UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K




ANNUAL
REPORT


PURSUANT
TO SECTIONS 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934




(Mark
One)




x
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the fiscal year ended December 31,
2008




OR




 ̈
            TRANSITION REPORT TO SECTION 13
      OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934


For
      the transition period from __________ to
  __________




Commission
file number 000-21430





RIVIERA HOLDINGS
  CORPORATION(Exact
      Name of Registrant as Specified in its Charter)Nevada
                      
                      88-0296885(State
      or other jurisdiction of incorporation or organization)
                      
                      (I.R.S.
      Employer Identification No.)2901
      Las Vegas Boulevard SouthLas
      Vegas,
      Nevada
                      
                      89109(Address
      of principal executive offices)
                      
                      (Zip
      code)Registrant’s
      telephone number, including area code:  (702)
      734-5110





Securities
registered pursuant to Section 12(b) of the Act:





Title of each class
                  
                  Name of each exchange on which
      registeredCommon
      Stock, $.001 par value
                  
                  NYSE
      Amex





Securities
registered pursuant to Section 12 (g) of the Act:




Common Stock, $.001 par
    value(Title
      of class)





Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.   Yes  ̈   No
x




Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.   Yes  ̈   No
x




Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes x   No
 ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x




Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.  (Check one):




Large
      accelerated filer
                   ̈
                  
                  Non-accelerated
      filer
                   ̈Accelerated
      filer
                  x
                  
                  Smaller
      Reporting Company
                   ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.   Yes  ̈   No
x




Based on
the closing sale price of the registrant's common stock on the NYSE Amex on June
30, 2008, the aggregate market value of the common stock held by non-affiliates
of the registrant was $126,860,333.




As of
March 30, 2009, the number of outstanding shares of the registrant's common
stock was 12,477,855.







Page 1 of
93 pages


Exhibit
Index Appears on Page 90 hereof









RIVIERA
HOLDINGS CORPORATION AND SUBSIDIARY


ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL


YEAR
ENDED DECEMBER 31, 2008




TABLE
OF CONTENTS




Item
      1.
                                            Business
                                            1General
                                            1Recent
      Events
                                            1Riviera
      Las Vegas
                                            2Riviera
      Black Hawk
                                            7Geographical
      Markets
                                            8Competition
                                            10Employees
      and Labor Relations
                                            12Regulation
      and Licensing
                                            12Federal
      Registration
                                            22Item
      1A.
                                            Risk
      Factors
                                            22Item
      1B.
                                            Unresolved
      Staff Comments
                                            35Item
      2.
                                            Properties
                                            35Item
      3.
                                            Legal
      Proceedings
                                            36Item
      4.
                                            Submission
      of Matters to a Vote of Security Holders
                                            36Item
      5.
                                            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                            36Item
      6.
                                            Selected
      Financial Data
                                            39Item
      7.
                                            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                            39Results
      of Operations
                                            402008
      Compared to 2007
                                            402007
      Compared to 2006
                                            46Liquidity
      and Capital Resources
                                            48Current
      Economic and Operating Environment
                                            49Off-Balance
      Sheet Arrangements
                                            49Contractual
      Obligations
                                            50Critical
      Accounting Policies and Estimates
                                            50Recently
      Issued Accounting Standards
                                            52Forward-Looking
      Statements
                                            53Item
      7A.
                                            Quantitative
      and Qualitative Disclosures about Market Risk
                                            55Item
      8.
                                            Financial
      Statements and Supplementary Data
                                            56Item
      9.
                                            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                            57




