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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X]Preliminary Proxy Statement
[ ]Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ]Definitive Proxy Statement
[ ]Definitive Additional Materials
[ ]Soliciting Material Pursuant to ss.240.14a-12
Riviera Holdings, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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Persons who are to respond to the collection of information contained in this
form are not required to respond unless the form displays a currently valid OMB
control number.
ANNUAL MEETING OF STOCKHOLDERS OF
RIVIERA HOLDINGS CORPORATION
May 17, 2005
Proof #2
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach and mail in the envelope provided.
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The Board of Directors recommends a vote FOR the nominees for directors and For Proposals 2,3 and 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
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FOR AGAINST ABSTAIN
1.Election of the following Six Nominees as Directors 2.Approval of our 2005 Incentive Stock Option Plan. [ ] [ ] [ ]
of the Company.
NOMINEES: 3.Approval of our 2005 Non-Qualified
[ ]FOR ALL NOMINEES O William L. Westerman Stock Option Plan for Non-Employee Directors. [ ] [ ] [ ]
O Robert R. Barengo
[ ]WITHHOLD AUTHORITY O Jeffrey A. Silver 4.Approval of our issuance of common stock to non-employee
FOR ALL NOMINEES O Paul A. Harvey Directors as described in our Proxy Statement. [ ] [ ] [ ]
O Vincent L. DiVito
[ ]FOR ALL EXCEPT O James N. Land Jr. 5.In their discretion, the proxies are authorized to vote upon such other
(See instructions below) matters as may properly come before the Annual Meeting.
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF COMMON STOCK COVERED
INSTRUCTION: To withhold authority to vote for any HEREBY WILL BE VOTED AS SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE
individual nominee(s), mark "FOR ALL EXCEPT" and fill SUCH SHARES WILL BE VOTED "FOR" THE NOMINEES FOR DIRECTOR, "FOR" APPROVAL
in the circle next to each nominee you wish to withhold, OF THE 2005 INCENTIVE STOCK OPTION PLAN, "FOR" APPROVAL OF THE 2005
as shown here: NON-QUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS, "FOR" APPROVAL
-------------------------------------------------------- OF THE ISSUANCE OF COMMON STOCK TO NON-EMPLOYEE DIRECTORS AND AS THE
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE ANNUAL MEETING.
The undersigned hereby revoke(s) all previous Proxies and acknowledge(s)
-------------------------------------------------------- receipt of the copy of the Notice of Annual Meeting dated April 22, 2005,
To change the address on your account, please check the the Proxy Statement attached thereto and the Annual Report of the Company
box at right and indicate your new address in the address for the fiscal year ended December 21, 2004 forwarded therewith.
space above. Please note that changes to the registered
name(s) on the account may not be submitted via this PLEASE MARK, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
method.[ ] ENVELOPE.
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Signature of Stockholder_____________________________ Date:______ Signature of Stockholder_____________________________ Date:______
Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such.
If the signer is a corporation, please sign full corporate name by duly
authorized officer, giving full title as such. If signer is a partnership,
please sign in partnership name by authorized person.
PROOF #2
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON
May 17, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitute(s) and appoint(s) William L. Westerman and
Duane R. Krohn, and each of them, as proxies, with full power of substitution,
to vote all shares of Common Stock of Riviera Holdings Corporation (the
"Company") which the undersigned is (are) entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the Riviera Hotel & Casino, 2901
Las Vegas Boulevard South, Las Vegas, NV 89109, on Tuesday, May 17, 2005, at
1:00 p.m., Las Vegas time, and at any adjournment(s) or postponement(s) thereof
(the "Annual Meeting"), on all matters that may come before such Annual Meeting.
Said proxies are instructed to vote on the following matters in the manner
herein specified.
(Continued and to be signed on reverse side)
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 17, 2005
TO THE STOCKHOLDERS OF
RIVIERA HOLDINGS CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Riviera Holdings Corporation, a Nevada corporation, will be
held at the Riviera Hotel and Casino, 2901 Las Vegas Boulevard South, Las Vegas,
Nevada 89109 on May 17, 2005, at 1:00 p.m., Las Vegas time, for the following
purposes:
1. To elect our Board of Directors; 2. To approve our
2005 Incentive Stock Option Plan;
3. To approve our 2005 Non-Qualified Stock Option Plan
for Non-Employee Directors;
4. To approve our issuance of 30,000 shares of our
common stock to our non-employee Directors, subject
to a vesting schedule and transfer restrictions as
described in the accompanying Proxy Statement; and
5. To consider and act upon such other matters as may
properly come before the Annual Meeting or any
re-convenings thereof.
We have fixed April 12, 2005 as the record date for determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting
(including any re-convenings thereof). Only holders of record of our common
stock at the close of business on that date are entitled to vote at the Annual
Meeting. A complete list of those stockholders can be examined by any such
stockholder for any purpose germane to the Annual Meeting, during ordinary
business hours, at our offices located at 2901 Las Vegas Boulevard South, Las
Vegas, Nevada 89109.
Our Annual Report for the year ended December 31, 2004, which includes
a copy of our annual report on Form 10-K as filed with the Securities and
Exchange Commission for the year ended December 31, 2004, is enclosed.
By Order of the Board of Directors,
William L. Westerman
Chairman of the Board
Dated: April 22, 2005
YOU ARE URGED TO COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY AS SOON AS
POSSIBLE. IF YOU ATTEND THE ANNUAL MEETING AND VOTE IN PERSON, THE PROXY WILL
NOT BE USED. IF THE PROXY IS MAILED IN THE UNITED STATES IN THE ENCLOSED
ENVELOPE, NO POSTAGE IS REQUIRED.
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
PROXY STATEMENT
for Annual Meeting of Stockholders
to be held on May 17, 2005
April 22, 2005
TO THE STOCKHOLDERS:
Our Board of Directors is soliciting proxies for our 2005 Annual
Meeting of Stockholders. This Proxy Statement contains important information for
you to consider when deciding how to vote on the matters brought before the
meeting. Please read it carefully.
In this Proxy Statement:
o "We," "Us," "Our" and the "Company" refers to Riviera Holdings
Corporation (a Nevada corporation);
o "Annual Meeting" means our 2005 Annual Meeting of Stockholders
that will be held on Tuesday, May 17, 2005, at 1:00 p.m. Las Vegas
time, at the Riviera Hotel and Casino, 2901 Las Vegas Boulevard South,
Las Vegas, Nevada 89109;
o "Common Stock" means our common stock, par value $.001 per share; and
o "Stockholders" means holders of record of our Common Stock as of the
close of business on April 12, 2005.
Our principal executive offices are located in the Riviera Hotel and
Casino at 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109. Our 2004
Annual Report, this Proxy Statement and the accompanying proxy card are first
being sent to stockholders on or about April 22, 2005.
Stockholders are entitled to one vote at the Annual Meeting for each
outstanding share of our Common Stock that they hold as of April 12, 2005 (the
"Record Date"). At the close of business on April 7, 2005, 12,340,755 shares of
our Common Stock were outstanding.
We request each Stockholder to execute and return the enclosed proxy as
soon as possible. The person who signs the proxy must be either (1) the
registered holder of such shares of our Common Stock or (2) a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
business entity, or any other person acting in a fiduciary or representative
capacity on behalf of such registered holder. You can revoke your proxy at any
time before it is voted, if so desired, by filing with the Secretary of the
Company an instrument revoking the proxy or by returning a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person.
Any proxy revocation should be sent to Riviera Holdings Corporation, 2901 Las
Vegas Boulevard South, Las Vegas, Nevada 89109, Attention: Secretary. Your
attendance at the Annual Meeting will not by itself constitute revocation of
your proxy.
1
We are paying all costs of the solicitation of proxies, including the
expenses of printing and mailing to Stockholders this Proxy Statement, the
accompanying Notice of Annual Meeting of Stockholders, the enclosed proxy card
and the Annual Report. We will also reimburse brokerage houses and other
custodians, nominees and fiduciaries for their expenses, in accordance with the
regulations of the Securities and Exchange Commission, in sending proxies and
proxy materials to the beneficial owners of our Common Stock. Our directors,
officers and employees may also solicit proxies in person, or by mail, e-mail or
telephone, but such persons will receive no compensation for that work, other
than their normal compensation.
PURPOSE OF THE ANNUAL MEETING
At the Annual Meeting, the Stockholders will consider and vote on:
1. the election of six directors to hold office until
our next annual meeting of stockholders and until
their respective successors have been elected and
qualified, or until resignation or removal;
2. approval of our 2005 Incentive Stock Option Plan;
3. approval of our 2005 Non-Qualified Stock Option Plan
for Non-Employee Directors;
4. our issuance of 30,000 shares of our Common Stock to
our non-employee Directors, subject to a vesting
schedule and transfer restrictions as described in
this Proxy Statement; and
5. such other matters as may properly come before the
Annual Meeting.
VOTE REQUIRED; PROXIES
The presence in person or by proxy of a majority of the shares of our
Common Stock outstanding and entitled to vote as of the Record Date is required
for a quorum at the Annual Meeting. If a quorum is present, the six Director
nominees who receive the highest number of votes will be elected to our Board of
Directors. For the other voting proposals, the affirmative vote of the holders
of a majority of our outstanding shares represented in person or by proxy and
entitled to vote at the Annual Meeting will be required for approval.
Shares of our Common Stock represented by properly executed proxies
that have not been revoked will be voted in accordance with the instructions in
such proxies. If no contrary instructions are given, such shares will be voted:
(1) FOR the election of all nominees for director named in this Proxy Statement;
(2) FOR the issuance of 30,000 shares of our Common Stock to our non-employee
directors; (3) FOR the adoption of our 2005 Incentive Option Plan; (4) FOR the
adoption of our 2005 Non-Qualified Stock Option Plan for Non-Employee Directors;
and (5) in the discretion of the persons named as proxy appointees as to any
other matters that may properly come before the Annual Meeting.
2
It is possible that our shares held by brokers or other Stockholder
nominees could be voted on certain matters but not others. This would occur, for
example, when the broker or nominee does not have discretionary authority to
vote the shares and is instructed by the beneficial owner to vote on a
particular matter but is not instructed on other matters. These are known as
"non-voted" shares. Non-voted shares will be counted for determining whether a
quorum is present, but will not be voted on matters as to which the beneficial
owner has given no voting instructions.
PROPOSAL NO. 1
Election of Directors
(Item 1 on Proxy Card)
Our Board of Directors consists of six members, all of whom have been
nominated for election at the Annual Meeting. If elected, they will hold office
until the next annual meeting of our stockholders and until their respective
successors have been elected and qualified, or until resignation or removal.
