RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
-------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on July 15, 2003
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 July 15, 2003, at 1:00 p.m., Las Vegas time, for the following
purposes:
1. To elect our Board of Directors;
2. To amend Article III, Section 7 of our Articles of
Incorporation; and
3. To consider and act upon such other matters as may
properly come before the meeting or any adjournments
or postponements thereof.
We have fixed June 2, 2003 as the record date for determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting
(including any adjournments or postponements 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 fiscal year ended December 31, 2002, which
includes a copy of our Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 2002, is enclosed.
By Order of the Board of Directors,
William L. Westerman
Chairman of the Board
Dated: June 5, 2003
YOU ARE URGED TO COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY AS SOON AS
POSSIBLE. IF YOU ATTEND THE MEETING AND VOTE IN PERSON, THE PROXY WILL NOT BE
USED. IF THE PROXY IS MAILED IN THE UNITED STATES IN THE ENCLOSED ENVELOPE, NO
POSTAGE IS REQUIRED.
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
PROXY STATEMENT
for Annual Meeting of Stockholders
to be held on July 15, 2003
June 5, 2003
TO THE STOCKHOLDERS:
Our Board of Directors is soliciting proxies for the 2003 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" means Riviera Holdings Corporation
(a Nevada corporation);
o "Annual Meeting" means our 2003 Annual Meeting of Stockholders that
will be held on Tuesday, July 15, 2003, at 1:00 p.m. Las Vegas time,
at the Riviera Hotel and Casino, 2901 Las Vegas Boulevard South,
Las Vegas, Nevada 89109;
o "Articles of Incorporation" means our Second Restated Articles of
Incorporation, which govern certain aspects of our corporate
structure and operations;
o "Common Stock" means our common stock, par value $.001 per share; and
o "Stockholders" means holders of record of Common Stock as of the close
of business on June 2, 2003.
Our principal executive offices are located in the Riviera Hotel and
Casino at 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109. Our 2002
Annual Report, this Proxy Statement and the accompanying proxy card are first
being sent to stockholders on or about June 5, 2003.
Stockholders are entitled to one vote at the Annual Meeting for each
outstanding share of Common Stock that they hold as of June 2, 2003 (the "Record
Date"), except as otherwise discussed herein. At the close of business on the
Record Date, 3,606,155 shares of 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 (i) the
registered Stockholder of such shares of Common Stock or (ii) a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
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other business entity, or any other person acting in a fiduciary or
representative capacity on behalf of such registered Stockholder. You can, of
course, revoke a proxy at any time before it is voted, if so desired, by filing
with the Secretary of the Company an instrument revoking the proxy or by
returning a duly executed proxy bearing a later date, or by attending the Annual
Meeting and voting in person. Any such 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.
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 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 five directors to hold office until our
next annual meeting and until their respective
successors shall have been elected and qualified, or
until resignation or removal;
2. an amendment of Article III, Section 7 of our Articles
of Incorporation to eliminate certain voting limitations
on ownership of more than 15% of the outstanding Common
Stock; and
3. 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
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 five nominees
who receive the highest number of votes will be elected.
To amend the Articles of Incorporation to the full extent that we
propose, the affirmative vote of holders of at least 60% of the outstanding
Common Stock as to which votes are entitled to be cast as of the Record Date is
required. If the amendment is approved by holders of more than 50% of the
outstanding Common Stock, but less than 60% of the Common Stock as to which
votes are entitled to be cast, then the Articles of Incorporation will be
amended to a lesser extent, as explained below under "PROPOSAL NO. 2 - AMENDMENT
OF ARTICLES OF INCORPORATION." If the amendment is not approved by holders of
more than 50% of the outstanding Common Stock, then the amendment will not take
effect.
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For any other matters submitted to Stockholders at the Annual Meeting,
if a quorum is present, the affirmative vote of a majority of the shares
represented and entitled to vote will be required for approval.
Consequently, abstentions and "non-voted" shares, as described below in
this section, will have the same effect as a vote against the amendment of the
Articles of Incorporation and against any such other matters submitted at the
Annual Meeting.
Shares of 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 amendment of the Articles of Incorporation as described in this Proxy
Statement; and (3) in the discretion of the persons named as proxy appointees as
to any other matters that may properly come before the Annual Meeting.
It is possible that shares held by brokers and 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 thereof to vote on a
particular matter but is not instructed on other matters. These are known as
"non-voted" shares. Non-voted shares will be counted for 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
Our Board of Directors consists of five 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 stockholders and until their respective
successors have been elected and qualified, or until resignation or removal.
Directors
The following table presents information as of June 2, 2003 regarding
the five nominees for director:
Name Age Position
William L. Westerman 71 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
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Robert R. Barengo 61 Our and ROC's Director; Director of Government and
Public Affairs of ROC
Jeffrey A. Silver 57 Our and ROC's Director
Paul A. Harvey 65 Our and ROC's Director
Vincent L. DiVito 43 Our and ROC's Director
William L. Westerman has been our Chairman of the Board and Chief Executive
Officer 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 Chief Executive Officer of Riviera, Inc. on January 1, 1992. From
1973 to June 30, 1991, Mr. Westerman was President and Chief Executive Officer
of Cellu-Craft Inc., a manufacturer of flexible packaging primarily for food
products, and then 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.
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 he was elected Speaker of the Assembly. From October 1992 to May 1996, Mr.
Barengo was a director of Leroy's Horse & Sports Place, Inc. ("Leroy's"). In May
1996, Leroy's became a wholly owned subsidiary of American Wagering, Inc.
("AWI"), a publicly reporting corporation. From May 1996 to March 2000, Mr.
Barengo was a director and, to our knowledge, he is currently a 6.7% shareholder
of AWI. Since 1993, Mr. Barengo has been the President and the sole stockholder
of Silver State Disseminators Company, a company licensed by Nevada gaming
authorities to disseminate racing information in the State of Nevada. In October
1992, the Governor appointed him as a member of the State of Nevada Dairy
Commission and in July 1993, the Governor appointed Mr. Barengo as Chairman of
the State of Nevada Dairy Commission, a position Mr. Barengo still holds. Mr.
Barengo was also a director of Saxton, Inc., until he resigned on April 12,
2000. Mr. Barengo currently is the Chairman of the Board of Western Thrift and
Loan, a thrift company licensed and regulated by the Nevada Commissioner of
Financial Institutions. Mr. Barengo accepted the position of Director of
Government and Public Affairs with ROC effective January 1, 2001, in addition to
his duties as one of our and ROC's Directors.
Jeffrey A. Silver has been one of our and ROC's Directors since
February 26, 2001. Mr. Silver is currently a shareholder with Gordon & Silver,
Ltd., a law firm located 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 the Riviera Hotel & Casino from 1983 to 1984
and Senior Vice President at Caesars Palace in 1984. Mr. Silver served on the
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Board of the Las Vegas Convention and Visitors Authority from 1989 to 1992 as
Secretary/Treasurer where he 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. Mr. Harvey is currently a consultant to the
gaming, hotel and resort industry and serves as Chairman of the Board of the
National Center for Responsible Gaming. Mr. 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 at the rank of
Major General in 1991. Mr. 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. The company merged with LCI, Inc. and he is
currently on the Board of Directors of LC Industries.
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,
which 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). Prior to
1984, Mr. DiVito spent two years on the audit team at Ernst & Whinney (now Ernst
& Young). Mr. DiVito is a certified public accountant and certified management
accountant.
Executive Officers
The following table presents information as of June 2, 2003 regarding
our and ROC's executive officers:
Name Age Position
William L. Westerman 71 Our and ROC's Chairman of the Board and Chief
Executive Officer, and our President
Duane R. Krohn 57 Our and ROC's Treasurer and CFO, and Executive
Vice President of Finance of ROC
Tullio J. Marchionne 48 Our and Secretary and General Counsel, and Vice
President of ROC
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Robert A. Vannucci 55 President and Chief Operating Officer of ROC
Ronald P. Johnson 54 Executive Vice President of Gaming Operations of
ROC
Jerome P. Grippe 60 Executive Vice President of Operations of ROC
For a description of the business experience of William L. Westerman,
see "Directors" above.
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. 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 we and ROC transferred Mr. Marchionne
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, and on February 10, 1999, President of Riviera Black Hawk, Inc. (our
wholly-owned subsidiary which owns and operates the Riviera Black Hawk Casino),
a position he holds concurrently with his ROC Executive Vice 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.
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Jerome P. Grippe was elected Vice President of Operations of ROC on
April 26, 1994, Senior Vice President of Operations of ROC on July 1, 1998 and
Executive Vice President of ROC on September 1, 2000. Mr. Grippe served as
General Manager of the Four Queens Hotel and Casino from June 1998 to September
1999 pursuant to the management agreement we had with the Four Queens through
our subsidiary. He served as General Manager of the Diamond Jo riverboat casino
in Dubuque, Iowa from September 1999 to July 2000, pursuant to a management
agreement we had with Peninsula Gaming Company, LLC, which owns and operates the
Diamond Jo riverboat casino. Mr. Grippe performed in the capacity as general
manager at these properties concurrently with his duties with us. Mr. Grippe
became Director of Operations of ROC on June 30, 1993. Mr. Grippe was Assistant
to the Chairman of the Board of Riviera, Inc. from July 1990 until May 1993. He
served in the United States Army from 1964 until his retirement as a Colonel in
July 1990.
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.
Certain Relationships and Related Transactions
Jeffrey A. Silver is a shareholder in the law firm of Gordon & Silver,
Ltd., which we have engaged for various legal matters.
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 own more than 10% of our Common
Stock to file with the Securities and Exchange Commission certain reports
regarding Common Stock ownership. Such persons are required to furnish us with
copies of all Section 16(a) reports they file. To our knowledge, all of these
persons met their Section 16(a) reporting obligations on a timely basis during
2002.
Board of Directors and Committee Meetings
We have an Audit Committee, which is composed of Messrs. DiVito, Silver
and Harvey. The 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.
We and ROC each have a Compensation Committee composed of Messrs.
DiVito, Barengo, Silver and Harvey. The Compensation Committee is responsible
for recommending executive compensation programs to the Board of Directors and
for approving all compensation decisions with respect to the Chief Executive
Officer and his recommendations for our other executive officers.
Our full Board of Directors performs the functions of a nominating
committee.
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In 2002, the Audit Committee met five times, and our and ROC's
Compensation Committees each met four times.
In 2002, our Board of Directors held six meetings. No member of our
Board of Directors attended in 2002 less than 75% of the aggregate of (1) the
number of meetings of the 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.
Audit Committee Report
In accordance with its written charter adopted by our Board of
Directors, the Audit Committee assists the Board of Directors in fulfilling its
responsibility for oversight of the quality and integrity of our accounting,
auditing and financial reporting practices. The Audit Committee is comprised of
three members, all of whom are independent (according to the current listing
standards of the American Stock Exchange).
During our fiscal year ended December 31, 2002, the Audit Committee met
five times, and the Audit Committee chairman, as representative of the Audit
Committee, discussed the interim financial information contained in each of our
quarterly earnings announcement with our Chief Financial Officer and independent
auditors prior to public release.
In discharging its oversight responsibility as to the audit process,
the Audit Committee obtained from the 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,"
discussed with the auditors any relationships that may impact their objectivity
and independence and satisfied itself as to the auditors' independence. The
Audit Committee specifically addressed, discussed and concluded that the
independent auditors' provision of non-audit services was compatible with
maintaining the auditors' independence. The Audit Committee also discussed with
management, the internal auditors and the independent auditors, the quality and
adequacy of the Company's internal controls and the internal audit function's
organization, responsibilities, budget and staffing. The Audit Committee
reviewed with both the independent and the internal auditors their audit plans,
audit scope, and identification of audit risks.
The 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,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Audit Committee also discussed the results of the
internal audit examinations.
The Audit Committee reviewed the audited financial statements of the
Company as of and for the fiscal year ended December 31, 2002, with management
and the independent auditors. Management has the responsibility for the
preparation of the Company's financial statements and the independent auditors
have the responsibility for the examination of those statements.
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Based on the above-mentioned review and discussions with management and
the independent auditors, the Audit Committee recommended to the Board that the
Company's audited financial statements be included in its Annual Report on Form
10-K for the fiscal year ended December 31, 2002, for filing with the Securities
and Exchange Commission. The Audit Committee also recommended the reappointment
of the independent auditors and the Board concurred in such recommendation.
Date: February 28, 2003 Vincent L. Divito Chairman
Jeffrey A. Silver Member
Paul A. Harvey Member
Our Board of Directors recommends that you vote "FOR" each of the five
director nominees listed above.
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table presents a summary of the compensation we paid in
the years ended December 31, 2000, 2001 and 2002 to our and ROC's Chief
Executive Officer, and to our four other most highly compensated executive
officers who received over $100,000 in compensation from us during 2002
(collectively, the "Named Executive Officers").
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Summary Compensation Table
Annual Compensation
Other
Annual Securities All Other
Name and Compen- Underly- Compen-
Principal Position Year Salary($) Bonus($) sation($)(1) ing Options sation ($) (2)
William L. Westerman 2002 $600,000 $0 (3) $542,899 (4) 0 $1,438
Chariman of the Board and 2001 $600,000 $400,000 (3) $293,211 (4) 50,000 $2,566
Chief Executive Officer of the 2000 $600,000 $900,000 (3) $841,403 (4) 0 $2,566
Company and ROC
Robert A. Vannucci 2002 $300,000 $0 (5) $103,000 (6) 20,000 $1,720
President and Chief Operating 2001 $300,000 $69,491 $157,425 (6) 20,000 $2,566
Officer of ROC 2000 $250,000 $236,166 $7,425 10,000 $1,438
Duane R. Krohn 2002 $250,000 $0 (5) $3,000 10,000 $1,438
Treasurer of the Company 2001 $250,000 $69,491 $7,425 10,000 $1,438
and Executive Vice President of 2000 $237,500 $236,166 $7,425 10,000 $1,438
Finance and Treasurer of ROC
Ronald P. Johnson 2002 $250,000 $0 (5) $10,500 (7) $10,000 $1,438
Executive Vice President of 2001 $250,000 $69,491 $7,425 10,000 $1,438
Gaming Operations of ROC 2000 $237,500 $236,166 $7,425 10,000 $1,438
Jerome P. Grippe 2002 $250,000 $0 (5) $3,000 10,000 $1,438
Executive Vice President of 2001 $250,000 $69,491 $7,425 10,000 $1,438
Operations of ROC 2000 $183,333 $211,166 $7,425 7,000 $1,062
(1) Includes amounts that we contributed under our Profit Sharing and 401(k)
Plans. We contributed for the account of each executive $3,000 in 2002,
$7,425 in 2001 and $7,425 in 2000.
(2) Includes premiums paid by the Company for excess life insurance.
(3) See "Employment Agreements" below for a summary of Mr. Westerman's
employment agreement. (4) Includes contributions to Mr. Westerman's
retirement account of zero in 2002, zero in 2001 and $600,000
in 2000. Also includes interest computed at the Company's average borrowing
rate less the rate pursuant to Internal Revenue Code section 1274(d) of
$539,899 in 2002, $285,786 in 2001 and $233,978 in 2000. Does not include
interest earned on retirement account of $300,251 in 2002, $493,024 in 2001
and $413,440 in 2000.
(See "Employment Agreements" below.)
(5) There was no incentive bonus award in 2002.
(6) Includes $100,000 award of restricted stock ($25,000 award per quarter)
pursuant to Mr. Vannucci's employment agreement. See "Restricted Stock"
below for a summary of our Restricted Stock Plan.
(7) Includes $7,500 additional income as compensation for a planned vacation
that we asked Mr. Johnson to forgo so he could participate in the
nationwide presentations to sell our new senior secured notes.
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Option Surrenders
On November 26, 1996, we granted 410,000 stock options to 18 executives
at an option price of $13.625 per share, 320,000 of which were granted to Mr.
Westerman. Two of these executives' options totaling 11,000 shares were
cancelled because they left our employment, resulting in a balance of 399,000
options at $13.625 per share held by 16 of our executives. The options of these
16 executives were 100% vested.
On January 16, 2001, we approved a Stock Option Surrender Plan under
which each executive could surrender all or any portion of his/her $13.625
options. Further, we could, but were not obligated to, grant new options for not
less than the number of shares applicable to the surrendered options. The new
options would be issued not sooner than six months and a day after the surrender
of the $13.625 options. Any new options granted would be at the price of our
Common Stock on the date of grant and would be subject to the vesting
requirements of our Employee Stock Option Plan.
All 16 of our executives surrendered the entire balance of 399,000 of
the $13.625 options effective January 31, 2001.
In August 2001, we granted 107,500 stock options to 15 of our 16
executives who surrendered options on January 31, 2001. The August option grant
was not premised on the January 31 option surrender, but was made pursuant to
our Board of Director's customary annual grant of stock options.
Option Grants
The number of shares available for purchase under our 1993 Employee
Stock Option Plan (the "Stock Option Plan") is 1,000,000. Excluding the options
surrendered pursuant to the Stock Option Surrender Plan discussed above, options
for an aggregate of 901,000 shares have been granted under the Stock Option Plan
as of December 31, 2002. During our 2002 fiscal year, 130,500 options were
granted under the Stock Option Plan.
