Exhibit 10.1

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made
effective as of May 1, 2005, (the “Effective Date”) by and between PINNACLE
ENTERTAINMENT, INC., a Delaware corporation (the “Company”), and DANIEL R. LEE,
an individual (“Executive”), with respect to the following facts and
circumstances:

 

RECITALS

 

The Company and Executive have entered into an Employment Agreement effective as
of April 10, 2002 (the “Original Agreement”) pursuant to which Executive serves
as Chief Executive Officer of the Company and as a member and Chairman of the
Company’s Board of Directors. The Company and Executive desire to amend and
restate the Original Agreement on the terms and conditions set forth herein.

 

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. The Company agrees to engage Executive in the capacity as Chief
Executive Officer of the Company, and Executive hereby accepts such engagement
by the Company upon the terms and conditions specified below. The Company
further agrees to cause Executive to be elected as a Director and, subject to
the provisions of Section 6.3 hereof, Chairman of the Board of Directors, and
Executive agrees to serve in such capacities without additional compensation.

 

1.2 Term. The term of this Agreement shall commence on the date hereof and,
unless earlier terminated under Article 6 below, shall continue in force until
April 30, 2008, provided that commencing on May 1, 2007 and as of May 1 of each
year thereafter (a “Renewal Date”), this Agreement shall automatically renew for
additional one-year periods (each, a “Renewal Period”), unless either party
gives notice of non-renewal at least 90 days prior to the next Renewal Date;
provided that no such Renewal Period shall extend past Executive’s sixty-fifth
(65) birthday. The term of this Agreement, including any Renewal Periods, is
referred to as the “Term.”.

 

ARTICLE 2.

 

DUTIES OF EXECUTIVE

 

2.1 Duties. Executive shall perform all the duties and obligations generally
associated with the positions of Chairman and Chief Executive Officer, subject
to the control and

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supervision of the Board of Directors, and such other executive duties
consistent with the foregoing as may be assigned to him from time to time by the
Board of Directors of the Company. Executive shall perform the services
contemplated herein faithfully, diligently, to the best of his ability and in
the best interests of the 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 extent of his authority,
shall to the best of his ability cause the Company to be in compliance with, any
and all laws, rules and regulations applicable to the Company of which Executive
is aware. Executive may rely on the Company’s inside counsel and outside lawyers
in connection with such matters. 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 the 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
the Company’s headquarters at such location as Executive and the Board of
Directors shall agree upon. Executive understands he will be required to travel
to the Company’s various operations 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 the Company. Executive may participate in
social, civic, charitable, religious, business, educational or professional
associations and serve on the boards of directors of companies, including Lynch
Interactive, 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 the Company without the prior written approval of the 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 United
States.

 

ARTICLE 3.

 

COMPENSATION

 

3.1 Salary. In consideration for Executive’s services hereunder, the Company
shall pay Executive an annual salary, effective as of May 1, 2005 at the rate of
not less than $875,000 per year during each of the years of the Term; payable in
accordance with the 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 similar withholdings).
The annual salary shall be reviewed by the Compensation Committee of the Board
(the

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“Committee”) no less frequently than annually and may be increased (but not
decreased) at the discretion of the Board. If Executive’s annual salary is
increased, the increased amount shall not be reduced for the remainder of the
Term.

 

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 up to one
hundred fifty percent (150%) of Executive’s annual salary with a targeted bonus
of seventy-five percent (75%) of Executive’s annual salary for such year based
upon meeting performance targets with respect to the Company’s earnings before
interest, taxes, depreciation and amortization that shall be established
annually by the Committee in consultation with Executive. Any such bonus earned
by Executive shall be paid annually within ninety (90) days after the conclusion
of the Company’s fiscal year and certification by the Committee that the targets
have been met. Bonuses relative to partial years (or a termination caused by
death or disability) shall be prorated based on Executive’s target bonus. It is
the contemplation of the parties that the setting of the targets and goals and
the payment of bonuses will be done in such a manner as to qualify such bonuses
as “performance based” compensation under § 162(m) of the Internal Revenue Code.

