Back to GetFilings.com
====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the fiscal year ended December 31, 2000.
[ ] Transition report pursuant to sections 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from --------- to ----------
Commission file number 000-21430
RIVIERA HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 88-0296885
(State of Incorporation) (I.R.S. Employer Identification No.)
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 734-5110
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K.
Based on the average bid price for the Registrant's Common Stock as
of March 8, 2001, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $24,026,238. As of March 8,
2001 the number of outstanding shares (net of treasury shares) of the
Registrant's Common Stock was 3,668,128.
Documents incorporated by reference:
====================================================================
Page 1 of 39 Pages
Exhibit Index Appears on Page 34 hereof.
1
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
Item 1. Business........................................................................................3
General .....................................................................................3
The Riviera Hotel & Casino...................................................................3
Riviera Black Hawk...........................................................................7
Geographical Markets.........................................................................8
Management Activities........................................................................9
Competition................................................................................ 10
Employees and Labor Relations...............................................................12
Regulation and Licensing....................................................................12
Federal Registration........................................................................20
Item 2. Properties.....................................................................................20
Item 3. Legal Proceedings..............................................................................21
Item 4. Submission of Matters to a Vote of Security Holders............................................22
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters...................22
Item 6. Selected Financial Data........................................................................23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........24
Results of Operations.......................................................................24
2000 Compared to 1999.......................................................................25
1999 Compared to 1998.......................................................................27
Liquidity and Capital Resources.............................................................28
Item 7A. Qualitative and Quantitative Disclosure About Market Risk......................................30
Forward Looking Statements..................................................................31
Item 8. Financial Statements and Supplementary Data....................................................31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........31
Item 10. Directors and Executive Officers of the Registrant.............................................31
Item 11. Executive Compensation.........................................................................31
Item 12. Principal Shareholders.........................................................................32
Item 13. Certain Relationships and Related Transactions ................................................32
Item 14. Exhibits and Reports on Form 8K................................................................32
2
PART I
Item 1. Business
General
Riviera Holdings Corporation, a Nevada corporation (the Company),
through its wholly-owned subsidiary, Riviera Operating Corporation, a Nevada
corporation, owns and operates the Riviera Hotel & Casino (Riviera Las Vegas)
located on Las Vegas Boulevard in Las Vegas, Nevada. Opened in 1955, the Riviera
Las Vegas has developed a long-standing reputation for delivering high quality,
traditional Las Vegas-style gaming, entertainment and other amenities.
Riviera Holdings Corporation, through its wholly-owned subsidiary,
Rivera Black Hawk, Inc., owns and operates the Riviera Black Hawk Casino (Rivera
Black Hawk) a limited-stakes casino in Black Hawk, Colorado which opened on
February 4, 2000.
Riviera Las Vegas
General
Riviera Las Vegas is located on the corner of Las Vegas Boulevard and
Riviera Boulevard, across from Circus Circus. Riviera Las Vegas targets slot and
mid-level table game customers with a focus on creating repeat customers and
increasing walk-in traffic. Key elements of this strategy include offering a
value-oriented experience by providing a variety of hotel rooms, restaurants and
entertainment, with some of Las Vegas' most popular shows, all at reasonable
prices.
Gaming
Riviera Las Vegas has 110,000 square feet of casino space. The casino
currently has approximately 1,502 slot machines and 46 gaming tables, including
blackjack, craps, roulette, pai gow poker, Caribbean Stud(R) poker, Let It
Ride(R) and poker. The casino also includes a keno lounge and a 200-seat race
and sports book.
Gaming operations at Riviera Las Vegas are continually updated to
respond to both changing market conditions and customer demand in an effort to
attract new customers and encourage repeat customer business through player
tracking and database management. We maintain a slot players club, through which
members receive special promotions and targeted mailings. New and innovative
slot and table games have been introduced based on customer feedback. Management
devotes substantial time and attention to the type, location and player activity
of all its slot machines. We maintain a capital investment program for the
upgrade of our slot machines.
Our current management team redirected our business away from
high-stakes wagerers in favor of the less volatile mid-level gaming customers.
In order to effectively pursue this strategy, we made several strategic changes
including reconfiguring the casino space, installing new slot machines and bill
acceptors, reducing the number of gaming tables and eliminating baccarat. In
addition, we implemented stricter credit policies. As a result, the percentage
of table game dollar volume represented by credit play declined from
approximately 24% in 1993 to 6.7% in 2000. Also, in 2000, revenues from slots
and tables were approximately 78% and 19% of total gaming revenue respectively,
as compared to 60% and 34%, respectively, in 1993.
During 2000, we continued a number of initiatives at Riviera Las
Vegas to increase slot play, including the replacement of older slot machines
and maintaining our slot host program. Slot hosts are our employees who interact
with patrons as goodwill ambassadors to generate loyalty. Our strategy is to
continue to increase slot play through marketing programs and other
improvements, including (i) our ongoing slot upgrade program, (ii) addition of
new signage, (iii) promotion of the Riviera Las Vegas Player's Club, (iv)
sponsorship of slot tournaments, (v) creation of promotional programs, (vi)
marketing of the "Slot Frenzy" and "$40 for $20(R)" slot promotions, and (vii)
"Nickel Town(R)". At the end of 1997, we opened Nickel Town on the corner of Las
Vegas Boulevard and Riviera Boulevard at the crosswalk from Circus Circus and
the local Las Vegas Boulevard bus stop. Nickel Town is comprised primarily of
nickel slot machines, the fastest growing segment of the Las Vegas slot market.
3
Hotel
Riviera Las Vegas' hotel is comprised of five hotel towers with
approximately 2,100 guest rooms, including 169 suites. Built in 1955 as part of
the original casino/hotel, the nine-story North Tower features 391 rooms and 11
suites. In 1967, the 12-story South Tower was built with 147 rooms and 31
suites. Another 220 rooms and 72 suites, including penthouse suites, were added
to the property through the construction of the 17-story Monte Carlo Tower in
1974. In 1977, the six-story San Remo Tower added 243 rooms and six suites to
the south side of the resort. The most recent phase of hotel expansion was
completed in 1988 upon the opening of the 930 room, 49 suite, 24-story Monaco
Tower. By the end of 2000 we completed refurbishment of all of our approximately
2,100 hotel rooms except for 8 suites which are in the process of being
remodeled and will be completed by the end of 2001. Despite the significant
increase in rooms on the Las Vegas Strip since 1997, we believe Riviera Las
Vegas has attained room occupancy rates that are among the highest on the Las
Vegas Strip with 97.5% for 1994, 97.0% for 1995, 98.2% for 1996, 95.7% for 1997,
95.2% for 1998, 97.5 % in 1999 and 96.6% in 2000 (based on available rooms). The
average occupancy rate citywide was 89.1% in 2000 according to the Las Vegas
Convention and Visitors Authority.
Restaurants
The quality, value and variety of food services are critical to
attracting Las Vegas visitors. Riviera Las Vegas offers five bars and four
restaurants and serves an average of approximately 5,900 meals per day,
including banquets and room service. The following table outlines, for each
restaurant, the type of service provided and total seating capacity:
Seating
Name Type Capacity
Kady's Coffee Shop 290
Kristofer's Steak and Seafood 162
Ristorante Italiano Italian 126
World's Fare Buffet All-you-can-eat 432
1,010
In addition, Riviera Las Vegas operates a snack bar and continental
breakfast buffet as well as a fast food court operated by a third party. The
food court has 200 seats and several fast-food restaurants.
Convention Center
Riviera Las Vegas features 160,000 square feet of convention, meeting
and banquet space. The convention center is one of the largest in Las Vegas and
is an important feature that attracts customers. The facility can be
reconfigured for multiple meetings of small groups or large gatherings of up to
5,000 people. Riviera Las Vegas hosts approximately 300 conventions per year.
The hotel currently has over 716,000 convention related advance bookings of
rooms through 2004 consisting of approximately 475,000 definite bookings and
approximately 241,000 tentative bookings. In 2000 approximately 27% of the rooms
were occupied for conventions and management estimates that 32% of its rooms
will be occupied for conventions in 2001.
The Royal Pavilion portion of the convention center, which opened in
February, 1999, and represents approximately 60,000 square feet of our
convention facility, features state-of-the-art convention, meeting and banquet
facilities, teleconferencing and satellite uplink capability and twelve (12)
skyboxes.
Entertainment
Riviera Las Vegas has one of the most extensive entertainment
programs in Las Vegas, offering four different regularly scheduled shows and
special appearances by headline entertainers in concert. We believe
entertainment provides an attractive marketing tool to attract customers to the
Riviera. Riviera Las Vegas' entertainment program includes such well received
shows as Splash(R) (a variety show), An Evening at La Cage(R) (a female
impersonation show), Crazy Girls(R) (an adult revue) as well as featured
4
comedians at the Riviera Comedy Club. We update our shows continually in
response to customer surveys and to keep them fresh. Tickets for the shows are
offered at reasonable prices in keeping with our emphasis on mid-level
customers. The readers of the Las Vegas Review Journal voted the Riviera Comedy
Club the number one comedy club in Las Vegas in the most recently released "Best
of Las Vegas" readers' survey.
The following table outlines, for each entertainment center, the type
of service provided and total seating capacity:
Name Type Seating Capacity
Splash Variety 875
La Cage Female impersonation 575
Crazy Girls Adult Revenue 375
Comedy Club Comedy 350
2,175
Other entertainment includes the 200-seat Le Bistro entertainment
lounge located in the casino, which offers live performances every night. In
addition, Riviera Las Vegas presents major concerts which since 1998 have
included performers such as The Beach Boys, Billy Ray Cyrus, Rich Little, Drew
Carey, and Damon Wayans and D.L. Hughley. The addition of the Royale Pavilion
has enabled us to increase attendance at special events since, in the past, the
then existing facilities could not accommodate the demand for tickets.
We believe that our substantial entertainment revenue is attributable
to the popularity of the in-house productions supplemented by focused marketing
and consistent advertising messages.
Future Expansions
We continue to explore the possible development of an approximately
60,000 square-foot shopping center and/or entertainment complex to be
constructed directly over the casino which could contain stores and
entertainment that will appeal to the Riviera Las Vegas's main target audience,
adults aged 45 to 65. The exit from the complex would be by an escalator which
will deliver patrons to the casino. We would require partners to finance,
develop and operate the entertainment attraction and retail stores. To date no
such partners have been identified.
We are exploring a number of options for the development of our
existing 26 acre site. These options include a joint venture for the development
of a time-share condominium tower or an additional hotel tower and parking
garage. Under the terms of our $175 million Bond Indenture, we could contribute
up to 6 acres of land to such projects and if we decide to develop a time share
tower a third party would construct and sell time-share units and arrange
financing. We believe that additional rooms adjacent to the Las Vegas Convention
Center would be particularly attractive to business customers and would provide
a base for additional casino customers. The development of a time-share tower
or parking facility would require additional financing and, in the case of the
time-share tower, a joint venture partner, none of which we have in place at
this time.
Marketing Strategies-Las Vegas
We have developed a marketing program intended to develop a loyal
following of repeat slot and mid-level table game customers. We believe we have
been able to successfully attract these patrons using Riviera Las Vegas's
restaurants, hotel accommodations and entertainment and by focusing on customer
service. We have adopted a selective approach to the extension of credit to
these customers in order to reduce volatility of operating results. We use our
research data to tailor promotional offers to the specific tastes of targeted
customers. All slot and table players are encouraged to join the Riviera Las
Vegas Player's Club and to fill out surveys that provide us with personal
information and preferences and tracks their level of play. Members of the
Riviera Las Vegas Player's Club earn bonus points based upon their level of
play, redeemable for free gifts, complimentary services or cash rebates.
Promotional offers are made to qualifying customers through direct mail and
telemarketing.
Riviera Las Vegas will continue to emphasize marketing programs that
appeal to slot and mid-level table game customers with a focus on creating
repeat customers and increasing walk-in traffic. In addition, a key marketing
focus is expanding Riviera Las Vegas's core conventioneer customer base. In
developing an overall marketing program, we conduct extensive, ongoing research
of our target customers' preferences through surveys, one-on-one interviews and
focus groups.
5
Create Repeat Customers
Generating customer loyalty is a critical component of our business
strategy as retaining customers is less expensive than attracting new ones. We
have developed a focused and coordinated marketing program intended to develop a
loyal customer base which emphasizes (i) providing a high level of service to
our customers to ensure an enjoyable experience while at the Riviera Las Vegas,
(ii) responding to customer surveys and (iii) focusing marketing efforts and
promotional programs on customers with positive gaming profiles. We use our
research data to tailor promotional offers to the specific tastes of targeted
customers. All slot and table players are encouraged to join the Riviera Las
Vegas Player's Club which tracks their level of play, and to fill out surveys
that provide the Riviera Las Vegas with personal information and preferences.
Members of the Riviera Las Vegas Player's Club earn bonus points based upon
their level of play, redeemable for free gifts, complimentary services or cash
rebates. Promotional offers are made to qualifying customers through direct mail
and telemarketing. We design promotional offers targeted at certain mid-level
gaming patrons that are expected to provide significant revenues based upon
their historical gaming patterns. We contact these customers through a
combination of direct mail and telemarketing by an in-house marketing staff and
independent representatives located in major cities. Riviera Las Vegas uses a
proprietary database which is linked to our player tracking system to help
identify customers' requirements and preferences; thereby allowing Riviera Las
Vegas to customize promotions to attract repeat visitors. We offer customers
personalized service, credit availability and access to a variety of
complimentary or reduced-rate room, dinner and entertainment reservations. We
use a specialized multi-tiered marketing approach to attract customers in each
of our major markets. Slot and table game tournaments and special events are
designed for specific levels of play. Utilizing our proprietary database our
marketing department then targets and invites the customers most appropriate for
the customized events. In addition, we host an array of special events,
including slot and table tournaments, designed to attract customers for an
extended stay. We have found that this individualized marketing approach has
provided significant revenues and profitable repeat business.
Provide Extensive Entertainment Options
We also focus on attracting our guests through a range of
entertainment opportunities. Riviera Las Vegas has one of the most extensive
entertainment programs in Las Vegas with four different regularly scheduled
shows and special appearances by headline entertainers. In addition to providing
a positive impact on our profitability, the shows attract additional gaming
revenue. Surveys indicate that approximately 75% of the show patrons come from
outside the hotel and approximately 71% of these individuals gamble at Riviera
Las Vegas before or after the shows.
Attract Walk-In Traffic
We seek to maximize the number of people who patronize the Riviera
Las Vegas that are not guests in the hotel by capitalizing on Riviera Las
Vegas's prime Strip location, convention center proximity and the Riviera's
several popular in-house productions. Riviera Las Vegas is well situated on the
Las Vegas Strip near Circus Circus, Stardust Hotel & Casino, Westward Ho Casino
& Hotel, Sahara Hotel & Casino, Las Vegas Hilton and the Las Vegas Convention
Center. We strive to attract customers from those facilities, as well as
capitalize on the visitors in Las Vegas in general, with the goal of increasing
walk-in traffic by (i) the development and promotion of Nickel Town, (ii)
providing a variety of quality, value-priced entertainment and dining options,
and (iii) promoting "Slot Frenzy," the "Free Pull" and the "$40 for $20" slot
promotions, and placing them inside the casino.
Focus on Convention Customers
This market consists of two groups: (i) those trade organizations and
groups that hold their events in the banquet and meeting space provided by a
single hotel and (ii) those attending city-wide events, usually held at the Las
Vegas Convention Center. Riviera Las Vegas targets convention business because
it typically provides patrons willing to pay higher room rates and we are able
to provide certain advance planning benefits, since conventions are usually
booked two years in advance of the event date. We focus our marketing efforts on
conventions whose participants have the most active gaming profile and higher
room rate, banquet and function spending habits. Riviera Las Vegas also benefits
from our proximity to the Las Vegas Convention Center which makes us attractive
to city-wide conventioneers looking to avoid the congestion that occurs during a
major convention, particularly at the south end of the Las Vegas Strip. In 2000
we derived approximately 26.8% of our hotel occupancy from convention customers
and consider them a critical component of our customer base. We believe that the
completed expansion of the Riviera Las Vegas's convention facility in February
1999, from 100,000 to 160,000 square feet will accommodate the growth in the
size and number of groups that presently use the facility, attract new
convention groups and increase the percentage of rooms occupied by
conventioneers.
6
Tour and Travel Operators
We have found that many of our customers use tour and travel
"package" options to reduce the cost of travel, lodging and entertainment. These
packages are produced by wholesale operators and travel agents and emphasize
mid-week stays. Tour and travel patrons often book at off-peak periods enabling
us to maintain occupancy rates at the highest levels throughout the year. We
have developed specialized marketing programs and cultivated relationships with
wholesale operators, travel agents and major domestic air carriers to expand
this market. Our four largest tour and travel operators currently account for
approximately 500 of the available 2,100 room bookings per night. We make an
effort to convert many tour and travel customers who meet our target customer
gaming profile into repeat slot customers.
Riviera Black Hawk
Business
Our wholly-owned subsidiary, Riviera Black Hawk, opened on February
4, 2000. Located in Black Hawk, Colorado, approximately 40 miles west of Denver,
our casino is one of the first three encountered when traveling from Denver to
the adjacent gaming cities of Black Hawk and Central City. Our casino features
the third largest number of gaming devices in the market with approximately 960
slot machines and 12 blackjack tables. In Colorado, each slot machine and each
table game is considered one gaming device.
We also offer a variety of non-gaming amenities designed to further
differentiate our casino including:
o parking for 520 vehicles, of which 92% are covered, with convenient and
free self-park and valet options;
o a 265-seat casual buffet styled restaurant;
o two themed bars; and
o an entertainment center with seating for approximately 500 people.
The initial participants in this market were small, privately held
gaming facilities whose inability to offer convenient parking and a full range
of traditional casino amenities limited the growth of this market. Subsequently,
larger casinos offering such amenities have entered the market, have been
gaining market share and have contributed to the consistent growth in the
overall market. As of December 31, 2000, there were 26 casinos in the Black
Hawk/Central City market, with 10 casinos each offering more than 400
gaming devices. Isle of Capri, located across the street from our casino with
approximately 1,145 gaming machines and 1,000 covered parking spaces, has been
the market leader in terms of win per gaming device.
Marketing strategy
We attract customers to Riviera Black Hawk by implementing marketing
strategies and promotions designed specifically for this market. In doing so, we
hope to create customer loyalty and benefit from repeat visits by our customers.
Specific marketing programs to support this strategy include the Riviera Black
Hawk Player's Club and "V.I.P." services offered to repeat gaming customers. The
Riviera Black Hawk Player's Club is a promotion that rewards casino play and
repeat visits to the casino with various privileges and amenities such as cash
bonuses, logo gift items and invitations to special events, such as parties and
concerts. We have used the Player's Club promotion in our casino in Las Vegas
and, in our capacity as manager of the Riviera Black Hawk, are tailoring it for
the Black Hawk/Central City market to implement at our casino. "V.I.P." services
are available to the highest level of players and include special valet and
self-parking services, complimentary food and entertainment offerings and
special events specifically designed for this group of customers.
We benefit from strong "walk-in" traffic due to the proximity of our
casino to the Colorado Central Station and the Isle of Capri Casino. We have and
continue to develop specific marketing programs designed to attract these
"walk-in" customers. We emphasize quality food and beverage amenities with
customer friendly service as a marketing tool. In addition, we provide
7
entertainment programs designed to meet the tastes of the Black Hawk/Central
City market, such as live music performances by popular regional and national
groups, comedians and boxing.
We rely on database marketing in order to best identify target
customer segments of the population and to tailor the casino's promotions and
amenities to our core group of customers. We use the current database to
identify and stratify slot players living primarily in Colorado for appropriate
incentives. Approximately 105,000 of these slot players have been identified as
of December 31, 2000. In addition, we promote our casino by advertising in
newspapers, on billboards and on the radio in the local areas.
Geographical Markets
The Las Vegas Market
Las Vegas is one of the largest and fastest growing entertainment
markets in the country. According to the Las Vegas Convention and Visitors
Authority, the number of visitors traveling to Las Vegas has increased at a
steady and significant rate for the last fourteen years from 15.2 million in
1986 to an estimated 35.8 million in 2000, a compound annual growth rate of
6.3%. Clark County gaming has continued to be a strong and growing business with
Clark County gaming revenues increasing at a compound annual growth rate of 8.7%
from $2.4 billion in 1986 to $7.7 billion in 2000.
Gaming and tourism are the major attractions of Las Vegas,
complemented by warm weather and the availability of many year-round
recreational activities. Although Las Vegas' principal markets are the western
region of the United States, most significantly Southern California and Arizona,
Las Vegas also serves as a destination resort for visitors from all over the
world. A significant percentage of visitors originate from Latin America and
Pacific Rim countries such as Japan, Taiwan, Hong Kong and Singapore.
Historically, Las Vegas has had one of the strongest hotel markets in
the country. The number of hotel and motel rooms in Las Vegas has increased by
over 85% from approximately 67,000 at the end of 1989 to 124,270 at the end of
2000, giving Las Vegas the most hotel and motel rooms of any metropolitan area
in the world. Despite this significant increase in the supply of rooms, the Las
Vegas hotel occupancy rate exceeded 85% for each of the years from 1993 through
2000. During the calendar year 2000 approximately 4,200 new hotel rooms opened,
and as of December 31, 2000 there were approximately 3,470 hotel rooms under
construction. The new rooms are primarily being designed to attract the high-end
gaming and convention customers, and based on construction costs, should be
priced at rates well above those which have been or need to be charged by
Riviera Las Vegas based on the investment in our facility.
We believe that the growth in the Las Vegas market has been enhanced
as a result of (i) a dedicated program by the Las Vegas Convention and Visitors
Authority and major Las Vegas casino/hotels to promote Las Vegas as a major
convention site, (ii) the increased capacity of McCarran Airport and (iii) the
introduction of large themed "must see" destination resorts in Las Vegas. In
1988, approximately 1.7 million delegates attended conventions in Las Vegas and
generated approximately $1.3 billion of economic impact. In 2000, the number of
convention delegates had increased to 3.8 million with in excess of $4 billion
of economic impact.
During the past seven years, McCarran Airport has expanded its
facilities to accommodate the increased number of airlines and passengers which
it services. The number of passengers traveling through McCarran Airport has
increased from approximately 22.5 million in 1993 to an estimated 36.8 million
in 2000. Construction has recently been completed on numerous roadway
enhancements to improve access to the Airport. McCarran Airport is ranked among
the 10 busiest airports in the world based on passenger activity.
The Black Hawk/Central City Market
Gaming was first introduced to the Black Hawk/Central City market in
October 1991 following a state-wide referendum where Colorado voters approved
limited stakes gaming for three historic mining towns - Black Hawk, Central City
and Cripple Creek. Limited stakes gaming is defined as a maximum single bet of
$5. Black Hawk and Central City are contiguous cities located approximately 40
miles west of Denver and about ten miles north of Interstate Highway 70, the
main east-west artery from Denver. Historically, these two gold mining
communities were popular tourist towns. However, since the inception of casino
gaming in October 1991, many of the former tourist-related businesses have been
displaced by gaming establishments.
8
The first casino in the Black Hawk/Central City market was opened in
October 1991 with 14 casinos open by the end of that year. The pace of expansion
increased further in 1992 with the number of casinos in the market peaking at 42
casinos. However, due to a trend of consolidation in the market and the
displacement of small casinos by the entry of larger, better capitalized
operators, the number of casinos has declined to 26 as of December 31, 2000.
The Black Hawk/Central City market primarily caters to "day-trip"
customers from Denver, Boulder, Fort Collins and Golden as well as Cheyenne,
Wyoming. We believe an estimated adult population exceeding 2.3 million people
reside within this 100-mile radius of Black Hawk. In addition, we believe that
residents within a 100 mile radius of the City of Black Hawk had an estimated
average household income in excess of $50,000 per annum in 2000 based upon data
contained in the Bear Sterns Global Gaming Almanac.
Since 1992, the number of gaming devices in the Black Hawk/Central
City market has grown approximately 44.4% from 7,252 devices in 1992 to 10,469
devices in 2000. The total number of slot machines has increased 45.7% since
1992 to 10,323 in 2000 while the total number of tables in the market has
decreased with 146 tables in the market at the end of 2000. Win per gaming
device per day has continued to grow despite the increase in the number of
gaming devices. The City of Black Hawk experienced a 22.2% increase in gaming
revenue in 2000.