i


Item
      9A.
                                  Controls
      and Procedures
                                  57Item
      9B.
                                  Other
      Information
                                  58Item
      10.
                                  Directors,
      Executive Officers and Corporate Governance
                                  58Item
      11.
                                  Executive
      Compensation
                                  63Item
      12.
                                  Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                  83Item
      13.
                                  Certain
      Relationships and Related Transactions and Director
      Independence
                                  86Item
      14.
                                  Principal
      Accounting Fees and Services
                                  87Item
      15.
                                  Exhibits,
      Financial Statement Schedules
                                  88
  ii
  PART
I
  Item
      1.
              Business
  General
  Riviera
Holdings Corporation, a Nevada corporation (the “Company”), through its
wholly-owned subsidiary, Riviera Operating Corporation, owns and operates the
Riviera Hotel & Casino (“Riviera Las Vegas”) located on the Las Vegas
Boulevard in Las Vegas, Nevada. Riviera Las Vegas, which opened in 1955, has a
long-standing reputation for delivering traditional Las Vegas-style gaming,
entertainment and other amenities.  The Company was incorporated in
Nevada on January 27, 1993.
  The
Company, through its wholly owned subsidiary, Riviera Black Hawk, Inc., owns and
operates the Riviera Black Hawk Casino (“Riviera Black Hawk”), a limited-stakes
casino in Black Hawk, Colorado, which opened on February 4, 2000.
  The
Company determines segments based upon geographic gaming markets and reviews
corporate expenses separately.  The Company has two segments: the Las
Vegas, Nevada market and the Black Hawk, Colorado
market.  Operating results for each segment are disclosed in Note 18
of the Notes to the Consolidated Financial Statements included in this
document.
  The
Company maintains an Internet website at www.rivierahotel.com and
makes available on the website, free of charge, the Company’s Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
any and all amendments to such reports, filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as soon as reasonably practicable after the Company electronically files
such material with, or furnishes it to, the United States Securities and
Exchange Commission (the “SEC”).  The Company has included its website
address in this filing only as a textual reference.  The information
contained on that website is not incorporated by reference into this Annual
Report on Form 10-K.
  Recent
Events
  Our
current debt consists of a seven year $225 million term loan which matures on
June 8, 2014 (the “Term Loan”) and a $20 million five year revolving credit
facility (the “Revolving Credit Facility” together with the Term Loan, the “New
Credit Facility”).  On February 26, 2009, the Company received a
notice of default on its New Credit Facility (see Note 10 to the Consolidated
Financial Statements contained in this Form 10-K for the year ended
December 31, 2008) from Wachovia Bank, National Association (“Wachovia”),
the administrative agent.  The notice of default (the “Notice”)
relates to our New Credit Facility and is the result of the Company’s failure to
provide a Deposit Account Control Agreement (a “DACA”) from each of the
Company’s depository banks per a request made by Wachovia to the Company on
October 14, 2008.  The DACA that Wachovia requested the Company to
execute was in a form that the Company ultimately determined to contain
unreasonable terms and conditions as it would enable Wachovia to access all of
the Company’s operating cash and order it to be transferred to a bank account
specified by Wachovia.  The Notice further provides that as a result
of the default, the Company will no longer have the option to request LIBOR Rate
loans.  As a result of losing the availability of LIBOR Rate loans under
the New Credit Facility, the interest rate on the Term Loan will increase from
approximately 7.5% to 8.5% and the interest rate for the Revolving Credit
Facility will remain the same.
  1
  On March
25, 2009, we engaged XRoads Solution Group LLC as our financial
advisor.  Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the accrued interest of
approximately $4 million on our $245 million New Credit Facility, which was due
March 30, 2009. Consequently, we elected not to make the payment. The
Company’s failure to pay interest due on any loan within our New Credit Facility
within a three-day grace period from the due date is an event of default under
our New Credit Facility.  We do not plan to pay the interest due
within the three-day grace period.  As a result of this event of
default, the Company's lenders have the right to seek to charge additional
default interest in the amount of 2% on the Company’s outstanding principal and
interest under our credit agreement (the “Credit Agreement”), and automatically
charge additional default interest of 1% on any overdue amounts under the
interest rate swap agreement (the “Swap Agreement”) we entered in conjunction
with our New Credit Facility.  These defaults rates are in addition to
the interest rates that would otherwise be applicable under the Credit Agreement
and Swap Agreement.  We believe that the Company’s lenders will seek
to apply these higher default interest rates as a result of the Company’s
failure to make the interest payment due on March 30, 2009.
  We
entered into discussions with Wachovia to negotiate a waiver or forbearance
regarding the Notice and the anticipated payment default and an anticipated
going concern default (see discussion below).  If we are not
successful in negotiating a waiver or forbearance agreement with the Company’s
lenders regarding the Notice and the anticipated payment and going
concern defaults, Wachovia and the lenders under the New
Credit Facility would: have the ability to accelerate repayment of all
amounts outstanding under the New Credit Facility ($227.5 million at
December 31, 2008), to commence foreclose on some or all of our assets
securing the debt, or exercise other rights and remedies granted under the New
Credit Facility and as may be available pursuant to applicable
law.  In addition, Wachovia, under our interest rate swap agreement,
can terminate the interest rate swap agreement and accelerate repayment of the
amount outstanding under that agreement ($30.2 million at December 31,
2008).  If the New Credit Facility and interest rate swap indebtedness
were to be accelerated, we would be required to refinance or restructure the
payments on that debt.  We cannot assure you that we would be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary.  If we were unable to do so, we would likely be compelled to
seek protection under Chapter 11 of the U. S. Bankruptcy Code.
  Our
independent registered public accounting firm has included an explanatory
paragraph that expresses substantial doubt as to our ability to continue as a
going concern in their audit report contained in this Form 10-K report for the
year ended December 31, 2008.
  Riviera
Las Vegas
  General
  Riviera
Las Vegas is located on the corner of Las Vegas Boulevard and Riviera Boulevard
in Clark County, Nevada, across Las Vegas Boulevard from the Circus Circus Las
Vegas Resort and Casino and the Echelon construction project and just south of
the Fontainebleau construction project.  Boyd Gaming Corporation, the
owner of the Echelon construction project, suspended construction on the project
indefinitely due to financing related issues.  The Fontainebleau
property is scheduled to be completed and opened late in 2009 or early in
2010.
  Riviera
Las Vegas targets slot machine and low to mid-level stakes table game customers
(customers that wager less on average) and various convention groups with a
focus on creating repeat customers and increasing our loyalty program
membership.  Key elements of this strategy include offering a
value-oriented experience by providing hotel rooms, restaurants and traditional
Las Vegas shows and other entertainment at reasonable prices.
  2
  Gaming
  Riviera
Las Vegas has approximately 100,000 square feet of casino space.  The
casino currently has approximately 900 slot machines and 35 gaming tables,
including blackjack, craps, roulette, pai gow poker, Caribbean Stud® Poker,
Three Card Poker, Let It Ride®, 3-5-7
Poker, Texas Hold’em Bonus Poker and mini-baccarat.  The casino also
includes a poker room and a race and sports book, which is operated by Leroy’s,
a subsidiary of American Wagering, Inc.
  Our
gaming offerings are continually updated to respond to changing market
conditions and customer demands in order to attract new customers and encourage
repeat business.  Based on customer feedback and performance reviews,
new and innovative slot machines and table games are regularly
introduced.  We devote substantial time and attention to evaluating
our slot machine and table games product focusing on the type and location of
the gaming product as well as the level of player activity.
  Our
current marketing programs are directed at mid-level stakes gaming customers
(customers that wager less on average) as opposed to high stakes customers
(customers that wager more on average).  Mid-level stakes gaming
customers tend to provide us with a less volatile, more consistent gaming
revenue stream.  Consistent with our focus on mid-level stakes gaming
customers, we offer lower table game limits, stricter credit policies and higher
emphasis on developing more slot machine play.  Our principal strategy
is to continue to invest in our slot machines and table game products, market to
our customer base primarily through a multi-tiered player’s club program (“Club
Riviera”) and to methodically offer slot machine and poker tournaments and other
special events and promotions.  We store all of our Club Riviera
player’s information in a proprietary database program, which we also use for
sending invitations to special promotions and offerings to Club Riviera
members.  During 2008, we continued to invest in and maintain our
casino floor including our ticket-in ticket out (“TITO”) system, which was fully
implemented in 2007, and our new Crazy Leroy’s Race and Sports Book Bar &
Grill, which opened February 2008.
  Hotel
  Riviera
Las Vegas’ hotel is comprised of five towers with 2,075 guest rooms,
including 177 suites, as follows:
  Tower
      Description
                      
