-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EFpWmFOeUq0oJRzD6sJckBoNhAN3xDq+xVYTZKQjk4n/Vzq1/MY5bM0br7Vrq6sK EwKLsjzuFruetDn/040ZwA== 0000899647-03-000038.txt : 20031110 0000899647-03-000038.hdr.sgml : 20031110 20031107184220 ACCESSION NUMBER: 0000899647-03-000038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVIERA HOLDINGS CORP CENTRAL INDEX KEY: 0000899647 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 880296885 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21430 FILM NUMBER: 03986491 BUSINESS ADDRESS: STREET 1: 2901 LAS VEGAS BLVD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027345110 MAIL ADDRESS: STREET 1: 2901 LAS VEGAS BLVD S CITY: LAS VEGAS STATE: NV ZIP: 89109 10-Q 1 rhc10q_093003.txt RHC 10Q_093003 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Mark One [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 ----------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------------------------- Commission file number 000-21430 --------------------- Riviera Holdings Corporation - ---------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Nevada - ---------------------------------------------------------------------------- 88-0296885 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (702) 794-9527 - ------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes____ No X APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE LAST FIVE YEARS Indicate by check mark whether the registrant has filed all documentation and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ---- ------ APPLICABLE ONLY TO CORPORATE REGISTRANTS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of October 27, 2003, there were 3,610,155 shares of Common Stock, $.001 par value per share, outstanding. RIVIERA HOLDINGS CORPORATION INDEX
Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Independent Accountants' Report 2 Condensed Consolidated Balance Sheets (Unaudited) at September 30, 2003 and December 31, 2002 3 Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months ended September 30, 2003 and 2002 4 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three and Nine Months ended September 30, 2003 and 2002 5 Notes to Condensed Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 22 Item 4. Controls and Procedures 23 PART II. OTHER INFORMATION Item 1. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 6. Exhibits and Reports on Form 8-K 24 Signature Page 25 Exhibits 26
1 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors Riviera Holdings Corporation We have reviewed the accompanying condensed consolidated balance sheet of Riviera Holdings Corporation (the "Company") and subsidiaries as of September 30, 2003, and the related condensed consolidated statements of operations and of cash flows for the three and nine months ended September 30, 2003 and 2002. These financial statements are the responsibility of the Company's management. We conducted our review, in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Riviera Holdings Corporation as of December 31, 2002, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP October 21, 2003 Las Vegas, Nevada 2
RIVIERA HOLDINGS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, except share amounts) September 30 December 31 - ------------------------------------------------------------------------------- 2003 2002 ASSETS (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 25,601 $ 20,220 Accounts receivable, net 3,595 4,010 Inventories 1,551 1,824 Prepaid expenses and other assets 4,393 3,968 ------------ ------------- Total current assets 35,140 30,022 PROPERTY AND EQUIPMENT, Net 179,381 188,233 OTHER ASSETS, Net 13,959 14,677 DEFERRED INCOME TAXES 2,446 2,964 ------------ ------------- TOTAL $ 230,926 $ 235,896 ============ ============= LIABILITIES AND SHAREHOLDERS' DEFICIENCY CURRENT LIABILITIES: Current portion of long-term debt $ 3,454 $ 3,430 Accounts payable 8,786 8,338 Accrued interest 6,964 1,065 Accrued expenses 14,508 15,576 ------------ ------------- Total current liabilities 33,712 28,409 ------------ ------------- OTHER LONG-TERM LIABILITIES 6,160 6,465 ------------ ------------- LONG-TERM DEBT, Net of current portion 214,386 216,694 ------------ ------------- SHAREHOLDERS' DEFICIENCY: Common stock ($.001 par value; 20,000,000 shares authorized; 5,166,208 and 5,135,773 shares issued at September 30, 2003 and December 31, 2002, respectively) 5 5 Additional paid-in capital 13,732 13,638 Treasury stock (1,687,957 shares and 1,686,244 shares at September 30, 2003 and December 31, 2002, respectively) (11,321) (11,313) Accumulated Deficit (25,748) (18,002) ------------ ------------- Total stockholders' deficiency (23,332) (15,672) ------------ ------------- TOTAL $ 230,926 $ 235,896 ============ ============= See notes to condensed consolidated financial statements
3
RIVIERA HOLDINGS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 Three Months Ended Nine Months Ended (In thousands, except per share amounts) September 30, September 30, - -------------------------------------------------------------------------------- REVENUES: 2003 2002 2003 2002 Casino 27,215 26,806 80,683 81,732 Rooms 11,040 11,020 33,494 32,406 Food and beverage 8,567 8,455 25,109 24,833 Entertainment 4,981 4,698 13,851 13,278 Other 2,024 2,031 6,034 6,282 --------------------------------------- Total revenues 53,827 53,010 159,171 158,531 Less promotional allowances 4,854 4,560 14,379 13,916 --------------------------------------- Net revenues 48,973 48,450 144,792 144,615 --------------------------------------- COSTS AND EXPENSES: Direct costs and expenses of operating departments: Casino 14,425 14,751 42,392 43,936 Rooms 6,377 5,908 18,721 17,476 Food and beverage 5,840 5,590 16,893 16,198 Entertainment 3,182 3,280 9,057 8,954 Other 747 708 2,105 2,129 Other operating expenses: General and administrative 10,812 10,270 30,512 29,632 Depreciation and amortization 3,949 4,440 12,330 13,405 --------------------------------------- Total costs and expenses 45,332 44,947 132,010 131,730 --------------------------------------- INCOME FROM OPERATIONS 3,641 3,503 12,782 12,885 --------------------------------------- OTHER (EXPENSE) INCOME: Interest expense (6,794) (6,863) (20,548) (19,975) Interest expense-net due to defeasance 0 (2,328) 0 (2,692) Loss on extinguishment of debt 0 (11,211) 0 (11,211) Interest income 0 4 18 176 --------------------------------------- Total other expense (6,794) (20,398) (20,530) (33,702) --------------------------------------- LOSS BEFORE BENEFIT FOR INCOME TAXES (3,153) (16,895) (7,748) (20,817) (BENEFIT) FOR INCOME TAXES 0 0 0 0 --------------------------------------- NET LOSS $ (3,153) $(16,895) $ (7,748) $(20,817) ======================================= LOSS PER SHARE DATA: Loss per share: Basic & Diluted $ (0.91) $ (4.89) $ (2.23) $ (6.04) --------------------------------------- Weighted-average common and common equivalent shares 3,477 3,456 3,473 3,448 --------------------------------------- See notes to condensed consolidated financial statements
4
RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended Nine Months Ended FOR THE THREE AND NINE MONTHS ENDED September 30, September 30, September 30, 2003 and 2002 2003 2002 2003 2002 ---------- --------- --------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($3,153) ($16,895) ($7,748) ($20,817) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,949 4,440 12,330 13,405 Provision for bad debts 69 127 225 (218) Provision for gaming discounts 0 0 7 (48) Interest expense 6,788 6,863 20,548 19,975 Interest paid (212) (216) (12,600) (12,339) Interest expense, net, Bonds held for retirement (220) 144 Loss on extinguishment of debt 11,211 11,211 Loss on extinguishment of debt paid (6,646) (6,646) Changes in operating assets and liabilities: Decrease (increase) in accounts receivable (719) (733) 183 267 Decrease (increase) in inventories (9) 151 274 596 Increase in prepaid expenses and other assets (538) (515) (425) (926) Increase (decrease)in accounts payable 992 (538) 448 862 Increase (decrease)in accrued liabilities 834 1,678 (1,068) 709 Increase in deferred compensation plan liability 7 10 19 115 Increase in deferred income taxes 517 2,125 518 2,125 Decrease in non-qualified pension plan obligation to CEO upon retirement (426) (125) (916) (375) -------- --------- --------- --------- Net cash provided by operating activities 8,099 717 11,795 8,040 -------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures - Las Vegas, Nevada (1,512) (666) (2,294) (2,934) Capital expenditures - Black Hawk, Colorado (713) (387) (1,163) (1,595) Increase in other assets (80) (147) (458) (1,899) -------- --------- --------- --------- Net cash used in investing activities (2,305) (1,200) (3,915) (6,428) -------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 0 0 0 211,781 US Treasury Bills purchased to retire bonds 0 226,576 0 0 Decrease (increase) in deferred loan fees 0 0 0 (10,381) Payments on long-term borrowings (899) (220,674) (2,585) (222,325) Increase in paid-in capital 18 0 69 0 Purchase of deferred comp treasury stock 0 0 (8) 0 Issuance of restricted stock 0 25 25 125 -------- --------- --------- --------- Net cash (used in) provided by financing activities (881) 5,927 (2,499) (20,800) -------- --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,913 5,444 5,381 (19,188) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 20,688 $ 21,974 $ 20,220 $ 46,606 -------- --------- --------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,601 $ 27,418 $ 25,601 $ 27,418 ======== ========= ========= ======== SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Property acquired with debt and accounts payable $472 $65 $472 $65 See notes to condensed consolidated financial statements
5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Riviera Holdings Corporation and its wholly owned subsidiary, Riviera Operating Corporation ("ROC") (together with their wholly-owned subsidiaries, the "Company"), were incorporated on January 27, 1993, in order to acquire the assets and liabilities of Riviera, Inc. Casino-Hotel Division on June 30, 1993, pursuant to a plan of reorganization. Riviera Gaming Management, Inc. ("RGM") was incorporated in the State of Nevada in August 1995 for the purpose of obtaining management contracts in Nevada and other jurisdictions and is a wholly owned subsidiary of ROC. In March 1997 Riviera Gaming Management of Colorado was incorporated in the State of Colorado, and in August 1997 Riviera Black Hawk, Inc. ("RBH") was incorporated in the State of Colorado for the purpose of developing a casino in Black Hawk, Colorado which opened February 4, 2000. On March 15, 2002 Riviera Gaming Management of New Mexico, Inc. was incorporated in the State of New Mexico. On June 5, 2002 Riviera Gaming Management of Missouri, Inc. was incorporated in the State of Missouri. Nature of Operations The Company owns and operates the Riviera Hotel & Casino ("Riviera Las Vegas") on the Strip in Las Vegas, Nevada and in February of 2000, opened its casino in Black Hawk, Colorado ("Riviera Black Hawk"). Riviera Black Hawk is owned through RBH, a wholly owned subsidiary of ROC. Riviera Gaming Management of Colorado, Inc. is a wholly owned subsidiary of RGM, and manages the casino. Casino operations are subject to extensive regulation in the states of Nevada and Colorado and through various state and local regulatory agencies. Management believes that the Company's procedures for supervising casino operations, recording casino and other revenues, and granting credit comply, in all material respects, with the applicable regulations. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly owned subsidiary ROC and various indirect wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. The financial information at September 30, 2003 and for the three and nine months ended September 30, 2003 and 2002 is unaudited. However, such information reflects all adjustments (consisting solely of normal and recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The results of operations for the nine months ended September 30, 2003 and 2002 are not necessarily indicative of the results that will be achieved for the entire year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2002, included in the Company's Annual Report on Form 10-K. 6 Earnings Per Share Basic per share amounts are computed by dividing net income by weighted average shares outstanding during the period. Diluted net income per share amounts are computed by dividing net income by weighted average shares outstanding plus the dilutive effect of common share equivalents. The effect of options outstanding was not included in diluted calculations for the three and nine months ended September 30, 2003 and 2002 since the Company incurred a net loss. The number of potentially dilutive options was 206,500 and 78,000 for the three and nine months ended September 30, 2003 and 115,000 for the three and nine months ended September 30, 2002. Income Taxes The cash flow projections used by the Company in the application of Statement of Financial Accounting Standards ("SFAS") No. 109 for the realization of deferred tax assets indicate that a valuation allowance should be recorded on the tax benefit earned by the Company in 2003 and 2002. The estimates used are based upon recent operating results and budgets for future operating results. These estimates are made using assumptions about the economic, social and regulatory environments in which we operate. These estimates could be impacted by numerous unforeseen events including changes to regulations affecting how the Company operates the business, changes in the labor market or economic downturns in the areas where the Company operates. Estimates and Assumptions The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates used by the Company include estimated useful lives for depreciable and amortizable assets, certain accrued liabilities and the estimated allowance for receivables. Actual results may differ from estimates. Reclassifications Certain prior-period amounts in the condensed financial statements have been reclassified to conform to the September 30, 2003 presentation. These reclassification had no effect on the Company's net income. Stock-Based Compensation As of September 30, 2003, the Company has two stock-based employee compensation plans. The effect of stock options in the income statement is reported in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized for unissued stock options in the stock option plan, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. 7 No compensation cost has been recognized for unexercised options remaining in the stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the date of grant for awards consistent with the provisions of SFAS No. 123 (using an intrinsic value method), the Company's net loss and pro forma net loss per common share and common share equivalent would have been increased to the pro forma amounts indicated below for three and nine months ended September 30 (in thousands, except per share amounts):
