RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 15, 2001
TO THE STOCKHOLDERS OF
RIVIERA HOLDINGS CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Riviera Holdings Corporation, a Nevada corporation (the
"Company"), will be held at the Riviera Hotel and Casino, 2901 Las Vegas
Boulevard South, Las Vegas, Nevada 89109 on May 15, 2001, at 1:00 p.m., local
time, for the following purposes:
1. To elect a Board of Directors;
2. To consider a shareholder proposal that the Board of
Directors take such action as may be necessary to
establish a policy relating to political
contributions to candidates for public office and
that a list of all such contributions, identifying
the candidate, date and amount, be made available
annually to any shareholder or investor; and
3. To consider and act upon such other matters as may
properly come before the meeting or any adjournment
or postponements thereof.
The Board of Directors fixed April 3, 2001, as the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting and any adjournments or postponements thereof. Accordingly, only holders
of record of Common Stock, par value $.001 per share, at the close of business
on such date (the "Stockholders") shall be entitled to vote at the Annual
Meeting and any adjournments or postponements thereof. A complete list of
Stockholders is open to the examination of any Stockholder for any purpose
germane to the meeting, during ordinary business hours, at the offices of the
Company located at 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109.
A copy of the Company's Annual Report for the fiscal year ended
December 31, 2000, which includes a copy of the Company's Annual Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 2000, is enclosed herewith.
By Order of the Board of Directors,
William L. Westerman
Chairman of the Board
Dated: April 10, 2001
YOU ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY. IF
YOU ATTEND THE MEETING AND VOTE IN PERSON, THE PROXY WILL NOT BE USED. IF THE
PROXY IS MAILED IN THE UNITED STATES IN THE ENCLOSED ENVELOPE, NO POSTAGE IS
REQUIRED.
RIVIERA HOLDINGS CORPORATION
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
PROXY STATEMENT
for Annual Meeting of Stockholders
to be held on May 15, 2001
April 10, 2001
TO THE STOCKHOLDERS:
This Proxy Statement ("Proxy Statement") is being furnished to
stockholders of Riviera Holdings Corporation, a Nevada corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board of Directors" or the "Board") for use at
the Annual Meeting of Stockholders (including any adjournments or postponements
thereof, the "Annual Meeting") to be held at the Riviera Hotel and Casino, 2901
Las Vegas Boulevard South, Las Vegas, Nevada 89109 on Tuesday, May 15, 2001, at
1:00 p.m., local time. This Proxy Statement and the accompanying form of proxy
is being mailed to the stockholders on or about April 10, 2001.
All holders of record (the "Stockholders") of the Company's common
stock, par value $.001 per share (the "Common Stock"), at the close of business
on April 3, 2001 (the "Record Date") are entitled to one vote at the meeting for
each outstanding share of Common Stock as of the Record Date held by such
shareholder. At the close of business on April 3, 2001, 3,668,128 shares of
Common Stock were outstanding.
The Board of Directors requests each Stockholder to execute and return
the enclosed proxy as soon as possible. The person who signs the proxy must be
either (i) the registered Stockholder of such shares of Common Stock or (ii) a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or any other person acting in a fiduciary or representative capacity
on behalf of such registered Stockholder. A Stockholder can, of course, revoke a
proxy at any time before it is voted, if so desired, by filing with the
Secretary of the Company an instrument revoking the proxy or by returning a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person. Any such filing should be sent to Riviera Holdings
Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109, Attention:
Secretary. Attendance at the Annual Meeting will not by itself constitute
revocation of a proxy.
The Company is paying all costs of the solicitation of proxies,
including the expenses of printing and mailing to its Stockholders this Proxy
Statement, the accompanying Notice of Annual Meeting of Stockholders, the
enclosed proxy card and the Annual Report. The Company will also reimburse
brokerage houses and other custodians, nominees and fiduciaries for their
expenses, in accordance with the regulations of the Securities and Exchange
Commission, in sending proxies and proxy materials to the beneficial owners of
the Company's Common Stock. Officers or employees of the Company may also
solicit proxies in person, or by mail, telegram or telephone, but such persons
will receive no compensation for such work, other than their normal compensation
as such officers or employees.
PURPOSE OF THE ANNUAL MEETING
At the Annual Meeting, the Stockholders will consider and vote upon:
1. the election of four directors to hold office until
the next annual meeting and until their respective
successors shall have been elected and qualified,
or, until resignation, removal or death as provided
in the Bylaws of the Company;
2. a shareholder proposal that the Board of Directors
take such action as may be necessary to establish a
policy relating to political contributions to
candidates for public office and that a list of all
such contributions, identifying the candidate, date
and amount, be made available annually to any
shareholder or investor; and
3. such other matters as may properly come before the
Annual Meeting or any adjournments or postponements
thereof.
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VOTE REQUIRED; PROXIES
The presence in person or by proxy of a majority of the shares of
Common Stock outstanding and entitled to vote as of the Record Date is required
for a quorum at the Annual Meeting. If a quorum is present, those nominated
directors who receive an affirmative vote of a majority of the shares
represented at the meeting shall be elected. Accordingly, shares which are
counted toward a quorum but are not voted in the election of directors
(including shares covered by a proxy as to which authority is withheld to vote
for all nominees) and shares not voted for any particular nominee (including
shares covered by a proxy as to which authority is withheld to vote for only one
or less than all of the identified nominees) could prevent the election of any
of the nominees for director. For all other matters submitted to Stockholders at
the meeting, if a quorum is present, the affirmative vote of a majority of the
shares represented at the meeting and entitled to vote is required for approval.
As a result, abstention votes will have the effect of a vote against such
matters.
Shares of Common Stock which are represented by properly executed
proxies, unless such proxies shall have previously been properly revoked, will
be voted in accordance with the instructions indicated in such proxies. If no
contrary instructions are indicated, such shares will be voted: (1) FOR the
election of all of the nominees for director named in this Proxy Statement; (2)
AGAINST proposal number 2 delineated in this Proxy Statement; and (3) in the
discretion of the persons named in the proxies as proxy appointees as to any
other matter that may properly come before the Annual Meeting.
Shares held by brokers and other Stockholder nominees may be voted on
certain matters but not others. This can occur, for example, when the broker or
nominee does not have the discretionary authority to vote shares of Common Stock
and is instructed by the beneficial owner thereof to vote on a particular matter
but is not instructed on other matters. These are known as "non-voted" shares.
Non-voted shares will be counted for purposes of determining whether there is a
quorum at the meeting, but with respect to the matters as to which they are
"non-voted," they will have no effect upon the outcome of the vote thereon.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of four members, all of
whom have been nominated for election at the Annual Meeting. If elected, such
directors will hold office until the next annual meeting of stockholders and
until their respective successors shall have been elected and qualified, or,
until resignation, removal or death as provided in the Bylaws of the Company.
Directors
The following table sets forth certain information as of April 3, 2001,
regarding the four nominees for director:
Name Age Position
William L. Westerman 69 Chairman of the Board and Chief
Executive Officer of the Company
and Riviera Operating Corporation
(ROC), a wholly-owned subsidiary
of the Company, and President of
the Company
Robert R. Barengo 59 Director of the Company and ROC
and Director of Government and
Public Affairs of ROC
James N. Land, Jr. 71 Director of the Company and ROC
Jeffrey A. Silver 56 Director of the Company and ROC
William L. Westerman has been Chairman of the Board and Chief Executive
Officer of the Company since February 1993. Mr. Westerman was a consultant to
Riviera, Inc. (the Company's predecessor) from July 1, 1991 until he was
appointed Chairman of the Board and Chief Executive Officer of Riviera, Inc. on
January 1, 1992. From 1973 to June 30, 1991, Mr. Westerman was President and
Chief Executive Officer of Cellu-Craft Inc., a manufacturer of flexible
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packaging primarily for food products, and then later had several positions with
Alusuisse, a multi-national aluminum and chemical company, following its
acquisition of Cellu-Craft in 1989. Mr. Westerman was on the Board of Managers
of Peninsula Gaming Partners, LLC from June, 1999 to December, 2000.
Robert R. Barengo has been a Director of the Company and ROC since February
1993. Mr. Barengo was a consultant to Riviera, Inc. from January 1993 until June
30, 1993. Since 1972, Mr. Barengo has been engaged in the private practice of
law in Reno, Nevada. Mr. Barengo was elected to the Nevada Assembly in 1972 and
served until 1982. In 1979, Mr. Barengo was elected Speaker Pro Tempore and in
1981 Mr. Barengo was elected Speaker of the Assembly. From October 1992 to May
1996, Mr. Barengo was a director and 10% shareholder of Leroy's Horse & Sports
Place, Inc. ("Leroy's"). In May 1996, Leroy's became a wholly owned subsidiary
of American Wagering, Inc. ("AWI"), a publicly held corporation listed on
NASDAQ. From May 1996 to March, 2000 Mr. Barengo was a director and is currently
a 7% shareholder of AWI. Since 1993, Mr. Barengo has been the President and the
sole stockholder of Silver State Disseminators Company, a company licensed by
Nevada gaming authorities to disseminate racing information in the State of
Nevada. In October 1992, the Governor appointed Mr. Barengo as a member of the
State of Nevada Dairy Commission and in July 1993, the Governor appointed Mr.
