As filed with the Securities and Exchange Commission on October 22, 1996
Registration No. ________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Number)
Organization)
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)
copies to:
Fredric J. Klink Jeffrey M. Knetsch
Dechert, Price & Rhoads Brownstein Hyatt Farber & Strickland, P.C.
477 Madison Avenue, 12th Floor 410 Seventeenth Street, 22nd Floor
New York, New York 10022 Denver, Colorado 80202
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.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================================
Proposed Proposed
Amount maximum maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered(1) per share(2) offering price(2) fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.001
per share................................. 3,450,000 $15.00 $51,750,000 $17,844.83
======================================================================================================================
<FN>
(1) Includes 450,000 shares of Common Stock issuable upon exercise of
over-allotment options to be granted to the underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act of 1933, as amended.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration nor qualification under the securities laws of any such State.
PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1996
3,000,000 Shares
Riviera Holdings Corporation
Common Stock
Of the 3,000,000 shares of Common Stock of Riviera Holdings Corporation
(the "Company"), $.001 par value per share (the "Common Stock"), offered hereby,
1,500,000 shares are being sold by the Company and 1,500,000 shares are being
sold by certain shareholders of the Company named herein (the "Selling
Shareholders") (the "Offering"). The Company will not receive any of the
proceeds from the sale of Common Stock by the Selling Shareholders. See
"Principal and Selling Shareholders."
The Common Stock is traded on the American Stock Exchange ("AMEX") under
the symbol "RIV." On __________, 1996, the closing sale price of the Common
Stock on the AMEX was $____ per share. See "Price Range of Common Stock."
See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock.
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 ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR THE
INVESTMENT MERITS OF THE COMMON STOCK OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
================================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
- ------------------------------------------------------------------------------------------------
<S> <C>
Per Share................. $ $ $ $
Total(3).................. $ $ $ $
================================================================================================
<FN>
(1) For information regarding indemnification of the Underwriters by the
Company and certain compensation payable to the Representatives of the
Underwriters, see "Underwriting."
(2) Before deducting expenses of this Offering, estimated at approximately
$_______, all of which will be paid by the Company. (3) The Company and
certain Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to 450,000 shares of Common Stock, solely to cover
over-allotments, if any. If the Underwriters exercise this option in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Shareholders will be $ ,
$ , $ , and $ , respectively. See "Underwriting."
</FN>
</TABLE>
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters, subject to their right to
reject orders in whole or in part and to certain other conditions. It is
expected that delivery of certificates representing the shares of Common Stock
will be made on or about , 1996 at the office of Ladenburg,
Thalmann & Co. Inc., New York, New York.
Ladenburg, Thalmann & Co. Inc. Raymond James & Associates, Inc.
The date of this Prospectus is , 1996.
<PAGE>
[Aerial photograph of the Riviera and surrounding area.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and the related notes
appearing elsewhere in this Prospectus. In this Prospectus, the term "Company"
refers to Riviera Holdings Corporation, a Nevada corporation, and its
subsidiaries including Riviera Operating Corporation ("ROC"). This Prospectus
contains forward-looking information that involves risks and uncertainties, and
such information is subject to the assumptions set forth in connection therewith
and the information contained or incorporated by reference herein. Investors
should carefully consider the information set forth under the heading "Risk
Factors." Unless otherwise indicated, the information in this Prospectus (i)
gives effect to the Company's stock splits in November 1994 and November 1995
and (ii) does not give effect to the exercise of the Underwriters'
over-allotment option. See "Underwriting."
The Company
Riviera Holdings Corporation owns and operates the Riviera Hotel & Casino
(the "Riviera") located on the Strip in Las Vegas, Nevada. The Riviera caters to
adults seeking traditional Las Vegas-style gaming and entertainment. The Riviera
is situated on a 26-acre site across the Strip from Circus Circus and adjacent
to the Las Vegas Hilton and the Las Vegas Convention Center. The property
features approximately 2,100 hotel rooms (including 169 suites), 105,000 square
feet of casino space, a 100,000 square-foot convention, meeting and banquet
facility (one of the largest in Las Vegas), four full-service restaurants, a
430-seat buffet, four showrooms, a 200-seat entertainment lounge, 47 food and
retail concessions and approximately 2,900 parking spaces. The casino contains
approximately 1,300 slot machines, 54 gaming tables, a keno lounge and a
200-seat race and sports book. The Riviera also offers one of the most extensive
entertainment programs in Las Vegas, including such popular shows as Splash(R),
An Evening at La Cage(R), Crazy Girls(sm) and Bottoms Up(R) and featured
comedians at the Riviera Comedy Club(sm).
Opened in 1955, the Riviera was one of the original casino/hotels on the
Las Vegas Strip catering to high stakes gamblers. Since opening, the Riviera has
been expanded several times. The most recent expansion, which occurred during
1988 through 1990, resulted in significant cost overruns and ultimately
contributed to the Company's predecessor filing for bankruptcy protection in
1991. In 1992 the current management team was assembled and successfully guided
the Company through its emergence from bankruptcy in June 1993. As a result of
the bankruptcy, all of the Common Stock and $100.0 million of First Mortgage
Notes were distributed to the secured creditors of the predecessor company.
The new management team implemented new marketing programs, which included
targeting California and the southwestern United States, and initiated a number
of strategic changes to reposition the Riviera, including a shift from
"high-rollers" to mid-level gaming customers, particularly slot players, who
seek a broader entertainment experience. Management reconfigured the casino
space to improve the flow of customer traffic, installed new slot machines and
bill acceptors, reduced the number of gaming tables and de-emphasized baccarat.
Management also decreased the volatility of gaming revenues through the
reduction of credit limits, outsourcing of the Company's sports book and
shifting to parimutuel horse wagering. Improved hotel marketing efforts have
resulted in one of the highest room occupancy rates on the Strip. This
repositioning of the Riviera, together with other cost saving measures, improved
operating results with earnings before interest, taxes, depreciation and
amortization ("EBITDA") increasing from $25.6 million in 1994 to $27.8 million
in 1995 and from $14.0 million in the first six months of 1995 to $16.4 million
in the first six months of 1996, a 17.0% increase; and net earnings
-3-
<PAGE>
increasing from $4.8 million in 1994 to $6.3 million in 1995 and from $3.2
million in the first six months of 1995 to $4.6 million in the first six months
of 1996, a 42.1% increase.
In order to capitalize on management's experience in repositioning and
managing the Riviera through the bankruptcy process, the Company formed Riviera
Gaming Management, Inc. ("RGM") for the primary purpose of obtaining casino
management contracts with financially distressed casino/hotels in Nevada and
other jurisdictions. Since August 1996, RGM has been managing the Four Queens
Hotel/Casino ("Four Queens") located adjacent to the Golden Nugget on Fremont
Street in downtown Las Vegas. Under the Four Queens management contract, RGM
receives a guaranteed minimum management fee plus additional compensation based
on EBITDA improvement of the Four Queens and warrants to purchase 20% of the
equity of the Four Queens' parent.
Business and Growth Strategy
Since the turnaround of the Riviera is substantially complete, management
is pursuing a business and growth strategy which includes the following:
Continue to Improve Performance of the Riviera. The Riviera will continue
to emphasize marketing programs that appeal to slot and mid-level table game
customers with a focus on creating repeat customers and increasing walk-in
traffic. Key elements of this strategy include offering a value-oriented
experience by providing a variety of hotel rooms, restaurants and entertainment,
with some of Las Vegas' most popular shows, all at reasonable prices. The
Company is continuing an extensive capital investment program at the Riviera,
including completing the upgrade of its slot machines by the first quarter of
1997 and the refurbishment of all its hotel rooms, which is expected to be
completed by mid-1997. In addition, the Company will focus its marketing to take
advantage of the Riviera's location by capitalizing on the anticipated increase
in walk-in traffic from the addition of 1,000 rooms across the Strip at Circus
Circus and the expansions of the Las Vegas Hilton and the Las Vegas Convention
Center.
Further Develop the Riviera. The Company has engaged architects and
designers to prepare an overall expansion plan ("Master Plan") for the existing
26-acre site. The Company expects that the first phase of the Master Plan
("Phase I") will include developing an entertainment attraction in approximately
20,000 square feet of vacant space fronting the Strip across from Circus Circus
and the development of a 60,000 square foot domed shopping complex directly over
the casino that will exit down into the casino. The Company believes that this
entertainment and shopping complex will attract additional walk-in customers.
Future phases of the Master Plan may include the development of
approximately 10 acres of available land with the construction of a new hotel
tower, a time-share tower (to be developed by a third party), additional
convention space, a regional shopping mall and/or additional parking space.
Manage Distressed Casino/Hotel Properties. Management has been recognized
for its success in repositioning the Riviera and guiding the Company out of
bankruptcy. The Company believes that there is increasing demand for the
services of skilled gaming and hospitality professionals. The Company intends to
capitalize on its turnaround and bankruptcy expertise by pursuing management
contracts with financially distressed gaming properties. In addition to managing
the Four Queens, management is actively reviewing and evaluating other
financially troubled gaming properties in Nevada and other jurisdictions with a
view towards managing properties with underlying sound business potential and in
which the Company can purchase an equity interest.
-4-
<PAGE>
Develop New Casino/Hotels. The Company also plans to review and selectively
acquire or develop casino/hotel properties both in Nevada and other
jurisdictions. These other jurisdictions may include Colorado, Mississippi, West
Virginia, Indiana, Native American-owned land and Mexico.
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.
The Offering
Common Stock offered by:
The Company....................... 1,500,000 shares
The Selling Shareholders.......... 1,500,000 shares
Common Stock to be outstanding
after the Offering(1)............. 6,440,103 shares
Use of Proceeds to the Company...... To fund (i) a portion of the multi-phase
expansion of the Riviera's present
property, (ii) the acquisition of equity
interests in financially troubled gaming
companies in conjunction with management
contracts and (iii) the acquisition or
development of other gaming properties in
Nevada and other jurisdictions.
AMEX Symbol......................... RIV
- --------------------
(1) Excludes (i) 530,000 shares of Common Stock reserved for issuance upon the
exercise of stock options under the Company's 1993 Stock Option Plan and
Non-Qualified Stock Option Plan for Non-Employee Directors of which options
to purchase 364,000 shares have been granted as of the date hereof and
(ii) 209,897 shares reserved for issuance under the Company's Employee
Stock Purchase Plan and Compensation Plan for Directors Serving on the
Compensation Committee as of September 30, 1996. See "Management."
-5-
<PAGE>
Summary Consolidated Financial Data
The summary consolidated financial data set forth below has been derived
from the audited consolidated financial statements of the Company for the
respective periods presented and is qualified in its entirety by, and should be
read in conjunction with, the consolidated financial statements and notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial and statistical data included
elsewhere or incorporated in this Prospectus. The Summary Consolidated Financial
Data as of June 30, 1996 and for the six months ended June 30, 1995 and 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 six-month periods ended June 30, 1995 and 1996 are not necessarily
indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
Six Months Ended
Six Months Ended Years Ended December 31, June 30,
---------------------- ----------------------------------- ------------------------
June 30, Dec 31, Combined
1993 1993 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(Predecessor) (Successor) (Successor) (Successor) (Successor) (Successor)
Income Statement Data: (in thousands, except per share and other data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................... $72,702 $76,221 $148,923 $153,921 $150,747 $74,340 $83,273
Income from operations............ 8,260 8,767 17,027 19,919 20,980 10,698 12,525
Interest expense, net............. 2,632 6,160 8,792 12,254 11,304 5,739 5,507
Net income........................ 5,628 2,607 8,235 4,790 6,344 3,249 4,616
Net income per share.............. - $0.54 - $1.00 $1.26 $0.65 $0.91
Weighted average shares
outstanding..................... - 4,800 - 4,800 5,041 5,016 5,072
Other Data:
EBITDA(1)......................... $10,880 $11,166 $22,046 $25,593 $27,791 $14,002 $16,387
Cash flows from operating
activities...................... 8,517 766 9,283 16,372 16,738 6,103 8,033
Cash flows from investing
activities...................... (1,478) (4,307) (5,785) (10,439) (8,218) (3,742) (2,560)
Cash flows from financing
activities...................... (2,311) (4,658) (6,969) (2,696) (2,983) (1,580) (1,352)
Average occupancy rate (2)........ 92.4% 95.0% 93.7% 97.5% 97.0% 97.1% 99.0%
Average daily room rate (ADR)..... $51.63 $49.33 $50.42 $47.51 $54.16 $56.56 $59.03
Number of slot machines (3)....... 1,218 1,207 1,207 1,203 1,226 1,312 1,322
Number of gaming tables (3)....... 70 70 70 56 56 55 55
At June 30, 1996
------------------------
Balance Sheet Data: Actual As Adjusted(4)
------ -----------
Cash and cash equivalents............................................................................ $ 26,083
Total assets......................................................................................... 161,482
Long-term debt....................................................................................... 109,048
Shareholders' equity................................................................................. 31,070
<FN>
(1) "EBITDA" consists of earnings before interest, taxes, depreciation
and amortization. EBITDA should not be construed as an alternative
to operating income (as determined in accordance with generally
accepted accounting principles ("GAAP")) as an indicator of the
Company's operating performance, or to cash flows from operating
activities (as determined in accordance GAAP) as a measure of
liquidity. The Company believes that EBITDA gives an indication of
the cash generating capacity of the Riviera and is useful as a
comparison with other industry participants.
(2) Based on available rooms.
(3) Number of licensed slot machines and table games at period end.
(4) As adjusted to give effect to the sale by the Company of 1,500,000 shares
of Common Stock offered hereby based on the last reported
sales price of $_______ on the AMEX on ___________, 1996 and the
application of the net proceeds therefrom. See "Use of Proceeds."
</FN>
</TABLE>
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<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 Common Stock.
Competition
Intense competition exists in the gaming industry, and many of the
Company's competitors have significantly greater resources than the Company. The
Riviera faces competition from all other casinos and hotels in the Las Vegas
area, principally competitors located on or near the Las Vegas Strip. In recent
months, several of the Company's direct competitors have opened new
casino/hotels or have commenced or completed major expansion projects, and other
casino/hotels and expansions are planned. In addition, a number of new
mega-resorts on the Strip have been announced and are expected to be completed
within the next two years. Expansions or enhancements of existing properties or
the construction of new properties by competitors could have a material adverse
effect on the Company's business.
Management believes that the most direct competition for the Riviera comes
from certain large casino/hotels located on or near the Strip which offer
amenities and marketing programs similar to those offered by the Riviera. These
facilities currently include Bally's Las Vegas, the Flamingo Hilton Hotel, The
Frontier Hotel and Gambling Hall, Harrah's Las Vegas, The Monte Carlo Resort &
Casino, the Sahara Resort & Casino, The Stardust Hotel & Casino and the
Tropicana Resort & Casino. The Riviera 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 Company also competes with casinos in other states, riverboat and
Native American gaming ventures, state-sponsored lotteries, on- and off-track
wagering, card parlors and other forms of legalized gaming in the United States,
as well as with gaming on cruise ships and international gaming operations. In
addition, certain states have recently legalized or are considering legalizing
casino gaming in specific geographical areas within those states. Any future
development of casinos, lotteries or other forms of gaming in other states,
particularly areas close to Nevada, such as California, could adversely affect
the Company's operations.
Dependence on Las Vegas Gaming Market and Dependence on Single Property
Unlike many of its competitors, the current business of the Company is
totally dependent on gaming in Las Vegas. The Riviera 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 could in the future adversely effect the
financial results of the Company. The Company owns only one property, and as
such, the Company's operations are primarily dependent upon the results achieved
by the Riviera. Any significant disruption in operations at the Riviera would
have a material adverse effect on the Company.
First Mortgage Notes
The Company has outstanding $100.0 million of 11% Mortgage Notes due
December 31, 2002 (the "First Mortgage Notes"). The First Mortgage Notes have a
lien on all of the assets of the Company
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<PAGE>
and ROC except for certain furniture, fixtures and equipment, including gaming
equipment ("FF&E") acquired after June 1993. The First Mortgage Note Indenture
(the "Note Indenture") contains a number of provisions which (i) restrict the
Company's ability to expand its operations, (ii) require the Company to meet
certain financial ratios, (iii) prohibit redemption of the First Mortgage Notes
at the Company's option prior to June 1, 1998 and thereafter require payment of
a substantial redemption premium and (iv) trigger an optional "put" in the event
of the acquisition of a majority of the Common Stock by a third party. See
"Description of Capitalization -- First Mortgage Notes."
