As filed with the Securities and Exchange Commission on _______ __, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------------------------
Riviera Black Hawk, Inc.
(Exact name of registrant as specified in its charter)
Colorado 0000899647 86-0886265
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
-------------------------------------------
444 Main Street
Black Hawk, Colorado 80422
(303) 582-1000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
---------------------------------------
William L. Westerman
Chief Executive Officer and Director
Riviera Black Hawk, Inc.
444 Main Street
Black Hawk, Colorado 80422
(303) 582-1000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------------------------------------
With Copies to:
Frederic J. Klink
Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
(212) 698-3500
---------------------------------------
Approximate date of commencement of proposed
sale to the public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are
being 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
=====================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered Per Unit (1) Price (1) Registration Fee
- -----------------------------------------------------------------------------------------------------
13% First Mortgage Notes
due 2005 With Contingent
Interest....................... $45,000,000 100% $45,000,000 $12,510
=====================================================================================================
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the
registration fee.
---------------------------------------
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED ________ __, 1999
PROSPECTUS
Offer to Exchange
13% First Mortgage Notes due 2005 With Contingent Interest for all outstanding
13% First Mortgage Notes due 2005 With Contingent Interest
of
RIVIERA BLACK HAWK, INC.
The Exchange Offer will expire at
5:00 P.M., New York City time, on
______________ __, 1999, 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
"Certain United States Federal Income Tax Considerations" on page 104
for more information.
- We will not receive any proceeds from the Exchange Offer.
- The terms of the Exchange Notes are substantially identical to the
Existing Notes, except that the Exchange 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 Exchange Notes.
-------------------------
See "Risk Factors" beginning on page 10 for a discussion of certain risks
that should be considered by holders prior to tendering their Existing Notes.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------------
The date of this prospectus is _______ __, 1999.
TABLE OF CONTENTS
Page Page
---- ----
Forward-Looking Statements..........ii Management..........................49
Summary............................. 1 Principal Stockholders..............51
Risk Factors........................10 Certain Relationships And Related
Use Of Proceeds.....................20 Transactions......................53
Capitalization......................21 Description Of Notes................54
Selected Financial Information......22 Certain United States Federal
Ratio Of Earnings To Fixed Charges..23 Income Tax Considerations........104
Management's Discussion And Plan Of Distribution...............107
Analysis Of Financial Condition Legal Matters......................108
And Results Of Operations.........24 Experts............................108
The Exchange Offer..................26 Available Information..............108
Business............................34 Index to Riviera Black Hawk, Inc.
Gaming And Liquor Regulatory Financial Statements.............F-1
Matters...........................42 Riviera Holdings Corporation ......A-1
Material Agreements.................47
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.
ii
FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this prospectus. Whenever
you read a statement that is not simply a statement of historical fact (such as
when we describe what we "believe," "expect" or "anticipate" will occur, and
other similar statements), you must remember that our expectations may not be
correct, even though we believe they are reasonable. We do not guarantee that
the transactions and events described in this prospectus will happen as
described or that they will happen at all. The forward-looking information
contained in this prospectus is generally located in the material set forth
under the headings "Summary," "Risk Factors," "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 and objectives for future operations
and are based upon our management's reasonable estimates of future results or
trends. The factors that may affect our expectations of our operations, markets
and services include, among others, the following:
o local and regional economic and business conditions;
o changes or developments in laws, regulations or taxes;
o actions taken or omitted to be taken by third parties, including our
customers, suppliers, competitors and stockholders, as well as
governmental authorities;
o competition;
o the loss of any licenses or permits or our failure to obtain our
gaming or liquor license on a timely basis;
o delays in completing the construction of the casino;
o changes in our business strategy, capital improvements or development
plans;
o the availability of additional capital to support capital improvements
and development; and
o other factors discussed under "Risk Factors" or elsewhere in this
prospectus.
You should read this prospectus completely and with the understanding that
actual future results may be materially different from what we expect. We will
not update these forward-looking statements, even though our situation may
change in the future.
ii
SUMMARY
This summary highlights selected information from this prospectus and may
not contain all the information that is important to you. You should carefully
read this entire prospectus, including any information to which we refer you,
before deciding to purchase any of the notes. The terms "Company," "our
company," "we" and "us" refer to Riviera Black Hawk, Inc. and the terms "Riviera
Black Hawk" and "our casino" refer to the casino we are constructing in Black
Hawk, Colorado. The term "Riviera Holdings" refers to Riviera Holdings
Corporation, our parent company.
The Exchange Offer
On June 3, 1999, we issued and sold $45.0 million aggregate principal amount
of 13% First Mortgage Notes due 2005 With Contingent Interest (the "Existing
Notes"). In connection with this offering, we entered into a registration rights
agreement with the initial purchaser of the Existing Notes in which we agreed,
among other things, to deliver this prospectus to you and to complete an
exchange offer for the Existing Notes. Pursuant to the registration rights
agreement, we are offering to exchange $45.0 million aggregate principal amount
of our 13% First Mortgage Notes due 2005 With Contingent Interest, which have
been registered under the Securities Act (the "Exchange Notes" or the "notes"),
for a like aggregate principal amount of our Existing Notes (the "Exchange
Offer"). You are entitled to exchange your Existing Notes for Exchange Notes
with substantially identical terms. We urge you to read the discussions under
the headings "The Exchange Offer" and "The Exchange Notes" in this Summary for
further information regarding the Exchange Offer and the Exchange Notes.
The Company
Our company, a wholly-owned subsidiary of Riviera Holdings, is constructing
and will own and operate one of the largest integrated casino, entertainment and
parking facilities in the state of Colorado. Located at one of the premier
gaming sites in Black Hawk, Colorado, approximately 40 miles west of Denver, our
casino will be one of the first encountered when traveling from Denver to the
adjacent gaming cities of Black Hawk and Central City. Our casino will feature
one of the largest number of gaming positions in the market with approximately
1,000 slot machines and 14 table games. We also expect to offer a variety of
non-gaming amenities designed to further differentiate our casino including (1)
parking for 520 vehicles (substantially all of which will be covered) with
convenient self-park and valet options, (2) a 265-seat casual dining restaurant,
(3) two themed bars and (4) an entertainment center with seating for
approximately 500 people.
We believe that substantial opportunity exists in the Black Hawk/Central
City market for well-capitalized, sophisticated gaming operators offering an
attractive mix of product and convenience. 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 March 31, 1999, there were 29
casinos in the Black Hawk/Central City market, with eight casinos each offering
more than 400 gaming positions. Anchor Gaming's Colorado Central Station,
located across the street from our casino with approximately 700 gaming machines
and 700 valet parking spaces, has been the market leader with an estimated
average win per gaming device per day of approximately $240 in 1998. We believe
that our casino will be successful due to our:
o premier location;
o convenient, covered self-parking;
o superior size and amenities; and
o Manager's successful track record in gaming.
We expect to open our casino in the first quarter of 2000. The total cost
for our casino, excluding capitalized interest, is expected to be $77.1 million,
which includes (1) $15.1 million for the original purchase of the land on which
our casino is being developed, (2) $27.6 million of construction costs, (3)
$10.6 million for furniture, fixtures and equipment, (4) $8.0 million for
project development costs, fees and permits, (5) $2.7 million for pre-opening
costs, opening bankroll and other working capital
1
requirements, (6) $10.1 million for a completion reserve and an interest reserve
and (7) $3.0 million for fees and expenses related to the sale of the Existing
Notes. Prior to the sale of the Existing Notes, Riviera Holdings had contributed
cash of $30.1 million to us, of which $20.0 million is in the form of equity
capital and the balance was reimbursed to Riviera Holdings from the proceeds of
the sale of the Existing Notes. We believe the construction budget and timetable
for our casino can be achieved based on the following:
o the $27.6 million of construction costs will be incurred pursuant to a
guaranteed maximum price construction contract which is based on
completed construction drawings which have been approved by the Black
Hawk Planning Board;
o we have completed all site improvements, excavation and foundation
work (typically the portion of a casino construction project that has
the most risk) and erection of the steel structure began in April
1999;
o 35% of the $27.6 million construction budget has been expended under
the guaranteed maximum price construction contract as of March 31,
1999;
o our architect and contractor have extensive experience in similar
projects in mountainous terrain; and
o the guaranteed maximum price construction contract provides for a
completion date of January 15, 2000 with incentives for finishing
early and penalties for finishing late.
Our casino will be managed by a wholly-owned subsidiary of Riviera Holdings.
Riviera Holdings owns and operates the Riviera Hotel & Casino located on the Las
Vegas Strip. Upon completion, our casino will be the only casino in the market
developed and operated by a Las Vegas Strip casino company. Riviera Holdings'
current management team has developed a strong reputation in the gaming
industry. Since assuming control of Riviera Holdings in 1992, this management
team has grown Riviera Holdings' EBITDA1 from $22.0 million in 1993 to $29.1
million in 1998, an increase of 32%.
The Black Hawk/Central City Market
Gaming was first introduced to the Black Hawk/Central City market in October
1991 following a state-wide referendum where Colorado voters approved limited
stakes gaming for three historic mining towns -- Black Hawk, Central City and
Cripple Creek. Limited stakes gaming is defined as a maximum single bet of $5,
which has resulted in 95% of state gaming revenues being attributable to slot
play. The Black Hawk/Central City market primarily caters to "day-trip"
customers from Denver, Boulder, Fort Collins and Golden as well as Cheyenne,
Wyoming, while Cripple Creek, located in central Colorado, primarily serves the
Colorado Springs area. Approximately 3.3 million people reside within a 100-mile
radius of the Black Hawk/Central City market, of which 1.9 million reside in the
Denver metropolitan area. The only other locations in Colorado where casino
gaming is permitted are in two Native American gaming facilities located in the
southwest corner of the state, over 300 miles from Denver.
The Black Hawk/Central City market's strategic location has contributed to
strong, consistent growth in the market's gaming revenues. The market has grown
from $127.6 million in 1992 to $366.0 million in 1998, a 19% compound annual
growth rate. We expect continued growth as sophisticated operators enter the
market and add additional parking, hotel rooms and non-gaming amenities. The
entry of larger, well-capitalized operators has also contributed to a
consolidation of the highly-fragmented market. The number of casinos in the
Black Hawk/Central City market has decreased from 42 in 1992 to 29 as of March
31, 1999, allowing larger casinos to gain market share and achieve superior
results.
Competitive Strengths
We believe that the following competitive strengths will contribute to the
success of our casino:
- ------------------------
1 EBITDA, as used with respect to Riviera Holdings, means earnings before
interest, income taxes, depreciation and amortization (excluding corporate
financing, severance and Paulson merger/litigation costs). EBITDA is not a
substitute for Riviera Holdings' operating income or net income and is not
a better indicator of liquidity than cash flow from operating activities,
all of which are determined in accordance with generally accepted
accounting principles. However, we are using the term to provide an
indication of the historical performance of Riviera Holdings under its
current management team. This definition of EBITDA may not be the same as
that of similarly named measures used by other companies.
2
Dominant Black Hawk/Central City Location. Our casino is located at the
entrance to the City of Black Hawk and will be one of the first casinos
encountered when traveling from Denver to the Black Hawk/Central City market. We
will be on the corner of Mill and Main Street, across the street from Colorado
Central Station, which has been the most successful casino in Colorado. In
addition, we will be located across Main Street from the recently completed Isle
of Capri Casino, which is of a similar size to our casino in terms of the number
of gaming positions. This will result in a critical mass of casinos located at
the entrance to Black Hawk which we expect to create synergistic benefits for
all three casinos.
Convenient Covered, Self-Parking Facilities. Much of the Black Hawk/Central
City market lacks adequate parking. As a result, we believe that the
availability of convenient on-site parking is not only a critical
differentiating factor from other casinos, but that the additional parking will
contribute to overall growth in the market. Our casino will feature an attached
175,000 square foot multi-level parking facility with capacity for approximately
520 vehicles (substantially all of which will be covered). In addition to valet
parking, we will offer patrons the convenience of a self-park option, which we
believe gives us an additional advantage over casinos that require patrons to
use valet service to maximize the number of available parking spaces. Our
parking facility, coupled with the nearly 1,800 other parking spaces located at
the Isle of Capri Casino and Colorado Central Station, will create the greatest
concentration of parking in the Black Hawk/Central City market.
Superior Size and Amenities. Our approximately 1,000 gaming positions will
be one of the largest in the Black Hawk/Central City market. This number of
gaming positions is significantly larger than the market average of 336
positions per casino as of December 31, 1998. By combining this extensive
selection with our ability to place all gaming devices on a single floor, we
will create an exciting and compelling atmosphere that is closer to that found
in Las Vegas casinos than that typically found in casinos in the Black
Hawk/Central City market. We will further enhance this superior gaming
experience with entertainment and food service designed to meet the preferences
of the Black Hawk/Central City market. Our 265-seat casual dining restaurant
will offer a menu of quality items at value prices. We also plan to utilize our
7,000 square foot multi-use entertainment center to provide entertainment
programs such as live music performances as well as meetings, parties and other
promotional events. This combination of gaming and amenities is an experience
currently not common in this market. As a result, we intend to market such
features to not only differentiate ourselves from our competitors, but to help
expand the overall market.
Management Expertise. Upon completion, our casino will be the only casino in
the Black Hawk/ Central City market developed and operated by a Las Vegas Strip
casino company. As a result, our casino will benefit from years of sophisticated
management experience in all aspects of gaming operations, ranging from slot
management to database marketing. The success of this management team is
demonstrated by the financial results achieved at the Riviera Hotel & Casino
despite an intensely competitive gaming environment in Las Vegas. EBITDA
increased from $22.0 million in 1993 to $29.1 million in 1998, an increase of
32%. EBITDA margins increased from 14.8% to 18.2% over the same period.
Riviera Holdings Corporation
Riviera Holdings, through its wholly-owned subsidiaries, owns and operates
the Riviera Hotel & Casino located on the Las Vegas Strip. Opened in 1955, the
Riviera Hotel & Casino has developed a long-standing reputation for delivering
high quality, traditional Las Vegas-style gaming and entertainment. The Riviera
Hotel & Casino is situated on a 26-acre site located across the Strip from
Circus Circus and across Paradise Road from the Las Vegas Hilton and the Las
Vegas Convention Center. The property features approximately 2,100 hotel rooms,
including 169 suites, 115,000 square feet of casino space, one of the largest
convention, meeting and banquet facilities in Las Vegas and a full range of
food, bar and lounge areas. In addition, the Riviera Hotel & Casino offers one
of the most extensive entertainment programs in Las Vegas, including such
popular shows as Splash, An Evening at La Cage(R), Crazy Girls(R) and featured
comedians at the Riviera Comedy Club (TM).
Prior to the sale of the Existing Notes, Riviera Holdings had contributed
cash of $30.1 million to us to pay for costs related to the construction and
development of the Riviera Black Hawk, $15.1 million of which was utilized to
purchase the land on which our casino is being developed and the remaining $15.0
million of which was spent on design, construction and other costs. Riviera
Holdings was reimbursed from the proceeds of the sale of the Existing Notes for
$10.1 million, the amount in excess of $20.0 million which it has advanced to
us.
Riviera Holdings will be obligated under the Completion Capital Commitment
to contribute to us up to $10.0 million of cash if at any time there are
insufficient funds available to enable our casino to be operating by May 31,
2000. In addition, if our casino is not operating by May 31, 2000, Riviera
Holdings will be obligated to contribute on that date $10.0 million in cash less
any amounts
3
previously contributed under the Completion Capital Commitment. Furthermore, if
(1) we do not have the necessary funds to make a payment of fixed interest on
the notes during our first three years of operations or (2) our consolidated
cash flow is less than $9.0 million in any of our first three years of
operations, Riviera Holdings will be obligated under the Keep-Well Agreement to
contribute cash to us 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). Riviera Holdings
has built substantial cash resources to support these commitments with $39.8
million in cash and cash equivalents as of March 31, 1999.
The Transactions
The Existing Notes were issued on June 3, 1999. The proceeds from the sale
of the Existing Notes was approximately $45.0 million, which were used as
follows: (1) approximately $31.9 million was deposited into a construction
disbursement account, of which $10.1 million was used to reimburse Riviera
Holdings for amounts advanced to us to cover construction and development costs
incurred prior to the sale of the Existing Notes, and the remaining $21.8
million has been and will continue to be used to finance the cost to develop,
construct, equip and open the Riviera Black Hawk, (2) $5.0 million was deposited
into a completion reserve account to be held as a reserve in case there are
insufficient funds in the construction disbursement account to complete the
Riviera Black Hawk, (3) $5.1 million was deposited into an interest reserve
account and used to purchase government securities representing funds sufficient
to pay the first two payments of fixed interest on the notes and (4)
approximately $3.0 million was used to pay fees and expenses relating to the
foregoing as well as the sale of the Existing Notes.
4
The Exchange Offer
Securities Offered................... Up to $45,000,000 aggregate principal
amount of 13% First Mortgage Notes due
2005 With Contingent Interest. The terms
of the Exchange Notes and Existing Notes
are identical in all material respects,
except for certain transfer restrictions
and registration rights relating to the
Existing Notes.
The Exchange Offer................... We are offering the Exchange 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. We intend by the issuance of the
Exchange Notes to satisfy our obligations
contained in the Registration Rights
Agreement.
Expiration Date; Withdrawal of
Tender........................... The Exchange Offer will expire at 5:00
p.m., New York City time, on ________ __,
1999, or such later date and time to
which it may be extended by us. The
tender of Existing Notes pursuant to the
Exchange Offer may be withdrawn at any
time prior to the Expiration Date. Any
Existing Notes not accepted for exchange
for any reason will be returned without
expense to the tendering holder thereof
as promptly as practicable after the
expiration or termination of the Exchange
Offer.
Certain Conditions to the Exchange
Offer............................ Our obligation to accept for exchange, or
to issue Exchange Notes in exchange for,
any Existing Notes is subject to certain
customary conditions relating to
compliance with any applicable law or any
applicable interpretation by the staff of
the Securities and Exchange Commission,
the receipt of any applicable
governmental approvals and the absence of
any actions or proceedings of any
governmental agency or court which could
materially impair our ability to
consummate the Exchange Offer. We
currently expect that each of the
conditions will be satisfied and that no
waivers will be necessary. See "The
Exchange Offer--Certain Conditions to the
Exchange Offer."
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, or a facsimile thereof, in
accordance with its instructions and the
instructions in this prospectus, and mail
or otherwise deliver such Letter of
Transmittal, or such facsimile, together
with such Existing Notes and any other
required documentation, to the Exchange
Agent (as defined) at the address set
forth herein. See "The Exchange Offer--
Procedures for Tendering Existing Notes."
Use of Proceeds...................... We will not receive any proceeds from the
Exchange Offer.
Exchange Agent....................... IBJ Whitehall Bank & Trust Company is
serving as the Exchange Agent in
connection with the Exchange Offer.
Federal Income Tax Consequences...... The exchange of Notes pursuant to the
Exchange Offer should not be a taxable
event for federal income tax purposes.
See "Certain United States Federal Income
Tax Considerations." We will not receive
any proceeds from the Exchange Offer.
5
Consequences of Exchange Offer
Based on certain 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 (other than any holder who is an
"affiliate" of our company within the meaning of Rule 405 under the Securities
Act) who exchange their Existing Notes for Exchange Notes pursuant to the
Exchange Offer generally may offer such Exchange Notes for resale, resell such
Exchange Notes and otherwise transfer such Exchange Notes without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided:
o the Exchange Notes are acquired in the ordinary course of the holders'
business;
o the holders have no arrangement with any person to participate in a
distribution of such Exchange Notes; and
o neither the holder nor any other person is engaging in or intends to
engage in a distribution of the Exchange Notes.
Each broker-dealer that receives Exchange 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 Exchange Notes. See "Plan of
Distribution." In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the Exchange Notes may not be offered or sold
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 and subject to
certain limitations specified in the Registration Rights Agreement, to register
or qualify the Exchange 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
Exchange 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, or in a transaction not subject to, the Securities Act and applicable
state securities laws. Holders of Existing Notes do not have any appraisal or
dissenters' rights under the Colorado Business Corporation Act in connection
with the Exchange Offer. See "The Exchange Offer--Consequences of Failure to
Exchange; Resales of Exchange Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the Exchange Notes will not be eligible for
PORTAL trading.
6
The Exchange Notes
The terms of the Exchange Notes and the Existing Notes are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Existing Notes.
Securities Offered.................. $45.0 million principal amount of 13%
First Mortgage Notes due 2005 With
Contingent Interest.
Maturity Date....................... May 1, 2005.
Interest Payment Dates.............. May 1 and November 1 of each year,
beginning on November 1, 1999.
Fixed Interest...................... Fixed interest will be payable on the
notes at a rate of 13% per annum.
Contingent Interest................. Contingent interest will be payable on
the notes on each interest payment date
after the Riviera Black Hawk begins
operating. However, no contingent
interest will accrue prior to the date
that the Riviera Black Hawk begins
operating. The amount of contingent
interest will, subject to certain
limits, be equal to 5% of our cash flow
for the two fiscal quarters ending
prior to the record date applicable to
the relevant interest payment date. We
may defer paying any or all of an
installment of contingent interest
under certain circumstances described
in the section "Description of Notes--
Principal, Maturity and Interest."
Ranking............................. The notes will be senior secured
obligations, will rank pari passu in
right of payment with all of our
existing and future senior indebtedness
and will rank senior in right of
payment to all of our existing and
future subordinated indebtedness.
Currently, the notes are our only
outstanding senior indebtedness and we
have no existing subordinated
indebtedness.
Security............................ The notes will, with certain
exceptions, be secured by a first
priority lien on substantially all of
our existing and future assets,
including, without limitation:
o a pledge of the net proceeds from
the sale of the Existing Notes which
have been deposited into restricted
disbursement accounts to be used to
fund construction and development of
the Riviera Black Hawk and pay the
first two payments of fixed interest
on the notes;
o substantially all of the assets that
will comprise our casino, other than
(1) certain furniture, fixtures and
equipment and (2) the assets of our
future unrestricted subsidiaries;
o certain agreements pursuant to which
our casino will be constructed,
operated and managed; and
o certain licenses and permits
relating to the construction,
operation and management of our
casino, other than our Colorado
gaming and liquor licenses.
7
Completion Capital Commitment....... Riviera Holdings, our parent company,
will be obligated under the Completion
Capital Commitment to contribute to us
up to $10.0 million of cash if at any
time there are insufficient funds
available to enable our casino to be
operating by May 31, 2000. The
contributions will be made at the times
necessary to enable our casino to be
operating by May 31, 2000. In addition,
if our casino is not operating by May
31, 2000, Riviera Holdings will be
obligated to contribute to us on that
date $10.0 million in cash less any
amounts previously contributed under
the Completion Capital Commitment. See
"Description of Notes -- Completion
Capital Commitment."
Keep-Well Agreement................. If (1) we do not have the necessary
funds to make a payment of fixed
interest on the notes during our first
three years of operations or (2) our
consolidated cash flow is less than
$9.0 million in any of our first three
years of operations, Riviera Holdings
will be obligated under the Keep-Well
Agreement to contribute cash to us 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).
Optional Redemption................. On or after May 1, 2002, we may redeem
some or all of the notes at any time at
the redemption prices described in the
section "Description of Notes --
Optional Redemption."
Prior to May 1, 2001, we may redeem up
to 35% of the notes with the proceeds
of a public offering of our equity or
the proceeds contributed to us of
certain offerings by our parent company
of its equity at the redemption prices
listed in the section "Description of
Notes -- Optional Redemption."
Gaming Redemption................... The notes will be subject to mandatory
disposition and redemption requirements
following certain determinations by any
gaming authority.
Change of Control................... If we experience a change of control,
we must offer to repurchase the notes
at the prices listed in the section
"Description of Notes -- Repurchase at
the Option of Holders -- Change of
Control."
Asset Sales and Events of Loss...... If we sell certain assets or experience
certain events of loss, we may be
required to offer to repurchase the
notes at the prices listed in the
section "Description of Notes --
Repurchase at the Option of Holders --
Asset Sales" and "-- Events of Loss."
Excess Cash Purchase Offers......... At the end of each four fiscal quarters
after our casino begins operating, we
must offer to repurchase the maximum
principal amount of notes that can be
purchased with 50% of our excess cash
flow from that four fiscal quarter
period. The prices for the repurchases
are listed in the section "Description
of Notes -- Repurchase at the Option of
Holders -- Excess Cash Purchase
Offers."
8
Basic Covenants of the Indenture.... We will issue the notes under an
indenture that will, among other
things, restrict our ability to:
o borrow money;
o pay dividends on or repurchase our
capital stock;
o make investments;
o use our assets as security in other
transactions; and
o sell assets or enter into mergers or
consolidations.
See "Description of Notes -- Certain
Covenants."
9
RISK FACTORS
Before you invest in the notes, you should carefully consider the following
factors, in addition to the other information contained in this prospectus.
Substantial Leverage and Ability to Service Debt -- Our substantial indebtedness
could adversely affect the financial condition of our company and prevent us
from fulfilling our obligations under these notes. To service our indebtedness,
we will require a significant amount of cash. Our ability to generate cash
depends on many factors beyond our control.
We continue to be substantially leveraged after the issuance of the Existing
Notes. In addition to our obligation to pay principal and interest on the notes,
we will also be incurring construction and operating expenses for the Riviera
Black Hawk.
The following chart shows certain important credit statistics and is
presented assuming we had completed this offering as of the date specified below
and applied the proceeds as intended:
At March 31, 1999
-----------------
(dollars in
millions)
Total indebtedness.............. $ 45.7
Stockholder's equity............ $ 23.3
Debt to equity ratio............ 2.0:1
The indenture will permit us to incur additional indebtedness under certain
circumstances, including up to $15.0 million of indebtedness to finance the
purchase of furniture, fixtures and equipment which, when incurred, will rank
pari passu with the notes.
Our substantial indebtedness could have important consequences to you. For
example, it could:
o make it more difficult for us to satisfy our obligations with respect
to these notes;
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our ability to fund future working capital, capital expenditures
and other general corporate requirements;
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 and other general corporate purposes;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
o place us at a competitive disadvantage compared to our competitors
that have less debt; and
o limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional
funds.
Our ability to make payments on the notes and our other debt obligations
depends upon the timely completion and successful operation of our casino. To a
certain extent, this will depend on prevailing economic conditions and
financial, business, regulatory and other factors beyond our control. If the
construction budget for our casino increases significantly or if we encounter
delays in completing and opening our casino, we may not have the funds to make
payments on the notes or to fulfill our obligation to repurchase the notes under
certain circumstances.
It is difficult for us to predict with accuracy our casino's potential
earning ability given the inherent uncertainties and variables in the factors
affecting such earning ability. If our casino cannot generate sufficient cash
flow, we may be forced to reduce or delay planned capital expenditures,
restructure or refinance our debt or obtain additional equity capital. We might
not be able to implement any of these alternatives on satisfactory terms or at
all.
Riviera Holdings will be obligated under the Completion Capital Commitment
to contribute to us up to $10.0 million of cash if at any time there are
insufficient funds available to enable our casino to be operating by May 31,
2000. In addition, if our casino is not
10
operating by May 31, 2000, Riviera Holdings will be obligated to contribute to
us on that date $10.0 million in cash less any amounts previously contributed
under the Completion Capital Commitment. Furthermore, if (1) we do not have the
necessary funds to make a payment of fixed interest on the notes during our
first three years of operations or (2) our consolidated cash flow is less than
$9.0 million in any of our first three years of operations, Riviera Holdings
will be obligated under the Keep-Well Agreement to contribute cash to us 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). You should understand that Riviera Holdings is
not guaranteeing the notes.
Riviera Holdings is a party to an indenture regarding its 10% First Mortgage
Notes due 2004. This indenture permits Riviera Holdings to enter into and
perform its obligations described above, as long as there is no default under
that indenture. If such a default were to occur, or Riviera Holdings were to
encounter financial difficulties, then it may be unable to perform the
obligations described above.
Construction Risks -- We could encounter problems during construction that could
delay construction or substantially increase the construction costs of our
casino.
We have entered into a construction contract with The Weitz Company, Inc. to
construct our casino and perform all necessary excavation and other site work.
The construction contract provides for our casino to be completed by January 15,
2000, for a bonded guaranteed maximum price of $27.6 million. The construction
contract allows for increases in the guaranteed maximum price under certain
circumstances, including if:
o there are changes to the plans and specifications;
o work is delayed due to our actions; or
o other customary contingencies occur during construction.
See "Business -- Design and Construction Summary" and "Material Agreements --
Construction Contract."
The construction of our casino involves significant risks, including cost
overruns, shortages of materials, labor disputes and work stoppages, unforeseen
environmental or engineering conditions, natural disasters, construction
scheduling problems and weather interferences. Any of these risks, if they
occurred, could delay construction or substantially increase the construction
costs of our casino.
We deposited approximately $31.9 million of the proceeds of the sale of the
Existing Notes into a construction disbursement account, of which $10.1 million
was used to reimburse Riviera Holdings for amounts advanced to us to cover
construction and development costs incurred prior to the sale of the Existing
Notes, and the remaining $21.8 million has been and will continue to be used to
finance the cost to develop, construct, equip and open our casino. Funds will be
disbursed from the construction disbursement account upon satisfaction of
certain conditions, including the approval of an independent construction
consultant. The independent construction consultant will monitor the
construction process and verify that the construction time line and budget are
within specified parameters. However, if the independent construction consultant
fails to perform its responsibilities as required, funds could be disbursed from
the construction disbursement account without our having satisfied all
applicable requirements.
Although we will agree in the indenture to obtain and maintain insurance
customary and appropriate for our business, there can be no assurance that the
insurance will be adequate to cover all perils to which our business or our
assets might be subjected.
Gaming Licenses, Permits and Approvals -- We may be unable to obtain or maintain
all required licenses, permits and authorizations for the operation of our
casino.
Our casino and each of our officers, directors and significant stockholders
(including significant stockholders of Riviera Holdings) is required to submit
to a background regulatory review process prior to the licensing of our casino
by the Colorado Limited Gaming Control Commission (the "Colorado Commission").
The review process includes submission of a gaming application, an investigation
and submission of a personal history and financial information. All of our
employees engaged in gaming operations will be required to be separately
licensed. Pursuant to these requirements, applications for "Key Employee
11
Licenses" have been filed for individuals who will be involved in the operation
of the casino, and applications for "Associated Person Licenses" have been
submitted by directors and certain related companies.
Stockholders of Riviera Holdings who own in excess of certain thresholds are
required by Colorado gaming rules (as administered and interpreted) to make
certain filings with the Colorado Commission. Any institutional investor who
owns more than 15% of Riviera Holdings' common stock is required to file for an
"Associated Person License." Two stockholders of Riviera Holdings are
institutional investors who each own more than 15% of Riviera Holdings' common
stock. Each of these stockholders has agreed to designate an individual with
sole investment power over its shares and to cause such individual to file an
application for licensure as an associated person.
Stockholders who are institutional investors and own more than 10% but less
than 15% of Riviera Holdings' common stock are required by the Colorado
Commission to file certain limited information with the Colorado Commission for
the purpose of determining "suitability." One stockholder of Riviera Holdings,
which is an institutional investor, has recently reduced its Riviera Holdings
stock ownership to just below 15% and has agreed to file the information
necessary to permit the Colorado Commission to find suitability.
Stockholders, other than institutional investors, who own less than 10% but
more than 5% of Riviera Holdings' common stock are also required to file
information to enable the Colorado Commission to make a finding of suitability
(we informally understand it is a somewhat less detailed process for a
stockholder who owns less than 10% than the process for a more than 10%
stockholder). One institutional investor stockholder of Riviera Holdings, which
has stock ownership in Riviera Holdings of less than 10% but more than 5%, has
agreed to file the information required. This stockholder has also agreed to be
designated as an individual with sole investment power over its shares and to
file an application for licensure as an associated person. Another stockholder
who holds less than 10% but more than 5% of Riviera Holdings' common stock is an
individual who has informally agreed to become licensed as an associated person
and has reached informal agreement with the Colorado Commission as to the
information required to be filed.
However, despite our having been informed of their desire to cooperate with
the Colorado Commission to ensure that our license to operate our casino will
not be delayed or jeopardized, it is possible a disagreement with respect to the
disclosure required could arise or for other reasons one or more Associated
Person Licenses will not be issued or one or more of such investors may not be
found suitable. It should be noted that the Colorado Commission has broad
discretion to require additional information in the case of any application for
licensure or certification of suitability. Persons who are not licensed or are
found to be unsuitable by the Colorado Commission may be required immediately to
terminate any interest in, association or agreement with or relationship to a
licensee. If such an event were to occur, the Colorado Commission may not grant
us our license unless we terminate our relationship with any such person.
