Document:

<PAGE>

                                 Exhibit 10.37

               AMENDMENT NO. 4 TO AMENDED AND RESTATED REDUCING
                      REVOLVING LOAN AGREEMENT AND WAIVER

          This Amendment No. 4 to Amended and Restated Reducing Revolving Loan
Agreement and Waiver (this "Amendment") is entered into with reference to the
Amended and Reducing Revolving Loan Agreement dated as of October 14, 1998 among
Pinnacle Entertainment, Inc. (acting under its former name, Hollywood Park, Inc.
and referred to herein as "Borrower"), the Banks party thereto, Societe Generale
and Bank of Scotland, as Managing Agents, First National Bank of Commerce, as
Co-Agent, and Bank of America, N.A. (under its former name, Bank of America
National Trust and Savings Association), as Administrative Agent (the "Loan
Agreement").  Capitalized terms used but not defined herein are used with the
meanings set forth for those terms and in the Loan Agreement.

          Borrower and the Administrative Agent, acting with the consent of the
Requisite Banks pursuant to Section 11.2 of the Loan Agreement, agree as
                                    ----
follows:

     1.   Section 6.14(d). Section 6.14(d) of the Loan Agreement is amended to
          ---------------  ---------------
read in full as follows:

     "(d)  Capital Expenditures (excluding capitalized interest, pre-opening
                                 ---------
     expenses and funds disbursed pursuant to community development agreements)
     for the acquisition of land for and construction of the Indiana Project not
     in excess of $205,000,000; provided that Borrower may not make any such
                                --------
     Capital Expenditures which, when added to all such Capital Expenditures
     previously made for the acquisition of land for and construction of the
     Indiana Project, would exceed $25,000,000 unless at least 20 Banking Days
                                               ------
     prior thereto, (i) Borrower furnishes to the Administrative Agent a
     detailed construction budget and timetable therefor, together with
     projected financial statements by Fiscal Quarter of Borrower and the
     Restricted Subsidiaries for the period extending one year beyond the
     scheduled completion date, (ii) Borrower engages Bank of America
     Construction Services Group (or a comparable firm reasonably acceptable to
     the Administrative Agent), at the expense of Borrower, to monitor
     construction of the Indiana Project and (iii) Borrower furnishes the
     Administrative Agent with a letter from Bank of America Construction
     Services Group (or such comparable firm) stating that it believes the
     construction budget and construction timetable are reasonable and
     feasible."

                                      -1-
<PAGE>

     2.   Compliance with Section 6.11 of the Loan Agreement is hereby waived in
respect of the Borrower complying with the Interest Coverage Ratio as of the
last day of the Fiscal Quarter ending on December 31, 2000 and for the period
during which such Fiscal Quarter ends; provided, however, Borrower shall not
                                       --------  -------
permit the Interest Coverage Ratio as of the last day of the Fiscal Quarter
ending on December 31, 2000 or for the period during which such Fiscal Quarter
ends to be less than the ratio of 1.50 to 1.00.

     3.   Compliance with Section 7.1(e) of the Loan Agreement is hereby waived
in respect of the Borrower delivering within 45 days after the commencement of
the Fiscal Year beginning January 1, 2001 a budget and projection of the
Borrower's statement of operations by Fiscal Quarter for the Fiscal Year 2001.

     4.   Representations and Warranties. Borrower represents and warrants that
          ------------------------------
as of the date hereof and giving effect to this Amendment, no Default or Event
of Default exists.

     5.   No Other Waivers. The waivers contained in Section 2 and Section 3 of
          ----------------
this Amendment are expressly limited to the facts and circumstances referred to
therein and shall not operate as a waiver of or a consent to non-compliance with
any other section of the Loan Agreement or any of the other Loan Documents. The
waivers contained in Section 2 and Section 3 are only effective for the specific
instances, for the specific purposes and for the specific period for which
given.

     6.   Conditions Precedent. The effectiveness of this Amendment is
          --------------------
conditioned upon the receipt by the Administrative Agent of the following
documents, each properly executed by a Responsible Official of each party
thereto and dated as of the date hereof:

          (a)  Counterparts of this Amendment executed by all parties hereto;

          (b)  Written consent of the Requisite Banks as required under Section
11.2 of the Loan Agreement in the form of Exhibit A to this Amendment; and
----

          (c)  Written consent of the Subsidiary Guarantors in the form of
Exhibit B to this Amendment.

                                      -2-
<PAGE>

     7.   Confirmation. In all respects, the terms of the Loan Agreement (as
          ------------
amended hereby) are hereby confirmed.

          IN WITNESS WHEREOF, Borrower and the Administrative Agent have
executed this Amendment as of March 16, 2001 by their duly authorized
representatives.

                           PINNACLE ENTERTAINMENT, INC.

                           By     /s/ Bruce C. Hinckley
                                  -------------------------------------
                                  Bruce C. Hinckley
                                  Chief Financial Officer

                           BANK OF AMERICA, N.A., as Administrative Agent

                           By     /s/ Janice Hammond
                                  -------------------------------------

                           Title  Vice President - Agency Specialist
                                  -------------------------------------

                                      -3-<PAGE>

                                 Exhibit 10.54

                              EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the "Agreement") is made on September 1, 2001 by
and between PINNACLE ENTERTAINMENT, INC., a Delaware corporation (the
"Company"), and WADE HUNDLEY, an individual ("Executive"), with respect to the
following facts and circumstances:

                                    RECITALS

     Company desires to retain Executive as Executive Vice President and Chief
Operating Officer of the Company.  Executive desires to be retained by Company
in that capacity, 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 engage Executive in the capacity of
Executive Vice President and Chief Operating Officer of Company on the Effective
Date (as hereinafter defined) 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
September 1, 2001 (such date being referred to as the "Effective Date") and
shall continue in force until December 31, 2002, unless earlier terminated under
Article 6 below.  Each 12-month period commencing as of the Effective Date is
sometimes called a year of the "Term", and the date which is 365 days from and
after the Effective Date shall be referred to as the "Anniversary Date".  At
least ninety (90) days prior to the expiration of the Term (as the same may be
extended from time to time), either party shall advise the other whether it
intends not to renew the term of this Agreement; if neither party so advises the
other, then this Agreement shall be deemed renewed on its existing terms for a
period of one (1) year from its then scheduled expiration.

