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 14, 2002
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 14, 2002, at 1:00 p.m., local
time, for the following purposes:
1. To elect a Board of Directors; and
2. To consider and act upon such other matters as may properly
come before the meeting or any adjournments or postponements
thereof.
The Board of Directors fixed April 2, 2002, 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, 2001, 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, 2001, is enclosed herewith.
By Order of the Board of Directors,
William L. Westerman
Chairman of the Board
Dated: April 9, 2002
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 14, 2002
April 9, 2002
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 14, 2002, 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 9, 2002.
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 2, 2002 (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 2, 2002, 3,571,273 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 five 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;
and
2. such other matters as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
1
VOTE REQUIRED; PROXIES
The presence in person or by proxy of a majority of the shares of
Common Stock outstanding and entitled to vote as of the Record Date is required
for a quorum at the Annual Meeting. If a quorum is present, the five nominees
who receive the highest number of votes at the meeting shall be elected. 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; and
(2) 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 five 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 2, 2002,
regarding the four nominees for director:
Name Age Position
William L. Westerman 70 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 60 Director of the Company and ROC and
Director of Government and Public Affairs
of ROC
James N. Land, Jr. 72 Director of the Company and ROC
Jeffrey A. Silver 56 Director of the Company and ROC
Paul A. Harvey 64 Director of the Company and ROC
2
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
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 currently is the Chairman of the
Board and a Director of Western Thrift and Loan, a Thrift Company licensed and
regulated by the Commissioner of Financial Institutions, Department of
business and Industry, State of Nevada. Mr. Barengo accepted the position of
Director of Government and Public Affairs with ROC effective January 1, 2001, in
addition to his duties as a Board Member of the Company and ROC.
James N. Land, Jr. is currently a corporate consultant. Mr. Land was
elected a Director of the Company and ROC on January 21, 1999. 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 1999, he served
as a director of various companies, including Kaiser Industries Corporation,
Marathon Oil Company, Castle & Cooke, Inc., Manville Corporation, NWA, Inc.,
Northwest Airlines, Inc., and Ratheon Company.
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 located in Las Vegas, Nevada. Mr. Silver served as the Chief
Deputy District Attorney, Clark County, Nevada from 1972 to 1975 and was a
Board Member with the Nevada Gaming Control Board from 1975 to 1978 before
engaging in the private practice of law from 1979 to 1981 and 1984 to the
present. Mr. Silver was the Chief Operating Officer("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.
Major General Paul A. Harvey USAF (RET) has been a Director of the Company
and ROC since May 18, 2001. Mr. Harvey is currently a consultant to the gaming,
hotel and resort industry and serves as Chairman of the Board of the National
Center for Responsible Gaming. Mr. Harvey spent 32 years on active duty in the
United States Air Force where he held numerous command positions throughout the
United States, Europe, Africa and the Middle East. He flew 160 combat missions
in Vietnam and Southeast Asia before retiring at the rank of Major General in
1991. Mr. Harvey was the Executive Director of the Mississippi Gaming Commission
from 1993 through 1998 before becoming President and CEO of Signature Works,
Inc., which is the largest employer of blind and visually impaired people in the
world. The company merged with LCI, Inc. and he currently sits on the Board of
Directors of LC Industries.
3
Compensation of Directors
Messrs. Land, Silver and Harvey 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 a director 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. Mr. Land was subsequently granted
options to purchase 2,000 shares at an exercise price of $4.88 per share on May
10, 1999, options to purchase 2,000 shares at an exercise price of $7.75 on May
10, 2000. No options were granted to Mr. Barengo under the Directors' Option
Plan in 2001 due to his becoming an employee effective January 1, 2001. Mr.
Barengo was granted options to purchase 7,500 shares at $6.00 per share on
August 7, 2001 pursuant to the Company's Employee Stock Option Plan. Mr.
Barengo's compensation in 2001 was $125,000.
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. Mr. Silver was subsequently granted options
to purchase 2,000 shares at $6.55 per share on May 10, 2001.
Upon becoming a Director of the Company, under the Directors' Option
Plan, Mr. Harvey was granted options to purchase 2,000 shares at $6.60 per share
on May 18, 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, Silver and Harvey. 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.
The full Board of Directors performs the functions of a Nominating
Committee.
In 2001, the Audit Committee and the Compensation Committee each met 4
times.