Directors
The following table presents information as of April 12, 2005 regarding
the six nominees for director:
Name Age Position
William L. Westerman 73 Our Chairman of the
Board, Chief Executive
Officer and President;
Chairman of the Board and
Chief Executive Officer
of Riviera Operating
Corporation ("ROC"),
our wholly-owned
subsidiary
Robert R. Barengo 63 Our and ROC's Director;
Director of Government
and Public Affairs of ROC
Jeffrey A. Silver 59 Our and ROC's Director
Paul A. Harvey 67 Our and ROC's Director
Vincent L. DiVito 45 Our and ROC's Director
James N. Land, Jr. 75 Our and ROC's Director
William L. Westerman has been our Chairman of the Board and Chief Executive
Officer ("CEO") since February 1993. Mr. Westerman was a consultant to Riviera,
Inc. (our predecessor company) from July 1, 1991 until he was appointed Chairman
of the Board and CEO of Riviera, Inc. on January 1, 1992. From 1973 to June 30,
1991, Mr. Westerman was President and CEO of Cellu-Craft Inc., a manufacturer of
flexible packaging primarily for food products, and then had several positions
with Alusuisse, a multi-national aluminum and chemical company, following its
acquisition of Cellu-Craft in 1989. Mr. Westerman was on the Board of Managers
of Peninsula Gaming Partners, LLC from June 1999 to December 2000.
3
Robert R. Barengo has been one of our and ROC's Directors since
February 1993. Mr. Barengo was a consultant to Riviera, Inc. from January 1993
until June 30, 1993. Since 1972, Mr. Barengo has been engaged in the private
practice of law in Reno, Nevada. Mr. Barengo was elected to the Nevada Assembly
in 1972 and served until 1982. In 1979, Mr. Barengo was elected Speaker Pro
Tempore and in 1981 Mr. Barengo was elected Speaker of the Assembly. Since 1993,
Mr. Barengo has been the President and the sole stockholder of Silver State
Disseminators Company, a company licensed by Nevada gaming authorities to
disseminate racing information in the State of Nevada. In October 1992, the
Governor appointed Mr. Barengo as a member of the State of Nevada Dairy
Commission. The term ended July 1, 2004. On December 3, 2003, Governor Guinn
appointed Mr. Barengo as a member of the Nevada Tax Commission. Mr. Barengo was
the Chairman of the Board and a Director of Western Thrift and Loan, a Nevada
licensed thrift company, from 1997 until 2003 when he sold his interest and
resigned. Mr. Barengo accepted the position of Director of Government and Public
Affairs with ROC effective January 1, 2001, in addition to his duties as a
Director of the Company and of ROC.
Jeffrey A. Silver has been one of our and ROC's Directors since
February 26, 2001. Mr. Silver is currently a shareholder with the law firm of
Gordon & Silver, Ltd., in Las Vegas, Nevada. Mr. Silver served as the Chief
Deputy District Attorney, Clark County, Nevada from 1972 to 1975 and was a Board
Member with the Nevada Gaming Control Board from 1975 to 1978 before engaging in
the private practice of law from 1979 to 1981 and 1984 to the present. Mr.
Silver was the Chief Operating Officer and General Counsel of the Landmark Hotel
& Casino from 1981 to 1983, CEO of Riviera, Inc. from 1983 to 1984 and Senior
Vice President at Caesars Palace in 1984. Mr. Silver served on the Board of the
Las Vegas Convention and Visitors Authority from 1989 to 1992 as
Secretary/Treasurer and also served as trustee. He was a member of the Board of
Directors of the Greater Las Vegas Chamber of Commerce from 1988 to 1995 and in
1988 was its Chairman. Mr. Silver served for four years as a member of the
United States Travel and Tourism Advisory Board. He was President of the
International Association of Gaming Attorneys from 1992 to 1994 and Chairman of
the ABA Section of Gaming Law from 1994 to 1996.
Major General Paul A. Harvey USAF (Ret) has been one our and ROC's
Directors since May 18, 2001. General Harvey is currently a consultant to the
gaming, hotel and resort industry. General Harvey spent 32 years on active duty
in the United States Air Force where he held numerous command positions
throughout the United States, Europe, Africa and the Middle East. He flew 160
combat missions in Vietnam and Southeast Asia before retiring in 1991 as a
command pilot with over 5,000 flying hours. Following retirement, he was an
Executive in Residence and Assistant to the President of William Carey College
and taught MBA studies in management and leadership. General Harvey was the
Executive Director of the Mississippi Gaming Commission from 1993 through 1998
before becoming President and CEO of Signature Works, Inc., which is the largest
employer of blind and visually impaired people in the world. In 2000 Signature
Works, Inc. merged with LCI, Inc. His present company, PDH Associates, Inc.,
provides consulting service to the gaming, hotel and resort industry. In
February 2002, General Harvey was named President of Karhouse, Inc.,
headquartered in Pensacola, Florida, which provides automobile storage for
Department of Defense personnel who are on deployed or overseas status. Since
1996, General Harvey has served on the Board of Directors of the National Center
for Responsible Gaming. He also serves on the Board of Directors of VirtGame
Corp., which is headquartered in San Diego, California and has a class of
securities registered under the Securities Exchange Act of 1934. General Harvey
is also a Commissioner on the Mississippi Band of Choctaw Indians Athletic and
Boxing Commission.
4
Vincent L. DiVito was appointed as one of our and ROC's Directors
effective June 14, 2002. Mr. DiVito is currently Vice President, Chief Financial
Officer and Treasurer of Lonza, Inc., a global specialties chemical business
headquartered in Fair Lawn, New Jersey. Lonza, Inc. is part of Lonza Group,
whose stock is traded on the Swiss Stock Exchange. Prior to September 2000, Mr.
DiVito was the Vice President and Chief Financial Officer of Algroup Wheaton, a
global pharmaceutical and cosmetics packaging company, after having served as
the Director of Business Development. From 1984 to 1990 Mr. DiVito was the Vice
President of Miracle Adhesives Corp. (a division of Pratt & Lambert, an American
Stock Exchange-listed manufacturer of paints, coatings and adhesives). He also
serves on the Board of Directors of VirtGame Corp., which is headquartered in
San Diego, California and has a class of securities registered under the
Securities Exchange Act of 1934. Prior to 1984, Mr. DiVito spent two years on an
audit team at Ernst & Whinney (now Ernst & Young). Mr. DiVito is a certified
public accountant ("CPA") and certified management accountant.
James N. Land, Jr., is a corporate consultant, and was appointed as one
of our and ROC's Directors effective April 12, 2004. Mr. Land was first elected
a Director of the Company and ROC on January 21, 1999 and thereafter resigned on
May 31, 2002. From 1956 to 1976, Mr. Land was employed by The First Boston
Corporation in various capacities, including Director, Senior Vice President,
Co-Head of Corporate Finance, and head of International Operations. From 1971
through 1999, he served on the Board of Directors of various companies,
including Kaiser Industries Corporation, Marathon Oil Company, Castle & Cooke,
Inc., Manville Corporation, NWA, Inc., Northwest Airlines, and Ratheon Company.
Executive Officers
The following table presents information as of April 7, 2005 regarding
our and ROC's executive officers:
Name Age Position
----------------------------------- --------- ----------------------------------
William L. Westerman 73 Our and ROC's Chairman of the
Board and Chief Executive Officer,
and our President
Duane R. Krohn 59 Our and ROC's Treasurer and CFO,
and Executive Vice President of
Finance of ROC
Tullio J. Marchionne 50 Our Secretary and General Counsel,
and Secretary and Vice President
of ROC
Robert A.Vannucci 57 President and Chief Operating
Officer of ROC
Ronald P. Johnson 56 Executive Vice President of Gaming
Operations of ROC
For a description of the business experience of William L. Westerman,
see "Directors" above.
5
Duane R. Krohn, CPA, became our and ROC's Treasurer on June 30, 1993
and was elected Vice President of Finance of ROC on April 26, 1994 and Executive
Vice President of Finance of ROC on July 1, 1998. He served as Secretary from
June 8, 1999 to February 17, 2000. Mr. Krohn was initially employed by Riviera,
Inc. in April 1990 as Director of Corporate Finance and served as Vice
President-Finance from March 1992 to June 30, 1993. Prior to 1990, Mr. Krohn was
Chief Financial Officer of the Imperial Palace, the Mint and the Dunes in Las
Vegas, Nevada, and Bally's Park Place in Atlantic City, New Jersey.
Tullio J. Marchionne became our General Counsel on January 10, 2000,
was appointed as our and ROC's Secretary on February 17, 2000 and was elected
Vice President of ROC on February 26, 2001 and Executive Vice President on June
9, 2004. Mr. Marchionne was initially employed by Riviera, Inc., in June 1986 as
a casino games dealer and served in various capacities including Pit Manager,
General Counsel and Director of Gaming Administration until September 1996, when
he was transferred to the Four Queens Hotel and Casino as Director of Casino
Operations pursuant to the management agreement we had with the Four Queens
through our subsidiary. He served in that position until May 1997. Mr.
Marchionne served as the General Manager of the Regency Casino Thessaloniki,
located in Thessaloniki, Greece, from June 1997 until December 1997. Mr.
Marchionne served as a Casino Supervisor with Bally's, Las Vegas, from February
1998 until June 1998, Director of Casino Operations at the Maxim Hotel and
Casino in Las Vegas from June 1998 until November 1998 and Director of Table
Games at the Resort At Summerlin (a Las Vegas casino/hotel) from November 1998
until December 1999.
Robert A. Vannucci was elected Vice President of Marketing and
Entertainment of ROC on April 26, 1994, Executive Vice President of Marketing
and Entertainment on July 1, 1998 and President of ROC on October 1, 2000. Mr.
Vannucci had been Director of Marketing of ROC since July 19, 1993. Mr. Vannucci
was Senior Vice President of Marketing and Operations at the Sands Casino Hotel
in Las Vegas from April 1991 to February 1993. He was Vice President and General
Manager of Fitzgerald's Las Vegas (a casino/hotel) from 1988 to January 1991.
Ronald P. Johnson became Vice President of Gaming Operations of ROC in
September 1994, Executive Vice President of Gaming Operations of ROC on July 1,
1998, President of Riviera Black Hawk, Inc. (our wholly-owned subsidiary which
owns and operates the Riviera Black Hawk Casino) on February 10, 1999, and
Executive Vice President of Gaming Operations and Marketing of ROC on November
1, 2004, a position he holds concurrently with his Riviera Black Hawk, Inc.
President position. Mr. Johnson became Director of Slots on June 30, 1993 and
was elected Vice President of Slot Operations and Marketing on April 26, 1994.
Mr. Johnson was Vice President-Slot Operations and Marketing of Riviera, Inc.
from April 1991 until June 30, 1993. He was Vice President-Slot Operations for
Sands Hotel and Casino Inc. from September 1989 until he joined Riviera, Inc.
Our and ROC's officers serve at the discretion of our and ROC's
respective Boards of Directors, and they are also subject to the licensing
requirements of the Nevada Gaming Commission.
Audit Committee Financial Expert
Our Board of Directors has determined that the Chairman of our Audit
Committee, Vincent L. DiVito, who meets the American Stock Exchange ("Amex")
audit committee independence requirements that apply to us, is a financial
expert. Mr. DiVito is a CPA and certified management accountant. He spent two
years on an audit team at Ernst & Whinney (now Ernst & Young) and is currently
the Chief Financial Officer and Treasurer of a global specialties chemical
business.
