RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
-------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on April 25, 2000
TO THE STOCKHOLDERS OF
RIVIERA HOLDINGS CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Riviera Holdings Corporation, a Nevada corporation (the
"Company"), will be held at the Riviera Black Hawk Casino, 444 Main Street,
Black Hawk, Colorado, 80422 on April 25, 2000, at 1 p.m., local time, for the
following purposes:
1. To elect a Board of Directors; and
2. To consider and act upon such other matters as may properly come before
the meeting or any adjournments or postponements thereof.
The Board of Directors fixed Friday, March 17, 2000, as the record date
for determination of stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournments or postponements thereof. Accordingly, only
holders of record of Common Stock, par value $.001 per share, at the close of
business on such date (the "Stockholders") shall be entitled to vote at the
Annual Meeting and any adjournments or postponements thereof. A complete list of
Stockholders is open to the examination of any Stockholder for any purpose
germane to the meeting, during ordinary business hours, at the offices of the
Company located at 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109.
A copy of the Company's Annual Report for the fiscal year ended
December 31, 1999, is enclosed herewith. A copy of the Company's Annual Report
to the Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1999, will be provided, without charge, to any Stockholder upon
written request.
By Order of the Board of Directors,
William L. Westerman
Chairman of the Board
Dated: March 23, 2000
YOU ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY. IF
YOU ATTEND THE MEETING AND VOTE IN PERSON, THE PROXY WILL NOT BE USED. IF THE
PROXY IS MAILED IN THE UNITED STATES IN THE ENCLOSED ENVELOPE, NO POSTAGE IS
REQUIRED.
<PAGE>
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
PROXY STATEMENT
for Annual Meeting of Stockholders
to be held on April 25, 2000
March 23, 2000
TO THE STOCKHOLDERS:
This Proxy Statement ("Proxy Statement") is being furnished to
stockholders of Riviera Holdings Corporation, a Nevada corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board of Directors" or the "Board") for use at
the Annual Meeting of Stockholders (including any adjournments or postponements
thereof, the "Annual Meeting") to be held at the Riviera Black Hawk Casino, 444
Main Street, Black Hawk, Colorado, 80422 on Tuesday, April 25, 2000, at 1 p.m.,
local time. This Proxy Statement and the accompanying form of proxy is being
mailed to the stockholders on March 23, 2000.
All holders of record (the "Stockholders") of the Company's common
stock, par value $.001 per share (the "Common Stock"), at the close of business
on Friday, March 17, 2000 (the "Record Date") are entitled to one vote at the
meeting for each outstanding share of Common Stock as of the Record Date held by
such shareholder. At the close of business on March 17, 2000, 3,933,021 shares
of Common Stock were outstanding.
The Board of Directors requests each Stockholder to execute and return
the enclosed proxy as soon as possible. The person who signs the proxy must be
either (i) the registered Stockholder of such shares of Common Stock or (ii) a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or any other person acting in a fiduciary or representative capacity
on behalf of such registered Stockholder. A Stockholder can, of course, revoke a
proxy at any time before it is voted, if so desired, by filing with the
Secretary of the Company an instrument revoking the proxy or by returning a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person. Any such filing should be sent to Riviera Holdings
Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109, Attention:
Secretary. Attendance at the Annual Meeting will not by itself constitute
revocation of a proxy.
The Company is paying all costs of the solicitation of proxies,
including the expenses of printing and mailing to its Stockholders this Proxy
Statement, the accompanying Notice of Annual Meeting of Stockholders, the
enclosed proxy and the Annual Report. The Company will also reimburse brokerage
houses and other custodians, nominees and fiduciaries for their expenses, in
accordance with the regulations of the Securities and Exchange Commission, in
sending proxies and proxy materials to the beneficial owners of the Company's
Common Stock. Officers or employees of the Company may also solicit proxies in
person, or by mail, telegram or telephone, but such persons will receive no
compensation for such work, other than their normal compensation as such
officers or employees.
PURPOSE OF THE ANNUAL MEETING
At the Annual Meeting, the Stockholders will consider and vote upon:
1. the election of four directors to hold office until the next annual
meeting and until their respective successors shall have been elected and
qualified, or, until resignation, removal or death as provided in the Bylaws of
the Company; and
2. such other matters as may properly come before the Annual Meeting or any
adjournments or postponements thereof.
<PAGE>
VOTE REQUIRED; PROXIES
The presence in person or by proxy of a majority of the shares of
Common Stock outstanding and entitled to vote as of the Record Date is required
for a quorum at the Annual Meeting. If a quorum is present, those nominated
directors who receive an affirmative vote of a majority of the shares
represented at the meeting shall be elected. Accordingly, shares which are
counted toward a quorum but are not voted in the election of directors
(including shares covered by a proxy as to which authority is withheld to vote
for all nominees) and shares not voted for any particular nominee (including
shares covered by a proxy as to which authority is withheld to vote for only one
or less than all of the identified nominees) could prevent the election of any
of the nominees for director. For all other matters submitted to Stockholders at
the meeting, if a quorum is present, the affirmative vote of a majority of the
shares represented at the meeting and entitled to vote is required for approval.
As a result, abstention votes will have the effect of a vote against such
matters.
Shares of Common Stock which are represented by properly executed
proxies, unless such proxies shall have previously been properly revoked, will
be voted in accordance with the instructions indicated in such proxies. If no
contrary instructions are indicated, such shares will be voted (1) FOR the
election of all of the nominees for director named in this Proxy Statement and
(2) in the discretion of the persons named in the proxies as proxy appointees as
to any other matter that may properly come before the Annual Meeting.
Shares held by brokers and other Stockholder nominees may be voted on
certain matters but not others. This can occur, for example, when the broker or
nominee does not have the discretionary authority to vote shares of Common Stock
and is instructed by the beneficial owner thereof to vote on a particular matter
but is not instructed on other matters. These are known as "non-voted" shares.
Non-voted shares will be counted for purposes of determining whether there is a
quorum at the meeting, but with respect to the matters as to which they are
"non-voted," they will have no effect upon the outcome of the vote thereon.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of four members, all of
whom have been nominated for election at the Annual Meeting. If elected, such
directors will hold office until the next annual meeting of stockholders and
until their respective successors shall have been elected and qualified, or,
until resignation, removal or death as provided in the Bylaws of the Company.
