any such term, covenant, condition or provision shall be deemed by an arbitrator or a court of competent jurisdictionto be invalid or unenforceable, the court or arbitrator finding such invalidity or

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unenforceability shall modify or reform this Agreement to give as much effect as possible to the terms and provisions of this Agreement. Any term or provision which cannot be so modified or reformed shall be deleted and the remaining terms and provisions shall continue in full force and effect.

9.5 Waiver or Delay. The failure or delay on the part of Company, or Executive to exercise any right or remedy, power or privilege hereunder shall not operate as a waiver thereof. A waiver, to be effective, must be in writing and signed by the party making the waiver. A written waiver of default shall not operate as a waiver of any other default or of the same type of default on a future occasion.

9.6 Successors and Assigns. This Agreement shall be binding on and shall inure to the benefit of the parties to it and their respective heirs, legal representatives, successors and assigns, except as otherwise provided herein.

9.7 No Assignment or Transfer by Executive. Neither this Agreement nor any of the rights, benefits, obligations or duties hereunder may be assigned or transferred by Executive. Any purported assignment or transfer by Executive shall be void.

9.8 Necessary Acts. Each party to this Agreement shall perform any further acts and execute and deliver any additional agreements, assignments or documents that may be reasonably necessary to carry out the provisions or to effectuate the purpose of this Agreement.

9.9 Governing Law. This Agreement and all subsequent agreements between the parties shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of Nevada.

9.10 Notices. All notices, requests, demands and other communications to be given under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if personally served on the party to whom notice is to be given, or 48 hours after mailing, if mailed to the party to whom notice is to be given by certified or registered mail, return receipt requested, postage prepaid, and properly addressed to the party at his address set forth as follows or any other address that any party may designate by written notice to the other parties:

To Executive:

Stephen H. Capp

30 Orchard Hill Lane

Greenwich, Connecticut 06831

Telephone: 203 552 1673

Facsimile: 203 552 1673

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To Company:

Pinnacle Entertainment, Inc.

Suite 1800

3800 Howard Hughes Parkway

Las Vegas, NV 89109

Attn: John A. Godfrey

Telephone: 702 784 7777

Facsimile: 702 784 7778

with copy to:

Irell & Manella LLP

1800 Avenue of the Stars, Suite 900

Los Angeles, CA 90067-4276

Attn: Al Segel

Telephone: 310 277 1010

Facsimile: 310 284 3052

9.11 Headings and Captions. The headings and captions used herein are solely for the purpose of reference only and are not to be considered as construing or interpreting the provisions of this Agreement.

9.12 Construction. All terms and definitions contained herein shall be construed in such a manner that shall give effect to the fullest extent possible to the express or implied intent of the parties hereby.

9.13 Counsel. Executive has been advised by Company that he should consider seeking the advice of counsel in connection with the execution of this Agreement and Executive has had an opportunity to do so. Executive has read and understands this Agreement, and has sought the advice of counsel to the extent he has determined appropriate. The Company shall reimburse Executive for the reasonable fees and expenses of Executive’s counsel in connection with this Agreement.

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9.14 Withholding of Compensation. Executive hereby agrees that Company may deduct and withhold from the compensation or other amounts payable to Executive hereunder or otherwise in connection with Executive’s employment any amounts required to be deducted and withheld by Company under the provisions of any applicable Federal, state and local statute, law, regulation, ordinance or order.

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

EXECUTIVE		COMPANY
STEPHEN H. CAPP		PINNACLE ENTERTAINMENT, INC.
By:	/s/    STEPHEN H. CAPP		/s/    DANIEL R. LEE
		By:	Daniel R. Lee
		Its:	Chief Executive Officer

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made effective as of March 14, 2003, by and between PINNACLE ENTERTAINMENT, INC., a Delaware corporation (“Company”), and WADE W. HUNDLEY, an individual (“Executive”), with respect to the following facts and circumstances:

RECITALS

Company desires to continue to employ Executive and to retain Executive as Executive Vice President and Chief Operating Officer of Company, on the terms and conditions set forth herein. Executive desires to be retained by Company in such capacities, on the terms and conditions and for the consideration set forth below.

NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein, the parties hereto agree as follows:

ARTICLE 1

EMPLOYMENT AND TERM

1.1 Employment. Company agrees to continue to employ Executive and to engage Executive in the capacity as Executive Vice President and Chief Operating Officer of the Company, and Executive hereby accepts such engagement by Company upon the terms and conditions specified below

1.2 Term. The term of this Agreement (the “Term”) shall commence on the date hereof and shall continue in force until March 31, 2007, unless earlier terminated under Article 6 below.

ARTICLE 2

DUTIES OF EXECUTIVE

2.1 Duties. Executive shall perform all the duties and obligations generally associated with the position of Executive Vice President and Chief Operating Officer, as the officer with responsibility for supervision of the casino/hotel and related operations of the Company and its affiliates, including any parent(s) thereof, subject to the control and supervision of the Chief Executive Officer, and such other executive duties consistent with the foregoing as may be assigned to Executive from time to time by the Chief Executive Officer. Executive shall report to the Chief Executive Officer. Executive shall perform the services contemplated herein faithfully, diligently, to the best of Executive’s ability and in the best interests of Company. Executive shall devote all Executive’s business time and efforts to the rendition of such services. Executive at all times shall perform such services in compliance with, and shall, to the extent of Executive’s authority and to the best of Executive’s ability, cause Company to be in compliance with any and all laws, rules and regulations applicable to Company of which Executive is aware. Executive shall, at all

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times during the Term, in all material respects adhere to and obey any and all written internal rules and regulations governing the conduct of Company’s employees, as established or modified from time to time; provided, however, in the event of any conflict between the provisions of this Agreement and any such rules or regulations, the provisions of this Agreement shall control.

2.2 Location of Services. Executive’s principal place of employment shall be at Executive’s office in Dallas, Texas. Executive understands that Executive will be required to travel to Company’s various operations and offices as part of Executive’s employment.

2.3 Exclusive Service. Except as otherwise expressly provided herein, Executive shall devote Executive’s entire business time, attention, energies, skills, learning and best efforts to the business of Company. Executive may participate in social, civic, charitable, religious, business, educational or professional associations, so long as such participation does not materially interfere with the duties and obligations of Executive hereunder. This Section 2.3, however, shall not be construed to prevent Executive from making passive outside investments so long as such investments do not require material time of Executive or otherwise interfere with the performance of Executive’s duties and obligations hereunder. Executive shall not make any investment in an enterprise that competes with Company without the prior written approval of Company after full disclosure of the facts and circumstances; provided, however, that this sentence shall not preclude Executive from owning up to one percent (1%) of the securities of a publicly traded entity (a “Permissible Investment”). During the Term, Executive shall not directly or indirectly work for or provide services to or, except as permitted above, own an equity interest in any person, firm or entity engaged in the casino gaming, card club, or horse racing business (collectively, the “Gaming Business”). In this regard, Executive acknowledges that the gaming industry is national in scope and that accordingly this covenant shall apply throughout the world generally, and particularly in the United States, Canada, Europe, the Caribbean, Mexico and South America.

ARTICLE 3

COMPENSATION

3.1 Salary. In consideration for Executive’s services hereunder, Company shall pay Executive an annual salary at the rate of Four Hundred Thousand Dollars ($400,000) per year during each of the years of the Term; payable in accordance with Company’s regular payroll schedule from time to time (less any deductions required for Social Security, state, federal and local withholding taxes, and any other authorized or mandated withholdings), such salary to commence on the date hereof. Executive’s salary may be increased in the discretion of the Chief Executive Officer or Board of Directors, as applicable.

3.2 Bonus. Executive shall be entitled to earn bonuses with respect to each year of the Term during which Executive is employed under this Agreement in the discretion of the Chief Executive Officer or Board of Directors, as applicable. Any such bonuses, if any, received or earned by Executive shall be paid annually within ninety (90) days after the conclusion of Company’s fiscal year.

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ARTICLE 4

EXECUTIVE BENEFITS

4.1 Vacation. Executive shall be entitled to such number of weeks of vacation each calendar year, without reduction in compensation, as are available generally to other senior executives of Company pursuant to Company’s personnel policies from time to time.

4.2 Company Employee Benefits. Executive shall receive all group insurance and pension plan benefits and any other benefits on the same basis as they are available generally to other senior executives of Company under Company personnel policies in effect from time to time.

4.3 Benefits. Executive shall receive all other such fringe benefits as Company may offer to other senior executives of Company under Company personnel policies in effect from time to time, such as health and disability insurance coverage and paid sick leave. In the event that the Company’s group health plan does not cover the annual physical examination of Executive the Company shall bear the cost of such examinations.

4.4 Indemnification. Executive shall have the benefit of indemnification to the fullest extent permitted by applicable law, which indemnification shall continue after the termination of this Agreement for such period as may be necessary to continue to indemnify Executive for Executive’s acts during the term hereof.

ARTICLE 5

REIMBURSEMENT FOR EXPENSES

5.1 Executive shall be reimbursed by Company for all ordinary and necessary expenses incurred by Executive in the performance of Executive’s duties or otherwise in furtherance of the business of Company in accordance with the policies of Company in effect from time to time. Executive shall keep accurate and complete records of all such expenses, including but not limited to, proof of payment and purpose. Executive shall account fully for all such expenses to Company.

ARTICLE 6

TERMINATION

6.1 Termination for Cause. Without limiting the generality of Section 6.2, Company shall have the right to terminate Executive’s employment, without further obligation or liability to Executive, upon the occurrence of any one or more of the following events, which events shall be deemed termination for cause.

6.1.1 Failure to Perform Duties. If Executive neglects to perform the material duties of Executive’s employment under this Agreement in a professional and

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businesslike manner after having received written notice specifying such failure to perform and a reasonable opportunity to perform.

6.1.2 Willful Breach. If Executive willfully commits a material breach of this Agreement or a material willful breach of Executive’s fiduciary duty to Company.

6.1.3 Wrongful Acts. If Executive is convicted of a felony or commits fraud, misrepresentation, embezzlement or other acts of material misconduct against the Company (including violating or condoning the violation of any material rules or regulations of gaming authorities).

6.1.4 Disability. If Executive is physically or mentally disabled from the performance of a major portion of Executive’s duties for a continuous period of one hundred twenty (120) days or greater, which determination shall be made in the reasonable exercise of Company’s judgment, provided, however, Executive’s employment shall not be terminated due to such disability except as permitted by the federal Family and Medical Leave Act (or any applicable state law equivalent) or other applicable law. If there should be a dispute between Company and Executive as to Executive’s physical or mental disability for purposes of this Agreement, the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or their representatives, or if the parties cannot agree within ten (10) days after a request for designation of such party, then a physician or psychiatrist designated by Company. The certification of such physician or psychiatrist as to the questioned dispute shall be final and binding upon the parties hereto.

6.1.5 Failure To Be Licensed. Executive shall apply for all applicable gaming licenses within ninety (90) days of the date hereof, to the extent Executive is not already licensed or on file as of the date hereof. If Executive fails to be licensed in all jurisdictions in which the Company or its subsidiaries has gaming facilities within the date required by any jurisdiction, or if any of such licenses shall be revoked or suspended at any time during the Term, then the Company may by written notice to Executive terminate the Agreement for cause. Executive agrees to promptly submit to the licensing requirements of all jurisdictions in which the Company or its subsidiaries does business. The Company shall bear all expenses incurred in connection with such licenses.

6.2 Termination Without Cause. Notwithstanding anything to the contrary herein, Company shall have the right to terminate Executive’s employment under this Agreement at any time without cause by giving notice of such termination to Executive.

6.3 Termination by Executive for Good Reason. Executive may terminate Executive’s employment under this Agreement for good reason on thirty (30) days prior notice to Company (except no such notice shall be required to be delivered by Executive for a termination pursuant to clause (b)(iii) of the immediately following sentence). For purposes of this Agreement, “good reason” shall mean and be limited to (a) a material breach of this Agreement by Company (including without limitation any material reduction in the authority or duties of Executive, or any relocation of Executive’s principal place of employment outside the greater Dallas metropolitan area (without Executive’s consent) and the failure of Company to remedy such breach within thirty (30) days after written notice (or

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as soon thereafter as practicable so long as it commences effectuation of such remedy within such time period and diligently pursues such remedy to completion as soon as practicable); or (b) a “change of control” with respect to the Company followed by (i) any diminution of Executive’s authority, duties or responsibilities as set forth in Section 2.1; or (ii) during the first twelve (12) months following a change of control, the failure of the Company to award Executive an annual bonus equal to at least seventy-five percent (75%) of the average amount of the annualized bonus paid to Executive for the last two (2) full years (or the last one (1) full year if Executive’s employment with the Company commenced during that last year); or (iii) Executive’s termination by the Company. For purposes of this Agreement, a “change of control” shall mean (i) a sale of all or substantially all of the property of the Company, or (ii) a sale to any one person, corporation, entity or group of stock possessing more than thirty percent (30%) of the aggregate voting power of the then outstanding stock of Company to another person, corporation or entity, or (iii) a change in the majority of the Board of Directors which is not approved by a majority of the members of the Board of Directors as of the date of this Agreement or directors whose election or appointment to the Board of Directors is approved by directors, or (iv) the dissolution for liquidation of Company, or (v) the reorganization, merger or combination of the Company with one or more corporations or entities unless the Company’s shareholders or lenders immediately before such reorganization, merger or combination own stock or equity possessing more than fifty percent (50%) of the voting power of the stock or equity of the surviving corporation or entity in substantially the same proportions after such reorganization, merger or combination as they owned in the Company immediately before such reorganization, merger, or combination.

6.4 Effectiveness on Notice. Any termination under this Article 6 shall be effective upon receipt of notice by Executive or Company, as the case may be, of such termination or upon such other later date as may be provided herein or specified by Company or Executive in the notice (the “Termination Date”), except as otherwise provided in this Article 6.

6.5 Effect of Termination.

6.5.1 Payment of Salary and Expenses Upon Termination. If the Term of this Agreement is terminated, all benefits provided to Executive by Company hereunder shall thereupon cease and Company shall pay or cause to be paid to Executive all accrued but unpaid salary and vacation benefits. In addition, promptly upon submission by Executive of Executive’s unpaid expenses incurred prior to the Termination Date and owing to Executive pursuant to Article 5, reimbursement for such expenses shall be made. If the Term of the Agreement is terminated for “cause,” Executive shall not be entitled to receive any payments other than as specified in this Section 6.5.1, and provided that Executive may exercise any vested options only if and to the extent permitted by the applicable option agreement(s).

(a) Termination for Disability. In the event of a termination under Section 6.1.4 (for disability), Executive may be eligible for benefits under the applicable State Disability Insurance

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program for Executive’s first six months of disability. In addition, Executive shall be eligible for benefits provided for and shall immediately thereafter be eligible for the benefits under any long term disability insurance policy which Company may have as in effect from time to time. Eligibility and benefits with regard to either insurance program shall be governed by the provisions of the insurance program or policy and shall not be the responsibility of Company. In the event of a termination under Section 6.1.4, the “Covenant Not to Compete” set forth in Section 7.4 below shall not apply in any respect to Executive and the term of the “No Hire Away Policy” in Section 7.5 shall be limited to six (6) months from the date of termination.

6.5.2 Termination Without Cause or Termination by Executive for Good Reason. If Company terminates Executive’s employment without cause or Executive terminates Executive’s employment for good reason, the following shall apply:

(a) Except as provided in Section 6.5.2(b) relating to a change of control, and for so long as Executive does not compete with Company or its subsidiaries in the Gaming Business prior to the end of the Term, Executive shall be entitled to receive an amount equal to Four Hundred Thousand Dollars ($400,000) per year through the end of the Term, or, if the remaining portion of the Term is less than one (1) year, for one year (the “Base Severance Benefit”), payable in accordance with Company’s regular salary payment schedule from time to time, plus any amounts payable under Section 6.5.1 above, plus a continuation of health and disability insurance coverage as specified in Section 6.5.2(d). Except as provided in Section 6.5.2(b) relating to a change of control, (i) if the Company terminates Executive without cause, Executive shall have an affirmative obligation to mitigate Executive’s Base Severance Benefit, and (ii) should Executive compete with Company or its subsidiaries prior to the end of the Term, Executive shall not be entitled to receive any additional payments from Company with respect to periods after the commencement of any such competitive activity under this Section 6.5.2 or otherwise and all such obligations shall be extinguished.

(b) Notwithstanding anything in Section 6.5.2(a) to the contrary, in the event of a termination of Executive’s employment constituting “good reason” after a “change of control” as specified in Section 6.3(b), (i) the Company shall pay to Executive in lieu of the Base Severance Benefit, in a lump sum as soon as practicable, but in no event later than thirty

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(30) days after the termination of Executive’s employment, an amount (the “Change of Control Severance Benefit”) equal to two (2) times Executive’s annual salary as set forth in Section 3.1 plus two (2) times the largest annualized bonus that was paid to Executive pursuant to Section 3.2 during the two (2) years preceding the change of control, (ii) Executive shall also be entitled to receive any amounts payable under Section 6.5.1, plus a continuation of health and disability insurance coverage as specified in Section 6.5.2(d), (iii) Executive’s obligations under Section 7.4 of this Agreement shall immediately terminate (and Executive’s compliance therewith shall not be a condition to the Company’s obligations under clauses (i) and (ii) of this Section 6.5.2(b)), and (iv) Executive shall have no obligation to mitigate Executive’s Change of Control Severance Benefit.

(c) In addition to those already vested, all unvested stock options held by Executive shall be deemed immediately and fully vested and exercisable by Executive.

