THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

Exhibit 10.9

THIRD
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

THIS THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made effective as of December 22, 2008 (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 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 Original Agreement was amended and restated pursuant to an Amended and Restated Employment Agreement effective as of May 1, 2005, and further amended and restated pursuant to a Second Amended and Restated Employment Agreement dated as of October 31, 2006 (the “2006 Agreement”). The Company and Executive desire to further amend and restate the 2006 Agreement to comply with the provisions of Internal Revenue Code Section 409A and to address certain technical matters, 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 Effective Date, and, unless earlier terminated under Article 6 below, shall continue in force until April 30, 2009, provided that commencing on May 1, 2009 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 ninety (90) days prior to the next Renewal Date. 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 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, and for purposes of this section only, 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 the Effective Date at the rate of not less than $1,000,000 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 “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, except for any portion of the bonus which is subject to required deferral by the Company and except for any portion of the bonus which Executive shall elect to defer. Bonuses relative to partial years shall be prorated based on Executive’s target bonus, except as otherwise provided herein. 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. Executive may also receive special bonuses in additional to his annual bonus eligibility at the discretion of the Board.

3.3 Stock Options . As an additional element of compensation to Executive, in consideration of the services to be rendered hereunder, on May 3, 2005 (the “Option Grant Date”) the Company granted to Executive an option to purchase 600,000 shares of the Company’s common stock which has an exercise price equal to the fair market value of such stock on the Option Grant Date and a term of ten (10) years. Such option was 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 beginning on the first anniversary of the Option Grant Date 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 (no less frequently then within forty (40) months of the prior review), the Committee shall review Executive’s long-term compensation and, in consultation with Executive, shall consider granting additional stock options and/or other long term incentive compensation 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 (4) 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.

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). In the event of any merger or other acquisition of the Company, the Company shall no later than immediately prior to consummation of such transaction purchase the longest applicable “tail” coverage available under the directors and officers liability insurance in effect at the time of such merger or acquisition.

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. No reimbursement will be made later than the close of the calendar year following the calendar year in which the expense was incurred. Expenses eligible for reimbursement in any one taxable year shall not affect the amount of expenses eligible for reimbursement in any other taxable year, and the right to expense reimbursement shall not be subject to liquidation or exchange for any other benefit.

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, other than due to his disability (except due to substance or alcohol abuse), after having received written notice specifying such failure to perform and a reasonable opportunity to perform.

6.1.2 Willful Breach . If Executive willfully commits a material breach of this Agreement and fails to cure such breach within thirty (30) days of written notice thereof 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 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), or (b) a change of control with respect to the Company (a “Change of Control”). Except in the case set forth in clause (b) of the preceding sentence, however, “Good Reason” shall not exist unless Executive gives notice of proposed termination within thirty (30) days following the breach or condition giving rise to Good Reason, and there is a failure of the Company to remedy the breach or condition giving rise to Good Reason within thirty (30) days after such 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). For purposes of this Agreement, a “Change of Control” shall mean the occurrence of any of the following:

(i) The direct or indirect acquisition by an unrelated “Person” or “Group” of “Beneficial Ownership” (as such terms are defined below) of more than 50% of the voting power of the Company’s issued and outstanding voting securities in a single transaction or a series of related transactions;

(ii) The direct or indirect sale or transfer by the Company of substantially all of its assets to one or more unrelated Persons or Groups in a single transaction or a series of related transactions;

(iii) The merger, consolidation or reorganization of the Company with or into another corporation or other entity in which the Beneficial Owners of more than 50% of the voting power of the Company’s issued and outstanding voting securities immediately before such merger or consolidation do not own more than 50% of the voting power of the issued and outstanding voting securities of the surviving corporation or other entity immediately after such merger, consolidation or reorganization; or

(iv) During any consecutive 12-month period, individuals who at the beginning of such period constituted the Board of the Company (together with any new Directors whose election to such Board or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the Directors of the Company then still in office who were either Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of the Company then in office.

None of the foregoing events, however, shall constitute a Change of Control if such event is not a “Change in Control Event” under Treasury Regulations Section 1.409A-3(i)(5) or successor IRS guidance. For purposes of determining whether a Change of Control has occurred, the following Persons and Groups shall not be deemed to be “unrelated”: (A) such Person or Group directly or indirectly has Beneficial Ownership of more than 50% of the issued and outstanding voting power of the Company’s voting securities immediately before the transaction in question, (B) the Company has Beneficial Ownership of more than 50% of the voting power of the issued and outstanding voting securities of such Person or Group, or (C) more than 50% of the voting power of the issued and outstanding voting securities of such Person or Group are owned, directly or indirectly, by Beneficial Owners of more than 50% of the issued and outstanding voting power of the Company’s voting securities immediately before the transaction in question. The terms “Person,” “Group,” “Beneficial Owner,” and “Beneficial Ownership” shall have the meanings used in the Securities Exchange Act of 1934, as amended. Notwithstanding the foregoing, (I) Persons will not be considered to be acting as a “Group” solely because they purchase or own stock of the Company at the same time, or as a result of the same public offering, (II) however, Persons will be considered to be acting as a “Group” if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction, with the Company, and (III) if a Person, including an entity, owns stock both in the Company and in a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar transaction, with the Company, such shareholders shall be considered to be acting as a Group with other shareholders only with respect to the ownership in the corporation before the transaction.

6.4 Death or Disability . This Agreement shall terminate on the death or “Disability” of Executive. Executive will be deemed to have a “Disability” when he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or begins receiving income replacement benefits for a period of not less than three months under an accident and health plan of the Company or an affiliate by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months. 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 (10) days after a request for designation of such party, then a physician or psychiatrist designed by the Clark County Medical Association or a similar body. The certification of such physician or psychiatrist as to the questioned dispute shall be final and binding upon the parties hereto.

6.5 Effect of Termination .

6.5.1 Payment of Salary and Expenses Upon Termination . 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. If 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, and any compensation previously voluntarily deferred by Executive, payable in accordance with the provisions of the applicable deferred compensation plan and in accordance with Executive’s elections under such deferred compensation plan 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 Agreement is terminated by the Company for “Cause,” or by Executive without “Good Reason,” 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.

6.5.2 Termination Due to Death or Disability . If this Agreement is terminated due to death or Disability, the following shall apply:

6.5.3 Termination Without Cause or Termination by Executive for Good Reason Prior to 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: