SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<CAPTION>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
[X] Definitive Proxy Statement the Commission Only
[ ] Definitive Additional Materials (as permitted by
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 Rule 14a-6(e)(2))
- -------------------------------------------------------------------------------------------------------------------
RIVIERA HOLDINGS CORPORATION
- -------------------------------------------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identity the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- -------------------------------------------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on June 24, 1998
TO THE STOCKHOLDERS OF
RIVIERA HOLDINGS CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Riviera Holdings Corporation, a Nevada corporation (the
"Company"), will be held at the Riviera Hotel & Casino, 2901 Las Vegas Boulevard
South, Las Vegas, Nevada 89109 on Wednesday, June 24, 1998, at 11:00 a.m., local
time, for the following purposes:
1. To elect a Board of Directors; and
2. To consider and act upon such other matters as may properly
come before the meeting or any adjournments or postponements
thereof.
The Board of Directors has fixed April 30, 1998 as the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting and any adjournments or postponements thereof. Accordingly, only holders
of record of Common Stock, par value $.001 per share, at the close of business
on such date (the "Stockholders") shall be entitled to vote at the Annual
Meeting and any adjournments or postponements thereof. A complete list of
Stockholders is open to the examination of any Stockholder for any purpose
germane to the meeting, during ordinary business hours, at the offices of the
Company located at 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109.
A copy of the Company's Annual Report for the fiscal year ended
December 31, 1997 is enclosed herewith. A copy of the Company's Annual Report to
the Securities and Exchange Commission on Form 10-K/A for the fiscal year ended
December 31, 1997 will be provided, without charge, to any Stockholder upon
written request.
By Order of the Board of Directors,
William L. Westerman, Chairman of the Board
Dated: April 30, 1998
YOU ARE URGED TO FILL IN, SIGN, DATE AND MAIL THE ENCLOSED PROXY. IF YOU ATTEND
THE MEETING AND VOTE IN PERSON, THE PROXY WILL NOT BE USED. IF THE PROXY IS
MAILED IN THE UNITED STATES IN THE ENCLOSED ENVELOPE, NO POSTAGE IS REQUIRED.
THE PROMPT RETURN OF YOUR PROXY WILL SAVE THE EXPENSE INVOLVED IN FURTHER
COMMUNICATION.
<PAGE>
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
------------------
PROXY STATEMENT
for Annual Meeting of Stockholders
to be held on June 24, 1998
------------------
April 30, 1998
TO THE STOCKHOLDERS:
This Proxy Statement ("Proxy Statement") is being furnished to
stockholders of Riviera Holdings Corporation, a Nevada Corporation (the
"Company"), in connection with the solicitation of proxies in the accompanying
form by the Board of Directors for use at the Annual Meeting of Stockholders
(including any adjournments or postponements thereof, the "Annual Meeting") to
be held at the Riviera Hotel & Casino, 2901 Las Vegas Boulevard South, Las
Vegas, Nevada 89109 on Wednesday, June 24, 1998 at 11:00 a.m., local time. The
approximate date on which this Proxy Statement and the accompanying form of
proxy will be sent to the stockholders is May 4, 1998.
All holders of record (the "Stockholders") of the Company's common
stock, par value $.001 per share (the "Common Stock"), at the close of business
on April 30, 1998 (the "Record Date"), are entitled to vote at the meeting and
their presence is desired. Each outstanding share of Common Stock as of the
Record Date is entitled to one vote. At the close of business on April 21, 1998,
4,858,980 shares of Common Stock were outstanding.
If a Stockholder cannot be present in person at the Annual Meeting, the
Board of Directors of the Company requests such Stockholder to execute and
return the enclosed proxy as soon as possible. The person who signs the proxy
must be either (i) the registered Stockholder of such shares of Common Stock or
(ii) a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation or any other person acting in a fiduciary or representative
capacity on behalf of such registered Stockholder. A Stockholder can, of course,
revoke a proxy at any time before it is voted, if so desired, by filing with the
Secretary of the Company an instrument revoking the proxy or by returning a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person. Any such filing should be sent to Riviera Holdings
Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109; Attention:
Secretary. Attendance at the Annual Meeting will not by itself constitute
revocation of a proxy.
The Company is paying all costs of the solicitation of proxies,
including the expenses of printing and mailing to its Stockholders this Proxy
Statement, the accompanying Notice of Annual Meeting of Stockholders, the
enclosed proxy and the Annual Report. The Company will also reimburse brokerage
houses and other custodians, nominees and fiduciaries for their expenses, in
accordance with the regulations of the Securities and Exchange Commission, in
sending proxies and proxy materials to the beneficial owners of the Company's
Common Stock. Officers or employees of the Company may also solicit proxies in
person, or by mail, telegram or telephone, but such persons will receive no
compensation for such work, other than their normal compensation as such
officers or employees.
PURPOSE OF THE ANNUAL MEETING
At the Annual Meeting, the Stockholders will consider and vote upon (1)
the election of four directors to hold office until the next annual meeting and
until their respective successors shall have been elected and qualified, or,
until resignation, removal or death as provided in the Bylaws of the Company;
and (2) such other matters as may properly come before the Annual Meeting or any
adjournments or postponements thereof.
<PAGE>
VOTE REQUIRED; PROXIES
The presence in person or by proxy of a majority of the shares of
Common Stock outstanding and entitled to vote as of the Record Date is required
for a quorum at the Annual Meeting. If a quorum is present, those nominated
directors receiving a plurality of the votes cast will be elected. Accordingly,
shares not voted in the election of directors (including shares covered by a
proxy as to which authority is withheld to vote for all nominees) and shares not
voted for any particular nominee (including shares covered by a proxy as to
which authority is withheld to vote for only one or less than all of the
identified nominees) will not prevent the election of any of the nominees for
director. For all other matters submitted to Stockholders at the meeting, if a
quorum is present, the affirmative vote of a majority of the shares represented
at the meeting and entitled to vote is required for approval. As a result,
abstention votes will have the effect of a vote against such matters.
Shares of Common Stock which are represented by properly executed
proxies, unless such proxies shall have previously been properly revoked, will
be voted in accordance with the instructions indicated in such proxies. If no
contrary instructions are indicated, such shares will be voted (1) FOR the
election of all of the nominees for director named in this Proxy Statement and
(2) in the discretion of the persons named in the proxies as proxy appointees as
to any other matter that may properly come before the Annual Meeting.
Shares held by brokers and other Stockholder nominees may be voted on
certain matters but not others. This can occur, for example, when the broker or
nominee does not have the discretionary authority to vote shares of Common Stock
and is instructed by the beneficial owner thereof to vote on a particular matter
but is not instructed on other matters. These are known as "non-voted" shares.