4
In 2001, the Board of Directors of the Company held 8 meetings. No
member of the Board of Directors attended in 2001, 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.
OTHER INFORMATION
Executive Officers
The following table sets forth certain information as of April 2, 2002
regarding the executive officers of the Company and ROC:
Name Age Position
William L. Westerman 70 Chairman of the Board and Chief
Executive Officer of the Company
and ROC and President of the
Company
Duane R. Krohn 56 Treasurer and CFO of the Company
and ROC, and Executive Vice
President of Finance of ROC
Tullio J. Marchionne 47 Secretary and General Counsel
of the Company and ROC and Vice
President of ROC
Robert A. Vannucci 54 President and Chief Operating
Officer of ROC
Ronald P. Johnson 53 Executive Vice President of Gaming
Operations of ROC
Jerome P. Grippe 59 Assistant Secretary of the Company
and ROC and Executive Vice
President of Operations of ROC
Michael L. Falba 59 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.
Prior to 1990, Mr. Krohn was Chief Financial Officer of the Imperial Palace, the
Mint and the Dunes in Las Vegas, Nevada, and Bally's Park Place in Atlantic
City, New Jersey.
Tullio J. Marchionne assumed the position of 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
5
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 concurrently with his Executive Vice President of
ROC position. Mr. Johnson became Director of Slots on June 30, 1993 and was
elected Vice President of Slot Operations and Marketing on April 26, 1994. Mr.
Johnson was Vice President-Slot Operations and Marketing of Riviera, Inc. from
April 1991 until June 30, 1993. Mr. Johnson was Vice President-Slot Operations
for Sands Hotel and Casino Inc. from September 1989 until he joined Riviera,
Inc.
Jerome P. Grippe was elected Vice President of Operations of ROC on
April 26, 1994, Senior Vice President of Operations of ROC on July 1, 1998 and
Executive Vice President of ROC on September 1, 2000. Mr. Grippe served as
General Manager of the Four Queens Hotel and Casino from June, 1998 to
September, 1999 pursuant to the management agreement 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.
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, 1999, 2000 and 2001, to the Chief
Executive Officer of the Company and ROC, and to the Company's four other most
highly compensated executive officers who received over $100,000 in compensation
during 2001 from the Company (collectively, the "Named Executive Officers").
6
Summary of Compensation Table
Name and Other Annual All Other
Principle Position Year Salary Bonus Compensation (1) Compensation (2)
William L. Westerman 2001 $600,000 $400,000 (3) $7,425 (4) $2,566
Chariman of the Board and 2000 600,000 900,000 (3) 607,425 (4) 2,566
Chief Executive Officer of the 1999 600,000 900,000 (3) 140,300 (4) 2,566
Company and ROC
Robert A. Vannucci 2001 $300,000 $ 69,491 (5) $157,425 (6) $2,566
President and Chief Operating 2000 250,000 236,166 7,425 1,438
Officer of ROC 1999 209,336 158,333 7,300 1,156
Duane R. Krohn 2001 $250,000 $69,491 (7) $7,425 $1,438
Treasurer of the Company 2000 237,500 236,166 7,425 1,438
and Executive Vice President of 1999 211,149 158,333 7,300 1,156
Finance and Treasurer of ROC
Ronald P. Johnson 2001 $250,000 $69,491 (8) $7,425 $1,438
Executive Vice President of 2000 237,500 236,166 7,425 1,438
Gaming Operations of ROC 1999 209,759 158,333 7,300 1,156
Jerome P. Grippe 2001 $250,000 $69,491 (9) $7,425 $1,438
Executive Vice President of 2000 183,333 211,166 7,425 1,062
Operations of ROC 1999 159,576 133,333 7,300 733
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(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 2001, $7,425 in 2000 and $7,300 in 1999.
(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 zero in
2001, $600,000 in 2000 and $133,000 in 1999. Also includes interest computed
at the Company's average borrowing rate less the rate pursuant to Internal
Revenue Code 1274D of $285,786 in 2001, $233,978 in 2000 and $115,690 in
1999. Does not include interest earned on retirement account of $493,024 in
2001, $413,440 in 2000 and $372,039 in 1999. (See "EmploymentAgreements")
(5) Includes $50,000 current year incentive and $19,491 Special Incentive
Bonus, of which 20% and 100%, respectively, were deferred pursuant to the
Company's Deferred Compensation Plan.