Directors
The following table sets forth certain information as of March 17,
2000, regarding the four nominees for director:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
William L. Westerman 68 Chairman of the Board and Chief
Executive Officer of the Company
and Riviera Operating Corporation
("ROC"), a wholly-owned subsidiary
subsidiary of the Company, and
President of the Company
Robert R. Barengo 58 Director of the Company and ROC
Richard. L. Barovick 70 Director of the Company and ROC
James N. Land, Jr. 70 Director of the Company and ROC
</TABLE>
William L. Westerman has been Chairman of the Board and Chief Executive
Officer of the Company since February 1993. Mr. Westerman was a consultant to
Riviera, Inc. (the Company's predecessor) from July 1, 1991 until he was
appointed Chairman of the Board and Chief Executive Officer of Riviera, Inc. on
January 1, 1992. From 1973 to June 30, 1991, Mr. Westerman was President and
Chief Executive Officer of Cellu-Craft Inc., a manufacturer of flexible
packaging primarily for food products, and then later had several positions with
Alusuisse, a multi-national aluminum
<PAGE>
and chemical company, following its acquisition of Cellu-Craft in 1989. Mr.
Westerman is also on the Board of Managers of Peninsula Gaming Partners, LLC.
Robert R. Barengo has been a Director of the Company and ROC since February
1993. Mr. Barengo was a consultant to Riviera, Inc. from January 1993 until June
30, 1993. Since 1972, Mr. Barengo has been engaged in the private practice of
law in Reno, Nevada. Mr. Barengo was elected to the Nevada Assembly in 1972 and
served until 1982. In 1979, Mr. Barengo was elected Speaker Pro Tempore and in
1981 Mr. Barengo was elected Speaker of the Assembly. From October 1992 to May
1996, Mr. Barengo was a director and 10% shareholder of Leroy's Horse & Sports
Place, Inc. ("Leroy's"). In May 1996, Leroy's became a wholly owned subsidiary
of American Wagering, Inc. ("AWI"), a publicly held corporation listed on
NASDAQ. Since May 1996, Mr. Barengo has been a director of AWI and currently
owns 7% of the outstanding stock of AWI. Since 1993, Mr. Barengo has been the
President and the sole stockholder of Silver State Disseminators Company, a
company licensed by Nevada gaming authorities to disseminate racing information
in the State of Nevada. In October 1992, the Governor appointed Mr. Barengo as a
member of the State of Nevada Dairy Commission and in July 1993, the Governor
appointed Mr. Barengo as Chairman of the State of Nevada Dairy Commission, a
position he still holds. Mr. Barengo is also a director of Saxton, Inc.
Richard L. Barovick is currently a private investor and a founder and
member of the board of the Bank of Westport, in Westport, Connecticut. Mr.
Barovick was elected a director of the Company and ROC on August 4, 1998. Mr.
Barovick was Chief Executive Officer of Grundy Worldwide from 1994 until it was
acquired by Pearson plc in May, 1995. From 1991 to 1994, Mr. Barovick was
Managing Director and a member of the Board of Grundy. Mr. Barovick graduated
from the Harvard Law School and shortly thereafter joined the legal department
of MCA/Universal, where he was involved in the financial and administrative
aspects of television packaging. Thereafter, Mr. Barovick was in private
practice and served, at various times, as General Counsel to the New York Jets
and Association of Tennis Professionals, special counsel to IBM, Time
Incorporated, The William Morris Agency, Reader's Digest Entertainment, MCA,
Inc., and HBO, among others.
James N. Land, Jr. is currently a corporate consultant. Mr. Land was
elected a director of the Company and ROC on January 21, 1999. Mr. Land is a
director of E. W. Blanch Holdings, Ltd. During the period 1956 to 1976, Mr. Land
was employed by The First Boston Corporation in various capacities, including
Director, Senior Vice President, Co-Head of Corporate Finance, and Head of
International Operations. From 1971 through 1989, he served as a director of
various companies, including Kaiser Industries Corporation, Marathon Oil
Company, Castle & Cooke, Inc., Manville Corporation, NWA, Inc. and Northwest
Airlines, Inc.
Compensation of Directors
Each of Messrs. Barengo, Barovick and Land is paid an annual fee of
$50,000 for services as a director of the Company and ROC. Each director is also
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors. On March 5, 1996 the Board of Directors adopted a
Nonqualified Stock Option Plan for Non-Employee Directors (the "Directors'
Option Plan"), which was approved by the stockholders on May 10, 1996. Under the
Directors' Option Plan, each individual elected, re-elected or continuing as a
non-employee director will automatically receive a non-qualified stock option
for 2,000 shares of Common Stock, with an option exercise price equal to the
fair market value of the Common Stock on the date of grant. 50,000 shares have
been reserved for issuance under the Directors' Option Plan. Under the
Directors' Option Plans, options to purchase 2,000 shares at an exercise price
of $13.50 were granted to Mr. Barengo on May 12, 1997, options to purchase 2,000
shares at an exercise price of $9.00 were granted to Mr. Barengo on May 11, 1998
and options to purchase 2,000 shares at $4.88 per share were granted to Mr.
Barengo on May 10, 1999. Upon becoming Directors of the Company, under the
Directors' Option Plan Mr. Barovick was granted options to purchase 2,000 shares
at an exercise price of $7.50 on August 4, 1998 and an option to purchase 2,000
shares at $4.88 per share were granted to Mr. Barovick on May 10, 1999, and Mr.
Land was granted options to purchase 2,000 shares at an exercise price of $5.50
on January 21,1999 and options to purchase 2,000 shares at an exercise price of
$4.88 on May 10, 1999. Directors who are also officers or employees of the
Company or ROC do not receive any additional compensation for services as a
director. Currently, Mr. Westerman is the only such director. The Board of
Directors has granted the members of the Compensation Committee the right to
elect to receive all or part of their annual fees in the form of the Company's
Common Stock in a number of shares having a fair market value equal to the cash
compensation subject to such election pursuant to the Company's Compensation
Plan for Directors serving on the Compensation Committee. Of the 50,000 shares
reserved for issuance under this plan, 3,103 shares were issued to Mr. Barengo
for a portion of his director's fees in 1996 and 877 shares were issued to Mr.
Barengo for a portion of his director's fees in 1997.
<PAGE>
Board of Directors and Committee Meetings
The Company established an Audit Committee at the beginning of 1994.
The Audit Committee is composed of Messrs. Barengo, Barovick and Land. The Audit
Committee recommends to the Board of Directors the selection of an auditor,
reviews the plan and scope of an audit, reviews the auditors' critique of
management and internal controls and management's response to such critique and
reviews the results of the audit.