The Company's ability to invest in distressed or new gaming properties may
be limited by the First Mortgage Note covenants. Further, commencement of future
phases of the Master Plan for the Riviera would require substantial amendments
to the Note Indenture or the early refinancing of the First Mortgage Notes. The
Company's present resources are insufficient to enable the Company to pay the
$100.0 million of principal on the First Mortgage Notes when they mature on
December 31, 2002 and the Company expects that it will have to refinance the
First Mortgage Notes at their maturity. There can be no assurance that the
Company will be able to obtain the requisite consents to waivers or amendments
of the Note Indenture covenants or refinance the First Mortgage Notes on
reasonable terms. See "Description of Capitalization -- First Mortgage Notes."
Business and Growth Strategy; Need for Additional Financing
Implementation of the Master Plan for the Riviera's site could entail
significant development and construction risks which can give rise to delays or
cost overruns and could cause major disruptions to existing operations. In
addition, completion of the Master Plan will require significant financing from
third parties. There can be no assurance that the Company will be able to obtain
the necessary financing on satisfactory terms, if at all.
While the Company intends to expand its business by managing additional
gaming properties and acquiring and developing new gaming properties, there can
be no assurance that it will be able to do so or that projects will become
operational within the time frames and budgets contemplated by management.
Further, to the extent that the Company is successful in its expansion strategy,
it will face the inherent risks associated with the change from managing a
single property to managing multiple properties.
Dependence On Key Personnel
The loss of the services of one or more of the Company's executive officers
could have a material adverse effect on the Company. The Company has an
employment agreement only with William L. Westerman, Chairman and Chief
Executive Officer. The success of the Company's plan to manage distressed gaming
properties and to acquire or develop new gaming properties may be limited by its
ability to attract and retain additional senior management. See "Management -
Employment Agreements."
Sustainability of Recent Improvements in Operating Results
As a result of management's implementation of a new business strategy for
the Riviera, the Company has experienced substantial improvements in operating
income since emerging from bankruptcy in 1993. There can be no assurance that
this trend will continue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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<PAGE>
Regulation
The Company's business is subject to comprehensive and stringent government
regulation. In addition, there have been in the past and are currently a number
of regulatory and tax proposals which could adversely affect the gaming industry
and the Company. See "Business -- Regulation and Licensing."
The Company's plan to manage additional gaming properties and to acquire
and develop new gaming properties will require many permits, licenses and
approvals. These could include, without limitation, gaming approvals, state and
local land-use permits, building and zoning permits and liquor licenses.
Unexpected changes or concessions required by local, state or federal regulatory
authorities could involve significant additional costs and delay or prevent the
scheduled openings of the facilities.
Certain Anti-Takeover Provisions
The Company's Second Restated Articles of Incorporation contain certain
provisions that are intended to discourage an unsolicited takeover of the
Company if the Board of Directors determines that such a takeover is not in the
best interests of the Company and its shareholders. These provisions could have
the effect of discouraging certain attempts to acquire the Company or remove
incumbent management even if holders of some or a majority of the Common Stock
deemed such an attempt to be in their best interests, including those attempts
that might result in a premium over the market price for the shares of Common
Stock. In addition, various corporate and gaming law provisions of the Nevada
Revised Statutes contain requirements and limitations that may have the effect
of discouraging unsolicited shareholder action or takeover bids from third
parties. See "Description of Capitalization -- Certain Anti- Takeover Effects"
and "Business-Regulation and Licensing."
THE RIVIERA HISTORY
Opened in 1955, the Riviera was one of the original casino/hotels on the
Las Vegas Strip catering to high stakes gamblers. Riviera, Inc. acquired the
assets of Hotel Riviera, Inc. ("Old Riviera"), the previous owner of the
Riviera, in 1986 as part of a bankruptcy reorganization. The bankruptcy
reorganization of Old Riviera 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-stakes gaming 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 the construction of a new
hotel tower on the property with approximately 1,000 rooms and the expansion of
the casino area. Furthermore, as a result of (i) construction budget overruns,
(ii) the closure of a portion of the casino during the expansion of the casino
floor and the disruption caused thereby, (iii) a fire at the construction site,
(iv) increased competition from new and expanded casino/hotels on the Las Vegas
Strip (including the opening in 1989 of The Mirage with 3,000 rooms and the
opening in 1990 of the Excalibur with 4,000 rooms) and (v) weakness in the
economy of the United States, the revenues of the Riviera did not increase in an
amount sufficient to offset the increase in expenses resulting in Riviera, Inc.
filing for protection under Chapter 11 of the Bankruptcy Code in December 1991.
A plan of reorganization (the "Plan") became effective on June 30, 1993,
pursuant to which the Company issued 4,800,000 shares (after giving effect to
subsequent stock splits) of Common Stock and an aggregate principal amount of
$100.0 million of First Mortgage Notes to the secured creditors of
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<PAGE>
Riviera, Inc. An aggregate principal amount of $20.0 million of non-interest
bearing notes was also issued to other creditors of Riviera, Inc.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by the Company hereby (at an assumed offering price of
$_______ per share and after deducting underwriting discounts and commissions
and estimated offering expenses) are estimated to be approximately $____ million
($____ million if the Underwriters' over-allotment option is exercised in full).
The Company intends to use approximately $10.0 million of the net proceeds
in connection with the expansion of the Riviera, including (i) the architectural
designs and engineering plans for the creation of the Master Plan for the entire
26-acre site, including 10 acres of undeveloped land, and (ii) funding the
Company's contribution for Phase I which will include the development of
approximately 20,000 square feet of vacant space fronting the Strip across from
Circus Circus into an entertainment attraction that will lead into a 60,000
square foot domed shopping complex, also to be developed in Phase I, that will
exit down into the casino. The Company believes that this entertainment and
shopping complex will attract additional walk-in customers. The completion of
Phase I and future phases of the Master Plan will require partners and
third-party financing, which the Company may not be able to obtain on
satisfactory terms.
The Company intends to use the balance of the net proceeds to (i) invest in
financially distressed gaming companies with underlying sound business potential
that the Company can manage, and (ii) selectively acquire or develop gaming
properties both in Nevada and other jurisdictions. The Company currently has no
plans with respect to any such investment or acquisition. See "Business --
Business and Growth Strategy."
Pending such uses, the net proceeds will be invested in short-term interest
bearing investment grade securities. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Shareholders.
-10-
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock began trading on the American Stock Exchange (AMEX symbol:
RIV) on May 13, 1996. Prior to such time, the Common Stock was traded on the
over-the-counter market. The following table sets forth the high and low sales
price per share of the Common Stock for the periods indicated as reported on the
over-the-counter market and on the AMEX. Prior to the first quarter of 1995,
there was extremely limited trading in the Common Stock.
High Low
---- ---
1995
First Quarter $4.89 $4.09
Second Quarter 9.38 3.96
Third Quarter 12.15 8.72
Fourth Quarter 10.55 7.64
1996
First Quarter $10.55 $8.44
Second Quarter (through May 12, 1996) 15.31 9.23
Second Quarter (beginning May 13, 1996) 17.75 11.00
Third Quarter 17.13 14.00
Fourth Quarter (through _____, 1996)
On ________, 1996, the last reported sale price of the Common Stock was
$_______ per share. As of September 30, 1996 there were approximately ______
holders of record of Common Stock. Based upon information available to it, the
Company believes that there are at least _______ beneficial holders of Common
Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock. The
Company currently anticipates that it will retain future earnings to fund the
development and growth of its business and does not anticipate paying cash
dividends in the foreseeable future. Restrictions imposed by the Note Indenture
also limit the ability of the Company to pay cash dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Capitalization
- - First Mortgage Notes."
-11-
<PAGE>
CAPITALIZATION
The following table sets forth at June 30, 1996, (i) the capitalization of
the Company, and (ii) the capitalization of the Company as adjusted to give
effect to the sale by the Company of 1,500,000 shares of Common Stock offered
hereby (at an assumed offering price of $_________ per share) after deducting
underwriting discounts and commissions and estimated offering expenses and the
application of the net proceeds therefrom. This table should be read in
conjunction with the consolidated financial statements of the Company, which are
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
-------------
Actual As Adjusted
------ -----------
in thousands)
<S> <C> <C>
Short-term debt and current portion of long-term debt.... $ 1,847 $ 1,847
======== ========
Long-term debt, less current portion..................... $107,201 $107,201
------- -------
Shareholders' equity:
Common Stock, $.001 par value,
20,000,000 shares authorized;
4,938,470 shares outstanding
actual; 6,438,470 shares
outstanding as adjusted (1)........................ 5 6
Additional paid-in capital.......................... 14,091
Retained earnings .................................. 18,357 18,357
Notes due from employees............................ (1,383) (1,383)
-------- -------
Total shareholders' equity..................... 31,070
-------- -------
Total capitalization........................... $138,271 $
======= =======
<FN>
(1) Excludes (i) 530,000 shares of Common Stock reserved for issuance upon the exercise of stock options under the
Company's 1993 Stock Option Plan and Non-Qualified Stock Option Plan for Non-Employee Directors of which options
to purchase 364,000 shares have been granted as of the date hereof and (ii) 209,897 shares reserved for issuance under
the Company's Employee Stock Purchase Plan and Compensation Plan for Directors Serving on the Compensation
Committee as of September 30, 1996. See "Management."
</FN>
</TABLE>
-12-
<PAGE>
SELECTED FINANCIAL DATA
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 its predecessor 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 in this Prospectus. The selected financial data as of June 30, 1996
and for the six months ended June 30, 1995 and June 30, 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 six-month
period ended June 30, 1995 and the six-month period ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
Years Ended Six months ended Years Ended Dec. 31, Six Months Ended
December 31, --------------------- --------------------------------- June 30,
---------------------- June 30, Dec. 31, Combined --------------------
1991 1992 1993 1993 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
(Predecessor) (Predecessor) (Successor) (Successor) (Successor) (Successor)
Income Statement Data: (in thousands, except per share and other data)
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Casino................ $ 82,769 $ 75,975 $ 38,073 $ 41,158 $79,231 $ 82,060 $ 77,337 $38,639 $40,382
Rooms................. 34,285 33,474 17,614 17,808 35,422 35,422 39,450 20,505 21,771
Food and beverage..... 23,352 22,557 11,6562 11,760 23,416 22,961 21,895 10,952 12,043
Entertainment......... 19,949 19,046 8,059 8,422 16,481 16,945 14,423 4,862 10,795
Other................. 6,969 8,369 4,116 4,230 8,346 9,390 9,515 4,871 5,204
Less promotional
allowances......... (14,946) (14,919) (6,816) (7,157) (13,973) (12,857) (11,873) (5,489) (6,922)
-------- -------- ------- ------- ------- -------- -------- ------- -------
Net revenues.......... 152,378 144,502 72,702 76,221 148,923 153,921 150,747 74,340 83,273
------- ------- ------ ------ ------- ------- ------- ------ ------
Costs and Expenses:
Casino................ 55,661 46,892 24,559 25,533 50,092 48,826 45,325 22,262 24,472
Rooms................. 15,261 16,233 8,339 8,456 16,795 17,594 18,787 9,374 9,365
Food and beverage..... 16,877 15,592 7,427 7,796 15,223 15,588 15,768 7,802 8,089
Entertainment......... 17,482 15,152 7,051 7,897 14,948 13,982 10,329 3,673 7,394
Other................. 3,536 3,256 1,737 1,839 3,576 3,516 3,527 1,755 1,964
Selling, general and
administrative...... 24,501 24,379 12,353 13,427 25,780 27,831 28,742 15,015 15,362
Provision for
bad debts........... 5,889 1,155 354 107 461 991 478 457 240
Depreciation and
amortization....... 14,123 13,230 2,622 2,399 5,021 5,674 6,811 3,304 3,862
Loss on permanent
impairment of assets - 85,221 - - - - - - -
-------- ------ ------- -------- -------- -------- -------- -------- -------
Total costs and
expenses........... 153,330 221,110 64,442 67,454 131,896 134,002 129,767 63,642 70,748
------- ------- ------ ------ ------- ------- ------- ------ ------
Income (loss) from
operations......... (952) (76,608)1 8,260 8,767 17,027 19,919 20,980 10,698 12,525
Interest expense,
net................ 22,5112 4342 2,6322 6,160 8,790 12,254 11,304 5,739 5,507
Provision for income
taxes.............. - - - - - 2,875 3,332 1,710 2,402
Net income (loss)..... (40,812)2 (80,905)1,2 5,6282 2,607 8,235 4,790 6,344 3,249 4,616
Net income (loss)
per share........... - - - $0.54 - $1.00 $1.26 $0.65 $0.91
Weighted average
shares outstanding.. - - - 4,800 - 4,800 5,041 5,016 5,072
Other Data:
EBITDA (3).............. $13,171 $21,843 $10,880 $11,166 $22,046 $25,593 $27,791 $14,002 $16,387
Cash flows from
operating activities.. 8,134 13,130 8,517 766 9,283 16,372 16,738 6,103 8,033
Cash flows from
investing activities.. (3,242) (2,073) (1,478) (4,307) (5,785) (10,439) (8,218) (3,742) (2,560)
Cash flows from
financing activities.. (3,167) (729) (2,311) (4,658) (6,969) (2,696) (2,983) (1,580) (1,352)
Average occupancy
rate (4).............. 92.1% 90.6% 92.4% 95.0% 93.7% 97.5% 97.0% 97.1% 99.0%
Average daily room rate
(ADR)................. $48.26 $47.00 $51.63 $49.33 $50.42 $47.51 $54.16 $56.56 $59.03
Number of slot
machines (5).......... 1,535 1,218 1,218 1,207 1,207 1,203 1,226 1,312 1,322
Number of table
games (5)............. 81 74 70 70 70 56 56 55 55
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
At June 30, 1996,
At December 31, -----------------------------
-------------------------------------------------------------- As
1991 1992 1993 1994 1995 Actual Adjusted(6)
---- ---- ---- ---- ---- ------ -----------
(Predecessor) (Predecessor) (Successor) (Successor) (Successor) (Successor)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............. $6,330 $16,659 $21,387 $16,425 $21,962 $26,083
Total Assets.............. 227,611 145,631 143,704 151,925 157,931 161,482
Long-term debt............ 142,259 133,255 114,540 113,154 110,571 109,048
Shareholders' Equity...... (33,453) (114,358) 15,148 19,938 26,282 31,070
<FN>
- ------------------------------
(1) Includes a recognized loss on the permanent impairment of assets during
the bankruptcy in the amount of $85.2 million to record
the fair market value of the property and equipment.
(2) There was no accrual of interest on 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 $23.3 million and $21.4
million respectively. If accrued, interest expense on these obligations
for the six months ended June 30, 1993 would have totaled $10.4 million.
(3) "EBITDA" consists of earnings before interest, taxes, depreciation and
amortization. EBITDA should not be construed as an alternative to
operating income (as determined in accordance with GAAP) as an indicator
of the Company's operating performance, or to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity. The Company believes that EBITDA gives an indication of the
cash generating capacity of the Riviera and is useful as a comparison
with other industry participants.
(4) Based on available rooms.
(5) Number of licensed slot machines and table games at period end.
(6) As adjusted to give effect to the sale by the Company of 1,500,000 shares
of Common Stock offered hereby based on the last reported sales price of
$_______ on the AMEX on ___________ and the application of the net
proceeds therefrom.
</FN>
</TABLE>
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
On June 30, 1993, the effective date of the Plan, the Company and ROC
acquired all the assets and assumed all the liabilities of the Riviera from
Riviera, Inc. ROC assumed responsibility for operations commencing on July 1,
1993.
During 1994 and 1995, management promoted the Riviera to appeal to the
mid-level gaming customer, placing particular emphasis on the slot customer.
This entailed a re-examination 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 Riviera nevertheless remains subject to intense
competitive pressures in its key markets.