Barengo as Chairman of the State of Nevada Dairy Commission, a position he still
holds. Mr. Barengo was also a director of Saxton, Inc., until he resigned from
that position on April 12, 2000. Mr. Barengo accepted the position of Director
of Government and Public Affairs with ROC effective January 1, 2001, in addition
to his duties as a Board Member of the Company.
James N. Land, Jr. is currently a corporate consultant. Mr. Land was
elected a director of the Company and ROC on January 21, 1999. Mr. Land is also
a director of E. W. Blanch Holdings, Ltd. During the period 1956 to 1976, Mr.
Land was employed by The First Boston Corporation in various capacities,
including Director, Senior Vice President, Co-Head of Corporate Finance, and
Head of International Operations. From 1971 through 1989, he served as a
director of various companies, including Kaiser Industries Corporation, Marathon
Oil Company, Castle & Cooke, Inc., Manville Corporation, NWA, Inc. and Northwest
Airlines, Inc.
Jeffrey A. Silver has been a Director of the Company and ROC since February
26, 2001. Mr. Silver is currently a shareholder with Gordon & Silver, Ltd., a
law firm with its principal offices located in Las Vegas, Nevada. Mr. Silver
served as the Chief Deputy District Attorney, Clark County, Nevada from 1972 to
1975 and was a Board Member with the Nevada Gaming Control Board from 1975 to
1978 before engaging in the private practice of law from 1979 to 1981 and 1984
to the present. Mr. Silver was the COO and General Counsel of the Landmark Hotel
& Casino from 1981 to 1983, CEO of the Riviera Hotel & Casino from 1983 to 1984
and Senior Vice President at Caesars Palace in 1984. Mr. Silver served on the
Board of the Las Vegas Convention and Visitor's Authority from 1989 to 1992 as
Secretary/Treasurer where he also served as trustee. He was a member of the
Board of Directors of the Greater Las Vegas Chamber of Commerce from 1988 to
1995 and in 1988 was its Chairman. Mr. Silver served for four years as a member
of the United States Travel and Tourism Advisory Board. He was President of the
International Association of Gaming Attorneys from 1992 to 1994 and Chairman of
the ABA Section of Gaming Law from 1994 to 1996.
Richard L. Barovick, who was elected as a director of the Company and ROC
on August 4, 1998, resigned his positions effective August 17, 2000.
Compensation of Directors
Messrs. Land and Silver are each paid an annual fee of $50,000 for
services as a director of the Company and ROC. Each director is also reimbursed
for expenses incurred in connection with attendance at meetings of the Board of
Directors. On March 5, 1996 the Board of Directors adopted a Nonqualified Stock
Option Plan for Non-Employee Directors (the "Directors' Option Plan"), which was
approved by the stockholders on May 10, 1996. Under the Directors' Option Plan,
each individual elected, re-elected or continuing as a non-employee director
will automatically receive a non-qualified stock option for 2,000 shares of
Common Stock, with an option exercise price equal to the fair market value of
the Common Stock on the date of grant. 50,000 shares have been reserved for
issuance under the Directors' Option Plan. Under the Directors' Option Plans,
options to purchase 2,000 shares at an exercise price of $13.50 were granted to
Mr. Barengo on May 12, 1997, options to purchase 2,000 shares at an exercise
price of $9.00 were granted to Mr. Barengo on May 11, 1998, options to purchase
2000 shares at $4.88 per share were granted to Mr. Barengo on May 10, 1999 and
options to purchase 2,000 shares at $7.75 per share were granted to Mr. Barengo
on May 10, 2000. Upon becoming directors of the Company, under the Directors'
Option Plan, Mr. Land was granted options to purchase 2,000 shares at an
exercise price of $5.50 on January 21, 1999, and former director Mr. Barovick
was granted options to purchase 2,000 shares at an exercise price of $7.50 on
August 4, 1998. Messrs. Land and Barovick were each subsequently granted options
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to purchase 2,000 shares at an exercise price of $4.88 per share on May 10, 1999
and options to purchase 2,000 shares at an exercise price of $7.75 on May 10,
2000. On August 17, 2000, Mr. Barovick resigned from the Company's and ROC's
Board of Directors for personal and family reasons. The market price for the
Company's common stock at the close of business on the date of Mr. Barovick's
resignation was $7.50 per share. The Company paid Mr. Barovick the spread of the
vested portions of his options in the amount of $1,048.00 calculated as follows:
NUMBER OF MARKET PRICE PERCENT NUMBER AMOUNT
DATE SHARES OPTION PRICE 8/17/00 SPREAD VESTED SHARES VESTED DUE
08/04/98 2,000 $7.50 $7.50 $0.00 40% 800 0
05/10/99 2,000 $4.88 $7.50 $2.62 20% 400 $1,048
05/10/00 2,000 $7.75 $7.50 ($0.25) 0% 0 0
----- ----- ------
6,000 1,200 $1,048
===== ===== ======
Upon becoming Director of the Company, under the Directors' Option
Plan, Mr. Silver was granted options to purchase 2,000 shares at an exercise
price of $7.05 on February 26, 2001.
Directors who are also officers or employees of the Company or ROC do
not receive any additional compensation for services as a director. Currently,
Messrs. Westerman and Barengo are such directors. The Board of Directors has
granted the members of the Compensation Committee the right to elect to receive
all or part of their annual fees in the form of the Company's Common Stock in a
number of shares having a fair market value equal to the cash compensation
subject to such election pursuant to the Company's Compensation Plan for
Directors serving on the Compensation Committee. Of the 50,000 shares reserved
for issuance under this plan, 3,103 shares were issued to Mr. Barengo for a
portion of his director's fees in 1996 and 877 shares were issued to Mr. Barengo
for a portion of his director's fees in 1997.
Board of Directors and Committee Meetings
The Company established an Audit Committee at the beginning of 1994.
The Audit Committee is composed of Messrs. Land, Barengo and Silver. The Audit
Committee recommends to the Board of Directors the selection of an auditor,
reviews the plan and scope of an audit, reviews the auditors' critique of
management and internal controls and management's response to such critique and
reviews the results of the audit.
The Company and ROC each has a Compensation Committee composed of
Messrs. Land, Barengo and Silver. The Compensation Committee is responsible for
recommending executive compensation programs to the Board of Directors and for
approving all compensation decisions with respect to the Chief Executive Officer
and his recommendations for the other executive officers of the Company.
In 2000, the Audit Committee and the Compensation Committee each met 4
times.
In 2000, the Board of Directors of the Company held 7 meetings. No
member of the Board of Directors attended in 2000, fewer than 75% of the
aggregate of (1) the total number of meetings of the Board of Directors held
during the period for which he has been a director and (2) the total number of
meetings held by all committees on which he served.
The Board of Directors recommends that Stockholders vote "FOR" each of
the nominees listed above.
PROPOSAL NO. 2
POLITICAL CONTRIBUTION AND
DISCLOSURE POLICY
The Company has received notice that Derek D. Schaefer and Michael R.
Schaefer, 3930 Swenson Street, #105, Las Vegas, Nevada 89119, holders as joint
tenants of 778 shares of the Company's common stock intended to introduce the
following proposal (the "Schaefer Proposal"), at the Company's shareholder
meeting:
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That the Board of Directors take such action as may be
necessary to establish a policy relating to political
contributions to candidates for public office, and that a list
of all such contributions, identifying the candidate, date and
amount, be made available annually to any shareholder or
investor.
STATEMENT IN SUPPORT OF THE SCHAEFER PROPOSAL:
The amount of money involved in political contributions can be
substantial, Nevada law permitting up to $10,000 for any candidate and federal
law having `soft money' contribution opportunities that are almost without
limitation. Some companies donate exclusively to Democrats, or to Republicans,
even though their shareholders have a variety of political faiths. Some
companies donate only to those offices that directly affect the corporation's
business, such as State Legislature or the U.S. Congress, and never to judicial
or school-education related offices.
If our corporation has no policy with regards to political
contributions, it should. MGM Mirage contributes to candidates with whom it has
a `relationship; regardless of the political office, such as employees who are
candidates, or candidates who have a family-member employed in the industry.
Some corporations made no contributions at all as to the political process. It
is in the best interests of the shareholders that our corporation establish a
written policy that can be some guidance to those administering the numerous
requests received from both in and out of Nevada in the years to come, a policy
that can be debated and/or amended from time to time. Our corporation is a good
citizen in the business community of Nevada, and elsewhere (Colorado) and our
involvement, or lack of involvement, should not be a secret.
