RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 8, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Riviera Holdings Corporation, a Nevada corporation (the "Company"), will be held
at the Riviera Hotel, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109 on
Thursday, May 8, 1997, at 2:00 p.m. (local time), for the following purposes:
1. To elect a Board of Directors;
2. To approve the amendments to the Company's 1993 Employee Stock
Option Plan;
3. To approve the amendments to William L. Westerman's employment
agreement; and
4. To consider and act upon such other matters as may properly come
before the meeting or any adjournment thereof.
Holders of record of the Common Stock (the "Stockholders") at the close
of business on April 14, 1997, are entitled to notice of and to vote at the
meeting. A complete list of Stockholders is open to the examination of any
Stockholder for any purpose germane to the meeting, during ordinary business
hours, at the offices of the Company located at 2901 Las Vegas Boulevard South,
Las Vegas, Nevada 89109.
A copy of the Company's Annual Report for the fiscal year ended December
31, 1996 is enclosed herewith. A copy of the Company's Annual Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1996 will be provided, without charge, to any Stockholder upon
written request.
By Order of the Board of Directors
William L. Westerman, Chairman of the Board
Dated: April 16, 1997
You are urged to fill in, sign, date and mail the enclosed Proxy. If you
attend the meeting and vote in person, the Proxy will not be used. If the Proxy
is mailed in the United States in the enclosed envelope, no postage is required.
The prompt return of your Proxy will save the expense involved in further
communication.
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Riviera Holdings Corporation
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
N/A
- - --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
-------
PROXY STATEMENT
for Annual Meeting of Stockholders
to be held on May 8, 1997
-------
April 16, 1997
TO THE STOCKHOLDERS:
This Proxy Statement is furnished to each Stockholder (as defined below)
in connection with the solicitation by the Board of Directors of Riviera
Holdings Corporation, a Nevada corporation (the "Company"), of Proxies in the
accompanying form to be used at the Annual Meeting of Stockholders to be held at
the Riviera Hotel, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109 on
Thursday, May 8, 1997, at 2:00 p.m. (local time) and at any subsequent time that
may be made necessary by the adjournment thereof. The approximate date on which
this Proxy Statement and the accompanying form of Proxy are being sent to the
Stockholders (as defined below) is April 16, 1997.
All holders of record (the "Stockholders") of the Company's common
stock, par value $.001 per share (the "Common Stock"), at the close of business
on April 14, 1997 (the "Record Date"), are entitled to vote at the meeting and
their presence is desired. If, however, a Stockholder cannot be present in
person, a Proxy is enclosed which the Board of Directors of the Company requests
such Stockholder to execute and return as soon as possible. The person who signs
a Proxy must be either (i) the registered Stockholder of such shares of Common
Stock or (ii) a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or any other person acting in a fiduciary or
representative capacity on behalf of such registered Stockholder. A Stockholder
can, of course, revoke its Proxy at any time before it is voted if so desired,
either in person at the meeting or by delivery of a duly executed written
statement to that effect to the Secretary of the Company.
The Company is paying all costs of the solicitation of Proxies,
including the expenses of printing and mailing to its Stockholders this Proxy
Statement, the accompanying Notice of Annual Meeting of Stockholders, the Proxy
and the Annual Report. The Company will also reimburse brokerage houses and
other custodians, nominees and fiduciaries for their expenses, in accordance
with the regulations of the Securities and Exchange Commission, in sending
Proxies and proxy materials to the beneficial owners of the Company's Common
Stock. Officers or employees of the Company may also solicit Proxies in person,
or by mail, telegram or telephone, but such persons will receive no compensation
for such work, other than their normal compensation as such officers or
employees.
At the close of business on April 14, 1997, 4,914,880 shares of Common
Stock were outstanding and are entitled to vote at the Annual Meeting of
Stockholders. Each outstanding share is entitled to one vote.
PROXIES AND VOTE REQUIRED
The persons named in the accompanying Proxy intend to vote proxies FOR
the election of the nominees for director described herein (except to the extent
authority to vote for any such nominee is withheld), FOR the approval of the
amendments to the Company's 1993 Employee Stock Option Plan and FOR the approval
of the amendments to
-1-
William L. Westerman's employment agreement. In the event that any nominee for
director at the time of election shall be unable or unwilling to serve or is
otherwise unavailable for election (which contingency is not now contemplated or
foreseen), and in consequence, another individual shall be nominated, the
persons named in the Proxy shall have the discretion and authority to vote or to
refrain from voting, in accordance with their judgment, on such other
nominations.
The presence in person or by proxy of a majority of the shares of Common
Stock outstanding and entitled to vote at the meeting is required for a quorum.
If a quorum is present those nominees receiving a plurality of the votes cast
will be elected. Accordingly, shares not voted in the election of directors
(including shares covered by a Proxy as to which authority is withheld to vote
for all nominees) and shares not voted for any particular nominee (including
shares covered by a Proxy as to which authority is withheld to vote for only one
or less than all of the identified nominees) will not prevent the election of
any of the nominees for director. For all other matters being submitted to
Stockholders at the meeting, if a quorum is present the affirmative vote of a
majority of the shares represented at the meeting and entitled to vote is
required for approval. As a result, abstention votes will have the effect of a
vote against such matters.
Shares held by brokers and other Stockholder nominees are voted on
certain matters but not others. This can occur, for example, when the broker or
nominee does not have the discretionary authority to vote shares of Common Stock
and is instructed by the beneficial owner thereof to vote on a particular matter
but is not instructed on other matters. These are known as "non-voted" shares.
Non-voted shares will be counted for purposes of determining whether there is a
quorum at the meeting. But with respect to the matters as to which they are
"non-voted," they will have no effect upon the outcome of the vote thereon.
PROPOSAL NO. I -- ELECTION OF DIRECTORS
(Item I on Proxy Card)
The Board of Directors of the Company consists of four members, all of
whom have been renominated for election at the meeting. If elected, such
directors will hold office until the next Annual Meeting of Stockholders and
until their respective successors shall have been elected and qualified, or,
until resignation, removal or death as provided in the Bylaws of the Company.
Directors
The following table sets forth certain information as of April 16, 1997,
regarding the four nominees for director:
Name Age Position
William L. Westerman 65 Chairman of the Board and Chief Executive
Officer of the Company and Riviera Operating
Corporation ("ROC"), a wholly-owned
subsidiary of the Company, and President of
the Company
Robert R. Barengo 55 Director of the Company and ROC
William Friedman 54 Director of the Company and ROC
Philip P. Hannifin 62 Director of the Company and ROC
William L. Westerman assumed the positions referred to above in
February, 1993. Mr. Westerman was a consultant to Riviera, Inc. 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. Alusuisse, a multi-national
aluminum and chemical company, acquired Cellu-Craft on June 30, 1989. On January
1, 1990, Mr. Westerman was appointed President of Alusuisse Flexible Packaging
(Alusuisse's wholly-owned U.S. subsidiary engaged in the
-2-
manufacture of flexible packaging for food and pharmaceutical products).
Additionally, Mr. Westerman was named a member of the team responsible for all
of Alusuisse multinational packaging operations with annual sales volume in
excess of $1 billion. Mr. Westerman resigned from all his positions with
Alusuisse on June 30, 1991.
Robert R. Barengo has been a Director of the Company and ROC since
February, 1993. Mr. Barengo was a consultant to Riviera, Inc. from January 1993
until June 30, 1993. Since 1972, Mr. Barengo has been engaged in the private
practice of law in Reno, Nevada. From 1978 to 1983, Mr. Barengo was Speaker Pro
Tempore and Speaker of the Nevada Assembly. From October 1992 to May 1996, Mr.
Barengo was a director and 10% shareholder of Leroy's Horse & Sports Place, Inc.
("Leroy's"). In May 1996, Leroy's became a wholly owned subsidiary of American
Wagering, Inc. ("AWI"), a publicly held corporation listed on NASDAQ. Since May
1996, Mr. Barengo has been a director of AWI and currently owns 7% of the
outstanding stock of AWI. Since 1993, Mr. Barengo has been the President and the
sole shareholder of Silver State Disseminators Company, a company licensed by
Nevada gaming authorities to disseminate racing information in the State of
Nevada and Chairman of the Nevada Dairy Commission.