Non-voted shares will be counted for purposes of determining whether there is a
quorum at the meeting, but with respect to the matters as to which they are
"non-voted," they will have no effect upon the outcome of the vote thereon.
PROPOSAL -- ELECTION OF DIRECTORS
The Board of Directors of the Company consists of four members, all of
whom have been renominated for election at the meeting. If elected, such
directors will hold office until the next annual meeting of stockholders and
until their respective successors shall have been elected and qualified, or,
until resignation, removal or death as provided in the Bylaws of the Company.
Directors
The following table sets forth certain information as of April 30,
1998, regarding the four nominees for director:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
William L. Westerman 66 Chairman of the Board and Chief Executive Officer of the
Company and Riviera Operating Corporation ("ROC"), a
wholly-owned subsidiary of the Company, and President of the
Company
Robert R. Barengo 56 Director of the Company and ROC
William Friedman 55 Director of the Company and ROC
Philip P. Hannifin 63 Director of the Company and ROC
</TABLE>
William L. Westerman assumed the positions referred to above in
February 1993. Mr. Westerman was a consultant to Riviera, Inc. from July 1, 1991
until he was appointed Chairman of the Board and Chief Executive Officer of
Riviera, Inc. on January 1, 1992. From 1973 to June 30, 1991, Mr. Westerman was
President and Chief Executive Officer of Cellu-Craft Inc., a manufacturer of
flexible packaging primarily for food products. Alusuisse, a multi-national
aluminum and chemical company, acquired Cellu-Craft on June 30, 1989. On January
2
<PAGE>
1, 1990, Mr. Westerman was appointed President of Alusuisse Flexible Packaging
(Alusuisse's wholly-owned U.S. subsidiary engaged in the manufacture of flexible
packaging for food and pharmaceutical products). Additionally, Mr. Westerman was
named a member of the team responsible for all of Alusuisse multinational
packaging operations with annual sales volume in excess of $1 billion. Mr.
Westerman resigned from all his positions with Alusuisse on June 30, 1991.
Robert R. Barengo has been a Director of the Company and ROC since
February 1993. Mr. Barengo was a consultant to Riviera, Inc. from January 1993
until June 30, 1993. Since 1972, Mr. Barengo has been engaged in the private
practice of law in Reno, Nevada. From 1978 to 1983, Mr. Barengo was Speaker Pro
Tempore and Speaker of the Nevada Assembly. From October 1992 to May 1996, Mr.
Barengo was a director and 10% shareholder of Leroy's Horse & Sports Place, Inc.
("Leroy's"). In May 1996, Leroy's became a wholly owned subsidiary of American
Wagering, Inc. ("AWI"), a publicly held corporation listed on NASDAQ. Since May
1996, Mr. Barengo has been a director of AWI and currently owns 7% of the
outstanding stock of AWI. Since 1993, Mr. Barengo has been the President and the
sole stockholder of Silver State Disseminators Company, a company licensed by
Nevada gaming authorities to disseminate racing information in the State of
Nevada and Chairman of the Nevada Dairy Commission.
William Friedman has been a Director of the Company and ROC since
February 1993. Mr. Friedman was a consultant to Riviera, Inc. from January 1993
until June 30, 1993. During 1989 and 1990, Mr. Friedman was President and
General Manager of the Las Vegas Casino Division of United Gaming Inc., the
largest slot route operator in Nevada. In 1988 and 1989, Mr. Friedman was Chief
Executive Officer and Executive Vice President of Rio Suite Hotel & Casino, Inc.
(formerly MarCor Resorts. Inc.) and President and General Manager of Rio Suite
Hotel & Casino in Las Vegas.
Philip P. Hannifin has been a Director of the Company and ROC since
February 1993. Mr. Hannifin was a consultant to Riviera, Inc. from January 1993
until June 30, 1993. Mr. Hannifin was a Director from 1986 to 1995 and an
Executive Vice President of Fitzgerald's Reno, Inc. (a casino/hotel operator)
since 1991. From 1987 to 1990, Mr. Hannifin was a Director and Executive Vice
President of MGM Grand Inc. (a casino/hotel operator). From January 1971 to
September 1977, Mr. Hannifin was Chairman of the Nevada Gaming Control Board.
Compensation of Directors
- -------------------------
Each of Messrs. Barengo, Friedman and Hannifin is paid an annual fee of
$50,000 for services as a director of the Company and ROC. Each director is also
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors. Mr. Hannifin was granted options to purchase 24,000
shares in 1993, 12,000 shares for 1994, and none in 1995 and 1996. On March 5,
1996 the Board of Directors adopted a Nonqualified Stock Option Plan for
Non-Employee Directors (the "Directors' Option Plan"), which was approved by the
stockholders on May 10, 1996. Under the Directors' Option Plan, each individual
elected, re-elected or continuing as a non-employee director will automatically
receive a non-qualified stock option for 2,000 shares of Common Stock, with an
option exercise price equal to the fair market value of the Common Stock on the
date of grant. 50,000 shares have been reserved for issuance under the
Directors' Option Plan. Options to purchase 2,000 shares at an exercise price of
$13.25 were granted to each of Messrs. Barengo and Friedman on May 10, 1996
under the Directors' Option Plan. In addition, options to purchase 2,000 shares
at an exercise price of $13.50 were granted to each of Messrs. Barengo, Friedman
and Hannifin on May 12, 1997 under the Directors' Option Plan. Directors who are
also officers or employees of the Company or ROC do not receive any additional
compensation for services as a director. Currently, Mr. Westerman is the only
such director. The Board of Directors has granted the members of the
Compensation Committee the right to elect to receive all or part of their annual
fees in the form of the Company's Common Stock in a number of shares having a
fair market value equal to the cash compensation subject to such election
pursuant to the Company's Compensation Plan for Directors serving on the
Compensation Committee. Of the 50,000 shares reserved for issuance under this
plan, 3,103 shares were issued to Mr. Barengo for a portion of his director's
fees in 1996 and 877 shares were issued to Mr. Barengo for a portion of his
director's fees in 1997.
3
<PAGE>
Board of Directors and Committee Meetings
- -----------------------------------------
The Company established an Audit Committee at the beginning of 1994.
The Audit Committee is composed of Messrs. Barengo, Friedman and Hannifin. The
Audit Committee recommends to the Board of Directors the selection of an
auditor, reviews the plan and scope of an audit, reviews the auditors' critique
of management and internal controls and management's response to such critique
and reviews the results of the audit.