6
Certain Relationships and Related Transactions
Jeffrey A. Silver, a Director and Chairman of our Compensation
Committee, is a shareholder in the law firm of Gordon & Silver, Ltd., which we
have retained for various legal matters during our last fiscal year and in 2005.
In 2004, Ronald P. Johnson, Executive Vice President of Gaming
Operations of ROC, was indebted to us in the amount of $81,454. The indebtedness
consisted of profits attributable to his purchases and sales of our Common Stock
within a six-month period which, under Section 16(b) of the Securities Exchange
Act of 1934, was recoverable by us. Mr. Johnson paid us in full in 2004 and as
of April 7, 2005, he has no outstanding indebtedness to us.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who beneficially own more than 10%
of our Common Stock to file with the Securities and Exchange Commission certain
reports regarding our Common Stock ownership. Such persons are required to
furnish us with copies of all such reports they file. To our knowledge, all of
these persons met their Section 16(a) reporting obligations on a timely basis
during 2004.
Code of Ethics
We have adopted certain ethical policies that apply to all of our
employees at the level of Supervisor or higher, including our principal
executive officer, principal financial officer and principal accounting officer.
Those policies, together with certain rules adopted by our Disclosure Committee,
comprise what we consider to be our code of ethics. Those policies and rules are
posted on our Internet web site at www.theriviera.com.
Board of Directors and Committee Meetings
We have an Audit Committee composed of Messrs. DiVito, Harvey and Land.
Our Audit Committee recommends to our Board of Directors the selection of an
auditor, reviews the plan and scope of our audits, reviews the auditors'
critique of management and internal controls and management's response to such
critique and reviews the results of our audit. In 2004 our Audit Committee met
seven times.
We have a Compensation Committee composed of Messrs. Silver, Harvey and
DiVito. Our Compensation Committee is responsible for recommending executive
compensation programs to the Board of Directors and for approving all
compensation decisions with respect to our CEO and his compensation
recommendations for our other executive officers. In 2004 our Compensation
Committee met four times.
Our full Board of Directors serves as our nominating committee. See
"Nominating Committee" below for further information.
In 2004, our Board of Directors held eight meetings. No member of our
Board of Directors attended in 2004 less than 75% of the aggregate of (1) the
number of meetings of our Board of Directors held during the period for which he
was a director and (2) the total number of meetings held by all committees on
which he served.
7
Nominating Committee
Our entire six-member Board of Directors serves as our nominating
committee. Four of the six members meet the Amex independence requirements that
apply to us for the Director nomination process. Director nominations are
decided upon by our Board of Directors after it receives the recommendations of
a majority of our independent Directors. We do not have a charter governing the
recommendation or nomination process, nor do we have a policy regarding Director
candidates recommended by our stockholders. That is because historically, we
have rarely, if ever, been contacted by outside stockholders who have expressed
an interest in serving on our Board of Directors or in recommending candidates
to serve in that capacity. Given this lack of activity, we have seen no need to
adopt any specific policies on this subject, nor have we established specific
standards for evaluating Director candidates recommended by our stockholders, as
compared with our standards for evaluating Director candidates recommended by
other persons.
In order for us to nominate a candidate for the Board of Directors, the
candidate must have a strong business background and display a sense of
leadership. We believe that each member of the Board of Directors should possess
certain skills that complement the skills of the other Directors, so as to
achieve our overall goal of having a well-rounded Board of Directors. Qualities
and skills necessary for consideration are a financial, legal or business
background or demonstrated leadership abilities.
Audit Committee Report; Audit Committee Independence
In accordance with our Audit Committee's written charter adopted by our
Board of Directors, our Audit Committee assists our Board of Directors in
fulfilling its responsibility for oversight of the quality and integrity of our
accounting, auditing and financial reporting practices.
During our fiscal year ended December 31, 2004, our Audit Committee met
seven times, and our Audit Committee Chairman, as representative of the Audit
Committee, discussed the interim financial information contained in each of our
quarterly earnings announcements with our Chief Financial Officer and
independent auditors prior to public release.
In discharging its oversight responsibility as to the audit process,
our Audit Committee obtained from our independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence, consistent with Independence Standards
Board Standard No. 1 ("Independence Discussions with Audit Committees"). Our
Audit Committee discussed with the auditors any relationships that may impact
their objectivity and independence and satisfied itself as to the auditors'
independence. Our Audit Committee specifically addressed and discussed the
independent auditors' provision of non-audit services and concluded that those
services were compatible with maintaining the auditors' independence. Our Audit
Committee also discussed with our management, our internal auditors and the
independent auditors the quality and adequacy of our internal controls and the
internal audit function's organization, responsibilities, budget and staffing.
Our Audit Committee reviewed with both the independent auditors and our internal
auditors the audit plans, audit scope and identification of audit risks.
8
Our Audit Committee discussed and reviewed with the independent
auditors all communications required by generally accepted auditing standards,
including those described in Statement on Auditing Standards No. 61, as amended
(Codification of Statements on Auditing Standards, AU Section 380), and with and
without our management present, discussed and reviewed the results of the
independent auditors' examination of our financial statements. Our Audit
Committee also discussed the results of the internal audit examinations.
Our Audit Committee reviewed our audited financial statements, as of
and for the year ended December 31, 2004, with our management and the
independent auditors. Our management is responsible for the preparation of our
financial statements and the independent auditors are responsible for the
examination of those statements.
Based on the above-mentioned reviews and discussions with management
and the independent auditors, our Audit Committee recommended to our Board of
Directors that our audited financial statements be included in its our Annual
Report on Form 10-K for the year ended December 31, 2004, for filing with the
Securities and Exchange Commission. Our Audit Committee also recommended that we
reappoint the independent auditors and our Board of Directors concurred in such
recommendation.
Our Audit Committee presently consists of three members who all meet
the independence requirements of Amex's listing standards that apply to us.
Date: March 17, 2005 Vincent L. Divito Chairman
Paul A. Harvey Member
James N. Land, Jr. Member
Security Holder Communications
Our security holders may send communications to our Board of Directors
by directing such communications to our Treasurer and Chief Financial Officer,
Duane Krohn. Communications may be sent to Mr. Krohn via mail at our corporate
offices located at 2901 Las Vegas Boulevard South, Las Vegas, NV 89109; via
telephone or fax at (800) 362-1460 or (702) 794-9442, respectively; or via
e-mail at dkrohn@theriviera.com. Mr. Krohn will direct all relevant
communications, as determined by Mr. Kohn and by our Secretary and General
Counsel, to the appropriate Director(s).
Members of our Board of Directors are strongly encouraged to attend all
of our annual meetings of stockholders. All of the members of our Board of
Directors were in attendance at our 2004 annual meeting of stockholders.
Our Board of Directors unanimously recommends that you vote "FOR" each
of the six Director nominees named above.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
The following table presents a summary of the compensation we paid in
the years ended December 31, 2004, 2003 and 2002 to our and ROC's CEO, and to
our four other most highly compensated executive officers who received over
$100,000 in compensation from us during 2004 (collectively, the "Named Executive
Officers").
9
Summary Compensation Table
Annual Compensation
--------------------
Other Securities
Annual Underlying All Other
Name and Compen- Options Compen-
Principal Position Year Salary($) Bonus($) sation ($)(1) (# of Shares) sation ($)(2)
-----------------------------------------------------------------------------------------------
William L. Westerman 2004 $1,000,000 $0 $446,178 (3) 0 $1,438
Our Chariman of the 2003 $1,000,000 $0 $547,591 (3) 0 $1,438
Board and CEO, 2002 $600,000 $0 $482,848 (3) 0 $1,438
CEO of ROC
Robert A. Vannucci 2004 $300,000 $114,000 $104,000 (5) $1,720
President and Chief 2003 $300,000 $0 (4) $103,000 (5) $1,720
Operating Officer 2002 $300,000 $0 (4) $103,000 (5) 20,000 $1,720
of ROC
Duane R. Krohn 2004 $250,000 $57,000 $4,000 $1,438
Our Treasurer 2003 $250,000 $0 (4) $3,500 $1,438
and Executive Vice 2002 $250,000 $0 (4) $3,000 10,000 $1,438
President of Finance
and Treasurer of ROC
Ronald P. Johnson 2004 $250,000 $90,500 $4,000 $1,438
Executive Vice President 2003 $250,000 $0 (4) $3,500 $1,438
of Gaming Operations of 2002 $250,000 $0 (4) $10,500 (6) 10,000 $1,438
ROC
Jerome P. Grippe (7) 2004 $250,000 $0 $4,000 $1,438
Executive Vice President 2003 $250,000 $0 (4) $3,500 $1,438
of Operations of ROC 2002 $250,000 $0 (4) $3,000 10,000 $1,438
(1) Includes amounts that we contributed under our Profit Sharing and 401(k)
Plans. We contributed $4,000 for the account of each of the Named Executives
Officers in 2004, $3,500 for the account of each of them in 2003 and $3,000 for
the account of each of them in 2002.
(2) Includes premiums that we paid for excess life insurance.
(3) The amount reported represents the portion of the interest earned on Mr.
Westerman's retirement account that exceeds the interest which would have been
earned if the interest rate had been 120% of the applicable federal long-term
rate, with compounding, prescribed under Section 1274(d) of the Internal Revenue
Code. Additional interest earned on Mr. Westerman's retirement account that is
not reported in the above table amounted to $195,977 in 2004, $210,095 in 2003
and $357,302 in 2002.
(4) There was no incentive bonus award in 2003 or 2002.
(5) Includes $100,000 cash award or award of stock under our Restricted Stock
Plan pursuant to Mr. Vannucci's employment agreement. (Mr. Vannucci has the
choice of $25,000 in cash or $25,000 in stock per quarter.) See "Restricted
Stock Plan" below for a summary of our Restricted Stock Plan. (6) Includes
$7,500 as compensation for a planned vacation that we asked Mr. Johnson to forgo
so he could participate in the nationwide presentations to sell our senior
secured notes.
(7) Mr. Grippe retired effective February 16, 2005.
10
Option and Stock Grants
We granted no stock options in 2004. The information set forth below is
on an as-adjusted basis, giving effect to our March 11, 2005 three-for-one stock
split.
In July 2003, we attempted to grant 385,500 options under our 1993
Employee Stock Option Plan (the "1993 Plan"). Subsequently, however, we
determined that the 1993 Plan had expired prior to those grants, which rendered
them null and void. Two executives to whom we attempted to grant options for a
total of 48,000 shares have since left our employment. On April 6, 2005, we
granted to 19 remaining executives a total of 337,500 shares of our Common Stock
under our Restricted Stock Plan (see "Restricted Stock Plan" below) in
substitution for the stock options that we had attempted to grant to them. Those
shares are subject to a five-year vesting schedule, vesting 20% each March 10,
commencing in 2006. The shares completely vest immediately upon death,
disability, retirement at age 62, termination of employment by the Company other
than for cause, events of hardship as approved by our Compensation Committee or
in the event of a change in control of the Company.
