SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) May 1, 1998
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Riviera Holdings Corporation
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(Exact Name of Registrant as Specified in Charter)
Nevada 00021430 88-0296885
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(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification
Incorporation) No.)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (702) 734-5110
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5 Other Events
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As reported on the registrant's Form 8-K filed with the Securities and
Exchange Commission (the "Commission") on September 29, 1997, on September 15,
1997, the registrant entered into an Agreement and Plan of Merger ("the Riviera
Merger Agreement") with R&E Gaming Corp. ("R&E Gaming") and Riviera Acquisition
Sub, Inc. ("RAS"), entities controlled by Allen E. Paulson, pursuant to which
the registrant would be acquired by R&E Gaming and the registrant stockholders
would receive $15 per share in cash for each share of the registrant'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 (the "Elsinore Merger Agreement") to purchase the outstanding common
stock of Elsinore Corporation ("Elsinore"). 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, Waterfall,
Vintiadis & Company, Inc. ("Morgens"), one of the majority stockholders of the
registrant, together with its affiliates, beneficially owned approximately 94%
of the common stock of Elsinore.
On March 20, 1998, the registrant 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. A
copy of the Termination Notice was filed as an exhibit to the registrant's Form
10-K filed with the Commission on March 30, 1998.
On March 31, 1998, the registrant notified R&E Gaming that the
registrant rejected the claims made by R&E Gaming in the Termination Notice. A
copy of the letter providing such notice from the registrant to R&E Gaming Corp.
dated March 31, 1998, was filed as an exhibit to the registrant's Form 8-K filed
with the Commission on April 7, 1998.
On April 2, 1998, R&E Gaming notified the registrant that R&E Gaming
had terminated the Riviera Merger Agreement. A copy of the letter providing such
notice from R&E Gaming Corp. to the registrant dated April 2, 1998, was filed as
an exhibit to the registrant's Form 8-K filed with the Commission on April 7,
1998. R&E Gaming then notified the State Street Bank and Trust Company (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. A copy of the letter providing
such notice from R&E Gaming Corp. to the State Street Bank and Trust Company
dated April 2, 1998, was filed as an exhibit to the registrant's Form 8-K filed
with the Commission on April 7, 1998.
On the same date, the registrant sent a letter to R&E Gaming,
providing notice that it was terminating the Riviera Merger Agreement. A copy of
the letter providing such notice from
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the registrant to R&E Gaming Corp. dated April 2, 1998, was filed as an exhibit
to the registrant's Form 8-K filed with the Commission on April 7, 1998. The
registrant then sent a letter to the Escrow Agent providing notice that the
Riviera Merger Agreement was terminated by the registrant and requesting that
all funds held in escrow be delivered to the registrant. A copy of the letter
providing such notice from the registrant to the State Street Bank and Trust
Company dated April 2, 1998, was filed as an exhibit to the registrant's Form
8-K filed with the Commission on April 7, 1998.
On April 6, 1998, R&E Gaming again provided notice to the registrant
that R&E Gaming had terminated the Riviera Merger Agreement, such notice being
in addition to the notice of termination provided by R&E Gaming on April 2,
1998. A copy of the letter providing such notice from R&E Gaming Corp. to the
registrant dated April 6, 1998, was filed as an exhibit to the registrant's Form
8-K filed with the Commission on April 7, 1998. The registrant 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 registrant commenced
arbitration in Las Vegas, Nevada relating to the disputes with Mr. Paulson (the
"Las Vegas Arbitration").
Mr. Paulson has commenced an action in the United States District
Court for the Central District of California Case No. CV98-LGB (AIJX) (the
"Federal Court Action") against the registrant, Elsinore, Morgens, Keyport Life
Insurance Company ("Keyport"), SunAmerica Life Insurance Company ("SunAmerica"),
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.
The defendants are required to either file an answer to the amended complaint or
to file a motion to dismiss the Federal Court Action by July 13, 1998.
Mr. Paulson unsuccessfully attempted in the Federal Court Action to
enjoin Morgens, Keyport and SunAmerica 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.
The registrant, R&E Gaming and State Street Bank & Trust Company have
entered into (i) an amendment, dated as of May 1, 1998 (the "Escrow Amendment")
to the Escrow Agreement among such parties, dated as of September 15, 1997 and
(ii) an instruction letter (the "Instruction Letter") to City National Bank
("CNB"), the issuer of the $5,172,427 letter of credit (the "Letter of Credit"),
which is being held in escrow by the Escrow Agent.
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Under the Instruction Letter, the Letter of Credit is extended from
June 10, 1998 to May 1, 1999 and will roll over for successive one year periods
unless CNB notifies the parties before March 1 of each year that it will not
extend for an additional year. Under the Escrow Amendment (i) the registrant has
agreed to drop its demand to proceed with the Las Vegas Arbitration to resolve
the disputes with R&E Gaming relating to the escrow funds (which include
$653,346 of cash as well as the Letter of Credit) and to resolve such disputes
in the "Federal Court Action" and (ii) R&E Gaming has agreed that, until the
disputes between R&E Gaming and the registrant have been determined by a final
order in the Federal Court Action, the Letter of Credit will be in effect and if
for any reason it is going to expire, the registrant will be entitled after the
April 15th immediately preceding the expiration, to have the Letter of Credit
cashed and held in escrow.
In substance, the Instruction Letter and the Escrow Amendment will
mean that (x) if the registrant is successful in the Federal Court Action, it
will be able to make distribution of the escrow funds to the registrant's
Stockholders entitled thereto, and (y) if R&E Gaming is successful the Letter of
Credit will be canceled and the cash held in the escrow will be returned to R&E
Gaming.
There can be no assurance as to how long it will take for a decision
relating to the escrow funds to be reached in the Federal Court Action or
whether such decision will be favorable to the registrant and thereby the
holders of the Contingent Value Rights referred to below. The registrant will
pay all expenses in connection with the Federal Court Action and will not seek
reimbursement from the escrow funds.
The registrant and the American Stock Transfer & Trust Company have
entered into a Contingent Value Rights Agreement (the "Rights Agreement"), dated
as of May 1, 1998, whereby one Contingent Value Right shall be issued for each
share of common stock of the registrant issued and outstanding ("CVR Eligible
Shares") as of the close of business of May 1, 1998, other than shares of common
stock which were beneficially owned by Morgens and the investment accounts
managed by such firm, Keyport Life Insurance Company, SunAmerica Life Insurance
Company and the "Paulson Entities." "Paulson Entities" means all or any of (i)
Mr. Allen E. Paulson, (ii) R&E Gaming, (iii) Riviera Acquisition Sub, Inc., (iv)
any person of which more than five percent of any class of securities are
beneficially owned by Mr. Allen E. Paulson, and (v) any Affiliates, Associates,
agents, or transferees of any of the foregoing.
As of May 1, 1998 there were 1,769,793 CVR Eligible Shares and
$5,825,773 in escrow funds. Pursuant to the Rights Agreement, holders of
Contingent Value Rights will participate in any recovery of the escrow funds.
Holders of shares of the registrant's common stock acquired after May 1, 1998
will not share in any recovery of the escrow funds with respect to such common
stock.
Copies of the amended complaint in the Federal Court Action, the
amendment to the Letter of Credit, the Instruction Letter, the Escrow Amendment,
and the Rights Agreement (which includes the form of certificate representing
the Contingent Value Rights) are attached as exhibits to this Form 8-K.
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Item 7 Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
4.1 Contingent Value Rights Agreement, dated as of May 1, 1998,
between Riviera Holdings Corporation and American Stock
Transfer & Trust Company, as agent.
10.1 Amendment, dated as of May 1, 1998, to the Escrow Agreement
among Riviera Holdings Corporation, R&E Gaming Corp. and
State Street Bank and Trust Company of California, N.A. as
escrow agent.
10.2 Instruction Letter, dated May 1, 1998 to City National Bank.
99.1 First Amended Complaint filed with the United States
District court for the Central District of California by
Allen E. Paulson, R&E Gaming Corp., Elsinore Acquisition
Sub, Inc., Riviera Acquisition Sub, Inc and Carlo
Corporation against Jefferies & Company, Inc., M. Brent
Stevenss, Steven Croxton, Paul Voigt, Elsinore Corporation,
Riviera Holdings Corporation, Morgens Waterfall, Vintiadis &
Company, Inc., Keyport Life Insurance Company, SunAmerica
Life Insurance Company.
99.2 Press Release, dated May 29, 1998.
99.3 Amendment No. 1 to Irrevocable Standby Letter of Credit,
dated May 22, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
(Registrant)
Date: June 9, 1998 By: /s/ Duane Krohn
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Name: Duane Krohn,
Title: Treasurer and Chief Financial Officer
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EXHIBITS INDEX
Exhibit
Number Description
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4.1 Contingent Value Rights Agreement, dated as of May 1, 1998, between
Riviera Holdings Corporation and American Stock Transfer & Trust
Company, as agent.
10.1 Amendment, dated as of May 1, 1998, to the Escrow Agreement among
Riviera Holdings Corporation, R&E Gaming Corp. and State Street Bank
and Trust Company of California, N.A. as escrow agent.
10.2 Instruction Letter, dated May 1, 1998 to City National Bank.
99.1 First Amended Complaint filed with the United States District court
for the Central District of California by Allen E. Paulson, R&E
Gaming Corp., Elsinore Acquisition Sub, Inc., Riviera Acquisition
Sub, Inc and Carlo Corporation against Jefferies & Company, Inc., M.
Brent Stevenss, Steven Croxton, Paul Voigt, Elsinore Corporation,
Riviera Holdings Corporation, Morgens Waterfall, Vintiadis &
Company, Inc., Keyport Life Insurance Company, SunAmerica Life
Insurance Company.
99.2 Press Release, dated May 29, 1998.
99.3 Amendment No. 1 to Irrevocable Standby letter of Credit, dated
May 22, 1988.
Exhibit 4.1
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RIVIERA HOLDINGS CORPORATION
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
CONTINGENT VALUE RIGHT AGREEMENT
Dated as of May 1, 1998
================================================================================
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TABLE OF CONTENTS
Page
SECTION 1. Certain Definitions................................................1
SECTION 2. Appointment of Agent...............................................6
SECTION 3. Issue of Contingent Value Right Certificates.......................6
SECTION 4. Form of Contingent Value Right Certificates........................6
SECTION 5. Countersignature and Registration..................................7
SECTION 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificates.................................................9
SECTION 7. Determination and Distribution of Collected Amounts; Successive
Distributions; Invalidity of Contingent Value Rights Upon
Certain Transfers.................................................10
SECTION 8. Cancellation and Destruction of Contingent Value Right
Certificates......................................................11
SECTION 9. Taxes.............................................................11
SECTION 10. Distribution Record Date..........................................12
SECTION 11. Contingent Value Right Holder Has No Right to Participate in
Collection Efforts or Compel Settlement...........................12
SECTION 12. Abandonment of Collection Efforts.................................13
SECTION 13. No Liability of Company or Board of Directors.....................13
SECTION 14. No Right of Action................................................13
SECTION 15. INTENTIONALLY OMITTED.............................................14
SECTION 16. Agreement of Contingent Value Right Holders.......................14
SECTION 17. Contingent Value Right Certificate Holder Not Deemed a
Stockholder.......................................................15
SECTION 18. Concerning the Agent..............................................16
SECTION 19. Merger or Consolidation or Change of Name of Agent................16
SECTION 20. Duties of Agent...................................................17
SECTION 21. Change of Agent...................................................20
SECTION 22. Issuance of New Right Certificates................................21
SECTION 23. INTENTIONALLY OMITTED.............................................21
SECTION 24. Termination.......................................................21
SECTION 25. Notices...........................................................21
SECTION 26. Supplements and Amendments........................................22
SECTION 27. Successors........................................................22
SECTION 28. Determinations and Actions by the Board of Directors..............22
SECTION 29. Benefits of this Agreement........................................23
SECTION 30. Severability......................................................23
SECTION 31. Governing Law.....................................................24
SECTION 32. Counterparts......................................................24
SECTION 33. Descriptive Headings..............................................25
EXHIBIT A - Form of Contingent Value Right Certificate
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CONTINGENT VALUE RIGHTS AGREEMENT
Contingent Value Rights Agreement, dated as of May 1, 1998 (as the same may
be modified, amended, supplemented and/or restated from time to time, this
"Agreement"), between Riviera Holdings Corporation, a Nevada corporation (the
"Company"), and American Stock Transfer & Trust Company, a New York corporation,
as Agent (the "Agent").
The Board of Directors of the Company has authorized the issuance of one
Contingent Value Right (a "Contingent Value Right") for each share of Common
Stock of the Company issued and outstanding as of the Close of Business (as such
terms are hereinafter defined) on May 1, 1998 (the "Record Date"), other than
shares of Common Stock which are beneficially owned by the Excluded Stockholders
(as hereinafter defined). Each Contingent Value Right evidences the right of the
holder thereof on the Distribution Record Date to receive any Distribution
Amount (as hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, and intending to be legally bound hereby, the parties hereby
agree as follows:
SECTION 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations promulgated
under the Securities Exchange Act of 1934, as amended (together with the rules
and regulations promulgated thereunder, the "Exchange Act"), as such rule is in
effect on the Record Date.
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(b) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own," and shall be deemed to have "beneficial ownership" of,
any securities:
(i) that such Person, or any of such Person's Affiliates or
Associates, directly or indirectly has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing),
or upon the exercise of conversion rights, exchange rights, rights,
warrants or options, or otherwise;
(B) the right to vote or otherwise has "beneficial ownership" (as
determined pursuant to Rule 13d-3 of the Exchange Act), including
pursuant to any agreement, arrangement or understanding (whether or
not in writing); provided, however, that a Person shall not be deemed
the Beneficial Owner of, or to beneficially own, pursuant to this
subparagraph (B), any security as a result of any agreement,
arrangement or understanding to vote such security if such agreement,
arrangement or understanding (1) arises solely from a revocable proxy
or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations of the Exchange Act and (2) is not
also then reportable on Schedule 13D or Schedule 13G under the
Exchange Act (or any comparable or successor report); or
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(ii) that are beneficially owned, including pursuant to subparagraphs
(i)(A) and (B) of this subsection (c), directly or indirectly, by any other
Person (or Affiliate or Associate thereof) with which such Person or any of
such Person's Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy as described in the
provision in subparagraph (i)(B) of this subsection (c)) or disposing of
any securities of the Company.
(c) "Board of Directors" means the Board of Directors of the Company.
(d) "Business Day" shall mean any day other than a Saturday, Sunday, or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M., New York
City time, on such date; provided, however, that if such date is not a Business
Day, it shall mean 5:00 P.M., New York City time, on the next succeeding
Business Day.
(f) "Collected Amounts" shall mean, subject to Section 7(a), the amounts
held by, paid to or collected by the Company with respect to funds which were or
which were required to be, or as a substitute or replacement for funds or other
collateral which were or which were required to be, deposited into escrow
pursuant to the terms of the Escrow Agreement.
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(g) "Collection Matter" shall mean any claim, action, litigation,
arbitration or proceeding, whether or not instituted by the Company or otherwise
on behalf of the Stockholders, relating to any Collected Amounts.
(h) "Common Stock" when used with reference to the Company shall mean the
shares of Common Stock, par value $0.001 per share, of the Company.
(i) "Distribution Amount" shall mean, with respect to each Contingent Value
Right, the pro rata share of any Collected Amounts to be distributed on the
relevant Distribution Date. The Distribution Amount shall be determined by
aggregating the Collected Amounts to be distributed on the relevant Distribution
Date and dividing such sum by the number of valid and enforceable Contingent
Value Rights outstanding on the Close of Business on the Distribution Record
Date.
(j) "Distribution Date" shall mean a date determined by the Board of
Directors of the Company for distribution of a Distribution Amount.
(k) "Distribution Record Date" shall mean a record date set by the Board of
Directors of the Company for the purpose of determining the holders of
Contingent Value Rights entitled to receive a Distribution Amount.
(l) "Escrow Agreement" means the Escrow Agreement, dated as of September
15, 1997, including any amendments or modifications thereto, among the Company,
Gaming and State Street Bank and Trust of California, N.A., as escrow agent.
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(m) "Excluded Holders" shall mean the Majority Stockholders and all Paulson
Entities, collectively.
(n) "Final Expiration Date" shall mean the date publicly announced by the
Company beyond which date the Company shall take no further action with respect
to all Collection Matters.
(o) "Gaming" means R&E Gaming Corp., a Delaware corporation.
(p) "Majority Stockholders" means Morgens, Waterfall, Vintiadis & Company,
Inc. and the investment accounts managed by such persons, Keyport Life Insurance
Company and SunAmerica Life Insurance Company and their respective Associates
and Affiliates.
(q) "Paulson Entities" shall mean all or any of (i) Mr. Allen E. Paulson,
(ii) Gaming, (iii) RAS, (iv) any Person of which more than five percent of any
class of securities are beneficially owned by Mr. Allen E. Paulson, and (v) any
Affiliates, Associates, agents or transferees of any of the foregoing.
(r) "Person" shall mean any individual, corporation, partnership, limited
liability company or other entity, and shall include any successor (by merger or
otherwise) of such entity.
(s) "RAS" means Riviera Acquisition Sub, a Nevada corporation.
(t) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interests is owned, directly or indirectly, by such Person.
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SECTION 2. Appointment of Agent. The Company hereby appoints the Agent to
act as agent for the holders of the Contingent Value Rights in accordance with
the terms and conditions hereof, and the Agent hereby accepts such appointment.
SECTION 3. Issue of Contingent Value Right Certificates. (a) As promptly as
practicable after the Record Date, the Agent will send, by first-class, insured,
postage-prepaid mail, to each record holder of shares of Common Stock as of the
Close of Business on the Record Date, other than the Excluded Stockholders, at
the address of such holder shown on the records of the Company, a Contingent
Value Right Certificate, in substantially the form of Exhibit A, evidencing one
Contingent Value Right for each share of Common Stock so held.
(b) The Contingent Value Rights shall not be in any way associated with the
Common Stock. The surrender for transfer of any certificate for shares of Common
Stock outstanding following the Record Date shall under no circumstances
constitute the transfer of the Contingent Value Rights theretofore associated
with such shares of Common Stock.
(c) The Contingent Value Rights shall not be effected by or adjusted upon a
change in the number of shares of Common Stock outstanding.
SECTION 4. Form of Contingent Value Right Certificates. (a) The Contingent
Value Right Certificates shall be substantially in the form of Exhibit A and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule
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or regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Contingent Value Rights may from time to time be listed or
any national securities association on whose interdealer quotation system the
Contingent Value Rights may from time to time be authorized for quotation, or to
conform to usage. The Contingent Value Right Certificates shall be in a form
reasonably satisfactory to the Agent. Subject to the provisions of Section 22,
the Contingent Value Right Certificates, which are issued in respect of shares
of Common Stock that were issued and outstanding as of the Close of Business on
the Record Date, shall be dated as of the Record Date.
(b) All Contingent Value Right Certificates issued pursuant to this
Agreement shall contain the following legend:
The Contingent Value Rights represented by this Contingent Value Right
Certificate are subject to the terms and conditions of the Contingent
Value Rights Agreement (the "Agreement"), dated as of May 1, 1998
among Riviera Holdings Corporation and American Stock Transfer & Trust
Company, as Agent.
The absence of the foregoing legend on any Contingent Value Right Certificate
shall in no way effect any of the other provisions of this Agreement.
Section 5. Countersignature and Resignation. (a) The Contingent Value Right
Certificates shall be executed on behalf of the Company by its chairman, its
president or a vice president, either manually or by facsimile signature, and
have affixed thereto the Company's seal or a facsimile thereof that shall be
attested by the secretary, or an assistant secretary or treasurer of the
Company, either
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manually or by facsimile signature. The Contingent Value Right Certificates
shall be countersigned by the Agent and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have
signed any of the Contingent Value Right Certificates shall cease to be such
officer of the Company before countersignature by the Agent and issuance and
delivery by the Company, such Contingent Value Right Certificates may
nevertheless be countersigned by the Agent and issued and delivered by the
Company with the same force and effect as though the person who signed such
Contingent Value Right Certificates had not ceased to be such officer of the
Company; and any Contingent Value Right Certificate may be signed on behalf of
the Company by any person who, at the actual date of the execution of such
Contingent Value Right Certificate, shall be a proper officer of the Company to
sign such Contingent Value Right Certificate, although at the date of the
execution of this Agreement any such person was not such an officer.
(b) Following the Record Date, the Agent will keep or cause to be kept, at
the office of the Agent designated for such purposes, books for registration and
transfer of the Contingent Value Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Contingent
Value Right Certificates, the number of Contingent Value Rights as evidenced on
the face of each of the Contingent Value Right Certificates and the date and
certificate number of each of the Contingent Value Right Certificates.
SECTION 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or S (a) At any time after the Close of
Business on the Record Date, and at or prior to the Close of Business on the
Final Expiration Date, any Contingent Value Right Certificate(s) may be
transferred, split up, combined or exchanged for one or more
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Contingent Value Right Certificate(s) entitling the holder thereof to a like
number of Contingent Value Rights that the Contingent Value Right Certificate(s)
so surrendered had entitled such holder thereof. Any registered holder desiring
to transfer, split up, combine or exchange any Contingent Value Right
Certificate shall make such request in writing delivered to the Agent, and shall
surrender the Contingent Value Right Certificate(s) to be transferred, split up,
combined or exchanged, with the form of assignment and certificate appropriately
executed, at the office of the Agent designated for such purpose. Neither the
Agent nor the Company shall be obligated to take any action whatsoever with
respect to the transfer of any such surrendered Contingent Value Right
Certificate(s) until the registered holder shall have completed and signed the
form of assignment on the reverse side of such Contingent Value Right
Certificate(s). Thereupon the Agent shall countersign and deliver to the person
entitled thereto a Contingent Value Right Certificate or Contingent Value Right
Certificate(s), as the case may be, as so requested. The Company may require
payment by the holder of a Contingent Value Right Certificate of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of such
Contingent Value Right Certificate.
(b) Upon receipt by the Company and the Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a
Contingent Value Right Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Agent of all reasonable expenses
incidental thereto, and upon surrender to the Agent and cancellation of the
Contingent Value Right Certificate if mutilated, the Company will make and
deliver a new Contingent Value Right Certificate
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of like tenor to the Agent for countersignature and delivery to the registered
owner in lieu of the Contingent Value Right Certificate so lost, stolen,
destroyed or mutilated.
SECTION 7. Determination and Distribution of Collected Amounts; Successive
Distributions; Invalidity of Contingen. (a) The determination of whether any
funds paid to or collected by the Company constitute Collected Amounts shall be
made by the Board of Directors in its sole discretion. The Collected Amounts, if
any, may be distributed from time to time, in whole or in part, as the Board of
Directors shall determine. The Board of Directors shall have sole discretion
regarding the timing of any distribution of any and all Collected Amounts. The
Board of Directors may elect to delay the distribution of any or all Collected
Amounts until the Final Expiration Date. The Board of Directors may elect, in
its discretion, to declare successive Distribution Record Dates for the purpose
of distributing the Distribution Amounts as the Collected Amounts, if any, are
paid to the Company.
(b) Neither the Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
transfer or exercise unless such registered holder shall have completed and
signed the form of assignment set forth on the reverse side of the Contingent
Value Right Certificate surrendered for such assignment.
SECTION 8. Cancellation and Destruction of Contingent Value Right
Certificates. Each Contingent Value Right Certificate surrendered for the
purpose of exercise, transfer, split up, combination or exchange shall, if
surrendered to the Company or to any of its agents, be delivered to the Agent
for cancellation or in canceled form, or, if surrendered to the Agent, shall be
canceled by it,
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and no Contingent Value Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Agreement. The
Company shall deliver to the Agent for cancellation and retirement, and the
Agent shall so cancel and retire, any other Contingent Value Right Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Agent shall deliver all canceled Contingent Value Right Certificates to the
Company.
SECTION 9. Taxes. The Company hereby agrees to report to holders of
Contingent Value Right Certificates and to the Internal Revenue Service with
respect to the distribution of any Collected Amounts. The Company intends for
federal income tax purposes to treat any such distributions as ordinary income
to holders as of the date such amounts are determined to be Collected Amounts.
Collected Amounts will not be reported as dividends or interest; however, the
Company may be required to obtain taxpayer identification numbers from holders
to avoid "backup withholding" under the Internal Revenue Code. To the extent
advised by its tax advisors, the Company may withhold federal, state or local
taxes from such distributions as required by law.
SECTION 10. Distribution Record Date. (a) Each Distribution Record Date
shall be publicly announced by the Board of Directors at least ten days prior to
such Distribution Record Date. Each person in whose name any Contingent Value
Right Certificate is issued on the books and records of the Agent at the Close
of Business on the Distribution Record Date shall be entitled to receive the
Distribution Amount. Following the Distribution Record Date, a holder of
Contingent Value Right Certificate shall have only the right to receive the next
succeeding Distribution Amount, if any, only if such holder is the holder of
record on the next succeeding Distribution Record Date, if any.
11
<PAGE>
(b) The Agent shall advise the Company of the number of valid Contingent
Value Rights outstanding as of the Distribution Record Date. Following the
determination of the Distribution Amount, which shall be made by the Company,
the Company shall deposit the aggregate of the Distribution Amounts with the
Agent in cash as needed. The Agent shall thereafter promptly forward such
Distribution Amount to each record holder entitled to receive such pursuant to
this Agreement.
SECTION 11. Contingent Value Right Holder Has No Right to Participate in
Collection Efforts or Compel Settlement. No holder, as such, of a Contingent
Value Right Certificate shall be entitled to participate in any Collection
Matter and any action, litigation, arbitration, claim or proceeding relating to
the Escrow Agreement. Nothing in this Agreement or the Contingent Value Right
Certificate shall be deemed in any manner to limit the authority and discretion
of the Board of Directors, and the Board of Directors shall have sole and
absolute authority and discretion with respect to all such actions, litigations,
arbitrations, claims and proceedings relating to any Collection Matter,
including but not limited to (i) determinations regarding whether to appeal any
decision rendered or reached in connection with any Collection Matter, and (2)
determinations regarding whether to settle any action, arbitration, litigation,
claim or proceeding relating to any Collection Matter.
SECTION 12. Abandonment of Collection Efforts. If at any time following the
date of this Agreement, the Board of Directors shall determine, after consulting
with outside counsel, that the probability of any future recovery of material
funds under any Collection Matter is, at the time of such determination, remote
(as such term is used in the Statement of Financial Accounting Standards No.
12
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5), then the Board of Directors may direct the Company and its officers,
employees and agents to abandon any further efforts with respect to such
Collection Matter.
SECTION 13. No Liability of Company or Board of Directors. Neither the
Company nor any member of the Board of Directors shall have any liability to any
holder of a Contingent Value Right with respect to or arising from (i) any
determination made pursuant to Section 12, (ii) any determination to settle or
not settle any action, litigation, arbitration, claim or proceeding relating to
any Collection Matter, or (iii) any determination regarding the conduct of any
proceeding relating to any Collection Matter, including decisions relating to
the appeal of any Collection Matter.
SECTION 14. No Right of Action. No holder of a Contingent Value Right shall
have the right to institute any proceeding, judicial or otherwise, to compel the
distribution by the Company of any Collected Amounts or to challenge any action
or omission taken by the Company or the Board of Directors which is within the
discretion of the Board of Directors or the Company pursuant to the terms of
this Agreement.
SECTION 15. INTENTIONALLY OMITTED.
SECTION 16. Agreement of Contingent Value Right Holders. Every holder of a
Contingent Value Right, by accepting the same, consents and agrees with the
Company and the Agent and with every other holder of a Contingent Value Right
that:
(a) the Contingent Value Right Certificates are transferable only on the
registry books of the Agent if surrendered at the office of the Agent designated
for such purpose, duly
13
<PAGE>
endorsed or accompanied by a proper instrument of transfer and with the
appropriate forms and certificates fully completed and duly executed;
(b) subject to Section 6 and Section 7(b) hereof, the Company and the Agent
may deem and treat the person in whose name the Contingent Value Right
Certificate is registered as the absolute owner thereof and of the Contingent
Value Rights evidenced thereby (notwithstanding any notations of ownership or
writing on Contingent Value Right Certificates made by anyone other than the
Company or the Agent) for all purposes whatsoever, and neither the Company nor
the Agent shall be affected by any notice to the contrary; and
(c) notwithstanding anything in this Agreement to the contrary, neither the
Company nor the Agent shall have any liability to any holder of a Contingent
Value Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
SECTION 17. Contingent Value Right Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Contingent Value Right Certificate shall
be entitled to vote, receive dividends or be deemed for any purpose the holder
of Common Stock or any other securities of the Company, nor shall anything
contained herein or in any Contingent Value Right Certificate be construed to
confer
14
<PAGE>
upon the holder of any Contingent Value Right Certificate, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders, or to receive dividends or
subscription rights, or otherwise. The Contingent Value Rights do not constitute
a debt or obligation of the Company, and no holder, as such, of a Contingent
Value Right Certificate shall have any claim whatsoever against any assets of
the Company.
SECTION 18. Concerning the Agent. (a) The Company agrees to pay to the
Agent such compensation as shall be agreed upon between the Company and the
Agent for all services rendered by it hereunder and, from time to time, on
demand of the Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this Agreement and
the exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Agent for, and to hold it harmless against, any loss, liability,
or expense, incurred without negligence, bad faith or willful misconduct on the
part of the Agent, for anything done or omitted by the Agent in connection with
the acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability arising therefrom. The
provisions of this Section 18(a) shall survive the expiration of the Contingent
Value Rights and the termination of this Agreement.
(b) The Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Contingent Value Right
Certificate, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper
15
<PAGE>
or document believed by it to be genuine and to be signed, executed by the
proper Person or Persons and, where necessary, to be verified or acknowledged.
SECTION 19. Merger or Consolidation or Change of Name of Agent. (a) Any
corporation into which the Agent or any successor Agent may be merged or with
which it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Agent or any successor Agent shall be a party, or any
corporation succeeding to all or substantially all the stock transfer or
corporate trust business of the Agent or any successor Agent, shall be the
successor to the Agent under this Agreement without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
at the time such successor Agent shall succeed to the agency created by this
Agreement, any of the Contingent Value Right Certificates shall have been
countersigned but not delivered, any such successor Agent may adopt the
countersignature of the predecessor Agent and deliver such Contingent Value
Right Certificates so countersigned; and in case at that time any of the
Contingent Value Right Certificates shall not have been countersigned, any
successor Agent may countersign such Contingent Value Right Certificates either
in the name of the predecessor Agent or in the name of the successor Agent; and
in all such cases such Contingent Value Right Certificates shall have the full
force provided in the Contingent Value Right Certificates and in this Agreement.
(b) In case at any time the name of the Agent shall be changed and at such
time any of the Contingent Value Right Certificates shall have been
countersigned but not delivered, the Agent may adopt the countersignature under
its prior name and deliver Contingent Value Right Certificates so countersigned;
and in case at that time any of the Contingent Value Right Certificates shall
not have been countersigned, the Agent may countersign such Contingent Value
Right
16
<PAGE>
Certificates either in its prior name or in its changed name, and in all such
cases such Contingent Value Right Certificates shall have the full force
provided in the Contingent Value Right Certificates and in this Agreement.
SECTION 20. Duties of Agent. The Agent may consult with legal counsel of
its selection (who may be legal counsel for the Company), and the opinion of
such counsel shall be full and complete authorization and protection to the
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(a) Whenever in the performance of its duties under this Agreement the
Agent shall deem it necessary or desirable that any fact or matter (including,
without limitation, the identity or existence of any Paulson Entity) be proved
or established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by any one of the chairman of the board, the president,
any vice president, the secretary, an assistant secretary or the treasurer of
the Company and delivered to the Agent; and such certificate shall be full
authorization to the Agent for any action taken or suffered in good faith by it
under the provisions of this Agreement in reliance upon such certificate.
(b) The Agent shall be liable hereunder to the Company and any other Person
only for its own negligence, bad faith or willful misconduct.
(c) The Agent shall not be liable for or by reason of any of the statements
of fact or recitals contained in this Agreement or in the Contingent Value Right
Certificates (except its
17
<PAGE>
countersignature thereof) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the Company
only.
(d) The Agent shall not be under any responsibility in respect of the
validity of this Agreement or the execution and delivery hereof (except the due
execution hereof by the Agent) or in respect of the validity or execution of any
Contingent Value Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Contingent Value Right
Certificate; nor shall the Agent be responsible for the legality of the terms
hereof in its capacity as an administrative agent.
(e) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Agent for the carrying out or performing by the Agent of the provisions
of this Agreement.
(f) The Agent is hereby authorized and directed to accept instructions with
respect to the performance of its duties hereunder from any one of the chairman
of the board, the president, any vice president, the secretary or the treasurer
of the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered to be taken by it in good faith in accordance with instructions of any
such officer or for any delay in acting while waiting for those instructions.
(g) The Agent and any stockholder, director, officer or employee of the
Agent may buy, sell or deal in any of the Contingent Value Rights or other
securities of the Company or become
18
<PAGE>
primarily interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as fully and
freely as though it were not Agent under this Agreement. Nothing herein shall
preclude the Agent from acting in any other capacity for the Company or for any
other legal entity.
(h) The Agent may execute and exercise any of the rights or powers hereby
vested in it or perform any duty hereunder either itself or by or through its
attorneys or agents (other than employees), and the Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(i) In addition to the foregoing, the Agent shall be protected and shall
incur no liability for, or in respect of, any action taken or omitted by it in
connection with its administration of this Agreement if such acts or omissions
are in reliance upon (i) the proper execution of the certification concerning
beneficial ownership appended to the form of assignment attached hereto unless
the Agent shall have actual knowledge that, as executed, such certification is
untrue, or (ii) the non-execution of such certification including, without
limitation, any refusal to honor any otherwise permissible assignment by reason
of such non-execution.
The Company agrees to give the Agent prompt written notice of any event or
ownership known to the Company which would prohibit the exercise or transfer of
the Contingent Value Right Certificates.
