As filed with the Securities and Exchange Commission on August 9, 2002.
Registration No. __________
=====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
RIVIERA HOLDINGS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Nevada 6719 88-0296885
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
---------------------------
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
(702) 734-5110
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
--------------------------
See Table of Additional Registrants below
--------------------------
WILLIAM L. WESTERMAN
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
(702) 734-5110
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent For Service)
--------------------------
With a copy to:
Richard L. Galin, Esq.
Gordon & Silver, Ltd.
3960 Howard Hughes Parkway, 9th Floor
Las Vegas, NV 89109
(702) 796-5555
--------------------------
Approximate date of commencement of proposed
sale to the public: As soon as practicable after the
effective date of this Registration Statement.
--------------------------
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If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Class of Proposed Maximum
Securities to be Amount to be Proposed Maximum Aggregate Amount of
Registered Registered Offering Price Per Unit Offering Price (1) Registration Fee(2)
------------------------ ---------------- ----------------------- ------------ -------------------
11% Senior Secured $215,000,000 100% $215,000,000 $19,780
Notes Due 2010
Subsidiary Guarantees $215,000,000 ----- ----- -----
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the
registration fee. (2) Calculated in accordance with Rule 457(o) of the
Securities Act of 1933, as amended.
--------------------------
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
RIVIERA HOLDINGS CORPORATION
Table of Additional Registrants
Primary Standard
State or Other Industrial
Jurisdiction of Classification IRS Employer
Name Incorporation Code No. Identification No.
---- -------------- --------------------- ------------------
Riviera Operating Corporation Nevada 7011, 7993, 7999 88-0296874
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Riviera Gaming Management, Nevada 8741 88-0357130
Inc.
Riviera Black Hawk, Inc. Colorado 7011 86-0886265
Riviera Gaming Management of Colorado 7993, 7999 86-0874635
Colorado, Inc.
The address, including zip code, and telephone number, including area code, of
the principal offices of the additional registrants listed above (the
"Additional Registrants") are 2901 Las Vegas Boulevard South, Las Vegas, Nevada
89109; (702) 734-5110.
SUBJECT TO COMPLETION, DATED August 9, 2002
PROSPECTUS
OFFER TO EXCHANGE
11% Senior Secured Notes due 2010
for all outstanding
11% Senior Secured Notes due 2010
of
RIVIERA HOLDINGS CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON _____________, 2002, UNLESS EXTENDED
Terms of the exchange offer:
- We will exchange all existing notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
- You may withdraw tenders of existing notes at any time prior to the
expiration of the exchange offer.
- We believe that the exchange of existing notes will not be a taxable
event for U.S. federal income tax purposes, but you should see "United
States Federal Income Tax Considerations" for more information.
- We will not receive any proceeds from the exchange offer.
- The terms of the new notes are substantially the same as those of the
existing notes, except that the new notes are registered under the
Securities Act of 1933 and the transfer restrictions and registration
rights applicable to the existing notes do not apply to the new notes.
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- Each broker-dealer that receives new notes is required to deliver a
prospectus in connection with any resale of such notes.
- Each broker-dealer that acquired existing notes as a result of market
making or other trading activities may use this exchange offer
prospectus, as supplemented or amended, for resales of new notes.
- Broker-dealers that acquired the existing notes directly from us in the
initial offering and not as a result of market making or trading
activities cannot use this Prospectus for the exchange offer in
connection with resales of the new notes and, absent an exemption, must
comply with the registration and prospectus delivery requirements of
the Securities Act in connection with secondary resale of the new notes
and cannot rely on the position of the staff of the Securities and
Exchange Commission in Exxon Capital Holdings Corporation (April 13,
1989).
See "Risk Factors" beginning on page 16 for a discussion of risks that should
be considered by holders.
NEITHER THE NEVADA GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD, THE
COLORADO LIMITED GAMING CONTROL COMMISSION, ANY OTHER GAMING AUTHORITY, ANY
STATE SECURITIES COMMISSION NOR ANY OTHER REGULATORY AGENCY HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE NOTES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ______________, 2002.
You should rely only on the information contained in this Prospectus or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This Prospectus may only be used where it is
legal to sell these securities. The information in this Prospectus may only be
accurate on the date of this document.
FORWARD-LOOKING STATEMENTS
Throughout this Prospectus we make "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements include the words
"may," "will," "would," "could," "likely," "estimate," "intend," "plan,"
"continue," "believe," "expect" or "anticipate" and other similar words and
include all discussions about our acquisition and development plans. We do not
guarantee that the transactions and events described in this Prospectus will
happen as described or that any positive trends noted in this Prospectus will
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continue. The forward-looking statements contained in this Prospectus are
generally located in the material set forth under the headings "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," but may be found in other locations as well. These forward-looking
statements generally relate to our plans, objectives and expectations for future
operations and are based upon management's reasonable estimates of future
results or trends. Although we believe that our plans and objectives reflected
in or suggested by such forward-looking statements are reasonable at the present
time, we may not achieve or we may modify such plans or objectives. You should
read this Prospectus completely and with the understanding that actual future
results may be materially different from what we expect. We do not plan to
update forward-looking statements even though our situation or plans may change
in the future.
Specific factors that might cause actual results to differ from our
expectations, might cause us to modify our plans or objectives, may affect our
ability to pay timely amounts due under the notes or may affect the value of the
notes, include, but are not limited to:
o the availability and adequacy of our cash flow to meet our
requirements, including payment of amounts due under the
notes;
o economic, competitive, demographic, business and other
conditions in our local and regional markets;
o changes or developments in laws, regulations or taxes in the
gaming industry;
o actions taken or omitted to be taken by third parties,
including our customers, suppliers, competitors and members as
well as legislative, regulatory, judicial and other
governmental authorities;
o competition in the gaming industry, including the availability
and success of alternative gaming venues and other
entertainment attractions;
o a decline in the public acceptance of gaming;
o changes in personnel or compensation, including federal
minimum wage requirements;
o our failure to obtain, delays in obtaining or the loss of any
licenses, permits or approvals, including gaming and liquor
licenses, or the limitation, conditioning, suspension or
revocation of any such licenses, permits or approvals, or our
failure to obtain an unconditional renewal of any such
licenses, permits or approvals on a timely basis;
o the loss of any of our casino facilities due to terrorist
acts, casualty, weather, mechanical failure or any
extended or extraordinary maintenance or inspection that may
be required;
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o other adverse conditions, such as adverse economic conditions,
changes in general customer confidence or spending, increased
transportation costs, travel concerns or weather-related
factors, that may adversely affect the economy in general
and/or the casino industry in particular;
o our substantial indebtedness, debt service requirements and
liquidity constraints;
o risks related to the notes and to high-yield securities and
gaming securities generally;
o changes in our business strategy, capital improvements or
development plans;
o the availability of additional capital to support capital
improvements and development;
o factors relating to the current state of world affairs and any
further acts of terrorism or any other destabilizing events in
the United States or elsewhere; and
o other factors discussed under "Risk Factors" or elsewhere in
this Prospectus.
All future written and oral forward-looking statements attributable to
us or any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. In light
of these and other risks, uncertainties and assumptions, the forward-looking
events discussed in this Prospectus might not occur. You should read this
Prospectus completely and with the understanding that actual future results may
be materially different from what we expect.
PROSPECTUS SUMMARY
This summary highlights selected information from this Prospectus. It
does not contain all of the information that is important for your investment
decision. The following summary is qualified in its entirety by the more
detailed information and the financial statements and notes thereto appearing
elsewhere in this Prospectus. You should carefully read this entire Prospectus
and should consider, among other things, the matters set forth under "Risk
Factors" before making any investment decisions regarding the notes. The terms
"we," "us," "our" and other references to our company refer to Riviera Holdings
Corporation and its subsidiaries.
The Exchange Offer
On June 26, 2002, we sold $215.0 million aggregate principal amount of
11% Senior Secured Notes due 2010 in a transaction exempt from the registration
requirements of the Securities Act. In connection with that offering, we entered
into a registration rights agreement with the initial purchaser of the existing
notes, Jefferies & Company, Inc., in which we agreed to complete an exchange
offer for the existing notes. We are offering to exchange the existing notes for
$215.0 million aggregate principal amount of our 11% Senior Secured Notes due
6
2010, which have been registered under the Securities Act. You are entitled to
exchange your existing notes for new notes with substantially the same terms. We
urge you to read the discussions under the headings "The Exchange Offer" and
"The New Notes" in this Summary for further information regarding the exchange
offer and the new notes.
The Company
We own and operate the Riviera Hotel & Casino in Las Vegas, Nevada, and
the Riviera Black Hawk Casino in Black Hawk, Colorado. Our properties target
mid-level gamers by, among other things, emphasizing slot machine play and
value-oriented amenities. We believe our properties are located in strong gaming
markets and are well positioned to attract our target customers and benefit from
continued growth in these markets.
Properties
Riviera Las Vegas. Opened in 1955, the Riviera Las Vegas has developed
a long-standing reputation for delivering high quality, traditional Las
Vegas-style gaming and entertainment. Riviera Las Vegas is located on the corner
of Las Vegas Boulevard and Riviera Boulevard at the northern end of the Strip.
The property includes 110,000 square feet of casino space, 1,500 slot machines
and 34 gaming tables, including blackjack, craps, roulette, pai gow poker,
Caribbean Stud(R) poker, Let It Ride(R) and mini-baccarat. The casino also
includes a keno lounge and a 200-seat race and sports book. Other amenities on
the property include five hotel towers with approximately 2,100 hotel rooms,
160,000 square feet of convention/meeting space, four full-service restaurants,
five bars, a fast-food court, five entertainment centers for shows, outdoor
swimming pools, tennis courts and a health club.
Riviera Black Hawk. Opened on February 4, 2000, the Riviera Black Hawk
is located approximately 40 miles west of Denver in the Black Hawk/Central City
market. Our 32,000 square foot casino features the fourth largest number of
gaming devices in the market with approximately 986 slot machines and 12
blackjack tables. Amenities include parking for 520 vehicles, a 252-seat casual
buffet-style restaurant, two themed bars and an entertainment center with
seating for 440 people. Our marketing emphasizes quality food and beverage
amenities and entertainment programs geared to meet the tastes of the market,
such as live music provided by regional and national groups, comedians and
boxing.
Successful Operating Strategies
Focus On Slot Play. We have focused our businesses on the mid-level
gaming customer, who overwhelmingly favors slot play. As a result of this
strategy, slot revenue at the Riviera Las Vegas is 78% of total gaming revenue,
significantly higher than the Strip average of 48.2% for 2001. To further this
strategy, we opened Nickel Town(R) at the Riviera Las Vegas in 1997. Nickel Town
is comprised primarily of nickel slot machines, the fastest growing segment of
the Las Vegas slot market. In addition, our slot focus was a critical factor in
choosing to operate in the Black Hawk/Central City market, where the maximum
single bet is $5 and limited stakes gaming diminishes the profitability of table
games. We believe that our focus on slot players reduces the volatility of our
operating results.
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Focus On Non-Gaming Revenues. In addition to enjoying one of the
highest hotel occupancy rates on the Strip, Riviera Las Vegas has an extensive
entertainment program, with five different regularly scheduled shows and special
appearances by headline entertainers. Surveys have shown that our entertainment
draws gaming customers, as 30% of the show patrons come from outside the hotel
and 67% of these individuals gamble at Riviera Las Vegas before or after the
show. In addition, a key growth focus is expanding Riviera Las Vegas' core
conventioneer customer base. We believe that the expansion of the convention
facility to 160,000 square feet in February 1999 has increased Riviera Las
Vegas' convention business and hotel room occupancy. Conventioneers accounted
for 30.4% of the Riviera Las Vegas hotel bookings in 2001. In addition, the
hotel has over 740,000 convention-related advance hotel room bookings over the
next four years, including approximately 32% of all available hotel room nights
in 2002. Non-gaming revenues as a percent of total revenue was approximately 56%
in 2001 and generated 48% of our gross profits in 2001.
Good Locations In Strong Markets
Las Vegas. Riviera Las Vegas is located in one of the largest and
fastest growing entertainment markets and the largest gaming market in the
country. According to the Las Vegas Convention and Visitors Authority, the
number of visitors who traveled to Las Vegas during the 15-year period from 1986
through 2001 increased at a steady and significant rate from 15.2 million in
1986 to 35.0 million in 2001, a compound annual growth rate of 5.7%. Convention
business in Las Vegas continues to grow at a rapid pace and comprise a
substantial portion of visitation (6.8% growth in convention delegates since
1986 with over four million delegates visiting Las Vegas in 2001). Clark County
gaming continues to be a strong and growing business with Clark County gaming
revenues increasing at a compound annual growth rate of 7.9% from $2.4 billion
in 1986 to just over $7.6 billion in 2001. The events of September 11, 2001
slowed growth in Las Vegas, as tourist visits and gaming revenue growth remained
flat versus the prior year.
The Riviera Las Vegas facility is in the midst of extensive current and
potential development in the northern end of the Strip. Currently, Turnberry
Place, a luxurious four-tower Las Vegas condominium complex, is under
construction adjacent to the Riviera property. In addition to Turnberry Place,
Hilton Hotels Corp. is building a $415 million, 1,500-unit time-share complex on
property across the street from the Riviera. Further, Steve Wynn has announced
the development of a mega-resort gaming property to be located on the Strip in
proximity to us and a monorail system connecting the north end of the Strip, the
south end of the Strip and downtown Las Vegas is under development.
Black Hawk. The Black Hawk/Central City market serves the rapidly
growing Denver area, of which the population in the metropolitan statistical
area grew 30.0% from 1990 to 2000. During the 12 months ended March 31, 2002,
the market generated $553.9 million of gaming revenue and from January 1998
through March 2002 grew at a compounded annual growth rate of 10.2%. We believe
that the market has potential for future growth as well, in part due to a
proposal to improve access to Black Hawk. The City of Black Hawk together with
the County of Gilpin and State of Colorado are currently investigating plans to
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improve access to the Black Hawk gaming community via state highway 119. This
plan may ultimately result in the construction of a tunnel benefiting both Black
Hawk and Central City and improving access to and from I-70, the major
interstate highway to Denver. We cannot assure you that these plans will be
accomplished.
Riviera Black Hawk possesses a premier location in the strong Black
Hawk/Central City market. The facility is situated at the entrance of the market
and is one of the first casinos a visitor sees when traveling to Black Hawk from
Denver. We also benefit from strong "walk-in" traffic due to the proximity of
our casino to two of the most successful casinos in the market, and the
prominent location of Black Hawk versus Central City.
Growth Opportunities
Based on our successful development of Riviera Black Hawk, we are
pursuing the development of other gaming projects in other emerging gaming
markets. We intend to finance the development of these gaming projects through
unrestricted subsidiaries, which we will manage for a fee, funded with an
investment from us and non-recourse debt financing. This structure allows us to
grow and diversify our business while mitigating the risk to our core
operations.
Jefferson County, Missouri. We have received the endorsement of
Jefferson County for a casino/hotel development project, and we are commencing
the application process with the Missouri Gaming Board. Current plans for the
facility include, among other things, 1,500 slot machines and a 200-room hotel.
The estimated cost of this development is approximately $150 million. This
property would be located approximately 22 miles south of St. Louis along the
Mississippi River and would serve the St. Louis market. The St. Louis market is
the 17th most populated metropolitan area in the U.S. and has an average
household income equivalent to the U.S. average. There are approximately 2.8
million adults that reside within 100 miles of St. Louis and 1.9 million adults
reside within 50 miles. Gaming revenues in the St. Louis market have increased
to $760.4 million for the year ended December 31, 2001, an increase of 11.1%
over the prior year and ranking tenth among all U.S. gaming markets. There can
be no assurance that we will receive a license or obtain the financing necessary
to develop this property.
Hobbs, New Mexico. We are in the process of applying, along with two
minority-owner partners, to the New Mexico Racing Commission for a license to
develop and operate a horse racing facility. Once we receive the racing license,
we can then apply to the New Mexico Gaming Board to operate slot machines at
Saddlebrook Park, located in Hobbs, New Mexico, just west of the New
Mexico/Texas border. Current plans for the facility include approximately 600
slot machines, a one-mile racetrack, an entertainment center and retail shops.
The development of the facility is expected to cost approximately $30 million.
The facility will enjoy a superior, protected location as it will be the only
casino within a 50-mile radius. There are currently only approximately 2,700
gaming positions within a 200-mile radius of the site. Approximately 6,700 cars
pass the proposed site daily along Highway 18, over 2.4 million each year. The
population base over 25 years old within 200 miles of the site is approximately
1.2 million, primarily located in western Texas. There can be no assurance that
we will receive a license or obtain the financing necessary to develop this
property.
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Strong Management Team
Our current senior management has been with us since 1993. We benefit
from their many years of experience in all aspects of gaming operations, ranging
from slot management to database marketing. The success of our management team
is demonstrated by its success in maintaining Riviera Las Vegas operating
performance despite an intensely competitive operating environment in Las Vegas,
and the successful development of Riviera Black Hawk.
Our principal executive offices are located at 2901 Las Vegas Boulevard
South, Las Vegas, Nevada 89109, and our telephone number is (702) 734-5110.
The Transactions
The existing notes were issued on June 26, 2002. The net proceeds from
the sale of the existing notes, after deduction of the initial purchaser's
discounts and expenses of the transaction, were approximately $202.6 million.
The net proceeds of the offering, along with cash on hand, were used to defease
our 10% First Mortgage Notes due 2004 and Riviera Black Hawk's 13% First
Mortgage Notes due 2005 With Contingent Interest.
The Exchange Offer
Securities Offered....... Up to $215,000,000 aggregate principal amount of 11%
Senior Secured Notes due 2010. The terms of the new
notes and existing notes are identical in all
material respects.
The Exchange
Offer.................... We are offering the new notes to you in exchange for
a like principal amount of existing notes. Existing
notes may be exchanged only in integral multiples of
$1,000.
Expiration Date;
Withdrawal of Tender..... The exchange offer will expire at 5:00 p.m.,
New York City time, on ______________, 2002.
Procedures for Tendering
Existing Notes........... If you wish to accept the exchange offer and
tender your existing notes, you must complete,
sign and date the letter of transmittal in
accordance with its terms, and mail or otherwise
deliver the letter of transmittal, together with
your existing notes and any other required
documentation, to the exchange agent at the
specified address.
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Exchange Agent........... The Bank of New York is serving as the exchange
agent in connection with the exchange offer.
Federal Income Tax
Consequences............. The exchange of notes under the exchange offer
should not be a taxable event for federal income tax
purposes.
Consequences of Exchange Offer
Based on interpretive letters issued by the staff of the Securities and
Exchange Commission to third parties in unrelated transactions, we are of the
view that holders of existing notes who exchange those notes for new notes
pursuant to the exchange offer generally may offer such new notes for resale,
resell such new notes and otherwise transfer such new notes without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided:
o the new notes are acquired in the ordinary course of the holders'
business;
o the holder has no arrangement with any person to participate in a
distribution of such new notes;
o neither the holder nor any other person is engaging in or intends to
engage in a distribution of the new notes; and
o the holder is not our "affiliate" within the meaning of Rule 405
under the Securities Act.
Each broker-dealer that receives new notes for its own account in
exchange for existing notes must acknowledge that it will deliver a prospectus
in connection with any resale of such new notes. In addition, the securities
laws of some jurisdictions may prohibit the offer or sale of the new notes
unless they have been registered or qualified for sale in such jurisdiction or
in compliance with an available exemption from registration or qualification. We
have agreed, pursuant to the registration rights agreement, to register or
qualify the new notes for offer or sale under the securities or blue sky laws of
such jurisdictions as any holder of the notes reasonably requests in writing. If
a holder of existing notes does not exchange such existing notes for new notes
pursuant to the exchange offer, such existing notes will continue to be subject
to the restrictions on transfer contained in the legend printed on the existing
notes. In general, the existing notes may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from the
registration requirements of the Securities Act and applicable state securities
laws. Holders of existing notes do not have any appraisal or dissenters' rights
under Nevada law in connection with the exchange offer.
The existing notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Prior to the consummation of the exchange offer, the existing notes may continue
to be traded in the PORTAL market. Following expiration of the exchange offer,
the existing notes will not be eligible for PORTAL trading.
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The New Notes
The terms of the new notes and the existing notes are identical in all
material respects, except for transfer restrictions and registration rights
relating to the existing notes.
Securities Offered....... $215.0 million principal amount of 11% Senior Secured
Notes due 2010.
Maturity Date............ June 15, 2010.
Interest Rate............ We will pay interest on the notes at an annual rate
of 11%.
Interest Payment Dates... We will pay interest on the notes semiannually,
on each June 15 and December 15, beginning
December 15, 2002.
Guarantees............... The notes will be unconditionally guaranteed on a
senior secured basis by each of our existing and
future restricted subsidiaries. The guarantees will
rank equal in right of payment with all existing and
future senior indebtedness of these subsidiaries and
will rank senior in right of payment to all existing
and future subordinated indebtedness of these
subsidiaries.
Security Interest........ The notes will be secured by a lien on substantially
all of our and the subsidiary guarantors' current and
future assets, other than certain furniture,
fixtures and equipment, the assets of our
unrestricted subsidiaries and certain of our
licenses. Since we sold the existing notes, we have
entered into a new $30 million senior secured,
revolving credit facility, which is also guaranteed
by our restricted subsidiaries. The lien on the
collateral securing the new credit facility and
credit facility guarantees is senior to the lien
on the collateral securing the notes and the note
guarantees.
Ranking.................. The notes will rank equal in right of payment with
all of our existing and future senior indebtedness
with the exception of the lien on the collateral
securing our new credit facility and the credit
facility guarantees, which is senior to the lien on
the collateral securing the notes and the note
guarantees. If we default under the notes, we will
automatically be in default under the credit
facility. The notes will rank senior in right of
payment to all of our existing and future
subordinated indebtedness.
Optional Redemption...... On or after June 15, 2006, we may redeem notes from
time to time at a price that will decrease over
time as set forth under the caption
"Description of Notes--Optional Redemption."
Prior to June 15, 2005, we may redeem up to 35%
of the notes with the proceeds of one or more
public equity offerings at the price set forth in
this Prospectus.
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Gaming Redemption........ The notes will be subject to mandatory disposition
and redemption requirements following certain
determinations by any gaming regulatory authority.
Change of Control Offer.. If we experience a change in control, the holders
of the notes will have the right to require us to
repurchase their notes at a price equal to 101% of
the principal amount, plus accrued and unpaid
interest and liquidated damages, if any.
Asset Sale Offer......... If we sell certain assets or experience certain
events of loss and do not apply the proceeds as
required, we will have to offer to repurchase notes
at a price equal to 100% of the principal amount,
plus accrued and unpaid interest and liquidated
damages, if any.
Certain Indenture
Provisions............... We will issue the notes under an indenture. The
indenture contains covenants limiting our ability to,
among other things:
o incur more debt;
o pay dividends or make other distributions;
o redeem our equity interests;
o make certain investments;
o create liens;
o enter into transactions with affiliates;
o merge or consolidate; and
o transfer or sell assets, including the equity
interests of our subsidiaries.
These covenants will be subject to a number of
important exceptions.
Exchange Offer Registration.In an effort to give you the opportunity to exchange
the existing notes for publicly tradable notes with
substantially identical terms (which we refer to as
"new notes"), we have agreed, pursuant to a
registration rights agreement between us and the
Initial Purchaser, to:
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o use our reasonable best efforts to file a
registration statement for the exchange notes with
the SEC within 45 days from the date the existing
notes were issued; and
o use our reasonable best efforts to cause that
registration statement to be declared effective
within 120 days from the date the existing notes
were issued.
In addition, under certain circumstances, we have
agreed to file a shelf registration statement that
would allow some or all of the notes to be offered
to the public. If we do not comply with the
foregoing obligations under the registration rights
agreement, we will be required to pay liquidated
damages to the holders of the notes. See
"Description of Notes--Registration Rights;
Liquidated Damages."
Use Of Proceeds.......... We will not receive any proceeds from the new notes
in the exchange offer.
Risk Factors
Before making an investment decision regarding the notes, you should
carefully consider the information included in "Risk Factors" beginning on page
16, as well as all of the other information set forth in this Prospectus.
Summary Consolidated Financial Data
You should read the following information in conjunction with the
sections of this Prospectus entitled "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and the notes thereto
included in this Prospectus. The summary consolidated financial data as of, and
for the years ended, December 31, 1999, 2000 and 2001, presented below, have
been derived from the audited financial statements for Riviera Holdings
Corporation as of those dates and for those periods. Riviera Black Hawk was in
the development stage from its inception in August 1997 through February 4,
2000, when it opened. Accordingly, the results of operations for all fiscal
periods presented may not be comparable. The summary financial data as of, and
for the six months ended, June 30, 2001 and June 30, 2002, presented below, have
been derived from the unaudited financial statements for Riviera Holdings
Corporation as of those dates and for those periods. The unaudited consolidated
financial statements have been prepared by us on a basis consistent with the
audited financial statements and include all normal recurring adjustments
necessary for a fair presentation of the information set forth therein. Results
for the six months ended, June 30, 2001 and June 30, 2002 are not necessarily
indicative of results for the full year.
The following tables also include data for the four quarters ended June
30, 2002 and as adjusted data about us which have been included for the purposes
of additional analysis. Certain of these data give effect to the offering and
reflect certain non-recurring data as set forth in the footnotes below. Such
14
information is presented to enhance the understanding of our financial
performance; however such amounts are not measurements in accordance with GAAP.
Six Months Ended
Year Ended December 31, June 30,
-------------------------- -----------------
1999 2000 2001 2001 2002
---------- ---------- ---------- ---------- --------
(dollars in thousands)
Financial Statement Data:
Net operating revenues........................... $ 157,268 $201,531 $202,031 $107,028 $96,352
Income from operations........................... 11,093 16,879 16,971 11,726 9,398
Cash flows from operations....................... 6,749 19,355 12,546 7,515 7,308
Cash flows from investing activities (57,995) (4,161) (10,177) (6,204) (15,594)
Cash flows from financing activities 45,167 (5,824) (7,937) (3,955) (16,346)
Other Data:
EBITDA(1)........................................ 25,679 35,928 34,214 20,272 18,347
At June 30, 2002
Actual As Adjusted(2)
Balance Sheet Data:
Cash and cash equivalents............................................................... $21,974 $21,974
Total assets............................................................................ 248,982(3) 248,982
Long-term debt.......................................................................... 218,234 218,234
Stockholders' equity (deficiency)....................................................... 5,143 (6,186)
(1) EBITDA is calculated as follows:
Six Months Ended
Year Ended December 31, June 30,
-------------------------- --------------
1999 2000 2001 2001 2002
---------- ---------- ---------- ---------- --------
Income from operations....................... $11,093 $16,879 $16,971 $11,726 $9,398
Preopening expenses--Riviera Black Hawk....... 595 1,222 -- -- --
Depreciation and amortization................ 13,991 17,827 17,243 8,546 8,949
EBITDA....................................... $25,679 $35,928 $34,214 $20,272 $18,347
EBITDA consists of earnings before interest, income taxes,
depreciation, amortization, preopening expenses, and other, net. EBITDA
is presented to enhance the understanding of our financial performance
and our ability to service our indebtedness, including the notes.
Although EBITDA is not necessarily a measure of our ability to fund our
cash needs, we understand that it is used by certain investors as one
measure of cash flow and to compare our performance with the
performance of other companies that report EBITDA. EBITDA is not a
measurement determined in accordance with GAAP, is unaudited and should
not be considered an alternative to, or more meaningful than, net
income or income from operations, as an indicator of our operating
performance, or cash flows from operating activities, as a measure of
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liquidity. This definition of EBITDA may not be the same as that of
similarly named measures used by other companies or the definition used
in the indenture governing the notes or any of our other debt
agreements.
(2) Gives effect to this offering as if it occurred on June 30, 2002.
Stockholders' equity is adjusted to reflect the charges recorded upon
the retirement of the 10% Notes and 13% Notes.
(3) Total assets are net of $226.6 million of U.S. Treasury Bills held to
retire $210 million of debt and related accured interest.
RISK FACTORS
An investment in the notes involves a high degree of risk. You should
carefully consider the following risk factors in addition to all of the other
information provided to you in this Prospectus before making any investment
decision regarding the notes.
Risks Related to Our Substantial Debt
Our significant indebtedness could adversely affect our financial health and
prevent us from fulfilling our obligations under the notes and our other
outstanding indebtedness.
We have a significant amount of debt outstanding, including $218.2 million
of long-term debt represented by the notes and certain capital lease obligations
that we have committed, under the indenture, to convert to leases that would be
classified as operating leases before December 22, 2002, subject to our
obtaining reasonable terms for such conversion. In addition, the indenture
governing the notes permits us to incur additional debt in certain circumstances
including to finance the purchase of furniture and equipment and up to $30
million under our new senior secured, revolving credit facility. As adjusted for
the issuance of the notes and the recording of a charge related to the
redemption of the 10% Notes and 13% Notes, and assuming [no] borrowings under
the new credit facility, our equity as of June 30, 2002 would have been a
deficit of approximately $(6.2) million. Our earnings were not sufficient to
cover fixed charges in any of our last four years and as adjusted for this
offering for the twelve months ended June 30, 2002.
Our high level of debt could have important consequences to you and
significant effects on our business. For example, it could, among other things:
o make it more difficult for us to satisfy our obligations with
respect to the notes and our other outstanding indebtedness;
o increase our vulnerability to adverse economic and industry
conditions or a downturn in our business;
o limit our ability to fund a required regulatory redemption or
a change of control offer;
o result in an event of default if we fail to comply with the
financial and other restrictive covenants contained in the
indenture or our new credit facility, which event of default
could result in all of our indebtedness becoming immediately
due and payable and would permit some or all of our lenders to
foreclose on our assets securing such indebtedness;
o limit our ability to fund or obtain additional financing for
future working capital, capital expenditures and other general
financial requirements;
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o require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working
capital, capital expenditures, development projects,
acquisitions and other general corporate purposes;
o limit our flexibility in planning for, or reacting to, changes
in our business and industry; and
o place us at a competitive disadvantage compared to our
competitors that have less debt.
The occurrence of any one of these events could have a material adverse
effect on our business, financial condition, results of operations, prospects
and ability to satisfy our obligations under the notes. For more information on
the terms of the notes, see the discussion under the section entitled
"Description of Notes."
We may not be able to generate sufficient cash flow to service our debt.
We may not be able to generate sufficient cash flow to service our
debt, to repay the notes when due or to meet unanticipated capital needs. Our
ability to generate sufficient cash flow to satisfy our obligations will depend
on the future performance of our gaming operations, which is subject to many
economic, political, competitive, regulatory and other factors that we are not
able to control. However, if cash flows from operations are not sufficient to
satisfy our obligations, we may need to seek additional financing in the debt or
equity markets, refinance the notes, sell selected assets or reduce or delay
planned activities and capital expenditures. Any such financing, refinancing or
sale of assets might not be available on economically favorable terms, if at
all. In the event that we are left without sufficient liquidity to meet our debt
service requirements, an event of default would occur under our new credit
facility and the indenture.
Risks Related to the Notes
Your right to receive payments on the notes is effectively subordinated to
payments under our new credit facility and any equipment financing to the extent
of the collateral securing this other debt. The proceeds from the collateral
securing the notes may not be sufficient to pay all amounts owed under the notes
if an event of default occurs, even if the fair market value of the collateral
would otherwise be sufficient to pay the amounts owed under the notes.
The notes and guarantees are effectively subordinated to (1) up to $30
million principal amount of indebtedness that may be incurred under our new
senior secured, revolving credit facility, pursuant to the intercreditor
agreement described below, and (2) future equipment financing and purchase money
debt, in each case to the extent of the assets securing that indebtedness. As a
result, upon any distribution to our creditors or the creditors of any
subsidiary guarantors in bankruptcy, liquidation, reorganization or similar
proceedings, or following acceleration of our indebtedness or an event of
default under such indebtedness, our lender under our new credit facility, our
17
equipment financing and our purchase money indebtedness will be entitled to be
repaid in full before any payment is made to you from the proceeds of the assets
securing such indebtedness, or the sale of the equipment subject to such
equipment financing. Consequently, it is unlikely that the liquidation of the
collateral securing the notes would produce sufficient proceeds to pay the
principal of, or premium, if any, and accrued interest and liquidated damages,
if any, on the notes after also satisfying our obligations to pay any other
senior secured creditors, even if the fair market value of the collateral would
otherwise be sufficient to pay the amounts owed under the notes. The market
value of the collateral will also impact our ability to make payments due on the
notes, as described above. We can not assure you that the fair market value of
the collateral securing the notes would be sufficient to pay the amounts due
under the notes, even absent the new credit facility and any equipment
financing. In addition, under certain circumstances the indenture governing the
notes allows us to incur additional indebtedness. In such case, the collateral
securing the existing notes or the new notes might also secure such additional
indebtedness. An event of default under, or acceleration of, our other senior
secured debt also may prohibit us and the subsidiary guarantors from paying the
notes or the note guarantees.
The trustee under the indenture and the lender under our new credit
facility have entered into an intercreditor agreement to govern the relationship
between them and their obligations and rights. Financing by multiple lenders
with security interests in common collateral may result in increased complexity
and lack of flexibility in a debt restructuring or other work-out relating to
us. Furthermore, under the intercreditor agreement, the trustee's remedies in
the event of a default will be limited. Under the intercreditor agreement, if
the notes become due and payable prior to the stated maturity or are not paid in
full at the stated maturity at a time when indebtedness is outstanding under our
credit facility, the trustee will not have the right to foreclose upon the
collateral unless and until the lender under the credit facility fails to take
steps to exercise remedies with respect to or in connection with the collateral
within 180 days following notice to such lender of the default under the
indenture. Also, the intercreditor agreement will prevent the trustee and the
holders of the notes from pursuing remedies with respect to the collateral in an
insolvency proceeding. The intercreditor agreement provides that the net
proceeds from the sale of collateral will first be applied to repay indebtedness
outstanding under the credit facility and thereafter to the holders of the
notes. See "Description of New Credit Facility and Intercreditor Agreement -
Intercreditor Agreement." Also, if we default under the notes, we will
automatically be in default under the credit facility.
Failure to exchange your existing notes for new notes will significantly limit
your ability to sell the existing notes.
If you do not exchange your existing notes for new notes pursuant to
the exchange offer, you will not be able to resell, offer to resell or otherwise
transfer the existing notes unless they are registered under the Securities Act
or unless an exemption from the registration requirements of the Securities Act
is available to you. We will no longer be under an obligation to register the
existing notes under the Securities Act except in the limited circumstances
provided under the registration rights agreement. Also, upon consummation of the
exchange offer, the existing notes will cease to be eligible for trading in the
PORTAL market.
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Moreover, to the extent that existing notes are not tendered for
exchange and accepted in the exchange offer, the trading market for the new
notes could be adversely affected because of an insufficient float of new notes
available for trading.
The notes will not be secured by pledges of stock from our Nevada subsidiaries
until receipt of approval of the applicable regulatory bodies.
While the notes and guarantees are secured by our assets and the assets
of our restricted subsidiaries, we will not be able to pledge the stock of our
restricted Nevada subsidiaries to secure the existing notes or the new notes
until we receive the appropriate approvals from the applicable regulatory
bodies. While we have agreed to use our reasonable best efforts to obtain such
approvals in order to allow the pledges of stock, no assurance can be made
regarding if or when we will receive these approvals. In addition, since the
pledges will not be granted until after incurrence of the indebtedness, under
federal bankruptcy law a court may find that adequate consideration was not
received for the pledges or that the granting of the pledges was an avoidable
preferential transfer. Therefore, if we become subject to the federal bankruptcy
laws within 91 days after the effectiveness of the pledges, such pledges may be
voided.
Gaming laws, other regulations and lessor consent issues may delay or otherwise
impede the trustee's ability to foreclose on the collateral.
The trustee's ability to foreclose on a number of the assets in which
we grant security interests is subject to the prior approval of gaming
authorities, the senior lender under our new credit facility and certain
lessors. Approval of gaming regulatory authorities is required before any person
may foreclose on, take possession of, or dispose of, certain of the assets
securing the notes and the guarantees. In the event we fail to pay the notes or
otherwise default under the indenture, before the trustee or the holders of the
notes can foreclose or take possession of the assets or exercise certain other
rights, they may need to become licensed under the local state gaming laws and
the regulations promulgated thereunder.
Nevada law requires that all persons who propose to own shares of
licensed corporations must be found suitable as stockholders of such
corporations by the Nevada Gaming Commission and other relevant gaming
authorities before acquiring ownership of such interests. Consequently, it would
be necessary for the trustee to file an application with the Nevada gaming
authorities requesting approval to enforce the security interest in the pledged
shares and obtain such approval before it may take any steps to enforce the
security interest. Additionally, the trustee must file applications with the
Nevada gaming authorities requesting approval to enforce a security interest in
gaming assets before it may take steps to enforce the security interest.
Moreover, it would be necessary for a prospective purchaser of the pledged
shares or of the assets comprising our gaming businesses to file the necessary
applications, be investigated, and be found suitable by the Nevada gaming
authorities before acquiring the gaming assets or the pledged shares through the
foreclosure sale. Under Nevada law, the applicant for such approvals must file
all applications required by the Nevada gaming authorities, be investigated,
provide all information requested by the investigating agency, and pay all fees
and costs charged by the gaming authorities for such investigations. Although
the regulations of the Nevada Gaming Commission provide that the Nevada Gaming
Commission may, in its discretion, grant a temporary or permanent waiver of
19
licensing requirements with respect to foreclosure on pledged shares, no action
to enforce the security interest in the pledged shares may be taken nor may the
ownership of the shares be transferred without the approval of the Nevada Gaming
Commission. These requirements may therefore limit the number of potential
bidders who would participate in any foreclosure sale and may delay the sale of
the pledged shares or other gaming assets, either of which could have an adverse
effect on the proceeds received from such sales.
Under Colorado gaming laws, the trustee could be precluded from, or
otherwise limited or delayed in, exercising certain powers of attorney or
selling collateral, including slot machines, at a foreclosure sale since only
persons licensed by the Colorado gaming authorities may have slot machines in
their possession. In addition, the trustee may encounter difficulty in selling
collateral due to various legal restrictions, including requirements that the
purchaser or the operator of a gaming facility be licensed by state authorities
or that prior approval of a sale or disposition of collateral be obtained. If
the trustee sought to operate, or retain an operator for, our casino, the
trustee or its agents would be required to be licensed under Colorado gaming
laws in order to conduct gaming operations in the casino. Since potential
purchasers who wish to operate the casino must satisfy such requirements, the
number of potential purchasers in a sale of the casino could be less than in the
sale of other types of facilities. Additionally, these requirements may delay
the sale of, and may adversely affect the price paid for, the collateral.
In addition, the trustee's ability to foreclose upon and sell the
collateral will be subject to the procedural restrictions of state real estate
law and the Uniform Commercial Code. Furthermore, the right of the trustee to
foreclose upon and sell the collateral is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against us or any of our subsidiaries prior to, or possibly even after, the
trustee has repossessed and disposed of the collateral. See "Risks Related to
Our Business--Extensive government regulation continuously impacts our
operations." Such restrictions and limitations may adversely affect the
trustee's ability to foreclose on such collateral if you or any other holder of
our notes is not a U.S. citizen.
A court could void our subsidiaries' guarantees of the notes under fraudulent
transfer law.
Our restricted subsidiaries guarantee the notes, and each guarantor
grants a security interest in certain of its assets to secure its guarantee.
Although the guarantees provide you with a direct claim against the assets of
the subsidiary guarantors, under federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, under certain circumstances a
court could avoid (i.e., cancel) a guarantee and order the return of any
payments made thereunder to the guarantor or to a fund for the benefit of its
other creditors.
A court might take these actions if it finds, among other things, that
when the guarantor incurred the indebtedness evidenced by its guarantee, (1) it
received less than reasonably equivalent value or fair consideration for the
incurrence of the guarantee, and (2) any one of the following conditions was
satisfied:
o the guarantor was insolvent or rendered insolvent by reason of
such incurrence;
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o the guarantor was engaged in a business or transaction for
which its remaining assets constituted unreasonably small
capital; or
o the guarantor intended to incur, or believed (or reasonably
should have believed) that it would incur, debts beyond its
ability to pay as those debts matured.
In applying the above factors, a court would likely find that a
subsidiary guarantor did not receive fair consideration or reasonably equivalent
value for its guarantee, except to the extent that it benefited directly or
indirectly from the notes' issuance. The determination of whether a subsidiary
was or was rendered "insolvent" when it entered into its guarantee will vary
depending on the law of the jurisdiction being applied. Generally, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
If a court avoided a subsidiary's guarantee, you would no longer have a
claim against that subsidiary. We cannot assure you that the assets of the other
subsidiary guarantors would be sufficient to pay amounts then due under the
notes.
The indenture governing the notes and our new credit facility both contain
covenants that significantly restrict our operations.
The indenture governing the notes and our new credit facility both
contain, and any other future debt agreement will contain, numerous covenants
imposing financial and operating restrictions on our business. These
restrictions may affect our ability to operate our business, may limit our
ability to take advantage of potential business opportunities as they arise and
may adversely affect the conduct of our current business. These covenants will
restrict our ability and the ability of our subsidiaries to, among other things:
o incur more debt;
o pay dividends, redeem or repurchase our stock or make other
distributions;
o make acquisitions or investments;
o use assets as security in other transactions;
o enter into transactions with affiliates;
o merge or consolidate with others;
o dispose of assets or use asset sale proceeds;
o create liens on our assets; and
o extend credit.
21
Our new credit facility also requires us to meet certain financial
ratios and tests. See "Description of New Credit Facility and Intercreditor
Agreement - New Senior Secured Credit Facility." Our ability to meet these
ratios and tests and to comply with other provisions governing our indebtedness
may be adversely affected by our operations and by changes in economic or
business conditions or other events beyond our control. Our failure to comply
with our debt-related obligations could result in an event of default under the
notes. A default under the notes will also constitute a default under our new
credit facility.
We may be unable to repurchase the notes upon a change of control.
Upon the occurrence of specific change of control events, we will be
required to offer to repurchase your notes. The lender under our new credit
facility will have a similar right to be repaid upon a change of control. Any of
our future debt agreements also may contain a similar provision. Our ability to
pay cash to the holders of the notes in connection with such repurchase will be
limited by our then existing financial resources. Accordingly, it is possible
that we will not have sufficient funds at the time of the change of control to
make the required repurchase of notes. The terms of our new credit facility also
limit our ability to repurchase your notes until all debt under the new credit
facility is paid in full. Any of our future debt agreements may contain similar
restrictions. Accordingly, it is possible that restrictions in our new credit
facility will not allow such repurchases of notes. If we fail to repurchase any
notes submitted in a change of control offer, it would constitute an event of
default under the indenture which would, in turn, constitute an event of default
under our new credit facility and could constitute an event of default under our
other indebtedness, even if the change in control itself would not cause a
default.
There is currently no public market for the notes, and an active trading market
may not develop for them.
The existing notes are a recent issue of securities, which are
currently eligible for trading in the PORTAL market. Upon consummation of the
exchange offer, however, the existing notes will cease to be eligible for
trading in the PORTAL market. An active market may not develop for the existing
notes or the new notes, and there can be no assurance as to the liquidity of any
market that may develop for either series of notes. If an active market does not
develop, the market price and liquidity of the notes may be adversely affected.
If any of the notes are traded after their initial issuance, they may trade at a
discount from their initial offering price. Future trading prices of the notes
will depend on many factors, including, among other things, our ability to
effect the exchange offer, prevailing interest rates, our operating results and
the market for similar securities. Historically, the market for high-yield debt
has been subject to disruptions that have caused substantial fluctuations in the
prices of these securities. In addition, securities of gaming companies
historically have been more volatile than securities of other companies. The
market for the notes may be subject to such disruptions, and there can be no
assurance that the notes will not be subject to such volatility, either of which
could have an adverse effect on the price and liquidity of the notes. At the
time we offered the existing notes, the Initial Purchaser advised us of its
intent to make a market in the notes after consummation of that offering.
However, the Initial Purchaser is under no obligation to do so and may
discontinue any market-making activities at any time without notice. We do not
intend to apply for listing of the new notes or existing notes on any securities
22
exchange or for quotation of the notes in any automated dealer quotation system.
See "Description of Notes--Registration Rights" and "Plan of Distribution."
Risks Related to Our Business
We face significant competition in each market where we operate.
We face intense competition in each of the markets in which our gaming
facilities are located. Many of our competitors have significantly greater name
recognition and financial, marketing and other resources than we do. Our
properties compete principally with other gaming properties in or near
California, Nevada, and Colorado. In some of these jurisdictions, competition is
expected to intensify as new gaming operations enter these markets and existing
competitors consolidate with one another or expand or enhance their operations.
In addition to regional competitors, we compete with gaming facilities
nationwide, including casinos located on Indian reservations and other
land-based casinos in Nevada and Atlantic City, as well as elsewhere, not only
for customers but also for employees and potential future gaming sites. We also
compete, to some extent, with other forms of gaming on both a local and national
level, including state-sponsored lotteries, Internet gaming, on- and off-track
wagering and card parlors. The expansion of legalized gaming to new
jurisdictions throughout the United States also has increased competition faced
by us and will continue to do so in the future. Additionally, if gaming were
legalized in jurisdictions near our properties where gaming currently is not
permitted, we would face additional competition.
Increased competition may require us to make substantial capital
expenditures to maintain and enhance the competitive positions of our
properties, including updating slot machines to reflect changing technology,
refurbishing rooms and public service areas periodically, replacing obsolete
equipment on an ongoing basis and making other expenditures to increase the
attractiveness and add to the appeal of our properties. Because we are highly
leveraged, after satisfying our obligations under our outstanding indebtedness,
there can be no assurance that we will have sufficient funds to undertake these
expenditures or that we will be able to obtain sufficient financing to fund such
expenditures. If we are unable to make such expenditures, our competitive
position and our results of operations could be materially adversely affected.
Extensive government regulation continuously impacts our operations.
The ownership, management and operation of gaming facilities are
subject to extensive laws, regulations and ordinances which are administered by
various federal, state and local government entities and agencies. The gaming
authorities located in the jurisdictions in which we operate have broad
authority and discretion to require us and our officers, directors, managers,
members, employees and certain security holders to obtain various licenses,
registrations, permits, findings of suitability and other approvals. To enforce
applicable gaming regulations, gaming authorities may, among other things,
limit, suspend or revoke the licenses of any gaming entity or individual, and
may levy fines or forfeiture of assets against us or individuals for violations
of gaming laws or regulations. Any of these actions would have a material
adverse effect on us. See "Government Regulation and Licensing."
23
Government regulations require us to:
o pay gaming fees and taxes in each state where we operate a casino;
o obtain a gaming license in each state where we operate a
casino, which we must have renewed periodically and which may be
suspended or revoked if we do not meet detailed regulatory
requirements;
o receive and maintain federal approvals to operate our casinos;
o receive and maintain federal and state environmental approvals;
and
o receive and maintain local licenses to sell alcoholic beverages in
our casinos.
No assurances can be given that any new gaming licenses, liquor
licenses, registrations, findings of suitability, permits and approvals, or any
proposed expansion, will be given or that existing ones will be renewed when
they expire. Any failure to renew or maintain our licenses or receive new
licenses when necessary would have a material adverse effect on us.
The compliance costs associated with these laws, regulations and
licenses are significant. A change in the laws, regulations and licenses
applicable to our business or a violation of any current or future laws or
regulations or our gaming licenses could require us to make material
expenditures or could otherwise materially adversely affect our business or
financial results.
In some of the jurisdictions in which we currently operate or from
which we attract customers, or in which we may expand, gaming is subject to
local referendum. If the results of a referendum held in a jurisdiction in which
we operate were to restrict gaming in whole or in part or if the results of a
referendum in a nearby non-gaming jurisdiction were to permit gaming, our
results of operations could be negatively impacted.
In Colorado, the legislation establishing the Colorado Division of
Gaming is scheduled to expire effective July 1, 2003, unless continued by act of
the Colorado General Assembly. This is a "sunset" provision common in assessing
the continuing necessity for the existence of administrative agencies within
Colorado. If the repeal takes effect, Colorado law provides a procedure for
winding up the affairs of the Colorado Division of Gaming, public hearings,
analysis and evaluation, and for determining claims by or against the Colorado
Division of Gaming. The potential effect of the possible expiration upon the
regulatory structure governing limited gaming in Colorado is unknown.
You may be required to dispose of your notes, or we may be required to redeem
your notes, as a result of gaming regulatory matters.
Gaming authorities have the power to investigate any of our security
holders, including noteholders. These authorities may require a person who is a
holder or beneficial owner of our securities, including the notes, to provide
24
information, respond to questions or be licensed, qualified, found suitable or
make filings or submissions within a required time period. If a gaming authority
determines that a holder is unsuitable to own any of our securities, including
the notes, such holder will have no further right to exercise any right
conferred by the securities, to receive any economic benefit or payment,
including payments of interest, with respect to the securities or to continue
its ownership or economic interest in us. For more information, refer to
"Government Regulation and Licensing" and "Description of Notes--Mandatory
Redemption Pursuant to Gaming Laws."
Loss of our casino properties from service would adversely affect our
operations.
The operations of our properties are subject to disruptions or reduced
patronage as a result of severe weather conditions. Reduced patronage of our
casino properties from service for any period of time due to severe weather
could adversely affect our business, financial condition and results of
operations.
We are subject to potential exposure to environmental liabilities.
Generally, we are subject to a variety of federal, state and local
governmental laws and regulations relating to the use, storage, discharge,
emission and disposal of hazardous materials. Failure to comply with such laws
could result in the imposition of severe penalties or restrictions on operations
by governmental agencies or courts that could adversely affect operations. We
are not aware of any such exposure at our properties. The Riviera Black Hawk
property is located within a 400-square mile area that in 1983 was designated as
the Clear Creek Central/City National Priorities List Site Study Area ("Study
Area") pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended. Although Riviera Black Hawk is not within any
of the specific areas of the Study Area currently identified for investigation
or remediation, no assurance can be given that environmental problems will not
subsequently be discovered, including in connection with any future construction
on the expansion parcel of the property. Furthermore, the EPA or other
governmental authorities could broaden their investigations and identify areas
of concern within the site, we could be identified as a "potentially responsible
party" and any liability related thereto could have a material adverse effect on
us. We do not have insurance to cover environmental liabilities, if any.
We are dependent on key personnel.
Our ability to operate successfully is dependent, in part, on the
continued services of certain of our executive personnel. The loss of one or
more of such executive officers or the inability to attract or retain key
employees in the future could have a material adverse effect on our operations.
We currently have an employment agreement with William L. Westerman, our
Chairman of the Board, President, and Chief Executive Officer. Mr. Westerman's
employment agreement automatically renews each year on December 31 unless we
give three months notice or Mr. Westerman gives six months notice to terminate.
Mr. Westerman's contract is also subject to earlier termination upon occurrence
of certain events. Also, Robert A. Vannucci, who serves as President of Riviera
Operating Corporation, has an employment contract that is effective until
December 31, 2002. The contract is automatically renewed each year unless either
party gives 120 days prior written notice of nonrenewal. Other than these two
executives, none of our senior management is bound by any employment agreements
for any specified period of time. There can be no assurance that a suitable
replacement for Mr. Westerman or any of our other executives could be found in
the event of a termination of employment. A shortage of skilled management-level
25
employees currently exists in the gaming industry which may make it difficult
and expensive to attract and retain qualified employees.
The casino industry generally is dependent in part on a number of factors that
are beyond our control.
The economic health of the casino industry is affected by a number of
factors that are beyond our control, including: (1) general economic conditions
and economic conditions specific to our gaming markets, such as Denver,
Colorado; (2) levels of disposable income of casino patrons; (3) increased
transportation costs resulting in decreased travel by patrons; (4) local
conditions in key gaming markets, including seasonal and weather-related
factors; (5) increase in gaming taxes or fees; (6) competitive conditions in the
gaming industry and in particular gaming markets, including the effect of such
conditions on the pricing of our games and products; (7) substantial price
increases in the cost of energy in the United States; and (8) the relative
popularity of entertainment alternatives to casino gaming that compete for the
leisure dollar. Any of these factors could negatively impact the casino industry
generally, and as a result, our revenues and results of operations.
The terrorist attacks have and could negatively affect our revenues.
On September 11, 2001, the World Trade Center buildings in New York
City and the Pentagon in Washington, D.C. were attacked by terrorists using
hijacked airplanes. The effects of these events have included a decline in
vacation travel and tourism due to, among other factors, fears regarding
additional acts of terrorism, and reduced operations by airlines due to
decreased demands for air travel, new security directives and increased costs.
The magnitude and duration of these effects or any future acts of terrorism is
unknown and cannot be predicted. Any decline in vacation travel and tourism
could adversely affect our revenues, particularly with respect to Riviera Las
Vegas, where the majority of our customers rely on air travel to visit our
casino property. Continued or even worsening negative market conditions related
to those terrorist actions, any future occurrences of other terrorist or other
destabilizing events, and other actions that perpetuate a climate of war could
cause existing and potential customers to further delay and cancel travel,
convention and vacation plans, could decrease wagering and increase costs, and
as a result could adversely affect our revenues and cash flow in the future.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.
The net proceeds from the offer and sale of the existing notes, which were
issued on June 26, 2002, were approximately $202.6 million after deduction of
the initial purchaser's discounts and expenses of the offering. The net
proceeds, along with cash on hand, were used to defease our 10% First Mortgage
Notes due 2004 and Riviera Black Hawk's 13% First Mortgage Notes due 2005 With
Contingent Interest. The funds required to defease these obligations were
deposited in accounts with the respective trustees. The Riviera Black Hawk Notes
were subsequently redeemed by the trustee on July 26, 2002 at 106.5% of the
outstanding principal amount. Our First Mortgage Notes will be redeemed by the
trustee in August 2002 at 102.5% of the outstanding principal amount.
