SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1996
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from ___________________ to ____________________
Commission file number 000-21430
RIVIERA HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
- ------------------------ -------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2901 Las Vegas Boulevard South 89109
Vegas, Nevada ----------
- ------------------------------- (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 734-5110
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Registration S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or amendment to this Form 10-K. [X]
Based on the average price bid for the Registrant's Common Stock as
of March 4, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $46,920,000.
As of March 4, 1997, the number of outstanding shares of the
Registrant's Common Stock was 4,923,380.
Documents incorporated by reference: The Company's Proxy Statement dated April
16, 1997, relating to the Annual Meeting of Stockholders to be held on May 8,
1997, is incorporated by reference in Part III hereof.
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Page 1 of 39 Pages
Exhibit Index Appears on Page 34 hereof.
<PAGE>
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
Item 1. Business...........................................................3
General .......................................................... 3
Business and Growth Strategy...................................... 4
The Riviera....................................................... 6
Marketing Strategy................................................ 9
Las Vegas Market..................................................10
The Black Hawk Project............................................11
Colorado Market...................................................12
Riviera Gaming Management.........................................13
Competition.......................................................13
Employees and Labor Relations.....................................15
Regulation and Licensing..........................................15
Federal Registration..............................................24
Item 2. Properties........................................................24
Item 3. Legal Proceedings.................................................24
Item 4. Submission of Matters to a Vote of
Security Holders................................................24
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters.................................25
Item 6. Selected Financial Data...........................................26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................27
Results of Operations.............................................27
1996 Compared to 1995.............................................27
1995 Compared to 1994.............................................29
Liquidity and Capital Resources...................................30
Forward Looking Statements........................................31
Recently Adopted Accounting Standards.............................32
Item 8. Financial Statements and Supplementary Data, etc..................32
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................32
Item 10. Directors and Executive Officers of the Registrant................33
Item 11. Executive Compensation....................................... ....33
Item 12. Principal Shareholders............................................33
Item 13. Certain Relationships and Related Transactions ...................33
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8K..............................................34
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PART I
Item 1. Business
General
Riviera Holdings Corporation, a Nevada corporation (the "Company"),
through its wholly owned subsidiary, Riviera Operating Corporation, a Nevada
corporation ("ROC"), 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, 50 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 the Company's 11%
Mortgage Notes due December 31, 2002 (the "First Mortgage Notes") under the
First Mortgage Note Indenture (the "Note Indenture") 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 by reducing credit
limits, outsourcing 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.
On October 22, 1996, the Company filed a registration statement on
Form S-1, registration no. 333-14593 (the "Registration Statement"), for a
public offering of its Common Stock (the "Offering"). The Company expects to
file an Amendment No. 1 to the Registration Statement ("Amendment No. 1") on
March 10, 1997. The Offering, as amended by Amendment No. 1, contemplates an
underwritten offering by the Company of 1,750,000 shares of its Common Stock to
the public and the sale of 1,250,000 shares of Common Stock to the public by
certain selling stockholders in a secondary underwritten offering. The Company
also granted the underwriters an option to purchase an additional 450,000 shares
of Common Stock to cover over-allotments. Based on the last reported sales price
of $14.125 on the American Stock Exchange on March 4, 1997, and subject to
market conditions, the Company would receive (excluding the underwriters'
over-allotment option) net proceeds from the Offering of approximately $24.1
million (after deducting expenses of the Offering estimated at approximately
$0.6 million).
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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.
Develop New Casino/Hotels
The Company intends to pursue a growth strategy by developing or
acquiring casino/hotel properties in Nevada and other jurisdictions. As part of
this strategy, on March 4, 1997, the Company entered into a letter of intent
with Eagle to form RBL as a joint venture to develop the Black Hawk Project at
what management believes is the premier gaming site in the Black Hawk/Central
City, Colorado gaming market. The 71,000 square foot site, zoned entirely for
gaming, is the first gaming site encountered when traveling from Denver and is
approximately an hour drive from and 40 miles west of Denver. Approximately
three million people live within a 100-mile radius of Black Hawk/Central City
and casinos in the market generated gaming revenues of approximately $291
million in 1995 and $309 million in 1996.
In addition to the Black Hawk Project, 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 Michigan and
Mexico. Other than the Black Hawk Project, the Company does not presently have
any agreements in principle for involvement in any new or financially troubled
projects.
Manage Distressed Casino/Hotel Properties
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 earnings before interest, taxes, depreciation and amortization
("EBITDA") improvement of the Four Queens, and warrants to purchase 20% (on a
fully diluted basis) of the equity of the Four Queens' parent.
The Company believes that there is increasing demand for the services
of skilled gaming and hospitality professionals. The Company intends to pursue
management contracts with other financially distressed gaming properties.
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.
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 completion of the upgrade of its slot machines
in the second quarter of 1997 and the refurbishment of all its hotel rooms,
which is expected to be completed in the fall of 1997. In addition, the Company
will
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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.
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 in the second 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
(see "-- Further Develop the Riviera") 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.
5
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Further Develop the Riviera
The Company has engaged architects and designers to prepare an
overall expansion plan (the "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 a 40,000
square foot expansion of the 100,000 square foot convention, meeting and banquet
facility at an estimated cost of approximately $6 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. Phase I will also include the redevelopment of the approximately 20,000
square feet of vacant space fronting the Las Vegas Strip, across from Circus
Circus, to attract walk-in traffic as well as tourists throughout the city.
Future Phases. Future Phases may include development of an
approximately 60,000 square foot domed shopping and entertainment complex to be
constructed directly over the casino and containing stores and entertainment
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 expects to find partners to finance, develop and operate
the entertainment attraction and retail stores. The Company also has
approximately nine acres available for additional development. The Company is
exploring a number of options in order to make the best use of this valuable
land.
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
construct and sell time-share units and arrange financing. 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. Other potential development projects include the
construction of a new hotel tower and additional parking facilities. The
development of a time-share tower, 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, a joint venture partner, none of which the
Company has in place at this time.
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 50 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
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investment program for the upgrade of its slot machines which is expected to be
completed in the second 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 15% in 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 $2.3
million at December 31, 1996 and the allowance for bad debts and discounts from
casino operations declined from approximately $763,000 to $432,000 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.
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
completed through the end of 1996 and the balance expected to be completed in
the fall of 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 98.2% for 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
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).
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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 December 31, 1996, the Riviera had over 440,000
confirmed convention-related room nights for 1997 and 1998. On average,
approximately 25% of the rooms are occupied for conventions. See "Business and
Growth Strategy -- Further Develop the Riviera" for a description of potential
expansion of the convention center.
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:
<TABLE>
<CAPTION>
Seating
Show Type Performance Times Capacity
- ---- ---- ----------------- --------
<S> <C> <C> <C>
Splash Variety show Twice a night, seven nights per 950
week
An Evening at La Female impersonation Twice a night, five nights per 575
Cage week; three times on
Wednesday
Crazy Girls Adult-oriented production Twice a night, five nights per 410
week; three times per night on
Saturday
Bottoms Up Afternoon burlesque show Twice a day, five days per 410
week
The Riviera Stand-up comedy Twice a night, five nights per 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, Drew Carey 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. The Riviera also has tennis courts and a fitness
center and spa.
The Riviera has 41 retail concessions located throughout the property
which include gift shops, a jewelry store, men and women's apparel stores, a
children's shop and a shoe store.
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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 (i) target customers
age 45 to 70 who have more discretionary income and higher spending profiles,
(ii) achieve maximum occupancy and room rates and (iii) 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 41 retail
outlets located throughout the property. The Company 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 has introduced 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:
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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 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 Pacific Rim
countries such as Japan, Taiwan, Hong Kong and Singapore.
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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
over 40% from approximately 67,000 at the end of 1989 to 95,000 at the end of
1996, 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, 1995 and the
first 11 months of 1996. Since January 1, 1996, approximately 4,700 new hotel
rooms opened and as of December 31, 1996, there were over 9,200 hotel rooms
under construction (which combined constitutes a 14.7% increase in the number of
hotel and motel rooms in Las Vegas) and the LVCVA estimated that approximately
60,000 additional hotel rooms were proposed for construction.
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. For the first 11 months of 1996, the number of convention
delegates had increased to 3.2 million with approximately $3.9 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 30.5 million in 1996, a
compound annual growth rate of 9.4%. Construction is currently underway on
numerous roadway enhancements to improve access to the 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.
The Black Hawk Project
The Company recently signed a letter of intent with Eagle to form
RBL, a joint venture, to develop a casino at what management believes is the
premier development site (the "Development Site") in Black Hawk, Colorado. The
Development Site is currently the closest gaming site to Denver and is the first
site encountered when traveling from Denver to Black Hawk/Central City. The
Black Hawk/Central City market primarily serves the metropolitan Denver area and
is approximately an hour drive and 40 miles from central Denver.
Located on South Main Street, the Development Site is directly in
front of the Colorado Central Station, owned by Anchor Gaming, which management
believes is the most successful casino in Colorado due to its location, size and
availability of parking. Unlike most other sites, the Development Site is level
and has a relatively broad footprint, which provides significant cost and time
savings in construction relative to other projects in the market and can
accommodate a large Las Vegas-style casino on one floor.
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The Development Site comprises 71,000 square feet, zoned for gaming.
The casino building is expected to be approximately 62,000 square feet and
include approximately 1,000 slot machines and 14 table games. In addition, the
facility will provide entertainment, food and beverage service and will
incorporate an attached covered parking facility for 500 vehicles. The Company
believes that the Black Hawk Project could be expanded beyond its currently
permitted scope based on zoning waivers granted to other casino developers.
The Company currently estimates that total costs for completion of
the Black Hawk Project will be approximately $55 million. The Company estimates
that, in addition to the equity financing of RBL, approximately $33 million of
third party mortgage and equipment financing will be required in order to
complete the Black Hawk Project. The Company currently does not have any
commitments for such financing. It is anticipated that construction on the
Development Site will begin in the third quarter of 1997, with an opening of the
casino/hotel scheduled for mid-1998.
The Black Hawk Project joint venture outlined in the March 4, 1997
letter of intent (the "Letter of Intent") between the Company and Eagle
contemplates the development of an integrated gaming, entertainment and parking
facility on the Development Site. As part of the proposed joint venture and
development of the Black Hawk Project, the Company will purchase an
approximately 80% interest in RBL for $17.6 million and Eagle will acquire an
approximately 20% interest in RBL for $4.4 million, assuming an approximately
$55 million project cost and 40% equity capitalization. The Company intends to
use the net proceeds of the Offering to fund its investment in RBL. Eagle has an
option to increase its ownership interest in RBL up to 49.9% at any time prior
to the date on which RBL is licensed by the Colorado gaming authorities by
acquiring such additional ownership interest from the Company at cost. In
addition, the Company has committed to provide a completion guaranty for up to
$5.0 million. The Company will also enter into a management agreement with RBL
that will provide for management fees based on gross revenue and EBITDA of the
casino.
The Black Hawk Project is subject to a number of conditions. These
conditions include obtaining commitments for approximately $33 million of
mortgage and equipment financing on satisfactory terms, obtaining bonded
fixed-price construction and completion contracts, obtaining regulatory
approvals for the Black Hawk Project and completing a development and operating
agreement with Eagle. There can be no assurance that these and other conditions
to the Black Hawk Project can be satisfied on terms satisfactory to the Company.
In addition, the Black Hawk Project site may be subject to an adverse
mineral rights claim which, if validated through the appeal of the adverse
claimant, could materially and adversely affect development of the Black Hawk
Project. Further, certain environmental conditions exist at the Black Hawk
Project site, the remediation or related costs of which could increase
development costs of the Black Hawk Project significantly.
Colorado Market
In November 1990, the state of Colorado approved limited stakes
gaming ($5.00 or less per wager) in two historic gold mining areas, Black
Hawk/Central City and Cripple Creek. Because of the $5.00 maximum bet, the
casinos in Colorado emphasize gaming machine play. Black Hawk and Central City
are contiguous and are located approximately 40 miles from Denver and 10 miles
from Interstate 70, the main highway connecting Denver to many of Colorado's
major ski resorts. Cripple Creek is located approximately 45 miles from Colorado
Springs and 75 miles from Pueblo. Casinos located in the Black Hawk/Central City
area serve primarily the residents of Denver and Boulder, Colorado and
surrounding communities. Approximately three million people live within a
100-mile radius of the Black Hawk/Central City area.
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The following table sets forth statistical information relating to
the growth of the Black Hawk/Central City market compiled from data published by
the Colorado Department of Revenue:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1993 1994 1995 1996
----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Aggregate Gaming Revenues (in millions) $186.2 $243.4 $291.0 $308.8
Revenue Per Slot Machine Per Day $69.55 $79.88 $84.94 $93.04
Average Number of Slot Machines 6,922 7,705 8,636 8,446
Average Number of Casinos in Operation 36 34 32 33
</TABLE>
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, went into
effect on February 28, 1997, the effective date of the Chapter 11 plan of
reorganization of Elsinore.
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 has received 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 the Management Agreement 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 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 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
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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.
Intense competition also characterizes the Black Hawk/Central City,
Colorado market. Casinos generally compete on the basis of parking, location and
size. There are many casinos currently operating in the Black Hawk/Central City
market, including Colorado Central Station, Harveys Wagon Wheel Hotel/Casino,
Gilpin Hotel Casino, Fitzgeralds Casino Black Hawk, Bullwhackers Black Hawk and
Bullwhackers Central City. In addition, several new development projects and
expansion plans have been announced, including construction of a casino by a
joint venture between Jacobs Entertainment, Ltd. and the owner/operator of
Gilpin Hotel Casino. A number of Colorado casinos have ceased operations and
others have filed for protection under Chapter 11 of the United States
Bankruptcy Code. Others have closed temporarily or reduced the number of their
employees. The Company believes that many Colorado casinos may not be operating
profitably. In Black Hawk, Anchor Gaming has announced that the construction of
a new casino across from its existing property has been halted, and the joint
development of a casino by Nevada Gold & Casinos Inc. and an affiliate of
Caesars World Gaming Development Corporation is also currently inactive.
The Company's Black Hawk Project may compete for customers with
casinos located on Indian reservations in southwestern Colorado. In addition,
the legalization of casino gaming in or near any metropolitan area, such as
Denver, Colorado, from which RBL is expected to draw customers, would have a
material adverse effect on RBL's business. Colorado law requires local voter
approval for any expansion of limited gaming into additional locations. State
and local public initiatives regarding limited gaming in Colorado are being
actively pursued by many persons. Several cities within Colorado have active
citizens' lobbies that were able to place gaming initiatives on recent statewide
ballots. Although these initiatives failed by substantial margins, new
initiatives could be introduced on future statewide ballots to allow expansion
of gaming in Colorado. Future initiatives, if passed, could significantly
increase the competition for gaming customers, thereby adversely affecting RBL's
business in Colorado.
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.
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Employees and Labor Relations
As of December 31, 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. There can be no assurance, however, that new agreements will be
reached without union action or will be on terms satisfactory to the Company.
Regulation and Licensing
Nevada
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.
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.
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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
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.
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<PAGE>
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 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.
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<PAGE>
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. The Company has received approval of the Offering by the Nevada
Commission. 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 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.
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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.
Colorado
Colorado Gaming Regulation. On November 6, 1990, the State of
Colorado electorate approved an amendment to the Colorado Constitution (the
"Colorado Amendment") that legalized limited gaming. As a result, limited gaming
became lawful in the cities of Central City, Black Hawk and Cripple Creek on
October 1, 1991. The Colorado Amendment defines limited gaming as the use of
slot machines and the card games of blackjack and poker, with a maximum single
bet of five dollars.
Limited gaming is confined to the commercial districts of these
cities as those commercial districts were defined in city ordinances by Central
City on October 7, 1981, by Black Hawk on May 4, 1978, and by Cripple Creek on
December 3, 1973. In addition, the Colorado Amendment restricts the conduct of
limited gaming to structures that conform to the architectural styles and
designs that were common to the areas prior to World War I, as determined by the
municipal governing bodies. Further, the Colorado Amendment provides that no
more than 35% of the square footage of any building and no more than 50% of any
one floor of such building may be used for limited gaming. Pursuant to the
Colorado Amendment, limited gaming operations are prohibited between the hours
of 2:00 a.m. and 8:00 a.m. The Colorado Amendment allows limited gaming to occur
in establishments licensed to sell alcoholic beverages under the Colorado Liquor
Code.
The Colorado Amendment further provides that, in addition to any
other applicable license fees, up to a maximum of 40% of the adjusted gross
proceeds of limited gaming operations may be payable by a licensee for the
privilege of conducting limited gaming.
The Colorado legislature promulgated the Limited Gaming Act of 1991
(the "Colorado Act") to implement the provisions of the Colorado Amendment. The
Colorado Act was signed into law on June 4, 1991 and has been amended
subsequently.
Through the Colorado Act, the Colorado legislature declared that its
public policy toward limited gaming would be that: (i) the success of limited
gaming is dependent upon public confidence and trust that licensed limited
gaming is conducted honestly and competitively; that the rights of the creditors
of licensees are protected; and that gaming is free from criminal and corruptive
elements; (ii) public
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<PAGE>
confidence and trust can be maintained only by strict regulation of all persons,
locations, practices, associations and activities related to the operation of
licensed gaming establishments and the manufacture or distribution of gaming
devices and equipment; (iii) all establishments where limited gaming is
conducted and where gambling devices are operated and all manufacturers, sellers
and distributors of certain gambling devices and equipment must therefore be
licensed, controlled and assisted to protect the public health, safety, good
order and the general welfare of the inhabitants of the state to foster the
stability and success of limited gaming and to preserve the economy and policies
of free competition in the state of Colorado; and (iv) no applicant for a
license or other affirmative commission approval has any right to a license or
to the granting of the approval sought. Any license issued or other commission
approval granted pursuant to the provisions of the Colorado Act is a revocable
privilege, and no holder acquires any vested right therein or thereunder.
Pursuant to the Colorado Act, the ownership and operation of limited
gaming facilities in Colorado are subject to extensive regulation. Among other
prohibitions, the Colorado Act prohibits persons under the age of 21 from
participating in limited gaming or lingering in gaming areas of a casino. No
limited gaming may be conducted in Colorado unless all appropriate licenses are
approved by and obtained from the Colorado Limited Gaming Control Commission
(the "Colorado Commission"). Further, the Colorado Commission has full and
exclusive authority to promulgate, and has promulgated, rules and regulations
related to limited gaming (the "Colorado Regulations"). Such authority does not
require any approval by or delegation of authority from the Colorado Department
of Revenue (the "Colorado Revenue Department"). In addition, the Colorado Act
created the Division of Gaming within the Colorado Revenue Department to
license, implement, regulate and supervise the conduct of limited gaming. The
Director of the Division (the "Division Director"), under the general
supervision of the Colorado Commission, has broad powers to ensure compliance
with the Colorado Act and the regulations promulgated by the Colorado
Commission.
The Colorado Commission may issue the following five types of
licenses: (i) slot machine manufacturer or distributor; (ii) operator; (iii)
retail gaming; (iv) support; and key employee. The first three licenses are
issued for a one-year period and require annual renewal. However, support
licenses and key employee licenses are issued for two year periods and are
renewable. The Colorado Commission has broad discretion to condition, suspend,
revoke, limit or restrict a license at any time and also has the authority to
impose fines.
An applicant for any type of Colorado license must provide the
following information: (i) personal background information; (ii) financial
information; (iii) participation in legal or illegal activities in Colorado or
other jurisdictions, including foreign countries; (iv) criminal record
information; (v) information concerning all pecuniary and equity interests in
the applicant; and (vi) other information as required. Prior to licensure,
applicants must satisfy the Colorado Commission that they are suitable for
licensing and are of good moral character. The Colorado legislature has defined
unsuitability or unsuitable in relation to a person as the inability to be
licensed by the Colorado Commission because of prior acts, associations or
financial conditions, and, in relation to acts or practices, those which violate
or would violate the statutes or rules or are or would be contrary to the
declared legislative purposes of the Colorado Act. Applicants have the burden of
proving their qualifications to the Colorado Commission and must submit to and
pay the full cost of any background investigations as may be ordered by the
Colorado Commission. There is no limit on the cost of such background
investigations and no guaranty that any applicant will receive licensing from
the Colorado Commission.
All natural persons employed in the field of limited gaming must hold
either a support or key employee license. Every retail gaming licensee must
have a key employee licensee in charge of all limited gaming activities
available at all times when limited gaming is being conducted. The Colorado
20
<PAGE>
Commission may determine that any employee of a licensee is a key employee and,
therefore, require that such person apply for licensing as a key employee.
A retail gaming license is required for all persons permitting or
conducting limited gaming on their premises and such license may be granted only
to a retailer. In addition, an operator license is required for all persons who
permit slot machines on their premises or who engage in the business of placing
and operating slot machines on the premises of a retailer. No person may have an
ownership interest in more than three retail licenses. A slot machine
manufacturer or distributor license is required for all persons who manufacture,
import or distribute slot machines in Colorado, or who otherwise act as slot
machine manufacturers or distributors.
The current practice of the Division of Gaming and the Colorado
Commission is to require every officer and director, or equivalent office
holders for non-corporate applicants, and 5% or greater beneficial shareholders
or owners of an applicant or licensee to complete background investigation
forms, provide comprehensive information and submit to a full background
investigation conducted by the Division of Gaming and the Colorado Commission.
The purpose of the investigation is to determine each such person's or entity's
qualifications and suitability for licensure. In addition, all persons loaning
monies, goods or real or personal property to a licensee or applicant, or having
any interest in a licensee or applicant, or entering into any agreement with a
licensee or applicant, must provide any information requested by the Division of
Gaming or the Colorado Commission; and, in the discretion of the Division of
Gaming or the Colorado Commission, these persons must supply all information
relevant to a determination of any such person's suitability for licensure and
must submit to a full background investigation if ordered by the Colorado
Commission.
Persons found unsuitable by the Colorado Commission may be required
immediately to terminate any interest in, association or agreement with or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant also may jeopardize the licensee's license or the applicant's
license application. A license grant may be conditioned upon the termination of
any relationship with unsuitable persons.
The Colorado Act and the Colorado Regulations require licensees to
maintain detailed books and records that accurately account for all monies and
business transactions. Books and records must be furnished upon demand to the
Colorado Commission, the Division of Gaming and other law enforcement
authorities. The Colorado Regulations also establish detailed and extensive
playing procedures, standards, requirements and rules of play for poker,
blackjack and slot machines. Retail gaming licensees must, in addition, adopt
comprehensive internal control procedures governing their limited gaming
operations. Such procedures must be approved in advance by the Division of
Gaming and include the areas of accounting, surveillance, security, cashier
operations, key control and fill and drop procedures, among others.
Licensees have a continuing duty to report to the Colorado Commission
information concerning persons with a financial or equity interest in the
licensee, or who have the ability to control or exercise a significant influence
over the licensee, or who loan money to the licensee. Licensees are prohibited
from engaging in fraudulent acts, which include, among other things,
misrepresenting the probabilities of pay out, improperly canceling a bet and
conducting limited gaming without a valid license. Finally, licensees must
report to the Division of Gaming all licenses, and all applications for
licenses, in foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly
traded entities, no person may sell, lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Commission.
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<PAGE>
All agreements, contracts, leases, or arrangements in violation of
the Colorado Act or the Colorado Regulations are void and unenforceable.
All slot machines, cards, chips or tokens used in limited gaming must
be approved by the Division Director or the Colorado Commission. All such items
must meet standards established by the Division of Gaming and the Colorado
Commission.
Upon request, an applicant or licensee must submit to the Colorado
Commission or Director of Gaming written copies or summaries of all written or
oral gaming contracts to which it is or will be a party. A gaming contract
includes any agreement in which a person does business with a licensee. The
Colorado Commission or the Division Director may require changes in gaming
contracts or may require termination of a gaming contract. Parties to gaming
contracts may be required to provide all information relevant to a determination
of their suitability for licensing.
Colorado has enacted an annual tax on the adjusted gross proceeds
("AGP") from limited gaming. AGP is generally defined as the total amounts
wagered less all payments to players. With respect to games of poker, AGP means
those sums wagered in a hand retained by the licensee as compensation, which
must be consistent with the minimum and maximum amounts established by the
Colorado Commission. Currently, the gaming tax on AGP is: 2% on the first $2
million of AGP; 4% on AGP from $2 million to $4 million; 14% on AGP from $4
million to $5 million; 18% on AGP from $5 million to $10 million; and 20% on AGP
over $10 million. The gaming tax is paid monthly, with licensees required to
file returns by the 15th of the following month. Effective October 1 of each
year, the Colorado Commission establishes the gaming tax for the following 12
months. Under the Colorado Amendment, the Colorado Commission may increase the
gaming tax rate to as much as 40% of AGP.
The Colorado Commission requires all gaming licensees to pay an
annual device fee for each slot machine, blackjack table and poker table. The
current state device fee, established October 1, 1996, is $100. The
municipalities of Central City, Black Hawk and Cripple Creek also assess and
collect their own device fees. The current annual device fee in Black Hawk is
$750 per device. There is no statutory limit on state or city device fees, which
may be increased at the discretion of the state or city. The state device fee is
not prorated; a device used at any time during the year is assessed the full
state fee. Local device fees may be prorated according to device usage; the City
of Black Hawk currently prorates device fees such that any device used at any
time during a calendar quarter is subject to the device fee for such calendar
quarter. In addition, a business improvement fee of $100 per device and a
transportation impact fee of $77 per device also may apply depending upon the
location of the licensed premises.
Black Hawk also imposes taxes and fees on other aspects of the
businesses of gaming licensees, such as parking, alcoholic beverage licenses and
other municipal taxes and fees. Significant increases in these fees and taxes,
or the imposition of new taxes and fees, may occur.
Violations of the Colorado Act, or any of the Colorado Regulations,
is a criminal offense. Persons violating the Colorado Act or the Colorado
Regulations may, in addition to any gaming license suspension or revocation, be
subject to criminal prosecution resulting in incarceration, fines or both.
The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control, and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and non-transferable. State and local
licensing authorities have full power to limit, condition, suspend or revoke any
such licenses. Violation of the state alcoholic beverage laws may constitute a
criminal offense, and violators may be subject to criminal prosecution,
incarceration and fines. A gaming establishment that sells or provides alcoholic
beverages is required to have a retail gaming tavern license.
22
<PAGE>
There are various classes of alcoholic beverage licenses under the
Colorado Liquor Code. However, only a retail gaming tavern license may be issued
to persons who are licensed pursuant to the Colorado Act. A retail gaming tavern
licensee may sell malt, vinous or spirituous liquors only by individual drinks
for consumption on the premises and must also make available sandwiches or light
snacks or contract with concessionaires to provide food services within the same
building as the licensed premises. In no event may any person hold more than or
have an interest in more than three retail gaming tavern licenses. An
application for an alcoholic beverage license in Colorado requires notice,
posting and a public hearing before the local liquor licensing authority. The
Department's Liquor Enforcement Division also must approve the application.
In addition to the other requirements of the gaming laws, the
Colorado Commission has enacted a special rule, Rule 4.5, which imposes
additional requirements on publicly traded corporations holding gaming licenses
in Colorado and on gaming licensees in Colorado owned directly or indirectly,
five percent or more, by publicly traded corporations. The term "publicly traded
corporation" is a specially defined term and may include limited liability
companies, trusts, partnerships and other business organizations, and may even
include entities exempted from the registration requirements of the securities
laws under certain circumstances.
Under Rule 4.5, gaming licensees, affiliated companies and
controlling persons thereof must notify the Colorado Commission within 10 days
of the initial filing of a registration statement with the Securities and
Exchange Commission. Licensed publicly traded corporations are also required to
send proxy statements to the Division of Gaming within 5 days after distribution
of such statement, and to follow a variety of other reporting requirements.
Licensees to whom Rule 4.5 applies must include in their articles of
organization or similar charter documents certain specified provisions that:
restrict the rights of the licensee to issue voting interests or securities
except in accordance with the Colorado gaming laws; limit the rights of persons
to transfer voting interests or securities of a licensee except in accordance
with the Colorado gaming laws; and provide that holders of voting interests or
securities of a licensee found unsuitable by the Colorado Commission may be
required to sell their interests or securities back to the issuer at the lesser
of, in general terms, the holder's investment or the market price as of the date
of the finding of unsuitability. Alternatively, and with authorization by the
Colorado Commission, the holder may in limited circumstances transfer the voting
interests or securities to a suitable person (as determined by the Colorado
Commission). Until the voting interests or securities are held by suitable
persons, the issuer may not pay dividends or interest on them, the interests or
securities may not be voted, or entitled to any vote, and they may not be
included in the voting or securities of the issuer, and the issuer may not pay
any remuneration in any form to the holder of the securities or interests.
Pursuant to Rule 4.5, persons who acquire direct or indirect
beneficial ownership of (i) 5% or more of any class of the voting securities of
a publicly traded corporation required to contain the Rule 4.5 charter language
provisions, or (ii) 5% or more of the beneficial interest in a gaming licensee
directly or indirectly through any class of voting securities of any holding
company or intermediary company of a licensee (all such persons hereinafter
referred to as "qualifying persons"), must notify the Division of Gaming within
10 days of such acquisition, are required to submit all requested information
and are subject to a finding of suitability. Licensees also must notify any
qualifying persons of these requirements. A qualifying person whose interests
equal 10% or more must apply to the Colorado Commission for a finding of
suitability within 45 days after acquiring such securities. Licensees must also
notify any qualifying persons of these requirements. Whether or not notified,
qualifying persons are responsible for complying with these requirements.
A qualifying person who is an institutional investor under Rule 4.5
and whose interests equal 15% or more must apply to the Colorado Commission for
a finding of suitability within 45 days after acquiring such interests. A
qualifying person who is an institutional investor and whose interests equal
23
<PAGE>
10% or more, but less than 15%, may not be required to apply for suitability,
provided such person fulfills certain reporting requirements.