 

3.3 Stock Options. As an additional element of compensation to Executive, in
consideration of the services to be rendered hereunder, the Company shall grant
to Executive an option to purchase 600,000 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 of grant and a term of ten (10) years. Such option shall be granted
under the Company’s Stock Option Plans (the “Plans”) and shall constitute
incentive stock options under the Internal Revenue Code of 1986, as amended (the
“Code”) to the maximum extent possible. The remaining options shall be
non-qualified options under the Code.. The terms and conditions of such option
shall be governed by a stock option agreement reflecting such grant. Such option
shall vest in five (5) equal annual installments as provided in the stock option
agreement and shall be subject to accelerated vesting as provided in Sections
6.5.2 and 6.5.3. In addition, before the 2008 Renewal Date and at appropriate
times thereafter, the Committee shall review Executive’s long-term compensation
and, in consultation with Executive, shall consider granting additional stock
options to Executive.

 

ARTICLE 4.

 

EXECUTIVE BENEFITS

 

4.1 Vacation. In accordance with the general policies of the Company applicable
generally to other senior executives of the Company pursuant to the Company’s
personnel policies from time to time, Executive shall be entitled to not less
than four weeks vacation each calendar year, without reduction in compensation

 

4.2 The 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 the Company under the Company
personnel policies in effect from time to time.

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4.3 Benefits. Executive shall receive all other such fringe benefits as the
Company may offer to other senior executives of the Company generally under the
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 and Executive’s wife, or any pregnancy of Executive’s wife, the
Company shall bear the cost of such examinations or the medical costs of such
pregnancy.

 

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 his acts during the term hereof and shall be
covered by the Company’s directors and officers indemnity trust. In addition,
the Company shall cause Executive to be covered by the current policies of
directors and officers liability insurance covering directors and officers of
the 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 the Company. The Company shall use commercially reasonable efforts to
cause the current policies of directors and officers liability insurance
covering directors and officers of the Company to be maintained throughout the
term of Executive’s employment with the 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 the 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 the Company for all ordinary and necessary
expenses incurred by Executive in the performance of his duties or otherwise in
furtherance of the business of the Company in accordance with the policies of
the 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 the
Company.

 

ARTICLE 6.

 

TERMINATION

 

6.1 Termination for Cause. Without limiting the generality of Section 6.2, the
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
(“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.

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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 the 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 the Company materially detrimental to the 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 180 days
or greater, which determination shall be made in the reasonable exercise of the
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 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 the 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 days
after a request for designation of such party, then a physician or psychiatrist
designed by the Clark County Medical Association. 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. 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,
the 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. Failure by the Company to extend the Term for any Renewal Period
shall not be a termination of this Agreement without cause.

 

6.3 Termination by Executive for Good Reason. Executive may terminate his
employment under this Agreement on thirty (30) days prior notice to the Company
for good reason (“Good Reason”). For purposes of this Agreement, “Good Reason”
shall mean and be limited to (a) a material breach of this Agreement by the
Company (including without limitation any material reduction in the authority or
duties of Executive (other than cessation of his being Chairman of the Board due
to the requirements of any state regulation or applicable rules or regulations
of the SEC or any Exchange on which the Company’s stock is listed or admitted
for trading), 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 the Company to remedy such

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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 (a “Change of Control”).
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 (ii) the acquisition or
ownership by   any person, corporation, entity or group of stock possessing more
than thirty percent (30%) of the aggregate voting power of the then outstanding
stock of the Company, (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; (iv) the dissolution for
liquidation of the Company; or (v) the reorganization, merger or combination of
the Company with one or more corporations or entities unless the Company’s
shareholders immediately before such reorganization, merger or combination own
stock or equity possessing more than 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.
Failure by the Company to extend the Term for any Renewal Period shall not
constitute Good Reason for Executive to terminate this Agreement.