19
<PAGE>
SECTION 21. Change of Agent. The Agent or any successor Agent may resign
and be discharged from its duties under this Agreement upon 60 days' notice in
writing mailed to the Company by registered or certified mail. The Company may
remove the Agent or any successor Agent upon 30 days' notice in writing, mailed
to the Agent or successor Agent, as the case may be, by registered or certified
mail.
SECTION 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Contingent Value Rights to the contrary,
the Company may, at its option, issue new Contingent Value Right Certificates
evidencing Contingent Value Rights in such form as may be approved by its Board
of Directors to reflect any adjustment, change or modification of the terms of
this Agreement.
SECTION 23. INTENTIONALLY OMITTED.
SECTION 24. Termination. After the Final Expiration Date, this Agreement
shall cease to be in effect and the Contingent Value Rights shall be null and
void.
SECTION 25. Notices. Notices or demands authorized by this Agreement to be
given or made by the Agent or by the holder of any Contingent Value Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Agent) as follows:
Riviera Holdings Corporation
2901 Las Vegas Boulevard So.
Las Vegas, NV 89109
Attention: William Westerman
20
<PAGE>
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Contingent
Value Right Certificate to or on the Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
6201 15th Avenue, Floor 3L
Brooklyn, NY 11219
Attention: Paula Caroppoli
Notices or demands authorized by this Agreement to be given or made by the
Company or the Agent to or on the holder of any Contingent Value Right
Certificate shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.
SECTION 26. Supplements and Amendments. The Company may and the Agent
shall, if the Company so directs, supplement or amend any provision of this
Agreement without the approval of any holders of certificates representing
Contingent Value Rights.
SECTION 27. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 28. Determinations and Actions by the Board of Directors. The Board
of Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be
21
<PAGE>
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement. All such actions, calculations,
interpretations and determinations which are done or made by the Board of
Directors of the Company in good faith shall be final, conclusive and binding on
the Company, the Agent, the holders of the Contingent Value Rights and all other
parties.
SECTION 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the Agent
and the registered holders of the Contingent Value Right Certificates any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Agent and the
registered holders of the Contingent Value Right Certificates.
SECTION 30. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
SECTION 31. Governing Law. This Agreement, each Contingent Value Right and
each Contingent Value Right Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Nevada and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State;
22
<PAGE>
provided, however, that the rights and obligations of the Rights Agent shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
[the remainder of this page is intentionally left blank]
23
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SECTION 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
RIVIERA HOLDINGS CORP.
By: /s/ Duane Krohn
-------------------------------
Name: Duane Krohn
Title: Chief Financial Officer
and Treasurer
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Rights Agent
By: /s/ Paula Caroppoli
-------------------------------
Name: Paula Caroppoli
Title: Vice President
24
<PAGE>
Exhibit A
[Form of Contingent Value Right Certificate]
Certificate No. R- Contingent Value Rights
Contingent Value Right Certificate
The Contingent Value Right(s) represented by this Contingent
Value Right Certificate are subject to the terms and
conditions of the Contingent Value Right Agreement (the
"Agreement"), dated as of May 1, 1998, among Riviera Holdings
Corporation and American Stock Transfer & Trust Company, as
Agent.
This certifies that ___________, or registered assigns, is the registered
owner of the number of Contingent Value Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Contingent Value Right Agreement, dated as of May 1, 1998 (the "Agreement"),
between Riviera Holdings Corporation, a Nevada corporation (the "Company"), and
American Stock Transfer & Trust Company (the "Agent"), upon presentation and
surrender of this Contingent Value Right Certificate, to receive the
Distribution Amount with respect to each Contingent Value Right represented
hereby. As provided in the Agreement, the Distribution Amount to be distributed
in respect to a Contingent Value Right are subject to modification and
adjustment upon the happening of certain events.
This Contingent Value Right Certificate is subject to all of the terms,
provisions and conditions of the Agreement, which terms, provisions and
conditions are incorporated herein by reference and made a part hereof and to
which Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Agent, the Company and the holders of the Contingent Value Right Certificates.
Copies of the Contingent Value Right Agreement are on file at the principal
executive offices of the Company and the offices of the Agent.
This Contingent Value Right Certificate, with or without other Contingent
Value Right
25
<PAGE>
Certificates, upon surrender at the principal office of the Agent, may be
exchanged for another Contingent Value Right Certificate or Contingent Value
Right Certificates of like tenor and date evidencing Contingent Value Rights
entitling the holder to a like aggregate number of Contingent Value Rights
evidenced by the Contingent Value Right Certificate(s) or Contingent Value Right
Certificates surrendered shall have entitled such holder to purchase.
No holder of this Contingent Value Right Certificate shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the Common
Stock or of any other securities of the Company, nor shall anything contained in
the Agreement or herein be construed to confer upon the holder hereof, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Contingent Value Rights Agreement), or to receive dividends or
subscription rights, or otherwise.
This Contingent Value Right Certificate shall not be valid or obligatory
for any purpose until it shall have been countersigned by the Agent.
26
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated as of _________, 1998.
RIVIERA HOLDINGS CORPORATION
By:
---------------------------
Name:
Title:
Attest:
By:
---------------------------
Name:
Title:
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY, Rights Agent
By:
---------------------------
Name:
Title:
27
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the Contingent Value
Right Certificate)
FOR VALUE RECEIVED--------------------------------------------------------------
hereby sells, assigns and transfers unto----------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Contingent Value Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
___________________ Attorney, to transfer the within Contingent Value Right
Certificate on the books of the within-named Company, with full power of
substitution.
Dated:-----------------,
-----------------------------------
Signature
- --------------------------------------------------------------------------------
NOTICE
The signatures to the foregoing Assignment must correspond to the name as
written upon the face of this Contingent Value Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
28
Exhibit 10.1
AMENDMENT
TO
ESCROW AGREEMENT
Amendment, dated as of May 1, 1998 (this "Amendment"), to Escrow
Agreement, dated as of September 15, 1998 (the "Escrow Agreement"), among R&E
Gaming Corp., a Delaware corporation ("R&E Gaming"), Riviera Holdings
Corporation, a Nevada corporation ("RHC"), and State Street Bank and Trust
Company of California, N.A. ("State Street Bank") (the "Parties").
WHEREAS, the Escrow Agreement provides that Letter of Credit No.
970919.OD.0002 (the "Escrow L/C") issued by City National Bank ("CNB") and
certain cash are to be held in escrow by State Street Bank and that a
determination of entitlement as between R&E Gaming and RHC to the Escrow L/C and
such cash, less the Cash Interest, as defined in the Escrow Agreement (the
"Disputed Consideration"), is to be made in accordance with the terms of the
Escrow Agreement;
WHEREAS, a dispute (the "Dispute") has arisen between R&E Gaming and
RHC regarding their respective entitlement to the Disputed Consideration, some
or all of which Dispute is to be resolved, pursuant to the terms of the Escrow
Agreement, in an arbitration (the "Arbitration");
WHEREAS, R&E Gaming and RHC have delivered respective demands on State
Street Bank with respect to the Disputed Consideration, and have contested each
other's respective demands;
<PAGE>
WHEREAS, RHC has initiated with the American Arbitration Association a
Demand for Arbitration (the "Demand for Arbitration") to resolve some or all
aspects of the Dispute pursuant to the Arbitration;
WHEREAS, RHC is concerned that the Escrow L/C will expire according to
its terms before any of the aspects of the Dispute can be resolved in the
Arbitration and, accordingly, RHC desires to obtain an amendment and extension
of the Escrow L/C until resolution of the Dispute;
WHEREAS, R&E Gaming desires that, in lieu of the Arbitration, the
Dispute should be resolved in an action initiated by R&E Gaming against RHC and
certain other parties in the United States District Court for the Central
District of California (the "Federal Court"), Case No. CV98-2644-LGB(AIJx) (the
"Federal Court Action") or -- in the event the Federal Court remands the case to
state court or dismisses the Federal Court Action for lack of subject matter
jurisdiction -- in another court of competent jurisdiction located in Los
Angeles, California or Las Vegas, Nevada (the "Other Court Action"); and
WHEREAS, R&E Gaming and RHC desire to amend the instructions to State
Street Bank, as Escrow Agent, regarding when and to whom the Disputed
Consideration is to be paid or delivered, as the case may be;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which hereby
are acknowledged, the Parties agree as follows:
2
<PAGE>
1. Except as otherwise defined in this Amendment, capitalized terms
have the meaning set forth in the Escrow Agreement.
2. In consideration of RHC's agreement set forth in Section 3 below,
R&E Gaming agrees to execute and deliver to CNB the letter set forth as Exhibit
"A" to this Amendment (the "CNB Letter Request") requesting that CNB amend and
extend the Escrow L/C. RHC and State Street Bank agree to join in and execute
the CNB Letter Request. State Street Bank agrees to return the original Escrow
L/C to R&E Gaming promptly upon delivery to it of an amended and extended Escrow
L/C in accordance with the CNB Letter Request, and R&E Gaming agrees to file a
notice dismissing State Street Bank from the Federal Court Action.
3. Effective upon delivery to State Street Bank of an amended and
extended Escrow L/C (hereinafter "Escrow L/C") in accordance with the CNB Letter
Request, RHC agrees that: (i) unless settled, all aspects of the Dispute will be
resolved in the Federal Court Action or Other Court Action and any actual or
potential right of any party to have any aspect of the Dispute resolved in the
Arbitration is terminated; (ii) RHC will withdraw its pending Demand for
Arbitration within five days of such delivery, which withdrawal will be without
prejudice to any claim that RHC may have against R&E Gaming. RHC agrees it will
submit to and not contest nor join in the contesting of the subject matter
and/or personal jurisdiction of the United States District Court for the Central
District of California of all aspects of the Dispute and of all currently and/or
subsequently named parties in the Federal Court Action. RHC agrees it will
accept service of the operative pleading in the Federal Court Action by United
States Mail or personal service upon Thomas F. Munno, Dechert Price & Rhoads, 30
Rockefeller Plaza, New York, New York 10112.
3
<PAGE>
4. If at any time CNB provides written notice that CNB will not extend
the Escrow L/C past its then upcoming Expiration Date, R&E Gaming agrees that it
will obtain a letter of credit having the identical terms and for the identical
amount as the Escrow L/C (the "Replacement L/C") except that the initial
expiration date of the Replacement L/C shall be at least 12 months after the
then upcoming Expiration Date of the Escrow L/C. R&E Gaming shall deliver said
Replacement L/C to State Street Bank no later than 15 days prior to the then
upcoming Expiration Date of the Escrow L/C. In the event the issuer of the
Replacement L/C provides notice that it will not extend such Replacement L/C
past its then upcoming Expiration Date, R&E Gaming agrees to obtain a subsequent
Replacement L/C so that a Replacement L/C is in effect until State Street Bank,
pursuant to the terms of this Amendment, either has presented the Replacement
L/C and obtained payment thereon or has returned such L/C to R&E Gaming. In
addition to the requirement that R&E Gaming obtain Replacement L/Cs as set forth
in the preceding two sentences, R&E Gaming may at any time prior to honor of the
Escrow L/C, replace the Escrow L/C with a Replacement L/C. Upon delivery of a
Replacement L/C to State Street: (i) State Street Bank agrees to return the
Escrow L/C to R&E Gaming; (ii) the Escrow L/C will be canceled; and (iii) the
terms of this Amendment pertaining to the Escrow L/C and CNB will be deemed
amended to mean the then in force Replacement L/C and the issuer of that
Replacement L/C.
5. R&E Gaming and RHC agree, and State Street Bank is instructed, that
the Disputed Consideration will be paid or delivered, as the case may be, as
follows:
4
<PAGE>
(a) R&E Gaming agrees that RHC will be entitled to make a demand on
State Street Bank that it present the Escrow L/C to CNB for honor
and payment (the "Payment Demand") on the earliest of the
following events:
(i) if and when the Court in the Federal Court Action or Other
Court Action executes and enters an Order declaring that RHC
is entitled to present the Escrow L/C to, and receive the
proceeds thereof from, CNB and the Order becomes a Final
Court Order. For purposes of this Amendment, a Final Court
Order means the Order has been executed and entered by the
Court and the parties' rights and times for all appeals have
expired, been exhausted or waived; if the Court shall issue
an order determining the Dispute as between R&E Gaming and
RHC but such order shall not be appealable by reason of the
continued pendency of pending claims involving other parties
to the Federal Court Action, RHC and R&E Gaming agree to
jointly petition the Court for the entry of a final
judgement pursuant to Federal Rules of Civil Procedure, Rule
54(b);
(ii) if R&E Gaming fails to commence an Other Court Action within
30 days after the Federal Court Action is dismissed for lack
of subject matter jurisdiction or if for any reason the
Federal Court issues an order declining to determine the
Dispute between RHC and R&E Gaming;
5
<PAGE>
(iii)if RHC does not deliver a Replacement L/C to State Street
Bank pursuant to Paragraph 4 hereof.
(b) In the event that State Street Bank obtains the proceeds for the
Escrow L/C or Replacement L/C by reason of a Final Order or R&E
Gaming's failure to commence an Other Action pursuant
respectively to Paragraph 5a(i) and (ii) hereof, then State
Street Bank, upon receipt of a Payment Demand from RHC, shall
deliver such funds together with the balance of the Disputed
Consideration to RHC. (Upon RHC's receipt of such funds from
State Street Bank, RHC shall distribute such funds to the
Stockholders, other than the Disqualified Holders.)
(c) In the event that State Street Bank obtains the proceeds for the
Escrow L/C or Replacement L/C by reason of R&E Gaming's failure
to obtain and deliver Replacement L/C to State Street Bank
pursuant to Paragraph 5a(iii), no later than 15 days prior to the
expiration of the term of the then current Escrow L/C or
Replacement L/C, pursuant to Paragraph 4 hereof, then State
Street Bank shall hold the proceeds resulting from the
presentment of the Escrow or Replacement L/C in Escrow and
distribute those proceeds pursuant to 5(b), or (d) whichever the
case may be.
(d) RHC agrees that, if and when a Court Order in the Federal Court
Action declaring that R&E Gaming is entitled to the return of the
Disputed Consideration becomes a Final Court Order, R&E Gaming
will be entitled
6
<PAGE>
to make a demand on State Street Bank that it return the Disputed
Consideration to R&E Gaming (the "Return Demand").
(e) State Street Bank agrees that, promptly upon receipt of the
Return Demand, it will deliver the Disputed Consideration to R&E
Gaming.
6. R&E Gaming and RHC agree the Disputed Consideration does not include
the Cash Interest and that State Street Bank hereby is instructed that the Cash
Interest will be paid to R&E Gaming at the same time that the Disputed
Consideration is delivered to R&E Gaming or paid to RHC in accordance with the
terms set forth in Section 5 above.
7. The terms of Sections 6, 7, 8, 9, 10, 12, 13 and 14 of the Escrow
Agreement shall not be affected by this Amendment, except that references in
such Sections to "this Agreement" shall be deemed to mean references to the
Escrow Agreement, as amended by this Amendment.
8. Except that all notices to R&E Gaming should henceforth be delivered
to Musick, Peeler & Garrett LLP, One Wilshire Boulevard, Suite 2100, Los
Angeles, California, 90017, Facsimile (213) 624-1376, attention: Richard P.
Crane, Jr., in lieu of Skadden, Arps, Slate, Meagher & Flom LLP, the provisions
of Section 11 shall not be affected by this Amendment.
9. If there is any inconsistency between the terms of this Amendment
and the terms of the Escrow Agreement, the terms of this Amendment shall be
controlling.
7
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the date and year first above
written.
R&E GAMING CORP.
By:/s/ Allen E. Paulson
--------------------------------------
Allen E. Paulson
President
RIVIERA HOLDINGS CORPORATION
By:/s/ William L. Westerman
--------------------------------------
William L. Westerman
President
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A., as Escrow Agent
By:/s/ Lynda A. Vogel
--------------------------------------
Name: Lynda A. Vogel
Title: Senior Vice President
8
Exhibit 10.2
R&E GAMING CORP.
P.O. Box 9660, 6001 Clubhouse Drive
Rancho Santa Fe, California 92067
May 1, 1998
CITY NATIONAL BANK
400 North Roxbury Drive, 5th Floor
Beverly Hills, California 90210
Attn: __________________
Re: Letter of Credit No. 970919.OD.0002
-----------------------------------
Dear Sirs:
Upon application of R&E Gaming Corp. ("R&E Gaming"), Letter of Credit
No. 970919.OD.0002 (the "Letter of Credit") was issued in favor of State Street
Bank and Trust Company of California, N.A. ("State Street Bank") in the form
attached hereto as Exhibit "A". The Letter of Credit, which expires by its terms
on June 10, 1998, is being held by State Street Bank pursuant to an Escrow
Agreement dated as of September 15, 1997 by and among R&E Gaming, Riviera
Holdings Corporation ("RHC") and State Street Bank.
A dispute has arisen between R&E Gaming and RHC regarding entitlement
to the Letter of Credit or the funds represented thereby, as the case may be.
R&E Gaming is desirous that the Letter of Credit be extended until such dispute
is resolved. Accordingly, R&E Gaming hereby requests (the "Request") that
appropriate documents be prepared to provide for the amendment and extension of
the Letter of Credit upon the following terms:
<PAGE>
10. The Letter of Credit will be extended until the earlier to occur
of:
a. The delivery to City National Bank, attention __________, at
__________, of written notice from State Street Bank that:
(i) the Letter of Credit has been returned to R&E Gaming;
and (ii) the Letter of Credit should be canceled; or
b. May 1, 1999 (the "Expiration Date"); provided that the
Expiration Date will automatically be extended to May 1,
2000 (or the next bank business day) unless City National
Bank has given written notice (the "Cancellation Notice") to
each of R&E Gaming, RHC and State Street Bank, or their
successors, before March 1, 1999 (the "Notice Date") that
City National Bank will not further extend the Letter of
Credit past the Expiration Date; and provided further that
the Expiration Date and the Notice Date will automatically
continue to be extended from year to year to the next
succeeding May 1st and March 1st, respectively (or the next
succeeding bank business day), unless the Cancellation
Notice has been given in accordance with this subsection
before the then applicable Notice Date.
11. City National Bank will be entitled to honor a presentment by
State Street Bank of the Letter of Credit upon delivery to City
National Bank of such
2
<PAGE>
documents as it may require, together with a Certificate stating
the following:
"The undersigned, a duly authorized officer of State Street Bank
and Trust Company of California, N.A. (the "Escrow Agent"),
hereby certifies to City National Bank (the "Bank") with
reference to irrevocable Letter of Credit No. 970919.OD.0002 (the
"Letter of Credit") issued by the Bank that the Escrow Agent is
delivering notice as provided in Section 5(a) of the Amendment,
dated as of May 1, 1998, to the Escrow Agreement, dated as of
September 15, 1997, among R&E Gaming Corp., Riviera Holdings
Corporation and Escrow Agent (collectively the "Escrow
Agreement") in full compliance with the terms and conditions of
the Escrow Agreement, as amended.
Demand is hereby made under the Letter of Credit for
$5,172,427.00. Please remit payment to State Street Bank and
Trust Company of California, N.A., Account No. _________, at
__________, ABA No. ___________, Ref: By: Name: Title: "
12. Except as set forth in Paragraphs 1 and 2 above, the terms of the
Letter of Credit will remain unchanged.
3
<PAGE>
RHC, as the real party in interest for receipt of the proceeds of the
Letter of Credit, joins in this Request. State Street Bank, as the nominal
beneficiary of the Letter of Credit and in reliance upon the agreement of R&E
Gaming and RHC that the Letter of Credit should be amended and extended upon the
above terms, joins in this Request.
Very truly yours,
R&E GAMING CORP.
By:/s/ Allen E. Paulson
------------------------------
Allen E. Paulson
President
Joining in the Request:
RIVIERA HOLDINGS CORPORATION
By: /s/
-----------------------------------------------
STATE STREET BANK TRUST COMPANY OF CALIFORNIA, N.A.
By: /s/
-----------------------------------------------
4
Richard P. Crane, Jr. (State Bar #058957)
Joseph J. McCann, Jr. (State Bar #090655)
Dennis M. P. Ehling (State Bar #168892)
Attorneys for Plaintiffs
ALLEN E. PAULSON, an individual; R&E GAMING CORP,
a Delaware Corporation; ELSINORE ACQUISITION SUB, INC.,
a Nevada Corporation; RIVIERA ACQUISITION SUB, INC.,
a Nevada Corporation; CARLO CORPORATION, a Delaware
Corporation
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
(Western Division)
ALLEN E. PAULSON, an individual; ) Case No. 98-2644 LGB (AIJx)
R&E GAMING CORP, a Delaware )
Corporation; ELSINORE ACQUISITION ) PLAINTIFF'S FIRST AMENDED
SUB, INC., a Nevada Corporation; ) COMPLAINT FOR:
RIVIERA ACQUISITION SUB, INC., a Nevada )
Corporation; CARLO CORPORATION, a ) 1) FEDERAL SECURITIES
Delaware Corporation, ) VIOLATIONS;
) 2) NEVADA RICO VIOLATIONS;
Plaintiffs, ) 3) STATE SECURITIES
) VIOLATIONS;
vs. ) 4) RESCISSION;
) 5) FRAUD;
JEFFERIES & COMPANY, INC., a California ) 6) NEGLIGENT
Corporation; M. BRENT STEVENS, an ) MISREPRESENTATION
individual; STEVEN CROXTON, an individual, ) 7) NEGLIGENCE;
PAUL VOIGT, an individual; ELSINORE ) 8) BREACH OF CONTRACT;
CORPORATION, a Nevada Corporation; ) 9) BREACH OF IMPLIED
RIVIERA HOLDINGS CORPORATION, a ) COVENANT;
Nevada corporation; MORGENS, WATERFALL, ) 10) BREACH OF
VINTIADIS & COMPANY, INC., a New York ) FIDUCIARY DUTY;
Corporation; KEYPORT LIFE INSURANCE ) 11) BREACH OF WARRANTY
COMPANY, a Rhode Island Corporation; and ) PRESENTMENT;
SUNAMERICA LIFE INSURANCE ) 12) INTERFERENCE WITH
COMPANY, an Arizona Corporation, ) CONTRACTUAL
) RELATIONS; AND
Defendants. ) 13) DECLARATORY RELIEF
- -------------------------------------------- )
DEMAND FOR JURY TRIAL
(F.R.Civ.P. Rule 38)
<PAGE>
Plaintiffs Allen E. Paulson, R&E Gaming Corp, Elsinore Acquisition Sub,
Inc., Riviera Acquisition Sub, Inc. and Carlo Corporation ("Plaintiffs"), by and
through their attorneys of record, Musick, Peeler & Garrett llp, bring this
action against Defendants and allege as follows:
JURISDICTION
------------
1. This Court has jurisdiction of this matter pursuant to 28 U.S.C.
ss. 1331 (Federal Question), 15 U.S.C. ss. 78aa (Securities Law Violations), 28
U.S.C. ss. 1367(a) (Supplemental Jurisdiction) and 28 U.S.C. ss. 2201
(Declaratory Judgment Act).
VENUE
-----
2. Venue is proper in the Central District of California based on 28
U.S.C. 1391(b)(1)-(2) and 1391(c).
THE PARTIES
-----------
3. Plaintiff Allen E. Paulson ("Paulson") is, and at all times herein
mentioned was, an individual residing and conducting business in the State of
California. Paulson is the sole shareholder of R&E Gaming Corp. Paulson is also
the sole shareholder of Carlo Corporation. 4. Plaintiff R&E Gaming Corp ("R&E
Gaming") is a corporation organized and existing under the laws of the State of
Delaware. R&E Gaming is the sole shareholder of Elsinore Acquisition Sub, Inc.
and Riviera Acquisition Sub, Inc. 5. Plaintiff Elsinore Acquisition Sub, Inc.
("EAS") is a corporation organized and existing under the laws of the State of
Nevada. EAS is a subsidiary of R&E Gaming. 6. Plaintiff Riviera Acquisition Sub,
Inc. ("RAS") is a corporation organized and existing under the laws of the State
of Nevada. RAS is a subsidiary of R&E Gaming. For convenience, Paulson, R&E
Gaming, EAS and RAS are sometimes referred to herein as the "R/E Plaintiffs."
- 2 -
<PAGE>
7. Plaintiff Carlo Corporation ("Carlo") is a corporation organized
and existing under the laws of the State of Delaware.
8. Defendant Jefferies & Company, Inc. ("Jefferies") is a corporation
organized and existing under the laws of the State of California with its
principal place of business in Los Angeles, California. Jefferies is registered
with the United States Securities Exchange Commission as a broker/dealer and an
investment advisor.
9. Defendant Elsinore Corporation ("Elsinore") is a corporation
organized and existing under the laws of the State of Nevada with its principal
place of business in Las Vegas, Nevada. Elsinore is the owner of the Four Queens
Hotel and Casino in Las Vegas, Nevada.
10. Defendant Riviera Holdings Company ("RHC") is a corporation
organized and existing under the laws of the State of Nevada with its principal
place of business in Las Vegas, Nevada. RHC is the owner of the Riviera Hotel &
Casino in Las Vegas, Nevada.
11. Through an agreement between RHC and R&E Gaming, RHC has consented
to the jurisdiction of the United States District Court for the Central District
of California with respect to this action.
12. Defendant Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens,
Waterfall") is a corporation organized and existing under the laws of the State
of New York with its principal place of business in New York, New York. Morgens,
Waterfall is the record and beneficial owner of approximately 94.3% of the
shares of common stock in Elsinore and is the record and beneficial owner of
approximately 25.9% of the shares of common stock of RHC.
13. Plaintiffs are informed and believe, and thereupon allege, that
John C. "Bruce" Waterfall ("Waterfall") is, and at all relevant times hereto
was, an individual conducting business in New York, New York as the President of
Morgens, Waterfall.
14. Defendant Keyport Life Insurance Company ("Keyport") is a
corporation organized and existing under the laws of the State of Rhode Island
with its principal place of
- 3 -
<PAGE>
business in Boston, Massachusetts. Keyport is the record and beneficial owner of
approximately 17.5% of the shares of common stock of RHC.
15. Defendant SunAmerica Life Insurance Company ("SunAmerica") is a
corporation organized and existing under the laws of the State of Arizona with
its principal place of business in Los Angeles, California. SunAmerica is the
record and beneficial owner of approximately 15.5% of the shares of common stock
of RHC.
16. Defendant M. Brent Stevens ("Stevens") is, and at all times
relevant hereto was, an individual residing and conducting business in the
County of Los Angeles, California. Plaintiffs are informed and believe, and
thereupon allege, that Stevens is presently a Managing Director of Jefferies,
and at all other times relevant hereto was a Senior Vice President of Jefferies.
17. Plaintiffs are informed and believe, and thereupon allege, that
Defendant Steven Croxton ("Croxton") is, and at all times relevant hereto was,
an individual conducting business in New Orleans, Louisiana, and is and was a
Vice President of Jefferies.
18. Plaintiffs are informed and believe, and thereupon allege, that
Defendant Paul Voigt ("Voigt") is, and at times relevant hereto was, an
individual conducting business in New York, New York, and is and was an employee
of Jefferies.
19. City National Bank is a corporation organized and existing under
the laws of the State of California with its principal place of business in Los
Angeles, California. City National Bank was named as a Defendant to this action
in the original Complaint.
20. State Street Bank and Trust Company of California, N.A. ("State
Street Bank") is a Federally chartered bank with its principal place of business
in Los Angeles, California. State Street Bank was named as a Defendant to this
action in the original Complaint.
- 4 -
<PAGE>
COMMON FACTUAL ALLEGATIONS
---------------------------
A. The Riviera and Elsinore Transaction
21. Paulson is the record and beneficial owner of approximately 9.4%
of the outstanding stock of RHC.
22. In 1996, Paulson expressed interest to RHC's Board of Directors
about acquiring a controlling interest in RHC. In response, RHC's President,
William L. Westerman ("Westerman"), informed Paulson that Paulson must negotiate
directly with Waterfall, and that no deal could be consummated or agreed to
unless Morgens, Waterfall was taken care of first and Morgens, Waterfall agreed
in advance to any such deal.
23. RHC's Board of Directors, acting on behalf of RHC, subsequently
informed Paulson that no deal could be consummated or agreed to unless: (1) the
price and terms of the deal were satisfactory to the majority shareholders of
RHC: Morgens, Waterfall, Keyport and SunAmerica (collectively the "RHC Majority
Shareholders"); and (2) the remaining shareholders (other than Paulson) were
offered the opportunity to sell their shares to Paulson on the same terms as
those offered to the RHC Majority Shareholders. Thus, in any deal to obtain a
controlling interest in RHC, Paulson was required to acquire all of RHC.
24. As a result of the conditions spelled-out by Westerman and RHC's
Board of Directors, RHC either expressly or effectively ceded full authority to
negotiate Paulson's acquisition of RHC to the RHC Majority Shareholders, and
particularly to Morgens, Waterfall.
25. When Stevens (on Paulson's behalf) approached Waterfall to
negotiate for the purchase of RHC, Waterfall stated that Morgens, Waterfall
would not sell its interest in RHC unless Paulson also agreed to purchase
Morgens, Waterfall's 94.3% interest in Elsinore. Thus, given RHC's directive
that no deal could occur without satisfying Morgens, Waterfall's demands, the
acquisition of Elsinore became an essential part of any deal to acquire RHC.
26. Paulson eventually acceded to Morgens, Waterfall's demand and
agreed to purchase Elsinore along with RHC. As a result, in or about March of
1997, the RHC Majority Shareholders agreed to grant R&E Gaming an option to buy
their collective 58.9% stake in
- 5 -
<PAGE>
RHC for approximately $15 per share (plus interest), and Morgens, Waterfall
agreed to grant R&E Gaming an option to acquire Morgens, Waterfall's 94.3% share
in Elsinore for approximately $3.16 per share (plus interest). This transaction
shall hereafter be referred to as the "Riviera/Elsinore Transaction."
B. The Riviera and Elsinore Agreements
27. On October 31, 1995, Elsinore and certain of its wholly-owned
subsidiaries filed for protection pursuant to Chapter 11 of the U.S. Bankruptcy
Code. Thereafter, on February 28, 1997, a Plan of Reorganization ("Plan") was
approved. Pursuant to this Plan, 4,929,313 shares of Common Stock were issued,
4,646,440 of which, or 94.3% of the total outstanding shares were acquired by
Morgens, Waterfall. There is no organized or established trading market for
Elsinore's Common Stock. The Common Stock price is reported on the NASDAQ
"bulletin board." On May 14, 1997, the day preceding Elsinore's announcement
that Paulson had expressed an interest in acquiring all of the outstanding
Common Stock, the high and low sales price of the Common Stock was $.13 1/2 (13
1/2(cent)) per share.
28. The acquisition of Elsinore, as eventually structured, included
two principal agreements: (1) an Option and Voting Agreement; and (2) an
Agreement and Plan of Merger. The acquisition of Elsinore is hereafter referred
to as the "Elsinore Merger."
29. As of September 15, 1997, R&E Gaming and Morgens, Waterfall
executed an Option and Voting Agreement (the "Elsinore Option Agreement"),
whereby Morgens, Waterfall agreed to vote its 94.3% of the shares in Elsinore
for approval of the Elsinore Merger. The Elsinore Option Agreement also gave R&E
Gaming an option to purchase the shares held by Morgens, Waterfall at an
exercise price of $3.16 per share (the "Elsinore Purchase Option"). The Elsinore
Purchase Option is exercisable at any time after the date of execution, but no
later than the date on which the Elsinore Merger Agreement is terminated or, if
it has not been terminated, June 1, 1998.
- 6 -
<PAGE>
30. The Elsinore Option Agreement contains numerous representations
and warranties, covenants and conditions--including the representation by
Morgens, Waterfall that it was not subject to any agreement or understanding
that would make it subject to a valid claim by any broker, investment banker,
finder or other intermediary in connection with the transactions thereby
contemplated--all of which are set forth verbatim in the copy of the Elsinore
Option Agreement attached hereto as Exhibit "1" and incorporated herein by
reference.
31. The Elsinore Option Agreement did not extend to Elsinore's
minority shareholder(s) the same rights as were granted to Morgens, Waterfall:
a. The Elsinore Option Agreement provides that, if the Riviera
Merger Agreement and the Riviera Option Agreement (as defined
below) are consummated but the Elsinore Merger is not
consummated, Morgens, Waterfall could nevertheless, under a "Put
Option," require R&E Gaming to purchase all of Morgens,
Waterfall's 4,646,440 shares of Elsinore Common Stock at the
$3.16 per share exercise price, or an aggregate of
$14,682,750.40. In such an event, the minority shareholders of
Elsinore remain minority shareholders and do not have the
opportunity to sell their shares.
b. As part of the agreement to grant R&E Gaming the Elsinore
Purchase Option, Morgens, Waterfall demanded that R&E Gaming pay
Morgens, Waterfall $2,936,550.08 if the transactions contemplated
by the Elsinore Merger Agreement are not consummated for any
reason other than a NonPayment Termination Event (as therein
defined). The minority shareholders have no such equivalent
payment right.
c. In order to secure payment of this obligation, R&E Gaming agreed
to deliver and did deliver to Morgens, Waterfall a letter of
credit in the amount of $2,936,550.08 (the "Elsinore/Morgens,
Waterfall Letter of Credit").
- 7 -
<PAGE>
32. The Elsinore/Morgens, Waterfall Letter of Credit was issued by
City National Bank, and provided that it could be negotiated only when the
presenter signed and presented a Certificate of Drawing along with the Letter of
Credit certifying that the conditions under the Elsinore Option Agreement
entitling Morgens, Waterfall to payment had been met. True and correct copies of
the Letter of Credit and the form of the Certificate are attached hereto as
Exhibit "2" and are incorporated herein by reference.