The City of Black Hawk has experienced more significant growth in
gaming revenues than Central City since 1992. The popularity of Black Hawk in
comparison to Central City is due primarily to Black Hawk's superior access to
major highways, as patrons must first pass through Black Hawk to access Central
City from Denver. Due to this superior location, larger casino operators have
focused on building in the City of Black Hawk. As a result, casinos in Black
Hawk now generally feature a larger average number of gaming devices, a wider
variety of amenities and convenient free parking for patrons. These factors have
contributed to growth in Black Hawk gaming revenues at a compound annual rate of
29.1% since 1992 compared to a negative growth for Central City of 1.5% over the
same period. The number of slot machines and tables in the City of Black Hawk
have increased 119.5% and 41.0%, respectively since 1992, while the number of
slot machines and tables in Central City have declined 39.5% and 57.1%,
respectively over the same period.
Management Activities
In order to capitalize on our expertise and reputation as successful
operators of casino properties, we formed Riviera Gaming Management, Inc., our
wholly-owned subsidiary, for the primary purpose of obtaining casino management
contracts in Nevada and other jurisdictions. Riviera Gaming Management provides
services such as assisting new venue licensee applicants in designing and
planning their gaming operations and managing the start-up of new gaming
operations. These services include casino design, equipment selection, employee
recruitment and training, control and accounting systems development and
marketing programs. We believe that management contracts provide high margin
income with limited additional overhead and little or no capital expenditure
requirements. We are continually evaluating opportunities to manage other
casinos/hotels. Our objective is to obtain the right to a substantial equity
position in projects we would manage as part of the compensation for our
services.
Four Queens Management Agreement
Riviera Gaming Management-Elsinore, Inc., our indirect wholly-owned
subsidiary, operated the Four Queens Hotel and Casino, located adjacent to the
Golden Nugget on Fremont Street in Downtown Las Vegas, pursuant to a Management
Agreement effective as of February 27, 1997. This agreement terminated on
December 30, 1999.
Other Management Opportunities
We are continuously reviewing opportunities to expand and become a
multi-jurisdictional casino company with greater capital resources to enable us
to compete more effectively. The jurisdictions include, but are not limited to,
California, Mississippi, Pennsylvania and Iowa. We may also become involved in
financially distressed casino properties where we believe we may be able to
effect a turn-around (similar to that which we achieved at Riviera Las Vegas)
and can obtain a significant equity stake. On September 29, 1999, Riviera Gaming
Management entered into an agreement with Peninsula Gaming LLC to provide
consulting services to Diamond Jo's Riverboat Casino in Dubuque, Iowa. This
agreement terminated on September 30, 2000.
9
Competition
Las Vegas, Nevada
Intense competition exists among companies in the gaming industry,
many of which have significantly greater resources than our Company. Riviera Las
Vegas faces competition from all other casinos and hotels in the Las Vegas area.
We believe that our most direct competition comes from certain large
casino/hotels located on or near the Las Vegas Strip which offer amenities and
marketing programs similar to those offered by the Riviera Las Vegas.
At December 31, 2000, the Las Vegas Convention and Visitors Authority
indicated that there were 25 casinos on the Las Vegas Strip which had over 1,000
available hotel rooms. Riviera Las Vegas is ranked as the 20th largest Las Vegas
Strip hotel/casino, based upon number of available hotel rooms.
Las Vegas gaming square footage and room capacity are continuing to
grow and are expected to continue to increase significantly during the next
several years. During calendar year 2000 approximately 4,200 new hotel rooms
opened, and as of December 31, 2000 there were approximately 3,470 hotel rooms
under construction. Existing and future expansions, additions and enhancements
to existing properties and construction of new properties by our competitors
could divert additional business from our facilities. There can be no assurance
that we will compete successfully in the Las Vegas market in the future.
During 2000, available room nights in the Las Vegas market increased
from 43.9 million to 44.7 million or 1.8%, while total room nights occupied
increased from 37.4 million to an estimated 39.8 million, or 6.4%. The ending
room inventory at December 31, 2000 was 124,270 compared to 120,294 at December
31, 1999, an increase of 3,976 rooms or 3.3%. This has had the effect of
intensifying competition. At Riviera Las Vegas, room occupancy decreased
slightly from 97.5% in 1999 to 96.7% in 2000 (still much higher than the Las
Vegas Strip average). However, room rates increased by $5.79, or 11.3% from
$51.07 in 1999 to $56.86 in 2000.
We also compete to some extent with casinos in other states,
riverboat and Native American gaming ventures, state-sponsored lotteries, on-
and off-track wagering, card parlors and other forms of legalized gaming in the
United States, as well as with gaming on cruise ships and international gaming
operations. In addition, certain states have recently legalized or are
considering legalizing casino gaming in specific geographical areas within those
states. Any future development of casinos, lotteries or other forms of gaming in
other states, particularly areas close to Nevada, such as California, could have
a material adverse effect on our results of operations.
The number of casinos on Indian lands has increased since the
enactment of the Indian Gaming Regulatory Act of 1988. The voters in the State
of California addressed this issue on March 7, 2000 when they voted in favor of
Proposition 1A, an amendment to the California State constitution that allows
Las Vegas-style gambling on Indian lands in the state. While new gaming
jurisdictions have traditionally not materially impacted Las Vegas, the
potential expansion of gaming into California poses a more serious threat to the
continued growth of Las Vegas.
Our current business is highly dependent on gaming in Las Vegas.
Riviera Las Vegas derives a substantial percentage of its business from
tourists, principally from Southern California and the southwestern United
States. Weakness in the economy of Southern California has in the past, and
could in the future, adversely affect our financial results. Recent electrical
energy shortages, and possible rate increases in California could also adversely
affect our financial results.
Black Hawk, Colorado
The Black Hawk/Central City gaming market is characterized by intense
competition. The primary competitive factors in the market are location,
availability and convenience of parking, number of slot machines and gaming
tables, types and pricing of non-gaming amenities, name recognition and overall
atmosphere. Our main competitors are the larger gaming facilities, particularly
those with considerable on-site or nearby parking and established reputations in
the local market. As of December 31, 2000 there were 19 gaming facilities in the
Black Hawk market with nine casinos each offering more than 400 gaming
positions. Construction has also begun on the "Hyatt Casino" casino due to open
in the fourth quarter, 2001, which is expected to feature over 1,000 slot
machines and a hotel. Other projects have also been announced, proposed,
discussed or rumored for the Black Hawk/Central City market.
10
The gaming facilities near the intersection of Main and Mill Streets
provide significant competition to Riviera Black Hawk Casino. Colorado Central
Station, which has been one of the most successful casinos in Colorado, is
located across the street from our casino and has approximately 700 slot
machines, 20 gaming tables and approximately 700 valet parking spaces. The Isle
of Capri Casino, the most successful casino in Colorado, operated by Casino
America, which opened in December 1998, is located directly across the
street from our casino and features approximately 1,145 slot machines, 14
table games, 1,000 parking spaces, and opened 235 hotel rooms in 2000.
The number of hotel rooms currently in the Black Hawk/Central City
market is approximately 405, with only three gaming facilities providing hotel
accommodations to patrons. These include Harvey's Wagon Wheel Casino Hotel with
approximately 120 rooms, the Lodge at Black Hawk with approximately 50 rooms and
the Isle of Capri Casino which opened 235 rooms in 2000 Casinos offering hotel
accommodations for overnight stay may have a competitive advantage over our
casino. However, we believe that self-parking is a more effective utilization of
our available space and that providing hotel accommodations will not be a
significant factor, but instead will contribute to growth in the overall market.
Historically, the city of Black Hawk has enjoyed an advantage over
Central City because customers have to drive through Black Hawk to reach Central
City. Central City has received approval for the development of a road directly
connecting Central City and Black Hawk with Interstate 70 which would allow
customers to reach Central City without driving by or through Black Hawk. There
remain significant financial obstacles to the development of this road and it is
uncertain whether it will be developed over the near to intermediate term, or
developed at all.
Currently, limited stakes gaming in Colorado is constitutionally
authorized in Central City, Black Hawk, Cripple Creek and two Native American
reservations in southwest Colorado. However, gaming could be approved in other
Colorado communities in the future. The legalization of gaming closer to Denver
would likely have a material adverse effect on our future results of operations.
We also compete with other forms of gaming in Colorado, including lottery
gaming, and horse and dog racing as well as other forms of entertainment.
It is also possible that new forms of gaming could compete with our
casino. Currently, Colorado law does not authorize video lottery terminals.
However, Colorado law permits the legislature, with executive approval, to
authorize new types of lottery gaming, such as video lottery terminals. Video
lottery terminals are games of chance, similar to slot machines, in which the
player pushes a button that causes a random set of numbers or characters to be
displayed on a video screen. The player may be awarded a ticket, which can be
exchanged for cash or credit play. This form of gaming could compete with slot
machine gaming.
Pursuant to a license agreement Riviera Las Vegas licenses the use at
Riviera Black Hawk of all of the trademarks, service marks and logos used by
Riviera Las Vegas. In addition, the license agreement provides that additional
trademarks, service marks and logos acquired or developed by us and used at our
other facilities will be subject to the license agreement.
Employees and Labor Relations
Riviera Las Vegas
As of December 31, 2000, Riviera Las Vegas had approximately 1,930
full time equivalent employees and had collective bargaining contracts with
eight unions covering approximately 1,210 of such employees, including food and
beverage employees, rooms department employees, carpenters, engineers, stage
hands, musicians, electricians, painters and teamsters. Our agreements with the
Southern Nevada Culinary and Bartenders Union and Stage Hands Union, which cover
the majority of our unionized employees, were renegotiated in 1998 and expire in
the year 2002. Collective Bargaining Agreements with the Operating Engineers and
Musicians expired in 1999. The Operating Engineers approved a new agreement that
expires in the year 2004. We are currently in negotiations with the Musicians
Union. The Agreements with the Carpenters and Painters expired in 2000. A new
agreement which expires in 2005 was negotiated with the Painters in 2000, and we
are currently in negotiations with the Carpenters. New agreements were
negotiated with the Teamsters in 1998 and Electricians in 1999 and expire in
2003 and 2004 respectively. On June 15, 1999, the hard count workers (employees
who collect and count the coins and tokens from slot machines) voted to join the
Teamsters Union. This group totaled seven at the time of the vote. On October
11, 2000, following fifteen months of unsuccessful negotiations, and after
our hard count employees filed a decertifying petition with the National Labor
11
Relations Board ("NLRB"), the Teamsters filed a disclaimer and discontinued
steps to unionize the hard count workers. On November 27, 2000, the Transport
Workers Union filed a petition with the NLRB to represent the Blackjack, Dice
and Poker Dealers (or, the Dealers). On February 8 and 9, 2001, the Dealers
voted against representation by this union by a vote of 107 to 61. This group
totaled 190 at the time of the vote. Although unions have been active in Las
Vegas, we consider our employee relations to be satisfactory. There can be no
assurance, however, that new agreements will be reached without union action or
will be on terms satisfactory to us.
Riviera Black Hawk
Riviera Black Hawk opened on February 4, 2000 with approximately 450
employees. As of December 31, 2000, the total number of employees was 399. The
Black Hawk/Central City labor market is very competitive. Riviera Black Hawk
believes that it will be able to maintain its current employee level. There can
be no assurance, however, that new and existing casinos will not affect Riviera
Black Hawk's ability to maintain its current employee level.
There are currently no collective bargaining agreements in Black Hawk
casinos.
Regulation and Licensing
Nevada
Nevada Gaming Authority
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively the "Nevada Act") and (ii) various local ordinances and
regulations. Our gaming operations are subject to the licensing and regulatory
control of the Nevada Commission, the Nevada Board, the Clark County Board and
the City of Las Vegas. The Nevada Commission, the Nevada Board, the Clark County
Board and the City of Las Vegas are collectively referred to as the "Nevada
Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time and in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on our gaming operations.
Riviera Operating Corporation is required to be licensed by the
Nevada Gaming Authorities. The gaming license held by Riviera Operating
Corporation requires the periodic payment of fees and taxes and is not
transferable. Riviera Operating Corporation is also licensed as a manufacturer
and distributor of gaming devices. Such licenses also require the periodic
payment of fees and are not transferable. We are registered by the Nevada
Commission as a publicly traded corporation (a "Registered Corporation") and
have been found suitable to own the stock of Riviera Operating Corporation.
As a Registered Corporation, we are required periodically to submit detailed
financial and operating reports to the Nevada Commission and to furnish any
other information which the Nevada Commission may require. No person may become
a stockholder of, or receive any percentage of profits from, a Corporate
Licensee without first obtaining licenses and approvals from the Nevada Gaming
Authorities. We and Riviera Operating Corporation have obtained, from the Nevada
Gaming Authorities, the various registrations, approvals, permits, findings
of suitability and licenses required in order to engage in gaming activities
and manufacturing and distribution activities in Nevada.
12
The Nevada Gaming Authorities may investigate any individual who has
a material relationship to, or material involvement with, us or Riviera
Operating Corporation in order to determine whether such individual is suitable
or should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of Riviera Operating Corporation must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Our officers,
directors and key employees who are actively and directly involved in the gaming
activities of Riviera Operating Corporation may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Any change in a corporate position by a
licensed person must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with us or Riviera Operating Corporation, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require us or Riviera Operating Corporation to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.
We and Riviera Operating Corporation are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by Riviera Operating Corporation must be reported to or approved by the Nevada
Commission.
If the Nevada Commission determined that the Nevada Act was violated
by Riviera Operating Corporation the gaming license it holds could be
limited, conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, we or Riviera Operating
Corporation and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission to
operate the casino and, under certain circumstances, earnings generated during
the supervisor's appointment (except for reasonable rental value of the casino)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of the gaming license of Riviera Operating Corporation or the
appointment of a supervisor could (and revocation of any gaming license would)
materially adversely affect our gaming operations.
Any beneficial holder of our voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his or her suitability as a beneficial holder of our voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the State of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of a
Registered Corporation's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of a Registered Corporation's voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman of
the Nevada Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of a Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
13
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are deemed to be consistent with
holding voting securities for investment purposes only include: (i) voting on
all matters voted on by stockholders; (ii) making financial and other inquiries
of management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability
or a license within thirty days after being ordered to do so by the Nevada
Commission or the Chairman of the Nevada Board, may be found unsuitable. The
same restrictions apply to a record owner if the record owner, after request,
fails to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. We are subject to disciplinary action if, after we
receive notice that a person is unsuitable to be a stockholder or to have any
other relationship with us or Riviera Operating Corporation, we (i) pay that
person any dividend or interest upon voting our securities, (ii) allow that
person to exercise, directly or indirectly, any voting right conferred through
securities held by that person, (iii) pay remuneration in any form to that
person for services rendered or otherwise, or (iv) fail to pursue all lawful
efforts to require such unsuitable person to relinquish his voting securities
including, if necessary, the immediate purchase of said voting securities for
cash at fair market value. Additionally, the Clark County Board has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of
any debt security of a Registered Corporation to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation, if it has reason to believe that such ownership would be
inconsistent with the declared policies of the State of Nevada. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
We are required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. We are also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require our stock certificates to bear a legend indicating that the
securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on us.
We may not make a public offering of our securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. In
addition, (i) a Corporate Licensee may not guarantee a security issued by a
Registered Corporation pursuant to a public offering, or hypothecate its assets
to secure the payment or performance of the obligations evidenced by such a
security, without the prior approval of the Nevada Commission, (ii) the pledge
of the stock of a Corporate Licensee ("Stock Pledge"), such as Riviera Operating
Corporation, is void without the prior approval of the Nevada Commission, and
(iii) restrictions upon the transfer of an equity security issued by a Corporate
Licensee or Intermediary company and agreements not to encumber such securities
(collectively, "Stock Restrictions") are ineffective without the prior approval
of the Nevada Commission.
Changes in control of Riviera Holdings Corporation through merger,
consolidation, stock or asset acquisitions, management or consulting agreements,
or any act or conduct by a person whereby he obtains control, may not occur
without the prior approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board and Nevada
Commission in a variety of stringent standards prior to assuming control of such
Registered Corporation. The Nevada Commission may also require controlling
stockholders, officers, directors and other persons having a material
14
relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada corporate gaming Licensees and Registered Corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Commission has established regulations
to ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming Licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the
type of gaming or activity involved, are payable to the State of Nevada and to
the County in which the Riviera Operating Corporation, Riviera Gaming Management
and Riviera Gaming Management-Elsinore operations are conducted. Depending upon
the particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually and are based upon either: (i) a percentage of
the gross revenues received; (ii) the number of gaming devices operated; or
(iii) the number of table games operated. A casino entertainment tax is also
paid by casino operations where entertainment is furnished in connection with
the selling of food, refreshments or merchandise. Nevada Licensees that hold a
license to manufacture and distribute slot machines and gaming devices, such as
Riviera Operating Corporation, also pay certain fees and taxes to the State of
Nevada.
Any person who is licensed, required to be licensed, registered,
required to be registered, or is under common control with such persons
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the foreign
gaming operation, fail to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities or enter into associations that are harmful to
the State of Nevada or its ability to collect gaming taxes and fees, or employ,
have contact with or associate with a person in the foreign operation who has
been denied a license or finding of suitability in Nevada on the ground of
personal unsuitability.
Other Nevada Regulation
The sale of alcoholic beverages at Riviera Las Vegas is subject to
licensing, control and regulation by the Clark County Board. All licenses are
revocable and are not transferable. The Clark County Board has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse affect upon the
operations of Riviera Operating Corporation.
Colorado
Colorado Gaming and Liquor Regulation
Summary
In general we, Riviera Black Hawk, our principal executive officers and
those of Riviera Holdings, and any of our employees who are involved in our
gaming operations, are required to be found suitable for licensure by the
Colorado Gaming Commission. Colorado also requires that significant stockholders
of 5% or more of our stock be certified as suitable for licensure. Riviera Black
Hawk's original retail gaming license was approved by the Colorado Gaming
Commission on November 18, 1999, and was successfully renewed on November 18,
2000.
15
Background
Pursuant to an amendment to the Colorado Constitution, limited stakes
gaming became lawful in the cities of Central City, Black Hawk and Cripple Creek
on October 1, 1991. Limited stakes gaming means a maximum single bet of five
dollars on slot machines and in the card games of blackjack and poker.
Limited stakes gaming is confined to the commercial districts of
these cities as defined by Central City on October 7, 1981, by Black Hawk on May
4, 1978, and by Cripple Creek on December 3, 1973. In addition the Colorado
Amendment restricts limited stakes gaming to structures that conform to the
architectural styles and designs that were common to the areas prior to World
War I, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures. Under the Colorado Amendment, no more
than 35% of the square footage of any building and no more than 50% of any one
floor of any building may be used for limited stakes gaming. Persons under the
age of 21 cannot participate in limited stakes gaming. The Colorado Amendment
also prohibits limited stakes gaming between the hours of 2:00 a.m. and 8:00
a.m., and allows limited stakes gaming to occur in establishments licensed to
sell alcoholic beverages.
Further, the Colorado Amendment provides that, in addition to any
other applicable license fees, up to a maximum of 40% of the total amounts
wagered less payouts to players may be payable by a licensee for the privilege
of conducting limited stakes gaming. Such percentage is to be established by the
Colorado Commission on July 1 annually.
The Colorado Act declares public policy on limited stakes gaming to
be that: (1) the success of limited stakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is conducted honestly
and competitively; the rights of the creditors of licensees are protected;
gaming is free from criminal and corruptive elements; (2) public confidence and
trust can be maintained only by strict regulation of all persons, locations,
practices, associations and activities related to the operation of licensed
gaming establishments and the manufacture or distribution of gaming devices and
equipment; (3) all establishments where limited gaming is conducted and where
gambling devices are operated, and all manufacturers, sellers and distributors
of certain gambling devices and equipment must therefore be licensed, controlled
and assisted to protect the public health, safety, good order and the general
welfare of the inhabitants of the state to foster the stability and success of
limited stakes gaming and to preserve the economy, policies and free competition
in Colorado; and (4) no applicant for a license or other affirmative Commission
approval has any right to a license or to the granting of the approval sought.
Any license issued or other commission approval granted pursuant to the
provisions of this Article is a revocable privilege, and no holder acquires any
vested rights therein.
Regulatory Structure
The Colorado Act subjects the ownership and operation of limited
stakes gaming facilities in Colorado to extensive licensing and regulation by
the Colorado Commission. The Colorado Commission has full and exclusive
authority to promulgate, and has promulgated, rules and regulations governing
the licensing, conducting and operating of limited stakes gaming. The Colorado
Act also created the Colorado Division of Gaming within the Colorado Revenue
Department to license, regulate and supervise the conduct of limited stakes
gaming in Colorado. The division is supervised and administered by the Director
of the Division of Gaming.
Gaming licenses
The Colorado Commission may issue:
o slot machine manufacturer or distributor,
o operator,
o retail gaming,
o support and
o key employee gaming licenses.
16
The first three licenses require annual renewal by the Colorado
Commission. Support and key employee licenses are issued for two year periods
and are renewable by the Division Director. The Colorado Commission has broad
discretion to condition, suspend for up to six months, revoke, limit or restrict
a license at any time and also has the authority to impose fines.
An applicant for a gaming license must complete comprehensive
application forms, pay required fees and provide all information required by the
Colorado Commission and the Division of Gaming. Prior to licensure, applicants
must satisfy the Colorado Commission that they are suitable for licensing.
Applicants have the burden of proving their qualifications and must pay the full
cost of any background investigations. There is no limit on the cost of such
background investigations.
Gaming employees must hold either a support or key employee license.
Every retail gaming licensee must have a key employee licensee in charge of all
limited stakes gaming activities when limited stakes gaming is being conducted.
The Colorado Commission may determine that a gaming employee is a key employee
and, require that such person apply for a key employee license.
A retail gaming license is required for all persons conducting
limited stakes gaming on their premises. In addition, an operator license is
required for all persons who engage in the business of placing and operating
slot machines on the premises of a retailer. However, a retailer is not required
to hold an operator license. No person may have an ownership interest in more
than three retail gaming licenses. A slot machine manufacturer or distributor
license is required for all persons who manufacture, import and distribute slot
machines in Colorado.
The Colorado Regulations require that every officer, director, and
stockholder of private corporations or equivalent office or ownership holders
for non-corporate applicants, and every officer, director or stockholder holding
either a 5% or greater interest or controlling interest of a publicly traded
corporation or owners of an applicant or licensee shall be a person of good
moral character and submit to a full background investigation conducted by the
Division of Gaming and the Colorado Commission. The Colorado Commission may
require any person having an interest in a license to undergo a full background
investigation and pay the cost of investigation in the same manner as an
applicant.
Persons found unsuitable by the Colorado Commission may be required
immediately to terminate any interest, association, or agreement with or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant also may jeopardize the licensee's license or the applicant's
application. A license approval may be conditioned upon the termination of any
relationship with unsuitable persons. A person may be found unsuitable because
of prior acts, associations or financial conditions. Acts that would lead to a
finding of unsuitability are those that would violate the Colorado Act or the
Colorado Regulations or that contravene the legislative purpose of the Colorado
Act.
Duties of licensees
An applicant or licensee must report to the Division of Gaming or
Colorado Commission all leases not later than 30 days after the effective date
of the lease. Also, an applicant or a licensee, upon the request of the Colorado
Commission or the Division Director, must submit copies of all written gaming
contracts and summaries of all oral gaming contracts to which it is or intends
to become a party. The Division Director or the Colorado Commission may require
changes in the lease or gaming contract before an applicant is approved or
participation in such agreement is allowed or may require termination of the
lease or gaming contract.
The Colorado Act and the Colorado Regulations require licensees
to maintain detailed records that account for all business transactions. Records
must be furnished upon demand to the Colorado Commission, the Division of Gaming
and other law enforcement authorities. The Colorado Regulations also establish
extensive playing procedures and rules of play for poker, blackjack and slot
machines. Retail gaming licensees must adopt comprehensive internal control
procedures. Such procedures must be approved in advance by the Division of
Gaming and include the areas of accounting, surveillance, security, cashier
operations, key control and fill and drop procedures, among others. No gaming
devices may be used in limited stakes gaming without the approval of the
Division Director or the Colorado Commission.
Licensees have a continuing duty to immediately report to the
Division of Gaming the name, date of birth and social security number of all
persons who obtain an ownership, financial or equity interest in the licensee of
17
5% or greater, who have the ability to control the licensee, who have the
ability to exercise significant influence over the licensee or who loan any
money or other thing of value to the licensee. Licensees must report to the
Division of Gaming all gaming licenses, and all applications for gaming
licenses, in foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly
traded entities, no person may sell, lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Commission.
All agreements, contracts, leases, or arrangements in violation of
the Colorado Amendment, the Colorado Act or the Colorado Regulations are void
and unenforceable.