See "Compensation of Directors" and "PROPOSAL NO. 2 - ISSUANCE OF STOCK
TO NON-EMPLOYEE DIRECTORS" below for a discussion of stock options that we
attempted to grant to our non-employee Directors after expiration of our other
stock option plan, and our further intentions in this regard.
Option Exercises and Year-End Options Values
The following table presents information regarding stock options
exercised during 2004 and the value at December 31, 2004 of unexercised,
in-the-money options held by the Named Executive Officers. Options for 523,500
shares (on an as-adjusted basis giving effect to the 2005 stock split) were
exercised in 2004 by the Named Executive Officers.
11
Number Value Number of Value of Unexercised,
of Shares Realized Shares Underlying In-The-Money Options
Acquired Unexercised Options
In Exer- Unexer- Exer- Unexer-
Name Exercise cisable cisable cisable cisable
---- -------- -------- ------------------------- ------------ --------
William L. 150,000 $700,000 0 0 $ 0 $ 0
Westerman
Robert A.
Vannucci 90,000 $435,000 105,000 15,000 $1,195,100 $170,700
Duane R.
Krohn 142,500 $643,900 0 7,500 $ 0 $85,350
Ronald P.
Johnson 120,000 $661,325 22,500 7,500 $ 256,050 $85,350
Jerome P.
Grippe 21,000 $108,500 94,500 7,500 $1,174,470 $85,350
Employment Agreements
William L. Westerman serves as our Chairman of the Board, President and
CEO, and as Chairman of the Board and CEO of ROC.
Under Mr. Westerman's employment agreement, which was last amended on
July 15, 2003, he is employed for an indefinite period, subject to termination
by either Mr. Westerman upon at least 180 days written notice or by us upon at
least 90 days written notice. Mr. Westerman's base annual compensation is
$1,000,000. Under his amended employment agreement, Mr. Westerman is not
entitled to participate in our Senior Management Compensation Bonus Plan or any
other executive bonus plan.
Mr. Westerman's employment agreement required us to fund a retirement
account for him. Pursuant to that agreement, we make no further principal
contributions to the retirement account subsequent to January 1, 2001. The
account continues to accrue interest pursuant to the employment agreement. The
retirement account had an accrued balance of $5,152,536 as of December 31, 2004.
We credit Mr. Westerman's retirement account quarterly with interest on
the first day of each succeeding calendar quarter in an amount equal to the
product of (1) our average borrowing cost for the immediately preceding fiscal
year, as determined by the our Chief Financial Officer, and (2) the average
outstanding balance in the retirement account during the preceding calendar
quarter. At the recommendation of our Compensation Committee, in order to reduce
the amount that would be payable immediately upon Mr. Westerman's separation
from employment with us, Mr. Westerman and we agreed to the following cash
payments commencing April 1, 2003, and continuing on the first day of each
quarter thereafter: (1) a distribution of $250,000 from the principal balance of
his retirement account; and (2) the quarterly interest credited to his
retirement account one quarter in arrears. Total interest accrued to Mr.
Westerman's account in 2004 was $638,154, while total interest accrued was
$757,686 for 2003 and $840,150 for 2002.
12
We retain beneficial ownership of the retirement account, which is
earmarked to pay Mr. Westerman's retirement benefits. However, upon (1) the vote
of a majority of the outstanding shares of our Common Stock approving a "Change
of Control" (as discussed directly below), (2) the occurrence of a Change of
Control without Mr. Westerman's consent, (3) a breach by us of a material term
of the employment agreement or (4) the expiration or earlier termination of the
employment agreement for any reason other than cause, Mr. Westerman has the
right to require us to establish a "Rabbi Trust" for his benefit. He also has
the right to require us to fund such trust with cash equal to the amount then
credited to the retirement account, including any amount to be credited to the
retirement account upon a Change of Control.
On February 5, 1998, our stockholders approved a merger agreement that
constituted a Change of Control under Mr. Westerman's employment agreement. On
March 5, 1998, Mr. Westerman exercised his right to require us to establish and
fund a Rabbi Trust for his benefit. On March 20, 1998, Mr. Westerman waived his
right to have us fund the Rabbi Trust in exchange for our agreement to fund it
within five business days after notice from him.
If Mr. Westerman ceases to be employed by us (except for termination
for cause, in which case Mr. Westerman would forfeit all rights to monies in the
retirement account), he will be entitled to receive the amount in the retirement
account (principal and current interest) in 20 equal quarterly installments
commencing as of the date he ceases to be employed. In the event that Mr.
Westerman's Rabbi Trust has not yet been funded, the balance of principal and
interest of the retirement account shall be paid directly to Mr. Westerman upon
his retirement or termination (except for cause) or upon a change of control.
The agreement provides that for a period of 24 months following
termination for any reason except cause, Mr. Westerman shall not engage in any
activity, which is in competition with us within a 75 mile radius from the
location of any hotel and/or casino then operated by us. As consideration for
not competing, we will pay Mr. Westerman a total of $500,000 in two equal annual
installments of $250,000. The first installment will be payable within five
business days of termination of employment, with the second installment payable
on the first anniversary of termination.
In addition to Mr. Westerman, one other executive, Robert Vannucci, has
an employment agreement with us.
Mr. Vannucci serves as President of ROC and his employment agreement
was last amended on March 24, 2003. Mr. Vannucci's base compensation is
$300,000. His employment agreement also provides for a "Normal Incentive Bonus"
entitling Mr. Vannucci to participate in our Incentive Compensation Plan, which
enables him to share in that plan's pool, which provides for an incentive bonus
based on achievement of a predetermined EBITDA target. Mr. Vannucci did not
receive an incentive bonus for 2003 and received an incentive bonus in the
amount of $114,000 for 2004.
13
Mr. Vannucci also receives compensation in the form of our Common Stock
under our Restricted Stock Plan (see "Restricted Stock Plan" below). Mr.
Vannucci's agreement provides that he is to receive $25,000 in our Common Stock,
based on the stock's market value, on the first business day of each quarter,
plus our Common Stock, based on the stock's market value, in the same amount he
receives under our Incentive Compensation Plan. Under the Restricted Stock Plan,
Mr. Vannucci is presently entitled to rights of ownership with respect to the
shares, including the right to vote and receive dividends. Mr. Vannucci may not,
however sell, assign, pledge, encumber or otherwise transfer any of the shares
so long as he is employed by us, without our written consent. The shares fully
vest to Mr. Vannucci upon his separation from employment with us, unless he is
terminated for cause. Commencing with the Restricted Stock Plan award of April
1, 2003 and for each quarter thereafter, Mr. Vannucci can choose between
receiving $25,000 in cash or $25,000 in our Common Stock. Mr. Vannucci chose to
receive $25,000 in our Common Stock and $75,000 in cash in 2003, and $100,000 in
cash in 2004, pursuant to this provision. Mr. Vannucci also can choose between
cash and our Common Stock as a match to his annual incentive bonus award. Mr.
Vannucci received no such matching award in 2003. Mr. Vannucci chose to receive
his matching award of $57,000 in cash for 2004. Mr. Vannucci's agreement
automatically renews annually subject to 120 days prior written notice by him or
us.
Profit Sharing and 401(k) Plans
On June 30, 1993, we and ROC assumed the combined profit sharing and
401(k) plans of Riviera, Inc. (the "Profit Sharing and 401(k) Plans"), and we
and ROC continued those plans after June 30, 1993. We also provided that all
current employees of the Riviera Hotel & Casino ("Riviera Las Vegas") who were
employed on April 1, 1992, were at least 21 years of age and not covered by a
collective bargaining agreement were immediately eligible to participate in the
Profit Sharing and 401(k) Plans. We further provided that all current employees
who were employed by Riviera Las Vegas after April 1, 1992, were at least 21
years of age and are not covered by a collective bargaining agreement were
eligible to participate after one year of service at the Riviera Las Vegas.
Effective January 1, 2000, we suspended contributions to the
profit-sharing component of the Profit Sharing and 401(k) Plans and substituted
contributions to an Employee Stock Ownership Plan, which is discussed directly
below.
We have an identical 401(k) plan for our 100% indirectly-owned
subsidiary, Riviera Black Hawk, Inc., which operates the Riviera Black Hawk
Casino ("Riviera Black Hawk"). Employees hired prior to June 30, 2000, who were
at least 21 years of age and who were not covered by a collective bargaining
agreement were immediately eligible to participate. After June 30, 2000, all new
employees who were at least 21 years of age and not covered by a collective
bargaining agreement were eligible to participate after one year of service at
Riviera Black Hawk.
We may make a matching contribution to the 401(k) component of the
Profit Sharing and 401(k) Plans in an amount not to exceed 25% of the first 8%
of each participant's compensation, which is contributed as a salary deferral.
Our Common Stock is not an investment option for participants in the 401(k)
component and any contribution that we make to the 401(k) component is in the
form of cash, to be invested in the participant's selected investment options.
Our 401(k) matching contribution was $302,882 in 2004.
14
Employee Stock Ownership Plan
We have an Employee Stock Ownership Plan ("ESOP"). The ESOP was
established effective January 1, 2000 and effectively replaced 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 Riviera Black Hawk employed in the plan year who
completed a minimum of 1,000 hours of service in that year, were employed
through December 31 of that plan year, were at least 21 years of age and were
not covered by a collective bargaining agreement are eligible to participate. We
make contributions for the ESOP's participants at our Las Vegas and Black Hawk
properties relative to the economic performance of each property. For Riviera
Las Vegas, we make a contribution equal to 1% of each eligible employee's annual
compensation if a prescribed annual operating results target is attained and an
additional 1% thereof for each $2 million by which that target is exceeded, up
to a maximum of 5%. For Riviera Black Hawk, we make a contribution equal to 1%
of each eligible employee's annual compensation if a prescribed annual operating
results target is attained and an additional 1% thereof for each $1 million by
which that target is exceeded, up to a maximum of 5%. Our ESOP contributions are
made in cash, which the ESOP trustee uses primarily to buy our Common Stock. We
contributed $899,253 to our ESOP for 2004.
Incentive Compensation Programs
Approximately 60 executives and other significant employees at Riviera
Las Vegas and 25 at Riviera Black Hawk participate in incentive compensation
programs. Participants in each of the two programs are eligible to receive an
annual incentive bonus based on attainment of predetermined financial targets at
each location. We awarded an aggregate of $546,000 and $397,300 to participants
at Riviera Las Vegas and Black Hawk, respectively, under these programs in the
year ended December 31, 2004.
Deferred Compensation Plan
On October 2, 2000, we adopted a Deferred Compensation Plan to give
eligible employees the opportunity to defer cash compensation. Participation in
this plan is limited to employees who receive compensation of at least $100,000.
The deferred funds are maintained on our books as liabilities. All elections to
defer the receipt of compensation must be made by December 1st preceding the
plan year to which the election relates and are irrevocable for the duration of
such year. Five of our executives currently participate in this plan.