33. As of September 15, 1997, Elsinore, R&E Gaming and EAS executed a
Merger Agreement (the "Elsinore Merger Agreement"), whereby EAS was to merge
into and acquire Elsinore for a total cost of approximately $54 million ($3.16
per share, plus the assumption of approximately another $38 million in debt). A
true and correct copy of the Elsinore Merger Agreement is attached hereto as
Exhibit "3" and is incorporated herein by reference.
34. The Elsinore Merger Agreement contains numerous representations
and warranties, covenants and conditions--including the representation that
Elsinore had not employed any broker, finder or financial advisor or incurred
any liability for any brokerage fees, commissions, finder's fees or financial
advisor's fees in connection with the transactions thereby contemplated--all of
which are set forth verbatim in the copy of the Elsinore Merger Agreement
attached hereto as Exhibit "3" and incorporated herein by reference.
35. On or about December 24, 1997, Elsinore issued and filed with the
Securities and Exchange Commission an Information Statement regarding the
Elsinore Merger. A true and correct copy of this Information Statement is
attached hereto as Exhibit "4" and incorporated herein by reference.
36. The Board of Directors of Elsinore, lead by Waterfall as Chairman
of the Board, approved and adopted the Elsinore Option Agreement and the
Elsinore Merger Agreement.
37. On or about February 4, 1998 the stockholders of Elsinore held a
special meeting and voted for approval and adoption of the Elsinore Merger
Agreement.
- 8 -
<PAGE>
38. The acquisition of RHC, as eventually structured, included: (1) an
Option and Voting Agreement; and (2) an Agreement and Plan of Merger. In
addition, the acquisition of RHC included an Escrow Agreement to provide the
remaining shareholders in RHC, other than Paulson, the same basic financial
compensation as the RHC Majority Shareholders. The acquisition of RHC is
hereafter referred to as the "Riviera Merger."
39. As of September 15, 1997, the RHC Majority Shareholders and R&E
Gaming executed an Option and Voting Agreement (the "Riviera Option Agreement"),
whereby the RHC Majority Shareholders agreed to vote their shares in RHC for
approval of the Riviera Merger. The Agreement also gave R&E Gaming an option to
purchase the shares held by the RHC Majority Shareholders at an exercise price
of $15 per share (the "Riviera Purchase Option"). The Riviera Purchase Option is
exercisable at any time after the date of execution, but no later than the date
on which the Riviera Merger Agreement is terminated or, if it has not been
terminated, June 1, 1998.
40. The Riviera Option Agreement contains numerous representations and
warranties, covenants and conditions, including the representation that none of
the RHC Majority Shareholders were subject to any agreement or understanding
that would make any of them subject to any valid claim by any broker, investment
banker, finder or other intermediary in connection with the transactions thereby
contemplated--all of which are set forth verbatim in the copy of the Riviera
Option Agreement attached hereto as Exhibit "5" and hereby incorporated by
reference.
41. In order to secure payment of partial consideration to the RHC
Majority Shareholders, R&E Gaming agreed to deliver and did deliver to the RHC
Majority Shareholders separate Letters of Credit: the first, delivered to
Morgens, Waterfall in the amount of $3,817,680 (the "Riviera/Morgens, Waterfall
Letter of Credit"); the second, delivered to Keyport in the amount of $2,571,480
(the "Keyport Letter of Credit"); the third, delivered to SunAmerica in the
amount of $2,285,760 (the "SunAmerica Letter of Credit").
42. As of September 15, 1997,R&E Gaming, RHC and State Street Bank
executed an Escrow Agreement (the "Riviera Escrow Agreement"), whereby R&E
Gaming
- 9 -
<PAGE>
agreed to deposit and did deposit into escrow a letter of credit in favor of
State Street Bank as the escrow agent (the "RHC Letter of Credit") in the amount
of $5,172,427. The terms of the Riviera Escrow Agreement specify a procedure for
one or the other party thereto to demand payment or return of the RHC Letter of
Credit. A true and correct copy of the Riviera Escrow Agreement is attached
hereto as Exhibit "6" and is incorporated herein by reference.
43. The Riviera/Morgens, Waterfall Letter of Credit, the Keyport
Letter of Credit, and the SunAmerica Letter of Credit were all issued by City
National Bank, and each Letter of Credit provided that it could be negotiated
only when the presenter signed and presented a certification along with the
Letter of Credit certifying that the conditions under the Riviera Option
Agreement entitling the named beneficiary to payment had been met. True and
correct copies of these Letters of Credit and the form of the required
Certificates are attached hereto as Exhibits "7" through Exhibit "9" and
incorporated herein by reference.
44. The RHC Letter of Credit was issued by City National Bank, and
provided that it could be negotiated only when the presenter signed and
delivered a certification along with the Letter of Credit certifying that the
demand for payment under the RHC Letter of Credit was in compliance with the
Riviera Escrow Agreement. A true and correct copy of this Letter of Credit is
attached hereto as Exhibit "10" and is incorporated herein by reference.
45. As of September 15, 1997, RHC, R&E Gaming and RAS executed a
Merger Agreement (the "Riviera Merger Agreement"), whereby RAS was to merge into
and acquire RHC for a total cost of approximately $250 million ($15.00 per
share, plus the assumption of approximately another $175 million in debt). A
true and correct copy of the Riviera Merger Agreement is attached hereto as
Exhibit "11" and is incorporated herein by reference.
46. The Riviera Merger Agreement contains numerous representations and
warranties, covenants and conditions including the representation that RHC had
not employed or incurred any liability to any broker, finder or financial
advisor with respect to the transactions thereby contemplated--all of which are
set forth verbatim in the copy of the Riviera Merger Agreement attached hereto
as Exhibit "11" and incorporated herein by reference.
- 10 -
<PAGE>
47. The RHC Board of Directors of RHC approved and adopted the Riviera
Option Agreement and the Riviera Merger Agreement.
48. On or about January 14, 1998, RHC issued a Proxy Statement (the
"RHC Proxy Statement") regarding the proposed Riviera Merger, which Statement
stated that "Jefferies will receive a fee of approximately $1 million out of the
price to be paid by Paulson Holdings for the shares of Elsinore's common stock."
49. The RHC Proxy Statement contains numerous statements and
representations--all of which are set forth verbatim in the copy of the Riviera
Merger Agreement attached hereto as Exhibit "12" and incorporated herein by
reference.
50. On or about February 5, 1998, the stockholders of RHC held a
Special Meeting and voted for approval and adoption of the Riviera Merger
Agreement.
C. Termination of the Elsinore and Riviera Option and Merger Agreements
-------------------------------------------------------------------------
51. By letter of April 1, 1998, R&E Gaming terminated the Elsinore
Option Agreement pursuant to the provisions thereof. This termination
constituted a Non-Payment Termination Event as defined therein.
52. By letter of April 2, 1998, R&E Gaming terminated the Riviera
Option Agreement pursuant to the provisions thereof. This termination
constituted a Non-Payment Termination Event as defined therein.
53. By letters of April 1, April 2 and April 6, 1998, R&E Gaming and
EAS terminated the Elsinore Merger Agreement pursuant to the provisions thereof.
This termination constituted a Non-Payment Termination Event as defined therein.
54. By letters of April 2 and April 6, 1998, R&E Gaming and RAS
terminated the Riviera Merger Agreement pursuant to the provisions thereof. This
termination constituted a Non-Payment Termination Event as defined therein.
55. On April 2 , 1998, Morgens, Waterfall presented to City National
Bank the Elsinore/Morgens, Waterfall Letter of Credit and a Certificate for
Drawing, signed by Waterfall, stating that the requisite conditions entitling it
to payment had been met. True and
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<PAGE>
correct copies of this Letter and Certificate are attached hereto as Exhibit
"13" and are incorporated herein by reference.
56. On April 2, 1998, RHC presented to State Street Bank
correspondence deemed to "constitute the company Certificate required by the
Escrow Agreement" for negotiation of the RHC Letter of Credit stating and
representing that the requisite conditions entitling it to payment had been met.
True and correct copies of this correspondence and the Certificate are attached
hereto as Exhibit "14" and are incorporated herein by reference.
57. At the time that RHC made this presentation and these
representations, RHC knew that such representations were false in that the
conditions which would entitle RHC to payment had not been met and/or R&E Gaming
was entitled to return of the Escrow Consideration (as hereafter defined).
58. On April 2, 1998, R&E Gaming presented to State Street Bank
correspondence constituting a Gaming Certificate as required by the Escrow
Agreement. On April 8, 1998, R&E Gaming presented to State Street Bank
correspondence constituting a Gaming Contesting Certificate as required by the
Escrow Agreement. True and correct copies of these certificates are attached
hereto as Exhibit "15" and Exhibit "16" and are incorporated herein by
reference.
59. On April 3, 1998, Morgens, Waterfall presented to City National
Bank the Riviera/Morgens, Waterfall Letter of Credit and a Certificate of
Drawing, signed by Waterfall, stating that the requisite conditions entitling it
to payment had been met. A true and correct copy of this Certificate is attached
hereto as Exhibit "17" and is incorporated herein by reference.
60. On April 3, 1998, Keyport presented to City National Bank the
Keyport Letter of Credit and a Certificate of Drawing stating that the requisite
conditions entitling it to payment had been met. A true and correct copy of this
Certificate is attached hereto as Exhibit "18" and is incorporated herein by
reference.
61. On April 3, 1998, SunAmerica presented to City National Bank the
SunAmerica Letter of Credit and a Certificate of Drawing stating that the
requisite conditions
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<PAGE>
entitling it to payment had been met. A true and correct copy of this
Certificate is attached hereto as Exhibit "19" and is incorporated herein by
reference.
D. Dealings and Agreements Involving Jefferies
-------------------------------------------
62. On or about November 26, 1996, Paulson and Jefferies (acting
through its Senior Vice President, M. Brent Stevens) executed a written retainer
agreement whereby Paulson and his affiliates retained Jefferies to act as the
financial advisor to Paulson and his affiliates in connection with "any
financing or acquisition activity . . . in the gaming industry for the next two
years." A true and correct copy of the November 26, 1996 written retainer
agreement is attached hereto as Exhibit "24" and is incorporated herein by
reference.
63. On or about January 30, 1997, Paulson and Jefferies (acting
through Stevens) executed a further written retainer agreement (the "Jefferies
Retainer Agreement") whereby Paulson "and his affiliates" retained Jefferies to
act as financial advisor and placement agent or underwriter to Paulson and his
affiliates in connection with "any financing, investment or acquisition
activities . . . during the next eighteen months . . . in the gaming industry,
including but not limited to projects involving Gold River Hotel and Casino
Corporation, [and] Riviera Holdings Corporation." A true and correct copy of the
Jefferies Retainer Agreement is attached hereto as Exhibit "20" and is
incorporated herein by reference.
64. The Jefferies Retainer Agreement recites that "in full payment for
all services rendered and to be rendered by Jefferies," Jefferies would accept
payment from Paulson and his affiliates as follows:
a. a retainer of $30,000 per month, not to exceed a total of
$210,000, and
b. in the event that Paulson and his affiliates complete a
Transaction (as defined in the Jefferies Retainer Agreement)
involving an acquisition, a fee of 1% of the total enterprise
value of the acquiring and acquired entities, less the total
amount of retainer paid.
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<PAGE>
65. R&E Gaming, RAS, EAS and Carlo are all affiliates of Paulson in
that Paulson is the sole shareholder of R&E Gaming and Carlo, and R&E Gaming is
the sole shareholder of RAS and EAS.
66. Jefferies represented to Plaintiffs that Jefferies would use its
skills and experience to represent Plaintiffs as their financial advisor acting
solely on behalf of Plaintiffs, with the knowledge and specific intention that
Plaintiffs would rely on Jefferies to do so.
67. As an experienced financial advisor, knowledgeable in complex
securities and financial arrangements, Jefferies knew that Paulson would rely on
Jefferies for its assistance and advice with respect to any decision made by
Paulson as to whether or not to proceed with each proposed merger or acquisition
in the gaming industry.
68. Plaintiffs entrusted, placed their confidence in, and relied on
Jefferies to assist them, advise them, negotiate on their behalf and perform due
diligence on their behalf with respect to the Riviera/Elsinore Transaction and
the Riverboat Transaction (as hereafter defined), including Jefferies'
negotiation and advice as to the appropriate price, terms and conditions for the
Riviera/Elsinore Transaction and the Riverboat Transaction. Plaintiffs
entrusted, placed their confidence in, and relied on Jefferies to represent only
the interests of Plaintiffs in performing these duties.
1. Jefferies' Undisclosed Fees
---------------------------
69. In early 1997, Jefferies (through its representative Paul Voigt)
and Morgens, Waterfall (through Waterfall) entered into an oral agreement (the
"Jefferies First Finders Agreement re Paulson") whereby Morgens, Waterfall
agreed to pay Jefferies a fee of approximately $1.25 million for Jefferies'
services as a finder in connection with the sale of Morgens, Waterfall's 94.3%
interest in Elsinore to Paulson and/or R&E Gaming. Neither Jefferies nor
Morgens, Waterfall nor any other person or entity ever disclosed the Jefferies
First Finders Agreement re Paulson to Plaintiffs, or any of them, at any time
prior to October of 1997.
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<PAGE>
70. In or about May 1997, Jefferies (through its Managing Director,
David P. St. Jean) and Casino Magic Corporation ("Casino Magic") (through its
Chief Financial Officer, Jon S. Osman) entered into a written agreement (the
"Jefferies Finders Agreement re Players") whereby Casino Magic agreed to pay
Jefferies a fee for Jefferies' services as a finder in connection with the sale
of the Crescent City Queen Riverboat (the "Riverboat") in Mississippi. A true
and correct copy of this agreement is attached hereto as Exhibit "21" and is
incorporated herein by reference.
71. The Jefferies Finders Agreement re Players recites that the
investor Jefferies has found in connection with the sale of the Riverboat is
Players International, Inc. ("Players") and that for this introduction and
service, Casino Magic is to pay a fee to Jefferies, upon the sale of the
Riverboat, equal to 2.5% of the aggregate amount of the sale. Neither Jefferies
nor Casino Magic nor Players nor any other person or entity ever disclosed the
Jefferies Finders Agreement re Players to Plaintiffs, or any of them, at any
time before late February of 1998.
72. On or about June 18, 1997, Jefferies (through its Vice President
Steven D. Croxton) and Casino Magic of Louisiana Corp. ("Casino Magic
Louisiana") (through its President and CEO James E. Ernst) entered into an
agreement (the "Jefferies Second Finders Agreement re Paulson") whereby Casino
Magic Louisiana agreed to pay Jefferies a fee for Jefferies' services as a
finder in connection with the sale of the Riverboat. A true and correct copy of
this agreement is attached hereto as Exhibit "22" and is incorporated herein by
reference.
73. The Jefferies Second Finders Agreement re Paulson recites that the
investor Jefferies has found in connection with the sale of the Riverboat is
Paulson and that for this introduction and service, Casino Magic Louisiana is to
pay a fee to Jefferies, upon the sale of the Riverboat, equal to 5% of the
aggregate amount of the sale. Neither Jefferies nor Casino Magic Louisiana nor
any other person or entity ever disclosed the Jefferies Second Finders Agreement
re Paulson to Plaintiffs, or any of them, at any time before late February of
1998.
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<PAGE>
2. The Crescent Queen Agreement and Transaction
--------------------------------------------
74. Plaintiffs entrusted and relied on Jefferies to advise them,
negotiate on their behalf and perform due diligence on their behalf with respect
to Paulson's dealings with Casino Magic and/or Casino Magic Louisiana, including
Jefferies' negotiation and advice as to the appropriate price, terms and
conditions for the Riverboat. Plaintiffs entrusted and relied on Jefferies to
represent only the interests of Plaintiffs in performing these duties.
75. On July 1, 1997, Casino Magic Louisiana (through its President and
CEO, James E. Ernst) and Carlo (through its President, Paulson) executed a
Buy-Sell Agreement (the "Riverboat Sale Agreement") whereby, subject to
specified conditions, Carlo agreed to purchase the Riverboat for $12.25 million.
The Riverboat Sale Agreement called for Carlo to deliver a $1 million deposit to
Casino Magic Louisiana, and provided that Carlo would have thirty days to
inspect and accept or reject the Riverboat. A true and correct copy of the
Riverboat Sale Agreement is attached hereto as Exhibit "23" and is incorporated
herein by reference.
76. Before entering into the Riverboat Sale Agreement, Casino Magic
Louisiana personnel represented to Paulson that wiring for surveillance
equipment and slot machines was in place on the Riverboat. Thereafter, Paulson
learned that the Riverboat had been "cannibalized" and that much of the wiring
and other equipment had, in fact, been removed.
77. On July 29, 1997, Carlo provided notice that the condition of the
Riverboat was such that Carlo would not proceed with the transaction and,
therefore, demanded the return of the $1 million deposit. Casino Magic Louisiana
has failed or refused to return the deposit and Carlo has filed suit in
Mississippi against Casino Magic Louisiana to recover the deposit funds (the
"Casino Magic Suit"). (The entire series of events and agreements related to the
Riverboat will be referred to herein as the "Riverboat Transaction").
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<PAGE>
3. The Black Hawk Project and Related Funding
------------------------------------------
78. In 1996 and 1997, RHC was in the process of developing a hotel and
casino at a site in Black Hawk, Colorado (the "Black Hawk Project").
79. On or about August 13, 1997, RHC issued approximately $175 million
in bonds to refinance certain of its existing debt and raise cash for completion
of the Black Hawk Project and certain capital improvements at the Riviera Hotel
& Casino.
80. Through Westerman, RHC represented to the R/E Plaintiffs that
Paulson could not participate in the decision of whether or not RHC should
undertake this $175 million bond issuance because of RHC control issues with
respect to Nevada gaming rules and regulations. Nevertheless, RHC represented to
the R/E Plaintiffs that the bond issuance and the Black Hawk Project would be in
the best interests of RHC.
81. Jefferies knew Paulson, R&E Gaming, RAS and EAS could have no role
or say in RHC's decision to incur the additional debt involved in the $175
million bond issuance and that the R/E Plaintiffs would rely on Jefferies'
advice as to whether or not to execute the agreements related to the
Riviera/Elsinore Transaction after this debt was incurred. Further, Jefferies
knew or should have known, as the expert it purported to be and in its role as
Plaintiffs' financial advisor, that the debt would adversely affect RHC and the
value of RHC.
82. After review of the information provided by RHC, Jefferies failed
to advise the R/E Plaintiffs that the bond issuance and the Black Hawk Project
would not be in the best interests of RHC. Rather, Jefferies presented financial
analyses and projections in a presentation dated May 1, 1997 which included
predictions for the Black Hawk Project earning $7.1 million in 1998, and which
included a recommendation in favor of the $175 million bond issuance.
83. When the $175 million worth of bonds were issued, Jefferies acted
as one of the initial purchasers of that debt issuance for RHC and earned a
commission of approximately $4.3 million.
4. Ongoing Representations and Involvement by Jefferies
----------------------------------------------------
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<PAGE>
84. From the period of November 26, 1996 through at least August 29,
1997, Stevens, Croxton and others regularly communicated with and transmitted
and presented information and analyses to Plaintiffs regarding factual and
financial data regarding the Riverboat transaction, the condition of the
Riverboat, and the price to be paid by Paulson and Carlo with respect to the
Riverboat Transaction. A detailed list of certain such communications regarding
the Riviera/Elsinore Transaction is attached hereto as Appendix "A" and is
incorporated herein by reference.
85. With each such communication and each transmission and
presentation of information and analyses, Stevens, Croxton and others
represented to Plaintiffs that Jefferies was acting as Plaintiffs' financial
advisor with respect to the Riverboat transaction. Yet neither Stevens nor
Croxton nor any other representative of Jefferies disclosed to or advised
Paulson or Carlo or any of their representatives that, simultaneously with
representing Paulson and Carlo in the negotiations for the price, terms and
conditions of the Riverboat Transaction, Jefferies was also representing the
opposite party to such negotiations (Casino Magic) in the same transaction.
86. From the period of November 26, 1996 through early 1998, Stevens,
Croxton, Voigt and others communicated with, transmitted and presented certain
information and analyses to Paulson regarding the Riviera/Elsinore Transaction,
the profitability and business operations of RHC and Elsinore, and the price to
be paid by the R/E Plaintiffs with respect to the Riviera/Elsinore Transaction.
A detailed list of certain such communications regarding the Riviera/Elsinore
Transaction is attached hereto as Appendix "B" and is incorporated herein by
reference.
87. With each such communication and each transmission and
presentation of information and analyses, Stevens, Croxton, Voigt and others
represented to Plaintiffs that Jefferies was acting as Plaintiffs' financial
advisor with respect to the Riviera/Elsinore Transaction, with the intent that
Plaintiffs continue to rely on Jefferies to act as their financial advisor. The
R/E Plaintiffs did so rely on Jefferies to continue to act as their financial
advisor with respect to the Riviera/Elsinore Transaction.
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<PAGE>
88. In or about May or June of 1997, Jefferies through Stevens,
Croxton, Voigt and others, represented to the R/E Plaintiffs that the price,
terms and conditions which Jefferies had negotiated for the Riviera/Elsinore
transaction were the best which could be negotiated for the R/E Plaintiffs. Such
representations were made with the intent and knowledge that the R/E Plaintiffs
would rely on Jefferies' financial advice that such terms and conditions,
including price, were the best which could be negotiated for the R/E Plaintiffs.
89. In fact, Jefferies took advantage of the situation, knowing that
the R/E Plaintiffs would rely on Jefferies' financial advice in determining
whether to execute the agreements related to the Riviera/Elsinore Transaction.
Neither Stevens nor Croxton nor Voigt nor any other representative of Jefferies
ever disclosed to or advised Paulson, R&E Gaming, RAS, EAS or any of Paulson's
other affiliates or agents that, simultaneously with representing the R/E
Plaintiffs in the negotiations for the price, terms and conditions of the
Riviera/Elsinore Transaction, Jefferies was also representing the opposite party
to such negotiations (particularly Morgens, Waterfall) in the same transaction.
90. Jefferies and Jefferies' representatives knew, or as the
Plaintiffs' financial advisor should have known, that at the time the Riviera
and Elsinore Option and Merger Agreements and the Riviera Escrow Agreement were
executed, both RHC and Elsinore were facing substantial financial difficulties
and had in August and early September, 1997 suffered significant business
downturns. Similarly, Jefferies and Jefferies' representatives knew or should
have known by mid-September, 1997, before advising the R/E Plaintiffs to execute
the agreements associated with the Riviera/Elsinore Transaction, that RHC's net
income projections for 1997 were unrealistic and substantially overstated, that
incurring $175 million in debt in August of 1997 was not in RHC's best
interests, that the Black Hawk Project would not be completed within the $55
million budgeted for it, and that the EBITDA projections (as defined in the
Elsinore Merger Agreement) for Elsinore were unrealistic and substantially
overstated. Nevertheless, despite purporting to act as Paulson's financial
advisor, neither Stevens nor Croxton nor Voigt nor anyone else on behalf of
Jefferies ever disclosed to or advised the R/E Plaintiffs or any of their agents
or representatives of any of this information.
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<PAGE>
91. When Jefferies learned that Paulson knew about or suspected
Jefferies' fraudulent conduct in the First Jefferies Finders Agreement re
Paulson, and Paulson sought an explanation thereof, Stevens, Croxton, Voigt
and/or others on behalf of Jefferies stalled and represented to the R/E
Plaintiffs that the R/E Plaintiffs should continue to meet their obligations
under the Riviera and Elsinore Merger and Option Agreements and the Riviera
Escrow Agreement. This stalling and these representations were made with the
intent to induce the R/E Plaintiffs to continue to make interest payments and
otherwise pursue the Riviera/Elsinore Transaction, all to the detriment of the
R/E Plaintiffs. Specifically, but without limitation, after Paulson discovered
the Jefferies' First Finders Agreement re Paulson, Stevens made several further
representations to Paulson with the intent to defraud Paulson and in an attempt
to keep the R/E Plaintiffs from terminating the Riviera/Elsinore Transaction so
that Jefferies could recover its fees from at least the R/E Plaintiffs. These
representations included but were not necessarily limited to the following:
a. In or about October 11 or 12, 1997, during a meeting at the Los
Angeles offices of Jefferies among Stevens and Lawrence Leavitt
and Brian McCarthy, Esq. (representatives of Paulson), Stevens
confirmed to Leavitt and McCarthy that the Jefferies' First
Finders Agreement re Paulson existed, stated that it was to be
paid out of the price paid by Paulson, R&E Gaming and EAS for
Morgens, Waterfall's shares of Elsinore.
b. Shortly thereafter, Stevens again confirmed the existence of the
Jefferies' First Finders Agreement re Paulson to McCarthy.
c. In or about December, 1997, Stevens represented to Paulson that
the Jefferies' First Finders Agreement re Paulson existed but
that Stevens would attempt to resolve the inherent
conflict-of-interest it created through discussions with
Waterfall.
d. In a letter dated March 5, 1998 to Paulson, Stevens represented
to Paulson that the Jefferies' First Finders Agreement re Paulson
had existed, but that Jefferies' portion had been "squeezed out"
in the final negotiations for the
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<PAGE>
price of the Riviera/Elsinore Transaction, and that Stevens had
informed Paulson of the Jefferies' First Finders Agreement re
Paulson in early 1997.
e. In a letter dated March 25, 1998 to Paulson, Stevens again
represented to Paulson that the Jefferies' First Finders
Agreement re Paulson had existed, but that Jefferies' portion had
been "squeezed out" in the final negotiations for the price of
the Riviera/Elsinore Transaction, and that Stevens had informed
Paulson of the Jefferies' First Finders Agreement re Paulson
beginning in early 1997.
f. In each of these communications, Stevens represented either
expressly or implicitly that Jefferies was continuing to act as
Plaintiffs' financial advisor with respect to the
Riviera/Elsinore Transaction.
92. At the time of these communications, Stevens knew that the
representations regarding disclosure and acting as Plaintiffs' financial advisor
were materially false and/or he had no reasonable basis to believe that they
were true.
93. The R/E Plaintiffs all justifiably and detrimentally relied on the
aforementioned representations of Stevens, Croxton, Voigt and others at
Jefferies in determining to execute the agreements related to the Riverboat
Transaction and the Riviera/Elsinore Transaction, and in pursuing their
obligations thereunder. Had Paulson, Carlo, R&E Gaming, RAS or EAS known that
the representations were false, they would not have executed the agreements
related to the Riverboat Transaction and/or the Riviera/Elsinore Transaction or
would have terminated the Riverboat Transaction and/or Riviera/Elsinore
Transaction and all related agreements sooner.
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<PAGE>
E. Ongoing Representations and Involvement by Waterfall and Morgens, Waterfall
---------------------------------------------------------------------------
1. Morgens, Waterfall's Role as a Purported "Institutional Investor"
-----------------------------------------------------------------
94. On information and belief, Morgens, Waterfall has taken the
position that it is "an institutional investor" which holds its shares in RHC
for "investment purposes" only, and thus "not for the purpose of causing ... any
change in the ... management, policies or operations" of RHC, in order to avoid
being required to qualify as a "suitable person" under Nevada law.
95. At Morgens, Waterfall's direction and/or pursuant to Morgens,
Waterfall's request and/or insistence, the RHC Proxy Statement issued on or
about January 14, 1998 represented that "Morgens, Waterfall holds its shares for
'investment purposes'" and not for the purpose of causing, directly or
indirectly, any change in the management, policies or operations of RHC (see
Exhibit "12").
96. In fact, as described below, certain of the actions taken and to
be taken by Morgens, Waterfall in negotiating with Paulson, and certain actions
taken by Morgens, Waterfall in the Riviera/Elsinore Transaction, were
inconsistent with Morgens, Waterfall being an "institutional investor" and,
therefore, were not lawful and were not authorized under Nevada law.
2. Morgens, Waterfall's Representations Regarding Commissions of Brokers,
----------------------------------------------------------------------
Finders, etc.
--------------
97. In Section 2.1(e) of the Elsinore Option Agreement, Morgens,
Waterfall represented that it "is not a party to any agreement or understanding
that would make its subject to any valid claim of any broker, investment banker,
finder or other intermediary in connection with the transactions contemplated by
this Agreement." 98. In Section 2.1(e) of the Riviera Option Agreement, Morgens,
Waterfall represented that it "is not a party to any agreement or understanding
that would make its subject
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<PAGE>
to any valid claim of any broker, investment banker, finder or other
intermediary in connection with the transactions contemplated by this
Agreement."
99. The representations contained in paragraph 2.1(e) of the Elsinore
and Riviera Option Agreements were made on or about September 15, 1997 by
Waterfall, who was acting and was authorized to act on behalf of Morgens,
Waterfall.
100. The Riviera Option Agreement and the Elsinore Option Agreement
each contemplated the entire Riviera/Elsinore Transaction, including but not
limited to the Riviera Merger Agreement, the Riviera Option Agreement, the
Riviera Escrow Agreement, the Elsinore Merger Agreement and the Elsinore Option
Agreement.
101. The Riviera Merger Agreement and the Elsinore Merger Agreement
each contemplated the entire Riviera/Elsinore Transaction, including but not
limited to the Riviera Merger Agreement, the Riviera Option Agreement, the
Riviera Escrow Agreement, the Elsinore Merger Agreement and the Elsinore Option
Agreement.
102. The representations contained in paragraph 2.1(e) of the
respective Elsinore and Riviera Option Agreements were false in that, pursuant
to the Jefferies First Finders Agreement re Paulson, Morgens, Waterfall agreed
to pay Jefferies a fee for Jefferies services as a finder in connection with the
sale of Morgens, Waterfall's 94.3% interest in Elsinore.
103. From the period of at least March of 1997 through April 2, 1998,
Waterfall and Morgens, Waterfall continuously represented to Plaintiffs that
Morgens, Waterfall was in compliance with the Elsinore and Riviera Option
Agreements. A detailed list of certain communications in which such
representations were made is attached hereto as Appendix "C" and is incorporated
herein by reference. In each such communication, Morgens, Waterfall represented
that the Jefferies First Finders Agreement re Paulson did not exist and had
never existed.
3. Morgens, Waterfall's Representations Regarding Entitlement to
----------------------------------------------------------------------
Negotiate Letters of Credit
---------------------------
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<PAGE>
104. On or about April 2, 1998, Waterfall on behalf of Morgens,
Waterfall signed and presented and/or had presented to City National Bank a
Certificate of Drawing for the Elsinore/Morgens, Waterfall Letter of Credit in
which Waterfall represented that Morgens, Waterfall was entitled to payment
under the terms of Section 1.3(a) of the Elsinore Option Agreement. At the time
such presentation and representation was made, Waterfall and Morgens, Waterfall
knew that such representation was false in that the terms of Section 1.3(a) had
not been satisfied and that Morgens, Waterfall was not entitled to payment under
the Elsinore/Morgens, Waterfall Letter of Credit.
105. On or about April 3, 1998, Waterfall on behalf of Morgens,
Waterfall signed and again presented and/or had presented to City National Bank
a Certificate of Drawing for the Elsinore/Morgens, Waterfall Letter of Credit in
which Waterfall represented that Morgens, Waterfall was entitled to payment
under the terms of Section 1.3(a) of the Elsinore Option Agreement. At the time
such presentation and representation was made, Waterfall and Morgens, Waterfall
knew that such representation was false in that the terms of Section 1.3(a) had
not been satisfied and that Morgens, Waterfall was not entitled to payment under
the Elsinore/Morgens, Waterfall Letter of Credit.
106. On or about April 3, 1998, Waterfall on behalf of Morgens,
Waterfall signed and presented and/or had presented to City National Bank a
Certificate of Drawing for the Riviera/Morgens, Waterfall Letter of Credit in
which Waterfall represented that Morgens, Waterfall was entitled to payment
under the terms of Section 1.3(a) of the Riviera Option Agreement. At the time
such presentation and representation was made, Waterfall and Morgens, Waterfall
knew that such representation was false in that the terms of Section 1.3(a) had
not been satisfied and that Morgens, Waterfall was not entitled to payment under
the Riviera/Morgens, Waterfall Letter of Credit.
F. Further Representations and Manipulation by RHC
-----------------------------------------------
1. The Black Hawk Project
----------------------
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<PAGE>
107. RHC represented that the Black Hawk Project would be cost
effective and an attractive business venture. Specifically, in a June 9, 1997
memorandum from Westerman to Stevens, RHC represented that the Black Hawk
Project "is a really simple operation," that the financial projections regarding
Black Hawk were "very conservative" and that RHC "expect[ed] actual results [to]
be considerably more profitable" than the projections.
108. In a capital expenditures budget dated August 27, 1997 and
presented to Plaintiffs' representatives (Edward White and Lawrence Leavitt) on
August 28, 1997, prior to the execution of the Riviera Merger Agreement, and
through schedules attached to and incorporated into the Riviera Merger
Agreement, RHC represented to the R/E Plaintiffs that a certain project to build
a casino and related appurtenances in Black Hawk, Colorado (the "Black Hawk
Project") would be completed within a budget of $55 million. RHC represented
further that construction estimates had been obtained for the Black Hawk
Project, and that all of the characteristics, amenities and qualities which were
considered key elements to the Black Hawk Project's projected success could be
constructed within the same $55 million budget. In covenants in the Riviera
Merger Agreement, RHC agreed that, without prior written consent, it would not
authorize any new capital expenditures in excess of that budget amounting to
more than $500,0000, or in the aggregate $1,500,000, or amend any contract,
agreement, commitment or arrangement with respect to the Black Hawk Project.
109. At the time of making the aforementioned representations, RHC
knew or believed that the Black Hawk Project would exceed the August 27, 1997
budget by more than $1,500,000, and RHC knew or believed that it would not keep
its promise to make no changes to the capital budget for the Black Hawk Project
exceeding $500,000 for any single change or $1.5 million in the aggregate
without prior written consent of R&E Gaming and RAS.
110. In a memorandum dated November 13, 1997, William Westerman of RHC
represented to Paulson, R&E Gaming and RAS that the capital cost of the Black
Hawk Project would reach at least $65 million. On information and belief, RHC
had already committed entered into or amended a commitment to adjust the Black
Hawk Project capital budget without written authorization of R&E Gaming and/or
RAS.
