SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-21430
Riviera Holdings Corporation
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109
- --------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 794-9527
- --------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE LAST FIVE YEARS
Indicate by check mark whether the Registrant has filed all
documentation and reports required to be filed by Section 12, 13, or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
As of November 1, 1999, there were 4,523,021 shares of Common Stock, $.001 par
value per share, outstanding.
<PAGE>
RIVIERA HOLDINGS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Independent Accountants' Report 2
Condensed Consolidated Balance Sheets at September 30, 1999 (Unaudited)
and December 31, 1998 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months and Nine Months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months and Nine Months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature Page 23
Exhibits 24
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Riviera Holdings Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Riviera Holdings Corporation (the "Company") and subsidiaries as of September
30, 1999, and the related condensed consolidated statements of operations and of
cash flows for the three months and nine months ended September 30, 1999 and
1998. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Riviera Holdings Corporation as of
December 31, 1998, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 19, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1998, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
November 1, 1999
Las Vegas, Nevada
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
September 30, December 31,
1999 1998
(Unaudited)
---------------- -----------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $39,213 $48,883
Cash and cash equivalents - restricted 18,255
Short term investments 5,201
Short term investments - restricted 10,251
Accounts receivable, net 5,524 5,390
Inventories 2,601 2,726
Prepaid expenses and other assets 4,023 4,028
---------------- -----------------
Total current assets 85,068 61,027
PROPERTY AND EQUIPMENT, NET 196,321 175,622
OTHER ASSETS, NET 10,363 7,797
RESTRICTED CASH 3 463
---------------- -----------------
TOTAL ASSETS $291,755 $244,909
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $1,024 $363
Accounts payable 14,748 11,865
Accrued interest 4,107 6,563
Accrued expenses - other 11,561 10,053
---------------- -----------------
Total current liabilities 31,440 28,844
---------------- -----------------
Deferred income taxes 1,540 3,123
---------------- -----------------
Other long-term liabilities 5,482 4,933
---------------- -----------------
LONG-TERM DEBT, NET OF CURRENT PORTION 222,638 174,506
---------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares authorized; 5,067,676 issued
and outstanding at September 30, 1999
and 5,073,376 at December 31, 1998) 5 5
Additional paid-in capital 13,446 13,457
Treasury stock (39,100 shares at September 30, 1999, and
34,300 shares at December 31, 1998) (189) (167)
Notes receivable from Employee Shareholders (3)
Retained earnings 17,393 20,211
---------------- -----------------
Total shareholders' equity 30,655 33,503
---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $291,755 $244,909
================ =================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
(In Thousands, Except Per Share Amounts) Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------
1999 1998 1999 1998
REVENUES:
<S> <C> <C> <C> <C>
Casino $18,654 $19,681 $56,934 $59,160
Rooms 8,726 8,948 28,926 29,295
Food and beverage 6,253 5,999 19,289 18,152
Entertainment 5,561 5,666 16,629 16,439
Other 2,777 2,695 8,558 8,387
-------------- -------------- -------------- --------------
41,971 42,989 130,336 131,433
Less promotional allowances 3,067 3,512 10,485 10,600
-------------- -------------- -------------- --------------
Net revenues 38,904 39,477 119,851 120,833
-------------- -------------- -------------- --------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 10,523 11,675 33,218 33,998
Rooms 5,473 5,182 16,335 15,611
Food and beverage 4,761 4,478 13,721 13,161
Entertainment 4,353 4,248 12,733 12,698
Other 863 836 2,501 2,494
Other operating expenses:
General and administrative 7,897 7,455 22,242 20,545
Preopening expenses-Black Hawk, Colorado casino project 46 119
Corporate expense, severance pay 551 551
Depreciation and amortization 3,550 3,047 10,404 9,037
-------------- -------------- -------------- --------------
Total costs and expenses 37,466 37,472 111,273 108,095
-------------- -------------- -------------- --------------
INCOME FROM OPERATIONS 1,438 2,005 8,578 12,738
-------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest expense on $100 million notes (4,642)
Interest on Treasury Bills held to retire $100 million notes 2,334
Interest expense, other (6,546) (4,857) (16,788) (14,655)
Interest income, other 899 590 1,598 1,942
Interest capitalized 1,261 764 3,032 1,767
Other, net (primarily Paulson litigation and settlement costs) (1,524) (567) (1,804) (1,058)
-------------- -------------- -------------- --------------
Total other income (expense) (5,910) (4,070) (13,962) (14,312)
-------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (4,472) (2,065) (5,384) (1,574)
PROVISION (BENEFIT) FOR INCOME TAXES (2,300) (686) (2,566) (515)
-------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (2,172) (1,379) (2,818) (1,059)
EXTRAORDINARY ITEM, NET OF INCOME TAX OF $1.6 MILLION (3,006)
-------------- -------------- -------------- --------------
NET INCOME (LOSS) ($2,172) ($1,379) ($2,818) ($4,065)
============== ============== ============== ==============
Earnings (loss) per share before extraordinary item:
Basic $ (0.43) $ (0.27) $ (0.56) $ (0.21)
Diluted $ (0.43) $ (0.27) $ (0.56) $ (0.21)
Earnings (loss) per share for extraordinary item:
Basic $ (0.60)
Diluted $ (0.60)
Earnings (loss) per share:
Basic $ (0.43) $ (0.27) $ (0.56) $ (0.81)
Diluted $ (0.43) $ (0.27) $ (0.56) $ (0.81)
Weighted average common shares outstanding 5,067,676 5,107,976 5,068,698 5,016,201
Weighted average common&common equivalent shares 5,067,676 5,107,976 5,068,698 5,016,201
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net Income (loss) ($2,172) ($1,379) ($2,818) ($4,065)
Adjustments to reconcile net income(loss) to net cash (used in) and
provided by operating activities:
Gain on sale of equipment (55) (55)
Depreciation and amortization 3,550 3,047 10,404 9,038
Extraordinary item, call premium to defease $100M Bonds 4,624
Interest income on Tbills to defease $100M Bonds (2,334)
Interest expense, $100M Bonds 4,642
Interest paid, $100M Bonds (4,614)
Interest expense, other 6,545 4,857 16,787 14,655
Interest paid, other (8,836) (8,770) (17,627) (17,671)
Capitalized interest on construction projects (1,261) (764) (3,032) (1,767)
Other expense, net (primarily Paulson litigation and settlement) 1,566 1,118 1,919 1,609
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net (1,726) (1,125) (134) 211
Decrease (increase) in inventories (112) 412 124 729
Decrease (increase) in prepaid expenses
and other assets (644) (7) 5 (335)
Increase (decrease) in accounts payable (4,893) 441 (3,834) (1,564)
Increase (decrease) in accrued liabilities 1,440 (247) (42) (84)
Increase (decrease) in current income taxes payable 1,118
Increase (decrease) in deferred income taxes (1,317) (802) (1,583) (2,753)
Increase in non-qualified pension plan obligation
to CEO upon retirement 274 251 602 736
----------- ---------- ---------- ----------
Net cash (used in) provided by operating activities (7,641) (1,849) 716 1,058
----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment, Las Vegas, Nevada (2,373) (7,236) (9,017) (14,868)
Capital expenditures - Black Hawk, Colorado project (9,381) (2,838) (22,205) (6,179)
Property acquired with accounts payable - primarily Black Hawk, Co. 5,231 5,558
Capitalized Interest on construction projects 1,261 764 3,032 1,767
Purchase of short term investments (230) (1) (15,452) (33)
Decrease (increase) Black Hawk, Colorado restricted funds 8,023 (18,255)
Sale of equipment 174 174
Decrease (increase) in other assets 212 185 (2,754) 220
----------- ---------- ---------- ----------
Net cash provided by (used in) investing activities 2,917 (9,126) (58,919) (19,093)
----------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from US Tbills invested to defease $100M Bonds 108,930
Payments to defease $100M Bonds with call premium (104,313)
Proceeds from long-term borrowings 2,515 458 48,780 458
Payments on long-term borrowings (74) (94) (217) (270)
Purchase of treasury stock (22)
Net collections, cancellations employee stock purchase plan
and exercise of employee stock options (2) (7) (52)
----------- ---------- ---------- ----------
Net cash provided by financing activities 2,441 362 48,534 4,753
----------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($2,283) ($10,613) ($9,670) ($13,282)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $41,496 $62,691 $48,883 $65,360
----------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $39,213 $52,078 $39,213 $52,078
=========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Riviera Holdings Corporation (the "Company") and its wholly-owned subsidiary
Riviera Operating Corporation ("ROC") were incorporated on January 27, 1993, in
order to acquire all assets and liabilities of Riviera, Inc. Casino-Hotel
Division on June 30, 1993, pursuant to a plan of reorganization.
In July 1994, management established a new division, Riviera Gaming Management,
Inc. ("RGM") for the purpose of obtaining management contracts in Nevada and
other jurisdictions. In August 1996, RGM incorporated in the State of Nevada as
a wholly owned subsidiary of ROC. In March 1997 Riviera Gaming Management of
Colorado was incorporated in the State of Colorado, and in August 1997 Riviera
Black Hawk, Inc. was incorporated in the State of Colorado for the purpose of
developing a casino in Black Hawk, Colorado.