(d) So long as Executive does not compete with Company or its subsidiaries in the Gaming Business prior to the end of the Term (except as provided in Section 6.5.2(b)), Executive will also be entitled to receive health benefits coverage for Executive and Executive’s dependents, and disability insurance coverage for Executive, under the same plan(s) or arrangement(s) under which Executive was covered immediately before Executive’s termination of employment or plan(s) established or arrangement(s) provided by the Company or any of its Subsidiaries thereafter for the benefit of senior executives. Such health benefits and disability coverage shall be paid for by the Company to the same extent as if Executive were still employed by the Company, and Executive will be required to make such payments as Executive would be required to make if Executive were still employed by the Company. The benefits provided under this Section 6.5.2(d) shall continue until the earlier of (a) the end of the Term, or, if the remaining portion of the Term is less than one (1) year, for one year following Executive’s termination of employment with the Company and all of its Subsidiaries, (b) the date Executive becomes covered under any other group health plan or group disability plan (as the case may be) not maintained by the Company or any of its Subsidiaries; provided, however, that if such other group health plan excludes any pre-existing condition that Executive or Executive’s dependents may have when coverage under

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such group health plan would otherwise begin, coverage under this Section 6.5.2(d) shall continue (but not beyond the period described in clause (a) of this sentence) with respect to such pre-existing condition until such exclusion under such other group health plan lapses or expires. In the event Executive is required to make an election under Sections 601 through 607 of the Employee Retirement Income Security Act of 1974, as amended (commonly known as COBRA) to qualify for the benefits described in this Section 6.5.2(d), the obligations of the Company and its Subsidiaries under this Section 6.5.2(d) shall be conditioned upon Executive’s timely making such an election.

(e) The “Covenant Not to Compete” set forth in Section 7.4 below shall not apply in any respect to Executive (except as the same may affect Executive’s entitlement to payments under Section 6.5.2(a) hereof) and the term of the “No Hire Away Policy” in Section 7.5 shall be limited to six (6) months from the date of termination.

6.6 Suspension. In lieu of terminating Executive’s employment hereunder for cause under Section 6.1, Company shall have the right, at its sole election, to suspend the performance of duties by Executive under this Agreement during the continuance of events or circumstances under Section 6.1 for an aggregate of not more than thirty (30) days during the Term (the “Default Period”) by giving Executive written notice of Company’s election to do so at any time during the Default Period. Company shall have the right to extend the Term beyond its normal expiration date by the period(s) of any suspension(s). Company’s exercise of its right to suspend the operation of this Agreement shall not preclude Company from subsequently terminating Executive’s employment hereunder. Executive shall not render services to any other person, firm or corporation in the casino business during any period of suspension. Executive shall be entitled to continued compensation and benefits pursuant to the provisions of this Agreement during the Default Period.

ARTICLE 7

CONFIDENTIALITY

7.1 Nondisclosure of Confidential Material. In the performance of Executive’s duties, Executive may have access to confidential records, including, but not limited to, development, marketing, organizational, financial, managerial, administrative and sales information, data, specifications and processes presently owned or at any time hereafter developed or used by Company or its agents or consultants that is not otherwise part of the public domain (collectively, the “Confidential Material”). All such Confidential Material is considered secret and is disclosed to Executive in confidence. Executive acknowledges that the Confidential Material constitutes proprietary information of Company which draws independent economic value, actual or potential, from not being generally known to the public or to other persons who could obtain economic value from its disclosure or use, and

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that Company has taken efforts reasonable under the circumstances, of which this Section 7.1 is an example, to maintain its secrecy. Except in the performance of Executive’s duties to Company or as required by a court order, Executive shall not, directly or indirectly for any reason whatsoever, divulge, communicate, use or otherwise disclose any such Confidential Material, unless such Confidential Material ceases to be confidential because it has become part of the public domain (not due to a breach by Executive of Executive’s obligations hereunder). Executive shall also take all reasonable actions appropriate to maintain the secrecy of all Confidential Information. All records, lists, memoranda, correspondence, reports, manuals, files, drawings, documents, equipment, and other tangible items (including computer software), wherever located, incorporating the Confidential Material, which Executive shall prepare, use or encounter, shall be and remain Company’s sole and exclusive property and shall be included in the Confidential Material. Upon termination of this Agreement, or whenever requested by Company, Executive shall promptly deliver to Company any and all of the Confidential Material, not previously delivered to Company, that is in the possession or under the control of Executive.

7.2 Assignment of Intellectual Property Rights. Any ideas, processes, know-how, copyrightable works, maskworks, trade or service marks, trade secrets, inventions, developments, discoveries, improvements and other matters that may be protected by intellectual property rights, that relate to Company’s business and are the results of Executive’s efforts during the Term (collectively, the “Executive Work Product”), whether conceived or developed alone or with others, and whether or not conceived during the regular working hours of Company, shall be deemed works made for hire and are the property of Company. In the event that for whatever reason such Executive Work Product shall not be deemed a work made for hire, Executive agrees that such Executive Work Product shall become the sole and exclusive property of Company, and Executive hereby assigns to Company Executive’s entire right, title and interest in and to each and every patent, copyright, trade or service mark (including any attendant goodwill), trade secret or other intellectual property right embodied in Executive Work Product. Company shall also have the right, in its sole discretion, to keep any and all of Executive Work Product as Company’s Confidential Material. The foregoing work made for hire and assignment provisions are and shall be in consideration of this agreement of employment by Company, and no further consideration is or shall be provided to Executive by Company with respect to these provisions. Executive agrees to execute any assignment documents Company may require confirming Company’s ownership of any of Executive Work Product. Executive also waives any and all moral rights with respect to any such works, including without limitation any and all rights of identification of authorship and/or rights of approval, restriction or limitation on use or subsequent modifications. Executive promptly will disclose to Company any Executive Work Product.

7.3 No Unfair Competition After Termination of Agreement. Executive hereby acknowledges that the sale or unauthorized use or disclosure of any of Company’s Confidential Material obtained by Executive by any means whatsoever, at any time before, during or after the Term shall constitute unfair competition. Executive shall not engage in any unfair competition with Company either during the Term or at any time thereafter.

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7.4 Covenant Not to Compete. In the event this Agreement is terminated by Company for cause under Section 6.1 above, or by Executive, for a reason other than one specified in Section 6.3 above, then for a period of one (1) year after the effective date of such termination, Executive shall not, directly or indirectly, work for or provide services to or own an equity interest (except for a Permissible Investment) in any person, firm or entity engaged in the casino gaming, card club or horseracing business which competes against Company in any “market” in which Company owns or operates a casino, card club or horseracing facility. For purposes of this Agreement, “market” shall be defined as the area within a one hundred (100) mile radius of any casino, card club or horseracing facility owned or operated by Company.

7.5 No Hire Away Policy. In the event this Agreement is terminated prior to the normal expiration of the Term, either by Company for cause under Section 6.1 above, or by Executive, for a reason other than one specified in Section 6.3 above, then for a period of one (1) year after the effective date of such termination, Executive shall not, directly or indirectly, for Executive or on behalf of any entity with which Executive is affiliated or employed, hire any person known to, or who should have been known to, Executive to be an employee of Company or any of its subsidiaries (or any person known to, or who should have been known to, Executive to have been such an employee within six (6) months prior to such occurrence). Executive shall not be deemed to hire any such person so long as Executive did not directly or indirectly engage in, participate in or encourage such hiring.

7.6 No Solicitation. During the Term and for a period of one (1) year thereafter, or for a period of one (1) year after earlier termination of this Agreement prior to expiration of the Term, and regardless of the reason for such termination (whether by Company or Executive), Executive shall not directly or indirectly, for Executive or on behalf of any entity with which Executive is affiliated or employed, solicit or recruit any employee of Company or any of its subsidiaries (or any person who was such an employee within six (6) months prior to such occurrence) or encourage or advise any such employee to leave the employment of Company or any of its subsidiaries.

7.7 Non-Solicitation of Customers. During the Term and for a period of one (1) year thereafter, or for a period of one (1) year after the earlier termination of this Agreement prior to the expiration of the Term, and regardless of the reason for such termination (whether by Company or Executive), Executive shall not use customer lists or Confidential Material to solicit any customers of Company or its subsidiaries or any of their respective casinos or card clubs, or knowingly encourage, solicit or persuade any such customers to leave Company’s casinos or card clubs or knowingly encourage, solicit or persuade any such customers to use the facilities or services of any competitor of Company or its subsidiaries.

7.8 Irreparable Injury. The promised service of Executive under this Agreement and the other promises of this Article 7 are of special, unique, unusual, extraordinary, or intellectual character, which gives them peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law.

7.9 Remedies for Breach. Executive agrees that money damages will not be a sufficient remedy for any breach of the obligations under this Article 7 and Article 2 hereof

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and that Company shall be entitled to injunctive relief (which shall include, but not be limited to, restraining Executive from directly or indirectly working for or having an ownership interest (except for a Permissible Investment in any person engaged in the casino, gaming or horseracing businesses in any market which Company or its affiliates owns or operates any such business, using or disclosing the Confidential Material) and to specific performance as remedies for any such breach. Executive agrees that Company shall be entitled to such relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of proving actual damages and without the necessity of posting a bond or making any undertaking in connection therewith. Any such requirement of a bond or undertaking is hereby waived by Executive and Executive acknowledges that in the absence of such a waiver, a bond or undertaking might otherwise be required by the court. Such remedies shall not be deemed to be the exclusive remedies for any breach of the obligations in this Article 7 or in Article 2, but shall be in addition to all other remedies available at law or in equity.

ARTICLE 8

ARBITRATION

8.1 General. Except for a claim for injunctive relief under Section 7.9, any controversy, dispute, or claim between the parties to this Agreement, including any claim arising out of, in connection with, or in relation to the formation, interpretation, performance or breach of this Agreement shall be settled exclusively by arbitration, before a single arbitrator, in accordance with this Article 8 and the then most applicable rules of the American Arbitration Association. This agreement to arbitrate shall survive the expiration of this Agreement and shall cover all issues relevant to the employment of Executive by Company. Judgment upon any award rendered by the arbitrator may be entered by any state or federal court having jurisdiction thereof. Such arbitration shall be administered by the American Arbitration Association. Arbitration shall be the exclusive remedy for determining any such dispute, regardless of its nature. Notwithstanding the foregoing, either party may in an appropriate matter apply to a court for provisional relief, including a temporary restraining order or a preliminary injunction, on the ground that the award to which the applicant may be entitled in arbitration may be rendered ineffectual without provisional relief. Unless mutually agreed by the parties otherwise, any arbitration shall take place in Clark County, Nevada.

8.2 Selection of Arbitrator. In the event the parties are unable to agree upon an arbitrator, the parties shall select a single arbitrator from a list of nine (9) arbitrators drawn by the parties at random from the “Independent” (or “Gold Card”) list of retired judges or, at the option of Executive, from a list of nine (9) persons (which shall be retired judges or corporate or litigation attorneys experienced in executive employment agreements) provided by the office of the American Arbitration Association having jurisdiction over Clark County, Nevada. If the parties are unable to agree upon an arbitrator from the list so drawn, then the parties shall each strike names alternately from the list, with the first to strike being determined by lot. After each party has used four strikes, the remaining name on the list

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shall be the arbitrator. If such person is unable to serve for any reason, the parties shall repeat this process until an arbitrator is selected.

8.3 Applicability of Arbitration; Remedial Authority. This agreement to resolve any disputes by binding arbitration shall extend to claims against any parent, subsidiary or affiliate of each party, and, when acting within such capacity, any officer, director, stockholder, employee or agent of each party, or of any of the above, and shall apply as well to claims arising out of state and federal statutes and local ordinances as well as to claims arising under the common law. In the event of a dispute subject to this paragraph the parties shall be entitled to reasonable discovery subject to the discretion of the arbitrator. The remedial authority of the arbitrator (which shall include the right to grant injunctive or other equitable relief) shall be the same as, but no greater than, would be the remedial power of a court having jurisdiction over the parties and their dispute. The arbitrator shall, upon an appropriate motion, dismiss any claim without an evidentiary hearing if the party bringing the motion establishes that he, she or it would be entitled to summary judgement if the matter had been pursued in court litigation. In the event of a conflict between the applicable rules of the American Arbitration Association and these procedures, the provisions of these procedures shall govern.

8.4 Fees and Costs. Any filing or administrative fees shall be borne initially by the party requesting arbitration. The Company shall be responsible for the costs and fees of the arbitration, unless Executive wishes to contribute (up to fifty percent (50%)) of the costs and fees of the arbitration. Notwithstanding the foregoing, the prevailing party in such arbitration, as determined by the arbitrator, and in any enforcement or other court proceedings, shall be entitled, to the extent permitted by law, to reimbursement from the other party for all of the prevailing party’s costs (including but not limited to the arbitrator’s compensation), expenses, and attorneys’ fees.

8.5 Award Final and Binding. The arbitrator shall render an award and written opinion, and the award shall be final and binding upon the parties. If any of the provisions of this paragraph, or of this Agreement, are determined to be unlawful or otherwise unenforceable, in whole or in part, such determination shall not affect the validity of the remainder of this Agreement, and this Agreement shall be reformed to the extent necessary to carry out its provisions to the greatest extent possible and to insure that the resolution of all conflicts between the parties, including those arising out of statutory claims, shall be resolved by neutral, binding arbitration. If a court should find that the arbitration provisions of this Agreement are not absolutely binding, then the parties intend any arbitration decision and award to be fully admissible in evidence in any subsequent action, given great weight by any finder of fact, and treated as determinative to the maximum extent permitted by law.

ARTICLE 9

MISCELLANEOUS

9.1 Amendments. The provisions of this Agreement may not be waived, altered, amended or repealed in whole or in part except by the signed written consent of the parties sought to be bound by such waiver, alteration, amendment or repeal.

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9.2 Entire Agreement. This Agreement constitutes the total and complete agreement of the parties and supersedes all prior and contemporaneous understandings and agreements heretofore made, and there are no other representations, understandings or agreements.

9.3 Counterparts. This Agreement may be executed in one of more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. Facsimile signatures shall be deemed original so long as the manually executed signature is delivered as soon as practicable.

9.4 Severability. Each term, covenant, condition or provision of this Agreement shall be viewed as separate and distinct, and in the event that any such term, covenant, condition or provision shall be deemed by an arbitrator or a court of competent jurisdiction to be invalid or unenforceable, the court or arbitrator finding such invalidity or unenforceability shall modify or reform this Agreement to give as much effect as possible to the terms and provisions of this Agreement. Any term or provision which cannot be so modified or reformed shall be deleted and the remaining terms and provisions shall continue in full force and effect.

9.5 Waiver or Delay. The failure or delay on the part of Company, or Executive to exercise any right or remedy, power or privilege hereunder shall not operate as a waiver thereof. A waiver, to be effective, must be in writing and signed by the party making the waiver. A written waiver of default shall not operate as a waiver of any other default or of the same type of default on a future occasion.

9.6 Successors and Assigns. This Agreement shall be binding on and shall inure to the benefit of the parties to it and their respective heirs, legal representatives, successors and assigns, except as otherwise provided herein.

9.7 No Assignment or Transfer by Executive. Neither this Agreement nor any of the rights, benefits, obligations or duties hereunder may be assigned or transferred by Executive. Any purported assignment or transfer by Executive shall be void.

9.8 Necessary Acts. Each party to this Agreement shall perform any further acts and execute and deliver any additional agreements, assignments or documents that may be reasonably necessary to carry out the provisions or to effectuate the purpose of this Agreement.

9.9 Governing Law. This Agreement and all subsequent agreements between the parties shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of Nevada.

9.10 Notices. All notices, requests, demands and other communications to be given under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if personally served on the party to whom notice is to be given, or 48 hours after mailing, if mailed to the party to whom notice is to be given by certified or registered mail, return receipt requested, postage prepaid, and properly addressed to the

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party at such party’s address set forth as follows or any other address that any party may designate by written notice to the other parties:

                                To Executive:

Wade W. Hundley

109 Cottonwood

Coppell, TX 75019

Telephone: 972 471 2241

Facsimile: 972 304 5529

                                To Company:

Pinnacle Entertainment, Inc.

Suite 1800

3800 Howard Hughes Parkway

Las Vegas, NV 89109

Attn: John A. Godfrey, Esq.

Telephone: 702 784 7777

Facsimile: 702 784 7778

                                with copy to:

Irell & Manella LLP

1800 Avenue of the Stars,

Suite 900

Los Angeles, CA 90067-4276

Attn: Alvin G. Segel, Esq.

Telephone: 310 277 1010

Facsimile: 310 284 3052

9.11 Headings and Captions. The headings and captions used herein are solely for the purpose of reference only and are not to be considered as construing or interpreting the provisions of this Agreement.

9.12 Construction. All terms and definitions contained herein shall be construed in such a manner that shall give effect to the fullest extent possible to the express or implied intent of the parties hereby.

9.13 Counsel. Executive has been advised by Company that he should consider seeking the advice of counsel in connection with the execution of this Agreement and Executive has had an opportunity to do so. Executive has read and understands this Agreement, and has sought the advice of counsel to the extent he has determined appropriate. The Company shall reimburse Executive for the reasonable fees and expenses of Executive’s counsel in connection with this Agreement.

9.14 Withholding of Compensation. Executive hereby agrees that Company may deduct and withhold from the compensation or other amounts payable to Executive hereunder or otherwise in connection with Executive’s employment any amounts required to be deducted and withheld by Company under the provisions of any applicable Federal, state and local statute, law, regulation, ordinance or order.