Riviera Holdings may be forced to repurchase (or arrange for the repurchase) of
all or a portion of the shares of one or more of such investors. If any such
repurchase could not be accomplished, Riviera Holdings might be required to
divest itself of its interest in our company, which would constitute a "Change
of Control" or an "Asset Sale" entitling each holder of notes to require that we
repurchase the notes. See "Description of Notes -- Repurchase at the Option of
Holders -- Change of Control" and "-- Asset Sales." There can be no assurance
that we will have sufficient funds to repurchase any of the notes. In addition,
the failure or inability to obtain in a timely manner the licenses required for
the operation of our casino, the imposition of any additional material
restrictions, or the subsequent revocation of any such licenses would have a
material adverse effect on our operations.
Competition -- We compete with many other casinos in the Black Hawk/Central City
market and other forms of gaming.
The Black Hawk/Central City gaming market is characterized by intense
competition. We believe that the primary competitive factors in the market are
location, availability and convenience of parking, number of slot machines and
gaming tables, types and pricing of non-gaming amenities, name recognition and
overall atmosphere. As of March 31, 1999, there were 29 gaming facilities
operating in the Black Hawk/Central City market, with eight casinos each
offering more than 400 gaming positions. We believe our main competitors will be
the larger gaming facilities, particularly those with considerable on-site or
nearby parking and established reputations in the local market. These facilities
have high-profile brand names in the local market, including the Isle of Capri
Casino, Harvey's Wagon Wheel Casino Hotel, Colorado Central Station,
Bullwhackers Black Hawk, Canyon Casino, Fitzgeralds Casino, the Lodge at Black
Hawk and Gilpin Hotel Casino. Certain competitors have more gaming experience in
the Black Hawk/Central City market and have greater financial resources than we
do. Construction has also begun on the "Mardi Gras" casino, which is expected to
feature over 600 slot machines. Other projects have also been announced,
proposed, discussed or rumored for the Black Hawk/Central City market. We are
not aware of whether these or other projects are proceeding.
12
We expect that the gaming facilities near the intersection of Main and Mill
Streets will provide significant competition to our casino. Colorado Central
Station, which has been the most successful casino 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, operated by Casino America, which opened in December 1998, is located
directly across the street from our casino and features approximately 1,100 slot
machines, 14 table games and 1,100 parking spaces.
Casinos offering hotel accommodations for overnight stay may have a
competitive advantage over our casino. The number of hotel rooms currently in
the Black Hawk/Central City market is approximately 170, with only two gaming
facilities providing hotel accommodations to patrons. These include Harvey's
Wagon Wheel Casino Hotel with approximately 120 rooms and the Lodge at Black
Hawk with approximately 50 rooms. In addition, the Isle of Capri Casino has
announced plans to begin construction of an approximately 240 room hotel in 1999
on top of its recently completed casino.
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 proposed the development of a road directly connecting Central
City and Black Hawk with Interstate 70 which could result in the elimination of
this particular advantage, since customers would be able to reach Central City
without driving by or through Black Hawk. There remain significant financial and
legal obstacles to the development of this road and it is uncertain whether it
will be developed over the near to intermediate term, or developed at all.
Currently, limited stakes gaming in Colorado is constitutionally authorized
in Central City, Black Hawk, Cripple Creek and two Native American reservations
in southwest Colorado. However, gaming could be approved in other Colorado
communities in the future. The legalization of gaming closer to Denver would
likely have a material adverse effect on our future results of operations. We
will also compete with other forms of gaming in Colorado, including lottery
gaming, and horse and dog racing as well as other forms of entertainment.
Risk of New Venture -- We have no operating history and our operating results
may be significantly lower than expected.
Our operations to date have been limited to development activities and
construction. We have had no earnings or operations. Although affiliates of
Riviera Gaming Management of Colorado, Inc., which will manage our casino, have
extensive experience managing the Riviera Hotel & Casino and the Four Queens
Hotel and Casino, they have not previously been involved in constructing a new
gaming facility. In addition, they have no experience operating a gaming
facility in Colorado. If our casino is not successfully marketed and managed, we
may not be able to generate sufficient cash flow to make payments of principal
and interest on the notes.
Dependence Upon Single Gaming Site -- Local economic and competitive conditions,
among others, could adversely affect our business.
We will be entirely dependent upon our casino for all of our cash flow,
other than the amounts Riviera Holdings is obligated to contribute pursuant to
the Keep-Well Agreement and the Completion Capital Commitment. Therefore, we
will be subject to greater risks than a geographically diversified gaming
company. These greater risks include those caused by:
o local economic and competitive conditions;
o inaccessibility due to road construction or closure on primary access
routes;
o changes in local and state governmental laws and regulations;
o natural and other disasters;
o a decline in the number of residents near or visitors to the Black
Hawk/Central City market; or
o a decrease in gaming activities in the Black Hawk/Central City market.
13
Any of the factors outlined above could have a material adverse effect on
our ability to generate sufficient cash flow to make payments on the notes.
Adverse Weather and Road Conditions; Seasonality -- Adverse weather and road
conditions could delay the construction of our casino and temporarily reduce the
number of customers visiting our casino. We expect the highest level of customer
visits during the summer.
The City of Black Hawk is located in the Colorado Rocky Mountains, which can
be subject to inclement weather. Adverse weather conditions could delay the
construction of our casino, resulting in cost overruns or a delayed opening
date. In addition, severe weather conditions could adversely affect our
operations. The City of Black Hawk is serviced by winding mountain roads that
require cautious driving, particularly in bad weather. These roads have tunnels
that are subject to closure. Congestion on the roads leading to our casino is
not uncommon during the peak summer season, holidays and other times of year and
may discourage potential customers from traveling to our casino, particularly if
road construction is in process.
We expect the highest level of customer visits to occur during the summer
months, due to more favorable weather conditions.
Ability to Realize on Collateral; Bankruptcy Considerations -- If we become
bankrupt, you may be unable to collect the full value of your notes by
foreclosing upon collateral.
The Exchange Notes, like the Existing Notes, will be secured by a first
priority lien, on substantially all of our assets other than (1) certain
furniture, fixtures and equipment and (2) the assets of our future unrestricted
subsidiaries. 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 to gaming law restrictions, the ability of the trustee for the
noteholders to repossess and dispose of collateral will be subject to the
procedural and other restrictions of state real estate law and commercial law.
If the holders of the notes were undersecured, the trustee may be entitled to a
deficiency judgment under certain circumstances after application of any
proceeds from any foreclosure sale. There can be no assurance, however, that the
trustee would successfully obtain a deficiency judgment, and we cannot predict
what the amount of such judgment would be. In addition, we might not be able to
satisfy any such judgment. The right of the trustee to repossess and dispose of
the collateral following an Event of Default is likely to be significantly
impaired by applicable bankruptcy laws if a proceeding under the United States
Bankruptcy Code were to be commenced by or against us prior to or possibly even
after the trustee has repossessed and disposed of the collateral. If the holders
of the notes were undersecured in a bankruptcy case, the trustee for the
noteholders will be entitled to assert a secured claim to the extent of the
value of the collateral and an unsecured claim for any deficiency. In view of
the broad discretionary powers of a bankruptcy court, we cannot predict,
following commencement of and during a bankruptcy case:
o whether payments under the notes would be made;
o whether or when the trustee could foreclose upon or sell the
collateral;
o whether the term of the notes could be altered in a bankruptcy case;
or
o whether or to what extent holders of the notes would be compensated
for any delay in payment or loss of value of the collateral.
If a bankruptcy court were to determine that the value of the collateral is
not sufficient to repay all amounts due on the notes, the holders of the notes
would be "undersecured" to the extent of any such deficiency. Applicable federal
bankruptcy laws do not permit
14
the payment and/or accrual of interest, costs and attorneys' fees to the holders
of "undersecured" claims against the debtor during the debtor's bankruptcy case.
Under the provisions contained in the indenture regarding defeasance, we may
discharge our obligations under the indenture or have our obligations released
with respect to certain covenants in the indenture. In order to do either of
these, among other things, we must deposit with the trustee enough money or
securities to make all of the required payments on the notes through maturity or
a redemption date. It is possible that the deposit may be subject to recovery or
avoidance as a preference or fraudulent transfer by us or our creditors (perhaps
through a bankruptcy trustee) under certain circumstances. For example, if the
amount of the deposit exceeds the value of the collateral which has been pledged
to the holders of the notes, it is possible that the excess may be subject to
recovery or avoidance as a preference or fraudulent transfer if we later are in
bankruptcy. In addition, because the holders of the notes will release their
liens at the time the funds are deposited into the account, it is possible that
a bankruptcy court would consider a payment on the notes at redemption or
maturity (if the payment is not contemporaneous with the release of the liens)
subject to recovery or avoidance as a preference or fraudulent transfer by us or
our creditors. In addition, it is possible that if we receive the funds for the
deposit from a third party, and that third party subsequently becomes a debtor
in a bankruptcy case, the deposit may be recoverable under certain circumstances
by the third party or the creditors of that third party (perhaps through a
bankruptcy trustee) if the original transfer from the third party to us is a
preference or fraudulent conveyance. Furthermore, if we were in bankruptcy after
the deposit but before redemption or maturity of the notes, it is possible that
a bankruptcy court would allow us to use the deposited funds during the pendency
of the bankruptcy case as "cash collateral," subject to the right of the holders
of the notes to demand adequate protection of their interest in the deposit.
Certain of our affiliates are involved in activities that are related to our
business and assets. In addition, we have overlapping officers and directors
with our affiliates. In the event that one of our affiliates is the subject of a
proceeding under the Bankruptcy Code, the creditors of such affiliate or the
trustee in bankruptcy may argue that the assets and liabilities of the various
affiliated entities, including our company, should be consolidated and our
assets made available for satisfaction of claims against the affiliate that is
in bankruptcy.
Although we believe we are a distinct and separate legal entity from our
affiliates, there can be no assurance that in the event of a bankruptcy case of
one of our affiliated entities, a bankruptcy court would not order consolidation
of our assets with those of our affiliates.
Fraudulent Conveyance Considerations -- Federal and state statutes allow courts,
under special circumstances, to void transfers or obligations.
In connection with the issuance of the Existing Notes, we granted security
interests in the collateral to the trustee. Various fraudulent conveyance and
revocatory or avoidance laws have been enacted for the protection of creditors.
Some of these laws protect parties who were not creditors at the time of the
challenged transfer but who subsequently became creditors. These laws may permit
a court to nullify any transfer of a property interest or any obligation
incurred by any of the parties involved in the transactions described in this
prospectus.
Generally, if a court were to find that:
(1) the debtor made the challenged transfer or obligation with the
intent of hindering, delaying or defrauding its present or future creditors;
or
(2) the debtor (A) received less than reasonably equivalent value or
fair consideration for incurring the challenged obligation or making the
challenged transfer and (B) (i) was insolvent or was rendered insolvent by
reason of incurring the challenged obligation or making the challenged
transfer, (ii) was engaged or about to engage in a business or transaction
for which its assets constituted unreasonably small capital or (iii)
intended to incur, or believed that it would incur, debts beyond its ability
to pay as such debts matured,
the court could void the challenged obligation or transfer in whole or in part.
The court could also subordinate any claims with respect to the challenged
obligation or transfer to all other debts of the debtor. The court's
determination as to whether the above is true at any relevant time will vary
depending upon the law applied in any such proceeding.
15
Generally, a debtor will be considered insolvent if:
(1) the sum of its debts was greater than the fair saleable value of all
of its assets at a fair valuation; or
(2) if the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its existing
debts, as they become fixed in amount and nature.
Also, a debtor generally will be considered to have been left with unreasonably
small capital if its remaining capital, including its reasonably projected cash
flow, was reasonably likely to be insufficient for its foreseeable needs, taking
into account its foreseeable business operations and reasonably foreseeable
economic conditions.
With respect to our company and Riviera Holdings, the transfers made by
Riviera Holdings in connection with the capitalization of our company present
the most significant possible fraudulent conveyance issues. In capitalizing our
company, Riviera Holdings has contributed in cash $20.0 million of equity
capital, comprising (1) $15.1 million contributed in August 1997 to purchase the
land and (2) additional contributions of $4.9 million as of March 31, 1999. See
"Capitalization." However, we believe that Riviera Holdings has made its capital
contributions (and has entered into the related transactions) for legitimate
business purposes and without the intent to hinder, delay or defraud any of its
creditors.
However, there can be no assurance that Riviera Holdings' past contributions
to us will not be found to have constituted either an actual or a constructive
fraudulent transfer in the event Riviera Holdings becomes subject to a
bankruptcy proceeding. In addition, future contributions by Riviera Holdings,
including under the Completion Capital Commitment and the Keep-Well Agreement,
might also be found to be an actual or constructive fraudulent transfer by a
bankruptcy court. Any such possible fraudulent transfer challenges, even if
ultimately unsuccessful, could lead to a disruption of our business and alter
the manner in which we manage our business and, ultimately, could have a
material adverse effect on our ability to meet our obligations under the notes.
Mechanic's Liens -- Parties who have provided services or materials in
connection with our casino may have a lien on the project senior in priority to
the lien of the deed of trust securing the notes.
Colorado law provides architects, engineers, contractors, subcontractors and
material suppliers with a lien on real property being improved by their services
or materials in order to secure their right to be paid. These parties may
foreclose their liens if they are not paid in full. The priority of all
mechanic's liens arising out of a particular construction project relates back
to the date on which construction of the project first commenced.
Construction of our casino commenced prior to the recording of the deed of
trust securing the notes. Accordingly, all architects, engineers, contractors,
subcontractors and material suppliers who provide services or materials in
connection with our casino and otherwise comply with the applicable requirements
of Colorado law will have a lien on the project senior in priority to the lien
of the deed of trust securing the notes. However, the Cash Collateral and
Disbursement Agreement will require procedures intended to ensure the proper
payment to these parties. In addition, as a condition to the disbursement of
funds for construction of the casino, lien releases are required to be obtained
from all contractors, subcontractors, suppliers and materialmen who have
provided work, materials and services. Furthermore, prior to the consummation of
this offering, we will obtain a title insurance policy for the benefit of the
holders of the notes to insure the priority of the lien held by the holders of
the notes and to insure against any loss arising as a result of a mechanic's
lien.
Environmental Matters -- Environmental problems are possible and can be costly.
The site of our casino is located in a 400-square mile watershed basin that
was designated in 1983 by the United States Environmental Protection Agency as a
"National Priorities List" Study Area under the Comprehensive Environmental
Response, Compensation and Liability Act, sometimes also called the Superfund
Act. The Study Area received this designation because of hazardous substance
contamination in the soil, groundwater and surface water caused by historical
mining activity. The EPA has identified several areas of contamination within
the Study Area and in the vicinity of our property that require remediation. The
EPA and the State of Colorado have not required remediation of any contamination
on or from our property as part of their Superfund investigation and remedial
activities. However, sampling of our property disclosed the existence of
contaminated groundwater. Therefore, during foundation excavation, we dewatered
the site and treated collected groundwater prior to discharge. Excavation and
all foundation work is complete. The EPA or the State of Colorado could require
remediation for contaminated
16
groundwater or any remaining contaminated soil on the property some time in the
future, and, as the current owner of the property, we could be required to pay
for or perform such remediation.
Legislative Issues
Additional legalization of gaming in or near any area from which our casino
is expected to draw customers would have a material adverse effect on our
casino's business. Also, the legalization of various types of gaming, such as
video lottery terminals, in existing venues such as airports, race tracks or
drinking establishments, would have a material adverse effect on our casino's
business. See "Gaming and Liquor Regulatory Matters." Colorado law requires
statewide voter approval for any expansion of limited gaming into additional
locations and, depending on the authorization approved by the statewide vote may
also require voter approval from the locality in question.
Several attempts have been made by various parties in recent years to expand
gaming in Colorado. In 1994, Colorado voters refused by a margin of 93% to 7% to
permit gaming in Manitou Springs (located near Colorado Springs and Cripple
Creek) or slot machines in airports. In November 1996, Colorado voters defeated
by a margin of 69% to 31% a proposal to allow gaming in the community of
Trinidad, located on the New Mexico border.
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, at certain locations.
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 playing credit. Certain lottery gaming could compete with
slot machine gaming.
In 1997, the state legislature passed, but then Governor Romer vetoed, a
bill that would have permitted video lottery terminals in dog and horse race
tracks under certain terms and conditions. Additionally, several cities within
Colorado have active citizens' lobbies that were able to place gaming
initiatives on recent statewide ballots. Although these initiatives have failed,
new initiatives could be introduced on future statewide ballots to allow
expansion of gaming in Colorado or prohibit gaming in the gaming market our
casino would serve. Future initiatives, if passed, could significantly increase
the competition for gaming customers, thereby adversely affecting business in
the gaming market our casino would serve. While the newly elected governor,
William Owens, has publicly taken a position opposed to any expansion of gaming
in Colorado, there can be no assurance against future legislation that would
create additional competition or that would impose additional restrictions or
prohibitions on, or assess additional fees with respect to our business.
In August 1996, President Clinton signed a bill creating the National
Gambling Impact and Policy Commission to conduct a comprehensive study of all
matters relating to the economic and social impact of gaming in the United
States. The Policy Commission issued its report in June of 1999. The
recommendations from this report, which are non-binding, were generally
considered neutral with respect to their impact on gaming. However, it is
possible that legislation could develop as a result of this report which, if
enacted into law, could adversely impact the gaming industry and have a material
adverse effect on our business or results of operations.
Additionally, from time to time, certain federal legislators have proposed
the imposition of a federal tax on gaming revenues. Any such tax could have a
material adverse effect on our financial condition or results of operations.
State Gaming Tax Issues -- We pay gaming taxes which could be increased in the
future.
The amendment to the Colorado Constitution that legalized limited gaming
also subjects casinos in Colorado to an annual gaming tax of up to 40% of the
total amounts 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
casino as compensation. Effective July 1 of each year, the Colorado Commission
establishes the gaming tax for the following 12 months. In 1996, the Colorado
Commission by promulgation of a regulation raised the tax rates. Currently, the
gaming tax is: 2% on the first $2 million of these amounts; 4% on amounts from
$2 million to $4 million; 14% on amounts from $4 million to $5 million; 18% on
amounts from $5 million to $10 million; and 20% on amounts over $10 million.
There can be no assurance that tax rates or fees applicable to our casino will
not be increased in the future, either by the Colorado electorate, legislation
or action by the Colorado Commission, resulting in an adverse effect on our
operations.
17
Reliability of Market Data -- Market data we rely on may be inaccurate and is
subject to change.
We have based the Black Hawk/Central City market data and certain other
information in this prospectus, including parking data, on information supplied
by the City of Black Hawk and various public announcements and filings made by
certain of the larger casinos in the Black Hawk/Central City market. We have
also relied on other sources that we believe are reliable. However, we have not
independently verified any such information, announcements or filings and it is
possible they may not be accurate in all material respects. Accordingly, you
should not rely too greatly on such data when making your investment decision.
The gaming markets in Colorado and in Black Hawk/Central City are subject to
continual changes, including changes in the number of facilities expanding,
closing and opening, and changes in the size of such facilities. Because of such
changes, our estimates of our casino's expected position in Black Hawk (in terms
of size, comparable amenities, parking, and nearby competition) could become
inaccurate at any time.
Dependence on Key Personnel -- We depend on our manager and our key employees.
Our success will largely depend upon the efforts and skills of our manager
and certain of our key executive officers. These key executives are William
Westerman, Ron Johnson and Duane Krohn. The loss of the services of our manager
or any of our key executive officers could have a material adverse effect on our
operations. There can be no assurance that we would be able to attract and hire
suitable replacements in the event of any such loss of services.
Difficulty in Attracting and Retaining Qualified Employees -- We face
difficulties in attracting and retaining qualified employees for our casino.
The operation of our business requires qualified executives, managers and
skilled employees with gaming industry experience and qualifications to obtain
the requisite licenses. Currently there is a shortage of skilled labor in the
gaming industry. We believe this shortage will make it increasingly difficult
and expensive to attract and retain qualified employees. Increasing competition
in the Black Hawk/Central City and competing markets may lead to higher costs in
order to retain and attract qualified employees. We may incur higher labor costs
to attract qualified employees from existing gaming facilities. While we believe
that we will be able to attract and retain qualified employees, we may have
difficulty attracting a satisfactory number and we may incur higher costs than
expected in trying to do so.
No Recourse Against Riviera Holdings -- Riviera Holdings is not obligated to
make any payments on these notes.
Riviera Holdings will be obligated under the Completion Capital Commitment
to contribute to us up to $10.0 million of cash if at any time there are
insufficient funds available to enable our casino to be operating by May 31,
2000. In addition, if our casino is not operating by May 31, 2000, Riviera
Holdings will be obligated to contribute on that date $10.0 million in cash less
any amounts previously contributed under the Completion Capital Commitment.
Furthermore, if (1) we do not have the necessary funds to make a payment of
fixed interest on the notes during our first three years of operations or (2)
our consolidated cash flow is less than $9.0 million in any of our first three
years of operations, Riviera Holdings will be obligated under the Keep-Well
Agreement to contribute cash to us to make up those amounts (up to a maximum of
$5.0 million for any one year and $10.0 million in the aggregate). However,
these commitments are not guarantees of the notes.
You should not expect Riviera Holdings or any of its affiliates to
participate in servicing the principal, fixed interest, contingent interest or
other payments due on the notes. Neither Riviera Holdings nor any of its
affiliates has any obligation to make any payments of any kind to the holders of
the notes.
Risk of Adverse Tax Treatment -- The notes could be classified as equity for
federal income tax purposes. This could adversely affect our cash flow and the
amounts includible in the income of a holder of notes.
The notes will provide for the payment of both fixed interest and contingent
interest. Contingent interest will be calculated based on a percentage of our
cash flow after the Riviera Black Hawk begins operating. The notes and the
indenture will have terms typically contained in instruments evidencing
indebtedness and are intended to create a debtor-creditor relationship between
us and the holders of the notes. We intend to treat the notes as indebtedness
for federal income tax purposes. However, this treatment is not binding on the
Internal Revenue Service or any court and there can be no assurance that the
Internal Revenue Service will not
18
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 that are 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.
No Prior Market for Notes -- You cannot be sure that an active trading market
will develop for these notes.
The Existing Notes are currently eligible for trading in the PORTAL market.
The Exchange Notes are new securities for which there is no established market.
We have been informed by the Initial Purchaser that it intends to make a market
in these notes. However, the Initial Purchaser may cease its market making at
any time. In addition, the liquidity of the trading market in these notes, and
the market price quoted for these notes, may be adversely affected by changes in
the overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry in
general. As a result, you cannot be sure that an active trading market will
develop for these notes.
Failure to Exchange Existing Notes for Exchange Notes--Failure to tender your
Existing Notes for Exchange Notes could limit your ability to resell the
Existing Notes.
The Existing Notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold pursuant
to an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your Existing Notes for
Exchange 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 you resell them, offer to resell
or otherwise transfer them under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities Act. In addition, 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. In addition, if you want to exchange your
Existing Notes in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes, you may be deemed to have received
restricted securities, and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Adverse Effect of Issuance of Exchange Notes on Market for Existing Notes--The
issuance of the Exchange Notes may adversely affect the market for the Existing
Notes.
To the extent that Existing Notes are tendered for exchange and accepted in
the Exchange Offer, the trading market for the untendered and tendered but
unaccepted Existing Notes could be adversely affected.
19
USE OF PROCEEDS
We will not receive any proceeds from the Exchange Offer. The Existing Notes
were issued on June 3, 1999. The proceeds from the sale of the Existing Notes
was $45.0 million, which were used as follows: (1) approximately $31.9 million
was deposited into a construction disbursement account, of which $10.1 million
was used to reimburse Riviera Holdings for amounts advanced to us to cover
construction and development costs incurred prior to the sale of the Existing
Notes, and the remaining $21.8 million has been and will continue to be used to
finance the cost to develop, construct, equip and open the Riviera Black Hawk,
(2) $5.0 million was deposited into a completion reserve account to be held as a
reserve in case there are insufficient funds in the construction disbursement
account to complete the Riviera Black Hawk, (3) $5.1 million was deposited into
an interest reserve account and used to purchase government securities
representing funds sufficient to pay the first two payments of fixed interest on
the notes and (4) approximately $3.0 million was used to pay fees and expenses
relating to the foregoing as well as the sale of the Existing Notes.
20
CAPITALIZATION
The following table sets forth our capitalization at March 31, 1999 on an
actual and as adjusted basis. In addition, the table sets forth our expected
capitalization upon completion of the Riviera Black Hawk. This table should be
read in conjunction with the more detailed information and financial statements,
including the notes thereto, included elsewhere in this prospectus.
Upon
Completion
At March 31, 1999 of the
----------------------- Riviera Black
Actual As Adjusted Hawk
------ ----------- ----
(dollars in millions)
Cash and cash equivalents(1)................ $ 0.5 $ 35.9 $ 8.3
====== ====== ======
Debt:
First Mortgage Notes...................... $ 0.0 $ 45.0 $ 45.0
Equipment financing(2).................... 0.0 0.0 10.6
Special Improvement District Bonds(3)..... 0.7 0.7 1.5
Intercompany indebtedness................. 6.6 0.0 0.0
------ ------ ------
Total debt........................ 7.3 45.7 57.1
Stockholder's equity(4)(5).................. 23.3 23.3 25.0
------ ------ ------
Total capitalization.............. $ 30.6 $ 69.0 $ 82.1
====== ====== ======
- ----------
(1) Includes $25.3 million in the construction disbursement account (after
reimbursement to Riviera Holdings of $6.6 million for amounts advanced to us
to cover construction and development costs incurred as of March 31, 1999),
$5.0 million in the completion reserve account and $5.1 million in the
interest reserve account at March 31, 1999. Includes $5.0 million in the
completion reserve account and $2.8 in the interest reserve account upon
completion of our casino.
(2) Relates to financing of approximately $10.6 million for furniture, fixtures
and equipment, which we expect to be able to obtain after this offering is
consummated. However, we have not entered into any binding arrangements for
such financing. Accordingly, there can be no assurance that any such
financing will be obtained.
(3) Our casino and the Isle of Capri Casino, the casino located across the
street from our casino, have entered into development agreements with the
City of Black Hawk to relocate utilities and widen a bridge to access both
properties from the highway. The total estimated cost of these improvements
is approximately $2.9 million which will be shared equally by us and the
Isle of Capri Casino. We will repay our portion of the cost of such
improvements over 10 years beginning in January 2000.
(4) Includes capitalized interest of $3.3 million associated with Riviera Hold-
ings' investment at March 31, 1999, and $5.0 million upon completion of the
Riviera Black Hawk. Excludes operating expenses expected to be incurred
prior to the completion of the Riviera Black Hawk.
(5) Excludes Riviera Holdings' commitment to contribute to us up to $10.0
million of cash if at any time there are insufficient funds available to
enable the Riviera Black Hawk to be operating by May 31, 2000. See
"Description of Notes -- Completion Capital Commitment."
21
SELECTED FINANCIAL INFORMATION
We were organized in August 1997 for the purpose of developing,
constructing, equipping and operating the Riviera Black Hawk. Since that time,
we have been in the development stage and our activities have been limited to
transactions relating to the development of the Riviera Black Hawk. We purchased
the land on which the Riviera Black Hawk is being constructed in August 1997 and
commenced construction in July 1998. We have completed all site improvements,
excavation and foundation work. Erection of the steel structure began in April
1999, and the building is expected to be enclosed by mid-August 1999.
The selected financial information presented below at December 31, 1997 and
1998, for the period from August 18, 1997 (Date of Inception) to December 31,
1997, and for the year ended December 31, 1998 has been derived from our audited
financial statements included elsewhere in this prospectus. The financial
statement information at and for the three months ended March 31, 1999 has been
derived from our unaudited financial statements included elsewhere in this
prospectus. The unaudited financial statements have been prepared by us on a
basis consistent with the audited financial statements and including all normal
recurring adjustments necessary for a fair presentation of the information set
forth therein. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that will be achieved for future
periods, including the entire year ending December 31, 1999.
This information is qualified in its entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the financial statements, including the notes
thereto, and other financial information included elsewhere in this prospectus.
At At
March 31, December 31,
1999 1998 1997
--------------- -------------- --------------
(dollars in thousands)
Balance Sheet Data:
Cash................................... $ 474 $ 543 $ 49
Total assets........................... 34,377 28,138 16,632
Long-term debt, including current
maturities........................... 687 687 0
Due to Riviera Holdings................ 6,590 6,241 0
Total liabilities...................... 11,087 8,138 7
Stockholder's equity................... 23,290(1) 20,000 16,625
From
For the August 18,
Three 1997 (Date
Months For the Year of Inception)
Ended Ended through
March 31, December 31, December 31,
1999 1998 1997
------------- ------------- --------------
(dollars in thousands)
Statement of Operations:
General and administrative expenses..... $ 15 $ 0 $ 0
Net loss................................ (10) 0 0
- ----------
(1) Includes capitalized interest of $3.3 million associated with Riviera
Holdings' investment.
22
RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
March 31,
1999 1998
---- ----
(in thousands)
Earnings:
Pre-tax income (loss) (1)..................... (15) -
Fixed charges.................................. 675 1,100
Less capitalized interest...................... (675) (1,100)
Earnings (loss) available for fixed charges.... (15) -
Ratio of earnings to fixed charges (2)......... n/a n/a
Fixed charges include interest expense on indebtedness, plus
amortization of deferred financing cots. Since the Company is in the development
stage and has not commenced operations, its earnings were not sufficient to
cover fixed charges by $690,000 and $1,100,000 for the three months ended March
31, 1999 and 1998, respectively.
(1) The Company is in the development stage and has not commenced its
intended operations. The net loss is the result of general administrative
expenses incurred prior to the opening of the Casino.
(2) For purposes of determining fixed charges, earnings (losses) are defined
as earnings (loss) before income taxes plus fixed charges.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, our financial statements, including the notes
thereto, and the other financial information included elsewhere in this
prospectus.
Development Activities
We were organized in August 1997 and were initially capitalized with $15.1
million of cash contributions from Riviera Holdings. Since that time, our
activities have been limited to development activities with respect to the
Riviera Black Hawk. We purchased the land on which the Riviera Black Hawk is
being constructed in August 1997 and commenced construction in July 1998. We
have completed all site improvements, excavation and foundation work. Erection
of the steel structure began in April 1999, and the building is expected to be
enclosed by mid-August 1999. We will have a 300,000 square foot gaming facility
featuring (1) a 31,000 square foot casino with approximately 1,000 slot machines
and 14 table games; (2) parking for 520 vehicles (substantially all of which
will be covered) with convenient self-park and valet options; (3) a 265-seat
casual dining restaurant; (4) two themed bars; and (5) an entertainment center
with seating for approximately 500 customers. Subject to the delays inherent in
construction projects of the magnitude of our casino, and subject to obtaining
the necessary gaming licenses, other permits and financing, we expect to open
our casino in the first quarter of 2000.
Results Of Operations
We are in the development stage and do not have any historical operating
results other than interest expense (which has been capitalized) on our
outstanding indebtedness to Riviera Holdings, the receipt of certain capital
contributions and the capitalization of certain other costs and pre-opening
general and administrative expenses in the first quarter of 1999 which have been
expensed as required under generally accepted accounting principles. See "--
Recently Issued Accounting Standards." The capitalized costs have consisted
primarily of license and permit applications, design costs, construction costs
and interest during development and construction. Future operating results are
subject to significant business, economic, regulatory and competitive
uncertainties and contingencies, many of which are beyond our control. We
believe that the Riviera Black Hawk, if completed and opened, will be able to
attract a sufficient number of patrons and achieve the level of activity and
revenues necessary to permit us to meet our obligations, including with respect
to the notes. However, there can be no assurance that we will be able to achieve
these results.
Liquidity And Capital Resources
Our purchase of the site and all development expenses to date were financed
by the proceeds from the sale of the Existing Notes and by capital contributions
and advances from Riviera Holdings. We expect to fund the remaining development
of the Riviera Black Hawk from a combination of (1) $21.8 million of the net
proceeds from the sale of the Existing Notes, which remained in the construction
disbursement account after reimbursing Riviera Holdings $10.1 million in cash
for advances made to us prior to the sale of the Existing Notes, (2) $10.1
million of the net proceeds from the sale of the Existing Notes, which were
deposited into the completion reserve account and the interest reserve account,
(3) furniture, fixtures and equipment financing in the amount of up to $10.6
million and (4) Special Improvement District Bonds in the amount of $1.5
million. In addition, Riviera Holdings will be obligated under the Completion
Capital Commitment to contribute to us up to $10.0 million of cash to us if at
any time there are insufficient funds available to enable our casino to be
operating by May 31, 2000. In addition, if our casino is not operating by May
31, 2000, Riviera Holdings will be obligated to contribute on that date $10.0
million in cash less any amounts previously contributed under the Completion
Capital Commitment. Furthermore, if (1) we do not have the necessary funds to
make a payment of fixed interest on the notes during our first three years of
operations or (2) our consolidated cash flow is less than $9.0 million in any of
our first three years of operations, Riviera Holdings will be obligated under
the Keep-Well Agreement to contribute cash to us 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).