Results of Operations
The following table sets forth the Company's income statement data as a
percentage of net revenues (unless otherwise noted) for the Company for the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
Six Months Endded Years Ended December 31, June 30,
June 30, December 31, Combined ---------------------
1993 1993 1993 1994 1995 1995 1996
------------ ----------- ---------- --------- --------- --------- ----------
(Predecessor) (Successor) (Successor)(Successor) (Successor)(Successor)
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Casino............... 52.4% 54.0% 53.2% 53.3% 51.3% 52.0% 48.5%
Rooms................ 24.2 23.4 23.8 23.0 26.2 27.6 26.1
Food and Beverage.... 16.0 15.4 15.7 14.9 14.5 14.7 14.5
Entertainment........ 11.1 11.0 11.1 11.0 9.6 6.5 13.0
Other................ 5.7 5.6 5.6 6.1 6.3 6.6 6.2
Less promotional
allowances......... (9.4) (9.4) (9.4) (8.4) (7.9) (7.4) (8.3)
------------ ----------- ---------- --------- --------- --------- ----------
Net revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------------ ----------- ---------- --------- --------- --------- ----------
Costs and Expenses:
Casino(1)............ 64.5 62.0 63.2 59.5 58.6 57.6 60.6
Rooms(1)............. 47.3 47.5 47.4 49.7 47.6 45.7 43.0
Food and Beverage(1). 63.7 66.3 65.0 67.9 72.0 71.2 67.2
Entertainment(1)..... 87.5 93.8 90.7 82.5 71.6 75.5 68.5
Other(1)............. 42.2 43.5 42.8 37.4 37.1 36.0 37.7
Selling, general and
administrative..... 17.0 17.6 17.3 18.1 19.1 20.2 18.4
Provision for bad
debts.............. 0.5 0.1 0.3 0.6 0.3 0.6 0.3
Depreciation and
amortization....... 3.6 3.1 3.4 3.7 4.5 4.4 4.6
Total Costs and
Expenses............. 88.6 88.5 88.6 87.1 86.1 85.6 85.0
Income from
operations........... 11.4 11.5 11.4 12.9 13.9 14.4 15.0
Interest Expense,
net.................. 3.6 8.1 5.9 8.0 7.5 7.7 6.6
Provision for income
taxes..............
- - - 1.9 2.2 2.3 2.9
Net Income........... 7.7% 3.4% 5.5% 3.1% 4.2% 4.4% 5.5%
<FN>
(1) Shown as a percentage of corresponding departmental revenue.
</FN>
</TABLE>
-15-
<PAGE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues
Net revenues increased by approximately $8.9 million, or 12.0%, from $74.3
million for the six months ended June 30, 1995 to $83.3 million for the six
months ended June 30, 1996. Casino revenues increased by approximately $1.7
million, or 4.5%, from $38.6 million during the 1995 period to $40.4 million
during the 1996 period due primarily to a $2.4 million, or 9.4%, increase in
slot revenues as a result of an increase in promotional activities directed at
slot players, offset by an approximately $690,000, or 5.4%, decrease in table
game revenues. Room revenues increased by approximately $1.3 million, or 6.2%,
from $20.5 million during the 1995 period to $21.8 million during the 1996
period as a result of an increase in hotel occupancy from 97.1% to 99.0% (based
on available rooms) and an increase in average room rate of $2.47. Food and
beverage revenues increased approximately $1.1 million, or 10.0%, from $11.0
million during the 1995 period to $12.0 million during the 1996 period due to
additional covers in the bars and restaurants. Entertainment revenues increased
by approximately $5.9 million, or 122.0%, from $4.9 million during the 1995
period to $10.8 million during the 1996 period, principally due to the reopening
of the Splash variety show which had been closed during the first half of 1995
for show revisions and theater remodeling. Other revenues increased by
approximately $330,000, or 6.8%, from $4.9 million during the 1995 period to
$5.2 million during the 1996 period. Promotional allowances increased by
approximately $1.4 million, or 26.1%, from $5.5 million during the 1995 period
to $6.9 million during 1996 period due to additional complimentary show tickets
for the Splash show and an increase in complimentaries associated with casino
and slot marketing programs.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments increased by
approximately $6.4 million, or 14.3%, from $44.9 million for the six months
ended June 30, 1995 to $51.3 million for the six months ended June 30, 1996.
Casino expense increased by approximately $2.2 million, or 10.0%, from $22.3
million during the 1995 period to $24.5 million during the 1996 period and
casino expenses as a percent of casino revenue increased from 57.6% during the
1995 period to 60.6% during the 1996 period due to a corresponding increase in
casino revenues and increased entertainment promotional allowances upon the
reopening of Splash on June 23, 1995. Room costs were mostly flat for the first
half of 1996 compared to the same period in 1995, however room costs as a
percentage of room revenues decreased from 45.7% during the 1995 period to 43.0%
during the 1996 period as room revenue increased while room costs remained
relatively constant. Food and beverage costs increased by approximately
$287,000, or 3.7%, from $7.8 million during the 1995 period to $8.1 million
during the 1996 period resulting from a corresponding increase in revenues;
however food and beverage costs as a percentage of food and beverage revenues
decreased from 71.2% during the 1995 period to 67.2% during the 1996 period as
food and beverage revenue increased while payroll and other costs remained
relatively constant. Entertainment costs increased by approximately $3.7
million, or 101.3%, from $3.7 million during the 1995 period to $7.4 million
during the 1996 period due to additional expenses associated with operating
Splash which reopened on June 23, 1995. Entertainment expense as a percentage of
entertainment revenues decreased from 75.5% during the 1995 period to 68.5%
during the 1996 period due to the reopening of Splash which has higher margins
than most of the Riviera's other shows and increased one-time expenses in the
1995 period related to the reopening of Splash. Other expenses increased by
approximately $209,000, or 11.9%, from $1.8 million to $2.0 million.
-16-
<PAGE>
Other Operating Expenses
Selling, general and administrative expenses increased by approximately
$347,000, or 2.3%, from $15.0 million for the six months ended June 30, 1995 to
$15.4 million for the six months ended June 30, 1996. As a percentage of total
net revenues, selling, general and administrative expenses decreased from 20.2%
during the 1995 period to 18.4% during the 1996 period as a result of lower
general marketing expenses and the spreading of fixed costs over a larger
revenue base in 1996. The provision for bad debts decreased by approximately
$217,000, or 47.5%, from approximately $457,000 to $240,000 during the same
period due to reduced credit play as a result of management's emphasis on middle
market slot play versus "high-roller" table game play. Depreciation and
amortization increased by approximately $558,000, or 16.9%, from $3.3 million
during the 1995 period to $3.9 million during the first half of 1996.
Other Income (Expense)
Interest expense decreased by approximately $159,000, or 2.5%, from
$6.3 million during the six months ended June 30,1995 to $6.1 million for the
six months ended June 30,1996, while interest income increased by approximately
$73,000, or 14.0%, from approximately $520,000 to $593,000 during the same
periods. This was due to a reduction in average debt outstanding and an increase
in average cash balances during the first half of 1996.
Net Income
As a result of the factors discussed above, net income increased by
approximately $1.4 million, or 42.1%, from $3.2 million during the six months
ended June 30,1995 to $4.6 million during the six months ended June 30, 1996.
The effective income tax rate for the first half of 1996 was 34.2% compared to
34.5% during the same period of 1995.
EBITDA
EBITDA increased by approximately $2.4 million, or 17.0%, from $14.0
million during the six months ended June 30,1995 to $16.4 million during the six
months ended June 30,1996.
1995 Compared to 1994
Revenues
Net revenues decreased by approximately $3.2 million, or 2.1%, from
$153.9 million in 1994 to $150.7 million in 1995. Casino revenues decreased by
approximately $4.7 million, or 5.8%, from $82.1 million in 1994 to $77.3 million
in 1995 which was largely due to an approximately $5.9 million, or 22.9%,
decrease in table game revenues as a result of reduced "high-roller" play and
the elimination of unprofitable marketing programs offset by an approximately
$1.3 million, or 2.8%, increase in slot machine revenues. Room revenues
increased by approximately $4.0 million, or 11.4%, from $35.4 million in 1994 to
$39.4 million in 1995 due to an increase in the average room rate of $5.60 and
occupancy remaining fairly constant with the prior year. Food and beverage
revenues decreased approximately $1.1 million, or 4.6%, from $23.0 million in
1994 to $21.9 million in 1995, principally due to reduced covers resulting from
the decline in customer traffic as a result of the Splash closure. Entertainment
revenues decreased by approximately $2.5 million, or 14.9%, from $16.9 million
in 1994 to $14.4 million in 1995 due primarily to the closure of Splash from
November 1994 to June 1995. Other income increased by approximately $125,000, or
1.3%, from $9.4 million in 1994 to $9.5 million
-17-
<PAGE>
in 1995. Promotional allowances decreased by approximately $1.0 million, or
7.7%, from $12.9 million in 1994 to $11.9 million in 1995, primarily due to the
elimination of certain marketing programs.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $5.8 million, or 5.8%, from $99.5 million in 1994 to $93.7 million
in 1995. Casino expense decreased by approximately $3.5 million, or 7.2%, from
$48.8 million in 1994 to $45.3 million in 1995 due to a corresponding decrease
in casino revenues. Casino expenses as a percentage of casino revenues decreased
from 59.5% in 1994 to 58.6% in 1995 due to reduced complimentaries. Room costs
increased by approximately $1.2 million, or 6.8%, from $17.6 million in 1994 to
$18.8 million in 1995, principally due to the payment of higher credit card and
travel agent commissions associated with the increase in room revenues. Room
costs as a percentage of room revenues decreased from 49.7% in 1994 to 47.6% in
1995 as a result of certain fixed costs being allocated over a larger revenue
base. Food and beverage costs increased by approximately $180,000, or 1.2%, from
$15.6 million in 1994 to $15.8 million in 1995. As a percentage of food and
beverage revenues, costs increased from 67.9% in 1994 to 72.0% in 1995 because
certain fixed costs could not be reduced commensurate with the reduction of
revenue. Entertainment costs decreased by approximately $3.7 million, or 26.1%,
from $14.0 million in 1994 to $10.3 million in 1995 due to Splash being closed
during the first half of 1995. Entertainment costs as a percentage of
entertainment revenues decreased from 82.5% in 1994 to 71.6% in 1995 due to
better contract terms with the producer of Splash. Other expenses remained
constant at $3.5 million in 1995.
Other Operating Expenses
Selling, general and administrative expenses increased by approximately
$911,000, or 3.3%, from $27.8 million in 1994 to $28.7 million in 1995. As a
percentage of total net revenues, selling, general and administrative expenses
increased from 18.1% in 1994 to 19.1% in 1995 due to increases in payroll and
maintenance offset by a decrease in workers compensation insurance expense
resulting from the Company becoming self-insured. The provision for bad debts
decreased by approximately $513,000, or 51.8%, from approximately $991,000 in
1994 to $478,000 in 1995 as a result of stricter credit policies during 1995.
Depreciation and amortization increased by approximately $1.1 million, or 20.0%,
from $5.7 million in 1994 to $6.8 million in 1995.
Other Income (Expense)
Interest expense decreased by approximately $311,000, or 2.4%, from $12.8
million in 1994 to $12.5 million in 1995, while interest income more than
doubled from approximately $510,000 to $1.1 million. This was due to a reduction
in average debt outstanding and an increase in average cash balances,
respectively, during 1995 compared to 1994.
Net Income
As a result of the factors discussed above, net income increased by
approximately $1.6 million, or 32.4%, from $4.8 million in 1994 to $6.3 million
in 1995. The effective income tax rate for 1995 was 34.4% compared to 37.5% for
1994.
-18-
<PAGE>
EBITDA
EBITDA increased by approximately $2.2 million, or 8.6%, from $25.6
million in 1994 to $27.8 million in 1995.
1994 Compared to 1993 (First Six Months of 1993 (Predecessor) and Second Six
Months of 1993 (Successor))
Revenues
Net revenues increased by approximately $5.0 million, or 3.4%, from $148.9
million in 1993 to $153.9 million in 1994. Casino revenues increased by
approximately $2.8 million, or 3.6%, from $79.2 million in 1993 to $82.1 million
in 1994. This was largely due to an approximately $4.1 million, or 8.6%,
increase in slot revenues as a result of the introduction of the "$40 for $20"
slot promotion, offset by an approximately $825,000, or 3.1%, decrease in table
revenues due to less "high-roller" play. Room revenues were flat at $35.4
million in 1994. Hotel room occupancy increased from 93.7% in 1993 to 97.5% in
1994 (based on available rooms) offset by a decrease in the average room rate of
$2.91. Food and beverage revenues decreased approximately $455,000, or 1.9%,
from $23.4 million in 1993 to $23.0 million in 1994, principally due to a
reduction in complimentary food and beverage. Entertainment revenues increased
by approximately $464,000, or 2.8%, from $16.5 million in 1993 to $16.9 million
in 1994 as a result of ticket price increases, partially offset by a slight
decrease in total show tickets sold. Other income increased by approximately
$1.0 million, or 12.5%, from $8.3 million in 1993 to $9.4 million in 1994,
principally due to increased box office fees from the sale of other show tickets
and renegotiated leases and concession contracts. Promotional allowances
decreased by approximately $1.1 million, or 8.0%, from $14.0 million in 1993 to
$12.9 million in 1994 as a result of the Company's more stringent complimentary
policies.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $1.1 million, or 1.1%, from $100.6 million in 1993 to $99.5
million in 1994. Casino expense decreased by approximately $1.3 million, or
2.5%, from $50.1 million in 1993 to $48.8 million in 1994 due to more stringent
customer rating policies which resulted in less credit play and reduced
complimentaries. Casino expense as a percentage of casino revenues decreased
from 63.2% in 1993 to 59.5% in 1994 due to reduced slot marketing costs. Room
costs increased by approximately $799,000, or 4.8%, from $16.8 million in 1993
to $17.6 million in 1994, principally due to increases in union wages. Room
costs as a percentage of room revenues increased from 47.4% in 1993 to 49.7% in
1994 as a result of the higher labor costs. Food and beverage costs increased by
approximately $365,000, or 2.4%, from $15.2 million in 1993 to $15.6 million in
1994 due to increases in union wages. Food and beverage costs as a percentage of
food and beverage revenues increased from 65.0% in 1993 to 67.9% in 1994 as a
result of the higher labor costs. Entertainment costs decreased by approximately
$966,000, or 6.5%, from $14.9 million in 1994 to $14.0 million in 1995 due to a
renegotiated contract for Splash whereby the producers of the show manage the
show, incurring all costs, and receive a fee/share of revenues from the Company.
Entertainment costs as a percentage of entertainment revenues decreased from
90.7% in 1993 to 82.5% in 1994 due to the cost savings from this revised
contract. Other expenses decreased by approximately $60,000, or 1.7%, from $3.6
million in 1993 to $3.5 million in 1994.
-19-
<PAGE>
Other Operating Expenses
Selling, general and administrative expenses increased by approximately
$2.1 million, or 8.0%, from $25.8 million in 1993 to $27.8 million in 1994 due
to increased payroll and efforts to expand to new jurisdictions. Selling,
general and administrative expenses as a percentage of total net revenues
increased from 17.3% in 1993 to 18.1% in 1994. The provision for bad debts more
than doubled to approximately $991,000 as a result of the devaluation of the
Mexican peso during 1994 when the Company had a significant amount of Mexican
credit customers. Depreciation and amortization increased by approximately
$653,000, or 13.0%, from $5.0 million in 1993 to $5.7 million in 1994.
Other Income (Expense)
Interest expense increased by approximately $3.6 million, or 38.5%, from
$9.2 million in 1993 to $12.8 million in 1994, while interest income increased
by approximately $88,000, or 20.9%, from approximately $422,000 to $510,000
during the same period. This was due to the accrual of interest on certain bonds
issued by the Company's predecessor that had been stayed until the Company
emerged from bankruptcy on June 30, 1993 and a slight increase in average cash
balances, respectively, during 1994 compared to 1993.
Net Income
As a result of the factors discussed above, net income decreased by
approximately $3.4 million, or 41.8%, from $8.2 million in 1993 to $4.8 million
in 1994. The effective income tax rate for 1994 was 37.5%. No income taxes were
paid in 1993. The Company's predecessor had operating loss carryforwards 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.
EBITDA
EBITDA increased by approximately $3.6 million, or 16.1%, from $22.0
million in 1993 to $25.6 million in 1994.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $26.1 million at June 30,
1996, which was an increase of $4.1 million from the balances at December 31,
1995. Significant debt service on the First Mortgage Notes and other debt issued
pursuant to the Plan is paid in June and December and should be considered in
evaluating cash increases in the first and third quarters.