(6) Includes $150,000 award of Restricted Stock pursuant to Mr. Vannucci's
employment agreement as follows: $25,000 per quarter and an award equal
to Mr. Vannucci's $50,000 Incentive Bonus. See "Restricted Stock" for a
summary of the Company's Restricted Stock Plan.
(7) Includes $50,000 current year incentive and $19,491 Special Incentive Bonus,
of which 50% was deferred pursuant to the Company's Deferred Compensation
Plan.
(8) Includes $50,000 current year incentive, of which 25% was deferred pursuant
to the Company's Deferred Compensation Plan, and $19,491 Special Incentive
Bonus.
(9) Includes $50,000 current year incentive and $19,491 Special Bonus.
Mr. Grippe deferred 100% of the Special Bonus pursuant to the Company's
Deferred Compensation Plan.
7
Option Surrenders
On November 26, 1996, 410,000 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 had cancelled due to those executives leaving the Company, resulting in a
balance of 399,000 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
could, but was 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
surrender of the $13.625 options. Any new options granted would be at the price
of the Company's common stock on the date of grant and subject to the vesting
requirements of the Company's Employee Stock Option Plan.
All sixteen Company executives surrendered the entire balance of
399,000 of the $13.625 options effective January 31, 2001.
In August 2001, 107,500 stock options were granted to fifteen of the
sixteen Comapny executives who surrendered options on January 31, 2001. The
August option grant was not premised on the January 31 option surrender but made
pursuant to the Board's customary annual grant of stock options.
Option Grants
The number of shares 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). Discounting the options,
surrendered pursuant to the Surrender Plan, options for an aggregate of 771,500
shares have been granted under the Stock Option Plan as of December 31, 2001.
During the Company's 2001 fiscal year 170,500 options were granted under the
Stock Option Plan.
Option Exercises, Year-End Options Values and Option Grants in 2001
The following table presents at December 31, 2001 the value of
unexercised in-the-money options held by the Named Executive Officers. There
were no options exercised in 2001.
Number of Value of Unexercised,
Unexercised Options In-The-Money Options
Name Vested Not Vested Vested Not Vested
William L. Westerman 12,500 37,500 $0 $0
Robert A. Vannucci 27,500 22,500 0 0
Duane R. Krohn 25,000 15,000 0 0
Ronald P. Johnson 25,000 15,000 0 0
Jerome P. Grippe 18,250 12,750 0 0
The following table presents options granted during 2001.
8
Individual Grants
Percent of Potential Realizable
Total Value at Assumed Annual
Number of Options Exercise Rates of Stock Price
Underlying Granted to or Base Apprecition for
Options Employees Price per Expiration Option Term
Granted in 2001 Share Date 5% 10%
Name ------- -------
------------ ------------ ------------ ------------
William L. Westerman 50,000 29.3% $6.00 8/7/11 $488,668 $778,123
Robert A. Vannucci 20,000 11.7% 6.00 8/7/11 195,467 311,249
Duane R. Krohn 10,000 5.9% 6.00 8/7/11 97,734 155,625
Ronald P. Johnson 10,000 5.9% 6.00 8/7/11 97,734 155,625
Jerome P. Grippe 10,000 5.9% 6.00 8/7/11 97,734 155,625
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 net targeted operating results, as
defined by the Plan, is met, Mr. Westerman shall be entitled to receive a bonus
under the Plan expressed as a percentage of his $600,000 base salary depending
on the percentage of targeted net income realized by the Company in a particular
year, with a maximum bonus of $900,000. Pursuant to the December 6, 2000
amendment, to the extent Mr. Westerman's bonus exceeds $400,000 in 2001 and
each succeeding year, such excess amount shall be deducted from the principal
balance of his retirement account at the time the bonus is paid. Mr. Westerman
received an incentive bonus of $900,000 for 2001, $500,000 of which was deducted
from the principal balance of his retirement account resulting in a net
bonus of $400,000.
The employment agreement provides that the Company fund a retirement
account for Mr. Westerman. Pursuant to the employment agreement, an aggregate
net amount of $6,812,123 had been credited to the retirement account from its
inception through December 31, 2001. Under the employment agreement, each year
that Mr. Westerman continues to be employed, an amount equal to Mr. Westerman's
base salary for that year was credited to the account on January 1 of that year.