Three months ended Nine months ended September 30, September 30, 2003 2002 2003 2002 Net loss as reported $ (3,153) $(16,895) $ (7,748) $(20,817) Deduct: Total stock based employee compensation expense determined under fair value based methods for awards net of related tax effects (67) (74) (184) (222) Net loss pro forma $ (3,220) $(16,969) $(7,932) $(21,039) Basic loss per common share as reported $ (0.91) $ (4.89) $ (2.23) $ (6.04) Basic loss per common share pro forma $ (0.93) $ (4.91) $ (2.28) $ (6.10) Diluted loss per common and common share equivalent as reported $ (0.91) $ (4.89) $ (2.23) $ (6.04) Diluted loss per common and common share equivalent pro forma $ (0.93) $ (4.91) $ (2.28) $ (6.10)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2003 and 2002 respectively: dividend yield of 0% for both years; expected volatility of 34% and 52%; risk-free interest rates of 2.27% and 4.49%; and expected lives of 10 years for all years. The weighted fair value of options granted in 2003 and 2002 was $2.53 and $4.96, respectively. Due to the fact that the Company's stock option programs vest over several years and additional awards are made each year, the above pro forma numbers are not indicative of the financial impact had the disclosure provisions of SFAS No. 123 been applicable to all years of previous option grants. The above numbers do not include the effect of options granted prior to 1995. Recently Adopted Accounting Standards In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS No.150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS No. 150 for the third quarter beginning on July 1, 2003 and it had no effect on its financial position or results of operations. 8 2. OTHER ASSETS Other assets at September 30, 2003 include deferred loan fees of approximately $9.7 million associated with the refinancing of the Company's debt and capitalized costs associated with the RGM Missouri proposed venture of approximately $1.5 million and the RGM New Mexico proposed venture of approximately $1.2 million. 3. LONG TERM DEBT AND COMMITMENTS On June 26, 2002, the Company issued 11% Senior Secured Notes due 2010 with a principal amount of $215 million, substantially all of which were later exchanged for Securities Act of 1933-registered Notes of the Company with substantially the same terms (collectively, the "11% Notes"). The 11% Notes were issued at a discount in the amount of $3.2 million. The discount is being amortized over the life of the 11% Notes. The Company incurred fees of approximately $9.3 million with the issuance of the $215 million 11% Notes which are included in other assets at September 30, 2002 and 2003 and are being amortized to interest expense over the life of the indebtedness. Effective July 26, 2002 the Company entered into a $30 million, five year revolving credit arrangement with a financial institution. Terms of the arrangement include interest at prime plus .75 percent or a LIBOR derived rate. There were no advances outstanding on this revolver at September 30, 2003. In connection with this agreement the Company incurred loan fees of approximately $1.5 million, which are being expensed over the life of the agreement. 4. LEGAL PROCEEDINGS On April 15, 2003, a class action complaint was filed in the Clark County, Nevada District Court (Case No. A466204) in the name of Brian Placzek, on behalf of himself and all others similarly situated, against the Company and Company directors William L. Westerman, Robert R. Barengo, Jeffrey A. Silver and Paul A. Harvey (the "Placzek Action"). The complaint was served on the Company on April 28, 2003. The named plaintiff was a shareholder of the Company. In the complaint, the plaintiff sought an order requiring the individual defendants to take the following actions, among others: cooperate with any individual who makes a bona fide offer to acquire the Company, take steps that are calculated to result in a buy-out or takeover of the Company at the highest price, comply with their fiduciary duties, and reimburse the plaintiff's class for damages, costs and disbursements related to the lawsuit. The complaint also sought to have all of the Company's public shareholders, excluding the defendants, certified as a class for purposes of the class action suit and sought plaintiff to be the representative of the class. On July 10, 2003, the defendants filed a Motion to Dismiss the Placzek Action on the grounds that the Placzek Action was filed without the authorization of the plaintiff. Prior to this Motion to Dismiss being heard, the plaintiff agreed to dismiss the lawsuit with prejudice and on August 28, 2003, a Stipulation and Order For Dismissal was entered dismissing the Placzek Action with prejudice. On May 2, 2003, a class action complaint was filed in the Clark County, Nevada District Court (Case No. A467159) in the name of Paul Rosa against the Company and Company directors William L. Westerman, Robert R. Barengo, Jeffrey A. Silver, Paul A. Harvey and Vincent L. DiVito (the "Rosa Action"). The named plaintiff in this action was a shareholder of the Company and sought to have all of the Company's public shareholders, excluding defendants and related 9 shareholders, certified as a class for purposes of the class action suit. The complaint also sought substantially the same relief sought in the Placzek Action. On July 21, 2003, the defendants filed a Motion to Dismiss the Rosa Action on the grounds that the complaint failed to state a claim upon which relief may be granted. Prior to this Motion to Dismiss being heard, the plaintiff agreed to dismiss the lawsuit with prejudice and on October 10, 2003, a Stipulation and Order For Dismissal was entered dismissing the Rosa Action with prejudice. The Company is a party to routine lawsuits, either as plaintiff or defendant, arising from the normal operations of a hotel or casino. The Company does not believe that the outcome of such litigation, in the aggregate, will have a material adverse effect on its financial position or results of its operations. 5. STOCK REPURCHASES There were 1,703 shares of treasury stock purchased by the Deferred Compensation Plan Trustee at $4.27 for the nine months ended September 30, 2003. 6. ISSUANCE OF RESTRICTED STOCK There were 5,435 shares of stock issued at an average price of $4.60 under the Restricted Stock Plan in the first nine months ended September 30, 2003 for executive compensation earned in the last quarter of 2002. 7. GUARANTOR INFORMATION The 11% Notes and the $30 million line of credit are guaranteed by all of the Company's restricted subsidiaries. These guaranties are full, unconditional, and joint and several. RGM Missouri and RGM New Mexico are unrestricted subsidiaries of RHC and are not guarantors of the 11% Notes. Each of these entities is in the development stage, and has no operating results. Their assets totaled $2.7 million (RGM Missouri $1.5 million and RGM New Mexico $1.2 million in 2002 and 2003), which assets were created through advances from RHC. 8. SUBSEQUENT EVENTS On October 13, 2003, Riviera Las Vegas finalized an agreement with Alliance Gaming to provide ACSC slot systems, including ticket-in, ticket-out capability. In Colorado Amendment 33 to establish Racinos in the state was defeated in the November 4, 2003 general election by a four to one vote. 10 9. SEGMENT DISCLOSURES The Company determines its segments based upon review process of the chief decision maker who reviews by geographic gaming market segments: Riviera Las Vegas and Riviera Black Hawk. The key indicator reviewed by the chief decision maker is EBITDA as defined below. All intersegment revenues have been eliminated.
Three months ended Nine months ended September 30, September 30, (Dollars in thousands) 2003 2002 2003 2002 Net revenues: Riviera Las Vegas $35,944 $35,412 $107,706 $107,161 Riviera Black Hawk 13,029 13,038 37,086 37,454 ----------- ------------ ---------- -------- Total net revenues $ 48,973 $ 48,450 $ 144,792 $ 144,615 =========== ============ ========== ======== Income (loss) from operations: Riviera Las Vegas $2,556 $2,821 $10,509 $10,732 Riviera Black Hawk 2,147 1,802 5,751 5,411 Corporate Expenses(3) (1,062) (1,120) (3,478) (3,258) ------------ ----------- ----------- -------- Total income from operations $3,641 $3,503 $12,782 $12,885 ============ =========== =========== ======== EBITDA (1): Riviera Las Vegas $5,073 $5,753 $18,476 $19,543 Riviera Black Hawk 3,579 3,310 10,114 10,005 Corporate Expenses (3) (1,062) (1,120) (3,478) (3,258) ------------ ----------- ----------- -------- Total EBITDA $7,590 $7,943 $25,112 $26,290 ============ =========== =========== ======== EBITDA margins (2): Riviera Las Vegas 14.1% 16.2% 17.2% 18.2% Riviera Black Hawk 27.5% 25.4% 27.3% 26.7%
(1)EBITDA consists of earnings before interest, income taxes, depreciation, and amortization. EBITDA is presented solely as a supplemental disclosure because management believes that it is 1) a widely used measure of operating performance in the gaming industry, and 2) a principal basis for valuation of gaming companies by certain analysts and investors. Management uses property-level EBITDA (EBITDA before corporate expense) as the primary measure of the Company's business segment properties' performance, including the evaluation of operating personnel. EBITDA should not be construed as an alternative to operating income, as an indicator of the Company's operating performance, as an alternative to cash flows from operating activities, as a measure of liquidity, or as any other measure determined in accordance with generally accepted accounting principles. The Company has significant uses of cash flows, including capital expenditures, interest payments and debt principal repayments, which are not reflected in EBITDA. Also, other companies that report EBITDA information may calculate EBITDA in a different manner than the Company. A reconciliation of EBITDA to operating income is included in the following financial schedules. (2) EBITDA margin is EBITDA as a percent of net revenues. (3) Year to date corporate expenses increased in 2003 as due to additional professional fees and costs associated with corporate governance, business proposals and the shareholder vote on the removal of certain voting restrictions in the Company's articles of incorporation. 11 Riviera Holdings Corporation Reconciliation of Operating Income (Loss) to EBITDA ($ in 000's)
Net Income Net Interest Operating Management (Loss) Expense(5) Income/(Loss) Depreciation Fee EBITDA Third Quarter 2003 Riviera Las Vegas $ 2,513 $ (43) $ 2,556 $ 2,871 $ (354) $ 5,073 Riviera Black Hawk 114 (2,033) 2,147 1,078 354 3,579 Corporate (5,780) (4,718) (1,062) - - (1,062) -------------------------------------------------------------- $ (3,153) $ (6,794) $ 3,641 $ 3,949 - $ 7,590 -------------------------------------------------------------- Third Quarter 2002 Riviera Las Vegas $ 2,826 $ 5 $ 2,821 $ 3,276 $ (344) $ 5,753 Riviera Black Hawk 930 (872) 1,802 1,164 344 3,310 Corporate (20,651) (19,531) (1,120) - - (1,120) -------------------------------------------------------------- $ (16,895)$ (20,398) $ 3,503 $ 4,440 - $ 7,943 -------------------------------------------------------------- Nine Months ended September 30, 2003 Riviera Las Vegas $ 10,381 $ (128) $ 10,509 $ 9,051 $ (1,084) $18,476 Riviera Black Hawk (398) (6,149) 5,751 3,279 1,084 10,114 Corporate (17,731) (14,253) (3,478) - - (3,478) -------------------------------------------------------------- $ (7,748)$ (20,530) $ 12,782 $ 12,330 - $ 25,112 -------------------------------------------------------------- Nine Months ended September 30, 2002 Riviera Las Vegas $ 10,906 $ 174 $ 10,732 $ 9,925 $ (1,114) $19,543 Riviera Black Hawk 1,333 (4,078) 5,411 3,480 1,114 10,005 Corporate (33,056) (29,798) (3,258) - - (3,258) -------------------------------------------------------------- $ (20,817)$ (33,702) $ 12,885 $ 13,405 - $ 26,290 --------------------------------------------------------------
September 30, December 31, 2003 2002 Assets (4): (in thousands) Riviera Las Vegas $ 117,004 $ 123,740 Riviera Black Hawk 62,377 64,493 ----------------------- Total assets $ 179,381 $ 188,233 ======================= (4)Assets represent property and equipment, net of accumulated depreciation. (5)Interest expense net of interest income
RIVIERA LAS VEGAS REVENUES The primary marketing of the Riviera Las Vegas is not aimed toward residents of Las Vegas, Nevada. Significantly all revenues derived from patrons visiting the Riviera Las Vegas are from other parts of the United States and other countries. Revenues for Riviera Las Vegas from a foreign country or region may exceed 10 percent of all reported segment revenues; however, the Riviera Las Vegas cannot identify such information, based upon the nature of gaming operations. RIVIERA BLACK HAWK REVENUES The casino in Black Hawk, Colorado, primarily serves the residents of metropolitan Denver, Colorado. As such, management believes that significantly all revenues are derived from within 250 miles of that geographic area. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002 The following table sets forth, for the periods indicated, certain operating data for the Riviera Las Vegas and Riviera Black Hawk. Income from Operations includes intercompany management fees.