Taxes, fees and fines
The Colorado Amendment requires an annual tax of up to 40% on the
total amount wagered less all payouts to players. With respect to games of
poker, the tax is calculated based on the sums wagered which are retained by the
licensee as compensation. Effective July 1 of each year, the Colorado Commission
establishes the gaming tax for the following 12 months. Currently, the gaming
tax is:
o .25% on the first $2 million of these amounts;
o 2% on amounts from $2 million to $4 million;
o 4% on amounts from $4 million to $5 million;
o 11% on amounts from $5 million to $10 million;
o 16% on amounts from $10 million to $15 million; and
o 20% on amounts over $15 million.
The Colorado Commission has eliminated the annual device fee for
gaming device machines, blackjack tables and poker tables.
The municipality of Black Hawk assesses an annual device fee of $750
per device. There is no statutory limit on state or city device fees, which may
be increased at the discretion of the Colorado Commission or the city. In
addition, a business improvement fee of as much as $89.04 per device and a
transportation authority device fee of $154.08 per device also may apply
depending upon the location of the licensed premises in Black Hawk.
Black Hawk also imposes taxes and fees on other aspects of the
businesses of gaming licensees, such as parking, alcoholic beverage licenses and
other municipal taxes and fees. Significant increases in these fees and taxes,
or the imposition of new taxes and fees, may occur.
Violation of the Colorado Gaming Act or the Colorado Regulations
constitutes a class 1 misdemeanor which may subject the violator to fines or
incarceration or both. A licensee who violates the Colorado Gaming Act or
Colorado Regulations is subject to suspension of the license for a period of up
to six months, fines or both, or to license revocation.
Requirements for publicly traded corporations
The Colorado Commission has enacted Rule 4.5, which imposes
requirements on publicly traded corporations holding gaming licenses in Colorado
and on gaming licenses owned directly or indirectly by a publicly traded
corporation, whether through a subsidiary or intermediary company. The term
"publicly traded corporation" includes corporations, firms, limited liability
companies, trusts, partnerships and other forms of business organizations. Such
requirements automatically apply to any ownership interest held by a publicly
traded corporation, holding company or intermediary company thereof, where the
ownership interest directly or indirectly is, or will be upon approval of the
Colorado Commission, 5% or more of the entire licensee. In any event, if the
Colorado Commission determines that a publicly traded corporation, or a
18
subsidiary, intermediary company or holding company has the actual ability to
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require the entity to
comply with the disclosure regulations contained in Rule 4.5.
Under Rule 4.5, gaming licensees, affiliated companies and
controlling persons commencing a public offering of voting securities must
notify the Colorado Commission no later than ten business days after the initial
filing of a registration statement with the Securities and Exchange Commission.
Licensed publicly traded corporations are also required to send proxy statements
to the Division of Gaming within 5 days after their distribution. Licensees to
whom Rule 4.5 applies must include in their charter documents provisions that:
restrict the rights of the licensees to issue voting interests or securities
except in accordance with the Colorado Gaming Act and the Colorado Regulations;
limit the rights of persons to transfer voting interests or securities of
licensees except in accordance with the Colorado Gaming Act and the Colorado
Regulations; and provide that holders of voting interests or securities of
licensees found unsuitable by the Colorado Commission may, within 60 days of
such finding of unsuitability, be required to sell their interests or securities
back to the issuer at the lesser of the cash equivalent of the holders'
investment or the market price as of the date of the finding of unsuitability.
Alternatively, the holders may, within 60 days after the finding of
unsuitability, transfer the voting interests or securities to a suitable person,
as determined by the Colorado Commission. Until the voting interests or
securities are held by suitable persons, the issuer may not pay dividends or
interest, the securities may not be voted, they may not be included in the
voting or securities of the issuer, and the issuer may not pay any remuneration
in any form to the holders of the securities.
Pursuant to Rule 4.5, persons who acquire direct or indirect beneficial
ownership of
o 5% or more of any class of voting securities of a publicly traded
corporation that is required to include in its articles of organization
the Rule 4.5 charter language provisions or
o 5% or more of the beneficial interest in a gaming licensee directly or
indirectly through any class of voting securities of any holding
company or intermediary company of a licensee, referred to as
qualifying persons, shall notify the Division of Gaming within 10 days
of such acquisition, are required to submit all requested information
and are subject to a finding of suitability as required by the Division
of Gaming or the Colorado Commission. Licensees also must notify any
qualifying persons of these requirements. A qualifying person other
than an institutional investor whose interest equals 10% or more must
apply to the Colorado Commission for a finding of suitability within 45
days after acquiring such securities. Licensees must also notify any
qualifying persons of these requirements. Whether or not notified,
qualifying persons are responsible for complying with these
requirements.
A qualifying person who is an institutional investor under Rule 4.5
and who, individually or in association with others, acquires, directly or
indirectly, the beneficial ownership of 15% or more of any class of voting
securities must apply to the Colorado Commission for a finding of suitability
within 45 days after acquiring such interests.
The Colorado Regulations also provide for exemption from the
requirements for a finding of suitability when the Colorado Commission finds
such action to be consistent with the purposes of the Colorado Act.
Pursuant to Rule 4.5, persons found unsuitable by the Colorado
Commission must be removed from any position as an officer, director, or
employee of a licensee, or from a holding or intermediary company. Such
unsuitable persons also are prohibited from any beneficial ownership of the
voting securities of any such entities. Licensees, or affiliated entities of
licensees, are subject to sanctions for paying dividends or distributions to
persons found unsuitable by the Colorado Commission, or for recognizing voting
rights of, or paying a salary or any remuneration for services to, unsuitable
persons. Licensees or their affiliated entities also may be sanctioned for
failing to pursue efforts to require unsuitable persons to relinquish their
interest. The Colorado Commission may determine that anyone with a material
relationship to, or material involvement with, a licensee or an affiliated
company must apply for a finding of suitability or must apply for a key employee
license.
19
Alcoholic Beverage Licenses
The sale of alcoholic beverages in gaming establishments is subject
to strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and nontransferable. State and local
licensing authorities have full power to limit, condition, suspend for as long
as six months or revoke any such licenses. Violation of state alcoholic beverage
laws may constitute a criminal offense resulting in incarceration, fines, or
both.
There are various classes of retail liquor licenses which may be
issued under the Colorado Liquor Code. A gaming licensee may sell malt, vinous
or spirituous liquors only by the individual drink for consumption on the
premises. Even though a retail gaming licensee may be issued various classes of
retail liquor licenses, such gaming licensee may only hold liquor licenses of
the same class. An application for an alcoholic beverage license in Colorado
requires notice, posting and a public hearing before the local liquor licensing
authority prior to approval of the same. The Colorado Department of Revenue's
Liquor Enforcement Division must also approve the application. Riviera Black
Hawk's hotel and restaurant license has been approved by both the local
licensing authority and the State Division of Liquor Enforcement.
Federal Registration
Riviera Operating Corporation is required to annually file with the
Attorney General of the United States in connection with the sales,
distribution, or operations of slot machines. All requisite filings for the
present year have been made.
Item 2. Properties
Riviera Hotel and Casino
The Riviera Las Vegas complex is located on the Las Vegas Strip,
occupies approximately 26 acres and comprises approximately one-million square
feet, including 110,000 square feet of casino space, 160,000 square foot
convention, meeting and banquet facility, approximately 2,100 hotel rooms
(including approximately 169 luxury suites) in five towers, three
restaurants, a buffet, four showrooms, a lounge and approximately 2,300 parking
spaces. In addition, executive and other offices for Riviera Las Vegas are
located on the property.
There are 40 food and retail concessions operated under individual
leases with third parties. The leases are for periods from one year to ten years
and expire over the next five years.
The entire Riviera Las Vegas complex is encumbered by a first deed of
trust securing the Notes. See, "Management's Discussion And Analysis of
Financial Condition And Results of Operations."
Riviera Black Hawk
Riviera Black Hawk owns the Black Hawk land, which is located on a
71,000 square foot parcel of real property in Black Hawk, Colorado and comprises
of approximately 32,000 square feet of gaming space and parking for
approximately 520 vehicles (substantially all of which are covered), a 265 seat
buffet, two bars and an entertainment center with seating for approximately 430
people.
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 (and his heirs or successors) ("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 $1,522,587.50 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.
20
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 on May 24, 2000, the
Court denied Morgens, Waterfall's motion.
On January 31, 2000, Morgens, Waterfall served 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 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.
On April 17, 2000, the Company and its directors moved to dismiss
Morgens, Waterfall's Amended Complaint. In response, Morgens, Waterfall opposed
the directors' motion but "conceded" its claim against the Company. As a
consequence, Morgens, Waterfall no longer asserts any claim against the Company,
but it has opposed dismissing the Company from the action on the ground that the
Company is a "nominal defendant" with respect to the derivative claims asserted
by Morgens, Waterfall against the directors. The directors' motion to dismiss
has not yet been decided by the Court. 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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's Common Stock began trading on the American Stock
Exchange on May 13, 1996 and was reported on the NASDAQ Bulletin Board prior to
that date. As of March 8, 2001, based upon information available to it, the
Company believes that there were approximately 600 beneficial holders of the
Company's Common Stock.
21
The Company has never paid any dividends on its Common Stock and does
not currently expect to pay any dividends (cash or otherwise) on its Common
Stock for the foreseeable future. The Company's ability to pay dividends is
primarily dependent upon receipt of dividends and distributions from Riviera
Operating Corporation. In addition, the indenture for the First Mortgage Notes
restricts the Company's ability to pay dividends on its Common Stock.
The table below sets forth the high and low sales prices by quarter
for the years ended December 31, 2000, 1999 and 1998, based on information
provided by certain brokers who have had transactions in the Company's Common
Stock during the year:
First Second Third Fourth
Quarter Quarter Quarter Quarter
2000
HIGH $7.88 $8.13 $8.13 $7.63
LOW 5.88 6.75 6.75 6.50
1999
HIGH $7.25 $6.38 $6.13 $6.63
LOW 4.00 3.94 4.00 3.94
Item 6. Selected Financial Data
The following table sets forth a summary of selected financial
data for the Company for the years ended December 31, in thousands (except Net
Income (Loss) per Common Share):
- -----------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------
Net Operating Revenue $206,787 $158,173 $159,955 $153,793 $164,409
- --------------------------------------
Net Income (Loss) (4,215) (2,869) (4,057) 2,088 8,440
- --------------------------------------
Net Income (Loss) Per Diluted Common ($1.05) ($0.58) ($0.81) $0.40 $1.63
Share
- --------------------------------------
Total Assets 283,710 288,990 244,909 347,866 167,665
- --------------------------------------
Long-Term Debt 229,705 229,052 179,439 175,512 109,088
- -----------------------------------------------------------------------------------------------
22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth the Company's income statement data
as a percentage of net revenues (unless otherwise noted) for the Company
for the periods indicated:
------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------------------------------------
Revenues:
Casino 54.6% 46.8% 48.6%
Rooms 21.2% 25.2% 24.8%
Food and Beverage.... 14.9% 15.9% 15.0%
Entertainment 11.9% 13.3% 13.5%
Other 5.1% 7.4% 7.0%
Less promotional allowances (7.6%) (8.6%) (8.7%)
Net revenues 100.0% 100.0% 100.0%
Costs and Expenses:
Casino(1) 55.7% 58.3% 58.3%
Rooms(1) 53.3% 54.9% 52.7%
Food and Beverage(1). 69.7% 72.9% 73.3%
Entertainment(1) 77.3% 77.5% 78.3%
Other(1) 29.9% 27.6% 29.7%
General and administrative 19.9% 18.7% 16.9%
Corporate expenses, Severance Pay 0.0% 0.0% 0.3%
Preopening expense - Black Hawk, Colorado project 0.6% 0.4% 0.0%
Depreciation and amortization 8.6% 8.8% 7.6%
Total Costs and Expenses 91.8% 93.0% 89.8%
Income from operations 8.2% 7.0% 10.2%
Interest expense on $100 million notes 0.0% 0.0% (2.9%)
Interest income on Treasury Bills to retire $100 million notes 0.0% 0.0% 1.5%
Interest expense, other (13.5%) (14.8%) (12.2%)
Interest income, other 1.2% 1.4% 1.5%
Interest, capitalized 0.3% 3.0% 1.7%
Income (expense), net 0.6% (1.2%) (0.8%)
Loss before provision for income taxes (3.2%) (4.6%) (1.0%)
Benefit for income taxes (1.3%) (2.8%) (0.3%)
Net Loss before extraordinary item (2.0%) (1.8%) (0.7%)
Extraordinary item, net of income taxes of $1.6 million 0.0% 0.0% (1.9%)
Net Loss (2.0%) (1.8%) (2.5%)
EBITDA (2) margin 17.4% 16.2% 18.2%
- ----------------------------------------------------------------------------------------------------------------
(1) Shown as a percentage of corresponding departmental revenue.
23
(2) EBITDA consists of earnings before interest, income taxes,
depreciation and amortization (excluding corporate expenses,
preopening expense - Black Hawk, Colorado project, severance pay
and Paulson Merger/litigation costs included in 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. The
Company's computation of EBITDA may not be comparable to other
similarly titled measures of other companies
2000 Compared to 1999
Special Factors Effecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during 1999 and until February
4, 2000 when the casino opened. Accordingly, the consolidated results of
operations for fiscal 2000 and 1999 may not be comparable.
The following table sets forth, for the periods indicated, certain operating
data for Riviera Las Vegas and Riviera Black Hawk. EBITDA from properties for
the purposes of this table excludes corporate expense, pre-opening expense and
inter-company management fees. Operating income from properties is presented as
shown on the Consolidated Statement of Operations.
(In thousands) 2000 1999
- -------------------------------------------------------------
Net revenues:
Riviera Las Vegas $166,841 $157,109
Riviera Black Hawk 39,713 0
Riviera Gaming Management 233 1,064
Total Net Revenues $206,787 $158,173
- -------------------------------------------------------------
EBITDA:
Riviera Las Vegas $29,249 $24,631
Riviera Black Hawk 6,597 1
Riviera Gaming Management 88 1,047
Total EBITDA $35,928 $25,679
- -------------------------------------------------------------
EBITDA Margin(3):
Riviera Las Vegas 17.5% 15.7%
Riviera Black Hawk (preopening expense in 1999) 16.6%
Riviera Gaming Management 37.8% 98.4%
Total EBITDA 17.4% 16.2%
Income (loss) from Operations
Riviera Las Vegas $14,910 $10,641
Riviera Black Hawk 1,881 (595)
Riviera Gaming Management 88 1,047
Total Income from Operations $16,879 $11,093
- -------------------------------------------------------------
(3) Shown as a percentage of net revenue.
24
Riviera Las Vegas
Revenues
Net revenues increased by approximately $9.7 million, or 6.2%,
from $157.1 million in 1999 to $166.8 million in 2000 due primarily to increased
room and entertainment revenues as described below. Casino revenues increased by
approximately $0.8 million, or 1.1%, from $74.1 million during 1999 to $74.9
million during 2000 due to an increase in slot machine revenue. Room revenues
increased by approximately $3.9 million, or 9.8% from $39.9 million 1999 to
$43.8 million during 2000 as a result of an increase in average room rate of
$5.16, or 10%, which was offset by a slight decrease in hotel occupancy from
97.5% to 96.6%. Food and beverage revenues increased approximately $1.7 million,
or 6.4%, from $25.1 million 1999 to $26.8 million during 2000 due to higher
cover counts and modestly increased prices. Entertainment revenues increased by
approximately $3.5 million, or 16.7%, from $21.0 million during 1999 to $24.5
million during 2000 due primarily to the increase in Splash revenues as a result
of the showroom renovation and the new show which opened in late 1999. Other
revenues decreased by approximately $0.7 million, or 6.7%, from $10.6 million
during 1999 to $9.9 million during 2000 due primarily to decreased management
fees from Riviera Gaming Management Elsinore's contract which expired December
30, 1999. Promotional allowances decreased by approximately $0.6 million, or
4.4%, from $13.6 million during 1999 to $13.0 million during 2000 primarily due
to decreases in comps related to lower table games activity.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments
increased by approximately $3.2 million, or 3.1%, from $102.9 million in 1999 to
$106.1 million in 2000. Casino expense decreased by approximately $2.2 million,
or 5.1%, from $43.2 million during 1999 to $41.0 million during 2000. Casino
expenses as a percent of casino revenue declined from 58.3% in 1999 to 54.7% in
2000 due to decreased casino marketing costs and bad debts expense. Room costs
increased $1.5 million, or 6.9% from $21.9 million in 1999 to $23.4 million in
2000, due to increased payroll under union contracts and additional convention
sales. Food and beverage costs increased by approximately $1.5 million, or 8.2%,
from $18.3 million during 1999 to $19.8 million during the 2000 period. Food and
beverage costs as a percentage of food and beverage revenues increased from
72.9% during 1999 to 73.5% during 2000 because payroll and other costs increased
modestly. Entertainment costs increased by approximately $2.7 million, or 16.6%,
from $16.3 million during 1999 to $19.0 million during 2000 as arrangements with
producers allowed us to maintain our profit margins at approximately 23% of
gross entertainment revenues. Other expenses decreased by approximately
$84,000, or 2.6%, from $3.2 million to $3.1 million due to reduced costs of
long distance telephone service.
Other Operating Expenses
General and administrative expenses increased by
approximately $1.9 million, or 6.2%, from $29.6 million for 1999 to $31.5
million in 2000 due primarily to increased labor costs and health insurance
claim costs. General and administrative expenses were approximately 19% of net
revenues in both 2000 and 1999. Depreciation and amortization increased by
approximately $0.9 million, or 6.4%, from $14.0 million during the 1999 period
to $14.9 million during the 2000 period due to the added depreciation of the
expanded Convention Center and recent property remodels.
EBITDA
Riviera Las Vegas EBITDA, as defined, increased by approximately
$4.6 million, or 18.7%, from $24.6 million in 1999 to $29.2 million in 2000.
During the same periods, EBITDA margin increased from 15.7 % to 17.5% of net
revenues.
25
Riviera Black Hawk
Revenues
Riviera Black Hawk opened on February 4, 2000. It had net
revenues of approximately $39.7 million for the appoximate eleven month period
in 2000. Casino revenues were $38.1 million, including $36.3 million in slot
revenue and $1.7 million in table games revenue.
Food and beverage revenues were approximately $4.0 million, of which 2.8 million
were complimentary (promotional allowance). Other revenues were approximately
$0.4 million primarily from ATM transaction fees.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments were
approximately $23.6 million, in 2000. Casino expense were approximately $21.9
million, 57.5% of casino revenues. Food and beverage costs were approximately
$1.7 million, or 133% of net food and beverage revenues as the buffet in Black
Hawk is used as a marketing amenity.
Other Operating Expenses
General and administrative expenses were approximately $9.5
million, or 23.9% of net revenues for 2000. Depreciation and amortization were
approximately $2.9 million, or 7.3% of net revenues.
EBITDA
Riviera Black Hawk EBITDA, as defined, was $6.6 million, or
16.6% of net revenues.
CONSOLIDATED OPERATIONS
Other Income (Expense)
Interest expense on the $175 million 10% First Mortgage Notes
issued by the company of $17.5 million plus related amortization of loan fees
and equipment and other financing costs totaled approximately $20 million in
2000 and 1999. Interest expense on the $45 million 13% First Mortgage Notes
issued by Riviera Black Hawk in June 1999 combined with its interest from
capital leases totaled $7.7 million in 2000. Capitalized interest was $616,000
in 2000, which was primarily from the Black Hawk, Colorado project, decreased
approximately $2.4 million from 1999.
Other expenses, net include an insurance reimbursement of
Paulson litigation costs of $1.2 million in 2000.
Net Loss
The consolidated net loss increased approximately $1.3 million
from $2.9 million in 1999 to $4.2 million in 2000 due primarily to higher total
interest expense offset by lower capitalized interest in 2000. Federal income
tax benefits as a percent of losses were lower in 2000 because the Company
reflected the results of an audit by the Internal Revenue Service in 1999. The
audit resulted in the release of reserves of $2.2 million for taxes on employee
meals and other items, which were settled favorably to the Company.
EBITDA
Consolidated EBITDA, as defined, increased by approximately
$10.2 million, or 39.7%, from $25.7 million in 1999 to $35.9 million in 2000.
During the same periods, EBITDA margin increased from 16.3% to 17.4% of net
revenues.
26
1999 Compared to 1998
Revenues
Net revenues decreased by approximately $1.8 million, or 1.1%, from
$159.9 million in 1998 to $158.2 million in 1999. Casino revenues decreased by
approximately $3.6 million, or 4.6%, from $77.7 million during 1998 to $74.1
million during 1999 due primarily to a 2.4% fall in table games hold percentage
from 1998, which decreased win by approximately $2.1 million. Table games drop
was $6.6 million down from 1998, resulting in a loss of $1.2 million in tables
games revenue. Slot coin-in, however, increased $10.6 million from 1998, which
contributed an additional $700,000 in slot revenue. Room revenues increased by
approximately $300,000, or 0.7%, from $39.6 million in 1998 to $39.9 million
during 1999 as a result of an increase in hotel occupancy from 95.2% to 97.5%
(based on available rooms) offset by a slight decrease in average room rate of
$1.04, or 1.9%. Food and beverage revenues increased approximately $1.2 million,
or 4.9%, from $23.9 million in 1998 to $25.1 million during 1999 due primarily
to the expansion of the convention center banquet facilities in February 1999.
Entertainment revenues decreased by approximately $550,000, or 2.6%, from $21.5
million during 1998 to $21.0 million during 1999 due primarily to the closing of
Splash in early November 1999 until December 25, 1999 for renovation. Other
revenues increased by approximately $550,000, or 5.0%, from $11.2 million during
1998 to $11.7 million during 1999 due primarily to increased telephone and gift
shop revenues. Promotional allowances decreased by approximately $300,000, or
2.4%, from $14.0 million during 1998 to $13.7 million during 1999 consistent
with the decrease in table games play.
Direct Costs and Expenses of Operating Departments
Total direct costs and expenses of operating departments decreased by
approximately $1.0 million, or 0.9%, from $103.8 million in 1998 to $102.9
million in 1999. Casino expense decreased by approximately $2.1 million, or
4.6%, from $45.3 million during 1998 to $43.2 million during 1999 and casino
expenses as a percent of casino revenue remained constant at 58.3% in 1998 and
1999, due to decreased casino marketing costs. Room costs increased $1.1
million, or 5.0% from $20.8 million in 1998 to $21.9 million in 1999, and room
costs as a percentage of room revenues increased from 52.7% during 1998 to 54.9%
during 1999 due to additions to hotel operations staff in an effort to better
accommodate our guests. Food and beverage costs increased by approximately
$800,000, or 4.4%, from $17.5 million during 1998 to $18.3 million during the
1999 period resulting from a corresponding increase in revenues. Food and
beverage costs as a percentage of food and beverage revenues decreased from
73.3% during 1998 to 72.9% during 1999 because food and beverage revenue
increased while payroll and other costs remained relatively constant.
Entertainment costs decreased by approximately $600,000, or 3.5%, from $16.9
million during 1998 to $16.3 million during 1999 and entertainment expense as a
percentage of entertainment revenues decreased from 78.3% during 1998 to 77.5%
in 1999 due to the increase in revenues in special events and the box office
operation. Other expenses decreased by approximately $100,000, or 2.4%, from
$3.3 million to $3.2 million due to reduced costs of long distance telephone
service.
Other Operating Expenses
General and administrative expenses increased by approximately $2.5
million, or 9.4%, from $27.0 million for 1998 to $29.5 million in 1999 due
primarily to increased incentive and employee retention plan costs required to
retain personnel in the competitive gaming environment. As a percentage of total
net revenues, general and administrative expenses increased from 16.9% during
the 1998 period to 18.7% during the 1999 period. Additionally, utility costs
have increased approximately $600,000 from 1998 to 1999 due to the expansion of
the convention center. Depreciation and amortization increased by approximately
$1.9 million, or 15.3%, from $12.1 million during the 1998 period to $14.0
million during the 1999 period due to a significant increase in depreciable
capital expenditures for operating assets in the twelve months ended December
31, 1999 totaling approximately $31.1 million.
27
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
by $3.9 million due to the 13% First Mortgage Notes issued by Riviera Black Hawk
in June 1999. Interest income, other decreased $200,000 because of the decrease
in investment balances for the period as the proceeds of the $175 million notes
were utilized in the Convention Center Pavillion in early 1999 and the proceeds
of the $45 million notes were utilized in the Black Hawk, Colorado project in
the second half of 1999. Capitalized interest increased $2.1 million primarily
on the Black Hawk, Colorado project but also on the Convention Center Pavillion
and Pavillion Sky Box projects.
Other expenses, net include Paulson litigation and settlement costs of
$1.9 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.
Extraordinary Item, Net of Taxes in 1998
The $100 million notes, for which retirement monies were put into
trust 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 35% income tax effect of $1.6 million resulting in an extraordinary
loss of $3.0 million.