26
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of June 30, 2002, on an actual basis and as adjusted to give
effect to the sale of the existing notes, including the application of the net
proceeds of that sale as if the defeasance and redemption of our 10% First
Mortgage Notes due 2004 and Riviera Black Hawk's 13% First Mortgage Notes due
2005 With Contingent Interest had occurred on June 30, 2002. The following table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the notes thereto appearing elsewhere in this Prospectus.
At June 30, 2002
Actual As Adjusted
(dollars in thousands)
Cash and cash equivalents...................................... $ 21,974 $21,974
====== =======
Current portion of long-term debt(1)........................... $ 3,297 $ 2,260
Debt to be retired in third quarter of 2002
10% First Mortgage Notes due 2004 (4).......................... 174,270 --
13% First Mortgage Notes due 2005 With Contingent Interest (4). 34,941 --
Long-Term debt:
Credit facility (2)
11% Notes(3)................................................... 211,775 211,775
Capital lease obligations(1)................................... 5,148 --
Equipment financing and other(1)............................... 2,133 864
Total long-term debt........................................ 219,056 212,639
Total stockholders' equity (deficiency)(5).................. 5,143 (6,186)
Total capitalization..................................... $224,199 $206,453
-----------
(1) We have committed, under the indenture, to convert $7.4 million of capital
leases and other equipment financing on certain equipment to leases that
would be classified as operating leases before December 22, 2002, subject
to our obtaining reasonable terms for such conversion.
(2) We have entered into a new $30 million senior secured, revolving credit
facility.
(3) Reflects issuance of $215.0 million aggregate principal amount of notes
on June 26, 2002 at the issue price of 98.5% of the principal amount
thereof.
(4) On June 26, 2002, we defeased these series of notes by depositing the
required funds in accounts with the respective trustees. On July 26,
2002, the trustee under the 13% First Mortgage Notes redeemed those
notes at 106.5% of the outstanding principal amount. In Ausgust 2002,
the trustee under our 10% First Mortgage Notes will use the deposited
funds to redeem those notes at 102.5% of the outstanding principal
amount.
(5) Stockholder's equity as adjusted reflects the extraordinary charges,
including redemption premiums and unamortized deferred financing costs
with respect to redemption of our 10% First Mortgage Notes and Riviera
Black Hawk's 13% First Mortgage Notes.
27
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data at, and for each of
the years ended, December 31, 2000 and 2001 and for the year ended December 31,
1999 have been derived from our audited financial statements included elsewhere
in this Prospectus. Riviera Black Hawk was in the development stage from its
inception in August 1997, through February 4, 2000, when it opened. Accordingly,
the results of operations for all fiscal periods presented may not be
comparable. The consolidated financial information at December 31, 1999, and as
of and for the years ended December 31, 1997 and 1998, was derived from our
audited consolidated financial statements that are not included in this
Prospectus. The selected historical consolidated financial data for each of the
six months ended June 30, 2001 and June 30, 2002 have been derived from our
unaudited condensed consolidated financial statements. The unaudited condensed
consolidated financial statements have been prepared by us on a basis consistent
with the audited consolidated financial statements and include all normal
recurring adjustments necessary for a fair presentation of the information set
forth therein. Results for each of the six months ended June 30, 2001 and June
30, 2002 are not necessarily indicative of results for the full year. You should
read "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the notes thereto appearing
elsewhere in this Prospectus.
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------------------------------ --------------
1997(1) 1998 1999 2000 2001 2001 2002
------------------------- ------------ ------------ ------------ --------------------
(dollars in thousands)
Statement of Operations Data:
Operating revenues:
Casino............................. $71,624 $77,676 $73,181 $107,693 $114,039 $58,314 $54,926
Rooms.............................. 41,812 39,607 39,899 43,819 44,255 24,471 21,386
Food and beverage.................. 21,603 23,940 25,117 30,756 31,256 16,410 16,378
Entertainment...................... 20,895 21,543 20,994 24,526 20,692 11,763 8,580
Other.............................. 10,556 11,155 11,713 10,538 9,119 4,928 4,251
Total........................... 166,490 173,921 170,904 217,332 219,361 115,886 105,521
Less: promotional allowances.......... 12,697 13,966 13,636 15,801 17,330 8,858 9,169
Net operating revenues............. 153,793 159,955 157,268 201,531 202,031 107,028 96,352
Operating costs and expenses:
Casino............................. 40,620 45,293 42,306 57,450 62,845 32,111 29,186
Rooms.............................. 21,235 20,859 21,909 23,364 23,339 12,228 11,726
Food and beverage.................. 16,118 17,539 18,307 21,372 21,426 11,002 10,635
Entertainment...................... 17,235 16,861 16,271 18,959 14,900 8,386 5,674
Other operating expenses........... 3,011 3,308 3,228 3,146 3,068 1,609 1,421
Selling, general and administrative 26,211 27,028 29,568 41,312 42,239 21,420 19,363
Depreciation and amortization...... 10,485 12,137 13,991 17,827 17,243 8,546 8,949
28
Preopening expenses--Black Hawk..... -- -- 595 1,222 -- -- --
Corporate expense--severance pay.... -- 551 -- -- -- -- --
Total.............................. 134,915 143,576 146,175 184,652 185,060 95,302 86,954
Income from operations................ 18,878 16,379 11,093 16,879 16,971 11,726 9,398
Other income (expense):
Interest income.................... 4,193 4,774 2,255 2,429 1,274 675 229
Interest expense................... (18,975) (24,187) (23,448) (27,805) (26,864) (13,453) (13,533) (7)
Interest capitalized............... 771 2,679 4,733 616 -- -- --
Other income (expense)............. (1,470) (1,229) (1,963) 1,171 (28) (31) (16)
Income (loss) before income tax
(benefit)............................. 3,397 (1,584) (7,330) (6,710) (8,647) (1,083) (3,922)
Income tax (benefit).................. 1,309 (533) (4,461) (2,495) (2,240) (355) --
Income (loss) before extraordinary item 2,088 (1,051) (2,869) (4,215) (6,407) (728) (3,922)
Extraordinary item (net of income tax
of $1.6 million)(2)................ -- (3,006) -- -- -- -- --
Net income (loss)..................... $2,088 $(4,057) $(2,869) $(4,215) $(6,407) $(728) $(3,922)
At December 31, At June 30,
----------------------------------------------------------------------- 2002
1997 1998 1999 2000 2001 -----
---- ---- ---- ---- ----
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents and short-term
investments........................... $65,151 $48,883 $48,062 $52,174 $46,606 $21,974
Total assets............................. 247,866 (3) 244,909 288,990 283,710 267,818 248,982 (6)
Long-term debt........................... 173,436 (3) 174,506 223,766 223,172 217,288 218,234 (6)
Total stockholders' equity............... 37,777 33,503 27,678 16,945 8,964 5,143
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------------------ --------
1997(1) 1998 1999 2000 2001 2001 2002
------- ---- ---- ---- ---- ---- ----
(dollars in thousands)
Other Data:
Ratio of earnings to fixed charges(4). 1.19 .93 .61 .76 .68 .95 .71
Deficiency Amount(5).................. $(1,584) $(7,330) $(6,710) $(8,647) $(728) $(3,922)
-----------
29
(1) Riviera Black Hawk, Inc. was formed in August 1997. Accordingly, its
development stage results of operations included herein are for the
period of August through December of 1997.
(2) Relates to a loss on extinguishment of debt.
(3) Total assets are net of $106,596,000 of U.S. Treasury Bills held to
retire $100 million of debt. Long-term debt is net of the $100 million
in debt to be retired by the aforementioned U.S. Treasury Bills.
(4) Calculated by dividing (a) the sum of net income (loss) and fixed
charges by (b) fixed charges. "Fixed charges" is defined as the sum of
(i) interest expensed and capitalized, (ii) amortized premiums,
discounts and capitalized expenses related to indebtedness and (iii) an
estimate of the interest expense component of rental expense.
(5) Earnings were not sufficient to cover fixed charges for all periods
presented except 1997.
(6) Total assets are net of $226,632 if U. S. Treasury Bills held to retire
$210 million of debt and related accrued interest payable. Long-term
debt is net of the $210 million in debt to be retired by the
aforementioned U.S. Treasury Bills.
(7) Includes interest expense on bonds held for retirement of $364,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Summary Consolidated Financial Data," and the "Selected Consolidated Financial
Data" and historical consolidated financial statements and the notes thereto
appearing elsewhere in this Prospectus. Certain statements contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations constitute "forward-looking statements" within the meaning of the
Litigation Reform Act, which statements involve risks and uncertainties. See
"Forward-Looking Statements."
Introduction
Our operations are comprised of the Riviera Hotel & Casino in Las
Vegas, Nevada and the Riviera Black Hawk Casino in Black Hawk, Colorado with our
corporate office located at the Riviera Las Vegas. Income from operations for
2001 was $17.0 million. Income from operations for the six months ended June 30,
2002 was $9.4 million, a decrease of $2.3 million from the six months ended June
30, 2001. We believe this decrease was the result of the effects of September
11th. Riviera Las Vegas was opened in 1955, underwent a major renovation in
1992, and over the past several years we have again refurbished the rooms and
updated the casino. By maintaining the freshness of our facilities and focusing
on our niche markets, we have historically been able to maintain a stable EBITDA
at Riviera Las Vegas with an average EBITDA of $28.4 million per year from 1996
to 2000. However, in 2001, EBITDA at Riviera Las Vegas declined to $21.5 million
largely due to, we believe, the terrorist attacks of September 11, 2001 which
curtailed travel to destinations markets such as Las Vegas. We opened the
Riviera Black Hawk in February 2000. In Riviera Black Hawk's first full year of
operations, 2001, it generated EBITDA of $12.7 million, and the results for the
six months of 2002 show continued growth. We believe that Riviera Black Hawk
was less affected by the events of September 11th due to its focus on serving
the local Denver market.
30
The impact of the events of September 11th forced us to re-evaluate our
operations. As a result we implemented a business improvement plan under which
we permanently eliminated approximately 200 full-time equivalent employees at
Riviera Las Vegas and corporate offices, or approximately 10% of our workforce
in these areas, and converted the LeBistro Lounge from a company-run cost center
to a revenue-producing rental location. We believe this business improvement
plan addressed operating inefficiencies and aligned costs with our ongoing needs
as opposed to temporarily reducing variable costs associated with revenues. We
also conducted a special post September 11th marketing campaign.
Given the effect that these events had on our Las Vegas operations in 2001,
we believe Riviera Las Vegas' historical results from 1996 through 2000 which
averaged $28.4 million EBITDA annually, together with the results at Riviera
Black Hawk (which we believe was less affected by the events of September 11th),
for the 12 months ended June 30, 2002 which produced EBITDA of approximately
$14.1 million, should also be considered in evaluating our EBITDA coverage
ratio (EBITDA divided by cash interest expense), EBITDA leverage ratio (net
long-term debt divided by EBITDA). Based upon an assumed, combined $42.5 million
of EBITDA described above, our interest coverage ratio would be 1.73 to 1.0 and
our leverage ratio would be 4.61 to 1.0. These amounts and ratios however, are
not amounts prepared or computed in accordance with accounting principals
generally accepted in the U.S. Further, there can be no assurance that we can or
will achieve these results in the future. The aforementioned ratios were
calculated using the following assumptions: Cash interest expense is estimated
at $24,575,000 which includes cash interest on the notes and other debt
aggregating $218,234,000 at June 30, 2002 less cash and cash equivalents of
approximately $22 million at June 30, 2002.
Historical Results of Operations
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
The following table sets forth certain of our historical operating results for
the periods indicated.
Six Months
Ended June 30,
$ Change % Change
2001 2002 Inc/(Decr) Inc/(Decr)
---- ---- ---------- ----------
(dollars in thousands)
Net Operating Revenues
Riviera Las Vegas............................. $84,068 $71,936 $(12,132) (14.4)%
Riviera Black Hawk............................ 22,960 24,416 1,456 6.3 %
Riviera Gaming Management..................... -- -- --
Total...................................... $107,028 $96,352 $(10,676) (10.0)%
Income (Loss) from Operations
Riviera Las Vegas............................. $8,770 $5,789 $(2,981) (34.0)%
Riviera Black Hawk............................ 2,956 3,609 653 22.1 %
Riviera Gaming Management..................... -- -- --
Total...................................... $11,726 $9,398 $(2,328) (19.9)%
EBITDA(1):
Rivera Las Vegas.............................. $14,910 $11,652 $(3,258) (21.9)%
Riviera Black Hawk............................ 5,362 6,695 1,333 24.9 %
Riviera Gaming Management..................... -- -- --
Total EBITDA............................... $20,272 $18,347 $(1,925) (9.5)%
31
EBITDA Margin:
Riviera Las Vegas............................. 17.7% 16.2%
Riviera Black Hawk............................ 23.4% 27.4%
Riviera Gaming Management..................... -- --
Total EBITDA Margin........................ 18.9% 19.0%
-----------
(1) EBITDA consists of earnings before interest, income taxes,
depreciation, amortization, preopening expenses, and other, net.
Although EBITDA is not necessarily a measure of our ability to fund our
cash needs, we understand that it is used by certain investors as one
measure of cash flow and to compare our performance with the
performance of other companies that report EBITDA. EBITDA is not a
measurement determined in accordance with GAAP, is unaudited and should
not be considered an alternative to, or more meaningful than, net
income or income from operations, as an indicator of our operating
performance, or cash flows from operating activities, as a measure of
liquidity. This definition of EBITDA may not be the same as that of
similarly named measures used by other companies or the definition used
in the indenture governing the notes or any of our other debt
agreements.
Riviera Las Vegas
Revenues. Net revenues decreased by approximately $12.1 million, or
14.4%, from $84.1 million in 2001 to $72.0 million in 2002 due primarily to
decreased casino, rooms and entertainment revenues. Casino revenues decreased by
approximately $4.5 million, or 12.3%, from $36.4 million during 2001 to $31.9
million during 2002 due to a decrease in slot machine revenue. Room revenue
decreased $3.1 million, or 12.6%, from $24.5 million in 2001 to $21.4 million in
2002 due to the continued effects of a slower economy and the events of
September 11, 2001. Hotel occupancy fell 5.6% from 97.4% in 2001 to 91.8% in
2002 and average daily room rate fell $5.65 from $65.02 in 2001 to $59.37 in
2002. We have been able to bring occupancy back to normal levels, however, the
average daily rate remained 8.6% below historical levels in June 2002.
Entertainment revenues decreased by approximately $3.3 million, or 27.9%, from
$11.7 million during 2001 to $8.4 million during 2002 due primarily to a
decrease in Splash and Crazy Girls revenues as result of competition from the
openings of new shows on the Las Vegas Strip and a slower economy. Other
revenues decreased by approximately $775,000, or 16.5%, from $4.7 million during
2001 to $3.9 million during 2002 due primarily to decreased gift shop and
telephone revenues. Promotional allowances decreased by approximately $229,000,
or 3.3%, from $7.0 million during 2001 to $6.8 million during 2002 primarily due
to decreases in comps related to lower casino activity.
Income from Operations. Income from operations in Las Vegas declined
$3.0 million, or 34.0%, from $8.8 million in 2001 to $5.8 million in 2002 due to
the 14.4% decrease in net revenues which was partially offset by a 12.2%
decrease in expenses. Fixed costs in the rooms department and general
administrative costs were not reduced in sufficient proportion to compensate for
32
the decline in revenue. Room revenues fell 12.6% while costs were down 4.1%.
Total net revenues were down 14.4% while general and administrative costs were
down 12.2%.
EBITDA. Riviera Las Vegas EBITDA, as defined, decreased by
approximately $3.3 million, or 21.9%, from $14.9 million in 2001 to $11.7
million in 2002 for reasons described above. During the same periods, EBITDA
margin decreased from 17.7% to 16.2% of net revenues. Margins in Las Vegas
continue to be pressured by the economy and competitor actions, but have
improved each month. The Las Vegas operation is spending more marketing dollars
to increase demand and will continue to focus and grow incentive programs
through the rest of the year and into 2003.
Riviera Black Hawk
Revenues. Net revenues increased by approximately $1.5 million, or
6.3%, from $22.9 million in 2001 to $24.4 million in 2002. Casino revenues
increased $1.1 million, or 4.9%, from $21.9 million in 2001 to $23.0 million in
2002. Gaming revenues in the Black Hawk market grew by a healthy 12.5% in the
second quarter of 2002 compared to the second quarter of 2001, more than
offsetting the 12% increase in gaming devices as a result of the opening of the
Hyatt Casino in December 2001. This continues a historical trend of growth for
the Black Hawk market as new casinos offering a variety of new amenities have
expanded the market's appeal to a broader base of customers.
Food and beverage revenues were approximately $3.3 million in 2002, of
which $2.4 million was complimentary (promotional allowance). Riviera Black Hawk
continues to refine its marketing efforts by constantly measuring the success
rates of its programs, while monitoring the offerings of competitors. The
operation is attempting to strike a balance between player incentives, gaming
product, food offerings and entertainment as its primary marketing programs.
Income from Operations. Income from operations in Black Hawk increased
$653,000, or 22.1%, from $3.0 million in 2001 to $3.6 million in 2002 due to
increased revenues as a result of refining our direct marketing and promotional
programs for the casino in the first six months of 2002.
EBITDA. Riviera Black Hawk EBITDA, as defined, increased $1.3 million,
or 24.9%, from $5.4 million in 2001 to $6.7 million in 2002. EBITDA margin for
the first six months increased to 27.4% from 23.4% for the same period last
year.
Consolidated Operations
Other Income (Expense). Interest expense of $8.8 million on the $175
million 10% First Mortgage Notes issued by us, plus related amortization of loan
fees and equipment and other financing costs totaled approximately $10.0 million
in 2001 and 2002. Interest expense on the remaining $35 million of the 13% First
Mortgage Notes With Contingent Interest issued by Riviera Black Hawk in June
1999 combined with its interest from capital leases totaled $3.3 million in the
first six months of 2002 compared to $3.5 million for the first six months of
2001. Additionally, our new offering of $215 million 11% Senior Secured Notes
resulted in interest expense of $353,000 for the first six months of 2002.
33
Net Income (Loss). Our results of operations decreased $3.2 million
from a net loss of $728,000 in 2001 to a net loss of $3.9 million in 2002 due
primarily to the continuing effects of a slower economy and the events of
September 11, 2001.
EBITDA. Consolidated EBITDA, as defined, decreased by approximately
$1.9 million, or 9.5%, from $20.3 million in 2001 to $18.3 million in 2002.
During the same periods, our EBITDA margin increased from 18.9% to 19.0% of net
revenues for the reasons described above.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Special Factors Affecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during the first
quarter of 2000 until February 4, 2000 when it opened the casino. Accordingly,
the results of operations for the fiscal 2001 and fiscal 2000 results may not be
comparable.
The following table sets forth, for the periods indicated, certain
operating data for Riviera Las Vegas and Riviera Black Hawk. Net revenues
displayed in this table and discussed in this section are net of promotional
allowances. Operating income from properties is presented as shown on the
Consolidated Statement of Operations. EBITDA from properties for the purposes of
this table excludes corporate expense, pre-opening expense and inter-company
management fees.
Year Ended December 31,
--------------------------------------------------------------------
2001 2000 $ Change % Change
---- ---- Inc/(Decr) Inc/(Decr)
(dollars in thousands)
Net Revenues:
Riviera Las Vegas.......... $152,985 $166,038 $(13,053) (7.9)%
Riviera Black Hawk......... 49,046 35,261 13,785 39.1%
Riviera Gaming Management.. -- 232 (232) (100.0)%
Total Net Revenues...... $202,031 $201,531 $500 0.2%
Income (loss) from
Operations:
Riviera Las Vegas.......... $9,350 $14,910 $(5,560) (37.2)%
Riviera Black Hawk......... 7,622 1,881 5,741 305.2%
Riviera Gaming Management.. (1) 88 (89) (101.1)%
Total Operating Income.. $16,971 $16,879 $92 0.5%
EBITDA(1):
Riviera Las Vegas.......... $21,493 $29,243 $(7,750) (26.5)%
34
Riviera Black Hawk......... 12,722 6,597 6,125 92.8%
Riviera Gaming Management.. (1) 88 (89) (101.1)%
Total EBITDA............ $34,214 $35,928 $(1,714) (4.8)%
EBITDA Margin:
Riviera Las Vegas.......... 14.0% 17.6%
Riviera Black Hawk......... 25.9% 18.7%
Riviera Gaming Management.. 37.9%
Total EBITDA Margin..... 16.9% 17.8%
-----------
(1) EBITDA consists of earnings before interest, income taxes,
depreciation, amortization, preopening expenses, and other, net.
Although EBITDA is not necessarily a measure of our ability to fund our
cash needs, we understand that it is used by certain investors as one
measure of cash flow and to compare our performance with the
performance of other companies that report EBITDA. EBITDA is not a
measurement determined in accordance with GAAP, is unaudited and should
not be considered an alternative to, or more meaningful than, net
income or income from operations, as an indicator of our operating
performance, or cash flows from operating activities, as a measure of
liquidity. This definition of EBITDA may not be the same as that of
similarly named measures used by other companies or the definition used
in the indenture governing the notes or any of our other debt
agreements.
Riviera Las Vegas
Revenues. Riviera Las Vegas net revenues decreased by approximately
$13.1 million, or 7.9%, from $166.0 million in 2000 to $153.0 million in 2001
primarily due to the effects of the recession and the September 11th terrorist
attacks. Casino revenues decreased approximately $6.7 million or 9.0%,from $74.1
million during 2000 to $67.4 million during 2001. Slot revenues were down 7%,
while table games revenues were down 13.6%. The hold percentages were comparable
for both table games and slot machines in 2001 and 2000. Room revenues were
comparable to the prior year, as the average room rate increased $3.50 or 6%
from $59.00 to $62.50 and hotel occupancy decreased from 96.6% to 91.6%. The
decrease in air travel, especially long-haul flights from the east coast,
affected Riviera Las Vegas more than many of its competitors. Our marketing
efforts had been concentrated on airline customers who traveled longer
distances, paid more for their tickets and had a larger gaming and entertainment
budget. While this strategy was successful in prior years, the effects of the
September 11th terrorist attacks were devastating to this market segment.
Subsequent to September 11th, gaming marketing expenditures were increased to
protect and promote the slot customer base. Increased room marketing efforts
focus on customers in the western United States and these efforts appear to be
successful, based on the pace of advance bookings. Call volumes, booking
35
patterns and occupancy began to normalize in mid-January 2002. Although
occupancy is recovering on the weekends, the midweek occupancy rates vary
significantly from day to day primarily due to competitive pressures.
Entertainment revenues decreased by approximately $4.1 million, or 16.7%, from
$24.5 million during 2000 to $20.4 million during 2001 as attendance decreased
approximately 27%, which was partially offset by a 13.6% increase in ticket
price. Competition for Riviera show customers, while significant all year,
intensified after September 11th. Tour and travel room sales were down
approximately 50% in the fourth quarter of 2001, which is an important producer
of show ticket sales and slot revenues. Other revenues decreased by
approximately $1.7 million, or 16.7%, from $10.2 million during 2000 to $8.5
million during 2001 due primarily to lower telephone revenues.
Income from Operations. Income from operations decreased $5.6 million
or 37.2% from $14.9 million in 2000 to $9.3 million in 2001 due to the decreased
revenues, which were partially offset by lower entertainment contract expenses
and a 9.4% or $1.4 million reduction in depreciation expense. Entertainment
costs are tied to revenues and as a result of this relationship, the
departmental results were similar to the prior year. Depreciation decreased, as
$20 million of equipment purchased in 1993 became fully depreciated in 2000. In
addition, the September 11th terrorist attacks caused management to accelerate
the timing and magnitude of staffing reductions. In excess of 300 full-time
equivalent employees were laid off, based on the reduction in volumes. These
events have caused the industry to reevaluate their cost structures and adjust
payrolls accordingly.
EBITDA. Riviera Las Vegas EBITDA, as defined, decreased by
approximately $7.8 million, or 26.5%, from $29.2 million in 2000 to $21.5
million in 2001. During the same periods, EBITDA margin decreased from 17.6% to
14.0% of net revenues.
Riviera Black Hawk
Special Factors Affecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during 1999 and until
February 4, 2000 when the casino opened. Accordingly, the consolidated results
of operations for fiscal 2001 and 2000 may not be comparable.
Revenues. Riviera Black Hawk net revenues increased by approximately
$13.8 million, or 39.1%, from $35.3 million in the 11 months of 2000 to $49.0
million in the 12 months ended December 31, 2001 as the operation gained market
share and was, for the most part, unaffected by the events of September 11th.
Casino revenues, primarily slot machines, increased by approximately $13.0
million, or 38.7%, from $33.6 million in the 11 months of 2000 to $46.7 million
in the 12 months ended December 31, 2001. Average slot machine win per unit
increased from $114 per day in 2000 to $148 in 2001. Food and beverage revenues
increased by approximately $1.6 million, or 40.0%, from $4.0 million in the 11
months of 2000 to $5.6 million in the 12 months ended December 31, 2001. The
remodeled buffet and related marketing efforts resulted in a 45.6% increase in
covers (customers) and a 26.4% increase in average check (price).
Income from Operations. Income from operations increased $5.7 million
or 305% from $1.9 million in the 11 months of 2000 to $7.6 million in the 12
months ended December 31, 2001 due to the increase in revenues and better
36
margins as marketing costs were stabilized. Staffing was also optimized as
full-time equivalent employees were reduced from 450 at the opening in February
2000 to 350 at the end of 2001. Although general and administrative costs
increased $1.7 million, they were 23.5% of revenues in the current year compared
with 27.7% in 2000. Depreciation increased $809,000 or 27.5% in 2001 compared
with the 11 months of operations in 2000.
EBITDA. Riviera Black Hawk EBITDA, as defined, increased by
approximately $6.1 million, or 92.8%, from $6.6 million in the 11 months of 2000
to $12.7 million in the 12 months ended December 31, 2001. During the same
periods, EBITDA margin increased from 18.7% to 25.9% of net revenues.
Consolidated Operations
Other Income (Expense). Interest expense on the $175 million 10% First
Mortgage Notes issued by us, plus related amortization of loan fees and
equipment and other financing costs totaled approximately $20.1 million in 2001
and 2000. Interest expense on the $45 million 13% First Mortgage Notes issued by
Riviera Black Hawk in June 1999 combined with its interest from capital leases
totaled $6.7 million in 2001 compared with $7.7 million in 2000. Capitalized
interest of $616,000 in 2000 was primarily from the Black Hawk, Colorado
project.
Other expenses, net include an insurance reimbursement of Paulson
litigation costs of $1.2 million in 2000.
Net Loss. The consolidated net loss increased approximately $2.2
million from $4.2 million in 2000 to $6.4 million in 2001. The effective income
tax benefit rates decreased from 37.2% in 2000 to 25.9% in 2001 because of
permanent timing differences for certain travel and entertainment expenses,
along with adjustments for tax credits which were considered deductions in prior
years.
EBITDA. Consolidated EBITDA, as defined, decreased approximately $1.7
million, or 4.8%, from $35.9 million in 2000 to $34.2 million in 2001. During
the same periods, EBITDA margin decreased from 17.8% to 16.9% of net revenues.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Special Factors Affecting Comparability of Results of Operations
Riviera Black Hawk was in the development stage during 1999 and until
February 4, 2000 when the casino opened. Accordingly, the consolidated results
of operations for fiscal 2000 and 1999 may not be comparable.
The following table sets forth, for the periods indicated, certain
operating data for Riviera Las Vegas and Riviera Black Hawk. EBITDA from
properties for the purposes of this table excludes corporate expense, preopening
expense and intercompany management fees. Operating income from properties is
presented as shown on the Consolidated Statement of Operations.
37
Year Ended December 31,
--------------------------------------------------------------------
2000 1999 $ Change % Change
---- ---- Inc/(Decr) Inc/(Decr)
(dollars in thousands)
Net Revenues:
Riviera Las Vegas.......... $166,038 $156,204 $9,834 6.2%
Riviera Black Hawk......... 35,261 0 35,261
Riviera Gaming Management.. 232 1,064 (832) (78.2)%
Total Net Revenues...... $201,531 $157,268 $44,263 28.0%
Income (loss) from
Operations:
Riviera Las Vegas.......... $14,910 $10,641 $4,269 40.1%
Riviera Black Hawk......... 1,881 (595) 2,476
Riviera Gaming Management.. 88 1,047 (959) (91.6)%
Total Operating Income.. $16,879 $11,093 $5,786 (52.1)%
EBITDA(1):
Riviera Las Vegas.......... $29,243 $24,631 $4,612 18.7%
Riviera Black Hawk......... 6,597 1 6,596
Riviera Gaming Management.. 88 1,047 (959) (91.6)%
Total EBITDA............ $35,928 $25,679 $10,249 39.9%
EBITDA Margin:
Riviera Las Vegas.......... 17.6% 15.9%
Riviera Black Hawk......... 18.7%
Riviera Gaming Management.. 37.9% 98.4%
Total EBITDA Margin..... 17.8% 16.3%
-----------
(1) EBITDA consists of earnings before interest, income taxes,
depreciation, amortization, preopening expenses, and other, net.
Although EBITDA is not necessarily a measure of our ability to fund our
cash needs, we understand that it is used by certain investors as one
measure of cash flow and to compare our performance with the
performance of other companies that report EBITDA. EBITDA is not a
measurement determined in accordance with GAAP, is unaudited and should
not be considered an alternative to, or more meaningful than, net
income or income from operations, as an indicator of our operating
38
performance, or cash flows from operating activities, as a measure of
liquidity. This definition of EBITDA may not be the same as that of
similarly named measures used by other companies or the definition used
in the indenture governing the notes or any of our other debt
agreements.
Riviera Las Vegas
Revenues. Net revenues increased by approximately $9.8 million, or
6.2%, from $156.2 million in 1999 to $166.0 million in 2000 due primarily to
increased room and entertainment revenues as described below. Casino revenues
increased by approximately $0.8 million, or 1.1%, from $73.2 million during 1999
to $74.0 million during 2000 due to an increase in slot machine revenue. Room
revenues increased by approximately $3.9 million, or 9.8% from $39.9 million
during 1999 to $43.8 million during 2000 as a result of an increase in average
room rate of $5.16, or 10%, which was offset by a slight decrease in hotel
occupancy from 97.5% to 96.6%. Food and beverage revenues increased
approximately $1.7 million, or 6.4%, from $25.1 million during 1999 to $26.8
million during 2000 due to higher cover counts and modestly increased prices.
Entertainment revenues increased by approximately $3.5 million, or 16.7%, from
$21.0 million during 1999 to $24.5 million during 2000 due primarily to the
increase in Splash revenues as a result of the showroom renovation and the new
show which opened in late 1999. Other revenues decreased by approximately $0.7
million, or 6.7%, from $10.6 million during 1999 to $9.9 million during 2000 due
primarily to decreased management fees from Riviera Gaming Management-Elsinore,
Inc.'s contract which expired December 30, 1999. Promotional allowances
decreased by approximately $0.6 million, or 4.4%, from $13.6 million during 1999
to $13.0 million during 2000 primarily due to decreases in comps related to
lower table games activity.
Income from Operations. Income from operations increased $4.2 million,
or 40.1%, from $10.6 million in 1999 to $14.9 million in 2000 due to the
increased revenues.
EBITDA. Riviera Las Vegas EBITDA, as defined, increased by
approximately $4.6 million, or 18.7%, from $24.6 million in 1999 to $29.2
million in 2000. During the same periods, EBITDA margin increased from 15.8% to
17.6% of net revenues.
Riviera Black Hawk
Revenues. Riviera Black Hawk opened on February 4, 2000. It had net
revenues of approximately $35.3 million for the approximate eleven-month period
in 2000. Casino revenues were $33.6 million, including $31.9 million in slot
revenue and $1.7 million in table games revenue.
Food and beverage revenues were approximately $4.0 million, of which
$2.8 million were complimentary (promotional allowance). Other revenues were
approximately $0.4 million primarily from ATM transaction fees.
EBITDA. Riviera Black Hawk EBITDA, as defined, was $6.6 million, or
18.7%, of net revenues.
39
Consolidated Operations
Other Income (Expense). Interest expense of $17.5 million on the $175
million 10% First Mortgage Notes issued by us, plus related amortization of loan
fees and equipment and other financing costs totaled approximately $20.1 million
in 2000 and 1999. Interest expense on the $45 million 13% First Mortgage Notes
issued by Riviera Black Hawk in June 1999 combined with its interest from
capital leases totaled $7.7 million in 2000. Capitalized interest was $616,000
in 2000, which was primarily from the Black Hawk, Colorado project, decreased
approximately $2.4 million from 1999.
In 2000, other expenses, net, included an insurance reimbursement of
Paulson litigation costs of $1.2 million which were incurred in 1999.
Net Loss. The consolidated net loss increased approximately $1.3
million from $2.9 million in 1999 to $4.2 million in 2000 due primarily to
higher total interest expense offset by lower capitalized interest in 2000.
Federal income tax benefits as a percent of losses were lower in 2000 because we
reflected the results of an audit by the Internal Revenue Service in 1999. The
audit resulted in the release of reserves of $1.9 million for taxes on employee
meals and other items, which were settled favorably to us.
EBITDA. Consolidated EBITDA, as defined, increased by approximately
$10.2 million, or 39.9%, from $25.7 million in 1999 to $35.9 million in 2000.
During the same periods, EBITDA margin increased from 16.3% to 17.8% of net
revenues.
Critical Accounting Policies
The preparation of our consolidated financial statements requires our
management to adopt accounting policies and to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue and expenses.
Management periodically evaluates its policies, estimates and assumptions
related to these policies. We operate in a highly regulated industry. For both
our Las Vegas, Nevada and Black Hawk, Colorado operations we are subject to
regulations that describe and regulate operating and internal control
procedures. The majority of our casino revenue is in the form of cash, personal
checks or gaming chips and tokens, which by their nature do not require complex
estimates. We estimate certain liabilities with payment periods that extend for
longer than several months. Such estimates include customer loyalty liabilities,
self-insured medical and workers compensation costs and litigation costs. We
believe these estimates are reasonable based on our past experience with the
business and based on our assumptions related to possible outcomes in the
future. Future actual results will likely differ from these estimates.
We have determined that the following accounting policies and related
estimates are critical to the preparation of our consolidated financial
statements:
Long-lived Assets:
We have a significant investment in long-lived property and equipment.
We estimate that the undiscounted future cash flows expected to result from the
use of these assets exceeds the current carrying value of these assets. Any
40
adverse change in the estimate of these undiscounted future cash flows could
necessitate an impairment charge that would adversely affect operating results.
We estimate useful lives for our assets based on historical experience,
estimates of assets' commercial lives, and the likelihood of technological
obsolescence. Should the actual useful life of a class of assets differ from the
estimated useful life, we would record an impairment charge. We review useful
lives and obsolescence and we assess commercial viability of these assets
periodically.
We utilize estimates related to cash flow projections related to the
application of Statement of Financial Accounting Standards ("SFAS") No. 109 for
the realization of deferred tax assets. Our estimates are based upon recent
operating results and budgets for future operating results. These estimates are
made using assumptions about the economic, social and regulatory environments in
which we operate. These estimates could be negatively impacted by numerous
unforeseen events including changes to regulations affecting how we operate our
business, changes in the labor market or economic downturns in the areas where
we operate.
Provision for Credit Losses
We maintain a provision for estimated credit losses based on historical
experience and specific customer collection issues. Any unforeseen change in
customer liquidity or financial condition could adversely affect the
collectibility of that account and our operating results.
Liquidity and Capital Resources
In June 2002, we issued the existing notes. The proceeds along with
cash on hand were used to defease our 10% First Mortgage Notes due 2004 and
Riviera Black Hawk's remaining 13% First Mortgage Notes due 2005 With Contingent
Interest.
Effective July 26, 2002, we entered into a $30 million, five-year
revolving credit facility with a financail institution. Terms of the facility
include interest at Wells Fargo's prime rate plus 0.75% or a LIBOR-derived rate.
See Description of New Credit Facility and Intercreditor Agreement.
At June 30, 2002, we had cash and cash equivalents of $22 million. The
cash and cash equivalents decreased $24.6 million for the first six months of
2002, resulting from of $7.3 million of cash provided by operations, $5.2
million of cash flow for investing activities and $26.7 million outflow for
financing activities in that six-month period.
For 2001, net cash provided by operating activities was $12.5 million
compared to $19.4 million in 2000. Cash flows used in investing activities were
$10.2 million in 2001 compared to $4.2 million in 2000. Net cash used in
financing was $7.9 million in 2001 and $5.8 million in 2000, primarily due to
the repurchase of treasury stock and Black Hawk First Mortgage Notes. EBITDA, as
defined, for 2001 and 2000 was $34.2 million and $35.9 million, respectively.
Cash balances include amounts that may be required to fund the
Chairman's pension obligation in a rabbi trust with 5 days notice. (See Note 7
to the financial statements, Other Long-Term Liabilities). Although there is no
current intention to require this funding, we might need to disburse
approximately $7 million for this purpose in a short period.
41
Our Las Vegas operations are self-insured for workers' compensation
claims. The State of Nevada requires that we maintain a $2.5 million tangible
net worth, as defined in the statute. If tangible net worth were to fall below
$2.5 million, we would have to fund a $2.5 million bond with the State or obtain
workers' compensation insurance at a significantly higher cost than our current
cost structure. The State has notified us that we qualify for self-insurance
through April 2003.
We believe that cash flow from operations, combined with the $22
million cash and cash equivalents and the new $30 million senior secured,
revolving credit facility will be sufficient to cover our debt service and
enable investment in budgeted capital expenditures for 2002 for both the Las
Vegas and Black Hawk properties, provide our initial investments in the
potential Missouri and New Mexico projects.
Our cash flow from operations may not be sufficient to pay 100% of the
principal of the $215 million notes at maturity on June 15, 2010. Accordingly,
our ability to repay the notes at maturity may depend on our ability to
refinance those notes. We cannot give any assurance that we will be able to
obtain such refinancing.
In certain circumstances we must offer to repurchase the notes,
including if we undergo a change of control. If we become obligated to redeem or
repurchase the notes prior to maturity, we would be unable to do so without a
refinancing.
The notes contain certain covenants which limit our ability to: (a)
incur additional indebtedness; (b) pay dividends or other distributions,
repurchase capital stock or other equity interests or subordinated indebtedness;
(c) enter into certain transactions with our affiliates; (d) create certain
liens or sell certain assets; and (e) enter into certain mergers and
consolidations. As a result of these restrictions, our ability to incur
additional indebtedness to fund operations or to make capital expenditures is
limited. If our cash flow from operations is insufficient to cover cash
requirements, we would be required to curtail or defer certain capital
expenditure programs, which could have an adverse effect on our operations.
As of June 30, 2002, we believe that we are in compliance with the
covenants of our notes.
Contractual Obligations
The following table summarizes our contractual obligations and
commitments as of June 30, 2002.
Payments Due by Period
----------------------------------------------------------------------
Total Remaining 2003 2004 2005 and
----- six months ---- ---- Thereafter
of 2002 ----------
--------
Contractual obligations
Long-term debt......................................... $224,750 (B) $1,596 $3,474 $3,360 $216,320
Bonds to be retired.................................... 216,587 (A) 216,587
Operating leases....................................... 39 39
Other long-term obligations............................ 191 112 $22 $19 $38
Total contractual cash obligations........................ $441,567 $218,334 $3,496 $3,379 $216,358
42
Market risks relating to our operations result primarily from changes in
interest rates. We invest our cash and cash equivalents primarily in U.S.
Treasury Bills with maturities of 90 days or less. Our equipment loans, leases
and Special Improvement District debt are not subject to significant valuations
adjustment due to interest rate changes.
Interest Rate Sensitivity
Principal (Notational Amount by Expected Maturity)
Average Interest Rate
Remaining
six months Fair Value
of 2002 2003 2004 2005 2006 Thereafter Total At 6/30/02
--------------- ---- ---- ---- ---- ---------- ----- ----------
(Amounts in Thousands)
Long Term Debt Including
Current Portion
Equipment loans and capital
leases--Las Vegas... $ 601 $ 1,326 $ 988 $ 11 $ 2,926 $ 2,926
Average interest rate. 8.0% 7.8% 7.8% 8.4%
11% Senior Secured Notes $211,781 211,781 211,781
3,219
Average interest rate. 11.6%
Capital leases, Black Hawk,
Colorado........... $ 946 $ 2,045 $ 2,263 $ 658 $ 5,912 $ 5,912
Average interest rate. 10.8% 10.8% 10.8% 10.8%
Special Improvement District
Bonds--Black Hawk, Colorado
casino project..... $ 49 $ 103 $ 109 $ 116 $ 124 $ 411 $ 912 $ 912
Average interest rate. 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
-----------------------------------------------------------------------------------------------------------------------------------
Bonds held for retirement
13% First Mortgage Note, Black
Hawk, Colorado casino project $ 34,941 $ 34,941 $ 34,941
Average interest rate. 14.0%
10% First Mortgage Note $ 175,000 $175,000 $175,000
Average interest rate. 10.6%
Recently Adopted Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
Accounting for Derivatives, which is effective for fiscal years beginning after
June 15, 2000. SFAS No. 133 defines derivatives and requires qualitative
disclosure of certain financial and descriptive information about a company's
derivatives. We adopted SFAS No. 133 in the quarter ending March 31, 2001. The
adoption of SFAS No. 133 had no impact on us or our consolidated financial
statements.
The Emerging Issues Task Force of the American Institute of Certified
Public Accountants ("EITF") issued EITF No. 00-22, Accounting for "Points" and
Certain Other Timed-Based Sales Incentive Offers, and Offers for Free Products
or Services to Be Delivered in the Future, on January 18, 2001. EITF No. 00-22
concluded that when a company or vendor offers to a customer (a) free or
discounted products or services that will be delivered (either by the vendor or
by another unrelated entity) at a future date (1) as a result of a single
revenue transaction with the customer or (2) only if the customer completes a
43
specified cumulative level of revenue transactions with the vendor or remains a
customer of the vendor for a specified time period and (b) a rebate or refund of
a determinable cash amount only if the customer completes a specified cumulative
level of revenue transactions with the vendor or remains a customer of the
vendor for a specified time period, such rebates should be reported as a
reduction of revenues. We were required to adopt EITF No. 00-22 during the first
quarter of 2001. As a result of adopting it, we reclassified approximately $3.4
million and $905,000 of such sales incentive "Points" from Casino operating
expense to net against Casino revenues for the twelve months ending December 31,
2000 and 1999, respectively.
The EITF issued EITF No. 00-14, Accounting for Certain Sales
Incentives, on April 18, 2001. We offer such sales incentives as "Cash
Vouchers." EITF No. 00-14 concluded that when a company or vendor offers its
customers sales incentives including discounts, coupons, rebates, and free
products or services, such sales incentives should be reported as a reduction of
revenues. We chose to adopt EITF No. 00-14 in the first quarter of 2001, which
was earlier than the first quarter of 2002 requirement. As a result of adopting
EITF No. 00-14, we reclassified approximately $1.9 million and $0 of such sales
incentive "Cash Vouchers" from Casino operating expense to net against Casino
revenues for the twelve months ending December 31, 2000 and 1999, respectively.
In June 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS
No. 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The adoption of SFAS No. 141 did not have a significant impact on our operating
results or financial statements.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets, which became effective January 1, 2002. SFAS No. 142
requires, among other things, the discontinuance of goodwill amortization. In
addition, SFAS No. 142 includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS No. 142
also required us to complete a transitional goodwill impairment test six months
from the date of adoption. The adoption of SFAS No. 142 had no impact on our
financial position and results of operations.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 applies to all
entities. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The adoption of
SFAS No. 143 had no impact on our finacial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of Accounting Principles Bulletin ("APB") Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business (as
previously defined in that Opinion). SFAS No. 144 also amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The provisions of SFAS No. 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001, and interim periods
within those fiscal years. The adoption SFAS No. 144 had no impact on our
financial position or results of operations.
44
Recently Issued Accounting Standards
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statement Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 requires that gains and losses from extinguishment of
debt be classified as extraordinary items only if they meet the criteria in APB
Opinion No. 30. Applying the provisions of APB Opinion No. 30 will distinguish
transactions that are part of an entity's recurring operations from those that
are unusual and infrequent that meet criteria for classification as an
extraordinary item. SFAS No. 145 is effective for us beginning January 1, 2003,
but we may adopt it prior to this date. The effect on our consolidated financial
position and results of operations of the adoption of SFAS No. 145 will be that
we recognize and report bond retirement costs as an operating expense.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. A fundamental conclusion reached by the FASB in this
statement is that an entity's commitment to a plan, by itself, does not create a
present obligation to others that meets the definition of a liability. SFAS No.
146 also establishes that fair value is the objective for initial measurement of
the liability. The provisions of this statement are effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. We are currently assessing, but have not yet determined,
the impact of SFAS No. 146 on our financial position and results of operations.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We issued and sold the existing notes to the Initial Purchaser on June
26, 2002. The Initial Purchaser subsequently sold the existing notes to
qualified institutional buyers in reliance on Rule 144A under the Securities
Act, to institutional accredited investors in reliance on other exemptions from
registration under the Securities Act, and to certain other investors in
reliance on Regulation S under the Securities Act. Because the existing notes
are subject to transfer restrictions, we entered into a registration rights
agreement with the Initial Purchaser, dated June 26, 2002, pursuant to which we
agreed:
45
o within 45 days after June 26, 2002, to prepare and file with
the Securities and Exchange Commission a registration
statement of which this Prospectus is a part;
o within 120 days after June 26, 2002, to use our reasonable
best efforts to cause the registration statement to become
effective under the Securities Act;
o upon the effectiveness of the registration statement, to offer
the new notes in exchange for surrender of the existing notes;
and
o to keep the exchange offer open for not less than 20 business
days, or longer if required by applicable law, after the date
notice of the exchange offer is mailed to the holders of the
existing notes.
The registration statement is intended to satisfy in part our
obligations with respect to the existing notes under the registration rights
agreement.
Under existing interpretations of the Securities and Exchange
Commission, the new notes will be freely transferable by holders other than our
affiliates after the exchange offer without further registration under the
Securities Act if the holder of the new notes represents that:
o it is acquiring the new notes in the ordinary course of its
business;
o it has no arrangement or understanding with any person to
participate in the distribution of the new notes;
o it is not our affiliate, as such term is interpreted by the
Securities and Exchange Commission; and
o if such holder is not a broker-dealer, then such holder is not
engaged in and does not intend to engage in, a distribution of
the new notes.
However, participating broker-dealers receiving new notes in the
exchange offer will have a prospectus delivery requirement with respect to
resales of such new notes. The Securities and Exchange Commission has taken the
position that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to new notes, other than a resale of an unsold
allotment from the original sale of the existing notes, with this Prospectus.
Under the registration rights agreement, we are required to allow participating
broker-dealers and other persons, if any, with similar prospectus delivery
requirements to use this Prospectus in connection with the resale of such new
notes. Each broker-dealer that receives new notes for its own account in
exchange for existing notes, where such existing notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes.
46
Terms of the Exchange Offer; Period for Tendering Existing Notes
On the terms and subject to the conditions set forth in this Prospectus
and in the accompanying letter of transmittal, which together constitute the
exchange offer, we will accept for exchange existing notes which are properly
tendered on or prior to the expiration date and not withdrawn as permitted
below. The expiration date is 5:00 p.m., New York City time, on
--------------------, 2002. However, if we, in our sole discretion, extend the
period of time for which the exchange offer is open, the expiration date will be
the latest time and date to which the exchange offer is extended.
As of the date of this Prospectus, $215.0 million aggregate principal
amount of the existing notes is outstanding.
We reserve the right, at any time or from time to time, to extend the
period of time during which the exchange offer is open, and thereby delay
acceptance for any exchange of any existing notes, by giving notice of such
extension to the holders of existing notes as described below. During any such
extension, all existing notes previously tendered will remain subject to the
exchange offer and may be accepted for exchange by us. Any existing notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder as promptly as practicable after the expiration or termination
of the exchange offer.
We reserve the right to amend or terminate the exchange offer, and not
to accept for exchange any existing notes not previously accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
below. We will give notice of any extension, amendment, non-acceptance or
termination to the holders of the existing notes as promptly as practicable,
such notice in the case of any extension to be issued not later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date.
Holders of existing notes do not have any appraisal or dissenters'
rights under Nevada law in connection with the exchange offer.
Procedures for Tendering Existing Notes
The tender to us of existing notes by a holder of existing notes as set
forth below and the acceptance of such tender by us will constitute a binding
agreement between the tendering holder and us on the terms and subject to the
conditions set forth in this Prospectus and in the accompanying letter of
transmittal. Except as set forth below, a holder who wishes to tender existing
notes for exchange pursuant to the exchange offer must transmit a properly
completed and duly executed letter of transmittal to the exchange agent, The
Bank of New York, on or prior to the expiration date. In addition, the exchange
agent must receive:
o certificates for such existing notes along with the letter of
transmittal, or
o prior to the expiration date, a timely confirmation of a
book-entry transfer of such existing notes into the exchange
agent's account at The Depository Trust Company ("DTC")
47
pursuant to the procedure for book-entry transfer described
below, or
o the holder must comply with the guaranteed delivery procedure
described below.
The method of delivery of existing notes, letters of transmittal and
all other required documents is at your election and risk. If such delivery is
by mail, we recommend that you use registered mail, properly insured, with
return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. You should not send letters of transmittal or existing
notes to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the existing notes surrendered for
exchange are tendered:
o by a registered holder of the existing notes who has not
completed the box entitled "Special Issuance Instruction" or
"Special Delivery Instruction" on the letter of transmittal;
or
o for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantees must be by an
eligible institution. Eligible institutions are any firm which is a member of a
registered national securities exchange or a member of the National Association
of Securities Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in the United States. If existing notes are registered
in the name of a person other than a signer of the letter of transmittal, the
existing notes surrendered for exchange must be endorsed by, or be accompanied
by, a written instrument or instruments of transfer or exchange. This must be in
satisfactory form as determined by us in our sole discretion, duly executed by
the registered holder with the signature on such existing notes guaranteed by an
eligible institution.
Any beneficial owner whose existing notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee, and who
wishes to tender, should contact the registered holder promptly and instruct
such registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the letter of transmittal and delivering such
owner's existing notes, either make appropriate arrangements to register
ownership of the existing notes in such owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
All questions as to the validity, form, eligibility, time of receipt
and acceptance of existing notes tendered for exchange will be determined by us
in our sole discretion. This determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any particular
existing notes not properly tendered or to not accept any particular existing
notes which acceptance might, in our judgment or our counsel's judgment, be
unlawful. We also reserve the absolute right to waive any defects or
irregularities or conditions of the exchange offer as to any particular existing
48
notes either before or after the expiration date including the right to waive
the ineligibility of any holder who seeks to tender existing notes in the
exchange offer. The interpretation of the terms and conditions of the exchange
offer as to any particular existing notes either before or after the expiration
date, including the letter of transmittal and the instructions to such letter of
transmittal, by us shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of existing notes for
exchange must be cured within such reasonable period of time as we determine.
Neither we, the exchange agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
existing notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the letter of transmittal or any existing notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by us, proper evidence satisfactory to us of their authority to so
act must be submitted.
By tendering, each holder of existing notes will represent to us in
writing that, among other things:
o the new notes acquired pursuant to the exchange offer are
being obtained in the ordinary course of business of the
holder and any beneficial holder;
o neither the holder nor any such beneficial holder has an
arrangement or understanding with any person to participate in
the distribution of such new notes; and
o neither the holder nor any such other person is our
"affiliate," as defined under Rule 405 of the Securities Act.
If the holder is not a broker-dealer, the holder must
represent that it is not engaged in nor does it intend to
engage in a distribution of the new notes.
If any holder or any such other person is our "affiliate," as defined
in Rule 405 of the Securities Act, or is engaged in, or intends to engage in, or
has an arrangement or understanding with any person to participate in, a
distribution of such new notes to be acquired pursuant to the exchange offer,
such holder or any such other person may not rely on the applicable
interpretations of the staff of the Securities and Exchange Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
If the holder is a broker-dealer, the holder must represent that it
will receive new notes for its own account in exchange for existing notes that
were acquired as a result of market-making activities or other trading
activities. Each broker-dealer that receives new notes for its own account in
exchange for existing notes, where such existing notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes.
49
Acceptance of Existing Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date, all existing notes
properly tendered, and will issue the new notes promptly after acceptance of the
existing notes. For purposes of the exchange offer, we shall be deemed to have
accepted properly tendered existing notes for exchange when, as, and if we have
given oral and written notice to the exchange agent.
The new notes will bear interest from the most recent date to which
interest has been paid on the existing notes, or if no interest has been paid on
the existing notes, from June 26, 2002. Accordingly, registered holders of new
notes on the relevant record date for the first interest payment date following
the consummation of the exchange offer will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from June 26, 2002. Existing notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the exchange offer.
Holders of existing notes that are accepted for exchange will not receive any
payment in respect of accrued interest on such existing notes otherwise payable
on any interest payment date the record date for which occurs on or after
consummation of the exchange offer, and such holders will be deemed to have
waived their rights to receive such accrued interest on the existing notes.
In all cases, issuance of new notes for existing notes that are
accepted pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of the following (along with any other documents that
might be required):
o a timely book-entry confirmation of such existing notes in the
exchange agent's account at DTC, along with an "agent's
message" from DTC, as described in "--Book-Entry Transfer"
below; or
o certificates for such existing notes, accompanied by a
properly completed and duly executed letter of transmittal.
If any tendered existing notes are not accepted for any reason set
forth in the terms and conditions of the exchange offer or if existing notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged existing notes will be returned without expense
to the tendering holder. In the case of existing notes tendered by book-entry
transfer into the exchange agent's account at DTC pursuant to the book-entry
transfer procedures described below, such non-exchanged existing notes will be
credited to an account maintained with DTC as promptly as practicable after
expiration of the exchange offer.
Book-Entry Transfer
Any financial institution that is a participant in DTC's systems may
make book-entry delivery of existing notes by causing DTC to transfer such
existing notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer.
