-----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, SDP8z0JW2azB7fGcS2LZUvt3vZM8pQibxMKTWB9/KYL0IMnbbLXzaf2SeOe7VeJH N54kh8a90SHKX6png4L+bA== 0000950172-97-000859.txt : 19970925 0000950172-97-000859.hdr.sgml : 19970925 ACCESSION NUMBER: 0000950172-97-000859 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19970924 SROS: NONE SUBJECT COMPANY: 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: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-50785 FILM NUMBER: 97684970 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PAULSON ALLEN E CENTRAL INDEX KEY: 0000923878 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: FULL HOUSE RESORTS INC STREET 2: 12555 HIGH BLUFF DR STE 380 CITY: SAN DIEGO STATE: CA ZIP: 92130 MAIL ADDRESS: STREET 1: FULL HOUSE RESORTS INC STREET 2: 12555 HIGH BLUFF DR STE 380 CITY: SAN DIEGO STATE: CA ZIP: 92130 SC 13D/A 1 SCHEDULE 13D AMENDMENT NO. 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Amendment No. 2) Under the Securities Exchange Act of 1934 RIVIERA HOLDINGS CORPORATION ---------------------------- (Name of Issuer) Common Stock, par value $.001 per share --------------------------------------- (Title of Class of Securities) 769627100 -------------- (CUSIP Number) Mr. Allen E. Paulson Del Mar Country Club 6001 Clubhouse Drive Rancho Santa Fe, California 92067 (619) 759-5990 -------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) with a copy to: Brian J. McCarthy, Esq. Skadden, Arps, Slate, Meagher & Flom 300 S. Grand Avenue Los Angeles, California 90071 (213) 687-5070 September 22, 1997 ----------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d- 1(b)(3) or (4), check the following: ( ) Check the following box if a fee is being paid with this Statement: ( ) CUSIP No. 769627100 13D (1) NAMES OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS: Allen E. Paulson ------------------------------------------------------------------ (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) ( ) Not applicable (a) ( ) ------------------------------------------------------------------ (3) SEC USE ONLY ------------------------------------------------------------------ (4) SOURCE OF FUNDS Not Applicable ------------------------------------------------------------------ (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) Not applicable. ( ) ------------------------------------------------------------------ (6) CITIZENSHIP OR PLACE OF ORGANIZATION United States of America ------------------------------------------------------------------ : (7) SOLE VOTING POWER : : 463,655 :------------------------------ NUMBER OF SHARES BENEFICIALLY : (8) SHARED VOTING OWNED BY EACH REPORTING : PERSON WITH : 0 :------------------------------ : : (9) SOLE DISPOSITIVE : : 463,655 :------------------------------ :(10) SHARED DISPOSITIVE : : 0 ------------------------------------------------------------------ (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 463,655 ------------------------------------------------------------------ (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES ( ) ------------------------------------------------------------------ (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 9.4% ------------------------------------------------------------------ (14) TYPE OF REPORTING PERSON IN ------------------------------------------------------------------ RIVIERA HOLDINGS CORPORATION SCHEDULE 13D This Amendment No. 2 amends and supplements the Statement on Schedule 13D (the "Schedule 13D") dated May 7, 1997, relating to the shares of common stock (the "Common Stock"), par value $.001 per share, of Riviera Holdings Corporation, a Nevada corporation (the "Company"), and is being filed pursuant to Rule 13d-2 under the Securities Exchange Act of 1934, as amended. Unless otherwise indicated, each capitalized term used but not otherwise defined herein shall have the meaning assigned to such term in the Schedule 13D. The information set forth in the Exhibits hereto is hereby expressly incorporated herein by reference and the responses to each item of this Schedule 13D are qualified in their entirety by the provisions of such exhibits. ITEM 4. PURPOSE OF TRANSACTION Item 4 is amended and supplemented as follows: R&E Gaming Corp., a Delaware corporation wholly owned by the Reporting Person ("Gaming"), Riviera Acquisition Sub, Inc., a Nevada corporation and a wholly owned subsidiary of Gaming ("RAS"), and the Company, entered into an Agreement and Plan of Merger, dated as of September 15, 1997 (the "Merger Agreement"), pursuant to which RAS would be merged with and into the Company (the "Merger"). The Merger is subject to a number of conditions, including but not limited to, shareholder approval and the receipt of regulatory approvals including, all necessary gaming approvals. Upon consummation of the Merger, each share of Common Stock issued and outstanding would be converted into the right to receive $15.00 in cash per share, plus an amount equal to the daily portion of the accrual on $15.00 at 7% compounded annually from June 1, 1997 to the effective date of the Merger, and the Company would be wholly owned by Gaming. The Merger Agreement is incorporated herein by reference and attached hereto as Exhibit A. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATION- SHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Item 6 is amended and supplemented as follows: On September 15, 1997 Gaming, RAS and the Company entered into the Merger Agreement. See Item 4 herein and Exhibit A hereto. In connection with the execution of the Merger Agreement, Gaming entered into an Option and Voting Agreement, dated as of September 15, 1997 (the "Option Agreement"), by and among Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens, Waterfall"), Keyport Life Insurance ("Keyport") and SunAmerica Life Insurance Company ("SunAmerica" and, together with Morgens, Waterfall and Keyport, the "Option Sellers"), pursuant to which Gaming was granted an option to purchase all of the shares of Common Stock held by each of the Option Sellers (the "Option"), totalling approximately 56% of the Common Stock issued and outstanding, at a price of $15.00 in cash per share plus an amount equal to the daily portion of the accrual on $15.00 at 7% compounded annually from June 1, 1997 to the effective date of the Merger. Exercise of the Option is subject to the satisfaction of certain conditions, including the receipt of all necessary gaming approvals. On September 22, 1997, the Reporting Person delivered shares of Common Stock pursuant to a Pledge Agreement, dated as of September 18, 1997 (the "Pledge Agreement"), made by the Reporting Person in favor of Madeleine L.L.C., a New York limited liability company ("Madeleine"), which provides for, among other things, the pledge to Madeleine of, and the grant to Madeleine of a security interest in, 463,655 shares of Common Stock (the "Pledge") as security for a term loan made by Madeleine to the Reporting Person. The Merger Agreement, the Option Agreement and the Pledge Agreement are incorporated herein by reference and a copy of each is attached hereto as Exhibit A, B and C, respectively. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Item 7 is amended and supplemented as follows: Exhibit A. Agreement and Plan of Merger, dated as of September 15, 1997, by and among R&E Gaming Corp., Riviera Acquisition Sub, Inc. and Riviera Holdings Corporation. Exhibit B. Option and Voting Agreement, dated as of September 15, 1997, by and among R&E Gaming Corp., Morgens, Waterfall, Vintiadis & Company, Inc., Keyport Life Insurance Company and SunAmerica Life Insurance Company Exhibit C. Pledge Agreement, dated as of September 18, 1997, by the Reporting Person in favor of the Lender. SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. September 24, 1997 ---------------------- Date /s/ Allen E. Paulson ---------------------- Signature Allen E. Paulson EX-99 2 EXHIBIT A - AGREEMENT AND PLAN OF MERGER EXHIBIT A AGREEMENT AND PLAN OF MERGER BY AND AMONG R&E GAMING CORP., RIVIERA ACQUISITION SUB, INC. AND RIVIERA HOLDINGS CORPORATION DATED AS OF SEPTEMBER 15, 1997 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, dated as of September 15, 1997 (the "Agreement"), by and among R&E Gaming Corp., a Delaware corporation ("Gaming"), Riviera Acquisition Sub, Inc., a Nevada corporation and a wholly owned subsidiary of Gaming ("RAS"), and Riviera Holdings Corporation, a Nevada corporation (the "Company"). WHEREAS, the respective Boards of Directors of Gaming, RAS and the Company have each approved the transactions contemplated by the terms and conditions set forth in this Agreement; WHEREAS, in furtherance thereof, upon the terms and subject to the conditions of this Agreement, (i) RAS would be merged (the "Riviera Merger") with and into the Company, (ii) each share of common stock, par value $.001 per share, of the Company (the "Common Stock"), issued and outstanding immediately prior to the Effective Time (as defined herein) (the "Shares") would, except as otherwise expressly provided herein, be converted into the right to receive the Merger Consideration (as defined herein) and (iii) Riviera Operating Corporation , a Nevada corporation and a wholly owned subsidiary of the Company ("ROC"), will, as a result of the Riviera Merger, become a wholly owned subsidiary of the surviving corporation of the Riviera Merger (the Surviving Corporation ); WHEREAS, Gaming and RAS are unwilling to enter into this Agreement unless Gaming, contemporaneously with the execution and delivery of this Agreement, enters into an Option and Voting Agreement (the "Riviera Option Agreement") with Morgens, Waterfall, Vintiadis & Company, Inc., on behalf of certain investment accounts ("Morgens Waterfall"), Keyport Life Insurance Company on behalf of a certain investment account ("Keyport"), and SunAmerica Life Insurance Company ("SunAmerica" and, together with Morgens Waterfall and Keyport, the "Option Sellers"), providing for, among other things, (i) the grant by the Option Sellers to Gaming of an option to purchase all of the Shares owned, directly or indirectly, by the Option Sellers and (ii) the agreement by the Option Sellers to cause the Shares owned by them to be present for quorum purposes at any meeting of the stockholders of the Company (the "Company Stockholders") called to vote upon the Riviera Merger, and to vote for the transactions contemplated by this Agreement and against any Alternative Transaction (as defined in Section 4.9(b) hereof) and any other action which may be adverse to the transactions contemplated in this Agreement; and the Board of Directors of the Company (the "Board") has approved the execution and delivery of the Riviera Option Agreement which is being executed contemporaneously with the execution hereof; and WHEREAS, the Board has determined that the Riviera Merger and the consideration to be received by the holders of the Shares are fair to, and in the best interests of, the Company and the Company Stockholders. NOW, THEREFORE, in consideration of the foregoing premises, the mutual representations, warranties and covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I THE MERGER Section 1.1 The Riviera Merger. At the Effective Time and upon the terms and subject to the conditions of this Agreement, and in accordance with the applicable provisions of Nevada law, RAS shall be merged with and into the Company, whereupon the separate existence of RAS shall cease and the Company shall continue as the Surviving Corporation, and shall be a wholly owned subsidiary of Gaming, and, further, immediately after the Effective Time, ROC shall continue its existence as a wholly owned subsidiary of the Surviving Corporation. Section 1.2 Effective Time; Closing. Unless this Agreement shall have been terminated pursuant to Section 6.1 hereof, as soon as practicable after the satisfaction or (if permissible) waiver of the conditions set forth in Article V of this Agreement, the Company will file articles of merger with the Secretary of State of the State of Nevada in accordance with the provisions of Section 92A.005 et seq. of the Nevada Revised Statutes (the "Nevada Merger Law") and make all other filings or recordings required by law in connection with the Riviera Merger. The Riviera Merger shall become effective at such time (the "Effective Time") as the articles of merger are filed with the Secretary of State of the State of Nevada in accordance with the provisions of Chapter 92A of the Nevada Revised Statutes, or such later date as set forth in such filing, but in no event later than April 1, 1998, unless extended as provided in Section 6.1(c) hereof. Prior to such filing, but no later than 30 days after the satisfaction or (if permissible) waiver of the conditions set forth in Article V of this Agreement, a closing (the "Closing") shall be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles, California 90071, or such other place as the parties to this Agreement shall agree, for the purpose of confirming the satisfaction or waiver of the conditions set forth in this Agreement. The date on which the Closing occurs shall be referred to herein as the "Closing Date." Section 1.3 Escrow. (a) Contemporaneously with the execution of this Agreement and the Riviera Option Agreement, (a) Gaming and the Company have entered into an Escrow Agreement in substantially the form attached as Exhibit A hereto (the "Escrow Agreement"), with First Trust National Association, a national association, as escrow agent (the "Escrow Agent"), under which Gaming has deposited with the Escrow Agent, pursuant to the terms of the Escrow Agreement, such amount in cash or irrevocable letters of credit (the "Escrow Consideration"), containing terms reasonably acceptable to the Company, as set forth in the Escrow Agreement and (b) Gaming will cause to be issued irrevocable letters of credit in accordance with the terms of the Riviera Option Agreement. (b) Contemporaneously with the execution of this Agreement and the Riviera Option Agreement, Gaming will cause to be issued an irrevocable letter of credit in accordance with the terms of the Riviera Option Agreement. Section 1.4 Effects of the Riviera Merger. The Riviera Merger shall have the effects set forth in the Nevada Merger Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all of the property, rights, privileges, powers and franchises of a public as well as of a private nature, and the title to any real estate vested by deed or otherwise in the Company and RAS shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and RAS shall become the debts, liabilities and duties of the Surviving Corporation. Section 1.5 Articles of Incorporation and Bylaws. (a) The Articles of Incorporation of RAS in effect immediately prior to the Effective Time, attached hereto as Exhibit B, shall be the Articles of Incorporation of the Surviving Corporation (the "Surviving Corporation Articles of Incorporation"), until amended in accordance with Nevada law, except that Article I thereof shall be amended to read in its entirety as follows: "The name of the corporation shall be Riviera Holdings Corporation." (b) The Bylaws of RAS in effect at the Effective Time, attached hereto as Exhibit C, shall be the Bylaws of the Surviving Corporation (the "Surviving Corporation Bylaws"), until amended in accordance with Nevada law and the Surviving Corporation Articles of Incorporation. Section 1.6 Directors. The directors of the Company at the Effective Time, and, subject to the requirements of Gaming Laws (as defined herein), any additional individuals designated by Gaming at or prior to the Effective Time, shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Surviving Corporation Articles of Incorporation and the Surviving Corporation Bylaws and until his or her successor is duly elected and qualified. Section 1.7 Officers. The officers of the Company at the Effective Time, and, subject to the requirements of Gaming Laws, any additional individuals designated by Gaming at or prior to the Effective Time, shall be the initial officers of the Surviving Corporation from and after the Effective Time, each to hold office in accordance with the Surviving Corporation Articles of Incorporation and the Surviving Corporation Bylaws and until his or her successor is duly appointed and qualified. Section 1.8 Consideration for the Merger. At the Effective Time, by virtue of the Riviera Merger and without any action on the part of Gaming, RAS, the Company or the holder of any of the following securities: (a) Each Share (other than Shares to be cancelled pursuant to Section 1.8(b) hereof) shall be converted into and represent the right to receive the Merger Consideration (as defined below). From and after the Effective Time, all Shares shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any of the Shares (a Certificate ) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration payable to the holder thereof, without interest, upon surrender of such Certificate in the manner provided in Section 1.9 hereof. As used herein, "Merger Consideration" means the amount of $15.00 in cash per Share, plus an amount of additional consideration (the "Additional Consideration") equal to the daily portion of the accrual on $15.00 at 7% compounded annually, accruing from June 1, 1997 to the Effective Time; provided, that the Merger Consideration paid to each Option Seller shall be reduced by the amount of Additional Consideration paid to such Option Seller pursuant to Section 1.2(b) of the Riviera Option Agreement. It being understood that, assuming consummation of the Riviera Merger, the proviso in the preceding sentence shall have the effect of causing the consideration per Share to be received hereunder and under the Riviera Option Agreement by the Option Sellers from Gaming on account of the Shares owned by the Option Sellers to be equal to the consideration per Share received by the Company Stockholders (other than the Option Sellers) hereunder from Gaming on account of the Shares owned by the Company Stockholders (other than the Option Sellers). Each of Gaming and RAS represents and warrants that the Merger Consideration to be received hereunder by the Option Sellers for each Share owned by the Option Sellers and any other consideration paid by Gaming or RAS to the Option Sellers for such Shares (but excluding consideration paid under the Riviera Option Agreement) shall be equal to the Merger Consideration received by the other holders of Shares. (b) Each Share owned by Gaming, RAS or their stockholders or affiliates (the "Paulson Shares"), or which is held in the treasury of the Company or any of its subsidiaries, shall be cancelled and retired and shall cease to exist, and no payment of any consideration shall be made with respect thereto. (c) Each share of capital stock of RAS issued and outstanding immediately prior to the Effective Time shall be converted into and shall become one validly issued, fully paid and nonassessable share of common stock, par value $.001 per share, of the Surviving Corporation. Section 1.9 Exchange of Shares. (a) At or prior to the Effective Time, Gaming shall designate a bank or trust company reasonably acceptable to the Company to serve as exchange agent (the "Exchange Agent") for the Shares. As soon as reasonably practicable after the Effective Time, Gaming shall deposit, or shall cause to be deposited, with the Exchange Agent for the benefit of the holders of Certificates, cash or immediately available funds in United States dollars in an amount that equals the aggregate Merger Consideration. Such funds (the "Payment Fund") shall be invested by the Exchange Agent as directed by Gaming in obligations of or obligations guaranteed by the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investor Services, Inc. or Standard & Poor's Corporation, respectively, or in certificates of deposit, bank repurchase agreements, or bankers acceptances of commercial banks with capital exceeding $500 million; provided, however, that in the event that the Payment Fund shall realize a loss on such investment, Gaming shall promptly thereafter deposit in the Payment Fund cash in an amount sufficient to enable the Payment Fund to satisfy all remaining obligations originally contemplated to be paid out of the Payment Fund. (b) Promptly after the Effective Time, the Surviving Corporation shall instruct the Exchange Agent to mail to each record holder of outstanding Certificates as of the Effective Time, a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates for payment therefor. Upon surrender to the Exchange Agent of a Certificate, together with such letter of transmittal duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash that such holder has the right to receive under this Article I, and such Certificate shall forthwith be cancelled. If payment (or any portion thereof) is to be made to a person other than the person in whose name the Certificate surrendered is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required by reason of the payment to a person other than the registered holder of the Certificate surrendered or such person shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 1.9, each Certificate (other than Certificates representing Shares to be cancelled pursuant to Section 1.8(b) hereof) shall represent, for all purposes, the right to receive the Merger Consideration multiplied by the number of Shares previously evidenced by such Certificate, without any interest thereon. (c) All cash paid upon the surrender of the Certificates in accordance with the terms of this Article I shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article I, except as otherwise provided by Nevada law. (d) At any time following the date six months after the Effective Time, the Surviving Corporation shall be entitled to require the Exchange Agent to deliver to it any funds (including any interest received with respect thereto) that have been made available to the Exchange Agent and that have not been disbursed to holders of Certificates and, thereafter, such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat or other similar laws) only as general creditors thereof with respect to the Merger Consideration payable upon surrender of their Certificates. Notwithstanding the foregoing, neither the Surviving Corporation nor the Exchange Agent shall be liable to any holder of a Certificate for the Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Section 1.10 Company Plans. (a) At the Effective Time, each outstanding option (an "Employee Option"), issued, awarded or granted pursuant to the Company's 1993 Stock Option Plan, as in effect on the date hereof (the "Company Plan"), to purchase shares of Common Stock shall be cancelled, and the Surviving Corporation shall pay to each holder of a cancelled Employee Option an amount in cash (less applicable withholding Taxes, as defined in Section 2.12 hereof) equal to the product of (i) the number of shares of Common Stock previously subject to such Employee Option, on the basis of full vesting, and (ii) the excess, if any, of the Merger Consideration over the exercise price per share of Common Stock previously subject to such Employee Option. (b) At the Effective Time, each outstanding option (a "Directors' Option"), issued, awarded or granted pursuant to the Company's Nonqualified Stock Options Plan For Non-Employee Directors, as in effect on the date hereof ("Directors' Plan"), to purchase shares of Common Stock shall be cancelled and the Surviving Corporation shall pay to each holder of a cancelled Directors' Option an amount in cash equal to the product of (i) the number of shares of Common Stock previously subject to such Directors' Option, on the basis of full vesting, and (ii) the excess, if any, of the Merger Consideration over the exercise price per share of Common Stock previously subject to such Directors' Option. (c) At the Effective Time, each Share issued pursuant to the Company's Employee Stock Purchase Plan, as in effect on the date hereof (the "Company Stock Plan"), shall be cancelled, and the Surviving Corporation shall pay to each owner of each Share issued pursuant to the Company Stock Plan an amount in cash equal to (A) the product of (i) the number of such Shares issued pursuant to the Company Stock Plan owned by such person, and (ii) the Merger Consideration per Share, less (B) any unpaid balance of any loans by the Company to any such owner. (d) At the Effective Time, each Share issued pursuant to the Company's Stock Compensation Plan for Directors Serving on the Compensation Committee, as in effect on the date hereof (the "Compensation Committee Plan"), shall be cancelled, and the Surviving Corporation shall pay to each owner of each Share issued pursuant to the Compensation Committee Plan an amount in cash equal to (A) the product of (i) the number of such shares of Common Stock issued pursuant to the Compensation Committee Plan on the basis of full vesting owned by such person, and (ii) the Merger Consideration per Share less (B) any unpaid balance of any loans by the Company to any such owner. (e) A listing of all outstanding options, warrants or other rights to acquire shares of Common Stock or other equity interests of the Company and its subsidiaries as of June 30, 1997, showing what portions of such stock options, warrants or other rights are exercisable as of the dates upon which such stock options, warrants or other rights expire, and the exercise price of such stock options, warrants or other rights, is set forth in Schedule 1.10 hereto. Section 1.11 Stockholders' Meeting. The Company, acting through the Board, shall, in accordance with applicable law, the Amended and Restated Articles of Incorporation of the Company in effect on the date hereof (the "Company Articles of Incorporation") and the Bylaws of the Company in effect on the date hereof (the "Company Bylaws"), as soon as practicable following the date hereof: (a) duly call, give notice of, convene and hold an annual or special meeting of the Company Stockholders (the "Stockholders' Meeting") for the purpose of approving and adopting this Agreement and the transactions contemplated hereby; (b) subject to the fiduciary duties of the Board under applicable law, recommend that the Company Stockholders vote in favor of approving and adopting this Agreement and the transactions contemplated hereby; and (c) subject to the fiduciary duties of the Board under applicable law, use its reasonable best efforts to obtain the necessary approvals by the Company Stockholders of this Agreement and the transactions contemplated hereby. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Gaming as follows: Section 2.1 Organization and Qualification; Subsidiaries. (a) Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not, individually or in the aggregate, have a Company Material Adverse Effect (as defined herein). When used in this Agreement, the term "Company Material Adverse Effect" means any change or effect that would (i) be materially adverse to the business, results of operations, or financial condition of the Company and its subsidiaries, taken as a whole, or (ii) impair the ability of the Company to consummate the transactions contemplated hereby. (b) Each of the Company and its subsidiaries is duly qualified or licensed (excluding gaming and liquor licenses, which are covered by Section 2.5 hereof) and in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, and to perform all of its obligations under any contract under which the Company or any of its subsidiaries (a) has or may acquire any rights, (b) has or may become subject to any obligation or liability or (c) is or may, or any of the assets used or owned by it are or may, become bound, except where the failure to be so duly qualified or licensed and in good standing or to effect such performance would not, individually or in the aggregate, have a Company Material Adverse Effect. (c) The Company has heretofore furnished or made available to Gaming complete and correct copies of the Company Articles of Incorporation and the Company Bylaws and the equivalent organizational documents of each of its subsidiaries, each as amended to the date hereof. The Company Articles of Incorporation, the Company Bylaws and equivalent organizational documents are in full force and effect. The Company is not in violation of any of the provisions of the Company Articles of Incorporation or the Company Bylaws, and no subsidiary of the Company is in violation of any of the provisions of such subsidiary's equivalent organizational documents. The organizational documents of the subsidiaries of the Company do not contain any provision limiting or otherwise restricting the ability of the Company to control such subsidiaries. (d) The Company has heretofore furnished or made available to Gaming a complete and correct list of the subsidiaries of the Company, which list sets forth the amount of capital stock of or other equity interests in such subsidiaries owned by the Company, directly or indirectly. Section 2.2 Capitalization of the Company and its Subsidiaries. The authorized capital stock of the Company consists of (i) 20,000,000 shares of Common Stock of which, as of July 31, 1997, 4,910,880 shares of Common Stock were issued and outstanding. All outstanding shares of capital stock of the Company have been validly issued, and are fully paid, nonassessable and free of preemptive rights. Set forth in Schedule 2.2(a) are all outstanding options, warrants, or other rights to purchase Riviera Stock. Except as set forth above or in Schedule 2.2, and except as a result of the exercise of Employee Options, Directors' Options and such rights under the Company Stock Plan and the Compensation Committee Plan outstanding as of July 31, 1997, there are outstanding (i) no shares of capital stock or other voting securities of the Company, (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, (iii) no options, subscriptions, warrants, convertible securities, calls or other rights to acquire from the Company, and no obligation of the Company to issue, deliver or sell, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company, and (iv) no equity equivalents, performance shares, interests in the ownership or earnings of the Company or other similar rights issued by the Company (collectively, "Company Securities"). Except as set forth on Schedule 2.2 hereto, there are no outstanding obligations of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. Except as set forth on Schedule 2.2 hereto, each of the outstanding shares of capital stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable and is directly or indirectly owned by the Company, free and clear of all security interests, liens, claims, pledges, charges, voting agreements or other encumbrances of any nature whatsoever (collectively, "Liens"). Except as set forth on Schedules 1.10 and 2.2 hereto, there are no existing options, calls or commitments of any character relating to the issued or unissued capital stock or other equity securities of any subsidiary of the Company. Section 2.3 Power and Authority. The Company has the requisite corporate power and authority to execute and deliver this Agreement and, subject to approval of this Agreement by the Company Stockholders, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of this Agreement, to approval of this Agreement by the Company Stockholders. This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes a valid and binding obligation of Gaming and RAS, constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to the enforcement of creditors rights generally (collectively, the "Bankruptcy Exceptions") and subject to the general principles of equity. Section 2.4 Approval of Options. The Company has taken all action necessary to authorize and approve the grant of options to acquire Shares pursuant to the Riviera Option Agreement and the sale of such Shares upon the exercise of such options. Section 2.5 Compliance. (a) Except as set forth in Schedule 2.5(a), since January 1, 1994, the Company, its subsidiaries and affiliates and their respective officers or directors or, to the best knowledge of the Company, their respective agents or employees (if any), have been and are in compliance with all applicable laws and regulations of foreign, Federal, state and local governmental authorities applicable to the businesses conducted by any of the Company and its subsidiaries (including without limitation any federal, state, local or foreign statute, ordinance, rule, regulation, permit, consent, approval, license, judgment, order, decree, injunction or other authorization governing or relating to the current or contemplated casino, liquor related activities and gaming activities and operations, including, without limitation, the Nevada Gaming Control Act, as amended (the "Nevada Act"), and the rules and regulations promulgated thereunder, or applicable to the properties owned or leased and used by the Company or its subsidiaries (collectively, "Gaming Laws")), and neither the Company, nor, to the best knowledge of the Company, any of its subsidiaries or affiliates, is aware of any claim of violation, or of any actual violation, of any such laws and regulations, by the Company or any of its subsidiaries, except where such failure or violation (whether actual or claimed) would not have a Company Material Adverse Effect. None of the Company or its subsidiaries, any employee, officer, director or stockholder or, to the best knowledge of the Company or affiliate thereof, has received any written claim, demand, notice, complaint, court order or administrative order from any governmental authority since January 1, 1994, asserting that a license of it or them, as applicable, under any Gaming Laws should be revoked or suspended. The Company, based upon its current operations, is not obligated to file any documents under the Indian Gaming Regulatory Act. (b) Except as set forth in Schedule 2.5(b), since January 1, 1994, each of the Company and its subsidiaries has and currently possesses, and is current on all fees with regard to, all franchises, certificates, licenses, permits and other authorizations from any governmental authorities and all patents, trademarks, service marks, trade names, copyrights, licenses and other rights that are necessary to each of the Company and its subsidiaries for the present ownership, maintenance and operation of its business, properties and assets (including without limitation all gaming and liquor licenses), except where the failure to possess such franchises, certificates, licenses, permits, and other authorizations, patents, trademarks, service marks, trade names, copyrights, licenses and other rights (other than those required to be obtained from the Nevada Gaming Commission (the "Gaming Commission"), the Nevada State Gaming Control Board (the "Control Board"), the Clark County Liquor and Gaming Licensing Board (the "CCB"), and the City of Las Vegas ("Las Vegas") (the Gaming Commission, the Control Board, the CCB, and Las Vegas are collectively referred to as the "Gaming Authorities"), including approvals under the Gaming Laws) would not have a Company Material Adverse Effect; and none of the Company and its subsidiaries is in violation of any thereof, except where such violation would not have a Company Material Adverse Effect. (c) Since January 1, 1994, neither the Company nor any of its subsidiaries is in violation of, or has violated (with or without notice or lapse of time), any applicable provisions of (i) any laws, rules, statutes, orders, ordinances or regulations, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise, or other instrument or obligations to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties are bound or affected, which, individually or in the aggregate, would have a Company Material Adverse Effect. (d) Except as set forth in Schedule 2.5(d), since January 1, 1994: (i) the Company and each of its subsidiaries is, and has been, in full compliance with all of the terms and requirements of each award, decision, injunction, judgment, order, ruling, subpoena, or verdict (each, an "Order") entered, issued, made, or rendered by any court, administrative agency, or other governmental entity, officer or authority or by any arbitrator to which it, or any of the assets owned or used by it, is or has been subject, and (ii) no event has occurred or circumstance exists that may constitute or result in (with or without notice or lapse of time) a violation of or failure to comply with any term or requirement of any Order to which the Company or its subsidiaries, or any of the assets owned or used by the Company or its subsidiaries, is subject, except where such non-compliance, violation or failure to comply would not have a Company Material Adverse Effect. (e) Neither the Company nor any of its subsidiaries has received, at any time since January 1, 1994, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which the Company or its subsidiaries, or any of the assets owned or used by the Company or its subsidiaries, is or has been subject and which would have a Company Material Adverse Effect. (f) No investigation or review by any government entity, officer or authority with respect to the Company or its subsidiaries is pending or, to the knowledge of the Company, threatened, nor, to the knowledge of the Company, has any government entity, officer or authority indicated an intention to conduct the same, other than, in each case, those which would not have a Company Material Adverse Effect. Section 2.6 Non-Contravention; Required Filings and Consents. (a) Except as set forth in Schedule 2.6 hereto and as contemplated by Section 2.6(b), the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby (including, without limitation, the Riviera Option Agreement and the Riviera Merger) do not and will not (i) contravene or conflict with the Company Articles of Incorporation or the Company Bylaws or the equivalent organizational documents of any of its subsidiaries or any resolution adopted by the Board or the Company Stockholders or the board of directors or stockholders of any of the Company s subsidiaries, (ii) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to the Company, any of its subsidiaries or any of their respective properties, (iii) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any governmental entity, official or authority right to revoke, withdraw, suspend, cancel, terminate or modify, any authorization that is held by the Company or any of its subsidiaries, or that otherwise relates to the business of, or any of the assets owned by, the Company or any of its subsidiaries, (iv) conflict with, or result in the breach or termination of any provision of or constitute a default (with or without the giving of notice or the lapse of time or both) under, or give rise to any right of termination, cancellation, or loss of any benefit to which the Company or any of its subsidiaries is entitled under any provision of any agreement, contract, license or other instrument binding upon the Company, any of its subsidiaries or any of their respective properties, or allow the acceleration of the performance of, any obligation of the Company or any of its subsidiaries under any indenture, mortgage, deed of trust, lease, license, contract, instrument or other agreement to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective assets or properties is subject or bound, or (v) result in the creation or imposition of any Lien on any asset of the Company or any of its subsidiaries, except in the case of clauses (i), (ii), (iii) and (iv) for any such contraventions, conflicts, violations, breaches, terminations, defaults, cancellations, losses, accelerations and Liens which would not, individually or in the aggregate, have a Company Material Adverse Effect or be reasonably expected to prevent the consummation by the Company of the transactions contemplated by this Agreement. (b) The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby (including, without limitation, the Riviera Option Agreement, the Escrow Agreement and the Riviera Merger) by the Company require no action by or in respect of, or filing with, any governmental entity, official or authority (either domestic or foreign) other than (i) the filing of articles of merger in accordance with the Nevada Merger Law, (ii) compliance with any applicable requirements of the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (iii) compliance with any applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), and state securities, takeover and Blue Sky laws, (iv) obtaining all necessary gaming approvals, including those required by the Gaming Authorities, including approvals under the Gaming Laws, and (v) such additional actions or filings which, if not taken or made, would not, individually or in the aggregate, have a Company Material Adverse Effect or be reasonably expected to prevent the consummation by the Company of the transactions contemplated by this Agreement. Section 2.7 SEC Reports. (a) The Company has filed all required forms, reports and documents with the Securities and Exchange Commission (the "SEC") since January 1, 1994. The Company has made available to Gaming, in the form filed with the SEC, the Company's (i) Annual Reports on Form 10-K for the fiscal years ended December 31, 1996, 1995 and 1994, (ii) all Quarterly Reports on Form 10-Q filed by the Company with the SEC since January 1, 1994, (iii) all proxy statements relating to meetings of the Company's stockholders since January 1, 1994 and (iv) all Current Reports on Form 8-K and registration statements filed by the Company with the SEC since January 1, 1994 (collectively and as amended as required, the "SEC Reports"). As of their respective dates, the SEC Reports complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Securities Act"), and the Exchange Act, each as in effect on the dates such SEC Reports were filed. As of their respective dates, none of the SEC Reports, including, without limitation, any financial statements or schedules included therein, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No subsidiary of the Company is required, as of the date hereof, to file any form, report, or other document with the SEC under Section 12 of the Exchange Act. The audited consolidated financial statements and unaudited consolidated interim financial statements of the Company included in the SEC Reports fairly present, in all material respects, in conformity with GAAP (as defined in Section 4.11 of this Agreement) applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject to normal year-end adjustments in the case of any unaudited interim financial statements). The Company has heretofore made available or promptly will make available to Gaming a complete and correct copy of any amendments or modifications, which are required to be filed with the SEC but have not yet been filed with the SEC, to the SEC Reports. (b) Except as set forth in Schedule 2.7(b) hereto, the Company and its subsidiaries have no liabilities of any nature (whether accrued, absolute, contingent or otherwise), except for (i) liabilities set forth in the audited balance sheet of the Company dated December 31, 1996 or on the notes thereto, contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, (ii) liabilities incurred in the ordinary course of business consistent with past practice since January 1, 1997 and (iii) liabilities which would not, individually or in the aggregate, have a Company Material Adverse Effect. Section 2.8 Absence of Certain Changes. Except as set forth in Schedule 2.8 hereto, since January 1, 1997, the Company and its subsidiaries have conducted their respective businesses only in the ordinary course, and there has not been (i) any declaration, setting aside or payment of any dividend or other distribution with respect to its capital stock, (ii) any incurrence, assumption or guarantees by the Company or any of its subsidiaries of any indebtedness for borrowed money other than in the ordinary course of business, (iii) any making of any loan, advance or capital contributions to, or investments in, any other person, (iv) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (v) (x) any granting by the Company or any of its subsidiaries to any officer of the Company or any of its subsidiaries of any increase in compensation, except in the ordinary course of business (including in connection with promotions) consistent with past practice or as was required under employment agreements in effect as of the date of the most recent audited financial statements included in the SEC Reports filed and publicly available prior to the date of this Agreement, (y) any granting by the Company or any of its subsidiaries to any such officer of any increase in severance or termination pay, except as part of a standard employment package to any person promoted or hired, or as was required under employment, severance or termination agreements in effect as of the date of the most recent audited financial statements included in the SEC Reports filed or (z) except termination arrangements in the ordinary course of business consistent with past practice with employees other than any executive officer of the Company, any entry by the Company or any of its subsidiaries into any employment, severance or termination agreement with any such officer, (vi) any damage, destruction or loss, whether or not covered by insurance, that would be expected to have a Company Material Adverse Effect, (vii) any transaction or commitment made, or any contract or agreement entered into, by the Company or any of its subsidiaries relating to any of their assets or business (including the acquisition or disposition of any assets) or any relinquishment by the Company or any of its subsidiaries or any contract or other right, in either case, material to the Company and its subsidiaries, taken as a whole, other than transactions and commitments in the ordinary course of business and those contemplated by this Agreement, (viii) any change in accounting methods, principles or practices by the Company materially affecting its assets, liabilities or business, except insofar as may have been required by a change in generally accepted accounting principles or (ix) any other change which would have a Company Material Adverse Effect. Section 2.9 Proxy Statement. The proxy or information statement or similar materials distributed to the Company's Stockholders in connection with the Riviera Merger, including any amendments or supplements thereto (the "Proxy Statement"), shall not, at the time filed with the SEC, at the time mailed to the Company Stockholders, at the time of the Stockholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information provided by Gaming specifically for use in the Proxy Statement. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act. Section 2.10 No Brokers. Except for the engagement of Ladenburg, Thalmann & Co. Inc. ("Ladenburg"), pursuant to an engagement letter, a copy of which has previously been delivered to Gaming, the fees and expenses of such engagement will be paid by the Company, the Company has not employed any broker, finder or financial advisor or incurred any liability for any brokerage fees, commissions, finders' or financial advisory fees in connection with the transactions contemplated hereby. No amendment has been or shall be made to the Company's agreement with Ladenburg that would increase the amount of fees or other compensation required thereunder. Section 2.11 Absence of Litigation. Except as disclosed in Schedule 2.11 hereto, since January 1, 1997, there has not been any action, suit, claim, investigation or proceeding pending against, or to the knowledge of the Company, threatened against, the Company or any of its subsidiaries or any of their respective properties or the Board before any court or arbitrator or any administrative, regulatory or governmental body, or any agency or official which, individually or in the aggregate, would have a Company Material Adverse Effect. Except as disclosed in Schedule 2.11 hereto, since January 1, 1997, there has not been any action, suit, claim, investigation or proceeding pending against, or to the knowledge of the Company, threatened against, the Company or any of its subsidiaries or any of their respective properties or the Board before any court or arbitrator or any administrative, regulatory or governmental body, or any agency or official which (i) challenges or seeks to prevent, enjoin, alter or delay the Riviera Merger or any of the other transactions contemplated hereby or (ii) alleges any criminal action or inaction. Except as disclosed in Schedule 2.11 hereto, since January 1, 1997, neither the Company nor any of its subsidiaries nor any of their respective properties has been subject to any order, writ, judgment, injunction, decree, determination or award having, or which would have a Company Material Adverse Effect or which would prevent or delay the consummation of the transactions contemplated hereby. Section 2.12 Taxes. Except as set forth in Schedule 2.12 hereto, (a) the Company and its subsidiaries have filed, been included in or sent, all material returns, material declarations and reports and information returns and statements required to be filed or sent by or relating to any of them relating to any Taxes (as defined herein) with respect to any material income, properties or operations of the Company or any of its subsidiaries (collectively, "Returns"); (b) as of the time of filing, the Returns correctly reflected in all material respects the facts regarding the income, business, assets, operations, activities and status of the Company and its subsidiaries and any other material information required to be shown therein; (c) the Company and its subsidiaries have timely paid or made provision for all material Taxes that have been shown as due and payable on the Returns that have been filed; (d) the Company and its subsidiaries have made or will make provision for all material Taxes payable for any periods that end before the Effective Time for which no Returns have yet been filed and for any periods that begin before the Effective Time and end after the Effective Time to the extent such Taxes are attributable to the portion of any such period ending at the Effective Time; (e) the charges, accruals and reserves for Taxes reflected on the books of the Company and its subsidiaries are adequate under generally accepted accounting principles to cover the Tax liabilities accruing or payable by the Company and its subsidiaries; (f) neither the Company nor any of its subsidiaries is delinquent in the payment of any material Taxes or has requested any extension of time within which to file or send any material Return (other than extensions granted to the Company for the filing of its Returns as set forth in Schedule 2.12), which Return has not since been filed or sent; (g) no material deficiency for any Taxes has been proposed, asserted or assessed in writing against the Company or any of its subsidiaries other than those Taxes being contested in good faith by appropriate proceedings and set forth in Schedule 2.12 (which shall set forth the nature of the proceeding, the type of return, the deficiencies proposed, asserted or assessed and the amount thereof, and the taxable year in question); (h) neither the Company nor any of its subsidiaries has granted any extension of the limitation period applicable to any material Tax claims other than those Taxes