Pursuant to Rule 4.5, persons found unsuitable by the Colorado
Commission must be removed from any position as an officer, director, or
employee of a licensee, or from a holding or intermediary company thereof. Such
unsuitable persons also are prohibited from any beneficial ownership of the
voting securities of any such entities. Licensees, or affiliated entities of
licensees, are subject to sanctions for paying dividends to persons found
unsuitable by the Colorado Commission, or for recognizing voting rights of, or
paying a salary or any remuneration for services to, unsuitable persons.
Licensees or their affiliated entities also may be sanctioned for failing to
pursue efforts to require unsuitable persons to relinquish their interests. The
Colorado Commission may determine that anyone with a material relationship to a
licensee, or affiliated company, must apply for a finding of suitability.
RBL currently holds no gaming or liquor licenses and will therefore
have to make applications for both types of licenses in connection with the
Black Hawk Project. The failure or inability to obtain such licensing could
materially and adversely affect the Black Hawk Project.
Federal Registration
ROC is required to annually file with the Attorney General of the
United States in connection with the sales, distribution, or operations of slot
machines. All requisite filings for the present year have been made.
Item 2. Properties
The Riviera complex is located on the Las Vegas Strip, occupies
approximately 26 acres and comprises approximately 1,700,000 square feet,
including 105,000 square feet of casino space, 100,000 square foot convention,
meeting and banquet facility, approximately 2,100 hotel rooms (including
approximately 169 luxury suites) in five towers, four restaurants, a buffet,
four showrooms, a lounge and approximately 2,900 parking spaces. In addition,
executive and other offices for the Riviera are located on the property.
There are 47 food and retail concessions operated under individual
leases with third parties. The leases are for periods from one year to ten years
and expire over the next five years.
The entire Riviera complex is encumbered by a first deed of trust
securing the First Mortgage Notes. See "Item 7-Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Liquidity and
Capital Resources."
Item 3. Legal Proceedings
The Company is a party to several routine lawsuits both as plaintiff
and as defendant arising from the normal operations of a hotel. Management does
not believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the financial position or results of operations of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
24
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
The Company's Common Stock began trading on the American Stock
Exchange on May 13, 1996 and was reported on the NASDAQ Bulletin Board prior to
that date. As of March 4, 1997, based upon information available to it, the
Company believes that there were approximately 1,319 beneficial holders of the
Company's Common Stock.
The Company has never paid any dividends on its Common Stock and does
not currently expect to pay any dividends (cash or otherwise) on its Common
Stock for the foreseeable future. The Company's ability to pay dividends is
primarily dependent upon receipt of dividends and distributions from ROC. In
addition, the indenture for the First Mortgage Notes restricts the Company's
ability to pay dividends on its Common Stock.
The table below sets forth the bid and ask sales prices by quarter
for the years ended December 31, 1995 and 1996, based on information provided by
certain brokers who have had transactions in the Company's Common Stock during
the year:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1996
----
BID $ 7.50 $11.00 $14.00 $12.94
ASK 9.75 17.75 17.13 15.63
1995
----
BID 3.00 3.50 8.25 7.00
ASK 4.63 9.13 11.50 10.00
On March 4, 1997 (the most recent trade date of the Company's common stock),
1,200 shares were traded closing at $14.125 per share.
25
<PAGE>
Item 6. Selected Financial Data
The following table sets forth a summary of selected financial data
for the Company and its predecessor for the years ended December 31:
<TABLE>
<CAPTION>
Year
Ended Six Months Ended Years Ended December 31,
Dec. 31, June 30, Dec. 31, Combined
1992 1993 1993 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ -----
(Predecessor) (Predecessor) (Successor)
(dollars in thousands*)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Operating $144,502 $72,702 $76,221 $148,923 $153,921 $151,145 $164,409
Revenue, net
Net Income (Loss) (80,905)(1)(2) 5,628(2) 2,607 8,235(2) 4,790 6,344 8,440
Net Income (Loss) N/A N/A $.54 N/A $1.00 $1.26 $1.63
Per Common Share
Total Assets 143,631 150,836 143,704 143,704 151,925 157,931 167,665
Long Term Debt 133,255 119,959 114,540 114,540 113,154 110,571 109,088
<FN>
________________
* Except for Net Income (Loss) Per Common Share
(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 would have
totaled $21.4 million and $10.4 million for the year ended December
31, 1992 and for the six months ended June 30, 1993, respectively.
</FN>
</TABLE>
26
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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>
1994 1995 1996
---- ---- ----
Revenues:
<S> <C> <C> <C>
Casino......................................... 53.3% 51.2% 48.9%
Rooms.......................................... 23.0 26.4 25.4
Food and Beverage.............................. 14.9 14.5 13.8
Entertainment.................................. 11.0 9.5 12.7
Other.......................................... 6.1 6.3 6.9
Less promotional allowances................... (8.3) (7.9) (7.7)
------- ------- -------
Net revenues 100.0 100.0 100.0
Costs and Expenses:
Casino(1)...................................... 59.5 58.6 59.1
Rooms(1)....................................... 49.7 47.1 45.0
Food and Beverage(1)........................... 67.9 72.0 70.3
Entertainment(1)............................... 82.5 71.6 73.2
Other(1)....................................... 37.4 37.1 34.6
Selling, general and administrative............ 18.7 19.6 19.1
Depreciation and amortization.................. 3.7 4.5 5.0
Total Costs and Expenses.......................... 87.1 86.1 85.8
Income from operations............................ 12.9 13.9 14.2
Interest expense, net............................. 8.0 7.5 6.3
------- ------- -------
Income before provision for income taxes.......... 5.0 6.4 7.8
Provision for income taxes....................... (1.9) (2.2) (2.7)
------- ------- -------
Net Income 3.1% 4.2% 5.1%
(1) Shown as a percentage of corresponding departmental revenue.
</TABLE>
1996 Compared to 1995
Revenues
Net revenues increased by approximately $13.3 million, or 8.8%, from
$151.1 million in 1995 to $164.4 million in 1996. Casino revenues increased by
approximately $3.0 million, or 3.9%, from $77.3 million in 1995 to $80.4 million
in 1996 due primarily to a $2.9 million, or 5.4%, increase in slot revenues as a
result of an increase in promotional activities directed at slot players. Room
revenues increased by approximately $2.0 million, or 5.0%, from $39.8 million in
1995 to $41.8 million in 1996 as a result of an increase in hotel occupancy from
97.0% to 98.2% (based on available rooms) and an increase in average room rate
of $2.40, or 4.4%. Food and beverage revenues increased approximately $700,000,
or 3.4%, from $21.9 million in 1995 to $22.6 million in 1996 due to additional
covers in the bars and restaurants. Entertainment revenues increased by
approximately $6.5 million, or 44.8%, from $14.4 million in 1995 to $20.9
million in 1996. This was 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
27
<PAGE>
remodeling. Other revenues increased by approximately $1.8 million, or 18.7%,
from $9.5 million in 1995 to $11.3 million in 1996 due primarily to a refund of
$576,000 from a union health and welfare trust fund for reduced premiums and
general increases in other revenues such as telephone, gift shops and box office
commissions. In addition, the Company received management fees of approximately
$400,000 for operating the Four Queens Hotel/Casino in downtown Las Vegas
beginning in August 1996. Promotional allowances increased by approximately
$700,000, or 6.4%, from $11.9 million in 1995 to $12.6 million in 1996 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 $7.7 million, or 8.2%, from $93.7 million in 1995 to $101.5
million in 1996. Casino expenses increased by approximately $2.2 million, or
4.8%, from $45.3 million in 1995 to $47.5 million in 1996 due to a corresponding
increase in casino revenues and casino expenses as a percent of casino revenues
increased from 58.6% to 59.1%, primarily due to increased entertainment
promotional allowances upon the reopening of Splash on June 23, 1995. Room costs
were mostly flat for 1996 compared to 1995, however, room costs as a percentage
of room revenues decreased from 47.1% in 1995 to 45.0% in 1996 as room revenues
increased while room costs remained relatively constant. Food and beverage costs
increased by approximately $150,000, or 0.9%, from $15.8 million in 1995 to
$15.9 million in 1996 resulting from a corresponding increase in revenues. Food
and beverage costs as a percentage of food and beverage revenues decreased from
72.0% in 1995 to 70.3% in 1996 because food and beverage revenue increased while
payroll and other costs remained relatively constant. Entertainment costs
increased by approximately $5.0 million, or 48.0%, from $10.3 million in 1995 to
$15.3 million in 1996, due to the additional expenses associated with operating
Splash for a full year in 1996. Entertainment expenses as a percentage of
entertainment revenues increased from 71.6% in 1995 to 73.2% in 1996 due to a
revision in the Splash producer's agreement. Other expenses increased by
approximately $400,000, or 10.9%, from $3.5 million to $3.9 million due to a
corresponding increase in other revenues.
Other Operating Expenses
Selling, general and administrative expenses increased by
approximately $1.8 million, or 6.2%, from $29.6 million in 1995 to $31.5 million
in 1996 due to increased incentive plan costs required to retain personnel in
the competitive gaming environment. As a percentage of total net revenues,
selling, general and administrative expenses decreased from 19.6% in 1995 to
19.1% in 1996 as a result of lower general marketing expenses and the spreading
of fixed costs over a larger revenue base in 1996. Depreciation and amortization
increased by approximately $1.4 million, or 20.6%, from $6.8 million in 1995 to
$8.2 million in 1996.
Other Income (Expense)
Interest expense decreased by approximately $400,000, or 3.0%, from
$12.5 million in 1995 to $12.1 million in 1996 while interest income remained
constant at $1.1 million in 1995 and 1996. This was due to a reduction in
average debt outstanding, an increase in average cash balances and a decrease in
the investment yield in 1996. Other income increased by $505,000 due to a gain
on the final payment of certain unsecured notes in the fourth quarter of 1996
offset by a loss due to the change in terms of one of the Company's notes.
28
<PAGE>
Net Income
As a result of the factors discussed above, net income increased by
approximately $2.1 million, or 33.0%, from $6.3 million in 1995 to $8.4 million
in 1996. The effective income tax rate was 34.4% for 1995 and 1996.
EBITDA
EBITDA increased by approximately $3.7 million, or 13.3%, from $27.8
million in 1995 to $31.5 million in 1996. During the same periods, EBITDA margin
increased from 18.4% to 19.2% of net revenues.
1995 Compared to 1994
Revenues
Net revenues decreased by approximately $2.8 million, or 1.8%, from
$153.9 million in 1994 to $151.1 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 $4.4 million, or 12.5%, from $35.4 million in 1994 to
$39.8 million in 1995 due to a slight decrease in occupancy offset by an
increase of $7.18 in the average room rate. 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 Splash being closed for six months in 1995
compared to one month in 1994. 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 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 expenses 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 47.1% 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.
29
<PAGE>
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 $800,000, or 2.8%, from $28.8 million in 1994 to $29.6 million in
1995. As a percentage of total net revenues, selling, general and administrative
expenses increased from 18.7% in 1994 to 19.6% 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 and a decrease in the
provision for bad debts 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.
EBITDA
EBITDA increased by approximately $2.2 million, or 8.6%, from $25.6
million in 1994 to $27.8 million in 1995. During the same periods, EBITDA margin
increased from 16.6% to 18.4% of net revenues.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $25.7 million at
December 31, 1996, which was an increase of $3.8 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 year ended December 31, 1996, the Company's net cash provided
by operating activities was $18.3 million compared to $16.7 million for 1995.
EBITDA for 1996 and 1995 was $31.5 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.
30
<PAGE>
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 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 of 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 "new venues."
In February 1997, the Company entered into a $15.0 million, five
year reducing revolving line of credit collateralized by equipment (the "Credit
Facility"). The revolving line of credit bears interest at prime plus 0.5% or
LIBOR plus 2.9%. The Company has not utilized this line of credit.
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 $8.9 million in 1994, $7.8
million in 1995 and $14.9 million in 1996. Management has budgeted approximately
$13.0 million for capital expenditures in 1997. The Company expects to finance
such capital expenditures from cash flow and the Credit Facility.
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
31
<PAGE>
statements involve important risks and uncertainties that could cause actual
results to differ materially from those expressed in such forward-looking
statements.
Recently Adopted Accounting Standards
During 1996 the Company adopted the provisions of Statement of
Financial Accounting Standards 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. The adoption of
SFAS 121 had no impact on the financial statements of the Company.
In October 1995, the Financial Accounting Standards Board ("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. The Company
continues to account for stock-based compensation arrangements in accordance
with Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees" and therefore the adoption of SFAS 123 had no effect on the financial
position or results of operations of the Company. The Company has provided the
pro forma and other additional disclosures about stock-based employee
compensation plans in its 1996 consolidated financial statements as required by
SFAS 123.
Item 8. Financial Statements and Supplementary Data, etc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Table of Contents............................................................F-1
Independent Auditors' Report.................................................F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.................F-3
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1995 and 1996...........................................F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996...........................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996...........................................F-6
Notes to Consolidated Financial Statements...................................F-7
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
32
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated April 16, 1997, relating to the Annual Meeting
of Stockholders to be held on May 8, 1997, and is made a part hereof.
Item 11. Executive Compensation
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated April 16, 1997, relating to the Annual Meeting
of Stockholders to be held on May 8, 1997, and is made a part hereof.
Item 12. Principal Shareholders
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated April 16, 1997, relating to the Annual Meeting
of Stockholders to be held on May 8, 1997, and is made a part hereof.
Item 13. Certain Relationships and Related Transactions
Information regarding this item is incorporated by reference to the
Company's Proxy Statement dated April 16, 1997, relating to the Annual Meeting
of Stockholders to be held on May 8, 1997, and is made a part hereof.
33
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) List of Financial Statements.
The following Consolidated Financial Statements of the Company and
the Independent Auditors' Report set forth on pages F-3 through F-18 and F-2,
respectively, are incorporated by reference into this Item 14 of Form 10-K by
Item 8 hereof:
- Consolidated Balance Sheets as of December 31, 1995 and
1996.
- Consolidated Statements of Income for the Years Ended
December 31, 1994, 1995 and 1996.
- Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996.
- Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996.
- Notes to Consolidated Financial Statements.
- Independent Auditors' Report.
(a)(2) List of 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.
(a)(3) List of Exhibits.
Exhibit
Number Description
- ------ -----------
3.1* Amended and Restated Articles of Incorporation of the
Registrant filed June 18, 1993 (see Exhibit 3.1 to
Registration Statement Form S-1 filed with the Commission on
August 11, 1993)
3.2* Bylaws of the Registrant (see Exhibit 3.2 to Registration
Statement Form S-1 filed with the Commission on August 11,
1993)
10.1* Lease Agreement between Riviera, Inc. and Mardi Gras Food
Court, Inc. dated April 1, 1990 (see Exhibit 10.1 to Form
10, Commission File No. 0-21430)
10.2* Amendment to Lease Agreement between Riviera, Inc. and Mardi
Gras Food Court, Inc. dated April 1, 1990 (see Exhibit 10.2
to Registration Statement Form S-1 filed with the Commission
on August 11, 1993)
<PAGE>
10.3* Lease Agreement between Riviera, Inc. and Leroy's Horse and
Sports Place (see Exhibit 10.3 to Form 10, Commission File
No. 0-21430)
10.4* Equipment Lease between Riviera, Inc. and G.E. Capital
Corporation (successor in interest to RCA Service Company)
(see Exhibit 10.4 to Form 10, Commission File No. 0-21430)
10.5* Sales and Security Agreement for Slot Equipment between
Riviera, Inc. and Bally Distributing of Nevada, Inc. and
Order re: Motion to Approve Adequate Protection Payments
(see Exhibit 10.5 to Form 10, Commission File No. 0-21430)
10.6* Documents Relating to Sale by Universal Distributing of
Nevada, Inc. of Slot Equipment to Riviera, Inc. and
Stipulation and Order re: Modification of Automatic Stay and
Compromise of Claim (see Exhibit 10.6 to Form 10, Commission
File No. 0-21430)
10.7* Indemnity Agreement, dated June 30, 1993, from Riviera, Inc.
and Meshulam Riklis in favor of the Registrant and Riviera
Operating Corporation (see Exhibit 10.7 to Registration
Statement Form S-1 filed with the Commission on August 11,
1993)
10.8* Indemnity Agreement, dated June 30, 1993, from the
Registrant in favor of IBJ Schroder Bank & Trust Company
(see Exhibit 10.8 to Registration Statement Form S-1 filed
with the Commission on August 11, 1993)
10.9* Equity Registration Rights Agreement, dated June 30, 1993,
among the Registrant and the Holders of Registerable Shares
(see Exhibit 10.9 to Registration Statement Form S-1 filed
with the Commission on August 11, 1993)
10.10* The Registrant's Class 4 Unsecured Promissory Note (see
Exhibit 10.10 to Registration Statement Form S-1 filed with
the Commission on August 11, 1993)
10.11* The Registrant's Class 5 (Sequoia "A") Unsecured Promissory
Note (see Exhibit 10.11 to Registration Statement Form S-1
filed with the Commission on August 11, 1993)
35
<PAGE>
10.12* The Registrant's Class 5 (Sequoia "B") Unsecured
Promissory Note (see Exhibit 10.12 to Registration
Statement Form S-1 filed with the Commission on August 11,
1993)
10.13* The Registrant's Class 12 Non-Negotiable Unsecured
Promissory Note (see Exhibit 10.13 to Registration Statement
Form S-1 filed with the Commission on August 11, 1993)
10.14* The Registrant's Class 13/14 Unsecured Promissory Note (see
Exhibit 10.14 to Registration Statement Form S-1 filed with
the Commission on August 11, 1993)
10.15* Operating Agreement, dated June 30, 1993, between the
Registrant and Riviera Operating Corporation (see Exhibit
10.15 to Registration Statement Form S-1 filed with the
Commission on August 11, 1993).
10.16* Adoption Agreement regarding Profit Sharing and 401(k) Plans
of the Registrant (see Exhibit 10.16 to Registration
Statement Form S-1 filed with the Commission on August 11,
1993)
10.17* Howard Johnson & Company Regional Defined Contribution Plan,
dated March 16, 1990 (adopted by the Registrant pursuant to
the Adoption Agreement filed as Exhibit 10.17 to
Registration Statement Form S-1 filed with the Commission on
August 11, 1993)
10.18* Employment Agreement between Riviera, Inc. and William L.
Westerman, dated January 6, 1993 (see Exhibit 10.18 to Form
10, Commission File No. 0-21430)
10.19* Form of Agreement between the Registrant and Directors (see
Exhibit 10.19 to Form 10, Commission File No. 0-21430)
10.20* Form of Termination Fee Agreement (see Exhibit 10.20 to Form
10, Commission File No. 0-21430)
10.21* Form of Employment Agreement between Riviera, Inc. and
Albert Rapuano, dated January 6, 1993 (see Exhibit 10.21 to
Form 10, Commission File No. 0-21430)
10.22* Implementation Agreement between Riviera, Inc. and Albert
Rapuano (see Exhibit 10.21 to Amendment No. 1 to
Registration Statement Form S-1 filed with the Commission on
August 19, 1993)
36
<PAGE>
10.23* Restricted Account Agreement, dated June 30, 1993, among
Riviera Operating Corporation, IBJ Schroder Bank & Trust
Company and Bank of America Nevada (see Exhibit 10.22 to
Registration Statement Form S-1 filed with the Commission on
August 11, 1993)
10.24* Disbursement Agreement, dated June 30, 1993, between the
Registrant and IBJ Schroder Bank & Trust Company (see
Exhibit 10.23 to Registration Statement Form S-1 filed with
the Commission on August 11, 1993)
10.25* Tax Sharing Agreement between the Registrant and Riviera
Operating Corporation dated June 30, 1993 (see Exhibit 10.24
to Amendment No. 1 to Registration Statement Form S-1 filed
with the Commission on August 19, 1993)
10.26* The Registrant's 1993 Stock Option Plan (see Exhibit 10.25
to Amendment No. 1 to Registration Statement Form S-1 filed
with the Commission on August 19, 1993)
10.27* Form of Stay Bonus Agreement (See, Exhibit 10.27 to Form
10-Q filed with the Commission November 9, 1994.
10.28* Amendment dated February 19, 1995, to Lease Agreement
between Riviera, Inc. and Mardi Gras Food Court, Inc. (See,
Exhibits 10.1 --- and 10.2)
10.29* Amendment dated September 30, 1994, to Employment Agreement
between Riviera, Inc. and William L. Westerman. (See,
Exhibit 10.18)
10.30 Management Agreement by and between Elsinore Corporation,
Four Queens, Inc. and Riviera Gaming Management Corp. -
Elsinore
10.31 Employment Agreement dated as of November 21, 1996 by and
between the Registrant, Riviera Operating Corporation and
William L. Westerman
10.32 Revolving Line of Credit Loan Agreement dated Februaruy 28,
1997 by and between the Registrant, Riviera Operating
Corporation and U.S. Bank of Nevada
10.33 Letter of Intent dated March 4, 1997 between the Registrant
and Eagle Gaming, L.P.
37
<PAGE>
* The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed with the Commission during the
fourth quarter ended December 31, 1996.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By:/s/ WILLIAM L. WESTERMAN
-----------------------------------
William L. Westerman
Chief Executive Officer and President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board,
/s/ WILLIAM L. WESTERMAN Chief Executive Officer March 10, 1997
- ---------------------------- and President
William L. Westerman
Treasurer (Principal
/s/ DUANE R. KROHN Financial and Accounting March 10, 1997
- ---------------------------- Officer)
Duane R. Krohn
/s/ ROBERT R. BARENGO Director March 10, 1997
- ----------------------------
Robert R. Barengo
/s/ WILLIAM FRIEDMAN Director March 10, 1997
William Friedman
/s/ PHILIP P. HANNIFIN Director March 10, 1997
- ----------------------------
Philip P. Hannifin
39
<PAGE>
RIVIERA HOLDINGS CORPORATION
TABLE OF CONTENTS
Page
----
Independent Auditors' Report..............................................F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996..............F-3
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1995 and 1996.......................................F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996...........................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996.......................................F-6
Notes to Consolidated Financial Statements................................F-7
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 subsidiaries (the "Company") d.b.a. Riviera Hotel &
Casino as of December 31, 1995 and 1996, and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. 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,
1995 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
February 28, 1997
F-2
<PAGE>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1996
---- ----
(in thousands)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1)........................................ $21,962 $25,747
Accounts receivable, net (Notes 1 and 2).................................. 4,334 5,113
Inventories (Note 1)...................................................... 2,186 3,039
Prepaid expenses and other assets......................................... 2,602 2,692
------- -------
Total current assets................................................... 31,084 36,591
Property and Equipment, Net (Notes 1, 3, 5 and 7)........................... 121,049 127,760
Other Assets................................................................ 4,759 2,853
Restricted Cash For Periodic Slot Payments (Notes 1 and 5).................. 1,039 461
------- -------
Total Assets...................................................... $157,931 $167,665
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 5)................................ $2,322 $1,550
Accounts payable (Notes 1 and 4).......................................... 8,364 8,530
Current income taxes payable (Note 6)..................................... 51 413
Accrued expenses (Notes 1 and 4).......................................... 9,640 9,757
------- -------
Total current liabilities.............................................. 20,377 20,250
------- -------
Deferred Income Taxes Payable (Note 6)...................................... 3,023 4,626
------- -------
Long-Term Debt, Net of Current Portion (Notes 1 and 5)...................... 108,249 107,538
------- -------
Commitments and Contingencies (Notes 5, 7, 8, 9, 10 and 12)
Shareholders' Equity: (Notes 1 and 11)
Common stock ($.001 par value; 20,000,000 shares
authorized; 4,800,000 shares at December 31, 1995
and 4,922,503 shares at December 31, 1996 issued
and outstanding)....................................................... 5 5
Additional paid-in capital................................................ 12,537 13,919
Notes receivable from employee shareholders............................... -- (853)
Retained earnings......................................................... 13,740 22,180
------- -------
Total shareholders' equity............................................. 26,282 35,251
------- -------
Total Liabilities and Shareholders' Equity........................ $157,931 $167,665
======== ========
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1994 1995 1996
---- ---- ----
(in thousands, except share data)
Revenues: (Note 1)
<S> <C> <C> <C>
Casino....................................................... $82,060 $77,337 $80,384
Rooms........................................................ 35,422 39,848 41,835
Food and beverage............................................ 22,961 21,895 22,641
Entertainment................................................ 16,945 14,423 20,883
Other (Notes 7 and 9)........................................ 9,390 9,515 11,293
-------
166,778 163,018 177,036
Less promotional allowances (Note 1)......................... 12,857 11,873 12,627
-------
Net revenues......................................... 153,921 151,145 164,409
-------
Costs and expenses: (Notes 1, 7 and 10)
Direct costs and expenses of operating
departments:
Casino.................................................... 48,826 45,325 47,509
Rooms..................................................... 17,594 18,787 18,834
Food and beverage......................................... 15,588 15,768 15,916
Entertainment............................................. 13,982 10,329 15,290
Other..................................................... 3,516 3,527 3,913
Other operating expenses:
Selling, general and administrative....................... 28,822 29,618 31,454
Depreciation and amortization............................. 5,674 6,811 8,212
---------
Total costs and expenses............................. 134,002 130,165 141,128
---------
Income from operations......................................... 19,919 20,980 23,281
---------
Other income (expense):
Interest expense (Notes 5 and 7)............................. (12,764) (12,453) (12,085)
Interest income.............................................. 510 1,149 1,167
Other, net (Note 5).......................................... -- -- 505
---------
Total other income (expense)......................... (12,254) (11,304) (10,413)
---------
Income before provision for income taxes....................... 7,665 9,676 12,868
Provision for income taxes (Notes 1 and 6)..................... 2,875 3,332 4,428
---------
Net income..................................................... $ 4,790 $ 6,344 $ 8,440
=========
Weighted average common and common equivalent
shares outstanding (Notes 1 and 11).......................... 4,800,000 5,040,720 5,177,809
=========
Net income per common and common equivalent shares
(Notes 1 and 11)............................................. $ 1.00 $ 1.26 $ 1.63
=========
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1995 and 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
Notes
Receivable
Additional from
Shares Common Paid-in Retained Employee
Outstanding Stock Capital Earnings Shareholders Total
----------- ----- ------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994............ 4,800,000 $ 5 $12,537 $2,606 -- $15,148
Net income........................... -- -- -- 4,790 -- 4,790
---------- --- ------- ------- ----- -------
Balances, December 31, 1994.......... 4,800,000 5 12,537 7,396 -- 19,938
Net income........................... -- -- -- 6,344 -- 6,344
---------- --- ------- ------- ----- -------
Balances, December 31, 1995.......... 4,800,000 5 12,537 13,740 -- 26,282
Stock issued under Employee
Stock Purchase Plan................ 137,000 -- 1,543 -- $(1,383) 160
Collections of shareholders'
receivables........................ -- -- -- -- 332 332
Refunds on employee stock
purchases.......................... (17,600) -- (198) -- 198 --
Director Compensation
Plan............................... 3,103 -- 37 -- -- 37
Net income........................... -- -- -- 8,440 -- 8,440
---------- --- ------- ------- ----- -------
Balances, December 31, 1996.......... 4,922,503 $ 5 $13,919 $22,180 $(853) $35,251
========= === ======= ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1994 1995 1996
---- ---- ----
(in thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income.............................................................. $4,790 $6,344 $8,440
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................................ 5,674 6,811 8,212
Provision for bad debts.............................................. 991 478 524
Provision for gaming discounts....................................... 133 143 232
Other, net........................................................... -- -- (505)
Interest expense..................................................... 12,764 12,453 12,085
Interest paid........................................................ (13,052 (12,489) (12,072)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable......................... (1,116) 126 (1,535)
Decrease (increase) in inventories................................. (508) 86 (853)
Increase in prepaid expenses and other assets...................... (310) (212) (90)
Decrease in restricted cash for periodic slot payments............. 591 318 578
Increase in accounts payable....................................... 1,064 1,033 166
Increase in accrued expenses....................................... 2,393 758 104
Increase (decrease) in current income taxes payable................ 573 (522) 362
Increase in deferred income taxes payable.......................... 2,010 1,013 1,603
Increase in non-qualified pension plan obligation to CEO
upon retirement................................................. 375 400 1,039
------ ------ ------
Net cash provided by operating activities....................... 16,372 16,740 18,290
------ ------ ------
Cash flows from investing activities:
Capital expenditures for property and equipment......................... (8,933) (7,836) (14,923)
Decrease (increase) in other assets..................................... (1,506) (382) 1,906
------ ------ ------
Net cash used in investing activities........................... (10,439 (8,218) (13,017)
------ ------ ------
Cash flows from financing activities:
Proceeds from long-term borrowings...................................... 675 176 209
Payments on long-term borrowings........................................ (3,371) (3,159) (2,226)
Proceeds from issuance of stock to employees and directors.............. -- -- 197
Collections of notes receivable from employees.......................... -- -- 332
--
Net cash used in financing activities........................... (2,696) (2,983) (1,488)
------ ------ ------
Increase in cash and cash equivalents..................................... 3,237 5,539 3,785
Cash and cash equivalents, beginning of period............................ 13,186 16,423 21,962
------ ------ ------
Cash and cash equivalents, end of period.................................. $16,423 $21,962 $25,747
======= ======= =======
Supplemental disclosure of cash flow information -- Income
taxes paid.............................................................. $292 $2,852 $2,463
==== ====== ======
Supplemental disclosure of non-cash financing activities:
Stock issued to employees for notes receivable.......................... $1,383
======
Non-cash reductions of long-term debt................................... $845
====
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
RIVIERA HOLDINGS CORPORATION
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 on June 30, 1993, pursuant to a plan of reorganization.
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.
Nature of Operations
The primary line of business of the Company is the operation of the Riviera
Hotel & Casino on the "Strip" in Las Vegas, Nevada. The Company is engaged in a
single industry segment, the operation of a hotel/casino with restaurants and
related facilities. The Company also manages the Four Queens Hotel/Casino in
downtown Las Vegas (see Note 9).