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We understand that the exchange agent has confirmed with DTC that any
financial institution that is a participant in DTC's system may utilize DTC's
Automated Tender Offer Program ("ATOP") to tender existing notes. We further
understand that the exchange agent will request, within two business days after
the date the exchange offer commences, that DTC establish an account with
respect to the existing notes for the purpose of facilitating the exchange
offer. Also, any participant may make book-entry delivery of existing notes by
causing DTC to transfer such existing notes into the exchange agent's account in
accordance with DTC's ATOP procedures for transfer. However, the exchange of the
existing notes so tendered will only be made after timely confirmation of such
book-entry transfer and timely receipt by the exchange agent of an agent's
message and any other documents required. An "agent's message" is a message,
transmitted by DTC and received by the exchange agent and forming part of
book-entry confirmation, which states that DTC has received an express
acknowledgment from a participant tendering existing notes which are the subject
of such book-entry confirmation and that such participant has received and
agrees to be bound by the terms of the letter of transmittal and that we may
enforce such agreement against such participant.
Guaranteed Delivery Procedures
If a registered holder of the existing notes desires to tender such
existing notes and the existing notes are not immediately available, or time
will not permit such holder's existing notes or other required documents to
reach the exchange agent by the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may still be effected
if:
o the tender is made through an eligible institution;
o prior to the expiration date, the exchange agent received from
such eligible institution a properly completed and duly
executed Letter of Transmittal and Notice of Guaranteed
Delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery, setting forth
the name and address of the holder of existing notes and the
amount of existing notes tendered, stating that the tender is
being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered existing notes, in
proper form for transfer, or a book-entry confirmation, as
the case may be, and any other documents required by the
letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
o the certificates for all physically tendered existing notes,
in proper form for transfer, or a book-entry confirmation, as
the case may be, and all other documents required by the
Letter of Transmittal are received by the exchange agent
within five NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
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Withdrawal Rights
Tenders of existing notes may be withdrawn at any time prior to the
expiration date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the exchange agent. Any such notice of withdrawal
must:
o specify the name of the person having tendered the existing
notes to be withdrawn;
o identify the existing notes to be withdrawn and the principal
amount of such existing notes; and
o where certificates for existing notes have been transmitted
specify the name in which such existing notes are registered,
if different from that of the withdrawing holder.
If certificates for existing notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an eligible institution unless such holder is an
eligible institution.
If existing notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn existing
notes and otherwise comply with the procedures of such facility. All questions
as to the validity, form and eligibility, including time of receipt, of such
notices will be determined by us, and our determination shall be final and
binding on all parties. Any existing notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer. Any
existing notes which have been tendered for exchange but which are not exchanged
for any reason will be returned to the holder thereof without cost to such
holder, or in the case of existing notes tendered by book-entry transfer into
the exchange agent's account at DTC pursuant to the book-entry transfer
procedures described above, such existing notes will be credited to an account
maintained with such book-entry transfer facility for the existing notes, as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn existing notes may be re-tendered by
following one of the procedures described above at any time on or prior to the
expiration date.
Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we are not
required to accept for exchange, or to issue new notes in exchange for, any
existing notes. We may terminate or amend the exchange offer if any time before
the acceptance of such existing notes for exchange or the exchange of new notes
for such existing notes, we determine that:
o the exchange offer does not comply with any applicable law or
any applicable interpretation of the staff of the Securities
and Exchange Commission;
52
o we have not received all applicable governmental approvals; or
o any actions or proceedings of any governmental agency or court
exist which could materially impair our ability to consummate
the exchange offer.
The foregoing conditions are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to any such condition or may
be waived by us in whole or in part at any time and from time to time in its
reasonable discretion. Our failure at any time to exercise any of the foregoing
rights shall not be deemed a waiver of such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any existing notes
tendered, and no new notes will be issued in exchange for any such existing
notes, if at such time any stop order is threatened or in effect with respect to
the registration statement of which this Prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939, as
amended. In any such event we are required to use every reasonable effort to
obtain the withdrawal of any stop order at the earliest possible time.
Exchange Agent
The Bank of New York is the exchange agent for the exchange offer. All
executed letters of transmittal should be directed to the exchange agent at one
of the addresses set forth below. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the letter of
transmittal and requests for Notices of Guaranteed Delivery should be directed
to the exchange agent addressed as follows:
By Registered or Certified Mail or
Overnight Courier: By Hand:
The Bank of New York The Bank of New York
101 Barclay Street, 101 Barclay Street,
Ground Level Ground Level
New York, NY 10286 Corporate Trust Services Window
Attn.: Santino Ginocchietti, New York, NY 10286
Reorganization Unit-7E Attn.: Santino Ginocchietti,
Reference: Riviera Reorganization
Holdings Corporation Unit-7E
Reference: Riviera
Holdings Corporation
53
By Facsimile (for Eligible
Institutions only):
(212) 298-1915
Confirm by Telephone:
(212) 815-6331
Delivery other than as set forth above will not constitute a valid
delivery.
Fees and Expenses
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail. However, additional solicitations may be made in person or by telephone by
our officers and employees.
Expenses incurred in connection with the exchange offer will be paid by
us. Such expenses include fees and expenses of the exchange agent and indenture
trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The new notes will be recorded at the same carrying amount as the
existing notes, which is the principal amount as reflected in our accounting
records on the date of the exchange and, accordingly, no gain or loss will be
recognized. The debt issuance costs will be capitalized and amortized to
interest expense over the term of the new notes.
Transfer Taxes
Holders who tender their existing notes for exchange will not be
obligated to pay transfer taxes, except that holders who instruct us to register
new notes in the name of, or request that existing notes not tendered or not
accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
Consequences of Failure to Exchange; Resales of New Notes
Holders of existing notes who do not exchange their existing notes for
new notes in the exchange offer will continue to be subject to the restrictions
on transfer of such existing notes as set forth in the legend thereon as a
consequence of the issuance of the existing notes pursuant to the exemptions
from, or in transactions not subject to, the registration requirements of, the
Securities Act and applicable state securities laws. Existing notes not
exchanged in the exchange offer will continue to accrue interest at 11% per
annum on the principal amount and will otherwise remain outstanding in
accordance with their terms. Holders of existing notes do not have any appraisal
or dissenters' rights under Nevada law in connection with the exchange offer. In
general, the existing notes may not be offered or sold unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. We do
54
not currently anticipate that we will register the existing notes under the
Securities Act. However, if the Initial Purchaser so requests with respect to
existing notes not eligible to be exchanged for new notes in the exchange offer
and held by it following consummation of the exchange offer or if any holder of
existing notes other than an exchanging dealer is not eligible to participate in
the exchange offer or, in the case of any holder of existing notes other than an
exchanging dealer that participates in the exchange offer, does not receive new
notes in exchange for existing notes that may be sold without restriction under
state and federal securities laws, other than due solely to the status of such
holder as our "affiliate" (as defined in Rule 405 under the Securities Act), we
are obligated to file a shelf registration statement under the Securities Act
relating to the existing notes held by such persons.
Based on interpretive letters issued by the staff of the Securities and
Exchange Commission to third parties in unrelated transactions, we are of the
view that new notes issued pursuant to the exchange offer may be offered for
resale, resold or otherwise transferred by holders thereof, other than any such
holder which is our "affiliate" under the Securities Act or any broker-dealer
that purchases notes from us to resell pursuant to Rule 144A or any other
available exemption, without compliance with the registration and prospectus
delivery provisions of the Securities Act. This is the case provided that such
new notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with any person to participate in
the distribution of such new notes. If any holder has any arrangement or
understanding with respect to the distribution of the new notes to be acquired
pursuant to the exchange offer, such holder:
o could not rely on the applicable interpretations of the staff
of the Securities and Exchange Commission; and
o must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a
secondary resale transaction.
A broker-dealer who holds existing notes that were acquired for its own
account as a result of market-making or other trading activities may be deemed
an "underwriter" under the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of new notes. Each such broker-dealer that receives new notes for its own
account in exchange for existing notes, where such existing notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge in the letter of transmittal that it will deliver a
prospectus in connection with any resale of such new notes. We have not
requested the staff of the Securities and Exchange Commission to consider the
exchange offer in the context of a no-action letter, and there can be no
assurance that the staff would take positions similar to those taken in the
interpretive letters referred to above if we were to make such a request.
In addition, the new notes may not be offered or sold in a jurisdiction
unless they have been registered or qualified for sale in such jurisdictions or
there has been compliance with an available exemption from registration or
qualification. We have agreed, under the registration rights agreement and
subject to the specified limitations therein, to register or qualify the new
55
notes for offer or sale under the securities or blue sky laws of such
jurisdictions in the U.S. as any selling holder of the notes reasonably requests
in writing.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal income tax
consequences of the exchange offer to a holder of existing notes that is an
individual citizen or resident of the U.S. or a U.S. corporation that purchased
the existing notes pursuant to their original issue. It also summarizes certain
U.S. income tax consequences resulting from the ownership and disposition of the
new notes. This discussion is based on the Internal Revenue Code of 1986, as
amended to the date hereof, existing and proposed Treasury regulations, and
judicial and administrative determinations, all of which are subject to change
at any time, possibly on a retroactive basis. The following relates only to the
existing notes, and the new notes received in exchange for the existing notes,
that are held as "capital assets" under Section 1221 of the Internal Revenue
Code by holders. It does not discuss state, local or foreign tax consequences,
nor does it discuss tax consequences to subsequent purchasers, or to categories
of holders that are subject to special rules, such as foreign persons,
tax-exempt organizations, insurance companies, banks, dealers in stocks and
securities and persons holding the notes as part of a "straddle," "hedge," or
"conversion transaction." For this purpose, subsequent purchasers are persons
who did not purchase the existing notes pursuant to their original issue. Tax
consequences may vary depending on the particular status of an investor.
No rulings will be sought from the IRS with respect to the tax
consequences of the exchange offer or the ownership and disposition of the
exchange notes. There can be no assurance that the IRS will not take positions
contrary to the federal income tax consequences discussed below. In particular,
we intend to treat the notes as indebtedness for federal income tax purposes.
However, this treatment is not binding on the IRS or any court and there can be
no assurance that the IRS will not successfully argue, or that a court will not
hold, that the notes should be treated as equity for federal income tax
purposes. If any portion of the notes is treated as equity rather than
indebtedness, we would not be able to deduct the interest on that portion of the
notes. This could have a material adverse effect on our after-tax cash flow. In
addition, the interest payments made on the portion of the notes treated as
equity will be taxable to the recipient as dividends to the extent of our
current and accumulated earnings and profits. This could adversely affect the
timing, character and amounts includible in the income of a holder of notes.
This section does not purport to deal with all aspects of federal
income taxation that may be relevant to an investor's decision to exchange
existing notes for new notes. Each investor should consult with its own tax
advisor concerning the application of the federal income tax laws and other tax
laws to its particular situation before determining whether to exchange existing
notes for new notes.
The Exchange Offer
The exchange of existing notes pursuant to the exchange offer should be
treated as an exchange of securities where no gain or loss will be recognized
and will also be a continuation of the corresponding existing notes because the
terms of the new notes are not materially different from the terms of the
56
existing notes. Accordingly, the exchange should not constitute a taxable event
to holders, and therefore:
o no gain or loss should be realized by holders upon receipt of
a new note;
o the holding period of a new note should include the holding
period of the existing note for which the new note was
exchanged; and
o the adjusted tax basis of the new note should be the same as
the adjusted tax basis of the existing note for which the new
note was exchanged immediately before the exchange.
Recognition of Interest Income
Because the stated redemption price at maturity of the notes will not
exceed their issue price by more than 1/4 of 1% of their stated redemption price
at maturity multiplied by the number of full years until maturity, the notes
will not be considered issued with original issue discount for federal income
tax purposes. A holder of notes will be required to report as ordinary income
for federal income tax purposes stated interest earned on the notes as it is
received or accrued, in accordance with the holder's method of accounting for
tax purposes.
Sale, Retirement or Other Taxable Disposition
A holder of a note will generally recognize gain or loss on the sale,
redemption, retirement, or other taxable disposition of the note in an amount
equal to the difference between the amount of cash and the fair market value of
property received in exchange therefor, except to the extent attributable to the
payment of accrued interest or original issue discount, which generally will be
taxable to the holder as ordinary income, reduced by any negative adjustment
carryforward and the holder's adjusted tax basis in the note. A holder's
adjusted tax basis in a note generally will be equal to the price paid for the
note, determined without adjustments, and decreased by the amount of any
payments previously made on the note. The resulting gain or loss will generally
be capital gain or loss and will be long-term capital gain or loss if the note
has been held for more than one year.
Liquidated Damages
We intend to take the position that any liquidated damages will be
taxable to the holder as ordinary income in accordance with the holder's method
of accounting for federal income tax purposes. The IRS may take a different
position, however, which could affect the timing of both the holder's income and
our deduction with respect to any liquidated damages.
Backup Withholding
A holder of notes may be subject to backup withholding at the rate of
30% (subject to change in future tax years) with respect to interest paid on,
and gross proceeds from a sale or other disposition of, the notes unless the
holder is a corporation or comes within other exempt categories and, when
required, demonstrates this fact or provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
57
A holder of notes who does not provide us with his or her correct taxpayer
identification number may be subject to penalties imposed by the IRS.
We will report to the holders of the notes and the IRS the amount of
any "reportable payments," including any original issue discount accrued on the
notes and any amount withheld with respect to the notes during the calendar
year.
BUSINESS
General
We own and operate the Riviera Hotel & Casino in Las Vegas,
Nevada, and the Riviera Black Hawk Casino in Black Hawk, Colorado. Our
properties target mid-level gamers by, among other things, emphasizing slot
machine play and value-oriented amenities. We believe our properties are located
in strong gaming markets and are well positioned to attract our target customers
and benefit from continued growth in these markets.
Riviera Las Vegas
General
Riviera Las Vegas is located on the corner of Las Vegas
Boulevard and Riviera Boulevard in Clark County, Nevada, across from Circus
Circus. Riviera Las Vegas targets slot and mid-level table game customers with a
focus on creating repeat customers and increasing walk-in traffic. Key elements
of this strategy include offering a value-oriented experience by providing a
variety of hotel rooms, restaurants and entertainment, with some of Las Vegas'
most popular shows, all at reasonable prices.
Gaming
Riviera Las Vegas has 110,000 square feet of casino space. The
casino currently has approximately 1,500 slot machines and 34 gaming tables,
including blackjack, craps, roulette, pai gow poker, Caribbean Stud(R) poker,
Let It Ride(R) and mini-baccarat. The casino also includes a keno lounge and a
200-seat race and sports book.
Gaming operations at Riviera Las Vegas are continually updated
to respond to both changing market conditions and customer demand in an effort
to attract new customers and encourage repeat customer business through player
tracking and database management. We maintain a slot players club, through which
members receive special promotions and targeted mailings. New and innovative
slot and table games have been introduced based on customer feedback. Management
devotes substantial time and attention to the type, location and player activity
of all its slot machines. We maintain a capital investment program for the
upgrade of our slot machines.
Our current management team redirected our business away from
high-stakes wagerers in favor of the less volatile mid-level gaming customers.
In order to effectively pursue this strategy, we made several strategic changes
58
including reconfiguring the casino space, installing new slot machines and bill
acceptors, reducing the number of gaming tables and eliminating the baccarat
room. In addition, we implemented stricter credit policies. As a result, the
percentage of table game dollar volume represented by credit play declined from
approximately 24% in 1993 to 6% in 2001. Also, in 2001, revenues from slots and
tables were approximately 78% and 22% of total gaming revenue, respectively, as
compared to 60% and 34%, respectively, in 1993.
During 2001, we continued a number of initiatives at Riviera
Las Vegas to increase slot play, including the replacement of older slot
machines and maintaining our slot host program. Slot hosts are our employees who
interact with patrons as goodwill ambassadors to generate loyalty. Our strategy
is to continue to increase slot play through marketing programs and other
improvements, including (1) our ongoing slot upgrade program, (2) addition of
new signage, (3) promotion of the Riviera Las Vegas Player's Club, (4)
sponsorship of slot tournaments, (5) creation of promotional programs, (6)
marketing of the "Slot Frenzy" and "$40 for $20(R)" slot promotions, and (7)
"Nickel Town(R)". At the end of 1997, we opened Nickel Town on the corner of Las
Vegas Boulevard and Riviera Boulevard at the crosswalk from Circus Circus and
the local Las Vegas Boulevard bus stop. Nickel Town is comprised primarily of
nickel slot machines, the fastest growing segment of the Las Vegas slot market.
Hotel
Riviera Las Vegas' hotel is comprised of five hotel towers
with approximately 2,100 guest rooms, including 169 suites. Built in 1955 as
part of the original casino/hotel, the nine-story North Tower features 391 rooms
and 11 suites. In 1967, the 12-story South Tower was built with 147 rooms and 31
suites. Another 220 rooms and 72 suites, including penthouse suites, were added
to the property through the construction of the 17-story Monte Carlo Tower in
1974. In 1977, the six-story San Remo Tower added 243 rooms and six suites to
the south side of the resort. The most recent phase of hotel expansion was
completed in 1988 upon the opening of the 930 room, 49 suite, 24-story Monaco
Tower. By the end of 2001, we completed refurbishment of all of our
approximately 2,100 hotel rooms and suites. Despite the significant increase in
rooms on the Las Vegas Strip since 1997, we believe Riviera Las Vegas has
attained room occupancy rates that are among the highest on the Las Vegas Strip
with 97.5% for 1994, 97.0% for 1995, 98.2% for 1996, 95.7% for 1997, 95.2% for
1998, 97.5% for 1999, 96.6% for 2000 and 91.5% for 2001 (based on available
rooms). The average occupancy rate citywide was 88.9% in 2001 according to the
Las Vegas Convention and Visitors Authority.
Restaurants
The quality, value and variety of food services are critical
to attracting Las Vegas visitors. Riviera Las Vegas offers five bars and four
restaurants and serves an average of approximately 5,312 meals per day,
including banquets and room service. Riviera Las Vegas completely remodeled its
buffet in 2001 upgrading the ambiance and food quality, featuring cuisine from
various countries as well as a carving station. The following table outlines,
for each restaurant, the type of service provided and total seating capacity:
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Name Type Seating Capacity
---- ---------------------------------------
Kady's.................................... Coffee Shop 290
Kristofer's............................... Steak and Seafood 162
Ristorante Italiano....................... Italian 126
World's Fare Buffet....................... All-you-can-eat 366
---
944
In addition, Riviera Las Vegas operates a snack bar and
continental breakfast buffet as well as a fast-food court operated by a third
party. The food court has 200 seats and several fast-food restaurants, including
Burger King(R), Pizza Hut(R), Panda Express(R), Quiznos(R) and La Salsa(R).
Convention Center
Riviera Las Vegas features 160,000 square feet of convention,
meeting and banquet space. The convention center is one of the largest in Las
Vegas and is an important feature that attracts customers. The facility can be
reconfigured for multiple meetings of small groups or large gatherings of up to
5,000 people. Riviera Las Vegas hosted approximately 382 conventions in 2001.
The hotel currently has over 740,000 convention related advance bookings of
rooms through 2005 consisting of approximately 490,700 definite bookings and
approximately 249,360 tentative bookings. In 2001, approximately 30.4% of the
rooms were occupied for conventions, and, based on current bookings, 32.5% of
its rooms will be occupied for conventions in 2002.
The Royal Pavilion portion of the convention center, which
opened in February 1999, and represents approximately 60,000 square feet of our
convention facility, features state-of-the-art convention, meeting and banquet
facilities, teleconferencing and satellite uplink capability and 12 skyboxes.
Entertainment
Riviera Las Vegas has one of the most extensive entertainment
programs in Las Vegas, offering five different regularly scheduled shows and
special appearances by headline entertainers in concert. We believe
entertainment provides an attractive marketing tool to attract customers to the
Riviera. Riviera Las Vegas' entertainment program includes such well received
shows as Splash(R) (a variety show), An Evening at La Cage(R) (a female
impersonation show), Crazy Girls(R) (an adult revue), as well as featured
comedians at the Riviera Comedy Club. We update our shows continually in
response to customer surveys and to keep them fresh. Tickets for the shows are
offered at reasonable prices in keeping with our emphasis on mid-level
customers. The Riviera Mardi Gras shows of "La Cage" and the "Comedy Club" have
previously received awards for "Best Las Vegas Shows" from What's On Magazine.
The following table outlines, for each entertainment center,
the type of service provided and total seating capacity:
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Name Type Seating Capacity
Splash.................................. Variety 875
La Cage................................. Female impersonation 575
Crazy Girls............................. Adult Revue 375
Comedy Club............................. Comedy 350
Le Bistro............................... Variety 190
----
2,365
In addition, Riviera Las Vegas presents major concerts which
since 1998 have included performers such as The Beach Boys, Billy Ray Cyrus,
Rich Little, Drew Carey, Damon Wayans, Titus, Brett Butler and D.L. Hughley. The
addition of the Royal Pavilion has enabled us to increase attendance at special
events since, in the past, the then existing facilities could not accommodate
the demand for tickets.
We believe that our substantial entertainment revenue is
attributable to the popularity of the in-house productions supplemented by
focused marketing and consistent advertising messages.
Marketing Strategies
We have developed a marketing program intended to develop a
loyal following of repeat slot and mid-level table game customers. We believe we
have been able to successfully attract these patrons using Riviera Las Vegas'
restaurants, hotel accommodations and entertainment and by focusing on customer
service. We have adopted a selective approach to the extension of credit to
these customers in order to reduce volatility of operating results. We use our
research data to tailor promotional offers to the specific tastes of targeted
customers. All slot and table players are encouraged to join the Riviera Las
Vegas Player's Club and to fill out surveys that provide us with personal
information and preferences and tracks their level of play. Members of the
Riviera Las Vegas Player's Club earn bonus points based upon their level of
play, redeemable for free gifts, complimentary services or cash rebates.
Promotional offers are made to qualifying customers through direct mail and
telemarketing.
Riviera Las Vegas will continue to emphasize marketing
programs that appeal to slot and mid-level table game customers with a focus on
creating repeat customers and increasing walk-in traffic. In addition, a key
marketing focus is expanding Riviera Las Vegas' core conventioneer customer
base. In developing an overall marketing program, we conduct extensive, ongoing
research of our target customers' preferences through surveys, one-on-one
interviews and focus groups.
Create Repeat Customers. Generating customer loyalty is a critical
component of our business strategy as retaining customers is less expensive than
attracting new ones. We have developed a focused and coordinated marketing
program intended to develop a loyal customer base which emphasizes (1) providing
a high level of service to our customers to ensure an enjoyable experience while
at Riviera Las Vegas, (2) responding to customer surveys and (3) focusing
marketing efforts and promotional programs on customers with positive gaming
profiles. We use our research data to tailor promotional offers to the specific
tastes of targeted customers. In addition to our Riviera Las Vegas Players' Club
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marketing efforts, we design promotional offers targeted at certain mid-level
gaming patrons that are expected to provide significant revenues based upon
their historical gaming patterns. We contact these customers through a
combination of direct mail and telemarketing by an in-house marketing staff and
independent representatives located in major cities. Riviera Las Vegas uses a
proprietary database which is linked to our player tracking system to help
identify customers' requirements and preferences, thereby allowing Riviera Las
Vegas to customize promotions to attract repeat visitors. We offer customers
personalized service, credit availability and access to a variety of
complimentary or reduced-rate room, dinner and entertainment reservations. We
use a specialized multi-tiered marketing approach to attract customers in each
of our major markets. Slot and table game tournaments and special events are
designed for specific levels of play. Utilizing our proprietary database our
marketing department then targets and invites the customers most appropriate for
the customized events. In addition, we host an array of special events,
including slot and table tournaments, designed to attract customers for an
extended stay. We have found that this individualized marketing approach has
provided significant revenues and profitable repeat business.
Provide Extensive Entertainment Options. We also focus on attracting
our guests through a range of entertainment opportunities. Riviera Las Vegas has
one of the most extensive entertainment programs in Las Vegas with five
different regularly scheduled shows and special appearances by headline
entertainers. In addition to providing a positive impact on our profitability,
the shows attract additional gaming revenue. Surveys indicate that approximately
30% of the show patrons come from outside the hotel and approximately 67% of
these individuals gamble at Riviera Las Vegas before or after the shows.
Attract Walk-In Traffic. We seek to maximize the number of people who
patronize the Riviera Las Vegas who are not guests in the hotel by capitalizing
on Riviera Las Vegas' prime Strip location, convention center proximity and the
Riviera's several popular in-house productions. Riviera Las Vegas is well
situated on the Las Vegas Strip near Circus Circus, Stardust Hotel & Casino,
Westward Ho Casino & Hotel, Sahara Hotel & Casino, Las Vegas Hilton and the Las
Vegas Convention Center. We strive to attract customers from those facilities,
as well as capitalize on the visitors in Las Vegas in general, with the goal of
increasing walk-in traffic by (1) the development and promotion of Nickel Town,
(2) providing a variety of quality, value-priced entertainment and dining
options, and (3) promoting "Slot Frenzy," the "Free Pull" and the "$40 for
$20"(R) slot promotions, and placing them inside the casino.
Focus on Convention Customers. This market consists of two groups: (1)
those trade organizations and groups that hold their events in the banquet and
meeting space provided by a single hotel and (2) those attending city-wide
events, usually held at the Las Vegas Convention Center. Riviera Las Vegas
targets convention business because it typically provides patrons willing to pay
higher room rates and we are able to provide certain advance planning benefits,
since conventions are usually booked two years in advance of the event date. We
focus our marketing efforts on conventions whose participants have the most
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active gaming profile and higher room rate, banquet and function spending
habits. Riviera Las Vegas also benefits from our proximity to the Las Vegas
Convention Center which makes us attractive to city-wide conventioneers looking
to avoid the congestion that occurs during a major convention, particularly at
the south end of the Las Vegas Strip. In 2001 we derived approximately 30.4% of
our hotel occupancy from convention customers and consider them a critical
component of our customer base. We believe that the completed expansion of the
Riviera Las Vegas' convention facility in February 1999, from 100,000 to 160,000
square feet, has accommodated the growth in size and number of groups that
presently use the facility, attracted new convention groups and increased the
percentage of rooms occupied by conventioneers.
Tour and Travel Operators. We have found that many of our customers use
tour and travel "package" options to reduce the cost of travel, lodging and
entertainment. These packages are produced by wholesale operators and travel
agents and emphasize mid-week stays. Tour and travel patrons often book at
off-peak periods enabling us to maintain occupancy rates at the highest levels
throughout the year. We have developed specialized marketing programs and
cultivated relationships with wholesale operators, travel agents and major
domestic air carriers to expand this market. Our four largest tour and travel
operators currently account for approximately 26% of the available 2,100 room
bookings per night. We make an effort to convert many tour and travel customers
who meet our target customer gaming profile into repeat slot customers.
Riviera Black Hawk
Business
Riviera Black Hawk, opened on February 4, 2000. Located in
Black Hawk, Colorado, approximately 40 miles west of Denver, our casino is one
of the first three encountered when traveling from Denver to the adjacent gaming
cities of Black Hawk and Central City. Our casino features the fourth largest
number of gaming devices in the market with approximately 986 slot machines and
12 blackjack tables. In Colorado, each slot machine and each table game is
considered one gaming device. We also offer a variety of non-gaming amenities
designed to further differentiate our casino including:
o parking for 520 vehicles, of which 92% are covered,
with convenient and free self-park and valet options;
o a newly remodeled 252-seat casual buffet-styled
restaurant;
o a Pizza Hut(R);
o two themed bars; and
o an entertainment center with seating for
approximately 440 people.
63
The initial participants in this market were small, privately
held gaming facilities whose inability to offer convenient parking and a full
range of traditional casino amenities limited the growth of this market.
Subsequently, larger casinos offering such amenities have entered the market,
have been gaining market share and have contributed to the consistent growth in
the overall market. As of December 31, 2001, there were 25 casinos in the Black
Hawk/Central City market, with 11 casinos each offering more than 400 gaming
devices. Isle of Capri, located across the street from our casino with
approximately 1,145 gaming machines and 1,000 covered parking spaces, has been
the market leader in terms of win per gaming device. The Hyatt Casino with 1,332
gaming machines and 22 table games opened on December 20, 2001.
Marketing Strategy
We attract customers to our casino by implementing marketing
strategies and promotions designed specifically for this market. In so doing, we
hope to create customer loyalty and benefit from repeat visits by our customers.
Specific marketing programs to support this strategy include the Riviera Black
Hawk Player's Club and "V.I.P." services offered to repeat gaming customers. The
Riviera Black Hawk Player's Club is a promotion that rewards casino play and
repeat visits to the casino with various privileges and amenities such as cash
bonuses, logo gift items and invitations to special events, such as parties and
concerts. We have used the Player's Club promotion in our casino in Las Vegas
and are tailoring it for the Black Hawk/Central City market "V.I.P." services
are available to the highest level of players and include special valet and
self-parking services, complimentary food and entertainment offerings and
special events specifically designed for this group of customers.
We benefit from strong "walk-in" traffic due to the proximity
of our casino to the Colorado Central Station and the Isle of Capri Casino. We
have and continue to develop specific marketing programs designed to attract
these "walk-in" customers. We emphasize quality food and beverage amenities with
customer friendly service as a marketing tool. In addition, we provide
entertainment programs designed to meet the tastes of the Black Hawk/Central
City market, such as live music performances by popular regional and national
groups, comedians and boxing.
We rely on database marketing in order to best identify target
customer segments of the population and to tailor the casino's promotions and
amenities to our core group of customers. We use the current database to
identify and stratify slot players living primarily in Colorado for appropriate
incentives. Approximately 150,000 of these slot players have been identified as
of December 31, 2001. In addition, we promote our casino by advertising in
newspapers, on billboards and on the radio in the local areas.
Markets
Riviera Las Vegas
Las Vegas is one of the largest and fastest growing
entertainment markets in the country. According to the Las Vegas Convention and
Visitors Authority, the number of visitors who traveled to Las Vegas during the
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15-year period from 1986 through 2001 increased at a steady and significant rate
from 15.2 million in 1986 to 35.0 million in 2001, a compound annual growth rate
of 5.7%. Convention business in Las Vegas continues to grow at a rapid pace and
comprises a substantial portion of visitation (6.8% growth in convention
delegates since 1986 with over four million delegates visiting Las Vegas in
2001). Clark County gaming continued to be a strong and growing business with
Clark County gaming revenues increasing at a compound annual growth rate of 7.9%
from $2.4 billion in 1986 to just under $7.6 billion in 2001. The events of
September 11, 2001 slowed growth in Las Vegas, as tourist visits and gaming
revenue growth remained flat versus the prior year.
Gaming and tourism are the major attractions of Las Vegas,
complemented by warm weather and the availability of many year-round
recreational activities. Although Las Vegas' principal markets are the western
region of the United States, most significantly Southern California and Arizona,
Las Vegas also serves as a destination resort for visitors from all over the
world. A significant percentage of visitors originate from Latin America and
Pacific Rim locations such as Japan, Taiwan, Hong Kong and Singapore. The events
of September 11, 2001 have had, and may continue to have, an adverse impact on
the number of Latin American and Pacific Rim visitors coming to Las Vegas. Japan
Air Lines ceased its daily non-stop service between Tokyo and Las Vegas after
September 11th but resumed non-stop service three days per week in April of
2002.
Historically, Las Vegas has had one of the strongest hotel
markets in the country. The number of hotel and motel rooms in Las Vegas has
increased by over 85% from approximately 67,000 at the end of 1989 to 126,610 at
the end of 2001, giving Las Vegas the most hotel and motel rooms of any
metropolitan area in the world. Despite this significant increase in the supply
of rooms, the Las Vegas hotel occupancy rate exceeded 84% for each of the years
from 1993 through 2001. During 2001, approximately 2,340 hotel rooms opened as a
result of the opening of the Palms and Green Valley Ranch casinos, which are off
the Strip.
We believe that the growth in the Las Vegas market has been
enhanced as a result of (1) a dedicated program by the Las Vegas Convention and
Visitors Authority and major Las Vegas casino/hotels to promote Las Vegas as a
major convention site, (2) the increased capacity of McCarran Airport and (3)
the introduction of large themed "must see" destination resorts in Las Vegas. In
1988, approximately 1.7 million delegates attended conventions in Las Vegas and
generated approximately $1.3 billion of economic impact. Even though the
terrorist attacks negatively impacted major city-wide conventions, the number of
convention delegates had increased to 4.0 million in 2001 with in excess of $4.8
billion of economic impact.
During the past eight years, McCarran Airport has expanded its
facilities to accommodate the increased number of airlines and passengers which
it services. The number of passengers traveling through McCarran Airport has
increased from approximately 22.5 million in 1993 to an estimated 35.2 million
in 2001. Construction has recently been completed on numerous roadway
enhancements to improve access to the airport. McCarran Airport is ranked among
the ten busiest airports in the world based on passenger activity.
65
Riviera Black Hawk
Gaming was first introduced to the Black Hawk/Central City
market in October 1991 following an initiated state-wide Constitutional
amendment where Colorado voters approved limited stakes gaming for three
historic mining towns, namely Black Hawk, Central City and Cripple Creek.
Limited stakes gaming is defined as a maximum single bet of $5. Black Hawk and
Central City are contiguous cities located approximately 40 miles west of Denver
and about 10 miles north of I-70, the main east-west artery from Denver.
Historically, these two gold mining communities were popular tourist towns.
However, since the inception of casino gaming in October 1991, gaming
establishments have displaced many of the former tourist-related businesses.
The first casino in the Black Hawk/Central City market was
opened in October 1991 with 14 casinos open by the end of that year. The pace of
expansion increased further in 1992 with the number of casinos in the market
peaking at 42 casinos. However, due to a trend of consolidation in the market
and the displacement of small casinos by the entry of larger, better capitalized
operators, the number of casinos has declined to 25 as of December 31, 2001.
The Black Hawk/Central City market primarily caters to
"day-trip" customers from Denver, Boulder, Fort Collins and Golden as well as
Cheyenne, Wyoming. We believe an estimated adult population exceeding 2.4
million people resides within this 100-mile radius of Black Hawk. In addition,
we believe that residents within a 100-mile radius of the City of Black Hawk had
an estimated average household income in excess of $50,000 per annum in 2001.
Since 1992, the number of gaming devices in the Black
Hawk/Central City market has grown approximately 78% from 7,252 devices in 1992
to 12,907 devices in 2001. Win per gaming device per day has continued to grow
despite the increase in the number of gaming devices. Gaming revenues in the
market grew by 8.2% in 2001 over 2000. The City of Black Hawk itself experienced
a 10.3% increase in gaming revenue in 2001.
The City of Black Hawk has experienced more significant growth
in gaming revenues than Central City since 1992. The popularity of Black Hawk in
comparison to Central City is due primarily to Black Hawk's superior access to
major highways, as patrons must first pass through Black Hawk to access Central
City from Denver. Due to this superior location, larger casino operators have
focused on building in the City of Black Hawk. As a result, casinos in Black
Hawk now generally feature a larger average number of gaming devices, a wider
variety of amenities and convenient free parking for patrons. These factors have
contributed to growth in Black Hawk gaming revenues of 783% since 1992 compared
to a negative growth for Central City of 16% over the same period. The number of
gaming devices in the City of Black Hawk has increased 242% since 1992, while
the number of gaming devices in Central City has declined 43% over the same
period.
Management Activities
In order to capitalize on our expertise and reputation as
successful operators of casino properties, we formed Riviera Gaming Management,
Inc., our wholly owned subsidiary, for the primary purpose of obtaining casino
66
management contracts in Nevada and other jurisdictions. Riviera Gaming
Management, directly or through its own subsidiaries, provides services such as
assisting new venue licensee applicants in designing and planning their gaming
operations and managing the start-up of new gaming operations. These services
include casino design, equipment selection, employee recruitment and training,
control and accounting systems development and marketing programs. We believe
that management contracts provide high margin income with limited additional
overhead and little or no capital expenditure requirements. We are continually
evaluating opportunities to manage other casinos/hotels. Our objective is to
obtain the right to a substantial equity position in projects we would manage as
part of the compensation for our services.
Through one of our subsidiaries we operated the Four Queens
Hotel and Casino, located adjacent to the Golden Nugget on Fremont Street in
Downtown Las Vegas, pursuant to a Management Agreement effective as of February
27, 1997. This agreement terminated on December 30, 1999.
Other Management Opportunities
We are continuously reviewing opportunities to expand and
become a multi-jurisdictional casino company with greater capital resources to
enable us to compete more effectively. The jurisdictions include, but are not
limited to, California, Mississippi, Pennsylvania, Missouri, New Mexico and
Iowa. We may also become involved in financially distressed casino properties
where we believe we may be able to effect a turn-around (similar to that which
we achieved at Riviera Las Vegas) and can obtain a significant equity stake. On
September 29, 1999, Riviera Gaming Management entered into an agreement with
Peninsula Gaming, LLC to provide consulting services to Diamond Jo Riverboat
Casino in Dubuque, Iowa. This agreement terminated on September 30, 2000.
Growth Opportunities
Based on our successful development of Riviera Black Hawk, we
are pursuing the development of other gaming projects in other emerging gaming
markets. We intend to finance the development of these gaming projects through
unrestricted subsidiaries, which we will manage for a fee, funded with an
investment from us and non-recourse debt financing. This structure allows us to
grow and diversify our business while mitigating the risk to our core
operations.
Jefferson County, Missouri. We have received the endorsement of
Jefferson County for a casino/hotel development project, and we are about to
commence the application process with the Missouri Gaming Board. Current plans
for the facility include, among other things, 1,500 slot machines and a 200-room
hotel. The estimated cost of this development is approximately $150 million.
This property would be located approximately 22 miles south of St. Louis along
the Mississippi River and would serve the St. Louis market. The St. Louis market
is the 18th most populated metropolitan area in the U.S. and has an average
household income equivalent to the U.S. average. There are approximately 3.7
million adults that reside within 100 miles of St. Louis and 1.8 million adults
reside within 50 miles. Gaming revenues in the St. Louis market have increased
67
to $760.4 million for the year ended December 31, 2001, an increase of 11.2%
over the prior year and ranking ninth among all U.S. gaming markets. There can
be no assurance that we will receive a license or obtain the financing necessary
to develop this property.
Hobbs, New Mexico. We are in the process of applying, along with two
minority-owner partners, to the New Mexico Racing Commission for a gaming
license to develop and operate a horse racing facility. Should we receive the
racing license, we can then apply to the New Mexico Gaming Board to operate slot
machines at Saddlebrook Park, located in Hobbs, New Mexico, just west of the New
Mexico/Texas border. Current plans for the facility include approximately 600
slot machines, a one-mile racetrack, an entertainment center and retail shops.
The development of the facility is expected to cost approximately $30 million.
The facility will enjoy a superior, protected location as it will be the only
casino within a 50-mile radius. There are currently only approximately 2,700
gaming positions within a 200-mile radius of the site. Approximately 6,700 cars
pass the proposed site daily along Highway 18, over 2.4 million each year. The
population base over 25 years old within 200 miles of the site is approximately
1.2 million, primarily located in western Texas. There can be no assurance that
we will receive a license or obtain the financing necessary to develop this
property.
Competition
Las Vegas, Nevada
Intense competition exists among companies in the gaming
industry, many of which have significantly greater resources than we do. Riviera
Las Vegas faces competition from all other casinos and hotels in the Las Vegas
area. We believe that our most direct competition comes from certain large
casinos/hotels located on or near the Las Vegas Strip which offer amenities and
marketing programs similar to those offered by the Riviera Las Vegas.
At December 31, 2001, the Las Vegas Convention and Visitors
Authority indicated that there were 24 casinos on the Las Vegas Strip which had
over 1,000 available hotel rooms. Riviera Las Vegas is ranked as the 20th
largest Las Vegas Strip hotel/casino, based upon number of available hotel
rooms.
Las Vegas gaming square footage and room capacity are
continuing to grow and are expected to continue to increase during the next
several years. During calendar year 2001, approximately 2,340 new hotel rooms
opened, and as of December 31, 2001, there were no hotel rooms under
construction. Existing and future expansions, additions and enhancements to
existing properties and construction of new properties by our competitors could
divert additional business from our facilities. There can be no assurance that
we will compete successfully in the Las Vegas market in the future.
During 2001, available room nights in the Las Vegas market
increased from 44.7 million to 45.6 million or 2.1%, while total room nights
occupied decreased from 39.8 million to an estimated 38.6 million, or 2.9%. The
ending room inventory at December 31, 2001 was 126,610 compared to 124,270 at
December 31, 2000, an increase of 2,340 rooms or 1.9%. This has had the effect
of intensifying competition. At Riviera Las Vegas, room occupancy decreased from
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96.7% in 2000 to 91.6% in 2001 (still higher than the Las Vegas Strip average).
However, room rates increased by $3.52, or 6.0% from $58.86 in 2000 to $62.46 in
2001, due primarily to an increase in convention rooms sold and a reduction in
tour and travel rooms sold as a result of the September 11th terrorist attacks.
We also compete to some extent with casinos in other states,
riverboat and Native American gaming ventures, state-sponsored lotteries, on-
and off-track wagering, card parlors and other forms of legalized gaming in the
U.S., as well as with gaming on cruise ships and international gaming
operations. In addition, certain states have recently legalized or are
considering legalizing casino gaming in specific geographical areas within those
states. Any future development of casinos, lotteries or other forms of gaming in
other states, particularly areas close to Nevada, such as California, could have
a material adverse effect on our results of operations.
The number of casinos on Indian lands has increased since the
enactment of the Indian Gaming Regulatory Act of 1988. The voters in California
addressed this issue on March 7, 2000 when they voted in favor of Proposition
1A, an amendment to the California State Constitution that allows Las
Vegas-style gambling on Indian lands in the state. While new gaming
jurisdictions have traditionally not materially impacted Las Vegas, the
expansion of gaming into California poses a more serious threat to the continued
growth of Las Vegas.
Our current business is highly dependent on gaming in Las
Vegas. Riviera Las Vegas derives a substantial percentage of its business from
tourists, principally from southern California and the southwestern United
States. Weakness in the economy of southern California has in the past, and
could in the future, adversely affect our financial results. Recent power
shortages, and possible utility rate increases in California could also
adversely affect our financial results. The events of September 11, 2001 have
had the most serious effect, and could continue to have an adverse effect on our
financial results.
Black Hawk, Colorado
The Black Hawk/Central City gaming market is characterized by
intense competition. The primary competitive factors in the market are location,
availability and convenience of parking, number of slot machines and gaming
tables, promotional incentives, hotel rooms, types and pricing of non-gaming
amenities, name recognition and overall atmosphere. Our main competitors are the
larger gaming facilities, particularly those with considerable on-site or nearby
parking and established reputations in the local market. As of December 31,
2001, there were 25 gaming facilities in the Black Hawk market with 11 casinos
each offering more than 400 gaming positions. The Hyatt Casino, which features
1,335 slot machines, opened on December 20, 2001. Other projects have also been
announced, proposed, discussed or rumored for the market.
The gaming facilities near the intersection of Main and Mill
Streets provide significant competition to our casino. Colorado Central Station,
which has been one of the most successful casinos in Colorado, is located across
the street from our casino and has approximately 700 slot machines, 20 gaming
tables and approximately 700 valet parking spaces. The Isle of Capri Casino, the
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most successful casino in Colorado, which opened in December 1998, is located
directly across the street from our casino and features approximately 1,145 slot
machines, 14 table games, 1,000 parking spaces, and 235 hotel rooms.
The number of hotel rooms currently in the Black Hawk/Central
City market is approximately 450, with only three gaming facilities providing
hotel accommodations to patrons. These include Harvey's Wagon Wheel Casino Hotel
with approximately 120 rooms, the Lodge at Black Hawk with approximately 50
rooms and the Isle of Capri Casino with 235 rooms. Casinos offering hotel
accommodations for overnight stay may have a competitive advantage over our
casino. However, we believe that self-parking is a more effective utilization of
our available space and that providing hotel accommodations will not be a
significant factor, but instead will contribute to growth in the overall market.
Historically, the city of Black Hawk has enjoyed an advantage
over Central City because customers have to drive through Black Hawk to reach
Central City. Central City has received approval for the development of a road
directly connecting Central City and Black Hawk with Interstate 70 which would
allow customers to reach Central City without driving by or through Black Hawk.
There remain significant financial obstacles to the development of this road and
it is uncertain whether it will be developed over the near to intermediate term,
or developed at all.
Currently, limited stakes gaming in Colorado is
constitutionally authorized in Central City, Black Hawk, Cripple Creek and two
Native American reservations in southwest Colorado. Any expansion of gaming to
additional Colorado communities would be subject to an amendment to the Colorado
State Constitution. In addition, a referendum permitting gaming within any new
community would be subject to a local vote accepting or rejecting the activity.
The legalization of gaming closer to Denver would likely have a material adverse
effect on our future results of operations. We also compete with other forms of
gaming in Colorado, including lottery gaming, and horse and dog racing conducted
at tracks within Colorado and simulcast presentations with wagers accepted on
pari-mutuel events held outside the state, as well as other forms of
entertainment.
It is also possible that new forms of gaming could compete
with our casino. Currently, Colorado law does not authorize video lottery
terminals. However, Colorado law permits the legislature, with executive
approval, to authorize new types of lottery gaming, such as video lottery
terminals. Video lottery terminals are games of chance, similar to slot
machines, in which the player pushes a button that causes a random set of
numbers or characters to be displayed on a video screen. The player may be
awarded a ticket, which can be exchanged for cash or credit play. This form of
gaming could compete with slot machine gaming.
Pursuant to a license agreement, Riviera Las Vegas licenses
the use at the Black Hawk casino of all of the trademarks, service marks and
logos used by Riviera Las Vegas. In addition, the license agreement provides
that additional trademarks, service marks and logos acquired or developed by us
and used at our other facilities will be subject to the license agreement.
70
Employees and Labor Relations
Riviera Las Vegas
As of December 31, 2001 Riviera Las Vegas had approximately
1,411 full-time equivalent employees and had collective bargaining contracts
with eight unions covering approximately 813 of such employees, including
certain food and beverage employees, rooms department employees, slot department
employees, carpenters, engineers, stage hands, musicians, electricians,
painters, receiving and warehousemen, and valet parking attendants. The Southern
Nevada Culinary and Bartenders Union has ratified (but not yet signed) a new
agreement with us running until May 31, 2007. We are currently negotiating a new
agreement with the Stage Hands Union. The current agreement has been extended
indefinitely for the purpose of further negotiations. Agreements with those
unions cover the majority of our unionized employees. We are currently in
negotiations with the Musicians Union, with whom our collective bargaining
agreement expired in 1999. Our agreement with the Teamsters Union expires in
2003. Our collective bargaining agreements with the Operating Engineers and
Electricians Unions expire in 2004. In July 2002, a group of six
administrative employees voted to join the Teamsters Union. Although unions have
been active in Las Vegas, we consider our employee relations to be satisfactory.
There can be no assurance, however, that new agreements will be reached without
union action or will be on terms satisfactory to us.
Riviera Black Hawk
As of December 31, 2001, Riviera Black Hawk had approximately
371 employees. The Black Hawk/Central City labor market is very competitive.
Riviera Black Hawk believes that it will be able to maintain its current
employee level. There can be no assurance, however, that new and existing
casinos will not affect Riviera Black Hawk's ability to maintain its current
employee level.
There are currently no collective bargaining agreements in
Black Hawk casinos.
Legal Proceedings
We are a party to several routine lawsuits both as plaintiff
and as defendant arising from our normal operations. We do not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the financial position or results of our operations.
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information as of July
22, 2002 regarding our directors and executive officers and the directors and
executive officers of Riviera Operating Corporation ("ROC"):
71
Name Age Position(s)
--------------------------------------------
William L. Westerman................ 71 Chairman of the Board and Chief Executive Officer of us and
ROC, and President of us
Robert R. Barengo................... 60 Director of us and ROC and Director of Government and Public
Affairs of ROC
Jeffrey A. Silver................... 56 Director of us and ROC
Paul A. Harvey...................... 64 Director of us and ROC
Vincent L. Divito................... 42 Director of us and ROC
Duane R. Krohn...................... 56 Treasurer and Chief Financial Officer of us and ROC, and
Executive Vice President of Finance of ROC
Tullio J. Marchionne................ 47 Secretary and General Counsel of us and ROC, and Vice
President of ROC
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 Assistant Secretary of us and ROC and Executive Vice
President of Operations of ROC
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) from July 1, 1991 until he was appointed Chairman of the Board
and Chief Executive Officer of Riviera, Inc. on January 1, 1992. From 1973 to
June 30, 1991, Mr. Westerman was President and Chief Executive Officer of
Cellu-Craft Inc., a manufacturer of flexible packaging primarily for food
products, and then later had several positions with Alusuisse, a multi-national
aluminum 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 he was elected Speaker Pro Tempore and in
1981 he was elected Speaker of the Assembly. Since 1993, Mr. Barengo has been
the President and sole stockholder of Silver State Disseminators Company, a
company licensed by Nevada gaming authorities to disseminate racing information
in the State of Nevada. In October 1992 the Governor appointed Mr. Barengo as a
member of the State of Nevada Dairy Commission and in July 1993 the Governor
appointed him as Chairman of the State of Nevada Dairy Commission, a position he
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still holds. Mr. Barengo currently is the Chairman of the Board and a Director
of Western Thrift and Loan, a thrift company licensed and regulated by the
Commissioner of Financial Institutions, Department of Business and Industry,
State of Nevada. Mr. Barengo accepted the position of Director of Government and
Public Affairs with ROC effective January 1, 2001, in addition to his duties as
a Director of us and ROC.
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 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, Chief Executive Officer of the Riviera Hotel and
Casino from 1983 to 1984 and Senior Vice President at Caesars Palace in 1984.
Mr. Silver served on the Board of the Las Vegas Convention and Visitor's
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 form 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 of 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 Chief
Executive Officer 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. 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 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 (Ernst & Young). Mr. DiVito is a
certified public accountant and certified management accountant.
Duane R. Krohn, CPA, assumed the position of Treasurer of us and ROC on
June 30, 1993 and was elected Vice President of Finance of ROC on April 26,
1994, and Executive Vice President of Finance of ROC on July 1, 1998 and served
as Secretary from June 8, 1999 to February 17, 2000. Mr. Krohn was initially
employed by Riviera, Inc. in April 1990, as Director of Corporate Finance and
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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 assumed the position of our and ROC's General
Counsel on January 10, 2000, was appointed our and ROC's Secretary on February
17, 2000 and 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 at that time through our wholly-owned subsidiary and 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 casino/hotel operated in
Las Vegas) 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. Mr. Vannucci was Vice President
and General Manager of Riviera Las Vegas 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., a
position he holds concurrently with his Executive Vice President of ROC
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. Mr. Johnson was Vice President-Slot Operations for
Sands Hotel and Casino Inc. from September 1989 until he joined Riviera, Inc.
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 wholly-owned subsidiary, and 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, and Riviera Gaming Management, our
wholly-owned subsidiary. Mr. Grippe performed in the capacity as general manager
at these properties concurrently with his duties for 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. Mr. Grippe
74
served in the United States Army from 1964 until his retirement as a Colonel in
July 1990.
Our officers and the officers of ROC serve at the discretion
of their respective Boards of Directors and are also subject to the licensing
requirements of the Nevada Gaming Commission.
Summary Compensation Table
The following table sets forth a summary of the compensation
paid by us in the years ended December 31, 1999, 2000 and 2001, 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 during 2001 (collectively,
the "Named Executive Officers").
Other Annual All Other
Name and Principal Positions Year Salary Bonus Compensation(1) Compensation(2)
---------------------------- ---- ------ ----- --------------- ---------------
William L. Westerman....................
Chairman of the Board and 2001 $ 600,000 $400,000(3) $ 293,211(4) $ 2,566
Chief Executive Officer of us 2000 600,000 900,000(3) 841,403(4) 2,566
and ROC 1999 600,000 900,000 255,990(4) 2,566
Robert A. Vannucci...................... 2001 $ 300,000 $ 69,491(5) $ 157,425(6) $ 2,566
President and Chief Operating 2000 250,000 236,166 7,425 1,438
Officer of ROC 1999 209,336 158,333 7,300 1,156
Duane R. Krohn..........................
Treasurer of us and Executive 2001 $ 250,000 $ 69,491(7) $ 7,425 $ 1,438
Vice President of Finance and 2000 237,500 236,166 7,425 1,438
Treasurer of ROC 1999 211,149 158,333 7,300 1,156
Ronald P. Johnson....................... 2001 $ 250,000 $ 69,491(8) $ 7,425 $ 1,438
Executive Vice President of 2000 237,500 236,166 7,425 1,438
Gaming Operations of ROC 1999 209,759 158,333 7,300 1,156
Jerome P. Grippe........................ 2001 $ 250,000 $ 69,491(9) $ 7,425 $ 1,438
Executive Vice President of 2000 183,333 211,166 7,425 1,062
Operations of ROC 1999 159,576 133,333 7,300 730
(1) Includes amounts contributed by us under our Profit Sharing and
401(k) Plans. We contributed for the account of each executive $7,425 in 2001,
$7,425 in 2000 and $7,300 in 1999.
(2) Includes premiums paid by us for excess life insurance.
(3) See "-Employment Agreements" for a summary of certain of the
provisions of Mr. Westerman's employment agreement.
(4) Includes contributions to Mr. Westerman's retirement account of $0
in 2001, $600,000 in 2000 and $133,000 in 1999. Also includes interest computed
at our average borrowing rate less the rate pursuant to Internal Revenue Code
1274D of $285,786 in 2001, $233,978 in 2000 and $115,690 in 1999. Does not
75
include interest earned on retirement account of $493,024 in 2001, $413,440 in
2000 and $372,039 in 1999. (See "Employment Agreements.")
(5) Includes $50,000 current year incentive and $19,491 special
incentive bonus, of which 20% and 100%, respectively, were deferred pursuant to
our Deferred Compensation Plan.
(6) Includes $150,000 award of restricted stock pursuant to Mr.
Vannucci's employment agreement as follows: $25,000 per quarter and an award
equal to Mr. Vannucci's $50,000 incentive bonus. See "Restricted Stock Plan" for
a summary of our Restricted Stock Plan.