The Company and ROC each has a Compensation Committee composed of
Messrs. Barovick and Land. The Compensation Committee is responsible for
recommending executive compensation programs to the Board of Directors and for
approving all compensation decisions with respect to the Chief Executive Officer
and his recommendations for the other executive officers of the Company.
In 1999, the Audit Committee met 5 times and the Compensation Committee
met 3 times.
In 1999, the Board of Directors of the Company held 13 meetings. No
member of the Board of Directors attended in 1999, fewer than 75% of the
aggregate of (1) the total number of meetings of the Board of Directors held
during the period for which he has been a director and (2) the total number of
meetings held by all committees on which he served.
The Board of Directors recommends that Stockholders vote "FOR" each of
the nominees listed above.
OTHER INFORMATION
Executive Officers
The following table sets forth certain information as of March 17, 2000
regarding the executive officers of the Company and ROC:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
William L. Westerman 68 Chairman of the Board and Chief Executive
Officer and President of the Company and ROC
Duane R. Krohn 54 Secretary/Treasurer and CFO of the Company and
ROC, and Executive Vice President of Finance
of ROC
Ronald P. Johnson 51 Executive Vice President of Gaming Operations
of ROC
Robert A. Vannucci 52 Executive Vice President of Marketing and
Entertainment of ROC
Jerome P. Grippe 57 Senior Vice President of Operations of ROC
Robert E. Nickels, Sr. 70 Senior Vice President of Administration of ROC
Michael L. Falba 57 Vice President of Casino Operations of ROC
</TABLE>
For a description of the business experience of William L. Westerman,
see "Directors."
Duane R. Krohn, CPA, assumed the position of Treasurer of the Company
and ROC on June 30, 1993 and was elected Vice President of Finance of ROC on
April 26, 1994, and Executive Vice President of Finance of ROC on July 1, 1998
and served as Secretary from June 8, 1999 to February 17, 2000. Mr. Krohn was
initially employed by Riviera, Inc. in April 1990, as Director of Corporate
Finance and served as Vice President-Finance from March 1992 to June 30, 1993.
Mr. Krohn served as Chief Financial Officer of Imperial Palace, Inc. (a
casino/hotel operator in Las Vegas) from February 1987 to March 1990. Prior to
1987, Mr. Krohn was Chief Financial Officer of the Mint and the Dunes in Las
Vegas, Nevada, and Bally's Park Place in Atlantic City, New Jersey.
<PAGE>
Ronald P. Johnson became Vice President of Gaming Operations of ROC in
September 1994, and Executive Vice President of Gaming Operations of ROC on July
1, 1998. Mr. Johnson became Director of Slots on June 30, 1993 and was elected
Vice President of Slot Operations and Marketing on April 26, 1994. Mr. Johnson
was Vice President-Slot Operations and Marketing of Riviera, Inc. from April
1991 until June 30, 1993. Mr. Johnson was Vice President-Slot Operations for
Sands Hotel and Casino Inc. from September 1989 until he joined Riviera, Inc.
Robert A. Vannucci was elected Vice President of Marketing and
Entertainment of ROC on April 26, 1994, and Executive Vice President of
Marketing and Entertainment on July 1, 1998. Mr. Vannucci had been Director of
Marketing of ROC since July 19, 1993. Mr. Vannucci was Senior Vice President of
Marketing and Operations at the Sands Casino Hotel in Las Vegas from April 1991
to February 1993. Mr. Vannucci was Vice President and General Manager of
Fitzgerald's Las Vegas (a casino/hotel operator) from 1988 to January 1991.
Jerome P. Grippe was elected Vice President of Operations of ROC on April
26, 1994, and Senior Vice President of Operations of ROC on July 1, 1998. Mr.
Grippe became Director of Operations of ROC on June 30, 1993. Mr. Grippe was
Assistant to the Chairman of the Board of Riviera, Inc. from July 1990 until May
1993. Mr. Grippe had served in the United States Army from 1964 until his
retirement as a Colonel in July 1990.
Robert E. Nickels, Sr. was elected Vice President of Administration of ROC
on June 30, 1993, and Senior Vice President of Administration of ROC on July 1,
1998. From March 1992 until June 30, 1993, Mr. Nickels was Vice President of
Administration of Riviera, Inc. From November 1991 to February 1992, Mr. Nickels
was a self-employed business consultant. From March 1979 to April 1986, Mr.
Nickels was Director of Internal Audit for MGM-Reno. From April 1986 to November
1991, Mr. Nickels served as Vice President of Administration at Bally's Reno and
Las Vegas.
Michael L. Falba was elected Vice President of Casino Operations of ROC on
April 26, 1994. Mr. Falba became Director of Casino Operations of ROC on June
30, 1993. Mr. Falba was employed by Riviera, Inc. from March 1989 until November
1991 as Assistant Casino Manager, and from November 1991 to June 30, 1993 as
Vice President of Casino Operations.
Officers of each of the Company and ROC serve at the discretion of
their respective Boards of Directors and are also subject to the licensing
requirements of the Nevada Gaming Commission.
Compensation of Executive Officers
The following table sets forth a summary of the compensation paid by
the Company in the Years ended December 31, 1997, 1998 and 1999, to the Chief
Executive Officer of the Company and ROC, and to the Company's four most highly
compensated executive officers who received over $100,000 in compensation during
1999 from the Company (collectively, the "Named Executive Officers").
<PAGE>
<TABLE>
<CAPTION>
Summary of Compensation Table
Name and Other Annual All Other
Principle Position Year Salary Bonus Compensation (1) Compensation (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William L. Westerman 1999 $ 600,000 $ 900,000 (3) $140,300 (4) $2,566
Chariman of the Board and 1998 600,000 900,000 (3) 413,300 (4) 2,402
Chief Executive Officer of the 1997 600,000 ------- 782,175 (4) 1,809
Company and ROC
Duane R. Krohn 1999 $ 211,149 $ 158,333 (5) $7,300 $1,156
Secretary/Treasurer of the 1998 160,040 84,000 7,300 563
Company and Executive Vice 1997 123,351 82,000 7,175 394
President of Finance and
Treasurer of ROC
Ron Johnson 1999 $ 209,759 158,333 (5) $7,300 $1,156
Executive Vice President of 1998 188,757 84,000 7,300 818
Gaming Operations of ROC 1997 180,996 82,000 7,175 763
Robert Vannucci 1999 $209,336 $ 158,333 (5) $7,300 $1,156
Executive Vice President of 1998 183,710 84,000 7,300 818
Marketing and Entertainment of 1997 167,055 82,000 7,175 681
Jerome P. Grippe 1999 $ 159,576 $ 133,333 (6) $7,300 $733
Senior Vice President of 1998 134,196 84,000 7,300 469
Operations of Roc 1997 122,580 82,000 7,175 394
</TABLE>
(1) Includes amounts contributed by the Company under the Company's Profit
Sharing and 401(k) Plans. The Company contributed for the account of each
executive $7,300 in 1999, $7,300 in 1998 and $7,175 in 1997.
