Employee Benefit Plans

Share-based Compensation: Our 2005 Equity and Performance Incentive Plan (the “2005 Plan”) allows us to grant stock options, stock appreciation rights, restricted stock, restricted stock units and other performance awards to officers, employees and consultants. The 2005 Plan permits the issuance of up to approximately 9.0 million shares of the Company’s common stock. Grants of stock options or stock appreciation rights are counted against the approximately 9.0 million share limit as one share for every one share granted. All other awards under the 2005 Plan are counted against the share limit as 1.4 shares for every one share granted.

In addition, in 2008 and 2010, in order to recruit our executive officers, we granted options outside of the 2005 Plan for the purchase of 850,000 shares of common stock, all of which remained outstanding as of December 31, 2013. In connection with the acquisition of Ameristar, we granted to employees of Ameristar options to purchase 198,000 shares of common stock and 74,000 restricted stock units, which were outstanding as of December 31, 2013. Pursuant to our Annual Incentive Plans, as adopted under the 2005 Plan, 25% of our executive officers' bonuses are payable in restricted stock units, and such executive officers may elect to receive an additional 25% of their bonus in restricted stock units.

Directors Deferred Compensation Plan: Any director may elect to receive phantom stock units in lieu of payment of an annual retainer and board fees under the Company's Directors Deferred Compensation Plan. Phantom stock units are fully expensed when granted. Each phantom stock unit is the economic equivalent of one share of our common stock. Units of phantom stock are payable in common stock following the director’s cessation of service as a director for any reason.

As of December 31, 2013, we have approximately 6.6 million share-based awards outstanding, approximately 0.6 million of which are restricted stock units and other share-based awards. There were approximately 2.7 million share-based awards available for grant under the various plans as of December 31, 2013.

Stock options: Options are granted at the current market price at the date of grant. The following table summarizes information related to our common stock options under the Stock Option Plans:



	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Options outstanding at January 1, 2013	5,519,345		$	11.78
Granted	1,251,159		$	21.64
Exercised	(880,031	)	$	11.48
Canceled / Forfeited	(381,227	)	$	10.88
Options outstanding at December 31, 2013	5,509,246		$	14.01	5.33	$	66.4
Options exercisable at December 31, 2013	2,636,839		$	12.62	4.69	$	35.6
Expected to vest at December 31, 2013	2,176,609		$	15.55	5.94	$	22.7

The following information is provided for our stock options:



	For the year ended December 31,
	2013		2012		2011
	(in millions, except grant date fair value)
Weighted-average grant date fair value	$	10.63	$	5.06	$	6.65
Intrinsic value of stock options exercised	$	9.2	$	0.5	$	3.0
Net cash proceeds from exercise of stock options	$	10.1	$	1.5	$	3.7

Unamortized compensation costs not yet expensed related to stock options granted totaled approximately $18.9 million at December 31, 2013 and the weighted average period over which the costs are expected to be recognized is approximately two years.

Restricted stock units: The following table summarizes information related to our restricted stock units, as of December 31, 2013 was as follows:



	Number of Shares		Weighted Average Fair Value
Non-vested shares at January 1, 2013	220,537		$	11.33
Granted	714,958		$	20.55
Vested	(243,769	)	$	14.60
Canceled / Forfeited	(62,208	)	$	15.64
Non-vested shares at December 31, 2013	629,518		$	20.11

Unamortized compensation costs not yet expensed related to non-vested shares totaled approximately $11.4 million at December 31, 2013 and the weighted average period over which the costs are expected to be recognized is approximately two years.

Performance stock units: The following table summarizes information related to our performance stock units as December 31, 2013:



	Number of Shares		Weighted Average Fair Value
Non-vested shares at January 1, 2013	—		$	—
Granted	442,540		$	22.84
Canceled / Forfeited	(10,682	)	$	25.14
Non-vested shares at December 31, 2013	431,858		$	22.79

Compensation cost: We use the Black-Scholes option-pricing model and the Monte Carlo simulation in order to calculate the compensation costs of employee share-based compensation. Such models require the use of subjective assumptions, including the expected life of the option, the expected volatility of the underlying stock, and the expected dividend on the stock.