William Friedman has been a Director of the Company and ROC since
February 1993. Mr. Friedman was a consultant to Riviera, Inc. from January 1993
until June 30, 1993. During 1989 and 1990, Mr. Friedman was President and
General Manager of the Las Vegas Casino Division of United Gaming Inc., the
largest slot route operator in Nevada. In 1988 and 1989, Mr. Friedman was Chief
Executive Officer and Executive Vice President of Rio Suite Hotel & Casino, Inc.
(formerly MarCor Resorts. Inc.) and President and General Manager of Rio Suite
Hotel & Casino in Las Vegas.
Philip P. Hannifin has been a Director of the Company and ROC since
February 1993. Mr. Hannifin was a consultant to Riviera, Inc. from January 1993
until June 30, 1993. Mr. Hannifin was a Director from 1986 to 1995 and an
Executive Vice President of Fitzgerald's Reno, Inc. (a casino/hotel operator)
since 1991. From 1987 to 1990, Mr. Hannifin was a Director and Executive Vice
President of MGM Grand Inc. (a casino/hotel operator). From January 1971 to
September 1977, Mr. Hannifin was Chairman of the Nevada Gaming Control Board.
Compensation of Directors
Each of Messrs. Barengo, Friedman and Hannifin is paid an annual fee of
$50,000 for services as a director of the Company and ROC. Each director is also
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors. Mr. Hannifin was granted options to purchase 24,000
shares in 1993, 12,000 shares in 1994 and none in 1995 and 1996. On March 5,
1996 the Board of Directors adopted a Nonqualified Stock Option Plan for
Non-Employee Directors (the "Directors' Option Plan"), which was approved by the
stockholders on May 10, 1996. Under the Directors' Option Plan, each individual
elected, re-elected or continuing as a non-employee director will automatically
receive a non-qualified stock option for 2,000 shares of Common Stock, with an
option exercise price equal to the fair market value of the Common Stock on the
date of grant. 50,000 shares have been reserved for issuance under the
Directors' Option Plan. Options to purchase 2,000 shares at an exercise price of
$13.25 were granted to each of Messrs. Barengo and Friedman on May 10, 1996
under the Directors' Option Plan. Directors who are also officers or employees
of the Company or ROC do not receive any additional compensation for services as
a director. Currently, Mr. Westerman is the only such director. The Board of
Directors has granted the members of the Compensation Committee the right to
elect to receive all or part of their annual fees in the form of the Company's
Common Stock in a number of shares having a fair market value equal to the cash
compensation subject to such election pursuant to the Company's Compensation
Plan for Directors serving on the Compensation Committee. Of the 50,000 shares
reserved for issuance under this plan, 3,103 shares have been issued to Mr.
Barengo for his director's fees in 1996.
Board of Directors and Committee Meetings
The Company established an Audit Committee at the beginning of 1994. The
Audit Committee is composed of Messrs. Barengo, Friedman and Hannifin. The Audit
Committee recommends to the Board of Directors the selection
-3-
of an auditor, reviews the plan and scope of an audit, reviews the auditors'
critique of management and internal controls and management's response to such
critique and reviews the results of the audit.
The Company and ROC each has a Compensation Committee composed of
Messrs. Barengo and Friedman. The Compensation Committee is responsible for
recommending executive compensation programs to the Board of Directors and for
approving all compensation decisions with respect to the Chief Executive Officer
and his recommendations for the other executive officers of the Company.
In 1996, the Audit Committee met two times and the Compensation
Committee also met two times.
In 1996, the Board of Directors of the Company held seven meetings. No
member of the Board of Directors attended in 1996 fewer than 75% of the
aggregate of (1) the total number of meetings of the Board of Directors held
during the period for which he has been a director and (2) the total number of
meetings held by all committees on which he served.
The Board of Directors recommends that Stockholders vote "FOR" each of
the nominees listed above.
Executive Officers
The following table sets forth certain information as of April 16, 1997,
regarding the executive officers of the Company and ROC:
Name Age Position
William L. Westerman 65 Chairman of the Board and Chief Executive
Officer of the Company and ROC, and President of
the Company
Duane R. Krohn 51 Treasurer of the Company and Vice Presidentof
Finance and Treasurer of ROC
John A. Wishon, Esq. 52 Vice President and General Counsel of ROC,
Secretary of the Company and ROC
Michael L. Falba 54 Vice President of Casino Operations of ROC
Jerome P. Grippe 54 Vice President of Operations of ROC
Martin R. Gross 40 Vice President of Hotel Marketing of ROC
Ronald P. Johnson 48 Vice President of Gaming Operations of ROC
Robert E. Nickels, Sr. 67 Vice President of Administration of ROC
Robert A. Vannucci 49 Vice President of Marketing and Entertainment of
ROC
For description of the business experience of William L. Westerman, see
"Directors."
Duane R. Krohn, CPA, assumed the position of Treasurer of the Company
and ROC on June 30, 1993 and was elected Vice President of Finance of ROC on
April 26, 1994. Mr. Krohn was initially employed by Riviera, Inc. in April 1990,
as Director of Corporate Finance and served as Vice President-Finance from March
1992 to June 30, 1993. Mr. Krohn served as Chief Financial Officer of Imperial
Palace, Inc. (a casino/hotel operator in Las Vegas) from February 1987 to March
1990. Prior to 1987, Mr. Krohn was Chief Financial Officer of the Mint and the
Dunes in Las Vegas, Nevada, and Bally's Park Place in Atlantic City, New Jersey.
John A. Wishon, Esq. was elected Secretary of the Company and ROC, and
General Counsel of ROC in September 1994, and was elected Vice President of ROC
in November 1996. Mr. Wishon was initially employed by ROC as a Marketing
Analyst in February 1994. From January 1992 to February 1994, Mr. Wishon was a
legal and management consultant to Gold River Gambling Hall & Resort, the
Bicycle Club Casino, and Tierra del Sol Casino
-4-
Resort. From October 1990 to January 1992, Mr. Wishon served as Vice President
of Hotel Operations and later as Vice President of Administration and Legal
Affairs at the Sands Hotel Casino in Las Vegas. Prior to December, 1988, Mr.
Wishon served as General Manager of the Airtel Plaza and Westwood Plaza Hotels
in Los Angeles, California. From 1976 until 1988, Mr. Wishon was Senior Vice
President of the Hotel del Coronado Corporation and held the positions of
Resident Manager and General Counsel. Mr. Wishon is a member of the Nevada and
California State Bars, has practiced law with emphasis on real estate and
contract law and has been employed in law enforcement.
Michael L. Falba was elected Vice President of Casino Operations of ROC
on April 26, 1994. Mr. Falba became Director of Casino Operations of ROC on June
30, 1993. Mr. Falba was employed by the Riviera, Inc. from March 1989 until
November 1991 as Assistant Casino Manager, and from November 1991 to June 30,
1993 as Vice President of Casino Operations.
Jerome P. Grippe was elected Vice President of Operations of ROC on
April 26, 1994. Mr. Grippe became Director of Operations of ROC on June 30,
1993. Mr. Grippe was Assistant to the Chairman of the Board of Riviera, Inc.
from July 1990 until May 1993. Mr. Grippe had served in the United States Army
from 1964 until his retirement as a Colonel in July 1990.
Martin R. Gross was elected Vice President of Hotel Marketing of ROC on
April 26, 1994. Mr. Gross became Director of Hotel Marketing of ROC on June 30,
1993. Mr. Gross was Vice President-Hotel Marketing of Riviera, Inc. from April
1992 until June 30, 1993. Mr. Gross was Vice President-Marketing and Sales for
Alexis Park Resort Hotel (a 500-suite non-gaming resort) in Las Vegas from
August 1988 until April 1992. From 1980 to 1988, Mr. Gross held key marketing
positions with the Mirage and MGM Grand hotels. On August 12, 1996, Mr. Gross
assumed the responsibilities of Acting General Manager of the Four Queens
Hotel/Casino ("Four Queens") and in February of 1997, Mr. Gross became General
Manager of the Four Queens. Mr. Gross remains an officer and employee of ROC.