Restricted Stock Plan
On October 2, 2000, we adopted a Restricted Stock Plan to attract and
retain highly competent persons as officers and key employees by providing them
with opportunities to receive shares of our Common Stock, subject to certain
restrictions. Participants consist of such officers and key employees as our
Compensation Committee determines are significantly responsible for our success
and future growth and profitability. Awards of stock are subject to such terms
and conditions as we determine are appropriate at the time of the awards,
including restrictions on the sale or other disposition of such stock and
provisions for total or partial forfeiture of such stock upon termination of the
participant's employment within specified periods or under certain conditions.
15
Salary Continuation Agreements
Approximately 65 officers and significant employees (excluding Messrs.
Westerman and Vannucci) of ROC have salary continuation agreements effective
through December 31, 2005, under which each of them will be entitled to receive
(1) from six months' to two years' base salary if their employment is
terminated, without cause, within 12 or 24 months of a change of control of the
Company or ROC; and (2) certain benefits for periods of either one or two years.
The base salary is payable in bi-weekly installments subject to the employee's
duty to mitigate by using his or her best efforts to find other employment. In
addition, four officers and significant employees have salary continuation
agreements effective through December 31, 2005, under which each of them will be
entitled to receive two years' base salary and certain benefits for two years,
if their employment is terminated without cause within 24 months of a change of
control of the Company or ROC. These four salary continuation agreements are not
subject to a duty to mitigate. As of March 17, 2005, the total amount that would
be payable under all such agreements if all payment obligations were to be
triggered was approximately $6.7 million, including $1.5 million in benefits.
Compensation of Directors
Messrs. Silver, Harvey and Land are each paid an annual fee of $50,000
for services as a Director. Mr. DiVito is paid an annual fee of $75,000 for
services as a Director and as Chairman of our Audit Committee. Each Director is
also reimbursed for expenses incurred in connection with attendance at meetings
of the Board of Directors.
In 1996 we adopted our Nonqualified Stock Option Plan for Non-Employee
Directors (the "1996 Plan"), which was approved by our stockholders. Under the
1996 Plan, which expired in 2003, each individual elected, re-elected or
continuing as a non-employee Director would automatically receive options for
6,000 shares of our Common Stock (as adjusted for the 2005 stock split), with an
exercise price equal to the fair market value of our Common Stock on the date of
grant. In 2004 before we determined that the 1996 Plan had expired, we attempted
to grant options to our non-employee Directors for a total of 30,000 shares of
our Common Stock. Because of the prior expiration of the 1996 Plan, though,
those options were null and void. We are now seeking stockholder approval to
issue 30,000 shares of our Common Stock to our non-employee Directors as
substitute compensation for those options. See "PROPOSAL NO. 2 - ISSUANCE OF
STOCK TO NON-EMPLOYEE DIRECTORS" below.
Under the 1996 Plan we granted to Mr. Barengo options to purchase 6,000
shares at $4.50 per share on May 12, 1997, options to purchase 6,000 shares at
$3.00 per share on May 11, 1998, options to purchase 6,000 shares at $1.63 per
share on May 10, 1999 and options to purchase 6,000 shares at $2.58 per share on
May 10, 2000. We granted no options to Mr. Barengo under the 1996 Plan after
2000 because he became an employee effective January 1, 2001. Mr. Barengo was
granted options to purchase 22,500 shares at $2.00 per share and 30,000 shares
at $2.45 per share on August 7, 2001 and May 14, 2002, respectively, under the
1993 Plan.
Upon becoming a Director, Mr. Silver was granted options under the 1996
Plan to purchase 6,000 shares at $2.35 per share on February 26, 2001. Mr.
Silver was subsequently granted options to purchase 6,000 shares at $2.18 per
share on May 10, 2001, options to purchase 6,000 shares at $2.58 per share on
May 10, 2002 and options to purchase 6,000 shares at $1.87 per share on May 12,
2003.
16
Upon becoming a Director, Mr. Harvey was granted options under the 1996
Plan to purchase 6,000 shares at $2.20 per share on May 18, 2001. Mr. Harvey was
subsequently granted options to purchase 6,000 shares at $2.58 per share on May
10, 2002 and 6,000 shares at $1.87 per share on May 12, 2003.
Upon becoming a Director, Mr. DiVito was granted options under the 1996
Plan to purchase 6,000 shares at $1.87 per share on July 12, 2002. Mr. DiVito
was subsequently granted options to purchase 6,000 shares at $1.87 per share on
May 12, 2003.
Directors who are also our officers or employees do not receive
additional compensation for services as a Director. Currently, Messrs. Westerman
and Barengo are such Directors.
Under our Stock Compensation Plan, our Directors who are members of our
Compensation Committee have the right to receive all or part of their annual
fees in the form of our Common Stock having a fair market value equal to the
amount of their fees. Of the 50,000 shares that we allocated to this plan,
46,020 remain available for issuance.
Compensation Committee Interlocks And Insider Participation
Jeffrey A. Silver, a Director and Chairman of our Compensation
Committee, is a shareholder in the law firm of Gordon & Silver, Ltd., which we
have retained for various legal matters during our last fiscal year and in 2005.
Compensation Committee Report on Executive Compensation
Our Compensation Committee endeavors to ensure that the compensation
program for our executive officers is effective in attracting and retaining key
executives responsible for our success and is tailored to promote our and our
stockholders' long-term interests. Our 2004 executive officer compensation
program was principally comprised of base salary, an executive incentive plan, a
401(k) plan, contributions to the ESOP, the Deferred Compensation Plan and the
Restricted Stock Plan.
Our Compensation Committee takes into account various qualitative and
quantitative indicators of corporate and individual performance in determining
the level and composition of compensation for our Chief Executive Officer CEO
and his recommendations regarding the other executive officers. In particular,
the Compensation Committee considers several financial performance measures,
including revenue growth and net income. However, the Compensation Committee
does not apply any specific quantitative formula in making compensation
decisions. The Compensation Committee also considers achievements that, while
difficult to quantify, are important to our long-term success. The Compensation
Committee seeks to create a mutuality of interest between our officers and our
stockholders by increasing the executive officers' ownership of our Common Stock
through the ESOP, Deferred Compensation Plan and Restricted Stock Plan. On March
10, 2005, due to the expiration of the 1993 Plan, the Compensation Committee
approved a new 2005 Incentive Stock Option Plan, covering 1,000,000 shares of
our Common Stock, which we are submitting for stockholder approval at the Annual
Meeting.
17
Salary levels for our executive officers are significantly influenced
by the need to attract and retain management employees with high levels of
expertise. In each case, we consider personal factors, such as the individual's
experience, responsibilities and work performance, and external factors, such as
salaries paid by comparable companies in the gaming industry. With regard to the
latter, it is important to recognize that because of the opening of new
properties and expansion of existing properties on the Las Vegas Strip coupled
with the growth of riverboat and dockside gaming, Native American gaming
operations and the proliferation of jurisdictions in which gaming is permitted,
we compete with numerous other companies for a limited pool of experienced and
skilled personnel. Therefore, it is critical that we provide base salaries that
are competitive in the casino industry. With respect to the personal factors,
the Compensation Committee makes salary decisions in an annual review based on
the recommendations of our CEO. This annual review considers the decision-making
responsibilities of each position as well as the experience and work performance
of each executive. Our CEO views work performance as the single most important
measurement factor. As a baseline measure, in 2001 the Compensation Committee
engaged the services of an independent CPA firm, other than Deloitte & Touche
LLP, which conducted a compensation survey of comparable Las Vegas resorts. The
CPA firm concluded that compensation of our executives was consistent with other
members of the industry.
The compensation of Mr. Westerman for our last completed fiscal year
was set pursuant to the employment agreement described above in "Employment
Agreements."
Date: March 17, 2005 Jeffrey A. Silver Chairman
Paul A. Harvey. Member
Vincent L. DiVito Member
18
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
Riviera Holdings Corporation
Produced on 03/22/05 including data to 12/31/2004
The following graph compares the annual change in the cumulative total
return, assuming reinvestment of dividends, on our Common Stock with the annual
change in the cumulative total returns of the NASDAQ Broad Market, the American
Stock Exchange Index (the "AMEX Index"), the New York Stock Exchange (the
"NYSE") and the NASDAQ Amusement and Recreation Services Index (the "NASDAQ
79xx"), which we consider to be our peer industry group. The graph assumes an
investment of $100 on December 31, 1999, in each of our Common Stock, the
stocks comprising the NASDAQ Broad Market, the stocks comprising the AMEX
Index and the stocks comprising the NASDAQ 79xx.
The graph is a Comparison of Cumulative Total Return Among the Company, NYSE/
AMEX/Nasdaq Stock Market (US Companies) and Nasdaq stocks (SIC 7900 - 7999 US
Companies amusement and recreation services) (1).
Riviera NYSE/AMEX/Nasdaq Nasdaq
U.S. Companies (SIC 79xx)
US Amusement Companies
12/31/99 100.0 100.0 100.0
12/31/00 111.8 88.7 84.2
12/31/01 66.5 79.2 98.6
12/31/02 67.8 62.9 81.7
12/31/03 84.9 82.9 116.1
12/31/04 651.0 93.1 153.6
(1) Comprised of companies whose stock is traded on the Nasdaq National Market
and whose standard industrial classification is within 7900-7999. We do not
not believe that this necessarily is an indication of the value of our
Common Stock.
19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Our Common Stock is listed on the American Stock Exchange("Amex"). The
following table contains information regarding the beneficial ownership of our
Common Stock as of April 7, 2005, by (1) each person who, to our knowledge,
beneficially owns more than 5% of our outstanding Common Stock (based on reports
filed with the Securities and Exchange Commission under the Securities Exchange
Act of 1934, or upon information furnished to us), (2) each of our directors and
executive officers and (3) all of our directors and executive officers as a
group. The percentage of our outstanding Common Stock represented by each named
person's stock ownership assumes the exercise by such person of all stock
options that are exercisable within 60 days of April 7, 2005, but does not
assume the exercise of stock options by any other persons. The percentage of our
outstanding Common Stock represented by the stock ownership of all executive
officers and directors as a group assumes the exercise by all members of that
group of their respective stock options that are exercisable within 60 days of
April 7, 2005, but does not assume the exercise of options by any persons
outside of that group. Except as indicated in the footnotes to the table, each
person listed below has sole voting and investment power with respect to the
shares set forth opposite such person's name.
Shares Beneficially Owned
-------------------------
Name Number Percentage
William L. Westerman(1)(2) 2,095,593 17.0%
Robert R. Barengo(1)(3) 449,478 3.6
Jeffrey A. Silver (1)(4) 28,200 *
Paul A. Harvey(1)(5) 10,800 *
Vincent L. DiVito(1)(6) 4,800 *
James N. Land, Jr. (1) 0 *
Robert A. Vannucci (1)(7) 481,413 3.9
Ronald P. Johnson(1)(8) 402,108 3.3
Duane R. Krohn(1)(9) 397,629 3.2
Tullio J. Marchionne(1)(10) 59,871 *
D.E. Shaw Laminar Portfolios, L.L.C.(11) 1,050,000 8.5
AIG Sun America Inc. and Sun America
Life Insurance Co.(12) 1,037,700 8.4
Steven A. Cohen(13) 782,700 6.5
Employee Stock Ownership Plan (ESOP) (14) 1,022,281 8.3
All directors and executive officers as a group (15) 3,929,892 31.2
-------------------------------
* Less than 1%.