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<PAGE>
111. In response to inquiries regarding the new $65 million capital
budget for the Black Hawk Project, RHC materially altered the plans for the
Black Hawk Project and Westerman, acting for RHC, then represented to Paulson,
R&E Gaming and RAS that the "new" budget for the Black Hawk Project was $55
million again. This representation was made with knowledge that Paulson, R&E
Gaming and RAS would rely thereupon and/or with the intent to induce Paulson,
R&E Gaming and RAS to so rely. At the time of these representations, RHC knew or
believed that the capital budget for the Black Hawk Project, as originally
contemplated in the Riviera Merger Agreement, would exceed $55 million. RHC
further knew or believed that RHC's attempt to meet that $55 million budget was
based on: (i) materially altering the plans for the Project, including
eliminating or substantially altering one or more of the characteristics,
amenities and/or qualities which were key elements to the Black Hawk Project's
projected success; and (ii) all but eliminating all budgetary reserves for the
Project. Such alterations to the plans for the Black Hawk Project materially
altered its projected cost and value to RHC.
2. The Financial Condition and Performance of RHC
--------------------------------------------------
112. In the Riviera Merger Agreement, RHC represented that it would
conduct and maintain its operations in the ordinary course of business
consistent with past practices. Similar representations were made in drafts of
the Riviera Merger Agreement prepared and transmitted to Paulson, R&E Gaming and
RAS in June of 1997.
113. At the time RHC made the aforementioned representations, RHC knew
or believed it would not keep its promise to maintain its operations in the
ordinary course of business consistent with past practices.
114. As a condition to R&E Gaming's and RAS's obligations to complete
the Riviera Merger, the actual Consolidated EBITDA (as defined in the Riviera
Merger Agreement attached hereto as Exhibit "11" is incorporated by reference
herein) reflected in the consolidated statement of operations of RHC for the
period from March 31, 1997 to March 31, 1998 must not have declined by 7.5% or
more when compared to RHC's monthly projections of RHC's
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<PAGE>
consolidated statement of operations for that same period, which projections
were provided to Paulson, R&E Gaming and RAS by RHC on or prior to September 15,
1997 (the "EBITDA Test").
115. On information and belief, in order to satisfy the EBITDA Test
and/or with the intent to deceive Plaintiffs as to whether the EBITDA Test had
been satisfied, RHC materially altered its business practices in a manner that
materially altered the value as a going concern of the proposed company
surviving the Riviera Merger, including but not limited to the following:
a. Eliminated substantial numbers of service staff;
b. Cut-back on housekeeping, including reducing the frequency of
changing sheets, providing fresh towels, etc.; and
c. Substantially cut advertising expenditures.
116. All of these business practices changes were implemented in order
to attempt to artificially satisfy the EBITDA Test, without regard for the
well-being of the company which would survive the Riviera Merger.
117. As part of the negotiation of the Riviera Merger, and prior to
execution of the Riviera Merger Agreement, the Riviera Option Agreement and the
Riviera Escrow Agreement, RHC by and through Mr. Westerman and/or the RHC Board
of Directors presented financial information, budgets, forecasts and/or
projections regarding the financial performance and condition of RHC to
Jefferies for the R/E Plaintiffs.
118. Immediately prior to the execution of the agreements associated
with the Riviera/Elsinore Transaction, on August 28, 1997 Westerman and Duane
Krohn on behalf of RHC made a presentation in Las Vegas to representatives of
Paulson in which RHC disclosed that RHC's pre-tax income for July, 1997 was
approximately $2.5 million below budget for that same period, but concealed the
fact that the pre-tax income for August was expected to be even substantially
poorer as compared to the budget for August, 1997. RHC subsequently concealed
the fact that the pre-tax income as of September 15, 1997 was also well below
budget; such information was withheld, despite being readily available to RHC,
until after the agreements
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<PAGE>
associated with the Riviera/Elsinore Transaction were executed on or about
September 15, 1997. Nor did RHC disclose at that time that the industry was
experiencing a substantial downturn which would affect pre-tax income throughout
the rest of 1997; despite the fact that such information was readily available
to RHC, such information was not disclosed to the R/E Plaintiffs until a
November 3, 1997 memorandum by Westerman regarding third quarter earnings was
forwarded to Paulson.
119. Although at this time Plaintiffs are unable to identify
specifically when and by whom many representations were made by RHC to
Jefferies, Plaintiffs are informed and believe and thereupon allege that the
representations by Jefferies regarding RHC outlined in Appendix "B" hereto
reflect the representations made by RHC to Jefferies. In addition, certain of
the representations made or copied directly to Plaintiffs are identified in
Appendix "D" hereto.
120. At the time that RHC made the aforementioned representations, RHC
knew or believed that the financial information, budgets, forecasts and/or
projections regarding the financial performance and condition of RHC were
materially overstated, false, misleading and/or incomplete and purposefully
chose to conceal that knowledge. RHC also knew by the date of the execution of
the Riviera Option Agreement, the Riviera Merger Agreement, the Riviera Escrow
Agreement, the Elsinore Option Agreement and the Elsinore Merger Agreement, that
RHC had not provided the R/E Plaintiffs with available accurate financial
records, reports and projections for the months of August and early September,
1997, which showed that RHC's financial performance was significantly worse than
what had been projected in the projections, reports and information which were
actually provided to the R/E Plaintiffs.
3. Representations Regarding Authority of Morgens, Waterfall
---------------------------------------------------------
121. In making the representations outlined in paragraphs through
herein, the RHC Board of Directors represented to the R/E Plaintiffs that the
negotiation power and control exercised by Morgens, Waterfall was permissible
and authorized under the law.
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<PAGE>
122. On or about July 9, 1997, RHC through its Board of Directors
approved the Riviera Merger based upon the terms negotiated substantially by
Morgens, Waterfall on behalf of RHC (and Jefferies for Plaintiffs), thereby
representing to the R/E Plaintiffs that the actions to be taken by Morgens,
Waterfall to effectuate the Riviera Merger, as contemplated in the Riviera
Merger Agreement and Riviera Option Agreement, were permissible and authorized
under the law.
123. On or about September 15, 1997, RHC through Westerman, executed
the Riviera Merger Agreement (a copy of which is attached as Exhibit "11" and is
incorporated by reference herein) in which it asserted, among other things, that
RHC and its directors, officers, agents and employees have been and are in
compliance with applicable laws and regulations, including the Nevada Gaming
Control Act, and rules and regulations promulgated thereunder.
124. Such representations were made by RHC through its Board of
Directors with the express intent that the R/E Plaintiffs rely on such
representations in negotiating with and entering into the Riviera Option
Agreement and the Elsinore Option Agreement with Morgens, Waterfall as the only
means by which Paulson could obtain a controlling interest in RHC.
125. RHC and/or the RHC Board of Directors knew or believed that the
representations described herein regarding the authority of Morgens, Waterfall
to negotiate with Paulson, were false, misleading, a violation of law and/or
concealed facts.
126. As a result of such representations regarding the authority of
Morgens, Waterfall to negotiate with Paulson, RCH and/or the RHC Board of
Directors exposed Plaintiffs, RHC and/or the entity surviving the Riviera and
Elsinore Mergers to potential disciplinary action by the Nevada Gaming
Commission and/or the Nevada Gaming Control Board. Such exposure to potential
disciplinary action was never disclosed to the Plaintiffs.
4. Inaccurate Statements Filed With The Securities and Exchange
----------------------------------------------------------------------
Commission and Representations Regarding the Jefferies First Finders
----------------------------------------------------------------------
Agreement re Paulson
--------------------
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<PAGE>
127. In the RHC Proxy Statement issued on or about January 14, 1998
(see Exhibit "12"), RHC asserted that "Morgens, Waterfall holds its shares for
'investment purposes'" and not for the purpose of causing, directly or
indirectly, any change in the management, policies or operations of RHC.
128. The RHC Proxy Statement did not disclose that the representations
regarding the authority of Morgens, Waterfall to negotiate with Paulson, RCH
and/or the RHC Board of Directors exposed Plaintiffs, RHC and/or the entity
surviving the Riviera and Elsinore Mergers to potential disciplinary action by
the Nevada Gaming Commission and/or the Nevada Gaming Control Board.
129. Despite knowledge of facts regarding the fraudulent retention of
Jefferies by Morgens, Waterfall, RHC failed to disclose such facts to the
Plaintiffs, to the detriment of the R/E Plaintiffs.
130. Despite representing in the RHC Proxy Statement that "Jefferies
will receive a fee of approximately $1 million out of the price to be paid by
Paulson Holdings for the shares of Elsinore's common stock," the RHC Proxy
Statement does not disclose that such a fee is a breach of the representations
and warranties in both the Elsinore Option Agreement and the Riviera Option
Agreement. As a result, those Option Agreements have been breached and are
unenforceable. Since the Riviera Option Agreement must be in full force and
effect as a condition to R&E Gaming's and RAS's obligation to proceed with the
Riviera Merger, if the RHC Proxy Statement is accurate, R&E Gaming and RAS have
complete discretion to either void the entire Riviera/Elsinore Transaction or
waive the breach and proceed. If the RHC Proxy Statement is incorrect, it
contains a material misstatement of fact. As a result, in either event, RHC has
materially breached the disclosure requirements of the Securities and Exchange
Commission.
5. Violations of Nevada Code Section 92A.120
--------------------------------------------
131. On or about July 9, 1997, certain directors and officers of RHC,
including Directors William Westerman, and Philip Hannifin, and Officers Jerome
Grippe, Martin Gross,
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Duane Krohn, Robert E. Nickels, Ronald P. Johnson, Robert Vannucci and Michael
Falba, who owned in the aggregate options to purchase 708,000 shares of common
stock, and who owned in the aggregate 111,180 shares or approximately 2.3% of
the outstanding common stock of RHC, informed RHC that they intend to vote their
shares in favor of the Riviera Merger Agreement. In addition, the RHC Majority
Shareholders, which hold in the aggregate 2,891,640 shares of common stock or
approximately 58.9% of the total number of outstanding shares of RHC, agreed to
vote their shares in favor of the Riviera Merger Agreement. Therefore, prior to
the solicitation of proxies from shareholders of RHC, the number of shares
controlled by the RHC Majority Shareholders and the number of shares owned by
the directors and officers had sufficient votes (over 60% of the outstanding
shares) to approve the Riviera Merger Agreement.
132. The directors and officers specified above had a financial
interest in the consummation of the merger. In the aggregate, such directors and
officers were scheduled to receive approximately $6.7 million if the Riviera
Merger were consummated, as follows: approximately $1.4 million for their shares
of common stock in RHC (net of purchase price); plus approximately $5.3 million
cash for stock options they own (net of exercise price). Of this amount:
Westerman (an executive officer and director) would have received a net of
approximately $4.2 million, including $3.5 million for his stock options; Philip
Hannifin (a director) would have received approximately $486,275.00 for his
stock options; Ronald P. Johnson (an executive officer) would have received
approximately $473,075.00, including $254,938.00 for his stock options; Duane
Krohn (an executive officer) would have received $349,577, including $254,938
for his stock options. Because of the acceleration provisions of these stock
options, all options would become immediately exercisable if the Riviera Merger
were consummated, even though many are not presently fully exercisable until as
late as May, 2002.
133. Notwithstanding the financial interests of the directors and
officers in the consummation of the Riviera Merger Agreement, at its meeting
held on July 9, 1997, the RHC Board of Directors unanimously approved the
Riviera Merger Agreement and directed that the
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<PAGE>
Riviera Merger Agreement be submitted to the holders of common stock for
approval and adoption. In this connection, the RHC Board of Directors also
stated that the RHC Board had determined that the Riviera Merger was fair to and
in the best interests of RHC and its stockholders and recommended that the
stockholders vote for approval and adoption of the Riviera Merger Agreement.
134. The RHC Board of Directors' recommendation to the shareholders to
approve the Merger Agreement violated Nevada Code Section 92A.120, in that the
directors and officers had a conflict of interest arising out of the fact that
they would have benefitted in the aggregate amount of $6.94 million if the
Riviera Merger were consummated. The RHC Board of Directors failed to disclose
that the conflict of interest prevented a recommendation in favor of the Riviera
Merger. Therefore, the RHC Board of Directors' recommendation to the
shareholders to vote in favor of the Merger Agreement violated Nevada law. The
Riviera Merger was not properly approved and is, therefore, void.
G. Further Representations by Elsinore
-----------------------------------
135. In the Elsinore Merger Agreement, Elsinore represented to R&E
Gaming and EAS that no "broker, finder or financial advisor" had been employed
by Elsinore "in connection with the transactions contemplated hereby."
136. In fact, a broker was retained by Elsinore's Chairman of the
Board, Waterfall in connection with the sale of Elsinore to the R/E Plaintiffs.
137. Despite knowledge of facts regarding the fraudulent retention of
Jefferies by Morgens, Waterfall, Elsinore failed to disclose such facts, to the
Plaintiffs, to the detriment of the R/E Plaintiffs.
138. In the period between March and June, 1997, Elsinore, through
Riviera Gaming Management-Elsinore, provided the R/E Plaintiffs with certain
financial reports and projections regarding the financial health and status of
Elsinore, in which Elsinore represented that its EBITDA (as defined in the
Riviera Merger Agreement) for 1997 would be approximately $8.4 million. Such
representations were materially false, incomplete and/or
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<PAGE>
misleading in that there was no reasonable basis for any such projection since
at the time such projections were given, Elsinore's EBITDA was already more than
$1 million behind budget for the year.
139. Elsinore filed statements with the Securities and Exchange
Commission which contain untrue or materially incomplete or misleading
statements of fact and/or omitted material facts required to make the statements
not misleading.
140. Elsinore prepared, distributed and filed an Information Statement
with the Securities and Exchange Commission which fails to state material facts,
including the existence of the Jefferies First Finders Agreement re Paulson, the
existence of a finder or broker employed in connection with the transactions
contemplated by the Elsinore Merger Agreement: to wit, Jefferies and the "put"
Morgens, Waterfall had negotiated for its protection to the exclusion of
Elsinore's minority shareholders. In addition, Elsinore failed to disclose the
fraudulent conduct of its Chairman, Waterfall, and Morgens, Waterfall in
entering into a secretive fee arrangement with Jefferies with respect to the
sale of Morgens, Waterfall's 94.3% of Elsinore Common Stock.
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<PAGE>
FIRST CLAIM FOR RELIEF
----------------------
(By R/E Plaintiffs against RHC, Elsinore, Keyport, SunAmerica
and Morgens, Waterfall for Violations of Section 10(b) of the
1934 Securities Exchange Act and Rule 10b-5)
141. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
142. The proposed Riviera Merger and Elsinore Merger are mutually
dependent and contingent transactions. (Paragraphs 22 through 26, 100, 101, 124,
126, and 130 are specifically incorporated herein by reference.)
143. RHC, Eslinore, Keyport and SunAmerica all abdicated to Morgens,
Waterfall and, specifically, Waterfall the authority and responsibility to
negotiate the proposed Riviera and Elsinore Mergers with the R/E Plaintiffs'
representative, Jefferies. (Morgens, Waterfall and Mr. John C. "Bruce" Waterfall
are sometimes referred to herein as the "Waterfall Parties".)
144. Morgens, Waterfall is the owner of approximately 25.9% of the
outstanding common stock of RHC and approximately 94.3% of the outstanding
common stock of Elsinore. Immediately prior to the public announcement of the
proposed Riviera Merger and Elsinore Merger, RHC common stock was publicly
traded on the American Stock Exchange at $13.25 per share and Elsinore common
stock was traded on the NASDAQ bulletin board at approximately 13 1/2(cent) per
share. The contemplated per share consideration to be paid by the R/E Plaintiffs
in the Riviera Merger was $15 per share (a $1.75, or 13.2%, increase) and in the
Elsinore Merger was $3.16 per share (a $3.025, or 2240%, increase).
145. The Defendants failed to state to the R/E Plaintiffs that they
had an understanding with Plaintiffs' financial advisor to pay such advisor a
fee out of any consideration the Waterfall Parties might negotiate for the
purchase of the Elsinore shares by the R/E Plaintiffs.
146. Initially, Paulson desired to acquire only a controlling interest
in RHC.
147. The R/E Plaintiffs were advised by their financial advisor that
the Waterfall Parties insisted that, as a condition to the acquisition of the
Waterfall Parties' RHC
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<PAGE>
stock, the R/E Plaintiffs would have to (i) acquire Morgens, Waterfall's
Elsinore stock; (ii) pay a premium for Morgens, Waterfall's Elsinore stock to
reflect Morgens, Waterfall's perceived position as a control party in RHC; and
(iii) grant Morgens, Waterfall a "put" of its Elsinore stock requiring the R/E
Plaintiffs to acquire such stock if the R/E Plaintiffs completed the Riviera
Merger, but did not complete the Elsinore Merger (the Waterfall Parties did not
insist on any such "put" right for the Elsinore minority shareholders and such
shareholders have no protection of their per share price if the Riviera Merger
closes but the Elsinore Merger does not).
148. R&E Gaming and RAS agreed to acquire SunAmerica's and Keyport's
RHC stock for the same price they had agreed to acquire Morgens, Waterfall's RHC
stock (i.e. $15 per share).
149. The RHC Board of Directors insisted that R&E Gaming and RAS
acquire all RHC outstanding stock for the same $15 per share.
150. The Elsinore Board of Directors and the RHC Board of Directors
approved the transaction negotiated by the Waterfall Parties.
151. The Waterfall Parties fraudulently induced the R/E Plaintiffs to
enter into the Elsinore Option and Merger Agreements as a condition to entering
into the Riviera Option and Merger Agreements in reliance upon the Waterfall
Parties' assurances that:
a. Full disclosure of all terms and conditions of the
Riviera/Elsinore Transaction would be made in Elsinore's
Information Statement;
b. The Waterfall Parties would make full disclosure to the Elsinore
Board of Directors and the RHC Board of Directors of all terms
and conditions of the Riviera/Elsinore Transaction;
c. The RHC Proxy Statement would contain full disclosure of the
terms and conditions insisted upon by the Waterfall Parties for
the Riviera/Elsinore Transaction; and
d. The Waterfall Parties' actions would not constitute a breach of
the duties they owed to Elsinore, RHC and their respective
stockholders.
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<PAGE>
152. In addition, the Waterfall Parties fraudulently corrupted the
negotiations leading to the Riviera/Elsinore Transaction by entering into an
agreement or understanding with Plaintiffs' financial advisor, Jefferies, who
was the sole negotiating representative for Paulson and the remaining R/E
Plaintiffs in the negotiations with the Waterfall Parties, whereby the Waterfall
Parties would pay Jefferies a hidden fee for the sale of Morgens, Waterfall's
Elsinore Stock to R&E Gaming and EAS.
153. Elsinore's Information Statement does not disclose: (1) the
interrelationship of the proposed Riviera Merger and Elsinore Merger; (2) the
premium obtained by the Waterfall Parties for their Elsinore stock in exchange
for their support of the proposed Riviera Merger; or (3) the protection that the
Waterfall Parties obtained for their Elsinore investment to the exclusion of the
Elsinore minority shareholders. Nor does Elsinore's Information Sheet disclose
that the negotiations were corrupted by the hidden fee with which Morgens,
Waterfall compromised the R/E Plaintiffs' financial advisor and negotiator,
Jefferies, and by the inaccurate financial information, reports and projections
provided to the R/E Plaintiffs during such negotiations.
154. The RHC Proxy Statement does not fully disclose the scheme by the
Waterfall Parties, as set forth in paragraphs through above, to obtain for
themselves a greater benefit than that potentially available to other RHC
stockholders.
155. RHC, Elsinore and the Waterfall Parties committed further
fraudulent acts as alleged in paragraphs through herein.
156. RHC, Elsinore, Keyport, SunAmerica and the Waterfall Parties used
the mails and/or other means or instrumentality of interstate commerce, directly
or indirectly, in carrying-out the aforementioned conduct.
157. In reliance upon the Waterfall Parties' assurances, the
representations of RHC, Elsinore and the Waterfall Parties as alleged in
paragraphs through herein, and the corrupted advice of Jefferies, R&E Gaming has
paid $4,178,378 in interest, and has caused to be issued the Letters of Credit,
in order to acquire the securities represented by the Riviera and Elsinore
Option Agreements.
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<PAGE>
158. As a result of the foregoing, RHC, Elsinore, SunAmerica, Keyport
and Morgens, Waterfall have violated Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 issued thereunder. Pursuant to Section 29(b) of the
Securities Exchange Act of 1934, the agreements associated with the
Riviera/Elsinore Transaction are, therefore, void as a matter of law.
159. The R/E Plaintiffs intend the service of this Summons and
Complaint to serve as notice of rescission of the Elsinore and Riviera Option
and Merger Agreements and the Riviera Escrow Agreement, and demand for
restitution of the consideration furnished by the R/E Plaintiffs, plus
reimbursement for all other consequential and incidental damages suffered by
reason of R/E Plaintiffs' change of position in an amount to be proven, plus
interest permitted by law.
160. As a proximate result of the fraudulent actions of RHC, Elsinore,
Keyport, SunAmerica and Morgens, Waterfall, as alleged in paragraphs through
herein, the R/E Plaintiffs have been damaged in an amount to be proven at trial,
including but not limited to, if it should ultimately be determined that any of
the agreements associated with the Riviera/Elsinore Transaction are not void and
are enforceable against the R/E Plaintiffs, or any of them, an amount as much as
or in excess of $20 million equal to all monies the R/E Plaintiffs have paid or
must pay to Morgens, Waterfall, RHC, Elsinore, Keyport and SunAmerica, or any of
them, with respect to the Riviera/Elsinore Transaction and the agreements
associated therewith.
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<PAGE>
SECOND CLAIM FOR RELIEF
-----------------------
(By all Plaintiffs against Jefferies for
Violations of Section 10(b) and Sections 15(c)(1) and (2) of the
Securities Exchange Act of 1934, Rule 10b-5,
the Investment Advisors Act of 1940 and
California Corporations Code Section 25216 and Rule 260.216.4)
161. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
162. Pursuant to Jefferies' duties to Plaintiffs, Jefferies owed a
duty to provide the fullest disclosure of all material facts concerning all of
the transactions in which it was involved as a result of its relationship with
Plaintiffs. In addition, Jefferies was required to give Plaintiffs full written
notification of any participation, interest and/or conflict of interest in the
transactions in which it was involved as a result of its relationship with
Plaintiffs. Such duty includes, without limitation, a duty to disclose to
Paulson the financial interest Jefferies had in the Riviera/Elsinore Transaction
as a result of the Jefferies First Finders Agreement re Paulson.
163. By entering into the Jefferies First Finders Agreement re Paulson
without full written disclosure, Jefferies breached its duty of undivided
service, loyalty and duty to Paulson, failed to provide the services required
for Paulson to provide an unbiased evaluation of the proposed merger with RHC
and Elsinore and, through its actions, facilitated the consummation of the fraud
described herein.
164. Jefferies failure to disclose to Paulson its financial interest
and receipt of a commission from Morgens, Waterfall are breaches of Jefferies'
duties to Plaintiffs which constitute violations of Section 10(b) and Sections
15(c)(1) and (2) of the Securities Exchange Act of 1934, and Rule 10b-5
thereunder.
165. Because it served as Plaintiffs' financial advisor in connection
with Plaintiffs' planned investments in the gaming industry, Jefferies' breach
of duty as described in the foregoing paragraphs also constituted a violation of
Section 206 of the Investment Advisers Act of 1940.
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<PAGE>
166. Jefferies used the mails and/or other means or instrumentality of
interstate commerce, directly or indirectly, in carrying-out the aforementioned
conduct.
167. The Jefferies Retainer Agreement was executed in California,
involved two California residents, and was expected to be performed, in large
part, in California. In its capacity as Plaintiffs' financial advisor, Jefferies
sought to effect transactions in, or to induce or to attempt to induce the
purchase or sale of, securities in California to Plaintiffs, to wit: the common
stock of Elsinore and RHC, and the Riviera and Elsinore Purchase Options.
Therefore, Jefferies' conduct in acting as Plaintiffs' financial advisor was
regulated by the provisions of California Corporations Code Sections 25210, et
seq.
168. Jefferies' conduct as alleged herein also violated California
Corporations Code Section 25216 and Rule 260.216.4 for failing to advise Paulson
of its financial interest in both sides of the transaction.
169. As a proximate result of the fraudulent representations and
conduct of Jefferies as alleged herein, Plaintiffs have been damaged in an
amount to be proven at trial, including but not limited to, if it should
ultimately be determined that the agreements associated with the
Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to the Riviera/Elsinore
Transaction and the agreements associated therewith.
THIRD CLAIM FOR RELIEF
----------------------
(By all Plaintiffs against Jefferies
for Breach of Contract
regarding the Jefferies Retainer Agreement)
170. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
171. Plaintiffs duly performed all their obligations under the
Jefferies Retainer Agreement, except in so far as performance of such
obligations was excused or Plaintiffs have
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<PAGE>
been prevented from doing so based on the acts and/or omissions of Jefferies
described herein. Plaintiffs' further performance under the Jefferies Retainer
Agreement was excused due to the breaches by Jefferies of its fiduciary duties
to Plaintiffs, as set forth herein.
172. Jefferies has breached the Jefferies Retainer Agreement by acts
or omissions set forth in paragraphs through herein and as further set forth
below:
a. Jefferies failed to act as Plaintiffs' financial advisor;
b. Jefferies and Morgens, Waterfall entered into the Jefferies First
Finders Agreement re Paulson whereby Morgens, Waterfall agreed to
pay Jefferies a fee for Jefferies services as a finder in
connection with the sale to R&E Gaming of Morgens, Waterfall's
94.3% interest in Elsinore, and Jefferies failed to timely
disclose these facts;
c. Jefferies failed to properly and thoroughly investigate the
Riviera/Elsinore Transaction and/or misrepresented, misstated or
misread the relevant data regarding the same;
d. Jefferies and Casino Magic Louisiana entered into Jefferies
Second Finders Agreement re Paulson, whereby Casino Magic
Louisiana agreed to pay Jefferies a fee for Jefferies services as
a finder for bringing Paulson into the sale of the Riverboat and
failed to timely disclose these facts;
e. Jefferies failed to properly and thoroughly investigate the
Riverboat Transaction and/or misrepresented, misstated or misread
the relevant data regarding the same.
173. As a proximate result of the above alleged conduct of Jefferies,
Plaintiffs have been damaged in that they paid money to Jefferies and
justifiably and detrimentally relied on Jefferies representations and advice
regarding various transactions, including but not limited to the
Riviera/Elsinore Transaction and the Riverboat Transaction. As a further
proximate result of the above alleged conduct of Jefferies, Plaintiffs have been
damaged in an amount to be proven at trial, including but not limited to: (1) if
it should ultimately be determined that the agreements associated with the
Riviera/Elsinore Transaction are not void and are enforceable
- 40 -
<PAGE>
against Plaintiffs, or any of them, an amount as much as or in excess of $20
million equal to all monies Plaintiffs have paid or must pay to Morgens,
Waterfall, RHC, Elsinore, Keyport and SunAmerica with respect to the
Riviera/Elsinore Transaction and the agreements associated therewith; and (2) if
it should ultimately be proven at trial in the Casino Magic Suit that the
Riverboat Sale Agreement is not void and is enforceable against Plaintiffs or
any of them, an amount as much as or in excess of $1 million equal to all monies
Plaintiffs have paid or must pay to Casino Magic Louisiana with respect to the
Riverboat Sale Agreement.
FOURTH CLAIM FOR RELIEF
-----------------------
(By all Plaintiffs against Jefferies
for Breach of the Implied Covenant of Good Faith and Fair Dealing
regarding the Jefferies Retainer Agreement)
174. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
175. Implied in the Jefferies Retainer Agreement was a covenant of
good faith and fair dealing that Jefferies would not do anything to deprive
Plaintiffs of the benefits of the Jefferies Retainer Agreement and that, to the
degree that Jefferies had the ability to affect Plaintiffs' rights, it would do
so in good faith and in accordance with fair dealing.
176. Plaintiffs duly performed all their obligations under the
Jefferies Retainer Agreement, except in so far as performance of such
obligations was excused or Plaintiffs have been prevented from doing so based on
the acts and/or omissions of Jefferies described herein. Plaintiffs' further
performance under the Jefferies Retainer Agreement was excused due to the
breaches by Jefferies of its fiduciary duties to Plaintiffs, as set forth
herein.
177. Jefferies has breached the implied covenant of good faith and
fair dealing in the Jefferies Retainer Agreement and affected Plaintiffs' rights
and deliberately deprived Plaintiffs of the benefits of the Jefferies Retainer
Agreement by the acts and/or omissions set forth in paragraphs through and
paragraph herein.
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<PAGE>
178. As a proximate result of the above alleged conduct of Jefferies,
Plaintiffs have been damaged in that they paid money to Jefferies and
justifiably and detrimentally relied on Jefferies representations and advice
regarding various transactions, including but not limited to the
Riviera/Elsinore Transaction and the Crescent City Queen transaction. As a
further proximate result of the above alleged conduct of Jefferies, Plaintiffs
have been damaged in an amount to be proven at trial, including but not limited
to: (1) if it should ultimately be determined that the agreements associated
with the Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to the Riviera/Elsinore
Transaction and the agreements associated therewith; and (2) if it should
ultimately be proven at trial in the Casino Magic Suit that the Riverboat Sale
Agreement is not void and is enforceable against Plaintiffs or any of them, an
amount as much as or in excess of $1 million equal to all monies Plaintiffs have
paid or must pay to Casino Magic Louisiana with respect to the Riverboat Sale
Agreement.
FIFTH CLAIM FOR RELIEF
----------------------
(By all Plaintiffs against Jefferies
for Breach of Fiduciary Duty)
179. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
180. By virtue of the fact that Jefferies' agreed to the role as
financial advisor to Plaintiffs regarding gaming investments, transactions and
acquisitions, Jefferies owed to Plaintiffs a fiduciary duty regarding such
investments, transactions and acquisitions. Through that fiduciary duty,
Jefferies owed Plaintiffs the utmost loyalty in the transactions for which
Jefferies was retained.
181. Despite the relationship with Plaintiffs and despite having
agreed to act as their financial advisor, Jefferies abused Plaintiffs' trust and
confidence and breached its
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fiduciary duties to them by the acts and/or omissions set forth in paragraphs
through and paragraph herein.
182. In addition, Jefferies breached its fiduciary duties to
Plaintiffs by failing, among other things:
a. To advise Plaintiffs that Waterfall and Morgens, Waterfall, through
its 94.3% holdings in Elsinore and its 25.6% holding in RHC, had
impermissible conflicts of interests in the merger transactions, and
that, because of such conflict, Waterfall could not represent both RHC
and Elsinore in merger negotiations with Plaintiffs;
b. To advise Plaintiffs that Elsinore had recently emerged from a Chapter
11 bankruptcy reorganization, that its shares, at best, had a
potential market value of 13(cent) per share, and were in fact
worthless, and that the facts did not support a per share merger price
of $3.16, plus interest, which Jefferies (on behalf of Plaintiffs)
negotiated for Plaintiffs to pay under the Elsinore Merger Agreement,
all of which Jefferies knew or should have known;
c. To advise Plaintiffs that Morgens, Waterfall and Waterfall had used
the Elsinore Option Agreement to insure that both the Elsinore and
Riviera Merger Agreements would be closed at or about the same time,
and Jefferies knew or should have known that this tie-in arrangement
divested the directors of RHC from making a decision to separately
consummate a merger with Plaintiffs, all of which Jefferies knew or
should have known;
d. To advise Plaintiffs that the $175 million bond issuance was not in
RHC's or Plaintiffs' best interests, which Jefferies knew or should
have known;
e. To advise Plaintiffs that the Black Hawk Project (as hereafter
defined) would not and could not be performed within the budget agreed
and contemplated in the Riviera Merger Agreement and still deliver the
promised Black Hawk casino asset with the business value contemplated
in
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the Riviera Merger Agreement, all of which Jefferies knew or should
have known;
f. To advise that it had agreed to a 2.5% commission from Casino Magic
for a proposed sale of the Riverboat to Players, whereas it was to
receive a 5% commission from Casino Magic in the Riverboat Transaction
involving Paulson and Carlo.
183. Jefferies also knew or should have known that these transactions
would cause RHC and Elsinore to violate Section 10(b) and of the Securities
Exchange Act of 1934 and Rule 10b-5, and to breach the terms and conditions of
the Riviera and Elsinore Merger Agreements, but failed to advise Plaintiffs of
these facts.
184. As a proximate result of the above alleged conduct of Jefferies,
Plaintiffs have been damaged in that they paid money to Jefferies and
justifiably and detrimentally relied on Jefferies representations and advice
regarding various transactions, including but not limited to the
Riviera/Elsinore Transaction and the Crescent City Queen transaction. As a
further proximate result of the above alleged conduct of Jefferies, Plaintiffs
have been damaged in an amount to be proven at trial, including but not limited
to: (1) if it should ultimately be determined that the agreements associated
with the Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to the Riviera/Elsinore
Transaction and the agreements associated therewith; and (2) if it should
ultimately be proven at trial in the Casino Magic Suit that the Riverboat Sale
Agreement is not void and is enforceable against Plaintiffs or any of them, an
amount as much as or in excess of $1 million equal to all monies Plaintiffs have
paid or must pay to Casino Magic Louisiana with respect to the Riverboat Sale
Agreement.
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SIXTH CLAIM FOR RELIEF
----------------------
(By all Plaintiffs against Jefferies
for Negligence)
185. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
186. By virtue of the fact that Jefferies agreed to the role as
financial advisor to Plaintiffs regarding gaming investments, transactions and
acquisitions, Jefferies owed to Plaintiffs a duty of reasonable care and
prudence regarding its advice and conduct concerning such investments,
transactions and acquisitions.