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

EXECUTIVE WADE W. HUNDLEY		COMPANY PINNACLE ENTERTAINMENT, INC.
By:	/s/    WADE W. HUNDLEY	By:	/s/    DANIEL R. LEE
			Daniel R. Lee, Chief Executive Officer

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EX-10.3

EXHIBIT 10.3

LEASE

by and between

Churchill Downs California Company,

a Kentucky corporation,

as “Landlord”

and

Hollywood Park, Inc.,

a Delaware corporation,

as “Tenant”

Dated:  September 10, 1999

	TABLE OF CONTENTS
		Page
ARTICLE 1. LEASE OF PREMISES		2
1.01	Premises	2
ARTICLE 2. TERM; POSSESSION; ACCEPTANCE		3
2.01	Initial Term	3
2.02	Extension	3
2.03	The “Term”	3
ARTICLE 3. RENT		4
3.01	Base Rent	4
3.02	Common Area Charges.	6
3.03	Additional Rent; Rent Defined	7
3.04	Interest on Late Payments	7
3.05	Security Deposit	7
ARTICLE 4. USE AND OPERATION OF PREMISES		8
4.01	Specific Use of Premises	8
4.02	Compliance with Laws	8
4.03	Independent Business	9
ARTICLE 5. MAINTENANCE, REPAIRS AND ALTERATIONS		9
5.01	By Tenant	9
5.02	By Landlord	9
5.03	Manner of Repairs	10
5.04	Right to Make Repairs	10
5.05	Alterations; Improvements; Additions	10
5.06	Mechanic’s Liens	11

i

		Page
ARTICLE 6. DAMAGE AND DESTRUCTION		11
6.01	Definitions	11
6.02	Insured Casualty	12
6.03	Uninsured Casualty	12
6.04	Termination of Lease	12
6.05	Abatement of Rent	13
6.06	Casualty Near End of Term	13
6.07	Waiver	14
ARTICLE 7. INSURANCE, EXONERATION AND INDEMNITY		14
7.01	Liability Insurance	14
7.02	Property Insurance	14
7.03	Tenant’s Property Insurance	15
7.04	Landlord’s Insurance	15
7.05	Insurance Policies	16
7.06	Waiver of Subrogation	16
7.07	Exoneration and Indemnity	17
ARTICLE 8. ASSIGNMENT, SUBLETTING, HYPOTHECATION		18
8.01	Landlord’s Consent Required	18
8.02	Future Consents/Tenant’s Liability	19
8.03	Tenant Affiliates	19
8.04	Assignment Restrictions	19
ARTICLE 9. EMINENT DOMAIN		19
9.01	Effect on Lease	19
9.02	Award	20
9.03	Rebuilding	20

ii

		Page
ARTICLE 10. TENANT’S BREACH; LANDLORD’S REMEDIES		20
10.01	Tenant’s Breach	20
10.02	Landlord’s Remedies	22
10.03	Right to Cure Tenant’s Default	23
10.04	Landlord’s Remedies Not Exclusive	24
10.05	Receipt of Rents	24
ARTICLE 11. LANDLORD’S DEFAULT; TENANT’S REMEDIES		24
11.01	Landlord’s Default	24
11.02	Tenant’s Remedies	24
11.03	Tenant’s Remedies Not Exclusive	25
11.04	Payment of Rents	25
ARTICLE 12. HAZARDOUS SUBSTANCES		25
12.01	Tenant’s Obligations.	25
12.02	Notice of Release or Investigation	25
12.03	Definition of “Hazardous Substance”	25
ARTICLE 13. SUBORDINATION, NON-DISTURBANCE and attornment		26
ARTICLE 14. TAXES AND OTHER CHARGES		26
14.01	Payment of Taxes	26
14.02	Tenant’s Obligations	27
14.03	Right to Contest	27
ARTICLE 15. UTILITY AND OTHER SERVICES		27
15.01	Utility Charges	27
15.02	Security; Landlord Nonresponsibility; Indemnity	28
ARTICLE 16. GENERAL PROVISIONS		28
16.01	Estoppel Certificates	28

iii

		Page
16.02	Landlord’s Right of Entry	29
16.03	Waiver	29
16.04	Surrender of Premises; Holding Over	29
16.05	Notices	30
16.06	Partial Invalidity; Construction	31
16.07	Captions	31
16.08	Memorandum of Lease	31
16.09	Readerboard Signs	31
16.10	Signage	31
16.11	Brokers’ Commissions	32
16.12	Attorneys’ Fees	32
16.13	Counterparts	32
16.14	Sole Agreement	32
16.15	Successors and Assigns	32
16.16	Time is of the Essence	33
16.17	Survival of Covenants	33
16.18	Landlord’s Consent or Approval	33
16.19	Entire Agreement	33
16.20	Joint and Several Obligations	33
16.21	No Offer	34
16.22	Corporate Resolution	34

iv

LEASE

This LEASE is made and entered into this 10^th day of September, 1999, by and between Churchill Downs California Company, a Kentucky corporation, hereinafter called “Landlord”, and Hollywood Park, Inc., a Delaware corporation, hereinafter called “Tenant”.

FOR AND IN CONSIDERATION of the mutual covenants and agreements contained herein, Landlord and Tenant hereby agree as follows:

ARTICLE 1.

LEASE OF PREMISES

1.01 Premises

(a) Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those certain improvements located on a portion of the real property more particularly described on Exhibit A attached hereto (the “Property”) comprised of the casino building (the “Premises”) and commonly known as 3883 West Century Boulevard, Inglewood, California 90303, which Premises are more particularly described in Exhibit B attached hereto, subject to all of the terms, covenants and conditions set forth herein. Tenant acknowledges that Landlord has made no representation or warranty, express or implied, regarding the condition of the Premises except as specifically stated in this Lease.

(b) Common Areas. In addition to the Premises, Tenant shall have a non-exclusive easement and right to use the “Common Areas” of the Property comprised of parking areas, driveways, sidewalks, walkways, loading and unloading areas, trash areas, fences and gates as described and delineated in Exhibit C attached hereto. Tenant acknowledges that Landlord has made no representation or warranty, express or implied, regarding the condition of the Common Areas. Landlord shall maintain the Common Areas in neat, clean, safe, good order and condition. With respect to the Common Areas, Landlord shall have the right, from time to time, provided that Landlord at all times provides sufficient parking facilities for the operation of Tenant’s business, access to the Premises, and access between the Racetrack and the Premises all similar in size, utility and convenience to that provided to patrons of the Hollywood Park — Casino prior to the Closing Date, to (i) make changes to the Common Areas or to close temporarily any of the Common Areas for maintenance purposes; (ii) add additional buildings and improvements to the Common Areas; (iii) use the Common Areas while engaged in making additional improvements, repairs or alterations; and (iv) promulgate reasonable rules and regulations with respect to the use thereof. In no event will Landlord charge patrons who have already paid admission to the Racetrack for readmission to the Racetrack after visiting the Casino.

(c) Parimutuel Space. Notwithstanding anything contained herein to the contrary, Landlord hereby reserves unto itself use and access rights sufficient to allow Landlord to operate the parimutuel activities on that portion of the Premises described and delineated on Exhibit D hereto. Landlord shall, at its sole cost and expense, provide simulcasts of all events which are otherwise simulcast from the Racetrack to locations within the Premises consistent with the past practices of Landlord’s predecessor in interest

immediately prior to the date hereof. Landlord, at its sole cost and expense, shall be responsible for the maintenance, repair and replacement of all equipment necessary to the operation of the Parimutuel Space.

ARTICLE 2.

TERM; POSSESSION; ACCEPTANCE

2.01 Initial Term

The term (“Initial Term”) of this Lease shall commence on the Closing Date (the “Commencement Date”) and shall continue for a period of one hundred and twenty (120) full calendar months thereafter unless sooner terminated pursuant to any provision hereof. The Initial Term shall end at 11:59 p.m. on September 9, 2009.

2.02 Extension

Tenant will have the option (the “Extension Option”) to extend the Initial Term for one (1) period of ten (10) years (the “Extension Period”) upon the same terms, covenants and conditions as herein contained, except that (i) the Base Rent for any such Extension Period will be increased as provided in Section 3.01; and (ii) there shall be no further extension options at the end of such ten-year period. Tenant may exercise such option by giving written notice to Landlord (“Exercise Notice”) at least nine (9) months before the expiration of the Initial Term. Upon Tenant’s giving such Exercise Notice, the Initial Term of this Lease will be automatically extended for the applicable Extension Period without the execution of an extension or renewal lease.

(a) The Extension Option may be exercised only by written notice delivered by Tenant to Landlord as provided in this Section 2.02(a) and only if, as of the date of delivery of the notice, Tenant is not in Default under this Lease.

(b) The rights contained in this Section 2.02 may be exercised by the originally named Tenant or by any assignee of Tenant’s interest in this Lease if the assignment has been approved or deemed approved by Landlord in accordance with Section 8.01.

(c) If Tenant properly exercises the Extension Option and Tenant is not in Default under this Lease on the expiration date of the Initial Term, the Term shall be extended for the Extension Period.

2.03 The “Term”

The phrase “the Term” (and such similar phrases as “the term of this Lease,” “the term hereof” and phrases of similar import, whether or not capitalized) will include the Initial Term, plus any Extension Period as to which Tenant exercises its right to extend this Lease pursuant to Section 2.02.

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ARTICLE 3.

RENT

3.01 Base Rent

(a) During the Initial Term of the Lease, Tenant shall pay to Landlord rent in the amount of two hundred fifty-thousand dollars ($250,000) per month (the “Base Rent”). Payment of the Base Rent shall be made at Landlord’s offices at the Racetrack or at any other place that Landlord may from time to time designate in writing. Payment must be in United States dollars, either in the form of a check or via electronically transmitted funds.

(b) The Base Rent shall be increased upon the commencement of the Extension Period in accordance with the provisions of Section 3.01(c) herein.

(c) Extension Period Rent

(1) As used herein, the following terms shall have the following meanings:

(A) “Index” shall mean the Consumer Price Index for All Urban Consumers U.S. City Average, All Items (base years 1982-1984=100), published by the Bureau of Labor Statistics of the United States Department of Labor. In the event the Index shall hereafter be converted to a different standard reference base or otherwise revised, such conversion factor, formula or table for converting the Index as may be published by the Bureau of Labor Statistics shall be used, or if the Bureau of Labor Statistics shall not publish the same, then such conversion factor, formula or table selected by Landlord as may be published by any other nationally recognized publisher of similar statistical information shall be used. In the event the Index shall cease to be published, then there shall be substituted for the Index such other index of similar nature as is then generally recognized and accepted for like determinations of purchasing power, as Landlord shall select.

(B) “Base Index” shall mean the Index in effect for the calendar month which is three (3) months prior to the calendar month in which the Commencement Date occurs. By way of example, if the Commencement Date occurs in February, the Base Index would be the Index for the month of November immediately preceding the Commencement Date.

(C) “Adjustment Date” shall mean the date on which the Extension Period commences.

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(D) “Adjustment Index” shall mean the Index in effect for the calendar month which is three (3) months prior to the calendar month in which the Adjustment Date occurs. If the Index shall cease to be published, and there is no Index in effect for such month, the Adjustment Index shall be the most currently available quotation of the Index published prior to the relevant Adjustment Date.

(2) The Base Rent shall be adjusted as of the Adjustment Date to be the Base Rent multiplied by a fraction, the numerator of which shall be equal to the Adjustment Index for such Adjustment Date and the denominator of which shall be equal to the Base Index, but in no event less than one (1). Landlord shall, within twenty (20) days after the publication of the Adjustment Index, give notice to Tenant of the Adjustment Index and the resulting adjustment, if any, in the Base Rent as determined by Landlord, and Landlord’s computation thereof shall be conclusive and binding (except for mathematical error), but shall not preclude any further adjustment which may be required in the event of a published amendment of the Adjustment Index. If Landlord’s notice is not given prior to the Adjustment Date, until receipt of Landlord’s notice, Tenant shall pay, as interim Base Rent, the Base Rent in effect immediately prior to the Adjustment Date. Commencing with the next ensuing calendar month following Landlord’s notice Tenant shall pay the adjusted Base Rent. Within twenty (20) days of Tenant’s receipt of Landlord’s notice, Tenant shall pay to Landlord the amount of any adjusted Base Rent previously unpaid due to Landlord’s failure to give notice prior to the Adjustment Date. Landlord’s delay in giving notice of an adjustment in Base Rent shall not constitute a waiver of Landlord’s right to receive such adjusted Base Rent for all periods from and after the applicable Adjustment Date.

(d) The Base Rent shall be paid in advance on the first day of each month during the Term, without any deduction or offset, prior notice or demand. Tenant’s obligation to pay Base Rent shall commence on the Commencement Date. If the Commencement Date shall be a day other than the first day of the calendar month, or, if the Term shall end on any day other than the last day of the calendar month, then the Base Rent for the first and/or last partial calendar month of the Term, as the case may be, shall accrue on a daily basis for each day of that fractional month at a daily rate equal to 1/30^th of the Base Rent. All other payments or adjustments that are required to be made under the terms of this Lease and that require proration on a time basis shall be prorated on the same basis.

(e) On the date Tenant executes this Lease, Tenant shall pay to Landlord the sum of $250,000 which amount represents the Base Rent for the first full calendar month of the Term.

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(f) Tenant shall pay to Landlord the Base Rent, Common Area Charges, Additional Rent and other payments due hereunder without abatement, deduction or set-off except as otherwise expressly provided herein.

3.02 Common Area Charges. Tenant shall pay to Landlord during the Term hereof certain Common Area Charges (as defined below) in accordance herewith. Common Area Charges shall be allocated to Tenant and Landlord in proportion to their respective use of each of the facilities comprising the Common Areas.

(a) “Common Area Charges” shall be an amount equal to Tenant’s share of the costs, if any, incurred by Landlord in the exercise of its reasonable discretion, for the operation, repair and maintenance of the Common Areas as described in Section 1.01(c) herein, provided however, Landlord shall be solely responsible for all costs, expenses and taxes related to the construction of any additional buildings or similar capital improvements to the Common Areas or any maintenance thereto subsequent to the execution date of this Lease.

(b) In the event of a dispute between Landlord and Tenant as to the determination of Tenant’s share of Common Area Charges, Landlord’s auditors and Tenant’s auditors shall have 15 days after submission of a dispute to seek to mutually agree upon such determination. If they are unable to agree, they shall mutually select another “Big 5” accounting firm which shall make the determination and whose decision, in the absence of manifest error, shall be conclusive and binding on the parties, each of whom shall be entitled to present evidence in support of its position. The cost of the parties accounting firms shall be borne by the respective parties and the costs of any third accounting firm selected shall be borne equally by Landlord and Tenant.

(c) Common Area Charges shall be payable by Tenant within thirty (30) days after a reasonably detailed statement of actual expenses is presented to Tenant by Landlord. At Landlord’s option, however, an amount may be estimated by Landlord from time to time of Common Area Charges and the same shall be payable in twelve (12) equal installments during each calendar month of the Term, on the same day as the Base Rent is due hereunder. Landlord shall deliver to Tenant within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing the actual expenses comprising elements of Common Area Charges incurred during the preceding year. In the event Tenant has paid estimates of Common Area Charges as aforesaid and such payments exceed the actual charges indicated on Landlord’s statement, Tenant shall be entitled to credit the amount of such overpayment against future payments of Base Rent. If Tenant’s payments were less than Tenant’s share of actual charges as indicated on such statement, Tenant shall pay to Landlord the amount of the deficiency within twenty (20) days after delivery by Landlord to Tenant of such statement.

(d) Tenant, at its expense, may make, or cause to be made, an audit of all books and records of Landlord, including its respective bank accounts which in any way pertain to the accuracy of the Common Area Charges. Landlord shall give Tenant and its designated representatives access to such books and records at all reasonable times for purposes of making any such audit and preparing any such statement, report or financial statements.

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Such audit shall be made and such statements and reports shall be prepared by a person or persons selected by Tenant. The costs thereof shall be paid by Tenant; provided, however, that if such audit results in an adjustment of five percent (5%) or more or discloses any willful inaccuracy of Landlord, the cost of such audit shall be borne by Landlord.

(e) Notwithstanding the foregoing, if Landlord makes the election set forth in the Parking License to use parking facilities on the property subject thereto, all Common Area Charges shall abate for so long as the Parking License, executed concurrently with this Lease, remains in effect.

3.03 Additional Rent; Rent Defined

(a) In addition to the Base Rent, Tenant shall also pay as additional rent (“Additional Rent”), without deduction or offset, all Common Area Charges, other charges relating to Tenant’s use of the Premises, including, without imitation, charges for utilities, taxes, and all other charges, fees, costs, taxes, impositions, expenses and other sums required to be paid by Tenant under the provisions of this Lease whether or not the same shall be designated as Additional Rent. In the event of nonpayment of any Additional Rent when due, Landlord shall have all of the rights and remedies provided hereunder or by law for the nonpayment of rent.

(b) As used in this Lease, the term “Rent” shall include Base Rent for the Premises, Common Area Charges and Additional Rent.

3.04 Interest on Late Payments

Any Rent or other amounts due from Tenant to Landlord hereunder which are not paid within five (5) days after the same becomes due shall bear interest at a rate (the “Agreed Rate”) equal to two percent (2%) per annum in excess of the “reference rate” as announced by Bank of America, National Association, as such rate may change from time to time, from the date due until the date paid, regardless of whether a notice of default or any other notice is given by Landlord; provided, however, if such rate is greater than the maximum rate of interest then permitted to be charged by law, the Agreed Rate shall be such maximum rate permitted by law. In the event that Bank of America, National Association, shall cease to exist or shall cease to announce a “reference rate” (or equivalent prime rate), there shall be substituted such alternative bank, alternative rate or alternative office as Landlord shall select. Acceptance of interest by Landlord shall not constitute a waiver of Tenant’s default with respect to the overdue amount, or prevent Landlord from exercising any other rights or remedies.