(2) Includes premiums paid by the Company for excess life insurance.
(3) See "Employment Agreements" for a summary of certain of the provisions
of Mr. Westerman's employment agreement.
(4) Includes contributions to Mr. Westerman's retirement account of
$133,000 in 1999, $406,000 in 1998, and $775,000 in 1997. Does not
include interest earned on retirement account of $469,250 in 1999,
$410,159 in 1998 and $343,914 in 1997. (See "Employment Agreements")
(5) Includes $77,500 current year incentive and $83,333 accrued Stay Put Bonus.
(6) Includes $77,500 current year incentive and $58,333 accrued Stay Put Bonus.
Option Grants
The number of shares available for purchase under the Company's 1993
Employee Stock Option Plan, as amended (the "Stock Option Plan") is 1,000,000
(as adjusted pursuant to antidilution provisions). Options for an aggregate of
903,000 shares have been granted under the Stock Option Plan as of December 31,
1999. During the Company's 1999 fiscal year, 99,000 options were granted under
the Stock Option Plan.
<PAGE>
Option Exercises, Year-End Options Values and Option Grants in 1999
The following table presents at December 31, 1999 the value of
unexercised in-the-money options held by the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Value of Unexercised,
Unexercised Options In-The-Money Options
--------------------------------- -------------------------------
Name Vested Not Vested Vested Not Vested
<S> <C> <C> <C> <C>
William L. Westerman 320,000 0 $0 $0
Ronald P. Johnson 14,500 12,500 4,688 14,063
Duane R. Krohn 14,500 12,500 4,688 14,063
Robert Vannucci 14,500 12,500 4,688 14,063
Jerome P. Grippe 12,250 8,750 3,281 9,844
</TABLE>
The following table presents options granted during 1999.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Percent of Appreciation for
Number of Total Options Exercise Option Term
Underlying Granted to of Base
Options Employees Price Per Expiration 5% 10%
Name Granted in 1999 Share Date
<S> <C> <C> <C> <C> <C> <C>
Ronald P. Johnson 10,000 10.1% $4.500 4/07/09 $73,300 $116,718
Duane R. Krohn 10,000 10.1% 4.500 4/07/09 73,300 116,718
Robert Vannucci 10,000 10.1% 4.500 4/07/09 73,300 116,718
Jerome P. Grippe 7,000 7.1% 4.500 4/07/09 51,310 81,703
</TABLE>
Employment Agreements
William L. Westerman serves as Chairman of the Board, President and
Chief Executive Officer of the Company, and as Chairman of the Board and Chief
Executive Officer of ROC.
Under Mr. Westerman's existing employment agreement with the Company, which
was last amended on June 24, 1998, Mr. Westerman shall be employed by the
Company for an indefinite period subject to termination by either the Company or
Mr. Westerman on not less than 120 days prior written notice. Mr. Westerman's
base compensation is $600,000.
Under the employment agreement, Mr. Westerman is entitled to
participate in the Company's Senior Management Compensation Plan or such other
executive bonus plan as shall be established by the Company's Board of Directors
(collectively the "Plan"). If at least 80% of targeted net income, as defined by
the Plan, is met, Mr. Westerman shall be entitled to receive a bonus under the
Plan expressed as a percentage of his $600,000 base salary depending on the
percentage of targeted net income realized by the Company in a particular year,
with a maximum bonus of $900,000. Mr. Westerman received an incentive bonus of
$900,000 for 1999.
The employment agreement provides that the Company fund a retirement
account for Mr. Westerman. Pursuant to the employment agreement, an aggregate of
$5,288,918 had been credited to the retirement account from its inception
through January 1, 2000. Under the employment agreement, each year that Mr.
Westerman continues to be employed, an amount equal to Mr. Westerman's base
salary for that year will be credited to the account on January 1 of that year
and in the event that Mr. Westerman is no longer employed by the Company (except
for termination for cause, in which case Mr. Westerman would forfeit all rights
to monies in the retirement account), Mr. Westerman will be entitled to receive
the amount in the retirement account as of the date he ceases to be employed by
the Company in 20 quarterly installments. Pursuant to the employment agreement,
the retirement account was credited quarterly with interest and shall be
credited with additional amounts on the first day of each succeeding calendar
quarter equal to the product of (i) the Company's average borrowing cost for the
<PAGE>
immediately preceding fiscal year, as determined by the Company's chief
financial officer and (ii) the average outstanding balance in the retirement
account during the preceding calendar quarter. Total interest earned was
$487,729 for 1999, $410,159 for 1998 and $343,914 for 1997. In the event of Mr.
Westerman's death, an amount equal to the applicable federal estate tax (now
60%) on the retirement account will be pre-paid prior to the date or dates such
taxes are due.
The Company retains beneficial ownership of all monies in the
retirement account, which monies are earmarked to pay Mr. Westerman's retirement
benefits. However, upon (i) the vote of a majority of the outstanding shares of
Common Stock approving a "Change of Control" (as defined below), (ii) the
occurrence of a Change of Control without Mr. Westerman's consent, (iii) a
breach by the Company of a material term of the employment agreement or (iv) the
expiration or earlier termination of the term of the employment agreement for
any reason other than cause, Mr. Westerman had the right to require the Company
to establish a "Rabbi Trust" for the benefit of Mr. Westerman. He also has the
right to require the Company to fund such trust with an amount of cash equal to
the amount then credited to the retirement account, including any amount to be
credited to the retirement account upon a Change of Control.
On February 5, 1998, the stockholders of the Company by a majority vote
approved the Agreement and the Plan of Merger with R&E Gaming Corp. and its
wholly-owned subsidiary Riviera Acquisition Sub, Inc. Such stockholder approval
constituted a Change of Control. On March 5, 1998, subsequent to this Change of
Control, Mr. Westerman exercised his right to require the Company to establish
and fund a Rabbi Trust for his benefit. On March 20, 1998, Mr. Westerman and the
Company entered into an agreement whereby Mr. Westerman waived his right to have
the Company fund the Rabbi Trust in exchange for the Company agreeing to fund
such Rabbi Trust within five business days after notice from Mr. Westerman. The
merger agreement was subsequently terminated and litigation ensured as described
in Item 3, Legal Proceedings.