The Company and ROC each has a Compensation Committee composed of
Messrs. Barengo and Friedman. The Compensation Committee is responsible for
recommending executive compensation programs to the Board of Directors and for
approving all compensation decisions with respect to the Chief Executive Officer
and his recommendations for the other executive officers of the Company.
In 1997, the Audit Committee met once and the Compensation Committee
also met once.
In 1997, the Board of Directors of the Company held eight meetings. No
member of the Board of Directors attended in 1997 fewer than 75% of the
aggregate of (1) the total number of meetings of the Board of Directors held
during the period for which he has been a director and (2) the total number of
meetings held by all committees on which he served.
The Board of Directors recommends that Stockholders vote "FOR" each of
the nominees listed above.
Executive Officers
The following table sets forth certain information as of April 30, 1998
regarding the executive officers of the Company and ROC:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
William L. Westerman 66 Chairman of the Board and Chief Executive Officer of the
Company and ROC, and President of the Company
Duane R. Krohn 52 Treasurer of the Company and Vice President of Finance and
Treasurer of ROC
John A. Wishon, Esq. 53 Vice President and General Counsel of ROC, Secretary of the
Company and ROC
Michael L. Falba 55 Vice President of Casino Operations of ROC
Jerome P. Grippe 55 Vice President of Operations of ROC
Martin R. Gross 41 Vice President of Hotel Marketing of ROC
Ronald P. Johnson 49 Vice President of Gaming Operations of ROC
Robert E. Nickels, Sr. 68 Vice President of Administration of ROC
Robert A. Vannucci 50 Vice President of Marketing and Entertainment of ROC
</TABLE>
For a description of the business experience of William L. Westerman,
see "Directors."
Duane R. Krohn, CPA, assumed the position of Treasurer of the Company
and ROC on June 30, 1993 and was elected Vice President of Finance of ROC on
April 26, 1994. Mr. Krohn was initially employed by Riviera, Inc. in April 1990,
as Director of Corporate Finance and served as Vice President-Finance from March
1992 to June 30, 1993. Mr. Krohn served as Chief Financial Officer of Imperial
Palace, Inc. (a casino/hotel operator in Las Vegas) from February 1987 to March
1990. Prior to 1987, Mr. Krohn was Chief Financial Officer of the Mint and the
Dunes in Las Vegas, Nevada, and Bally's Park Place in Atlantic City, New Jersey.
John A. Wishon, Esq. was elected Secretary of the Company and ROC, and
General Counsel of ROC in September 1994, and was elected Vice President of ROC
in November 1996. Mr. Wishon was initially employed by ROC as a Marketing
Analyst in February 1994. From January 1992 to February 1994, Mr. Wishon was a
4
<PAGE>
legal and management consultant to Gold River Gambling Hall & Resort, the
Bicycle Club Casino, and Tierra del Sol Casino Resort. From October 1990 to
January 1992, Mr. Wishon served as Vice President of Hotel Operations and later
as Vice President of Administration and Legal Affairs at the Sands Hotel Casino
in Las Vegas. Prior to December 1988, Mr. Wishon served as General Manager of
the Airtel Plaza and Westwood Plaza Hotels in Los Angeles, California. From 1976
until 1988, Mr. Wishon was Senior Vice President of the Hotel del Coronado
Corporation and held the positions of Resident Manager and General Counsel. Mr.
Wishon is a member of the Nevada and California Bars, has practiced law with
emphasis on real estate and contract law and has been employed in law
enforcement.
Michael L. Falba was elected Vice President of Casino Operations of ROC
on April 26, 1994. Mr. Falba became Director of Casino Operations of ROC on June
30, 1993. Mr. Falba was employed by the Riviera, Inc. from March 1989 until
November 1991 as Assistant Casino Manager, and from November 1991 to June 30,
1993 as Vice President of Casino Operations.
Jerome P. Grippe was elected Vice President of Operations of ROC on
April 26, 1994. Mr. Grippe became Director of Operations of ROC on June 30,
1993. Mr. Grippe was Assistant to the Chairman of the Board of Riviera, Inc.
from July 1990 until May 1993. Mr. Grippe had served in the United States Army
from 1964 until his retirement as a Colonel in July 1990.
Martin R. Gross was elected Vice President of Hotel Marketing of ROC on
April 26, 1994. Mr. Gross became Director of Hotel Marketing of ROC on June 30,
1993. Mr. Gross was Vice President-Hotel Marketing of Riviera, Inc. from April
1992 until June 30, 1993. Mr. Gross was Vice President-Marketing and Sales for
Alexis Park Resort Hotel (a 500-suite non-gaming resort) in Las Vegas from
August 1988 until April 1992. From 1980 to 1988, Mr. Gross held key marketing
positions with the Mirage and MGM Grand hotels. On August 12, 1996, concurrent
with Riviera Gaming Management, Inc. ("RGM"), a wholly-owned subsidiary of the
Company, taking over the management of the Four Queens Hotel/Casino ("Four
Queens") Mr. Gross assumed the responsibilities of Acting General Manager of the
Four Queens and in February of 1997, Mr. Gross became General Manager of the
Four Queens. Mr. Gross remains an officer and employee of ROC.
Ronald P. Johnson became Vice President of Gaming Operations of ROC in
September 1994. Mr. Johnson became Director of Slots of ROC on June 30, 1993 and
was elected Vice President of Slot Operations and Marketing on April 26, 1994.
Mr. Johnson was Vice President-Slot Operations and Marketing of Riviera, Inc.
from April 1991 until June 30, 1993. Mr. Johnson was Vice President-Slot
Operations for Sands Hotel and Casino Inc. from September 1989 until he joined
Riviera, Inc. From September 1986 until September 1989, Mr. Johnson was
Assistant Slot Manager at Bally's Grand Las Vegas.
Robert E. Nickels, Sr. was elected Vice President of Administration of
ROC on June 30, 1993. From March 1992 until June 30, 1993, Mr. Nickels was Vice
President-Administration of Riviera, Inc. From November 1991 to February 1992,
Mr. Nickels was a self-employed business consultant. From March 1979 to April
1986, Mr. Nickels was Director of Internal Audit for MGM-Reno. From April 1986
to November 1991, Mr. Nickels served as Vice President of Administration at
Bally's Reno and Las Vegas.
Robert A. Vannucci was elected Vice President of Marketing and
Entertainment of ROC on April 26, 1994. Mr. Vannucci had been Director of
Marketing of ROC since July 19, 1993. Mr. Vannucci was Senior Vice President of
Marketing and Operations at the Sands Casino Hotel in Las Vegas from April 1991
to February 1993. Mr. Vannucci was Vice President and General Manager of
Fitzgerald's Las Vegas (a casino/hotel operator) from 1988 to January 1991. In
July 1993, Robert Vannucci filed for personal bankruptcy protection under
Chapter 13 of the Bankruptcy Code. Pursuant to his bankruptcy plan, Mr. Vannucci
has made 100% repayment to all creditors.