3.05 Security Deposit

Tenant shall deposit an amount equal to one month’s Base Rent with Landlord as a security deposit for the performance by Tenant of the provisions of this Lease, which shall not be construed as an advance payment of Rent hereunder. If Tenant is in Default hereunder, Landlord shall be entitled to use the security deposit, or any portion of it, to cure the Default or to compensate Landlord for damages sustained by Landlord resulting from Tenant’s Default. Tenant shall immediately upon demand pay to Landlord a sum equal to the portion of the security deposit expended or applied by Landlord as provided in this

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Section 3.05 so as to maintain the security deposit in the sum initially deposited with Landlord. If Tenant is not in Default at the expiration or termination of this Lease, Landlord shall return the security deposit to Tenant within fourteen (14) days after the expiration of the Term of this Lease or after Tenant has vacated the Premises, whichever is later. Landlord (i) may commingle the security deposit with Landlord’s general funds, and (ii) shall not pay Tenant interest on the security deposit. THIS PROVISION SHALL NOT APPLY TO THE ORIGINALLY NAMED TENANT UNDER THIS LEASE OR TO ANY ASSIGNEE WITH A NET WORTH EQUAL TO OR IN EXCESS OF THE MINIMUM NET WORTH.

ARTICLE 4.

USE AND OPERATION OF PREMISES

4.01 Specific Use of Premises

Tenant shall use and occupy the Premises as a card club and/or for other forms of legalized gaming, and for private parties, meetings and other ancillary uses and for no other purpose without the prior written consent of Landlord. Notwithstanding the foregoing, in the event any permitted use of the Premises becomes illegal, Tenant may use the Premises for any lawful purpose so long as such use (i) does not materially increase the burdens on the Building Systems (as that term is Section 5.01) or the Common Areas (including without limitation, parking); (ii) does not increase the real estate tax or insurance costs, unless Tenant agrees to pay any such increases; and (iii) does not compete with the types of business conducted by Landlord on the Property. Tenant understands that Landlord’s primary business is the operation of a racetrack on the Property, not the leasing of commercial space, and that Landlord is entering into this transaction primarily to ensure the existence, at this location, of a first-class card club. Tenant agrees that it will not change the name of the card club without the prior consent of Landlord. Tenant shall not allow the Premises to be used for any unlawful purpose, nor shall Tenant cause or permit any noxious use of or nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on or about the Premises. Tenant shall not do or permit anything to be done on or about the Premises or bring or keep anything therein which will in any way increase the rate or jeopardize the coverage of insurance thereon.

4.02 Compliance with Laws

Landlord and Tenant shall cause all maintenance, repair and alterations to the Premises to be performed in a good and workmanlike manner and in compliance with all federal, state, county, city, or government agency laws, statutes, ordinances, standards, rules, requirements or orders now in force or hereafter enacted, promulgated, or issued and any covenants and restrictions of record (including, without limitation, government measures regulating or enforcing public access, occupational, health, or safety standards for employers, employees, landlords, or tenants) (collectively, “Applicable Laws”). The obligation and expense of making any repairs, replacements, alterations or improvements to the Premises necessary to comply with all Applicable Laws shall be allocated between Landlord and Tenant pursuant to Article 5 herein.

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4.03 Independent Business

By this Lease, neither party acquires any right, title or interest in or to any property of the other party except such rights as are specifically stated in this Lease. The relationship between Landlord and Tenant is solely that of landlord and tenant, and is not and shall not be deemed to be a partnership or joint venture.

ARTICLE 5.

MAINTENANCE, REPAIRS AND ALTERATIONS

5.01 By Tenant

Tenant will, at its sole cost and expense, perform such maintenance and repairs as are necessary to keep and maintain the non-structural portions of the Premises and all Building Systems (as hereinafter defined) in good and sanitary order, condition and repair, but excluding ordinary wear and tear; provided, however, that damage caused by casualty or by subsidence or other earth movement or by Landlord’s failure to perform its obligations under this Lease shall be governed by Articles 6 and 11, respectively. For purposes of this Lease, the term “Building Systems shall mean all systems and equipment serving the building and other improvements comprising the Premises, including, without limitation, mechanical, plumbing, electrical, fire/life safety, elevator, escalator, and heating, ventilation and air conditioning (“HVAC”) systems.

5.02 By Landlord

Landlord will, at its sole cost and expense, perform such maintenance, repairs and replacements as are required to maintain in good order, condition and repair all structural components of the Premises, including but not limited to, roof (including skylights and trap doors), foundation, footings, load-bearing and exterior walls, columns and all other structural elements of the Premises. Further, if at any time during the Term hereof, any of the Building Systems, or any components thereof, require replacement or repair, the cost of which would be treated as a capital expenditure under generally accepted accounting principles, (i) Landlord shall promptly perform and pay for such replacement or repair, and (ii) Tenant shall reimburse Landlord annually an amount equal to the cost of any such repair or replacement, fully amortized over its useful life in accordance with generally accepted accounting principles together with interest at the reference rate (as that term is defined in Section 3.04) on the date of the commencement of the replacement or repair, to the extent so amortized during the Term hereof. Landlord will not be in default of its obligations under this Section 5.02 if Landlord performs the repairs, replacements and maintenance within twenty (20) days after written notice by Tenant to Landlord of the need for such repairs, replacements and maintenance. If, due to the nature of the particular repair, replacement or maintenance obligation, more than twenty (20) days are reasonably required to complete it, Landlord will not be in default under this Section 5.02 if Landlord begins work within such twenty (20) day period and diligently prosecutes the work to completion. Except as otherwise provided in this Lease, Tenant waives its rights, including its right to make repairs at Landlord’s expense, under California Civil Code §§ 1941 – 1942 or any similar law, statute or ordinance now or hereafter in effect.

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5.03 Manner of Repairs

All maintenance, repairs and replacements required to be made by either party hereunder will be made in compliance with Applicable Laws and in a good and workmanlike manner, using materials at least substantially comparable to the materials used in the original construction (or most recent renovation, if applicable) of the Premises. Each party shall commence its maintenance, repairs and replacements promptly after notification by the other of the need therefor, and carry out and complete the same with all due diligence and in such a manner as to cause the least possible inconvenience to the other in the conduct of its business at the Property. If repairs by one party can be made outside of the other party’s business hours without substantial additional cost, reasonable efforts will be made to do so.

5.04 Right to Make Repairs

Notwithstanding anything to the contrary herein, if one party provides notice to the other party of an event, condition or circumstance that requires repair, replacement or maintenance by the other party under Section 5.02, and if such party fails to complete such repair, maintenance or replacement within the period specified in Section 5.02, then the requesting party may (but shall not be obligated to) perform such repair, replacement or maintenance on the other party’s behalf and at such party’s cost and expense. If any repair, replacement or maintenance for which one party is responsible hereunder is of an emergency nature which, if not attended to promptly, might result in injury to persons or damage to property, or interfere with the conduct of the other party’s business at the Property, then the other party, without prior notice, may perform such repairs, replacements or maintenance on the responsible party’s behalf and at such party’s cost and expense. Any sums owing from one party to the other under this Section 5.04 shall be due immediately at the time the sum is paid and, if paid at a later date, shall bear interest at the Agreed Rate from the date the sum is paid until reimbursed.

5.05 Alterations; Improvements; Additions

Tenant shall be permitted to make any and all alterations, improvements, additions or installations (“Improvements”) in or about the Premises without Landlord’s consent so long as the estimated cost of any such Improvement does not exceed $100,000 and does not affect the structural parts of the Premises. Tenant shall not make or permit the making of any Improvements that affect the structural parts of the Premises or that have an estimated cost in excess of $100,000 without Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed. No Improvements shall be undertaken until Tenant shall have procured and paid for, so far as the same may be required from time to time, all municipal and other governmental permits and authorizations of the various municipal departments and governmental subdivisions having jurisdiction, and Landlord shall join in the application for such permits or authorizations whenever such action is necessary. Worker’s compensation insurance covering all persons employed in connection therewith and with respect to whom death or bodily injury claims could be asserted against Landlord shall be maintained by Tenant at all times when any work is in progress in connection with any changes or alterations. All Improvements which may be made on the Premises by Tenant or any subtenant shall become the property of Landlord and remain upon and be

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surrendered with the Premises at the expiration or prior termination of the Lease at the election of Landlord. In the event that Landlord elects to have such Improvements removed, Tenant shall upon notice from Landlord remove any and all Improvements constructed by Tenant as directed by Landlord and shall restore the Premises to the condition it was in prior to the construction of such Improvements.

5.06 Mechanic’s Liens

Tenant shall promptly pay in cash or its equivalent and discharge all claims for work or labor done or goods or materials furnished by third parties at the Premises, at the request of Tenant or any Subtenant and shall keep the Premises free and clear of all mechanic’s and materialman’s liens in connection therewith. If any mechanic’s or materialman’s lien is filed for work done on behalf of Tenant or any Subtenant at, or materials supplied to, the Premises by a third party, Tenant shall remove such lien by payment or bond (regardless of whether Tenant contests the claim made by the person asserting such lien and regardless of whether such claim is valid or has any basis in fact or law) not later than thirty (30) days after written demand for such removal is made by Landlord. If Tenant shall fail to discharge any such lien within such 30-day period, then in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, take such action or pay such amount as Landlord, in its sole discretion, shall deem appropriate to remove such lien, and Tenant shall pay to Landlord as Additional Rent all amounts (including attorneys’ fees) paid or incurred by Landlord in connection therewith within five (5) days after demand by Landlord, together with interest at the Agreed Rate from the date of payment by Landlord. Notwithstanding the foregoing, Tenant shall have the right to contest the correctness or the validity of any such lien if, immediately upon demand by Landlord, Tenant procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half times the amount of the claim of lien. The bond shall meet the requirements of Civil Code § 3143 or any similar or successor statute and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action). Landlord shall have the right to post and keep posted at any and all times on the Premises any notices for the protection of Landlord and the Premises from any such claim. Tenant shall, before the commencement of any work, or the delivery of any materials, which might result in any such lien, give to Landlord written notice of its (or any subtenant’s) intention to perform such work or obtain such materials in sufficient time to enable the posting of such notices.

ARTICLE 6.

DAMAGE AND DESTRUCTION

6.01 Definitions

For purposes of this Lease, the following terms will have the meanings indicated:

(a) “Insured Casualty” means damage or destruction to improvements on the Premises required to be covered by the insurance described in Section 7.02, including any deductible amounts or coverage limits.

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(b) “Uninsured Casualty” means damage or destruction to improvements on the Premises which is not an Insured Casualty.

(c) “Threshold Amount” means an amount equal to (i) ten percent (10%) of the replacement cost of the Premises at the time of a casualty, without deduction for depreciation, plus (ii) available insurance proceeds, if any, payable with respect to an earthquake or other Uninsured Casualty.

6.02 Insured Casualty

If an Insured Casualty occurs, Landlord, at its cost and expense, will promptly repair, restore and rebuild the improvements on the Premises in a good and workmanlike manner and with all due diligence, to substantially the same condition as existed immediately before the Insured Casualty; provided, however, that if so requested by Tenant and approved by Landlord, acting reasonably, Landlord will incorporate such changes and modifications in the improvements as Tenant reasonably determines will make the improvements more useful for the conduct of Tenant’s business, so long as the value of the improvements as so changed or modified will be generally comparable to the value of the improvements immediately before the Insured Casualty. Any deductibles or coverage limits shall be shared equally between Landlord and Tenant.

6.03 Uninsured Casualty

If an Uninsured Casualty occurs and the cost to repair and restore the same does not exceed the Threshold Amount, Landlord will promptly perform such repairs and restoration and the costs thereof shall be shared equally between Landlord and Tenant. If, however, the cost to repair and restore an Uninsured Casualty exceeds the Threshold Amount, Landlord may either: (i) perform such repairs and restoration at its expense, in which case this Lease will remain in full force and effect, or (ii) terminate this Lease by giving written notice to Tenant within sixty (60) days after Landlord becomes aware of the occurrence of the Uninsured Casualty. Such termination will be effective sixty (60) days following Tenant’s receipt of such notice; provided, however, that such termination will not occur and this Lease will remain in full force and effect, and Landlord will promptly repair and restore the Premises at Tenant’s sole cost and expense, if prior to the effective date of such termination Tenant gives written notice to Landlord that Tenant will pay the cost of such repairs and restoration. Landlord may require reasonable evidence of Tenant’s financial ability to pay such costs and expenses. All repairs and restoration required to be performed by Landlord pursuant to this Section 6.03 will be performed in the same manner as provided in Section 6.02.

6.04 Termination of Lease

Within thirty (30) days after the occurrence of any damage to or destruction of the Premises (whether insured or uninsured) which Landlord is obligated or elects to repair and restore pursuant to this Article 6, Landlord will give written notice to Tenant setting forth Landlord’s contractor’s reasonable determination as to the time necessary to complete such repairs and restoration (“Landlord’s Repair Time Estimate”). Notwithstanding anything to the contrary herein, if Landlord’s Repair Time Estimate indicates that it will take more than

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two hundred and seventy (270) days after the occurrence of such damage or destruction to complete such restoration or repair, Tenant may terminate this Lease by written notice to Landlord within thirty (30) days after Tenant’s receipt of Landlord’s Repair Time Estimate. If Tenant is not entitled or elects not to terminate this Lease pursuant to the preceding sentence, Landlord will commence the repair and restoration promptly and will diligently prosecute such work to completion. If during the course of such work Landlord determines that such repair and restoration may not be completed within two hundred seventy (270) days after the occurrence of the damage or destruction, then Landlord will promptly provide Tenant with a revised written schedule for completion of the repairs and restoration. Tenant may, within ten (10) days after notice of such revised schedule, inform Landlord in writing that it (a) accepts such revised schedule (in which case this Lease will remain in full force and effect according to its terms) or (b) elects to terminate this Lease (in which case this Lease will terminate as of the date indicated below). If Tenant fails to respond within ten (10) days after receipt of written notice of such revised schedule, Tenant will be deemed to have accepted such revised schedule. If the repair and restoration of the Premises is not actually completed within two hundred seventy (270) days after the occurrence of the damage or destruction, or within fourteen (14) days after the applicable revised scheduled completion date (if any), agreed to by Tenant in writing, then Tenant may terminate this Lease by written notice to Landlord at any time thereafter and prior to the actual completion of such repair and restoration in excess of the Threshold Amount. If Tenant exercises its right to terminate pursuant to this Section 6.04, then this Lease will terminate as of the date set forth in Tenant’s written notice to Landlord. If Tenant does not exercise its right to terminate this Lease pursuant to this Section 6.04, then this Lease will continue in full force and effect according to its terms.

6.05 Abatement of Rent

If the Premises are rendered untenantable by reason of any Insured or Uninsured Casualty, or if it is impractical for Tenant to continue to operate its business within the tenantable portion of the Premises, either due to lack of access or utilities or for any other cause arising as a result of the Insured or Uninsured Casualty, the Rent and all other charges payable by Tenant under this Lease will abate for the period from the date of the damage or destruction until the earlier to occur of (a) ten (10) business days following delivery of the Premises to Tenant after completion of Landlord’s repair and restoration work or (b) the date that Tenant reopens for business in the Premises. If only a portion of the Premises is rendered untenantable by reason of such Insured or Uninsured Casualty and it is practical for Tenant to continue to operate within the Premises following such casualty, the Rent and other charges payable by Tenant will abate proportionately based upon the extent and duration of such period of untenantability.

6.06 Casualty Near End of Term

Anything in this Article 6 to the contrary notwithstanding, if the Premises are destroyed or substantially damaged by an Insured or Uninsured Casualty during the last twenty four (24) months of the Term, and the Premises cannot be completely restored within a period of ninety (90) days from the date of such damage, this Lease may be terminated upon written notice by either party to the other given within thirty (30) days after the occurrence of such damage. However, if at the time of said damage Tenant has a right to

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extend the Term pursuant to Section 2.02 hereof, Landlord may not terminate this Lease until it has given Tenant notice of Landlord’s intent to terminate this Lease and Tenant fails to exercise said right of extension within thirty (30) days after receipt of said notice. If Tenant fails to exercise said right of extension within thirty (30) days after receipt of such notice from Landlord, this Lease will terminate effective forty five (45) days after Tenant’s receipt of said notice from Landlord.

6.07 Waiver

Except as otherwise expressly provided in this Article 6, destruction or damage to the Premises will not terminate this Lease, notwithstanding any laws of California. If this Lease is terminated pursuant to this Article 6, Tenant will be relieved from all liabilities hereunder except the liability to pay Rent up to the date of such casualty and any accrued charges, costs and expenses required to be paid by Tenant hereunder up to said date. Such termination will not impair or affect the right of either party hereto to any remedy for breach by the other of any obligation under this Lease occurring prior to such termination.

ARTICLE 7.

INSURANCE, EXONERATION AND INDEMNITY

7.01 Liability Insurance

Tenant shall obtain and keep in force during the Term of this Lease a Commercial General Liability policy of insurance protecting Tenant and Landlord (as an additional insured) against claims for bodily injury, personal injury or personal advertising injury, and property damage based upon, involving, or arising out of the ownership, use, occupancy, or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less the average limitation then being maintained by reputable owners or operators of similar space based on Tenant’s use (and the parties agree that current levels for Casino operation is not less than Ten Million Dollars and No Cents ($10,000,000.00) per occurrence). Such insurance shall be with an “Additional Insured-Managers or Landlords of Property” Endorsement and contain the “Amendment of the Pollution Exclusion” for damage caused by heat, smoke, or fumes from a hostile fire. Such policy shall not contain any intra-insured exclusions as between insured persons or entities, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Tenant’s indemnity obligations under this Lease. During the construction, alteration, or repair of any improvements on the Premises, the party contracting for said construction shall provide and maintain workers’ compensation and employers’ liability insurance covering all persons employed in connection with such construction, alteration, or repair and with respect to whom death or personal injury claims could be asserted against Landlord, Tenant, or the Premises.