Third Quarter Incr/ % Incr/ (In Thousands) 2003 2002 (Decr) (Decr) ---- ---- ------ ------ Net revenues: Riviera Las Vegas $35,944 $35,412 $ 532 1.5% Riviera Black Hawk 13,029 13,038 (9) -0.1% ------ ------ --- Total Net Revenues $48,973 $48,450 $523 1.1% ======= ======= ==== Income (Loss) from Operations Riviera Las Vegas $2,556 $2,821 $(265) -9.4% Riviera Black Hawk 2,147 1,802 345 19.1% ----- ----- --- Property Income from Operations 4,703 4,623 80 1.7% Corporate Expenses (1,062) (1,120) 58 5.2% ------- ------- -- Total Income from Operations $3,641 $3,503 $138 3.9% ====== ====== ==== Operating Margins Riviera Las Vegas 7.1% 8.0% -0.9% Riviera Black Hawk 16.5% 13.8% 2.7% Consolidated 7.4% 7.2% 0.2%
Riviera Las Vegas Revenues Net revenues increased by approximately $532,000, or 1.5%, from $35.4 million in 2002 to $34.9 million in 2003 due primarily to increased casino, food and beverage and entertainment revenues, which were partially offset by increased promotional allowances. Riviera Las Vegas occupancy was 96.7 percent compared with 92.5 percent in 2002; ADR (average daily room rate) decreased $2.66 to $57.32. RevPar (revenue per available room) was comparable to the third quarter of 2002 At $55.45. Convention rooms decreased from 36.7 percent to 31.9 percent of total occupancy while leisure and gaming increased from 55.4 percent to 59.8 percent and Internet sales rose from 7.8 percent to 12.2 percent. The decline in Convention room nights was partially caused by conventioneers booking via the Internet which circumvent traditional hotel room blocks. While occupancy levels may not have been affected, the ADR has been impacted. Leisure and Asian segments are rebooking and the fall looks encouraging for overall bookings. Casino revenues increased by approximately $278,000, or 1.9%, from $14.6 million during 2002 to $14.9 million during 2003 due primarily to a 6.2% increase in slot machine revenue. Slot machine coin-in, or volume, increased 3.9 percent for the quarter. 13 Food and beverage revenues increased $399,000 or 5.9% from $6.8 million in 2002 to $7.2 million in 2003 due to a 14.6% increase in food covers for the quarter. Entertainment revenues increased $311,000 or 6.8% from $4.6 million in 2002 to $4.9 million in 2003 due to a 14.0% increase in entertainment covers for the quarter. Promotional allowances increased by approximately $475,000, or 13.9%, from $3.4 million during 2002 to $3.9 million during 2003 primarily due to increases in comps related to increased casino activity. Costs and Expenses Rooms departmental costs and expenses increased by 7.9% in the quarter, due primarily to the wage scale increases under the renewed union contracts. Food and Beverage expenses increased $326,000 or 6.6% in the quarter, due primarily to increased revenues as discussed above. General and administrative expenses increased $470,000 or 7.2% in the quarter, due primarily to increased health insurance costs for non-union employees. Income from Operations Income from operations in Las Vegas decreased $265,000, or 9.4%, from $2.8 million in 2002 to $2.6 million in 2003 due to the increase in Rooms expenses and General and Administrative expenses as explained above. Riviera Black Hawk Revenues Net revenues were $13.0 million in the third quarter 2003 and 2002. Slot volume measured by coin-in was up 3.5% in the third quarter compared to the Black Hawk Market coin-in, which was down 3.7%. Food and beverage revenues were down $287,000 or 16.9% due to decreased covers in our buffet outlet . Changes in the focus of our marketing programs introduced in November of last year appear to be strengthening our position in the Black Hawk market by reducing complementaries and increasing cash rebates to slot customers. Income from Operations Income from operations in Black Hawk, Colorado increased $345,000, or 19.1%, from $1.8 million in 2002 to $2.1 million in 2003 primarily due to the $315,000 decrease in casino expenses. Consolidated Operations Other Income (Expense) Interest expense decreased $2.4 million or 26.1% from $9.2 million in 2002 to $6.8 million in 2003 primarily as a result of interest expense due to defeasance charge in 2002. Also as a result of the Company's refinancing of their debt in 2002 the Company realized a one time charge for loss on extinguishment of debt of $11.2 million. 14 Net Income (Loss) The net loss decreased $13.7 million from a net loss of $16.9 million in 2002 to a net loss of $3.2 million in 2003 due primarily to decreased expenses as a result of refinancing the Company's debt in 2002 as discussed above. Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002 The following table sets forth, for the periods indicated, certain operating data for the Riviera Las Vegas and Riviera Black Hawk. Income from Operations includes intercompany management fees.
Nine Months Ended Incr/ % Incr/ (In Thousands) 2003 2002 (Decr) (Decr) ---- ---- ------ ------ Net revenues: Riviera Las Vegas $107,706 $107,161 $545 0.5% Riviera Black Hawk 37,086 37,454 (368) -1.0% ------ ------ ----- Total Net Revenues $144,792 $144,615 $177 0.1% ======== ======== ==== Income (Loss) from Operations Riviera Las Vegas $10,509 $10,732 $(223) -2.1% Riviera Black Hawk 5.751 5,411 340 6.3% ----- ----- --- Property Income from Operations 16,260 16,143 117 0.7% Corporate Expenses (3,478) (3,258) (220) -6.8% ------- ------- ----- Total Income from Operations $12,782 $12,885 $(103) -0.8% ======= ======= ====== Operating Margins Riviera Las Vegas 9.8% 10.0% -0.2% Riviera Black Hawk 15.5% 14.5% 1.0% Consolidated 8.8% 8.9% -0.1%
Riviera Las Vegas Revenues Net revenues increased $545,000 or 0.5% from $107.2 million 2002 to $107.7 in 2003 due primarily to increased hotel, food and beverage and entertainment revenues which were partially offset by decreased casino revenues. Casino revenues decreased by approximately $911,000, or 2.0%, from $46.5 million during 2002 to $45.6 million during 2003 primarily due to a decrease of $383,000 or 4.2% in table game revenue as a result of lower drop and lower hold percentage and a decrease of $220,000 or 0.6% in slot machine revenues as a result of lower hold percentage. Room revenue increased $1.1 million, or 3.4%, from $32.4 million in 2002 to $33.5 million in 2003 due to an increase in leisure room nights. Hotel occupancy increased to 94.1%, up from last year's 92.1% and average daily room rate increased $0.23 to $59.81 in 2003 from $59.58 in 2002. Rev Par (revenue per available room) increased 2.6% or $1.40 to $56.26. 15 Food and Beverage revenues increased $857,000, or 4.3%, from $19.9 million in 2002 to $20.7 million in 2003 due primarily to increased covers in our buffet and coffee shop. Entertainment revenues increased by approximately $652,000, or 5.0%, from $13 million during 2002 to $13.6 million during 2003 due primarily to an increase in our Le Bistro Theater revenues. Promotional allowances increased by approximately $967,000, or 9.3%, from $10.4 million during 2002 to $11.4 million during 2003 primarily due to increases in comps related to higher convention activity. Costs and Expenses Casino expenses decreased $1.1 million or 4.3% from $26.5 million in 2002 to $25.4 million in 2003 primarily due to reduced casino activity. Rooms departmental costs and expenses increased $1.2 or 7.1% from $17.5 million in 2002 to $18.7 million in 2003 as a result of increased occupancy, requiring more variable labor costs. In addition, wage scale increases under the renewed union contracts contributed to the increased costs. General and administrative expenses increased $696,000, or 3.8% as a result of increased health insurance costs for our non-union employees. Income from Operations Income from operations in Las Vegas decreased $223,000, or 2.1%, from $10.7 million in 2002 to $10.5 million in 2003 based on comparable revenues and increased costs as discussed above and the decrease in depreciation of $874,000 or 8.8%, as certain asset acquired five and seven years ago became fully depreciated.. Riviera Black Hawk Revenues Net revenues decreased by approximately $368,000, or 1.0%, from $37.5 million in 2002 to $37.1 million in 2003. Casino revenues decreased $138,000, or 0.4%, from $35.3 million in 2002 and $35.1 million in 2003 due to increased slot club point and cash voucher redemption. Riviera Black Hawk continues to refine its marketing efforts by constantly measuring the success rates of its programs, while monitoring the offerings of competitors. The operation is attempting to strike a balance between player incentives, gaming product, food offerings and entertainment as its primary marketing programs. Food and Beverage revenue decreased $581,000, or 11.7% from $5.0 million in 2002 to $4.4 million in 2003 due primarily to reduced complimentary covers in our buffet. 16 Income from Operations Income from operations in Black Hawk, Colorado increased by $340,000 or 6.3% from $5.4 million in 2002 to $5.8 million in 2003 as a result of refining direct marketing and promotional programs for the casino to match the economic conditions in the Denver area. Consolidated Operations Other Income (Expense) Interest expense, excluding interest expense incurred due to debt defeasance, increased $573,000 due to costs associated with the $30 million credit facility and increased amortization of loan fees. Interest income decreased $158,000 from $176,000 in 2002 to $18,000 in 2003 as a result of the lower cash balances available for investment and decreasing rates. Corporate expenses increased $270,000 or 8.4% from $3.2 million in 2002 to $3.5 million in 2003 as a result of additional professional fees and costs associated with corporate governance, business proposals and the shareholder vote on the removal of certain voting restrictions in the Company's articles of incorporation. Other Income (Expense) for the first nine months of 2002 was affected by the loss on extinguishment of debt and additional interest expense totaling $13.9 million or $4.03 per share. Net Income (Loss) Net income (loss) for the first nine months of 2002 was affected by the loss on extinguishment of debt and additional interest expense totaling $13.9 million or $4.03 per share. (Delete the following?) Net loss decreased $13.1 million or 62.8% from a net loss of $20.8 million in 2002 to a net loss of $7.7 million in 2003 due primarily to costs related to refinancing the Company's debt in 2002. Liquidity and Capital Resources At September 30, 2003, the Company had cash and cash equivalents of $25.6 million. The cash and cash equivalents increased $5.4 million during the first nine months of 2003, as a result of $11.8 million of cash provided by operations, $3.9 million of cash outflow for investing activities and $2.5 million outflow for financing activities. Cash balances include amounts that could be required to fund the Chief Executive Officer's pension obligation in a rabbi trust with 5 days notice. (See Note 7 to the 2002 annual consolidated financial statements, Other Long-Term Liabilities included in Form 10-K as filed with the SEC on March 17, 2003.) Effective April 1, 2003, the Company began paying Mr. Westerman $250,000 per quarter from his pension plan. In exchange for these payments, Mr. Westerman has agreed to continue his forbearance of his right to receive full transfer of his pension fund balance to the rabbi trust. This does not limit his ability to give the five-day notice at any time. Although there is no current intention to require this funding, under certain circumstances the Company might have to disburse approximately $6.3 million for this purpose in a short period. 