                                   ARTICLE 2
                              DUTIES OF EXECUTIVE

     2.1  Duties.  Executive shall perform all the duties and obligations of
Executive Vice President and Chief Operating Officer of Company subject to the
control and supervision of the Chief Executive Officer of Company 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 the Company.  Executive shall
report to the Chief Executive

                                       1
<PAGE>

Officer of Company. In his capacity as Chief Operating Officer of Company,
Executive shall coordinate with the Marketing, Human Resources and IT Department
heads of Company, as well as other similar operating departments that may be
created in the future. All Property General Managers shall report directly to
Executive (it being understood that they may have dotted line reporting
obligations to other corporate officers as well). 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 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 may rely on 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 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 Service.  Notwithstanding the fact that the Company's
headquarters are located in Glendale, California area, it is understood and
agreed that Executive shall continue to reside in the Dallas/Ft. Worth
metropolitan area and that Executive shall spend the majority of his time at the
Company's various properties in the ongoing effort to improve the operating
performance of such properties.

     2.3  Exclusive Service.  Except as otherwise expressly provided herein,
Executive shall devote his business time, attention, energies, skills, learning
and best efforts to the business of the Company.  Executive may participate in
social, civic, charitable, religious, business, education 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 Executives 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 so long
as Executive does not utilize material, non-public information this sentence
shall not preclude Executive from owning up to one percent (1%) of the
securities of a publicly traded entity.  During the Term, Executive shall not
directly or indirectly work for or provide services to or 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.

                                       2
<PAGE>

                                   ARTICLE 3
                                  COMPENSATION

     3.1   Signing Bonus.  Upon the execution of this Agreement, Company shall
pay to Executive a one-time signing bonus in the amount of Fifteen Thousand
Dollars ($15,000).

     3.2   Salary.  In consideration for Executive's services hereunder, Company
shall pay Executive an annual salary at the rate of Four Hundred Thousand
($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).

     3.3   Annual Bonus.  Executive shall be entitled to earn a bonus with
respect to each year of the Term during which Executive is employed under this
Agreement of up to $200,000 per full year, $100,000 of which shall be based upon
Company meeting its EBITDA budget (as established by the Board) for the year in
question and not exceeding its capital budget for the year and the balance at
the discretion of the Board of Directors.  For the partial year from the
Effective Date through December 31, 2001, Executive shall be paid a bonus of up
to $70,000 payable December 31, 2001 provided that Executive is then employed by
the Company.  For the purposes of determining whether Company has met its EBITDA
budget, income and expenses relating to acquisitions and new projects made
during the year shall be disregarded unless such acquisition or projects were
included in the budget for the year and the budget shall be equitability
adjusted for divestitures made during the year not contemplated by the budget.
No bonus based on meeting its EBITDA budget will be earned or payable if
Company's results are less than those established as target results under its
budget.  Any such bonus earned by Executive (other than the fixed bonus for
2001) 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 Company.

     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 200,000 shares of Company's common stock,
100,000 of which shall have an exercise price equal to the closing price of such
stock on August 31, 2001, 50,000 of which shall have an exercise price equal to
120% of the closing price of such stock on August 31, 2001, and 50,000 of which
shall have an exercise price equal to 140% of the closing price of such stock on
August 31, 2001. Such stock options shall vest over a three (3) year period in
three equal installments of 66,666.67 shares beginning on the First Anniversary
of the Effective Date, as follows:

                                       3
<PAGE>

<TABLE>
<CAPTION>
                         Percentage         # of Shares at        # of Shares at       # of Shares at       Cumulative
                         Initially         8/31/01 Closing       120% of 8/31/01      140% of 8/31/01       Percentage
Date                     Exercisable            Price             Closing Price        Closing Price        Exercisable
<S>                      <C>               <C>                   <C>                  <C>                   <C>
First
Anniversary              33.33%                33,334                 16,666              16,666            33.33%

Second
Anniversary              33.33%                33,333                 16,666              16,667            66.67%

Third
Anniversary              33.33%                33,333                 16,667              16,666              100%
</TABLE>

     The terms and conditions of such options shall be governed by a Stock
Option Agreement between Company and Executive, in the form attached hereto as
Exhibit "A".
-----------

                                   ARTICLE 4
                               EXECUTIVE BENEFITS

     4.1  Vacation.  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  Benefits.  Executives shall receive all other such fringe benefits as
Company may offer generally to other senior executives of Company under
Company's personnel policies in effect from time to time, such as health and
disability insurance coverage and paid sick leave.

     4.4  Indemnification.  Executive shall have the benefit of indemnifications
as provided under applicable law and bylaws of Company, 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 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 therefore, or allow to be substituted therefore,

                                       4
<PAGE>

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

     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 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 terminated for cause.

          6.1.1 Failure to Perform Duties. If Executive neglects or otherwise
fails to perform the 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, not to exceed
ten days, to perform or if such performance cannot be completed within such time
period, commenced within such time period and diligently pursued to completion
as soon as practicable thereafter.

          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 indicted or convicted of a felony
or any other serious crime, commits a serious wrongful act or engages in other
misconduct involving acts of moral turpitude that would make the continuance of
his employment by Company materially detrimental to Company, which determination
shall be made in the reasonable exercise of Company's judgment.

          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 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 California 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

                                       5
<PAGE>

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 the Los Angeles
County Medical Association. The certification of such physician or psychiatrist
as to the questioned dispute shall be final and binding upon the parties herein.

     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 written notice to
Company for good reason.  For purposes of this Agreement, "good reason" shall
mean and be limited to a material breach of this Agreement by Company
(including, without limitation, any material reduction in the authority or
duties of Executive or any relocation from his current principal residence) 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).

     6.4  Termination by Virtue of a Change of Control.  Notwithstanding
anything to the contrary herein, Company and Executive each shall have the right
to terminate Executive's employment under this Agreement upon the occurrence of
a Change of Control.  A "Change of Control" shall be defined as:

          a. The acquisition by any individual, entity or group within the
             meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
             Act of 1934, as amended (the "34 Act") (a "Person") of beneficial
             ownership (within the meaning of Rule 13d-3 under the 34 Act) of
             50% or more of either (i) Company's then outstanding common stock
             ("Outstanding Stock") or (ii) the combined voting power of
             Company's then outstanding voting securities entitled to vote
             generally in the election of directors ("Outstanding Voting
             Securities") other than any acquisition (i) by any employee benefit
             plan (or related trust) sponsored or maintained by the Company or
             any entity controlled by it or (ii) by any entity pursuant to
             transaction which complies with clauses (i), (ii) and (iii) of
             subsection (c) of this definition; or

          b. Individuals who as of the date hereof constitute the Board (the
             "Incumbent Board") cease for any reason to constitute at least a
             majority thereof; provided, however, that any individual becoming a
             director subsequent to the date hereof whose election or nomination
             was approved by a vote of at least a majority of the directors then
             comprising the Incumbent Board shall be considered