 

6.4 Effectiveness on Notice. Any termination under this Section 6 shall be
effective upon receipt of notice by Executive or the Company, as the case may
be, of such termination or upon such other later date as may be provided herein
or specified by the 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 the Company
hereunder shall thereupon cease and the 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 other any benefit plan or policy of the
Company, and provided that Executive may exercise any vested options.

 

(a)

 

6.5.2 Termination Due to Disability. If the Company terminates Executive due to
disability, the following shall apply:

 

  (a) Executive shall be entitled to receive a lump sum amount equal to a sum of
not less than (i) Executive’s annual salary as in effect on the date of
termination; plus (ii) the greater of the amount of Executive’s targeted bonus
in the year of the termination or the average of the actual annual bonuses paid
to Executive in the three consecutive years prior to the year of termination;
times (iii) the number of years and partial years remaining in the Term
disregarding any early termination thereof, but in no event less

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than 150% of the sum of (i) and (ii) above (the “Disability Severance Benefit”).
In addition, Executive shall be entitled to receive any amounts payable under
Section 6.5.1 above, a pro rata annual bonus for the year of termination based
on the Executive’s targeted bonus for such year and a continuation of health and
disability insurance coverage as specified in Section 6.5.2(c). The Disability
Severance Benefit shall be payable to Executive in a lump sum as soon as
practicable after the termination of Executive’s employment.

 

  (b) Executive shall be entitled to accelerated vesting of his outstanding
stock options, based on the following schedule: (i) if such termination shall
occur during the first year of the Term, one-third (1/3) of Executive’s
outstanding stock options shall be vested and exercisable as of the date of
termination, (ii) if such termination shall occur during the second year of the
Term, two-thirds (2/3) of Executive’s outstanding stock options shall be vested
and exercisable as of the date of termination and (iii) if such termination
shall occur during the third year of the Term or thereafter all of Executive’s
outstanding stock options shall be fully vested and exercisable as of the date
of termination.

 

  (c) Executive shall 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 were 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 balance of the Term but in no event less than one and
one-half (1 1/2) years following Executive’s termination of employment with the
Company and all of its Subsidiaries, and (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

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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 and the term of the “No Hire Away Policy” in
Section 7.5 shall be limited to six months from the date of termination.

 

6.5.3 Termination Without Cause or Termination by Executive for Good Reason
Prior to A Change of Control or After Twenty-Four (24) Months Following a Change
of Control. If the Company terminates Executive without Cause or Executive
terminates for Good Reason prior to or after twenty-four months following a
Change of Control, the following shall apply:

 

  (a) Executive shall be entitled to receive an amount equal to a sum not less
than (i) Executive’s annual salary as in effect on the date of termination; plus
(ii) the greater of the amount of Executive’s targeted bonus in the year of the
termination or the average of the actual annual bonuses paid to Executive in the
three consecutive years prior to the year of termination; times (iii) the number
of years and partial years remaining in the Term disregarding any early
termination thereof, but in no event less than 150% of the sum of (i) and (ii)
above (the “Pre-Change of Control Severance Benefit”), which amount shall be
paid to Executive in equal installments over eighteen (18) months in accordance
with the Company’s regular salary payment schedule from time to time. In
addition, Executive shall be entitled to receive any amounts payable under
Section 6.5.1 above, a pro rata annual bonus for the year of termination based
on the Executive’s target bonus amount for such year and a continuation of
health and disability insurance coverage as specified in Section 6.5.3(c).

 

  (b) Executive shall be entitled to accelerated vesting of his outstanding
stock options, based on the following schedule: (i) if such termination shall
occur during the first year of the Term, one-third (1/3) of Executive’s
outstanding stock options shall be vested and exercisable as of the date of
termination, (ii) if such termination shall occur during the second year of the
Term, two-thirds (2/3) of Executive’s outstanding stock options shall be vested
and exercisable as of the date of termination and (iii) if such termination
shall occur during the third year of the Term or thereafter all of Executive’s
outstanding stock options shall be fully vested and exercisable as of the date
of termination.