Nature of Operations
The primary line of business of the Company is the operation of the Riviera
Hotel & Casino on the "Strip" in Las Vegas, Nevada, including the operation of a
hotel/casino with restaurants and related facilities. The Company is developing
a casino in Black Hawk, Colorado. Additionally, the Company manages the Four
Queens Hotel/Casino in downtown Las Vegas, Nevada. On September 1, 1999, the
Company received notice from Elsinore Corporation that its management contract
would be cancelled effective December 30, 1999.
Casino operations are subject to extensive regulation in the State of Nevada by
the Gaming Control Board and various other state and local regulatory agencies.
Management believes that the Company's procedures for supervising casino
operations, for recording casino and other revenues and for granting credit
comply, in all material respects, with the applicable regulations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary ROC and various indirect wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
The financial information at September 30, 1999 and for the three months and
nine months ended September 30, 1999 and 1998 is unaudited. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations, and cash flows
for the interim periods. The results of operations for the nine months ended
September 30, 1999 and 1998, are not necessarily indicative of the results that
will be achieved for the entire year.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1998, included in the Company's Annual Report on Form 10-K/A.
Legal Proceedings
The Company is a party to several routine lawsuits both as plaintiff and as
defendant arising from the normal operations of a hotel /casino. Management does
not believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the financial position or results of operations of
the Company or ROC.
Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens Waterfall") filed a
Complaint against the issuer and its directors (the "Defendants") on September
30, 1999, in the Eighth Judicial District Court, Clark County, Nevada, Case No.
A408793 ("Nevada State Court"). Morgens Waterfall also filed an Application for
Temporary Restraining Order and Motion for Preliminary Injunction ("TRO")
seeking to restrain the issuer from pursuing its Motion for Entry of Settlement
Bar Order and Final Judgment, in a litigation in the United States District
Court for the Central District of California (Western Division), Case No.
98-2644 ABC (AIJx) (the "Paulson Plaintiffs Litigation"). The issuer filed a
Notice of Removal to United States District Court for the District of Nevada, on
October 1, 1999.
Morgens Waterfall did not pursue its application for a TRO in the Nevada Federal
Court. Instead it sought an order in the California Federal Court staying the
issuer's motion. This effort to obtain a stay failed, and the issuer's Motion
for Entry of Settlement Bar Order and Final Judgment was granted and a
Settlement Bar Order was entered by the California District Court in the Paulson
Plaintiffs Litigation on October 28, 1999.
On November 1, 1999, Morgens, Waterfall, Vintiadis & Company, Inc. made a motion
to remand its lawsuit to the Nevada State Court. The Defendants intend to oppose
such motion.
According to the memorandum filed by Morgens Waterfall in connection with its
motion to remand, the Morgens Waterfall complaint alleges "1) direct
shareholders' claims against the issuer and its directors for breaches of
fiduciary duty, based upon their entering into a discriminatory Settlement
Agreement and Bar Order which disadvantages Morgens Waterfall and other minority
shareholders for the benefit of certain other shareholders, including director
shareholders, and 2) a derivative shareholder's claim against the issuer which
seeks to enjoin the corporation from acting in a manner that discriminates
between and among its shareholders and is wasteful of corporate assets."
The Defendants believe the Morgens Waterfall complaint is without merit and
intend to seek summary judgment at the earliest possible moment.
Copies of the Morgens Waterfall complaint are filed as an exhibit to this Form
10Q.
(See also Note 4 - Paulson Merger, Contingent Value Rights and Related
Litigation).
Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Significant estimates used by the Company include
estimated useful lives for depreciable and amortizable assets, certain accrued
liabilities and the estimated allowance for receivables. Actual results may
differ from estimates.
Cash and cash equivalents and short term investments - restricted
Amounts related to the Riviera Black Hawk casino project in Black Hawk, Colorado
are restricted in use to that project or for the related 13% First Mortgage
Notes interest payments.
Earnings Per Share
Basic per share amounts are computed by dividing net income (loss) by average
shares outstanding during the period. Diluted net income per share amounts are
computed by dividing net income by average shares outstanding plus the dilutive
effect of common share equivalents. However, the effect of stock options
outstanding is not included in diluted net loss per share calculations. Since
the Company incurred a net loss from continuing operations during the three
month and nine month periods ended September 30, 1999 and 1998, diluted per
share calculations are based upon average shares outstanding during this period.
Recently Issued Accounting Standards
The Financial Accounting Standards Board recently issued FAS No. 137, `Deferral
of FAS 133 Accounting for Derivatives' which delays the implementation of that
pronouncement to June 15, 2000. The Company has not determined what effect, if
any, that FAS 133 may have on its results of operations
Reclassifications
Certain amounts in the prior periods have been reclassified to conform to the
current period presentation.
2. DEBT
On August 13, 1997, the Company issued 10% First Mortgage Notes ("the 10%
Notes") with a principal amount of $175 million. The Notes were issued at a
discount in the amount of $2.2 million. The discount is being amortized over the
life of the 10% Notes on a straight-line basis. On August 13, 1997, under a
contractual defeasance, the Company used part of these proceeds to purchase
United States Government Treasury bills ("the Securities") at a cost of $109.8
million which were deposited into an irrevocable trust. The proceeds from these
securities, together with interest that was earned by the Securities was used to
pay the principal, interest and call premium due on the 11% First Mortgage Notes
("the 11% Notes" or "$100 million notes") on September 1, 1998, the earliest
date the 11% Notes could be redeemed. Interest earned from the Securities is
included in "Interest income on Treasury Bills held to retire $100 million
notes." The interest expense from the 10% Notes is included in "Interest
expense, other", and from the 11% Notes is included in "Interest expense on $100
million notes".
The $100 million notes, which were contractually defeased in August 1997, were
redeemed on June 1, 1998. The call premium of $4.3 million and unamortized
deferred financing costs totaling $300,000 were recorded net of the 35% income
tax effect of $1.6 million resulting in an extraordinary loss of $3.0 million.
On June 3, 1999, Riviera Black Hawk, Inc. ("RBH"), a wholly owned subsidiary,
closed a $45 million private placement of 13% First Mortgage Notes. The net
proceeds of the placement will be used to fund the completion of RBH's casino
project in Black Hawk, Colorado. The Company has not guaranteed the $45 million
RBH Notes, but has agreed to a "Capital Completion Commitment" of up to $10
million and a "Keep Well" of $5 million per year (or an aggregate limited to $10
million) for the first 3 years of RBH operations to cover if (i) the $5.85
million interest on such Notes is not paid by RBH and (ii) the amount by which
RBH cash flow is less than $7.5 million per year.
In April 1999, the Company entered into a $3.0 million capital lease line for 60
months at approximately 8.3% of which $1.2 million was used to date for general
equipment purchases.
In July 1999, the Company entered into a $3.5 million equipment financing
arrangement for 60 months at approximately 9.1%.
3. COMMITMENTS
RBH is constructing a casino in Black Hawk, Colorado on a site which was
purchased for $15 million in August 1997. As of September 30, 1999 the Company
had made $20.0 million in cash contributions to RBH (excluding capitalized
interest).
In October 1999, the Company's 100% owned subsidiary, Riviera Black Hawk, Inc.
committed to a $11.1 million capital lease line for 60 months at approximately
10.6% for gaming equipment , furniture and fixtures at the Black Hawk, Colorado
casino. Management believes that these financial arrangements along with the $45
million First Mortgage Notes will be sufficient to construct and open the
casino.
As a result of the scheduled opening of several new Las Vegas Strip properties
in 1999 and 2000, an estimated 38,000 jobs must be filled, including
approximately 5,000 supervisory positions. Because of the Company's performance
and reputation, its employees are prime candidates to fill these positions. In
the third quarter of 1998 management instituted an employee retention plan ("the
Plan") which covers approximately 85 executive, supervisory and technical
support positions and includes a combination of employment contracts, stay put
agreements, bonus arrangements and salary adjustments. The period costs
associated with the Plan are being accrued as additional payroll costs and
included approximately $150,000 in the third quarter of 1999 and $450,000 year
to date. The total cost of the Plan is estimated to be approximately $2.0
million over the period July 1, 1998 through June 30, 2001.
4. PAULSON MERGER, CONTINGENT VALUE RIGHTS AND RELATED LITIGATION
Riviera Holdings was a defendant in an action commenced on April 9, 1998, by
Allen Paulson, R&E Gaming Corp. and other Paulson-controlled entities
(collectively, "Paulson") in the United States District Court for the Central
District of California. The other defendants in the action include Jefferies &
Company, Inc. (the initial Purchaser of the notes), as well as Morgens,
Waterfall, Vintiadis & Company, Inc., Keyport Life Insurance Company, Sun
America Life Insurance Company and others. Paulson's claims arise from a merger
agreement between Riviera Holdings and Paulson which was terminated in the first
half of 1998.
The Company entered into a Settlement Agreement, dated as of July 1, 1999 (the
"Settlement Agreement"), by and among Allen E. Paulson ("Paulson"), R&E Gaming
Corp. ("Gaming"), Riviera Acquisition Sub, Inc. ("RAS"), Elsinore Acquisition
Sub, Inc. ("EAS"), and Carlo Corporation ("Carlo," and collectively with
Paulson, Gaming, EAS, and RAS, the "Paulson Plaintiffs"), and the Company
("RHC").