Please make your proxy FOR; otherwise management will vote your shares
AGAINST.
STATEMENT IN OPPOSITION OF THE SCHAEFER PROPOSAL:
The Company does have a policy in effect addressing political
contributions to candidates for public office. The Executive Committee reviews,
discusses, recommends and decides on each candidate for public office who
submits a request for political contribution. The Company assumes a non-partisan
position with regards to all such contributions. The Company has established the
position of maintaining the privacy of its policies and feels it is in its best
interests to maintain that position. The Schaefer Proposal, if approved, would
require the Company to amend its existing policy to require the Company to
publish a list of all political contributions, identifying the candidate, date
and amount of the contribution. Publicizing our policy would afford candidates
the opportunity to formulate their requests to meet the design of our policy.
Publicizing this or any of our policies is not in the best interests of the
Company and could have a detrimental effect on operations. In addition, all of
the information the Schaefer Proposal would require the Company to publish is
already available to the general public through each candidate's campaign
contribution filings.
The Board Of Directors Recommends That Stockholders Vote "AGAINST" This Proposal
No. 2.
OTHER INFORMATION
Executive Officers
The following table sets forth certain information as of April 3, 2001
regarding the executive officers of the Company and ROC:
Name Age Position
William L. Westerman 69 Chairman of the Board and Chief
Executive Officer of the Company
and ROC and President of the
Company
Duane R. Krohn 55 Treasurer and CFO of the Company
and ROC, and Executive Vice
President of Finance of ROC
Tullio J. Marchionne 46 Secretary and General Counsel
of the Company and ROC and Vice
President of ROC
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Robert A. Vannucci 53 President and Chief Operating
Officer of ROC
Ronald P. Johnson 52 Executive Vice President of
Gaming Operations of ROC
Jerome P. Grippe 58 Executive Vice President of
Operations of ROC
Michael L. Falba 58 Vice President of Casino
Operations of ROC
For a description of the business experience of William L. Westerman,
see "Directors."
Duane R. Krohn, CPA, assumed the position of Treasurer of the Company
and ROC on June 30, 1993 and was elected Vice President of Finance of ROC on
April 26, 1994, and Executive Vice President of Finance of ROC on July 1, 1998
and served as Secretary from June 8, 1999 to February 17, 2000. Mr. Krohn was
initially employed by Riviera, Inc. in April 1990, as Director of Corporate
Finance and 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.
Tullio J. Marchionne assumed the position of General Counsel of the
Company and ROC on January 10, 2000, was appointed Secretary of the Company and
ROC on February 17, 2000 and elected Vice President of ROC on February 26, 2001.
Mr. Marchionne was initially employed by Riviera, Inc., in June 1986 as a Casino
Games Dealer and served in various capacities including Pit Manager, General
Counsel and Director of Gaming Administration until September 1996, when the
Company and ROC transferred Mr. Marchionne to the Four Queens Hotel and Casino
as Director of Casino Operations pursuant to the management agreement the
Company had with the Four Queens at that time through the Company's wholly-owned
subsidiary, Riviera Gaming Management-Elsinore and served in that position until
May 1997. Mr. Marchionne served as the General Manager of the Regency Casino
Thessaloniki, located in Thessaloniki, Greece, from June 1997 until December
1997. Mr. Marchionne served as a Casino Supervisor with Bally's, Las Vegas, from
February 1998 until June 1998, Director of Casino Operations at the Maxim Hotel
and Casino in Las Vegas from June 1998 until November 1998 and Director of Table
Games at the Resort At Summerlin (a casino/hotel operated in Las Vegas) from
November 1998 until December 1999.
Robert A. Vannucci was elected Vice President of Marketing and
Entertainment of ROC on April 26, 1994, Executive Vice President of Marketing
and Entertainment on July 1, 1998 and President of ROC on October 1, 2000. Mr.
Vannucci had been Director of Marketing of ROC since July 19, 1993. Mr. Vannucci
was Senior Vice President of Marketing and Operations at the Sands Casino Hotel
in Las Vegas from April 1991 to February 1993. Mr. Vannucci was Vice President
and General Manager of Fitzgerald's Las Vegas (a casino/hotel operator) from
1988 to January 1991.
Ronald P. Johnson became Vice President of Gaming Operations of ROC in
September 1994, Executive Vice President of Gaming Operations of ROC on July 1,
1998, and on February 10, 1999, President of Riviera Black Hawk, Inc., the
Company's wholly-owned subsidiary which owns and operates the Riviera Black Hawk
Casino, a position he holds currently with his Executive Vice President of ROC
position. Mr. Johnson became Director of Slots on June 30, 1993 and was elected
Vice President of Slot Operations and Marketing on April 26, 1994. Mr. Johnson
was Vice President-Slot Operations and Marketing of Riviera, Inc. from April
1991 until June 30, 1993. Mr. Johnson was Vice President-Slot Operations for
Sands Hotel and Casino Inc. from September 1989 until he joined Riviera, Inc.
Jerome P. Grippe was elected Vice President of Operations of ROC on
April 26, 1994, Senior Vice President of Operations of ROC on July 1, 1998 and
Executive Vice President of ROC on September 1, 2000. Mr. Grippe served as
General Manager of the Four Queens Hotel and Casino from June, 1998 to
September, 1999 pursuant to the management agreement the Company had with the
Four Queens at that time through the Company's wholly-owned subsidiary, Riviera
Gaming Management-Elsinore and as General Manager of the Diamond Jo riverboat
casino located in Dubuque, Iowa from September, 1999 to July, 2000, pursuant to
a management agreement the Company had with Peninsula Gaming Company, LLC, which
owns and operates the Diamond Jo riverboat casino, and Riviera Gaming
Management, a wholly-owned subsidiary of the Company. Mr. Grippe performed in
the capacity as general manager at these properties concurrently with his duties
at the Company. Mr. Grippe became Director of Operations of ROC on June 30,
1993. Mr. Grippe was Assistant to the Chairman of the Board of Riviera, Inc.
from July 1990 until May 1993. Mr. Grippe had served in the United States Army
from 1964 until his retirement as a Colonel in July 1990.
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Michael L. Falba was elected Vice President of Casino Operations of ROC
on April 26, 1994. Mr. Falba became Director of Casino Operations of ROC on June
30, 1993. Mr. Falba was employed by Riviera, Inc. from March 1989 until November
1991 as Assistant Casino Manager, and from November 1991 to June 30, 1993 as
Vice President of Casino Operations.
Officers of each of the Company and ROC serve at the discretion of
their respective Boards of Directors and are also subject to the licensing
requirements of the Nevada Gaming Commission.
Compensation of Executive Officers
The following table sets forth a summary of the compensation paid by
the Company in the Years ended December 31, 1998, 1999 and 2000, to the Chief
Executive Officer of the Company and ROC, and to the Company's four most highly
compensated executive officers who received over $100,000 in compensation during
2000 from the Company (collectively, the "Named Executive Officers").
Name and Other Annual All Other
Principle Position Year Salary Bonus Compensation (1) Compensation (2)
William L. Westerman 2000 $600,000 $900,000 (3) $607,425 (4) $2,566
Chariman of the Board and 1999 600,000 900,000 (3) 140,300 (4) 2,566
Chief Executive Officer of the 1998 600,000 900,000 (3) 413,300 (4) 2,402
Company and ROC
Robert A. Vannucci 2000 $250,000 $236,166 (5) $7,425 $1,438
President and Chief Operating 1999 209,336 158,333 7,300 1,156
Officer of ROC 1998 183,710 84,000 7,300 818
Duane R. Krohn 2000 $237,500 $236,166 (6) $7,425 $1,438
Treasurer of the Company 1999 211,149 158,333 7,300 1,156
and Executive Vice President of 1998 160,040 84,000 7,300 563
Finance and Treasurer of ROC
Ronald P. Johnson 2000 $237,500 $236,166 (7) $7,425 $1,438
Executive Vice President of 1999 209,759 158,333 7,300 1,156
Gaming Operations of ROC 1998 188,757 84,000 7,300 818
Jerome P. Grippe 2000 $183,333 $211,166 (8) $7,425 $1,062
Executive Vice President of 1999 159,576 133,333 7,300 733
Operations of ROC 1998 134,196 84,000 7,300 469
(1) Includes amounts contributed by the Company under the Company's Profit
Sharing and 401(k) Plans. The Company contributed for the account of each
executive $7,425 in 2000, $7,300 in 1999 and$7,300 in 1998.
(2) Includes premiums paid by the Company for excess life insurance.
(3) See "Employment Agreements" for a summary of certain of the provisions of
Mr. Westerman's employment agreement.