Net Income, (Loss)
Net loss decreased approximately $1.2 million from a loss of
$4.1 million in 1998 to a loss of $2.9 million in 1999 due primarily to the
extraordinary item in 1998. Federal income tax benefits exceed the normal 35
percent because the Company settled an Internal Revenue Service audit through
1996. The audit resulted in the release of reserves of $2.2 million for taxes on
employee meals and other items, which were settled favorably to the Company.
EBITDA
EBITDA, as defined, decreased by approximately $3.4 million,
or 11.7%, from $29.1 million in 1998 to $25.7 million in 1999. During the same
periods, EBITDA margin decreased from 18.2% to 16.2% of net revenues.
Liquidity and Capital Resources
The Company had cash and short term investments of $52.2 million at
December 31, 2000, which was an increase of $9.4 million from the balances at
December 31, 1999.
For 2000, the Company's net cash provided by operating activities was
$19 million compared to $6.7 million in 1999. Cash flows used in investing
activities were $4.2 million in 2000. Cash flows used in investing activities
were $57.9 million in 1999. Net cash used in financing was $5.8 million in 2000
primarily due to the repurchase of treasury stock and Black Hawk First Mortgage
Notes. Net cash provided by financing was $45.2 million in 1999. EBITDA, as
defined, for 2000 and 1999 was $35.9 million and $25.7 million, respectively.
Management believes that cash flow from operations, combined with the $52.2
million cash and short term investments, will be sufficient to cover the
Company's debt service and enable investment in budgeted capital expenditures
for the next twelve months.
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
28
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% with the proceeds of
a qualified public offering, 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 December 31, 2000, the Company believes that
it is in compliance with the covenants.
29
Item 7A Disclosure
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
(Amounts in Thousands) Fair Value
2001 2002 2003 2004 2005 Thereafter Total At
12/31/00
Long Term Debt
Including Current Portion
Equipment loans and
Capital leases-Las Vegas $1,103 $1,201 $1,285 $1,005 $17 $4,611 $4,611
Average interest rate 8.0% 7.8% 7.8% 8.4% 8.4%
10% First Mortgage Note $173,885 $173,885 $150,500
Average interest rate 10.0%
Equipment loans
Black Hawk, Colorado $10 $8 $18 $18
Average interest rate 11.2% 11.2%
Capital leases
Black Hawk, Colorado $1,672 $1,848 $2,044 $2,263 $658 $8,485 $8,485
Average interest rate 10.8% 10.8% 10.8% 10.8% 10.8%
Special Improvement
District Bonds-Black Hawk,
Colorado casino project $86 $68 $71 $76 $81 $221 $603 $603
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
13% First Mortgage Note
Black Hawk, Colorado casino
project $38,441 $38,441 $38,441
Average interest rate 13.0%
30
Forward Looking Statements
The Private Securities Litigation Reform Act of 1998 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 8. Financial Statements and Supplementary Data
See financial Statements included in Item 14(a).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding this item is incorporated by reference to the
Company's Proxy Statement to be filed on or about April 10, 2001, relating to
the Annual Meeting of Stockholders to be held on May 15, 2001 and is made a part
hereof.
Item 11. Executive Compensation
Information regarding this item is incorporated by reference to the
Company's Proxy Statement to be filed on or about April 10, 2001, relating to
the Annual Meeting of Stockholders to be held on May 15, 2001 and is made a part
hereof.
Item 12. Principal Shareholders
Information regarding this item is incorporated by reference to the
Company's Proxy Statement to be filed on or about April 10, 2001, relating to
the Annual Meeting of Stockholders to be held on May 15, 2001 and is made a part
hereof.
Item 13. Certain Relationships and Related Transactions
Information regarding this item is incorporated by reference to the
Company's Proxy Statement to be filed on or about April 10, 2001, relating to
the Annual Meeting of Stockholders to be held on May 15, 2001 and is made a part
hereof.
31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) List of Financial Statements
The following Independent Auditors' Report and the consolidated
Financial Statements of the Company are incorporated by reference into this Item
14 of Form 10-K by Item 8 hereof:
- - Independent Auditor's Report dated February 14, 2001. - Consolidated
Balance Sheets as of December 31, 2000 and 1999.
- - Consolidated Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998.
- - Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998.
- - Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998.
- - Notes to Consolidated Financial Statements.
(a)(2) List of Financial Statement Schedules
No financial statement schedules have been filed herewith since they
are either not required, are not applicable, or the required information is
shown in the consolidated financial statements or related notes.
(a)(3) List of Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index herein, which information is incorporated by reference.
(b) Reports on Form 8-K
The Company filed the following current reports on Form 8-K:
- 8-K filed October 6, 2000, announcement that Robert Vannuci was
appointed President and Chief Operating Officer of the Company's
wholly owned subsidiary, Riviera Operating Corporation.
- 8-K field October 27, 2000, announcing that the Company had
released its third quarter, 2000, financial results and announcing
the Company had purchased 50,000 shares of its outstanding stock
in a private transaction.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
RIVIERA HOLDINGS CORPORATION
By:/s/ WILLIAM L. WESTERMAN
William L. Westerman
Chief Executive Officer and President
(Principal Executive Officer)
March 20, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ WILLIAM L. WESTERMAN Chairman of the Board, Chief March 20, 2001
William L. Westerman Executive Officer and President
/s/ DUANE R. KROHN Treasurer (Principal Financial March 20, 2001
Duane R. Krohn and Accounting Officer)
/s/ ROBERT R. BARENGO Director March 20, 2001
Robert R. Barengo
/s/ JAMES N. LAND, JR. Director March 20, 2001
James N. Land, Jr.
/s/ JEFFREY A. SILVER Director March 20, 2001
Jeffrey A. Silver
33
EXHIBIT INDEX
Exhibit Description
Number
2.1* Agreement and Plan of Merger, dated
September 15, 1997, by and among R&E
Gaming Corp., Riviera Acquisitions Sub,
Inc., and Riviera Holdings Corporation
(see Exhibit 10.1 to Current Report on
Form 8-K filed with the Commission on
September 29, 1997, Commission File
No. 0-21430)
3.1* Second Restated Articles of Incorporation
of the Company (see Exhibit 3.1 to
Registration Statement on Form S-4 filed
with the Commission on September 10,
1997, Commission File No. 0-21430)
3.2* Bylaws of the Company (see Exhibit 3.2 to
Registration Statement on Form S-4 filed
with the Commission on September 10,
1997, Commission File No. 0-21430)
3.3* Articles of Incorporation of Riviera
Operating Corporation (see Exhibit 3.3 to
Registration Statement on Form S-4 filed
with the Commission on September 10,
1997, Commission File No. 0-21430)
3.4* Bylaws of Riviera Operating Corporation
(see Exhibit 3.4 to Registration
Statement on Form S-4 filed with the
Commission on September 10, 1997,
Commission File No. 0-21430)
3.5* Articles of Incorporation of Riviera
Gaming Management, Inc. (see Exhibit 3.5
to Registration Statement on Form S-4
filed with the Commission on September
10, 1997, Commission File No. 0-21430)
3.6* Bylaws of Riviera Gaming Management, Inc.
(see Exhibit 3.6 to Registration
Statement on Form S-4 filed with the
Commission on September 10, 1997,
Commission File No. 0-21430)
3.7* Articles of Incorporation of Riviera
Gaming Management - Elsinore, Inc. (see
Exhibit 3.7 to Registration Statement
on Form S-4 filed with the Commission on
September 10, 1997, Commission File
No. 0-21430)
3.8* Bylaws of Riviera Gaming Management -
Elsinore, Inc. (see Exhibit 3.8 to
Registration Statement on Form S-4 filed
with the Commission on September 10,
1997, Commission File No. 0-21430)
3.9* Articles of Incorporation of Riviera
Gaming Management of Colorado, Inc. (see
Exhibit 3.9 to Amendment No. 1 to
Registration Statement on Form S-4 filed
with the Commission on December 9, 1997,
Commission File No. 0-21430)
34
3.10* Bylaws of Riviera Gaming Management of
Colorado, Inc. (see Exhibit 3.10 to
Amendment No. 1 to Registration Statement
on Form S-4 filed with the Commission
on December 9, 1997, Commission File
No. 0-21430)
4.1* Indenture dated as of August 13, 1997
between the Company and Norwest Bank
Minnesota, N.A., as trustee, the
Guarantors party thereto, Jefferies &
Company, Inc. and Ladenburg Thalmann &
Co. Inc. (see Exhibit 4.2 to Current
Report on Form 8-K filed with the
Commission on August 18, 1997, Commission
File No. 0-21430)
4.2* Form of the Company's 10% Senior Notes
due 2004 (included in Exhibit 4.1)
5.1* Opinion of Dechert Price & Rhoads re:
legality (see Exhibit 5.1 to Amendment
No. 1 to Registration Statement on Form
S-4 filed with the Commission on
December 9, 1997, Commission File
No. 0-21430)
10.1* Registration Rights Agreement dated as
of August 13, 1997 by and among the
Company, the Guarantors party thereto,
Jefferies & Company, Inc. and Ladenburg
Thalmann & Co. Inc. (see Exhibit 4.1 to
Current Report on Form 8-K filed with
the Commission on August 18, 1997,
Commission File No. 0-21430)
10.2* Purchase Agreement dated August 8, 1997
among the Company, the Guarantors party
thereto, Jefferies & Company, Inc. and
Ladenburg Thalmann & Co., Inc. (see
Exhibit 1.1 to Current Report on Form
8-K filed with the Commission on August
18, 1997, Commission File No. 0-21430)
10.3* Lease Agreement between Riviera, Inc.
and Mardi Gras Food Court, Inc. dated
April 1, 1990 (see Exhibit 10.1 to Form
10, Commission File No. 0-21430)
10.4* Amendment to Lease Agreement between
Riviera, Inc. and Mardi Gras Food Court,
Inc. dated April 1, 1990 (see Exhibit
10.2 to Registration Statement Form S-1
filed with the Commission on August 11,
1993, File No. 33-67206)
10.5* Lease Agreement between Riviera, Inc.
and Leroy's Horse and Sports Place (see
Exhibit 10.3 to Form 10, Commission File
No. 0-21430)
10.6* Indemnity Agreement, dated June 30,
1993, from Riviera, Inc. and Meshulam
Riklis in favor of the Company and
Riviera Operating Corporation(see Exhibit
10.7 to Registration Statement Form S-1
filed with the Commission on August 11,
1993, File No. 33-67206)
10.7* Indemnity Agreement, dated June 30, 1993,
from the Company in favor of IBJ
Schroder Bank & Trust Company
(see Exhibit 10.8 to Registration
Statement Form S-1 filed with the
Commission on August 11, 1993, File
No. 33-67206)
35
10.8* Equity Registration Rights Agreement,
dated June 30, 1993, among the Company
and the Holders of Registerable Shares
(see Exhibit 10.9 to Registration
Statement Form S-1 filed with the
Commission on August 11, 1993, File No.
33-67206)
10.9* Operating Agreement, dated June 30,
1993, between the Company and Riviera
Operating Corporation (see Exhibit
10.15 to Registration Statement Form
S-1 filed with the Commission on August
11, 1993, File No. 33-67206).
10.10* Adoption Agreement regarding Profit
Sharing and 401(k) Plans of the Company
(see Exhibit 10.16 to Registration
Statement Form S-1 filed with the
Commission on August 11, 1993, File
No. 33-67206)
10.11* Howard Johnson & Company Regional Defined
Contribution Plan, dated March 16, 1990
(adopted by the Company pursuant to the
Adoption Agreement filed as Exhibit 10.17
to Registration Statement Form S-1 filed
with the Commission on August 11, 1993,
File No. 33-67206)
10.12* Employment Agreement between Riviera,
Inc. and William L. Westerman, dated
January 6, 1993 (see Exhibit 10.18 to
Form 10, Commission File No. 0-21430)
10.13* Form of Agreement between the Company
and Directors (see Exhibit 10.19 to Form
10, Commission File No. 0-21430)
10.14* Form of Termination Fee Agreement
(see Exhibit 10.20 to Form 10, Commission
File No. 0-21430)
10.15* Restricted Account Agreement, dated
June 30, 1993, among Riviera Operating
Corporation, IBJ Schroder Bank & Trust
Company and Bank of America Nevada (see
Exhibit 10.22 to Registration Statement
Form S-1 filed with the Commission on
August 11, 1993, File No. 33-67206)
10.16* Disbursement Agreement, dated June 30,
1993, between the Company and IBJ
Schroder Bank & Trust Company (see
Exhibit 10.23 to Registration Statement
Form S-1 filed with the Commission on
August 11, 1993, File No. 33-67206)
10.17* Tax Sharing Agreement between the Company
and Riviera Operating Corporation
dated June 30, 1993 (see Exhibit 10.24
to Amendment No. 1 to Registration
Statement Form S-1 filed with the
Commission on August 19, 1993, File No.
33-67206)
10.18* The Registrant's 1993 Stock Option Plan
(see Exhibit 10.25 to Amendment No. 1
to Registration Statement Form S-1 filed
with the Commission on August 19,
1993, File No. 33-67206)
36
10.19* Form of Stay Bonus Agreement (see Exhibit
10.27 to Form 10-Q filed with the
Commission on November 9,1994, Commission
File No. 0-21430)
10.20* Amendment dated February 19, 1995, to
Lease Agreement between Riviera, Inc. and
Mardi Gras Food Court, Inc. (filed with
Exhibits 10.3 and 10.4)
10.21* Amendment dated September 30, 1994, to
Employment Agreement between Riviera,
Inc. and William L. Westerman (filed with
Exhibit 10.12)
10.22* Management Agreement by and between
Elsinore Corporation, Four Queens, Inc.
and Riviera Gaming Management Corp. -
Elsinore (see Exhibit 10.30 to Form 10-K
for the fiscal year ended December 31,
1996, Commission File No. 000-21430)
10.23* Employment Agreement dated as of November
21, 1996 by and between the Company,
Riviera Operating Corporation and William
L. Westerman (see Exhibit 10.31 to Form
10-K for the fiscal year ended December
31, 1996, Commission File No.000-21430)
10.24* Revolving Line of Credit Loan Agreement
dated February 28, 1997 by and between
the Company,Riviera Operating Corporation
and U.S. Bank of Nevada (see Exhibit
10.32 to Form 10-K for the fiscal year
ended December 31, 1996, Commission
File No. 000-21430)
10.25* Letter of Intent dated March 4, 1997
between the Company and Eagle Gaming,L.P.
(see Exhibit 10.33 to Form 10-K for the
fiscal year ended December 31, 1996,
Commission File No. 000-21430)
10.26* Deed of Trust, Assignment of Rents,
Leases, Fixture Filing and Security
Agreement, dated August 13, 1997,
executed by Riviera Holdings Corporation
for the benefit of Norwest Bank
Minnesota, National Association (see
Exhibit 10.1 to Form 8-K filed August 18,
1997, Commission File No. 000-21430)
10.27* Security Agreement, dated August 13,
1997, by and among Riviera Holdings
Corporation, Riviera Operating
Corporation, Riviera Gaming Management,
Inc., Riviera Gaming Management of
Colorado, Inc., Riviera Gaming
Management - Elsinore, Inc. and Norwest
Bank Minnesota, National Association
(see Exhibit 10.2 to Form 8-K filed
August 18, 1997, Commission File No.
000-21430)
10.28* Stock Pledge and Security Agreement,dated
August 13, 1997, executed by Riviera
Holdings Corporation (see Exhibit 10.3 to
Form 8-K filed August 18, 1997,
Commission File No. 000-21430)
37
10.29* Stock Pledge and Security Agreement,
dated August 13, 1997,executed by Riviera
Operating Corporation (see Exhibit 10.4
to Form 8-K filed August 18, 1997,
Commission File No. 000-21430)
10.30* Stock Pledge and Security Agreement,
dated August 13, 1997,executed by Riviera
Gaming Management, Inc. (see Exhibit
10.5 to Form 8-K filed August 18, 1997,
Commission File No. 000-21430)
10.31* Restricted Account Agreement, dated
August 13, 1997, by and among Riviera
Holdings Corporation, Norwest Bank
Minnesota, National Association and U.S.
Bank of Nevada (see Exhibit 10.6 to Form
8-K filed August 18, 1997, Commission
File No. 000-21430)
10.32* First Amendment to Revolving Line of
Credit Loan Agreement, dated August 12,
1997, between Riviera Holdings
Corporation,Riviera Operating Corporation
and U.S. Bank (see Exhibit 10.7 to Form
8-K filed August 18, 1997, Commission
File No. 000-21430)
10.33* Escrow Agreement, dated September 15,
1997, by and among R&E Gaming Corp.,
Riviera Holdings Corporation, and State
Street Bank and Trust Company of
California (see Exhibit 10.2 to Form 8-K
filed September 29, 1997, Commission
File No. 000-21430)
10.34* Employment agreement between the Company
and Ronald P. Johnson effective July 1,
1998 (see, Exhibit 10.34 of Form 10Q
filed November 6, 1998.)
10.35* Employment agreement between the Company
and Duane R. Krohn effective July 1,1998
(see, Exhibit 10.35 of Form 10Q filed
November 6, 1998.)
10.36* Employment agreement between the Company
and Robert A. Vannucci effective July 1,
1998 (see, Exhibit 10.36 of Form 10Q
filed November 6, 1998.)
10.37* Employment agreement between the Company
and Jerome P. Grippe effective July 1,
1998 (see, Exhibit 10.37 of Form 10Q
filed November 6, 1998.)
10.38* Consulting Agreement between Riviera
Gaming Management, Inc. and Peninsula
Gaming Partners, LLC, dated January 1,
2000. (see, Exhibit 10.38 of Form 10k
filed March 20, 2000.)
10.39 Amendment to Employment agreement between
the Company and Robert A. Vannucci
effective October 1, 2000.
10.40 Amendment to Employment agreement between
the Company and William L. Westerman
effective January 1, 2001.
38
10.41 Deferred Compensation Plan dated November
1, 2000, adopted by the Company on
October 2, 2000 (Registration Statement
Form S - 8 filed with the Commission on
February 14, 2001).
10.42 Restricted Stock Plan dated January 2,
2001, adopted by the Company on October
2, 2000 (Registration Statement Form
S - 8 filed with the Commission on
February 14, 2001).
21.1* Subsidiaries of the Company (see Exhibit
21.1 to Registration Statement on Form
S-4 filed with the Commission on
September 10, 1997, Commission File No.
0-21430)
99.1* Letter, dated March 20, 1998, from R&E
Gaming Corp. to the Company regarding
the Company's Agreement and Plan of
Merger
* The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit heretofore filed with the Commission, to which there have been no
amendments or changes.
39
Exhibit 10.39
AMENDMENT
TO
EMPLOYMENT AGREEMENT
This AMENDMENT ("AMENDMENT"), dated as of October 1, 2000, is made a
part of that certain EMPLOYMENT AGREEMENT ("AGREEMENT"), dated July 1, 1998, by
and between RIVIERA HOLDINGS CORPORATION ("RHC"), and its wholly-owned
subsidiary, RIVIERA OPERATING CORPORATION ("ROC") (collectively the "COMPANY"),
and ROBERT VANNUCCI ("EXECUTIVE").
The parties hereto agree to amend that certain AGREEMENT as follows:
1. EFFECTIVE DATE:
This AMENDMENT shall be in effect as of October 1, 2000.
2. EMPLOYMENT:
During the Term of Employment (as defined below), the COMPANY
agrees to employ EXECUTIVE as President and Chief Operating Officer of RIVIERA
OPERATING CORPORATION upon the terms and conditions and for the compensation
provided in both this AMENDMENT and the AGREEMENT, and EXECUTIVE agrees to be so
employed and to render the services specified in both this AMENDMENT and the
AGREEMENT.
3. TERM:
The Term of Employment of EXECUTIVE is hereby extended until
December 31, 2001, subject to earlier termination as provided in Section 10 of
the AGREEMENT. The AMENDMENT and AGREEMENT (collectively the "AGREEMENT II"),
shall automatically renew on an annual basis unless either party gives the other
party one-hundred twenty (120) days written notice of intention not to renew.
The initial term and any extension thereof shall collectively be referred to as
the "TERM".
4. COMPENSATION:
(1) Cash Salary: Commencing October 1, 2000,
$300,000 per year paid bi-weekly
(2) Restricted Stock: (i) Commencing January 1, 2001, and
continuing for each quarter during
the Term of Agreement II, Executive
shall receive $25,000 of RHC
Restricted Stock per quarter from
treasury stock at the closing price
on the first day of each quarter,
or next business day as applicable
; and
(ii) Commencing for calendar year 2001,
EXECUTIVE shall receive RHC
Restricted Stock from treasury
stock at the closing price on March
15, of each applicable year,or next
business day as applicable, in an
amount equal to the EXECUTIVE level
incentive earned (e.g., at one-
hundred percent (100%), EXECUTIVE
1
awarded an additional $100,000 in
Restricted Stock at market price
from treasury stock).
(3) Cash Incentive: Amount earned at EXECUTIVE level
(e.g.,at one-hundred percent(100%),
EXECUTIVE awarded $100,000)
5. NON-RENEWAL:
In the event the COMPANY exercises its option not to renew the
AGREEMENT II during any TERM for any reason except CAUSE as defined in the
AGREEMENT, EXECUTIVE shall receive the following during the non-renewal calendar
year subject to mitigation (collectively "SEVERANCE"):
(1) Cash salary in the amount of Four Hundred Thousand
Dollars ($400,000.00) paid bi-weekly;
(2) Cash incentive bonus in an amount equal to two
hundred percent (200%) of the executive incentive
cash bonus awarded during EXECUTIVE's last renewed
calendar year (e.g., if one hundred percent (100%) of
executive bonus level is achieved which represents
One Hundred Thousand Dollars ($100,000.00), EXECUTIVE
awarded Two Hundred Thousand Dollars ($200,000.00).
EXECUTIVE shall not receive restricted stock pursuant
to paragraph 4(b)(ii);
(3) Full insurance benefits and use of a COMPANY vehicle;
(4) EXECUTIVE shall not receive restricted stock pursuant
to paragraph 4(b)(i); and
(5) The foregoing SEVERANCE is in lieu of any payments to
which EXECUTIVE would have been entitled pursuant to
any Termination Agreement then in effect.
6. DEATH OR DISABILITY:
If during the TERM of this AGREEMENT II EXECUTIVE's employment
is terminated due to death or disability of EXECUTIVE, EXECUTIVE or his estate
shall receive the following:
(1) Four Hundred Thousand Dollars ($400,000.00) payable
bi-weekly in twenty-six (26 equal installments
commencing upon such termination; and
(2) On or before March 15th of the calendar year
immediately following such termination, a prorated
share of the SEVERANCE cash bonus to which EXECUTIVE
would have been entitled had the COMPANY exercised
its option not to renew the AGREEMENT II. For
example, if such termination occurs on June 30th and
the EXECUTIVE level bonus is at one-hundred percent
(100%),the cash incentive due on the following March
15th is One Hundred Thousand Dollars ($100,000.00)
(6/12 x $200,000.00; cash is substituted for
restricted stock).
7. RENEGOTIATION:
This AMENDMENT and AGREEMENT II is subject to renegotiation
for the calendar year 2002.
2
8. CONFLICT OF TERMS:
In the event there is a conflict between this AMENDMENT and
the AGREEMENT, the terms of this AMENDMENT shall control.
9. REMAINING PROVISIONS:
Except as changed by this AMENDMENT, all other terms and
conditions of the AGREEMENT shall remain in full force and effect.
10. CHOICE OF LAW:
This AGREEMENT II shall be interpreted in accordance with the
laws of the State of Nevada. The only proper venue for any legal action shall be
Clark County, Nevada.
IN WITNESS WHEREOF, the parties hereto have agreed to this AMENDMENT TO
EMPLOYMENT AGREEMENT as of the day and year first written above.
COMPANY: EXECUTIVE:
RIVIERA HOLDINGS CORPORATION ROBERT VANNUCCI
and its wholly-owned subsidiary
RIVIERA OPERATION CORPORATION
By:______________________________ __________________________
WILLIAM L. WESTERMAN ROBERT VANNUCCI
Chief Executive Officer
3
Exhibit 10.40
FIRST AMENDMENT
TO EMPLOYMENT AGREEMENT
BETWEEN
WILLIAM L. WESTERMAN
AND
RIVIERA HOLDINGS CORPORATION AND
RIVIERA OPERATING CORPORATION
This AMENDMENT dated January 1, 2001, to the Employment Agreement dated
as of November 21, 1996 (the "AGREEMENT"), by and among RIVIERA HOLDINGS
CORPORATION ("RHC"), and its wholly-owned subsidiary, RIVIERA OPERATING
CORPORATION ("ROC") (collectively the "COMPANY"), and WILLIAM L. WESTERMAN
("EXECUTIVE").