Option Exercises, Year-End Options Values and Option Grants in 2002
The following table presents at December 31, 2002 the value of
unexercised, in-the-money options held by the Named Executive Officers. There
were no options exercised in 2002.
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Number of Value of Unexercised,
Unexercised Options In-The-Money Options
Not
Name Vested Not Vested Vested Vested
---- ------ ---------- ------ ------
William L. Westerman 25,000 25,000 $0 $0
Robert A. Vannucci 50,000 20,000 0 0
Duane R. Krohn 40,000 10,000 0 0
Ronald P. Johnson 40,000 10,000 0 0
Jerome P. Grippe 31,000 10,000 0 0
The following table presents options granted during 2002.
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
----------------- --------------------------
Percent of
Number of Total Options Exercise
Underlying Granted to or Base
Options Employees Price Per Expiration 5% 10%
Name Granted in 2002 Share Date --- ----
---- ------- ------- ----- ----
William L. Westerman 0 0% N/A N/A N/A N/A
Robert A. Vannucci 20,000 15.3% $7.35 5/14/12 $239,448 $381,280
Duane R. Krohn 10,000 7.7% 7.35 5/14/12 119,724 190,640
Ronald P. Johnson 10,000 7.7% 7.35 5/14/12 119,724 190,640
Jerome P. Grippe 10,000 7.7% 7.35 5/14/12 119,724 190,640
Employment Agreements
William L. Westerman serves as our Chairman of the Board, President and
Chief Executive Officer, and as Chairman of the Board and Chief Executive
Officer of ROC.
Mr. Westerman's employment agreement, which was last amended on
December 6, 2000, automatically renews each year on December 31st subject to
termination by us upon three months notice or by Mr. Westerman upon six months
notice. Mr. Westerman's base compensation is $600,000.
Under his employment agreement, Mr. Westerman is entitled to
participate in our Senior Management Compensation Plan or such other executive
bonus plan established by our Board of Directors (collectively the "Plan"). If
at least 80% of net targeted operating results, as defined by the Plan, is met,
Mr. Westerman is entitled to receive a bonus expressed as a percentage of his
$600,000 base salary. Mr. Westerman's bonus depends on the percentage of
targeted results of operations realized by us in a particular year, with a
maximum bonus of $900,000. According to the December 6, 2000 amendment, to the
12
extent Mr. Westerman's bonus exceeds $400,000 in 2001 and each succeeding year,
the excess amount will be deducted from the principal balance of his retirement
account at the time the bonus is paid. Mr. Westerman received an incentive bonus
of $900,000 for 2001, $500,000 of which was deducted from the principal balance
of his retirement account resulting in a net bonus of $400,000. Mr. Westerman
was entitled to an incentive bonus of $900,000 for 2002, including $500,000
which was to be paid from the principal balance of his retirement account and
$400,000, which was to be paid us. Mr. Westerman waived the $400,000 bonus
payment by us and elected to have that amount paid from the principal balance of
his retirement account. On April 1, 2003, a total of $1,373,329 was distributed
to Mr. Westerman from his retirement account, with $900,000 representing his
2002 bonus, $250,000 representing a quarterly distribution from principal, and
$223,329 representing a quarterly distribution of interest in arrears for the
first quarter of 2003.
The employment agreement calls for us to fund a retirement account for
Mr. Westerman. Pursuant to the employment agreement, an aggregate net amount of
$6,812,123 had been credited to the retirement account from its inception
through December 31, 2001. Under the employment agreement, each year that Mr.
Westerman continues to be employed, an amount equal to his base salary for that
year was credited to the account on January 1 of that year. According to the
December 6, 2000 amendment to the employment agreement, the January 1, 2001
contribution was the final principal contribution to the retirement account.
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 Common Stock approving a "Change of
Control" (as defined 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 with
R&E Gaming Corp. and its subsidiary. That approval constituted a Change of
Control. 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.
In the event that 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), Mr. Westerman 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.
Pursuant to the employment agreement, the retirement account was
credited quarterly with interest and will be credited with additional amounts on
the first day of each succeeding calendar quarter equal to the product of:
13
o our average borrowing cost for the immediately preceding fiscal year, as
determined by our chief financial officer and
o the average outstanding balance in the retirement account during the
preceding calendar quarter.
This interest continues to accrue pursuant to the December 6, 2000
amendment. Interest computed at our average borrowing rate, less the rate under
Internal Revenue Code section 1274(d), was $539,899 in 2002 $285,786 in 2001,
and $233,978 in 2000. Interest computed at the rate under Internal Revenue Code
section 1274(d) was $300,251 in 2002, $493,024 in 2001 and $413,440 in 2000. In
the event the Rabbi Trust has been funded, upon Mr. Westerman's death an amount
equal to the applicable federal estate tax on the retirement account will be
pre-paid prior to the date(s) such taxes are due.
Mr. Westerman's employment agreement further provides that (a) the sum
of his base salary, bonus, and credits to his retirement account in any one year
must not exceed that which would have been payable under his previous employment
agreement with us, and (b) he shall instruct us of any reductions in base
salary, bonus, and credits to his retirement account necessary to comply with
this limitation. We determined that for the year 1999, a reduction of $467,000
would be necessary to comply with this provision. Prior to December 31, 1999,
Mr. Westerman instructed us that this be applied to reduce the amount to be
credited to his retirement account from $600,000 to $133,000.
In addition to Mr. Westerman, one other executive, Robert Vannucci, has
an employment agreement with us.
To reflect Mr. Vannucci's appointment as President of ROC effective
October 1, 2000, his employment agreement was amended. Mr. Vannucci's base
compensation is $300,000. His employment agreement contains a Salary
Continuation Agreement. See "Salary Continuation Agreements" below. It also
provides for a "Normal Incentive Bonus" entitling Mr. Vannucci to participate in
our Incentive Compensation Plan, whereby he may share in a portion of such
plan's pool which provides for a target of $25 million EBITDA before deductions
of incentives, as defined, for the years 2000 and 2001. Such amounts will be
credited to the Incentive Compensation Plan's pool up to a maximum of $1.2
million. Mr. Vannucci did not receive an incentive bonus for the year 2002.
Mr. Vannucci also receives compensation in the form of restricted stock
pursuant to our Restricted Stock Plan. (See "Restricted Stock Plan" below.) Mr.
Vannucci's agreement provides that he is to receive $25,000 in our restricted
Common Stock, based on the stock's market value, from treasury on the first
business day of each quarter, plus our restricted Common Stock, based on the
stock's market value, from treasury in the same amount he receives pursuant to
our Incentive Compensation Plan. Mr. Vannucci received restricted stock valued
at $100,000 in 2002. Pursuant to the Restricted Stock Plan, Mr. Vannucci is
presently entitled to rights of ownership with respect to the restricted shares,
including the right to vote and receive dividends. Mr. Vannucci may not, however
14
sell, assign, pledge, encumber or otherwise transfer any of the restricted
shares so long as he is employed by us, without our written consent. The
restricted shares fully vest to Mr. Vannucci upon his separation of employment
from us, so long as such separation is not a termination for cause. Mr.
Vannucci's agreement was amended on March 4, 2003 and again on March 24, 2003 so
that, commencing with the restricted stock award of April 1, 2003 and for each
quarter thereafter, Mr. Vannucci can choose between receiving $25,000 in cash or
$25,000 in restricted stock. Mr. Vannucci also has the choice between cash and
restricted stock to match his annual incentive bonus award. Mr. Vannucci's
agreement is effective until December 31, 2003, and automatically renews
annually subject to 120 days' prior written notice by us or him.
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 the Profit Sharing and 401(k) Plans after June 30, 1993. We
also provided that all current employees of 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.
We have identical plans for our 100% indirectly owned subsidiary,
Riviera Black Hawk, Inc., which operates its casino in Black Hawk, Colorado.
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 in the Profit Sharing and 401(k) Plans. 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 Plan
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 to participants in the 401(k) component of the Plan and any
Company contribution to the 401(k) component is made in the form of cash to be
invested in the participant's selected investment options.
The profit sharing component of the Profit Sharing and 401(k) Plans
provides that we will make a contribution equal to 1% of each eligible
employee's annual compensation if a prescribed annual operating earnings target
is attained and an additional 1% thereof for each $2 million by which our
targeted operating earnings are exceeded, up to a maximum of 3% thereof. We may
elect not to contribute to the Profit Sharing and 401(k) Plans if we notify our
employees by January of the Profit Sharing and 401(k) Plans year. An employee
becomes vested as to our contributions based on the employee's years of service.