Officers of each of the Company and ROC serve at the discretion of
their respective Boards of Directors and are also subject to the licensing
requirements of the Nevada Gaming Commission.
5
<PAGE>
Compensation of Executive Officers
The following table sets forth a summary of the compensation paid by
the Company in the years ended December 31, 1995, 1996 and 1997, to the Chief
Executive Officer of the Company and ROC, and to the Company's four most highly
compensated executive officers who received over $100,000 in compensation during
1997 from the Company (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation(1)
- ------------------ ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
William L. Westerman 1997 $600,000 ----- $782,175(3) $1,809
Chairman of the Board and Chief 1996 400,000 $1,213,969(2) 431,875(3) 1,566
Executive Officer of the Company 1995 375,000 855,961 431,315(3) 1,630
and ROC
Ronald P. Johnson 1997 180,996 82,000 7,175 763
Vice President of Gaming 1996 170,961 100,000 6,875 791
Operations of ROC 1995 155,840 70,000 8,529 772
Martin R. Gross 1997 167,151 82,000 7,175 681
Vice President of Hotel Marketing 1996 148,653 100,000 6,875 536
of ROC 1995 140,049 70,000 8,079 541
Robert Vannucci 1997 167,055 82,000 7,175 681
Vice President of Marketing and 1996 145,961 100,000 6,875 536
Entertainment of ROC 1995 130,569 70,000 6,879 541
Duane R. Krohn 1997 123,351 82,000 7,175 394
Treasurer of the Company and Vice 1996 117,715 100,000 6,875 408
President of Finance and Treasurer 1995 103,916 70,000 7,029 409
of ROC
</TABLE>
- ------------------------------
(1) Includes premiums paid by the Company for excess life insurance.
(2) Includes $614,000 of Mr. Westerman's 1996 Incentive Bonus which was
credited to his retirement account pursuant to his employment agreement.
(3) Includes contributions to Mr. Westerman's retirement account of $775,000 in
1997, $425,000 in 1996, and $400,000 in 1995. (See "-Employment
Agreements")
Option Grants
- -------------
The number of shares available for purchase under the Company's 1993
Employee Stock Option Plan, as amended (the "Stock Option Plan") is 1,000,000
(as adjusted pursuant to antidilution provisions). Options for an aggregate of
770,000 shares have been granted under the Stock Option Plan. During the
Company's 1997 fiscal year, no options were granted under the Stock Option Plan.
6
<PAGE>
Option Exercises and Year-End Options Values
- --------------------------------------------
The following table presents at December 31, 1997 the value of
unexercised in-the-money options held by the Named Executive Officers. As of
December 31, 1997 no options had been exercised.
<TABLE>
<CAPTION>
Number of Value of Unexercised,
Unexercised Options In-The-Money Options
Name Vested Not Vested Vested Not Vested
- ---- ------- ----------- ------- ----------
<S> <C> <C> <C> <C>
William L. Westerman 325,000 175,000 1,761,975 155,625
Ronald P. Johnson 20,000 5,000 176,198 15,563
Martin R. Gross 20,000 5,000 176,198 15,563
Robert Vannucci 20,000 5,000 176,198 15,563
Duane R. Krohn 20,000 5,000 176,198 15,563
</TABLE>
Employment Agreements
- ---------------------
William L. Westerman serves as Chairman of the Board, President and
Chief Executive Officer of the Company, and as Chairman of the Board and Chief
Executive Officer of ROC.
Under Mr. Westerman's existing employment agreement with the Company,
which was last amended on November 21, 1996 and approved by the stockholders of
the Company on May 8, 1997, the term of Mr. Westerman's employment will expire
on December 31, 1998 and Mr. Westerman's employment will be automatically
renewed for successive one-year terms unless the Company gives Mr. Westerman 90
days written notice or Mr. Westerman gives the Company 180 days notice. Mr.
Westerman's base compensation is $600,000.
Under the employment agreement, Mr. Westerman is 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"). If at least 80% of targeted net income, as defined by
the Plan, is met, Mr. Westerman shall be entitled to receive a bonus under the
Plan expressed as a percentage of his $600,000 base salary depending on the
percentage of targeted net income realized by the Company in a particular year,
with a maximum bonus of $900,000. Mr. Westerman did not receive an incentive
bonus in 1997.
The employment agreement provides that the Company fund a retirement
account for Mr. Westerman. Pursuant to the employment agreement, an aggregate of
$3,524,000 had been credited to the retirement account from its inception
through January 1, 1998. Under the employment agreement, each year that Mr.
Westerman continues to be employed, an amount equal to Mr. Westerman's base
salary for that year will be credited to the account on January 1 of that year
and in the event that Mr. Westerman is no longer employed by the Company (except
for termination for cause, in which case Mr. Westerman would forfeit all rights
to monies in the retirement account), Mr. Westerman will be entitled to receive
the amount in the retirement account as of the date he ceases to be employed by
the Company in 20 quarterly installments. Pursuant to the employment agreement,
the retirement account was credited with $79,027 on April 1, 1997, $85,672 on
July 1, 1997, $90,757 on October 1, 1997, $88,459 on January 1, 1998 and $90,326
on April 1, 1998 and shall be credited with additional amounts 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 and (ii) the average outstanding
balance in the retirement account during the preceding calendar quarter. In the
event of Mr. Westerman's death, an amount equal to the applicable federal estate
tax (now 60%) on the retirement account will be pre-paid prior to the date or
dates such taxes are due.
The Company retains beneficial ownership of all monies in the
retirement account, which monies are earmarked to pay Mr. Westerman's retirement
benefits. However, upon (i) the vote of a majority of the outstanding shares of
Common Stock approving a "Change of Control" (as defined below), (ii) the
occurrence of a Change of Control without Mr. Westerman's consent, (iii) a
breach by the Company of a material term of the employment agreement or (iv) the
expiration or earlier termination of the term of the employment agreement for
7
<PAGE>
any reason other than cause, Mr. Westerman may require the Company to establish
a "Rabbi Trust" for the benefit of Mr. Westerman and to fund such trust with an
amount of cash equal to the amount then credited to the retirement account,
including any amount to be credited to the retirement account upon a Change of
Control discussed below.