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.
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 investment securities with a maturity of three months or
less when acquired are considered to be cash equivalents. The Company accounts
for investment securities in accordance with Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), Accounting for Certain Investments in Debt and
Equity Securities.
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 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 reevaluates 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,
F-7
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
and acquired during fiscal 1995 as held to maturity. Held to maturity securities
are required to be carried at amortized cost. At December 31, 1996, 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 $19,756,000 maturing in three months or
less.
Inventories
Inventories consist primarily of food, beverage, gift shop and promotional
inventories and are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and Equipment
Property and equipment are stated at the lower of cost or market, and
capitalized lease assets are stated at the lower of the present value of future
minimum lease payments at the date of lease inception or market value. Interest
incurred during construction of new facilities or major additions to facilities
is capitalized and amortized over the life of the asset. Depreciation is
computed by the straight-line method over the shorter of the estimated useful
lives or lease terms, if applicable, of the related assets, which range from 5
to 40 years. The costs of normal maintenance and repairs are charged to expense
as incurred. Gains or losses on disposals are recognized as incurred.
Restricted Cash for Periodic Slot Payments
At December 31, 1995 and 1996, the Company had interest-bearing deposits
with a commercial bank in the amount of $1,039,000 and $461,000 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, 1996
Cash and cash equivalents, accounts receivable, restricted cash for
periodic slot payments, accounts payable and accrued expenses -- 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 $112,588,000.
Casino Revenue
The Company recognizes, as gross revenue, the net win from gaming
activities, which is the difference between gaming wins and losses.
F-8
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 years ended December 31, 1994, 1995 and 1996 are as
follows:
1994 1995 1996
-------- -------- ------
(in thousands)
Food and beverage.............................. $7,225 $6,570 $6,671
Rooms.......................................... 1,843 1,451 1,410
Entertainment.................................. 2,121 2,280 2,592
------- ------- -------
Total costs allocated to casino........... $11,189 $10,301 $10,673
======= ======= =======
Federal Income Taxes
The Company and its subsidiaries file a consolidated federal tax return.
The Company accounts for income taxes in accordance with SFAS 109, Accounting
for Income Taxes. 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.
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 (December 31, 1994).
F-9
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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.
Reclassifications
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform with the current year presentation.
Recently Adopted Accounting Standards
During 1996 the Company adopted the provisions of 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. The adoption of SFAS 121 had no impact on the financial position or
results of operations of the Company.
In October 1995, the Financial Accounting Standards Board ("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. The Company
continues to account for stock-based compensation arrangements in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and therefore the adoption of SFAS 123 had no effect on the financial
position or results of operations of the Company. The Company has included
additional disclosures about stock-based employee compensation plans as required
by SFAS 123 (see Note 11).
F-10
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
2. Accounts Receivable
Accounts receivable consist of the following at December 31:
1995 1996
---- ----
(in thousands)
Casino............................................... $2,581 $2,280
Hotel................................................ 2,494 3,479
------ ------
Total.............................................. 5,075 5,759
Less allowance for bad debts and discounts........... 741 646
------ ------
Total.............................................. $4,334 $5,113
====== =======
Changes in the casino and hotel allowance for bad debts and discounts for
the years ended December 31, 1995 and 1996 consist of the following:
1995 1996
---- ----
(in thousands)
Beginning balance.......................................... $1,424 $741
Write-offs................................................. (1,358) (912)
Recoveries................................................. 54 61
Provision for bad debts.................................... 478 524
Provision for gaming discounts............................. 143 232
------ -------
Ending balance........................................... $ 741 $ 646
====== ========
3. Property and Equipment
Property and equipment consists of the following at December 31:
1995 1996
---- ----
(in thousands)
Land and improvements..................................... $21,751 $21,751
Buildings and improvements................................ 75,875 77,455
Equipment, furniture, and fixtures........................ 38,307 51,650
------
Total property and equipment......................... 135,933 150,856
Less accumulated depreciation............................. 14,884 23,096
------ -------
Net property and equipment........................... $121,049 $127,760
======== ========
F-11
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. Accounts Payable and Accrued Expenses
Accounts payable consist of the following at December 31:
1995 1996
---- ----
(in thousands)
Outstanding chip and token liability................. $854 $836
Casino account deposits.............................. 642 498
Unpaid race and sports book winners.................. 26 17
Miscellaneous gaming................................. 850 762
------ ------
Total liabilities related to gaming activities.. 2,372 2,113
Accounts payable to vendors.......................... 4,497 5,118
Hotel deposits....................................... 1,415 1,123
Other................................................ 80 176
------ ------
Total........................................... $8,364 $8,530
====== ======
Accrued expenses consist of the following at December 31:
1995 1996
---- ----
(in thousands)
Payroll, related payroll taxes and vacation........... $5,095 $5,244
Health and other liability claims..................... 548 450
Union benefits and dues............................... 816 663
Progressive slot machine liability.................... 226 203
Taxes................................................. 518 631
Professional fees..................................... 208 176
Incentive and pension plans........................... 2,209 2,357
Interest.............................................. 20 33
------- ------
Total............................................ $9,640 $9,757
====== ======
F-12
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. Long-Term Debt
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---- ----
(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
Unsecured, non-interest bearing notes to settle Class 4, 5 and 12
claims, discounted at 16.8%, paid in 1996......................................... 2,056 --
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 installments
of $500,000 to
$750,000 discounted at 12%........................................................ 4,159 4,707
Capitalized lease obligations (see Note 7).......................................... 1,341 986
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 on December 31, 1998......................................... 266 185
Periodic slot payments due customers through 2000, prefunded by
restricted cash (see Note 1)...................................................... 1,039 461
Non-qualified pension plan obligation to the CEO of the Company, payable in 20
quarterly installments upon expiration of his
employment contract............................................................... 1,710 2,749
-------- --------
Total long-term debt........................................................... 110,571 109,088
Less current maturities by terms of debt............................................ 2,322 1,550
-------- --------
Total.......................................................................... $108,249 $107,538
======== ========
</TABLE>
Maturities of long-term debt for the years ending December 31, were as
follows:
(in thousands)
1997........................................................ $1,550
1998........................................................ 1,884
1999........................................................ 1,817
2000........................................................ 2,043
2001........................................................ 1,244
Thereafter.................................................. 100,550
--------
Total.................................................. $109,088
========
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 annual cash expenditures of
$6,000,000 plus 80% of cumulative available cash flow from the Company's
inception
F-13
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 an aggregate payment by the Company of $500,000 which is included in other
assets at December 31, 1995 and 1996 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".
During the fourth quarter of 1996, the Company made the final payment on the
note issued to settle the Class 12 claim, which was less than what was recorded
and resulted in income of approximately $845,000. Also during the fourth quarter
of 1996, the terms of the Class 13/14 Note was revised, which resulted in a
decrease in the discount rate from 16.8% to 12.0% and increased principal,
resulting in additional expense of $340,000. Other, net income for the year
ended December 31, 1996 includes the net effect of the above transactions.
In February, 1997, the Company entered into a $15.0 million five year
reducing revolving line of credit collateralized by equipment. The revolving
line of credit bears interest at prime plus 0.5% or LIBOR plus 2.9%. The Company
has not utilized this line of credit.
The Company has credit facilities totaling $1,100,000 at banks for letters
of credit issued periodically to foreign vendors for purchases of merchandise.
6. Federal Income Taxes
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 for the year ended
December 31, 1994, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
1994 1995 1996
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxes at federal statutory rate............ $2,680 35.0% $3,386 35.0% $4,504 35.0%
Other 195 2.5 (54) (1.0) (76) (1.0)
------ ---- ----- ---- ----- ----
Provision for income taxes............... $2,875 37.5% $3,332 34.0% $4,428 34.0%
====== ==== ====== ==== ====== ====
</TABLE>
F-14
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The tax effects of the items comprising the Company's net deferred tax
liability consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---- ----
(in thousands)
Deferred Tax Liabilities:
<S> <C> <C>
Basis in long-term debt obligations....................................... $640 $457
Reserve differential for hospitality and gaming activities................ 1,090 1,133
Difference between book and tax depreciable property...................... 4,430 5,226
Other..................................................................... 383 806
------ -----
Total.................................................................. 6,543 7,622
------ -----
Deferred Tax Assets:
Reserves not currently deductible......................................... 1,500 1,806
Bad debt reserves......................................................... 260 226
AMT credit................................................................ 1,760 964
------ ------
Total.................................................................. 3,520 2,996
------ ------
Net deferred tax liability........................................... $3,023 $4,626
====== ======
</TABLE>
The Company has $964,000 of alternative minimum tax credit available to
offset future income tax liabilities. The credit has no expiration date.
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, 1996:
(in thousands)
1997........................................................ $ 441
1998........................................................ 441
1999........................................................ 429
2000........................................................ 227
------
Total minimum lease payments.............................. 1,538
Less taxes, maintenance and insurance....................... 390
Less interest portion of payments........................... 162
------
Present value of net minimum lease payments............... $ 986
======
Rental expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $295,000, $406,000 and $334,000, 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,
F-15
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
for the years ended December 31, 1994, 1995 and 1996 was approximately
$1,687,000, $1,533,000 and $1,573,000, respectively.
At December 31, 1996, the Company had future minimum annual rental income
due under noncancelable operating leases as follows:
(in thousands)
1997................................................. $1,159
1998................................................. 946
1999................................................. 748
2000................................................. 494
2001................................................. 351
Thereafter........................................... 993
------
Total........................................... $4,691
======
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.
9. Management Agreements
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, went into effect on February 28, 1997, the
effective date of the Chapter 11 plan of reorganization of Elsinore.
The term of the Management Agreement is approximately 40 months, subject to
earlier termination or extension. Either party may terminate the Management
Agreement if cumulative earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the first two fiscal years is less than $12.8
million. The term of the Management Agreement 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 has received 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 the
Management Agreement 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
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.
F-16
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. Employment Agreements and Employee Benefit Plans
The Company has an employment agreement with 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, the Company has
termination fee agreements with 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. On
November 21, 1996, the Company amended Mr. Westerman's employment agreement
subject to stockholder approval at their annual meeting scheduled for May 8,
1997. If the Company's stockholders do not ratify the amended agreement the
agreement described above will remain in full force.
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, 1995 and 1996 the Company recorded accrued bonuses of
$1,430,000 and $2,123,000 and $2,588,000, 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 $1,725,000, $1,576,000 and $1,650,000
for the years ended December 31, 1994, 1995 and 1996. These contributions were
for approximately 1,364 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 $67,000, $59,000 and $34,000 for the
years ended 1994, 1995 and 1996.
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 in January of the Profit Sharing and 401(k) Plan year. An employee
will become vested in the Company's contributions based on the employee's years
of service. An employee will receive a year of vesting service for each plan
year in which the employee completed 1,000 hours of service. Vesting credit will
be allocated in 20% increments for each year of service commencing with the
attainment of two years of service. An employee will be fully vested following
the completion of six years of service.
The 401(k) component of the Profit Sharing and 401(k) Plan provides that
each eligible employee may contribute up to 15% of such employee's annual
compensation, and that the Company will contribute 1%
F-17
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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.
ROC is a party to termination fee agreements with certain significant
employees pursuant to which each such employee is entitled to receive one year's
salary and benefits if his or her employment with ROC is terminated within one
year of a change of control of the Company or ROC, or the involuntary
termination of Mr. Westerman's employment. The estimated total amount that would
be payable under all such agreements is approximately $1.3 million in salaries
and $400,000 in benefits.
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 1997 for 1996) in the event
there is a change of control of the Company. The agreements expire on December
31, 1997. The estimated total amount that would be payable under all such
agreements is approximately $300,000.
11. Stock Option Plans
At a meeting held on July 27, 1993, the Company's Board of Directors adopted
a stock option plan (the "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). On November 16, 1995, 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, none for 1995, and
110,000 for 1996, leaving a balance available for future grants of 10,000
shares. No options were exercised or cancelled in 1994, 1995 or 1996. On
November 21, 1996 the Company amended the Stock Option Plan to increase the
number of shares available under the Stock Option Plan from 480,000 shares to
1,000,000 shares and granted options to purchase 300,000 additional shares to
Mr. Westerman, each subject to stockholder approval at the annual meeting of
stockholders scheduled in May 1997. 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 10% 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.
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. 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 issued at
a discount to employees at $11.26 for $160,000 cash and the balance in notes
receivable of $1,383,000 which are payable over two years via payroll deduction.
During 1996, 17,600 shares were returned to the plan as the result of refunds to
the employees.
On May 10, 1996, the shareholders approved a Nonqualified Stock Option Plan
for Non-Employee Directors (the "Nonqualified Stock Option Plan") and a Stock
Compensation Plan for Directors serving
F-18
<PAGE>
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
on the Compensation Committee (the "Stock Compensation Plan"). The total number
of shares available for purchase under each plan is 50,000. Pursuant to the
Nonqualified Stock Option Plan, two directors were granted options to purchase
an aggregate of 4,000 shares in 1996 at an exercise price of $13.25. As of
December 31, 1996, 3,103 shares were issued pursuant to the Stock Compensation
Plan.
The Company has adopted the disclosures-only provision of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized for the Stock Option Plan.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. Had compensation cost for the Stock Option
Plan been determined based on the fair value at the date of grant for awards
consistent with the provisions of SFAS 123, the Company's net income and pro
forma net income common share and common share equivalent would have been
decreased to the pro forma amounts indicated below:
Years Ended December 31,
------------------------
1995 1996
----- ----
(in thousands, except
per share data)
Net income-as reported............................ $6,344 $8,440
Net income-pro forma.............................. 6,289 8,380
Net income per common and common
share equivalent-as reported.................... $1.26 $1.63
Net income per common and common share
equivalent-pro forma............................ $1.25 $1.61
12. Subsequent Event (unaudited)
On March 4, 1997, the Company entered into a letter of intent with Eagle
Gaming, L.P. ("Eagle") to form a joint venture, Riviera Black Hawk, LLC ("RBL"),
to develop a casino (the "Project") in the Black Hawk/Central City, Colorado
gaming market for approximately $55 million, subject to satisfaction of a number
of conditions. The Company will manage the Project for a management fee based
upon the gross revenue and EBITDA of the Project. The Company will initially
have an approximately 80% equity interest and Eagle an approximately 20% equity
interest in the joint venture. Eagle has the option, prior to the Company being
licensed by the Colorado gaming authorities, to acquire up to 29.9% of
additional equity interest in the Project from the Company at the Company's
cost. If Project costs exceed the approximately $55 million preliminary
estimate, the Company and Eagle will be required to bear their respective
pro-rata share of increased costs or their respective equity interests will be
adjusted. In addition, the Company has committed to provide a completion
guaranty for up to $5.0 million.
F-19
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is dated as of _________,
1996 by and between Elsinore Corporation, a Nevada corporation ("Elsinore"),
Four Queens, Inc., a Nevada corporation ("Four Queens" and, together with
Elsinore, the "Companies"), and Riviera Gaming Management Corp.-Elsinore, a
Nevada corporation ("Manager").
PRELIMINARY STATEMENTS
A. Elsinore owns and operates through its subsidiary, Four
Queens, a hotel and casino commonly known as the Four Queens Hotel and Casino,
located at 202 Fremont Street, Las Vegas, Nevada.
B. The Companies are party to those certain Chapter 11
bankruptcy proceedings pending in the United States Bankruptcy Court for the
District of Nevada (the "Bankruptcy Court") as Case No. 95-24685 RCJ and Case
No. 95-24687 RCJ respectively (the "Proceedings").
C. Pursuant to the terms and conditions of that certain
Interim Management Agreement dated as of __________, 1996 between the Companies
and Manager (the "Interim Management Agreement") the Companies have engaged
Manager to manage the Project. The term of the Interim Management Agreement
expires on the Effective Date (as defined below).
D. Pursuant to the terms and conditions of the Joint Plan of
Reorganization for the Debtors with respect to the Proceedings (the "Plan"),
Manager shall be engaged to manage the Project upon the expiration of the term
of the Interim Management Agreement in accordance with the terms and conditions
of this Agreement.
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, the parties to this Agreement hereby agree as
follows:
ARTICLE I. DEFINITIONS
The following defined terms are used in this Agreement:
"Affiliate" shall mean a person that directly or indirectly, or through
one or more intermediaries, controls, is controlled by, or is under common
control with the person in question and any stockholder or partner of any person
referred to in the preceding clause owning 10% or more of such entity.
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"Audit Day" is defined in Section 3.6(a).
"Audited Statements" is defined in Section 3.6(a).
"Business Days" shall mean all weekdays except those that are official
holidays of the State of Nevada or the U.S. Government. Unless specifically
stated as "Business Days," a reference to "days" means calendar days.
"Capital Budget" is defined in Section 3.9.
"Casino" shall mean those areas reserved for the operation of slot
machines, table games and any other legal forms of gaming permitted under
applicable law, and such additional ancillary service areas including
reservations and admissions, cage, vault, count room, surveillance room and any
other room or area or activities therein regulated or taxed by the Nevada Gaming
Authorities by reason of gaming operations.
"Casino Bankroll" shall mean an amount reasonably determined by Manager
as funding required to bankroll the Casino Gaming Activities but in no case less
than the amount required by Nevada gaming law or Nevada Gaming Authorities. In
no event shall such Casino Bankroll include any amount necessary to cover
Operating Expenses or Operating Capital. Casino Bankroll shall include the funds
located on the casino tables, in the gaming devices, cages, vault, counting
rooms, or in any other location in the Casino where funds may be found and funds
in a bank account identified by the Companies for any additional amount required
by Nevada gaming law or Nevada Gaming Authorities or such other amount as is
reasonably determined by Manager and the Companies.
"Casino Gaming Activities" shall mean the Casino cage, table games,
slot machines, video machines, and other forms of gaming managed by Manager in
the Casino.
"Casino Operating Expenses" shall mean expenses incurred in the
management of the Casino, including, but not limited to, gaming supplies,
maintenance of the Casino area, gaming marketing materials, uniforms,
complimentaries, Casino employee training, Casino employee compensation and
entitlements, and Gaming Taxes.
"Companies' Advances" is defined in Section 3.11.
"Confirmation Date" is defined in Recital C.
"Default" or "Event of Default" is defined in Section 6.1.
"EBITDA" shall mean revenues derived from the operation of Four Queens
less all costs of operating Four Queens (including, without limitation, any and
all costs associated with the Fremont Street Experience and the Minimum Fee)
except for (i) bankruptcy restructuring costs, (ii) Elsinore D&O insurance,
(iii) Elsinore director and officer compensation, (iv) expenses related to
Elsinore debt (including Trustee Fees), (v) any other
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Elsinore expense over which Manager has no control and (vi) the Performance Fee,
all before (a) interest on indebtedness, (b) all taxes on income other than
Gaming Taxes, (c) depreciation of tangible assets and (d) amortization of
goodwill and other intangible assets, all as determined by the independent
certified public accountant of the Companies in accordance with generally
accepted accounting principles applied on a consistent basis (after giving
effect to "fresh start" accounting), subject, however, to the dispute provisions
of Section 3.6(b).
"Effective Date" shall mean the date the Plan becomes effective as
defined in the Plan.
"Extended Term" is defined in Section 2.3.
"Extension Option" is defined in Section 2.3.
"Fiscal Year" shall mean the 12-month period starting with the first
full quarter beginning immediately following the Effective Date and each
12-month period thereafter.
"Gaming Taxes" shall mean any tax imposed by the Nevada Gaming
Authorities on Gross Gaming Revenues.
"Governmental Authorities" shall mean the United States, the State of
Nevada and any court or political subdivision agency, commission, board or
instrumentality or officer thereof, whether federal, state or local, having or
exercising jurisdiction over the Companies, Manager or the Project, including
the Casino.
"Gross Gaming Revenues" shall mean all of the revenue from the
operation of the Casino (which is taxed by the Nevada Gaming Authorities) from
all business conducted upon, related to or from the Casino in accordance with
generally accepted accounting principles and shall include, but not be limited
to, the net win from gaming activities, which is the difference between gaming
wins and losses before deducting Gaming Taxes, and plus or minus, as
appropriate, deposits made in respect of progressive slot machines and other
similar games.
"Gross Revenues" shall mean Gross Gaming Revenues, plus all other
revenues resulting from the operation of the Project, minus all Gaming Taxes.
"Management Fee" shall mean the Minimum Fee and the Performance Fee,
if any.
"Minimum Fee" is defined in Section 4.1.
"Monthly Financial Statements" is defined in Section 3.7.
"Nevada Gaming Authorities" shall mean the Nevada Gaming Commission,
State Gaming Control Board and all other gaming regulatory bodies, including,
but not limited to,
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any municipality, political subdivision, board, commission, agency or other
public body now in existence or hereafter created to regulate gaming in the
State of Nevada.
"Olympia" means the Seven Cedars Casino located in Sequim, Washington.
"Operating Bank Accounts" is defined in Section 3.10.
"Operating Budget" is defined in Section 3.9.
"Operating Capital" shall mean such amount in the Operating Bank
Accounts as will be reasonably sufficient to assure the timely payment of all
current liabilities of the Project, including the operations of the Casino,
during the term of this Agreement, and to permit Manager to perform its
management responsibilities and obligations hereunder, with reasonable reserves
for unanticipated contingencies and for short term business fluctuations
resulting from monthly variations from the Operating Budget.
"Operating Expenses" shall mean actual expenses incurred following the
Effective Date in operating the Project, including the Casino Operating
Expenses, employee compensation and entitlements, Operating Supplies,
maintenance costs, fuel costs, utilities, taxes and the Minimum Fee.
"Operating Supplies" shall mean gaming supplies, paper supplies,
cleaning materials, marketing materials, maintenance supplies, uniforms and all
other materials used in the operation of the Project.
"Palm Springs" means the Spotlight 29 Casino located in Palm Springs,
California.
"Performance Fee" shall mean the annual amount payable to Manager which
equals 25% of any increase in EBITDA in any Fiscal Year of the Term or Extended
Term over $8 million.
"Performance Fee Statement" is defined in Section 3.6(a).
"Project" shall mean the Four Queens Hotel and Casino in Las Vegas,
Nevada and all necessary ancillary facilities to the Project, including, but not
limited to, vehicular parking area, entertainment facilities, hotels,
restaurants, waiting areas, restrooms, administrative offices for, but not
limited to, accounting, purchasing, and management information services
(including offices for Manager management personnel) and other areas utilized in
support of the operations of the Project.
"Projected EBITDA" shall mean the EBITDA for the first two Fiscal Years
of the Term and is deemed to be $8 million for each such year.
"Selected Arbitrator" is defined in Section 9.1.
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"Term" is defined in Section 2.2.
ARTICLE II: ENGAGEMENT OF MANAGER AND TERM OF AGREEMENT
Section 2.1 Engagement of Manager. The Companies hereby engage and
employ Manager to act as their exclusive agent for the supervision and control
of the management of the business and affairs of the Project and to provide
certain services to the Companies as detailed in Section 3.3 of this Agreement
in connection with the Project, and Manager hereby accepts such engagement and
employment, on the terms and conditions hereinafter set forth. In addition,
Manager may provide consulting services to Elsinore from time to time with
respect to non-Project related issues and Manager agrees to provide consulting
services upon terms mutually acceptable to Manager and the Companies.
Section 2.2 Term. Manager shall manage the Project from the period (the
"Term") commencing on the Effective Date and ending 60 days after the third
Fiscal Year's audited results are available, subject to termination prior to the
end of such period as hereinafter specified or extension as hereinafter
provided. Either Manager or Elsinore may terminate this Agreement upon 120 days
notice after the second Fiscal Year's audited results are available, provided
that cumulative EBITDA for the first two Fiscal Years is less than 80% of the
cumulative Projected EBITDA. In the event that Elsinore elects to terminate this
Agreement at the end of the second Fiscal Year because the 80% cumulative
Projected EBITDA target was not met, Manager will have 60 days after receipt of
notice of Elsinore's election to so terminate in which to exercise its Warrants.
If Manager does not exercise its Warrants, or exercises only a portion of its
Warrants, then any Warrants remaining unexercised at the end of the 60 day
period will be automatically cancelled.
Section 2.3 Option to Extend Term. The Term may be extended at the
option (the "Extension Option") of Manager (the "Extended Term") for an
additional term of two years, provided that cumulative EBITDA for the Term is
80% or more of the cumulative Projected EBITDA. Manager shall give written
notice of its exercise of an Extension Option no later than 120 days prior to
the expiration of the Term, on the assumption that cumulative EBITDA for the
Term will be 80% or more of the cumulative Projected EBITDA.
ARTICLE III: RESPONSIBILITIES OF THE PARTIES.
Section 3.1 Standards. With respect to the operation of the Project
pursuant to this Agreement, Manager shall manage and maintain the Project in a
manner reasonably consistent with the average of standards and procedures
exercised by other casino/hotel operators in the management of other
casino/hotels of the same or similar type, class and quality as the Project and
located in Las Vegas, Nevada.
Section 3.2 No Interference; Board Representation. In order for
Manager to meet its responsibilities under Section 3.1 of this Agreement in a
professional manner, and to comply with any legal requirements and the terms of
this Agreement, the Companies hereby
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agree that (i) Manager shall have uninterrupted control of and responsibility
for the operation of the Project during the Term of this Agreement and (ii) the
Companies will not interfere or be involved with the operation of the Project
and that Manager may operate the Project free of molestation, eviction or
disturbance by the Companies or any third party claiming by, through or under
the Companies, provided that Manager shall not engage in any transaction with
any of its affiliates relating to the Project in excess of $10,000 without the
prior written approval of the Elsinore Board of Directors. Notwithstanding the
foregoing, during normal business hours and upon reasonable notice to Manager,
the Companies' directors and Elsinore's major stockholder and their agents may
visit the Project and may ask the Manager and the companies' officers about
various aspects of the Companies' business, operations and financial results.
Examples of the matters which Manager shall determine from time to time
hereunder include, but are not limited to, room rates, food and beverage menu
prices, charges to guests for other services performed by Manager at the
Project, for rooms, gaming, commercial purposes and entertainment, entertainment
policies and specific entertainment obligations, the labor policies of the
Project and the type and character of publicity and promotion. Manager agrees,
however, that it will in good faith use its best efforts to perform its
obligations and discharge its responsibilities in the control and operation of
the Project in and for the purpose of maximizing profits from the operation of
the Project. Nothing contained in this Section 3.2 shall prohibit the Companies'
Boards of Directors from exercising their fiduciary duties if Manager shall
default in its obligations under this Agreement pursuant to Section 6.2 and such
default shall continue after any required notice and/or cure period.
Section 3.3 Services. Manager covenants and agrees to perform, or
cause to be performed, the following services in connection with the Project:
(a) Permits. Manager, on behalf of and with the cooperation of
the Companies, shall oversee obtaining and maintaining all necessary
licenses, findings of suitability, approvals and permits required by
any law, rule or regulation of the Nevada Gaming Authorities, as may be
required for the operation of the Project as a casino/hotel including,
without limitation, gaming, liquor, bar, restaurant, signage and hotel
licenses and any permits required in connection with any refurbishing
or expansion of the Project. Manager shall comply with the rules,
regulations and orders of the Nevada Gaming Authorities and with any
conditions set out in any such licenses and permits issued by any such
authorities and, with the cooperation of the Companies, shall provide
any information, report or access to records reasonably required by the
Nevada Gaming Authorities.
(b) Personnel. Manager shall maintain such level of staffing
as shall be required to carry out its duties hereunder. If the Board of
Directors of Elsinore determines that Manger is not meeting its
staffing requirements, then Manager and Elsinore will meet in good
faith to resolve any staffing issues. If such dispute is not resolved
within two weeks, and either Manager or Elsinore determines that such
dispute cannot be resolved within a reasonable time, then such dispute
shall be resolved by arbitration pursuant to Article IX.
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(i) Except as otherwise expressly provided herein, all
personnel employed at the Project shall be employees of Four Queens.
Manager shall hire, terminate, advance, demote, supervise, direct the
work of and determine the compensation and other benefits (except for
the establishment of any new employee pension and profit-sharing plans,
which shall be determined by Manager and shall be subject to the
approval of the Board of Directors of Elsinore in its sole and absolute
discretion, it being understood that any employee pension and
profit-sharing plans in existence as of the date hereof have been
approved by the Board of Directors of Elsinore) of all personnel
working at the Project, and Elsinore shall not interfere with or give
orders or instructions to personnel employed at the Project; provided,
however, that Manager will not enter into any employment contracts with
any employees that exceed the duration of the Term or the Extended Term
of this Agreement, as the case may be, or any material employee
contracts or benefit arrangements (i.e., any such contract or
arrangement involving an annual compensation (including salary and
bonuses) of more than $125,000), unless first approved by the Board of
Directors of Elsinore which approval shall not be unreasonably
withheld. Manager agrees that employees' wages or benefits and
conditions of employment (inclusive of any discretionary employee
bonuses granted from time to time by Manager) shall be granted by
Manager in a manner consistent with the existing standards therefor
currently employed at the Project. The parties hereto agree that all
wages, bonuses, compensation and benefits (including, without
limitation, severance and termination pay) of personnel at the Project
are the exclusive obligation of Four Queens.
(ii) All wages, salaries, benefits, compensation and
entitlements of the Project employees, including the General Manager,
the consultants and independent contractors approved by the Companies
and Manager, shall be paid from the Operating Bank Accounts by Manager.
Notwithstanding the foregoing, Manager shall not be liable to any of
the Companies' personnel for wages, compensation or other employee
benefit including without limitation to health care, insurance
benefits, worker's compensation, severance or termination pay.
(iii) Manager shall be responsible for the training of all
personnel and shall cooperate with all personnel in an effort to obtain
and maintain all required licenses issued by the Nevada Gaming
Authorities, and will hire only persons with valid employee licenses,
if under the rules and regulations of the Nevada Gaming Authorities,
such employee licenses are a condition of employment.