17 Management believes that cash flow from operations, combined with the $25.6 million cash and cash equivalents and the $30 million revolving credit facility, will be sufficient to cover the Company's debt service and enable investment in budgeted capital expenditures for 2003 for both the Las Vegas and Black Hawk properties and provide initial investments in the potential Missouri and New Mexico projects. Cash flow from operations may not to be sufficient to pay 100% of the principal of the 11% Notes at maturity on June 15, 2010. Accordingly, our ability to repay the 11% Notes at maturity may be dependent upon our ability to refinance them. There can be no assurance that we will be able to refinance the principal amount of the 11% Notes at maturity. The 11% Notes provide that, in certain circumstances, the Company and its subsidiaries must offer to repurchase the 11% Notes, upon the occurrence of a change of control, at 101% of the principal amount. Each holder of the 11% Notes has the right, but not the obligation, to accept this offer. In the event of such mandatory redemption or repurchase prior to maturity, the Company and its subsidiaries would be unable to pay the principal amount of the 11% Notes without a refinancing. At any time prior to June 15, 2005, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 11% Notes at a redemption price of 111% of the principal amount, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date, with the net cash proceeds of one or more public equity offerings; provided that: (1) at least 65% of the aggregate principal amount of the 11% Notes remains outstanding immediately after the occurrence of such redemption (excluding such notes held by the Company or its subsidiaries); and (2) the redemption occurs within 45 days of the date of the closing of such public equity offering. Except pursuant to the preceding paragraph, the 11% Notes are not redeemable at the Company's option prior to June 15, 2006. On or after June 15, 2006, the Company may redeem all or part of the 11% Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and liquidated damages, if any, on the 11% Notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on June 15 of the years indicated below:
Year Percentage 2006 .......................................105.500% 2007........................................103.667% 2008........................................101.833% 2009 and thereafter.........................100.000%
18 The 11% Notes contain certain covenants, which limit the ability of the Company and its restricted subsidiaries, subject to certain exceptions, to do, among other things, the following: (i) incur additional indebtedness; (ii) pay dividends or other distributions, repurchase capital stock or other equity interests or subordinated indebtedness; (iii) enter into certain transactions with affiliates; (iv) create certain liens or sell certain assets; and (v) enter into certain mergers and consolidations. As a result of these restrictions, the ability of the Company and its subsidiaries to incur additional indebtedness to fund operations or to make capital expenditures is limited. In the event that cash flow from operations is insufficient to cover cash requirements, the Company and its subsidiaries would be required to curtail or defer certain capital expenditure programs under these circumstances, which could have an adverse effect on operations. At September 30, 2003, the Company believes that it is in compliance with the covenants of the 11% Notes and the $30 million revolving credit facility. Amendment of Articles of Incorporation On July 15, 2003 the shareholders of the Company approved an amendment to Article 3, Section 7, of our Articles of Incorporation. The amendment became effective on July 18, 2003. Prior to the amendment, the Articles of Incorporation contained two distinct limitations on common stock voting rights of a "Substantial Stockholder", which is defined as a person who, within a three year period, acquires beneficial ownership of more than 10% of the Company's outstanding common stock. The first limitation was that a Substantial Stockholder's voting power was reduced by 99% for all shares of common stock owned in excess of 10% and up to 15% (the "10% Limit"). The second limitation was a nullification of the Substantial Stockholder's ability to vote any of his shares of common stock that exceeded 15% of the outstanding shares of common stock (the "15% Limit"). The Substantial Stockholder was able to avoid the 10% Limit by either making a cash tender offer for all outstanding shares of common stock, or by obtaining a waiver by our Board of Directors. The Substantial Stockholder could only avoid the 15% Limit by making a cash tender offer for all outstanding shares of common stock. The 15% Limit could not be waived by our Board of Directors, even if we considered a particular person's infusion of new capital into the Company to be in the best interests of the Company. The amendment of the Articles of Incorporation, which eliminated the 15% Limit, left the 10% Limit intact. Consequently, the Board of Directors now has the authority to waive the voting limitations in the Articles of Incorporation when the Board of Directors considers such a waiver to be appropriate for the Company. This may include instances where the Board of Directors chooses to pursue an opportunity to increase the Company's equity base or to attract a strategic partner that could provide additional financial resources for the Company. Recently Adopted Accounting Standards In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS No. 150 for the third quarter beginning on July 1, 2003 and it had no effect on its financial position or results of operations. 19 Critical Accounting Policies A description of our critical accounting policies and estimates can be found in Item 7 of our 2002 Form 10-K and for a more extensive discussion of our accounting policies, see Note 2, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements in our 2002 Form 10-K filed with the SEC on March 17, 2003. Forward-Looking Statements This report includes "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, as amended. Statements in this report regarding future events or conditions, including statements regarding industry prospects and the Company's expected financial position, business and financing plans, are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed in this report as well as in the Company's most recent annual report on Form 10-K, and include the Company's substantial leverage, the risks associated with the expansion of the Company's business, as well as in factors that affect the gaming industry generally. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Specific factors that might cause actual results to differ from our expectations or might cause us to modify our plans or objectives include, but are not limited to: o the availability and adequacy of our cash flow to meet our requirements, including payment of amounts due under our indebtness; o our substantial indebtedness, debt service requirements and liquidity constraints; o risks related to our 11% Notes and to high-yield securities and gaming securities generally; o changes in our business strategy, capital improvements or development plans; o the need for additional capital to support capital improvements and development; o economic, competitive, demographic, business and other conditions in our local and regional markets; o changes or developments in laws, regulations or taxes in the gaming industry; o actions taken or omitted to be taken by third parties, including our customers, suppliers, and competitors as well as legislative, regulatory, judicial and other governmental authorities; 20 o competition in the gaming industry, including the availability and success of alternative gaming venues and other entertainment attractions; o a decline in the public acceptance of gaming; o changes in personnel or compensation, including federal minimum wage requirements; o our failure to obtain, delays in obtaining, or the loss of any, licenses, permits or approvals, including gaming and liquor licenses, or the limitation, conditioning, suspension or revocation of any such licenses, permits or approvals, or our failure to obtain an unconditional renewal of any such licenses, permits or approvals on a timely basis; o the loss of any of our casino facilities due to terrorist acts, casualty, weather, mechanical failure or any extended or extraordinary maintenance or inspection that may be required; o other adverse conditions, such as economic downturns, changes in general customer confidence or spending, increased transportation costs, travel concerns or weather-related factors, that may adversely affect the economy in general and/or the casino industry in particular; and o factors relating to the current state of world affairs and any further acts of terrorism or other destabilizing events in the United States or elsewhere. 21 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risks relating to our operations result primarily from changes in interest rates. We invest our cash and cash equivalents in U.S. Treasury Bills with maturities of 30 days or less. Such investments are generally not affected by changes in interest rates. As of September 30, 2003, we had $217.8 million in borrowings. The borrowings include $215 million in 11% Notes maturing in 2010 and capital leases maturing at various dates through 2005. Interest under the $215 million 11% Notes is based on a fixed rate of 11%. The equipment loans and capital leases have interest rates ranging from 5.4% to 13.5%. The borrowings also include $761,000 in a special improvement district bond offering with the City of Black Hawk. The Company's share of the debt on the SID bonds of $1.2 million when the project is complete, is payable over ten years beginning in 2000. The SID bonds bear interest at 5.5%.