                      Year
                          Built
                      
                      Std.
                          Rooms
                      
                      
                      Suites
                      
                      
                      Total
                      
                      Latest
                          Remodel
                          YearNorth
      Tower
                      
                      1955
                      
                      
                      379
                      
                      
                      
                      11
                      
                      
                      
                      390
                      
                      2008South
      Tower
                      
                      1967
                      
                      
                      132
                      
                      
                      
                      30
                      
                      
                      
                      162
                      
                      2008Monte
      Carlo
                      
                      1974
                      
                      
                      216
                      
                      
                      
                      81
                      
                      
                      
                      297
                      
                      2005San
      Remo
                      
                      1977
                      
                      
                      241
                      
                      
                      
                      6
                      
                      
                      
                      247
                      
                      2008Monaco
                      
                      1988
                      
                      
                      930
                      
                      
                      
                      49
                      
                      
                      
                      979
                      
                      2008Total
                      
                      
                      
                      
                      1,898
                      
                      
                      
                      177
                      
                      
                      
                      2,075
 
 During
2007, we announced plans to remodel all of our guest rooms.  The
budget for the guest room remodel is $23.0 million.  As of December
31, 2008, $18.7 million was spent on the project and the remodeling of four of
our five hotel towers was completed.  We expect to finish remodeling
the remaining tower once economic conditions improve.
  3
  Available
room inventory in the Las Vegas area increased 5.7% from 132,947 to 140,529 as
of December 31, 2007 and 2008, respectively.  In the Las Vegas area,
hotel occupancy was 89.8% in 2008 compared to 94.0% in 2007 and average daily
room rates were $119.19 in 2008 compared to $132.09 in 2007.  See Part
II, Item 7 below for discussion and analysis of Riviera Las Vegas’ hotel
occupancy and average room rates.
  Restaurants
  The
quality, value and variety of food services offered are critical components to
attracting visitors to Riviera Las Vegas.  Riviera Las Vegas offers
four bars, four restaurants and serves approximately 4,000 meals per day on
average, which includes meals served during banquet events or through room
service.  The buffet features cuisine from various countries as well
as a carving station.  In 2006, Kady’s Coffee Shop was remodeled with
new carpet, chairs and flat panel televisions.
  The
following outlines the type of service provided and total seating capacity for
each restaurant:
  Name
                    