On February 5, 1998, the shareholders of the Company by a majority vote
approved the Agreement and the Plan of Merger (the "Riviera Merger Agreement")
with R&E Gaming Corp. and its wholly-owned subsidiary Riviera Acquisition Sub,
Inc. (See "Security Ownership of Certain Beneficial Owners and Management" for a
description of the Riviera Merger Agreement and events that have taken place
since the February 5, 1998 shareholder approval.) Such shareholder approval
constituted a Change of Control. On March 5, 1998, subsequent to this Change of
Control, Mr. Westerman exercised his right to require the Company to establish
and fund a Rabbi Trust for his benefit. On March 20, 1998 Mr., Westerman and the
Company entered into an agreement whereby Mr. Westerman waived his right to have
the Company fund the Rabbi Trust in exchange for the Company agreeing to fund
such Rabbi Trust within five business days after notice from Mr. Westerman.
The Company and ROC are also required to make contributions on behalf
of Mr. Westerman to the Profit Sharing and 401(k) Plans described below. The
Company did not make any contribution to the plans on Mr. Westerman's behalf in
1993. The Company made contributions to the plans of approximately $14,000 for
1994, $31,000 for 1995, $7,000 for 1996, and $7,000 for 1997.
The employment agreement provides that Mr. Westerman will receive the
same life, health and disability benefits offered to other key executives of the
Company and ROC, will be reimbursed for all business expenses and will be
entitled to four weeks vacation per year.
Under the employment agreement, Mr. Westerman has certain rights upon a
"Change of Control." A "Change of Control" is defined generally as transactions
involving (i) a sale of substantially all of the assets of the Company, (ii) a
merger, sale or other transaction resulting in holders of Common Stock
immediately prior to such transaction holding less than a majority in voting
interest to elect the directors of the Company or any other surviving entity,
(iii) any person that held less than 10% of the Common Stock acquiring a
majority in voting interest to elect the directors of the Company or (iv) any
person acquiring 50% or more of voting power to elect directors of the Company
or any surviving entity or acquiror of substantially all of the assets of the
Company. Under the employment agreement, a Change of Control without Mr.
Westerman's consent is a special event of default entitling Mr. Westerman, upon
at least 90 days prior notice to the Company, to terminate his employment with
the Company and to (i) have an amount equal to one year of base salary credited
to his retirement account and (ii) 100% vesting of stock options held by him.
Employee Stock Purchase Plan
- ----------------------------
On March 5, 1996, the Board of Directors adopted an employee stock
purchase plan (the "Stock Purchase Plan"), which was approved by the
stockholders on May 10, 1996. A total of 300,000 shares of Common Stock (subject
to adjustment for capital changes) in the aggregate may be granted under the
Stock Purchase Plan. The Stock Purchase Plan is administered by the Compensation
Committee. The purchase price per share of stock shall be 85% of per share
market value of the Common Stock on the purchase date. On May 31, 1996,
approximately 560 union and non-union employees participated in the Stock
Purchase Plan. Under the Stock Purchase Plan, 137,000 shares were issued to
employees at $11.26 (85% of market price at May 10, 1996), 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 Stock
Purchase Plan as a result of refunds to the employees and during 1997, 25,900
shares were returned through the Stock Purchase Plan as a result of refunds to
the employees. During 1997, 6,200 shares were reissued at $11.47 for notes
receivable of $71,145. From January 1, 1998 through April 21, 1998, 45,300
shares were returned to the Stock Purchase Plan as a result of refunds to the
employees. As of April 21, 1998, 245,600 shares remained eligible to be issued
under the Stock Purchase Plan.
The Company has registered the issuance of all the shares issuable
under the Stock Purchase Plan on Form S-8 under the Securities Act of 1933, as
amended (the "Securities Act").
8
<PAGE>
Profit Sharing and 401(k) Plans
- -------------------------------
On June 30, 1993, the Company and ROC assumed, pursuant to an Adoption
Agreement, the combined profit sharing and 401(k) plans of Riviera, Inc. (the
"Profit Sharing and 401(k) Plans") and the Company and ROC have continued the
Profit Sharing and 401(k) Plans after June 30, 1993. The Company and ROC have
amended the Adoption Agreement to provide that all current employees of the
Riviera Hotel & Casino (the "Riviera") who were employed by the Riviera on April
1, 1992, who are at least 21 years of age and who are not covered by a
collective bargaining agreement are immediately eligible to participate in the
Profit Sharing and 401(k) Plans. The amendment provides further that all current
employees who were employed by the Riviera after April 1, 1992, who are at least
21 years of age and who are not covered by a collective bargaining agreement are
eligible to participate after one year of service at the Riviera.
The profit sharing component of the Profit Sharing and 401(k) Plans
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) Plans if it notifies
its employees by January of the Profit Sharing and 401(k) Plans year. An
employee will become vested in the Company's contributions based on the
employee's years of service. An employee will receive a year of vesting service
for each plan year in which the employee completed 1,000 hours of service.
Vesting credit will be allocated in 20% increments for each year of service
commencing with the attainment of two years of service. An employee will be
fully vested following the completion of six years of service.
Termination Fee Agreements
- --------------------------
Twelve significant employees of ROC are party to agreements pursuant to
which each such employee is entitled to receive one year's salary and benefits
if his or her employment is terminated without cause within one year of a change
of control (as defined in the termination fee agreements) 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
$1.4 million in salaries and $425,000 in benefits as of December 31, 1997.
Stay Bonus Agreements
- ---------------------
Seven significant employees of ROC are party to agreements pursuant to
which each such employee is entitled to receive one year's salary (less the
amount of any incentive bonus paid in 1998 for 1997) in the event there is a
change of control (as defined in the stay bonus agreements) of the Company. The
agreements expire on December 31, 1998. The estimated total amount that would be
payable under all such agreements is approximately $420,000.
Compensation Committee Interlocks and Insider Participation
The Company and ROC each have a Compensation Committee composed of
Messrs. Friedman and Barengo. Mr. Barengo was formerly a director and 10%
shareholder of Leroy's. In May 1996, Leroy's became a wholly owned subsidiary of
AWI, a publicly held corporation listed on NASDAQ. Mr. Barengo is currently a
director of AWI and owns 7% of the outstanding stock of AWI. See "Certain
Relationships and Related Transactions."
9
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee endeavors to ensure that the compensation
program for executive officers of the Company is effective in attracting and
retaining key executives responsible for the success of the Company and is
tailored to promote the long-term interests of the Company and its stockholders.
The Company's executive officer compensation program in its last completed
fiscal year was principally comprised of base salary, an executive incentive
plan, a 401(k) plan, a profit-sharing plan and long-term incentive compensation
in the form of incentive stock options or non-qualified stock options.