(7) Includes $50,000 current year incentive and $19,491 special
incentive bonus, of which 50% was deferred pursuant to our Deferred Compensation
Plan.
(8) Includes $50,000 current year incentive, of which 25% was deferred
pursuant to our Deferred Compensation Plan, and $19,491 special incentive bonus.
(9) Includes $50,000 current year incentive and $19,491 special
incentive bonus. Mr. Grippe deferred 100% of the Special Bonus pursuant to our
Deferred Compensation Plan.
Option Surrenders
On November 26, 1996, 410,000 stock options were granted to 18
of our 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 due to those executives leaving us, 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 vested in their entirety.
On January 16, 2001, we approved a Stock Option Surrender Plan
where 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 in an
amount no less than the shares surrendered. The new options would be issued no
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 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, 107,500 stock options were granted 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 made pursuant to
the Board's customary annual grant of stock options.
Option Grants
The number of shares of our stock available for purchase under
our 1993 Employee Stock Option Plan, as amended (the "Stock Option Plan"), is
1,000,000. Excluding the options surrendered pursuant to the Stock Option
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Surrender Plan discussed above, options for an aggregate of 771,500 shares have
been granted under our Stock Option Plan as of December 31, 2001. During 2001,
170,500 options were granted under our Stock Option Plan.
The number of shares available for purchase by non-employee directors
under our 1996 Non-Qualified Stock Option Plan (the "Directors' Option Plan") is
50,000. During 2001, we granted 8,000 options under the Directors' Option Plan
and as of December 31, 2001, options for an aggregate of 24,000 shares were
outstanding under this plan. See "-Compensation of Directors" for more
information about our Directors' Option Plan.
The number of options available under each of our stock option plans,
as specified above, is subject to antidilution adjustments.
Option Exercises, Year-End Options Values and Option Grants in 2001
The following table presents at December 31, 2001 the value of
unexercised in-the-money options held by the Named Executive Officers. There
were no options exercised in 2001.
Number of Value of Unexercised
Unexercised Options In-The-Money Options
--------------------------- --------------------------------------
Name Vested Not Vested Vested Not Vested
---- ------ ---------- ------ ----------
William L. Westerman...................... 12,500 37,500 $ 0 $ 0
Robert A. Vannucci........................ 27,500 22,500 0 0
Duane R. Krohn............................ 25,000 15,000 0 0
Ronald P. Johnson......................... 25,000 15,000 0 0
Jerome P. Grippe.......................... 18,250 12,750 0 0
The following table presents options granted during 2001.
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
-------------------------------------------------------------------- ------------
Percent of Total
Number of Options Granted Exercise or
Underlying to Employees in Base Price Expiration
Name Options Granted 2001 per Share Date 5% 10%
---- --------------- ---- --------- ---- --- ----
William L. Westerman....... 50,000 29.3% $6.00 8/7/11 $488,668 $778,123
Robert A. Vannucci......... 20,000 11.7% 6.00 8/7/11 195,467 311,249
Duane R. Krohn............. 10,000 5.9% 6.00 8/7/11 97,734 155,625
Ronald P. Johnson.......... 10,000 5.9% 6.00 8/7/11 97,734 155,625
Jerome P. Grippe........... 10,000 5.9% 6.00 8/7/11 97,734 155,625
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Compensation of Directors
Messrs. Silver, Harvey and DiVito (effective as of his
appointment in June 2002) are each paid an annual fee of $50,000 for serving 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 were granted to Mr. Barengo under the Directors'
Option Plan in 2001 due to his becoming an employee effective January 1, 2001.
Mr. Barengo was granted options to purchase 7,500 shares at $6.00 per share on
August 7, 2001 under our Stock Option Plan. Mr. Barengo's compensation in 2001
was $125,000.
Upon becoming one of our Directors, 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.
Upon becoming one of our Directors, Mr. Harvey was granted
options under the Directors' Option Plan to purchase 2,000 shares at $6.60 per
share on May 18, 2001.
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.
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 existing 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
78
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 as shall be 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 under the Plan
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 a December 6,
2000 amendment, to the 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.
The employment agreement provides that we 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 Mr. Westerman's
base salary for that year was credited to the account on January 1 of that year.
According to a December 6, 2000 amendment to Mr. Westerman's employment
agreement, the January 1, 2001 contribution was the final principal contribution
to the retirement account. As of December 31, 2001, no portion of this account
had been funded.
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
term 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 an amount of cash equal
to the amount then credited to the retirement account, including any amount to
be credited to the retirement account upon a Change of Control.
On February 5, 1998, our stockholders by a majority vote
approved the Agreement and the Plan of Merger with R&E Gaming Corp. and its
wholly-owned subsidiary Riviera Acquisition Sub, Inc. Such stockholder approval
constituted a Change of Control. On March 5, 1998, subsequent to this Change of
Control, Mr. Westerman exercised his right to require us to establish and fund a
Rabbi Trust for his benefit. On March 20, 1998, Mr. Westerman entered into an
agreement with us whereby Mr. Westerman waived his right to have us fund the
Rabbi Trust in exchange for us agreeing to fund such Rabbi Trust within five
business days after notice from Mr. Westerman.
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In the event that Mr. Westerman is no longer 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 as of the date he ceases to be employed by us.
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, termination (except for cause) or
upon a change in 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:
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
pursuant to Internal Revenue Code 1274D was $285,786 in 2001, $233,978 in 2000
and $115,690 in 1999. Interest computed at the rate pursuant to Internal Revenue
Code 1274D was $493,024 in 2001, $413,440 in 2000 and $372,039 in 1999. 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 or dates such taxes are due.
Mr. Westerman's employment agreement provides (a) that the sum
of Mr. Westerman's base salary, bonus, and credits to his Retirement Account in
any one year must not exceed that which would have been payable under his
previous employment agreement with us, and (b) that Mr. Westerman 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, and December 31, 1998, 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.
Mr. Vannucci was appointed President of ROC effective October 1, 2000. Mr.
Vannucci's employment agreement was amended at that time to reflect this
appointment. Mr. Vannucci's base compensation is $300,000. Mr. Vannucci's
employment agreement contains a Termination Fee Agreement and a Stay Bonus
Agreement. See "-Termination Fee Agreements" and "-Stay Bonus Agreements." It
also provides for a "Normal Incentive Bonus" entitling Mr. Vannucci to
participate in our Incentive Compensation Plan whereby he may share 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
80
$1.2 million. Mr. Vannucci's incentive bonus for the year 2001 was $50,000. Mr.
Vannucci's employment agreement also provides for a "Special Incentive Bonus"
which amounted to $19,491 in 2001.
Mr. Vannucci also receives compensation in the form of
restricted stock pursuant to our Restricted Stock Plan. (See "-Restricted Stock
Plan") Mr. Vannucci's agreement provides that he is to receive $25,000 in our
restricted common stock at market from treasury on the first business day of
each quarter, plus our restricted common stock at market value from treasury in
the same amount he receives pursuant to our Incentive Compensation Plan. Mr.
Vannucci received restricted stock valued at $150,000 in 2001. Pursuant to the
Restricted Stock Plan, Mr. Vannucci is presently entitled to all rights of stock
ownership with respect to the restricted shares, including the right to vote and
receive dividends. Mr. Vannucci may not, however sell, assign, pledge, encumber
or otherwise transfer any of the restricted shares so long as he is employed by
us, without 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 is effective until December 31,
2002, and automatically renews annually subject to 120 days prior written notice
by either party.
Employee Stock Ownership Plan
On October 2, 2000, we adopted an Employee Stock Ownership Plan ("ESOP").
This plan was established on January 1, 2000 and replaces the profit sharing
contribution component of the Profit Sharing and 401(k) Plans. The 401(k)
component remains unchanged. This plan provides that all employees of Riviera
Las Vegas and Riviera Black Hawk employed in a plan year who completed a minimum
of one thousand hours of service in that year, were employed through December 31
of that year, were at least 21 years of age and were not covered by a collective
bargaining agreement are eligible to participate in the plan. The ESOP provides
that we will make a contribution to the participants of its 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 operating
results are 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 earnings target
is attained and an additional 1% thereof for each $1 million by which operating
results are exceeded, up to a maximum of 4% for 2000 and 5% thereafter. Under
this plan, our contribution will be made in cash which will be used to buy
primarily our common stock.
Incentive Compensation Programs
Approximately 70 executives and other significant emplyees at Riviera Las
Vegas and 20 at Riviera Black Hawk participate in incentive compensation
programs. Participants in each of the two programs receive an annual incentive
bonus based on predetermined financial targets at each location being met. An
aggregate of $1,301,000 and $136,000, respectively, was awarded to participants
at Riviera Las Vegas and Black Hawk under these programs in the year ended
December 31, 2001.
Deferred Compensation Plan
On October 2, 2000, we adopted a Deferred Compensation Plan.
The purpose of this plan is to provide eligible employees the opportunity to
defer the receipt of cash compensation. Participation in this non-qualified plan
is limited to highly compensated 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 no later than the
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December 1st preceding each plan year to which the election relates and are
irrevocable for the duration of such year. Six of our executives are currently
participating in this plan.
Restricted Stock Plan
On October 2, 2000, we adopted a Restricted Stock Plan to
provide incentives which will attract and retain highly competent persons as
officers and key employees by providing them opportunities to receive restricted
shares of our Common Stock. Participants will consist of such officers and key
employees as our Compensation Committee determines to be significantly
responsible for our success and future growth and profitability. Awards of
restricted stock are subject to such terms and conditions as we determine to be
appropriate at the time of the grant, including restrictions on the sale or
other disposition of such shares and the provisions for the forfeiture of such
shares for partial or no consideration upon termination of the participant's
employment within specified periods or under certain conditions. Mr. Vannucci
and Mr. Grippe, President and Executive Vice President, respectively, of our
wholly-owned subsidiary, ROC, are currently the only participants in the
Restricted Stock Plan.
Stay Bonus Agreements
Approximately 85 executive officers and significant employees
(excluding Mr. Westerman) of ROC were party to stay bonus agreements pursuant to
which each such employee was entitled to receive a "stay bonus" (varying
amounts) if the employee was discharged without cause (as defined in the stay
bonus agreements), or continued to be employed by us on each of January 1, 2000,
January 1, 2001 and June 30, 2001. The total amount that was payable under all
such agreements was approximately $2.2 million, of which approximately $610,000
was paid in January, 2000, $1,068,000 was paid in January, 2001 and $462,500 was
paid on June 30, 2001.
Termination Fee Agreements
Approximately 85 executive officers and significant employees
(excluding Mr. Westerman) of ROC have termination fee agreements effective
through December 31, 2003, pursuant to which they will be entitled to receive
(1) either six months' or one year's base salary if their employment with us is
terminated, without cause, within 12 or 24 months of a change of control of us
or ROC; and (2) group health insurance for periods of either one or two years.
The base salary payments are payable in bi-weekly installments subject to the
employee's duty to mitigate by using his or her best efforts to find employment.
As of December 31, 2001, the total amount that would be payable under all such
agreements if all payment obligations were to be triggered was approximately
$5.5 million, including $1.3 million in benefits.
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
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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
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, 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 in the
"Compensation of Executive Officers" section.
Date: February 25, 2002 Jeffrey A. Silver Chairman
Robert R. Barengo Member
James N. Land, Jr. (1) Member
(1) Mr. Land resigned as of May 31, 2002
83
Compensation Committee Interlocks And Insider Participation
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
Riviera Operating Corporation since January 1, 2001.
Performance Graph
The following graph compares the annual change in the cumulative total
return, assuming reinvestment of dividends, on our Common Stock with the annual
change in the cumulative total returns of the NASDAQ Broad Market, the American
Stock Exchange Index (the "AMEX Index"), the New York Stock Exchange ("NYSE")
and the NASDAQ Amusement and Recreation Services Index (the "NASDAQ 79xx"),
which we consider to be our peer industry group. The graph assumes an investment
of $100 on December 31, 1996, in each of our Common Stock, the stocks comprising
the NASDAQ Broad Market, the stocks comprising the AMEX Index and the stocks
comprising the NASDAQ 79xx.
The graph is a Comparison of Cumulative Total Return Among us, NYSE/
AMEX/Nasdaq Stock Market (U.S. Companies) and Nasdaq stocks (SIC 7900 - 7999 US
Companies amusement and recreation services) (1).
84
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
Riviera Holdings Corporation
Produced on 03/04/2002 including data to 12/31/2001
12/1996 12/1997 12/1998 12/1999 12/2000 12/2001
Rivera Holdings Corporation 100.0 90.4 30.7 44.7 50.0 29.8
NYSE/AMEX/Nasdaq Stock Market (US Companies) 100.0 130.9 161.5 202.4 179.4 160.3
NYSE/AMEX/Nasdaq Stocks(SIC 7900-7999 US Comp) 100.0 119.2 103.2 132.6 112.0 130.6
Amusement and recreation services
(1) Comprised of companies whose stock is traded on the Nasdaq National
Market and whose standard industrial classification is within 7900-7999.
We do not necessarily believe that this is an indication of the value of
our stock.
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OWNERSHIP OF THE COMPANY
Security Ownership of Certain Beneficial Owners and Management
Our Common Stock is traded on the American Stock Exchange. The
following table sets forth certain information as of July 22, 2002 regarding the
beneficial ownership of our Common Stock, by (1) each person who, to our
knowledge, beneficially owns more than 5% of our outstanding Common Stock (based
on reports filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or upon information furnished to us), (2) our
directors and certain of our officers and (3) all of our directors and officers
as well as those of ROC as a group. The percentages of shares of Common Stock
held or beneficially owned by any stockholder or group of stockholders are based
upon the total number of shares of Common Stock outstanding as of July 22, 2002.
Except as indicated, each person listed below has sole voting and investment
power with respect to the shares set forth opposite such person's name.
Shares Beneficially Owned
Name Number Percentage
William L. Westerman(1)(2)........................................................ 673,628 18.7%
Robert R. Barengo(1)(3)........................................................... 125,806 3.5
Jeffrey A. Silver(1)(4)........................................................... 5,800 *
Paul A. Harvey(1)(5).............................................................. 400 *
Vincent L. Divito................................................................. - -
Robert A. Vannucci(1)(6).......................................................... 128,128 3.5
Ronald P. Johnson(1)(7)........................................................... 130,366 3.6
Duane R. Krohn(1)(8).............................................................. 136,128 3.8
Jerome P. Grippe(1)(9)............................................................ 71,274 2.0
Tullio J. Marchionne(1)(10)....................................................... 6,600 *
Donald J. Trump(11)............................................................... 350,000 9.8
Sun America Life Insurance Company(12)............................................ 500,000 14.0
Diversified Equity Ventures, LLC(13).............................................. 320,000 9.0
Employee Stock Ownership Plan (ESOP) other than officers and directors(14)........ 336,260 9.4
All executive officers and directors as a group
(10 persons)(2)(3)(4)(5)(6)(7)(8)(9)(10)....................................... 1,278,130 34.0
-----------
* Less than 1%.
(1) The address for each of our and ROC's directors and officers is c/o
Riviera Holdings Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada
89109.
(2) Includes 25,000 shares which may be acquired within 60 days of July
22, 2002, upon the exercise of outstanding options.
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(3) Includes 13,450 shares which may be acquired within 60 days of July
22, 2002, upon the exercise of outstanding options.
(4) Includes 800 shares which may be acquired within 60 days of July
22, 2002, upon the exercise of outstanding options.
(5) Consists of 400 shares which may be acquired within 60 days of July
22, 2002, upon the exercise of outstanding options.
(6) Includes 42,500 shares which may be acquired within 60 days of July
22, 2002, upon the exercise of outstanding options, 46,395 shares under our
Restricted Stock Plan and 19,404 shares under our Deferred Compensation Plan.
(7) Includes 35,000 shares which may be acquired within 60 days of July
22, 2002, upon the exercise of outstanding options and 27,766 shares under our
Deferred Compensation Plan.
(8) Includes 35,000 shares which may be acquired within 60 days of July
22, 2002, upon the exercise of outstanding options and 48,029 shares under our
Deferred Compensation Plan.
(9) Includes 26,750 shares which may be acquired within 60 days of July
22, 2002, upon the exercise of outstanding options, 8,217 shares under our
Restricted Stock Plan and 20,048 shares under our Deferred Compensation Plan.
(10) Includes 6,000 shares which may be acquired within 60 days of July
22, 2002, upon the exercise of outstanding options.
(11) 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 shares of our 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 those shares. The address for THCR Holdings and THCR is
1000 Boardwalk, Atlantic City, New Jersey 08401.
(12) The address for SunAmerica Life Insurance Company ("SunAmerica")
is One SunAmerica Center, Los Angeles, California 90067.
(13) The address for Diversified Equity Ventures, LLC, and its manager,
Jeffrey P. Jacobs, is 1231 Main Avenue, Cleveland, OH 44113.
(14) The Trustee of the ESOP and its address are U.S. Trust Company,
National Association, 515 South Flower Street, Suite 2800, Los Angeles,
California 90071.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jeffrey A. Silver is one of our directors and is a shareholder in the
law firm of Gordon & Silver, Ltd. ("Gordon & Silver"). Gordon & Silver has been
engaged by us for various legal matters.
DESCRIPTION OF NEW CREDIT FACILITY AND INTERCREDITOR AGREEMENT
New Senior Credit Facility
New Senior Credit Facility
On July 26, 2002 we entered into a $30 million, five-year senior
secured credit facility. The credit facility is secured by substantially the
same collateral that secures the existing notes, the new notes, and the note
guarantees. The lien on the collateral securing the credit facility is senior to
the lien on the collateral securing the notes and the note guarantees. The
credit facility contains customary conditions to borrowing and certain
representations and warranties customary in gaming-related financing. The credit
facility also contains financial covenants and restrictions on us regarding,
among other things, indebtedness, investments, distributions and changes in
control. Under the credit facility, we can obtain extensions of credit in the
forms of cash advances and letters of credit. We are required to pay interest on
all outstanding cash advances at the rate of interest announced by Wells Fargo
at its principal office in San Francisco as its prime rate plus 0.75% or at the
rate at which major international banks in London charge each other for
borrowings in U.S. dollars plus 3.00%. However, the minimum interest rate we
will be charged on outstanding cash advances is 4.50%. We are required to pay a
fee on all outstanding letters of credit equal to their face value times an
annual percentage rate of 2.5%. Additionally, if we are in default, the credit
facility lender may increase the interest rate and letter of credit fee by an
additional 2.00% per year during the period of the default.
Affirmative Covenants
Until all of our obligations under the credit facility have been paid
in full, we have agreed to do, among other things, the following:
* maintain our accounting and inventory reporting system in
accordance with generally accepted accounting practices;
* provide financial statements and operational reports to the
credit facility lender;
* maintain our properties in a condition necessary to conduct
our business;
* pay all taxes, assessments, rents, leases, brokerage
commissions and finders fees when due;
* maintain various forms of insurance;
* keep all inventory and equipment at the locations specified in
the credit facility;
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* comply with all applicable laws and governmental regulations;
* maintain our corporate charters in good standing;
* comply with environmental laws;
* update all disclosures and correct any errors or omissions
discovered in the credit facility within five days of their
discovery;
* inform the lender of any notice received from any governmental
authority having jurisdiction over our gaming activities;
* maintain our licenses and permits in full force and effect;
and
* cause any new restricted subsidiary to become a borrower or
guarantor under the credit facility.
Negative Covenants
Until all of our obligations under the credit facility have been paid
in full, we are prohibited from doing, among other things, any of the following:
* becoming liable for any indebtedness other than (a)
indebtedness outstanding as of the date of the credit
facility, (b) indebtedness incurred to acquire fixed assets
exceeding $7.5 million outstanding at any one time, (c)
indebtedness incurred to refinance or restructure indebtedness
otherwise permitted under the credit facility, (d)
indebtedness under the existing notes, the new notes and the
note guarantees, (e) subordinated intercompany indebtedness,
and (f) certain unsecured indebtedness arising in the ordinary
course of business or permitted under the indenture;
* permitting any lien on any of our assets, except liens
securing the notes, the credit facility and certain other
permitted liens;
* merging, consolidating, reorganizing, recapitalizing or
reclassifying our stock;
* liquidating, winding up, or dissolving any part of our
business;
* selling any substantial part of our assets;
* transferring or disposing of any of our assets except in the
ordinary course of business or in certain other circumstances
permitted under the credit facility;
* licensing our intellectual property rights except for
nonexclusive licenses given in the ordinary course of
business;
* selling tangible personal property in excess of $500,000 per
year;
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* entering into any material lease except leases for retail
space, entertainment or other non-hotel, non-gaming purposes,
or licenses to use hotel rooms, including licenses given in
connection with a possible timeshare conversion;
* guaranteeing or otherwise becoming liable for obligations of
any third person except for the obligations created by the
credit facility;
* changing the nature of our business;
* prepaying, redeeming, defeasing, purchasing, or otherwise
acquiring any of our indebtedness other than (a) indebtedness
under the credit facility, (b) prepayment in connection with
certain refinancing, and (c) prepayment of indebtedness (other
than the notes) which does not exceed $10 million, so long as
no event of default has occurred or is continuing and the
prepayment does not reduce the sum of our unrestricted cash
and availability under the credit facility below $20 million;
* prepaying, redeeming, defeasing, purchasing, or otherwise
acquiring any indebtedness under the existing notes or new
notes, except for a redemption necessary to comply with gaming
laws or in connection with a modification of the notes;
* changing any terms or conditions of our obligations under the
notes or certain other agreements covering indebtedness;
* causing or permitting any person or group to become the
beneficial owner of 35% or more of our stock;
* causing or permitting a change in a majority of the members of
our board of directors;
* ceasing to directly own and control 100% of the outstanding
stock of our restricted subsidiaries;
* making any distribution, declaring or paying any dividends
other than stock dividends, or acquiring our outstanding stock
unless certain financial tests are satisfied;
* changing our method of accounting except as may be required by
generally accepted accounting practices;
* making or acquiring any investment or incurring any liability
in connection with a transaction which would be considered an
investment under generally accepted accounting principles,
other than permitted investments not exceeding $15 million;
* entering into any transaction with a related party except for
arms-length transactions in the ordinary course of business;
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* suspending or discontinuing a substantial portion of our
business;
* using the proceeds from the credit facility for any purpose
other than what is contemplated by the credit facility;
* failing to maintain earnings before interest, taxes and
depreciation of at least $28.5 million for the 12 periods
ending September 30, 2002 December 31, 2002 and at least $30
million for each 12 month period ending at each quarter-end
thereafter until June 30, 2007; or
* making a capital expenditure in excess of $4 million per
quarter or $8 million annually through December 31, 2003, and
subject to limits to be established by good faith negotiations
thereafter, except (a) expenditures made for the acquisition
of gaming devices, and (b) expenditures in calendar year 2005
in connection with a monorail project.
Events of Default
Each of the following, among other things, will be an event of default
under the credit facility:
* failing to make any payment due under the credit facility;
* failing to pay taxes, rents, leases and brokerage commissions
if such failure continues for five business days;
* failing to maintain our inventory and equipment at the
locations specified in the credit facility;
* failing to maintain our accounting system or the condition of
our properties if such failure continues for 15 days;
* the attachment, seizure, subjection to a writ or distress
warrant or levy of a material portion of our assets;
* the subjection of our assets to the control of a third person;
* the commencement of a voluntary insolvency proceeding or of an
involuntary insolvency proceeding if we consent to such
proceeding, if the petition is not timely controverted, if the
proceeding is not dismissed within 60 days, if an interim
trustee is appointed to take possession of our assets or to
operate our business or if an order for relief is entered;
* if a court order prohibiting the conduct of all or a material
portion of our business remains in effect in excess of five
business days;
* the filing of a notice of lien, levy or assessment against our
assets by the United States or any federal agency;
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* the filing of a notice of lien, levy, or assessment against
our assets by any state, municipality or other governmental
agency if it is not released or discharged within 30 days of
the date filed or within five days of the date our assets are
subject to forfeiture;
* if judgments involving an aggregate of $2 million or more
become a lien or encumbrance upon any material portion of our
assets and such lien or encumbrance is not released,
discharged or bonded against before the earlier of 30 days
after the date filed or within five days of the date our
assets are subject to forfeiture;
* a default under the notes or the note guarantees;
* a default in any material agreements involving indebtedness in
an aggregate amount exceeding $5 million which occurs at
maturity or upon the occurrence of an event which entitles the
lender to accelerate the maturity of such indebtedness;
* making any payment on any indebtedness that is subordinated to
the credit facility, except as permitted by the subordination
agreement;
* any material misstatement or misrepresentation by us of any of
our warranties, representations or other statements made in
the credit facility;
* if any lien created by the credit facility ceases to be valid,
fails to be perfected against, or fails to continue to create
a security interest in the collateral securing the credit
facility;
* our contesting of the enforceability of any material provision
of the credit facility documents;
* the limitation or termination of our credit facility
obligations by operation of law; or
* our failure to keep our licenses and permits in full force and
effect.
Intercreditor Agreement
In connection with our new credit facility, the trustee under
the indenture governing the notes entered into an intercreditor agreement, which
is substantially in the form of the intercreditor agreement attached as an
exhibit to the note indenture, with the lender under our new credit facility.
The effects of that agreement include, among other things, a subordination of
the liens securing the notes and note guarantees to the liens securing the
indebtedness and the guarantees under the new credit facility. See "Description
of Notes--Intercreditor Agreement."
The intercreditor agreement, among other things, will limit
the trustee's rights in an event of default under the notes. Under the
intercreditor agreement, if the notes become due and payable prior to the stated
maturity or are not paid in full at the stated maturity at a time when
indebtedness is outstanding under our new credit facility, the trustee will not
have the right to foreclose on the collateral unless and until the lender under
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the credit facility fails to take steps to exercise remedies with respect to, or
in connection with, the collateral within 180 days following notice to that
lender of the default under the indenture. Also, the intercreditor agreement
will prevent the trustee and the holders of the notes from pursuing remedies
with respect to the collateral in an insolvency proceeding. The intercreditor
agreement provides that the net proceeds from the sale of collateral will first
be applied to repay indebtedness outstanding under the credit facility and
thereafter to the holders of the notes.
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this
description under the subheading "Certain Definitions." In this description, the
phrase "the Company" refers only to Riviera Holdings Corporation and not to any
of its subsidiaries.
The Company issued the existing notes and will issue the new
notes under an indenture among itself, the Guarantors and The Bank of New York,
as trustee. The terms of the indenture apply to the existing notes and the new
notes. The terms of the notes include those stated in the indenture and those
made part of the indenture by reference to the Trust Indenture Act of 1939, as
amended. The Collateral Documents referred to under the caption "Security"
define the terms of the agreements and collateral that will secure the notes and
the guarantees.
The following description is a summary of the material
provisions of the indenture, the registration rights agreement and the
Collateral Documents. It does not restate those agreements in their entirety. We
urge you to read the indenture, the registration rights agreement and the
Collateral Documents because they, and not this description, define your rights
as holders of the notes. Copies of the indenture, registration rights agreement
and Collateral Documents are available as set forth below under "Available
Information." Certain defined terms used in this description but not defined
below under the caption "--Certain Definitions" have the meanings assigned to
them in the indenture.
The registered Holder of a note will be treated as the owner
of it for all purposes. Only registered Holders will have rights under the
indenture.
Brief Description of the Notes and the Guarantees
The Notes
The existing notes and the new notes:
o are general obligations of the Company;
o are secured by substantially all of the assets of the
Company; however, the lien on the Collateral securing
the new senior secured credit facility will be senior
to the lien on the Collateral securing the notes;
93
o are pari passu in right of payment with all existing
and future senior Indebtedness of the Company;
o are senior in right of payment to all existing and
any future subordinated Indebtedness of the Company;
and
o are unconditionally guaranteed by the Guarantors.
All of our Subsidiaries except Riviera Gaming Management of
New Mexico, Inc., Riviera Gaming Management of Missouri, Inc. and
Riviera-Reston-Newton, LLC are "Restricted Subsidiaries." Under the
circumstances described below under the caption "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries," we are
permitted to designate certain of our Subsidiaries as "Unrestricted
Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the indenture. Our Unrestricted Subsidiaries will not
guarantee the notes.
The Guarantees
The notes are guaranteed by all of the Company's current and
future Restricted Subsidiaries.
Each guarantee of the notes:
o is a general obligation of the Guarantor;
o is secured by substantially all of the assets of that
Guarantor; however, the lien on the Collateral
securing the Guarantor's obligations under the new
senior secured credit facility will be senior to the
lien on the Collateral securing the Guarantor's
guarantee of the notes;
o is pari passu in right of payment with all existing
and future senior Indebtedness of that Guarantor; and
o is senior in right of payment to all existing and
future subordinated indebtedness of that Guarantor.
The operations of the Company are conducted through its
Subsidiaries and, therefore, the Company depends on the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the notes.
Principal, Maturity and Interest
The Company issued notes in an aggregate principal amount of
$215 million under an indenture with The Bank of New York. We may issue
additional notes from time to time after this exchange offer. Any offering of
additional notes is subject to the covenant described below under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
94
Stock." The existing notes and new notes that the Company issues under the
indenture in this exchange offer will be treated as a single class for all
purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. The Company will issue new
notes, in exchange for existing notes, in denominations of $1,000 and integral
multiples of $1,000. The notes will mature on June 15, 2010.
Interest on the notes accrues at the rate of 11% per annum and
will be payable semi-annually in arrears on June 15 and December 15, commencing
on December 15, 2002. The Company will make each interest payment to the Holders
of record on the immediately preceding June 1 and December 1.
Interest on the notes accrues from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the
Company, the Company will pay all principal, interest and premium and Liquidated
Damages, if any, on that Holder's notes in accordance with those instructions.
All other payments on notes will be made at the office or agency of the paying
agent and registrar within the City and State of New York unless the Company
elects to make interest payments by check mailed to the Holders at their address
set forth in the register of Holders.
Paying Agent and Registrar for the Notes
The trustee acts as paying agent and registrar. The Company
may change the paying agent or registrar without prior notice to the Holders of
the notes, and the Company or any of its Subsidiaries may act as paying agent or
registrar.
Transfer Taxes
The Company will pay any and all transfer taxes applicable to
the exchange of existing notes for new notes in connection with the exchange
offer, except in the case of Holders who instruct us to register new notes in
the name of, or request that existing notes not tendered or not accepted in the
exchange offer be returned to, a person other than the registered, tendering
Holder. In such case, the Holder will be responsible for the transfer taxes, if
any.
Subsidiary Guarantees
The notes will be guaranteed by each of the Company's current
and future Restricted Subsidiaries. These Subsidiary Guarantees are joint and
several obligations of the Guarantors. The obligations of each Guarantor under
its Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary
Guarantee from constituting a fraudulent conveyance under applicable law. See
"Risk Factors--A court could void our subsidiaries' guarantees of the notes
under fraudulent transfer law."
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The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of
all or substantially all of the assets of that
Guarantor (including by way of merger or
consolidation) to a Person that is not (either before
or after giving effect to such transaction) a
Restricted Subsidiary of the Company, if the sale or
other disposition complies with the "Asset Sale"
provisions of the indenture;
(2) in connection with any sale of all of the Capital
Stock of a Guarantor to a Person that is not (either
before or after giving effect to such transaction) a
Restricted Subsidiary of the Company, if the sale
complies with the "Asset Sale" provisions of the
indenture; or
(3) if the Company designates any Restricted Subsidiary
that is a Guarantor as an Unrestricted Subsidiary in
accordance with the applicable provisions of the
indenture.
See "--Repurchase at the Option of Holders--Asset Sales."
Security
The notes and the Guarantees are secured by a security
interest in substantially all of the Company's and the Subsidiary Guarantors'
assets, whether now owned or hereafter acquired, including, without limitation,
and subject to the liens permitted by the Collateral Documents other than any
Gaming License or other license that may not be assigned pursuant to applicable
law, certain furniture, fixtures and equipment and the assets of our future
unrestricted subsidiaries.
The trustee under the note indenture has entered into an
intercreditor agreement, pursuant to which the trustee's security interest in
the Collateral is subordinated to a lien securing up to $30 million of
Indebtedness under the new senior secured credit facility. See "--Intercreditor
Agreement."
If an Event of Default occurs, the trustee may, in addition to
any rights and remedies available to it under the indenture and the Collateral
Documents and subject to the intercreditor agreement and applicable Gaming Laws,
take such action as it deems advisable to protect and enforce its rights in the
Collateral, including the commencement of sale or foreclosure proceedings.
Under certain circumstances, if the inclusion of an
Unrestricted Subsidiary that owns a Gaming Project would result in an increase
in the Fixed Charge Coverage Ratio of the Company, the Unrestricted Subsidiary
will:
(1) automatically become and remain a Restricted
Subsidiary; and
96
(2) will execute a Subsidiary Guarantee and such
Collateral Documents as are necessary to create and
convey a perfected Lien on the Collateral (subject to
Permitted Liens) held by such Subsidiary; provided
that no such Subsidiary Guarantee will be executed
and no such Lien will be created or conveyed with
respect to any real or personal property owned or
leased by such Subsidiary if the execution, creation
or conveyance thereof would violate or conflict with
any law or the provisions of any financing incurred
to acquire, develop or construct the Gaming Project
outstanding at the time of such conversion;
provided that no Default or Event of Default shall have occurred and be
continuing and provided that a Default or Event of Default would not be created
thereby.
Notwithstanding the foregoing, if the execution, creation or
conveyance thereof would satisfy the conditions in the preceding sentence but
for any filing with or approval of any Gaming Authority or other regulatory
entity, the Company shall use, and shall cause the applicable Subsidiary to use,
its best efforts to make all such required filings and obtain all such required
approvals in order to permit such execution, creation and conveyance. See
"Certain Covenants--Additional Subsidiary Guarantees."
So long as no Event of Default has occurred and is continuing,
subject to certain terms and conditions in the indenture and the Collateral
Documents and subject to applicable Gaming Laws, the Company and its Restricted
Subsidiaries will be entitled to receive the benefit of all cash dividends,
interest and other payments made upon or with respect to the Collateral pledged
by them and to exercise any voting and other consensual rights pertaining to the
pledged Collateral. Upon the occurrence and during the continuance of a Default
or Event of Default:
(1) all rights of the Company and its Restricted
Subsidiaries to receive all cash dividends, interest
and other payments made upon or with respect to the
Collateral will cease and, subject to the
Intercreditor Agreement, such cash dividends,
interest and other payments will be paid to the
trustee;
(2) all rights of the Company and its Restricted
Subsidiaries to exercise such voting or other
consensual rights shall cease, and, subject to the
Intercreditor Agreement, all such rights shall become
vested in the trustee which, to the extent permitted
by law, will have the sole right to exercise such
rights; and
(3) subject to the Intercreditor Agreement, the trustee
may sell the Collateral or any part thereof in
accordance with the terms of the Collateral
Documents.
Under the terms of the indenture, the Collateral Documents and
the Intercreditor Agreement, the trustee will determine the circumstances and
manner in which the Collateral shall be disposed of, including, but not limited
to, the determination of whether to release all or any portion of the Collateral
97
from the Liens created by the Collateral Documents and whether to foreclose on
the Collateral following a Default or Event of Default. Moreover, upon the full
and final payment and performance of all of Obligations of the Company and the
Subsidiary Guarantors under the indenture and the notes, the Collateral
Documents will terminate and the Collateral will be released from the lien
securing the notes and the Guarantees.
Certain Gaming Law Limitations
The trustee's ability to foreclose on the Collateral will be
limited by relevant gaming laws, which generally require that persons who own or
operate a casino or own equity securities of a gaming licensee (including
capital stock) or purchase, possess or sell gaming equipment hold a valid gaming
license. No person can hold a license in Nevada or Colorado unless the person is
found qualified or suitable by the relevant Gaming Authorities. In order for the
trustee or a purchaser at or after foreclosure to be found qualified or
suitable, such Gaming Authorities would have discretionary authority to require
the trustee, any or all of the Holders of the notes or any such purchaser to
file applications, be investigated and be found qualified or suitable as an
owner or operator of gaming establishments. The applicant for qualification, a
finding of suitability or licensing must pay a filing fee and all cost of such
investigation. If the trustee is unable or chooses not to qualify, be found
suitable, or licensed to own, operate or sell such assets, it would have to
retain or sell to an entity licensed to operate or sell such assets. In
addition, in any foreclosure sale or subsequent resale by the trustee, licensing
requirements under the relevant gaming laws may limit the number of potential
bidders and may delay any sale, either of which events would have an adverse
effect on the sale price of the Collateral. Moreover, the gaming industry could
become subject to different or additional regulations during the terms of the
notes, which could further adversely affect the practical rights and remedies of
the trustee. Therefore, the practical value of realizing on the Collateral may,
without the appropriate approvals, be limited.
Certain Bankruptcy Limitations
The right of the trustee to repossess and dispose of the
Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against the Company or a Restricted Subsidiary prior
to the trustee having repossessed and disposed of the Collateral. Under
bankruptcy law, a secured creditor such as the trustee is prohibited from
repossessing its security from a debtor in a bankruptcy case, or from disposing
of security repossessed from such debtor, without bankruptcy court approval.
Moreover, bankruptcy law permits the debtor to continue to retain and to use
collateral (and the proceeds, products, offspring, rents or profits of such
collateral) even though the debtor is in default under the applicable debt
instruments, provided that the secured creditor is given "adequate protection."
The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in the collateral and may include, if approved by the court,
cash payments or the granting of additional security for any diminution in the
value of the collateral as a result of the stay of repossession or the
disposition or any use of the collateral by the debtor during the pendency of
the bankruptcy case. The court has broad discretionary powers in all these
matters, including the valuation of collateral. In addition, because the
98
enforcement of the Lien of the trustee in cash, deposit accounts and cash
equivalents may be limited in a bankruptcy proceeding, the Holders of the notes
may not have any consent rights with respect to the use of those funds by the
Company or any of its Restricted Subsidiaries during the pendency of the
proceeding. In view of these considerations, it is impossible to predict how
long payments under the notes could be delayed following commencement of a
bankruptcy case, whether or when the trustee could repossess or dispose of the
Collateral or whether or to what extent Holders of the notes would be
compensated for any delay in payment or loss of value of the Collateral.
Intercreditor Agreement
The trustee and the lender under the new senior secured credit
facility have entered into an intercreditor agreement (the "Intercreditor
Agreement"). The Intercreditor Agreement provides that the Liens on the
Collateral securing the notes and the Guarantees are subordinated to the Liens
securing up to $30 million of Indebtedness outstanding under the new credit
facility and related interest, fees, costs and expenses. Under the Intercreditor
Agreement, if the notes become due and payable before their stated maturity for
any reason or are not paid in full at their stated maturity at a time during
which Indebtedness is outstanding under the new credit facility, the Collateral
that also secures the obligations under the credit facility can not be
foreclosed upon unless and until the lender under that facility fails to take
steps to exercise remedies with respect to or in connection with the Collateral
within 180 days following notice to such lender of the Event of Default under
the Indenture; provided that the Intercreditor Agreement will prevent the
Collateral Agent and the Holders from pursuing remedies with respect to the
Collateral in an insolvency proceeding. The Intercreditor Agreement provides
that the net proceeds from the sale of Collateral will first be applied to repay
Indebtedness outstanding under the new credit facility and thereafter to the
Holders of the notes.
Optional Redemption
At any time prior to June 15, 2005, the Company may on any one
or more occasions redeem up to 35% of the aggregate principal amount of notes
issued under the indenture at a redemption price of 111% of the principal
amount, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes
issued under the indenture remains outstanding immediately after the occurrence
of such redemption (excluding notes held by the Company and its Subsidiaries);
and
(2) the redemption occurs within 45 days of the date of
the closing of such Public Equity Offering.
Except pursuant to the preceding paragraph, the notes will not
be redeemable at the Company's option prior to June 15, 2006.
99
On or after June 15, 2006, the Company may redeem all or a
part of the notes upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, on the notes
redeemed, to the applicable redemption date, if redeemed during the twelve-month
period beginning on June 15 of the years indicated below:
Year Percentage
---- ------------
2006............................... 105.500%
2007............................... 103.667%
2008............................... 101.833%
2009 and thereafter................ 100.000%
Mandatory Redemption Pursuant to Gaming Laws
If any Gaming Authority requires that a Holder or Beneficial
Owner of notes be licensed, qualified or found suitable under any applicable
Gaming Law and such Holder or Beneficial Owner:
(1) fails to apply for a license, qualification or a
finding of suitability within 30 days (or such
shorter period as may be required by the applicable
Gaming Authority) after being requested to do so by
the Gaming Authority; or
(2) is denied such license or qualification or not found
suitable;
then the Company shall have the right:
(1) to require any such Holder or Beneficial Owner to
dispose of its notes within 30 days (or such earlier
date as may be required by the applicable Gaming
Authority) of the occurrence of the event described
in clause (1) or (2) above, or
(2) to redeem the notes of such Holder or Beneficial
Owner at a redemption price equal to the least of:
(a) the principal amount thereof, together with
accrued and unpaid interest and Liquidated
Damages, if any, to the earlier of the date
of redemption or the date of the denial of
license or qualification or of the finding
of unsuitability by such Gaming Authority;
(b) the price at which such Holder or Beneficial
Owner acquired the notes, together with
accrued and unpaid interest and Liquidated
Damages, if any, to the earlier of the date
of redemption or the date of the denial of
license or qualification or of the finding
of unsuitability by such Gaming Authority;
and
100
(c) such other lesser amount as may be required
by any Gaming Authority.
Immediately upon a determination by a Gaming Authority that a
Holder or Beneficial Owner of the notes will not be licensed, qualified or found
suitable, the Holder or Beneficial Owner will, to the extent required by
applicable law, have no further right:
(1) to exercise, directly or indirectly, through any
trustee or nominee or any other person or entity, any
right conferred by the notes; or
(2) to receive any interest, dividend, economic interests
or any other distributions or payments with respect
to the notes or any remuneration in any form with
respect to the notes from the Company, the Restricted
Subsidiaries or the trustee.
The Company will notify the trustee in writing of any such
redemption as soon as practicable. The Holder or Beneficial Owner that is
required to apply for a license, qualification or a finding of suitability must
pay all fees and costs of applying for and obtaining the license, qualification
or finding of suitability and of any investigation by the applicable Gaming
Authorities.
Mandatory Redemption
The Company is not required to make mandatory redemption or
sinking fund payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple of $1,000) of that Holder's notes pursuant to a Change
of Control Offer on the terms set forth in the indenture. In the Change of
Control Offer, the Company will offer a Change of Control Payment in cash equal
to 101% of the aggregate principal amount of notes repurchased plus accrued and
unpaid interest and Liquidated Damages, if any, on the notes repurchased, to the
date of purchase. Within 30 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase notes on the
Change of Control Payment Date specified in the notice, which date will be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by the indenture and described in
such notice. The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations to the extent
they are applicable in connection with the repurchase of the notes as a result
of a Change of Control. To the extent that the provisions of any securities laws
or regulations conflict with the Change of Control provisions of the indenture,
the Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the Change of Control
101
provisions of the indenture by virtue of such conflict.
On the Change of Control Payment Date, the Company will, to
the extent lawful:
(1) accept for payment all notes or portions of notes
properly tendered pursuant to the Change of Control
Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all notes or
portions of notes properly tendered; and
(3) deliver or cause to be delivered to the trustee the
notes properly accepted together with an officer's
certificate stating the aggregate principal amount of
notes being purchased by the Company.
The paying agent will promptly mail to each Holder of notes
properly tendered the Change of Control Payment for such notes, and the trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new note equal in principal amount to any unpurchased portion
of the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The provisions described above that require the Company to
make a Change of Control Offer following a Change of Control will be applicable
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the Holders of the notes to require the Company
to repurchase or redeem the notes in the event of a takeover, recapitalization
or similar transaction.
The Company will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements in the indenture applicable to a Change of Control Offer made by
the Company and purchases all notes properly tendered and not withdrawn under
the Change of Control Offer.
The definition of Change of Control includes a phrase relating
to the direct or indirect sale, lease, transfer, conveyance or other disposition
of "all or substantially all" of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole. Although there is a limited body of
case law interpreting the phrase "substantially all," there is no precise,
established definition of the phrase under applicable law. Accordingly, the
ability of a Holder of notes to require the Company to repurchase the notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole to another Person or group may be uncertain.
102
Asset Sales
The Company will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the
case may be) receives consideration at the time of
the Asset Sale at least equal to the fair market
value of the assets or Equity Interests issued or
sold or otherwise disposed of;
(2) the fair market value is determined by the Company's
Board of Directors and evidenced by a resolution of
the Board of Directors set forth in an officer's
certificate delivered to the trustee; and
(3) at least 80% of the consideration received in the
Asset Sale by the Company or such Restricted
Subsidiary is in the form of cash. For purposes of
this provision, each of the following will be deemed
cash:
(a) any liabilities, as shown on the Company's
most recent consolidated balance sheet, of
the Company or any Restricted Subsidiary
(other than contingent liabilities and
liabilities that are by their terms
subordinated to the notes or any Subsidiary
Guarantee) that are assumed by the
transferee of any such assets pursuant to a
customary novation agreement that releases
the Company or such Restricted Subsidiary
from further liability; and
(b) any securities, notes or other obligations
received by the Company or any such
Restricted Subsidiary from such transferee
that are, within 30 days, converted by the
Company or such Restricted Subsidiary into
cash, to the extent of the cash received in
that conversion.
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or the applicable Restricted Subsidiary may apply those Net
Proceeds:
(1) to repay Indebtedness and other Obligations under a
Revolving Credit Facility and to correspondingly
reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of,
or a majority of the Voting Stock of, another
Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or
useful in a Permitted Business;
103
provided, however, that with respect to any assets that are acquired or
constructed or Voting Stock that is acquired with such Net Proceeds, the Company
or the applicable Restricted Subsidiary, as the case may be, promptly grants to
the trustee, on behalf of the Holders of notes, a first priority perfected
security interest on any such assets or Voting Stock on the terms set forth in
the indenture and the Collateral Documents.
Pending the final application of any Net Proceeds, the Company or the
applicable Restricted Subsidiary may temporarily reduce Indebtedness under the
Revolving Credit Facility or invest such Net Proceeds in Cash Equivalents which
will be held in an account in which the trustee shall, subject to the
Intercreditor Agreement, have a first priority perfected security interest,
subject to Permitted Liens, for the benefit of the Holders of the notes in
accordance with the indenture and the Collateral Documents.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make
an Asset Sale Offer to all Holders of notes and all holders of other
Indebtedness that is pari passu with the notes containing provisions similar to
those set forth in the indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount of
notes and such other pari passu Indebtedness that may be purchased out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100%
of principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, the Company may use
those Excess Proceeds for any purpose not otherwise prohibited by the indenture.
If the aggregate principal amount of notes and other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
trustee will select the notes and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds will be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
conflict.
The Company's new senior secured credit facility contains prohibitions
of certain events that would constitute a Change of Control or Asset Sale. In
addition, the exercise by the Holders of notes of their right to require the
Company to repurchase the notes could cause a default under such other senior
indebtedness, even if the Change of Control or Asset Sale itself does not, due
to the financial effect of such repurchases on the Company. Finally, the
Company's ability to pay cash to the Holders of notes upon a repurchase may be
limited by the Company's then existing financial resources.
104
Selection and Notice
If less than all of the notes are to be redeemed at any time, the
trustee will select notes for redemption as follows:
(1) if the notes are listed on any national securities
exchange, in compliance with the requirements of the
principal national securities exchange on which the
notes are listed; or
(2) if the notes are not listed on any national
securities exchange, on a pro rata basis, by lot or
by such method as the trustee deems fair and
appropriate.
No notes of $1,000 or less can be redeemed in part. Notices of
redemption will be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of notes to be redeemed at its
registered address, except that redemption notices may be mailed more than 60
days prior to a redemption date if the notice is issued in connection with a
defeasance of the notes or a satisfaction and discharge of the indenture.
Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption
that relates to that note will state the portion of the principal amount of that
note that is to be redeemed. A new note in principal amount equal to the
unredeemed portion of the original note will be issued in the name of the Holder
of notes upon cancellation of the original note. Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment
or distribution on account of the Company's or any of
its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in
connection with any merger or consolidation involving
the Company or any of its Restricted Subsidiaries) or
to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or to the Company
or a Restricted Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection
with any merger or consolidation involving the
Company) any Equity Interests of the Company or any
Restricted Subsidiary or any direct or indirect
105
parent of the Company or any Restricted Subsidiary;
(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the
notes or the Subsidiary Guarantees, except a payment
of interest or principal at the Stated Maturity
thereof;
(4) make any Restricted Investment (all such payments and
other actions set forth in these clauses (1) through
(4) above being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence of such
Restricted Payment; and
(2) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as
if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the
covenant described below under the caption
"--Incurrence of Indebtedness and Issuance of
Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the
Company and its Restricted Subsidiaries after the
date of the indenture (excluding Restricted Payments
permitted by clauses (2) and (3) of the next
succeeding paragraph), is less than the sum, without
duplication, of:
(a) 50% of the Consolidated Net Income of the
Company for the period (taken as one
accounting period) from the beginning of the
first fiscal quarter commencing after the
date of the indenture to the end of the
Company's most recently ended fiscal quarter
for which internal financial statements are
available at the time of such Restricted
Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of
such deficit), plus
(b) 100% of the aggregate net cash proceeds
received by the Company since the date of
the indenture as a contribution to its
common equity capital or from the issue or
sale of Equity Interests of the Company
(other than Disqualified Stock) or from the
issue or sale of convertible or exchangeable
Disqualified Stock or convertible or
exchangeable debt securities of the Company
that have been converted into or exchanged
for such Equity Interests (other than Equity
106
Interests (or Disqualified Stock or debt
securities) sold to a Subsidiary of the
Company), plus
(c) to the extent that any Restricted Investment
that was made after the date of the
indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of
(i) the cash return of capital with respect
to such Restricted Investment (less the cost
of disposition, if any) and (ii) the initial
amount of such Restricted Investment, plus
(d) 50% of any dividends received by the Company
or a Wholly Owned Restricted Subsidiary that
is a Guarantor after the date of the
indenture from an Unrestricted Subsidiary of
the Company, to the extent that such
dividends were not otherwise included in
Consolidated Net Income of the Company for
such period.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the
date of declaration of the dividend, if at the date
of declaration the dividend payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or
other acquisition of any subordinated Indebtedness of
the Company or any Guarantor or of any Equity
Interests of the Company in exchange for, or out of
the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of,
Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or
other acquisition will be excluded from clause (3)
(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness of the
Company or any Guarantor with the net cash proceeds
from an incurrence of Permitted Refinancing
Indebtedness;
(4) any redemption or purchase by the Company or any
Restricted Subsidiary of Equity Interests or
subordinated Indebtedness of either of the Company or
a Restricted Subsidiary required by a Gaming
Authority in order to preserve a material Gaming
License; provided, that so long as such efforts do
not jeopardize any material Gaming License, the
Company or such Restricted Subsidiary shall have
diligently tried to find a third-party purchaser for
such Equity Interests or subordinated Indebtedness
and no third-party purchaser acceptable to the
applicable Gaming Authority was willing to purchase
such Equity Interests or subordinated Indebtedness
within a time period acceptable to such Gaming
Authority;
107
(5) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary of the Company
held by any member of the Company's (or any of its
Restricted Subsidiaries') management pursuant to any
management equity subscription agreement, stock
option agreement or similar agreement; provided that
the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests may
not exceed $1.0 million in any calendar year;
provided that any portion of such $1.0 million limit
not used in any year may be carried forward for use
in subsequent years; and
(6) Restricted Payments in an aggregate amount, taken
together since the date of the indenture, of not more
than $10.0 million.
The amount of all Restricted Payments (other than cash) will be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be valued
by this covenant will be determined by the Board of Directors whose resolution
with respect thereto will be delivered to the trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Company will deliver to the trustee an officer's
certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue Disqualified Stock, and the Company's Restricted Subsidiaries may
incur Indebtedness or issue preferred stock, if:
(1) the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued would have
been at least 2.0 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been
incurred or the preferred stock or Disqualified Stock had been
issued, as the case may be, at the beginning of such
four-quarter period; and
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(2) the Weighted Average Life to Maturity of the Indebtedness is
greater than the remaining Weighted Average Life to Maturity
of the notes.
The first paragraph of this covenant does not prohibit the incurrence
of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company and any Restricted Subsidiaries
of additional revolving credit Indebtedness and letters of
credit under a Revolving Credit Facility in an aggregate
principal amount at any one time outstanding under this clause
(1)(with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company
and its Subsidiaries thereunder) not to exceed $30.0 million
less the aggregate amount of all Net Proceeds of Asset Sales
applied by the Company or any of its Restricted Subsidiaries
to repay Indebtedness under the Revolving Credit Facility and
effect a corresponding commitment reduction thereunder
pursuant to the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;" provided
that with respect to any Revolving Credit Facility secured by
a Lien or the Collateral, the lenders under such Revolving
Credit Facility have entered into an Intercreditor Agreement;
(2) the incurrence by the Company and the Guarantors of (a)
Indebtedness represented by the notes and the related
Subsidiary Guarantees issued on the date of the indenture and
the Exchange Notes and the related Subsidiary Guarantees to be
issued pursuant to the registration rights agreement and (b)
their respective obligations arising under the Collateral
Documents to the extent such obligations would represent
Indebtedness;
(3) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money
obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment
used in the business of the Company or such Restricted
Subsidiary, in an aggregate principal amount, including all
Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to
this clause (3), not to exceed $7.5 million at any time
outstanding;
(4) the incurrence by the Company and its Restricted Subsidiaries
of Indebtedness outstanding under the FF&E Agreements on the
date of the indenture, until such amounts are repaid;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund,
refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clauses
(2), (3), (5), or (13) of this paragraph;
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(6) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries;
provided, however, that:
(a) if the Company or any Guarantor is the obligor on
such Indebtedness, such Indebtedness must be
expressly subordinated to the prior payment in full
in cash of all Obligations with respect to the notes,
in the case of the Company, or the Subsidiary
Guarantee, in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary of the Company and (ii)
any sale or other transfer of any such Indebtedness
to a Person that is not either the Company or a
Wholly Owned Restricted Subsidiary of the Company;
will be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be, that
was not permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk with respect
to any floating rate Indebtedness that is permitted by the
terms of the indenture to be outstanding;
(8) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the
Company that was permitted to be incurred by another provision
of this covenant;
(9) the accrual of interest, the accretion or amortization of
original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the
same terms, and the payment of dividends on Disqualified Stock
in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes
of this covenant; provided, in each such case, that the amount
thereof is included in Fixed Charges of the Company as
accrued;
(10) reimbursement obligations with respect to letters of credit
issued in the ordinary course of business, indemnifications,
adjustments of purchase prices, performance bonds, appeal
bonds, surety bonds, workers' compensation obligations or
insurance obligations incurred in the ordinary course of
business;
(11) indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary
course of business;
(12) a bond or surety obligation posted in order to prevent the
loss or material impairment of a Gaming License or as
110
otherwise required by an order of any Gaming Authority, in
each case to the extent required by applicable law and
consistent in character and amount with customary industry
practice; and
(13) the incurrence by the Company or any of the Guarantors of
additional Indebtedness in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding,
including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred
pursuant to this clause (13), not to exceed $10.0 million.