                    Type
                    
                    SeatingCapacityKady's
                    
                    Coffee
      Shop
                    
                    
                    290Kristofer's
                    
                    Steak
      and Seafood
                    
                    
                    162Ristorante
      Italiano *
                    
                    Italian
                    
                    
                    126World's
      Fare Buffet
                    
                    All-you-can-eat
                    
                    
                    366Total
                    
                    
                    
                    
                    944
 
 * closed temporarily commencing
February 2009
 
 In
addition, Riviera Las Vegas operates three snack bars and has a 200 seat
fast-food “food court” which had several fast food locations operating during
2008.  The food court operation was managed by and leased to a third
party until November 2008.  We commenced leasing out the food court
locations to independent fast food operators in December 2008.  As of
February 20, 2009, we had leased two locations to separate tenants and intend to
lease the remaining locations by December 31, 2009.  Riviera Las Vegas
also leases space to the operator of The Banana Leaf Restaurant which is a full
service restaurant serving Asian cuisine.  The Banana Leaf Restaurant,
which is located adjacent to the casino floor, opened in the first quarter of
2007.
  Convention
Center
  Riviera
Las Vegas features 160,000 square feet of convention, meeting and banquet
space.  The convention center is one of the largest convention
facilities in Las Vegas and is an important feature that attracts customers. The
facility can be reconfigured for multiple meetings of small groups or large
gatherings of up to 5,000 people.  The Royal Pavilion, which is
the newest addition to our convention facility, opened in February 1999 and is
approximately 60,000 square feet in size.  The Royal Pavilion features
convention, meeting and banquet facilities in addition to teleconferencing,
wireless Internet and satellite uplink capabilities, plus, 12
skyboxes.
  Riviera
Las Vegas hosted 344 conventions in 2008.  The hotel currently has
over 690,000 convention-related advance hotel room night bookings through 2013
consisting of over 338,000 definite hotel room night bookings and over 352,000
tentative hotel room night bookings. In 2008, approximately 34% of the available
hotel room nights were occupied for conventions.  Based on current
hotel room night bookings, we estimate that 29% of the available room nights
will be occupied with convention guests during 2009.  The expansion of
convention space at the Venetian and Mandalay Bay properties as well as several
others has enabled Las Vegas to attract and book new conventions that may
have had date and exhibit space conflicts in the past.  Our ability to
adapt our meeting space and our proximity to the Las Vegas Convention Center
continues to position us to increase our mix of small meetings and conventions
and benefit from multi-hotel conventions booked into the Las Vegas Convention
Center.
  4
  Entertainment
  Riviera
Las Vegas has one of the most extensive entertainment programs in Las Vegas,
offering a variety of regularly scheduled shows.  We believe
entertainment provides an effective marketing tool to attract our customers.
Riviera Las Vegas’ entertainment program includes several popular
shows.  Based on customer surveys, we continually update our shows in
order to keep them new and exciting.  Tickets for the shows are
offered at reasonable prices corresponding with our overall marketing strategy
of targeting mid-level customers.
  The
following outlines the type of service provided and total seating capacity for
each entertainment center:
  Name
                          