After our casino opens, we expect to fund our operating and capital needs
from operating cash flow. We intend to have sufficient working capital to
provide for reasonably anticipated short-term liquidity needs. In addition,
Riviera Holdings has committed to provide us with additional financing under the
circumstances described above. However, there can be no assurance that any
additional financing, if needed to meet liquidity needs, will be available to us
on favorable terms or at all. There can be no assurance that our estimate of
foreseeable liquidity needs is accurate or that no new business developments or
other unforeseen events will not occur, any of which could result in the need to
raise additional funds. We expect that the adequacy of our operating cash flow
will
24
depend upon customer acceptance of the Riviera Black Hawk, the continued
development of the Black Hawk/Central City market as a gaming destination, the
intensity of our competition, the efficiency of operations, the depth of
customer demand, the effectiveness of our marketing and promotional efforts and
the performance by Riviera Holdings of its agreements to provide capital to us
in certain circumstances.
Recently Issued Accounting Standards
The American Institute of Certified Public Accountants' Accounting Standards
Executive Committee recently issued Statement of Position No. 98-5, Reporting on
the Costs of Start-Up Activities. This standard provides guidance on the
financial reporting for start-up costs and organization costs. This standard
requires costs of start-up activities and organization costs to be expensed as
incurred, and is effective for fiscal years beginning after December 15, 1998,
although earlier application is encouraged. We adopted this standard effective
January 1, 1999. The impact has been to record a general expense of $15,000 for
the three months ended March 31, 1999, that we would have otherwise deferred as
pre-opening costs.
Year 2000
In the past, many computer software programs were written using two digits
rather than four to define the applicable year. As a result, date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This situation is generally referred to as the "Year 2000 Problem." If
this situation were to occur, the potential exists for computer system failures
or miscalculations by computer programs, which could disrupt future operations.
All new systems acquired by us will be Year 2000 compliant. We rely upon
Riviera Holdings for financial accounting systems which are currently Year 2000
compliant. The costs associated with Year 2000 compliance have not yet been, and
are not anticipated to be, material to our financial position or results of
operations.
In addition, we have communicated with our major contractors and will
communicate with our major vendors and suppliers to determine their state of
readiness relative to the Year 2000 Problem and our possible exposure to Year
2000 issues of such third parties. However, there can be no guarantee that the
systems of other companies, which our systems may rely upon, will be timely
converted or that the representations made to us by these parties are accurate.
As a result, the failure of a major vendor or supplier to adequately address
their Year 2000 Problem could have a significant adverse impact on our future
operations.
25
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
We issued and sold the Existing Notes to the Initial Purchasers on June 3,
1999 (the "Issue Date"). The Initial Purchaser subsequently sold the Existing
Notes to qualified institutional buyers in reliance on Rule 144A under the
Securities Act. Because the Existing Notes are subject to certain transfer
restrictions, our company, Riviera Black Hawk, Inc., and the Initial Purchaser
entered into a registration rights agreement dated June 3, 1999 (as used in this
and the next paragraph, the "Registration Rights Agreement"), pursuant to which
we agreed:
o within 45 days after the Issue Date, to prepare and file with the
Securities and Exchange Commission the Registration Statement of which
this prospectus is a part;
o within 150 days after the Issue Date, to use our 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
Exchange Notes in exchange for surrender of the Existing Notes; and
o to keep the Exchange Offer open for not less than 30 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 Exchange 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 Exchange Notes represents that:
o it is acquiring the Exchange 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 Exchange Notes; and
o it is not an affiliate of the Company, as such terms are interpreted
by the Securities and Exchange Commission.
However, broker-dealers ("Participating Broker-Dealers") receiving Exchange
Notes in the Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The Securities and Exchange
Commission has taken the position that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to Exchange 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 Exchange Notes. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Existing Notes, where such
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 Exchange Notes. See "Plan of
Distribution."
Terms of The Exchange Offer; Period For Tendering Existing Notes
Upon 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. As used in the prospectus, the term "Expiration Date" means 5:00 p.m.,
New York City time, on __________ __, 1999. However, if we, in our sole
discretion, have extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
26
As of the date of this prospectus, $45.0 million aggregate principal amount
of the Existing Notes are outstanding. This prospectus, together with the Letter
of Transmittal, is first being sent on or about ___________ __, 1999 to all
holders of Existing Notes known to us. Our obligation to accept Existing Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions as
set forth under "--Certain Conditions to the Exchange Offer" below.
We expressly 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 expressly 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 under "--Certain Conditions to the Exchange Offer." 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 no 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 the Delaware General Corporation 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 upon 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, including all other documents
required by such Letter of Transmittal, to United States Trust Company of New
York at one of the addresses set forth below under "--Exchange Agent" 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 (a "Book-Entry Confirmation") of such Existing Notes into the
Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility" or the "Depositary") 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 (as defined below).
In the event that 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 a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States (collectively, "Eligible Institutions"). If Existing Notes are registered
in the name of a person other than a signer of
27
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, 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 (1) make appropriate arrangements to register
ownership of the Existing Notes in such owner's name or (2) 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 (including 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 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 shall 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 Exchange 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 Exchange Notes; and
o neither the holder nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of our company. 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 it distribution of the
Exchange Notes.
If any holder or any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act of ours, 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 Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder or any such other person (1) may not rely on the applicable
interpretations of the staff of the Securities and Exchange Commission and (2)
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 Exchange 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 Exchange 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 (an "Exchanging Dealer"), must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
28
Acceptance of Existing Notes For Exchange; Delivery Of Exchange 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 property
tendered, and will issue the Exchange Notes promptly after acceptance of the
Existing Notes. See "--Certain Conditions to the Exchange Offer" below. 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 Exchange 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 3, 1999. Accordingly, registered holders of
Exchange 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 3, 1999. 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 whose Existing Notes 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 will be deemed to have waived
their rights to receive such accrued interest on the Existing Notes.
In all cases, issuance of Exchange Notes for Existing Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (1) certificates for such Existing Notes
or a timely Book-Entry Confirmation of such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, (2) a properly completed
and duly executed Letter of Transmittal and (3) all other required documents. 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 of such Existing Notes (or, in the case of Existing Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such non-exchanged Existing Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration of the Exchange Offer.
Book-Entry Transfer
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Existing Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to the Expiration
Date, unless such holder has strictly complied with the guaranteed delivery
procedures described below.
We understand that the Exchange Agent has confirmed with the Book-Entry
Transfer Facility that any financial institution that is a participant in the
Book-Entry Transfer Facility's system may utilize the Book-Entry Transfer
Facility'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 the Book-Entry Transfer
Facility establish an account with respect to the Existing Notes for the purpose
of facilitating the Exchange Offer, and any participant may make book-entry
delivery of Existing Notes by causing the Book-Entry Transfer Facility to
transfer such Existing Notes into the Exchange Agent's account in accordance
with the Book-Entry Transfer Facility's ATOP procedures for transfer. However,
the exchange of the Existing Notes so tendered will only be made after timely
confirmation (a "Book-Entry Confirmation") of such book-entry transfer and
timely receipt by the Exchange Agent of an Agent's Message (as defined in the
next sentence), an appropriate Letter of Transmittal with any required signature
guarantee, and any other documents required. The term "Agent's Message" means a
message, transmitted by the Book-Entry Transfer Facility and received by the
Exchange Agent and forming part of Book-Entry Confirmation, which states that
the Book-Entry Transfer Facility 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.
29
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 before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may nonetheless 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 (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by us (by telegram,
telex, 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.
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 at one of the addresses set
forth below under "--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 (including 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 the Book-Entry Transfer Facility 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, whose 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 the
Book-Entry Transfer Facility 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 retendered by following one of
the procedures described under "--Procedures for Tendering Existing Notes" above
at any time on or prior to the Expiration Date.
30
Certain Conditions To The Exchange Offer
Notwithstanding any other provision of the Exchange Offer, we shall not be
required to accept for exchange, or to issue Exchange Notes in exchange for, any
Existing Notes and may terminate or amend the Exchange Offer if it any time
before the acceptance of such Existing Notes for exchange or the exchange of
Exchange 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;
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 Exchange Notes will be issued in exchange for any such Existing Notes, if
at such time any stop order shall be 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
(the "Trust Indenture Act"). 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
IBJ Whitehall Bank & Trust Company has been appointed as 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 Hand, up to 4:30 p.m.: By Registered or Certified Mail: By Overnight Courier & By Hand after 4:30
p.m. on the expiration date only:
IBJ Whitehall Bank & IBJ Whitehall Bank & IBJ Whitehall Bank &
Trust Company Trust Company Trust Company
One State Street P.O. Box 84 One State Street
New York, New York 10004 Bowling Green Station New York, New York 10004
Attn: Securities Processing Window, New York, New York 10274-0084 Attn: Securities Processing Window,
Subcellar One, (SC-1) Subcellar One, (SC-1)
By Facsimile:
(212) 858-2611
Confirm by Telephone:
(212) 858-2103
Delivery other than as set forth above will not constitute a valid delivery.
31
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
officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Offer will be
paid by us. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The Exchange 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 Exchange Notes.
Transfer Taxes
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct us to register Exchange 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 Exchange Notes
Holders of Existing Notes who do not exchange their Existing Notes for
Exchange 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 pursuant to the Exchange Offer will continue to
accrue interest at 13% per annum and will otherwise remain outstanding in
accordance with their terms. Holders of Existing Notes do not have any appraisal
or dissenters' rights under the Colorado Business Corporation Act 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 not currently anticipate that we will register the
Existing Notes under the Securities Act. However, (i) if any Initial Purchaser
so requests with respect to Existing Notes not eligible to be exchanged for
Exchange Notes in the Exchange Offer and held by it following consummation of
the Exchange Offer or (ii) 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 Exchange 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 an
affiliate of us within the meaning of the Securities Act), we are obligated to
file a shelf registration statement on the appropriate form under the Securities
Act relating to the Existing Notes held by such persons.
Based on certain interpretive letters issued by the staff of the Securities
and Exchange Commission to third parties in unrelated transactions, we are of
the view that Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by holders thereof (other
than (i) any such holder which is an "affiliate" of us within the meaning of
Rule 405 under the Securities Act or (ii) 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, provided that such Exchange 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
Exchange Notes. If any holder has any arrangement or understanding with respect
to the distribution of the Exchange Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the staff of the Securities and Exchange Commission and (ii) 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 to be all "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of Exchange Notes. Each such broker-dealer that receives
32
Exchange 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 Exchange Notes. See "Plan of Distribution." 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 no-action request.
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. We have agreed,
pursuant to the Registration Rights Agreement and subject to certain specified
limitations therein, to register or qualify the Exchange Notes for offer or sale
under the securities or blue sky laws of such jurisdictions in the United States
as any selling holder of the Notes reasonably requests in writing.
33
BUSINESS
The Company
Our company, a wholly-owned subsidiary of Riviera Holdings, is constructing
and will own and operate one of the largest integrated casino, entertainment and
parking facilities in the state of Colorado. Located at one of the premier
gaming sites in Black Hawk, Colorado, approximately 40 miles west of Denver, our
casino will be one of the first encountered when traveling from Denver to the
adjacent gaming cities of Black Hawk and Central City. Our casino will feature
one of the largest number of gaming positions in the market with approximately
1,000 slot machines and 14 table games. We also expect to offer a variety of
non-gaming amenities designed to further differentiate our casino including (1)
parking for 520 vehicles (substantially all of which will be covered) with
convenient self-park and valet options, (2) a 265-seat casual dining restaurant,
(3) two themed bars and (4) an entertainment center with seating for
approximately 500 people.
We believe that substantial opportunity exists in the Black Hawk/Central
City market for well-capitalized, sophisticated gaming operators offering an
attractive mix of product and convenience. 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 March 31, 1999, there were 29
casinos in the Black Hawk/Central City market, with eight casinos each offering
more than 400 gaming positions. Anchor Gaming's Colorado Central Station,
located across the street from our casino with approximately 700 gaming machines
and 700 valet parking spaces, has been the market leader with an estimated
average win per gaming device per day of approximately $240 in 1998. We believe
that our casino will be successful due to our:
o premier location;
o convenient, covered self-parking;
o superior size and amenities; and
o Manager's successful track record in gaming.
We expect to open our casino in the first quarter of 2000. The total cost
for our casino, excluding capitalized interest, is expected to be $77.1 million,
which includes (1) $15.1 million for the original purchase of the land on which
our casino is being developed, (2) $27.6 million of construction costs, (3)
$10.6 million for furniture, fixtures and equipment, (4) $8.0 million for
project development costs, fees and permits, (5) $2.7 million for pre-opening
costs, opening bankroll and other working capital requirements, (6) $10.1
million for a completion reserve and an interest reserve and (7) $3.0 million
for fees and expenses related to the sale of the Existing Notes. Prior to the
sale of the Existing Notes, Riviera Holdings had contributed cash of $30.1
million to us, of which $20.0 million is in the form of equity capital and the
balance was reimbursed to Riviera Holdings from the proceeds of the sale of the
Existing Notes. We believe the construction budget and timetable for our casino
can be achieved based on the following:
o the $27.6 million of construction costs will be incurred pursuant to a
guaranteed maximum price construction contract which is based on
completed construction drawings which have been approved by the Black
Hawk Planning Board;
o we have completed all site improvements, excavation and foundation
work (typically the portion of a casino construction project that has
the most risk) and erection of the steel structure began in April
1999;
o 35% of the $27.6 million construction budget has been expended under
the guaranteed maximum price construction contract as of March 31,
1999;
o our architect and contractor have extensive experience in similar
projects in mountainous terrain; and
o the guaranteed maximum price construction contract provides for a
completion date of January 15, 2000 with incentives for finishing
early and penalties for finishing late.
34
Our casino will be managed by a wholly-owned subsidiary of Riviera Holdings.
Riviera Holdings owns and operates the Riviera Hotel & Casino located on the Las
Vegas Strip. Upon completion, our casino will be the only casino in the market
developed and operated by a Las Vegas Strip casino company. Riviera Holdings'
current management team has developed a strong reputation in the gaming
industry. Since assuming control of Riviera Holdings in 1992, this management
team has grown Riviera Holdings' EBITDA from $22.0 million in 1993 to $29.1
million in 1998, an increase of 32%.
Competitive Strengths
We believe that the following competitive strengths will contribute to the
success of our casino:
Dominant Black Hawk/Central City Location. Our casino is located at the
entrance to the City of Black Hawk and will be one of the first casinos
encountered when traveling from Denver to the Black Hawk/Central City market. We
will be on the corner of Mill and Main Street, across the street from Colorado
Central Station, which has been the most successful casino in Colorado. In
addition, we will be located across Main Street from the recently completed Isle
of Capri Casino, which is of a similar size to our casino in terms of the number
of gaming positions. This will result in a critical mass of casinos located at
the entrance to Black Hawk which we expect to create synergistic benefits for
all three casinos.
Convenient Covered, Self-Parking Facilities. Much of the Black Hawk/Central
City market lacks adequate parking. As a result, we believe that the
availability of convenient on-site parking is not only a critical
differentiating factor from other casinos, but that the additional parking will
contribute to overall growth in the market. Our casino will feature an attached
175,000 square foot multi-level parking facility with capacity for approximately
520 vehicles (substantially all of which will be covered). In addition to valet
parking, we will offer patrons the convenience of a self-park option, which we
believe gives us an additional advantage over casinos that require patrons to
use valet service to maximize the number of available parking spaces. Our
parking facility, coupled with the nearly 1,800 other parking spaces located at
the Isle of Capri Casino and Colorado Central Station, will create the greatest
concentration of parking in the Black Hawk/Central City market.
Superior Size and Amenities. Our approximately 1,000 gaming positions will
be one of the largest in the Black Hawk/Central City market. This number of
gaming positions is significantly larger than the market average of 336
positions per casino as of December 31, 1998. By combining this extensive
selection with our ability to place all gaming devices on a single floor, we
will create an exciting and compelling atmosphere that is closer to that found
in Las Vegas casinos than that typically found in casinos in the Black
Hawk/Central City market. We will further enhance this superior gaming
experience with entertainment and food service designed to meet the preferences
of the Black Hawk/Central City market. Our 265-seat casual dining restaurant
will offer a menu of quality items at value prices. We also plan to utilize our
7,000 square foot multi-use entertainment center to provide entertainment
programs such as live music performances as well as meetings, parties and other
promotional events. This combination of gaming and amenities is currently not
common in this market. As a result, we intend to market such features to not
only differentiate ourselves from our competitors, but to help expand the
overall market.
Management Expertise. Upon completion, our casino will be the only casino in
the Black Hawk/ Central City market developed and operated by a Las Vegas Strip
casino company. As a result, our casino will benefit from years of sophisticated
management experience in all aspects of gaming operations, ranging from slot
management to database marketing. The success of this management team is
demonstrated by the outstanding financial results achieved at the Riviera Hotel
& Casino despite an intensely competitive gaming environment in Las Vegas.
Description of the Riviera Black Hawk
General. The Riviera Black Hawk is designed to be a first class, integrated
gaming facility, providing customers with a broad selection of gaming
activities, food and entertainment as well as convenient on-site covered
parking. Our casino is being constructed on a 71,000 square foot (1.63 acres)
footprint zoned entirely for gaming, providing us with the flexibility to add
additional gaming space as allowable under Colorado gaming regulations. Total
square footage for the facility will be 300,000 square feet, which includes a
175,000 square foot parking structure.
The exterior design of the building is based on the historic Western
Victorian influence found in the Black Hawk area in the late 19th century.
Patrons will be able to enter the building from three entrances: (1) a
glass-covered pedestrian entrance facing the Colorado Central Station on the
corner of Main and Mill Street, which will serve as the main entrance for
pedestrians coming from
35
the Colorado Central Station and other casinos across Mill Street as well as the
west entrance of the Isle of Capri Casino; (2) a valet and pedestrian entrance
facing the Isle of Capri Casino across Main Street, which will serve as the main
entrance for our valet customers, bus customers and pedestrians leaving the Isle
of Capri Casino through the north entrance; and (3) elevator access from our
attached self-parking structure.
The interior of the casino will blend the Western Victorian theme with the
exciting atmosphere of a modern casino, complete with state-of-the-art machines
and table games. The unique ambiance on the casino floor will be enhanced by the
view of the surrounding mountains offered through large windows. Also adding to
the Western Victorian theme will be a large, highly ornate bar located in the
center of the casino floor. Our casino will include 30,000 square feet of gaming
space located "Las Vegas-style" on a single floor, which is relatively unique in
the Black Hawk/Central City market. We expect to offer one of the largest
selections of gaming positions in the market with approximately 1,000
state-of-the-art slot machines and 14 table games (blackjack and poker). The
slot machines will be available to customers in numerous denominations,
including 5(cent), 25(cent), $1 and $5 and will be grouped together to generate
an atmosphere of excitement consistent with that typically found in Las
Vegas-style casinos.
Parking. Our casino will include a 175,000 square foot parking facility with
the capacity to park approximately 520 vehicles (substantially all of which will
be covered). We will provide patrons arriving by car the choice of either valet
parking or self-parking directly into the garage. Patrons opting for the valet
service will arrive at the main entrance and their cars will be parked by valet
attendants on two underground garage floors. Except for the topmost floor of the
self-park garage, all parking spaces will be covered. Based on existing and
announced casinos in the Black Hawk/Central City market, we believe that the
on-site parking facilities at the Riviera Black Hawk will be one of the largest
in the Black Hawk/ Central City market, representing more than 20% of the
covered self-parking spaces in the Black Hawk/ Central City market. We believe
that the convenience provided to patrons through the extensive on-site covered
parking facility, with the self-park option, gives the Riviera Black Hawk a
competitive advantage over other casinos in the area that do not have extensive
parking facilities or that require the use of valet services. The entrances to
the Riviera Black Hawk will be located such that bus, valet, self-park and
pedestrian traffic may enter and exit efficiently.
Entertainment. We intend to offer a variety of entertainment programs
catering to local needs and tastes in an effort to further attract customers.
Our casino will include a 7,000 square foot multi-use entertainment center
located on the second level of the facility with capacity to seat approximately
500 people. We believe this will be the largest facility in the market enabling
us to feature entertainment performances and special events. We plan to provide
entertainment programs throughout the week primarily by featuring live music by
popular regional and national groups. When not in use, the entertainment center
will also be used for meetings, parties and other promotional events.
Food and Other Amenities. In an effort to provide patrons other non-gaming
amenities, we will feature a full service casual dining restaurant located on
the second floor of the facility with a seating capacity of up to 265 people.
The restaurant will offer a quality menu appropriate for the Black Hawk/ Central
City market at a value price. The flexible design of the restaurant will allow
for the conversion of a portion of the dining area into private seating for up
to 88 people for private parties and special events. In addition to the
restaurant, our casino will also include two bars, one located in the
entertainment area and the other one on the casino floor.
The Black Hawk/Central City Market
Gaming was first introduced to the Black Hawk/Central City market in October
1991 following a state-wide referendum where Colorado voters approved limited
stakes gaming for three historic mining towns -- Black Hawk, Central City and
Cripple Creek. Limited stakes gaming is defined as a maximum single bet of $5.
Black Hawk and Central City are contiguous cities located approximately 40 miles
west of Denver and about ten miles north of Interstate Highway 70, the main
east-west artery from Denver. Historically, these two gold mining communities
were popular tourist towns. However, since the inception of casino gaming in
October 1991, many of the former tourist-related businesses have been displaced
by gaming establishments.
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 29 as of March 31, 1999.
36
The Black Hawk/Central City market primarily caters to "day-trip" customers
from Denver, Boulder, Fort Collins and Golden as well as Cheyenne, Wyoming.
Approximately 3.3 million people reside within this 100-mile radius of Black
Hawk. Denver provides the market with a strong demographic base of approximately
1.9 million residents. In addition, residents within a 100 mile radius of the
City of Black Hawk had an average household income in excess of $51,000 per
annum in 1998. Daily traffic counts passing the Black Hawk/Central City market
on Highway 119, as reported by the Colorado Department of Transportation,
averaged over 14,000 vehicles per day in 1998.
The Black Hawk/Central City market's strategic location has contributed to
consistent growth in the market since the legalization of gaming in 1990. Gaming
revenues have grown from $127.6 million in 1992 to $366.0 million in 1998,
representing a 19% compound annual growth rate. These revenues represented
approximately 76% of total Colorado gaming revenues (excluding gaming on Native
American land).
The following table sets forth gaming statistics for the Black Hawk/Central
City market and well as the individual cities of Black Hawk and Central City:
Year Ended December 31,
-------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Black Hawk
Gaming revenues (in thousands).. $173,703 $195,857 $219,911 $234,631 $272,008
Number of casinos(1)............ 19 19 19 19 19
Number of slots(1).............. 4,231 4,877 5,276 5,340 7,181
Number of tables(1)............. 103 113 111 106 125
Win per slot per day(2)......... $ 97.71 $ 104.70 $ 110.68 $ 113.77 $ 122.24
Win per table per day(2)........ $ 375.06 $ 365.57 $ 365.83 $ 370.50 $ 383.69
Central City
Gaming revenues (in thousands).. $ 69,702 $ 94,468 $ 88,870 $ 87,391 $ 93,980
Number of casinos(1)............ 17 13 12 12 12
Number of slots(1).............. 4,311 3,670 3,259 3,196 3,142
Number of tables(1)............. 92 72 60 58 46
Win per slot per day(2)......... $ 54.63 $ 60.51 $ 66.96 $ 67.97 $ 81.15
Win per table per day(2)........ $ 245.32 $ 282.12 $ 244.14 $ 219.63 $ 224.21
Black Hawk/Central City Market
Gaming revenues (in thousands).. $ 243,405 $290,325 $308,781 $322,022 $365,988
Number of casinos(1)............ 36 32 31 31 31
Number of slots(1).............. 8,542 8,547 8,535 8,536 10,323
Number of tables(1)............. 195 185 171 164 171
- ----------
(1) As of December 31 for each period shown.
(2) Win per gaming position per day is based on average number of units during
the period presented. Source: Colorado Division of Gaming and Urban Systems,
Inc.
Gaming revenues in the Black Hawk/Central City market have increased from
$127.6 million in 1992 to $366.0 million in 1998, a compound annual growth rate
of 19.1%. Slot machines account for approximately 95% of the market's total
gaming revenues. In contrast, as of December 31, 1998, slot machines in the
developed gaming markets of Nevada and New Jersey generate between 65% and 69%
of total revenues while slot revenues in emerging markets such as Iowa and
Indiana account for approximately 78% of total revenues.
Since 1992, the number of gaming positions in the Black Hawk/Central City
market has grown approximately 44.7% from 7,252 positions in 1992 to 10,494
positions in 1998. The total number of slot machines has increased 45.8% since
1992 to 10,323 in 1998 while the total number of tables in the market has
remained relatively flat with 171 tables in the market at the end of 1998. Win
per gaming position per day has continued to grow despite the increase in the
number of gaming positions.
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
37
average number of gaming positions, a wider variety of high quality amenities
and convenient parking for patrons. These factors have contributed to growth in
Black Hawk gaming revenues at a compound annual rate of 30.1% since 1992
compared to a more moderate growth for Central City of 4.7% over the same
period. The number of slot machines and tables in the City of Black Hawk have
increased 125.0% and 50.6%, respectively since 1992, while the number of slot
machines and tables in Central City have declined 19.1% and 49.5%, respectively
over the same period.
The information contained in this discussion of the Black Hawk/Central City
market was derived from publicly available data, except where stated otherwise.
While we believe these sources are reasonably reliable, no assurances can be
made regarding the accuracy of such information. See "Risk Factors --
Competition" and "Risk Factors -- Reliability of Market Data."
Marketing Strategy
We plan to attract customers to the Riviera Black Hawk by implementing
marketing strategies and promotions that emphasize value-oriented gaming and an
ambient atmosphere. In doing so, we hope to create customer loyalty and benefit
from repeat visits by our customers. We intend to capitalize on our superior
facilities and Riviera Holdings' reputation as a premier provider of service and
entertainment at the Riviera Hotel & Casino in Las Vegas to establish ourselves
as the premier casino and destination of choice in the Black Hawk/Central City
market. Specific marketing programs to support this strategy include the Riviera
Player's Club and "V.I.P." services offered to repeat gaming customers. The
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, including free slot tournaments and
parties. Riviera Holdings has used the Player's Club promotion in its casino in
Las Vegas and, in its capacity as manager of the Riviera Black Hawk, will tailor
it for the Black Hawk/Central City market and implement it at our casino.
"V.I.P." services will be available to the highest level of players and will
include special valet and self-parking services, complimentary food and
entertainment offerings and special events specifically designed for this group
of customers.
We believe that we will 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 intend to develop specific marketing programs designed to attract
these "walk-in" customers. We further intend to emphasize quality food and
beverage amenities with customer friendly service as a marketing tool. In
addition, we will 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.
We also intend to utilize proven database marketing techniques previously
implemented by Riviera Holdings at its gaming facilities in Las Vegas.
Approximately two to three months prior to opening, we expect to begin to
solicit members for our Players Club using direct mail advertising. Once our
casino is opened to the public, the database will be primarily derived from
information supplied by the Players Club, which will help us to identify our
best customers by reference to levels of play and frequency of visits. We plan
to 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 will use the current database maintained by Riviera
Hotel & Casino in Las Vegas to identify and stratify slot players living in
Colorado (approximately 7,000 slot players have been identified) for appropriate
incentives. We will establish a bus program that will offer bus patrons
incentives directed specifically to them with an accelerated award program based
on levels of play. In addition, we plan to promote our casino by advertising in
newspapers and on billboards in the local areas.
Competition
We believe that the primary competitive factors in the market are casino
location, availability and convenience of parking, number of slot machines and
gaming tables, types and pricing of non-gaming amenities, name recognition and
overall atmosphere. We believe our casino will compete favorably with respect to
each of these factors. As of March 31, 1999, there were 29 gaming facilities in
the Black Hawk/Central City market, with eight casinos each offering more than
400 gaming positions. Our main competitors will be the larger gaming facilities,
particularly those with considerable on-site or nearby parking and established
reputations in the local market. Construction has also begun on the "Mardi Gras"
casino, which is expected to feature over 600 slot machines.
We expect that the gaming facilities near the intersection of Main and Mill
Streets will provide significant competition to our casino. Colorado Central
Station, which has been the most successful casino in the market, 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
38
Casino, operated by Casino America, which opened in December 1998, is located
directly across the street from our casino and features approximately 1,100 slot
machines, 14 table games, and 1,100 parking spaces.
The number of hotel rooms currently in the Black Hawk/Central City market is
approximately 170, with only two gaming facilities providing hotel
accommodations to patrons. These include Harvey's Wagon Wheel Casino Hotel with
approximately 120 rooms and the Lodge at Black Hawk with approximately 50 rooms.
In addition, the Isle of Capri Casino has announced plans to begin construction
of an approximately 240 room hotel in 1999 on top of its recently completed
casino. 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 competitive factor, but instead will
contribute towards 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 proposed the development of a road directly connecting Central
City and Black Hawk with Interstate 70 which could result in the elimination of
this particular advantage, since customers would be able to reach Central City
without driving by or through Black Hawk. There remain significant financial and
legal obstacles to the development of this road and it is uncertain whether it
will be developed over the near to intermediate term, or developed at all.
Currently, limited stakes gaming in Colorado is constitutionally authorized
in Central City, Black Hawk, Cripple Creek and two Native American reservations
in southwest Colorado. However, gaming could be approved in other Colorado
communities in the future. The legalization of gaming closer to Denver would
likely have a material adverse effect on our future results of operations. We
will also compete with other forms of gaming in Colorado, including lottery
gaming, and horse and dog racing as well as other forms of entertainment.
Design and Construction Summary
We have assembled what we believe to be a highly qualified team to design
and construct the Riviera Black Hawk.
o The Weitz Company, Inc. has been retained as general contractor to
build the Riviera Black Hawk. Based on industry sources, Weitz is
ranked among the top 50 building contractors in the United States
based on total revenues from general building and is the fifth largest
contractor in the State of Colorado. Weitz has extensive experience
building in mountainous terrain, including projects in Vail, Colorado
and Keystone, Colorado.
o Melick Associates, Inc. has been retained as the architects for the
Riviera Black Hawk. Melick Associates has experience with casino
projects in mountainous terrain, including projects in Black Hawk,
Central City and Cripple Creek.
o John Franzoi, Riviera Operating Corporation's Vice President of
Construction, is managing project development and construction for the
Riviera Black Hawk. Mr. Franzoi has a State of Nevada general
contractors license and has over 30 years of experience in the
construction industry.
o Phillip Harris has been retained as our representative and
construction consultant for the Riviera Black Hawk project. Mr. Harris
is assisting Mr. Franzoi in monitoring the progress of the
construction of the Riviera Black Hawk. Mr. Harris is a construction
consultant with over 30 years construction experience, most recently
as Vice President and Operations Manager for GE Johnson Construction
Company.
We have entered into a guaranteed maximum price construction contract with
Weitz. The construction contract provides that Weitz and various subcontractors
will construct the Riviera Black Hawk, including site development, excavation
and construction of the casino and parking garage. For a description of the
terms of the construction contract, see "Material Agreements -- Construction
Contract."
We have also entered into an architectural contract with Melick Associates
for the architectural design of our casino. The architectural contract covers
architectural and interior design and specifications. Melick Associates will
administer the guaranteed maximum price construction contract and coordinate and
integrate its work with the design build subcontractors. For a description of
the terms of our contract with Melick Associates, see "Material Agreements --
Architectural Contract."
39
The scope of permits and approvals required for the construction of our
casino is extensive and includes state and local land use permits, excavation,
building and zoning permits, architectural approvals and approval of street and
traffic signals. To date, we have obtained all City of Black Hawk, State of
Colorado and federal permits required to construct our casino. We have completed
all site improvements, excavation and foundation work. Erection of the steel
structure began in April 1999, and the building is expected to be enclosed by
mid-August 1999.
Management
Riviera Gaming Management of Colorado, Inc.(the "Manager"), which is our
direct corporate parent and an indirect, wholly-owned subsidiary of Riviera
Holdings, will manage the operations of our casino. We have entered into a
management contract for the provision of these management services, which is
described in greater detail under the section "Material Agreements -- Management
Agreement."