An employee receives a year of vesting service for each plan year in which the
employee completed 1,000 hours of service. Vesting credit is allocated in 20%
increments for each year of service commencing with the attainment of two years
of service. An employee is fully vested following the completion of six years of
service.
15
Effective January 1, 2000, we suspended contributions to the Profit
Sharing Plan and substituted contributions to an Employee Stock Ownership Plan,
which is discussed directly below.
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. The ESOP provides
that the we will make a contribution to 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 will 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 4% for 2000 and 5% thereafter. For
Riviera Black Hawk, we will 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 that target is
exceeded, up to a maximum of 4% for 2000 and 5% thereafter. Under the ESOP, our
contribution will be made in cash which will be used primarily to buy our Common
Stock.
Incentive Compensation Programs
Approximately 70 executives and other significant employees at Riviera
Las Vegas and 20 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. An aggregate of $0 and $260,440 was awarded to participants at
Riviera Las Vegas and Black Hawk, respectively, under these programs in the
year ended December 31, 2002.
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 non-qualified 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 not later than
December 1st preceding the plan year to which the election relates and are
irrevocable for the duration of such year. Six 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 restricted shares of our Common Stock.
16
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 restricted stock are subject to such terms
and conditions as we determine are appropriate at the time of the grant,
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.
Mr. Vannucci and Mr. Grippe, ROC's President and Executive Vice President,
respectively, are currently the only participants in the Restricted Stock Plan.
Salary Continuation Agreements
Approximately 75 officers and significant employees (excluding Mr.
Westerman) of ROC have salary continuation agreements effective through December
31, 2003, pursuant to which each of them will be entitled to receive (1) either
six months' or one year's 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) group health insurance 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. As of
December 31, 2002, the total amount that would be payable under all such
agreements if all payment obligations were to be triggered was approximately
$6.0 million, including $1.4 million in benefits.
Compensation of Directors
Messrs. Silver, Harvey and DiVito are each paid an annual fee of
$50,000 for services as a director of us and ROC. Each director is also
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors.
On March 5, 1996, we adopted the Directors' Option Plan, which was
approved by our stockholders on May 10, 1996. Under the Directors' Option Plan,
each individual elected, re-elected or continuing as a non-employee director
will automatically receive a nonqualified stock option for 2,000 shares of our
Common Stock, with an exercise price equal to the fair market value of our
Common Stock on the date of grant. 50,000 shares have been reserved for issuance
under the Directors' Option Plan. Options to purchase 2,000 shares at $13.50 per
share were granted to Mr. Barengo on May 12, 1997, options to purchase 2,000
shares at $9.00 per share were granted to him on May 11, 1998, options to
purchase 2,000 shares at $4.88 per share were granted to him on May 10, 1999 and
options to purchase 2,000 shares at $7.75 per share were granted to him on May
10, 2000. No options have been granted to Mr. Barengo under the Directors'
Option Plan after 2000 because he became an employee effective January 1, 2001.
Mr. Barengo was granted options to purchase 7,500 shares at $6.00 per share and
10,000 shares at $7.35 on August 7, 2001 and May 14, 2002, respectively,
pursuant to our Stock Option Plan. Mr. Barengo's compensation in 2002 was
$125,000.
Upon becoming a Director, Mr. Silver was granted options under the
Directors' Option Plan to purchase 2,000 shares at $7.05 per share on February
26, 2001. Mr. Silver was subsequently granted options to purchase 2,000 shares
at $6.55 per share on May 10, 2001 and 2,000 shares at $7.75 on May 10, 2002.
17
Upon becoming a Director, Mr. Harvey was granted options under the
Directors' Option Plan to purchase 2,000 shares at $6.60 per share on May 18,
2001. Mr. Harvey was subsequently granted options to purchase 2,000 shares at
$7.75 on May 10, 2002.
Upon becoming a Director, Mr. DiVito was granted options under the
Director's Option Plan to purchase 2,000 shares at $5.60 per share on July 12,
2002.
Directors who are also our or ROC's 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, the 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 available under this plan, we issued 3,103 shares to
Mr. Barengo for a portion of his director's fees in 1996 and 877 shares to him
for a portion of his fees in 1997.
Compensation Committee Report on Executive Compensation
The Compensation Committee endeavors to ensure that the compensation
program for executive officers of the Company is effective in attracting and
retaining key executives responsible for the success of the Company and is
tailored to promote the long-term interests of the Company and its stockholders.
The Company's executive officer compensation program in its last completed
fiscal year was principally comprised of base salary, an executive incentive
plan, a 401(k) plan, a profit-sharing plan (revised to provide contributions to
ESOP) and long-term incentive compensation in the form of incentive stock
options or non-qualified stock options, a deferred compensation plan and a
restricted stock plan.
The Compensation Committee takes into account various qualitative and
quantitative indicators of corporate and individual performance in determining
the level and composition of compensation for the Company's Chief Executive
Officer and his recommendations regarding the other executive officers. In
particular, the Compensation Committee considers several financial performance
measures, including revenue growth and net income. However, the Compensation
Committee does not apply any specific quantitative formula in making
compensation decisions. The Committee also considers achievements that, while
difficult to quantify, are important to the Company's long-term success. The
Compensation Committee seeks to create a mutuality of interest between the
executive officers and the Company's stockholders by increasing the executive
officers' ownership of the Company's Common Stock through the Stock Option Plan,
ESOP, Deferred Compensation Plan and Restricted Stock Plan.
Salary levels for the Company's executive officers are significantly
influenced by the need to attract and retain management employees with high
levels of expertise. In each case, consideration is given both to personal
factors, such as the individual's experience, responsibilities and work
performance, and to external factors, such as salaries paid by comparable
companies in the gaming industry. With regard to the latter, it is important to
18
recognize that because of the opening of new properties on the Las Vegas Strip
in 1998, 1999 and 2000 and the growth of riverboat and dockside gaming, Native
American gaming operations and the proliferation of jurisdictions in which
gaming is permitted, the Company competes with numerous other companies for a
limited pool of experienced and skilled personnel. Therefore, it is critical
that the Company provide base salaries that are competitive in the casino
industry. With respect to the personal factors, the Compensation Committee makes
salary decisions in an annual review based on the recommendations of the Chief
Executive Officer. This annual review considers the decision-making
responsibilities of each position as well as the experience and work performance
of each executive. The Chief Executive Officer views work performance as the
single most important measurement factor. 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 Company
executives was consistent with other members of the industry.
The compensation of Mr. Westerman for the Company's last completed
fiscal year was set pursuant to the employment agreement described above in
"Employment Agreements."
Date: February 28, 2003 Jeffrey A. Silver Chairman
Robert R. Barengo Member
Paul A. Harvey. Member
Vincent L. DiVito Member
Compensation Committee Interlocks And Insider Participation In Compensation
Decisions
Mr. Silver is a shareholder in the law firm of Gordon & Silver, Ltd.,
which we have engaged for various legal matters. Mr. Barengo has been an
employee of ROC since January 1, 2001.
PROPOSAL NO. 2
AMENDMENT OF ARTICLES OF INCORPORATION
In this section, we are discussing a proposed amendment to Article III,
Section 7 of our Articles of Incorporation, to which we refer in some places
below as "Section 7." This section of the Proxy Statement summarizes what we
consider to be the material provisions of Section 7 that relate to the proposed
amendment. However, this section does not restate Section 7 in its entirety. We
urge you to read the entire Section 7, which appears in Appendix "A" to this
Proxy Statement, because it, and not this summary, defines various terms used in
this section and delineates the rights and obligations of the Company and our
stockholders with respect to the matters discussed in this section.
Our Articles of Incorporation place two limitations on the Common Stock
voting rights of a "Substantial Stockholder." The term "Substantial
Stockholder," as used in our Articles of Incorporation, generally means a person
who, within a three-year period, has acquired beneficial ownership of more than
10% of the outstanding Common Stock. (The term "person," as used in this
section, includes entities and groups of persons who agree to act together.)
19
The first limitation is a substantial dilution (by 99%) of the
Substantial Stockholder's voting power with respect to Common Stock, to the
extent that the shares of Common Stock owned by the Substantial Stockholder
exceed 10% of the total number of outstanding shares. We refer to this as the
"10% Limit." The second limitation is a complete ineligibility on the part of
the Substantial Stockholder to cast votes with respect to any shares of Common
Stock that exceed 15% of the total number of outstanding shares as to which
votes are entitled to be cast. We refer to this as the "15% Limit."
There are essentially two ways that a Substantial Stockholder can avoid
the 10% Limit. First, the Substantial Stockholder can make a cash tender offer
for all of the outstanding Common Stock in accordance with Section 7.