                          Type
                          
                          Seating CapacityICE/Directfrom
      Moscow
                          
                          Variety
                          
                          
                          875La
      Cage *
                          
                          Variety
                          
                          
                          575Crazy
      Girls *
                          
                          Adult
      Revue
                          
                          
                          375Comedy
      Club
                          
                          Comedy
                          
                          
                          350Le
      Bistro
                          
                          Variety
                          
                          
                          190
 
 *
we are currently negotiating with several third parties interested in producing
and operating two new shows in the La Cage showroom and an additional show in
the Crazy Girls Showroom
  A
majority of our shows are owned and operated by third parties.  In
most cases, we receive rent, ticket sales commissions, and a number of
complimentary tickets that we use primarily for marketing and
promotions.
  Marketing
Strategies
  Our
tiered player’s club, Club Riviera, is used as a means to develop and retain our
slot machine and table game customer base.  We regularly pre-select
players from our Club Riviera players’ database for special promotions and
offerings based on a variety of criteria.  We frequently use
discounted or complimentary meals at our restaurants, accommodations at our
hotel and tickets at our shows to incentivize Club Riviera members and other
prospective customers to come and game at our property.
  In
addition to the above, we continue to focus on growing our convention business
customer base.  We conduct extensive research to determine our target
customers' preferences and have learned that a superior room product is a
primary differentiator.  Consequently, our marketing programs are
designed to showcase our recently remodeled hotel rooms and our sales staff
regularly uses our new hotel room product to book new convention and leisure
sales.
  5
  Create Repeat
Customers
  Generating
customer loyalty is a critical component of our business strategy as retaining
customers is less expensive than attracting new ones.  As a result, we
have developed and implemented a multi-tiered marketing program that focuses on
both providing high levels of customer service and on rewarding customer loyalty
in response to current and past performance.  We believe our player
tracking system helps us retain customers and use our player data to tailor
promotional offers to the specific tastes and level of play of our
targeted customers.  All slot machine and table game players are
encouraged to join Club Riviera.  Once a player joins Club Riviera, we
can track their level of play and gain useful information about their
preferences.  Members of Club Riviera earn bonus points based upon their
level of play that  are redeemable for free gifts, complimentary
services or bonus credits.  We make promotional offers to qualifying
customers through direct mail, telemarketing, e-mail, in-house marketing staff
and through the use of independent representatives located in major
cities.  We design promotional offers targeting certain mid-level
stakes gaming patrons who are expected to provide significant revenues
based upon their historical gaming patterns.  We use a proprietary
database that is linked to our player tracking system to help identify
customers' requirements and preferences, which allows us to customize
promotions to attract repeat visitors.  We offer qualifying customers
personalized service, credit availability and access to a variety of
complimentary or reduced-rate hotel room, dinner and entertainment
options.  We have found that an individualized marketing approach has
been successful in generating revenue and repeat business.
  Provide Extensive
Entertainment Options
  We also
focus on attracting guests through a range of entertainment
options.  We have one of the most extensive and affordable
entertainment programs in Las Vegas with a variety of regularly scheduled shows
and special limited engagement shows.  The shows attract additional
gaming revenue as well as provide us rental and commission revenue.
  Attract Walk-In
Traffic
  We seek
to maximize the number of people who patronize the Riviera Las Vegas but who are
not guests in the hotel by capitalizing on Riviera Las Vegas’ prime Las Vegas
Strip location, proximity to the Las Vegas Convention Center and the
availability of a variety of popular in-house entertainment
productions.  Riviera Las Vegas is well situated on the Las Vegas
Strip near several properties including Circus Circus, Sahara, Las Vegas Hilton,
Las Vegas Convention Center, Wynn Las Vegas, Wynn Encore and the
Fontainebleau construction project scheduled to open late in 2009 or early in
2010.  In addition, we are close to several time-share and condominium
properties.  To attract walk-in traffic, we added the 11,000 square
foot Leroy’s Race & Sports Book, Bar & Grill, which opened February
2008, in our former Penny Town area.  Moreover, we have employed an
extensive marketing program that features a variety of special gaming promotions
and promotes our value-priced entertainment and dining
options.  Nonetheless, construction in our immediate area along with
the suspension of construction of the Echelon project has caused a significant
reduction in walk-in traffic.
  Focus on Convention
Customers
  This
market consists of two groups:  (1) those trade organizations and
groups that hold their events in the banquet and meeting space provided by a
single hotel and (2) those attending city-wide events, usually held at the
Las Vegas Convention Center.  We target convention business because it
typically provides patrons willing to pay higher room rates and we are able to
capitalize on certain advance planning benefits because conventions are often
booked one to two years in advance of the event date.  We focus our
marketing efforts on conventions whose participants have the most active gaming
profile and higher room rates, banquet and function spending