Mr. Westerman's employment agreement provides (a) that the sum of Mr.
Westerman's base salary, bonus, and credits to his Retirement Account in any one
year shall not exceed that which would have been payable under his previous
employment agreement with the Company, and (b) that Mr. Westerman shall instruct
the Company of any reductions in base salary, bonus, and credits to his
Retirement Account necessary to comply with this limitation. The Company has
determined that for the year 1999, a reduction of $467,000 would be necessary to
comply with this provision. For 1998 the company determined a reduction of
$194,000 was necessary to comply with this provision. Prior to December 31,
1999, and December 31, 1998, Mr. Westerman instructed the Company that this be
applied to reduce the amount to be credited to his retirement account from
$600,000 to $133,000 and to $406,000 respectively.
In addition to Mr. Westerman, four executives have employment contracts
with the Company for fixed terms of either 2 or 3 years. Each of these
employment contracts contains a Termination Fee Agreement and a Stay Bonus
Agreement. See "Termination Fee Agreements" and "Stay Bonus Agreements." These
four employment agreements also provide for a "Normal Incentive Bonus" entitling
the executive to participate in the Company's Incentive Compensation Plan (the
"Plan") whereby the employee may share a portion of the Plan's pool which
provides for a target of $25 million EBITDA for the years 1999 and 2000 with
amounts being credited to the Plan's pool up to a maximum of $1.2 million. Three
of these employment agreements also provide for a "Special Incentive Bonus" in
an amount equal to one-third of any excess of $1.2 million.
Employee Stock Purchase Plan
On March 5, 1996, the Board of Directors adopted an employee stock
purchase plan (the "Employee Stock Purchase Plan"), which was approved by the
stockholders on May 10, 1996. A total of 300,000 shares of Common Stock (subject
to adjustment for capital changes) in the aggregate may be granted under the
employee stock purchase plan. The employee stock purchase plan is administered
by the Compensation Committee. The purchase price per share of stock shall be
85% of per share market value of the Common Stock on the purchase date. On May
31, 1996, approximately 560 union and non-union employees participated in the
stock purchase plan. Under the employee stock purchase plan, 137,000 shares were
issued to employees at $11.26 (85% of market price at May 10, 1996), for
$160,000 cash and the balance in notes receivable of $1,383,000 which were
payable over two years via payroll deduction. During 1997, 6,200 shares were
reissued at $11.47 for notes receivable of $71,145. During 1996, 1997, 1998 and
1999 respectively, 17,600, 25,900, 65,100, and 900 shares were returned to the
employee stock purchase plan, and 266,300 shares remained eligible to be issued
under the plan at December 31, 1999.
<PAGE>
The Company has registered the issuance of all the shares issuable
under the Stock Purchase Plan on Form S-8 under the Securities Act of 1933, as
amended (the "Securities Act").
Profit Sharing and 401(k) Plans
On June 30, 1993, the Company and ROC assumed the combined profit
sharing and 401(k) plans of Riviera, Inc. (the "Profit Sharing and 401(k)
Plans") and the Company and ROC have continued the Profit Sharing and 401(k)
Plans after June 30, 1993. The Company and ROC have amended the Adoption
Agreement to provide that all current employees of Riviera Las Vegas who were
employed on April 1, 1992, who were at least 21 years of age and who are not
covered by a collective bargaining agreement are immediately eligible to
participate in the Profit Sharing and 401(k) Plans. The amendment provides
further that all current employees who were employed by Riviera Las Vegas after
April 1, 1992, who are at least 21 years of age and who are not covered by a
collective bargaining agreement are eligible to participate after one year of
service at the Riviera Las Vegas.
The Company has identical plans for its 100% indirectly owned
subsidiary, Riviera Black Hawk, Inc., which operates its casino in Black Hawk,
Colorado. Current employees who are at least 21 years of age and who are not
covered by a collective bargaining agreement are immediately eligible to
participate in the Profit Sharing and 401(k) Plans. After June 30, 2000, all new
employees who are at least 21 years of age and who are not covered by a
collective bargaining agreement will be eligible to participate after one year
of service at Riviera Black Hawk.
The profit sharing component of the Profit Sharing and 401(k) Plans
provides that the Company will make a contribution equal to 1% of each eligible
employee's annual compensation if a prescribed annual operating earnings target
is attained and an additional 1/10th of 1% thereof for each $200,000 by which
operating earnings is exceeded, up to a maximum of 3% thereof. The Company may
elect not to contribute to the Profit Sharing and 401(k) Plans if it notifies
its employees by January of the Profit Sharing and 401(k) Plans year. An
employee will become vested in the Company's contributions based on the
employee's years of service. An employee will receive a year of vesting service
for each plan year in which the employee completed 1,000 hours of service.
Vesting credit will be allocated in 20% increments for each year of service
commencing with the attainment of two years of service. An employee will be
fully vested following the completion of six years of service.
Key Employee Retention Plan
As a result of the scheduled openings of several new Las Vegas Strip
properties in 1998, 1999 and 2000, an estimated 38,000 jobs had to be filled,
including approximately 5,000 supervisory positions. Because of the Riviera's
performance and reputation, its employees were prime candidates to fill these
positions. 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.
Stay Bonus Agreements
Approximately 85 executive officers and significant employees
(excluding Mr. Westerman) of ROC are party to agreements pursuant to which each
such employee is entitled to receive a "stay bonus" (varying amounts) if the
employee is discharged without cause (as defined in the stay bonus agreements),
or continues to be employed by the Company on each of January 1, 2000, January
1, 2001 and June 30, 2001. The estimated total amount that would be payable
under all such agreements is approximately $2.3 million, of which approximately
$610,000 was paid in January, 2000.
<PAGE>
Termination Fee Agreements
Approximately 85 executive officers and significant employees
(excluding Mr. Westerman) of ROC have termination fee agreements effective
through January 2000, pursuant to which each of such employees will be entitled
to receive (1) either six months' or one year's base salary if their employment
with the Company is terminated, without cause, within 12 or 24 months of a
change of control of the Company or ROC; and (2) group health insurance for
periods of either one or two years. The base salary payments are payable in
bi-weekly installments subject to the employee's duty to mitigate by using his
or her best efforts to find employment. The estimated total amount that would be
payable under all such agreements is approximately $5 million including $1.2
million in benefits, as of December 31, 1999.