                                       6
<PAGE>

             as a member of the Incumbent Board unless his initial assumption of
             office occurs as a result of an actual or threatened contest with
             respect to the election or removal of directors or other actual or
             threatened solicitation of proxies by or on behalf of a Person
             other than the Board; or

          c. Consummation of a reorganization, merger of consolidation, share
             exchange or sale or other disposition of all or substantially all
             of the Company's assets (a "Combination") unless immediately
             thereafter (i) all or substantially all of the beneficial owners of
             the Outstanding Stock and Outstanding Voting Securities immediately
             prior to such Combination beneficially own, directly or indirectly,
             more than 50% of, respectively, the then outstanding shares of
             common stock and the combined voting power of the then outstanding
             voting securities entitled to vote generally in the election of
             directors, as the case may be, of the entity resulting from such
             Combination (including, without limitation, any entity which as a
             result of such transaction owns the Company or all or substantially
             all of its assets either directly or through one or more
             subsidiaries) in substantially the same proportions as their
             ownership immediately prior to such Combination of the Outstanding
             Stock and Outstanding Voting Securities, as the case may be, (ii)
             no Person (excluding any entity resulting from such Combination or
             any employee benefit plan (or related trust) of the Company or such
             resulting entity) beneficially owns, directly or indirectly, 20% or
             more of, respectively, the then outstanding shares of common stock
             of the resulting entity or the combined voting power of the then
             outstanding voting securities of entity except to the extent that
             such ownership existed prior to the Combination and (iii) at least
             a majority of the members of the board of directors of the
             resulting entity were members of the Incumbent Board at the time of
             the execution of the initial agreement or the action of the Board
             providing for such Combination; or

          d. Approval by the shareholders of the Company's complete liquidation
             or dissolution.

     6.5  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").

                                       7
<PAGE>

     6.6  Effect of Termination.

          6.6.1  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.

          6.6.2  Termination for Disability.  In the event of a termination
under Section 6.1.4 (for disability), Executive may be eligible for benefits
under the California State Disability Insurance program for his first six months
of disability.  In addition, Executive shall be eligible for the benefits
provided 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.

          6.6.3  Termination Without Cause or Termination by Executive for Good
Reason.  If Company terminates Executive without cause or Executive terminates
for good reason under Section 6.3 only, 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
                     Term, Executive shall be entitled to receive an amount
                     equal to $400,000 per year through the end of the Term
                     (e.g. if there were three (3) months left in the Term,
                     Executive would be entitled to $100,000), 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 for a period of six (6) months after
                     termination, at Company's expense. 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 commencement of such competitive activities under
                     this Section 6.6.3 and all such obligations shall be
                     extinguished.

                 b.  In addition to those already vested, all unvested stock
                     options that would have vested on future Anniversary Dates
                     of this Agreement shall be deemed immediately and fully
                     vested and exercisable by Executive; and

                                       8
<PAGE>

                 c.  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 6.6.3(a) hereof) and the term of the "No Hire Away
                     Policy" in Section 7.6 shall be limited to six months from
                     the date of termination.

          6.6.4  Termination by Virtue of a Change of Control. If Company or
Executive terminates this Agreement in connection with a Change of Control under
Section 6.4 hereof, the foregoing shall apply:

                 a.  Executive shall be entitled to receive an amount equal to
                     the greater of (i) one full year's salary plus the maximum
                     bonus payable to Executive pursuant to Section 3.3 hereof,
                     or (ii) all salary plus the maximum bonus payable to
                     Executive under this Agreement through the remainder of the
                     Term.

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

                 c.  "The Covenant Not to Compete" set forth in Section 7.4
                     shall not apply in any respect to Executive and the terms
                     of the "No Hire Away Policy" in Section 7.6 shall be
                     limited to six months from the date of termination; and

                 d.  Executive shall be entitled to a continuation of health,
                     life and disability insurance coverage for a period of one
                     (1) year after termination, at Company's expense.

          In the event the Company has executed a definitive agreement with
respect to a contemplated Change of Control but such Change of Control has not
been consummated prior to the termination of this Agreement, then Executive
shall be entitled to receive the benefits contemplated in Sections 6.6.4(a), (b)
and (d) if, and at such time as, the Change of Control is consummated.

     6.7  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 operation of 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

                                       9
<PAGE>

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
continue compensation pursuant to the provisions hereof during the Default
Period.

     6.8  DEFRA Limitation.  The payments that Executive shall be entitled to
receive hereunder and upon the exercise of his stock options shall in all events
be limited by the provisions of Section 280G of the Internal Revenue Code
("Code") and the regulations thereunder (or their then equivalents) and no
payment shall be made that would have the result of limiting the deductibility
of such payments by Company or that would result in the imposition of an excise
tax under Section 4999 of the Code.

     6.9  Exercisability of Options.  As provided in the Option Agreement, all
options terminate no later than ninety (90) days after the termination,
regardless of the cause 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 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,

                                      10
<PAGE>

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
the 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 the 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 either Section 6.3 or 6.4 above, then 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 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 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 6.1
above, or by Executive, for a reason other than one specified in either Section
6.3 or 6.4 above, then for a period of one year after the effective date of such
termination, Executive shall not, directly or indirectly, hire any person known
to Executive to be an employee of Company or any of its subsidiaries (or any
person known to Executive to have been such an

                                      11
<PAGE>

employee within six months prior to such occurrence). In the case of a
termination under Sections 6.2 and 6.3, the period of the No Hire Away Policy
shall be six months from the date of such termination.

     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 Company or Executive), Executive shall not directly or
indirectly solicit any employee of 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 Company or any of its
subsidiaries.

     7.7  Non-Solicitation of Customers.  During the Term and for a period of
two years thereafter, or for a period of two years 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 directly or indirectly use customer lists or confidential information to
solicit any customers of Company or its subsidiaries or any of their respective
casinos or card clubs, or knowingly encourage any such customers to leave
Company's casinos or card clubs or knowingly encourage 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 in any person engaged in
the casino, gaming or horseracing businesses in any market in 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, but shall be in addition to all other remedies available at law or in
equity.