(1) The address for each director and executive officer is c/o Riviera
Holdings Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada
89109.
(2) Includes 4,308 shares held through the ESOP.
(3) Includes 37,500 shares which may be acquired within 60 days of April 7,
2005 upon the exercise of outstanding options, 30,000 shares under our
Restricted Stock Plan and 1,038 shares held through the ESOP.
(4) Includes 15,600 shares which may be acquired within 60 days of
April 7, 2005 upon the exercise of outstanding options.
20
(5) Includes 10,800 shares which may be acquired within 60 days of
April 7, 2005 upon the exercise of outstanding options.
(6) Includes 4,800 shares which may be acquired within 60 days of
April 7, 2005 upon the exercise of outstanding options.
(7) Includes 120,000 shares which may be acquired within 60 days of April 7,
2005 upon the exercise of outstanding options, 240,831 shares under our
Restricted Stock Plan, 24,474 shares under our Deferred Compensation
Plan and 4,797 shares held through the ESOP.
(8) Includes 30,000 shares which may be acquired within 60 days of April 7,
2005 upon the exercise of outstanding options, 30,000 shares under our
Restricted Stock Plan, 82,470 shares under our Deferred Compensation
Plan and 4,797 shares held through the ESOP.
(9) Includes 7,500 shares which may be acquired within 60 days of April 7,
2005 upon the exercise of outstanding options, 30,000 shares under our
Restricted Stock Plan, 73,722 shares under our Deferred Compensation
Plan and 4,797 shares held through the ESOP.
(10) Includes 36,000 shares which may be acquired within 60 days of April 7,
2005 upon the exercise of outstanding options, 19,500 shares under our
Restricted Stock Plan and 2,571 shares held through the ESOP.
(11) The address for D.E. Shaw Laminar Portfolios, L.L.C. ("Laminar") is 120
West 45th Street, Floor 39, Tower 45, New York, NY 10036. D.E. Shaw &
Co., L.P. ("DESCO LP") acts as an investment advisor to Laminar. D.E.
Shaw & Co., LLC ("DESCO LLC") acts as managing member to Laminar. David
E. Shaw is the president and sole shareholder of certain companies that
are associated with DESCO LLC or DESCO LP. Accordingly, DESCO LLC, DESCO
LP and Mr. Shaw may also be deemed the beneficial owner of our Common
Stock that Laminar beneficially owns. Their respective addresses are the
same as Laminar's address. This information is based on information
reported by Laminar, DESCO LLC, DESCO LP and Mr. Shaw in a Schedule 13D
filed with the Securities and Exchange Commission on April 15, 2004.
(12) AIG SunAmerica Inc. and SunAmerica Life Insurance Company ("SunAmerica")
have shared voting and dispositive power over 1,037,700 shares of our
Common Stock. The address of their principal business office is 2929
Allen Parkway A37-01, Houston, Texas 77019 attention Thomas Reeg.
American International Group, Inc. is the parent holding company of
these two entities and also has shared voting and dispositive power over
those 1,037,700 shares. Its address is 70 Pine Street, New York, New
York 10270. All of this information is based on information reported by
these companies in Amendment No. 1 to Schedule 13G filed with the
Securities and Exchange Commission on April 15, 2003.
(13) Steven A. Cohen is deemed the beneficial owner of these shares because
he controls S.A.C. Capital Advisors, LLC ("SAC Advisors"); S.A.C.
Capital Management LLC ("SAC Management"); and Sigma Capital Management,
LLC ("Sigma Management"). Pursuant to investment agreements, SAC
Advisors and SAC Management share all investment and voting power with
respect to securities held by S.A.C. Capital Associates, LLC ("SAC
Associates"). Pursuant to an investment agreement, Sigma Management
maintains investment and voting power with respect to securities held by
Sigma Capital Associates, LLC ("Sigma Associates"). As a result of these
relationships, (1) each of SAC Associates, SAC Advisors, SAC Management
and Mr. Cohen may be deemed to own beneficially (with shared voting and
dispositive power) 760,200 shares of our Common Stock (constituting
approximately 6.3% of our outstanding shares) and (2) Sigma Associates,
Sigma Management and Mr. Cohen may be deemed to own beneficially (with
shared voting and dispositive power) 22,500 shares (constituting
approximately 0.2% of our outstanding Common Stock). SAC Advisors, SAC
Management, Sigma Management and Mr. Cohen have disclaimed beneficial
ownership of our Common Stock. The principal business office addresses
of these persons are as follows: Mr. Cohen and SAC Advisors - 72
Cummings Point Road, Stamford, Connecticut 06902; SAC Management and
Sigma Management - 540 Madison Avenue, New York, New York 10022; and SAC
Associates and Sigma Associates - P.O. Box 58, Victoria House, The
Valley, Anguilla, British West Indies. All of this information is based
on information reported by SAC Associates, SAC Advisors, SAC Management,
Sigma Associates, Sigma Management and Steven A. Cohen in a Schedule 13G
filed with the Securities and Exchange Commission on December 30, 2004.
21
(14) The Trustee of the ESOP and its address are Marshall & Ilsley Trust
Company N.A., 1000 North Water Street, Suite 1200, Milwaukee, Wisconsin
53202. All of the shares held by the ESOP are voted on each proposal in
proportion to the voting instructions received by the Trustee from all
ESOP participants who submit voting instructions. For example, if (1)
the ESOP holds 1,000 shares of our Common Stock, (2) the Trustee
receives voting instructions from participants on whose behalf the ESOP
holds only 500 shares, and (3) those participants, in the aggregate,
instruct the Trustee to vote 300 shares in favor of a proposal and 200
shares against it, then 600 shares held by the ESOP will be voted for
the proposal and 400 shares will be voted against it. Our Common Stock
held by the ESOP on behalf of our executive officers is reported in the
ESOP's Common Stock ownership listing as well as in our Common Stock
ownership listings for the respective executive officers and for
executive officers and directors as a group.
(15) Includes a total of 262,200 shares which may be acquired by directors
and executive officers as a group within 60 days of April 7, 2005 upon
the exercise of outstanding options, 350,331 shares under our Restricted
Stock Plan, 180,666 shares under our Deferred Compensation Plan and
22,308 shares which they hold through the ESOP.
We are a party to a registration rights agreement with SunAmerica.
SunAmerica can require us to register under the Securities Act of 1933 our
Common Stock that it owns. In addition, the agreement grants to SunAmerica the
right to have included, subject to certain limitations, all shares of our Common
Stock owned by SunAmerica in any registration statement that we file under the
Securities Act. We will pay all costs and expenses, other than underwriting
discounts and commissions, in connection with the registration and sale of our
Common Stock under that agreement.
INDEPENDENT PUBLIC ACCOUNTANTS
Our Board of Directors has appointed Deloitte & Touche LLP as our
independent public accountants for the year ending December 31, 2004. Deloitte &
Touche LLP has been our and our predecessor company's accountants since prior to
1988. Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting. Those representatives will have the opportunity to make a
statement if they so desire. They are expected to be available to respond to
appropriate questions.
22
Audit Fees
We were billed by our principal accountants, namely Deloitte & Touche
LLP, the member firms of Deloitte Touche, Tohmatsu and their respective
affiliates (collectively "Deloitte"), a total of $217,000 and $208,700 for
fiscal years 2004 and 2003, respectively, for their audit of our annual
consolidated financial statements and their review of our consolidated financial
statements in our quarterly reports on Form 10-Q.
Audit-Related Fees
We were billed by Deloitte $37,500 and $36,100 for benefit plan audits
for the fiscal years 2004 and 2003, respectively.
Tax Fees
We were billed by Deloitte $61,184 and $88,200 for income tax services
for the fiscal years 2004 and 2003, respectively. Those services consisted of
preparation of federal and state income tax returns and related tax advice.
All Other Fees
We were billed by Deloitte $4,800 for other professional services in
fiscal 2004 and no fees for other professional services rendered in fiscal 2003.
Audit Committee's Pre-Approval of Engagement
Our policy is that before we engage our independent public accountants
annually to render audit or non-audit services, the engagement is reviewed and
approved by our Audit Committee. All of our independent public accountants'
services for which we paid audit-related fees or tax fees for 2004 and 2003, as
described above, were within the scope of the engagement that our Audit
Committee approved before we entered into the engagement.
Proposal No. 2
Approval Of Our 2005 Incentive Stock Option Plan
(Item 2 on Proxy Card)
On March 10, 2005, our Board of Directors adopted the 2005 Incentive
Stock Option Plan ("Employee Plan"), which we are now asking our stockholders to
approve. We are doing so because our 1993 Plan has expired, as explained
elsewhere in this Proxy Statement, and we are therefore unable to grant stock
options to our officers and key employees. We believe that stock options, as a
form of incentive compensation, can further the Company's best interests because
they help to align the interests of the Company and those of our officers and
key employees. We also believe that the Employee Plan will help us to retain
these individuals, as well as to attract new executives and other key employees,
and will help to encourage ownership of our Common Stock by these persons.
23
A general description of the principal terms of the Employee Plan is
set forth below. That description is qualified in its entirety by the terms of
the Employee Plan, which is attached to this Proxy Statement as Exhibit A and is
incorporated herein by reference.
Administration and Eligibility. The Employee Plan will be administered
by a committee of our Board of Directors that we will establish for this purpose
("Stock Option Committee"). We intend that each member of our Stock Option
Committee will qualify as an "outside director," as that term is used in Section
162(m) of the Internal Revenue Code (the "Code").
Our Stock Option Committee will be authorized to, among other things,
set the terms of option grants and waive compliance with such terms in
appropriate cases. The terms of option grants may vary from participant to
participant. Our Stock Option Committee will also have the authority to
interpret the Plan and adopt administrative regulations.
The persons who will be eligible to participate in the Employee Plan
are our (or our subsidiaries') officers and key employees, including Directors
who are also officers or key employees. Our Stock Option Committee will have
authority in its discretion, but subject to the terms of the Employee Plan, to
determine, from among the eligible participants, the persons to whom, and the
time at which, options will be granted and the number of shares to be covered by
each option.
Stock Option Grants and Exercises. We have reserved 1,000,000 shares of
our Common Stock for issuance under the Employee Plan (subject to anti-dilution
adjustments for stock dividends, stock splits, reorganizations and similar
events, as explained below). If any option granted under the Employee Plan
expires, terminates, or is forfeited or canceled, the shares subject to that
option will be released and will become available for the grant of new options
under the Employee Plan, to the extent allowable under Section 422 of the Code.
Subject to anti-dilution adjustments explained below, the number of
shares with respect to which options may be granted to any participant under the
Employee Plan during any fiscal year of the Company may not exceed 500,000.