Compensation Committee Report on Executive Compensation
The Compensation Committee endeavors to ensure that the compensation
program for executive officers of the Company is effective in attracting and
retaining key executives responsible for the success of the Company and is
tailored to promote the long-term interests of the Company and its stockholders.
The Company's executive officer compensation program in its last completed
fiscal year was principally comprised of base salary, an executive incentive
plan, a 401(k) plan, a profit-sharing plan and long-term incentive compensation
in the form of incentive stock options or non-qualified stock options.
The Compensation Committee takes into account various qualitative and
quantitative indicators of corporate and individual performance in determining
the level and composition of compensation for the Company's Chief Executive
Officer and his recommendations regarding the other executive officers. In
particular, the Compensation Committee considers several financial performance
measures, including revenue growth and net income. However, the Compensation
Committee does not apply any specific quantitative formula in making
compensation decisions. The Committee also considers achievements that, while
difficult to quantify, are important to the Company's long-term success. The
Compensation Committee seeks to create a mutuality of interest between the
executive officers and the Company's stockholders by increasing the executive
officers' ownership of the Company's Common Stock through the Stock Option Plan.
Salary levels for the Company's executive officers are significantly
influenced by the need to attract and retain management employees with high
levels of expertise. In each case, consideration is given both to personal
factors, such as the individual's experience, responsibilities and work
performance, and to external factors, such as salaries paid by comparable
companies in the gaming industry. With regard to the latter, it is important to
recognize that because of the opening of new properties on the Las Vegas Strip
in 1998 and 1999, the scheduled openings of new properties in 2000, and the
growth of riverboat and dockside gaming, Native American gaming operations and
the proliferation of jurisdictions in which gaming is permitted, the Company
competes with numerous other companies for a limited pool of experienced and
skilled personnel. Therefore, it is critical that the Company provide base
salaries that are competitive in the casino industry. With respect to the
personal factors, the Compensation Committee makes salary decisions in an annual
review based on the recommendations of the Chief Executive Officer. This annual
review considers the decision-making responsibilities of each position as well
as the experience and work performance of each executive. The Chief Executive
Officer views work performance as the single most important measurement factor.
The compensation of Mr. Westerman for the Company's last completed
fiscal year was set pursuant to the employment agreement described in the
"Compensation of Executive Officers" section.
THE COMPENSATION COMMITTEE
Richard L. Barovick, Chairman
James N. Land, Jr.
<PAGE>
Performance Graph
The following graph compares the annual change in the cumulative total
return, assuming reinvestment of dividends, on the Company's Common Stock with
the annual change in the cumulative total returns of the NASDAQ Broad Market,
the American Stock Exchange Index (the "AMEX Index"), the New York Stock
Exchange (the "NYSE") and the NASDAQ Amusement and Recreation Services Index
(the "NASDAQ 79xx"), which the Company considers to be its peer industry group.
The graph assumes an investment of $100 on December 31, 1993, in each of the
Common Stock, the stocks comprising the NASDAQ Broad Market, the stocks
comprising the AMEX Index and the stocks comprising the NASDAQ 79xx.
Comparison of Cumulative Total Return Among the Company, NASDAQ BroadMarket, the
AMEX Index, the NYSE and the NASDAQ 79xx.(1)
Riviera Nasdaq Nasdaq 79xx Amex NYSE
------- ------ ----------- ---- ----
12/31/94 100 100 100 100 100
12/31/95 267 140 79 129 136
12/31/96 543 172 76 131 164
12/31/97 490 209 91 164 218
12/31/98 167 292 93 176 262
12/31/99 243 541 120 224 288
(1) Comprised of companies whose stock is traded on the NASDAQ National Market
and whose standard industrial classification is within 7900-7999. The
Company does not necessarily believe that this is an indication of the
value of the Company's stock.
<PAGE>
Tender Offer
On December 28, 1999 the Company announced a cash tender offer to purchase up to
500,000 shares of its outstanding common stock at $7.50 per share ("Tender
Offer"). The Company subsequently increased the number of shares of its common
stock by 90,000, representing 2% of its then outstanding shares of common stock,
increasing the total shares of the Company's cash tender offer to 590,000. This
offer expired on February 2, 2000. A total of 2,646,875 shares of the Company's
stock were tendered. Because a greater number of shares were tendered than the
Company agreed to purchase, the shares purchased by the Company were subject to
proration. All proper tenders of less than 100 shares were fully purchased. The
proration of the other shares purchased was 22.2% of the shraes tendered.. The
total cost of the tender offer was approximately $4,625,000, including expenses
of $200,000.
Security Ownership of Certain Beneficial Owners and Management
The Common Stock is traded on the American Stock Exchange. The
following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 17, 2000, by (i) each person who, to
the knowledge of the Company, beneficially owns more than 5% of the outstanding
Common Stock of the Company (based on reports filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, or upon
information furnished to the Company), (ii) the directors and certain officers
of the Company and (iii) all directors and officers of the Company and ROC as a
group. The percentages of shares of Common Stock held or beneficially owned by
any Stockholder or group of Stockholders are based upon the total number of
shares of Common Stock outstanding as of March 17, 2000. Except as indicated,
each person listed below has sole voting and investment power with respect to
the shares set forth opposite such person's name.
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name Number Percentage
<S> <C> <C>
William L. Westerman(1)(2) 620,000 14.6%
Robert R. Barengo(1)(3) 10,980 *
Richard L. Barovick(1)(4) 10,800 *
James N. Land, Jr. (1)(4) 2,300 *
Ronald P. Johnson(1)(5) 67,000 1.7
Duane R. Krohn(1)(5) 57,300 1.5
Robert Vannucci(1)(5) 31,168 *
Jerome P. Grippe(1)(6) 28,168 *
Keyport Life Insurance Co.(7) 857,160 21.8
SunAmerica Life Insurance Company(8) 525,778 13.4
Morgens Waterfall Vintiadis & Co., Inc. (9) 466,300 11.9
James D. Bennett(10) 536,070 13.7
Stephen S. Taylor(11) 203,500 5.2
All executive officers and directors as a group
(11 persons).(1)(2)(3)(4)(5)(6) 884,321 20.2
- --------------------------------
* Less than 1%.
</TABLE>
(1) The address for each director and officer of the Company or ROC is c/o
Riviera Holdings Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada
89109.
(2) Includes 320,000 shares which may be acquired within 60 days of March
17,2000, upon the exercise of outstanding options.
<PAGE>
(3) Includes 4,000 shares which may be acquired within 60 days of March 17,
2000, upon the exercise of outstanding options.
(4) Includes 800 shares which may be acquired within 60 days of March 17,
2000, upon the exercise of outstanding options.
(5) Includes 19,5000 shares which may be acquired within 60 days of March
17, 2000, upon the exercise of outstanding options.
(6) Includes 15,750 shares which may be acquired within 60 days of March
17, 2000, upon the exercise of outstanding options.
(7) The address for Keyport Life Insurance Company ("Keyport") is 125 High
Street, Boston Massachusetts 02110. Stein Roe & Farnham Incorporated, an
affiliate of Keyport, is Keyport's investment advisor, and, as such, has the
power and authority to direct the disposition of the securities, and
accordingly, could be deemed to be a "beneficial" owner within the meaning of
Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Stein Roe & Farnham Incorporated, however, disclaims actual beneficial
ownership of such securities.
(8) The address for SunAmerica Life Insurance Company ("SunAmerica") is One
SunAmerica Center, Los Angeles, California 90067.
(9) The address for Morgens, Waterfall, Vintiadis & Company, Inc.
("Morgens") is 10 East 50th Street, New York, New York 10022. Morgens has the
power and authority to direct the disposition of these securities and,
accordingly, could be deemed to be "beneficial" owner within the meaning of Rule
l3d-3 of the Exchange Act. Morgens, however, disclaims beneficial ownership with
respect to any securities not actually beneficially owned by it.
(10) Includes (a) 299,415 shares held by Restructuring Capital Associates,
L.P. and Bennett Restructuring Fund, L.P. and (b) 236,655 shares held by Bennett
Offshore Restructuring Fund, Inc. The address for Mr. Bennett is c/o
Restructuring Capital Associates, L.P., 450 Park Avenue, New York, New York
10022.
(11) Mr. Taylor's address is 714 South Dearborn Street, Chicago, Illinois
60605.
The Company is a party to a registration rights agreement with, among
others, Morgens, Keyport, SunAmerica and affiliates of Restructuring Capital,
each of which owns more than 5% of the Common Stock. Pursuant to the Equity
Registration Rights Agreement dated June 30, 1993, among the Company and the
Holders of Registerable Shares referred to therein, each of the three largest
holders of Common Stock is entitled to cause the Company to file a registration
statement and holders of 51% or more of the shares of Common Stock then subject
to the Equity Registration Rights Agreement are entitled to cause the Company to
file two registration statements, registering under the Securities Act, the
offer and sale of Common Stock owned by such persons. All other Holders of
Registerable Shares will be entitled to have shares of Common Stock owned by
them included in any such registrations in addition, the agreement grants to
each party the right to have included, subject to certain limitations, all
shares of Common Stock owned by such party in any registration statement filed
by the Company under the Securities Act, including those filed on behalf of the
Company or security holders not party to the Equity Registration Rights
Agreement. Pursuant to the agreement, the Company will pay all costs and
expenses, other than underwriting discounts and commissions, in connection with
the registration and sale of Common Stock under the agreement.
Certain Relationships and Related Transactions
William L. Westerman serves as a Manager on the Board of Managers of
Peninsula Gaming Partners, LLC ("Partners"). Partners is the parent of Peninsula
Gaming Company, LLC, which owns and operates the Diamond Jo riverboat casino
located in Dubuque, Iowa. Partners has engaged Riviera Gaming Management, Inc.
("RGM"), a wholly owned subsidiary of the Company to assist on an interim basis
with transitional matters, including the selection of a new Chief Operating
Officer to oversee the Diamond Jo operations. RGM has earned fees and expenses
in the amount of $64,000 for the year ended December 31, 1999 in connection with
this engagement. The Company believes that the fees are no less favorable than
would have been paid in an arms length transaction.
Robert R. Barengo was formerly a director and 10% stockholder of
Leroy's. In May 1996, Leroy's became a wholly-owned subsidiary of American
Wagering, Inc. ("AWI"), a publicly held corporation listed on NASDAQ. Mr.
Barengo is currently a director of AWI and owns 7% of the outstanding stock of
AWI, which leases approximately 12,000 square feet of the Riviera Hotel &
Casino's casino floor. AWI is the operator of the Riviera Hotel & Casino's
sports book operations. This lease was assumed by the Company from Riviera, Inc.
<PAGE>
and is still in effect. The lease provides for rental payments based upon the
monthly and annual revenues derived by AWI from the location. From January 1,
1999 through December 31, 1999, AWI paid aggregate rent to ROC of approximately
$250,000. The Company believes that the terms of the lease with AWI are at least
as favorable to the Company and ROC as could have been obtained from
unaffiliated third parties and are at least as favorable as terms obtained by
other casino hotels in Las Vegas.
As of April 1, 1998, the Company entered into a letter agreement with
Mr. Barengo, a member of the Bar of the State of Nevada, pursuant to which Mr.
Barengo has been assisting the Company and its outside counsel in enforcing the
Company's rights under the terminated Paulson merger, the related litigation,
Morgens Waterfall litigation (see Item 3. Legal Proceedings) and with related
matters. Under such letter agreement, Mr. Barengo receives a fee of $10,000 per
month for his consulting services, which services commenced on April 1, 1998.
Either party may terminate the letter agreement on no less than seven days prior
written notice.
From August 1996 until February 1997, Riviera Gaming
Management-Elsinore, Inc. ("RGME"), an indirect wholly-owned subsidiary of the
Company, operated the Four Queens Casino which is located adjacent to the Golden
Nugget on Fremont Street in downtown Las Vegas under an interim management
agreement for a fee of $83,333 per month, A long-term management agreement (the
"Management Agreement") with Elsinore Corporation ("Elsinore"), which owns the
Four Queens through its wholly-owned subsidiary Four Queens, Inc., went into
effect on February 28, 1997, the effective date of the Chapter 11 plan of
reorganization of Elsinore. The Morgens Entities, beneficial owners of
approximately 26.5% of the common stock of the Company, own over 94% of the
voting stock of Elsinore. The Company believes that the terms of the Management
Agreement were no less favorable to the Company than if the Company had
negotiated with an independent third party. The term of the Management Agreement
was approximately 40 months, subject to earlier termination or extension. Either
party could terminate the Agreement if cumulative earnings before interest,
taxes, depreciation, and amortization ("EBITDA") for the first two fiscal years
were less than $12.8 million. The Four Queens EBITDA for the 24 months ending
March 31, 1999 was approximately $10.2 million. Elsinore management and the
Board of Directors notified the company on August 30, 1999 that the agreement
would be terminated on December 30, 1999 in accordance with the provision.