WHEREAS, This Amendment has been approved by the COMPANY's Board of
Directors on December 6, 2000.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, the parties hereto agree as follows:
11. There shall be no further COMPANY contribution to the principal
of EXECUTIVE's retirement account following the January 1, 2001
COMPANY contribution. Interest will continue to accrue.
12. To the extent that EXECUTIVE's year 2001 incentive bonus
exceeds Four Hundred Thousand Dollars ($400,000.00), such
excess amount shall be applied to reduce the principal balance
of EXECUTIVE's retirement account in the exact amount of such
excess at the time the incentive is paid (approximately March
15, 2002).
13. In the event that EXECUTIVE's Rabbi Trust has not been funded,
the balance of principal and interest of such Rabbi Trust
shall be paid to EXECUTIVE upon EXECUTIVE's retirement,
termination (unless for a cause) or upon a change in control
of the Company.
14. Except as otherwise specifically provided herein, the terms and
conditions of the AGREEMENT shall remain in full force and
effect.
1
IN WITNESS WHEREOF, the parties have duly executed this AGREEMENT as of
the day and year first written above.
RIVIERA HOLDINGS CORPORATION RIVIERA OPERATING CORPORATION
By:_____________________________ By:_____________________________
DUANE KROHN, Treasurer DUANE KROHN, Treasurer
EXECUTIVE
- -------------------------------------------------------------------------------
WILLIAM L. WESTERMAN
2
Exhibit 10.41
RIVIERA HOLDINGS CORPORATION
DEFERRED COMPENSATION PLAN
(Effective November 1, 2000)
1
CERTIFICATE OF ADOPTION
RIVIERA HOLDINGS CORPORATION, acting through the Compensation Committee
of its Board of Directors, hereby adopts the RIVIERA HOLDINGS CORPORATION
DEFERRED COMPENSATION PLAN in the form attached hereto, effective November 1,
2000.
RIVIERA HOLDINGS CORPORATION
By_________________________________
On behalf of the Compensation Committee
ATTEST:
- ------------------------
2
TABLE OF CONTENTS
PAGE
SECTION 1.................................................................
Purpose..........................................................4
1.1 Purpose........................................4
1.2 Employer.......................................4
1.3 Effective Date.................................4
1.4 Administration of Plan.........................4
1.5 Notices........................................4
SECTION 2.................................................................
Eligibility and Participation....................................5
2.1 Eligibility....................................5
2.2 Participation..................................5
2.3 Cessation of Participation.....................5
SECTION 3.................................................................
Enrollment and Deferral Elections................................6
3.1 Salary Deferral Elections......................6
3.2 Bonus Deferral Elections.......................6
3.3 Effective Period for Deferral Election.........6
3.4 Distribution Elections.........................6
3.5 Deferral Account...............................8
3.6 Investment of Deferral Account.................8
3.7 Adjustment of Participants' Deferral Account...9
3.8 Statement of Account...........................9
3.9 Additional Limitation on Deferral Elections....9
SECTION 4.................................................................
Employer Contributions...........................................10
4.1 Amount of Employer Contribution................10
4.2 Accounting for Employer Contributions..........10
4.3 Vesting of Employer Contributions..............10
SECTION 5.................................................................
Distribution of Deferral Accounts................................11
5.1 Distributions Upon Separation From Service.....11
5.2 Form of Distributions..........................11
3
5.3 Designation of Beneficiary.....................11
5.4 Withholding of Employment Taxes................11
SECTION 6.................................................................
Miscellaneous....................................................12
6.1 No Right to Company Assets.....................12
6.2 No Employment Rights...........................12
6.3 Facility of Payment............................12
6.4 Nonassignability...............................12
6.5 Effect on Other Benefits.......................12
6.6 Independence of Plan...........................12
6.7 Responsibility For Legal Effect................13
6.8 Action by the Company..........................13
6.9 Successors, Acquisitions,Mergers,Consolidations13
6.10 Gender and Number..............................13
6.11 Governing Law..................................13
6.12 Claims Procedure...............................13
SECTION 7.................................................................14
The Compensation Committee.......................................14
7.1 Compensation Committee's General Powers, Rights,
and Duties.....................................14
7.2 Interested Compensation Committee Member.......15
7.3 Compensation Committee Expenses................15
7.4 Information Required by Compensation Committee.15
7.5 Uniform Rules..................................15
7.6 Review of Benefit Determinations...............15
7.7 Compensation Committee's Decision Final,
Mistakes.......................................15
7.8 Indemnification................................15
SECTION 8.................................................................16
Amendment and Termination........................................16
4
RIVIERA HOLDINGS CORPORATION
DEFERRED COMPENSATION PLAN
(Effective July 1, 2000)
SECTION 1
Purpose
1.1 Purpose
RIVIERA HOLDINGS CORPORATION DEFERRED COMPENSATION PLAN (the "Plan") has been
established by RIVIERA HOLDINGS CORPORATION (the "Company") to enable designated
employees of the Company and RIVIERA OPERATING CORPORATION ("ROC") to defer a
portion of their salaries and bonuses, and also to provide those employees with
an opportunity to receive monetary payments based on the increase in value of
the Common Stock of the Company ("Company Stock") or other investment funds. By
allowing key management employees to participate in the Plan, the Company
expects the Plan to benefit it in attracting and retaining the most capable
individuals to fill its executive positions. The Plan is intended to be unfunded
for tax purposes and for purposes of Title I of the Employee Retirement Income
Security Act of 1974, as amended from time to time; however, the Company
reserves the right to fund the Plan at any time.
1.2 Employer
The Plan as set forth below shall apply to eligible employees of the Company,
ROC, and any other subsidiary or affiliate of the Company which adopts the Plan
with the consent of the Compensation Committee of the Board of Directors (the
"Compensation Committee"). The Company and each subsidiary or affiliate that
adopts the Plan with the Compensation Committee's consent will be referred to as
an "Employer" and may be referred to collectively as the "Employers."
1.3 Effective Date
The "Effective Date" of the Plan as set forth below is November 1, 2000. The
Plan will be administered on the basis of a 12-month period beginning on each
January 1 (the "Plan Year").
1.4 Administration of Plan
The Plan will be administered by the Compensation Committee, as provided in
Section 7.
1.5 Notices
Any notice or document relating to the Plan which is to be filed with the
Company may be delivered, or mailed by registered or certified mail, postage
prepaid, to the Compensation Committee in care of the Company at the Company's
headquarters.
5
SECTION 2
Eligibility and Participation
2.1 Eligibility
Before the beginning of each Plan Year, the Compensation Committee will
designate the employees eligible to participate in the Plan during such Plan
Year. In general, employees eligible for the Plan will be limited to a select
group of management or highly compensated employees, which means all employees
whose Compensation was $100,000 or more in the year prior to the year in which
the Participant makes a salary deferral election pursuant to subsection 3.1. An
employee's eligibility to make a deferral to the Plan in any given Plan Year
does not guarantee that employee the right to make a deferral in any subsequent
Plan Year.
2.2 Participation
An employee designated as eligible to participate in the Plan for any Plan Year
may make a deferral election on a timely basis as described in Section 3, and if
the employee makes such a deferral election he shall be referred to as a
"Participant" until he has received a distribution of his entire Deferral
Account (as defined in subsection 3.7).
2.3 Cessation of Participation
A Participant in the Plan who separates from service with the Company and all
its subsidiaries and affiliates for any reason will cease to be eligible to
defer compensation under this plan, and will become entitled to distributions as
described in Section 5.
6
SECTION 3
Enrollment and Deferral Elections
3.1 Salary Deferral Elections
Except as provided in Section 3.9, an employee designated as a Participant for a
Plan Year may elect to defer not less than 1% nor more than 100% (in whole 1%
increments) of his Compensation (as defined below) for that year. A
Participant's "Compensation" means the total cash compensation paid to a
Participant for services rendered to the Company as an employee (as reported on
Form W-2). For all Plan Years, a Participant must make his salary deferral
election in advance by signing a salary deferral agreement and filing it with
the Compensation Committee no later than the December 1 which precedes the Plan
Year to which the election relates. For any Plan Year, the amount deferred by a
Participant under this subsection, together with amounts deferred under
subsection 3.2, shall not be more than the maximum deferral amount (or
percentage of compensation) communicated to the employee by the Compensation
Committee for that Plan Year.
3.2 Bonus Deferral Elections
An employee designated as a Participant for a Plan Year may elect to defer not
less than 1% nor more than 100 percent (in whole 1% increments) of any bonus
received or any amount paid to him under a stay bonus agreement in that Plan
Year (collectively, a "bonus"). For all Plan Years, a Participant must make his
bonus deferral election in advance by signing a deferral agreement and filing it
with the Compensation Committee no later than the December 1 which precedes the
Plan Year to which the election relates. Bonus deferral elections, together with
salary and Incentive Payment deferral elections, are subject to the annual
minimum and maximum deferral limits described in subsection 3.1.
3.3 Effective Period for Deferral Election
(a) A Participant's salary or bonus deferral elections
shall remain in effect only for the Plan Year
specified in the deferral agreement. An eligible
employee must file a separate salary or bonus
deferral election on or before December 1 in order to
make deferrals for the following Plan Year. An
employee's eligibility to make a salary or bonus
deferral to the Plan in any given Plan Year does not
guarantee that employee the right to make a deferral
in any subsequent Plan Year. Subject to subparagraph
(c) below, a Participant's salary or bonus deferral
election filed with the Compensation Committee is
irrevocable on and after the deadline for filing the
election.
(b) In the event of an unforeseeable emergency, a
Participant may request in writing that salary or
bonus deferral elections elected by him hereunder
cease for the then current Plan Year. Such emergency
must inflict hardship upon the Participant and must
arise from causes beyond the Participant's control.
The Compensation Committee shall, in its reasonable
judgment, determine whether such an emergency exists.
If the Compensation Committee determines that such an
emergency exists, the Participant's deferrals for
such Plan Year shall cease, and the Participant shall
not be eligible to resume deferrals hereunder (if
otherwise eligible) until the second Plan Year
following the Plan Year in which such cessation
occurred.
3.4 Distribution Elections
Participants are permitted to make distribution elections with regard
to their Deferral Accounts (as described in subsection 3.5), as follows:
(a) Scheduled Salary and Bonus Distributions. Each
deferral election made by a Participant under
subsections 3.1 and 3.2 shall include an election of
7
the date on which the amount of such deferral
(together with any investment gains thereon) will be
distributed. Such date shall be referred to as the
"Distribution Date" and shall not be later than the
third year after the Plan Year to which the deferral
election relates. The Distribution Date, once elected
by the Participant, shall be irrevocable,subject only
to:(i)subsection 5.1, which provides for distribution
provisions upon separation from service in certain
cases; (ii) a subsequent election by the Participant
to postpone the Distribution Date,such election to be
made no later the January 1 preceding the Plan Year
in which the Distribution Date was to occur. If a
Participant makes a second such subsequent election,
it will be of no effect unless approved by the
Compensation Committee. No more than two subsequent
elections are permitted under the Plan.
(b) Unscheduled In-Service Withdrawal Election Subject to
Penalty. At any time during his employment with the
Employers, a Participant may, by writing filed with
the Compensation Committee, elect to withdraw a
portion of the balance in his Deferral Account,
subject to the following penalties:
(i) ten percent (10%) of the amount of the
Participant's withdrawal request will be
permanently forfeited, and the remaining
balance will be payable to the Participant;
and
(ii) no deferrals or other contributions of any
kind will be withheld from compensation and
credited to the Participant under the Plan
prior to the beginning of the second Plan
Year following the Plan Year of withdrawal.
(c) Hardship Withdrawal. If a Participant incurs a
hardship of the type described below, he may request
a withdrawal of a portion of his Deferral Account,
provided that the withdrawal is necessary in light of
immediate and heavy financial needs of the
Participant. Such a withdrawal shall not exceed the
amount required to meet the immediate financial need
and not reasonably available from other resources of
the Participant(including all other distributions and
non-taxable loans currently available under any
qualified retirement plan of an Employer). Each such
withdrawal election shall be made at such time and in
such manner as the Compensation Committee shall
8
determine, and shall be effective in accordance with
such rules as the Compensation Committee shall
establish and publish from time to time. Immediate
and heavy financial needs are limited to amounts
necessary for:
(i) Unreimbursed medical or accident expenses
incurred by the Participant, his spouse, or
his dependents.
(ii) Casualty loss pertaining to a principal
residence of the Participant, or other
property lost by the Participant.
(iii) Preventing foreclosure on or eviction from
the Participant's principal residence.
If a Participant makes a withdrawal under this
subparagraph, he must discontinue all deferral
elections under the Plan from the date of withdrawal
through the remainder of that Plan Year.
3.5 Deferral Account
The Compensation Committee shall maintain in the name of each Participant a
bookkeeping account known as the Participant's "Deferral Account" for deferrals
made in accordance with subsections 3.1 and 3.2. A Participant's Deferral
Account shall include a subaccount for each deferral made under the Plan and any
employer contributions made to the Participant under the Plan. Each such
subaccount shall reflect: (a) the amount deferred or contributed during that
Plan Year, (b) any amounts distributed during that Plan Year, and (c) the total
investment gains on the Deferral Account described in subsection 3.6. Deferred
amounts shall be credited to subaccounts as soon as practicable following the
date bonuses and salary would otherwise have been paid to the Participant but
for his deferral election.
3.6 Investment of Deferral Account
A Participant shall direct the investment of his Deferral Account. A Participant
shall have the right to elect to have his Deferral Account deemed to be
invested, in percentages elected by the Participant, in hypothetical funds, the
value of which shall track either the stock of the Company and or the investment
funds available under the Riviera Hotel & Casino Employee 401(k) Savings Plan
(the "Measurement Funds"). Participants may change their investment elections
quarterly on such date and in such manner as determined by the Compensation
Committee in its sole discretion. A Participant's Deferral Account shall be
credited or debited each payroll period (or, with respect to that portion of a
Participant's Deferral Account attributable to bonus deferral elections, each
time a bonus is deferred into the Plan) based on the performance of each
Measurement Fund selected by the Participant, as though (i) Participant's
Deferral Account balance as of the first day of a payroll period were invested
in the Measurement Fund(s) selected by Participant, in the percentages
applicable to such payroll period, as of the close of business on the first
business day of such payroll period, at the closing price on such date; and (ii)
any distributions made to Participant that decrease Participant's Deferral
Account balance ceased being invested in the Measurement Fund(s) and in the
percentages applicable to such payroll period, no earlier than the last day of
the payroll period preceding the date of distribution, at the closing price on
such date. Thereafter, the Measurement Funds that the Participant elects will be
revalued each payroll period, based on the price of the stock of the Company on
that date, the value of the investment funds of the Riviera Hotel & Casino
Employee 401(k) Savings Plan on that date, and the percentages in which the
Participant is invested in each of the Measurement Funds. Notwithstanding any
other provision of this Agreement that may be interpreted to the contrary, the
Measurement Fund(s) are to be used for measurement purposes only, and the
allocation of Participant's Deferral Account to such Measurement Fund(s), the
calculation of additional amounts and the crediting or debiting of such
additional amounts to Participant's Deferral Account shall not be considered or
construed in any manner as an actual investment of Participant's Deferral
9
Account in any such Measurement Fund(s). Notwithstanding any provision of this
subsection to the contrary, to the extent a Participant's Account is not
entirely distributed within three years from the date the Participant separates
from service with the Company for any reason, the Participant's entire vested
Deferral Account shall thereafter be deemed to be invested in a money market
fund designated by the Compensation Committee until such Deferral Account is
fully distributed to the Participant.
3.7 Adjustment of Participants' Deferral Account
As of the last day of each payroll period (each such date, and any other
accounting date as determined by the Compensation Committee in its sole
discretion, is referred to below as an "Accounting Date"), the Compensation
Committee shall:
(a) First, charge to the proper Deferral Accounts all
payments or distributions made since the last
preceding Accounting Date.
(b) Next, credit each Participant's Deferral Account with
amounts deferred on behalf of the Participant made
since the last preceding Accounting Date; and
(c) Next, credit each Participant's Deferral Account with
any Employer Contributions (as defined in subsection
4.1) made on behalf of the Participant since the last
preceding Accounting Date.
3.8 Statement of Account
As soon as practicable after the end of each calendar quarter, the Compensation
Committee shall furnish each Participant with a statement of the value of the
Participant's Account.
3.9 Additional Limitation on Deferral Elections
Notwithstanding anything in this Section to the contrary, the Compensation
Committee may limit a Participant's deferral election if, as a result of any
election, a Participant's compensation from the Employers would be insufficient
to cover taxes and withholding applicable to the Participant.
10
SECTION 4
Employer Contributions
4.1 Amount of Employer Contribution
For each Plan Year, the Employers may cause the Compensation Committee to credit
a Participant's Deferral Account with an amount (the "Employer Contribution")
determined by the Employer in its discretion. Such contribution shall be
allocated based upon such factors as the Employer determines in its discretion.
4.2 Accounting for Employer Contributions
Employer Contributions on behalf of a Participant will be recorded in a separate
subaccount maintained in the Participant's Deferral Account as of the same date
(the "Crediting Date") that the underlying deferral is credited to the
Participant's Deferral Account. Such subaccount will be deemed to be invested in
Company Stock and will be adjusted from time to time in the same manner as
described in subsection 3.7.
4.3 Vesting of Employer Contributions
At all times, a Participant shall be fully vested in his
Employer Contribution.
11
SECTION 5
Distribution of Deferral Accounts
5.1 Distributions Upon Separation From Service
If a Participant separates from service with the Employers, the vested balance
in the Participant's Deferral Account shall be distributed to him on the
Distribution Dates previously elected by the Participant under subparagraph
3.4(a); provided, however, that:
(a) if on any Distribution Date, the accounting steps
described in subsection 3.7 have not been completed,
such distribution will be delayed until the
accounting steps described in subsection 3.7 have
been completed.
(b) the Compensation Committee, in its discretion, may
decide to pay the Participant the remaining balance
in his Deferral Account in a lump sum prior to the
Distribution Dates previously elected by the
Participant.
5.2 Form of Distributions
Amounts deferred under this Plan for each Plan Year (and investment gains and
losses thereon) shall be distributed to the Participant in cash with respect to
the portion that the Participant directed to be tied to the value of the
investment funds of the Riviera Hotel & Casino Employee 401(k) Savings Plan or,
at the Participant's election, either in cash or in stock with respect to the
portion that the Participant directed to be tied to the value of the stock of
the Company. At the time of his deferral election, the Participant shall elect
whether the deferred amounts shall be distributed in a lump sum or installments
over a period not to exceed 3 years. Distribution shall be made to the
Participant or, in the event of his death, to his beneficiary.
5.3 Designation of Beneficiary
A Participant may designate a beneficiary under this Plan by filing a written
notice with the Compensation Committee in such form as the Compensation
Committee requires. A Participant may from time to time change his designated
beneficiary without the consent of such beneficiary by filing a new designation
in writing with the Compensation Committee. If no designation under this Plan is
in effect at the death of the Participant, the beneficiary shall be the
beneficiary designated under the Riviera Hotel & Casino Employee 401(k) Savings
Plan, and if no designation was ever filed under that plan, the beneficiary
shall be the spouse of the Participant at the time of his death or, if no spouse
is living at the death of the Participant, the representative of the
Participant's estate.
5.4 Withholding of Employment Taxes
To the extent required by law in effect at the time distribution is made from
the Plan, the Employers shall withhold any taxes required to be withheld by
Federal, state, or local governments.
12
SECTION 6
Miscellaneous
6.1 No Right to Company Assets
No Participant or other person shall acquire by reason of the Plan any right in
or title to any assets, funds, or property of the Employers whatsoever
including, without limiting the generality of the foregoing, any specific funds,
assets, or other property which the Employers, in their sole discretion, may set
aside in anticipation of a liability hereunder. Any benefits which become
payable hereunder shall be paid from the general assets of the Employers, unless
the Employers decide to fund the Plan. A Participant shall have only a
contractual right to the amounts, if any, payable hereunder to that Participant.
The Employers' obligations under this Plan are not secured or funded in any
manner, even though the Employers may elect to establish a grantor trust to
assist in the payment of benefits. If the Employers do not elect to establish a
grantor trust to assist in the payment of benefits, the Company will provide
notice to Participants of such decision.
6.2 No Employment Rights
Nothing herein shall constitute a contract of continuing service or in any
manner obligate the Company or any of its subsidiaries to continue the
employment of any Participant, or obligate any Participant to continue in the
employment of the Company or any of its subsidiaries, and nothing herein shall
be considered as fixing or regulating the compensation payable to a Participant.
6.3 Facility of Payment
When a person entitled to benefits under the Plan is under legal disability, or,
in Compensation Committee's opinion, is in any way incapacitated so as to be
unable to manage his financial affairs, the Compensation Committee may direct
payment of benefits to such person's legal representative, or to a relative or
friend of such person for such person's benefit, or the Compensation Committee
may direct the application of such benefits for the benefit of such person. Any
payment made in accordance with the preceding sentence shall be a full and
complete discharge of any liability for such payment under the Plan.
6.4 Nonassignability
No Participant or other person shall have any right to commute, sell, assign,
pledge, anticipate, mortgage, or otherwise encumber, transfer, or convey in
advance of actual receipt the amounts, if any, payable hereunder. No amounts
payable hereunder shall, prior to actual payment, be subject to claims of
creditors, seizure, or sequestration for the payment of any debts, judgments,
alimony, domestic relations order, or separate maintenance owed by the
Participant or any other person, or be transferable by operation of law in the
event of the Participant's or any other person's bankruptcy or insolvency.
Notwithstanding the foregoing, if an estate or trust is a beneficiary entitled
to distributions from the Plan upon the death of the Participant, the
representatives of the estate or the trustees of the trust may assign the right
to receive such payments to the persons, estates, or trusts beneficially
entitled thereto, and the Compensation Committee may rely conclusively and
without any liability on the certification.
6.5 Effect on Other Benefits
Except as provided below in this subsection, the Participant's compensation for
purposes of calculating his awards and benefits under any employee benefit plan
or program maintained by the Company shall not be reduced on account of
deferrals under this Plan. However, amounts deferred under this Plan shall not
be included when calculating a Participant's benefits or contributions under any
retirement plan sponsored by the Company which is qualified under Section 401(a)
of the Internal Revenue Code. Any distributions made from this Plan shall be
excluded from a Participant's compensation in years distributed for purposes of
calculating the Participant's awards and benefits under any employee benefit
plan or program (other than this Plan) maintained by the Company.
13
6.6 Independence of Plan
Except as otherwise expressly provided herein, the Plan shall be independent of,
and in addition to, any employment agreement or other plan or rights that may
exist from time to time between an Employer and a Participant in the Plan.
6.7 Responsibility For Legal Effect
No representations or warranties, express or implied, are made by the Employers
or the Compensation Committee and neither the Employers nor the Compensation
Committee assumes any responsibility concerning the legal, tax, or other
implications or effects of the Plan.
6.8 Action by the Company
Any action required or permitted to be taken under the Plan by the Company shall
be by one or more officers designated by the Board of Directors of the Company.
6.9 Successors, Acquisitions, Mergers, Consolidations
The terms and conditions of the Plan shall inure to the benefit of and bind the
Employers, the Participants, their successors, assigns, and personal
representatives.
6.10 Gender and Number
Wherever appropriate herein, the masculine may mean the feminine and the
singular may mean the plural or vice versa.
6.11 Governing Law
This Plan shall be construed and administered according to the laws of the State
of Nevada.
6.12 Claims Procedure
The Compensation Committee will provide notice in writing to any Participant or
beneficiary whose claim for benefits under the Plan is denied, and the
Compensation Committee shall also afford such Participant or beneficiary a full
and fair review of its decision if so requested. The Compensation Committee has
discretionary authority and responsibility to construe and interpret the
provisions of the Plan and make factual determinations thereunder, including the
power to determine the rights or eligibility of employees or Participants and
any other persons, and the amounts of their benefits under the Plan, and to
remedy ambiguities, inconsistencies, or omissions. Each such determination by
the Compensation Committee shall be binding on all parties. Any interpretation
of the provisions of the Plan and any decisions on any matter within the
discretion of the Compensation Committee made in good faith shall be binding on
all persons.
14
SECTION 7
The Compensation Committee
7.1 Compensation Committee's General Powers, Rights, and Duties
Except as otherwise specifically provided and in addition to the powers, rights,
and duties specifically given to the Compensation Committee elsewhere in the
Plan, the Compensation Committee shall have the following discretionary powers,
rights, and duties:
(a) To construe and interpret the provisions of the Plan
and make factual determinations thereunder, including
the power to determine the rights or eligibility of
employees or Participants and any other persons, and
the amounts of their benefits under the Plan, and to
remedy ambiguities, inconsistencies, or omissions,
and such determinations shall be binding on all
parties.