The exercise price per share for an option will be not less than the
fair market value per share of our Common Stock as of the date we grant the
option. However, if we grant an option to a beneficial owner of more than 10% of
our outstanding Common Stock (a "10% Stockholder"), then the exercise price per
share will be not less than 110% of the fair market value of our Common Stock on
the grant date. The fair market value will be the closing price of our Common
Stock on Amex on the date of the option grant (or any other exchange on which
our Common Stock is then listed), provided that our Common Stock is then so
listed. If our Common Stock is not listed on an exchange at the time we grant
an option, then our Stock Option Committee will make a good faith determination
of the fair market value.
If an option is exercised, the exercise price will be payable (1) in
cash or by check; (2) by tender of such number of shares of our Common Stock
owned by the option holder as is equal in value to the exercise price; or (3) by
a combination of such methods of payment.
24
Types of Options. Each option granted under the Employee Plan is
intended to qualify as an "incentive stock option" ("ISO"), as defined in
Section 422 of the Code. To the extent that an option fails to meet the
standards for an ISO, the option will be treated as a non-qualified stock option
under the Employee Plan and the Code. By way of example, to the extent that the
aggregate fair market value of shares of our Common Stock subject to options
which become exercisable for the first time by a participant during any calendar
year exceeds $100,000, the excess portion of such options will be treated as
non-qualified stock options.
Vesting and Exercisability; Expiration or Termination of Options. Our Stock
Option Committee will determine the vesting and exercisability schedule for each
option grant, and that schedule will be set forth in the stock option agreement
that we and the option holder execute. As a general matter, we expect that each
option will vest and become exercisable for 20% of the underlying shares on the
date of the option grant, and for an additional 20% on each anniversary of the
date of the grant. The Employee Plan provides, however, that in the event of the
option holder's retirement at age 62, death or disability or in the event of a
"change of control" of the Company (as defined in the Employee Plan), any
portion of the option that has not yet vested and become exercisable shall
immediately vest and be exercisable.
If the option holder's employment terminates due to death or disability
(or if the option holder dies or become disabled within certain specified time
frames after termination of employment other than "termination for cause" (as
defined in the Employee Plan) or due to retirement at age 62), then the option
will be exercisable at any time within one year after death or disability. If
the option holder's employment terminates for any other reason (other than for
cause), then the option will be exercisable within three months after
termination of employment, or six months after termination if an exercise of the
option within three months after termination would result in short-swing trading
liability under Section 16(b) of the Securities Exchange Act of 1934. If the
option holder's employment termination was not the result of retirement at age
62 and was not for cause, then the option will only be exercisable during this
three-month or six-month period to the extent it was exercisable immediately
prior to such termination. If an option holder's employment is terminated for
cause, then upon such termination all non-exercised options held by that person
will immediately terminate. To the extent that an option remains exercisable
beyond the time permitted by law for the exercise of ISOs following the
termination of employment, the option will convert automatically to a
non-qualified stock option for the remaining period of its exercisability.
Subject to the events described above concerning termination of the
option holder's employment, an option granted under the Employee Plan will
expire not later than ten years from the date on which it was granted (except in
the case of an ISO granted to a 10% Stockholder, which will expire not later
than five years from the grant date).
Changes in Capital Structure; Anti-Dilution Adjustments. If any stock
dividend, recapitalization, stock split, reorganization, merger, consolidation,
split-up, spin-off, combination or exchange of our shares or our other
securities affects our Common Stock such that our Stock Option Committee
determines that an adjustment is appropriate and equitable in order to prevent
dilution or enlargement of benefits or potential benefits intended to be made
available under the Employee Plan, then without stockholder approval our
Stock Option Committee may adjust any or all of (1) the number of shares of our
Common Stock subject to each outstanding option, (2) the exercise price of such
options and (3) the number of shares reserved for issuance under the Employee
Plan.
25
Effectiveness. The Employee Plan will become effective upon approval by
our stockholders and will expire on March 9, 2015. Expiration of the Employee
Plan will not affect the validity or exercisability of options granted prior to
such expiration.
Section 162(m) of the Code. Under Section 162(m) of the Code, we are
not allowed a tax deduction in any taxable year for compensation in excess of $1
million that we pay to our CEO or to any of our other four most highly paid
executive officers who serve in such capacity as of the last day of the taxable
year. An exception to this rule applies to compensation that we pay pursuant to
a stock incentive plan approved by stockholders and that specifies, among other
things, the maximum number of shares with respect to which options and stock
appreciation rights (which we do not have) may be granted to eligible
participants under such plan during a specified period. Compensation paid
pursuant to options or stock appreciation rights granted under such a plan and
with an exercise price equal to the fair market value of our Common Stock on the
date of grant is deemed performance-based, because such awards provide value to
participants only if the stock price appreciates. To the extent required by
Section 162(m) of the Code or the regulations thereunder, in applying the
foregoing limitation, if any stock option is canceled, the canceled option shall
continue to count against the maximum number of shares of our Common Stock with
respect to which we may grant an option to a participant.
Certain Federal Tax Consequences. Our grant of an ISO will not result
in any federal income tax consequences to the participant or to us. A
participant recognizes no federal taxable income upon exercising an ISO (subject
to the alternative minimum tax rules discussed below), and we get no tax
deduction at the time of exercise. In the event that a participant disposes of
shares that were acquired through the exercise of an ISO, the tax consequences
depend on how long the participant held the shares. If the participant does not
dispose of the shares within two years after we granted the ISO, nor within one
year after the ISO was exercised, the participant will recognize a long-term
capital gain (or loss) equal to the difference between the sale price of the
shares and the exercise price. We will not be entitled to any tax deduction
under these circumstances. If the participant fails to satisfy either of the
foregoing holding periods, he or she must recognize ordinary income in the year
of the disposition (referred to as a "disqualifying disposition"). The amount of
such ordinary income generally is the lesser of (1) the difference between the
amount realized on the disposition and the exercise price or (2) the difference
between the fair market value of the shares on the exercise date and the
exercise price. Any gain in excess of the amount taxed as ordinary income will
be treated as a long-term or short-term capital gain, depending on whether the
shares were held for more than one year. In the year of the disqualifying
disposition, we will be entitled to a tax deduction equal to the amount of
ordinary income recognized by the participant, subject to possible limitations
imposed by Section 162(m) of the Code and so long as we withhold the appropriate
taxes with respect to such income (if required) and the individual's total
compensation is deemed reasonable in amount.
The "spread" under an ISO - the difference between the fair market
value of the shares on the date of exercise and the exercise price - is
classified as an item of adjustment for the participant in the year the option
is exercised, for purposes of the alternative minimum tax.
26
The grant of a non-qualified stock option will not result in any
federal income tax consequences to the participant or to us. Upon exercise of a
non-qualified stock option, the participant is subject to income taxes at the
rate applicable to ordinary compensation income on the difference between the
option exercise price and the fair market value of the shares on the date of
exercise. This income is subject to withholding for federal income and
employment tax purposes. We are entitled to an income tax deduction in the
amount of the income recognized by the participant, subject to possible
limitations imposed by Section 162(m) of the Code. Any gain or loss on the
participant's subsequent disposition of the shares will receive long-term or
short-term capital gain or loss treatment, depending on whether the shares were
held for more than one year following exercise. We will not get a tax deduction
for any such gain.
The foregoing summary of the federal income tax consequences of
transactions under the Employee Plan is based upon federal income tax laws in
effect on the date of this Proxy Statement. This summary does not purport to be
complete, and does not discuss foreign, state or local tax consequences.
Vote Required for Approval. Approval of the Employee Plan will require
the affirmative vote of the holders of a majority of our outstanding shares
represented in person or by proxy and entitled to vote at the Annual Meeting.
Our Board of Directors unanimously recommends that you vote "FOR"
approval of the Employee Plan.
Proposal No. 3
Approval Of Our 2005 Non-Qualified Stock Option Plan For Non-Employee Directors
(Item 3 on Proxy Card)
On March 10, 2005, our Board of Directors adopted the 2005 Nonqualified
Stock Option Plan for Non-Employee Directors (the "Director Plan"), which we are
now asking our stockholders to approve. We are doing so because our 1996 Plan
has expired, as explained elsewhere in this Proxy Statement, and we are
therefore unable to grant stock options to our non-employee Directors. The
Director Plan is intended to assist us in attracting and retaining dedicated and
qualified persons to serve as our non-employee Directors. We also believe that
the Director Plan will help to encourage ownership of our Common Stock by
non-employee Directors.
A general description of the principal terms of the Director Plan is
set forth below. That description is qualified in its entirety by the terms of
the Director Plan (including the accompanying form of Stock Option Agreement),
which is attached to this Proxy Statement as Exhibit B and is incorporated
herein by reference.
Participation. Participation in the Director Plan will be limited to
members of our Board of Directors who are not employees of the Company or of any
of our subsidiaries ("non-employee Directors").
Stock Option Grants and Exercises. We have reserved 150,000 shares of
our Common Stock for issuance under the Director Plan (subject to anti-dilution
adjustments for stock dividends, stock splits, reorganizations and similar
events, as explained below). If any option granted under the Director Plan
expires, terminates, or is forfeited or canceled, the shares subject to that
option will be released and will become available for the grant of new options
under the Director Plan.
27
The exercise price per share for an option will be not less than the
fair market value per share of our Common Stock as of the date we grant the
option. The fair market value will be determined as follows: (1) if our Common
Stock is listed on an exchange, the closing price on the date of the option
grant; (2) if our Common Stock is reported on NASDAQ, the closing price reported
on the date of the option grant; and (3) under any other circumstances, our
Board of Directors will make a good faith determination of fair market value.
If an option is exercised, the exercise price will be payable (1) in
cash or by check; (2) by tender of such number of shares of our Common Stock
which have been owned by the option holder for not less than six months prior to
the date of exercise and are equal in value to the exercise price; or (3) by a
combination of such methods of payment.
The Director Plan provides that annually, each individual elected,
reelected or continuing as a non-employee Director will receive a nonqualified
stock option for 6,000 shares of our Common Stock (subject to anti-dilution
adjustments described below). In 2005, we expect to grant the options as soon as
practicable after the Director Plan has become effective and the options and
shares of Common Stock reserved for issuance under the Director Plan have been
registered under the Securities Act of 1933. If, however, we elect not to
register the options and the underlying Common Stock, then we will grant the
options as soon as practicable after the Director Plan becomes effective. In
subsequent years, we will grant the options on the anniversary of the effective
date of the Director Plan.
Vesting and Exercisability; Expiration or Termination of Options.
Options will become exercisable to the extent of 20% of the underlying shares
after an option holder has continuously served as a non-employee Director for
one year after the option grant, and to the extent of an additional 20% in each
of the next four years, provided that the option holder has continuously served
as a non-employee Director during those years. However, in the event of a
"change of control" of the Company (as defined in the Director Plan), any
portion of an option that has not yet vested and become exercisable will
immediately vest and be exercisable.