The Compensation Committee takes into account various qualitative and
quantitative indicators of corporate and individual performance in determining
the level and composition of compensation for the Company's Chief Executive
Officer and his recommendations regarding the other executive officers. In
particular, the Compensation Committee considers several financial performance
measures, including revenue growth and net income. However, the Compensation
Committee does not apply any specific quantitative formula in making
compensation decisions. The Committee also considers achievements that, while
difficult to quantify, are important to the Company's long-term success. The
Compensation Committee seeks to create a mutuality of interest between the
executive officers and the Company's stockholders by increasing the executive
officers' ownership of the Company's Common Stock through the Stock Option Plan.
Salary levels for the Company's executive officers are significantly
influenced by the need to attract and retain management employees with high
levels of expertise. In each case, consideration is given both to personal
factors, such as the individual's experience, responsibilities and work
performance, and to external factors, such as salaries paid by comparable
companies in the gaming industry. With regard to the latter, it is important to
recognize that because of the growth of river boat and dockside gaming and the
proliferation of jurisdictions in which gaming is permitted, the Company
competes with numerous other companies for a limited pool of experienced and
skilled personnel. Therefore, it is critical that the Company provide base
salaries that are competitive in the casino industry. With respect to the
personal factors, the Compensation Committee makes salary decisions in an annual
review based on the recommendations of the Chief Executive Officer. This annual
review considers the decision-making responsibilities of each position as well
as the experience and work performance of each executive. The Chief Executive
Officer views work performance as the single most important measurement factor.
The compensation of Mr. Westerman for the Company's last completed
fiscal year was set pursuant to the employment agreement described in the
"Compensation of Executive Officers" section.
THE COMPENSATION COMMITTEE
Robert R. Barengo
William Friedman
10
<PAGE>
Performance Graph
The following graph compares the annual change in the cumulative total
return, assuming reinvestment of dividends, on the Company's Common Stock with
the annual change in the cumulative total returns of the NASDAQ Broad Market,
the American Stock Exchange Index (the "AMEX Index") and the NASDAQ Amusement
and Recreation Services Index (the "NASDAQ 79xx"), which the Company considers
to be its peer industry group. The graph assumes an investment of $100 on June
30, 1993, in each of the Common Stock, the stocks comprising the NASDAQ Broad
Market, the stocks comprising the AMEX Index and the stocks comprising the
NASDAQ 79xx.
Comparison of Cumulative Total Return Among the
Company, NASDAQ Broad Market, the AMEX Index
and the NASDAQ 79xx1
Riviera AMEX NASDAQ 79xx NASDAQ
------- ---- ----------- ------
6/30/93 100.000 100.000 100.000 100.000
12/31/93 100.000 110.017 88.929 110.509
12/31/94 126.002 102.591 52.564 107.185
12/31/95 336.538 131.999 41.698 150.534
12/31/96 622.115 134.104 39.830 184.334
12/31/97 612.981 167.692 47.717 225.547
- ---------------
1 Comprised of companies whose stock is traded on the NASDAQ National Market
and whose standard industrial classification is within 7900-7999. The
Company does not necessarily believe that this is an indication of the
value of the Company's stock.
11
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The Common Stock is traded on the American Stock Exchange. The
following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 21, 1998 by (i) each person who, to
the knowledge of the Company, beneficially owns more than 5% of the outstanding
Common Stock of the Company, (ii) the directors and certain officers of the
Company and (iii) all directors and officers of the Company and ROC as a group.
The percentages of shares of Common Stock held or beneficially owned by any
Stockholder or group of Stockholders are based upon the total number of shares
of Common Stock outstanding as of April 21, 1998. Except as indicated, each
person listed below has sole voting and investment power with respect to the
shares set forth opposite such person's name.
Shares Beneficially Owned
Name Number Percentage
---- ------ ----------
William L. Westerman(1)(2) 424,200 8.2%
Ronald P. Johnson(1)(2) 33,500 *
Martin R. Gross(1)(2) 21,500 *
Robert Vannucci(1)(2) 22,100 *
Duane R. Krohn(1)(2) 27,300 *
Robert R. Barengo(1)(2) 4,380 *
William M. Friedman(1)(2) 400 *
Philip P. Hannifin(1)(2) 36,000 *
Keyport Life Insurance Co.(3) 857,160 17.6
Sun America Life Insurance Company(4) 761,920 15.7
Morgens Entities:(5)
Betje Partners 29,360 *
Morgens Waterfall Income Partners 43,920 *
MWV Employee Retirement
Plan Group Trust 7,760 *
Phoenix Partners, L.P. 79,440 1.6
Restart Partners, L.P. 282,000 5.8
Restart Partners II, L.P. 440,600 9.1
Restart Partners III, L.P. 298,600 6.1
The Common Fund 90,880 1.9
------ ----
Total Morgens Entities 1,272,560 26.2
James D. Bennett(6) 454,265 9.3
12
<PAGE>
Allen E. Paulson(7) 463,655 9.5
All executive officers and directors as a 638,980 11.9
group (12 persons) (1) (2)
- ------------------------
* Less than 1%.
(1) The address for each director and officer of the Company or ROC is c/o
Riviera Holdings Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada
89109.
(2) Includes vested portion of options to purchase shares of Common Stock
granted pursuant to the Stock Option Plan and Non-qualified Stock Option Plan
for Non-Employee Directors.
(3) The address for Keyport Life Insurance Company ("Keyport") is 125 High
Street, Boston Massachusetts 02110. Stein Roe & Farnham Incorporated, an
affiliate of Keyport, is Keyport's investment advisor, and, as such, has the
power and authority to direct the disposition of the securities, and
accordingly, could be deemed to be a "beneficial" owner within the meaning of
Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Stein Roe & Farnham Incorporated, however, disclaims actual beneficial
ownership of such securities.
(4) The address for Sun America Life Insurance Company ("Sun America") is One
Sun America Center, Century City, California 90067.
(5) The address for Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens") is
10 East 50th Street, New York, New York 10022. Morgens or its principals are
either investment advisors to, or trustees or general partners of, the eight
entities listed in the above table ("Morgens Entities") that are the owners of
the Common Stock of the Company. Morgens or its principals have the power and
authority to direct the disposition of these securities and, accordingly, could
be deemed to be "beneficial" owners within the meaning of Rule 13d-3 of the
Exchange Act. Each of Morgens, its principals and the Morgens Entities, however,
disclaims beneficial ownership with respect to any securities not actually
beneficially owned by it.
(6) The address for Mr. Bennett is 2 Stamford Plaza, Suite 1501, 281 Tresser
Boulevard, Stamford, Connecticut 06901. Includes 303,003 shares held by
Restructuring Capital Associates, L.P. ("Restructuring Capital") and Bennett
Restructuring Fund, L.P.