7.02 Property Insurance

(a) Building and Improvements. Landlord shall obtain and keep in force during the Term a policy or policies of insurance insuring against damage to, or destruction of any improvements comprising the Premises, together with all fixtures, machinery and equipment therein and thereon. The amount of such insurance shall be equal to the full replacement

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cost of the improvements comprising the Premises, as such cost shall change from time to time, or such greater amount as may be required pursuant to Applicable Laws. Such policy or policies shall insure against all risks of direct physical loss or damage (including, if mutually approved of by Landlord and Tenant or required by Landlord’s mortgagee, the perils of flood and/or earthquake if and to the extent obtainable on commercially reasonable terms, including, without limitation, coverage for any additional costs resulting from debris removal and coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any Applicable Law as the result of a covered cause of loss). Such policy or policies shall also contain an agreed valuation provision (in lieu of any coinsurance clause), and waiver of subrogation. If such insurance coverage has a deductible clause, the deductible amount shall not exceed fifty thousand dollars ($50,000) per occurrence.

(b) Rental Value. Landlord shall, in addition, obtain and keep in force during the Term a policy or policies in the name of Landlord, with loss payable to Landlord, insuring the loss of the Rent for one (1) year. Such insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one (1) full year’s loss of rental revenues from the date of any such loss. Such insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Tenant, for the next one (1) year. Tenant shall be liable for any deductible amount in the event of such loss. Tenant may obtain its own policy of business interruption insurance.

(c) Tenant’s Reimbursement Obligations. Tenant will reimburse Landlord for all insurance costs incurred under this Section 7.02 (“Reimbursable Insurance Costs”). Immediately on receipt of each insurance bill covering a Reimbursable Insurance Cost, Landlord will furnish a copy to Tenant. Tenant will pay the amount of the Reimbursable Insurance Cost for which it is responsible hereunder to Landlord within twenty (20) days of its receipt of the insurance bill.

7.03 Tenant’s Property Insurance

Tenant, at its sole cost, shall either by separate policy or, at Landlord’s option, by endorsement to a policy already carried, maintain insurance coverage on all of Tenant’s personal property in, on, under, or about the Premises similar in coverage to that carried under Paragraph 7.02 hereof. Such insurance shall be full replacement cost coverage with a deductible of not to exceed Fifty Thousand Dollars and No Cents ($50,000.00) per occurrence. The proceeds from any such insurance shall be used by Tenant for the replacement of personal property.

7.04 Landlord’s Insurance

Landlord, at its expense, may obtain and keep in force during the Term of this Lease a blanket policy of public liability insurance covering the Premises.

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7.05 Insurance Policies

Insurance required hereunder shall be kept in companies duly licensed to transact business in the State of California and if such company is rated, maintaining during the policy term a “General Policyholders Rating” of at least A, VIII (or such lesser rating as may be reasonably acceptable to the non-insuring party), as set forth in the most current issue of “Best’s Insurance Guide.” Neither party shall do or permit to be done anything which shall invalidate the insurance policies referred to in this Article 7. With respect to insurance required of the parties hereunder, the party undertaking to obtain such insurance (the “Insuring Party”) shall cause to be delivered to the other party (the “Non-Insuring Party”) certified copies of policies of insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice from the Insuring Party to the Non-Insuring party. The Insuring Party shall, at least fifteen (15) days prior to the expiration of such policies, furnish the Non-Insuring Party with evidence of renewals or “insurance binders” evidencing renewal thereof, or else the Non-Insuring may order such insurance and charge the cost thereof to the Insuring Party, which amount shall be payable upon demand. If an Insuring Party shall fail to procure and maintain the insurance required to be carried by it under this Article 7, the Non-Insuring Party may, but shall not be required to, procure and maintain such insurance, but at the Insuring Party’s expense.

The insurance provided for herein may be brought within the coverage of a so-called “blanket” policy or policies of insurance carried and maintained by Tenant or Landlord if (i) Landlord and, if requested by Landlord, any mortgagee of Landlord shall be named as additional insureds or loss payees thereunder as required in this Article 7, (ii) the coverage afforded Landlord and Tenant shall not be reduced or diminished by reason of the use of such “blanket” policy or policies and (iii) all of the other requirements set forth in this Article 7 are satisfied.

7.06 Waiver of Subrogation

To the extent permitted by law and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waives any right to recover against the other (a) damages for injury to or death of persons, (b) damages to property, (c) damage to the Premises or any part thereof, and (d) claims arising by reason of any of the foregoing, but only to the extent that any of the foregoing damages and/or claims are covered (then only to the extent of such coverage) by insurance actually carried, or required by this Lease to be carried, by either Landlord or Tenant. This provision is intended to waive fully, and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation in any insurer. Each party shall cause each insurance policy obtained by it to permit such waiver of subrogation or to provide that the insurer waives all right of recovery by way of subrogation against either party in connection with any damage covered by such policy. If any insurance policy cannot be obtained permitting or providing for a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurers issuing policies not permitting or providing for a waiver of subrogation, the party undertaking to obtain such insurance shall notify the other party in writing of this fact. The other party shall have a period of

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fifteen (15) days after receiving the notice either to place the insurance with an insurer that is reasonably satisfactory to the other party and that will carry the insurance permitting or providing for a waiver of subrogation, or to agree to pay the additional premium if such a policy is obtainable at additional cost. If such insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party shall be relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved during the policy period of such insurance, but such obligation shall revive (subject to the provisions of this Section 7.06) upon the expiration of such policy period.

7.07 Exoneration and Indemnity

(a) Tenant shall indemnify Landlord and its Affiliates, and each of their respective agents, contractors, officers, shareholders and employees and hold each of them harmless from and against any and all losses, liabilities, judgments, settlements, causes of action, suits, costs and expenses (including reasonable attorneys’ fees and other costs of investigation and defense) which they may suffer or incur by reason of any claim asserted by any person arising out of, or related to (or allegedly arising out of or related to): (i) Tenant’s use and occupancy of the Premises, use of the Common Areas and Tenant’s activities in and about the Premises or the Common Areas including, without limitation, use or occupancy by Tenant’s employees, suppliers, shippers, customers and invitees; (ii) any failure by Tenant to perform any material obligation to be performed by Tenant under the terms of this Lease; or (iii) any wrongful act, wrongful omission, negligence or willful misconduct of Tenant or any of its agents, employees, representatives, officers, directors or independent contractors. If any action or proceeding is brought against Landlord or any of its Affiliates (or any of their respective agents, contractors, officers, shareholders or employees) by reason of any such claim, Tenant, upon Landlord’s request, shall defend the same by counsel reasonably satisfactory to Landlord, at Tenant’s expense.

(b) Landlord shall indemnify Tenant and its affiliates, and each of their respective agents, contractors, officers, shareholders and employees and hold each of them harmless from and against any and all losses, liabilities, judgments, settlements, causes of action, suits, costs and expenses (including reasonable attorneys’ fees and other cost of investigation and defense) which they may suffer or incur by reason of any claim asserted by any person arising out of, or related to (or allegedly or arising out of or related to): (i) any failure by Landlord to perform any material obligation to be performed by Landlord under the terms of this Lease; (ii) any wrongful act, wrongful omission, negligence or misconduct of Landlord or any Affiliate of Landlord or any of its or their agents, employees, representatives, officers, directors or independent contractors; and (iii) Landlord’s activities in and about the Premises or the Common Areas. If any action or proceeding is brought against Tenant or any of its affiliates (or any of their respective agents, contractors, officers, shareholders or employees) by reason of any such claim, Landlord upon Tenant’s request, shall defend the same by counsel satisfactory to Tenant at Landlord’s expense.

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ARTICLE 8.

ASSIGNMENT, SUBLETTING, HYPOTHECATION

8.01 Landlord’s Consent Required

Except as otherwise provided herein, Tenant will not assign this Lease or, except as provided below, sublease all or part of the Premises to any third party without Landlord’s prior written consent which consent shall not be unreasonably withheld or delayed. Notwithstanding any such consent, no assignment or sublease shall be effective until the assignee or sublessee shall have obtained all required permits and licenses to use the Premises for its permitted uses. In the event of a proposed assignment or sublease requiring Landlord’s consent, Tenant will give written notice thereof (“Tenant’s Notice”) to Landlord indicating the general nature of the proposed transaction, and the proposed assignee’s or subtenant’s identity and financial condition and the contemplated use of the Premises or the portion to be subleased, as the case may be. If an assignee or sublessee is required to be licensed by the California Gambling Commission (the “Commission”), Tenant agrees to provide Landlord with the same information, at the same time, as the proposed assignee or sublessee provides to the Commission in connection with such licensing. Landlord will notify Tenant in writing within thirty (30) days after the date of Tenant’s Notice as to whether Landlord grants or withholds its consent to the proposed assignment or subletting and, if such consent is withheld, describing in reasonable detail the basis therefor. Landlord has heretofore approved Century Gaming Management, Inc., a California corporation (“CGM”), as the Casino Operator. If, at any time, Tenant proposes to sublease the Premises to a casino operator other than CGM, the requirements of this Section 8.01 shall apply. In respect of such a sublease, (i) Tenant shall notify Landlord of such proposal (the “Sublease Notice”) at least sixty (60) days prior to the date such sublease term is to commence, which notice shall include the identity of the proposed sublessee (the “Proposed Sublessee”), the equity owners and any other principals managing the affairs of the Proposed Sublessee together with financial statements for the Proposed Sublessee, if available (collectively, the “Sublessee Information”), and (ii) Tenant or the Proposed Sublessee shall provide Landlord with copies of any applications, forms, data and information provided to the California Gaming Commission in connection with the licensing of the Proposed Sublessee and not already provided as part of the Sublessee Information (collectively, the “Gaming Submittals”). Landlord, in the exercise of its reasonable judgment, may also request additional information concerning the Proposed Sublessee. If Landlord shall have received the Sublease Notice, the Sublessee Information and the Gaming Submittals and thereafter rejects a Proposed Sublessee which has been duly licensed as an operator of a casino by the California Gaming Commission, Tenant shall be entitled to an abatement of rent for the period commencing on the latter to occur of (A) the date sixty (60) days after the date that Landlord shall have received all of the Sublease Notice, the Sublessee Information and the Gaming Submittals, and (B) the date that the California Gaming Commission issues a license to the Proposed Sublessee, and ending on the date that the Landlord and Tenant agree on the identity of a mutually acceptable and licensed sublessee. Notwithstanding anything to the contrary contained herein, Tenant may freely sublease the meeting rooms, restaurants, retail areas or similar portions of the Premises from time to time, without the consent of Landlord.

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8.02 Future Consents/Tenant’s Liability

Landlord’s consent to one assignment or sublease will not be deemed to constitute its consent to any future assignments or subleases, whether by Tenant or any assignee or subtenant. No assignment of this Lease or sublease will relieve Tenant of its obligations hereunder with respect to the balance of the Term; provided, however, that if the assignee has a net worth in excess of Two Hundred Million Dollars ($200,000,000) (“Minimum Net Worth”) at the time of the assignment, and assumes the obligations of Tenant hereunder accruing from and after the assignment, Tenant shall be released of all obligations and liabilities hereunder accruing subsequent to the assignment. Any assignment or subletting hereunder will be pursuant to an instrument reasonably satisfactory to Landlord, and the assignee or subtenant will agree for the benefit of Landlord to be bound by, assume and perform all the terms, covenants and conditions thereafter to be performed by or applicable to Tenant hereunder. Any purported assignment or subletting not in compliance with this Article 8 will be null and void and will constitute a breach of this Lease.

8.03 Tenant Affiliates

Notwithstanding anything to the contrary herein, Landlord’s consent will not be required for any assignment or subletting to a Tenant Affiliate. “Tenant Affiliate” will mean any of the following: (i) any person directly or indirectly controlling or controlled by or under common control with Tenant; (ii) any person which succeeds to the interest of Tenant under this Lease by reason of the merger, consolidation or dissolution of Tenant; and (iii) any person acquiring all or substantially all of the operating assets of Tenant or any of its divisions. “Person” will mean one or more human beings or legal entities or other artificial persons, including, without limitation, partnerships, corporations, firms, associations, groups, limited liability companies or partnerships, trusts, estates and any combination of human beings and legal entities.

8.04 Assignment Restrictions

Any attempt to assign or otherwise transfer this Lease or to sublet space in the Premises without any required Landlord consent shall be void and shall, at the option of Landlord, terminate this Lease.

ARTICLE 9.

EMINENT DOMAIN

9.01 Effect on Lease

If the Premises or any portion thereof are taken or damaged, including severance damage, under the power of eminent domain or by inverse condemnation or for any public or quasi-public use, or voluntarily conveyed or transferred in lieu of an exercise of eminent domain or while condemnation proceedings are pending (all of which are herein called “condemnation”), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If so much of the Premises is taken by condemnation that the remainder is unsuitable for Tenant’s continued occupancy for the uses and purposes for which the Premises are leased, Tenant shall have the option, exercisable only by written notice to Landlord within thirty (30) days after

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Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within thirty (30) days after the condemning authority shall have taken title or possession, whichever first occurs), to terminate this Lease as of the later of the date the condemning authority takes such title or possession (whichever first occurs) or the date Tenant vacates the Premises; provided, however, that if Landlord disagrees with Tenant’s determination that the portion of the Premises remaining after condemnation is unsuitable for Tenant’s occupancy, such controversy shall be settled by arbitration in Los Angeles, California in accordance with the commercial arbitration rules of the American Arbitration Association then in effect. In the event that less than all of the Premises shall be taken by condemnation and Tenant does not elect to terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent and applicable Additional Rent shall be reduced in the same ratio that the floor area of the portion of the Premises taken by such condemnation bears to the floor area of the Premises immediately before such condemnation.

9.02 Award

In the event of any Taking, whether whole or partial, Landlord and Tenant shall be entitled to receive and retain such separate awards and portions of lump sum awards as may be allocated to their respective interests in any condemnation proceedings.

9.03 Rebuilding

In the event that this Lease is not terminated by reason of such condemnation, Landlord shall, to the extent of the awards applicable to the building of which the Premises are a part actually received by Landlord and Tenant in connection with such condemnation, and subject to the provisions of any Landlord’s mortgage concerning the application of condemnation proceeds, cause such restoration and repair to the remaining portion of the Premises to be done as may be necessary to restore them to an architectural and usable whole reasonably suitable for the conduct of the business of Tenant.

ARTICLE 10.

TENANT’S BREACH; LANDLORD’S REMEDIES

10.01 Tenant’s Breach

The occurrence of any one of the following events shall constitute an “Event of Default” and a breach of this Lease by Tenant:

(a) The failure by Tenant to make any payment of Base Rent, Additional Rent or other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of five (5) days after written notice thereof from Landlord to Tenant; provided, however, that no such notice shall be required if, during the preceding twelve (12) calendar months, Landlord shall have provided three (3) such notices.

(b) The failure by Tenant to observe or perform any of the material covenants or obligations under this Lease to be observed or performed by Tenant, other than as specified in subsections (a) and (d) of this Section 10.01, where such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant (provided

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however, that if the default involves a hazardous condition or substance, Tenant shall have such shorter cure period as Landlord shall specify in writing in its written notice to Tenant of the default if such shorter period is reasonable under then existing circumstances, such as imminent danger of spread of contaminants or other danger to persons or health); provided, however, that if the nature of such failure is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be in default if Tenant shall commence such cure within said 30-day period and thereafter diligently prosecutes such cure to completion.

(c) The abandonment of the Premises (or a substantial portion thereof) by Tenant.

(d) The appointment by any court of a receiver, interim trustee or trustee to take possession of any asset or assets of Tenant, said receivership or trusteeship remaining undischarged for a period of sixty (60) days.

(e) A general assignment by Tenant for the benefit of creditors.

(f) The filing of a voluntary petition by Tenant in bankruptcy or any other petition under any section or chapter of the Bankruptcy Code or any similar law, whether state, federal or foreign, for the relief of debtors.

(g) The filing against Tenant of an involuntary petition or any other petition under any section or chapter of the Bankruptcy Code or any similar law, whether state, federal or foreign, for the relief of debtors by the creditors of Tenant, said petition remaining undischarged for a period of sixty (60) days.

(h) The levy, attachment, execution or judicial seizure of Tenant’s interest in this Lease or all or any substantial part of the properties and assets of Tenant, such attachment, execution or other seizure remaining undismissed or undischarged for a period of fifteen (15) days after the levy thereof.

(i) The admission in writing by Tenant of its inability to pay its respective debts or perform its obligations as they become due.

(j) The calling of a meeting of the creditors representing a significant portion of the unsecured liabilities of Tenant for the purpose of effecting a moratorium, extension, composition or any of the foregoing.

(k) The occurrence of any of the events specified in subsections (e) through (l), inclusive, with respect to any general partner of Tenant (if Tenant is a partnership) or any guarantor of Tenant’s obligations under this Lease.

(l) The occurrence of any event which expressly constitutes an incurable breach of this Lease.

The notices specified in subsections (a) and (b) of this Section 10.01 shall be in lieu of, and not in addition to, any notices required under California Code of Civil Procedure Section 1161 or any successor statute.