habits.  We also benefit from our proximity to the Las Vegas
Convention Center, which makes us attractive to city-wide conventioneers looking
to avoid the congestion that occurs during a major convention, particularly at
the south end of the Las Vegas Strip.  In 2008, we
derived approximately 34% of our hotel occupancy and approximately 45% of
our room revenues from convention customers and we consider them to be a
critical component of our customer base.
  6
  Tour and Travel
Customers
  We have
found that our customers also use tour and travel “package” options to reduce
the cost of travel, lodging and entertainment.  These packages are
produced by wholesale operators and travel agents and emphasize mid-week
stays.  Tour and Travel patrons often book at off-peak periods,
enabling us to maintain occupancy rates at the highest levels throughout the
year.  We have developed specialized marketing programs and cultivated
relationships with wholesale operators, travel agents and major domestic air
carriers to expand this market.  We make an effort to convert many
tour and travel customers who meet our target customer gaming profile into
repeat slot customers.
  Internet
  Hotel
room night bookings through the Internet increased significantly during 2008 and
we anticipate that this trend will continue.  This segment attracts
customers in search of convenience, a bargain, and the ability to reserve a
hotel room shortly before arrival.  In 2008, occupied hotel room
nights booked through the Internet comprised approximately 21% of our total
occupied rooms.  We can quickly and efficiently adjust our room rate
offerings on these Internet websites.  As a result, we often utilize
the Internet as a vehicle for increasing hotel room occupancy
levels.
  Riviera
Black Hawk
  Business
  Riviera
Black Hawk, which opened on February 4, 2000, is located in Black Hawk,
Colorado, approximately 40 miles west of Denver.  Our casino is the
first casino encountered by visitors arriving from Denver on Highway
119.  It features the fourth largest number of gaming devices in the
market with approximately 800 slot machines and 6 table games.  For
Colorado gaming and tax law purposes, each slot machine or table game is
considered one gaming device.
  We also
offer a variety of non-gaming amenities designed to help differentiate our
casino, including:
  ·
              parking
      spaces for 520 vehicles, of which 92% are covered, with convenient and
      free self-park and valet options;
  ·
              a
      252-seat casual buffet-styled
restaurant;
  ·
              a
      delicatessen;
  ·
              one
      casino bar; and
  ·
              a
      ballroom with seating for approximately 200
  people.
  The
initial participants in this market were small, privately held gaming facilities
whose inability to offer convenient parking and a full range of traditional
casino amenities limited the growth of this market.  Subsequently,
larger casinos, which offer additional amenities, entered the market, gained
market share and contributed to the consistent growth in the overall
market.  As of December 31, 2008, there were 23 casinos in the
Black Hawk/Central City market, with 12 casinos offering more than
400 gaming devices each.  The Isle of Capri, which is owned by
Isle of Capri Casinos, Inc., is located across the street from our casino, and
has approximately 1,400 gaming machines, 18 gaming tables, 1,100 covered parking
spaces and 238 hotel rooms.  Isle of Capri Casinos, Inc. also owns the
Colorado Central Station which has 675 gaming machines, 18 gaming tables,
1,200 parking spaces and 164 hotel rooms.  An inside walkway connects
the Isle of Capri with the Colorado Central Station.
  7
  Marketing
strategy
  We
attract customers to our casino by implementing marketing strategies and
promotions designed specifically for the Black Hawk/Central City
market.  We utilize a player’s club at Riviera Black Hawk which was
modeled after Club Riviera in Las Vegas.  Our Riviera Black Hawk
player’s club is our primary tool for building customer loyalty in Black
Hawk.  Players earn points, based on gaming play, which can be
redeemed for cash, food and beverage and various other items.  In
order to generate additional visits and increase gaming revenues, we regularly
pre-select players from our player’s club database to receive various rewards
such as cash coupons, logo gift items, invitations to special events and
complimentary accommodations at our Las Vegas property.  In addition,
we promote our Riviera Black Hawk casino by advertising in local newspapers and
on the radio.
  We
benefit from strong walk-in traffic, which is primarily the result of our
proximity to the Colorado Central Station and Isle of Capri
properties.  We have and continueto develop specific
marketing programs designed to attract these walk-in customers.  We
emphasize that the Riviera Black Hawk offers quality food and beverage, friendly
service,entertainment and
promotions designed specifically for the Black Hawk/Central City
consumer.
  Geographical
Markets
  The
Las Vegas Market
  Las Vegas
is one of the largest entertainment markets in the country. According to the Las
Vegas Convention and Visitors Authority (LVCVA), approximately 37.4 million
people visited Las Vegas in 2004, 38.6 million in 2005, 38.9 million in 2006,
39.2 million in 2007 and 37.5 million in 2008.  Clark County
gaming continues to be a strong business.  Clark County
gaming revenues were $8.7 billion in 2004, $9.7 billion in 2005,
$10.6 billion in 2006, $10.9 billion in 2007 and $9.8 billion in
2008.  The current recession has resulted in a 4.4% reduction in
visitors to the Las Vegas area.  A continued or worsening recession
could have an adverse effect on the number of visitors traveling to Las
Vegas.
  Gaming
and tourism are the major attractions of Las Vegas.  The destination
enjoys temperate weather and the availability of many year-round recreational
activities.  Las Vegas primarily attracts visitors from the western
region of the United States particularly southern California and
Arizona.  However, Las Vegas serves as a destination resort for
visitors from all over the world.  A significant portion of visitors
to Las Vegas are from other countries.
  Historically,
Las Vegas has had one of the strongest hotel markets in the
country.  The number of hotel and motel rooms in Las Vegas has
