As filed with the Securities and Exchange Commission on July 3, 1996
Registration No. 33-67206
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
RIVIERA HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 6719 88-0296885
(State or other Jurisdiction (Primary Standard Indus- (I.R.S. Employer
of Incorporation trial Classification Identification Number)
or Organization) Code Number)
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
(702) 734-5110
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------------
William L. Westerman
Chairman of the Board and Chief Executive Officer
Riviera Holdings Corporation
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
(702) 734-5110
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
with a copy to:
Fredric Klink
Dechert, Price & Rhoads
477 Madison Avenue, 12th Floor
New York, New York 10022
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
<PAGE>
RIVIERA HOLDINGS CORPORATION
--------------
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Location in Registration Statement
Form S-1 Item Number and Caption or Prospectus
-------------------------------- ----------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside Front Cover Page of Registration Statement;
Front Cover Page of Prospectus................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page and Outside Back Cover
of Prospectus.................................... Page of Prospectus
3. Summary Information, Risk Factors and Ratio Prospectus Summary; Risk Factors; Selected
of Earnings to Fixed Charges..................... Financial Data
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Not applicable
6. Dilution......................................... Not applicable
7. Selling Security Holders......................... Selling Securityholders
8. Plan of Distribution............................. Plan of Distribution
9. Description of Securities to be Registered....... Description of Securities
10. Interests of Named Experts and Counsel........... Not applicable
11. Information with Respect to the Registrant:
(a) Description of Business...................... Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management
(b) Description of Property...................... Properties
(c) Legal Proceedings............................ Legal Proceedings
(d) Market Price of and Dividends on
the Registrant's Common Equity and
Related Stockholder Matters.................. Not applicable
<PAGE>
(e) Financial Statements......................... Index to Financial Statements; Financial
Statements
(f) Selected Financial Data...................... Selected Financial Data
(g) Supplementary Financial Information.......... Financial Statements
(h) Management's Discussion and
Analysis of Financial Condition and
Results of Operations........................ Management's Discussion and Analysis of
Financial Condition and Results of Operations
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure......................... Not applicable
(j) Directors and Executive Officers............. Management
(k) Executive Compensation....................... Management
(l) Security Ownership of Certain
Beneficial Owners and Management............. Principal Shareholders; Selling Securityholders
(m) Certain Relationships
and Related Transactions..................... Management
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities...................................... Part II, Item 17, Undertakings
</TABLE>
<PAGE>
SUPPLEMENT TO PROSPECTUS
DATED SEPTEMBER 3, 1993
RIVIERA HOLDINGS CORPORATION
11% FIRST MORTGAGE NOTES DUE DECEMBER 31, 2002
The 11% First Mortgage Notes Due December 31, 2002 (the "First Mortgage
Notes") of Riviera Holdings Corporation, a Nevada corporation (the "Company"),
may be sold from time to time by the securityholders specified herein (the
"Selling Securityholders"). See "Selling Securityholders." The Company will not
receive any proceeds from the sale of the First Mortgage Notes hereunder. The
Selling Securityholders are the holders of an aggregate of $45,635,000 principal
amount of a total issue of $100,000,000 aggregate principal amount of First
Mortgage Notes issued under (i) the Second Amended Joint Plan of Reorganization
of Riviera, Inc. (which, as modified by certain orders, is referred to herein as
the "Plan") and (ii) an Indenture (the "Indenture") and First Supplemental
Indenture (the "First Supplemental Indenture"), each dated as of June 30, 1993
(collectively, the "Indenture"), among the Company, Riviera Operating
Corporation, the Company's wholly-owned subsidiary ("ROC"), as guarantor, and
IBJ Schroder Bank & Trust Company (the "Trustee"), as trustee. An aggregate of
$26,514,000 principal amount of the First Mortgage Notes was sold by Selling
Securityholders in the past year. The Indenture has been qualified under the
Trust Indenture Act of 1939, as amended. American Stock Transfer and Trust
Company has been appointed as the Transfer Agent.
The First Mortgage Notes were issued on June 30, 1993, the effective date
of the Plan (the "Effective Date"), in connection with the Chapter 11
reorganization of Riviera, Inc. (the "Reorganization Case"), the predecessor of
the Company and ROC. See "Bankruptcy Reorganizations." The Company pays interest
on the First Mortgage Notes at the rate of 11% per annum semiannually on June 30
and December 31 of each year, commencing December 31, 1993. Performance of the
respective obligations of the Company under the Indenture, including, without
limitation, the payments by the Company of principal and interest on the First
Mortgage Notes, are secured by a first lien on the Collateral (as hereinafter
defined), subject only to certain permitted liens ranking senior to the lien of
the Indenture and the First Mortgage Notes, and are guaranteed (the "Guarantee")
by ROC. The Guarantee is secured by substantially all assets of ROC. For a more
detailed description of the First Mortgage Notes, see "Description of
Securities--First Mortgage Notes."
INVESTORS SHOULD CAREFULLY CONSIDER THE DISCUSSION OF MATERIAL RISKS
SET FORTH UNDER "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING
CONTROL BOARD HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED
HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Selling Securityholders may sell the First Mortgage Notes: (i) in an
underwritten offering or offerings, (ii) through brokers and dealers, (iii) "at
the market" to or through a market maker or into an existing trading market, on
an exchange or otherwise, for such First Mortgage Notes, and (iv) in other ways
not involving market makers or established trading markets, including direct
sales to purchasers. The distribution of First Mortgage Notes may be effected
from time to time in one or more underwritten transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Any such underwritten offering may be on a "best efforts" or a "firm
commitment" basis.
The date of this Prospectus Supplement is July 3, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, New York, New York
10048 and Northwestern Atrium Center, 500 Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained upon written request
addressed to the Commission, Public Reference Section, 450 Fifth Street, NW,
Washington, D.C. 20549, at prescribed rates.
Additional information regarding the Company and the First Mortgage Notes
offered hereby is contained in the Registration Statement on Form S-1 and the
exhibits, (the "Registration Statement") filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement which may be inspected without charge at, and copies thereof may be
obtained at prescribed rates from the Commission at 450 Fifth Street, NW,
Judiciary Plaza, Washington, D.C. 20549.
Pursuant to the terms of the Indenture, so long as any First Mortgage Notes
remain outstanding, the Company will furnish to holders quarterly reports
(containing unaudited consolidated financial statements) for the first three
quarters of each fiscal year of the Company and annual reports (containing
audited consolidated financial statements and an opinion thereon by the
Company's independent certified public accountants) which the Company is, or
would be, required to file under Section 13 or 15(d) of the Exchange Act.
The Company's principal executive offices are located at 2901 Las Vegas
Boulevard South, Las Vegas, Nevada 89109 and its telephone number is (702)
734-5110.
TABLE OF CONTENTS
Page
----
Available Information............................. 2
Prospectus Summary................................ 3
Risk Factors...................................... 6
The Company....................................... 10
Use of Proceeds................................... 11
Capitalization.................................... 12
Selected Financial Data........................... 13
Ratio of Earnings to Fixed Charges................ 14
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....................... 14
Business.......................................... 21
Management........................................ 35
Principal Shareholders............................ 43
Certain Relationships and
Related Transactions............................ 45
Selling Securityholders........................... 46
Description of Securities......................... 47
Certain Federal Income Tax
Consequences.................................... 73
Plan of Distribution.............................. 76
Experts........................................... 77
Consolidated Financial Statements................. 79
-2-
<PAGE>
PROSPECTUS SUMMARY
This summary information is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
The Company
Riviera Holdings Corporation, through its wholly-owned subsidiary, Riviera
Operating Corporation ("ROC"), owns and operates the Riviera Hotel & Casino (the
"Hotel & Casino"), located on the Las Vegas Strip. The Hotel & Casino is a
traditional Las Vegas casino-hotel which focuses on attracting mid- level gaming
customers, with a particular emphasis on slot customers. The Hotel & Casino also
offers one of the most extensive entertainment programs and has one of the
largest convention centers in Las Vegas. Riviera Gaming Management Inc. ("RGM",
a wholly owned subsidiary of ROC) was incorporated in August 1995 in the State
of Nevada for the purpose of obtaining management contracts in Nevada and other
jurisdictions. RGM through its wholly-owned subsidiaries consults with new venue
licensee applicants in designing and planning their gaming operations, managing
the start-up of new gaming operations and managing troubled properties. RGM is
currently negotiating a consulting/management agreement with the bondholders of
Elsinore Corporation which operates the Four Queens Hotel and Casino in downtown
Las Vegas, Nevada.
Description of Securities
Issuer...............Riviera Holdings Corporation
Securities Offered
by Selling
Securityholders....$45,635,000 principal amount of 11% First Mortgage Notes
Due December 31, 2002. The First Mortgage Notes may be sold
from time to time by the Securityholders specified in this
Prospectus. The First Mortgage Notes were issued on June
30, 1993 by the Company as part of a total issue of
$100,000,000 aggregate principal amount of First Mortgage
Notes pursuant to the terms of (i) the Indenture and First
Supplemental Indenture and (ii) the Plan.
Use of Proceeds......The Company will not receive any proceeds
from the sale of the First Mortgage Notes offered hereby.
All proceeds will be received by the Selling
Securityholders. See "Selling Securityholders."
Interest.............Interest will be paid in cash on June 30 and December 31 in
each year until maturity, commencing December 31, 1993, at
a rate of 11% per annum.
Amortization.........The entire principal amount of the First Mortgage Notes is
payable at maturity.
-3-
<PAGE>
Collateral...........The First Mortgage Notes are secured by (i) a first lien
(subject to permitted liens ranking prior thereto) upon all
of the real property of the Company, (ii) a security
interest in and to certain personal property of the Company
and ROC and (iii) a security interest in and to the
Company's trademarks and the goodwill related thereto.
Guarantee ...........The obligations of the Company to pay principal,
premium (if any) and interest on the First Mortgage
Notes are unconditionally guaranteed by ROC. The
Guarantee is secured by ROC's personal property.
Optional Redemption..The First Mortgage Notes are not redeemable
prior to June 1, 1998. Thereafter, the Company may elect to
redeem the First Mortgage Notes, in whole or in part, at
any time after June 1, 1998 at the redemption prices set
forth below, plus accrued and unpaid interest to the
redemption date:
Following June 1, Percentage
----------------- ----------
1998 104.3125%
1999 102.8750%
2000 101.4375%
2001 and thereafter 100.0000%
Repurchase...........Upon the occurrence of certain specified events, including
a Change of Control (as defined in "Description of
Securities"), the Company is required to commence an offer
to all holders to purchase the First Mortgage Notes at a
purchase price of 100% of the principal amount thereof,
plus accrued and unpaid interest to the date of repurchase.
The Company, however, is highly leveraged and it is
unlikely that it would have sufficient funds available to
comply with its repurchase obligation if a substantial
amount of First Mortgage Notes were tendered upon a Change
of Control. See "Description of Securities--Repurchase" for
a discussion of the foregoing and of certain liens ranking
prior to that of the First Mortgage and certain unsecured
indebtedness ranking on a parity with the First Mortgage
Notes. If the Company fails to maintain a specified minimum
consolidated net worth, it is required to repurchase the
lesser of 10,000,000 principal amount of First Mortgage
Notes or the aggregate principal amount of First Mortgage
Notes then outstanding at a purchase price of 100% of the
principal amount thereof plus accrued and unpaid interest
to the date of purchase.
-4-
<PAGE>
Principal
Covenants..........The Indenture and First Supplemental Indenture contain
certain covenants that, among other things, (i) require the
Company to maintain a specified minimum consolidated net
worth, (ii) prohibit the Company from incurring additional
indebtedness, granting liens or retiring subordinated
indebtedness (with certain exceptions) and (iii) limit
capital expenditures.
-5-
<PAGE>
RISK FACTORS
In addition to the other information and financial data set forth elsewhere
in this Prospectus, the following information should be considered carefully by
prospective investors in evaluating the Company, its businesses and an
investment in the First Mortgage Notes.
History of Operating Losses
The Company is the successor to the Hotel & Casino division of Riviera,
Inc. The Hotel & Casino experienced significant losses in 1991 and 1992. Net
losses, including provision for reorganization expenses and write downs of
assets, of the Hotel & Casino for the fiscal years ended December 31, 1992, and
December 31, 1991, were $80,905,000 and $40,812,000, respectively. Although the
Hotel & Casino had net income for each period since January 1, 1993 there can be
no assurance that the Company will operate profitably in the future.
Competition
The Hotel & Casino competes with a number of other casino-hotels in Las
Vegas. Currently, there are approximately 20 major casinos located on or near
the Las Vegas Strip, nine major casino-hotels located in the downtown area and
several major facilities located elsewhere in the Las Vegas area. Las Vegas
casino square footage and room capacity are continuing to increase, principally
as a result of expansion and new construction projects by casino-hotels located
on or near the Strip. Between September 15, 1989 and December 31, 1992, Las
Vegas hotel and motel room capacity increased 13,000 rooms (20%) from 63,000 to
76,000 rooms. This increase included the opening of the 3,000-room Mirage and
the 4,000-room Excalibur. Based on data compiled by a national accounting firm,
the opening of the Mirage and Excalibur did not significantly affect the casino
revenues of a group of 12 casinos (including the Hotel & Casino) on the Las
Vegas Strip.
Three major casino-hotels on the Las Vegas Strip opened in late 1993; the
2,500-room Luxor, the 3,000-room Treasure Island, and the 5,000-room MGM Grand
casino-hotel and theme park, increasing the capacity in Las Vegas to
approximately 85,000 rooms. During 1994, the Hotel and Casino experienced
increases in revenues and profits as the demand for hotel rooms continued to
exceed the supply.
Various other expansion projects have been announced or are in progress
which may affect the business of the Hotel & Casino including Stratosphere
(2,500 rooms) which opened April 1996, Monte Carlo (3,000 rooms) which opened
June 1996, New York, New York (2,500 rooms), Bellagio (3,000 rooms), Sands
(6,000 rooms), Hilton/Bally's Paris (2,500 rooms), ITT/Caesar's Palace (1,500
rooms), ITT/Planet Hollywood (3,000 rooms) and the Circus Circus projects on the
South end of the Strip. Circus Circus has announced that they will be building
an additional 1,000 rooms across from the Hotel & Casino in 1996. William
Bennett, former principal owner of Circus Circus has acquired the Sahara Hotel &
Casino and has announced expansion plans. Many casino-hotels (new and old) in
Las Vegas have far greater capital resources than the Hotel & Casino. Management
believes that the new hotels and "theme" attractions will both increase
competitive pressures and offer opportunities resulting from the increase in
visitors to Las Vegas, the net effect of which cannot be estimated at this time.
Management believes that the most direct competition for the Hotel & Casino
comes from certain large casino-hotels located on or near the Strip which offer
amenities and marketing programs similar to those offered by the Hotel & Casino.
These facilities currently include the Bally's, Flamingo Hilton, Frontier,
Harrah's, Sahara, Stardust and Tropicana casino-hotels. The Hotel & Casino
competes on the basis of the atmosphere and excitement offered by the facility,
the desirability of its location, the quality
-6-
<PAGE>
and relative value of its hotel rooms and restaurants, the quality and variety
of entertainment offered, customer service, the availability of convention
facilities, its marketing strategy and special marketing and promotional
programs.
The Hotel & Casino also competes to a lesser extent with casino-hotel
operations located in the Laughlin and Reno-Lake Tahoe areas of Nevada, Atlantic
City, New Jersey and other parts of the world and with state-sponsored
lotteries, off-track wagering, card parlors, river boat and Indian gaming
ventures and other forms of legalized gaming in the United States, as well as
with gaming on cruise ships. Certain states have recently legalized, and several
other states are currently considering legalizing, casino gaming in specific
geographic areas within those states. Management believes that the legalization
of large-scale, land-based, unlimited-stakes casino gaming in or near any major
metropolitan area, such as Chicago, New Orleans, Denver or, in particular, Los
Angeles, could have a material adverse effect on the Hotel & Casino. Currently,
large-scale, land-based, unlimited-stakes casino gaming is not permitted in any
of these cities, except New Orleans which has authorized the establishment of
one casino which opened on a temporary basis in 1995 and closed shortly
thereafter due to lack of visitor volume and other concerns. The legalization or
expansion of casino gaming in foreign jurisdictions from which the Hotel &
Casino draws customers may also adversely affect the business of the Hotel &
Casino. See "Business--Competition."
High Leverage and Debt Service Requirements
The Company is highly leveraged and has substantial fixed charges
attributable to the various classes of debt securities issued pursuant to the
Plan. As of December 31, 1995, the Company had total long-term debt, including
current maturities, of $110,571,282 and total stockholders' equity of
$26,281,883. The Company at December 31, 1995, had a cash balance of
approximately $21,962,000. The Company has scheduled cash payments for principal
and interest of $14.2 million in 1996, $13.5 million in 1997, $13.2 million in
1998, $12.9 million in 1999, $12.8 million in 2000, $11.3 in 2001, and $111.0
million in 2002.
In fiscal 1991 and 1992, the Company's earnings were insufficient to cover
its fixed charges (interest expense, amortization of debt expense, amortization
of bond discount and capitalized interest). For the twelve months ended December
31, 1995, the Company's earnings were 1.78 times its fixed charges. Thus, even
two years after the effectiveness of the Plan, the Company remains highly
leveraged and susceptible to defaults in the event of downward fluctuations in
its financial performance.
First Mortgage Notes Must Be Refinanced At Maturity
The Company's cash flow from operations is not expected to be sufficient to
pay the principal of the First Mortgage Notes at maturity in 2002. Accordingly,
the entire outstanding principal amount of the First Mortgage Notes must be
refinanced at or prior to maturity. There can be no assurance that the Company
will be able to refinance the First Mortgage Notes at maturity or at an earlier
mandatory redemption. See "Description of Securities--Repurchase."
Impact of Economic Conditions on Business of the Company
Due to restrictive covenants and Change of Control provisions contained in
the original Indenture and the Company's Articles of Incorporation and By-Laws,
it was unlikely that the Company would be able to secure additional funds to
restructure its debt or invest in other gaming opportunities. Effective
September 1995, the bondholders consented to amendments to the Indenture
designed to permit the Company's management team to utilize its expertise in
turning around troubled gaming properties which are either in, or on the verge
of, bankruptcy and managing casinos in so-called "new venues." The
-7-
<PAGE>
Company would expect to make a limited investment and obtain a profit based
management contract in properties with which it becomes involved.
However, unlike many of its competitors, the current business of the
Company is totally dependent on gaming in Las Vegas. The Hotel & Casino derives
a substantial percentage of its business from tourists, principally from
Southern California and the Southwestern United States. Weakness in the economy
of Southern California has in the past and will continue to adversely effect the
financial results of the Hotel & Casino. In addition, the legalization of
large-scale, land-based, unlimited stakes casino gaming in or near Los Angeles
or other cities would have a material adverse effect on the Hotel & Casino.
Limitations on Capital Expenditures
The Company's predecessors, partly as a result of restrictions on cash
expenditures during previous bankruptcy reorganizations, deferred certain
capital expenditures. Management believes that it will be necessary to spend
approximately $11,000,000 in each of the next several fiscal years in order to
refurbish the Hotel & Casino. The Indenture imposes restrictions on the Company,
including limitations on the incurrence of debt and the making of capital
expenditures. As a result, the ability of the Company to incur additional
indebtedness to fund operations or to make capital expenditures is limited
primarily to equipment leases and purchase money debt. In the event that cash
flow from operations is insufficient to cover cash requirements, the Company
would be required to curtail or defer capital expenditures. Since a significant
portion of the Company's capital expenditure program is designed to upgrade the
condition of the Hotel & Casino, any such reduction or deferral could adversely
affect the ability of the Company to compete and thus adversely impact
operations and financial results.
Credit Experience; Enforceability of Judgments
The Company in recent years has experienced a high level of uncollectible
and discounted receivables from casino operations. The allowance for bad debts
was approximately $3,484,000 on December 31, 1992, $763,000 on December 31,
1993, $1,100,000 on December 31, 1994, and $500,000 on December 31, 1995. During
the years ended December 31, 1992, 1993, 1994, and 1995, the Company provided
reserves of approximately $1,577,000, $367,000, $1,049,000 and $541,000,
respectively, for uncollectible receivables and discounts. It is anticipated
that the Hotel & Casino will continue to extend credit to customers, although at
a lower overall level than in the past. Accordingly, the risks associated with
the provision of credit will remain significant for the Company.
Nevada gaming debts evidenced by credit instruments, and judgments
enforcing such instruments, are enforceable under the laws of Nevada and certain
other jurisdictions, but are not enforceable in certain states and foreign
countries because of public policy considerations against gaming. All states are
required to enforce a judgment on a gaming debt entered in Nevada pursuant to
the Full Faith and Credit Clause of the United States Constitution. However, in
some instances it may be impractical or uneconomical to pursue enforcement of
such judgments.
Holding Company Structure
The Company is a holding company that has no operations other than those
conducted by its wholly-owned subsidiary, ROC. The Company's sole source of
income for interest and principal payments on the First Mortgage Notes is
dividends and other payments from ROC. Under the Operating Agreement, the
Company has granted ROC a license to operate the Hotel & Casino. In return, ROC
has agreed to pay rent to the Company equal to substantially all of the net cash
flow of ROC. Such payments will be subject to both operating results of ROC and
to regulations of the Nevada Gaming Control Board
-8-
<PAGE>
(the "Gaming Board") and the Nevada Gaming Commission (the "Gaming Commission"),
which may limit distributions by ROC based on statutory authority to regulate
the fiscal affairs of licensees. There can be no assurance that ROC will be able
to distribute sufficient cash to the Company to enable the Company to meet its
obligations, including payments on the First Mortgage Notes, in the future.
Regulation
The ownership and operation of the Hotel & Casino are subject to extensive
state and local regulation by the Gaming Board, Gaming Commission and the Clark
County Liquor and Gaming Licensing Board (the "Clark County Board")
(collectively the "Gaming Authorities"). In addition, the Company is subject to
regulation by the Nevada Gaming Authorities because it owns the common stock of
ROC. The Nevada gaming authorities have the authority, upon compliance with
certain statutory procedures, to limit, condition, suspend or revoke these
licenses and approvals for any cause deemed reasonable by the licensing agency.
Substantial fines for violations of gaming laws or regulations may be levied
against the Company, ROC and the persons involved in any such violations.
No person may become a controlling stockholder of the Company without the
prior approval of the Gaming Commission, although the Gaming Commission may
investigate any holder of the Company's securities at any time. Each person who,
individually or in association with others, acquires, directly or indirectly,
beneficial ownership of more than 5% of the Company's voting securities must
report the acquisition to the Gaming Commission, and such person may be required
to be found suitable. Any person who becomes a beneficial owner of more than 10%
of the Company's voting securities must apply for a finding of suitability
within 30 days after the Chairman of the Gaming Board mails a written notice
requiring such filing. An "institutional investor" (as such term is defined in
the Gaming Commission's regulations) which acquires beneficial ownership of more
than 10%, but not more than 15% of the Company's voting securities in any manner
other than through a debt restructuring under the Bankruptcy Code, such as the
Plan, may apply to the Gaming Commission for a waiver of such finding of
suitability if such institutional investor holds the voting securities for
investment purposes only. An institutional investor shall not be deemed to hold
voting securities for investment purposes only unless the voting securities were
acquired and are held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly, the
election of a majority of the board of directors, any change in the corporate
charter, bylaws, management, policies or operations of the publicly traded
corporation registered with the Gaming Commission or its gaming affiliates, or
any other action that the Gaming Commission finds to be inconsistent with
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include (i) voting
on all matters voted on by shareholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes only; and (iii) such other activities as the Gaming
Commission may determine to be consistent with such investment intent. The
applicant is required to pay all costs of investigation. The Clark County Board
also regulates certain securityholders of casino-hotels, including those of the
Company.
Any stockholder who is found unsuitable and who continues to hold, directly
or indirectly, any beneficial ownership of the voting securities of the Company
beyond such period of time as may be prescribed by the Gaming Commission, may be
guilty of a criminal offense. The Company could be subject to disciplinary
action by the Gaming Commission if, after it receives notice that a person is
unsuitable to be a stockholder or to have any other relationship with it or with
its subsidiary licensees, it (i) pays the unsuitable person any dividends or
interest upon any of its securities or any other payment or distribution of any
kind whatsoever, (ii) recognizes the exercise, directly or indirectly, of any
voting rights in its securities by the unsuitable person, (iii) pays the
unsuitable person any remuneration in any form for services rendered or
otherwise, except in certain limited and specific circumstances, or (iv) fails
to pursue all lawful efforts to require the unsuitable person to divest the
securities, including, if
-9-
<PAGE>
necessary, the immediate purchase of the voting securities for cash at fair
market value. The Indenture under which the First Mortgage Notes are issued
authorizes the Company to call for redemption of the First Mortgage Notes upon
certain findings by the Gaming Commission that a holder thereof is unsuitable.
See "Business--Regulation and Licensing."
Lack of Public Market for Securities; Determination of Price
The First Mortgage Notes were issued to a small group of institutions on
June 30, 1993, as part of the bankruptcy reorganization of Riviera, Inc. There
can be no assurance as to the liquidity of any markets that may develop for the
First Mortgage Notes, the ability of holders to resell such First Mortgage
Notes, or the prices at which holders may be able to sell First Mortgage Notes.
The Company does not presently intend to list the First Mortgage Notes on any
securities exchange, and it is doubtful that the First Mortgage Notes would
presently, or in the future, satisfy the criteria for such listing. Future
trading prices for the First Mortgage Notes will depend upon many factors
including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company is not
aware of any securities firm that intends to make a market in the First Mortgage
Notes.
Control of the Company; Mandatory Repurchase Provision
The five largest holders of the Company's common stock (the "Common
Stock"), which own approximately 75% of the outstanding shares as a result of
the reorganization of Riviera, Inc., may be deemed to exert a controlling
influence over the Company. These same four holders also own approximately 70%
of the outstanding principal amount of First Mortgage Notes as a result of the
reorganization. The Indenture governing the First Mortgage Notes provides that
if any person acquires a majority of the outstanding shares of Common Stock,
then the Company must offer to purchase all outstanding First Mortgage Notes. As
a result of this provision, the terms of the Indenture would permit the largest
holder of the Company's Common Stock and any two of the other largest holders,
if they acted jointly with respect to a sale of the shares of Common Stock owned
by them to any person or group, to cause the Company to be required to
repurchase the First Mortgage Notes at any time. This could cause the Company to
seek protection from creditors under the provisions of the bankruptcy laws.
However, because of the licensing requirements applicable to any person or group
who acquires 10% or more of the outstanding shares of Common Stock or who
acquires any shares with the intent of acquiring control of the Company, the
Company believes that the Nevada Gaming Authorities would be unlikely to permit
any person to acquire a majority of the Common Stock and thereby cause the First
Mortgage Notes to be subject to repurchase by the Company unless the Nevada
Gaming Authorities believe that the acquiror will be able to refinance the First
Mortgage Notes or otherwise provide for the liquidity needs of the Company and
ROC resulting from such acquisition. However, there can be no assurance that the
Nevada Gaming Authorities would take any action to prevent any person from
acquiring control of the Company or to avoid the repurchase obligation resulting
therefrom.
THE COMPANY
The Company, directly or through its wholly-owned subsidiary, ROC, owns and
operates the Riviera Hotel & Casino, located on the Las Vegas Strip. The Hotel &
Casino is a traditional Las Vegas casino-hotel which focuses on attracting
mid-level gaming customers, with a particular emphasis on slot customers. The
Hotel & Casino also offers one of the most extensive entertainment programs and
has one of the largest convention centers in Las Vegas.
-10-
<PAGE>
Each of the Company and ROC was incorporated in Nevada in early 1993 to
acquire the Hotel & Casino from Riviera, Inc. and to operate the business of the
Hotel & Casino after the Chapter 11 reorganization of Riviera, Inc. On the
Effective Date of the Plan, the Company acquired all the assets of Riviera, Inc.
relating to the Hotel & Casino, other than gaming devices (such as slot machines
and roulette wheels) and certain gaming related assets (such gaming devices and
gaming related assets, the "Gaming Assets"), and assumed all liabilities of
Riviera, Inc. relating to the Hotel & Casino, other than certain liabilities
relating to the gaming operations of the Hotel & Casino (such gaming related
liabilities, the "Gaming Liabilities"). Also on the Effective Date, the Company
acquired all of the common stock of ROC. In order to comply with Nevada gaming
laws, on the Effective Date, ROC acquired the Gaming Assets and assumed the
Gaming Liabilities. Pursuant to the terms of an operating agreement dated as of
June 30, 1993, (the "Operating Agreement") between the Company and ROC, the
Company licensed to ROC certain non-gaming assets and properties owned or leased
by the Company relating to the Hotel & Casino. The Operating Agreement
authorizes and directs ROC to utilize such non-gaming assets, together with the
Gaming Assets owned by ROC, to continuously operate and conduct the business of
the Hotel & Casino as of the Effective Date.
For a more detailed discussion of the Company's business, see "Business."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the First
Mortgage Notes. All of the proceeds will be received by the Selling
Securityholders. See "Selling Securityholders."
-11-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, as reflected on the Company's balance sheet.
Debt:
Short-term debt and current portion of long-term debt.......... $1,819,160
----------
Long-term debt(1).............................................. 108,316,163
-----------
Total Debt..................................................... 110,135,323
-----------
Stockholders' equity:
Common Stock, $.001 par value,
20,000,000 shares authorized;
4,800,000 shares outstanding................................. 4,800
Additional paid-in capital..................................... 12,536,902
Retained earnings, March 31, 1996.............................. 16,212,750
-----------
Total stockholders' equity..................................... 28,754,452
-----------
Total Capitalization........................................... $138,889,775
===========
(1) Includes, in addition to $100,000,000 principal amount of First Mortgage
Notes, the following notes (collectively, the "Class Notes") which were
issued by the Company to certain creditors on the Effective Date:
(a) Two unsecured, non-interest bearing promissory notes in an aggregate
original principal amount of $1,312,000 (the "Class 5 Notes") to
settle the claims of a construction company and title company. Initial
payments aggregating $552,000 were made on the Effective Date. The
balance of the first Class 5 Note is payable in five equal semiannual
payments of $125,167 and a sixth and final installment of $50,165. The
balance of the other Class 5 Note was paid in 12 equal monthly
installments of $7,000.
(b) An unsecured, non-interest bearing promissory note in an original
principal amount of $6,500,000 (the "Class 12 Note") to settle claims
of the general unsecured creditors of Riviera, Inc. An initial payment
of $1,000,000 was made on the Effective Date and the balance is
payable in semiannual installments of $750,000.
(c) An unsecured, non-interest bearing promissory note in an original
principal amount of $8,000,000 (the "Class 13/14 Note") to settle the
claims of Meshulam Riklis, the sole shareholder of Riviera, Inc., and
his affiliates. The Class 13/14 Note is payable in semiannual
installments of $250,000 until the Class 12 Note is paid in full, and
commencing on the next payment date thereafter in semiannual
installments of $750,000.
The Class Notes, which had an aggregate face value of $20,012,000 and
were reduced by $2,602,000 of payments required to be made on or about
the Effective Date, have been discounted at a rate of 16.8% to
$10,566,000 which brings the effective interest rate to an estimated
market rate of interest for such Class Notes.
-12-
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth selected financial information for the
Company and its predecessor as of December 31, 1991, 1992, 1993, 1994 and 1995
and March 31, 1996, and for each of the years ended December 31, 1991, 1992,
1994 and 1995, for the six months ended June 30, 1993 and December 31, 1993, and
the three months ended March 31, 1995 and 1996, and should be read in
conjunction with the Financial Statements and the related Notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other information included elsewhere this prospectus.
The selected financial data as of December 31, 1991, 1992, 1993, 1994 and
1995 and for each of the years ended December 31, 1991 and 1992, the six months
ended June 30, 1993 and December 31, 1993 and the years ended December 31, 1994
and 1995 have been derived from the audited financial statements of the Company
and the Predecessor. The selected financial data as of March 31, 1996 and for
the three months ended March 31, 1995 and March 31, 1996 have been derived from
the Company's unaudited financial statements which, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments,
that the Company considers necessary for a presentation of the results of
operations and financial condition. The results of operations for the
three-month period ended March 31, 1995 and the three month period ended March
31, 1996 are not necessarily indicative of the results to be expected for the
full year.
<TABLE>
<CAPTION>
Years Ended Six Months Ended Years Ended Three Months Ended
December 31, June 30, Dec. 31, Dec. 31, Mar. 31,
1991 1992 1993 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
(Predecessor) (Predecessor) (Successor) (Successor) (Successor) (Successor)
Statements of Operations and Other Data: (Dollars in Thousands)
Operating revenues, Net
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Casino $ 82,769 $ 75,975 $ 38,073 $ 41,158 $ 82,060 $ 77,337 $ 19,152 $ 20,165
Rooms 34,285 33,474 17,614 17,808 35,422 39,450 10,467 11,257
Food and beverage 23,352 22,557 11,6562 11,760 22,961 21,895 5,526 5,828
Entertainment 19,949 19,046 8,059 8,422 16,945 14,423 2,264 5,525
Other 6,969 8,369 4,116 4,230 9,390 9,515 2,553 2,584
Less promotional
allowances (14,946) (14,919) (6,816) (7,157) (12,857) (11,873) (2,766) (3,636)
-------- -------- ------- ------- -------- -------- ------- -------
Total operating
revenues 152,378 144,502 72,702 76,220 153,921 150,747 37,196 41,723
------- ------- ------ ------ ------- ------- ------ ------
Depreciation and
amortization 14,123 13,230 2,622 2,399 5,674 6,811 1,595 1,888
Operating income (loss) (952) (76,608)1 8,260 8,767 19,919 20,980 5,829 6,543
Interest expense 22,5112 4342 2,8322 6,382 12,764 12,453 3,140 3,061
Net income (loss) (40,812)2 (80,905)1,2 5,6282 2,607 4,790 6,344 1,909 2,473
Ratio of earnings
to fixed charges Footnote 3 Footnote 3 2.99x3 1.41x 1.60x 1.78x 1.93x 2.23x
Capital expenditures 3,161 3,133 1,478 4,307 8,933 7,836 1,899 2,235
</TABLE>
<TABLE>
<CAPTION>
At December 31, At December 31, At Mar. 31,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(Predecessor) (Predecessor) (Successor) (Successor) (Successor) (Successor)
Balance Sheet Data
<S> <C> <C> <C> <C> <C> <C>
Total Assets $227,611 $ 145,631 $143,704 $151,925 $157,931 $162,823
Long-term debt
(including
current portion) 142,259 133,255 114,540 110,171 108,249 108,316
Equity (deficit) ( 33,453) ( 114,358) 15,149 19,938 26,282 28,755
- ---------------------
<FN>
1 Includes a recognized loss on permanent impairment of assets in the
amount of $85,221.
2 There was no accrual of interest on the Riviera Notes or other unsecured
debt subsequent to December 18, 1991. If accrued, interest expense on these
obligations for the years ended December 31, 1991 and 1992 would have
totaled $23,334 and $21,411 respectively. If accrued, interest expense on
these obligations for the six months ended June 30, 1993 would have totaled
$10,397.
3 The ratio for fiscal 1991 and 1992 have been omitted because earnings were
not sufficient to cover fixed charges. The coverage deficiency was $40,883
($41,706 if interest was not stayed), and $80,905 ($101,882 if interest was
not stayed), respectively. If interest would have been accrued on the
Riviera Notes or other unsecured debt for the six months ended June 30,
1993 earnings would have been inadequate to cover fixed charges by $1,937.
For the purpose of computing the ratio of earnings to fixed charges,
"earnings" consist of income before fixed charges and income taxes,
adjusted to exclude interest capitalized, and "fixed charges" consist of
interest cost, amortization of debt expense, amortization of bond discount
and capitalized interest.
</FN>
</TABLE>
-13-
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended Six Months Ended Years Ended Three Months Ended
Dec. 31, Dec. 31, June 30, Dec. 31, Dec. 31, Dec. 31, March 31, Mar. 31,
1991 1992 1993 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
(Predecessor) (Predecessor) (Predecessor) (Successor) (Successor) (Successor) (Successor) (Successor)
Earnings:
Pre-tax income
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(loss) ($40,812) ($80,905) $ 5,628 $ 2,607 $ 7,665 $9,676 $ 2,914 $3,759
Fixed charges 1 23,748 434 2,832 6,382 12,764 12,453 3,140 3,061
Less: capitalized
interest (71) 0 0 0 0 0 0 0
------- -------- ------- ------ ------- ------ ------ -----
Earnings available
for fixed charges (17,135) (80,471) 8,460 8,989 20,429 22,129 6,054 6,820
-------- -------- ----- ----- ------ ------ ----- -----
Ratio of earnings
to fixed charges 2 2 2.99x 3 1.41x 1.60x 1.78x 1.93x 2.23x
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
On June 30, 1993, the Company and ROC acquired all the assets and assumed
all the liabilities of the Hotel & Casino from Riviera, Inc. ROC assumed
responsibility for operations commencing on July 1, 1993. The discussion that
follows is a review of the operations of the Hotel & Casino operated by Riviera,
Inc. (Predecessor) for the period January 1, 1993, through June 30, 1993, and
the Company (Successor) for the period July 1, 1993, through December 31, 1995.
During 1994 and 1995, management promoted the Hotel & Casino to appeal to
the mid-level gaming customer, placing particular emphasis on the slot customer.
This entailed a reexamination of the marketing program and a reduction of
exposure to volatile segments of the gaming business such as baccarat and race
and sports betting. As a result, high cost entertainment and promotional
packages were curtailed. The Hotel & Casino nevertheless remains subject to
intense competitive pressures in its key markets.
- ------------------
1 Includes interest expense, amortization of debt expense, amortization of
bond discount and capitalized interest.
2 Earnings are inadequate to cover fixed charges by $40,883,000 ($41,706,000
if interest was not stayed) and $80,905,000 ($101,882,000 if interest was
not stayed) for the years ended December 31, 1991 and 1992, respectively.
3 If interest would have been accrued on the Riviera Notes or other unsecured
debt for the six months ended June 30, 1993, earnings would have been
inadequate to cover fixed charges by $1,937,000.