                                   ARTICLE 8
                                  ARBITRATION

                                      12
<PAGE>

     In the event there is any dispute between Executive and Company which the
parties are unable to resolve themselves, including any dispute with regard to
the application, interpretation or validity of this Agreement or any dispute
with regard to any aspect of Executive's employment or the termination of
Executive's employment, both Executive and Company agree by entering into this
Agreement that the exclusive remedy for determining any such dispute, regardless
of its nature, will be by arbitration in accordance with the then applicable
rules of the American Arbitration Association; provided, however, the breach of
the obligation to provide services under this Agreement or of the obligations of
Article 7 may be enforced by an action for injunctive relief and damages in a
court of competent jurisdiction.  In the event of any conflict between this
Agreement and the rules of the American Arbitration Association, the provisions
of this Agreement shall be determinative.  In the event the parties are unable
to agree upon an arbitrator, the parties shall select a single arbitrator from a
list designated by the Los Angeles Office of the American Arbitration
Association of seven arbitrators all of whom shall be retired judges of the
Superior of appellate courts resident in Los Angeles who are members of the
"Independent List" of retired judges.  If the parties are unable to select an
arbitrator from the list provided by the American Arbitration Association, then
the parties shall each strike names alternatively from the list, with the first
to strike being determined by lot.  After each party has used three strikes, the
remaining name on the list shall be the arbitrator.  This agreement to resolve
any disputes by binding arbitration shall extend to claims against any
shareholder or partner of Company, any brother-sister company, parent,
subsidiary or affiliate of Company, any officer, director, employee, or agent of
Company, 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.  Unless mutually agreed by the parties otherwise, any
arbitration shall take place in Los Angeles County, California.  In the event
the parties are unable to agree upon a location for the arbitration, the
location within Los Angeles County shall be determined by the arbitrator.  The
prevailing party in such arbitration proceeding, 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.

                                   ARTICLE 9
                               LOANS TO EXECUTIVE

     9.1  Purchase of Company Stock. Executive agrees to acquire, on or before
the Effective Date, at least 50,000 shares of the Company's common stock on the
open market. In order to assist Executive in acquiring such common stock,
Company agrees to lend to Executive, up to $300,000 on the following terms:

          a.  The loan maturity date shall be December 31, 2002;

          b.  The loan shall bear interest at the prime rate as set forth in the
              "Money Rates" section of the Wall Street Journal;

                                      13
<PAGE>

          c.  The loan shall be evidenced by a Promissory Note executed by
              Executive in favor of Company in the form of that attached hereto
              as Exhibit "B"; and
                 ----------

          d.  The loan shall be secured by a pledge of the Company stock
              purchased by Executive by the Security Pledge Agreement in the
              form of that attached hereto as Exhibit "C".
                                              ----------

     9.2  Tax Loans.  In the event, during the Term (i) Executive exercises any
of the options specified in Section 3.4 hereof, (ii) such exercise triggers a
federal or state tax liability, and (iii) Executive does not concurrently with
such option exercise sell the stock received by exercising the option, then,
upon the request of Executive, the Company will lend Executive the monies to pay
such tax liability on terms and conditions mutually agreeable to Executive and
Company, but similar to those set forth in Section 9.1 above.

                                   ARTICLE 10
                                 MISCELLANEOUS

     10.1  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.

     10.2  Entire Agreement.  This Agreement and the nonqualified Option
Amendment of even date herewith 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.

     10.3  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.

     10.4  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.

     10.5  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.

                                      14
<PAGE>

     10.6  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.

     10.7  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.

     10.8  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.

     10.9  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 California.

     10.10  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:       Wade Hundley
                         1604 Noble Way
                         Flower Mound, TX 75022

     To Company:         Pinnacle Entertainment, Inc.
                         330 N. Brand Boulevard, Suite 1100
                         Glendale, CA 91203-2309
                         Attn :  Loren Ostrow

     with copy to:       Irell & Manella
                         1800 Avenue of the Stars, Suite 900
                         Los Angeles, Ca 90067-4276
                         Attn:  Al Segel

     10.11  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.

     10.12  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.

                                      15
<PAGE>

     10.13  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.

     10.14  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

/s/ Wade Hundley                           PINNACLE ENTERTAINMENT, INC.
--------------------------------           a Delaware corporation
WADE HUNDLEY
Social Security No:  ###-##-####           By:  /s/ Paul Alanis
                                               -------------------------
                                           Its: Chief Executive Officer
                                               -------------------------

                                      16
<PAGE>

                                  EXHIBIT "A"

                      NONQUALIFIED STOCK OPTION AGREEMENT

     This NONQUALIFIED STOCK OPTION AGREEMENT is made as of the ____ day of
________, 2001, between PINNACLE ENTERTAINMENT, INC., and WADE HUNDLEY
("Optionee").  All capitalized terms not specifically defined herein shall have
the meanings set forth in the Company's 1996 Stock Option Plan (the "Plan").

                                R E C I T A L S
                                ---------------

     A.  Pursuant to the Plan, the Compensation Committee of the Board of
Directors (the "Committee") has determined that it is to the advantage and in
the best interests of the Company and its stockholders to grant a nonqualified
stock option to Optionee covering 200,000 shares of the Company's Common Stock,
in order to more closely align the Optionee's interests with those of other
stockholders of the Company, and has approved the execution of this Nonqualified
Stock Option Agreement between the Company and Optionee.

     B.  The option granted hereby is not intended to qualify as an "incentive
stock option" under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").

     NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE 1  Grant of Option.  The Company grants to Optionee the right and
           ---------------
option ("Option") to purchase on the terms and conditions hereinafter set forth,
all or any part of an aggregate of two hundred thousand (200,000) shares of
Common Stock, 100,000 at the closing price of such stock as of August 31, 2001,
50,000 of which at 120% of the closing price of such stock as of August 31, 2001
and 50,000 at 140% of the closing price of such stock as of August 31, 2001.
The Option shall be exercisable from time to time in accordance with the
provisions of this Agreement during a period expiring on the tenth anniversary
of the date of this Agreement (the "Expiration Date") or earlier in accordance
with Section 5 hereof.