The Company will not incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other Indebtedness
of the Company unless such Indebtedness is also contractually subordinated in
right of payment to the notes on substantially identical terms; provided,
however, that no Indebtedness of the Company will be deemed contractually
subordinated in right of payment to any other Indebtedness of the Company solely
by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, if an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (13) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company will be permitted
to classify such item of Indebtedness on the date of its incurrence, or later
reclassify all or a portion of such item of Indebtedness, in any manner that
complies with this covenant. Indebtedness under Revolving Credit Facilities
outstanding on the date on which notes were first issued and authenticated under
the indenture will be deemed to have been incurred on such date in reliance on
the exception provided by clause (1) of the definition of Permitted Debt.
Liens
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind on any asset now owned or hereafter acquired, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital
Stock to the Company or any of its Restricted Subsidiaries, or
with respect to any other interest or participation in, or
measured by, its profits, or pay any indebtedness owed to the
Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
111
(3) transfer any of its properties or assets to the Company or any
of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) the indenture, the notes, the Subsidiary Guarantees and the
Collateral Documents;
(2) applicable law;
(3) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness or Capital Stock was
incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of
the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of
the indenture to be incurred;
(4) customary non-assignment or subletting provisions in leases
entered into in the ordinary course of business and consistent
with past practices;
(5) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions on that
property of the nature described in clause (3) of the
preceding paragraph;
(6) any agreement for the sale or other disposition of a
Restricted Subsidiary that restricts distributions by that
Restricted Subsidiary pending its sale or other disposition;
(7) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive,
taken as a whole, than those contained in the agreements
governing the Indebtedness being refinanced;
(8) Liens securing Indebtedness otherwise permitted to be incurred
under the provisions of the covenant described above under the
caption "--Liens" that limit the right of the debtor to
dispose of the assets subject to such Liens;
(9) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, assets sale
agreements, stock sale agreements and other similar agreements
entered into in the ordinary course of business; and
(10) upon the conversion of an Unrestricted Subsidiary to a
Restricted Subsidiary pursuant to the provisions described
above under the caption "--Security," provided, that such
Indebtedness was not incurred in connection with, or in
112
contemplation of, such conversion, and such encumbrance or
restriction is not applicable to any Person or the property or
assets of any Person other than the new Restricted Subsidiary.
Merger, Consolidation or Sale of Assets
Neither the Company nor any Guarantor may, directly or indirectly: (1)
consolidate or merge with or into another Person (whether or not the Company or
the Guarantor is the surviving corporation); or (2) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company and its Subsidiaries taken as a whole, in one or more
related transactions, to another Person; unless:
(1) either: (a) the Company or the Guarantor, as applicable, is
the surviving corporation; or (b) the Person formed by or
surviving any such consolidation or merger (if other than the
Company or the Guarantor) or to which such sale, assignment,
transfer, conveyance or other disposition has been made is a
corporation organized or existing under the laws of the United
States, any state of the United States or the District of
Columbia;
(2) the Person formed by or surviving any such consolidation or
merger (if other than the Company or the Guarantor) or the
Person to which such sale, assignment, transfer, conveyance or
other disposition has been made assumes all the obligations of
the Company or the Guarantor, as applicable, under the notes,
the indenture, the registration rights agreement and the
Collateral Documents pursuant to agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction, no Default or Event of
Default exists;
(4) such transaction would not require any Holder or Beneficial
Owner of notes to obtain a Gaming License or be qualified or
found suitable under the law of any applicable gaming
jurisdiction; provided, that such Holder or Beneficial Owner
would not have been required to obtain a Gaming License or be
qualified or found suitable under the laws of any applicable
gaming jurisdiction in the absence of such transaction;
(5) such transaction would not result in the loss or suspension or
material impairment of any of the Company's or any of its
Restricted Subsidiaries' Gaming Licenses, unless a comparable
replacement Gaming License is effective prior to or
simultaneously with such loss, suspension or material
impairment; and
(6) in the case of a consolidation or merger of the Company, the
Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, conveyance or other
disposition has been made will, or in the case of a
consolidation or merger of a Guarantor or the sale,
assignment, transfer, conveyance or other disposition of the
property or assets of a Guarantor, the Company will:
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(a) have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated
Net Worth of the Company immediately preceding the
transaction; and
(b) on the date of such transaction after giving pro
forma effect thereto and any related financing
transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the
covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of
Preferred Stock."
In addition, neither the Company nor any Guarantor may, directly or
indirectly, lease all or substantially all of its properties or assets, in one
or more related transactions, to any other Person. This "Merger, Consolidation
or Sale of Assets" covenant will not apply to a sale, assignment, transfer,
conveyance or other disposition of assets between or among the Company and any
of the Guarantors.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with
an unrelated Person; and
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution
of the Company's Board of Directors set forth in an
officer's certificate certifying that such Affiliate
Transaction complies with this covenant and that such
Affiliate Transaction has been approved by a majority
of the disinterested members of the Company's Board
of Directors; and
(b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion
as to the fairness to the Company of such Affiliate
Transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm
of national standing.
114
The following items will not be deemed Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary
course of business and consistent with the past
practice of the Company or such Restricted
Subsidiary;
(2) transactions between or among the Company and/or its
Restricted Subsidiaries;
(3) transactions with a Person that is an Affiliate of
the Company solely because the Company owns an Equity
Interest in, or controls, such Person;
(4) payment of reasonable fees and compensation paid or
issued to and indemnity provided on behalf of,
officers, directors, employees or consultants of the
Company or any Restricted Subsidiary in the ordinary
course of business;
(5) sales of Equity Interests (other than Disqualified
Stock) of the Company to Affiliates of the Company;
and
(6) Restricted Payments that are permitted by the
provisions of the indenture described above under the
caption "--Restricted Payments."
Additional Subsidiary Guarantees
If the Company or any of its Restricted Subsidiaries acquires or
creates another Subsidiary after the date of the indenture, then that newly
acquired or created Subsidiary will become a Guarantor, other than all
Subsidiaries that have properly been designated as Unrestricted Subsidiaries in
accordance with the indenture for so long as they continue to constitute
Unrestricted Subsidiaries, and execute a supplemental indenture and Collateral
Documents securing the Guarantee and deliver an opinion of counsel satisfactory
to the trustee within ten Business Days of the date on which it was acquired or
created. Upon any conversion of a Subsidiary from an Unrestricted Subsidiary to
a Restricted Subsidiary pursuant to the provisions described above under the
caption "--Security," or pursuant to the definition below of "Unrestricted
Subsidiary," the newly-created Restricted Subsidiary will also be subject to the
requirements of the preceding sentence.
Designation of Restricted and Unrestricted Subsidiaries
The Company's Board of Directors may designate any Restricted
Subsidiary as an Unrestricted Subsidiary if that designation would not cause a
Default; provided that in no event will the businesses currently operated by
ROC, RGM, RGMC and RBH be transferred to or held by an Unrestricted Subsidiary,
and provided, further that following any conversion of an Unrestricted
Subsidiary that owns a Gaming Project to a Restricted Subsidiary pursuant to the
provisions described above under the caption "--Security," in no event shall
such Subsidiary or the Gaming Project operated by such Subsidiary be converted
115
into, transferred to or held by an Unrestricted Subsidiary. If a Restricted
Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair
market value of all outstanding Investments owned by the Company and its
Restricted Subsidiaries in the Subsidiary properly designated will be deemed to
be an Investment made as of the time of the designation and will reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption "--Restricted Payments" or Permitted
Investments, as determined by the Company. That designation will only be
permitted if the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
as a Restricted Subsidiary if the redesignation would not cause a Default.
Maintenance of Insurance
Until the notes have been paid in full, the Company and the Guarantors
will have and maintain in effect insurance with responsible carriers against
such risks and in such amounts as is customarily carried by similar businesses
with such deductibles, retentions, self insured amounts and coinsurance
provisions as are customarily carried by similar businesses of similar size,
including, without limitation, property and casualty.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
Payments for Consent
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture, the notes or the Collateral Documents unless such
consideration is offered to be paid and is paid to all Holders of the notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Pledge of Equity Interests in ROC
The Company will use its best efforts to obtain all required approvals
necessary for the trustee to be granted a first priority security interest in
the outstanding Equity Interests of ROC or any other entity that owns the
Riviera Las Vegas Hotel. Upon receipt of such approvals, the Company will grant
to the trustee such interest for the benefit of the Holders of the notes.
Additional Collateral; Acquisition of Assets or Property
Concurrently with the acquisition by the Company or any Restricted
Subsidiary of any assets or property with a fair market value (as determined by
the Board of Directors of the Company) in excess of $2.0 million individually or
116
$10.0 million in the aggregate, to the extent not prohibited by Gaming
Authorities or applicable Gaming Laws, the Company shall, or shall cause the
applicable Restricted Subsidiary to:
(1) in the case of personal property, execute and deliver
to the trustee such Uniform Commercial Code financing
statements or take such other actions as shall be
necessary or (in the opinion of the trustee)
desirable to perfect and protect the trustee's
security interest in such assets or property;
(2) in the case of real property, execute and deliver to
the trustee:
(a) a deed of trust or a leasehold deed of
trust, as appropriate (with such
modifications as are necessary to comply
with applicable law) (under which such
Restricted Subsidiary shall grant a security
interest to the trustee in such real
property and any related fixtures); and
(b) title and extended coverage insurance
covering such real property in an amount at
least equal to the purchase price of such
real property; and
(3) promptly deliver to the trustee such opinions of
counsel, if any, as the trustee may reasonably
require with respect to the foregoing (including
opinions as to enforceability and perfection of
security interests).
Further Assurances
The Company will, and will cause each of its Restricted Subsidiaries
to, execute and deliver such additional instruments, certificates or documents,
and take all such actions as may be reasonably required from time to time in
order to:
(1) carry out more effectively the purposes of the
Collateral Documents;
(2) create, grant, perfect and maintain the validity,
effectiveness and priority of any of the Collateral
Documents and the Liens created, or intended to be
created, by the Collateral Documents; and
(3) ensure the protection and enforcement of any of the
rights granted or intended to be granted to the
trustee under any other instrument executed in
connection therewith.
Upon the exercise by the trustee or any Holder of any power, right,
privilege or remedy under the indenture or any of the Collateral Documents which
requires any consent, approval, recording, qualification or authorization of any
governmental authority (including any Gaming Authority), the Company will, and
will cause each of its Restricted Subsidiaries to, execute and deliver all
applications, certifications, instruments and other documents and papers that
117
may be required from the Company or any of its Restricted Subsidiaries for such
governmental consent, approval, recording, qualification or authorization.
Conversion of Capital Leases
The Company will use its reasonable efforts to convert the Capital
Lease Obligations under the FF&E Agreements into leases that would be classified
as operating leases in accordance with GAAP within 180 days of the date of the
indenture.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, the Company will furnish to the Holders of notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report on the annual financial
statements by the Company's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such
reports.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, following the consummation of this exchange offer, whether
or not required by the Commission, the Company will file a copy of all of the
information and reports referred to in clauses (1) and (2) above with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company and the Subsidiary
Guarantors have agreed that, for so long as any notes remain outstanding, they
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
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Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of
interest on, or Liquidated Damages with respect to,
the notes;
(2) default in payment when due of the principal of, or
premium, if any, on the notes;
(3) failure by the Company or any of its Subsidiaries to
comply with the provisions described under the
captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the
Option of Holders--Asset Sales," "--Certain
Covenants--Restricted Payments," " --Certain
Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" or "--Certain Covenants--Merger,
Consolidation or Sale of Assets;"
(4) failure by the Company or any of its Restricted
Subsidiaries for 60 days after notice to comply with
any of the other agreements in the indenture or the
Collateral Documents;
(5) default under any mortgage, indenture or instrument
under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee exists on or
after the date of the indenture, if that default:
(a) is caused by a failure to pay principal of,
or interest or premium, if any, on such
Indebtedness prior to the expiration of the
grace period provided in such Indebtedness
on the date of such default (a "Payment
Default"); or
(b) results in the acceleration of such
Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of
any other such Indebtedness under which there has
been a Payment Default or the maturity of which has
been so accelerated, aggregates $5.0 million or more;
(6) failure by the Company or any of its Subsidiaries to
pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or
stayed for a period of 60 days; and
119
(7) any representation or warranty made by the Company or
any of its Restricted Subsidiaries in any Collateral
Document or that is contained in any certificate,
document or financial or other statement furnished by
any of them at any time under or in connection with
any such Collateral Document shall prove to have been
inaccurate in any material respect on or as of the
date made or deemed made;
(8) any of the Collateral Documents shall cease, for any
reason (other than pursuant to the terms thereof), to
be in full force and effect, or any party shall so
assert, or any security interest created or purported
to be created, by any of the Collateral Documents
shall cease to be enforceable and of the same effect
and priority purported to be created thereby;
(9) except as permitted by the indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to
be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations
under its Subsidiary Guarantee;
(10) certain events of bankruptcy or insolvency described
in the indenture with respect to the Company or any
of its Restricted Subsidiaries; and
(11) the revocation or suspension of any Gaming License of
the Company or any of its Restricted Subsidiaries,
resulting in the cessation of operation of any of the
Company's or any of its Restricted Subsidiaries'
casino business for 90 days.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Restricted Subsidiary
that is a Significant Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding notes
will become due and payable immediately without further action or notice.
Subject to the terms of the Intercreditor Agreement, if any other Event of
Default occurs and is continuing, the trustee or the Holders of at least 25% in
principal amount of the then outstanding notes may declare all the notes to be
due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except
as provided in the indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
Holders of the notes notice of any continuing Default or Event of Default if it
determines that withholding notice is in their interest, except a Default or
Event of Default relating to the payment of principal or interest or Liquidated
Damages.
The Holders of a majority in aggregate principal amount of the notes
then outstanding by notice to the trustee may on behalf of the Holders of all of
the notes waive any existing Default or Event of Default and its consequences
under the indenture except a continuing Default or Event of Default in the
payment of interest or Liquidated Damages on, or the principal of, the notes.
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In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the notes pursuant to the optional
redemption provisions of the indenture, an equivalent premium will also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the notes. If an Event of Default occurs prior to June 15, 2006,
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the notes prior to June 15, 2006, then the premium specified in
the indenture will also become immediately due and payable to the extent
permitted by law upon the acceleration of the notes.
The Company is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, will have any liability for any obligations
of the Company or the Guarantors under the notes, the indenture, the Subsidiary
Guarantees, the Collateral Documents or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding notes and all
obligations of the Guarantors discharged with respect to their Subsidiary
Guarantees ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive
payments in respect of the principal of, or interest
or premium and Liquidated Damages, if any, on such
notes when such payments are due from the trust
referred to below;
(2) the Company's obligations with respect to the notes
concerning issuing temporary notes, registration of
notes, mutilated, destroyed, lost or stolen notes and
the maintenance of an office or agency for payment
and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of
the trustee, and the Company's and the Guarantor's
obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
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In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company and the Guarantors released with respect to
certain covenants that are described in the indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under the caption
"--Events of Default and Remedies" will no longer constitute an Event of Default
with respect to the notes. In addition, the Liens securing the Collateral will
be released upon Legal Defeasance or Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the
trustee, in trust, for the benefit of the Holders of
the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in
U.S. dollars and non-callable Government Securities,
in amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public
accountants, to pay the principal of, or interest and
premium and Liquidated Damages, if any, on the
outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and
the Company must specify whether the notes are being
defeased to maturity or to a particular redemption
date;
(2) in the case of Legal Defeasance, the Company has
delivered to the trustee an opinion of counsel
reasonably acceptable to the trustee confirming that
(a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling
or (b) since the date of the indenture, there has
been a change in the applicable federal income tax
law, in either case to the effect that, and based
thereon such opinion of counsel will confirm that,
the Holders of the outstanding notes will not
recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same
amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, the Company has
delivered to the trustee an opinion of counsel
reasonably acceptable to the trustee confirming that
the Holders of the outstanding notes will not
recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same
amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance
had not occurred;
(4) no Default or Event of Default has occurred and is
continuing on the date of such deposit (other than a
Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit);
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(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a
default under any material agreement or instrument
(other than the indenture) to which the Company or
any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
(6) the Company must deliver to the trustee an officer's
certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders
of notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and
(7) the Company must deliver to the trustee an officer's
certificate and an opinion of counsel, each stating
that all conditions precedent relating to the Legal
Defeasance or the Covenant Defeasance have been
complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
indenture, the notes, any Subsidiary Guarantees or the Collateral Documents may
be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes), and any existing default or compliance with any
provision of the indenture or the notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding notes
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders
must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity
of any note or alter the provisions with respect to
the redemption of the notes (other than provisions
relating to the covenants described above under the
caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of
interest on any note;
(4) waive a Default or Event of Default in the payment of
principal of, or interest or premium, or Liquidated
Damages, if any, on the notes (except a rescission of
acceleration of the notes by the Holders of at least
a majority in aggregate principal amount of the notes
and a waiver of the payment default that resulted
from such acceleration);
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(5) make any note payable in money other than that stated
in the notes;
(6) make any change in the provisions of the indenture
relating to waivers of past Defaults or the rights of
Holders of notes to receive payments of principal of,
or interest or premium or Liquidated Damages, if any,
on the notes;
(7) waive a redemption payment with respect to any note
(other than a payment required by one of the
covenants described above under the caption
"--Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations
under its Subsidiary Guarantee or the indenture,
except in accordance with the terms of the indenture;
or
(9) make any change in the preceding amendment and waiver
provisions.
Notwithstanding the preceding, without the consent of any Holder of
notes, the Company, the Guarantors and the trustee may amend or supplement the
indenture, the notes, any Subsidiary Guarantees or the Collateral Documents:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or
in place of certificated notes;
(3) to provide for the assumption of the Company's
obligations to Holders of notes in the case of a
merger or consolidation or sale of all or
substantially all of the Company's assets;
(4) to make any change that would provide any additional
rights or benefits to the Holders of notes or that
does not adversely affect the legal rights under the
indenture of any such Holder; or
(5) to comply with requirements of the Commission in
order to effect or maintain the qualification of the
indenture under the Trust Indenture Act; or
(6) to enter into additional or supplemental Collateral
Documents.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
as to all notes issued thereunder, when:
(1) either:
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(a) all notes that have been authenticated,
except lost, stolen or destroyed notes that
have been replaced or paid and notes for
whose payment money has been deposited in
trust and thereafter repaid to the Company,
have been delivered to the trustee for
cancellation; or
(b) all notes that have not been delivered to
the trustee for cancellation have become due
and payable by reason of the mailing of a
notice of redemption or otherwise or will
become due and payable within one year and
the Company or any Guarantor has irrevocably
deposited or caused to be deposited with the
trustee as trust funds in trust solely for
the benefit of the Holders, cash in U.S.
dollars, non-callable Government Securities,
or a combination of cash in U.S. dollars and
non-callable Government Securities, in
amounts as will be sufficient without
consideration of any reinvestment of
interest, to pay and discharge the entire
indebtedness on the notes not delivered to
the trustee for cancellation for principal,
premium and Liquidated Damages, if any, and
accrued interest to the date of maturity or
redemption;
(2) no Default or Event of Default has occurred and is
continuing on the date of the deposit or will occur
as a result of the deposit and the deposit will not
result in a breach or violation of, or constitute a
default under, any other instrument to which the
Company or any Guarantor is a party or by which the
Company or any Guarantor is bound;
(3) the Company or any Guarantor has paid or caused to be
paid all sums payable by it under the indenture; and
(4) the Company has delivered irrevocable instructions to
the trustee under the indenture to apply the
deposited money toward the payment of the notes at
maturity or the redemption date, as the case may be.
In addition, the Company must deliver an officer's certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of the Company or any Guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
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certain exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of notes, unless such Holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
Registration Rights; Liquidated Damages
The following is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of registration rights agreement
in its entirety because it, and not this description, defines your registration
rights as Holders of these notes. See "Available Information."
The Company, the Guarantors and the Initial Purchaser entered
into the registration rights agreement on the date of the closing of the
offering of the existing notes (June 26, 2002). Pursuant to the registration
rights agreement, the Company and the Guarantors have agreed to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the new notes. Upon the effectiveness
of the Exchange Offer Registration Statement, the Company and the Guarantors
will offer to the Holders of Transfer Restricted Securities pursuant to the
Exchange Offer who are able to make certain representations the opportunity to
exchange their Transfer Restricted Securities for exchange notes.
If:
(1) the Company and the Guarantors are not
(a) required to file the Exchange Offer
Registration Statement; or
(b) permitted to consummate the Exchange
Offer because the Exchange Offer is
not permitted by applicable law or
Commission policy; or
(2) any Holder of Transfer Restricted Securities
notifies the Company prior to the 20th day
following consummation of the Exchange Offer
that it:
(a) is prohibited by law or Commission
policy from participating in the
Exchange Offer; or
(b) may not resell the exchange notes
acquired by it in the Exchange Offer
to the public without delivering a
prospectus and the prospectus
contained in the Exchange Offer
Registration Statement is not
appropriate or available for such
resales; or
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(c) is a broker-dealer and owns notes
acquired directly from the Company
or an affiliate of the Company,
the Company and the Guarantors will file with the Commission a Shelf
Registration Statement to cover resales of the notes by the Holders of the notes
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement.
The Company and the Guarantors will use their reasonable best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission.
For purposes of the preceding, "Transfer Restricted
Securities" means each existing note until:
(1) the date on which such note has been
exchanged by a Person other than a broker-
dealer for a new note in the Exchange Offer;
(2) following the exchange by a broker-dealer in
the Exchange Offer of an existing note for a
new note, the date on which such new note is
sold to a purchaser who receives from such
broker-dealer on or prior to the date of
such sale a copy of the prospectus contained
in the Exchange Offer Registration
Statement;
(3) the date on which such existing note has
been effectively registered under the
Securities Act and disposed of in accordance
with the Shelf Registration Statement; or
(4) the date on which such existing note is
distributed to the public pursuant to Rule
144 under the Securities Act.
The registration rights agreement provides that:
(1) the Company and the Guarantors will file an
Exchange Offer Registration Statement with
the Commission on or prior to 45 days after
the closing of the offering of the existing
notes;
(2) the Company and the Guarantors will use
their best efforts to have the Exchange
Offer Registration Statement declared
effective by the Commission on or prior to
120 days after the closing of the offering
of the existing notes;
(3) unless the Exchange Offer would not be
permitted by applicable law or Commission
policy, the Company and the Guarantors will
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(a) commence the Exchange Offer; and
(b) use their best efforts to issue on
or prior to 30 business days, or
longer, if required by the federal
securities laws, after the date on
which the Exchange Offer
Registration Statement was declared
effective by the Commission, new
notes in exchange for all existing
notes tendered prior thereto in the
Exchange Offer; and
(4) if obligated to file the Shelf Registration
Statement, the Company and the Guarantors
will use their best efforts to file the
Shelf Registration Statement with the
Commission on or prior to 30 days after such
filing obligation arises and to cause the
Shelf Registration to be declared effective
by the Commission on or prior to 90 days
after such obligation arises.
If:
(1) the Company and the Guarantors fail to file
any of the registration statements required
by the registration rights agreement on or
before the date specified for such filing;
or
(2) any such registration statements are not
declared effective by the Commission on or
prior to the date specified for such
effectiveness (the "Effectiveness Target
Date"); or
(3) the Company and the Guarantors fail to
consummate the Exchange Offer within 30
business days of the Effectiveness Target
Date with respect to the Exchange Offer
Registration Statement; or
(4) the Shelf Registration Statement or the
Exchange Offer Registration Statement is
declared effective but thereafter ceases to
be effective or usable in connection with
resales of Transfer Restricted Securities
during the periods specified in the
registration rights agreement (each such
event referred to in clauses (1) through (4)
above, a "Registration Default"),
then the Company and the Guarantors will pay Liquidated Damages to each Holder
of notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default in an amount equal to $.05 per week
per $1,000 principal amount of notes held by such Holder.
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The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount of notes with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages for all Registration Defaults of
$.50 per week per $1,000 principal amount of notes.
All accrued Liquidated Damages will be paid by the Company and
the Guarantors on each Damages Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to Holders
of Certificated Notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified.
Following the cure of all Registration Defaults, the accrual
of Liquidated Damages will cease.
Holders of notes will be required to make certain
representations to the Company (as described in the registration rights
agreement) in order to participate in the Exchange Offer and will be required to
deliver certain information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the registration rights agreement in order to have
their notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above. By acquiring Transfer
Restricted Securities, a Holder will be deemed to have agreed to indemnify the
Company and the Guarantors against certain losses arising out of information
furnished by such Holder in writing for inclusion in any Shelf Registration
Statement. Holders of notes will also be required to suspend their use of the
prospectus included in the Shelf Registration Statement under certain
circumstances upon receipt of written notice to that effect from the Company.
Certain Definitions
Set forth below are certain defined terms used in the
indenture. Please refer to the indenture for a full disclosure of all such
terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at
the time such other Person is merged with or into or became a Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in connection
with, or in contemplation of, such other Person merging with or into, or
becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering
any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, means the possession, directly or
129
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other
disposition of any assets or rights;
provided that the sale, conveyance or other
disposition of all or substantially all of
the assets of the Company and its
Subsidiaries taken as a whole will be
governed by the provisions of the indenture
described above under the caption
"--Repurchase at the Option of
Holders--Change of Control" and/or the
provisions described above under the caption
" --Certain Covenants--Merger, Consolidation
or Sale of Assets" and not by the provisions
of the Asset Sale covenant;
(2) the issuance of Equity Interests in any of
the Company's Restricted Subsidiaries or the
sale of Equity Interests in any of its
Subsidiaries; and
(3) Event of Loss.
Notwithstanding the preceding, none of the following items
will be deemed an Asset Sale:
(1) any single transaction or series of related
transactions that involves assets having a
fair market value of less than $1.0 million;
(2) a transfer of assets between or among the
Company and its Wholly Owned Restricted
Subsidiaries,
(3) an issuance of Equity Interests by a
Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary;
(4) the sale or lease of equipment, inventory or
accounts receivable in the ordinary course
of business;
(5) the sale or other disposition of cash or
Cash Equivalents;
(6) the grant in the ordinary course of business
of any non-exclusive license of intellectual
property; and
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(7) a Restricted Payment or Permitted Investment
that is permitted by the covenant described
above under the caption "--Certain
Covenants--Restricted Payments."
"Beneficial Owner" has the meaning assigned to such term in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as that term is used in Section
13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" have a
corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of
directors of the corporation;
(2) with respect to a partnership, the Board of
Directors of the general partner of the
partnership; and
(3) with respect to any other Person, the board
or committee of such Person serving a
similar function.
"Capital Lease Obligation" means, at the time any
determination is to be made, the amount of the liability in respect of a capital
lease that would at that time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate
stock;
(2) in the case of an association or business
entity, any and all shares, interests,
participations, rights or other equivalents
(however designated) of corporate stock;
(3) in the case of a partnership or limited
liability company, partnership or membership
interests (whether general or limited); and
(4) any other interest or participation that
confers on a Person the right to receive a
share of the profits and losses of, or
distributions of assets of, the issuing
Person.
"Cash Equivalents" means:
(1) United States dollars;
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(2) securities issued or directly and fully
guaranteed or insured by the United States
government or any agency or instrumentality
of the United States government (provided
that the full faith and credit of the United
States is pledged in support of those
securities) having maturities of not more
than six months from the date of
acquisition;
(3) certificates of deposit and eurodollar time
deposits with maturities of six months or
less from the date of acquisition, bankers'
acceptances with maturities not exceeding
six months and overnight bank deposits, in
each case, with any domestic commercial bank
having capital and surplus in excess of
$500.0 million and a Thomson Bank Watch
Rating of "B" or better;
(4) repurchase obligations with a term of not
more than seven days for underlying
securities of the types described in clauses
(2) and (3) above entered into with any
financial institution meeting the
qualifications specified in clause (3)
above;
(5) commercial paper having the highest rating
obtainable from Moody's Investors Service,
Inc. or Standard & Poor's Rating Services
and in each case maturing within six months
after the date of acquisition; and
(6) money market funds at least 95% of the
assets of which constitute Cash Equivalents
of the kinds described in clauses (1)
through (5) of this definition.
"Change of Control" means the occurrence of any of the
following:
(1) the direct or indirect sale, transfer,
conveyance or other disposition (other than
by way of merger or consolidation), in one
or a series of related transactions, of all
or substantially all of the properties or
assets of the Company and its Restricted
Subsidiaries taken as a whole to any
"person" (as that term is used in Section
13(d)(3) of the Exchange Act) other than a
Controlling Person or a Related Party of a
Controlling Person;
(2) the adoption of a plan relating to the
liquidation or dissolution of the Company;
(3) the consummation of any transaction
(including, without limitation, any merger
or consolidation) the result of which is
that any "person" (as defined above), other
than any Controlling Person and its Related
Parties, becomes the Beneficial Owner,
directly or indirectly, of more than 35% of
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the Voting Stock of the Company, measured by
voting power rather than number of shares
and a greater percentage of the outstanding
Voting Stock of the Company than the
percentage of such Voting Stock beneficially
owned by the Controlling Persons and its
Related Parties holding the largest such
percentage;
(4) the first day on which a majority of the
members of the Board of Directors of the
Company are not Continuing Directors; or
(5) the Company consolidates with, or merges
with or into, any Person, or any Person
consolidates with, or merges with or into,
the Company, in any such event pursuant to a
transaction in which any of the outstanding
Voting Stock of the Company or such other
Person is converted into or exchanged for
cash, securities or other property, other
than any such transaction where the Voting
Stock of the Company outstanding immediately
prior to such transaction is converted into
or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or
transferee Person constituting a majority of
the outstanding shares of such Voting Stock
of such surviving or transferee Person
(immediately after giving effect to such
issuance).
"Collateral" has the meaning assigned to it in the Collateral
Documents.
"Collateral Documents" means, collectively, all agreements,
deeds of trust instruments, documents, pledges or filings executed in connection
with granting, or that otherwise evidence, the Lien of the trustee in the
Collateral.
"Consolidated Cash Flow" means, with respect to any specified
Person for any period, the Consolidated Net Income of such Person for such
period plus:
(1) an amount equal to any extraordinary loss
plus any net loss realized by such Person or
any of its Restricted Subsidiaries in
connection with an Asset Sale, to the extent
such losses were deducted in computing such
Consolidated Net Income; plus
(2) provision for taxes based on income or
profits of such Person and its Restricted
Subsidiaries for such period, to the extent
that such provision for taxes was deducted
in computing such Consolidated Net Income;
plus
(3) consolidated interest expense of such Person
and its Restricted Subsidiaries for such
period, whether paid or accrued and whether
or not capitalized (including, without
limitation, amortization of debt issuance
costs and original issue discount, non-cash
interest payments, the interest component of
133
any deferred payment obligations, the
interest component of all payments
associated with Capital Lease Obligations,
commissions, discounts and other fees and
charges incurred in respect of letter of
credit or bankers' acceptance financings,
and net of the effect of all payments made
or received pursuant to Hedging
Obligations), to the extent that any such
expense was deducted in computing such
Consolidated Net Income; plus
(4) depreciation, amortization (including
amortization of goodwill and other
intangibles but excluding amortization of
prepaid cash expenses that were paid in a
prior period) and other non-cash expenses
(excluding any such non-cash expense to the
extent that it represents an accrual of or
reserve for cash expenses in any future
period or amortization of a prepaid cash
expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries
for such period to the extent that such
depreciation, amortization and other
non-cash expenses were deducted in computing
such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated
Net Income for such period, other than the
accrual of revenue in the ordinary course of
business,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based
on the income or profits of, and the depreciation and amortization and other
non-cash expenses of, a Subsidiary of the Company will be added to Consolidated
Net Income to compute Consolidated Cash Flow of the Company only to the extent
that a corresponding amount would be permitted at the date of determination to
be dividended to the Company by such Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified
Person for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that:
(1) the Net Income (but not loss) of any Person
that is not a Subsidiary or that is
accounted for by the equity method of
accounting will be included only to the
extent of the amount of dividends or
distributions paid in cash to the specified
Person or a Wholly Owned Subsidiary of the
Person;
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(2) the Net Income of any Restricted Subsidiary
will be excluded to the extent that the
declaration or payment of dividends or
similar distributions by that Subsidiary of
that Net Income is not at the date of
determination permitted without any prior
governmental approval (that has not been
obtained) or, directly or indirectly, by
operation of the terms of its charter or any
agreement, instrument, judgment, decree,
order, statute, rule or governmental
regulation applicable to that Subsidiary or
its stockholders;
(3) the Net Income of any Person acquired in a
pooling of interests transaction for any
period prior to the date of such acquisition
will be excluded;
(4) the cumulative effect of a change in
accounting principles will be excluded; and
(5) the Net Income (but not loss) of any
Unrestricted Subsidiary will be excluded,
whether or not distributed to the specified
Person or one of its Restricted
Subsidiaries.
"Consolidated Net Worth" means, with respect to any specified
Person as of any date, the sum of:
(1) the consolidated equity of the common
stockholders of such Person and its
consolidated Subsidiaries as of such date;
plus
(2) the respective amounts reported on such
Person's balance sheet as of such date with
respect to any series of preferred stock
(other than Disqualified Stock) that by its
terms is not entitled to the payment of
dividends unless such dividends may be
declared and paid only out of net earnings
in respect of the year of such declaration
and payment, but only to the extent of any
cash received by such Person upon issuance
of such preferred stock.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on
the date of the indenture; or
(2) was nominated for election or elected to
such Board of Directors with the approval of
a majority of the Continuing Directors who
were members of such Board at the time of
such nomination or election.
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"Controlling Person" means anyone who holds more than 10% of
the common stock of the Company as of April 30, 2002.
"Deed of Trust" means the Deed of Trust and Collateral
Assignment of Rents, dated as of the date of the indenture, by the Company in
favor of the collateral agent named in the indenture, as amended and
supplemented from time to time.
"Default" means any event that is, or with the passage of time
or the giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible, or for
which it is exchangeable, in each case at the option of the holder of the
Capital Stock), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder of the Capital Stock, in whole or in part, on or prior
to the date that is 91 days after the date on which the notes mature.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders of the Capital Stock have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale will not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means, with respect to any property or asset
(tangible or intangible, real or personal) constituting Collateral owned by the
Company or any Restricted Subsidiary, any of the following: (a) any loss,
destruction or damage of such property or asset; (b) any actual condemnation,
seizure or taking by exercise of the power of eminent domain or otherwise of
such property or asset, or confiscation of such property or asset or the
requisition of the use of such property or asset; or (c) any settlement in lieu
of clause (b) above, in the case of clause (a), (b) or (c), whether in a single
event or a series of related events, which results in Net Proceeds in excess of
$500,000.
"FF&E Agreements" means:
(1) the Master Lease Agreement, dated December
13, 1999, by and between PDS Financial
Corporation--Colorado and Riviera Black
Hawk, Inc.;
(2) the Master Lease Agreement, dated January
14, 1999, between Matrix Funding Corporation
and the Company;
136
(3) the Master Security Agreement, dated as of
July 13, 1999, between General Electric
Capital Corporation and the Company; and
(4) IBM Credit Corporation Conditional Sales
Contract, dated September 1, 1998, between
IBM and Riviera Operating Corporation.
"Fixed Charges" means, with respect to any specified Person
for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such
Person and its Restricted Subsidiaries for
such period, whether paid or accrued,
including, without limitation, amortization
of debt issuance costs and original issue
discount, non-cash interest payments, the
interest component of any deferred payment
obligations, the interest component of all
payments associated with Capital Lease
Obligations, commissions, discounts and
other fees and charges incurred in respect
of letter of credit or bankers' acceptance
financings, and net of the effect of all
payments made or received pursuant to
Hedging Obligations; plus
(2) the consolidated interest of such Person and
its Restricted Subsidiaries that was
capitalized during such period; plus
(3) any interest expense on Indebtedness of
another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such
Person or one of its Restricted
Subsidiaries, whether or not such Guarantee
or Lien is called upon; plus
(4) the product of (a) all dividends, whether
paid or accrued and whether or not in cash,
on any series of preferred stock of such
Person or any of its Restricted
Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests
of the Company (other than Disqualified
Stock) or to the Company or a Subsidiary of
the Company, times (b) a fraction, the
numerator of which is one and the
denominator of which is one minus the then
current combined federal, state and local
statutory tax rate of such Person, expressed
as a decimal, in each case, on a
consolidated basis and in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means with respect to any
specified Person for any period, the ratio of the Consolidated Cash Flow of such
Person and its Restricted Subsidiaries for such period to the Fixed Charges of
such Person and its Restricted Subsidiaries for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary
working capital borrowings) or issues, repurchases or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
137
Ratio is being calculated and on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, repayment,
repurchase or redemption of Indebtedness, or such issuance, repurchase or
redemption of preferred stock, and the use of the proceeds therefrom as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of calculating the Fixed Charge
Coverage Ratio:
(1) acquisitions that have been made by the
specified Person or any of its Restricted
Subsidiaries, including through mergers or
consolidations and including any related
financing transactions, during the
four-quarter reference period or subsequent
to such reference period and on or prior to
the Calculation Date will be given pro forma
effect as if they had occurred on the first
day of the four-quarter reference period and
Consolidated Cash Flow for such reference
period will be calculated on a pro forma
basis in accordance with Regulation S-X
under the Securities Act, but without giving
effect to clause (3) of the proviso set
forth in the definition of Consolidated Net
Income;
(2) the Consolidated Cash Flow attributable to
discontinued operations, as determined in
accordance with GAAP, and operations or
businesses disposed of prior to the
Calculation Date, will be excluded; and
(3) the Fixed Charges attributable to
discontinued operations, as determined in
accordance with GAAP, and operations or
businesses disposed of prior to the
Calculation Date, will be excluded, but only
to the extent that the obligations giving
rise to such Fixed Charges will not be
obligations of the specified Person or any
of its Restricted Subsidiaries following the
Calculation Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"Gaming Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States of America or foreign government, any state, province or any
city or other political subdivision, whether now or hereafter existing, or any
officer or official thereof, including without limitation, the Nevada Gaming
Commission, the Nevada Gaming Control Board, the Colorado Gaming Commission and
138
any other agency with authority to regulate any gaming operation (or proposed
gaming operation) owned, managed or operated by the Company or any of its
Subsidiaries.
"Gaming Law" means the gaming laws of any jurisdiction or
jurisdictions to which the Company, any of its Subsidiaries or any of the
Guarantors is, or may at any time after the date of the indenture, be subject.
"Gaming License" means every material license, franchise or
other authorization required to own, lease, operate or otherwise conduct gaming
activities of the Company or any of its Subsidiaries, including without
limitation all such licenses granted under the Nevada Gaming Act, the
regulations promulgated pursuant thereto, and other applicable federal, state,
foreign or local laws.
"Gaming Project" means the project in Jefferson County,
Missouri substantially as described in this Prospectus or another gaming project
with final plans showing at least 1,000 slot machines on the date of opening.
"Guarantee" means a guarantee other than by endorsement of
negotiable instruments for collection in the ordinary course of business, direct
or indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) ROC, RGM, RGMC and RBH; and
(2) any other Subsidiary that executes a
Subsidiary Guarantee in accordance with the
provisions of the indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified
Person, the obligations of such Person under:
(1) interest rate swap agreements, interest rate
cap agreements and interest rate collar
agreements; and
(2) other agreements or arrangements designed to
protect such Person against fluctuations in
interest rates.
"Indebtedness" means, with respect to any specified Person,
any indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
139
(2) evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or
reimbursement agreements in respect
thereof);
(3) in respect of bankers' acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid
of the purchase price of any property,
except any such balance that constitutes an
accrued expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will
be:
(1) the accreted value of the Indebtedness, in
the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount of the Indebtedness,
together with any interest on the
Indebtedness that is more than 30 days past
due, in the case of any other Indebtedness.
"Intercompany Notes" means the intercompany notes issued by
Subsidiaries of the Company in favor of the Company or a Guarantor to evidence
advances by the Company or such Guarantor, in each case, in the form attached as
Annex B to the indenture.
"Intercreditor Agreement" means the Intercreditor Agreement in
the form attached to the indenture.
"Investments" means, with respect to any Person, all direct or
indirect investments by such Person in other Persons (including Affiliates) in
the forms of loans (including Guarantees or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company will be deemed to have made an Investment
140
on the date of any such sale or disposition equal to the fair market value of
the Company's Investments in such Subsidiary that were not sold or disposed of
in an amount determined as provided in the final paragraph of the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
The acquisition by the Company or any Subsidiary of the Company of a Person that
holds an Investment in a third Person will be deemed to be an Investment by the
Company or such Subsidiary in such third Person in an amount equal to the fair
market value of the Investments held by the acquired Person in such third Person
in an amount determined as provided in the final paragraph of the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.
"Net Income" means, with respect to any specified Person, the
net income (loss) of such Person, determined in accordance with GAAP and before
any reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any
related provision for taxes on such gain
(but not loss), realized in connection with:
(a) any Asset Sale; or (b) the disposition
of any securities by such Person or any of
its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such
Person or any of its Restricted
Subsidiaries; and
(2) any extraordinary gain (but not loss),
together with any related provision for
taxes on such extraordinary gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result of the Asset Sale, taxes paid or
payable as a result of the Asset Sale, in each case, after taking into account
any available tax credits or deductions and any tax sharing arrangements, and
any reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"1999 Indenture" means the indenture, dated June 3, 1999,
between RBH and IBJ Whitehall Bank & Trust Company for the 13% Notes, as amended
to substitute The Bank of New York as trustee.
141
"1997 Indenture" means the indenture, dated August 13, 1997,
between the Company and Norwest Bank Minnesota, N.A. for the 10% Notes, as
amended to substitute Bank One as trustee.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of
its Restricted Subsidiaries (a) provides
credit support of any kind (including any
undertaking, agreement or instrument that
would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor
or otherwise, or (c) constitutes the lender;
(2) no default with respect to which (including
any rights that the holders of the
Indebtedness may have to take enforcement
action against an Unrestricted Subsidiary)
would permit upon notice, lapse of time or
both any holder of any other Indebtedness of
the Company or any of its Restricted
Subsidiaries to declare a default on such
other Indebtedness or cause the payment of
the Indebtedness to be accelerated or
payable prior to its stated maturity; and
(3) as to which the lenders have been notified
in writing that they will not have any
recourse to the stock or assets of the
Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the lines of business engaged in by
the Company and its Subsidiaries on the date of the indenture, and all business
related, complementary, or incidental thereto, including but not limited to
gaming, lodging, entertainment and food and beverage service, retail store
leasing and concessions, licensing products, services and trade names, and
consulting with and managing third parties who are engaged in the foregoing and
similar lines of businesses.
"Permitted Investments" means:
(1) any Investment in the Company or in a Wholly
Owned Restricted Subsidiary of the Company
that is a Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any
Subsidiary of the Company in a Person, if as
a result of such Investment:
142
(a) such Person becomes a Restricted
Subsidiary of the Company and a
Guarantor; or
(b) such Person is merged, consolidated
or amalgamated with or into, or
transfers or conveys substantially
all of its assets to, or is
liquidated into, the Company or a
Restricted Subsidiary of the Company
that is a Guarantor;
(4) any investment made as a result of the
receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in
compliance with the covenant described above
under the caption "--Repurchase at the
Option of Holders--Asset Sales";
(5) any acquisition of assets solely in exchange
for the issuance of Equity Interests (other
than Disqualified Stock) of the Company;
(6) any Investments received in compromise of
obligations of such persons incurred in the
ordinary course of trade creditors or
customers that were incurred in the ordinary
course of business, including pursuant to
any plan of reorganization or similar
arrangement upon the bankruptcy or
insolvency of any trade creditor or
customer;
(7) Hedging Obligations;
(8) Investments in Unrestricted Subsidiaries
solely for the purpose of financing or
effecting the acquisition, construction and
development of a Gaming Project; provided,
however, that the aggregate book value of
such Investments made by the Company after
the date of the indenture (measured in each
case as of the time of Investment) does not
exceed $30.0 million; provided, further,
that such Unrestricted Subsidiary does not
conduct any material business operations
other than those related to the acquisition,
construction and development of such Gaming
Project;
(9) any contribution of all or any portion of
the Six Acre Tracts to an Unrestricted
Subsidiary of the Company; and
(10) contribution pursuant to any keep-well or
completion guarantee for a Gaming Project
provided that the indebtedness incurred
pursuant to such keep-well or contribution
agreement could be incurred under the terms
of the covenant "Incurrence of Indebtedness
and Issuance of Preferred Stock" in this
indenture.
143
"Permitted Liens" means:
(1) Liens on specific assets of the Company and
any Guarantor securing Indebtedness and
other Obligations under Revolving Credit
Facilities that were permitted by the terms
of the indenture to be incurred;
(2) Liens on the assets of the Company and the
Guarantees created by the indenture and the
Collateral Documents securing the notes and
Guarantees;
(3) Liens in favor of the Company or the
Guarantors;
(4) Liens on property of a Person existing at
the time such Person is merged with or into
or consolidated with the Company or any
Subsidiary of the Company; provided that
such Liens were in existence prior to the
contemplation of such merger or
consolidation and do not extend to any
assets other than those of the Person merged
into or consolidated with the Company or the
Subsidiary;
(5) Liens on property existing at the time of
acquisition of the property by the Company
or any Subsidiary of the Company, provided
that such Liens were in existence prior to
the contemplation of such acquisition;
(6) Liens to secure the performance of statutory
obligations, surety or appeal bonds,
performance bonds or other obligations of a
like nature incurred in the ordinary course
of business;
(7) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by
clause (3) of the second paragraph of the
covenant entitled "--Certain
Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only
the assets acquired with such Indebtedness;
(8) Liens existing on the date of the indenture;
(9) Liens for taxes, assessments or governmental
charges or claims that are not yet
delinquent or that are being contested in
good faith by appropriate proceedings
promptly instituted and diligently
concluded, provided that any reserve or
other appropriate provision as is required
in conformity with GAAP has been made
therefor;
144
(10) Liens incurred in the ordinary course of
business of the Company or any Subsidiary of
the Company with respect to obligations that
do not exceed $2.5 million at any one time
outstanding;
(11) Liens on assets of Unrestricted Subsidiaries
that secure Non-Recourse Debt of
Unrestricted Subsidiaries;
(12) leases, subleases, easements, licenses and
rights of way not in existence on the date
of the indenture and not interfering in any
material respect with the ordinary conduct
of the business of the Company or any of its
Subsidiaries and not impairing in any
material respect the value of the
Collateral; and
(13) Liens on any leasehold interest in the
Collateral granted by the Company as
permitted by this indenture, which Liens do
not encumber the fee interest in the
Collateral, are subordinate to the Liens
created by the Collateral Documents and do
not otherwise impair the value of the
Collateral.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal
amount (or accreted value, if applicable) of
the Indebtedness extended, refinanced,
renewed, replaced, defeased or refunded
(plus all accrued interest on the
Indebtedness and the amount of all expenses
and premiums incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has
a final maturity date later than the final
maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment
to the notes, such Permitted Refinancing
Indebtedness has a final maturity date later
than the final maturity date of, and is
subordinated in right of payment to, the
notes on terms at least as favorable to the
Holders of notes as those contained in the
documentation governing the Indebtedness
being extended, refinanced, renewed,
replaced, defeased or refunded; and
145
(4) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who
is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
limited liability company or government or other entity.
"Public Equity Offering" means a firmly underwritten public
offering of the Company's common stock that is registered under the Securities
Act.
"Related Party" means:
(1) any controlling stockholder, 80% (or more)
owned Subsidiary, or immediate family member (in the case of an individual) of
any Principal; or
(2) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of which consist of
any one or more Principals and/or such other Persons referred to in the
immediately preceding clause (1).
"RBH" means Riviera Black Hawk, Inc.
"RGM" means Riviera Gaming Management, Inc.
"RGMC" means Riviera Gaming Management of Colorado, Inc.
"ROC" means Riviera Operating Corporation.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means a debt facility or
commercial paper facility, in each case with banks or other institutional
lenders providing for revolving credit loans or letters of credit, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Six Acre Tracts" shall have the meaning specified in the Deed
of Trust.
146
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which the
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and will not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other
business entity of which more than 50% of
the total voting power of shares of Capital
Stock entitled (without regard to the
occurrence of any contingency) to vote in
the election of directors, managers or
trustees of the corporation, association or
other business entity is at the time owned
or controlled, directly or indirectly, by
that Person or one or more of the other
Subsidiaries of that Person (or a
combination thereof); and
(2) any partnership (a) the sole general partner
or the managing general partner of which is
such Person or a Subsidiary of such Person
or (b) the only general partners of which
are that Person or one or more Subsidiaries
of that Person (or any combination thereof).
"10% Notes" means the Company's 10% First Mortgage Notes due
2004.
"13% Notes" means the 13% First Mortgage Notes due 2005 With
Contingent Interest of RBH.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"Unrestricted Subsidiary" means any Subsidiary of the Company
(other than ROC, RGM, RGMC and RBH or any successor to any of them) that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse
Debt;
(2) is not party to any agreement, contract,
arrangement or understanding with the
Company or any Restricted Subsidiary of the
Company unless the terms of any such
agreement, contract, arrangement or
understanding are no less favorable to the
Company or such Restricted Subsidiary than
those that might be obtained at the time
from Persons who are not Affiliates of the
Company;
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(3) is a Person with respect to which neither
the Company nor any of its Restricted
Subsidiaries has any direct or indirect
obligation (a) to subscribe for additional
Equity Interests or (b) to maintain or
preserve such Person's financial condition
or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or
indirectly provided credit support for any
Indebtedness of the Company or any of its
Restricted Subsidiaries; and
(5) has at least one director on its Board of
Directors that is not a director or
executive officer of the Company or any of
its Restricted Subsidiaries and has at least
one executive officer that is not a director
or executive officer of the Company or any
of its Restricted Subsidiaries.
Any designation of a Subsidiary of the Company as an
Unrestricted Subsidiary will be evidenced to the trustee by filing with the
trustee a certified copy of the Board Resolution giving effect to such
designation and an officer's certificate certifying that such designation
complied with the preceding conditions and was permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the preceding
requirements as an Unrestricted Subsidiary, it will thereafter cease to be an
Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of
such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption "
--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," the Company will be in default of such covenant. The Board of Directors
of the Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation will be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
will only be permitted if (1) such Indebtedness is permitted under the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period;
(2) no Default or Event of Default would be in existence following such
designation; and (3) the provisions of the covenant entitled "--Additional
Subsidiary Guarantees" have been satisfied with respect to such Subsidiary.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by
multiplying (a) the amount of each then
remaining installment, sinking fund, serial
maturity or other required payments of
principal, including payment at final
maturity, in respect of the Indebtedness, by
(b) the number of years (calculated to the
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nearest one-twelfth) that will elapse
between such date and the making of such
payment; by
(2) the then outstanding principal amount of
such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person
means a Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) will at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
GOVERNMENT REGULATION AND LICENSING
Nevada
Nevada Gaming Authority
The ownership and operation of casino gaming facilities in
Nevada are subject to: (a) The Nevada Gaming Control Act and the regulations
promulgated thereunder (collectively, the "Nevada Act") and (b) various local
ordinances and regulations. Our gaming operations are subject to the licensing
and regulatory control of the Nevada Gaming Commission (the "Nevada
Commission"), the Nevada Gaming Control Board (the "Nevada Board") and the Clark
County Liquor and Gaming Licensing Board (the "Clark County Board"),
collectively referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada
Gaming Authorities are based upon declarations of public policy which are
concerned with, among other things: (a) the prevention of unsavory or unsuitable
persons from having a direct or indirect involvement with gaming at any time and
in any capacity; (b) the establishment and maintenance of responsible accounting
practices and procedures; (c) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (d) the prevention of cheating and
fraudulent practices; and (e) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on our gaming operations.
Riviera Operating Corporation is required to be licensed by
the Nevada Gaming Authorities. The gaming license held by Riviera Operating
Corporation requires the periodic payment of fees and taxes and is not
transferable. Riviera Operating Corporation is also licensed as a manufacturer
and distributor of gaming devices. Such licenses also require the periodic
payment of fees and are not transferable. We are registered by the Nevada
Commission as a publicly traded corporation (a "Registered Corporation") and
have been found suitable to own the stock of Riviera Operating Corporation.
Riviera Operating Corporation is a corporate licensee ("Corporate Licensee")
under the terms of the Nevada Act. As a Registered Corporation, we are required
periodically to submit detailed financial and operating reports to the Nevada
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Commission and to furnish any other information which the Nevada Commission may
require. No person may become a stockholder of, or receive any percentage of
profits from, a Corporate Licensee without first obtaining licenses and
approvals from the Nevada Gaming Authorities. We and Riviera Operating
Corporation have obtained from the Nevada Gaming Authorities, the various
registrations, approvals, permits, findings of suitability and licenses required
in order to engage in gaming activities and manufacturing and distribution
activities in Nevada.