From March 5, 1997 until September 2, 1999, Mr. Westerman was the
President and a director of Four Queens, Inc. Mr. Westerman has also been a
director of Darling International Inc., a publicly held company, from June 23,
1997 until November 11, 1999. Morgens Entities own 46.13% of the stock of
Darling International, Inc. which is primarily in the business of processing
animal and bakery waste by-products.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors
and executive officers and any persons who own more than ten percent of the
Company's Common Stock to file with the Securities and Exchange Commission
various reports as to ownership of such Common Stock. Such persons are required
by Securities and Exchange Commission regulation to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely on its review of the copies of such reports furnished to the Company and
written representations to the Company, during the last fiscal year (i) a form 4
filed by Mr. Land to report Proxy Disclosures (stock options granted) in January
1999 was filed 45 days late; (ii) a Form 4 filed by Mr. Krohn to report
disposition of common stock in February 1999 was filed 3 days late; and (iii)
other than these specific exceptions, the aforesaid Section 16(a) filing
requirements of these and all other officers and directors were met on a timely
basis during 1999.
<PAGE>
Item 3. Legal Proceedings
Paulson, et al. v. Jefferies, Riviera Holdings Corporation, et al., United
States District Court for the Central District of California, No. CV 98-2644
(ABC) (the "California Action"). We and the plaintiffs to this action entered
into a Settlement Agreement dated as of July 2, 1999. The Settlement Agreement
was conditioned upon the United States District court for the Central District
of California (the "Court") entering a Settlement Bar Order and Final Judgment
and provided that upon the entering of such an Order: (i) we would pay plaintiff
Allen E. Paulson ("Paulson") $3,477,412 ($7.50 per share) for the 463,655 shares
of Riviera Holdings Corporation common stock owned by Paulson, (ii) Paulson
would receive $1,1522,587.50 from the funds being held in escrow for the benefit
of holders of Riviera Holdings Corporation's Contingent Value Rights ("CVRs"),
(iii) the remainder of the escrow of approximately $4,340,000 would be
distributed to the holders of the CVRs, and (iv) Paulson would file an amended
complaint which eliminated allegations of wrongdoing against us.
On October 7, 1999, the Court entered a Settlement Bar Order and Final Judgment
which dismissed the California Action as against us with prejudice, and barred
the other defendants to the lawsuit from seeking indemnification against us for
claims arising under the federal securities laws or for state law claims arising
out of the transactions underlying the plaintiffs' federal security law claims.
Shortly after the entry of the Settlement Bar Order, we acquired Paulson's
stock, and funds were disbursed from escrow as per the terms of the Settlement
Agreement.
Morgens, Waterfall, Vintiadis & Company, Inc., v. Riviera Holdings
Corporation, William L. Westerman, Robert R. Barengo, Richard L.
Barovick and James N. Land, Jr., as Directors of Riviera Holdings Corporation,
United States District court for the District of
Nevada (CV-S-99-1383-JBR(RLH)) (the "Nevada Action"). The plaintiff in this
action ("Morgens, Waterfall") is a shareholder of Riviera Holdings Corporation
and a defendant to the California Action. On September 30, 1999, Morgens,
Waterfall commenced this action in Nevada state court, where it sought an order
enjoining us from obtaining a Settlement Bar Order in the California Action. We
and the other defendants to the Nevada Action removed the action to the United
States District Court for the district of Nevada on October 1, 1999. This
removal to federal court divested the state court of jurisdiction to consider
Morgens, Waterfall's motion for injunctive relief. Morgens, Waterfall filed a
complaint with the court, but it did not serve the complaint on any of the
defendants.
On November 1, 1999, Morgens, Waterfall served a notice of motion to remand the
Nevada Action from the Nevada federal court back to Nevada state court. We and
the other defendants opposed the motion, and the motion is presently pending
before the federal court.
On January 31, 2000, Morgens, Waterfall purported to serve an Amended
Summons and a First Amended Verified Complaint on Riviera Holdings Corporation
with subsequent service on directors. The Amended Complaint asserts four claims
for relief. In the first claim for relief, Morgens, Waterfall asserts that there
is a dispute as to the meaning of the amended complaint filed by Paulson in the
California Action pursuant to the Settlement Agreement. Morgens, Waterfall seeks
an affirmation injunction requiring Riviera Holdings Corporation to seek
clarification from Paulson as to the meaning of this amended complaint. In its
second claim for relief, Morgens, Waterfall seeks indemnification from Riviera
Holdings Corporation for all damages and costs incurred in the California Action
by reason of any misconduct alleged by Paulson against Riviera Holdings
Corporation. In its third claim for relief, Morgens, Waterfall claims that
Riviera Holdings corporation and the director defendants breached its fiduciary
duties to Morgens, Waterfall when it consummated the Settlement Agreement and
secured the settlement Bar Order because it left Morgens, Waterfall unprotected
from claims based on Riviera Holdings Corporation's alleged misconduct and, in
addition, harmed Morgens, Waterfall because Riviera Holdings Corporation
allegedly paid too much for Paulson's stock. Morgens, Waterfall styles its
fourth claim for relief as a "derivative claim" and asserts it only against the
director defendants. Morgens, Waterfall claims that the director defendants
violated their fiduciary duties by entering into the Settlement Agreement and
securing the Settlement Bar Order. We believe all these claims are without merit
and intend to vigorously defend against them.
We are also a party to several routine lawsuits both as plaintiff and as
defendant arising from the normal operations of a hotel. We do not believe that
the outcome of such litigation, in the aggregate, will have a material adverse
effect on the financial position or results of our operations.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Deloitte & Touche LLP, certified
public accountants, as the independent certified public accountants of the
Company for the fiscal year ending December 31, 2000. Deloitte & Touche LLP have
been the accountants for the Company and its predecessor since prior to 1988.
Representatives of Deloitte & Touche LLP ("Representatives") are expected to be
present at the Annual Meeting. The Representatives will have the opportunity to
make a statement, although they are currently not expected to do so. The
Representatives are expected to be available to respond to appropriate
questions.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which
are to be brought before the Annual Meeting. If any other matters should be
presented for proper action, it is the intention of the persons named in the
Proxy to vote in accordance with their discretion pursuant to the terms of the
proxy.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders must be received at the Company's executive offices on
or before December 31, 2000, for inclusion in the Company's Proxy Statement with
respect to such meeting.
RIVIERA HOLDINGS CORPORATION
By William L. Westerman
President, Chief Executive Officer and
Chairman of the Board of Directors
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS
WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO FILL IN, SIGN,
DATE AND RETURN THE ENCLOSED PROXY.