Intellectual Property
We have entered into a license agreement with Riviera Operating Corporation,
a subsidiary of Riviera Holdings, which permits us to use the trademark
"Riviera" and certain other trademarks and logos in connection with our casino.
The terms of this license agreement are summarized in greater detail in the
section "Material Agreements -- Intellectual Property License Agreement."
Property
Our casino is being constructed on a 71,000 square foot (1.63 acres) parcel
of land in Black Hawk, Colorado, which we own. We have no other properties.
Employees
We anticipate that when the Riviera Black Hawk opens, it will have an
average of approximately 350 full-time equivalent employees, with the highest
number of employees expected during the summer season.
Legal Proceedings
We are not a party to any litigation.
Riviera Holdings is a defendant in an action commenced on April 9, 1998, by
Allen Paulson, R&E Gaming Corp. and other Paulson-controlled entities
(collectively, "Paulson") in the United States District Court for the Central
District of California. The other defendants in the action include Jefferies &
Company, Inc.(the Initial Purchaser of the notes), as well as Morgens,
Waterfall, Vintiadis & Company, Inc., Keyport Life Insurance Company, Sun
America Life Insurance Company and others. Paulson's claims arise from a merger
agreement between Riviera Holdings and Paulson which was terminated in the first
half of 1998. Paulson has requested a refund of the amounts deposited in escrow
in connection with the proposed merger as well as other damages. We believe
there is no merit to Paulson's damage claims against Riviera Holdings. Riviera
Holdings has vigorously contested, and will continue to contest, Paulson's
claims. Riviera Holdings has asserted counterclaims against Paulson, including a
claim for the collection of the escrow funds. However, no assurance can be given
regarding the outcome of this lawsuit.
Riviera Holdings Corporation
Riviera Holdings, through its wholly-owned subsidiaries, owns and operates
the Riviera Hotel & Casino located on the Las Vegas Strip. Opened in 1955, the
Riviera Hotel & Casino has developed a long-standing reputation for delivering
high quality, traditional Las Vegas-style gaming and entertainment. The Riviera
Hotel & Casino is situated on a 26-acre site located across the Strip from
Circus Circus and across Paradise Road from the Las Vegas Hilton and the Las
Vegas Convention Center. The property features approximately 2,100 hotel rooms,
including 169 suites, 115,000 square feet of casino space, one of the largest
convention, meeting and banquet facilities in Las Vegas and a full range of
food, bar and lounge areas. In addition, the Riviera Hotel & Casino offers one
of the most extensive entertainment programs in Las Vegas, including such
popular shows as Splash(R), An Evening at La Cage(R), Crazy Girls(R) and
featured comedians at the Riviera Comedy Club(TM).
40
In addition, Riviera Holdings opened the Nickel Town in December 1997.
Nickel Town is a 10,000 square foot gaming area complete with 284 slot machines,
a bar, a snack bar and a souvenir shop.
Through its gaming management subsidiary, Riviera Gaming Management,
Inc.("Riviera Gaming"), Riviera Holdings has capitalized on its management's
reputation and experience as successful casino operators. Since 1996, Riviera
Gaming has managed the Four Queens located adjacent to the Golden Nugget on
Fremont Street in downtown Las Vegas. Under Riviera Gaming, Four Queens'
operations improved and generated approximately $1.0 million per year in
management fees for Riviera Holdings.
Since 1992, Riviera Holdings has achieved consistent growth in EBITDA and
profit margins. Riviera Holdings has achieved this growth through the
implementation of a number of strategic initiatives that included (1) refocusing
its marketing strategy from "high-rollers" to adult mid-level gaming customers,
a niche that management believes has been underserved, (2) focusing on
conventioneers who pay higher room rates, causing the Riviera Hotel & Casino's
average daily room rate to increase from $47 in 1992 to $55 in 1998, (3)
aggressively marketing its hotel facilities resulting in occupancy rates growing
from 90.6% in 1992 to 95% in 1998, (4) emphasizing higher margin slot play which
increased slot revenue by 35% from 1992 to 1998 and (5) investing approximately
$80 million in capital improvements since 1992. Riviera Holdings' management
believes that it has also improved the stability of EBITDA by providing a broad
entertainment experience (1998 non-gaming revenues 55% vs. 49% for other casinos
on the Strip), focusing on conventioneers (approximately 32% of mid-week room
nights pre-sold through May 2001) and developing a repeat and loyal customer
base through proprietary database marketing.
41
GAMING AND LIQUOR REGULATORY MATTERS
Background
Pursuant to an amendment to the Colorado Constitution (the "Colorado
Amendment"), limited stakes gaming became lawful in the cities of Central City,
Black Hawk and Cripple Creek on October 1, 1991. The Colorado Amendment defines
limited stakes gaming as the use of slot machines and the card games of
blackjack and poker, with a maximum single bet of five dollars.
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 1, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures. The Colorado Amendment provides that 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. The Colorado
Amendment prohibits limited stakes gaming between the hours of 2:00 a.m. and
8:00 a.m., and allows limited stakes gaming to occur in establishments licensed
to sell alcoholic beverages.
Further, the Colorado Amendment provides that, in addition to any other
applicable license fees, up to a maximum of 40% of the total amounts wagered
less payouts to players may be payable by a licensee for conducting limited
stakes gaming. Such percentage is to be established by the Colorado Commission
annually.
The Colorado legislature promulgated the Colorado Limited Gaming Act of 1991
(the "Colorado Act") to implement the provisions of the Colorado Amendment. The
Colorado Act became effective on June 4, 1991 and has been amended subsequently.
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 stakes 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 and
free competition in Colorado; and (4) no applicant for a license or other
approval has any right to a license or to the granting of the approval sought.
Regulatory Structure
The Colorado Act subjects the ownership and operation of limited stakes
gaming facilities in Colorado to extensive regulation by the Colorado Commission
and prohibits persons under the age of 21 from participating in limited stakes
gaming. No limited stakes gaming may be conducted in Colorado unless all
appropriate gaming licenses are approved by and obtained from 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 Regulations").
Such authority does not require any approval by or delegation of authority from
the Colorado Department of Revenue (the "Colorado Revenue Department"). The
Colorado Act also created the Colorado Division of Gaming (the "Division of
Gaming") within the Colorado Revenue Department to license, implement, regulate
and supervise the conduct of limited stakes gaming in Colorado, which division
is supervised and administered by the Director of the Division of Gaming (the
"Division Director").
Gaming Licenses
The Colorado Commission may issue: (1) slot machine or distributor, (2)
operator, (3) retail gaming, (4) support and (5) 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 Division Director. The Colorado Commission has broad discretion
to condition, suspend for up to six months, revoke, limit or restrict a license
at any time and also has the authority to impose fines.
42
An applicant for a gaming license must complete comprehensive application
forms, pay required fees and provide all information required by the Colorado
Commission and the Division of Gaming. Prior to licensure, applicants must
satisfy the Colorado Commission that they are suitable for licensing. Applicants
have the burden of proving their qualifications and must pay the full cost of
any background investigations. There is no limit on the cost of such background
investigations.
Gaming employees must hold either a support or key employee license. Every
retail gaming licensee must have a key employee licensee in charge of all
limited stakes gaming activities when limited stakes gaming is being conducted.
The Colorado Commission may determine that a gaming employee is a key employee
and, require that such person apply for a key employee license.
A retail gaming license is required for all persons conducting limited
stakes gaming on their premises. In addition, an operator license is required
for all persons who engage in the business of placing and operating slot
machines on the premises of a retailer. However, a retailer is not required to
hold an operator license. No person may have an ownership interest in more than
three retail licenses. A slot machine manufacturer or distributor license is
required for all persons who manufacture, import or distribute slot machines in
Colorado.
The Colorado Act requires that every officer, director, and stockholder of
private corporations or equivalent office or ownership holders for non-corporate
applicants, and every officer, director or stockholder holding either a 5% or
greater interest or controlling interest of a publicly traded corporation or
owners of an applicant or licensee shall be a person of good moral character and
submit to a full background investigation conducted by the Division of Gaming
and the Colorado Commission. The Colorado Commission may require any person
having an interest in a license to undergo a full background investigation and
pay the cost of investigation in the same manner as an applicant.
Persons found unsuitable by the Colorado Commission may be required
immediately to terminate any interest, association, or agreement with or
relationship to a licensee. A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of a licensee
or applicant also may jeopardize the licensee's license or the applicant's
application. A license approval may be conditioned upon the termination of any
relationship with unsuitable persons.
Duties of Licensees
An applicant or licensee must report to the Division of Gaming or Colorado
Commission all leases not later than 30 days after the effective date of the
lease. Also, an applicant or a license, 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 immediately report to the Division of
Gaming the name, date of birth and social security number of all persons who
obtain an ownership, financial or equity interest in the licensee of 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 licenses, and all applications for licenses, in foreign jurisdictions.
With limited exceptions applicable to licensees that are publicly traded
entities, no person may sell, lease, purchase, convey or acquire any interest in
a retail gaming or operator license or business without the prior approval of
the Colorado Commission.
All agreements, contracts, leases, or arrangements in violation of the
Colorado Act or the Colorado Regulations are void and unenforceable.
43
Taxes, Fees and Fines
The Colorado Amendment requires an annual tax of up to 40% on the total
amount wagered less all payouts to players. With respect to games of poker, the
tax is calculated based on the sums wagered which are retained by the licensee
as compensation. Effective July 1 of each year, the Colorado Commission
establishes the gaming tax for the following 12 months. Currently, the gaming
tax is: 2% on the first $2 million of these amounts; 4% on amounts from $2
million to $4 million; 14% on amounts from $4 million to $5 million; 18% on
amounts from $5 million to $10 million; and 20% on amounts over $10 million.
The Colorado Commission requires all gaming licensees to pay an annual
device fee for each slot machine, blackjack table and poker table of $75. The
municipality of Black Hawk assesses an annual device fee of $750 per device.
There is no statutory limit on state or city device fees, which may be increased
at the discretion of the Colorado Commission or the city. In addition, a
business improvement fee of as much as $102 per device and a transportation
authority device fee of $77 per device also may apply depending upon the
location of the licensed premises in Black Hawk. The current annual business
improvement fee is $89.04.
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 Act constitutes a class 1 misdemeanor which may
subject the violator to fines or incarceration or both. A licensee who violates
the Colorado Act or Colorado Regulations is subject to suspension of the license
for a period of up to six months, fines or both, or to license revocation.
Requirements for Publicly Traded Corporations
The Colorado Commission has enacted Rule 4.5, which imposes requirements on
publicly traded corporations holding gaming licenses in Colorado and on gaming
licenses owned directly or indirectly by a publicly traded corporation, whether
through a subsidiary or intermediary company. The term "publicly traded
corporation" includes corporations, firms, limited liability companies, trusts,
partnerships and other forms of business organizations even if created under the
laws of a foreign country. Such requirements shall automatically apply to any
ownership interest held by a publicly traded corporation, holding company or
intermediary company thereof, where such 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 that 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 within 10 days of the initial filing of a registration
statement with the Securities and Exchange Commission. Licensed publicly traded
corporations are also required to send proxy statements to the Division of
Gaming within 5 days after distribution of such statement. Licensees to whom
Rule 4.5 applies must include in their articles of organization or similar
charter documents provisions that: restrict the rights of the licensees to issue
voting interests or securities except in accordance with the Colorado Act and
the Colorado Regulations; limit the rights of persons to transfer voting
interests or securities of licensees except in accordance with the Colorado 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 (1) 5% or more of any class of voting securities of a publicly
traded corporation are required to include in its articles of organization the
Rule 4.5 charter language provisions or (2) 5% or more of the beneficial
interest in a gaming licensee directly or indirectly through any class of voting
44
securities of any holding company or intermediary company of a licensee (all
such persons hereinafter referred to as "qualifying persons"), shall notify the
Division of Gaming within 10 days of such acquisition, are required to submit
all requested information and are subject to a finding of suitability as
required by the Division of Gaming or the Colorado Commission. Licensees also
must notify any qualifying persons of these requirements. A qualifying person
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 licensee.
Alcoholic Beverage Licenses
The sale of alcoholic beverages in gaming establishments is subject to
strict licensing, control and regulation by state and local authorities and
requires a liquor license. 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 or 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 Licenses
Currently, no gaming or liquor licenses in Colorado have been granted in
connection with the Riviera Black Hawk, although an application for a restaurant
liquor license has been approved by the local licensing authority and is in the
process of being forwarded to the State Liquor Enforcement Division for
approval. The application for a retail gaming license is pending. Applications
for key employee gaming licenses have also been made. Associated Person License
applications have been submitted for the officers and directors of Riviera
Holdings as well as some of the affiliated companies as required by the Division
Director. Additional gaming Associated Person, Key Employee and support license
applications will have to be made and approved prior to the opening of the
casino.
Before our casino can obtain the final approval of the Colorado Commission,
stockholders of Riviera Holdings who own more than 5% of its common stock must
be found "suitable" or have the person(s) with investment power over the
investment licensed as associated persons by the Colorado Commission. Five of
Riviera Holdings' largest stockholders have submitted (or will submit)
information to the Colorado Commission for the purpose of establishing
suitability for licensing or are seeking to have the person(s) with investment
power over the investment licensed as associated persons in Colorado. Based upon
our discussions with the staff of
45
the Colorado Commission, we are optimistic such stockholders will not present a
problem with the Colorado Commission. See "Risk Factors -- Gaming Licenses,
Permits and Approvals."
46
MATERIAL AGREEMENTS
Construction Contract
We have entered into a guaranteed maximum price construction contract for
the construction of the Riviera Black Hawk. The guaranteed maximum price
construction contract provides for the construction of a casino, parking garage,
associated site work and all floor coverings and food service equipment at a
guaranteed maximum price of $27.6 million, including a contingency allowance of
$0.5 million. The construction cost is fully supported by a payment and
performance bond obtained by the general contractor, Weitz, who is also required
to provide comprehensive public liability insurance, including contractual
liability coverage, in the amount of $2.0 million plus umbrella coverage in the
amount of $20.0 million. As required by the guaranteed maximum price
construction contract, we have obtained builder's all risk insurance to insure
against damage to the work in place during construction. The guaranteed maximum
price is subject to decrease if cost savings can be achieved during
construction, and is subject to material increase if:
o there are changes to the plans and specifications;
o work is delayed due to actions of the owner; or
o customary contingencies occur during construction.
The contract was also initially subject to material increase if:
o unforeseen geological or excavation conditions were discovered; or
o hazardous materials were encountered on the site.
However, all excavation has been completed and it is no longer likely that we
will encounter any hazardous materials on the site.
Certain specified items for completion of the casino, including off-site
improvements, permit fees and the cost of independent testing, certain
furnishings and finish work, and similar items, are excluded from the guaranteed
maximum price construction contract and will be completed by us under separate
contracts.
Work under the guaranteed maximum price construction contract has commenced,
and approximately $9.7 million, or 35% of the total budget, has been expended as
of March 31, 1999. We have completed all site improvements, excavation and
foundation work. Erection of the steel structure began in April 1999. The
guaranteed maximum price construction contract provides for substantial
completion of the casino project on or before January 15, 2000, subject to
extensions due to adverse weather, acts of God, or other causes outside of the
general contractor's control as provided in the guaranteed maximum price
construction contract. To discourage delays, liquidated damages will be payable
by the general contractor for each day that substantial completion is delayed
past the scheduled substantial completion date (as it may be extended under the
guaranteed maximum price construction contract), as follows: (1) no penalties if
the casino project is substantially completed on or before January 31, 2000; (2)
$10,000 per day for each day from February 1, 2000, through February 15, 2000,
that the casino project is not substantially completed after January 31, 2000;
and (3) an additional $15,000 for each day from February 15, 2000, through March
31, 2000, that the casino project is not substantially completed. In addition,
to encourage early completion of the casino, incentive fees will be payable to
the general contractor. Specifically, the guaranteed maximum price construction
contract provides: (1) if Weitz achieves substantial completion of the project
on or after December 29, 1999, but prior to January 4, 2000, Weitz's lump sum
fee shall be increased by $10,000 for each day that the project is substantially
complete prior to January 4, 2000; and (2) if Weitz achieves substantial
completion of the project any time before December 29, 1999, Weitz's lump sum
fee shall be increased by $15,000 for each day the project is substantially
complete prior to December 29, 1999, and $10,000 for each day the project is
substantially complete between December 29, 1999, and January 4, 2000.
Architectural Contract
We have entered into an architectural contract with Melick Associates for
the provision of architectural and interior design and specifications for the
casino project at a fee of approximately $1.0 million. Pursuant to the
architectural contract, the architect will
47
also provide structural and engineering, food service design, water proofing
consultants, elevator/escalator consultants and landscape design. However, the
architect is not responsible for the work of independent electrical and
mechanical design build subcontractors. The architect will administer the
guaranteed maximum price construction contract and coordinate its work with the
construction subcontractors. The architect has provided professional liability
insurance in the amount of $1.0 million per occurrence, $2.0 million aggregate
with a $10,000 deductible, and damages under the architectural contract have
been limited to the amount of $1.0 million.
Management Agreement
We have entered into a management agreement with Riviera Gaming Management
of Colorado, Inc.(the "Manager") which will end after the tenth full year
audited financial statements are available after the opening of our casino. The
Manager will have the option of extending the term for up to four additional
terms of five years each by giving 180 days written notice.
The Manager will manage the Riviera Black Hawk in a manner reasonably
consistent with the standards and procedures exercised by other casino operators
in Black Hawk, Colorado. The Manager will supervise the hiring of all personnel
employed at the casino, who will be the employees of Riviera Black Hawk. The
Manager, at its expense, will supply the level of its own staffing that is
required to carry out the supervision of a full complement of executives
employed and paid by the Riviera Black Hawk.
The Manager may provide certain goods and services, including centralized
computer systems, service bureau payroll/personnel systems, advertising agency
services, centralized purchasing, licensed promotions, trademarks, service
marks, legal services and other similar services on a competitive price/fee
basis.
The management fees will consist of a revenue fee and a performance fee. The
revenue fee will be based on 1% of net revenues (gross revenues less
complimentaries) and is payable quarterly in arrears. The performance fee will
be based on the following percentages of EBITDA (earnings before interest,
taxes, depreciation and amortization, whose components are based on generally
accepted accounting principles): (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 will be paid (based on the
preceding quarter's EBITDA) in quarterly installments subject to year-end
adjustment.
If there is any default under the management agreement, the Manager will not
be entitled to receive management fees, but the Manager will still be entitled
to inter-company goods and services fees.
Intellectual Property License Agreement
We have entered into a royalty-free license agreement with Riviera Operating
Corporation, a subsidiary of Riviera Holdings, for the licensing of the
"Riviera" and other trademarks and trade names. The licensing agreement
terminates at the same time as the management agreement or earlier upon a change
in control of the Manager and, in either case, may be extended by the trustee up
to six months thereafter upon foreclosure of the notes.
Tax Sharing Agreement
Riviera Holdings is the parent of a group of companies which includes
ourselves (the "RHC Group") and files consolidated federal income returns.
Pursuant to the tax sharing agreement, we pay Riviera Holdings an amount equal
to our "separate tax liability." Our separate tax liability is that amount of
federal income tax that we would owe if we were to file a tax return independent
of the RHC Group. If the calculation of our separate tax liability for any year
results in a net operating loss, Riviera Holdings will credit the amount of such
loss against any amount which we might otherwise have to pay to Riviera Holdings
in any future tax year, provided that we remain a part of the RHC Group. Our
obligation to make tax payments pursuant to the tax sharing agreement continues
regardless of whether there has been a default in the payment of the notes.
48
MANAGEMENT
Executive Officers and Directors of the Company
Set forth below are the names, ages and position of each of our officers and
directors as of the date of this prospectus:
Name Age Position
- ---- --- --------
William L. Westerman........ 67 Chairman of the Board of Directors and Chief
Executive Officer
Ronald P. Johnson........... 50 President and Director of the Company
Duane R. Krohn.............. 53 Chief Financial Officer, Secretary, Treasurer
and Director of the Company
The following information summarizes the business experience during at least
the past five years of each of our directors and executives:
William L. Westerman is our Chairman of the Board of Directors and Chief
Executive Officer and has held those positions since August 18, 1997. Mr.
Westerman has been the Chairman of the Board and Chief Executive Officer of
Riviera Holdings since 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 manufacture of flexible packaging for food and pharmaceutical products).
Additionally, Mr. Westerman was named a member of the team responsible for all
of Alusuisse's multi-national packaging operations with annual sales volume in
excess of $1 billion. Mr. Westerman resigned from all his positions with
Alusuisse on June 30, 1991. Mr. Westerman has undergraduate and graduate degrees
in engineering from Lehigh University and from the University of Ohio,
respectively.
Ronald P. Johnson is our President and a Director and has held those
positions since February 1999. Mr. Johnson became Vice President of Gaming
Operations of Riviera Operating Corporation in September 1994, and Executive
Vice President of Gaming Operations of Riviera Operating Corporation on July 1,
1998. Mr. Johnson became Director of Slots of Riviera Operating Corporation 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. Prior to
joining Riviera, Inc., Mr. Johnson held slot management positions with Sands
Hotel & Casino (1989-1991) and Bally's Grand Las Vegas (1986-1989). In addition
to over 12 years of experience in casino operations, Mr. Johnson has 10 years of
experience, serving from 1976 to 1986, in various financial marketing and
administrative management positions in the slot manufacturing industry with
Bally Distributing, Co., International Game Technology and J&T, Inc.
Duane R. Krohn, CPA, is our Chief Financial Officer, Secretary, Treasurer
and a Director and has held those positions since February 1999. Mr. Krohn
assumed the position of Treasurer of Riviera Holdings and Riviera Operating
Corporation on June 30, 1993, and was elected Vice President of Finance of
Riviera Operating Corporation on April 26, 1994, and Executive Vice President of
Finance of Riviera Operating Corporation on July 1, 1998. 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.
Management of the Riviera Black Hawk
We have entered into a management agreement with Riviera Gaming Management
of Colorado, Inc.(the "Manager"), under which the Manager will manage the daily
operations of Riviera Black Hawk. The Manager has hired Tom Guth and Jim Davey
as the General Manager and Director of Slot Operations for Riviera Black Hawk.
In addition, we have successfully recruited four other key executives for
the positions of Director of Finance, Director of Training and Compliance,
Facilities Director and Director of Security and Surveillance. Current
management represents a blend of seasoned
49
management experience from both the Black Hawk/Central City and Las Vegas
markets. The following is a brief summary of the business experience of Tom Guth
and Jim Davey:
Tom Guth recently assumed the position of General Manager for our casino.
Mr. Guth has over 20 years of casino marketing and casino operations experience.
Mr. Guth most recently was Director of Corporate Special Event marketing for the
Boyd Group from September 1998 to March 1999. From July 1992 to May 1998, Mr.
Guth was Vice President, Director of Marketing for the Aladdin Hotel & Casino.
From 1989 to 1992, Mr. Guth was Director of Special Events/Casino Programs for
the Riviera Hotel & Casino. Mr. Guth also has 11 years of experience in casino
operations with the Sahara Tahoe, Golden Nugget and Harrah's casinos.
Jim Davey recently assumed the position of Director of Slot Operations for
our casino. Mr. Davey has over 19 years of experience in slot operations
management, having served in various management positions with the Tropicana,
Imperial Palace, the Riviera Hotel & Casino and the Four Queens in Las Vegas,
Nevada and the Splash casino in Tunica, Mississippi.
50
PRINCIPAL STOCKHOLDERS
We are an indirect wholly-owned subsidiary of Riviera Holdings. The common
stock of Riviera Holdings is traded on the American Stock Exchange. The table
below sets forth information regarding the beneficial ownership of the common
stock of Riviera Holdings as of April 30, 1999, by (1) each person who, to our
knowledge, beneficially owns more than 5% of such common stock, (2) the
directors and executive officers of our company and (3) all directors and
executive officers of Riviera Holdings and its subsidiary, Riviera Operating
Corporation. Each person listed below has sole voting and investment power for
the shares set forth opposite that person's name unless otherwise indicated.
Shares Beneficially Owned+
----------------------------
Name Number Percentage
- ---- ------------- ------------
William L. Westerman(1)(2)............... 504,200 9.5%
Ronald P. Johnson(1)(3).................. 47,750 *
Duane R. Krohn(1)(4)..................... 39,750 *
Robert Vannucci(1)(5)..................... 26,918 *
Jerome P. Grippe(1)(6)................... 24,668 *
Robert R. Barengo(1)(7).................. 9,380 *
Richard L. Barovick(1)................... 10,000 *
James N. Land, Jr.(1).................... 1,500 *
Keyport Life Insurance Co.(8)............. 857,160 16.9
SunAmerica Life Insurance Company(9)...... 756,920 14.9
Morgens Entities:(10)
Betje Partners.......................... 29,360 0.6
Morgens Waterfall Income Partners....... 43,920 0.9
Phoenix Partners, L.P................... 79,440 1.6
Restart Partners, L.P................... 177,997 3.5
Restart Partners II, L.P................ 374,374 7.4
Restart Partners III, L.P............... 298,600 5.9
Endowment Restart LLC................... 261,109 5.2
-------- ----
Total Morgens Entities............... 1,264,800 25.0
James D. Bennett(11)...................... 497,065 9.8
Allen E. Paulson(12)...................... 463,655 9.1
All executive officers and directors as
a group (11 persons)(2)(3)(4)(5)(6)(7)..
- ----------
+ Based on the number of outstanding shares of Riviera Holdings' common stock
on April 30, 1999 and the shares beneficially owned by such persons on
April 30, 1999.
* Less than 1%.
(1) The address for each director and officer of our Company or Riviera
Holdings is c/o Riviera Holdings Corporation, 2901 Las Vegas Boulevard
South, Las Vegas, Nevada 89109.
(2) Includes 240,000 shares which may be acquired within 60 days of April 30,
1999, upon the exercise of outstanding options.
(3) Includes 12,750 shares which may be acquired within 60 days of April 30,
1999, upon the exercise of outstanding options.
(4) Includes 12,750 shares which may be acquired within 60 days of April 30,
1999, upon the exercise of outstanding options.
(5) Includes 12,750 shares which may be acquired within 60 days of April 30,
1999, upon the exercise of outstanding options.
(6) Includes 10,500 shares which may be acquired within 60 days of April 30,
1999, upon the exercise of outstanding options.
(7) Includes 2,400 shares which may be acquired within 60 days of April 30,
1999, upon the exercise of outstanding options.
(8) The address for Keyport Life Insurance Company is 125 High Street, Boston,
Massachusetts 02110. Stein Roe, an affiliate of 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 Exchange Act.
Stein Roe, however, disclaims actual beneficial ownership of such
securities.
51
(9) The address for SunAmerica Life Insurance Company is One Sun America
Center, Century City, California 90067.
(10) The address of Morgens Waterfall is 10 East 50th Street, New York, New York
10022. Morgens Waterfall 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 common stock of
Riviera Holdings. Morgens Waterfall or its principals have the power and
authority to direct this 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 Waterfall, its principals and the
Morgens Entities, however, disclaims beneficial ownership with respect to
any securities not actually beneficially owned by it.
(11) Includes (a) 323,003 shares held by Restructuring Capital Associates, L.P.
and Bennett Restructuring Fund, L.P. and (b) 161,262 shares held by Benett
Offshore Restructuring Fund, Inc. The address for Mr. Bennett is c/o
Restructuring Capital Associates, L.P. is 450 Park Avenue, New York, New
York 10022.
(12) The address for Mr. Paulson is Del Mar Country Club, 6001 Clubhouse Drive,
Rancho Santa Fe, California 92067.
52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the sale of the Existing Notes, Riviera Holdings had contributed
$30.1 million to us for (1) the purchase of the land on which the Riviera Black
Hawk is being constructed and (2) for construction costs under the guaranteed
maximum price construction contract. Of the $30.1 million, Riviera Holdings has
advanced $20.0 million in cash equity contributions and the remaining $10.1
million was reimbursed to Riviera Holdings from the proceeds of the sale of the
Existing Notes.
We have entered into a management agreement with Riviera Gaming Management
of Colorado, Inc. Under this agreement, Riviera Gaming Management of Colorado,
Inc. will manage the operations of our casino. The terms of the management
agreement are described in the section "Material Agreements -- Management
Agreement."
We have entered into a license agreement with Riviera Operating Corporation,
a subsidiary of Riviera Holdings. Under this agreement, we have the right to use
the "Riviera" name and certain other trademarks, copyrights and trade names in
connection with our casino. The terms of the license agreement are described in
the section "Material Agreements -- Intellectual Property License Agreement."
We have entered into a tax sharing agreement with Riviera Holdings. Under
this agreement, Riviera Holdings will file consolidated federal income tax
returns for us as part of a group of companies and we have agreed to pay Riviera
Holdings for our portion of the group's tax liability. The terms of the tax
sharing agreement are described in the section "Material Agreements -- Tax
Sharing Agreement."
53
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Company"
refers only to Riviera Black Hawk, Inc. and not to Riviera Holdings or any of
its direct or indirect subsidiaries other than Riviera Black Hawk, Inc.
The Company issued the Existing Notes under an indenture between itself and
IBJ Whitehall Bank & Trust Company, as trustee, in a private transaction that
was not subject to the registration requirements of the Securities Act. The
terms of the indenture apply to the Existing Notes and to the Exchange Notes for
which you may tender your Existing Notes pursuant to the Exchange Offer (the
Existing Notes and the Exchange Notes being collectively referred to in this
section as the "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 "Trust Indenture Act"). The notes are
secured obligations of the Company. The Collateral Documents referred to under
the caption "Security" define the terms of the collateral that will secure the
notes.
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 any of those agreements in its 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, the Registration Rights Agreement and the
Collateral Documents are available as set forth below under the caption "--
Additional 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.
Brief Description of the Notes
The notes:
o are general obligations of the Company;
o are secured by a first priority lien on substantially all of the
Company's existing and future assets, other than (1) FF&E acquired,
leased or refinanced with FF&E Financing and (2) assets of our future
unrestricted subsidiaries;
o rank pari passu in right of payment to all existing and future senior
Indebtedness of the Company; and
o rank senior in right of payment to any existing and future
subordinated Indebtedness of the Company.
Principal, Maturity and Interest
The Company may issue additional notes from time to time after this
offering. Any offering of additional notes will be subject to the covenant
described below under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock." The notes issued in this offering
and any additional notes subsequently issued under the indenture 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 notes in denominations of $1,000 and integral multiples of $1,000.
The notes will mature on May 1, 2005.
Fixed Interest on the notes will accrue at the rate of 13% per annum and
will be payable semi-annually in arrears on May 1 and November 1 (each an
"Interest Payment Date"), commencing on November 1, 1999. The Company will make
each Fixed Interest payment to the Holders of record on the immediately
preceding April 15 and October 15 (each a "Record Date").
Fixed Interest will accrue from the date of original issuance or, if Fixed
Interest has already been paid, from the date it was most recently paid. Fixed
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
In addition, the notes will bear Contingent Interest after the Riviera Black
Hawk begins Operating. Installments of accrued Contingent Interest will be
payable semi-annually in arrears on each Interest Payment Date after the Riviera
Black Hawk begins Operating to the Holders on the Record Date applicable to the
relevant Interest Payment Date, unless all or a portion of the installment is
permitted to be deferred as described in the next sentence; provided, that no
Contingent Interest is payable with respect to any period prior to the date on
which the Riviera Black Hawk becomes Operating. The Company may defer payment of
all
54
or a portion of any installment of Contingent Interest then otherwise due and
may continue to defer the payment of any installment of Contingent Interest
which has already been deferred if, and only to the extent that:
(1) the payment of that portion of Contingent Interest will cause the
Company's Adjusted Fixed Charge Coverage Ratio for the four
consecutive fiscal quarters ending immediately prior to the applicable
Record Date to be less than 1.5 to 1.0 on a pro forma basis after
giving effect to the assumed payment of the Contingent Interest (but
may not defer such portion, which, if paid, would not cause such
Adjusted Fixed Charge Coverage Ratio to be less than 1.5 to 1.0); and
(2) the principal amount of the notes corresponding to that Contingent
Interest has not then matured and become due and payable, whether at
stated maturity, upon acceleration, upon redemption, upon maturity of
repurchase obligation or otherwise.
Contingent Interest that is deferred will become due and payable, in whole
or in part, upon the earlier of:
(1) the next succeeding Interest Payment Date on which all or a portion of
that Contingent Interest is not permitted to be deferred; and
(2) the maturity of the corresponding principal amount of the notes,
whether at stated maturity, upon acceleration, upon redemption, upon
maturity of repurchase obligation or otherwise.
However, all installments of accrued or deferred Contingent Interest will
become immediately payable with respect to any notes that mature, whether at
stated maturity, upon acceleration, upon redemption, upon maturity of a
repurchase obligation or otherwise.