being contested in good faith by appropriate proceedings; and (i) neither the Company nor any of its subsidiaries is subject to liability for Taxes of any person (other than the Company or its subsidiaries). For purposes of this Agreement, "Tax" or "Taxes" means all Federal, state, local and foreign taxes, and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto, imposed by any Tax Authority. "Tax Authority" means the Internal Revenue Service and any other domestic or foreign governmental authority responsible for the administration of any Taxes. Section 2.13 Employee Benefits. (a) Schedule 2.13(a) hereto contains a true and complete list of each bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance or termination pay, hospitalization or other medical, dental, life, disability or other insurance, supplemental unemployment benefits, profit-sharing, pension, savings or retirement plan, program, agreement or arrangement, and each other employee benefit plan, program, agreement or arrangement, sponsored, maintained or contributed to or required to be contributed to by the Company or by any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with the Company would be deemed a "single employer" within the meaning of section 4001 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), for the benefit of any employee or terminated employee of the Company or any ERISA Affiliate (the "Plans"). Schedule 2.13(a) hereto identifies each of the Plans that is an "employee benefit plan," as that term is defined in section 3(3) of ERISA (the "ERISA Plans"). Neither the Company nor any ERISA Affiliate has ever maintained, administered, contributed to or had any contingent liability with respect to any employee pension benefit plan subject to Title IV of ERISA or Section 412 of the Code, other than the multiemployer plans (as defined in Section 3(37)(A) of ERISA) which are identified on Schedule 2.13(a) hereto. (b) With respect to each Plan, the Company has heretofore delivered or made available to Gaming true and complete copies of each of the following documents (to the extent applicable): (i) a copy thereof; (ii) a copy of the most recent annual report and actuarial report, if required under ERISA, and the most recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87, Employer's Accounting for Pensions; (iii) a copy of the most recent actuarial report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 106, Employer's Accounting for Non- Pension Postretirement Benefits; (iv) a copy of the most recent Summary Plan Description; (v) if the Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement and the latest financial statements thereof; and (vi) the most recent determination letter received from the Internal Revenue Service with respect to each Plan intended to qualify under section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). (c) Neither the Company nor any ERISA Affiliate has incurred any liability under Title IV of ERISA, including any "withdrawal liability" (within the meaning of Section 4201 of ERISA) with respect to any Benefit Plan, and, to the knowledge of the Company, no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring a material liability under such Title. (d) Neither the Company nor any ERISA Affiliate, nor, to the knowledge of the Company, any ERISA Plan, any trust created thereunder, nor any trustee or administrator thereof has engaged in a transaction in connection with which the Company or any ERISA Affiliate, any ERISA Plan, any such trust, or any trustee or administrator thereof, or any party dealing with any ERISA Plan or any such trust would be subject to either a civil penalty assessed pursuant to section 409 or 502(i) of ERISA or a Tax imposed pursuant to section 4975 or 4976 of the Code, except for such penalties and Taxes which would not, individually or in the aggregate, have a Company Material Adverse Effect. (e) All contributions required to be made with respect to any ERISA Plan (whether pursuant to the terms of any ERISA Plan or otherwise) on or prior to the Effective Time have been timely made. (f) To the knowledge of the Company, each Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including but not limited to ERISA and the Code except where such noncompliance would not be expected to have a Company Material Adverse Effect. (g) Each ERISA Plan intended to be "qualified" within the meaning of section 401(a) of the Code has been drafted with the intention to be so qualified and has received a favorable determination letter from the Internal Revenue Service on or before the date hereof. (h) To the Company's knowledge, except as reasonably estimated and as set forth in Schedule 2.13(h), no amounts payable under the Plans as a result of the consummation of the transactions contemplated by this Agreement will fail to be deductible for federal income tax purposes by application of section 280G of the Code. (i) Except as set forth on Schedule 2.13(i) hereto, no Plan provides benefits, including without limitation death or medical benefits (whether or not insured), with respect to current or former employees of the Company or any ERISA Affiliate beyond their retirement or other termination of service (other than (i) coverage mandated by applicable law or (ii) death benefits or retirement benefits under any "employee pension plan," as that term is defined in section 3(2) of ERISA). (j) Except as provided in Schedule 2.13(j) hereto, the consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or officer of the Company or any ERISA Affiliate to severance pay, unemployment compensation or any other payment, or (ii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer. (k) There are no pending or, to the knowledge of the Company, threatened claims by or on behalf of any Plan, by any employee or beneficiary covered under any such Plan, or otherwise involving any such Plan (other than routine claims for benefits). (l) The Company has reserved the right to amend or terminate any Plan which is a welfare benefit plan, as that term is defined in section 3(l) of ERISA. Section 2.14 Intellectual Property. Except as disclosed in the SEC Reports filed prior to the date of this Agreement or as set forth in Schedule 2.14 hereto, the Company and each of its subsidiaries owns, or is licensed or has the right to use (in each case, free and clear of any Liens), all Intellectual Property (as defined below) used in or necessary for the conduct of its business substantially as currently conducted, to the knowledge of the Company, the use of any Intellectual Property by the Company and its subsidiaries does not infringe on or otherwise violate the rights of any person; and, to the knowledge of the Company, no person is challenging, infringing on or otherwise violating any right of the Company or any of its subsidiaries with respect to any Intellectual Property owned by and/or licensed to the Company and its subsidiaries, except in each case for such infringements or failures to own or be licensed as would not, individually or in the aggregate, have a Company Material Adverse Effect. For purposes of this Agreement, "Intellectual Property" shall mean trademarks, service marks, brand names, certification marks, trade dress, assumed names, trade names and other indications of origin, the goodwill associated with the foregoing and any registration in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; inventions, discoveries and ideas, whether patentable or not in any jurisdiction; patents, applications for patents (including, without limitation, divisions, continuations, continuations in part and renewal applications), and any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic information, trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any person; writings and other works, whether copyrightable or not in any jurisdiction; registrations or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof; and any similar intellectual property or proprietary rights. Section 2.15 Material Contracts. Except as set forth in Schedule 2.15 hereto, there are no (i) agreements of the Company or any of its subsidiaries containing an unexpired covenant not to compete or similar restriction applying to the Company or any of its subsidiaries, (ii) interest rate, currency or commodity hedging, swap or similar derivative transactions to which the Company or any of its subsidiaries is a party nor (iii) other contracts or amendments thereto that would be required to be filed and have not been filed as an exhibit to a Form 10-K filed by the Company with the SEC as of the date of this Agreement (collectively, the Material Contracts ). Assuming each Material Contract constitutes a valid and binding obligation of each other party thereto, each Material Contract is a valid and binding obligation of the Company or a subsidiary of the Company, as the case may be. To the Company's knowledge, each Material Contract is a valid and binding obligation of each other party thereto, and each such Material Contract is in full force and effect and is enforceable by the Company or its subsidiaries in accordance with its terms, except as such enforcement may be limited by the Bankruptcy Exceptions and subject to the general principles of equity. There are no existing defaults (or circumstances or events that, with the giving of notice or lapse of time or both would become defaults) of the Company or any of its subsidiaries (or, to the knowledge of the Company, any other party thereto) under any of the Material Contracts except for defaults that would not, individually or in the aggregate, have a Company Material Adverse Effect. Section 2.16 Insurance. The Company and its subsidiaries have obtained and maintained in full force and effect insurance with responsible and reputable insurance companies or associations in such amounts, on such terms and covering such risks, including fire and other risks insured against by extended coverage, as is consistent with industry practice for companies (i) engaged in similar businesses and (ii) of at least similar size to that of the Company and its Subsidiaries, and has maintained in full force and effect public liability insurance, insurance against claims for personal injury or death or property damage occurring in connection with any of the activities of the Company or its subsidiaries or any of any properties owned, occupied or controlled by the Company or its subsidiaries, in such amount as reasonably deemed necessary by the Company or its subsidiaries. Schedule 2.16 hereto sets forth a complete and correct list of all material insurance policies (including a brief summary of the nature and terms thereof and any amounts paid or payable to the Company or any of its subsidiaries thereunder) providing coverage in favor of the Company or any of its subsidiaries or any of their respective properties. Each such policy is in full force and effect, no notice of termination, cancellation or reservation of rights has been received with respect to any such policy, there is no default with respect to any provision contained in any such policy, and there has not been any failure to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required by any such policy, except for any such failures to be in full force and effect, any such terminations, cancellations, reservations or defaults, or any such failures to give notice or present claims which would not, individually or in the aggregate, have a Company Material Adverse Effect. Section 2.17 Labor Matters. (a) Except as set forth in Schedule 2.17(a) hereto, neither the Company nor any of its subsidiaries is a party to any collective bargaining or other labor union contract applicable to persons employed by the Company or any of its subsidiaries, no collective bargaining agreement is being negotiated by the Company or any of its subsidiaries and the Company has no knowledge of any material activities or proceedings (i) involving any unorganized employees of the Company or its subsidiaries seeking to certify a collective bargaining unit or (ii) of any labor union to organize any of the employees of the Company or its subsidiaries. There is no labor dispute, strike or work stoppage against the Company or any of its subsidiaries pending or, to the Company's knowledge, threatened which may interfere with the respective business activities of the Company or any of its subsidiaries, except where such dispute, strike or work stoppage would not have a Company Material Adverse Effect. (b) Except as set forth in Schedule 2.17(b) hereto, the Company and each of its subsidiaries have paid in full, or fully accrued for in their financial statements, all wages, salaries, commissions, bonuses, severance payments, vacation payments, holiday pay, sick pay, pay in lieu of compensatory time and other compensation due or to become due to all current and former employees of the Company and each Subsidiary for all services performed by any of them on or prior to the date hereof. The Company and its subsidiaries are in compliance with all applicable federal, state, local and foreign laws, rules and regulations relating to the employment of labor, including without limitation, laws, rules and regulations relating to payment of wages, employment and employment practices, terms and conditions of employment, hours, immigration, discrimination, child labor, occupational health and safety, collective bargaining and the payment and withholding of Taxes and other sums required by governmental authorities. Section 2.18 Real Property. Schedule 2.18 hereto identifies all real property owned, leased or used by the Company or its subsidiaries in the conduct of its business. Except as set forth in Schedule 2.18, the Company and each of its subsidiaries have good and marketable title to all of their properties and assets, free and clear of all Liens, except for those disclosed in the financial statements and except Liens for taxes not yet due and payable and such Liens or other imperfections of title, if any, as do not materially detract from the value of or interfere with the present use of the property affected thereby or which, individually or in the aggregate, would not have a Company Material Adverse Effect; and all leases pursuant to which the Company or any of its subsidiaries lease from others real or personal property are in good standing, valid and effective in accordance with their respective terms, and there is not, to the knowledge of the Company, under any of such leases, any existing material default or event of default (or event which with notice or lapse of time, or both, would constitute a material default and in respect of which the Company or such subsidiary has not taken adequate steps to prevent such a default from occurring) except where the lack of such good standing, validity and effectiveness, or the existence of such default or event, would not have a Company Material Adverse Effect. Section 2.19 Environmental Matters. (a) Except as set forth on Schedule 2.19(a) (i) the Company and its subsidiaries are in compliance with all Environmental Laws (as defined herein), except where the failure to be in compliance would not have a Company Material Adverse Effect, and (ii) to the best knowledge of the Company, there are not, with respect to the Company or any of its subsidiaries, any past violations of Environmental Laws, releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, contractual obligations or other legal requirements that may give rise to any liability, cost or expense under any Environmental Laws, which liabilities, costs or expenses, either individually or in the aggregate, would have a Company Material Adverse Effect. (b) As used in this Section 2.19, the term "Environmental Laws" means the applicable common law and all applicable Federal, state, local and foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of, or exposure to, chemicals, pollutants, contaminants, asbestos-containing materials or industrial, toxic or hazardous substances or wastes into the environment, as well as all applicable authorizations or codes, decrees, injunctions, judgments, licenses, orders, permits or regulations in effect thereunder. Section 2.20 Representations Complete. None of the representations or warranties made by the Company herein or in any Schedule or Exhibit hereto contains or will contain at the Effective Time any untrue statement of a material fact, or omits or will omit at the Effective Time any material fact or necessary in order to make the statements contained herein or therein, in light of the circumstances under which they are made, not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF GAMING AND RAS Each of Gaming and RAS represents and warrants to the Company as follows: Section 3.1 Organization; Power and Authority. Each of Gaming and RAS is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, except where the failure to be so organized, existing and in good standing or to have such power and authority would not, individually or in the aggregate, have a Gaming Material Adverse Effect (as defined herein). When used in this Agreement, the term "Gaming Material Adverse Effect" means any change or effect that would (i) be materially adverse to the business, results of operations, or financial condition of Gaming and RAS and their subsidiaries, taken as a whole, or (ii) impair the ability of Gaming and RAS to consummate the transactions contemplated hereby. Each of Gaming and RAS has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of each of Gaming and RAS and by the sole stockholder of each of Gaming and RAS, and no other corporate proceedings on the part of Gaming or RAS are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly and validly executed and delivered by each of Gaming and RAS and, assuming this Agreement constitutes a valid and binding agreement of the other parties hereto, constitutes a legal, valid and binding agreement of each of Gaming and RAS, enforceable against each of Gaming and RAS in accordance with its terms, except as such enforcement may be limited by the Bankruptcy Exceptions and subject to the general principles of equity. Section 3.2 Non-Contravention; Required Filings and Consents. (a) Except as set forth on Schedule 3.2(a) hereto, the execution, delivery and performance by each of Gaming and RAS of this Agreement and the consummation of the transactions contemplated hereby (including, without limitation, the Riviera Option Agreement, the Escrow Agreement and the Riviera Merger) do not and will not: (i) contravene or conflict with the Certificate of Incorporation or Bylaws of Gaming or the equivalent organizational documents of RAS, or any resolution adopted by the board of directors or stockholders of Gaming or RAS, (ii) assuming that all consents, authorizations and approvals contemplated by subsection (b) below have been obtained and all filings described therein have been made, contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to Gaming or to RAS or any of their respective properties, (iii) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any governmental entity, official or authority right to revoke, withdraw, suspend, cancel, terminate or modify, any authorization that is held by Gaming or RAS or that otherwise relates to the business of, or any of the assets owned by Gaming or RAS, (iv) conflict with, or result in the breach or termination of any provision of or constitute a default (with or without the giving of notice or the lapse of time or both) under, or give rise to any right of termination, cancellation, or loss of any benefit to which either Gaming or RAS is entitled under any provision of any agreement, contract, license or other instrument binding upon either Gaming or RAS, or allow the acceleration of the performance of, any obligation of either Gaming or RAS under any other agreement to which Gaming or RAS is a party or by which Gaming or RAS is subject or bound, or (v) result in the creation or imposition of any Lien on any asset of Gaming or RAS, except in the case of clauses (ii), (iii) and (iv) for any such contraventions, conflicts, violations, breaches, terminations, defaults, cancellations, losses, accelerations and Liens which would not individually or in the aggregate have a Gaming Material Adverse Effect or be reasonably expected to prevent the consummation by Gaming or by RAS of the transactions contemplated by this Agreement. (b) The execution, delivery and performance by Gaming and by RAS of this Agreement and the consummation of the transactions contemplated hereby (including the Riviera Option Agreement, the Escrow Agreement and the Riviera Merger) by Gaming and by RAS require no action by or in respect of, or filing with, any governmental entity, official or authority (either domestic or foreign), other than: (i) the filing of Articles of Merger in accordance with the Nevada Merger Law; (ii) compliance with any applicable requirements of the HSR Act; (iii) compliance with any applicable requirements of the Exchange Act and state securities, takeover and Blue Sky laws; (iv) obtaining all necessary gaming approvals, including those required by the Gaming Authorities, including, without limitation, approvals under the Gaming Laws, if any; and (v) such additional actions or filings which, if not taken or made, would not individually or in the aggregate have a Gaming Material Adverse Effect or be reasonably expected to prevent the consummation by Gaming or by RAS of the transactions contemplated by this Agreement. Section 3.3 Absence of Litigation. Since January 1, 1997, there has not been any action, suit, claim, investigation or proceeding pending against, or to the knowledge of Gaming or RAS, threatened against, Gaming or RAS or any of their subsidiaries or any of their respective properties, or their respective boards of directors, before any court or arbitrator or any administrative, regulatory or governmental body, or any agency or official which, individually or in the aggregate, would have a Gaming Material Adverse Effect. Since January 1, 1997, neither Gaming nor RAS nor any of their subsidiaries nor any of their respective properties has been subject to any order, writ, judgment, injunction, decree, determination or award having, or which would have, a Gaming Material Adverse Effect or which would prevent or delay the consummation of the transactions contemplated hereby. Section 3.4 Proxy Statement. None of the information provided by Gaming specifically for use in the Proxy Statement shall, at the time filed with the SEC, at the time mailed to the Company Stockholders, at the time of the Stockholders' Meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Section 3.5 No Prior Activities. Since the date of its incorporation, neither Gaming nor RAS has engaged in any activities other than in connection with or as contemplated by this Agreement or in connection with arranging any financing required to consummate the transactions contemplated hereby. Section 3.6 No Brokers. Except for Jefferies & Co., Inc. neither Gaming nor RAS has employed any broker or finder, nor has it incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated by this Agreement. Section 3.7 Capitalization of Gaming. On the Closing Date and at the Effective Time, Gaming will have cash or immediately available funds in an amount not less than the sum of (i) the aggregate amount of Merger Consideration to be paid hereunder and (ii) the aggregate amount to be paid at the Effective Time pursuant to Section 1.10 hereof. Section 3.8 Representations Complete. None of the representations or warranties made by either Gaming or RAS herein or any Exhibit hereto contains or will contain at the Effective Time any untrue statement of a material fact, or omits or will omit at the Effective Time any material fact necessary in order to make the statements contained herein, in light of the circumstances under which they are made, not misleading. ARTICLE IV COVENANTS Section 4.1 Conduct of Business of the Company. Except as otherwise expressly provided in this Agreement, during the period from the date hereof to the Effective Time, the Company and its subsidiaries will each conduct their respective operations according to its ordinary course of business consistent with past practice, and the Company and its subsidiaries will each use its reasonable best efforts to preserve intact its business organization, to keep available the services of its officers and employees and to maintain existing relationships with licensors, licensees, suppliers, contractors, distributors, and others having business relationships with it. Without limiting the generality of the foregoing, and except as otherwise expressly provided in this Agreement, or as set forth in Schedule 4.1 hereto, prior to the Effective Time, neither the Company nor any of its subsidiaries will, without the prior written consent of Gaming: (a) amend its Articles of Incorporation or Bylaws or other comparable organizational documents; (b) authorize for issuance, issue, pledge, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise) or otherwise encumber, any capital stock of any class or any other securities or equity equivalents (including, without limitation, stock appreciation rights), except as required by option agreements or the Company Stock Plan, warrants or other securities listed on Schedule 2.2, as such are in effect as of the date hereof, or amend any of the terms of any such securities or agreements outstanding as of the date hereof; (c) split, combine or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock, or property or any combination thereof) in respect of its capital stock, or, redeem, repurchase or otherwise acquire any of its securities or any securities of its subsidiaries; (d) (i) except as set forth