For the six months ended June 30, 1996, the Company's net cash provided by
operating activities was $8.0 million compared to $6.1 million for the six
months ended June 30, 1995. EBITDA for the six months ended June 30, 1996 and
the year ended December 31,1995 was $16.4 million and $27.8 million,
respectively, which was adequate to cover the Company's debt service and capital
expenditures. Management believes that sufficient cash flow will be available to
cover the Company's debt service and enable investment in budgeted capital
expenditures for the next 12 months.
Scheduled interest payments on the First Mortgage Notes and other
indebtedness are $12.1 million in 1996 declining to $11.0 million in 2002. Cash
flow from operations is not expected to be sufficient to pay 100% of the
principal of the First Mortgage Notes at maturity in 2002. Accordingly, the
ability
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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 at maturity. The First Mortgage Notes are not redeemable at
the option of the Company until June 1, 1998, and thereafter are redeemable at
premiums beginning at 104.3125% and declining each subsequent year to par in
2001.
The Note Indenture provides for mandatory redemption by the Company upon
the order of the Nevada Gaming Authorities. The Note Indenture also provides
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.
The Note 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 Note Indenture was amended 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."
During the reorganization proceeding of Riviera, Inc., certain capital
expenditures were deferred. Management considers it important to the competitive
position of the Riviera that expenditures be made to upgrade the property.
Capital expenditures totaled approximately $5.8 million in 1993, $8.9 million in
1994, $7.8 million in 1995 and $5.3 million for the six months ended June 30,
1996. Management has budgeted $10.7 million of capital expenditures for the last
six months of 1996 and expects to budget approximately $11.0 million for 1997.
The Company expects to finance such capital expenditures from cash flow but if
cash flow does not meet projections, capital expenditures would be deferred.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. Certain matters discussed in
this filing could be characterized as forward-looking statements such as
statements relating to plans for future expansion, as well as other capital
spending, financing sources and effects of regulation and competition. Such
forward-looking statements involve important risks and uncertainties that could
cause actual results to differ materially from those expressed in such
forward-looking statements.
Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 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 indicated
that the carrying amount of an asset may not be recoverable. SFAS 121 is
effective for fiscal years
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beginning after December 15, 1995. Based on management's preliminary analysis,
the Company does not anticipate that the adoption of Statement No. 121 will have
a material impact on the consolidated financial statements.
In October 1995, the FASB issued 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 non-employees.
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.
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<PAGE>
BUSINESS
General
Riviera Holdings Corporation owns and operates the Riviera Hotel & Casino
located on the Strip in Las Vegas, Nevada. The Riviera caters to adults seeking
traditional Las Vegas-style gaming and entertainment. The Riviera is situated on
a 26-acre site across the Strip from Circus Circus and adjacent to the Las Vegas
Hilton and the Las Vegas Convention Center. The property features approximately
2,100 hotel rooms (including 169 suites), 105,000 square feet of casino space, a
100,000 square-foot convention, meeting and banquet facility (one of the largest
in Las Vegas), four full-service restaurants, a 430-seat buffet, four showrooms,
a 200-seat entertainment lounge, 47 food and retail concessions and
approximately 2,900 parking spaces. The casino contains approximately 1,300 slot
machines, 54 gaming tables, a keno lounge and a 200-seat race and sports book.
The Riviera also offers one of the most extensive entertainment programs in Las
Vegas, including such popular shows as Splash, An Evening at La Cage, Crazy
Girls and Bottoms Up and featured comedians at the Riviera Comedy Club.
Opened in 1955, the Riviera was one of the original casino/hotels on the
Las Vegas Strip catering to high stakes gamblers. Since opening, the Riviera has
been expanded several times. The most recent expansion, which occurred during
1988 through 1990, resulted in significant cost overruns and ultimately
contributed to the Company's predecessor filing for bankruptcy protection in
1991. In 1992 the current management team was assembled and successfully guided
the Company through its emergence from bankruptcy in June 1993. As a result of
the bankruptcy, all of the Common Stock and $100.0 million of First Mortgage
Notes were distributed to the secured creditors of the predecessor company.
The new management team implemented new marketing programs, which included
targeting California and the southwestern United States, and initiated a number
of strategic changes to reposition the Riviera, including a shift from
"high-rollers" to mid-level gaming customers, particularly slot players, who
seek a broader entertainment experience. Management reconfigured the casino
space to improve the flow of customer traffic, installed new slot machines and
bill acceptors, reduced the number of gaming tables and de-emphasized baccarat.
Management also decreased the volatility of gaming revenues through the
reduction of credit limits, outsourcing of the Company's sports book and
shifting to parimutuel horse wagering. Improved hotel marketing efforts have
resulted in one of the highest room occupancy rates on the Strip.
Business and Growth Strategy
Over the past several years, management initiated a number of strategic
changes at the Riviera to reposition the property to compete in the Las Vegas
gaming market. The Company has formulated a business and growth strategy to
maintain the competitive position of the Riviera as well as grow the Company.
The key elements of the Company's business and growth strategy are discussed
below.
Continue to Improve Performance of the Riviera
The Riviera will continue to emphasize marketing programs that appeal to
slot and mid-level table game customers with a focus on creating repeat
customers and increasing walk-in traffic. Key elements of this strategy include
offering a value-oriented experience by providing a variety of hotel rooms,
restaurants and entertainment, with some of Las Vegas' most popular shows, all
at reasonable prices. The Company is continuing an extensive capital investment
program at the Riviera, including completing the upgrade of its slot machines by
the first quarter of 1997 and the refurbishment of all its hotel rooms, which is
expected to be completed by mid-1997. In addition, the Company will focus its
marketing to
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take advantage of the Riviera's location by capitalizing on the anticipated
increase in walk-in traffic from the addition of 1,000 rooms across the Strip at
Circus Circus and the expansions of the Las Vegas Hilton and the Las Vegas
Convention Center.
Emphasize Slot Play. Management instituted a number of initiatives at the
Riviera to increase slot play, including the replacement of old slot machines,
the installation of bill acceptors and the addition of slot hosts. The Company's
strategy is to continue to increase slot play through marketing programs and
other improvements, including (i) completion of the Company's slot upgrade
program by the first quarter of 1997, (ii) addition of new signage, (iii)
promotion of the Riviera Player's Club, (iv) sponsorship of slot tournaments,
(v) creation of promotional programs, and (vi) marketing of the "World's Loosest
Corner of Slots" and "$40 for $20" slot promotions.
Create Repeat Customers. Generating customer loyalty is a critical
component of management's business strategy as retaining customers is less
expensive than attracting new ones. The Company generates repeat customers by
(i) providing a high level of service to its customers to ensure an enjoyable
experience while at the Riviera, (ii) responding to customer surveys, and (iii)
focusing marketing efforts and promotional programs on customers with positive
gaming profiles.
Provide Extensive Entertainment Options. The Company believes entertainment
provides an attractive marketing tool to attract customers to the Riviera. The
Riviera offers one of the most extensive entertainment programs in Las Vegas,
including such well received shows as Splash (a variety show), An Evening at La
Cage (a female impersonation show), Crazy Girls (an adult revue) and Bottoms Up
(a burlesque-style show) as well as featured comedians at the Riviera Comedy
Club. The Company continually updates its shows in response to customer surveys
and to keep them fresh. Tickets for the shows are offered at reasonable prices
in keeping with the Company's emphasis on mid-level customers.
Attract Walk-In Traffic. The Company seeks to maximize the number of people
who patronize the Riviera that are not guests in the hotel. The Riviera is well
situated on the Las Vegas Strip near Circus Circus, The Stardust Hotel & Casino,
the Westward Ho Casino & Hotel, the Las Vegas Hilton and the Las Vegas
Convention Center. Management strives to attract customers from those
facilities, as well as capitalize on the growth in Las Vegas visitors in
general, with the goal of increasing walk-in traffic by (i) providing a variety
of quality, value-priced entertainment and dining options, (ii) promoting the
"World's Loosest Corner of Slots" and "$40 for $20" slot promotions, and placing
them near the entrances to the casino, (iii) upgrading the exterior of the
Riviera including painting, lighting and landscaping, and (iv) completing Phase
I to attract customers into the casino.
Focus on Convention Customers. The Riviera targets convention business
because it typically provides patrons willing to pay higher room rates and it
provides certain advance planning benefits, since conventions are usually booked
two years in advance of the event date. The Riviera has 100,000 square feet of
exhibit, meeting and banquet space (one of the largest convention facilities
provided by a casino/hotel in Las Vegas) making it attractive to large groups.
Management focuses its marketing efforts on conventions whose participants have
the most active gaming profile and higher room rate, banquet and function
spending habits. The Riviera also benefits from its proximity to the Las Vegas
Convention Center which makes it attractive to city-wide conventioneers looking
to avoid the congestion that occurs during a major convention, particularly at
the south end of the Strip.
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Further Develop the Riviera
The Company has engaged architects and designers to prepare a Master Plan
for the existing 26-acre site. The Company believes that implementation of the
Master Plan will attract additional customers.
Phase I. The initial phase of the Master Plan will include the development
of a entertainment and shopping complex to attract walk-in customer traffic.
Phase I will involve the development of approximately 20,000 square feet of
vacant space fronting the Las Vegas Strip, across from Circus Circus, into an
entertainment attraction to attract walk-in traffic as well as tourists
throughout the city. The entertainment area will lead to an escalator up to an
approximately 60,000 square foot domed shopping complex to be constructed
directly over the casino and containing stores that will appeal to the Riviera's
main target audience, adults aged 45 to 70. The exit from the complex will be by
an escalator which will deliver patrons to the casino. The Company plans to fund
the construction of the structure which will house the entertainment and
shopping area, estimated to be approximately $10.0 million, with a portion of
the net proceeds of the Offering. The Company expects to find partners to
finance, develop and operate the entertainment attraction and retail stores. To
date, the Company has not had significant discussions with any partners.
Future Phases. The Company has approximately 10 acres available for
additional development. The Company is exploring a number of options in order to
make the best use of this valuable land. One of the first expansion projects is
likely to include a 40,000 square foot expansion of the 100,000 square foot
convention and banquet facility, at an estimated cost of approximately $6.0
million. The Company derives approximately 25% of its hotel occupancy from
convention customers and considers them a critical component of its customer
base. Management believes that an expansion of the convention space is necessary
to accommodate the growth in the size and number of the groups that presently
use the facility as well as new groups.
As part of the Master Plan, the Company is considering a joint venture for
the development of a time-share condominium tower. The Company expects to
contribute land to the joint venture and a third party would finance, construct
and sell time-share units. Management believes that additional rooms adjacent to
the Las Vegas Convention Center would be particularly attractive to business
customers and would provide a base of additional casino customers. The Company
has also been approached by real estate developers interested in constructing an
approximately 500,000 square foot regional shopping mall on the property. The
Company would contribute land and an experienced shopping center developer would
finance, construct and operate the mall. Other potential development projects
include the construction of a new hotel tower and additional parking facilities.
The development of a time-share tower, shopping mall, hotel tower or parking
facility would require additional financing, a release of restrictions under the
Note Indenture and, in the case of the time-share tower and shopping center, a
joint venture partner, none of which the Company has in place at this time.
Manage Distressed Casino/Hotel Properties
Management has been recognized for its success in repositioning the Riviera
and guiding the Company out of bankruptcy. The Company believes that there is
increasing demand for the services of skilled gaming and hospitality
professionals. The Company intends to capitalize on its turnaround and
bankruptcy expertise by pursuing management contracts with financially
distressed gaming properties. In August 1996, the Company began managing the
financially troubled Four Queens, located on Fremont Street in downtown Las
Vegas. Management is actively reviewing and evaluating other financially
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distressed gaming properties in Nevada and other jurisdictions with a view
towards managing properties with underlying sound business potential and in
which the Company can purchase an equity interest.
Develop New Casino/Hotels
The Company also plans to review and selectively acquire or develop
casino/hotel properties both in Nevada and other jurisdictions. These other
jurisdictions may include Colorado, Mississippi, West Virginia, Indiana, Native
American-owned land and Mexico. The Company does not presently have any
agreements in principle for involvement in any financially troubled or new
projects, but intends to use a substantial portion of the net proceeds of the
Offering for such projects. See "Capital Structure -- First Mortgage Notes" for
covenant restrictions on the Company's ability to invest in new opportunities.
The Riviera
The Riviera is located on the corner of Las Vegas Boulevard (the "Strip")
and Riviera Drive, across the Strip from Circus Circus. The back of the 26-acre
property fronts Paradise Road across from the Las Vegas Hilton and the Las Vegas
Convention Center. The Riviera is strategically located to take advantage of the
high tourist traffic along the Strip as well as the increasing number of
convention customers that use the Las Vegas Convention Center.
Gaming. The Riviera has 105,000 square feet of casino space. The casino
currently has approximately 1,300 slot machines and 54 gaming tables, including
blackjack, craps, roulette, pai gow poker, Caribbean Stud(R) poker, baccarat,
Let It Ride(R) and poker. The casino also includes a keno lounge and a 200-seat
race and sports book.
Gaming operations at the Riviera are continually monitored and modified to
respond to both changing market conditions and customer demand in an effort to
attract new customers, retain existing customers, and encourage repeat customer
business. New and innovative slot and table games have been introduced based on
customer feedback. Management devotes substantial time and attention to the
type, location and player activity of all its slot machines. The Company is
continuing an extensive capital investment program for the upgrade of its slot
machines which is expected to be completed by the first quarter of 1997.
The current management team has made an effort to redirect its business
away from high-stakes wagerers and to focus, instead, on mid-level gaming
customers and thus has implemented stricter credit policies and a reduction of
baccarat table limits. As a result, the percentage of table game dollar volume
represented by credit play declined from approximately 24% in 1993 to 17% in the
first six months of 1996. Because the extension of credit is not as necessary
for success with mid-level gaming customers, management expects that providing
credit, and the risks associated with possible losses on uncollectible and
discounted receivables, will continue to be less significant to the 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. Receivables from casino operations
declined from approximately $2.9 million at December 31, 1993 to approximately
$1.8 million at June 30, 1996 and the allowance for bad debts from casino
operations declined from approximately $763,000 to $200,000 during the same
period. These reductions resulted primarily from the imposition of stricter
credit standards. Management maintains strict controls over the issuance of
credit and aggressively pursues collection of its customer receivables.
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Hotel. The Riviera's hotel is comprised of five hotel towers with
approximately 2,100 rooms, including 169 suites. Built in 1955 as part of the
original casino/hotel, the nine-story North Tower features 391 rooms and 11
suites. In 1967, the 12-story South Tower was built with 147 rooms and 31
suites. Another 220 rooms and 72 suites including penthouse suites were added to
the property through the construction of the 17-story Monte Carlo Tower in 1974.
In 1977, the six-story San Remo Tower added 243 rooms and six suites to the
south side of the resort. The most recent phase of hotel expansion was completed
in 1988 upon the opening of the 930 room, 49 suite, 24-story Monaco Tower. The
Company is currently refurbishing all of its rooms, with approximately 1,100
expected to be completed by the end of 1996 and the balance expected to be
completed by mid-1997. Management believes that the Riviera has attained room
occupancy rates that are among the highest on the Strip with 97.5% for 1994,
97.0% for 1995, and 99.0% for the first six months of 1996 (based on available
rooms).
Restaurants. The quality, value and variety of food services are critical
to attracting Las Vegas visitors. The Riviera offers four bars and five sitdown
restaurants and serves an average of approximately 5,000 meals per day,
including banquets and room service. The following table outlines, for each
restaurant, the type of service provided and total seating capacity:
Seating
Name Type Capacity
---- ---- --------
Kady's Coffee Shop 290
Kristofer's Steak and Seafood 162
Rik' Shaw Chinese 124
Ristorante Italian Italian 126
World's Fare Buffet All-you-can-eat 432
-----
Total 1,134
=====
In addition, the Riviera has a food court operated by a third party under a
long-term lease with 200 seats and several fast-food restaurants, including
Burger King(R), Panda Express(R), Pizza Hut(R) and "TCBY"(R).