The amount of Contingent Interest payable for any period will be reduced pro
rata for reductions in the outstanding principal amount of the notes prior to
the close of business on the Record Date immediately preceding the applicable
Interest Payment Date. No interest will accrue on any Contingent Interest that
is deferred and which does not become due and payable.
Each installment of Contingent Interest will be calculated to accrue (each
an "Accrual Period") as follows:
(1) from, but not including, the most recent Semiannual Period for which
Contingent Interest has been paid or through which Contingent Interest
had been calculated and deferred; or
(2) if no installment of Contingent Interest has been paid or deferred,
from and including the date on which the Riviera Black Hawk becomes
Operating;
to, and including, the earlier of:
(a) the last day of the Semiannual Period immediately following the
Semiannual Period referred to in clause (1) above if the corresponding
principal amount of the notes has not become due and payable; or
(b) the date of payment if the corresponding principal amount of the notes
has become due and payable, whether at stated maturity, upon
acceleration, upon redemption, upon maturity of repurchase obligation
or otherwise.
With respect to each Accrual Period, Contingent Interest will accrue daily
on the principal amount of each note outstanding during such period as follows:
(1) for any portion of an Accrual Period which consists of all or part of
a Semiannual Period that ends during such Accrual Period, 1/180 of the
Contingent Interest with respect to such principal amount for such
Semiannual Period until fully accrued; and
(2) for any other portion of an Accrual Period, 1/180 of the Contingent
Interest with respect to such principal amount for the Semiannual
Period that began and last ended after the date on which the Riviera
Black Hawk becomes Operating.
Methods of Receiving Payments on the Notes
55
If a Holder has given wire transfer instructions to the Company, the Company
will pay all principal, Interest, 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 addresses set forth in the
register of Holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. The Company
may change the paying agent or registrar without prior notice to the Holders,
and the Company or may act as paying agent or registrar.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the indenture.
The Registrar and the trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
Security
The notes are secured by a first priority lien on the Collateral which
includes, without limitation and subject to Permitted Liens:
(1) all funds and securities in the Construction Disbursement Account,
the Construction Reserve Account and the Interest Reserve Account;
(2) all of the real property comprising the Riviera Black Hawk,
including all additions, improvements and components related to it and all
issues and profits from it;
(3) all furniture, fixtures and equipment which are part of the Riviera
Black Hawk, other than furniture, fixtures and equipment acquired, leased or
refinanced through FF&E Financing;
(4) to the extent permitted by law, the Construction Contract, the
Architect Agreement, the Completion Capital Commitment, the Keep-Well
Agreement, the License Agreement, the Management Agreement and certain other
agreements entered into by the Company and its Subsidiaries in connection
with the development, construction, ownership and operation of the Riviera
Black Hawk;
(5) all licenses and permits relating to the Riviera Black Hawk, other
than any Gaming License or Liquor License; and
(6) all of the Company's and its Subsidiaries' accounts receivable,
general intangibles, inventory and other personal property, other than
assets of our future unrestricted subsidiaries.
The Riviera Holdings Indenture contains a requirement that, after the
Company is designated as a restricted subsidiary (as that term is defined in the
Riviera Holdings Indenture) of Riviera Holdings, the stock of all then current
and future subsidiaries of the Company and the assets of its current and future
restricted subsidiaries must be pledged to secure the debt evidenced by that
indenture. Therefore, if the Company has, creates or acquires a Subsidiary after
it is designated a restricted subsidiary of Riviera Holdings and the relevant
terms of the Riviera Holdings Indenture were still applicable, a waiver or
consent would have to be acquired with respect to these issues from the holders
of the notes or the holders of the debt evidenced by the Riviera Holdings
Indenture. If such consents were not obtained, an event of default would occur
under Riviera Holdings Indenture.
The security interests may be subordinate to mechanics' liens which may have
priority over the security interest on the real property comprising the Riviera
Black Hawk, including all additions, improvements and components related to it.
The Company
56
will obtain title insurance on the property in favor of the trustee which will
insure against losses from the enforcement of mechanics' liens.
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,
take such action as it deems advisable to protect and enforce its rights in the
Collateral, including the institution of sale or foreclosure proceedings. The
proceeds received by the trustee from any sale or foreclosure will be applied
first to pay the expenses of the sale or foreclosure and fees or any other
amounts then payable to the trustee under the indenture, and thereafter to pay
amounts due and payable with respect to the notes.
The proceeds of any sale of Collateral pursuant to the indenture and the
Collateral Documents following an Event of Default may not be sufficient to
satisfy payments due on the notes. In addition, the ability of the Holders to
realize upon the Collateral may be limited pursuant to gaming, bankruptcy and
other laws, all as described below.
Gaming Law Limitations on Foreclosure
The trustee's ability to foreclose upon the Collateral will be limited by
relevant Colorado gaming laws. These laws require that persons who own or
operate a casino or purchase, possess or sell gaming equipment hold a gaming
license. No person can hold a gaming license in Colorado unless the person is
found qualified or suitable by the relevant gaming authorities. In the event of
a foreclosure upon the Collateral, a gaming authority could require that the
trustee file applications, be investigated and be found qualified or suitable as
an owner or operator of gaming establishments. The trustee would be required to
pay a filing fee and all costs of the investigation. If the trustee is unable or
chooses not to be qualified or found suitable, it would have to retain 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 gaming laws
may limit the number of potential bidders and may delay any sale, either of
which events could have an adverse effect on the sale price of the Collateral.
These restrictions could restrict the trustee's ability to enforce certain
provisions contained in the Collateral Documents and to take certain actions
permitted by the Collateral Documents. Therefore, the practical value of
realizing on the Collateral may, without the appropriate approvals, be limited.
Bankruptcy Limitations on Foreclosure
The right of the trustee to repossess and dispose of 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 prior to the trustee having repossessed and disposed of the
Collateral. Under the Bankruptcy Code, 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. In addition, the Bankruptcy Code 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 bankruptcy 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 bankruptcy court has
broad discretionary powers in all these matters, including the valuation of the
collateral or any other collateral that may be substituted for it. In addition,
since the enforcement of the lien of the trustee in the Collateral consisting of
cash, deposit accounts and cash equivalents may be limited in a bankruptcy
proceeding, the Holders may not have any consent rights with respect to the use
of those funds by the Company or any of its 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 would be compensated for any
delay in payment or loss of value of the Collateral.
Completion Capital Commitment
Riviera Holdings has entered into a Completion Capital Commitment in favor
of the trustee for the benefit of the Holders (the "Completion Capital
Commitment") providing that if:
57
(1) there are insufficient Available Funds (as defined herein) to
complete the development, construction, equipping and opening of the Riviera
Black Hawk so that it is Operating by May 31, 2000;
(2) the Company has provided the trustee and the Independent
Construction Consultant with a written notice that it is unlikely that there
will be sufficient Available Funds to complete the development,
construction, equipping and opening of the Riviera Black Hawk so that it is
Operating by May 31, 2000; or
(3) (a) the Independent Construction Consultant has provided the trustee
and the Company with a written notice that it is unlikely that there will be
sufficient Available Funds (excluding any Additional Revenues (as defined
herein)) to complete the development, construction, equipping and opening of
the Riviera Black Hawk so that it is Operating by May 31, 2000 and (b)
within 10 days of the Company receiving the notice, the Company has not
provided evidence satisfactory to the Independent Construction Consultant
that there will be sufficient Additional Funds (including any Additional
Revenues) to complete the development, construction, equipping and opening
of the Riviera Black Hawk so that it is Operating by May 31, 2000;
then Riviera Holdings will pay into the Construction Disbursement Account cash
in the amounts and at such times as determined by the Independent Construction
Consultant to be necessary to remedy the event; provided that the maximum
aggregate amount of all such payments is $10.0 million. The Independent
Construction Consultant will set forth in a written notice to the Company its
determination of the amounts required to be contributed and the basis of its
determination.
In addition, if the Riviera Black Hawk is not Operating by May 31, 2000,
Riviera Holdings will pay $10.0 million, less any amounts paid into the
Construction Disbursement Account pursuant to the provisions of the previous
paragraph, in cash into the Construction Disbursement Account. Furthermore,
Riviera Holdings will be required to pay $10.0 million, less any amounts paid
into the Construction Disbursement Account pursuant to the provisions of the
previous paragraph, in cash into the Construction Disbursement Account upon (1)
the commencement of a voluntary bankruptcy case by the Company on or prior to
May 31, 2000, (2) the commencement of an involuntary bankruptcy case against the
Company which is not dismissed, bonded or discharged on or prior to the earlier
of (A) 60 days after the commencement and (B) May 31, 2000, or (3) the entry of
an order for relief against the Company on or prior to May 31, 2000, under any
bankruptcy law in effect at any time. Riviera Holdings will not assert any
defenses or setoffs to the payment of those amounts.
"Additional Revenues" means revenue (including, without limitation,
investment income (loss), less any losses or costs associated therewith, earned
on amounts in the Construction Disbursement Account and the Completion Reserve
Account) generated by the Company (other than from disposition of its assets),
but only to the extent that such revenue is held by the Company, free and clear
of any claims of any other parties whatsoever, other than claims of the trustee
and holders of the notes; provided, however, that as of any date of measurement,
Additional Revenue also shall include investment income (loss), less any losses
or costs associated therewith, which the Company reasonably determines (with the
reasonable concurrence of the Disbursement Agent acting in its sole discretion
exercised in good faith) will be earned on funds in the Construction
Disbursement Account and the Completion Reserve Account through the anticipated
date that the Riviera Black Hawk becomes Operating, taking into account the
current and future anticipated rates of return on Government Securities in the
Construction Disbursement Account and the Completion Reserve Account and the
anticipated times and amounts of draws therefrom for the payment of Construction
Expenses or in connection with permitted amendments to the Construction
Disbursement Budget (as applicable).
"Available Funds" means, at any time the sum of:
(1) the proceeds of the issuance of the notes deposited in the
Construction Disbursement Account and the Completion Reserve Account, less
disbursements theretofore made from the Construction Disbursement Account;
(2) so long as there is no Default or Event of Default, Additional
Revenue; and
(3) actual or anticipated FF&E Financing to the extent permitted under
the indenture.
"Realized Savings" means the excess of the amount budgeted in the
Construction Disbursement Budget for a line item over the amount of funds
expended or owed by the Company to complete the tasks set forth in such line
item and for the materials and services used to complete such tasks, in each
case as confirmed by the Independent Construction Consultant, so long as the
terms for such tasks are final and unconditional (other than the satisfactory
completion of such tasks), including without limitation the
58
execution of fixed price purchase orders to acquire the materials that are the
subject of such line item; provided, however, that Realized Savings for any line
item shall be (1) deemed to be zero if such savings are obtained in a manner
that materially detracts from the overall value, quality and amenities of the
Riviera Black Hawk and (2) reduced to the extent previously reallocated in the
Construction Disbursement Budget.
Keep-Well Agreement
Riviera Holdings has entered into a Keep-Well Agreement in favor of the
trustee for the benefit of the Holders (the "Keep-Well Agreement"). The
Keep-Well Agreement provides that:
(1) if, at any time prior to the end of the Fourth Operating Period, (a)
there are not sufficient funds in the Interest Reserve Account to make a
payment of Fixed Interest on the notes and (b) the Company does not have
sufficient funds to make the payment of Fixed Interest, Riviera Holdings
will contribute cash to the Company in an amount necessary to enable the
Company to make such payment; provided that the amount of any such
contribution will be deducted from the amounts that Riviera Holdings is
required to contribute to the Company pursuant to clause (2) below until the
total amount of such contributions are deducted; and
(2) if the Company's Consolidated Cash Flow for an Operating Period is
less than the Target Consolidated Cash Flow for such period, Riviera
Holdings will contribute cash to the Company in an amount equal to the
difference;
provided that the amount contributed with respect to any Operating Period
pursuant to clauses (1) and (2) above will not exceed the Contribution
Limitation and the amounts contributed with respect to all Operating Periods
will not exceed $10.0 million in the aggregate.
"Contribution Limitation" means the product of (1) $1.25 million and (2)
the number of fiscal quarters of Riviera Holdings contained in the relevant
Operating Period.
"First Operating Period" means the period beginning on the first day of
Riviera Holdings' first full fiscal quarter after the Riviera Black Hawk becomes
Operating through and including the last day of the fiscal year of which such
fiscal quarter is a part.
"Fourth Operating Period" means the period immediately following the end of
the Third Operating Period through and including the last day of the full fiscal
quarter of Riviera Holdings ending after the third anniversary of the date on
which the Riviera Black Hawk became Operating.
"Operating Period" means any of the First Operating Period, Second
Operating Period, Third Operating Period or Fourth Operating Period.
"Second Operating Period" means the first fiscal year of Riviera Holdings
after the First Operating Period.
"Target Consolidated Cash Flow" means, for any Operating Period, the product
of (1) $2.25 million and (2) the number of fiscal quarters of Riviera Holdings
contained in such Operating Period.
"Third Operating Period" means the first fiscal year of Riviera Holdings
after the Second Operating Period.
Optional Redemption
At any time prior to May 1, 2001, the Company may redeem up to 35% of the
aggregate principal amount of notes issued under the indenture at a redemption
price of 113% of the principal amount thereof, plus accrued and unpaid Interest
and Liquidated Damages, if any, to the redemption date, with the net cash
proceeds of a Qualified Public Offering; 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 must occur within 45 days of the date of the
closing of such Qualified Public Offering.
59
Except pursuant to the preceding paragraph, the notes will not be redeemable
at the Company's option prior to May 1, 2002.
On or after May 1, 2002, 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, thereon, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 1
of the years indicated below:
Year Percentage
---- ----------
2002...................... 106.50%
2003...................... 103.25%
2004 and thereafter....... 100.00%
Gaming Redemption
Notwithstanding any other provision hereof, if any Gaming Authority requires
a Holder or beneficial owner of notes to be licensed, qualified or found
suitable under any applicable gaming law and such Holder or beneficial owner
fails to apply for a license, qualification or finding of suitability within 30
days after being requested to do so (or such lesser period as required by the
Gaming Authority), or if such Holder or beneficial owner is notified by a Gaming
Authority that it will not be licensed, qualified or found suitable, the Company
will have the right, at its option, to:
(1) require the Holder or beneficial owner to dispose of such Holder's
or beneficial owner's notes within 30 days (or such lesser period as
required by the Gaming Authority) of:
(a) the termination of the period described above for the Holder or
beneficial owner to apply for a license, qualification or finding of
suitability; or
(b) receipt of the notice from the Gaming Authority that the Holder
or beneficial owner will not be licensed, qualified or found suitable by
the Gaming Authority; or
(2) redeem the notes of the Holder or beneficial owner at a redemption
price equal to the lesser of the principal amount thereof or the price at
which the Holder or beneficial owner acquired the notes, together with, in
either case, accrued and unpaid Interest and Liquidated Damages, if any,
thereon to the earlier of the date of redemption or such earlier date as is
required by the Gaming Authority or the date of the finding of unsuitability
by the Gaming Authority, which may be less than 30 days following the notice
of redemption, if so ordered by the Gaming Authority.
Immediately upon a determination by a Gaming Authority that a Holder or
beneficial owner of notes will not be licensed, qualified or found suitable, the
Holder or beneficial owner will not have any further rights with respect to the
notes to:
(1) exercise, directly or indirectly, through any Person, any right
conferred by the notes; and
(2) receive any Interest or any other distribution or payment with
respect to the notes, or any remuneration in any form from the Company for
services rendered or otherwise, except the redemption price of the notes.
The Company is not required to pay or reimburse any Holder or beneficial
owner of notes who is required to apply for such license, qualification or
finding of suitability for the costs relating thereto. Those expenses will be
the obligation of the Holder or beneficial owner.
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
60
If a Change of Control occurs, each Holder will have the right to require
the Company to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) 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, thereon, to the date of purchase. Within 10 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 such notice, which date shall 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 thereunder to the extent such laws and regulations 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
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 thereof 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 thereof so tendered; and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by the
Company.
The Paying Agent will promptly mail to each Holder of notes so 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 such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. 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 regardless of
whether 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 to require that the Company
repurchase or redeem 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 set forth
in the indenture applicable to a Change of Control Offer made by the Company and
purchases all notes validly tendered and not withdrawn under such 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
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 such 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 Subsidiaries taken as a whole to another Person or
group may be uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) the Riviera Black Hawk is Operating;
61
(2) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(3) such 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 Officers' Certificate delivered to the trustee; and
(4) at least 80% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash or Cash Equivalents.
For purposes of this provision, each of the following shall be deemed to be
cash:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the notes) 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,
within 30 days of receipt, are converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received in
that conversion).
Within 180 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds to make a capital expenditure, improve
real property or acquire long-term assets that are used or useful in a line of
business permitted by the covenant described below under the caption "-- Certain
Covenants -- Line of Business"; provided that the Company or such Subsidiary, as
the case may be, grants to the trustee, on behalf of the Holders, a first
priority perfected security interest on any such property or assets acquired or
constructed with the Net Proceeds of any such Asset Sale on the terms set forth
in the indenture and the Collateral Documents. Pending the final application of
any such Net Proceeds, the Company may invest such Net Proceeds in Cash
Equivalents which will be pledged to the trustee as security for the notes.
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 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 such Excess Proceeds
for any purpose not otherwise prohibited by the indenture and the Collateral
Documents. If the aggregate principal amount of notes and such other pari passu
Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the trustee shall select the notes and such other pari passu
Indebtedness to be purchased on a pro rata basis based on the principal amount
of notes and such other pari passu Indebtedness tendered. Upon completion of
each Asset Sale Offer, the amount of Excess Proceeds shall 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 such 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 Sales
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.
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.
Events of Loss
Within 360 days after any Event of Loss with respect to any Collateral with
a fair market value (or replacement cost, if greater) in excess of $1.0 million,
the Company or the affected Restricted Subsidiary of the Company, as the case
may be, may apply the Net Loss Proceeds from such Event of Loss to the
rebuilding, repair, replacement or construction of improvements to the Riviera
Black Hawk, with no concurrent obligation to make any purchase of any notes;
provided that:
62
(1) the Company delivers to the trustee within 60 days of such Event of
Loss a written opinion from a reputable architect that the Riviera Black
Hawk with at least the Minimum Facilities can be rebuilt, repaired, replaced
or constructed and Operating within 360 days of the Event of Loss;
(2) an Officers' Certificate certifying that the Company has available
from Net Loss Proceeds or other sources sufficient funds to complete the
rebuilding, repair, replacement or construction described in clause (1)
above; and
(3) the Net Loss Proceeds are less than $20.0 million.
If the Net Loss Proceeds to be used for rebuilding, repair, replacement or
construction exceed $5.0 million, then the Net Loss Proceeds will be deposited
in the Construction Disbursement Account and disbursed in accordance with the
procedures set forth in the Cash Collateral and Disbursement Agreement. Any Net
Loss Proceeds that are not reinvested or not permitted to be reinvested as
provided in the first sentence of this paragraph will be deemed "Excess Loss
Proceeds."
When the aggregate amount of Excess Loss Proceeds exceeds $5.0 million, the
Company will make an offer to all Holders (an "Event of Loss Offer") to purchase
the maximum principal amount of notes that may be purchased out of the Excess
Loss Proceeds, at a purchase price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid Interest and Liquidated
Damages, if any, thereon to the date of purchase. The date of purchase will not
be less than 30 or more than 60 days from the date of the Event of Loss Offer.
If the aggregate principal amount of notes tendered pursuant to an Event of Loss
Offer exceeds the Excess Loss Proceeds, the trustee will select the notes to be
purchased in the manner described below under the caption "-- Selection and
Notice." If the aggregate amount of notes tendered pursuant to any Event of Loss
Offer is less than the Excess Loss Proceeds, the Company may, subject to the
other provisions of the indenture and the Collateral Documents, use any
remaining Excess Loss Proceeds for general corporate purposes. Upon completion
of any such Event of Loss Offer, the amount of Excess Loss Proceeds shall be
reset at zero.
Pending any permitted rebuilding, repair, replacement or construction or the
completion of any Event of Loss Offer, the Company or the affected Restricted
Subsidiary, as the case may be, will pledge to the trustee as additional
Collateral any Net Loss Proceeds or other cash on hand required for such
permitted rebuilding, repair, replacement or construction pursuant to the terms
of the Collateral Documents. These pledged funds will be released to the Company
to pay for or reimburse the Company for the actual cost of such permitted
rebuilding, repair, replacement or construction, or such Event of Loss Offer,
pursuant to the terms of the Collateral Documents. Pending the final application
of the Net Loss Proceeds, such proceeds will be invested in Cash Equivalents
which will be pledged to the trustee as security for the notes. The Company or
the applicable Restricted Subsidiary will grant to the trustee, on behalf of the
Holders, a first priority lien, subject to Permitted Liens, on any property or
asset rebuilt, repaired, replaced or constructed with such Net Loss Proceeds on
the terms set forth in the indenture and the Collateral Documents.
The indenture also provides that with respect to any Event of Loss pursuant
to clause (4) of the definition of "Event of Loss" that has a fair market value
(or replacement cost, if greater) in excess of $5.0 million, the Company (or the
affected Restricted Subsidiary, as the case may be), will be required to receive
consideration at least (1) equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the trustee) of the assets subject to the Event of Loss and (2) at
least 90% of which is in the form of Cash Equivalents.
Excess Cash Purchase Offers
Within 120 days after each Operating Year of the Company, beginning with the
first Operating Year after the Riviera Black Hawk becomes Operating, the Company
will make an offer to all Holders (the "Excess Cash Flow Offer") to purchase the
maximum principal amount of notes that is an integral multiple of $1,000 that
may be purchased with 50% of the Company's Excess Cash Flow in respect of the
Operating Year then ended (the "Excess Cash Flow Offer Amount"), at a purchase
price in cash equal to 101% of the principal amount of the notes to be
purchased, plus accrued and unpaid Interest and Liquidated Damages, if any,
thereon to the date fixed for the closing of the Excess Cash Flow Offer (the
"Excess Cash Flow Purchase Price"), in accordance with the indenture. The Excess
Cash Flow Offer will be required to remain open for 20 Business Days following
its commencement and no longer, except to the extent that a longer period is
required by law. Upon the expiration of that period, the Company will apply the
Excess Cash Flow Offer Amount to the purchase of all notes tendered at the
Excess Cash Flow Offer Purchase Price. If the aggregate principal amount of
notes tendered pursuant to an Excess Cash Flow Offer exceeds the Excess Cash
Flow Offer Amount with respect
63
thereto, the trustee will select the notes to be repurchased in the manner
described below under "-- Selection and Notice." If the aggregate amount of
notes tendered pursuant to any Excess Cash Flow Offer is less than the Excess
Cash Flow Offer Amount, the Company may, subject to the other provisions of the
indenture and the Collateral Documents, use any remaining Excess Cash Flow for
general corporate purposes.
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, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by
such method as the trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall 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. 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 shall state the portion of the principal amount thereof 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 thereof 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 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 any
capacity (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable 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 direct or indirect parent of the Company;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is pari passu
with or subordinated to the notes, except a payment of interest or principal
at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other
actions set forth in 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) the Riviera Black Hawk is Operating;
(2) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(3) 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
64
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
(4) 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) through (7) 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 (other than pursuant to the Completion Capital Commitment, the
Keep-Well Agreement and ]any contribution to the Company from Riviera
Holdings of the net proceeds of a Qualified Public Offering which are
used to repurchase notes) 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 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.
With respect to any payments made pursuant to clauses (1) through (7) below,
so long as no Default has occurred and is continuing or would be caused thereby
and, with respect to any payments made pursuant to clause (8) below, no Event of
Default or Default in the payment when due of any principal, Interest, premium
or Liquidated Damages on the notes shall have occurred or be continuing or would
occur as a consequence thereof, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness or 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 shall be excluded from clause (4)(b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of pari
passu or subordinated Indebtedness of the Company with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment to Riviera Management of amounts owing to it pursuant to
Section 3.4 (for reimbursement of goods and services provided) and Article 4
(for the payment of management fees) of the Management Agreement as in
effect on the date of the indenture, subject to the terms of the Manager
Subordination Agreement relating thereto between Riviera Management and the
trustee and subject to the requirement that all such payments are made in
compliance with the covenant described below under the caption "Restriction
on Payment of Management Fees;" provided, however, that payments may be made
pursuant to Section 3.4 of the Management Agreement whether or not a Default
has occurred and is continuing or would be caused thereby;
(5) any redemption required pursuant to the provisions of the indenture
described under the caption "-- Gaming Redemption" above;
(6) the repayment by the Company to Riviera Holdings on the date of the
indenture of the Riviera Advance;
65
(7) the payment by the Company to Riviera Holdings at any time after the
Riviera Black Hawk has been Operating for 180 consecutive days equal to the
amount contained in the Completion Reserve Account at the end of that period
if the Company's Fixed Charge Coverage Ratio for its most recently ended
four fiscal quarters after the date on which the Riviera Black Hawk became
Operating for which internal financial statements are available immediately
preceding the date on which such payment is to be made is at least 1.5 to 1;
provided that if at the time of such payment the Riviera Black Hawk has been
Operating for less than four fiscal quarters, such Fixed Charge Coverage
Ratio will be calculated with respect to the number of full fiscal quarters
(but in no event less than one full fiscal quarter) for which internal
financial statements are available following the date the Riviera Black Hawk
first became Operating; and
(8) the payment by the Company of amounts owing to Riviera Holdings
pursuant to Sections 3 and 5 of the Tax Sharing Agreement as in effect on
the date of the indenture.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued to or 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 shall be determined by the Board of Directors whose resolution with
respect thereto shall 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 shall deliver to the trustee an Officers'
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 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
Subsidiaries to issue any shares of preferred stock; provided, however, that, so
long as no Default or Event of Default has occurred and is continuing, the
Company may incur Indebtedness (including Acquired Debt) or issue Disqualified
Stock, if:
(1) the Riviera Black Hawk is Operating;
(2) 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 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
(3) the Weighted Average Life to Maturity of such Indebtedness is
greater than the remaining Weighted Average Life to Maturity of the notes.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of Indebtedness so long as no Default or Event of Default
has occurred and is continuing (collectively, "Permitted Debt"):
(1) the incurrence by the Company and its Subsidiaries of (a)
Indebtedness represented by the notes to be issued on the date of the
indenture and the Exchange Notes 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;
(2) 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 (1), (2),
(6), (8) or (10) of this paragraph;
66
(3) 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) such Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the notes; 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 thereof, (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 thereof shall 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 (3) and (iii) if any Restricted Subsidiary
is the obligor on such Indebtedness, such Indebtedness is represented by
an Intercompany Note that is pledged to the trustee as security for the
notes;
(4) the incurrence by the Company or any of the 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 this indenture to be outstanding;
(5) the incurrence by the Company of Indebtedness solely in respect of
performance or similar bonds or standby letters of credit; provided that any
such bond or standby letter of credit is incurred in the ordinary course of
the Company's business in an aggregate amount not to exceed $2.0 million at
any one time outstanding; and provided, further, that any such bond or
standby letter of credit is incurred on terms customary for operations
similar to the Company's;
(6) the incurrence by the Company of FF&E Financing; provided, however,
that (a) the principal amount of such Indebtedness does not exceed the cost
(including sales and excise taxes, installation and delivery charges and
other direct costs of, and other direct expenses paid or charged in
connection with, such purchase) of the FF&E purchased or leased with the
proceeds thereof, (b) no Indebtedness incurred under the notes is utilized
for the purchase or lease of such FF&E and (c) the aggregate principal
amount of such Indebtedness, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause, does not exceed $15.0 million outstanding
at any time;
(7) bond or surety obligations posted by the Company or any of its
Subsidiaries in order to prevent the loss or material impairment of or to
obtain a Gaming License or as otherwise required by an order of any Gaming
Authority to the extent required by applicable law and consistent in
character and amount with customary industry practice so long as such
Indebtedness does not result in, and is not secured by, a Lien on any of the
Collateral;
(8) the incurrence by the Company of Indebtedness solely in respect of
Special Assessment Bonds, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred pursuant
to this clause, and standby letters of credit or surety bonds required to be
issued in connection therewith, in an aggregate amount not to exceed
$400,000;
(9) the Guarantee by the Company or a Restricted Subsidiary of
Indebtedness permitted to be incurred by another provision of this covenant;
(10) the incurrence by the Company or any of its Restricted Subsidiaries
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, not to exceed $2.0 million;
and
(11) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company that was not permitted by this clause (11).
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 shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Company solely
by virtue of being unsecured.
67
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (8) 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 in any
manner that complies with this covenant.
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, or any proceeds, income or
profits therefrom or assign or convey any right to receive income therefrom,
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
(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 notes, the indenture or the Collateral Documents;
(2) the Riviera Holdings Indenture as in effect on the date of the
indenture;
(3) applicable law;
(4) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(5) 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;
(6) the acquisition of the Capital Stock of any Person, or property or
assets of any Person by the Company or any Restricted Subsidiary, if the
encumbrances or restrictions (a) existed at the time of the acquisition and
were not incurred in contemplation thereof and (b) are not applicable to any
Person or the property or assets of any Person other than the Person
acquired or the property or assets of the Person acquired; or
(7) purchase money obligations or capital lease obligations for FF&E
acquired with FF&E Financing that impose restrictions of the type described
in clause (3) of the first paragraph of this covenant on the FF&E so
acquired.
Merger, Consolidation or Sale of Assets
The Company may not, directly or indirectly (1) consolidate or merge with or
into another Person (whether or not the Company 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:
68
(1) either (a) the Company is the surviving corporation or (b) 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 shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of the Company under the notes, the indenture and the
Collateral Documents pursuant to a supplemental indenture in a form
reasonably satisfactory to the trustee; 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 result in the loss or suspension or
material impairment of any Gaming License unless a comparable replacement
Gaming License is effective prior to or simultaneously with such loss,
suspension or material impairment;
(5) 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 shall have been made:
(a) will 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) will, 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"; and
(6) 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.
In addition, the Company may not, 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 its Wholly
Owned Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its 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) such 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 Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with this covenant and that such Affiliate Transaction has been approved
unanimously by the Board of Directors; and
69
(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 Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) payments made pursuant to the Completion Capital Commitment, the
Keep-Well Agreement, the Management Agreement, the License Agreement and the
Tax Sharing Agreement, in each case as in effect on the date of the
indenture;
(2) purchases of goods and services in the ordinary course of business;
(3) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business on terms
customary in the gaming industry;
(4) transactions between or among the Company and/or its Restricted
Subsidiaries;
(5) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "-- Restricted Payments;" and
(6) reasonable fees and compensation (including, without limitation,
bonuses, retirement plans and securities, stock options and stock ownership
plans) paid or issued to and indemnities provided on behalf of, officers,
directors, employees or consultants of the Company or any Restricted
Subsidiary in the ordinary course of business.
Subject to the clauses (1) through (6) in the immediately preceding
paragraph, the Company will not make any loans, advances or other payments to
Riviera Holdings, except as permitted pursuant to the provisions of the
indenture, including covenant described above under the caption "Restricted
Payments."
Construction
The Company will construct the Riviera Black Hawk, including the furnishing,
fixturing and equipping thereof, with diligence and continuity in a good and
workmanlike manner substantially in accordance with the Plans to which the
Company is a party and in accordance with the Cash Collateral and Disbursement
Agreement.
Limitations on Use of Proceeds
The Company deposited $5.1 million of the net proceeds from the sale of the
Existing Notes into the Interest Reserve Account, $31.9 million of the net
proceeds from the sale of the Existing Notes in the Construction Disbursement
Account and $5.0 million of the net proceeds from the sale of the Existing Notes
in the Completion Reserve Account. The funds in the Interest Reserve Account,
the Construction Disbursement Account and the Completion Reserve Account will be
invested solely in Government Securities. All funds in the Cash Collateral
Accounts will be disbursed only in accordance with the Cash Collateral and
Disbursement Agreement.
Limitation on Status as Investment Company
The Company and its Subsidiaries are prohibited from being required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation under the Investment Company Act of 1940.
Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; provided that the Company may
enter into a sale and leaseback transaction if:
70
(1) the Company could have (a) incurred Indebtedness in an amount equal
to the Attributable Debt relating to such sale and leaseback transaction
under the Fixed Charge Ratio Test in the first paragraph of the covenant
described above under the caption "-- Incurrence of Additional Indebtedness
and Issuance of Preferred Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under the caption "--
Liens";
(2) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to
the trustee, of the property that is the subject of such sale and leaseback
transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--
Repurchase at the Option of Holders -- Asset Sales."