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  (c) Executive shall 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 were 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 6.5.3(c) shall continue until
the earlier of (a) the balance of the Term but in no event less than one and
one-half (1 1/2) years following Executive’s termination of employment with the
Company and all of its Subsidiaries; or (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 6.5.3(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 6.5.3(c), the obligations of the Company
and its Subsidiaries under this Section 6.5.3(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 and the term of the “No Hire Away Policy” in
Section 7.5 shall be limited to six months from the date of termination.

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6.5.4 Termination Without Cause or Termination by Executive for Good Reason on
or Within Twenty-Four (24) Months After a Change of Control. If the Company
terminates Executive without Cause or Executive terminates for Good Reason on or
within twenty-four (24) months after a Change of Control, the following shall
apply:

 

  (a) Executive shall be entitled to receive a lump sum amount equal to a sum
not less than (i) Executive’s annual salary as in effect on the date of
termination; plus

 

(ii) the greater of the amount of Executive’s targeted bonus in the year of the
termination or the average of the actual annual bonuses paid to Executive in the
three consecutive years prior to the year of termination; times (iii) the number
of years and partial years remaining in the Term disregarding any early
termination thereof, but in no event less than 250% of the sum of (i) and (ii)
above (the “Change of Control Severance Benefit”). In addition, Executive shall
be entitled to receive any amounts payable under Section 6.5.1 above, a pro rata
annual bonus for the year of termination based on Executive’s targeted bonus for
such year and a continuation of health and disability insurance coverage as
specified in Section 6.5.4(c). The Change of Control Severance Benefit shall be
payable to Executive in a lump sum as soon as practicable after the termination
of Executive’s employment.

 

  (b) Executive shall be entitled to accelerated vesting of his outstanding
stock options, based on the following schedule: (i) if such termination shall
occur during the first year of the Term, one-third (1/3) of Executive’s
outstanding stock options shall be vested and exercisable as of the date of
termination, (ii) if such termination shall occur during the second year of the
Term, two-thirds (2/3) of Executive’s outstanding stock options shall be vested
and exercisable as of the date of termination and (iii) if such termination
shall occur during the third year of the Term or thereafter all of Executive’s
outstanding stock options shall be fully vested and exercisable as of the date
of termination.

 

  (c) Executive shall 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 were 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 6.5.4(c) shall continue until
the earlier of (a) the balance of the Term but in no event less than two and
one-half (2 1/2) years following Executive’s termination of employment with the
Company and all of its Subsidiaries; or (b) the date Executive becomes covered
under any other group health plan or group

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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 6.5.4(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 6.5.4(c),
the obligations of the Company and its Subsidiaries under this Section 6.5.4(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 and the term of the “No Hire Away Policy” in
Section 7.5 shall be limited to six months from the date of termination.

 

  (e) Notwithstanding anything contained herein, if a Change of Control occurs
and the Executive’s employment with the Company is terminated by the Company
without Cause prior to the Change of Control, such termination of employment
shall be deemed to occur after the Change of Control if such termination (x) was
at the request of, or in response to actions taken by, a third party who has
taken steps reasonably calculated to effect the Change of Control or (ii) occurs
within six (6) month’s before the date of any Change of Control.

 

6.5.5 Additional Payments. In the event that any payments that Executive may
receive under this Agreement or otherwise shall constitute a change in control
payments under Section 280G of the Code which would subject Executive to an
excise tax under Section 4999 of the Code, Executive shall be entitled to
receive additional tax gross-up payments from the Company as set forth in
Appendix A hereto.