Alternatively, before the person becomes a Substantial Stockholder, our Board of
Directors, by a specially prescribed vote under Section 7, can waive the 10%
Limit upon a determination that the accumulation of Common Stock by that
Substantial Stockholder will not have an adverse effect on us.
A Substantial Stockholder can also avoid the 15% Limit by making a cash
tender offer for all outstanding Common Stock. Until recently, we had
interpreted our Articles of Incorporation as providing an alternative way of
avoiding the 15% Limit, namely through a waiver of the 15% Limit by our Board of
Directors if it determined that such waiver was appropriate in a particular
case. Based on that interpretation and without making a tender offer, William L.
Westerman acquired in excess of 15% of the outstanding Common Stock as to which
votes are entitled to be cast. As of the Record Date, Mr. Westerman beneficially
owned 648,562 shares, or 18%, of the 3,606,155 shares of Common Stock that were
outstanding (excluding shares he could acquire within 60 days upon the exercise
of stock options).
Based on a recent review of our Articles of Incorporation, we now
believe the better view is that they do not give our Board of Directors the
ability to waive the 15% Limit. Therefore, unless our Articles of Incorporation
are amended, if a person acquires, or intends to acquire, ownership of more than
15% of the outstanding Common Stock, the only way that person could avoid the
15% Limit is to make a cash tender offer for all of the outstanding Common
Stock. Consequently, of the Common Stock that Mr. Westerman owned as of the
Record Date, he can only cast votes with repect to 524,777 shares at the Annual
Meeting (excluding shares he could acquire within 60 days upon the exercise of
stock options).
We believe the 15% Limit, which dates back to the Company's inception
in 1993 when it had substantially fewer shareholders, is unnecessary and
inappropriate for the Company at the present time, particularly in light of the
protections provided by the 10% Limit and by Nevada law. The 15% Limit can not
be waived by our Board of Directors even if we consider a particular person's
acquisition of more than 15% of the Common Stock, such as through an infusion of
new capital into the Company or by an open market or negotiated purchase of some
of our outstanding stock from existing stockholders, to be consistent with our
best interests. Therefore, it could have the effect of keeping out new investors
who might add significant value to the Company and the Common Stock. It could
also restrict the ability of our current stockholders to make further
investments in the Company even if we look favorably on those investments. By
way of example, the 15% Limit has had the unintended effect of limiting Mr.
Westerman's voting power with respect to the Common Stock he owns, as explained
above.
20
For the above reasons, on May 16, 2003, our Board of Directors
unanimously approved an amendment of our Articles of Incorporation to eliminate
the 15% Limit, and we are recommending that Stockholders approve the amendment
as well.
To eliminate the 15% Limit as it would apply to persons who become
Substantial Stockholders after the May 16, 2003 action by our Board of
Directors, the approval of holders of more than 50% of the outstanding shares of
Common Stock is required. We refer to this as a "Majority Vote." To eliminate
the 15% Limit as it would apply to persons such as Mr. Westerman who became a
Substantial Stockholder at an earlier time, we require the approval of holders
of at least 60% of the outstanding shares of Common Stock as to which votes are
entitled to be cast at the Annual Meeting (which excludes 123,785 shares owned
by Mr. Westerman in excess of the 15% limit, as to which votes cannot be cast).
We refer to this as a "60% Vote."
If the amendment is approved by a 60% Vote, then Section 7 will be
amended in the following three respects:
1. Subsection 7(c) will be amended to read as follows: "(c)
[INTENTIONALLY DELETED.]"
2. In the first sentence of Subsection 7(d), the phrase "and in
the first sentence of Subsection 7(c)" will be deleted.
3. In Subsection 7(o), the phrase ", including, without
limitation Subsection 7(c)" will be deleted.
If the amendment is approved by a Majority Vote but not by a 60% Vote,
then Section 7 will be amended by adding the following sentence at the end of
Subsection 7(c):
Notwithstanding anything in these Articles of Incorporation to the
contrary, the foregoing provisions of this Subsection 7(c) shall not be
applicable to any person or Group that first becomes a Substantial
Shareholder after May 16, 2003.
In considering this amendment of our Articles of Incorporation, you
should note that it could reduce the likelihood that a person would make a cash
tender offer to all of our stockholders if that person seeks to acquire
ownership of more than 15% of the outstanding Common Stock. Typically, tender
offers are made a premium over the trading price of the stock. The amendment
could have this effect because the remaining limits on a person's ability to
acquire a significant percentage of the outstanding Common Stock, with full
voting rights, could be waived on a selective basis by our Board of Directors
without the requirement of a tender offer. A person who seeks to acquire
ownership of more than 15%, but less than all, of the outstanding Common Stock
might seek this waiver in lieu of making the tender offer.
On the other hand, if the 15% Limit is not eliminated, a person might
decide not to invest in the Company at all, rather than make a tender offer, and
instead pursue other investment opportunities. This could have a detrimental
effect on the Company's ability to raise additional capital and to attract new
investors.
21
Our Board of Directors recommends that you vote "FOR" this amendment to
our Articles of Incorporation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The Common Stock is listed on the American Stock Exchange. The
following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 2, 2003, by (1) each person who, to our
knowledge, beneficially owns more than 5% of the 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 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 June 2, 2003,
but does not assume the exercise of stock options by any other persons. The
percentage of outstanding Common Stock represented by the stock ownership of all
executive officers and directors as a group assumes the exercise of stock
options by all members of that group, 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)(3) 673,562 18.5%
Robert R. Barengo(1)(4) 129,876 3.6
Jeffrey A. Silver (1)(5) 7,000 *
Paul A. Harvey(1)(6) 1,200 *
Vincent L. DiVito(1)(7) 400 *
Robert A. Vannucci (1)(8) 145,411 4.0
Ronald P. Johnson(1)(9) 133,035 3.6
Duane R. Krohn(1)(10) 141,128 3.9
Jerome P. Grippe(1)(11) 84,584 2.3
Tullio J. Marchionne(1)(12) 9,457 *
Donald J. Trump(13) 358,000 9.9
Sun America Life Insurance Company(14) 345,900 9.6
Diversified Equity Ventures, LLC(15) 320,000 8.9
Employee Stock Ownership Plan (ESOP) (16) 332,271 9.2
All directors and executive officers as a
group(3)(17) 1,325,653 34.7
-------------------------------
* 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.
22
(2) Includes 25,000 shares which may be acquired within 60 days of
June 2, 2003 upon the exercise of outstanding options and 1,532
shares held through the ESOP.
(3) As explained in "PROPOSAL NO. 2 - AMENDMENT OF ARTICLES OF
INCORPORATION" above, our Articles of Incorporation provide that no
owner of Common Stock may cast votes as to more than 15% of the total
number of the outstanding shares of Common Stock as to which votes are
entitled to be cast, except under certain limited conditions or
circumstances that do not apply to Mr. Westerman's stock ownership.
Consequently, of the total number of shares of Common Stock that Mr.
Westerman beneficially owns, he can only cast votes as to the shares
that do not exceed 15% of our total outstanding shares as to which votes
are entitled to be cast. By way of example (excluding shares that could
be acquired through the exercise of stock options), as of June 2, 2003,
we had 3,606,155 shares of Common Stock outstanding; Mr. Westerman could
cast votes only as to 524,777 shares out of the 648,562 total shares
that he beneficially owned and were actually outstanding on that date;
and all executive officers and directors as a group could cast votes
only as to 986,718 shares out of the 1,110,503 total shares that they
beneficially owned and were actually outstanding on that date (excluding
shares that they could acquire through the exercise of stock options).
(4) Includes 17,550 shares which may be acquired within 60 days of
June 2, 2003 upon the exercise of outstanding options and 346 shares
held through the ESOP.
(5) Includes 2,000 shares which may be acquired within 60 days of
June 2, 2003 upon the exercise of outstanding options.
(6) Includes 1,200 shares which may be acquired within 60 days of
June 2, 2003 upon the exercise of outstanding options.
(7) Includes 400 shares which may be acquired within 60 days of
June 2, 2003 upon the exercise of outstanding options.
(8) Includes 50,000 shares which may be acquired within 60 days of June 2,
2003 upon the exercise of outstanding options, 60,277 shares under our
Restricted Stock Plan, 19,404 shares under our Deferred Compensation
Plan and 1,598 shares held through the ESOP.
(9) Includes 40,000 shares which may be acquired within 60 days of
June 2, 2003 upon the exercise of outstanding options, 29,435 shares
under our Deferred Compensation Plan and 1,598 shares held through the
ESOP.