Ronald P. Johnson became Vice President of Gaming Operations of ROC in
September 1994. Mr. Johnson became Director of Slots of ROC 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. From September 1986 until September 1989, Mr. Johnson was
Assistant Slot Manager at Bally's Grand Las Vegas.
Robert E. Nickels, Sr. was elected Vice President of Administration of
ROC on June 30, 1993. From March 1992 until June 30, 1993 Mr. Nickels was Vice
President-Administration of Riviera, Inc. From November 1991 to February 1992
Mr. Nickels was a self-employed business consultant. From March 1979 to April
1986, Mr. Nickels was Director of Internal Audit for MGM-Reno. From April 1986
to November 1991, Mr. Nickels served as Vice President of Administration at
Bally's Reno and Las Vegas.
Robert A. Vannucci was elected Vice President of Marketing and
Entertainment of ROC on April 26, 1994. Mr. Vannucci had been Director of
Marketing of ROC since July 19, 1993. Mr. Vannucci was Senior Vice President of
Marketing and Operations at the Sands Casino Hotel in Las Vegas from April 1991
to February 1993. Mr. Vannucci was Vice President and General Manager of
Fitzgerald's Las Vegas (a casino/hotel operator) from 1988 to January 1991. In
July 1993, Robert Vannucci filed for personal bankruptcy protection under
Chapter 13 of the Bankruptcy Code. Pursuant to his bankruptcy plan, Mr. Vannucci
has made 100% repayment to all creditors.
Officers of each of the Company and ROC serve at the discretion of their
respective Boards of Directors and are also subject to the licensing
requirements of the Nevada Gaming Commission.
Compensation of Executive Officers
The following table sets forth a summary of the compensation paid by the
Company in the years ended December 31, 1994, 1995 and 1996, to the Chief
Executive Officer of the Company and ROC, and to the Company's
-5-
four most highly compensated executive officers who received over $100,000 in
compensation during 1996 from the Company (collectively, the "Named Executive
Officers").
Summary Compensation Table
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation(1)
- - ------------------ ---- ------ ----- ------------ ---------------
William L. Westerman 1996 $400,000 $1,213,969(2) $441,375(3) $1,566
Chairman of the Board and 1995 375,000 855,961 431,315(3) 1,630
Chief Executive Officer of 1994 350,000 592,379 389,040(3) 1,630
the Company and ROC
Ronald P. Johnson 1996 170,961 100,000 6,875 791
Vice President of Gaming 1995 155,840 70,000 8,529 772
Operations of ROC 1994 131,813 50,000 5,446 497
Martin R. Gross 1996 148,653 100,000 6,875 536
Vice President of Hotel 1995 140,049 70,000 8,079 541
Marketing of ROC 1994 125,302 50,000 5,316 442
Robert Vannucci 1996 145,961 100,000 6,875 536
Vice President of Marketing 1995 130,569 70,000 6,879 541
and Entertainment of ROC 1994 110,852 50,000 2,717 365
Jerome P. Grippe 1996 118,653 100,000 6,873 408
Vice President of Operations 1995 108,950 70,000 7,115 442
of ROC 1994 103,654 50,000 4,646 398
<FN>
- - ------------------------------
(1) Includes premiums paid by the Company for excess life insurance.
(2) Includes $614,000 of Mr. Westerman's 1996 Incentive Bonus, which was
credited to Mr. Westerman's retirement account.
(3) Includes contributions to Mr. Westerman's retirement account of $425,000
in 1996, $400,000 in 1995 and $375,000 in 1994.
</FN>
Option Grants
The number of shares available for purchase under the Company's 1993
Employee Stock Option Plan (the "Stock Option Plan") is 480,000 (as adjusted
pursuant to antidilution provisions). The Board of Directors has approved an
increase in the number of shares available for purchase under the Stock Option
Plan to 1,000,000, subject to stockholder approval at the Annual Meeting of
Stockholders scheduled to be held on May 8, 1997, which is the subject of this
Proxy Statement. Options for an aggregate of 470,000 shares have been granted
under the Stock Option Plan, and options for an additional 300,000 shares have
been granted to Mr. Westerman, subject to stockholder approval at the Annual
Meeting of Stockholders referred to above. During the Company's 1996 fiscal
year, options covering a total of 410,000 shares of Common Stock were granted
under the Stock Option Plan.
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1996 to the Named Executive
Officers:
-6-
Option Grants In Last Fiscal Year
Individual Grants
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Securities Total Options Exercise Stock Price Appreciation for
Underlying Granted to Price Expiration Option Term (1)
Options Employees in Per Share Date ---------------
Granted Fiscal Year 5% 10%
----------------------------------------------------------------------------------
William L. Westerman 320,000(2) 78.05% $13.625 11/20/06 $2,741,981 $6,948,717
Ronald P. Johnson 7,000 1.71 13.625 11/20/06 59,981 152,003
Martin R. Gross 7,000 1.71 13.625 11/20/06 59,981 152,003
Robert Vannucci 7,000 1.71 13.625 11/20/06 59,981 152,003
Jerome P. Grippe 7,000 1.71 13.625 11/20/06 59,981 152,003
<FN>
(1) "Potential Realizable Value" is disclosed in response to Securities and
Exchange Commission rules, which require such disclosure for illustrative
purposes only, and is based on the difference between the potential market
value of shares issuable (based upon assumed 5% and 10% appreciation rates)
upon exercise of such options and the exercise price of such options. The
values disclosed are not intended to be, and should not be interpreted as,
representations or projections of future value of the Company's stock or of
the stock price.
(2) Includes options granted to Mr. Westerman under the Stock Option Plan, as
amended, subject to Stockholder approval, in accordance with Proposal No.
II hereto, to purchase 300,000 shares of Common Stock.
</FN>
Option Exercises and Year-End Options Values
The following table presents at December 31, 1996 the value of
unexercised in-the-money options held by the Named Executive Officers. No
options have ever been exercised.
Number of Value of Unexercised,
Unexercised Options In-The-Money Options
Name Vested Not Vested Vested Not Vested
- - ---- ------------- -----------
William L. Westerman 230,000 270,000 1,862,501 502,500
Ronald P. Johnson 16,750 8,250 182,344 38,531
Martin R. Gross 16,750 8,250 182,344 38,531
Robert Vannucci 16,750 8,250 182,344 38,531
Jerome P. Grippe 16,750 8,250 182,344 38,531
Employment Agreements
William L. Westerman serves as Chairman of the Board, President and
Chief Executive Officer of the Company, and as Chairman of the Board and Chief
Executive Officer of ROC.
Under Mr. Westerman's existing employment agreement, the term of Mr.
Westerman's employment will expire on December 31, 1997 and Mr. Westerman's
employment is automatically renewed for successive one-year terms unless the
Company gives Mr. Westerman 90 days written notice or Mr. Westerman gives the
Company 180 days notice. Mr. Westerman's base compensation was $325,000 during
1993, $350,000 during 1994, $375,000 during 1995 and $400,000 in 1996.
Under the employment agreement, Mr. Westerman currently earns an
incentive bonus of 8.75% of adjusted operating earnings of the Company over $20
million. Mr. Westerman's incentive bonus amounted to $233,000 in 1993, $592,000
in 1994, $856,000 in 1995 and $1,214,000 in 1996.
The employment agreement provides that the Company fund a retirement
account for Mr. Westerman. Pursuant to the employment agreement, an aggregate of
$2,749,000 had been credited to the retirement account from its inception
-7-
through January 1, 1997, including $614,000 of Mr. Westerman's 1996 incentive
bonus which was credited to the retirement account at the request of the Company
for corporate tax reasons. Under the employment agreement, each year that Mr.
Westerman continues to be employed, an amount equal to Mr. Westerman's base
salary for that year will be credited to the account on January 1 of that year
and in the event that Mr. Westerman is no longer employed by the Company (except
for termination for cause, in which case Mr. Westerman would forfeit all rights
to monies in the retirement account), Mr. Westerman will be entitled to receive
the amount in the retirement account as of the date he ceases to be employed by
the Company in 20 quarterly installments. The Company retains beneficial
ownership of all monies in the retirement account, which monies are earmarked to
pay Mr. Westerman's retirement benefits under the employment agreement.