ARTICLE 2  Vesting.  No portion of this Option shall vest prior to the dates
           -------
indicated below. Subject to Section 5 hereof, on or after the date of grant and
the following anniversary dates of this Agreement this Option may be exercised
up to the indicated percentage of shares covered by this Option:

                                       1
<PAGE>

<TABLE>
<CAPTION>
                         Percentage         # of Shares at        # of Shares at       # of Shares at       Cumulative
                         Initially         8/31/01 Closing       120% of 8/31/01      140% of 8/31/01       Percentage
Date                     Exercisable            Price             Closing  Price       Closing Price        Exercisable
<S>                      <C>               <C>                   <C>                  <C>                   <C>
First
Anniversary              33.33%                33,334                 16,666              16,666            33.33%

Second
Anniversary              33.33%                33,333                 16,666              16,667            66.67%

Third
Anniversary              33.33%                33,333                 16,667              16,666              100%
</TABLE>

Subject to earlier termination under Section 5 hereof, at any time after the
third anniversary date of this Agreement, but no later than the Expiration Date,
Optionee may purchase all or any part of the shares subject to this Option which
Optionee theretofore failed to purchase.  In each case the number of shares
which may be purchased shall be calculated to the nearest full share.

ARTICLE 3  DEFRA Limitation.  The payments that Optionee shall be entitled
           ----------------
to receive upon the exercise of the options covered hereby and under his
employment agreement, if any, shall in all events be limited by the provisions
of Section 280G of the Code and the regulations thereunder (or their then
equivalents) and no payment shall be made (and no option vesting accelerated)
that would have the result of limiting the deductibility of such payments by the
Company or that would result in the imposition of an excise tax under Section
4999 of the Code on the Optionee.

ARTICLE 4  Manner of Exercise.  Each exercise of this Option shall be by
           ------------------
means of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company (x)
of the full purchase price of the shares to be purchased (i) in cash or by
certified, cashier's or (as funds clear) personal check payable to the order of
the Company, or (ii) by delivery of shares of Common Stock of the Company which
have been owned by the Optionee for over six months and which are in the
possession of the Optionee, or a combination thereof, and (y) of any required
withholding taxes (as contemplated by Section 7 hereof) in cash or by certified,
cashier's or (as funds clear) personal check payable to the order of the
Company.  This Option may not be exercised for a fraction of a share and no
partial exercise of this Option may be for less than (i) one hundred (100)
shares or (ii) the total number of shares then eligible for exercise, if less
than one hundred (100) shares.

           This Option may be exercised (i) during the lifetime of the Optionee
only by the Optionee; (ii) to the extent permitted by the Committee or by the
terms of this

                                       2
<PAGE>

Agreement, Optionee's spouse if such spouse obtained the Option pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder ("Qualified Domestic Relations Order"); and (iii) after
the Optionee's death by his or her transferees by will or the laws of descent or
distribution, and not otherwise, regardless of any community property interest
therein of the spouse of the Optionee, or such spouse's successors in interest.
If the spouse of the Optionee shall have acquired a community property interest
in this Option, the Optionee, or the Optionee's permitted successors in
interest, may exercise the Option on behalf of the spouse of the Optionee or
such spouse's successors in interest.

ARTICLE 5  Cessation of Services, Death or Permanent Disability.  If the
           ----------------------------------------------------
Optionee ceases to be employed by or provide services to the Company or one of
its subsidiaries for any reason other than the Optionee's death, "permanent
disability" (within the meaning of Section 22(e)(3) of the Code) or termination
for "Cause" (as defined below), the Option shall be exercisable until the
earlier of (i) the Expiration Date or (ii) a date one (1) month after the
Optionee ceases to be employed by or provide services to the Company or one of
its subsidiaries, but only to the extent the Option was exercisable on the date
of the cessation of employment or services, and shall thereafter expire and be
void and of no further force or effect.  The employment or other relationship of
the Optionee to the Company or any subsidiary shall be deemed to continue during
any leave of absence which has been authorized in writing by the Committee.

           If the Optionee dies or becomes "permanently disabled" while the
Optionee is employed by or providing services to the Company or any of its
subsidiaries, the Option shall be exercisable until the earlier of (i) the
Expiration Date or (ii) a date six (6) months after the date of such death or
"permanent disability", but only to the extent the Option was exercisable on the
date of death or "permanent disability", and shall thereafter expire and be void
and of no further force or effect.  During such period after death, any vested,
unexercised portion of the Option may be exercised by the person or persons to
whom the Optionee's rights under the Option shall pass by reason of the death of
the Optionee, whether by will or by the applicable laws of descent and
distribution.

           If the Optionee is terminated for Cause, either as an employee of or
as a provider of services to the Company or one of its subsidiaries, then the
Option shall terminate immediately and be void and of no further force or effect
and may not be exercised for any reason.  For purposes of this Agreement, the
Optionee shall be deemed to have been terminated for "Cause" if such termination
was as a result of any one or more of the following, as determined in good faith
by the Board of Directors, President or Executive Vice President of the Company:
The Optionee's (a) gross neglect or gross misconduct in performing his or her
duties, (b) willful refusal to follow directions given by his or her
supervisor(s) from time to time, provided that such directions are within the
scope of the Optionee's duties, (c) misuse of alcoholic drinks or narcotics, (d)
inexcusable repeated or prolonged absence from work, (e) being charged with the
commission of a felony or other serious crime, (f) dishonesty or commission of a
theft or defalcation against the Company or one of its subsidiaries, or (g)
commission of a wrongful act that would make the continuance of the Optionee's
employment or services detrimental to the Company or one of its subsidiaries.

                                       3
<PAGE>

           If the Optionee is terminated for Cause, the Company shall have the
option, exercisable within ninety (90) days of termination, to repurchase any
shares of Common Stock acquired by the Optionee through the exercise of this
Option during the twelve-month period immediately preceding such termination and
which are still held by the Optionee.  The repurchase price per share payable by
the Company shall be the exercise price paid by the Optionee as specified in
Section 1 hereof, plus interest at the rate of ten percent (10%) per annum from
the date of payment of the exercise price by the Optionee.  Certificates
representing the shares of Common Stock acquired by the Optionee pursuant to the
exercise of this Option may bear a legend regarding the Company's repurchase
option.

           Any unvested portion of the Option at the date of cessation of
employment or of provision of services, whether or not for Cause, or of death or
permanent disability, as the case may be, shall immediately be cancelled and
shall not be exercisable.

ARTICLE 6  Shares to be Issued in Compliance with Federal Securities and
           -------------------------------------------------------------
Other Applicable Laws and Exchange Rules.  By accepting the Option, Optionee
----------------------------------------
represents and agrees, for Optionee and his or her legal successors (by will or
the laws of descent and distribution or through a Qualified Domestic Relations
Order), that none of the shares purchased upon exercise of the option will be
acquired with a view to any sale, transfer or distribution of said shares in
violation of the Securities Act of 1933, as amended (the "Securities Act"), and
the rules and regulations promulgated thereunder, any applicable state "blue
sky" laws or any applicable foreign laws.  If required by the Committee at the
time the Option is exercised, Optionee or any other person entitled to exercise
the Option shall furnish evidence satisfactory to the Company (including a
written and signed representation) to such effect in form and substance
satisfactory to the Company, including an indemnification of the Company in the
event of any violation of the Securities Act, state blue sky laws or any
applicable foreign laws by such person.