-14-
<PAGE>
The following table sets forth certain operating information for the Hotel
& Casino for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, Dec. 31, Combined March 31, March 31,
1993 1993 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Predecessor) (Successor) (Successor) (Successor) (Successor) (Successor) (Successor)
(Dollars in Thousands)
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Casino $38,073 $41,158 $79,231 $82,060 $77,337 $19,152 $20,165
Rooms 17,614 17,808 35,422 35,422 39,450 10,467 11,257
Food and
Beverage 11,656 11,760 23,416 22,961 21,895 5,526 5,828
Entertainment 8,059 8,421 16,480 16,945 14,423 2,264 5,525
Other 4,116 4,230 8,346 9,390 9,515 2,553 2,584
Total Revenues 79,518 83,377 163,895 166,778 162,620 39,962 45,359
Less promotional
allowances 6,816 7,157 13,973 12,857 11,873 2,766 3,636
Net revenues 72,702 76,220 148,922 153,921 150,747 37,196 41,723
Costs and Expenses:
Casino 24,561 25,532 50,093 48,826 45,325 11,102 12,407
Rooms 8,339 8,456 16,795 17,594 18,787 4,719 4,667
Food and
Beverage 7,427 7,796 15,223 15,588 15,768 3,911 3,922
Entertainment 7,051 7,897 14,948 13,982 10,329 1,582 3,723
Other 1,737 1,839 3,576 3,516 3,527 892 971
Selling, general
and
administrative 12,353 13,427 25,780 27,831 28,742 7,224 7,460
Provision for bad
debts 354 107 461 991 478 342 143
Total Costs and
Expenses 61,822 65,054 126,876 128,328 122,956 29,772 33,293
EBITDA 1 $10,880 $11,166 $22,046 $25,593 $27,791 $7,424 $8,430
Cash Flow from
Operating Activities 8,518 766 9,284 16,372 16,738 8,010 7,055
Net Income (Loss) $5,629 $2,607 $8,236 $4,790 $ 6,344 $1,909 $2,473
</TABLE>
Comparison of Three Months Ended March 31, 1996 Versus the Three Months Ended
March 31, 1995
Revenues
Net revenues increased $4,527,000 (12.2%) to $41,723,000 for the three
months ending March 31, 1996, compared to the quarter ended March 31, 1995.
Total casino revenues increased $1,013,000 (5.3%). Slot revenues increased
$1,519,000 (12.6%) for the three months ended March 31, 1996 compared to the
quarter ended March 31, 1995, due to an increase in promotional programs
directed at
- -------------------
1 "EBITDA" consists of earnings before interest, taxes, depreciation,
amortization, and loss on permanent impairment of assets and reorganization
expenses. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance, or to
cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity.
Management believes that EBITDA gives an indication of the cash generating
capacity of the Hotel & Casino and is useful as a comparison with other
industry participants.
-15-
<PAGE>
the slot player. Table games revenue, including baccarat, decreased $726,000
(11.9%) from the prior year. The cash drop2 increase of $723,000 was partially
offset by a decrease in credit drop of $557,000 resulting in a net increase of
$166,000 (.5%). The win percentage3 decreased from 17.8% to 15.6%. The increase
in drop represents an increase in win of $29,000 and the decrease in win
percentage represents a decrease in win of $755,000. The increase in drop is
attributable to special events marketing programs, and the decrease in win
percentage is due to the normal fluctuations in table games. Room revenues
increased $790,000 (7.6%) to $11,257,000 in the first quarter of 1996 as
compared to 1995 and the average room rate increased $1.68. Occupancy increased
to 98.8% in 1996 from 95.4% in 1995. First quarter business mix indicates an
increase of 8,000 room nights for vacationers, an increase of 8.6% over first
quarter 1995. Food and beverage revenues increased $302,000 (5.5%) due primarily
to increased covers in the bars and the buffet. Entertainment revenues increased
$3,261,000 from $2,264,000 in first quarter 1995 to $5,525,000 in 1996. The
Splash production show was closed in the first half of 1995 and accounted for
$2,854,000 of the increase in entertainment revenues. Promotional allowances
increased $870,000 (31.5%) because of additional show ticket complimentaries
offered to promote the Splash II production show, and also because of additional
casino and slot marketing programs.
Costs and Expenses
Total costs and expenses increased $3,521,000 (11.83%) in the three months
ended March 31, 1996, as compared to 1995. Casino expense increased $1,305,000
(11.8%) as the result of increased promotional allowances and additional special
events marketing. Entertainment costs increased $2,141,000 (135.3%) due
primarily to Splash II expenses of $2,300,000 in 1996 compared to the absence of
Splash expense in 1995. Splash II is operated under a "four wall" agreement,
whereby the producer manages and produces the show, paying a fee/share of
revenues to the Company. The provision for bad debts decreased $199,000 (58.2%)
as a result of the reduction in credit play in the casino, primarily the Mexican
baccarat player.
EBITDA
Earnings before depreciation, interest, taxes, and amortization increased
$1,006,000 (13.6%) to $8,430,000 in the first quarter of 1996 compared to 1995.
The increase resulted primarily from increased slot, rooms and entertainment
revenues.
Net Income
The Company reported a net income of $2,473,000 in the first quarter of
1996 as compared to $1,909,000 during the same period in 1995, an increase of
$564,000 (29.6%). Depreciation and amortization increased $293,000 due to
capital improvements that were made since the first quarter of 1995. Federal
income tax expense increased $281,000 in the three months ended March 31, 1996.
- --------
2 "Historical Drop" as defined by the regulations of the Nevada Gaming
Commission and Gaming Control Board (which is an approximate measure of
funds exchanged into chips for use at the Hotel & Casino less credit
instruments repaid at the gaming tables).
3 Win percentage is calculated by dividing table games revenue by Historical
Drop.
-16-
<PAGE>
Comparison of Twelve Months Ended December 31, 1995, Versus Twelve Months Ended
December 31, 1994
Revenues
Net revenues for the Hotel & Casino decreased $3,174,000 (2%) to
$150,747,000 in 1995. Although slot machine revenues increased $1,298,000 (3%)
in 1995, table games revenue decreased $5,906,000 (23%) from $25,824,000 in 1994
to $19,918,000 in 1995. Historical drop4 decreased $23 million from $141 million
in 1994 to $118 million in 1995. Credit drop5 decreased $9 million during 1995.
Baccarat drop decreased $4.6 million due to more stringent credit policies
because of the devaluation of the Mexican Peso. The decrease in baccarat drop
represents 38% of the total decrease in pit drop and was the primary reason for
the reduced credit drop. The win percentage6 on table games decreased from 18.3%
in 1994 to 16.9% in 1995. The lower historical drop represents a decrease in win
of $4,252,000 and the decrease in hold percentage of 1.4% represents a decrease
in win of $1,654,000. The fluctuation in win percentage is attributable to the
normal fluctuations in table games and the reduced historical drop was due to
less high roller credit play and the decrease in non-profitable programs such as
the Gambler's Spree. Hotel room occupancy remained at 97% in 1995 and the
average daily room rate increased $5.60, resulting in an increase in revenues of
$4,028,000 (11%) to $39,450,000. The higher room rates were achieved by across
the board increases. This was facilitated by increasing the number of rooms made
available for vacationers and convention guests and reducing the rooms available
for casino guests. Food and beverage revenues decreased $1,066,000 (5%) due to
reduced complimentary revenues (promotional allowances). Entertainment revenues
decreased $2,522,000 (15%) as a result of the Splash production show being
closed during the first half of 1995. The new show, Splash II, opened June 23,
1995 after the stage and seating areas were remodeled.
Costs and Expenses
Total costs and expenses decreased $5,372,000 (4%) compared to 1994. Casino
expenses decreased $3,501,000 (7%) due to more stringent customer rating
criteria for complimenters, airfares and commissions and a reduction in direct
costs in correlation with the lower casino drop. Rooms expenses increased
$1,193,000 (7%) due to union increases and higher credit card and travel agent
commissions associated with the increased revenues. Entertainment expenses
decreased $3,653,000 due primarily to the closure of the Splash production show
during the first six months of 1995. Selling, General and Administrative
expenses increased $911,000 (3%) due, in part, to employee profit sharing and
incentive plans which are based upon profits. The provision for bad debts
decreased $513,000 (52%) as a result of the more stringent credit policies
associated with the devaluation of the Mexican Peso in 1994.
EBITDA
Earnings before interest, taxes, depreciation and amortization (EBITDA),
increased $2,198,000 (9%) from $25,593,000 in 1994 to $27,791,000 in 1995. The
increase resulted primarily from higher rooms and slot department revenues and
margins.
- ---------------------
4 "Historical Drop" as defined by the regulations of the Nevada Gaming
Commission and Gaming Board (which is an approximate measure of cash and
credit instruments exchanged into chips for use at the Hotel & Casino's
table games, less credit instruments repaid at the gaming tables).
5 "Credit Drop" includes all credit instruments issued at the gaming tables
in exchange for chips, less credit instruments repaid at the gaming tables.
See "Item 1-Business-Credit" for additional information.
6 "Win Percentage" is calculated by dividing table games revenue by
Historical Drop.
-17-
<PAGE>
Net Income
The Company reported an increase of $1,554,000 (32%) in net income from
$4,790,000 in 1994 to $6,344,000 in 1995. Depreciation and amortization
increased $1,137,000 as the result of $7,836,000 in capital improvements.
Interest expense decreased $310,000 in 1995 as compared to 1994 as debt was
reduced by $3,371,000 in 1994 and $3,159,000 in 1995.
Comparison of Twelve Months Ended December 31, 1994 Versus the Twelve
Months Ended December 31, 1993 (First Six Months of 1993 [Predecessor] and Six
Months Ended December 31, 1993 [Successor])
Revenues
Net revenues for the Hotel & Casino increased $5,086,000 (3%) to
$154,431,000 in fiscal 1994 compared to 1993. Slot revenues increased $4,082,000
in 1994 as compared to the previous year. Although slot coin-in (handle)
increased 7%, the win percentage for slot machines decreased from 6.5% in 1993
to 6.1% in 1994. Management "loosened" the slots to meet the competition from
the new mega- resorts and to support the future expansion of slot operations.
Table games revenue decreased $825,000 from $26,648,000 in 1993 to $25,823,000
in 1994. Historical drop decreased from $161,482,000 in 1993 to $141,046,000 in
1994, including credit drop, which decreased $7,279,000 during 1994. The win
percentage on table games increased from 16.5% in 1993 to 18.3% in 1994. The
lower historical drop represents a decrease in win of $3,372,000 which was
partially offset by the increase in win percentage which represents win of
$2,547,000. The fluctuation in win percentage is attributable to the normal
fluctuations in table games and the reduced historical drop was due to reduced
promotional expenditures for craps and blackjack customers. Other casino
revenues decreased $428,000 (9%) due to competition from the mega-resorts for
racebook and keno customers. Management has instituted a racebook discount club
and keno promotions to meet the competition. Hotel room occupancy increased from
94% in 1993 to 97% in 1994, however the average daily room rate decreased $1.88,
resulting in revenues of $35,422,000 in 1993 and 1994. During 1994, management
shifted the emphasis of rooms marketing programs from conventions to slot
customers and tour and travel guests to increase the gaming profile of the
customer mix. Food and Beverage revenues decreased $455,000 (2%) due to reduced
complimentary revenues (promotional allowances). Entertainment revenues
increased $465,000 (3%) as a result of ticket price increases for Splash, La
Cage, Crazy Girls and Riviera Comedy Club (formerly Improve) which averaged
$2.30. Show counts were down approximately 70,000 (8%) due to the increased
prices and the temporary closure of Splash on November 26, 1994. Other revenues
increased $1,131,000 (13%) primarily from increased fees from the box office
which began selling shows for other hotels and tours in September 1993 and from
renegotiated leases and concession contracts. Promotional allowances decreased
$1,116,000 (8%) in 1994 as a result of the Company's more stringent
complimentary policies which were implemented in late 1993.
Costs and Expenses
Total costs and expenses increased $1,452,000 (1%) compared to 1993.
Payroll in the rooms, food and beverage departments increased $766,000 (3%) as
the result of union increases. Employee profit sharing and incentive plans which
are based upon the Company's profitability increased during 1994. Casino
expenses decreased $1,267,000 due to more stringent customer rating criteria for
complimenters, airfares and commissions. The lower casino marketing expenses
were partially offset by increases in the provision for bad debts relating to
the devaluation of the Mexican Peso in December 1994. Entertainment expenses
decreased $966,000 due primarily to the four wall contract negotiated with
-18-
<PAGE>
the producers of Splash. Under the four wall agreement, the producers manage and
produce the show, paying a fee/share of revenues to the Company.
EBITDA
Earnings before interest, taxes, depreciation and amortization (EBITDA),
increased from $22,046,000 in 1993 to $25,593,000 in 1994. The increase resulted
primarily from higher casino revenues, and reduced promotional expenses. These
improvements were partially offset by union increases to employees and incentive
compensation to management personnel under previously established plans based on
the Company's performance.
Net Income
The Company reported a net profit of $4,790,000 in 1994, as compared to
$8,236,000 in 1993. Depreciation and amortization increased $654,000 as the
result of $8,933,000 in capital improvements. Interest expense increased
$3,550,000 in 1994 as compared to 1993 primarily because the accrual of interest
on certain bonds issued by the Company's predecessor had been stayed until the
Effective Date (June 30, 1993). Federal income tax expense increased $2,875,000
in the twelve months ended December 31, 1994, including $2,010,000 of deferred
taxes. The Company's predecessor had operating loss carry forwards and was an S
Corporation, therefore, no Federal income taxes were accrued in the six months
ended June 30, 1993. No provision for income tax was required during the six
months ended December 31, 1993, due to the realization of a deferred tax asset.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $27,887,000 at March 31, 1996,
which was an increase of $5,925,000 from the balances at the year ended December
31, 1995. Significant debt service on the bonds and class notes are due in June
and December and should be considered in evaluating cash increases in the first
and third quarters.
EBIDTA for the three months ended March 31, 1996 and the year ended
December 31, 1995 was $8,430,000 and $27,791,000, respectively, which was
adequate to cover the Company's debt service and capital expenditures. Current
projections of EBITDA for 1996 are modestly in excess of 1995 and management
believes that sufficient cash flow will be available to cover the Company's debt
service and enable investment in budgeted capital expenditures of approximately
$11,165,0000 for 1996. However, if cash flow does not meet projections,
management would defer capital expenditures. In the first three months of 1996
the Company made capital expenditures of $2,235,000.
The following table sets forth the scheduled cash payments required to be
made by the Company in respect of principal and interest on the First Mortgage
Notes, the Class Notes, and other debts for each year through the maturity dates
of the First Mortgage Notes and the Class Notes as of December 31, 1995.
-19-
<PAGE>
Pre Funded
Slot
Annuities
Total Included in
Principal Principal
Year Interest Principal and Interest Payments
- ---- -------- --------- ------------ --------
1996 $12,061,000 $2,322,000 $14,383,000 $318,000
1997 11,812,000 2,055,000 13,867,000 318,000
1998 11,619,000 1,880,000 13,499,000 217,000
1999 11,425,000 1,844,000 13,269,000 117,000
2000 11,209,000 1,898,000 13,107,000 68,000
2001 11,019,000 572,000 11,591,000 0
2002 11,000,000 100,000,000 111,000,000 0
---------- ----------- ----------- ---------
$80,145,000 $110,571,000 $190,716,000 $1,038,000
Cash flow from operations is not expected to be sufficient to pay the
principal of the First Mortgage Notes at maturity in 2002. Accordingly, the
ability of the Company to repay the First Mortgage Notes at maturity will be
dependent upon its ability to refinance the First Mortgage Notes. There can be
no assurance that the Company will be able to refinance the principal amount of
the First Mortgage Notes.
The First Mortgage Notes may not be redeemed except as set forth below
prior to June 1, 1998, and thereafter, may be redeemed at the option of the
Company at the following prices (expressed as a percentage of principal amount):
If redeemed during the 12-month period beginning June 1,
Year Percentage
---- ----------
1998 104.3125%
1999 102.8750%
2000 101.4375%
2001 and thereafter 100.0000%
The First Mortgage Notes provide for mandatory redemption by the Company
upon the order of the Nevada Gaming Authorities. The First Mortgage Notes also
provide that, in certain circumstances, the Company must offer to repurchase the
First Mortgage Notes upon the occurrence of a change of control or certain other
events. In the event of such mandatory redemption or repurchase prior to
maturity, the Company would be unable to pay the principal amount for the First
Mortgage Notes without a refinancing.
During the reorganization proceeding of Riviera, Inc., certain capital
expenditures were deferred. Management considers it important to the competitive
position of the Hotel & Casino that expenditures be made to upgrade the
property. Capital expenditures totaled approximately $5,786,000 in 1993,
$8,933,000 in 1994 and $7,836,000 in 1995. Management has budgeted $11,165,000
in 1996 that the Company expects to finance from cash flow.
-20-
<PAGE>
The Indenture imposes certain financial covenants and restrictions on the
Company and ROC, including a minimum consolidated net worth requirement and
limitations on the payment of dividends, the incurrence of debt and granting of
liens, capital expenditures and mergers and sales of assets. As a result of
these restrictions, the ability of the company and ROC to incur additional
indebtedness to fund operations or to make capital expenditures is limited. In
the event that cash flow from operations is insufficient to cover cash
requirements, the Company and ROC may not be able to obtain additional funds.
The Company and ROC would be required to curtail or defer certain of their
capital expenditure programs under these circumstances, which could have an
adverse effect on the Company's operations.
Effective September 8, 1995, the Board of Directors and holders of 94% of
the Company's 11% Mortgage Notes ("Notes") approved amendments to certain Note
restrictive covenants. Noteholders who consented to the amendments received a
$5.00 fee for each $1,000 of Notes.
The amendments are designed to permit the Company's management team to
utilize its expertise in turning around troubled gaming properties which are
either in, or on the verge of, bankruptcy and managing casinos in so-called "new
venues. The Company would expect to make a limited investment and obtain a
profit based management contract in properties with which it becomes involved.
Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121 ("SFAS 121") Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for fiscal years beginning after December 15,
1995. Based on management's preliminary analysis, the Company, does not
anticipate that the adoption of SFAS 121 will have a material impact on the
consolidated financial statements.
In October 1995, the FASB issued Statement No. 123 ("SFAS 123") Accounting
for Stock-based Compensation which establishes financial accounting and
reporting standards for stock-based employee compensation plans and for
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. SFAS 123 is generally effective for fiscal years
beginning after December 15, 1995. The Company intends to provide the pro forma
and other additional disclosures about stock-based employee compensation plans
in its 1996 consolidated financial statements as required by SFAS 123.
BUSINESS
General
Riviera Holdings Corporation, a Nevada corporation (the "Company"),
operates the Riviera Hotel & Casino (the "Hotel & Casino") through its
wholly-owned subsidiary, Riviera Operating Corporation, a Nevada corporation
("ROC"). The Hotel & Casino is located on a 26-acre site at the north end of the
heavily-traveled Las Vegas Strip, directly across from Circus Circus. The Hotel
& Casino began operations in 1955 and was substantially renovated and expanded
in the years prior to 1990. The Hotel & Casino complex consists of approximately
1,700,000 square feet and includes a 105,000 square-foot casino, a 100,000
square-foot convention, meeting and banquet facility, approximately 2,100 hotel
rooms (including 180 luxury suites), five full-service restaurants, four
showrooms, a 200 seat entertainment lounge, 44 food and retail concessions and
approximately 2,900 parking spaces. The casino offers approximately 1,200 slot
machines, 54 gaming tables, a 58-seat keno lounge and a 200-seat race and
-21-
<PAGE>
sports book lounge. Consistent with its emphasis on slot machine play, the
casino has a large variety of slot and video poker devices designed to appeal to
a wide variety of customers, including a number of machines designed
specifically for use at the Hotel & Casino.
The Hotel & Casino's room occupancy rates (including both paid and
complimentary rooms) were 97.2% in 1994 and 97.0% 1995. Complimentary rooms
represented 6.0% and 5.1% of total room occupancy, respectively. Based on the
Nevada Gaming Abstract published by the Gaming Board, occupancy rates for 19
similar hotel-casinos on the Las Vegas Strip ranged from 95.5% in 1994 to 94.1%
in 1995 (based on June 30 fiscal years).
Seasonality
The operations of the Hotel & Casino are conducted 24 hours a day, every
day of the year. Management considers the business of the Hotel & Casino to be
moderately seasonal, with December generally being the slowest month.
Business Strategy
A new management team was installed in early 1992. This new team
implemented a business strategy which changed the focus of the Hotel & Casino
from dedicated gamblers to customers seeking a broader entertainment experience
which includes gaming. In accordance with this new strategy, the management team
repositioned the Hotel & Casino to appeal to slot customers and profitable
mid-level table games customers. Prior to implementing this strategy, the Hotel
& Casino had focused on attracting disparate segments of the gaming market,
including high-end table games customers (particularly baccarat players) as well
as "junket" and low-end table games customers. While the marketing efforts of
the Hotel & Casino, prior to the implementation of the new business strategy,
were directed to the Eastern and Midwestern United States as well as certain
foreign countries, a substantial portion of the visitors to Las Vegas lived in
the Southwestern United States and Southern California. Consequently, the new
management team redirected the marketing efforts to focus primarily on the
Southwestern United States and Southern California in order to increase the
Hotel & Casino's share of customers from these areas. Also, the new management
team initiated aggressive promotional programs to attract competitors' slot
customers already frequenting Las Vegas.
A Broad Entertainment Experience
Management is seeking to attract customers who want a broad entertainment
experience. For certain customers, gaming is the primary draw and other
entertainment is secondary. Entertainment includes the variety show Splash II,
La Cage, Crazy Girls, Riviera Comedy Club and Bottoms Up, all of which are
augmented by special events and in-house promotions. The Splash Theater was
closed December, 1994, in order to remodel the stage and showroom for the new
Splash II which opened June 23, 1995.
Emphasis on Slot Play
Since 1992 slot play at the Hotel & Casino has been increased by replacing
old slot machines, installing bill acceptors on slot machines, introducing slot
clubs and tournaments, creating a friendly atmosphere and providing improved
service to slot customers. In order to improve the overall comfort level of its
slot customers, management has added hosts to serve players in slot machine
areas, and promotional programs to attract incremental slot players.
-22-
<PAGE>
Reduce Revenue Volatility
In order to reduce the volatility of the financial performance of the Hotel
& Casino, management has taken steps to establish the Hotel & Casino as being in
the "gaming" business rather than the "gambling" business. Management has taken
several measures to accomplish this transition from gambling to gaming. Table
limits and credit amounts were significantly reduced for baccarat in order to
reduce exposure to high-risk play. The sports book's operations were turned over
to a third-party operator in 1992, which has reduced the casino's exposure to
high-risk sports betting. The Race book is part of the parimutuel system for
available tracks, thereby significantly reducing fluctuations in revenue by
eliminating big losses on single races.
Reconfigure Public Areas
The casino was reconfigured to accommodate the new business strategy. In
addition to replacing old slot machines and installing bill acceptors, the
Company reduced the size of the baccarat area, and relocated it to the main pit
of the casino. Also, the gaming area was reconfigured to improve the flow of
customer traffic. In order to capitalize on a substantial amount of unused space
in the facility, several retail shops and various concessions were added. These
shops and concessions provide additional rental income to the Hotel & Casino.
Focus on Repeat Customers
Generating customer satisfaction and retaining their loyalty is a critical
component of management's business strategy. The Hotel & Casino attracts
customers from its primary markets by: 1) promotional programs, 2) focused
marketing efforts, 3) developing strong relationships with specific travel
wholesalers and 4) repeat visitors. The percentage of repeat hotel room guests
increased from 37% in 1994 to 38% in 1995.
Walk-in Customers
Walk-in customers are those who patronize a facility's casino but are not
room guests of its hotel. Management believes that a number of factors may
favorably affect the volume of walk-in business at the Hotel & Casino. These
factors include the location of the Hotel & Casino across the street from Circus
Circus and the Stardust Hotel, and being within walking distance of the Las
Vegas Convention Center. In addition, management believes that walk-in business
may be increased by the extensive entertainment attractions at the Hotel &
Casino, the design and atmosphere of its casino area and the quality, pricing
and variety of its restaurants.
Focus on Convention Customers
The Hotel & Casino has over 100,000 square feet of convention space which
is the fifth largest convention facility in Las Vegas. The increase in number of
hotel rooms at the south end of the Las Vegas Strip has created severe traffic
congestion in that area making the Hotel & Casino at the north end of the Strip
a far more convenient location for convention attendees. City-wide convention
visitors will pay a premium room rate for this convenience. Management has
focused its efforts on attracting convention attendees who will also patronize
the casino, entertainment and food and beverage services of the Hotel and
Casino.
-23-
<PAGE>
Marketing
General
The operating revenues and income of the Hotel & Casino depend upon the
level of gaming activity in the casino as well as optimizing the profits from
food and beverage, lodging, convention facilities, entertainment and retail
operations. Accordingly, the goal of the marketing efforts of the Hotel & Casino
is to attract hotel guests and gaming customers. The entertainment, food,
beverage and other related services are intended to complement the casino
operations. The Hotel & Casino has one of the most extensive entertainment
programs in Las Vegas, offering five different regularly scheduled shows and
special appearances by headline entertainers in concert. Splash II, a 90-minute
production variety show, is presented twice each night, seven nights per week
(The Splash Theater was closed December 1994, in order to remodel the stage and
showroom for the new Splash II which opened June 23, 1995.). The Riviera Comedy
Club, a one-hour stand-up comedy show, is presented two times per night on five
nights per week, and three times per night on two nights per week. La Cage, a
90-minute female star impersonator show, is presented two times per night on
four nights per week, and three times per night on Wednesday and Saturday. Crazy
Girls, an adult-oriented production is presented two times per night on five
nights per week, and three times per night on Saturday. Bottoms Up, an afternoon
comedy review, is presented two times per day, five days per week. In addition,
the Hotel & Casino sponsors special events, such as the Las Vegas Bowl football
game and presents major concerts, such as The Beach Boys, in order to promote
itself to the general public.
While it is impracticable to distinguish accurately between local and
tourist clientele, management believes that a substantial percentage of the
casino business at the Hotel & Casino is derived from tourists, principally from
Southern California and the Southwestern United States.
Management's strategy is to target customers in the mid-level gaming
segment. The Hotel & Casino has adopted a marketing approach intended to develop
a loyal following of repeat customers. The key element of this approach is the
tailoring of promotional offers to match the specific requirements and
circumstances of targeted customers. This approach is achieved through the use
of a proprietary database marketing system for table games customers, and for
tracking slot customers based on a system employing computerized card reader
technology. The casino database system was upgraded to "state of the art" in the
first half of 1995. Each slot and table games customer is encouraged to join a
program which allows the customer to earn various complimentary services and
cash bonuses dependent upon level of gaming play. Slot club program members are
issued club cards and computer systems record certain information about each
member. Promotional offers are then made to customers based on their level of
gaming activity. The promotional offers are conveyed to customers by direct mail
and telemarketing.
Business Mix Strategy
The Hotel & Casino's customers are attracted from the following principal
market segments: vacationers, (tour operators, travel agent groups, travel agent
reservations, individual reservations), slot and casino marketing programs, and
conventions (city wide conventions, associations, corporate, and incentive.) It
is the Hotel's objective to achieve maximum occupancy and room rate, as well as
obtain the most profitable business mix at all times.
-24-
<PAGE>
Vacationers
The principal components of this segment are tour operators who produce
customers primarily from outside the southwest regional market. These customers
take advantage of travel packages (air and room) produced by wholesale
operators. Management has developed specialized marketing programs and has
cultivated relationships with wholesale operators who meet management's criteria
concerning market penetration, reputation, and production. Management has also
developed important relationships with, and specialized programs for, certain
major domestic air carriers and travel agencies to expand the vacationer market.
Slot & Casino Marketing Programs
Various gaming marketing programs are implemented to attract slot and table
game customers which produce room nights and gaming revenue on a consistent,
profitable basis. Discounted room rates are offered to customers who meet
established gaming requirements, which also has produced a large database and
repeat clientele. The Hotel & Casino is marketed to gaming customers through
direct sales by the in-house marketing staff, by independent representatives
located in a number of major cities, and by third-party referrals. These
programs produce significant repeat clientele. The Hotel & Casino has compiled a
computer database to help identify customers requirements and preferences.
$40 For $20 Slot Promotion
This innovative program offers the customer $40 of slot play on promotional
machines for $20 in cash. If the customer does not win a jackpot of at least
$40, a prize with a retail value of at least $40 is awarded. The customer may
select from a wide variety of premiums which the Hotel & Casino purchases in the
Far East.
Conventions
Convention business is generally considered to represent gatherings of
large trade organizations or other groups requiring 500 or more rooms per night
in addition to substantial meeting and banquet space and other facilities.
Included are city-wide events involving multiple locations and smaller events
headquartered and housed at one facility. Convention business, which provides
higher room rates than those offered to tour and travel operators and which is
also mid-week oriented, is a major target for the Hotel & Casino with its
100,000 square feet of exhibit, meeting and banquet space. Convention business
also provides certain advance planning benefits, since planning for conventions
typically begins two to four years in advance of the convention date. The
management team focuses the marketing efforts of the Hotel & Casino to book
those conventions whose participants have the most active gaming profile and
higher room rate, banquet and function spending profiles. A portion of the
convention business of the Hotel & Casino is derived from smaller corporate
meetings (those requiring fewer than 500 rooms per night) and corporate
incentive programs (travel packages produced by third parties for corporations
desiring to motivate and reward their employees). The Hotel & Casino is located
within walking distance of the Las Vegas Convention Center which increases the
Riviera's attractiveness to visitors who want to avoid the strips traffic
congestion particularly around the mega-resorts at the south end of the Las
Vegas Strip.
Credit
The percentage of table games volume at the Hotel & Casino represented by
credit play declined from approximately 20% in 1994 to 17% in 1995. The
continuing decline was the result of the
-25-
<PAGE>
application of stricter credit policies and a reduction of baccarat table
limits. The decline also resulted from the decision of the management team at
the Hotel & Casino to redirect its business away from high- level wagerers and
to focus, instead, on the mid-level wagerer segment of the casino business.
Because the extension of credit is necessary for the success of a marketing
strategy aimed at high-level wagerers but is not as necessary for success with
mid-level wagerers, management expects that providing credit, and risks
associated with possible losses on uncollectible and discounted receivables,
will become less significant to the Hotel & Casino. However, because management
intends to maintain a balanced marketing strategy which will include some level
of credit being extended, providing credit and the risks associated therewith
will remain significant.
Receivables from casino operations declined from approximately $3,850,000
on December 31, 1994 to approximately $2,600,000 on December 31, 1995. In
addition, the allowance for bad debts from casino operations declined from
approximately $1,100,000 on December 31, 1994, to approximately $500,000 at
December 31, 1995. These declines resulted primarily from the imposition of
stricter credit standards as a result of the redirection of marketing efforts
from high-level to mid-level wagerers. There was an increase in the allowance
for casino bad debts of approximately $500,000 in the fourth quarter of 1994 due
to the devaluation of the Mexican peso and its effect on collectability. During
1995, substantially all of the remaining uncollected Mexican accounts were
written off.
Management maintains controls over the issuance of credit and aggressively
pursues collection of its customer receivables. Such collection efforts parallel
those procedures commonly followed by most large corporations, including the
mailing of statements and delinquency notices, personal and other contacts, the
use of an outside collection agency, civil litigation and criminal prosecution,
if warranted. Nevada gaming debts evidenced by credit instruments, and judgments
enforcing such instruments, are enforceable under the laws of Nevada and certain
other jurisdictions, but are not enforceable in certain states and foreign
countries because of public policy considerations against gaming. All states are
required to enforce a judgment on a gaming debt entered in Nevada pursuant to
the Full Faith and Credit Clause of the United States Constitution and, although
foreign countries are not so bound, the assets in the United States of foreign
debtors may be reached to satisfy judgments entered in the United States.
However, in some instances it may be impractical or uneconomical to pursue the
enforcement of such judgments.
Operations
The Hotel & Casino maintains controls over the recording and safekeeping of
all receipts and disbursements through various means, including locked cash
boxes, personnel independent of casino operations performing daily cash and coin
counts, floor observation of the gaming area, closed-circuit television
observation of gaming and certain other areas, computer tabulation of receipts
and disbursements for each gaming machine and table and timely analysis of
discrepancies or deviations from normal performance.
The Hotel & Casino maintains fire insurance and business interruption
insurance, general and excess/umbrella liability insurance policies and offers
its non-bargaining employees the option to choose either a fully indemnified
"HMO" (Health Maintenance Organization) or a self-insured "PPO" (Preferred
Provider Organization) form of employee medical insurance. In addition, all
enrolled non-bargaining employees receive self-insured dental, vision, life and
disability coverage. Management believes that current insurance is adequate to
reasonably cover foreseeable risks for excess liability.
Management believes that the Hotel & Casino is in compliance with all
material fire safety legal requirements. As part of the continued fire safety
review process conducted at the Hotel & Casino,
-26-
<PAGE>
management upgraded the systems in 1994 and 1995, by consolidating two fire
safety control centers into one primary control center and establishing a
separate back-up emergency control center. These improvements, together with the
related expansion of emergency communications systems, enhanced the ability of
the Hotel & Casino to provide a safe facility for its customers.
Competition
The Hotel & Casino competes with a number of other casino-hotels in Las
Vegas. Currently, there are approximately 20 major casinos located on or near
the Las Vegas Strip, nine major casino-hotels located in the downtown area and
several major facilities located elsewhere in the Las Vegas area. Las Vegas
casino square footage and room capacity are continuing to increase, principally
as a result of expansion and new construction projects by casino-hotels located
on or near the Strip. Between September 15, 1989 and December 31, 1992, Las
Vegas hotel and motel room capacity increased by 13,000 rooms (20%) from 63,000
to 76,000 rooms. This increase includes the opening of the 3,000- room Mirage
and the Excalibur. Based on data compiled by a national accounting firm, the
opening of the Mirage and Excalibur did not significantly affect the casino
revenues of a group of 12 casinos (including the Hotel & Casino) on the Las
Vegas Strip.
Three major casino-hotels on the Las Vegas Strip opened in late 1993; the
2,500-room Luxor, the 3,000-room Treasure Island, and the 5,000-room MGM Grand
casino-hotel and theme park, increasing the capacity in Las Vegas to
approximately 85,000 rooms. During 1994, the Hotel and Casino experienced
increases in revenues and profits as the demand for hotel rooms continued to
exceed the supply.
Various other expansion projects have been announced or are in progress
which may affect the business of the Hotel & Casino including New York, New York
(2,500 rooms), Monte Carlo (3,000 rooms), Bellagio ( 3,000 rooms), Stratosphere
(2,500 rooms) and the Circus Circus projects on the South end of the Strip.
Circus Circus has announced that they will be building an additional 1,000 rooms
across from the Hotel & Casino in 1996. William Bennett, former principal owner
of Circus Circus has acquired the Sahara Hotel & Casino and has announced
expansion plans. Many casino-hotels (new and old) in Las Vegas have far greater
capital resources than the Hotel & Casino. Management believes that the new
hotels and "theme" attractions will both increase competitive pressures and
offer opportunities resulting from the increase in visitors to Las Vegas, the
net effect of which cannot be estimated at this time.
Management believes that the most direct competition for the Hotel & Casino
comes from certain large casino-hotels located on or near the Strip which offer
amenities and marketing programs similar to those offered by the Hotel & Casino.
These facilities currently include the Bally's, Flamingo Hilton, Frontier,
Harrah's, Sahara, Sands, Stardust and Tropicana casino-hotels. The Hotel &
Casino competes on the basis of the atmosphere and excitement offered by the
facility, the desirability of its location, the quality and relative value of
its hotel rooms and restaurants, the quality and variety of entertainment
offered, customer service, the availability of convention facilities, its
marketing strategy and special marketing and promotional programs.
The Hotel & Casino also competes to a lesser extent with casino-hotel
operations located in the Laughlin and Reno-Lake Tahoe areas of Nevada, Atlantic
City, New Jersey and other parts of the world and with state-sponsored
lotteries, off-track wagering, card parlors, river boat and Indian gaming
ventures and other forms of legalized gaming in the United States, as well as
with gaming on cruise ships. Certain states have recently legalized, and several
other states are currently considering legalizing, casino gaming in specific
geographic areas within those states. Management believes that the legalization
of
-27-
<PAGE>
large-scale, land-based, unlimited-stakes casino gaming in or near any major
metropolitan area such as Chicago, New Orleans, Denver or, in particular, Los
Angeles, could have a material adverse effect on the Hotel & Casino. Currently,
large-scale, land-based, unlimited-stakes casino gaming is not permitted in any
of these cities, except New Orleans which has authorized the establishment of
one casino which opened on a temporary basis in 1995 and closed shortly
thereafter due to lack of visitor volume and other concerns. The legalization or
expansion of casino gaming in other states from which the Hotel & Casino draws
customers may also adversely affect the business of the property.
Riviera Gaming Management
Riviera Gaming Management Inc. ("RGM", a wholly owned subsidiary of ROC)
was incorporated in August 1995 in the State of Nevada for the purpose of
obtaining management contracts in Nevada and other jurisdictions. Management has
been recognized as a group of professionals who succeeded in bringing the Hotel
& Casino out of bankruptcy and positioning the property for the new and expanded
competition in Las Vegas. Management believes there will be an increasing demand
for their services including assisting new venue licensee applicants in
designing and planning their gaming operations, managing the start-up of new
gaming operations and managing troubled properties. These services would include
casino design, equipment selection, employee recruitment and training, control
and accounting systems, and marketing programs. RGM's compensation arrangements
will be flexible and may include per diem rates, contract sums, profit
participation and equity considerations. The Company's amended bond indenture
permits the Company to invest a limited amount of capital in situations where
RGM will have a management contract.
RGM is negotiating a consulting / management agreement with the bondholders
of Elsinore Corporation which operates the Four Queens Hotel and Casino in Las
Vegas, Nevada. RGM has a consulting agreement with the primary mortgage holder
of the Maxim Hotel and Casino in Las Vegas. These opportunities to assist in the
turnaround of severely troubled properties results from management's reputation
in the area of crisis management and the performance of its flagship property,
the Hotel & Casino on the Strip in Las Vegas, Nevada. The Company believes that
if it has an attractive investment opportunity, which exceeds its financial
capacity it will be able to raise the capital from independent sources.
Employees and Labor Relations
As of December 31, 1995, the Hotel & Casino employed approximately 2,100
persons and had collective bargaining contracts with seven unions covering
approximately 1,300 of such employees including food and beverage employees,
rooms department employees, carpenters, engineers, stage hands, musicians,
electricians, painters and teamsters. The Company's agreements with the Southern
Nevada Culinary and Bartenders Unions, Musicians Union and Stage hands Union,
which cover the majority of the Company's unionized employees, were renegotiated
in 1994 and expire April 1, 1997. Settlements were also reached with the
Operating Engineers. The Teamsters, Carpenters, Painters, and Electricians
unions' collective bargaining agreements which expired in 1995 were renewed and
generally expire in 1998. Although unions have been active in Las Vegas,
management considers its employee relations to be satisfactory. In 1994 the
Company four-walled (rented the showroom to the producer for a fee/share of
revenues or profits) the Splash show and switched from Maitre d' service open
seating to advance sale reserved seating. These changes were negotiated with the
Culinary, Stage hands and Musicians Unions.