The Company and ROC are also required to make contributions on behalf of
Mr. Westerman to the Profit Sharing and 401(k) Plans described below. The
Company did not make any contribution to the plans on Mr. Westerman's behalf in
1993. The Company made contributions to the plans of approximately $14,000 for
1994, $31,000 for 1995 and $14,000 for 1996.
The employment agreement provides that Mr. Westerman will receive the
same life, health and disability benefits offered to other key executives of the
Company and ROC, will be reimbursed for all business expenses and will be
entitled to four weeks vacation per year.
Under the employment agreement, Mr. Westerman has certain rights upon a
"Change of Control." A "Change of Control" is defined generally as transactions
involving (i) a sale of substantially all of the assets of the Company, (ii) a
merger, sale or other transaction resulting in holders of Common Stock
immediately prior to such transaction holding less than a majority in voting
interest to elect the directors of the Company or any other surviving entity,
(iii) any person that held less than 10% of the Common Stock acquiring a
majority in voting interest to elect the directors of the Company or (iv) any
person acquiring 50% or more of voting power to elect directors of the Company
or any surviving entity or acquiror of substantially all of the assets of the
Company. Under the employment agreement, Mr. Westerman would be entitled to a
termination fee equal to one full year of base salary and the provision of one
full year of existing health insurance coverage if, within one year following a
Change of Control, Mr. Westerman's employment were to be terminated other than
for cause or if Mr. Westerman were to terminate his employment due to (i)
without Mr. Westerman's consent, a substantial alteration in the nature or
status of his duties or assignment of duties inconsistent with the office of
Chairman and Chief Executive Officer or (ii) a breach by the Company of a
material provision of the employment agreement.
A proposal to approve amendments to Mr. Westerman's employment agreement
with the Company is set forth as Proposal No. III of this Proxy Statement. See
"Proposal No. III" for a discussion of the amendments and a comparison of the
amended agreement with the existing agreement.
Employee Stock Purchase Plan
On May 31, 1996, approximately 560 union and non-union employees
participated in the 1996 employee stock purchase plan. Under the plan, 137,000
shares of Common Stock were issued to employees at $11.26 (85% of market price
at May 10, 1996) in exchange for notes receivable of $1,383,272 which are
payable over two years via payroll deduction. During 1996, 17,600 shares were
returned to the plan as a result of refunds to the employees. There are 180,600
shares remaining to be issued under the plan.
The Company has registered the issuance of all the shares issuable under
this plan on Form S-8 under the Securities Act of 1933, as amended (the
"Securities Act").
-8-
Profit Sharing and 401(k) Plans
On June 30, 1993, the Company and ROC assumed, pursuant to an Adoption
Agreement, 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 the
Riviera Hotel & Casino (the "Riviera") who were employed by the Riviera on April
1, 1992, who are at least 21 years of age and who are not covered by a
collective bargaining agreement are immediately eligible to participate in the
Profit Sharing and 401(k) Plans. The amendment provides further that all current
employees who were employed by the Riviera after April 1, 1992, who are at least
21 years of age and who are not covered by a collective bargaining agreement are
eligible to participate after one year of service at the Riviera.
The profit sharing component of the Profit Sharing and 401(k) Plans
provides that the Company will make a contribution equal to 1% of each eligible
employee's annual compensation if a prescribed annual operating earnings target
is attained and an additional 1/10th of 1% thereof for each $200,000 by which
operating earnings is exceeded, up to a maximum of 3% thereof. The Company may
elect not to contribute to the Profit Sharing and 401(k) Plans if it notifies
its employees by January of the Profit Sharing and 401(k) Plans year. An
employee will become vested in the Company's contributions based on the
employee's years of service. An employee will receive a year of vesting service
for each plan year in which the employee completed 1,000 hours of service.
Vesting credit will be allocated in 20% increments for each year of service
commencing with the attainment of two years of service. An employee will be
fully vested following the completion of six years of service.
Termination Fee Agreements
ROC is a party to termination fee agreements with certain significant
employees pursuant to which each such employee is entitled to receive one year's
salary and benefits if his or her employment with ROC is terminated within one
year of a change of control (as defined in the termination fee agreements) of
the Company or ROC, or the involuntary termination of Mr. Westerman's
employment. The estimated total amount that would be payable under all such
agreements is approximately $1.3 million in salaries and $400,000 in benefits.
Stay Bonus Agreements
ROC is a party to stay bonus agreements with certain significant
employees pursuant to which each such employee is entitled to receive one year's
salary (less the amount of any incentive bonus paid in 1997 for 1996) in the
event there is a change of control (as defined in the stay bonus agreements) of
the Company. The agreements expire on December 31, 1997. The estimated total
amount that would be payable under all such agreements is approximately
$300,000.
Compensation Committee Interlocks and Insider Participation
The Company and ROC each have a Compensation Committee composed of
Messrs. Friedman and Barengo. Robert R. Barengo was formerly a director and 10%
shareholder of Leroy's. In May 1996, Leroy's became a wholly owned subsidiary of
AWI, a publicly held corporation listed on NASDAQ. Mr. Barengo is currently a
director of AWI and owns 7% of the outstanding stock of AWI. See "Certain
Relationships and Related Transactions."
-9-
Compensation Committee Report on Executive Compensation
The Compensation Committee endeavors to ensure that the compensation
program for executive officers of the Company is effective in attracting and
retaining key executives responsible for the success of the Company and is
tailored to promote the long-term interests of the Company and its stockholders.
The Company's executive officer compensation program in its last completed
fiscal year was principally comprised of base salary, an executive incentive
plan, a 401(k) plan, a profit-sharing plan and long-term incentive compensation
in the form of incentive stock options or non-qualified stock options.
The Compensation Committee takes into account various qualitative and
quantitative indicators of corporate and individual performance in determining
the level and composition of compensation for the Company's Chief Executive
Officer and his recommendations regarding the other executive officers. In
particular, the Compensation Committee considers several financial performance
measures, including revenue growth and net income. However, the Compensation
Committee does not apply any specific quantitative formula in making
compensation decisions. The Committee also considers achievements that, while
difficult to quantify, are important to the Company's long-term success. The
Compensation Committee seeks to create a mutuality of interest between the
executive officers and the Company's stockholders by increasing the executive
officers' ownership of the Company's Common Stock through the Stock Option Plan.
Salary levels for the Company's executive officers are significantly
influenced by the need to attract and retain management employees with high
levels of expertise. In each case, consideration is given both to personal
factors, such as the individual's experience, responsibilities and work
performance, and to external factors, such as salaries paid by comparable
companies in the gaming industry. With regard to the latter, it is important to
recognize that because of the growth of river boat and dockside gaming and the
proliferation of jurisdictions in which gaming is permitted, the Company
competes with numerous other companies for a limited pool of experienced and
skilled personnel. Therefore, it is critical that the Company provide base
salaries that are competitive in the casino industry. With respect to the
personal factors, the Compensation Committee makes salary decisions in an annual
review based on the recommendations of the Chief Executive Officer. This annual
review considers the decision-making responsibilities of each position as well
as the experience and work performance of each executive. The Chief Executive
Officer views work performance as the single most important measurement factor.
The compensation of Mr. Westerman for the Company's last completed
fiscal year was set pursuant to the employment agreement described in the
"Compensation of Executive Officers" section.
THE COMPENSATION COMMITTEE
Robert R. Barengo
William Friedman
-10-
Performance Graph
The following graph compares the annual change in the cumulative total
return, assuming reinvestment of dividends, on the Company's Common Stock with
the annual change in the cumulative total returns of the NASDAQ Broad Market,
the American Stock Exchange Index (the "AMEX Index") and the NASDAQ Amusement
and Recreation Services Index (the "NASDAQ 79xx"), which the Company considers
to be its peer industry group. The graph assumes an investment of $100 on June
30, 1993, in each of the Common Stock, the stocks comprising the NASDAQ Broad
Market, the stocks comprising the AMEX Index and the stocks comprising the
NASDAQ 79xx.