in Schedule 4.1(d)(i) hereto or in the ordinary course of business consistent with past practice or for the senior mortgage note offering (the "Note Offering") described in the offering circular dated August 8, 1997 (the "Note Offering Circular"), create or incur any Indebtedness (as defined herein), (ii) make any loans, advances or capital contributions to, or investments in, any other person, (iii) pledge or otherwise encumber any shares of capital stock of the Company or any of its subsidiaries, or (iv) mortgage or pledge any of its assets, tangible or intangible, or create or suffer to exist any Lien thereupon; (e) except as otherwise provided in this Section 4.1, enter into any transaction, other than in the ordinary course of business consistent with past practice, or make any investment, which individually or in the aggregate exceeds the amount of $500,000; (f) enter into, adopt or (except as may be required by law or by the terms of any such arrangement) amend or terminate any bonus, profit-sharing, compensation, severance, termination, stock option, pension, retirement, deferred compensation, employment or other employee benefit agreement, trust, plan, fund or other arrangement for the benefit or welfare of any director, officer or employee, or increase in any manner the compensation or benefits of any director, officer or employee, or grant any benefit or termination or severance pay to any director, officer, or employee not required by any plan or arrangement as in effect as of the date hereof (including, without limitation, the granting of stock options) or by law; (g) acquire, sell, lease or dispose of, or encumber any assets outside the ordinary course of business or any assets which in the aggregate are material to the Company and its subsidiaries, taken as a whole, or enter into any contract, agreement, commitment or transaction outside the ordinary course of business; (h) change any of the accounting principles or practices used by the Company, except as may be required as a result of a change in law, SEC guidelines or GAAP; (i) (A) acquire (including, without limitation, by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof; (B) except in connection with the construction of a casino in Black Hawk, Colorado, authorize any new capital expenditure or expenditures which are in excess of the amounts estimated in the Company's capital expenditure budget, dated as of August 28, 1997 and the capital expenditure budget, dated as of August 28, 1997, relating to the development of the Company's property in Black Hawk, Colorado, previously provided to Gaming in excess of $500,000 or, in the aggregate, are in excess of $1,500,000; (C) settle any litigation for amounts in excess of $100,000 individually or $500,000 in the aggregate after giving effect to insurance recoveries; or (iv) enter into or amend any contract, agreement, commitment or arrangement with respect to any of the foregoing; (j) make any Tax election or settle or compromise any Tax liability, other than in the ordinary course of business; (k) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities set forth in Schedule 2.8 hereto or reflected or reserved against in the financial statements (or the notes thereto) of the Company and its subsidiaries or incurred in the ordinary course of business consistent with past practice; (l) terminate, modify, amend or waive compliance with any provision of any Material Contract, or fail to take any action necessary to preserve the benefits of any such Material Contract to the Company or any of its subsidiaries; (m) fail to comply with any laws, ordinances or other governmental regulations applicable to the Company or any of its subsidiaries, including, but not limited to, the Gaming Laws and any regulations promulgated thereunder, that may have a Company Material Adverse Effect; or (n) take, or agree in writing or otherwise to take, any of the actions described in this Section 4.1. Section 4.2 Proxy Statement. (a) The Company shall, as promptly as practicable following the date hereof, prepare and file the Proxy Statement with the SEC under the Exchange Act. Gaming and RAS shall use their respective reasonable best efforts to cooperate with the Company in the preparation of the Proxy Statement. As soon as practicable following completion of review of the Proxy Statement by the SEC, the Company shall mail the Proxy Statement to its stockholders who are entitled to vote at the Stockholders' Meeting. Subject to the fiduciary obligations of the Board under applicable law, the Proxy Statement shall contain the recommendation of the Board that the Company Stockholders approve this Agreement and the transactions contemplated hereby. (b) The Company shall use its reasonable best efforts to promptly obtain and furnish the information required to be included in the Proxy Statement and to respond promptly to any comments from, or requests made by the SEC with respect to the Proxy Statement. The Company shall promptly notify Gaming of the receipt of comments from, or any requests by, the SEC with respect to the Proxy Statement, and shall promptly supply Gaming with copies of all correspondence between the Company (or its representatives) and the SEC (or its staff) relating thereto. The Company agrees to correct any information provided by it for use in the Proxy Statement which shall have become, or is, false or misleading; provided, however, that the Company shall first use its reasonable best efforts to consult with Gaming about the form and substance of each such correction. Section 4.3 Access to Information. (a) Subject to applicable law and the agreements set forth in Section 4.3(b), between the date hereof and the Effective Time, the Company will give Gaming and its counsel, financial advisors, auditors and other authorized representatives reasonable access (during regular business hours upon reasonable notice) to all employees, offices and other facilities and to all books and records of the Company and its subsidiaries, will permit Gaming and its counsel, financial advisors, auditors and other authorized representatives to make such inspections Gaming may reasonably require, and will cause the Company's officers and those of its subsidiaries to furnish Gaming or its representatives with such financial and operating data and other information with respect to the business and properties of the Company and any of its subsidiaries as Gaming may from time to time reasonably request. No investigation pursuant to this Section 4.3 shall affect any representations or warranties of the Company herein or the conditions to the obligations of Gaming or RAS hereunder. (b) The parties hereto each agree that the provisions of the Confidentiality Agreement, dated as of April 21, 1997 and attached hereto as Exhibit D (the "Confidentiality Agreement"), between the Company and Mr. Allen E. Paulson shall apply to and be binding on Gaming and RAS, and that the terms of the Confidentiality Agreement are incorporated herein by reference. Section 4.4 Reasonable Best Efforts. Subject to the terms and conditions contained herein, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable under all applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as soon as reasonably practicable. Without limiting the generality of the foregoing, the parties hereto shall cooperate with one another (i) in the preparation and filing of any required filings under the HSR Act, the Gaming Laws and the other laws referred to in Sections 2.5 and 3.2 hereof, (ii) in determining whether action by or in respect of, or filing with, any governmental body, agency, official or authority is required, proper or advisable, or any actions, consents, waivers or approvals are required to be obtained from parties to any contracts in connection with the transactions contemplated by this Agreement, (iii) in seeking to obtain any such actions, consents and waivers and in making any such filings, and (iv) in seeking to lift any order, decree or ruling restraining, enjoining, or otherwise prohibiting the Riviera Merger. If at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party hereto shall take all such necessary action. Section 4.5 Public Announcements. Each of the parties hereto agrees that it will not issue any press release or otherwise make any public statement with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other party, which consent shall not be unreasonably withheld or delayed; provided, however, that such disclosure can be made without obtaining such prior consent if (i) the disclosure is required by law, and (ii) the party making such disclosure has first used its reasonable best efforts to consult with the other party about the form and substance of such disclosure. Section 4.6 Indemnification; Insurance. (a) From and after the Effective Time, the Surviving Corporation shall indemnify and hold harmless each person who is, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, an officer, director or employee of the Company or any of its subsidiaries (collectively, the "Indemnified Parties" and individually, an "Indemnified Party") against all losses, liabilities, expenses (including attorneys' fees), claims or damages in connection with any claim, suit, action, proceeding or investigation based in whole or in part upon the fact that such Indemnified Party is or was a director, officer or employee of the Company or any of its subsidiaries and arising out of acts or omissions occurring prior to and including the Effective Time (including but not limited to the transactions contemplated by this Agreement) to the fullest extent permitted by Nevada law, for a period of not less than six years following the Effective Time; provided, that in the event any claim or claims are asserted or made within such six-year period, all rights to indemnification in respect of any such claim or claims shall continue until final disposition of any and all such claims. (b) The provisions of the Surviving Corporation Articles of Incorporation and the Surviving Corporation Bylaws with respect to indemnification and exculpation shall not be amended, repealed or otherwise modified for a period of six years after the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at the Effective Time are or were current or former directors or officers of the Company in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement), unless such modification is required by law. (c) For six years after the Effective Time, the Surviving Corporation shall cause to be maintained the current policies of directors' and officers' liability insurance maintained by the Company covering the current and former directors and officers of the Company with respect to matters occurring prior to the Effective Time (provided, that the Surviving Corporation may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous to the current and former directors and officers of the Company than the policy in effect on the date hereof with respect to acts or failures to act prior to the Effective Time (including dollar amount and scope of coverage), to the extent such policies are available; provided, that in no event shall the Surviving Corporation be required to expend, in order to maintain or procure insurance coverage pursuant to this Section 4.6(c), any amount per annum greater than 150% of the current annual premiums paid by the Company for such insurance (which the Company represents and warrants to be not more than $225,000). If for any reason during such period the Surviving Corporation is unable to obtain such insurance for an annual premium of not more than $337,500, it shall notify William L. Westerman, who will act as authorized representative of all such directors and officers (the "Representative"). The Representative may require either that the Surviving Corporation shall (i) pay $337,500 in annual premiums for such insurance, with the insured directors and officers paying any excess, or (ii) deposit $337,500 per annum in an escrow account with an independent escrow agent as a fund to cover counsel fees and other litigation expenses of, or judgments or settlements paid by, such directors and officers for claims made against them during such six-year period by reason of their having been directors and officers of the Company or its subsidiaries prior to the Effective Time, which expenses are not paid by the Surviving Corporation pursuant to its indemnification obligations to such directors and officers. (d) From and after the Effective Time, no Indemnified Party shall be liable to Gaming, RAS or the Surviving Corporation (or anyone claiming rights through any of them, including Allen E. Paulson) for breach of any of the representations, warranties, covenants or agreements contained in this Agreement. It is the express understanding of the parties that the sole remedy of Gaming and RAS under this Agreement (or anyone claiming rights under this Agreement through Gaming or RAS) in the event of a breach or alleged breach by the Company of its representations, warranties, covenants or agreements, shall be to refuse to consummate the Riviera Merger, subject, however, to Gaming s rights under Article VI hereof. (e) This Section 4.6 is intended to benefit the Indemnified Parties and their respective heirs, executors and personal representatives, and shall be binding on the successors and assigns of the Company and the Surviving Corporation. Section 4.7 Notification of Certain Matters. The Company shall give prompt notice to Gaming and RAS, and Gaming and RAS shall give prompt notice to the Company, upon becoming aware of: (i) the occurrence or non-occurrence, of any event the occurrence, or non-occurrence of which would cause any representation or warranty contained in this Agreement to be untrue or inaccurate, and (ii) any failure of the Company or Gaming and RAS, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, that the delivery of any notice pursuant to this Section 4.7 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 4.8 Termination of Stock Plans. Except as may be otherwise agreed to by Gaming and the Company, the Company Plan, the Directors Plan, the Company Stock Plan and the Compensation Committee Plan shall terminate as of the Effective Time. Prior to the Effective Time, the Board (or, if appropriate, any committee thereof) shall adopt such resolutions or take such other actions as are required to: (i) effect the transactions contemplated by Section 1.10 hereof and (ii) with respect to any stock option, stock appreciation or other stock benefit plan of the Company or any of its subsidiaries not addressed by the preceding clause (i), ensure that, following the Effective Time, no participant therein shall have any right thereunder to acquire any capital stock of the Surviving Corporation or any subsidiary thereof. Section 4.9 No Solicitation. (a) The Company and its subsidiaries and affiliates will not, and the Company and its subsidiaries and affiliates will use their reasonable best efforts to ensure that their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents do not, directly or indirectly: (i) initiate, solicit or encourage, or take any action to facilitate the making of, any offer or proposal which constitutes or is reasonably likely to lead to any Alternative Transaction (as defined below) with respect to the Company or any of its subsidiaries or an inquiry with respect thereto, or, (ii) in the event of an unsolicited Alternative Transaction for the Company or any of its subsidiaries, engage in negotiations or discussions with, or provide any information or data to any person relating to any Alternative Transaction, subject to the Board's good faith determination, after consulting with outside legal counsel to the Company, that the failure to engage in such negotiations or discussions or provide such information would likely result in a breach of the Board's fiduciary duties under applicable law if such Alternative Transaction would provide the Company Stockholders with a purchase price per Share that is higher (the amount of such excess in the purchase price per Share is hereinafter referred to as the "Spread") than the Merger Consideration to be received by the Company Stockholders. The Company shall notify Gaming and RAS orally and in writing of any such inquiries, offers or proposals (including, without limitation, the terms and conditions thereof and the identity of the person making such), within twenty four hours of the receipt thereof. The Company shall, and shall cause its subsidiaries and affiliates, and their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents to, immediately cease and cause to be terminated all existing discussions and negotiations, if any, with any parties conducted heretofore with respect to any Alternative Transaction relating to the Company or any of its subsidiaries. Notwithstanding anything to the contrary, nothing contained in this Section 4.9 shall prohibit the Company or the Board from communicating to the Company Stockholders a position as required by Rules 14d-9 and 14a-2 promulgated under the Exchange Act. (b) As used in this Agreement, "Alternative Transaction" shall mean any tender or exchange offer for the Common Stock or for the equivalent securities of any of the Company's subsidiaries, any proposal for a merger, consolidation or other business combination involving any such person, any proposal or offer to acquire in any manner a ten percent or more equity interest in, or ten percent or more of the business or assets of, such person, any proposal or offer with respect to any recapitalization or restructuring with respect to such person or any proposal or offer with respect to any other transaction similar to any of the foregoing with respect to such person or any subsidiary of such person; provided, however, that, as used in this Agreement, the term "Alternative Transaction" shall not apply to any transaction of the type described in this subsection (b) involving Gaming, RAS or their affiliates. Section 4.10 Projected Results. In connection with the monthly projections of the Company's consolidated statement of operations (the "Projected Results") for the twelve months ending March 31, 1998, which have been previously delivered to Gaming, the Company shall (i) deliver to Gaming, no earlier than ten and no later than five business days prior to the Closing Date, a certificate, in form satisfactory to Gaming, from the Company's Chief Executive Officer and Chief Financial Officer specifying the Company's actual monthly Consolidated EBITDA (as defined herein) since April 1, 1997 on a cumulative basis and (ii) provide Gaming, RAS and their representatives with all information which may be reasonably requested by Gaming, RAS or their representatives to allow them to verify and analyze the Consolidated EBITDA for the period of March 31, 1997 through and including the earlier of (x) the Latest Fiscal Month (as defined herein) and (y) March 31, 1998 (the "Projected Period"). "Consolidated EBITDA" means, in each case for the Projected Period, the Consolidated Net Income (as defined herein) of the Company adjusted, (x) to add thereto (to the extent deducted from net revenues in determining Consolidated Net Income), without duplication, the sum of the Company's (i) Consolidated Fixed Charges (as defined herein), (ii) consolidated income tax expense and (iii) consolidated depreciation and amortization expense and (y) to subtract therefrom, to the extent included in the determination of Consolidated Net Income, any interest earned on any asset set aside with respect to any defeased obligation, provided that consolidated depreciation and amortization of a subsidiary of the Company that is a less than wholly owned subsidiary of the Company shall only be added to the extent of the pro rata equity interest of the Company in such subsidiary. "Consolidated Net Income" means, in each case for the Projected Period, the net income (or loss) of the Company (determined on a consolidated basis in accordance with GAAP) adjusted to exclude (only to the extent included in computing such net income (or loss), and without duplication): (a) all gains and not losses which are either extraordinary (as determined in accordance with GAAP) or are either unusual or nonrecurring (including any gain from the sale or other disposition of assets outside the ordinary course of business, including the gain, if any, from the Company's warrants to purchase shares of common stock of Elsinore Corporation, a Nevada corporation, provided, however, that the exclusion relating to such warrants set forth in the preceding clause shall not effect the calculation of executive incentive compensation, pursuant to executive compensation agreements in effect on the date hereof, and provided, further, that the amount of executive incentive compensation, as so calculated, during the Projected Period shall be taken into account in the calculation of Consolidated Net Income, or from the issuance or sale of any capital stock), (b) the net income of an entity (other than a wholly owned subsidiary of the Company) in which the Company or any of its consolidated subsidiaries has an interest, except to the extent of the amount of any dividends or distributions actually paid in cash to the Company or a wholly owned subsidiary of the Company during such period, but in any case not in excess of the Company's or such wholly owned subsidiary's pro rata share of such entity's net income for such period, (c) the net income, if positive, of any consolidated subsidiary of the Company to the extent that the declaration or payment of dividends or similar distributions is not at the time permitted by operation of the terms of its charter or bylaws or any other agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such subsidiary of the Company; provided, that, charges relating to the following expenses shall not be included: (i) the transactions contemplated by this Agreement; (ii) the offering of $175,000,000 10% First Mortgage Notes due 2004 (the "New Notes") (provided, however, that interest accrued with respect to the New Notes during the Projected Period shall be taken into account in the calculation of Consolidated Net Income), and the defeasance (the "Defeasance") as of June 1, 1998 for the price specified in the Note Offering Circular of the 11% Notes and the costs (including premium, if any) associated therewith; (iii) the transactions contemplated in the Black Hawk Agreement; (iv) the proposed public offering of shares of Common Stock which was terminated in April 1997; and (v) any costs related to the extinguishment of the Company's obligation to Bank of America. "Consolidated Fixed Charges" means, for the Projected Period, the aggregate amount (without duplication and determined in each case in accordance with GAAP) of interest expensed, paid, accrued, or scheduled to be paid or accrued (including, in accordance with the following sentence, interest attributable to capitalized lease obligations) of the Company and its consolidated subsidiaries during such period, including (i) original issue discount and non-cash interest payments or accruals on any Indebtedness (as defined herein), (ii) the interest portion of all deferred payment obligations, and (iii) all commissions, discounts and other fees and charges owed with respect to bankers' acceptances and letters of credit financings and currency and Interest Swap and Hedging Obligations (as defined below), in each case to the extent attributable to such period. For purposes of this definition, (x) interest on a capitalized lease obligation shall be deemed to accrue at an interest rate reasonably determined in good faith by the Company to be the rate of interest implicit in such capitalized lease obligation in accordance with GAAP and (y) interest expense attributable to any Indebtedness (as defined herein) represented by the guaranty by the Company or any of its subsidiaries of an obligation of another person shall be deemed to be the interest expense attributable to the Indebtedness guaranteed. "Interest Swap and Hedging Obligation" means any obligation of the Company or its subsidiaries pursuant to any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate exchange agreement, currency exchange agreement or any other agreement or arrangement designed to protect against fluctuations in interest rates or currency values, including, without limitation, any arrangement whereby, directly or indirectly, the Company or its subsidiaries are entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by the Company or its subsidiaries calculated by applying a fixed or floating rate of interest on the same notional amount. "Indebtedness" of any person means, without duplication, (a) all liabilities and obligations, contingent or otherwise, of such any person, (i) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) representing the balance deferred and unpaid of the purchase price of any property or services, except (other than accounts payable or other obligations to trade creditors which have remained unpaid for greater than 60 days past their original due date) those incurred in the ordinary course of its business that would constitute ordinarily a trade payable to trade creditors, (iv) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (v) relating to any capitalized lease obligation, or (vi) evidenced by a letter of credit or a reimbursement obligation of such person with respect to any letter of credit; (b) all net obligations of such person under Interest Swap and Hedging Obligations; (c) all liabilities and obligations of others of the kind described in the preceding clause (a) or (b) that such person has guaranteed or that is otherwise its legal liability or which are secured by any assets or property of such person and all obligations to purchase, redeem or acquire any equity interests; (d) all equity interest of such person that, by its terms or the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased (including at the option of the holder thereof), measured at the greater of its voluntary or involuntary maximum fixed repurchase price or, if there is no fixed purchase price, at fair market value to be determined in good faith by the board of directors of the issuer (or managing general partner of the issuer) of such equity interest plus accrued and unpaid dividends; and (e) any and all deferrals, renewals, extensions, refinancing and refunding (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a), (b) (c) or (d), or this clause (e), whether or not between or among the same parties. "Latest Fiscal Month" means the month immediately preceding the Closing Date unless the Closing Date occurs prior to twenty- one days after a month's end, in which event, it shall mean the second preceding month. As used in this Agreement "GAAP" means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession in the United States as in effect on the date hereof. If there is a dispute as to the Company's Projected Results or the Company's actual Consolidated EBITDA, such dispute will be resolved by a "Big Six" accounting firm mutually selected by the Company and Gaming (the "Outside CPA"). The Company and Gaming will each pay 50% of the fees of the Outside CPA whose decision will be reached on an expedited basis and will be final and binding upon the parties hereto. Section 4.11 Compliance with Gaming Laws. None of Gaming, RAS or their officers, directors or stockholders will attempt to influence, direct or cause the direction of the management or policies of the Company or ROC pending receipt of all required approvals of the Gaming Authorities, pursuant to the Gaming Laws, for the transactions contemplated by this Agreement and the Riviera Option Agreement. ARTICLE V CONDITIONS TO CONSUMMATION OF THE MERGER Section 5.1 Conditions to each Party's Obligation to Effect the Riviera Merger. The respective obligation of each party to effect the Riviera Merger is subject to the satisfaction or waiver on or prior to the Effective Time of the following conditions: (a) Any waiting period applicable to the consummation of the Riviera Merger under the HSR Act shall have expired or been terminated, and no action shall have been instituted by the Department of Justice or Federal Trade Commission challenging or seeking to enjoin the consummation of this transaction, which action shall have not been withdrawn or terminated. (b) At the Stockholders' Meeting, this Agreement shall have been approved and adopted by the affirmative vote of the holders of at least sixty percent of all Shares, excluding the Paulson Shares. (c) There shall not have been any statute, rule, regulation, judgment, order or injunction promulgated, entered, enforced, enacted or issued applicable to the Riviera Merger by any governmental entity which, directly or indirectly, (i) prohibits the consummation of the Riviera Merger or the transactions contemplated by the Riviera Option Agreement, (ii) prohibits or materially limits the ownership or operation by the Company, or any of its respective subsidiaries of a material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or seeks to compel the Company or Gaming or RAS to dispose of or hold separate any material portion of the business or assets of the Company or Gaming or RAS and its subsidiaries, taken as a whole, as a result of the Riviera Merger or any of the other transactions contemplated by this Agreement, or (iii) prohibits Gaming or RAS from effectively controlling in any material respect the business or operations of the Company, taken as a whole; provided, that the parties hereto shall have used their reasonable best efforts to cause any such statute, rule, regulation, judgment, order or injunction to be repealed, vacated or lifted. (d) At or prior to the Effective Time, the Company shall have irrevocably deposited the funds for the Defeasance as specified in the Note Offering. (e) Other than the filing of the articles of merger in accordance with the Nevada Merger Law, all licenses, permits, registrations, authorizations, consents, waivers, orders or other approvals required to be obtained, and all filings, notices or declarations required to be made by Gaming, RAS, Mr. Allen E. Paulson, the Company and any of its subsidiaries in order to consummate the Riviera Merger and the transactions contemplated by this Agreement, and in order to permit the Company and its subsidiaries to conduct their respective business in the jurisdictions regulated by the Gaming Authorities after the Effective Time in the same manner as conducted by the Company or its subsidiaries prior to the Effective Time shall have been obtained or made. Section 5.2 Conditions to Obligations of Gaming and RAS to Effect the Riviera Merger. The obligations of Gaming and RAS to effect the Riviera Merger shall be subject to the satisfaction at or prior to the Effective Time of the following additional conditions: (a) The Company shall have performed in all material respects all of its obligations under this Agreement required to be performed by it at or prior to the Effective Time and the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and at and as of the Effective Time as if made at and as of such time, except (i) for changes specifically permitted by this Agreement and (ii) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date. (b) The actual Consolidated EBITDA reflected in the consolidated statement of operations of the Company for the Projected Period shall not have declined by 7.5% or more when compared to the Projected Results for the Projected Period. (c) The Option Sellers shall have entered into the Riviera Option Agreement concurrent with the execution of this Agreement, and the Riviera Option Agreement shall be in full force and effect and the Option Sellers shall have complied in all respects with the terms thereof; (d) Mr. Allen E. Paulson shall not have become deceased or Disabled (as defined herein). As used herein, "Disabled" means Mr. Allen E. Paulson's incapacity due to physical or mental illness, injury or disease, which incapacity renders him unable to perform the requisite duties of the chief executive officer of Gaming for a consecutive period of 90 days or more. Any question as to the existence, extent or potentiality of Mr. Allen E. Paulson's disability upon which Gaming and the Company cannot agree shall be determined by a qualified, independent physician selected by the Company approved by Gaming and the disputing Option Sellers (each of whose approval shall not be unreasonably withheld or delayed). The determination of such physician shall be final and conclusive for all purposes of this Agreement. (e) Gaming shall have received such documents as Gaming or RAS may reasonably request for the purpose of (i) evidencing the accuracy at any time on or prior to the Closing Date of any of the Company's representations and warranties, (ii) evidencing the performance by the Company of, or the compliance by the Company with, any covenant or obligation required to be performed or complied with by the Company, (iii) evidencing the satisfaction of any condition referred to in Sections 5.1 and 5.2 hereof or (iv) otherwise facilitating the consummation or performance of any of the transactions contemplated hereby. Section 5.3 Conditions to Obligations of the Company to Effect the Riviera Merger. The obligations of the Company to effect the Riviera Merger shall be subject to the satisfaction at or prior to the Effective Time of the following additional conditions: (a) Each of Gaming and RAS shall have performed in all material respects all of its obligations under this Agreement required to be performed by it at or prior to the Effective Time and the representations and warranties of Gaming and RAS contained in this Agreement shall be true and correct in all respects as of the date of this Agreement and at and as of the Effective Time as if made at and as of such time, except (i) for changes specifically permitted by this Agreement, and (ii) that those representations and warranties made only as of a particular date shall remain true and correct as of such particular date. (b) At the Closing Date, Gaming shall have in cash or immediately available funds, an amount equal to the sum of (i) the aggregate amount of Merger Consideration to be paid hereunder and (ii) the aggregate amount to be paid at the Effective Time pursuant to Section 1.10 hereof. (c) The Company shall have received such documents as the Company may reasonably request for the purpose of (i) evidencing the accuracy of any of Gaming's and RAS' representations and warranties, (ii) evidencing the performance by Gaming and RAS of, or the compliance by Gaming and RAS with, any covenant or obligation required to be performed or complied with by Gaming and RAS, (iv) evidencing the satisfaction of any condition referred to in Sections 5.1 and 5.3 hereof, or (v) otherwise facilitating the consummation or performance of any of the transactions contemplated hereby. ARTICLE VI TERMINATION; AMENDMENT; WAIVER Section 6.1 Termination. This Agreement may be terminated and the Riviera Merger may be abandoned at any time prior to the Effective Time, notwithstanding approval thereof by the Company Stockholders: (a) by mutual written consent of Gaming and RAS, on the one hand, and the Company, on the other hand; (b) by Gaming and RAS, on the one hand, and the Company, on the other hand, if any court or governmental authority of competent jurisdiction shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the Riviera Merger and such order, decree, ruling or other action shall have become final and nonappealable; provided, that Gaming and the Company shall have used their reasonable best efforts to have such injunction lifted; (c) by Gaming and RAS, on the one hand, and the Company, on the other hand, at any time after April 1, 1998, (the "Termination Date") if the Riviera Merger shall not have occurred by such date; provided, that if the Riviera Merger has not occurred solely by virtue of the fact that the required approvals of one or more of the Gaming Authorities have not been obtained and the Gaming Authorities have informed Mr. Allen E. Paulson, Gaming or the Company that a review of the applications for such approvals is scheduled by the appropriate Gaming Authorities for a later date, then the Termination Date shall be extended until such approvals have been granted or denied, except that under no circumstances shall such extension continue after June 1, 1998; and, provided, further, that the right to terminate this Agreement under this subparagraph (c) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the principal cause of the failure of the Riviera Merger to have occurred by such date; (d) by Gaming and RAS if (i) there shall have been a breach of any representation or warranty of the Company contained herein which would have a Company Material Adverse Effect or prevent the consummation of the Riviera Merger or the transactions contemplated hereby, which shall not have been cured on or prior to ten business days following notice from Gaming of such breach, (ii) there shall have been a breach of any covenant or agreement of the Company contained herein which would have a Company Material Adverse Effect or prevent the consummation of the Riviera Merger or the transactions contemplated hereby, which shall not have been cured on or prior to ten business days following notice of such breach, (iii) the Board shall have withdrawn or modified, in a manner materially adverse to Gaming, its approval or recommendation of this Agreement, the Riviera Merger or the transactions contemplated hereby or shall have recommended, or the Company shall have entered into an agreement providing for, an Alternative Transaction, or the Board shall have resolved to do any of the foregoing, (iv) the Stockholders Meeting shall have been held and the vote described in Section 5.1(b) shall not have been obtained or (v) Mr. Allen E. Paulson shall have become deceased or Disabled; or (e) by the Company if (i) there shall have been a breach of any representation or warranty of Gaming or RAS contained herein which would have a Gaming Material Adverse Effect or prevent the consummation of the Riviera Merger or the transactions contemplated hereby, which shall not have been cured on or prior to ten business days following notice from the Company of such breach, (ii) there shall have been a breach of any covenant or agreement of Gaming or RAS contained herein which would have a Gaming Material Adverse Effect or prevent the consummation of the Riviera Merger or the transactions contemplated hereby, which shall not have been cured on or prior to ten business days following notice of such breach, (iii) the Board determines, in good faith, after consulting with outside legal counsel to the Company, that it is required, in the exercise of its fiduciary duties under applicable law, to enter into a definitive agreement with respect to an Alternative Transaction or (iv) the Stockholders Meeting shall have been held and the vote described in Section 5.1(b) shall not have been obtained. (f) by the Company if the Closing has not occurred within 30 days after receipt of required approvals of the Gaming Authorities; provided, however, that all of the conditions to Gaming's obligation to effect the Riviera Merger contained in Sections 5.1 and 5.2 hereof shall have been satisfied or waived by Gaming. Section 6.2 Effect of Termination; Termination Fee. (a) In the event of the termination and abandonment of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party hereto, other than pursuant to the provisions set forth in Section 6.2(b) and Section 6.3 hereof. (b) In the event this Agreement is terminated pursuant to Sections 6.1(d)(iii) or 6.1(e)(iii) hereof, the Company shall pay to Gaming immediately upon the closing of an Alternative Transaction an aggregate amount equal to three percent of the consideration for the equity of the Company which is received by the Company or its stockholders in the Alternative Transaction valued at the higher of the value of the consideration on the date of (i) the execution of the definitive agreement with respect to an Alternative Transaction and (ii) the closing of the Alternative Transaction (the "Termination Fee"). (c) The ability of Gaming and RAS to terminate their obligations without triggering the right of the Company Stockholders to receive the Escrow Consideration under Section 6.1(c) is predicated upon the accuracy of the following representation and performance by Mr. Allen E. Paulson of the following agreement: (A) Mr. Allen E. Paulson has represented that prior to the execution of this Agreement, he has discussed in detail with his Nevada counsel his background and knows of no reason why he should not be able to obtain all necessary Gaming Authorities approvals prior to April 1, 1998; and (B) Mr. Allen E. Paulson has agreed that he will pursue vigorously and will give complete and prompt attention to requests of Gaming Authorities for information and will do nothing which might delay receipt of all necessary Gaming Authorities approvals. Section 6.3 Fees and Expenses. Except as set forth herein, each party shall bear its own expenses and costs, including brokers' fees, in connection with this Agreement and the transactions contemplated hereby. In the event this Agreement is terminated pursuant to Sections 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iii) or 6.1(e)(iii) hereof, and as a condition to such termination, the Company shall, immediately upon (i) the execution of a definitive agreement with respect to an Alternative Transaction or (ii) the approval or recommendation by the Board, directly or indirectly, of such an Alternative Transaction, reimburse Gaming, RAS and Mr. Allen E. Paulson the documented out-of-pocket expenses (the "Expenses") of Gaming, RAS and Mr. Allen E. Paulson, incurred from April 15, 1997, in connection with (i) the transactions contemplated by this Agreement and (ii) the Letter of Intent, dated May 15, 1997, by and between Mr. Allen E. Paulson and the Company; such reimbursement and the Termination Fee being the sole remedy upon such termination. ARTICLE VII MISCELLANEOUS Section 7.1 Survival. Subject to the following sentence, the representations, warranties, covenants and agreements contained herein, shall not survive beyond the Effective Time. The covenants and agreements contained herein which by their terms contemplate performance after the Effective Time (including by the Surviving Corporation after the Riviera Merger) shall survive the Effective Time. In addition, Sections 6.2 and 6.3 hereof shall survive termination of this Agreement. Section 7.2 Entire Agreement; Assignment. This Agreement (including the Schedules and Exhibits hereto) (i) shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) shall not be assigned by operation of law or otherwise and any purported assignment shall be null and void, except that Gaming and RAS may assign this Agreement to any of their affiliates without the prior written consent of the Company; provided, that (i) no such assignment shall relieve Gaming and RAS of their obligations hereunder if such assignee does not perform such obligations, and (ii) such assignment will not result in any delay in (a) the consummation of the transactions contemplated hereby by more than one month as determined by the Company's counsel or (b) the ability to satisfy the condition contained in Section 5.1(e) hereof by more than one month as determined by the Company's counsel; and, provided further that, such delay shall not extend beyond the Termination Date as extended under Section 6.1(c) hereof. Section 7.3 Amendment. This Agreement may be amended by action taken by the Company, Gaming and RAS at any time before or after adoption of the Riviera Merger by the Company Stockholders but, after any such approval, no amendment shall be made which decreases the Merger Consideration or changes the form thereof or which adversely affects the rights of the Company Stockholders hereunder without the approval of the Company Stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 7.4 Extension or Waiver. At any time prior to the Effective Time, the Company, on the one hand, and Gaming, on the other hand, may (i) extend the time for the performance of any of the obligations or other acts of the other party, (ii) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document, certificate or writing delivered pursuant hereto, or (iii), subject to applicable law, waive compliance by the other party with any of the agreements or conditions contained herein. Any agreement on the part of any party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights. Section 7.5 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by overnight courier with receipt requested, by facsimile transmission (with receipt confirmed by telephone) or two business days after being sent by registered or certified mail (postage prepaid, return receipt requested), to the other party as follows: if to Gaming: P.O. Box 9660 Rancho Santa Fe, CA 92067 Fax: (619) 756-3194 Attention: Mr. Allen E. Paulson with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, California 90071 Fax (213) 687-5600 Attention: Brian J. McCarthy, Esq. if to the Company: 2901 Las Vegas Boulevard South Las Vegas, Nevada 89109 Fax: (702) 794-9277 Attention: Mr. William L. Westerman with a copy to: Dechert Price & Rhoads 30 Rockefeller Plaza New York, New York 10112 Fax: (212) 698-3599 Attention: Fredric Klink, Esq. or to such other address as the party to whom notice is given may have previously furnished to the other party in writing in the manner set forth above. Section 7.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without regard to the principles of conflicts of law thereof. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to jurisdiction of the courts of the State of Nevada and of the United States of America located in the State of Nevada for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby. Section 7.7 Parties in Interest. This Agreement shall be binding upon and shall inure solely to the benefit of each party hereto and its successors and permitted assigns, and, except as set forth in Section 4.6, nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement; provided, that, in addition to Gaming and RAS, the Option Sellers are intended beneficiaries of the representation and warranty contained in Section 2.4 hereof. Section 7.8 Subsequent Actions. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of the Company or RAS acquired or to be acquired by the Surviving Corporation as a result of or in connection with the Riviera Merger, or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of the Company or RAS, all such deeds, bills of sale, assignments, assumption agreements and assurances, and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets of the Surviving Corporation or otherwise to carry out this Agreement. Section 7.9 Remedies. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. Section 7.10 Severability. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity and enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid and unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability. Section 7.11 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Section 7.12 Certain Definitions. For purposes of this Agreement, the term: (a) "affiliate" of a person means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; (b) "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise; (c) "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Exchange Act); and (d) "subsidiary" or "subsidiaries" of any person means any corporation, partnership, joint venture or other legal entity of which such person (either alone or through or together with any other subsidiary), owns, directly or indirectly, fifty percent or more of the stock or other equity interests, the holder of which is generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, joint venture or other legal entity. Section 7.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officers as of the date first above written. R&E GAMING CORP. By: ________________________________ Name: Title: RIVIERA ACQUISITION SUB, INC. By: ________________________________ Name: Title: RIVIERA HOLDINGS CORPORATION By: ________________________________ Name: Title: EX-99 3 EXHIBIT B - OPTION AND VOTING AGREEMENT EXHIBIT B OPTION AND VOTING AGREEMENT BY AND AMONG R&E GAMING CORP., AS PURCHASER, AND MORGENS, WATERFALL, VINTIADIS & COMPANY, INC., KEYPORT LIFE INSURANCE COMPANY SUNAMERICA LIFE INSURANCE COMPANY, ON BEHALF OF CERTAIN INVESTMENT ACCOUNTS, AS SELLERS DATED AS OF SEPTEMBER 15, 1997 OPTION AND VOTING AGREEMENT OPTION AND VOTING AGREEMENT (this "Agreement"), dated as of September 15, 1997, by and among R&E Gaming Corp., a Delaware corporation (together with its assignees or designees, the "Purchaser"), Morgens, Waterfall, Vintiadis & Company, Inc., on behalf of certain investment accounts identified on the signature pages hereto ("Morgens, Waterfall"), Keyport Life Insurance Company, ("Keyport"), and SunAmerica Life Insurance Company, an Arizona corporation ("SunAmerica," and together with Morgens, Waterfall and Keyport, the "Sellers"). WHEREAS, concurrently with the execution and delivery of this Agreement, the Purchaser is entering into an Agreement and Plan of Merger (the "Riviera Merger Agreement") with Riviera Acquisition Sub, Inc., a Nevada corporation and a wholly owned subsidiary of the Purchaser ("Acquisition Sub"), and Riviera Holdings Corporation, a Nevada corporation ("RHC"), pursuant to which the Acquisition Sub shall merge with and into RHC (the "Riviera Merger"), upon the terms and conditions set forth therein; WHEREAS, each Seller desires that the Purchaser, Acquisition Sub and RHC enter into the Riviera Merger Agreement; WHEREAS, as partial consideration for the grant by the Sellers of the option hereunder, the Purchaser agrees to pay to each Seller an amount equal to 20% of the Purchase Price (as defined in Section 1.2(a) hereof) for the shares of common stock, par value $.001 per share, of RHC (the "Common Stock") owned by such Seller, if the transactions contemplated by the Riviera Merger Agreement are not consummated, other than as a result of certain circumstances specified herein; WHEREAS, in order to ensure payment of the obligation described in the immediately preceding paragraph, concurrently with the execution and delivery of this Agreement and the Riviera Merger Agreement, the Purchaser has delivered a letter of credit in the face amount of $3,817,680 to Morgens, Waterfall, a letter of credit in the face amount of $2,571,480 to Keyport, and a letter of credit in the face amount of $2,285,760 to SunAmerica, each of which is substantially in the form of Exhibit A hereto (collectively, the "Letters of Credit"), each of which shall provide that it may be drawn on in the event the transactions contemplated by the Riviera Merger Agreement are not consummated, other than as a result of certain circumstances as specified herein; WHEREAS, Morgens, Waterfall beneficially owns 1,272,560 shares of Common Stock, which shares represent approximately 25.9% of the issued and outstanding shares of Common Stock, Keyport beneficially owns 857,160 shares of Common Stock, which Shares represent approximately 17.5% of the issued and outstanding shares of Common Stock and SunAmerica beneficially owns 761,920 shares of Common Stock, which shares represent approximately 15.5% of the issued and outstanding shares of Common Stock (such shares of Common Stock owned by the Sellers being the "Shares"); and WHEREAS, in consideration for entering into the Riviera Merger Agreement, the Sellers desire to (i) grant to the Purchaser options to purchase, from the Sellers, all (but not less than all) of the Shares held by them as set forth above upon the terms and subject to the conditions set forth herein and (ii) vote the Shares in the manner set forth herein; NOW, THEREFORE, in consideration of the foregoing premises and the agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I GRANT OF OPTION SECTION 1.1 Grant of Option. Upon the terms and subject to the conditions set forth herein, each Seller hereby grants to the Purchaser an irrevocable option (individually, a "Purchase Option" and, together with each Purchase Option granted by each of the other Sellers, the "Purchase Options") to purchase the Shares owned by such Seller. The Purchase Options shall be exercisable, in whole and not in part, by written notice (the "Exercise Notice") by the Purchaser delivered to each Seller, at any time after the date hereof, but not later than the date on which the Riviera Merger Agreement is terminated pursuant to Section 6.1(c) thereof or, if the Riviera Merger Agreement has otherwise been terminated, then June 1, 1998 (such period being hereinafter referred to as the "Exercise Period"). No one Purchase Option shall be exercised individually unless all Purchase Options are exercised. In addition, in the event the Riviera Merger is consummated, the Purchase Options shall terminate automatically, the Shares shall be converted into the right to receive the Merger Consideration set forth in the Riviera Merger Agreement; it being understood that the Riviera Merger Agreement provides for a reduction of the consideration payable, upon consummation of the Riviera Merger, to each of the Sellers on account of any interest previously paid to the Sellers pursuant to Section 1.2(b) hereof. Each of the Sellers hereby consents to the reduction of the consideration payable to them under the terms of the Riviera Merger Agreement by the amount of the interest paid to them pursuant to Section 1.2(b) hereof. Upon exercise of the Purchase Options, subject to the conditions contained in Article V hereof, each of the Sellers shall sell, assign, transfer, convey and deliver to the Purchaser, and the Purchaser shall purchase and accept from each such Seller at the closing (the "Closing") to be held as soon as possible after the satisfaction or waiver of the conditions set forth in this Agreement (the date on which the Closing occurs shall be referred to herein as the "Closing Date"), such Seller's rights, title and interest in and to the Shares in exchange for the Purchase Price (as defined below). SECTION 1.2 Purchase Price. (a) Upon exercise of the Purchase Options, the Purchaser agrees to pay to each of the Sellers, on the Closing Date, in consideration for the purchase of the Shares, an aggregate amount equal to $15 per Share, (the "Initial Purchase Price" and, when adjusted as provided in this Section 1.2, the "Purchase Price"), for an aggregate amount of $43,374,600 payable as follows: (i) $19,088,400 shall be paid to Morgens, Waterfall, (ii) $12,857,400 shall be paid to Keyport and (iii) $11,428,800 shall be paid to SunAmerica, in addition to any accrued but unpaid interest payments required by Section 1.2(b). (b) During the period commencing on June 1, 1997 and ending on the date immediately preceding the earlier of the Closing Date or the date this Agreement is terminated in accordance with its terms, the Purchaser agrees to pay to each of the Sellers their pro rata portion, based on the number of Shares owned, of the daily interest of $8,318.42 per day, which represents interest calculated at 7% per annum on the Initial Purchase Price for all Shares, payable monthly in arrears no later than 5 days after the date of each monthly anniversary of such execution, unless otherwise provided in this Section 1.2(b). The first payment to be made by the Purchaser shall be made on the date of execution and shall consist of all amounts due and payable until such date under this Section 1.2(b). All payments required to be made in accordance with this Section 1.2(b) shall be made by wire transfer of immediately available funds to such account as each Seller shall have designated on Exhibit B hereto. (c) If, between the date of this Agreement and the Closing Date, the number of issued and outstanding shares of Common Stock shall have been changed (or RHC shall have declared a record date with respect to a prospective change of the Common Stock) into a different number of shares or a different class of shares by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, this Agreement (including the terms "Share" and "Common Stock") will be deemed to relate to all securities issued with respect to the Common Stock, and the Purchase Price shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares. (d) If, between the date of this Agreement and the Closing Date, any dividend or other distribution (other than a stock dividend, which shall require the adjustment set forth in clause (c) above) is declared or paid upon the Common Stock (whether in cash, property or securities), the Purchase Price shall be reduced by the per share amount of such dividend or distribution (in the case of non-cash dividends or distributions, by an amount equal to the fair market value thereof). (e) If, between the date of this Agreement and the Closing Date, RHC or any of its subsidiaries shall repurchase or otherwise acquire any shares of Common Stock (other than shares issued pursuant to warrants, options, convertible securities and other rights to acquire shares of Common Stock referred to in Section 2.2 of the Riviera Merger Agreement or issued in accordance with Section 4.1 thereof), and the per share consideration paid by RHC or its subsidiaries (in the case of non-cash consideration, valued of the fair market value thereof) exceeds the Purchase Price, the total Purchase Price for all Shares shall be reduced to the price determined by dividing (i) the difference between (A) the number of shares of Common Stock outstanding immediately prior to such repurchase or redemption multiplied by the Purchase Price in effect immediately prior to such purchase or redemption minus (B) the consideration, if any, paid by RHC for such repurchase or redemption, by (ii) the total number of shares of Common Stock outstanding immediately after such repurchase or redemption. SECTION 1.3 Termination of Riviera Merger Agreement. (a) The Sellers shall be entitled to receive, as partial consideration for the grant by the Sellers of the Purchase Options to the Purchaser hereunder, an amount equal to $3,817,680 (in the case of Morgens, Waterfall), $2,571,480 (in the case of Keyport) and $2,285,760 (in the case of SunAmerica), if (A) the Riviera Merger Agreement is terminated (except pursuant to a Non-Payment Termination Event (as defined herein) or (B) the Riviera Merger does not occur in accordance with the terms thereof on or before April 2, 1998 (or, if the termination date of the Riviera Merger Agreement is extended in accordance with Section 6.1(c) thereof, June 2, 1998) for any reason other than the occurrence of a Non-Payment Termination Event, provided that the Sellers shall be entitled to the consideration described above if the Riviera Merger is not consummated as a result of the breach of the Riviera Merger Agreement by Purchaser, Acquisition Sub, or Allen E. Paulson of any covenants or warranties made by or about them in the Riviera Merger Agreement; and provided further, in any event, that no Seller shall be entitled to such compensation if the Riviera Merger Agreement is not consummated as a result of the breach of this Agreement by such Seller. A "Non-Payment Termination Event" shall mean the termination of the Riviera Merger Agreement pursuant to Sections 6.1(a), 6.1(b), 6.1(c) (because of the failure to satisfy Sections 5.1(a), 5.1(c), 5.1(d), 5.2(b) or 5.2(c)), 6.1(d), 6.1(e)(iii) or 6.1(e)(iv) thereof. In addition, in the event that the Riviera Merger Agreement is terminated pursuant to Section 6.1(c) because of the failure of Purchaser, Acquisition Sub or Mr. Allen E. Paulson to obtain the required approvals of the Gaming Authorities, then such event shall constitute a Non-Payment Termination Event, unless Mr. Allen E. Paulson is in breach of his representation and covenant contained in Section 6.2(c) of the Riviera Merger Agreement. (b) In order to ensure payment of the obligation described in Section 1.3(a) hereof, concurrently with the execution and delivery of this Agreement, the Purchaser shall deliver a Letter of Credit in the face amount of $3,817,680 to Morgens, Waterfall, a Letter of Credit in the face amount of $2,571,480 to Keyport and a Letter of Credit in the face amount of $2,285,760 to SunAmerica. In the event that any Seller shall be entitled to receive compensation pursuant to Section 1.3(a) hereof, such Seller shall be entitled to receive demand payment under the Letter of Credit issued to such Seller. (c) In the event that the Riviera Merger Agreement is terminated pursuant to a Non-Payment Termination Event other than Sections 6.1(a) or 6.1(c) thereof, each Seller shall immediately pay to the Purchaser an amount equal to all payments received by such Seller pursuant to this Agreement (each such payment, an "Option Payment"); provided, that the Sellers shall be entitled to retain such payments if either (i) all Shares shall be purchased pursuant to this Agreement or (ii) the Riviera Merger is not consummated as a result of the breach by the Purchaser, Acquisition Sub, or Allen E. Paulson of any covenants or warranties made by or about them in the Riviera Merger Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES SECTION 2.1 Representations and Warranties of the Sellers. Each of the Sellers severally and not jointly represents and warrants to the Purchaser as follows: (a) Organization and Standing. Such Seller is duly organized, validly existing and in good standing under the laws of its state of organization, and has all requisite power and authority to enter into and perform its obligations under this Agreement. (b) Authority. The execution and delivery of this Agreement, and the performance by such Seller of its obligations hereunder, have been duly authorized by all necessary action on the part of such Seller and the owners of the investment accounts, if any, as to which it is acting. This Agreement has been duly executed and delivered by such Seller and, assuming the due execution and delivery hereof by the Purchaser and assuming that approval of this Agreement by RHC remains effective, this Agreement constitutes a valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms; provided, however, that Section 4.7 hereof shall be enforceable in any event. (c) The Stock. Such Seller is the record and beneficial owner of, and has good and valid title to, the number of Shares recited to be owned by it in the recitals hereof, free and clear of all liens, encumbrances, claims, charges, security interests, pledges, restrictions, assessments and limitations (including voting limitations) of every kind whatsoever (collectively, "Liens"). Assuming that approval of this Agreement by RHC remains effective, such Seller shall deliver to the Purchaser, and the Purchaser will acquire, good and valid title in such Shares, with full voting rights, free and clear of any Liens. Except for this Agreement, there are no outstanding warrants, subscriptions, rights (including preemptive rights), options, calls, commitments or other agreements or Liens to encumber, purchase or acquire any of the Shares of such Seller or securities convertible into the Shares of such Seller. Neither such Seller nor any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder) holds either of record or beneficially any securities or capital stock of RHC or any of RHC's direct or indirect subsidiaries other than such Seller's Shares. (d) No Conflict. Assuming that approval of this Agreement by RHC remains effective, the execution of this Agreement and the consummation of the transactions contemplated hereby will not require notice to, or the consent of, any party to any contract, lease, agreement, mortgage or indenture (each a "Contract") to which such Seller is a party or by which it is bound, or the consent, approval, order or authorization of, or the registration, declaration or filing with, any governmental authority, except for those (i) required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if any, (ii) required by the Nevada Gaming Commission (the "Gaming Commission"), the Nevada State Gaming Control Board (the "Control Board"), the City of Las Vegas ("Las Vegas") and the Clark County Liquor and Gaming Licensing Board (the "CCB") (the Gaming Commission, the Control Board, Las Vegas and the CCB are collectively referred to as the "Gaming Authorities"), including, without limitation, approvals under the Nevada Gaming Control Act, as amended, and the rules and regulations promulgated thereunder (the "Nevada Act") or (iii) set forth on Schedule 2.1(d) hereto. Assuming that the notices, consents and approvals referred to in the preceding sentence have been given, made or obtained and remain effective, the execution, delivery and performance by such Seller of this Agreement and the consummation of the transactions contemplated hereby will not (i) violate any law, statute, ordinance, regulation, rule or order of any Federal or Nevada authority (collectively, "Laws"), (ii) result in a breach or violation of any provision of, constitute a default under, or result in the termination of, or an acceleration of indebtedness or creation of any Lien under, any material contract to which such Seller is a party or by which it is bound or (iii) conflict with or violate any provision of the organizational documents of such Seller. (e) Brokers, Finders, etc. Such Seller is not a party to any agreement or understanding that would make it subject to any valid claim of any broker, investment banker, finder or other intermediary in connection with the transactions contemplated by this Agreement. SECTION 2.2 Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to each of the Sellers as follows: (a) Organization and Standing. The Purchaser is duly organized, validly existing and in good standing under the laws of its state of incorporation, and has all requisite power and authority to enter into and perform its obligations under this Agreement. (b) Authority. The execution and delivery of this Agreement, and the performance by the Purchaser of its obligations hereunder, have been duly authorized by all necessary action on the part of the Purchaser. This Agreement has been duly executed and delivered on behalf of the Purchaser and, assuming the due execution and delivery hereof by the Sellers and assuming that approval of this Agreement by RHC remains effective, this Agreement constitutes a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms. (c) No Conflict. The execution of this Agreement and the consummation of the transactions contemplated hereby will not require notice to, or the consent of, any party to any Contract to which the Purchaser or any of its affiliates is a party or by which any of them is bound, or the consent, approval, order or authorization of, or the registration, declaration or filing with, any governmental authority, except for (i) those required under the HSR Act, if any, (ii) approvals, as necessary, by the Gaming Authorities, including, without limitation, approvals under the Nevada Act, (iii) approval by the RHC Board of Directors (which the Sellers represent has been granted); and (iv) set forth on Schedule 2.2(c) hereto. Assuming that the notices, consents and approvals referred to in the preceding sentence have been given, made or obtained and remain effective, the execution, delivery and performance by the Purchaser of this Agreement and the consummation of the transactions contemplated hereby will not (i) violate any Laws, (ii) result in a breach or violation of any provision of, or constitute a default under, any contract to which the Purchaser is a party or by which it is bound or (iii) conflict with any provision of the certificate of incorporation or bylaws of the Purchaser. (d) Purchase For Investment. Upon exercising the Purchase Options, the Purchaser represents and warrants that it intends to acquire the Shares for its own account, not as a nominee or agent, and not with a view to, or for offer or resale in connection with, any distribution thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act"), without prejudice, however, to the Purchaser's right at all times to sell or otherwise dispose of all or any part of said Shares pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or under an exemption from registration available under the Securities Act and such other applicable state securities laws. The Purchaser represents and warrants that it (i) is knowledgeable, sophisticated and experienced in business and financial matters, and fully understands the limitations on transfer described above, and (ii) is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D under the Securities Act. (e) No Brokers. Except for Jefferies & Co., Inc. whose fee will be paid by the Purchaser, neither the Purchaser nor Acquisition Sub has employed any broker or finder, nor has it incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated by this Agreement or the Riviera Merger Agreement. ARTICLE III VOTING AGREEMENTS SECTION 3.1 Merger. Each Seller severally agrees and covenants to each party hereto that at any meeting of stockholders of RHC called to vote upon the Riviera Merger and the Riviera Merger Agreement or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval with respect to the Riviera Merger and the Riviera Merger Agreement is sought, such Seller shall cause its Shares to be present for quorum purposes and to vote (or caused to be voted) its Shares in favor of the terms thereof and each of the other transactions contemplated by the Riviera Merger Agreement. SECTION 3.2 Competing Transaction. Each Seller severally agrees and covenants to each party hereto that at any meeting of stockholders of RHC or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, such Seller shall vote (or cause to be voted) its Shares against (i) any merger agreement or merger (other than the Riviera Merger Agreement and the Riviera Merger), consolidation, combination, sale of substantial assets, sale or issuance of securities of RHC or its subsidiaries, reorganization, joint venture, recapitalization, dissolution, liquidation or winding up of or by RHC or its subsidiaries and (ii) any amendment of RHC's Second Amended and Restated Articles of Incorporation (the "Articles of Incorporation") or Bylaws or other proposal or transaction involving RHC or any of its subsidiaries which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify or result in a breach of any covenant, representation or warranty or any other obligation or agreement of RHC under or with respect to, the Riviera Merger, the Riviera Merger Agreement or any of the other transactions contemplated by the Riviera Merger Agreement or by this Agreement (each of the foregoing in clause (i) or (ii) above, a "Competing Transaction"). ARTICLE IV COVENANTS SECTION 4.1 Exclusive Dealing. Each Seller agrees that it will not, directly or indirectly, through any director, officer, agent, partner, shareholder, affiliate, representative or otherwise: (a) solicit, initiate, encourage submission of offers or proposals from, or participate in any discussions, negotiations, agreements, arrangements or understandings with, any person in respect of a Competing Transaction; or (b) participate in any discussions or negotiations with, or furnish or afford access to any information to, any other person regarding a Competing Transaction, or otherwise cooperate in any manner with, or assist or participate in, facilitate or encourage, any effort or attempt by any other person to engage in any Competing Transaction. SECTION 4.2 No Sale. Without limiting the foregoing, each Seller agrees that it will not, directly or indirectly, (i) sell, transfer, assign, pledge, hypothecate or otherwise encumber or dispose of, (ii) give a proxy with respect to, or (iii) limit the right to vote in any manner, any of the Shares owned by it, except pursuant to the express terms of this Agreement. SECTION 4.3 Further Assurances. From time to time, whether before, at, or after the Closing, each party hereto agrees to execute and deliver, or cause to be executed and delivered, such additional instruments, certificates and other documents, and to take such other action, as any other party hereto may reasonably require in order to carry out the terms and provisions of this Agreement and the transactions contemplated hereby (including, without limitation, voting the Shares in favor of any such transaction). SECTION 4.4 Expenses. All reasonable actual out of pocket costs and expenses, including reasonable legal fees incurred solely and directly in connection with the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby shall be paid by the Purchaser upon receipt of reasonably detailed statements or invoices therefor. SECTION 4.5 Publicity. Each Seller and the Purchaser agree that, prior to the Closing, no public release or announcement concerning this Agreement shall be issued by any such party without the prior written consent (which consent shall not be unreasonably withheld) of the other parties hereto, except as such release or announcement may be required by law (in which event the other parties hereto shall have reasonable opportunity to comment on the form and content of the disclosure). SECTION 4.6 Notice of Certain Events. Each Seller and the Purchaser each agrees to notify each other party hereto promptly of (a) any event or condition that, with or without notice or lapse of time, would cause any of the representations and warranties made by such party herein to be no longer complete and accurate as of any date on or before the Closing Date, (b) any failure, with or without notice or lapse of time, on the part of such party to comply with any of the covenants or agreements on its part contained herein at any time on or before the Closing Date or (c) the occurrence of any event, with or without notice or lapse of time, that may make the satisfaction of any of the conditions set forth in Section 5.1 hereof impossible or unlikely. SECTION 4.7 Excess Proceeds. Morgens, Waterfall hereby acknowledges its satisfaction with the price per Share provided herein and in the Riviera Merger Agreement and, in recognition thereof, hereby agrees to pay to the Purchaser an amount equal to 100% of the fair market value of the net after tax proceeds per Share from any sale, transfer or other disposition of its Shares (other than pursuant to the Purchase Option, the Riviera Merger or the transactions contemplated thereby) in excess of the Purchase Price, if all of the following conditions are satisfied: (i) such sale, transfer or other disposition (x) occurs prior to the date which is 12 months subsequent to the date of the termination of the Riviera Merger Agreement pursuant to Sections 6.1(d)(iii), 6.1(d)(iv), 6.1(e)(iii), or 6.1(e) (iv) of the Riviera Merger Agreement or (y) is effected pursuant to an agreement or understanding, oral or written, which is entered into prior to such date; (ii) Morgens, Waterfall shall have also sold, transferred or disposed (including by way of merger) of its shares of common stock in Elsinore Corporation, a Nevada Corporation ("Elsinore"), for consideration equal to or greater than $3.16 per share, which sale, transfer or other disposition of shares in Elsinore (x) occurs prior to the date which is 12 months subsequent to the date of the termination of the Riviera Merger Agreement pursuant to Sections 6.1(d)(iii), 6.1(d)(iv), 6.1(e)(iii) or 6.1(e)(iv) of the Riviera Merger Agreement or (y) is effected pursuant to an agreement or understanding, oral or written, which is entered into prior to such date; and (iii) the Purchaser was not able to exercise the Purchase Options because of the failure to satisfy (but not by waiver) the conditions set forth in Sections 5.2(a), 5.2(b), 5.2(c), or 5.2(d) hereof. Morgens, Waterfall shall make the payment referenced herein within two business days of receipt of such proceeds. ARTICLE V CONDITIONS PRECEDENT SECTION 5.1 Conditions Precedent to Exercise of Purchase Options. The Purchaser shall have no obligation to exercise the Purchase Options. Upon exercise of the Purchase Options, the obligation of the Purchaser to purchase the Shares shall be subject to the satisfaction or (except in the case of Section 5.1(c)(i), which may not be waived) waiver by the Purchaser on the Closing Date of each of the following conditions precedent: (a) HSR Act. The waiting period under the HSR Act, if applicable, shall have expired or been terminated. (b) No Injunctions or Restraints. No temporary restraining order or preliminary or permanent injunction of any court or administrative agency of competent jurisdiction prohibiting the transactions contemplated by this Agreement, the Riviera Merger Agreement, the Agreement and Plan of Merger, by and among the Purchaser, Elsinore Acquisition Sub, Inc., a Nevada corporation, and Elsinore, or the Option and Voting Agreement by and between the Purchaser and Morgens, Waterfall with respect to Elsinore, shall be in effect or shall be threatened. (c) Consents. All consents, approvals, authorizations and waivers from third parties and governmental and regulatory