-28-
<PAGE>
Regulation and Licensing
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local ordinances and
regulations. The Company's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the
Nevada State Gaming Control Board ("Nevada Board"), and the Clark County Liquor
and Gaming Licensing Board (the "Clark County Board"). The Nevada Commission,
the Nevada Board and the Clark County Board are collectively referred to as the
"Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time and in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
ROC is required to be licensed by the Nevada Gaming Authorities. The gaming
license held by ROC requires the periodic payment of fees and taxes and is not
transferable. ROC is also licensed as a manufacturer and distributor of gaming
devices. Such licenses also require the periodic payment of fees and are not
transferable. The Company is registered by the Nevada Commission as a publicly
traded corporation (a "Registered Corporation") and has been found suitable to
own the stock of ROC which is a corporate gaming licensee under the terms of the
Nevada Act. As a Registered Corporation, the Company is required periodically to
submit detailed financial and operating reports to the Nevada Commission and
furnish any other information which the Nevada Commission may require. No person
may become a stockholder of, or receive any percentage of profits from ROC
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company and ROC have obtained from the Nevada Gaming
Authorities the various registrations, approvals, permits and licenses required
in order to engage in gaming activities and manufacturing and distribution
activities in Nevada.
All gaming devices that are manufactured, sold or distributed for use or
play in Nevada, or for distribution outside of Nevada, must be manufactured by
licensed manufacturers, distributed or sold by licensed distributors and
approved by the Nevada Commission. The approval process includes rigorous
testing by the Nevada Board, a field trial and a determination as to whether the
gaming device meets strict technical standards that are set forth in the
regulations of the Nevada Gaming Authorities. Associated equipment must be
administratively approved by the Chairman of the Nevada Board before it is
distributed for use in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or ROC in
order to determine whether such individual is suitable or should be licensed as
a business associate of a gaming licensee. Officers, directors and certain key
employees of ROC must file applications with the Nevada Gaming Authorities and
may be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of the Company who are
actively and directly involved in the gaming activities of ROC may be required
to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause which
they deem reasonable. A finding
-29-
<PAGE>
of suitability is comparable to licensing, and both require submission of
detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or ROC, the companies involved would have to sever
all relationships with such person. In addition, the Nevada Commission may
require the Company or ROC to terminate the employment of any person who refuses
to file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
The Company and ROC are required to submit detailed financial and operating
reports to the Nevada Commission. Substantially all material loans, leases,
sales of securities and similar financing transactions by ROC must be reported
to or approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by ROC, the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition, the
Company, ROC and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission to
operate the casino and, under certain circumstances, earnings generated during
the supervisor's appointment (except for reasonable rental value of the casino)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of the gaming licenses of ROC or the appointment of a supervisor
could (and revocation of any gaming license would) materially adversely affect
the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of a
Registered Corporation's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of a Registered Corporation's voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman of
the Nevada Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of a Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the Registered Corporation's
corporate charter, bylaws, management, policies or operations of the Registered
Corporation, or any of its gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding the Registered
Corporation's voting securities for investment purposes only. Activities which
-30-
<PAGE>
are not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a stockholder or to
have any other relationship with the Company or ROC, the Company (i) pays that
person any dividend or interest upon voting securities of the Company, (ii)
allows that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) pays remuneration in any
form to that person for services rendered or otherwise, or (iv) fails to pursue
all lawful efforts to require such unsuitable person to relinquish his voting
securities including, necessary, the immediate purchase of said voting
securities for cash at fair market value. Additionally, the Clark County Board
has the authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation, to file applications, be investigated
and be found suitable to own the debt security of a Registered Corporation if it
has reason to believe that such ownership would be inconsistent with the
declared policies of the State of Nevada. If the Nevada Commission determines
that a person is unsuitable to own such security, then pursuant to the Nevada
Act, the Registered Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada Commission, it: (i) pays
to the unsuitable person any dividend, interest, or any distribution whatsoever;
(ii) recognizes any voting right by such unsuitable person in connection with
such securities; (iii) pays the unsuitable person remuneration in any form; or
(iv) makes any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation, or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Approval
of a public offering does not constitute a finding, recommendation or approval
by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of
the prospectus or the investment merits of the securities offered. Any
representation to the contrary is unlawful.
-31-
<PAGE>
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior approval
of the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in a variety of
stringent standards prior to assuming control of such Registered Corporation.
The Nevada Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming Licensees, and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming Licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the Clark
County in which the ROC's operations are conducted. Depending upon the
particular fee or tax involved, these fees and taxes are payable either monthly,
quarterly or annually and are based upon either: (i) a percentage of the gross
revenues received; (ii) the number of gaming devices operated; or (iii) the
number of table games operated. A casino entertainment tax is also paid by
casino operations where entertainment is furnished in connection with the
selling of food, refreshments or merchandise. Nevada Licensees that hold a
license to manufacture and distribute slot machines and gaming devices, such as
ROC, also pay certain fees and taxes to the state of Nevada.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the state of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
-32-
<PAGE>
Alcoholic Beverages
The sale of alcoholic beverages at the Hotel & Casino is subject to
licensing, control and regulation by the Clark County Board. All licenses are
revocable and are not transferable. The Clark County Board has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse affect upon the
operations of ROC.
Federal Registration
ROC is required to annually file with the Attorney General of the United
States in connection with the sales, distribution, or operations of slot
machines. All requisite filings for the present year have been made.
Reorganization
Riviera, Inc., acquired the assets of Hotel Riviera, Inc. ("Old Riviera")
in 1986 as part of a previous bankruptcy reorganization. In December 1991,
Riviera, Inc., filed under Chapter 11 of the Bankruptcy Code. In February 1993,
a plan of reorganization was jointly filed by Riviera, Inc., and the Official
Bondholders Committee, and confirmed by the Bankruptcy Court for the District of
Nevada. When the plan of reorganization became effective on June 30, 1993 (the
"Effective Date"), ROC acquired the Gaming Assets and Gaming Liabilities and the
Company acquired all other assets relating to the Hotel & Casino.
On the Effective Date, the Company and ROC entered into the Operating
Agreement pursuant to which the Company granted to ROC a license to certain
non-gaming assets. The Operating Agreement authorizes and directs ROC to utilize
such non-gaming assets, together with the Gaming Assets owned by ROC, to
continuously operate the business of the Hotel & Casino as of the Effective
Date. In return, ROC has agreed to pay the Company rent equal to substantially
all of ROC's net cash flow. Since the Company will not have any operations, it
will be entirely dependent on the rent payments, dividends and loans from ROC
for its cash flow.
The Hotel & Casino was previously in bankruptcy and the bankruptcy
reorganization of Old Riviera (the predecessor company to Riviera, Inc.)
resulted primarily from the combined effects of increased debt service during
the early 1980s and a significant decline in revenues during the same period due
to weakness in the high-level wagerer market on which Old Riviera was largely
dependent.
During 1989 and 1990, the indebtedness and operating expenses of Riviera,
Inc. increased significantly, primarily as a result of a substantial increase of
the size of the Hotel & Casino due to the construction of a new 989-room tower
on the property and the expansion of the casino area. However, as a result of
closure of a portion of the casino during expansion of the casino floor and the
disruption caused thereby and as a result of a fire, increased competition from
new and expanded casino-hotels on the Las Vegas Strip (including the opening in
1989 of the Mirage casino-hotel with 3,030 rooms and the opening in 1990 of the
Excalibur casino-hotel with 4,000 rooms) and weakness in the economy of the
United States, the revenues of the Hotel & Casino did not increase in an amount
sufficient to offset the increase in expenses. In addition, construction budget
overruns and costs associated with the fire at the construction site imposed
significant additional demands on Riviera, Inc.'s working capital. Because
Riviera, Inc. was unable to obtain third-party financing in amounts sufficient
to fund working capital
-33-
<PAGE>
deficiencies, Riviera, Inc. commenced the Reorganization Case in order to
restructure its capitalization and obligations.
Pursuant to the Plan, in addition to the Company and ROC acquiring all of
the assets and assuming all of the liabilities of the Hotel & Casino Division of
Riviera, Inc., the Company issued 120,000 (pre-split) shares of Common Stock, an
aggregate of $100,000,000 of First Mortgage Notes and an aggregate principal of
$20,012,000 of non-interest bearing Class Notes which have been discounted at
16.8% in the financial statements to reflect a market rate of interest. In
addition, the Company assumed certain employment and termination fee agreements
relating to its executive officers and key employees. The Plan became effective
on June 30, 1993, when the Company's Common Stock was registered under the
Securities Exchange Act of 1934, the Indenture relating to the First Mortgage
Notes was qualified under the Trust Indenture Act of 1939 and certain other
regulatory approvals were obtained.
Properties
The Hotel & Casino complex is located on the Las Vegas Strip, occupies
approximately 26 acres and comprises approximately 1,700,000 square feet,
including 105,000 square feet of casino space, 100,000 square feet of exhibit,
meeting and banquet facilities for convention use, approximately 2,100 hotel
rooms (including approximately 180 luxury suites) in five towers, six
restaurants, four showrooms and approximately 2,900 parking spaces. In addition,
executive and other offices for the Hotel & Casino are located on the property.
There are 44 food and retail concessions operated under individual leases
with third parties. The leases are for periods from one year to ten years and
expire over the next six years.
The entire Hotel & Casino complex is encumbered by a first deed of trust
securing the First Mortgage Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."
Legal Proceedings
The Company is a party to several routine lawsuits both as plaintiff and as
defendant arising from the normal operations of a hotel. Management does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the financial position or results of operations of
the Company or ROC.
The Company, along with most of the other major hotel-casino companies has
been named in a class action lawsuit that had been transferred to the United
States District Court for the State of Nevada. This lawsuit was dismissed on
April 24, 1996.
-34-
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information as of April 5, 1996,
regarding the persons who are directors and executive officers of the Company
and ROC.
Name Age Position
- ---- --- --------
William L. Westerman 64 Chairman of the Board and Chief Executive
Officer of the Company and ROC and President
of the Company
Robert R. Barengo 54 Director of the Company and ROC
William Friedman 53 Director of the Company and ROC
Philip P. Hannifin 61 Director of the Company and ROC
Duane R. Krohn 50 Treasurer of the Company and Vice President of
Finance and Treasurer of ROC
John A. Wishon 51 General Counsel of ROC, Secretary of the
Company and ROC
Michael L. Falba 53 Vice President of Casino Operations of ROC
Jerome P. Grippe 53 Vice President of Operations of ROC
Martin R. Gross 39 Vice President of Hotel Marketing of ROC
Ronald P. Johnson 47 Vice President of Gaming Operations of ROC
Robert E. Nickels, Sr. 66 Vice President of Administration of ROC
Robert A. Vannucci 49 Vice President of Marketing and Entertainment
of ROC
William L. Westerman assumed the positions referred to above in February,
1993. Mr. Westerman was a Consultant to Riviera, Inc. from July 1, 1991 until he
was appointed Chairman of the Board and Chief Executive Officer of Riviera, Inc.
on January 1, 1992. On June 30, 1993, the Company and its subsidiary Riviera
Operating Corporation acquired substantially all of the assets and assumed
certain liabilities of Riviera Inc. pursuant to a Chapter 11 plan of
reorganization. From 1973 to June 30, 1991, Mr. Westerman was President and
Chief Executive Officer of Cellu-Craft Inc., a manufacturer of flexible
packaging primarily for food products. Alusuisse, a multi-national aluminum and
chemical company, acquired Cellu-Craft on June 30, 1989. On January 1, 1990, Mr.
Westerman was appointed President of Alusuisse Flexible Packaging (Alusuisse's
wholly-owned U.S. subsidiary engaged in the manufacture of flexible packaging
for food and pharmaceutical products). Additionally, Mr. Westerman was named a
member of the team responsible for all of Alusuisse multinational packaging
operations with annual sales volume in excess of $1 billion. Mr. Westerman
resigned from all his positions with Alusuisse on June 30, 1991. Mr. Westerman
resigned from all positions with Riviera, Inc. on June 30, 1993.
Robert R. Barengo has been a Director of the Company and ROC since
February, 1993. Mr. Barengo was a consultant to Riviera, Inc. from January,
1993, until June 30, 1993. Since 1972, Mr. Barengo has been engaged in the
private practice of law in Reno, Nevada. From January, 1981, to January, 1983,
Mr. Barengo was Speaker of the Nevada Assembly.
William Friedman has been a Director of the Company and ROC since February,
1993. Mr. Friedman was a consultant to Riviera, Inc. from January, 1993, until
June 30, 1993. During 1989 and 1990, Mr. Friedman was President and General
Manager of the Las Vegas Casino Division of United Gaming Inc. (largest slot
route operator in Nevada). In 1988 and 1989, Mr. Friedman was Chief
-35-
<PAGE>
Executive Officer and Executive Vice President of Rio Suite Hotel & Casino, Inc.
(formerly MarCor Resorts. Inc.) and President and General Manager of Rio Suite
Hotel & Casino in Las Vegas.
Philip P. Hannifin has been a Director of the Company and ROC since
February, 1993. Mr. Hannifin was a consultant to Riviera, Inc. from January,
1993, until June 30, 1993. Mr. Hannifin was a Director from 1986 to 1995 and an
Executive Vice President of Fitzgerald's Reno, Inc. (casino-hotel operator)
since 1991. From 1987 to 1990, Mr. Hannifin was a Director and Executive Vice
President of MGM Grand Inc. (casino-hotel operator). From January, 1971, to
September, 1977, Mr. Hannifin was Chairman of the Nevada Gaming Control Board.
Duane R. Krohn, CPA, was elected Vice President of Finance on April 26,
1994. Mr. Krohn assumed the position of Treasurer of the Company and ROC on June
30, 1993. Mr. Krohn was initially employed by Riviera, Inc. in April, 1990, as
Director of Corporate Finance and was promoted to Vice President-Finance in
March 1992 to June 30, 1993. Mr. Krohn was Chief Financial Officer of Imperial
Palace, Inc. (casino operator) in Las Vegas from February, 1987, to March, 1990.
Prior to 1987, Mr. Krohn was Chief Financial Officer of the Mint and the Dunes
in Las Vegas, Nevada, and Bally's Park Place in Atlantic, New Jersey.
John A. Wishon was elected to Secretary of the Company and ROC, and General
Counsel of ROC in September, 1994. Mr. Wishon was initially employed by ROC as a
Marketing Analyst in February, 1994. From January, 1992 to February, 1994, Mr.
Wishon was a legal and management consultant to Gold River Gambling Hall &
Resort, the Bicycle Club Casino, and Tierra del Sol Casino Resort. From October,
1990 to January, 1992, Mr. Wishon served as Vice President of Hotel Operations
and later as Vice President of Administration and Legal Affairs at the Sands
Hotel Casino in Las Vegas. Prior to December, 1988, Mr. Wishon served as General
Manager of the Airtel Plaza and Westwood Plaza Hotels in Los Angeles,
California. From 1976 until 1988, Mr. Wishon was Senior Vice President of the
Hotel del Coronado Corporation and held the positions of Resident Manager and
General Counsel. Mr. Wishon has practiced law with emphasis on real estate and
contract law, and he has been employed in law enforcement.
Michael L. Falba was elected Vice President of Casino Operations on April
26, 1994. Mr. Falba became Director of Casino Operations of ROC on June 30,
1993. Mr. Falba was employed by Riviera, Inc. from March 1989 until November,
1991, as Assistant Casino Manager, and from November, 1991, to June 30, 1993 as
Vice President of Casino Operations. On June 30, 1993, Mr. Falba resigned all
positions with Riviera, Inc.
Jerome P. Grippe was elected Vice President of Operations of ROC on April
26, 1994. Mr. Grippe became Director of Operations of ROC on June 30, 1993. Mr.
Grippe was Assistant to the Chairman of the Board of Riviera, Inc. from July,
1990, until May, 1993. Mr. Grippe had served in the United States Army from 1964
until his retirement as a Colonel in July, 1990. On June 30, 1993, Mr. Grippe
resigned all positions with Riviera, Inc.
Martin R. Gross was elected Vice President of Hotel Marketing on April 26,
1994. Mr. Gross became Director of Hotel Marketing of ROC on June 30, 1993. Mr.
Gross was Vice President-Hotel Marketing of Riviera, Inc. from April, 1992,
until June 30, 1993. Mr. Gross was Vice President-Marketing and Sales for Alexis
Park Resort Hotel (as a 500-suite non-gaming resort) in Las Vegas from August,
1988, until April, 1992. From 1980 to 1988, Mr. Gross held key marketing
positions with the Mirage and MGM Grand hotels. On June 30, 1993, Mr. Gross
resigned all positions with Riviera, Inc.
-36-
<PAGE>
Ronald P. Johnson became Vice President of Gaming Operations in September,
1994. Mr. Johnson became Director of Slots of ROC on June 30, 1993 and was
elected Vice President of Slot Operations and Marketing on April 26, 1994. Mr.
Johnson was Vice President-Slot Operations and Marketing of Riviera, Inc. from
April, 1991, until June 30, 1993. Mr. Johnson was Vice President-Slot Operations
for Sands Hotel and Casino Inc. from September, 1989, until he joined Riviera,
Inc. From prior to 1988 until September, 1989, Mr. Johnson was Assistant Slot
Manager at Bally's Grand Las Vegas (casino-hotel operator). On June 30, 1993,
Mr. Johnson resigned all positions with Riviera, Inc.
Robert E. Nickels, Sr. was elected Vice President of Administration on
April 26, 1994. Mr. Nickels became Director of Administration of ROC on June 30,
1993. From March, 1992, until June 30, 1993 Mr. Nickels was Vice
President-Administration of Riviera, Inc. From November, 1991, to February,
1992, Mr. Nickels was a self-employed business consultant. From March, 1979, to
April, 1986, Mr. Nickels was Director of Internal Audit for MGA-Reno. From
April, 1986, to November, 1991, Mr. Nickels served as Vice President of
Administration at Bally's Reno and Las Vegas (casino-resort operator). On June
30, 1993, Mr. Nickels resigned all positions with Riviera, Inc.
Robert A. Vannucci was elected Vice President of Marketing on April 26,
1994. Mr. Vannucci had been Director of Marketing of ROC since July 19, 1993.
Mr. Vannucci was Senior Vice President of Marketing and Operations at the Sands
Casino Hotel in Las Vegas from April, 1991, to February, 1993. Mr. Vannucci was
Vice President and General Manager of Fitzgerald's Las Vegas (casino-hotel
operator) from 1988 to January, 1991.
Officers of each of the Company and ROC serve at the discretion of their
respective Boards of Directors and are also subject to the licensing
requirements of the Gaming Commission.
Compensation of Executive Officers
The following table sets forth a summary of the compensation paid by the
Company in the year ended December 31, 1995, to the Chief Executive Officer of
the Company and ROC, and to the Company's four most highly compensated executive
officers who received over $100,000 in compensation during 1995 from the
Company.
-37-
<PAGE>
Summary Compensation Table
1995 Annual Compensation
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation1
- ------------------ ---- ------ ----- ------------ -------------
William L. Westerman 1995 $375,000 $855,961 $431,3152 $ 1,630
Chairman of the Board and 1994 350,000 592,379 389,0402 1,630
Chief Executive Officer of 1993 325,000 232,856 350,0002 500,7613
the Company and ROC
Jerome P. Grippe 1995 108,950 70,000 7,115 442
Vice President of 1994 103,654 50,000 4,646 398
Operations of ROC 1993 77,537 25,000 946 178
Martin R. Gross 1995 140,049 70,000 8,079 541
Vice President of Hotel 1994 125,302 50,000 5,316 442
Marketing of ROC 1993 102,170 25,000 637 376
Ronald P. Johnson 1995 155,840 70,000 8,529 772
Vice President of Gaming 1994 131,813 50,000 5,446 497
Operations of ROC 1993 95,622 25,000 1,246 376
Robert Vannucci 1995 130,569 70,000 6,879 541
Vice President of 1994 110,852 50,000 2,717 365
Marketing and 1993 41,730 25,000 0 52
Entertainment of ROC
Employment Agreements
Mr. Westerman serves as Chairman of the Board, President and Chief
Executive Officer of the Company, and as Chairman of the Board and Chief
Executive Officer of ROC.
On January 1, 1996, Mr. Westerman's employment contract was amended. The
term of Mr. Westerman's amended employment contract will expire on December 31,
1996. The employment contract is automatically renewed for successive one year
terms, unless the Company gives Mr. Westerman 90 days written notice of its
desire not to renew the term or Mr. Westerman gives the Company 180 days notice
of his desire not to renew the term.
Mr. Westerman's base compensation was $325,000 during 1993, $350,000 during
1994, $375,000 during 1995 and will be $400,000 in 1996. Beginning with the year
ending December 31, 1993, Mr. Westerman earns an incentive bonus based on 8.75%
by which adjusted operating earnings
- -----------------
1 Includes premiums paid by the Company for excess life insurance.
2 Includes contributions to Mr. Westerman's retirement account of $400,000 in
1995, $375,000 in 1994 and $350,000 in 1993 (See "Employment Agreements").
3 Includes a special bonus of $500,000 paid in consideration of Mr.
Westerman's contribution to the Company successfully emerging from Chapter
11 bankruptcy proceedings.
-38-
<PAGE>
of the Company exceed $20 million. Mr. Westerman's incentive bonus amounted to
$232,856 in 1993, $592,379 in 1994 and $855,961 in 1995.
The agreement also provides that the Company and ROC will create a
retirement account for Mr. Westerman. Pursuant to the agreement, an aggregate of
$1,710,000 has been credited to the retirement account since its inception
through January 1, 1996. Each year that Mr. Westerman continues to be employed,
an amount equal to Mr. Westerman's base salary for the next year will be
credited to the account on January 1 of the next year. (The amount credited on
January 1, 1997, will be $425,000.) In the event that Mr. Westerman is no longer
employed by the Company (except for termination for cause, in which case Mr.
Westerman would forfeit all rights to monies in the retirement account), Mr.
Westerman will be entitled to receive the amount in the retirement account as of
the date he ceases to be employed by the Company in 20 quarterly installments
(i.e., $106,750 per quarter or $427,000 per year if Mr. Westerman ceases to be
employed by the Company on January 1, 1997).
In the event Mr. Westerman is terminated for any reason during the term of
the contract other than for reason of death, disability, voluntary termination
by Mr. Westerman, or cause, Mr. Westerman shall be entitled to a termination fee
in an amount equal to his base compensation for said year in which the
termination occurs in 26 bi-weekly installments, commencing immediately upon
such termination, along with full group health benefits for a period of one year
from the date of termination. In addition, the Company will fund all deferred
compensation that would have been funded on January 1 of the year following
termination. A termination by the Company (other than for cause) of Mr.
Westerman within one year after a change in control of the Company shall be
deemed an involuntary termination.
The Company and ROC is also required to make contributions on behalf of Mr.
Westerman to the Profit Sharing and 401K Plan described below. The Company did
not make any contribution to the plans on Mr. Westerman's behalf in 1993. The
Company made contributions to the plan in the amount of $14,040 for 1994 and
$31,319 for 1995.
The agreement also provides that Mr. Westerman will receive the same life,
health and disability benefit offered to other key executives of the company and
ROC, reimbursed for all business expenses and four weeks vacation per year.
Employee Stock Option Plan
The options discussed in the following paragraphs were granted pursuant to
the 1993 Employee Stock Option Plan. The number of shares reflects the
adjustments made for a ten-for-one stock split on November 26, 1994, and a
four-for-one stock split on November 16, 1995. No stock options were granted for
the 1995 fiscal year.
The following table presents the value of unexercised in-the-money options
held by the Chief Executive Officer of the Company and ROC and to the Company's
four most highly compensated executive officers. No options were exercised in
1995.
-39-
<PAGE>
Number of Value of Unexercised,
Unexercised Options In-The-Money Options
at March 29, 1996 at March 29, 1996
----------------- -----------------
Name Vested Not Vested Vested Not Vested
---- ------ ---------- ------ ----------
William L. Westerman 120,000 60,000 787,575 387,525
Jerome P. Grippe 12,000 6,000 78,758 38,753
Martin R. Gross 12,000 6,000 78,758 38,753
Ronald P. Johnson 12,000 6,000 78,758 38,753
Robert Vannucci 12,000 6,000 78,758 38,753
The Stock Option Plan is administered by a Committee of the Board of
Directors (the "Compensation Committee"), which consists of two members of the
Board of Directors who must be Disinterested Persons (as defined in Rule
16b-3(d)(3) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")). The Compensation Committee currently consists of Robert R. Barengo and
William Friedman, neither of whom are eligible to receive Options.
The number of shares available for purchase under the Stock Option Plan as
adopted was 120,000 (as adjusted pursuant to antidilution provisions). The
stockholders approved a four-for-one stock split (the "Stock Split"), increasing
the number of shares of Common Stock available for purchase under the Stock
Option Plan to 480,000. Options were granted for 228,000 shares in 1993, 132,000
shares for 1994 and no shares for 1995, leaving a balance available for future
grants of 120,000 shares.
Persons eligible to receive Options are any officer or other key employee
of the Company or any of its subsidiaries or affiliates, including a director
who is such an employee, as the Compensation Committee, in its sole discretion,
may select. All optionees who have been granted Options have entered into Option
Agreements with the Company. Each Option Agreement specifies when an Option may
be exercisable and the terms and conditions applicable thereto, including any
vesting requirements. The term of an Option can in no event be exercisable more
than ten years (five years in the case of an Incentive Option granted to a
stockholder owning more than ten percent of the Common Stock), or such shorter
period, if any, as may be necessary to comply with the requirements of state
securities laws, from the date such Option is granted.
The price at which Common Stock may be purchased upon exercise of an Option
is determined by the Compensation Committee, but shall be not less than the Fair
Market Value (as defined in the Stock Option Plan) of such shares on the date of
grant.
The Stock Option Plan provides for adjustment in the number of shares of
Common Stock subject to each outstanding Option or the Option prices or both, in
the event of any changes in the outstanding Common Stock by reason of stock
dividends, stock splits, recapitalizations, reorganizations, mergers,
consolidations, sales or exchanges of assets, combinations, or exchanges of
shares or offerings of subscription rights. In the event of the complete
liquidation or dissolution of the Company incident to a merger, reorganization
or other adjustment as described above, any Options, granted and remaining
unexercised shall be deemed canceled.
-40-
<PAGE>
The Company has registered all Options and all shares issuable upon
exercise of the Options on Form S-8 under the Securities Act.
The Stock Option Plan became effective as of July 1, 1993, and will
terminate on July 1, 2003. However, with approval from the stockholders of the
Company, if required by law or the applicable provisions of the Securities
Exchange upon which the Common Stock is listed, if any, the Board of Directors
of the Compensation Committee may at any time prior to such date terminate or
amend the Stock Option Plan and the terms and conditions thereof as to stock
which is not then the subject matter of options granted or issued pursuant to
the terms of the Stock Option Plan. The Board of Directors or the Compensation
Committee, with the written consent of the affected holders of any options
granted pursuant to the Stock Option Plan, may terminate or amend the Stock
Option Plan as it regards any such Options held by any such consenting holders.
Employee Stock Purchase Plan
On March 5, 1996, the Board of Directors adopted an employee stock purchase
plan (the "Stock Purchase Plan"), which was approved by the stockholders May 10,
1996. A total of 300,000 shares of common stock (subject to adjustment for
capital changes) in the aggregate may be granted under the Stock Purchase Plan.
The Stock Purchase Plan is administered by the Compensation Committee.
All employees of the Company or a participating subsidiary who have
completed at least 6 months of service prior to the Purchase Date and who
continue to be employees of the Company at the time of purchase are eligible to
purchase the Company's common stock under the Stock Purchase Plan. Each other
employee is eligible to participate in the Stock Purchase Plan as of the May 31
subsequent to when such employee shall first complete at least 6 months of
Service.
An eligible employee becomes a participant in the Stock Purchase Plan by
completing an enrollment and payroll deduction form and delivering it to the
Company or the participating subsidiary employing him. At the time a participant
files his enrollment and payroll deduction form, he shall elect to have withheld
from his Compensation on a bi-weekly basis an amount that will repay his
participant loan in no more than 52 level installments. Each eligible employee
may purchase a number of shares of common stock, but not less than 100 shares,
nor more than 1,000 shares, with a combined Per Share Fair Market Value equal to
10% of his Compensation in the calendar year prior to the Purchase Date. At no
time may the balance of a Participant Loan exceed $5,000.
The purchase price per share of stock shall be of 85% of Per Share Fair
Market Value of the common stock on the Purchase Date.
The Company has registered all the shares issuable under the Stock Purchase
Plan on Form S-8 under the Securities Act.
The Board of Directors has the exclusive and complete power and authority
to amend or terminate the Stock Purchase Plan, however the Board may not,
without the approval of the stockholders of the Company, (a) increase the
maximum number of shares that may be offered under the Stock Purchase Plan
(except in the case of a reorganization, recapitalization, stock split,
spin-off, split-off, split-up, stock dividend, combination of shares, merger,
consolidation or any other change in the corporate structure of the Company or a
sale by the Company of all or part of its assets); (b) modify the requirements
as to eligibility for participation under the Stock Purchase Plan or (c) in any
other way cause the Stock Purchase Plan to fail the requirements of section 423
of the Internal Revenue Code of 1986, as amended.
-41-
<PAGE>
The Stock Purchase Plan will automatically terminate on the date on which orders
for the maximum number of shares available under the Stock Purchase Plan has
first been exceeded, but in any event will terminate on May 31, 1999 regardless
of whether the full number of shares available under the Stock Purchase Plan has
been purchased.
Profit Sharing and 401(k) Plans
On June 30, 1993, the Company and ROC assumed, pursuant to an Adoption
Agreement, the combined profit sharing and 401(k) plan of Riviera, Inc. (the
"Profit Sharing and 401(k) Plans") and the Company and ROC have continued the
Profit Sharing and 401(k) Plans after June 30, 1993. The Company and ROC have
amended the Adoption Agreement to provide that all current employees of the
Hotel and Casino who were employed by the Hotel and Casino on April 1, 1992, who
are at least 21 years of age and who are not covered by a collective bargaining
agreement are immediately eligible to participate in the Profit Sharing and
401(k) Plans. The amendment provides further that all current employees who were
employed by the Hotel and Casino after April 1, 1992, who are at least 21 years
of age and who are not covered by a collective bargaining agreement are eligible
to participate after one year of service at the Hotel and Casino.
The profit sharing component of the Profit Sharing and 401(k) Plan provides
that the Company will make a contribution equal to 1% of each eligible
employee's annual compensation if a prescribed annual operating earnings target
is attained and an additional 1/10th of 1% thereof for each $200,000 by which
operating earnings is exceeded, up to a maximum of 3% thereof. The Company may
elect not to contribute to the Profit Sharing and 401(k) Plan if it notifies its
employees by January of the Profit Sharing and 401(k) Plan year. An employee
will become vested in the Company's contributions based on the employee's years
of service. An employee will receive a year of vesting service for each plan
year in which the employee completed 1,000 hours of service. Vesting credit will
be allocated in 20% increments for each year of service commencing with the
attainment of two years of service. An employee will be fully vested following
the completion of six years of service.
An employee becomes vested in the Company's and ROC's contributions based
on the employee's years of eligible service. An employee is credited with a year
of eligible service for each plan year in which the employee completed 1,000
hours of service. Eligible credit is allocated in 20% increments for each year
of eligible service commencing with the completion of two years of eligible
service (thus, an employee who has completed two years of eligible service will
be 20% vested, an employee who has completed three years of eligible service
will be 40% vested, an employee with four years of eligible service will be 60%
vested, and so on.) An employee becomes fully vested following the completion of
six years of eligible service.
Termination Fee Agreements
ROC is a party to termination fee agreements with certain significant
employees pursuant to which each such employee is entitled to receive one year's
salary and benefits if his or her employment with ROC is terminated within one
year of a change of control of the Company or ROC, or the involuntary
termination of Mr. Westerman's employment. The estimated total amount that would
be payable under all such agreements is $1,224,000 in salaries and $367,000 in
benefits.
-42-
<PAGE>
Stay Bonus Agreements
ROC is a party to stay bonus agreements with certain significant employees
pursuant to which each such employee is entitled to receive one year's salary
(less the amount of any incentive bonus paid in 1996 for 1995) in the event
there is a change of control of the Company. The agreements expire on December
31, 1996. The estimated total amount that would be payable under all such
agreements is $470,000.
Compensation of Directors
Each of Messrs. Barengo, Friedman and Hannifin is paid an annual fee of
$50,000 for services as a director of the Company and ROC. Each director is also
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors. Mr. Hannifin was granted options to purchase 24,000
shares in 1993, 12,000 shares for 1994 and none for 1995. On March 5, 1996 the
Board of Directors adopted a Nonqualified Stock Option Plan for Non-Employee
Directors, which was approved by the stockholders on May 10, 1996. Under the
plan, each individual elected, re-elected or continuing as a non-employee
director will automatically receive a non-qualified stock option for 2,000
shares of Common Stock. Directors who are also officers or employees of the
Company or ROC do not receive any additional compensation for services as a
director. Currently, Mr. Westerman is the only such director. The Board of
Directors has granted the members of the Compensation Committee the right to
elect to receive all or part of their annual fees in the form of the Company's
Common Stock in a number of shares having a fair market value equal to the cash
compensation subject to such election. Mr. Barengo received 1,470 shares for his
1996 director's fees.
Board of Directors and Committee Meetings
The Company established an Audit Committee at the beginning of 1994. The
Audit Committee is composed of Messrs. Barengo, Friedman, and Hannifin. The
Audit Committee recommends to the Board of Directors the selection of an
auditor, reviews the plan and scope of an audit, reviews the auditors' critique
of management and internal controls and management's response to such critique
and reviews the results of the audit.
The Company has a Compensation Committee composed of Messrs. Barengo and
Friedman. The Compensation Committee is responsible for recommending executive
compensation programs to the Board of Directors and for approving all
compensation decisions with respect to the Chief Executive Officer and his
recommendations for the other executive officers of the Company.
Compensation Committee Interlocks and Insider Participation
The Company and ROC each have a Compensation Committee composed of Messrs.
Barengo and Friedman. Robert R. Barengo is a principal in Leroy's Horse & Sports
Place. See "Certain Relationships and Related Transactions."
PRINCIPAL SHAREHOLDERS
The Common Stock is traded on the American Stock Exchange. The following
table sets forth certain information regarding the beneficial ownership of the
Common Stock as of July 2, 1996 by (i) each person who, to the knowledge of the
Company, beneficially owns more than 5% of the outstanding Common Stock, (ii)
the directors and certain officers of the Company and (iii) all directors and
officers of the Company and ROC as a group. Director Friedman owns no shares or
options to purchase the Common Stock. Director Hannifin owns no shares of Common
Stock but was granted options to purchase 36,000 shares of Common Stock.
-43-
<PAGE>
Percentage of
Number of Outstanding
Name Shares Common Stock
- ---- ------ ------------
William L. Westerman 1,7 84,200 1.7%
Robert R. Barengo 1,7 2,470 *
Jerome P. Grippe 1,7 1,000 *
Martin R. Gross 1,7 1,000 *
Ronald P. Johnson 1,7 12,000 *
Robert Vannucci 1,7 600 *
Morgens, Waterfall, Vintiadis 1,272,560 25.8%
& Company, Inc. 2
Keyport Life Insurance Company 3 857,160 17.4%
Sun America Life Insurance 761,920 15.4%
Company4
Restructuring Capital Associates, 398,240 8.1%
L.P.5
Stephen S. Taylor 6 398,860 8.1%
All directors and officers 1,7 196,170 2.2%
* Less than 1%
- -------------
1 The address for each director of the Company and officer of the Company or
ROC is c/o Riviera Holdings Corporations, 2901 Las Vegas Boulevard South,
Las Vegas, Nevada 89109.
2 The address for Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens")
is 10 East 50th Street, New York, New York 10022. Morgens or its principals
are either investment advisors to, or trustees or general partners of,
eight entities ("Morgens Entities") that are the owners of Common Stock
issued under the Plan. Morgens or its principals have the power and
authority to direct the disposition of these securities and, accordingly,
could be deemed to be "beneficial" owners within the meaning of Rule 13d-3.
Each of Morgens, its principals and the Morgens Entities, however,
disclaims beneficial ownership with respect to any securities not actually
beneficially owned by it.
3 The address for Keyport Life Insurance Company ("Keyport") is 125 High
Street, Boston, Massachusetts 02110. Stein Roe & Farnham Incorporated, an
affiliate of Keyport, is Keyport's investment advisor, and, as such, has
the power and authority to direct the disposition of the securities, and
accordingly, could be deemed to be a "beneficial" owner within the meaning
of Rule 13d-3. Stein Roe & Farnham Incorporated, however, disclaims actual
beneficial ownership of such securities.
4 The address for Sun America Life Insurance Company ("Sun Life") is One Sun
America Center, Century City, California 90067.
5 The address for Restructuring Capital Associates, L.P. ("Restructuring
Capital") is 450 Park Avenue, New York, New York 10022.
6 The address for Mr. Taylor is 714 South Dearborn Street, Chicago, Illinois
60605. Includes 148,660 shares of Common Stock owned by Bidwell Partners of
which Mr. Taylor is a general partner.
7 Does not include options to purchase shares of Common Stock granted
pursuant to the Stock Option Plan, 180,000 shares to Mr. Westerman, 18,000
shares to each of Messrs. Grippe, Gross, Johnson and Vannucci and all
Directors and Officers as a group, 360,000 shares.
-44-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert R. Barengo is a principal in Leroy's Horse & Sports Place
("Leroy's"), which leases approximately 12,000 square feet of the Hotel & Casino
facility. Leroy's is the operator of the Hotel & Casino's sports book
operations. This lease was assumed by the Company and is still in effect. The
lease provides for rental payments based upon the monthly and annual revenues
derived by Leroy's from the location. From January 1, 1995, through December 31,
1995, Leroy's paid aggregate rent to ROC of approximately $92,000. The Company
believes that the terms of the lease with Leroy's are at least as favorable to
the Company and ROC as could have been obtained from unaffiliated third parties
and are at least as favorable as terms obtained by other hotels and casinos in
Las Vegas. Mr. Barengo is also part equity owner of Howard Johnson Hotel &
Casino located at Tropicana Avenue and Interstate 15 in Las Vegas, Nevada. The
hotel's operations include an International House of Pancakes restaurant,
on-site food and beverage sales, 150 guest rooms (no suites) and approximately
53 gaming machines. The Company believes that this hotel & casino's operations
are not competitive with the Riviera Hotel & Casino.
The Company is a party to two registration rights agreements with, among
others, Morgens, Keyport, Sun Life and affiliates of Restructuring Capital, each
of which owns more than 5% of the Common Stock. Pursuant to the Equity
Registration Rights Agreement dated June 30, 1993, among the Company and the
Holders of Registrable Shares referred to therein, each of the three largest
holders of Common Stock is entitled to cause the Company to file a registration
statement, and holders of 51% or more of the shares of Common Stock then subject
to the Equity Registration Rights Agreement are entitled to cause the Company to
file two registration statements (on or after January 1, 1994), registering
under the Securities Act of 1933, as amended, the offer and sale of Common Stock
owned by such persons. All other Holders of Registrable Shares will be entitled
to have shares of Common Stock owned by them included in any such registrations.