           No shares shall be issued and delivered upon the exercise of any
option unless and until there shall have been full compliance with all
applicable requirements of the Securities Act (whether by registration or
satisfaction of exemption conditions), all applicable listing requirements of
any principal securities exchange on which shares of the same class are then
listed and any other requirements of law (including without limitation state
blue sky laws) or of any regulatory bodies having jurisdiction over such
issuance and delivery.

ARTICLE 7  Withholding of Taxes.  Upon the exercise of this Option, the
           --------------------
Company shall have the right to require Optionee or Optionee's legal successor
to pay the Company the amount of any taxes which the Company may be required to
withhold with respect to such shares.

                                       4
<PAGE>

ARTICLE 8  No Assignment.  This Option and all other rights and privileges
           -------------
granted hereby shall not be transferred, assigned, pledged or hypothecated,
either voluntarily or by operation of law otherwise than by will or the laws of
descent and distribution or pursuant to a Qualified Domestic Relations Order.
Upon any attempt to so transfer, assign, pledge, hypothecate or otherwise
dispose of this Option or any other right or privileges granted hereby contrary
to the provisions hereof, this Option and all rights and privileges contained
herein shall immediately become null and void and of no further force or effect.

ARTICLE 9  Adjustment for Reorganizations, Stock Splits, etc.  If the
           -------------------------------------------------
outstanding shares of Common Stock of the Company (or any other class of shares
or securities which shall have become issuable upon the exercise of this Option
pursuant to this sentence) are increased or decreased or changed into or
exchanged for a different number or kind of shares or securities of the Company
through reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other similar transaction, an appropriate
and proportionate adjustment shall be made in the maximum number and kind of
shares or securities receivable upon the exercise of this Option, without change
in the aggregate purchase price applicable to the unexercised portion of this
Option, but with a corresponding adjustment in the price for each share or other
unit of any security covered by this Option.

Upon (i) the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
(ii) a sale of substantially all the property or more than eighty percent (80%)
of the then outstanding stock of the Company to another corporation, or (iii) if
the majority of any class of directors be comprised of individuals who were not
either nominated by the then existing Board of Directors or had not been
appointed by the then existing Board of Directors (any of the foregoing, a
"Corporate Transaction"), subject to the following sentence, the Plan and this
Option shall terminate and be of no further force and effect.  Notwithstanding
the foregoing, the Committee shall provide in writing in connection with any
such transaction for any or all of the following alternatives: (i) for this
Option to become immediately exercisable in full notwithstanding the provisions
of Sections 2 and 4 hereof; (ii) for the assumption by the successor corporation
of this Option or the substitution by such corporation for this Option of new
options covering the stock of the successor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; or (iii) for the payment in cash or stock at the option of
the Committee in lieu of and in complete satisfaction of this Option.  The
Optionee may exercise the Option subject to the consummation of a Corporate
Transaction.

           Adjustments under this Section 9 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under this Option on any such adjustment.

                                       5
<PAGE>

ARTICLE 10 Participation by Optionee in Other Company Plans.  Nothing herein
           ------------------------------------------------
contained shall affect the right of Optionee to participate in and receive
benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.

ARTICLE 11 No Rights as a Stockholder Until Issuance of Stock Certificate.
           --------------------------------------------------------------
Neither Optionee nor any other person legally entitled to exercise this Option
shall be entitled to any of the rights or privileges of a stockholder of the
Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to Optionee.

ARTICLE 12 Not an Employment or Service Contract.  Nothing herein contained
           -------------------------------------
shall be construed as an agreement by the Company or any of its subsidiaries,
express or implied, to employ Optionee or contract for Optionee's services, to
restrict the Company's or such subsidiary's right to discharge Optionee or cease
contracting for Optionee's services or to modify, extend or otherwise affect in
any manner whatsoever, the terms of any employment agreement or contract for
services which may exist between Optionee and the Company or any of its
subsidiaries.

ARTICLE 13 Agreement Subject to Stock Option Plan.  The Option hereby granted is
           --------------------------------------
subject to, and the Company and Optionee agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
Optionee's rights under this Option without the prior written consent of
Optionee.

ARTICLE 14 Governing Law.  The interpretation, performance and enforcement of
           -------------
this Agreement shall be governed by the internal substantive laws of the State
of Delaware, without regard to the conflict of laws provisions of that or any
other State.

                              PINNACLE ENTERTAINMENT, INC.

                              By:
                                 ---------------------------------
                              Its: Senior Vice President & CFO

                              OPTIONEE

                              ------------------------------------
                              WADE HUNDLEY

                                       6
<PAGE>

                                SPOUSAL CONSENT

     By his or her signature below, the spouse of the Optionee agrees to be
bound by all of the terms and conditions of the foregoing Option Agreement.

                              OPTIONEE'S SPOUSE

                              ______________________________
                              Signature

                              ______________________________
                              Print Name

                                       7
<PAGE>

                                  EXHIBIT "B"

                                PROMISSORY NOTE

____________, 2001                                                $300,000
Los Angeles, California

          FOR VALUE RECEIVED, the receipt and sufficiency of which are hereby
acknowledged, WADE HUNDLEY, an individual and MARGO HUNDLEY, an individual
(collectively "Maker"), hereby promises to pay PINNACLE ENTERTAINMENT, INC.
("Holder") or order, the principal amount of THREE HUNDRED THOUSAND ($300,000)
or the lesser amount advanced pursuant hereto as evidenced by entries of such
advances on the "Schedule of Advances" attached hereto, with interest on the
                 --------------------
unpaid principal balance outstanding from time to time, computed at the prime
rate of interest as set forth in the "Money Rates" section of the Wall Street
Journal.

          All advances pursuant to this Note shall be evidenced by entries
thereof on the Schedule of Advances attached hereto.  Maker agrees that Holder
shall not be obligated to make further advances pursuant to this Note, and that
all further advances pursuant hereto shall be at the sole discretion of Holder.