(4) Includes contributions to Mr. Westerman's retirement account of $600,000
in 2000, $133,000 in 1999 and $406,000 in 1998. Does not include interest
earned on retirement account of $647,096 in 2000, $469,250 in 1999 and
$410,159 in 1998. (See "Employment Agreements")
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(5) Includes $100,000 current year incentive, $83,333 accrued Stay Put Bonus
and $52,833 Special Incentive Bonus. The Special Incentive Bonus was paid
in Restricted Stock on March 15, 2001 and the Stay Put Bonus will be
included in the Deferred Compensation Plan.
(6) Includes $100,000 current year incentive, $83,333 accrued Stay Put Bonus
and $52,833 Special Incentive Bonus, substantially all of which will be
included in the Company's Deferred Compensation Plan.
(7) Includes $100,000 current year incentive, $83,333 accrued Stay Put Bonus
and $52,833 Special Incentive Bonus, of which approximately 50% will be
included in the Company's Deferred Compensation Plan.
(8) Includes $100,000 current year incentive, $58,333 accrued Stay Put Bonus
and $52,833 Special Bonus. The Special Bonus was paid in Restricted Stock
on March 15, 2001 and approximately 40% of the current year incentive and
the Stay Put Bonus will be included in the Deferred Compensation Plan.
Option Grants
The number of shares available for purchase under the Company's 1993
Employee Stock Option Plan, as amended (the "Stock Option Plan") is 1,000,000
(as adjusted pursuant to antidilution provisions). Options for an aggregate of
1,000,000 shares have been granted under the Stock Option Plan as of December
31, 2000. During the Company's 2000 fiscal year 93,000 options were granted
under the Stock Option Plan.
Option Exercises, Year-End Options Values and Option Grants in 2000
The following table presents at December 31, 2000 the value of
unexercised in-the-money options held by the Named Executive Officers.
Number of Value of Unexercised,
Unexercised Options In-The-Money Options
---------------------------- ------------------------
Name Vested Not Vested Vested Not Vested
William L. Westerman 320,000 0 $0 $0
Robert A. Vannucci 22,000 15,000 14,083 13,438
Duane R. Krohn 22,000 15,000 14,083 13,438
Ronald P. Johnson 22,000 15,000 14,083 13,438
Jerome P. Grippe 17,500 10,500 9,844 9,406
The following table presents options granted during 2000.
Individual Grants Potential Realizable Value at
Assumed Annual Rates of
Percent of Stock Price Appreciation for
Total Option Term
Number of Options
Underlying Granted to Exercise of
Options Employees Base Price Expiration 5% 10%
Name Granted in 2000 Per Share Date
Robert A. Vannucci 10,000 10.8% $7.6875 4/26/10 $125,221 $199,394
Duane R. Krohn 10,000 10.8% 7.6875 4/26/10 125,221 199,394
Ronald P. Johnson 10,000 10.8% 7.6875 4/26/10 125,221 199,394
Jerome P. Grippe 7,000 7.5% 7.6875 4/26/10 87,655 139,576
Option Surrenders
On November 26, 1996, 414,000 stock options were granted to eighteen
Riviera Executives at an option price of $13.625 per share, 320,000 of which
were granted to Mr. Westerman. Two of these executives' options totaling 11,000
shares have since been cancelled due to those executives leaving the Company,
resulting in a balance of 403,000 options at $13,625 per share held by sixteen
Company executives. These options were vested in their entirety in these sixteen
executives.
On January 16, 2001, the Board approved a Stock Option Surrender Plan
(the "Surrender Plan"). Pursuant to the Surrender Plan, each executive could
surrender all or any portion of his/her $13.625 options. Further, the Company
may, but is not obligated, grant new options in an amount no less than the
shares surrendered, to be issued no sooner than six months and a day after the
9
surrender of the $13.625 options. Any new options granted will be at the price
of the Company's common stock on the date of grant and are subject to the
vesting requirements of the Company's Employee Stock Option Plan.
All sixteen Company executives surrendered the entire balance of
403,000 of the $13.625 options effective January 31, 2001.
10
The following table presents the value of unexercised in-the-money
options held by the Named Executive Officers as of January 31, 2001, following
the surrender of the $13.625 options utilizing the December 31, 2000 price of
the Company's Common Stock.
Number of Value of Unexercised,
Unexercised Options In-The-Money Options
Name Vested Not Vested Vested Not Vested
William L. Westerman 0 0 $0 $0
Robert A. Vannucci 15,000 15,000 14,063 13,438
Duane R. Krohn 15,000 15,000 14,063 13,438
Ronald P. Johnson 15,000 15,000 14,063 13,438
Jerome P. Grippe 10,500 10,500 9,844 9,406
Employment Agreements
William L. Westerman serves as Chairman of the Board, President and
Chief Executive Officer of the Company, and as Chairman of the Board and Chief
Executive Officer of ROC.
Under Mr. Westerman's existing employment agreement with the Company,
which was last amended on December 6, 2000, Mr. Westerman shall be employed by
the Company for an indefinite period subject to termination by either the
Company or Mr. Westerman on not less than 120 days prior written notice. Mr.
Westerman's base compensation is $600,000.
Under his employment agreement, Mr. Westerman is entitled to
participate in the Company's Senior Management Compensation Plan or such other
executive bonus plan as shall be established by the Company's Board of Directors
(collectively the "Plan"). If at least 80% of targeted net income, as defined by
the Plan, is met, Mr. Westerman shall be entitled to receive a bonus under the
Plan expressed as a percentage of his $600,000 base salary depending on the
percentage of targeted net income realized by the Company in a particular year,
with a maximum bonus of $900,000. Mr. Westerman received an incentive bonus of
$900,000 for 2000. Pursuant to the December 6, 2000 amendment to the extent Mr.
Westerman's bonus exceeds $400,000 in 2001 and each succeeding year, such excess
amount shall be deducted from the principal balance of his retirement account at
the time the bonus is paid.
The employment agreement provides that the Company fund a retirement
account for Mr. Westerman. Pursuant to the employment agreement, an aggregate of
$6,533,000 had been credited to the retirement account from its inception
through January 1, 2001. Under the employment agreement, each year that Mr.
Westerman continues to be employed, an amount equal to Mr. Westerman's base
salary for that year was credited to the account on January 1 of that year.
Pursuant to the December 6, 2000, amendment to Mr. Westerman's employment
agreement, the January 1, 2001 contribution was the final principal contribution
to the retirement account.
The Company retains beneficial ownership of all monies in the
retirement account, which monies are earmarked to pay Mr. Westerman's retirement
benefits. However, upon (i) the vote of a majority of the outstanding shares of
Common Stock approving a "Change of Control" (as defined below), (ii) the
occurrence of a Change of Control without Mr. Westerman's consent, (iii) a
breach by the Company of a material term of the employment agreement or (iv) the
expiration or earlier termination of the term of the employment agreement for
any reason other than cause, Mr. Westerman had the right to require the Company
to establish a "Rabbi Trust" for the benefit of Mr. Westerman. He also has the
right to require the Company to fund such trust with an amount of cash equal to
the amount then credited to the retirement account, including any amount to be
credited to the retirement account upon a Change of Control.
On February 5, 1998, the stockholders of the Company by a majority vote
approved the Agreement and the Plan of Merger with R&E Gaming Corp. and its
wholly-owned subsidiary Riviera Acquisition Sub, Inc. Such stockholder approval
constituted a Change of Control. On March 5, 1998, subsequent to this Change of
Control, Mr. Westerman exercised his right to require the Company to establish
and fund a Rabbi Trust for his benefit. On March 20, 1998, Mr. Westerman and the
Company entered into an agreement whereby Mr. Westerman waived his right to have
the Company fund the Rabbi Trust in exchange for the Company agreeing to fund
such Rabbi Trust within five business days after notice from Mr. Westerman. The
merger agreement was subsequently terminated and litigation ensured as described
in Item 3, Legal Proceedings.
11
In the event that Mr. Westerman is no longer employed by the Company
(except for termination for cause, in which case Mr. Westerman would forfeit all
rights to monies in the retirement account), Mr. Westerman will be entitled to
receive the amount in the retirement account (principal and current interest) in
20 equal installments as of the date he ceases to be employed by the Company. In
the event that Mr. Westerman's Rabbi Trust has not yet been funded, the balance
of principal and interest of the retirement account shall be paid directly to
Mr. Westerman upon his retirement, termination (except for cause) or upon a
change in control of the Company.
Pursuant to the employment agreement, the retirement account was
credited quarterly with interest and shall be credited with additional amounts
on the first day of each succeeding calendar quarter equal to the product of (i)
the Company's average borrowing cost for the immediately preceding fiscal year,
as determined by the Company's chief financial officer and (ii) the average
outstanding balance in the retirement account during the preceding calendar
quarter. This interest continues to accrue pursuant to the December 6, 2000
amendment. Total interest earned was $647,418 for 2000, $487,729 for 1999 and
$410,159 for 1998. In the event the Rabbi Trust has been funded, upon Mr.