In computing the share-based compensation, the following is a weighted average of the assumptions used:



	Risk- Free Interest Rate		Expected Life at Issuance (in years)	Expected Volatility		Expected Dividends
Options granted in the following periods:
2013	1.2	%	5.11	57.0	%	None
2012	0.8	%	5.25	58.0	%	None
2011	1.8	%	5.14	56.7	%	None

The expected volatility was derived from an analysis of both the historic actual volatility of our common stock and the implied volatilities of traded options in our common stock. Future volatility may be substantially less or greater than the expected volatility. We do not currently pay dividends, and we do not anticipate that dividends will be paid within the average expected life of existing options. U.S. Treasury rates with similar maturities are used as the proxy for the risk-free rate. The expected life at issuance is based on our experience as to the average historical term of option grants that were exercised, canceled or forfeited. The total compensation costs recognized were as follows:



	For the year ended December 31,
	2013		2012		2011
	(in millions)
Share-based compensation expense	$	11.5	$	8.5	$	6.5

401(k) Plan: We maintain the Pinnacle Entertainment, Inc. 401(k) Investment Plan (the “401(k) Plan”). The 401(k) Plan is an employee benefit plan subject to the provisions of the Employee Retirement Income Security Act of 1974, and is intended to be a qualified plan under Section 401(a) of the Internal Revenue Code of 1986. Participants of the 401(k) Plan may contribute up to 100% of pretax income, subject to the legal limitation ($17,500 for 2013). In addition, participants who are age 50 or older may make an additional contribution to the 401(k) Plan, commonly referred to as a “catch-up” contribution ($5,500 for 2013). We consider discretionary matching contributions under the 401(k) Plan, which vest ratably over four to five years, of a 25% to 50% discretionary match, up to 4% to 5% of eligible compensation. For the years ended December 31, 2013, 2012 and 2011, matching contributions to the 401(k) Plan totaled $2.4 million, $1.5 million, and $1.5 million, respectively.

Executive Deferred Compensation Plan: We maintain an Executive Deferred Compensation Plan (the “Executive Plan”), which allows certain highly compensated employees to defer, on a pre-tax basis, a portion of their annual base salary and bonus. Participation in the Executive Plan is limited. A participant is at all times fully vested in his or her contributions, as well as any attributable appreciation or depreciation thereof. We do not make matching contributions to the Executive Plan for the benefit of participating employees, and the payment of benefits under the plan is an unsecured obligation. The total obligation under the Executive Plan and the cash surrender value of insurance policies are as follow:



	December 31,
	2013		2012
	(in millions)
Total obligation under Executive Plan (a)	$	6.5	$	6.5
Cash surrender value of insurance policies (b)	$	2.8	$	2.5


(a)	Recorded in "Other Long-Term Liabilities" in the Consolidated Balance Sheets.


(b)	Recorded in "Other Assets, Net" in the Consolidated Balance Sheets.

Directors' Medical Plan: In February 2007, the Board of Directors approved a directors’ health and medical plan designed to provide health and medical insurance benefits comparable to those provided to corporate executives (the “Directors’ Medical Plan”). To the extent that a covered individual has other insurance or Medicare coverage, the benefits under the Company’s coverage would be supplemental to those otherwise provided. The Directors’ Medical Plan covers directors and their dependents while the director is in office and provides benefits for those directors who leave the board after age 70 and their dependents and for directors in office at the time of a change in control and their dependents for a period of 5 years. At present, two members of the Board of Directors are over age 70. The benefit obligation is approximately $0.3 million and $0.4 million for years ended December 31, 2013 and 2012, respectively, and is recorded in “Other Long-Term Liabilities” in the Consolidated Balance Sheets.