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 the retirement account,
which is earmarked to pay Mr. Westerman's retirement benefits. However, upon
(i) the vote of a majority of the outstanding shares of Common Stock approving
a "Change of Control" (as defined below), (ii) the occurrence of a Change
of Control without Mr. Westerman's consent, (iii) a breach by the Company
of a material term of the employment agreement or (iv) the expiration or earlier
termination of the term of the employment agreement for any reason other than
cause, Mr. Westerman has the right to require the Company to establish a "Rabbi
Trust" for 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.
9
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 ensued as described
in Item 3, Legal Proceedings.
In the event that Mr. Westerman is no longer employed by the Company
(except for termination for cause, in which case Mr. Westerman would forfeit all
rights to monies in the retirement account), Mr. Westerman will be entitled to
receive the amount in the retirement account (principal and current interest) in
20 equal quarterly installments as of the date he ceases to be employed by the
Company. In the event that Mr. Westerman's Rabbi Trust has not yet been funded,
the balance of principal and interest of the retirement account shall be paid
directly to Mr. Westerman upon his retirement, termination (except for cause) or
upon a change in control of the Company.
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. Interest computed at the Company's average borrowing rate less the
rate pursuant to Internal Revenue Code 1274D was $285,786 in 2001, $233,978 in
2000 and $115,690 in 1999. Interest computed at the rate pursuant to Internal
Revenue Code 1274D was $493,024 in 2001, $413,440 in 2000 and $372,039 in 1999.
In the event the Rabbi Trust has been funded, upon Mr. Westerman's death,
an amount equal to the applicable federal estate tax on the retirement
account will be pre-paid prior to the date or dates such taxes are due.
Mr. Westerman's employment agreement provides (a) that the sum of Mr.
Westerman's base salary, bonus, and credits to his Retirement Account in any one
year 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. 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.
In addition to Mr. Westerman, one other executive, Robert Vannucci, has
an employment agreement 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 before deductions of incentives, as defined, 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 2001 was $50,000. Mr.
Vannucci's employment agreement also provides for a "Special Incentive Bonus"
which amounted to $19,491 in 2001.
Mr. Vannucci also receives compensation in the form of restricted stock
pursuant to 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. Mr. Vannucci received restricted stock valued at $150,000 in 2001.
Pursuant to the Restricted Stock Plan, Mr. Vannucci is entitled to all rights
of stock ownership, including the right to vote and receive dividends. Mr.
Vannucci may not, however sell, assign, pledge, encumber or otherwise transfer
any of the restricted shares so long as 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, 2002, and automatically renews annually subject
to one-hundred twenty (120) days prior written notice by either party.
10
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 continued the Profit Sharing and 401(k) Plans
after June 30, 1993. The Company and ROC 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 matching 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 Company's common stock is not an investment option to
participants of the 401(k) component of the Plan and any Company contribution
to the 401(k) component is made in the form of cash to be invested in the
participant's selected investment options.
The profit sharing component of the Profit Sharing and 401(k) Plans
provides that 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
becomes vested in the Company's contributions based on the employee's years of
service. An employee receives a year of vesting service for each plan year in
which the employee completed 1,000 hours of service. Vesting credit is allocated
in 20% increments for each year of service commencing with the attainment of two
years of service. An employee is fully vested following the completion of six
years of service.
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
effectively 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 completed a minimum of one thousand hours of service in
that Plan Year, were employed through December 31 of that Plan Year, were at
least 21 years of age and were not covered by a collective bargaining agreement
are eligible to participate in the ESOP. The ESOP provides that the Company
will make a contribution to the ESOP's participants of its Las Vegas and
Black Hawk properties relative to the economic performance of each property.
For Riviera Las Vegas, the Company will make a contribution equal to 1% of each
eligible employee's annual compensation if a prescribed annual operating
results target is attained and an additional 1% thereof for each $2 million by
which operating results are exceeded, up to a maximum of 4% for 2000 and 5%
thereafter. For Riviera Black Hawk, the Company will make a contribution
equal to 1% of each eligible employee's annual compensation if a prescribed
annual operating earnings target is attained and an additional 1% thereof for
each $1 million by which operating results are 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 primarily Company common stock.
11
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 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. Vannucci and Mr. 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 covered approximately 85 executive,
supervisory and technical support positions and included a combination of
employment contracts, Stay Bonus Agreements, bonus arrangements Termination
Fee Agreements and salary adjustments.