187. Jefferies had a fiduciary duty to use its best efforts to provide
complete, truthful and accurate information and advice to Plaintiffs, to conduct
its dealings in the utmost good faith with respect to Plaintiffs, and to fully
disclose all information material to the Riviera/Elsinore Transaction and the
Riverboat Transaction.
188. Jefferies failed to use reasonable care, skill and prudence in
its role as financial advisor and breached its duty to Plaintiffs by the acts
and/or omissions set forth in paragraphs through and paragraphs and herein.
189. Jefferies' conduct, as alleged herein, was negligent, grossly
negligent and/or was in bad faith.
190. As a proximate result of the above alleged conduct of Jefferies,
Plaintiffs have been damaged in that they paid money to Jefferies and
justifiably and detrimentally relied on Jefferies representations and advice
regarding various transactions, including but not limited to the
Riviera/Elsinore Transaction and the Crescent City Queen transaction. As a
further proximate result of the above alleged conduct of Jefferies, Plaintiffs
have been damaged in an amount to be proven at trial , including but not limited
to: (1) if it should ultimately be determined that the agreements associated
with the Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to the Riviera/Elsinore
Transaction and the
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agreements associated therewith; and (2) if it should ultimately be proven at
trial in the Casino Magic Suit that the Riverboat Sale Agreement is not void and
is enforceable against Plaintiffs or any of them, an amount in excess of $1
million equal to all monies Plaintiffs have paid or must pay to Casino Magic
Louisiana with respect to the Riverboat Sale Agreement.
SEVENTH CLAIM FOR RELIEF
------------------------
(By all Plaintiffs against Jefferies
for Fraud)
191. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
192. In the Jefferies Retainer Agreement, Jefferies represented that
it would act as Plaintiffs' financial advisor in connection with "any financing,
investment or acquisition activities . . . in the gaming industry."
193. The representations by Jefferies and its representatives as set
forth in paragraphs through herein were made with the knowledge and intent to
deceive, defraud and induce Plaintiffs: (1) to rely on Jefferies to negotiate
the terms, conditions and price of the Riviera/Elsinore Transaction and the
Riverboat Transaction; (2) to rely on Jefferies' advice thereon, to execute
various agreements associated with acquisitions in the gaming industry,
including but not limited to the Riviera/Elsinore Transaction and the Riverboat
Transaction; and (3) to continue pursuing the Riviera/Elsinore Transaction after
the Jefferies Finders Agreements were discovered.
194. The representations made by Jefferies (through its
representatives) were false in that: despite representing that it would act as
Plaintiffs' financial advisor, Jefferies never intended to do so and did not do
so; pursuant to the Jefferies First Finders Agreement re Paulson, Morgens,
Waterfall agreed to pay Jefferies a fee for Jefferies' services as a finder in
connection with the sale of Morgens, Waterfall's 94.3% interest in Elsinore;
pursuant to the Jefferies Second Finders Agreement re Paulson, Casino Magic
Louisiana agreed to pay Jefferies a fee for Jefferies' services as a finder in
connection with the sale of the Riverboat; the financial
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<PAGE>
projections given to Plaintiffs in the period between January and September,
1997 were inaccurate, incomplete, unrealistic and substantially overstated the
financial condition and performance of RHC and Elsinore; there was no reasonable
possibility that the Black Hawk Project would be completed within the $55
million budget at the time that budget was transmitted to Plaintiffs prior to
the execution of the documents associated with the Riviera/Elsinore Transaction
and still provide the asset with the business value contemplated in the
projections transmitted to Plaintiffs at that time; the $175 million bond
issuance generated a fee for Jefferies in the amount of $4.3 million but
adversely affected RHC and the value of RHC which the R/E Plaintiffs were
expected to obtain through the Riviera/Elsinore Transaction.
195. Jefferies (through its representatives) knew that the
representations set forth in paragraphs through herein were false, were made
without a reasonable basis to believe they were true and/or were made without
the intention of performing and that material facts identified in paragraph had
been concealed or suppressed.
196. At the time that Paulson executed the Jefferies Retainer
Agreement and at the time Plaintiffs executed other agreements with respect to
transactions in the gaming industry, including but not limited to the
Riviera/Elsinore Transaction and the Riverboat Transaction, Plaintiffs were
ignorant of the falsity of Jefferies' representations, that such representations
were made without the intention by Jefferies of performing them and/or that
Jefferies had concealed or suppressed material facts. Further, at those times,
Plaintiffs believed all such representations to be true and that all material
information had been disclosed.
197. In reliance on these representations and conduct, Paulson
executed the Jefferies Retainer Agreement and Carlo, R&E Gaming, RAS, EAS and
other Paulson affiliates executed various other agreements with respect to
transactions in the gaming industry, including but not limited to the
Riviera/Elsinore Transaction and the Riverboat Transaction. Had Paulson known
the actual facts, he would not have executed the Jefferies Retainer Agreement
and had Carlo, R&E Gaming, RAS, EAS and other Paulson affiliates known the
actual facts, they would not have executed various other agreements with respect
to transactions in the gaming industry, including but not limited to the
Riviera/Elsinore Transaction and the Riverboat Transaction.
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<PAGE>
198. In negotiating the price and determining the conditions of the
Riviera/Elsinore Transaction, in executing the agreements associated with the
Riviera/Elsinore Transaction, and in providing the Letters of Credit and
interest payments, the R/E Plaintiffs justifiably and detrimentally relied on:
(i) the representation that Jefferies was acting as their financial advisor; and
(ii) Jefferies' information and analyses regarding the value and financial
performance and prospects of RHC and Elsinore.
199. In negotiating the price and determining the conditions of the
Riverboat Transaction, and in agreeing to execute the Riverboat Sale Agreement
and pay the $1 million deposit required thereby, Paulson and Carlo justifiably
and detrimentally relied on: (i) the representation that Jefferies was acting as
their financial advisor; and (ii) Jefferies' information and analyses regarding
the value and financial performance and prospects of the Riverboat.
200. The R/E Plaintiffs justifiably and detrimentally relied on the
representations in paragraph herein that Jefferies was continuing to act as
their financial advisor, and was, therefore, acting in the Plaintiffs' best
interests, in not terminating the Riviera/Elsinore Transaction sooner.
201. As a result of the fraudulent conduct of Jefferies and its
representatives, Plaintiffs have been defrauded into: executing the Jefferies
Retainer Agreement and paying Jefferies a retainer totaling $210,000; executing
the agreements associated with the Riviera/Elsinore Transaction and the
Riverboat Transaction; and not terminating the Riviera/Elsinore Transaction
sooner.
202. As a proximate result of the fraudulent representations and
conduct of Jefferies as alleged herein, Plaintiffs have been damaged in an
amount to be proven at trial, including but not limited to: (1) if it should
ultimately be determined that the agreements associated with the
Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to the Riviera/Elsinore
Transaction and the agreements associated therewith; and (2) if it should
ultimately be proven at trial in the Casino Magic Suit that the
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<PAGE>
Riverboat Sale Agreement is not void and is enforceable against Plaintiffs or
any of them, an amount in excess of $1 million equal to all monies Plaintiffs
have paid or must pay to Casino Magic Louisiana with respect to the Riverboat
Sale Agreement.
203. The conduct alleged and described in paragraphs through above
constitutes intentional conduct done with the intention of depriving Plaintiffs
of property or legal rights or otherwise causing injury. This conduct was
despicable and subjected Plaintiffs to hardship in conscious disregard of their
rights, so as to justify and award of punitive damages.
EIGHTH CLAIM FOR RELIEF
-----------------------
(By all Plaintiffs against Jefferies
for Negligent Misrepresentation)
204. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
205. Jefferies had a fiduciary duty to use its best efforts to provide
complete, truthful and accurate information to Plaintiffs, and to fully disclose
all information material to the Riviera/Elsinore Transaction and the Riverboat
Transaction.
206. When Jefferies, acting through its representatives, made the
representations set forth in paragraphs through , such representations were
false or incomplete, and Jefferies knew or should have known that such
representations were false or incomplete and/or had no reasonable ground for
believing them to be true or complete based on the facts alleged in paragraph.
207. Jefferies (through its representatives) made such representations
and concealed and suppressed such facts with the knowledge and expectation that
Plaintiffs would rely on Jefferies to negotiate the terms, conditions and price
of the Riviera/Elsinore Transaction and the Riverboat Transaction. Further,
Jefferies also knew and expected that Plaintiffs would rely on Jefferies' advice
in deciding to: (1) execute agreements associated with various acquisitions in
the gaming industry (including but not limited to the Riviera/Elsinore
Transaction
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<PAGE>
and the Riverboat Transaction); and (2) continue pursuing the Riviera/Elsinore
Transaction after the Jefferies Finders Agreements were discovered.
208. At the time that Paulson executed the Jefferies Retainer
Agreement and at the time Plaintiffs executed agreements associated with other
relevant transactions in the gaming industry, including but not limited to the
Riviera/Elsinore Transaction and the Riverboat Transaction, Plaintiffs were
ignorant of the falsity of Jefferies' representations. Further, at those times,
Plaintiffs believed all such representations to be true and that all material
information had been disclosed.
209. In reliance on these representations and conduct, Paulson
executed the Jefferies Retainer Agreement and Plaintiffs executed agreements
associated with various transactions in the gaming industry, including but not
limited to the Riviera/Elsinore Transaction and the Riverboat Transaction. Had
Paulson known the actual facts, he would not have executed the Jefferies
Retainer Agreement; had Plaintiffs known the actual facts, they would not have
executed agreements associated with various transactions in the gaming industry,
including but not limited to the Riviera/Elsinore Transaction and the Riverboat
Transaction.
210. In negotiating the price and determining the conditions of the
Riviera/Elsinore Transaction, in executing the agreements associated with the
Riviera/Elsinore Transaction, and in providing the Letters of Credit and
interest payments, the R/E Plaintiffs justifiably and detrimentally relied on:
(i) the representation that Jefferies was acting as their financial advisor; and
(ii) Jefferies' information and analyses regarding the value and financial
performance and prospects of RHC and Elsinore.
211. In negotiating the price and determining the conditions of the
Riverboat Transaction, in executing the Riverboat Sale Agreement, and in paying
the $1 million deposit, Paulson and Carlo justifiably and detrimentally relied
on: (i) the representation that Jefferies was acting as their financial advisor;
and (ii) Jefferies' information and analyses regarding the value, financial
performance and prospects of the Riverboat.
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<PAGE>
212. Plaintiffs justifiably and detrimentally relied on the
representations in paragraph herein that Jefferies was continuing to act as
their financial advisor, and was, therefore, acting in the Plaintiffs' best
interests, in not terminating the Riviera/Elsinore Transaction earlier.
213. Jefferies' representations, as alleged herein, were negligent,
grossly negligent and/or were made in bad faith.
214. As a result of the representations of Jefferies and its
representatives, Plaintiffs have been convinced to execute the Jefferies
Retainer Agreement, to pay Jefferies a retainer totaling $210,000, to enter into
the Riviera/Elsinore Transaction and the Riverboat Transaction, and to not
terminate the Riviera/Elsinore Transaction earlier.
215. As a proximate result of the negligent representations and
conduct of Jefferies as alleged herein, Plaintiffs have been damaged in an
amount to be proven at trial, including but not limited to: (1) if it should
ultimately be determined that the agreements associated with the
Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to the Riviera/Elsinore
Transaction and the agreements associated therewith; and (2) if it should
ultimately be proven at trial in the Casino Magic Suit that the Riverboat Sale
Agreement is not void and is enforceable against Plaintiffs or any of them, an
amount in excess of $1 million equal to all monies Plaintiffs have paid or must
pay to Casino Magic Louisiana with respect to the Riverboat Sale Agreement
NINTH CLAIM FOR RELIEF
----------------------
(By all Plaintiffs against Jefferies
for Constructive Fraud)
216. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
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<PAGE>
217. By virtue of the fact that Jefferies' agreed to its role as
Plaintiffs' financial advisor regarding gaming investments, transactions and
acquisitions, Jefferies owed to Plaintiffs a fiduciary duty regarding such
investments, transactions and acquisitions.
218. Jefferies (through its representatives) failed to disclose the
information outlined in paragraph to Plaintiffs.
219. In negotiating the price and determining the conditions of the
Riviera/Elsinore Transaction, in executing the agreements associated with the
Riviera/Elsinore Transaction, and in providing the Letters of Credit and
interest payments, the R/E Plaintiffs justifiably and detrimentally relied on:
(i) the representation that Jefferies was acting as their financial advisor; and
(ii) Jefferies' information and analyses regarding the value and financial
performance and prospects of RHC and Elsinore.
220. In negotiating the price and determining the conditions of the
Riverboat Transaction, in executing the Riverboat Sale Agreement, and in paying
the $1 million deposit, Paulson and Carlo justifiably and detrimentally relied
on: (i) the representation that Jefferies was acting as their financial advisor;
and (ii) Jefferies' information and analyses regarding the value and financial
performance and prospects of the Riverboat.
221. Plaintiffs justifiably and detrimentally relied on the
representations in paragraph herein that Jefferies was continuing to act as
their financial advisor, and was, therefore, acting in the Plaintiffs' best
interests, in not terminating the Riviera/Elsinore Transaction earlier.
222. As a proximate result of the failure to make disclosure regarding
the information set forth in paragraph , Paulson executed the Jefferies Retainer
Agreement and Plaintiffs executed the agreements associated with the
Riviera/Elsinore Transaction and the Riverboat Transaction, and Plaintiffs have
been damaged thereby in an amount to be proven at trial, including but not
limited to: (1) if it should ultimately be determined that the agreements
associated with the Riviera/Elsinore Transaction are not void and are
enforceable against Plaintiffs, or any of them, an amount as much as or in
excess of $20 million equal to all monies Plaintiffs have paid or must pay to
Morgens, Waterfall, RHC, Elsinore, Keyport and
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<PAGE>
SunAmerica with respect to the Riviera/Elsinore Transaction and the agreements
associated therewith; and (2) if it should ultimately be proven at trial in the
Casino Magic Suit that the Riverboat Sale Agreement is not void and is
enforceable against Plaintiffs or any of them, an amount in excess of $1 million
equal to all monies Plaintiffs have paid or must pay to Casino Magic Louisiana
with respect to the Riverboat Sale Agreement
223. The conduct alleged and described in paragraphs through above
constitutes intentional conduct done with the intention of depriving Plaintiffs
of property or legal rights or otherwise causing injury. This conduct was
despicable and subjected Plaintiffs to hardship in conscious disregard of their
rights, so as to justify and award of punitive damages.
TENTH CLAIM FOR RELIEF
(By R&E Gaming Against Morgens, Waterfall
for Breach of Contract
Regarding the Elsinore Option Agreement)
224. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
225. Pursuant to the Elsinore Option Agreement, R&E Gaming agreed to
deliver and did deliver to Morgens, Waterfall the Elsinore/Morgens, Waterfall
Letter of Credit in the amount of $2,936,550.08. Further, pursuant to the
Elsinore Option Agreement, R&E Gaming made interest payments to Morgens,
Waterfall in the amount of $864,890, plus a payment in the amount of $70,877 for
legal fees of Morgens, Waterfall in connection with the Elsinore Merger.
226. R&E Gaming duly performed all its obligations under the Elsinore
Option Agreement, except in so far as performance of such obligations was
excused or R&E Gaming has been prevented from doing so based on the acts and/or
omissions of Morgens, Waterfall. Plaintiffs' further performance under the
Elsinore Option Agreement was excused due to the breaches by Morgens, Waterfall
of its representations and warranties, as set forth herein.
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<PAGE>
227. Morgens, Waterfall has breached the Elsinore Option Agreement, by
the act or omissions alleged herein, including but not limited to the following:
a. Morgens, Waterfall, in contradiction of its representations and
warranties, entered into the Jefferies First Finders Agreement re
Paulson, whereby Morgens, Waterfall agreed to pay Jefferies a fee
for Jefferies' services as a finder in connection with the sale
of Morgens, Waterfall's 94.3% interest in Elsinore to Paulson and
then concealed and/or failed to timely disclose and provide
information regarding the same;
b. Morgens, Waterfall, in contradiction of the applicable covenant,
failed to provide prompt notice that because of the above
referenced events, its representations or warranties were no
longer accurate and/or of its failure to comply with the subject
covenant and agreement;
c. Morgens, Waterfall, in contradiction of the applicable covenant,
failed to provide prompt notice that the above referenced events
made the satisfaction of the required conditions precedent
unlikely or impossible.
228. R&E Gaming has demanded the return of the Elsinore/Morgens,
Waterfall Letter of Credit and interest payments made pursuant to the Elsinore
Option Agreement and Morgens, Waterfall has failed or refused to return the
same.
229. As a proximate result of the above alleged conduct of Morgens,
Waterfall's, R&E Gaming executed and remained in the Riviera/Elsinore
Transaction and delivered the subject Letters of Credit and made additional
payments. As a further proximate result R&E Gaming has been damaged in an amount
in to be proven at trial, including but not limited to, if it should ultimately
be determined that any of the other agreements associated with the
Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to any such enforceable
agreements.
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<PAGE>
ELEVENTH CLAIM FOR RELIEF
-------------------------
(By R&E Gaming Against Morgens, Waterfall for
Breach of the Implied Covenant of Good Faith and Fair Dealing
Regarding the Elsinore Option Agreement)
230. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
231. Implied in the Elsinore Option Agreement was a covenant of good
faith and fair dealing that Morgens, Waterfall would not do anything to
deliberately deprive R&E Gaming of the benefits of the Elsinore Option Agreement
and that, to the degree that Morgens, Waterfall had the ability to affect R&E
Gamings' rights, it would do so in good faith and in accordance with fair
dealing.
232. R&E Gaming duly performed all its obligations under the Elsinore
Option Agreement, except in so far as performance of such obligations was
excused or R&E Gaming has been prevented from doing so based on the acts and/or
omissions of Morgens, Waterfall. Plaintiffs' further performance under the
Elsinore Option Agreement was excused due to the breaches by Morgens, Waterfall
of its representations and warranties, as set forth herein.
233. Morgens, Waterfall has breached the implied covenant of good
faith and fair dealing in the Elsinore Option Agreement and affected R&E
Gamings' rights and deliberately deprived R&E Gaming of the benefits of the
Agreement by the acts and/or omissions alleged in herein, including but not
limited to those acts and/or omissions alleged in paragraph herein.
234. R&E Gaming has demanded the return of the Elsinore/Morgens,
Waterfall Letter of Credit and interest payments made pursuant to the Elsinore
Option Agreement and Morgens, Waterfall has failed or refused to return the
same.
235. As a proximate result of the above alleged conduct of Morgens,
Waterfall's, R&E Gaming executed and remained in the Riviera/Elsinore
Transaction and delivered the subject Letters of Credit and made additional
payments. As a further proximate result R&E Gaming has been damaged in an amount
in to be proven at trial, including but not
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<PAGE>
limited to, if it should ultimately be determined that any of the other
agreements associated with the Riviera/Elsinore Transaction are not void and are
enforceable against Plaintiffs, or any of them, an amount as much as or in
excess of $20 million equal to all monies Plaintiffs have paid or must pay to
Morgens, Waterfall, RHC, Elsinore, Keyport and SunAmerica with respect to any
such enforceable agreements.
TWELFTH CLAIM FOR RELIEF
------------------------
(By R&E Gaming against Morgens, Waterfall
for Breach of Contract
Regarding the Riviera Option Agreement)
236. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
237. Pursuant to the Riviera Option Agreement, R&E Gaming agreed to
deliver and did deliver to Morgens, Waterfall the Riviera/Morgens, Waterfall
Letter of Credit in the amount of $3,817,860. Further, pursuant to the Riviera
Option Agreement, R&E Gaming made interest payments in the amount of $948,144.
238. R&E Gaming duly performed all its obligations under the Riviera
Option Agreement, except in so far as performance of such obligations was
excused or R&E Gaming has been prevented from doing so based on the acts and/or
omissions of Morgens, Waterfall. Plaintiffs' further performance under the
Riviera Option Agreement was excused due to the breaches by Morgens, Waterfall
of its representations and warranties, as set forth herein.
239. Morgens, Waterfall has breached the Riviera Option Agreement, by
the acts or omissions alleged herein, including but not limited to the
following:
a. Morgens, Waterfall, in contradiction of its representations and
warranties, entered into the Jefferies' First Finders Agreement
re Paulson, whereby Morgens, Waterfall agreed to pay Jefferies a
fee for Jefferies' services as a finder in connection with the
sale of Morgens, Waterfall's 94.3%
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<PAGE>
interest in Elsinore to Paulson and then concealed and/or failed
to disclose and provide information regarding the same;
b. Morgens, Waterfall, in contradiction of the applicable covenant,
failed to provide prompt notice that because of the above
referenced events, its representations or warranties were no
longer accurate and/or of its failure to comply with the subject
covenant and agreement; and
c. Morgens, Waterfall, in contradiction of the applicable covenant,
failed to provide prompt notice that the above referenced events
made the satisfaction of the conditions precedent in Section 5.1
unlikely or impossible.
240. R&E Gaming has demanded the return of the Riviera/Morgens,
Waterfall Letter of Credit and interest payments made pursuant to the Riviera
Option Agreement and Morgens, Waterfall has failed or refused to return the
same.
241. As a proximate result of the above alleged conduct of Morgens,
Waterfall's, R&E Gaming executed and remained in the Riviera/Elsinore
Transaction and delivered the subject Letters of Credit and made additional
payments. As a further proximate result R&E Gaming has been damaged in an amount
in to be proven at trial, including but not limited to, if it should ultimately
be determined that any of the other agreements associated with the
Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to any such enforceable
agreements.
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<PAGE>
THIRTEENTH CLAIM FOR RELIEF
---------------------------
(By R&E Gaming against Morgens, Waterfall
Breach of the Implied Covenant of Good Faith and Fair Dealing
Regarding the Riviera Option Agreement)
242. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
243. Implied in the Riviera Option Agreement was a covenant of good
faith and fair dealing that Morgens, Waterfall would not do anything to
deliberately deprive R&E Gaming of the benefits of the Agreement and that, to
the degree that Morgens, Waterfall had the ability to affect R&E Gamings'
rights, it would do so in good faith and in accordance with fair dealing.
244. R&E Gaming duly performed all its obligations under the Riviera
Option Agreement, except in so far as performance of such obligations was
excused or Paulson has been prevented from doing so based on the acts and/or
omissions of Morgens, Waterfall. Plaintiffs' further performance under the
Riviera Option Agreement was excused due to the breaches by Morgens, Waterfall
of its representations and warranties, as set forth herein.
245. Morgens, Waterfall has breached the implied covenant of good
faith and fair dealing in the Riviera Option Agreement and affected R&E Gamings'
rights and deliberately deprived R&E Gaming of the benefits of the Agreement by
the acts and/or omissions alleged herein, including but not limited to the acts
and/or omissions alleged in paragraph herein.
246. R&E Gaming has demanded the return of the Riviera/Morgens,
Waterfall Letter of Credit and interest payments made pursuant to the Riviera
Option Agreement and Morgens, Waterfall has failed or refused to return the
same.
247. As a proximate result of the above alleged conduct of Morgens,
Waterfall's, R&E Gaming executed and remained in the Riviera/Elsinore
Transaction and delivered the subject Letters of Credit and made additional
payments. As a further proximate result R&E Gaming has been damaged in an amount
in to be proven at trial, including but not
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limited to, if it should ultimately be determined that any of the other
agreements associated with the Riviera/Elsinore Transaction are not void and are
enforceable against Plaintiffs, or any of them, an amount as much as or in
excess of $20 million equal to all monies Plaintiffs have paid or must pay to
Morgens, Waterfall, RHC, Elsinore, Keyport and SunAmerica with respect to any
such enforceable agreements.
FOURTEENTH CLAIM FOR RELIEF
---------------------------
(By R&E Gaming against Morgens, Waterfall for Fraud)
248. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
249. Morgens, Waterfall and its representative knew that the
representations set forth in paragraphs through herein were false and made them
with the intent to deceive and defraud R&E Gaming and to induce R&E Gaming to
act in reliance on the representations, to enter into the Elsinore and Riviera
Option Agreements, and to make payments thereunder.
250. At the time that R&E Gaming executed the Elsinore and Riviera
Option Agreements and at the time R&E Gaming, RAS and EAS executed the other
agreements associated with the Riviera/Elsinore Transaction, R&E Gaming was
ignorant of the falsity of Morgens, Waterfall's representations and that they
were made without the intention of performing them and/or that Morgens,
Waterfall had concealed or suppressed material facts. Further, at those times,
R&E Gaming believed the representations to be true and that all material
information had been disclosed. In reliance on these representations and
conduct, R&E Gaming executed the Elsinore and Riviera Option Agreements and
delivered the subject Letters of Credit and made additional payments, and R&E
Gaming, RAS and EAS executed the other agreements associated with the
Riviera/Elsinore Transaction. Had R&E Gaming known the actual facts, it would
not have executed the Elsinore or Riviera Option Agreements, delivered the
subject Letters of Credit and additional payments or executed the other
agreements associated with the Riviera/Elsinore Transaction.
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<PAGE>
251. As a proximate result of the fraudulent representations and
conduct of Morgens, Waterfall as alleged herein, Plaintiffs have been damaged in
an amount to be proven at trial, including but not limited to, if it should
ultimately be determined that any of the other agreements associated with the
Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to any such enforceable
agreements.
252. The conduct alleged and described in paragraphs through above
constitutes intentional conduct done with the intention of depriving Plaintiffs
of property or legal rights or otherwise causing injury. This conduct was
despicable and subjected Plaintiffs to hardship in conscious disregard of their
rights, so as to justify and award of punitive damages.
253. The conduct alleged and described in paragraphs through above
constitutes intentional misrepresentation, deceit and/or concealment of material
information known to Morgens, Waterfall done with the intention of depriving R&E
Gaming of property or legal rights or otherwise causing injury and was
despicable conduct that subjected R&E Gaming to hardship in conscious disregard
of R&E Gaming's rights, so as to justify and award of punitive damages.
FIFTEENTH CLAIM FOR RELIEF
--------------------------
(By R&E Gaming against Morgens, Waterfall
for Negligent Misrepresentation)
254. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
255. When Morgens, Waterfall, though its representative, made the
representations set forth in paragraphs through herein, such representations
were false or incomplete, and Morgens, Waterfall knew or should have known that
such representations were false or incomplete and/or it had no reason or ground
to believe that they were true or complete based on the facts alleged in
paragraphs and herein.
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<PAGE>
256. Morgens, Waterfall made the subject representations with the
intent of inducing R&E Gaming to act in reliance on the representations and to
enter into the Elsinore and Riviera Option Agreements, and to make payments
thereunder, or with the expectation that R&E Gaming would so act.
257. At the time that R&E Gaming executed the Elsinore and Riviera
Option Agreements and at the time R&E Gaming, RAS and EAS executed the remaining
agreements associated with the Riviera/Elsinore Transaction, R&E Gaming was
ignorant of the falsity of Morgens, Waterfall's representations and that they
were made without the intention of performing them and/or that Morgens,
Waterfall had concealed or suppressed material facts. Further, at those times,
R&E Gaming believed the representations to be true and that all material
information had been disclosed. In reliance on these representations and
conduct, R&E Gaming executed the Elsinore and Riviera Option Agreements and
delivered the subject Letters of Credit and made additional payments and R&E
Gaming, RAS and EAS executed the other agreements associated with the
Riviera/Elsinore Transaction. Had R&E Gaming known the actual facts, it would
not have executed the Elsinore or Riviera Option Agreements, delivered the
subject Letters of Credit and additional payments, or executed the other
agreements associated with the Riviera/Elsinore Transaction.
258. As a proximate result of the fraudulent representations and
conduct of Morgens, Waterfall as alleged herein, Plaintiffs have been damaged in
an amount to be proven at trial, including but not limited to, if it should
ultimately be determined that any of the other agreements associated with the
Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount as much as or in excess of $20 million
equal to all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to any such enforceable
agreements.
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<PAGE>
SIXTEENTH CLAIM FOR RELIEF
(By R&E Gaming against Morgens, Waterfall, Keyport and SunAmerica
for Rescission and Restitution Based on Fraud in the Inducement
Regarding the Elsinore and Riviera Option Agreements)
259. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
260. The grounds for the requested rescission and restitution are that
R&E Gamings' agreement to the terms and execution of the Elsinore and Riviera
Option Agreements were induced by fraudulent representations and conduct as
alleged in paragraphs through herein and in the Eleventh through Fifteenth
Claims for Relief herein.
261. Keyport and SunAmerica allowed Morgens, Waterfall to act on
behalf of Keyport, SunAmerica and RHC in negotiating the price, terms and
conditions of the Riviera Option Agreement.
262. The fraudulent representations and conduct as alleged in
paragraphs through herein so frustrated the purposes of the entire Riviera
Option Agreement and the entire Elsinore Option Agreement such that no valid
agreement or agreements could come into being as to Morgens, Waterfall, Keyport
or SunAmerica.
263. In addition, as further grounds for recission and restitution,
despite knowledge or constructive knowledge of the facts demonstrating or
indicating that such representations were false, Morgens, Waterfall, Keyport and
SunAmerica failed to disclose such facts to Plaintiffs, despite knowledge or
constructive knowledge that R&E Gaming would rely on such representations in
agreeing to the terms and execution of the Elsinore and Riviera Option
Agreements.
264. Plaintiffs intend the service of this Summons and Complaint to
serve as notice of rescission of the Elsinore and Riviera Option Agreements and
demand for restitution of the consideration furnished by R&E Gaming, plus
reimbursement for all other consequential and incidental damages suffered by
reason of R&E Gaming's change of position in an amount to be proven, plus
interest permitted by law.
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<PAGE>
265. As a proximate result of the above alleged conduct of Morgens,
Waterfall, R&E Gaming has been damaged in an amount in to be proven at trial but
in excess of $20 million.
SEVENTEENTH CLAIM FOR RELIEF
----------------------------
(By R&E Gaming against Morgens, Waterfall, Keyport and SunAmerica
for Rescission and Restitution Based on Mutual Mistake
Regarding the Elsinore and Riviera Option Agreements)
266. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
267. The grounds for the requested rescission and restitution are that
R&E Gamings' agreement to the terms and execution of the Elsinore and Riviera
Option Agreements was a result of mutual mistake or innocent misrepresentation
as alleged in paragraphs through herein and the Eleventh through Seventeenth
Claims for Relief herein.
268. Keyport and SunAmerica allowed Morgens, Waterfall to act on
behalf of Keyport, SunAmerica and RHC in negotiating the price, terms and
conditions of the Riviera Option Agreement.
269. The misrepresentations and conduct as alleged in paragraphs
through herein were material to the Riviera Option Agreement and the Elsinore
Option Agreement, and so frustrated the purposes of the entire Riviera Option
Agreement and the entire Elsinore Option Agreement such that no valid agreement
or agreements could come into being as to Morgens, Waterfall, Keyport or
SunAmerica.
270. In addition, as further grounds for recission and restitution,
despite knowledge or constructive knowledge of the facts demonstrating or
indicating that such representations were false, Morgens, Waterfall, Keyport and
SunAmerica failed to disclose such facts to Plaintiffs, despite knowledge or
constructive knowledge that R&E Gaming would rely on such representations in
agreeing to the terms and execution of the Elsinore and Riviera Option
Agreements.
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<PAGE>
271. Plaintiffs would not have entered into the Riviera Option
Agreement or the Elsinore Option Agreement but for the mistaken belief that the
representations in paragraphs through herein were true and that, if they were
not true, Morgens, Waterfall, Keyport and/or SunAmerica would have so informed
Plaintiffs of the extent to which they were not true.
272. Plaintiffs intend the service of this Summons and Complaint to
serve as notice of rescission of the Elsinore and Riviera Option Agreements and
demand for restitution of the consideration furnished by R&E Gaming, plus
reimbursement for all other consequential and incidental damages suffered by
reason of R&E Gaming's change of position in an amount to be proven, plus
interest permitted by law.
273. As a proximate result of the above alleged conduct of Morgens,
Waterfall, Keyport and SunAmerica, R&E Gaming has been damaged in an amount in
to be proven at trial but in excess of $20 million.
EIGHTEENTH CLAIM FOR RELIEF
---------------------------
(By R&E Gaming against Morgens, Waterfall, Keyport and SunAmerica
for Rescission and Restitution Based on Breach of Contract
Regarding the Elsinore and Riviera Option Agreements)
274. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
275. R&E Gaming duly performed all its obligations under the Elsinore
and Riviera Option Agreements, except in so far as performance of such
obligations was excused or R&E Gaming has been prevented from doing so based on
the acts and/or omissions of Morgens, Waterfall described herein. Plaintiffs'
further performance under the Elsinore and Riviera Option Agreements was excused
due to the breaches by Morgens, Waterfall of its representations and warranties,
as set forth herein.
276. The grounds for the requested rescission and restitution are that
Morgens, Waterfall, Keyport and SunAmerica have breached the Riviera Option
Agreement by the acts and/or omissions alleged in paragraphs through herein.
Morgens, Waterfall, Keyport
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<PAGE>
and SunAmerica breached the Riviera Option Agreement, by failing and/or refusing
to return the Morgens, Waterfall, Keyport and SunAmerica Letters of Credit and
interest payments made pursuant to the Riviera Option Agreement. Further,
Morgens, Waterfall, Keyport and SunAmerica breached the Riviera Option Agreement
by presenting the subject Letters of Credit and certifying the requisite
conditions for negotiation had been satisfied, when in fact the conditions had
not been satisfied. Specifically, Morgens, Waterfall, SunAmerica and/or Keyport
are not entitled to payment under the subject Letters of Credit because the
Riviera and Elsinore Mergers terminated for reasons constituting Non-Payment
Termination Events such that neither Morgens, Waterfall, Keyport nor SunAmerica
have a right to the funds represented by the subject Letters of Credit or the
interest payments made pursuant to the Riviera Option Agreement.
277. The further ground for the requested rescission and restitution
is that Morgens, Waterfall, has breached the Elsinore Option Agreement by the
acts and/or omissions alleged in paragraph herein.