Options granted under the Director Plan will expire on the earliest of
the following dates: (1) three months after the date on which the option holder
ceases to be a non-employee Director, unless that is due to death or disability
or because the option holder has become an officer or employee of the Company or
of any of our subsidiaries; (2) one year after death or disability if the option
holder dies or becomes disabled while a Director; (3) three months after the
date of a qualified domestic relations order that requires the transfer of all
or a portion of the option to the option holder's spouse (but only the portion
that is transferred will thereby terminate); or (4) ten years from the date of
the option grant.
Changes in Capital Structure; Anti-Dilution Adjustments. If any stock
dividend, recapitalization, stock split, reorganization, merger, consolidation,
split-up, spin-off, combination or exchange of our shares or our other
securities affects our Common Stock such that our Board of Directors determines
that an adjustment is appropriate and equitable in order to prevent dilution or
enlargement of benefits or potential benefits intended to be made available
under the Director Plan, then without stockholder approval our Board of
Directors may adjust any or all of (1) the number of shares of our Common Stock
subject to each outstanding option, (2) the exercise price of such options and
(3) the number of shares reserved for issuance under the Director Plan.
28
Effectiveness. The Director Plan will become effective upon approval by
our stockholders. The Director Plan has no expiration date. We intend that the
Director Plan will remain effective until (1) options for all shares of our
Common Stock reserved for issuance under the Director Plan have been exercised
in full or (2) it has been conclusively determined that we can grant no further
options under the Director Plan even if non-exercised options terminated, expire
or are canceled. Our Board of Directors, though, has authority to make
amendments to the Director Plan, which may include the establishment of an
expiration date.
Other Information. We pay and will continue to pay other compensation
to our non-employee Directors besides the grants of stock options. See
"COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS - Compensation of Directors"
above.
Certain Federal Tax Consequences. Options granted under the Director
Plan will be non-qualified stock options under the Code. Therefore, our grant of
Director Plan options will not result in any federal income tax consequences to
the Director Plan participant or to us. Upon exercise of a non-qualified stock
option, the participant will be subject to income taxes at the rate applicable
to ordinary compensation income on the difference between the option exercise
price and the fair market value of the shares on the date of exercise. We are
entitled to an income tax deduction in the amount of the income recognized by
the participant, subject to possible limitations imposed by Section 162(m) of
the Code. Any gain or loss on the participant's subsequent disposition of the
shares will receive long-term or short-term capital gain or loss treatment,
depending on whether the shares were held for more than one year following
exercise of the option. We will not get a tax deduction for any such gain.
The foregoing summary of the federal income tax consequences of
transactions under the Director Plan is based upon federal income tax laws in
effect on the date of this Proxy Statement. This summary does not purport to be
complete, and does not discuss foreign, state or local tax consequences.
Vote Required for Approval. Approval of the Director Plan will require
the affirmative vote of the holders of a majority of our outstanding shares
represented in person or by proxy and entitled to vote at the Annual Meeting.
Our Board of Directors unanimously recommends that you vote "FOR"
approval of the Director Plan.
Proposal No. 4
Approval of our Issuance Of Stock To Non-Employee Directors
(Item 4 on Proxy Card)
On March 10, 2005, our Board of Directors approved the issuance of
30,000 shares of our Common Stock as compensation to our four non-employee
Directors, subject to stockholder approval and subject to a vesting schedule and
restrictions on transfers or pledges of those shares, as described below. Our
non-employee Directors constitute a majority of our six-member Board of
Directors. They, as well as our other two Directors, participated in the
deliberations on this proposal and all six Directors voted in favor of it.
29
Purpose and Effect. In April and May of 2004, we attempted to grant
options under the 1996 Plan for a total of 30,000 shares of our Common Stock (as
adjusted for our 2005 stock split) to our four non-employee Directors as part of
their annual compensation. We refer below to these options as the "Intended
Options." Subsequently, though, we determined that the 1996 Plan had expired in
2003, as a result of which the Intended Options were null and void. As a form of
substitute compensation, we are requesting stockholder approval to issue 30,000
shares of our Common Stock to those non-employee Directors, as shown in the
table below. Assuming approval by our stockholders, our issuance of those shares
will be subject to the non-employee Directors' acceptance of the shares in full
substitution for the Intended Options.
Assuming such approval and acceptance, the 30,000 shares will be
subject to a vesting schedule that restricts the non-employee Directors from
selling, assigning, pledging, encumbering or otherwise transferring the shares
until they vest. The shares will vest at the rate of 20% per year on each
anniversary of our issuance of the shares, resulting in full vesting five years
after issuance. The shares, though, will vest immediately upon death, disability
or a change in control of the Company, or under any other circumstances in which
the individual ceases to be a Director except for resignation prior to reaching
age 62 or declining to stand for reelection prior to reaching age 62. In the
event of such resignation or decision not to stand for reelection, the
non-vested shares will be canceled and forfeited.
The number of shares that were subject to the Intended Options and that
we now intend to issue to the non-employee Directors, the value that those
Intended Options would have had, and the value of our Common Stock that we
propose to issue to our non-employee Directors in substitution for the Intended
Options, with both such valuations based on the April 6, 2005 closing price of
our Common Stock on Amex, are as follows:
Number Of Shares In-The-Money
Subject To Intended Value That The Value Of
Options And Intended Options Shares Proposed
Proposed Stock Would Have Had To Be Issued
Issuance (As Of 4/6/05) (As Of 4/6/05)
-------- ------------------ -------------------
Name Exercisable Unexercisable Vested Not Vested
---- ----------- ------------- ------ ----------
Jeffrey A. Silver 6,000 $ 0 $56,400 $ 0 $74,220
Paul A. Harvey 6,000 $ 0 $56,400 $ 0 $74,220
Vincent L. DiVito 6,000 $ 0 $56,400 $ 0 $74,220
James N. Land, Jr. 12,000 $ 0 $112,620 $ 0 $148,440
As the table above indicates, the value of the shares that we propose
to issue exceeds the in-the-money value of the Intended Options. That is because
the non-employee Directors would have had to pay an exercise price for the
options in order to exercise them, which price was equal to the fair market
value of our Common Stock on the date that we attempted to grant the Intended
Options. Our issuance of the 30,000 shares in substitution for the Intended
Options, though, would not require payment by the non-employee Directors.
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In addition to the dollar-value differential, the Intended Options (if
they had been valid) would have been subject to a greater risk of loss on the
part of the non-employee Directors, as compared with the vesting provisions of
the shares that we now propose to issue to them. For example, in the event of a
non-employee Director's death or disability, the Intended Options would have had
to be exercised within one year thereafter or else they would have expired.
Under other circumstances in which the individual ceased to be a Director, he
would have had to exercise the Intended Options within three months thereafter.
To the extent that the Intended Options would not have been subject to any
special deadlines for exercise, they would have expired if not exercised within
ten years from the respective dates of the intended grants. In contrast, the
vesting provisions that will apply to the new shares will not result in a
non-employee Director's loss of the shares prior to vesting unless he
voluntarily leaves the Board of Directors before he reaches age 62.
Consequently, our non-employee Directors who are older than 62 have no risk of
losing the shares prior to vesting.
Except for the right to sell, assign, pledge, encumber or otherwise
transfer these new shares (which will be subject to the vesting schedule), the
non-employee Directors will be entitled to all rights of ownership with respect
to the shares, including the right to vote and receive dividends, immediately
upon issuance. Neither these shares nor any other outstanding shares of our
Common Stock have preemptive rights.
We believe that the higher value and fewer restrictions for these new
shares, as compared with the Intended Options, is appropriate in view of the
lost opportunities on the part of the non-employee Directors that resulted from
our inability to grant the Intended Options. The Intended Options would have
vested at the rate of 20% per year, on each anniversary of the grant. We
attempted to grant options for 6,000 shares on April 19, 2004 and options for
24,000 shares on May 10, 2004. If the options had been valid, then by the date
of the Annual Meeting they would already have become exercisable for 20% of the
underlying shares at a strike price that is well below the April 6, 2005 closing
price of our Common Stock on Amex (although as indicated in the table above, the
Intended Options would not have been exercisable as of April 6, 2005). The
vesting of the new 30,000 shares, in contrast, will not start until one year
after we issue those shares, which will be shortly after the Annual Meeting
(assuming that Stockholders approve this proposal). We believe this delayed
vesting schedule, viewed in light of the non-employee Directors' lost
opportunity to benefit from the appreciation in the market price of our Common
Stock since we attempted to issue the options in March and April 2004, justifies
the advantages to the non-Employee Directors of this proposed stock issuance as
compared with what they would have gotten if the Intended Options had been
valid.
At December 31, 2004, our Common Stock had a negative net tangible book
value of approximately $(3.64) per share, without giving effect to any exercise
of stock options then outstanding. The net tangible book value per share is
determined by dividing our net tangible book value (total tangible assets minus
total liabilities) by the number of shares of our Common Stock outstanding at
December 31, 2004 (adjusted for the 2005 stock split). Because our Common Stock
had a negative net tangible book value, our issuance of these 30,000 shares
without payment for them would not cause a pro forma reduction in the net
tangible book value per share as of December 31, 2004. Nevertheless, we cannot
assure you that our issuance of these shares will not have a dilutive effect on
the market price of our Common Stock, even though the shares only amount to
approximately 0.2% of the number of shares of our Common Stock outstanding as of
April 7, 2005.
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If Stockholders do not approve our issuance of these shares, we will
consider other substitute forms of compensation for our non-employee Directors
in lieu of the Intended Options, which were supposed to be part of their 2004
compensation but which we were unable to grant because of the expiration of the
1996 Plan.
Vote Required for Approval. Our issuance of these 30,000 shares of our
Common Stock to our non-employee Directors requires the affirmative vote of the
holders of a majority of our outstanding shares represented in person or by
proxy and entitled to vote at the Annual Meeting.
Our Board of Directors unanimously recommends that you vote "FOR"
approval of this issuance of 30,000 shares of our Common Stock to our
non-employee Directors.
OTHER MATTERS
We know of no other matters which are to be brought before the Annual
Meeting. If any other matters are presented for proper action, it is the
intention of the persons named in the proxy to vote in accordance with their
discretion pursuant to the terms of the proxy.
PROPOSALS OF STOCKHOLDERS
Stockholder proposals intended to be presented at our 2006 annual
meeting of stockholders must be received at our executive offices in writing not
later than December 23, 2005 to be eligible for inclusion in our proxy statement
with respect to that meeting. Stockholders who intend to present a proposal at
our 2006 annual meeting but who do not seek to have it included in our proxy
statement must notify us of the proposal by not later than March 8, 2006.
Otherwise, the proposal will be deemed untimely. These deadlines are based on a
projected 2006 annual meeting date of May 16, 2006.
RIVIERA HOLDINGS CORPORATION
By: William L. Westerman
President, Chief Executive Officer and
Chairman of the Board of Directors
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. REGARDLESS OF WHETHER YOU
EXPECT TO ATTEND THE MEETING, WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE.
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EXHIBIT A
RIVIERA HOLDINGS CORPORATION
2005 INCENTIVE STOCK OPTION PLAN
EXHIBIT B
RIVIERA HOLDINGS CORPORATION
2005 NON-QUALIFIED STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS