-----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, CowK6OHFQzdRE/NJTZh87xmJslE+HIl7jcpqqMedyNKiflNfMNNnak0CRM0E6Eq9 jJQszLRnB4cPiKN9DUBZOw== 0000899647-05-000014.txt : 20050422 0000899647-05-000014.hdr.sgml : 20050422 20050422123142 ACCESSION NUMBER: 0000899647-05-000014 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050422 FILED AS OF DATE: 20050422 DATE AS OF CHANGE: 20050422 EFFECTIVENESS DATE: 20050422 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: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21430 FILM NUMBER: 05766600 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 DEF 14A 1 rhedefproxy_042205.txt RHEDEFPROXY_042205 OMB APPROVAL ------------ OMB Number 3235-0059 Expires: February 28, 2006 Estimated average burden hours per response...12.75 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ]Preliminary Proxy Statement [ ]Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X]Definitive Proxy Statement [ ]Definitive Additional Materials [ ]Soliciting Material Pursuant to ss.240.14a-12 Riviera Holdings, Inc. ----------------------------------------------- (Name of Registrant as Specified In Its Charter) - --------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: - ---------------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: - ---------------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): - ----------------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: - ----------------------------------------------------------------------- 5) Total fee paid: - ----------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: - ---------------------------------------------------------------------- 2) Form, Schedule or Registration Statement No.: - ---------------------------------------------------------------------- 3) Filing Party: - ---------------------------------------------------------------------- 4) Date Filed: - ---------------------------------------------------------------------- Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. ANNUAL MEETING OF STOCKHOLDERS OF RIVIERA HOLDINGS CORPORATION May 17, 2005 Proof #2 Please date, sign and mail your proxy card in the envelope provided as soon as possible. Please detach and mail in the envelope provided.
- ---------------------------------------------------------------------------------------------------------------------------- The Board of Directors recommends a vote FOR the nominees for directors and For Proposals 2,3 and 4. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X] - ---------------------------------------------------------------------------------------------------------------------------- FOR AGAINST ABSTAIN 1.Election of the following Five Nominees as Directors 2.Approval of our 2005 Incentive Stock Option Plan. [ ] [ ] [ ] of the Company. NOMINEES: 3.Approval of our 2005 Non-Qualified [ ]FOR ALL NOMINEES O William L. Westerman Stock Option Plan for Non-Employee Directors. [ ] [ ] [ ] O Jeffrey A. Silver [ ]WITHHOLD AUTHORITY O Paul A. Harvey 4.Approval of our issuance of common stock to non-employee FOR ALL NOMINEES O Vincent L. DiVito Directors as described in our Proxy Statement. [ ] [ ] [ ] O James N. Land Jr. [ ]FOR ALL EXCEPT 5.In their discretion, the proxies are authorized to vote upon such other (See instructions below) matters as may properly come before the Annual Meeting. IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF COMMON STOCK COVERED INSTRUCTION: To withhold authority to vote for any HEREBY WILL BE VOTED AS SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE individual nominee(s), mark "FOR ALL EXCEPT" and fill SUCH SHARES WILL BE VOTED "FOR" THE NOMINEES FOR DIRECTOR, "FOR" APPROVAL in the circle next to each nominee you wish to withhold, OF THE 2005 INCENTIVE STOCK OPTION PLAN, "FOR" APPROVAL OF THE 2005 as shown here: NON-QUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS, "FOR" APPROVAL - -------------------------------------------------------- OF THE ISSUANCE OF COMMON STOCK TO NON-EMPLOYEE DIRECTORS AND AS THE PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. The undersigned hereby revoke(s) all previous Proxies and acknowledge(s) - -------------------------------------------------------- receipt of the copy of the Notice of Annual Meeting dated April 22, 2005, To change the address on your account, please check the the Proxy Statement attached thereto and the Annual Report of the Company box at right and indicate your new address in the address for the fiscal year ended December 21, 2004 forwarded therewith. space above. Please note that changes to the registered name(s) on the account may not be submitted via this PLEASE MARK, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED method.[ ] ENVELOPE. - -------------------------------------------------------- Signature of Stockholder_____________________________ Date:______ Signature of Stockholder_____________________________ Date:______
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. PROOF #2 RIVIERA HOLDINGS CORPORATION 2901 Las Vegas Boulevard South Las Vegas, Nevada 89109 PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON May 17, 2005 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby constitute(s) and appoint(s) William L. Westerman and Duane R. Krohn, and each of them, as proxies, with full power of substitution, to vote all shares of Common Stock of Riviera Holdings Corporation (the "Company") which the undersigned is (are) entitled to vote at the Annual Meeting of Stockholders of the Company to be held at the Riviera Hotel & Casino, 2901 Las Vegas Boulevard South, Las Vegas, NV 89109, on Tuesday, May 17, 2005, at 1:00 p.m., Las Vegas time, and at any adjournment(s) or postponement(s) thereof (the "Annual Meeting"), on all matters that may come before such Annual Meeting. Said proxies are instructed to vote on the following matters in the manner herein specified. (Continued and to be signed on reverse side) RIVIERA HOLDINGS CORPORATION 2901 Las Vegas Boulevard South Las Vegas, Nevada 89109 ------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To be held on May 17, 2005 TO THE STOCKHOLDERS OF RIVIERA HOLDINGS CORPORATION NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual Meeting") of Riviera Holdings Corporation, a Nevada corporation, will be held at the Riviera Hotel and Casino, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109 on May 17, 2005, at 1:00 p.m., Las Vegas time, for the following purposes: 1. To elect our Board of Directors; 2. To approve our 2005 Incentive Stock Option Plan; 3. To approve our 2005 Non-Qualified Stock Option Plan for Non-Employee Directors; 4. To approve our issuance of 30,000 shares of our common stock to our non-employee Directors, subject to a vesting schedule and transfer restrictions as described in the accompanying Proxy Statement; and 5. To consider and act upon such other matters as may properly come before the Annual Meeting or any re-convenings thereof. We have fixed April 12, 2005 as the record date for determination of stockholders entitled to notice of, and to vote at, the Annual Meeting (including any re-convenings thereof). Only holders of record of our common stock at the close of business on that date are entitled to vote at the Annual Meeting. A complete list of those stockholders can be examined by any such stockholder for any purpose germane to the Annual Meeting, during ordinary business hours, at our offices located at 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109. Our Annual Report for the year ended December 31, 2004, which includes a copy of our annual report on Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, 2004, is enclosed. By Order of the Board of Directors, William L. Westerman Chairman of the Board Dated: April 22, 2005 YOU ARE URGED TO COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY AS SOON AS POSSIBLE. IF YOU ATTEND THE ANNUAL MEETING AND VOTE IN PERSON, THE PROXY WILL NOT BE USED. IF THE PROXY IS MAILED IN THE UNITED STATES IN THE ENCLOSED ENVELOPE, NO POSTAGE IS REQUIRED. RIVIERA HOLDINGS CORPORATION 2901 Las Vegas Boulevard South Las Vegas, Nevada 89109 PROXY STATEMENT for Annual Meeting of Stockholders to be held on May 17, 2005 April 22, 2005 TO THE STOCKHOLDERS: Our Board of Directors is soliciting proxies for our 2005 Annual Meeting of Stockholders. This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully. In this Proxy Statement: o "We," "Us," "Our" and the "Company" refers to Riviera Holdings Corporation (a Nevada corporation); o "Annual Meeting" means our 2005 Annual Meeting of Stockholders that will be held on Tuesday, May 17, 2005, at 1:00 p.m. Las Vegas time, at the Riviera Hotel and Casino, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109; o "Common Stock" means our common stock, par value $.001 per share; and o "Stockholders" means holders of record of our Common Stock as of the close of business on April 12, 2005. Our principal executive offices are located in the Riviera Hotel and Casino at 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109. Our 2004 Annual Report, this Proxy Statement and the accompanying proxy card are first being sent to stockholders on or about April 22, 2005. Stockholders are entitled to one vote at the Annual Meeting for each outstanding share of our Common Stock that they hold as of April 12, 2005 (the "Record Date"). At the close of business on April 7, 2005, 12,340,755 shares of our Common Stock were outstanding. We request each Stockholder to execute and return the enclosed proxy as soon as possible. The person who signs the proxy must be either (1) the registered holder of such shares of our Common Stock or (2) a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other business entity, or any other person acting in a fiduciary or representative capacity on behalf of such registered holder. You can revoke your proxy at any time before it is voted, if so desired, by filing with the Secretary of the Company an instrument revoking the proxy or by returning a duly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person. Any proxy revocation should be sent to Riviera Holdings Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109, Attention: Secretary. Your attendance at the Annual Meeting will not by itself constitute revocation of your proxy. 1 We are paying all costs of the solicitation of proxies, including the expenses of printing and mailing to Stockholders this Proxy Statement, the accompanying Notice of Annual Meeting of Stockholders, the enclosed proxy card and the Annual Report. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their expenses, in accordance with the regulations of the Securities and Exchange Commission, in sending proxies and proxy materials to the beneficial owners of our Common Stock. Our directors, officers and employees may also solicit proxies in person, or by mail, e-mail or telephone, but such persons will receive no compensation for that work, other than their normal compensation. PURPOSE OF THE ANNUAL MEETING At the Annual Meeting, the Stockholders will consider and vote on: 1. the election of five directors to hold office until our next annual meeting of stockholders and until their respective successors have been elected and qualified, or until resignation or removal; 2. approval of our 2005 Incentive Stock Option Plan; 3. approval of our 2005 Non-Qualified Stock Option Plan for Non-Employee Directors; 4. our issuance of 30,000 shares of our Common Stock to our non-employee Directors, subject to a vesting schedule and transfer restrictions as described in this Proxy Statement; and 5. such other matters as may properly come before the Annual Meeting. VOTE REQUIRED; PROXIES The presence in person or by proxy of a majority of the shares of our Common Stock outstanding and entitled to vote as of the Record Date is required for a quorum at the Annual Meeting. If a quorum is present, the five Director nominees who receive the highest number of votes will be elected to our Board of Directors. For the other voting proposals, the affirmative vote of the holders of a majority of our outstanding shares represented in person or by proxy and entitled to vote at the Annual Meeting will be required for approval. Shares of our Common Stock represented by properly executed proxies that have not been revoked will be voted in accordance with the instructions in such proxies. If no contrary instructions are given, such shares will be voted: (1) FOR the election of all nominees for director named in this Proxy Statement; (2) FOR the issuance of 30,000 shares of our Common Stock to our non-employee directors; (3) FOR the adoption of our 2005 Incentive Option Plan; (4) FOR the adoption of our 2005 Non-Qualified Stock Option Plan for Non-Employee Directors; and (5) in the discretion of the persons named as proxy appointees as to any other matters that may properly come before the Annual Meeting. 2 It is possible that our shares held by brokers or other Stockholder nominees could be voted on certain matters but not others. This would occur, for example, when the broker or nominee does not have discretionary authority to vote the shares and is instructed by the beneficial owner to vote on a particular matter but is not instructed on other matters. These are known as "non-voted" shares. Non-voted shares will be counted for determining whether a quorum is present, but will not be voted on matters as to which the beneficial owner has given no voting instructions. PROPOSAL NO. 1 Election of Directors (Item 1 on Proxy Card) Our Board of Directors consists of six members, of those six members, five have been nominated and are standing for re-election at the Annual Meeting. If elected, they will hold office until the next annual meeting of our stockholders and until their respective successors have been elected and qualified, or until resignation or removal. Robert R. Barengo, who is also one of our current directos has advised us that he plans to retire as of the date of the Annual Meeting and will thus not stand for re-election. Directors The following table presents information as of April 7, 2005 regarding the five nominees for Director: Name Age Position William L. Westerman 73 Our Chairman of the Board, Chief Executive Officer and President; Chairman of the Board and Chief Executive Officer of Riviera Operating Corporation ("ROC"), our wholly-owned subsidiary Jeffrey A. Silver 59 Our and ROC's Director Paul A. Harvey 67 Our and ROC's Director Vincent L. DiVito 45 Our and ROC's Director James N. Land, Jr. 75 Our and ROC's Director The following is a summary description of the business experience of each of our current Directors: William L. Westerman has been our Chairman of the Board and Chief Executive Officer ("CEO") since February 1993. Mr. Westerman was a consultant to Riviera, Inc. (our predecessor company) from July 1, 1991 until he was appointed Chairman of the Board and CEO of Riviera, Inc. on January 1, 1992. From 1973 to June 30, 1991, Mr. Westerman was President and CEO of Cellu-Craft Inc., a manufacturer of flexible packaging primarily for food products, and then had several positions with Alusuisse, a multi-national aluminum and chemical company, following its acquisition of Cellu-Craft in 1989. Mr. Westerman was on the Board of Managers of Peninsula Gaming Partners, LLC from June 1999 to December 2000. 3 Robert R. Barengo, who has advised us that he plans to retire as of the Annual Meeting date and is not standing for re-election, has been one of our and ROC's Directors since February 1993. Mr. Barengo was a consultant to Riviera, Inc. from January 1993 until June 30, 1993. Since 1972, Mr. Barengo has been engaged in the private practice of law in Reno, Nevada. Mr. Barengo was elected to the Nevada Assembly in 1972 and served until 1982. In 1979, Mr. Barengo was elected Speaker Pro Tempore and in 1981 Mr. Barengo was elected Speaker of the Assembly. Since 1993, Mr. Barengo has been the President and the sole stockholder of Silver State Disseminators Company, a company licensed by Nevada gaming authorities to disseminate racing information in the State of Nevada. In October 1992, the Governor appointed Mr. Barengo as a member of the State of Nevada Dairy Commission. The term ended July 1, 2004. On December 3, 2003, Governor Guinn appointed Mr. Barengo as a member of the Nevada Tax Commission. Mr. Barengo was the Chairman of the Board and a Director of Western Thrift and Loan, a Nevada licensed thrift company, from 1997 until 2003 when he sold his interest and resigned. Mr. Barengo accepted the position of Director of Government and Public Affairs with ROC effective January 1, 2001, in addition to his duties as a Director of the Company and of ROC. Jeffrey A. Silver has been one of our and ROC's Directors since February 26, 2001. Mr. Silver is currently a shareholder with the law firm of Gordon & Silver, Ltd., in Las Vegas, Nevada. Mr. Silver served as the Chief Deputy District Attorney, Clark County, Nevada from 1972 to 1975 and was a Board Member with the Nevada Gaming Control Board from 1975 to 1978 before engaging in the private practice of law from 1979 to 1981 and 1984 to the present. Mr. Silver was the Chief Operating Officer and General Counsel of the Landmark Hotel & Casino from 1981 to 1983, CEO of Riviera, Inc. from 1983 to 1984 and Senior Vice President at Caesars Palace in 1984. Mr. Silver served on the Board of the Las Vegas Convention and Visitors Authority from 1989 to 1992 as Secretary/Treasurer and also served as trustee. He was a member of the Board of Directors of the Greater Las Vegas Chamber of Commerce from 1988 to 1995 and in 1988 was its Chairman. Mr. Silver served for four years as a member of the United States Travel and Tourism Advisory Board. He was President of the International Association of Gaming Attorneys from 1992 to 1994 and Chairman of the ABA Section of Gaming Law from 1994 to 1996. Major General Paul A. Harvey USAF (Ret) has been one our and ROC's Directors since May 18, 2001. General Harvey is currently a consultant to the gaming, hotel and resort industry. General Harvey spent 32 years on active duty in the United States Air Force where he held numerous command positions throughout the United States, Europe, Africa and the Middle East. He flew 160 combat missions in Vietnam and Southeast Asia before retiring in 1991 as a command pilot with over 5,000 flying hours. Following retirement, he was an Executive in Residence and Assistant to the President of William Carey College and taught MBA studies in management and leadership. General Harvey was the Executive Director of the Mississippi Gaming Commission from 1993 through 1998 before becoming President and CEO of Signature Works, Inc., which is the largest employer of blind and visually impaired people in the world. In 2000 Signature Works, Inc. merged with LCI, Inc. His present company, PDH Associates, Inc., provides consulting service to the gaming, hotel and resort industry. In February 2002, General Harvey was named President of Karhouse, Inc., headquartered in Pensacola, Florida, which provides automobile storage for Department of Defense personnel who are on deployed or overseas status. Since 1996, General Harvey has served on the Board of Directors of the National Center for Responsible Gaming. He also serves on the Board of Directors of VirtGame Corp., which is headquartered in San Diego, California and has a class of securities registered under the Securities Exchange Act of 1934. General Harvey is also a Commissioner on the Mississippi Band of Choctaw Indians Athletic and Boxing Commission. 4 Vincent L. DiVito was appointed as one of our and ROC's Directors effective June 14, 2002. Mr. DiVito is currently Vice President, Chief Financial Officer and Treasurer of Lonza, Inc., a global specialties chemical business headquartered in Fair Lawn, New Jersey. Lonza, Inc. is part of Lonza Group, whose stock is traded on the Swiss Stock Exchange. Prior to September 2000, Mr. DiVito was the Vice President and Chief Financial Officer of Algroup Wheaton, a global pharmaceutical and cosmetics packaging company, after having served as the Director of Business Development. From 1984 to 1990 Mr. DiVito was the Vice President of Miracle Adhesives Corp. (a division of Pratt & Lambert, an American Stock Exchange-listed manufacturer of paints, coatings and adhesives). He also serves on the Board of Directors of VirtGame Corp., which is headquartered in San Diego, California and has a class of securities registered under the Securities Exchange Act of 1934. Prior to 1984, Mr. DiVito spent two years on an audit team at Ernst & Whinney (now Ernst & Young). Mr. DiVito is a certified public accountant ("CPA") and certified management accountant. James N. Land, Jr., is a corporate consultant, and was appointed as one of our and ROC's Directors effective April 12, 2004. Mr. Land was first elected a Director of the Company and ROC on January 21, 1999 and thereafter resigned on May 31, 2002. From 1956 to 1976, Mr. Land was employed by The First Boston Corporation in various capacities, including Director, Senior Vice President, Co-Head of Corporate Finance, and head of International Operations. From 1971 through 1999, he served on the Board of Directors of various companies, including Kaiser Industries Corporation, Marathon Oil Company, Castle & Cooke, Inc., Manville Corporation, NWA, Inc., Northwest Airlines, and Ratheon Company. Executive Officers The following table presents information as of April 7, 2005 regarding our and ROC's executive officers:
Name Age Position - ----------------------------------- --------- ---------------------------------- William L. Westerman 73 Our and ROC's Chairman of the Board and Chief Executive Officer, and our President Duane R. Krohn 59 Our and ROC's Treasurer and CFO, and Executive Vice President of Finance of ROC Tullio J. Marchionne 50 Our Secretary and General Counsel, and Secretary and Vice President of ROC Robert A.Vannucci 57 President and Chief Operating Officer of ROC Ronald P. Johnson 56 Executive Vice President of Gaming Operations of ROC
For a description of the business experience of William L. Westerman, see "Directors" above. 5 Duane R. Krohn, CPA, became our and ROC's Treasurer on June 30, 1993 and was elected Vice President of Finance of ROC on April 26, 1994 and Executive Vice President of Finance of ROC on July 1, 1998. He served as Secretary from June 8, 1999 to February 17, 2000. Mr. Krohn was initially employed by Riviera, Inc. in April 1990 as Director of Corporate Finance and served as Vice President-Finance from March 1992 to June 30, 1993. Prior to 1990, Mr. Krohn was Chief Financial Officer of the Imperial Palace, the Mint and the Dunes in Las Vegas, Nevada, and Bally's Park Place in Atlantic City, New Jersey. Tullio J. Marchionne became our General Counsel on January 10, 2000, was appointed as our and ROC's Secretary on February 17, 2000 and was elected Vice President of ROC on February 26, 2001 and Executive Vice President on June 9, 2004. Mr. Marchionne was initially employed by Riviera, Inc., in June 1986 as a casino games dealer and served in various capacities including Pit Manager, General Counsel and Director of Gaming Administration until September 1996, when he was transferred to the Four Queens Hotel and Casino as Director of Casino Operations pursuant to the management agreement we had with the Four Queens through our subsidiary. He served in that position until May 1997. Mr. Marchionne served as the General Manager of the Regency Casino Thessaloniki, located in Thessaloniki, Greece, from June 1997 until December 1997. Mr. Marchionne served as a Casino Supervisor with Bally's, Las Vegas, from February 1998 until June 1998, Director of Casino Operations at the Maxim Hotel and Casino in Las Vegas from June 1998 until November 1998 and Director of Table Games at the Resort At Summerlin (a Las Vegas casino/hotel) from November 1998 until December 1999. Robert A. Vannucci was elected Vice President of Marketing and Entertainment of ROC on April 26, 1994, Executive Vice President of Marketing and Entertainment on July 1, 1998 and President of ROC on October 1, 2000. Mr. Vannucci had been Director of Marketing of ROC since July 19, 1993. Mr. Vannucci was Senior Vice President of Marketing and Operations at the Sands Casino Hotel in Las Vegas from April 1991 to February 1993. He was Vice President and General Manager of Fitzgerald's Las Vegas (a casino/hotel) from 1988 to January 1991. Ronald P. Johnson became Vice President of Gaming Operations of ROC in September 1994, Executive Vice President of Gaming Operations of ROC on July 1, 1998, President of Riviera Black Hawk, Inc. (our wholly-owned subsidiary which owns and operates the Riviera Black Hawk Casino) on February 10, 1999, and Executive Vice President of Gaming Operations and Marketing of ROC on November 1, 2004, a position he holds concurrently with his Riviera Black Hawk, Inc. President position. Mr. Johnson became Director of Slots on June 30, 1993 and was elected Vice President of Slot Operations and Marketing on April 26, 1994. Mr. Johnson was Vice President-Slot Operations and Marketing of Riviera, Inc. from April 1991 until June 30, 1993. He was Vice President-Slot Operations for Sands Hotel and Casino Inc. from September 1989 until he joined Riviera, Inc. Our and ROC's officers serve at the discretion of our and ROC's respective Boards of Directors, and they are also subject to the licensing requirements of the Nevada Gaming Commission. Audit Committee Financial Expert Our Board of Directors has determined that the Chairman of our Audit Committee, Vincent L. DiVito, who meets the American Stock Exchange ("Amex") audit committee independence requirements that apply to us, is a financial expert. Mr. DiVito is a CPA and certified management accountant. He spent two years on an audit team at Ernst & Whinney (now Ernst & Young) and is currently the Chief Financial Officer and Treasurer of a global specialties chemical business. 6 Certain Relationships and Related Transactions Jeffrey A. Silver, a Director and Chairman of our Compensation Committee, is a shareholder in the law firm of Gordon & Silver, Ltd., which we have retained for various legal matters during our last fiscal year and in 2005. In 2004, Ronald P. Johnson, Executive Vice President of Gaming Operations of ROC, was indebted to us in the amount of $81,454. The indebtedness consisted of profits attributable to his purchases and sales of our Common Stock within a six-month period which, under Section 16(b) of the Securities Exchange Act of 1934, was recoverable by us. Mr. Johnson paid us in full in 2004 and as of April 7, 2005, he has no outstanding indebtedness to us. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than 10% of our Common Stock to file with the Securities and Exchange Commission certain reports regarding our Common Stock ownership. Such persons are required to furnish us with copies of all such reports they file. To our knowledge, all of these persons met their Section 16(a) reporting obligations on a timely basis during 2004. Code of Ethics We have adopted certain ethical policies that apply to all of our employees at the level of Supervisor or higher, including our principal executive officer, principal financial officer and principal accounting officer. Those policies, together with certain rules adopted by our Disclosure Committee, comprise what we consider to be our code of ethics. Those policies and rules are posted on our Internet web site at www.theriviera.com. Board of Directors and Committee Meetings We have an Audit Committee composed of Messrs. DiVito, Harvey and Land. Our Audit Committee recommends to our Board of Directors the selection of an auditor, reviews the plan and scope of our audits, reviews the auditors' critique of management and internal controls and management's response to such critique and reviews the results of our audit. In 2004 our Audit Committee met seven times. We have a Compensation Committee composed of Messrs. Silver, Harvey and DiVito. Our Compensation Committee is responsible for recommending executive compensation programs to the Board of Directors and for approving all compensation decisions with respect to our CEO and his compensation recommendations for our other executive officers. In 2004 our Compensation Committee met four times. Our full Board of Directors serves as our nominating committee. See "Nominating Committee" below for further information. In 2004, our Board of Directors held eight meetings. No member of our Board of Directors attended in 2004 less than 75% of the aggregate of (1) the number of meetings of our Board of Directors held during the period for which he was a director and (2) the total number of meetings held by all committees on which he served. 7 Nominating Committee Our entire Board of Directors serves as our nominating committee. Four of the current six members (and four of the five members who are standing for re-election) meet the Amex independence requirements that apply to us for the Director nomination process. Director nominations are decided upon by our Board of Directors after it receives the recommendations of a majority of our independent Directors. We do not have a charter governing the recommendation or nomination process, nor do we have a policy regarding Director candidates recommended by our stockholders. That is because historically, we have rarely, if ever, been contacted by outside stockholders who have expressed an interest in serving on our Board of Directors or in recommending candidates to serve in that capacity. Given this lack of activity, we have seen no need to adopt any specific policies on this subject, nor have we established specific standards for evaluating Director candidates recommended by our stockholders, as compared with our standards for evaluating Director candidates recommended by other persons. In order for us to nominate a candidate for the Board of Directors, the candidate must have a strong business background and display a sense of leadership. We believe that each member of the Board of Directors should possess certain skills that complement the skills of the other Directors, so as to achieve our overall goal of having a well-rounded Board of Directors. Qualities and skills necessary for consideration are a financial, legal or business background or demonstrated leadership abilities. Audit Committee Report; Audit Committee Independence In accordance with our Audit Committee's written charter adopted by our Board of Directors, our Audit Committee assists our Board of Directors in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial reporting practices. During our fiscal year ended December 31, 2004, our Audit Committee met seven times, and our Audit Committee Chairman, as representative of the Audit Committee, discussed the interim financial information contained in each of our quarterly earnings announcements with our Chief Financial Officer and independent auditors prior to public release. In discharging its oversight responsibility as to the audit process, our Audit Committee obtained from our independent auditors a formal written statement describing all relationships between the auditors and the Company that might bear on the auditors' independence, consistent with Independence Standards Board Standard No. 1 ("Independence Discussions with Audit Committees"). Our Audit Committee discussed with the auditors any relationships that may impact their objectivity and independence and satisfied itself as to the auditors' independence. Our Audit Committee specifically addressed and discussed the independent auditors' provision of non-audit services and concluded that those services were compatible with maintaining the auditors' independence. Our Audit Committee also discussed with our management, our internal auditors and the independent auditors the quality and adequacy of our internal controls and the internal audit function's organization, responsibilities, budget and staffing. Our Audit Committee reviewed with both the independent auditors and our internal auditors the audit plans, audit scope and identification of audit risks. 8 Our Audit Committee discussed and reviewed with the independent auditors all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended (Codification of Statements on Auditing Standards, AU Section 380), and with and without our management present, discussed and reviewed the results of the independent auditors' examination of our financial statements. Our Audit Committee also discussed the results of the internal audit examinations. Our Audit Committee reviewed our audited financial statements, as of and for the year ended December 31, 2004, with our management and the independent auditors. Our management is responsible for the preparation of our financial statements and the independent auditors are responsible for the examination of those statements. Based on the above-mentioned reviews and discussions with management and the independent auditors, our Audit Committee recommended to our Board of Directors that our audited financial statements be included in its our Annual Report on Form 10-K for the year ended December 31, 2004, for filing with the Securities and Exchange Commission. Our Audit Committee also recommended that we reappoint the independent auditors and our Board of Directors concurred in such recommendation. Our Audit Committee presently consists of three members who all meet the independence requirements of Amex's listing standards that apply to us. Date: March 17, 2005 Vincent L. Divito Chairman Paul A. Harvey Member James N. Land, Jr. Member Security Holder Communications Our security holders may send communications to our Board of Directors by directing such communications to our Treasurer and Chief Financial Officer, Duane Krohn. Communications may be sent to Mr. Krohn via mail at our corporate offices located at 2901 Las Vegas Boulevard South, Las Vegas, NV 89109; via telephone or fax at (800) 362-1460 or (702) 794-9442, respectively; or via e-mail at dkrohn@theriviera.com. Mr. Krohn will direct all relevant communications, as determined by Mr. Kohn and by our Secretary and General Counsel, to the appropriate Director(s). Members of our Board of Directors are strongly encouraged to attend all of our annual meetings of stockholders. All of the members of our Board of Directors were in attendance at our 2004 annual meeting of stockholders. Our Board of Directors unanimously recommends that you vote "FOR" each of the five Director nominees named above. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS Executive Compensation The following table presents a summary of the compensation we paid in the years ended December 31, 2004, 2003 and 2002 to our and ROC's CEO, and to our four other most highly compensated executive officers who received over $100,000 in compensation from us during 2004 (collectively, the "Named Executive Officers"). 9
Summary Compensation Table Annual Compensation -------------------- Other Securities Annual Underlying All Other Name and Compen- Options Compen- Principal Position Year Salary($) Bonus($) sation ($)(1) (# of Shares) sation ($)(2) - ----------------------------------------------------------------------------------------------- William L. Westerman 2004 $1,000,000 $0 $446,178 (3) 0 $1,438 Our Chariman of the 2003 $1,000,000 $0 $547,591 (3) 0 $1,438 Board and CEO, 2002 $600,000 $0 $482,848 (3) 0 $1,438 CEO of ROC Robert A. Vannucci 2004 $300,000 $114,000 $104,000 (5) $1,720 President and Chief 2003 $300,000 $0 (4) $103,000 (5) $1,720 Operating Officer 2002 $300,000 $0 (4) $103,000 (5) 20,000 $1,720 of ROC Duane R. Krohn 2004 $250,000 $57,000 $4,000 $1,438 Our Treasurer 2003 $250,000 $0 (4) $3,500 $1,438 and Executive Vice 2002 $250,000 $0 (4) $3,000 10,000 $1,438 President of Finance and Treasurer of ROC Ronald P. Johnson 2004 $250,000 $90,500 $4,000 $1,438 Executive Vice President 2003 $250,000 $0 (4) $3,500 $1,438 of Gaming Operations of 2002 $250,000 $0 (4) $10,500 (6) 10,000 $1,438 ROC Jerome P. Grippe (7) 2004 $250,000 $0 $4,000 $1,438 Executive Vice President 2003 $250,000 $0 (4) $3,500 $1,438 of Operations of ROC 2002 $250,000 $0 (4) $3,000 10,000 $1,438
(1) Includes amounts that we contributed under our Profit Sharing and 401(k) Plans. We contributed $4,000 for the account of each of the Named Executives Officers in 2004, $3,500 for the account of each of them in 2003 and $3,000 for the account of each of them in 2002. (2) Includes premiums that we paid for excess life insurance. (3) The amount reported represents the portion of the interest earned on Mr. Westerman's retirement account that exceeds the interest which would have been earned if the interest rate had been 120% of the applicable federal long-term rate, with compounding, prescribed under Section 1274(d) of the Internal Revenue Code. Additional interest earned on Mr. Westerman's retirement account that is not reported in the above table amounted to $195,977 in 2004, $210,095 in 2003 and $357,302 in 2002. (4) There was no incentive bonus award in 2003 or 2002. (5) Includes $100,000 cash award or award of stock under our Restricted Stock Plan pursuant to Mr. Vannucci's employment agreement. (Mr. Vannucci has the choice of $25,000 in cash or $25,000 in stock per quarter.) See "Restricted Stock Plan" below for a summary of our Restricted Stock Plan. (6) Includes $7,500 as compensation for a planned vacation that we asked Mr. Johnson to forgo so he could participate in the nationwide presentations to sell our senior secured notes. (7) Mr. Grippe retired effective February 16, 2005. 10 Option and Stock Grants We granted no stock options in 2004. The information set forth below is on an as-adjusted basis, giving effect to our March 11, 2005 three-for-one stock split. In July 2003, we attempted to grant 385,500 options under our 1993 Employee Stock Option Plan (the "1993 Plan"). Subsequently, however, we determined that the 1993 Plan had expired prior to those grants, which rendered them null and void. Two executives to whom we attempted to grant options for a total of 48,000 shares have since left our employment. On April 6, 2005, we granted to 19 remaining executives a total of 337,500 shares of our Common Stock under our Restricted Stock Plan (see "Restricted Stock Plan" below) in substitution for the stock options that we had attempted to grant to them. Those shares are subject to a five-year vesting schedule, vesting 20% each March 10, commencing in 2006. The shares completely vest immediately upon death, disability, retirement at or after age 62, termination of employment by the Company other than for cause, events of hardship as approved by our Compensation Committee or in the event of a change in control of the Company. See "Compensation of Directors" and "PROPOSAL NO. 2 - ISSUANCE OF STOCK TO NON-EMPLOYEE DIRECTORS" below for a discussion of stock options that we attempted to grant to our non-employee Directors after expiration of our other stock option plan, and our further intentions in this regard. Option Exercises and Year-End Options Values The following table presents information regarding stock options exercised during 2004 and the value at December 31, 2004 of unexercised, in-the-money options held by the Named Executive Officers. Options for 523,500 shares (on an as-adjusted basis giving effect to the 2005 stock split) were exercised in 2004 by the Named Executive Officers. 11
Number Value Number of Value of Unexercised, of Shares Realized Shares Underlying In-The-Money Options Acquired Unexercised Options In Exer- Unexer- Exer- Unexer- Name Exercise cisable cisable cisable cisable ---- -------- -------- ------------------------- ------------ -------- William L. 150,000 $700,000 0 0 $ 0 $ 0 Westerman Robert A. Vannucci 90,000 $435,000 105,000 15,000 $1,195,100 $170,700 Duane R. Krohn 142,500 $643,900 0 7,500 $ 0 $85,350 Ronald P. Johnson 120,000 $661,325 22,500 7,500 $ 256,050 $85,350 Jerome P. Grippe 21,000 $108,500 94,500 7,500 $1,174,470 $85,350
Employment Agreements William L. Westerman serves as our Chairman of the Board, President and CEO, and as Chairman of the Board and CEO of ROC. Under Mr. Westerman's employment agreement, which was last amended on July 15, 2003, he is employed for an indefinite period, subject to termination by either Mr. Westerman upon at least 180 days written notice or by us upon at least 90 days written notice. Mr. Westerman's base annual compensation is $1,000,000. Under his amended employment agreement, Mr. Westerman is not entitled to participate in our Senior Management Compensation Bonus Plan or any other executive bonus plan. Mr. Westerman's employment agreement required us to fund a retirement account for him. Pursuant to that agreement, we make no further principal contributions to the retirement account subsequent to January 1, 2001. The account continues to accrue interest pursuant to the employment agreement. The retirement account had an accrued balance of $5,152,536 as of December 31, 2004. We credit Mr. Westerman's retirement account quarterly with interest on the first day of each succeeding calendar quarter in an amount equal to the product of (1) our average borrowing cost for the immediately preceding fiscal year, as determined by the our Chief Financial Officer, and (2) the average outstanding balance in the retirement account during the preceding calendar quarter. At the recommendation of our Compensation Committee, in order to reduce the amount that would be payable immediately upon Mr. Westerman's separation from employment with us, Mr. Westerman and we agreed to the following cash payments commencing April 1, 2003, and continuing on the first day of each quarter thereafter: (1) a distribution of $250,000 from the principal balance of his retirement account; and (2) the quarterly interest credited to his retirement account one quarter in arrears. Total interest accrued to Mr. Westerman's account in 2004 was $638,154, while total interest accrued was $757,686 for 2003 and $840,150 for 2002. 12 We retain beneficial ownership of the retirement account, which is earmarked to pay Mr. Westerman's retirement benefits. However, upon (1) the vote of a majority of the outstanding shares of our Common Stock approving a "Change of Control" (as discussed directly below), (2) the occurrence of a Change of Control without Mr. Westerman's consent, (3) a breach by us of a material term of the employment agreement or (4) the expiration or earlier termination of the employment agreement for any reason other than cause, Mr. Westerman has the right to require us to establish a "Rabbi Trust" for his benefit. He also has the right to require us to fund such trust with cash equal to the amount then credited to the retirement account, including any amount to be credited to the retirement account upon a Change of Control. On February 5, 1998, our stockholders approved a merger agreement that constituted a Change of Control under Mr. Westerman's employment agreement. On March 5, 1998, Mr. Westerman exercised his right to require us to establish and fund a Rabbi Trust for his benefit. On March 20, 1998, Mr. Westerman waived his right to have us fund the Rabbi Trust in exchange for our agreement to fund it within five business days after notice from him. If Mr. Westerman ceases to be employed by us (except for termination for cause, in which case Mr. Westerman would forfeit all rights to monies in the retirement account), he will be entitled to receive the amount in the retirement account (principal and current interest) in 20 equal quarterly installments commencing as of the date he ceases to be employed. In the event that Mr. Westerman's Rabbi Trust has not yet been funded, the balance of principal and interest of the retirement account shall be paid directly to Mr. Westerman upon his retirement or termination (except for cause) or upon a change of control. The agreement provides that for a period of 24 months following termination for any reason except cause, Mr. Westerman shall not engage in any activity, which is in competition with us within a 75 mile radius from the location of any hotel and/or casino then operated by us. As consideration for not competing, we will pay Mr. Westerman a total of $500,000 in two equal annual installments of $250,000. The first installment will be payable within five business days of termination of employment, with the second installment payable on the first anniversary of termination. In addition to Mr. Westerman, one other executive, Robert Vannucci, has an employment agreement with us. Mr. Vannucci serves as President of ROC and his employment agreement was last amended on March 24, 2003. Mr. Vannucci's base compensation is $300,000. His employment agreement also provides for a "Normal Incentive Bonus" entitling Mr. Vannucci to participate in our Incentive Compensation Plan, which enables him to share in that plan's pool, which provides for an incentive bonus based on achievement of a predetermined EBITDA target. Mr. Vannucci did not receive an incentive bonus for 2003 and received an incentive bonus in the amount of $114,000 for 2004. 13 Mr. Vannucci also receives compensation in the form of our Common Stock under our Restricted Stock Plan (see "Restricted Stock Plan" below). Mr. Vannucci's agreement provides that he is to receive $25,000 in our Common Stock, based on the stock's market value, on the first business day of each quarter, plus our Common Stock, based on the stock's market value, in the same amount he receives under our Incentive Compensation Plan. Under the Restricted Stock Plan, Mr. Vannucci is presently entitled to rights of ownership with respect to the shares, including the right to vote and receive dividends. Mr. Vannucci may not, however sell, assign, pledge, encumber or otherwise transfer any of the shares so long as he is employed by us, without our written consent. The shares fully vest to Mr. Vannucci upon his separation from employment with us, unless he is terminated for cause. Commencing with the Restricted Stock Plan award of April 1, 2003 and for each quarter thereafter, Mr. Vannucci can choose between receiving $25,000 in cash or $25,000 in our Common Stock. Mr. Vannucci chose to receive $25,000 in our Common Stock and $75,000 in cash in 2003, and $100,000 in cash in 2004, pursuant to this provision. Mr. Vannucci also can choose between cash and our Common Stock as a match to his annual incentive bonus award. Mr. Vannucci received no such matching award in 2003. Mr. Vannucci chose to receive his matching award of $57,000 in cash for 2004. Mr. Vannucci's agreement automatically renews annually subject to 120 days prior written notice by him or us. Profit Sharing and 401(k) Plans On June 30, 1993, we and ROC assumed the combined profit sharing and 401(k) plans of Riviera, Inc. (the "Profit Sharing and 401(k) Plans"), and we and ROC continued those plans after June 30, 1993. We also provided that all current employees of the Riviera Hotel & Casino ("Riviera Las Vegas") who were employed on April 1, 1992, were at least 21 years of age and not covered by a collective bargaining agreement were immediately eligible to participate in the Profit Sharing and 401(k) Plans. We further provided that all current employees who were employed by Riviera Las Vegas after April 1, 1992, were at least 21 years of age and are not covered by a collective bargaining agreement were eligible to participate after one year of service at the Riviera Las Vegas. Effective January 1, 2000, we suspended contributions to the profit-sharing component of the Profit Sharing and 401(k) Plans and substituted contributions to an Employee Stock Ownership Plan, which is discussed directly below. We have an identical 401(k) plan for our 100% indirectly-owned subsidiary, Riviera Black Hawk, Inc., which operates the Riviera Black Hawk Casino ("Riviera Black Hawk"). Employees hired prior to June 30, 2000, who were at least 21 years of age and who were not covered by a collective bargaining agreement were immediately eligible to participate. After June 30, 2000, all new employees who were at least 21 years of age and not covered by a collective bargaining agreement were eligible to participate after one year of service at Riviera Black Hawk. We may make a matching contribution to the 401(k) component of the Profit Sharing and 401(k) Plans in an amount not to exceed 25% of the first 8% of each participant's compensation, which is contributed as a salary deferral. Our Common Stock is not an investment option for participants in the 401(k) component and any contribution that we make to the 401(k) component is in the form of cash, to be invested in the participant's selected investment options. Our 401(k) matching contribution was $302,882 in 2004. 14 Employee Stock Ownership Plan We have an Employee Stock Ownership Plan ("ESOP"). The ESOP was established effective January 1, 2000 and effectively replaced the profit-sharing contribution component of the Profit Sharing and 401(k) Plans. (The 401(k) component remains unchanged.) The ESOP provides that all employees of Riviera Las Vegas and Riviera Black Hawk employed in the plan year who completed a minimum of 1,000 hours of service in that year, were employed through December 31 of that plan year, were at least 21 years of age and were not covered by a collective bargaining agreement are eligible to participate. We make contributions for the ESOP's participants at our Las Vegas and Black Hawk properties relative to the economic performance of each property. For Riviera Las Vegas, we make a contribution equal to 1% of each eligible employee's annual compensation if a prescribed annual operating results target is attained and an additional 1% thereof for each $2 million by which that target is exceeded, up to a maximum of 5%. For Riviera Black Hawk, we make a contribution equal to 1% of each eligible employee's annual compensation if a prescribed annual operating results target is attained and an additional 1% thereof for each $1 million by which that target is exceeded, up to a maximum of 5%. Our ESOP contributions are made in cash, which the ESOP trustee uses primarily to buy our Common Stock. We contributed $899,253 to our ESOP for 2004. Incentive Compensation Programs Approximately 60 executives and other significant employees at Riviera Las Vegas and 25 at Riviera Black Hawk participate in incentive compensation programs. Participants in each of the two programs are eligible to receive an annual incentive bonus based on attainment of predetermined financial targets at each location. We awarded an aggregate of $546,000 and $397,300 to participants at Riviera Las Vegas and Black Hawk, respectively, under these programs in the year ended December 31, 2004. Deferred Compensation Plan On October 2, 2000, we adopted a Deferred Compensation Plan to give eligible employees the opportunity to defer cash compensation. Participation in this plan is limited to employees who receive compensation of at least $100,000. The deferred funds are maintained on our books as liabilities. All elections to defer the receipt of compensation must be made by December 1st preceding the plan year to which the election relates and are irrevocable for the duration of such year. Five of our executives currently participate in this plan. Restricted Stock Plan On October 2, 2000, we adopted a Restricted Stock Plan to attract and retain highly competent persons as officers and key employees by providing them with opportunities to receive shares of our Common Stock, subject to certain restrictions. Participants consist of such officers and key employees as our Compensation Committee determines are significantly responsible for our success and future growth and profitability. Awards of stock are subject to such terms and conditions as we determine are appropriate at the time of the awards, including restrictions on the sale or other disposition of such stock and provisions for total or partial forfeiture of such stock upon termination of the participant's employment within specified periods or under certain conditions. 15 Salary Continuation Agreements Approximately 65 officers and significant employees (excluding Messrs. Westerman and Vannucci) of ROC have salary continuation agreements effective through December 31, 2005, under which each of them will be entitled to receive (1) from six months' to two years' base salary if their employment is terminated, without cause, within 12 or 24 months of a change of control of the Company or ROC; and (2) certain benefits for periods of either one or two years. The base salary is payable in bi-weekly installments subject to the employee's duty to mitigate by using his or her best efforts to find other employment. In addition, four officers and significant employees have salary continuation agreements effective through December 31, 2005, under which each of them will be entitled to receive two years' base salary and certain benefits for two years, if their employment is terminated without cause within 24 months of a change of control of the Company or ROC. These four salary continuation agreements are not subject to a duty to mitigate. As of April 7, 2005, the total amount that would be payable under all such agreements if all payment obligations were to be triggered was approximately $6.7 million, including $1.5 million in benefits. Compensation of Directors Messrs. Silver, Harvey and Land are each paid an annual fee of $50,000 for services as a Director. Mr. DiVito is paid an annual fee of $75,000 for services as a Director and as Chairman of our Audit Committee. Each Director is also reimbursed for expenses incurred in connection with attendance at meetings of the Board of Directors. In 1996 we adopted our Nonqualified Stock Option Plan for Non-Employee Directors (the "1996 Plan"), which was approved by our stockholders. Under the 1996 Plan, which expired in 2003, each individual elected, re-elected or continuing as a non-employee Director would automatically receive options for 6,000 shares of our Common Stock (as adjusted for the 2005 stock split), with an exercise price equal to the fair market value of our Common Stock on the date of grant. In 2004 before we determined that the 1996 Plan had expired, we attempted to grant options to our non-employee Directors for a total of 30,000 shares of our Common Stock. Because of the prior expiration of the 1996 Plan, though, those options were null and void. We are now seeking stockholder approval to issue 30,000 shares of our Common Stock to our non-employee Directors as substitute compensation for those options. See "PROPOSAL NO. 2 - ISSUANCE OF STOCK TO NON-EMPLOYEE DIRECTORS" below. Under the 1996 Plan we granted to Mr. Barengo options to purchase 6,000 shares at $4.50 per share on May 12, 1997, options to purchase 6,000 shares at $3.00 per share on May 11, 1998, options to purchase 6,000 shares at $1.63 per share on May 10, 1999 and options to purchase 6,000 shares at $2.58 per share on May 10, 2000. We granted no options to Mr. Barengo under the 1996 Plan after 2000 because he became an employee effective January 1, 2001. Mr. Barengo was granted options to purchase 22,500 shares at $2.00 per share and 30,000 shares at $2.45 per share on August 7, 2001 and May 14, 2002, respectively, under the 1993 Plan. Upon becoming a Director, Mr. Silver was granted options under the 1996 Plan to purchase 6,000 shares at $2.35 per share on February 26, 2001. Mr. Silver was subsequently granted options to purchase 6,000 shares at $2.18 per share on May 10, 2001, options to purchase 6,000 shares at $2.58 per share on May 10, 2002 and options to purchase 6,000 shares at $1.87 per share on May 12, 2003. 16 Upon becoming a Director, Mr. Harvey was granted options under the 1996 Plan to purchase 6,000 shares at $2.20 per share on May 18, 2001. Mr. Harvey was subsequently granted options to purchase 6,000 shares at $2.58 per share on May 10, 2002 and 6,000 shares at $1.87 per share on May 12, 2003. Upon becoming a Director, Mr. DiVito was granted options under the 1996 Plan to purchase 6,000 shares at $1.87 per share on July 12, 2002. Mr. DiVito was subsequently granted options to purchase 6,000 shares at $1.87 per share on May 12, 2003. Directors who are also our officers or employees do not receive additional compensation for services as a Director. Currently, Messrs. Westerman and Barengo are such Directors. Under our Stock Compensation Plan, our Directors who are members of our Compensation Committee have the right to receive all or part of their annual fees in the form of our Common Stock having a fair market value equal to the amount of their fees. Of the 50,000 shares that we allocated to this plan, 46,020 remain available for issuance. Compensation Committee Interlocks And Insider Participation Jeffrey A. Silver, a Director and Chairman of our Compensation Committee, is a shareholder in the law firm of Gordon & Silver, Ltd., which we have retained for various legal matters during our last fiscal year and in 2005. Compensation Committee Report on Executive Compensation Our Compensation Committee endeavors to ensure that the compensation program for our executive officers is effective in attracting and retaining key executives responsible for our success and is tailored to promote our and our stockholders' long-term interests. Our 2004 executive officer compensation program was principally comprised of base salary, an executive incentive plan, a 401(k) plan, contributions to the ESOP, the Deferred Compensation Plan and the Restricted Stock Plan. Our Compensation Committee takes into account various qualitative and quantitative indicators of corporate and individual performance in determining the level and composition of compensation for our CEO and his recommendations regarding the other executive officers. In particular, the Compensation Committee considers several financial performance measures, including revenue growth and net income. However, the Compensation Committee does not apply any specific quantitative formula in making compensation decisions. The Compensation Committee also considers achievements that, while difficult to quantify, are important to our long-term success. The Compensation Committee seeks to create a mutuality of interest between our officers and our stockholders by increasing the executive officers' ownership of our Common Stock through the ESOP, Deferred Compensation Plan and Restricted Stock Plan. On March 10, 2005, due to the expiration of the 1993 Plan, the Compensation Committee approved a new 2005 Incentive Stock Option Plan, covering 1,000,000 shares of our Common Stock, which we are submitting for stockholder approval at the Annual Meeting. 17 Salary levels for our executive officers are significantly influenced by the need to attract and retain management employees with high levels of expertise. In each case, we consider personal factors, such as the individual's experience, responsibilities and work performance, and external factors, such as salaries paid by comparable companies in the gaming industry. With regard to the latter, it is important to recognize that because of the opening of new properties and expansion of existing properties on the Las Vegas Strip coupled with the growth of riverboat and dockside gaming, Native American gaming operations and the proliferation of jurisdictions in which gaming is permitted, we compete with numerous other companies for a limited pool of experienced and skilled personnel. Therefore, it is critical that we provide base salaries that are competitive in the casino industry. With respect to the personal factors, the Compensation Committee makes salary decisions in an annual review based on the recommendations of our CEO. This annual review considers the decision-making responsibilities of each position as well as the experience and work performance of each executive. Our CEO views work performance as the single most important measurement factor. As a baseline measure, in 2001 the Compensation Committee engaged the services of an independent CPA firm, other than Deloitte & Touche LLP, which conducted a compensation survey of comparable Las Vegas resorts. The CPA firm concluded that compensation of our executives was consistent with other members of the industry. The compensation of Mr. Westerman for our last completed fiscal year was set pursuant to the employment agreement described above in "Employment Agreements." Date: March 17, 2005 Jeffrey A. Silver Chairman Paul A. Harvey. Member Vincent L. DiVito Member 18 Comparison of Five-Year Cumulative Total Returns Performance Graph for Riviera Holdings Corporation Produced on 03/22/05 including data to 12/31/2004 The following graph compares the annual change in the cumulative total return, assuming reinvestment of dividends, on our Common Stock with the annual change in the cumulative total returns of the NASDAQ Broad Market, the American Stock Exchange Index (the "AMEX Index"), the New York Stock Exchange (the "NYSE") and the NASDAQ Amusement and Recreation Services Index (the "NASDAQ 79xx"), which we consider to be our peer industry group. The graph assumes an investment of $100 on December 31, 1999, in each of our Common Stock, the stocks comprising the NASDAQ Broad Market, the stocks comprising the AMEX Index and the stocks comprising the NASDAQ 79xx. The graph is a Comparison of Cumulative Total Return Among the Company, NYSE/ AMEX/Nasdaq Stock Market (US Companies) and Nasdaq stocks (SIC 7900 - 7999 US Companies amusement and recreation services) (1).
Riviera NYSE/AMEX/Nasdaq Nasdaq U.S. Companies (SIC 79xx) US Amusement Companies 12/31/99 100.0 100.0 100.0 12/31/00 111.8 88.7 84.2 12/31/01 66.5 79.2 98.6 12/31/02 67.8 62.9 81.7 12/31/03 84.9 82.9 116.1 12/31/04 651.0 93.1 153.6
(1) Comprised of companies whose stock is traded on the Nasdaq National Market and whose standard industrial classification is within 7900-7999. We do not not believe that this necessarily is an indication of the value of our Common Stock. 19 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Our Common Stock is listed on the American Stock Exchange("Amex"). The following table contains information regarding the beneficial ownership of our Common Stock as of April 7, 2005, by (1) each person who, to our knowledge, beneficially owns more than 5% of our outstanding Common Stock (based on reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, or upon information furnished to us), (2) each of our directors and executive officers and (3) all of our directors and executive officers as a group. The percentage of our outstanding Common Stock represented by each named person's stock ownership assumes the exercise by such person of all stock options that are exercisable within 60 days of April 7, 2005, but does not assume the exercise of stock options by any other persons. The percentage of our outstanding Common Stock represented by the stock ownership of all executive officers and directors as a group assumes the exercise by all members of that group of their respective stock options that are exercisable within 60 days of April 7, 2005, but does not assume the exercise of options by any persons outside of that group. Except as indicated in the footnotes to the table, each person listed below has sole voting and investment power with respect to the shares set forth opposite such person's name.
Shares Beneficially Owned ------------------------- Name Number Percentage William L. Westerman(1)(2) 2,095,593 17.0% Robert R. Barengo(1)(3) 449,478 3.6 Jeffrey A. Silver (1)(4) 28,200 * Paul A. Harvey(1)(5) 10,800 * Vincent L. DiVito(1)(6) 4,800 * James N. Land, Jr. (1) 0 * Robert A. Vannucci (1)(7) 481,413 3.9 Ronald P. Johnson(1)(8) 402,108 3.3 Duane R. Krohn(1)(9) 397,629 3.2 Tullio J. Marchionne(1)(10) 59,871 * D.E. Shaw Laminar Portfolios, L.L.C.(11) 1,050,000 8.5 AIG Sun America Inc. and Sun America Life Insurance Co.(12) 1,037,700 8.4 Steven A. Cohen(13) 782,700 6.5 Employee Stock Ownership Plan (ESOP) (14) 1,022,281 8.3 All directors and executive officers as a group (15) 3,929,892 31.2 - ------------------------------- * Less than 1%.
(1) The address for each director and executive officer is c/o Riviera Holdings Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada 89109. (2) Includes 4,308 shares held through the ESOP. (3) Includes 37,500 shares which may be acquired within 60 days of April 7, 2005 upon the exercise of outstanding options, 30,000 shares under our Restricted Stock Plan and 1,038 shares held through the ESOP. (4) Includes 15,600 shares which may be acquired within 60 days of April 7, 2005 upon the exercise of outstanding options. 20 (5) Includes 10,800 shares which may be acquired within 60 days of April 7, 2005 upon the exercise of outstanding options. (6) Includes 4,800 shares which may be acquired within 60 days of April 7, 2005 upon the exercise of outstanding options. (7) Includes 120,000 shares which may be acquired within 60 days of April 7, 2005 upon the exercise of outstanding options, 240,831 shares under our Restricted Stock Plan, 24,474 shares under our Deferred Compensation Plan and 4,797 shares held through the ESOP. (8) Includes 30,000 shares which may be acquired within 60 days of April 7, 2005 upon the exercise of outstanding options, 30,000 shares under our Restricted Stock Plan, 82,470 shares under our Deferred Compensation Plan and 4,797 shares held through the ESOP. (9) Includes 7,500 shares which may be acquired within 60 days of April 7, 2005 upon the exercise of outstanding options, 30,000 shares under our Restricted Stock Plan, 73,722 shares under our Deferred Compensation Plan and 4,797 shares held through the ESOP. (10) Includes 36,000 shares which may be acquired within 60 days of April 7, 2005 upon the exercise of outstanding options, 19,500 shares under our Restricted Stock Plan and 2,571 shares held through the ESOP. (11) The address for D.E. Shaw Laminar Portfolios, L.L.C. ("Laminar") is 120 West 45th Street, Floor 39, Tower 45, New York, NY 10036. D.E. Shaw & Co., L.P. ("DESCO LP") acts as an investment advisor to Laminar. D.E. Shaw & Co., LLC ("DESCO LLC") acts as managing member to Laminar. David E. Shaw is the president and sole shareholder of certain companies that are associated with DESCO LLC or DESCO LP. Accordingly, DESCO LLC, DESCO LP and Mr. Shaw may also be deemed the beneficial owner of our Common Stock that Laminar beneficially owns. Their respective addresses are the same as Laminar's address. This information is based on information reported by Laminar, DESCO LLC, DESCO LP and Mr. Shaw in a Schedule 13D filed with the Securities and Exchange Commission on April 15, 2004. (12) AIG SunAmerica Inc. and SunAmerica Life Insurance Company ("SunAmerica") have shared voting and dispositive power over 1,037,700 shares of our Common Stock. The address of their principal business office is 2929 Allen Parkway A37-01, Houston, Texas 77019 attention Thomas Reeg. American International Group, Inc. is the parent holding company of these two entities and also has shared voting and dispositive power over those 1,037,700 shares. Its address is 70 Pine Street, New York, New York 10270. All of this information is based on information reported by these companies in Amendment No. 1 to Schedule 13G filed with the Securities and Exchange Commission on April 15, 2003. (13) Steven A. Cohen is deemed the beneficial owner of these shares because he controls S.A.C. Capital Advisors, LLC ("SAC Advisors"); S.A.C. Capital Management LLC ("SAC Management"); and Sigma Capital Management, LLC ("Sigma Management"). Pursuant to investment agreements, SAC Advisors and SAC Management share all investment and voting power with respect to securities held by S.A.C. Capital Associates, LLC ("SAC Associates"). Pursuant to an investment agreement, Sigma Management maintains investment and voting power with respect to securities held by Sigma Capital Associates, LLC ("Sigma Associates"). As a result of these relationships, (1) each of SAC Associates, SAC Advisors, SAC Management and Mr. Cohen may be deemed to own beneficially (with shared voting and dispositive power) 760,200 shares of our Common Stock (constituting approximately 6.3% of our outstanding shares) and (2) Sigma Associates, Sigma Management and Mr. Cohen may be deemed to own beneficially (with shared voting and dispositive power) 22,500 shares (constituting approximately 0.2% of our outstanding Common Stock). SAC Advisors, SAC Management, Sigma Management and Mr. Cohen have disclaimed beneficial ownership of our Common Stock. The principal business office addresses of these persons are as follows: Mr. Cohen and SAC Advisors - 72 Cummings Point Road, Stamford, Connecticut 06902; SAC Management and Sigma Management - 540 Madison Avenue, New York, New York 10022; and SAC Associates and Sigma Associates - P.O. Box 58, Victoria House, The Valley, Anguilla, British West Indies. All of this information is based on information reported by SAC Associates, SAC Advisors, SAC Management, Sigma Associates, Sigma Management and Steven A. Cohen in a Schedule 13G filed with the Securities and Exchange Commission on December 30, 2004. 21 (14) The Trustee of the ESOP and its address are Marshall & Ilsley Trust Company N.A., 1000 North Water Street, Suite 1200, Milwaukee, Wisconsin 53202. All of the shares held by the ESOP are voted on each proposal in proportion to the voting instructions received by the Trustee from all ESOP participants who submit voting instructions. For example, if (1) the ESOP holds 1,000 shares of our Common Stock, (2) the Trustee receives voting instructions from participants on whose behalf the ESOP holds only 500 shares, and (3) those participants, in the aggregate, instruct the Trustee to vote 300 shares in favor of a proposal and 200 shares against it, then 600 shares held by the ESOP will be voted for the proposal and 400 shares will be voted against it. Our Common Stock held by the ESOP on behalf of our executive officers is reported in the ESOP's Common Stock ownership listing as well as in our Common Stock ownership listings for the respective executive officers and for executive officers and directors as a group. (15) Includes a total of 262,200 shares which may be acquired by directors and executive officers as a group within 60 days of April 7, 2005 upon the exercise of outstanding options, 350,331 shares under our Restricted Stock Plan, 180,666 shares under our Deferred Compensation Plan and 22,308 shares which they hold through the ESOP. We are a party to a registration rights agreement with SunAmerica. SunAmerica can require us to register under the Securities Act of 1933 our Common Stock that it owns. In addition, the agreement grants to SunAmerica the right to have included, subject to certain limitations, all shares of our Common Stock owned by SunAmerica in any registration statement that we file under the Securities Act. We will pay all costs and expenses, other than underwriting discounts and commissions, in connection with the registration and sale of our Common Stock under that agreement. INDEPENDENT PUBLIC ACCOUNTANTS Our Board of Directors has appointed Deloitte & Touche LLP as our independent public accountants for the year ending December 31, 2004. Deloitte & Touche LLP has been our and our predecessor company's accountants since prior to 1988. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting. Those representatives will have the opportunity to make a statement if they so desire. They are expected to be available to respond to appropriate questions. 22 Audit Fees We were billed by our principal accountants, namely Deloitte & Touche LLP, the member firms of Deloitte Touche, Tohmatsu and their respective affiliates (collectively "Deloitte"), a total of $217,000 and $208,700 for fiscal years 2004 and 2003, respectively, for their audit of our annual consolidated financial statements and their review of our consolidated financial statements in our quarterly reports on Form 10-Q. Audit-Related Fees We were billed by Deloitte $37,500 and $36,100 for benefit plan audits for the fiscal years 2004 and 2003, respectively. Tax Fees We were billed by Deloitte $61,184 and $88,200 for income tax services for the fiscal years 2004 and 2003, respectively. Those services consisted of preparation of federal and state income tax returns and related tax advice. All Other Fees We were billed by Deloitte $4,800 for other professional services in fiscal 2004 and no fees for other professional services rendered in fiscal 2003. Audit Committee's Pre-Approval of Engagement Our policy is that before we engage our independent public accountants annually to render audit or non-audit services, the engagement is reviewed and approved by our Audit Committee. All of our independent public accountants' services for which we paid audit-related fees or tax fees for 2004 and 2003, as described above, were within the scope of the engagement that our Audit Committee approved before we entered into the engagement. Proposal No. 2 Approval Of Our 2005 Incentive Stock Option Plan (Item 2 on Proxy Card) On March 10, 2005, our Board of Directors adopted the 2005 Incentive Stock Option Plan ("Employee Plan"), which we are now asking our stockholders to approve. We are doing so because our 1993 Plan has expired, as explained elsewhere in this Proxy Statement, and we are therefore unable to grant stock options to our officers and key employees. We believe that stock options, as a form of incentive compensation, can further the Company's best interests because they help to align the interests of the Company and those of our officers and key employees. We also believe that the Employee Plan will help us to retain these individuals, as well as to attract new executives and other key employees, and will help to encourage ownership of our Common Stock by these persons. 23 A general description of the principal terms of the Employee Plan is set forth below. That description is qualified in its entirety by the terms of the Employee Plan, which is attached to this Proxy Statement as Exhibit A and is incorporated herein by reference. Administration and Eligibility. The Employee Plan will be administered by a committee of our Board of Directors that we will establish for this purpose ("Stock Option Committee"). We intend that each member of our Stock Option Committee will qualify as an "outside director," as that term is used in Section 162(m) of the Internal Revenue Code (the "Code"). Our Stock Option Committee will be authorized to, among other things, set the terms of option grants and waive compliance with such terms in appropriate cases. The terms of option grants may vary from participant to participant. Our Stock Option Committee will also have the authority to interpret the Plan and adopt administrative regulations. The persons who will be eligible to participate in the Employee Plan are our (or our subsidiaries') officers and key employees, including Directors who are also officers or key employees. Our Stock Option Committee will have authority in its discretion, but subject to the terms of the Employee Plan, to determine, from among the eligible participants, the persons to whom, and the time at which, options will be granted and the number of shares to be covered by each option. Stock Option Grants and Exercises. We have reserved 1,000,000 shares of our Common Stock for issuance under the Employee Plan (subject to anti-dilution adjustments for stock dividends, stock splits, reorganizations and similar events, as explained below). If any option granted under the Employee Plan expires, terminates, or is forfeited or canceled, the shares subject to that option will be released and will become available for the grant of new options under the Employee Plan, to the extent allowable under Section 422 of the Code. Subject to anti-dilution adjustments explained below, the number of shares with respect to which options may be granted to any participant under the Employee Plan during any fiscal year of the Company may not exceed 500,000. The exercise price per share for an option will be not less than the fair market value per share of our Common Stock as of the date we grant the option. However, if we grant an option to a beneficial owner of more than 10% of our outstanding Common Stock (a "10% Stockholder"), then the exercise price per share will be not less than 110% of the fair market value of our Common Stock on the grant date. The fair market value will be the closing price of our Common Stock on Amex on the date of the option grant (or any other exchange on which our Common Stock is then listed), provided that our Common Stock is then so listed. If our Common Stock is not listed on an exchange at the time we grant an option, then our Stock Option Committee will make a good faith determination of the fair market value. If an option is exercised, the exercise price will be payable (1) in cash or by check; (2) by tender of such number of shares of our Common Stock owned by the option holder as is equal in value to the exercise price; or (3) by a combination of such methods of payment. 24 Types of Options. Each option granted under the Employee Plan is intended to qualify as an "incentive stock option" ("ISO"), as defined in Section 422 of the Code. To the extent that an option fails to meet the standards for an ISO, the option will be treated as a non-qualified stock option under the Employee Plan and the Code. By way of example, to the extent that the aggregate fair market value of shares of our Common Stock subject to options which become exercisable for the first time by a participant during any calendar year exceeds $100,000, the excess portion of such options will be treated as non-qualified stock options. Vesting and Exercisability; Expiration or Termination of Options. Our Stock Option Committee will determine the vesting and exercisability schedule for each option grant, and that schedule will be set forth in the stock option agreement that we and the option holder execute. As a general matter, we expect that each option will vest and become exercisable for 20% of the underlying shares on the date of the option grant, and for an additional 20% on each anniversary of the date of the grant. The Employee Plan provides, however, that in the event of the option holder's retirement at or after age 62, death or disability or in the event of a "change of control" of the Company (as defined in the Employee Plan), any portion of the option that has not yet vested and become exercisable shall immediately vest and be exercisable. If the option holder's employment terminates due to death or disability (or if the option holder dies or become disabled within certain specified time frames after termination of employment other than "termination for cause" (as defined in the Employee Plan) or due to retirement at age 62), then the option will be exercisable at any time within one year after death or disability. If the option holder's employment terminates for any other reason (other than for cause), then the option will be exercisable within three months after termination of employment, or six months after termination if an exercise of the option within three months after termination would result in short-swing trading liability under Section 16(b) of the Securities Exchange Act of 1934. If the option holder's employment termination was not the result of retirement at age 62 and was not for cause, then the option will only be exercisable during this three-month or six-month period to the extent it was exercisable immediately prior to such termination. If an option holder's employment is terminated for cause, then upon such termination all non-exercised options held by that person will immediately terminate. To the extent that an option remains exercisable beyond the time permitted by law for the exercise of ISOs following the termination of employment, the option will convert automatically to a non-qualified stock option for the remaining period of its exercisability. Subject to the events described above concerning termination of the option holder's employment, an option granted under the Employee Plan will expire not later than ten years from the date on which it was granted (except in the case of an ISO granted to a 10% Stockholder, which will expire not later than five years from the grant date). Changes in Capital Structure; Anti-Dilution Adjustments. If any stock dividend, recapitalization, stock split, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of our shares or our other securities affects our Common Stock such that our Stock Option Committee determines that an adjustment is appropriate and equitable in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available under the Employee Plan, then without stockholder approval our Stock Option Committee may adjust any or all of (1) the number of shares of our Common Stock subject to each outstanding option, (2) the exercise price of such options and (3) the number of shares reserved for issuance under the Employee Plan. 25 Effectiveness. The Employee Plan will become effective upon approval by our stockholders and will expire on March 9, 2015. Expiration of the Employee Plan will not affect the validity or exercisability of options granted prior to such expiration. Section 162(m) of the Code. Under Section 162(m) of the Code, we are not allowed a tax deduction in any taxable year for compensation in excess of $1 million that we pay to our CEO or to any of our other four most highly paid executive officers who serve in such capacity as of the last day of the taxable year. An exception to this rule applies to compensation that we pay pursuant to a stock incentive plan approved by stockholders and that specifies, among other things, the maximum number of shares with respect to which options and stock appreciation rights (which we do not have) may be granted to eligible participants under such plan during a specified period. Compensation paid pursuant to options or stock appreciation rights granted under such a plan and with an exercise price equal to the fair market value of our Common Stock on the date of grant is deemed performance-based, because such awards provide value to participants only if the stock price appreciates. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitation, if any stock option is canceled, the canceled option shall continue to count against the maximum number of shares of our Common Stock with respect to which we may grant an option to a participant. Certain Federal Tax Consequences. Our grant of an ISO will not result in any federal income tax consequences to the participant or to us. A participant recognizes no federal taxable income upon exercising an ISO (subject to the alternative minimum tax rules discussed below), and we get no tax deduction at the time of exercise. In the event that a participant disposes of shares that were acquired through the exercise of an ISO, the tax consequences depend on how long the participant held the shares. If the participant does not dispose of the shares within two years after we granted the ISO, nor within one year after the ISO was exercised, the participant will recognize a long-term capital gain (or loss) equal to the difference between the sale price of the shares and the exercise price. We will not be entitled to any tax deduction under these circumstances. If the participant fails to satisfy either of the foregoing holding periods, he or she must recognize ordinary income in the year of the disposition (referred to as a "disqualifying disposition"). The amount of such ordinary income generally is the lesser of (1) the difference between the amount realized on the disposition and the exercise price or (2) the difference between the fair market value of the shares on the exercise date and the exercise price. Any gain in excess of the amount taxed as ordinary income will be treated as a long-term or short-term capital gain, depending on whether the shares were held for more than one year. In the year of the disqualifying disposition, we will be entitled to a tax deduction equal to the amount of ordinary income recognized by the participant, subject to possible limitations imposed by Section 162(m) of the Code and so long as we withhold the appropriate taxes with respect to such income (if required) and the individual's total compensation is deemed reasonable in amount. The "spread" under an ISO - the difference between the fair market value of the shares on the date of exercise and the exercise price - is classified as an item of adjustment for the participant in the year the option is exercised, for purposes of the alternative minimum tax. 26 The grant of a non-qualified stock option will not result in any federal income tax consequences to the participant or to us. Upon exercise of a non-qualified stock option, the participant is subject to income taxes at the rate applicable to ordinary compensation income on the difference between the option exercise price and the fair market value of the shares on the date of exercise. This income is subject to withholding for federal income and employment tax purposes. We are entitled to an income tax deduction in the amount of the income recognized by the participant, subject to possible limitations imposed by Section 162(m) of the Code. Any gain or loss on the participant's subsequent disposition of the shares will receive long-term or short-term capital gain or loss treatment, depending on whether the shares were held for more than one year following exercise. We will not get a tax deduction for any such gain. The foregoing summary of the federal income tax consequences of transactions under the Employee Plan is based upon federal income tax laws in effect on the date of this Proxy Statement. This summary does not purport to be complete, and does not discuss foreign, state or local tax consequences. Vote Required for Approval. Approval of the Employee Plan will require the affirmative vote of the holders of a majority of our outstanding shares represented in person or by proxy and entitled to vote at the Annual Meeting. Our Board of Directors unanimously recommends that you vote "FOR" approval of the Employee Plan. Proposal No. 3 Approval Of Our 2005 Non-Qualified Stock Option Plan For Non-Employee Directors (Item 3 on Proxy Card) On March 10, 2005, our Board of Directors adopted the 2005 Nonqualified Stock Option Plan for Non-Employee Directors (the "Director Plan"), which we are now asking our stockholders to approve. We are doing so because our 1996 Plan has expired, as explained elsewhere in this Proxy Statement, and we are therefore unable to grant stock options to our non-employee Directors. The Director Plan is intended to assist us in attracting and retaining dedicated and qualified persons to serve as our non-employee Directors. We also believe that the Director Plan will help to encourage ownership of our Common Stock by non-employee Directors. A general description of the principal terms of the Director Plan is set forth below. That description is qualified in its entirety by the terms of the Director Plan (including the accompanying form of Stock Option Agreement), which is attached to this Proxy Statement as Exhibit B and is incorporated herein by reference. Participation. Participation in the Director Plan will be limited to members of our Board of Directors who are not employees of the Company or of any of our subsidiaries ("non-employee Directors"). Stock Option Grants and Exercises. We have reserved 150,000 shares of our Common Stock for issuance under the Director Plan (subject to anti-dilution adjustments for stock dividends, stock splits, reorganizations and similar events, as explained below). If any option granted under the Director Plan expires, terminates, or is forfeited or canceled, the shares subject to that option will be released and will become available for the grant of new options under the Director Plan. 27 The exercise price per share for an option will be not less than the fair market value per share of our Common Stock as of the date we grant the option. The fair market value will be determined as follows: (1) if our Common Stock is listed on an exchange, the closing price on the date of the option grant; (2) if our Common Stock is reported on NASDAQ, the closing price reported on the date of the option grant; and (3) under any other circumstances, our Board of Directors will make a good faith determination of fair market value. If an option is exercised, the exercise price will be payable (1) in cash or by check; (2) by tender of such number of shares of our Common Stock which have been owned by the option holder for not less than six months prior to the date of exercise and are equal in value to the exercise price; or (3) by a combination of such methods of payment. The Director Plan provides that annually, each individual elected, reelected or continuing as a non-employee Director will receive a nonqualified stock option for 6,000 shares of our Common Stock (subject to anti-dilution adjustments described below). In 2005, we expect to grant the options as soon as practicable after the Director Plan has become effective and the options and shares of Common Stock reserved for issuance under the Director Plan have been registered under the Securities Act of 1933. If, however, we elect not to register the options and the underlying Common Stock, then we will grant the options as soon as practicable after the Director Plan becomes effective. In subsequent years, we will grant the options on the anniversary of the effective date of the Director Plan. Vesting and Exercisability; Expiration or Termination of Options. Options will become exercisable to the extent of 20% of the underlying shares after an option holder has continuously served as a non-employee Director for one year after the option grant, and to the extent of an additional 20% in each of the next four years, provided that the option holder has continuously served as a non-employee Director during those years. However, in the event of a "change of control" of the Company (as defined in the Director Plan), any portion of an option that has not yet vested and become exercisable will immediately vest and be exercisable. Options granted under the Director Plan will expire on the earliest of the following dates: (1) three months after the date on which the option holder ceases to be a non-employee Director, unless that is due to death or disability or because the option holder has become an officer or employee of the Company or of any of our subsidiaries; (2) one year after death or disability if the option holder dies or becomes disabled while a Director; (3) three months after the date of a qualified domestic relations order that requires the transfer of all or a portion of the option to the option holder's spouse (but only the portion that is transferred will thereby terminate); or (4) ten years from the date of the option grant. Changes in Capital Structure; Anti-Dilution Adjustments. If any stock dividend, recapitalization, stock split, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of our shares or our other securities affects our Common Stock such that our Board of Directors determines that an adjustment is appropriate and equitable in order to prevent dilution or enlargement of benefits or potential benefits intended to be made available under the Director Plan, then without stockholder approval our Board of Directors may adjust any or all of (1) the number of shares of our Common Stock subject to each outstanding option, (2) the exercise price of such options and (3) the number of shares reserved for issuance under the Director Plan. 28 Effectiveness. The Director Plan will become effective upon approval by our stockholders. The Director Plan has no expiration date. We intend that the Director Plan will remain effective until (1) options for all shares of our Common Stock reserved for issuance under the Director Plan have been exercised in full or (2) it has been conclusively determined that we can grant no further options under the Director Plan even if non-exercised options terminated, expire or are canceled. Our Board of Directors, though, has authority to make amendments to the Director Plan, which may include the establishment of an expiration date. Other Information. We pay and will continue to pay other compensation to our non-employee Directors besides the grants of stock options. See "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS - Compensation of Directors" above. Certain Federal Tax Consequences. Options granted under the Director Plan will be non-qualified stock options under the Code. Therefore, our grant of Director Plan options will not result in any federal income tax consequences to the Director Plan participant or to us. Upon exercise of a non-qualified stock option, the participant will be subject to income taxes at the rate applicable to ordinary compensation income on the difference between the option exercise price and the fair market value of the shares on the date of exercise. We are entitled to an income tax deduction in the amount of the income recognized by the participant, subject to possible limitations imposed by Section 162(m) of the Code. Any gain or loss on the participant's subsequent disposition of the shares will receive long-term or short-term capital gain or loss treatment, depending on whether the shares were held for more than one year following exercise of the option. We will not get a tax deduction for any such gain. The foregoing summary of the federal income tax consequences of transactions under the Director Plan is based upon federal income tax laws in effect on the date of this Proxy Statement. This summary does not purport to be complete, and does not discuss foreign, state or local tax consequences. Vote Required for Approval. Approval of the Director Plan will require the affirmative vote of the holders of a majority of our outstanding shares represented in person or by proxy and entitled to vote at the Annual Meeting. Our Board of Directors unanimously recommends that you vote "FOR" approval of the Director Plan. Proposal No. 4 Approval of our Issuance Of Stock To Non-Employee Directors (Item 4 on Proxy Card) On March 10, 2005, our Board of Directors approved the issuance of 30,000 shares of our Common Stock as compensation to our four non-employee Directors, subject to stockholder approval and subject to a vesting schedule and restrictions on transfers or pledges of those shares, as described below. Our non-employee Directors constitute a majority of our current six-member Board of Directors. They, as well as our other two Directors, participated in the deliberations on this proposal and all six Directors voted in favor of it. 29 Purpose and Effect. In April and May of 2004, we attempted to grant options under the 1996 Plan for a total of 30,000 shares of our Common Stock (as adjusted for our 2005 stock split) to our four non-employee Directors as part of their annual compensation. We refer below to these options as the "Intended Options." Subsequently, though, we determined that the 1996 Plan had expired in 2003, as a result of which the Intended Options were null and void. As a form of substitute compensation, we are requesting stockholder approval to issue 30,000 shares of our Common Stock to those non-employee Directors, as shown in the table below. Assuming approval by our stockholders, our issuance of those shares will be subject to the non-employee Directors' acceptance of the shares in full substitution for the Intended Options. Assuming such approval and acceptance, the 30,000 shares will be subject to a vesting schedule that restricts the non-employee Directors from selling, assigning, pledging, encumbering or otherwise transferring the shares until they vest. The shares will vest at the rate of 20% per year on each anniversary of our issuance of the shares, resulting in full vesting five years after issuance. The shares, though, will vest immediately upon death, disability or a change in control of the Company, or under any other circumstances in which the individual ceases to be a Director except for resignation prior to reaching age 62 or declining to stand for reelection prior to reaching age 62. In the event of such resignation or decision not to stand for reelection, the non-vested shares will be canceled and forfeited. The number of shares that were subject to the Intended Options and that we now intend to issue to the non-employee Directors, the value that those Intended Options would have had, and the value of our Common Stock that we propose to issue to our non-employee Directors in substitution for the Intended Options, with both such valuations based on the April 6, 2005 closing price of our Common Stock on Amex, are as follows:
Number Of Shares In-The-Money Subject To Intended Value That The Value Of Options And Intended Options Shares Proposed Proposed Stock Would Have Had To Be Issued Issuance (As Of 4/6/05) (As Of 4/6/05) -------- ------------------ ------------------- Name Exercisable Unexercisable Vested Not Vested ---- ----------- ------------- ------ ---------- Jeffrey A. Silver 6,000 $ 0 $56,400 $ 0 $74,220 Paul A. Harvey 6,000 $ 0 $56,400 $ 0 $74,220 Vincent L. DiVito 6,000 $ 0 $56,400 $ 0 $74,220 James N. Land, Jr. 12,000 $ 0 $112,620 $ 0 $148,440
As the table above indicates, the value of the shares that we propose to issue exceeds the in-the-money value of the Intended Options. That is because the non-employee Directors would have had to pay an exercise price for the options in order to exercise them, which price was equal to the fair market value of our Common Stock on the date that we attempted to grant the Intended Options. Our issuance of the 30,000 shares in substitution for the Intended Options, though, would not require payment by the non-employee Directors. 30 In addition to the dollar-value differential, the Intended Options (if they had been valid) would have been subject to a greater risk of loss on the part of the non-employee Directors, as compared with the vesting provisions of the shares that we now propose to issue to them. For example, in the event of a non-employee Director's death or disability, the Intended Options would have had to be exercised within one year thereafter or else they would have expired. Under other circumstances in which the individual ceased to be a Director, he would have had to exercise the Intended Options within three months thereafter. To the extent that the Intended Options would not have been subject to any special deadlines for exercise, they would have expired if not exercised within ten years from the respective dates of the intended grants. In contrast, the vesting provisions that will apply to the new shares will not result in a non-employee Director's loss of the shares prior to vesting unless he voluntarily leaves the Board of Directors before he reaches age 62. Consequently, our non-employee Directors who are older than 62 have no risk of losing the shares prior to vesting. Except for the right to sell, assign, pledge, encumber or otherwise transfer these new shares (which will be subject to the vesting schedule), the non-employee Directors will be entitled to all rights of ownership with respect to the shares, including the right to vote and receive dividends, immediately upon issuance. Neither these shares nor any other outstanding shares of our Common Stock have preemptive rights. We believe that the higher value and fewer restrictions for these new shares, as compared with the Intended Options, is appropriate in view of the lost opportunities on the part of the non-employee Directors that resulted from our inability to grant the Intended Options. The Intended Options would have vested at the rate of 20% per year, on each anniversary of the grant. We attempted to grant options for 6,000 shares on April 19, 2004 and options for 24,000 shares on May 10, 2004. If the options had been valid, then by the date of the Annual Meeting they would already have become exercisable for 20% of the underlying shares at a strike price that is well below the April 6, 2005 closing price of our Common Stock on Amex (although as indicated in the table above, the Intended Options would not have been exercisable as of April 6, 2005). The vesting of the new 30,000 shares, in contrast, will not start until one year after we issue those shares, which will be shortly after the Annual Meeting (assuming that Stockholders approve this proposal). We believe this delayed vesting schedule, viewed in light of the non-employee Directors' lost opportunity to benefit from the appreciation in the market price of our Common Stock since we attempted to issue the options in March and April 2004, justifies the advantages to the non-Employee Directors of this proposed stock issuance as compared with what they would have gotten if the Intended Options had been valid. At December 31, 2004, our Common Stock had a negative net tangible book value of approximately $(3.64) per share, without giving effect to any exercise of stock options then outstanding. The net tangible book value per share is determined by dividing our net tangible book value (total tangible assets minus total liabilities) by the number of shares of our Common Stock outstanding at December 31, 2004 (adjusted for the 2005 stock split). Because our Common Stock had a negative net tangible book value, our issuance of these 30,000 shares without payment for them would not cause a pro forma reduction in the net tangible book value per share as of December 31, 2004. Nevertheless, we cannot assure you that our issuance of these shares will not have a dilutive effect on the market price of our Common Stock, even though the shares only amount to approximately 0.2% of the number of shares of our Common Stock outstanding as of April 7, 2005. 31 If Stockholders do not approve our issuance of these shares, we will consider other substitute forms of compensation for our non-employee Directors in lieu of the Intended Options, which were supposed to be part of their 2004 compensation but which we were unable to grant because of the expiration of the 1996 Plan. Vote Required for Approval. Our issuance of these 30,000 shares of our Common Stock to our non-employee Directors requires the affirmative vote of the holders of a majority of our outstanding shares represented in person or by proxy and entitled to vote at the Annual Meeting. Our Board of Directors unanimously recommends that you vote "FOR" approval of this issuance of 30,000 shares of our Common Stock to our non-employee Directors. OTHER MATTERS We know of no other matters which are to be brought before the Annual Meeting. If any other matters are presented for proper action, it is the intention of the persons named in the proxy to vote in accordance with their discretion pursuant to the terms of the proxy. PROPOSALS OF STOCKHOLDERS Stockholder proposals intended to be presented at our 2006 annual meeting of stockholders must be received at our executive offices in writing not later than December 23, 2005 to be eligible for inclusion in our proxy statement with respect to that meeting. Stockholders who intend to present a proposal at our 2006 annual meeting but who do not seek to have it included in our proxy statement must notify us of the proposal by not later than March 8, 2006. Otherwise, the proposal will be deemed untimely. These deadlines are based on a projected 2006 annual meeting date of May 16, 2006. RIVIERA HOLDINGS CORPORATION By: William L. Westerman President, Chief Executive Officer and Chairman of the Board of Directors IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. REGARDLESS OF WHETHER YOU EXPECT TO ATTEND THE MEETING, WE URGE YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE. 32 EXHIBIT A RIVIERA HOLDINGS CORPORATION 2005 INCENTIVE STOCK OPTION PLAN EXHIBIT B RIVIERA HOLDINGS CORPORATION 2005 NON-QUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS EX-99 3 rhcincentiveoptionplanr.txt RHCEXHIBIT_A Exhibit A RIVIERA HOLDINGS CORPORATION 2005 INCENTIVE STOCK OPTION PLAN ARTICLE I PURPOSE; DEFINITIONS Section 1.1: Statement of Policy: The Board of Directors of Riviera Holdings Corporation, a Nevada corporation (the "Corporation"), believes that the maximum advantage to the Corporation from its officers and key employees can be secured by establishing a close identity between the interests of the Corporation and its Subsidiaries (as defined in paragraph (y) of Section 1.2), and those of its or their respective officers and key employees. The Board believes that it would be in the best interests of the Corporation to adopt the 2005 Incentive Stock Option Plan which will provide for the granting of Incentive Stock Options (as defined in paragraph (q) of Section 1.2) and which will serve the function of providing closer alignment of interests between the officers and key employees of the Corporation and the shareholders of the Corporation. Furthermore, it will serve: to retain these individuals in the service of the Corporation or its Subsidiaries; to attract and retain the services of new key employees to become associated with the Corporation or its Subsidiaries; and to encourage ownership of the Company's Common Stock (as defined in paragraph (h) of Section 1.2) by such employees. Section 1.2: Definitions: When used in this Plan, unless the context otherwise requires: (a) "Affiliate" shall mean any entity, excluding its Subsidiaries, in which the Corporation has a direct or indirect equity interest, as determined by the Board of Directors. (b) "Applicable Laws" shall mean the requirements relating to the administration of equity based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code (as defined in paragraph (f) of Section 1.2), any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any jurisdiction where Awards (as defined in paragraph (c) of Section 1.2) are, or will be, granted under the Plan. (c) "Award" shall mean the award of an Incentive Stock Option under the Plan. (d) "Board of Directors" shall each mean the Board of Directors of the Corporation as constituted from time to time. (e) "Change of Control" shall mean the occurrence of any of the following events: (i) the dissolution or liquidation of the Corporation, or a reorganization, merger or consolidation of the Corporation with one or more corporations as a result of which the owners of all of the outstanding shares of Common Stock immediately prior to such reorganization, merger or consolidation own, in the aggregate, less than 50% of the outstanding shares of Common Stock of the Corporation or any other surviving entity or its parent into which the Corporation shall be merged or consolidated immediately following the consummation thereof; (ii) the consummation of the sale, transfer or other disposition of all or substantially all of the assets or more than 50% of the then outstanding shares of Common Stock of the Corporation; or (iii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act (as defined in paragraph (l) of Section 1.2)) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Corporation representing fifty percent (50%) or more of the total voting power represented by the Corporation's then outstanding voting securities. (f) "Code" shall mean the United States Internal Revenue Code of 1986, as amended from time to time. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code. (g) "Committee" shall mean the committee designated by the Board of Directors to administer the Plan under Section 3.1 hereof. (h) "Common Stock" and "Stock" shall each mean the common stock of the Corporation. (i) "Disability" shall mean total and permanent disability as defined in Section 22(e)(3) of the Code. (j) "Effective Date" shall have the meaning set forth in Section 10.1. (k) "Employee" shall mean an officer or other key employee of the Corporation or any of its Subsidiaries, including a director who is an employee. (l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated pursuant thereto. (m) "Exercise Notice" shall have the meaning set forth in paragraph (c) of Section 6.3. (n) "Fair Market Value" shall mean, on any given date, if the Common Stock is traded on an exchange, closing price on the date of valuation or if not traded on an exchange, as the Committee may determine in good faith. (o) "Gaming Authorities" shall mean any agency, commission, official or other instrumentality of the United States or any state, county, or other political subdivision, including, without limitation, Nevada State Gaming Control Board, the Nevada Gaming Commission, the Colorado Commission, the Colorado Division of Gaming or any other governmental agency which may govern the gaming operations of the Corporation or its Subsidiaries. (p) "Holder" shall mean an Employee to whom an Award has been granted. (q) "Incentive Stock Option" shall mean an Option (as defined in paragraph (t) of Section 1.2) that by its terms qualifies and is otherwise intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (r) "Non-Qualified Stock Option" shall mean a stock option that does not qualify as an Incentive Stock Option. (s) "Option Agreement" shall mean each Agreement referred to in Section 5.1 between the Corporation and any person to whom an Option is granted. (t) "Option" shall mean an Incentive Stock Option granted under this Plan. (u) "Option Shares" shall have the meaning set forth in Section 8.5(a). (v) "Plan" shall mean this 2005 Incentive Stock Option Plan, as such Plan from time to time may be amended as herein provided. (w) "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated pursuant thereto. (x) "Subsidiary" shall mean a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. (y) "Ten Percent (10%) Shareholder" shall mean a person who on any given date owns, either directly or within the meaning of the attribution rules contained in Section 424(d) of the Code, stock possessing more than ten percent (10%) of the total combined voting powers of all classes of stock of the Corporation or a Subsidiary. (z) "Termination For Cause" shall mean the occurrence of any of the following actions, which results in the Holder's termination of employment with the Corporation or a Subsidiary: (i) a final felony conviction entered into against the Holder after all appeals have been exhausted; (ii) a final civil judgment, after all appeals have been exhausted by the parties to such suit, in which there is a finding that the Holder committed fraud or dishonesty, whether or not involving the Corporation or any Subsidiary; (iii) the Holder's failure to perform "reasonable duties" assigned to Holder; provided that the Board of Directors of the Corporation gives the Holder written notice of such failure to perform such duties and that the Holder does not perform such duties within thirty (30) days after receipt of such written notice; or (v) the Gaming Authorities determines that the Holder is unsuitable to act as an executive of a gaming company in such Holder's individual capacity. ARTICLE II ELIGIBILITY Section 2.1: Award Eligibility: Persons eligible to receive Awards under this Plan shall be all Employees; provided, however, the Committee, in its sole discretion, may select the Employees that will be granted Incentive Stock Options. However, in no event may Incentive Stock Options be granted to Employees of Affiliates. ARTICLE III ADMINISTRATION OF PLAN Section 3.1: Committee: This Plan will be administered by a committee of the Board of Directors which will be comprised solely of two (2) or more "outside directors," as that term is used in Section 162(m) of the Code; provided, however, the failure of the Committee to be composed solely of individuals who are "outside directors" shall not render ineffective or void any Options granted by the Committee or any other actions taken by such Committee. The Committee will have authority in its discretion, subject to the express provisions of this Plan: (a) to determine the Employees to whom and the time or times at which Awards shall be granted and the number of shares to be covered by each Option; (b) adopt procedures and regulations governing the Incentive Stock Options and making all other determinations necessary or advisable to carry out the terms of the Plan; (c) to determine the terms and provisions of the Awards and approve forms of the Option Agreements (which need not be identical) for use under this Plan, including, without limitation, such terms and provisions as may be required: (i) to cause this Plan and the Options and Common Stock issued pursuant to the Plan to be registered on Form S-8 promulgated pursuant to the Securities Act or any other appropriate form; and (ii) to set forth the form of restrictive legends to be placed on certificates representing shares of Common Stock to be issued pursuant to Options relating to obligations of the holders under the federal and state securities laws and under the Code. (d) to modify and amend an existing Award, without approval of the Holder, in order to carry out the purposes of this Plan (so long as such an amendment does not take away any benefit granted to a Holder by the Award and so long as the amended Award would comport with the terms of this Plan, including the provisions of Section 422 of the Code); and (e) to make all other determinations deemed necessary or advisable for administering this Plan. Section 3.2: Committee's Decision: Any interpretation by the Committee of the terms and provisions of this Plan and the administration hereof, and all actions that are taken by the Committee shall be final and binding upon the Holders. Section 3.3: Vacancies: If a member of the Committee for any reason shall cease to serve, the vacancy may be filled by the Board of Directors in accordance with the By-laws of the Corporation and this Plan. Section 3.4: Removal: Any member of the Committee may be removed at any time, with or without cause, by the Board of Directors. Section 3.5: Chairman: The Board of Directors or the Committee shall select one (1) of the members of the Committee as the Committee's chairman. Section 3.6: Meetings: The Committee shall hold its meetings at such times and places as it shall deem advisable. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by at least a majority of its members. Any decision or determination reduced to writing and approved by all the members of the Committee shall be fully as effective as if it had been made by the affirmative vote of a majority of its members at a meeting duly called and held. The Committee may appoint a secretary, who shall keep minutes of its meetings and make such rules and regulations for the conduct of its business as may be deemed advisable. ARTICLE IV SHARES OF COMMON STOCK SUBJECT TO PLAN Section 4.1: Shares Available: (a) Subject to the provisions of Article VIII regarding adjustments, the aggregate number of shares of the Common Stock, which may be subject to this Plan, is one million (1,000,000) shares of the Common Stock. Such shares of Common Stock may be authorized and unissued shares or issued shares held in the Corporation's treasury. (b) If an Award expires or becomes unexercisable without having been exercised in full, is forfeited to or repurchased by the Company, the unpurchased shares which were subject thereto will become available for future grant under the Plan (unless the Plan is terminated). However, shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan. Notwithstanding the foregoing and, subject to an adjustment provided in Article VIII, the maximum number of shares that may be issued upon the exercise of Incentive Stock Options shall equal the aggregate share number stated in paragraph (a) of Section 4.1, plus, to the extent allowable under Section 422 of the Code, any shares of Common Stock that become available for issuance under the Plan under this paragraph (b). ARTICLE V OPTIONS Section 5.1: Option Grants: Options shall be evidenced by Option Agreements. An Option Agreement signed by the Chairman, the President, or any other officer of the Corporation designated by the Chairman or the Board of Directors, and attested by the Treasurer or Assistant Treasurer or Secretary or Assistant Secretary of the Corporation, shall be issued to each person to whom an Award is granted. If any grantee of an Award does not execute an Option Agreement in the form prescribed by the Committee within thirty (30) days from the grant thereof, such Option Agreement shall be of no further force and effect. Section 5.2: Time for Grant of Awards: Awards may be granted by the Committee to Employees pursuant to this Plan, from time to time for a period beginning with the Effective Date (as defined in Section 10.1) and ending on the 10th anniversary of the Effective Date of this Plan. Except with respect to the limit of granting options as set forth in Section 5.3 below, nothing herein shall be construed to prohibit the issuance of Awards at different times to the same persons. Section 5.3: Number of Shares to be Optioned and Nature of Option: Subject to Section 2.1 of this Plan, the total number of shares to be optioned to any eligible person shall be determined by the Committee in its sole discretion; provided, however, no Employee will be granted, in any fiscal year of the Corporation, Options to purchase more than 500,000 shares of Common Stock. Section 5.4: Incentive Stock Option: Each Option granted under this Plan shall be designated an Incentive Stock Option (as defined in Section 422(a) of the Code). Notwithstanding such designation, to the extent that the aggregate Fair Market Value of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the Holder during any calendar year (under all plans of the Corporation and Subsidiary) exceeds $100,000, such Options