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10.02 Landlord’s Remedies

In the event of an Event of Default under Section 10.01 then Landlord, in addition to any other rights or remedies it may have at law, in equity or otherwise, shall have the following rights:

(a) Landlord shall have the right to terminate this Lease and Tenant’s right to possession of the Premises by giving written notice of termination to Tenant. No act by Landlord other than giving express written notice to Tenant shall terminate this Lease or Tenant’s right to possession of the Premises. Should Landlord at any time terminate this Lease for any breach, in addition to any other remedy it may have, it is hereby agreed by Landlord and Tenant that the damages Landlord shall be entitled to recover under this Lease shall include without limitation:

(i) The worth, at the time of award, of the unpaid Rent that has been earned at the time of the termination of this Lease;

(ii) The worth, at the time of award, of the amount by which the unpaid Rent that would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of Rent that Tenant proves could have been reasonably avoided;

(iii) The worth, at the time of award, of the amount by which the unpaid Rent for the balance of the stated term hereof (determined without regard to the termination of this Lease for Tenant’s breach) after the time of award exceeds the amount of the loss of Rent that Tenant proves could be reasonably avoided; and

(iv) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s breach, including, but not limited to, the costs and expenses (including attorneys’ fees, court costs, advertising costs and brokers’ commissions) of recovering possession of the Premises, removing persons or property therefrom, placing the Premises in good order, condition and repair, preparing and altering the

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     Premises for reletting and all other costs and expenses of reletting.

“The worth, at the time of award,” as used in subparagraphs (i) and (ii) above shall be computed by allowing interest at the Agreed Rate. “The worth at the time of award,” as referred to in subparagraph (iii) above shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%). The terms “Rent” and “Rents” as used in this Section 10.02 shall include the Rent, and all Additional Rent and all other fees and charges required to be paid by Tenant pursuant to the provisions of this Lease.

(b) Even though Tenant has breached or defaulted under this Lease and abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate by express written notice Tenant’s right to possession, and Landlord may enforce all of its rights and remedies under this Lease., including but not limited to the right to recover all Rents as they become due hereunder.

(c) In addition, Landlord shall have the right to:

(1) Continue the Lease and Tenant’s right to possession in effect (under California Civil Code Section 1951.4) after Tenant’s breach and abandonment and recover the Rent as it becomes due, whether or not Tenant shall have abandoned the Premises.

(2) Re-enter the Premises and remove all persons or property from the Premises. Property may be stored or disposed of as provided under applicable law. Acts of re-entry or maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Landlord’s interest under the Lease, shall not constitute a termination of the Tenant’s right to possession unless Landlord has given a written notice of such election to Tenant.

(3) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state wherein the Premises are located.

(d) The expiration or termination of this Lease and/or the termination of Tenant’s right to possession shall not relieve Tenant from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Tenant’s occupancy of the Premises.

10.03 Right to Cure Tenant’s Default

If, after the expiration of any cure or notice period, Tenant has failed to do any act required to be done by Tenant hereunder, Landlord may (but without being obligated to do so) cure such failure at Tenant’s cost. If Landlord at any time, by reason of Tenant’s failure to comply with the provisions of this Lease, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord at the time the sum is paid and, if paid at a later date, shall bear interest at the Agreed Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Such sum, together with interest thereon, shall be Additional Rent hereunder.

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10.04 Landlord’s Remedies Not Exclusive

The several rights and remedies herein granted to Landlord shall be cumulative and in addition to any others to which Landlord is or may be entitled by law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies which Landlord may have and shall not be deemed a waiver of any of Landlord’s rights or remedies or to be a release of Tenant from any of Tenant’s obligations, unless such waiver or release is expressed in writing and signed by Landlord.

10.05 Receipt of Rents

Landlord’s acceptance of full or partial payment of Rent following any Event of Default shall not constitute a waiver of such Event of Default.

ARTICLE 11.

LANDLORD’S DEFAULT; TENANT’S REMEDIES

11.01 Landlord’s Default

The failure by Landlord to observe or perform any of the material covenants or obligations under this Lease to be observed or performed by Landlord where such failure shall continue for a period of thirty (30) days after written notice thereof from Tenant to Landlord shall constitute a default of this Lease by Landlord; provided, however, that if the nature of such failure is such that more than thirty (30) days are reasonably required for its cure, then Landlord shall not be in default if Landlord shall commence such cure within said 30-day period and thereafter diligently prosecutes such cure to completion.

11.02 Tenant’s Remedies

(a) In the event of Landlord’s default under Section 11.01 after the expiration of any applicable cure period, in addition to any other rights or remedies it may have at law, in equity or otherwise, Tenant, acting reasonably, shall have the right but not the obligation to cure Landlord’s default, at Landlord’s expense. If Tenant at any time, by reason of Landlord’s failure to comply with the provisions of this Lease, pays any sum or does any act that requires the payment of any sum, the sum paid by Tenant shall be due immediately from Landlord to Tenant at the time the sum is paid and, if paid at a later date, shall bear interest at the Agreed Rate from the date the sum is paid by Tenant until Tenant is reimbursed by Landlord. In no event will such deduction be the basis of forfeiture of this Lease nor constitute a default in the payment of Rent unless Tenant fails to pay the amount of such deduction within ten (10) days after Tenant’s receipt of notice of a final adjudication that such amount is owing to Landlord.

(b) Tenant may recover from Landlord any and all damages or expenses suffered or incurred by Tenant as a result of such Landlord’s Default; and

(c) Tenant may obtain and enforce an order of specific performance against Landlord, or may enforce any other remedy available to Tenant at law or in equity.

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11.03 Tenant’s Remedies Not Exclusive

The several rights and remedies herein granted to Tenant shall be cumulative and in addition to any others to which Tenant is or may be entitled by law or in equity (provided, however, that Tenant waives any offset rights it may have), and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies which Tenant may have and shall not be deemed a waiver of any of Tenant’s rights or remedies or to be a release of Landlord from any of Landlord’s obligations, unless such waiver or release is expressed in writing and signed by Tenant.

11.04 Payment of Rents

Tenant’s full or partial payment of Rent following any default of Landlord under this Lease shall not constitute a waiver of such default.

ARTICLE 12.

HAZARDOUS SUBSTANCES

12.01 Tenant’s Obligations.

Tenant will not generate, bring onto, use, store or dispose of any Hazardous Substance (as hereinafter defined) on or about the Premises except for such substances that are reasonably required in the ordinary course of Tenant’s business conducted on the Premises or otherwise approved in writing by Landlord. Tenant will use, store and dispose of all such Hazardous Substances in compliance with all applicable statutes, ordinances and regulations in effect during the Lease Term that relate to public health and safety and protection of the environment (“Environmental Laws”). Tenant will, at its sole cost and expense, clean-up and remediate any Hazardous Substance released on or about the Premises by Tenant and will indemnify, defend and hold harmless Landlord from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties and attorneys fees, relating to Hazardous Substances, if any, brought onto the Premises by Tenant or Tenant’s agents or employees.

12.02 Notice of Release or Investigation

If during the Term of this Lease either party becomes aware of (i) any actual or threatened release of any Hazardous Substance on, under, or about the Premises, or (ii) any inquiry, investigation, proceeding or claim by any government agency or other person regarding the presence or alleged presence of any Hazardous Substance on, under or about the Premises, that party will give the other party written notice of the release, inquiry, investigation, proceeding or claim within five (5) days after learning about it and will simultaneously furnish to the other party copies of any correspondence, claims, notices of violations, reports or other writings received or sent by the party providing notice that pertain to the release or investigation.

12.03 Definition of “Hazardous Substance”

For purposes of this Lease, the term “Hazardous Substance” means: (i)any “hazardous substance,” as that term is defined in the Comprehensive Environmental

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Response, Compensation, and Liability Act of 1980 (CERCLA) (42 United States Code sections 9601-9675); (ii) “hazardous waste,” as that term is defined in the Resource Conservation and Recovery Act of 1976 (RCRA) (42 United States Code sections 6901-6992k); (iii) any pollutant, contaminant, or hazardous, dangerous, or toxic chemical, material, or substance, within the meaning of any other applicable federal, state, or local law, regulation, ordinance, or requirement (including consent decrees and administrative orders imposing liability or standards of conduct concerning any hazardous, dangerous, or toxic waste, substance, or material, now or hereafter in effect); (iv) petroleum, crude oil or any fraction thereof; (v) radioactive material, including any source, special nuclear, or byproduct material as defined in 42 United States Code sections 2011-2297g-4; (vi) asbestos in any form or condition; and (vii) polychlorinated biphenyls (“PCBs”) and substances or compounds containing PCBs.

ARTICLE 13.

SUBORDINATION, NON-DISTURBANCE and attornment

Concurrently with the mutual execution of this Lease, Landlord, Tenant and each Landlord’s mortgagee shall execute and deliver a Non-Disturbance, Subordination and Attornment Agreement in substantially the form attached as Exhibit D to this Lease (“Non-Disturbance Agreement”). If a non-disturbance agreement reasonably satisfactory to Tenant is not executed by each existing Landlord’s mortgagee and by Landlord by said date, Tenant may at any time thereafter and prior to its actual receipt of such an executed non-disturbance agreement terminate this Lease upon written notice to Landlord. At the election of any subsequent mortgagee of Landlord, the rights of Tenant hereunder will be subject and subordinate to such mortgagee’s Encumbrance (as hereinafter defined); provided, however, that such subordination of Tenant’s rights will only be effective if prior to or concurrently therewith, Tenant receives a commercially reasonable Non-Disturbance Agreement executed by Landlord and such mortgagee, which Non-Disturbance Agreement Tenant also agrees to execute. If Landlord’s interest in the Premises is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser at the foreclosure sale, Tenant shall attorn to any transferee of or successor to Landlord’s interest in the Property who has previously delivered to Tenant a Non-Disturbance, Subordination and Attornment Agreement consistent with this Article 13. For purposes of this Lease, the term “Encumbrance” will mean each deed of trust, mortgage, or other written security device or agreement which now encumbers, or may in the future encumber the Premises or any part thereof, and the note or other obligation it secures, and each lease of which Landlord is the lessee which covers, or may in the future cover, the Premises or any part thereof; and the terms “Landlord’s mortgagee” and “mortgagee of Landlord” include the mortgagee under each such mortgage, the beneficiary under each such deed of trust, and the lessor under each such ground lease.

ARTICLE 14.

TAXES AND OTHER CHARGES

14.01 Payment of Taxes

Landlord shall pay all real estate taxes and general and special assessment levied and assessed against the Property and the improvements thereon.

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14.02 Tenant’s Obligations

(a) Tenant shall reimburse Landlord, as Common Area Charges under Section 3.02, for any and all real estate taxes and general or special assessments levied and assessed against the Premises or upon, allocable to, or measured by or on the gross or net rent payable hereunder, but excluding (i) inheritance, estate, succession or transfer taxes of Landlord, (ii) income, excise, franchise or gross profits taxes on Landlord or any other taxes imposed on or measured by the net income of Landlord from all sources.

(b) Tenant shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises or elsewhere. Tenant shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property or Landlord. If any of Tenant’s said personal property shall be assessed with Landlord’s real property, Tenant shall pay Landlord the taxes attributable to Tenant within ten (10) days after receipt of a written statement setting forth the taxes applicable to Tenant’s property.

14.03 Right to Contest

Landlord shall, at the request of Tenant and at Tenant’s sole cost and expense, seek a reduction in the assessed valuation of the Premises or otherwise contest any real property taxes or assessments applicable to the Premises. If so requested by Tenant, Landlord will join in such proceeding or contest or permit it to be brought in Landlord’s name, and will otherwise cooperate with Tenant in connection with any such proceeding or contest. In the event Landlord is successful in any such proceeding or contest, Landlord will promptly pay over to Tenant the amount of any refund or rebate of overpaid taxes received by Landlord from the taxing authority attributable to the Premises.

ARTICLE 15.

UTILITY AND OTHER SERVICES

15.01 Utility Charges

Landlord shall make application and otherwise arrange, and pay or cause to be paid all charges for water, sewer, gas, electricity, light, power, telephone and any other utility services used in or on or supplied to or for the Premises, or any part thereof. Tenant shall pay a pro rata share of such charges based upon Tenant’s use. The Parties shall act in good faith to agree on Tenant’s pro rata share on an annual basis. Landlord at its sole cost and expense shall use commercially reasonable efforts to cause the providers of all such utilities to install separate meters for the utilization thereof at the Premises. From and after the completion of such separate metering, all future utility expenses in respect thereof (including any taxes thereon) shall be paid by Tenant directly to such provider. Upon the request of Landlord, Tenant shall deliver to Landlord copies of all invoices or bills for such charges with evidence reasonably satisfactory to Landlord that such charges have been paid.

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15.02 Security; Landlord Nonresponsibility; Indemnity

Tenant expressly agrees that Tenant shall have the sole responsibility for providing surveillance and security relating to the Premises and the persons therein and the activities conducted in and about Premises, including, without limitation, surveillance necessary to maintain the integrity of the casino activities, and Landlord shall have no responsibility with respect thereto. Under no circumstances, and in no event, shall Landlord be liable to Tenant, any Subtenant or any other person by reason of any theft, burglary, robbery, assault, trespass, arson, unauthorized entry, vandalism, or any other act of any person (other than a duly authorized agent of Landlord) occurring in or about the Premises, and Tenant shall indemnify Landlord and its agents, contractors and employees and hold each of them harmless from and against any and all losses, liabilities, judgments, costs or expenses (including reasonable attorneys’ fees and other costs of investigation or defense) which they may suffer or incur by reason of any claim asserted by any person arising out of, or related to, any of the foregoing.

ARTICLE 16.

GENERAL PROVISIONS

16.01 Estoppel Certificates

Either party shall, without charge, at any time and from time to time, within ten (10) business days after request by the other party, deliver a written certificate duly executed and acknowledged, certifying to the requesting party, or any other person or entity specified by the requesting party:

(a) That this Lease is unmodified and in full force and effect, or if there has been any modification, that the same is in full force and effect as so modified, and identifying any such modification;

(b) Whether or not to the knowledge of the certifying party there are then existing any offsets or defenses in favor of such party against the enforcement of any of the terms, covenants and conditions of this Lease and, if so, specifying the same, and also whether or not to the knowledge of the certifying party, the requesting party has observed and performed all of the terms, covenants and conditions on its part to be observed and performed, and, if not, specifying the same;

(c) The dates to which Base Rent, Additional Rent and all other charges hereunder have been paid; and

(d) Any other matter which reasonably relates to the tenancy created hereby and the contractual relationship between Landlord and Tenant.

The failure of the certifying party to deliver such certificate within five (5) business days after a second written request shall constitute a default hereunder and shall be conclusive upon Landlord, Tenant and any other person, firm or corporation for whose benefit the certificate was requested, that this Lease is in full force and effect without modification except as may be represented by the requesting party, and that there are no uncured defaults on the part of the requesting party. If the certifying party does not deliver

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such certificate to the requesting party or such person designated by the requesting party within such 10-day period, the certifying party shall be liable to the requesting party for all damages, losses, costs and expenses proximately resulting from the certifying party’s failure to timely deliver such certificate. If the certifying party makes any false statement or claim in any such certificate, the certifying party shall be liable to the requesting party for all damages, losses, costs and expenses proximately resulting therefrom.

16.02 Landlord’s Right of Entry

Landlord and its authorized representatives may, at reasonable times and on not less than forty-eight (48) hours prior written notice to Tenant, and accompanied by a representative of Tenant, enter the Premises to: (i) inspect the Premises; (ii) show the Premises to prospective purchasers or mortgagees and, during the last nine (9) months of the Lease Term, to prospective tenants; (iii) serve, post and keep posted notices or non-responsibility or other notices required by law or permitted by this Lease; (iv) perform any repairs, replacements or maintenance required of Landlord hereunder; or (v) perform any covenants of Tenant that Tenant fails to perform, in accordance with Section 10.03. To the extent reasonably practicable, Landlord will exercise its rights under this Section 16.02 in such a manner as to minimize the Impact on Tenant’s business in and occupancy of the Premises. Notwithstanding anything to the contrary herein, Landlord and its authorized representatives may enter the Premises without any advance notice when necessary to address an emergency situation which poses a threat of imminent bodily harm or substantial property damage.

16.03 Waiver

No waiver of any breach of any covenant or condition herein contained shall be effective unless such waiver is in writing, signed by the aggrieved party and delivered to the breaching party. The waiver by the aggrieved party of any such breach or breaches, or the failure by the aggrieved party to exercise any right or remedy in respect of any such breach or breaches, shall not constitute a waiver or relinquishment for the future of any such covenant or condition or of any subsequent breach of any such covenant or condition nor bar any right or remedy of the aggrieved party in respect of any such subsequent breach. The receipt of any Rent after the expiration of any cure period provided for in this Lease (regardless of any endorsement on any check or any statement in any letter accompanying any payment of Rent) by Landlord shall not operate as an accord and satisfaction or a waiver of the right of Landlord to enforce the payment of Rents previously due or as a bar to the termination of this Lease or the enforcement of any other remedy for default in the payment of such Rents previously due, or for any other breach of this Lease by Tenant.

16.04 Surrender of Premises; Holding Over

Tenant shall, at the end of the Term, surrender the Premises to Landlord together with any personal property therein belonging to Landlord and alterations made thereto, in good order, repair, and condition, except for damage caused by casualty or by subsidence or other earth movement, obsolescence, ordinary physical depreciation, or ordinary wear and tear, or by Landlord’s failure to perform its obligations under this Lease, and except for the matters and things which Landlord is required to do or repair under this Lease. Tenant shall

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have the right at any time on or before the termination of this Lease to remove from the Premises all merchandise, signs, fixtures, furniture, furnishings, partitions, and equipment installed and owned by Tenant; provided, however, Tenant shall repair any damage to the Premises caused by any such removal. Heating, ventilating, air conditioning, plumbing, bulkheads, partition walls, ceilings, electrical and sprinkler equipment, and other permanent fixtures and alterations shall not be removed by Tenant. If Tenant holds over after the expiration or earlier termination of the Term, Tenant will become a tenant from month to month upon the same terms as herein provided except that Base Rent shall be an amount equal to one hundred and fifty percent (150%) of the Base Rent payable prior to such expiration or termination. Such month to month tenancy will continue until the tenancy is terminated at the end of any month by the giving of at least thirty (30) days written notice by either party hereto to the other.