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 Restricted Subsidiary must become a Guarantor and execute a supplemental
indenture and deliver an Opinion of Counsel to the trustee within ten Business
Days of the date on which it was acquired or created.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by the Company and its Restricted Subsidiaries in
the Subsidiary so designated will be deemed to be an Investment made as of the
time of such 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 applicable. All
such outstanding Investments will be valued at their fair market value at the
time of such designation. That designation will only be permitted if such
Restricted Payment would be permitted at that time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The
Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if the redesignation would not cause a Default.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries
to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests
in any Wholly Owned Restricted Subsidiary of the Company to any Person (other
than the Company or a Wholly Owned Restricted Subsidiary of the Company),
unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset
Sales."
In addition, the Company will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests to any Person
other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company.
Line of Business
The Company will not, and will not permit any Subsidiary to, engage in any
business or investment activities other than the Permitted Business. Neither the
Company nor any of its Subsidiaries may conduct a Permitted Business in any
gaming jurisdiction in which the Company or such Subsidiary is not licensed on
the date of the indenture if the holders of the notes would be required to be
licensed as a result thereof; provided that the provisions described in this
sentence will not prohibit the Company or any of its Subsidiaries from
conducting a Permitted Business in any jurisdiction that does not require the
licensing or qualification of all the Holders, but reserves the discretionary
right to require the licensing or qualification of any Holders. The Company will
not, and will
71
not permit any of its Subsidiaries to, engage in any business, development or
investment activity other than at or in conjunction with the Riviera Black Hawk
until the Riviera Black Hawk is Operating.
Advances to Subsidiaries
All advances to Restricted Subsidiaries made by the Company after the date
of the indenture will be evidenced by unsecured Intercompany Notes in favor of
the Company. These Intercompany Notes will be pledged to the trustee as
Collateral to secure the notes. Each Intercompany Note will be payable upon
demand and will bear interest at the same rate as the notes. Repayments of
principal with respect to any Intercompany Notes will be required to be pledged
to the trustee as Collateral to secure the notes until such amounts are advanced
to a Restricted Subsidiary in accordance with the indenture.
Insurance
Until the notes have been paid in full, the Company will, and will cause its
Restricted Subsidiaries to, maintain 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, and, with respect to
insurance on the Collateral, will have provided insurance certificates
evidencing such insurance to the trustee on or prior to the Closing Date and
will thereafter provide such certificates prior to the anniversary or renewal
date of each such policy, which certificate shall expressly state the expiration
date for each policy. Customary insurance coverage shall be deemed to include
the following:
(1) workers' compensation insurance to the extent required to comply
with all applicable state, territorial or United States laws and
regulations, or the laws and regulations of any other applicable
jurisdiction;
(2) comprehensive general liability insurance with minimum limits of
$1.0 million;
(3) umbrella or excess liability insurance providing excess liability
coverages over and above the foregoing underlying insurance policies up to a
minimum limit of $25.0 million;
(4) business interruption insurance at all times on and after the
Riviera Black Hawk is Operating; and
(5) property insurance protecting the property against loss or damage by
fire, lightning, windstorm, tornado, water damage, vandalism, riot,
earthquake, civil commotion, malicious mischief, hurricane and such other
risks and hazards as are from time to time covered by an "all-risk" policy
or a property policy covering "special" causes of loss; provided, that such
insurance will provide coverage of not less than the lesser of (a) 120% of
the outstanding principal amount of the notes plus accrued and unpaid Fixed
Interest and (b) 100% of actual replacement value (as determined at each
policy renewal based on the F.W. Dodge Building Index or some other
recognized means) of any improvements customarily insured consistent with
industry standards and, in each case, with a deductible no greater than 2%
of the insured value of the Riviera Black Hawk or such greater amount as is
available on commercially reasonable terms (other than earthquake or flood
insurance, for which the deductible may be up to 10% of such replacement
value).
All insurance required by this covenant (except worker's compensation) will
name the Company and the trustee as additional insureds or loss payees, as the
case may be, with losses in excess of $1.0 million payable jointly to the
Company and the trustee (unless a Default or Event of Default has occurred and
is then continuing, in which case all losses are payable solely to the trustee),
with no recourse against the trustee for the payment of premiums, deductibles,
commissions or club calls, and for at least 30 days notice of cancellation. All
such insurance policies will be issued by carriers having an A.M. Best &
Company, Inc. rating of A or higher and a financial size category of not less
than X, or if such carrier is not rated by A.M. Best & Company, Inc., having the
financial stability and size deemed appropriate by an opinion from a reputable
insurance broker. The indenture will provide that the Company will deliver to
the trustee on the Closing Date and each anniversary thereafter a certificate of
an insurance agent stating that the insurance policies obtained by the Company
and its Restricted Subsidiaries comply with this covenant and the related
applicable provisions of the Collateral Documents.
Collateral Documents, Completion Capital Commitment and Keep-Well Agreement
72
Neither the Company nor any of its Restricted Subsidiaries will amend, waive
or modify, or take or refrain from taking any action that has the effect of
amending, waiving or modifying any provision of any of the Collateral Documents,
the Completion Capital Commitment or the Keep-Well Agreement, to the extent that
such amendment, waiver, modification or action could reasonably be expected to
have an adverse effect on the rights of the trustee or the Holders; provided
that:
(1) the Collateral may be released or modified as expressly provided
in the indenture and in the Collateral Documents;
(2) the Plans and the Construction Disbursement Budget may be amended as
expressly provided in the Cash Collateral and Disbursement Agreement; and
(3) the indenture and any of the Collateral Documents may be otherwise
amended, waived or modified as set forth below under the caption "--
Amendment, Supplement and Waiver."
Restriction on Payment of Management Fees
The Company will not, directly or indirectly, pay to Riviera Management or
any of its Affiliates any Management Fees, except pursuant to the Management
Agreement as in effect on the date of, and in accordance with, the indenture.
Amounts payable pursuant to the Management Agreement will not be prepaid, and no
payment of Management Fees, either current or accrued, will be made if at the
time of payment of such Management Fees:
(1) a Default or an Event of Default shall have occurred and be
continuing or shall occur as a result thereof; or
(2) the Company's Fixed Charge Coverage Ratio for its most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such Management Fee is
proposed to be paid would have been less than 1.5 to 1 (calculated on a pro
forma basis after deducting Management Fees to the extent paid in cash and
not deferred and any Management Fees deferred from a prior period proposed
to be paid in cash during such period, but excluding any Management Fees
deferred or accrued and not paid in cash during such period).
With respect to periods following the date the Riviera Black Hawk first
becomes Operating and prior to the time when internal financial statements are
available for four full fiscal quarters following the date the Riviera Black
Hawk first becomes Operating, such Fixed Charge Coverage Ratio will be
calculated with respect to the number of full fiscal quarters (but in no event
less than one full fiscal quarter) for which internal financial statements are
available following the date the Riviera Black Hawk first becomes Operating. Any
Management Fees not permitted to be paid pursuant to this covenant will be
deferred and will accrue and may be paid only at such time that they would
otherwise be permitted to be paid hereunder. The right to receive payment of the
Management Fee will be subordinate in right of payment to the right of the
Holders to receive payments pursuant to the notes. The Company will not amend
the Management Agreement to increase amounts to be paid thereunder, or in any
other manner which would be adverse to the Company or the Holders, including
without limitation, to amend the method of computing the Management Fee;
provided, however, that the foregoing shall not prohibit any amendment required
by any Gaming Law or Gaming Authority.
Further Assurances
The Company will, and will cause each of its Restricted Subsidiaries to do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, as applicable, any and all such further acts, deeds, conveyances,
security agreements, mortgages, assignments, estoppel certificates, financing
statements and continuations thereof, termination statements, notices of
assignment, transfers, certificates assurances and other instruments as may be
required from time to time in order to:
(1) carry out more effectively the purposes of the Collateral Documents;
(2) subject to the Liens created by any of the Collateral Documents any
of the properties, rights or interests required to be encumbered thereby;
(3) to perfect and maintain the validity, effectiveness and priority of
any of the Collateral Documents and the Liens intended to be created
thereby; and
73
(4) to better assure, convey, grant, assign, transfer, preserve, protect
and confirm to the trustee any of the rights granted now or hereafter
intended by the parties thereto to be granted to the trustee or under any
other instrument executed in connection therewith or granted to the Company
under the Collateral Documents or under any other instrument executed in
connection therewith.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the notes unless
such consideration is offered to be paid and is paid to all Holders that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, the Company will furnish to the Holders, 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 has agreed that,
for so long as any notes remain outstanding, it 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.
Cash Collateral and Disbursement Agreement
Pursuant to the Cash Collateral and Disbursement Agreement, $42.0 million of
the net proceeds from the sale of the Existing Notes were placed into the Cash
Collateral Accounts and invested in Government Securities. All funds and
securities in the Cash Collateral Accounts have been pledged as security for the
repayment of the notes. Funds in the Cash Collateral Accounts will be disbursed
pursuant to the Cash Collateral and Disbursement Agreement.
Construction Disbursement Account
The Company deposited $31.9 million of the net proceeds from the sale of the
Existing Notes in the Construction Disbursement Account, of which $10.1 million
was used to reimburse Riviera Holdings for amounts advanced to us to cover
construction and development costs. The Disbursement Agent will invest these
funds in Government Securities which will be held in the Construction Reserve
Account until the funds are needed from time to time to pay for the development,
construction and opening of the Riviera Black Hawk and other operating expenses
of the Company. These funds will be disbursed in accordance with the Cash
Collateral and Disbursement Agreement. Subject to certain exceptions set forth
in the Cash Collateral and Disbursement Agreement, the Disbursement Agent will
authorize the disbursement of funds from the Construction Disbursement Account
only
74
upon the satisfaction of the disbursement conditions set forth in the Cash
Collateral and Disbursement Agreement. These conditions include the requirement
that the Company deliver to the Disbursement Agent and the Independent
Construction Consultant a certificate certifying that:
(1) no Default or Event of Default exists under the indenture or the
Cash Collateral and Disbursement Agreement;
(2) the request is in compliance with the Cash Collateral and
Disbursement Agreement, as then in effect;
(3) the construction undertaken to the date of the request conforms with
the Plans;
(4) with respect to Soft Costs (as defined in the Cash Collateral and
Disbursement Agreement), the disbursements are for the purposes set forth in
the appropriate line items of the Construction Disbursement Budget in the
amounts indicated (all as set forth in an accompanying schedule identifying
each party to be paid (or specifying that such payment is for budgeted
working capital expenses) and the purpose for which each payment is
requested, together with the Construction Disbursement Budget line item
relating to each such payment) and will not cause the total expenditure with
respect to such line item to exceed the amount budgeted therefor;
(5) with respect to Hard Costs (as defined in the Cash Collateral and
Disbursement Agreement), the disbursements are appropriate based on invoices
tendered for work that has been completed and the amount of stored
materials, and that the lien releases accompanying the certificate are all
of the lien releases required by the Cash Collateral and Disbursement
Agreement;
(6) the purposes to which the requested funds will be applied following
disbursement;
(7) the Construction Disbursement Budget as then in effect continues to
portray accurately in all material respects all costs to be incurred in
completing the Riviera Black Hawk; and
(8) after giving effect to the requested disbursement, the Available
Funds, together with any funds contributed into the Construction
Disbursement Account pursuant to the Completion Capital Commitment, will be
sufficient to complete the Riviera Black Hawk in accordance with the
aggregate amounts (and line items) set forth in the Construction
Disbursement Budget, as amended to date, on or before the Operating
Deadline.
In addition, the Disbursement Agent will have received from the Independent
Construction Consultant a certificate certifying that the Independent
Construction Consultant has reviewed such disbursement request, has inspected
the Riviera Black Hawk during the previous month and concurs with certain of the
certifications made by the Company in the disbursement request; provided,
however, that, with respect to Soft Costs, the Independent Construction
Consultant will not condition the certification upon any determination as to the
quality, kind or scope of Soft Costs or the party providing the applicable
services, but only as to adequate availability for each such disbursement
request in the applicable line item.
The Cash Collateral and Disbursement Agreement will permit advance
disbursements of up to $1.5 million in the aggregate outstanding at any time,
regardless of whether all disbursement conditions have been satisfied, so long
as the Company delivers to the Disbursement Agent and the Independent
Construction Consultant a certificate certifying:
(1) that no Default or Event of Default exists under the indenture or
the Cash Collateral and Disbursement Agreement;
(2) the purposes to which the requested funds will be applied following
disbursement;
(3) that, after giving effect to the requested disbursement, the
remaining amounts in each respective line item not yet disbursed are
sufficient to cover all costs within such line item to be paid or incurred
on or before the Operating Deadline; and
(4) that, after giving effect to the requested disbursement, no more
than $1.5 million of such advances will be outstanding.
In addition, the Disbursement Agent will have received from the Independent
Construction Consultant a certificate certifying that the Independent
Construction Consultant has reviewed such disbursement request, has inspected
the Riviera Black Hawk during the previous month and concurs with certain of the
certifications made by the Company in the disbursement request.
75
Completion Reserve Account
The Company deposited $5.0 million of the net proceeds from the sale of the
Existing Notes into the Completion Reserve Account. The Disbursement Agent will
invest these funds in Government Securities which will be held in the Completion
Reserve Account until the funds are needed from time to time to ensure
completion of construction of the Riviera Black Hawk. The Disbursement Agent
will authorize the disbursement of funds from the Completion Reserve Account to
the Construction Disbursement Account only upon the satisfaction of the
disbursement conditions set forth in the Cash Collateral and Disbursement
Agreement. These conditions include the requirement that the Company deliver to
the Disbursement Agent and the Independent Construction Consultant a certificate
certifying that:
(1) the funds will be applied in accordance with the indenture;
(2) the funds will be used for the sole purposes permitted pursuant to
the Cash Collateral and Disbursement Agreement with respect to funds in the
Construction Disbursement Account;
(3) the circumstances causing the cost of completing the Riviera Black
Hawk to exceed the amounts previously forecast in the Construction
Disbursement Budget, and that such circumstances were not reasonably
expected as of the last date of amendment of the Construction Disbursement
Budget (or if none, the date of issuance of the notes);
(4) an amendment to the Construction Disbursement Budget confirming the
revised estimated costs to complete the Riviera Black Hawk (which amendment
satisfies the conditions for Construction Disbursement Budget amendments);
(5) after giving effect to the requested disbursement, there will be
sufficient Available Funds, together with any funds contributed into the
Construction Disbursement Account pursuant to the Completion Capital
Commitment, to complete the Riviera Black Hawk in accordance with the
Construction Disbursement Budget, as amended, on or before the Operating
Deadline; and
(6) no Default or Event of Default under the Cash Collateral and
Disbursement Agreement or the indenture has occurred and is continuing.
In addition, the Disbursement Agent must have received from the Independent
Construction Consultant a certificate certifying that the Independent
Construction Consultant has reviewed the disbursement request, has inspected the
Riviera Black Hawk during the previous month and concurs with certain of the
certifications made by the Company in the disbursement request. After any
disbursement of funds from the Completion Reserve Account to the Construction
Disbursement Account, the Company must comply with all requirements of the Cash
Collateral and Disbursement Agreement relating to disbursement of funds from the
Construction Disbursement Account.
Interest Reserve Account
The Company deposited $5.1 million of the net proceeds from the sale of the
Existing Notes into the Interest Reserve Account. These funds will be in an
amount sufficient to purchase Government Securities which, upon receipt of
scheduled interest and principal payments, in the opinion of the Chief Financial
Officer of the Company as set forth in an officer's certificate, will provide
for payment in full of the Fixed Interest on the notes through May 1, 2000. The
Disbursement Agent has invested these funds in Government Securities which will
be held by the Disbursement Agent in the Interest Reserve Account. The
Disbursement Agent invested approximately (1) $2.3 million of the funds in
Government Securities having a maturity date on or before the date which is one
business day prior to November 1, 1999 and (2) $2.8 million of the funds in
Government Securities having a maturity date on or before the date which is one
business day prior to May 1, 2000.
Immediately prior to the first two payments of Fixed Interest due on the
notes, the Disbursement Agent shall release from the Interest Reserve Account
funds sufficient to pay that interest. If any funds remain in the Interest
Reserve Account after each of these first two payments of Fixed Interest are
made, the trustee will release such funds to the Construction Disbursement
Account.
Amendments to the Construction Disbursement Budget
76
The Construction Disbursement Budget may be amended only if the Company
delivers to the Disbursement Agent and the Independent Construction Consultant a
certificate certifying:
(1) as to the circumstances giving rise to the amendment, and that the
circumstances were not reasonably expected as of the date of the last
amendment of the Construction Disbursement Budget (or if none, the date of
issuance of the notes);
(2) that, after giving effect to the amendment, the Construction
Disbursement Budget will in all material respects accurately portray all
costs to be incurred in completing the Riviera Black Hawk;
(3) that, after giving effect to the amendment, the Available Funds,
together with any funds contributed into the Construction Disbursement
Account pursuant to the Completion Capital Commitment, will be sufficient to
complete the Riviera Black Hawk in accordance with the aggregate amounts
(and line items) set forth in the Construction Disbursement Budget on or
before the Operating Deadline; and
(4) that no Default or Event of Default exists under the indenture or
the Cash Collateral and Disbursement Agreement.
In addition, the Disbursement Agent will have received from the Independent
Construction Consultant a certificate certifying that the Independent
Construction Consultant has reviewed the proposed amendment, has inspected the
Riviera Black Hawk during the previous month and concurs with certain of the
certifications made by the Company.
In addition, the Cash Collateral and Disbursement Agreement provides that
construction line items may only be reduced upon delivery to the Disbursement
Agent of evidence that the completion of the work represented by such line item
will be completed for a total cost less than the amount set forth in the
Construction Disbursement Budget, and that any such savings (1) are not being
obtained in a manner that, as confirmed by the Independent Construction
Consultant, will result in a material lessening of the scope or quality of the
work constituting the design or construction of the Riviera Black Hawk and (2)
will be reallocated (by amendment to the Construction Disbursement Budget) to
other line items in the Construction Disbursement Budget, whether Hard Costs,
Soft Costs or otherwise.
Excess Funds
If any funds remain in the Construction Disbursement Account on the date
that the Riviera Black Hawk has been Operating for at least 30 consecutive days
and (1) there is no ongoing construction (other than maintenance and repairs in
the ordinary course of business and other than construction associated with the
Riviera Black Hawk in an aggregate amount not to exceed $250,000) in connection
with the Riviera Black Hawk and (2) no Default or Event of Default exists under
the indenture or the Collateral Documents, the Disbursement Agent will, upon the
direction of the Company, subject to certain exceptions set forth in the Cash
Collateral and Disbursement Agreement, disburse all remaining funds, if any, in
the Construction Disbursement Account to any account or accounts specified by
the Company.
If any funds remain in the Completion Reserve Account on the date that the
Riviera Black Hawk has been Operating for at least 180 consecutive days and (1)
there is no ongoing construction (other than maintenance and repairs in the
ordinary course of business) in connection with the Riviera Black Hawk and (2)
no Default or Event of Default exists under the indenture or the Collateral
Documents, the Disbursement Agent will, upon the direction of the Company,
subject to certain exceptions set forth in the Cash Collateral and Disbursement
Agreement, disburse all remaining funds, if any, in the Completion Reserve
Account to any account or accounts specified by the Company. During the 180
consecutive day period, the Company may (1) use amounts in the Completion
Reserve Account for working capital or other permitted construction purposes in
connection with the Riviera Black Hawk and (2) replenish the Completion Reserve
Account for all such amounts used for working capital expenses.
Events of Default
An event of default will exist under the Cash Collateral and Disbursement
Agreement if any of the following shall occur:
(1) a Default or Event of Default occurs and is continuing under the
indenture;
77
(2) the Disbursement Agent, after appropriate consultation with the
Company and the Independent Construction Consultant, does not approve a
request for a disbursement of over $50,000 or an amendment to the
Construction Disbursement Budget where the aggregate amount that is the
subject of the amendment is over $50,000, and such failure continues for a
period of 30 days;
(3) the Independent Construction Consultant, in reviewing prior
disbursements, reports an exception in excess of $50,000 and such exception
continues for a period of ten days;
(4) if at any time the amount of Available Funds, together with any
funds contributed into the Construction Disbursement Account pursuant to the
Completion Capital Commitment, is less than the amount required in the
Construction Disbursement Budget to cause the Riviera Black Hawk to be
Operating on or before the Operating Deadline and such deficiency continues
for a period of 30 days from notice thereof;
(5) the Company fails to perform or observe any of its obligations under
Section 10.1 of the Cash Collateral and Disbursement Agreement regarding,
among other things, application of the proceeds of the notes (and such
failure continues for five days after notice thereof) or Section 10.2 of the
Cash Collateral and Disbursement Agreement regarding, among other things,
substitution of accounts;
(6) the Company fails to deliver documents necessary to perfect the
trustee's security interest in the Construction Disbursement Account, the
Completion Reserve Account, the Interest Reserve Account and the investments
in each and such failure continues for a period of five days;
(7) the Company ceases to own the property upon which the Riviera Black
Hawk is to be constructed, or the Company abandons the Riviera Black Hawk or
otherwise ceases to pursue the operations of the Riviera Black Hawk in
accordance with standard industry practice or sells or otherwise disposes of
its interest in the Riviera Black Hawk, except as permitted by the covenant
in the indenture described under the caption "-- Certain Covenants --
Merger, Consolidation or Sale of Assets";
(8) any construction document relating to the Riviera Black Hawk with a
total contract amount of more than $100,000 is terminated, becomes invalid
or illegal, or otherwise ceases to be in full force and effect, provided
that with respect to any such construction document other than the
Construction Contract and the Architect Agreement, no event of default shall
be deemed to have occurred under the Cash Collateral and Disbursement
Agreement as a result of such termination if (a) the Company provides
written notice to the Independent Construction Consultant immediately upon
(but in no event more than two business days after) the Company's becoming
aware of such construction document ceasing to be in full force or effect
that the Company intends to replace such construction document (or that such
replacement is not necessary) and (b) in each case if in the reasonable
judgment of the Independent Construction Consultant a replacement is
necessary, (i) the Company obtains a replacement obligor or obligors
reasonably acceptable to the Independent Construction Consultant, and (ii)
the Company enters into a replacement construction document on terms no less
beneficial to the Company and the trustee than then current market terms
within 60 days of such termination; or
(9) the Independent Construction Consultant reasonably determines that
the Riviera Black Hawk is likely to become Operating no earlier than 60 days
after the Operating Deadline.
If an event of default exists under the Cash Collateral and Disbursement
Agreement and the Disbursement Agent has received written notice thereof, the
Disbursement Agent will not be permitted to authorize the disbursement of funds
from the Construction Disbursement Account or the Completion Reserve Account,
provided that the Disbursement Agent may continue to disburse funds from the
Construction Reserve Account or the Completion Reserve Account (1) in an amount
up to $1.5 million (or such other amount as the trustee approves by written
notice to the Disbursement Agent) if necessary to prevent the condition of the
Riviera Black Hawk from deteriorating or to preserve work completed on the
Riviera Black Hawk, (2) to pay for work already completed or materials already
purchased, (3) to pay for retainage amounts if an event of default continues for
three consecutive months or more or (4) under certain conditions, to make
Interest payments on the notes.
Events of Default and Remedies
Each of the following is an Event of Default under the indenture:
78
(1) default for 30 days in the payment when due of Interest on, or
Liquidated Damages with respect to, the notes; provided that payments of
Contingent Interest that are permitted to be deferred as provided in the
indenture will not become due for this purpose until such payment is
required to be made pursuant to the terms of the indenture;
(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 -- Incurrence of Indebtedness and
Issuance of Preferred Stock," "-- Certain Covenants -- Merger, Consolidation
or Sale of Assets" or "Limitation on Use of Proceeds;"
(4) failure by the Company or any of its Restricted Subsidiaries for 30
days after notice thereof to comply with the provisions described under the
caption "-- Certain Covenants -- Restricted Payments" and any of the other
agreements in the indenture not set forth in clause (3) above;
(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 now
exists, or is created 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 Restricted 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
(7) breach by the Company or any of its Affiliates of any representation
or warranty in any material respect in the Collateral Documents or any
certificates delivered in connection therewith, failure by the Company or
any of its Affiliates for 30 days (or such other period as specifically
provided therein) after notice thereof to comply with any covenant or
agreement set forth in the Collateral Documents, the repudiation by the
Company of any of its obligations under the Collateral Documents, the
unenforceability of the Collateral Documents against the Company or the loss
of the perfection or priority of the Liens granted by the Company thereunder
for any reason;
(8) certain events of bankruptcy or insolvency with respect to the
Company or any of its Restricted Subsidiaries;
(9) revocation, termination, suspension or other cessation of
effectiveness for a period of more than 90 consecutive days of any Gaming
License which results in the cessation or suspension of gaming operations at
any Gaming Facility;
(10) default by Riviera Holdings in the performance of its obligations
set forth in, or repudiation of its obligations under, the Completion
Capital Commitment or the Keep-Well Agreement; or
(11) the failure of the Riviera Black Hawk to be Operating by the
Operating Deadline or to remain Operating thereafter, except (a) as the
hours of operation of the Riviera Black Hawk may be limited by any Gaming
Authority or Gaming Law or (b) for a period of time not to exceed 30 days
during any 45-day period and not to exceed 60 days during any one-year
period; provided, however, that, in any event, there shall not be an Event
of Default under this clause if the failure to remain Operating during such
period results from an Event of Loss pursuant to the terms of the indenture.
79
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. 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 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 notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or Interest or Liquidated Damages) if it
determines that withholding notice is in their interest.
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.
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 shall 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 May 1, 2002,
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 May 1, 2002, then the premium specified in the
indenture shall 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.
Remedies upon Default Under the Notes
The trustee will be required to initiate a foreclosure against the
Collateral in order to enforce its rights under certain of the Collateral
Documents. A foreclosure against the Collateral will be subject to certain
notice and other procedural limitations.
Enforcement of Collateral Documents
If an Event of Default occurs, the trustee, acting on behalf of the Holders,
may enforce its rights and remedies under the indenture and the Collateral
Documents. These remedies include foreclosing upon and selling the Collateral,
including commencing a judicial proceeding to seek a monetary judgment against
the Company and foreclosing on the Deed of Trust. Foreclosing on the Deed of
Trust can be accomplished either through a summary proceeding involving the
trustees named in the Deed of Trust (the public trustee of Gilpin County,
Colorado and the trustee) upon presentation of the "original evidence of debt"
(as required by Colorado law) or by judicial foreclosure. A judicial foreclosure
can be more time consuming and more costly to pursue than a public trustee
foreclosure. However, once an order for sale is obtained in a judicial
foreclosure, the procedure and rights regarding cure, bidding, public sale and
redemption are similar to those in a public trustee foreclosure. These remedies
may be pursued simultaneously in Colorado.
In certain instances, it may be necessary to pursue a judicial foreclosure.
For example, the Deed of Trust will indicate that a legended and originally
executed indenture held by the trustee will be the "original evidence of debt"
for purposes of Colorado law. If the public trustee refuses to acknowledge such
indenture as the "original evidence of debt" and, instead, requires the delivery
of all original outstanding notes, the trustee may be required to resort to the
institution of judicial foreclosure proceedings if all such notes, or adequate
indemnities, are not delivered. Judicial foreclosure proceedings are independent
actions brought in a court of law and are governed by the traditional rules of
evidence. As a result, in a judicial foreclosure, the trustee, while not
necessarily having to present the "original evidence of debt," would need to
prove to the court under the traditional rules of evidence the existence and
owing of the debt. In such case, the Deed of Trust and indenture are likely to
constitute evidence of the debt. Judicial foreclosure could also be necessitated
by such matters as the discovery of defects in the Deed of Trust, issues
regarding priority, challenges to title to the property or the existence of a
dispute which may lead to the sale being enjoined or otherwise challenged.
80
The Deed of Trust purports to provide the trustee with certain rights and
remedies, such as allowing the trustee to take possession of the encumbered
property, to collect rents immediately upon default, without the appointment of
a receiver, and to obtain the appointment of a receiver, as a matter of right,
upon ex parte application. Certain remedies, however, such as purported waivers
of rights of redemption or cure prior to default, are against public policy in
Colorado and are thus limited or unenforceable. Applicable law also may impose a
duty of good faith and fair dealing on the trustee, which may need to be
considered in the exercise of rights and remedies on default. Certain other
provisions or remedies under the Deed of Trust may be additionally qualified or
limited by applicable law, which will not interfere with the practical
realization of the benefits of the security interest intended, provided the
trustee acts in good faith and in a commercially reasonable manner.
Due to the legal restrictions on the ability to engage in gaming activities
in gaming jurisdictions and the state restrictions on the retail sale of
alcoholic beverages, the trustee may incur delays or possibly frustration in its
efforts to sell all or a portion of the Collateral. Operators of gaming
facilities and liquor licensed establishments are required to be licensed by
Gaming Authorities and Liquor Licensing Authorities, respectively, and may be
required by Gaming Authorities and Liquor Licensing Authorities to file
applications, to be investigated and to be found suitable as owners, operators
or landlords of a gaming establishment and a retail liquor licensed
establishment. Such requirements for approval by Gaming Authorities and Liquor
License Authorities may delay or preclude a sale of the Collateral to a
potential buyer at a foreclosure sale or sales. This may effectively limit the
number of potential bidders and may delay such sales, either of which could
adversely affect the sale price of the Collateral. In addition, the disposition
of Collateral consisting of gaming devices, including slot machines, will
require licensure of the person in possession or buyer by the applicable Gaming
Authority. Also, gaming activities must cease if the operator does not have a
right to possession of the premises and is not licensed or found suitable by
Gaming Authorities. Moreover, the gaming industry and retail liquor sale
industry could become subject to a different or additional regulations during
the term of the notes, which could further adversely affect the practical rights
and remedies that the trustee would have upon the occurrence of an event of
default under the notes or the indenture.
In addition to being subject to gaming law and liquor law restrictions, the
trustee's ability to foreclose upon and sell Collateral will be subject to the
procedural and other restrictions of state real estate law or the Uniform
Commercial Code. In addition, certain direct or indirect leasehold interests,
contracts and other assets may not be sold without the consent of certain third
parties.
The ability to foreclose upon and dispose of Collateral directly or
indirectly securing the notes is also likely to be significantly impaired or
delayed by applicable bankruptcy laws if a bankruptcy case were to be commenced
by or against the Company. Under applicable bankruptcy laws, the trustee and the
Holders would be prohibited from foreclosing upon or taking possession or
disposing of the Collateral absent bankruptcy court approval. Moreover, the
Company would be permitted to retain and use Collateral as long as the trustee
and the Holders are being provided "adequate protection" in the form of a cash
payment or periodic cash payments or an additional or replacement lien or in
some other form approved by the bankruptcy court in its discretion. While this
requirement is generally intended to protect the value of the security, it
cannot be predicted what form of "adequate protection" might be approved by the
bankruptcy court in the particular case. The bankruptcy court has broad
discretionary powers in all these matters, including the valuation of
Collateral. In view of these considerations, it is not possible to predict for
how long payments on the notes would be delayed following the filing of a
bankruptcy case, whether or when the trustee could foreclose upon or take
possession of or sell the Collateral or to what extent the Holders would be
compensated for any delay in payment or loss of value of the Collateral.
After application of proceeds of any foreclosure sale to the Indebtedness,
the trustee may be entitled to a deficiency judgment under certain
circumstances. There can be no assurance, however, the trustee would be
successful in obtaining any deficiency judgment, what the amount of any such
judgment, if obtained, might be, or that the Company would be able to satisfy
any such judgment, if obtained.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
notes, the indenture, the Collateral Documents or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder 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
81
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("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 obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants shall 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 "Events of Default" will
no longer constitute an Event of Default with respect to the notes. In addition,
the Liens securing the Collateral will be released upon Covenant Defeasance or
Legal 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, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, and Fixed Interest, the maximum amount
payable as Contingent 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 shall have 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 shall 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 shall have 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 shall have occurred and be 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);
(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
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(6) the Company must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
82
(7) the Company must deliver to the trustee an Officers' 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.
Notwithstanding the above, the trustee shall deliver or pay to the Company
from time to time upon the request of the Company any cash or non-callable
Government Securities held by it as provided in the third paragraph of this
section which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
trustee (which may be the opinion delivered under clause (1) of the third
paragraph of this section), are in excess of the amount thereof that would then
be required to be deposited to effect a Legal Defeasance or Covenant Defeasance.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the indenture or
the notes 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 the Holders of at least 66 2/3% in aggregate
principal amount of the notes then outstanding, an amendment or waiver may not
affect the Liens in favor of the trustee and the Holders created under the
Collateral Documents in a manner adverse to the Holders or release all or
substantially all of the Collateral, in each case, other than pursuant to the
release of Collateral in accordance with the provisions of the indenture and of
the applicable Collateral Documents.
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);
(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; or
(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").