Convention Center. The Riviera features 100,000 square feet of convention,
meeting and banquet space. The convention center is one of the largest in Las
Vegas and is an important feature that attracts customers. The facility can be
reconfigured for multiple meetings of small groups or large gatherings of up to
5,000 people. The Riviera hosts approximately 150 conventions per year. As of
September 30, 1996, the Riviera had over 350,000 confirmed convention-related
room nights for 1997 and 1998. On average, approximately 25% of the rooms are
occupied for conventions.
Entertainment and Other. The Riviera 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. The five
in-house productions are regularly updated and changed. In November 1994, the
award winning Splash production was closed in order to revise the show and
remodel the showroom for the new Splash, which opened on June 23, 1995. A
summary of the shows and times is outlined below:
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<TABLE>
<CAPTION>
Seating
Show Type Performance Times Capacity
- ---- ---- ----------------- --------
<S> <C> <C> <C>
Splash Variety show Twice a night, seven days 950
a week
An Evening at Female impersonation Twice a night, four nights 575
La Cage a week; three times a night
on Wednesday & Saturday
Crazy Girls Adult-oriented Twice a night, five times 410
production per week; three times per
night on Saturday
Bottoms Up Afternoon burlesque Twice a day, five days per 400
show week
The Riviera Stand-up comedy Twice a night, five nights a 350
Comedy Club week; three times a night
on Friday & Saturday
</TABLE>
Other entertainment includes the 200-seat Le Bistro entertainment lounge
located in the casino which offers live performances six times per night. In
addition, the Riviera sponsors special events, such as the Las Vegas Bowl
football game, and presents major concerts, such as the Beach Boys, the Pointer
Sisters and the Doobie Brothers.
The Riviera's pool area is approximately 75,000 square feet and is
centrally located between the property's hotel towers. The pool area features an
olympic-size swimming pool and landscaping. The Riviera also has tennis courts
and a fitness center and spa.
The Riviera also has 40 retail concessions located throughout the property
which include gift shops, a jewelry store, men and women's apparel stores, a
children's shop, a magazine shop and a shoe store.
Marketing Strategy
In contrast to many of the new casino/hotels that cater to families, the
Company believes its customers prefer a traditional Las Vegas-style
entertainment and gaming environment. As a result, the Company focuses its
marketing efforts on adults. The operating profits of the Riviera depend upon
the level of gaming activity in the casino as well as revenues from lodging,
food and beverage, conventions, entertainment and retail operations.
Accordingly, the marketing strategy of the Riviera is to target customers age 45
to 70 who have more discretionary income and higher spending profiles, achieve
maximum occupancy and room rates, and obtain the most profitable mix of
business. In developing its overall marketing programs, the Company conducts
extensive, ongoing research of its target customers' preferences through written
surveys, one-on-one interviews and focus groups.
The Company focuses on attracting its guests through a range of
entertainment opportunities. The Riviera has one of the most extensive
entertainment programs in Las Vegas with five different regularly scheduled
shows and special appearances by headline entertainers. In addition, the Riviera
offers a variety of quality dining options, a range of accommodations from
deluxe rooms to penthouse suites, numerous recreational facilities and 40 retail
outlets located throughout the property. The Company
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believes that it offers a value-oriented experience by providing a variety of
hotel rooms, restaurants and entertainment, with some of Las Vegas' most popular
shows, all at reasonable prices.
The Company designs promotional offers targeted at certain mid-level gaming
patrons that are expected to provide revenues based upon their historical gaming
patterns. The Company contacts these customers through a combination of direct
mail and telemarketing by an in-house marketing staff and independent
representatives located in major cities. The Riviera uses a proprietary database
which is linked to its player tracking system to help identify customers'
requirements and preferences; this allows the Riviera to customize promotions to
attract repeat visitors. The Company offers customers personalized service,
credit availability and access to a variety of complimentary or reduced rate
room, dinner, and entertainment reservations. Management uses a specialized
multi-tiered marketing approach to attract customers in each of its major market
segments. In addition, the Company hosts an array of special events, including
slot and table tournaments, designed to attract customers for an extended stay.
The Company focuses its marketing efforts in the southwestern United States
during the spring and summer months and in the midwestern United States during
the fall and winter months because of the vacation patterns of the Riviera's
target customers in those markets. Marketing efforts in California are
consistent throughout the year reflecting the constant flow of California
residents to Las Vegas.
One of the Company's most successful permanent promotions is its "$40 for
$20" slot promotion which attracts slot players to the casino. The promotion
offers $40 of slot play on certain promotional machines for $20 cash. If the
customer does not win a jackpot of at least $40, a prize with a retail value of
at least $20 is awarded. The sign-up counter and the promotion machines are
located near an entrance to the casino and often draw long lines of patrons. The
Company expects to install this promotion at the Four Queens and has been
approached to license this promotion to other casinos as well, which it may do
in the future.
Another successful promotion is the "World's Loosest Corner of Slots" which
is an area of the casino that contains banks of slot machines with the
guaranteed highest payback percentages of any similar machines in Las Vegas.
Like the "$40 for $20" slot promotion, the "World's Loosest Corner of Slots" is
located near an entrance to the casino to attract walk-in traffic.
The Company targets the following segments of the Las Vegas market:
Mid-Level Gaming Customers. The Company has developed a marketing program
intended to develop a loyal following of repeat slot and mid-level table game
customers. Management believes it has been able to successfully attract these
patrons using the Riviera's restaurants, hotel accommodations and entertainment
and by focusing on customer service. Management has adopted a selective approach
to the extension of credit to these customers in order to reduce volatility of
operating results. The Company uses its research data to tailor promotional
offers to the specific tastes of targeted customers. All slot and table players
are encouraged to join the Riviera Player's Club and to fill out surveys that
provide the Riviera with personal information and preferences and tracks their
level of play. Members of the Riviera Player's Club earn bonus points based upon
their level of play, redeemable for free gifts, complimentary services or cash
rebates. Promotional offers are made to qualifying customers through direct mail
and telemarketing.
Tour and Travel. The tour and travel segment of the market consists of
customers from across the country who utilize "packages" to reduce the cost of
travel, lodging and entertainment. These packages are produced by wholesale
operators and travel agents and emphasize mid-week stays. Tour and travel
patrons often book at off-peak periods enabling the Company to maintain
occupancy rates at
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the highest levels throughout the year. Management has developed specialized
marketing programs and cultivated relationships with wholesale operators, travel
agents and major domestic air carriers to expand this market. The Company's
three largest tour and travel operators, including America West Vacations,
currently account for approximately 500 room bookings per night. The Company
makes an effort to convert tour and travel customers who meet the Company's
target customer profile into repeat customers.
Conventions. This market segment consists of two groups: (i) those trade
organizations and groups that hold their events in the banquet and meeting space
provided by a single hotel, and (ii) those attending city-wide events, usually
held at the Las Vegas Convention Center. The Riviera targets convention business
because it typically provides patrons willing to pay higher room rates and
provides certain advance planning benefits, since conventions are usually booked
two years in advance of the event date. The Riviera has 100,000 square feet of
exhibit, meeting and banquet space (one of the largest convention facilities
provided by a casino/hotel in Las Vegas) making it attractive to large groups.
Management focuses its marketing efforts on conventions whose participants have
the most active gaming profile and higher room rate, banquet and function
spending habits. The Riviera also benefits from its proximity to the Las Vegas
Convention Center which makes it attractive to city-wide conventioneers looking
to avoid the congestion that occurs during a major convention, particularly at
the south end of the Strip.
Free and Independent Travelers. This market segment consists of persons who
travel to Las Vegas from all areas of the world, many of whom originate from the
western United States. These customers are not affiliated with groups and make
their reservations directly with the hotel or through independent travel agents.
The Riviera benefits from high name recognition with this market segment.
Las Vegas Market
The Riviera targets the large and expanding Las Vegas tourist and gaming
market. Las Vegas is the largest city in Nevada, with a local population in
excess of one million, and is Nevada's principal tourist center. Gaming and
tourism are the major attractions, complemented by warm weather and the
availability of many year-round recreational activities. Although Las Vegas'
principal markets are the western region of the United States, most
significantly Southern California and Arizona, Las Vegas also serves as a
destination resort for visitors from all of North America. In addition, a
significant percentage of visitors originate from Latin America and the Pacific
Rim countries such as Japan, Taiwan, Hong Kong and Singapore.
Las Vegas is one of the largest and fastest growing entertainment markets
in the country. According to the Las Vegas Convention and Visitors Authority
(the "LVCVA"), the number of visitors traveling to Las Vegas has increased at a
steady and significant rate for the last ten years from 15.2 million in 1986 to
more than 29.0 million in 1995, a compound annual growth rate of 7.5%. Gaming
has continued to be a strong and growing business with Las Vegas Strip gaming
revenues increasing at a compound annual growth rate of 9.9% from $1.6 billion
in 1986 to $3.6 billion in 1995.
Historically, Las Vegas has had one of the strongest hotel markets in the
country. The number of hotel and motel rooms in Las Vegas has increased by 33.5%
from approximately 67,400 in 1989 to 90,000 in 1995, giving Las Vegas the most
hotel and motel rooms of any metropolitan area in the country. Despite this
significant increase in the supply of rooms, the Las Vegas hotel occupancy rate
exceeded 91% for each of 1993, 1994 and 1995. Since January 1, 1996,
approximately 4,500 new hotel rooms opened and as of September 30, 1996, there
were over 10,500 hotel rooms under construction (which combined constitutes a
16.7% increase in the number of hotel and motel rooms in Las Vegas) and the
LVCVA estimated that approximately 37,000 additional hotel rooms were proposed
for construction.
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<PAGE>
The Company believes that the growth in the Las Vegas market has been
enhanced as a result of a dedicated program by the LVCVA and major Las Vegas
casino/hotels to promote Las Vegas as a major convention site, the increased
capacity of McCarran Airport and the introduction of large themed destination
resorts in Las Vegas. In 1986, approximately 1.5 million people attended
conventions in Las Vegas and generated approximately $1.0 billion of non-gaming
economic impact. In 1995, the number of convention delegates had increased to
2.9 million with approximately $3.4 billion of non-gaming economic impact.
According to the LVCVA, Las Vegas was the largest convention market in the
country in 1995.
During the past five years, McCarran Airport has expanded its facilities to
accommodate the increased number of airlines and passengers which it services.
The number of passengers traveling through McCarran Airport has increased from
approximately 12.4 million in 1986 to 28.0 million in 1995, a compound annual
growth rate of 9.5%. In addition, McCarran Airport reported that during the
first six months of 1996, the number of passengers traveling through McCarran
Airport increased by 9.1% over the first six months of 1995. Construction is
currently underway on numerous roadway enhancements to improve access to the
airport which are expected to give McCarran Airport the ability to accommodate
over 30 million travelers annually. The U.S. Customs Department has also
announced that it will open an office at McCarran Airport. The airport has
additional long-term expansion plans underway which will provide additional
runways, three new satellite concourses, 60 additional gates and other
facilities. See "Risk Factors -- Dependence on Las Vegas Gaming Market and
Dependence on Single Property."
Riviera Gaming Management
In order to capitalize on management's experience in repositioning and
managing the Riviera through the bankruptcy process, the Company formed RGM, a
wholly owned subsidiary of the Company, for the primary purpose of obtaining
casino management contracts with financially distressed casino/hotels in Nevada
and other jurisdictions. Management believes there will be an increasing demand
for their services by financially distressed casino/hotels. In addition, RGM may
provide other services including assisting new venue licensee applicants in
designing and planning their gaming operations and managing the start-up of new
gaming operations. These services would include casino design, equipment
selection, employee recruitment and training, control and accounting systems and
marketing programs.
Four Queens Management Agreement. Since August 1996, RGM has been operating
the Four Queens located adjacent to the Golden Nugget on Fremont Street in
downtown Las Vegas under an interim management agreement for a fee of $83,333
per month. A long-term management agreement (the "Management Agreement") with
Elsinore Corporation ("Elsinore"), the owner of the Four Queens, will go into
effect upon the effective date of the Chapter 11 plan of reorganization of
Elsinore, expected to occur by year end 1996.
The term of the Management Agreement is approximately 40 months, subject to
earlier termination or extension. Either party may terminate if cumulative
EBITDA for the first two fiscal years is less than $12.8 million. The term can
be extended by an additional 24 months at RGM's option, if cumulative EBITDA for
the three fiscal years of the term is at least $19.2 million. RGM will be paid a
fee of 25% of any increase in annual EBITDA over $4.0 million, subject to a $1.0
million minimum fee, payable in equal monthly installments. RGM will receive
warrants for 20% of Elsinore's fully diluted equity, exercisable during the term
or extended term of the Management Agreement at an exercise price based on the
higher of (i) the per share book value on the effective date of the Elsinore
bankruptcy plan or (ii) total shareholders' equity of $5.0 million. Either party
can terminate if (i) substantially all the Four Queens' assets are sold, (ii)
the Four Queens is merged or (iii) a majority of the Four Queens' or
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<PAGE>
Elsinore's shares are sold. Upon such termination RGM will receive a $2.0
million termination bonus minus any amount realized or realizable upon exercise
of the warrants.
Competition
Intense competition exists in the gaming industry, and many of the
Company's competitors have significantly greater resources than the Company. The
Riviera competes with all other casinos and hotels in the Las Vegas area,
principally competitors located on or near the Las Vegas Strip. In recent
months, several of the Company's direct competitors have opened new
casino/hotels or have commenced or completed major expansion projects, and other
casino/hotels and expansions are planned. In addition, a number of new
mega-resorts on the Strip have been announced and are expected to be completed
within the next two years. Expansions or enhancements of existing properties or
the construction of new properties by competitors could have a material adverse
effect on the Company's business. See "Risk Factors - Competition."
Employees and Labor Relations
As of September 30, 1996, the Riviera 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
will expire May 31, 1997. The Teamsters, Operating Engineers, Carpenters,
Painters, and Electricians Unions' collective bargaining agreements were renewed
in 1995 and generally expire in 1998. Although unions have been active in Las
Vegas, management considers its employee relations to be satisfactory.
Regulation and Licensing
Nevada Gaming Authority. 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 the "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
(the "Nevada Commission"), the Nevada State Gaming Control Board (the "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.
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<PAGE>
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 to
furnish any other information which the Nevada Commission may require. No person
may become a shareholder 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 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. Any change in a
corporate position by a licensed person 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
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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 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 are deemed to be consistent 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 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 shareholder 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 shareholder 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, if necessary, the immediate purchase of said voting
securities
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<PAGE>
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.
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 shareholders, 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 regulations
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
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<PAGE>
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 shareholders 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
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.
Other Regulation. The sale of alcoholic beverages at the Riviera 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.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company and ROC are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William L. Westerman 65 Chairman of the Board and Chief Executive Officer of
the Company and ROC and President of the Company
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 54 Vice President of Casino Operations of ROC
Jerome P. Grippe 54 Vice President of Operations of ROC
Martin R. Gross 39 Vice President of Hotel Marketing of ROC
Ronald P. Johnson 48 Vice President of Gaming Operations of ROC
Robert E. Nickels, Sr. 67 Vice President of Administration of ROC
Robert A. Vannucci 49 Vice President of Marketing and Entertainment of ROC
Robert R. Barengo 55 Director of the Company and ROC
William Friedman 54 Director of the Company and ROC
Philip P. Hannifin 62 Director of the Company and ROC
</TABLE>
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. 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.
Duane R. Krohn, CPA, assumed the position of Treasurer of the Company and
ROC on June 30, 1993 and was elected Vice President of Finance of ROC on April
26, 1994. Mr. Krohn was initially employed by Riviera, Inc. in April 1990, as
Director of Corporate Finance and served as Vice President-Finance from March
1992 to June 30, 1993. Mr. Krohn served as Chief Financial Officer of Imperial
Palace, Inc. (a casino/hotel 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 City, New Jersey.
John A. Wishon was elected 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
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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 is a member of
the Nevada and California Bars, has practiced law with emphasis on real estate
and contract law and has been employed in law enforcement.
Michael L. Falba was elected Vice President of Casino Operations of ROC on
April 26, 1994. Mr. Falba became Director of Casino Operations of ROC on June
30, 1993. Mr. Falba was employed by the 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.
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.
Martin R. Gross was elected Vice President of Hotel Marketing of ROC 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 (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 August 12, 1996, Mr. Gross
assumed the responsibilities of Acting General Manager of the Four Queens.