Comparison of Cumulative Total Return Among the Company, NASDAQ Broad
Market, the AMEX Index and the NASDAQ 79xx1
Graph of cumulative total returns on the Company's Common Stock, of the
NASDAQ Broad Market, the AMEX Index and the NASDAQ 79xx
- - --------
1 Comprised of companies whose stock is traded on the NASDAQ
National Market and whose standard industrial classification is
within 7900-7999. The Company does not necessarily believe that
this is an indication of the value of the Company's stock.
-11-
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding each person
who, to the knowledge of the Company, beneficially owns, as of April 4, 1997,
more than 5% of the outstanding Common Stock of the Company. 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.
Amount and Nature
Name and Address of Beneficial
Title of Class of Beneficial Owner Ownership Percent of Class
Common Keyport Life Insurance Co. 857,160(1) 17.4%
125 High Street
Boston, MA 02110
Common Sun America Life Insurance Company 761,920 15.5
One Sun America Center
Century City, CA 90067
Common Morgens Entities:(2)
Betje Partners 29,360 *
Morgens Waterfall Income Partners 43,920 *
MWV Employee Retirement
Plan Group Trust 7,760 *
Phoenix Partners 79,440 1.6
Restart Partners, L.P. 282,000 5.7
Restart Partners II, L.P. 440,600 9.0
Restart Partners III, L.P. 298,600 6.1
The Common Fund 90,880 1.8
---------- ----
Total Morgens Entities 1,272,560(3) 25.9
Common James D. Bennett 391,505 8.0
2 Stamford Plaza
Suite 1501
281 Tresser Blvd.
Stamford, CT 06901
Common Stephen S. Taylor 276,860(4) 5.6
714 South Dearborn Street
Chicago, IL 60605
<FN>
- - ------------------------
* Less than 1%.
(1) Stein Roe & Farnham Incorporated, an affiliate of Keyport Life Insurance Co.
("Keyport"), is Keyport's investment advisor, and, as such, has the power
and authority to direct the disposition of the securities, and accordingly,
could be deemed to be a "beneficial" owner within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Stein Roe & Farnham Incorporated, however, disclaims actual beneficial
ownership of such securities.
-12-
(2) The address for Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens") is
10 East 50th Street, New York, New York 10022. Morgens or its principals are
either investment advisors to, or trustees or general partners of, the eight
entities listed in the above table ("Morgens Entities") that are the owners
of the Common Stock of the Company.
(3) Morgens or its principals have the power and authority to direct the
disposition of these securities and, accordingly, could be deemed to be
"beneficial" owners within the meaning of Rule 13d-3 of the Exchange Act.
Each of Morgens, its principals and the Morgens Entities, however, disclaims
beneficial ownership with respect to any securities not actually
beneficially owned by it.
(4) Includes 106,660 shares of Common Stock owned by Bidwell Partners of which
Mr. Taylor is a general partner.
</FN>
The Company is a party to two registration rights agreements with, among
others, Morgens, Keyport, Sun America Life Insurance Company ("Sun Life") and
affiliates of Restructuring Capital Associates, L.P. ("Restructuring Capital"),
each of which owns more than 5% of the Common Stock. Pursuant to the Equity
Registration Rights Agreement dated June 30, 1993, among the Company and the
Holders of Registerable Shares referred to therein, each of the three largest
holders of Common Stock is entitled to cause the Company to file a registration
statement, and holders of 51% or more of the shares of Common Stock then subject
to the Equity Registration Rights Agreement are entitled to cause the Company to
file two registration statements, registering under the Securities Act, the
offer and sale of Common Stock owned by such persons. All other Holders of
Registerable Shares will be entitled to have shares of Common Stock owned by
them included in any such registrations. In addition, the agreement grants to
each party the right to have included, subject to certain limitations, all
shares of Common Stock owned by such party in any registration statement filed
by the Company under the Securities Act, including those filed on behalf of the
Company or security holders not party to the Equity Registration Rights
Agreement. Pursuant to the agreement, the Company will pay all costs and
expenses, other than underwriting discounts and commissions, in connection with
the registration and sale of Common Stock under the agreement. The Debt
Registration Rights Agreement dated June 30, 1993, among the Company and the
Holders of Registerable Securities referred to therein provides the same rights
described above to the holders of First Mortgage Notes referred to therein,
except that holders of 50% (rather than 51%) or more of the principal amount of
First Mortgage Notes then subject to such agreement will be entitled to require
the Company to file two registration statements. In connection with the
preparation and filing by the Company of the Registration Statement declared
effective by the Commission on September 3, 1993, each of Morgens, Keyport and
Sun Life waived its right to demand one future registration of First Mortgage
Notes.
On April 11, 1997, the Company announced that the Morgens Entities,
which own about 26% of the Company's Common Stock, filed a Schedule 13D with the
Securities and Exchange Commission disclosing that such group and Keyport and
Sun America Life, which own about an additional 33% of the Company's Common
Stock have offered to grant a one-year option to Mr. Allen Paulson to purchase
their Company Common Stock at a price of $15 per share, subject to adjustment.
Based upon preliminary discussions with Mr. Paulson, the Company's management
understands that Mr. Paulson is reviewing the offer, but his willingness to
become involved with the Company will depend upon, among other things, his
discussions with the Company's Board. The Company has had and plans to hold
further discussions with Mr. Paulson with respect to these matters. The
Company's management believes that if Mr. Paulson chooses to become involved
with the Company, it will be on a cooperative basis and on a basis that is in
the best interests of the Company, all of its shareholders, its management and
employees. There can be no assurance that any such discussions will result in
any transaction involving the Company and Mr. Paulson.
Security Ownership of Management
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 4, 1997 by (i)
the directors and certain officers of the Company and (ii) all directors and
officers of
-13-
the Company and ROC as a group. 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.
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Ownership Percent of Class
- - -------------- ------------------------ -------------------- ----------------
Common William L. Westerman(1) 329,200(2) 6.7%
Common Ronald P. Johnson(1) 30,250(2) *
Common Martin R. Gross(1) 19,250(2) *
Common Robert Vannucci(1) 18,850(2) *
Common Jerome P. Grippe(1) 19,250(2) *
Common Robert R. Barengo(1) 4,103(2) *
Common William M. Friedman(1) 0 *
Common Philip P. Hannifin(1) 33,000(2) *
Common All executive officers and 516,303(2) 10.5
directors as a group (12
persons)(1)
<FN>
- - ------------------------
* Less than 1%.
(1) The address for each director and officer of the Company and/or ROC is c/o
Riviera Holdings Corporation, 2901 Las Vegas Boulevard South, Las Vegas,
Nevada 89109.
(2) Includes vested portion of options to purchase shares of Common Stock
granted pursuant to the Stock Option Plan and Non-qualified Stock Option
Plan for Non-Employee Directors.
</FN>
Certain Relationships and Related Transactions
Robert R. Barengo was formerly a director and 10% shareholder of
Leroy's. In May 1996, Leroy's became a wholly owned subsidiary of AWI, a
publicly held corporation listed on NASDAQ. Mr. Barengo is currently a director
of AWI and owns 7% of the outstanding stock of AWI, which leases approximately
12,000 square feet of the Riviera casino floor. AWI is the operator of the
Riviera's sports book operations. This lease was assumed by the Company from
Riviera, Inc. and is still in effect. The lease provides for rental payments
based upon the monthly and annual revenues derived by AWI from the location.
From January 1, 1996 through December 31, 1996, AWI paid aggregate rent to ROC
of approximately $168,705. 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. AWI also owns Howard Johnson Hotel & Casino
located at the intersection of Tropicana Avenue and Interstate 15 in Las Vegas,
Nevada. The hotel's operations include an International House of Pancakes
restaurant, on-site food and beverage sales, 150 guest rooms (no suites) and
approximately 53 gaming machines. The Company believes that this casino/hotel's
operations are not competitive with the Riviera.
-14-
From August 1996 until February 1997, Riviera Gaming Management, Inc.