(iv) The employees necessary to discharge Manager's
obligations and responsibilities hereunder shall be employees of
Manager (or its Affiliates) and shall be hired, paid and discharged by
Manager in its sole and absolute discretion. Manager shall in good
faith determine the number of employees necessary to discharge
Manager's obligations and responsibilities hereunder, the salaries and
other compensation arrangements of such employees shall be the
responsibility of Manager and Manager shall not have any right of
reimbursement from the Companies in respect thereof.
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(v) The Companies may employ such corporate executives, each
of whom shall be licensable if required by Nevada Gaming Authorities,
as they may choose, provided that none of the salaries, bonuses and
benefits for such executives or costs or expenses of the Companies'
Boards of Directors shall be a cost of operation of the Project for the
purposes of determining EBITDA.
Section 3.4 Sales and Promotions. Manager shall formulate, coordinate
and implement promotion, marketing and sales programs, and shall cause the
Project to participate in promotional, marketing and sales campaigns and, as
appropriate, activities involving complimentary rooms and food and beverages to
bona fide travel agents, tourist officials and airlines representatives, and to
all other individuals and entities whatsoever which, in the exercise of good
management practice, is deemed to be beneficial to the Project.
The Companies agree that no unreasonable influence shall be brought
upon Manager relating to the granting or extension of credit or complimentaries.
Credit facilities shall be granted by Manager in its reasonable discretion and
in accordance with good management practices and Manager's and its Affiliates
standard procedures; provided that except for extending credit for the purchase
of goods, services, gaming or entertainment at the Project and except as
otherwise permitted herein, Manager shall not be authorized to make any loans or
extensions of credit for or on behalf of the Companies without the prior
approval of the Board of Directors of Elsinore.
Section 3.5 Books and Records. Manager shall maintain, or cause to be
maintained, a complete accounting system for and on behalf of the Companies in
connection with Manager's management of the Project. The books and records shall
be kept in accordance with generally accepted accounting principles consistently
applied and in accordance with the uniform system of accounts for hotels. Such
books and records shall be kept on the basis of a Fiscal Year. Books and
accounts shall be maintained at the Project or at the principal office of
Manager with a duplicate copy thereof at the Project. The Companies shall have
the right and privilege of examining and copying said books and records,
including all daily reports prepared by Manager for internal use at the Project,
during regular business hours. Manager shall comply with all requirements with
respect to internal controls and accounting and shall prepare and provide all
required reports under the rules and regulations of the Nevada Gaming
Authorities.
Section 3.6 Audits.
(a) Manager shall engage Arthur Andersen LLP, unless a
different mutually agreed upon auditor is substituted ("Regular
Auditor"), to audit the operations of the Companies, (i) for the
purpose of calculating the Performance Fee ("Performance Fee
Statements") and (ii) as of and at the end of each year occurring after
the date hereof (the "Audited Statements"). A sufficient number of
copies of the Performance Fee Statements and the Audited Statements
shall be furnished to the Companies and Manager as soon as available to
permit the Companies and
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Manager to meet any public reporting requirements as may be applicable
to them, but in no event later than ninety (90) days following the end
of such fiscal period (such 90th day to be the "Audit Day"). Any cost
of such statements shall be deemed an Operating Expense.
(b) Nothing herein contained shall prevent either party
("Initiator") from designating an additional independent nationally
recognized accounting firm ("Special Auditor") to review one of the
Performance Fee Statements or Audited Statements at the Initiator's
expense (which shall not be an Operating Expense). In the event of any
dispute between the Regular Auditor and the Special Auditor as to any
item subject to audit, the Regular Auditor and the Special Auditor
shall select a third nationally recognized accounting firm ("Third
Auditor") whose resolution on the non-prevailing party of such dispute
to pay the fees and expenses of the Special Auditor or Third Auditor
shall bind the parties. The fees of the Third Auditor shall be paid by
either the Companies or Manager, based upon which of them the Third
Auditor designates as the non-prevailing party, and the Third Auditor
may also, in its sole discretion, impose the costs of the Special Audit
on the non-prevailing party.
(c) If no Special Auditor shall have been designated within 60
days after the delivery of a Performance Fee Statement or an Audited
Statement, the same shall be final and binding upon the parties to this
Agreement for all purposes.
Section 3.7 Monthly and Quarterly Financial Statements. On or before
the 20th day of each month, Manager shall prepare an unaudited operating
statement for the preceding calendar month detailing the Gross Revenues and
expenses incurred in the Project's operation (the "Monthly Financial
Statements"). The Monthly Financial Statements shall include a statement
detailing drop figure accounts on all Gross Gaming Revenues. On or before the
45th day after the end of each quarter, Manager shall prepare an unaudited
report for the preceding quarter detailing the capitalized expenditures and
marketing expenses incurred in the Project's operation.
Section 3.8 Expenses. All costs, expenses, funding or operating
deficits and Operating Capital, real property and personal property taxes,
insurance premiums and other liabilities incurred due to the gaming and
nongaming operations of the Project shall be the sole and exclusive financial
responsibility of the Companies. It is understood that statements herein
indicating that the Companies shall furnish, provide or otherwise supply,
present or contribute items or services hereunder shall not be interpreted or
construed to mean that Manager is liable or responsible to fund or pay for such
items if the Companies do not.
Section 3.9 Annual Budgets. Manager shall prepare and submit to the
Companies' Boards of Directors at least 60 days before the start of the new
Fiscal Year for their approval a capital budget for the expenditure of capital
improvements ("Capital Budget"). To the extent practical, a reserve shall be
established for this purpose. The parties agree that any "material" expenditure
not contemplated by the Capital Budget shall require the consent of both Manager
and the Companies. For the foregoing purposes, "material" shall
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mean $20,000 in the case of any such individual item and an aggregate of
$250,000 in the case of all such items. Manager shall also prepare and submit to
the Companies' Boards of Directors at least 60 days before the start of the new
Fiscal Year for their approval an operating budget projecting revenues, expenses
and EBITDA for the next Fiscal Year ("Operating Budget"). Manager shall have the
responsibility to manage the Project in accordance with the Operating Budget
except for expenses necessitated by circumstances beyond Manager's reasonable
control. Any dispute as to the Capital Budget or the Operating Budget shall be
resolved by arbitration pursuant to Article IX.
Section 3.10 Operating Bank Accounts.
(a) Manager shall establish bank accounts that are necessary
for the operation of the Project, including an account for the Casino
Bankroll, at various banking institutions chosen by Manager (such
accounts are hereinafter collectively referred to as the "Operating
Bank Accounts"). The Operating Bank Accounts shall be named in such a
manner as to identify the Project and particular uses for the account
as the Companies and Manager may determine. All instructions to and
checks drawn on the Operating Bank Accounts shall be signed only by
representatives of the Companies or Manager who are covered by fidelity
insurance and designated the Companies or Manager personnel may be the
only authorizing signing persons on checks drawn on the Operating Bank
Accounts. All checks shall be drawn only in accordance with established
normal and customary accounting policies and procedures. The Operating
Bank Accounts shall be interest bearing accounts if such accounts are
reasonably available and all interest thereon shall be credited to the
Operating Bank Accounts. All Gross Revenues (excluding noncash items)
shall be deposited in the Operating Bank Accounts, and Manager shall
pay out of the Operating Bank Accounts, to the extent of the funds
therein, from time to time, all Operating Expenses and other amounts
required by Manager to perform its obligations under this Agreement.
All funds in the Operating Bank Accounts shall be separate from any
other funds of any of Manager's Affiliates and the Companies'
Affiliates and neither the Companies nor Manager may commingle such
funds in the Operating Bank Accounts with the funds of any other bank
accounts.
(b) Manager agrees that it will not use any Operating Bank
Accounts as compensating balances related to the extension of credit to
Manager or grant any right of set-off or bankers' lien on any such
accounts in respect of any amounts owed by Manager to such
depositories. Manager shall seek to obtain reasonable rates of interest
for the Operating Bank Accounts, with due regard to the financial
stability of and services offered by the depositories with which such
accounts are kept. The parties to this Agreement agree that all funds
held from time to time in the Operating Bank Accounts are solely the
property of Four Queens, and upon the expiration or Termination (as
defined below) of this Agreement for any reason, Manager shall cease to
withdraw funds from all Operating Bank Accounts and shall take such
steps as shall be necessary to (1) remove Manager's designees as
signatories to the Operating Bank Accounts and (2) authorize Elsinore's
designees
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to become the sole signatories to the Operating Bank Accounts. This
provision shall survive Termination. It is understood and agreed that
Manager may maintain petty cash funds at the Project and make payments
therefrom as the same are customarily made in the casino/hotel
business.
(c) The Companies shall have the right to fund their
obligations under the Plan by withdrawals from Operating Bank Accounts.
The Companies' ability to make other withdrawals from Operating Bank
Accounts shall be consistent with their funding obligations under this
Agreement and in accordance with established accounting policies and
procedures.
Section 3.11 Payment of Expenses.
(a) Manager shall pay from the Gross Revenues the following
items in the order of priority listed below, on or before their
applicable due date: (i) required payments to the Governmental
Authorities, including federal, state or local payroll taxes ("Payroll
Taxes"), (ii) Operating Expenses, including taxes (other than Payroll
Taxes) and the Management Fee, and (iii) emergency expenditures to
correct a condition of an emergency nature, including structural
repairs, which require immediate repairs to preserve and protect the
Project. In the event that funds are not available for payment of the
Operating Expenses in their entirety, all Payroll Taxes or withholding
taxes shall be paid first from the available funds.
(b) During the Term of this Agreement, within five (5)
Business Days after receipt of written notice from Manager, the
Companies shall fund the Operating Bank Accounts designated by Manager
(the "Companies' Advances") in such a fashion so as to adequately
insure that the Operating Capital set forth in the Operating Budget as
revised is sufficient to support the uninterrupted and efficient
ongoing operation of the Project. The written request for any
additional Operating Capital shall be submitted by Manager to the
Companies on a monthly basis based on the interim statements and the
Operating Budget, as revised.
Section 3.12 Cooperation of the Companies and Manager. The Companies
and Manager shall cooperate fully with each other during the Term and the
Extended Term, if any, of this Agreement to facilitate the performance by
Manager of Manager's obligations and responsibilities set forth in this
Agreement.
Section 3.13 Financing Matters.
(a) In no event may either party represent that the other
party or any Affiliate of such party is or in any way may be liable for
the obligations of such party in connection with (i) any financing
agreement, or (ii) any public or private offering or sale of
securities. If the Companies, or any Affiliate of the Companies shall,
at any time, sell or offer to sell any securities issued by the
Companies or any Affiliate of the Companies through the medium of any
prospectus or otherwise and which
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relates to the Project or its operation, it shall do so only in
compliance with all applicable laws, and shall clearly disclose to all
purchasers and offerees that (i) neither Manager nor any of its
Affiliates, officers, directors, agents or employees shall in any way
be deemed to be an issuer or underwriter of such securities, and (ii)
Manager and its Affiliates, officers, directors, agents and employees
have not assumed and shall not have any liability arising out of or
related to the sale or offer of such securities, including without
limitation, any liability or responsibility for any financial
statements, projections or other information contained in any
prospectus or similar written or oral communication. Manager shall have
the right to approve any description of Manager or its Affiliates, or
any description of this Agreement or of the Companies' relationship
with Manager hereunder, which may be contained in any prospectus or
other communications (unless such information is furnished to the
Companies by Manager in writing), and the Companies agree to furnish
copies of all such materials to Manager for such purposes within a
reasonable time prior to the delivery thereof to any prospective
purchaser or offeree. The Companies agree to indemnify, defend or hold
Manager and its Affiliates, officers, directors, agents and employees,
free and harmless from any and all liabilities, costs, damages, claims
or expenses arising out of or related to the breach of the Companies'
obligations under this Section 3.13. Manager agrees to reasonably
cooperate with the Companies in the preparation of such agreements and
offerings.
(b) Notwithstanding the above restrictions, subject to
Manager's right of review set forth in this Section 3.13, the Companies
may represent that the Project is managed by Manager and Manager may
represent that it manages the Project and both may describe the terms
of this Agreement and the physical characteristics of the Project in
regulatory filings and public or private offerings. Moreover, nothing
in this Section shall preclude the disclosure of (i) already public
information, or (ii) audited or unaudited financial statements from the
Project required by the terms of this Agreement or (iii) any
information or documents required to be disclosed to or filed with the
Governmental Authorities. Both parties shall use their best efforts to
consult with the other concerning disclosures as to the Project. The
Companies and Manager shall cooperate with each other in providing
financial information concerning the Project and Manager that may be
required by any lender or required by any Governmental Authority.
Section 3.14 Taxes and Insurance. Throughout the Term or the Extended
Term, the Companies shall furnish Manager with copies of all tax statements and
insurance policies and all financing documents (including notes and mortgages)
relating to the Companies. Manager shall cause all federal and state income and
sales tax returns of the Companies to be prepared and shall cooperate with
taxing authorities in connection with any inquiries or audits that relate to the
Companies. Manager will also assist the Companies in procuring and maintaining
liability, property and such other insurance in at least such amounts and
covering such risks as is currently maintained with respect to the Companies and
in such additional amounts and covering such additional risks, if any, as
Manager and Elsinore determine is necessary in connection with the operation of
the Companies, with responsible
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and reputable insurance companies or associations. All such insurance policies
shall name Manager as an additional insured and all insurers thereon shall be
required to issue to Manager a certificate of insurance providing that such
insurer shall deliver to Manager reasonable prior notice of termination of any
such policy or the coverage provided thereby and, if and to the extent the same
shall be available without adversely affecting Four Queens' coverage and without
additional premiums or charges, waiving the rights of such insurer, if any, of
subrogation against Manager. Without in any way diminishing Four Queens'
responsibility hereunder, Manager is hereby authorized and directed to pay from
the Operating Bank Accounts all taxes and insurance fees including, without
limitation, withholding taxes and insurance premiums, and all other items of
expense relating to the ownership or operation of the Companies.
Section 3.15 Concessions. Manager shall consummate, if in Manager's
reasonable discretion it deems the same to be in the best interest of the
Project, in the name of and for the benefit of Four Queens, reasonable
arms-length arrangements and leases with concessionaires, licensees, tenants and
other intended users of any facilities related to the Project. Copies of all
such arrangements shall be furnished to Elsinore.
Section 3.16 Material Assessments. Manager, as exclusive agent for Four
Queens, is authorized to make and enter into any agreements (including, without
limitation, agreement with Manager's Affiliates, provided such agreements
represent the equivalent of reasonable arms, length negotiations) as are, in
Manager's opinion, necessary or desirable for the operation, supply and
maintenance of the Project, as required by this Agreement. Manager shall be
required to obtain the prior written approval of the Board of Directors of
Elsinore which approval shall be in the absolute discretion of such Board of
Directors before entering into any agreement not contemplated by the approved
Annual Budget. Manager shall not enter into any agreement involving the
incurrence of debt obligations on behalf of either or both of the Companies, or
for Manager's own account, with respect to the operations of the Project, over
any amounts therefor set forth in the approved Annual Budget.
Section 3.17 Trademarks. Manager (i) acknowledges the Companies'
exclusive rights in and to the trademarks, service marks, trade names and other
such intellectually property utilized by the Companies in the operation of the
Project (the "Four Queens Marks") and (ii) agrees not to do any act that will
impair or affect the strength of the Four Queens Marks, the continuity of the
registration of the Four Queens Marks, the Companies' ownership of the Four
Queens Marks or the goodwill associated with the Four Queens Marks. Manager
agrees to render whatever assistance Elsinore may reasonably require in the
procurement and maintenance of registrations of the Four Queens Marks in the
United States Patent and Trademark Office and in other jurisdictions.
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ARTICLE IV: MANAGEMENT FEE; WARRANTS
Section 4.1 Payments to Manager.
(a) Manager shall be paid a minimum fee at the rate of
$1,000,000 per annum (the "Minimum Fee") payable in advance in equal
monthly installments of $83,333.33 on the first day of each month
during the Term and the Extended Term, if any.
(b) Promptly, and in no event later than 90 days following
receipt of audited financial statements after the end of a Fiscal Year,
Manager shall be paid the Performance Fee, if any. Although the
Effective Date will occur approximately two months later, the
Performance Fee for 1997 will be calculated for the period commencing
January 1, 1997.
Section 4.2 Interest on Overdue Amounts; Collection Costs. If for any
reason the Management Fee (both the Minimum Fee or Performance Fee) or any other
amount due to Manager under this Agreement is not paid on a timely basis, such
amount shall bear interest at the rate of 12% per annum until paid in full.
Manager shall also be entitled to reimbursement for the costs of collection,
including counsel fees and disbursements, with respect to amounts due to it
under this Agreement but which are unpaid.
Section 4.3 Bonus. Four Queens or Elsinore will have the option to
terminate this Agreement on 90 days prior written notice if (i) substantially
all of the assets of the Four Queens are sold, (ii) Four Queens is merged or
consolidated with another company, or (iii) the current shareholders sell at
least the majority of the shares of Four Queens or Elsinore during the term of
this Agreement. If this Agreement is so terminated before the expiration of the
Term or the Extended Term, if applicable, then Manager will be entitled to
receive $2 million in cash, minus any amount realized or realizable upon
exercise of the Warrants.
Section 4.4 Warrants. Elsinore hereby grants Manager warrants (in
customary form in the reasonable opinion of counsel to Manager) (the "Warrants")
on the terms summarized below, which summary is qualified by reference to the
Warrant Agreement, a copy of which is attached hereto as Exhibit A:
(a) Number of Shares Purchased: 20% of the issued and
outstanding equity capital (on a fully diluted basis) of Elsinore on
the Effective Date.
(b) Duration: Co-extensive with the Term and Extended
Term of this Agreement (i.e. five years but only if Extension Option
is exercised).
(c) Exercise Price: The greater of (i) book value per
share on the Effective Date after the additional cash from the rights
offering (as defined in the
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Plan) or (ii) the "Rights Offering Net Per Share" resulting from such
rights offering. Rights Offering Net Per Share shall mean $5 million
divided by the number of shares of Elsinore outstanding after giving
effect to the rights offering and exercise of the Warrants.
(d) Anti-Dilution Adjustment: In addition to standard
adjustment for stock splits, stock dividends, recapitalizations and
similar events, the Exercise Price would be reduced and the number of
Warrants would increase by a formula if (i) shares of common stock are
sold at less than current market value, unless the Company obtains an
opinion from an investment banker that such sale at less than current
market value was necessary as a result of the quantity of common stock
being sold, or (ii) warrant options or convertible securities are
issued with an exercise or conversion price less than current market
value (other than issuances to full-time employees of Elsinore involved
in the operation of the Project of shares of common stock and options
or warrants to purchase up to an aggregate of 10% of the Elsinore
issued and outstanding common stock as of the Effective Date).
(e) Registration Rights: Manager will have the right to
become a party (with the identical rights as the Elsinore bondholders)
to the Registration Rights Agreement among the Elsinore bondholders
and Elsinore.
ARTICLE V: REPRESENTATIONS AND WARRANTIES
Section 5.1 Manager represents and warrants to the Companies as
follows:
(a) Companies' Organization. Manager is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Nevada and has the full corporate power and authority to enter
into and perform its obligations under this Agreement.
(b) Authorization of Agreement. The execution, delivery and
performance of this Agreement has been duly authorized and approved by
all necessary corporate action on the part of Manager, and this
Agreement has been duly executed and delivered by Manager and
constitutes the legal, valid and binding obligation of Manager,
enforceable against Manager in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
and remedies generally and subject, as to enforceability, to general
principles of equity. The execution, delivery and performance of this
Agreement by Manager does not and will not conflict with any law, rule
or regulation of the Nevada Gaming Authorities.
(c) Litigation. There are no judicial or administrative
actions, proceedings or investigations pending or, to the best of
Manager's knowledge, threatened against Manager that question the
validity of this Agreement or any action taken or to be taken by
Manager in connection with this Agreement and that, if adversely
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determined, would have a material adverse effect upon Manager's ability
to perform its obligations under this Agreement.
(d) Consents and Approvals. With the exception of the
requisite approvals of the Nevada Gaming Authorities, no authorization,
consent, approval, license, finding of suitability, exemption from or
filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary as a condition to the valid execution,
delivery or performance by Manager of this Agreement, other than such
authorizations, consents, approvals, licenses, findings of suitability,
exemptions, filings or registrations as have been obtained and are in
full force and effect.
Section 5.2 The Companies represent and warrant to Manager as follows:
(a) Companies' Organization. The Companies are corporations
duly organized, validly existing and in good standing under the laws of
the State of Nevada and have the full corporate power and authority to
enter into and perform its obligations under this Agreement.
(b) Authorization of Agreement. The execution, delivery and
performance of this Agreement and the Plan has been duly authorized and
approved by all necessary corporate action on the part of the
Companies, and this Agreement has been duly executed and delivered by
the Companies and constitutes the legal, valid and binding obligation
of them, enforceable against them in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
and remedies generally and subject, as to enforceability, to general
principles of equity. The execution, delivery and performance of this
Agreement by the Companies does not and will not conflict with any law,
rule or regulation of the Nevada Gaming Authorities.
(c) Consents and Approvals. With the exception of the
requisite approvals of the Nevada Gaming Authorities, no authorization,
consent, approval, license, finding of suitability, exemption from or
filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary as a condition to the valid execution,
delivery or performance by the Companies of this Agreement, other than
such authorizations, consents, approvals, licenses, findings of
suitability, exemptions, filings or registrations as have been obtained
and are in full force and effect.
(d) No Joint Venture. It is expressly understood and
agreed that Manager is being employed by the Companies as an
independent contractor to provide, or cause to be provided, supervisory
management and consulting services in respect of the Project and not
as a partner or joint venturer of the Companies or either or them. All
purchases and acquisitions of every kind and character by Manager on
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behalf of the Companies shall be property of the Companies and all
debts and liabilities incurred by Manager within the scope of the
authority granted and permitted hereunder in the course of its
management and operation of the Project shall be debts and liabilities
of the Companies only, and Manager shall not be liable therefor for its
own account, except as specifically stated to the contrary herein.
ARTICLE VI. DEFAULT
Section 6.1 Definition. The occurrence of any one or more of the events
described in the Sections 6.2, 6.3, 6.4 or 6.5 which is not cured within the
time permitted, shall constitute a default under this Agreement (hereinafter
referred to as a "Default" or an "Event of Default") as to the party failing in
the performance or effecting the breaching act.
Section 6.2 Manager's Defaults. If Manager shall (a) fail to perform or
materially comply with any of the covenants, agreements, terms or conditions
contained in this Agreement applicable to Manager and such failure shall
continue for a period of thirty (30) days after written notice thereof from the
Companies to Manager specifying in detail the nature of such failure, or, in the
case such failure is of a nature that it cannot, with due diligence and good
faith, be cured within thirty (30) days, if Manager fails to proceed promptly
and with all due diligence and in good faith to cure the same and thereafter to
prosecute the curing of such failure to completion with all due diligence within
ninety (90) days thereafter, or (b) take or fail to take any action to the
extent required of Manager by the Nevada Gaming Authorities unless Manager cures
such default or breach prior to the expiration of applicable notice, grace and
cure periods, if any, provided, however, that Manager shall only be required to
cure any defaults with respect to which Manager has a duty hereunder.
Section 6.3 The Companies' Default. If the Companies shall (a) fail to
make any monetary payment required under this Agreement, including, but not
limited to, the Companies' Advances, on or before the due date recited herein
and said failure continues for five (5) Business Days after written notice from
Manager specifying such failure, or (b) fail to perform or materially comply
with any of the other covenants, agreements, terms or conditions contained in
this Agreement applicable to the Companies (other than monetary payments) and
which failure shall continue for a period of thirty (30) days after written
notice thereof from Manager to the Companies specifying in detail the nature of
such failure, or, in the case such failure is of a nature that it cannot, with
due diligence and good faith, cure within thirty (30) days, if the Companies
fail to proceed promptly and with all due diligence and in good faith to cure
the same and thereafter to prosecute the curing of such failure to completion
with all due diligence within ninety (90) days thereafter.
Section 6.4 Bankruptcy. With the exception of any actions taken
pursuant to the Proceedings, if any party (a) applies for or consents to the
appointment of a receiver, trustee or liquidator of itself or any of its
property, (b) makes a general assignment for the benefit of creditors, (c) is
adjudicated a bankrupt or insolvent, or (d) files a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization or an arrangement
with
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creditors, takes advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law, or admits the material
allegations of a petition filed against it in any proceedings under any such
law.
Section 6.5 Reorganization/Receiver. With the exception of any actions
taken pursuant to the Proceedings, if an order, judgment or decree is entered by
any court of competent jurisdiction approving a petition seeking reorganization
of Manager or the Companies, as the case may be, or appointing a receiver,
trustee or liquidator of Manager or the Companies, as the case may be, or of all
or a substantial part of any of the assets of Manager or the Companies, as the
case may be, and such order, judgment or decree continues unstayed and in effect
for a period of sixty (60) days from the date of entry thereof.
Section 6.6 Delays and Omissions. No delay or omission as to the
exercise of any right or power accruing upon any Event of Default shall impair
the non-defaulting party's exercise of any right or power or shall be construed
to be a waiver of any Event of Default or acquiescence therein.
Section 6.7 Disputes in Arbitration. Notwithstanding the provisions of
this Article VI, any occurrence which would otherwise constitute an Event of
Default hereunder shall not constitute an Event of Default for so long as such
dispute is in arbitration pursuant to the arbitration provisions of Article IX.
ARTICLE VII. TERMINATION
Section 7.1 Termination Events. This Agreement may be terminated by the
non-defaulting party upon the occurrence of an Event of Default and the lapsing
of the time to cure.
Section 7.2 Notice of Termination. In the event of the occurrence and
continuation for the relevant cure period of an Event of Default, either Manager
or the Companies, as appropriate, may terminate ("Termination") this Agreement
by giving ten (10) days written notice, and the Term or the Extended Term of
this Agreement shall expire by limitation at the expiration of said last day
specified in the notice as if said date was the date herein originally fixed for
the expiration of the Term or the Extended Term hereof.
Section 7.3 Payments Upon Termination. The Companies shall pay to
Manager all accrued but unpaid Management Fees and expenses of Manager and any
other sum owed Manager pursuant to this Agreement.
Section 7.4 Post Termination. Upon a Termination:
(a) Manager shall promptly deliver to Elsinore any books,
records, instruments or other documentation relating to the Project and
the Companies in Manager's possession or under Manager's control;
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(b) Manager and its Affiliates shall release and waive all
rights, claims, interests and relationships they may have to control,
retain, or discharge any matter of management with respect to the
Project, or any other benefit thereunder or in connection therewith,
except as specified in Section 7.3 and for the provisions of Article
VIII which shall survive Termination; and
(c) Manager shall peacefully vacate and surrender possession
to Four Queens, and shall fully cooperate in the prompt and efficient
transfer of the management of the Project from Manager to Four Queens
or a person or entity designated by Four Queens. In connection with the
foregoing, Manager shall act in good faith to avoid any breach or
disruption of any contract involving the Project or the lapse of any
insurance policy covering or pertaining to the Project.
Section 7.5 Transfer of Permits and Gaming Licenses Upon Termination.
To the fullest extent permissible under applicable law, upon termination or
expiration of this Agreement, Manager shall cooperate in the transfer of any and
all permits, licenses or similar authorizations issued by any governmental body
(including, without limitation, the Nevada Gaming Authorities) relating to the
operation or management of any or all of the Project to the new manager.
Section 7.6 Option to Terminate. Elsinore will have the right to
terminate this Agreement on 90 days prior written notice if (i) three months
after William L. Westerman has given notice that he will retire as Chief
Executive Officer ("CEO") of Riviera Holdings Corporation or its subsidiary
Riviera Gaming Management, a successor acceptable to Elsinore has not been
appointed or (ii) three months after the death of William L. Westerman, a
successor acceptable to Elsinore has not been appointed.
If either Four Queens or Elsinore terminates this Agreement pursuant to
this Section 7.6 or Section 4.3, then any increase in the Management Fee due to
the Performance Fee payable under Section 4.1 will be calculated as follows: the
Performance Fee through the date of termination will be 25% of the increase of
(i) EBITDA through the date of termination over (ii) $666,666.67 times the
number of months elapsed in the Fiscal Year through the date of termination. The
Performance Fee will be paid to Manager promptly, but in no event later than 90
days after the termination date.
ARTICLE VIII: EXCULPATION AND INDEMNIFICATION.
Section 8.1 Exculpation. Manager, its Affiliates and each of their
respective officers, partners, directors, employees and agents shall not be
liable to the Companies or any person who has acquired an interest in either or
both of the Companies, for any losses sustained or liabilities incurred,
including monetary damages, as a result of any act or omission of Manager, its
Affiliates or any of their respective officers, partners, directors, employees
or agents, if the conduct of Manager or such other person did not constitute
actual fraud, gross negligence or willful or wanton misconduct ("Manager Conduct
Standard"). The negative disposition of any action, suit or proceeding by
judgment, order,
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settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not, of itself, create a presumption that Manager, its Affiliates or any
of their respective officers, partners, directors, employees or agents acted in
a manner contrary to the Manager Conduct Standard. Nothing contained in this
Agreement shall exculpate or limit Manager's liability for unlawful
misappropriation of the Companies' assets.
Section 8.2 Indemnification.
(a) Subject to the provisions of Section 8.2(b) hereof, the
Companies shall indemnify and hold harmless Manager, its Affiliates and
any of their respective officers, partners, directors, employees and
agents (each individually, an "Indemnitee"), from and against any and
all losses, claims, damages, liabilities, expenses (including
reasonable legal fees and expenses), judgments, fines, settlements and
other amounts arising from any and all claims, demands, actions, suits
or proceedings, civil, criminal, administrative or investigative, in
which an Indemnitee may be involved, or threatened to be involved, as a
party or otherwise, which relates to, or arises out of, the performance
of any duties and services for or on behalf of the Companies pursuant
to the terms and within the scope of this Agreement, regardless of
whether the liability or expense accrued at or relates to, in whole or
in part, any time before, on or after the date hereof. The negative
disposition of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not, of itself, create a presumption that an
Indemnitee acted in a manner contrary to the Manager Conduct Standard.