Ronald P. Johnson became Vice President of Gaming Operations of ROC 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 September 1986 until September 1989, Mr. Johnson was
Assistant Slot Manager at Bally's Grand Las Vegas.
Robert E. Nickels, Sr. was elected Vice President of Administration of ROC
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 MGM-Reno. From April 1986
to November 1991, Mr. Nickels served as Vice President of Administration at
Bally's Reno and Las Vegas.
Robert A. Vannucci was elected Vice President of Marketing and
Entertainment of ROC 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 (a casino/hotel operator) from 1988 to January 1991. In
July 1993, Robert Vannucci filed for personal bankruptcy protection under
Chapter 13 of the Bankruptcy Code. Pursuant to his bankruptcy plan, Mr. Vannucci
has made 100% repayment to all creditors.
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 1978 to 1983, Mr.
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Barengo was Speaker Pro Tempore and Speaker of the Nevada Assembly. Mr. Barengo
has been a director of Leroy's House and Sports Place, now called American
Wagering, Inc., since February 1972. Since 1993, Mr. Barengo is President and
the sole shareholder of Silver State Disseminators Company, a company licensed
by Nevada gaming authorities to disseminate racing information in the State of
Nevada and Chairman of the Nevada Dairy Commission.
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., the largest slot
route operator in Nevada. In 1988 and 1989, Mr. Friedman was Chief 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. (a casino/hotel operator)
since 1991. From 1987 to 1990, Mr. Hannifin was a Director and Executive Vice
President of MGM Grand Inc. (a casino/hotel operator). From January 1971 to
September 1977, Mr. Hannifin was Chairman of the Nevada Gaming Control Board.
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 for the years ended December 31, 1993, 1994 and 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.
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<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation1
- ------------------ ---- ------ ----- ------------ -------------
<S> <C> <C> <C> <C> <C>
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
<FN>
- --------------------------
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.
</FN>
</TABLE>
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.
Mr. Westerman has entered into an employment contract with the Company
which has been most recently amended on January 1, 1996. 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. Mr. Westerman currently
earns an incentive bonus of 8.75% of adjusted operating earnings of the Company
over $20.0 million. Mr. Westerman's incentive bonus amounted to $232,856 in
1993, $592,379 in 1994 and $855,961 in 1995.
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<PAGE>
The agreement also provides that the Company and ROC will create a
retirement account for Mr. Westerman. Pursuant to the agreement, an aggregate of
$1.7 million 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 that year will be credited to
the account on January 1 of that 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 are 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 benefits offered to other key executives of the Company
and ROC, will be reimbursed for all business expenses and will be entitled to
four weeks vacation per year.
Employee Stock Option Plan
The options discussed in the following paragraphs were granted pursuant to
the Company's 1993 Employee Stock Option Plan (the "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.
The following table presents at September 30, 1996 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
have ever been exercised.
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<PAGE>
Number of Value of Unexercised,
Unexercised Options In-The-Money Options
---------------------- --------------------------
Name Vested Not Vested Vested Not Vested
- ---- ------ ---------- ------ ----------
William L. Westerman 150,000 30,000 $2,018,751 $393,750
Jerome P. Grippe 15,000 3,000 201,875 39,375
Martin R. Gross 15,000 3,000 201,875 39,375
Ronald P. Johnson 15,000 3,000 201,875 39,375
Robert Vannucci 15,000 3,000 201,875 39,375
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 is
480,000 (as adjusted pursuant to antidilution provisions). 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. Options vest 25% one year after the date of grant and 25%
each subsequent year. 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
shareholder 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 due to a merger, reorganization or
other adjustment as described above, any Options, granted and remaining
unexercised shall be deemed canceled.
The Company has registered the issuance of all options and all shares
issuable upon exercise of the options on Form S-8 under the Securities Act.
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<PAGE>
The Stock Option Plan became effective as of July 1, 1993, and will
terminate on July 1, 2003. However, with approval from the shareholders of the
Company, if required by law or the applicable provisions of any securities
exchange upon which the Common Stock is listed, the Board of Directors or 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 May 31, 1996, approximately 560 union and non-union employees
participated in the 1996 employee stock purchase plan. Under the plan, 137,000
shares of Common Stock were issued to employees at $11.26 (85% of market price
at May 10, 1996) in exchange for notes receivable of $1,383,272 which are
payable over two years via payroll deduction. There are 163,000 shares remaining
to be issued under the plan.
The Company has registered the issuance of all the shares issuable under
this plan on Form S-8 under the Securities Act.
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
Riviera who were employed by the Riviera 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
Riviera 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 Riviera.
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.
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
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<PAGE>
termination of Mr. Westerman's employment. The estimated total amount that would
be payable under all such agreements is $1.2 million in salaries and $367,000 in
benefits.
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 shareholders 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, with an option exercise price equal to the fair market
value of the Common Stock on the date of grant. Options to purchase 2,000 shares
at an exercise price of $13.25 were granted to each of Messrs. Barengo and
Friedman on May 10, 1996. 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 3,103 shares for his
director's fees for the first nine months of 1996.
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 and ROC each 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. Robert R.
Barengo is a principal in American Wagering, Inc. See "Certain Relationships and
Related Transactions."
PRINCIPAL AND SELLING 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 September 30, 1996 and as adjusted to reflect the Offering,
assuming the Underwriters' over-allotment option is not exercised,
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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. Except as indicated, each person listed below has sole voting and
investment power with respect to the shares set forth opposite such person's
name.
<TABLE>
<CAPTION>
Shares to be
Shares Beneficially Owned Sold in the Shares Beneficially Owned
Prior to the Offering Offering After the Offering
--------------------------- ------------- -----------------------------
Name
Number Percentage Number Percentage
-------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
William L. Westerman 1,7 234,200 4.6% 0 234,200 3.6
Jerome P. Grippe 1,7 16,000 * 0 16,000 *
Martin R. Gross 1,7 16,000 * 0 16,000 *
Ronald P. Johnson 1,7 27,000 * 0 27,000 *
Robert Vannucci 1,7 15,600 * 0 15,600 *
Robert R. Barengo 1,7 4,103 * 0 4,103 *
William M. Friedman 1,7 0 * 0 0 *
Philip P. Hannifin 1,7 30,000 * 0 30,000 *
Keyport Life Insurance Co. 2 857,160 17.4 750,000 107,160 1.7
Sun America Life Insurance Company 3 761,920 15.4 500,000 261,920 4.1
Morgens Entities:4
Betje Partners 29,360 * 0 29,360 *
Morgens Waterfall Income Partners 43,920 * 4,120 39,800 *
MWV Employee Retirement Plan
Group Trust 7,760 * 0 7,760 *
Phoenix Partners 79,440 1.6 0 79,440 1.2
Restart Partners, L.P. 282,000 5.7 76,300 205,700 3.2
Restart Partners II, L.P. 440,600 8.9 91,500 349,100 5.4
Restart Partners III, L.P. 298,600 6.0 56,700 241,900 3.8
The Common Fund 90,880 1.8 21,380 69,500 1.1
--------- ------ ------- ------- -------
Total Morgens Entities 1,272,560 25.8 250,000 1,022,560 15.9
Restructuring Capital Associates, L.P. 5 398,240 8.1 0 398,240 6.2
Stephen S. Taylor 6 398,860 8.1 0 398,860 6.2
All executive officers and directors as a
group (12 persons) 1,7 392,303 7.5 0 392,003 5.9
<FN>
- ------------------------
* Less than 1%.
1 The address for each director 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 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.
3 The address for Sun America Life Insurance Company ("Sun Life") is One Sun America Center, Century City, California
90067.
4 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, the eight
entities listed in the above table ("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 under the Exchange Act. Each of Morgens, its
principals and the Morgens Entities, however, disclaims beneficial ownership with respect to any securities not actually
beneficially owned by it.
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<PAGE>
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 Includes vested portion of options to purchase shares of Common Stock
granted pursuant to the Stock 1993 Option Plan and NonQualified Stock
Option Plan for Non-Employee Directors.
</FN>
</TABLE>
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 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, including those filed on behalf
of the Company or security holders not party to the Equity Registration Rights
Agreement. The Selling Shareholders are registering their shares of Common Stock
hereunder pursuant to their piggy-back registration rights under 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. 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. The
Company has registered the First Mortgage Notes on behalf of certain Noteholders
pursuant to their rights under the Debt Registration Rights Agreement.
The Company's officers and directors and the Selling Shareholders have
agreed with the underwriters not to publicly sell any shares of the Common Stock
for 90 days after the date of this Prospectus (with a limit of February 28, 1997
in the case of the Morgens Entites).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert R. Barengo, a director of the Company, is a principal in American
Wagering, Inc., the successor in name to Leroy's Horse & Sports Place ("AWI"),
which leases approximately 12,000 square feet of the Riviera casino floor. AWI
is the operator of the Riviera's sports book operations. This lease was assumed
by the Company from Riviera, Inc. and is still in effect. The lease provides for
rental payments based upon the monthly and annual revenues derived by AWI from
the location. From January 1, 1995, through December 31, 1995, AWI paid
aggregate rent to ROC of approximately $92,000. The Company believes that the
terms of the lease with AWI 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 casino/hotels in Las Vegas. AWI also owns
Howard Johnson Hotel & Casino located at the
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<PAGE>
intersection of 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 casino/hotel's operations are
not competitive with the Riviera.
The Morgens Entities will own 15.9% of the Company's Common Stock upon
completion of the Offering and will own over 90% of the Common Stock of Elsinore
upon the effective date of Elsinore's bankruptcy plan. The Company believes that
the terms of the Four Queens Management Agreement are no less favorable to the
Company than if the Company had negotiated with an independent third party. See
"Business-Riviera Gaming Management - Four Queens Management Agreement."
DESCRIPTION OF CAPITALIZATION
Common Stock
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
par value $.001 per share. Upon the closing of the Offering, there will be
6,440,103 shares of Common Stock issued and outstanding (6,890,103 if the
Underwriters' over-allotment options are exercised in full).
Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders. Holders of Common
Stock do not have the right of cumulative voting for the election of directors.
Each holder of Common Stock is entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor,
as well as any distributions to the shareholders and, in the event of a
liquidation, dissolution or winding up of the Company, is entitled to share
ratably in all assets of the Company remaining after payment of liabilities.
Holders of Common Stock have no conversion, redemption or preemptive rights or
other rights to subscribe for additional shares. Shares of Common Stock will not
be subject to redemption except as required to comply with any laws, rules or
regulations governing the conduct of the gaming business. The outstanding shares
of Common Stock are, and the shares to be sold by the Company in the Offering
will be, when issued and delivered, validly issued, fully paid and
nonassessable. Certificates for shares of Common Stock may bear legends required
by the Nevada gaming authorities.
Certain Anti-Takeover Effects
The Company's Second Restated Articles of Incorporation (the "Articles")
contain certain provisions that are intended to enhance the likelihood of
continuity and stability in the composition of the Company's Board of Directors
and in the policies formulated by the Board of Directors and to discourage an
unsolicited takeover of the Company if the Board of Directors determines that
such a takeover is not in the best interests of the Company and its
shareholders. However, these provisions could have the effect of discouraging
certain attempts to acquire the Company or remove incumbent management even if
some or a majority of the Company's shareholders deemed such an attempt to be in
their best interests, including those attempts that might result in a premium
over the market price for the shares of Common Stock held by shareholders.
Restricted Voting Rights. The Articles provide that if any person or group
has acquired within any consecutive three year period beneficial ownership,
directly or indirectly, of more than 10% of the outstanding Common Stock, then
such shareholder will be entitled to cast only one-hundredth (1/100) of one vote
per share for each share in excess of 10% of the issued and outstanding shares
of Common Stock. Unless waived by the Board of Directors, the voting restriction
will apply until such time as such
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<PAGE>
shareholder shall have consummated a tender offer for all the outstanding shares
of Common Stock at a price specified in the Articles.
Nevada Legislation. On October 1, 1991, Nevada's "Combination with
Interested Shareholders Statute" and certain amendments to Nevada's "Control
Share Acquisition Statute" became effective. Both statutes may have the effect
of delaying or making it more difficult to effect a change in control of the
Company.
The Combination with Interested Shareholders Statute (Nev. Rev. Stat.
ss.ss. 78.411-.444 (1995)) prevents an "interested shareholder" and an
applicable Nevada corporation from entering into a "combination," unless certain
conditions are met. A "combination" means any merger or consolidation with an
"interested shareholder," or any sale, lease, exchange, mortgage, pledge,
transfer or other disposition, in one transaction or a series of transactions
with an "interested shareholder": (i) having an aggregate market value equal to
5% or more of the aggregate market value of the assets of the corporation; (ii)
having an aggregate market value equal to 5% or more of the aggregate market
value of all of the outstanding shares of the corporation; or (iii) representing
10% or more of the earning power or net income of the corporation. An
"interested shareholder" means the beneficial owner of 10% or more of the voting
shares of a corporation, or an affiliate or associate thereof. A corporation may
not engage in a "combination" within five years after the interested shareholder
acquired his shares unless the combination or the purchase of shares made by the
interested shareholder disapproved by the board of directors before the
interested shareholder acquired such shares. If this approval is not obtained,
then after the expiration of the five-year period, the business combination may
be consummated with the approval of the board of directors or a majority of the
voting power held by disinterested shareholders, or if the consideration to be
paid by the interested shareholder is at least equal to the highest of: (i) the
highest price per share paid by the interested shareholder within the five years
immediately preceding the date of the announcement of the combination or in the
transaction in which he became an interested shareholder, whichever is higher;
(ii) the market value per Common Share on the date of the announcement of the
combination or the date the interested shareholder acquired the shares,
whichever is higher; or (iii) for the holders of preferred stock, the highest
liquidation value of the preferred stock, if it is higher.
Nevada's Control Share Acquisition Statute (Nev. Rev. Stat. ss.ss.
78.378-.3793 (1995) ) prohibits an acquiror, under certain circumstances, from
voting shares of a target corporation's stock after crossing certain threshold
ownership percentages, unless the acquiror obtains the approval of the target
corporation's disinterested shareholders. The Control Share Acquisition Statute
specifies three thresholds: one-fifth or more but less than one-third, one-third
but less than a majority, and a majority or more, of the outstanding voting
power. Once an acquiror crosses one of the above thresholds, those shares in an
offer or acquisition and acquired within 90 days become Control Shares (as
defined in such statute) and such Control Shares are deprived of the right to
vote until disinterested shareholders restore the right. The Control Share
Acquisition Statute also provides that in the event Control Shares are accorded
full voting rights and the acquiring person has acquired a majority or more of
all voting power, all other shareholders who do not vote in favor of authorizing
voting rights to the Control Shares are entitled to demand payment for the fair
value of their shares. The Board of Directors is required to notify shareholders
as soon as practicable after such an event has occurred that they have the right
to receive the fair value of their shares in accordance with statutory
procedures established generally for dissenter's rights.
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Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is the American Stock
Transfer & Trust Company.
First Mortgage Notes
The following is a summary of the terms of the Note Indenture (as amended
by the First Supplemental Indenture and the First Amendment to First
Supplemental Indenture) governing the First Mortgage Notes and is qualified in
its entirety by reference to such documents, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
There is $100.0 million aggregate principal amount of the First Mortgage
Notes outstanding. The First Mortgage Notes have an interest rate of 11% per
annum which is payable semi-annually. The First Mortgage Notes are secured by a
first lien on substantially all of the Company's assets, including property
located at, or related to, the Riviera, including land, buildings, certain FF&E
and intangible assets. The First Mortgage Notes are not redeemable at the
Company's option until June 1, 1998 and thereafter are redeemable at premiums
beginning at 104.3125% and declining each subsequent year to par in 2001. The
Note Indenture prohibits the payment of dividends on the Common Stock. The
Company may, beginning June 1, 1997, defease the First Mortgage Notes whereby
the collateral under the Note Indenture will be released and the Company would
no longer be subject to the restrictive covenants. The Company is required to
make an offer to purchase all the First Mortgage Notes upon (a) a major event of
loss to the Riviera, or (b) a "Change of Control" (generally, the acquisition of
a majority of the Common Stock by a third party).