(10) Includes 40,000 shares which may be acquired within 60 days of June 2,
2003 upon the exercise of outstanding options, 48,029 shares under
our Deferred Compensation Plan and 1,598 shares held through the ESOP.
(11) Includes 31,000 shares which may be acquired within 60 days of June 2,
2003 upon the exercise of outstanding options, 8,217 shares under our
Restricted Stock Plan, 29,601 shares under our Deferred Compensation
Plan and 1,598 shares held through the ESOP.
(12) Includes 8,000 shares which may be acquired within 60 days of
June 2, 2003 upon the exercise of outstanding options and 857 shares
held through the ESOP.
(13) The address for Donald J. Trump is 725 Fifth Avenue, New York, New York
10022. Trump Hotels & Casino Resorts Holdings, L.P. ("THCR Holdings")
has an option to purchase the Common Stock held by Mr. Trump. Trump
Hotels and Casino Resorts, Inc. ("THCR") is the sole general partner of
THCR Holdings. Both of THCR Holdings and THCR, therefore, may also be
deemed the beneficial owner of these shares. The address for THCR
Holdings and THCR is 1000 Boardwalk, Atlantic City, New Jersey 08401.
23
(14) The address for SunAmerica Life Insurance Company ("SunAmerica") is One
SunAmerica Center, Los Angeles, California 90067.
(15) The address for Diversified Equity Ventures, LLC and its manager,
Jeffrey P. Jacobs, is 1231 Main Avenue, Cleveland, Ohio 44113.
(16) The Trustee of the ESOP and its address are Marshall & Ilsley Trust
Company, 1000 North Water Street, 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 (a) the ESOP holds 1,000
shares of Common Stock, (b) the Trustee receives voting instructions
from participants on whose behalf the ESOP holds only 500 shares, and
(c) 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. Common Stock held by the ESOP on behalf of
executive officers are reported in the ESOP's Common Stock ownership
listing as well as in the Common Stock ownership listings for the
respective executive officers and for executive officers and directors
as a group.
(17) Includes a total of 215,150 shares which may be acquired by directors
and executive officers as a group within 60 days of June 2, 2003 upon
the exercise of outstanding options, 68,494 shares under our Restricted
Stock Plan, 126,469 shares under our Deferred Compensation Plan and
9,127 shares held through the ESOP.
We are a party to a registration rights agreement with SunAmerica.
SunAmerica can require us to register under the Securities Act the Common Stock
that it owns. In addition, the agreement grants to SunAmerica the right to have
included, subject to certain limitations, all shares of 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 Common Stock under
the agreement.
INDEPENDENT PUBLIC ACCOUNTANTS
Our Board of Directors has appointed Deloitte & Touche LLP as our
independent public accountants for the fiscal year ending December 31, 2002.
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, although they are currently not expected to do so. They are
expected to be available to respond to appropriate questions.
24
Audit Fees
We paid Deloitte & Touche LLP, the member firms of Deloitte Touche,
Tohmatsu and their respective affiliates (collectively "Deloitte") a total of
$306,500 and $209,400 for fiscal years 2002 and 2001, respectively, for our
annual audit, review of our annual consolidated financial statements, review of
our consolidated financial statements in our quarterly reports on Form 10-Q for
the first three quarters of fiscal 2002, and similar services related to our
senior secured notes offering in 2002.
Audit-Related Fees
We paid Deloitte $25,700 and $24,500 for benefit plan audits for the
fiscal years 2002 and 2001, respectively.
Tax Fees
We paid Deloitte $23,000 and $20,500 for income tax services for the
fiscal years 2002 and 2001, respectively. Those services consisted of
preparation of federal and state income tax returns and related tax advice.
All Other Fees
We paid Deloitte no fees for other professional services rendered in
fiscal 2002 or 2001.
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 2002 and 2001, as
described above, were within the scope of the engagement that our Audit
Committee approved before we entered into the engagement.
CERTAIN LEGAL PROCEEDINGS
On April 15, 2003, a class action complaint was filed in the Clark
County, Nevada District Court (Case No. A466204) in the name of Brian Placzek,
on behalf of himself and all others similarly situated, against the Company and
Company directors William L. Westerman, Robert R. Barengo, Jeffrey A. Silver and
Paul A. Harvey. The complaint was served on the Company on April 28, 2003. The
named plaintiff in this action is a shareholder of the Company. In the
complaint, the plaintiff seeks an order which would require the individual
defendants to take the following actions, among others: cooperate with any
individual who makes a bona fide offer to acquire the Company, take steps that
are calculated to result in a buy-out or takeover of the Company at the highest
price, comply with their fiduciary duties, and reimburse the plaintiff's class
for damages, costs and disbursements related to the lawsuit. The named plaintiff
also seeks to have all of the Company's public shareholders, excluding the
defendants, certified as a class for purposes of the class action suit and seeks
to be the representative of the class.
25
The complaint asserts, among other things, that the defendants
violated their fiduciary duties because they did not take affirmative steps in
furtherance of an offer by a third party to purchase all of the outstanding
Common Stock at a premium price. That offer was contingent upon, among other
things, a waiver by the holders of the Company's senior secured notes of the
right to an accelerated repayment of the notes at a premium, which would be
triggered by that third party's purchase of the Common Stock.
We believe the claims in this lawsuit are without merit and we intend
to defend against them vigorously.
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 the 2004 Annual
Meeting of Stockholders must be received at our executive offices in writing not
later than December 31, 2003 to be eligible for inclusion in our proxy statement
with respect to that meeting. Stockholders who intend to present a proposal at
the 2004 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 February 27, 2004.
Otherwise, the proposal will be deemed untimely. These deadlines are based on a
projected 2004 Annual Meeting date of May 18, 2004.
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.
26
APPENDIX "A"
Article III, Section 7 of the Articles of Incorporation
ARTICLES OF INCORPORATION
ARTICLE III
CAPITAL STOCK
Section 7. Substantial Stockholders
(a) It is the declared intent and policy of this corporation and its
stockholders that control of this corporation is an asset that belongs to all
stockholders of this corporation and that such stockholders are entitled (i) to
participate, through an election to sell or otherwise dispose of their shares,
in any proposed acquisition of control of this corporation by another person,
and (ii) to be offered a price for their shares which is fair and equitable
under the circumstances an which includes an appropriate premium for the
acquisition of such control.
(b) From and after the date any person first becomes a Substantial
Stockholder (as defined in Section 7(f)(2) until such time as such person shall
cease to be a Substantial Stockholder, holders of issued and outstanding shares
of Common Stock (as defined in Subsection 7(f)(10) beneficially owned (as
defined in Subsection 7(f)(3)) by such Substantial Stockholder, as of any record
date for the determination of stockholders entitled to vote on or consent to any
matter, in excess of 10% of the then issued and outstanding shares of Common
Stock shall, subject to the provisions of the last two sentences of this
Subsection 7(b), be entitled to cast only one-hundredth (1/100) of one vote per
share for such share in excess of 10% of the then issued and outstanding shares
of Common Stock. Notwithstanding the foregoing, in the event such Substantial
Stockholder, or an Affiliate (as defined in Subsection 7(f)(7)) thereof, or any
other person deemed to be the beneficial owner of Common Stock also beneficially
owned by such Substantial Stockholder, shall consummate a Tender Offer (as
defined in Subsection 7(f)(9)) conforming with the provisions of Subsections
7(d) and 7(e), holders of all Common Stock beneficially owned by such
Substantial Stockholder shall thereupon be entitled to cast one vote per share
of Common Stock on each matter voted upon or consented to by the holders of
Common Stock of this corporation. The number of votes which may be cast by any
record owner by virtue of the provisions of this Section 7 in respect of Common
Stock beneficially owned by a Substantial Stockholder shall be a number equal to
the total number of votes which a single record owner of all shares of Common
Stock beneficially owned by such Substantial Stockholder would be entitled to
cast, multiplied by a fraction, the numerator of which is the number of shares
of Common Stock beneficially owned by such Substantial Stockholder and owned by
such record owner and the denominator of which is the total number of shares of
Common Stock beneficially owned by such Substantial Stockholder, whether or not
owned of record.
(c) Until such time as a Substantial Stockholder (or an Affiliate thereof
or any other person deemed to be the beneficial owner of Common Stock also
beneficially owned by such Substantial Stockholder) shall consummate a Tender
Offer conforming with the provisions of Subsections 7(d) and 7(e), in no event
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(but subject to the provisions of the last sentence of this Subsection 7(c))
shall such Substantial Stockholder and the record owner(s) of all shares of any
Common Stock beneficially owned by such Substantial Stockholder collectively be
entitled or permitted to cast, by virtue of their beneficial or record ownership
of Common Stock beneficially owned by such Substantial Stockholder, in excess of
15% of the total number of votes which the holders of all then outstanding
Common Stock would (after giving effect to the provisions of Subsection 7(b)) be
entitled to cast on any mater presented to the holders of Common Stock for vote.