Westerman's death, an amount equal to the applicable federal estate tax (now
60%) on the retirement account will be pre-paid prior to the date or dates such
taxes are due.
Mr. Westerman's employment agreement provides (a) that the sum of Mr.
Westerman's base salary, bonus, and credits to his Retirement Account in any one
year shall not exceed that which would have been payable under his previous
employment agreement with the Company, and (b) that Mr. Westerman shall instruct
the Company of any reductions in base salary, bonus, and credits to his
retirement account necessary to comply with this limitation. The Company
determined that for the year 1999, a reduction of $467,000 would be necessary to
comply with this provision. For 1998 the Company determined a reduction of
$194,000 was necessary to comply with this provision. Prior to December 31,
1999, and December 31, 1998, Mr. Westerman instructed the Company that this be
applied to reduce the amount to be credited to his retirement account from
$600,000 to $133,000 and to $406,000 respectively.
In addition to Mr. Westerman, three executives have employment
agreements with the Company.
Mr. Vannucci was appointed President of ROC effective October 1, 2000.
Mr. Vannucci's employment agreement was amended at that time to reflect this
appointment. Mr. Vannucci's base compensation is $300,000. Mr. Vannucci's
employment agreement contains a Termination Fee Agreement and a Stay Bonus
Agreement. See "Termination Fee Agreements" and "Stay Bonus Agreements". It also
provides for a "Normal Incentive Bonus" entitling Mr. Vannucci to participate in
the Company's Incentive Compensation Plan (the "Plan") whereby he may share a
portion of the Plan's pool which provides for a target of $25 million EBITDA for
the years 2000 and 2001 with amounts being credited to the Plan's pool up to a
maximum of $1.2 million. Mr. Vannucci's Incentive Bonus for the year 2000 was
$100,000. Mr. Vannucci's employment agreement also provides for a "Special
Incentive Bonus" in an amount equal to one-third of any excess of $1.2 million
which would have been credited to the Incentive Bonus Pool. In 2000, there was
such an excess of approximately $158,500 of which Mr. Vannucci received
one-third (1/3) or $52,833.
Mr. Vannucci also receives compensation in the form of restricted stock
pursuant to the Company's Restricted Stock Plan (see "Restricted Stock Plan").
Mr. Vannucci's agreement provides that he is to receive $25,000 in Company
restricted common stock at market from treasury on the first business day of
each quarter, plus Company restricted common stock at market from treasury in
the same amount he receives pursuant to the Company's Incentive Compensation
Plan. Pursuant to the Restricted Stock Plan, Mr. Vannucci may not sell, assign,
pledge, encumber or otherwise transfer any of the restricted shares so long as
Mr. Vannucci is employed by the Company, without the written consent of the
Company. The Restricted shares fully vest to Mr. Vannucci upon his separation of
employment from the Company, so long as such separation is not a termination for
cause. Mr. Vannucci's agreement is effective until December 31, 2001, and
automatically renews annually subject to one-hundred twenty (120) days prior
written notice by either party.
Duane Krohn (Treasurer of the Company and Executive Vice President of
Finance of ROC) and Ronald Johnson (Executive Vice President of Gaming of ROC
and President of the Company's wholly owned subsidiary, Riviera Black Hawk, Inc)
each have employment agreements. Messrs. Krohn and Johnson each have a base
compensation of $250,000. Their employment agreements each contain a Termination
Fee Agreement and a Stay Bonus Agreement. See "Termination Fee Agreements" and
"Stay Bonus Agreements". They also provide for a "Normal Incentive Bonus"
entitling Messrs. Krohn and Johnson to participate in the Company's Incentive
12
Compensation Plan (the "Plan"), whereby they may share a portion of the Plan's
pool which provides for a target of $25 million EBITDA for the years 2000 and
2001 with amounts being credited to the Plan's pool up to a maximum of $1.2
million. Messrs. Krohn and Johnson each received an Incentive Bonus in the
amount of $100,000 for 2000. These employment agreements also provide for a
"Special Incentive Bonus" in an amount equal to one-third of any excess of $1.2
million, which would have been credited to the Incentive Bonus Pool. In 2000
there was such an excess of approximately $158,500 resulting in Messrs. Krohn
and Johnson each receiving $52,833 for the Special Incentive Bonus. Messrs.
Krohn and Johnson's employment agreements are in effect until June 30, 2001.
Profit Sharing and 401(k) Plans
On June 30, 1993, the Company and ROC assumed the combined profit
sharing and 401(k) plans of Riviera, Inc. (the "Profit Sharing and 401(k)
Plans") and the Company and ROC have continued the Profit Sharing and 401(k)
Plans after June 30, 1993. The Company and ROC have amended the Adoption
Agreement to provide that all current employees of Riviera Las Vegas who were
employed on April 1, 1992, who were at least 21 years of age and who are not
covered by a collective bargaining agreement are immediately eligible to
participate in the Profit Sharing and 401(k) Plans. The amendment provides
further that all current employees who were employed by Riviera Las Vegas after
April 1, 1992, who are at least 21 years of age and who are not covered by a
collective bargaining agreement are eligible to participate after one year of
service at the Riviera Las Vegas.
The Company has identical plans for its 100% indirectly owned
subsidiary, Riviera Black Hawk, Inc., which operates its casino in Black Hawk,
Colorado. Employees hired prior to June 30, 2000, who were at least 21 years of
age and who were not covered by a collective bargaining agreement were
immediately eligible to participate in the Profit Sharing and 401(k) Plans.
After June 30, 2000, all new employees who are at least 21 years of age and who
are not covered by a collective bargaining agreement are eligible to participate
after one year of service at Riviera Black Hawk.
The Company may make a contribution to the 401(k) component of the Plan
in an amount not to exceed twenty-five percent (25%) of the first eight percent
(8%) of each participant's compensation, which is contributed as a salary
deferral.
The profit sharing component of the Profit Sharing and 401(k) Plans
provides that the Company will make a contribution equal to 1% of each eligible
employee's annual compensation if a prescribed annual operating earnings target
is attained and an additional 1% thereof for each $2 million by which operating
earnings is exceeded, up to a maximum of 3% thereof. The Company may elect not
to contribute to the Profit Sharing and 401(k) Plans if it notifies its
employees by January of the Profit Sharing and 401(k) Plans year. An employee
will become vested in the Company's contributions based on the employee's years
of service. An employee will receive a year of vesting service for each plan
year in which the employee completed 1,000 hours of service. Vesting credit will
be allocated in 20% increments for each year of service commencing with the
attainment of two years of service. An employee will be fully vested following
the completion of six years of service.
Effective January 1, 2000, the Company suspended contributions to the
Profit Sharing Plan and substituted contributions to an Employee Stock Ownership
Plan ("ESOP"), (see "Employee Stock Ownership Plan", directly below).
Employee Stock Ownership Plan
On October 2, 2000, the Board of Directors adopted an Employee Stock
Ownership Plan ("ESOP"). The ESOP was established effective January 1, 2000 and
replaces the profit sharing contribution component of the Profit Sharing and
401(k) Plans. The 401(k) component remains unchanged. The ESOP provides that all
employees of Riviera Las Vegas and Riviera Black Hawk employed in the Plan Year
who had completed a minimum of one thousand hours of service in that Plan Year,
were employed through December 31 of that Plan Year, were at least 21 years of
age and were are not covered by a collective bargaining agreement are eligible
to participate in the ESOP. The ESOP provides that the Company will make a
contribution to the ESOP's participants of its Las Vegas and Black Hawk
properties relative to the economic performance of each property. For Riviera
Las Vegas, the Company will make a contribution equal to 1% of each eligible
employee's annual compensation if a prescribed annual operating earnings target
is attained and an additional 1% thereof for each $2 million by which operating
earnings is exceeded, up to a maximum of 4% for 2000 and 5% thereafter. For
Riviera Black Hawk, the Company will make a contribution equal to 1% of each
eligible employee's annual compensation if a prescribed annual operating
earnings target is attained and an additional 1% thereof for each $1 million by
13
which operating earnings is exceeded, up to a maximum of 4% for 2000 and 5%
thereafter. Under the ESOP, the Company contribution will be made in cash which
will be used to buy Company common stock.
Deferred Compensation Plan
On October 2, 2000, the Board of Directors adopted a Deferred
Compensation Plan (the "Plan"). The purpose of the Plan is to provide eligible
employees of the Company with the opportunity to defer the receipt of cash
compensation. Participation in the non-qualified Plan is limited to highly
compensated employees who receive compensation of at least $100,000. The
deferred funds are maintained on the Company books as unfunded liabilities. All
elections to defer the receipt of compensation must be made no later than the
December 1st preceding the Plan Year to which the election relates and are
irrevocable for the duration of that Plan Year. Six Company executives are
currently participating in the Plan.