(7) The address for Mr. Paulson is Del Mar Country Club, 6001 Clubhouse Drive,
Rancho Santa Fe, California 92067.
The Company is a party to a registration rights agreement with, among
others, Morgens, Keyport, Sun America and affiliates of Restructuring Capital
each of which owns more than 5% of the Common Stock. Pursuant to the Equity
Registration Rights Agreement dated June 30, 1993, among the Company and the
Holders of Registerable Shares referred to therein, each of the three largest
holders of Common Stock is entitled to cause the Company to file a registration
statement, and holders of 51% or more of the shares of Common Stock then subject
to the Equity Registration Rights Agreement are entitled to cause the Company to
file two registration statements, registering under the Securities Act, the
offer and sale of Common Stock owned by such persons. All other Holders of
Registerable Shares will be entitled to have shares of Common Stock owned by
them included in any such registrations. In addition, the agreement grants to
each party the right to have included, subject to certain limitations, all
shares of Common Stock owned by such party in any registration statement filed
13
<PAGE>
by the Company under the Securities Act, including those filed on behalf of the
Company or security holders not party to the Equity Registration Rights
Agreement. Pursuant to the agreement, the Company will pay all costs and
expenses, other than underwriting discounts and commissions, in connection with
the registration and sale of Common Stock under the agreement.
On September 15, 1997, the Company entered into the Riviera Merger
Agreement with R&E Gaming Corp. ("R&E Gaming") and its wholly-owned subsidiary,
Riviera Acquisition Sub, Inc. ("RAS"), entities controlled by Allen E. Paulson,
a California businessman, pursuant to which the Company would be acquired by R&E
Gaming through the merger of RAS into the Company (the "Riviera Merger"), and
the Company's stockholders would receive $15 per share in cash for each share of
the Company's Common Stock owned by them, plus an amount equal to 7% per annum
from June 1, 1997 to the date of the closing.
Mr. Paulson, through his wholly-owned affiliates, also entered into an
agreement to purchase the outstanding common stock of Elsinore (the "Elsinore
Merger Agreement"). Such a sale would be effected through the merger of a
wholly-owned subsidiary of a holding company owned by Mr. Paulson into Elsinore
(the "Elsinore Merger"). Based upon reports filed pursuant to the Exchange Act,
as of December 31, 1997, Morgens, one of the majority stockholders of the
Company, together with its affiliates, beneficially owned approximately 94% of
the common stock of Elsinore.
On March 20, 1998, the Company was notified (the "Termination Notice")
by Mr. Paulson on behalf of R&E Gaming and RAS that the Riviera Merger Agreement
was void and unenforceable against R&E Gaming and RAS, or alternatively, of
their intention to terminate the Riviera Merger Agreement. On March 31, 1998,
the Company notified R&E Gaming that the Company rejected the claims made by R&E
Gaming in the Termination Notice.
On April 2, 1998, R&E Gaming notified the Company that R&E Gaming had
terminated the Riviera Merger Agreement and then notified State Street Bank and
Trust Company of California, N.A. ("the Escrow Agent") of the notice of
termination and requested that all funds held in escrow pursuant to an escrow
agreement dated as of September 15, 1997 (the "Escrow Agreement") be returned to
R&E Gaming. On the same date, the Company sent a letter to R&E Gaming, providing
notice that the Company was terminating the Riviera Merger Agreement. The
Company then sent a letter to the Escrow Agent providing notice that the Riviera
Merger Agreement was terminated by the Company and requesting that all funds
held in escrow be delivered to the Company. On April 6, 1998, R&E Gaming again
provided notice to the Company that R&E Gaming had terminated the Riviera Merger
Agreement, such notice being in addition to the Termination Notice provided by
R&E Gaming on April 2, 1998. The Company disputes the factual and legal
assertions made by R&E Gaming in connection with the Riviera Merger Agreement.
As contemplated by the Escrow Agreement, the Company has commenced
arbitration in Las Vegas, Nevada relating to the disputes with Mr. Paulson (the
"Las Vegas Arbitration") and selected Paul Bible, Esq. of Reno, Nevada as its
arbitrator; as of April 29, 1998, Mr. Paulson had not yet selected his
arbitrator nor have such two arbitrators selected a third arbitrator.
Mr. Paulson has commenced an action in the Federal District Court for
the Central District of California (the "California Action") against the
Company, Elsinore, Morgens, Keyport, Sun America, City National Bank, Jefferies
& Company, Inc. (and several of its officers) and the Escrow Agent alleging (i)
various violations of the Riviera Merger Agreement, the Elsinore Merger
Agreement and related documents, (ii) violations of law and (iii) "fraud" in the
inducement of the Riviera Merger Agreement and the Elsinore Merger Agreement, by
reason of an alleged fee arrangement between Morgens and Jefferies & Company
Inc., which was Mr. Paulson's financial advisor.
Mr. Paulson unsuccessfully attempted in the California Action to enjoin
Morgens, Keyport and Sun America from cashing certain letters of credit issued
by City National Bank as security for Mr. Paulson's obligations, which were
forfeitable by reason of Mr. Paulson's failure to close the Riviera Merger and
the Elsinore Merger.
14
<PAGE>
In May 1998, the Company plans to make a motion requiring that the
approximately $5.2 million Paulson letter of credit being held by the Escrow
Agent be cashed prior to its June 10, 1998 expiration date and be held by the
Escrow Agent with the approximately $600,000 in cash now held by the Escrow
Agent or, alternatively, that such expiration date be extended pending a final
arbitration award in the Las Vegas Arbitration and/or a final decision in the
California Action with respect to the allegations against the Company.
None of Mr. Paulson, Morgens, Sun America or Keyport (the "Excluded
Parties") is entitled to share in the escrow. In order to avoid problems with
transferees of the shares of the Company's stock of the Excluded Parties, the
Company will distribute to the holders of record of its Common Stock as of the
close of business on May 1, 1998, transferable rights ("Contingent Value
Rights") to participate in any amount which the Company is successful in
recovering from the escrow.
The Company will pay the expenses of litigation involved in the Las
Vegas Arbitration and the California Action and will not seek reimbursement
therefor from the escrow funds. There can be no assurance that the Company will
be successful in collecting anything from the escrow.