16.05 Notices

Wherever in this Lease one party to this Lease is required or permitted to give or serve a notice, statement, request or demand to or on the other, such notice, statement, request or demand shall be given or served upon the party to whom directed in writing and shall be delivered personally or forwarded by registered or certified mail, postage prepaid, return receipt requested, or by prepaid express mail or overnight courier, addressed to Landlord or Tenant, as the case may be, at the address of that party set forth below with copies to be sent concurrently as follows:

If to Tenant:	Hollywood Park, Inc. 4400 Macarthur Blvd. Suite 380 Newport Beach, CA 92660 Attention: G. Michael Finnigan
With a copy to:	Irell & Manella LLP 1800 Avenue of the Stars Suite 900 Los Angeles, CA 90067 Attention: Sandra G. Kanengiser
If to Landlord:	Churchill Downs California Company 1050 South Prairie Avenue Inglewood, California 90306-0369 Attention: President
With a copy to:	Churchill Downs Incorporated 700 Central Avenue Louisville, Kentucky 40208 Attention: John R. Long, Chief Operating Officer

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Either party may change its address for notice by written notice given to the other in the manner hereinabove provided. Any such notice, statement, request or demand shall be deemed to have been duly given or served on the date personally delivered or two (2) business days after the date deposited in the United States mail in accordance with this Section 16.05.

16.06 Partial Invalidity; Construction

If any term or provision of this Lease or the application thereof to any person or circumstance shall to any extent be held to be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. This Lease shall be governed by and construed under the laws of the State of California. When required by the context of this Lease, the singular shall include the plural, and the neuter shall include the masculine and feminine.

16.07 Captions

The captions and headings in this Lease are inserted only as a matter of convenience and for reference, and they in no way define, limit or describe the scope of this Lease or the intent of any provision hereof.

16.08 Memorandum of Lease

Concurrently herewith the parties have executed a Memorandum of Lease which will be promptly recorded in the Official Records of the City and County of Los Angeles. This Lease and said Memorandum of Lease will be construed together as one instrument provided, however, that the terms, covenants and conditions of this Lease will control over such Memorandum.

16.09 Readerboard Signs

Tenant shall retain its exposure on the Readerboard Signs consistent with the fixed and electronic exposure currently dedicated to the Hollywood Park-Casino. In the event Landlord sells or otherwise transfers its rights in the Readerboard Signs, such sale or transfer shall be subject to Tenant’s rights hereunder for the term of the Lease and the Extension Period. Landlord shall be entitled to retain all revenue received from third parties for the use of the Readerboard Signs and shall bear sole responsibility for the maintenance and repair and payment of all utility and other expenses of the Readerboard Signs.

16.10 Signage

Subject to compliance with Applicable Laws, Tenant may install its signs on the Premises at its sole cost and expense. Tenant will be responsible for the maintenance and repair of such signs, and will remove such signs at its expense at the end of the Term. Tenant shall be responsible for repairs to the improvements (including the roof) arising as a result of the maintenance or removal of signage. Any such signage installed after the Commencement Date visible from outside of the Premises shall be subject to Landlord’s

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prior approval, not to be unreasonably withheld or delayed. Landlord will not take any action on or about the Property that will obstruct the visibility of such signs.

16.11 Brokers’ Commissions

Each party represents and warrants to the other party that it has had no dealings with any broker, finder or agent in connection with the subject matter of this Lease or any of the transactions contemplated hereby. Each party agrees to defend, indemnify and hold harmless the other party from any claim, suit, liability, cost or expense (including attorneys’ fees) with respect to brokerage or finder’s fees or commissions or other similar compensation alleged to be owing on account of such party’s dealings (or alleged dealings) with any real estate broker, agent, finder or other person.

16.12 Attorneys’ Fees

(a) In the event of any litigation between Landlord and Tenant alleging a breach of this Lease by either party, or seeking a declaration of the rights of the parties hereunder, the losing party shall pay to the prevailing party its costs of litigation including reasonable attorneys’ fees.

(b) Each party shall reimburse the other party, upon demand, for all costs and expenses (including attorneys’ fees) incurred by such party in connection with any bankruptcy proceeding, or other proceeding under Title 11 of the United States Code (or any successor or similar law) involving the other party.

16.13 Counterparts

This Lease may be executed in two or more counterparts, each of which may be deemed an original, but all of which together shall constitute one and the same instrument.

16.14 Sole Agreement

This Lease contains all of the agreements of the parties hereto with respect to the matters covered hereby, and no prior agreements, oral or written, or understandings or representations of any nature whatsoever pertaining to any such matters shall be effective for any purpose unless specifically incorporated in the provisions of this Lease or said agreements.

16.15 Successors and Assigns

Subject to the provisions hereof relative to assignment, this Lease shall be binding upon and inure to the benefit of the successors and assigns of the respective parties hereto, and the terms “Landlord” and “Tenant” shall include the respective successors and assigns of such parties. In the event Landlord sells or otherwise transfers its interest as Landlord in and to this Lease (other than a transfer or assignment to a lender for purposes of security), Landlord will be released from all liability and obligations under this Lease that accrue after the effective date of transfer, subject to the following restrictions: (i) Landlord will not be released from its obligations under this Lease unless the transferee assumes in writing, for the benefit of Tenant, Landlord’s obligations under this Lease from and after the date of

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transfer; and (ii) nothing contained herein shall release or be construed to release Landlord from any of its obligations or liabilities under this Lease that accrue before the date of transfer.

16.16 Time is of the Essence

Time is of the essence with respect to the performance or observance of each of the obligations, covenants and agreements of each of Landlord and Tenant under this Lease.

16.17 Survival of Covenants

Except with respect to those conditions, covenants and agreements of this Lease which by their express terms are applicable only to, or which by their nature could only be applicable after, a certain date or time during the term hereof, all of the conditions, covenants and agreements of this Lease shall be deemed to be effective as of the date of this Lease. Any obligation arising during the Term of this Lease under any provision hereof, which by its nature would require Landlord and/or Tenant to take certain action after the expiration of the Term or other termination of this Lease, including any termination resulting from the breach of this Lease by Landlord or Tenant, shall be deemed to survive the expiration of the Term or other termination of this Lease to the extent of requiring any action to be performed after the expiration of the Term or other termination hereof which is necessary to fully perform the obligation that arose prior to such expiration or termination.

16.18 Landlord’s Consent or Approval

Where any provision of this Lease requires the consent or approval of Landlord to any action to be taken or of any instrument or document submitted or furnished by Tenant or otherwise, such consent or approval shall not be unreasonably withheld or delayed by Landlord unless such provision entitles Landlord to the discretionary withholding of any such consent or approval required thereby. The consent or approval of Landlord to or of any such act, instrument or document shall not be deemed a waiver of, or render unnecessary, Landlord’s consent or approval to or of any subsequent similar or dissimilar acts to be taken or instruments or documents to be submitted or furnished by Tenant hereunder.

16.19 Entire Agreement

This Lease together with its exhibits, contains all the agreements of the parties hereto and supersedes any previous negotiations. There have been no representations made by the Landlord or Tenant or understandings made between the parties other than those set forth in this Lease and its exhibits. This Lease may not be modified except by a written instrument duly executed by the parties hereto.

16.20 Joint and Several Obligations

If more than one person or entity is Tenant or Landlord, the obligations imposed on that party shall be joint and several. If either Landlord or Tenant is a partnership, the obligations of each general partner shall be joint and several.

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16.21 No Offer

The submission of this document for examination and discussion does not constitute an offer to lease, or a reservation of, or option for, the Premises. This document will become effective and binding only upon execution and delivery by Landlord and Tenant.

16.22 Corporate Resolution

If either party hereto is a corporation, it will deliver to the other party, upon execution of this Lease, a certified copy of a resolution of its board of directors authorizing the execution of this Lease and naming the officer or officers who are authorized to execute this Lease on behalf of the corporation.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written.

LANDLORD:	Churchill Downs California Company, a Kentucky corporation
:	By:	[ILLEGIBLE]
	Its:	Vice President

:	By:	/S/    REBECCA C. REED
	Its:	Secretary

TENANT:	Hollywood Park, Inc., a Delaware corporation
:	By:	/S/    R.D. HUBBARD
		R.D. Hubbard Chairman of the Board and Chief Executive Officer

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Exhibit “A”

Property

Exhibit “A”

PARCEL ‘C’ OF PARCEL MAP NO. 25640, IN THE CITY OF INGLEWOOD, AS PER MAP FILED IN BOOK 289 PAGES 53 TO 61 INCLUSIVE, OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

EXCEPT THEREFROM UNTO, TIDEWATER ASSOCIATED OIL COMPANY, ITS SUCCESSORS AND ASSIGNS, IN DEED RECORDED FEBRUARY 25, 1947 IN BOOK 24243 PAGE 423, OFFICIAL RECORDS. ALL MINERALS, INCLUDING BUT NOT LIMITED TO HYDRO CARBONACEOUS SUBSTANCES, TOGETHER WITH THE RIGHT TO MINE, EXTRACT, RECOVER AND REMOVE THE SAME; PROVIDED, HOWEVER, AND GRANTOR SO COVENANTS, THAT GRANTOR, ITS SUCCESSORS AND ASSIGNS, EXCEPT BY PERMISSION OF GRANTEE, ITS SUCCESSORS OR ASSIGNS, WILL NEVER ENTER UPON THE SURFACE OF SAID LANDS FOR THE PURPOSE OF MINING, EXTRACTING, REMOVING, OR RECOVERING SAID MINERALS. IT BEING EXPRESSLY COVENANTED AND AGREED, HOWEVER, THAT GRANTOR, ITS SUCCESSORS AND ASSIGNS, SHALL HAVE THE RIGHT TO MINE, EXTRACT, RECOVER AND REMOVE SAID MINERALS BY MEANS OF DIRECTIONAL OR SUBSURFACE DRILLING OR ANY OTHER RECOVERY METHOD, WHETHER SIMILAR OR DISSIMILAR, SO LONG AS THE SURFACE OF SAID LANDS IS NOT OCCUPIED OR USED, OR ITS SUPPORT MATERIALLY IMPAIRED, ALSO FROM THAT PORTION OF SAID LAND LYING EASTERLY OF THE FOLLOWING DESCRIBED LINE; BEGINNING AT A POINT IN THE NORTHERLY LINE OF THE SOUTHEAST QUARTER OF SAID SECTION 34, DISTANT THEREON SOUTH 89° 59’ 12” EAST 1322.40 FEET FROM THE NORTHWEST CORNER OF SAID SOUTHEAST QUARTER OF SAID SECTION, SAID POINT OF BEGINNING BEING THE NORTHWEST CORNER OF THE EAST HALF OF SAID SOUTHEAST QUARTER OF SAID SECTION; THENCE ALONG THE WESTERLY LINE OF SAID EAST HALF OF SAID SOUTHEAST QUARTER OF SAID SECTION. SOUTH 0° 2’ 22” EAST 2590.40 FEET TO THE NORTHERLY LINE OF CENTURY BOULEVARD, 100 FEET WIDE.

ALSO RESERVING UNTO MANCHESTER AVENUE COMPANY, A CALIFORNIA CORPORATION, BY DEED RECORDED AUGUST 31, 1956 IN BOOK 52179 PAGE 412, OFFICIAL RECORDS, AN UNDIVIDED 281200 OF ONE PERCENT OF ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES OR THE PROCEEDS THEREFROM IN AND UNDER OR THAT MAY BE PRODUCED OR SAVED FROM THAT PORTION OF SAID LAND LYING NORTHERLY OF A LINE PARALLEL WITH AND 1320 FEET MEASURED SOUTHERLY AT RIGHT ANGLES FROM THE NORTHERLY LINE OF SAID SECTION 34.

ALSO EXCEPT ALL SUBSURFACE OIL, GAS, CASINGHEAD GAS AND OTHER HYDROCARBON AND OTHER GASEOUS SUBSTANCES LOCATED ON SAID PROPERTY, AS GRANTED TO HOLLYWOOD PARK OPERATING COMPANY, A DELAWARE CORPORATION, IN A DEED RECORDED MAY 18, 1982 AS INSTRUMENT N0. 82-511580.

ALSO RESERVING UNTO MASON LETTEAU, F. T. HINTON AND JOHN R. MAC FADEN CONSTITUTING THE BOARD OF TRUSTEES OF THE ENDOWMENT CARE FUND OF INGLEWOOD PARK CEMETERY ASSOCIATION, IN DEED. RECORDED MARCH 18, 1964 IN BOOK D2398 PAGE 795, OFFICIAL RECORDS, ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES LYING IN OR BELOW A DEPTH OF 500 FEET AND WITHOUT RIGHT OF SURFACE ENTRY ON THAT PORTION OF SAID LAND LYING NORTHERLY OF A LINE PARALLEL WITH AND 1320 FEET SOUTHERLY MEASURED AT RIGHT ANGLES FROM- THE NORTHERLY LINE OF SAID SECTION 34.

EXCEPTING FROM the above described Parcel C those certain buildings and Improvements situated thereon designated ‘Casino Building’, as delineated on Exhibit ’A-1” attached hereto, which buildings and improvements are and shall remain real property.

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Exhibit “B”

Premises

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Exhibit “B”

THOSE CERTAIN BUILDINGS AND IMPROVEMENTS DESIGNATED “CASINO BUILDING” AS DELINEATED ON EXHIBIT “B-1” ATTACHED HERETO SITUATED ON PARCEL “C” OF PARCEL MAP NO. 25640, IN THE CITY OF INGLEWOOD, AS PER MAP FILED IN BOOK 289 PAGES 53 TO 61 INCLUSIVE, OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, WHICH BUILDINGS AND IMPROVEMENTS ARE AND SHALL REMAIN REAL PROPERTY.

EXCEPT THEREFROM UNTO, TIDEWATER ASSOCIATED OIL COMPANY, ITS SUCCESSORS AND ASSIGNS, IN DEED RECORDED FEBRUARY 25, 1947 IN BOOK 24243 PAGE 423, OFFICIAL RECORDS, ALL MINERALS, INCLUDING BUT NOT LIMITED TO HYDRO CARBONACEOUS SUBSTANCES, TOGETHER WITH THE RIGHT TO MINE, EXTRACT, RECOVER AND REMOVE THE SAME; PROVIDED, HOWEVER, AND GRANTOR SO COVENANTS, THAT GRANTOR, ITS SUCCESSORS AND ASSIGNS, EXCEPT BY PERMISSION OF GRANTEE, ITS SUCCESSORS OR ASSIGNS, WILL NEVER ENTER UPON THE SURFACE OF SAID LANDS FOR THE PURPOSE OF MINING, EXTRACTING, REMOVING, OR RECOVERING SAID MINERALS, IT BEING EXPRESSLY COVENANTED, AND AGREED, HOWEVER, THAT GRANTOR, ITS SUCCESSORS AND ASSIGNS, SHALL HAVE THE RIGHT TO MINE, EXTRACT, RECOVER AND REMOVE SAID MINERALS BY MEANS OF DIRECTIONAL OR SUBSURFACE DRILLING OR ANY OTHER RECOVERY METHOD, WHETHER SIMILAR OR DISSIMILAR, SO LONG AS THE SURFACE OF SAID LANDS IS NOT OCCUPIED OR USED, OR ITS SUPPORT MATERIALLY IMPAIRED, ALSO FROM THAT PORTION OF SAID LAND LYING EASTERLY OF THE FOLLOWING DESCRIBED LINE; BEGINNING AT A POINT IN THE NORTHERLY LINE OF THE SOUTHEAST QUARTER OF SAID SECTION 34, DISTANT THEREON SOUTH 89° 59’ 12” EAST 1322.40 FEET FROM THE NORTHWEST CORNER OF SAID SOUTHEAST QUARTER OF SAID SECTION, SAID POINT OF BEGINNING BEING THE NORTHWEST CORNER OF THE EAST HALF OF SAID SOUTHEAST QUARTER OF SAID SECTION; THENCE ALONG THE WESTERLY LINE OF SAID EAST HALF OF SAID SOUTHEAST QUARTER OF SAID SECTION, SOUTH 0° 2’ 22” EAST 2590.40 FEET TO THE NORTHERLY LINE OF CENTURY BOULEVARD, 100 FEET WIDE.

ALSO RESERVING UNTO MANCHESTER AVENUE COMPANY, A CALIFORNIA CORPORATION, BY DEED RECORDED AUGUST 31, 1958 IN BOOK 52179 PAGE 412, OFFICIAL RECORDS, AN UNDIVIDED 28/200 OF ONE PERCENT OF ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES OR THE PROCEEDS THEREFROM IN AND UNDER OR THAT MAY BE PRODUCED OR SAVED FROM THAT PORTION OF SAID LAND LYING NORTHERLY OF A LINE PARALLEL WITH AND 1320 FEET MEASURED SOUTHERLY AT RIGHT ANGLES FROM THE NORTHERLY LINE OF SAID SECTION 34.

ALSO EXCEPT ALL SUBSURFACE OIL, GAS, CASINGHEAD GAS AND OTHER HYDROCARBON AND OTHER GASEOUS SUBSTANCES LOCATED ON SAID PROPERTY, AS GRANTED TO HOLLYWOOD PARK OPERATING COMPANY, A

DELAWARE CORPORATION, IN A DEED RECORDED MAY 18,1982 AS INSTRUMENT NO. 82-511580.