Restricted Stock Plan
On October 2, 2000, the Board of Directors adopted a Restricted Stock
Plan to provide incentives which will attract and retain highly competent
persons as officers and key employees by providing them opportunities to receive
restricted shares of the Company's Common Stock. Participants will consist of
such officers and key employees of the Company as the Company's Compensation
Committee determines to be significantly responsible for the success and future
growth and profitability of the Company. Awards of restricted stock are subject
to such terms and conditions as the Company determines to be appropriate at the
time of the grant, including restrictions on the sale or other disposition of
such shares and the provisions for the forfeiture of such shares for partial or
no consideration upon termination of the participant's employment within
specified periods or under certain conditions. Mr. Robert Vannucci and Mr.
Jerome P. Grippe, President and Executive Vice President, respectively, of the
Company's wholly-owned subsidiary, Riviera Operating Corporation, are currently
the only participants in the Restricted Stock Plan.
Key Employee Retention Plan
As a result of the scheduled openings of several new Las Vegas Strip
properties in 1998, 1999 and 2000, an estimated 38,000 jobs had to be filled on
the Las Vegas Strip, including approximately 5,000 supervisory positions.
Because of the Riviera's performance and reputation, its employees were prime
candidates to fill these positions. In the third quarter of 1998, management
instituted an employee retention plan which covers approximately 85 executive,
supervisory and technical support positions and includes a combination of
employment contracts, stay put agreements, bonus arrangements and salary
adjustments.
Stay Bonus Agreements
Approximately 85 executive officers and significant employees
(excluding Mr. Westerman) of ROC are party to agreements pursuant to which each
such employee is entitled to receive a "stay bonus" (varying amounts) if the
employee is discharged without cause (as defined in the stay bonus agreements),
or continues to be employed by the Company on each of January 1, 2000, January
1, 2001 and June 30, 2001. The estimated total amount that was payable under all
such agreements was approximately $2.2 million, of which approximately $610,000
was paid in January, 2000, $1,068,000 was paid in January, 2001 and $462,500
will be paid on June 30, 2001.
Termination Fee Agreements
Approximately 85 executive officers and significant employees
(excluding Mr. Westerman) of ROC have termination fee agreements effective
through December 2001, pursuant to which each of such employees will be entitled
to receive (1) either six months' or one year's base salary if their employment
with the Company is terminated, without cause, within 12 or 24 months of a
change of control of the Company or ROC; and (2) group health insurance for
periods of either one or two years. The base salary payments are payable in
bi-weekly installments subject to the employee's duty to mitigate by using his
or her best efforts to find employment. The estimated total amount that would be
payable under all such agreements is approximately $5 million including $1.2
million in benefits, as of December 31, 2000.
14
Compensation Committee Report on Executive Compensation
The Compensation Committee endeavors to ensure that the compensation
program for executive officers of the Company is effective in attracting and
retaining key executives responsible for the success of the Company and is
tailored to promote the long-term interests of the Company and its stockholders.
The Company's executive officer compensation program in its last completed
fiscal year was principally comprised of base salary, an executive incentive
plan, a 401(k) plan, a profit-sharing plan (revised to provide contributions to
ESOP) and long-term incentive compensation in the form of incentive stock
options or non-qualified stock options, a deferred compensation plan and a
restricted stock plan.
The Compensation Committee takes into account various qualitative and
quantitative indicators of corporate and individual performance in determining
the level and composition of compensation for the Company's Chief Executive
Officer and his recommendations regarding the other executive officers. In
particular, the Compensation Committee considers several financial performance
measures, including revenue growth and net income. However, the Compensation
Committee does not apply any specific quantitative formula in making
compensation decisions. The Committee also considers achievements that, while
difficult to quantify, are important to the Company's long-term success. The
Compensation Committee seeks to create a mutuality of interest between the
executive officers and the Company's stockholders by increasing the executive
officers' ownership of the Company's Common Stock through the Stock Option Plan,
ESOP, Deferred Compensation Plan and Restricted Stock Plan.
Salary levels for the Company's executive officers are significantly
influenced by the need to attract and retain management employees with high
levels of expertise. In each case, consideration is given both to personal
factors, such as the individual's experience, responsibilities and work
performance, and to external factors, such as salaries paid by comparable
companies in the gaming industry. With regard to the latter, it is important to
recognize that because of the opening of new properties on the Las Vegas Strip
in 1998, 1999 and 2000 and the growth of riverboat and dockside gaming, Native
American gaming operations and the proliferation of jurisdictions in which
gaming is permitted, the Company competes with numerous other companies for a
limited pool of experienced and skilled personnel. Therefore, it is critical
that the Company provide base salaries that are competitive in the casino
industry. With respect to the personal factors, the Compensation Committee makes
salary decisions in an annual review based on the recommendations of the Chief
Executive Officer. This annual review considers the decision-making
responsibilities of each position as well as the experience and work performance
of each executive. The Chief Executive Officer views work performance as the
single most important measurement factor.
The compensation of Mr. Westerman for the Company's last completed
fiscal year was set pursuant to the employment agreement described in the
"Compensation of Executive Officers" section.
Date: February 26, 2001 Jeffrey A. Silver Chairman
Robert R. Barengo Member
James N. Land Member
Audit Committee Report
In accordance with its written charter adopted by the Board of
Directors, the Audit Committee of the Board assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of the Company. The Audit Committee
is comprised of two independent members and one non-independent member. Robert
Barengo is the non-independent member of the Audit Committee. Mr. Barengo's
status as a non-independent member is the result of his receiving a consulting
fee in excess of $60,000 in 1998, 1999 and 2000 and by way of his becoming an
employee of the Company effective January 1, 2001. The consulting arrangement
between the Company and Mr. Barengo terminated as of December 31, 2000. Due to
Mr. Barengo's knowledge of general business matters, his experience within the
gaming industry and his tenure on the Company's Board (Mr. Barengo has been a
15
member of the Board since the Company's inception in 1993), it is the Board's
determination that it is in the best interests of the Company and its
Shareholders that Mr. Barengo serve as a member of the Company's Audit
Committee.
During fiscal year ended December 31, 2000, the Audit Committee met
four times, and the Audit Committee chair, as representative of the Audit
Committee, discussed the interim financial information contained in each
quarterly earnings announcement with the CFO, controller and independent
auditors prior to public release.
In discharging its oversight responsibility as to the audit process,
the Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence consistent with Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees,"
discussed with the auditors any relationships that may impact their objectivity
and independence and satisfied itself as to the auditors' independence. The
Audit Committee specifically addressed, discussed and concluded that the
independent auditors' provision of non-audit services was compatible with
maintaining the auditors' independence. The Audit Committee also discussed with
management, the internal auditors and the independent auditors the quality and
adequacy of the Company's internal controls and the internal audit function's
organization, responsibilities, budget and staffing and concurred in the
appointment of a new director of internal audit. The Audit Committee reviewed
with both the independent and the internal auditors their audit plans, audit
scope, and identification of audit risks.
The Audit Committee discussed and reviewed with the independent
auditors all communications required by generally accepted auditing standards,
including those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Audit Committee also discussed the results of the
internal audit examinations.
The Audit Committee reviewed the audited financial statements of the
Company as of and for the fiscal year ended December 31, 2000, with management
and the independent auditors. Management has the responsibility for the
preparation of the Company's financial statements and the independent auditors
have the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and
the independent auditors, the Audit Committee recommended to the Board that the
Company's audited financial statements be included in its Annual Report on Form
10-K (or 10-KSB) for the fiscal year ended December 31, 2001, for filing with
the Securities and Exchange Commission. The Audit Committee also recommended the
reappointment of the independent auditors and the Board concurred in such
recommendation.
Audit Fees
The Company paid the independent auditors, Deloitte & Touche LLP, the
member firms of Deloitte Touche, Tohmatsu and their respective affiliates
(collective "Deloitte") a total of $185,000 for the fiscal year 2000 for the
preparation of the Company's annual audit and review of the Company's annual
financial statements and for review of the financial statements included in the
Company's quarterly reports on form 10-Q for the first three quarters of fiscal
2000, including its reporting subsidiaries.
Financial Information Systems Design and Implementation Fees
Deloitte has not provided any information technology services to the
Company during fiscal 2000.
All Other Fees
The Company paid Deloitte a total of $43,350 for other professional
services rendered in fiscal 2000, including professional services in connection
with income tax and benefit plan audit services. The Audit Committee has
considered whether the provision by Deloitte of the non-audit services listed
above is compatible with maintaining Deloitte's independence.