("RGM"), a wholly owned subsidiary of the Company, has been operating the Four
Queens located adjacent to the Golden Nugget on Fremont Street in downtown Las
Vegas under an interim management agreement for a fee of $83,333 per month. A
long-term management agreement (the "Management Agreement") with Elsinore
Corporation ("Elsinore"), the owner of the Four Queens, went into effect on
February 28, 1997, the effective date of the Chapter 11 plan of reorganization
of Elsinore. The Morgens Entities, beneficial owners of approximately 25.9% of
the Common Stock of the Company, own over 90% of the Common Stock of Elsinore.
The Company believes that the terms of the Management Agreement are no less
favorable to the Company than if the Company had negotiated with an independent
third party.
The term of the Management Agreement is approximately 40 months, subject
to earlier termination or extension. Either party may terminate if cumulative
earnings before interest, taxes, depreciation and amortization ("EBITDA") for
the first two fiscal years is less than $12.8 million. The term can be extended
by an additional 24 months at RGM's option, if cumulative EBITDA for the three
fiscal years of the term is at least $19.2 million. RGM will be paid a fee of
25% of any increase in annual EBITDA over $4.0 million, subject to a $1.0
million minimum fee, payable in equal monthly installments. RGM has received
warrants for 20% of Elsinore's fully diluted equity, exercisable during the term
or extended term of the Management Agreement at an exercise price based on the
higher of (i) the per share book value on the effective date of the Elsinore
bankruptcy plan or (ii) total shareholders' equity of $5.0 million. Either party
can terminate the Management Agreement if (i) substantially all the Four Queens'
assets are sold, (ii) the Four Queens is merged or (iii) a majority of the Four
Queens' or Elsinore's shares are sold. Upon such termination, RGM will receive a
$2.0 million termination bonus minus any amount realized or realizable upon
exercise of the warrants.
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and any persons who own more than ten percent of the
Company's Common Stock to file with the Securities and Exchange Commission
various reports as to ownership of such Common Stock. Such persons are required
by Securities and Exchange Commission regulation to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely on its review of the copies of such reports furnished to the Company and
written representations to the Company that no other reports were required, the
aforesaid Section 16(a) filing requirements were met on a timely basis during
1996 and prior fiscal years except as follows (primarily for stock options): one
initial statement of beneficial ownership on Form 3 and three statements of
changes in beneficial ownership on Form 4 covering four transactions (including,
with respect to two transactions, those which were not filed on proper forms)
were not filed timely by William L. Westerman; one initial statement of
beneficial ownership on Form 3 covering one transaction was not filed timely by
Robert R. Barengo; one initial statement of beneficial ownership on Form 3 and
one statement of changes in beneficial ownership on Form 4 covering two
transactions were not filed timely by Philip Hannifin; one initial statement of
beneficial ownership on Form 3 and three statements of changes in beneficial
ownership on Form 4 covering four transactions (including, with respect to two
transactions, those which were not filed on proper forms) were not filed timely
by Duane Krohn; one initial statement of beneficial ownership on Form 3 and one
statement of changes in beneficial ownership on Form 4 covering two transactions
were not filed timely by John A. Wishon; one initial statement of beneficial
ownership on Form 3 and two statements of changes in beneficial ownership on
Form 4 covering three transactions were not filed timely by Michael Falba; one
initial statement of beneficial ownership on Form 3 and three statements of
changes in beneficial ownership on Form 4 covering four transactions were not
filed timely by Jerome Grippe; one initial statement of beneficial ownership on
Form 3 and two statements of changes in beneficial ownership on Form 4 covering
three transactions were not filed timely by Martin Gross; one initial statement
of beneficial ownership on Form 3 and four statements of changes in beneficial
ownership on Form 4 covering five transactions (including, with respect to two
transactions, those which were not filed on proper forms) were not filed timely
by Ronald P. Johnson; one initial statement of beneficial ownership on Form 3
and two statements of changes in beneficial ownership on Form 4 covering three
transactions were not filed timely by Robert E. Nickels, Sr.; one initial
statement of beneficial ownership on Form 3 and one statement of changes in
beneficial ownership on Form 4 covering two transactions were not filed timely
by Robert A. Vannucci; one initial statement of
-15-
beneficial ownership on Form 3 and one statement of changes in beneficial
ownership on Form 4 covering two transactions were not filed timely by Brian
Benschneider; one initial statement of beneficial ownership on Form 3 and two
statements of changes in beneficial ownership on Form 4 covering three
transactions were not filed timely by Jan Catalano; one initial statement of
beneficial ownership on Form 3 covering one transaction was not filed timely by
Julie DiBetta; one initial statement of beneficial ownership on Form 3 and one
statement of changes in beneficial ownership on Form 4 covering two transactions
were not filed timely by John C. Franzoi; two statement of changes in beneficial
ownership on Form 4 covering two transactions were not filed timely by Al
Pitcher; and one initial statement of beneficial ownership on Form 3 covering
one transaction was not filed timely by Lloyd Wentzell III.
PROPOSAL NO. II -- AMENDMENT OF THE STOCK OPTION PLAN
(Item II on Proxy Card)
The Board of Directors unanimously recommends the approval of amendments
to the Company's Stock Option Plan to: (i) increase the number of shares of
Common Stock available for purchase thereunder from 480,000 shares to 1,000,000
shares; and (ii) set an upper limit on the number of options that may be granted
to any individual under the Stock Option Plan in any calendar year.
General
The options discussed in the following paragraphs were granted pursuant
to the Stock Option Plan. The number of shares reflects the adjustments made for
a ten-for-one stock split on November 26, 1994, and a four-for-one stock split
on November 16, 1995.
The Board of Directors adopted the Stock Option Plan on July 23, 1993,
and the Company's stockholders approved the Stock Option Plan at the April 26,
1994 annual meeting of stockholders. The Stock Option Plan is administered by
the Compensation Committee, which consists of two members of the Board of
Directors who must be Disinterested Persons (as defined in Rule 16b-3(d)(3)
under the Exchange Act). The Compensation Committee currently consists of Robert
R. Barengo and William Friedman, neither of whom are eligible to receive
options. Persons eligible to receive options are any officer or other key
employee of the Company or any of its subsidiaries or affiliates, including a
director who is such an employee, as the Compensation Committee, in its sole
discretion, may select. The purpose of the Stock Option Plan is to attract,
retain and motivate officers and key employees of the Company, and to encourage
them to have a financial interest in the Company.
The Stock Option Plan provides for adjustment in the number of shares of
Common Stock subject to each outstanding option or the option prices or both, in
the event of any changes in the outstanding Common Stock by reason of stock
dividends, stock splits, recapitalizations, reorganizations, mergers,
consolidations, sales or exchanges of assets, combinations, or exchanges of
shares or offerings of subscription rights. In the event of the complete
liquidation or dissolution of the Company due to a merger, reorganization or
other adjustment as described above, any options granted and remaining
unexercised shall be deemed canceled.
The Company has registered the issuance of all options and all shares
issuable upon exercise of the options on Form S-8 under the Securities Act.
The purchase price may be paid in cash, in shares of Common Stock
previously owned by the optionee, in shares of Common Stock obtained as a result
of the exercise of an option (with the consent of the Compensation Committee) or
by any combination of cash and such shares.
Grants Under the Plan
-16-
Options for Employees. The Stock Option Plan provides for the issuance
of both non-qualified and incentive stock options (as defined in the Internal
Revenue Code of 1986, as amended) (the "Code"). Options and all rights
thereunder are by their terms nonassignable and non-transferable by the optionee
(otherwise than by will or the laws of descent and distribution), and any
attempt to do so shall be null and void. Options may be exercisable during the
lifetime of the optionee only by the optionee. The price at which Common Stock
may be purchased upon exercise of an option is determined by the Compensation
Committee, but shall be not less than the Fair Market Value (as defined in the
Stock Option Plan) of such shares on the date of grant. In the case of any
incentive option granted to a stockholder owning more than ten percent of the
Common Stock, the option price per share shall not be less than 110% of the Fair
Market Value of such share on the date of grant.