All gaming devices that are manufactured, sold or distributed
for use or play in Nevada, or for distribution outside of Nevada, must be
manufactured by licensed manufacturers, distributed or sold by licensed
distributors and approved by the Nevada Commission. The approval process
includes rigorous testing by the Nevada Board, a field trial and a determination
as to whether the gaming device meets strict technical standards that are set
forth in the regulations of the Nevada Gaming Authorities. Associated equipment
must be administratively approved by the Chairman of the Nevada Board before it
is distributed for use in Nevada.
The Nevada Gaming Authorities may investigate any individual
who has a material relationship to, or material involvement with, us or Riviera
Operating Corporation in order to determine whether such individual is suitable
or should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of Riviera Operating Corporation must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Our officers,
directors and key employees who are actively and directly involved in the gaming
activities of Riviera Operating Corporation may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Any change in a corporate position by a
licensed person must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable to continue
having a relationship with us or Riviera Operating Corporation, the companies
involved would have to sever all relationships with such person. In addition,
the Nevada Commission may require us or Riviera Operating Corporation to
terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
We and Riviera Operating Corporation are required to submit
detailed financial and operating reports to the Nevada Commission. Substantially
all material loans, leases, sales of securities and similar financing
transactions by Riviera Operating Corporation must be reported to or approved by
the Nevada Commission.
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If the Nevada Commission determined that the Nevada Act was
violated by Riviera Operating Corporation, the gaming license it holds could be
limited, conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, we or Riviera Operating
Corporation and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission to
operate the casino and, under certain circumstances, earnings generated during
the supervisor's appointment (except for reasonable rental value of the casino)
could be forfeited to the State of Nevada. Limitation, conditioning or
suspension of the gaming license of Riviera Operating Corporation or the
appointment of a supervisor could (and revocation of any gaming license would)
materially adversely affect our gaming operations.
Any beneficial holder of our voting securities, regardless of
the number of shares owned, may be required to file an application, be
investigated, and have his suitability as a beneficial holder of our voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. If the beneficial holder who must be found suitable is a
corporation, partnership, limited liability company or trust, it must submit
detailed business and financial information, including a list of beneficial
owners. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5%
of a Registered Corporation's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of our voting securities apply to the Nevada Commission for a finding of
suitability within thirty days after the Chairman of the Nevada Board mails the
written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires more than
10%, but not more than 15%, of our voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds our voting securities for investment purposes only. An
institutional investor shall not be deemed to hold our voting securities for
investment purposes unless the voting securities were acquired and are held in
the ordinary course of business as an institutional investor and not for the
purpose of causing, directly or indirectly, the election of a majority of the
members of our board of directors, any change in our corporate charter, bylaws,
management, policies or operations, or any of our gaming affiliates, or any
other action which the Nevada Commission finds to be inconsistent with holding
our voting securities for investment purposes only. Activities which are deemed
to be consistent with holding our voting securities for investment purposes only
include: (a) voting on all matters voted on by stockholders; (b) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (c) such other activities as the Nevada
Commission may determine to be consistent with such investment intent. If the
beneficial holder of our voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
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Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do so by the
Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable.
The same restrictions apply to a record owner if the record owner, after
request, fails to identify the beneficial owner. Any stockholder found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
the common stock beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. We are subject to disciplinary
action if, after we receive notice that a person is unsuitable to be a
stockholder or to have any other relationship with us or Riviera Operating
Corporation, we (a) pay that person any dividend or interest upon voting our
securities, (b) allow that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (c) pay
remuneration in any form to that person for services rendered or otherwise, or
(d) fail to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. Additionally, the Clark
County Board has the authority to approve all persons owning or controlling the
stock of any corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the
holder of any of our debt or similar securities to file applications, be
investigated and be found suitable to own our debt security of a Registered
Corporation, if it has reason to believe that such ownership would be
inconsistent with the declared policies of the State of Nevada. If the Nevada
Commission determines that a person is unsuitable to own such security, then
pursuant to the Nevada Act, we can be sanctioned, including the loss of our
approvals, if without the prior approval of the Nevada Commission, we (a) pay to
the unsuitable person any dividend, interest, or any distribution whatsoever;
(b) recognize any voting right by such unsuitable person in connection with such
securities; (c) pay the unsuitable person remuneration in any form; or (d) make
any payment to the unsuitable person by way of principal, redemption,
conversion, exchange, liquidation, or similar transaction.
We and Riviera Operating Corporation are required to maintain
a current stock ledger in Nevada which may be examined by the Nevada Gaming
Authorities at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. We are also
required to render maximum assistance in determining the identity of the
beneficial owner. The Nevada Commission has the power to require our stock
certificates to bear a legend indicating that the securities are subject to the
Nevada Act. However, to date, the Nevada Commission has not imposed such a
requirement on us.
We may not make a public offering of our securities without
the prior approval of the Nevada Commission if the securities or proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. The approval, if given, does not constitute a finding, recommendation
of approval by the Nevada Commission or the Nevada Board as to the accuracy or
adequacy of the prospectus or the investment merit of the securities. Any
representation to the contrary is unlawful. The exchange offer of registered
debt securities for the notes will constitute a public offering as defined in
the Nevada Act and will require the prior approval of the Nevada Commission upon
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the recommendation of the Nevada Board. In addition, (a) a Corporate Licensee
may not guarantee a security issued by a Registered Corporation pursuant to a
public offering, or hypothecate its assets to secure the payment or performance
of the obligations evidenced by such a security, without the prior approval of
the Nevada Commission, (b) the pledge of the stock of a Corporate Licensee
("Stock Pledge"), such as Riviera Operating Corporation, is void without the
prior approval of the Nevada Commission, and (c) restrictions upon the transfer
of an equity security issued by a Corporate Licensee or Intermediary company and
agreements not to encumber such securities (collectively, "Stock Restrictions")
are ineffective without the prior approval of the Nevada Commission. We have
filed an application for approval of the exchange offer and for the approval of
the issuance of a guarantee by, and the hypothecation of the assets of, Riviera
Operating Corporation, and for approval of a Stock Pledge and Stock
Restrictions. No assurance can be given that such approvals will be granted or,
if granted, that such approvals will be given on a timely basis.
Changes in control of Riviera Holdings Corporation through
merger, consolidation, stock or asset acquisitions, management or consulting
agreements, or any act or conduct by a person whereby he obtains control, may
not occur without the prior approval of the Nevada Commission. Entities seeking
to acquire control of a Registered Corporation must satisfy the Nevada Board and
Nevada Commission in a variety of stringent standards prior to assuming control
of such Registered Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities and
corporate defense tactics affecting Nevada corporate gaming Licensees and
Registered Corporations that are affiliated with those operations, may be
injurious to stable and productive corporate gaming. The Nevada Commission has
established regulations to ameliorate the potentially adverse effects of these
business practices upon Nevada's gaming industry and to further Nevada's policy
to: (a) assure the financial stability of corporate gaming Licensees and their
affiliates; (b) preserve the beneficial aspects of conducting business in the
corporate form; and (c) promote a neutral environment for the orderly governance
of corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Registered Corporation can make exceptional
repurchases of voting securities above the current market price thereof and
before a corporate acquisition opposed by management can be consummated. The
Nevada Act also requires prior approval of a plan of recapitalization proposed
by the Registered Corporation's Board of Directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
License fees and taxes, computed in various ways depending on
the type of gaming or activity involved, are payable to the State of Nevada and
to the county in which the Riviera Operating Corporation operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (a) a percentage of the gross revenues received; (b) the number of
gaming devices operated; or (c) the number of table games operated. A casino
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entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food, refreshments or merchandise.
Nevada Licensees that hold a license to manufacture and distribute slot machines
and gaming devices, such as Riviera Operating Corporation, also pay certain fees
and taxes to the State of Nevada.
Any person who is licensed, required to be licensed,
registered, required to be registered, or is under common control with such
persons (collectively, "Licensees"), and who proposes to become involved in a
gaming venture outside of Nevada, is required to deposit with the Nevada Board,
and thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease in the
discretion of the Nevada Commission. Thereafter, Licensees are required to
comply with certain reporting requirements imposed by the Nevada Act. Licensees
are also subject to disciplinary action by the Nevada Commission if they
knowingly violate any laws of the foreign jurisdiction pertaining to the foreign
gaming operation, fail to conduct the foreign gaming operation in accordance
with the standards of honesty and integrity required of Nevada gaming
operations, engage in activities or enter into associations that are harmful to
the State of Nevada or its ability to collect gaming taxes and fees, or employ,
have contact with or associate with a person in the foreign operation who has
been denied a license or finding of suitability in Nevada on the ground of
personal unsuitability.
Other Nevada Regulation
The sale of alcoholic beverages at Riviera Las Vegas is
subject to licensing, control and regulation by the Clark County Board. All
licenses are revocable and are not transferable. The Clark County Board has full
power to limit, condition, suspend or revoke any such license, and any such
disciplinary action could (and revocation would) have a material adverse affect
upon the operations of Riviera Operating Corporation.
Colorado
Colorado Gaming and Liquor Regulation
Summary
In general, we, Riviera Black Hawk, our principal executive officers
and any of our employees who are involved in our gaming operations are required
to be found suitable for licensure by the Colorado Gaming Commission. Colorado
also requires that significant stockholders of 5% or more of our stock be
certified as suitable for licensure. Riviera Black Hawk's original retail gaming
license was approved by the Colorado Gaming Commission on November 18, 1999, and
has been successfully renewed each subsequent year.
Background
Pursuant to an amendment to the Colorado Constitution, limited stakes
gaming became lawful in the cities of Central City, Black Hawk and Cripple Creek
on October 1, 1991. Limited stakes gaming means a maximum single bet of five
dollars on slot machines and in the card games of blackjack and poker.
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Limited stakes gaming is confined to the commercial districts of these
cities as defined by Central City on October 7, 1981, by Black Hawk on May 4,
1978, and by Cripple Creek on December 3, 1973. In addition, the Colorado
Amendment restricts limited stakes gaming to structures that conform to the
architectural styles and designs that were common to the areas prior to World
War I, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures. Under the Colorado Amendment, no more
than 35% of the square footage of any building and no more than 50% of any one
floor of any building may be used for limited stakes gaming. Persons under the
age of 21 cannot participate in limited stakes gaming. The Colorado Amendment
also prohibits limited stakes gaming between the hours of 2:00 a.m. and 8:00
a.m., and allows limited stakes gaming to occur in establishments licensed to
sell alcoholic beverages.
Further, the Colorado Act provides that, in addition to any other
applicable license fees, up to a maximum of 40% of the total amounts wagered
less payouts to players may be paid by a licensee to the state of Colorado as
tax for the privilege of conducting limited stakes gaming. Such percentage is to
be established by the Colorado Commission annually.
The Colorado Act declares public policy on limited stakes gaming to be
that: (1) the success of limited stakes gaming is dependent upon public
confidence and trust that licensed limited stakes gaming is conducted honestly
and competitively; the rights of the creditors of licensees are protected;
gaming is free from criminal and corruptive elements; (2) public confidence and
trust can be maintained only by strict regulation of all persons, locations,
practices, associations and activities related to the operation of licensed
gaming establishments and the manufacture or distribution of gaming devices and
equipment; (3) all establishments where limited gaming is conducted and where
gambling devices are operated, and all manufacturers, sellers and distributors
of certain gambling devices and equipment must therefore be licensed, controlled
and assisted to protect the public health, safety, good order and the general
welfare of the inhabitants of the state to foster the stability and success of
limited stakes gaming and to preserve the economy, policies and free competition
in Colorado; and (4) no applicant for a license or other affirmative commission
approval has any right to a license or to the granting of the approval sought.
Any license issued or other commission approval granted pursuant to the
provisions of the Colorado Act is a revocable privilege, and no holder acquires
any vested rights therein.
Regulatory Structure
The Colorado Act subjects the ownership and operation of limited stakes
gaming facilities in Colorado to extensive licensing and regulation by the
Colorado Commission. The Colorado Commission has full and exclusive authority to
promulgate, and has promulgated, rules and regulations governing the licensing,
conducting and operating of limited stakes gaming. The Colorado Act also created
the Colorado Division of Gaming within the Colorado Revenue Department to
license, regulate and supervise the conduct of limited stakes gaming in
Colorado. The division is supervised and administered by the Director of the
Division of Gaming.
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Gaming Licenses
The Colorado Commission may issue:
o slot machine manufacturer or distributor,
o operator,
o retail gaming,
o support, and
o key employee gaming licenses.
The first three licenses require annual renewal by the Colorado
Commission. Support and key employee licenses are issued for two-year periods
and are renewable by the Director of the Division of Gaming. The Colorado
Commission has broad discretion to condition, suspend for up to six months,
revoke, limit or restrict a license at any time and also has the authority to
impose fines.
While the process of a background check for a support license is
limited to a criminal history record check and such cursory examination as the
Division of Gaming may feel appropriate, an applicant for any of the other four
gaming licenses must complete comprehensive application forms, pay required fees
and provide all information required by the Colorado Commission and the Division
of Gaming. Prior to licensure, applicants must satisfy the Colorado Commission
that they are suitable for licensing. Applicants have the burden of proving
their qualifications and must pay the full cost of any background
investigations. There is no limit on the cost of such background investigations.
Gaming employees must hold either a support or key employee license.
Every retail gaming licensee must have a key employee licensee in charge of all
limited stakes gaming activities when limited stakes gaming is being conducted.
The Colorado Commission may determine that a gaming employee is a key employee
and, require that such person apply for a key employee license.
A retail gaming license is required for all persons conducting limited
stakes gaming on their premises. In addition, an operator license is required
for all persons who engage in the business of placing and operating slot
machines on the premises of a retailer. However, a retailer is not required to
hold an operator license. No person may have an ownership interest in more than
three retail gaming licenses. A slot machine manufacturer or distributor license
is required for all persons who manufacture, import and distribute slot machines
in Colorado.
The Colorado Regulations require that every officer, director, and
stockholder of private corporations or equivalent office or ownership holders
for non-corporate applicants, and every officer, director or stockholder holding
either a 5% or greater interest or controlling interest of a publicly traded
corporation or owners of an applicant or licensee shall be a person of good
moral character and submit to a full background investigation conducted by the
Division of Gaming and the Colorado Commission, to such extent as may be deemed
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necessary by the Division. The Colorado Commission may require any person having
an interest in a license to undergo a full background investigation and pay the
cost of investigation in the same manner as an applicant for the license.
Persons found unsuitable by the Colorado Commission may be required
immediately to terminate any interest, association, or agreement with or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant also may jeopardize the licensee's license or the applicant's
application. A license approval may be conditioned upon the termination of any
relationship with unsuitable persons. A person may be found unsuitable because
of prior acts, associations or financial conditions. Acts that would lead to a
finding of unsuitability are those that would violate the Colorado Act or the
Colorado Regulations or that contravene the legislative purpose of the Colorado
Act.
Duties of Licensees
An applicant or licensee must report to the Division of Gaming or
Colorado Commission all leases on or concerning the licensed premises not later
than 30 days after the effective date of the lease. Also, an applicant or a
licensee, upon the request of the Colorado Commission or the Division Director,
must submit copies of all written gaming contracts and summaries of all oral
gaming contracts to which it is or intends to become a party. The Division
Director or the Colorado Commission may require changes in the lease or gaming
contract before an applicant is approved or participation in such agreement is
allowed or may require termination of the lease or gaming contract.
The Colorado Act and the Colorado Regulations require licensees to
maintain detailed records that account for all business transactions. Records
must be furnished upon demand to the Colorado Commission, the Division of Gaming
and other law enforcement authorities. The Colorado Regulations also establish
extensive playing procedures and rules of play for poker, blackjack and slot
machines. Retail gaming licenses must adopt comprehensive internal control
procedures. Such procedures must be approved in advance by the Division of
Gaming and include the areas of accounting, surveillance, security, cashier
operations, key control and fill and drop procedures, among others. No gaming
devices may be used in limited stakes gaming without the approval of the
Division Director or the Colorado Commission.
Licensees have a continuing duty to report immediately to the Division
of Gaming the name, date of birth and social security number of all persons who
obtain an ownership, financial or equity interest in the licensee of 5% or
greater, who have the ability to control the licensee, who have the ability to
exercise significant influence over the licensee or who loan any money or other
thing of value to the licensee. Licensees must report to the Division of Gaming
all gaming licenses, and all applications for gaming licenses, in foreign
jurisdictions, held or applied for by the licensee.
With limited exceptions applicable to licensees that are publicly
traded entities, no person may sell, lease, purchase, convey or acquire any
interest in a retail gaming or operator license or business without the prior
approval of the Colorado Commission.
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All agreements, contracts, leases, or arrangements in violation of the
Colorado Amendment, the Colorado Act or the Colorado Regulations are void and
unenforceable.
Taxes, Fees and Fines
The Colorado Constitution permits an annual tax on limited gaming
proceeds of up to 40% on the total amount wagered less all payouts to players.
With respect to games of poker, the tax is calculated based on the sums wagered
which are retained by the licensee as compensation. Annually during April, May
and June, the Colorado Commission, as mandated by the Colorado Regulations,
shall conduct rule-making hearings concerning the gaming tax rate and device fee
rate for the subsequent gaming year. However, rigid compliance with the Colorado
Regulations is not mandatory and shall in no way be construed to limit the time
periods or subject matters which the Colorado Commission may consider in
determining the various tax rates. Currently, the gaming tax is:
o .25% on the first $2 million of these amounts;
o 2% on amounts from $2 million to $4 million;
o 4% on amounts from $4 million to $5 million;
o 11% on amounts from $5 million to $10 million;
o 16% on amounts from $10 million to $15 million; and
o 20% on amounts over $15 million.
The tax rate structure has remained relatively stable throughout the
existence of limited gaming within the state. The Colorado Commission has
eliminated the annual device fee for gaming device machines, blackjack tables
and poker tables.
The municipality of Black Hawk assesses an annual device fee of $62.50
per device on all devices exceeding 50. There is no statutory limit on state or
city device fees, which may be increased at the discretion of the Colorado
Commission or the city. In addition, a business improvement fee of as much as
$7.42 per device and a monthly transportation authority device fee of $8.84 per
device also may apply depending upon the location of the licensed premises in
Black Hawk.
Black Hawk also imposes taxes and fees on other aspects of the
businesses of gaming licensees, such as parking, alcoholic beverage licenses and
other municipal taxes and fees. Significant increases in these fees and taxes,
or the imposition of new taxes and fees, may occur.
Violation of the Colorado Gaming Act or the Colorado Regulations
constitutes a class 1 misdemeanor which may subject the violator to fines or
incarceration or both. A licensee who violates the Colorado Gaming Act or
Colorado Regulations is subject to suspension of the license for a period of up
to six months, fines or both, or to license revocation.
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Requirements for Publicly Traded Corporations
The Colorado Commission has enacted Rule 4.5, which imposes
requirements on publicly traded corporations holding gaming licenses in Colorado
and on gaming licenses owned directly or indirectly by a publicly traded
corporation, whether through a subsidiary or intermediary company. The term
"publicly traded corporation" includes corporations, firms, limited liability
companies, trusts, partnerships and other forms of business organizations. Such
requirements automatically apply to any ownership interest held by a publicly
traded corporation, holding company or intermediary company thereof, where the
ownership interest directly or indirectly is, or will be upon approval of the
Colorado Commission, 5% or more of the entire licensee. In any event, if the
Colorado Commission determines that a publicly traded corporation, or a
subsidiary, intermediary company or holding company has the actual ability to
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require the entity to
comply with the disclosure regulations contained in Rule 4.5.
Under Rule 4.5, gaming licensees, affiliated companies and controlling
persons commencing a public offering of voting securities must notify the
Colorado Commission no later than ten business days after the initial filing of
a registration statement with the Securities and Exchange Commission. Licensed
publicly traded corporations are also required to send proxy statements to the
Division of Gaming within five days after their distribution. Licensees to whom
Rule 4.5 applies must include in their charter documents provisions that:
restrict the rights of the licensees to issue voting interests or securities
except in accordance with the Colorado Gaming Act and the Colorado Regulations;
limit the rights of persons to transfer voting interests or securities of
licensees except in accordance with the Colorado Gaming Act and the Colorado
Regulations; and provide that holders of voting interests or securities of
licensees found unsuitable by the Colorado Commission may, within 60 days of
such finding of unsuitability, be required to sell their interests or securities
back to the issuer at the lesser of the cash equivalent of the holders'
investment or the market price as of the date of the finding of unsuitability.
Alternatively, the holders may, within 60 days after the finding of
unsuitability, transfer the voting interests or securities to a suitable person,
as determined by the Colorado Commission. Until the voting interests or
securities are held by suitable persons, the issuer may not pay dividends or
interest, the securities may not be voted, they may not be included in the
voting or securities of the issuer, and the issuer may not pay any remuneration
in any form to the holders of the securities.
Pursuant to Rule 4.5, persons who acquire direct or indirect beneficial
ownership of
o 5% or more of any class of voting securities of a publicly
traded corporation that is required to include in its articles of organization
the Rule 4.5 charter language provisions or
o 5% or more of the beneficial interest in a gaming licensee
directly or indirectly through any class of voting securities of any holding
company or intermediary company of a licensee, referred to as qualifying
persons, shall notify the Division of Gaming within 10 days of such acquisition,
are required to submit all requested information and are subject to a finding of
159
suitability as required by the Division of Gaming or the Colorado Commission.
Licensees also must notify any qualifying persons of these requirements. A
qualifying person other than an institutional investor whose interest equals 10%
or more must apply to the Colorado Commission for a finding of suitability
within 45 days after acquiring such securities. Licensees must also notify any
qualifying persons of these requirements. Whether or not notified, qualifying
persons are responsible for complying with these requirements.
A qualifying person who is an institutional investor under Rule 4.5 and
who, individually or in association with others, acquires, directly or
indirectly, the beneficial ownership of 15% or more of any class of voting
securities must apply to the Colorado Commission for a finding of suitability
within 45 days after acquiring such interests.
The Colorado Regulations also provide for exemption from the
requirements for a finding of suitability when the Colorado Commission finds
such action to be consistent with the purposes of the Colorado Act.
Pursuant to Rule 4.5, persons found unsuitable by the Colorado
Commission must be removed from any position as an officer, director, or
employee of a licensee, or from a holding or intermediary company. Such
unsuitable persons also are prohibited from any beneficial ownership of the
voting securities of any such entities. Licensees, or affiliated entities of
licensees, are subject to sanctions for paying dividends or distributions to
persons found unsuitable by the Colorado Commission, or for recognizing voting
rights of, or paying a salary or any remuneration for services to, unsuitable
persons. Licensees or their affiliated entities also may be sanctioned for
failing to pursue efforts to require unsuitable persons to relinquish their
interest. The Colorado Commission may determine that anyone with a material
relationship to, or material involvement with, a licensee or an affiliated
company must apply for a finding of suitability or must apply for a key employee
license.
Alcoholic Beverage Licenses
The sale of alcoholic beverages in gaming establishments is subject to
strict licensing, control and regulation by state and local authorities.
Alcoholic beverage licenses are revocable and nontransferable. State and local
licensing authorities have full power to limit, condition, suspend for as long
as six months or revoke any such licenses. Violation of state alcoholic beverage
laws may constitute a criminal offense resulting in incarceration, fines, or
both.
There are various classes of retail liquor licenses which may be issued
under the Colorado Liquor Code. A gaming licensee may sell malt, vinous or
spirituous liquors only by the individual drink for consumption on the premises.
Even though a retail gaming licensee may be issued various classes of retail
liquor licenses, such gaming licensee may only hold liquor licenses of the same
class. An application for an alcoholic beverage license in Colorado requires
notice, posting and a public hearing before the local liquor licensing authority
prior to approval of the same. The Colorado Department of Revenue's Liquor
Enforcement Division must also approve the application. Riviera Black Hawk's
hotel and restaurant license has been approved by both the local licensing
authority and the State Division of Liquor Enforcement.
160
Federal Registration
Riviera Operating Corporation is required to annually file with the
Attorney General of the United States in connection with the sales,
distribution, or operations of slot machines. All requisite filings for the
present year have been made.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those new notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for existing notes where such
existing notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of up to one year from the
exchange offer, we will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until __________, 2002, all dealers effecting transactions in the new
notes must deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account in
the exchange offer may be resold from time to time in over-the-counter market
transactions, in negotiated transactions, through the writing of options on the
new notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers,
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such new notes. Any broker-dealer that resells new notes that it received for
its own account in the exchange offer and any broker or dealer that participates
in a distribution of such new notes may be deemed an "underwriter" under the
Securities Act and any profit on any such resale of new notes and any commission
or concessions received by any such persons may be deemed underwriting
compensation under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" under the
Securities Act.
For up to one year from the closing of the exchange offer, we will
promptly send additional copies of this Prospectus and (any amendment or
supplement) to any broker-dealer that requests such documents. We have agreed to
pay expenses incidental to the exchange offer, including the expenses of one
counsel for the holders of the notes, other than commissions or concessions of
any brokers or dealers. We will indemnify the holders of the notes, including
any broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
Broker-dealers that acquired existing notes directly from us in the
initial offering and not as a result of market-making or trading activities can
not use this Prospectus in connection with resales of the new notes. Absent an
exemption, such broker-dealers must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with such resales.
Under certain of these and other circumstances described in the registration
rights agreement, we have agreed to file with the Securities and Exchange
161
Commission a shelf registration statement to cover resales. (See "Description of
Notes - Registration Rights; Liquidated Damages.")
LEGAL MATTERS
Certain legal matters regarding the validity of the new notes will be
passed upon for us by Gordon & Silver, Ltd., Las Vegas, Nevada. Jeffrey A.
Silver, a shareholder in Gordon & Silver, Ltd., is a member of our Board of
Directors. Mr. Silver beneficially owns 5,800 shares of our common stock.
Certain matters with respect to Colorado law will be passed upon for us by
Robinson, Waters & O'Dorisio, P.C., Denver, Colorado. Certain matters with
respect to Nevada gaming law will be passed upon for us by Schreck Brignone
Godfrey, Las Vegas, Nevada.
EXPERTS
The consolidated financial statements of Riviera Holdings Corporation
as of December 31, 2000 and 2001, and for each of the three years in the period
ended December 31, 2001 included in this Prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
elsewhere in this Prospectus, and have been so included in reliance upon the
reports of such firm given upon its authority as an expert in accounting and
auditing.
AVAILABLE INFORMATION
We file annual and quarterly reports and other information with the
Securities and Exchange Commission. You may read and copy any document that we
file at the Securities and Exchange Commission's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call 1-800-SEC-0300 for
further information on the operation of the Public Reference Room. Reports,
proxy statements and other information regarding issuers, including us, that
file electronically with the Securities and Exchange Commission are also
available to the public from the Securities and Exchange Commission's Web site
at http://www.sec.gov.
We have filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 under the Securities Act with respect to the
new notes offered hereby. As permitted by the rules and regulations of the
Securities and Exchange Commission, this Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. For further
information about us and the new notes, we refer you to the Registration
Statement, including the related exhibits and schedules.
Potential investors may obtain a copy of the indenture, registration
rights agreement and other documents described herein as being available from
us, without charge, by writing to us at Riviera Holdings Corporation, 2901 Las
Vegas Boulevard South, Las Vegas, Nevada 89109.
We have not authorized any dealer, salesperson or other person to give
any information or to make any representations not contained in this Prospectus.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any of the Notes offered hereby in any jurisdiction where it is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof or that
there has been no change in our affairs since such date.
162
RIVIERA HOLDINGS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
INDEPENDENT AUDITORS' REPORT.............................................................. F-2
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30,
2002 AND FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED), AND AS OF AND
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND FOR THE YEAR ENDED
DECEMBER 31, 1999:
Balance Sheets......................................................................... F-3
Statements of Operations............................................................... F-4
Statements of Stockholders' Equity..................................................... F-5
Statements of Cash Flows............................................................... F-6
Notes to Consolidated Financial Statements............................................. F-8
F-1
INDEPENDENT AUDITORS' REPORT
Riviera Holdings Corporation
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Riviera
Holdings Corporation and subsidiaries (the "Company") as of December 31, 2001
and 2000 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December
31, 2001 and 2000 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
February 12, 2002
Las Vegas, Nevada
F-2
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
June 30, 2002 December 31,
2001 2000
------------ --------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 21,974 $ 46,606 $ 52,174
Accounts receivable, net..................................................... 2,921 3,528 5,548
Inventories.................................................................. 1,807 2,253 3,342
Prepaid expenses and other assets............................................ 3,493 3,083 4,599
Treasury bills held to retire debt........................................... 226,632 4,599
------------ ----------- -----------
Total current assets...................................................... 256,827 55,470 65,663
PROPERTY AND EQUIPMENT, Net..................................................... 195,060 200,531 207,030
OTHER ASSETS, Net............................................................... 18,638 6,728 8,128
DEFERRED INCOME TAXES, Net...................................................... 5,089 5,089 2,889
------------ ----------- -----------
TOTAL........................................................................... $ 475,614 $ 267,818 $ 283,710
=========== ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............................................ $ 3,297 $ 3,151 $ 2,871
Accounts payable............................................................. 10,517 8,200 9,731
Accrued interest............................................................. 343 8,084 7,727
Accrued expenses............................................................. 13,040 14,740 16,731
Bonds(including accrued interest payable of $7,434) to be retired with
U.S. Treasury Bills.......................................................... 217,374 16,731
----------- ----------- -----------
Total current liabilities................................................. 244,571 34,175 37,060
----------- ----------- -----------
OTHER LONG-TERM LIABILITIES..................................................... 7,766 7,391 6,533
----------- ----------- -----------
LONG-TERM DEBT, Net of current portion.......................................... 218,234 217,288 223,172
----------- ----------- -------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Common stock ($.001 par value; 20,000,000 shares authorized; 5,106,776 shares
issued at June 30, 2002 and December 31, 2001 and 2000, respectively)..... 5 5 5
Additional paid-in capital................................................... 13,485 13,485 13,446
Treasury stock (1,653,594, 1,674,144 and 1,431,648 shares at June 30, 2002 and
December 31, 2001 and 2000, respectively)................................. (11,145) (11,246) (9,633)
Retained earnings............................................................ 2,798 6,720 13,127
------------ ----------- -----------
Total stockholders' equity................................................ 5,143 8,964 16,945
------------ ----------- -----------
TOTAL........................................................................... $ 475,614 $ 267,818 $ 283,710
=========== ========== =========
See notes to consolidated financial statements.
F-3
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Six Months Ended
June 30, June 30,
2002 2001 Year Ended December 31,
------------ ------------ ---------------------------------
2001 2000 1999
---- ---- ----
(Unaudited)
REVENUES:
Casino................................................ $ 54,926 $ 58,314 $ 114,039 $ 107,693 $ 73,181
Rooms................................................. 21,386 24,471 44,255 43,819 39,899
Food and beverage..................................... 16,378 16,410 31,256 30,756 25,117
Entertainment......................................... 8,580 11,763 20,692 24,526 20,994
Other................................................. 4,251 4,928 9,119 10,538 11,713
----------- -------- ----------- ---------- ----------
Total revenues................................... 105,521 115,886 219,361 217,332 170,904
Less promotional allowances........................... (9,169) (8,858) 17,330 15,801 13,636
---------- -------- ----------- ---------- ----------
Net revenues..................................... 96,352 107,028 202,031 201,531 157,268
----------- -------- ----------- ---------- ----------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino............................................. 29,186 32,111 62,845 57,450 42,306
Rooms.............................................. 11,726 12,228 23,339 23,364 21,909
Food and beverage.................................. 10,635 11,002 21,426 21,372 18,307
Entertainment...................................... 5,674 8,386 14,900 18,959 16,271
Other.............................................. 1,421 1,609 3,068 3,146 3,228
Other operating expenses:
General and administrative......................... 19,363 21,420 42,239 41,312 29,568
Preopening expenses--Black Hawk, Colorado, project.. 0 0 1,222 595
Depreciation and amortization...................... 8,949 8,546 17,243 17,827 13,991
----------- -------- ----------- ---------- ----------
Total costs and expenses......................... 86,954 95,302 185,060 184,652 146,175
----------- -------- ----------- ---------- ----------
INCOME FROM OPERATIONS................................... 9,398 11,726 16,971 16,879 11,093
----------- -------- ----------- ---------- ----------
OTHER (EXPENSE) INCOME:
Interest expense...................................... (13,169) (13,453) (26,864) (27,805) (23,448)
Interest expense - bonds held for retirement.......... (364)
Interest income....................................... 229 675 1,274 2,429 2,255
Interest capitalized.................................. 616 4,733
Other, net............................................ (16) (31) (28) 1,171 (1,963)
--------- ---------- ----------- ---------- ----------
Total other expense.............................. (13,320) (12,809) (25,618) (23,589) (18,423)
---------- ---------- ----------- ---------- ----------
LOSS BEFORE BENEFIT FOR INCOME TAXES..................... (3,922) (1,083) (8,647) (6,710) (7,330)
BENEFIT FOR INCOME TAXES................................. (355) (2,240) (2,495) (4,461)
---------- ---------- ----------- ---------- ----------
NET LOSS................................................. $ (3,922) $ (728) $ (6,407) $ (4,215) $ (2,869)
========= ========== =========== ========== ==========
EARNINGS (LOSS) PER SHARE DATA:
Loss per share--
Basic and diluted.................................. $ (1.14) $ (0.20) $ (1.79) $ (1.05) $ (0.58)
========= ========= =========== ========== ==========
Weighted-average common shares outstanding............ 3,444 3,670 3,573 4,013 4,978
=========== ========= =========== ========== ==========
Weighted-average common and common equivalent shares.. 3,444 3,670 3,573 4,013 4,978
=========== ========= =========== ========== ==========
See notes to consolidated financial statements.
F-4
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars In Thousands, Except Share Amounts)
Notes
Additional Receivable
Paid-In Retained from
Common Stock Capital Earnings Treasury Stock Employee
Shares Amount Shares Amount Shareholders Total
BALANCE, JANUARY 1, 1999......... 5,107,676 $ 5 $ 13,457 $ 20,211 (34,300) $ (167) $ (3) $33,503
Refunds on employee stock
purchases.................. (900) (11) 3 (8)
Purchase of treasury stock.... (549,455) (2,948) (2,948)
Net loss...................... (2,869) (2,869)
-------- ---------- -------- --------- ----------- -------- -------- -------
BALANCE, DECEMBER 31, 1999....... 5,106,776 5 13,446 17,342 (583,755) (3,115) 27,678
Purchase of treasury stock.... (847,893) (6,518) (6,518)
Net loss...................... (4,215) (4,215)
-------- -------- -------- --------- --------- -------- -------- -------
BALANCE, DECEMBER 31, 2000....... 5,106,776 5 13,446 13,127 (1,431,648) (9,633) 16,945
Purchase of treasury stock,
general (158,437) (993) (993)
Purchase of treasury stock,
deferred compensation trust (118,091) (786) (786)
Issuance of restricted stock.. 39 34,032 166 205
Net loss...................... (6,407) (6,407)
-------- -------- -------- --------- --------- -------- -------- ------
BALANCE, DECEMBER 31, 2001....... 5,106,776 5 13,485 6,720 (1,674,144) (11,246) 8,964
Issuance of restricted stock
(unaudited)................ 20,550 101 101
Net loss (unaudited).......... (3,922) (3,922)
-------- -------- -------- --------- --------- -------- -------- ------
BALANCE, JUNE 30, 2002
(Unaudited)................... 5,106,776 $ 5 $ 13,485 $ 2,798 (1,653,594) $(11,145) $ -- $ 5,143
========= -------- ======== ======== ========== ========= ====== ======
See notes to consolidated financial statements
F-5
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
June 30, June 30, Year Ended
2002 2001 December 31,
-----------------------------------------------
(Unaudited) 2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(3,922) $ (728) $(6,407) $(4,215) $(2,869)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Gain on sale of equipment......................... (55)
Depreciation and amortization..................... 8,949 8,546 17,243 17,827 13,991
Provision for bad debts........................... (345) 139 225 326 297
Provision for gaming discounts.................... (48) (21) (70) 45
Interest expense.................................. 13,721 13,531 26,864 27,805 23,448
Interest paid..................................... (12,311) (11,874) (23,490) (24,410) (20,132)
Interest capitalized on construction projects..... (616) (4,733)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net. 1,000 1,802 1,865 (877) 50
Increase in Interest receivable on U.S. Treasury
Bills purchased to retire bonds............. (57)
Decrease (increase) in inventories.............. 445 795 1,089 90 (705)
(Increase) decrease in prepaid expenses and
other assets................................. (410) 304 1,516 (607) 39
(Increase)decrease in accounts payable.......... 1,400 (48) (1,748) (2,071) (884)
(Decrease) increase in accrued liabilities...... (969) (4,820) (2,420) 7,348 1,896
Increase in other long-term liabilities deferred
compensation plan obligation................. 105 494 579
Decrease in deferred tax assets................. (355) (2,200) (2,534) (3,478)
Decrease in other long-term liabilities slot
annuities payable............................ (3) (55)
(Decrease) increase in other long-term
liabilities non-qualified pension plan
obligation to CEO upon retirement............ (250) (250) (500) 1,247 (61)
-------- ---------- --------- ---------- -----------
Net cash (used in) provided by operating
activities................................ 7,308 7,515 12,546 19,355 6,749
-------- ------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, Las Vegas...................... (2,268) (4,595) (7,622) (7,465) (11,735)
Capital expenditures, Black Hawk..................... (1,208) (1,594) (2,640) (16,969) (27,291)
Interest capitalized on construction projects........ 616 4,733
Decrease (increase) in short-term investments........ 5,258 (5,258)
Decrease (increase) in restricted funds.............. 15,060 (15,060)
Sale of equipment.................................... 174
(Increase) decrease in other assets.................. (1,737) (15) 85 (661) (3,558)
-------- ---------- ------------ --------- ---------
Net cash used in investing activities........ (5,213) (6,204) (10,177) (4,161) (57,995)
--------- -------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings................... 211,781 9,552 48,764
U.S. Treasury bills purchased to retire bonds........ (226,576)
Increase in deferred loan fees....................... (10,831)
Payments on long-term borrowings..................... (1,651) (1,370) (2,865) (2,299) (641)
Purchase of treasury stock, general.................. (49) (993) (6,518) (2,948)
Purchase of treasury stock, deferred compensation
trust............................................. (49) (786)
Increase in paid-in capital.......................... 41
Purchase of 13% First Mortgage Notes--Black Hawk...... (2,500) (3,500) (6,559)
Issuance of restricted stock, deferred competition... 100 116 166
Net cancellations of employee stock purchase plan,
and exercise of employee stock options............ 41 (8)
---------- -------------- ----------- ------------ ---------
Net cash (used in) provided by financing
activities................................ (26,727) (3,955) (7,937) (5,824) 45,167
---------- --------- -------- -------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (24,632) (2,644) (5,568) 9,370 (6,079)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......... 46,606 52,174 52,174 42,804 48,883
-------- --------- --------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $21,974 $49,530 $46,606 $52,174 $42,804
======= ======= ======= ======= =======
(Continued)
F-6
RIVIERA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands) (Continued)
Six Months Ended
June 30, June 30, Year Ended
2002 2001 December 31,
------ ----- -------------------------------------------
(Unaudited) 2001 2000 1999
---- ---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -
Income taxes (refunded) paid, State of Colorado..... $ (110) $ (110)
========= ========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Property acquired with accounts payable, Las Vegas,
Nevada............................................ $ 65 $ 232 $ 132
======== ======== =======
Property acquired with debt, Black Hawk, Colorado.... $ 454 $ 126
======= =======
Property acquired with accounts payable, Black Hawk,
Colorado.......................................... $ 90 $ 304 $ 2,566
======= ======== =======
Property acquired with debt, Las Vegas, Nevada....... $ 1,614
=======
(Concluded)
See notes to consolidated financial statements.
F-7
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Nature of Operations--Riviera Holdings
Corporation and its wholly owned subsidiary, Riviera Operating Corporation
("ROC") (together, the "Company"), were incorporated on January 27, 1993 in
order to acquire all assets and liabilities of Riviera, Inc. Casino-Hotel
Division on June 30, 1993, pursuant to a plan of reorganization.
In August 1995, Riviera Gaming Management, Inc. ("RGM") incorporated in
the State of Nevada as a wholly owned subsidiary of ROC for the purpose of
obtaining management contracts in Nevada and other jurisdictions.
The primary line of business of the Company is the operation of the
Riviera Hotel & Casino (the "Riviera Las Vegas") on the Strip in Las Vegas,
Nevada. The Company, through its gaming management subsidiary, also managed the
Four Queens Hotel and Casino (owned by Elsinore Corporation) in downtown Las
Vegas through December 1999 (see Note 13). RGM also provided services to
Peninsula Gaming Partners, LLC ("PGP") through September 2000 with respect to
that company's riverboat, Diamond Jo, operating in Dubuque, Iowa.
In February 2000, the Company opened its casino in Black Hawk,
Colorado, which is owned through Riviera Black Hawk, Inc. ("RBH"), a wholly
owned subsidiary of ROC. Riviera Gaming Management of Colorado, Inc. is a wholly
owned subsidiary of RGM and manages the Black Hawk casino.
On March 15, 2002, Riviera Gaming Management of New Mexico, Inc. was
incorporated in the State of New Mexico.
Casino operations are subject to extensive regulation in the states of
Nevada and Colorado by the respective Gaming Control Boards and various other
state and local regulatory agencies. Management believes that the Company's
procedures comply, in all material respects, with the applicable regulations for
supervising casino operations, recording casino and other revenues, and granting
credit.
Principles of Consolidation--The consolidated financial statements
include the accounts of the Company, its wholly owned subsidiaries, ROC and RGM,
and their related subsidiary entities. All material intercompany accounts and
transactions have been eliminated.
Unaudited Financial Information--The financial information at June 30,
2002 and for the six months ending June 30, 2002 and the six months ended 2001
is unaudited. However, such information reflects all adjustments (consisting
solely of normal and recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the financial position, results
of operations, and cash flows for the interim periods. The results of operations
for the six months ended June 30, 2002 and 2001 are not necessarily indicative
of the results that will be achieved for the entire year. These financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the years ended December 31, 2001, 2000 and
1999.
Cash and Cash Equivalents--All highly liquid investment securities with
maturity of three months or less when acquired are considered to be cash
equivalents. The Company accounts for investment securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
The Company's investment securities, along with certain cash and cash
equivalents that are not deemed securities under SFAS No. 115, are carried on
the consolidated balance sheets in the cash and cash equivalents category. SFAS
No. 115 addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities and requires such securities to be classified as either held to
maturity, trading, or available for sale.
F-8
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Management determines the appropriate classification of its investment
securities at the time of purchase, including the determination as to restricted
versus nonrestricted assets, and re-evaluates such determination at each balance
sheet date. Held-to-maturity securities are required to be carried at amortized
cost. At December 31, 2001 and 2000, securities classified as held to maturity
comprised debt securities issued by the U.S. Treasury and other U.S. government
corporations and agencies, and repurchase agreements, with an amortized cost of
$27,449,767 and $34,754,983, respectively, maturing in three months or less.
Inventories--Inventories consist primarily of food, beverage, gift
shop, and promotional inventories and are stated at the lower of cost
(determined on a first-in, first-out basis) or market.
Property and Equipment--Property and equipment are stated at cost, and
capitalized lease assets are stated at the present value of future minimum lease
payments at the date of lease inception. Interest incurred during construction
of new facilities or major additions to facilities is capitalized and amortized
over the life of the asset. Depreciation is computed by the straight-line method
over the shorter of the estimated useful lives or lease terms, if applicable, of
the related assets, which range from 5 years for certain gaming equipment to 40
years for buildings. The costs of normal maintenance and repairs are charged to
expense as incurred. Gains or losses on disposals are recognized as incurred.
The Company periodically assesses the recoverability of property and
equipment and evaluates such assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than the carrying
amount.
Other Assets--Other assets include bond offering costs and commissions,
which are amortized over the life of the debt. Such amortized costs are included
in interest expense.
Restricted Cash and Short-Term Investments--Amounts related to the
Riviera Black Hawk Casino project in Black Hawk, Colorado, are restricted in use
to that project or for the related 13% First Mortgage Notes ("13% Notes")
interest payments.
Stock-Based Compensation--The effect of stock options in the
consolidated statements of operations is reported in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees. The Company has adopted the disclosure-only provisions of SFAS No.
123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost
has been recognized for unexercised stock options in the stock option plan
(see Note 15).
Fair Value Disclosures:
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and
Accrued Expenses--The carrying value of these items is a reasonable estimate of
their fair value.
Long-Term Debt--The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities. Based on the borrowing rates currently available to the Company for
debt with similar terms and average maturities, the estimated fair value of
long-term debt outstanding is approximately $186,246,000 and $202,628,000 in
2001 and 2000, respectively.
F-9
Revenue Recognition:
Casino Revenue--The Company recognizes, as gross revenue, the net win
from gaming activities, which is the difference between gaming wins and losses.
Room Revenue, Food and Beverage Revenue, Entertainment Revenue, and
Other Revenue--The Company recognizes room, food and beverage, entertainment
revenue, and other revenue at the time that goods or services are provided.
Preopening Costs--The Company recognizes preopening costs when
incurred.
Promotional Allowances--Revenues include the estimated retail value of
rooms, food and beverage, and entertainment provided to customers on a
complimentary basis. Such amounts are then deducted as promotional allowance.
The estimated cost of providing these promotional allowances is charged to the
casino department in the following amounts:
Year Ended December 31
2001 2000 1999
---------- ---------- -------
Food and beverage.............................. $ 9,560 $ 9,007 $ 6,266
Rooms.......................................... 1,195 1,297 1,676
Entertainment.................................. 1,950 1,319 1,312
--------- ---------- ---------
Total costs allocated to casino departments.... $ 12,705 $ 11,623 $ 9,254
========= ========= =========
Federal Income Taxes--The Company and its subsidiaries file a
consolidated federal tax return. The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the consolidated financial
statements or tax returns. Deferred income taxes reflect the net tax effects of:
(i) temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes;
and (ii) operating loss and tax credit carryforwards.
The cash flow projections used by the Company in the application of
SFAS No. 109 for the realization of deferred tax assets indicate that a
valuation allowance should be recorded on the tax benefit earned by the Company
in the first quarter of 2002. The estimates used are based upon recent operating
results and budgets for future operating results. These estimates are made using
assumptions about the economic, social, and regulatory environments in which we
operate. These estimates could be impacted by numerous unforeseen events,
including changes to regulations affecting how the Company operates the
business, changes in the labor market, or economic downturns in the areas where
the Company operates.
Estimates and Assumptions--The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America ("GAAP") requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates used by the Company include estimated useful lives for depreciable and
amortizable assets, certain accrued liabilities, realizability of deferred tax
F-10
assets and liabilities, and the estimated allowances for receivables. Actual
results may differ from estimates.
Recently Adopted Accounting Pronouncements--The Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, Accounting for Derivatives, which
is effective for fiscal years beginning after June 15, 2000. This statement
defines derivatives and requires qualitative disclosure of certain financial and
descriptive information about a company's derivatives. The Company adopted SFAS
No. 133 in the quarter ended March 31, 2001. The adoption of SFAS No. 133 had no
impact on the Company or the Company's consolidated financial statements.
The Emerging Issues Task Force ("EITF") of the American Institute of
Certified Public Accountants ("AICPA") issued EITF Issue No. 00-22, Accounting
for "Points' and Certain Other Timed-Based Sales Incentive Offers, and Offers
for Free Products or Services to Be Delivered in the Future, on January 18,
2001. EITF Issue No. 00-22 concluded that when a company or vendor offers to a
customer (a) free or discounted products or services that will be delivered
(either by the vendor or by another unrelated entity) at a future date (1) as a
result of a single revenue transaction with the customer or (2) only if the
customer completes a specified cumulative level of revenue transactions with the
vendor or remains a customer of the vendor for a specified time period and (b) a
rebate or refund of a determinable cash amount only if the customer completes a
specified cumulative level of revenue transactions with the vendor or remains a
customer of the vendor for a specified time period, such rebates should be
reported as a reduction of revenues. EITF Issue No. 00-22 was required to be
adopted by the Company during the first quarter of 2001. As a result of adopting
EITF Issue No. 00-22, the Company reclassified approximately $3.4 million and
$905,000 of such "Points" from casino operating expense, reducing casino
revenues for the years ended December 31, 2000 and 1999, respectively.
The EITF of the AICPA issued EITF Issue No. 00-14, Accounting for
Certain Sales Incentives, on April 18, 2001. EITF Issue No. 00-14 concluded that
when a company or vendor offers its customers sales incentives, including
discounts, coupons, rebates, and free products or services, such sales
incentives should be reported as a reduction of revenues. EITF Issue No. 00-14
is required to be adopted by the Company during the first quarter of 2002. Early
adoption is permitted. The Company chose to adopt EITF Issue No. 00-14 in the
first quarter of 2001. As a result of adopting EITF Issue No. 00-14, the Company
reclassified approximately $1.9 million and $0 of such sales incentive "Cash
Vouchers" from casino operating expense to net against casino revenues for the
years ended December 31, 2000 and 1999, respectively.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets, which is effective January 1, 2002. SFAS No. 142 requires,
among other things, the discontinuance of goodwill amortization. In addition,
the standard includes provisions for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles out of
previously reported goodwill, and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. SFAS No. 142
also requires the Company to complete a transitional goodwill impairment test
six months from the date of adoption. The Company has determined that the
adoption of SFAS No. 142 will not have a material effect on its consolidated
financial position and results of operations.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 applies to all
entities. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development,
and/or the normal operation of long-lived assets, except for certain obligations
of lessees. SFAS No. 143 is effective for financial statements issued for fiscal
years beginning after June 15, 2002. The Company determined that SFAS No. 143
will not have a material impact on its consolidated financial position and
results of operations.
F-11
In June 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS
No. 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The adoption of SFAS No. 141 did not have a significant impact on the Company's
consolidated financial statements or results of operations.
Recently Issued Accounting Pronouncements--In August 2001, the FASB issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously defined
in that opinion). SFAS No. 144 also amends APB No. 51, Consolidated Financial
Statements, to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. The provisions of SFAS No. 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. The Company is
currently assessing but has not yet determined the impact of SFAS No. 144 on its
consolidated financial position and results of operations.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31 (in
thousands):
2001 2000
Casino.................................... $ 1,761 $ 2,066
Hotel..................................... 3,252 4,812
---------- ---------
Total..................................... 5,013 6,878
Allowance for bad debts and discounts..... (1,485) (1,330)
---------- ---------
Ending balance............................ $ 3,528 $ 5,548
========== =========
F-12
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. ACCOUNTS RECEIVABLE (Continued)
Changes in the casino and hotel allowance for bad debts and discounts
consist of the following for the years ended December 31 (in thousands):
2001 2000 1999
---- ---- ----
Beginning balance............................................. $1,330 $1,611 $1,314
Write-offs.................................................... (122) (220) (872)
Recoveries.................................................... 45 29 107
Provision for bad debts and gaming discounts.................. 232 (90) 1,062
-------- -------- -------
Ending balance................................................ $1,485 $1,330 $1,611
====== ====== ======
3. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following at December
31 (in thousands):
2001 2000
Prepaid gaming taxes...................................................... $939 $1,440
Prepaid insurance......................................................... 413 749
Other prepaid expenses.................................................... 1,731 2,410
------- -------
Total..................................................................... $3,083 $4,599
====== ======
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31 (in
thousands):
2001 2000
Land and improvements................................................ $ 38,130 $ 37,718
Buildings and improvements........................................... 143,414 142,115
Equipment, furniture, and fixtures................................... 113,366 104,361
----------- ----------
Total property and equipment......................................... 294,910 284,194
Accumulated depreciation............................................. (94,379) (77,164)
----------- ----------
Net property and equipment........................................... $ 200,531 $207,030
=========== ==========
Approximately $0, $616,000, and $4,733,000 in interest costs were
capitalized on construction projects in 2001, 2000, and 1999, respectively.
Substantially all of the Company's property and equipment is pledged as
collateral to secure debt (see Note 8). Repairs and maintenance that do not
significantly improve the life of fixed assets are expensed as incurred. Costs
for significant improvements that extend the expected life of fixed assets more
than one year are capitalized and depreciated over the remaining extended life,
using a straight-line method of depreciation.
Property under capital leases totaled $11,242,000 and $11,242,000 with
accumulated amortization of $4,507,000 and $2,258,000 at December 31, 2001 and
2000, respectively.
F-13
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. OTHER ASSETS
Other assets consist of the following at December 31 (in thousands):
2001 2000
Deposits............................................................... $177 $152
Bond offering costs and commissions, net of accumulated amortization
of $6,756 and $5,187, respectively.................................. 4,916 6,585
Other.................................................................. 1,635 1,391
----- -----
Total.................................................................. $6,728 $8,128
====== ======
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable consist of the following at December 31 (in
thousands):
2001 2000
Outstanding chip and token liability.................................... $597 $563
Slot club liabilities................................................... 1,283 1,115
Progressive liabilities................................................. 312 439
Casino account deposits and miscellaneous gaming........................ 139 146
------ ------
Total liabilities related to gaming activities.......................... 2,331 2,263
Accounts payable to vendors............................................. 4,406 5,196
Hotel deposits.......................................................... 1,032 1,189
Construction payables................................................... 304
Other................................................................... 431 779
-------- --------
Total................................................................... $8,200 $9,731
====== ======
Accrued expenses consist of the following at December 31 (in
thousands):
2001 2000
Payroll, related payroll taxes, and employee benefits................. $7,907 $7,999
Incentive, retention, and ESOP........................................ 2,639 4,831
Other................................................................. 4,194 3,901
--------- ---------
Total................................................................. $14,740 $16,731
======= =======
7. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the nonqualified pension plan
obligation to the CEO of the Company, payable upon expiration of his employment
contract or with a change of control, including accrued interest and deferred
compensation plan liabilities for eligible employees.
F-14
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. OTHER LONG-TERM LIABILITIES (Continued)
See Note 14 for a description of these plans.