Date: February 26, 2001 James N. Land, Jr. Chairman
Robert R. Barengo Member
Jeffrey A. Silver Member
16
Performance Graph
The following graph compares the annual change in the cumulative total
return, assuming reinvestment of dividends, on the Company's Common Stock with
the annual change in the cumulative total returns of the NASDAQ Broad Market,
the American Stock Exchange Index (the "AMEX Index"), the New York Stock
Exchange (the "NYSE") and the NASDAQ Amusement and Recreation Services Index
(the "NASDAQ 79xx"), which the Company considers to be its peer industry group.
The graph assumes an investment of $100 on May 13, 1996, in each of the Common
Stock, the stocks comprising the NASDAQ Broad Market, the stocks comprising the
AMEX Index and the stocks comprising the NASDAQ 79xx.
The graph is a Comparison of Cumulative Total Return Among the Company, NYSE/
AMEX/Nasdaq Stock Market (US Companies) and Nasdaq stocks (SIC 7900-7999 US
Companies amusement and recreation services)(1).
Riviera NYSE/AMEX/Nasdaq Nasdaq
US Companies (SIC 79xx)
US Amusement Companies
5/13/96 100.0 100.0 100.0
12/31/96 95.8 110.6 82.3
12/31/97 86.6 144.7 98.2
12/31/98 29.4 178.7 85.0
12/31/99 42.9 224.2 109.2
12/31/00 47.9 199.1 92.2
(1) Comprised of companies whose stock is traded on the Nasdaq National Market
and whose standard industrial classification is within 7900-7999. The
Company does not necessarily believe that this is an indication of the value
of the Company's stock.
17
Stock Transactions
On April 20, 2000, pursuant to a private transaction with personal
funds, Messrs. Westerman, Barengo, Krohn and Johnson purchased, for their
personal accounts, a total of 466,030 shares of the Company's common stock from
Morgens, Waterfall, Vintiadis & Company, Inc. at the price of $7.50 per share
for an aggregate amount of $3,495,225. This transaction represented 12% of the
Company's outstanding common stock. Mr. Westerman purchased 346,030 shares for
his private account. Mr. Barengo 100,000 shares for his private account, Mr.
Krohn 10,000 shares for his private account and Mr. Johnson 10,000 shares for
his private account.
On August 29, 2000, pursuant to a private transaction, the Company
purchased 115,000 shares of the Company's common stock from the holdings of
James D. Bennett at the price of $7.50 per share for an aggregate amount of
$862,500. This transaction represented 3% of the Company's outstanding common
stock.
On October 24, 2000, pursuant to a private transaction, the Company
purchased 50,000 shares of the Company's common stock from the holdings of Don
H. Barden at the purchase price of $7.125 per share for an aggregate amount of
$356,250. This transaction represented 1.3% of the Company's outstanding common
stock.
On December 19, 2000, pursuant to a private transaction, the Company
purchased 92,893 shares of the Company's common stock primarily from the
holdings of Stephen S. Taylor at the purchase price of $7.05 per share for an
aggregate amount of $654,896. This transaction represented 2.5% of the Company's
outstanding common stock.
On January 3, 2001, pursuant to a private transaction, the Company
purchased 7,000 shares of the Company's common stock from the holdings of James
D. Bennett at the price of $7.05 per share.
The Company does not intend to bid for its stock in the open market,
however, it may respond to unsolicited offers in privately negotiated
transactions in the future.
Security Ownership of Certain Beneficial Owners and Management
The Common Stock is traded on the American Stock Exchange. The
following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 3, 2001, by (i) each person who, to
the knowledge of the Company, beneficially owns more than 5% of the outstanding
Common Stock of the Company (based on reports filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, or upon
information furnished to the Company), (ii) the directors and certain officers
of the Company and (iii) all directors and officers of the Company and ROC as a
group. The percentages of shares of Common Stock held or beneficially owned by
any Stockholder or group of Stockholders are based upon the total number of
shares of Common Stock outstanding as of April 3, 2001. Except as indicated,
each person listed below has sole voting and investment power with respect to
the shares set forth opposite such person's name.
Shares Beneficially Owned
Name Number Percentage
William L. Westerman(1) 646,030 17.6
Robert R. Barengo(1)(2) 112,980 3.0
James N. Land, Jr. (1)(3) 3,500 *
Ronald P. Johnson(1)(4) 88,578 2.4
Duane R. Krohn(1)(4) 86,150 2.3
Robert Vannucci(1)(5) 37,646 1.0
Jerome P. Grippe(1)(6) 31,720 *
Tullio J. Marchionne(1)(7) 2,600 *
Keyport Life Insurance Co.(8) 857,160 23.4
SunAmerica Life Insurance Company(9) 500,000 13.6
James D. Bennett(10) 364,070 9.9
Stephen S. Taylor(11) 149,700 4.1
All executive officers and directors as a group
(11 persons).(1)(2)(3)(4)(5)(6)(7) 1,031,310 27.2
* Less than 1%.
18
(1) The address for each director and officer of the Company or ROC is c/o
Riviera Holdings Corporation, 2901 Las Vegas Boulevard South, Las
Vegas, Nevada 89109.
(2) Includes 4,000 shares which may be acquired within 60 days of April 3,
2001, upon the exercise of outstanding options.
(3) Includes 1,200 shares which may be acquired within 60 days of April 3,
2001, upon the exercise of outstanding options.
(4) Includes 19,000 shares which may be acquired within 60 days of April
3, 2001, upon the exercise of outstanding options.
(5) Includes 19,000 shares which may be acquired within 60 days of April 3,
2001, upon the exercise of outstanding options and 3,478 shares which
may be acquired within 60 days of April 3, 2001, pursuant to the terms
of the Company's Restricted Stock Plan.
(6) Includes 10,500 shares which may be acquired within 60 days of April 3,
2001, upon the exercise of outstanding options.
(7) Includes 1,000 shares which may be acquired within 60 days of April 3,
2001, upon the exercise of outstanding options.
(8) The address for Keyport Life Insurance Company ("Keyport") is 125
High Street, Boston Massachusetts 02110. Stein Roe & Farnham
Incorporated, 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 Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Stein Roe & Farnham
Incorporated, however, disclaims actual beneficial ownership of such
securities.
(9) The address for SunAmerica Life Insurance Company ("SunAmerica") is One
SunAmerica Center, Los Angeles, California 90067.
(10) Includes (a) 254,849 shares held by Restructuring Capital Associates,
L.P., and Bennett Restructuring Fund, L.P., and (b) 109,221 shares
held by Bennett Offshore Restructuring Fund, Inc. The address for Mr.
Bennett is c/o Restructuring Capital Associates, L.P., 450 Park Avenue,
New York, New York 10022.
(11) Mr. Taylor's address is 714 South Dearborn Street, Chicago, Illinois
60605.
The Company is a party to a registration rights agreement with, among
others, Keyport, SunAmerica and affiliates of Restructuring Capital, each of
which owns more than 5% of the Common Stock. Pursuant to the Equity Registration
Rights Agreement dated June 30, 1993, among the Company and the Holders of
Registerable Shares referred to therein, each of the three largest holders of
Common Stock is entitled to cause the Company to file a registration statement
and holders of 51% or more of the shares of Common Stock then subject to the
Equity Registration Rights Agreement are entitled to cause the Company to file
two registration statements, registering under the Securities Act, the offer and
sale of Common Stock owned by such persons. All other Holders of Registerable
Shares will be entitled to have shares of Common Stock owned by them included in
any such registrations in addition, the agreement grants to each party the right
to have included, subject to certain limitations, all shares of Common Stock
owned by such party in any registration statement filed by the Company under the
Securities Act, including those filed on behalf of the Company or security
holders not party to the Equity Registration Rights Agreement. Pursuant to the
agreement, the Company will pay all costs and expenses, other than underwriting
discounts and commissions, in connection with the registration and sale of
Common Stock under the agreement.
19
Certain Relationships and Related Transactions
William L. Westerman served as a Manager on the Board of Managers of
Peninsula Gaming Partners, LLC ("Partners"). Partners is the parent of Peninsula
Gaming Company, LLC, which owns and operates the Diamond Jo riverboat casino
located in Dubuque, Iowa. Partners engaged Riviera Gaming Management, Inc.
("RGM"), a wholly owned subsidiary of the Company to assist on an interim basis
with transitional matters, including the selection of a new Chief Operating
Officer to oversee the Diamond Jo operations. RGM has earned fees and expenses
in the amount of $278,545 for the year ended December 31, 2000 in connection
with this engagement. The Company believes that the fees are no less favorable
than would have been paid in an arms length transaction. The Agreement was
terminated effective September 30, 2000, and Mr. Westerman resigned his position
on the Peninsula Board on December 31, 2000.