If the provisions of the preceding sentence shall have the effect of reducing
the total number of votes which any Substantial Stockholder and the record
owner(s) of Common Stock beneficially owned by such Substantial Stockholder
shall be entitled to cast, such reduction shall be effected, and the number of
votes which such record owner(s) shall be entitled to cast (by reason of this
Subsection 7(c)) shall be determined, in accordance with the provisions of the
last sentence of Subsection 7(b).
(d) The Tender Offer referred to in the second sentence of Subsection 7(b)
and in the first sentence of Subsection 7(c) shall mean a Tender Offer to
acquire at not less than the applicable Offer Price (as defined in Subsection
7(e)) any and all shares of Common Stock then outstanding and not beneficially
owned by the Substantial Stockholder to which Tender Offer relates. In no event
shall any Tender Offer referred to in this Subsection 7(d) remain open for less
than twenty (20) business days (as defined in the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on the Effective Date)
or provide that shares duly tendered pursuant thereto will not be purchased
within forty (40) business days after the commencement of such Tender Offer, and
in the event that at the time such Tender Offer is commenced the terms and
conduct thereof shall riot be directly regulated by Sections 14(d) or 13(a) of
the Securities Exchange Act of 1934 and the Rules and Regulations thereunder, or
any successor federal laws and regulations, then such Tender Offer shall conform
in all respects with the provisions of the Securities Exchange Act of 1934 and
the General Rules and Regulations thereunder, as in effect on the Effective
Date. The consideration to be received by holders of Common Stock in any such
Tender Offer shall be in the form of cash (which may be payable by check)
exclusively, and such Tender Offer shall be deemed consummated only when payment
in full shall be made for all duly tendered shares. A Tender Offer shall not be
deemed to have conformed or compiled with the provisions of this Subsection 7(d)
unless (i) such Substantial Stockholder or Affiliate requests the Board of
Directors to not it if the board or a majority of the Continuing Directors (as
defined in Subsection 7(f)(5)), as the case may be, exercises its discretion to
utilize an "Established Price", as contemplated by Subsection 7(e)(2) and (ii)
such Tender Offer is commenced within thirty (30) days after the first public
announcement thereof setting forth the Offer Price thereof (such public
announcement being hereinafter referred to as the "Announcement" of such Tender
Offer.)
(e) (1) The "Offer Price" for any Tender Offer referred to in Subsection
7(d) shall be an amount per share of Common Stock equal to the highest price per
share of Common Stock (including brokerage commissions, transfer taxes and
soliciting dealers' fees) paid or agreed to be paid by such Substantial
Stockholder (or any of its Affiliates or any other person deemed to be the
beneficial owner of Common Stock also beneficially owned by such Substantial
Stockholder) in acquiring any shares of Common Stock within the consecutive
three (3) year period preceding the date of the Tender Offer; provided, however,
that a majority of the Whole Board (as defined in Subsection 7(f)(6)), in its
28
discretion, may determine, but only if a majority of the Whole Board shall then
consist of Continuing Directors or, if a majority of the Whole Board shall not
then consist of Continuing Directors, a majority of the then Continuing
Directors, in their discretion, may determine, that, in lieu of an amount per
shares of Common Stock determined above, such Offer Price shall be an amount per
share of Common Stock which shall not be less than a price per share of Common
Stock (the "Established Price") established and determined in writing by an
independent, nationally recognized investment-banking firm selected by a
majority of the Whole Board, but only if a majority of the Whole Board shall
then consist of Continuing Directors, or, if a majority of the Whole Board does
not then consist of Continuing Directors, by a majority of the then Continuing
Directors, as then a fair and appropriate price (considering this corporation,
on a consolidated basis, as a going concern or on the basis of its valuation in
liquidation, whichever circumstance would result in the highest such price) for
the sale of this corporation in a privately negotiated, arm's-length transaction
with a person other than a Substantial Stockholder or an Affiliate of such
Substantial Stockholder, in light of then prevailing economic conditions, the
business and assets of and future prospects for this corporation, the
synergistic benefits expected to be derived by the acquiring person(s) from an
acquisition of or combination with this corporation, recent examples of similar
transactions and other factors then generally considered and relied upon by the
investment banking community in making determinations or recommendations as to
price in arm's-length acquisition transactions.
(2) This corporation shall furnish to any Substantial Stockholder
requesting in writing (such request to be addressed to this corporation's
chairman of the board at the principal executive offices of this corporation),
within ninety (90) days after receipt of such request, a certificate of an
officer of this corporation either specifying the Established Price, or stating
that the Board of Directors or a majority of the Continuing Directors, as the
case may be, has determined not to utilize an Established Price, pursuant to
Subsection 7(e)(1). Each such request by a Substantial Stockholder shall specify
the price paid or agreed to be paid for shares of Common Stock within the three
(3) year period referred to in Subsection 7(e)(1). In the event there shall be
no Announcement of a Tender Offer complying with the provisions of Subsections
7(d) and 7(e) within forty-five (45) days after receipt of any such certificate
by the Substantial Stockholder making such request, such Substantial Stockholder
shall no longer be entitled to rely thereon or act on the basis thereof. In such
event, such Substantial Stockholder shall be entitled to make a further request
as to the determination to utilize an Established Price, and the Board of
Directors, or the Continuing Directors, as the case may be, shall be authorized
and empowered, in response to any such subsequent request (such subsequent
request and response to conform with and to be subject to the foregoing
provisions of this Subsection 7(e)(2) to determine whether to utilize an
Established Price as contemplated by Subsection 7(e)(1)) established and
determined (as hereinabove provided) on the basis of then prevailing
circumstances.
(3) Historical prices per share applied in accordance with Subsection
7(e)(1) shall be appropriately adjusted to reflect stock splits, combinations
and recapitalization of the shares of Common Stock subsequent to the date on or
as of which such prices are to be determined.
(f) For the purposes of this Section 7:
(1) A "Person" shall mean any individual, firm, corporation or other
entity.
29
(2) "Substantial Stockholder" shall mean any person or Group (as defined in
Subsection 7(f)(13)), other than this corporation or any Subsidiary (as defined
in Subsection 7(f)(8)), who or which has acquired within any consecutive three
year period beneficial ownership, directly or indirectly, of more than 10% of
the outstanding Common Stock (determined solely on the basis of the total number
of shares of Common Stock so beneficially owned (and without giving effect to
the number or percentage of votes entitled to be cast in respect of such
shares), in relation to the total number of shares of Common Stock so
beneficially owned (and without giving effect to the number or percentage of
votes entitled to be cast in respect of such shares), in relation to the number
of shares of Common Stock issued and outstanding, provided, however, that a
person shall not be deemed to be a Substantial Stockholder by reason of any
shares of Common Stock issued to such person pursuant to the Joint Plan (as
defined in Subsection 7(f)(11)), provided further, however, that a person shall
not be deemed to be a Substantial Stockholder for any purposes hereof, if such
person (or an Affiliate thereof or any other person deemed to be the beneficial
owner directly or indirectly of more than 10% of the outstanding Common Stock,
commences and thereafter shall consummate a Tender Offer for any and all shares
of Common Stock, the terms of which shall be approved and recommended to
stockholders as in the best interests of the Company and its stockholders, by
two-thirds of the members of the Whole Board (but only if at least a majority of
the members of the Board of Directors acting upon such matter shall be
Continuing Directors).
(3) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of
the General Rules and Regulations under the Securities Exchange Act of 1934 (or
any successor rule or statutory provision), or if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or statutory provision thereto,
pursuant to said Rule 13d-3 as in effect as of the Effective Date; provided
however that a person shall, in any event, also be deemed the "beneficial owner"
of any Common Stock
(a) which such person or any of its Affiliates or Group beneficially owns,
directly or indirectly; or
(b) which such person or any of its Affiliates has (i) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants, or options, or
otherwise, or (ii) sole or shared voting or investment power with respect
thereto pursuant to any agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the beneficial owner of any Common
Stock solely by reason of a revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of proxies for such meeting,
with respect to shares of which neither such person nor any such Affiliate is
otherwise deemed the beneficial owner); or
(c) which are beneficially owned, directly or indirectly, by any other
person with which such first mentioned person or any of its Affiliates acts as a
partnership, limited partnership, syndicate or other group pursuant to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of capital stock of this corporation; and
provided further, however, that (i) no director or officer of this corporation
(no any Affiliate of any such director or officer) shall, solely by reason of
30
any or all of such directors or officers acting in their capacities as such, be
deemed, for any purposes hereof, to beneficially own any Common Stock
beneficially owned by any other such director or officer (or any Affiliate
thereof), and (ii) no employee stock ownership or similar plan of this
corporation or any Subsidiary nor any trustee with respect thereto (nor any
Affiliate of such trustee) shall, solely by reason of such capacity of such
trustee, be deemed, for any purposes hereof, to beneficially own any Common
Stock held under any such plan.