Notwithstanding the preceding, without the consent of any Holder of notes,
the Company and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
83
(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.
Concerning the Trustee
If the trustee becomes a creditor of the Company, 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
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be 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 shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Anyone who receives this Offering Memorandum may obtain a copy of the
indenture, each of the Collateral Documents and Registration Rights Agreement
without charge by writing to Riviera Black Hawk, Inc., Riviera Hotel & Casino,
2901 Las Vegas Boulevard South, Las Vegas, NV 89109, Attention: Executive Vice
President of Finance.
Book-Entry, Delivery and Form
Except as described in the next paragraph, the Existing Notes were, and the
Exchange Notes will be, initially issued in the form of one or more Global Notes
(the "Global Notes"). The Global Notes will be deposited on the date of the
closing of this offering with, or on behalf of, The Depository Trust Company
("DTC") and registered in the name of Cede & Co., as nominee of DTC (such
nominee being referred to herein as the "Global Note Holder").
Notes that are issued as described below under the caption "-- Certificated
Notes" will be issued in the form of registered definitive certificates (the
"Certificated Notes"). Upon the transfer of Certificated Notes, Certificated
Notes may, unless all Global Notes have previously been exchanged for
Certificated Notes, be exchanged for an interest in the Global Note representing
the principal amount of notes being transferred, subject to the transfer
restrictions set forth in the indenture.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the
principal amount of the Global Notes; and
84
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants
and the Indirect Participants (with respect to other owners of beneficial
interest in the Global Notes).
Prospective purchasers are advised that the laws of some states require that
certain Persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer beneficial interests in a Global
Note to such Persons will be limited to such extent. For certain other
restrictions on the transferability of the notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any notes, the
Global Note Holder will be considered the sole Holder under the indenture of any
notes evidenced by the Global Notes. Beneficial owners of notes evidenced by the
Global Notes will not be considered the owners or Holders thereof under the
indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the trustee thereunder. Neither the
Company nor the trustee will have any responsibility or liability for any aspect
of the records of DTC or for maintaining, supervising or reviewing any records
of DTC relating to the notes.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of the
Global Note Holder on the applicable record date will be payable by the trustee
to or at the direction of the Global Note Holder in its capacity as the
registered Holder under the indenture. Under the terms of the indenture, the
Company and the trustee will treat the Persons in whose names the notes,
including the Global Notes, are registered as the owners thereof for the purpose
of receiving payments and for all other purposes. Consequently, neither the
Company, the trustee nor any agent of the Company or the trustee has or will
have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the trustee or the Company. Neither the Company
nor the trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the notes, and the Company and the
trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Certificated Notes
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon prior written request to the trustee, exchange such
beneficial interest for notes in the form of Certificated Notes. Upon any such
issuance, the trustee is required to register such Certificated Notes in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof). All such Certificated Notes will be subject to the
legend requirements described under "Notice to Investors." In addition, if:
(1) DTC (a) notifies the Company that it is unwilling or unable to
continue as depositary for the Global Notes and the Company fails to appoint
a successor depositary or (b) has ceased to be a clearing agency registered
under the Exchange Act;
(2) the Company, at its option, notifies the trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the notes;
then, upon surrender by the Global Note Holder of its Global Note, notes in such
form will be issued to each person that the Global Note Holder and DTC identify
as being the beneficial owner of the related notes.
85
Neither the Company nor the trustee will be liable for any delay by the
Global Note Holder or DTC in identifying the beneficial owners of notes and the
Company and the trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or DTC for all purposes.
Same Day Settlement and Payment
The Company will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) by wire transfer of immediately available funds to the accounts
specified by the Global Note Holder. The Company will make all payments of
principal, interest and premium and Liquidated Damages, if any, with respect to
Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address. The notes
represented by the Global Notes are eligible to trade in the PORTAL market and
are expected to trade in DTC's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such notes will, therefore, be
required by DTC to be settled in immediately available funds. The Company
expects that secondary trading in any Certificated Notes will also be settled in
immediately available funds.
Registration Rights; Liquidated Damages
The following description 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. See "Available Information."
The Company and the Initial Purchaser entered into the Registration Rights
Agreement on June 3, 1999. Pursuant to the Registration Rights Agreement, the
Company agreed to file with the Commission the Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
Exchange Notes. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company 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 is 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:
(a) it is prohibited by law or Commission policy from participating
in the Exchange Offer;
(b) that it 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
(c) that it is a broker-dealer and owns notes acquired directly from
the Company or an affiliate of the Company,
the Company will file with the Commission a shelf registration statement to
cover resales of the notes by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the shelf
registration statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
86
For purposes of the preceding, "Transfer Restricted Securities" means each
Note until the earliest of:
(1) the date on which such Note has been exchanged by a Person other
than a broker-dealer for an Exchange Note in the Exchange Offer;
(2) following the exchange by a broker-dealer in the Exchange Offer of a
Note for an Exchange Note, the date on which such Exchange 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 Note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf registration
statement; and
(4) the date on which such Note is distributed to the public pursuant to
Rule 144 under the Securities Act.
The Registration Rights Agreement provides:
(1) the Company will file an Exchange Offer Registration Statement
with the Commission on or prior to 45 days after the sale of the Existing
Notes;
(2) the Company will use its best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or prior to
150 days after the sale of the Existing Notes;
(3) unless the Exchange Offer would not be permitted by applicable law
or Commission policy, the Company will
(a) commence the Exchange Offer; and
(b) use its 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, Exchange Notes in exchange for all notes tendered prior
thereto in the Exchange Offer; and
(4) if obligated to file the shelf registration statement, the Company
will use its best efforts to file the shelf registration statement with the
Commission on or prior to 45 days after such filing obligation arises and to
cause the shelf registration to be declared effective by the Commission on
or prior to 150 days after such obligation arises.
If:
(1) the Company fails to file any of the registration statements
required by the Registration Rights Agreement on or before the date
specified for such filing;
(2) any of such registration statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date");
(3) the Company fails to consummate the Exchange Offer within 45
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement; or
(4) the Exchange Offer Registration Statement or the shelf 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 will pay Liquidated Damages to each Holder, 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.
87
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 on each Interest
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
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. Reference
is made 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.
"Adjusted Fixed Charge Coverage Ratio" means, with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Subsidiaries for such period to Adjusted Fixed Charges of such Person and its
Subsidiaries for such period (calculated in the same manner as the Fixed Charge
Coverage Ratio is calculated).
"Adjusted Fixed Charges" means, with respect to any Person for any period,
the Fixed Charges of such Person and its Subsidiaries for such period plus any
Contingent Interest accrued with respect to the Consolidated Cash Flow of such
Person and its Subsidiaries for such period.
"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, shall mean the possession, directly or
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 shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Architect Agreement" means the Standard Form of Agreement Between Owner and
Architect for the design of the Riviera Black Hawk executed by Melick
Associates, Inc. and the Company dated July 29, 1998 (as amended, modified or
supplemented from time to time).
"Asset Sale" means:
88
(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 Restricted
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 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; and
(2) the issuance of Equity Interests by any of the Company's Restricted
Subsidiaries or the sale of Equity Interests by the Company in any of its
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $250,000;
(2) a transfer of assets between or among the Company and its Wholly
Owned Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary;
(4) the sale, lease or exchange of equipment, inventory, accounts
receivable or other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "-- Certain Covenants --
Restricted Payments"; and
(7) the granting of a Permitted Lien.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"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" shall 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" shall 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 thereof 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;
89
(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 Collateral Accounts" means, collectively, the Construction
Disbursement Account, the Interest Reserve Account, the Completion Reserve
Account and the Disbursed Funds Account (as defined in the Cash Collateral and
Disbursement Agreement).
"Cash Collateral and Disbursement Agreement" means the Cash Collateral and
Disbursement Agreement among the Company, the trustee, the Independent
Construction Consultant and the Disbursement Agent in connection with the
Riviera Black Hawk.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) 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 Riviera Holdings and its Subsidiaries taken as a
whole to any "person" (as that term is used in Section 13(d)(3) of the
Exchange Act), other than one or more of the Existing Significant Holders or
any of their Related Parties;
(2) the expiration or termination of the Management Agreement or the
replacement of Riviera Management as manager under the Management Agreement
with any Person other than an Affiliate of Riviera Management;
(3) the adoption of a plan relating to the liquidation or dissolution,
of the Company or Riviera Holdings or any successor thereto;
(4) 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 one or more of the Existing Significant Holders
and any of their respective Related Parties, becomes the Beneficial Owner,
directly or indirectly, of (a) more than 35% of the outstanding Voting Stock
of the Riviera Holdings, measured by voting power rather than number of
shares and (b) a greater percentage of the outstanding
90
Voting Stock of Riviera Holdings than is Beneficially Owned by the Existing
Significant Holders and of their respective Related Parties holding the
largest such percentage;
(5) the first day on which a majority of the members of the Board of
Directors of Riviera Holdings are not Continuing Directors;
(6) Riviera Holdings consolidates with, or merges with or into, any
Person or sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, Riviera Holdings, in any such
event pursuant to a transaction in which any of the outstanding Voting Stock
of Riviera Holdings is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of
Riviera Holdings 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); or
(7) the first day on which Riviera Holdings ceases to own at least 51%
of the outstanding Equity Interests of the Company.
"Collateral" means all assets, now owned or hereafter acquired, of the
Company or any of its Subsidiaries, that are pledged or assigned, or required to
be pledged or assigned under the indenture or the Collateral Documents, to the
trustee, together with the proceeds thereof (including, without limitation, the
proceeds of Asset Sales), in each case excluding FF&E acquired, refinanced or
leased with FF&E Financing, gaming and liquor licenses and certain other
exceptions and assets of future unrestricted subsidiaries of the Company.
"Collateral Documents" means, collectively, the Deed of Trust, the Security
Agreement by the Company in favor of the trustee, the Assignments of Patent,
Trademark and Copyright made by the Company in favor of the trustee, the
Collateral Assignments by the Company in favor of the trustee, the Cash
Collateral and Disbursement Agreement, the Pledge Agreement by the Company in
favor of the trustee, the Pledge and Assignment Agreement by the Company in
favor of the trustee, the Manager Subordination Agreement, Uniform Commercial
Code financing statements and fixture filings, and any other agreements,
instruments, documents, pledges or filings executed in connection therewith or
that otherwise evidence, set forth or limit the Lien of the trustee or the
Disbursement Agent in the Collateral.
"Completion Capital Commitment" means the Completion Capital Commitment
dated as of the date of the indenture executed by Riviera Holdings and the
Company.
"Completion Reserve Account" means the account maintained by the
Disbursement Agent and pledged to the trustee pursuant to the terms of the Cash
Collateral and Disbursement Agreement, into which $5.0 million of the net
proceeds from the sale of the Existing Notes was deposited.
"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 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 any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, 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
91
(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, other than pre-opening expenses, 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 Restricted Subsidiary of the Company shall 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 Restricted 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 Restricted
Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the specified Person or a Wholly Owned Restricted Subsidiary
thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions
by that Restricted 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 Restricted 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 shall be
excluded;
(4) the Net Income (but not loss) of any Unrestricted Subsidiary shall
be excluded, whether or not distributed to the specified person or one of
its Subsidiaries;
(5) the Net Income of any Person and its Restricted Subsidiaries shall
be calculated without any deduction for preopening expenses determined in
accordance with GAAP; and
(6) the cumulative effect of a change in accounting principles shall be
excluded.
"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.
"Construction Contract" means the Standard Form of Agreement Between Owner
and Contractor for the construction of the Riviera Black Hawk executed by The
Weitz Company, Inc. and the Company, dated December 29, 1997 (as amended,
modified or supplemented from time to time).
92
"Construction Disbursement Account" means the account maintained by the
Disbursement Agent and pledged to the trustee pursuant to the terms of the Cash
Collateral and Disbursement Agreement, into which $31.9 million of the net
proceeds from the sale of the Existing Notes was deposited.
"Construction Disbursement Budget" means itemized schedules setting forth on
a line item basis all of the costs (including financing costs) estimated to be
incurred in connection with the financing, design, development, construction and
equipping of the Riviera Black Hawk, as such schedules are delivered to the
Disbursement Agent on the Closing Date and as amended from time to time in
accordance with the terms of the Cash Collateral and Disbursement Agreement.
"Contingent Interest" means interest payable on each Interest Payment Date
with respect to any principal amount of outstanding notes in an amount equal to
the product of (1) 5% of the Company's Consolidated Cash Flow for its two most
recently completed fiscal quarters prior to the Record Date applicable to that
Interest Payment Date and (2) a fraction, the numerator of which is the
principal amount of notes outstanding on the close of business on that Record
Date and the denominator of which is $45.0 million; provided, that Contingent
Interest will cease to accrue during a Semiannual Period on any principal amount
of outstanding notes if the aggregate amount of Contingent Interest in respect
of any four consecutive fiscal quarters (excluding any Contingent Interest
deferred from prior periods) exceeds the product of (a) $1.75 million and (b) a
fraction, the numerator of which is such principal amount of outstanding notes
and the denominator of which is $45.0 million.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of Riviera Holdings 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.
"Deed of Trust" means the Deed of Trust to the Public Trustee, Security
Agreement, Fixture Filing and Assignment of Rents, Leases and Leasehold
Interests dated as of the date of the indenture, by the Company to the Public
Trustee of the County of Gilpin, Colorado, for the benefit of the trustee.
"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.
"Disbursement Agent" means IBJ Whitehall Bank and Trust Company, as
disbursement agent.
"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 thereof), 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
thereof, 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 thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall 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), any of the following: (1) any loss, destruction
or damage of such property or asset; (2) any institution of any proceedings for
the condemnation or seizure of such property or asset or for the exercise of any
right of eminent domain; (3) 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 (4) any settlement in lieu of clauses (2) or (3) above.
"Excess Cash Flow" means, with respect to the Company for any Operating
Year, the Consolidated Cash Flow of the Company and its Subsidiaries for such
Operating Year, minus (1) Fixed Interest (including the portion of any payments
associated with Capital
93
Lease Obligations) of the Company and its Subsidiaries that is paid during such
Operating Year and, without duplication, Contingent Interest of the Company and
its Subsidiaries that is paid or deferred in accordance with the provisions of
the indenture during such Operating Year, but only to the extent that such
Contingent Interest was not deferred in any prior Operating Year, minus (2) up
to $4.0 million in capital expenditures of the Company and its Subsidiaries paid
to maintain or improve the Riviera Black Hawk that are actually paid during such
Operating Year (excluding any capital expenditures made with the proceeds from
the sale of the notes), minus (3) principal payments on Indebtedness permitted
to be incurred pursuant to the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock" and minus (4)
amounts paid by the Company to Riviera Holdings pursuant to the Tax Sharing
Agreement as in effect on the date of the indenture.
"Existing Significant Holder" means the Morgens Entities named in this
prospectus, Sun America Life Insurance Company and Keyport Life Insurance
Company.
"FF&E" means furniture, fixtures or equipment used in the ordinary course of
the business of the Company and its Subsidiaries.
"FF&E Financing" means the incurrence of Indebtedness, the proceeds of which
are utilized solely to finance the acquisition of (or entry into a capital lease
by the Company or a Subsidiary with respect to) FF&E.
"Final Plans" with respect to any particular work or improvement means Plans
which (1) have received final approval from all governmental authorities
required to approve such Plans prior to completion of the work or improvements
and (2) contain sufficient specificity to permit the completion of the work or
improvement.
"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 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 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 shall 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 shall 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 shall 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, shall 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, shall 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.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense (excluding Contingent Interest, if
any, paid or accrued) of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued, excluding amortization of debt
issuance costs and issuance discounts in connection with the issuance of the
notes, but 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
94
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, 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 Restricted 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 Interest" means the fixed interest payable on the notes.
"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 federal government, any foreign government, any state, province or city
or other political subdivision or otherwise, whether now or hereafter in
existence, including the Colorado Limited Gaming Commission and the Colorado
Division of Gaming, and any other applicable gaming regulatory authority with
authority to regulate any gaming operation (or proposed gaming operation) owned,
managed or operated by the Company, Riviera Holdings, Riviera Management or any
of their respective Subsidiaries.
"Gaming Facility" means any tangible building or other structure used or
expected to be used to enclose space in which a gaming operation is conducted
and (1) is wholly or partially owned, directly or indirectly, by the Company or
any Restricted Subsidiary of the Company or (2) any portion or aspect of which
is managed or used, or expected to be managed or used, by the Company or a
Restricted Subsidiary of the Company.
"Gaming Law" means the gaming laws of any jurisdiction or jurisdictions to
which the Company or any of its Subsidiaries is, or may at any time after the
date of the indenture, be subject.
"Gaming License" means any license, permit, franchise or other authorization
from any Gaming Authority necessary on the date of the indenture or at any time
thereafter to own, lease, operate or otherwise conduct the business of the
Company or any of its Restricted Subsidiaries.
"Government Securities" means securities that are:
(1) direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged; or
(2) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the timely payment
of which is unconditionally guaranteed as a full faith and credit obligation
by the United States of America;
which, in either case, are not callable or redeemable at the option of the
issuer thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act of 1933, as amended), as
custodian with respect to any such Government Security or a specific payment of
principal of or interest on any such Government Security held by such custodian
for the account of the holder of such depository receipt; provided that (except
as required by law) such custodian is not authorized to
95
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Security or the specific payment of principal of or interest on the Government
Security evidenced by such depository receipt.
"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.
"Guarantor" means any Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the indenture.
"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, in respect of:
(1) borrowed money, including accrued and unpaid Contingent Interest;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) 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 shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Independent Construction Consultant" means the independent construction
consultant retained in connection with the construction of the Riviera Black
Hawk, or any successor independent construction consultant appointed by the
trustee pursuant to the terms of the Cash Collateral and Disbursement Agreement.
"Intercompany Notes" means the intercompany notes issued by Subsidiaries of
the Company in favor of the Company to evidence advances by the Company in the
form attached to the indenture.
"Interest" means Fixed Interest and Contingent Interest, if any.
96
"Interest Reserve Account" means the account maintained by the Disbursement
Agent and pledged to the trustee pursuant to the terms of the Cash Collateral
and Disbursement Agreement, into which $5.1 million of the net proceeds from the
sale of the Existing Notes was deposited.
"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 Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary 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 Restricted Subsidiary of the
Company of a Person that holds an Investment in a third Person shall be deemed
to be an Investment by the Company or such Restricted Subsidiary in such third
Person in an amount equal to the fair market value of the Investment 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."
"Keep-Well Agreement" means the Keep-Well Agreement dated as of the date of
the indenture executed by Riviera Holdings and the Company.
"License Agreement" means the Trademark License Agreement dated as of the
date of the indenture, between Riviera Operating Corporation, a Nevada
corporation, and the Company.
"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.
"Liquor License" means any license, permit, franchise or other authorization
from any Liquor Licensing Authority necessary on the date of the indenture or at
any time thereafter to own, lease, operate or otherwise conduct the retail,
restaurant or other entertainment facilities of the Company or any of its
Restricted Subsidiaries in the manner described in this Circular.
"Liquor Licensing Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States federal government, any foreign government, any state,
province or city or other political subdivision or otherwise, whether now or
hereafter in existence, including the Colorado Liquor Enforcement Division and
the City of Black Hawk Liquor Licensing Authority and any other applicable
liquor licensing regulatory authority with authority to regulate any liquor
licensed operation (or proposed liquor licensed operation) owned, managed or
operated by the Company, Riviera Holdings, Riviera Management or any of their
respective Subsidiaries.
"Management Agreement" means the Management Agreement dated as of the date
of the indenture, between the Company and Riviera Management relating to the
management of the Riviera Black Hawk.
"Management Fees" means any amounts payable to Riviera Management pursuant
to the Management Agreement.
"Manager Subordination Agreement" means the Manager Subordination Agreement
dated as of the date of the indenture among the Company, Riviera Management and
the trustee.
"Minimum Facilities" means, with respect to the Riviera Black Hawk, a casino
which has in operation at least 900 slot machines and 12 table games, related
amenities (including a restaurant, a bar and an entertainment area) and has
parking for at least 442 vehicles.
97
"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 Loss Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Event of Loss,
including, without limitation, insurance proceeds from condemnation awards or
damages awarded by any judgment, net of the direct costs in recovery of such Net
Loss Proceeds (including, without limitation, legal, accounting, appraisal and
insurance adjuster fees and any relocation expenses incurred as a result
thereof), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Event of
Loss, and any taxes paid or payable as a result thereof.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its 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, sales commissions, relocation expenses incurred as a result
thereof and taxes paid or payable as a result thereof, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"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 thereof 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 (other than the notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof 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.
"Operating" means, with respect to the Riviera Black Hawk, the first time
that:
(1) all Gaming Licenses have been granted and have not been revoked or
suspended;
(2) all Liens (other than Liens created by the Collateral Documents or
Permitted Liens) related to the development, construction and equipping of,
and beginning operations at, the Riviera Black Hawk have been discharged or,
if payment is not yet due or if such payment is contested in good faith by
the Company, sufficient funds remain in the Construction Disbursement
Account to discharge such Liens and the Company has taken any action
(including the institution of legal proceedings) necessary to prevent the
sale of any or all of the Riviera Black Hawk or the real property on which
the Riviera Black Hawk will be constructed;
98
(3) the Independent Construction Consultant shall deliver a certificate
to the trustee certifying that the Riviera Black Hawk is substantially
complete in all material respects in accordance with the Final Plans with
respect to the Minimum Facilities;
(4) the Riviera Black Hawk is in a condition (including installation of
furnishings, fixtures and equipment) to receive customers in the ordinary
course of business;
(5) the Minimum Facilities are open to the general public and operating
in accordance with applicable law; and
(6) a permanent or temporary certificate of occupancy has been issued
for the Riviera Black Hawk by the appropriate governmental authorities.
"Operating Deadline" means May 31, 2000.
"Operating Year" means the four consecutive fiscal quarter period of the
Company beginning immediately after the date that the Riviera Black Hawk first
becomes Operating, and each succeeding four consecutive fiscal quarter period
thereafter that begins immediately after each anniversary of the date the
Riviera Black Hawk becomes Operating.
"Permitted Business" means:
(1) the gaming business;
(2) all businesses whether or not licensed by a Gaming Authority which
are necessary for, incident to, useful to or arising out of the operation of
a Gaming Facility;
(3) any development or operation of lodging, including hotels and
timeshares, retail and restaurant facilities, sports or entertainment
facilities, food and beverage distribution operations, transportation
services or other activities related to the foregoing and any additions or
improvements thereto; and
(4) any business that is a reasonable extension, development or
expansion of any of the foregoing.
"Permitted Investments" means:
(1) any Investment in the Company or in a Wholly Owned Restricted
Subsidiary of the Company that is engaged in a Permitted Business and that
is evidenced by Capital Stock or Intercompany Notes that are pledged to the
trustee as Collateral;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person that is engaged in a Permitted Business and that is
evidenced by Capital Stock or Intercompany Notes that are pledged to the
trustee as Collateral, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company; 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 Wholly Owned Restricted Subsidiary of
the Company;
(4) Investments in any Person the primary business of which is related,
ancillary or complementary to the businesses of the Company and its
Subsidiaries; provided that the aggregate amount of such Investments does
not exceed $5.0 million;
(5) 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";
(6) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
99
(7) Hedging Obligations; and
(8) after the Riviera Black Hawk is Operating, any purchases from time
to time by the Company of notes.
"Permitted Liens" means:
(1) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted 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 any Restricted Subsidiary;
(2) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company (other than materials,
supplies or FF&E acquired in connection with developing, constructing or
equipping of, or commencing operations at, the Riviera Black Hawk), provided
that such Liens were in existence prior to the contemplation of such
acquisition;
(3) Liens existing on the date of the Indenture and disclosed to the
trustee in writing or disclosed in the title commitment for the Deed of
Trust;
(4) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by an appropriate process of law; provided
that (a) a reserve or other appropriate provision as shall be required by
GAAP shall have been made therefor and (b) with respect to such Liens
arising in connection with the Riviera Black Hawk, the Company has obtained
any title insurance endorsements required by, and has otherwise complied
with the provisions relating thereto contained in, the Cash Collateral and
Disbursement Agreement;
(5) 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 shall be
required in conformity with GAAP shall have been made therefor;
(6) Liens securing obligations in respect of the indenture or the notes;
(7) Liens on FF&E to secure Indebtedness permitted by clause (6) of the
second paragraph of the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock";
(8) pledges or deposits in the ordinary course of business to secure
lease obligations or nondelinquent obligations under workers' compensation,
unemployment insurance or similar legislation; and
(9) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business or assets of the
Company or any Subsidiary incurred in the ordinary course of business.
"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 so extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest thereon
and the amount of all expenses and premiums incurred in connection
therewith); provided, if such Indebtedness is secured by a Lien described in
clause (7) of the definition of "Permitted Liens," then the principal amount
(or accreted value, if applicable) of such Permitted Refinancing
Indebtedness will not exceed the then current fair market value of the asset
so encumbered;
100
(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 as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(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.
"Plans" means the plans, specifications, working drawings, change orders,
correspondence and related items that collectively:
(1) provide for and detail the manner of development, construction and
equipping of the Riviera Black Hawk;
(2) call for construction which will permit the Riviera Black Hawk to be
Operating on or prior to the Operating Deadline;
(3) call for construction which will cause the Riviera Black Hawk to be
Operating for a total cost consistent with its Construction Disbursement
Budget (as defined in the Cash Collateral and Disbursement Agreement) and
the line items set forth therein;
(4) to the extent such Plans are amended, in the reasonable,
professional judgment of the Independent Construction Consultant, continue
to represent a logical evolution consistent with previous Plans; and
(5) together with any amendments, are consistent with the description of
the Riviera Black Hawk contained in this Circular, and are consistent with
all governmental approvals and requirements, including, without limitation,
the Black Hawk Building Department, Historical Architecture Review
Commission and Gaming Authorities.
"Qualified Public Offering" means
(1) an underwritten initial public offering of the Company's common
stock that is registered under the Securities Act and results in net
proceeds to the Company of at least $25.0 million; or
(2) a privately placed offering of Riviera Holdings' common stock that
is subject to an obligation of Riviera Holdings to register such common
stock under the Securities Act within one year of the consummation of such
offering or an underwritten public offering of Riviera Holdings' common
stock, in either case which results in net proceeds of at least $25.0
million to Riviera Holdings, but only to the extent that the net proceeds of
the offering are contributed as equity by Riviera Holdings to the Company.
"Related Party" means, with respect to any Existing Significant Holder:
(1) any Affiliate, spouse or immediate family member (in the case of an
individual) of such Existing Significant Holder;
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding a majority interest of which consist of such Existing Significant
Holder and such other Persons referred to in the immediately preceding
clause (1); or
(3) any trustee, executor or receiver appointed to manage or administer
the assets of an Existing Significant Holder who is an individual following
the death of such individual.
101
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Riviera Advance" means the amount which was repaid to Riviera Holdings from
the net proceeds of the sale of the Existing Notes.
"Riviera Black Hawk" means the project to develop, construct, equip and
operate the Riviera Black Hawk and related amenities as described in this
Circular.
"Riviera Holdings" means Riviera Holdings Corporation, a Nevada corporation.
"Riviera Holdings Indenture" means the Indenture dated as of August 13,
1997, among Riviera Holdings, the guarantors named therein and Norwest Bank
Minnesota, a National Association, as trustee, as in effect on the date of the
indenture.
"Riviera Management" means Riviera Gaming Management of Colorado, Inc., a
Colorado corporation.
"Semiannual Period" means each period that begins on April 1 and ends on
the next succeeding September 30 or each period that on October 1 and ends on
the next succeeding March 31.
"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.
"Special Assessment Bonds" means the Special Assessment Bonds dated July
15, 1998, issued by the Black Hawk Improvement District of Gilpin County,
Colorado, Special Improvement District No. 1997-1.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall 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 thereof is at the time owned or
controlled, directly or indirectly, by such 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 such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Tax Sharing Agreement" means the Tax Sharing Agreement dated the date of
the indenture, between the Company and Riviera Holdings.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
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;
102
(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
shall be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
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 shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary shall 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 "Incurrence of Indebtedness and
Issuance of Preferred Stock," the Company shall 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 shall
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 shall 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 and (2) no Default or Event of Default would be in existence
following such designation.
"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.
"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 thereof, by (b) the number of years (calculated to the 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
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person by one or more Wholly Owned Restricted
Subsidiaries of such Person.
103
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The Exchange Offer
The exchange of Existing Notes pursuant to the Exchange Offer should be
treated as a continuation of the corresponding Existing Notes because the terms
of the Exchange Notes are not materially different from the terms of the
Existing Notes. Accordingly, such exchange should not constitute a taxable event
to U.S. Holders, and therefore:
o no gain or loss should be realized by U.S. Holders upon receipt of an
Exchange Note;
o the holding period of the Exchange Note should include the holding
period of the Existing Note for which the Exchange Note was exchanged;
and
o the adjusted tax basis of the Exchange Note should be the same as the
adjusted tax basis of the Existing Note for which the Exchange Note
was exchanged immediately before the exchange.
The following discussion is a summary of certain federal income tax
consequences to original purchasers of the Existing Notes that are expected to
result from the purchase, ownership and disposition of the notes. This summary
is based on current provisions of the Internal Revenue Code of 1986, as amended,
applicable Treasury Regulations, judicial authority, and current administrative
rulings and pronouncements of the Internal Revenue Service. There can be no
assurance that the IRS will not take a contrary view, and no ruling from the IRS
has been or will be sought. Legislative, judicial or administrative changes or
interpretations may occur that could alter or modify the following statements
and conclusions. Any of these changes or interpretations may or may not be
retroactive and could affect the tax consequences to holders of the notes.
The tax treatment of a holder of notes may vary depending upon the holder's
particular situation. Certain holders (including, but not limited to, certain
financial institutions, insurance companies, broker-dealers, tax-exempt
organizations, foreign corporations, persons who are not citizens or residents
of the United States, and persons holding the notes as part of a "straddle,"
"hedge" or "conversion transaction") may be subject to special rules not
discussed below. This discussion is limited to holders who will hold the notes
as "capital assets" (generally, property held for investment) within the meaning
of Section 1221 of the Internal Revenue Code.
The notes will provide for the payment of both fixed interest and contingent
interest. Contingent interest will be calculated based on a percentage of our
cash flow after the Riviera Black Hawk begins operating. The notes and the
indenture will have terms typically contained in instruments evidencing
indebtedness and are intended to create a debtor-creditor relationship between
us and the holders of the notes. 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 that are 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.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR
FOREIGN TAX LAWS.
Recognition of Interest Income
Certain Treasury Regulations (the "Contingent Payment Regulations") govern
the treatment of debt instruments issued on or after August 13, 1996 that
provide for one or more contingent payments. Because the notes provide for one
or more contingent payments of interest, the Contingent Payment Regulations will
apply to the notes. Under the Contingent Payment Regulations, we must construct
a projected payment schedule for the notes and holders generally must recognize
all interest income with respect to a note on a constant yield basis based on
this projected payment schedule, subject to certain adjustments if actual
contingent payments differ from those projected. This interest is treated as
"original issue discount."
104
In particular, the projected payment schedule will be determined by
including all noncontingent payments and the "expected value" of all contingent
payments on the notes. The projected payment schedule must produce the
"comparable yield," which is the yield at which we would issue a fixed rate debt
instrument with terms and conditions similar to those of the notes. The amount
of interest that accrues each accrual period is the product of the "comparable
yield" and the note's "adjusted issue price" at the beginning of each accrual
period. The "adjusted issue price" of a note is equal to the initial offering
price paid by the holders for a substantial amount of the notes, increased by
interest previously accrued on the note (determined without adjustments for
differences between the projected payment schedule and the actual payments on
the notes), and decreased by the amount of any noncontingent payments and the
projected amount of any contingent payments previously made on the note. Except
for adjustments made for differences between actual and projected payments, the
amount of interest included in income by a holder of a note is the sum of the
"daily portions" of interest income with respect to the note for each day during
the taxable year (or portion thereof) on which the holder held such note. The
"daily portions" of interest income are determined by allocating to each day in
any accrual period a ratable portion of the interest income allocable to that
accrual period. If actual payments differ from projected payments, then holders
will generally be required in any given taxable year either to include
additional interest in gross income (in case the actual payments exceed
projected payments in such taxable year) or to reduce the amount of interest
income otherwise accounted (in case the actual payments are less than the
projected payments in such taxable year). If the negative adjustment exceeds the
interest for the taxable year that would otherwise have been accounted for on
the notes, the excess will be treated as ordinary loss. However, the amount
treated as an ordinary loss in any taxable year is limited to the amount by
which the holder's total interest inclusions on the notes exceed the total
amount of the net negative adjustments treated as ordinary loss in prior years.