Robert R. Barengo was formerly a director and 10% stockholder of
Leroy's. In May 1996, Leroy's became a wholly-owned subsidiary of American
Wagering, Inc. ("AWI"), a publicly held corporation listed on NASDAQ. From May
1996 to March, 2000, Mr. Barengo was a director and is currently a 7%
shareholder of AWI, which leases approximately 12,000 square feet of the Riviera
Hotel & Casino's casino floor. AWI is the operator of the Riviera Hotel &
Casino's sports book operations. This lease was assumed by the Company from
Riviera, Inc. and is still in effect. The lease provides for rental payments
based upon the monthly and annual revenues derived by AWI from the location.
From January 1, 2000 through December 31, 2000, AWI paid aggregate rent to ROC
of approximately $190,000. The Company believes that the terms of the lease with
AWI are at least as favorable to the Company and ROC as could have been obtained
from unaffiliated third parties and are at least as favorable as terms obtained
by other casino hotels in Las Vegas. Mr. Barengo resigned his position on the
AWI Board in March, 2000.
As of April 1, 1998, the Company entered into a letter agreement with
Mr. Barengo, a member of the Bar of the State of Nevada, pursuant to which Mr.
Barengo has been assisting the Company and its outside counsel in enforcing the
Company's rights under the terminated Paulson merger, the related litigation,
Morgens Waterfall litigation (see Item 3. Legal Proceedings) and with related
matters. Under such letter agreement, Mr. Barengo received a fee of $10,000 per
month for his consulting services, which services commenced on April 1, 1998,
and terminated on December 31, 2000. Effective January 1, 2001, Mr. Barengo was
appointed Director of Government and Public Affairs of ROC, becoming an employee
of ROC at that time.
Jeffrey A. Silver is a shareholder in the law firm of Gordon &
Silver, Ltd. ("Gordon & Silver"). Gordon & Silver has been engaged by the
Company for the defense of various personal injury matters since 1993. From
January 1, 2000 through December 31, 2000, the Company paid fees to Gordon &
Silver in the amount of $78,500 for the defense of various personal injury
claims. As Mr. Silver was not appointed to the Board until February 26, 2001,
the fees incurred in 2000 were pursuant to an arms length transaction. Although
the Company continues to utilize the services of Gordon & Silver, the Company
believes that the fee arrangement is at least as favorable to the Company as in
previous years.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors
and executive officers and any persons who own more than ten percent of the
Company's Common Stock to file with the Securities and Exchange Commission
various reports as to ownership of such Common Stock. Such persons are required
by Securities and Exchange Commission regulation to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely on its review of the copies of such reports furnished to the Company and
written representations to the Company, during the last fiscal year (i) Forms 5
filed by Messrs. Barengo, Land and Barovick to report stock options granted in
May, 1999 were filed 70 days late; (ii) a Form 4 filed by Mr. Barovick to report
stock options granted in May, 2000, was filed 3 days late; and (iii) other than
these specific exceptions, the aforesaid Section 16(a) filing requirements of
these and all other officers and directors were met on a timely basis during
1999.
Item 3. Legal Proceedings
Paulson, et al. v. Jefferies, Riviera Holdings Corporation, et al.,
United States District Court for the Central District of California, No. CV
98-2644 (ABC) (the "California Action"). We and the plaintiffs to this action
entered into a Settlement Agreement dated as of July 2, 1999. The Settlement
Agreement was conditioned upon the United States District court for the Central
20
District of California (the "Court") entering a Settlement Bar Order and Final
Judgment and provided that upon the entering of such an Order: (i) we would pay
plaintiff Allen E. Paulson ("Paulson") $3,477,412 ($7.50 per share) for the
463,655 shares of Riviera Holdings Corporation common stock owned by Paulson,
(ii) Paulson would receive $1,522,587.50 from the funds being held in escrow for
the benefit of holders of Riviera Holdings Corporation's Contingent Value Rights
("CVRs"), (iii) the remainder of the escrow of approximately $4,340,000 would be
distributed to the holders of the CVRs, and (iv) Paulson would file an amended
complaint which eliminated allegations of wrongdoing against us.
On October 7, 1999, the Court entered a Settlement Bar Order and
Final Judgment which dismissed the California Action as against us with
prejudice, and barred the other defendants to the lawsuit from seeking
indemnification against us for claims arising under the federal securities laws
or for state law claims arising out of the transactions underlying the
plaintiffs' federal security law claims.
Shortly after the entry of the Settlement Bar Order, we acquired
Paulson's stock, and funds were disbursed from escrow as per the terms of the
Settlement Agreement.
Morgens, Waterfall, Vintiadis & Company, Inc., v. Riviera Holdings
Corporation, William L. Westerman, Robert R. Barengo, Richard L. Barovick and
James N. Land, Jr., as Directors of Riviera Holdings Corporation, United States
District court for the District of Nevada (CV-S-99-1383-JBR(RLH)) (the "Nevada
Action"). The plaintiff in this action ("Morgens, Waterfall") is a shareholder
of Riviera Holdings Corporation and a defendant to the California Action. On
September 30, 1999, Morgens, Waterfall commenced this action in Nevada state
court, where it sought an order enjoining us from obtaining a Settlement Bar
Order in the California Action. We and the other defendants to the Nevada
Action removed the action to the United States District Court for the district
of Nevada on October 1, 1999. This removal to federal court divested the state
court of jurisdiction to consider Morgens, Waterfall's motion for injunctive
relief. Morgens, Waterfall filed a complaint with the court, but it did not
serve the complaint on any of the defendants.
On November 1, 1999, Morgens, Waterfall served a notice of motion to
remand the Nevada Action from the Nevada federal court back to Nevada state
court. We and the other defendants opposed the motion, and on May 24, 2000, the
Court denied Morgens Waterfall's motion.
On January 31, 2000, Morgens, Waterfall served an Amended Summons and
a First Amended Verified Complaint on Riviera Holdings Corporation with
subsequent service on directors. The Amended Complaint asserts four claims for
relief. In the first claim for relief, Morgens, Waterfall asserts that there is
a dispute as to the meaning of the amended complaint filed by Paulson in the
California Action pursuant to the Settlement Agreement. Morgens, Waterfall seeks
an affirmation injunction requiring Riviera Holdings Corporation to seek
clarification from Paulson as to the meaning of this amended complaint. In its
second claim for relief, Morgens, Waterfall seeks indemnification from Riviera
Holdings Corporation for all damages and costs incurred in the California Action
by reason of any misconduct alleged by Paulson against Riviera Holdings
Corporation. In its third claim for relief, Morgens, Waterfall claims that
Riviera Holdings corporation and the director defendants breached its fiduciary
duties to Morgens, Waterfall when it consummated the Settlement Agreement and
secured the settlement Bar Order because it left Morgens, Waterfall unprotected
from claims based on Riviera Holdings Corporation's alleged misconduct and, in
addition, harmed Morgens, Waterfall because Riviera Holdings Corporation
allegedly paid too much for Paulson's stock. Morgens, Waterfall styles its
fourth claim for relief as a "derivative claim" and asserts it only against the
director defendants. Morgens, Waterfall claims that the director defendants
violated their fiduciary duties by entering into the Settlement Agreement and
securing the Settlement Bar Order.
On April 17, 2000 the Company and its directors moved to dismiss
Morgens Waterfall's Amended Complaint. In response, Morgens Waterfall opposed
the directors' motion but "conceded" its claim against the Company. As a
consequence, Morgens Waterfall no longer asserts any claim against the Company,
but it has opposed dismssing the Company from the action on the ground that the
Company is a "nominal defendant" with respect to the derivative claims asserted
by Morgens Waterfall against the directors. The directors' motion to dismiss has
not yet been decided by the Court. We believe all these claims are without merit
and intend to vigorously defend against them.
We are also a party to several routine lawsuits both as plaintiff and
as defendant arising from the normal operations of a hotel. We do not believe
that the outcome of such litigation, in the aggregate, will have a material
adverse effect on the financial position or results of our operations.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Deloitte & Touche LLP, certified
public accountants, as the independent certified public accountants of the
Company for the fiscal year ending December 31, 2000. Deloitte & Touche LLP have
been the accountants for the Company and its predecessor since prior to 1988.
Representatives of Deloitte & Touche LLP ("Representatives") are expected to be
present at the Annual Meeting. The Representatives will have the opportunity to
make a statement, although they are currently not expected to do so. The
Representatives are expected to be available to respond to appropriate
questions.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which
are to be brought before the Annual Meeting. If any other matters should be
presented for proper action, it is the intention of the persons named in the
Proxy to vote in accordance with their discretion pursuant to the terms of the
proxy.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 2002 Annual
Meeting of Stockholders must be received at the Company's executive offices in
writing no later than December 31, 2001, and no sooner than November 15, 2001
for inclusion in the Company's Proxy Statement with respect to such meeting.
RIVIERA HOLDINGS CORPORATION
By William L. Westerman
President, Chief Executive Officer and
Chairman of the Board of Directors
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS
WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO FILL IN, SIGN,
DATE AND RETURN THE ENCLOSED PROXY.