authorities required or advisable to consummate the transactions contemplated hereby (the "Approvals") shall have been obtained before the Closing Date and, in the case of clauses (ii) and (iii) below, before the execution of this Agreement and shall not have expired or been rescinded, including the following: (i) All necessary gaming approvals, including, without limitation, licensing or finding of suitability of the Purchaser and approval of a change of control of RHC by the Gaming Authorities; (ii) Waiver by the Board of Directors of RHC of any voting restrictions under the Articles of Incorporation that are applicable to a purchaser of greater than ten percent of the issued and outstanding shares of Common Stock; and (iii) All approvals and waivers necessary to exempt the Purchaser for purposes of the transactions contemplated hereby from applicable merger moratorium statutes and control share acquisition statutes, including, without limitation, Nevada Revised Statutes Sections 78.411-.444 and 78.378-.3793; (d) Representations and Warranties. The representations and warranties of each Seller set forth in this Agreement shall be true and correct in all material respects on and as of the Closing Date, as though made on and as of the Closing Date (and by delivery of the Shares each Seller shall be deemed to affirm the satisfaction of this condition). (e) Performance of Obligations of Sellers. Each Seller shall have performed all obligations required to be performed by it under this Agreement on or prior to the Closing Date (and by delivery of the Shares each Seller shall be deemed to affirm the satisfaction of this condition). (f) Death and Disability. There shall not have occurred the death or the Disability of Mr. Allen E. Paulson. As used herein, "Disability" means Mr. Allen E. Paulson's incapacity due to physical or mental illness, injury or disease, which incapacity renders him unable to perform the requisite duties of the chief executive officer of the Purchaser for a consecutive period of 90 days or more. Any question as to the existence, extent or potentiality of Mr. Allen E. Paulson's disability upon which the Purchaser and the Sellers cannot agree, such question shall be determined by a qualified, independent physician selected by RHC and approved by the Purchaser and the disputing Sellers (each of whose approval shall not be unreasonably withheld or delayed). The determination of such physician shall be final and conclusive for all purposes of this Agreement. (g) No Violation of Law. The consummation of the Purchase Options shall not constitute a violation of any Laws. SECTION 5.2 Conditions Precedent to the Sellers' Obligation. The obligation of each of the Sellers to sell, assign, transfer, convey and deliver the Shares owned by it or the investment accounts it manages, as applicable, upon exercise of the Purchase Options by the Purchaser shall be subject to the satisfaction or (except in the case of Sections 5.2(a) and 5.2(c), which may not be waived), waiver on the Closing Date of each of the following conditions precedent: (a) HSR Act. The waiting period under the HSR Act, if applicable to the Purchaser, shall have expired or been terminated. (b) No Injunctions or Restraints. No temporary restraining order or preliminary or permanent injunction of any court or administrative agency of competent jurisdiction prohibiting the transactions contemplated by this Agreement shall be in effect. (c) Consents. All Approvals shall have been obtained and shall not have expired or been rescinded, including those set forth in Section 5.1(c). (d) No Violation of Law. The consummation of the Purchase Options shall not constitute a violation of any Laws. (e) Representations and Warranties. The representations and warranties of the Purchaser set forth in this Agreement shall be true and correct in all material respects on and as of the Closing Date, as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement (and by its acceptance of the Shares, the Purchaser shall be deemed to reaffirm the accuracy of such representations and warranties). (f) Performance of Obligations of the Purchaser. The Purchaser shall have performed all obligations required to be performed by it under this Agreement on or prior to the Closing Date (and by its acceptance of the Shares, the Purchaser shall be deemed to affirm the satisfaction of this condition), including the payment of the Purchase Price and all unpaid amounts, if any payable under Section 1.2(b). ARTICLE VI TERMINATION AND AMENDMENT SECTION 6.1 Termination. This Agreement shall terminate without any further action on the part of the Purchaser or any of the Sellers if (i) the Purchase Options have been exercised and the Closing has occurred, (ii) the Purchase Options have not been exercised and either (x) the Riviera Merger has been consummated or (y) the Riviera Merger Agreement has been terminated pursuant to Sections 6.1(a), (b), (c), (d), (e)(i) or (e)(ii) thereof or (iii) June 1, 1998 shall have occurred. SECTION 6.2 Effect of Termination. In the event this Agreement shall have been terminated in accordance with Section 6.1 of this Agreement, this Agreement shall forthwith become void and have no effect, except (i) to the extent such termination results from a breach by any of the parties hereto of any of its obligations hereunder (in which case such breaching party shall be liable for all damages allowable at law and any relief available in equity), (ii) as otherwise set forth in any written termination agreement, if any, (iii) that Sections 1.3 and 4.7 shall survive the termination of this Agreement, and (iv) that the provisions of Sections 3.1 and 3.2 hereof shall survive the termination of the Riviera Merger Agreement until the earlier of (A) the consent of the Sellers to the termination of the provisions of Sections 3.1 and 3.2 hereof and (B) June 1, 1998. SECTION 6.3 Amendment. This Agreement and the Schedules and Exhibits hereto may not be amended except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. At any time prior to the Closing Date, any party hereto which is entitled to the benefits hereof may (a) extend the time for the performance of any of the obligations or other acts of any other party, (b) waive any inaccuracy in the representations and warranties of any other party contained herein, in any Schedule and Exhibit hereto, or in any document delivered pursuant hereto, and (c), subject to applicable law, waive compliance with any of the agreements of any other party hereto or any conditions contained herein. Any agreement on the part of any of the parties hereto to any such extension or waiver (i) shall be valid only if set forth in an instrument in writing signed and delivered on behalf of each such party, and (ii) shall not be construed as a waiver or extension of any subsequent breach or time for performance hereunder. ARTICLE VII MISCELLANEOUS SECTION 7.1 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by overnight courier with receipt requested, by facsimile transmission (with receipt confirmed by automatic transmission report), or two business days after being sent by registered or certified mail (postage prepaid, return receipt requested) to the other party as follows: (a) if to the Purchaser, to: P.O. Box 9660 Rancho Santa Fe, CA 92067 Attention: Mr. Allen E. Paulson Telephone: (619) 759-5990 Telecopy: (619) 756-3194 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 Attention: Brian J. McCarthy, Esq. Telephone: (213) 687-5070 Telecopy: (213) 687-5600 (b) if to Morgens, Waterfall, to: Swiss Bank Tower 10 East 50th Street New York, New York 10022 Attention: Mr. Bruce Waterfall Telephone:(212) 705-0500 Telecopy:(212) 838-5540 with a copy to: O'Melveny & Myers, LLP 400 South Hope Street Los Angeles, CA 90071-2899 Attention: C. James Levin, Esq. Telephone:(213) 669-6578 Telecopy:(213) 669-6407 (c) if to Keyport, to: Mr. Steve Lockman Stein Roe & Farnham Incorporated One South Wacker Drive 33rd Floor Chicago, Illinois 60606-4685 Telephone:(312) 368-7788 Telecopy:(312) 368-8144 with a copy to: Stacy Winick Stein Roe & Farnham Incorporated One South Wacker Drive 33rd Floor Chicago, Illinois 60606-4885 (d) if to SunAmerica, to: Mr. Peter McMillan SunAmerica, Inc. One SunAmerica Center Century City, California 90067 Telephone:(310) 772-6101 Telecopy:(310) 772-6150 with a copy to: Mr. Alan Nussenblatt SunAmerica, Inc. One SunAmerica Center Century City, California 90067 Telephone: (310) 772-6110 Telecopy: (310) 772-6030 SECTION 7.2 Release. Upon the exercise of the option by the Purchaser to acquire the Shares, the Purchaser shall hereby release on behalf of itself and RHC all claims, causes of actions, rights and liabilities held by the Purchaser or RHC against each Seller based on or arising from such Seller's ownership of the Shares or actions as a Stockholder of RHC at all times to and including the Closing Date, and the sale of the Shares to the Purchaser, except for the representations and warranties of each Seller set forth in Sections 2.1(b) and 2.1(c) hereof which shall survive indefinitely. SECTION 7.3 Interpretation. When a reference is made in this Agreement to a Section, Schedule or Exhibit, such reference shall be to the applicable Section, Schedule or Exhibit of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When the words "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." All accounting terms not defined in this Agreement shall have the meanings determined by generally accepted accounting principles as of the date hereof. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. SECTION 7.4 Severability. If any provision of this Agreement or the application of any such provision shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof. In lieu of any such invalid, illegal or unenforceable provision, the parties hereto intend that there shall be added as part of this Agreement a valid, legal and enforceable provision as similar in terms to such invalid, illegal or unenforceable provision as may be possible or practicable under the circumstances. SECTION 7.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which, when taken together, shall be deemed to constitute but one and the same instrument. SECTION 7.6 Entire Agreement. This Agreement and the Schedules and Exhibits hereto constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. SECTION 7.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, regardless of the laws that otherwise might govern under any applicable principles of conflicts of law, except that gaming approval requirements shall be governed by and construed in accordance with the laws of the State of Nevada. SECTION 7.8 Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned or delegated by any of the parties hereto without the prior written consent of the other parties; provided, that the Purchaser may assign the Purchase Options and the obligations under this Agreement to any other person who is designated by the Purchaser and; further provided, that the Purchaser shall remain responsible for the performance of such designee's obligations. SECTION 7.9 No Third-Party Beneficiaries. Nothing herein expressed or implied shall be construed to give any person other than the parties hereto (and their respective successors and assigns) any legal or equitable rights hereunder. SECTION 7.10 OBLIGATIONS SEVERAL AND NOT JOINT. The obligations of the Sellers hereunder are several and not joint, and no Seller shall be liable for the breach or default hereunder by any other Seller. IN WITNESS WHEREOF, each of the parties hereto has caused its duly authorized officers to execute this Agreement as of the date first above written. R&E GAMING CORP. By:_____________________________ Name: Title: MORGENS, WATERFALL, VINTIADIS & COMPANY, INC. By:_____________________________ Name: Title: on behalf of the investment accounts for the entities listed below BETJE PARTNERS THE COMMON FUND MORGENS WATERFALL INCOME PARTNERS PHOENIX PARTNERS, L.P. MWV EMPLOYEE RETIREMENT PLAN GROUP TRUST RESTART PARTNERS, L.P. RESTART PARTNERS II, L.P. RESTART PARTNERS III, L.P. KEYPORT LIFE INSURANCE COMPANY By:________________________________ Name: Title: SUNAMERICA LIFE INSURANCE COMPANY By:________________________________ Name: Title: EX-99 4 EXHIBIT C - PLEDGE AGREEMENT EXHIBIT C PLEDGE AGREEMENT PLEDGE AGREEMENT, dated September 18, 1997, made by Allen E. Paulson, an individual residing at Del Mar Country Club, 6001 Clubhouse Drive, Rancho Santa Fe, California 92067 (the "Pledgor"), in favor of Madeleine L.L.C., a New York limited liability company (the "Lender"). W I T N E S S E T H: WHEREAS, the Pledgor and the Lender are parties to a Term Loan Agreement dated as of the date hereof (such agreement, as amended, restated, supplemented or otherwise modified from time to time, being hereafter referred to as the "Term Loan Agreement"); WHEREAS, pursuant to the Term Loan Agreement, the Lender has agreed to extend credit to the Pledgor consisting of the Term Loan (as defined in the Term Loan Agreement) to the Pledgor in the principal amount of $20,000,000; WHEREAS, it is a condition precedent to the making of the Term Loan by the Lender pursuant to the Term Loan Agreement that the Pledgor shall have executed and delivered to the Lender this Agreement providing for the pledge to the Lender of, and the grant to the Lender of a security interest in, among other things, 463,655 shares of common stock issued by Riviera Holdings Corporation, 13,710,734 shares of common stock of CardioDynamics International Corporation and all of the issued and outstanding shares of stock of Carlo Corporation, together with other collateral hereinafter described and all proceeds of the foregoing; NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Lender to make and maintain the Term Loan, the Pledgor hereby agrees with the Lender as follows: SECTION 1. Definitions. Terms that are not otherwise defined herein shall have the same meanings herein as set forth in the Term Loan Agreement or in Article 8 or 9 of the Uniform Commercial Code (the "Code") as in effect from time to time in the State of New York. In addition, the following terms shall have the respective meanings indicated below (such meanings to be applicable equally to both the singular and plural forms of the terms defined): "Entitlement Orders", "Financial Assets", "Investment Property", "Securities Account" and "Securities Entitlement" have the meanings specified therefor in Uniform Commercial Code - Investment Securities, 1997 N.Y. Laws Ch. 566. "Jefferies Account" means account number 29102113 maintained by the Pledgor with Jefferies & Company, Inc., including, without limitation, all investments, securities and cash now or hereafter held in such account, together with any successor or replacement accounts. SECTION 2. Pledge and Grant of Security Interest. As collateral security for all of the Obligations (as defined in Section 3 hereof), the Pledgor hereby pledges and assigns, and grants a continuing security interest in, the following (the "Collateral") to the Lender: (a) the Jefferies Account; (b) all Investment Property now or hereafter delivered, transferred or assigned to, or deposited or credited to the Jefferies Account; (c) the indebtedness described in Schedule I hereto (the "Pledged Debt") issued by the corporation described on Schedule I (such corporation, together with any successor corporation, being hereinafter referred to as the "Debt Issuer"), the promissory notes, bonds, certificates and other instruments evidencing the Pledged Debt and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt (including, without limitation, any shares of capital stock received in respect of or in exchange for or upon conversion of any part of the Pledged Debt); (d) the shares of capital stock listed in Schedule II hereto (the "Pledged Shares") issued by the corporations described in such Schedule II (such corporations, together with any successor corporations, being hereinafter referred to collectively as the "Stock Issuers", and, together with the Debt Issuer, the "Issuers" and individually as an "Issuer"), the certificates representing the Pledged Shares, all options and other rights, contractual or otherwise, in respect thereof (including, without limitation, any registration rights) and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares, together with all certificates hereafter delivered to the Lender, the shares of stock from time to time represented by such certificates, all options and other rights, contractual or otherwise, in respect thereof and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares; (e) all cash and cash equivalents, Investment Property, Financial Assets, capital stock or other equity interests, notes, debentures, bonds, promissory notes or other evidences of indebtedness and all other securities deposited from time to time in the Jefferies Account or delivered to the Lender; (f) all books and records pertaining to the Collateral; (g) all General Intangibles arising from or relating to the Collateral; (h) all investment earnings and proceeds of any and all of the foregoing; and (i) all Securities Entitlements of the Pledgor in any and all of the foregoing; in each case, whether now owned or hereafter acquired by the Pledgor and howsoever such interest therein may arise or appear (whether by ownership, security interest, claim or otherwise). SECTION 3. Security for Obligations. The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (the "Obligations"): (a) the prompt payment by the Pledgor, as and when due and payable, of all amounts from time to time owing by the Pledgor to the Lender in respect of the Term Loan Agreement, the Note and all other Loan Documents, including, without limitation, principal of and interest on the Term Loan (including, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to bankruptcy, insolvency or reorganization of the Pledgor whether or not a claim for post filing interest is allowed in such proceedings) and all fees, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under the Term Loan Agreement and any other Loan Document; and (b) the due performance and observance by the Pledgor of all of his other obligations from time to time existing in respect of this Agreement, the Term Loan Agreement and the other Loan Documents to which he is a party. SECTION 4. Establishment of Collateral Accounts; Delivery of the Collateral. (a) Establishment of Collateral Accounts. The Pledgor has established and will maintain with Jefferies & Company, Inc. the Jefferies Account. Subject to the rights of the Pledgor under Section 7(a) hereof and the other terms and conditions of this Agreement, (A) the Jefferies Account shall be under the sole dominion and control of the Lender, (B) the Lender shall have the sole right to make withdrawals from the Jefferies Account and to exercise rights with respect to the cash and investments from time to time on deposit or held therein and (C) the Lender shall have the sole right to provide Entitlement Orders to Jefferies & Company, Inc. with respect to the Jefferies Account. The Collateral shall be held by Jefferies & Company, Inc. in the Jefferies Account pursuant to the terms hereof and the letter regarding Acknowledgment of Bailment for Pledged Securities (the "Jefferies Consent"), dated September 18, 1997 from the Lender and consented and agreed to by Jefferies & Company, Inc. and the Pledgor. All promissory notes, bonds, certificates and instruments in the Jefferies Account shall be held by Jefferies on behalf of the Lender pursuant hereto and the Jefferies Consent and shall be in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Lender. (b) Delivery of Collateral. (i) On or prior to the execution and delivery of this Agreement, all promissory notes, bonds and other instruments currently evidencing the Pledged Debt and all certificates representing the Pledged Shares shall be registered in the name of the Lender or delivered to the Lender and the Pledgor will take all action required to perfect the security interest of the Lender in all uncertificated or book- entry securities constituting Collateral. All other promissory notes, bonds, certificates and instruments constituting Collateral from time to time or required to be pledged to the Lender pursuant to the terms of this Agreement or the Term Loan Agreement, and all uncertificated or book-entry securities constituting collateral from time to time (the "Additional Collateral") shall, in the case of certificates and instruments, be registered in the name of the Lender or delivered to the Lender promptly upon the receipt thereof by or on behalf of the Pledgor and, in the case of uncertificated or book-entry securities, the Pledgor shall take such action as may be required to perfect the security interest of the Lender. All such promissory notes, bonds, certificates and instruments shall be held by or on behalf of the Lender pursuant hereto and shall be delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment or undated stock powers executed in blank, all in form and substance satisfactory to the Lender. Upon receipt by Pledgor of the Additional Collateral, a Pledge Amendment, duly executed by the Pledgor, in substantially the form of Schedule III hereto (a "Pledge Amendment") shall be delivered to the Lender, in respect of the Additional Collateral which are to be pledged pursuant to this Agreement, which Pledge Amendment shall from and after delivery thereof constitute part of Schedules I and II. The Pledgor hereby authorizes the Lender to attach each Pledge Amendment to this Agreement and agrees that all promissory notes, bonds, certificates or instruments listed on any Pledge Amendment delivered to the Lender shall for all purposes hereunder constitute Collateral and the Pledgor shall be deemed upon delivery thereof to have made the representations and warranties set forth in Section 5 with respect to such Additional Collateral. (ii) If the Pledgor shall receive, by virtue of the Pledgor's being or having been an owner of any Collateral, any (A) certificated security (including, without limitation, any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spinoff or split-off), promissory note, chattel paper or other instrument, (B) option or right, whether as an addition to, substitution for, or in exchange for, any Collateral, or otherwise, (C) dividends payable in cash (except such dividends permitted to be retained by the Pledgor pursuant to Section 7(a) hereof) or in securities or other property or (D) dividends or other distributions in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, the Pledgor shall receive such certificated security, promissory note, chattel paper, instrument, option, right, payment or distribution in trust for the benefit of the Lender, shall segregate it from the Pledgor's other property and shall deliver it forthwith to the Lender in the exact form received, with any necessary indorsement and/or appropriate stock powers duly executed in blank, to be held by the Lender as Collateral and as further collateral security for the Obligations. SECTION 5. Representations and Warranties. The Pledgor represents and warrants as follows: (a) The Pledgor has the legal capacity and right to execute, deliver and perform this Agreement. (b) The execution, delivery and performance by the Pledgor of this Agreement (i) do not and will not contravene any law or any contractual restriction binding on or affecting the Pledgor or any of his properties; and (ii) do not and will not result in or require the creation of any Lien upon or with respect to any of his properties. (c) This Agreement has been duly executed and delivered by the Pledgor and constitutes the legal, valid and binding obligation of the Pledgor, enforceable against the Pledgor in accordance with its terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (d) The promissory notes and bonds currently evidencing the Pledged Debt have been, and all other promissory notes, bonds or other instruments from time to time evidencing Pledged Debt, when executed and delivered, will have been, duly authorized, executed and delivered by the respective makers thereof, and all such promissory notes, bonds or other instruments are or will be, as the case may be, legal, valid and binding obligations of such makers, enforceable against such makers in accordance with their respective terms. The information set forth in Schedule I hereto is accurate and complete. (e) The Pledged Shares are fully paid and nonassessable and, to the best of the Pledgor's knowledge, have been duly authorized and validly issued. All other shares of stock constituting Collateral will be duly authorized and validly issued, fully paid and nonassessable. The information set forth in Schedule II hereto is accurate and complete. (f) There is no action, suit or proceeding pending or, to the Pledgor's knowledge, threatened or otherwise affecting this Agreement or any other Loan Document or the Pledgor or the Jefferies Account before any court or other Governmental Authority or regulatory body or arbitrator that is reasonably likely to materially adversely affect the financial condition of the Pledgor or the Pledgor's ability to perform his obligations hereunder, under the Term Loan Agreement or under any other Loan Documents to which the Pledgor is a party. (g) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other regulatory body or any other Person is required for (i) the due execution, delivery and performance by the Pledgor of this Agreement, the Term Loan Agreement or any other Loan Document to which the Pledgor is a party, (ii) the grant by the Pledgor, or the perfection, of the Lien purported to be created hereby in the Collateral or (iii) the exercise by the Lender of any of