(b) To adopt such rules of procedure and regulations as
in its opinion may be necessary for the proper and
efficient administration of the Plan and as are
consistent with the Plan.
(c) To enforce the Plan in accordance with the terms of
the Plan and the rules and regulations adopted by the
Compensation Committee as above.
(d) To direct any trustee as respects payments or
distributions in accordance with the provisions of
the Plan.
(e) To furnish the Employers with such information as may
be required by them for tax or other purposes in
connection with the Plan.
(f) To employ agents, attorneys, accountants, or other
persons (who also may be employed by the Employers)
and to allocate or delegate to them such powers,
rights, and duties as the Compensation Committee may
consider necessary or advisable to properly carry out
administration of the Plan, provided that such
allocation or delectation and the acceptance thereof
by such agents, attorneys, accountants, or other
persons, shall be in writing.
7.2 Interested Compensation Committee Member
If a member of the Compensation Committee is also a Participant in the Plan, he
may not decide or determine any matter or question concerning distributions of
any kind to be made to him or the nature or mode of settlement of his benefits
15
unless such decision or determination could be made by him under the Plan if he
were not serving on the Compensation Committee.
7.3 Compensation Committee Expenses
All costs, charges, and expenses reasonably incurred by the Compensation
Committee will be paid by the Employers in such proportions as the Company may
direct. No compensation will be paid to a Compensation Committee member as such.
7.4 Information Required by Compensation Committee
Each person entitled to benefits under the Plan shall furnish the Compensation
Committee with such documents, evidence, data, or information as the
Compensation Committee considers necessary or desirable for the purpose of
administering the Plan. The Employers shall furnish the Compensation Committee
with such data and information as the Compensation Committee may deem necessary
or desirable in order to administer the Plan. The records of the Employers as to
a Participant's period of employment, termination of employment and the reason
therefor, leave of absence, reemployment, and earnings will be conclusive on all
persons unless determined to the Compensation Committee's satisfaction to be
incorrect.
7.5 Uniform Rules
The Compensation Committee shall administer the Plan on a reasonable and
nondiscriminatory basis and shall apply uniform rules to all persons similarly
situated.
7.6 Review of Benefit Determinations
As provided in subsection 6.12, The Compensation Committee will provide notice
in writing to any Participant or beneficiary whose claim for benefits under the
Plan is denied and the Compensation Committee shall afford such Participant or
beneficiary a full and fair review of its decision if so requested.
7.7 Compensation Committee's Decision Final, Mistakes
Subject to applicable law, any interpretation of the provisions of the Plan and
any decisions on any matter within the discretion of the Compensation Committee
made by the Compensation Committee in good faith shall be binding on all
persons. A misstatement or other mistake of fact shall be corrected when it
becomes known and the Compensation Committee shall make such adjustment on
account thereof as it considers equitable and practicable.
7.8 Indemnification
To the extent permitted by applicable state law, the Employers shall indemnify
and save harmless the Compensation Committee and each member thereof, and any
delegate of the Compensation Committee who is an employee of an Employer against
any and all expenses, liabilities, and claims including legal fees to defend
against such liabilities and claims arising out of their discharge in good faith
of responsibilities under or incident to the Plan, other than expenses and
liabilities arising out of willful misconduct or gross negligence. This
indemnity shall not preclude such further indemnities as may be available under
insurance purchased by an Employer or provided by an Employer under any bylaw,
agreement, or otherwise, as such indemnities are permitted under state law.
16
SECTION 8
Amendment and Termination
The Company reserves the right, in its sole discretion, to amend,
discontinue, or completely terminate the Plan at any time. If the Plan is
discontinued with respect to future deferrals, Participants' Deferral Account
balances shall be distributed on the Distribution Dates elected in accordance
with subsection 3.4, unless the Compensation Committee designates an earlier
Distribution Date. As of the date designated by the Compensation Committee
following the date of complete termination of the Plan, each Participant shall
receive a distribution of his entire Deferral Account balance as if his elected
Distribution Dates had occurred. The Plan may be amended or terminated by a
written instrument executed by the Company, provided that an amendment or
termination of the Plan may not reduce the balance in a Participant's Deferral
Account as of the date the amendment is adopted.
17
Exhibit 10.42
RIVIERA HOLDINGS CORPORATION
RESTRICTED STOCK PLAN
1. Purpose. The Riviera Holdings Corporation ("RHC")
Restricted Stock Plan (the "Plan") is intended to provide incentives which will
attract and retain highly competent persons as officers and key employees of
Riviera Operating Corporation ("ROC") (collectively the "Company") by providing
them opportunities to receive restricted shares of the Company's Common Stock,
par value $.001 per share ("Common Stock"), or to receive payments based on the
increase in value of the Company's Common Stock, pursuant to the Awards
described herein.
2. Participants. Participants will consist of such officers
and key employees of the Company as the Compensation Committee of the Board of
Directors of the Company (the "Compensation Committee") determines in its sole
discretion to be significantly responsible for the success and future growth and
profitability of the Company. Designation of a participant in any year shall not
require the Company or the Compensation Committee to designate such person to
receive an Award in any other year or, once designated, to receive the same type
or amount of Awards as granted to the participant or any other participant in
any year. The Company shall consider such factors as it deems pertinent in
selecting participants and in determining the amount, type and terms and
conditions of their respective Awards.
3. Types of Awards. Awards under the Plan may be granted as
either (i) restricted stock awards or (ii) phantom stock awards, each as
described below (collectively, "Awards"). Each Award shall be made pursuant to a
written agreement between the Company and the Award recipient (the "Award
Agreement").
4. Shares Reserved under the Plan. There is hereby reserved
for issuance, as Awards of restricted stock under the Plan and Awards of phantom
stock under the Plan, an aggregate of Two Hundred Thousand (200,000) shares of
Common Stock, which may be (or in the case of the phantom awards, may represent)
treasury or authorized but unissued shares, and which represent five percent
(5.0 %) of the issued and outstanding shares of stock of the Company on a fully
diluted basis. If there is a lapse, cancellation, expiration, termination or
forfeiture of any Award, or if shares are issued under an Award and thereafter
are reacquired by the Company pursuant to rights reserved by the Company upon
issuance of such shares, the shares subject to such Award may thereafter be
subjected to new Awards under this Plan.
5. Restricted Stock Awards. Awards of "Restricted Stock" will
consist of Common Stock transferred to participants without other payment
therefor as additional compensation for services rendered or to be rendered to
the Company. Awards of Restricted Stock shall be subject to such terms and
conditions as the Company determines to be appropriate at the time of grant,
including, without limitation, restrictions on the sale or other disposition of
such shares and provisions for the forfeiture of such shares for no
consideration upon termination of the participant's employment within specified
periods or under certain conditions.
6. Phantom Stock Awards. Awards of "Phantom Stock" will
consist of Awards that will entitle the holder to receive the appreciation in
the Fair Market Value of the shares of Common Stock subject thereto up to a
specified date or dates. Payment of such appreciation shall be made in cash or
in shares of Common Stock, or a combination thereof, as set forth in the Award.
Each Award of Phantom Stock shall be subject to such terms and conditions as the
Company determines to be appropriate at the time of grant.
7. Shareholder Rights. The recipient of an Award of Restricted
Stock or Phantom Stock shall not be deemed for any purpose to be a stockholder
of the Company with respect to any of the shares subject thereto, except to the
extent that a certificate shall have been issued and delivered to the
participant.
8. Adjustment Provisions. If the Company shall at any time
change the number of issued shares of Common Stock without new consideration to
the Company (such as by stock dividend, stock split, recapitalization,
18
reorganization, exchange of shares, or other change in corporate structure
affecting the Common Stock), the total number of shares reserved for Awards
under this Plan shall be appropriately adjusted. The Company may provide for
equitable adjustments in the terms of any Awards granted hereunder after changes
in any common stock of the Company resulting from any merger, consolidation,
sale of assets, acquisition of property or stock, recapitalization,
reorganization or similar occurrence upon such terms and conditions as it may,
in its sole discretion, deem equitable and appropriate; provided, however, that
any such adjustment shall not cause the number of shares reserved for Awards
under the Plan to exceed ten percent (10%) of the issued and outstanding shares
of the stock of the Company on a fully diluted basis.
9. Nontransferability. Each Award granted under the Plan to
a participant shall, unless otherwise set forth in the Award Agreement, not be
transferable otherwise than by will or the laws of descent and distribution.
10. Other Provisions. Awards under the Plan may also be
subject to such other provisions (whether or not applicable to the Award granted
to any other participant) as the Company or the Compensation Committee
determines appropriate.
11. Fair Market Value. Except as otherwise expressly provided
in an Award Agreement, for purposes of this Plan and any Awards hereunder, the
"Fair Market Value" of a share of Common Stock shall mean (i) prior to the date
of the registration of the Common Stock under the Securities Act of 1933 and of
becoming readily tradable on a national securities exchange ("Readily
Tradable"), the amount equal to the price of a share of the Company's Common
Stock as reflected by the most recently preceding valuation of the shares of
Common Stock under the Company's Employee Stock Ownership Plan, after adjusting
for a non-marketability and minority interest discount; if applicable, and (ii)
on or after the date that the Common Stock is Readily Tradable, the closing
price of the Common Stock on the relevant date, as reported on the national
securities exchange.
12. Tenure. A participant's right, if any, to continue to
serve the Company as an officer, employee, or otherwise, shall not be enlarged
or otherwise affected by his or her designation as a participant under the Plan,
nor shall this Plan in any way interfere with the right of the Company, subject
to the terms of any separate employment agreement to the contrary, at any time
to terminate such employment or to increase or decrease the compensation of the
participant from the rate in existence at the time of the grant of an Award.
13. Administration. The Plan will be administered by the
Company, which shall act through its Board of Directors or the Compensation
Committee. The Board of Directors is authorized, subject to the provisions of
the Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan, any Awards
granted hereunder, or any related agreements, as it deems necessary or
advisable. All determinations and interpretations made by the Board of Directors
or the Compensation Committee shall be binding and conclusive on all
participants and their legal representatives. No member of the Board of
Directors or the Compensation Committee, and no employee of the Company shall be
liable for any act or failure to act hereunder, by any other member or employee
or by any agent to whom duties in connection with the administration of this
Plan have been delegated or, except in circumstances involving his or her bad
faith, gross negligence or fraud, for any act or failure to act by such member
of the Board of Directors or Compensation Committee or employee.
14. Amendment and Termination. The Board of Directors may
amend the Plan from time to time or terminate the Plan at any time. However, no
action authorized by this paragraph shall change the terms and conditions of any
existing Award without the participant's consent.
15. Governing Law. This Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
State of Nevada (regardless of the law that might otherwise govern under
applicable Nevada principles of conflict of laws).
16. Approval. The Plan was adopted by the Board of
Directors of the Company on October 2, 2000.
19
CERTIFICATE OF ADOPTION
I, Tullio J. Marchionne, Secretary of RIVIERA HOLDINGS CORPORATION (the
"Company"), hereby certifies that the Company adopted the RIVIERA HOLDINGS
CORPORATION RESTRICTED STOCK PLAN in the form attached hereto, effective as of
October 1, 2000. Dated this ______ day of ______, 2001.
RIVIERA HOLDINGS CORPORATION
By_________________________________
Secretary
ATTEST:
- ---------------------------------
20
RIVIERA HOLDINGS CORPORATION
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 2000 and 1999 F-2
Statements of Operations for the Years Ended December 31, 2000, 1999, and 1998 F-3
Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999, and 1998 F-5
Statements of Cash Flows for the Years Ended December 31, 2000, 1999, and 1998 F-6
Notes to Consolidated Financial Statements F-8
INDEPENDENT AUDITORS' REPORT
Riviera Holdings Corporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Riviera Holdings
Corporation and subsidiaries (the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2000
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Las Vegas, Nevada
February 14, 2001
F-1
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999 (In Thousands, Except Share Amounts)
- ------------------------------------------------------------------------------------------------------------------------
ASSETS 2000 1999
CURRENT ASSETS:
Cash and cash equivalents $ 52,174 $ 42,804
Cash and cash equivalents, restricted 7,173
Short-term investments 5,258
Short-term investments, restricted 7,887
Accounts receivable, net 5,548 5,042
Inventories 3,342 3,432
Prepaid expenses and other assets 4,599 3,989
Total current assets 65,663 75,585
PROPERTY AND EQUIPMENT, Net 207,030 202,659
OTHER ASSETS, Net 8,128 10,391
DEFERRED INCOME TAXES, Net 2,889 355
TOTAL $ 283,710 $ 288,990
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,871 $ 1,274
Accounts payable 9,731 11,498
Accrued interest 7,727 7,539
Accrued expenses 16,731 11,949
Total current liabilities 37,060 32,260
OTHER LONG-TERM LIABILITIES 6,533 5,286
LONG-TERM DEBT, Net of current portion 223,172 223,766
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS EQUITY:
Common stock ($.001 par value; 20,000,000 shares authorized;
5,106,776 shares issued at December 31, 2000 and 1999, respectively) 5 5
Additional paid-in capital 13,446 13,446
Treasury stock (1,431,648 and 583,755 shares at December 31, 2000 and 1999,
respectively) (9,633) (3,115)
Retained earnings 13,127 17,342
Total stockholders equity 16,945 27,678
TOTAL $ 283,710 $ 288,990
See notes to consolidated financial statements.
F-2
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (In Thousands)
- ------------------------------------------------------------------------------------------------------------------
2000 1999 1998
REVENUES:
Casino $ 112,949 $ 74,086 $ 77,676
Rooms 43,819 39,899 39,607
Food and beverage 30,756 25,117 23,940
Entertainment 24,526 20,994 21,543
Other 10,538 11,713 11,155
Total revenues 222,588 171,809 173,921
Less promotional allowances 15,801 13,636 13,966
Net revenues 206,787 158,173 159,955
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino 62,903 43,211 45,293
Rooms 23,364 21,909 20,859
Food and beverage 21,432 18,307 17,539
Entertainment 18,959 16,271 16,861
Other 3,146 3,228 3,308
Other operating expenses:
General and administrative 41,055 29,568 27,028
Preopening expenses - Black Hawk, Colorado project 1,222 595
Corporate expenses - severance pay 551
Depreciation and amortization 17,827 13,991 12,137
Total costs and expenses 189,908 147,080 143,576
INCOME FROM OPERATIONS 16,879 11,093 16,379
OTHER (EXPENSE) INCOME:
Interest expense on $100 million notes (4,642)
Interest income on U.S. Treasury bills held to retire
$100 million notes 2,334
Interest expense - other (27,805) (23,448) (19,545)
Interest income - other 2,429 2,255 2,440
Interest capitalized 616 4,733 2,679
Other, net 1,171 (1,963) (1,229)
Total other expense (23,589) (18,423) (17,963)
LOSS BEFORE BENEFIT FOR INCOME TAXES
AND EXTRAORDINARY ITEM (6,710) (7,330) (1,584)
BENEFIT FOR INCOME TAXES (2,495) (4,461) (533)
LOSS BEFORE EXTRAORDINARY ITEM (4,215) (2,869) (1,051)
EXTRAORDINARY ITEM (net of income tax of $1.6 million) (3,006)
NET LOSS $ (4,215) $ (2,869) $ (4,057)
See notes to consolidated financial statements.
F-3
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(In Thousands, Except Share Amounts)
- ------------------------------------------------------------------------------------------------------------------
2000 1999 1998
EARNINGS PER SHARE DATA:
Loss per share before extraordinary item:
Basic $(1.05) $(0.58) $(0.21)
Diluted $(1.05) $(0.58) $(0.21)
Earnings (loss) per share for extraordinary item:
Basic $ - $ - $(0.60)
Diluted $ - $ - $(0.60)
Loss per share:
Basic $(1.05) $(0.58) $(0.81)
Diluted $(1.05) $(0.58) $(0.81)
Weighted-average common shares outstanding 4,013 4,978 5,037
Weighted-average common and common
equivalent shares 4,013 4,978 5,037
See notes to consolidated financial statements.
F-4
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (In Thousands, Except Share Amounts)
Notes
Receivable
Additional from
Common Stock Paid-in Retained Treasury Stock Employee
Shares Amount Capital Earnings Shares Amount Shareholders Total
BALANCE, JANUARY 1, 1998 4,903,680 $ 5 $ 13,711 $ 24,268 $(207) $ 37,777
Stock issued under executive option plan 269,096 480 480
Collections and refunds of stockholder receivables,
net (530) (530)
Purchase of treasury stock (34,300) $ (167) (167)
Refunds on employee stock purchases (65,100) (734) 734
Net loss (4,057) (4,057)
BALANCE, DECEMBER 31, 1998 5,107,676 5 13,457 20,211 (34,300) (167) (3) 33,503
Refunds on employee stock purchases (900) (11) 3 (8)
Purchase of treasury stock (549,455) (2,948) (2,948)
Net loss (2,869) (2,869)
BALANCE, DECEMBER 31, 1999 5,106,776 5 13,446 17,342 (583,755) (3,115) 27,678
Purchase of treasury stock (847,893) (6,518) (6,518)
Net loss (4,215) (4,215)
BALANCE, DECEMBER 31, 2000 5,106,776 $ 5 $ 13,446 $ 13,127 (1,431,648)$(9,633) $ $ 16,945
See notes to consolidated financial statements.
F-5
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (In Thousands)
- ----------------------------------------------------------------------------------------------------------
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,215) $ (2,869) $ (4,057)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on sale of equipment (55)
Depreciation and amortization 17,827 13,991 12,137
Provision for bad debts 326 297 782
Provision for gaming discounts 45 (76)
Extraordinary item, call premium to retire $100 million notes 4,624
Interest income on U.S. Treasury bills to retire $100 million notes (2,334)
Interest expense, $100 million notes 4,642
Interest paid on $100 million notes (4,614)
Interest expense - other 27,805 23,448 19,545
Interest paid - other (24,410) (20,132) (17,688)
Interest capitalized on construction projects (616) (4,733) (2,679)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net (877) 50 (1,157)
(Increase) decrease in inventories 90 (705) 782
(Increase) decrease in prepaid expenses and other assets (607) 39 526
Decrease in accounts payable (2,071) (884) (774)
Increase in accrued expenses 7,348 1,896 1,258
Decrease in deferred income taxes payable (3,478) (2,835)
Increase in deferred tax asset (2,534)
Decrease in slot annuities payable (3) (55) (153)
Increase (decrease) in non-qualified pension plan obligation to CEO upon 1,247 (61) 600
retirement.
Net cash provided by operating activities 19,355 6,749 8,529
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (24,434) (39,026) (31,274)
Interest capitalized on construction projects 616 4,733 2,679
Decrease (increase) in short-term investments 5,258 (5,258)
Decrease (increase) restricted funds 15,060 (15,060) (27)
Sale of equipment 174
Increase in other assets (661) (3,558) (208)
Net cash used in investing activities (4,161) (57,995) (28,830)
See notes to consolidated financial statements.
(Continued)
F-6
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (In Thousands)
- ------------------------------------------------------------------------------------------------------------
2000 1999 1998
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings $ 9,552 $ 48,764
U.S. Treasury bills sold (purchased) to retire $100 million notes $ 108,930
Payments to retire $100 million notes with call premium (104,313)
Payments on long-term borrowings (2,299) (641) (364)
Purchase of treasury stock (6,518) (2,948) (167)
Purchase of 13% Mortgage Notes - Black Hawk (6,559)
Net collections, cancellations of employee stock purchase plan, and exercise of
employee stock options (8) (53)
Net cash (used in) provided by financing activities (5,824) 45,167 4,033
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,370 (6,079) (16,268)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 42,804 48,883 65,151
CASH AND CASH EQUIVALENTS, END OF YEAR $ 52,174 $ 42,804 $ 48,883
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Income taxes paid, State of Colorado $ 110
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Property acquired with accounts payable, Las Vegas, Nevada $ 984
Property acquired with accounts payable, Black Hawk, Colorado $ 304 $ 2,566 $ 1,203
Property acquired with debt, Las Vegas, Nevada $ 1,614
Property acquired with debt, Black Hawk, Colorado $ 126 $ 687
See notes to consolidated financial statements.
(Concluded)
F-7
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Nature of Operations - Riviera
Holdings Corporation and its wholly owned subsidiary, Riviera
Operating Corporation ("ROC") (together, the "Company"), 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 August 1995, Riviera Gaming Management, Inc. ("RGM")
incorporated in the State of Nevada as a wholly owned subsidiary
of ROC for the purpose of obtaining management contracts in
Nevada and other jurisdictions.
The primary line of business of the Company is the
operation of the Riviera Hotel & Casino (the "Riviera Las
Vegas") on the Strip in Las Vegas, Nevada. The Company, through
its gaming management subsidiary, also managed the Four Queens
Hotel and Casino (owned by Elsinore Corporation) in downtown Las
Vegas through December 1999 (see Note 13). RGM also provided
services to Peninsula Gaming Partners LLC through September 2000
with respect to that company's riverboat, Diamond Jo, operating
in Dubuque, Iowa.
In February 2000, the Company opened its casino in Black
Hawk, Colorado, which is owned through Riviera Black Hawk, Inc.
("RBH"), a wholly owned subsidiary of ROC. Riviera Gaming
Management of Colorado, Inc. is a wholly owned subsidiary of
RGM, and manages the Black Hawk casino.
Casino operations are subject to extensive regulation in
the states of Nevada and Colorado by the respective Gaming
Control Boards and various other state and local regulatory
agencies. Management believes that the Company's procedures for
supervising casino operations, recording casino and other
revenues, and 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
subsidiaries, ROC and RGM, and their related subsidiary
entities. All material intercompany accounts and transactions
have been eliminated.
Cash and Cash Equivalents - All highly liquid investment
securities with a maturity of three months or less when acquired
are considered to be cash equivalents. The Company accounts for
investment securities in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
The Company's investment securities, along with certain
cash and cash equivalents that are not deemed securities under
SFAS No. 115, are carried on the consolidated balance sheets in
the cash and cash equivalents category. SFAS No. 115 addresses
the accounting and reporting for investments in equity
securities that have readily determinable fair values and for
all investments in debt securities, and requires such securities
to be classified as either held to maturity, trading, or
available for sale.
F-8
Management determines the appropriate classification of
its investment securities at the time of purchase, including the
determination as to restricted versus nonrestricted assets, and
re-evaluates such determination at each balance sheet date.
Held-to-maturity securities are required to be carried at
amortized cost. At December 31, 2000 and 1999, securities
classified as held to maturity comprised debt securities issued
by the U.S. Treasury and other U.S. government corporations and
agencies, and repurchase agreements, with an amortized cost of
$28,649,387 and $26,891,000, respectively, maturing in three
months or less.
Inventories - Inventories consist primarily of food,
beverage, gift shop, and promotional inventories, and are stated
at the lower of cost (determined on a first-in, first-out basis)
or market.
Property and Equipment - Property and equipment are
stated at cost, and capitalized lease assets are stated at the
present value of future minimum lease payments at the date of
lease inception. Interest incurred during construction of new
facilities or major additions to facilities is capitalized and
amortized over the life of the asset. Depreciation is computed
by the straight-line method over the shorter of the estimated
useful lives or lease terms, if applicable, of the related
assets, which range from 5 years for certain gaming equipment to
40 years for buildings. The costs of normal maintenance and
repairs are charged to expense as incurred. Gains or losses on
disposals are recognized as incurred.
The Company periodically assesses the recoverability of
property and equipment and evaluates such assets for impairment
whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. Asset impairment is
determined to exist if estimated future cash flows, undiscounted
and without interest charges, are less than the carrying amount.
Other Assets - Other assets include bond offering costs
and commissions, which are amortized over the life of the debt.
Such amortized costs are included in interest expense.
Restricted Cash and Short-Term Investments - 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.
Stock-Based Compensation - The effect of stock options in
the income statement is reported in accordance with Accounting
Principles Board Statement No. 25, "Accounting for Stock Issued
to Employees." The Company has adopted the disclosures-only
provision of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been
recognized for unissued stock options in the stock option plan
(see Note 15).
Fair Value Disclosure as of December 31, 2000 and 1999:
Cash and Cash Equivalents, Short-term Investments
(including restricted), Accounts Receivable, Accounts Payable,
and Accrued Expenses - The carrying value of these items is a
reasonable estimate of their fair value.
Long-Term Debt - The fair value of the Company's
long-term debt is estimated based on the quoted market prices for
the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities. Based on the
borrowing rates currently available to the Company for debt with
similar terms and average maturities, the estimated fair value of
long-term debt outstanding is approximately $202,628,000 and
$209,061,000 in 2000 and 1999, respectively.