will be treated as Non-Qualified Stock Options. For purposes of this Section 5.4, Incentive Stock Options will be taken into account in the order in which they were granted. The Fair Market Value of the shares of Common Stock will be determined as of the time the Option with respect to such shares is granted. Section 5.5: Term of Options: The Option Agreements shall specify when an Option may be exercisable, and the terms and conditions applicable thereto, including any vesting requirements. The term of an Option Agreement will be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Notwithstanding the foregoing, if an Incentive Stock Option is granted to an Employee who, at the time the Incentive Stock Option is granted, is a Ten Percent (10%) Shareholder, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. Section 5.6: Option Price: The exercise price at which Common Stock may be purchased shall be determined by the Committee subject to the following: (a) if granted to an Employee who, at the time the Incentive Stock Option is granted, is a Ten Percent (10%) Shareholder, the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share on the date of grant; or (b) if granted to an Employee other than an Employee described in paragraph (a) immediately above, the exercise price per share shall be no less than 100% of the Fair Market Value per share on the date of grant. ARTICLE VI EXERCISE OF OPTIONS Section 6.1: Death, Disability, Retirement or Termination of Employment: Notwithstanding the provisions of Section 6.2 of this Plan, Options granted to a Holder may be exercised as follows: (a) In the event of the termination of the Holder's employment, excluding a Termination For Cause, then such Holder's Option may be exercised, regardless of tax consequences, to the extent then vested and exercisable as provided in the Option Agreement applicable to such Option at any time: (i) within three (3) months following such termination if exercise by such Holder during such period would not result in liability under Section 16(b) of the Exchange Act, or (ii) within six (6) months following such termination if exercise by such Holder within three (3) months following such termination would result in liability under Section 16(b) of the Exchange Act (but in any event not thereafter). (b) In the event of the termination of the Holder's employment resulting from the Holder's retirement upon or after attaining the age of sixty-two (62), then such Holder's Options shall, if not already vested, immediately vest, and the Holder's Option may be exercised, regardless of tax consequences, to the extent vested at any time: (i) within three (3) months following such termination if exercise by such Holder during such period would not result in liability under Section 16(b) of the Exchange Act, or (ii) within six (6) months following such termination if exercise by such Holder within three (3) months following such termination would result in liability under Section 16(b) of the Exchange Act, but in any event not thereafter. (c) In the event of the death or Disability of the Holder either: (i) while employed by the Corporation or a Subsidiary, or (ii) while eligible to exercise his Option pursuant to Section 6.1(a) or (b) of this Plan following the termination of his employment; then the Option shall, if not already vested, immediately vest, and the Holder's Option may be exercised, regardless of tax consequences to the extent vested, at any time within one (1) year following the Holder's death or Disability. In the event of termination of employment by reason of Death or Disability, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422(a) of the Code, such Incentive Stock Option will thereafter be treated as a Non-Qualified Stock Option. (d) Unless otherwise provided by the Committee, if on (the first of the following to occur) date of termination of employment (excluding a Termination For Cause), the death of Holder, or Disability of Holder, the shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not exercised within the time specified in paragraphs (a), (b) or (c) above, as the case may be, the Option will terminate, and the shares covered by such Option, will revert to the Plan. Section 6.2: Termination of Employment Under Other Circumstances Procedure: In the event of a Holder's Termination For Cause, all Options, which have been granted to such Holder and which have not been exercised by him prior to the time of such termination, whether or not vested, shall automatically be terminated and thereafter may not be exercised, and the shares covered by such Option, which are have not been exercised prior to such termination, will revert to the Plan. Section 6.3: Procedure: An Option shall be exercisable by delivery of a duly signed notice in writing to such effect and the full purchase price of the Common Stock purchased pursuant to the exercise of the Option to the Treasurer of the Corporation or to any other officer of the Corporation appointed by the Committee for the purpose of receiving the same; provided, however, that no Option issued pursuant to this Plan may be exercised at any time when the Option or the granting or the exercise thereof violates any Applicable Law and that an Option may not be exercised for a fraction of a share of Common Stock. Delivery of the full purchase price shall be satisfied either: (a) by payment in cash of the full purchase price; (b) by tender of such number of shares of the Corporation's Common Stock owned either (i) by the Holder prior to exercise of the Option or (ii) with the consent of the Committee, by the Holder as a result of the exercise of the Option, as is equal in value (as determined by its Fair Market Value at the close of business on the last business day before the date of delivery) to the full purchase price; or (c) by delivery of any combination of cash and such shares of the Corporation's Common Stock (valued as set forth above) which, in the aggregate, is equal in value to the full purchase price, subject to compliance with applicable securities laws. Alternatively, an Option shall be exercisable by Holders not subject to Section 16(b) of the Exchange Act by delivery of a duly signed notice in writing to such effect (the "Exercise Notice") which shall include irrevocable instructions to the Corporation to deliver the stock certificates issuable in respect of such Option exercise directly to a broker named therein, which has agreed to participate in a "cashless" exercise on behalf of the Holder. In connection therewith, the Corporation shall acknowledge and, notwithstanding the provisions of Section 6.4 hereof, forward a copy of the Exercise Notice to such broker and the Corporation shall be authorized and entitled to deliver such stock certificates directly to such broker against receipt of the exercise price and any withholding taxes due in respect of such option exercise. The Committee shall have the right to adopt such rules and regulations with respect to the provisions of this paragraph as it deems appropriate. Whenever all or any portion of the purchase price payable upon exercise of an Option is paid by the delivery of shares of the Corporation's Common Stock, tender of such shares shall be accompanied by a duly executed stock power and by payment of the requisite stock transfer tax, if any. The Committee may also require the Holder to make such representations as to his title, authority to transfer such title and any other facts as it may deem appropriate. Section 6.4: Issuance of Shares: Within a reasonable time after the exercise of an Option, the Corporation shall cause to be delivered to the purchaser a certificate representing the shares of Common Stock purchased pursuant to the exercise of the Option. Section 6.5: Shareholder Rights of Holder: No person entitled to exercise any Option granted under this Plan shall have any rights or privileges of a shareholder of the Corporation in respect of any shares issuable upon exercise of such Option until certificates representing such shares shall have been issued and delivered. Section 6.6: Termination of Options: Any Option not exercised within the period fixed for its exercise in an Option Agreement, and this Article VI shall terminate and become null and void. Section 6.7: Unexercised Options: Common Stock covered by Options which have terminated in accordance with the provisions of this Plan, to the extent to which such Options have not been exercised, may be treated by the Committee, as Common Stock which is eligible for other and further granting of Options in accordance with the terms of this Plan. Section 6.8: Cash-Out of Vested Options: The Committee, in its sole discretion, may cancel the vested portion of any Options held by a Holder who is at such time no longer an Employee of the Corporation or any of its Subsidiaries in exchange for a cash payment equal to the difference between: (i) the Fair Market Value of the shares subject to such vested Options; and (ii) the Option Price for such shares. ARTICLE VII NOT AN EMPLOYMENT CONTRACT Section 7.1: Not an Employment Contract: Anything contained herein or in any Option Agreement notwithstanding, neither this Plan, any Option Agreement nor any Option granted pursuant to this Plan shall confer on an individual any right to continue in the employ or service of the Corporation or any Subsidiary or interfere in any way with the right of the Corporation or such Subsidiary at any time to terminate or modify the terms or conditions of the employment or service of the Holder of the Option. ARTICLE VIII ADJUSTMENTS, MERGER OR CHANGE IN CONTROL Section 8.1: Change in Common Stock: (a) In the event of any changes in the outstanding Common Stock by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, split-ups, spin-offs, combinations, exchanges of shares or other securities of the Corporation or any other similar transaction, the Committee, in its sole discretion, may adjust the maximum number of shares of Common Stock that may be granted under this Plan and/or may adjust the number and price of shares of Common Stock allocated to unexercised Options which have been granted prior to any such event. The purpose of this provision is to permit the Committee, in its sole discretion, to provide for an adjustment to the Plan and to the Options, as provided above, such that an Option may be adjusted to give the Holder, upon exercise of his Option, rights equivalent to the rights of a person who had held shares of Common Stock in the amount subject to the Option at the time the Option was granted. (b) In the event of a change in the Common Stock of the Corporation as presently constituted, which is limited to a change of the par value status of any or all of its authorized shares, the shares resulting from any such change shall be deemed to be Common Stock or Stock within the meaning of this Plan. (c) Anything contained in this Section 8.1 to the contrary notwithstanding, no adjustment shall be made in the number of shares of Common Stock subject to each outstanding Option or the Option prices or both, in the event of any changes in the outstanding Common Stock by reason of issuances of shares of Common Stock upon exercise of any option. (d) To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. The Fair Market Value of any fractional shares resulting from adjustments pursuant to this Section 8.1 shall, where appropriate, be paid in cash to the Holder. Section 8.2: Dissolution or Liquidation: In the event of the complete liquidation or dissolution of the Corporation other than as an incident to a merger, reorganization, or other adjustment referred to in Section 8.1 above, any Options granted pursuant to this Plan and remaining unexercised shall be deemed cancelled without regard to or limitation by any other provision of this Plan. Section 8.3: Change of Control: (a) Notwithstanding anything to the contrary, upon the occurrence of a Change of Control, in which the Corporation is not the surviving corporation and in the event that the agreement effectuating the Change of Control provides for the assumption of Options granted under this Plan, the shares of common stock or other securities of the successor corporation may be issued under this Plan in lieu of shares of Common Stock, subject to any adjustments which the Committee, in its sole discretion, may determine is equitable; provided, however, such substitution of securities shall not require the consent of any person who holds an Option pursuant to this Plan. (b) In the event of a Change of Control (unless the outstanding Options are effectively assumed by the surviving entity or acquiring entity), each outstanding Option shall accelerate to become fully vested and immediately exercisable. To the extent required by the terms of the transaction constituting a Change of Control, each Holder shall have the right to exercise any outstanding Option, to the extent not previously exercised, and participate in the Change of Control on the same terms and conditions as other shareholders that own the Common Stock; provided, however, if the Holder does not so exercise his Option, such Option shall be canceled as part of such Change of Control. After the effective date of the Change of Control, the Committee shall deliver a written notice to each Holder setting forth the terms of the transaction constituting the Change of Control, directing the Holder to exercise the Option, to the extent required by the terms of the transaction constituting the Change of Control; provided that such Option shall be exercisable for a period of at least ten (10) days from the date of such notice (as such period may be extended by the determination of the Committee, in its sole discretion). Section 8.4: Rights of Holders and the Corporation: ------------------------------------- (a) Except as otherwise expressly provided in this Article VIII, a Holder shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation, and any issue by the Corporation of shares of stock of any class or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to any Option. (b) The grant of an Option pursuant to this Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell or transfer all or any part of its business or assets. Section 8.5: Compliance With Securities Act: (a) As soon as is reasonably practicable, the Corporation will use its best efforts to effect a registration on Form S-8 under the Securities Act with respect to all Options and all shares issuable upon exercise of the Options (the "Option Shares"), provided, however, that the Corporation shall not, be obligated to effect, or to take any action to effect, any registration in any jurisdiction in which the Corporation would be required to execute a general consent to service of process in effecting registration unless the Corporation is already subject to service in such jurisdiction and except as may be required by the Securities Act or Blue Sky Laws of such jurisdiction, provided that the filing of a Form U-2 or similar form shall not be deemed to be a general consent to service of process for purposes of this subsection. In connection with any such registration, the Corporation shall: (i) promptly give written notice of the proposed registration to all Holders; (ii) use its reasonable best efforts to effect the registration of the Options held by the Holders and the Option shares subject thereto (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable Blue Sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of such Options and Option Shares; (iii) keep the registration effective; (iv) prepare and file with the Securities and Exchange Commission such amendments and supplements to the registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement; (v) use its best efforts to cause all such Options and Option Shares registered pursuant hereto to be listed on each securities exchange on which similar securities issued by the Corporation are then listed or eligible for listing if the listing of such Options and Option Shares is then permitted under the rules of such exchange; and (vi) provide a transfer agent and registrar for all Options and Option Shares registered pursuant to such registration statement and a CUSIP number for all such Options and Option Shares, in each case not later than the effective date of such registration statement. (b) Prior to the effectiveness of any registration of the Option Shares, as provided in Section 8.5(a), the Corporation may postpone the issuance and delivery of shares of Common Stock upon any exercise of any Option until: (i) the admission of such shares to listing on any stock exchange on which shares of the Corporation of the same class are then listed and the completion of such registration or other qualification of such shares under any Applicable Law shall determine to be necessary or advisable; (ii) insofar as any local Blue Sky law might affect the issuance of such shares, either the local Blue Sky Commission shall have ruled or counsel to the Corporation shall have advised that the issue is not subject to such local law or that such shares shall have been qualified under such law; (iii) counsel to the Holder has delivered an opinion to the Corporation, satisfactory in form and substance, to the effect that the issuance of such shares does not require registration under any federal or state securities laws or that any such registration as may be required shall be effective as of the time of issuance of such shares; (iv) the individual to who the Option is granted shall have represented and agreed in writing that any shares purchased pursuant to the Option are being purchased for investment only and not with a view to the distribution or resale thereof; provided, however, that a Holder making such representation and agreement may be released by the Corporation at its discretion from such representation and agreement upon the shares being registered or qualified in such manner as may be legally required at any time, and (v) the Committee shall have been advised by counsel that all applicable legal requirements of the Securities Act have been complied with. Any person exercising an Option shall make such representations and furnish such information as may be appropriate to permit the Corporation, in light of the then existence or non-existence of an effective registration statement under the Securities Act, with respect to such shares, to issue the shares in compliance with the provisions of that or any comparable law. (c) The Corporation shall not have any liability to any Holder or otherwise: (i) in the event a registration does not occur with respect to the Option Shares; or (ii) with respect to any Option the exercise of which is prevented by the provisions of paragraph (b) of Section 8.5. ARTICLE IX TAX WITHHOLDING Section 9.1: Withholding Requirements: Prior to the delivery of any Shares or cash pursuant to an or exercise thereof, the Company will have the power and the right to deduct or withhold, or require a Holder to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Holder's FICA obligation) required to be withheld with respect to the exercise thereof. Section 9.2: Withholding Arrangements: The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may (without limitation) permit the Holder to satisfy such tax withholding obligation, in whole or in part by: (a) paying cash; (b) electing to have the Company withhold otherwise deliverable cash or shares of Common Stock having a Fair Market Value equal to the minimum amount required to be withheld; (c) delivering to the Company already owned Shares having a Fair Market Value equal to the amount required to be withheld; or (d) selling a sufficient number of shares of Common Stock otherwise deliverable to the Holder through such means as the Committee may determine in its sole discretion equal to the amount required to be withheld. The amount of the withholding requirement will be deemed to include any amount which the Committee agrees may be withheld at the time the election is made; provided that such amount shall not exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Holder with respect to the Option on the date that the amount of tax to be withheld is to be determined. For the purposes of this Section 9.2, the Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes, if any, are required to be withheld. ARTICLE X AMENDMENT, TERMINATION AND INTERPRETATION Section 10.1: Term of Plan: The Board of Directors adopted the Plan on March 10, 2005, and the Plan will be effective as of the date of that the shareholders of the Corporation approve the Plan (the "Effective Date"), subject to Section 10.3. The Plan will continue in effect until March 9, 2015, unless terminated earlier under Section 10.2. Section 10.2: Amendment and Termination: As provided in paragraph (d) of Section 3.1, the Committee may at any time amend, alter, suspend or terminate the Plan. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. No amendment, alteration, suspension or termination of the Plan will impair the rights of any Holder, unless mutually agreed otherwise between the Holder and the Committee, which agreement must be in writing and signed by the Holder and the Corporation. Termination of the Plan will not affect the Committee's ability to exercise the powers granted to it hereunder with respect to any Option granted under the Plan prior to the date of such termination. Section 10.3: Shareholder Approval: The Plan will be subject to approval by the shareholders of the Corporation within twelve (12) months after the date the Plan was adopted by the Board of Directors. Such shareholder approval will be obtained in the manner and to the degree required under Applicable Laws. Section 10.4: Evidence of Each Option: The Committee may include in each agreement or document it may issue to the Holder of any Option, evidencing the existence of such Option given or granted pursuant to the terms of this Plan, the text of this Plan by reference thereto in such certificate or document; and in such event, the entire terms of this Plan as it may exist and as it may be amended from time to time shall be deemed included in such certificate or document with the same force and effect as though this Plan were set forth in its entirety in such agreement or document. ARTICLE XI MISCELLANEOUS Section 11.1: Substituted Options: Subject to the limitation in Section 4.1 hereof on total shares available for Options, Options to purchase shares of the Corporation's Common Stock may be issued under this Plan; provided that such Options are issued in substitution for outstanding Options held by persons who have become employees of the Corporation or any of its Subsidiaries by reason of a corporate merger, consolidation, acquisition of property or capital stock, separation, reorganization or liquidation. EX-99 4 rhcnonqualifiedoptionplan.txt RHCEXHIBIT_B Exhibit B RIVIERA HOLDINGS CORPORATION 2005 NON-QUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. Purpose: The purpose of this 2005 Non-Qualified Stock Option Plan for Non-Employee Directors (this "Plan") is to assist Riviera Holdings Corporation, a Nevada corporation (the "Corporation") in attracting and retaining dedicated and qualified persons to serve as non-employee Directors of the Corporation. 2. Shares: The total number of shares that may be issued under this Plan shall not exceed one hundred fifty thousand (150,000) shares of the Corporation's common stock, par value $.001 per share ("Common Stock"), subject to adjustment as provided in Section 5. Such shares may be treasury shares or shares of original issue or a combination of the foregoing. If any Option (as defined below in this Section 2) terminates, expires or is cancelled with respect to any shares of Common Stock, the shares of Common Stock allocable to such forfeited shares shall again be available for grant under this Plan. The term "Option" means a stock option granted under this Plan. 3. Eligibility and Option Grants: The following Options to purchase Common Stock shall be granted as set forth below in this Section 3: (a) The Corporation shall grant an Option to purchase six thousand (6,000) shares of Common Stock to each person who on the effective date of this Plan is a non-employee Director of the Corporation. The date of the grant of such Option shall be: (i) as soon as practicable after the effectiveness, under the Securities Act of 1933 (the "Securities Act"), of a registration statement under which the Options and the shares of Common Stock reserved for issuance under this Plan have been registered, if the Corporation elects to file such a registration statement; or (ii) if the Corporation elects not to file such registration statement, then the later of the effective date of this Plan or the date of such election. (b) The Corporation shall grant an Option to purchase six thousand (6,000) shares of Common Stock to each person who on the anniversary of the effective date of this Plan is a non-employee Director of the Corporation. The date of the grant of such Option shall be the anniversary of the effective date of this Plan. (c) With respect to each person who first became or becomes a non-employee Director of the Corporation after the effective date of the Plan, the Corporation shall make a one-time grant of an Option to purchase six thousand (6,000) shares of Common Stock. The date of grant of such Option shall be the later of the following to occur: (i) the date such person first became or becomes a Director after the effective date of this Plan; (ii) as soon as practible after the effectiveness, under the Securities Act, of a registration statement under which the Options and the shares of common Stock reserved for issuance under this Plan have been registered, if the Corporation elects to file such a registration statement; or (iii) if the Corporation elects not to file such registration statement, then the date of such election. 1 (d) Notwithstanding the foregoing, for the purposes of Sections 3(b) and 3(c) hereof, if the anniversary of the effective date of this Plan or the date on which a person first became or becomes a Director falls on a Saturday, Sunday or legal holiday, the date of grant shall be the first business day following such anniversary date or the date such person first became or becomes a Director. 4. Terms and Conditions of Options: Each Option granted to a holder (the "Optionee") hereunder shall be evidenced by a written Stock Option Agreement substantially in the form of Exhibit "1" attached hereto with the blanks appropriately filled in. The exercise price per share of each such Option shall be the fair market value per share of Common Stock determined as of the date of grant. "Fair Market Value" shall mean: (i) if the Common Stock is traded on an exchange, the closing price on the date of grant; (ii) if the Common Stock is traded over-the-counter on the NASDAQ System, the closing price of the Common Stock on said System at the close of business on the date of grant or, if the Common Stock is designated a national market security, the closing price on the date of grant; and (iii) if neither (i) nor (ii) applies, the fair market value as determined by the Board of Directors of this Corporation (the "Board") in good faith. Such determination shall be conclusive and binding on all persons. 5. Adjustments Upon Capitalization and Corporate Changes: (a) In the event of any changes in the outstanding Common Stock by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, split-ups, spin-offs, combinations, exchanges of shares or other securities of the Corporation, or other similar transaction, the Board, in its sole discretion, may adjust the maximum number of shares of Common Stock that may be granted under this Plan and/or may adjust the number and price of shares of Common Stock allocated to unexercised Options which have been granted prior to any such event. The purpose of this provision is to permit the Board, in its sole discretion, to provide for an adjustment to the Plan and to the Options, as provided above, such that an Option may be adjusted to give the Optionee, upon exercise of his Option, rights equivalent to the rights of a person who had held shares of Common Stock in the amount subject to the Option at the time the Option was granted. (b) Notwithstanding anything to the contrary, upon the occurrence of a Change of Control (as defined below in Section 5(d)), in which the Corporation is not the surviving corporation and in the event that the agreement effectuating the Change of Control provides for the assumption of Options granted and the Corporation's obligations under this Plan, the shares of common stock or securities of the successor corporation may be issued under this Plan in lieu of shares of Common Stock, subject to any adjustments which the Board, in its sole discretion, may determine is equitably required under this Section 5; provided, however such substitution of securities shall not require the consent of any person who holds an Option pursuant to this Plan. 2 (c) In the event of a Change of Control (unless the outstanding Options are effectively assumed by the surviving entity or acquiring entity), each outstanding Option shall accelerate to become fully vested and immediately exercisable. To the extent required by the terms of the transaction constituting a Change of Control, the Optionee shall fully vest in and have a right to exercise such Option, including shares as to which it would not otherwise be vetoed or exercisable, and participate in the Change of Control on the same terms and conditions as other shareholders that own the Common Stock; provided, however, if the Optionee does not so exercise his Option, such Option shall be canceled as part of such Change of Control. After the effective date of the Change of Control, the Board of Directors shall deliver a written notice to each Optionee setting forth the terms of the transaction constituting the Change of Control, directing the Optionee to exercise the Option, to the extent required by the terms of the transaction constituting the Change of Control; provided that such Option shall be exercisable for a period of at least ten (10) days from the date of such notice (as such period may be extended by the determination of the Secretary of the Corporation, in its sole discretion). (d) "Change of Control" shall mean the occurrence of any of the following events: (i) the dissolution or liquidation of the Corporation, or a reorganization, merger or consolidation of the Corporation with one or more corporations as a result of which the owners of all of the outstanding shares of Common Stock immediately prior to such reorganization, merger or consolidation own, in the aggregate, less than 50% of the outstanding shares of Common Stock of the Corporation or any other surviving entity or its parent into which the Corporation shall be merged or consolidated immediately following the consummation thereof; (ii) the consummation of the sale, transfer or other disposition of all or substantially all of the assets or more than 50% of the then outstanding shares of Common Stock of the Corporation; or (iii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Corporation representing 50% or more of the total voting power represented by the Corporation's then outstanding voting securities. 6. Amendment: This Plan may be amended from time to time by the Board, but without further approval by the shareholders of the Corporation. However, no such amendment shall: (i) increase the aggregate number of shares of Common Stock that may be issued and sold under this Plan (except that adjustments authorized by Section 5 shall not be limited by this provision); (ii) change the designation in Section 3 of the class of persons eligible to receive Options. In no event shall the provisions of this Plan relating to: the number of shares of Common Stock for which an Option may be granted; the Option price; and the timing of the grant and vesting of an Option, be amended more than once every six (6) months, with the exception of amendments required to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act, the rules promulgated thereunder or the Exchange Act or rules promulgated thereunder. 3 7. Transferability: No Option granted under this Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, by the laws of descent and distribution or by a qualified domestic order, as defined under Internal Revenue Code, as amended Section 414(p) or the rules thereunder requiring the transfer of all or a portion of the Option to a spouse. 8. Miscellaneous: Except as provided in this Plan, a non-employee Director shall not have any claim or right to be granted an Option under this Plan. Neither this Plan nor any action hereunder shall be construed as giving any Director any right to be retained in the service of the Corporation. 9. Tax Compliance: The Corporation, in its sole discretion, may take actions reasonably believed by it to be required to comply with any local, state, or federal tax laws relating to the reporting or withholding of taxes attributable to the grant or exercise of any Option or the disposition of any shares of Common Stock issued upon exercise of an Option. 10. Severability: Notwithstanding any contrary provision of the Plan or an Option, if any one or more of the provisions (or any part thereof) of this Plan or the Option shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan or Option, as applicable, shall not in any way be affected or impaired thereby. 11. Effective Date: This Plan shall be effective on May 17, 2005, or on any such date that shareholders approve this Plan. 4 Exhibit 1 --------- STOCK OPTION AGREEMENT FOR 2005 NON-QUALIFIED STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS This Stock Option Agreement ("Option Agreement") is dated as of __________ by and between ________________ (the "Optionee"), who is a non-employee Director of Riviera Holdings Corporation, and Riviera Holdings Corporation, a Nevada corporation (the "Corporation"). 1. Grant: The Corporation hereby grants to the Optionee a non-qualified option (the "Option") to purchase 6,000 shares of the Corporation's common stock, par value $.001 per share ("Common Stock"), at the exercise price of ___________ per share (the "Exercise Price") subject to the terms and conditions of this Option Agreement and the Corporation's 2005 Non-Qualified Stock Option Plan for Non-Employee Directors (the "Plan"). For the purposes of this Option Agreement, unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. 2. Exercise of Option: Except as provided in the Plan, this Option shall be exercisable, in whole or part, as follows: (i) 20% of the shares subject to this Option shall vest one year from the date of this Agreement; and (ii) 20% of the shares subject to this Option shall vest upon each successive year, subject to the Optionee continuously serving as a non-employee Director from the date of this Agreement to such vesting dates. 3. Notice of Exercise: This Option is exercisable during its term and is exercisable by delivery of a written notice ("Exercise Notice") to the Corporation specifying the number of shares to be purchased pursuant to the exercise of the Option (the "Exercised Shares"). This Exercise Notice shall be accompanied by payment for the Exercised Shares. The Option price shall be payable: (i) in cash or by check acceptable to the Corporation; (ii) by transfer to the Corporation of shares of Common Stock which have been owned by the Optionee for not less than six months prior to the date of exercise and which have a fair market value on the date of exercise equal to the Option price; or (iii) by a combination of such methods of payment. The requirement of payment in cash shall be deemed satisfied if the Optionee shall have made arrangements satisfactory to the Corporation with a broker who is a member of the National Association of Securities Dealers, Inc. to sell a sufficient number of the shares being purchased so that the net proceeds of the sale transaction will at least equal the Exercise Price and pursuant to which the broker undertakes to promptly deliver the full option Exercise Price to the Corporation. Within a reasonable time after the exercise of an Option and payment of the Exercise Price (in accordance with the provisions of this Section 3), the Corporation shall cause to be delivered to the Optionee a certificate representing the shares of Common Stock purchased pursuant to the exercise of the Option. 4. Termination: This Option shall terminate on the earliest of the following dates: (a) three months after the date on which the Optionee ceases to be a non-employee Director of the Corporation, unless he ceases to be such Director by reason of death or disability or unless such non-employee Director becomes an employee-Director subsequent to the date this Option was granted pursuant to the Plan; (b) three months after the date of a qualified domestic relations order, as defined by Internal Revenue Code, as amended, Section 414(p), or the rules thereunder, requiring the transfer of all or a portion of this Option to the spouse of the Optionee (the "Qualified Domestic Relations Order") only with respect to such portion as is transferred; (c) one year after the death or Disability (as defined below in this Section 4) of the Optionee if the Optionee dies or becomes disabled while a Director of the Corporation; or (d) ten years from the date on which this Option was granted. For purposes of this Section 4, the term "Disability" shall mean the condition of an Optionee who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months. 5. Transfer: This Option may not be transferred in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee or as may be required under a Qualified Domestic Relations Order. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 6. Compliance Withdrawals: This Option shall not be exercisable if such exercise would involve a violation of any applicable federal or state securities law, and the Corporation hereby agrees to make reasonable efforts to comply with such securities laws. 7. No Guarantee of Continued Service: Optionee acknowledges that nothing in the Plan or Option Agreement entitles the Optionee to continue to serve as a Director of the Corporation and acknowledges that vesting of the Shares pursuant to Section 2 is earned only by continuing to be a non-employee Director of the Corporation. 8. Entire Agreement: The Plan is incorporated by reference. The Plan and this Option Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and supersede in their entirety all prior agreements between Optionee and the Corporation with respect to the subject matter hereof. In the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan prevail. This Option Agreement is governed by the internal laws, but not the choice of laws, of Nevada. By Optionee's signature, Optionee represents that Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. EXECUTED at Las Vegas, Nevada this __ day of _____, 2005. RIVIERA HOLDINGS CORPORATION By: ------------------------------------ Print Name: ------------------------------------ Title ------------------------------------ OPTIONEE -------- ------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----