Stay Bonus Agreements
Approximately 85 executive officers and significant employees
(excluding Mr. Westerman) of ROC were party to stay bonus agreements pursuant to
which each such employee was entitled to receive a "stay bonus" (varying
amounts) if the employee was discharged without cause (as defined in the stay
bonus agreements), or continued to be employed by the Company on each of January
1, 2000, January 1, 2001 and June 30, 2001. The total amount that was payable
under all such agreements was approximately $2.2 million, of which approximately
$610,000 was paid in January, 2000, $1,068,000 was paid in January, 2001 and
$462,500 was paid on June 30, 2001.
Termination Fee Agreements
Approximately 85 executive officers and significant employees
(excluding Mr. Westerman) of ROC have termination fee agreements effective
through December 31, 2002, 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. As of December 31, 2001, the total
amount that would be payable under all such agreements if all payment
obligations were to be triggered was approximately $5.5 million, including $1.3
million in benefits.
12
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. As a baseline measure, the
Compensation Committee engaged the services of an independent CPA firm, other
than Deloitte & Touche, LLP, which conducted a compensation survey of comparable
Las Vegas resorts. The CPA firm concluded that compensation of Company
executives was consistent with other members of the industry.
The compensation of Mr. Westerman for the Company's last completed
fiscal year was set pursuant to the employment agreement described in the
"Compensation of Executive Officers" section.
Date: February 25, 2002 Jeffrey A. Silver Chairman
Robert R. Barengo Member
James N. Land, Jr. Member
Compensation Committee Interlocks And Insider Participation In Compensation
Decisions
Mr. Silver is a shareholder in the law firm of Gordon & Silver, Ltd.
Which has been engaged by the Company for various legal matters. Mr. Barengo
has been an employee of Riviera Operating Corporation since January 1, 2001.
13
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 three 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
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, 2001, 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 and independent auditors prior to
public release.
In discharging its oversight responsibility as to the audit process,
the Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence consistent with Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees,"
discussed with the auditors any relationships that may impact their objectivity
and independence and satisfied itself as to the auditors' independence. The
Audit Committee specifically addressed, discussed and concluded that the
independent auditors' provision of non-audit services was compatible with
maintaining the auditors' independence. The Audit Committee also discussed with
management, the internal auditors and the independent auditors, the quality and
adequacy of the Company's internal controls and the internal audit function's
organization, responsibilities, budget and staffing. The Audit Committee
reviewed with both the independent and the internal auditors their audit plans,
audit scope, and identification of audit risks.
The Audit Committee discussed and reviewed with the independent
auditors all communications required by generally accepted auditing standards,
including those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Audit Committee also discussed the results of the
internal audit examinations.
The Audit Committee reviewed the audited financial statements of the
Company as of and for the fiscal year ended December 31, 2001, 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 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.
14
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 $209,400 for the fiscal year 2001 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
2001, including its reporting subsidiaries.
Financial Information Systems Design and Implementation Fees
Deloitte has not provided any information technology services to the
Company during fiscal 2001.
All Other Fees
The Company paid Deloitte a total of $45,000 for other professional
services rendered in fiscal 2001, 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 25, 2002 James N. Land, Jr. Chairman
Robert R. Barengo Member
Jeffrey A. Silver Member
Paul A. Harvey Member
15
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 December 31, 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
U.S. Companies (SIC 79xx)
US Amusement Companies
12/31/96 100.0 100.0 100.0
12/31/97 90.4 130.9 119.2
12/31/98 30.7 161.5 103.2
12/31/99 44.7 202.4 132.6
12/31/00 50.0 179.4 112.0
12/31/01 29.8 160.3 130.6
(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.
16
Stock Transactions
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 for an aggregate amount of $49,350.
On February 15, 2001, pursuant to a private transaction, the Company's
Deferred Compensation Plan purchased 25,778 shares of the Company's common stock
from Sun America Life Insurance Company at the price of $7.50 per share for an
aggregate amount of $193,335.
On June 30, 2001, pursuant to two private transactions, the Company and
the Company's Deferred Compensation Plan purchased 93,437 and 86,759 shares of
the Company's common stock, respectively, from Jefferies & Company, Inc., at the
price of $6.35 per share for aggregate amounts of $593,325 and $550,920,
respectively.