its rights and remedies hereunder, except as may be required in connection with any sale of any Collateral by laws affecting the offering and sale of securities generally. (h) The Pledgor is and will be at all times the legal and beneficial owner of the Collateral, free and clear of any lien, option or other charge or encumbrance except for the Lien created by this Agreement. There is no financing statement naming the Pledgor as debtor (or similar documents or instrument of registration under the law of any jurisdiction) now on file or registered in any public office covering any interest of the Pledgor in the Collateral except such as may have been filed in favor of the Lender relating to this Agreement. (i) This Agreement creates a valid security interest in favor of the Lender in the Collateral, as security for the Obligations. Jefferies & Company, Inc. having credited to the Jefferies Account all certificates, instruments and cash constituting Collateral from time to time, the execution and delivery of the Jefferies Consent, the Lender's having possession of the Pledged Shares and all other certificates, instruments and cash constituting Collateral and the Lender having control over all other Collateral from time to time collectively result in the perfection of such security interest. Such security interest is, or in the case of Collateral in which the Pledgor obtains rights after the date hereof, will be, a perfected, first priority security interest. All action necessary or desirable to perfect and protect such security interest has been duly taken, except for the Lender's and/or Jefferies & Company, Inc.'s having possession of certificates, instruments and cash constituting Collateral after the date hereof or the Lender's and/or Jefferies & Company, Inc.'s having control over all other Collateral arising after the date hereof. SECTION 6. Covenants as to the Collateral. So long as any of the Obligations shall remain outstanding, unless the Lender shall otherwise consent in writing: (a) Records. The Pledgor will keep adequate records concerning the Collateral and permit the Lender or any agents or representatives of the Lender at any reasonable time and from time to time to examine and make copies of and abstracts from such records. (b) Notices. The Pledgor will, at the expense of the Pledgor, promptly deliver to the Lender a copy of each material notice or other material communication received by it in respect of any of the Collateral, together with a copy of any reply by the Pledgor thereto. (c) Defend Title. The Pledgor will, at the reasonable request of the Lender and at the expense of the Pledgor, defend his right, title and interest in and to the Collateral against the claims of any Person. (d) Further Assurances. The Pledgor will, at the expense of the Pledgor, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Lender may reasonably request in order (i) to perfect and protect the security interest created or purported to be created hereby (whether pursuant to laws, rules, regulations or general practices currently in effect or adopted subsequent to the date hereof); (ii) to enable the Lender to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) to otherwise effect the purposes of this Agreement, including, without limitation: (A) at the request of the Lender, marking conspicuously each of the records of the Pledgor pertaining to the Collateral with a legend, in form and substance satisfactory to the Lender, indicating that such Collateral is subject to the security interest created hereby; (B) if any Collateral shall be evidenced by a certificated security, promissory note or other instrument or chattel paper, delivering and pledging to the Lender hereunder such certificated security, note, instrument or chattel paper duly indorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Lender; (C) delivering to the Lender irrevocable proxies in respect of the Collateral and executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Lender may request in order to perfect and preserve the security interest created or purported to be created hereby; and (D) furnishing to the Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender may reasonably request, all in reasonable detail. (e) Transfers and Other Restrictions. The Pledgor will not (i) sell, assign (by operation of law or otherwise), exchange or otherwise dispose of any of the Collateral (except as permitted by Section 7(a) hereof); or (ii) create or suffer to exist any (A) Lien upon or with respect to any of the Collateral except the Lien created by this Agreement or (B) contractual restriction on the transferability of any of the Collateral. (f) Issuance of Additional Securities. In the case of Collateral issued by Carlo, the Pledgor will not permit the issuance of (i) any additional shares of any class of capital stock of any such Person, (ii) any securities convertible voluntarily by the holder thereof or automatically upon the occurrence or non-occurrence of any event or condition into, or exchangeable for, any such shares of capital stock or (iii) any warrants, options, contracts or other commitments entitling any Person to purchase or otherwise acquire any such shares of capital stock. (g) Other Actions. The Pledgor will not take or fail to take any action that would in any manner impair the value or enforceability of the Lender's security interest in the Collateral. SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Collateral; Withdrawal and Sale of Collateral. (a) So long as no Event of Default shall have occurred and be continuing: (i) the Pledgor may exercise any and all voting and other consensual rights pertaining to the Collateral in a manner not inconsistent with the terms of this Agreement or the other Loan Documents; provided, however, that (A) the Pledgor will not exercise or refrain from exercising any such right, as the case may be, if the Lender gives the Pledgor notice that, in the Lender's judgment, such action would have an adverse effect on the value of any Collateral and (B) the Pledgor will give the Lender at least five days' notice of the manner in which the Pledgor intends to exercise, or the reasons for refraining from exercising, any such right; (ii) Any and all dividends or interest paid or payable in cash in respect of the Collateral shall forthwith be paid to the Lender pursuant to Section 2.05(a) of the Term Loan Agreement and shall, if received by the Pledgor, be received in trust for the benefit of the Lender, shall be segregated from the other property or funds of the Pledgor, and shall forthwith be paid to the Lender. Any and all dividends or interest paid or payable other than in cash in respect of the Collateral shall forthwith be delivered to the Lender or Jefferies & Company, Inc., as applicable, to hold as Collateral and shall, if received by the Pledgor , be received in trust for the benefit of the Lender, shall be segregated from the other property or funds of the Pledgor, and shall forthwith be delivered to the Lender or Jefferies & Company, Inc., as applicable, in the exact form received with any necessary indorsement and/or appropriate stock powers duly executed in blank, to be held, by the Lender or by Jefferies & Company, Inc. in the Jefferies Account, as the case may be, as Collateral hereunder; (iii) the Lender will execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights that the Pledgor is entitled to exercise pursuant to paragraph (i) of this Section 7(a) and to receive the dividends, if any, that it is authorized to receive and retain pursuant to paragraph (ii) of this Section 7(a); and (iv) all investments from time to time in the Jefferies Account and the non-cash proceeds thereof shall remain in the Jefferies Account (except for withdrawals by the Lender after an Event of Default) and the Pledgor may not withdraw any part of the Collateral from the Jefferies Account. (b) Upon the occurrence and during the continuance of an Event of Default: (i) all rights of the Pledgor to exercise the voting and other consensual rights that the Pledgor would otherwise be entitled to exercise pursuant to paragraph (i) of this Section 7(a), and to receive the dividends and interest payments and other distributions that the Pledgor would otherwise be authorized to receive and retain pursuant to paragraph (ii) of this Section 7(a), shall cease, and (A) all such rights shall thereupon become vested in the Lender, which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Collateral such dividends and interest payments, and (B) the Pledgor shall execute and deliver all such proxies and other instruments as the Lender may reasonably request for the purpose of enabling the Lender to exercise the voting and other rights that it is entitled to exercise pursuant to this Section 7(b)(i); (ii) the Lender is authorized to notify each debtor with respect to the Pledged Debt to make payment directly to the Lender and may collect any and all moneys due or to become due to the Pledgor in respect of the Pledged Debt and the Pledgor hereby authorizes each such debtor to make such payment directly to the Lender without any duty of inquiry; (iii) without limiting the generality of the foregoing, the Lender may at its option exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Collateral as if it were the absolute owner thereof, including, without limitation, the right to exchange, in its discretion, any and all of the Collateral upon the merger, consolidation, reorganization, recapitalization or other adjustment of any Issuer of Collateral, or upon the exercise by any Issuer of Collateral of any right, privilege or option pertaining to any Collateral, and, in connection therewith, to deposit and deliver any and all of the Collateral with any committee, depository, transfer agent, registrar or other designated agent upon such terms and conditions as it may determine; and (iv) all dividends and interest payments and other distributions that are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 7(b) shall be received in trust for the benefit of the Lender, shall be segregated from the other funds of the Pledgor, and shall be forthwith paid over to the Lender and/or Jefferies & Company, Inc. as Collateral in the exact form received with any necessary indorsement and/or appropriate stock powers duly executed in blank, to be held by the Lender and/or Jefferies & Company, Inc. as Collateral hereunder. SECTION 8. Additional Provisions Concerning the Collateral. (a) The Pledgor hereby authorizes the Lender to file, without the signature of the Pledgor where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral. (b) The Pledgor hereby irrevocably appoints the Lender the Pledgor's attorney-in-fact and proxy, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Lender's discretion, to take any action and to execute any instrument (at the expense of the Pledgor) that the Lender may reasonably deem necessary or advisable to accomplish the purposes of this Agreement including, without limitation, (i) at any time and from time to time, to receive, indorse and collect all instruments made payable to the Pledgor representing any distribution in respect of any Collateral and to give full discharge for the same, and (ii) to receive, indorse and collect any drafts or other instruments, documents and chattel paper representing any dividend or other distribution in respect of the Collateral and, in addition to the foregoing and without limitation: (A) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral and to receive, indorse, and collect any drafts or other instruments, documents and chattel paper in connection therewith; and (B) for the collection of any of the Collateral or otherwise to enforce the rights of the Lender with respect to any of the Collateral; provided, however, that the Lender shall exercise such powers only during the occurrence and continuance of an Event of Default. (c) If the Pledgor fails to perform any agreement contained herein, the Lender (immediately after giving notice to the Pledgor) may itself perform, or cause performance of, such agreement or obligation, and the expenses of the Lender incurred in connection therewith shall be payable by the Pledgor pursuant to Section 10 hereof, together with interest from the date such expenses are paid by the Lender until repaid in full, at the rate for overdue principal under the Term Loan Agreement, all payable on demand. (d) The Lender may at any time in its discretion (i) without prior notice to the Pledgor, transfer or register in the name of the Lender or any of its nominees any or all of the Collateral (it being understood that the Lender will give prompt notice to the Pledgor immediately after any such transfer or register), and (ii) exchange certificates or instruments constituting Collateral for certificates or instruments of smaller or larger denominations. (e) Other than the exercise of reasonable care to assure the safe custody of the Collateral while held by the Lender hereunder, the Lender shall have no duty or liability to preserve rights pertaining thereto and shall be relieved of all responsibility for the Collateral upon surrendering it or tendering surrender of it to the Pledgor. The Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Lender accords its own property, it being understood that the Lender shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not the Lender has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Collateral. SECTION 9. Remedies Upon Event of Default. If any Event of Default shall have occurred and be continuing: (a) The Lender may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party on default under the Code then in effect in the State of New York (whether or not the Code applies to the affected Collateral); and without limiting the generality of the foregoing, also may (i) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or elsewhere, at such price or prices and on such other terms as the Lender may deem commercially reasonable. In addition, the Lender may, at any time and from time to time, upon the occurrence and during the continuance of an Event of Default, direct that Jefferies & Company, Inc. immediately deliver to the Lender all or part of the Collateral. The Lender may apply all or part of the cash and/or other investments constituting Collateral to the payment of all or any part of the Obligations in such manner as the Lender may elect. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least 10 days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Pledgor agrees that in any sale of any Collateral hereunder the Lender is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law, rule or regulation (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchases to Persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchasers by any Governmental Authority or official, and the Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Lender be liable or accountable to the Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. (c) Notwithstanding the provisions of subsection (b) of this Section 9, the Pledgor recognizes that the Lender may deem it impracticable to effect a public sale of all or any part of the Collateral and that the Lender may, therefore, determine to make one or more private sales of any such Collateral to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms that might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such private sales shall be deemed to have been made in a commercially reasonable manner and that the Lender shall have no obligation to delay sale of any such securities for the period of time necessary to permit the Issuer of any securities constituting Collateral to register such securities for public sale under the Securities Act of 1933, as amended. The Pledgor further acknowledges and agrees that any offer to sell such securities that has been (i) publicly advertised on a bona fide basis in a newspaper or other publication of general circulation in the financial community of New York, New York (to the extent that such an offer may be so advertised without prior registration under the Securities Act of 1933, as amended) or (ii) made privately in the manner described above to not less than fifteen bona fide offerees shall be deemed to involve a "public sale" for the purposes of Section 9-504(3) of the Code (or any successor or similar, applicable statutory provision) as then in effect in the State of New York, notwithstanding that such sale may not constitute a "public offering" under the Securities Act of 1933, as amended, and that the Lender may, in such event, bid for and purchase such securities. (d) Any cash held by the Lender as Collateral and all cash or other proceeds received by the Lender in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral may, in the discretion of the Lender, be held by the Lender as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Lender pursuant to Section 10 hereof) in whole or in part by the Lender against, all or any part of the Obligations in such order as the Lender shall elect. Any surplus of such cash or other proceeds held by the Lender and remaining after payment in full of all of the Obligations shall be paid over to the Pledgor or to such Person as may be lawfully entitled to receive such surplus. (e) The Pledgor shall (i) subject to clause (ii) below, hold any dividends, interest or other distributions which it receives with respect to the Collateral in trust for the Lender, separate from all other moneys of the Pledgor, and (ii) forthwith transfer such dividends, interest or other distributions to the Lender. Notwithstanding the foregoing, the Pledgor may not take any action under this Section with respect to the Collateral that, in the Lender's judgment, (i) would in any way affect the lien of this Agreement with respect to any Collateral, or impair the interest or rights of the Lender therein or (ii) would otherwise be inconsistent with the provisions of this Agreement or the Term Loan Agreement or result in a violation hereof or thereof. (d) In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Lender is legally entitled, the Pledgor shall be liable for the deficiency, together with interest thereon at the highest rate specified in the Term Loan Agreement for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees of any attorneys employed by the Lender to collect such deficiency. SECTION 10. Indemnity and Expenses. (a) The Pledgor agrees to indemnify the Lender from and against any and all claims, losses and liabilities (including, without limitation, the reasonable fees, client charges and other expenses of the Lender's counsel) growing out of or resulting from this Agreement or the enforcement of any of the terms hereof (including, without limitation, the sale of Collateral pursuant to a public or private offering and each and every document produced in furtherance thereof), except claims, losses or liabilities resulting from the Lender's gross negligence or willful misconduct. (b) The Pledgor agrees to pay to the Lender on demand the amount of any and all costs and expenses, including the reasonable fees and other client charges of the Lender's counsel and of any experts and agents, that the Lender may incur in connection with (i) the administration and termination of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral (including, without limitation, fees or commissions of any broker), (iii) the exercise or enforcement of any of the rights of the Lender hereunder, (iv) the failure by the Pledgor to perform or observe any of the provisions hereof, or (v) obtaining any public information regarding any Issuer of Collateral which the Lender, in its sole discretion, deems prudent to obtain. SECTION 11. Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be mailed, telecopied, telexed or delivered, if to the Pledgor, to him at the address set forth in the Term Loan Agreement, if to the Lender, to it at its address set forth in the Term Loan Agreement; or as to any such Person at such other address as shall be designated by such Person in a written notice to such other Persons complying as to delivery with the terms of this Section 11. All such notices and other communications shall be effective (i) if mailed, when received or three Business Days after mailing, whichever occurs first; (ii) if telecopied, when transmitted and the appropriate confirmation is received, (iii) if telexed, when the appropriate answerback is received; or (iv) if delivered, upon delivery. SECTION 12. Miscellaneous. (a) No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Pledgor and the Lender, and no waiver of any provision of this Agreement, and no consent to any departure by the Pledgor therefrom, shall be effective unless it is in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Lender provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Lender against the Pledgor under any Loan Document are not conditional or contingent on any attempt by the Lender to exercise any of its rights under any other Loan Document against the Pledgor or against any other Person. (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. (d) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the Obligations have been satisfied in full; and (ii) be binding on the Pledgor and his heirs, executors, administrators, successors and assigns and shall inure, together with all rights and remedies of the Lender hereunder, to the benefit of the Lender and its successors, transferees and assigns. The Lender may assign or transfer, as collateral or otherwise, any or all of its interest hereunder and under the other Loan Documents. None of the rights or obligations of the Pledgor hereunder may be assigned or otherwise transferred without the prior written consent of the Lender. (e) Upon the satisfaction in full of the Obligations after the termination of the Term Loan Agreement (i) this Agreement and the security interest created hereby shall terminate and all rights to the Collateral shall revert to the Pledgor, and (ii) the Lender will, upon the Pledgor's request and at the Pledgor's expense, (A) return to the Pledgor such of the Collateral held by the Lender, and instruct Jefferies & Company, Inc. to return to the Pledgor such of the Collateral held in the Jefferies Account as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof and (B) execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. (f) This Agreement shall be governed by and construed in accordance with the law of the State of New York, except as required by mandatory provisions of law and except to the extent that the perfection and the effect of perfection or non-perfection of the security interest created hereby, or remedies hereunder, in respect of any particular Collateral are governed by the law of a jurisdiction other than the State of New York. (g) Section headings in this Agreement are included herein for the convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (h) This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. SECTION 13. Security Interest Absolute. All rights of the Lender, all security interests and all obligations of the Pledgor hereunder shall be absolute and unconditional irrespective of (i) any lack of validity or enforceability of the Term Loan Agreement or of any Loan Document or any other agreement, instrument or document relating thereto, (ii) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations, or any other amendment or waiver of or consent to any departure from the Term Loan Agreement or any Loan Document or any other agreement, instrument or document relating thereto, (iii) any exchange or release of, or non-perfection of any lien on, any collateral for any of the Obligations, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of any of his obligations under the Term Loan Agreement or the other Loan Documents, or the Pledgor in respect of any of the Obligations. SECTION 14. OTHER AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. SECTION 15. CONSENT TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PLEDGOR HEREBY IRREVOCABLY ACCEPTS FOR HIMSELF IN RESPECT OF HIS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PLEDGOR AT HIS ADDRESS FOR NOTICES CONTAINED IN SECTION 7.01 OF THE TERM LOAN AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. THE PLEDGOR HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE PLEDGOR IN ANY OTHER JURISDICTION. SECTION 16. WAIVER OF JURY TRIAL, ETC. THE PLEDGOR AND THE LENDER EACH HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE PLEDGOR HEREBY WAIVES ANY RIGHT HE MAY HAVE TO CLAIM OR RECOVER IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE PLEDGOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE PLEDGOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT. IN WITNESS WHEREOF, the Pledgor has executed and delivered this Agreement as of the date first above written. ALLEN E. PAULSON Acknowledged and Consented to: MADELEINE L.L.C. By:______________________________ Name: Title: SCHEDULE I TO PLEDGE AGREEMENT Pledged Debt Description and Original Name of Payee Date of Instrument Principal Amount ------------- ------------------ ---------------- Borrower Promissory Note dated $21,371,194.35 December 31, 1996 made by Carlo Corporation to the Borrower SCHEDULE II TO PLEDGE AGREEMENT Pledged Shares Name of Number of Certificate Issuer/Payee Shares/Amount Class/Description Numbers ------------ ------------- ----------------- ----------- Riviera Holdings 463,655 Common * Corporation Carlo Corporation 1,000 Common 1 CardioDynamics 13,699,734 Common C0898 International C0661 Corporation C0409 C0507 CardioDynamics 11,000 Common * International Corporation -------------------- * Held through Jefferies & Company, Inc. * -----END PRIVACY-ENHANCED MESSAGE-----