In addition, the agreement grants to each party the right to have included,
subject to certain limitations, all shares of Common Stock owned by such party
in any registration statement filed by the Company under the Securities Act
after January 1, 1994, including those filed on behalf of the Company or
security holders not party to the Equity Registration Rights Agreement. Pursuant
to the agreement, the Company will pay all costs and expenses, other than
underwriting discounts and commissions, in connection with the registration and
sale of Common Stock under the agreement. The Debt Registration Rights Agreement
dated June 30, 1993, among the Company and the Holders of Registrable Securities
referred to therein provides the same rights described above to the holders of
First Mortgage Notes, except that holders of 50% (rather than 51%) or more of
the principal amount of First Mortgage Notes then subject to such agreement will
be entitled to require the Company to file two registration statements on or
after January 1, 1994. In connection with the preparation and filing by the
Company of the Registration Statement declared effective by the Commission on
September 3, 1993, each of Morgens, Keyport and Sun Life waived its right to
demand one future registration of First Mortgage Notes.
In July, 1993, Robert Vannucci filed for personal bankruptcy protection
under Chapter 13 of the Bankruptcy Code. Pursuant to the plan, Mr. Vannucci will
make 100% repayment to all creditors.
-45-
<PAGE>
SELLING SECURITYHOLDERS
The Selling Securityholders received the First Mortgage Notes being offered
pursuant to the Prospectus filed on June 30, 1993 pursuant to the terms of the
Plan. Each Selling Securityholder is offering for sale the principal amount of
First Mortgage Notes set forth in the second column following its name in the
table below. Based on information supplied to the Company by each Selling
Securityholder, on June 24, 1996, each of the Selling Securityholders owned only
the principal amount of First Mortgage Notes set forth in the first column
following its name in the table below.
<TABLE>
<CAPTION>
Aggregate Principal
Amount of First Aggregate Principal
Mortgage Notes Amount of First
Owned Prior to Mortgage Notes
Commencement of Available for Sale
Name of Selling Securityholder Offering Under This Prospectus
- ------------------------------ ------------------- ---------------------
<S> <C> <C> <C>
Keyport Life Insurance Co.(1) $17,857,000 $17,857,000
Morgens, Waterfall, Vintiadis & Company, Inc.(2)
Betje Partners 612,000 0
Morgens Waterfall Income Partners 915,000 0
Morgens Waterfall, Vintiadis & Co., Inc.
Employees' Profit Sharing Plan 164,000 0
Phoenix Partners 1,655,000 0
Restart Partners, L.P. 5,875,000 0
Restart Partners II, L.P. 9,178,000 0
Restart Partners III, L.P. 6,221,000 0
The Common Fund 1,894,000 0
Oppenheimer & Co., Inc. 4,365,000 4,365,000
TCW/First Pacific Bank 4,365,000 4,365,000
Sun America Life Insurance Company 15,873,000 15,873,000
United Presidential Life Insurance Co. 3,175,000 3,175,000
---------- ----------
TOTAL $72,149,000 $45,635,000
========== ==========
<FN>
(1) Stein Roe & Farnham Incorporated, an affiliate of Keyport, is Keyport's
investment advisor, and, as such, has the power and authority to direct the
disposition of the First Mortgage Notes.
(2) Morgens or its principals are either investment advisors to, or trustees or
general partners of, the eight entities, indented and listed below it in
the table above that own the First Mortgage Notes. Morgens or its
principals have the power and authority to direct the disposition of the
First Mortgage Notes.
</FN>
</TABLE>
Because the Selling Securityholders may sell all, or a part or none of
their First Mortgage Notes, no estimate can be given as to the amount (or
percentage) of First Mortgage Notes to be held by any Selling Securityholder
upon termination of the offering of the First Mortgage Notes.
The Company has agreed that it will use all reasonable efforts to keep the
Registration Statement available for offers and sales of First Mortgage Notes
for a period of three years following the effective date of the Registration
Statement or until all such securities have been sold.
-46-
<PAGE>
DESCRIPTION OF SECURITIES
First Mortgage Notes
The following is only a summary of the terms of the First Mortgage Notes,
and is qualified in its entirety by reference to the Indenture and First
Supplemental Indenture and amendments thereto, copies of which have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.
The terms of the First Mortgage Notes include those stated in the Indenture and
First Supplemental Indenture and those made part of the Indenture and First
Supplemental Indenture by reference to the Trust Indenture Act of 1939 ("Trust
Indenture Act") as in effect on the date of the Indenture and First Supplemental
Indenture. Unless otherwise specified, references to Articles and Sections are
to Articles and Sections of the Indenture and First Supplemental Indenture. On
September 8, 1995, the First Supplemental Indenture was amended to allow, among
other things, the Company to manage other casinos. The definitions of certain
terms used herein are set forth in "Certain Definitions" below in this section.
General
The First Mortgage Notes are limited to $100,000,000 aggregate principal
amount and will mature on December 31, 2002. First Mortgage Notes in the amount
of $100,000,000 have been issued and are outstanding under the Indenture and
First Supplemental Indenture, each dated as of June 30, 1993, among the Company,
as issuer, ROC, as guarantor, and IBJ Schroder Bank & Trust Company, as trustee.
The First Mortgage Notes bear interest from June 30, 1993 at the rate of
11% per annum. The Company will pay interest semiannually on June 30 and
December 31 of each year, commencing December 31, 1993. The regular record dates
for the interest payable on any such interest payment date will be the June 15
or December 15 next preceding such June 30 or December 31, as the case may be.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The First Mortgage Notes were issued in denominations of $1,000 and
integral multiples of $1,000 in excess thereof.
The Indenture provides for the issuance of one or more series of Securities
as authorized from time to time by the Board of Directors of the Company and ROC
and evidenced by one or more supplemental indentures. The aggregate amount of
Securities collateralized by the First Mortgage which may be authenticated and
delivered and be Outstanding at any one time under the Indenture and any
supplemental indenture is $100,000,000. However, in the event any series of
Securities become, pursuant to the terms of the supplemental indenture executed
in connection with such series of Securities, general unsecured obligations of
the Company, only the Securities which are collateralized by the First Mortgage
will be limited in aggregate principal amount to $100,000,000. Any Securities of
a series which are general unsecured obligations of the Company pursuant to the
terms of a supplemental indenture may be unlimited in amount.
The Company initially considered refinancing the First Mortgage Notes
through the issuance of second series Securities. However, this plan was not
adopted. Therefore, although the Indenture allows the Company to issue
additional series of Securities, the Company will not issue any series of
Securities under the Indenture other than the First Mortgage Notes.
The Indenture and First Supplemental Indenture were qualified under the
Trust Indenture Act on June 30, 1993, pursuant to an Application for
Qualification on Form T-3 filed with the Commission
-47-
<PAGE>
(Commission File No. 22-24540). The Trustee was qualified as trustee under the
Trust Indenture Act on June 30, 1993, pursuant to a Statement of Eligibility and
Qualification on Form T-1 filed with the Commission (Commission File No.
22-24540). This Prospectus relates to $45,635,000 principal amount of First
Mortgage Notes.
Redemption
The First Mortgage Notes will not be redeemable at the option of the
Company prior to June 1, 1998. On or after June 1, 1998, the First Mortgage
Notes will be redeemable at the option of the Company, in whole at any time or
in part from time to time, for cash, on not less than 20 nor more than 60 days'
prior written notice given in accordance with of the Indenture and First
Supplemental Indenture at the following redemption prices (expressed as a
percentage of principal amount), plus accrued and unpaid interest to the
redemption date:
If redeemed during the
12-month period beginning June 1,
Year Percentage
---- ----------
1998 104.3125%
1999 102.8750%
2000 101.4375%
2001 and thereafter 100.0000%
If less than all of the First Mortgage Notes are to be redeemed, selection
of First Mortgage Notes for redemption will be made by the Trustee, pro rata (or
as nearly pro rata as practicable in the sole discretion of the Trustee) among
all Holders of First Mortgage Notes based upon the aggregate principal amount of
First Mortgage Notes then outstanding. However, if the redemption results in the
reduction of a Holder's First Mortgage Note to less than the minimum
denomination of $1,000, then such Holder's First Mortgage Note will be rounded
up or down to the next integral multiple of $1,000, as appropriate. Moreover,
the First Supplemental Indenture provides that if only a portion of the
principal amount of any First Mortgage Note is to be redeemed, the notice of
redemption relating to such First Mortgage Note shall state the portion of the
principal amount to be redeemed and that, after the date fixed for redemption,
upon surrender of such First Mortgage Note, a new First Mortgage Note or new
First Mortgage Notes in principal amount equal to the unredeemed portion will be
issued. Any such redemption will be for cash and will comply with all of the
other provisions of Article 3 of the First Supplemental Indenture.
The First Mortgage Notes are also subject to special redemption pursuant to
the Nevada Gaming Control Act. If the Gaming Commission requires that a Holder
or beneficial owner of First Mortgage Notes must qualify under the Gaming
Control Act, and if such Holder or beneficial owner does not so qualify, or if
the Company determines that ownership of any of the First Mortgage Notes by any
Person will preclude, interfere with or delay the issuance of, or jeopardize the
maintenance of, any gaming or liquor license, or result in the imposition of
burdensome terms or conditions on such license, then the Company shall have the
right, at its option, (a) to require such Holder or beneficial owner to dispose
of its First Mortgage Notes within 30 days of either (i) the receipt of a notice
of such finding by the Gaming Commission, or such earlier date as may be ordered
by the Gaming Commission or (ii) such determination by the Company stated in
writing and delivered to such Holder; or (b) to call for redemption of the First
Mortgage Notes of such Holder or beneficial owner at a purchase price equal to
-48-
<PAGE>
the lesser of the principal amount thereof or at the price at which such Holder
or beneficial owner acquired the First Mortgage Notes, together with accrued
interest to the redemption date, which may be less than 30 days following the
date on which the notice of redemption is so ordered by the Gaming Commission.
The Company's cash flow from operations, however, is not expected to be
sufficient to pay the principal of the First Mortgage Notes at maturity and may
not be sufficient to pay the First Mortgage Notes in the event of an earlier
optional redemption or special redemption pursuant to the Nevada Gaming Control
Act that require the purchase of a significant amount of First Mortgage Notes.
Therefore, in order to engage in an optional redemption or to satisfy its
repurchase obligation pursuant to a special redemption, the Company may have to
refinance the First Mortgage Notes. There can be no assurance that the Company
will be able to refinance the First Mortgage Notes at such time.
Repurchase
Upon the occurrence of (a) the failure of the Company to maintain a
specified minimum consolidated net worth, (b) certain sales of assets, (c) a
major event of loss to the Hotel & Casino, or (d) a Change of Control (as each
event is more fully described in "Certain Covenants of the Company and ROC"
below), the Company is required to commence an offer to all Holders to purchase
the First Mortgage Notes ("Purchase Offer") in conformity with procedures set
forth in the First Supplemental Indenture. A Purchase Offer must remain open for
a period of 20 Business Days following the date of its commencement (the
"Commencement Date") and no longer, except to the extent that a longer period is
required by applicable law or regulation (the "Tender Period"). No later than
five Business Days after termination of the Tender Period (the "Purchase Date"),
the Company must purchase the First Mortgage Notes tendered in response to the
Purchase Offer in the amounts and at the Purchase Price listed below for each
event requiring repurchase. The Company's cash flow from operations is not
expected to be sufficient to pay the principal of the First Mortgage Notes at
maturity and may not be sufficient to pay the First Mortgage Notes in the event
of an earlier repurchase that involves a significant amount of First Mortgage
Notes. Therefore, in order to meet its obligation to repurchase any significant
amount of First Mortgage Notes, the Company may have to refinance the First
Mortgage Notes. There can be no assurance that the Company will be able to
refinance the First Mortgage Notes at such time.
Amount and Purchase Price of First Mortgage
Event Notes If Required to be Repurchased
- ----- -----------------------------------
Failure to Maintain Net
Worth..................... Lesser of (i) 10% aggregate principal amount of
First Mortgage Notes originally issued or (ii)
aggregate principal amount of First Mortgage
Notes then outstanding, in each case at a
Purchase Price of 100% of the principal amount
thereof, plus accrued and unpaid interest to the
date of purchase.
-49-
<PAGE>
Sale of Assets............. Principal amount of First Mortgage Notes equal
to the Net Available Cash Proceeds from any
one or more Asset Sales which individually or
in the aggregate exceed $1,000,000 (except to
the extent Net Available Cash Proceeds are
used to purchase replacement assets within one
year of sale or are insurance proceeds, other
proceeds or awards as a result of any casualty
loss, condemnation or taking of any asset or
group of assets and are used to purchase
replacement assets), at a Purchase Price of
100% of the principal amount thereof, plus
accrued and unpaid interest to the date of
purchase.
Major Event of Loss to
Hotel & Casino.......... Principal amount of First Mortgage Notes equal
to amount of insurance proceeds, condemnation
award or other proceeds available from such
loss (net of any direct expenses incurred by the
Company in connection with such loss), at a
Purchase Price of 100% of the principal amount
thereof, plus accrued and unpaid interest to the
date of purchase.
Change of Control.......... All First Mortgage Notes then outstanding (or
such lesser amount as may be tendered by
Holders), at a Purchase Price of 100% of the
principal amount thereof, plus accrued and
unpaid interest to the date of purchase.
The Company is highly leveraged and it is unlikely that it would have
sufficient funds available to comply with its repurchase obligation if a
significant amount of First Mortgage Notes were tendered for repurchase
following a Change of Control. If a Change of Control or other repurchase event
were to occur, neither the Company nor its affiliates would be required to
repurchase or satisfy any other indebtedness as a condition precedent to
purchasing the First Mortgage Notes tendered by the Holders thereof. While the
First Mortgage Notes are secured by the Collateral and rank prior to
substantially all of the indebtedness represented by the Class Notes, the
Company has certain assets (primarily equipment and other capitalized lease
obligations and slot payments due to customers) subject to liens that rank prior
to the First Mortgage and certain unsecured indebtedness that ranks on a parity
with the First Mortgage Notes. The Company estimates that the total amount of
assets so encumbered and other indebtedness is approximately $5,200,000 at July
31, 1993. In the event the Company were unable to purchase all First Mortgage
Notes tendered by Holders when required under the Change of Control provision of
the First Supplemental Indenture, an Event of Default under the Indenture would
occur.
The Indenture also provides that if any person acquires a majority of the
outstanding shares of Common Stock, then the Company must offer to purchase all
outstanding First Mortgage Notes. As a result of this provision, the terms of
the Indenture would permit the largest holder of the Company's Common Stock and
any two of the other largest holders, if they acted jointly with respect to a
sale of the shares of Common Stock owned by them to any person or group, to
cause the Company to be required to repurchase the First Mortgage Notes at any
time. This could cause the Company to seek protection from creditors under the
provisions of the bankruptcy laws. However, because of the licensing
-50-
<PAGE>
requirements applicable to any person or group who acquires 10% or more of the
outstanding shares of Common Stock or who acquires any shares with the intent of
acquiring control of the Company, the Company believes that the Nevada Gaming
Authorities would be unlikely to permit any person to acquire a majority of the
Common Stock and thereby cause the First Mortgage Notes to be subject to
repurchase by the Company unless the Nevada Gaming Authorities believe that the
acquiror will be able to refinance the First Mortgage Notes or otherwise provide
for the liquidity needs of the Company and ROC resulting from such acquisition.
However, there can be no assurance that the Nevada Gaming Authorities would take
any action to prevent any person from acquiring control of the Company or to
avoid the repurchase obligation resulting therefrom, and in the event of such
repurchase obligation, there can be no assurance that the Company will have the
ability to pay the repurchase amount or be able to refinance the First Mortgage
Notes.
In connection with any Purchase Offer, the Company will comply with all
applicable tender offer rules and regulations, including, to the extent
applicable, Rule 14e-1 under the Exchange Act.
Security
The performance of the respective obligations of the Company and ROC under
the Indenture and the First Supplemental Indenture, including the payment by the
Company of principal and interest, are secured by a first lien on the
Collateral, subject only to Permitted Liens ranking senior to the lien securing
the First Mortgage Notes. In connection therewith, the Company and ROC executed
the Deed of Trust, Security Agreement, Trademark Security Agreement and related
financing statements and fixture filings and caused the filing or recording of
all documents and instruments necessary for the perfection of the security
interest in the Collateral.
Under the Deed of Trust, the Company granted, transferred and assigned to
United Title of Nevada, in trust for the benefit of the Trustee (and,
consequently, for the benefit of the Holders), all of the Company's estate,
right, title and interest in, to and under all of the Company's property located
at or related to the Hotel & Casino including, among other things, (a) the Land
(as defined in the Deed of Trust), (b) all buildings, structures and
improvements erected upon the Land (together with the land, the "Premises"), (c)
all furniture, fixtures and equipment affixed to, placed on incorporated into or
used in connection with the Premises (collectively, the "Chattels"), (d) leases
of the Premises or Chattels, (e) all rights to insurance proceeds and unearned
insurance premiums arising from or relating to the Chattels or Premises, (f) any
awards made by governmental authorities, (g) all rights and easements relating
to the use and enjoyment of the Premises, and all declarations of covenants,
conditions and restrictions affecting or relating to the Premises, (h) all
permits, plans, specifications, licenses, warranties, subdivision rights,
security interests, contracts, public utility deposits, prepaid sewer and water
hook-up charges and other rights related to the Premises or Chattels, (i) all
intangible property and rights relating to the Premises or the operation
thereof, and (j) all rent, issues, profits, prepaid municipal and utility fees,
bonds, revenues and income and other benefits that are derived from or relating
to the Premises or Chattels.
Under the Security Agreement, the Company and ROC each granted, assigned
and pledged to the Trustee for the benefit of the Holders all of its respective
right, title and interest in and to the "Collateral" (as defined in the Security
Agreement), including among other things, (a) all equipment, machinery,
furniture, furnishings, appliances, supplies, materials, slot machines and
gaming devices, (b) all inventory, (c) all accounts, contract rights, chattel
paper, instruments, rights of payment, notes, drafts, markers, documents,
deposit accounts, cash equivalents, general intangibles, tax refunds, and
security
-51-
<PAGE>
and other deposits, (d) the shares of ROC stock owned by the Company and any
other shares of stock acquired by the Company or ROC in any other company, and
all dividends, cash instruments and other property received or distributed in
connection with all such shares, (e) each agreement to which the Company or ROC
may be a party at any time prior to payment in full of the First Mortgage
Obligations (as defined in the Security Agreement), and (f) all proceeds and
substitutions of the foregoing.
Under the Trademark Security Agreement, the Company granted to the Trustee
a continuing security interest in and to all of the Company's trademarks, trade
names, corporate names, company names, business names, fictitious business
names, service marks, designs, all registrations and recordings thereof
(collectively, the "Trademarks"), and all applications in connection therewith,
and the goodwill of the business to which each of the Trademarks relates.
To the extent applicable, the Company and ROC shall cause the Trust
Indenture Act to be complied with in connection with the release of property or
securities from the Liens created by the First Mortgage. So long as no default
under the Security Agreement, the Trademark Security Agreement, the Deed of
Trust or the Indenture has occurred and is continuing, the Company and ROC, as
the case may be, may without any release or consent by the Trustee, sell,
exchange or otherwise dispose of Equipment, Related Contracts or Inventory (as
such terms are defined in the Security Agreement) in the ordinary course of the
Company's or ROC's business. Notwithstanding the foregoing, the Company's and
ROC's right to engage in such sales, exchanges and dispositions for each
six-month period beginning on January 1 and July 1 of each year (a "Six-Month
Period") is conditioned upon the Company and ROC delivering to the Trustee,
within 30 days following the last day of such Six-Month Period, an Officers'
Certificate to the effect that all sales, exchanges or other dispositions of
Equipment, Related Contracts or Inventory by the Company or ROC, as the case may
be, during such Six-Month Period were in the ordinary course of the Company's or
ROC's business and that all proceeds therefrom were used by the Company or ROC
in connection with its business or to make other cash payments permitted by the
Indenture and the First Supplemental Indenture.
Guarantee
The obligations of the Company to pay the principal of, premium, if any,
and interest on the First Mortgage Notes are unconditionally guaranteed by ROC.
The Guarantee is secured by ROC's personal property pursuant to the Security
Agreement.
Subordination Agreement
On June 30, 1993, the Company, ROC, the Trustee and each disbursing agent
under the Class 4 Note, the Class 5 (Sequoia "A") Note (which represents the
larger of the two Class 5 Notes), the Class 12 Note and the Class 13/14 Note
(collectively, the "Subordinated Notes") entered into a subordination agreement
(the "Subordination Agreement"). Pursuant to the terms of the Subordination
Agreement, holders of the Subordinated Notes (collectively, the "Subordinated
Holders") agreed to unconditionally subordinate their right to payment to the
prior payment in full of all indebtedness of the Company to the Trustee and the
holders of the First Mortgage Notes. The maximum principal amount to which the
Subordinated Holders have subordinated pursuant to the Subordination Agreement
is $100,000,000. Under the Subordination Agreement, if certain defaults or
events of default occur under the Indenture, the Company is prohibited for
specified periods of time from making any payments or transfers under the
Subordinated Notes. The Company is also prohibited from making any payments for
specified periods of time if the Company fails to satisfy the requirements of
the First Supplemental Indenture relating to the maintenance of a specified
minimum consolidated net worth. In the event of any such
-52-
<PAGE>
default, event of default or failure to maintain the specified minimum
consolidated net worth, the Subordinated Holders are prohibited, under certain
circumstances, from exercising or pursuing any remedy (at law or in equity) to
collect the payment of any amounts due on the Subordinated Notes.
Certain Covenants of the Company and ROC
The Indenture and First Supplemental Indenture contain covenants including,
among others, the following:
Limitation on Additional Indebtedness
The Company may not, and may not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee, extend,
refinance or otherwise become directly or indirectly liable, including, without
limitation, through any merger or consolidation to which the Company or any of
its Subsidiaries is a party or through any other acquisition of any Subsidiary,
or have outstanding, any Indebtedness except for the following: (i) Indebtedness
of the Company evidenced by the Notes; (ii) Indebtedness of ROC pursuant to the
Guarantee; (iii) Refinancing Indebtedness with respect to the Notes; (iv) FF&E
Indebtedness, including Indebtedness in respect of, or secured by, conditional
sale, installment sale or other title retention agreements (including
sale-leaseback transactions), purchase money mortgages and deeds of trust or
other security interests and Capitalized Lease Obligations; (v) Indebtedness of
wholly-owned Subsidiaries payable solely to other wholly-owned Subsidiaries or
to the Company and the Indebtedness of the Company payable solely to its
wholly-owned Subsidiaries, provided that any Indebtedness incurred by the
Company or any wholly-owned Subsidiary of the Company to another wholly-owned
Subsidiary of the Company pursuant to this clause (v) shall cease to be
permitted Indebtedness under this paragraph if and from and after the time the
holder of such Indebtedness ceases to be a wholly-owned Subsidiary of the
Company; (vi) other Indebtedness of the Company and ROC issued pursuant to the
terms of the Joint Plan and Refinancing Indebtedness of the Company and ROC
issued to refinance the Indebtedness of the Company and ROC issued pursuant to
the Joint Plan; (vii) Indebtedness of a Non-restricted Subsidiary that by its
terms prohibits the Lender or other creditor from seeking payment from (or from
having recourse for payment or any other purpose against) the Company or any of
its Subsidiaries (other than the Non-restricted Subsidiary that incurred such
Indebtedness) or their assets, including the Collateral; and (viii) Subordinated
Indebtedness, including FF&E Indebtedness, may be incurred if immediately after
giving effect to such incurrence, the Company on a prospective basis has a Fixed
Charge Coverage Ratio at least equal to 1.5 to 1.0 and for so long as such
Subordinated Indebtedness is outstanding the Company shall have a Fixed Charge
Coverage Ratio at least equal to 1.25 to 1.0.
Limitation on Capital Expenditures
The Company and its Subsidiaries on a consolidated basis may not make
Capital Expenditures during (i) the period commencing on January 1, 1993 and
ending on December 31, 1993 in an aggregate amount exceeding $7,750,000, and
(ii) each fiscal year thereafter in an aggregate amount exceeding the sum of (a)
$6,000,000, plus (b) 80% of cumulative Available Cash Flow from the Closing Date
to the date of determination (to the extent not utilized during any prior
period).
Maintenance of Consolidated Net Worth
If the Consolidated Net Worth of the Company at the end of any two
consecutive fiscal quarters (the last day of the second such fiscal quarter
being referred to as a "Deficiency Date") is less than the
-53-
<PAGE>
amount determined by subtracting $10,000,000 from the Consolidated Net Worth of
the Company as of the Closing Date (and after giving effect to the effectiveness
of the Plan) (the "Minimum Consolidated Net Worth") then the Company shall, no
later than 90 days after a Deficiency Date (120 days if a Deficiency Date is
also the end of the Company's fiscal year), commence an offer for 20 Business
Days to all Holders to purchase the lesser of (i) 10% of the aggregate principal
amount of the First Mortgage Notes originally issued or (ii) the aggregate
principal amount of First Mortgage Notes then outstanding, at a Purchase Price
of 100% of the Principal amount thereof, plus accrued and unpaid interest to the
date of purchase. The obligation of the Company to make an offer to purchase
First Mortgage Notes shall arise each time the Consolidated Net Worth of the
Company is less than the Minimum Consolidated Net Worth as of each Deficiency
Date until the Consolidated Net Worth of the Company is not less than the
Minimum Consolidated Net Worth.
Change of Control
Provided that no Default or Event of Default has occurred and is
continuing, upon the occurrence of a Change of Control, the Company must offer
to repurchase, and each Holder has the right to require the Company to
repurchase, all or any part of such Holder's First Mortgage Notes at a Purchase
Price of 100% of the principal amount thereof, plus accrued and unpaid interest
to the date of purchase, in cash. The Company must purchase all First Mortgage
Notes tendered by the Holders by making payment of the Purchase Price therefor
on or prior to the Purchase Date, which date shall occur no later than 60 days
after the Change of Control occurs, or if such date is not a Business Day, the
next Business Day after such date. Neither the Board of Directors of the Company
nor the Trustee has the power under the Indenture and First Supplemental
Indenture to waive the Company's repurchase obligation in the event of a Change
of Control. See "Description of Securities--Repurchase" above for a discussion
of the practical limitations on the Company's ability to satisfy its repurchase
obligation in the event of a Change of Control.
In general, a Change of Control will occur (i) upon the sale of all or
substantially all of the assets of the Company as an entirety or as part of a
series of transactions to any Person or Related Group of Persons, (ii) upon the
merger, consolidation, sale of stock or any other transaction by the Company
with any Person or Related Group of Persons in which the holders of Capital
Stock of the Company entitled to vote for directors immediately prior to such
transaction then own, directly or indirectly, in the aggregate less than a
majority in voting interest of the total voting power entitled to vote in the
election of directors of the Company (or of directors, managers or trustees of
the surviving or acquiring entity, as the case may be), or (iii) upon the
acquisition by any Person or Related Group of Persons of more than 50% of the
total voting power then entitled to vote for directors of the Company (or of
directors, managers or trustees of the surviving or acquiring entity, as the
case may be). See "--Certain Definitions--Change of Control." Certain
transactions which do not alter the ownership of the Company's assets or the
underlying voting control of the holders of the Company's Capital Stock will not
result in a Change of Control. A recapitalization of the Company's Capital Stock
or a merger or consolidation of the Company and its affiliates which does not
result in the sale of all or substantially all of the Company's assets will not
cause a Change of Control (and trigger the Company's repurchase obligation) so
long as the holders of the Company's Capital Stock entitled to elect directors
of the Company retain control to elect the directors of the Company (or the
directors, managers or trustees of the surviving entity) after such transaction.
On the other hand, a Change of Control will result if such voting control is
lost as a result of the transaction, even in related party transactions such as
an acquisition of the Company's Capital Stock by management. Because of the
voting
cap provisions which limit the amount of voting power which can be obtained by a
Person or Related Group of Persons seeking to acquire shares of the Company's
Capital Stock (as discussed below), it is not likely that an acquisition
-54-
<PAGE>
of the Company's common stock by a Person or Related Group of Persons will
result in a Change of Control unless the Person or Related Group of Persons
makes a tender offer for all of the Company's then outstanding shares of common
stock or unless the voting cap limitations are waived by the Company's Board of
Directors. Currently, the only Capital Stock which the Company is authorized to
issue is its Common Stock.
Under the First Supplemental Indenture, a Change of Control occurs if,
among other things, all or substantially all of the assets of the Company are
sold as an entirety or as part of a series of transactions. Because the term
"substantially all" cannot be quantified based upon Nevada case law, Holders of
First Mortgage Notes may not be able to determine whether or when a Change of
Control has occurred if less than all of the Company's assets have been sold.
Consequently, Holders of First Mortgage Notes may find it difficult (i) to prove
that a Change of Control has occurred and (ii) to require the Company to
repurchase such Holders' First Mortgage Notes, under such circumstances.
In the event that any holder of Common Stock, any affiliate of such holder
or group of holders acquires, directly or indirectly, more than 10% of the
outstanding Common Stock in any three-year period (excluding any shares of
Common Stock held by any holder which were initially issued to such holder on
the Effective Date pursuant to the Plan) (the "Accumulation Threshold"), each
share of Common Stock in excess of the Accumulation Threshold will have a vote
equal to one-one hundredth (1/100th) of one share up to a maximum aggregate
voting interest of 15% of the Common Stock then outstanding. This restriction on
a holder's right to vote shares of Common Stock will remain in place unless and
until such holder makes a tender offer in full conformity with applicable law to
acquire all of the other outstanding shares of Common Stock at the highest price
paid by such holder within the preceding three year period. Prior to the
acquisition of Common Stock by a holder which causes such holder to exceed the
Accumulation Threshold, the board of directors of the Company will have the
right, by an affirmative vote of two-thirds of the total members of the board of
directors, to waive this voting restriction if it is determined by the board of
directors that the acquisition will not have an adverse effect on the Company.
Restrictions on Dividends, Other Payments and Investments
The Company shall not, directly or indirectly, make, or cause or permit any
of its Subsidiaries to make, any Restricted Payment or Restricted Investment;
provided, however that if no Event of Default (without giving effect to any
requirement for notice or passage of time) is in effect, the Company may, from
the net proceeds of the sale by the Company of the Company's equity securities
subsequent to July 1, 1995, (a) pay a dividend on any shares of preferred stock
it may issue and (b) redeem or repurchase shares of its common stock (if the
Board of Directors shall determine that it is undervalued) or preferred stock.
Notwithstanding the foregoing restrictions, such provisions will not prevent (i)
the payment of any dividend or distribution by a Subsidiary of the Company to
the Company or to another direct or indirect wholly-owned Subsidiary of the
Company; (ii) Advances made by the Company to a direct or indirect wholly-owned
Subsidiary of the Company or to a Non-restricted Subsidiary of the Company for
the purposes specified in Section 4.10 hereof; (iii) Advances made by any
Subsidiary of the Company to the Company or any direct or indirect wholly-owned
Subsidiary of the Company; and (iv) contributions to joint ventures,
partnerships or similar agreements with any other Person and capital
contributions or loans to Non-restricted Subsidiaries (hereafter called
"Restricted Investments"); provided, however that if no Event of Default
(without giving effect to any requirement for notice or passage of time) is in
effect, (a) the aggregate amount (at original cost) of all Restricted
Investments outstanding at the time any Restricted Investment is made (including
such Restricted Investment on a pro forma basis) may not (x) exceed the sum of
(1) cumulative Available Cash Flow from the period beginning June 30, 1993 and
ending on the
-55-
<PAGE>
calendar quarter immediately preceding such Investment plus (2) the net proceeds
from the sale of equity securities or subordinated indebtedness minus (3)
cumulative Capital Expenditures from the period beginning June 30, 1993 and
ending on the calendar quarter immediately preceding such Investment (in excess
of $7,119,000 of estimated deferred capital expenditures while the Company was
in bankruptcy) or (y) exceed 50% of the Company's Consolidated Net Worth at the
time of a proposed Restricted Investment (after giving pro forma effect to such
proposed new Restricted Investment); and (b) a proposed new Restricted
Investment may not be made if the aggregate amount of Restricted Investments in
one Person, at original cost (after giving pro forma effect to such proposed new
Restricted Investment), would exceed 25% of the Company's Consolidated Net Worth
(at the time of such proposed new Restricted Investment); provided, that (I) the
Company shall not make any such new Restricted Investment in one Person if the
aggregate amount of such investments in such Person would exceed 10% of the
Company's Consolidated Net Worth (at the time of such proposed new Restricted
Investment) unless the Company had a management contract and a participation in
the profits of such Person, and (II) if the Company did not have a management
contract and a participation in the profits of a Person but the Board of
Directors had a reasonable belief that the Company could obtain the same, the
Company could make Restricted Investments in such Person of up to $5 million.
Notwithstanding the foregoing, the foregoing restrictions on the amount of
Restricted Investments shall not apply with respect to funds for one or more
Restricted Investments that have been raised from the net proceeds of the sale
of stock by the Company for the purpose of making such Restricted Investment or
Restricted Investments.
Limitation on Liens
The Company may not, and may not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or permit to exist, or otherwise
cause or permit to become effective, any Lien upon or with respect to any and
all of the assets of the Company, tangible or intangible, real or personal, and
any of the Collateral or any portion thereof, whether now owned or hereafter
acquired; provided, however, that this restriction on Liens will not prohibit
the creation, incurrence, existence or assumption of (i) any Permitted Liens,
and (ii) any Liens on the assets of any entity existing at the time such assets
are acquired by the Company or any of its Subsidiaries, whether by merger,
consolidation, purchase of assets or otherwise so long as such Liens (a) are not
created, incurred or assumed in contemplation of such assets being acquired by
the Company or any of its Subsidiaries, and (b) do not extend to any other
assets of the Company or any of its Subsidiaries.
No first priority Lien on the Collateral shall be a Permitted Lien (other
than Liens securing FF&E Indebtedness or other Indebtedness existing on the
Closing Date) unless the same is being contested in good faith and with
reasonable diligence (except with respect to statutory liens not yet delinquent)
and then only if (1) such contest shall prevent the sale or forfeiture of the
Collateral, or any part thereof or any interest therein, to satisfy such Lien
and shall not result in a forfeiture or impairment of the Lien of the security
interest or interfere with the use, operation, occupancy and leasing of the
Hotel & Casino; and (2) within 30 days after the Company has been notified of
the filing of any such Lien, the Company (A) shall have notified the Trustee in
writing of such Lien and of the Company's intention to contest such Lien, or to
cause another Person to contest such Lien, and (B) shall have obtained and
provided to the Trustee a copy of a title insurance endorsement, within such 30
day period, over such Lien in form and substance satisfactory to the Trustee,
insuring the Mortgaged Property against loss or damage by reason of such Lien;
provided, however, that in lieu of such title insurance endorsement the Company
may: (i) deposit and keep on deposit with the Trustee, a sum of money or letter
of credit sufficient, in the
-56-
<PAGE>
judgment of the Trustee, to pay in full such Lien and all interest thereon, or
(ii) deposit in court or with the Trustee, a Lien release bond in form and
substance satisfactory to the Trustee.
Any such deposits are to be held and used by the Trustee in its sole
discretion to protect the priority of the security interests and such funds
shall be invested in Cash Equivalents with all interest thereon payable to the
Company so long as no Default exists. In case the Company fails to maintain such
title insurance, deposit or bond, or to prosecute or cause the prosecution of
such contest with reasonable diligence, or to pay or cause to be paid the amount
of the Lien, plus any interest determined to be due upon the conclusion of such
contest, then the Trustee will, upon receipt of written instruction from a
majority of aggregate principal amount of First Mortgage Notes then Outstanding,
apply the money and liquidate any securities or any letter of credit then on
deposit with the Trustee and the proceeds of any such bond in payment of or on
account of such Lien, or that part thereof then unpaid, together with all
interest thereon according to any written bill, notice or statement without
inquiring into the amount, validity or enforceability thereof. If the amount of
money so deposited together with the proceeds of any such bond is insufficient
for the payment in full of such Lien, together with all interest thereon, then
the Company will upon demand, deposit with the Trustee the sum which shall be
necessary to make such payment in full.
Limitation on Operations
The Company shall not, and shall not permit any of its Subsidiaries to,
engage in any line of business, engage in any investment activities or acquire
any assets, other than those necessary for, incidental to or arising in
connection with, the owning, leasing, operating and maintaining of the Casino-
Hotel or other gaming operations and related businesses; provided, however, that
the Company may engage in similar or related lines of business which are
incidental to the primary business of the Company and ROC on the Closing Date;
and provided, further, that the foregoing shall not prohibit Asset Sales that
are not prohibited by the other provisions of this Supplemental Indenture.
Nothing contained herein shall be construed to limit the ability of the Company
or any of its Subsidiaries to make any Restricted Investment permitted under
Section 4.01 in a Person which is primarily engaged in gaming operations and
related businesses of the First Supplemental Indenture.
Sale of Assets
The Company may not, nor may it permit any of its Subsidiaries to, directly
or indirectly, make or permit to occur an Asset Sale, unless (i) the
consideration or compensation therefor received by the Company or such
Subsidiary is solely in the form of cash or Cash Equivalents and has a value at
least equal to the fair market value of such assets, and (ii) all Net Available
Cash Proceeds from any Asset Sale will be used to purchase First Mortgage Notes
at a Purchase Price of 100% of the principal amount thereof, plus accrued and
unpaid interest to the date of purchase, pursuant to an offer in accordance with
the procedures set forth in the First Supplemental Indenture; provided, however,
that the Company may purchase replacement assets if the Net Available Cash
Proceeds are insurance proceeds, other proceeds or awards as a result of any
casualty loss, condemnation or taking of any asset or group of assets (subject,
however, to the requirements relating to major events of loss to the Hotel &
Casino); provided further, however, that the Company shall not be required to
offer to purchase First Mortgage Notes if Net Available Cash Proceeds are (a)
used within one year following the sale to purchase assets to replace those sold
in the Asset Sale, or (b) less than $1,000,000 on any date of determination, in
which case such Net Available Cash Proceeds shall be aggregated with Net
Available Cash Proceeds from subsequent Asset Sales and used to repurchase First
Mortgage Notes once Net Available Cash Proceeds equal or exceed $1,000,000.