On October 8, 1999, the Federal District Court for the Central District of
California approved a bar order as part of a settlement of the lawsuit brought
by Allen Paulson against the Company. Pursuant to the terms of the Settlement
Agreement, the Company purchased 463,655 shares from Mr. Paulson for $7.50 per
share. By a letter dated October 13, 1999, the Company's Chairman advised
holders of Contingent Value Rights ("CVR's") that they would receive from an
escrow established by Mr. Paulson in connection with the aborted Paulson-Riviera
merger $2.46 for each CVR. On Friday, October 8, 1999, there were 1,770,000
CVR's outstanding. The Company accrued $1,159,000 for settlement costs as of
September 30, 1999, representing the spread between the $7.50 paid to Mr.
Paulson for his shares and the $5.00 marker price at July 1, 1999, when the
agreement was reached.
5. SUBSEQUENT EVENTS
On October 14, 1999, the Company agreed to purchase 81,000 of its shares from
Sun America, Inc. at $7.50 per share. On October 20, 1999, the Company completed
this transaction which reduced Sun America's ownership of the Company below 15%
of the Company's outstanding stock to facilitate the licensing by the Colorado
Gaming Commission of the Company's subsidiary, Riviera Black Hawk, Inc. After
giving effect to such share repurchases in addition to the Paulson repurchase,
the Company had 4,523,021 shares of common stock outstanding.
<PAGE>
5. SEGMENT DISCLOSURES
The Company provides Las Vegas-style gaming, amenities and entertainment. The
Company's four reportable segments are based upon the type of service provided:
Casino, rooms, food and beverage, and entertainment. The casino segment provides
customers with gaming activities through traditional table games and slot
machines. The rooms segment provides hotel services. The food and beverage
segment provides restaurant and drink services through a variety of themed
restaurants and bars. The entertainment segment provides customers with a
variety of live Las Vegas-style shows, reviews and concerts. All other segment
activity consists of rent income, retail store income, telephone and other
activity. Intersegment revenues consist of revenues generated through
complimentary sales to customers by the casino segment. The Company evaluates
each segment's performance based on segment operating profit. The accounting
policies of the operating segments are the same as those described in the
summary of significant accounting policies
<TABLE>
<CAPTION>
Food and Entertain-
Three Months ended September 30, 1999 Casino Rooms Beverage ment All Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $18,654 $7,888 $4,708 $4,877 $2,777 $38,904
Intersegment revenues 838 1,545 684 3,067
Segment profit (loss) 8,131 2,415 (53) 524 1,914 12,931
Three Months ended September 30, 1998
Revenues from external customers $19,681 $7,931 $4,230 $4,940 $2,695 $39,477
Intersegment revenues 1,017 1,769 726 3,512
Segment profit (loss) 8,006 2,749 (248) 693 1,859 13,059
Nine Months ended September 30, 1999
Revenues from external customers 56,934 26,053 13,798 14,508 8,558 $119,851
Intersegment revenues 2,873 5,491 2,121 10,485
Segment profit (loss) 23,716 9,718 77 1,775 6,057 41,343
Nine Months ended September 30, 1998
Revenues from external customers $59,160 $26,229 $12,731 $14,326 $8,387 $120,833
Intersegment revenues 3,066 5,421 2,113 10,600
Segment profit (loss) 25,162 10,618 (430) 1,628 5,893 42,871
</TABLE>
Reconciliation of segment profit to consolidated net income before taxes and
extraordinary items:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Segment profit 12,931 13,059 $41,343 $42,871
Other operating expenses 11,493 11,053 32,765 30,133
Other expense 5,910 4,070 13,962 14,312
Net income (loss) before provision (benefit) for taxes and
extraordinary items ($4,472) ($2,065) ($5,384) ($1,574)
======== ======== ======== ========
</TABLE>
The Company does not market to residents of Las Vegas. Significantly all
revenues are derived from patrons visiting the Company from other parts of the
United States and other countries. Revenues from a foreign country or region may
exceed 10% of all reported segment revenues; however, the Company cannot
identify such information based upon the nature of gaming operations.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following tables set forth certain operating information for the Company for
the three months and nine months ended September 30, 1999 and 1998. Revenues and
promotional allowances are shown as a percentage of net revenues. Department
costs are shown as a percentage of departmental revenues.
All other percentages are based on net revenues.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Income Statement Data: 1999 1998 1999 1998
--------- -------- --------- ---------
Revenues:
<S> <C> <C> <C> <C>
Casino 47.9% 49.9% 47.5% 49.0%
Rooms 22.4% 22.7% 24.1% 24.2%
Food and beverage 16.1% 15.2% 16.1% 15.0%
Entertainment 14.3% 14.4% 13.9% 13.6%
Other 7.2% 6.7% 7.1% 6.8%
Less promotional allowances -7.9% -8.9% -8.7% -8.8%
Net Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Casino 56.4% 59.3% 58.3% 57.5%
Rooms 62.7% 57.9% 56.5% 53.3%
Food and beverage 76.1% 74.6% 71.1% 72.5%
Entertainment 78.3% 75.0% 76.6% 77.2%
Other 31.1% 31.0% 29.2% 29.7%
General and administrative 20.3% 18.9% 18.6% 17.0%
Preopening Expenses - Black Hawk, Colorado Project 0.1% 0.0% 0.1% 0.0%
Corporate expenses, severance pay 0.0% 0.0% 0.0% 0.5%
Depreciation and amortization 9.1% 7.7% 8.7% 7.5%
Total costs and expenses 96.3% 94.9% 92.8% 89.5%
Income from operations 3.7% 5.1% 7.2% 10.5%
Interest expense on $100 million notes 0.0% 0.0% 0.0% -3.8%
Interest income on Treasury Bills to retire $100 million notes 0.0% 0.0% 0.0% 1.9%
Interest expense, other -16.8% -12.3% -14.0% -12.1%
Interest income, other 2.3% 1.5% 1.3% 1.6%
Interest, capitalized 3.2% 1.9% 2.5% 1.5%
Other, net (primarily Paulson litigation and settlement) -3.9% -1.4% -1.5% -0.9%
Income (loss) before (benefit) provision for income taxes -11.5% -5.2% -4.5% -1.3%
(Benefit) provision for income taxes -5.9% -1.7% -2.1% -0.4%
Net income before extraordinary item -5.6% -3.5% -2.4% -0.9%
Extraordinary item, net of income taxes of $1.6 million 0.0% 0.0% 0.0% -2.5%
Net Income (Loss) -5.6% -3.5% -2.4% -3.4%
EBITDA (1) Margin 12.9% 14.2% 15.9% 18.0%
Net cash provided by (used in) operating activities -19.6% -4.7% 0.6% 0.9%
</TABLE>
1 EBITDA consists of earnings before interest, income taxes, depreciation,
amortization, preopening expenses, and Other, net. While EBITDA should not be
construed as a substitute for operating income or a better indicator of
liquidity than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles ("GAAP"), it is
included herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and working
capital requirements. Although EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, management believes that certain
investors find EBITDA to be a useful tool for measuring the ability of the
Company to service its debt. EBITDA margin is EBITDA as a percent of net
revenues. The Company's definition of EBITDA may not be comparable to other
companies' definitions.
<PAGE>
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Revenues
Net revenues decreased by $600,000, or 1.5%, from $39.5 million in the third
quarter of 1998 to $38.9 million in third quarter of 1999. Casino revenues
decreased by $1.0 million, or 5.2%, from $19.7 million during 1998 to $18.7
million during 1999 due to a decrease in table games revenues. Table games drop
was down $2.6 million, or 11.3%, from $22.6 million in the third quarter of 1998
to $20.0 million in the third quarter of 1999 and hold percentage was down
somewhat from 20.4% to 18.3%. The hold percentage for the quarter is comparable
to budget and similar to Las Vegas Strip averages. We essentially won from our
significant table games customers in 1998 and they are winning from us this year
Slot revenues increased slightly due to the success of the lower denomination
slot machines and the reduction of amounts paid to distributors of participation
machines for a share of the revenues. In addition, we were able to keep our
costs in line in the marketing and payroll areas in slots, allowing us to
increase the slot departmental profits by $800,000 in the quarter.
Room revenues decreased by approximately $200,000, or 2.5% from $8.9 million in
1998 to $8.7 million in 1999 as the result of a decrease of $1.96 in average
daily rate from $47.85 in 1998 to $45.89 in 1999, which was partially offset by
an increase in hotel occupancy of 1.8% from 97.0% to 98.8%. Convention room
revenue decreased approximately $200,000 or 5.9% from $3.1 million in 1998 to
$2.9 million in 1999 and was partially offset by an increase in tour operator
reservations. Convention revenues decreased due to lower attendance at recurring
conventions and competition among the Las Vegas Strip hotels for the delegates.
Food and beverage revenues increased approximately $300,000, or 4.2%, from $6.0
million during 1998 to $6.3 million in 1999 due primarily to the expansion of
the convention center banquet facilities. In addition, prices were increased in
some of the other food and beverage outlets.
Entertainment revenues decreased approximately $100,000, or 1.8%, from $5.7
million in 1998 to $5.6 million in 1999, as ticket sales decreased for all
shows, with the exception of Splash which experienced a slight increase in
attendance.