Certain covenants restrict the Company's activities or require the Company
to meet certain financial tests, including the following:
(i) No additional debt can be incurred by the Company or any of
its restricted subsidiaries except that if certain fixed
charge coverage ratios are met, debt secured by FF&E acquired
after June 23, 1993 and subordinated debt which matures after
the First Mortgage Notes can be incurred. (The Company has
under discussion a FF&E secured loan of up to $15.0 million
which would be permitted by this restriction.)
(ii) Capital expenditures are limited to $6.0 million per year plus
80% of cumulative available cash flow from June 30, 1993,
minus prior capital expenditures in excess of $6.0 million per
year in 1994, 1995 or 1996. (The Company does not believe this
restriction will affect its ability to complete Phase I but a
waiver will be required to complete any future phases of the
Master Plan.)
(iii) If the Company's consolidated net worth is less than $2.5
million for two successive quarters, the Company is required
to offer to buy back 10% of the First Mortgage Notes in each
quarter thereafter until consolidated net worth is equal to or
greater than $2.5 million. (The Company's consolidated net
worth at June 30, 1996 was approximately $31.1 million.)
(iv) Contributions to joint ventures and investments ("Restricted
Investments") are restricted by (i) consolidated cash flow,
(ii) percentage of consolidated net worth tests and (iii) a
limit of $5.0 million for each such investment if the Company
does not have a management contract and a participation in
profits at the time of the investment. The
-49-
<PAGE>
preceding restrictions will not apply to the proceeds of any
subordinated debt or equity raised for a specific Restricted
Investment ("Project Investment"). (Except for Project
Investment, the Company believes that the foregoing
restrictions may limit the Company's ability to invest in
financially troubled casinos and casinos in other
jurisdictions. After giving effect to the Offering, the
Company estimates it can invest up to $13.5 million in any one
Restricted Investment and $27.0 million in all Restricted
Investments.)
(v) The Company and its subsidiaries' ability to sell assets is
limited and generally any proceeds must be received in cash
and used to repurchase First Mortgage Notes. (The Company
believes that this covenant may restrict the Company's ability
to effect one or more aspects of future phases of the Master
Plan).
(iv) The Company 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 is at
least equal to the actual consolidated net worth of the
Company as of the last day of the prior fiscal quarter and
(ii) immediately after giving effect to the transaction, the
Company, or the continuing corporation (if other than the
Company), has a pro forma fixed charge coverage ratio at least
equal to 2.0 to 1.0. (The Company believes such covenant may
restrict its ability to expand by acquisition of other
companies, particularly financially distressed companies.)
Credit Facility
The Company is negotiating with banks and other financial institutions for
a $15.0 million credit facility. Because the First Mortgage Notes are secured by
substantially all the Company's assets, the proposed revolving credit facility
would be secured by FF&E that was acquired after June 30, 1993. The revolving
credit facility is anticipated to have terms which require reduction of the
credit available at the rate of 6.5% of the original amount of the facility
quarterly over four years beginning one year from the date of the agreement. The
Company does not intend to draw down the funds immediately, but desires to have
funds available to acquire gaming and other equipment.
-50-
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, the Underwriters named below (the
"Underwriters") have severally, and not jointly, agreed, through Ladenburg,
Thalmann & Co. Inc. and Raymond James & Associates, Inc., the Representatives of
the Underwriters (the "Representatives"), to purchase from the Company and the
Selling Shareholders, and the Company and the Selling Shareholders have agreed
to sell to the Underwriters named below, the aggregate number of shares of
Common Stock set forth opposite their respective names below:
Number
Name of Underwriter of Shares
------------------- ---------
Ladenburg, Thalmann & Co. Inc....................
Raymond James & Associates, Inc..................
---------
Total................................... 3,000,000
=========
The Underwriters are committed to take and pay for all the shares of Common
Stock offered hereby, if any are purchased.
The Underwriters have advised the Company that they propose to offer all or
part of the Common Stock offered hereby directly to the public initially at the
price to the public set forth on the cover page of this Prospectus, that they
may offer shares to certain dealers at a price that represents a concession of
not more than $ per share and that the Underwriters may allow, and such dealers
may reallow, a concession of not more than $ per share to certain other dealers.
After the commencement of the Offering, the price to the public and the
concessions may be changed.
The Company and certain of the Selling Shareholders have granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 450,000 additional shares of Common Stock at the
same price per share as the initial 3,000,000 shares to be purchased by the
Underwriters. The Underwriters may exercise this option solely for the purpose
of covering over-allotments, if any, made in connection with the sale of the
shares offered hereby. To the extent the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase the same percentage thereof as the shares to be purchased by that
Underwriter.
The Company has agreed to indemnify the Underwriters and certain related
persons against certain liabilities, including certain liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Company and its directors, executive officers and [the Selling
Shareholders] have agreed that they will not, directly or indirectly, offer,
sell or otherwise dispose of any equity securities of the Company or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, equity securities of the Company for a period of 90 days after the date
of this Prospectus, without the prior written consent of Ladenburg, Thalmann &
Co. Inc. on behalf of the Representatives.
-51-
<PAGE>
LEGAL MATTERS
Certain matters with respect to the Common Stock offered hereby will be
passed upon for the Company by Dechert Price & Rhoads, New York, New York and
with respect to all matters of Nevada law by Schreck, Jones, Bernhard, Woloson &
Godfrey, Las Vegas, Nevada. Certain legal matters will be passed upon for the
Underwriters by Brownstein Hyatt Farber & Strickland, P.C., Denver, Colorado.
EXPERTS
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.
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 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report (which include
explanatory paragraphs concerning substantial doubt about the Company's ability
to continue as a going concern, bankruptcy proceedings and litigation) which is
included herein and elsewhere in the Registration Statement, and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
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 y 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 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. The Registration Statement, including the exhibits and schedules
thereto, can also be accessed through the EDGAR terminals in the Commissions's
Public Reference Rooms in Washington, Chicago and New York or through the World
Wide Web at http://www.sec.gov.
-52-
<PAGE>
RIVIERA HOLDINGS CORPORATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
----
Riviera Holdings Corporation (Successor to Riviera, Inc.,
Casino-Hotel Division)
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1994 and
1995 and June 30, 1996 (unaudited) F-3
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 Six Months Ended
June 30, 1995 and 1996 (unaudited) F-4
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
Six Months Ended June 30, 1996 (unaudited) F-5
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 Six Months ended
June 30, 1995 and 1996 (unaudited) F-6
Notes to Consolidated Financial Statements F-7
Riviera, Inc. Casino-Hotel Division
(Predecessor to Riviera Holdings Corporation)
Independent Auditors' Report F-19
Statement of Operations and Division Deficit for
the Six Month Period Ended June 30, 1993 F-21
Statement of Cash Flows for the Six Month Period
Ended June 30, 1993 F-22
Notes to Financial Statements F-23
F-1
<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-2
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
(Successor to Riviera, Inc., Casino-Hotel Division)
CONSOLIDATED BALANCE SHEETS
( in thousands, except share data )
- -----------------------------------------------------------------------------------------------------------------
December 31, June 30,1996
1994 1995 (Unaudited)
---- ---- -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents (Note 1) $ 16,425 $ 21,962 $ 26,083
Accounts receivable, net (Notes 1 and 2) 5,082 4,334 4,161
Inventories (Note 1) 2,272 2,186 2,513
Prepaid expenses and other assets 2,389 2,602 3,432
---------- --------- ---------
Total current assets 26,168 31,084 36,189
---------- --------- ---------
PROPERTY AND EQUIPMENT, NET (Notes 1, 3, 5 and 7) 120,024 121,049 122,447
---------- --------- ---------
OTHER ASSETS 4,377 4,759 2,060
---------- --------- ---------
RESTRICTED CASH FOR PERIODIC
SLOT PAYMENTS (Notes 1 and 5) 1,356 1,039 786
---------- --------- ---------
TOTAL ASSETS $ 151,925 $ 157,931 $ 161,482
========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES: (Note 1)
Current portion of long-term debt (Note 5) $ 2,983$ $ 2,322$ 1,847
Accounts payable (Note 4) 7,375 8,408 7,499
Current income taxes payable (Note 6) 574 51
Accrued expenses (Note 4) 8,874 9,596 9,834
---------- --------- ---------
Total current liabilities 19,806 20,377 19,180
---------- --------- ---------
DEFERRED INCOME TAXES PAYABLE (Note 6) 2,010 3,023 4,031
---------- --------- ---------
LONG-TERM DEBT, NET OF
CURRENT PORTION (Notes 1 and 5) 110,171 108,249 107,201
---------- --------- ---------
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 at December 31, 1994 and 1995 and
4,938,470 shares issued and outstanding at
June 30, 1996) 5 5 5
Additional paid-in capital 12,536 12,536 14,091
Notes receivable from Employee Shareholders (1,383)
Retained earnings 7,397 13,741 18,357
---------- --------- ---------
Total shareholders' equity 19,938 26,282 31,070
---------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 151,925 $ 157,931 161,482
========== ========== =======
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
(Successor to Riviera, Inc., Casino-Hotel Division)
CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except share data )
- -------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended Six Months Ended
December 31 December 31, June 30,
----------- ------------------------ ---------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited)
REVENUES: (Note 1)
<S> <C> <C> <C> <C> <C>
Casino $ 41,158 $ 82,060 $ 77,337 $ 38,639 $ 40,382
Rooms 17,808 35,422 39,450 20,505 21,771
Food and beverage 11,760 22,961 21,895 10,952 12,043
Entertainment 8,422 16,945 14,423 4,862 10,795
Other (Note 7) 4,230 9,390 9,515 4,871 5,204
--------- ---------- ---------- ---------- ----------
83,378 166,778 162,620 79,829 90,195
Less promotional allowances (Note 1) 7,157 12,857 11,873 5,489 6,922
--------- ---------- ---------- ---------- ----------
Net revenues 76,221 153,921 150,747 74,340 83,273
--------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES: (Notes 1 and 7)
Direct costs and expenses of operating
departments:
Casino 25,533 48,826 45,325 22,262 24,472
Rooms 8,456 17,594 18,787 9,374 9,365
Food and beverage 7,796 15,588 15,768 7,802 8,089
Entertainment 7,897 13,982 10,329 3,673 7,394
Other 1,839 3,516 3,527 1,755 1,964
Other operating expenses:
Selling, general and administrative 13,427 27,831 28,742 15,015 15,362
Provision for bad debts (Note 2) 107 991 478 457 240
Depreciation and amortization 2,399 5,674 6,811 3,304 3,862
--------- ---------- ---------- ---------- ----------
Total costs and expenses 67,454 134,002 129,767 63,642 70,748
--------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 8,767 19,919 20,980 10,698 12,525
--------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (Notes 5 and 7) (6,382) (12,764) (12,453) (6,259) (6,100)
Interest income 222 510 1,149 520 593
--------- ---------- ---------- ---------- ----------
Total other income (expense) (6,160) (12,254) (11,304) (5,739) (5,507)
--------- ---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,607 7,665 9,676 4,959 7,018
PROVISION FOR INCOME TAXES
(Notes 1 and 6) 2,875 3,332 1,710 2,402
--------- ---------- ---------- ---------- ----------
NET INCOME $ 2,607 $ 4,790 $ 6,344 $ 3,249 $ 4,616
========= ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding 4,800,000 4,800,000 5,040,720 5,016,028 5,072,364
Net income per common and common
equivalent shares $0.54 $1.00 $1.26 $0.65 $0.91
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
(Successor to Riviera, 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 SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
(In thousands)
Notes
Additional Receivable
Shares Common Paid-in Retained from Employee
Outstanding Stock Capital Earnings Shareholders Total
----------- ----- ------- -------- ------------ -----
<S> <C> <C> <C> <C> <C>
BALANCES,
JULY 1, 1993 4,800 $ 5 $ 12,536 $ 12,541
NET INCOME $ 2,607 2,607
----- ------ ---------- -------- --------
BALANCES,
DECEMBER 31, 1993 4,800 5 12,536 2,607 15,148
NET INCOME 4,790 4,790
----- ------ ---------- -------- --------
BALANCES,
DECEMBER 31, 1994 4,800 5 12,536 7,397 19,938
NET INCOME 6,344 6,344
----- ------ ---------- -------- --------
BALANCES,
DECEMBER 31, 1995 4,800 5 12,536 13,741 26,282
STOCK ISSUED UNDER
EMPLOYEE AND
NON-EMPLOYEE
DIRECTORS STOCK
PURCHASE PLAN
(UNAUDITED) 138 1,555 $ (1,383) 172
NET INCOME
(UNAUDITED) 4,616 4,616
----- ------ ---------- -------- --------
BALANCES JUNE 30,
1996 (UNAUDITED) 4,938 $ 5 $ 14,091 $ 18,357 $ (1,383) $ 31,070
===== ====== ========== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
(Successor to Riviera, Inc., Casino-Hotel Division)
CONSOLIDATED STATEMENTS OF CASH FLOWS
( in thousands )
- ----------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended Six Months Ended
December 31, December 31, June 30,
------------ -------------------- --------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 2,607 $ 4,790 $ 6,344 $ 3,249 $ 4,616
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,399 5,674 6,811 3,304 3,862
Provision for bad debts 107 991 478 457 240
Provision for gaming discounts 30 133 142 36 14
Interest expense 6,382 12,764 12,453 6,259 6,100
Interest paid (8,780) (13,052) (12,489) (6,276) (6,120)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (187) (1,116) 127 829 (81)
Decrease (increase) in inventories (480) (508) 86 227 (327)
Decrease (increase) in prepaid expenses
and other assets 1,238 (310) (212) (455) (830)
Decrease in restricted cash for
periodic slot payments 114 591 318 253 253
Increase (decrease) in accounts payable 1,503 1,064 1,033 (1,820) (909)
(Decrease) increase in accrued expenses (5,102) 2,393 758 (8) 46
Increase (decrease) in current income
taxes payable 573 (522) (573) (51)
Increase in deferred income taxes payable 2,010 1,013 454 1,008
Increase in non-qualified pension plan
obligation to CEO upon retirement 935 375 400 167 212
-------- -------- -------- -------- --------
Net cash provided by operating activities 766 16,372 16,740 6,103 8,033
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (4,307) (8,933) (7,836) (3,988) (5,259)
(Increase) decrease in other assets (1,506) (382) 246 2,699
-------- -------- -------- -------- --------
Net cash used in investing activities (4,307) (10,439) (8,218) (3,742) (2,560)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 518 675 176 98
Payments on long-term borrowings (5,176) (3,371) (3,159) (1,580) (1,622)
Proceeds from issuance of stock to employees 172
-------- -------- -------- -------- --------
Net cash used in financing activities (4,658) (2,696) (2,983) (1,580) (1,352)
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (8,199) 3,237 5,539 781 4,121
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 21,387 13,188 16,425 16,425 21,962
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 13,188 $ 16,425 $ 21,964 $ 17,206 $ 26,083
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Income taxes paid $ 292 $ 2,852 $ 1,907 $ 2,032
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
NON-CASH FINANCING ACTIVITIES
Stock issued to employees with notes receivable $ 1,383
========
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 primary 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.
F-7
<PAGE>
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.
Interim Financial Information
The financial information at June 30, 1996 and for the six months ended
June 30, 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 six months ended June 30, 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.
F-8
<PAGE>
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.
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:
F-9
<PAGE>
1993 1994 1995
(in thousands)
Food and beverage $3,892 $ 7,225 $ 6,570
Rooms 1,146 1,843 1,451
Entertainment 1,176 2,121 2,280
------ ------- -------
Total Costs allocated to casino $6,214 $11,189 $10,301
====== ======= =======
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.
Net Income Per Share
Earnings per common and common equivalent share is computed using the
weighted average number of shares outstanding adjusted for the incremental
shares attributed to outstanding options to purchase common stock. Fully
diluted per share amounts are substantially the same as primary per share
amounts for the periods presented.