-57-
<PAGE>
Limitation on Repayment of Subordinated Indebtedness
The Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, purchase, redeem, prepay by more than thirty (30) days, defease
(including, but not limited to, in-substance or legal defeasance) or otherwise
acquire or retire for value prior to the stated maturity of, or prior to any
scheduled mandatory redemption or sinking fund payment with respect to
(collectively, to "repay" or a "repayment"), the principal of any Indebtedness
of the Company which is subordinated (whether pursuant to its terms or by
operation of law) in right of payment to the Notes; provided, however, that any
such repayment shall not be prohibited if such repayment is financed (i) with
the net proceeds of Subordinated Indebtedness permitted under this Supplemental
Indenture, (ii) with the net proceeds from the sale of equity securities after
July 1, 1995 and/or (iii) from internally generated funds if immediately after
giving pro-forma effect to such repayment the Company had a Fixed Charge
Coverage Ratio of 2.0 to 1.0; provided further, however, that notwithstanding
these limitations, the Company shall be entitled to (i) prepay any claims of any
class of Plan Debt (other than the Notes) as defined in the Joint Plan at a
discount of not less than 10% of the present net value of such prepaid claims,
discounted at the rate of 10% per annum and (ii) prepay or repay any FF&E
Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company may not, and may not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Subsidiary of the Company to (i) pay dividends or make any other
distributions to the Company or any direct or indirect wholly-owned Subsidiary
of the Company on its Capital Stock or any other interest or participation in,
or measured by, its profits owned by, or pay any Indebtedness owed to, the
Company or a direct or indirect wholly-owned Subsidiary of the Company; (ii) pay
any Indebtedness owed by such Subsidiary to the Company or to a direct or
indirect wholly- owned Subsidiary of the Company; (iii) make loans or advances
to the Company or a direct or indirect wholly-owned Subsidiary of the Company;
or (iv) transfer any of its properties or assets to the Company or a direct or
indirect wholly-owned Subsidiary of the Company, except (a) any restrictions
existing on the Closing Date under, or in connection with, instruments or
agreements executed, in effect, or entered into, on the Closing Date, or any
permitted amendments, renewals, refinancings or extensions thereof; provided,
however, that the terms and conditions of any such amendments, renewals,
refinancings or extensions are no more restrictive with respect to the matters
set forth in clauses (i) through (iv) of this paragraph than the agreements
being amended, renewed, refinanced or extended; (b) any restrictions or
encumbrances existing or arising pursuant to the terms of Indebtedness of a
Person outstanding at the time such Person becomes a Subsidiary of the Company
and not incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary of the Company or any permitted amendments, renewals,
refinancings or extensions thereof; provided, however, that the terms and
conditions of any such amendments, renewals, refinancings or extensions are no
more restrictive with respect to the matters set forth in clauses (i) through
(iv) of this paragraph than the agreements being amended, renewed, refinanced or
extended; (c) encumbrances or restrictions existing under or by reason of
applicable law or the Indenture, the First Supplemental Indenture and the First
Mortgage; (d) customary provisions restricting assignment of contracts or
subletting or assignment of any lease governing a leasehold interest of any
Subsidiary of the Company; (e) FF&E Indebtedness that limits the right of the
debtor to dispose of the assets to which such Indebtedness relates; and (f) any
restrictions imposed on a Non-restricted Subsidiary in connection with the
incurrence by such Non-restricted Subsidiary of Indebtedness permitted under the
First Supplemental Indenture.
-58-
<PAGE>
Limitation on Transactions with Affiliates
Neither the Company nor any of its Subsidiaries may sell, lease, release,
transfer or otherwise dispose of any of its properties or assets to or purchase
any property or assets from, or enter into any contract, agreement,
understanding, loan, Advance or guarantee with, or for the benefit of, an
Affiliate, or pay compensation to Affiliates of the Company that are officers or
employees of the Company (an "Affiliate Transaction"), except on fair and
reasonable terms that are no less favorable to the Company or the relevant
Subsidiary than those that could have been obtained in a comparable transaction
by the Company or such Subsidiary in an arm's-length transaction with an
unrelated person. Notwithstanding the generality of the foregoing, the term
"Affiliate Transaction" shall not include any transactions between the Company
and its direct or indirect wholly-owned Subsidiaries.
In addition to the foregoing, neither the Company nor any of its
Subsidiaries may enter into (i) an Affiliate Transaction involving or having a
potential value of more than $50,000 unless such transaction has been
unanimously approved by the board of directors of each corporation so involved;
or (ii) an Affiliate Transaction involving or having a potential value of more
than $500,000 unless the Company has received an opinion of an independent
investment banking firm to the effect that the transaction is fair to the
Company from a financial point of view.
Liquidation
The Board of Directors or the stockholders of the Company may not adopt a
plan of liquidation which provides for, contemplates or the effectuation of
which is preceded by (i) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company otherwise than substantially
as an entirety, and (ii) the distribution of all or substantially all of the
proceeds of such sale, lease, conveyance or other disposition and of the
remaining assets of the Company to the holders of Capital Stock of the Company,
unless the Company, prior to making any liquidating distribution pursuant to
such plan, makes provision for the satisfaction of the Company's obligations
under the First Mortgage Notes as to the payment of Principal and interest and
all other obligations and liabilities of the Company under the Indenture and
First Supplemental Indenture.
The Company will be deemed to make provision for such payments of Principal
and interest only if the Company delivers in trust to the Trustee money or U.S.
Government Obligations maturing as to Principal and interest in such amounts and
at such times as are sufficient without consideration of any reinvestment of
such interest to pay, when due, the Principal of and interest on the First
Mortgage Notes and also delivers to the Trustee an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such action and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such action had not been taken; provided, however, that
the Company may not make any liquidating distribution until after (i) the
Company has made provisions satisfactory to the Trustee for the payment of all
other obligations of the Company under the Indenture, the First Supplemental
Indenture and under the First Mortgage Notes, and (ii) the Company has certified
to the Trustee with an Officers' Certificate at least five days prior to the
making of any liquidating distribution that it has complied with the provisions
of the Indenture and the First Supplemental Indenture and that no Default or
Event of Default then exists or would occur as a result of any such liquidating
distribution.
-59-
<PAGE>
Limitations on Merger, Consolidation, Conveyance or Transfer
The Indenture contains a provision limiting the Company's and ROC's ability
to consolidate or merge with or into, or sell, lease (except a lease or license
by the Company to ROC), convey or otherwise dispose of all or substantially all
of its properties or assets to, any Person. This limitation is designed to
protect the Holders by preserving the existing corporate structures of the
Company and ROC, and maintaining the priority of the Lien of the First Mortgage.
In addition to the provisions of the Indenture, the First Supplemental
Indenture provides that the Company and ROC may not consolidate or merge with or
into, or sell, lease, convey or otherwise dispose of all or substantially all of
its properties or assets to, any Person unless (i) immediately after giving
effect to the transaction, the Consolidated Net Worth of the continuing entity
as of the last day of the immediately preceding fiscal quarter (after giving
effect to the transaction as if it had occurred on the first day of the four
quarter period ended on such day) is at least equal to the actual Consolidated
Net Worth of the Company or ROC, as the case may be, as of the last day of such
fiscal quarter, and (ii) immediately after giving effect to the transaction, the
Company, or the continuing corporation (if other than the Company) on a pro
forma basis, has a Fixed Charge Coverage Ratio at least equal to 2.0 to 1.0
(except in the event of any merger solely between the Company and ROC in which
case clause (ii) will not apply).
Restriction on Creation of Subsidiaries and Joint Ventures
The Company shall not, directly or indirectly, (a) create or suffer to
exist any Subsidiary of the Company other than (i) a direct or indirect
wholly-owned Subsidiary or (ii) a Non-restricted Subsidiary, which need not be
directly or indirectly wholly-owned, or (b) enter into any joint venture,
partnership or similar agreement with any other Person in excess of $100,000 in
any single contribution; provided, however, that a Non-restricted Subsidiary may
enter into a Restricted Investment in the form of a joint venture, partnership
or similar agreement, subject to the limitations specified in Section 4.01 of
the First Supplemental Indenture.
Major Events of Loss to Hotel & Casino
In the event of any casualty loss or taking by eminent domain, condemnation
or otherwise of all of the Hotel & Casino, or a portion of the Hotel & Casino
such that it cannot reasonably continue to be operated as a casino or a hotel,
the Company must, within 10 days of the receipt of the insurance proceeds,
condemnation award or other proceeds, commence an offer to all Holders to
purchase a principal amount of First Mortgage Notes (plus accrued and unpaid
interest) equal to the amount of insurance proceeds, condemnation award or other
proceeds available for such purpose (net of any direct expenses incurred by the
Company in connection with such casualty loss or taking) at a Purchase Price
equal to 100% of the principal amount of the First Mortgage Notes purchased plus
accrued and unpaid interest on the date of purchase.
Events of Default and Notice Thereof
Under the Indenture, an "Event of Default" with respect to the First
Mortgage Notes occurs if any of the following events occurs: (1) the Company or
ROC defaults in the payment of interest on any First Mortgage Note when the same
becomes due and payable and the Default continues for a period of 10 days
(excluding Legal Holidays); (2) the Company or ROC defaults in the payment of
the Principal of any First Mortgage Note when the same becomes due and payable
at maturity, upon redemption or
-60-
<PAGE>
repurchase or otherwise (whether or not such payment shall be prohibited by the
terms of any subordination agreement); (3) (a) the Company or ROC fails to
comply with any of its other agreements, covenants, or representations or
warranties in, or provisions of, the First Mortgage Notes, the Indenture, the
First Supplemental Indenture, or the Guarantee and the Default continues for the
period and after the notice specified below, or (b) the Company or ROC fails to
comply with any of the agreements, covenants, warranties or representations in,
or provisions of, the First Mortgage or the Indemnity Agreement, or any other
default occurs under the First Mortgage or the Indemnity Agreement and such
failure or default continues for any period and after any notice specified
therein; (4) any of the representations or warranties contained in the
Indenture, the First Supplemental Indenture, the First Mortgage or the Indemnity
Agreement or in any certificate delivered pursuant to the Indenture, the First
Supplemental Indenture, the First Mortgage or the Indemnity Agreement shall have
been materially false or misleading in any material respect when made; (5) an
event of default occurs under any mortgage, indenture, agreement, note or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness of the Company or ROC or any Subsidiary of the
Company (or the payment of which is subject to the Guaranteed Indebtedness by
the Company or a Subsidiary of the Company), whether such Indebtedness or
Guaranteed Indebtedness now exists or shall be created hereafter, if (a) either
(i) such event of default results from the failure to pay Principal of or
interest on any such Indebtedness, (ii) as a result of such event of default the
maturity of such Indebtedness has been accelerated prior to its expressed
maturity, or (iii) to the extent such Indebtedness is secured, such holder
thereof commences any foreclosure action or similar proceeding with respect to
the collateral security of such Indebtedness; and (b) except for the Class 4
Note, Class 5 Notes, Class 12 Note and Class 13/14 Note, the principal amount of
such Indebtedness, together with the principal amount of any other such
Indebtedness then in default pursuant to clause (a) above, exceeds $1,000,000;
(6) a final judgment or final judgments for the payment of money are entered by
a court or courts of competent jurisdiction against the Company or any
Subsidiary of the Company and such remains undischarged for a period (during
which execution shall not be effectively stayed) of 30 days; provided, however,
that the aggregate of all such judgments exceeds $500,000 plus the amount of
such judgments adequately covered and payable by a solvent insurance company;
(7) there has occurred a revocation, suspension or loss a gaming license held by
the Company or any of its Subsidiaries which results in the material cessation
of a substantial portion of the gaming operations of the Hotel & Casino for a
period of 120 days; (8) the Company or any Material Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law: (a) commences a
voluntary case, (b) consents to the entry of an order for relief against it in
an involuntary case, (c) consents to the appointment of a Custodian of it or for
all or substantially all of its property, (d) makes a general assignment for the
benefit of its creditors, or (e) generally is unable to pay its debts as the
same become due; or (9) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that: (a) is for relief against the Company or
any Material Subsidiary of the Company in an involuntary case, (b) appoints a
Custodian of the Company or any Material Subsidiary of the Company or for all or
substantially all of its property, or (c) orders the liquidation of the Company
or any Material Subsidiary of the Company, and the order or decree remains
unstayed and in effect for 30 days.
A Default under clause (3) above (other than Defaults for (i) failure to
maintain corporate existence, (ii) becoming an investment company or part of a
consolidated group for federal income tax purposes with anyone other than
Affiliates and Subsidiaries, (iii) engaging in an unauthorized merger or
consolidation, (iv) making any prohibited Restricted Payment or Restricted
Investment, (v) adopting any prohibited plan of liquidation, or (vi) failing to
comply with the repurchase requirements relating to Asset Sales, Consolidated
Net Worth maintenance and Changes of Control, which Default shall be an Event of
Default without notice or passage of time) is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the then
Outstanding First Mortgage Notes notify the
-61-
<PAGE>
Company of the Default and the Company does not cure the Default within 30 days
after receipt of the notice.
Pursuant to the terms and provisions of the Indenture, the Company must
deliver to the Trustee, within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Company and within 90 days after the
end of each fiscal year of the Company, a certificate signed by the principal
executive officer, principal financial officer or principal accounting officer
of the Company (the "Compliance Certificate") stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal
quarter or fiscal year, as the case may be, has been made under the supervision
of the signing officer with a view to determining whether the Company has kept,
observed, performed and fulfilled each of its obligations under the Indenture
and the First Supplemental Indenture, and further stating, as to such officer
signing such certificate, that to the best of his knowledge the Company has
kept, observed, performed and fulfilled each and every covenant contained in the
Indenture and the First Supplemental Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of the
Indenture or the First Supplemental Indenture (or, if a Default or Event of
Default has occurred, describing all such Defaults or Events of Default of which
he may have knowledge, the facts relating thereto, and the actions taken or
being taken by the Company in respect thereof). ROC is also required to deliver
to the Trustee, within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of ROC and within 90 days after the end of each
fiscal year of ROC, a Compliance Certificate of ROC setting forth similar
information as required for the Company but with respect to ROC.
The Company and ROC must also, so long as any of the First Mortgage Notes
are Outstanding, deliver to the Trustee, forthwith upon becoming aware of (i)
any Default, Event of Default or default in the performance of any covenant,
agreement or condition contained in the Indenture, the First Supplemental
Indenture, the Indemnity Agreement or the First Mortgage; or (ii) any event of
default under any other mortgage, indenture or related instrument, a Compliance
Certificate specifying such Default, Event of Default or default, the facts
relating thereto, and the actions being taken by the Company and ROC in respect
thereof.
Modification of Indenture and First Supplemental Indenture
The parties to the Indenture and the First Supplemental Indenture (the
Company, ROC and the Trustee) may, without the consent of the Holders, amend the
Indenture and the First Supplemental Indenture for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
providing for uncertificated Securities, changing provisions or terms of the
Indenture to comply or conform with the Trust Indenture Act, reflecting a merger
or consolidation of the Company or ROC or the sale, lease or disposition of all
or substantially all of their respective properties or assets (to the extent
otherwise permitted under the Indenture and the First Supplemental Indenture),
evidencing the replacement of the Trustee, or making changes to the Indenture
that do not materially adversely affect the rights of any Holder of First
Mortgage Notes. Modifications, changes and amendments to the Indenture and the
First Supplemental Indenture may also be made by the parties thereto with the
consent of the Holders of at least a majority in aggregate principal amount of
the then Outstanding First Mortgage Notes; but the consent of the Holder of each
Outstanding First Mortgage Note affected by the modification or amendment will
be required for any change that would reduce the amount of First Mortgage Notes
whose Holders must consent to an amendment or waiver; reduce the rate of or
change the time for payment of interest on any First Mortgage Note; reduce the
Principal of or change the fixed maturity of any First Mortgage Note or alter
the redemption provisions with respect thereto; make any First Mortgage Note
payable in money other than that stated in the First Mortgage Note; make any
-62-
<PAGE>
change to Sections 6.04 (Waiver of Past Defaults), 6.07 (Rights of Holders to
Receive Payment) or 9.02(5) (unanimous consent for amendments or waivers) or
waive a default in the payment of Principal of or interest on any First Mortgage
Note.
Moreover, an amendment or waiver may not alter the repurchase provisions
with respect to the First Mortgage Notes without the consent of at least 66-2/3%
in aggregate principal amount of the First Mortgage Notes then outstanding.
Satisfaction and Discharge of Indebtedness
The Indenture and the First Supplemental Indenture will cease to be of
further effect when all the First Mortgage Notes theretofore authenticated and
issued have been delivered to the Trustee for cancellation, and the Company has
paid all sums payable thereunder. In addition, the Company may terminate all of
the obligations of the Company and ROC under the Indenture and the First
Supplemental Indenture if: (1) all of the First Mortgage Notes mature within one
year or all of them are to be called for redemption within one year under
arrangements satisfactory to the Trustee for giving the notice of redemption;
(2) the Company irrevocable and indefeasibly deposits in trust with the Trustee
money or U.S. Government Obligations sufficient to pay Principal of and interest
on the First Mortgage Notes to redemption and to pay all other sums payable by
it under the Indenture and the First Supplemental Indenture; (3) at the time of
the deposit of money or U.S. Government Obligations, no Default has occurred and
is continuing; and (4) the Company and ROC have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that all conditions
precedent provided for in the Indenture and the First Supplemental Indenture
relating to the satisfaction and discharge of the Indenture, the First
Supplemental Indenture, the First Mortgage Notes and the Guarantee have been
complied with. Notwithstanding the foregoing, certain obligations of the Company
and ROC shall survive with respect to the First Mortgage Notes until the First
Mortgage Notes are no longer Outstanding. Thereafter, only the Company's and
ROC's obligation to provide compensation, reimbursement for expenses and
indemnification to the Trustee and the Trustee's obligation to pay excess money
and securities to the Company shall survive.
Trustee
The trustee is IBJ Schroder Bank & Trust Company, a New York corporation
("IBJ"). The Trustee has also been named, initially, as registrar and paying
agent. IBJ was qualified as trustee under the Trust Indenture Act on June 30,
1993, pursuant to a Statement of Eligibility and Qualification on Form T-1 filed
with the Commission (Commission File No. 22-24540). American Stock Transfer and
Trust Company has been appointed as the Transfer Agent.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture and the First Supplemental Indenture. During the existence of
an Event of Default, the Trustee will exercise such of the rights and powers
vested in it under the Indenture and the First Supplemental Indenture and will
use the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affair (Section 7.01(a)). The Holders of a majority in aggregate principal
amount of the then Outstanding First Mortgage Notes may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it with respect to the First
Mortgage Notes (Section 6.05). However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture or First Supplemental
Indenture,
-63-
<PAGE>
that is unduly prejudicial to the rights of other Holders not taking part in
such action, or that may involve the Trustee in personal liability.
The Indenture also provides that the Company must indemnify the Trustee
for, and hold it harmless against, any loss or liability incurred by it in
connection with the administration of the Indenture and its duties thereunder.
However, the Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
Certain Definitions
"Adjusted Cash Flow" means, with respect to the Company and its
Subsidiaries on a consolidated basis, for any period, EBITDA for such period,
minus (i) any cash payments of Principal and interest made during such period on
any Indebtedness, minus (ii) Capital Expenditures for such period, minus (iii)
cash payments made during such period for federal and state taxes based on
income.
"Advance" means any direct or indirect advance, loan, guarantee, transfer
(pursuant to contract or otherwise) or other extension of credit or any
repayment of any of the foregoing, including without limitation any payment of
principal or interest with respect to any presently outstanding or subsequently
incurred Indebtedness (other than Indebtedness owing pursuant to the First
Mortgage Notes) which is owed to, or held by, the Company or any Affiliate of
the Company, including any Subsidiary of the Company (in cash or other
property), as the case may be, but the term Advance shall not include: (i) sales
or leases of assets on terms that are no less favorable to the Company or the
relevant Subsidiary than those that could have been obtained in a comparable
transaction by the Company or such Subsidiary from an unrelated person, or (ii)
any advance from any directly or indirectly wholly-owned Subsidiary of the
Company to any other directly or indirectly wholly-owned Subsidiary of the
Company or to the Company.
"Affiliate" of any specified Person means any Subsidiary of such Person and
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For the purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities or by agreement or otherwise.
"Asset Sale" means any sale, lease, conveyance or other disposition (not
including equipment trade-ins) by the Company or any of its Subsidiaries to any
Person (other than a wholly-owned Subsidiary of the Company) or any casualty
loss, condemnation or taking of any asset or group of assets (including the
Capital Stock of any Subsidiary of the Company or other Person, but excluding
cash and Cash Equivalents which would be included on a balance sheet as "current
assets" in accordance with generally accepted accounting principles) owned by
the Company or any Subsidiary of the Company, other than the disposition of
assets in the ordinary course of business.
"Available Cash Flow" means, with respect to the Company and its
Subsidiaries, for any period, the Consolidated Net Income of the Company for
such period, plus (i) any non-cash Consolidated Interest Expense for such period
(including, without limitation, any amortization of original issue discount) and
any other non-cash charges deducted in calculating Consolidated Net Income
(including, without limitation, non-cash tax expense), plus (ii) depreciation
and amortization expense of the Company and its Subsidiaries, minus (iii) any
payments of Principal made during such period on any Indebtedness by
-64-
<PAGE>
the Company and its Subsidiaries, minus (iv) any cash dividends or distributions
required to be made on any class of any Capital Stock of the Company or its
Subsidiaries and actually paid during such period, minus (v) any non-cash items
increasing Consolidated Net Income.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" or "Board" means the Board of Directors of the Company
or ROC, as the context may require, or any authorized committee of such Board of
Directors.
"Business Day" means any day that is not a Legal Holiday.
"Capital Expenditures" means with respect to any Person, for any period,
the aggregate of all expenditures made during such period by such Person or any
of its Subsidiaries (other than amounts properly expensed in accordance with
generally accepted accounting principles) for property, plant, furniture,
fixtures, equipment, any similar fixed asset account or goodwill, which
expenditures have been reflected in property, plant, furniture, fixtures,
equipment, any similar fixed asset account or goodwill (other than any cash
payments made in connection with any ongoing maintenance obligations of such
Persons or any of their Subsidiaries).
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"Capitalized Lease Obligations" means, with respect to any Person, an
obligation of such Person to pay rent or other amounts under a lease that is
required to be capitalized for financial reporting purposes in accordance with
generally accepted accounting principles and the amount of such obligation shall
be the capitalized amount thereof determined in accordance with such principles.
"Cash Equivalent" means (i) U.S. Government Obligations maturing not more
than one (1) year after the date of purchase; (ii) any certificate of deposit,
maturing not more than ninety (90) days after the date of purchase, issued by,
or time deposit of, a commercial banking institution which is a member of the
Federal Reserve System or of a foreign banking institution organized under the
laws of a country which is a member of the Organization for Economic Cooperation
and Development and whose long term certificates of deposit are rated at least
A1 by Standard & Poor's Corporation and at least A+ by Moody's Investors
Services, Inc. and, in each case, which has combined capital and surplus and
undivided profits of not less than $200,000,000; (iii) commercial paper,
maturing not more than ninety (90) days after the date of purchase, issued by a
corporation (other than the Company or an Affiliate of the Company) organized
and existing under the laws of the United States of America which is rated, at
the time as of which any investment therein is made, "P-2" (or higher) by
Moody's Investors Service, Inc. or "A-2" (or higher) by Standard and Poor's
Corporation; (iv) bankers' acceptances drawn on and accepted by commercial
banking institutions which have combined capital and surplus and undivided
profits of not less than $200,000,000; and (v) repurchase agreements with
commercial banking and financial institutions which have combined capital and
surplus and undivided profits of not less than $200,000,000 with respect to any
of the foregoing obligations or securities.
"Change of Control" means any of the following: (i) all or substantially
all of the assets of the Company are sold as an entirety or as part of a series
of transactions to any Person or Related Group of Persons, (ii) the Company
engages in any merger, consolidation, sale of Capital Stock, sale of Equity
Interests or any other transactions with any other Person or Related Group of
Persons, with the effect that
-65-
<PAGE>
after such transactions the holders of Capital Stock of the Company then
entitled to vote for directors immediately prior to such transactions own,
directly or indirectly, in the aggregate less than a majority in voting interest
of the total voting power entitled to vote in the election (a) of directors of
the Company, if the Company is the surviving entity, or (b) of directors,
managers or trustees (1) of such other Person, if the Company is not the
surviving entity, or (2) of such other Person that purchases all or
substantially all of the Company's assets; (iii) any Person or Related Group of
Persons acquires after the Closing Date more than 50% of the total voting power
then entitled to vote for directors of the Company; or (iv) any Person or
Related Group of Persons acquires after the Closing Date more than 50% of the
total voting power entitled to vote for directors, managers or trustees (a) of
such Person other than the Company surviving any of the transactions referred to
in clause (ii) above, or (b) of such other Person that purchases all or
substantially all of the Company's assets.
"Class 4 Note" means that certain Class 4 Unsecured Promissory Note in the
original principal amount of $4,200,000, dated as of the Closing Date, of the
Company in favor of the Class 4 Disbursing Agent (as such term is defined in the
Plan), payable in an initial payment of $1,050,000 on the Closing Date and the
balance in six equal semiannual installments of $525,000, and which is
subordinated to the extent set forth in the Subordination Agreement.
"Class 5 (Sequoia "A") Note" means that certain Class 5 Unsecured
Promissory Note (Sequoia "A" Note) in the original principal amount of
$1,028,000, dated as of the Closing Date, of the Company in favor of the Class 5
Disbursing Agent (as such term is defined in the Plan), payable in an initial
payment of $352,000 on the Closing Date and the remaining balance in five equal
semiannual installments of $125,167 and a sixth and final installment of
$50,165, and which is subordinated to the extent set forth in the Subordination
Agreement.
"Class 5 (Sequoia "B") Note" means that certain Class 5 Unsecured
Promissory Note (Sequoia "B" Note) in the original principal amount of $284,000,
dated as of the Closing Date, of the Company in favor of Transamerica Title
Insurance Company, payable in an initial payment of $200,000 on the Closing Date
and the balance in twelve equal monthly installments of $7,000 (the Class 5
(Sequoia "A") Note and Class 5 (Sequoia "B") Note are collectively referred to
as the "Class 5 Notes").
"Class 12 Note" means that certain Class 12 Non-Negotiable Unsecured
Promissory Note in the original principal amount of $7,500,000 (subject to
adjustment as provided therein), dated as of the Closing Date, of the Company in
favor of the Class 12 Disbursing Agent (as such term is defined in the Plan),
payable in an initial payment of $1,000,000 on or within five Business Days
after the Closing Date and the remaining balance in semiannual installments of
$750,000 (unless the amount due at the time of such payment is less than
$750,000 as provided therein, in which case the lesser amount shall be paid),
and which is subordinated to the extent set forth in the Subordination
Agreement.
"Class 13/14 Note" means that certain Class 13/14 Unsecured Promissory Note
in the principal amount of $8,000,000 (subject to adjustment as provided
therein), dated as of the Closing Date, of the Company in favor of the Class
13/14 Disbursing Agent (as such term is defined in the Plan), payable in
semiannual payments of $250,000 until the Class 12 Note is paid in full, and
commencing on the next payment date thereafter in semiannual installments of
$750,000 (unless the amount due at the time of such payment is less than
$750,000, in which case the lesser amount shall be paid), and which is
subordinated to the extent set forth in the Subordination Agreement.
"Closing Date" means the Effective Date of the Plan (as such term is
defined in the Plan).
-66-
<PAGE>
"Collateral" means the Mortgaged Property, the Collateral (as defined in
the Security Agreement) and the Trademarks and Associated Goodwill (as defined
in the Trademark Security Agreement), collectively.
"Consolidated" or "consolidated," when used with reference to any amount,
means such amount determined on a consolidated basis in accordance with
generally accepted accounting principles, after the elimination of intercompany
items, but excluding, in the case of the Company for any determination prior to
the Closing Date, the financial results of (i) World Wide Financial Partnership,
L.P., a Delaware limited partnership, and any successor in interest thereto
other than the Company or a Subsidiary of the Company, and (ii) any Subsidiary
of World Wide Financial Partnership, L.P.
"Consolidated Fixed Charges" means, for any period, without duplication,
the aggregate amount of (i) Consolidated Interest Expense, (ii) all but the
principal component of rentals in respect of Capitalized Lease Obligations,
(iii) all principal payments (except to the extent included as part of
Consolidated Interest Expense as amortization of original issue discount)
required to be paid on Indebtedness of the Company and ROC pursuant to the Joint
Plan (including, without limitation, the Class 4 Note, the Class 5 Notes, the
Class 12 Note and the Class 13/14 Note) or on other claims pursuant to the Joint
Plan, and (iv) one-third of consolidated lease expense with respect to all other
leases of original terms of more than one year, paid, accrued or scheduled to be
paid or accrued by the Company and its Subsidiaries on a consolidated basis in
accordance with generally accepted accounting principles, but (v) excluding
amounts due for prefunded periodic slot payments.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest expense in respect of Indebtedness of the Company and its
Subsidiaries that appears on the balance sheet of the Company for such period
determined in accordance with generally accepted accounting principles,
including amortization of original issue discount and all non-cash interest
payments to any Person, the interest portion of any deferred payment obligation
and the interest component of Capitalized Lease Obligations paid, accrued or
scheduled to be paid or accrued by the Company and its Subsidiaries on a
consolidated basis during such period.
"Consolidated Net Income" means, for any period, the net earnings (or loss)
after taxes of the Company and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with
generally accepted accounting principles; provided, however, that there shall be
excluded (i) the income (or loss) of any Person (other than a Subsidiary of the
Company) in which any other Person (other than the Company or any of its
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any of its
Subsidiaries by such other Person during such period, (ii) except to the extent
included pursuant to the foregoing clause (i), the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of the Company or is
merged into or consolidated with the Company or any of its Subsidiaries or that
Person's assets are acquired by the Company or any of its Subsidiaries, (iii)
the income of any Subsidiary of the Company to the extent that the declaration
or payment of dividends or similar distributions by that Subsidiary of that
income is not at the time permitted by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary, and (iv) any gains or
losses attributable to Asset Sales.
"Consolidated Net Worth" with respect to any Person means the consolidated
shareholders' equity of such Person and its consolidated Subsidiaries, all as
determined on a consolidated basis and in conformity with generally accepted
accounting principles.
-67-
<PAGE>
"Debt" of any Person means any indebtedness, contingent or otherwise, (i)
in respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of such Person or only a portion thereof), or (ii)
evidenced by bonds, notes, debentures or similar instruments, or (iii)
representing the balance deferred and unpaid of the purchase price of any
property or interest therein (except any such balance that constitutes a trade
payable not unpaid for more than 90 days to a trade creditor created, incurred,
assumed or guaranteed by such Person in the ordinary course of business of such
Person in connection with obtaining goods, materials or services), or (iv)
incurred in a sale-leaseback transaction, if and to the extent such indebtedness
would appear as a liability upon a balance sheet of such Person prepared on a
consolidated basis in accordance with generally accepted accounting principles,
or (v) representing reimbursement obligations with respect to letters of credit
whether or not such obligations would appear on a balance sheet. Debt of the
Company and ROC shall expressly include any and all debt securities and other
indebtedness issued or incurred by each of them, respectively, pursuant to the
Plan, including without limitation the Class 4 Note, the Class 5 Notes, the
Class 12 Note and the Class 13/14 Note.
"Deed of Trust" means the Deed of Trust, Assignment of Rents and Security
Agreement, dated as of the Closing Date, as amended and supplemented from time
to time.
"Default" means any Event of Default and any event which is, or after
notice or passage of time or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part on, or prior to, the
maturity date of the First Mortgage Notes.
"EBITDA" means, for any period, the sum of the amounts for the Company (or
the Casino-Hotel division of Riviera, Inc., excluding non-operating costs or
charges relating to the bankruptcy of Riviera, Inc.) and its Subsidiaries on a
consolidated basis for such period, without duplication, of (i) Consolidated Net
Income, plus (ii) Consolidated Interest Expense (including, without limitation,
any amortization or original issue discount) and any other non-cash charges
deducted in calculating Consolidated Net Income, plus (iii) provision for
federal and state taxes based on income, plus (iv) depreciation and amortization
expense, plus (v) extraordinary losses, minus (vi) extraordinary gains, minus
(vii) any non-cash items increasing Consolidated Net Income, all of the
foregoing as determined in accordance with generally accepted accounting
principles.
"Equity Interests" means Capital Stock or warrants, options or other rights
to acquire Capital Stock.
"FF&E Indebtedness" means any Indebtedness incurred by the Company or any
Subsidiary of the Company in connection with the acquisition by the Company or
such Subsidiary after the Closing Date of furniture, fixtures, equipment and
other assets not owned by the Company or any Subsidiary as of the Closing Date
in connection with the ordinary course of business of the Company or the
Subsidiary and otherwise permitted under this Supplemental Indenture, including
Indebtedness incurred to finance, refinance or refund the cost of an item of
property; provided, however, that (i) the principal amount of such Indebtedness
does not exceed eighty percent (80%) of the lesser of (a) the fair market value
of such equipment at the date of incurrence of FF&E indebtedness or (b) the
original cost of all FF&E assets acquired subsequent to June 30, 1993 (except
that with respect to any Gaming Devices, the percentage
-68-
<PAGE>
shall be 100%) and (ii) to the extent such Indebtedness is not repaid out of the
proceeds of the sale of the furniture, fixtures and equipment (including Gaming
Devices) by which such Indebtedness is secured ("Unsecured Amount"), such
Unsecured Amount shall be subordinated indebtedness as contemplated by Section
4.07 of the Supplemental Indenture.
"First Mortgage" means the Deed of Trust, the Security Agreement and the
Trademark Security Agreement, the liens of which secure the obligations of the
Company and ROC under the First Mortgage Notes, the Guarantee, the Indenture and
the First Supplemental Indenture.
"Fixed Charge Coverage Ratio" means the ratio of (i) the aggregate amount
of projected EBITDA for the four fiscal quarters immediately following the date
of determination, as determined in good faith by the Company's Board of
Directors, to (ii) the aggregate Consolidated Fixed Charges accruing during the
fiscal quarter in which the date of determination occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter, assuming for the purpose
of such calculation, that the amount of Consolidated Fixed Charges will be the
amount accruing on the amount of Indebtedness of the Company and its
Subsidiaries outstanding on the date of determination and, for purposes of the
three fiscal quarters immediately subsequent to the fiscal quarter in which the
determination date occurs, will be an amount reasonably anticipated to be
outstanding from time to time during such period.
"Guaranteed Indebtedness" with respect to any obligation means:
(1) any direct or indirect guaranty, discount with recourse or
endorsement (other than of a negotiable instrument for collection or
deposit in the ordinary course of business) of all or any part of such
obligation;
(2) any direct or indirect agreement or arrangement, contingent or
otherwise, to purchase, repurchase or otherwise acquire any part or all of
such obligation; or
(3) any other direct or indirect agreement or arrangement the
practical effect of which is to assure the payment or performance (or
payment of damages in the event of nonperformance) of all or any part of
such obligation.
The amount of a guaranty shall be deemed to be the maximum amount of the
obligation guaranteed for which the guarantor could be held liable under such
guaranty.
"Holder" means a person in whose name a First Mortgage Note is registered.
"Indebtedness" of any Person means the Debt of such Person plus, to the
extent not otherwise included:
(1) Guaranteed Indebtedness;
(2) obligations of others secured by any Lien to which any property or
asset owned or held by such Person is subject, whether or not the
obligations secured thereby shall have been assumed by such Person
(provided that if the obligations have not been assumed such obligations
shall be deemed to be in an amount equal to the fair market value of the
property or properties to which the Lien relates, as determined in good
faith by the board of directors of such Person);
(3) Capitalized Lease Obligations;
-69-
<PAGE>
(4) the maximum repurchase or redemption price of any Disqualified
Stock of such Person; and
(5) any obligation with respect to any interest rate swap agreement,
interest rate collar agreement or other similar agreement or arrangement
designed to protect such Person against fluctuations in interest rates.
"Indemnity Agreement" means that certain Indemnity Agreement, dated as of
the Closing Date, as amended and supplemented from time to time.
"Independent Counsel" means legal counsel appointed by the holders of a
majority in aggregate principal amount of Outstanding First Mortgage Notes as of
the date of determination, and shall include accountants, appraisers and other
professionals retained by such legal counsel.
"Legal Holiday" means a Saturday, Sunday or a day on which banking
institutions in the State of Nevada or the State of New York are not required to
be open.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in a charge against real or personal
property, or a security interest of any kind, including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.
"Material Subsidiary" means (i) any Subsidiary of the Company which is a
"significant subsidiary" within the meaning of that term as defined in Rule
1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such
Regulation is in effect on the date of the Indenture); (ii) any other Subsidiary
of the Company or one or more Subsidiaries of the Company, directly or
indirectly, which individually or in the aggregate is material to the business,
earnings, properties, assets or condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole; and (iii) any Subsidiary of the
Company that is a guarantor of the First Mortgage Notes.
"Mortgaged Property" shall have the meaning specified in the Deed of Trust.
"Net Available Cash Proceeds" means, with respect to any Asset Sale, the
cash payments (including any cash received by way of deferred payment of
Principal pursuant to a Cash Equivalent as and when so required) received from
such Asset Sale net of the costs of the Asset Sale (including, without
limitation, the payment of the outstanding principal amount of, premium or
penalty, if any, and interest on any FF&E Indebtedness or other Indebtedness
secured by a Lien on the asset or group of assets disposed of, taxes and any
finder's or broker's fees).
"Non-restricted Subsidiary" means any Subsidiary of the Company (other than
ROC) which is designated by the Company's Board of Directors as a Non-restricted
Subsidiary for the purpose of making an investment permitted under the provision
entitled "Restriction on Creation of Subsidiaries and Joint Ventures."
"Officers' Certificate" means a certificate signed on behalf of the Company
or ROC, or both, as the case may be, requiring the signature of two Officers,
one of whom must be the Chairman of the Board, Chief Executive Officer, the
President, the Chief Operating Officer, the Treasurer or a Vice- President of
the Company or ROC, as the case may be.
-70-
<PAGE>
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be Independent Counsel or an employee
of or counsel to the Company, ROC or the Trustee.
"Outstanding" means, as of any particular time with respect to First
Mortgage Notes, all First Mortgage Notes theretofore authenticated and delivered
by the Trustee under the Indenture, except: (i) First Mortgage Notes theretofore
paid, retired, redeemed, discharged or canceled, or First Mortgage Notes for the
purchase, payment or redemption of which money or U.S. Government Obligations in
the necessary amount shall have been deposited with, or shall then be held by,
the Trustee or the Paying Agent (other than the Company) with irrevocable
direction to apply such money or the proceeds of such U.S. Government
Obligations to such purchase, payment or redemption; (ii) First Mortgage Notes
deposited with or held in pledge by the Trustee under the Indenture, including
any First Mortgage Notes so held under any sinking, improvement, maintenance,
replacement or analogous fund; and (iii) First Mortgage Notes paid or in
exchange or substitution for and/or in lieu of which other First Mortgage Notes
have been authenticated and delivered pursuant to the Indenture (unless proof
satisfactory to the Trustee is presented that any such First Mortgage Notes are
held by bona fide purchasers).
"Permitted Lien" means (i) any and all Liens on the assets of the Company
or any of its Subsidiaries existing on the Closing Date (including the Liens
created by the Company and ROC pursuant to the First Mortgage or liens securing
any Refinancing Indebtedness to the extent that the Indebtedness refinanced was
secured); (ii) Liens for taxes, assessments or governmental charges or claims
which are not yet delinquent or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if a
reserve or other appropriate provision, if any, as shall be required in
conformity with generally accepted accounting principles shall have been made
therefor; (iii) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens arising
in the ordinary course of business; (iv) Liens securing FF&E Indebtedness; (v)
Liens (other than any Lien imposed by ERISA) incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (vi) Liens incurred
or deposits made to secure the performance of tenders, bids, leases, statutory
obligations, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of like nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (vii) attachment or judgment Liens not giving rise to a Default
or an Event of Default; (viii) easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering with the ordinary conduct of the
business of the Company or any of its Subsidiaries; (ix) leases or subleases
granted to others not interfering with the ordinary conduct of the business of
the Company or any of its Subsidiaries; and (x) Liens securing Indebtedness of a
Non-restricted Subsidiary so long as such Indebtedness is not secured by the
Collateral or any assets of the Company or any Subsidiary of the Company other
than such Non-restricted Subsidiary.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal" of a debt security means the principal of the security plus the
premium, if any, on the security.