Promotional allowances decreased approximately $500,000, or 12.7%, from $3.5
million in 1998 to $3.0 million in 1999 due to a reduction in table games
marketing activity and the rescheduling of the major fall slot tournament from
third quarter in 1998 to fourth quarter in 1999.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased approximately
$500,000, or 1.7%, from $26.4 million for the three months ended September 30,
1998 to $26.0 million for the three months ended September 30, 1999.
Casino expenses decreased $1.2 million, or 9.9%, as overall table games revenues
declined and the related direct costs such as payroll, promotional allowances
and taxes decreased. Slot marketing costs were reduced due to the elimination of
certain summer cash giveaway programs which had been offered in prior years and
the rescheduling of the fall slot tournament from third quarter 1998 to fourth
quarter 1999. Casino expenses as a percentage of revenues decreased from 59.3%
in 1998 to 56.4% in 1999.
Room costs increased approximately $300,000, or 5.6%, from $5.2 million in 1998
to $5.5 million in 1999. Room costs as a percentage of room revenue increased
from 57.9% in 1998 to 62.7% in 1999 due to the increase in occupancy, increased
union wage scales and a decision to increase staffing to offer greater service
to our hotel guests.
Food and beverage costs increased approximately $300,000, or 6.3%, from $4.5
million during the 1998 period to $4.8 million for the 1999 period. Further,
food and beverage costs as a percentage of revenues increased from 74.6% to
76.1% because of the increased union wage scales, and an increase in personnel
to staff the new convention center banquet facilities.
Entertainment costs increased $100,000, or 2.5%, from $4.2 million during the
1998 period to $4.3 million in the 1999 period. Entertainment expense as a
percentage of entertainment revenues increased from 75.0% in 1998 to 78.3% in
1999 as a result of increased Splash advertising and promotion costs.
Other departmental expenses remained the same at approximately $850,000 and 31%
of other operating revenues.
Other Operating Expenses
General and administrative expenses increased approximately $400,000, or 5.9%,
from $7.5 million in 1998 to $7.9 million in 1999. These expenses increased from
18.9% of total net revenues in 1998 to 20.3% during the 1999 period. In the
third quarter of 1998 management instituted an employee retention plan which
covers approximately 85 executive, supervisory and technical support positions
and includes a combination of employment contracts, stay put agreements, bonus
arrangements and salary adjustments. The period costs associated with the plan
are being accrued as additional payroll costs and included approximately
$150,000 in the third quarter of 1999. The total cost of the plan is estimated
to be approximately $2.0 million over the period July 1, 1998 through June 30,
2001. Additionally, utility costs have increased $150,000 from 1998 to 1999 due
to the expansion of the convention center.
Depreciation and amortization increased by $500,000, or 16.5%, from $3.0 million
in 1998 to $3.5 million in 1999 due to capital expenditures for the casino
renovation, which was completed in December 1998, and the Convention Center
Pavilion, which was completed in February 1999.
Other Income (Expense)
Interest expense, other increased $1.7 million , or 34.8%, due to the issuance
of 13% First Mortgage Notes on the Black Hawk, Colorado, project effective June
1999. Interest income, other increased $300,000 because of the higher investment
balances for the period from the proceeds of the 13% First Mortgage Notes on
Black Hawk, Colorado $175 million notes. Other expenses, net include Paulson
litigation and settlement costs of $1.5 million in 1999. Of this amount $1.2
million represents the spread on the repurchase of Mr. Paulson's shares in
connection with the settlement of the litigation. Riviera agreed to pay $7.50
per share in July 1999 when the market price was $5.00 per share.
Capitalized interest for the third quarter of 1999 was $1.3 million on the Black
Hawk, Colorado project compared to $760,000 in 1998 (which also included the
Convention Center Pavilion).
Net Income (Loss)
The Net Loss increased by approximately $800,000 from a loss of $1.4 million for
the three months ended September 30, 1998 to a loss of $2.2 million for the
three months ended September 30, 1999 due primarily to the increased interest
expense and other fluctuations discussed above. Federal income tax benefits
exceed the normal 35 percent because the Company settled an audit through 1996.
The audit resulted in the release of reserves for taxes on employee meals and
other items, which were settled favorably to the Company. As required under
GAAP, the Company will be amortizing the benefit over the balance of the year,
or $1,l25,000 for the third quarter and the same amount for the fourth quarter.
Net Cash Provided by Operating Activities
Net cash used in operating activities increased $6.0 million from $1.8 million
in 1998 to $7.6 million in 1999. Accounts payable for the Black Hawk, Colorado
project increased $5.0 million. Net revenues, primarily casino table games,
decreased $600,000 or 1.5%, and general and administrative increased
approximately $400,000 as previously discussed.
EBITDA
EBITDA decreased by $600,000, or 10.1%, from $5.6 million in 1998 to $5.0
million in 1999.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Revenues
Net revenues decreased by $1.0 million, or 0.8%, from $120.8 million in 1998 to
$119.8 million in 1999. Casino revenues decreased by approximately $2.2 million,
or 3.8%, from $59.1 million during 1998 to $56.9 million during 1999 due
primarily to a decrease in table games revenues which was partially offset by an
increase in slot revenues. The decrease in table games revenues was due
primarily to a lower hold percentage which was 16.6% in 1999 compared to 19.1%
in 1998, which is approximately 1.9% higher than the normal hold percent. In
addition, table games drop, which is generally considered to be gross volume in
the casino industry, declined $2.8 million, or 3.9%. Racebook revenues decreased
$220,000 in the period due to lower handle (volume) with comparable hold
percentages. These decreases were partially offset by increases in slot revenues
due to the continued success of lower denomination slot machines and a 14%
reduction of amounts paid to distributors of participation slot machines for a
share of the revenues.
Room revenues decreased by approximately $400,000, or 1.3% from $29.3 million in
1998 to $28.9 million in 1999 as the result of a decrease of $ 2.37 in average
daily rate from $54.04 in 1998 to $51.67 in 1999. However, hotel occupancy
increased from 95.6% in 1998 to 98.2% in 1999. Convention room revenue decreased
approximately $300,000 or 3.2% from $10.8 million in 1998 to $10.5 million in
1999 and was partially offset by an increase in tour operator revenues.
Convention revenues decreased due to lower attendance at recurring conventions
and competition among the Las Vegas Strip hotels for the delegates.
Food and beverage revenues increased approximately $1.1 million, or 6.3%, from
$18.2 million during 1998 to $19.3 million in 1999 due primarily to the
expansion of the convention center banquet facilities. Banquet covers increased
approximately 95,000, or 37.8%, from 251,000 in 1998 to 346,000 in 1999.
Entertainment revenues increased by approximately $200,000, or 1.2%, from $16.4
million during 1998 to $16.6 million in 1999 due to a an increase in box office
processing fee revenue. Show attendance was down 12,000 covers, or 2.1% from
584,000 in 1998 to 572,000 in 1999.
Other operating revenues increased by approximately $200,000, or 2.0%, from $8.4
million in 1998 to $8.6 million in 1999 due to increased retail shops sales.
Promotional allowances decreased $100,000, or 1.1%, from $10.6 million in 1998
to $10.5 million in 1999 as the result of fewer complimentary room nights
offered to casino customers.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments increased by
approximately $500,000, or 0.7%, from $78.0 million for the nine months ended
September 30, 1998 to $78.5 million for the nine months ended September 30,
1999.
Casino expenses decreased by approximately $800,000, or 2.3%, from $34.0 million
during 1998 to $33.2 million during 1999. Table games direct costs such as
payroll, promotional allowances and taxes decreased commensurate with the
decrease in casino drop. Slot marketing costs were reduced by the elimination of
certain summer cash giveaway programs and the rescheduling of the fall slot
tournament from third quarter 1998 to fourth quarter 1999. However, casino
expenses as a percent of casino revenue increased from 57.5% to 58.3% due to the
decline in table games revenues.
Room costs increased by approximately $700,000, or 4.6%, from $15.6 million
during the 1998 period to $16.3 million during the 1999 period and room costs as
a percentage of room revenue increased from 53.3% in 1998 to 56.5% in 1999 due
to the increase in occupancy and a decision to increase staffing to offer
greater service to our hotel guests.
Food and beverage costs increased approximately $600,000, or 4.3%, from $13.1
million during the 1998 period to $13.7 million for the 1999 period. However,
food and beverage costs as a percentage of revenues decreased from 72.5% in 1998
to 71.1% in 1999 because of the higher banquet revenues which are more
profitable and price increases in some of the restaurants.
Entertainment costs remained the same at approximately $12.7 million in 1998 and
1999. Entertainment expense as a percentage of entertainment revenues decreased
from 77.2% in 1998 to 76.6% in 1999 as a result of the increased revenues and
operating efficiency.
Other expenses remained at approximately $2.5 million in 1998 and 1999.
Increased cost of sales and payroll for the gift shops were offset by reduced
telephone operating costs brought about by newly installed telecommunications
systems.
Other Operating Expenses
General and administrative expenses increased $1.7 million, or 8.3%, from $20.5
million in 1998 to $22.2 million in 1999. These expenses increased from 17.0% of
total net revenues in 1998 to 18.6% during the 1999 period. As previously
discussed, in the third quarter of 1998 management instituted an employee
retention plan in anticipation of the competition for employees on the Las Vegas
Strip. The period costs associated with the Plan are being accrued as additional
payroll costs and include approximately $450,000 in 1999. The total cost of the
Plan is estimated to be approximately $2.0 million over the period July 1, 1998
through June 30, 2001. Additionally, utility costs have increased approximately
$400,000 from 1998 to 1999 due to the expansion of the convention center.
Currently, management is negotiating electricity rates under the new competitive
utilities environment in Nevada.
Depreciation and amortization increased by approximately $1.4 million, or 15.1%,
from $9.0 million in 1998 to $10.4 million in 1999 due to capital expenditures
for the casino renovation, which was completed in December 1998, and the
Convention Center Pavilion, which was completed in February 1999.
Other Income (Expense)
Interest expense on the $100 million notes of $4.6 million, less interest income
on U.S. Treasury Bills of $2.3 million was recorded in 1998 until the notes were
redeemed on June 1, 1998. Interest expense, other increased $2.1 million due to
the 13% First Mortgage Notes issued by Riviera Black Hawk in June 1999. Interest
income, other decreased $350,000 because of the decrease in investment balances
for the period as the proceeds of the $175 million notes were utilized in the
Convention Center Pavilion and the Black Hawk, Colorado project prior to the
issuance of the 13% First Mortgage Notes. The proceeds of those notes have
contributed approximately $400,000 in interest income since June 1999.
Capitalized interest for 1999 was $3.0 million on the Black Hawk, Colorado and
Riviera Convention Center Pavilion projects compared to $1.8 million in 1998.
Extraordinary Item, Net of Taxes in 1998
The $100 million notes, which were contractually defeased in August 1997, were
retired on June 1, 1998. The call premium of $4.3 million and unamortized
deferred financing costs totaling $300.000 were recorded net of the income tax
effect of $1.6 million resulting in as an extraordinary loss of $3.0 million.
Net Income (Loss)
Net loss decreased approximately $1.3 million from a loss of $4.1 million for
the nine months ended September 30, 1998 to a loss of $2.8 million for the nine
months ended September 30, 1999 due primarily to the extraordinary item in 1998.
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased approximately $300,000 from
$1.0 million in 1998 to $700,000 in 1999. Net revenues, primarily casino table
games, decreased $1.0 million or 0.8% and general and administrative increased
approximately $1.7 million. Other non-recurring corporate expenses decreased
approximately $500,000 from 1998. These decreases were partially offset by
increases in components of working capital.
EBITDA
EBITDA decreased by approximately $3.2 million, or 14.3%, from $22.3 million in
1998 to $19.1 million in 1999
Liquidity and Capital Resources
At September 30, 1999, the Company had cash and short term investments of $72.9
million, including $28.6 million restricted for the Black Hawk project. The
Company had working capital of $53.8 million and shareholders equity of $30.7
million. The cash and short term investments increased during the first nine
months of 1999 as a result of the private placement of $45 million in Riviera
Black Hawk, Inc. first mortgage bonds in September 1999 and $19.1 million of
EBITDA.
The Company's net cash provided by operating activities was approximately
$700,000 for the nine months ended September 30, 1999 compared to $1.0 million
in 1998. Management believes that cash flow from operations, combined with the
$72.9 million cash and short term investments will be sufficient to cover the
Company's debt service and enable investment in budgeted capital expenditures
for 1999 including completion of the Black Hawk casino development.
Cash flow from operations is not expected to be sufficient to pay 100% of the
principal of the $175 million 10% Notes at maturity on August 15, 2004 and the
$45 million 13% Notes at maturity on May 1, 2005. Accordingly, the ability of
the Company and its subsidiary to repay the Notes at maturity will be dependent
upon its ability to refinance those notes. There can be no assurance that the
Company and its subsidiary will be able to refinance the principal amount of the
Notes at maturity. The 10% Notes are not redeemable at the option of the Company
until August 15, 2001, and thereafter are redeemable at premiums beginning at
105.0% and declining each subsequent year to par in 2003. Although Riviera Black
Hawk, Inc. can, at any time prior to May 1, 2001, redeem up to 35% of the
aggregate principal amount of the 13% notes at 113% , the subsidiary may not
redeem 100% of the 13% Notes until May 1, 2002, at premiums beginning at 106.5%
and declining each subsequent year to par in 2004.
The 10% and 13% Note Indentures provide that, in certain circumstances, the
Company and its subsidiary must offer to repurchase the Notes upon the
occurrence of a change of control or certain other events. In the event of such
mandatory redemption or repurchase prior to maturity, the Company and its
subsidiary would be unable to pay the principal amount of the Notes without a
refinancing.
The 10% Note Indenture contains certain covenants, which limit the ability of
the Company and its restricted subsidiaries (and its unrestricted subsidiary
Riviera Black Hawk, Inc. under the 13% Notes Indenture), subject to certain
exceptions, to : (i) incur additional indebtedness; (ii) pay dividends or other
distributions, repurchase capital stock or other equity interests or
subordinated indebtedness; (iii) enter into certain transactions with
affiliates; (iv) create certain liens; sell certain assets; and (v) enter into
certain mergers and consolidations. As a result of these restrictions, the
ability of the Company and its subsidiaries to incur additional indebtedness to
fund operations or to make capital expenditures is limited. In the event that
cash flow from operations is insufficient to cover cash requirements, the
Company and its subsidiaries would be required to curtail or defer certain of
their capital expenditure programs under these circumstances, which could have
an adverse effect on operations. At September 30, 1999, the Company believes
that it is in compliance with the covenants.
In August 1997, the Company, through its indirect 100% owned subsidiary, Riviera
Black Hawk, Inc., purchased approximately 70,000 square feet of land in Black
Hawk, Colorado, which is entirely zoned for gaming. The Company is constructing
a casino containing 1,000 slot machines, 12 table games, a 520-space covered
parking garage, and entertainment and food service amenities. Management intends
to finance the remainder of the project with a portion of the unused proceeds
from the 13% First Mortgage Notes and equipment leases. The casino is scheduled
to open in January 2000. As of September 30, 1999, the company had invested
$20.0 million in cash (exclusive of capitalized interest) in the Black Hawk,
Colorado project and the total project costs to date including capitalized
interest were $49.3 million.
Year 2000
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This situation is generally referred to as the "Year 2000 Problem". If
such situation occurs, the potential exists for computer system failures or
miscalculations by computer programs, which could disrupt operations.
The Company has conducted a comprehensive review of its computer systems and
other systems for the purpose of assessing its potential Year 2000 Problem, and
is in the process of modifying or replacing those systems which are not Year
2000 compliant. Based upon this review, management believes such systems will be
compliant by October 1999. However, if modifications are not made or not
completed timely, the Year 2000 Problem could have a significant impact on the
Company's operations.
All costs related to the Year 2000 Problem are expensed as incurred, while the
cost of new hardware and software is capitalized and amortized over its expected
useful life. The costs associated with Year 2000 compliance have not been and
are not anticipated to be material to the Company's financial position or
results of operations. As of September 30, 1999, the Company has incurred costs
of approximately $100,000 (primarily for internal labor) related to the system
applications and anticipates spending an additional $100,000 to become Year 2000
compliant. The estimated completion date and remaining costs are based upon
management's best estimates, as well as third party modification plans and other
factors. However, there can be no guarantee that such estimates will occur and
actual results could differ.
In addition, the Company has communicated with its major vendors and suppliers
to determine their state of readiness relative to the Year 2000 Problem and the
Company's possible exposure to Year 2000 issues of such third parties. However,
there can be no guarantee that the systems of other companies, which the
Company's systems may rely upon, will be timely converted or representations
made to the Company by these parties are accurate. As a result the failure of a
major vendor or supplier to adequately address their Year 2000 Problem could
have a significant adverse impact on the Company's operations.
As a result of various external risk factors, the Company could be adversely
impacted and the effect could be material regardless of the readiness of its own
systems. For example, if one or more of the Company's utility providers (of
electric, natural gas, water, and sewer) experiences Year 2000 problems that
impact their ability to provide their services the operations of the Company
could be adversely impacted. Furthermore, disruption of services for any of the
markets for the Company's customers could result in an adverse change in
customer visits from the affected market. - Airline service to and from the Las
Vegas market could be disrupted by Year 2000 problems, which would limit the
ability of potential customers to visit the property. - The possible long term
disruption of banking services due to Year 2000 problems could ultimately impair
the Company's daily financial transactions, including the deposit of monies and
processing of checks. Furthermore, credit card processing and customers' access
to cash via automated teller machines could also be disrupted.
The most likely worst case scenario is a failure of utility companies to deliver
services. Under that scenario, the entire Las Vegas hotel and casino industry
would be closed until the utilities were restored. The contingency plan is to
provide minimal services to the guests until the utilities can be restored.
The Company has developed, and continues to update and revise, contingency plans
to address the identified risks. However, given the nature of many of the
external risk factors, the Company does not believe viable alternatives would be
available. For example, the Company cannot develop a meaningful contingency plan
to address a disruption in airline service. Consequently, the occurrence of any
of the aforementioned disruptions could, depending upon their severity and
duration, have a material adverse impact on operating results.
Forward Looking Statements
The Private Securities Litigation Reform Act of 1997 provides a "safe harbor"
for certain forward-looking statements. Certain matters discussed in this filing
could be characterized as forward-looking statements such as statements relating
to plans for future expansion, as well as other capital spending, financing
sources and effects of regulation and competition. Such forward-looking
statements involve important risks and uncertainties that could cause actual
results to differ materially from those expressed in such forward-looking
statements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Market risks relating to our operations result primarily from changes in
interest rates. We invest our cash and cash equivalents in U.S. Treasury Bills
with maturities of 60 days or less.
As of September 30, 1999, we had $222.6 million in borrowings. The borrowings
include $175 million in bonds maturing in 2004. Interest under the bonds is
based on a fixed rate of 10%. The borrowings also include $45 million in bonds
maturing in 2005 for the Black Hawk, Colorado casino project. Interest under the
bonds is based on a rate of 13%. The borrowings also include $.7 million in a
special improvement district bond offering with the City of Black Hawk,
Colorado. The Company's share of the debt on the SID bonds of $1,470,000 when
the project is complete, is payable over ten years beginning in January 2000.
The special improvement district bonds bear interest at 5%. Other borrowings
relate to leases and include additional leases effective in the 4th quarter of
1999.
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Fair Value
thousands) 09/30/1999 12/31/99 2000 2001 2002 2003 Thereafter Total at 9/30/99
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short term investments $ 2,550 $ 2,550 $ 5,100 $ 5,100
Average interest rate 4.75% 4.75%
Long Term Debt
Including Current Portion
Equipment loans and
capital leases $ 441 $ 290 $ 1,136 $ 1,045 $ 1,139 $ 1,235 $ 819 $ 6,105 $ 6,105
Average interest rate 7.5% 7.7% 8.0% 7.8% 7.8% 8.4% 8.4%
10% First Mortgage Note $173,271 $ 173,271 $ 152,478
Average interest rate 10.0%
Equipment loans and
capital leases-Black Hawk,
Colorado casino project $ - $ 1,494 $ 1,818 $ 2,034 $ 2,274 $ 3,514 $ 11,134 $ 11,134
Average interest rate 11.2% 11.2% 11.2% 11.2% 11.2%
Special Improvement
District Bonds-Black Hawk,
Colorado casino project $ 112 $ 120 $ 127 $ 132 $ 979 $ 1,470 $ 1,470
Average interest rate 5.0% 5.0% 5.0% 5.0% 5.0%
13% First Mortgage Note
Black Hawk, Colorado casino
project $ 45,000 $ 45,000 $ 47,250
Average interest rate 13.0%
</TABLE>
<PAGE>
Part II. Other Information
Item 4. Other Information
Proposals of stockholders intended to be presented at the 2000 Annual Meeting of
Stockholders must be received at the Company's executive offices on or before
December 31, 1999, for inclusion in the Company's Proxy Statement with respect
to such meeting.
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibits - Verified Complaint of Morgens, Waterfall, Vintiadis
& Company vs. Riviera Holdings Corporation and Riviera
Directors, September 30, 1999.
(b) Reports on Form 8-K -
July 2, 1999, Item 5. Other Events. Settlement Agreement
dated July 1, 1999, by and among Allen E. Paulson, et al.
September 17, 1999, Other Events. Termination of Management
Agreement dated September 1, 1999, by and among Elsinore
Corporation, Four Queens, Inc. and Riviera Gaming Management
Corp. - Elsinore.
<PAGE>
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, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By: /s/ William L. Westerman
William L. Westerman
Chairman of the Board and
Chief Executive Officer
By: /s/ Duane Krohn
Duane Krohn
Treasurer and
Chief Financial Officer
Date: November 12, 1999
<PAGE>
Riviera Holdings Corporation
Form 10Q
September 30, 1999
Exhibits
99.1 Verified Complaint of Morgens, Waterfall, Vintiadis & Company, Inc. vs.
Riviera Holdings Corporation and Riviera Directors, September 30, 1999.
COMP
Stanley W. Parry, Esq.
Nevada Bar No. 1417
CURRAN & PARRY
601 S. Rancho Dr., C-23
Las Vegas, Nevada 89106
(702) 471-7000
Attorneys for Plaintiff
DISTRICT COURT
CLARK COUNTY, NEVADA
MORGENS, WATERFALL, VINTIADIS &
COMPANY, INC., a New York Corporation;
shareholder derivatively on behalf of RIVIERA
HOLDINGS CORPORATION, a Nevada
Corporation,
Plaintiff,
v. Case No.: A408793
Dept. No.: XVII
RIVIERA HOLDINGS CORPORATION, a
Nevada Corporation; both as a Defendant and
nominal Defendant and WILLIAM L. ARBITRATION EXEMPTION
WESTERMAN, ROBERT R. BARENGO, CLAIMED:
RICHARD L. BAROVICK and JAMES N.
LAND, JR., as Directors of RIVIERA
HOLDINGS CORPORATION, a Nevada
Corporation; DOES I through X; and ROE
CORPORATIONS I through X,
Defendants.
VERIFIED COMPLAINT
NOW COMES the Plaintiff, Morgens, Waterfall, Vintiadis & Company, Inc., a New
York Corporation by its counsel, Stanley W. Parry, Esq., of the law firm CURRAN
& PARRY, and hereby complains against the Defendants as follows:
INTRODUCTION
Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens Waterfall"), herein
files both a direct claim for relief against Riviera Holdings Corporation for
wrongful conduct and a derivative shareholders claim against Riviera Holdings
Corporation seeking to enjoin the corporation from acting in a manner that
discriminates between and among its shareholders and is wasteful of corporate
assets. The First, Second, and Third Claims of Relief are direct causes of
action against Riviera Holdings Corporation, the Fourth Claim is a shareholder
derivative action.
COMMON ALLEGATIONS
1. Plaintiff Morgens Waterfall is a New York Corporation authorized to do
business in the State of Nevada.
2. Upon information and belief, Defendant Riviera Holdings Corporation
("Riviera") is a Nevada corporation organized pursuant to the laws of the State
of Nevada, and doing business in Clark County, Nevada, at all times relevant
hereto.
3. The true names of Defendants DOES I through X and ROES I through X are not
known at this time; it is alleged and believed, however, that these Defendants
were involved in the initiation, approval, support, or execution of the wrongful
acts upon which this litigation is premised, or of similar actions against
Morgens Waterfall of which it is presently unaware, or that said DOES and ROES
are the companies, are affiliated with the companies, or are the purchasers of
the companies which were doing business as Riviera at the time of the acts
complained of herein.
4. Plaintiff is the authorized agent for minority shareholders owning
approximately 24.96 percent of Riviera public stock.
5. Plaintiff acts both in its capacity as a shareholder seeking direct remedies
against the Defendant Riviera and seeking derivative relief as a shareholder of
Defendant Riviera.
6. Defendants William L. Westerman, Robert R. Barengo, Richard L. Barovick and
James N. Land, Jr. are directors of Riviera.
STATEMENT OF FACTS
7. In or about late 1996 or early 1997, Allen E. Paulson ("Paulson"), acting
through a representative, contacted
both Riviera, the owner of The Riviera Hotel & Casino in Las Vegas, Nevada, and
Morgens Waterfall and advised them of his interest in a possible acquisition of
Riviera. Paulson is the sole shareholder of R&E Gaming, Corp. ("R&E") and Carlo
Corporation. He is also the beneficial owner of approximately 2% of the
outstanding stock of Riviera.
8. Besides Paulson and Morgens Waterfall, Riviera's other major shareholders
include Keyport Life Insurance Company ("Keyport"), which owns approximately
16.91 % of the shares of common stock of Riviera, and SunAmerica Life Insurance
Company ("SunAmerica") which owns approximately 15.03% of the shares of common
stock of Riviera.
9. The parties negotiated a proposed transaction whereby Paulson and his
affiliates would obtain control of Riviera through options for all of the
Riviera stock owned by Morgens Waterfall, Keyport and SunAmerica. (the
"Sellers"). In or about April of 1997, the Sellers agreed to grant R&E an option
to buy their collective 58.9% stake in Riviera for $15 per share (plus
interest).
10. In or about May 1997, the Riviera Board of Directors held a meeting to
consider this proposal. The Riviera Board determined that Paulson and his
affiliates would have to extend their offer to acquire the Sellers' interest to
all Riviera shareholders.
11. The acquisition of Riviera, as eventually structured (the "Riviera Merger"),
included an Option and Voting Agreement and an Agreement and Plan of Merger. In
addition, the acquisition of Riviera included an Escrow Agreement to provide the
remaining shareholders in Riviera, other than Paulson (the "Remaining
Shareholders"), the same basic financial compensation as the Sellers.
12. Under the Option and Voting Agreement executed September 15, 1997, the
Sellers agreed to vote their shares in Riviera for approval of the Riviera
Merger. The Agreement also gave R&E an option to purchase the shares held by the
Sellers at an exercise price of $15 per share. In order to ensure payment of
partial consideration for the grant of the option, R&E delivered a letter of
credit in the face amount of $3,817,680 to Morgens Waterfall, a letter of credit
in the face amount of $2,571,480 to Keyport, and a letter of credit in the face
amount of $2,285,760 to SunAmerica. Each letter of credit provided that "it may
be drawn on in the event the transactions contemplated by the Riviera Merger
Agreement am not consummated, other than as a result of certain [specified]
circumstances ...." The Sellers were entitled to receive the partial
consideration "if (A) the Riviera Merger Agreement [was] terminated (except
pursuant to a Non-Payment Termination Event. . . ."
13. In addition, on September 15, 1997, R&E, Riviera and State Street Bank and
Trust Company of California, N.A., executed an Escrow Agreement, whereby R&E
deposited into escrow a letter of credit in favor of State Street Bank as the
escrow agent, in the amount of approximately $5 million (the "Escrow Funds") as
security for R&E's agreement to purchase the outstanding shares of Riviera
stock, other than the shares owned by Morgens Waterfall, Keyport, SunAmerica,
R&E, Riviera Acquisition Sub, Inc., or Paulson (the "'Disqualified Holders).
14. Upon the receipt of a certificate from Riviera certifying that the Riviera
Merger Agreement had been terminated pursuant to a termination event which was
not a Non-Payment Termination Event, the Escrow Agent was required to deliver
the letter of credit funds to Riviera; and upon Riviera's receipt of such funds
from the Escrow Agent, Riviera would distribute such funds to the Stockholders,
other than the Disqualified Holders.
15. By letter of April 2,1998, R&E terminated the Riviera Option Agreement. By
letters of April 2 and April 6,1998, R&E and Riviera Acquisition Sub, Inc.
terminated the Riviera Merger Agreement
16. On April 2, 1998, Riviera presented to State Street Bank correspondence,
constituting the company certificate required by the Escrow Agreement for
negotiation of the Riviera letter of credit, stating and representing that the
requisite conditions entitling it to payment had been met.
17. On April 2, 1998, R&E presented to State Street Bank correspondence
constituting a gaming certificate as required by the Escrow Agreement. On April
8, 1998, R&E presented to State Street Bank correspondence constituting a gaming
contesting certificate as required by the Escrow Agreement.
18.On April 3, 1998, Morgens Waterfall presented to City National Bank its
letter of credit and a certificate of drawing stating that the requisite
conditions entitling it to payment had been met.
19. On April 3, 1998, Keyport presented to City National Bank its letter of
credit and a certificate of drawing stating that the requisite conditions
entitling it to payment had been met.
20. On April 3, 1998, SunAmerica presented to City National Bank its letter of
credit and a certificate of drawing stating that the requisite conditions
entitling it to payment had been met.
21. On April 9,1998, Paulson, R&E, Elsinore Acquisition Sub, Inc., Riviera
Acquisition Sub, Inc., and Carlo Corporation (the "Paulson Plaintiffs") filed a
Complaint, an Application for Temporary Restraining Order barring further
presentment or negotiation of the various letters of credit by Morgens
Waterfall, Keyport and SunAmerica (the "Non-Settling Defendants"), and a
Proposed Order to Show Cause Why A Preliminary Injunction Should Not Issue, in
the United States District Court for the Central District of California (Western
Division), Case No. 98-2644 ABC (AIJx) (the "Paulson Plaintiffs' Litigation").
22. A preliminary injunction hearing was held on April 13, 1998, and at the
conclusion of the hearing, the Court denied the requested preliminary injunctive
relief. Thereafter the Non Settling Defendants re-presented their respective
letters of credit and negotiated the same.
23. In addition to Morgens Waterfall, Keyport and SunAmerica, the Paulson
Plaintiffs' Litigation includes, among others, Elsinore and Riviera as party
Defendants. The Paulson Plaintiffs' Proposed Fourth Amended Complaint alleges
the following causes of action against Morgens, Waterfall, Vintiadis & Company,
Inc.: 1) violations of Section 10(b) of the 1934 Securities Exchange Act and
Rule 20b-5; 2) Fraud; 3) Negligent Misrepresentation; 4) Intentional
Interference With Contractual Relations; 5) Breach of Contract regarding the
Riviera Option Agreement; 6) Breach of Implied Covenant of Good Faith and fair
Dealing regarding The Riviera Option Agreement; 7) Breach of Contract regarding
the Elsinore Option Agreement; 8) Breach of Implied Covenant of Good Faith and
Fair Dealing regarding the Elsinore Option Agreement; 9) Rescission and
Restitution Based on Fraud in the Inducement regarding the Elsinore and Riviera
Option Agreements; 10) Rescission and Restitution Based Upon Mutual Mistake
regarding the Elsinore and Riviera Option Agreements; 11) Rescission and
Restitution Based on Breach of Contract regarding the Elsinore and Riviera
Option Agreements; 12) Breach of Warranties of Presentment; and 13) Declaratory
Relief regarding the Elsinore and Riviera Option Agreements.
24. Riviera executed a Settlement Agreement with the Paulson Plaintiffs, dated
July 2, 1999, and, on or about August 4, 1999, moved for Entry of Settlement Bar
Order and Final Judgment. Under the Settlement Agreement, Riviera and the
Paulson Plaintiff have agreed, in pertinent part, to the following:
Purchase and Sale of the Paulson Shares
1. On the "Effective Date," as defined in Section 15 hereof, Riviera will
purchase from Paulson and Paulson will sell to Riviera (or its assignees) the
Paulson Shares at a price of $7.50 per share for a total purchase price of
$3,477,412.50. The Paulson Plaintiffs hereby represent, warrant and agree that
the Paulson Shares will be transferred to Riviera (or its assignees) free and
clear of all liens, charges and encumbrances or rights of any third parties.
Disposition of Escrow Consideration
2. On the Effective Date, Riviera and Gaming and, if necessary, any other
Paulson Plaintiff, shall execute a letter of instruction substantially in the
form annexed hereto as Exhibit A: (i) instructing the Escrow Agent to present
the Letters of Credit for payment; and (ii) directing the Escrow Agent to
distribute $1,522,587.50 of the Escrow Consideration to Gaming and to distribute
the remainder of the Escrow Consideration to a disbursing agent designated by
Riviera, for the benefit of the Contingent Value Rights Holders.
25. Contingent Value Rights ("CVR") holders are holders of certain securities
issued by Riviera. CVRs entitle the holders with rights to receive contingent
proceeds (equal to $3 per CVR plus interest at 7% per annum beginning June 1,
1997).
26. Two Riviera directors have interests as CVR holders. Riviera's settlement
with the Paulson Plaintiffs gives these directors special compensation because
the settlement is funded mostly from the Riviera treasury instead of from the
escrow funds. The director with the largest interest in the escrow funds,
William L. Westerman, Riviera's president, recused himself from voting on the
settlement. However, Robert Barengo, the other director with an interest in
these funds did not. Those two directors were not sued by Paulson.
27. At all relevant times, the market value of Riviera stock was approximately
$4.00 per share. Thus, the value of Paulson's 463,655 shares is $1,854,620; and
Riviera is paying substantially more than market price for the Paulson stock by
paying almost twice the per share price on $7.50 per share for a total purchase
price of $3,477,412.50.
28. While the Settlement Agreement releases Riviera, its present and former
officers, directors, agents, etc., from all claims asserted by the Paulson
Plaintiffs, the Non-Settling Defendants are excluded from this release, and the
Paulson Plaintiffs have continued to pursue their lawsuit against the
Non-Settling Defendants.
29. Riviera has moved in the Paulson Plaintiffs Action for entry of a Settlement
Bar Order with respect to the Settlement Agreement which, inter alia,
"extinguishe[s]), discharge[s] and otherwise satisfie[s]" "all claims, actions,
allegations, causes of action, demands or rights or claims over, for, or seeking
contribution, indemnification, equitable apportionment, reimbursement or other
recovery, however denominated, by any person, including but not limited to the
Non-Settling Defendants, against the Settling Defendant and/or the Riviera
Related Parties, which are based upon or which seek recovery of liability (in
whole or in part) for, or which result or arise in any way from, either directly
or indirectly, any Paulson Released Claims. . . ." Thus, Riviera is seeking
through the Settlement Bar Order protection from claims of indemnity and other
relief by the nonsettling shareholders, including Morgens Waterfall, for any
conduct by Riviera with respect to the Paulson transactions.
30. As part of the Settlement Agreement between Paulson Plaintiffs and Riviera,
Riviera negotiated an "Amendment of Complaint" provision which was intended to
protect the Nonsettling Defendants, including Morgens Waterfall, from claims
based upon alleged wrongdoing or breaches by Riviera.
31. This "Amendment of Complaint" provision protected the non-settling minority
shareholders from the unjust consequence of defending Riviera's conduct without
a right of indemnity if the Settlement Bar Order were approved.
32. Morgens Waterfall sought and received clarification from Riviera that the
"Amendment of Complaint" protected Morgens Waterfall from derivative claim based
upon alleged wrongdoing or breaches by Riviera.
33. Morgens, Waterfall also sought clarification from the Paulson Plaintiffs
that the "Amendment of Complaint" protected Morgens Waterfall from claims based
upon alleged wrongdoing or breaches by Riviera. The Paulson Plaintiffs refused
to provide the requested clarification and have indicated that they do not
interpret the Settlement Agreement to prevent the Paulson Plaintiffs from
seeking to impose on Morgens Waterfall liability derivative of Riviera's
liability.
34. Morgens Waterfall has requested that Riviera not proceed with the Settlement
Bar Order until there is a satisfactory clarification of the "Amendment of
Complaint" provision. Riviera has refused to seek clarification of the
Settlement Agreement.