F-9
Revenue Recognition:
Casino Revenue - The Company recognizes, as gross
revenue, the net win from gaming activities, which is the difference
between gaming wins and losses.
Room Revenue, Food and Beverage Revenue, Entertainment
Revenue, and Other Revenue - The Company recognizes room, food and
beverage, entertainment revenue, and other revenue at the time that
goods or services are provided
Preopening Costs - The Company recognizes preopening costs when incurred.
Promotional Allowances - Promotional allowances consist primarily of
accommodations, entertainment, and food and beverage services
furnished without charge to customers. The retail value of such
services is included in the respective revenue classifications
and is then deducted as promotional allowances.
The estimated costs of providing promotional allowances
are classified as costs of the casino operating departments
through interdepartmental allocations. These allocations for the
years ended December 31, 2000, 1999, and 1998 are as follows
(amounts in thousands):
2000 1999 1998
Food and beverage $ 9,007 $6,266 $6,271
Rooms 1,297 1,676 1,698
Entertainment 1,319 1,312 1,518
Total costs allocated to casino departments $11,623 $9,254 $9,487
Federal Income Taxes - The Company and its subsidiaries
file a consolidated federal tax return. The Company accounts for
income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or
tax returns. Deferred income taxes reflect the net tax effects
of: (i) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes; and (ii) operating loss
and tax credit carryforwards.
Estimates and Assumptions - The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America 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, realizability of deferred tax
assets and liabilities, and the estimated allowances for
receivables. Actual results may differ from estimates.
Recently Adopted Accounting Standards - In December 1999,
the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 clarifies existing accounting principles
related to revenue recognition in financial statements. The
Company was required to adopt SAB 101 in its quarter ended
December 31, 2000. The adoption of SAB 101 had no impact on the
Company's results of operations.
In March 2000, the Financial Accounting Standards Board
of the AICPA issued FASB Interpretation 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"),
which provides clarification on the application of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and is effective for the Company's year ended
December 31, 2000. The adoption of FIN 44 had no impact on the
Company's results of operations.
F-10
Recently Issued Accounting Standards - The Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivatives," which is effective for fiscal years beginning
after June 15, 2000. This statement defines derivatives and
requires qualitative disclosure of certain financial and
descriptive information about a company's derivatives. The
Company will adopt SFAS No. 133 in the first fiscal quarter of
the year ending December 31, 2001. Management finalized its
analysis of this SFAS and concluded that adoption will have no
impact on the Company's consolidated financial statements.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31 (in thousands):
2000 1999
Casino $ 2,066 $ 2,405
Hotel 4,812 4,248
Total 6,878 6,653
Allowance for bad debts and discounts (1,330) (1,611)
Ending balance $ 5,548 $ 5,042
Changes in the casino and hotel allowance for bad debts and discounts for the
years ended December 31, 2000, 1999, and 1998 consist of the following
(in thousands):
2000 1999 1998
Beginning balance $ 1,611 $1,314 $ 546
Write-offs (220) (872) (391)
Recoveries 29 107 81
Provision for bad debts (135) 1,062 1,154
Provision for gaming discounts 45 (76)
Ending balance $ 1,330 $1,611 $1,314
F-11
3. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following at December 31 (in thousands):
2000 1999
Prepaid gaming taxes $ 1,440 $ 800
Prepaid insurance 749 560
Other prepaid expenses 2,410 2,629
Total $ 4,599 $ 3,989
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in thousands):
2000 1999
Land and improvements $ 37,718 $ 37,701
Buildings and improvements 142,115 98,363
Equipment, furniture, and fixtures 104,361 85,027
Construction in progress, primarily in Black Hawk, Colorado 40,931
Total property and equipment 284,194 262,022
Accumulated depreciation (77,164) (59,363)
Net property and equipment $207,030 $202,659
In 2000, 1999 and 1998, approximately $616,000,
$4,733,000 and $2,679,000, respectively, in interest costs were
capitalized on construction projects. Substantially all of the
Company's property and equipment is pledged as collateral to
secure debt (see Note 8). Repairs and maintenance that do not
significantly improve the life of fixed assets are expensed as
incurred. Costs for significant improvements that extend the
expected life of fixed assets more than one year are capitalized
and depreciated over the remaining extended life, using a
straight-line method of depreciation.
5. OTHER ASSETS
Other assets consist of the following at December 31 (in thousands):
2000 1999
Deposits $ 152 $ 292
Bond offering costs and commissions, net of accumulated amortization
of $5,187 and $3,017, respectively 6,585 8,716
Other 1,391 1,383
Total $8,128 $10,391
F-12
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable consist of the following at December 31 (in thousands):
2000 1999
Outstanding chip and token liability $ 563 $ 665
Slot club liabilities 1,115 595
Progressive liabilities 152 272
Casino account deposits 124 108
Miscellaneous gaming 309 8
Total liabilities related to gaming activities 2,263 1,648
Accounts payable to vendors 5,196 5,394
Hotel deposits 1,189 1,637
Construction payables 304 2,566
Other 779 253
Total $9,731 $11,498
Accrued expenses consist of the following at December 31 (in thousands):
2000 1999
Payroll, related payroll taxes, and employee benefits $ 7,999 $ 6,253
Incentive, retention, and profit-sharing plans 4,831 3,687
Other 3,901 2,009
Total $16,731 $11,949
7. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the nonqualified
pension plan obligation to the CEO of the Company, payable upon
expiration of his employment contract including accrued interest
and totaling $6,533,000 and $5,286,000 at December 31, 2000 and
1999, respectively.
F-13
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
2000 1999
10% First Mortgage Notes maturing on August 15, 2004, bearing
interest, payable semiannually on February 15 and August 15 of
each year, redeemable beginning August 1, 2001 at 105%; 2002
at 102.5%; and 2003 and thereafter at 100%. These notes are
collateralized by the land and physical structures comprising the
Riviera Hotel and Casino $173,885 $173,579
13% First Mortgage Notes maturing on June 3, 2005, bearing
interest, payable semiannually on November 3 and June 3
of each year; redeemable beginning May 1, 2002 at 106.5%;
2003 at 103.25%; and after 2004 at 100%. These notes are
collateralized by the land and physical structures comprising the
Riviera Black Hawk Casino 38,441 45,000
5.6% to 9% Notes collateralized by equipment and vehicles, payable
monthly, including interest, maturing through October 2004 3,227 3,962
Capitalized lease obligations (see Note 9) 9,887 1,715
5.5% Special Improvement District Bonds - issued by the City of
Black Hawk, Black Hawk, Colorado, interest and principal
payable monthly over 10 years beginning in 2000 603 784
Total long-term debt 226,043 225,040
Current maturities by terms of debt (2,871) (1,274)
Total $223,172 $223,766
Maturities of long-term debt for the years ending December 31 are as follows (in thousands):
2001 $ 2,871
2002 3,125
2003 3,400
2004 177,229
2005 39,197
Thereafter 221
Total $226,043
In February 1997, the Company entered into a $15.0
million, five-year reducing revolving line of credit (the
"Credit Facility"). The Credit Facility bears interest at prime
plus 0.5 percent or the London Interbank Offered Rate ("LIBOR")
plus 2.9 percent. The Company has not utilized this line of
credit. The Credit Facility was modified as a result of the 10%
First Mortgage Notes (the "10% Notes"). The modifications
included an increase in the ratio of the allowable funded debt
to earnings before interest, taxes, depreciation, and
amortization ("EBITDA") to 4.75 to one. The Company is not
currently meeting this requirement and, therefore, cannot draw
down on the Credit Facility at this time. The Credit Facility is
callable upon a change in control.
On August 13, 1997, the Company issued 10% Notes with a
principal amount of $175 million dollars. The 10% Notes were
issued at a discount in the amount of $2.2 million. The discount
is being amortitized over the life of the notes on a straight-
line basis, which approximates the effective interest method.
The 10%
F-14
Note Indenture contains certain covenants that limit the ability
of the Company and its restricted subsidiaries, subject to
certain exceptions, to: (i) incur additional indebtedness; (ii)
pay dividends or other distributions and repurchase capital
stock or other equity interests or subordinated indebtedness;
(iii) enter into certain transactions with affiliates; (iv)
create certain liens; (v) sell certain assets; and (vi) enter
into certain mergers and consolidations. At December 31, 2000,
the Company believes that it is in compliance with such
covenants. A portion of the proceeds from the 10% Notes totaling
$4.5 million was paid to a bank to retire certain long-term
debt. As described in Note 10, a portion of the proceeds was
invested in U.S. Treasury notes to pay the 11% $100 million
notes. The Company has registered securities identical to the
10% Notes, under the Securities Act of 1933, as amended. On
January 8, 1998, the Company completed an exchange offer for
such registered securities for the 10% Notes effective January
1, 1998.
The 10% Notes are unconditionally guaranteed by all
existing and future restricted subsidiaries of the Company,
which will not initially include RBH. RBH will become collateral
for the 10% Notes if certain consolidated operating ratios are
met. As of December 31, 2000, RBH operations as defined in the
notes to consolidated financial statements did not trigger this
event.
On June 3, 1999, RBH completed a $45 million private
placement of 13% First Mortgage Notes. The net proceeds of the
placement were used to fund the completion of RBH's casino
project in Black Hawk, Colorado. Riviera Holdings Corporation
has not guaranteed the $45 million RBH notes, but has agreed to
a "Keep Well Agreement" of $5 million per year (or an aggregate
limited to $10 million) for the first three 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 $9.0 million per year. RBH has registered
securities identical to the 13% Notes under the Securities Act
of 1933, as amended. On January 4, 2000, RBH completed an
exchange offer for such registered securities.
The notes were issued at a cost in the amount of $3.5
million. The deferred financing cost is being amortized over the
life of the notes on a straight-lines basis, which approximates
the effective interest method.
The 13% First Mortgage Note Indenture provides that, in
certain circumstances, RBH must offer to repurchase the 13%
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, RBH would be unable to pay the
principal amount of the 13% Notes without a refinancing.
The 13% First Mortgage Note Indenture contains certain
covenants, which limit the ability of RBH and its restricted
subsidiaries, subject to certain exceptions, to: (i) incur
additional indebtedness; (ii) pay dividends or other
distributions and repurchase capital stock or other equity
interests or subordinated indebtedness; (iii) enter into certain
transactions with affiliates; (iv) create certain liens and sell
certain assets; and (v) enter into certain mergers and
consolidations. As a result of these restrictions, the ability
of the Company 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 would be required to curtail or
defer certain of their capital expenditure programs under these
circumstances, which could have an adverse effect on RBH's
operations. At December 31, 2000, RBH believes that it is in
compliance with the covenants.
The Company has credit facilities totaling $1,600,000 for
letters of credit issued periodically to foreign vendors for
purchases of merchandise. The letters require payment upon
presentation of a valid voucher.
The 5.5% Special Improvement District Bonds were issued
by the City of Black Hawk, Colorado, in July 1998 for
$2,940,000. The proceeds were used for road improvements and
other infrastructure projects benefiting the Riviera Black Hawk
Casino and another nearby casino. The projects were completed in
2000 at a cost of $2,240,000, including interest and reserves.
The excess proceeds have been returned to the bondholders by the
City of Black Hawk, Colorado. RBH is responsible for 50 percent
of the debt payable over 10 years beginning in 2000.
F-15
9. GUARANTOR INFORMATION
The Companys 10.0% First Mortgage Notes (see Note 8) are guaranteed by a
majority of the Companys wholly owned existing significant subsidiaries. These
guaranties are full, unconditional, and joint and several. The following
consolidating schedules present separate condensed financial statement
information on a combined basis for the parent only, as well as the Companys
guarantor subsidiaries and non-guarantor subsidiaries, as of and for the year
ended December 31, 2000. As of December 31, 1999 and 1998, RBH had no operations
as defined in the notes to consolidated financial statements. At December 31,
1999, RBH had total assets of approximately $72.8 million, which represent
primarily cash and restricted cash and investments, other assets, the cost of
the land for the Black Hawk Casino project, and construction in progress.
Therefore, the Company has not included separate financial information for the
guarantors as of December 31, 1999.
The management fee to Riviera Holdings Corporation from guarantors represents
cost to the Company of depreciation and interest expense on the 10% First
Mortgage Notes.
F-16
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION AS OF DECEMBER 31, 2000
Combined
Parent Only Combined Non - Elimination Combined
Guarantors Guarantors entries totals
----------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,957 $ 32,473 $ 7,744 $ - $52,174
Current Assets 12,489 1,000 13,489
----------------------------------------------------------------
Total current assets 11,957 44,962 8,744 65,663
PROPERTY AND EQUIPMENT, NET 135,542 2,983 68,505 207,030
OTHER ASSETS, NET 6,043 2,085 8,128
INVESTMENT IN SUBSIDIARIES 49,893 29,713 (79,606) (1)
DEFERRED INCOME TAXES 764 2,125 2,889
----------------------------------------------------------------
TOTAL 197,392 84,465 81,459 (79,606) 283,710
================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 1,101 1,770 2,871
Due to parent company 29,713 (29,713)(1)
Accounts payable 6,565 3,166 9,731
Accrued interest 6,563 2 1,162 7,727
Accrued expenses Other 13,440 3,291 16,731
----------------------------------------------------------------
Total current liabilities 6,563 50,821 9,389 (29,713)(1) 37,060
----------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 6,533 6,533
----------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 173,885 3,510 45,777 223,172
----------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock 5 0 5
Additional paid-in capital 13,447 20,179 29,713 (49,893) (1) 13,446
Treasury stock (9,633) 0 (9,633)
Retained earnings 13,125 3,422 (3,420) 13,127
----------------------------------------------------------------
Total stockholders' equity 16,944 23,601 26,293 (49,893) 16,945
----------------------------------------------------------------
TOTAL $197,392 $84,465 $81,459 $(79,606) $283,710
Elimination entries ================================================================
(1) To eliminate investment in and advances to subsidiaries
F-17
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS INFORMATION AS OF DECEMBER 31, 2000
Combined
Parent Combined Non - Elimination
only Guarantors Guarantors Entries Total 2000
REVENUES:
Casino $ 74,861 $ 38,088 $ 112,949
Rooms 43,819 43,819
Food and beverage 26,738 4,018 30,756
Entertainment 24,526 - 24,526
Other 9,607 374 $ 557 10,538
Management fee $19,850 557 (20,407)(1)
-----------------------------------------------------------------
Total revenues 19,850 180,108 42,480 (19,850) 222,588
Less promotional allowances 13,034 2,767 15,801
-----------------------------------------------------------------
Net revenues 19,850 167,074 39,713 (19,850) 206,787
-----------------------------------------------------------------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments
Casino 40,968 21,935 62,903
Rooms 23,364 - 23,364
Food and beverage 19,773 1,659 21,432
Entertainment 18,954 5 18,959
Other 3,144 2 3,146
Other operating expenses:
General and administrative 31,540 9,515 41,055
Management fees 19,293 557 (19,850)(1)
Preopening expenses Black Hawk, Colorado Project - 1,222 1,222
Depreciation and amortization 1,800 13,090 2,937 17,827
-----------------------------------------------------------------
Total costs and expenses 1,800 170,126 37,832 (19,850) 189,908
-----------------------------------------------------------------
INCOME FROM OPERATIONS 18,050 (3,052) 1,881 - 16,879
-----------------------------------------------------------------
OTHER (EXPENSE) INCOME
Interest expense (18,550) (1,568) (7,687) (27,805)
Interest income 500 1,611 318 2,429
Interest capitalized 39 577 616
Other, net 1,171 - 1,171
-----------------------------------------------------------------
Total other expense (18,050) 1,253 (6,792) - (23,589)
-----------------------------------------------------------------
LOSS BEFORE INCOME TAX BENEFIT - (1,799) (4,911) - (6,710)
BENEFIT FOR INCOME TAXES 530 1,965 2,495
-----------------------------------------------------------------
NET LOSS $ - $ (1,269) $(2,946) $ - $ (4,215)
=================================================================
Elimination Entries
(1) To eliminate intercompany revenue and expense.
F-18
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS INFORMATION AS OF DECEMBER 31, 2000
Parent only Combined Combined Non - Elimination
Guarantors Guarantors Entries Combined total
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss - $ (1,269) $ (2,946) $ (4,215)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,800 11,711 4,316 17,827
Provision for bad debts 326 326
Provision for gaming discounts 45 45
Interest expense - other 18,550 9,255 27,805
Interest paid - other (17,500) (6,910) (24,410)
Interest capitalized on construction
projects (616) (616)
Changes in operating assets and
liabilities:
(Increase) in accounts
receivable, net (877) (877)
Decrease in inventories 90 90
(Increase) decrease in prepaid expenses
and other assets (837) 230 (607)
Increase (Decrease) in accounts payable (6,122) 4,051 (2,071)
Increase in accrued expenses 6,093 1,255 7,348
Increase in deferred tax asset (569) (1,965) (2,534)
Decrease in slot annuities payable (3) (3)
Increase in other long term liabilities 1,247 1,247
-----------------------------------------------------------------------------
Net cash provided by operating activities 2,850 11,564 4,941 - 19,355
-----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment (7,465) (16,969) (24,434)
Interest capitalized on construction projects 616 616
Decrease in short-term investments 2,438 2,820 5,258
Decrease in restricted funds 7,887 7,173 15,060
(Increase) decrease in other assets 1,389 (2,044) (6) (661)
-----------------------------------------------------------------------------
Net cash used in investing activities 1,389 1,432 (6,982) - (4,161)
-----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 34 9,518 9,552
Payments on long-term borrowings (1,076) (1,223) (2,299)
Purchase of treasury stock (6,518) (6,518)
Advances to/from subsidiaries 6,518 (6,518)
Purchase of 13% Mortgage Notes - Black Hawk 0 (6,559) (6,559)
Contribution of capital to Black Hawk, Inc. (6,239) 0 6,239
-----------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (6,239) (7,560) 7,975 0 (5,824)
-----------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,000) 5,436 5,934 - 9,370
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,957 27,037 1,810 42,804
-----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 11,957 $ 32,473 $ 7,744 $ $ 52,174
F-19
10. LEASING ACTIVITIES
The Company leases certain equipment under capital
leases. These agreements have been capitalized at the present
value of the future minimum lease payments at lease inception
and are included with property and equipment. Management
estimates the fair market value of the property and equipment,
subject to the leases, approximates the net present value of the
leases.
The following is a schedule by year of the minimum rental
payments due under capital leases, as of December 31, 2000 (in
thousands).
2001 $ 3,403
2002 3,403
2003 3,403
2004 2,997
2005 252
Total minimum lease payments 13,458
Taxes, maintenance, and insurance (397)
Interest portion of payments (3,174)
Present value of net minimum lease payments $ 9,887
Rental expense under operating leases for the years ended
December 31, 2000, 1999, and 1998 was approximately $1,133,983,
$453,772, and $404,199, respectively. Such leases were year to
year in nature.
In addition, the Company leases retail space (primarily
to retail shops and fast food vendors) to third parties under
terms of noncancelable operating leases that expire in various
years through 2004. Rental income, which is included in other
income, for the years ended December 31, 2000, 1999, and 1998,
was approximately $1,584,300, $1,803,000, and $1,615,000,
respectively.
F-20
At December 31, 2000, the Company had future minimum
annual rental income due under noncancelable operating leases as
follows (in thousands):
2001 $ 1,399
2002 1,399
2003 1,399
2004 1,399
2005 350
Total $ 5,946
11. $100 MILLION NOTES RETIRED BY U.S. TREASURY BILLS
On August 13, 1997, the Company used part of the proceeds
from the 10% Notes to purchase U.S. government securities (the
"Securities") at a cost of $109.8 million, which were deposited
into an irrevocable trust. These Securities, together with
interest that was earned by the Securities, were used to pay the
principal, interest from August 13, 1997 to June 1, 1998, and
call premium of $4,313,000 due on the 11% $100 million notes on
June 1, 1998, which was the earliest date the 11% $100 million
notes could be redeemed. Interest earned from the Securities is
included in interest income on U.S. Treasury bills held to
retire $100 million notes. The interest expenses from the 10%
Notes and from the 11% $100 million notes are reported
separately on the consolidated statements of income. As a part
of the funding for the retirement of these notes, substantially
all the covenants (other than payment of principal and interest)
were released. The call premium of $4.3 million and unamortized
deferred financing costs totaling $300,000 were recorded net of
the 35 percent income tax effect of $1.6 million, resulting in
an extraordinary loss of $3.0 million in June of 1998.
12. FEDERAL INCOME TAXES
The Company computes deferred income taxes based upon the
difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.
The effective income tax rates on income attributable to
continuing operations differ from the statutory federal income
tax rates for the year ended December 31 as follows (in
thousands):
2000 1999 1998
-------------------------- -------------------------- ------------------------
Amount Rate Amount Rate Amount Rate
Benefit for income taxes
at federal statutory rate $ (2,349) (35.0)% $ (2,565) (35.0)% $ (2,164) (35.0)%
Benefit from outcome of
IRS examination (1,874) (25.6)
Other (146) (2.2) (22) (0.2) 21 0.3
Benefit for income taxes $ (2,495) (37.2)% $ (4,461) (60.8)% $ (2,143) (34.7)%
F-21
Comparative analysis of the provision (benefit) for income taxes is as follows:
2000 1999 1998
Current $ 1,223 $ (984) $ 692
Deferred (3,718) (3,477) (1,217)
Extraordinary item (1,618)
Total $(2,495) $(4,461) $(2,143)
The tax effects of the items composing the Company's net
deferred tax (asset) liability consist of the following at
December 31 (in thousands):
Deferred tax liabilities:
Reserve differential for hospitality and gaming activities $ 1,393 $ 968
Difference between book and tax-depreciable property 5,217 6,174
Other 560 430
Total 7,170 7,572
Deferred tax assets:
Net operating loss carryforward 3,309 3,064
Reserves not currently deductible 2,416 1,162
Bad debt reserves 483 564
AMT and other credits 3,851 3,137
Total 10,059 7,927
Net deferred tax asset $ 2,889 $ 355
The Company has $3,452,000 of alternative minimum tax
("AMT") credit and $398,000 of general business credit available
to offset future income tax liabilities. The AMT credit has no
expiration date. The general business credit will not begin to
expire until 2009.
13. COMMITMENTS AND CONTINGENCIES
The Company is party to several routine lawsuits, both as
plaintiff and defendant, arising from the normal operations of a
hotel. Management does not believe that the outcome of such
litigation, in the aggregate, will have a material, adverse
effect on the financial position, results of operations, or cash
flows of the Company.
Allen Paulson Merger/Litigation - In September 1997, the
Company entered into an agreement (the "Merger Agreement") with
Allen E. Paulson ("Paulson"), whereby a company controlled by
Paulson would acquire 100 percent of the Company's stock for $15
per share, plus an interest factor. The stockholders of the
Company approved the Merger Agreement on February 8, 1998. As a
condition of the Merger Agreement, approximately $5.8 million
was placed in escrow for the holders of 1,770,000 Riviera
Contingent Value Rights ("CVRs"). The CVRs entitled their
holders to share only in the proceeds of the funds in escrow.
Excluded from participating in the CVRs were Morgens Waterfall,
SunAmerica, Inc. ("SunAmerica"), Keyport Life, and Paulson, and
their affiliates and associates, who owned an aggregate
3,355,000 Riviera shares.
In March 1998, the Company was notified by Paulson that
he was terminating the Merger Agreement and filed a lawsuit
against the Company.
F-22
The Company entered into a Settlement Agreement, dated as
of July 2, 1999 (the "Settlement Agreement"), by and among
Paulson, R&E Gaming Corp. ("Gaming"), Riviera Acquisition Sub,
Inc. (RAS"), Elsinore Acquisition Sub, Inc. ("EAS"), Carlo
Corporation ("Carlo," and collectively with Paulson, Gaming,
EAS, and RAS, the "Paulson Plaintiffs"), and the Company,
subject to approval by the courts.
On October 7, 1999, the Federal District Court for the
Central District of California entered a bar order as part of a
settlement of the lawsuit brought by Paulson against the
Company. Pursuant to the terms of the Settlement Agreement, the
Company purchased 463,655 shares from Paulson for $7.50 per
share. The purchased shares are included in treasury stock at
December 31, 1999. Holders of the 1,770,000 CVRs received $2.46
for each CVR, and all related suits between the Paulson
Plaintiffs and the Company were dropped.
Other (expense) income for the year ended December 31,
2000, 1999, and 1998, includes $1,500,000 of insurance recovery
and $1,964,000 and $1,231,000 of litigation expense,
respectively, relating to the Paulson merger/litigation. The
1999 amount of $1,964,000 includes $1,159,000 or $2.00 per share
in the purchase of the 463,655 shares from Paulson, which was
the difference between the $7.50 and the market price of the
Company's stock on July 1, 1999.