(b) An Indemnitee shall not be entitled to indemnification
under this Section 8.2 with respect to any claim, issue or matter in
which it has been finally adjudged in a nonappealable order that such
Indemnitee has breached the Manager Conduct Standard unless and only to
the extent that the court in which such action was brought, or another
court of competent jurisdiction, determines upon application that,
despite the adjudication of liability, in view of all of the
circumstances of the case, the Indemnitee is fairly and reasonably
entitled to indemnification for such liabilities and expenses as the
court may deem proper. In addition, notwithstanding anything to the
contrary contained in this Article VIII, an Indemnitee shall not be
entitled to indemnification under this Section 8.2 against losses
sustained or liabilities incurred if such losses or liabilities are
finally determined by a court of competent jurisdiction to have been
the direct result of the Manager Conduct Standard.
(c) In the event that any legal proceedings shall be
instituted or any claim or demand shall be asserted by any person in
respect of which payment may be sought by an Indemnitee under the
provisions of this Section 8.2, the Indemnitee shall promptly cause
written notice of the assertion of any such proceeding or claim of
which it has actual knowledge to be forwarded to the Companies. Upon
receipt of such notice, the Companies shall have the right, at their
option and expense, to be represented by counsel of their choice, and
to defend against, negotiate, settle or otherwise deal with any
proceeding, claim or demand which relates to any loss,
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liability, damage or deficiency indemnified against hereunder;
provided, however, that no settlement shall be made without prior
written consent of the Indemnitee which shall not be unreasonably
withheld; and provided further, that the Indemnitee may participate in
any such proceeding with counsel of its choice and at its expense. The
Indemnitee and the Companies agree to cooperate fully with each other
in connection with the defense, negotiation or settlement of any such
legal proceeding, claim or demand.
After any final judgment or award shall have been rendered by
a court, arbitration board or administrative agency of competent
jurisdiction and the expiration of the time in which to appeal
therefrom, or a settlement shall have been consummated, or the
Indemnitee and the Companies shall have arrived at a mutually binding
agreement with respect to each separate matter indemnified by the
Companies hereunder, the Indemnitee shall forward to the Companies
notice of any sums due and owing by it pursuant to this Agreement with
respect to such matter and the Companies shall be required to pay all
of the sums so owing to the Indemnitee in immediately available funds,
thirty (30) days after the date of such notice.
(d) The indemnification provided by this Section 8.2 shall be
in addition to any other rights to which an Indemnitee may be entitled
under any agreement, bylaw or vote of the Board of Directors of
Elsinore or Four Queens, respectively, or as a matter of law or
otherwise, both as to action in the Indemnitee's capacity as Manager,
an Affiliate thereof or an officer, partner, director, employee or
agent of Manager or its Affiliates and as to action in any other
capacity, shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of an Indemnitee.
ARTICLE IX: ARBITRATION
Section 9.1 Appointment of Arbitrators. All disputes arising out of or
connected with the subject matter of this Agreement are to be referred first to
a committee of four (4) persons who shall meet in an attempt to resolve said
dispute or open issue. The committee shall consist of two (2) persons appointed
by the Companies and two (2) persons appointed by Manager. If an agreement
cannot be reached to resolve the dispute by the committee, the dispute or open
issue will be resolved by binding arbitration. Any award of the arbitrators may
be filed in a court of law as a final judgment. Any such arbitration shall be
conducted in Las Vegas, Nevada in accordance with the rules and regulations
adopted by the American Arbitration Association. Either party may serve upon the
other party a written notice of the demand dispute or appraisal to be resolved
pursuant to this Article IX. Within thirty (30) days after the giving of such
notice, each of the parties hereto shall nominate and appoint an arbitrator (or
appraiser, as the case may be) and shall notify the other party in writing of
the name and address of the arbitrator so chosen. Upon the appointment of the
two (2) arbitrators as hereinabove provided, said two (2) arbitrators shall
forthwith, within fifteen (15) days after the appointment of the second
arbitrator, and before exchanging views as to the question at issue, appoint in
writing a third arbitrator who shall
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be experienced in the operation of a gaming casino (the "Selected Arbitrator")
and give written notice of such appointment to each of the parties hereto. In
the event that the two (2) arbitrators shall fail to appoint or agree upon the
Selected Arbitrator within said fifteen (15) day period, the Selected Arbitrator
shall be selected by the parties themselves if they so agree upon such Selected
Arbitrator within a further period of ten (10) days. If a Selected Arbitrator
shall not be appointed or agreed upon within the time herein provided, then
either party on behalf of both may request such appointment by the American
Arbitration Association (or its successor or similar organization if the
American Arbitration Association is no longer in existence). Said arbitrators
shall be sworn faithfully and fairly to determine the question at issue. The
arbitrators shall afford to the Companies and Manager a hearing and the right to
submit evidence, with the privilege of cross-examination, on the question at
issue, and shall with all possible speed make their determination in writing and
shall give notice to the parties hereto of such determination. The concurring
determination of any two (2) of said three (3) arbitrators shall be binding upon
the parties, or, in case no two (2) of the arbitrators shall render a concurring
determination, then the determination of the Selected Arbitrator shall be
binding upon the parties hereto. Each party shall pay the fees of the arbitrator
appointed by it, and the fees of the Selected Arbitrator shall be divided
equally between the Companies and Manager.
Section 9.2 Inability to Act. In the event that an arbitrator appointed
as aforesaid shall thereafter die or become unable or unwilling to act, his
successor shall be appointed in the same manner provided in this Article IX for
the appointment of the arbitrator so dying or becoming unable or unwilling to
act.
ARTICLE X: NOTICES
Notice given by a party under this Agreement shall be in writing and
shall be deemed duly given (i) when delivered by hand, (ii) when three (3) days
have elapsed after its transmittal by registered or certified mail, postage
prepaid, return receipt requested, or two (2) days have elapsed after its
transmittal by nationally recognized air courier service; or (iii) when
delivered by telephonic facsimile transmission (with a copy thereof so delivered
by hand, mail or air courier if recipient does not acknowledge receipt of the
transmission). Notices shall be sent to the addresses set forth below, or
another as to which that party has given notice, in each case with a copy
provided in the same manner and at the same time to the persons shown below
if to Elsinore or Four Queens to:
202 Fremont Street
P.O. Box 370
Las Vegas, Nevada 89101
Attention: President
Facsimile No: (702) 387-5142
with a copy to:
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Gordon & Silver, Ltd.
3800 Howard Hughes Parkway
14th Floor
Las Vegas, Nevada 89109
Attn: Gerald M. Gordon, Esq.
Facsimile No: (702) 369-2666
if to Manager to:
c/o William L. Westerman
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109-1935
Facsimile No: (702) 794-9277
with a copy to:
Dechert, Price & Rhoads
477 Madison Avenue
New York, New York 10022
Attn: Fredric J. Klink, Esq.
Facsimile No: (212) 308-2041
Any party may change the name and/or address by written notice given in
each instance to the other parties.
ARTICLE XI: MISCELLANEOUS
Section 11.1 Nevada Gaming Control Act and Nevada Gaming Authorities.
Notwithstanding anything to the contrary contained in this Agreement, this
Agreement shall be deemed to include all provisions required by the Nevada
Gaming Control Act, as amended, and the regulations promulgated thereunder (the
"Act"), and shall be conditioned upon the approval of the Nevada Gaming
Authorities as required by the Act. To the extent that any term or provision
contained in this Agreement shall be inconsistent with the Act, the provisions
of the Act shall govern. All provisions of the Act, to the extent required by
law to be included in this Agreement, are incorporated herein by reference as if
fully restated in this Agreement.
Section 11.2 Entire Agreement. This Agreement contains the entire
understanding of the parties to this Agreement in respect of its subject matter
and supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
Section 11.3 Amendment; Waiver. This Agreement may not be
modified, amended, supplemented, canceled or discharged, except by written
instrument executed by all of the parties to this Agreement. No failure to
exercise, and no delay in exercising, any right,
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power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between or among the parties. No extension of time for
performance of any obligations or other acts hereunder or under any other
agreement shall be deemed to be an extension of the time for performance of any
other obligations or any other acts.
Section 11.4 Binding Effect; Assignment; Combinations Involving
the Companies.
(a) The rights and obligations of this Agreement shall bind
and inure to the benefit of the parties (including their respective
officers, directors, employees, agents and Affiliates) and their
respective heirs, executors, successors and assigns. No party to this
Agreement shall have the right to assign this Agreement and its
respective rights and obligations hereunder without the consent of each
other party to this Agreement.
(b) If the termination option of Section 4.3 is not exercised,
the Companies agree that during the Term or the Extended Term they will
not enter into an agreement with a third party to sell substantially
all of the Project assets (as opposed to sale of equity securities) to
a third party unless, as a condition to such combination (i) Manager's
rights under this Agreement shall continue in full force and effect and
(ii) the third party shall agree to continue to pay to Manager the
Management Fee. In the event of a combination, it shall use its best
efforts to assert and protect, in good faith, Manager's rights granted
to Manager in this Agreement at all times during the negotiation of
said combination.
Section 11.5 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which together
shall constitute one and the same instrument.
Section 11.6 Terminology. The headings contained in this Agreement are
for convenience of reference only and are not to be given any legal effect and
shall not affect the meaning or interpretation of this Agreement.
Section 11.7 Governing Law. This Agreement shall be construed in
accordance with and governed for all purposes by the laws and public policy of
the State of Nevada applicable to contracts executed and to be wholly performed
within such State.
Section 11.8 Severability. If any provision of this Agreement, or the
application of any such provision to any person or circumstance, is held to be
inconsistent with any present or future law, ruling, rule or regulation of any
court or governmental or regulatory authority having jurisdiction over the
subject matter of this Agreement, such provision shall be deemed to be modified
to the minimum extent necessary to comply with such law, ruling,
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<PAGE>
rule or regulation, and the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those as to which it is
held inconsistent, shall not be affected. If any provision is determined to be
illegal, unenforceable, or void, which provision does not relate to any payments
made hereunder and the payments made hereunder shall not be affected by such
determination and this Agreement is capable of substantial performance, then
such void provision shall be deemed rescinded and each provision not so affected
shall be enforced to the extent permitted by law.
Section 11.9 No Third Party Benefits. This Agreement is for the benefit
of the parties hereto and their respective permitted successors and assigns. The
parties neither intend to confer any benefit hereunder on any person, firm or
corporation other than the parties hereto, nor shall any such third party have
any rights hereunder.
Section 11.10 Drafting Ambiguities. Each party to this Agreement and
its counsel have had an opportunity to review and revise this Agreement. The
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or of any amendments or exhibits to this Agreement.
Section 11.11 Attorneys' Fees. Should either party institute an
arbitration, action or proceeding to enforce any provisions hereof or for other
relief due to an alleged breach of any provision of this Agreement, the
prevailing party shall be entitled to receive from the other party all costs of
the action or proceeding and reasonable attorneys' fees.
Section 11.12 Limitations on Responsibilities of Manager. Manager shall
use its best efforts to render the services contemplated by this Agreement in
good faith to the Companies, but notwithstanding anything to the contrary which
may be expressed or implied in this Agreement, Manager hereby explicitly
disclaims any and all warranties, express or implied, including but not limited
to the success or profitability of the Project. In the performance of the
services contemplated by this Agreement, Manager shall not be liable to the
Companies for any acts or omissions in connection therewith, except which
constitute a breach of the Manager Conduct Standard and then only to the extent
of the Management Fees actually received by Manager, provided that so long as
Elsinore is controlled by affiliates of John C. Waterfall, Manager's liability
for breach of the Manager Conduct Standard shall not be limited to the
Management Fees received by Manager.
Section 11.13 No Violation. Nothing contained in this Agreement shall
entitle the Boards of Directors, Manager or any other persons acting for any of
the Companies or Manager to exercise control over the operation of the Casino or
other operations of the Project in a manner which would violate any regulation
of the Nevada Gaming Authorities.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by an authorized representative thereof, all as of
the day and year first above written.
ELSINORE: FOUR QUEENS:
Elsinore Corporation, a Nevada Four Queens, Inc., a Nevada
corporation corporation
By: _____________________________ By: ___________________________
Name:________________________ Name:______________________
Title:_______________________ Title:_____________________
MANAGER:
By: _____________________________
Name:________________________
Title:_______________________
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<PAGE>
Exhibit A
---------
WARRANTS TO PURCHASE SHARES
OF COMMON STOCK OF ELSINORE CORPORATION
[number of warrants]
This Warrant Certificate certifies that Riviera Gaming Management
Corporation - Elsinore (or registered assigned (the "Holder"), is the owner of
[number] Warrants (subject to adjustment as provided herein), each of which
represents the right to subscribe for and purchase from Elsinore Corporation, a
Nevada corporation (the "Company"), one share of the Common Stock, no par value,
of the Company (the common stock, including any stock into which it may be
changed, reclassified or converted, is herein referred to as the "Common Stock")
at the purchase price (the "Exercise Price") of [amount] per share (subject to
adjustment as provided herein). This Warrant Certificate represents Warrants
issued pursuant to a Management Agreement dated [date], between the Company and
Riviera Gaming Management Corporation - Elsinore (the "Management Agreement").
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ARE SUBJECT TO CERTAIN RESTRICTIONS, CONTAINED IN
PARAGRAPHS 5 AND 6 HEREOF, WITH RESPECT TO THEIR TRANSFER.
The Warrants represented by this Warrant Certificate are subject to the
following provisions, terms and conditions:
1. Exercise of Warrants. The Warrants may be exercised by the Holder,
in whole or in part (but not as to a fractional share of Common Stock), by
surrender of this Warrant Certificate at the principal office of the Company at
[address] (or such other office or agency of the Company as may be designated by
notice in writing to the Holder at the address of such Holder appearing on the
books of the Company), with the appropriate form attached hereto duly exercised,
at any time within the period beginning on the date hereof and expiring at the
same time as the Term or Extended Term under the Management Agreement expires
(the "Exercise Period") and by payment to the Company by certified check or bank
draft of the purchase price for such shares. The Company agrees that the shares
of Common Stock so purchased shall be and are deemed to be issued to the Holder
as the record owner of such shares of Common Stock as of the close of business
on the date on which the Warrant Certificate shall have been surrendered and
payment made for such shares of Common Stock. Certificates representing the
shares of Common Stock so purchased, together with any cash for fractional
shares of Common Stock paid pursuant to Section 2E, shall be delivered to the
Holder promptly and in no event later than ten (10) days after the Warrants
shall have
<PAGE>
been so exercised, and, unless the Warrants have expired, a new Warrant
Certificate representing the number of Warrants represented by the surrendered
Warrant Certificate, if any, that shall not have been exercised shall also be
delivered to the Holder within such time.
2. Adjustments. The Exercise Price and the number of shares of
Common Stock issuable upon exercise of each Warrant shall be subject to
adjustment from time to time as follows:
(1) Stock Dividends; Stock Splits; Reverse Stock Splits;
Reclassifications. In case the Company shall (i) pay a
dividend with respect to its capital stock in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of any class of Common Stock or (iv)
issue any shares of its capital stock in a reclassification of
the Common Stock (including any such reclassification in
connection with a merger, consolidation or other business
combination in which the Company is the continuing
corporation) (any one of which actions is herein referred to
as an "Adjustment Event"), the number of shares of Common
Stock purchasable upon exercise of each Warrant immediately
prior to the record date for such Adjustment Event shall be
adjusted so that the Holder shall thereafter be entitled to
receive the number of shares of Common Stock or other
securities of the Company (such other securities thereafter
enjoying the rights of shares of Common Stock under this
Warrant Certificate) that such Holder would have owned or have
been entitled to receive after the happening of such
Adjustment Event, had such Warrant been exercised immediately
prior to the happening of such Adjustment Event or any record
date with respect thereto. An adjustment made pursuant to this
Section 2A(I) shall become effective immediately after the
effective date of such Adjustment Event retroactive to the
record date, if any, for such Adjustment Event.
(2) Distributions of Subscription Rights or Convertible
Securities. In case the Company shall fix a record date for
the making of a distribution to all holders of shares of
Common Stock of rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock (excluding those referred
to in Section 2A(S) below), then in each case the number of
shares of Common Stock purchasable after such record date upon
the exercise of each Warrant shall be determined by
multiplying the number of shares of Common Stock purchasable
upon the exercise of each Warrant immediately prior to such
record date by a fraction, the numerator of which shall be the
then Current Market Value (as defined in Section 2A(3) below)
of one share of Common Stock on the record date for such
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<PAGE>
distribution and the denominator of which shall be the then
Current Market Value of one share of Common Stock on the
record date for such distribution less the then fair value (as
determined by the independent Financial Expert (as defined in
Section 2A(3) below), of such subscription rights, options or
warrants, or of such convertible or exchangeable securities
distributed with respect to one such share of Common Stock.
Such adjustment shall be made whenever any such distribution
is made and shall become effective on the date of distribution
retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(3) Current Market Value. For the purpose of any computation
under this Section 2, the Current Market Value of one share of
Common Stock or of any other security (herein collectively
referred to as a "security") at the date herein specified
shall be (1) if the Company does not have a class of equity
securities registered under the Securities Exchange Act of
1934 (the "Exchange Act"), the value of the security (a)
determined in good faith in the most recently completed
armslength transaction between the Company and a third party
who is not an affiliate of the Company in which such
determination is necessary and the closing of which occurs on
such date or shall have occurred within the six months
preceding such date, provided that the Board of Directors of
the Company shall in good faith determine that any such value
represents a reasonable estimate of the fair value of a share
of Common Stock as of such date, (b) if no such transaction
shall have occurred on such date or within such six-month
period, most recently determined as of a date within the six
months preceding such date by an Independent Financial Expert
(in the event of more than one such determination, the
determination for the later date shall be used) or (c) if no
such determination shall have been made within such six month
period, determined as of such date by an Independent Financial
Expert, or (2) if the Company does have a class of equity
securities registered under the Exchange Act, deemed to be the
average of the daily market prices of the security for five
trading days before such date or, if the Company has had a
class of equity securities registered under the Exchange Act
for less than five trading days before such date, then the
average of the daily market prices for all of the trading days
before such date for which daily market prices are available.
For purposes of this Section 2 an affiliate of a person shall
mean any other person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is
under common control with, such person. For purposes of this
definition, control means the power to direct the management
and policies of a person, directly or indirectly, whether
through the ownership of voting securities, by contract or
otherwise.
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<PAGE>
The market price for each such business day shall be:
(A) in the case of a security listed or admitted to trading on
any securities exchange, the closing price, regular way, on
such day, or if no sale takes place on such day, the average
of the closing bid and asked prices on such day, (B) in the
case of a security not then listed or admitted to trading on
any securities exchange, the last reported sale price on such
day, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a
reputable quotation source designated by the Company, (C) in
the case of a security not then listed or admitted to trading
on any security exchange and as to which no such reported sale
price or bid and asked prices are available, the average of
the reported high bid and low asked prices on such day, as
reported by a reputable quotation services, or a newspaper of
general circulation in the Borough of Manhattan, City and
State of New York, customarily published on each business day,
designated by the Company, or if there shall be no bid and
asked prices on such day, the average of the high bid and low
asked prices, as so reported, on the most recent day (not more
than five days prior to the date in question) for which prices
have been so reported, and (D) if there are no bid and asked
prices reported during the five days prior to the date in
question, the Current Market Value of the security shall be
determined as if the Company did not have a class of equity
securities registered under the Exchange Act.
For purposes of this Section 2A(3), an Independent
Financial Expert shall mean a nationally recognized investment
banking firm (i) which does not (and whose directors,
officers, employees and affiliates do not), have a direct or
indirect financial interest in the Company (other than the
beneficial ownership, directly or indirectly, of less than
three percent of the outstanding shares of capital stock of
the Company), (ii) which has not been, and, at the time it is
called upon to give independent financial advise to the
Company, is not (and none of whose directors, officers,
employees or affiliates is) a promoter, director or officer of
the Company or any of its affiliates or an underwriter with
respect to any of the Company's securities, (iii) which does
not provide any advise or opinions to the Company except as an
Independent Financial Expert and (iv) which is mutually
agreeable to the Company and the holders of a majority of the
Warrants. If the Company and the holders of a majority of the
Warrants do not promptly agree as to the Independent Financial
Expert, each shall appoint one investment banking firm and the
two firms so appointed shall select the Independent Financial
Expert to be employed by the Company. An Independent Financial
Expert may be compensated by the Company for opinions or
services it provides as an Independent Financial Expert. In
making its determination of the value of the Common Stock, the
Independent Financial Expert shall use one or more valuation
methods that
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<PAGE>
the Independent Financial Expert, in its best professional
judgment, determines to be most appropriate. After the
Independent Financial Expert has made its determination, the
Company shall cause the Independent Financial Expert to
prepare a report (a "Value Report") stating the methods of
valuation considered or used and the value of the Common Stock
or other security it values and containing a statement as to
the nature and scope of the examination made. Such Value
Report shall accompany any Adjustment Notice (as defined in
Section 2B) sent by the Company to the Holder pursuant to
Section 2B; provided, that the adjustment to the Exercise
Price that is the subject of such Adjustment Notice requires
the services of an Independent Financial Expert.
(4) Adjustment of Exercise Price. Whenever the number of
shares of Common Stock purchasable upon the exercise of each
Warrant is adjusted pursuant to Sections 2A(1) and 2A(2), the
Exercise Price for each share of Common Stock payable upon
exercise of each Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a
fraction, the numerator of which shall be the number of shares
of Common Stock purchasable upon the exercise of each Warrant
immediately prior to such adjustment, and the denominator of
which shall be the number of shares of Common Stock so
purchasable immediately thereafter.
(5) Issuance of Common Stock to Stockholders of Less Than
Current Market Value. In the event that the Company sells and
issues [to a stockholder of the Company or to any "affiliate"
of such stockholder] shares of any Common Stock, or rights,
options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of
Common Stock [excluding (i) shares, rights, options, warrants
or convertible or exchangeable securities issued in any of the
transactions described in Sections 2A(1) and 2A(2) above, (ii)
the Warrants and any shares of Common Stock issuable upon
exercise thereof, (iii) shares of Common Stock or other
securities, or options or rights in respect thereof, issued to
full-time employees of the Company or its subsidiaries in the
ordinary course of business as compensation for services
rendered or to be rendered or as part of an employee incentive
program and (iv) shares of common stock or other securities
issued upon exercise, conversion or exchange of rights,
options, warrants or convertible or exchangeable securities
issued in any of the transactions described in Sections 2A(1)
and 2A(2) above or in a transaction with respect to which no
adjustment was required pursuant to this Section 2A (but
including shares, rights, options, warrants or convertible or
exchangeable securities issued as consideration in any merger,
consolidation or other business combination)] at a price per
share of Common Stock (determined, in the case of such rights,
options, warrants or convertible or exchangeable securities,
by dividing (X) the total
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<PAGE>
amount receivable by the Company in consideration of the sale
and issuance of such rights, options, warrants or convertible
or exchangeable securities (which amount may be zero if such
rights, options, warrants or convertible or exchangeable
securities are issued without consideration), plus the total
consideration payable to the Company upon exercise, conversion
or exchange thereof, by (Y) the total number of shares of
Common Stock covered by such rights, opinions, warrants or
convertible or exchangeable securities) that is lower than the
then Current Market Value per share of such Common Stock (as
determined by the Independent Financial Expert in accordance
with Section 2A(3) above) in effect immediately prior to such
sale and issuance, then the Exercise Price shall be adjusted
(calculated to the nearest $0.01) so that it shall equal the
price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of
which shall be (i) an amount equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior
to such sale and issuance plus (B) the number of shares of
Common Stock which the aggregate consideration received
(determined as provided below) for such sale or issuance would
purchase at such Current Market Value per share, and the
denominator of which shall be (ii) the total number of shares
of Common Stock outstanding (determined as provided below)
immediately after such sale and issuance. Such adjustment
shall be made successively whenever such an issuance is made.
Upon the occurrence of a sale and issuance described
in the preceding paragraph, the number of shares of Common
Stock purchasable under the exercise of this Warrant shall be
that number determined by multiplying the number of shares of
Common Stock issuable upon exercise immediately prior to such
adjustment by a fraction, the numerator of which is the
Exercise Price in effect immediately prior to such adjustment
and the denominator of which is the Exercise Price as so
adjusted.
For the purposes of such adjustments, the shares of
Common Stock which the holder of any such rights, options,
warrants or convertible or exchangeable securities shall be
entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale and
issuance and the consideration received by the Company
therefor shall be deemed to be the consideration received by
the Company for such rights, options, warrants or convertible
or exchangeable securities (which consideration may be zero if
such rights, options, warrants or convertible or exchangeable
securities are issued without consideration), plus the
consideration or premiums stated in such rights, options,
warrants or convertible or exchangeable securities to be paid
for the shares of any Common Stock covered thereby. In case
the Company shall sell and issue, in a transaction to which
this paragraph 2A(5) applies, shares of Common
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<PAGE>
Stock or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, for consideration
consisting, in whole or in part, of property other than cash
or its equivalent, then determining the "price per share of
Common Stock" and the "consideration received by the Company"
for purposes of the first sentence of this Section 2A(5), the
Board of Directors of the Company shall determine, in good
faith, the fair value of the rights, options, warrants or
convertible or exchangeable securities then being sold as part
of such unit. There shall be no adjustment of the Exercise
Price pursuant to this Section 2A(5) if the amount of such
adjustment shall be less than $0.01 per share of Common Stock;
provided, however, that any adjustments which by reason of
this provision are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(6) Expiration of Rights Options and Conversion Privileges.
Upon the expiration without being exercised of any rights,
options, warrants or conversion or exchange privileges for
which an adjustment has been made pursuant to this Warrant,
the Exercise Price and the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted and shall thereafter, upon any
future exercise, be such as they would have been had they been
originally adjusted (or had the original adjustment not be
required, as the case may be) as if (A) the only shares of
Common Stock so issued were the shares of such Common Stock,
if any, actually issued or sold upon the exercise of such
rights, options, warrants or conversion or exchange rights and
(B) such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon
such exercise plus the consideration, if any, actually
received by the Company for issuance, sale or grant of all
such rights, options, warrants or conversion or exchange
rights whether or not exercised; provided, that no such
readjustment shall have the effect of increasing the Exercise
Price by an amount, or decreasing the number of shares
purchasable upon exercise of each Warrant by a number, in
excess of the amount or number of the adjustment initially
made in respect to the issuance, sale or grant of such rights,
options, warrants or conversion or exchange rights.
(7) De Minimis Adjustments. Except as provided in Section
2A(5) with reference to adjustments required by such Section
2A(5), no adjustment in the number of shares of Common Stock
purchasable hereunder shall be required unless such adjustment
would require an increase or decease of at least 1.0% percent
in the number of shares of Common Stock purchasable upon an
exercise of each Warrant; provided, however, that any
adjustments which by reason of this Section 2A(7) are not
required to be made shall be
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<PAGE>
carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest full
share.
(8) Duty to Make Fair Adjustments in Certain Cases. If any
event occurs as to which in the opinion of the Board of
Directors the other provisions of this Section 2A are not
strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Warrants in accordance with
the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such
essential intent and principles, so as to protect such
purchase rights as aforesaid.
(9) Adjustment for Asset Distributions. If the Company shall
fix a record date for the making of a distribution to all
holders of shares of Common Stock of evidence of indebtedness
of the Company or other assets (other than ordinary cash
dividends not in excess of the retained earnings of the
Company determined by the application of generally accepted
accounting principles), then the Exercise Price for each share
of Common Stock payable upon exercise of each Warrant shall be
reduced by the then fair value (as determined by the
Independent Financial Expert (as defined in Section 2A(3)
above)) of the indebtedness or other assets distributed in
respect of one such share. Such adjustment shall be made
whenever any such distribution is made and shall become
effective on the date of distribution retroactive to the
record date for the determination of stockholders entitled to
receive such distribution.
A. Notice of Adjustment. Whenever the number of shares of
Common Stock purchasable upon the exercise of each Warrant or the Exercise Price
is adjusted, as herein provided, the Company shall promptly notify the Holder in
writing (such writing referred to as an "Adjustment Notice") of such adjustment
or adjustments and shall deliver to such Holder a certificate of a firm of
independent public accountants selected by the Board of Directors of the Company
(who may be the regular accountants employed by the Company) or of the
Independent Financial Expert, if any, which makes a determination of Current
Market Value with respect to any such adjustment setting forth the number of
shares of Common Stock purchasable upon the exercise of each Warrant and the
Exercise Price after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made.
B. Statement on Warrant Certificates. The form of this
Warrant Certificate need not be changed because of any change in the Exercise
Price or in the number or kind of shares purchasable upon the exercise of a
Warrant and any Warrant Exercise Price and the same number and kind of shares as
are stated in this Warrant Certificate. However, the Company may at the time in
its sole discretion make any
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<PAGE>
change in the form of the Warrant Certificate that it may deem appropriate and
that does not affect the substance thereof and any Warrant Certificate
thereafter issued, whether in exchange or substitution for any outstanding
Warrant Certificate or otherwise, may be in the form so changed.