Certain Relationships and Related Transactions
Robert R. Barengo was formerly a director and 10% stockholder of
Leroy's. In May 1996, Leroy's became a wholly owned subsidiary of AWI, a
publicly held corporation listed on NASDAQ. Mr. Barengo is currently a director
of AWI and owns 7% of the outstanding stock of AWI, which leases approximately
12,000 square feet of the Riviera Hotel & Casino's casino floor. AWI is the
operator of the Riviera Hotel & Casino's sports book operations. This lease was
assumed by the Company from Riviera, Inc. and is still in effect. The lease
provides for rental payments based upon the monthly and annual revenues derived
by AWI from the location. From January 1, 1997 through December 31, 1997, AWI
paid aggregate rent to ROC of approximately $233,700 The Company believes that
the terms of the lease with AWI are at least as favorable to the Company and ROC
as could have been obtained from unaffiliated third parties and are at least as
favorable as terms obtained by other casino/hotels in Las Vegas. AWI also owns
Howard Johnson Hotel & Casino located at the intersection of Tropicana Avenue
and Interstate 15 in Las Vegas, Nevada. The hotel's operations include an
International House of Pancakes restaurant, on-site food and beverage sales, 150
guest rooms (no suites) and approximately 53 gaming machines. The Company
believes that this casino/hotel's operations are not competitive with the
Riviera Hotel & Casino
As of April 1, 1998, the Company entered into a letter agreement, with
Mr. Barengo, a member of the Bar of the State of Nevada, pursuant to which Mr.
Barengo has been assisting the Company and its outside counsel in enforcing the
Company's rights under the Riviera Merger Agreement and with related matters.
Under such letter agreement, Mr. Barengo receives a fee of $10,000 per month for
his consulting services, which services commenced on April 1, 1998. Either party
may terminate the letter agreement on no less than seven days prior written
notice.
From August 1996 until February 1997, Riviera Gaming
Management-Elsinore, Inc. ("RGME"), an indirect wholly owned subsidiary of the
Company, operated 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"), which owns the Four Queens
through its wholly-owned subsidiary Four Queens, Inc., went into effect on
February 28, 1997, the effective date of the Chapter 11 plan of reorganization
of Elsinore. The Morgens Entities, beneficial owners of approximately 25.9% of
the common stock of the Company, own over 90% of the common stock of Elsinore.
The Company believes that the terms of the Management Agreement are no less
favorable to the Company than if the Company had negotiated with an independent
third party.
The term of the Management Agreement is approximately 40 months,
subject to earlier termination or extension. Either party may terminate if the
Four Queens' cumulative earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the first two fiscal years is less than $12.8
15
<PAGE>
million. The term can be extended by an additional 24 months at RGME's option,
if the Four Queens' cumulative EBITDA for the three fiscal years of the term is
at least $19.2 million. RGME is paid a minimum annual management fee of $1.0
million in equal monthly installments. In addition, RGME is entitled to a fee of
25% of the amount by which the Four Queens' EBITDA in any fiscal year exceeds
$8.0 million. RGME has received Warrants to purchase 1,125,000 shares of
Elsinore common stock (equal to 18.5% of the equity of Elsinore on a fully
diluted basis) at an exercise price of $1.00 per share, exercisable during the
term or extended term of the Management Agreement. 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, RGME will receive a $2.0
million termination bonus minus any amount realized or realizable upon exercise
of the Warrants.
Since March 5, 1997, Mr. Westerman has been the President and a
director of Four Queens, Inc. Mr. Westerman has also been a director of Darling
International Inc., a publicly held company, since June 23, 1997. Morgens
Entities own 46.13% of the stock of Darling International Inc. which is
primarily in the business of processing animal and bakery waste by-products.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and any persons who own more than ten percent of the
Company's Common Stock to file with the Securities and Exchange Commission
various reports as to ownership of such Common Stock. Such persons are required
by Securities and Exchange Commission regulation to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely on its review of the copies of such reports furnished to the Company and
written representations to the Company that no other reports were required, the
aforesaid Section 16(a) filing requirements were met on a timely basis during
1997.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Deloitte & Touche LLP, certified
public accountants, as the independent certified public accountants of the
Company for the fiscal year ending December 31, 1998. Deloitte & Touche LLP have
been the accountants for the Company and its predecessor since prior to 1988.
Representatives of Deloitte & Touche LLP ("Representatives") are expected to be
present at the Annual Meeting. The Representatives will have the opportunity to
make a statement, although they are currently not expected to do so. The
Representatives are expected to be available to respond to appropriate
questions.
16
<PAGE>
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which
are to be brought before the Annual Meeting. If any other matters should be
presented for proper action, it is the intention of the persons named in the
Proxy to vote in accordance with their discretion pursuant to the terms of the
proxy.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received at the Company's executive offices on
or before December 31, 1998, for inclusion in the Company's Proxy Statement with
respect to such meeting.
RIVIERA HOLDINGS CORPORATION
By William L. Westerman, President
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS
WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO FILL IN, SIGN,
DATE AND RETURN THE ENCLOSED PROXY.
17
<PAGE>
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
June 24, 1998
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitute(s) and appoint(s) William L.
Westerman and John A. Wishon, and each of them, as proxies of the undersigned,
with full power of substitution, to vote all shares of Common Stock of Riviera
Holdings Corporation (the "Company") which the undersigned is (are) entitled to
vote at the Annual Meeting of the Stockholders of the Company to be held at the
Riviera Hotel, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109, on
Wednesday, June 24, 1998, at 11:00 a.m., local time, and at any adjournment(s)
or postponement(s) thereof (the "Meeting"), on all matters that may come before
such Meeting. Said proxies are instructed to vote on the following matters in
the manner herein specified.
1. Election of the following Four Nominees as Directors of the Company: William
L. Westerman; Robert R. Barengo; William Friedman; and Philip P. Hannifin.
|_| FOR all nominees listed above |_| WITHHOLD AUTHORITY
(except as indicated below) to vote for all nominees listed above
FOR all nominees listed above except withhold authority to vote for the
following nominee(s):
------------------------------------------------------------------------
2. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Meeting.
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF COMMON STOCK COVERED HEREBY
WILL BE VOTED AS SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE, SUCH SHARES WILL
BE VOTED "FOR" THE NOMINEES FOR DIRECTOR AND AS THE PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
The undesigned hereby revoke(s) all previous Proxies and acknowledge(s) receipt
of the Notice of the Meeting dated April 30, 1998, the Proxy Statement attached
thereto and the Annual Report of the Company for the fiscal year ended December
31, 1997 forwarded therewith.
Dated:
---------------------------------------, 1998
---------------------------------------
Signature
---------------------------------------
Signature
Please mark, sign and return this Proxy promptly using the enclosed envelope. If
stock is held in the names of joint owners, each should sign. Persons signing as
an attorney, executor, administrator, guardian, trustee, corporate officer or in
any other fiduciary or representative capacity should give full title.