"Refinancing Indebtedness" means Indebtedness the proceeds of which are
used to refinance, redeem, repurchase or refund all or part of the outstanding
Indebtedness of the Company or its Subsidiaries if such refinancing Indebtedness
(i) does not have a stated maturity, a sinking fund obligation, a mandatory
redemption payment or right on the part of the holder thereof to require payment
-71-
<PAGE>
of any or all such Indebtedness prior to the stated maturity of the Indebtedness
being so refinanced, redeemed, repurchased or refunded and does not have a
shorter average life of such Indebtedness; (ii) does not have a principal amount
(excluding any amount which would constitute FF&E Indebtedness, or, if such
refinancing Indebtedness is issued with original issue discount, an original
issue price) in excess of the principal amount of the Indebtedness being so
refinanced, redeemed, repurchased or refunded, plus customary fees, expenses and
costs related to the incurrence of such Refinancing Indebtedness; (iii) does not
rank senior in any respect to the Indebtedness being so refinanced, redeemed,
repurchased or refunded; and (iv) is not incurred by a Subsidiary of the Company
to refund or refinance outstanding Indebtedness of the Company.
"Related Group of Persons" means a "group" as used in Sections 13(d) and
14(d) of the Exchange Act.
"Restricted Investment" means (i) any Advances or any direct or indirect
loan or other extension of credit to, or guarantee of any Indebtedness of, any
third Person (except in the case of ROC, the Guarantee); and (ii) any direct or
indirect capital contribution to, purchase or other acquisition of any Capital
Stock, partnership interest or other equity or ownership interest, debt security
or other security of, or other investment in, any other Person; provided,
however, that Restricted Investment shall not include (a) any investments in
Cash Equivalents; (b) extensions of credit to customers in the ordinary course
of business and consistent with prudent business practice; provided, however,
that such exclusion shall not apply to gaming receivables maintained on ROC's
books and records which exceed $6,000,000 in the aggregate principal amount to
all customers at any one time (after provision for bad debts and not including
any gaming receivables which are repaid on the date incurred); (c) up to
$5,000,000 in the aggregate of time deposits of, and other bank accounts with,
any bank or trust company organized under the laws of the United States of
America or the State of Nevada having an office for the acceptance of deposits
located in Clark County, Nevada; (d) payroll advances to non-management
employees of such Person in accordance with prudent business practice; (e) the
investments of the Company in ROC as of the Closing Date; (f) any Advances to
the extent permitted under the provision entitled "Restrictions on Dividends,
Other Payments and Investments," set forth above; and (g) any investments or
payments permitted pursuant to the provisions entitled "Limitation on Additional
Indebtedness," "Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries" and "Restrictions on Creation of Subsidiaries and Joint Ventures,"
set forth above, without duplication.
"Restricted Payment" means one or more of the following: (a) any direct or
indirect dividend on, or distribution to the holders (as such) of, any shares of
the Capital Stock of the Company (other than dividends or distributions payable
in Equity Interests, other than Disqualified Stock, of the Company); (b) any
direct or indirect payment by or on behalf of the Company in connection with the
redemption, purchase, acquisition or retirement for value of any Equity
Interests of the Company or any Affiliate of the Company; (c) any direct or
indirect dividend on, distribution to the holders (as such) of, any shares of
the Capital Stock of any Subsidiary of the Company; (d) any direct or indirect
payment by or on behalf of any Subsidiary of the Company in connection with the
redemption, purchase, acquisition or retirement for value of any Equity
Interests of the Company or any Affiliate of the Company or either of them
(other than such Equity Interests owned by the Company or any directly or
indirectly wholly-owned Subsidiary of the Company); or (e) any direct or
indirect Advances by the Company or any Subsidiary of the Company.
"Securities" means Securities authenticated and delivered under the
Indenture.
-72-
<PAGE>
"Security Agreement" means that certain Security Agreement, dated as of the
Closing Date, as amended and supplemented from time to time.
"Subordinated Indebtedness" means any Indebtedness of the Company which (i)
is subordinated in right of payment to the First Mortgage Notes; (ii) does not
mature, and is not mandatorily redeemable by the Company or not subject to
mandatory purchase by the Company, and does not have sinking fund obligations
which commence, on or prior to the stated maturity of the First Mortgage Notes;
(iii) is not secured and has no right to become secured; (iv) is not guaranteed
by a Subsidiary of the Company and has no right to be guaranteed unless the
guaranty itself is subordinated in respect of payment to the Guarantee; and (v)
is not convertible or exchangeable, at the option of the Company or the Holder,
into any of the foregoing or into any Indebtedness of a Subsidiary of the
Company.
"Subsidiary" of any specified Person means (i) a corporation a majority of
whose Capital Stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such Person, or by
such Person and one or more Subsidiaries of such Person, or (ii) any other
Person (other than a corporation) in which such Person, or such Person and one
or more Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has at least a majority ownership interest.
"Trademark Security Agreement" means the Trademark Security Agreement,
dated as of the Closing Date, as amended and supplemented from time to time.
"U.S. Government Obligations" means direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged. In order to have money available on a payment date
to pay Principal or interest on the First Mortgage Notes, the U.S. Government
Obligations shall be payable as to principal or interest on or before such
payment date in such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
to holders of the First Mortgage Notes other than the Selling Securityholders.
This summary is based upon existing statutes, as well as judicial and
administrative interpretations thereof, all of which are subject to change,
including changes which are retroactive. No opinion of counsel or ruling from
the Internal Revenue Service ("IRS") will be requested by the Company on any tax
issue connected with the First Mortgage Notes. Accordingly, no assurance can be
given that the IRS will not challenge certain of the tax positions described
herein or that such a challenge would not be successful.
The discussion below does not address the foreign, state or local tax
consequences to holders of the First Mortgage Notes, nor does it specifically
address the tax consequences to holders subject to special treatment under the
federal income tax laws (including dealers in securities, foreign persons, life
insurance companies, tax-exempt organizations, financial institutions and
taxpayers subject to the alternative minimum tax). The discussion below assumes
that the First Mortgage Notes will be held as capital assets within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code").
The following discussion is limited to holders who acquire their First Mortgage
Notes from one or more Selling Securityholders.
-73-
<PAGE>
The Revenue Reconciliation Act of 1993 (the "1993 Act") was enacted on
August 10, 1993. The 1993 Act contains a number of substantial changes to the
Code, including raising income tax rates for individuals and corporations. Prior
to making an investment in First Mortgage Notes, potential investors should
consult with their own tax advisor to determine the specific tax consequences of
the 1993 Act to them.
THE FOLLOWING SUMMARY IS NOT A SUBSTITUTE FOR OBTAINING INDIVIDUAL TAX
ADVICE. ACCORDINGLY, EACH POTENTIAL INVESTOR IS URGED TO CONSULT ITS OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH INVESTOR OF ACQUIRING AND
HOLDING FIRST MORTGAGE NOTES.
Original Issue Discount; Issue Price; Interest
Although the issue is not free from doubt, the Company believes that the
First Mortgage Notes should not be treated, for federal income tax purposes, as
traded on an established securities market at the time the First Mortgage Notes
were issued. As a result, the Company believes that the issue price of the First
Mortgage Notes is equal to their stated principal amount. If the issue price of
the First Mortgage Notes is equal to their stated principal amount, then the
First Mortgage Notes should not be treated as having been issued with any
original issue discount ("OID"). The following discussion assumes that the First
Mortgage Notes do not have any OID.
A holder of a First Mortgage Note who uses the accrual method of accounting
will be required to include in income for each taxable year interest at a rate
equal to 11% per annum. A holder of a First Mortgage Note who uses the cash
method of accounting will be required to include in income for each taxable year
an amount equal to any interest payments received.
Acquisition Premium
If a holder of a First Mortgage Note acquired the note for a purchase price
that exceeded the note's stated principal amount, then the holder may elect to
deduct such excess as amortizable bond premium over the term of the First
Mortgage Note.
Market Discount
If a holder of a First Mortgage Note acquired the note for a purchase price
that is less than the note's stated principal amount, then such First Mortgage
Note will be treated as a "market discount bond." In general, a "market discount
bond" is a debt instrument with a stated principal amount greater than the tax
basis of the debt instrument in the hands of the holder immediately after its
acquisition. The Code generally requires gain upon the sale, redemption or other
disposition of a "market discount bond" to be recognized as ordinary income to
the extent the market discount accrued during the holder's period of ownership.
Under a statutory de minimis exception, market discount is deemed not to exist
if the excess of the principal amount of the debt instrument over the holder's
tax basis is less than the product of .25% of the principal amount of the debt
instrument multiplied by the number of complete years from the acquisition date
to the date of maturity. Market discount is not required to be recognized upon
the disposition of a market discount bond pursuant to certain nonrecognition
transactions such as a recapitalization under Section 368(a)(1)(E) of the Code.
The market discount rules generally provide that if a holder of a debt
instrument that was purchased at a market discount thereafter realizes gain upon
a disposition or a redemption of the debt
-74-
<PAGE>
instrument, the lesser of such gain or the portion of the market discount that
accrued on a straight-line basis (or on a constant interest rate basis, if such
basis of accrual has been chosen by the holder under Section 1276(b) of the
Code) while the debt instrument was held by such holder will be taxed as
ordinary income at the time of such disposition. If a holder makes a gift of a
debt instrument with market discount, the accrued market discount will be
recognized as if such holder had sold the market discount bond for a price equal
to its fair market value. The disposition of a market discount bond at the death
of the holder should not result, however, in the recognition of income under the
market discount rules. The market discount rules also provide that a holder who
acquires a debt instrument at a market discount may be required to defer a
portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry such debt instrument
until the holder disposes of the debt instrument in a taxable transaction.
A holder of a market discount bond may elect to include market discount in
gross income as the discount accrues either on a straight-line or constant
interest rate basis. This current inclusion election, once made, applies to all
market discount bonds acquired on or after the first day of the first taxable
year to which the election applies, and may not be revoked without the consent
of the IRS. If a holder of a market discount bond makes such an election, the
foregoing rules with respect to the recognition of ordinary income on sales and
other dispositions of such bonds, and with respect to the deferral of interest
deductions on indebtedness incurred or maintained to purchase or carry such
bonds will not apply.
Under the 1993 Act, for individuals, the maximum federal income tax rate
for ordinary income was raised to 39.6% while the maximum federal income tax
rate for capital gains remained at 28%. As discussed above, the market discount
rules convert a portion of the gain upon a disposition of a market discount bond
from capital gain to ordinary income. Therefore, the 1993 Act (together with the
market discount rules) could affect the resale of a First Mortgage Note.
Sale, Exchange or Redemption of First Mortgage Notes
In general, a holder of First Mortgage Notes will recognize gain or loss on
the sale, exchange or redemption of such notes measured by the difference
between (a) the amount of cash and the fair market value of any property
received (except to the extent attributable to the payment of accrued interest)
and (b) the holder's tax basis in the First Mortgage Notes. Except to the extent
discussed below, and except to the extent the First Mortgage Notes have accrued
market discount, any such gain or loss should be capital gain or loss. If all or
a portion of the First Mortgage Notes are redeemed prior to maturity, it is
possible that the IRS would assert that when the notes were issued there was an
intention to call the notes prior to maturity. In such case, all or a portion of
any gain recognized on the redemption could be treated as ordinary income.
Classification of the First Mortgage Notes
The Company intends to treat the First Mortgage Notes as debt for federal
income tax purposes. This treatment will be binding on the Company and on any
holder who does not disclose an inconsistent treatment on his tax return, but
will not be binding on the IRS.
Backup Withholding and Information Reporting
A non-corporate holder of First Mortgage Notes may be subject to backup
withholding at the rate of 31% with respect to "reportable payments" which
include interest paid on the First Mortgage Notes. The payor will be required to
deduct and withhold the prescribed amounts if (a) the payee fails to furnish
-75-
<PAGE>
a taxpayer identification number ("TIN") to the payor in the manner required,
(b) the IRS notifies the payor that the TIN furnished by the payee is incorrect,
(c) there has been a "notified payee under reporting" described in Section
3406(c) of the Code, or (d) there has been a failure of the payee to certify
under penalty of perjury that the payee is not subject to withholding under
Section 3406(a)(1)(C) of the Code. In general, if any one of the events listed
above occurs, the Company may be required to withhold an amount equal to 31%
from any reportable payment pursuant to the terms of the First Mortgage Notes to
a non-corporate holder. Amounts paid as backup withholding do not constitute an
additional tax and will be credited against the holder's federal income tax
liability, so long as the required information is provided to the IRS.
The Company will report to the holders of First Mortgage Notes and to the
IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to payments on the notes.
PLAN OF DISTRIBUTION
The Selling Securityholders may sell the First Mortgage Notes: (i) in an
underwritten offering or offerings, (ii) through brokers and dealers, (iii) "at
the market" to or through a market maker or into an existing trading market, on
an exchange or otherwise, for such First Mortgage Notes, and (iv) in other ways
not involving market makers or established trading markets, including direct
sales to purchasers.
The distribution of First Mortgage Notes may be effected from time to time
in one or more underwritten transactions at a fixed price or prices, which may
be changed, or at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Any such
underwritten offering may be on a "best efforts" or a "firm commitment" basis.
In connection with such underwritten offering, underwriters or agents may
receive compensation from the Selling Securityholders or from purchasers of
First Mortgage Notes for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters may sell First Mortgage Notes to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents.
The Selling Securityholders and any underwriters, dealers or agents that
participate in the distribution of First Mortgage Notes may be deemed to be
underwriters, and any profit on the sale of First Mortgage Notes by the Selling
Securityholders and any discounts, commissions or concessions received by any
such underwriters, dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act.
Under agreements that may be entered into by the Company, underwriters,
dealers and agents who participate in the distribution of First Mortgage Notes
may be entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such underwriters, dealers or agents may be required to make
in respect thereof.
The sale of the First Mortgage Notes by the Selling Securityholders may
also be effected from time to time by selling First Mortgage Notes directly to
purchasers or to or through certain broker-
-76-
<PAGE>
dealers. In connection with any such sale, any such broker-dealer may act as
agent for the Selling Securityholders or may purchase from the Selling
Securityholders all or a portion of the First Mortgage Notes as principal and
thereafter may resell any First Mortgage Notes so purchased. Sales by any such
broker-dealer, acting as agent or as principal, may be made pursuant to any of
the methods described below. Such sales may be made on the securities exchanges
on which the First Mortgage Notes are then traded, in the over-the-counter
market, in negotiated transactions or otherwise at prices and at terms then
prevailing or at prices related to the then-current market prices or at prices
otherwise negotiated.
The First Mortgage Notes may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such First Mortgage Notes as agent
but may position and resell all or a portion of the block as principal to
facilitate the transaction; (b) purchases by any such broker-dealer as principal
and resale by such broker- dealer for its own account; (c) a special offering,
an exchange distribution or a secondary distribution in accordance with
applicable stock exchange rules; and (d) ordinary brokerage transactions and
transactions in which any such broker-dealer solicits purchasers. In effecting
sales, broker-dealers engaged by the Selling Securityholder may arrange for
other broker-dealers to participate. Broker-dealers will receive commissions or
other compensation from the Selling Securityholders in amounts to be negotiated
immediately prior to the sale that will not exceed those customary in the types
of transactions involved. Broker-dealers may also receive compensation from
purchasers of the First Mortgage Notes which is not expected to exceed that
customary in the types of transactions involved.
Each of the Selling Securityholders entered into a letter agreement in 1993
(the "Agency Agreement") with Prudential Securities Incorporated ("Prudential
Securities"). Pursuant to the Agency Agreement, the Selling Securityholders
engaged Prudential Securities to act as their exclusive agent during the 21-day
period beginning on the effective date of the Registration Statement to arrange,
on a best efforts basis, one or more transactions for the purchase of all or a
portion of the First Mortgage Notes to be offered for sale by the Selling
Securityholders. Prudential Securities was to receive from such Selling
Securityholders compensation in the amount of 1% of the principal amount of
First Mortgage Notes sold in any such transactions. In connection with these
arrangements, the Company entered into a letter agreement with Prudential
Securities under which the Company agreed, among other things, to reimburse
Prudential Securities for certain legal expenses incurred by it in connection
with its efforts as agent for such Selling Securityholders, in the event such
expenses exceed the compensation received by Prudential Securities from such
Selling Securityholders. The Company also agreed to indemnify Prudential
Securities against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act. No First Mortgage Notes were sold in the
offering, however an aggregate principal amount of $6,229,000 of the First
Mortgage Notes were sold subsequent to the offering.
The Company will pay all of the expenses incident to the offering and sale
of the First Mortgage Notes, other than commissions, discounts and fees of
underwriters, dealers or agents. The Company has agreed to indemnify the Selling
Securityholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
EXPERTS
The financial statements of Riviera, Inc., Hotel & Casino Division
(Predecessor to Riviera Holdings Corporation) for the six-month period ended
June 30, 1993, included in this Prospectus has been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports (which include explanatory
paragraphs concerning substantial doubt about the Company's ability to continue
as a going
-77-
<PAGE>
concern, bankruptcy proceedings and litigation) herein and elsewhere in the
Registration Statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Riviera Holdings Corporation as of
December 31, 1994 and 1995, and for the six-month period ended December 31,
1993, and years ended December 31, 1994 and 1995 included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and elsewhere in the Registration Statement, and
have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
-78-
<PAGE>
<TABLE>
RIVIERA HOLDINGS CORPORATION
TABLE OF CONTENTS
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Page
Riviera Holdings Corporation (Successor to Riviera, Inc.,
Casino-Hotel Division)
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited) F-2
Consolidated Statements of Operations for the Six Month Period Ended December
31, 1993 and for the Years Ended December 31, 1994 and 1995
and for the Three Months Ended March 31, 1995 and 1996 (unaudited) F-3
Consolidated Statements of Shareholders' Equity for the Six Month Period
Ended December 31, 1993 and for the Years Ended December 31, 1994 and 1995
and for the Three Months Ended March 31, 1996 (unaudited) F-4
Consolidated Statements of Cash Flows for the Six Month Period Ended December
31, 1993 and for the Years Ended December 31, 1994 and 1995
and for the three months ended March 31, 1995 and 1996 (unaudited) F-5
Notes to Consolidated Financial Statements F-6
Riviera, Inc. Casino-Hotel Division (Predecessor to Riviera Holdings Corporation)
Independent Auditors' Report F-16
Statement of Operations and Division Deficit for the Six Month Period
Ended June 30, 1993 F-18
Statement of Cash Flows for the Six Month Period Ended June 30, 1993 F-19
Notes to Financial Statements F-20
</TABLE>
-79-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Riviera Holdings Corporation
d.b.a. Riviera Hotel & Casino
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Riviera Holdings
Corporation and its subsidiary (the "Company") d.b.a. Riviera Hotel & Casino
(Successor to Riviera, Inc., Casino-Hotel Division) as of December 31, 1994 and
1995 and the related consolidated statements of operations, shareholders'
equity, and cash flows for the six months ended December 31, 1993 and for the
years ended December 31, 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1994
and 1995, and the results of their operations and their cash flows for the six
months ended December 31, 1993 and the years ended December 31, 1994 and 1995,
respectively, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 16, 1996
F-1
<PAGE>
<TABLE>
RIVIERA HOLDINGS CORPORATION
(Successor to Rivera, Inc., Casino-Hotel Division)
CONSOLIDATED BALANCE SHEETS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
December 31,
------------
ASSETS 1994 1995 March 31,1996
---- ---- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) ........................................... $ 16,425,357 $ 21,962,021 $ 27,886,842
Accounts receivable, net (Notes 1 and 2) ..................................... 5,081,440 4,334,364 4,227,326
Inventories (Note 1) ......................................................... 2,272,226 2,186,500 2,664,765
Prepaid expenses and other assets ............................................ 2,389,294 2,601,519 2,496,911
------------ ------------ ------------
Total current assets ................................................ 26,168,317 31,084,404 37,275,844
------------ ------------ ------------
PROPERTY AND EQUIPMENT, NET (Notes 1, 3,
5 and 7) ..................................................................... 120,024,339 121,049,407 121,395,964
------------ ------------ ------------
OTHER ASSETS ................................................................... 4,376,444 4,758,921 3,112,118
------------ ------------ ------------
RESTRICTED CASH FOR PERIODIC
SLOT PAYMENTS (Notes 1 and 5) ................................................ 1,356,321 1,038,721 1,038,725
------------ ------------ ------------
TOTAL ASSETS ................................................................... $151,925,421 $157,931,453 $162,822,651
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: (Note 1)
Current portion of long-term debt (Note 5) ................................... $ 2,983,452 $ 2,321,967 $ 1,819,160
Accounts payable (Note 4) .................................................... 7,375,125 8,408,298 7,228,745
Current income taxes payable (Note 6) ........................................ 572,619 50,716 746,715
Accrued expenses (Note 4) .................................................... 8,874,325 9,596,275 12,394,417
------------ ------------ ------------
Total current liabilities ........................................... 19,805,521 20,377,256 22,189,037
------------ ------------ ------------
DEFERRED INCOME TAXES PAYABLE (Note 6) ......................................... 2,010,381 3,022,999 3,562,999
------------ ------------ ------------
LONG-TERM DEBT, NET OF
CURRENT PORTION (Notes 1 and 5) .............................................. 110,171,149 108,249,315 108,316,163
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 9)
SHAREHOLDERS' EQUITY: (Note 1)
Common stock ($.001 par value; 20,000,000 shares
authorized; 4,800,000 shares issued and outstanding) ....................... 4,800 4,800 4,800
Additional paid-in capital ................................................... 12,536,902 12,536,902 12,536,902
Retained earnings ............................................................ 7,396,668 13,740,181 16,212,750
------------ ------------ ------------
Total shareholders' equity .......................................... 19,938,370 26,281,883 28,754,452
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................... $151,925,421 $157,931,453 $162,822,651
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
RIVIERA HOLDINGS CORPORATION
(Successor to Rivera, Inc., Casino-Hotel Division)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended Three Months Ended
December 31, December 31, March 31
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES: (Note 1) (Unaudited)
Casino ................................ $ 41,157,934 $ 82,060,223 $ 77,337,403 $ 19,152,184 $ 20,165,297
Rooms ................................. 17,807,605 35,421,893 39,449,410 10,467,452 11,257,384
Food and beverage ..................... 11,759,984 22,960,619 21,894,987 5,525,835 5,828,257
Entertainment ......................... 8,421,951 16,945,408 14,423,286 2,264,010 5,524,502
Other (Note 7) ........................ 4,230,333 9,390,397 9,514,956 2,552,605 2,583,817
------------- ------------- ------------- ------------ -------------
83,377,807 166,778,540 162,620,042 39,962,086 45,359,257
Less promotional allowances (Note 1) .. 7,157,409 12,857,269 11,873,171 2,765,766 3,636,262
------------- ------------- ------------- ------------ -------------
Net revenues ................. 76,220,398 153,921,271 150,746,871 37,196,320 41,722,995
------------- ------------- ------------- ------------ -------------
COSTS AND EXPENSES: (Notes 1 and 7)
Direct costs and expenses of operating
departments:
Casino .............................. 25,532,783 48,825,420 45,325,477 11,102,415 12,406,998
Rooms ............................... 8,456,241 17,594,375 18,786,986 4,718,799 4,666,563
Food and beverage ................... 7,796,191 15,588,405 15,768,445 3,910,896 3,922,068
Entertainment ....................... 7,897,380 13,981,976 10,328,960 1,581,987 3,722,726
Other ............................... 1,838,915 3,515,989 3,526,635 892,435 970,728
Other operating expenses:
Selling, general and administrative . 13,426,751 27,831,092 28,742,147 7,223,781 7,460,107
Provision for bad debts (Note 2) .... 106,561 991,048 477,638 342,490 143,053
Depreciation and amortization ....... 2,398,816 5,674,131 6,810,719 1,594,980 1,888,022
------------- ------------- ------------- ------------ -------------
Total costs and expenses ..... 67,453,638 134,002,436 129,767,007 31,367,783 35,180,265
------------- ------------- ------------- ------------ -------------
INCOME FROM OPERATIONS .................. 8,766,760 19,918,835 20,979,864 5,828,537 6,542,730
OTHER INCOME (EXPENSE):
Interest expense (Notes 5 and 7) ...... (6,381,751) (12,763,799) (12,453,351) (3,139,588) (3,061,400)
Interest income ....................... 221,928 509,695 1,149,000 224,631 277,239
------------- ------------- ------------- ------------ -------------
Total other income (expense) . (6,159,823) (12,254,104) (11,304,351) (2,914,957) (2,784,161)
------------- ------------- ------------- ------------ -------------
INCOME BEFORE PROVISION FOR
INCOME TAXES ......................... 2,606,937 7,664,731 9,675,513 2,913,580 3,758,569
PROVISION FOR INCOME TAXES
(Notes 1 and 6) ....................... 2,875,000 3,332,000 1,005,000 1,286,000
------------- ------------- ------------- ------------ -------------
NET INCOME .............................. $ 2,606,937 $ 4,789,731 $ 6,343,513 $ 1,908,580 $ 2,472,569
============= ============= ============= ============ =============
WEIGHTED AVERAGE COMMON
OUTSTANDING - PRIMARY AND
FULLY SHARES DILUTED (Note 1) ......... 4,800,000 4,800,000 5,040,720 4,800,000 5,048,178
========= ========= ========= ========= =========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE -
PRIMARY AND FULLY COMMON
DILUTED (Note 1) ...................... $0.54 $1.00 $1.26 $0.40 $0.49
===== ===== ===== ===== =====
See notes to consolidated financial statements
</TABLE>
F-3
<PAGE>
<TABLE>
RIVIERA HOLDINGS CORPORATION
(Successor to Rivera, Inc., Casino-Hotel Division)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE SIX MONTH PERIOD ENDED
DECEMBER 31, 1993 AND FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<CAPTION>
- --------------------------------------------------------------------------------------------
Additional
Shares Common Paid-in Retained
Outstanding Stock Capital Earnings Total
----------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, JULY 1, 1993 4,800,000 $ 4,800 $12,536,902 $12,541,702
NET INCOME ........... $ 2,606,937 2,606,937
---------- ----------- ----------- ------------ ----------
BALANCES,
DECEMBER 31, 1993 .. 4,800,000 4,800 12,536,902 2,606,937 15,148,639
NET INCOME ........... 4,789,731 4,789,731
---------- ----------- ----------- ----------- ----------
BALANCES,
DECEMBER 31, 1994 .. 4,800,000 4,800 12,536,902 7,396,668 19,938,370
NET INCOME ........... 6,343,513 6,343,513
---------- ----------- ----------- ------------ ----------
BALANCES,
DECEMBER 31, 1995 .. 4,800,000 4,800 12,536,902 13,740,181 26,281,883
NET INCOME (Unaudited) 2,472,569 2,472,569
---------- ----------- ----------- ------------ ----------
BALANCES MARCH 31,
1996 (UNAUDITED) ... $ 4,800,000 $ 4,800 $12,536,902 $16,212,750 $28,754,452
=========== =========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
RIVIERA HOLDINGS CORPORATION
(Successor to Riviera, Inc., Casino-Hotel Division)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended Three Months Ended
December 31, December 31, March 31,
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income ....................................... $ 2,606,937 $ 4,789,731 $ 6,343,513 $ 1,908,580 $ 2,472,569
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization .................. 2,398,816 5,674,131 6,810,719 1,594,980 1,888,022
Provision for bad debts ........................ 106,561 991,048 477,638 342,490 143,053
Provision for gaming discounts ................. 30,000 133,000 142,500 17,500 13,750
Interest expense ............................... 6,381,751 12,763,799 12,453,351 3,139,588 3,061,400
Interest paid .................................. (8,779,761) (13,051,993) (12,489,217) (200,425) (140,924)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ... (186,529) (1,116,050) 126,938 542,233 (49,765)
Decrease (increase) in inventories ........... (480,070) (508,066) 85,726 (13,190) (478,265)
Decrease (increase) in prepaid expenses
and other assets ........................... 1,237,814 (310,134) (212,225) (203,798) 104,608
Decrease (increase) in restricted cash for
periodic slot payments ..................... 114,593 591,129 317,600 (13)
Increase (decrease) in accounts payable ..... 1,503,057 1,064,205 1,033,173 (112,173) (1,179,588)
(Decrease) increase in accrued expenses ...... (5,102,252) 2,393,473 757,816 489,134 (122,334)
Increase (decrease) in current income
taxes payable .............................. 572,619 (521,903) 170,000 695,999
Increase in deferred income taxes payable .... 2,010,381 1,012,618 235,000 540,000
Increase in non-qualified pension plan
obligation to CEO upon retirement .......... 935,004 375,000 399,996 99,999 106,177
------------ ------------- ------------- ------------- ------------
Net cash provided by operating activities 765,921 16,372,273 16,738,243 8,009,905 7,054,732
------------ ------------- ------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment .. (4,307,281) (8,933,231) (7,835,787) (1,899,168) (2,234,578)
Increase in other assets ......................... (1,505,468) (382,477) 208,424 1,646,803
------------ ------------- ------------- ------------- ------------
Net cash used in investing activities ... (4,307,281) (10,438,699) (8,218,264) (1,690,744) (587,775)
------------ ------------- ------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings ............... 517,815 674,889 175,986 40,890 49,179
Payments on long-term borrowings ................. (5,176,000) (3,370,768) (3,159,301) (628,828) (591,315)
------------ ------------- ------------- ------------- ------------
Net cash used by financing activities ... (4,658,185) (2,695,879) (2,983,315) (587,938) (542,136)
------------ ------------- ------------- ------------- ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................. (8,199,545) 3,237,695 5,536,664 5,731,223 5,924,821
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD ........................................ 21,387,207 13,187,662 16,425,357 16,425,357 21,962,021
------------ ------------- ------------- ------------- ------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD ........................................ $ 13,187,662 $ 16,425,357 $ 21,962,021 $ 22,156,580 $ 27,886,842
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Income taxes paid .................. $ 292,000 $ 2,852,000 $ 600,000 $ 50,000
=========== ============ ============ ==========
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
RIVIERA HOLDINGS CORPORATION
(Successor to Riviera, Inc., Casino-Hotel Division)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Riviera Holdings Corporation (the "Company") and its wholly-owned
subsidiary Riviera Operating Corporation ("ROC") were incorporated on
January 27, 1993 in order to acquire all assets and liabilities of
Riviera, Inc. Casino-Hotel Division (the "Division") on June 30, 1993 (the
"Effective Date") pursuant to the Second Amended Joint Plan of
Reorganization dated January 8, 1993, (the "Plan") for Riviera, Inc. which
was confirmed by the United States Bankruptcy Court for the District of
Nevada (the "Court") at a hearing on February 11, 1993. The Plan was
modified by an order of the Court entered March 25, 1993, and was further
modified by an order entered by the Court on June 4, 1993.
On June 29, 1993, the Company obtained regulatory approval of its gaming
application from the State of Nevada. For financial reporting purposes it
is assumed the Effective Date of the Plan was on midnight June 30, 1993
with the assets and liabilities being transferred from the Division to the
Company on July 1, 1993. In connection with the effectiveness of the Plan,
the Company and its wholly-owned subsidiary, ROC, acquired all of the
assets of Riviera, Inc. relating to the Division. On the Effective Date
the Company issued to holders of Floating Rate First Mortgage Notes,
Floating Rate First Mortgage Reset Notes and Second Series Floating Rate
First Mortgage Notes of the Division (a) 4,800,000 shares of its common
stock (post stock split), par value $.001 per share and (b) an aggregate
of $100,000,000 First Mortgage Notes due December 31, 2002 in exchange for
$126,000,000 in Division bonds and $15,156,000 in accrued interest. The
Company also issued other notes to unsecured creditors of the Division
(see Note 5).
In July 1994, management established a new division, Riviera Gaming
Management, Inc. ("RGM") for the purpose of obtaining management contracts
in Nevada and other jurisdictions. In August 1995, RGM incorporated in the
state of Nevada as a wholly owned subsidiary of ROC.
On November 16, 1995, the shareholders of the Company approved an
amendment to the Company's Amended and Restated Articles of Incorporation
to increase the authorized shares of common stock from 5,000,000 to
20,000,000 and a four for one stock split. Accordingly, per share
information, average number of shares outstanding and number of shares
outstanding in the accompanying consolidated financial statements have
been adjusted for the stock split as of the earliest date presented (July
1, 1993).
Nature of Operations
The sole line of business of the Company is the operation of the Riviera
Hotel and Casino in Las Vegas, Nevada. The Company is engaged in a single
industry segment, the operation of a hotel/casino with restaurants and
related facilities.
Casino operations are subject to extensive regulation in the State of
Nevada by the Gaming Control Board and various other state and local
regulatory agencies. Management believes that the Company's procedures for
supervising casino operations, for recording casino and other revenues and
for granting credit comply, in all material respects, with the applicable
regulations.
F-6
<PAGE>
Interim Financial Information
The financial information at March 31, 1996 and for the three months ended
Mach 31, 1995 and 1996, is unaudited. However, such information reflects
all adjustments (consisting solely of normal recurring adjustments) that
are, in the opinion of management, necessary to a fair presentation of the
financial position, results of operations, and cash flows for the interim
periods. The results of operations for the three months ended March 31,
1995 and 1996, are not necessarily indicative of the results that will be
achieved for the entire year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries ROC and RGM. All material intercompany
accounts and transactions have been eliminated.
Cash and Cash Equivalents
All highly liquid investments securities with a maturity of three months
or less when acquired are considered to be cash equivalents. The Company
adopted Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
Accounting for Certain Investments in Debt and Equity Securities," during
fiscal 1995. In accordance with SFAS 115, prior year's financial
statements have not been restated to reflect the change in accounting
method. There was no cumulative effect as a result of adopting SFAS 115 in
1995.
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under SFAS 115, are carried on
the consolidated balance sheets in the cash and cash equivalents category.
SFAS 115 addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities, and requires that such securities to be
classified as either held-to-maturity, trading or available-for-sale.
Management determines the appropriate classification of its investment
securities at the time of purchase and re-evaluates such determination at
each balance sheet date. Pursuant to the criteria that are prescribed by
SFAS 115, the Company has classified its investment securities in
inventory as of December 31, 1994, and acquired during fiscal 1995 as held
to maturity. Held to maturity, securities are required to be carried at
amortized cost. At December 31, 1995, securities classified as held to
maturity were comprised of debt securities issued by the U.S. Treasury and
other U.S. government corporations and agencies and repurchase agreements
with an amortized cost of $15,000,000 maturing in three months or less.
Inventories
Inventories consist primarily of food, beverage, gift shop and promotional
inventories and are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and Equipment
Property and equipment are stated at the lower of cost or market, and
capitalized lease assets are stated at the lower of the present value of
future minimum lease payments at the date of lease inception or market
value. Interest incurred during construction of new facilities or major
additions to facilities is capitalized and amortized over the life of the
asset. Depreciation is computed by the straight-line method over the
shorter of the estimated useful lives or lease terms, if applicable, of
the related assets, which range from 5 to 40 years. The costs of normal
maintenance and repairs is charged to expense as incurred. Gains or losses
on disposals are recognized as incurred.
F-7
<PAGE>
Restricted Cash for Periodic Slot Payments
At December 31, 1994 and 1995, the Company had interest-bearing deposits
with a commercial bank in the amount of $1,356,321 and $1,038,721,
respectively, which are restricted as to use. These amounts represent
deposits required by the State of Nevada Gaming Control Board to fund
periodic slot payments due customers through the year 2000.
Fair Value Disclosure as of December 31, 1995
Cash and cash equivalents, accounts receivable, restricted cash for
periodic slot payments, accounts payable and accrued liabilities - The
carrying value of these items are a reasonable estimate of their fair
value.
Long-term Debt - The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities. Based on the borrowing rates currently available to
the Company for debt with similar terms and average maturities, the
estimated fair value of long-term debt is approximately $108,071,000.
Casino Revenue
The Company recognizes, as gross revenue, the net win from gaming
activities, which is the difference between gaming wins and losses.
Promotional Allowances
Promotional allowances consist primarily of accommodations, entertainment,
and food and beverage services furnished without charge to customers. The
retail value of such services is included in the respective revenue
classifications and is then deducted as promotional allowances.
The estimated costs of providing promotional allowances are classified as
costs of the casino operating department through interdepartmental
allocations. These allocations for the six months ended December 31, 1993
and for the years ended December 31, 1994 and 1995 are as follows:
1993 1994 1995
---- ---- ----
Food and beverage $3,891,657 $ 7,225,082 $ 6,569,608
Rooms 1,146,324 1,842,542 1,451,464
Entertainment 1,176,150 2,120,987 2,279,527
--------- --------- ---------
Total costs allocated
to casino $6,214,131 $11,188,611 $10,300,599
========== =========== ===========
Federal Income Taxes
The Company and its subsidiaries file a consolidated federal tax return.
Effective July 1, 1993, the Company adopted SFAS 109. SFAS 109 requires
recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes reflect the net tax
effects of (i) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes, and (ii) operating loss and tax credit
carryforwards.
F-8
<PAGE>
Net Income Per Share
Earnings per common and common equivalent share and earnings per common
shares assuming full dilution are computed using the weighted average
number of shares outstanding adjusted for the incremental shares
attributed to outstanding options to purchase common stock.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from estimates.
Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121 ("SFAS 121") Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS 121 is effective for fiscal years beginning after
December 15, 1995. Based on management's preliminary analysis, the Company
does not anticipate that the adoption of SFAS 121 will have a material
impact on the consolidated financial statements.
In October 1995, the FASB issued Statement No. 123 ("SFAS 123") Accounting
for Stock-Based Compensation which establishes financial accounting and
reporting standards for stock-based employee compensation plans and for
transactions in which an entity issues its equity instruments to acquire
goods or services from nonemployees. SFAS 123 is generally effective for
fiscal years beginning after December 15, 1995. The Company intends to
provide the pro forma and other additional disclosures about stock-based
employee compensation plans in its 1996 consolidated financial statements
as required by SFAS 123.