C. Notice to Holder of Record Date, Dissolution, Liquidation
or Winding Up. The Company shall cause to be mailed (by first class mail,
postage prepaid) to the Holder of such of the record date for any dividend,
distribution or payment, in cash or in kind (including, without limitation,
evidence of indebtedness and assets), with respect to shares of Common Stock at
least 20 calendar days before any such date. In case at any time after the date
hereof, there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall cause to be mailed (by first
class mail, postage prepaid) to the Holder at such Holder's address as shown on
the books of the Company, at the earliest practicable time (and, in any event,
not less than 20 calendar days before any date set for definitive action),
notice of the date on which such dissolution, liquidation or winding up shall
take place, as the case may be. The notices referred to above shall also specify
the date as of which the holders of the shares of Common Stock of record or
other securities underlying the Warrants shall be entitled to receive such
dividend, ties, money or the property deliverable upon such dissolution,
liquidation or winding up, as the case may be (the "Entitlement Date"). In the
case of a distribution of evidence of indebtedness or assets (other than in
dissolution, liquidation or winding up) which has the effect of reducing the
Exercise Price to zero or less pursuant to Section 2A(9), if the Holder elects
to exercise the Warrants in accordance with Section I and become a holder of the
Common Stock on the Entitlement Date, the Holder shall thereafter receive the
evidence of indebtedness or assets distributed in respect of shares of Common
Stock. In the case of any dissolution, liquidation or winding up of the Company,
the Holder shall receive on the Entitlement Date the cash or other property,
less the Exercise Price for the Warrants then in effect, that such Holder would
have been entitled to receive had the Warrants been exercisable and exercised
immediately prior to such dissolution, liquidation or winding up (or, if
appropriate, record date therefor) and any right of a Holder to exercise the
Warrants shall terminate.
E. Fractional Interests. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of the Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same holder, the number of full shares of Common Stock which shall be issuable
upon such exercise shall be computed on the basis of the aggregate number of
whole shares of Common Stock purchasable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock would, except for the
provisions of this Section 2E be issuable on the exercise of the Warrants (or
specified proportion thereof), the Company shall pay an amount in cash
calculated by it to be equal to the then fair value of one share of Common
Stock, as determined by the Board of Directors of the company in good faith,
multiplied by such fraction computed to the nearest whole cent.
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<PAGE>
3. Reservation and Authorization of Common Stock. The Company covenants
and agrees (A) that all shares of Common Stock which may be issued upon the
exercise of the Warrants represented by this Warrant Certificate will, upon
issuance, be validly issued, fully paid and nonassessable and free of all
insurance or transfer taxes, liens and charges with respect to the issue
thereof, (b) that during the Exercise Period, the Company will at all times have
authorized, and reserved for the purpose of issue or transfer upon exercise of
the Warrants evidenced by this Warrant Certificate, sufficient shares of Common
Stock to provide for the exercise of the Warrants represented by this Warrant
Certificate, and (c) that the Company will take all such action as may be
necessary to ensure that the shares of Common Stock issuable upon the exercise
of the Warrants may be so issued without violation of any applicable law or
regulation, or any requirements of any domestic securities exchange upon which
any capital stock of the Company may be listed, provided, however, that nothing
contained herein shall impose upon the Company any obligation to register the
warrants evidenced by this Warrant Certificate or such Common Stock under
applicable securities laws except as provided in the Investment Agreement. In
the event that any securities of the Company other than the Common Stock are
issuable upon exercise of the Warrants, the Company will take or refrain from
taking any action referred to in clauses (A) through (c) of this Section 3 as
though such clauses applied, mutatis mutandis to such other securities then
issuable upon the exercise the Warrants.
4. No Voting Rights. This Warrant Certificate shall not entitle
the holder hereof to any voting rights or other rights as a stockholder of the
Company.
5. Exercise or Transfer of Warrants or Common Stock. The Holder of this
Warrant Certificate agrees to be bound by the provisions contained in the
Warrant Purchase Agreement with respect to the limitations, including
limitations imposed for Securities Act compliance, on the transfer of the
Warrants and the shares of Common Stock or other securities issuable upon
exercise of the Warrants.
6. Warrants Transferable. Subject to the provision of Section 5, this
Warrant Certificate and the Warrants it evidences are transferrable, in whole or
in part, without charge to the Holder, at the office or agency of the Company
referred to in Section 1, by the Holder in person or by duly authorized
attorney, upon surrender of this Warrant Certificate properly endorsed. Each
taker and Holder of this Warrant Certificate, by taking or holding the same,
consents and agrees that this Warrant Certificate, when endorsed in blank, shall
be deemed negotiable, and that the Holder, when this Warrant Certificate shall
have been so endorsed, may be treated by the Company and all other persons
dealing with this Warrant Certificate as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant Certificate, or to the transfer hereof on the books of the Company, any
notice to the contrary notwithstanding; but until such transfer on such books,
the Company may treat the registered holder hereof as the owner for all
purposes.
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7. Registration. The Holder and certain successors of the Holder are
entitled to the benefits of a Registration Rights Agreement, a copy of which is
on file at the offices of the Company.
8. Closing of Books. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Common Stock or
other securities issuable upon the exercise of any Warrant in any manner which
interferes with the timely exercise of the Warrants.
9. Warrants Exchangeable, Loss, Theft. This Warrant Certificate is
exchangeable, upon the surrender hereof of any Holder at the office or agency of
the Company referred to in Section 1, for new Warrant Certificates of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each such new Warrant to represent the right to subscribe and purchase such
number of shares of Common Stock as shall be designated by said holder hereof at
the time of such surrender. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation, upon surrender or cancellation of
this Warrant Certificate, the Company will issue to the holder hereof a new
Warrant Certificate of like tenor, in lieu of this Warrant Certificate,
representing the right to subscribe for and purchase the number of shares of
Common Stock which may be subscribed for and purchased hereunder.
10. Mergers, Consolidations, Etc.
A. Except as may otherwise be provided in Section 2A(5), if
the Company shall merge or consolidate with another corporation, the holder of
this Warrant shall thereafter have the right, upon exercise hereof and payment
of the Exercise Price, to receive solely the kind and amount of shares of stock
(including, if applicable, Common Stock), other securities, property or cash or
any combination thereof receivable by a holder of the number of shares of Common
Stock for which this Warrant might have been exercised immediately prior to such
merger or consolidation (assuming, if applicable, that the holder of such Common
Stock failed to exercise its rights of election, if any, as to the kind or
amount of shares of stock, other securities, property or cash or combination
thereof receivable upon such merger or consolidation).
B. In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than elimination or
par value, a change in par value, or from par value to no par value, or as the
result of a subdivision or combination of shares (which is provided for
elsewhere herein), but including any reclassification of the shares of Common
stock into two or more classes or series of shares) or in case of any merger or
consolidation of another corporation into the Company in which the Company is
the surviving corporation and in which there is a reclassification or change of
the shares of Common Stock (other than a change in par
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value, or from par value to no par value, or as a result of a subdivision or
combination (which is provided for elsewhere herein), but including any
reclassification of the shares of Common Stock this Warrant shall thereafter
have the right, upon exercise hereof and payment of the Exercise Price, to
receive solely the kind and amount of shares of stock (including, if applicable,
Common Stock), other securities, property or cash or any combination thereof
receivable upon such reclassification, change, merger or consolidation by a
holder of the number of shares of Common Stock for which this Warrant might have
been exercised immediately prior to such reclassification, change, merger or
consolidation (assuming, if applicable, that the holder of such Common Stock
failed to exercise its rights of election, if any, as to the kind or amount of
shares of stock, other securities, property or cash or combination thereof
receivable upon such reclassification, change, merger or consolidation).
11. Rights and Obligations Survive Exercise of Warrants. The rights and
obligations of the Company, of the Holder, and of the holders of shares of
Common Stock or other securities issued upon exercise of the Warrants, contained
in Sections 5 and 7 of this Warrant Certificate shall survive the exercise of
the Warrants.
Dated: [date].
ELSINORE CORPORATION
By:_______________________________
Attest:
_________________________________
[secretary]
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EXHIBIT 10.31
EMPLOYMENT AGREEMENT
Employment Agreement, dated as of November 21, 1996 (this
"Agreement"), by and between Riviera Holdings Corporation and its wholly-owned
subsidiary Riviera Operating Corporation (collectively the "Company") and
William L. Westerman ("Executive").
This Agreement is intended to replace the Employment
Agreement, dated as of January 6, 1993, as amended, between the Company and
Executive (the "Old Agreement") effective as of January 1, 1997 and to provide
for certain amendments to the terms of the Old Agreement effective as of the
date of this Agreement.
The Company's Board of Directors and the Compensation
Committee of the Board of Directors have approved this Agreement, subject to
ratification by the Company's stockholders. In entering into this Agreement and
in particular in amending the "Option Plan" (hereinafter defined) and in
granting the "Additional Options" (hereinafter defined) to Executive, the
Company acknowledges that (i) Executive has surrendered extremely valuable
rights under the Old Agreement, including the right to receive 8-3/4% of the
Company's Operating Income (as defined in the Old Agreement) in excess of $20
million in each year of the Term and (ii) Executive is not prepared to continue
to act as the Company's chief executive officer unless he receives either the
benefits specified in the Old Agreement or in this Agreement.
If the Company's stockholders do not ratify this Agreement by
June 30, 1997, the Old Agreement will remain in full force and effect from
January 1, 1997, and this Agreement shall be null and void, except for the
"Special Retirement Credit" provisions of Section 6(a), which became effective
on November 21, 1996 and shall remain in full force and effect. If the Company's
stockholders do ratify this Agreement, the provisions hereof shall be effective
on January 1, 1997 except for those provisions which become effective on
November 21, 1996.
In consideration of the mutual agreements hereinafter set
forth, the parties hereto agree as follows:
1. Employment. During the "Term" (hereinafter defined)
the Company agrees to employ Executive as Chairman of the Board, President and
Chief Executive Officer of the Company during the Term (as defined in Section 2
below) upon the terms and conditions and for the compensation herein provided,
and Executive agrees to be so
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employed and to render the services herein specified. Executive will also serve
as a member of the Company's Board of Directors during the Term.
2. Term of Employment. The initial term of employment of
Executive hereunder (the "Initial Term") will be for the two-year period
commencing on January 1, 1997 and ending on December 31, 1998. The Initial Term
will be automatically renewed for successive one year terms (each such renewal
term being an "Extended Term" and the Initial Term, together with any Extended
Terms being referred to herein as the "Term") unless (i) Company gives Executive
at least 90 days' written notice of termination ("Company Termination Notice"),
(ii) Executive gives Company at least 180 days written notice of termination
("Executive Termination Notice") or (iii) unless the Term is terminated earlier
by Company or Executive pursuant to the provisions of Section 11 of this
Agreement. If both a Company Termination Notice and an Executive Termination
Notice have been given the termination notice first given shall control.
3. Duties. During the Term Executive agrees to devote his full
and exclusive business time and attention to the business of the Company and its
subsidiaries (4 weeks vacation and sick leave in accordance with the Company's
policy and personal time consistent with his position excluded); to devote his
best efforts to the best of his skill, energy, experience and judgment to such
duties. Executive shall have all the powers and agrees to perform all of the
duties associated with his position as Chief Executive Officer of the Company,
subject to such policies and guidelines as may be established by the Company's
Board of Directors.
4. Salary. During the Term Executive shall receive a salary
at the rate of $600,000 per annum, payable bi-weekly in arrears ("Base Salary").
5. Bonus. Executive shall be entitled to participate in the
Company's Senior Management Compensation Plan or such other Executive bonus plan
as shall be established by the Company's Board of Directors (collectively the
"Plan"). When at least 80% of targeted "Net Income", as defined by the Plan, is
met, the Company has agreed that Executive shall be entitled to receive a bonus
("Bonus") under the Plan expressed as a percentage of Base Salary depending upon
the percentage of budgeted Net Income realized as specified on Schedule A.
6. Retirement Benefits.
(a) Credits to Account. A general ledger account (referred to
as the "Retirement Account"), has been established by the Company for the
purpose of reflecting retirement benefits for Executive (the "Retirement
Benefits"). As at January 1, 1996, the Company had credited the Retirement
Account with an aggregate of $1,710,000 and, as of
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December 31, 1996, will credit the Retirement Account by the amount by which
Executive's incentive compensation under the Old Agreement for the year 1996
exceeds $600,000 ("Special Retirement Credit"). On January 1 of each year during
the Term commencing January 1, 1997, the Company shall credit to the Retirement
Account an amount equal to the Base Salary, to be paid to Executive for the
current year of the Term which begins on such January 1, subject to the
provisions of Section 3(b). Executive shall be deemed to be 100% vested in all
Retirement Benefits in the Retirement Account. The Retirement Account shall be
credited with additional amounts ("Interest Payments") on April 1, 1997 and on
the first day of each succeeding calendar quarter equal to the product of (i)
the Company's average borrowing cost for the immediately preceding fiscal year,
as determined by the Company's chief financial officer (the "Interest Rate") and
(ii) the average outstanding balance credited to the Retirement Account for the
immediately preceding calendar quarter. Anything in the foregoing
notwithstanding, in the event Executive is terminated for "Cause" (as defined in
Section 11(b)(3)), Executive shall forfeit any and all rights to Retirement
Benefits, and the Company shall have no further obligation to Executive for
payment thereof.
(b) Rights to Retirement Account. The Company shall retain
beneficial ownership of all monies in the Retirement Account, which it may
earmark to pay the Executive's Retirement Benefits (however, such funds are to
be subject to the interests of the general creditors of the Company).
Notwithstanding the foregoing, upon the occurrence of the earlier of (i) the
affirmative vote of the then holders of a majority of the then outstanding
shares of the Company's common stock approving a "Change of Control" (as defined
in Section 11(d)), (ii) an Event of Default by the Company under Subsection
11(a)(1) or Subsection 11(a)(2) or (iii) the expiration or earlier termination
of the Term for any reason (other than "Cause" as defined in Section 11(b)(3)),
Executive may require, upon written notice delivered to the Company (within 30
days following such event) that, within 30 days following receipt of such
notice, the Company establish a "Rabbi Trust" in the form attached hereto as
Schedule B and transfer to such Rabbi Trust an amount of cash equal to the
amount credited to the Retirement Account, including any additional amount
credited to the Retirement Account under Subsection 11(c)(2)(ii), to be held and
administered in accordance with the terms of such Rabbi Trust. Upon the
crediting of any Base Salary Credits (as defined above) to the Retirement
Account under Subsection 6(a) of this Agreement following the establishment of
the Rabbi Trust, the Company shall transfer an additional amount of cash to the
Rabbi Trust equal to the amount of such Base Salary Credits, to be held and
administered in accordance with the terms of such Rabbi Trust.
(c) Benefits. The Retirement Benefits are to be paid as
deferred compensation as follows:
(1) Payment Upon Termination Including Disability. Upon
termination of Executive's employment, other than termination by the Company
for Cause,
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including, but not limited to termination because of "Disability" (as defined in
Subsection (5) below), the Company shall pay to Executive in 20 equal quarterly
installments the amount credited to the Retirement Account as of the Termination
Date and the Company shall also pay to Executive as an addition to each such
quarterly payment the additional amounts credited to the Retirement Account
during the preceding quarter.
(2) Payment Upon Death of Executive. Upon the death of
Executive at any time prior to the complete payment of amounts credited to the
Retirement Account, all subsequent payments shall be made to the Executive's
"Designated Beneficiary" (as defined below) in the same amount and on the same
schedule as specified in (1) above provided that the date of death of Executive
shall be treated as the Termination Date if no Termination Date has previously
occurred and further provided that Company shall make within eight months of
Executive's death a special payment equal to 60% of the value as of the date of
Executive's death of all remaining payments hereunder and such special payment
shall be treated a an acceleration of the final payments due.
(3) Designated Beneficiaries; Death of Executive or
Designated Beneficiary. A "Designated Beneficiary" to whom amounts are payable
under this Subsection 6(c) shall be the person designated in writing by the
Executive on a form substantially similar to the form attached hereto as
Schedule B (a "Beneficiary Designation Form") that is delivered to the
Company prior to the Executive's death. Any such Beneficiary Designation
Form may be revoked in writing by the Executive or may be changed, without
the consent of any prior Designated Beneficiary, by the Executive's
delivery to the Company of a Beneficiary Designation Form of later date
revoking the prior form or specifying a new Designated Beneficiary. If the
Executive fails to designate a Designated Beneficiary or if a Designated
Beneficiary does not survive the Executive, all installments payable
hereunder shall be paid to the Executive's personal representative or
pursuant to the terms of the Executive's will or the laws of descent and
distribution. If a Designated Beneficiary survives the Executive,
but dies prior to receiving all remaining installment payments to be paid
hereunder, any remaining installment payments shall be paid to the Designated
Beneficiary's personal representative or pursuant to the terms of such
Designated Beneficiary's will or the laws of descent and distribution.
(4) Disability Determination. Executive shall be deemed
to have become disabled ("Disability") for purposes of this Agreement, if
Company shall find on the basis of medical evidence satisfactory to it that
Executive is so totally mentally or physically disabled as to be unable to
engage in further employment by Company and that such disability shall be
determined to be such that it will cause, or actually does cause or has caused,
Executive to be absent from work for a period, or aggregate of periods,
in excess of three months in any one twelve month period.
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(5) Payment Commencement. The installment payments to be
made to the Executive or Executive's estate, as the case may be, under
Subsections (d)(1) or (d)(2), shall commence on the first day of the
calendar quarter following the Termination Date. The installment payments
to be made to the designated beneficiary upon the death of Executive shall
commence on a date to be selected by Company but within six (6) months from
Executive's date of death. Each installment payment shall be equal to the
amount credited to the Retirement Account immediately prior to the date of such
payment, divided by the remaining number of installment payments to be paid.
(6) No Trust. Except to the extent that a Rabbi Trust is
created pursuant to Section 6(b), nothing contained herein and no action taken
pursuant to the provisions of this Agreement shall create or be construed
to create a trust of any kind, or a fiduciary relationship between Company
and Executive, his Designated Beneficiary or any other person.
(7) No Assignment. The right of Executive or any other
person to the payment of deferred compensation or other benefits under this
Agreement shall not be assigned, transferred, pledged, or encumbered except
by will or by the laws of descent and distribution.
(8) Incapacity of Beneficiary. If the Company shall find
that any person to whom any payment is payable under this Agreement is unable to
care for his other affairs because of illness or accident or is a minor, any
payment due (unless a prior claim therefor shall have been made by a
duly appointed guardian, committee, or other legal representative) may be paid
to the spouse, a child, parent, or brother or sister, or to any person deemed
by Company to have incurred expense for such person otherwise entitled to
payment, in accordance with the applicable provisions of this Section 6.
Any such payment shall be a complete discharge of the Company's liabilities
under this Agreement.
7. Profit Sharing and 401(k) Plan. In addition to the Base
Salary, Bonus and Retirement Benefits, Executive shall be eligible for
participation in the Defined Contribution Plan adopted by Company by Adoption
Agreement, dated April 1, 1992, as modified pursuant to the provisions set forth
on the Term Sheet attached hereto as Schedule C and made a part hereof.
8. Additional Benefits and Compensation. During the
Term, Executive shall be entitled to:
(a) life insurance, group health insurance, including
major medical and hospitalization, comparable to such benefits offered to
other key executives of the Company;
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(b) reimbursement for all reasonable expenses incurred by
Executive in connection with the performance of his duties and in accordance
with any applicable policy of the Board (including 100% of reasonable travel and
entertainment expenses), subject to submission of appropriate documentation
therefor; and
(c) four weeks paid vacation during each year of the Term.
9. Options. On November 21, 1996, the Board of Directors
took the following actions on behalf of the Company (subject to stockholder
ratification):
(a) Amended the Company's Stock Option Plan ("Option Plan") to
increase the number of shares issuable thereunder from 480,000 to 1,000,000
million shares of common stock.
(b) Amended the Option Plan to permit the grant to Executive
of options to purchase an aggregate of 500,000 shares of common stock, of which
options to purchase 200,000 shares have already been granted ("Old Options") to
Executive.
(c) Granted Executive options ("New Options") to purchase
300,000 shares of common stock at per share Fair Market Value (as defined in the
Option Plan) on November 21, 1996, with 25% of the New Options being vested
immediately and 25% being vested on each of December 31, 1997, December 31, 1998
and December 31, 1999, provided that vesting of such options will be accelerated
if the Term is terminated for any reason other than "Cause" or voluntary
termination by Executive prior to 12/31/99 (as defined in Section 11(b)(3)),
including a "Change in Control" (as defined in Section 11(a)(2)).
(d) Upon exercise by Executive of the Old Options and/or the
New Options, the Company will lend (the "Loans") to Executive up to 40% of the
spread between the option exercise price and the closing market price of the
Company's common stock, multiplied by the number of shares being acquired upon
exercise of such Options with the principal of each such loan and interest
thereon at Interest Rate, being payable at the earlier of (i) on the second
anniversary of each such loan, or (ii) out of the proceeds from the sale of the
shares underlying each such exercised Option. The provisions of the New Options
and the Loans are set forth in the Option Agreement, a copy of which is annexed
hereto as Schedule D and to which reference is made for the complete provisions
of the New Options and the Loans.
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10. Indemnity.
(a) The Company agrees:
(1) To use its best efforts to purchase and maintain
during the Term of this Agreement a Directors and Officers Liability Insurance
Policy covering liabilities which may have been or will be incurred by
Executive in the performance of his services on behalf of Company provided,
however, that if available, such insurance is at a cost Company believes is
reasonable.
(2) Except as otherwise provided in Section 10(b), and
to the fullest extent allowed by law, to indemnify and hold Executive free
and harmless from any liability for injury or death to persons or damage
or destruction of property due to any cause whatsoever, either in or about
the Riviera Hotel and Casino (the "Hotel") or elsewhere, as a result of the
performance by Executive of his duties under this Agreement irrespective of
whether alleged to be caused, wholly or partially, by Executive;
(3) Except as otherwise provided in Section 10(b) below,
to reimburse Executive upon demand for any money or other property which
Executive is required to pay out for any reason whatsoever in performing
his duties hereunder, whether the payment is for charges or debts incurred
or assumed by Executive or any other party, or judgments, settlements, or
expenses in defense of any claim, civil or criminal action, proceeding, charge,
or prosecution made, instituted or maintained against Executive or the Company,
jointly or severally, because of the condition or use of the Hotel, or acts
or failures to act of Executive, or arising out of or based upon any law,
regulation, requirement, contract or award; and
(4) Except as provided in Section 10(b), to defend any
claim, action, suit or proceeding brought against Executive, arising out
of or connected with any of the foregoing, and to hold harmless and fully
indemnify Executive from any judgment, loss or settlement on account thereof,
regardless of the jurisdiction in which any such claim, actions, suits or
proceedings may be brought.
(b) Notwithstanding the foregoing, the Company shall not be
liable to indemnify and hold Executive harmless from any liability described
above which results from the gross negligence or willful misconduct of
Executive.
(c) If (i) the Company shall be obligated to indemnify
Executive, or (ii) a suit, action, investigation, claim or proceeding is begun,
made or instituted as a result of which Company may become obligated to
Executive hereunder, Executive shall give prompt written notice to the Company
of the occurrence is such event. The Company agrees to
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defend, contest or otherwise protect against any such suit, action,
investigation, claim or proceeding at the Company's own cost and expense.
Executive shall have the right but not the obligation to participate at his own
expense in the defense thereof by counsel of his own choice. In the event that
the Company fails timely to defend, contest or otherwise protect against any
such suit, action, investigation, claim or proceeding, Executive shall have the
right to defend, contest or otherwise protect against the same and may make any
compromise or settlement thereof and recover the entire cost thereof from the
Company including, without limitation, reasonable attorney's fees, disbursements
and all amounts paid or payable as a result of such suit, action, investigation,
claim, or proceeding or compromise or settlement thereof.
11. (a) Events of Default. The Term of employment of Executive
hereunder and any obligations of Executive hereunder (except with respect to any
obligations set forth in Section 12 hereof) may be terminated, at the option of
the non-defaulting party (which termination by the non-defaulting party shall be
deemed involuntary), upon the happening of any of the following events (which
shall be deemed to be "Events of Default"):
(1) If the other party shall breach, default or
fail to comply in any material respect with any covenant or agreement contained
in this Agreement followed by written notice from the non-defaulting party to
the other and failure of the defaulting party either to remedy or correct such
breach, default or noncompliance within thirty (30) days after receipt of such
notice; and
(2) A "Change in Control" (hereinafter defined),
without Executive's prior written consent, which shall be considered an Event of
Default by the Company.
(b) Other Termination. In addition to the Events of
Default set forth in Section 11(a) above, the Term of employment of Executive
hereunder shall be terminated upon the happening of the following events:
(1) The mutual consent of the parties hereof;
(2) The death or Disability of Executive;
(3) The Executive shall have been finally adjudicated
by a court to have committed a felony, fraud, or a crime involving dishonesty,
whether or not involving the Company ("Cause"), provided that pending such final
adjudication, the Company shall set aside in an escrow account, which shall be a
separate, non-commingled, interest bearing account, from the date of an
allegation of Cause, the following amounts which would not be payable in the
event of Executive's discharge for Cause: (A) the Base Salary; (B) the
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Retirement Benefits and (C) the Bonus; provided, however, that (I) if such final
adjudication or other disposition is favorable to Executive, all escrowed
amounts (including any interest accrued thereon) shall be paid to or for the
benefit of Executive promptly, (II) if such final adjudication is unfavorable to
Executive - i.e. Executive is found to have committed a felony, fraud or a crime
involving dishonesty - then all escrowed funds (including any interest accrued
thereon) shall be paid to the Company promptly and Executive shall have no
further interest therein; or
(c) Remedies. (1) The remedies of each of the parties upon the
occurrence of an Event of Default by the other party specified in Section
11(a)(1) shall be cumulative and not exclusive. However, no party shall be
obligated to the other for punitive or other forms of speculative or expectancy
damages. In addition to any and all such other remedies, the provisions of this
Agreement requiring the performance of an affirmative act by a party or
requiring a party to refrain from the performance of specific act, shall be
enforceable by injunctive proceeding or by a suit for specific performance.
(2) Upon the occurrence of an Event of Default
specified in Section 11(a)(2), Executive may, by giving not less than 90 days
notice to the Company, terminate all of Executive's obligations under this
Agreement (except for those specified in Section 12), effective upon the date
specified in such notice (the "Termination Date"), and shall be entitled to (i)
have credited to his Retirement Account an amount equal to one year of Base
Salary (in effect upon the Termination Date) credited to the Retirement Account
and (ii) 100% vesting on stock options held by Executive.
(d) "Change of Control" means any of the following: (i) all or
substantially all of the assets of the Company are sold as an entirety or as
part of a series of transactions to any person, (ii) the Company engages in any
merger, consolidation, sale of capital stock, sale of equity interests or any
other transactions with any other person, with the effect that after such
transactions the holders of common stock of the Company immediately prior to
such transactions own, directly or indirectly, in the aggregate less than a
majority in voting interest of the total voting power entitled to vote in the
election (A) of directors of the Company, if the Company is the surviving
entity, or (B) of directors, managers or trustees (1) of such other person, if
the Company is not the surviving entity, or (2) of such other person that
purchases all or substantially all of the Company's assets; (iii) any person
who, as of the date hereof, does not have 10% or more of the common stock of the
Company, acquires a majority in voting interest of the total voting power
entitled to vote for directors of the Company (otherwise than by reason of the
voting provisions of any preferred stock of the Company); (iv) any person
acquires more than 50% of the total voting power entitled to vote for directors
of the Company; or (v) any person acquires more than 50% of the total voting
power entitled to vote for directors, managers or trustees (X) of such person
other than the Company surviving any of the transactions referred to in clause
(i)
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above, or (Y) of such other person that purchases all or substantially all of
the Company's assets. A "person" for the purposes hereof, shall include an
individual corporation, partnership, trust or group acting in concert. A person
for the purposes hereof, shall be deemed to be a beneficial owner as that term
is used in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended.
12. Confidential Information; Non-Competition.
(a) During the Term and for a three year period commencing on
the termination of the Term of this Agreement for any reason, (i) Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or its
affiliates, and their respective businesses which shall not be public knowledge
(other than information which becomes public as a result of acts of Executive or
his representatives in violation of this Agreement), including, without
limitation, customer/client lists, matters subject to litigation, and technology
or financial information of the Company or its subsidiaries, and (ii) Executive
shall not, without the prior written consent of the Company, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it in writing.
(b) Except as otherwise provided in this Section 12(b), during
the Term and for a three year period commencing on the termination of the Term
of this Agreement for any reason, the Executive will not, directly or
indirectly, (i) own, manage, operate, control or participate in the ownership,
management or control of, or be connected as an officer, employee, partner,
director, or consultant or otherwise with, or have any financial interest in
(except for (A) ownership as of the date hereof, (B) any ownership in the common
stock of the Company, or (C) any ownership of less than 5% of the outstanding
equity interest in any entity) any hotel/casino located in Clark County, Nevada
or (ii) solicit or contact any employee of the Company or its affiliates with a
view to inducing or encouraging such employee to leave the employ of the Company
or its affiliates for the purpose of being employed by Executive, an employer
affiliated with Executive, or any competitor of the Company or any affiliate
thereof. The provisions of Section 12(b) shall not apply in the event of (i) any
involuntary termination by the Company of Executive's employment under this
Agreement or (ii) the occurrence of a Change of Control.
(c) Executive acknowledges that the provisions of this Section
12 are reasonable and necessary for the protection of Company and that the
Company will be irrevocably damaged if such provisions are not specifically
enforced. Accordingly, Executive agrees that, in addition to any other relief to
which the Company may be entitled in the form of actual or punitive damages, the
Company shall be entitled to seek and obtain injunctive relief from a court of
competent jurisdiction (without posting of a bond therefor)
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for the purposes of restraining Executive from any actual or threatened breach
of such provisions.
13. Miscellaneous
(a) This Agreement shall be governed, construed and
interpreted in accordance with the internal laws of the State of Nevada
applicable to agreements executed in that State.