On July 2, 2001, pursuant to a private transaction, the Company
purchased 40,000 shares of the Company's common stock from the holdings of
Stephen S. Taylor at the purchase price of $6.30 per share for an aggregate
amount of $252,000.
On July 5, 2001, pursuant to a private transaction, the Company
purchased 12,000 shares of the Company's common stock from the holdings of James
D. Bennett at the price of $6.30 per share for an aggregate of $75,600.
From November 21, 2001 until December 5, 2001 pursuant to the Company's
Stock Repurchase Plan, the Company purchased 6,000 shares of the Company's
outstanding common stock on the open market at an average price of $3.81. The
Company's Stock Repurchase Plan has since been terminated, however the ESOP and
Deferred Compensation Plan bid for the Company's common stock on the open market
and the Company, the ESOP and the Deferred Compensation Plan 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 2, 2002, 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 2, 2002. Except as indicated,
each person listed below has sole voting and investment power with respect to
the shares set forth opposite such person's name.
Shares Beneficially Owned
Name Number Percentage
William L. Westerman(1)(2) 660,811 18.4%
Robert R. Barengo(1)(3) 121,198 3.4
James N. Land, Jr.(1)(4) 5,100 *
Jeffrey A. Silver (1)(5) 5,800 *
Paul A. Harvey(1)(6) 400 *
Robert A. Vannucci (1)(7) 113,712 3.2
Ronald P. Johnson(1)(8) 121,049 3.4
Duane R. Krohn(1)(9) 130,811 3.6
Jerome P. Grippe(1)(10) 65,464 1.8
17
Name Number Percentage
Tullio J. Marchionne(1)(11) 5,230 *
Michael L. Falba(1)(12) 29,692 *
Keyport Life Insurance Co.(13) 857,160 24.0
Sun America Life Insurance Company(14) 500,000 14.0
James D. Bennett(15) 352,070 9.9
Employee Stock Ownership Plan (ESOP) other than
officers and directors(16) 206,232 5.8
All executive officers and directors as a group
(11 persons)(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12) 1,259,269 33.7
-------------------------------
* Less than 1%.
(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 12,500 shares which may be acquired within 60 days of April ,
2002, upon the exercise of outstanding options.
(3) Includes 10,375 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options.
(4) Includes 4,500 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options.
(5) Includes 1,000 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options.
(6) Includes 500 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options.
(7) Includes 32,500 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options, 46,395 shares under the
Company's Restricted Stock Plan and 19,404 shares under the Company's
Deferred Compensation Plan.
(8) Includes 30,000 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options and 27,766 shares under
the Company's Deferred Compensation Plan.
(9) Includes 30,000 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options and 48,029 shares under
the Company's Deferred Compensation Plan.
(10) Includes 21,750 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options, 8,217 shares under the
Company's Restricted Stock Plan and 20,048 shares under the Company's
Deferred Compensation Plan.
(11) Includes 4,000 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options.
(12) Includes 19,000 shares which may be acquired within 60 days of April 2,
2002, upon the exercise of outstanding options.
(13) 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.
(14) The address for SunAmerica Life Insurance Company ("SunAmerica") is One
SunAmerica Center, Los Angeles, California 90067.
(15) Includes (a) 242,849 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.
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(16) The Trustee of the ESOP and its address are U.S. Trust Company, 515
South Flower Street, Suite 2700, Los Angeles, California 90071.
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.
Certain Relationships and Related Transactions
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, 2001 through December 31, 2001, AWI paid aggregate rent to ROC
of approximately $149,000. 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. 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 various legal matters.
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 4
filed by Messrs. Vannucci, Krohn, Johnson and Grippe to report stock purchased
on July 2, 2001 were filed late; (ii) Forms 4 filed by Messrs. Krohn, Johnson
and Grippe to report stock purchased on February 23, 2001 were filed late;
(iii) a form 13D filed by Mr. Westerman to report stock options granted on
August 7, 2001, was filed late; (iv) a Form 5 filed by Mr. Silver includes
disclosure of a stock purchase that was reportable on Form 4 by December 10,
2001, resulting in that transaction being reported late; and (iv) 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
2001.