Reclassifications
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform with the current year presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31 consist of the following:
1994 1995
---- ----
Casino $ 3,850,983 $ 2,580,750
Hotel 2,654,305 2,494,239
------------ -----------
Total 6,505,288 5,074,989
Less allowance for bad debts
and discounts 1,423,848 740,625
------------ -----------
Total $ 5,081,440 $ 4,334,364
============ ============
Changes in the casino and hotel allowance for bad debts and discounts for
the year ended December 31 consist of the following:
F-9
<PAGE>
1994 1995
---- ----
Beginning balance, January 1 $ 1,143,876 $ 1,423,848
Write-offs (1,029,948) (1,357,543)
Recoveries 185,872 54,182
Provision for bad debts 991,048 477,638
Provision for gaming discounts 133,000 142,500
------------ -----------
Ending balance, December 31 $ 1,423,848 $ 740,625
============ ============
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
1994 1995
---- ----
Land and improvements $ 21,751,221 $ 21,751,221
Buildings and improvements 75,581,922 75,874,819
Equipment, furniture, and fixtures 30,764,143 38,307,033
-------------- ------------
Total property and equipment 128,097,286 135,933,073
Less accumulated depreciation 8,072,947 14,883,666
-------------- ------------
Net property and equipment $ 120,024,339 $ 121,049,407
============== =============
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable at December 31 consist of the following:
1994 1995
---- ----
Outstanding chip and token liability $ 662,386 $ 854,323
Casino account deposits 940,112 641,728
Unpaid race and sports book winners 32,914 25,867
Miscellaneous gaming 580,596 850,013
------------ -----------
Total liabilities related to
gaming activities 2,216,008 2,371,931
Accounts payable to vendors 3,602,528 4,496,987
Hotel deposits 1,204,962 1,414,957
Other 351,627 124,423
------------ -----------
Total $ 7,375,125 $ 8,408,298
============ ============
Accrued expenses at December 31 consist of the following:
1994 1995
---- ----
Payroll, related payroll taxes
and vacation $ 4,068,508 $ 5,094,538
Health and other liability claims 1,217,407 547,475
Union benefits and dues 944,216 815,486
Progressive slot machine liability 300,623 226,195
Taxes 466,861 569,397
Professional fees 311,775 164,076
Incentive and pension plans 1,508,673 2,209,428
Interest 56,262 20,396
-------------- --------------
Total $ 8,874,325 $ 9,646,991
============== ===============
F-10
<PAGE>
5. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
First Mortgage Notes maturing on December 31, 2002, bearing interest at the rate
of 11% per annum, payable semi-annually on June 30 and December 31, redeemable
beginning June 1, 1998, at 104.3125%; 1999 at 102.8750%; 2000 at 101.4375%;
and 2001 and thereafter at 100%. These notes are collateralized by the
physical structures comprising the Riviera Hotel and Casino. $ 100,000,000 $ 100,000,000
Unsecured, non-interest bearing promissory note in an original principal amount
of $4,200,000 (the "Class 4 Note") to settle the claims of architects,
contractors, engineers, material suppliers and others, payable in six equal
semi-annual
instalments of $525,000 discounted at 16.8%. 1,343,285 484,214
Two unsecured, non-interest bearing promissory notes in an aggregate original
principal amount of $1,312,000 (the "Class 5 Notes") to settle the claims of a
construction company and title company, payable in five equal semi-annual
payments of $125,167 and a sixth and final instalment of $50,165 and 12 equal
monthly
instalments of $7,000. Both notes are discounted at 16.8%. 261,452 46,429
Unsecured, non-interest bearing promissory note in an original principal amount
of $6,500,000 (the "Class 12 Note ") to settle claims of the general unsecured
creditors of Riviera, Inc, payable
in semi- annual instalments of $750,000 discounted at 16.8%. 2,629,538 1,526,336
Unsecured, non-interest bearing promissory note in an original principal amount
of $8,000,000 (the "Class 13/14 Note") to settle the claims of the former sole
shareholder, and his affiliates, payable to a bank in semi-annual instalments
of $250,000 until the Class 12 Note is paid in full and commencing on the next
payment due thereafter in semi-annual instalments
of $750,000 discounted at 16.8%. 3,982,515 4,158,501
Notes payable to equipment manufacturers, secured by slot
machines and other equipment. 290,704
Capitalized lease obligations (see Note 7). 1,640,262 1,341,327
Unsecured, promissory notes in the original principal amount
of $441,262, bearing interest at the rate of 8.5% per
annum, payable monthly and maturing December 31, 1998. 340,629 265,966
Periodic slot payments due customers through 2000, prefunded by 1,356,212 1,038,509
restricted cash (see Note 1).
Non-qualified pension plan obligation to the CEO of the Company, payable in 20
quarterly instalments upon expiration of his
employment contract. 1,310,004 1,710,000
-------------- --------------
Total long-term debt 113,154,601 110,571,282
Less current maturities by terms of debt 2,983,452 2,321,967
-------------- --------------
Total $ 110,171,149 $ 108,249,315
============== ==============
</TABLE>
F-11
<PAGE>
Maturities of long-term debt for the years ending December 31 were as
follows:
1996 2,321,967
1997 2,055,120
1998 1,879,808
1999 1,843,989
2000 1,897,495
Thereafter 100,572,903
--------------
Total $ 110,571,282
=============
The Indenture for the First Mortgage Notes imposes certain financial
covenants and restrictions on the Company, including but not limited to
the maintenance of a minimum consolidated net worth, which should not be
less than $2,542,000 for any two consecutive fiscal quarters, and
limitations on (i) dividends on common stock, (ii) liquidation of assets,
(iii) incurrence of indebtedness (iv) creation of subsidiaries and joint
ventures and (v) capital purchases. Capital purchases are limited to cash
expenditures of $7,750,000 for the year ended December 31, 1994 and in
succeeding years to $6,000,000 plus 80% of cumulative available cash flow
from the Company's inception at July 1, 1993, to the extent that this cash
flow has not been utilized in any prior year. Management believes the
Company is in compliance with the covenants of the Indenture.
Effective September 8, 1995, the Board of Directors and holders of 94% of
the Company's First Mortgage Notes approved amendments to certain note
restrictive covenants. Noteholders who consented to the modification of
the restrictive covenants were paid a fee of $5.00 for each $1,000 of
Notes held for a total payment of $500,000 which is included in other
assets at December 31, 1995 and amortized over the life of the related
debt. These costs are being amortized using the straight-line method which
approximates the effective interest method over the life of the
indebtedness. The amendments to the restrictive covenants were designed to
permit the Company's management team to utilize its expertise in turning
around troubled gaming properties which are either in or on the verge of
bankruptcy and to manage casinos in so called "new venues".
6. FEDERAL INCOME TAXES
The Company adopted SFAS 109 effective July 1, 1993. There was no
cumulative effect from the application of this standard on the Company's
consolidated financial statements. SFAS 109 requires the Company to
compute deferred income taxes based upon the difference between the
financial statement and tax basis of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
The effective income tax rates on income attributable to continuing
operations differ from the statutory federal income tax rates as follows:
<TABLE>
<CAPTION>
1994 1995
Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Taxes at federal statutory rate $ 2,680,000 35 % $ 3,386,430 35%
Other 195,000 2.5 (54,430) (1)
------------ ---- ------------ ----
Provision for income taxes $ 2,875,000 37.5 % $ 3,332,000 34.0%
=========== ==== ============ ====
</TABLE>
F-12
<PAGE>
The tax effects of the items comprising the Company's net deferred tax
liability at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Deferred Tax Liabilities:
Basis in long-term debt obligations $ 880,000 $ 640,000
Reserve differential for hospitality and gaming activities 1,365,000 1,090,000
Difference between book and tax depreciable property 1,865,381 4,430,000
Other 55,000 383,000
------------- -------------
Total 4,165,381 6,543,000
------------- -------------
Deferred Tax Assets:
Reserves not currently deductible 965,000 1,500,000
Bad debt reserves 325,000 260,000
AMT credit 865,000 1,760,001
------------- -------------
Total 2,155,000 3,520,001
------------- -------------
Net deferred tax liability $ 2,010,381 $ 3,022,999
============= ============
</TABLE>
The Company has $1,900,000 of income tax credits expiring in years
beginning December 31, 1999.
7. LEASING ACTIVITIES
The Company leases certain equipment under capital leases. These
agreements have been capitalized at the present value of the future
minimum lease payments at lease inception and are included with property
and equipment. Management estimates the fair market value of the property
and equipment subject to the leases approximates the net present value of
the leases. The leased property and equipment consist primarily of signs
and air conditioning equipment.
The following is a schedule by year of the minimum rental payments due
under capital leases, as of December 31, 1995.
Capital
Leases
-------------
1996 $ 530,011
1997 476,340
1998 458,538
1999 429,608
2000 226,788
Thereafter -----------
Total minimum lease payments 2,121,285
Less taxes, maintenance and insurance 510,005
Less interest portion of payments 269,953
-----------
Present value of net minimum lease payments $ 1,341,327
===========
Rental expense for the six months ended December 31, 1993 and years ended
December 31, 1994 and 1995 was approximately $122,000, $294,944 and
$406,449, respectively.
In addition, the Company leases retail space to third parties under terms
of noncancelable operating leases which expire in various years through
1999. Rental income, which is included in other income, for the six
F-13
<PAGE>
months ended December 31, 1993 and years ended December 31, 1994 and 1995
was approximately $786,000, $1,686,869 and $1,533,219, respectively.
At December 31, 1995, the Company had future minimum annual rental income
due under noncancelable operating leases as follows:
1996 $ 1,235,217
1997 455,832
1998 244,300
1999 118,690
2000 3,570
-----------
Total $ 2,057,609
===========
8. COMMITMENTS AND CONTINGENCIES
The Company is party to several routine lawsuits both as plaintiff and
defendant arising from normal operations of a hotel. Management does not
believe that the outcome of such litigation in the aggregate, will have a
material adverse effect on the financial position or results of operations
of the Company.
The Company, along with most of the other major hotel-casino companies has
been named in a class action lawsuit that has been transferred to the
United States District Court, for the State of Nevada. The complaint
alleges that the defendants have engaged in a course of fraudulent and
misleading conduct intended to induce persons to play such games based on
a false belief concerning how the gaming machines operate, as well as the
extent to which there is an opportunity to win. Management believes that
the claims are wholly without merit and does not expect that the lawsuit
will have a material adverse effect on the Company's financial position or
results of operations.
9. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
Pursuant to the Plan, as of the Effective Date, the Company assumed an
employment agreement between the Division and Mr. Westerman, Chairman of
the Board and Chief Executive Officer of the Company. This agreement
includes an annual base salary, an incentive bonus based upon the extent
of adjusted operating earnings, contributions to a Non-Qualified Pension
Plan and contributions to a Profit Sharing and 401(k) Plan. In addition,
pursuant to the Plan on the Effective Date, the Company assumed a
termination fee agreement between the Division and each of the Directors,
Executive Officers and Significant Employees pursuant to which each of
such employees will be entitled to receive one year's salary and health
insurance benefits if their employment with the Company is terminated
within one year of a change of control of the Company and without cause,
or the involuntary termination of Mr. Westerman.
The Company has an incentive compensation plan, covering employees of the
Company who, in the opinion of the Chairman of the Board, either serve in
key executive, administrative, professional or technical capacities with
the Company or other employees who also have made a significant
contribution to the successful and profitable operation of the Company.
The amount of the bonus is based on operating earnings before
depreciation, amortization, interest expense, provision for income taxes,
extraordinary losses and gains, any provisions or payments made pursuant
to the Plan, and any provisions or payments made pursuant to the incentive
compensation of the Chairman and Chief Executive Officer. At December 31,
1994 and 1995 the Company recorded accrued bonuses of $1,430,014 and
$2,122,530, respectively, based upon the above incentive compensation plan
and the incentive compensation plan established for the Chairman of the
Board under his employment agreement.
F-14
<PAGE>
The Company contributes to multi-employer pension plans under various
union agreements to which the Company is a party. Contributions, based on
wages paid to covered employees, were approximately $996,000 for the six
months ended December 31, 1993 and $1,725,000 and $1,576,000 for the years
ended December 31, 1994 and 1995. These contributions were for
approximately 1,300 employees including food and beverage employees, room
department employees, carpenters, engineers, stage hands, electricians,
painters and teamsters. The Company's share of any unfunded liability
related to multi-employer plans, if any, is not determinable.
The Company sponsors a Profit Sharing and 401(k) Plan which incurred
administrative expenses of approximately $15,000 for the six months ended
December 31, 1993 and $67,000 and $59,000 for the years ended December 31,
1994 and 1995.
The profit sharing component of the Profit Sharing and 401(k) Plan
provides that the Company will make a contribution equal to 1% of each
eligible employee's annual compensation if a prescribed annual operating
earnings target is attained and an additional 1/10th of 1% thereof for
each $200,000 by which operating earnings is exceeded, up to a maximum of
3% thereof. The Company may elect not to contribute to the Profit Sharing
and 401(k) Plan if it notifies its employees by January of the Profit
Sharing and 401(k) Plan year. An employee will become vested in the
Company's contributions based on the employee's years of service. An
employee will receive a year of vesting service for each plan year in
which the employee completed 1,000 hours of service. Vesting credit will
be allocated in 20% increments for each year of service commencing with
the attainment of two years of service. An employee will be fully vested
following the completion of six years of service.
The 401(k) component of the Profit Sharing and 401(k) Plan provides that
each eligible employee may contribute up to 15% of such employee's annual
compensation, and that the Company will contribute 1% of each employee's
annual compensation for each 4% of compensation contributed by the
employee, up to a maximum of 2%. All non-union employees of the Company
will be eligible to participate in the Profit Sharing and 401(k) Plan
after twelve consecutive months of service with the Company.
At a meeting held on July 27, 1993, the Company's Board of Directors
adopted a stock option plan providing for the issuance of both
non-qualified and incentive stock options (as defined in the Internal
Revenue Code). This stock option plan was ratified by the Company's
shareholders at the April 26, 1994 annual meeting. The number of shares
available for purchase under the Stock Option Plan as adopted was 120,000
(as adjusted pursuant to antidilution provisions). The stockholders
approved a four-for-one stock split, increasing the number of shares of
Common Stock available for purchase under the Stock Option Plan to
480,000. Options were granted for 228,000 shares for 1993, 132,000 shares
for 1994 and none for 1995, leaving a balance available for future grants
of 120,000 shares. No options were exercised in 1994 or 1995.
10. SUBSEQUENT EVENTS (UNAUDITED)
On March 5, 1996, the Board of Directors adopted an employee stock
purchase plan (the "Stock Purchase Plan"), which was approved by the
stockholders on May 10, 1996. A total of 300,000 shares of common stock
(subject to adjustment for capital changes) in the aggregate may be
granted under the stock purchase plan. The Stock Purchase Plan is
administered by the compensation committee. The purchase price per share
of stock shall be 85% of per share market value of the common stock on the
purchase date. Effective May 31, 1996, the Company issued 137,000 shares
of stock at $11.625 per share under the Plan.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Riviera, Inc.:
We have audited the accompanying statements of operations and division deficit
and of cash flows for the six month period ended June 30, 1993 of the
Casino-Hotel Division (the "Division") of Riviera, Inc. (Predecessor to Riviera
Holdings Corporation) (in reorganization under Chapter 11 of the Federal
Bankruptcy Code since December 18, 1991; see Note 1). These financial statements
are the responsibility of the Division's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements of the Division present fairly, in all
material respects, the results of its operations and its cash flows for the six
month period ended June 30, 1993 in conformity with generally accepted
accounting principles.
As described in Note 1 to the financial statements, since December 18, 1991, the
Division operated as a debtor-in-possession under Chapter 11 of the federal
bankruptcy laws in the United States Bankruptcy Court for the District of Nevada
(the "Court"). At a hearing on February 11, 1993, the Court confirmed the Second
Amended Joint Plan of Reorganization (the "Plan") dated January 8, 1993 for
Riviera, Inc. The Plan was later modified by an order of the Court entered March
25, 1993 and was further modified by an order entered by the Court on June 4,
1993. The Division continued to conduct business as usual under the supervision
of the Court until June 30, 1993, (the "Effective Date").
As described in Note 1 to the financial statements, in accordance with the Plan,
on June 30, 1993 Riviera Holdings Corporation (Successor to the Division)
received the assets of the Division and substantially all of the Division's
liabilities.
F-16
<PAGE>
The accompanying financial statements have been prepared assuming that the
Division will continue as a going concern which contemplates, among other
things, the realization of assets and the satisfaction of liabilities in the
normal course of business. The Division's recurring losses from operations and
Division deficit raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also discussed in
Note 1. The financial statements do not include adjustments that might result
from the outcome of the uncertainties referred to herein.
As discussed in Note 4 to the financial statements, prior to the Effective Date,
the Division was party to numerous lawsuits. As a result of the Plan, certain of
such lawsuits were either dismissed or settled on the Effective Date. The
ultimate outcome of the remaining and unsettled litigation cannot presently be
determined.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
March 11, 1994
F-17
<PAGE>
RIVIERA, INC.
CASINO-HOTEL DIVISION
(Predecessor to Riviera Holdings Corporation)
(In reorganization under Chapter 11 of the Federal
Bankruptcy Code since December 18, 1991; see Note 1)
STATEMENT OF OPERATIONS AND DIVISION DEFICIT
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1993
- ------------------------------------------------------------------------------
REVENUES: (Note 2)
Casino $ 38,073,444
Rooms 17,613,591
Food and beverage 11,656,019
Entertainment 8,058,918
Other (Note 3) 4,115,806
--------------
79,517,778
Less promotional allowances (Note 2) 6,815,521
--------------
Net revenues 72,702,257
--------------
COSTS AND EXPENSES: (Note 2)
Direct costs and expenses of operating departments:
Casino 24,559,546
Rooms 8,339,409
Food and beverage 7,426,832
Entertainment 7,050,550
Other 1,737,280
Other operating expenses:
Selling, general and administrative 12,352,898
Provision for bad debts 354,123
Depreciation and amortization 2,621,502
--------------
Total costs and expenses 64,442,140
--------------
INCOME FROM OPERATIONS 8,260,117
OTHER INCOME (EXPENSE):
Interest, net of amounts capitalized (contractual
interest of $10,397,223 for the six
months ended June 30, 1993) (Note 2) (2,832,374)
Interest income 200,714
--------------
Total other income (expense) (2,631,660)
--------------
NET INCOME 5,628,457
DIVISION DEFICIT, BEGINNING OF PERIOD (114,357,749)
--------------
DIVISION DEFICIT, END OF PERIOD $ (108,729,292)
===============
See notes to financial statements.
F-18
<PAGE>
RIVIERA, INC.
CASINO-HOTEL DIVISION
(Predecessor to Riviera Holdings Corporation)
(In reorganization under Chapter 11 of the Federal
Bankruptcy Code since December 18, 1991; see Note 1)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1993
- -------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,628,457
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,621,502
Provision for bad debts 354,123
Provision for gaming discounts 90,000
Interest expense, net of amount capitalized 2,832,374
Interest paid, net of amount capitalized (2,756,076)
Changes in operating assets and liabilities:
Decrease in accounts receivable 85,640
Increase in inventories (351,770)
Increase in prepaid expenses and other assets (2,176,515)
Increase in restricted cash for periodic slot payments 378,709
Liabilities not subject to compromise:
Decrease in accounts payable (2,208,413)
Increase in accrued expenses 5,404,343
Liabilities subject to compromise:
Increase in accounts payable 912,627
Decrease in accrued liabilities (2,297,320)
--------------
Net cash provided by operating activities 8,517,681
--------------
CASH FLOWS FROM INVESTING ACTIVITIES - Capital expenditures for
property and equipment (1,478,278)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Payments on long-term borrowings (2,311,054)
--------------
INCREASE IN CASH AND CASH EQUIVALENTS 4,728,349
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,658,858
-------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,387,207
=============
See notes to financial statements.
</TABLE>
F-19
<PAGE>
RIVIERA, INC.
CASINO-HOTEL DIVISION
(Predecessor to Riviera Holdings Corporation)
(In reorganization under Chapter 11 of the Federal
Bankruptcy Code since December 18, 1991; see Note 1)
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
1. PETITION FOR RELIEF UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
a. Petition for Relief Under Chapter 11
On December 18, 1991, Riviera, Inc. (the corporation of which the
Riviera Hotel & Casino (the "Division") is a division) filed a
petition for relief under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the District of Nevada
(the "Court"). Under Chapter 11, certain claims against Riviera, Inc.
in existence prior to the filing of the petitions are stayed while
the Division continued business operations as a debtor-in-possession.
Claims collateralized by the assets of the Division were stayed,
although the holders of such claims had the right to move the Court
for relief from the stay. During 1991, 1992 and 1993, Riviera, Inc.
filed various plans of reorganization with the Court. At a hearing on
February 11, 1993, the Court confirmed the Second Amended Joint Plan
of Reorganization dated January 8, 1993 for Riviera, Inc. The Second
Amended Joint Plan of Reorganization was modified by an order of the
Court entered March 25, 1993, and was further modified by an order
entered by the Court on June 4, 1993 (the Second Amended Joint Plan
of Reorganization as modified by the March 25 Confirmation Order and
the June 4 Confirmation Order is referred to herein as the "Plan").
b. Reorganization
The Plan was filed jointly by Riviera, Inc. and the Official
Bondholders' Committee (the "OBC") appointed in the Reorganization
Case. The OBC was appointed to represent the interests of the holders
of Floating Rate First Mortgage Notes, Floating Rate First Mortgage
Reset Notes and Second Series Floating Rate Notes (collectively, the
"Riviera Notes") in the aggregate principal amount of $126,000,000.
For financial reporting purposes the effective date of the Plan
occurred on midnight June 30, 1993 (the "Effective Date") with the
following events transpiring:
. All of the assets of the Division were acquired by Riviera
Holdings Corporation and its subsidiary ("RHC") and
substantially all of the remaining liabilities of the Division
were transferred to RHC;
. The Riviera Notes were canceled;
. RHC issued an aggregate amount of approximately 120,000 shares
of its common stock, par value $.001 per share (the "Common
Stock"), to Riviera Note holders (i.e., 1.2 shares of Common
Stock, subject to rounding, for each $1,260 principal amount of
Riviera Notes);
. RHC (a) issued an aggregate of $100,000,000 principal amount
of 11% first mortgage notes due December 31, 2002 (the "RHC
First Mortgage Notes") to Riviera Note holders (i.e., $1,000 in
principal amount of RHC First Mortgage Notes, subject to
rounding, for each $1,260
F-20
<PAGE>
principal amount of Riviera Notes) and (b) paid to Riviera
Note holders an amount equal to 11% per annum on $100,000,000
accruing from April 1, 1993 to the Effective Date;
. RHC paid $1,050,000 and issued to a disbursing agent for the
benefit of Nikita Zukov and Nikita Zukov, Architect, P.C. an
unsecured, non-interest bearing promissory note in the
principal amount of $3,150,000 for the remaining settlement
amount (the "Class 4 Note") with an imputed interest rate of
16.8%. The Division recorded in other accrued expenses at
December 31, 1992 a provision for this settlement;
. RHC paid $553,000 and issued to a disbursing agent for the
benefit of Sequoia Construction, Inc. and certain other persons
two unsecured, non-interest bearing promissory notes in an
aggregate principal amount of $591,000 (the "Class 5 Notes")
with an imputed interest rate of 16.8%. The Division recorded
in other accrued expenses at December 31, 1992 a provision for
this settlement;
. RHC paid $1,000,000 and issued to a disbursing agent for the
benefit of the general unsecured creditors of the Division an
unsecured, non-interest bearing promissory note in the
principal amount of $5,500,000, for the remaining settlement
amount (the "Class 12 Note") with an imputed interest rate of
16.8%;
. RHC issued to a disbursing agent for the benefit of Meshulam
Riklis, the sole shareholder of Riviera, Inc., and his
affiliates an unsecured, non-interest bearing promissory note
in the principal amount of $8,000,000 (the "Class 13/14 Note");
and
. RHC assumed certain employment and termination fee agreements
between Riviera, Inc. and the executive officer and key
employees of the Division.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on a going
concern basis and comprehend Statement of Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code, which
contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. During the year ended December 31, 1992,
the Division incurred a net loss of $80,905,129 (which in 1992 includes a
recognized loss on permanent impairment of assets of $85,220,644). Also,
the Division was unable to fund the quarterly interest payments due May 1,
August 1, and November 1, 1991 relating to the Riviera Notes. The
financial statements do not include all of the consequences of the
proceedings under Chapter 11 as discussed in Note 1. Particularly, such
financial statements do not purport to show, with respect to the
reorganization proceedings and events which transpired on the Effective
Date in accordance with the Plan, (1) the realizable value of assets on a
liquidation basis or their ability to satisfy liabilities, (2) the total
amount of liabilities and contingencies which may be allowed, or the
status and priority of such liabilities and contingencies, (3) the effect
upon Division equity accounts of the reorganization, (4) as to operations,
the effect of any changes that may be made to Division's business,
pursuant to the Plan. Prior to the Effective Date the Division's ability
to continue as a going concern was dependent upon its:
. Obtaining the requisite regulatory approvals required by the State
of Nevada, including approvals by the gaming authorities.
. Obtaining sufficient cash to fund all distributions and cash
reserves required at the time the Plan becomes effective.
F-21
<PAGE>
. Achieving profitable operations and sufficient cash flows to meet
future obligations required by the Plan.
The financial statements do not include all adjustments that might be
necessary should the Division be unable to continue as a going concern.
Mr. Meshulam Riklis is the sole owner of all the common stock of Riviera,
Inc. The Riviera, Inc., Casino-Hotel Division includes the operations of
the Riviera Hotel & Casino only, and does not include any other operations
or investments of Riviera, Inc.; Mr. Riklis' ownership interest in the
Riviera Hotel & Casino was terminated on the Effective Date.
For purposes of these financial statements, the term "Affiliate" includes
all entities in which Mr. Riklis has an ownership or controlling interest.
Nature of Operations
The sole line of business of the Division was the operation of the Riviera
Hotel and Casino in Las Vegas, Nevada. The Division was engaged in a
single industry segment, the operation of a hotel/casino with restaurants
and related facilities.
Casino operations are subject to extensive regulation in the State of
Nevada by the Gaming Control Board and various other state and local
regulatory agencies. Management believes that the Division's procedures
for supervising casino operations, for recording casino and other revenues
and for granting credit complied in all material respects with the
applicable regulations.
Property and Equipment
Depreciation is computed by the straight-line method over the shorter of
the estimated useful lives or lease terms, if applicable, of the related
assets, which range from 8 to 30 years. The costs of normal maintenance
and repairs are charged to expense as incurred. Gains or losses on
disposals are recognized as incurred.
Casino Revenue
The Division recognized, as gross revenue, the net win from gaming
activities, which is the difference between gaming wins and losses.
Promotional Allowances
Promotional allowances consist primarily of accommodations, entertainment,
and food and beverage services furnished without charge to customers. The
retail value of such services is included in the respective revenue
classifications and is then deducted as promotional allowances.
The estimated costs of providing promotional allowances are classified as
costs of the casino operating department through interdepartmental
allocations for the six months ended June 30, 1993 are as follows:
F-22
<PAGE>
Rooms $ 899,000
Food and beverage 3,856,000
Entertainment 1,197,000
-----------
Total costs allocated to casino operating department $ 5,952,000
===========
Interest Costs
The Division determined that there was insufficient collateral to cover
the interest on the $126,000,000 aggregate principal amount of Riviera
Notes due November 1, 1993 and certain other unsecured prepetition debt of
Riviera, Inc. Therefore, in accordance with provisions of the Bankruptcy
Code, the Division discontinued accruing interest on these obligations
subsequent to December 18, 1991, the date the bankruptcy petition was
filed. If accrued, interest expense on these obligations for the six month
period ended June 30, 1993 would have totaled $10,397,223 which includes
the 2.5% default interest rate on the Riviera Notes.
Income Taxes
Effective January 1, 1989, Riviera, Inc. elected to be treated as an S
Corporation as prescribed under Section 1362 of the Internal Revenue Code.
As an S Corporation, items of income, loss and credits generated by the
Division flow through directly to the sole stockholder and are included in
determining the tax liability of the sole stockholder. Accordingly, no
recognition has been given to income taxes in the accompanying financial
statements.
Statement of Cash Flows
The Division recorded property and accrued liabilities of $4,588,000 in
connection with two settlements.
Reclassifications
Certain reclassifications have been made to the 1993 financial statements
to conform with the current year presentation of RHC, the successor.
3. LEASING ACTIVITIES
Rental expense for the six months ended June 30, 1993 was approximately
$194,000.
In addition, the Division leases retail space to third parties under terms
of non-cancelable operating leases which expire in various years through
1999. Rental income, which is included in other income, for the six months
ended June 30, 1993 was approximately $833,000.
4. COMMITMENTS AND CONTINGENCIES
Prior to the Effective Date, the Division was party to numerous lawsuits.
As a result of the Plan, certain of such lawsuits were either dismissed or
settled on the Effective Date and to a large extent RHC was substituted
for the Division with respect to these matters. Other lawsuits or
contingencies remain unresolved and their outcome cannot presently be
determined. The following summarizes the status of the litigation and
contingencies which the Division was party to:
F-23
<PAGE>
. In January 1990, the Division commenced an action against its former
architect, claiming the architect had breached his agreements to the
substantial damage of the Division pursuant to which he was to render
architectural and other services. In February 1990, the architect
asserted counterclaims against the Division for breach of the
agreements in excess of $6,800,000 and for alleged damages in excess
of $50,000 for claimed copyright infringement of architectural plans.
Management of the Division negotiated a settlement with the architect
for $4,200,000 which was included as part of the reorganization plan
and became the liability of RHC on the Effective Date.
. The Division was a defendant in a lawsuit brought by a contractor to
foreclose on liens in the total amount of $2,800,000 for retention
monies allegedly owed to the contractor by the Division for
construction of the casino expansion and other improvements. The
Division filed a counterclaim against the contractor alleging failure
by the contractor to complete the work and faulty workmanship.
Management of the Division negotiated a settlement with the
contractor for $1,300,000 which was included as part of the Plan and
became the liability of RHC on the Effective Date.
. The Pension Benefit Guaranty Corporation (the "PBGC") has asserted a
claim in the Reorganization Case on the theory that Riviera, Inc. is
a member of a controlled group, as that term is used in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), with
certain entities owned or controlled by Meshulam Riklis, the sole
shareholder of Riviera, Inc. In particular, the PBGC claims that if
certain pension plans (the "ERISA Plans") sponsored by other members
of the controlled group are terminated prior to the date of entry of
the order confirming the Plan, then Riviera, Inc. would be jointly
and severally liable, along with the other members of the controlled
group, for minimum funding contributions required by ERISA in an
estimated amount of approximately $1,400,000 and for unfunded benefit
liabilities in an estimated amount of approximately $42,300,000.
Management has been informed by the sponsors of the ERISA Plans that
none of the ERISA Plans had been terminated as of the date of entry
of the order confirming the Plan. In addition, the PBGC has asserted
that Riviera, Inc. would remain liable for minimum funding
contributions and unfunded benefit liabilities in the event that the
ERISA Plans are terminated after the filing of the confirmation
order. Riviera, Inc. disputes the amount and validity of all of the
claims of the PBGC. The Plan provided that Riviera, Inc. will remain
liable for all PBGC claims (other than any portion thereof which is
found to be an administrative claim or a priority tax claim) and that
RHC will be liable for such claims. The PBGC has asserted that
approximately $1,400,000 of its claims constitutes an administrative
claim or a priority tax claim which, pursuant to the Plan, would be
liabilities of RHC. Although management believes that such assertion
is without merit, Riviera, Inc. and Meshulam Riklis are required to
indemnify RHC for any amounts RHC is required to pay in connection
with any portion of the PBGC claims which is determined to be an
administrative claim or a priority tax claim. There can be no
assurance that Riviera, Inc. or Meshulam Riklis will have the
capacity to discharge any indemnification obligations when and if a
claim for indemnification for PBGC claims is made by RHC. Management
does not believe that the outcome of the PBGC claims will have a
material adverse effect on the results of operations and financial
condition of RHC.
. Arthur Waltzman, former Chairman of the Board of the Division, and
the Division entered into an employment agreement dated June 1, 1990.
On January 8, 1992, the Division terminated Mr. Waltzman's
employment. On February 13, 1992, Mr. Waltzman filed a proof of claim
in the Reorganization Case in the amount of $2,650,000. The Division
objected to the claim and Mr. Waltzman reduced the claim to
$1,986,575. On February 25, 1992, the Court approved the Division's
motion for an order Authorizing Rejection of Executory Contract,
which approved the Division's rejection of Mr. Waltzman's employment
agreement prior to its stated termination date of December 31, 1993.
The Court determined the value of Mr. Waltzman's claim for purposes
of
F-24
<PAGE>
distribution under the Plan to be $525,000. Pursuant to the terms
of the Plan, Mr. Waltzman's claim was included in the Class 12 Note
of $6,500,000 (see Note 1) which became the liability of RHC on the
Effective Date.
5. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
Pursuant to the Plan, as of the Effective Date, RHC assumed employment
agreements between the Division and Mr. Westerman, Chairman of the Board
and Chief Executive Officer of the Division. These agreements include an
annual base salary, an incentive bonus based upon the extent of adjusted
operating earnings, contributions to a Non-Qualified Pension Plan and
contributions to a Profit Sharing and 401(k) plan. In addition, the Plan
also provides that, on the Effective Date, RHC assumed a termination fee
agreement between the Division and each of the Directors, Executive
Officers and Significant Employees pursuant to which each of such
employees will be entitled to receive one year's salary and health
insurance benefits if their employment with RHC is terminated within one
year due to a change in control of RHC or the involuntary termination of
Mr. Westerman.
During 1992, the Division established an incentive compensation plan,
which became effective upon approval of the Plan, whereby employees of the
Division who, in the opinion of the Chairman of the Board, either serve in
key executive, administrative, professional or technical capacities with
the Division or other employees who also have made a significant
contribution to the successful and profitable operation of the Division.
The amount of the bonus is based on operating earnings before
depreciation, amortization, interest expense, provision for income taxes,
extraordinary losses and gains, any provisions or payments made pursuant
to the Plan, and any provisions or payments made pursuant to the Incentive
Compensation of the Chairman and Chief Executive Officer.
The Division contributes to multi-employer pension plans under various
union agreements to which the Division is a party. Contributions, based on
wages paid to covered employees, for the six months ended June 30, 1993
was approximately $815,000. These contributions were for approximately
1,300 employees for the six months ended June 30, 1993 including food and
beverage employees, room department employees, carpenters, engineers,
stage hands, electricians, painters and teamsters. The Division's share of
any unfunded liability related to multi-employer plans, if any, is not
determinable.
On April 1, 1992, the Division established a profit sharing and 401(k)
plan, which did not require the Division to match any portion of the
employees' contributions to the profit sharing and 401(k) plan. During the
six months ended June 30, 1993, the Division incurred administrative
expenses for the Profit Sharing and 401(k) Plan of approximately $15,000.
On the Effective Date, RHC assumed the combined profit sharing plan and
401(k) plan of the Division (the "Profit Sharing and 401(k) Plan") which
became retroactive to January 1, 1993. RHC will continue such Profit
Sharing and 401(k) Plan after the Effective Date.
The profit sharing component of the Profit Sharing and 401(k) Plan
provides that as of the quarter following the Effective Date RHC will make
a contribution equal to 1% of each eligible employee's annual compensation
if a prescribed annual operating earnings target is attained and an
additional 1% if the prescribed operating earnings target is exceeded by
at least $2,000,000. An employee will become vested in RHC's contributions
based on the employee's years of service. An employee will receive a year
of service for each plan year in which the employee completed 1,000 hours
of service. Vesting credit will be allocated in 20% increments for each
year of service commencing with the attainment of two years of service. An
employee will be fully vested following the completion of six years of
service.
F-25
<PAGE>
The 401(k) component of the Profit Sharing and 401(k) Plan provides that
each eligible employee may contribute up to 15% of such employee's annual
compensation, and that RHC will contribute 1% of such employee's annual
compensation for each 4% of compensation contributed by the employee, up
to a maximum of 2% of the employee's compensation. All non-union employees
of RHC will be eligible to participate in the Profit Sharing and 401(k)
Plan after twelve consecutive months of service at RHC.
F-26
<PAGE>
RIVIERA HOLDINGS
CORPORATION
No dealer, salesperson or other person has
been authorized to give any information or
to make and representation not contained
in this Prospectus and, if given or made,
such information or representation must
not be relied upon as having been authorized
by the Company, any Selling Securityholder
or any other person. This Prospectus does not
constitute an offer to sell or a solicitation of $45,635,000
an offer to buy any of the securities offered 11% First Mortgage Notes
hereby by anyone in any jurisdiction in which Due December 31, 2002
such offer or solicitation is not authorized or
in which the person making such offer or
solicitation is not qualified to do so or to any
person to whom it is unlawful to make any
such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances,
create any implication that the information
contained herein is correct as of any time
subsequent to the date of this Prospectus or
that there has been no change in the affairs of
the Company since such date. PROSPECTUS
July 3, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth an itemized statement of all fees and
expenses in connection with the distribution of the securities being registered
pursuant to this Registration Statement, all of which fees and expenses will be
paid by the Registrant:
Securities and Exchange Commission registration fee.... $ 25,659
National Association of Securities Dealers, Inc. fee... 8,711
Printing............................................... 2,000 *
Accountants' fees and expenses......................... 35,000 *
Blue Sky fees and expenses............................. 1,500 *
Legal fees and expenses................................ 100,000 *
Trustee's fees and expenses............................ 5,000 *
Miscellaneous.......................................... 2,130 *
-------
Total........................................... $ 180,000 *
=======
- ----------
* Estimates.
Item 14. Indemnification of Directors and Officers
Nevada law provides that Nevada corporations may include within their
articles of incorporation provisions eliminating or limiting the personal
liability of their directors and officers in stockholder actions brought to
obtain damages for alleged breaches of fiduciary duties, as long as the alleged
acts or omissions did not involve intentional misconduct, fraud, a knowing
violation of law or payment of dividends in violation of the Nevada statutes.
Nevada law also allows Nevada corporations to include in their articles of
incorporation or bylaws provisions to the effect that expenses of officers and
directors incurred in defending a civil or criminal action must be paid by the
corporation as they are incurred, subject to an undertaking on behalf of the
director or officer that he or she will repay such expenses if it is ultimately
determined by a court of competent jurisdiction that such officer or director is
not entitled to be indemnified by the corporation because such officer or
director did not act in good faith and in a manner reasonably believed to be in
or not opposed to the best interests of the corporation.
Nevada law provides that Nevada corporations may eliminate or limit the
personal liability of its directors and officers. This means that the articles
of incorporation could state a dollar maximum for which directors would be
liable, either individually or collectively, rather than eliminating liability
to the full extent permitted by the law.
The Articles of the Registrant provide that a director or officer of the
Registrant shall not be personally liable to the Registrant or its stockholders
for damages for any breach of fiduciary duty as a director or officer, except
for liability for (i) acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law, or (ii) the payment of distributions in
violation of NRS 78.300. In addition, NRS 78.751 and Article VII of the Bylaws
of the Registrant, under certain circumstances, provide for the indemnification
of the officers and directors of the Registrant against liabilities which they
may incur in such capacities. A summary of the circumstances in which such
indemnification is provided
II - 1
<PAGE>
for is set forth in the following paragraph, but such summary is qualified in
its entirety by reference to Article VII of the Bylaws of the Registrant.