(b) This Agreement supersedes all prior agreements and
understandings among the parties, and contains the full understanding of the
parties hereto with respect to the subject matter hereof. Any change,
modification or waiver of this Agreement must be in writing, signed by both
parties hereto or, in the case of a waiver, by the party waiving compliance.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original. The captions of each article and section are intended for
convenience only. All references herein to days, weeks and months shall mean by
calendar; unless specifically stated to the contrary. All references herein to
the singular shall include the plural, and all references to gender shall, as
appropriate, include other genders. All representations and warranties made
hereunder shall survive the execution and delivery and closing of this
Agreement. The Company consents to the execution of a memorandum of this
Agreement and the filing and recording of such memorandum with any governmental
body or agency having jurisdiction over the filing or recordation of interests
in real property. At the termination of this Agreement, Executive agrees to
execute in recordable form an instrument sufficient to evidence said
termination.
(c) It is the intention of the parties hereto that this
Agreement shall not inure to the benefit of any third parties not parties to
this Agreement, and it is specifically intended that no third party beneficiary
relationships, benefits or obligations shall arise or be deemed to exist as a
result of this said Agreement.
(d) This Agreement shall inure to the benefit of and be
binding upon each of the parties hereto, their heirs, assigns, successors and
personal representatives, however, as a personal service contract, it shall not
be assignable by Executive without the prior written consent of the Company.
(e) The failure or delay by either party in any one or more
instances to enforce one or more of the terms and conditions of this Agreement
or to exercise any right or privilege under this Agreement shall not thereafter
be construed as a waiver of any such term, condition, right or privilege and the
same and all other terms, conditions, rights or privileges under this Agreement
shall continue to remain in full force and effect as though no such failure or
delay had occurred.
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(f) Any and all disputes between the parties hereto, however
significant, arising out of, relating in any way to or in connection with this
Agreement (including the validity, scope, and enforceability of this arbitration
clause) will be solely settled by an arbitration conducted in accordance with
the rules of the American Arbitration Association or any similar successor body
before a panel of three arbitrators. Each party shall appoint one arbitrator. If
a party fails to nominate an arbitrator within 10 days from the date when the
claimant's request for arbitration has been communicated to the other party in
writing, the appointment shall be made within 10 days thereof by the American
Arbitration Association. The two arbitrators so appointed shall attempt to agree
upon the third arbitrator to act as chairman. If the two arbitrators fail to
nominate the chairman within 10 days from the date of appointment of the later
appointed arbitrator, the chairman shall be selected within 10 days thereof by
the American Arbitration Association. The arbitration shall be conducted with a
view to commencing proceedings within 30 days from the date when the claimant's
request for arbitration was communicated to the other party in writing and to
rendering the award or other judgment not more than 15 days thereafter. The
award or other judgment of the arbitrators shall be final, and the parties agree
to waive their right to any form of appeal, to the greatest extent allowed by
law, and to share equally the fees and expenses of the arbitrators. Judgment
upon any award of the arbitrators may be entered in any court having
jurisdiction or application may be made to such court for the judicial
acceptance of the award and for order of enforcement. Such arbitration shall be
held only in Las Vegas, Nevada. Pending resolution of the dispute, there shall
be no stoppage by either party under the terms hereof; rather, the parties
hereto shall perform diligently under this Agreement pending ultimate resolution
of the dispute. By agreeing to arbitration, neither party hereto is waiving any
benefit of any statute of limitations or other equitable defenses.
(g) No voluntary or involuntary successor in interest of the
Company shall acquire any rights or powers under this Agreement, except as
specifically set forth herein. Otherwise, the Company shall not assign all or
any part of this Agreement.
14. Notices. All notices, requests, demands, directions and
other communications provided for hereunder shall be in writing and delivered
personally or mailed by certified or registered mail, return receipt requested,
to the following addresses for each party during the Term or until such time as
written notice, as provided hereby, of a change of address to be used thereafter
is given to the other party, with copies to such legal counsel as each party,
from time to time, may designate:
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Company Executive
------- ---------
RIVIERA HOLDINGS CORPORATION MR. WILLIAM L. WESTERMAN
2901 Las Vegas Blvd. So. 2901 Las Vegas Blvd. So.
Las Vegas, Nevada 89109 Las Vegas, Nevada 89109
Attn: Duane Krohn, Chief PERSONAL & CONFIDENTIAL
Financial Officer
Notices delivered personally shall be deemed to have been given upon delivery;
notices delivered by certified or registered mail shall be deemed to have been
given seventy-two (72) hours after the date deposited in the mail, except as
otherwise provided herein.
15. Government Approvals. Notwithstanding any other terms and
provisions set forth in this Agreement, if is understood and agreed that the
engagement of Executive hereunder, the obligation of the parties hereto, and the
effect of the Agreement, shall be subject to the approval of each and all of the
terms, covenants and provisions of this Agreement by the Nevada Gaming
Authorities and other Governmental Authorities from whom approval, if any, is
required under the laws of the State of Nevada, the County of Clark, or any and
all other governmental agencies having jurisdiction thereover. Each of the
parties hereby covenant and agree to exercise their best good faith efforts to
proceed to obtain any and all such necessary approvals.
16. Compensation Under Old Agreement. Notwithstanding the
provisions of Sections 4, 5 and 6 hereof, in no event shall the sum of Base
Salary, Bonus and Credits to Retirement Account (excluding the Interests
Payments) payable to or for the account of Executive in any year of the Term
under this Agreement exceed the sum of Base Salary, Bonus and Credits to
Retirement Account which would have been payable to or for the account of
Executive under the Old Agreement and Executive shall instruct the Company as to
the reductions of Base Salary, Bonus and Credits to
Retirement Account necessary to comply with the provisions of this Section 16.
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IN WITNESS WHEREOF, the parties herein have entered into this
Agreement the day and year first above mentioned.
COMPANY: EXECUTIVE:
RIVIERA HOLDINGS CORPORATION
By:______________________ ________________________
WILLIAM L. WESTERMAN
Its:___________________
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EXHIBIT 10.32
REVOLVING LINE OF CREDIT
LOAN AGREEMENT
THIS REVOLVING LINE OF CREDIT LOAN AGREEMENT (the "Agreement") is made
effective as of the ___ day of ___________________, 1997, by and between RIVIERA
HOLDINGS CORPORATION, a Nevada corporation, and RIVIERA OPERATING CORPORATION, a
Nevada corporation, doing business as RIVIERA HOTEL & CASINO (collectively,
"Borrower"), and U.S. BANK OF NEVADA, a Nevada state-chartered commercial bank,
("Lender").
W I T N E S S E T H :
WHEREAS, Lender has agreed to lend to Borrower on a reducing revolving
line of credit basis certain funds (the "Loan") in an amount not to exceed at
any time FIFTEEN MILLION AND NO/100THS DOLLARS ($15,000,000.00) (the "Maximum
Loan Amount") for the purpose of providing Borrower with funds to acquire
certain new furniture, fixtures and equipment or to refinance or refund the cost
of certain existing furniture, fixtures and equipment of Borrower.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises
of the parties and subject to the following terms and conditions, Borrower
agrees to borrow from Lender, and Lender agrees to loan to Borrower the Loan for
the purposes provided herein. The Loan shall be evidenced by a Revolving Line of
Credit Promissory Note (the "Note") bearing even date herewith, and be secured
by a Security Agreement (the "Security Agreement") under the terms of which
Borrower shall grant to Lender a security interest in certain collateral
described in Section 3 thereof (the "Collateral"). This Agreement, the Note, the
Security Agreement, and any and all other documents now or hereafter executed by
Borrower or any other person or party in connection with or to evidence or
secure payment of the Loan are sometimes hereafter collectively referred to as
the "Loan Documents".
A. DISBURSEMENTS.
A.1 General. Provided that no Event of Default (as
hereafter defined) then exists and is continuing hereunder, Lender shall
disburse the Loan from time to time at the request of Borrower for the purposes
provided herein once the original of this Agreement, the Note, the Security
Agreement, and all other Loan Documents, all fully executed, have been delivered
to Lender, and once Borrower has paid Lender's reasonable attorney's fees and
costs incurred in connection herewith. Lender shall be under no obligation to
make any disbursements under the Loan after January 1, 2002.
A.2 Reduction in Maximum Loan Amount. On the first day of
January, April, July and October of each year, commencing on the first day of
April, 1998, the
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Maximum Loan Amount shall be reduced by an amount equal to $937,500.00. Borrower
shall make a principal reduction payment under the Note on the first day of each
January, April, July and October, commencing on the first day of April, 1998, in
an amount, if any, required to reduce the principal balance due under the Note
to the then effective Maximum Loan Amount.
A.3 Maximum Availability. The maximum amount available
to Borrower under the Loan at any time (the "Maximum Availability") shall be an
amount equal to the lesser of (a) the Maximum Loan Amount, as reduced from time
to time pursuant to Section A.2 above; or (b) the Specified Value (as defined
below) of the Collateral.
For the purposes of this Agreement and the other Loan
Documents, the term "Gaming Devices" shall mean any equipment or mechanical,
electromechanical or electronic contrivance, component or machine used remotely
or directly in connection with gaming or any game which affects the results of a
wager by determining win or loss. The term includes a system for processing
information which can alter the normal criteria of random selection, which
affects the operation of any game or which determines the outcome of any game.
The term does not include a system or device which affects a game solely by
stopping its operation so that the outcome remains undetermined.
For purposes of this Agreement and the other Loan Documents,
the term "Specified Value" shall mean the amount reasonably determined by the
Borrower to be the lesser of eighty percent (80%) of the (a) actual original
cost of the Collateral (excluding Gaming Devices) and (b) fair market value
(which is defined for purposes hereof as depreciated cost) of the Collateral
(excluding Gaming Devices), as specified to the Lender in a schedule delivered
to the Lender by the date of the making of a Loan for the purchase or
refinancing of such Collateral, as such schedule shall be updated by Borrower
and delivered to Lender on the twentieth day of the month immediately succeeding
the last day of each fiscal quarter. With respect to Collateral consisting of
Gaming Devices, the percentage used in determining Specified Value shall be one
hundred percent (100%).
A.4 Conditions. Lender shall be under no obligation to make
the initial disbursement under the Loan until Borrower has caused to be provided
to Lender an opinion of Borrower's counsel in all respects acceptable to Lender,
as to the following: (a) that Borrower is duly organized and existing and in
good standing to transact business in Nevada; (b) that all conditions required
by Borrower's organizational documents to authorize Borrower to enter into the
Loan transaction and execute the Loan Documents have been satisfied; (c) that
all licenses, permits and other governmental permits necessary to conduct
Borrower's business (where the failure to maintain the same would have a
material adverse effect upon its operations ("Material Adverse Effect") as
presently conducted are in effect; (d) that the Loan Documents constitute valid,
legal and enforceable obligations of Borrower in accordance with their terms;
and (e) that Borrower's execution of the Loan Documents and performance of its
obligations thereunder shall not constitute a default by Borrower under the
terms of any license, permit or approval held by Borrower, or any agreement to
which Borrower is a party, including, without limitation, that
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certain $100,000,000.00 Indenture dated June 30, 1993, between Riviera Holdings
Corporation, a Nevada corporation ("RHC"), Riviera Operating Corporation, doing
business as Riviera Hotel & Casino ("ROC"), and IBJ Schroder Bank & Trust
Company, as Trustee, as supplemented by the First Supplemental Indenture, dated
June 30, 1993, as amended by Amendment to First Supplemental Indenture, dated as
of September 8, 1995 (the "Indenture Agreement").
A.5 Loan Fees.
(a) Facility Fee. As a condition of Lender's
obligation to make the initial disbursement under the Loan, Borrower shall pay
to Lender a facility fee in the sum of $75,000.00 upon the execution of this
Agreement.
(b) Non-Usage Fee. On the tenth day of January,
April, July and October of each year, commencing on the tenth day of July, 1997,
Borrower shall pay to Lender in arrears a non-usage fee in an amount equal to
two-tenths of one percent (0.20%) of the difference between the Maximum Loan
Amount, as reduced from time to time pursuant to Section A.2 above, and average
outstanding amount of the Loan, during the previous three-month period in each
case as reasonably determined by Lender.
B. INTEREST.
B.1 Interest Rate Options. Borrower shall pay interest on the
principal amounts disbursed under the Loan at Borrower's option, as evidenced by
an executed Rate Request ("Rate Request") in the form attached hereto as Exhibit
"A", as follows:
(a) At the floating commercial loan rate of
Lender publicly announced from time to time as Lender's prime rate (the "Prime
Rate"), plus one-half of one percent (0.50%) per annum. Any change in such
interest rate, as a result of a change in the Prime Rate, shall become effective
upon the date of change in the Prime Rate. Any disbursements under the Loan
which Borrower elects to bear interest at the foregoing interest rate shall be
referred to herein as a "Prime Rate Disbursement"; or
(b) At LIBOR (as defined below), plus two and
ninety one-hundredths percent (2.90%) per annum (the "LIBOR Rate"). Any
disbursements under the Loan which Borrower elects to bear interest at the LIBOR
Rate shall be referred to herein as a "LIBOR Rate Disbursement".
B.2 LIBOR Election. Provided that no Event of Default then
exists hereunder, if Borrower desires that the Loan, or a portion thereof, is to
bear interest at the LIBOR Rate, or Borrower desires to convert a Prime Rate
Disbursement to a LIBOR Rate Disbursement or desires to convert a LIBOR Rate
Disbursement with a certain LIBOR Borrowing Period into a different LIBOR
Borrowing Period, Borrower shall so elect (a "LIBOR Election") by providing
Lender with at least two (2) Business Days (as defined below) prior
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notice thereof, which notice shall specify (a) the LIBOR borrowing period (the
"LIBOR Borrowing Period") of either 30, 60 or 90 days, and (b) the amount, which
in no event shall be less than $500,000.00, and shall be in increments of
$100,000.00 (a "LIBOR Increment"), to be subject to such LIBOR Election.
Lender's LIBOR Rates are established as of approximately 8:00 a.m. and 10:00
a.m. on each Business Day for LIBOR Rates to take effect two (2) Business Days
later, and LIBOR Rate quotes may be obtained from Lender between 8:00 a.m. and
12:00 noon on any Business Day. Quotes based on LIBOR Rates set as of 8:00 a.m.
must be accepted by Borrower before 10:00 a.m., and quotes based on LIBOR Rates
set as of 10:00 a.m. must be accepted by Borrower before 12:00 noon. Notice of
acceptance of a quoted LIBOR Rate shall be given by Borrower to Lender in
writing or by telephone (and if by telephone then thereafter immediately
confirmed by Borrower in writing). In the event that notice is given to Lender
after the times set forth above, the notice shall be deemed to be given as of
the next Business Day. All times referred to herein shall be local time in Las
Vegas, Nevada. The written notice of LIBOR Election, or written confirmation
thereof, shall be in the form of a Rate Request. Any amounts outstanding under
the Loan in excess of a LIBOR Increment shall bear interest as a Prime Rate
Disbursement. At the expiration of a LIBOR Borrowing Period, in the event that
the loan amount subject to a LIBOR Election has not been repaid by Borrower, it
shall then bear interest as a Prime Rate Disbursement unless a new LIBOR
Borrowing Period has been chosen by Borrower pursuant to the terms hereof.
Notwithstanding anything to the contrary contained herein, Borrower shall be
permitted to have no more than five (5) LIBOR Elections in effect at any time
without the prior written consent of Lender.
B.3 LIBOR Regulatory Requirements. In the event that Lender is
required under Regulation D, promulgated by the Board of Governors of the
Federal Reserve System, or any other regulation, to maintain reserves against
LIBOR obligations, Borrower shall pay to Lender on the last day of each LIBOR
Borrowing Period, as additional interest ("Additional Interest") on any LIBOR
Rate Disbursement, such additional amount (determined as though Lender has
funded 100% of the LIBOR Rate Disbursement in the Interbank Eurodollar Market
whether or not that is actually the case) as would, together with payments of
interest on the LIBOR Rate Disbursement for that LIBOR Borrowing Period, result
in receipt by Lender of total interest on the LIBOR Rate Disbursement for that
LIBOR Borrowing Period at the rate reasonably determined by Lender to be equal
to the following: the stated LIBOR Rate on the LIBOR Rate Disbursement divided
by one (1), minus the Reserve Percentage (as defined below). In determining the
Additional Interest, there shall be taken into account any transitional,
adjustment or phase-in provisions of the reserve requirements which would reduce
the reserve requirement of Lender during any LIBOR Borrowing Period. Lender's
determination of such matters shall be conclusive in the absence of manifest
error.
If, after the date hereof, the application or adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Lender with any request or directive
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(whether or not having the force of law) of any such authority, central bank or
comparable agency:
(a) shall subject Lender to any tax, duty or
other charge with respect to the amount as to which Borrower has made a LIBOR
Election (except any income taxes of Lender assessed on the basis of Lender's
net income or gross receipts and any franchise taxes, branch taxes, taxes on
doing business or taxes on overall capital or net worth of Lender imposed in
lieu of income taxes); or
(b) shall impose, modify or deem applicable any
reserve (including without limitation any reserve imposed by the Board of
Governors of the Federal Reserve System), special deposit or similar
requirements against assets of, deposits with or for the account of, or credit
extended by, Lender with respect to or as a result of the making by Borrower of
a LIBOR Election; or
(c) shall impose upon Lender, directly or
indirectly, any condition affecting any amount advanced by Lender to Borrower as
to which Borrower has made a LIBOR Election, or shall otherwise affect any of
the same;
and the result of any of the foregoing has in the reasonable opinion of Lender,
increased the cost to Lender of making or maintaining any outstanding
disbursement or other outstanding portion of the Loan as to which the Borrower
has made a LIBOR Election, or reduced the amount of any sum received or
receivable by Lender by an amount deemed by Lender to be material, then, within
fifteen (15) days after demand by Lender (which demand shall not be made more
than thirty (30) days after such cost is incurred by Lender and shall be
accompanied by reasonable detail supporting such demand), Borrower shall pay to
Bank such additional amount or amounts. If, following payment of any such
additional amounts by Borrower to Lender, Lender receives a refund of or credit
for any portion thereof, then Lender shall promptly repay Borrower the amount so
refunded or credited. Notwithstanding anything to the contrary contained herein,
in the event that Lender may minimize or eliminate any costs or restrictions
associated with maintaining LIBOR Rate Disbursements by using another lending
office within the U.S. Bancorp system, then Lender shall to the extent
permissible under then existing laws and regulations governing Lender use such
other lending office.
If, after the date hereof, the application or adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Lender with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency, or the occurrence of circumstances affecting the Interbank Eurodollar
Markets generally, shall, in the reasonable opinion of Lender, make it unlawful
or impossible for Lender to make or maintain LIBOR Rate Disbursements or
materially restrict the authority of Lender to purchase, sell, or take deposits
in Eurodollars, then Lender's obligation to give effect to a
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LIBOR Election shall be suspended for the duration of such illegality or
impossibility. Upon receipt of notice of such illegality or impossibility, at
Borrower's election either (a) all then outstanding LIBOR Rate Disbursements
shall be immediately converted into Prime Rate Disbursements and thereafter be
so treated for all purposes hereunder, or (b) Borrower shall repay in full the
then outstanding principal amount of the applicable LIBOR Rate Disbursements
together with accrued interest thereon, on either: (i) the last day of the LIBOR
Borrowing Period applicable to such LIBOR Rate Disbursement if lender may
lawfully continue to maintain the LIBOR Rate Disbursements to such day; or (ii)
immediately, and without prepayment penalty, if Lender may not lawfully continue
to maintain the LIBOR Rate Disbursements to such day. If Lender is unable, for
the reasons set forth above, to make or maintain any LIBOR Rate Disbursements,
Lender shall fund such amount as a Prime Rate Disbursement. Borrower hereby
agrees to reimburse Lender on demand for all costs and expenses attributable to
its making or maintaining LIBOR Rate Disbursements hereunder which result
directly from any such change in law, rule, regulation, interpretation or
administration, or in connection with the conversion of the interest rate on any
portion of the Loan as to which Borrower has made a LIBOR Election prior to the
end of the applicable LIBOR Borrowing Period.
B.4 LIBOR Prepayments. Except as otherwise provided in Section B.3
above, upon payment or prepayment of any LIBOR Rate Disbursement, or conversion
of a LIBOR Rate Disbursement to a Prime Rate Disbursement, on a day other than
the last day in the applicable LIBOR Borrowing Period (whether voluntarily,
involuntarily, by reason or acceleration, or otherwise), Borrower shall pay to
Lender within fifteen (15) Business Days following demand by Lender a prepayment
fee equal to the excess of (a) the present value of the principal amount prepaid
as discounted (on the basis of a year of twelve 30-day months) to present value
by reference to the yield for U.S. Treasury Securities with maturities most
nearly approximating the remaining weighted average life to the end of the
relevant LIBOR Borrowing Period for the principal payments being prepaid over
(b) the sum of all such principal payments plus accrued interest thereon.
B.5 Definitions. For purposes of this Agreement the following terms
shall have the following meanings unless otherwise indicated:
(a) "Business Day" means any day other than a Saturday,
Sunday, or other day on which banks in Las Vegas, Nevada are authorized to
close.
(b) "LIBOR" means the rate per annum (computed on the basis of
a 360-day year and the actual number of days elapsed) determined by Lender as
the average rate offered to Lender for U.S. dollar deposits in the London
Eurodollar Market based upon quotations at five (5) major banks for a period
equal to the relevant LIBOR Borrowing Period and in an amount equal to the
applicable LIBOR Rate Disbursement.
(c) "Reserve Percentage" means a percentage that is
reasonably determined by Lender as the average (rounded to the next highest
1/100th of 1%) of the maximum
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percentage reserve in effect as prescribed by the Board of Governors of the
Federal Reserve System for determining the maximum reserve requirement for a
member bank of the Federal Reserve System in the district in which Lender is
located.
C. REPRESENTATIONS, COVENANTS AND WARRANTIES.
Borrower hereby unconditionally represents, covenants and
warrants as follows:
C.l Power. If Borrower or any signator who signs on its behalf
is a corporation, partnership, limited liability company, or trust, that it is a
corporation duly incorporated, or a partnership, limited liability company, or
trust duly organized, and in any event validly existing under the laws of the
state of its incorporation or origination and duly qualified to do business in
the State of Nevada, with requisite power and authority to (i) incur the
indebtedness evidenced by the Note; (ii) enter into this Agreement; and (iii)
enter into any other Loan Documents executed and delivered to Lender
concurrently herewith.
C.2 Authority. That this Agreement, the Note, the Security
Agreement, and all other Loan Documents executed and delivered to Lender
concurrently herewith were executed in accordance with the requirements of law,
and, if Borrower or any signator who signs on its behalf is a corporation,
partnership, limited liability company, or trust, in accordance with any
requirements of its articles of incorporation, articles of partnership, articles
of organization and/or operating agreement, or declaration of trust, and any
amendments thereto, and that the execution of the same, and the full and
complete performance of the provisions thereof, is authorized by its bylaws,
articles of partnership, articles of organization and/or operating agreement, or
declaration of trust, or a resolution of its board of directors or partners,
members or managers, or trustees, and will not result in any breach of, or
constitute a default under, or result in the creation of any lien, charge or
encumbrance (other than those contained herein or in any instrument delivered to
Lender concurrently herewith) upon any property or assets of Borrower under any
material indenture, mortgage, deed of trust, bank loan or credit agreement or
other instrument or agreement to which Borrower is a party or by which Borrower
is bound or, if applicable, under Borrower's corporate charter, bylaws, articles
of partnership, articles of organization and/or operating agreement, or
declaration of trust.
C.3 Financial Statements. Any and all unaudited balance sheets
heretofore furnished Lender by or on behalf of Borrower and or any guarantors
are true and correct in all material respects, and fully and accurately present
the financial condition of the subjects thereof as of the dates thereof (subject
to normal year-end audit adjustments), and no material adverse change has
occurred in the financial condition reflected therein since the dates of the
most recent financial statement submitted to Lender. During the Loan term,
Borrower shall provide Lender with the following: (i) copies of annual CPA
audited consolidated financial statements (as contained in annual reports
required to be filed under Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Sections") for Borrower within 120 days following the end
of each of such Borrower's fiscal years; (ii) copies of quarterly CPA reviewed,
unaudited
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consolidated financial statements for Borrower (as contained in quarterly
reports required to be filed under the Sections) within forty-five (45) days
following the end of each fiscal quarter; (iii) copies of federal income tax
returns (including all schedules) and/or extension requests for Borrower within
fifteen (15) days after filing the same; and (iv) quarterly compliance
certificates within forty-five (45) days following the end of each fiscal
quarter, commencing with the fiscal quarter ending on March 31, 1997, executed
by Borrower's treasurer, certifying that Borrower is in compliance with the
financial covenants set forth in Section C.5 below; (v) copy of annual updated
list of slot machines in the form attached as Exhibit "A" to the Security
Agreement within forty-five (45) days following the end of each fiscal year; and
(vi) copies of such other financial information relating to Borrower and
Borrower's business operations which Lender may reasonably request.
C.4 Litigation. Except as heretofore disclosed in writing to
Lender, there are no actions, suits or proceedings pending, or to the knowledge
of Borrower threatened, against or affecting Borrower which, if adversely
determined, would have a Material Adverse Effect.
C.5 Financial Covenants. During the term of the Loan:
(a) Borrower shall maintain a Maximum Leverage
Ratio (defined as [average funded debt as of the last day of each month for the
quarter then ended] / [earnings before interest, taxes, depreciation and
amortization ("EBITDA"), calculated on a rolling four (4) quarter average]) of
not greater than 4.50 to 1.00 tested for compliance quarterly as of the last day
of each fiscal quarter of Borrower. The term "funded debt" means, as of any date
of determination, without duplication, the sum of (i) all principal indebtedness
of Borrower for borrowed money (including debt securities issued by Borrower) on
that date, plus (ii) the aggregate amount of the net present value of principal
payable by Borrower in respect of capital leases on that date, each as
determined in accordance with generally accepted accounting principles.
(b) Borrower shall maintain a Minimum Times
Fixed Charge Coverage Ratio (defined as [EBITDA, calculated on a rolling four
(4) quarter average]/ [the prior year's current portion of long term debt, plus
the prior year's current portion of capital lease obligations, plus interest
expense for the current quarterly period, including capitalized interest and
excluding interest on intercompany debt, plus short-term loans (with maturities
of twelve (12) months or less)]) of not less than 1.50 to 1.00 tested for
compliance quarterly as of the last day of each fiscal quarter of Borrower;
(c) Borrower shall incur no additional
indebtedness or additional liens or encumbrances on Borrower's real or personal
property in excess of $10,000,000.00, except for the financing evidenced by the
Indenture Agreement, without the prior written consent of Lender, which consent
shall not be unreasonably withheld; and
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(d) except for mergers wherein either RHC or
ROC is the surviving entity and Borrower is in compliance with each covenant
contained herein following such merger, Borrower shall not sell or transfer all
or substantially all of Borrower's assets, or merge or consolidate with any
other person or entity, without Lender's prior written consent, which consent
shall not be unreasonably withheld;
The foregoing representations, covenants, and warranties shall
survive until all sums payable pursuant to the Note or this Agreement, or which
are secured by any of the other Loan Documents, have been paid in full.
C.6 Licenses. Borrower shall maintain in effect, and shall
comply with all of the terms and conditions of, all licenses, permits and
approvals required by any governmental agency in connection with the operation
of Borrower's business at the Riviera Hotel & Casino, including, without
limitation, all gaming licenses and approvals where the failure to maintain and
comply with the same would have a Material Adverse Effect.
D. DEFAULT.
D.l Events of Default. Any of the following shall constitute a
default hereunder (an "Event of Default"):
(a) The failure of Borrower to make any payment
under the Note within fifteen (15) days after such payment is due;
(b) The materially false or misleading nature
of any representation or warranty of Borrower contained herein or in any
representation by Borrower to Lender concerning the financial condition of
Borrower;
(c) The failure of Borrower to fully perform
any and all other covenants and agreements hereunder within thirty (30) days
after notice thereof is given by the Lender to the Borrower;
(d) The failure of Borrower to pay or perform
as required under any other Loan Document; and
(e) Any material and substantial event of
default (subject to any applicable notice requirement and opportunity to cure)
by Borrower under the Indenture Agreement.
D.2 Acceleration. Upon the occurrence of an Event of Default
hereunder, and following any applicable notice requirement and opportunity to
cure, the entire unpaid balance of the Note including all accrued interest
shall, at the option of Lender, become immediately due and payable and Lender
shall have such rights of enforcement as may be afforded by law,
9
<PAGE>
hereunder, or under the Note, or any of the other Loan Documents, subject to the
provisions of Section E.3 hereof.
E. REMEDIES.
E.l General. Upon the occurrence of an Event of Default
hereunder, Lender's obligation to make any further disbursements under the Loan
or to honor any request by Borrower to convert the interest rate under the Loan
or any portion thereof to the LIBOR Rate shall cease, and Lender shall have all
rights and remedies available to Lender under the law, hereunder or under the
Note (including but not limited to the right to accelerate the Note), or any of
the other Loan Documents.
E.2 Remedies are Cumulative. Subject to Section E.3 hereof,
all remedies of Lender provided for herein are cumulative and shall be in
addition to any and all other rights and remedies provided in the Note, or any
of the other Loan Documents or by law. The exercise of any rights of Lender
hereunder shall not in any way constitute a cure or waiver of a default
hereunder or elsewhere, or invalidate any act done pursuant to any notice of
default, or prejudice Lender in the exercise of any of its other rights
hereunder or elsewhere unless, in the exercise of said rights, Lender realizes
all amounts owed to it hereunder and under the Note, and the other Loan
Documents.
E.3 Subordination. Notwithstanding any provision in any Loan
Document to the contrary, any indebtedness under any Loan Document owed at any
time by the Borrower to the Lender which is not repaid out of the proceeds of
the sale of Collateral (the "Subordinated Indebtedness") shall be subordinated
to the prior payment in full of all amounts payable under the Senior Debt to the
extent and in the manner provided in this Section.