increased by 109% from approximately 67,000 at the end of 1989 to approximately
140,000 at the end of 2008.  As a result, Las Vegas has the most hotel
and motel rooms of any metropolitan area in the world.  Despite this
significant increase in the number of rooms, the Las Vegas hotel occupancy
rate equaled or exceeded 84% each year from 1993 through 2007.  Las
Vegas’ hotel occupancy rate was 94.0% in 2007 and 89.8% in
2008.
  8
  We
believe that the growth in the Las Vegas market has been enhanced as a result
of: (1) a dedicated program by the LVCVA and major Las Vegas casino/hotels
to promote Las Vegas as a major convention site, (2) the increased capacity
of McCarran International Airport and (3) the introduction of large themed
"must see" destination resorts in Las Vegas.  In 1988, approximately
1.7 million people attended conventions in Las Vegas and generated approximately
$1.2 billion of economic impact.  The number of convention attendees
was up to approximately 5.9 million in 2008.
  During
recent years, McCarran International Airport has expanded its facilities to
accommodate the increased number of airlines and passengers.  The
number of passengers traveling through McCarran International Airport has
increased from approximately 22.5 million in 1993 to approximately 44.1
million in 2008.  Work continues on the multibillion capital expansion
of McCarran International Airport.
  The
Black Hawk/Central City Market
  Black
Hawk and Central City are contiguous cities located approximately 40 miles
west of Denver and about 10 miles north of Interstate Highway 70, the main
east-west artery from Denver.  Historically, these two gold
mining communities were popular tourist towns.  The first casino in
the Black Hawk/Central City market opened in October 1991 and 13 casinos
were open by the end of that year.  The pace of expansion increased to
a market peak of 42 casinos in 1992.  However, due to a consolidation
trend in the market, the smaller operators were replaced by larger,
better-capitalized operators. As a result, the number of casinos decreased to 23
as of December 31, 2008.
  The Black
Hawk/Central City market primarily caters to “day-trip” customers from Denver,
Boulder, Fort Collins and Golden as well as Cheyenne, Wyoming. The United
States Census Bureau estimates that in 2007 the population of the
Denver-Aurora-Boulder area was approximately
three million.
  From 1992
to 2008, the number of gaming devices in the Black Hawk/Central City market
has grown approximately 64% to nearly 12,000.  The City of Black
Hawk has experienced more significant growth in gaming revenues than Central
City from 1992 through 2004.  The popularity of Black Hawk in
comparison to Central City was due primarily to Black Hawk’s superior access to
major highways and because patrons had to drive through Black Hawk to
access Central City from Denver.  Moreover, Black Hawk casinos
typically offer more gaming devices and free parking.  However, a new
road, which opened November 2004, links Central City directly with Interstate 70
and allows customers to reach Central City without driving through Black
Hawk.  Consequently, Central City gaming revenues grew by 36% in 2005,
2.7% in 2006 and 7.4% in 2007 whereas Black Hawk gaming revenues grew by only
2.6% in 2005, 4.3% in 2006 and 4.4% in 2007.  For the year ending
December 31, 2008, Central City and Black Hawk experienced annual gaming revenue
declines of 16.8% and 13.1%, respectively, primarily due to the weak economy and
the smoking ban in Colorado which went into effect January 1,
2008.  Gaming revenues in Central City represent approximately 12% of
the total gaming revenues for the Central City/Black Hawk market.
  Until
recently, only limited stakes gaming, which is defined as a maximum single bet
of $5.00, was legal in the Black Hawk/Central City market.  However,
Colorado Amendment 50, which was approved by voters on November 4, 2008, allowed
residents of Black Hawk and Central City to vote to extend casino hours, approve
additional games, and increase the maximum bet limit.  On January 13,
2009, residents of Black Hawk voted to enable Black Hawk casino operators to
extend casino hours, add craps and roulette gaming and increase the maximum
betting limit to $100.  July 1, 2009 is the earliest we are permitted
to implement increased betting limits, extended hours and craps and roulette
gaming.
  9
  Competition
  Las
Vegas, Nevada
  Intense
competition exists among companies in the gaming industry
today.  Riviera Las Vegas competes with all Las Vegas area casinos but
primarily with certain large casino/hotels located on or near the Las Vegas
Strip.  These properties offer amenities and marketing programs
similar to those offered by Riviera Las Vegas.  Many of our direct
competitors have significantly greater resources than we do.
  Las Vegas
gaming square footage and hotel room inventories continue to grow and are
expected to continue to increase during the next couple of
years.  Current and future expansions and enhancements to existing
properties and the construction of new properties by our competitors could
divert business from our facilities.  There can be no assurance that
we will compete successfully in the Las Vegas market in the
future.  During 2008, room inventory in Las Vegas increased 5.7% from
132,947 to 140,529.  Room nights occupied decreased 2.3%, to
approximately 43.0 million.
  We also
compete to some extent with casinos in other states, riverboat and Native
American gaming ventures, state-sponsored lotteries, on and off track wagering,
card parlors and other forms of cruise ship gaming and other forms
of legalized gaming in the United States.  To a lesser extent we
also compete with gaming on cruise ships and gaming in other parts of the
world.  In addition, certain states have recently legalized or are
considering legalizing casino gaming in specific geographical areas within those
states and internationally.  Any future development of casinos,
lotteries or other forms of gaming in other states and internationally, could
have a material adverse effect on our results of operations.
  The
number of casinos on Native American lands has increased since the enactment of
the Indian Gaming Regulatory Act of 1988.  California voters addressed
this issue on March 7, 2000 when they voted in favor of an amendment to the
California Constitution that allows Las Vegas-style gambling on