In general, any director or officer of the Registrant (an "Indemnitee") who
was or is a party to, or is threatened to be made a party to, or is otherwise
involved in any threatened, pending or completed action or suit (including
without limitation an action, suit or proceeding by or in the right of the
Registrant), whether civil, criminal, administrative or investigative (a
"Proceeding") by reason of the fact that the Indemnitee is or was a director or
officer of the Registrant or is or was serving in any capacity at the request of
the Registrant as a director, officer, employee, agent, partner or fiduciary of,
or in any other capacity for, another corporation or any partnership, joint
venture, trust or other enterprise shall be indemnified and held harmless by the
Registrant for actions taken by the Indemnitee and for all omissions to the full
extent permitted by Nevada law against all expense, liability and loss
(including without limitation attorneys' fees, judgments, fines, taxes,
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Indemnitee in connection with any Proceeding. The rights to
indemnification specifically include the right to reimbursement from the
Registrant for all reasonable costs and expenses incurred in connection with the
Proceeding and indemnification continues as to an Indemnitee who has ceased to
be a director or officer. The Board of Directors may include employees and other
persons as though they were Indemnitees. The rights to indemnification are not
exclusive of any other rights that any person may have by law, agreement or
otherwise.
The Bylaws also provide that the Registrant may purchase and maintain
insurance or make other financial arrangements on behalf of any person who
otherwise qualifies as an Indemnitee under the foregoing provisions. Other
financial arrangements to assist the Indemnitee are also permitted, such as the
creation of a trust fund, the establishment of a program of self-insurance, the
securing of the Registrant's obligation of indemnification by granting a
security interest or other lien on any assets (including cash) of the Registrant
and the establishment of a letter of credit, guarantee or surety.
The Registrant and ROC have entered into agreements with each of their
respective directors, executive officers and significant employees providing for
indemnification by the Registrant and ROC of each of them to the extent
permitted by the Articles of Incorporation and the Bylaws.
Item 15. Recent Sales of Unregistered Securities
On the Effective Date, the Registrant issued an aggregate of 120,000 shares
of Common Stock to the holders of Riviera Notes and an aggregate of $100,000,000
principal amount of First Mortgage Notes to the holders of Riviera Notes. The
distribution of the Common Stock and the First Mortgage Notes was pursuant to
the Plan and was exempt from the registration requirements of the Securities Act
and state laws pursuant to Section 1145 of the Bankruptcy Code.
On May 30, 1996, 1,470 shares were issued to Robert Barengo, a Non-Employee
Director of the Registrant, as payment for his 1996 director fees.
II - 2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The following exhibits are filed herewith:
Exhibit
Number Description
- ------ -----------
1.1* Form of Agency Agreement to be entered into by Prudential
Securities Incorporated and certain Selling Securityholders in
connection with the offering of First Mortgage Notes covered hereby
1.2* Form of Agreement to be entered into by the Registrant and
Prudential Securities Incorporated in connection with the offering
of First Mortgage Notes covered hereby
2.1* Second Amended Joint Plan of Reorganization dated January 8,
1993 (see Exhibit 2.1 to Form 10, Commission File No. 0-21430)
2.2* Order Confirming Second Amended Joint Plan of Reorganization,
entered March 25, 1993 (see Exhibit T3E-1 to Form T-3,
Commission File No. 22-24540)
2.3* Modified and Restated Second Amended Joint Plan of
Reorganization, dated June 2, 1993 (see Exhibit 2.3 to Form 10,
Commission File No. 0-21430)
2.4* Order Confirming Modified and Restated Second Amended Joint
Plan of Reorganization, entered June 4, 1993 (see Exhibit 2.4 to
Form 10, Commission File No. 0-21430)
3.1* Amended and Restated Articles of Incorporation of the Registrant
filed June 18, 1993 (see Exhibit 3.1 to this Registration Statement
filed with the Commission on August 11, 1993)
3.2* Second Amended and Restated Articles of Incorporation of the
Registrant filed May 10, 1996 (see Exhibit 4.1 to Form S-8 filed
with the Commission May 13, 1996)
3.3* Bylaws of the Registrant (see Exhibit 3.2 to this Registration
Statement filed with the Commission on August 11, 1993)
4.1* Indenture, dated June 30, 1993, among the Registrant, Riviera
Operating Corporation and IBJ Schroder Bank & Trust Company (see
Exhibit 4.1 to this Registration Statement filed with the
Commission on August 11, 1993)
II - 3
<PAGE>
Exhibit
Number Description
- ------ -----------
4.2* First Supplemental Indenture, dated June 30, 1993, among the
Registrant, Riviera Operating Corporation and IBJ Schroder Bank &
Trust Company (see Exhibit 4.2 to this Registration Statement filed
with the Commission on August 11, 1993)
4.3* Form of 11% First Mortgage Note Due December 31, 2002 (see Exhibit
4.3 to this Registration Statement filed with the Commission on
August 11, 1993)
4.4* Deed of Trust, dated June 30, 1993, among the Registrant, Nevada
Title Company and IBJ Schroder Bank & Trust Company (see Exhibit
4.4 to this Registration Statement filed with the Commission on
August 11, 1993)
4.5* Security Agreement, dated June 30, 1993, made by the Registrant and
Riviera Operating Corporation in favor of IBJ Schroder Bank & Trust
Company (see Exhibit 4.5 to this Registration Statement filed with
the Commission on August 11, 1993)
4.6* Trademark Security Agreement, dated June 30, 1993, between the
Registrant and IBJ Schroder Bank & Trust Company (see Exhibit 4.6
to this Registration Statement filed with the Commission on August
11, 1993)
4.7* Debt Registration Rights Agreement, dated June 30, 1993, among the
Registrant and the Holders of Registrable Securities (see Exhibit
4.7 to this Registration Statement filed with the Commission on
August 11, 1993)
4.8* Subordination Agreement, dated June 30, 1993, among the Registrant,
Riviera Operating Corporation, IBJ Schroder Bank & Trust Company
and each of the Disbursing Agents under the Class 4, Class 5, Class
12 and Class 13/14 Notes (see Exhibit 4.8 to this Registration
Statement filed with the Commission on August 11, 1993)
4.9* Form of First Amendment to Indenture to be entered into by the
Registrant, Riviera Operating Corporation and IBJ Schroder Bank &
Trust Company (see Exhibit 4.9 to Amendment No. 1 to this
Registration Statement filed with the Commission on August 19,
1993)
4.10* Form of First Amendment to First Supplemental Indenture to be
entered into by the Registrant, Riviera Operating Corporation and
IBJ Schroder Bank & Trust Company (see Exhibit 4.10 to Amendment
No. 1 to this Registration Statement filed with the Commission on
August 19, 1993)
II - 4
<PAGE>
Exhibit
Number Description
- ------ -----------
4.11 First Amendment to First Supplemental Indenture entered into by the
Registrant, Riviera Operating Corporation and IBJ Schroder Bank &
Trust Company dated as of September 8, 1995
5* Opinion of Sidley & Austin regarding validity of First Mortgage
Notes (see Exhibit 5 to Amendment No. 1 to this Registration
Statement filed with the Commission on August 19, 1993)
10.1* Lease Agreement between Riviera, Inc. and Mardi Gras Food
Court, Inc. dated April 1, 1990 (see Exhibit 10.1 to Form 10,
Commission File No. 0-21430)
10.2* Amendment to Lease Agreement between Riviera, Inc. and Mardi
Gras Food Court, Inc. dated April 1, 1990 (see Exhibit 10.2 to
this Registration Statement filed with the Commission on August
11, 1993)
10.3* Lease Agreement between Riviera, Inc. and Leroy's Horse and
Sports Place (see Exhibit 10.3 to Form 10, Commission File No.
0-21430)
10.4* Equipment Lease between Riviera, Inc. and G.E. Capital
Corporation (successor in interest to RCA Service Company) (see
Exhibit 10.4 to Form 10, Commission File No. 0-21430)
10.5* Sales and Security Agreement for Slot Equipment between
Riviera, Inc. and Bally Distributing of Nevada, Inc. and Order re:
Motion to Approve Adequate Protection Payments (see Exhibit
10.5 to Form 10, Commission File No. 0-21430)
10.6* Documents Relating to Sale by Universal Distributing of Nevada,
Inc. of Slot Equipment to Riviera, Inc. and Stipulation and Order
re: Modification of Automatic Stay and Compromise of Claim
(see Exhibit 10.6 to Form 10, Commission File No. 0-21430)
10.7* Indemnity Agreement, dated June 30, 1993, from Riviera, Inc. and
Meshulam Riklis in favor of the Registrant and Riviera Operating
Corporation (see Exhibit 10.7 to this Registration Statement filed
with the Commission on August 11, 1993)
10.8* Indemnity Agreement, dated June 30, 1993, from the Registrant in
favor of IBJ Schroder Bank & Trust Company (see Exhibit 10.8 to
this Registration Statement filed with the Commission on August 11,
1993)
10.9* Equity Registration Rights Agreement, dated June 30, 1993, among
the Registrant and the Holders of Registrable Shares (see Exhibit
10.9 to this Registration Statement filed with the Commission on
August 11, 1993)
II - 5
<PAGE>
Exhibit
Number Description
- ------ -----------
10.10* The Registrant's Class 4 Unsecured Promissory Note (see Exhibit
10.10 to this Registration Statement filed with the Commission on
August 11, 1993)
10.11* The Registrant's Class 5 (Sequoia "A") Unsecured Promissory Note
(see Exhibit 10.11 to this Registration Statement filed with the
Commission on August 11, 1993)
10.12* The Registrant's Class 5 (Sequoia "B") Unsecured Promissory Note
(see Exhibit 10.12 to this Registration Statement filed with the
Commission on August 11, 1993)
10.13* The Registrant's Class 12 Non-Negotiable Unsecured Promissory Note
(see Exhibit 10.13 to this Registration Statement filed with the
Commission on August 11, 1993)
10.14* The Registrant's Class 13/14 Unsecured Promissory Note (see Exhibit
10.14 to this Registration Statement filed with the Commission on
August 11, 1993)
10.15* Operating Agreement, dated June 30, 1993, between the Registrant
and Riviera Operating Corporation (see Exhibit 10.15 to this
Registration Statement filed with the Commission on August 11,
1993)
10.16* Adoption Agreement regarding Profit Sharing and 401(k) Plans of the
Registrant (see Exhibit 10.16 to this Registration Statement filed
with the Commission on August 11, 1993)
10.17* Howard Johnson & Company Regional Defined Contribution Plan, dated
March 16, 1990, (adopted by the Registrant pursuant to the Adoption
Agreement filed as Exhibit 10.17 to this Registration Statement
filed with the Commission on August 11, 1993)
10.18* Employment Agreement between Riviera, Inc. and William L.
Westerman, dated January 6, 1993 (see Exhibit 10.18 to Form 10,
Commission File No. 0-21430)
10.19* Form of Agreement between the Registrant and Directors (see
Exhibit 10.19 to Form 10, Commission File No. 0-21430)
10.20* Form of Termination Fee Agreement (see Exhibit 10.20 to Form
10, Commission File No. 0-21430)
II - 6
<PAGE>
Exhibit
Number Description
- ------ -----------
10.21* Form of Employment Agreement between Riviera, Inc. and Albert
Rapuano, dated January 6, 1993 (see Exhibit 10.21 to Form 10,
Commission File No. 0-21430)
10.22* Implementation Agreement between Riviera, Inc. and Albert
Rapuano (see Exhibit 10.21 to Amendment No. 1 to this
Registration Statement filed with the Commission on August 19,
1993)
10.23* Restricted Account Agreement, dated June 30, 1993, among Riviera
Operating Corporation, IBJ Schroder Bank & Trust Company and Bank
of America Nevada (see Exhibit 10.22 to this Registration Statement
filed with the Commission on August 11, 1993)
10.24* Disbursement Agreement, dated June 30, 1993, between the Registrant
and IBJ Schroder Bank & Trust Company (see Exhibit 10.23 to this
Registration Statement filed with the Commission on August 11,
1993)
10.25* Tax Sharing Agreement between the Registrant and Riviera Operating
Corporation dated June 30, 1993 (see Exhibit 10.24 to Amendment No.
1 to this Registration Statement filed with the Commission on
August 19, 1993)
10.26* The Registrant's 1993 Stock Option Plan (see Exhibit 10.25 to
Amendment No. 1 to this Registration Statement filed with the
Commission on August 19, 1993)
10.27* Form of Stay Bonus Agreement (see Exhibit 10.27 to Form 10-Q filed
with the Commission on November 9, 1994).
10.28* Amendment dated February 19, 1995 to Lease Agreement
between Riviera, Inc. and Mardi Gras Food Court, Inc. (see
Exhibit 10.28 to Form 10-K filed with the Commission on March
23, 1995)
10.29* Amendment dated September 30, 1994, to Employment
Agreement between Riviera, Inc. and William L. Westerman.
(see Exhibit 10.29 to Form 10-K filed with the Commission on
March 23, 1995)
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
II - 7
<PAGE>
Exhibit
Number Description
- ------ -----------
24* Certified resolution of the Board of Directors of the Registrant
authorizing an executive officer to grant a power of attorney (see
Exhibit 24 to Amendment No. 1 to this Registration Statement
filed with the Commission on August 19, 1993)
- --------------------
* Previously filed with the Commission with the Company's Registration
Statement on Form S-1 or as otherwise indicated.
II - 8
<PAGE>
(b) Financial Statement Schedules
No financial statement schedules have been filed herewith since they are
either not required, are not applicable, or the required information is shown in
the consolidated financial statements or related notes.
Item 17. Undertakings
a. The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(A) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(B) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(C) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
b. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II - 9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-effective Amendment No. 3 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Las Vegas, State of Nevada, on July 3, 1996.
RIVIERA HOLDINGS CORPORATION
By: /s/ William L. Westerman
-------------------------------------
William L. Westerman
Chief Executive Officer and President
(principal executive officer)
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment No. 3 to the Registration Statement has been signed by
the following persons in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board, Chief
/s/ William L. Westerman Executive Officer and President July 3, 1996
- ---------------------------
William L. Westerman
Treasurer (principal
financial and accounting
/s/ Duane R. Krohn officer) July 3, 1996
- ---------------------------
Duane R. Krohn
* Director July 3, 1996
- ---------------------------
Robert R. Barengo
* Director July 3, 1996
- ---------------------------
William Friedman
* Director July 3, 1996
- ---------------------------
Philip P. Hannifin
*By: /s/ William L. Westerman
-----------------------------
William L. Westerman,
as attorney-in-fact and agent
II - 10
<PAGE>
RIVIERA HOLDINGS CORPORATION
INDEX TO EXHIBITS
-----------------
Exhibit Page
Number Description Number
- ------ ----------- ------
1.1* Form of Agency Agreement to be entered into by Prudential Securities
Incorporated and certain Selling Securityholders in connection with the
offering of First Mortgage Notes covered hereby
1.2* Form of Agreement to be entered into by the Registrant and Prudential
Securities Incorporated in connection with the offering of First
Mortgage Notes covered hereby
2.1* Second Amended Joint Plan of Reorganization dated January 8,
1993 (see Exhibit 2.1 to Form 10, Commission File No. 0-21430)
2.2* Order Confirming Second Amended Joint Plan of Reorganization,
entered March 25, 1993 (see Exhibit T3E-1 to Form T-3,
Commission File No. 22-24540)
2.3* Modified and Restated Second Amended Joint Plan of
Reorganization, dated June 2, 1993 (see Exhibit 2.3 to Form 10,
Commission File No. 0-21430)
2.4* Order Confirming Modified and Restated Second Amended Joint
Plan of Reorganization, entered June 4, 1993 (see Exhibit 2.4 to
Form 10, Commission File No. 0-21430)
3.1* Amended and Restated Articles of Incorporation of the Registrant filed
June 18, 1993 (see Exhibit 3.1 to this Registration Statement filed with
the Commission on August 11, 1993)
3.2* Second Amended and Restated Articles of Incorporation of the Registrant
filed May 10, 1996 (see Exhibit 4.1 to Form S-8 filed with the
Commission May 13, 1996)
3.3* Bylaws of the Registrant (see Exhibit 3.2 to this Registration Statement
filed with the Commission on August 11, 1993)
4.1* Indenture, dated June 30, 1993, among the Registrant, Riviera Operating
Corporation and IBJ Schroder Bank & Trust Company (see Exhibit 4.1 to
this Registration Statement filed with the Commission on August 11,
1993)
1
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- ------
4.2* First Supplemental Indenture, dated June 30, 1993, among the Registrant,
Riviera Operating Corporation and IBJ Schroder Bank & Trust Company (see
Exhibit 4.2 to this Registration Statement filed with the Commission on
August 11, 1993)
4.3* Form of 11% First Mortgage Note Due December 31, 2002 (see Exhibit 4.3
to this Registration Statement filed with the Commission on August 11,
1993)
4.4* Deed of Trust, dated June 30, 1993, among the Registrant, Nevada Title
Company and IBJ Schroder Bank & Trust Company (see Exhibit 4.4 to this
Registration Statement filed with the Commission on August 11, 1993)
4.5* Security Agreement, dated June 30, 1993, made by the Registrant and
Riviera Operating Corporation in favor of IBJ Schroder Bank & Trust
Company (see Exhibit 4.5 to this Registration Statement filed with the
Commission on August 11, 1993)
4.6* Trademark Security Agreement, dated June 30, 1993, between the
Registrant and IBJ Schroder Bank & Trust Company (see Exhibit 4.6 to
this Registration Statement filed with the Commission on August 11,
1993)
4.7* Debt Registration Rights Agreement, dated June 30, 1993, among the
Registrant and the Holders of Registrable Securities (see Exhibit 4.7 to
this Registration Statement filed with the Commission on August 11,
1993)
4.8* Subordination Agreement, dated June 30, 1993, among the Registrant,
Riviera Operating Corporation, IBJ Schroder Bank & Trust Company and
each of the Disbursing Agents under the Class 4, Class 5, Class 12 and
Class 13/14 Notes (see Exhibit 4.8 to this Registration Statement filed
with the Commission on August 11, 1993)
4.9* Form of First Amendment to Indenture entered into by the Registrant,
Riviera Operating Corporation and IBJ Schroder Bank & Trust Company (see
Exhibit 4.9 to Amendment No. 1 to this Registration Statement filed with
the Commission on August 19, 1993)
4.10* Form of First Amendment to First Supplemental Indenture entered into by
the Registrant, Riviera Operating Corporation and IBJ Schroder Bank &
Trust Company (see Exhibit 4.10 to Amendment No. 1 to this Registration
Statement filed with the Commission on August 19, 1993)
2
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- ------
4.11 First Amendment to First Supplemental Indenture entered into by the
Registrant, Riviera Operating Corporation and IBJ Schroder Bank & Trust
Company dated as of September 8, 1995
5* Opinion of Sidley & Austin regarding validity of First Mortgage
Notes (see Exhibit 5 to Amendment No. 1 to this Registration
Statement filed with the Commission on August 19, 1993)
10.1* Lease Agreement between Riviera, Inc. and Mardi Gras Food Court,
Inc. dated April 1, 1990 (see Exhibit 10.1 to Form 10, Commission
File No. 0-21430)
10.2* Amendment to Lease Agreement between Riviera, Inc. and Mardi
Gras Food Court, Inc. dated April 1, 1990 (see Exhibit 10.2 to
this Registration Statement filed with the Commission on August
11, 1993)
10.3* Lease Agreement between Riviera, Inc. and Leroy's Horse and
Sports Place (see Exhibit 10.3 to Form 10, Commission File No.
0-21430)
10.4* Equipment Lease between Riviera, Inc. and G.E. Capital
Corporation (successor in interest to RCA Service Company) (see
Exhibit 10.4 to Form 10, Commission File No. 0-21430)
10.5* Sales and Security Agreement for Slot Equipment between Riviera,
Inc. and Bally Distributing of Nevada, Inc. and Order re: Motion
to Approve Adequate Protection Payments (see Exhibit 10.5 to Form
10, Commission File No. 0-21430)
10.6* Documents Relating to Sale by Universal Distributing of Nevada,
Inc. of Slot Equipment to Riviera, Inc. and Stipulation and Order
re: Modification of Automatic Stay and Compromise of Claim (see
Exhibit 10.6 to Form 10, Commission File No. 0-21430)
10.7* Indemnity Agreement, dated June 30, 1993, from Riviera, Inc. and
Meshulam Riklis in favor of the Registrant and Riviera Operating
Corporation (see Exhibit 10.7 to this Registration Statement filed with
the Commission on August 11, 1993)
10.8* Indemnity Agreement, dated June 30, 1993, from the Registrant in favor
of IBJ Schroder Bank & Trust Company (see Exhibit 10.8 to this
Registration Statement filed with the Commission on August 11, 1993)
10.9* Equity Registration Rights Agreement, dated June 30, 1993, among the
Registrant and the Holders of Registrable Shares (see Exhibit 10.9 to
this Registration Statement filed with the Commission on August 11,
1993)
3
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- ------
10.10* The Registrant's Class 4 Unsecured Promissory Note (see Exhibit 10.10 to
this Registration Statement filed with the Commission on August 11,
1993)
10.11* The Registrant's Class 5 (Sequoia "A") Unsecured Promissory Note (see
Exhibit 10.11 to this Registration Statement filed with the Commission
on August 11, 1993)
10.12* The Registrant's Class 5 (Sequoia "B") Unsecured Promissory Note (see
Exhibit 10.12 to this Registration Statement filed with the Commission
on August 11, 1993)
10.13* The Registrant's Class 12 Non-Negotiable Unsecured Promissory Note (see
Exhibit 10.13 to this Registration Statement filed with the Commission
on August 11, 1993)
10.14* The Registrant's Class 13/14 Unsecured Promissory Note (see Exhibit
10.14 to this Registration Statement filed with the Commission on August
11, 1993)
10.15* Operating Agreement, dated June 30, 1993, between the Registrant and
Riviera Operating Corporation (see Exhibit 10.15 to this Registration
Statement filed with the Commission on August 11, 1993)
10.16* Adoption Agreement regarding Profit Sharing and 401(k) Plans of the
Registrant (see Exhibit 10.16 to this Registration Statement filed with
the Commission on August 11, 1993)
10.17* Howard Johnson & Company Regional Defined Contribution Plan, dated March
16, 1990, (adopted by the Registrant pursuant to the Adoption Agreement
filed as Exhibit 10.17 to this Registration Statement filed with the
Commission on August 11, 1993)
10.18* Employment Agreement between Riviera, Inc. and William L.
Westerman, dated January 6, 1993 (see Exhibit 10.18 to Form 10,
Commission File No. 0-21430)
10.19* Form of Agreement between the Registrant and Directors (see
Exhibit 10.19 to Form 10, Commission File No. 0-21430)
10.20* Form of Termination Fee Agreement (see Exhibit 10.20 to Form 10,
Commission File No. 0-21430)
10.21* Form of Employment Agreement between Riviera, Inc. and Albert
4
<PAGE>
Exhibit Page
Number Description Number
- ------ ----------- ------
Rapuano, dated January 6, 1993 (see Exhibit 10.21 to Form 10,
Commission File No. 0-21430)
10.22* Implementation Agreement between Riviera, Inc. and Albert
Rapuano (see Exhibit 10.21 to Amendment No. 1 to this
Registration Statement filed with the Commission on August
19, 1993)
10.23* Restricted Account Agreement, dated June 30, 1993, among Riviera
Operating Corporation, IBJ Schroder Bank & Trust Company and Bank of
America Nevada (see Exhibit 10.22 to this Registration Statement filed
with the Commission on August 11, 1993)
10.24* Disbursement Agreement, dated June 30, 1993, between the Registrant and
IBJ Schroder Bank & Trust Company (see Exhibit 10.23 to this
Registration Statement filed with the Commission on August 11, 1993)
10.25* Tax Sharing Agreement between the Registrant and Riviera Operating
Corporation dated June 30, 1993 (see Exhibit 10.24 to Amendment No. 1 to
this Registration Statement filed with the Commission on August 19,
1993)
10.26* The Registrant's 1993 Stock Option Plan (see Exhibit 10.25 to
Amendment No. 1 to this Registration Statement filed with the
Commission on August 19, 1993)
10.27* Form of Stay Bonus Agreement (see Exhibit 10.27 to Form 10-Q filed with
the Commission on November 9, 1994.
10.28* Amendment dated February 19, 1995, to Lease Agreement between
Riviera, Inc. and Mardi Gras Food Court, Inc. (see Exhibit 10.28
to Form 10-K filed with the Commission on March 23, 1995 )
10.29* Amendment dated September 30, 1994 to Employment Agreement
between Riviera, Inc. and William L. Westerman. (see Exhibit
10.29 filed with the Commission on March 23, 1995)
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
24* Certified resolution of the Board of Directors of the Registrant
authorizing an executive officer to grant a power of attorney (see
Exhibit 24 to Amendment No. 1 to this Registration Statement filed with
the Commission on August 19, 1993)
5
<PAGE>
Exhibit 4.11
RIVIERA HOLDINGS CORPORATION,
as Issuer,
RIVIERA OPERATING CORPORATION,
as Guarantor,
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
------------------------------
FIRST AMENDMENT TO
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 8, 1995
TO
FIRST SUPPLEMENTAL INDENTURE
Dated as of June 30, 1993
------------------------------
<PAGE>
$100,000,000
11% First Mortgage Notes Due December 31, 2002
<PAGE>
THIS FIRST AMENDMENT TO FIRST SUPPLEMENTAL INDENTURE, dated
as of September 8, 1995 (the "Amendment"), by and among Riviera Holdings
Corporation, a Nevada corporation (the "Company"), as issuer, Riviera Operating
Corporation, a Nevada corporation ("ROC"), as guarantor, and IBJ Schroder Bank &
Trust Company, a New York corporation (the "Trustee"), as trustee.
W I T N E S S E T H
WHEREAS, the Company, ROC and the Trustee have determined that it is
in the best interests of the Company to amend the First Supplemental Indenture;
WHEREAS, the holders of a majority of the aggregate principal amount
of 11% first Mortgage Notes have consented to such amendment;
NOW THEREFORE, the First Supplemental Indenture is hereby amended as
follows:
I. SECTION 1.02. Additional Definitions.
A. In Section 1.02, the definition of "Consolidated Fixed
Charges" is deleted in its entirety and replaced with the following:
"Consolidated Fixed Charges" means, for any period, without
duplication, the aggregate amount of (i) Consolidated Interest
Expense, (ii) all but the principal component of rentals in respect
of Capitalized Lease Obligations, (iii) all principal payments
(except to the extent included as part of Consolidated Interest
Expense as amortization of original issue discount) required to be
paid on Indebtedness of the Company and ROC pursuant to the Joint
Plan (including, without limitation, the Class 4 Note, the Class 5
Notes, the Class 12 Note and the Class 13/14 Note) or on other
claims pursuant to the Joint Plan, and (iv) one-third of
consolidated lease expense with respect to all other leases of
original terms of more than one year, paid, accrued or scheduled to
be paid or accrued by the Company and its Subsidiaries on a
consolidated basis in accordance with generally accepted accounting
principles, but (v) excluding amounts due for prefunded periodic
slot payments.
B. In Section 1.02, the definition of "FF&E Indebtedness" is
deleted in its entirety and replaced with the following:
"FF&E Indebtedness" means any Indebtedness incurred by the
Company or any Subsidiary of the Company in connection with the
acquisition by the Company or such Subsidiary after the Closing Date
of furniture, fixtures, equipment and other assets not owned by the
Company or any Subsidiary as of the Closing Date in connection with
the ordinary course of business of the Company or the Subsidiary and
otherwise permitted under this Supplemental Indenture, including
Indebtedness
<PAGE>
incurred to finance, refinance or refund the cost of an item of
property; provided, however, that (i) the principal amount of such
Indebtedness does not exceed eighty percent (80%) of the lesser of
(a) the fair market value of such equipment at the date of
incurrence of FF&E indebtedness or (b) the original cost of all FF&E
assets acquired subsequent to June 30, 1993 (except that with
respect to any Gaming Devices, the percentage shall be 100%) and
(ii) to the extent such Indebtedness is not repaid out of the
proceeds of the sale of the furniture, fixtures and equipment
(including Gaming Devices) by which such Indebtedness is secured
("Unsecured Amount"), such Unsecured Amount shall be subordinated
indebtedness as contemplated by Section 4.07.
C. In Section 1.02, the definition of "Fixed Charge Coverage
Ratio" is deleted in its entirety and replaced with the following:
"Fixed Charge Coverage Ratio" means the ratio of (i) the
aggregate amount of projected EBITDA for the four fiscal quarters
immediately following the date of determination, as determined in
good faith by the Company's Board of Directors, to (ii) the
aggregate Consolidated Fixed Charges accruing during the fiscal
quarter in which the date of determination occurs and the three
fiscal quarters immediately subsequent to such fiscal quarter,
assuming for the purpose of such calculation, that the amount of
Consolidated Fixed Charges will be the amount accruing on the amount
of Indebtedness of the Company and its Subsidiaries outstanding on
the date of determination and, for purposes of the three fiscal
quarters immediately subsequent to the fiscal quarter in which the
determination date occurs, will be an amount reasonably anticipated
to be outstanding from time to time during such period.
II. SECTION 4.01. Restrictions on Dividends, Other Payments and Investments.
The text of Section 4.01 is deleted in its entirety and replaced
with the following:
The Company shall not, directly or indirectly, make, or cause
or permit any of its Subsidiaries to make, any Restricted Payment or
Restricted Investment; provided, however that if no Event of Default
(without giving effect to any requirement for notice or passage of
time) is in effect, the Company may, from the net proceeds of the
sale by the Company of the Company's equity securities subsequent to
July 1, 1995, (a) pay a dividend on any shares of preferred stock it
may issue and (b) redeem or repurchase shares of its common stock
(if the Board of Directors shall determine that it is undervalued)
or preferred stock. Notwithstanding the foregoing restrictions, such
provisions will not prevent (i) the payment of any dividend or
distribution by a Subsidiary of the Company to the Company or to
another direct or indirect wholly-owned Subsidiary of the Company;
(ii) Advances made by the Company to a direct or indirect
wholly-owned Subsidiary of the Company or to a Non-restricted
Subsidiary of the Company for the purposes specified in Section 4.10
hereof; (iii) Advances made by any Subsidiary of the Company to the
Company or any direct or indirect wholly-owned Subsidiary of the
Company; and (iv)
- 2 -
<PAGE>
contributions to joint ventures, partnerships or similar agreements
with any other Person and capital contributions or loans to
Non-restricted Subsidiaries (hereafter called "Restricted
Investments"); provided, however that if no Event of Default
(without giving effect to any requirement for notice or passage of
time) is in effect, (a) the aggregate amount (at original cost) of
all Restricted Investments outstanding at the time any Restricted
Investment is made (including such Restricted Investment on a pro
forma basis) may not (x) exceed the sum of (1) cumulative Available
Cash Flow from the period beginning June 30, 1993 and ending on the
calendar quarter immediately preceding such Investment plus (2) the
net proceeds from the sale of equity securities or subordinated
indebtedness minus (3) cumulative Capital Expenditures from the
period beginning June 30, 1993 and ending on the calendar quarter
immediately preceding such Investment (in excess of $7,119,000 of
estimated deferred capital expenditures while the Company was in
bankruptcy) or (y) exceed 50% of the Company's Consolidated Net
Worth at the time of a proposed Restricted Investment (after giving
pro forma effect to such proposed new Restricted Investment); and
(b) a proposed new Restricted Investment may not be made if the
aggregate amount of Restricted Investments in one Person, at
original cost (after giving pro forma effect to such proposed new
Restricted Investment), would exceed 25% of the Company's
Consolidated Net Worth (at the time of such proposed new Restricted
Investment); provided, that (I) the Company shall not make any such
new Restricted Investment in one Person if the aggregate amount of
such investments in such Person would exceed 10% of the Company's
Consolidated Net Worth (at the time of such proposed new Restricted
Investment) unless the Company had a management contract and a
participation in the profits of such Person, and (II) if the Company
did not have a management contract and a participation in the
profits of a Person but the Board of Directors had a reasonable
belief that the Company could obtain the same, the Company could
make Restricted Investments in such Person of up to $5 million.
Notwithstanding the foregoing, the foregoing restrictions on
the amount of Restricted Investments shall not apply with respect to
funds for one or more Restricted Investments that have been raised
from the net proceeds of the sale of stock by the Company for the
purpose of making such Restricted Investment or Restricted
Investments.
Notwithstanding anything to the contrary contained in Section
6.01 of the Indenture, a Default under this Section 4.01 shall be an
Event of Default without notice or passage of time specified in
Section 6.01(3) of the Indenture.
III. SECTION 4.06. Limitation on Additional Indebtedness.
The text of Section 4.06 is deleted in its entirety and replaced
with the following:
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee, extend, refinance or
- 3 -
<PAGE>
otherwise become directly or indirectly liable, including, without
limitation, through any merger or consolidation to which the Company
or any of its Subsidiaries is a party or through any other
acquisition of any Subsidiary, or have outstanding, any Indebtedness
except for the following: (i) Indebtedness of the Company evidenced
by the Notes; (ii) Indebtedness of ROC pursuant to the Guarantee;
(iii) Refinancing Indebtedness with respect to the Notes; (iv) FF&E
Indebtedness, including Indebtedness in respect of, or secured by,
conditional sale, installment sale or other title retention
agreements (including sale-leaseback transactions), purchase money
mortgages and deeds of trust or other security interests and
Capitalized Lease Obligations; (v) Indebtedness of wholly-owned
Subsidiaries payable solely to other wholly-owned Subsidiaries or to
the Company and the Indebtedness of the Company payable solely to
its wholly-owned Subsidiaries, provided that any Indebtedness
incurred by the Company or any wholly-owned Subsidiary of the
Company to another wholly-owned Subsidiary of the Company pursuant
to this clause (v) shall cease to be permitted Indebtedness under
this paragraph if and from and after the time the holder of such
Indebtedness ceases to be a wholly-owned Subsidiary of the Company;
(vi) other Indebtedness of the Company and ROC issued pursuant to
the terms of the Joint Plan and Refinancing Indebtedness of the
Company and ROC issued to refinance the Indebtedness of the Company
and ROC issued pursuant to the Joint Plan; (vii) Indebtedness of a
Non-restricted Subsidiary that by its terms prohibits the Lender or
other creditor from seeking payment from (or from having recourse
for payment or any other purpose against) the Company or any of its
Subsidiaries (other than the Non-restricted Subsidiary that incurred
such Indebtedness) or their assets, including the Collateral; and
(viii) Subordinated Indebtedness, including FF&E Indebtedness, may
be incurred if immediately after giving effect to such incurrence,
the Company on a pro-forma basis has a Fixed Charge Coverage Ratio
at least equal to 1.5 to 1.0 and for so long as such Subordinated
Indebtedness is outstanding the Company shall have a Fixed Charge
Coverage Ratio at least equal to 1.25 to 1.0.
IV. SECTION 4.07. Limitation on Repayment of Subordinated Indebtedness.
The text of Section 4.07 is deleted in its entirety and replaced
with the following:
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, purchase, redeem, prepay by more than thirty
(30) days, defease (including, but not limited to, in-substance or
legal defeasance) or otherwise acquire or retire for value prior to
the stated maturity of, or prior to any scheduled mandatory
redemption or sinking fund payment with respect to (collectively, to
"repay" or a "repayment"), the principal of any Indebtedness of the
Company which is subordinated (whether pursuant to its terms or by
operation of law) in right of payment to the Notes; provided,
however, that any such repayment shall not be prohibited if such
repayment is financed (i) with the net proceeds of Subordinated
Indebtedness permitted under this Supplemental Indenture, (ii) with
the net proceeds from the sale of equity securities after July 1,
1995 and/or (iii) from internally generated funds if immediately
after giving pro-forma effect to such repayment the
- 4 -
<PAGE>
Company had a Fixed Charge Coverage Ratio of 2.0 to 1.0; provided
further, however, that notwithstanding the limitations contained in
this Section 4.07, the Company shall be entitled to (i) prepay any
claims of any class of Plan Debt (other than the Notes) as defined
in the Joint Plan at a discount of not less than 10% of the present
net value of such prepaid claims, discounted at the rate of 10% per
annum and (ii) prepay or repay any FF&E Indebtedness.
V. SECTION 4.10. Restriction on Creation of Subsidiaries and Joint Ventures.
The text of Section 4.10 is deleted in its entirety and replaced
with the following:
The Company shall not, directly or indirectly, (a) create or
suffer to exist any Subsidiary of the Company other than (i) a
direct or indirect wholly-owned Subsidiary or (ii) a Non-restricted
Subsidiary, which need not be directly or indirectly wholly-owned,
or (b) enter into any joint venture, partnership or similar
agreement with any other Person in excess of $100,000 in any single
contribution; provided, however, that a Non-restricted Subsidiary
may enter into a Restricted Investment in the form of a joint
venture, partnership or similar agreement, subject to the
limitations specified in Section 4.01.
VI. SECTION 4.11. Limitation on Operations.
The text of Section 4.11 is deleted in its entirety and replaced
with the following:
The Company shall not, and shall not permit any of its
Subsidiaries to, engage in any line of business, engage in any
investment activities or acquire any assets, other than those
necessary for, incidental to or arising in connection with, the
owning, leasing, operating and maintaining of the Casino-Hotel or
other gaming operations and related businesses; provided, however,
that the Company may engage in similar or related lines of business
which are incidental to the primary business of the Company and ROC
on the Closing Date; and provided, further, that the foregoing shall
not prohibit Asset Sales that are not prohibited by the other
provisions of this Supplemental Indenture. Nothing contained herein
shall be construed to limit the ability of the Company or any of its
Subsidiaries to make any Restricted Investment permitted under
Section 4.01 in a Person which is primarily engaged in gaming
operations and related businesses.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
duly executed and attested as of the date first set forth above.
RIVIERA HOLDINGS CORPORATION,
a Nevada corporation
By:__________________________
William L. Westerman
President
Attest:
- --------------------------
RIVIERA OPERATING CORPORATION,
a Nevada corporation
By:__________________________
William L. Westerman
Chairman of the Board
Attest:
- --------------------------
IBJ SCHRODER BANK & TRUST
COMPANY,
a New York corporation
By:__________________________
Max Volmar
Vice President
Attest:
- --------------------------
- 6 -
<PAGE>
Exhibit 21
Subsidiaries of Riviera Holdings Corporation
Wholly-owned by Riviera Holdings Corporation:
1. Riviera Operating Corporation
Wholly-owned by Riviera Operating Corporation:
1. Riviera Gaming Management, Inc.
Wholly-owned by Riviera Gaming Management, Inc.
1. Riviera Gaming Management-Treasure Bay, Inc.
2. Riviera Gaming Management-Elsinore, Inc.
3. Riviera Gaming Management-Three, Inc.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
Riviera Holdings Corporation
Riviera, Inc.
We consent to the use in this Post-Effective Amendment No. 3 to Registration
Statement No. 33-67206 relating to $45,635,000 of 11% First Mortgage Notes of
Riviera Holdings Corporation (the "Company") on Form S-1 of our reports dated
February 16, 1996 as to Riviera Holdings Corporation and March 11, 1994 as to
the Casino-Hotel Division of Riviera, Inc. (the "Division") which include
explanatory paragraphs concerning substantial doubt about the Division's ability
to continue as a going concern, the Division's bankruptcy proceedings and
litigation, appearing in the Prospectus which is a part of this Registration
Statement, and to the references to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
July 3, 1996
<PAGE>