278. R&E Gaming intends the service of this Summons and Complaint to
serve as notice of rescission of the Elsinore and Riviera Option Agreements and
demand for restitution of the consideration furnished by R&E Gaming, plus
reimbursement for all other consequential and incidental damages suffered by
reason of R&E Gaming's change of position in an amount to be proven, plus
interest permitted by law.
279. As a proximate result of the above alleged conduct of Morgens,
Waterfall, Keyport and SunAmerica, R&E Gaming has been damaged in an amount in
to be proven at trial but in excess of $20 million.
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<PAGE>
NINETEENTH CLAIM FOR RELIEF
---------------------------
(By R&E Gaming Against Keyport and SunAmerica
for Breach of the Riviera Option Agreement)
280. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
281. On September 15, 1997, R&E Gaming and Morgens, Waterfall, Keyport
and SunAmerica executed the Riviera Option Agreement.
282. Pursuant to the Riviera Option Agreement, R&E Gaming agreed to
deliver and did deliver to Morgens, Waterfall, Keyport and SunAmerica the
following:
a. Morgens, Waterfall: the Riviera/Morgens, Waterfall Letter of
Credit in the amount of $3,817,860;
b. Keyport: the Keyport Letter of Credit in the amount of
$2,571,480;
c. SunAmerica: the SunAmerica Letter of Credit in the amount of
$2,285,760; and
d. Morgens, Waterfall, Keyport and SunAmerica: interest payments.
283. R&E Gaming duly performed all its obligations under the Riviera
Option Agreement, except in so far as performance of such obligations was
excused or R&E Gaming has been prevented from doing so based on the acts and/or
omissions of Morgens, Waterfall, Keyport and/or SunAmerica. Plaintiffs' further
performance under the Riviera Option Agreement was excused due to the breaches
by Morgens, Waterfall, Keyport and SunAmerica of their representations and
warranties, as set forth herein.
284. R&E Gaming specifically notified Keyport and SunAmerica that: R&E
Gaming had been fraudulently and wrongly induced to enter the Riviera Option
Agreement; the Riviera Option Agreement is void; Morgens, Waterfall breached
numerous representations, warranties, covenants and failed to satisfy conditions
of the Riviera Option Agreement. Further, R&E Gaming demanded the return of the
Keyport and SunAmerica Letters of Credit and interest payments made pursuant to
the Riviera Option Agreement.
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<PAGE>
285. Keyport and SunAmerica breached the Riviera Option Agreement, by
failing and/or refusing to return the Keyport and SunAmerica Letters of Credit
and interest payments made pursuant to the Riviera Option Agreement. Further,
Keyport and SunAmerica breached the Riviera Option Agreement by presenting the
subject Letters of Credit and certifying the requisite conditions for
negotiation had been satisfied, when in fact the conditions had not been
satisfied. Specifically, SunAmerica and/or Keyport are not entitled to payment
under the subject Letters of Credit because the Riviera Option and Merger
Agreements are void and/or because the Riviera and Elsinore Mergers terminated
for reasons constituting NonPayment Termination Events, such that neither
Keyport nor SunAmerica have a right to the funds represented by the subject
Letters of Credit or the interest payments made pursuant to the Riviera Option
Agreement. 286. As a proximate result of the above alleged conduct of Keyport,
R&E Gaming has been damaged in an amount in to be proven at trial but in excess
of $2 million. 287. As a proximate result of the above alleged conduct of
SunAmerica, R&E Gaming has been damaged in an amount in to be proven at trial
but in excess of $2 million.
TWENTIETH CLAIM FOR RELIEF
--------------------------
(By R&E Gaming Against Keyport and SunAmerica
for Breach of the Implied Covenant of Good Faith and Fair Dealing
Regarding the Riviera Option Agreement)
288. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
289. Implied in the Riviera Option Agreement was a covenant of good
faith and fair dealing that Keyport and SunAmerica would not do anything to
deliberately deprive R&E Gaming of the benefits of the Agreement and that, to
the degree that Keyport and SunAmerica had the ability to affect R&E Gamings'
rights, they would do so in good faith and in accordance with fair dealing.
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<PAGE>
290. R&E Gaming duly performed all its obligations under the Riviera
Option Agreement, except in so far as performance of such obligations was
excused or R&E Gaming has been prevented from doing so based on the acts and/or
omissions of Morgens, Waterfall, Keyport and/or SunAmerica. Plaintiffs' further
performance under the Elsinore Option Agreement was excused due to the breaches
by Morgens, Waterfall, Keyport and SunAmerica of their representations and
warranties, as set forth herein.
291. Keyport and SunAmerica have breached the implied covenant of good
faith and fair dealing in the Riviera Option Agreement and affected R&E Gamings'
rights and deliberately deprived R&E Gaming of the benefits of the Agreement by
the acts and omissions alleged in paragraphs and herein. Keyport and SunAmerica
have further breached the implied covenant of good faith and fair dealing by
failing to properly investigate and evaluate the claims of fraudulent and
wrongful conduct and/or breach of obligations and duties asserted by R&E Gaming.
Further, Keyport and SunAmerica breached the implied covenant of good faith and
fair dealing by failing and/or refusing to return the Keyport and SunAmerica
Letters of Credit and interest payments made pursuant to the Riviera Option
Agreement and presenting the subject Letters of Credit and certifying the
requisite conditions for negotiation had been satisfied, when in fact that the
conditions had not been satisfied.
292. As a proximate result of the above alleged conduct of Keyport,
R&E Gaming has been damaged in an amount in to be proven at trial but in excess
of $2 million.
293. As a proximate result of the above alleged conduct of SunAmerica,
R&E Gaming has been damaged in an amount in to be proven at trial but in excess
of $2 million.
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<PAGE>
TWENTY-FIRST CLAIM FOR RELIEF
-----------------------------
(By R&E Gaming and EAS Against Elsinore, Morgens, Waterfall,
Keyport and SunAmerica for
Declaratory Relief Regarding the
Elsinore and Riviera Option Agreements and the Elsinore Merger Agreement)
294. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
295. An actual controversy now exists between R&E Gaming and Morgens,
Waterfall, Keyport and SunAmerica as to their respective rights and obligations
and entitlements under the Elsinore and Riviera Option Agreements.
296. An actual controversy now exists between R&E Gaming and EAS, on
the one hand, and Elsinore, on the other hand, as to their respective rights and
obligations and entitlements under the Elsinore Merger Agreement.
297. R&E Gaming contends that, as a result of fraud, mutual mistake,
undue influence, failure of conditions and/or breach of contract, the Elsinore
and Riviera Option Agreements are void and R&E Gaming is entitled to rescission
and restitution. Further, R&E Gaming contends that numerous breaches of the
terms of the Elsinore and Riviera Option Agreements and the implied covenants
therein entitle R&E Gaming to recover damages and excuse any obligations under
the Elsinore and Riviera Option Agreements.
298. R&E Gaming is informed and believes and thereon alleges that
Morgens, Waterfall denies R&E Gaming's above contentions regarding the Elsinore
Option Agreement.
299. R&E Gaming is informed and believes and thereupon alleges that
Morgens, Waterfall, Keyport and SunAmerica deny R&E Gaming's above contentions
regarding the Riviera Option Agreement.
300. R&E Gaming and EAS contend that, as a result of fraud, mutual
mistake, undue influence, failure of conditions and/or breach of contract, the
Elsinore Merger Agreement is void and R&E Gaming and EAS are entitled to
rescission and restitution. Further, R&E Gaming contends that numerous breaches
of the terms of the Elsinore Merger Agreement and
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<PAGE>
the implied covenants therein entitle R&E Gaming and EAS to recover damages and
excuse any obligations under the Elsinore Merger Agreement.
301. R&E Gaming and EAS are informed and believe and thereon allege
that Elsinore denies R&E Gaming's and EAS's above contentions regarding the
Elsinore Merger Agreement and contends that Elsinore is entitled to compensation
from R&E Gaming and EAS under the Elsinore Merger Agreement.
302. Declaratory relief is necessary to determine the respective
rights and obligations of R&E Gaming and Morgens, Waterfall, Keyport and
SunAmerica under the Elsinore and Riviera Option Agreements, including
specifically the disputed rights to (1) the Keyport Letter of Credit; (2) the
SunAmerica Letter of Credit; (3) the Riviera/Morgens, Waterfall Letter of
Credit; (4) the Elsinore/Morgens, Waterfall Letter of Credit; and (5) all
interest and legal fees payments made under the Riviera and Elsinore Option
Agreements.
303. Declaratory relief is necessary to determine the respective
rights and obligations of R&E Gaming and EAS and Elsinore, including
specifically the disputed rights claimed by Elsinore to compensation from R&E
Gaming and EAS under the Elsinore Merger Agreement.
TWENTY-SECOND CLAIM FOR RELIEF
------------------------------
(By R&E Gaming and RAS Against RHC for
Breach of the Riviera Merger Agreement)
304. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
305. R&E Gaming and RAS have duly performed all of their respective
obligations under the Riviera Merger Agreement, except in so far as their
performance of such obligations under the Riviera Merger Agreement was excused
or they have been prevented from performing based upon the acts and/or omissions
of RHC described herein.
306. RHC has breached the Riviera Merger Agreement by the acts or
omissions alleged in paragraphs through herein, and has filed statements with
the Securities and
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Exchange Commission which contain untrue or materially incomplete or misleading
statements of fact and/or omitted material facts required to make the statements
not misleading, all in violation of representations, warranties and/or covenants
within the Riviera Merger Agreement.
307. Further, in violation of representations, warranties and/or
covenants within the Riviera Merger Agreement, RHC unreasonably withheld or
delayed producing documentation and information to R&E Gaming and RAS which RHC
promised in the Riviera Merger Agreement to make available.
308. As a proximate result of the acts or omissions of RHC, R&E Gaming
and RAS have been damaged in an amount to be proven at trial.
TWENTY-THIRD CLAIM FOR RELIEF
-----------------------------
(By R&E Gaming and RAS against RHC for
Breach of Implied Covenant of Good Faith and Fair Dealing)
309. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
310. Implied in the Riviera Merger Agreement was a covenant of good
faith and fair dealing that RHC would not do anything to deliberately deprive
R&E Gaming and RAS of the benefits of the Riviera Merger Agreement and that, to
the degree that RHC has the ability to affect the rights of R&E Gaming and/or
RAS, it would do so in good faith and in accordance with fair dealing.
311. R&E Gaming and RAS have duly performed all of their respective
obligations under the Riviera Merger Agreement, except in so far as their
performance of such obligations under the Riviera Merger Agreement was excused
or they have been prevented from performing based upon the acts and/or omissions
of RHC described herein.
312. RHC, by and through its officers and directors, has breached the
implied covenant of good faith and fair dealing in the Riviera Merger Agreement
by the acts or omissions alleged in paragraphs through herein, and has filed
statements with the Securities and Exchange Commission which contain untrue or
materially incomplete or
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<PAGE>
misleading statements of fact and/or omitted material facts required to make the
statements not misleading, without regard for the long-term effect(s) of such
operational changes on the well-being of the company which would survive the
Riviera Merger.
313. Further, RHC unreasonably withheld or delayed producing
documentation and information to R&E Gaming and RAS which was material to the
review by R&E Gaming and RAS of the operations of RHC, which reasonable
production was promised in the Riviera Merger Agreement to make available.
314. As a proximate result of the acts or omissions of RHC, R&E Gaming
and RAS have been damaged in an amount to be proven at trial.
TWENTY-FOURTH CLAIM FOR RELIEF
------------------------------
(By Paulson, R&E Gaming, RAS and EAS against RHC for Fraud)
315. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
Representations Regarding Authority of Morgens, Waterfall
---------------------------------------------------------
316. In making the representations outlined in paragraphs through
herein, the RHC Board of Directors represented to the R/E Plaintiffs that the
negotiation power and control exercised by Morgens, Waterfall was permissible
and authorized under the law.
317. In fact, certain of the actions to be taken by Morgens, Waterfall
pursuant to the Riviera Option Agreement were inconsistent with it being an
"institutional investor."
318. Such representations were made by RHC through its Board of
Directors with the express intent that the R/E Plaintiffs rely on such
representations in negotiating with and entering into the Riviera Option
Agreement and the Elsinore Option Agreement with Morgens, Waterfall as the only
means by which Paulson could obtain a controlling interest in RHC.
319. RHC and/or the RHC Board of Directors knew or believed that the
representations described in paragraphs through herein regarding the authority
of
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Morgens, Waterfall to negotiate with Paulson, were false, misleading and/or
concealed facts, and intended for the R/E Plaintiffs to rely thereon.
320. The R/E Plaintiffs justifiably and detrimentally relied on such
representations, without knowledge that they were false or incomplete, in
agreeing to negotiate with Morgens, Waterfall and in entering into the Riviera
Merger Agreement, the Riviera Option Agreement, the Riviera Escrow Agreement,
and based thereon, in entering into the Elsinore Option Agreement and the
Elsinore Merger Agreement. Had the R/E Plaintiffs known the actual facts that
certain of the actions taken and to be taken by Morgens, Waterfall's were
impermissible and not authorized by applicable laws, the R/E Plaintiffs would
not have executed the Riviera Merger Agreement, the Riviera Option Agreement,
the Riviera Escrow Agreement, the Elsinore Option Agreement and/or the Elsinore
Merger Agreement.
Manipulation of Business Operations
-----------------------------------
321. The representations made by RHC in paragraphs through herein were
made with the express intent that the R/E Plaintiffs rely on such
representations in negotiating and entering into the Riviera Option Agreement,
the Riviera Merger Agreement and the Riviera Escrow Agreement, and based
thereon, in entering into the Elsinore Option Agreement and the Elsinore Merger
Agreement.
322. At the time RHC made the aforementioned representations, RHC knew
or believed it would not keep its promise to maintain its operations in the
ordinary course of business consistent with past practices.
323. The R/E Plaintiffs justifiably and detrimentally relied on the
aforementioned representations by RHC that it would continue to operate the
business in the ordinary course consistent with past practices in negotiating,
setting the price and entering into the Riviera Option Agreement, the Riviera
Merger Agreement and the Riviera Escrow Agreement, and based thereon, in
negotiating, setting the price and entering into the Elsinore Option Agreement
and the Elsinore Merger Agreement.
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<PAGE>
Black Hawk Project
------------------
324. The representations outlined in paragraphs through herein were
made by RHC with the express intent that the R/E Plaintiffs would rely on such
representations in negotiating and entering into the Riviera Option Agreement,
the Riviera Merger Agreement, the Riviera Escrow Agreement, and based thereon,
in entering into the Elsinore Option Agreement and the Elsinore Merger
Agreement.
325. Paulson, R&E Gaming, RAS and EAS justifiably and detrimentally
relied on the representations by RHC that the Black Hawk project would provide
an asset of particular business value within a budget of $55 million, in
negotiating, setting the price, entering into and continuing to evaluate the
Riviera Option Agreement, the Riviera Merger Agreement, the Riviera Escrow
Agreement, the Elsinore Option Agreement and the Elsinore Merger Agreement.
RHC Financial Projections
-------------------------
326. RHC by and through Mr. Westerman and/or the RHC Board of
Directors presented financial information, budgets, forecasts and/or projections
regarding the financial performance and condition of RHC to the R/E Plaintiffs,
as outlined in paragraphs through herein, with the intent that the R/E
Plaintiffs rely on such information, budgets, forecasts and/or projections in
negotiating, setting the price and entering into the Riviera Option Agreement,
the Riviera Merger Agreement, the Riviera Escrow Agreement, and based thereon,
in negotiating, setting the price and entering into the Elsinore Option
Agreement and the Elsinore Merger Agreement.
327. At the time that RHC made the aforementioned representations, RHC
knew or believed that the financial information, budgets, forecasts and/or
projections regarding the financial performance and condition of RHC were
materially overstated, false, misleading and/or incomplete and purposefully
chose to conceal that knowledge. RHC also knew by the date of the execution of
the Riviera Option Agreement, the Riviera Merger Agreement, the Riviera Escrow
Agreement, the Elsinore Option Agreement and the Elsinore Merger
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Agreement, that RHC had not provided Paulson, R&E Gaming and RAS with available
accurate financial records, reports and projections for the months of August and
early September, 1997, which showed that RHC's financial performance was
significantly worse than what had been projected in the projections, reports and
information which were actually provided to Paulson, R&E Gaming and RAS.
328. The R/E Plaintiffs justifiably and detrimentally relied on the
representations by RHC in the financial information, budgets, forecasts and/or
projections provided by RHC regarding the financial performance and condition of
RHC, in negotiating, setting the price, entering into and continuing to evaluate
the Riviera Option Agreement, the Riviera Merger Agreement and the Riviera
Escrow Agreement, and based thereon, in negotiating, setting the price, entering
into and continuing to evaluate the Elsinore Option Agreement and the Elsinore
Merger Agreement.
329. As a proximate result of the fraudulent representations and
conduct of RHC as alleged in paragraphs through herein, Paulson, R&E Gaming, RAS
and EAS have been damaged in an amount to be proven at trial.
330. The conduct alleged and described in paragraphs through herein
constitutes intentional misrepresentation, deceit and/or concealment of material
information known to RHC done with the intention of depriving R&E Gaming of
property or legal rights or otherwise causing injury and was despicable conduct
that subjected R&E Gaming to hardship in conscious disregard of R&E Gaming's
rights, so as to justify and award of punitive damages.
TWENTY-FIFTH CLAIM FOR RELIEF
-----------------------------
(By Paulson, R&E Gaming, RAS and EAS against RHC
for Constructive Fraud)
331. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
332. RHC assumed a duty to make affirmative representations to
Paulson, R&E Gaming and RAS and, thereby, assumed a fiduciary duty to be certain
that all such
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representations were truthful, accurate and complete. However, as alleged in
paragraphs through , inclusive, of this Complaint, the representations by RHC
were false or incomplete and were made with the intent to deceive Plaintiffs as
to their accuracy and/or completeness.
333. The R/E Plaintiffs justifiably and detrimentally relied on the
representations by RHC in the financial information, budgets, forecasts and/or
projections provided by RHC regarding the financial performance and condition of
RHC, the $175 million debt issuance, and the Black Hawk Project, in negotiating,
setting the price, entering into and continuing to evaluate the Riviera Option
Agreement, the Riviera Merger Agreement and the Riviera Escrow Agreement, and
based thereon, in negotiating, setting the price, entering into and continuing
to evaluate the Elsinore Option Agreement and the Elsinore Merger Agreement.
334. As a result of the conduct, acts or omissions of RHC as alleged
in paragraphs through inclusive, of this Complaint, the R/E Plaintiffs took
positions, agreed to a price, executed, and continued to pursue the Riviera
Option Agreement, the Riviera Merger Agreement and the Riviera Escrow Agreement,
and based thereon, took positions, agreed to a price, executed and continued to
pursue the Elsinore Option Agreement and the Elsinore Merger Agreement, all to
the detriment of the R/E Plaintiffs.
335. The conduct of RHC outlined in paragraphs through inclusive, of
this Complaint, amounts to constructive fraud against Paulson, R&E Gaming, RAS
and EAS.
336. As a proximate result of the representations and conduct of RHC
as alleged in paragraphs through herein, Paulson, R&E Gaming, RAS and EAS have
been damaged in an amount to be proven at trial.
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TWENTY-SIXTH CLAIM FOR RELIEF
-----------------------------
(By Paulson, R&E Gaming, RAS and EAS
against RHC for Negligent Misrepresentation)
337. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
338. When RHC made the representations set forth in paragraphs through
herein, and as outlined further in paragraphs through herein, such
representations were false or incomplete, and RHC knew or should have known that
such representations were false or incomplete and/or that it had no ground for
believing them to be true or complete.
339. RHC (through its representatives) made the subject
representations and failed to disclose the subject facts with the knowledge and
expectation that the R/E Plaintiffs would rely on RHC to provide full and
accurate disclosure and would, based thereon, make their determinations as to
negotiation and execution of the agreements associated with the Riviera/Elsinore
Transaction.
340. At the time that the R/E Plaintiffs executed the agreements
associated with the Riviera/Elsinore Transaction, the R/E Plaintiffs were
ignorant of the falsity of RHC's representations. Further, at that time, the R/E
Plaintiffs believed all such representations to be true and that all material
information had been disclosed.
341. In reliance on these representations and conduct, the R/E
Plaintiffs executed the agreements associated with the Riviera/Elsinore
Transaction. Had the R/E Plaintiffs known the actual facts, they would not have
executed the agreements associated with the Riviera/Elsinore Transaction.
342. The R/E Plaintiffs justifiably and detrimentally relied on the
representations by RHC in the financial information, budgets, forecasts and/or
projections provided by RHC regarding the financial performance and condition of
RHC, the $175 million debt issuance, and the Black Hawk Project, in negotiating,
setting the price, entering into and continuing to evaluate the Riviera Option
Agreement, the Riviera Merger Agreement and the
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Riviera Escrow Agreement, and based thereon, in negotiating, setting the price,
entering into and continuing to evaluate the Elsinore Option Agreement and the
Elsinore Merger Agreement.
343. As a proximate result of the negligent misrepresentations and
conduct of RHC as alleged in paragraphs through herein, the R/E Plaintiffs have
been damaged in an amount to be proven at trial.
TWENTY-SEVENTH CLAIM FOR RELIEF
-------------------------------
(By R&E Gaming and RAS against RHC for Recission and Restitution
Based on Fraud in the Inducement
Regarding the Riviera Merger Agreement and the Riviera Escrow Agreement)
344. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
345. On or about September 15, 1997, R&E Gaming and RAS executed the
Riviera Merger Agreement and the Riviera Escrow Agreement with RHC. True and
correct copies of the Riviera Merger Agreement and Riviera Escrow Agreement are
attached hereto as Exhibits "11" and "6" respectively.
346. The grounds for the requested recission and restitution are that
the agreements of R&E Gaming and RAS to the terms and execution of the Riviera
Merger Agreement and the Riviera Escrow Agreement were induced by fraudulent
misrepresentations and conduct on the part of RHC as alleged in paragraphs
through herein.
347. RHC knew that its representations were false and/or materially
incomplete and misleading, and concealed and suppressed such facts from Paulson,
R&E Gaming and/or RAS in order to induce R&E Gaming and RAS to act in reliance
on the representations and enter into the Riviera Merger Agreement and the
Riviera Escrow Agreement.
348. The true facts were that: In light of Morgens, Waterfall's
position as a non-qualified shareholder claiming that it held RHC stock for
investment purposes, Morgens, Waterfall was not permitted or authorized under
law to negotiate on behalf of RHC and take an advance position with respect to
the upcoming Riviera Merger as reflected in the Riviera Option
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Agreement; the actions of RHC's Board of Directors in recommending the Riviera
Merger to the shareholders violated Nevada Code Section 92A.120; without
manipulation of the RHC's business operations, RHC knew it would not be able to
satisfy the EBITDA Test; RHC knew or believed that the Black Hawk Project could
not be completed and provide the projected asset value as it had been presented
to Paulson, R&E Gaming and RAS within the $55 million capital budget as of
August 27, 1997; and RHC's projected financial performance was substantially
poorer than what was reflected in the information and projections provided to
Paulson, R&E Gaming and RAS and, in fact, RHC knew prior to the execution of the
agreements associated with the Riviera/Elsinore Transaction that the financial
performance for the month of August, 1997 and for early September, 1997 was
substantially poorer that what was reflected in the information and projections
provided to Paulson, R&E Gaming and RAS.
349. At the time that R&E Gaming and RAS executed the Riviera Merger
Agreement and Riviera Escrow Agreement, the Plaintiffs were ignorant of the
falsity of the representations by RHC and of RHC's suppression and concealment
of facts. Plaintiffs believed RHC's representations to be true, and in reliance
thereon, R&E Gaming and RAS executed and made payments under the Riviera Merger
Agreement, the Riviera Option Agreement and the Riviera Escrow Agreement, and
based thereon, R&E Gaming and EAS executed and made payments under the Elsinore
Merger Agreement and the Elsinore Option Agreement. Had Plaintiffs known the
true facts, R&E Gaming and RAS would not have executed the Riviera Merger
Agreement, the Riviera Option Agreement and/or the Riviera Escrow Agreement
under the existing terms thereof, and R&E Gaming and EAS would not have executed
the Elsinore Merger Agreement and/or the Elsinore Option Agreement under the
existing terms thereof.
350. As a proximate result of the fraudulent representations and
conduct of RHC and its officers, directors and/or agents, R&E Gaming and RAS
executed and made payments under the Riviera Merger Agreement, the Riviera
Option Agreement and the Riviera Escrow Agreement, and based thereon, R&E Gaming
and EAS executed and made payments under the Elsinore Merger Agreement and the
Elsinore Option Agreement. As a further proximate result of the fraudulent
representations and conduct of RHC and its officers, directors
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and/or agents, the R/E Plaintiffs have been damaged in an amount according to
proof but in excess of $20 million.
351. R&E Gaming and RAS have previously demanded repayment of all
amounts paid under the Riviera Escrow Agreement and Riviera Option Agreement,
and they intend the service of this summons and complaint to serve as a further
demand for restitution of the consideration furnished by R&E Gaming and RAS,
plus reimbursement of all other consequential and incidental damages suffered by
reason of the R/E Plaintiffs' changed position in and amount to be proven at
trial, plus interest.
352. As a proximate result of the above alleged conduct of RHC, R&E
Gaming and RAS have been damaged in an amount to be proven at trial but in
excess of $20 million.
TWENTY-EIGHTH CLAIM FOR RELIEF
------------------------------
(By R&E Gaming and RAS against RHC for Recission and Restitution
Based on Mutual Mistake
Regarding the Riviera Merger Agreement and the Riviera Escrow Agreement)
353. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
354. The grounds for the requested recission and restitution are that
the agreements of R&E Gaming and RAS to the terms and execution of the Riviera
Merger Agreement and the Riviera Escrow Agreement were the result of mutual
mistake or innocent misrepresentations by RHC as alleged in paragraphs through
herein.
355. The true facts were that: In light of Morgens, Waterfall's
position as a non-qualified shareholder claiming that it held RHC stock for
investment purposes, Morgens, Waterfall was not permitted or authorized under
law to negotiate on behalf of RHC and take an advance position with respect to
the upcoming Riviera Merger as reflected in the Riviera Option Agreement; the
actions of RHC's Board of Directors in recommending the Riviera Merger to the
shareholders violated Nevada Code Section 92A.120; without manipulation of RHC's
business operations, RHC knew it would not be able to satisfy the EBITDA Test;
RHC knew or
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believed that the Black Hawk Project could not be completed and provide the
projected asset value as it had been presented to Paulson, R&E Gaming and RAS
within the $55 million capital budget of August 27, 1997; and RHC's projected
financial performance was substantially poorer than what was reflected in the
information and projections provided to Paulson, R&E Gaming and RAS and, in
fact, RHC knew prior to the execution of the agreements associated with the
Riviera/Elsinore Transaction that the financial performance for the month of
August, 1997 and for early September, 1997 was substantially poorer that what
was reflected in the information and projections provided to Paulson, R&E Gaming
and RAS.
356. The representations and/or non-disclosures of facts, as alleged
herein, were material to the Riviera/Elsinore Transaction.
357. At the time that R&E Gaming and RAS executed the Riviera Merger
Agreement and Riviera Escrow Agreement, the Plaintiffs were ignorant of the
falsity of the representations by RHC and of RHC's non-disclosure of facts.
Plaintiffs believed RHC's representations to be true, and in reliance thereon,
R&E Gaming and RAS executed and made payments under the Riviera Merger
Agreement, the Riviera Option Agreement and the Riviera Escrow Agreement, and
based thereon, R&E Gaming and EAS executed and made payments under the Elsinore
Merger Agreement and the Elsinore Option Agreement. Had Plaintiffs known the
true facts, R&E Gaming and RAS would not have executed the Riviera Merger
Agreement, the Riviera Option Agreement and/or the Riviera Escrow Agreement
under the existing terms thereof, and R&E Gaming and EAS would not have executed
the Elsinore Merger Agreement and/or the Elsinore Option Agreement under the
existing terms thereof.
358. As a proximate result of the misrepresentations and conduct of
RHC and its officers, directors and/or agents, R&E Gaming and RAS executed and
made payments under the Riviera Merger Agreement, the Riviera Option Agreement
and the Riviera Escrow Agreement, and based thereon, R&E Gaming and EAS executed
and made payments under the Elsinore Merger Agreement and the Elsinore Option
Agreement. As a further proximate result of the fraudulent representations and
conduct of RHC and its officers, directors and/or agents,
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the R/E Plaintiffs have been damaged in an amount according to proof but in
excess of $20 million.
359. R&E Gaming and RAS have previously demanded repayment of all
amounts paid under the Riviera Escrow Agreement and Riviera Option Agreement,
and they intend the service of this summons and complaint to serve as a further
demand for restitution of the consideration furnished by R&E Gaming and RAS,
plus reimbursement of all other consequential and incidental damages suffered by
reason of the R/E Plaintiffs' changed position in and amount to be proven at
trial, plus interest.
360. As a proximate result of the above alleged conduct of RHC, R&E
Gaming and RAS have been damaged in an amount to be proven at trial but in
excess of $20 million.
TWENTY-NINTH CLAIM FOR RELIEF
-----------------------------
(By R&E Gaming and RAS against RHC for Recission and Restitution
Based on Breach of Contract
Regarding the Riviera Merger Agreement and the Riviera Escrow Agreement)
361. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
362. R&E Gaming and RAS duly performed all of their obligations under
the Riviera Merger Agreement and the Riviera Escrow Agreement, except in so far
as performance of such obligations was excused or R&E Gaming and/or RAS have
been prevented from doing so based upon the acts and/or omissions of RHC
described herein.
363. The grounds for the requested recission and restitution are that
RHC has breached the Riviera Merger Agreement and the Riviera Escrow Agreement
by the acts or omissions of RHC as alleged in paragraphs through herein.
364. R&E Gaming and RAS have previously demanded repayment of all
amounts paid under the Riviera Escrow Agreement and Riviera Option Agreement,
and they intend the service of this summons and complaint to serve as a further
demand for restitution of the consideration furnished by R&E Gaming and RAS,
plus reimbursement of all other
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consequential and incidental damages suffered by reason of the R/E Plaintiffs'
changed position in an amount to be proven at trial, plus interest.
365. As a proximate result of the above alleged conduct of RHC, R&E
Gaming and RAS have been damaged in an amount to be proven at trial but in
excess of $20 million.
THIRTIETH CLAIM FOR RELIEF
(Declaratory Relief by R&E Gaming Against RHC)
366. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
367. R&E Gaming has demanded repayment from RHC and State Street Bank
of the RHC Letter of Credit and interest payments paid into the escrow under the
Riviera Escrow Agreement by R&E Gaming since September of 1997 (collectively the
"Escrow Consideration"), including all interest thereon, on the grounds that:
(i) the Riviera Merger Agreement is void; or, alternatively (ii) a Non-Payment
Termination Event has occurred, as defined in the Riviera Escrow Agreement (a
true and correct copy of which is attached hereto as Exhibit "6" and is
incorporated herein by reference).
368. On April 2, 1998, RHC presented to State Street Bank
correspondence deemed to "constitute the Company Certificate required by the
Escrow Agreement" seeking to have the Escrow Agent negotiate the RHC Letter of
Credit. R&E Gaming has presented to State Street Bank correspondence contesting
any action State Street Bank might take toward negotiating the RHC Letter of
Credit or delivering the Escrow Consideration to RHC.
369. R&E Gaming is informed and believes that RHC disputes that a
NonPayment Termination Event has occurred and/or that R&E Gaming is entitled to
return of the Escrow Consideration.
370. R&E Gaming is informed and believes that, in light of the
competing positions of R&E Gaming as opposed to that of RHC, the Escrow Agent
will not return the Escrow Consideration to R&E Gaming without a judicial
declaration of the entitlement thereto.
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<PAGE>
371. An actual controversy of a justiciable nature now exists as to
whether a Non-Payment Termination Event has occurred and/or whether R&E Gaming
is entitled to return of the Escrow Consideration, and over the proper
construction and application of the Riviera Merger Agreement and the Riviera
Escrow Agreement and the rights and duties of the parties thereunder. The
controversy is of sufficient immediacy to justify the issuance of a declaratory
judgment consistent with the above-alleged contentions of Plaintiffs declaring
in sum and substance that a Non-Payment Termination Event has occurred and/or
that R&E Gaming is entitled to return of the Escrow Consideration.
THIRTY-FIRST CLAIM FOR RELIEF
-----------------------------
(By R&E Gaming and EAS against Elsinore
for Breach of Elsinore Merger Agreement)
372. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
373. R&E Gaming and EAS have duly performed all of their respective
obligations under the Elsinore Merger Agreement, except in so far as their
performance of such obligations under the Elsinore Merger Agreement was excused
or they have been prevented from performing based upon the acts and/or omissions
of Elsinore described herein.
374. Elsinore has breached the Elsinore Merger Agreement by the acts
or omissions alleged in paragraphs through herein, all in violation of
representations, warranties and/or covenants within the Elsinore Merger
Agreement.
375. As a proximate result of the acts or omissions of Elsinore, R&E
Gaming and EAS have been damaged in an amount to be proven at trial.
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THIRTY-SECOND CLAIM FOR RELIEF
------------------------------
(By R&E Gaming and EAS against Elsinore for
Breach of Implied Covenant of Good Faith and Fair Dealing)
376. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
377. Implied in the Elsinore Merger Agreement was a covenant of good
faith and fair dealing that Elsinore would not do anything to deliberately
deprive R&E Gaming and EAS of the benefits of the Elsinore Merger Agreement and
that, to the degree that Elsinore has the ability to affect the rights of R&E
Gaming and/or EAS, it would do so in good faith and in accordance with fair
dealing.
378. R&E Gaming and EAS have duly performed all of their respective
obligations under the Elsinore Merger Agreement, except in so far as their
performance of such obligations under the Elsinore Merger Agreement was excused
or they have been prevented from performing based upon the acts and/or omissions
of Elsinore described herein.