          1.  Payment of Principal and Interest.  The original principal amount
              ---------------------------------
of this Note, together with all accrued and unpaid interest thereon shall become
due and payable on the earlier of (i) December 31, 2002, or (ii) the date as of
which the collateral pledged as security for repayment of this Note is disposed
of in any manner whatsoever to repay this Note.  The foregoing notwithstanding,
all amounts owing under this Note shall become immediately due and payable upon
the filing of any petition by or against Maker under bankruptcy laws.

          2.  Manner of Payment.  All amounts payable hereunder shall be payable
              -----------------
in lawful money of the United States of America to Holder at 330 N. Brand
Boulevard, Suite 1100, Glendale, CA 91203-2308, or such other place as may be
designated by Holder, without any deduction or setoff.

          3.  Related Agreements.  This Note is the "Note" referred to in that
              ------------------
certain Employment Agreement of even date herewith, between Maker and Holder,
which Employment Agreement provides for certain pledges as collateral security
for Maker's obligations under this Note.

          4.  Events of Default.  If Maker fails to pay any amounts under this
              -----------------
Note as and when due, then Holder may, in its sole discretion, declare all
principal, interest and

                                       1
<PAGE>

other indebtedness evidenced by this Note to be immediately due and payable
without any presentment, demand, protest or notice of any kind to Maker (which
presentment, demand, protest or notice are hereby expressly waived by Maker),
and Holder shall be entitled to exercise any and all remedies available to it at
law, in equity or otherwise. Should suit be commenced to collect any amounts due
under this Note, Holder shall be entitled to recover all attorney's fees and
costs it incurs in collecting such amount.

          5.  Governing Law.  This Note shall be governed by and construed in
              -------------
accordance with the internal laws of the State of California.

                                      "MAKER"

                                      ______________________________________
                                      WADE HUNDLEY

                                      ______________________________________
                                      MARGO HUNDLEY

                                       2
<PAGE>

                              SCHEDULE OF ADVANCES
                                      AND
                       PAYMENTS OF PRINCIPAL AND INTEREST

<TABLE>
<CAPTION>
Date                   Amount of               Amount of           Amount of Interest      Unpaid Principal
                       Advance                 Principal Paid or   Paid                    Balance of
                                               Prepaid                                     Advances
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<S>                  <C>                    <C>                    <C>                    <C>

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</TABLE>

                                       3
<PAGE>

                                  EXHIBIT "C"

                               SECURITY AGREEMENT

          THIS SECURITY AGREEMENT is made as of the ____ day of ________, 2001,
by and between the undersigned (collectively "Borrower") and PINNACLE
ENTERTAINMENT, INC., a Delaware limited liability company ("Secured Party").

     1.   GRANT OF SECURITY INTEREST.
          --------------------------

          Borrower hereby grants, transfers and conveys to Secured Party a
security interest in and lien upon all, right, title and interest of Borrower in
the following property and interests in property, whether now owned and existing
or hereafter acquired and arising, and wherever located (such property and
interests in property being, collectively, the "Collateral"):

          a.      all of the stock of the Secured Party owned by Borrower; and

          b.      any cash or other proceeds or products of the foregoing,
including any cash, securities, instruments and other property from time to time
paid, payable or otherwise distributed in respect of or in exchange for any or
all of the foregoing, whether or not any of the foregoing shall constitute
accounts or general intangibles under the Uniform Commercial Code;

for the purpose of securing any and all present and future obligations and
liabilities of Borrower under that certain promissory note to Secured Party
dated of even date herewith (the "Note").

     2.   COVENANTS AND CONTINUING AGREEMENTS.
          -----------------------------------

          a.      Transfer of Collateral.  Without the prior written consent of
                  ----------------------
Secured Party, Borrower will not, nor will it attempt to, Transfer any interest
in the Collateral or any part thereof so long as any obligation of Borrower to
Secured Party under Borrower's Note, this Security Agreement, or any related
documents (the "Loan Documents") is outstanding.  Upon a Transfer by Borrower of
any interest in the Collateral, Borrower shall be obligated to apply any cash
proceeds of a Transfer of an interest in the Collateral first toward paying the
amount of any accrued but unpaid interest on the Note, and, thereafter, toward
paying the outstanding principal balance due under the Note.

          b.      Cooperation of Borrower.  Borrower shall execute and deliver,
                  -----------------------
upon request by Secured Party, any notice, statement, instrument, document,
agreement or other paper and shall perform upon request by Secured Party, any
act which Secured Party deems necessary to create, perfect, preserve, validate
or otherwise protect any security interest

                                       1
<PAGE>

granted pursuant hereto, or to enable Secured Party to exercise and enforce his
rights hereunder with respect to his security interest.

          c.      Prohibited Transactions.  Borrower shall not enter into any
                  -----------------------
transaction that materially and adversely affects the Collateral or Borrower's
ability to repay the amount due under the Note.

          d.      Duty of Care with Respect to Collateral.  Secured Party shall
                  ---------------------------------------
have no duty of care with respect to the Collateral, except that Secured Party
shall exercise reasonable care with respect to any Collateral in its custody.
Secured Party shall be deemed to have exercised reasonable care if Collateral in
his custody is accorded treatment substantially equal to that which Secured
Party accords his own property, or if Secured Party takes any action requested
by Borrower with respect to the Collateral; provided, however, that no failure
to comply with any such request of Borrower or omission to do any such act
requested by Borrower shall be deemed a failure to exercise reasonable care, nor
shall Secured Party's failure to take steps to preserve rights against any third
parties or property be deemed a failure to exercise reasonable care with respect
to Collateral in his custody.

          e.      Voting Rights.  Secured Party hereby acknowledges that, so
                  -------------
long as no Event of Default (as defined below) shall have occurred and be
continuing, Borrower shall retain the right to exercise all voting, consensual
and other powers of ownership pertaining to the Membership Interest held by
Borrower and pledged hereunder for all purposes not inconsistent with the terms
of this Agreement or any other instruments, agreements or documents referred to
herein.