Interest Rate Sensitivity Principal (Notational Amount by Expected Maturity) Average Interest Rate (Amounts in Fair Value thousands) 2003 2004 2005 2006 2007 Thereafter Total at 9/30/03 Long Term Debt Including Current Portion Equipment loans and capital leases Las Vegas $ 312 $1,019 $ 11 $ 1,342 $ 1,342 Average interest rate 8.0% 7.8% 8.4% 11% Senior Secured Notes $215,000 215,000 212,850 Less unamortized Discount (2,714) (2,714) (2,714) Average interest rate 11.8% Capital leases Black Hawk, Colorado 530 2,263 658 3,451 3,451 Average interest rate 10.8% 10.8% 10.8% Special Improvement District Bonds Black Hawk, Colorado - 110 116 $ 124 $ 129 282 761 761 Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% ------ ----- Total all long-term debt, including current portion 217,840 215,690 ======= ======= Other Long Term Liabilities Including Current Portion CEO pension plan obligation $475 $1,000 $1,000 $1,000 $ 1,000 $ 2,003 $ 6,428 $ 6,428 11.8% 11.8% 11.8% 11.8% 11.8% 11.8%
22 Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings under the Exchange Act. (b) Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect such controls. Part II. OTHER INFORMATION Item 1. Legal Proceedings On April 15, 2003, a class action complaint was filed in the Clark County, Nevada District Court (Case No. A466204) in the name of Brian Placzek, on behalf of himself and all others similarly situated, against the Company and Company directors William L. Westerman, Robert R. Barengo, Jeffrey A. Silver and Paul A. Harvey (the "Placzek Action"). The complaint was served on the Company on April 28, 2003. The named plaintiff was a shareholder of the Company. In the complaint, the plaintiff sought an order requiring the individual defendants to take the following actions, among others: cooperate with any individual who makes a bona fide offer to acquire the Company, take steps that are calculated to result in a buy-out or takeover of the Company at the highest price, comply with their fiduciary duties, and reimburse the plaintiff's class for damages, costs and disbursements related to the lawsuit. The complaint also sought to have all of the Company's public shareholders, excluding the defendants, certified as a class for purposes of the class action suit and sought plaintiff to be the representative of the class. On July 10, 2003, the defendants filed a Motion to Dismiss the Placzek Action on the grounds that the Placzek Action was filed without the authorization of the plaintiff. Prior to this Motion to Dismiss being heard, the plaintiff agreed to dismiss the lawsuit and on August 28, 2003, a Stipulation and Order For Dismissal was entered dismissing the Placzek action with prejudice. On May 2, 2003, a class action complaint was filed in the Clark County, Nevada District Court (Case No. A467159) in the name of Paul Rosa against the Company and Company directors William L. Westerman, Robert R. Barengo, Jeffrey A. Silver, Paul A. Harvey and Vincent L. DiVito (the "Rosa Action"). The named plaintiff was a shareholder of the Company and sought to have all of the Company's public shareholders, excluding defendants and related shareholders, certified as a class for purposes of the class action suit. The complaint also sought substantially the same relief that was sought in the Placzek Action. On July 21, 2003, the defendants filed a Motion to Dismiss the Rosa Action on the grounds that the complaint failed to state a claim upon which relief may be granted. Prior to this Motion to Dismiss being heard, the plaintiff agreed to dismiss the lawsuit with prejudice and on October 10, 2003, a Stipulation and Order For Dismissal was entered dismissing the Rosa Action with prejudice. 23 The Company is a party to routine lawsuits, either as plaintiff or defendant, arising from the normal operations of a hotel or casino. The Company does not believe that the outcome of such litigation, in the aggregate, will have a material adverse effect on its financial position or results of its operations. Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of stockholders held on July 15, 2003, stockholders elected the Company's board of directors and approved an amendment of the Company's Articles of Incorporation to eliminate certain voting limitations on ownership of more than 15% of the Company's stock. The amendment is described further in Part I Item 2 of this report under the caption" Amendment of Articles of Incorporation." The number of votes cast for each director nominee, the number of votes cast against or withheld, and the number of abstentions or broker nonvotes were as follows:
For Against or Abstentions or --- Withheld Broker Nonvotes --------- --------------- William L. Westerman 3,057,656 238,517 0 Robert R. Barengo 3,057,875 238,298 0 Jeffrey A. Silver 3,190,061 106,112 0 Paul A. Harvey 3,189,759 106,414 0 Vincent L. DiVito 3,189,779 106,394 0
The number of votes cast for the amendment of the Articles of Incorporation was 2,295,950 the number of votes cast against it or withheld was 114,479, and the number of abstentions or broker nonvotes was 885,744. Item 6. Exhibits and Reports on Form 8-K. (a) See list of exhibits on page 26. (b) During the third quarter of 2003, the Company filed reports on Form 8-K on July 17 (Items 5 and 7), July 22, (Items 7,9 and 12) and September, 15 2003 (Items 5 and 7). The July 22, 2003 filing included summary financial information for the Company's second quarter. 24 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RIVIERA HOLDINGS CORPORATION By: /s/ William L. Westerman William L. Westerman Chairman of the Board and Chief Executive Officer By: /s/ Duane Krohn Duane Krohn Treasurer and Chief Financial Officer Date: November 7, 2003 25 Riviera Holdings Corporation Form 10Q September 30, 2003 Exhibit No. Description 3 Articles of Incorporation 31.1 Certification of the Principal Executive Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a). 31.2 Certification of the Principal Financial Officer of the Registrant pursuant to Exchange Act Rule 13a-14(a). 32.1 Certification of the Principal Executive Officer of the Registrant pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002. 32.2 Certification of the Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002. 26 EX-99 3 rhc_exhibit3.txt RHC EXHIBIT 3 May 10, 1996 Restated Articles of Incorporation EXHIBIT 3 ARTICLES OF INCORPORATION ------------------------- SECOND RESTATED ARTICLES OF INCORPORATION OF RIVIERA HOLDINGS CORPORATION Pursuant to the provisions of Nevada Revised Statutes ("NRS") Section 78.403 the undersigned corporation adopts these Second Restated Articles of Incorporation. The Amended and Restated Articles of Incorporation filed June 18, 1993, and as amended to the date of this certificate, are hereby Restated as follows: ARTICLE I NAME The name of the corporation shall be RIVIERA HOLDINGS CORPORATION. ARTICLE II REGISTERED OFFICE The name of the Resident Agent and the street address of the registered office in the State of Nevada where process may be served upon the corporation is John A. Wishon, Riviera Hotel & Casino, 2901 Las Vegas Boulevard South, Las Vegas, Clark County, Nevada 89109. The corporation may, from time to time, in the manner provided by law, change the resident agent and the registered office within the State of Nevada. The corporation may also maintain an office or offices for the conduct of its business, either within or without the State of Nevada. ARTICLE III CAPITAL STOCK Section 1. Authorized Shares. The total number of shares of capital stock of the corporation which the corporation shall have authority to issue is 20,000,000 shares of common stock, par value $.001 (the "Common Stock"). Notwithstanding the foregoing, the corporation shall be prohibited from issuing equity securities having no voting rights whatsoever. Section 2. Consideration for Shares. The capital stock authorized by Section 1 of this Article shall be issued for such consideration as shall be fixed, from time to time, by the Board of Directors. Section 3. Assessment of Stock. The capital stock of the corporation, after the amount of the subscription price has been fully paid in, shall not be assessable for any purpose, and no stock issued as fully paid shall ever be assessable or assessed. No stockholder of the corporation is individually liable for the debts or liabilities of the corporation. Section 4. Cumulative Voting For Directors. No stockholder of the corporation shall be entitled to cumulative voting of their shares for the election of directors. Section 5. Preemptive Rights. No stockholder of the corporation shall have any preemptive rights. Section 6. Special Common Stock Voting Provisions. The holders of Common Stock shall, subject to Section 7, be entitled to one (1) vote for each share held and any action requiring the consent of the holders of Common stock shall be approved by the stockholders holding at least a majority of the voting power of the shares then outstanding, subject to the following special requirements. (a) Commencing on the date of initial issuance of shares of Common Stock and ending on the first anniversary thereof, the affirmative vote of the stockholders holding at least sixty percent (60%) of the voting power of the shares of Common Stock outstanding, voting separately as a single class, in person or in proxy, either In writing without a meeting or at a special or annual meeting of holders of Common Stock called for that purpose, shall be required before the corporation may Issue, in any single or related series of transactions, preferred stock, warrants, options or other securities (other than shares of Common Stock), exchangeable for, convertible into, or having the right to purchase with or without consideration, an amount of Common Stock equal to up to twenty percent (20%) or more of the Common Stock or common stock equivalents outstanding immediately prior to the proposed transaction. (b) At any time after the initial Issuance of shares of Common Stock, the affirmative vote of sixty percent (60%) of the shares of Common Stock then outstanding, voting separately as a single class, in person or in proxy, either in writing without a meeting or at a special or annual meeting of holders of Common Stock called for that purpose, shall be necessary to: (i) Amend the Articles of Incorporation of the corporation or approve any resolution adopted by the Board of Directors which would materially alter or change the powers, preferences or special rights of the Common Stock so as to adversely affect the holders of the Common Stock, or to otherwise amend Section 7 of the Articles of Incorporation (to the extent provided in Subsection 7(m)). (ii) Amend the Articles of Incorporation of the corporation or approve any resolution adopted by the Board of Directors which would authorize or increase the authorized number of shares of any class or series of stock of the corporation ranking -2- senior in preference or privilege to the Common Stock either as to dividends or upon liquidation, dissolution or winding up; (iii) Authorize any merger or consolidation, the effect of which is that (A) the corporation will not be the continuing or surviving person, or (B) if the corporation is the continuing or surviving person, the shares of Common Stock of the corporation outstanding immediately prior to such transaction shall be changed into or exchanged for equity securities, or other securities of any other person, or for cash or any property other than securities; and (iv) Authorize (A) any sale, lease or exchange of all or substantially all of the properties or assets of the corporation in one transaction or a related series of transactions, or (8) the voluntary liquidation, dissolution or winding up of the corporation. Section 7. Substantial Stockholders. (a) It is the declared intent and policy of this corporation and its stockholders that control of this corporation is an asset that belongs to all stockholders of this corporation and that all such stockholders are entitled (i) to participate, through an election to sell or otherwise dispose of their shares, in any proposed acquisition of control of this corporation by another person, and (ii) to be offered a price for their shares which is fair and equitable under the circumstances and which includes an appropriate premium for the acquisition of such control. (b) From and after the date any person first becomes a Substantial Stockholder (as defined in Subsection 7(f)(2)) until such time as such person shall cease to be a Substantial Stockholder, holders of issued and outstanding shares of Common Stock (as defined in Subsection 7(f)(10)) beneficially owned (as defined in Subsection 7(f)(3)) by such Substantial Stockholder, as of any record date for the determination of stockholders entitled to vote on or consent to any matter, in excess of 10% of the then issued and outstanding shares of Common Stock shall, subject to the provisions of the last two sentences of this Subsection 7(b), be entitled to cast only one-hundredth (1/100) of one vote per share for each such share in excess of 10% of the then issued and outstanding shares of Common Stock. Notwithstanding the foregoing, in the event such Substantial Stockholder, or an Affiliate (as defined in Subsection 7(f)(7)) thereof, or any other person deemed to be the beneficial owner of Common Stock also beneficially owned by such Substantial Stockholder, shall consummate a Tender Offer (as defined in Subsection 7(f)(9)) conforming with the provisions of Subsections 7(d) and 7(e), holders of all Common Stock beneficially owned by such Substantial Stockholder shall thereupon be entitled to cast one vote per share of Common Stock on each matter voted upon or consented to by the holders of Common Stock of this corporation. The number of votes which may be cast by any record owner by virtue of the provisions of this Section 7 in respect of Common Stock beneficially owned by a Substantial Stockholder shall be a number equal to the total number of votes which a single record owner of all shares of Common Stock beneficially owned by such Substantial Stockholder would be entitled to cast, multiplied by a fraction, -3- the numerator of which is the number of shares of Common Stock beneficially owned by such Substantial Stockholder and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such Substantial Stockholder, whether or not owned of record. (c) Until such time as a Substantial Stockholder (or an Affiliate thereof or any other person deemed to be the beneficial owner of Common Stock also beneficially owned by such Substantial Stockholder) shall consummate a Tender Offer conforming with the provisions of Subsections 7(d) and 7(e), in no event (but subject to the provisions of the last sentence of this Subsection 7(c)) shall such Substantial Stockholder and the record owner(s) of all shares of any Common Stock beneficially owned by such Substantial Stockholder collectively be entitled or permitted to cast, by virtue of their beneficial or record ownership of Common Stock beneficially owned by such Substantial Stockholder, in excess of 15% of the total number of votes which the holders of all then outstanding Common Stock would (after giving effect to the provisions of Subsection 7(b)) be entitled to cast on any matter presented to the holders of Common Stock for vote. If the provisions of the preceding sentence shall have the effect of reducing the total number of votes which any Substantial Stockholder and the record owner(s) of Common Stock beneficially owned by such Substantial Stockholder shall be entitled to cast, such reduction shall be effected, and the number of votes which such record owner(s) shall be entitled to cast (by reason of this Subsection 7(c)) shall be determined, in accordance with the provisions of the last sentence of Subsection 7(b). (d) The Tender Offer referred to in the second sentence of Subsection 7(b) and in the first sentence of Subsection 7(c) shall mean a Tender Offer to acquire at not less than the applicable Offer Price (as defined in Subsection 7(e)) any and all shares of Common Stock then outstanding and not beneficially owned by the Substantial Stockholder to which such Tender Offer relates. In no event shall any Tender Offer referred to in this Subsection 7(d) remain open for less than twenty (20) business days (as defined in the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the Effective Date) or provide that shares duly tendered pursuant thereto will not be purchased within forty (40) business days after the commencement of such Tender Offer, and in the event that at the time such Tender Offer is commenced the terms and conduct thereof shall riot be directly regulated by Sections 14(d) or 13(a) of the Securities Exchange Act of 1934 and the Rules and Regulations thereunder, or any successor federal laws and regulations, then such Tender Offer shall conform in all respects with the provisions of the Securities Exchange Act of 1934 and the General Rules and Regulations thereunder, as in effect on the Effective Date. The consideration to be received by holders of Common Stock in any such Tender Offer shall be in the form of cash (which may be payable by check) exclusively, and such Tender Offer shall be deemed consummated only when payment in full shall be made for all duly tendered shares. A Tender Offer shall not be deemed to have conformed or compiled with the provisions of this Subsection 7(d) unless (i) such Substantial Stockholder or Affiliate requests the Board of Directors to note it if the board or a majority of the Continuing Directors (as defined in Subsection 7(f)(5)), as the case may be, exercises its discretion to utilize an "Established Price, as contemplated by Subsection -4- 7(e)(2) and (ii) such Tender Offer is commenced within thirty (30) days after the first public announcement thereof setting forth the Offer Price thereof (such public announcement being hereinafter referred to as the "Announcement" of such Tender Offer.) (e) (1) The "Offer Price" for any Tender Offer referred to in Subsection 7(d) shall be an amount per share of Common Stock equal to the highest price per share of Common Stock (including brokerage commissions, transfer taxes and soliciting dealers' fees) paid or agreed to be paid by such Substantial Stockholder (or any of its Affiliates or any other person deemed to be the beneficial owner of Common Stock also beneficially owned by such Substantial Stockholder) in acquiring any shares of Common Stock within the consecutive three (3) year period preceding the date of the Tender Offer; provided, however, that a majority of the Whole Board (as defined in Subsection 7(f)(6)), in its discretion, may determine, but only if a majority of the Whole Board shall then consist of Continuing Directors or, if a majority of the Whole Board shall not then consist of Continuing Directors, a majority of the then Continuing Directors, in their discretion, may determine, that, in lieu of an amount per share of Common Stock determined above, such Offer Price shall be an amount per share of Common Stock which shall not be less than a price per share of Common Stock (the "Established Price") established and determined in writing by an independent, nationally recognized investment-banking firm selected by a majority of the Whole Board, but only if a majority of the Whole Board shall then consist of Continuing Directors, or, if a majority of the Whole Board does not then consist of Continuing Directors, by a majority of the then Continuing Directors, as then a fair and appropriate price (considering this corporation, on a consolidated basis, as a going concern or on the basis of its value in liquidation, whichever circumstance would result in the highest such price) for the sale of this corporation in a privately negotiated, arm's-length transaction with a person other than a Substantial Stockholder or an Affiliate of such Substantial Stockholder, in light of then prevailing economic conditions, the business and assets of and future prospects for this corporation, the synergistic benefits expected to be derived by the acquiring person(s) from an acquisition of or combination with this corporation, recent examples of similar transactions and other factors then generally considered and relied upon by the investment banking community in making determinations or recommendations as to price in arm's- length acquisition transactions. (2) This corporation shall furnish to any Substantial Stockholder requesting in writing (such request to be addressed to this corporation's chairman of the board at the principal executive offices of this corporation), within ninety (90) days after receipt of such request, a certificate of an officer of this corporation either specifying the Established Price, or stating that the Board of Directors or a majority of the Continuing Directors, as the case may be, has determined not to utilize an Established Price, pursuant to Subsection 7(e)(1). Each such request by a Substantial Stockholder shall specify the price paid or agreed to be paid for shares of Common Stock within the three (3) year period referred to in Subsection 7(e)(1). In the event there shall be no Announcement of a Tender Offer complying with the provisions of Subsections 7(d) and 7(e) within forty-five (45) days after receipt of any such certificate by the Substantial Stockholder making such request, such Substantial Stockholder shall no longer be entitled to rely thereon or act on -5- the basis thereof. In such event, such Substantial Stockholder shall be entitled to make a further request as to the determination to utilize an Established Price, and the Board of Directors, or the Continuing Directors, as the case may be, shall be authorized and empowered, in response to any such subsequent request (such subsequent request and response to conform with and to be subject to the foregoing provisions of this Subsection 7(e)(2) to determine whether to utilize an Established Price as contemplated by Subsection 7(e)(1)) established and determined (as hereinabove provided) on the basis of then prevailing circumstances. (3) Historical prices per share applied in accordance with Subsection 7(e)(1) shall be appropriately adjusted to reflect stock splits, combinations and recapitalization of the shares of Common Stock subsequent to the date on or as of which such prices are to be determined. (f) For the purposes of this Section 7: (1) A "Person" shall mean any individual, firm, corporation or other entity. (2) "Substantial Stockholder" shall mean any person or Group (as defined in Subsection 7(f)(13)), other than this corporation or any Subsidiary (as defined in Subsection 7(f)(8)), who or which has acquired within any consecutive three year period beneficial ownership, directly or indirectly, of more than 10% of the outstanding Common Stock (determined solely on the basis of the total number of shares of Common Stock so beneficially owned (and without giving effect to the number or percentage of votes entitled to be cast in respect of such shares), in relation to the total number of shares of Common Stock issued and outstanding, provided, however, that a person shall not be deemed to be a Substantial Stockholder by reason of any shares of Common Stock issued to such person pursuant to the Joint Plan (as defined in Subsection 7(f)(11)), provided further, however, that a person shall not be deemed to be a Substantial Stockholder for any purposes hereof, it such person (or an Affiliate thereof or any other person deemed to be the beneficial owner of Common Stock also beneficially owned such person) shall, prior to the time such person becomes the beneficial owner directly or indirectly of more than 10% of the outstanding Common Stock, commences and thereafter shall consummate a Tender Offer for any and all shares of Common Stock, the terms of which shall be approved and recommended to stockholders as in the best interests of the Company and its stockholders, by two-thirds of the members of the Whole Board (but only if at least a majority of the members of the Board of Directors acting upon such matter shall be Continuing Directors). (3) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in -6- effect as of the Effective Date; provided however that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock (a) which such person or any of its Affiliates or Group beneficially owns, directly or indirectly; or (b) which such person or any of its Affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, or options, or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any Common Stock solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such Affiliate is otherwise deemed the beneficial owner); or (c) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this corporation; and provided further, however, that (i) no director or officer of this corporation (nor any Affiliate of any such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such director or officer (or any Affiliate thereof, and (ii) no employee stock ownership or similar plan of this corporation or any Subsidiary nor any trustee with respect thereto (nor any Affiliate of such trustee) shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan. (4) For purposes of computing the percentage of beneficial ownership of Common Stock of a person in order to determine whether such person is a Substantial Stockholder, the outstanding Common Stock shall Include shares deemed owned by such person through application of Subsection 7(f)(3) but shall not include any other Common Stock which may be issuable by this corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by this corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise. (5) "Continuing Director" shall mean a person who was a member of the Board of Directors as of the Effective Date or thereafter elected by the stockholders or appointed by the Board of Directors of this corporation prior to the date as of which the -7- Substantial Stockholder in question became a substantial Stockholder, or a person designated (before his initial election or appointment as a director) as a Continuing Director by a minority of the Whole Board, but only if a majority of the Whole Board shall then consist of Continuing Directors, or, if a majority of the Whole Board shall not then consist of Continuing Directors, by a majority of the then Continuing Directors. (6) "Whole Board" shall mean the total number of directors which this corporation would have if there were no vacancies. (7) "Affiliate" of any specified person means a person that directly or indirectly, through one or more intermediaries, controls, or is controlled by or under direct or indirect common control with, such specified person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with",) as used with respect to any person, shall mean the possession, directly or indirectly, or the power to direct or cause the direction of the management or polices of such person, whether through the ownership of Common Stock or by agreement or otherwise. (8) "Subsidiary" shall mean any corporation of which a majority of each class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the Effective Date) Is owned, directly or indirectly, by this corporation. (9) "Tender Offer" shall mean an offer to acquire equity securities pursuant to a request or invitation for tenders. (10) "Common Stock" shall mean this corporation's common stock authorized as of the Effective Date and shall also include any capital stock of any class or series of this corporation thereafter authorized which shall be neither limited nor entitled to a fixed sum or percentage in respect of dividends and in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of this corporation. In the event there shall at any time be more than one class or series of capital stock issued and outstanding which constitutes Common Stock, all references In this Section 7 to Common Stock, or to any Tender Offer, Offer Price or Established Price, shall be deemed to refer to and apply to each such class or series of Common Stock individually and the provisions of this Section 7 shall be deemed to apply separately to each such class or series of Common Stock. (11) "Joint Plan" means the Debtor's and Bondholders' Committee's Joint Plan of Reorganization, dated October 30, 1992, as amended by the Amended Joint Plan of Reorganization dated November 30, 1992, the Second Amended Joint Plan of Reorganization dated January 8, 1993 and the Modified and Restated Second Amended Joint Plan of Reorganization dated June 4, 1993 (and as may be further amended or modified) in connection with the Reorganization case. -8- (12) "Effective Date" means the date of initial issuance of the Common Stock. (13) "Group" means a "group" as used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (or any successor rule or statutory provision). (g) Notwithstanding anything to the contrary contained in this Section 7, at any time prior to the time that a Stockholder becomes a Substantial Stockholder, if two-- thirds of the Whole Board shall have the power to waive, but only if two-thirds of the Whole Board shall then consist of Continuing Directors, or, if two-thirds of the Whole Board shall not then consist of Continuing Directors, two-thirds of the then Continuing Directors shall have the power to waive, the voting limitation with respect to a Substantial Stockholder set forth in Subsection 7(b) if it is determined by two-thirds of such Whole Board (or Continuing Directors, as the case may be) that the accumulation of such shares of Common Stock by the Substantial Stockholder will not have an adverse effect on this corporation, (h) A majority of the Whole Board shall have the power to determine, but only if a majority of the Whole Board shall then consist of Continuing Directors, or, if a majority of the Whole Board shall not then consist of Continuing Directors, a majority of the then Continuing Directors, for the purposes of this Section 7, on the basis of information known to them: (i) the number of shares of Common Stock beneficially owned by any person; (ii) whether a person is an Affiliate of another; (iii) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in Subsection 7(f)(3); (iv) whether the purchase price offered pursuant to any Tender Offer referred to In Subsection 7(d) conforms to the requirements as to minimum Offer Price set forth in Subsection 7(e); and (v) any other factual matter relating to the applicability or effect of this Section 7. (i) A majority of the Whole Board shall have the right to demand, but only if a majority of the Whole Board shall then consist of Continuing Directors, or, if a majority of the Whole Board shall not then consist of Continuing Directors, a majority of the then Continuing Directors, that any person who it is reasonably believed is a Substantial Stockholder (or holds of record Common Stock beneficially owned by any Substantial Stockholder) supply this corporation with complete information as to: (i) the record owner(s) of all shares beneficially owned by such person who it is reasonably believed is a Substantial Stockholder; (ii) the number of, and class or series of, shares beneficially owned by such person who it is reasonably believed is a Substantial Stockholder and held of record by each such record owner and the number(s) of the stock certificate(s) evidencing such shares; and (iii) any other factual matter relating to the applicability or effect of this Section 7, as may reasonably be requested of such person, and such person shall furnish such information within 10 days after the receipt of such demand. (j) Except as otherwise provided by law, the presence, in person or by proxy, of the holders of record of shares of Common Stock of this corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the -9- provisions of this Section 7) entitled to be cast by the holders of shares of Common Stock of the corporation entitled to vote shall constitute a quorum at all meetings of the holders of Common Stock, and every reference in the Articles of Incorporation to a majority or other proportion of Common Stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such Common Stock. (k) Any determinations made by the Board of Directors or by the Continuing Directors, as the case may be, pursuant to this Section 7 in good faith and on the basis of such information as was then reasonably available for such purpose shall be conclusive and binding upon this corporation and its stockholders, including any Substantial Stockholder. (l) Anything to the contrary contained in this Section 7 notwithstanding, and without limiting the powers, duties and obligations of the Board of Directors, the Board of Directors is entitled and authorized, consistent with its duties as such and its obligations to this corporation and its stockholders, to consider the terms of any proposed Tender Offer or acquisition proposed by any person, and to determine if and whether to recommend acceptance or rejection thereof, notwithstanding compliance thereof with the provisions of Subsections 7(d) and 7(e), and in connection therewith, to take or authorize any and all appropriate and proper action deemed in the judgment of the Board of Directors in the best interests of this corporation and the stockholders in the event the Board of Directors shall determine to recommend rejection thereof. (m) Any amendment, alteration, change or repeal of this Section 7 shall require the affirmative vote of the holders of then outstanding Common Stock entitling the holders thereof to cast at least 60% of the votes entitled to be cast by the holders of all of the then outstanding Common Stock, provided, however, that this Subsection 7(m) shall not apply to, and such 60% vote shall not be required for, any amendment, alteration, change or repeal declared advisable by the Board of Directors by the affirmative vote of two-thirds of the Whole Board and submitted to the stockholders for their consideration, but only if a majority of the members of the Board of Directors acting upon such matter shall be Continuing Directors. (n) Nothing contained in this Section 7 shall be construed to relieve any Substantial Stockholder from any fiduciary obligation imposed by law. (o) In the event any Subsection (or portion thereof) of this Section 7, including, without limitation Subsection 7(c), shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section 7 shall be deemed to remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this corporation and its stockholders that each such remaining provision (or portion thereof) of this Section 7 remain, to the fullest extent -10- permitted by law, applicable and enforceable as to all stockholders, including Substantial Stockholders, notwithstanding any such finding. ARTICLE IV DIRECTORS AND OFFICERS Section 1. Number of Directors. The members of the governing board of the corporation are styled as directors. The number of directors may be fixed and changed from time to time In such manner as shall be provided In the bylaws of the corporation and shall be no less than three (3) nor more than ten (10). Section 2. Initial Directors. The names and post office box or street addresses of the directors constituting the Board of Directors, which shall be four (4) in number are: NAME ADDRESS ---- ------- William Westerman 2901 Las Vegas Boulevard South Las Vegas, NV 89109 Philip Hannifin 2901 Las Vegas Boulevard South Las Vegas, NV 89109 William Friedman 2901 Las Vegas Boulevard South Las Vegas, NV 89109 Robert Barengo 2901 Las Vegas Boulevard South Las Vegas, NV 89109 Section 3. Limitation of Personal Liability. No director or officer of the corporation shall be personally liable to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, provided, however, that the foregoing provision does not eliminate or limit the liability of a director or officer of the corporation for: (a) Acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; or (b) The payment of distributions in violation of Nevada Revised Statutes 78.300. Section 4. Payment of Expenses. In addition to any other rights of indemnification permitted by the laws of the State of Nevada as may be provided for by the corporation in its bylaws or by agreement, the reasonable expenses of officers and directors incurred in defending a civil or criminal action, suit, or proceeding, involving alleged acts or omissions -11- of such officer or director in his or her capacity as an officer or director of the corporation, must be paid, by the corporation or through insurance purchased and maintained by the corporation or through other financial arrangements made by the corporation, as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the corporation, Section 5. Repeal And Conflicts. Any repeal or modification of Sections 3 or 4 above approved by the stockholders of the corporation shall be prospective only. In the event of any conflict between Sections 3 or 4 of this Article and any other Article of the Corporation's Articles of Incorporation, the terms and provisions of Sections 3 or 4 of this Article shall control. Section 6. Compliance with Gaming Control Act. All of the directors of the corporation shall be subject to, and the composition of the Board of Directors shall be in compliance with, the requirements and qualifications imposed by the Nevada Gaming Control Act (Nevada Revised Statutes ss.463.010 et seq., as amended from time to time), or any successor provision of Nevada law, and the regulations promulgated thereunder, and the rules and regulations of any governmental agency responsible for the licensing and regulation of gaming operations, including without limitation, the Nevada State Gaming Control Board, the Nevada State Gaming Commission and the Clark County Liquor and Gaming Licensing Board. ARTICLE V INCORPORATOR The name and post office box or street address of the incorporator who signed the original Articles of Incorporation is: NAME ADDRESS ---- ------- Kenneth A. Woloson 600 East Charleston Boulevard Las Vegas, Nevada 89104 ARTICLE VI AMENDMENT OF ARTICLES OF INCORPORATION Subject to the special voting provisions with respect to Common Stock contained In Article III, these Articles of Incorporation may be amended, modified, altered or repealed only with the affirmative vote of stockholders holding shares in the corporation of each class entitling them to exercise at least a major of the voting power. -12- ARTICLE VII LIMITATION ON POWER OF DIRECTORS Notwithstanding any other provision of these Articles of Incorporation, the affirmative vote of two-thirds (2/3rds) of the directors then in office shall be required to authorize or approve any amendment, modification or supplement to (a) the Indenture and the First Supplemental Indenture to be entered into by and among the corporation, as issuer, Riviera Operating Corporation ("ROC"), as guarantor, and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"), relating to the 11% First Mortgage Notes Due December 31, 2002 (or any other series of notes issued thereunder (collectively, the "Notes")) of the corporation in the form finally confirmed by the court in the reorganization case of Riviera, Inc. under Chapter 11 of Title 11 of the United States Code (Case No. BK-S91-24940) ("Reorganization Case"); (b) the Notes, (c) the Dead of Trust, Assignment of Rents and Security Agreement of the corporation, as trustor, in favor of the Trustee, as beneficiary, relating to the Notes; (d) the Security Agreement by and among the corporation and ROC as debtors, and the Trustee, as secured party, relating to the Notes; or (a) any of the other agreements entered into by the corporation In connection with the Issuance of the Notes or the provision of security for payment of the Notes which are listed in the Confirmation Order entered in the Reorganization Case. /s/ William L. Westerman ------------------------ William L. Westerman /s/ John A. Wishon --------------------- John A. Wishon VERIFICATION We, the undersigned, William L. Westerman and John A. Wishon, being respectively the President and Chairman of the Board of Directors, and the Secretary of the corporation, being first duly sworn, do hereby declare that the Board of Directors of Riviera Holdings Corporation, at a meeting held May 10, 1996, adopted a resolution authorizing the filing of the Second Restated Articles of Incorporation with the Nevada Secretary of State, and authorized the President and Secretary of the corporation to execute this document. This document sets forth the text of the Articles of Incorporation as amended to the date of this certificate. The original Articles of Incorporation were filed with the Nevada Secretary of State on January 27, 1993, and the [first] Amended and Restated Articles of Incorporation were filed with the Nevada Secretary of State on June 18, 1993. -13- IN WITNESS WHEREOF we have executed these Second Restated Articles of Incorporation of RIVIERA HOLDINGS CORPORATION on this 10th day of May, 1996. /s/ William L. Westerman ----------------------------- William L. Westerman President and Chairman of Board of Directors /s/ John A. Wishon ----------------------------- John A. Wishon Secretary STATE OF NEVADA ) ) ss: COUNTY OF CLARK ) On this 10th day of May, 1996, personally appeared before me, a Notary Public, WILLIAM L. WESTERMAN and JOHN A. WISHON, personally known to me to be the persons whose names are subscribed to the above instrument, and who acknowledged that they executed this Instrument for the uses and purposes stated therein. WITNESS my hand and official seal. /s/ Margery S. Frantzen ----------------------------- [notary seal] NOTARY PUBLIC -14- EXHIBIT 3 Attached hereto is a representative specimen of a common stock certificate of Riviera Holdings Corporation. CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF RIVIERA HOLDINGS CORPORATION Pursuant to Nevada Revised Statutesss.78.390, we the undersigned William L. Westerman, President, and Duane R. Krohn, Secretary, of Riviera Holdings Corporation do hereby certify: 1. That the Board of Directors of said corporation, at a meeting duly convened and held on the 8th day of June 1999 (the "Annual Meeting"), adopted a resolution to amend the Second Restated Articles of Incorporation, filed May 10, 1996, by adding new Articles VIII and IX to read as follows: "ARTICLE VIII [Intentionally Omitted] ARTICLE IX COMPLIANCE WITH THE APPLICABLE GAMING LAWS Section 1. Definitions. For purposes of this Article IX, the following terms shall have the meaning specified below: (a) "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 promulgated by the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (b) "Affiliated Companies" shall mean those companies directly or indirectly affiliated or under common Ownership or Control with the corporation, including, without limitation, subsidiaries, holding companies and intermediary companies (as those and similar terms are defined in the Gaming Laws of the applicable Gaming Jurisdictions) that are registered or licensed under applicable Gaming Laws, or which are seeking to be registered or licensed. (c) "Divestiture" shall mean the sale or other disposition of securities in a manner which would not (i) violate the federal securities laws or the securities laws of any state and (ii) result or be likely to result in any Person being required to be licensed, found suitable or otherwise approved by any Gaming Authority. (d) "Divestiture Date" shall mean, with respect to any Divestiture, the date on which such Divestiture must be completed, as determined by any Gaming Authority or the Board of Directors of the Corporation in its sole discretion, as applicable. (e) "Divestiture Notice" shall mean that notice requiring Divestiture served by the corporation on an Unsuitable Person if a Gaming Authority requires the corporation, or the Board of Directors of the corporation deems it necessary or advisable, to require such Unsuitable Person to undertake a Divestiture of the corporation's securities. Each Divestiture Notice shall set forth (a) the Divestiture Date, (b) the kind and number of shares of securities required to be divested, and (c) any other requirements relating to such Divestiture. (f) "Effective Date" shall mean the date that a Certificate of Amendment amending the Second Restated Articles of Incorporation of the corporation to include the provisions of this Article IX becomes effective under Nevada law. (g) "Existing Holder" shall mean any Person who Owns or Controls on the Effective Date any securities of the corporation or any securities of or interest in any Affiliated Company, and any Affiliate of such Person as of such date. (h) "Gaming" or "Gaming Activities" shall mean the conduct of gaming and gambling activities, or the