379. Elsinore has breached the implied covenant of good faith and fair
dealing in the Elsinore Merger Agreement by acts or omissions alleged in
paragraphs through herein.
380. As a proximate result of the acts or omissions of Elsinore, R&E
Gaming and EAS have been damaged in an amount to be proven at trial.
THIRTY-THIRD CLAIM FOR RELIEF
-----------------------------
(By R/E Plaintiffs against Elsinore for Fraud)
381. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
382. The representations outlined in paragraphs through herein were
made by Elsinore through its Board of Directors, including Waterfall, with the
express intent that the R/E Plaintiffs rely on such representations in
negotiating the terms, conditions and price of, and in executing the Elsinore
Option Agreement and the Elsinore Merger Agreement, and
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based thereon, in negotiating the terms, conditions and price of, and in
executing the Riviera Merger Agreement, the Riviera Escrow Agreement and the
Riviera Option Agreement. Such representations were false, misleading and/or
concealed facts, and Elsinore intended the R/E Plaintiffs to rely thereon.
383. The R/E Plaintiffs justifiably and detrimentally relied on such
representations, without knowledge that they were false or incomplete, in
agreeing to negotiate with Morgens, Waterfall and in entering into the Elsinore
Option Agreement and the Elsinore Merger Agreement, and based thereon, in
entering into the Riviera Merger Agreement, the Riviera Option Agreement, and
the Riviera Escrow Agreement. Had the R/E Plaintiffs known the actual facts that
Elsinore's Chairman of the Board had corrupted the R/E Plaintiffs' financial
advisor by negotiating and/or agreeing to the Jefferies First Finders Agreement
re Paulson, or that the EBITDA projections provided by Elsinore so grossly
overstated the true value of Elsinore, the R/E Plaintiffs would not have
executed the Elsinore Option Agreement, the Elsinore Merger Agreement, Riviera
Merger Agreement, the Riviera Option Agreement and/or the Riviera Escrow
Agreement.
384. As a proximate result of the fraudulent representations and
conduct of Elsinore as alleged in paragraphs through herein, the R/E Plaintiffs
have been damaged in an amount to be proven at trial.
385. The conduct alleged and described in paragraphs through herein
constitutes intentional misrepresentation, deceit and/or concealment of material
information known to Elsinore done with the intention of depriving R&E Gaming
and EAS of property or legal rights or otherwise causing injury and was
despicable conduct that subjected R&E Gaming and EAS to hardship in conscious
disregard for the rights of R&E Gaming and EAS, so as to justify an award of
punitive damages.
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THIRTY-FOURTH CLAIM FOR RELIEF
------------------------------
(By R/E Plaintiffs against Elsinore
for Constructive Fraud)
386. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
387. Elsinore assumed a duty to make affirmative representations to
Paulson, R&E Gaming and EAS and, thereby, assumed a fiduciary duty to be certain
that all such representations were truthful, accurate and complete. However, the
representations by Elsinore, as alleged in paragraphs through herein, were false
or incomplete and were made with the intent to deceive the R/E Plaintiffs as to
their accuracy and/or completeness.
388. As a result of and in reliance upon the conduct, acts or
omissions of Elsinore as alleged in paragraphs through herein, the R/E
Plaintiffs took positions with respect to, agreed to a price for, executed, and
continued to pursue the Elsinore Option Agreement and the Elsinore Merger
Agreement, and based thereon, took positions with respect to, agreed to a price
for, executed and continued to pursue the Riviera Option Agreement, the Riviera
Merger Agreement and the Riviera Escrow Agreement, all to the detriment of
Paulson, R&E Gaming, RAS and EAS. 389. The conduct of Elsinore as alleged in
paragraphs through herein amounts to constructive fraud against the R/E
Plaintiffs. 390. As a proximate result of the representations and conduct of
Elsinore as alleged in paragraphs through herein, the R/E Plaintiffs have been
damaged in an amount to be proven at trial.
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THIRTY-FIFTH CLAIM FOR RELIEF
(By R/E Plainitffs against
Elsinore for Negligent Misrepresentation)
391. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
392. When Elsinore made the representations set forth in paragraphs
through herein, such representations were false or incomplete, and Elsinore knew
or should have known that they were false or incomplete and/or had no ground for
believing them to be true or complete.
393. Elsinore (through its representatives) made the subject
representations and failed to disclose the subject facts with the knowledge and
expectation that the R/E Plaintiffs would rely on Elsinore to provide full and
accurate disclosure and would, based thereon, make their determinations as to
negotiation and execution of the agreements associated with the Riviera/Elsinore
Transaction.
394. At the time that the R/E Plaintiffs executed the agreements
associated with the Riviera/Elsinore Transaction, the R/E Plaintiffs were
ignorant of the falsity of Elsinore's representations. Further, at that time,
the R/E Plaintiffs believed all such representations to be true and that all
material information had been disclosed.
395. In reliance on these representations and conduct, the R/E
Plaintiffs executed the agreements associated with the Riviera/Elsinore
Transaction. Had the R/E Plaintiffs known the actual facts, they would not have
executed the agreements associated with the Riviera/Elsinore Transaction.
396. The R/E Plaintiffs justifiably and detrimentally relied on the
representations by Elsinore in the financial information, budgets, forecasts
and/or projections provided by Elsinore regarding the financial performance and
condition of Elsinore and the secret fee arrangement between Waterfall and
Jefferies in setting the price, entering into and continuing to evaluate the
Elsinore Option Agreement and the Elsinore Merger Agreement, and
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based thereon, in setting the price, entering into and continuing to evaluate
the the Riviera Escrow Agreement, the Riviera Option Agreement and the Riviera
Merger Agreement.
397. As a proximate result of the negligent misrepresentations and
conduct of Elsinore as alleged in paragraphs through herein, the R/E Plaintiffs
have been damaged in an amount to be proven at trial.
THIRTY-SIXTH CLAIM FOR RELIEF
-----------------------------
(By R&E Gaming and EAS against Elsinore for Recission and Restitution
Based on Fraud in the Inducement
Regarding the Elsinore Merger Agreement)
398. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
399. On or about September 15, 1997, R&E Gaming and EAS executed the
Elsinore Merger Agreement with Elsinore. A true and correct copy of the Elsinore
Merger Agreement is attached hereto as Exhibit "3" and is incorporated herein
verbatim.
400. The grounds for the requested recission and restitution are that
the agreements of R&E Gaming and EAS to the terms and execution of the Elsinore
Merger Agreement were induced by fraudulent misrepresentations and conduct, as
alleged in paragraphs through herein.
401. The true facts were that: Waterfall, acting with total discretion
with respect to negotiating the sale on behalf of the Elsinore Board of
Directors, agreed to the Jefferies First Finders Agreement re Paulson; despite
being aware of the financial performance of Elsinore for the second, third and
fourth quarters of 1997, Elsinore withheld information regarding its financial
performance and/or provided Paulson, R&E Gaming and EAS inaccurate information
and projections and encouraged Paulson, R&E Gaming and EAS to rely on such
inaccurate information and projections; and the nature of this discrepancy was
well known to Elsinore in mid-September, yet Elsinore again failed to disclose
accurate financial data before the execution of the agreements related to the
Riviera/Elsinore Transaction on September 15, 1997.
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402. At the time that R&E Gaming and EAS executed the Elsinore Merger
Agreement and Elsinore Option Agreement, Plaintiffs were ignorant of the falsity
of the representations by Elsinore and of Elsinore's suppression and concealment
of facts. Plaintiffs believed Elsinore's representations to be true, and in
reliance thereon, R&E Gaming and EAS executed and made payments under the
Elsinore Merger Agreement and the Elsinore Option Agreement, and based thereon,
R&E Gaming and RAS executed and made payments under the Riviera Merger
Agreement, the Riviera Escrow Agreement and the Riviera Option Agreement. Had
Plaintiffs known the true facts, R&E Gaming and EAS would not have executed the
Elsinore Merger Agreement and/or the Elsinore Option Agreement under the
existing terms thereof, and based thereon, R&E Gaming and RAS would not have
executed the Riviera Merger Agreement, the Riviera Escrow Agreement and/or the
Riviera Option Agreement.
403. As a proximate result of the fraudulent representations and
conduct of Elsinore and its officers, directors and/or agents, the R/E
Plaintiffs executed the Elsinore and Riviera Merger and Option Agreements, and
the Riviera Escrow Agreement, and have been damaged in an amount according to
proof but in excess of $20 million.
404. R&E Gaming and EAS intend the service of this summons and
Complaint to serve as a further demand for restitution of the consideration
furnished by R&E Gaming and EAS, plus reimbursement of all other consequential
and incidental damages suffered by reason of Plaintiffs' changed position in an
amount to be proven at trial, plus interest. 405. As a proximate result of the
above alleged conduct of Elsinore, R&E Gaming and EAS have been damaged in an
amount to be proven at trial but in excess of $20 million.
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THIRTY-SEVENTH CLAIM FOR RELIEF
(By R&E Gaming and EAS against Elsinore for Recission and
Restitution Based on Mutual Mistake
Regarding the Elsinore Merger Agreement)
406. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
407. The grounds for the requested recission and restitution are that
the agreements of R&E Gaming and EAS to the terms and execution of the Elsinore
Merger Agreement were the result of mutual mistake or innocent material
misrepresentations, as outlined in paragraphs through herein.
408. At the time that R&E Gaming and EAS executed the Elsinore Merger
Agreement, Plaintiffs were ignorant of the falsity of the representations by
Elsinore and of Elsinore's nondisclosure of facts. Plaintiffs believed
Elsinore's representations to be true, and in reliance thereof, R&E Gaming and
EAS executed the Elsinore Merger Agreement and the Elsinore Option Agreement,
and based thereon, R&E Gaming and RAS executed the Riviera Merger Agreement, the
Riviera Option Agreement and the Riviera Escrow Agreement. Had Plaintiffs known
the actual facts, R&E Gaming and EAS would not have executed the Elsinore Merger
Agreement and/or the Elsinore Option Agreement under the existing terms thereof,
and R&E Gaming and RAS would not have executed the Riviera Merger Agreement, the
Riviera Option Agreement and/or the Riviera Escrow Agreement under the existing
terms thereof.
409. R&E Gaming and EAS intend the service of this summons and
Complaint to serve as a further demand for restitution of the consideration
furnished by R&E Gaming and EAS, plus reimbursement of all other consequential
and incidental damages suffered by reason of Plaintiffs' changed position in an
amount to be proven at trial, plus interest.
410. As a proximate result of the fraudulent representations and
conduct of Elsinore and its officers, directors and/or agents, the R/E
Plaintiffs executed the Elsinore and Riviera Merger and Option Agreements, and
the Riviera Escrow Agreement, and have been damaged in an amount according to
proof but in excess of $20 million.
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411. As a proximate result of the above alleged conduct of Elsinore,
R&E Gaming and EAS have been damaged in an amount to be proven at trial but in
excess of $20 million.
THIRTY-EIGHTH CLAIM FOR RELIEF
(By R&E Gaming and EAS against Elsinore for Recission and Restitution
Based on Breach of Contract
Regarding the Elsinore Merger Agreement)
412. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
413. R&E Gaming and EAS duly performed all of their obligations under
the Elsinore Merger Agreement, except in so far as performance of such
obligations was excused or R&E Gaming and/or EAS have been prevented from doing
so based upon the acts and/or omissions of Elsinore described herein.
414. The grounds for the requested recission and restitution are that
Elsinore has breached the Elsinore Merger Agreement by the acts or omissions
outlined in paragraphs through herein.
415. As a proximate result of the fraudulent representations and
conduct of Elsinore and its officers, directors and/or agents, the R/E
Plaintiffs executed the Elsinore and Riviera Merger and Option Agreements, and
the Riviera Escrow Agreement, and have been damaged in an amount according to
proof but in excess of $20 million.
416. R&E Gaming and EAS intend the service of this summons and
complaint to serve as a further demand for restitution of the consideration
furnished by R&E Gaming and EAS, plus reimbursement of all other consequential
and incidental damages suffered by reason of Plaintiffs' changed position in an
amount to be proven at trial, plus interest.
417. As a proximate result of the above alleged conduct of Elsinore,
R&E Gaming and EAS have been damaged in an amount to be proven at trial but in
excess of $20 million.
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THIRTY-NINTH CLAIM FOR RELIEF
-----------------------------
(By R/E Plaintiffs against Morgens, Waterfall,
Keyport and SunAmerica for Breach of the Warranties of Presentment)
418. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
419. Pursuant to the Riviera Option Agreement, the Escrow Agreement
and the Elsinore Option Agreement, R&E Gaming agreed to deliver and did deliver
to the following entities the specified Letters of Credit:
a. Morgens, Waterfall: the Elsinore/Morgens, Waterfall Letter of
Credit in the amount of $2,936,550.08;
b. Morgens, Waterfall: the Riviera/Morgens, Waterfall Letter of
Credit in the amount of $3,817,860;
c. Keyport: the Keyport Letter of Credit in the amount of
$2,571,480;
d. SunAmerica: the SunAmerica Letter of Credit in the amount of
$2,285,760; and
e. State Street Bank: the RHC Letter of Credit in the amount of
$5,172,427.
420. All of the Letters of Credit referred to in paragraph herein were
issued by City National Bank and provide that they can be negotiated only when
the beneficiary signs and presents a certification along with the Letter of
Credit certifying that the conditions under the Elsinore and Riviera Option
Agreements and/or Escrow Agreement entitling them to payment have been met.
421. R&E Gaming contends that, as a result of fraud, mutual mistake,
undue influence and/or breach of contract, the Elsinore and Riviera Option and
Merger Agreements and the Escrow Agreement are void and R&E Gaming is entitled
to rescission and restitution. Further, R&E Gaming contends that numerous
breaches of the terms of the Elsinore and Riviera Option and Merger Agreements
and of the implied covenants therein entitle R&E Gaming to recover damages and
avoid any obligations under such agreements. R&E Gaming has provided
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notice to Morgens, Waterfall, Keyport, SunAmerica, State Street Bank and City
National Bank of its position and has demanded return of the subject Letters of
Credit.
422. R&E Gaming is informed and believes that despite the referenced
notices of voidness and breach regarding the Elsinore and Riviera Option and
Merger Agreements, Morgens, Waterfall, SunAmerica and Keyport have all recently
negotiated the subject Letters of Credit and have presented to City National
Bank the Letters of Credit and certifications that the requisite conditions
under such agreements entitling them to payment have been met. State Street Bank
has not yet presented the RHC Letter of Credit, but RHC has made a demand on
State Street Bank that it immediately present the RHC Letter of Credit for
payment.
423. In presenting the various Letters of Credit, as alleged in
paragraphs through herein, Defendants Morgens, Waterfall, SunAmerica and Keyport
warranted that the representations made in the certifications made with such
presentations were true and correct and that the drawing did not violate any
agreement between R&E Gaming and each of these Defendants or any agreement
intended by them to be augmented by the Letters of Credit.
424. The representations by Morgens, Waterfall, SunAmerica and Keyport
that they had performed all acts required to entitle them to draw on the Letters
of Credit and that the drawing did not violate any agreement between R&E Gaming
and each of these Defendants or any agreement intended by them to be augmented
by the Letters of Credit were false and, therefore, in making these
representations, Morgens, Waterfall, SunAmerica and Keyport breached the
warranties of presentment made to Paulson, R&E Gaming, RAS and EAS.
425. As a proximate result of the above alleged conduct of Morgens,
Waterfall, SunAmerica and Keyport, Paulson, R&E Gaming, RAS and EAS have been
damaged in an amount to be proven at trial, but in excess of $11 million.
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FORTIETH CLAIM FOR RELIEF
(By R/E Plaintiffs against Morgens, Waterfall,
Keyport and SunAmerica for Fraud in the Presentment)
426. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
427. In presenting the various Letters of Credit and certifying that
the conditions for negotiation had been satisfied, as alleged in paragraphs
through herein, Defendants Morgens, Waterfall, SunAmerica and Keyport
fraudulently represented that the conditions which would entitle them to draw on
the Letters of Credit had been satisfied. Such representations were made when
Morgens, Waterfall, SunAmerican and/or Keyport knew that such representations
were false, and were made with the intent of inducing City National Bank to rely
upon them and based thereon, to negotiate the Letters of Credit. Such
representations were also made with the knowledge or expectation and intent that
by negotiating the Letters of Credit, Morgens, Waterfall, SunAmerica and Keyport
would cause Paulson, R&E Gaming, RAS and/or EAS to be liable to City National
Bank for payment of the amounts disbursed through negotiation of the Letters of
Credit, plus interest.
428. On information and belief, had City National Bank known that the
representations by Morgens, Waterfall, SunAmerica and Keyport were false, it
would not have allowed the Letters of Credit to be negotiated.
429. As a proximate result of the fraudulent representations of
Morgens, Waterfall, SunAmerica and Keyport, on information and belief, City
National Bank honored the Riviera/Morgens, Waterfall Letter of Credit, the
Elsinore/Morgens, Waterfall Letter of Credit, the Keyport Letter of Credit and
the SunAmerica Letter of Credit.
430. As a proximate result of the above alleged fraudulent conduct of
Morgens, Waterfall, SunAmerica and Keyport, Paulson, R&E Gaming, RAS, EAS and/or
other affiliates of Paulson have been damaged in an amount to be proven at
trial, but in excess of $11 million.
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FORTY-FIRST CLAIM FOR RELIEF
(By R/E Plaintiffs against Morgens, Waterfall
for Intentional Interference With Contractual Relations)
431. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
432. By entering into the Jefferies First Finders Agreement re
Paulson, Morgens, Waterfall intentionally and knowingly induced Jefferies to
breach its contract with Paulson, R&E Gaming, RAS and EAS, to wit, the Jefferies
Retainer Agreement, by (among other breaches) inducing Jefferies to breach its
promise to act as the financial advisor to Paulson, R&E Gaming, RAS and EAS in
connection with the Riviera/Elsinore Transaction.
433. As a proximate result of the above alleged conduct of Morgens,
Waterfall, the R/E Plaintiffs were deprived of Jefferies' fulfilment of its
contractual obligations to the R/E Plaintiffs, and the R/E Plaintiffs executed
and remained in the Riviera/Elsinore Transaction and delivered the subject
Letters of Credit and made additional payments. As a further proximate result
the R/E Plaintiffs have been damaged in an amount to be proven at trial,
including but not limited to, if it should ultimately be determined that any of
the other agreements associated with the Riviera/Elsinore Transaction are not
void and are enforceable against Plaintiffs, or any of them, an amount as much
as or in excess of $20 million equal to all monies Plaintiffs have paid or must
pay to Morgens, Waterfall, RHC, Elsinore, Keyport and SunAmerica with respect to
any such enforceable agreements.
FORTY-SECOND CLAIM FOR RELIEF
(By R/E Plaintiffs against Morgens, Waterfall
for Negligent Interference With Contractual Relations)
434. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
435. By entering into the Jefferies First Finders Agreement re
Paulson, Morgens, Waterfall knew or should have known that the Jefferies First
Finders Argeement re
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Paulson would induce Jefferies to breach its contract with Paulson, R&E Gaming,
RAS and EAS, to wit, the Jefferies Retainer Agreement, by (among other breaches)
inducing Jefferies to breach its promise to act as the financial advisor to
Paulson, R&E Gaming, RAS and EAS in connection with the Riviera/Elsinore
Transaction.
436. Despite such actual or constructive knowledge that the Jefferies
First Finders Agreement re Paulson would induce Jefferies to breach its contract
with Paulson, R&E Gaming, RAS and EAS, Morgens, Waterfall entered into the
Jefferies First Finders Agreement re Paulson, thereby negligently inducing
Jefferies to breach (among other breaches) its promise to act as the financial
advisor to Paulson, R&E Gaming, RAS and EAS in connection with the
Riviera/Elsinore Transaction.
437. As a proximate result of the above alleged conduct of Morgens,
Waterfall, R/E Plaintiffs were deprived of Jefferies' fulfilment of its
contractual obligations to the R/E Plaintiffs, and the R/E Plaintiffs executed
and remained in the Riviera/Elsinore Transaction and delivered the subject
Letters of Credit and made additional payments. As a further proximate result
the R/E Plaintiffs have been damaged in an amount in to be proven at trial,
including but not limited to, if it should ultimately be determined that any of
the other agreements associated with the Riviera/Elsinore Transaction are not
void and are enforceable against Plaintiffs, or any of them, an amount as much
as or in excess of $20 million equal to all monies Plaintiffs have paid or must
pay to Morgens, Waterfall, RHC, Elsinore, Keyport and SunAmerica with respect to
any such enforceable agreements.
FORTY-THIRD CLAIM FOR RELIEF
----------------------------
(By All Plaintiffs Against Stevens, Croxton, Voigt, Morgens, Waterfall, RHC and
Elsinore for Treble Damages, Attorneys Fees and Costs
Pursuant to Nevada Revised Statutes Sec. 207.350 et seq. (Nevada RICO))
438. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
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439. Plaintiffs Paulson, R&E Gaming, RAS, EAS and Carlo are all
persons within the meaning of Nevada Revised Statutes ("N.R.S.") Sections
205.380 and 207.470.
440. R&E Gaming, RAS, EAS and Carlo are all affiliates of Paulson in
that Paulson is the sole shareholder of R&E Gaming and Carlo, and R&E Gaming is
the sole shareholder in RAS and EAS
441. Defendants M. Brent Stevens, Steven Croxton and Paul Voigt, are
all natural persons who are persons within the meaning of N.R.S. Sections
90.570, 205.380 and 207.400 and are each persons employed by or associated with
the Jefferies enterprise, and each has authority to, and did in fact, control,
conduct, manage or operate the affairs of Jefferies.
442. RHC, Elsinore and Morgens, Waterfall are persons within the
meaning of N.R.S. Sections 90.570, 195.010, 205.380 and 207.400
443. Jefferies is an "enterprise" as that term is defined in N.R.S.
207.380.
444. Defendants' activities, as alleged herein, constitute
"racketeering activity," as that term is defined in N.R.S. 207.390, because they
include at least two "crimes related to racketeering," as that term is defined
in N.R.S. 207.360, that are: not isolated; have the same or similar intents,
results, accomplices, or victims; occurred after July 1, 1983; and all occurred
within 5 years of each other.
445. With the purpose of fraudulently obtaining money from Paulson,
R&E Gaming, RAS and EAS, Defendants M. Brent Stevens, Steven Croxton and Paul
Voigt, conducted, managed and operated the affairs of the Jefferies enterprise
through racketeering activity in violation of N.R.S. Section 207.400(c)
involving the commission, attempted commission or conspiracy to (a) obtain
possession of money or property valued at more than $250.00 by means of false
pretenses and (b) violations of N.R.S. 90.570, as follows.
Obtaining Possession of Money by False Pretenses
------------------------------------------------
446. In violation of N.R.S. 205.380, with the intent to defraud
Plaintiffs and induce Plaintiffs to proceed with the Riviera/Elsinore
Transaction and the Riverboat Transaction, Defendants Stevens, Croxton and Voigt
made the representations in paragraphs through herein, with knowledge of their
falsity and/or no reasonable basis to believe that such
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representations were true. Morgens, Waterfall, RHC and Elsinore conspired with
and/or aided and abetted Stevens, Croxton and Voigt in making said
representations by agreeing not to disclose and/or failing to disclose facts
known to Morgens, Waterfall, RHC and Elsinore which would indicate or
demonstrate the falsity of such representations to the Plaintiffs.
447. The representations made by Stevens, Croxton, Voigt and others
were false in that: (1) despite representing that Jefferies would act and was
acting as Plaintiffs' financial advisor, Jefferies did not and never intended to
do so; (2) Jefferies presented material factual and financial data regarding the
Riviera/Elsinore Transaction and the Riverboat transaction which were false,
incomplete and/or misleading; (3) pursuant to the Jefferies' First Finders
Agreement re Paulson, Stevens, Voigt, and others sought and agreed to accept
from Morgens, Waterfall a fee in excess of $1 million paid to Jefferies for
Jefferies' services as a finder in connection with the sale of Morgens,
Waterfall's 94.3% interest in Elsinore to Paulson, R&E Gaming and EAS; and (4)
pursuant to the Jefferies' Second Finders Agreement re Paulson, Stevens, Croxton
and others sought and agreed to accept from Casino Magic Louisiana a fee of 5%
of the aggregate amount of the sale price of the Riverboat to be paid to
Jefferies for Jefferies' services as a finder in connection with the sale of the
Riverboat to Paulson and Carlo.
448. In negotiating the price and determining the conditions of the
Riviera/Elsinore Transaction, and in agreeing to execute the agreements
associated with the Riviera/Elsinore Transaction and provide the Letters of
Credit and interest payments required thereby, Plaintiffs justifiably and
detrimentally relied on: (i) the representation that Jefferies was acting as
their financial advisor; and (ii) Jefferies' information and analyses regarding
the value and financial performance and prospects of RHC and Elsinore,
449. In negotiating the price and determining the conditions of the
Riverboat transaction, and in agreeing to execute the Riverboat Sale Agreement
and pay the $1 million deposit required thereby, Plaintiffs justifiably and
detrimentally relied on: (i) the representation that Jefferies was acting as
their financial advisor; and (ii) Jefferies' information and analyses regarding
the value and financial performance and prospects of the Riverboat.
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450. Plaintiffs justifiably and detrimentally relied on the
representations in paragraph herein that Jefferies was continuing to act as
their financial advisor, and was, therefore, acting in the Plaintiffs' best
interests, in not terminating the Riviera/Elsinore Transaction sooner.
451. As parties to the Riviera/Elsinore Transaction, Morgens,
Waterfall, RHC and Elsinore each had an obligation and duty to disclose facts
indicating that the representations made by Stevens, Croxton, Voigt and others
on behalf of Jefferies, as outlined herein, were false. Plaintiffs justifiably
and detrimentally relied on the silence of Morgens, Waterfall, RHC and Elsinore
as to facts indicating or demonstrating the falsity of the aforementioned
representations by Stevens, Croxton, Voigt and others as a reason to presume
that such facts did not exist and, therefore, did not terminate the
Riviera/Elsinore Transaction sooner.
452. As a result of the fraudulent conduct of Stevens, Croxton, Voigt,
Morgens, Waterfall, RHC, Elsinore and others on behalf of Jefferies, Paulson,
R&E Gaming, RAS, EAS and Carlo have been defrauded into paying Jefferies a
retainer totaling $210,000, into entering into the Riviera/Elsinore Transaction
and the Riverboat transaction, and into not terminating the Riviera/Elsinore
Transaction sooner. Violation of N.R.S. Section 90.570.1
453. The actions and representations by Stevens, Croxton and Voigt
outlined in paragraphs through amount to a scheme to defraud Paulson, R&E
Gaming, RAS, EAS and Carlo in connection with an offer to sell securities, to
wit: the common stock of RHC and Elsinore. Morgens, Waterfall, RHC and Elsinore
conspired with and/or aided and abetted Stevens, Croxton and Voigt in carrying
out such scheme by agreeing not to disclose and/or failing to disclose facts
known to Morgens, Waterfall, RHC and Elsinore which would indicate or
demonstrate the falsity of the representations by Stevens, Croxton and Voigt to
the Plaintiffs. Violation of N.R.S. Section 905.570.2
454. The representations by Stevens, Croxton and Voigt outlined in
paragraphs through amount to untrue statements of material facts and/or
omissions to state material facts to defraud Paulson, R&E Gaming, RAS, EAS and
Carlo in connection with an offer to sell
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securities, to wit: the common stock of RHC and Elsinore. Morgens, Waterfall,
RHC and Elsinore conspired with and/or aided and abetted Stevens, Croxton and
Voigt in making such untrue statements by agreeing not to disclose and/or
failing to disclose facts known to Morgens, Waterfall, RHC and Elsinore which
would indicate or demonstrate the falsity of the representations by Stevens,
Croxton and Voigt to the Plaintiffs.
455. As a proximate result of the racketeering activity of Stevens,
Croxton, Voigt, and others, with the assistance of Morgens, Waterfall, RHC and
Elsinore, Paulson, R&E Gaming, RAS, EAS and Carlo have been damaged in an amount
to be proven at trial, including but not limited to: (1) if it should ultimately
be determined that the agreements associated with the Riviera/Elsinore
Transaction are not void and are enforceable against Plaintiffs, or any of them,
an amount as much as or in excess of $20 million equal to all monies Plaintiffs
have paid or must pay to Morgens, Waterfall, RHC, Elsinore, Keyport and
SunAmerica with respect to the Riviera/Elsinore Transaction and the agreements
associated therewith; and (2) if it should ultimately be proven at trial in the
Casino Magic Suit that the Riverboat Sale Agreement is not void and is
enforceable against Plaintiffs or any of them, an amount in excess of $1 million
equal to all monies Plaintiffs have paid or must pay to Casino Magic Louisiana
with respect to the Riverboat Sale Agreement.
Resulting Violation of N.R.S. Section 207.400(c)
------------------------------------------------
456. Under the provisions of N.R.S. Section 207.470, Plaintiffs have
been injured in their business or property by reason of a violation of N.R.S.
Section 207.400. Pursuant to N.R.S. Section 207.470, Plaintiffs are entitled to
maintain this action and to recover herein three times the actual damages
sustained and the costs of suit, including attorneys fees and investigation and
litigation costs.
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FORTY-FOURTH CLAIM FOR RELIEF
-----------------------------
(By All Plaintiffs Against Stevens, Croxton, Voigt, Morgens, Waterfall, RHC and
Elsinore for Treble Damages, Attorneys Fees and Costs
For Conspiracy to Violate N.R.S. Section 207.400(c) (Nevada RICO))
457. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through 456, inclusive, of this Complaint.
458. From at least November 26, 1996 through the present, in
California, Nevada, Louisiana, New York and elsewhere, Defendants Stevens,
Croxton and Voigt, being persons employed by or affiliated in the Jefferies
enterprise, unlawfully and wilfully combined, confederated, agreed and conspired
with each other and with others to violate N.R.S. Section 207.400(c), that is,
to conduct or participate in the management and operation, directly or
indirectly, of the affairs of the Jefferies enterprise through racketeering
activity, all in violation of N.R.S. Section 207.400(h).
459. Morgens, Waterfall, RHC and Elsinore conspired with and/or aided
and abetted Stevens, Croxton and Voigt in carrying out such conspiracy to
violate N.R.S. Section 207.400(c) scheme by agreeing not to disclose and/or
failing to disclose facts known to Morgens, Waterfall, RHC and Elsinore which
would indicate or demonstrate the conspiracy by Stevens, Croxton and Voigt to
the Plaintiffs.
460. Part of the conspiracy was that Defendants Stevens, Croxton and
Voigt, each committed and agreed, either expressly or impliedly, to be involved
in and/or support the aforementioned racketeering activity.
461. In furtherance of the conspiracy and to effect the objects
thereof, the RICO Defendants committed and caused to be committed a series of
overt acts, including:
a. Entering into and/or acceding to the Jefferies' First Finders
Agreement re Paulson, as described above;
b. Fraudulently misrepresenting that the Jefferies' First Finders
Agreement re Paulson had been disclosed to Paulson prior to the
execution of the
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Riviera and Elsinore Option and Merger Agreements, and the
Riviera Escrow Agreement, in September of 1997, as described
above;
c. Fraudulently representing that the Jefferies' First Finders
Agreement re Paulson had been "squeezed out" in the
correspondence since February of 1998, as described above.
462. Morgens, Waterfall, RHC and Elsinore failed, in the RHC Proxy
Statement or otherwise, to clearly disclose facts known to Morgens, Waterfall,
RHC and Elsinore which would indicate or demonstrate the conspiracy by Stevens,
Croxton and Voigt to the Plaintiffs, namely the existence of the Jefferies'
First Fee Agreement re Paulson, and the fact that financial information,
reports, projections and expectations which had been given to Jefferies for
Plaintiffs' benefit were materially false or misleading.
463. Plaintiffs have been directly and proximately injured, by acts
constituting violations or attempted violations of N.R.S. Sections 205.380 and
90.570, in their business and property by reason of these Defendants violation
of N.R.S. 207.400(h), in an amount to be proven at trial, including but not
limited to: (1) if it should ultimately be determined that the agreements
associated with the Riviera/Elsinore Transaction are not void and are
enforceable against Plaintiffs, or any of them, an amount as much as or in
excess of $20 million equal to all monies Plaintiffs have paid or must pay to
Morgens, Waterfall, RHC, Elsinore, Keyport and SunAmerica with respect to the
Riviera/Elsinore Transaction and the agreements associated therewith; and (2) if
it should ultimately be proven at trial in the Casino Magic Suit that the
Riverboat Sale Agreement is not void and is enforceable against Plaintiffs or
any of them, an amount in excess of $1 million equal to all monies Plaintiffs
have paid or must pay to Casino Magic Louisiana with respect to the Riverboat
Sale Agreement.
Resulting Violation of N.R.S. Section 207.400(h)
------------------------------------------------
464. Under the provisions of N.R.S. Section 207.470, Plaintiffs have
been injured in their business or property by reason of a violation of N.R.S.
Section 207.400. Pursuant to N.R.S. Section 207.470, Plaintiffs are entitled to
maintain this action and to
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recover herein three times the actual damages sustained and the costs of suit,
including attorneys fees and investigation and litigation costs.
FORTY-FIFTH CLAIM FOR RELIEF
----------------------------
(By All Plaintiffs Against Stevens, Croxton, Voigt, Morgens, Waterfall, RHC and
Elsinore for Treble Damages, Attorneys Fees and Costs
Pursuant to Nevada Revised Statutes Sec. 207.350 et seq. (Nevada RICO))
465. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
466. Plaintiffs Paulson, R&E Gaming, RAS, EAS and Carlo are all
persons within the meaning of Nevada Revised Statutes ("N.R.S.") Sections
205.380 and 207.470.
467. R&E Gaming, RAS, EAS and Carlo are affiliates of Paulson in that
Paulson in the sole shareholder of R&E Gaming and Carlo, and R&E Gaming is the
sole shareholder in RAS and EAS.