     3.   EVENTS OF DEFAULT.  The occurrence of any one or more of the following
          -----------------
shall constitute an event of default hereunder (an "Event of Default"):

          a.      if default shall be made in the payment of any principal,
interest or other sums due in respect of the Note when and as the same shall
become due and payable and after the expiration of applicable grace periods,
whether at maturity or by acceleration or as part of any payment or prepayment
or otherwise, in each case, as provided in the Note;

          b.      if default shall be made in the due observance or performance
of any covenant or agreement on the part of Borrower contained herein;

          c.      if by order of a court of competent jurisdiction, a trustee,
receiver or liquidator of the Collateral or any part thereof, or of any other
collateral security hereunder, or of Borrower or the Company shall be appointed;

          d.      if Borrower or the Company shall file a petition in bankruptcy
or for an arrangement or for reorganization pursuant to the Federal Bankruptcy
Code or any similar law, federal or state, or if, by decree of a court of
competent jurisdiction, Borrower or the Company shall be adjudicated a bankrupt,
or be declared insolvent, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts

                                       2
<PAGE>

generally as they become due, or shall consent to the appointment of a receiver
or receivers of all or any part of its property;

          e.      if any of the creditors of Borrower or the Company shall file
a petition in bankruptcy against Borrower or the Company or for reorganization
of Borrower or the Company pursuant to the Federal Bankruptcy Code or any
similar law, federal or state, and if such petition shall not be discharged or
dismissed within sixty (60) days after the date on which such petition was
filed; or

          f.      if final judgment for the payment of money shall be rendered
against Borrower or the Company and Borrower or the Company shall not discharge
the same or cause it to be discharged within sixty (60) days from the entry
thereof, or shall not appeal therefrom or from the order, decree or process upon
which or pursuant to which said judgment was granted, based or entered, and
secure a stay of execution pending such appeal.

     4.   REMEDIES.  Upon the occurrence of any Event of Default, Secured Party
          --------
may at once proceed to foreclose its interest in the Collateral according to
law, or he may, at his option, remove and sell and dispose of the Collateral at
public or private sale, without any previous demand of performance or notice to
Borrower of any such sale, notice of sale or demand of performance or any other
notice or demand whatsoever (except as required by law), and from the proceeds
of sale retain all costs and charges incurred by Secured Party in said taking or
sale, including reasonable attorneys' fees incurred and principal, interest and
all other amounts due under the Note or this Agreement, together with interest
thereon.  Any surplus shall be paid to Borrower or whoever may be lawfully
entitled to receive the same.  If there shall be a deficit, the amount thereof
shall be immediately due to Secured Party.  Secured Party may bid and purchase
at any sale under this Security Agreement.  Borrower further agrees that in the
event that notice is necessary under applicable law, written notice mailed to
Borrower at the address specified below five (5) days prior to the date of
public sale of any of the Collateral subject to the security interest created
herein or prior to the date after which private sale or any other disposition of
the Collateral will be made shall constitute reasonable notice, but notice given
in any other reasonable manner or at any other time shall also be sufficient.

          Borrower recognizes that, by reason of certain prohibitions contained
in the Securities Act of 1933, as amended, and applicable state securities laws,
Secured Party may be compelled, with respect to any sale of all or any part of
the Collateral, to limit purchasers to those who will agree, among other things,
to acquire the Collateral for their own account, for investment and not with a
view to the distribution or resale thereof.  Borrower also recognizes that
certain Authorities may impose restrictions on the transfer of interests in the
Collateral, which restrictions could also impair the value of the Collateral.
Borrower acknowledges that any such private sales therefore may be at prices and
on terms less favorable to Secured Party than those obtainable through a public
sale without such restrictions, and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner and that Secured Party shall have no obligation to engage in
public sales and no obligation to delay the sale of any

                                       3
<PAGE>

Collateral for the period of time necessary to permit the respective issuer
thereof to register it for public sale.

     5.   MISCELLANEOUS
          -------------

          a.      Successors and Assigns; Gender and Number; Assignment.  This
                  -----------------------------------------------------
Security Agreement shall bind and inure to the benefit of the parties hereto and
their executors, administrators, heirs, transferees, successors and assigns.
Secured Party may assign or otherwise transfer this Security Agreement, or any
instruments evidencing all or any part of the Note, and any agreement relating
thereto, and may deliver all or any of the Collateral to the transferee, who
shall thereupon become vested with all the powers and rights with respect
thereto given to Secured Party herein or in any instrument so transferred, and
Secured Party shall thereafter be forever relieved and fully discharged from any
liability of responsibility with respect thereto, all without prejudice to the
retention by Secured Party of all rights and powers hereby or thereby given with
respect to any and all instruments, rights or property not so transferred.
Borrower may not assign, delegate or otherwise transfer any of its rights or
obligations hereunder or under the Note without the prior written consent of
Secured Party.

          b.      No Waiver.  Secured Party's failure, at any time or times
                  ---------
hereafter, to require strict performance by Borrower of any provision of this
Security Agreement or the Note shall not waive, affect or diminish any right of
Secured Party thereafter to demand strict compliance with and performance of any
such provision; nor shall any such failure constitute a suspension or waiver by
Secured Party of any other provision hereof or thereof.  Any suspension or
waiver by Secured Party of any event of default under the Note or hereunder
shall not suspend, waive or affect any other event of default by Borrower
whether the same is prior or subsequent and whether of the same or a different
type.

          c.      Remedies Cumulative.  All rights, privileges, options and
                  -------------------
remedies granted to Secured Party hereunder or under the Note shall be
cumulative and not alternative.  Upon default, Secured Party may exercise any of
its rights, privileges, options and remedies, including the right to proceed in
one form of action, and may proceed the against Collateral hereunder or any
party liable hereunder or under the Note, all in any order determined by Secured
Party, and Borrower hereby waives any right to require Secured Party to exhaust
the Collateral prior to enforcing its rights against any party personally liable
for repayment of the amount due under the Note.

          d.      Governing Law.  This Agreement shall be governed by the laws
                  -------------
of the State of Nevada.  Borrower hereby consents to the jurisdiction of the
State of Nevada for purposes of enforcement of this Security Agreement or any
obligations secured hereby.

          e.      Time.  Time is declared to be of the essence hereof with
                  ----
respect to the performance of the covenants and obligations set forth herein.

                                       4
<PAGE>

          f.      Severability.  Wherever possible, each term and provision of
                  ------------
this Agreement shall be interpreted in a manner consistent with and shall be
deemed to be effective and valid under applicable law.  If any term or provision
of this Agreement shall be held to be prohibited by or invalid under applicable
law, such term or provision shall be ineffective only to the extent so
determined and the remaining terms and provisions of this Agreement shall remain
unaffected and in full force and effect.

Secured Party:                                   Borrower:

                                                 ____________________________
PINNACLE ENTERTAINMENT, INC.                     WADE HUNDLEY
a Delaware limited liability company

By:  __________________________________          ____________________________
                                                 MARGO HUNDLEY
Its: __________________________________

                                       5

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