use of gaming devices, equipment and supplies in the operation of a casino or other gaming enterprise, including, without limitation, slot machines, gaming devices, games, gaming tables, cards, dice, gaming chips, player tracking systems, cashless wagering systems and related and associated equipment and supplies. (i) "Gaming Authorities" shall mean all international, foreign, federal, state and local regulatory and licensing bodies and agencies with authority over Gaming within any Gaming Jurisdiction. (j) "Gaming Jurisdictions" shall mean all jurisdictions, domestic and foreign, and their political subdivisions, in which Gaming Activities are lawfully conducted. (k) "Gaming Laws" shall mean all laws, statutes and ordinances pursuant to which any Gaming Authority possesses regulatory and licensing authority over Gaming within any Gaming Jurisdiction, and all rules and regulations promulgated by such Gaming Authority thereunder. (l) "Gaming Licenses" shall mean all licenses, permits, approvals, authorizations, registrations, findings of suitability, franchises and entitlements issued by a Gaming Authority necessary for or relating to the conduct of Gaming Activities. (m) "Ownership and Control" (and derivatives thereof) shall mean (i) ownership of record, (ii) "beneficial ownership" as defined in Rule 13 d-3 promulgated by the SEC under the Securities Act, and (iii) the power to direct and manage, by agreement, contract, agency or other manner, the voting or management rights or disposition of securities of the corporation. (n) "Person" shall mean an individual, partnership, corporation, limited liability company, trust or any other entity. (o) "Redemption Date" shall mean the date by which the securities Owned or Controlled by an Unsuitable Person are to be redeemed by the corporation. (p) "Redemption Notice" shall mean that notice of redemption served by the corporation on an Unsuitable Person if a Gaming Authority requires the corporation, or the Board of Directors of the corporation deems it necessary or advisable, to redeem such Unsuitable Person's securities. Each Redemption Notice shall set forth (a) the Redemption Date; (b) the kind and number of shares of securities to be redeemed; (c) the Redemption Price and the manner of payment therefor; (d) the place where certificates for such shares shall be surrendered for payment; and (e) any other requirements of surrender of the certificates, including how they are to be endorsed, if at all. (q) "Redemption Price" shall mean the per share price for the redemption of any securities to be redeemed pursuant to this Article, which shall be that price (if any) required to be paid by the Gaming Authority making the finding of unsuitability, or if such Gaming Authority does not require a certain price per share to be paid, that sum deemed reasonable by the Corporation, which shall in no event be in excess of the closing sales price of the securities on the national securities exchange on which such shares are then listed on the date the notice of redemption is delivered to the Unsuitable Person by the corporation; or, if such shares are not then listed for trading on any national securities exchange, then the closing sales price of such shares as quoted in the NASDAQ National Market System; or if the shares are not then so quoted, then the mean between the representative bid and the ask price as quoted by NASDAQ or another generally recognized reporting system. The Redemption Price may be paid in cash, by promissory note, or both, as required by the applicable Gaming Authority and, if not so required, as the corporation elects. (r) "Unsuitable Person" shall mean a Person who Owns or Controls any securities of the corporation or any securities of or interest in any Affiliated Company, and any Affiliate of such Person, (i) that is determined by a Gaming Authority to be unsuitable to Own or Control such securities or unsuitable to be connected or associated with a Person engaging in Gaming Activities in that Gaming Jurisdiction, (ii) that has an Affiliate that is determined by a Gaming Authority to be unsuitable to Own or Control such securities or unsuitable to be connected or associated with a Person engaged in Gaming Activities in that Gaming Jurisdiction or (iii) who causes the corporation or any Affiliated Company to lose or to be threatened with the loss of, or who, in the sole discretion of the Board of Directors of the corporation, is deemed likely to jeopardize the corporation's or any Affiliated Company's right to use of, entitlement to or application for, any Gaming License. Section 2. Compliance with Gaming Laws. The corporation, all Persons Owning or Controlling securities of the corporation and any Affiliated Companies, and each director and officer of the corporation and any Affiliated Companies shall comply with all requirements of the Gaming Laws in each Gaming Jurisdiction in which the corporation or any Affiliated Companies conducts or seeks to conduct Gaming Activities. All securities of the corporation shall be held subject to the requirements of such Gaming Laws. Section 3. Finding of Unsuitability. (a) The securities Owned or Controlled by a Unsuitable Person shall be redeemable by the corporation, out of funds legally available therefor, by appropriate action of the Board of Directors, to the extent required by the Gaming Authority making the determination of unsuitability or as required to comply with the Gaming Laws to obtain or maintain, Gaming Licenses in such jurisdictions, or renewals thereof, or to the extent deemed necessary or advisable by the Board of Directors of the corporation in its good faith determination. If a Gaming Authority requires the corporation, or the Board of Directors of the corporation deems it necessary or advisable, to redeem such securities, the corporation shall serve a Redemption Notice on the Unsuitable Person and shall purchase the securities on the Redemption Date and for the Redemption Price set forth in the Redemption Notice. From and after the Redemption Date, such securities shall no longer de deemed to be outstanding and all rights of the Unsuitable Person or any Affiliate of the Unsuitable Person therein, other than the right to receive the Redemption Price, shall cease. The Unsuitable Person shall surrender the certificates for any securities to be redeemed in accordance with the requirements of the Redemption Notice. (b) In the event the Board of Directors of the corporation in its sole discretion determines that a redemption of the securities of an Unsuitable Person in the manner set forth in clause (a) of this Section 3 would adversely affect the corporation, then in lieu of Redemption Notice, the corporation shall serve the Unsuitable Person with a Divestiture Notice. The Unsuitable Person shall thereafter promptly undertake to complete such Divestiture by the Divestiture Date. The corporation may elect to, but shall not be required to, file a registration statement under applicable securities laws to register such securities, in which case the Unsuitable Person will cooperate fully with the corporation in the preparation and filing of such registration statement. (c) Commencing on the date that a Person is found to be an Unsuitable Person, and until the securities Owned or Controlled by the Unsuitable Person or the Affiliate of an Unsuitable Person are redeemed or divested in accordance with this Section 3, or such Person is no longer an Unsuitable Person or an affiliate of an Unsuitable Person, the Unsuitable Person and each Affiliate of an Unsuitable Person may not (a) receive any dividend or interest with regard to the securities, (b) exercise, directly or indirectly or through any proxy, trustee, or nominee, any voting or other right conferred by such securities, and such securities shall not for any purposes be included in the securities of the corporation entitled to vote or (c) receive any remuneration in any form from the corporation or an Affiliate Company for services rendered or otherwise. Section 4. Issuance and Transfer of Securities. The corporation shall not issue or transfer any securities or any interest, claim or charge thereon or thereto except in accordance with applicable Gaming Laws. The issuance or transfer of any securities in violation thereof shall be ineffective until (a) the corporation shall cease to be subject to the jurisdiction of the applicable Gaming Authorities or (b) the applicable Gaming Authorities shall, by affirmative action or notice, validate said issuance or transfer or waive any defect in said issuance or transfer. Section 5. Indenture Restrictions. From and after the Effective Date, the corporation shall cause to be placed in every indenture or other operative document relating to publicly traded securities (other than capital stock) of the corporation or any of its subsidiaries entered into following such date a provision requiring that any Person or Affiliate of a Person who holds the indebtedness represented by that indenture and is found to be unsuitable to hold such interest shall have the interest redeemed or shall dispose of the interest in the corporation in the manner set forth in the indenture or other document. Section 6. Notices. All notices given by the corporation pursuant to this Article, including Redemption Notices, shall be in writing and shall be deemed given when delivered by personal service or telegram, facsimile, overnight courier or first class mail, postage prepaid, to the Person's address as shown on the corporation's books and records. Section 7. Indemnification. Any Unsuitable Person and any Affiliate of an Unsuitable Person shall indemnify the corporation and its Affiliated Companies for any and all costs, including attorneys' fees, incurred by the corporation and its Affiliated Companies as a result of such Unsuitable Person's or Affiliate's continuing Ownership or Control or failure to promptly divest itself of any securities in the corporation. Section 8. Injunctive Relief: The corporation is entitled to injunctive relief in any court of competent jurisdiction to enforce the provisions of this Article and each holder of the securities of the corporation shall be deemed to have acknowledged, by acquiring the securities of the corporation, that the failure to comply with this Article will expose the corporation to irreparable injury for which there is no adequate remedy at law and that the corporation is entitled to injunctive relief to enforce the provisions of this Article. Section 9. Use of terms. All references to any term in the plural shall be deemed to include the singular of such term and visa versa." 2. That this amendment was approved by the favorable vote of 3,225,454 shares (with 24,800 shares abstaining and 68,320 shares voting against), which constituted more than 60% of the issued and outstanding stock entitled to vote at the Annual Meeting. IN WITNESS WHEREOF, the undersigned have duly executed this Certificate of Amendment to the Second Restated Articles of Incorporation of Riviera Holdings Corporation this 9th day of July, 1999. / s / William L. Westerman --------------------------------- William L. Westerman President and Chairman of the Board of Directors / s / Duane R. Krohn ----------------------------------- Duane R. Krohn Secretary STATE OF NEVADA ) ) ss: COUNTY OF CLARK ) This instrument was acknowledged before me on the 9th day of July, 1999, by William L. Westerman as President and Duane R. Krohn, Secretary of Riviera Holdings Corporation, a Nevada corporation. / s / Ellen Taff ---------------------------- Signature of Notarial Officer CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF RIVIERA HOLDINGS CORPORATION THIS IS TO CERTIFY that, pursuant to the unanimous approval of the board of directors of Riviera Holdings Corporation, a Nevada corporation (the "Company") and the approval of the holders of more than 60% of the outstanding shares of the Common Stock of the Company entitled to vote, the following resolution was adopted in accordance with Nevada Revised Statutes ss.78.385 and 78.390: RESOLVED, that Article III, Section 7 of the Company's articles of incorporation (the "Articles of Incorporation") be and hereby is amended as follows: 1. Subsection 7(c) is amended to read as follows: "(c) [INTENTIONALLY DELETED.]" 2. In the first section of Subsection 7(d), the phrase "and in the first section of Subsection 7(c)" is deleted. 3. In Subsection 7(o), the phrase ", including, without limiting Subsection 7(c)" is deleted. IN WITNESS WHEREOF, the undersigned President of the Company has executed and subscribed to this Certificate and affirms the foregoing as true as of the date set forth below. ------------------------------- William L. Westerman, President Date: July 15, 2003 EX-31 4 rhcexhibit31_1.txt RHC CEO CERTIFICATION 31_1 Exhibit 31.1 CERTIFICATIONS I, William L. Westerman, the Chief Executive Officer of Riviera Holdings Corporation, certify that: I have reviewed this quarterly report on Form 10-Q of Riviera Holdings Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2003 William L. Westerman William L. Westerman Chairman of the Board and Chief Executive Officer EX-31 5 rhcexhibit31_2.txt RHC CERTIFICATION CFO 31_2 Exhibit 31.2 Certifications I, Duane Krohn, the Treasurer and Chief Financial Officer of Riviera Holdings Corporation, certify that: I have reviewed this quarterly report on Form 10-Q of Riviera Holdings Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 7, 2003 Duane Krohn Duane Krohn Treasurer and Chief Financial Officer EX-32 6 rhcexhibit32_1.txt RHC CEO CERTIFICATION32_2 Exhibit 32.1 RIVIERA HOLDINGS CORPORATION CERTIFICATION In connection with the periodic report of Riviera Holdings Corporation (the "Company") on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission (the "Report"), I, William L. Westerman, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Riviera Holdings Corporation and will be retained by Riviera Holdings Corporation and furnished to the Securities and Exchange Commission or its staff upon request. This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: November 7, 2003 /s/ William L. Westerman ------------------------ Chief Executive Officer EX-32 7 rhcexhibit32_2.txt RHC CERTIFICATION CFO32_2 Exhibit 32.2 RIVIERA HOLDINGS CORPORATION CERTIFICATION In connection with the periodic report of Riviera Holdings Corporation (the "Company") on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission (the "Report"), I, Duane Krohn, Treasurer and Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Riviera Holdings Corporation and will be retained by Riviera Holdings Corporation and furnished to the Securities and Exchange Commission or its staff upon request. This Certification has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: November 7, 2003 /s/ Duane Krohn ------------------------------------- Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----