ALSO RESERVING UNTO MASON LETTEAU, F. T. HINTON AND JOHN R. MAC FADEN CONSTITUTING THE BOARD OF TRUSTEES OF THE ENDOWMENT CARE FUND OF INGLEWOOD PARK CEMETERY ASSOCIATION, IN DEED RECORDED MARCH 18, 1964 IN BOOK D2398 PAGE 795, OFFICIAL RECORDS, ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES LYING IN OR BELOW A DEPTH OF 500 FEET AND WITHOUT RIGHT OF SURFACE ENTRY ON THAT PORTION OF SAID LAND LYING NORTHERLY OF A LINE PARALLEL WITH AND 1320 FEET SOUTHERLY MEASURED AT RIGHT ANGLES FROM THE NORTHERLY LINE OF SAID SECTION 34.

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EX-10.4

EXHIBIT 10.4

STATE OF LOUISIANA

COMMERCIAL LEASE

STATE OF LOUISIANA

PARISH OF EAST BATON ROUGE LEASE CONTRACT NO. 6000

This contract of lease entered into on this 9^th day of September, 1996, by and between:

Name of Business/Person:	State of Louisiana, State Land Office
Address:	P. 0. Box 44124 Baton Rouge, LA 70804
Name of Agent:	Clay A. Carter
Title of Agent:	Public Lands Administrator
hereinafter referred to as “LESSOR”, and
Name of Business/Person: Address	Casino Magic of Louisiana, Corp. 1701 Old Minden Road Bossier City, Louisiana 71111
Name of Agent: (if applicable)	Robert Callaway, Secretary 1701 Old Minden Road Bossier City, Louisiana 71111
Title of Agent: (if applicable)	Secretary, General Counsel
hereinafter referred to as “LESSEE”.

This lease will become binding on LESSOR only after execution by LESSOR and delivery to LESSEE. Deposit of LESSEE’S first rental payment into any account of LESSOR does not constitute acceptance of this lease by LESSOR.

AUTHORITY

By virtue of the provisions of L.R.S 41:1709, et seq. and upon the terms, conditions and considerations hereinafter set forth, LESSOR does hereby lease and let unto LESSEE, without any warranty of title whatsoever, the following described property owned by the State of Louisiana, and situated in the Parish of Bossier/Caddo, to wit:

PROPERTY

A TRACT LOCATED IN SECTION 32, TOWNSHIP 18 NORTH, RANGE 13 WEST, BOSSIER PARISH AND/OR SECTIONS 31, 32, or 33, TOWNSHIP 18 NORTH, RANGE 13 WEST, CADDO PARISH, LOUISIANA. SAID TRACT BEING MORE FULLY DESCRIBED AS FOLLOWS:

FROM A FOUND 1” DIAMETER IRON PIPE BEING THE MOST SOUTHWESTERLY CORNER OF A TRACT OF LAND OWNED BY CASINO MAGIC OF LOUISIANA, CORP. RUN THENCE SOUTH 29° 01’ 37” WEST A DISTANCE OF 35.54 FEET TO A POINT ON THE HIGH BANK OF THE RED RIVER, THENCE RUN THE FOLLOWING 4 CALLS ALONG SAID HIGH BANK:

NORTH 63° 28’ 35” WEST A DISTANCE OF 6.35 FEET,

NORTH 74° 14’ 27” WEST A DISTANCE OF 91.50 FEET,

NORTH 63° 20’ 41” WEST A DISTANCE OF 71.00 FEET,

NORTH 64° 57’ 21” WEST A DISTANCE OF 31.18 FEET TO THE POINT OF BEGINNING OF THE TRACT HEREIN DESCRIBED;

FROM SAID POINT OF BEGINNING RUN THENCE SOUTH 46° 50’ 28” WEST A DISTANCE OF 139.68 FEET,

THENCE RUN NORTH 60° 31’ 17” WEST A DISTANCE OF 270.35 FEET,

THENCE RUN NORTH 15° 15’ 06” EAST A DISTANCE OF 142.74 FEET TO A POINT ON THE HIGH BANK OF THE RED RIVER,

THENCE RUN THE FOLLOWING 3 CALLS ALONG THE HIGH BANK OF THE RED RIVER,

SOUTH 53° 08’ 28” EAST A DISTANCE OF 90.25 FEET,

SOUTH 60° 42’ 03” EAST A DISTANCE OF 178.78 FEET,

SOUTH 64° 51’ 53” EAST A DISTANCE OF 79.06 FEET TO THE POINT OF BEGINNING,

SAID TRACT CONTAINING 0.91 ACRES.

hereinafter referred to as “the property”.

TERM

The lease shall have a primary term of FIVE (5) YEARS, with an option in favor of the LESSEE to renew for NINE (9) successive terms as provided for in La. R.S. 41:1709, and the rules and regulations promulgated thereunder and in effect on the date of renewal. In no case shall said lease extend beyond a FIFTY (50) YEAR maximum period. Continuance of this lease during both the primary term and any renewal shall be contingent upon and subject to LESSEE’s timely payment of the annual fee.

PURPOSE

It is understood and agreed that this lease is made and executed by LESSOR to LESSEE for any lawful commercial purpose and use of “the property”. Particularly to install and maintain mooring structures, docking, and support facilities to accommodate a riverboat casino vessel and access to and from the vessel located on the Red River in Section 32, T18N, R13W, Bossier/Caddo Parish, La. in accordance with permit C-600 9-9-96.

RENTAL

1. The rental payment constituting the consideration of this lease is the price and sum of Forty Five Thousand Five Hundred Thirty Three Dollars and 00/100 ($45,500) Dollars.

2. The rental paid by LESSEE to LESSOR shall be an annual rental with the first rental BEING due and payable on or before the date this lease commences and on or before the same day of each year thereafter.

3. In the event that the rental payment is not timely paid by LESSEE as and when due, LESSEE shall be granted an additional thirty (30) days after due date and after receipt of written notice of non payment from LESSOR to make such payment. During this thirty (30) day period, LESSOR may, at LESSOR’s option, accept rental payments tendered more than thirty (30) days following the date of LESSEE’s receipt of such notice of non-payment from LESSOR.

IMPROVEMENTS

LESSEE shall not make any improvements, additions, alterations or reconstructions to “the property”, other than those additions, alterations or reconstructions authorized by the State Land Office, without prior written permission of LESSOR, which permission shall not be unreasonably withheld. LESSOR acknowledges that improvements, additions, alterations, or reconstructions to “the property” made in accordance with generally accepted commercial practices which are within the scope and purpose of State Land Office.

CONDITIONS

1. This lease is granted subject to all existing surface leases, mineral leases, servitudes, rights-of-way, permits or any other contracts, whether recorded or unrecorded, affecting “the property”.

2. LESSEE shall comply with all federal, state and local statutes, rules, regulations and ordinances for environmental, sewer, sanitation, fire, safety and any other regulated activities, and LESSEE shall remedy any environmental or other conditions resulting from LESSEE’S failure to comply with any of the foregoing.

3. LESSEE agrees to use “the property” as a good and careful administrator. This includes maintaining “the property” in a neat, clean and orderly manner at all times. No hazardous waste materials shall be placed or stored by LESSEE on or under “the property” in a manner contrary to law.

4. Should an Agent or Attorney be employed to give special attention to the enforcement or protection of any claim of LESSOR arising from this lease, LESSEE shall pay as fees and compensation to such Agent or Attorney such sum as will constitute a reasonable fee including all court costs, together with all other costs, charges and expenses or reimbursement for actual costs occasioned by LESSOR, at LESSOR’S discretion.

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RESERVATIONS

LESSOR reserves the full use and enjoyment of “the property”, both surface and subsurface, for any and all purposes except those particular uses granted hereinabove to LESSEE. LESSOR’S reservation includes, but is not limited to the following rights:

1. LESSOR reserves all rights of whatever nature and kind in and to all minerals on or under “the property”. These rights include, but are not limited to, all operations which are necessary, useful or convenient for the exploration, exploitation, drilling, mining, production, development, storage and transportation of all oil, gas, sulfur and other minerals, on or under “the property” or any other lands under the control of LESSOR.

2. LESSOR reserves all rights of whatever nature and kind in and to all other surface or subsurface uses of “the property”. These rights include, but are not limited to, all operations which are necessary, useful or convenient for the exploration, exploitation, mining, production and development of all sand, gravel or shell deposits; issuance of servitudes and rights-of-way; and issuance of permits and leases. LESSOR may exercise the rights reserved herein without LESSEE’S consent, so long as those rights granted do not prohibit or unreasonably interfere with LESSEE’S use of “the property”. LESSEE hereby expressly agrees and declares that LESSOR shall not be liable to LESSEE for damages resulting from the exercise of any rights reserved herein.

ASSIGNMENT/SUBLEASE

This agreement shall be binding upon LESSOR and LESSEE, their respective successors and assigns. This lease may not be assigned, subleased or otherwise transferred in whole or in part without the prior written permission of LESSOR, which permission shall not be unreasonably withheld. Such permission shall not be necessary in the event that LESSEE, upon written notice to LESSOR, obtains appropriate state agency regulatory approvals for the transfer, assignment, or sub-leasing of all or part of LESSEE’s operations. In addition, such permission shall not be necessary in the event of a transfer of the lease resulting from a corporate merger, reorganization, consolidation or change of name of LESSEE.

HOLD HARMLESS

LESSEE accepts “the property” in its present condition and LESSOR shall not be responsible for damage of any kind, as a result of LESSEE’s or it’s agent’s, employee’s, or contractor’s operations, to any person or property however occasioned. LESSEE further agrees to indemnify and to hold LESSOR harmless against any loss or liability as a result of LESSEE’s operations, for injury to or death of persons or damage to property of others, including costs and expenses incident thereto, arising wholly or in part from or in connection with the LESSEE’s use of “the property”. LESSEE will, at LESSOR’s request, appear and defend any suit arising from any such loss or liability as a result of LESSEE’s operations, at its own sole cost and expense and will pay any judgment that may be entered against LESSOR therein when said suit is finally determined for such loss or liability resulting from LESSEE’s operations.

LIABILITY INSURANCE

LESSEE is required to maintain at least One Million and 00/100 ($1,000,000.00) Dollars of liability insurance at all times this lease is in effect.

TERMINATION/CANCELLATION

1. Should LESSEE at any time violate any of the conditions of this lease, or discontinue the use of “the property”, payments or other expenses assumed under this lease, LESSOR shall have the option, after thirty (30) days notice to LESSEE to cure said violation or discontinuance, to cancel this lease without putting LESSEE in default; LESSEE to remain responsible for all damages or losses suffered by LESSOR, LESSEE hereby assenting thereto and expressly waiving the legal notices to vacate “the property”. In the event that a default or violation of any of the material conditions of this lease cannot be cured in a commercially reasonable manner by LESSEE within thirty days (30) days after notice, LESSOR shall not cancel this lease if LESSEE has commenced a commercially reasonable course of action to cure said violation within thirty (30) days after receipt of notice to cure.

2. Should LESSEE at any time use “the property” or any portion thereof for any illegal or unlawful purpose, or should LESSEE commit, or permit or tolerate the commission of any act which is punishable by imprisonment for a term of not less than one (1) year under the laws of the United States or the State of Louisiana, or any ordinance of the Parish, the remedies set forth in the preceding paragraph shall be available to LESSOR upon thirty (30) days notice to LESSEE.

3. LESSEE may surrender this lease at any time, either during the original term or any extension of the original term by giving written notice to LESSOR. If LESSEE had previously recorded this lease in the parish

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conveyance records, the LESSEE shall file a written release in the parish conveyance records and shall provide LESSOR a certified copy thereof. Surrender of this lease shall relieve LESSEE of any further obligation to pay rentals which may be due hereunder, but shall not affect any other existing obligations of the LESSEE or relieve the LESSEE of any obligations previously incurred.

4. Upon termination of this lease, LESSEE will ipso facto forfeit any right of recourse against LESSOR for return of all or part of the consideration paid.

5. In the event of cancellation, surrender of the lease, or termination for any reason, LESSEE or its assigns hereby agrees to commence the removal at their sole risk, cost and expense, of any or all constructions or obstacles and to restore “the property” to its original condition within ninety (90) days of the lease termination and complete said removal in a commercially reasonable time. Should LESSOR undertake the removal of any or all constructions or obstacles and restoration of “the property” by reason of LESSEE or its assigns, failure or refusal to do so, the LESSEE and its assigns expressly consent and agree to reimburse LESSOR for the full reasonable costs incurred for such removal and restoration.

6. Should LESSOR allow or permit LESSEE to remain on “the property” after the expiration or termination of this lease, this shall not be construed as a reconduction of this lease.

EFFECT OF LAW

The parties to this lease understand and agree that the provisions herein shall, between them, have the effect of law; but in reference to matters not provided herein, this lease shall be governed by the laws of the State of Louisiana.

THUS, DONE AND EXECUTED, AND SIGNED, at Bay St. Louis, Mississippi, in triplicate, on the 10^th day of September, 1996.

WITNESSETH:
/s/    FLORENCE STIEFFEL	By:	ROBERT CALLAWAY
		CASINO MAGIC OF LOUISIANA, CORP.
		(LESSEE)
[Illegible]

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THUS, DONE, EXECUTED, AND SIGNED, at Baton Rouge, Louisiana, in triplicate, on the 16^th day of September, 1996.

WITNESSETH:	STATE OF LOUISIANA, STATE LAND OFFICE
/s/    CHERYL A. HEBERT	BY:	/s/    CLAY A. CARTER
		CLAY A. CARTER
		PUBLIC LANDS ADMINISTRATOR (LESSOR)
/s/    LATRICIA ODELL
[ILLEGIBLE]
APPROVED AS TO FORM AND LEGALITY DEPARTMENT OF JUSTICE ASSISTANT ATTORNEY GENERAL

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DESCRIPTION OF PERMANENT BOAT SLIP

A TRACT LOCATED IN SECTION 32, TOWNSHIP 18 NORTH, RANGE 13 WEST, BOSSIER PARISH AND/OR SECTIONS 31, 32 OR 33, TOWNSHIP 18 NORTH, RANGE 13 WEST, CADDO PARISH, LOUISIANA. SAID TRACT BEING MORE FULLY DESCRIBED AS FOLLOWS: FROM A FOUND 1” DIAMETER IRON PIPE BEING THE MOST SOUTHEASTERLY CORNER OF A TRACT OF LAND OWNED BY JEFFERSON CASINO CORPORATION, RUN THENCE SOUTH 29º 01’ 37” WEST IN A DISTANCE OF 35.54 FEET TO A POINT ON THE HIGH BANK OF THE RED RIVER, THENCE RUN THE FOLLOWING 4 CALLS ALONG SAID HIGH BANK:

NORTH 63º 28’ 35” WEST A DISTANCE OF 6.35 FEET,

NORTH 74º 14’ 27” WEST A DISTANCE OF 91.50 FEET,

NORTH 63º 20’ 41” WEST A DISTANCE OF 71.00 FEET,

NORTH 64º 57’ 21” WEST A DISTANCE OF 31.18 FEET TO THE POINT OF BEGINNING OF THE TRACT HEREIN DESCRIBED;

FROM SAID POINT OF BEGINNING RUN THENCE SOUTH 46º 50’ 28” WEST A DISTANCE OF 139.68 FEET,

THENCE RUN NORTH 60º 31’ 17” WEST A DISTANCE OF 270.35 FEET,

THENCE RUN NORTH 15º 15’ 06” EAST A DISTANCE OF 142.74 FEET TO A POINT ON THE HIGH BANK OF THE RED RIVER,

THENCE RUN THE FOLLOWING 3 CALLS ALONG THE HIGH BANK OF THE RED RIVER,

SOUTH 53º 08’ 28” EAST A DISTANCE OF 90.25 FEET,

SOUTH 60º 42’ 03” EAST A DISTANCE OF 178.78 FEET,

SOUTH 64º 51’ 53” EAST A DISTANCE OF 79.06 FEET TO THE POINT OF BEGINNING,

SAID TRACT CONTAINING 0.91 ACRES.

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EX-11

Exhibit 11

Pinnacle Entertainment, Inc.
Computation of Per Share Earnings

	For the three months ended March 31,
	Basic						Diluted (a)
		2003			2002			2003			2002
	(in thousands, except per share data—unaudited)
Average number of common shares outstanding		25,934			25,444			25,934			25,444
Average common shares due to assumed conversion of stock options		0			0			0			0
Total shares		25,934			25,444			25,934			25,444
Net loss before cumulative effect of a change in accounting principle	$	(847	)	$	(2,298	)	$	(847	)	$	(2,298	)
Cumulative effect of a change in accounting principle, net of taxes		0			56,704			0			56,704
Net loss	$	(847	)	$	(59,002	)	$	(847	)	$	(59,002	)
Per share loss before cumulative effect of a change in accounting principle	$	(0.03	)	$	(0.09	)	$	(0.03	)	$	(0.09	)
Per share cumulative effect of a change in accounting principle, net of taxes		0.00			(2.23	)		0.00			(2.23	)
Per share net loss	$	(0.03	)	$	(2.32	)	$	(0.03	)	$	(2.32	)

(a) When the computed diluted values are anti-dilutive, the basic per share values are presented on the face of the consolidated statements of operations.

EX-99.1

EXHIBIT 99.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the Quarterly Report of Pinnacle Entertainment, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2003, as filed with the Securities and Exchange Commission (the “Report”), I, Daniel R. Lee, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DANIEL R. LEE	May 14, 2003
Daniel R. Lee Chief Executive Officer

EX-99.2

EXHIBIT 99.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the Quarterly Report of Pinnacle Entertainment, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2003, as filed with the Securities and Exchange Commission (the “Report”), I, Stephen H. Capp, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(3)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(4)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ STEPHEN H. CAPP	May 14, 2003
Stephen H. Capp Chief Financial Officer