 

6.5.6 Suspension. In lieu of terminating Executive’s employment hereunder for
Cause under Section 6.1, the 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 30 days during the Term (the “Default Period”) by giving Executive
written notice of the Company’s election to do so at any time during the Default
Period. The Company shall have the right to extend the Term beyond its normal
expiration date by the period(s) of any suspension(s). The Company’s exercise of
its right to suspend the operation of this Agreement shall not preclude the
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.

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6.6 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 under the terms of the governing stock
option agreement or this Agreement.

 

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 the 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 the 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 the 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 the
Company or as required by a court order or any gaming regulator or as required
for his personal tax or legal advisors to advise him, 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 the Company’s sole and exclusive property
and shall be included in the Confidential Material. Upon termination of this
Agreement, or whenever requested by the Company, Executive shall promptly
deliver to the Company any and all of the Confidential Material, not previously
delivered to the 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

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property rights, that relate to the 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 the Company, shall be deemed
works made for hire and are the property of the 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 the Company, and Executive hereby assigns to the
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.
The Company shall also have the right, in its sole discretion to keep any and
all of Executive Work Product as the 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 the Company, and no further
consideration is or shall be provided to Executive by the Company with respect
to these provisions. Executive agrees to execute any assignment documents the
Company may require confirming the 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 the 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 the
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 the
Company either during the Term or at any time thereafter.

 

7.4 Covenant Not to Compete. In the event this Agreement is terminated by the
Company for cause under Section 6.1 above, or by Executive, for a reason other
than one specified in Section 6.3 above, then, except as provided in Sections
6.5.2(d), 6.5.3(d) and 6.5.4(d), for a period of one 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 the Company in any “market”
in which the 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 100 mile radius of any casino, card club or horseracing facility owned
or operated by the Company.

 

7.5 No Hire Away Policy. In the event this Agreement is terminated prior to the
normal expiration of the Term, either by the Company for cause under Section 6.1
above, or by Executive, for a reason other than one specified in Section 6.3
above, then, except as provided in Sections 6.5.2(d), 6.5.3(d) and 6.5.4(d), for
a period of one 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 Executive to be an
employee of the Company or any of its subsidiaries (or any person known to
Executive to have been such an employee within six 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 or encourage such hiring.

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7.6 No Solicitation. During the Term and for a period of one year thereafter, or
for a period of one year after earlier termination of this Agreement prior to
expiration of the Term, and regardless of the reason for such termination
(whether by the 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 any employee of the Company or any of its subsidiaries (or
any person who was such an employee within six months prior to such occurrence)
or encourage any such employee to leave the employment of the Company or any of
its subsidiaries.

 

7.7 Non-Solicitation of Customers. During the Term and for a period of one year
thereafter, or for a period of one 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 the Company or Executive), Executive shall not use
customer lists or Confidential Material to solicit any customers of the Company
or its subsidiaries or any of their respective casinos or card clubs, or
knowingly encourage any such customers to leave the Company’s casinos or card
clubs or knowingly encourage any such customers to use the facilities or
services of any competitor of the 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 the 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 the 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
the 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, 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

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Association. 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 Las Vegas, 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 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 Las Vegas, 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 the motion
establishes that he or it would be entitled to summary judgment 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
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,

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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 stock option agreements 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 and original, but all of which shall together
constitute one and the same instrument.

 

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 the 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.

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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:    Dan Lee      3800 Howard Hughes Parkway      Las Vegas, NV
89109      Telephone: 702 784-7777      Facsimile: 702 784-7701 with copy to:   
Latham & Watkins LLP      633 West Fifth Street      Los Angeles, CA 90071-2007
     Attn: James D. C. Barrall      Telephone: 213 485 1234      Facsimile: 213
891 8763 To the Company:    Pinnacle Entertainment, Inc.      3800 Howard Hughes
Parkway      Las Vegas, NV 89109      Attn: John A. Godfrey, Executive Vice
President,                  General Counsel and Secretary      Telephone: 702
784-7777      Facsimile: 702 784-7701 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.