2001 2000
Nonqualified pension obligation, CEO, unfunded.............................. $4,163 $4,663
Accrued interest on pension, CEO, unfunded.................................. 2,649 1,870
Deferred compensation, funded............................................... 579
--------
Total....................................................................... $7,391 $6,533
====== ======
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
2001 2000
---- ----
10%First Mortgage Notes maturing on August 15, 2004, bearing interest,
payable semiannually on February 15 and August 15 of each year,
redeemable beginning August 1, 2001 at 105%; 2002 at 102.5%; and 2003
and thereafter at 100%. These notes are collateralized by the land and
physical structures comprising the Riviera Hotel and Casino and
secondarily the assets of Riviera Black Hawk beginning in March 2002
(with a carrying value at December 31, 2001 of $130,938 for RHC and
$61,425 for RBH)......................................................... $174,193 $173,885
13%First Mortgage Notes maturing on June 3, 2005, bearing interest,
payable semiannually on November 3 and June 3 of each year; redeemable
beginning May 1, 2002 at 106.5%; 2003 at 103.25%; and after 2004 at
100%. These notes are collateralized by the land and physical structures
comprising the Riviera Black Hawk Casino (with a carrying value at
December 31, 2001 of $61,425)............................................ 34,941 38,441
5.6% to 9% Notes collateralized by equipment and vehicles, payable monthly,
including interest, maturing through October 2004 (with a carrying value
at December 31, 2001 of $2,424).......................................... 2,424 3,227
Capitalized lease obligations (Note 10)..................................... 7,921 9,887
5.5% Special Improvement District Bonds--issued by the City of Black Hawk,
Colorado, interest and principal payable monthly over 10 years beginning
in 2000.................................................................. 960 603
------------ ------------
Total long-term debt........................................................ 220,439 226,043
Current maturities by terms of debt......................................... (3,151) (2,871)
---------- ----------
Total....................................................................... $217,288 $223,172
======== ========
F-15
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. LONG-TERM DEBT (Continued)
Maturities of long-term debt for the years ended December 31 are as
follows (in thousands):
2002............................................................................. $ 3,151
2003............................................................................. 3,474
2004............................................................................. 177,553
2005............................................................................. 35,726
2006............................................................................. 124
Thereafter....................................................................... 411
-----------
Total............................................................................ $ 220,439
===========
In February 1997, the Company entered into a $15.0 million, five-year
reducing revolving line of credit (the "Credit Facility"). The Credit Facility
bears interest at prime plus 0.5% or the London Interbank Offered Rate plus
2.9%. The Company has not utilized this line of credit because it does not meet
the requirements under the ratio of the allowable funded debt to earnings before
interest, taxes, depreciation, and amortization ("EBITDA") of 4.75 to 1. The
Credit Facility is callable upon a change in control and expired in February
2002.
On August 13, 1997, the Company issued 10% First Mortgage Notes ("10%
Notes") with a principal amount of $175 million. The 10% Notes were issued at a
discount in the amount of $2.2 million. The discount is being accreted over the
life of the notes on a straight-line basis, which approximates the effective
interest method. The 10% First Mortgage Note Indenture contains certain
covenants that limit the ability of the Company and its restricted subsidiaries,
subject to certain exceptions, to: (i) incur additional indebtedness; (ii) pay
dividends or other distributions and repurchase capital stock or other equity
interests or subordinated indebtedness; (iii) enter into certain transactions
with affiliates; (iv) create certain liens; (v) sell certain assets; and (vi)
enter into certain mergers and consolidations. The Company has registered
securities identical to the 10% Notes, under the Securities Act of 1933, as
amended. On January 8, 1998, the Company completed an exchange offer for such
registered securities for the 10% Notes effective January 1, 1998.
The 10% Notes are unconditionally guaranteed by all existing and future
restricted subsidiaries of the Company, which did not initially include RBH. RBH
became collateral for the 10% Notes upon the filing of its financial statements
with the Securities and Exchange Commission because certain consolidated
operating ratios as defined in the 10% Notes were met as of December 31, 2001,
which causes RBH to become a restricted subsidiary.
On June 3, 1999, RBH completed a $45 million private placement of 13%
Notes. The net proceeds of the placement were used to fund the completion of
RBH's casino project in Black Hawk, Colorado. Riviera Holdings Corporation has
not guaranteed the $45 million RBH notes but has agreed to a "Keep-Well
Agreement" of $5 million per year (or an aggregate limited to $10 million) for
the first three years of RBH operations to cover if (i) the $5.85 million
interest on such notes is not paid by RBH and (ii) the amount by which RBH cash
flow is less than $9.0 million per year. RBH has registered securities identical
to the 13% Notes under the Securities Act of 1933, as amended. On January 4,
2000, RBH completed an exchange offer for such registered securities.
The 13% Notes were issued at a cost of $3.5 million. The deferred
financing cost is being amortized over the life of the notes on a straight-line
basis, which approximates the effective interest method.
F-16
The 13% First Mortgage Note Indenture provides that, in certain
circumstances, RBH must offer to repurchase the 13% Notes upon the occurrence of
a change of control or certain other events. In the event of such mandatory
redemption or repurchase prior to maturity, RBH would be unable to pay the
principal amount of the 13% Notes without a refinancing.
The 13% First Mortgage Note Indenture contains certain covenants, which
limit the ability of RBH and its restricted subsidiaries, subject to certain
exceptions, to: (i) incur additional indebtedness; (ii) pay dividends or other
distributions and repurchase capital stock or other equity interests or
subordinated indebtedness; (iii) enter into certain transactions with
affiliates; (iv) create certain liens and sell certain assets; and (v) enter
into certain mergers and consolidations. As a result of these restrictions, the
ability of the Company to incur additional indebtedness to fund operations or to
make capital expenditures is limited. In the event that cash flow from
operations is insufficient to cover cash requirements, the Company would be
required to curtail or defer certain of its capital expenditure programs under
these circumstances, which could have an adverse effect on RBH's operations. At
December 31, 2001, RBH believes that it is in compliance with the covenants.
The Company has a credit facility totaling $1,500,000 for letters of
credit issued periodically to foreign vendors for purchases of merchandise. The
letters require payment upon presentation of a valid voucher.
The 5.5% Special Improvement District Bonds were issued by the City of
Black Hawk, Colorado, in July 1998 for $2,940,000. The proceeds were used for
road improvements and other infrastructure projects benefiting the Riviera Black
Hawk Casino and another nearby casino. The projects were substantially completed
in 2000 at a cost of $2,240,000, including interest and reserves. During 2001,
another phase was completed. RBH's share of the final phase was $454,000. The
excess proceeds have been returned to the bondholders by the City of Black Hawk,
Colorado. RBH is responsible for 50% of the debt, payable over 10 years
beginning in 2000.
See also Note 19.
9. GUARANTOR INFORMATION
The Company's 10% Notes (see Note 8) are guaranteed by a majority of
the Company's wholly owned existing significant subsidiaries. These guaranties
are full, unconditional, and joint and several. The following consolidating
schedules present separate condensed financial statement information on a
combined basis for the parent only, as well as the Company's guarantor
subsidiaries and non-guarantor subsidiaries, as of and for the years ended
December 31, 2001 and 2000. As of December 31, 1999, RBH had no operations as
defined in the notes to consolidated financial statements. At December 31, 1999,
RBH had total assets of approximately $72.8 million, which represented primarily
cash and restricted cash and investments, other assets, the cost of the land for
the Black Hawk Casino project, and construction in progress. Therefore, the
Company has not included separate financial information for the guarantors as of
December 31, 1999.
The management fee to Riviera Holdings Corporation from guarantors
represents cost to the Company of depreciation and interest expense on the 10%
Notes.
F-17
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. GUARANTOR INFORMATION (Continued)
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2001 (in thousands)
Combined
Parent Combined Non- Elimination Consolidated
Only Guarantors Guarantors Entries Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................... $10,237 $24,910 $11,459 $46,606
Current assets.............................. 8,102 762 8,864
--------------- --------- ---------- -----------
Total current assets..................... 10,237 33,012 12,221 55,470
PROPERTY AND EQUIPMENT, Net.................... 130,938 2,044 67,549 200,531
OTHER ASSETS, NET.............................. 2,269 2,485 1,974 6,728
INVESTMENT IN SUBSIDIARIES..................... 51,189 24,946 $(76,135)(1)
DEFERRED INCOME TAXES.......................... 3,356 1,733 5,089
------------- --------- ---------- ---------------- -----------
TOTAL.......................................... $194,633 $65,843 $83,477 $(76,135) $267,818
======== ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........... $1,198 $1,953 $3,151
Due to parent company....................... 24,716 3,335 $(28,051)(1)
Accounts payable............................ 3,876 4,324 8,200
Accrued interest............................ $6,563 1 1,520 8,084
Accrued expenses............................ 13,092 1,648 14,740
------------- ------ ------- ---------------- -------
Total current liabilities................ 6,563 42,883 12,780 (28,051)(1) 34,175
--------- ------ ------ --------- -------
OTHER LONG-TERM LIABILITIES.................... 7,391 7,391
-------------- ------- ----------- ---------------- --------
LONG-TERM DEBT, Net of current portion......... 174,116 2,402 40,770 217,288
------- ------- ------ ---------------- -------
STOCKHOLDERS' EQUITY:
Common stock................................ 5 5
Additional paid-in capital.................. 11,283 17,528 32,758 (48,084)(1) 13,485
Treasury stock.............................. (10,460) (786) (11,246)
Retained earnings........................... 13,126 (3,575) (2,831) 6,720
---------- -------- --------- ---------------- -----------
Total stockholders' equity............... 13,954 13,167 29,927 (48,084) 8,964
---------- --------- --------- --------- -----------
TOTAL.......................................... $194,633 $65,843 $83,477 $(76,135) $267,818
======== ======== ======== ======== ========
-----------
Elimination entries--
(1) To eliminate investment in and advances to subsidiaries.
F-18
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 2000
(in thousands)
Combined
Parent Combined Non- Elimination Consolidated
Only Guarantors Guarantors Entries Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................... $ 11,957 $32,473 $ 7,744 $52,174
Current assets.............................. 12,489 1,000 13,489
-------------- --------- -------- ---------
Total current assets..................... 11,957 44,962 8,744 65,663
PROPERTY AND EQUIPMENT, Net.................... 135,542 2,983 68,505 207,030
OTHER ASSETS, Net.............................. 3,156 2,887 2,510 $(425)(1) 8,128
INVESTMENT IN SUBSIDIARIES..................... 46,737 32,869 (79,606)(1)
DEFERRED INCOME TAXES.......................... 764 2,125 2,889
--------------- ---------- ---------- -------------- -----------
TOTAL.......................................... $197,392 $84,465 $81,884 $(80,031) $283,710
======== ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........... $ 1,101 $ 1,770 $2,871
Due to parent company....................... 29,713 $(29,713)(1)
Accounts payable............................ 6,565 3,591 (425)(1) 9,731
Accrued interest............................ $6,563 2 1,162 7,727
Accrued expenses............................ 13,440 3,291 16,731
------------- ------ ------- --------------- --------
Total current liabilities................ 6,563 50,821 9,814 (30,138)(1) 37,060
--------- ------ ------- ------- --------
OTHER LONG-TERM LIABILITIES.................... 6,533 6,533
------------- ------- ------------ --------------- ---------
LONG-TERM DEBT, Net of current portion......... 173,885 3,510 45,777 223,172
------- ------- ------ --------------- -------
STOCKHOLDERS' EQUITY:
Common stock................................ 5 5
Additional paid-in capital.................. 13,447 20,179 29,713 (49,893)(1) 13,446
Treasury stock.............................. (9,633) (9,633)
Retained earnings........................... 13,125 3,422 (3,420) 13,127
---------- --------- -------- --------------- -----------
Total stockholders' equity............... 16,944 23,601 26,293 (49,893) 16,945
---------- -------- -------- --------- -----------
TOTAL.......................................... $197,392 $84,465 $81,884 $(80,031) $283,710
======== ======= ======= ======== ========
-----------
Elimination entries--
(1) To eliminate investment in and advances to subsidiaries.
F-19
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 2001
(in thousands)
Combined
Parent Combined Non- Elimination Consolidated
Only Guarantors Guarantors Entries Totals
REVENUES:
Casino..................................... $67,389 $46,650 $114,039
Rooms...................................... 44,255 44,255
Food and beverage.......................... 25,696 5,560 31,256
Entertainment.............................. 20,418 274 20,692
Other...................................... 8,547 572 9,119
Management fee............................. $30,113 $(30,113)(1)
------- --------------- ------------- -------- ----------------
Total revenues........................ 30,113 166,305 53,056 (30,113) 219,361
Less promotional allowances................ 13,320 4,010 17,330
-------------- --------- ---------- -------------- -----------
Net revenues.......................... 30,113 152,985 49,046 (30,113) 202,031
--------- -------- -------- --------- ----------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino.................................. 40,197 22,648 62,845
Rooms................................... 23,339 23,339
Food and beverage....................... 19,333 2,093 21,426
Entertainment........................... 14,823 77 14,900
Other................................... 3,068 3,068
Other operating expenses:
General and administrative.............. 30,733 11,506 42,239
Management fees......................... 28,759 1,354 (30,113)(1)
Depreciation and amortization........... 11,431 2,066 3,746 17,243
-------- ---------- -------- -------------- ---------
Total costs and expenses.............. 11,431 162,318 41,424 (30,113) 185,060
-------- -------- ------- --------- --------
INCOME (LOSS) FROM OPERATIONS................. 18,682 (9,333) 7,622 16,971
-------- --------- -------- -------------- ---------
OTHER (EXPENSE) INCOME:
Interest expense........................... (18,938) (1,186) (6,740) (26,864)
Interest income............................ 256 919 99 1,274
Other, net................................. (28) (28)
---------------- --------- ------------------------------ ----------
Total other expense................... (18,682) (295) (6,641) (25,618)
------- -------- -------- -------------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES.......... (9,628) 981 (8,647)
BENEFIT FOR INCOME TAXES...................... (2,632) 392 (2,240)
---------------- --------- -------- -------------- ---------
NET INCOME (LOSS)............................. $ -- $ (6,996) $ 589 $ -- $ (6,407)
============== ======== ======= ============ ========
-----------
Elimination entries--
(1) To eliminate intercompany revenue and expense.
F-20
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31, 2000
(in thousands)
Combined
Parent Combined Non- Elimination Consolidated
Only Guarantors Guarantors Entries Totals
REVENUES:
Casino..................................... $74,057 $33,636 $107,693
Rooms...................................... 43,819 43,819
Food and beverage.......................... 26,738 4,018 30,756
Entertainment.............................. 24,526 24,526
Other...................................... 9,607 374 $557 10,538
Management fee............................. $31,140 557 (31,697)(1)
------- ----------- -------------- --------- ----------------
Total revenues........................ 31,140 179,304 38,028 (31,140) 217,332
Less promotional allowances................ 13,034 2,767 15,801
-------------- ---------- --------- -------------- ----------
Net revenues.......................... 31,140 166,270 35,261 (31,140) 201,531
--------- -------- --------- -------- ---------
COSTS AND EXPENSES:
Direct costs and expenses of operating departments:
Casino.................................. 40,164 17,286 57,450
Rooms................................... 23,364 23,364
Food and beverage....................... 19,773 1,599 21,372
Entertainment........................... 18,954 5 18,959
Other................................... 3,144 2 3,146
Other operating expenses:
General and administrative.............. 31,540 9,772 41,312
Management fees......................... 30,583 557 (31,140)(1)
Preopening expenses Black Hawk, Colorado 1,222 1,222
Depreciation and amortization........... 13,090 1,800 2,937 17,827
--------- --------- -------- ----------------- --------
Total costs and expenses.............. 13,090 169,322 33,380 (31,140) 184,652
--------- ------- ------- --------- -------
INCOME FROM OPERATIONS........................ 18,050 (3,052) 1,881 16,879
--------- ------- -------- ----------------- --------
OTHER (EXPENSE) INCOME:
Interest expense........................... (18,550) (1,568) (7,687) (27,805)
Interest income............................ 500 1,611 318 2,429
Interest capitalized....................... 39 577 616
Other, net................................. 1,171 1,171
-------------- --------- ------------- ----------------- ---------
Total other (expense) income.......... (18,050) 1,253 (6,792) (23,589)
-------- --------- -------- ----------------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES.......... (1,799) (4,911) (6,710)
BENEFIT FOR INCOME TAXES...................... (530) (1,965) (2,495)
----------------- --------- -------- ----------------- ---------
NET LOSS...................................... $ -- $ (1,269) $ (2,946) $ -- $ (4,215)
================ ========= ========= ================= =========
-----------
Elimination entries--
(1) To eliminate intercompany revenue and expense.
F-21
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 2001
(in thousands)
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Total
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.............................. $(6,996) $589 $ -- $(6,407)
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization............... $11,431 2,066 3,746 17,243
Provision for bad debts..................... 89 136 225
Provision for gaming discounts.............. (70) (70)
Interest expense............................ 18,938 1,186 6,740 26,864
Interest paid............................... (17,500) (170) (5,820) (23,490)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net 2,005 (140) 1,865
Decrease (increase) in inventories........ 1,003 86 1,089
Decrease (increase) in prepaid expenses and
other assets........................... 1,360 156 1,516
Increase (decrease) in accounts payable... (1,738) (10) (1,748)
Increase (decrease) in accrued expenses... (2,888) 468 (2,420)
Increase (decrease) in other long-term
liabilities deferred compensation plan
obligation............................. 579 579
Increase (decrease) in deferred tax asset. (2,592) 392 (2,200)
Increase (decrease) in other long term
liabilities............................ (500) (500)
------------ --------- ----------- ----------------- ---------
Net cash provided by (used in) operating
activities.......................... 12,869 (6,666) 6,343 12,546
---------- -------- ---------- ----------------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (7,622) (2,640) (10,262)
Decrease (increase) in other assets............ (13,800) 13,911 (26) 85
---------- -------- ---------- ----------------- ------------
Net cash (used in) provided by investing
activities.......................... (13,800) 6,289 (2,666) (10,177)
---------- -------- -------- ----------------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings............... (1,087) (1,778) (2,865)
Purchase of treasury stock, general............ (993) (993)
Increase in paid in capital.................... 41 41
Purchase of treasury stock, deferred compensation
trust....................................... (786) (786)
Issuance of restricted stock................... 166 166
Advances to/from subsidiaries.................. (2,271) 2,271
Purchase of 13% Mortgage Notes--Black Hawk...... (3,500) (3,500)
Contribution of capital to Riviera Black Hawk, Inc (3,045) 3,045
----------- --------- -------- ----------------- ------------
Net cash (used in) provided by financing
activities.......................... (786) (7,189) 38 (7,937)
----------- --------- ---------- ----------------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.. (1,717) (7,566) 3,715 (5,568)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...... 11,957 32,473 7,744 52,174
---------- ---------- ----------- ----------------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR............ $ 10,240 $ 24,907 $ 11,459 $ -- $ 46,606
======== ======== ======== =================== =========
F-22
RIVIERA HOLDINGS CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
YEAR ENDED DECEMBER 31, 2000
(in thousands)
Combined
Parent Combined Non- Elimination Combined
Only Guarantors Guarantors Entries Totals
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $(1,269) $(2,946) $ -- $ (4,215)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization............... $13,090 1,800 2,937 17,827
Provision for bad debts..................... 283 43 326
Provision for gaming discounts.............. 45 45
Interest expense............................ 18,550 1,568 7,687 27,805
Interest paid............................... (17,500) (1,566) (5,344) (24,410)
Interest capitalized on construction projects (39) (577) (616)
Changes in operating assets and liabilities:
Increase in accounts receivable, net...... (669) (208) (877)
Decrease (increase) in inventories........ 360 (270) 90
(Increase) decrease in prepaid expenses and
other assets........................... (1,226) 619 (607)
(Decrease) increase in accounts payable... (5,918) 3,847 (2,071)
Increase in accrued expenses.............. 6,278 1,070 7,348
Decrease in deferred tax assets........... (569) (1,965) (2,534)
Decrease in other long-term liabilities--slot
annuities payable...................... (3) (3)
Increase in other long-term liabilities... 1,247 1,247
----------------- -------- ---------------- ---------------------------
Net cash provided by operating activities 14,140 322 4,893 19,355
----------- --------- ----------- ---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (7,465) (16,969) (24,434)
Interest capitalized on construction projects.. 39 577 616
Decrease in short-term investments............. 2,438 2,820 5,258
Decrease in restricted funds................... 7,887 7,173 15,060
Decrease (increase) in other assets............ 1,389 (2,044) (6) (661)
----------- ----------- ----------- ----------------------------
Net cash provided by (used in) investing
activities.......................... 1,389 855 (6,405) (4,161)
----------- ------------- -------- ----------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings............. 34 9,518 9,552
Payments on long-term borrowings............... (1,076) (1,223) (2,299)
Purchase of treasury stock..................... (6,518) (6,518)
Advances to/from subsidiaries.................. (4,772) 5,301 (529)
Purchase of 13% First Mortgage Notes--Black Hawk (6,559) (6,559)
Contribution of capital to Riviera Black Hawk,Inc (6,239) 6,239
----------- --------------- --------- ----------------------------
Net cash (used in) provided by financing
activities.......................... (17,529) 4,259 7,446 (5,824)
---------- ----------- --------- ----------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.. (2,000) 5,436 5,934 9,370
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...... 13,957 27,037 1,810 42,804
----------- ----------- ---------- ---------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR............ $ 11,957 $ 32,473 $ 7,744 $ -- $ 52,174
========= ========= ======== ============== ==========
F-23
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. LEASING ACTIVITIES
The Company leases certain equipment under capital leases. These
agreements have been capitalized at the present value of the future minimum
lease payments at lease inception and are included with property and equipment.
Management estimates that the fair market value of the property and equipment,
subject to the leases, approximates the net present value of the leases.
The following is a schedule by year of the minimum rental payments due
under capital leases as of December 31, 2001 (in thousands):
2002........................................................................... $ 2,979
2003........................................................................... 2,979
2004........................................................................... 2,979
2005........................................................................... 674
--------
Total minimum lease payments................................................... 9,611
Taxes, maintenance, and insurance.............................................. (295)
Interest portion of payments................................................... (1,395)
------
Present value of net minimum lease payments.................................... $ 7,921
========
Rental expense under operating leases for the years ended December 31,
2001, 2000, and 1999 was approximately $903,555, $1,133,983, and $453,772,
respectively. Such leases were year to year in nature.
In addition, the Company leases retail space (primarily to retail shops
and fast food vendors) to third parties under terms of noncancelable operating
leases that expire in various years through 2006. Rental income, which is
included in other income, for the years ended December 31, 2001, 2000, and 1999
was approximately $1,800,000, $1,584,300, and $1,803,000, respectively.
At December 31, 2001, the Company had future minimum annual rental
income due under noncancelable operating leases as follows (in thousands):
2002............................................................................. $ 1,356
2003............................................................................. 1,358
2004............................................................................. 1,358
2005............................................................................. 1,358
2006............................................................................. 1,358
--------
Total............................................................................ $ 6,788
========
11. FEDERAL INCOME TAXES
The Company computes deferred income taxes based upon the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.
F-24
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. FEDERAL INCOME TAXES (Continued)
The effective income tax rates on income attributable to continuing
operations differ from the statutory federal income tax rates for the years
ended December 31 as follows (in thousands):
2001 2000 1999
------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
Benefit for income taxes at
federal statutory rate......... $(3,026) (35.0)% $(2,349) (35.0)% $(2,565) (35.0)%
Taxes, state, other............... 392 4.5
Benefit from outcome of IRS
examination.................... (1,874) (25.6)
Other............................. 394 4.6 (146) (2.2) (22) (0.2)
---------- -------- --------- ------- ---------- ------
Benefit for income taxes.......... $(2,240) (25.9)% $(2,495) (37.2)% $(4,461) (60.8)%
======= ===== ======= ===== ======= =====
Comparative analysis of the benefit for income taxes is as follows:
2001 2000 1999
---- ---- ----
Current........................................................... $157 $1,223 $(984)
Deferred.......................................................... (2,397) (3,718) (3,477)
------- ------- --------
Total............................................................. $(2,240) $(2,495) $(4,461)
======= ======= =======
The tax effects of the items composing the Company's net deferred tax
(assets) liabilities consist of the following at December 31 (in thousands):
2001 2000
Deferred tax liabilities:
Reserve differential for hospitality and gaming activities...................... $559 $1,393
Difference between book and tax-depreciable property............................ 4,845 5,217
Other........................................................................... 579 560
------ ------
Total.............................................................................. 5,983 7,170
----- -----
Deferred tax assets:
Net operating loss carryforward................................................. 4,383 3,309
Reserves not currently deductible............................................... 2,647 2,416
Bad debt reserves............................................................... 583 483
AMT and other credits........................................................... 3,459 3,851
------- ------
Total.............................................................................. 11,072 10,059
------ ------
Net deferred tax assets............................................................ $5,089 $2,889
====== ======
The Company has $3,453,000 of alternative minimum tax ("AMT") credit
and $7,000 of general business credit available to offset future income tax
liabilities. The AMT credit has no expiration date. The credit will not begin to
expire until 2012.
The Company performed an analysis of the realizability of its deferred
tax assets at December 31, 2001. The realizability of the assets related to
Rivera Las Vegas is dependent upon future earnings and tax strategies which the
Company may transact in 2002 and 2003. No allowance was required at December 31,
2001 or 2000.
F-25
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. COMMITMENTS AND CONTINGENCIES
The Company is party to several routine lawsuits, both as plaintiff and
defendant, arising from the normal operations of a hotel. Management does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the consolidated financial position, results of
operations, or cash flows of the Company.
Allen Paulson Merger/Litigation--The Company and the plaintiffs to this
action entered into a Settlement Agreement dated July 2, 1999. The Settlement
Agreement was conditioned upon the United States District Court for the Central
District of California (the "Court") entering a Settlement Bar Order and Final
Judgment and provided that upon the entering of such an Order: (i) the Company
would pay plaintiff Allen E. Paulson (and his heirs or successors) ("Paulson")
$3,477,412 ($7.50 per share) for the 463,655 shares of Riviera Holdings
Corporation common stock owned by Paulson, (ii) Paulson would receive
$1,522,587.50 from the funds being held in escrow for the benefit of holders of
Riviera Holdings Corporation's Contingent Value Rights ("CVRs"), (iii) the
remainder of the escrow of approximately $4,340,000 would be distributed to the
holders of the CVRs, and (iv) Paulson would file an amended complaint which
eliminated allegations of wrongdoing against us.
On October 7, 1999, the Court entered a Settlement Bar Order and Final
Judgment which dismissed the California Action against the Company with
prejudice and barred the other defendants to the lawsuit from seeking
indemnification against the Company for claims arising under the federal
securities laws or for state law claims arising out of the transactions
underlying the plaintiffs' federal security law claims.
Shortly after the entry of the Settlement Bar Order, the Company
acquired Paulson's stock, and funds were disbursed from escrow as per the terms
of the Settlement Agreement.
Morgens, Waterfall, Vintiadis Litigation (the "Nevada Action")--The
plaintiff in this action ("Morgens, Waterfall") is a stockholder of Riviera
Holdings Corporation and a defendant to the California Action. On September 30,
1999, Morgens, Waterfall commenced this action in Nevada state court, where it
sought an order enjoining the Company from obtaining a Settlement Bar Order in
the California Action. The Company and the other defendants to the Nevada Action
removed the action to the United States District Court for the District of
Nevada on October 1, 1999. This removal to federal court divested the state
court of jurisdiction to consider Morgens, Waterfall's motion for injunctive
relief. Morgens, Waterfall filed a complaint with the court, but it did not
serve the complaint on any of the defendants.
On November 1, 1999, Morgens, Waterfall served a notice of motion to
remand the Nevada Action from the Nevada federal court back to Nevada state
court. The Company and the other defendants opposed the motion, and on May 24,
2000, the Court denied Morgens, Waterfall's motion.
On January 31, 2000, Morgens, Waterfall served an Amended Summons and a
First Amended Verified Complaint on Riviera Holdings Corporation with subsequent
service on directors. The Amended Complaint asserted four claims for relief.
On April 17, 2000, the Company and its directors moved to dismiss
Morgens, Waterfall's Amended Complaint. In response, Morgens, Waterfall opposed
the directors' motion but "conceded" its claim against the Company. As a
consequence, Morgens, Waterfall no longer asserted any claim against the
Company, but it has opposed dismissing the Company from the action on the
grounds that the Company was a "nominal defendant" with respect to the
derivative claims asserted by Morgens, Waterfall against the directors.
F-26
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. COMMITMENTS AND CONTINGENCIES (Continued)
On October 1, 2001, Morgens, Waterfall, the Company, and the directors
entered into a Settlement Agreement settling the Nevada Action. That Settlement
Agreement provides that the plaintiff would release its claims with prejudice
against each defendant and each defendant would release its claims with
prejudice against the plaintiff, conditioned upon Mr. William L. Westerman's
accepting service of a subpoena to personally appear and testify at the trial of
the California Action.
See also Note 19.
Employees and Labor Relations--As of December 31, 2001, the Company had
approximately 1,782 full-time equivalent employees and collective bargaining
contracts with eight unions covering approximately 813 of such employees,
including food and beverage employees, rooms department employees, carpenters,
engineers, stage hands, musicians, electricians, painters, and teamsters. The
Company's agreements with the Southern Nevada Culinary and Bartenders Union and
Stage Hands Union, which cover the majority of the Company's unionized
employees, were renegotiated in 1998 and expire in the year 2002. Collective
bargaining agreements with the operating engineers, painters, and electricians
were renegotiated in 2000 and expire in 2004, 2005, and 2004, respectively. A
new agreement was negotiated with the carpenters which expires in 2005. The
Company is also in negotiations with the Musicians Union. A new agreement was
negotiated with the Teamsters, which expires in 2003. Although unions have been
active in Las Vegas, management considers its employee relations to be
satisfactory. There can be no assurance, however, that new agreements will be
reached without union action or will be on terms satisfactory to the Company.
Keep-Well Agreement--RBH and Riviera Holdings Corporation entered a
Keep-Well Agreement wherein, if (1) RBH does not have the necessary funds to
make a payment of fixed interest on the notes during its first three years of
operations or (2) consolidated cash flow is less than $9.0 million in any of the
first three years of operations, Riviera Holdings Corporation will be obligated
to contribute cash to RBH to make up those amounts (up to a maximum of $5.0
million for any one operating year and $10.0 million in the aggregate). On
February 14, 2001, the Company advanced approximately $3.1 million to RBH under
this agreement. As of December 31, 2001, Riviera Holdings Corporation does not
owe amounts under the Keep-Well Agreement.
13. MANAGEMENT AGREEMENTS
From August 1996 until December 1999, RGM operated the Four Queens in
downtown Las Vegas under a management agreement for a minimum annual management
fee of $1.0 million. The Company completed its requirements under the agreement,
and the Four Queens Management Agreement was terminated December 30, 1999.
RBH has a management agreement (the "RBH Management Agreement") with
Riviera Gaming Management of Colorado, Inc. (the "Manager"), a wholly owned
subsidiary of Riviera Holdings Corporation, which, in exchange for a fee,
manages RBH. The management fee consists of a revenue fee and a performance fee.
The revenue fee is based on 1% of net revenues (gross revenues less
complimentaries) and is payable quarterly in arrears. The performance fee is
based on the following percentages of EBITDA, which components are based on
GAAP: (1) 10% of EBITDA from $5 million to $10 million, (2) 15% of EBITDA from
$10 million to $15 million, and (3) 20% of EBITDA in excess of $15 million. The
performance fee is based on the preceding quarterly installments, subject to
year-end adjustment. The management fee began on February 4, 2000, the date of
the opening of the Riviera Black Hawk Casino. If there is any default under the
RBH Management Agreement, the Manager will not be entitled to receive management
fees but will
F-27
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. MANAGEMENT AGREEMENTS (Continued)
still be entitled to intercompany service fees. At December 31, 2001, RBH had
accrued but not paid, and the Manager had recognized management fees of,
$1,911,229, which are eliminated in consolidation.
14. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS
Chairman--William L. Westerman serves as Chairman of the Board,
President and Chief Executive Officer ("CEO") of the Company, and as Chairman of
the Board and Chief Executive Officer of ROC.
Under Mr. Westerman's existing employment agreement with the Company,
which was last amended on December 6, 2000, Mr. Westerman shall be employed by
the Company for an indefinite period, subject to termination by either the
Company or Mr. Westerman on not less than 120 days' prior written notice. Mr.
Westerman's base compensation is $600,000.
Under his employment agreement, Mr. Westerman is entitled to
participate in the Company's Senior Management Compensation Plan or such other
executive bonus plan as shall be established by the Company's Board of Directors
(collectively the "Plan"). If at least 80% of targeted net income, as defined by
the Plan, is met, Mr. Westerman shall be entitled to receive a bonus under the
Plan expressed as a percentage of his $600,000 base salary depending on the
percentage of targeted net income realized by the Company in a particular year,
with a maximum bonus of $900,000. Pursuant to the December 6, 2000 amendment, to
the extent Mr. Westerman's bonus exceeds $400,000 in 2001 and each succeeding
year, such excess amount shall 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.
The employment agreement provides that the Company fund a retirement
account for Mr. Westerman. Pursuant to the employment agreement, an aggregate of
$6,812,000 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 Mr. Westerman's base
salary for that year is credited to the account on January 1 of that year.
Pursuant to the December 6, 2000 amendment to Mr. Westerman's employment
agreement, the January 1, 2001 contribution was the final principal contribution
to the retirement account. As of December 31, 2001, none of this account has
been funded.
The Company retains beneficial ownership of all monies in the
retirement account, which monies are earmarked to pay Mr. Westerman's retirement
benefits. However, upon (i) the vote of a majority of the outstanding shares of
common stock approving a "Change of Control" (as defined below), (ii) the
occurrence of a Change of Control without Mr. Westerman's consent, (iii) a
breach by the Company of a material term of the employment agreement, or (iv)
the expiration or earlier termination of the term of the employment agreement
for any reason other than cause, Mr. Westerman has the right to require the
Company to establish a "Rabbi Trust" for his benefit. He also has the right to
require the Company to fund such trust with an amount of cash equal to the
amount then credited to the retirement account, including any amount to be
credited to the retirement account upon a Change of Control.
On February 5, 1998, the stockholders of the Company by a majority vote
approved the Agreement and the Plan of Merger with R&E Gaming Corp. and its
wholly owned subsidiary Riviera Acquisition Sub, Inc. Such stockholder approval
constituted a Change of Control. On March 5, 1998, subsequent to this Change of
Control, Mr. Westerman exercised his right to require the Company to establish
and fund a Rabbi Trust for his benefit. On March 20, 1998, Mr. Westerman and the
Company entered into an agreement whereby Mr. Westerman waived his right to have
the Company fund the Rabbi Trust in exchange for the Company's agreeing to fund
such Rabbi Trust
F-28
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS (Continued)
within five business days after notice from Mr. Westerman. The merger agreement
was subsequently terminated and litigation ensued.
In the event that Mr. Westerman is no longer employed by the Company
(except for termination for cause, in which case Mr. Westerman would forfeit all
rights to monies in the retirement account), Mr. Westerman will be entitled to
receive the amount in the retirement account (principal and current interest) in
20 equal quarterly installments as of the date he ceases to be employed by the
Company. 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, termination (except for cause),
or upon a change in control of the Company. As of December 31, 2001, none of the
Trust has been funded.
Pursuant to the employment agreement, the retirement account was
credited quarterly with interest and shall be credited with additional amounts
on the first day of each succeeding calendar quarter equal to the product of (i)
the Company's average borrowing cost for the immediately preceding fiscal year,
as determined by the Company's chief financial officer, and (ii) the average
outstanding balance in the retirement account during the preceding calendar
quarter. This interest continues to accrue pursuant to the December 6, 2000
amendment. Total interest earned was $779,000 for 2001, $647,418 for 2000, and
$487,729 for 1999. 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 prepaid prior to the date or dates such taxes are
due.
Mr. Westerman's employment agreement provides (a) that the sum of Mr.
Westerman's base salary, bonus, and credits to his retirement account in any one
year shall not exceed that which would have been payable under his previous
employment agreement with the Company, and (b) that Mr. Westerman shall instruct
the Company of any reductions in base salary, bonus, and credits to his
retirement account necessary to comply with this limitation. The Company
determined that for the year 1999, a reduction of $467,000 was necessary to
comply with this provision. For 1998 the Company determined that a reduction of
$194,000 was necessary to comply with this provision. Prior to December 31, 1999
and 1998, Mr. Westerman instructed the Company that this be applied to reduce
the amount to be credited to his retirement account from $600,000 to $133,000
and to $406,000, respectively. No such reductions under this provision were
required in 2001 or 2000.
Incentive Plan--The Company has an incentive compensation plan covering
employees of the Company who, in the opinion of the Chairman of the Board,
either serve in key executive, administrative, professional, or technical
capacities with the Company, or other employees who also have made a significant
contribution to the successful and profitable operation of the Company. The
amount of the bonus is based on operating earnings before depreciation,
amortization, interest expense, provision for income taxes, extraordinary losses
and gains, any provisions or payments made pursuant to the plan, and any
provisions or payments made pursuant to the incentive compensation of the
Chairman and CEO. During the years ended December 31, 2001, 2000, and 1999, the
Company recorded accrued bonuses of $1,873,939, $2,258,500, and $1,871,632,
respectively, based upon the above incentive compensation plan and the incentive
compensation plan established for the Chairman of the Board under his employment
agreement.
F-29
Pension Plan Contributions--The Company contributes to multi-employer
pension plans under various union agreements to which the Company is a party.
Contributions, based on wages paid to covered employees, were approximately
$1,672,000, $1,688,000, and $1,637,000 for the years ended December 31, 2001,
2000, and 1999, respectively. These contributions were for approximately 813
employees, including food and beverage employees, room department employees,
carpenters, engineers, stagehands, electricians, painters, and teamsters. The
Company's share of any unfunded liability related to multi-employer plans, if
any, is not determinable.
Profit Sharing and 401(k) Plans--On June 30, 1993, the Company and ROC
assumed the combined profit sharing and 401(k) plans of Riviera, Inc. (the
"Profit Sharing and 401(k) Plans"), and the Company and ROC have continued the
Profit Sharing and 401(k) Plans after June 30, 1993. The Company and ROC have
amended the Adoption Agreement to provide that all current employees of Riviera
Las Vegas who were employed on April 1, 1992, were at least 21 years of age, and
are not covered by a collective bargaining agreement are immediately eligible to
participate in the Profit Sharing and 401(k) Plans. The amendment provides
further that all current employees who were employed by Riviera Las Vegas after
April 1, 1992, are at least 21 years of age, and are not covered by a collective
bargaining agreement are eligible to participate after one year of service at
the Riviera Las Vegas.
The Company has identical plans for its 100% indirectly owned
subsidiary, Riviera Black Hawk, Inc., which operates its casino in Black Hawk,
Colorado. Employees hired prior to June 30, 2000 who were at least 21 years of
age and 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 are at least 21 years of age and are not covered by
a collective bargaining agreement are eligible to participate after one year of
service at Riviera Black Hawk.
The Company may make a contribution to the 401(k) component of the
Profit Sharing and 401(k) Plans in an amount not to exceed twenty-five percent
(25%) of the first eight percent (8%) of each participant's compensation, which
is contributed as a salary deferral. The Company also paid administrative costs
of the Plan of $21,851, $25,000, and $24,343 for the years ended December 31,
2001, 2000, and 1999, respectively.
The profit sharing component of the Profit Sharing and 401(k) Plans
provides that the Company will make a contribution equal to 1% of each eligible
employee's annual compensation if a prescribed annual operating earnings target
is attained and an additional 1% thereof for each $2 million by which operating
earnings is exceeded, up to a maximum of 3% thereof. The Company may elect not
to contribute to the Profit Sharing and 401(k) Plans if it notifies its
employees by January of the plan year. An employee will become vested in the
Company's contributions based on the employee's years of service. An employee
will receive a year of vesting service for each plan year in which the employee
completed 1,000 hours of service. Vesting credit will be allocated in 20%
increments for each year of service commencing with the attainment of two years
of service. An employee will be fully vested following the completion of six
years of service.
Effective January 1, 2000, the Company suspended contributions to the
Profit Sharing Plan and substituted contributions to an Employee Stock Ownership
Plan (see "Employee Stock Ownership Plan," directly below).
F-30
Employee Stock Ownership Plan--On October 2, 2000, the Board of
Directors adopted an Employee Stock Ownership Plan ("ESOP"). The ESOP was
established effective January 1, 2000 and replaces the profit sharing
contribution component of the Profit Sharing and 401(k) Plans. The 401(k)
component remains unchanged. The ESOP provides that all employees of Riviera Las
Vegas and Riviera Black Hawk employed in the plan year who had completed a
minimum of one thousand hours of service in that plan 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 in
the ESOP. The ESOP provides that the Company will make a contribution to the
ESOP's participants of its Las Vegas and Black Hawk properties relative to the
economic performance of each property. For Riviera Las Vegas, the Company will
make a contribution equal to 1% of each eligible employee's annual compensation
if a prescribed annual operating earnings target is attained and an additional
1% thereof for each $2 million by which operating earnings is exceeded, up to a
maximum of 4% for 2000 and 5% thereafter. For Riviera Black Hawk, the Company
will make a contribution equal to 1% of each eligible employee's annual
compensation if a prescribed annual operating earnings target is attained and an
additional 1% thereof for each $1 million by which operating earnings is
exceeded, up to a maximum of 4% for 2000 and 5% thereafter. Under the ESOP, the
Company contribution will be made in cash, which will be used to buy Company
common stock.
Deferred Compensation Plan--On October 2, 2000, the Board of Directors
adopted a Deferred Compensation Plan (the "Plan"). The purpose of the Plan is to
provide eligible employees of the Company with the opportunity to defer the
receipt of cash compensation. Participation in the nonqualified Plan is limited
to highly compensated employees who receive compensation of at least $100,000.
The deferred funds are maintained on the Company books as unfunded liabilities.
All elections to defer the receipt of compensation must be made no later than
the December 1st preceding the plan year to which the election relates and are
irrevocable for the duration of that plan year. Six Company executives are
currently participating in the Plan.
Restricted Stock Plan--On October 2, 2000, the Board of Directors
adopted a Restricted Stock Plan to provide incentives that will attract and
retain highly competent persons as officers and key employees by providing them
opportunities to receive restricted shares of the Company's common stock.
Participants will consist of such officers and key employees of the Company as
the Company's Compensation Committee determines to be significantly responsible
for the success and future growth and profitability of the Company. Awards of
restricted stock are subject to such terms and conditions as the Company
determines to be appropriate at the time of the grant, including restrictions on
the sale or other disposition of such shares and the provisions for the
forfeiture of such shares for partial or no consideration upon termination of
the participant's employment within specified periods or under certain
conditions. Mr. Robert Vannucci and Mr. Jerome P. Grippe, President and
Executive Vice President, respectively, of the Company's wholly owned
subsidiary, Riviera Operating Corporation, are currently the only participants
in the Restricted Stock Plan.
Key Employee Retention Plan--As a result of the scheduled openings of
several new Las Vegas Strip properties in 1998, 1999, and 2000, an estimated
38,000 jobs had to be filled on the Las Vegas Strip, including approximately
5,000 supervisory positions. Because of the Riviera's performance and
reputation, its employees were prime candidates to fill these positions. In the
third quarter of 1998, management instituted an employee retention plan which
covers approximately 85 executive, supervisory, and technical support positions
F-31
and includes a combination of employment contracts, stay put agreements, bonus
arrangements, and salary adjustments.
Stay Bonus Agreements--Approximately 85 executive officers and
significant employees (excluding Mr. Westerman) of ROC were party to agreements
pursuant to which each such employee was entitled to receive a "stay bonus"
(varying amounts) if the employee was discharged without cause (as defined in
the stay bonus agreements), or continued to be employed by the Company on each
of January 1, 2000, January 1, 2001, and June 30, 2001. The total amount that
was payable under all such agreements was approximately $2.2 million, of which
approximately $610,000 was paid in January 2000, $1,068,000 was paid in January
2001, and $462,500 was paid on June 30, 2001.
Termination Fee Agreements--Approximately 85 executive officers and
significant employees (excluding Mr. Westerman) of ROC have termination fee
agreements effective through December 2003, pursuant to which each of such
employees will be entitled to receive (1) either six months' or one year's base
salary if their employment with the Company is terminated, without cause, within
12 or 24 months of a change of control of the Company or ROC; and (2) group
health insurance for periods of either one or two years. The base salary
payments are payable in biweekly installments, subject to the employee's duty to
mitigate by using his or her best efforts to find employment. The estimated
total amount payable under all such agreements was approximately $5 million,
including $1.2 million in benefits, as of December 31, 2001.
15. STOCK OPTION PLANS
Stock Compensation Plans--At December 31, 2001, the Company has three
stock-based compensation plans, which are described below. The Company accounts
for the fair value of its grants under those plans in accordance with APB
Opinion No. 25. The compensation cost that has been charged against income for
those plans was $142,977, $250,988, and $357,118 for 2001, 2000, and 1999,
respectively. Under the 1993 Employee Stock Option Plan, the Company may grant
options to its employees for up to one million shares of common stock. Under the
1996 Non-Qualified Stock Option Plan, the Company may grant options to
non-employee directors for up to 50,000 shares of common stock. Under the 1996
Stock Compensation Plan, the Company may grant options to Directors serving on
the Compensation Committee for up to 50,000 shares of common stock. Under these
plans, the exercise price of each option equals the market price of the
Company's stock on the date of grant and an option's maximum term is 10 years (5
years in the case of an incentive option granted to a stockholder owning more
than 10% of the common stock). Under the 1993 plan, options vest 25% on the date
of grant and 25% each subsequent year. Under the 1996 plans, options vest over 5
years. Under the 1996 Stock Compensation Plan, Directors serving on the
Compensation Committee may receive all or part of their annual fees in the form
of common stock, up to an aggregate of 50,000 shares of common stock.
Option Surrenders--On November 26, 1996, 410,000 stock options were
granted to eighteen (18) Riviera executives at an option price of $13.625 per
share, 320,000 of which were granted to Mr. Westerman. Two (2) of these
executives' options totaling 11,000 shares have since been canceled due to those
executives' leaving the Company, resulting in a balance of 399,000 options at
$13.625 per share held by sixteen (16) Company executives. These options were
vested in their entirety for these sixteen (16) executives.
F-32
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. STOCK OPTION PLANS (continued)
On January 16, 2001, the Board approved a Stock Option Surrender Plan
(the "Surrender Plan"). Pursuant to the Surrender Plan, each executive could
surrender all or any portion of his or her $13.625 options. Further, the Company
may, but is not obligated to, grant new options in an amount no less than the
shares surrendered, to be issued no sooner than six (6) months and a day after
the surrender of the $13.625 options. Any new options granted will be at the
price of the Company's common stock on the date of grant and are subject to the
vesting requirements of the Company's ESOP.
All sixteen (16) Company executives surrendered the entire balance of
399,000 of the $13.625 options effective January 31, 2001.
The activity of the Stock Option Plan and the Non-Qualified Stock
Option Plan is as follows:
Weighted-
Average
Per Share
Exercise
Shares Price
Stock Option Plan
Outstanding, January 1, 2000................................................. 619,000 $10.75
Grants.................................................................... 97,000 $7.69
Canceled.................................................................. (4,000) $7.69
----------
Outstanding, December 31, 2000............................................... 712,000 $10.35
Grants.................................................................... 170,500 $6.00
Canceled.................................................................. (423,000) $13.28
--------
Outstanding, December 31, 2001............................................... 459,500 $6.04
=========
Non-Qualified Stock Option Plan
Outstanding, January 1, 2000................................................. 14,000 $8.70
Automatic grant to directors.............................................. 6,000 $7.75
Canceled.................................................................. (6,000) $7.67
-------
Outstanding, December 31, 2000............................................... 14,000 $9.09
Automatic grant to directors.............................................. 6,000 $6.55
Canceled.................................................................. (4,000) $13.37
-------
Outstanding, December 31, 2001............................................... 16,000 $7.07
=======
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
at Remaining Average at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 2001 Life Price 2001 Price
--------------- ---- ---- ----- ---- -----
$4.00 to $6.00...... 285,500 1.4 years $4.18 44,000 $4.32
$6.55 to $9.00...... 190,000 1.4 years $7.26 44,000 $7.13
F-33
No compensation cost has been recognized for unexercised options
remaining in the stock option plan. Had compensation cost for the Company's
stock option plan been determined based on the fair value at the date of grant
for awards consistent with the provisions of SFAS No. 123, the Company's net
loss and pro forma net loss per common share and common share equivalent would
have been increased to the pro forma amounts indicated below at December 31 (in
thousands, except per share amounts):
2001 2000 1999
------ ----------------------
Net loss--as reported..................................... $ (6,407) $ (4,215) $(2,869)
Net loss--pro forma....................................... $ (6,550) $ (4,466) $(3,226)
Basic loss per common share--as reported.................. $ (1.79) $ (1.05) $ (0.58)
Basic loss per common share--pro forma.................... $ (1.83) $ (1.11) $ (0.65)
Diluted loss per common and common share equivalent--as
reported.............................................. $ (1.79) $ (1.05) $ (0.58)
Diluted loss per common and common share equivalent--pro
forma................................................. $ (1.83) $ (1.11) $ (0.65)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2001, 2000, and 1999, respectively: dividend
yield of 0% for all years; expected volatility of 44%, 60%, and 62%; risk-free
interest rates of 5.00%, 5.00%, and 5.46%; and expected lives of five years for
all years. The weighted fair value of options granted in 2001, 2000, and 1999
was $2.34, $3.56, and $4.57, respectively.
Due to the fact that the Company's stock option programs vest over many
years and additional awards are made each year, the above pro forma numbers are
not indicative of the financial impact had the disclosure provisions of SFAS No.
123 been applicable to all years of previous option grants. The above numbers do
not include the effect of options granted prior to 1995.
16. EARNINGS PER SHARE
Basic earnings per share ("EPS") are computed by dividing net income by
the weighted-average number of common shares outstanding for the period. Diluted
EPS are computed by dividing net income by the weighted number of common and
common equivalent shares outstanding for the period. Options to purchase common
stock whose exercise price was greater than the average market price for the
period have been excluded from the computation of diluted EPS. Such antidilutive
options outstanding for the years ended December 31, 2001, 2000, and 1999 were
495,500, 732,000, and 633,000, respectively.
The effect of options outstanding was not included in diluted
calculations for the six months ending June 30, 2002 and the six months ended
June 30, 2001 since the Company incurred a net loss. The number of potentially
dilutive options was 117,000 and 125,000 for the six months ending June 30, 2002
and the six months ended June 30, 2001, respectively.
F-34
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. EARNINGS PER SHARE (Continued)
A reconciliation of income and shares for basic and diluted EPS is as
follows (amounts in thousands, except per share amounts):
Year Ended 2001
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS--
Loss available to common stockholders.......... $(6,407) 3,573 $(1.79)
======
Effect of dilutive securities--
Options........................................ _______ _______
Diluted EPS--
Loss available to common stockholders plus
assumed conversions............................ $(6,407) 3,573 $(1.79)
======== ===== ======
Year Ended 2000
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS--
Loss available to common stockholders.......... $(4,215) 4,013 $(1.05)
======
Effect of dilutive securities--
Options........................................ _______ _______
Diluted EPS--
Loss available to common stockholders plus
assumed conversions............................ $(4,215) 4,013 $(1.05)
======= ===== ======
Year Ended 1999
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS--
Loss available to common stockholders......... $(2,869) 4,978 $(0.58)
======
Effect of dilutive securities--
Options....................................... ______ ______
Diluted EPS--
Loss available to common stockholders plus
assumed conversions........................... $(2,869) 4,978 $(0.58)
======= ===== ======
During 2001, 2000, and 1999, the Company purchased 276,528, 257,893,
and 4,800 shares of treasury stock on the open market for approximately
$1,779,000, $2,093,000, and $22,000, respectively. In addition to the purchase
of stock from Paulson as described in Note 12, the Company purchased 81,000 of
its shares from SunAmerica at $7.50 per share on October 18, 1999. This
transaction reduced SunAmerica's ownership of the Company to less than 15%. On
February 8, 2000, the Company completed a tender offer wherein approximately
590,000 shares of stock were purchased for $7.50 per share. During 2001, the
F-35
Company completed various tender offers wherein approximately 277,000 shares of
stock were purchased at an average price of $6.43 per share. The Company used
its cash and cash equivalents to purchase the shares. After giving effect to
such share repurchases, the Company had 3,432,632 shares of common stock
outstanding. Approximately 118,100 shares of treasury stock are held in the
deferred compensation trust at December 31, 2001.
17. SEGMENT DISCLOSURES
The Company reviews its operations by its geographic gaming market
segments: Riviera Las Vegas and Riviera Black Hawk. Since the management
division represents all other revenue, it is also shown. All intersegment
revenues have been eliminated.
Six Months Ended Years Ended
June 30, December 31,
2002 2001 2001 2000 1999
---------- ---------- ---------- ---------- -------
(Unaudited)
(In thousands)
Net revenues:
Riviera Las Vegas............................................ $71,936 $84,068 $152,985 $166,038 $156,204
Riviera Black Hawk........................................... 24,416 22,960 49,046 35,261
Riviera Gaming Management.................................... 232 1,064
-------------------------- ------------ ----------- -----------
Total net revenues.............................................. $96,352 $107,028 $202,031 $201,531 $157,268
======= ======== ======== ======== ========
Income (loss) from operations:
Riviera Las Vegas............................................ $5,789 $8,770 $9,350 $14,910 $10,641
Riviera Black Hawk (loss pertains to preopening expenses in
1999)..................................................... 3,609 2,956 7,622 1,881 (595)
Riviera Gaming Management.................................... (1) 88 1,047
-------------------------- ------------ ----------- ---------
Total income from operations.................................... $9,398 $11,726 $16,971 $16,879 $11,093
====== ======= ======= ======= =======
EBITDA:
Riviera Las Vegas............................................ $11,652 $14,910 $21,493 $29,243 $24,631
Riviera Black Hawk........................................... 6,695 5,362 12,722 6,597 1
Riviera Gaming Management.................................... (1) 88 1,047
-------------------------- ------------ ----------- ---------
Total EBITDA.................................................... $18,347 $20,272 $34,214 $35,928 $25,679
======= ======= ======= ======= =======
EBITDA margin(1):
Riviera Las Vegas............................................ 16.2% 17.7% 14.0% 17.6% 15.8%
Riviera Black Hawk........................................... 27.4% 23.4% 25.9 18.7
Riviera Gaming Management.................................... 37.9 98.4
-------------------------- ------------- ------------ --------
Total EBITDA.................................................... 19.0% 18.9% 16.9% 17.8% 16.3%
========== ========= ========= ========= ========
-----------
(1) Shown as a percentage of corresponding departmental revenue.