Morgens, Waterfall, Vintiadis Litigation - Morgens, Waterfall,
Vintiadis & Company, Inc. ("Morgens Waterfall"), a stockholder
of the Company, filed a complaint against the Company and its
directors seeking indemnification from the Company for costs
related to the Paulson litigation. It also seeks other relief
and makes other claims stemming from the Settlement Agreement.
The Company believes that the claims are without merit and
intends to vigorously defend against them.
Employees and Labor Relations - As of December 31, 2000,
the Riviera had approximately 1,928 full-time equivalent
employees and had collective bargaining contracts with eight
unions covering approximately 1,215 of such employees, including
food and beverage employees, rooms department employees,
carpenters, engineers, stage hands, musicians, electricians,
painters, and teamsters. The Company's agreements with the
Southern Nevada Culinary and Bartenders Union and Stage Hands
Union, which cover the majority of the Company's unionized
employees, were renegotiated in 1998 and expire in the year
2002. Collective bargaining agreements with the operating
engineers, painters, and electricians were renegotiated in 2000
and expire in 2004, 2005, and 2004, respectively. The agreements
with the carpenters expired in 2000 and are currently under
negotiation. The Company is also in negotiations with the
Musicians Union. A new agreement was negotiated with the
Teamsters, which expires in 2003. Although unions have been
active in Las Vegas, management considers its employee relations
to be satisfactory. There can be no assurance, however, that new
agreements will be reached without union action or will be on
terms satisfactory to the Company.
F-23
Deposit Account - Pursuant to a deposit account
agreement, dated as of June 3, 1999, among Bank of America as
deposit bank, Riviera Holdings Corporation and First American
Title Insurance Company, Riviera Holdings Corporation deposited
$5.0 million to insure First American against mechanics lien
claims against the Black Hawk property. Such $5.0 million
deposit was returned to Riviera Holdings Corporation in 2000.
These amounts were included in cash and cash equivalents,
restricted at December 31, 1999.
Keep-Well Agreement - RBH and Riviera Holdings
Corporation entered a Keep-Well Agreement wherein, if (1) RBH
does not have the necessary funds to make a payment of fixed
interest on the notes during its first three years of operations
or (2) consolidated cash flow is less than $9.0 million in any
of the first three years of operations, Riviera Holdings
Corporation will be obligated to contribute cash to RBH to make
up those amounts (up to a maximum of $5.0 million for any one
operating year and $10.0 million in the aggregate). On February
14, 2001, the Company advanced approximately $3.1 million to RBH
under this agreement.
14. MANAGEMENT AGREEMENTS
From August 1996 until February 1997, RGM was operating
the Four Queens in downtown Las Vegas under an interim
management agreement for a fee of $83,333 per month. A long-term
management agreement (the "Four Queens Management Agreement")
with Elsinore Corporation ("Elsinore"), the owner of the Four
Queens, went into effect on February 28, 1997, the effective
date of the Chapter 11 plan of reorganization of Elsinore. The
Company believes that the terms of the Four Queens Management
Agreement were no less favorable to the Company than if the
Company had negotiated with an independent party. RGM was paid
the minimum annual management fee of $1.0 million. In a letter
dated September 1, 1999, Elsinore and Four Queens, Inc.
terminated the Four Queens Management Agreement December 30,
1999. The Company completed its requirements under the
agreement, and the Four Queens Management Agreement was
terminated December 30, 1999.
RBH has entered into a management agreement in principle
(the "RBH Management Agreement") with Riviera Gaming Management
of Colorado, Inc., (the "Manager") a wholly owned subsidiary of
Riviera Holdings Corporation, which, in exchange for a fee,
manages RBH. The management fee consists of a revenue fee and a
performance fee. The revenue fee is based on 1 percent of net
revenues (gross revenues less complimentaries) and is payable
quarterly in arrears. The performance fee is based on the
following percentages of EBITDA, whose components are based on
generally accepted accounting principles): (1) 10 percent of
EBITDA from $5 million to $10 million, (2) 15 percent of EBITDA
from $10 million to $15 million, and (3) 20 percent of EBITDA in
excess of $15 million. The performance fee is based on the
preceding quarterly installments subject to year-end adjustment.
The management fee began on February 4, 2000, the date of the
opening of the Riviera Black Hawk Casino. If there is any
default under the RBH Management Agreement, the Manager will not
be entitled to receive management fees but will still be
entitled to inter-company service fees. At December 31, 2000,
RBH had accrued but not paid, and the Manager had recognized
management fees of $557,000 which are eliminated in
consolidation.
F-24
15. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
The Company has an employment agreement with Mr.
Westerman, Chairman of the Board and Chief Executive Officer of
the Company. This agreement includes an annual base salary, an
incentive bonus based upon the extent of adjusted operating
earnings, contributions to a non-qualified pension plan, and
contributions to a Profit Sharing and 401(k) Plan. While
employed by the Company, contributions to the pension plan are
in amounts equal to Mr. Westerman's salary each year, plus
interest on accrued amounts of a rate equal to the current
effective interest rate of the Company (10.6 percent at December
31, 2000).
As discussed in Note 18, Related Party Transactions, the
Company has a management agreement with Penninsula Gamping
Partners LLC. See the note for further information.
On March 20, 1998, Mr. Westerman exercised a clause in
the agreement that requires the Company to establish a trust for
the money in his retirement fund, as permitted in his employment
agreement, following stockholder approval of a "change in
control." The approval by the stockholders of the merger on
February 5, 1998 constituted a change of control (see Note 12).
The Company has entered into an agreement with Mr. Westerman to
permit funding the trust amount at his option.
In addition to Mr. Westerman, four executives have
employment contracts with the Company for fixed terms of either
two or three years.
The Company has an incentive compensation plan, covering
employees of the Company who, in the opinion of the Chairman of
the Board, either serve in key executive, administrative,
professional, or technical capacities with the Company, or other
employees who also have made a significant contribution to the
successful and profitable operation of the Company. The amount
of the bonus is based on operating earnings before depreciation,
amortization, interest expense, provision for income taxes,
extraordinary losses and gains, any provisions or payments made
pursuant to the plan, and any provisions or payments made
pursuant to the incentive compensation of the Chairman and Chief
Executive Officer. During the years ended December 31, 2000,
1999, and 1998, the Company recorded accrued bonuses of
$2,258,500, $1,871,632, and $1,593,475, respectively, based upon
the above incentive compensation plan and the incentive
compensation plan established for the Chairman of the Board
under his employment agreement.
The Company contributes to multi-employer pension plans
under various union agreements to which the Company is a party.
Contributions, based on wages paid to covered employees, were
approximately $1,688,000, $1,637,000, and $1,658,000, for the
years ended December 31, 2000, 1999, and 1998, respectively.
These contributions were for approximately 1,400 employees,
including food and beverage employees, room department
employees, carpenters, engineers, stagehands, electricians,
painters, and teamsters. The Company's share of any unfunded
liability related to multi-employer plans, if any, is not
determinable.
The Company sponsors a Profit Sharing and 401(k) Plan
that incurred administrative expenses of approximately $25,000,
$21,851, and $36,000, for the years ended 2000, 1999, and 1998,
respectively.
The profit-sharing component of the Profit Sharing and
401(k) Plan provides that the Company will make a contribution
equal to one percent of each eligible employee's annual
compensation, if a prescribed annual operating earnings target
is attained, and an additional one-tenth of one percent thereof
for each $200,000 by which operating earnings is exceeded, up to
a maximum of three percent thereof. The Company may elect not to
contribute to the Profit Sharing and 401(k) Plan if it notifies
its employees by the first day of January of the Profit Sharing
and 401(k) Plan year. An employee will become vested in the
Company's contributions based on the employee's years of
service. An employee will receive a year of vesting service for
each plan year in which the employee completed 1,000 hours of
service. Vesting credit will be allocated in 20 percent
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.
F-25
The 401(k) component of the Profit Sharing and 401(k)
Plan provides that each eligible employee may contribute up to
15 percent of such employee's annual compensation, and that the
Company will contribute 1 percent of each employee's annual
compensation for each 4 percent of compensation contributed by
the employee, up to a maximum of 2 percent. All non-union
employees of the Company are eligible to participate in the
Profit Sharing and 401(k) Plan after 12 consecutive months of
service with the Company.
As a result of the scheduled opening of several new Las
Vegas Strip properties in 1998, 1999, and 2000, an estimated
38,000 new jobs were to be filled, including 5,000 supervisory
positions. Because of the Riviera'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 90
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 $713,000,
$1,000,000, and $287,000 in fiscal 2000, 1999, and 1998,
respectively. The total cost of the Plan is estimated to be
approximately $2.1 million over the period July 1, 1998 through
June 30, 2001.
Deferred Compensation Plan - On October 2, 2000, the
Board of Directors adopted a Deferred Compensation Plan (the
"Plan"). The purpose of the Plan is to provide eligible
employees of the Company with the opportunity to defer the
receipt of cash compensation. Participation in the non-qualified
Plan is limited to highly compensated employees who receive
compensation of at least $100,000. The deferred funds are
maintained on the company books as unfunded liabilities. All
elections to defer the receipt of compensation must be made no
later than the December 1st preceding the Plan Year to which the
election relates and are irrevocable for the duration of that
Plan Year. Six (6) Company executives are currently
participating in the Plan.
Restricted Stock Plan - On October 2, 2000, the Board of
Directors adopted a Restricted Stock Plan to provide incentives
which will attract and retain highly competent persons as
officers and key employees by providing them opportunities to
receive restricted shares of the Company's common stock.
Participants will consist of such officers and key employees of
the Company as the Company's Compensation Committee determines
to be significantly responsible for the success and future
growth and profitability of the Company. Awards of restricted
stock are subject to such terms and conditions as the Company
determines to be appropriate at the time of the grant, including
restrictions on the sale or other disposition of such shares and
the provision for the forfeiture of such shares for partial or
no consideration upon termination of the participant's
employment within specified periods or under certain condition.
Mr. Robert Vannucci, President of the Company's wholly-owned
subsidiary, Riviera Operating Corporation, and Executive Vice
President of Riviera Operating Corporation are currently the
only participants in the Restricted Stock Plan. During 2000, a
bonus of $52,833 was accrued for Mr. Grippe which is payable on
or about March 15, 2001 as restricted stock.
16. STOCK OPTION PLANS
At a meeting held on July 27, 1993, the Company's Board
of Directors adopted a stock option plan (the "Stock Option
Plan") providing for the issuance of both non-qualified and
incentive stock options (as defined in the Internal Revenue
Code). The Stock Option Plan was ratified by the Company's
stockholders at the April 26, 1994 annual meeting. Options vest
25 percent on the date of grant and 25 percent each subsequent
year. The term of an option can in no event be exercisable more
than 10 years (5 years in the case of an incentive option
granted to a stockholder owning more than 10 percent of the
Common Stock), or such shorter period, if any, as may be
necessary to comply with the requirements of state securities
laws, from the date such option is granted. Options are granted
at market value on the date of the grant. The number of shares
initially available for purchase under the Stock Option Plan as
adopted was 120,000 (as adjusted pursuant to antidilution
provisions). The stockholders approved a four-for-one stock
split, increasing the number of shares of common stock available
for purchase under the Stock Option Plan to 480,000. On November
21, 1996, the Company amended the Stock Option Plan, which was
F-26
approved at the annual meeting held on May 8, 1997, to increase
the number of shares available under the Stock Option Plan from
480,000 shares to 1,000,000 shares.
In connection with the resignation of a board member and
an employee, the Company paid approximately $258,000 (included
in non-recurring corporate expenses in fiscal 1998) on 54,000
options for the difference between the weighted-average option
price of $2.22, compared to the weighted-average market price of
$7.00 on the dates of exercise.
On May 10, 1996, the stockholders approved a
Non-qualified Stock Option Plan for Non-employee Directors (the
"Non-qualified Stock Option Plan") and a Stock Compensation Plan
for Directors serving on the Compensation Committee (the "Stock
Compensation Plan"). The total number of shares available for
purchase under each plan is 50,000. Options are granted at
market value on the date of the grant. The options vest over
five years. As a result of the departure of board members, 6,000
non-qualified options were extinguished during 1998.
Option Surrenders - On November 26, 1996, 414,000 stock
options were granted to eighteen (18) Riviera Executives at an
option price of $13.625 per share, 320,000 of which were granted
to Mr. Westerman. Two (2) of these executives' options totaling
11,000 shares have since been cancelled due to those executives
leaving the Company, resulting in a balance of 403,000 options
at $13,625 per share held by sixteen (16) Company executives.
These options were vested in their entirety in these sixteen
(16) executives.
On January 16, 2001, the Board approved a Stock Option
Surrender Plan (the "Surrender Plan"). Pursuant to the Surrender
Plan, each executive could surrender all or any portion of
his/her $13.625 options. Further, the Company may, but is not
obligated, grant new options in an amount no less than the
shares surrendered, to be issued no sooner than six (6) months
and a day after the surrender of the $13.625 options. Any new
options granted will be at the price of the Company's common
stock on the date of grant and are subject to the vesting
requirements of the Company's Employee Stock Option Plan.
All sixteen (16) Company executives surrendered the
entire balance of 403,000 of the $13.625 options effective
January 31, 2001.
F-27
The activity of the Stock Option Plan and the Non-Qualified Stock Option Plan is
as follows:
Outstanding at December 31, 1998 520,000 $2.08 to $13.63
Grants 99,000 $4.50 to $5.25
Outstanding at December 31, 1999 619,000 $2.08 to $13.63
Grants 97,000 $7.69
Cancelled (4,000) $7.69
Outstanding at December 31, 2000 712,000 $2.08 to $13.63
Non-Qualified Stock Option Plan
Outstanding at January 1, 1998 10,000 $13.25 to $13.50
Automatic grant to directors 8,000 $7.50 to $9.00
Cancelled (10,000) $9.00 to $13.50
Outstanding at December 31, 1998 8,000 $7.50 to $13.50
Automatic grant to directors 6,000 $4.88 to $7.50
Outstanding at December 31, 1999 14,000 $4.88 to $13.50
Automatic grant to directors 6,000 $7.75
Cancelled (6,000) $4.88 to $7.75
Outstanding at December 31, 2000 14,000 $4.88 to $13.50
No compensation cost has been recognized for unexercised
options remaining in the stock option plan. Had compensation
cost for the Company's stock option plan been determined based
on the fair value at the date of grant for awards consistent
with the provisions of SFAS No. 123, the Company's net loss and
pro forma net loss common share and common share equivalent
would have been increased to the pro forma amounts indicated
below at December 31 (in thousands, except per share amounts):
2000 1999 1998
Net loss - as reported $ (4,215) $ (2,869) $ (4,057)
Net loss - pro forma $ (4,466) $ (3,226) $ (4,548)
Basic loss per common share - as reported $ (1.05) $ (0.58) $ (0.81)
Basic loss per common share - pro forma $ (1.11) $ (0.65) $ (0.90)
Diluted loss per common and common
share equivalent - as reported $ (1.05) $ (0.58) $ (0.81)
Diluted loss per common and common share
equivalent - pro forma $ (1.11) $ (0.65) $ (0.90)
F-28
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants in
2000, 1999, and 1998, respectively: dividend yield of 0 percent
for all years; expected volatility of 44 percent, 60 percent and
62 percent; risk-free interest rates of 5.00 percent, 5.00
percent and 5.46 percent; and expected lives of five years for
all years. The weighted fair value of options granted in 2000,
1999, and 1998, was $3.56, $4.57, and $7.21, respectively.
Due to the fact that the Company's stock option programs
vest over many years and additional awards are made each year,
the above pro forma numbers are not indicative of the financial
impact, had the disclosure provisions of SFAS No. 123 been
applicable to all years of previous option grants. The above
numbers do not include the effect of options granted prior to
1995.
Employee Stock Ownership Plan - On October 2, 2000, the
Board of Directors adopted an Employee Stock Ownership Plan
("ESOP"). The ESOP was established effective January 1, 2000 and
replaces the profit sharing contribution component of the Profit
Sharing and 401(k) Plans. The 401(k) component remains
unchanged. The ESOP provides that all employees of Riviera Las
Vegas and its indirectly owned subsidiary, Riviera Black Hawk,
Inc., which operates its casino in Black Hawk, Colorado,
employed in the Plan Year who had completed a minimum of one
thousand (1,000) hours of service in that Plan Year, were
employed through December 31 of that Plan Year, were at least
twenty-one (21) years of age and were are not covered by a
collective bargaining agreement are eligible to participate in
the ESOP. The ESOP provides that the Company will make a
contribution to the ESOP's participants of its Las Vegas and
Black Hawk properties relative to the economic performance of
each property. For Riviera Las Vegas, the Company will make a
contribution equal to 1% of each eligible employee's annual
operating earnings target as attained and an additional 1%
thereof for each $2 million by which operating earnings is
exceeded, up to a maximum of 4% for 2000 and 5% thereafter. For
Riviera Black Hawk, 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% thereof for each $1 million by which operating
earnings is exceeded, up to a maximum of 4% for 2000 and 5%
thereafter. Under the ESOP, the Company contribution will be
made in cash which will be used to buy Company common stock.
17. EARNINGS PER SHARE
Basic EPS is computed by dividing net income by the
weighted-average number of common shares outstanding for the
period. Diluted EPS is computed by dividing net income by the
weighted number of common and common equivalent shares
outstanding for the period. Options to purchase common stock,
whose exercise price was greater than the average market price
for the period, have been excluded from the computation of
diluted EPS. Such antidilutive options outstanding for the 12
months ended December 31, 2000, 1999, and 1998, were 732,000,
633,000 and 531,000, respectively.
F-29
A reconciliation of income and shares for basic and
diluted EPS is as follows (amounts in thousands, except per
share amounts):
Year Ended 2000
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS -
Loss available to common stockholders $(4,215) 4,013 $ 1.05
Effect of dilutive securities -
Options
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $(4,215) 4,013 $ 1.05
Year Ended 1999
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS -
Loss available to common stockholders $(2,869) 4,978 $(0.58)
Effect of dilutive securities -
Options
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $(2,869) 4,978 $(0.58)
Year Ended 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS -
Loss available to common stockholders $(4,057) 5,037 $(0.81)
Effect of dilutive securities -
Options
Diluted EPS -
Loss available to common stockholders plus
assumed conversions $(4,057) 5,037 $(0.81)
During 2000, 1999, and 1998, the Company purchased
257,893, 4,800, and 34,300 shares of treasury stock on the open
market for approximately $2,093,000, $22,000, and $167,000,
respectively. In addition to the purchase of stock from Paulson
as described in Note 12, the Company purchased 81,000 of its
shares from SunAmerica at $7.50 per share on October 18, 1999.
This transaction reduced SunAmerica's ownership of the Company
to under 15 percent. On February 8, 2000, the Company completed
a tender offer wherein approximately 590,000 shares of stock
were purchased for $7.50 per share. The Company used its cash
and cash equivalents to purchase the shares. After giving effect
to such share repurchases, the Company had 3,668,128 shares of
common stock outstanding. The purchases were recorded in
treasury stock.
F-30
18. SEGMENT DISCLOSURES
At December 31, 2000, the Company adopted a management
review process by its geographic gaming market segments: Riviera
Las Vegas and Riviera Black Hawk. Since the management division
represents all other revenue, it is also shown. Due to this
change in management's review of operating results, all
corresponding prior years' data has been restated to reflect the
current review process. All intersegment revenues have been
eliminated.
(in thousands) 2000 1999 1998
(Restated) (Restated)
Net revenues:
Riviera Las Vegas $166,841 $157,109 $158,995
Riviera Black Hawk 39,713
Riviera Gaming Management 233 1,064 1,000
Total net revenues $206,787 $158,173 $159,995
EBITDA:
Riviera Las Vegas $ 29,249 $ 24,631 $ 28,067
Riviera Black Hawk 6,597 1
Riviera Gaming Management 88 1,047 1,000
Total EBITDA $ 35,928 $ 25,679 $ 29,067
EBITDA margin (1):
Riviera Las Vegas 17.5 % 15.7 % 17.7 %
Riviera Black Hawk 16.6
Riviera Gaming Management 37.8 98.4 100.0
Total EBITDA 17.4 % 16.2 % 17.5 %
Income (loss) from operations:
Riviera Las Vegas $ 14,910 $ 10,641 $ 15,379
Riviera Black Hawk (Preopening expenses in 1999) 1,881 (595)
Riviera Gaming Management 88 1,047 1,000
Total income form operations $ 16,879 $ 11,093 $ 16,379
December 31,
2000 1999
Assets (2): (Restated)
Riviera Las Vegas $138,525 $145,925
Riviera Black Hawk 68,505 56,734
Riviera Gaming Management _______ _______
Total Assets $207,030 $202,659
(1) Shown as a percentage of corresponding departmental revenue.
(2) Assets represent property and equipment and intangible assets, net of
accumulated depreciation and amortization.
F-31
EBITDA consists of earnings before interest, income taxes, depreciation and
amortization (excluding corporate expenses, pre-opening expense - Black Hawk,
Colorado project, severance pay and Paulson Merger/litigation costs included in
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. The Company's
computation of EBITDA may not be comparable to other similarly titled measures
of other companies
RIVIERA
The primary marketing of the Riviera is not aimed toward
residents of Las Vegas. Significantly all revenues derived from
patrons visiting the Riviera are from other parts of the United
States and other countries. Revenues for the Riviera from a
foreign country or region may exceed 10 percent of all reported
segment revenues; however, the Riviera cannot identify such
information, based upon the nature of gaming operations.
RIVIERA BLACK HAWK
The casino in Black Hawk, Colorado, primarily serves the
residents of metropolitan Denver, Colorado. As such, management
believes that significantly all revenues are derived from within
250 miles of that geographic area.
19. RELATED PARTY TRANSACTIONS
Robert R. Barengo, a member of the Board of Directors of
the Company, is a director of American Wagering, Inc. ("AWI")
and owns 7 percent 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 sport book operations. The lease provides for rental
payments based upon the monthly and annual revenues derived by
AWI from the location. AWI paid aggregate rent to ROC of
approximately $188,000, $250,000, and $212,000, in each of the
years ended December 31, 2000, 1999, and 1998, respectively. 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 lease as
favorable as terms obtained by other casino hotels in Las Vegas.
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 litigation
related to the Paulson merger, the Morgens Waterfall litigation
and with related matters. Under such letter agreement, Mr.
Barengo receives a fee of $10,000 per month for his counseling
services. Fees paid under this agreement were $120,000,
$120,000, and $90,000 for the years ended December 31, 2000,
1999, and 1998, respectively. Mr. Barengo became an employee
director in January 2001. He and the Company mutually terminated
the agreement effective December 31, 2000.
F-32
Peninsula Gaming Partners LLC ("PGP") engaged RGM to
assist, on an interim basis, with transitional matters relating
to the operations of the Diamond Jo gaming riverboat in Dubuque,
Iowa. Such services include assisting in the selection of a new
chief operating officer to oversee riverboat casino operations
and other matters. RGM has earned fees and expenses in the
amount of $232,000 and $64,000 for the years ended December 31,
2000 and 1999, respectively. PGP terminated its agreement with
RGM in September 2000. Mr. Westerman served as a manager on the
board of managers of Peninsula Gaming Partners, LLC until his
resignation effective December 31, 2000. The Company believes
that the fees were no less favorable than would have been paid
in an arm's-length transaction.
In 1998 the Company restructured its corporate management
team and Board of Directors. Costs associated with this actvity
are included in Corporate Expenses - Severence Pay in 1998.
F-33
RIVIERA HOLDINGS CORPORATION
UNAUDITED QUARTERLY FINANCIAL DATA
(Amounts in thousands, except per share data)
- -----------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
Year Ended December 31, 2000:
Net Revenues $49,699 $54,017 $51,357 $51,714
Operating Income 5,362 5,569 2,431 3,517
Income (Loss) Before Taxes (Benefit) 1,076 (1,051) (3,741) (2,994)
Net Income (Loss) 675 (553) (2,358) (1,979)
Earnings (Loss) Per Share, Basic $ 0.16 $ (0.14) $ (0.61) $ (0.53)
Earnings (Loss) Per Share, Diluted $ 0.15 $ (0.14) $ (0.61) $ (0.53)
Year Ended December 31, 1999:
Net Revenues $40,297 $40,650 $38,904 $38,322
Operating Income 3,859 3,281 1,438 2,515
Income (Loss) Before Taxes (Benefit) 252 (1,164) (4,472) (1,946)
Net Income (Loss) 166 (812) (2,172) (51)
Earnings (Loss) Per Share, Basic $ 0.03 $ (0.16) $ (0.43) $ (0.01)
Earnings (Loss) Per Share, Diluted $ 0.03 $ (0.16) $ (0.43) $ (0.01)
F-34