FIRST CLAIM FOR RELIEF
(Direct Claims Against Riviera Seeking Injunctive Relief)
35. Plaintiff repeats and realleges all allegations set forth in paragraphs I
through 34 of this Complaint as though fully set forth herein.
36. Riviera through its officers and directors is seeking a Settlement Bar Order
even though the provisions of the Settlement Agreement, in particular, the
"Amendment of Complaint" provision, are ambiguous and the interpretation thereof
is in dispute.
37. Riviera claims that, should Riviera obtain a Settlement Bar Order, Morgens
Waterfall and other minority shareholders would be prevented from seeking
indemnity and contribution and other remedies against Riviera for its conduct.
38. Riviera's attempt to obtain a Settlement Par Order under the current
circumstances is a violation of its fiduciary duty to its minority shareholders
in that it creates inequitable and unfair treatment of the minority
shareholders.
39. Morgens Waterfall will be irreparably banned if the Settlement Agreement is
not interpreted to protect Morgens Waterfall and other non-settling minority
shareholders from derivative liability for the acts and conduct of Riviera.
40. Morgens Waterfall will be subjected to the expense of defending itself from
claims based on the conduct of Riviera.
41. There is no adequate remedy at law to protect Morgens Waterfall from
Riviera's actions with respect to the Settlement Agreement and the Settlement
Bar Order.
42. Morgens Waterfall is entitled to injunctive relief preventing Riviera from
participating in the Settlement Bar Order unless and until there is a
clarification of the "Amendment of Complaint" provision in the Settlement
Agreement.
43. Morgens Waterfall has been required to obtain the services of an attorney
and is entitled to reimbursement of its attorney fees, and costs.
SECOND CLAIM FOR RELIEF
(Indemnity)
44. Plaintiff repeats and realleges all allegations set forth in paragraphs I
through 41 of this Complaint as though fully set forth herein.
45. Riviera has a duty to indemnify and hold harmless Morgens Waterfall from and
against all losses, damages, liabilities and claims, demands and obligations
based upon its conduct.
46. Morgens Waterfall herein seeks to have Riviera hold Morgens Waterfall
harmless and to indemnify Morgens Waterfall from and against all losses,
damages, claims, demands and obligations as a result of Riviera's wrongful
conduct with respect to the Paulson buy-out agreement, the Paulson escrow
agreement and all other matters involving the Paulson failed merger.
47. As a result of the conduct and omissions of Riviera Morgens Waterfall will
incur reasonably foreseeable losses and is entitled to indemnity and payment of
its attorney fees and cost in defending the wrongful conduct of Riviera.
48. Morgens Waterfall has been required to obtain the services of an attorney
and is entitled to reimbursement of its attorney fees and costs.
THIRD CLAIM FOR RELIEF
(Damages Breach of Fiduciary Duty)
49. Plaintiff repeats and realleges all allegations set forth in, paragraphs 1
through 48 of this Complaint as though fully set forth herein.
50. Riviera has breached its fiduciary duty to Morgens Waterfall by entering
into and seeking to consummate a Settlement Agreement with actual knowledge that
it leaves Morgens Waterfal unprotected from claims based on Riviera's own
conduct, representations and breaches. In addition, Riviera has breached its
fiduciary duty to Morgens Waterfall and its minority shareholders by
discriminating in favor of the Paulson shareholders in that they have paid a
premium for the Paulson shareholders shares from the corporate treasury.
51. Further, the directors and Riviera have breached their fiduciary duty by
self dealing, voting in favor of a Settlement Agreement which protects the
interest of certain shareholders, and provides premium payment to certain
shareholders from the treasury of the corporation, diminishing the assets of the
corporation and thus banning the value of Morgens Waterfall's shares.
52. As a result of the wrongful conduct of the directors of Riviera, Morgens
Waterfall has suffered damages consisting of reduction in the value of its stock
in Riviera, additional litigation expenses, potential future loss of monies
obtained from Paulson as part of the Paulson Merger and other consequential
damages.
53. Morgens Waterfall has been required to obtain the services of an attorney
and is entitled to reimbursement of its attorney fees and costs.
FOURTH CLAIM FOR RELIEF
(Derivative Claim Against Defendants for Failure
to Protect Interest of Minority Shareholders)
54. Plaintiff repeats and realleges all allegations set forth in paragraphs 1
through 34 of this Complaint as though fully set forth herein.
55. On September 27, 1999 a Demand letter was delivered to the Defendant, On 22
September 29, 1999, counsel for Riviera rejected Plaintiffs Demand. Therefore,
Plaintiffs demand for clarification and non-discriminatory conduct has been
rejected. Plaintiffs representatives have been in discussion with attorneys for
both Riviera and Paulson for several months to clarify the Settlement Agreement.
The corporation's counsel has already indicated that it wishes to pursue
Settlement Bar Order; further, the matter is currently set for hearing in the
United States District Court, Central District of California, Western Division
for October 4, 1999.
56. The Defendants in their roles as Officers and directors of the corporation
have participated in acts which have violated their fiduciary duty to the
minority shareholders in that they are seeking a Settlement Bar Order which will
place the minority shareholders in the position of having to defend the conduct
of the corporation without the right of indemnity.
57. The Defendants, in their roles as officers and directors of the corporation,
have participated in a Settlement Agreement which discriminates in favor of
certain shareholders including directors and is wasteful of the corporate
assets, inasmuch as it pays a premium to the Paulson shareholders without a
compensating benefit to the corporation.
58. The assets of the corporation arc being wasted by paying a premium to the
Paulson shareholders.
59. By virtue of the Defendants' breach of their fiduciary duties, the minority
shareholders will suffer damages and protracted litigation.
60. Therefore, Morgens Waterfall hereby requests that this Court enter an order
for judgment against Riviera as follows:
1. Causing Riviera to seek declaratory relief interpreting the
Settlement Agreement to provide that the Amendment of Complaint
provision protects the non-settling minority shareholders from
derivative liability for the conduct of Riviera;
2. Causing Riviera to provide indemnity to the minority
shareholders for the conduct of Riviera with respect to its
dealings with Paulson and Paulson related companies in the merger
and acquisition agreements, and subsequent termination; and
3. Preventing Riviera from wasting the corporate assets by
purchasing the Paulson stock above market value.
61. Morgens Waterfall has been required to obtain the services of an attorney
and is entitled to reimbursement of its attorney fees and costs.
WHEREFORE, Morgens Waterfall hereby requests that this court enter an order for
judgment against Riviera as follows:
1. Injunctive relief against the corporation, Riviera, preventing
it from proceeding forward with the Settlement Bar Order until
such time that there is a clarification among the parties with
respect to the scope of the "Amendment of Complaint" provision in
the Settlement Agreement so that it protects Morgens Waterfall and
other minority shareholders from derivative liability for the
conduct, representations and breaches of Riviera;
2. For indemnity against Riviera for its wrongful conduct
involving Riviera's wrongful conduct and actions with respect to
the Paulson Merger Agreement and subsequent termination;
3. For damages in excess of $10,000.00 as set forth above;
4. For an order compelling Riviera to:
a. Seek declaratory relief regarding the "Amendment of
Complaint" provision of the Settlement Agreement
protecting the non-settling minority shareholders
including Morgens Waterfall from derivative liability
for the wrongful conduct of Riviera;
b. Provide indemnity to Morgens Waterfall; and
c. Not waste corporate assets through payment of a
premium for Paulson stock.
4. An award of costs to the Plaintiffs;
5. Reasonable attorneys' fees and costs incurred herein; and
6. For such other and further relief as this Court deems proper.
DATED this 30 day of September, 1999.
CURRAN & PARRY
STANLEY W. PARRY, ESQ.
State Bar No. 1417
601 S. Rancho Dr-, C-23
Las Vegas, Nevada 89106
(702) 471-7000
Attorneys for Plaintiff
VERIFICATION
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
I, Joann McNiff, under penalty of perjury, being first duly sworn, deposes and
says:
That she is the house counsel of Morgens, Waterfall, Vintiadis & Co., Inc.,
Plaintiff herein; that he has read the above and foregoing VERIFIED COMPLAINT
and knows the contents thereof, and that he is informed and believes and upon
the basis of such information and belief, alleges the same to be true.
/s/ Joann McNiff
----------------------------------
SUBSCRIBED and SWORN to before
Me this 29 day of September, 1999.
/s/ Maggie Collazo
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 57,468,000
<SECURITIES> 15,452,000
<RECEIVABLES> 7,203,778
<ALLOWANCES> 1,679,778
<INVENTORY> 2,602,000
<CURRENT-ASSETS> 85,068,000
<PP&E> 252,097,308
<DEPRECIATION> 55,776,308
<TOTAL-ASSETS> 291,755,000
<CURRENT-LIABILITIES> 31,440,000
<BONDS> 222,638,000
0
0
<COMMON> 5,067,376
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30,655,000
<SALES> 41,971,000
<TOTAL-REVENUES> 38,904,000
<CGS> 0
<TOTAL-COSTS> 37,466,000
<OTHER-EXPENSES> 1,524,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,386,000
<INCOME-PRETAX> (4,472,000)
<INCOME-TAX> (2,300,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,172,000)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