F-36
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SEGMENT DISCLOSURES (Continued)
December 31
---------------------------
June 30, 2002 2001 2000
------------- ---- ----
(unaudited)
(In thousands)
Fixed assets(2):
Riviera Las Vegas.................................................. $128,619 $132,982 $138,525
Riviera Black Hawk................................................. 66,441 67,549 68,505
Riviera Gaming Management..........................................
-------- --------- --------
Total assets.......................................................... $195,060 $200,531 $207,030
======== ======== ========
-----------
(2) Assets represent property and equipment and intangible assets, net of
accumulated depreciation and amortization.
EBITDA consists of earnings before interest, income taxes,
depreciation, and amortization (excluding preopening expense--Black Hawk,
Colorado project, and other, net, which includes expense and insurance
recoveries from Paulson Merger and litigation activity in 1999 and 2000.) While
EBITDA should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flows from operating activities, which are
determined in accordance with GAAP, it is included herein to provide additional
information with respect to the ability of the Company to meet its future debt
service, capital expenditure, and working capital requirements. Although EBITDA
is not necessarily a measure of the Company's ability to fund its cash needs,
management believes that certain investors find EBITDA to be a useful tool for
measuring the ability of the Company to service its debt. The Company's
computation of EBITDA may not be comparable to other similarly titled measures
of other companies.
RIVIERA LAS VEGAS
The primary marketing of the Riviera Las Vegas is not aimed toward
residents of Las Vegas, Nevada. Significantly all revenues derived from patrons
visiting the Riviera Las Vegas are from other parts of the United States and
other countries. Revenues for the Riviera Las Vegas from a foreign country or
region may exceed 10% of all reported segment revenues; however, the Riviera Las
Vegas cannot identify such information, based upon the nature of gaming
operations.
RIVIERA BLACK HAWK
The casino in Black Hawk, Colorado, primarily serves the residents of
metropolitan Denver, Colorado. As such, management believes that significantly
all revenues are derived from within 250 miles of that geographic area.
18. RELATED PARTY TRANSACTIONS
Robert R. Barengo, a member of the Board of Directors of the Company,
is a former director of American Wagering, Inc. ("AWI") and owns 7% of the
outstanding stock of AWI, which leases approximately 12,000 square feet of the
Riviera Hotel & Casino's casino floor. AWI is the operator of the Riviera Hotel
& Casino's sport book operations and has operated under a lease arrangement
since before Mr. Barengo was appointed to the Board. The lease provides for
rental payments based upon the monthly and annual revenues derived by AWI from
the location. AWI paid
F-37
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. RELATED PARTY TRANSACTIONS (Unaudited) (Continued)
aggregate rent to ROC of approximately $144,500, $188,000, and $250,000 in each
of the years ended December 31, 2001, 2000, and 1999, respectively. The Company
believes that the terms of the lease with AWI are at least as favorable to the
Company and ROC as could have been obtained from unaffiliated third parties and
are at least as favorable as terms obtained by other casino hotels in Las Vegas.
The Company entered into a letter agreement with Mr. Barengo, a member
of the Bar of the State of Nevada, pursuant to which Mr. Barengo has been
assisting the Company and its outside counsel in enforcing the Company's rights
under the litigation related to the Paulson merger, the Morgens, Waterfall
litigation, and with related matters. Under such letter agreement, Mr. Barengo
received a fee of $10,000 per month for his counseling services. Fees paid under
this agreement were $0, $120,000, and $120,000 for the years ended December 31,
2001, 2000, and 1999, respectively. Mr. Barengo became an employee director in
January 2001. He and the Company mutually terminated the agreement effective
December 31, 2000.
Jeffrey A. Silver, a member of the Board, is a shareholder in the law
firm of Gordon & Silver, Ltd. ("Gordon & Silver"). Gordon & Silver has been
engaged by the Company for the defense of various personal injury matters since
1993 and for general corporate matters in 2001. From January 1, 2001 through
December 31, 2001, the Company paid fees to Gordon & Silver in the amount of
$106,000 for the defense of various personal injury claims and handling of
corporate matters. As Mr. Silver was not appointed to the Board until February
26, 2001, the fees incurred in 2001 were pursuant to a business relationship
established prior to Mr. Silver's Board appointment. Additionally, Mr. Silver
does not supervise the attorneys who are working on Company matters. Although
the Company continues to utilize the services of Gordon & Silver, the Company
believes that the fee arrangement is at least as favorable to the Company as in
previous years.
PGP engaged RGM to assist, on an interim basis in 2000, with
transitional matters relating to the operations of the Diamond Jo gaming
riverboat in Dubuque, Iowa. Such services included assisting in the selection of
a new chief operating officer to oversee riverboat casino operations and other
matters. RGM earned fees and expenses in the amount of $232,000 for the year
ended December 31, 2000. PGP terminated its agreement with RGM in September
2000. Mr. Westerman served as a manager on the board of managers of PGP until
his resignation, effective December 31, 2000. The Company believes that the fees
were no less favorable than would have been paid in an arm's length transaction.
19. SUBSEQUENT EVENTS (Unaudited)
Guarantor Information--The Company's 10% First Mortgage Notes are
guaranteed by all of the Company's wholly owned existing significant
subsidiaries effective March 2002. These guaranties are full, unconditional, and
joint and several.
Morgens, Waterfall Litigation--In the first quarter of 2002 all parties
to both of the actions described in Note 12 have since resolved all outstanding
issues and entered into settlement agreements, with each party dismissing all
actions against all other parties.
Issuance of Restricted Stock--There were 15,779 shares of treasury
stock issued at an average cost of $4.75 under the Restricted Stock Plan at an
average market value of $4.75 per share, for executive compensation in the first
quarter of 2002. The stock has restrictions as to when it can be traded or sold
by its holder; primarily the shares cannot be sold until the executive
terminates his employment with the Company. On April 1, 2002 the Company issued
4,771 shares of treasury stock at an average cost of $4.75 under the Restricted
Stock Plan at an average market value of $5.24 per share.
F-38
RIVIERA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. SUBSEQUENT EVENTS (Unaudited) (Continued)
Recently Issued Accounting Promouncements
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statement Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 requires that gains and losses from extinguishment of
debt be classified as extraordinary items only if they meet the criteria in APB
Opinion No. 30. Applying the provisions of APB Opinion No. 30 will distinguish
transactions that are part of an entity's recurring operations from those that
are unusual and infrequent that meet criteria for classification as an
extraordinary item. SFAS No. 145 is effective for the Company beginning January
1, 2003, but the Company may adopt it prior to this date. The effect on the
Company's consolidated financial position and results of operations of the
adoption of SFAS No. 145 will be that we recognize and report bond retirement
costs as an operating expense.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. A fundamental conclusion reached by
the FASB in this statement is that an entity's commitment to a plan, by itself,
does not create a present obligation to others that meets the definition of a
liability. SFAS No. 146 also establishes that fair value is the objective for
initial measurement of the liability. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged.
Long Term Debt - In June 2002, Riviera Holdings Corporation issued $215
million 11% Notes in a private placement. Proceeds of the 11% Notes will be used
to retire the 10% and 13% Notes in the third quarter of 2002.The Company expects
to register securities identical to the 11% Notes under the 1933 Act, as amended
in the third quarter of 2002 and exchange them for the Notes issued in the
private placement. The Company's 11% Notes are guaranteed by all of the
Company's wholly-owned, existing, significant restricted subsidiaries. These
guaranties are full, unconditional, and joint and several.
The net proceeds from the offer and sale of the existing notes, which were
issued on June 26, 2002, were approximately $202.6 million after deduction of
the initial purchaser's discounts and expenses of the offering. The net
proceeds, along with cash on hand, were used to defease our 10% First Mortgage
Notes due 2004 and Riviera Black Hawk's 13% First Mortgage Notes due 2005 with
Contingent Interest. The Funds required to defease these obligations were
deposited in accounts with the respective trustees. The Riviera Black Hawk Notes
ere subsequently redeemed by the trustee on July 26, 2002 at 106.5% of the
outstanding principal amount. The Company's First Mortgage Notes will be
redeemed by the trustee in August 2002 at 102.5% of the outstanding principal
amount. The Company incurred fees of approximately $9.3 million in connection
with the issuance of the $215 million 11% Notes, which are included in other
assets at June 30, 2002 and are being amortized to interest expense over the
life of the indebteness.
Effective July 26, 2002, the Company entered into a $30 million,
five-year revolving credit arrangement with a financial institution. Terms of
the arrangement include interest at prime plus .75 percent or a LIBOR derived
rate. No advances on this revolver have been requested. the Company incurred
loan fees of approximately $1.5 million which are being expensed over the life
of the credit arrangement.
Interest Expense on Bonds Held for Retirement - The Company reports
interest expense separately for bonds to be retired when funds have been
segregated for that specific purpose.
Other - On March 15, 2002, Riviera Gaming Management of New Mexico, Inc.
was incorporated in the stae of New Mexico. On June 5, 2002, Riviera Gaming
Management of Missouri, Inc. was incorporated in the State of Missouri.
The cash flow projections used by the Compnay in the application of SFAS
109 for the realization of deferred tax assets indicate a valuation allowance
should be recorded on the tax benefit earned in the first quarter of 2002
In July 2002, the Company received an income tax refund of approximately
$1.9 million.
******
F-39
[TABLE OF CONTENTS WILL BE UPDATED]
---------------------------------
Page
Prospectus Summary.....................................................
Risk Factors...........................................................
Use of Proceeds........................................................
Capitalization.........................................................
Selected Consolidated Financial Data...................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................
The Exchange Offer.....................................................
United States Federal Income Tax Considerations........................
Business...............................................................
Management.............................................................
Ownership of the Company...............................................
Certain Relationships and Related Transactions.........................
Description of New Credit Facility and Intercreditor Agreement.........
Description of Notes...................................................
Government Regulation and Licensing....................................
Plan of Distribution...................................................
Legal Matters..........................................................
Experts................................................................
Available Information..................................................
Index to Consolidated Financial Statements.............................
Until __________, 2002, all dealers effecting transactions in the new
notes, whether or not participating in the original distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
i
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Nevada law provides that Nevada corporations may include in their
articles of incorporation provisions eliminating or limiting the personal
liability of their directors and officers in shareholder actions brought to
obtain damages for alleged breaches of fiduciary duties, as long as the alleged
acts or omissions did not involve intentional misconduct, fraud, a knowing
violation of law or payment of dividends in violation of the Nevada statutes.
Nevada law also allows Nevada corporations to include in their articles of
incorporation or bylaws provisions to the effect that expenses of officers and
directors incurred in defending a civil or criminal action must be paid by the
corporation as they are incurred, subject to an undertaking on behalf of the
director or officer to repay such expenses if it is ultimately determined by a
court of competent jurisdiction that such officer or director is not entitled to
be indemnified by the corporation because he or she did not act in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation.
The articles of incorporation of the Company and its Nevada
subsidiaries provide that a director or officer of such company shall not be
personally liable to such company or its shareholders for damages for any breach
of fiduciary duty as a director or officer, except for liability for (a) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (b) the payment of distributions in violation of NRS 78.300. In
addition, NRS 78.751 and Article VII of the bylaws of each of such companies,
under certain circumstances, provide for the indemnification of the officers and
directors of such company against liabilities which they may incur in such
capacities. A summary of the circumstances in which such indemnification is
provided for is set forth in the following paragraph, but such summary is
qualified in its entirety by reference to Article VII of the bylaws of such
company.
In general, any director or officer of the Company or its Nevada
subsidiaries (each, an "Indemnitee") who was or is a party to, or is threatened
to be made a party to, or is otherwise involved in any threatened, pending or
completed action or suit (including without limitation an action, suit or
proceeding by or in the right of such company), whether civil, criminal,
administrative or investigative (a "Proceeding") by reason of the fact that the
Indemnitee is or was a director or officer of such company or is or was serving
in any capacity at the request of such company as a director, officer, employee,
agent, partner or fiduciary of, or in any other capacity for, another
corporation or any partnership, joint venture, trust or other enterprise shall
be indemnified and held harmless by such company for actions taken by the
Indemnitee and for all omissions to the full extent permitted by Nevada law
against all expense, liability and loss (including without limitation attorneys'
fees, judgments, fines, taxes, penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Indemnitee in connection with
any Proceeding. The rights to indemnification specifically include the right to
reimbursement from such company for all reasonable costs and expenses incurred
in connection with the Proceeding and indemnification continues as to an
Indemnitee who has ceased to be a director or officer. The board of directors
may include employees and other persons as though they were Indemnitees. The
II-1
rights to indemnification are not exclusive of any other rights that any person
may have by law, agreement or otherwise.
The bylaws of the Company and its Nevada subsidiaries provide that such
company may purchase and maintain insurance or make other financial arrangements
on behalf of any person who otherwise qualifies as an Indemnitee under the
foregoing provisions. Other financial arrangements to assist the Indemnitee are
also permitted, such as the creation of a trust fund, the establishment of a
program of self-insurance, the securing of such company's obligation of
indemnification by granting a security interest or other lien on any assets
(including cash) of such company and the establishment of a letter of credit,
guarantee or surety.
The bylaws and articles of incorporation of the Company's Colorado
subsidiaries provide that those companies shall, to the full extent permitted by
the Colorado Business Corporation Act, as amended from time to time, indemnify
all of their directors and officers. Sections 7-109-101 to 7-109-110 of the
Colorado Business Corporation Act provide in part that a corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceedings
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceedings if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. Similar indemnity is
authorized for such persons against expenses (including attorneys' fees)
actually and reasonably incurred in defense or settlement of any threatened,
pending or completed action or suit by or in the right of the corporation, if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and provided further
that (unless a court of competent jurisdiction otherwise provides) such person
shall not have been adjudged liable to the corporation. Any such indemnification
may be made only as authorized in each specific case upon a determination by the
shareholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. The indemnitee is
presumed to be entitled to indemnification and the corporation has the burden of
proof to overcome that presumption. Where an officer or a director is successful
on the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him or her against the expenses which such officer or
director actually or reasonably incurred.
Additionally, the articles of incorporation and bylaws of the Company's
Colorado subsidiaries provide for mandatory indemnification of directors to the
fullest extent permitted by Colorado law. This provision does not eliminate the
liability of a director for (a) a breach of the director's duty of loyalty to
the corporation or its shareholders; (b) acts or omissions by the director not
in good faith or which involve intentional misconduct or a knowing violation of
law; (c) liability arising under Section 7-108-403 of the Colorado Business
Corporation Act (relating to distributions to shareholders in violation of the
Colorado Business Corporation Act); or (d) any transaction from which the
director derived an improper personal benefit.
II-2
Item 21. Exhibits and Financial Statement Schedules
(a)......Exhibits.
Exhibit
Number Description
3.1* Second Restated Articles of Incorporation of the Company
(see Exhibit 3.1 to Registration Statement on Form S-4
filed with the Commission on September 10, 1997, Commission
File No. 0-21430)
3.2* Bylaws of the Company (see Exhibit 3.2 to Registration
Statement on Form S-4 filed with the Commission on
September 10, 1997, Commission File No. 0-21430)
3.3* Articles of Incorporation of Riviera Operating Corporation
(see Exhibit 3.3 to Registration Statement on Form S-4 filed
with the Commission on September 10, 1997, Commission File No.
0-21430)
3.4* Bylaws of Riviera Operating Corporation (see Exhibit 3.4 to
Registration Statement on Form S-4 filed with the Commission
on September 10, 1997, Commission File No. 0-21430)
3.5* Articles of Incorporation of Riviera Gaming Management, Inc.
(see Exhibit 3.5 to Registration Statement on Form S-4 filed
with the Commission on September 10, 1997, Commission File No.
0-21430)
3.6* Bylaws of Riviera Gaming Management, Inc. (see Exhibit 3.6 to
Registration Statement on Form S-4 filed with the Commission
on September 10, 1997, Commission File No. 0-21430)
3.7* Articles of Incorporation of Riviera Gaming Management of
Colorado, Inc.(see Exhibit 3.9 to Amendment No. 1 to
Registration Statement on Form S-4 filed with the Commission
on December 9, 1997, Commission File No. 0-21430)
3.8* Bylaws of Riviera Gaming Management of Colorado, Inc. (see
Exhibit 3.10 to Amendment No. 1 to Registration Statement on
Form S-4 filed with the Commission on December 9, 1997,
Commission File No. 0-21430)
3.9* Articles of Amendment to the Articles of Incorporation of
Riviera Black Hawk, Inc. (see Exhibit 3.01 to Amendment No. 1
to Registration Statement on Form S-4 filed by Riviera Black
Hawk, Inc. with the Commission on August 31, 1999, Commission
File No. 333-81613)
II-3
3.10* Articles of Incorporation of Riviera Black Hawk, Inc. (see
Exhibit 3.02 to Amendment No. 1 to Registration Statement on
Form S-4 filed by Riviera Black Hawk, Inc. with the Commission
on August 31, 1999, Commission File No. 333-81613)
3.11* Bylaws of Riviera Black Hawk, Inc. (see Exhibit 3.03 to
Amendment No. 1 to Registration Statement on Form S-4 filed
by Riviera Black Hawk, Inc. with the Commission on August 31,
1999, Commission File No. 333-81613)
4.1 Indenture dated as of June 26, 2002 among the Company, the
Guarantors party thereto and The Bank of New York, as trustee
4.2 Form of the Company's 11% Senior Secured Notes due 2010
(included in Exhibit 4.1)
5.1 Opinion of Gordon & Silver, Ltd.
10.1 Registration Rights Agreement dated as of June 26, 2002 by and
among the Company, the Guarantors party thereto, and Jefferies
& Company, Inc.
10.2 Purchase Agreement dated June 19, 2002 among the Company, the
Guarantors party thereto, and Jefferies & Company, Inc.
10.3 Amended and Restated Lease Agreement between Riviera Operating
Corporation and Mardi Gras Food Court, Inc. dated March 15,
1998
10.4* Lease Agreement between Riviera, Inc. and Leroy's Horse and
Sports Place (see Exhibit 10.3 to Form 10, Commission File No.
0-21430)
10.5* Indemnity Agreement, dated June 30, 1993, from Riviera, Inc.
and Meshulam Riklis in favor of the Company and Riviera
Operating Corporation (see Exhibit 10.7 to Registration
Statement Form S-1 filed with the Commission on August 11,
1993, Commission File No. 33-67206)
10.6* Equity Registration Rights Agreement dated June 30, 1993,
among the Company and the Holders of Registerable Shares (see
Exhibit 10.9 to Registration Statement on Form S-1 filed with
the Commission on August 11, 1993, Commission File No.
33-67206)
10.7* Operating Agreement dated June 30, 1993, between the Company
and Riviera Operating Corporation (see Exhibit 10.15 to
Registration Statement on Form S-1 filed with the Commission
on August 11, 1993, Commission File No. 33-67206)
10.8* Adoption Agreement regarding Profit Sharing and 401(k) Plans
of the Company (see Exhibit 10.16 to Registration Statement on
Form S-1 filed with the Commission on August 11, 1993,
Commission File No. 33-67206)
II-4
10.9 Merrill Lynch Special Prototype Defined Contribution Plan
Adoption Agreement dated June 29, 1993, as amended through
November 15, 1996
10.10** Form of Termination Agreement with the Company dated June 11,
2002
10.11* Tax Sharing Agreement between the Company and Riviera
Operating Corporation dated June 30, 1993 (see Exhibit 10.24
to Amendment No. 1 to Registration Statement on Form S-1 filed
with the Commission on August 19, 1993, Commission File No.
33-67206)
10.12 Tax Sharing Agreement between the Company and Riviera Black
Hawk dated March 31,1999
10.13* The Company's 1993 Employee Stock Option Plan (see Exhibit
10.25 to Amendment No. 1 to Registration Statement on Form S-1
filed with the Commission on August 19, 1993, Commission File
No. 33-67206)
10.14 The Company's 1996 Non-Qualified Stock Option Plan
10.15* Employment Agreement dated as of November 21, 1996 by and
between the Company, Riviera Operating Corporation and
William L. Westerman (see Exhibit 10.31 to Form 10-K for the
fiscal year ended December 31, 1996, Commission File
No. 0-21430)
10.16* Employment Agreement between the Company and Robert A.
Vannucci effective July 1, 1998 (see Exhibit 10.36 to Form
10-Q filed November 6, 1998)
10.17* Amendment to Employment Agreement between the Company and
Robert A. Vannucci effective October 1, 2000 (see Exhibit
10.39 to Form 10-K filed March 23, 2001)
10.18* Amendment to Employment Agreement between the Company and
William L. Westerman effective January 1, 2001 (see Exhibit
10.40 to Form 10-K filed March 23, 2001)
10.19* Deferred Compensation Plan dated November 1, 2000, adopted by
the Company on October 2, 2000 (see Registration Statement on
Form S-8 filed with the Commission on February 14, 2001)
10.20* Restricted Stock Plan dated January 2, 2001, adopted by the
Company on October 2, 2000 (see Registration Statement on
Form S-8 filed with the Commission on February 14, 2001)
II-5
10.21 Deed of Trust, Assignment of Rents, Leases, Fixture Filing and
Security Agreement dated June 26, 2002, executed by the
Company for the benefit of The Bank of New York
10.22 Deed of Trust to Public Trustee, Security Agreement, Fixture
Filing and Assignment of Rents, Leases and Leasehold Interests
dated as of June 26, 2002, by Riviera Black Hawk, Inc. for the
benefit of The Bank of New York
10.23 Security Agreement dated June 26, 2002 by and among the
Company, Riviera Operating Corporation, Riviera Gaming
Management, Inc., Riviera Gaming Management of Colorado, Inc.,
Riviera Black Hawk, Inc, and The Bank of New York
10.24 Assignment of Rents, Leases and Leasehold Interests dated as
of June 26, 2002 by Riviera Black Hawk, Inc. for the benefit
of The Bank of New York
10.25 Stock Pledge and Security Agreement dated June 26, 2002,
executed by the Company
10.26 Stock Pledge and Security Agreement dated June 26, 2002,
executed by Riviera Operating Corporation
10.27 Stock Pledge and Security Agreement dated June 26, 2002,
executed by Riviera Gaming Management, Inc.
10.28 Environmental Indemnity dated as of June 26, 2002 by and among
the Company and Riviera Black Hawk, Inc., as indemnitors, and
The Bank of New York, as trustee
10.29 Environmental Indemnity dated as of June 26, 2002 by and
between the Company, as indemnitor, and The Bank of New York,
as trustee
10.30 Loan and Security Agreement dated as of July 26, 2002 by and
among the Company and the other Borrower parties
thereto, the Guarantors parties thereto and Foothill Capital
Corporation
10.31 Intercreditor Agreement dated as of July 26, 2002 by and
between The Bank of New York, as trustee, and Foothill
Capital Corporation
10.32 Fee Letter, dated July 26, 2002, issued by the Company,
Riviera Black Hawk, Inc. and Riviera Operating Corporation
to Foothill Capital Corporation
10.33 Intellectual Property Security Agreement dated as of July 26,
2002 by and between the Company and the other Debtors
parties thereto, and Foothill Capital Corporation
II-6
10.34** Deed of Trust, Assignment of Rents, Leases, Fixture Filing and
Security Agreement dated July 26, 2002, executed by the
Company for the benefit of Foothill Capital Corporation
10.35 Environmental Indemnity dated July 26, 2002 from the Company
in favor of Foothill Capital Corporation
10.36 Continuing Guaranty dated July 26, 2002 by and among the
Company, the other Borrowers parties thereto and the
Guarantors parties thereto in favor of Foothill Capital
Corporation
10.37 Subordination Agreement dated July 26, 2002 by and among the
Company and the other Creditors parties thereto in favor of
Foothill Capital Corporation
10.38 Stock Pledge and Security Agreement dated July 26, 2002,
executed by the Company
10.39 Stock Pledge and Security Agreement dated July 26, 2002,
executed by Riviera Operating Corporation
10.40 Stock Pledge and Security Agreement dated July 26, 2002,
executed by Riviera Gaming Management, Inc.
10.41** Deed of Trust to Public Trustee, Security Agreement, Fixture
Filing and Assignment of Rents, Leases and Leasehold
Interests dated July 26, 2002, executed by Riviera Black Hawk,
Inc. for the benefit of Foothill Capital Corporation
10.42 Environmental Indemnity dated July 26, 2002 from the Company
and Riviera Black Hawk, Inc. in favor of Foothill Capital
Corporation
10.43 The Company's Stock Compensation Plan
12.1 Statement regarding the computation of the ratio of earnings
to fixed charges
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Gordon & Silver, Ltd. (included in Exhibit 5.1)
23.3** Consent of Robinson, Waters & O'Dorisio, P.C.
23.4** Consent of Schreck Brignone Godfrey
II-7
24 Power of Attorney (included on pages II- 10 and II- 11)
25** Statement of Eligibility of Trustee
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
* The exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of each such exhibit is a reference to it as
it appeared in a specified document previously filed with the Commission, to
which there have been no amendments or changes.
** To be filed by amendment.
(b) Schedules not listed above are omitted because of the absence of
the conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the notes
thereto.
Item 22. Undertakings
(a) Each of the undersigned registrants hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
II-8
(2) that, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of each registrant pursuant to the foregoing provisions, or otherwise,
each registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, each registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants have duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Las Vegas,
State of Nevada, on August 9, 2002.
RIVIERA HOLDINGS CORPORATION
By:
-------------------------
William L. Westerman
President
ADDITIONAL REGISTRANTS:
By:
-------------------------
William L. Westerman
President
II-9
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of William L. Westerman, Duane R.
Krohn and Tullio J. Marchionne his true and lawful attorney-in-fact and agent,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments to this Registration Statement, including post-effective amendments,
as well as any related registration statement (or amendment thereto) filed
pursuant to Rule 462 promulgated under the Securities Act of 1933, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, and hereby ratifies and confirms all his said
attorneys-in-fact and agents or any of them or his substitute or substitutes may
lawfully do or cause to be done by virtue thereof.
This Power of Attorney may be executed in counterparts, each of which
shall be deemed an original, but which taken together shall constitute one
instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
RIVIERA HOLDINGS CORPORATION
Name Title
Chairman of the Board, Chief Executive Officer,
------------------------- President and Director (Principal Executive Officer)
William L. Westerman
Treasurer (Principal Financial Officer and Accounting
------------------------- Officer)
Duane R. Krohn
------------------------- Director
Robert R. Barengo
------------------------- Director
Jeffrey A. Silver
------------------------- Director
Paul A. Harvey
II-10
------------------------- Director
Vincent L. Divito
RIVIERA OPERATING CORPORATION
Name Title
Chairman of the Board, Chief Executive Officer and
------------------------- Director (Principal Executive Officer)
William L. Westerman
Treasurer (Principal Financial Officer and Accounting
------------------------- Officer)
Duane R. Krohn
------------------------- Director
Robert R. Barengo
------------------------- Director
Jeffrey A. Silver
------------------------- Director
Paul A. Harvey
------------------------- Director
Vincent L. Divito
RIVIERA GAMING MANAGEMENT, INC.
Name Title
Chairman of the Board, Chief Executive Officer and
------------------------- Director (Principal Executive Officer)
William L. Westerman
II-11
Treasurer and Director (Principal Financial Officer and
------------------------- Accounting Officer)
Duane R. Krohn
------------------------ Director
Ronald P. Johnson
RIVIERA GAMING MANAGEMENT OF COLORADO, INC.
Name Title
Chairman of the Board, Chief Executive Officer and
------------------------ Director (Principal Executive Officer)
William L. Westerman
Treasurer and Director (Principal Financial Officer and
------------------------ Accounting Officer)
Duane R. Krohn
------------------------ Director
Ronald P. Johnson
RIVIERA BLACK HAWK, INC.
Name Title
Chairman of the Board, Chief Executive Officer and
------------------------ Director (Principal Executive Officer)
William L. Westerman
Treasurer and Director (Principal Financial Officer and
------------------------ Accounting Officer)
Duane R. Krohn
------------------------ Director
Ronald P. Johnson
II-12
EXHIBIT 12.1 RATIO OF EARNINGS TO FIXED CHARGES
----------------------------------------------------------------------------------------------------------------------
Six Months Ended For the year Ended December 31,
June 30,
2002 2001 2001 2000 1999 1998 1997
---------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------- ---------
Pre-tax (loss) income $(3,922) $(1,083) $(8,647) $(6,710) $(7,330) $ (1,584) $ 3,397
Fixed Charges:
Interest expenses 13,533 13,453 26,864 27,805 23,448 24,187 18,975
Capitalized interest (616) (4,733) (2,679) (771)
Interest relating to rental expenses 136 136 271 340 136 86 83
Total Fixed charges 13,669 13,589 27,135 27,529 18,851 21,594 18,287
Earnings available for fixed charges 9,747 12,506 18,488 20,819 11,521 20,010 21,684
Ratio of earnings to fixed charges 0.71 0.92 0.68 0.76 0.61 0.93 1.19
Deficiency amount (3,922) (1,083) (8,647) (6,710) (7,330) (1,584)
Earnings were not sufficient to cover fixed charges for the all periods presented except 1997.
Earnings is (a) Pre-tax income from continuing operations plus (b) fixed
charges,minus (c) interest capitalized.
II-13
EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY
RIVIERA HOLDINGS CORPORATION
Organizational Structure
_______________________________________________________________________________
RIVIERA HOLDINGS CORPORATION
a Nevada corporation
|
|
Riviera Operating Corporation
a Nevada corporation
|
|
----------------------------------------------
| |
Riviera Gaming Managment, Inc. Rivera Black Hawk, Inc.
--- a Nevada corporation -------------- a Colorado corporation
| | |
| | |
| Riviera Gaming Management of |
| Missouri, Inc. a Missouri |
| corporation |
| |
| Riviera Gaming Management of
| Colorado, Inc. a Colorado
| corporation
|
Riviera Gaming Management of
New Mexico, Inc. a New Mexico
corporation
|
|
|
Rivera-Reston-Newton, LLC.
a New Mexico
limited liability company
II-14
EXHIBIT 99.1 FORM OF LETTER OF TRANSMITTAL
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., _____ TIME, ON _____, 2002, UNLESS
EXTENDED (THE "EXPIRATION DATE"). TENDERS OF EXISTING NOTES MAY BE WITHDRAWN AT
ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE
RIVIERA HOLDINGS CORPORATION
LETTER OF TRANSMITTAL
11% SENIOR SECURED NOTES DUE 2010
TO: THE BANK OF NEW YORK
THE EXCHANGE AGENT
By Mail or Overnight Courier:
The Bank of New York
101 Barclay Street
New York, NY 10286
Attn.: Santino Ginocchietti, Reorganization Unit-7E
Reference: Riviera Holdings Corporation
By Hand:
The Bank of New York
101 Barclay Street
Corporate Trust Services Window
New York, NY 10286
Attn.:Santino Ginocchietti, Reorganization Unit-7E
Reference: Riviera Holdings Corporation
Confirm by Telephone: (212) 815-6331
Fax (for Eligible Institutions Only): (212) 298-1915
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR
EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER MUST
VALIDLY TENDER (AND NOT WITHDRAW) THEIR EXISTING NOTES
TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
The undersigned acknowledges receipt of the Prospectus dated
________________, 2002 (the "Prospectus") of Riviera Holdings Corporation (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together constitute the Company's offer to exchange (the "Exchange Offer")
$215,000,000 principal amount of its 11% Senior Secured Notes due 2010 (the "New
II-15
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for each $1,000 principal amount of its outstanding 11%
Senior Secured Notes due 2010 (the "Existing Notes"), of which $215,000,000
principal amount is outstanding, on the terms and conditions set forth in the
Prospectus and this Letter of Transmittal. Other capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
For each Existing Note accepted for exchange, the holder of such
Existing Note will receive a New Note having a principal amount equal to that of
the surrendered Existing Note. Interest on the New Notes will accrue from the
last interest payment date on which interest was paid on the Existing Notes
surrendered in exchange therefor. Holders of Existing Notes accepted for
exchange will be deemed to have waived the right to receive any other payments
or accrued interest on the Existing Notes. The Company reserves the right, at
any time or from time to time, to extend the Exchange Offer at its discretion,
in which event the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. The Company shall notify holders of the
Existing Notes of any extension by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by Holders if certificates
representing their Existing Notes are to be physically delivered to the Exchange
Agent herewith by Holders. In the case of physical delivery of such
certificates, delivery to The Depository Trust Company ("DTC") will not
constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person:
(i) in whose name Existing Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered Holder; or (ii) whose Existing Notes are held of record by DTC (or
its nominee) and who desires to deliver such Existing Notes by book-entry
transfer at DTC. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
Holders of Existing Notes that are tendering by book-entry transfer to
the Exchange Agent's account at DTC can execute the tender through the DTC
Automated Tender Offer Program ("ATOP"), for which the transaction will be
eligible. DTC participants that are accepting the Exchange Offer must transmit
their acceptance to DTC, which will verify the acceptance and execute a
book-entry delivery to the Exchange Agent's DTC account. DTC will then send an
Agent's Message to the Exchange Agent for its acceptance. DTC participants may
also accept the Exchange Offer prior to the Expiration Date by submitting a
Notice of Guaranteed Delivery or Agent's Message relating thereto as described
herein under Instruction 1, "Delivery of this Letter of Transmittal and Existing
Notes; Guaranteed Delivery Procedures."
The instructions included with this Letter of Transmittal must be
followed. Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal or the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 11 herein.
II-16
HOLDERS OF CERTIFICATED EXISTING NOTES WHO WISH TO ACCEPT THE EXCHANGE OFFER
AND TENDER THEIR EXISTING NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN
ITS ENTIRETY. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF 11% SENIOR SECURED NOTES DUE 2010 (Existing Notes)
------------------------------- ---------------------------- ---------------------------- ----------------------------
Name(s) and Address(es) of Aggregate Principal Amount Principal Amount Tendered
Registered Holder(s) Certificate Number(s) Represented by (If Less Than All)*
Certificate(s)
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Existing Notes will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificate(s)." If the space provided above is
inadequate, list the certificate numbers and principal amounts on a separate
signed schedule and affix the list to this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of Existing
Notes. All other tenders must be integral multiples of $1,000.
------------------------------------------------------------ ---------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 4, 5 AND 6) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4, 5
AND 6)
------------------------------------------------------------ ---------------------------------------------------------
To be completed ONLY if certificates for New Notes issued To be completed ONLY if certificates for Existing Notes
in exchange for Existing Notes accepted for exchange or in a principal amount not tendered or not accepted for
Existing Notes not tendered or not accepted for exchange exchange are to be sent to someone other than the
are to be issued in the name of someone other than the undersigned, or to the undersigned at an address other
undersigned or, if such Existing Notes are being tendered than that shown above.
by book-entry transfer, to someone other than DTC or to
another account maintained by DTC.
Issue certificate(s) to: Issue certificate(s) to:
Name: Name:
------------------------------------- ---------------------------------------
Address: Address:
---------------------------------------- ---------------------------------------
(Include Zip Code) (Include Zip Code)
II-17
Taxpayer ID or SSN:
-------------
DTC Acct. No.: Taxpayer ID or SSN:
-------------------------------- ----------------------------------------------
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO
THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):
-----------------------------------
Window Ticket Number (if any):
-------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, PLEASE COMPLETE THE FOLLOWING:
Account Number: Transaction Code Number:
------------------ ---------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND ARE RECEIVING NEW
NOTES FOR YOUR OWN ACCOUNT IN EXCHANGE FOR EXISTING NOTES THAT
WERE ACQUIRED AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER
TRADING ACTIVITIES.
Name:
--------------------------------------------------------------
Address:
-----------------------------------------------------------
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Existing Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Existing Notes tendered in accordance with this Letter
of Transmittal, the undersigned sells, assigns and transfers to, or upon the
order of, the Company all right, title and interest in and to the Existing Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company and as Trustee under the
Indenture for the Existing Notes and New Notes) with respect to the tendered
Existing Notes with full power of substitution to (i) deliver certificates for
such Existing Notes to the Company, or transfer ownership of such Existing Notes
on the account books maintained by DTC and deliver all accompanying evidence of
transfer and authenticity to, or upon the order of, the Company and (ii) present
such Existing Notes for transfer on the books of the Company and receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Existing Notes, all in accordance with the terms and subject to the conditions
II-18
of the Exchange Offer. The power of attorney granted in this paragraph shall be
deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Existing Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Existing Notes tendered hereby will have been acquired in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the undersigned, that neither the Holder nor any such other person has
any arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder nor any such other
person is an "affiliate," as defined in Rule 405 under the Securities Act, of
the Company or any of its subsidiaries.
The undersigned also acknowledges that the Exchange Offer is being made
in reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the New Notes issued in exchange for the Existing
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company, as defined in Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangements or
understandings with any person to participate in the distribution of such New
Notes. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Existing Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter," as defined in the
Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company necessary or desirable to
complete the assignment, transfer and purchase of the Existing Notes tendered
hereby. All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding on the undersigned's heirs, personal
representatives, successors and assigns, trustees in bankruptcy or other legal
representatives. This tender may be withdrawn only in accordance with the
procedures set forth in "The Exchange Offer - Withdrawal Rights" section of the
Prospectus.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Existing Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
II-19
If any tendered Existing Notes are not accepted for exchange pursuant
to the Exchange Offer for any reason, certificates for any such unaccepted
Existing Notes will be returned (except as noted below with respect to tenders
through DTC), without expense, to the undersigned at the address shown below or
at such different address as may be indicated under "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
The undersigned understands that tenders of Existing Notes pursuant to
the procedures described under the caption "The Exchange Offer - Procedures for
Tendering Existing Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions,"
please issue the certificates representing the New Notes issued in exchange for
the Existing Notes accepted for exchange and return any Existing Notes not
tendered or not accepted for exchange in the name(s) of the undersigned (or in
either such event in the case of the Existing Notes tendered through DTC, by
credit to the undersigned's account at DTC). Similarly, unless otherwise
indicated under "Special Delivery Instructions," please send the certificates
representing the New Notes issued in exchange for the Existing Notes accepted
for exchange and any certificates for Existing Notes not tendered or not
accepted for exchange (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s) unless, in
either event, tender is being made through DTC. In the event that both "Special
Issuance Instructions" and "Special Delivery Instructions" are completed, please
issue the certificates representing the New Notes issued in exchange for the
Existing Notes accepted for exchange and return any Existing Notes not tendered
or not accepted for exchange in the name(s) of, and send said certificates to,
the person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Existing Notes from the name of the registered
Holder(s) thereof if the Company does not accept for exchange any of the
Existing Notes so tendered.
Holders of Existing Notes who wish to tender their Existing Notes and
(i) whose Existing Notes are not immediately available or (ii) who cannot
deliver their Existing Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent, or cannot complete the procedure for
book-entry transfer, prior to the Expiration Date, may tender their Existing
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer - Guaranteed Delivery
Procedures." See Instruction 1 regarding the completion of the Letter of
Transmittal printed below.
SIGNATURE PAGE
PLEASE SIGN HERE IF
EXISTING NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X , 2002
----------------------------------------- --------------------------
Date
II-20
X , 2002
----------------------------------------- --------------------------
Signature(s) of Registered Holder(s) Date
or Authorized Signatory
Area Code and Telephone Number:
-----------------------------------------------
The above lines must be signed by the registered Holder(s) of Existing
Notes as their name(s) appear(s) on the Existing Notes or by a person(s)
authorized to become a registered Holder(s) by a properly completed bond power
from the registered Holder(s), a copy of which must be transmitted with this
Letter of Transmittal. If Existing Notes to which this Letter of Transmittal
relates are held of record by two or more joint Holders, then all such holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person must (i)
set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority to act.
See Instruction 4 regarding the completion of this Letter of Transmittal printed
below.
Name(s):
--------------------------------------------------------------------
(Please Print)
Capacity:
-------------------------------------------------------------------
(Title)
Address:
--------------------------------------------------------------------
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution (if required by Instruction
4):
(Authorized Signature
(Title)
(Name of Firm)
Dated: , 2002
------------------------------------
II-21
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of this Letter of Transmittal and Existing Notes;
Guaranteed Delivery Procedures. This Letter of Transmittal is to be used by a
Holder if certificated Existing Notes are to be forwarded herewith. An Agent's
Message is to be used if delivery of Existing Notes is to be made by book-entry
transfer to the account maintained by the Exchange Agent at DTC (the "Book-Entry
Transfer Facility") under the procedures set forth in the Prospectus under the
caption "The Exchange Offer - Book-Entry Transfer." The term "Agent's Message"
means a message, transmitted by the Book-Entry Transfer Facility and received by
the Exchange Agent and forming a part of the confirmation of a book-entry
transfer ("Book-Entry Confirmation"), which states that the Book-Entry Transfer
Facility has received an express acknowledgement from a participant tendering
existing notes which are the subject of such Book-Entry Confirmation and that
such participant has received and agrees to be bound by the terms of this Letter
of Transmittal and that the Company may enforce such agreement against such
participant. Certificates for all physically tendered existing notes as well as
a properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) must be received by the Exchange Agent at the address set
forth herein by the Expiration Date, or the tendering holder must comply with
the guaranteed delivery procedures described herein. Existing notes tendered
must be in principal amount denominations of $1,000 or any integral multiples
thereof.
Holders whose certificates for Existing Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Existing Notes under to the guaranteed delivery procedures set
forth in "The Exchange Offer - Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined in Instruction 4 below), (ii) prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) and Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery), substantially in the form provided by the Company, setting forth
the name and address of the Holder of Existing Notes and the amount of Existing
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Existing Notes, or a Book-Entry Confirmation, and any other
documents required by this Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Existing Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE EXISTING
NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
II-22
RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF EXISTING NOTES ARE SENT BY MAIL,
IT IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT THE DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
See "The Exchange Offer" section of the Prospectus.
2. Tender by Holder. Only a Holder of Existing Notes may tender such
Existing Notes in the Exchange Offer. Any beneficial holder of Existing Notes
who is not the registered Holder and who wishes to tender should arrange with
the registered Holder to execute and deliver this Letter of Transmittal on his
or her behalf or must, prior to completing and executing this Letter of
Transmittal and delivering his or her Existing Notes, either make appropriate
arrangements to register ownership of the Existing Notes in such holder's name
or obtain a properly completed bond power from the registered Holder.
3. Partial Tenders. Tenders of Existing Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Existing Notes is tendered, the tendering Holder should fill in the principal
amount tendered in the fourth column of the box entitled "Description of 11%
Senior Secured Notes due 2010 (Existing Notes)" above. The entire principal
amount of Existing Notes delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated. If the entire principal amount of a
Holder's Existing Notes is not tendered, then Existing Notes for the principal
amount of Existing Notes not tendered and a certificate or certificates
representing New Notes issued in exchange for any Existing Notes accepted for
exchange will be sent to the Holder at his or her registered address (unless a
different address is provided in the appropriate box on this Letter of
Transmittal) promptly after the Existing Notes are accepted for exchange.
4. Signatures on this Letter of Transmittal; Endorsements and Powers of
Attorney; Guarantee of Signatures. If this Letter of Transmittal is signed by
the registered Holder of the Existing Notes tendered hereby, the signature must
correspond exactly with the name as written on the face of the certificate(s)
with no change whatsoever.
If any tendered Existing Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any tendered Existing Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
When this Letter of Transmittal is signed by the registered Holder(s)
of the Existing Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the New Notes
are to be issued, or any Existing Notes not tendered or not accepted for
exchange are to be reissued, to a person or persons other than the registered
Holder(s), then endorsements of any certificate(s) transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) or power(s)
II-23
must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered Holder(s) of any certificate(s) specified herein, such certificate(s)
must be endorsed or accompanied by appropriate bond powers or powers of
attorney, in each case signed exactly as the name(s) of the registered Holder(s)
appear(s) on the certificate(s) and signatures on such certificate(s) or
power(s) must be guaranteed by a participant in a recognized signature
guarantee medallion program (an Eligible Institution).
If this Letter of Transmittal or any certificates, bond powers or
powers of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
Endorsements on certificates for Existing Notes or signatures on bond
powers or powers of attorney required by this Instruction 4 must be guaranteed
by a firm which is a participant in a recognized signature guarantee medallion
program (an "Eligible Institution").
Signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution unless the Existing Notes are tendered (i) by a registered
Holder of Existing Notes who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on this Letter of
Transmittal, or (ii) for the account of an Eligible Institution.
5. Special Issuance and Delivery Instructions. Tendering Holders should
indicate, in the applicable box(es), the name and address to which New Notes or
substitute Existing Notes not tendered or not accepted for exchange are to be
issued or sent, if different from the name and address of the person signing
this Letter of Transmittal (or in the case of a tender of Existing Notes through
DTC, if different from DTC). In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated. If no such instructions are given, such New Notes or Existing
Notes not exchanged will be returned to the name and address of the person
signing this Letter of Transmittal.
6. Tax Identification Number. Federal tax law provides that a Holder
whose Existing Notes are accepted for exchange must give the Company (as payer)
his, her or its correct taxpayer identification number ("TIN"), which, in the
case of an exchanging Holder who is an individual, is his or her social security
number. If the Company is not given the correct TIN or an adequate basis for
exemption, such Holder may be subject to a $50 penalty imposed by the Internal
Revenue Service (the "IRS"), and payments made with respect to the New Notes or
Exchange Offer may be subject to backup withholding at a 30% rate (which rate
may be adjusted annually). If withholding results in an overpayment of taxes, a
refund may be obtained. Exempt Holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements.
To prevent backup withholding, each exchanging Holder must give his,
her or its correct TIN by completing the Substitute Form W-9 included below in
this Letter of Transmittal, certifying that the TIN given is correct (or that
II-24
such Holder is awaiting a TIN) and that the Holder is exempt from backup
withholding because (i) the Holder has not been notified by the IRS that he, she
or it is subject to backup withholding as a result of a failure to report all
interest or dividends, or (ii) the IRS has notified the Holder that he, she or
it is no longer subject to backup withholding. In order to satisfy the Company
that a foreign individual qualifies as an exempt recipient, such Holder must
submit a statement signed under penalty of perjury attesting to such exempt
status. Such statements may be obtained from the Exchange Agent. If the Existing
Notes are in more than one name or are not in the name of the actual owner,
consult the substitute Form W-9 for information on which TIN to report. If you
do not give your TIN to the Company within 60 days, backup withholding may begin
and continue until you give your TIN to the Company.
7. Transfer Taxes. The Company will pay any and all transfer taxes
applicable to the exchange of Existing Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Existing Notes not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person(s) other than the registered Holder(s) of the
Existing Notes tendered hereby, or if tendered Existing Notes are registered in
the name of any person other than the person signing this Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the exchange of
Existing Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered Holder(s) or on any other
person(s)) will be payable by the tendering Holder(s). If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering
Holder(s).
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Existing Notes listed in this Letter of
Transmittal.
8. Waiver of Conditions. The Company reserves the absolute right to amend,
waive or modify conditions to, or in, the Exchange Offer in the case of any
Existing Notes tendered (or to refuse to do so).
9. No Conditional Transfers. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering Holders of Existing Notes,
by execution of this Letter of Transmittal, waive any right to receive notice of
the acceptance of their Existing Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Existing Notes, nor shall any of them incur any liability for failure
to give any such notice.
10. Mutilated, Lost, Stolen or Destroyed Existing Notes. Any tendering
Holder whose Existing Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.
11. Requests for Assistance or Additional Copies. Questions and requests
for assistance for additional copies of the Prospectus, this Letter of
Transmittal or the Notice of Guaranteed Delivery may be directed to the Exchange
II-25
Agent at the address specified in the Prospectus.
(DO NOT WRITE IN THE SPACE BELOW)
Account Number: Transaction Code Number:
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Certificate Surrendered Existing Notes Tendered Existing Notes Accepted
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Delivery Prepared by:
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Checked by:
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Date:
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PAYER'S NAME: RIVIERA HOLDINGS CORPORATION
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Name (if joint names, list first and circle the
name of the person or entity whose number you
enter in Part 1 below. See instructions if your
name has changed.)
Address:
SUBSTITUTE
City, state and zip code:
Form W-9
Department of the Treasury List account number(s) here (optional):
Internal Revenue Service
Payer's Request
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Part 1. PLEASE PROVIDE YOUR TAXPAYER
IDENTIFICATION NUMBER ("TIN") IN THE BOX AT Social Security Number
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. or TIN:
II-26
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Part 2. Check the box if you are not subject to
backup withholding under the provisions of
Section 3408(a)(1)(c) of the Internal Revenue
Code because (1) you have not been notified that
you are subject to backup withholding as a
result of failure to report all interest or
dividends or (2) the Internal Revenue Service
has notified you that you are no longer subject
to backup withholding.
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CERTIFICATION - UNDER PENALTIES OF PERJURY, I
CERTIFY THAT THE INFORMATION PROVIDED ON THIS Part 3.
FORM IS TRUE, CORRECT AND COMPLETE.
AWAITING TIN
Signature:
Date:
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NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 30% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER.
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EXHIBIT 99.02 FORM OF NOTICE OF GUARANTEED DELIVERY
NOTICE OF GUARANTEED DELIVERY
FOR
11% SENIOR SECURED NOTES DUE 2010
OF
RIVIERA HOLDINGS CORPORATION
As set forth in the Prospectus dated _____________, 2002 (the
"Prospectus") of Riviera Holdings Corporation (the "Company") and in the
accompanying Letter of Transmittal (the "Letter of Transmittal"), this form or
one substantially equivalent hereto must be used to accept the Company's offer
to exchange (the "Exchange Offer") all of its outstanding 11% Senior Secured
Notes due 2010 (the "Existing Notes") for its 11% Senior Secured Notes due 2010
which have been registered under the Securities Act of 1933, as amended, if
certificates for the Existing Notes are not immediately available or if the
Existing Notes, the Letter of Transmittal or any other documents required
thereby cannot be delivered to the Exchange Agent, or the procedure for
book-entry transfer cannot be completed, prior to 5:00 P.M., New York City time,
on the Expiration Date (as defined below). This form may be delivered by an
Eligible Institution by hand or transmitted by facsimile transmission, overnight
courier or mail to the Exchange Agent as set forth below. Capitalized terms used
but not defined herein have the meaning given to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_____________, 2002, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE").
TENDERS OF EXISTING NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE
EXPIRATION DATE.
To: The Bank of New York
The Exchange Agent
By Mail or Overnight Courier:
The Bank of New York
101 Barclay Street
New York, NY 10286
Attn.: Santino Ginocchietti, Reorganization Unit-7E
Reference: Riviera Holdings Corporation
By Hand:
The Bank of New York
101 Barclay Street, Ground Level
Corporate Trust Services Window
New York, NY 10286
Attn.: Santino Ginocchietti, Reorganization Unit-7E
Reference: Riviera Holdings Corporation
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DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on
the Letter of Transmittal to be used to tender Existing Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the space provided therefor in the Letter of
Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, __________________ [fill in number of Existing Notes]
Existing Notes pursuant to the guaranteed delivery procedures set forth in the
Prospectus and Instruction 1 of the Letter of Transmittal.
The undersigned understands that tenders of Existing Notes will be
accepted only in principal amounts of $1,000 or integral multiples thereof. The
undersigned understands that tenders of Existing Notes pursuant to the Exchange
Offer may not be withdrawn after 5:00 p.m., New York City time, on the
Expiration Date.
All authority herein conferred or agreed to be conferred by this Notice
of Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding on the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
Certificate No(s). for Existing Notes Name(s) of Record Holder(s):
(if available):
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Principal Amount of Existing Notes: PLEASE PRINT OR TYPE
Address:
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If Existing Notes will be delivered by book-entry transfer at The Depository
Trust Company, Depository Account No.:
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Area Code/ Tel. No.:
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Signature(s):
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Dated: , 2002
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This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Existing Notes exactly as its (their) name(s) appear(s) on the
certificate(s) for Existing Notes covered hereby or on a DTC security position
listing naming it (them) as the owner of such Existing Notes, or by person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person(s) must
provide the following information:
Please print name(s), title(s) and address(es)
Name(s):
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Capacity(ies):
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Address(es):
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GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" as defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a)
represents that the tender of Existing Notes effected hereby complies with Rule
14e-4 under the Exchange Act and (b) guarantees to deliver to the Exchange Agent
a certificate or certificates representing the Existing Notes tendered hereby,
in proper form for transfer (or a confirmation of the book-entry transfer of
such Existing Notes into the Exchange Agent's account at DTC, pursuant to the
procedures for book-entry transfer set forth in the Prospectus), and a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) together with any required signatures and any other required documents,
at the Exchange Agent's address set forth above, within five New York Stock
Exchange trading days after the date of execution of this Notice of Guaranteed
Delivery.
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THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF
TRANSMITTAL AND EXISTING NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE
TIME PERIOD SPECIFIED ABOVE AND THAT ANY FAILURE TO DO SO COULD RESULT IN
FINANCIAL LOSS TO THE UNDERSIGNED.
Name of Firm:
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Authorized Signature(s)
Address:
----------------------------------- Name:--------------------------
Please Print or Type
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Zip Code Title:-------------------------
Area Code
and Tel. No.: Date:--------------------------
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NOTE: DO NOT SEND EXISTING NOTES WITH THIS FORM; EXISTING NOTES SHOULD BE SENT
WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE
AGENT WITHIN THE TIME PERIOD SET FORTH ABOVE.
II-31