(4) For purposes of computing the percentage of beneficial ownership of
Common Stock of a person in order to determine whether such person is a
Substantial Stockholder, the outstanding Common Stock shall Include shares
deemed owned by such person through application of Subsection 7(f)(3) but shall
not include any other Common Stock which may be issuable by this corporation
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the outstanding Common Stock may
be shall include only Common Stock then outstanding and shall not include any
Common Stock which may be issuable by this corporation pursuant to any
agreement, or upon the exercise of conversion rights, warrants or options, or
otherwise.
(5) "Continuing Director" shall mean a person who was a member of the Board
of Directors as of the Effective Date or thereafter elected by the stockholders
or appointed by the Board of Directors of this Corporation prior to the date as
of which the Substantial Stockholder in question became a Substantial
Stockholder or a person designated (before his initial election or appointment
as a director) as a Continuing Director by a minority of the Whole Board, but
only if a majority of the Whole Board shall then consist of Continuing
Directors, by a majority of the then Continuing Directors.
(6) "Whole Board" shall mean the total number of directors which this
corporation would have if there were no vacancies.
(7) "Affiliate" of any specified person means a person that directly or
indirectly, through one or more intermediaries, controls, or is controlled by or
under direct or indirect common control with, such specified person. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any person, shall mean the possession, directly or indirectly, or the power
to direct or cause the direction of the management or policies of such person,
whether through the ownership of Common Stock or by agreement or otherwise.
(8) "Subsidiary" shall mean any corporation which a majority of each class
of equity security (as defined in Rule 3a11-1 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on the
Effective Date) Is owned, directly or indirectly, by this corporation.
(9) "Tender Offer" shall mean an offer to acquire equity securities
pursuant to a request or invitation for tenders.
31
(10) "Common Stock" shall mean this corporation's common stock authorized
as of the Effective Date and shall also include any capital stock of any class
or series of this corporation thereafter authorized which shall be neither
limited nor entitled to a fixed sum or percentage in respect of dividends and in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of this corporation. In the event there shall at any
time be more than one class or series of capital stock issued and outstanding
which constitutes Common Stock, all references in this Section 7 to Common
Stock, or to any Tender Offer, Offer Price or Established Price, shall be deemed
to refer to and apply to each such class or series of Common Stock individually
and the provisions of this Section 7 shall be deemed to apply separately to each
such class or series of Common Stock.
(11) "Joint Plan" means the Debtor's and Bondholders' Committee's Joint
Plan of Reorganization, dated October 30, 1992, as amended by the Amended Joint
Plan of Reorganization dated November 30, 1992, the Second Amended Joint Plan of
Reorganization dated January 8, 1993 and the Modified and Restated Second
Amended Joint Plan of Reorganization dated June 4, 1993 (and as may be further
amended or modified) in connection with the Reorganization case.
(12) "Effective Date" means the date of initial issuance of the Common
Stock.
(13) "Group" means a "group" as used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (or any successor rule or statutory provision).
(g) Notwithstanding anything to the contrary contained in this Section 7,
at any time prior to the time that a Stockholder becomes a Substantial
Stockholder, if two-thirds of the Whole Board shall have the power to waive, but
only if two-thirds of the Whole Board shall then consist of Continuing
Directors, or, if two-thirds of the Whole Board shall not then consist of
Continuing Directors, two-thirds of the then Continuing Directors shall have the
power to waive, the voting limitation with respect to a Substantial Stockholder
set forth in Subsection 7(b) if it is determined by two-thirds of such Whole
Board (or Continuing Directors, as the case may be) that the accumulation of
such shares of Common Stock by the Substantial Stockholder will not have an
adverse effect on this corporation.
(h) A majority of the Whole Board shall have the power to determine, but
only if a majority of the Whole Board shall then consist of Continuing
Directors, or, if a majority of the Whole Board shall not then consist of
Continuing Directors, a majority of the then Continuing Directors, for the
purposes of this Section 7, on the basis of information known to them: (i) the
number of shares of Common Stock beneficially owned by any person; (ii) whether
a person is an Affiliate of another; (iii) whether a person has an agreement,
arrangement or understanding with another as to the matters referred in
Subsection 7(f)(3); (iv) whether the purchase price offered pursuant to any
Tender Offer referred to in Subsection 7(d) conforms to the requirements as to a
minimum Offer Price set forth in Subsection 7(e); and (v) any other factual
matter relating to the applicability or effect of this Section 7.
32
(i) A majority of the Whole Board shall have the right to demand, but only
if a majority of the Whole Board shall then consist of Continuing Directors, or,
if a majority of the Whole Board shall not then consist of Continuing Directors,
a majority of the ten Continuing Directors, that any person who it is reasonably
believed is a Substantial Stockholder (or holds of record Common Stock
beneficially owned by any Substantial Stockholder) supply this corporation with
complete information as to: (i) the record owner(s) of all shares beneficially
owned by such person who it is reasonably believed is a Substantial Stockholder;
(ii) the number of, and class or series of, shares beneficially owned by such
person who it is reasonably believed is a Substantial Stockholder and held of
record by each such record owner and the number(s) of the stock certificate(s)
evidencing such shares; and (iii) any other factual matter relating to the
applicability or effect of this Section 7, as may reasonably be requested of
such person, and such person shall furnish such information within 10 days after
the receipt of such demand.
(j) Except as otherwise provided by law, the presence, in person or by
proxy, of the holders of record of shares of Common Stock of this corporation
entitling the holders thereof to cast a majority of the votes (after giving
effect, if required, to the provisions of this Section 7) entitled to be cast by
the holders of shares of Common Stock of the corporation entitled to vote shall
constitute a quorum at all meetings of the holders of Common Stock, and every
reference in the Articles of Incorporation to a majority or other proportion of
Common Stock (or the holders thereof) for purposes of determining any quorum
requirement or any requirement for stockholder consent or approval shall be
deemed to refer to such majority or other proportion of the votes (or the
holders thereof) then entitled to be cast in respect of such Common Stock.
(k) Any determinations made by the Board of Directors or by the Continuing
Directors, as the case may be, pursuant to this Section 7 in good faith and on
the basis of such information as was then reasonably available for such purpose
shall be conclusive and binding upon this corporation and its stockholders,
including any Substantial Stockholder.
(l) Anything to the contrary contained in this Section 7 notwithstanding,
and without limiting the powers, duties and obligations of the Board of
Directors, the Board of Directors is entitled and authorized, consistent with
its duties as such and its obligations to this corporation and its stockholders,
to consider the terms of any proposed Tender Offer or acquisition proposed by
any person, and to determine if and whether to recommend acceptance or rejection
thereof, notwithstanding compliance thereof with the provisions of Subsections
7(d) and 7(e), and in connection therewith, to take or authorize any and all
appropriate and proper action deemed in the judgment of the Board of Directors
in the best interests of this corporation and the stockholders in the event the
Board of Directors shall determine to recommend rejection thereof.
(m) Any amendment, alteration, change or repeal of this Section 7 shall
require the affirmative vote of the holders of then outstanding Common Stock
entitling the holders thereof to cast at least 60% of the votes entitled to be
cast by the holders of all of the then outstanding Common Stock, provided,
however, that this Subsection 7(m) shall not apply to, and such 60% vote shall
not be required for, any amendment, alteration, change or repeal declared
advisable by the Board of Directors by the affirmative vote of two-thirds of the
Whole Board and submitted to the stockholders of their consideration, but only
if a majority of the members of the Board of Directors acting upon such matter
shall be Continuing Directors.
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(n) Nothing contained in this Section 7 shall be construed to relieve any
Substantial Stockholder from any fiduciary obligation imposed by law.
(o) In the event any Subsection (or portion thereof) of this Section 7,
including, without limitation Subsection 7, shall be found to be invalid,
prohibited or unenforceable for any reason, the remaining provisions (or
portions thereof) of this Section 7 shall be deemed to remain in full force and
effect, and shall be construed as if such invalid, prohibited or unenforceable
provision had been stricken herefrom or otherwise rendered inapplicable, it
being the intent of this corporation and its stockholders that each such
remaining provision (or portion thereof) of this Section 7 remain, to the
fullest extent permitted by law, applicable and enforceable as to all
stockholders, including Substantial Stockholders, notwithstanding any such
finding.
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