468. Defendants M. Brent Stevens, Steven Croxton and Paul Voigt are
all natural persons who are persons within the meaning of N.R.S. Sections
90.570, 205.380 and 207.400.
469. Jefferies, RHC, Elsinore and Morgens, Waterfall are persons
within the meaning on N.R.S. Sections 90.570, 205.380 and 207.400
470. The association-in-fact of Jefferies, Morgens, Waterfall, RHC and
Elsinore ("J.M.W.R.E") is an "enterprise," as that term is defined in N.R.S.
207.380, which came into existence in early 1997 and has continued to the
present. The J.M.W.R.E. was formed with the purpose of legitimately selling
Plaintiffs various properties, and the subsidiary purposes of fraudulently
inducing Paulson, R&E Gaming, RAS and EAS to enter into and proceed with the
Riviera/Elsinore Transaction at a substantial premium over the fair market value
of RHC and Elsinore, and of generating fees for Jefferies. Each member of the
J.M.W.R.E. enterprise played a different role in accomplishing its legitimate
and illegitimate purposes. Jefferies acted to benefit Plaintiffs, but it also
pretended to be acting wholly for
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Plaintiffs' best interests, while in fact acting surreptitiously for the
illegitimate purposes of the enterprise. Each of the other members of the
enterprise facilitated by their conduct both the legitimate and illegitimate
purposes of the enterprise, and also facilitated by their conduct Jefferies'
various acts. The enterprise was expected to continue for an indefinite period
of time. The activities of the enterprise in working toward its primary and
subsidiary purposes were separate, and neither depended necessarily on each
other for its success.
471. Through the actions of Stevens, Croxton, Voigt and Jefferies, the
J.M.W.R.E. enterprise was primarily designed to sell legitimately various
properties to Paulson over an indefinite length of time; it had as a subsidiary
design to generate fees for Jefferies and hide the efforts of RHC, Elsinore and
Morgens, Waterfall to fraudulently overstate the value of RHC and Elsinore
through false, misleading and/or unsupported financial information, budgets,
forecasts and projections. The subsidiary design was implemented through the
actions of Morgens, Waterfall in fraudulently inducing the R/E Plaintiffs to
acquire Elsinore at a substantial premium in order to have the option of
acquiring RHC, thereby also increasing the "M&A Fee" (as defined in the
Jefferies Retainer Agreement [Exhibit "20"]) Jefferies could expect from the
Riviera/Elsinore Transaction. Through the actions of RHC and Elsinore, the
J.M.W.R.E. enterprise's subsidiary design was to provide false, misleading
and/or unsupported financial information, budgets, forecasts and projections
regarding RHC, Elsinore and the financial health and performance of each, so as
to overstate the value of the RHC/Elsinore Transaction. Stevens, Croxton, Voigt,
Jefferies, Morgens, Waterfall, Elsinore and RHC were each associated with the
J.M.W.R.E enterprise and all had the authority to control and did in fact
control or conduct, that is, manage or operate, the affairs of the J.M.W.R.E.
enterprise in order to fulfill the designs described in this paragraph.
472. Defendants' activities, as alleged herein, constitute
"racketeering activity," as that term is defined in N.R.S. 207.390, because they
include at least two "crimes related to racketeering," as that term is defined
in N.R.S. 207.360, that are: not isolated; have the same or similar intents,
results, accomplices, or victims; occurred after July 1, 1983; and all occurred
within 5 years of each other.
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<PAGE>
473. With the purpose of fraudulently obtaining money from Paulson,
R&E Gaming, RAS and EAS, Defendants Stevens, Croxton, Voigt, Jefferies, Morgens,
Waterfall, RHC and Elsinore (the "RICO Defendants") conducted the affairs of the
J.M.W.R.E. enterprise through racketeering activity in violation of N.R.S.
Section 207.400(c) involving the commission, attempted commission or conspiracy
to (a) obtain possession of money or property valued at more than $250.00 by
means of false pretenses and (b) violations of N.R.S. 90.570, as follows.
Obtaining Possession of Money by False Pretenses
------------------------------------------------
474. In violation of N.R.S. 205.380, with the intent to defraud
Paulson, R&E Gaming, RAS and EAS, the RICO Defendants made the representations
in paragraphs through herein, with knowledge of their falsity and/or no
reasonable basis to believe that such representations were true.
475. In addition to the representations in the Riviera and Elsinore
Option and Merger Agreements, in response to inquiries by Paulson and R&E
Gaming, and at the direction of Morgens, Waterfall, and with the intent to
defraud the Plaintiffs, the RICO Defendants have represented that the Jefferies'
First Finders Agreement re Paulson never existed, in at least the following
specific communications:
a. Letter from Bruce Waterfall to Allen E. Paulson, President of R&E
Gaming, transmitted via facsimile on or about February 24, 1998;
b. Letter from Bruce Waterfall to Allen E. Paulson, President of R&E
Gaming, transmitted via facsimile on or about March 13, 1998; and
c. Letter from Bruce Waterfall to Allen E. Paulson, President of R&E
Gaming, transmitted via facsimile on or about March 30, 1998.
476. Similarly, despite the controlling role Waterfall played on
behalf of RHC and Elsinore in the negotiations for the Riviera/Elsinore
Transaction, at the express or implied direction of Waterfall, RHC and Elsinore,
with the intent to defraud the Plaintiffs, have claimed ignorance of the
Jefferies' First Finders Agreement re Paulson and/or that the Jefferies' First
Finders Agreement re Paulson never existed, in at least the following
communications:
- 106 -
<PAGE>
a. Correspondence from William Westerman, President of RHC, to Allen
E. Paulson, President of R&E Gaming, transmitted via facsimile on
or about February 24, 1998;
b. Correspondence from Jeffrey Leeds, President of Elsinore, to
Allen E. Paulson, President of R&E Gaming, transmitted via
facsimile on or about February 26, 1998; and
c. Correspondence from Jeffrey Leeds, President of Elsinore, to
Allen E. Paulson, President of R&E Gaming, transmitted via
facsimile on or about April 2, 1998.
477. In negotiating the price and determining the conditions of the
Riviera/Elsinore Transaction, and in agreeing to execute the agreements
associated with the Riviera/Elsinore Transaction and provide the Letters of
Credit and interest payments required therein, Plaintiffs justifiably and
detrimentally relied on: (i) the representation that Jefferies was acting as
their financial advisor; and (ii) Jefferies' information and analyses regarding
the value and financial performance and prospects of RHC and Elsinore.
478. In negotiating the price and determining the conditions of the
Riviera/Elsinore Transaction, in executing the agreements associated with the
Riviera/Elsinore Transaction, and in providing the Letters of Credit and
interest payments required therein, Plaintiffs justifiably and detrimentally
relied on: (i) the representations by Morgens, Waterfall, RHC and Elsinore that
they had not engaged any undisclosed broker, finder or financial advisor in
connection with the Riviera/Elsinore Transaction; and (ii) Jefferies', Morgens,
Waterfall's, RHC's and Elsinore's information and analyses regarding the value
and financial performance and prospects of RHC and Elsinore.
479. As a result of the fraudulent conduct of the RICO Defendants,
Paulson, R&E Gaming, RAS, EAS and Carlo have been defrauded into paying
Jefferies a retainer totaling $210,000, into entering into the Riviera/Elsinore
Transaction and the Riverboat transaction, and into not terminating the
Riviera/Elsinore Transaction sooner.
- 107 -
<PAGE>
Violation of N.R.S. Section 90.570.1
------------------------------------
480. The actions and representations by the RICO Defendants outlined
in paragraphs through and paragraphs though amount to a scheme to defraud
Paulson, R&E Gaming, RAS, EAS and Carlo in connection with an offer to sell
securities, to wit: the common stock of RHC and Elsinore.
Violation of N.R.S. Section 905.570.2
-------------------------------------
481. The representations by the RICO Defendants outlined in paragraphs
through and paragraphs though amount to untrue statements of material facts
and/or omissions to state material facts to defraud Paulson, R&E Gaming, RAS,
EAS and Carlo in connection with an offer to sell securities, to wit: the common
stock of Riviera and Elsinore.
482. As a proximate result of the racketeering activity of Jefferies,
Morgens, Waterfall, RHC and Elsinore, Paulson, R&E Gaming, RAS, EAS and Carlo
have been damaged in an amount to be proven at trial, including but not limited
to, if it should ultimately be determined that the agreements associated with
the Riviera/Elsinore Transaction are not void and are enforceable against
Plaintiffs, or any of them, an amount up to or in excess of $20 million equal to
all monies Plaintiffs have paid or must pay to Morgens, Waterfall, RHC,
Elsinore, Keyport and SunAmerica with respect to the Riviera/Elsinore
Transaction and the agreements associated therewith.
Resulting Violation of N.R.S. Section 207.400(c)
------------------------------------------------
483. Under the provisions of N.R.S. Section 207.470, Plaintiffs have
been injured in their business or property by reason of a violation of N.R.S.
Section 207.400. Pursuant to N.R.S. Section 207.470, Plaintiffs are entitled to
maintain this action and to recover herein three times the actual damages
sustained and the costs of suit, including attorneys fees and investigation and
litigation costs.
- 108 -
<PAGE>
FORTY-SIXTH CLAIM FOR RELIEF
(By All Plaintiffs Against Stevens, Croxton, Voigt, Morgens, Waterfall, RHC and
Elsinore for Treble Damages, Attorneys Fees and Costs
For Conspiracy to Violate N.R.S. Section 207.400(c) (Nevada RICO))
484. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through , inclusive, of this Complaint.
485. From at least November 26, 1996 through the present, in
California, Nevada, Louisiana, New York and elsewhere, the RICO Defendants,
being persons employed by or affiliated in the J.M.W.R.E. enterprise, unlawfully
and wilfully combined, confederated, agreed and conspired with each other and
with others to violate N.R.S. Section 207.400(c), that is, to conduct or
participate in the management and operation, directly or indirectly, of the
affairs of the J.M.W.R.E. enterprise through racketeering activity, all in
violation of N.R.S. Section 207.400(h).
486. Stevens, Croxton, Voigt, Jefferies, Morgens, Waterfall, Elsinore
and RHC were each associated with the J.M.W.R.E. enterprise and all had the
authority to control and did in fact control, manage, operate and conduct the
affairs of the J.M.W.R.E. enterprise in order to fulfill the designs described
in paragraph herein.
487. Part of the conspiracy was that each of the RICO Defendants
committed and agreed, either expressly or impliedly, to be involved in and/or
support the aforementioned racketeering activity.
488. In furtherance of the conspiracy and to effect the objects
thereof, the RICO Defendants committed and caused to be committed a series of
overt acts, including:
a. Entering into and/or acceding to the Jefferies' First Finders
Agreement re Paulson, as described above;
b. Fraudulently misrepresenting that the Jefferies' First Finders
Agreement re Paulson did not exist in the Riviera Merger
Agreement, as described above;
- 109 -
<PAGE>
c. Fraudulently misrepresenting that the Jefferies' First Finders
Agreement re Paulson did not exist in the Riviera Option
Agreement, as described above;
d. Fraudulently misrepresenting that the Jefferies' First Finders
Agreement re Paulson did not exist in the Elsinore Merger
Agreement, as described above;
e. Fraudulently misrepresenting that the Jefferies' First Finders
Agreement re Paulson did not exist in the Elsinore Option
Agreement, as described above;
f. Fraudulently misrepresenting that the Jefferies' First Finders
Agreement re Paulson had been disclosed to Paulson prior to the
execution of the Riviera and Elsinore Option and Merger
Agreements, and the Riviera Escrow Agreement, in September of
1997, as described above;
g. Fraudulently denying that the Jefferies' First Finders Agreement
re Paulson did not exist in the correspondence since February of
1998, as described above.
489. Plaintiffs have been directly and proximately injured, by acts
constituting violations or attempted violations of N.R.S. Sections 205.380 and
90.570, in their business and property by reason of the RICO Defendants'
violation of N.R.S. 207.400(h), in an amount to be proven at trial, including
but not limited to, if it should ultimately be determined that the agreements
associated with the Riviera/Elsinore Transaction are not void and are
enforceable against Plaintiffs, or any of them, an amount up to or in excess of
$20 million equal to all monies Plaintiffs have paid or must pay to Morgens,
Waterfall, RHC, Elsinore, Keyport and SunAmerica with respect to the
Riviera/Elsinore Transaction and the agreements associated therewith. Resulting
Violation of N.R.S. Section 207.400(h) 490. Under the provisions of N.R.S.
Section 207.470, Plaintiffs have been injured in their business or property by
reason of a violation of N.R.S. Section 207.400.
- 110 -
<PAGE>
Pursuant to N.R.S. Section 207.470, Plaintiffs are entitled to maintain this
action and to recover herein three times the actual damages sustained and the
costs of suit, including attorneys fees and investigation and litigation costs.
FORTY-SEVENTH CLAIM FOR RELIEF
------------------------------
(By All Plaintiffs Against Stevens, Croxton, Voigt, and Jefferies
for Declaratory Relief)
491. Plaintiffs reallege and incorporate herein by reference
paragraphs 1 through 497, inclusive, of this Complaint.
492. As part of the Jefferies Retainer Agreement, at Jefferies'
insistence, Paulson executed Schedule A to that Agreement ("Schedule A"). A true
and correct copy of Schedule A to the Jefferies Retainer Agreement is attached
hereto as Exhibit "20" and is incorporated herein by reference.
493. Plaintiffs are informed and believe, and thereupon allege, that
Jefferies, Stevens, Croxton and Voigt (the "Jefferies Defendants") contend that,
pursuant to Schedule A, Paulson must "indemnify and hold harmless" the Jefferies
Defendants, and each of them, for the damages suffered by Plaintiffs as a result
of the actions or omissions by the Jefferies Defendants, or any of them, as
alleged herein.
494. Plaintiffs are informed and believe, and thereupon allege, that
the Jefferies Defendants contend that, pursuant to Schedule A, the damages
recoverable by Plaintiffs from the Jefferies Defendants, and each of them, as a
result of the actions or omissions by the Jefferies Defendants, or any of them,
as alleged herein, are limited to the amount of fees received by Jefferies
pursuant to the Jefferies Retainer Agreement.
495. Plaintiffs dispute that Plaintiffs, or any of them, are required
to indemnify or defend the Jefferies Defendants, or any of them, in connection
with the claims alleged herein or any other claims arising out of or related to
the Riviera/Elsinore Transaction and/or the Riverboat Transaction.
- 111 -
<PAGE>
496. Plaintiffs dispute that Plaintiffs' claims for damages, as
alleged herein, as against the Jefferies Defendants, or any of them, are in any
way limited to or related to the amount of fees paid to Jefferies pursuant to
the Jefferies Retainer Agreement.
497. An actual controversy of a justiciable nature now exists as to
whether: (1) Plaintiffs, or any of them, are required to indemnify or defend the
Jefferies Defendants, or any of them, in connection with the claims alleged
herein or any other claims arising out of or related to the Riviera/Elsinore
Transaction and/or the Riverboat Transaction; and (2) Plaintiffs' claims for
damages, as alleged herein, as against the Jefferies Defendants, or any of them,
are in any way limited to or related to the amount of fees paid to Jefferies
pursuant to the Jefferies Retainer Agreement. The controversy is of sufficient
immediacy to justify the issuance of a declaratory judgment consistent with the
above-alleged contentions of Plaintiffs declaring in sum and substance that: (1)
Plaintiffs are not required to indemnify or defend the Jefferies Defendants, or
any of them, in connection with the claims alleged herein or any other claims
arising out of or related to the Riviera/Elsinore Transaction and/or the
Riverboat Transaction; and (2) Plaintiffs' claims for damages, as alleged
herein, as against the Jefferies Defendants are in no way limited to or related
to the amount of fees paid to Jefferies pursuant to the Jefferies Retainer
Agreement.
- 112 -
<PAGE>
PRAYER FOR RELIEF
-----------------
498. WHEREFORE, Plaintiffs now pray for judgment against each
Defendant on all claims for relief as follows:
As to Defendant Jefferies & Company, Inc.:
- -----------------------------------------
1. Actual damages in an amount to be proven at trial but in excess
of $20,000,000;
2. Exemplary damages in the amount of $20,000,000;
3. Treble damages;
4. Attorney's fees;
5. Costs of investigation and litigation;
6. A Judicial Declaration that: (1) Plaintiffs are not required to
indemnify or defend Jefferies in connection with the claims
alleged herein or any other claims arising out of or related to
the Riviera/Elsinore Transaction and/or the Riverboat
Transaction; and (2) Plaintiffs' claims for damages, as alleged
herein, as against Jefferies are in no way limited to or related
to the amount of fees paid to Jefferies pursuant to the Jefferies
Retainer Agreement; and
7. Such other relief as the Court deems proper.
- 113 -
<PAGE>
As to Defendants M. Brent Stevens, Steven Croxton and Paul Voigt:
- ----------------------------------------------------------------
1. Actual damages in an amount to be proven at trial but in excess
of $20,000,000;
2. Exemplary damages in the amount of $20,000,000;
3. Treble damages;
4. Attorney's fees;
5. Costs of investigation and litigation;
6. A Judicial Declaration that: (1) Plaintiffs are not required to
indemnify or defend Stevens, Croxton and/or Voigt in connection
with the claims alleged herein or any other claims arising out of
or related to the Riviera/Elsinore Transaction and/or the
Riverboat Transaction; and (2) Plaintiffs' claims for damages, as
alleged herein, as against Stevens, Croxton and Voigt are in no
way limited to or related to the amount of fees paid to Jefferies
pursuant to the Jefferies Retainer Agreement; and
7. Such other relief as the Court deems proper.
- 114 -
<PAGE>
As to Defendant Elsinore Corporation:
- ------------------------------------
1. Actual damages in an amount to be proven at trial but in excess
of $20,000,000;
2. Exemplary damages in the amount of $20,000,000;
3. Treble damages;
4. Attorney's fees;
5. Costs of investigation and litigation;
6. Recission of the Elsinore Merger Agreement;
7. Restitution of all amounts expended and lost as a result of the
Elsinore Merger Agreement;
8. A Judicial Declaration that the termination of the Elsinore
Merger Agreement which took place herein constitutes a
"Non-Payment Termination Event" as defined under the Elsinore
Merger Agreement and/or that Elsinore is not entitled to any
compensation from R&E Gaming and/or EAS under the Elsinore Merger
Agreement; and
9. Such other relief as the Court deems proper.
- 115 -
<PAGE>
As to Defendant Riviera Holdings Corporation:
- --------------------------------------------
1. Actual damages in an amount to be proven at trial but in excess
of $20,000,000;
2. Exemplary damages in the amount of $20,000,000;
3. Treble damages;
4. Attorney's fees;
5. Costs of investigation and litigation;
6. Recission of the Riviera Merger Agreement and the Riviera Escrow
Agreement;
7. Restitution of all amounts expended in connection with the
Riviera Merger Agreement and the Riviera Escrow Agreement;
8. A Judicial Declaration that the termination of the Riviera Merger
Agreement which took place herein constitutes a "Non-Payment
Termination Event" as defined under the Riviera Escrow Agreement
and/or that R&E Gaming is entitled to return of the Escrow
Consideration; and
9. Such other relief as the Court deems proper.
- 116 -
<PAGE>
As to Defendant Morgens, Waterfall, Vintiadis & Company:
- -------------------------------------------------------
1. Actual damages in an amount to be proven at trial but in excess
of $20,000,000;
2. Exemplary damages in the amount of $20,000,000;
3. Treble damages;
4. Attorney's fees;
5. Costs of investigation and litigation;
6. Recission of the Riviera Option Agreement and the Elsinore Option
Agreement;
7. Restitution of all amounts expended in connection with the
Riviera Option Agreement and the Elsinore Option Agreement and
the Riviera Camera Agreement;
8. The imposition of a constructive trust on the proceeds of the
Elsinore/Morgens, Waterfall Letter of Credit and the
Riviera/Morgens, Waterfall Letter of Credit and any and all
profits therefrom;
9. A Judicial Declaration that the termination of the Riviera Merger
Agreement and the Elsinore Merger Agreement which took place
herein constitutes a "Non-Payment Termination Event" as defined
under the Riviera Escrow Agreement, the Riviera Option Agreement
and the Elsinore Option Agreement; and
10. Such other relief as the Court deems proper.
- 117 -
<PAGE>
Against Defendants Keyport Life Insurance Company and SunAmerica Life Insurance
- --------------------------------------------------------------------------------
Company:
- -------
1. Actual damages in an amount to be proven at trial; but in excess
of $20,000,000;
2. Costs of investigation and litigation;
3. Recission of the Riviera Option Agreement;
4. Restitution of all amounts expended in connection with the
Riviera Option Agreement and the Elsinore Option Agreement and
the Riviera Escrow Agreement;
5. The imposition of a constructive trust on the proceeds of the
Keyport Letter of Credit and/or the SunAmerica Letter of Credit
and any and all profits therefrom;
6. A Judicial Declaration that the termination of the Riviera Merger
Agreement which took place herein constitutes a "Non-Payment
Termination Event" as defined under the Riviera Option Agreement;
and
7. Such other relief as the Court deems proper.
- 118 -
<PAGE>
DEMAND FOR JURY TRIAL
---------------------
Plaintiffs hereby demand a jury trial on all issues so triable.
DATED: May ____, 1998
MUSICK, PEELER & GARRETT LLP
Richard P. Crane, Jr.
Joseph J. McCann, Jr.
Dennis M. P. Ehling
By: ____________________________
Richard P. Crane, Jr.
Attorneys for Plaintiffs
ALLEN P. PAULSON, an individual;
R&E GAMING CORPORATION, a Delaware
Corporation; ELSINORE ACQUISITION
SUB, INC., a Nevada Corporation;
RIVIERA ACQUISITION SUB, INC.,
a Nevada Corporation; CARLO
CORPORATION, a Delaware Corporation
- 119 -
<PAGE>
Appendix A
----------
1. June 16, 1997 Memorandum from Steven Croxton of Jefferies to
Allen E. Paulson attaching financial statistics and pictures of
Crescent City Queen Riverboat.
2. June, 1997 Communications from Steven Croxton of Jefferies to
Allen E Paulson regarding status of negotiations with Casino
Magic Louisiana for price, terms and conditions of purchase of
Crescent City Queen Riverboat.
- 120 -
<PAGE>
Appendix B
----------
3. March 7, 1997 facsimile transmission from Nick Toor of Jefferies
to Cherri Skoczek of Paulson Enterprises attaching a presentation
and financial information regarding the Riviera/Elsinore
Transaction.
4. April 28, 1997 facsimile transmission from Greg Gorman of
Jefferies to Cherri Skoczek of Paulson Enterprises attaching an
analysis of the value of Riviera Common Stock purchase options
held by Riviera executives.
5. May 12, 1997 presentation by Jefferies to Full House Resorts,
including a presentation of analysis regarding the financial
condition and projections for the Riviera/Elsinore Transaction.
6. June 5, 1997 facsimile transmission from Greg Gorman of Jefferies
to Cherri Skoczek attaching analysis regarding the financial
condition and projections for the Riviera/Elsinore Transaction.
7. July 31, 1997 Chart prepared by Jefferies entitled "R&E
Holdings-Proposed Structure," which presents an analysis of and
advice regarding the appropriate financing structure R&E Gaming
should employ in acquiring RHC and Elsinore.
8. October 3, 1997 Jefferies presentation to Paulson regarding
Jefferies' analysis and advice as to the appropriate financing
structure for the Riviera/Elsinore Transaction.
9. October 3, 1997 facsimile transmission from Brent Stevens of
Jefferies to Paulson attaching Jefferies' Presentation to Paulson
regarding Jefferies' analysis and
- 121 -
<PAGE>
advice as to the appropriate financing structure for the
Riviera/Elsinore Transaction.
10. October 6, 1997 Jefferies Presentation to Riviera Holdings Corp.
regarding proposed Acquisition Financing Structure for
Riviera/Elsinore Transaction.
11. January 15, 1998 facsimile transmission from M. Brent Stevens of
Jefferies to Paulson with attached draft letter outlining
Jefferies' further analysis and advice regarding a financing
strategy for the Riviera/Elsinore Transaction.
12. January 21, 1998 facsimile transmission from M. Brent Stevens of
Jefferies to Paulson with attached draft letter outlining
Jefferies' further analysis and advice regarding a proposed
financing strategy for the Riviera/Elsinore Transaction.
13. January 28, 1998 letter from Nick Toor of Jefferies to Paulson
outlining Jefferies' further analysis and advice regarding a
financing strategy for the Riviera/Elsinore Transaction.
- 122 -
<PAGE>
Appendix C
----------
1. Letter from Bruce Waterfall to Allen E. Paulson, President of R&E
Gaming, transmitted via facsimile on or about February 24, 1998
in which Waterfall represents that Morgens, Waterfall has "[a]t
no time ... been subject to any valid claim of any broker,
investment banker, finder or other intermediary in connection
with the Elsinore" sale.
2. Letter from Bruce Waterfall to Allen E. Paulson, President of R&E
Gaming, transmitted via facsimile on or about March 13, 1998 in
which Waterfall represents that the Jefferies First Finders
Agreement re Paulson never existed.
3. Letter from Bruce Waterfall to Allen E. Paulson, President of R&E
Gaming, transmitted via facsimile on or about March 30, 1998 in
which Waterfall represents that the Jefferies First Finders
Agreement re Paulson never existed.
- 123 -
<PAGE>
Appendix D
----------
1. May 9, 1997 memorandum from Duane Krohn of RHC to Nick Toor,
Steve Croxton and Ray Cheesman of Jefferies regarding 1997
projected budgets for RHC based on various assumptions.
2. May 13, 1997 correspondence from Duan Krohn of RHC to Greg Gorman
of Jefferies regarding financial data and projections for
Elsinore.
3. June 9, 1997 memorandum from Westerman to Stevens regarding Black
Hawk Project and management of other RHC properties.
4. June 19, 1997 correspondence from Duan Krohn of RHC to Greg
Gorman of Jefferies regarding May, 1997 financial reports, five
(5) year capital budget, and proposed debt re-write.
5. August 28, 1997 Agenda of Meeting and presentation to agents of
Paulson by RHC regarding analysis as to the financial condition
of, and projections for the financial future of, both RHC and
Elsinore.
6. November 3, 1997 memorandum from Westerman to Paulson and Edward
White regarding RHC's explanation for sharp downturn in financial
performance of RHC during 3rd Quarter of 1997.
7. November 13, 1997 memorandum from Westerman to Stevens regarding
enclosed financial models for Riviera, Elsinore and Black Hawk
properties.
- 124 -
<PAGE>
8. December 5, 1997 memorandum from Westerman to Stevens regarding
RHC financial projections through March, 1998.
- 125 -
Exhibit 99.2
PRESS RELEASE DATED
MAY 29, 1998
Riviera Holdings Corporation
NEWS 2901 Las Vegas Boulevard South
BULLETIN Las Vegas, NV 89109
FROM:
FRB Investor Relations: (800) 362-1460
Fax: (702) 794-9442
Hotel: (702) 734-5110
TRADED: AMEX - RIV
- --------------------------------------------------------------------------------
The Financial Relations Board, Inc.
FOR FURTHER INFORMATION
AT THE COMPANY: AT FINANCIAL RELATIONS BOARD:
Duane Krohn, Treasurer and CFO Kristi Larson (analysts)
(702) 794-9527 Don Markley (general information)
(415) 986-1591
John Wishon, Secretary and
General Counsel
(702) 794-9504
FOR IMMEDIATE RELEASE:
FRIDAY, MAY 29, 1998
RIVIERA ANNOUNCES ISSUANCE OF CONTINGENT VALUE RIGHTS
LAS VEGAS, N.V. - May 29 1998 - Riviera Holdings Corporation (AMEX:RIV)
announced today that Riviera and R&E Gaming Corp., a private entity controlled
by Allen E. Paulson, have amended the Escrow Agreement, which was executed in
connection with the Merger Agreement between such parties, to provide that the
approximately $5.2 million letter of credit, which is scheduled to expire on
June 10, 1998, will be extended until May 1, 1999 (with provision for subsequent
extensions, if necessary). The letter of credit is being held in escrow along
with cash, which together have aggregate value of approximately $5.8 million.
Riviera, Paulson, R&E Gaming and others are currently in litigation in the
United States District Court for the Central District of California as a result
of a termination of such Merger Agreement.
<PAGE>
Such Merger and Escrow Agreements contemplate that the Riviera
stockholders (other than Paulson, Morgens Waterfall, SunAmerica and Keyport
Life) would participate in the Escrow if R&E Gaming breached its obligations
under the Merger Agreement. In order to accomplish such objective, contingent
value rights ("CVR's") issuable to the record holders of Riviera's common stock,
on a one-for-one basis, as of the close of business on May 1, 1998 (excluding
Paulson, Morgens Waterfall, SunAmerica and Keyport Life) will be distributed in
the near future. Approximately 1,770,000 CVRs will participate in the pro rata
distribution of the escrow if Riviera is successful in its litigation with R&E
Gaming. If R&E Gaming is successful, the letter of credit and the other amounts
in escrow will be returned to R&E Gaming. There can be no assurance as to the
outcome of such litigation. The Company expects the CVRs will trade in the
over-the-counter market. The CVRs will trade separately from the Riviera common
stock which is listed on the American Stock Exchange under the symbol RIV.
Riviera Holdings Corporation owns and operates the Riviera Hotel and
Casino on the Las Vegas Strip, operates the Four Queens Hotel/Casino in downtown
Las Vegas and is developing a casino in Black Hawk, Colorado.
For more information on Riviera, dial 1-800-PRO-INFO, code RIV.
CITY NATIONAL BANK SWIFT ADDRESS: CINAUS6L
INTERNATIONAL DEPARTMENT TELEX NO.: 825717
606 SOUTH OLIVE STREET, SUITE 300
LOS AGNELES, CALIFORNIA 90014 FAX NO. (213) 347-2327
ISSUE DATE: 05/22/98
AMENDMENT NO. 1 TO IRREVOCABLE STANDBY LETTER OF CREDIT
970919.OD.0002
BENEFICIARY: STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA N.A.
725 SOUTH FIGUEROA STREET, NO. 3100
LOS ANGELES, CA 90017
APPLICANT: R & E GAMING CORP.
A DELAWARE CORPORATION
P.O. BOX 9660
RANCHO SANTA FE, CA 92067
Gentlemen:
WE HEREBY AMEND OUR IREVOCABLE STANDBY LETTER OF CREDIT DATED 09/26/97 ISSUED IN
YOUR FAVOR AS FOLLOWS:
- - NEW DATE OF EXPIRY: 05/01/99
1. EXHBIT "A" IS NOW TO READ AS PER ATTACHED.
2. SPECIAL CONDITIONS:
IT IS A CONDITION OF THIS LETTTER OF CREDIT THAT IT SHALL BE DEEMED
AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR AN ADDITIONAL PERIOD OF ONE (1)
YEAR FROM THE EXPIRY DATE HEREOF AND ANY FUTURE EXPIRATION DATE, UNLESS AT LEAST
SIXTY (60) DAYS PRIOR TO ANY EXPIRATION DATE, WE SHALL NOTIFY YOU IN WRITING BY
REGISTERED MAIL RETURN RECEIPT REQUESTED OR BY OVEERNIGHT COURIER SERVICE AT THE
BENEFICIARY'S ADDRESS AS STATED IN THE LETTER OF CREDIT, THAT WE ELECT NOT TO
RENEW THIS LETTER OF CREDIT FOR ANY SUCH ADDITIONAL PERIOD.
ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
THIS AMENDMENT FROMS AN INTEGRAL APRT OF THE ORIGINAL LETTER OF CREDIT AND MUST
BE ATTACHED THERETO.
/s/ To Man Yuen /s/ Chan Yuk Wah Wong
- ------------------------- -----------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
TO MAN YUEN CHAN YUK WAH WONG
ASSISTANT VICE PRESIDENT INTERNATIONAL BANKING OFFICER
SPECIAL INSTRUCTIONS TO BENEFICIARY: PLEASE SIGN AND RETURNT HE ATTACHED COPY OF
THIS AMENDMENT SIGNIFYING YOUR CONSENT THERETO OR REJECTION THEREOF. UPON
RECEIPT OF YOUR COSENT, THIS AMENDMENT WILL BE CONSIDERED OPERATIVE.
CONSENT: REJECTION:
- -------------------------------- --------------------------------
AUTHORIZED SIGNATURE AUTHROIZED SIGNATURE
STATE STREET BANK AND STATE STREET BANK AND
TRUST COMPANY OF CALIFORNIA N.A. TRUST COMPANY OF CALIFORNIA N.A.
Date: DATE:
---------------------- ---------------------------
<PAGE>
CITY NATIONAL BANK
INTERNATIONAL DEPARTMENT
606 SOUTH OLIVE STREET, SUITE 300
LOS AGNELES, CALIFORNIA 90014
This forms an integral part of Irrevocable standby Letter of Credit Number
970919.OD.0002 - Amendment No. 1 dated May 22, 1998
EXHIBIT "A"
The undersigned, a duly authorized officer of State Street Bank and
Trust Company of California N.A. (the "Escrow Agent"), hereby certifies to City
National Bank (the "Bank") with reference to irrevocable Letter of Credit No.
970919.OD.0002 (the "Letter of Credit") issued by the Bank that the Escrow Agent
is delivering notice as provided in Section 5(a) of the Amendment, dated as of
May 1, 1998, to the Escrow Agreement, dated as of September 15, 1997, among R&E
Gaming Corp., Riviera Holdings Corporation and Escrow Agent (collectively the
"Escrow Agreement") in full compliance with the terms and condition of the
Escrow Agreement, as amended.
Demand is hereby made under the Letter of Credit for $5,172,427.00.
Please remit payment to State Street Bank and Trust California, N.A., Account
No. ______________, at _________________, ABA No. ______________, at
_________________
By:
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Name:
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Title:
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Date:
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