For purposes of this Section, the term "Senior Debt" means the
Borrower's obligations for the principal of, premium, if any, and interest
(including post-petition interest in any liquidation or dissolution of the
Borrower or in any bankruptcy, reorganization, insolvency, receivership or
similar proceeding with respect to the Borrower or its property, whether or not
a claim for such interest is allowed or allowable in any such proceeding) on,
and reasonable fees, collection expenses and counsel and other professional fees
incurred in connection with collection, work-out or insolvency related matters,
and other amounts payable on or in connection with the Indenture Agreement, as
the same may be amended, modified, supplemented, restated, extended or replaced
from time to time, or any guaranty in respect of any of the foregoing.
(a) If there shall be any Event of Default (as
defined in the Indenture Agreement, herein, a "Senior Debt Event of Default") in
respect of Senior Debt, unless and until such Senior Debt Event of Default shall
have been cured or waived or shall have ceased to exist, the Borrower may not
make any payment on account of the Subordinated Indebtedness, or acquire for
cash, property or securities, by set-off or otherwise, or redeem, retire,
purchase,
10
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deposit moneys for defeasance of or to acquire the Subordinated Indebtedness,
and the Borrower shall not segregate and hold separate for the benefit of Lender
money for any such payment or distribution.
(b) If any payment or distribution of assets of the Borrower
is received by Lender in respect of the Subordinated Indebtedness at a time when
that payment or distribution should not have been made because of any provision
of this Section, such payment or distribution will be received and held in trust
for the benefit of and will be paid over to the holders of Senior Debt or their
representatives which is due and payable and remains unpaid or unprovided for
(pro rata as to each of such holders on the basis of the respective amounts of
Senior Debt which is due and payable held by them) until such Senior Debt Event
of Default shall have been cured or waived or shall have ceased to exist.
(c) Upon any distribution of assets of either Borrower, or
upon any dissolution, winding up, liquidation or reorganization of such Borrower
(whether in bankruptcy, insolvency, receivership or similar proceeding related
to such Borrower or its property or upon an assignment for the benefit of
creditors or otherwise) (a "Liquidation Event"):
(i) the holder of all Senior Debt will first be
entitled to receive payment in full in cash of the principal and
interest due on Senior Debt and all other amounts due in connection
with Senior Debt before Lender is entitled to receive any payment on
account of the Subordinated Indebtedness;
(ii) any payment or distributions of assets of the
Borrower of any kind or character, whether in cash, property or
securities, to which Lender would be entitled except for the provisions
of this Section (including, without limitation, distributions received
by Lender in respect of obligations junior in right of payment to the
Subordinated Indebtedness) will be paid by the liquidating trustee or
agent of such other person making such a payment or distribution
directly to the holders of Senior Debt or their representatives to the
extent necessary to make payment in full in cash of all Senior Debt
remaining unpaid, after giving effect to any concurrent payment or
distribution, to the holders of such Senior Debt or provision for that
payment or distribution; and
(iii) if, notwithstanding the foregoing, upon a
Liquidation Event any payment or distribution of assets of either
Borrower of any kind or character, whether in cash, property or
securities is received by Lender on account of the Subordinated
Indebtedness before all Senior Debt is paid in full in cash, or
effective provision made for such payment, such payment or distribution
will be received and held in trust for the benefit of and will be paid
over to the holders of the Senior Debt remaining unpaid or unprovided
for or their representative for application to the payment of such
Senior Debt until all such Senior Debt has been paid in full in cash,
after giving effect to any concurrent payment or distribution or
provision therefor to the holders of such Senior Debt.
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(d) For so long as payment hereunder is prohibited pursuant to
this Section, Lender shall not demand, sue for, collect or receive any payment
in respect of the Subordinated Indebtedness; provided, however, that the
foregoing shall not be deemed to limit in any manner remedial actions by the
Lender against the Collateral or the filing by Lender of proofs of claim or
other required notices resulting from the occurrence of a Liquidation Event.
(e) Nothing contained in this Section is intended to or will
impair, as between the Borrower and Lender, the obligations of the Borrower,
which are absolute and unconditional, to pay to Lender the Subordinated
Indebtedness as and when it becomes due or is intended to or will affect the
relative rights of Lender and creditors of the Borrower other than the holders
of the Senior Debt, nor, except as provided in this Section, will anything
herein or therein prevent Lender from exercising all remedies otherwise
permitted by applicable law upon an Event of Default under the Subordinated
Indebtedness, subject to the rights, if any, under this Section of the holders
of Senior Debt in respect of cash, property or securities of the Borrower
received upon the exercise of any such remedy and subject to this Section.
(f) No right of any present or future holders of any Senior
Debt to enforce subordination as provided herein will at any time in any way be
prejudiced or impaired by any act or failure to act on the part of either
Borrower or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Borrower with the terms of this Agreement or the
Indenture Agreement, regardless of any knowledge thereof which any such holder
may have or otherwise be charged with. The holders of Senior Debt or any
security therefor may release, sell or exchange such security and otherwise deal
freely with the Borrower, all without affecting the liabilities and obligations
of the Borrower to Lender.
F. MISCELLANEOUS.
F.l No Waiver. No waiver of any Event of Default by Borrower
hereunder shall be implied from any omission by Lender to take action on account
of such Event of Default, and no express waiver shall affect any Event of
Default other than the Event of Default specified in the waiver and the waiver
shall be operative only for the time and to the extent therein stated. Waivers
of any covenant, term, or condition contained herein shall not be construed as a
waiver of any subsequent breach of the same covenant, term or condition. The
consent or approval by Lender to or of any act by Borrower requiring further
consent or approval shall not be deemed to waive or render unnecessary the
consent or approval to or of any subsequent similar act.
F.2 No Third Parties Benefitted. This Agreement is made and
entered into for the sole protection and benefit of Lender and Borrower. All
conditions of the obligations of Lender to make advances hereunder are imposed
solely and exclusively for the benefit of Lender and may be freely modified by
Lender with the concurrence of Borrower or waived by Lender in whole or in part
at any time if in its sole discretion it deems it advisable to do so.
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No person other than Borrower shall have standing to require Lender to make any
Loan advances or be a beneficiary of this Agreement or of any of the advances to
be made hereunder.
F.3 Plural Borrowers Jointly and Severally Liable. RHC
and ROC shall be jointly and severally liable to Lender for the faithful
performance of the terms hereof.
F.4 Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be considered as
properly given if mailed by first class United States mail, postage prepaid,
registered or certified with return receipt requested, or by delivering the same
in person to the intended addressee, or by nationally recognized overnight
courier service. Notice so mailed shall be effective two (2) business days
following its deposit. Notice given in any other manner shall be effective only
if and when received by the addressee. For purposes of notice, the addresses of
the parties shall be as set forth on the signature page hereof; provided,
however, that either party shall have the right to change its address for notice
hereunder to any other location by the giving of notice to the other party in
the manner set forth above.
F.5 Expenses. Borrower shall pay promptly all reasonable and
necessary costs, charges, and expenses incurred by Lender in connection with the
enforcement of the Loan.
F.6 Actions. Lender shall have the right to appear in or
defend any action or proceeding purporting to affect its rights, duties, or
liabilities hereunder, or the disbursement of its funds. In connection
therewith, Lender may incur and pay costs and expenses, including reasonable and
necessary (under the Loan Documents) attorneys' fees, and Borrower shall pay to
Lender on demand all such costs and expenses and Lender is authorized to
disburse funds from the Loan for said purpose.
F.7 Commissions and Brokerage Fee. Borrower shall indemnify
Lender from any responsibility and/or liability for the payment of any
commission, charge or brokerage fees to anyone which may be payable by Borrower
in connection with the making of the Loan, it being understood that any such
commission, charge, or brokerage fees will be paid directly by Borrower to the
party or parties entitled thereto. Lender shall indemnify Borrower from any
responsibility and/or liability for the payment of any commission, charge or
brokerage fees to anyone which may be payable by Lender in connection with the
making of the Loan, it being understood that any such commission, charge, or
brokerage fees will be paid directly by Lender to the party or parties entitled
thereto.
F.8 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of Nevada, except as preempted by federal
law. Lender and Borrower consent to the exclusive personal jurisdiction by the
courts of Clark County, Nevada, in any action to enforce the rights and remedies
of any party hereunder.
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F.9 Heirs, Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the heirs, successors, assigns and
personal representatives of the parties hereto; provided, however, that Borrower
shall not assign its rights hereunder in whole or in part without the prior
written consent of Lender (except as contemplated by Section C.5(d) hereof),
which such consent may be granted or withheld in the sole and absolute
discretion of Lender. Any such assignment without said consent shall be void.
Lender shall have the right at any time and from time to time to assign to
participants or others all or certain of its rights and obligations hereunder
but no such assignment shall, without Borrower's written consent, relieve Lender
of its obligations hereunder.
F.10 Time. Time is of the essence of this Agreement and each
and every provision hereof in which time is an element.
F.11 Attorneys' Fees and Costs. If any legal action or any
arbitration or other proceeding is brought for the enforcement of this Agreement
or because of an alleged dispute, breach, Event of Default or misrepresentation
in connection with any of the provisions of this Agreement, the successful or
prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action or proceeding, in addition to any other
relief to which he may be entitled.
F.12 Expiration of Commitment. Lender's obligation to disburse
the Loan is further conditioned upon the execution of this Agreement and the
other Loan Documents on or before February 28, 1997.
F.13 Interpretation. This Agreement shall not be construed
against the party preparing it, but shall be construed as if both parties
jointly prepared this Agreement and any uncertainty and ambiguity shall not be
interpreted against any one party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
Riviera Holdings Corporation RIVIERA HOLDINGS CORPORATION,
2901 Las Vegas Blvd. South a Nevada corporation,
Las Vegas, Nevada 89109
By:________________________________
Its: ___________________________
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Riviera Operating Corporation RIVIERA OPERATING CORPORATION,
2901 Las Vegas Blvd. South a Nevada corporation, doing
Las Vegas, Nevada 89109 business as RIVIERA HOTEL & CASINO
By:________________________________
Its: ___________________________
"Borrower"
U.S. Bank of Nevada U.S. BANK OF NEVADA, a Nevada
Commercial Services Group state-chartered commercial bank,
2300 W. Sahara Avenue
Suite 120
Las Vegas, Nevada 89102 By:_______________________________
Its:___________________________
"Lender"
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EXHIBIT 10.33
-------------
March 4, 1997
Eagle Gaming, L.P.
c/o Wild West Development Corporation,
General Partner
5251 DTC Bankway, Suite 1210
Englewood, Colorado 80111
You have indicated the interest of Eagle Gaming, L.P.
("Eagle") in forming a joint venture with Riviera Holdings Corporation ("RHC) to
(a) acquire the land described on Exhibit A hereto ("Acquired Land"), (b)
construct the casino building (the "Casino") and the parking garage on the
Acquired Land as described on Exhibit B hereto (the "Construction Project"), (c)
acquire gaming equipment, fit up the Casino and start up casino operations (the
"Gaming Project") and (d) raise sufficient funds through a public equity
offering by RHC and mortgage financing to support all such undertakings
(collectively the "Transactions"). The acquisition of the Acquired Land, the
Construction Project and the Gaming Project shall be referred to collectively as
the "Project". The definitive terms and conditions of the Project would be
determined by negotiation of a development agreement ("Development Agreement")
which would contain representations, warranties and agreements which are
customary in connection with projects of this nature. The Development Agreement
also would include the following principal terms:
1. Formation of RBL. RHC and Eagle would enter into a
development agreement ("Development Agreement") under which they will (a)
create, under Colorado law, an entity to be known as Riviera Black Hawk, LLC
("RBL") and (b) address the pre-Closing tasks to be performed by, and certain
post-Closing arrangements between, the parties, all in accordance with the terms
of this Letter. Eagle acknowledges that if the firm bids for the construction
costs, and other amenities, shall be materially greater than the "Estimated
Project Costs" (as defined in Paragraph 4), the Project may not be acceptable to
RHC. RHC agrees to structure the Transactions to accommodate Eagle's tax
planning objectives, subject, however, to no material adverse effect on RHC.
2. Determination of Initial Equity Ratios; Equity Option. (a)
As discussed in Paragraph 4(b), the parties intend that 60% of Project Costs (as
finally determined) will be funded by borrowings and 40% of Project Costs (as
finally determined) will be funded through equity capital provided by RHC and
Eagle. RHC's and Eagle's relative equity percentages will be based on amounts
contributed by each to RBL. Eagle's initial capital contribution will be a
minimum of $4.4 million in value of the Acquired Land. The total amount of
equity contributed to RBL will be determined as of Closing based on the Project
Costs as finally determined and the percentage of Project Costs required by the
first mortgage lender to be in the form of equity. By way of example, based on
$51 million total Project Costs and 60% of Project Costs funded by borrowings,
contributions by Eagle of $4.4 million (in the form of a portion of the Acquired
Land) and by RHC of $16.0 million (in the form of the balance of the Acquired
Land, which
<PAGE>
will be purchased from Eagle for $10.6 million, and $5.4 million in cash) would
result in relative equity percentages of RHC and Eagle in RBL of 78.43% and
21.57%, respectively.
(b) In addition, Eagle shall have the option ("Equity
Option") to acquire up to 49.9% of the RBL equity interest, which shall be
exercisable prior to the date RBL is licensed by the Colorado gaming
authorities, by contributing Acquired Land with a value of more than $4.4
million pursuant to Paragraph 3(a) (which shall reduce RHC's purchase price for
the balance of the Acquired Land) or acquiring for cash from RHC an additional
equity interest from RHC at its cost.
3. Purchase and Transfer of the Acquired Land, etc. (a) At the
closing ("Closing"), Eagle will contribute a portion of the Acquired Land to RBL
having a value of a minimum of $4.4 million, and RHC will purchase from Eagle
for a maximum of $10.6 million in cash and contribute to RBL the balance of the
Acquired Land. Eagle may at its option increase the portion of the Acquired Land
contributed to RBL with a corresponding reduction in RHC's purchase price for
the balance of the Acquired Land.
(b) At the Closing, Eagle and RHC will transfer marketable fee
simple title of the Acquired Land to RBL free and clear of all mortgages, liens,
charges, encumbrances or rights of third parties, subject to such permitted
exceptions as may be set forth in the title commitment and agreed to by RHC and
Eagle.
Such Closing will be conditioned upon Eagle obtaining:
(i) a title policy insuring such title, issued at
standard rates from a nationally recognized title company in
an amount designated and paid for by RBL, provided that the
title company insurance shall (i) be in an amount not less
than $38 million and (ii) contain the following endorsement
(the "Endorsement"):
"The Company [i.e., the title company] hereby insures
the Insured against loss which the Insured shall
sustain by reason of any final judgment entered by a
court of competent jurisdiction, without the
possibility of appeal, establishing as a valid
interest on subject property that placer location
certificate recorded in Book 560 at Page 287."
(ii) RHC shall be reasonably satisfied that 62,000
square feet of gaming and public space, with approximately
1,000 gaming devices and parking for 500 automobiles, can be
constructed under applicable zoning, gaming and other
governmental rules and at a cost not materially in excess of
Estimated Project Costs; and
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(iii) Letters from (I) Harrah's consenting to Eagle
to pursue development of the Casino on the Acquired Land with
RHC and (II) certain partners of Eagle who have liens against
the Acquired Land in the form of Exhibits C and D,
respectively.
(c) Eagle shall use its best efforts to conclusively dispose
of the Placer Claim (hereinafter defined) prior to Closing, in which case the
"Litigation Escrow" (hereinafter defined) shall not be required. If the Placer
Claim is not disposed of prior to Closing and since the Endorsement does not
cover the expenses ("Placer Legal Expenses") of litigating or otherwise
disposing of the placer claim referred to in the Endorsement ("Placer Claim"), a
portion of the Purchase Price for the Acquired Land, in an amount reasonably
satisfactory to RHC and Eagle, shall be set aside in an escrow (the "Litigation
Escrow") for the purpose of paying the Placer Legal Expenses. The Litigation
Escrow shall be used to pay (i) the fees and expenses of Holme Roberts & Owen
LLP ("HRO") in attempting to obtain a final non-appealable judgment of a court
of competent jurisdiction to the effect that the Placer Claim is not a valid
interest in the Acquired Land, (ii) to settle the Placer Claim with the consent
of Eagle, which shall not be unreasonably withheld or delayed, if RHC determines
to do so and (iii) with the balance, if any, being paid to Eagle. If the
Litigation Escrow is insufficient to cover the items referred to in clauses (i)
and/or (ii), the excess of the Placer Legal Expenses shall be paid by RBL as a
Project Cost. A mutually acceptable party will act as Litigation Escrow Agent.
4. Project Costs; Sources and Uses. (a) RBL will obtain
a turn-key bid for construction of item (a) below, a guaranteed maximum fixed
price ("Construction Costs") from a reputable and bondable general contractor.
RHC shall, pursuant to the Development Agreement, coordinate and be responsible
for the Gaming Project. Estimated costs of the Project ("Estimated Project
Costs") are as follows:
(000 omitted)
(a) Development Site Facility Building* with
Underground Parking** $20,075
(b) Gaming Equipment 8,100
(c) Bankroll and Preopening 2,500
(d) Indirect Costs 1,000
(e) Construction Period Interest 1,325
(f) Other Amenities (Rest, Entertainment, etc.) $2,200
-------
Total Estimated Project Costs
Before Land Acquisition Costs and Reserves $35,200
(g) Acquired Land 15,000
(h) Reserves 800
-------
Total Estimated Project Costs $51,000
=======
- --------
* Sufficient gaming space to accommodate 1,000 gaming devices.
** 500 spaces.
3
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Items (b) and (f) above shall not exceed $10.3 million without
Eagle's consent.
Unless Eagle shall have objected in writing within five
business days after written notice by RHC, RHC will advance design and
development costs associated with construction of the Casino prior to Closing.
If the Closing does not occur, such advances will be secured by an RHC mortgage
on the Acquired Land on the terms specified in Paragraph 4(c).
(b) Project Costs shall be funded as follows: 60% by (i)
Project first mortgage financing ("First Mortgage Loan"), provided such amount
is available on reasonable terms in RHC's reasonable opinion and (ii) $8,100,000
of Gaming Equipment costs through purchase money financing provided by vendors
and 40% by equity contributions. The parties will use their best efforts to have
60% of Estimated Project Costs covered by funds borrowed by RBL on a nonrecourse
or project basis (i.e. the First Mortgage Loan and equipment financing) if such
borrowings are available on reasonable terms. RHC is prepared to invest up to an
additional $7,000,000 to provide funds to complete the Project on the terms
specified in Paragraph 5.
(c) Any advance by RHC of Project Costs prior to Closing will
be secured by a mortgage on the Acquired Land and will bear interest at the
prime rate plus 2% with principal and interest being repayable at the earlier of
(i) any sale or transfer by Eagle of the Acquired Land to a third party, (ii) on
a first priority basis from the proceeds of any first mortgage financing on the
Acquired Land or (iii) three years from the date of the first such advance.
5. Capital Calls. (a) If RBL determines that additional
capital ("Capital Call") is required, (a) it will notify ("Call Notice") RHC and
Eagle at least 60 days in advance, (b) if RHC or Eagle fail to promptly, after
expiration of the Call Notice period, fund a Capital Call in cash
("Non-Responding Owner"), the other owner may (i) put up 50% of the Non-
Responding Owner's share of the Capital Call ("Call Pick Up") and the equity
percentages of the RHC and Eagle shall be adjusted as provided in Paragraph 6
and (ii) lend or arrange for the loan of 50% of the Non-Responding Owner's share
of the Capital Call, with interest at prime plus 3%, and interest and principal
being paid on a priority basis after payment of any first mortgage, capital
lease and other debt principal and interest payments and unpaid Project Costs
(except as otherwise limited by Paragraph 4(a)), which loan will be converted
into equity if not repaid in full within two years after the opening of the
Casino. A Capital Call will be permitted (i) to pay Project Costs in excess of
Estimated Project Costs, (ii) for working capital to keep the Casino and related
facilities operating after the Casino opening and (iii) to repair or replace
damaged or worn-out property if amounts are required in excess of funds in a
reserve account, which will be established.
(b) If RHC wishes to expand the Project beyond what is
contemplated by the Project plans approved by Eagle and RHC, RHC agrees to use
reasonable efforts to find alternative sources of financing prior to initiating
a Capital Call, provided that RHC shall retain sole discretion to determine
whether the terms of such financing are acceptable. If, within 30
4
<PAGE>
days after RHC notifies Eagle of the proposed expansion, Eagle has not notified
RHC to apply the Capital Call provision pursuant to Paragraph 5(a), then RHC
will have the option ("Special Call") to purchase Eagle's equity interest in RBL
at the greater of (i) two times Eagle's investment or (ii) the "Call Price" (as
defined in Paragraph 8(c)).
6. Adjustments of Equity Shares. (a) If there is a Call
Pick-Up, the equity percentages shall be adjusted based upon the following
formula: each owner's Capital Account after a Capital Call shall be divided by
the Capital Accounts of the owners immediately prior to the Capital Call plus an
amount equal to (i) 100% of any Capital Call prior to opening of the Casino or
(ii) 110% of the Capital Call after opening of the Casino.
7. Management Agreement. At the Closing, RHC will enter
into a gaming management agreement with RBL, the principal terms of which are
set forth on Exhibit E hereto (the "Management Agreement").
8. Operating Agreement. At the Closing, RHC and Eagle will
enter into an operating agreement with respect to RBL equity with the following
principal terms:
(a) Mutual rights of first refusal on the sale of either the
underlying assets of RBL or the RBL equity (including a 60 day preemptive right
on the sale of additional equity, including convertible debt, by RBL to a third
party).
(b) Board consisting of number of persons proportionate to
RHC's and Eagle's equity interests (e.g., initially RHC four and Eagle one),
provided (i) RHC will have at least a majority of the Board and (ii) Eagle will
have at least one Board member only so long as Eagle has at least a 15% equity
interest.
(c) If RBL's EBITDA exceeds $15 million for any 12 month
period commencing 18 months after the Casino opens, RHC shall have the right to
call Eagle's interest by paying in cash an amount ("Call Price") equal to 110%
of "Appraised Value" (hereinafter defined), multiplied by Eagle's then current
equity percentage of RBL.
(d) Eagle shall have a put ("Put") to RBL commencing after the
Casino opens at a price ("Put Price") equal to 90% of the Appraised Value of RBL
multiplied by Eagle's then current equity percentage of RBL and shall receive
payment in the form of a subordinated promissory note payable out of one-half of
the pre-tax net income of RBL (but only to the extent permitted by RBL's senior
indebtedness holders), with interest on the unpaid balance equal to the prime
rate plus 2%, provided that if Eagle exercises the Put within 18 months after
the Casino opens, the interest rate shall be the prime rate. Such note will be
secured by a pledge of Eagle's former ownership interest in RBL and will mature
no later than one year after the scheduled maturity date of the First Mortgage.
If RHC (or an affiliate) will own 100% of the equity of RBL (after giving effect
to a Put by Eagle), Eagle may, in lieu of the RBL note referred to in the
preceding sentence (in whole or in part) receive RHC common stock ("RHC
5
<PAGE>
Shares") which (x) will be valued at the closing market price of RHC's common
stock on 20 trading days prior to the date that Eagle notifies RBL of its
exercise of the Put and (y) will be restricted stock which may not be resold or
distributed publicly unless (i) in the opinion of counsel satisfactory to RHC
such sale or distribution is exempt from registration under the Securities Act
of 1933 or (ii) the RHC Shares are included in an effective registration
statement. If RHC intends to register the public sale of shares of its common
stock for cash, Eagle shall have a right ("Piggy-Back Right") to include the RHC
Shares in such registration, provided that if the managing underwriter[s] of
such offering by RHC advise that all or a portion of the RHC Shares may not be
included in such registration and other holders of piggyback rights are
similarly excluded, Eagle's request shall not be honored and in lieu thereof RHC
will undertake to file a registration statement covering the sale of the RHC
Shares within six months of the effective date of the registration covering the
sale by RHC. Eagle shall have one demand registration right ("Demand Right") for
a sale of the RHC Shares in a firm commitment underwritten public offering at a
specified underwriting discount as specified in an underwriters' letter of
intent. As to the Demand Right, RHC may (i) delay registration for up to 9
months (except that if the Put shall be given after the first anniversary of
opening of the Casino, the period of such delay may not exceed six months) and
(ii) purchase the RHC Shares (and cancel Eagle's Demand Right) for an amount
equal to the average closing market price of RHC's common stock on the American
Stock Exchange on the 20 trading days immediately preceding the exercise of the
Demand Right minus such underwriting discount by notice to Eagle prior to the
effective date of the registration statement covering the RHC Shares.
(e) For purposes of Paragraphs 8(c) and (d), the Appraised
Value shall equal the average of fair market values of RBL as a going concern as
determined by two big six accounting firms and/or investment banking firms, one
of whom shall be selected by RBL and one of whom shall be selected by Eagle;
provided that if the individual fair market values of RBL as determined by such
firms differ by more than 25% and either RBL or Eagle requests a third big six
independent accounting firm (i.e. not the accountants for either RHC or Eagle),
such firms shall select a big six accounting firm to determine the fair market
value of RBL, and such third firm's valuation shall be the Appraised Value. For
purposes of any such appraisals, any capital expenditures during the prior 12
months in excess of 105% of depreciation and amortization will be added back to
cash. The costs of the appraisals shall be paid by RBL and deducted from the
Appraised Value.
9. Eagle Parking on the Acquired Land. From the Closing to the
commencement of construction by RBL on the Acquired Land which, in RBL's sole
discretion, shall require Eagle to vacate, Eagle may lease the Acquired Land for
an indeterminate term which shall be terminable by either RBL or Eagle on not
less than 30 days prior written notice of termination or immediately upon the
occurrence of a Default and otherwise as specified pursuant to a lease, in
customary form, which will be executed at or prior to the Closing and which will
contain the following general terms:
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(a) "Parking Lot Expenses; Rent. Eagle will pay all operating
costs ("Parking Lot Expenses") associated with operation of a parking lot on the
Acquired Land on a so-called triple net basis, including without limitation,
taxes, security and insurance against risks and in amounts specified by RBL and
naming RBL and RHC as insureds. Eagle will pay monthly rent ("Base Rent") of
$10,000 commencing 90 days after the Closing, payable in advance.
(b) "Default". Eagle shall fail to pay any Parking Lot
Expenses or any installment of Base Rent 10 days after notice from RBL.
10. Brokers' Fees. RHC will issue 100,000 warrants to
Ladenburg Thalmann & Co. Inc. ("LT&C") as set forth in a letter, dated March 3,
1997, as financial advisor and agent in arranging first mortgage financing.
Eagle will pay LT&C's fees for advising Eagle in connection with the
Transactions and will indemnify RHC and RBL from all other brokers' or finders'
fees incurred by Eagle in connection with the Transactions. RHC will indemnify
Eagle and RBL from any brokers' or finders' fees as a result of RHC's actions.
11. Public Offering. Eagle acknowledges that RHC's ability
to enter into the transactions contemplated hereby is dependent upon receipt by
RHC of net proceeds of the sale in a public offering of 1,750,000 shares
to be underwritten by LT&C. RHC will use all reasonable efforts to close
such offering, on terms acceptable at its sole discretion.
12. Gaming Approval. RHC has no reasonable basis for
believing that any government approvals necessary for RHC to own and manage the
Casino cannot be obtained prior to the Closing. RHC agrees to use all reasonable
efforts to obtain such government approvals.
13. Assignment; Other Gaming Opportunities. (a) RHC may
assign its rights and obligations with respect to the Transactions, including
the Management Agreement, to one of its affiliates.
(b) Eagle and RHC, and their respective affiliates ("New
Project Initiator") shall offer any other gaming opportunities which either
intends to develop in the Black Hawk/Central City area (other than the competing
Harrah's Black Hawk Casino and Harrah's Central City Casino in which Eagle owns
equity interests) to RBL on a first refusal basis, provided, if RBL is unable to
undertake the development because either Eagle or RHC refuses to contribute its
respective pro-rata shares of the required equity capital in a timely fashion
the New Project Initiator may develop such opportunity outside RBL. Expansion of
the Project shall be governed by Paragraph 5(b).
14. Pre-Closing Expenses. RHC and Eagle anticipate that
they will each incur certain expenses prior to Closing in performing their
respective obligations in accordance with this Letter. Except as specified in
this Letter or such other estimated expenses as may be added
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to Project Costs by the parties at the time they enter into the Development
Agreement, RHC and Eagle shall each pay, and be exclusively responsible for, its
own expenses.
15. No Shop. As a material inducement to RHC to proceed
with its due diligence review, Eagle hereby agrees that it will not directly or
indirectly make, solicit, initiate, encourage or respond to a submission or a
proposal of an offer from any person or entity (other than RHC) relating to the
sale of the Acquired Land or any transaction involving Eagle which is similar to
the Project from the date of execution of this Letter through June 30, 1997.
16. Publicity. Neither RHC nor Eagle will publicly disclose
the nature of the Transactions without the consent of the other, provided that
the foregoing will not prevent such disclosure if counsel for either RHC or
Eagle advise that such disclosure is legally required.
17. Non-binding Legal Effect. The execution of this letter
constitutes an expression of interest by RHC and Eagle regarding the subject
matter hereof, except for the provisions of Paragraphs 14, 15 and 16. Without
limiting the generality of the foregoing except as contained in this Paragraph
17, neither party shall have any parties obligation with respect to a joint
venture, it being expressly understood that such obligation would be contained
only in the definitive Development Agreement. This letter shall terminate if the
partners have not executed a definitive Development Agreement by June 30, 1997.
If the foregoing is acceptable, please sign and return the
enclosed copy prior to the close of business March 41, 1997.
Very truly yours,
RIVIERA HOLDINGS CORP.
By:___________________________
ACCEPTED:
EAGLE GAMING, L.P.
By: WILD WEST DEVELOPMENT
CORPORATION, GENERAL PARTNER
By:______________________________
Dated: __________ __, 1997
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