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
F-10
<PAGE>
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
( in thousands )
Casino $ 3,851 $ 2,581
Hotel 2,654 2,494
---------- ---------
Total 6,505 5,075
Less allowance for bad debts and discounts 1,423 741
---------- ---------
Total $ 5,082 $ 4,334
========== =========
Changes in the casino and hotel allowance for bad debts and discounts for
the year ended December 31 consist of the following:
1994 1995
( in thousands )
Beginning balance, January 1 $ 1,144 $ 1,424
Writeoffs (1,030) (1,358)
Recoveries 186 54
Provision for bad debts 991 478
Provision for gaining discounts 133 143
---------- ---------
Ending balance, December 31 $ 1,424 $ 741
========== =========
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
1994 1995
( in thousands )
Land and improvements $ 21,751 $ 21,751
Building and improvements 75,582 75,875
Equipment, furniture, and fixtures 30,764 38,307
---------- ---------
Total property and equipment 128,097 135,933
Less accumulated depreciation 8,073 14,884
---------- ---------
Net property and equipment $ 120,024 $ 121,049
========== =========
F-11
<PAGE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable at December 31 consist of the following:
1994 1995
( in thousands )
Outstanding chip and token liability $ 662 $ 854
Casino account deposits 940 642
Unpaid race and sports book winners 33 26
Miscellaneous gaming 581 850
---------- ---------
Total liabilities related to gaming activities 2,216 2,372
Accounts payable to vendors 3,602 4,497
Hotel deposits 1,205 1,415
Other 352 124
---------- ---------
Total $ 7,375 $ 8,408
========== =========
Accrued expenses at December 31 consist of the following:
1994 1995
( in thousands )
Payroll, related payroll taxes and vacation $ 4,068 $ 5,095
Health and other liability claims 1,217 548
Union benefits and dues 944 816
Progressive slot machine liability 301 226
Taxes 467 518
Professional fees 312 164
Incentive and pension plans 1,509 2,209
Interest 56 20
---------- ---------
Total $ 8,874 $ 9,596
========== =========
5. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1994 1995
( in thousands )
<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 $ 100,000
F-12
<PAGE>
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%. 1,343 484
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 46
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%. 2,630 1,526
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%. 3,983 4,159
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%. 1,343 484
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 46
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%. 2,630 1,526
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%. 3,983 4,159
Notes payable to equipment manufacturers, secured by slot
machines and other equipment. 291
Capitalized lease obligations (see Note 7). 1,640 1,341
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. 341 266
Periodic slot payments due customers through 2000, prefunded by 1,356 1,039
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 1,710
---------- ----------
Total long-term debt 113,154 110,571
Less current maturities by terms of debt 2,983 2,322
---------- ----------
Total $ 110,171 $ 108,249
========== ==========
</TABLE>
F-13
<PAGE>
Maturities of long-term debt for the years ending December 31 were as
follows (in thousands):
1996 $ 2,322
1997 2,055
1998 1,880
1999 1,844
2000 1,897
Thereafter 100,573
---------
Total $ 110,571
=========
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:
F-14
<PAGE>
1994 1995
Amount Rate Amount Rate
( in thousands )
Taxes at federal statutory rate $ 2,680 35% $ 3,386 35%
Other 195 2.5 (54) (1)
------- ---- ------- ---
Provision for income taxes $ 2,875 37.5% $ 3,332 34.0%
======= ==== ======= ====
The tax effects of the items comprising the Company's net deferred tax
liability at December 31 consist of the following:
1994 1995
( in thousands )
Deferred Tax Liabilities:
Basis in long-term debt obligations $ 880 $ 640
Reserve differential for hospitality and
gaming activities 1,365 1,090
Difference between book and tax
depreciable property 1,865 4,430
Other 55 383
---------- ---------
Total 4,165 6,543
---------- ---------
Deferred Tax Assets:
Reserves not currently deductible 965 1,500
Bad debt reserves 325 260
AMT credit 865 1,760
---------- ---------
Total 2,155 3,520
---------- ---------
Net deferred tax liability $ 2,010 $ 3,023
========== =========
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 (in thousands).
F-15
<PAGE>
Capital
Leases
1996 $ 530
1997 476
1998 458
1999 430
2000 227
---------
Total minimum lease payments 2,121
Less taxes, maintenance and insurance 510
Less interest portion of payments 270
---------
Present value of net minimum lease payments $ 1,341
=========
Rental expense for the six months ended December 31, 1993 and years ended
December 31, 1994 and 1995 was approximately $122,000, $294,000 and
$406,000, 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 months
ended December 31, 1993 and years ended December 31, 1994 and 1995 was
approximately $786,000, $1,686,000 and $1,533,000, respectively.
At December 31, 1995, the Company had future minimum annual rental income
due under noncancelable operating leases as follows (in thousands):
1996 $ 1,235
1997 456
1998 244
1999 119
2000 4
---------
Total $ 2,058
=========
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 compliant
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
F-16
<PAGE>
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 $1,430,000 and $2,122,000,
respectively, based upon the above incentive compensation plan and the
incentive compensation plan established for the Chairman of the Board under
his employment agreement.
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
F-17
<PAGE>
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. On May 31, 1996, approximately 560 union and non-union
employees participated in the 1996 employee stock purchase plan. Under the
plan, 137,000 shares were issues to employees at $11.26 (85 percent of
market price at May 10, 1996) in notes receivable of $1,383,000 which are
payable over two years via payroll deduction.
On May 10, 1996 the shareholders approved a Nonqualified Stock Option Plan
for Non-Employee Directors and a Stock Compensation Plan for Directors
Serving on the Compensation Committee (the "Stock Compensation Plan). The
total number of shares available for purchase under each plan is 50,000.
Under the Stock Compensation Plan 3,103 shares were issued. Options to
purchase 4,000 shares at an exercise price of $13.25 were granted to two
directors under the Non-Qualified Stock Option Plan for Non-Employee
Directors.
Since August 1996, RGM has been operating the Four Queens on Fremont
Street in downtown Las Vegas under an interim management agreement with
Elsinore Corporation, the owner of the Four Queens ("Elsinore") for a flat
fee of $83,000 per month. A long-term management agreement (the
"Management Agreement") with Elsinore goes into effect upon the effective
date of the Chapter 11 plan of reorganization of Elsinore, expected to
occur by the year end 1996. The term of the Management Agreement is 40
months, subject to earlier termination or extension.
F-18
<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.
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.
F-19
<PAGE>
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-20
<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
( in thousands )
- -------------------------------------------------------------------------------
REVENUES: (Note 2)
Casino $ 38,073
Rooms 17,614
Food and beverage 11,656
Entertainment 8,059
Other (Note 3) 4,116
---------
79,518
Less promotional allowances (Note 2) 6,816
---------
Net revenues 72,702
---------
COSTS AND EXPENSES: (Note 2)
Direct costs and expenses of operating departments:
Casino 24,559
Rooms 8,339
Food and beverage 7,427
Entertainment 7,051
Other 1,737
Other operating expenses:
Selling, general and administrative 12,353
Provision for bad debts 354
Depreciation and amortization 2,622
---------
Total costs and expenses 64,442
INCOME FROM OPERATIONS 8,260
OTHER INCOME (EXPENSE):
Interest, net of amounts capitalized (contractual
interest of $10,397 for the six months ended
June 30, 1993) (Note 2) (2,832)
Interest income 200
---------
Total other income (expense) (2,632)
NET INCOME 5,628
DIVISION DEFICIT, BEGINNING OF PERIOD (114,358)
DIVISION DEFICIT, END OF PERIOD $(108,730)
=========
See notes to financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
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 CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1993
( in thousands )
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 5,628
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,622
Provision for bad debts 354
Provision for gaming discounts 90
Interest expense, net of amount capitalized 2,832
Interest paid, net of amount capitalized (2,756)
Changes in operating assets and liabilities:
Decrease in accounts receivable 86
Increase in inventories (352)
Increase in prepaid expenses and other assets (2,177)
Increase in restricted cash for periodic slot payments 379
Liabilities not subject to compromise:
Decrease in accounts payable (2,208)
Increase in accrued expenses 5,404
Liabilities subject to compromise:
Increase in accounts payable 912
Decrease in accrued liabilities (2,297)
Net cash provided by operating activities 8,517
--------
CASH FLOWS FROM INVESTING ACTIVITIES - Capital expenditures for
property and equipment (1,478)
CASH FLOWS FROM FINANCING ACTIVITIES -
Payments on long-term borrowings (2,311)
INCREASE IN CASH AND CASH EQUIVALENTS 4,728
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,659
--------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,387
========
See notes to financial statements.
</TABLE>
F-22
<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:
o 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;
o The Riviera Notes were canceled;
o 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);
F-23
<PAGE>
o 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 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;
o 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;
o 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;
o 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%;
o 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
o 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:
o Obtaining the requisite regulatory approvals required by the State of
Nevada, including approvals by the gaming authorities.
F-24
<PAGE>
o Obtaining sufficient cash to fund all distributions and cash reserves
required at the time the Plan becomes effective.
o 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.
F-25
<PAGE>
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:
(in thousands)
Rooms $ 899
Food and beverage 3,856
Entertainment 1,197
--------
Total costs allocated to casino operating department $ 5,952
========
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 $10,397,000 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
F-26
<PAGE>
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:
o 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.
o 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.
o 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.
o 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.
F-27
<PAGE>
Waltzman reduced the claim to $1,987,000. 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 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
F-28
<PAGE>
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.
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-29
<PAGE>
[Photographs of the interior and exterior of the Riviera]
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesperson or other person has been
authorized to give any information or to make
and representation not contained in this 3,000,000 Shares
Prospectus and, if given or made, such
information or representation must not be relied
upon as having been authorized by the Company,
any Selling Shareholder or any other person. Riviera Holdings
This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of Corporation
the securities offered hereby by anyone in any
jurisdiction in which 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
TABLE OF CONTENTS
Page --------
Prospectus Summary................................ 3
Risk Factors...................................... 7
The Riviera History............................... 9
Use of Proceeds................................... 10
Price Range of Common Stock....................... 11
Dividend Policy................................... 11
Capitalization.................................... 12 Ladenburg, Thalmann & Co. Inc.
Selected Financial Data........................... 13
Management's Discussion and Raymond James & Associates, Inc.
Analysis of Financial Condition
and Results of Operations....................... 15
Business.......................................... 23
Management........................................ 37
Principal and Selling Shareholders................ 44
Certain Relationships and
Related Transactions............................ 46
Description of Capitalization..................... 47
Underwriting...................................... 51
Legal Matters..................................... 52
Experts........................................... 52
Available Information............................. 52 Dated , 1996
Index to Financial Statements.....................F-1
<PAGE>
</TABLE>
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..........$17,844.83
National Association of Securities Dealers, Inc. fee......... 5,675.00
American Stock Exchange listing fee..........................
Printing..................................................... *
Accountants' fees and expenses............................... *
Blue Sky fees and expenses................................... *
Legal fees and expenses...................................... *
Miscellaneous................................................ *
-----
Total............................................... $ *
====
- ----------
* 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 shareholder 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 shareholders
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 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.
II - 1
<PAGE>
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.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The following exhibits are filed herewith:
Exhibit
Number Description
- ------ -----------
1.1** Underwriting Agreement
2.1* Second Amended Joint Plan of Reorganization dated January 8,
1993 (see Exhibit 2.1 to Form 10, Commission File No. 0-21430)
II - 2
<PAGE>
Exhibit
Number Description
- ------ -----------
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* Second Amended and Restated Articles of Incorporation of the
Registrant filed May 10, 1996 (see Exhibit 4.1 to the
Registration Statement on Form S-8 filed with the Commission
May 13, 1996)
3.2* Bylaws of the Registrant (see Exhibit 3.2 to the Registration
Statement on Form S-1 filed with the Commission on August 11,
1993)
4.1* Equity Registration Rights Agreement, dated June 30, 1993,
among the Registrant and the Holders of Registrable Shares
(see Exhibit 10.9 to the Registration Statement filed with the
Commission on August 11, 1993)
5** Opinion of Dechert Price & Rhoads regarding validity of the
Common Stock
10.1* Lease Agreement between Riviera, Inc. and Mardi Gras Food
Court, Inc. dated April 1, 1990 (see Exhibit 10.1 to the
Registration Statement on 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
the Registration Statement on Form S-1 filed with the
Commission on August 11, 1993)
10.3* 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)
10.4* Lease Agreement between Riviera, Inc. and Leroy's Horse and
Sports Place (see Exhibit 10.3 to the Registration Statement
on Form 10, Commission File No. 0-21430)
II - 3
<PAGE>
Exhibit
Number Description
- ------ -----------
10.5* 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 the Registration
Statement filed with the Commission on August 11, 1993)
10.6* Indemnity Agreement, dated June 30, 1993, from the Registrant
in favor of IBJ Schroder Bank & Trust Company (see Exhibit 10.8
to the Registration Statement filed with the Commission on
August 11, 1993)
10.7* The Registrant's Class 12 Non-Negotiable Unsecured Promissory
Note (see Exhibit 10.13 to the Registration Statement filed
with the Commission on August 11, 1993)
10.8* The Registrant's Class 13/14 Unsecured Promissory Note (see
Exhibit 10.14 to the Registration Statement filed with the
Commission on August 11, 1993)
10.9* Operating Agreement, dated June 30, 1993, between the
Registrant and Riviera Operating Corporation (see Exhibit 10.15
to the Registration Statement filed with the Commission on
August 11, 1993)
10.10* 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)
10.11* 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)
10.12* Form of Termination Fee Agreement (see Exhibit 10.20 to the
Registration Statement on Form 10, Commission File No. 0-21430)
10.13* 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)
10.14* 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)
II - 4
<PAGE>
Exhibit
Number Description
- ------ -----------
10.15* 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)
10.16* 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)
10.17* The Registrant's Stock Purchase Plan (see Exhibit 4.5 to the
Registration Statement on Form S-8 filed with the Commission on
May 13, 1996)
10.18* The Registrant's Nonqualified Stock Option Plan for
Non-Employee Directors (see Exhibit 4.6 to the Registration
Statement on Form S-8 filed with the Commission on May 13,
1996)
10.19* The Registrant's Stock Compensation Plan for Directors Serving
on the Compensation Committee (see Exhibit 4.7 to the
Registration Statement on Form S-8 filed with the Commission on
May 13, 1996)
10.20* Form of Stay Bonus Agreement (see Exhibit 10.27 to Form 10-Q
filed with the Commission on November 9, 1994)
10.21* 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)
10.22** Form of Management Agreement for the Four Queens Hotel & Casino
10.23* Indenture, dated June 30, 1993, among the Registrant, Riviera
Operating Corporation and IBJ Schroder Bank & Trust Company
(see Exhibit 4.1 to the Registration Statement on Form S-1
filed with the Commission on August 11, 1993)
10.24* First Supplemental Indenture, dated June 30, 1993, among the
Registrant, Riviera Operating Corporation and IBJ Schroder Bank
& Trust Company (see Exhibit 4.2 to the Registration Statement
on Form S-1 filed with the Commission on August 11, 1993)
10.25* 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 (See Exhibit
4.11 to Post-effective Amendment No. 3 to the Registration
Statement on Form S-1 filed with the Commission on July 3,
1996)
II - 5
<PAGE>
Exhibit
Number Description
- ------ -----------
21** Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
- --------------------
* Previously filed with the Commission with the Company's Registration Statement
on Form S-1 or as otherwise indicated.
** To be filed by amendment.
(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. 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.
b. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
II - 6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on October 22, 1996.
RIVIERA HOLDINGS CORPORATION
By: /s/ William L. Westerman
----------------------------------
William L. Westerman
Chief Executive Officer and President
(principal executive officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of William L. Westerman and Duane R.
Krohn his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution and to act without the other, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
their substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman of the Board, Chief
/s/ William L. Westerman Executive Officer and President October 22, 1996
- ------------------------------------
William L. Westerman
Treasurer (principal
financial and accounting
/s/ Duane R. Krohn officer) October 22, 1996
- ------------------------------------
Duane R. Krohn
/s/ Robert R. Barengo Director October 22, 1996
- ------------------------------------
Robert R. Barengo
/s/ William Friedman Director October 22, 1996
William Friedman
/s/ Philip P. Hannifin Director October 22, 1996
- -----------------------------------------
Philip P. Hannifin
</TABLE>
II - 7
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Riviera Holdings Corporation
Riviera, Inc.
We consent to the use in this Registration Statement relating to 3,000,000
shares of Common Stock of Riviera Holdings Corporation (the "Company") on
Form S-1 of our report dated February 16, 1996 as to Riviera Holdings
Corporation and our report date March 11, 1994 as to the Casino-Hotel Division
of Riviera, Inc., (the "Division") which includes 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.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
October 22, 1996