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
19
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 (and his heirs or successors) ("Paulson") $3,477,412
($7.50 per share) for the 463,655 shares of Riviera Holdings Corporation common
stock owned by Paulson, (ii) Paulson would receive $1,522,587.50 from the funds
being held in escrow for the benefit of holders of Riviera Holdings
Corporation's Contingent Value Rights ("CVRs"), (iii) the remainder of the
escrow of approximately $4,340,000 would be distributed to the holders of the
CVRs, and (iv) Paulson would file an amended complaint which eliminated
allegations of wrongdoing against us.
On October 7, 1999, the Court entered a Settlement Bar Order and
Final Judgment which dismissed the California Action 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 asserted 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 asserted any claim against the
Company, but it opposed dismissing the Company from the action on the ground
that the Company was a "nominal defendant" with respect to the derivative claims
asserted by Morgens Waterfall against the directors.
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On October 1, 2001, Morgens, Waterfall, the Company and the
directors entered into a Settlement Agreement settling the Nevada Action. That
Settlement Agreement provides that plaintiff would release its claims with
prejudice against each defendant and each defendant would release its claims
with prejudice against plaintiff conditioned upon Mr. Westerman accepting
service of a subpoena to personally appear and testify at the trial of the
California Action and that Mr. Westerman appear and testify at the trial of the
California Action.
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, 2001. 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 2003
Annual Meeting of Stockholders must be received at the Company's executive
offices in writing no later than December 31, 2002, and no sooner than November
15, 2002 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.
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APPENDIX
Riviera Holdings Corporation
Riviera Operating Corporation
AUDIT COMMITTEE CHARTER
Revised February 20, 2000
This charter shall be reviewed, updated and approved annually by the board of
directors.
Role and Independence:
The audit committee of the board of directors assists the board in fulfilling
its responsibility for oversight of the quality and integrity of the accounting,
auditing and reporting practices of the corporation and other such duties as
directed by the board. The membership of the committee shall consist of at least
three directors who are generally knowledgeable in financial and auditing
matters, including at least one member with accounting or related financial
management expertise. Each member shall be free of any relationship that, in the
opinion of the board, would interfere with his or her individual exercise of
independent judgment, and shall meet the director independence requirements for
serving on audit committees as set forth in the corporate governance standards
of the American Stock Exchange. The committee is expected to maintain free and
open communication (including private executive sessions at least annually) with
the independent accountants, the internal auditors and the management of the
corporation. In discharging this oversight role, the committee is empowered to
investigate any matter brought to its attention, with full power to retain
outside counsel or other experts for this purpose.
The board of directors shall appoint one member of the audit committee as
chairperson. He or she shall be responsible for leadership of the committee,
including preparing the agenda, presiding over the meetings, making committee
assignments and reporting to the board of directors. The chairperson will also
maintain regular liaison with the CEO, CFO, the lead independent audit partner,
the director of internal audit and the compliance officer.
Responsibilities:
The audit committee's primary responsibilities include:
1. Recommending to the board the independent accountant to be selected or
retained to audit the financial statements of the corporation. In so doing, the
committee will request from the auditor a written affirmation that the auditor
is in fact independent, discuss with the auditor any relationships that may
impact the auditor's independence, and recommend to the board any actions
necessary to oversee the auditor's independence.
2. Overseeing the independent auditor relationship by discussing with the
auditor the nature and rigor of the audit process, receiving and reviewing audit
reports, and providing the auditor full access to the committee (and the board)
to report on any and all appropriate matters.
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3. Providing guidance and oversight to the internal audit activities of the
corporation including reviewing the organization, plans and results of such
activity.
4. Reviewing the audited financial statements and discussing them with
management and the independent auditor. These discussions shall include
consideration of the quality of the Company's accounting principles as applied
in its financial reporting, including review of estimates, reserves and
accruals, review of judgmental areas, review of audit adjustments whether or not
recorded and such other inquiries as may be appropriate. Based on the review,
the committee shall make its recommendation to the board as to the inclusion of
the company's audited financial statements in the company's annual report on
Form 10-K.
5. Reviewing with management and the independent auditor the quarterly financial
information prior to the company's filing of Form lO-Q. The committee or its
chairperson may perform this review.
6. Discussing with management, the internal auditors and the external auditors
the quality and adequacy of the company's internal controls.
7. Discussing with management the status of pending litigation, taxation matters
and other areas of oversight to the legal and compliance area as may be
appropriate.
8. Reporting audit committee activities to the full board.
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