The term of an option can in no event be exercisable more than ten years
(five years in the case of an incentive option granted to a stockholder owning
more than 10% of the Common Stock), or such shorter period, if any, as may be
necessary to comply with the requirements of state securities laws, from the
date such option is granted. All optionees who have been granted options have
entered into option agreements with the Company. Each option agreement specifies
when an option may be exercisable and the terms and conditions applicable
thereto, including any vesting requirements, as determined by the Compensation
Committee. Under existing option agreements, options vest 25% on the date of
grant and 25% each subsequent year. However, upon the earlier of any change of
control (as defined in the option agreements) or the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock approving a
change of control: (i) each outstanding option shall accelerate to become fully
vested and immediately exercisable; and (ii) to the extent required by the terms
of the transaction constituting a change of control, each optionee shall be
obligated to exercise any outstanding option, to the extent not previously
exercised, and participate in the change of control on the same terms and
conditions as other holders of the Common Stock or, if the optionee does not so
exercise his option, such option shall be canceled as part of such change of
control.
Termination of Employment. In the event of the termination of the
optionee's employment (i) with the consent of the Company or a subsidiary or an
affiliate or (ii) resulting from the optionee's retirement under one or more of
the Company's retirement plans including, without limitation, any early
retirement permitted under such plans, then such optionee's option may be
exercised, regardless of tax consequences, to the extent then vested and
exercisable as provided in the option agreement applicable to such option (or,
if so determined by the Compensation Committee in its sole discretion, up to the
full extent thereof, whether or not vested) at any time (i) within 90 days
following such termination if exercise by such optionee during such period would
not violate Section 16(b) of the Exchange Act, or (ii) within 190 days following
such termination if exercise by such optionee within 90 days following such
termination would violate Section 16(b) of the Exchange Act, but in any event
not thereafter.
In the event of death or permanent physical or mental disability (as
such disability shall be determined by a physician selected by the Company) of
the optionee either (i) while employed by the Company or a subsidiary or an
affiliate or (ii) (with respect to a non-qualified option only) while eligible
to exercise the option following the termination of the optionee's employment as
set forth above, then such optionee's option may be exercised, to the extent
vested (or, if so determined by the Committee in its sole discretion, up to the
full extent thereof, whether or not vested), at any time within one year
following the optionee's death or such determination of physical or mental
disability, by the optionee, the executors or administrators of the optionee or
by any person who shall have acquired the option from the optionee by bequest or
inheritance. In the event of termination of employment by reason of disability
or retirement, if any incentive option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422A of the Code, such
incentive option will thereafter be treated as a non-qualified option.
In the event of the termination, for any reason, of the employment of an
optionee, other than by reason of death, disability, retirement or with the
written consent of the Company or a subsidiary or an affiliate, all options
granted to such optionee which have not been exercised by him prior to the time
of such termination, whether or not vested, shall be then terminated and
thereafter may not be exercised. Options granted under the Stock Option Plan,
however, shall
-17-
not be affected by any change of employment so long as the optionee continues to
be an employee of the Company or a subsidiary or an affiliate.
Other Information. The Stock Option Plan became effective as of July 1,
1993, and will terminate on July 1, 2003. However, with approval from the
stockholders of the Company, if required by law or the applicable provisions of
any securities exchange upon which the Common Stock is listed, the Board of
Directors or the Compensation Committee may at any time prior to such date
terminate or amend the Stock Option Plan and the terms and conditions thereof as
to stock which is not then the subject matter of options granted or issued
pursuant to the terms of the Stock Option Plan. The Board of Directors or the
Compensation Committee, with the written consent of the affected holders of any
options granted pursuant to the Stock Option Plan, may terminate or amend the
Stock Option Plan as it regards any such options held by any such consenting
holders.
Federal Income Tax Consequences
For federal income tax purposes, the grant to an optionee of a
non-qualified stock option will not constitute a taxable event to the optionee
or to the Company. Upon exercise of a non-qualified stock option (or, in certain
cases, a later tax recognition date), the optionee will recognize compensation
income (or, in the case of non-employee directors, self-employment income
taxable as ordinary income) measured by the excess of the fair market value of
the Common Stock purchased on the exercise date (or later tax recognition date)
over the amount paid by the optionee for such Common Stock, and (except in the
case of non-employee directors) will be subject to tax withholding. The Company
may generally claim a deduction for the amount of such compensation. The
optionee will have a tax basis in the Common Stock purchased equal to the amount
paid plus the amount of ordinary income recognized upon exercise of the
non-qualified stock option. Upon the subsequent sale of the Common Stock
received upon exercise of the non-qualified stock option, an optionee will
recognize capital gain or loss, assuming the shares represent a capital asset in
the optionee's hands, equal to the difference between the amount realized on
such sale and his or her tax basis in the Common Stock, which may be long-term
capital gain or loss if the optionee has held the Common Stock for more than one
year from the exercise date.
For federal income tax purposes, neither the grant nor the exercise of
an incentive stock option will constitute a taxable event to the optionee or to
the Company, assuming the option qualifies as an incentive stock option under
Code ss.422. If an optionee does not dispose of the Common Stock acquired upon
exercise of an incentive stock option during the statutory holding period, any
gain or loss upon subsequent sale of the Common Stock will be long-term capital
gain or loss, assuming the shares represent a capital asset in the optionee's
hands. The statutory holding period is the later of two years from the date the
option is granted or one year from the date the Common Stock is transferred to
the optionee pursuant to the exercise of the option. If the statutory holding
period requirements are satisfied, the Company may not claim any federal income
tax deduction upon either the exercise of the incentive stock option or the
subsequent sale of the Common Stock received upon exercise of the incentive
stock option. If the statutory holding period requirements are not satisfied,
the optionee will recognize compensation income taxable as ordinary income on
the date the shares are sold (or later tax recognition date) in an amount equal
to the lesser of (i) the fair market value of the Common Stock on that date less
the amount paid by the optionee for such Common Stock, or (ii) the amount
realized on the disposition of the Common Stock less the amount paid by the
optionee for such Common Stock; the Company may then claim a deduction for the
amount of such compensation income.
An optionee who exercises an incentive stock option may be subject to an
alternative minimum tax since, for purposes of the alternative minimum tax, the
option will be treated as a non-qualified stock option. Accordingly, the taxable
event for alternative minimum tax purposes will generally occur on the exercise
of the option.
The federal income tax consequences summarized herein are based upon
current law and are subject to change.
Reasons for Proposal
-18-
(1) Since only 10,000 shares are available for issuance under the Stock Option
Plan, the Compensation Committee and the Board of Directors of the Company
believe it would be desirable to have more shares of Common Stock available
under the Stock Option Plan for incentive purposes. They therefore recommend
that the Company's stockholders approve an amendment to the Stock Option Plan to
make an additional 520,000 shares of Common Stock (all of which are either
unissued shares or treasury shares) available for issuance thereunder. This
amendment will allow the Stock Option Plan to remain in effect, and should
address the need for available shares, for a number of years.
(2) The Board of Directors and the Compensation Committee also recommend that
the Company's stockholders approve an amendment to the Stock Option Plan which
would amend Section 4.1 entitled "Shares Available" to add the following
sentence: "The aggregate number of shares of Common Stock covered by options
that may be granted to any individual hereunder within any one calendar year
shall not exceed 350,000 shares.". Such amendment is desirable because it
conforms the Stock Option Plan to the treasury regulations to ensure that
taxable compensation received by employees upon exercise of options will be
fully deductible by the Company.
In all other respects, the provisions of the Stock Option Plan will
remain the same.
The Board of Directors recommends that Stockholders vote "FOR" the
approval of the proposed amendments to the Stock Option Plan.
PROPOSAL NO. III -- WILLIAM L. WESTERMAN EMPLOYMENT CONTRACT
(Item III on Proxy Card)
The Board of Directors unanimously recommends the approval of amendments
to Mr. Westerman's employment agreement with the Company as described below.