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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 the 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 the 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 the Company under the provisions of any
applicable Federal, state and local statute, law, regulation, ordinance or
order.

 

9.15 References to Sections of the Code. All references in this Agreement and
Appendix A hereto to sections of the Code shall be to such sections and to any
successor or substantially comparable sections of the Code or to any successor
thereto.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed this 6th day of June 2005 and effective as of the date first written
above.

 

EXECUTIVE

  

THE COMPANY

DANIEL R. LEE

  

PINNACLE ENTERTAINMENT, INC.

/s/ Daniel R. Lee

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/s/ John A. Godfrey

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By:

  

John A. Godfrey

    

Its:

  

Executive Vice President, General Counsel
and Secretary

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Appendix A

 

Tax Grossup Payments

 

(a) Anything in this Agreement to the contrary notwithstanding and except as set
forth below, in the event it shall be determined that any Payment would be
subject to the Excise Tax, then Executive shall be entitled to receive an
additional payment (a “Gross-Up Payment”) in an amount such that after payment
by Executive of all taxes (excluding any interest, additions, increases or
penalties imposed with respect to such taxes except for interest, additions,
increases or penalties with respect to the Excise Tax), including, without
limitation, any income taxes (except for any interest, additions, increases and
penalties imposed with respect thereto) and the Excise Tax imposed upon the
Payment and the Gross-Up Payment, Executive is placed in the same tax position
with respect to the Payment as Executive would have been in if the Excise Tax
had never been enacted.

 

(b) Subject to the provisions of Section (c), all determinations required to be
made under this appendix, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the Company’s
independent accounting firm or such other nationally recognized certified public
accounting firm as may be designated by Executive (the “Accounting Firm”) which
shall provide detailed supporting calculations both to the Company and Executive
within 15 business days of the receipt of notice from Executive that there has
been a Payment, or such earlier time as is requested by the Company. All fees
and expenses of the Accounting Firm shall be borne solely by the Company.
Subject to Section e) below, any Gross-Up Payment, as determined pursuant to
this appendix shall be paid by the Company to Executive within five days of the
receipt of the Accounting Firm’s determination. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made (“Underpayment”), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section (c) and Executive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of Executive.

 

(c) Executive shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company of
the Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than ten business days after Executive is informed in writing of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which
it gives such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the Company
notifies Executive in writing prior to the expiration of such period that it
desires to contest such claim, Executive shall:

 

(i) give the Company any information reasonably requested by the Company
relating to such claim,

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(ii) take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,

 

(iii) cooperate with the Company in good faith in order effectively to contest
such claim, and

 

(iv) permit the Company to participate in any proceedings relating to such
claim;

 

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section (c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim; provided, that any extension of the statute
of limitations relating to payment of taxes for the taxable year of Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company’s control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.

 

(d) If Executive becomes entitled to receive any refund with respect to the
Gross-Up Payment or the Excise Tax, Executive shall promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If Executive would have received a refund of
all or any portion of the Gross-Up Payment or the Excise Tax, except that a
taxing authority offset the amount of such refund against other tax liabilities,
interest, or penalties, Executive shall pay the amount of such offset over to
the Company, together with the amount of interest Executive would have received
from the taxing authority if such offset had been an actual refund, promptly
after receipt of notice from the taxing authority of such offset.

 

(e) Notwithstanding any other provision of this appendix, the Company may
withhold and pay over to the Internal Revenue Service for the benefit of
Executive all or any portion of the Gross-Up Payment that it determines in good
faith that it is or may be in the future required to withhold, and Executive
hereby consents to such withholding.

 

(f) Definitions. The following terms shall have the following meanings for
purposes of this appendix.

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(i) “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code,
together with any interest or penalties imposed with respect to such excise tax.

 

((ii) A “Payment” shall mean any payment or distribution in the nature of
compensation (within the meaning of Section 280G(b)(2) of the Code) to or for
the benefit of Executive, whether paid or payable pursuant to this Agreement or
otherwise.