Any remaining excess will be a negative adjustment carryforward and treated as a
negative adjustment in the succeeding year. If a note is sold, exchanged, or
retired, any negative adjustment carryforward from the prior year will reduce
the holder's amount realized on the sale, exchange or retirement.
Thus, under the rules described in the preceding paragraph, depending on the
"comparable yield" and "expected value" used to determine the projected payment
schedule, holders of notes may be required to include amounts in income prior to
the receipt of cash payments attributable to such income. We will provide to
holders the projected payment schedule for the notes. The projected payment
schedule for the notes will consist of all fixed interest payments, all
scheduled principal payments and a projected amount and time for each contingent
interest payment. The yield, timing and amounts set forth on the projected
payment schedule are for federal income tax purposes only and are not assurances
by us with respect to any aspect of the notes. Holders will generally be bound
by the projected payment schedule. However, the IRS will not respect a projected
payment schedule which it determines to be unreasonable. Holders are strongly
urged to consult their tax advisors with respect to the application of the
contingent payment rules described above to the notes.
It is possible that the notes may be subject to the provisions of the
Internal Revenue Code dealing with high yield discount obligations in which case
we may not be entitled to claim a deduction with respect to a certain portion of
the interest payments (the "Disqualified Portion"). This could reduce the amount
of cash available to us to meet our obligations under the notes.
Sale, Retirement or Other Taxable Disposition
A holder of a note will generally recognize gain or loss upon the sale,
redemption, retirement, or other taxable disposition of the note in an amount
equal to the difference between (1) 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 (as described above) and (2) 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, increased by the amount of original issue discount
previously accrued on the note (determined without adjustments), and decreased
by the amount of any noncontingent payments and the projected amount of any
contingent payments previously made on the note.
If a note is sold or otherwise disposed of when there are remaining
contingent payments under the projected payment schedule, then any gain
recognized under the sale or other disposition will be ordinary interest income.
Any loss recognized will be ordinary loss to the extent the holders' total
interest inclusions on a note exceed the total amount of ordinary loss the
holder took into account under the rules described above with respect to
differences between actual payments and projected payments, and any additional
loss will generally be a capital loss. If, however, a note is sold or otherwise
disposed of after there are no remaining contingent payments due on the note
under the projected payment schedule, 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.
105
Liquidated Damages
We intend to take the position that the Liquidated Damages described above
under "Description of Notes -- Registration Rights; 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 the Liquidated Damages.
Backup Withholding
A holder of notes may be subject to backup withholding at the rate of 31%
with respect to interest paid on, original issue discount accrued on and gross
proceeds from a sale or other disposition of, the notes unless (1) the holder is
a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (2) 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. 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.
106
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange 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 Exchange Notes received in exchange for Existing
Notes where such Existing Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until October __, 1999 (90 days after the
date of this prospectus), all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Noes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange 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 Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be 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" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident 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 and will
indemnify the Holders of the Securities (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
107
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Dechert Price & Rhoads, New York, New York. Certain legal matters
with respect to Colorado law will be passed upon by Holme, Roberts & Owen LLP,
Denver, Colorado and Verner, Liipfert, Bernhard, McPherson & Hand, Chartered,
Washington, D.C.
EXPERTS
The financial statements of Riviera Black Hawk, Inc. (a development stage
company) as of December 31, 1997 and 1998 and for the period from August 18,
1997 (date of inception) through December 31, 1997 and for the year ended
December 31, 1998, included in this prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report included herein
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to the Company's status as a development stage entity) and
have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of Riviera Holdings Corporation and
Subsidiaries as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998 incorporated in this prospectus by reference
from the Annual Report on Form 10-K of Riviera Holdings Corporation and
Subsidiaries have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report which is incorporated herein by reference and have
been so incorporated in reliance upon the report of such firm given their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
We are not currently subject to the periodic reporting and other
informational requirements of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"). We have agreed that, whether or not required to do
so by the rules and regulations of the Securities and Exchange Commission, so
long as any notes remain outstanding, we will furnish to the trustee and deliver
or cause to be delivered to holders of the notes, beginning with respect to our
fiscal quarter ending June 30, 1999, (1) all consolidated quarterly and annual
financial information that would be required to be contained in a filing with
the Securities and Exchange Commission on Forms 10-Q and 10-K if we were
required to file such forms and, with respect to the annual information only, a
report thereon by our certified independent accountants and (2) all reports that
would be required to be filed with the Securities and Exchange Commission on
Form 8-K if we were required to file such reports. From and after the time a
registration statement with respect to the notes is declared effective by the
Securities and Exchange Commission, we will file such information with the
Securities and Exchange Commission, provided the Securities and Exchange
Commission will accept such filing.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act of 1933, covering the notes to be issued in the exchange offer.
This prospectus, which is a part of the registration statement, does not contain
all of the information included in the registration statement. Any statement
made in this prospectus concerning the contents of any contract, agreement or
other document is not necessarily complete. For further information with respect
to the Company and the notes to be issued in the exchange offer, please
reference the registration statement, including its exhibits. If we have filed
any contract, agreement or other document as an exhibit to the registration
statement, you should read the exhibit for a more complete understanding of the
documents or matter involved.
Copies of the registration statement, including all related exhibits and
schedules, may be inspected without charge at the public reference facilities
maintained by the SEC, or obtained at prescribed rates from the Public Reference
Section of the SEC at the address set forth above. In addition, you may request
a copy of any of these filings, at no cost, by writing or telephoning us at the
following address or phone number:
Riviera Black Hawk, Inc.
444 Main Street
Black Hawk, Colorado 80422
(303) 582-1000
108
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
TABLE OF CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORT................................................ F-2
FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 1999 (Unaudited), December 31, 1998
and 1997.............................. F-3
Statements of Operations for the Three Months Ended March 31, 1999
(Unaudited) and cumulative from August 18, 1997 (Date of
inception) through March 31, 1999 (Unaudited).......................... F-4
Statements of Stockholder's Equity for the Three Months Ended March
31, 1999 (Unaudited), and for the Year Ended December 31, 1998
and for the Period from August 18, 1997 (Date of inception)
through December 31, 1997............................................. F-5
Statements of Cash Flows for the Three Months Ended March 31, 1999
and 1998 (Unaudited), and for the Year Ended December 31, 1998
and for the Period from August 18, 1997 (Date of inception)
through December 31, 1997 and cumulative from August 18, 1997
(Date of inception) through March 31, 1999 (Unaudited)................ F-6
Notes to Financial Statements............................................. F-7
F-1
INDEPENDENT AUDITORS' REPORT
Riviera Black Hawk, Inc.
(A Development Stage Company):
We have audited the accompanying balance sheets of Riviera Black Hawk,
Inc.(a Development Stage Company) (the "Company") as of December 31, 1998 and
1997, and the related statements of operations, stockholder's equity and of cash
flows for the period from August 18, 1997 (date of inception) through December
31, 1997, and for the year ended December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1997, and the results of its cash flows for the period from August 18, 1997
(Date of inception) through December 31, 1997, and for the year ended December
31, 1998, in conformity with generally accepted accounting principles.
The Company is in the development stage at December 31, 1998. As discussed
in Note 1 to the financial statements, successful completion of the Company's
development program and, ultimately, the attainment of profitable operations is
dependent upon future events, including obtaining certain regulatory approvals
and achieving a level of sales adequate to support the Company's cost structure.
Deloitte & Touche LLP
Las Vegas, Nevada
February 19, 1999
F-2
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
BALANCE SHEETS
March 31, 1999 (Unaudited), December 31, 1998 and 1997
(In thousands, except share amounts)
ASSETS
December 31,
March 31, --------------------
1999 1998 1997
----------- --------- --------
(Unaudited)
CURRENT ASSETS:
Cash..................................... $ 474 $ 543 $ 49
Prepaid expenses......................... 32 73
------- -------
Total current assets............. 506 616 49
PROPERTY AND EQUIPMENT..................... 33,183 27,112 16,583
OTHER ASSETS............................... 281 3
RESTRICTED CASH............................ 407 407
------- -------
TOTAL............................ $34,377 $28,138 $16,632
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities. $ 3,810 $ 1,210 $ 7
------- ------- -------
NONCURRENT LIABILITIES:
Due to Riviera Holdings Corporation...... 6,590 6,241
Special improvement district bonds, net
of undisbursed funds of $780.......... 687 687
------- -------
Total noncurrent liabilities..... 7,277 6,928
------- -------
Total liabilities................ 11,087 8,138 7
------- ------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value;
10,000 shares authorized; 1,000
shares issued and outstanding
Additional paid-in capital............... 23,300 20,000 16,625
Accumulated deficit...................... (10)
------- ------- -------
Total stockholder's equity....... 23,290 20,000 16,625
------- ------- -------
TOTAL............................ $34,377 $28,138 $16,632
======= ======= =======
See notes to financial statements.
F-3
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
ThreeMonths Ended March 31, 1999 and Period
from August 18, 1997 (Date of Inception)
through March 31, 1999 (Unaudited)
(In thousands)
Cumulative from
Three Months August 18, 1997
Ended (Date of Inception)
March 31, through March 31,
1999 1999
------------- -------------------
Selling, general and administrative.... $ 15 $ 15
----- ----
Loss................................... 15 15
Tax benefit............................ (5) (5)
----- ----
Net loss............................... $ (10) $(10)
===== ====
See notes to financial statements.
F-4
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDER'S EQUITY
Period from August 18, 1997 (Date of Inception)
through December 31, 1997 and for the Year Ended December 31,
1998 and for the Three Months Ended March 31, 1999 (Unaudited)
(In thousands, except share amounts)
Common Stock Additional
------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
BALANCE, AUGUST 18, 1997
(Date of Inception)....................... $ $ $ $
Common stock issued....................... 1,000
Contributed capital....................... 16,625 16,625
----- -- ------- ----- -------
BALANCE, DECEMBER 31, 1997.................. 1,000 16,625 16,625
Contributed capital....................... 3,375 3,375
----- -- ------- ----- -------
BALANCE, DECEMBER 31, 1998.................. 1,000 20,000 20,000
Contributed capital (Unaudited)........... 3,300 3,300
Net loss (Unaudited)...................... (10) (10)
----- -- ------- ----- -------
BALANCE, MARCH 31, 1999 (Unaudited)......... 1,000 $ $23,300 $ (10) $23,290
===== == ======= ===== =======
See notes to financial statements.
F-5
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Period from August 18, 1997 (Date of Inception) through
December 31, 1997 and Year Ended December 31, 1998 and
Three Months Ended March 31, 1999 (Unaudited) and Cumulative from
August 18, 1997 (Date of Inception) through March 31, 1999 (Unaudited)
(In thousands)
Cumulative Cumulative
from from
August 18, August 18,
Three Three August 18, 1997 (Date 1997 (Date
Months Months Year 1997 (Date of Inception) of Inception)
Ended Ended Ended of Inception) through through
March 31, March 31, December to December March 31, December
1999 1998 31, 1998 31, 1997 1999 31, 1998
--------- --------- -------- ------------- ------------- -------------
NET LOSS........................................ $ (10) $ $ $ $ (10)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............ (2,796) (16,300) (6,667) (15,923) (25,386) (22,590)
Decrease (increase) in prepaid expenses....... 41 (73) (32) (73)
Increase in restricted cash................... (407) (407) (407)
Increase in other assets...................... (278) (3) (281) (3)
------- -------- ------- -------- -------- --------
Net cash used in investing activities...... (3,033) (16,300) (7,150) (15,923) (26,106) (23,073)
------- -------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Riviera Holdings Corporation.... 349 13 6,241 6,590 6,241
Contribution of paid-in capital............... 2,625 16,300 1,403 15,972 20,000 17,375
------- -------- ------- -------- -------- --------
Net cash provided by financing activities.. 2,974 16,313 7,644 15,972 26,590 23,616
------- -------- ------- -------- -------- --------
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS.......................... (69) 13 494 49 474 543
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD........................... 543 49 49
------- -------- ------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD................................. $ 474 $ 62 $ 543 $ 49 $ 474 $ 543
======= ======== ======= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
NONCASH INFORMATION:
Property and equipment purchased using
accounts payable........................... $ 2,600 $ 1,203 $ 7 $ 3,810 $ 1,210
======= ======== ======= ======== ======== ========
Property acquired using special improvement
district bonds............................. $ $ 687 $ $ 687 $ 687
======= ======== ======= ======== ======== ========
Capitalized interest contributed by Riviera
Holdings Corporation....................... $ 675 $ 1,100 $ 1,972 $ 653 $ 3,300 $ 2,625
======= ======== ======= ======== ======== ========
See notes to financial statements.
F-6
RIVIERA BLACK HAWK, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Period from August 18, 1997 (Date of Inception) through
December 31, 1997 and the Year Ended December 31, 1998
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation -- On August 18, 1997 (date of
inception), Riviera Black Hawk, Inc.(the "Company") was formed. The Company is a
wholly owned subsidiary of Riviera Holdings Corporation. The Company is a
development stage enterprise that has not commenced operations and will not
commence operations until acceptable financing is obtained, the casino is
constructed, and gaming licenses are obtained. The principal purpose of the
Company is to develop a casino and entertainment complex in Black Hawk,
Colorado, which is anticipated to open in the first quarter of 2000. The Company
has begun construction on this casino in Black Hawk, Colorado, on a site that
was purchased for $15.1 million in August 1997.
Financial Statements at March 31, 1999 and for the Three Months Ended March
31, 1999 and 1998 -- The financial information at March 31, 1999 and for the
three months ended March 31, 1999 and 1998 is unaudited. However, such
information reflects all adjustments (consisting solely of normal 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 period. The results of operations for the three months ended
March 31, 1999 and 1998 are not necessarily indicative of the results that will
be achieved for the entire year.
Certain Significant Risks and Uncertainties:
Gaming Regulation Licensing -- The Company's ability to conduct gaming
operations in the state of Colorado depends on the ability of the Company
and Riviera Holdings Corporation to obtain licensing from the Colorado
gaming authorities. Such licensing and qualifications will be reviewed
periodically by the gaming authorities in Colorado.
Competition -- The Black Hawk/Central City, Colorado, market already has
many established casinos. The market is highly competitive, and other
development projects are currently being planned.
Construction Risks -- Any construction project entails significant
construction risks, including, but not limited to, cost overruns, delays in
receipt of governmental approvals, shortages of materials or skilled labor,
labor disputes, unforeseen environmental or engineering problems, work
stoppages, fire and other natural disasters, construction scheduling
problems, and weather interferences, any of which, if they occurred, could
delay construction or result in a substantial increase in costs to the
Company.
Completion Capital Commitment -- Riviera Holdings Corporation, will be
obligated to contribute to the Company up to $10.0 million of cash if at any
time there are insufficient funds available to enable the casino to be operating
by May 31, 2000. The contributions will be made at the times necessary to enable
the casino in Black Hawk, Colorado to be operating by May 31, 2000. In addition,
if the casino is not operating by May 31, 2000, Riviera Holdings Corporation
will be obligated to contribute to the Company on that date $10.0 million in
cash less any amounts previously contributed under the Completion Capital
Commitment.
Keep-Well Agreement -- The Company and Riviera Holdings Corporation will
enter into a Keep-Well Agreement wherein, if (1) the Company does not have the
necessary funds to make a payment of fixed interest on the notes during our
first three years of operations or (2) consolidated cash flow is less than $9.0
million in any of our first three years of operations, Riviera Holdings
Corporation will be obligated to contribute cash to the Company 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).
Cash and Cash Equivalents -- The Company considers cash and all highly
liquid investments with a maturity at the time of purchase of three months or
less to be cash equivalents. At December 31, 1998 and 1997, there were no cash
equivalents.
F-7
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 will be computed, upon the commencement
of gaming operations, using the straight-line method over the shorter of the
estimated useful lives or lease terms, if applicable, of the related assets. The
costs of normal maintenance and repairs will be charged to expense as incurred.
Gains or losses on disposals will be recognized as incurred.
Other Assets -- The Company is in the development stage and is currently
incurring organizational costs, which are being capitalized until operations of
the casino commence, at which time such organizational costs will be amortized
over a five-year period. Organizational costs consist primarily of legal fees
associated with establishing the gaming licenses for business.
Restricted Cash -- At December 31, 1998, the Company had a deposit with a
commercial bank in the amount of $407,000, which is restricted as to use. This
amount is required by a construction bond.
Estimates and Assumptions -- The preparation of financial statements in
conformity with generally accepted accounting principles 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. Actual results may differ from estimates.
Recently Issued Accounting Standards -- The American Institute of Certified
Public Accountants' Accounting Standards Executive Committee issued Statement of
Position No. 98-5, Reporting on the Costs of Start-Up Activities. This standard
provides guidance on the financial reporting for start-up costs and organization
costs. This standard requires costs of start-up activities and organization
costs to be expensed as incurred, and is effective for fiscal years beginning
after December 15, 1998, although earlier application is encouraged. Management
does not expect that the effect of adopting this standard will have a material
impact on the Company's financial statements.
Federal Income Taxes -- Riviera Holdings Corporation allocated income tax
expense or benefit to the Company as if the Company were filing separate tax
returns pursuant to a tax sharing arrangement. The Company accounts for income
taxes in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes." The Company had no results of operation
through December 31, 1998 that would have created taxable events. Accordingly,
no provision is shown in these financial statements through December 31, 1998.
2. Related-Party Transactions
As of December 31, 1998, Riviera Holdings Corporation has contributed $15.1
million to acquire land for the casino in Black Hawk and $4.9 million in cash
for developing the land for the casino, for a total capital contribution of $20
million.
At December 31, 1998, the Company owed approximately $6.2 million to Riviera
Holdings Corporation, representing advances made by Riviera Holdings Corporation
for costs related to the development of the Riviera Black Hawk casino. The
advances are bearing interest at 10.6 percent and are due June 30, 2000.
The Company has entered into a management agreement in principle (the
"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, will manage the Company. The management fee will consist of
a revenue fee and a performance fee. The revenue fee will be based on 1% if net
revenues (gross revenues less complimentaries) and is payable quarterly in
arrears. The performance fee will be based on the following percentages of
EBITDA (earnings before interest, taxes, depreciation and amortization, whose
components are based on generally accepted accounting principles): (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 will
be based on the preceding quarter's EBITDA, paid in quarterly installments
subject to year-end adjustment. The management fee will go into effect on the
date of the opening of the Riviera Black Hawk casino.
If there is any default under the management agreement, the manager will not
be entitled to receive management fees, but the manager will still be entitled
to inter-company service fees.
F-8
3. Property and Equipment
Property and equipment consist of the following at December 31 (amounts in
thousands):
1998 1997
---- ----
Land and improvements...................... $ 15,790 $15,100
Construction in progress................... 11,322 1,483
-------- -------
Total property and equipment..... $ 27,112 $16,583
======== =======
In 1998 and 1997, $2.0 million and $0.6 million, respectively, in interest
costs were capitalized on the construction project.
4. Special Improvement District Bonds
The City of Black Hawk, Colorado, issued Special Improvement District bonds
("SID bonds") in the amount of $2.9 million in July 1998. The bond proceeds will
be used to finance surface, underground, and utility improvements, widen and
improve a bridge, and improve traffic signals and other infrastructure projects
that benefit the Riviera Black Hawk property and an adjacent casino. The SID
bonds contain a lien provision that attaches to the property until the bonds are
fully paid.
The Company is responsible to repay approximately 50% of the bonds. At
December 31, 1998, $1.4 million of the $2.9 million had been expended on the
designated projects. The remaining bond proceeds were in a controlled
disbursement account managed by the City of Black Hawk. The Company is recording
50% of the costs of improvements to land improvements and a corresponding amount
to SID bonds payable. The bonds accrue interest at 5% payable semiannually on
June 1, and December 1 commencing December 1, 1998.
The Company's share of the debt on the SID bonds, when the project is
complete, is payable over ten years beginning in January 2000, as follows
(amounts in thousands):
1999................ $ --
2000................ 112
2001................ 120
2002................ 127
2003................ 132
Thereafter.......... 979
-------
$ 1,470
5. Commitments and Contingencies
The Company has entered into a guaranteed maximum price construction
contract for the construction of the Riviera Black Hawk at a guaranteed maximum
price of $27.6 million, including a contingency allowance of $0.5 million, for
the construction of the casino, parking garage, associated site work and all
floor coverings and food service equipment. The construction cost is fully
supported by a payment and performance bond obtained by the general contractor,
The Weitz Company, Inc.("Weitz"), who is also required to provide comprehensive
public liability insurance, including contractual liability coverage, in the
amount of $2.0 million plus umbrella coverage in the amount of $20.0 million.
The Company has obtained builder's all risk insurance to insure against damage
to the work in place during construction. The guaranteed maximum price is
subject to decrease if cost savings can be achieved during construction, and is
subject to material increase if there are changes to the plans and
specifications, if the work is delayed due to actions of the owner or, due to
customary contingencies that occur during construction.
To discourage delays, liquidated damages will be payable by the general
contractor for each day that substantial completion is delayed past the
scheduled substantial completion date (as it may be extended under the
guaranteed maximum price construction contract), as follows: (1) no penalties if
the casino project is substantially completed on or before January 31, 2000; (2)
$10,000 per day for each day from February 1, 2000 through February 14, 2000
that the casino project is not substantially completed after January 31, 2000;
and (3) an additional $15,000 for each day from February 15, 2000 through March
31, 2000. In addition, to encourage early completion of the casino, incentive
fees will be payable to the general contractor. Specifically, the guaranteed
maximum price construction contract provides: (1) if Weitz achieves substantial
completion of the project on or after December 29, 1999, but prior to January 4,
2000, Weitz's lump sum fee shall be increased as incentive by $10,000 for each
day that the project is substantially complete prior to January 4, 2000; and (2)
if Weitz achieves substantial completion of the project any time before December
29, 1999, Weitz's lump sum fee shall be increased as incentive by $15,000 for
each day the project is substantially
F-9
complete prior to December 29, 1999, plus the $10,000 for each day the project
is substantially complete between December 29, 1999 and January 4, 2000.
The Company has a contract for architect services for approximately $1.0
million. Substantially all expected services have been rendered and paid on the
contract at December 31, 1998.
6. Subsequent Events (Unaudited)
On March 31, 1999, Riviera Holding Corporation contributed another $3.3
million of additional paid in capital and advanced another $3.6 million for
construction costs.
The impact of adopting SOP 98-5 has been to record general expenses of
$15,000 for the first three months of 1999 that the Company would otherwise have
deferred as a pre-opening cost.
F-10
ANNEX A
RIVIERA HOLDINGS CORPORATION
Riviera Holdings Corporation's consolidated financial statements are
incorporated by reference in this prospectus only to illustrate its ability to
service its obligations under the Completion Capital Commitment and the
Keep-Well Agreement. Neither Riviera Holdings Corporation nor any of its
affiliates will participate in servicing the principal, fixed interest,
contingent interest or other payments due on the notes. Neither Riviera Holdings
Corporation nor any of its affiliates has any obligation to make any payments of
any kind to the holders of the notes.
A-1
===================================== ======================================
We have not authorized any dealer,
salesperson or other person to give
any information or represent anything
to you other than the information $45,000,000
contained in this prospectus. This
prospectus does not offer to buy or
sell any notes in any jurisdiction
where it is unlawful. You must not [LOGO]
rely on unauthorized information or
representations. The information
contained in this prospectus is
current only as of its date.
-----------------
TABLE OF CONTENTS Riviera Black Hawk, Inc.
Forward-Looking Statements.........ii
Summary.............................1
Risk Factors.......................10
Use Of Proceeds....................20 OFFER TO EXCHANGE
Capitalization.....................21
Selected Financial Information.....22
Ratio Of Earnings To Fixed 13% First Mortgage Notes
Charges...........................23 due 2005
Management's Discussion And With Contingent Interest
Analysis Of Financial Condition
And Results Of Operations.........24
The Exchange Offer.................26 for all outstanding
Business...........................34
Gaming And Liquor Regulatory 13% First Mortgage Notes
Matters...........................42 due 2005
Material Agreements................47 With Contingent Interest
Management.........................49
Principal Stockholders.............51
Certain Relationships And Related --------------------
Transactions......................53
Description Of Notes...............54 PROSPECTUS
Certain United States Federal
Income Tax Considerations........104 --------------------
Plan Of Distribution..............107
Legal Matters.....................108
Experts...........................108
Available Information.............108
Until October __, 1999 (90 days ____________ __, 1999
after the date of this prospectus),
all dealers effecting transactions in
the Exchange 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.
===================================== ======================================
II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article 109 of the Colorado Business Corporation Act provides in relevant
part that a corporation may 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 proceeding, whether civil, criminal, administrative or investigative
(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, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful.
In addition, Article 109 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor 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 the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation.
Article 109 also provides that to the extent a director, officer, employee
or agent of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to above, or defense of any
claim issue or matter therein, he shall be indemnified against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection therewith.
The Bylaws of the Company provide for the indemnification of 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 proceeding, whether civil, criminal, administrative
or investigative (a "proceeding") by reason of the fact that such person is or
was a director or officer of the Company or a constituent corporation absorbed
in a consolidation or merger, or is or was serving at the request of the Company
or a constituent corporation absorbed in a consolidation or merger, as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or is or was a director or officer of the Company serving at
its request as an administrator, trustee or other fiduciary of one or more of
the employee benefit plans of the Company or other enterprise, against expenses
(including attorneys' fees), liability and loss actually and reasonably incurred
or suffered by such person in connection with such proceeding, whether or not
the indemnified liability arises or arose from any threatened, pending or
completed proceeding by or in the right of the Company, except to the extent
that such indemnification is prohibited by applicable law. The Bylaws of the
Company also provide that such indemnification shall not be deemed exclusive of
any other rights to which those indemnified may be entitled as a matter of law
or under any by-law, agreement, vote of stockholders or otherwise.
Section 7-108-402 of the Colorado Business Corporation Act provides that a
corporation may in its articles of incorporation eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director except for liability: for any
breach of the director's duty of loyalty to the corporation or its shareholders;
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; for acts specified in Section 7-108-403 of the
Colorado Business Corporation Act (pertaining to certain prohibited acts
including unlawful payments of dividends or unlawful purchases or redemptions of
the corporation's capital stock); or for any transaction from which the director
derived an improper personal benefit. The Articles of Incorporation of the
Company contains a provision so limiting the personal liability of directors of
the Company.
II-1
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
EXHIBIT INDEX
Exhibit No. Description
- ----------- ---------------------------------------------------------------
4.01 Indenture, dated as of June 3, 1999, among the Company, Riviera
Holdings and the Initial Purchaser.
4.02 Form of 13% First Mortgage Note due 2005 with Contingent
Interest (included in Exhibit 4.01).
4.03 Purchase Agreement, dated as of May 27, 1999, by and among the
Company, Riviera Holdings and the Initial Purchaser.
4.04 Registration Rights Agreement, dated as of June 3, 1999, by and
between the Company and the Initial Purchaser.
5.01 Opinion of Dechert Price & Rhoads.
10.01 The Completion Capital Commitment, dated as of June 3, 1999, by
and between the Company and Riviera Holdings.
10.02 The Keep-Well Agreement, dated as of June 3, 1999, by and
between the Company and Riviera Holdings.
10.03 The Tax-Sharing Agreement, dated as of June 3, 1999, by and
between the Company and Riviera Holdings.
10.04 The Management Agreement, dated as of June 3, 1999, by and
between the Company and Riviera Gaming Management of Colorado,
Inc.
10.05 The Trademark License Agreement, dated as of June 3, 1999,
by and between the Company and Riviera Operating Corporation.
10.06 The Deed of Trust, dated as of June 3, 1999, made by the
Company to the Public Trustee of the County of Gilpin,
Colorado, for the benefit of the Trustee.
10.07 The Assignment of Rents.
10.08 The Environmental Indemnity, dated as of June 3, 1999, between
the Company and the Trustee.
10.09 The Cash Collateral and Disbursement Agreement, dated as of
June 3, 1999, among the Company, the Trustee and CRSS
Constructors, Inc.
10.10 The Account Agreement, dated as of June 3, 1999, among the
Company, the Trustee and IBJ Whitehall Bank and Trust Company.
10.11 The Security Agreement, dated as of June 3, 1999, made by the
Company in favor of the Trustee.
10.12 The Manager Subordination Agreement, dated as of June 3, 1999,
by Riviera Gaming Management of Colorado in favor of the
Trustee.
10.13 The Collateral Assignment of Trademark, dated as of June 3,
1999, by and between the Company and the Trustee.
10.14 The Collateral Assignment, dated as of June 3, 1999, by and
between the Company and the Trustee.
10.15 The Pledge and Assignment Agreement, dated as of June 3, 1999,
by and between the Company and the Trustee.
23.01 Consent of Dechert Price & Rhoads (included in the opinion
filed as Exhibit 5.01).
23.02 Consent of Deloitte & Touche LLP for Riviera Black Hawk, Inc.
23.03 Consent of Deloitte & Touche LLP for Riviera Holdings
Corporation.
99.01 Form of Letter of Transmittal.
99.02 Form of Notice of Guaranteed Delivery.
- ---------------
* Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to this
Agreement are omitted. The Exhibit contains a list identifying the
contents of all schedules and the Registrants agree to furnish
supplementally copies of such schedules to the Commission upon request.
(b) Financial Statement Schedules:
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;
(2) that, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be 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.
(d) Each of the undersigned registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
corporation being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below-named Registrant has 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 the 24th day of June 1999.
RIVIERA BLACK HAWK, INC.
By: /s/ William L. Westerman
-----------------------------------
William L. Westerman
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities at the above-named Registrant on the 24th day of June, 1999.
By: /s/ Ronald P. Johnson
-----------------------------------
Ronald P. Johnson
President and Director
By: /s/ Duane R. Krohn
-----------------------------------
Duane R. Krohn
Secretary, Treasurer, Chief Financial
Officer and Director
EXHIBIT INDEX
Exhibit No. Description
- ----------- ---------------------------------------------------------------
4.01 Indenture, dated as of June 3, 1999, among the Company, Riviera
Holdings and the Initial Purchaser.
4.02 Form of 13% First Mortgage Note due 2005 with Contingent
Interest (included in Exhibit 4.01).
4.03 Purchase Agreement, dated as of May 27, 1999, by and among the
Company, Riviera Holdings and the Initial Purchaser.
4.04 Registration Rights Agreement, dated as of June 3, 1999, by and
between the Company and the Initial Purchaser.
5.01 Opinion of Dechert Price & Rhoads.
10.01 The Completion Capital Commitment, dated as of June 3, 1999, by
and between the Company and Riviera Holdings.
10.02 The Keep-Well Agreement, dated as of June 3, 1999, by and
between the Company and Riviera Holdings.
10.03 The Tax-Sharing Agreement, dated as of June 3, 1999, by and
between the Company and Riviera Holdings.
10.04 The Management Agreement, dated as of June 3, 1999, by and
between the Company and Riviera Gaming Management of Colorado,
Inc.
10.05 The Trademark License Agreement, dated as of June 3, 1999,
by and between the Company and Riviera Operating Corporation.
10.06 The Deed of Trust, dated as of June 3, 1999, made by the
Company to the Public Trustee of the County of Gilpin,
Colorado, for the benefit of the Trustee.
10.07 The Assignment of Rents.
10.08 The Environmental Indemnity, dated as of June 3, 1999,
between the Company and the Trustee.
10.09 The Cash Collateral and Disbursement Agreement, dated as of
June 3, 1999, among the Company, the Trustee and CRSS
Constructors, Inc.
10.10 The Account Agreement, dated as of June 3, 1999, among the
Company, the Trustee and IBJ Whitehall Bank and Trust Company.
10.11 The Security Agreement, dated as of June 3, 1999, made by the
Company in favor of the Trustee.
10.12 The Manager Subordination Agreement, dated as of June 3, 1999,
by Riviera Gaming Management of Colorado in favor of the
Trustee.
10.13 The Collateral Assignment of Trademark, dated as of June 3,
1999, by and between the Company and the Trustee.
10.14 The Collateral Assignment, dated as of June 3, 1999, by and
between the Company and the Trustee.
10.15 The Pledge and Assignment Agreement, dated as of June 3, 1999,
by and between the Company and the Trustee.
23.01 Consent of Dechert Price & Rhoads (included in the opinion
filed as Exhibit 5.01).
23.02 Consent of Deloitte & Touche LLP for Riviera Black Hawk, Inc.
23.03 Consent of Deloitte & Touche LLP for Riviera Holdings
Corporation.
99.01 Form of Letter of Transmittal.
99.02 Form of Notice of Guaranteed Delivery.
- ---------------
* Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to this
Agreement are omitted. The Exhibit contains a list identifying the
contents of all schedules and the Registrants agree to furnish
supplementally copies of such schedules to the Commission upon request.