Mr. Westerman's employment agreement with the Company was amended on
November 21, 1996 subject to Stockholder approval at the Annual Meeting of
Stockholders scheduled to be held on May 8, 1997. If the Company's Stockholders
do not approve the "Amended Agreement" (the terms of which are summarized
below), the "Old Agreement" will remain in full force and effect. The term of
Mr. Westerman's employment will expire on December 31, 1998 under the Amended
Agreement (December 31, 1997 under the Old Agreement) and Mr. Westerman's
employment is automatically renewed under both the Old Agreement and the Amended
Agreement for successive one-year terms unless the Company gives Mr. Westerman
90 days written notice or Mr. Westerman gives the Company 180 days notice. Mr.
Westerman's base compensation would be increased to $600,000 under, and for the
duration of, the Amended Agreement.
Under the Old Agreement, Mr. Westerman currently earns an incentive
bonus of 8.75% of adjusted operating earnings of the Company over $20 million.
Under the Amended Agreement, in lieu of such incentive bonus, Mr. Westerman will
be 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.
If stockholders do not approve the Amended Agreement, Mr. Westerman's
base salary will be $425,000 for 1997 and his Incentive Bonus will be equal to
8.75% of the Company's adjusted operating earnings over $20 million in each year
of the term of his employment.
Both the Old Agreement and the Amended Agreement provide that the
Company fund a retirement account for Mr. Westerman. Pursuant to the Old
Agreement, an aggregate of $2,749,000 (under the New Agreement, $2,924,000)
-19-
had been credited to the retirement account from its inception through January
1, 1997, including $614,000 of Mr. Westerman's 1996 incentive bonus which was
credited to the retirement account at the request of the Company for corporate
tax reasons.
Under both the Old Agreement and the Amended Agreement, each year that
Mr. Westerman continues to be employed, an amount equal to Mr. Westerman's base
salary for that year will be credited to the account on January 1 of that year
and in the event that Mr. Westerman is no longer employed by the Company (except
for termination for cause, in which case Mr. Westerman would forfeit all rights
to monies in the retirement account), Mr. Westerman will be entitled to receive
the amount in the retirement account as of the date he ceases to be employed by
the Company in 20 quarterly installments. Pursuant to the Amended Agreement, the
retirement account was credited with $80,000 on April 1, 1997 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. In the event of Mr. Westerman's
death, an amount equal to the applicable federal estate tax (now 60%) on the
retirement account will be pre-paid prior to the date or dates such taxes are
due.
The Company retains beneficial ownership of all monies in the retirement
account, which monies are earmarked to pay Mr. Westerman's retirement benefits
under the Old Agreement and the Amended Agreement. Under the Amended Agreement,
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 Amended Agreement or (iv) the expiration or
earlier termination of the term of the Amended Agreement for any reason other
than cause, Mr. Westerman may require the Company to establish a "Rabbi Trust"
for the benefit of Mr. Westerman and 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
discussed below.
Both the Old Agreement and the Amended Agreement provide that Mr.
Westerman will receive the same life, health and disability benefits offered to
other key executives of the Company and ROC, will be reimbursed for all business
expenses and will be entitled to four weeks vacation per year.
Under both the Old Agreement and the Amended Agreement, Mr. Westerman
will be entitled to rights exercisable upon a "Change of Control." Under both
the Old Agreement and the Amended Agreement, a "Change of Control" is defined
generally as transactions involving (i) a sale of substantially all of the
assets of the Company, (ii) a merger, sale or other transaction resulting in
holders of Common Stock immediately prior to such transaction holding less than
a majority in voting interest to elect the directors of the Company or any other
surviving entity, (iii) any person that held less than 10% of the Common Stock
acquiring a majority in voting interest to elect the directors of the Company or
(iv) any person acquiring 50% or more of voting power to elect directors of the
Company or any surviving entity or acquiror of substantially all of the assets
of the Company. Under the Old Agreement, Mr. Westerman would be entitled to a
termination fee equal to one full year of base salary and the provision of one
full year of existing health insurance coverage if, within one year following a
Change of Control, Mr. Westerman's employment were to be terminated other than
for cause or if Mr. Westerman were to terminate his employment due to (i)
without Mr. Westerman's consent, a substantial alteration in the nature or
status of his duties or assignment of duties inconsistent with the office of
Chairman and Chief Executive Officer or (ii) a breach by the Company of a
material provision of the Old Agreement. Under the Amended Agreement, a Change
of Control without Mr. Westerman's consent is a special event of default
entitling Mr. Westerman, upon at least 90 days prior notice to the Company, to
terminate his employment with the Company and to (i) have an amount equal to one
year of base salary credited to his retirement account and (ii) 100% vesting of
stock options held by him.
-20-
In connection with the Amended Agreement, the Company granted to Mr.
Westerman new options under the Stock Option Plan (as amended, subject to
stockholder approval, in accordance with Proposal No. II) to purchase 300,000
shares of Common Stock. Accordingly, fulfillment of the Company's obligations
under the Amended Agreement under this Proposal III will be conditioned upon
approval of the increase in the number of shares of Common Stock available for
issuance under the Stock Option Plan in accordance with Proposal II.
The Board of Directors recommends that Stockholders vote "FOR" the
approval of the proposed amendments to William L. Westerman's employment
agreement.
INDEPENDENT AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP, certified
public accountants, as the independent auditors of the Company for the fiscal
year ending December 31, 1997. Deloitte and Touche LLP have been the accountants
for the Company and its predecessor since prior to 1988. Representatives of
Deloitte & Touche LLP ("Representatives") are expected to be present at the
Annual Meeting. The Representatives will have the opportunity to make a
statement, although they are currently not expected to do so. The
Representatives are expected to be available to respond to appropriate
questions.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which
are to be brought before the meeting. If any other matters should be presented
for proper action, it is the intention of the persons named in the Proxy to vote
in accordance with their discretion pursuant to the terms of the Proxy.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received at the Company's executive offices on
or before December 13, 1997, for inclusion in the Company's Proxy Statement with
respect to such meeting.
RIVIERA HOLDINGS CORPORATION
By William L. Westerman, President
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE,
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO FILL
IN, SIGN, DATE AND RETURN THE ENCLOSED PROXY.
-21-
Riviera Holdings Corporation
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
May 8, 1997
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitute(s) and appoint(s) William L. Westerman
and John A. Wishon, and each of them, as proxies of the undersigned, with full
power of substitution, to vote all shares of Common Stock of Riviera Holdings
Corporation (the "Company") which the undersigned is (are) entitled to vote at
the Annual Meeting of the Stockholders of the Company to be held at the Riviera
Hotel, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109, on Thursday, May
8, 1997, at 2:00 p.m., local time, and at any adjournment(s) thereof (the
"Meeting"), on all matters that may come before such Meeting. Said proxies are
instructed to vote on the following matters in the manner herein specified.
1. Election of the following Four Nominees as Directors of the Company:
William L. Westerman; Robert R. Barengo; William Friedman; and Philip P.
Hannifin
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to vote for
(except as indicated below) all nominees listed above
FOR all nominees listed above except withhold authority to vote for the
following nominee(s):
__________________________________________________________
2. Proposal to approve the amendments to the Company's 1993 Employee Stock
Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the amendments to William L. Westerman's employment
agreement with the Company
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Meeting.
================================================================================
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF COMMON STOCK COVERED
HEREBY WILL BE VOTED AS SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE, SUCH
SHARES WILL BE VOTED "FOR" THE NOMINEES FOR DIRECTOR, "FOR" THE APPROVAL OF THE
AMENDMENTS TO THE COMPANY'S 1993 EMPLOYEE STOCK OPTION PLAN, "FOR" THE APPROVAL
OF THE AMENDMENTS TO WILLIAM L. WESTERMAN'S EMPLOYMENT AGREEMENT AND AS THE
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
The undesigned hereby revoke(s) all previous Proxies and acknowledge(s)
receipt of the Notice of the Meeting dated April 16, 1997, the Proxy Statement
attached thereto and the Annual Report of the Company for the fiscal year ended
December 31, 1996 forwarded therewith.
Dated:________________________, 1997
____________________________________
Signature
____________________________________
Signature
Please mark, sign and return this
Proxy promptly using the enclosed
envelope. If stock is held in the
names of joint owners, each should
sign. Persons signing as an
attorney, executor, administrator,
guardian, trustee, corporate officer
or in any other fiduciary or
representative capacity should give
full title.