Native American lands in that state.  Additionally, California
voters passed Propositions 94, 95, 96 and 97 which allow two tribes near San
Diego to each increase their slot machine volume from 2,000 slot machines to
7,500 slot machines and two tribes near Palm Springs to each increase their slot
machine volume from 2,000 slot machines to 5,000 slot machines.  While
new gaming jurisdictions generally have not materially impacted Las Vegas,
the expansion of gaming in California poses a more serious threat due to its
proximity to Las Vegas.
  Our
current business is highly dependent on gaming in Las Vegas. Riviera Las Vegas
derives a substantial percentage of its business from tourists, including
customers from southern California and the southwestern United
States.  The current economic recession has had an adverse effect on
the number of visitors traveling to Las Vegas.  A continued economic
downturn along with events in the future similar to the terrorist attacks of
September 11, 2001 could have an adverse effect on both the number of visitors
traveling to Las Vegas and our financial results.
  Black
Hawk, Colorado
  The Black
Hawk/Central City gaming market is characterized by intense
competition.  The primary competitive market differentiators are
location, availability and convenience of parking, number of gaming devices,
promotional incentives, hotel rooms, types and pricing of non-gaming amenities,
name recognition and overall atmosphere.  Our main competitors are the
larger gaming facilities, particularly those with considerable on-site parking,
hotel rooms and established reputations in the local market. As of December 31,
2008, there were 23gaming facilities in the
Black Hawk/Central City market with 12casinos offering more
than 400 gaming devices each.
  10
  The
gaming facilities near the intersection of Main and Mill Streets, as well as the
other Mill Street gaming facilities, provide significant competition to our
casino. Colorado Central Station, which is owned by Isle of Capri Casinos, Inc.,
is connected via inside walkways to the Isle of Capri property located across
the street from our casino.  An expansion and renovation of Main
Street was completed in the second quarter of 2006.  As a result of
the Main Street expansion, Riviera Black Hawk is the first property on Main
Street accessible to all customers traveling to Black Hawk from the Denver Metro
area via State Route 119.  Our parking garage is the first and most
easily accessible parking garage directly off Main Street.
  The
number of hotel rooms currently in the Black Hawk/Central City market is 596,
with only 5 gaming facilities providing hotel
accommodations.  These include; Fortune Valley with 118 rooms, Century
Casino with 26 rooms, the Lodge at Black Hawk with 50 rooms, the Isle of Capri
with 238 rooms and Colorado Central Station with 164 rooms.  Casinos
offering hotel accommodations have a competitive advantage over our
casino.  However, we believe that self-parking is a more effective
utilization of our available space providing hotel accommodations is not a
cost-effective use of our capital resources at this time.
  The
Ameristar Black Hawk property was re-branded as the “Ameristar” on April 1,
2006.  Ameristar is adding a hotel tower with 536 hotel rooms and
expanding its parking garage to 1,550 parking spaces.  This project is
expected to be substantially complete by the end of the second quarter of
2009.  Ameristar has approximately 1,600 gaming machines, 12 blackjack
tables and 14 live poker tables.
  Historically,
the City of Black Hawk has enjoyed an advantage over Central City because
customers needed to drive through Black Hawk to reach Central
City.  However, a new road that opened in November 2004 links Central
City directly with Interstate 70 and enables customers to reach Central City
without driving through Black Hawk.  Although this road allows
customers to directly access Central City, the impact has been minimal as
customers still appear to prefer Black Hawk casinos, presumably due to the
superior amenities offered by Black Hawk casinos.  This new road
provides additional access to the Black Hawk/Central City market, which is
especially important on weekends when the traditional road system is
overburdened.  We believe the new access road is important for the
continued growth of the market.
  Limited
stakes gaming in Colorado is constitutionally authorized in Central City, Black
Hawk, Cripple Creek and two Native American reservations in southwest
Colorado.  However, gaming could be approved in other Colorado
communities in the future.  The legalization of gaming closer to
Denver would likely have a material adverse effect on our results of operations.
We also compete with other forms of gaming in Colorado, including the state
lottery, horse and dog racing, as well as other forms of
entertainment.
  Currently,
Colorado law does not authorize video lottery terminals.  However,
Colorado law permits the legislature, with executive approval, to authorize new
types of lottery gaming, such as video lottery terminals.  Video
lottery terminals are games of chance, similar to slot machines, in which the
player pushes a button that causes a random set of numbers or characters to be
displayed on a video screen.  The player may be awarded a ticket,
which can be exchanged for cash or credit play.  This form of gaming
could compete with slot machine gaming.  Colorado voters previously
rejected a proposal that would have authorized video lottery terminals in five
racetracks in Colorado.  However, there is no guarantee that such a
proposal or similar one will be rejected in the future.  If these or
similar initiatives are pursued in Colorado and gain the necessary approvals,
then our Colorado operations would likely be adversely
affected.
  11
  In
addition, Colorado enacted a smoking ban in 2006, which at the time excluded
casinos.  That smoking ban was subsequently amended to include casinos
effective January 1, 2008.  Although we have constructed outdoor
smoking areas to permit smoking in those areas, we believe the amended smoking
ban has had and could continue to have an adverse effect on our results of
operations by adversely affecting the number of visitors traveling to Black Hawk
in the future.
  Pursuant
to a license agreement, Riviera Las Vegas licenses the use at Riviera Black Hawk
of all of the trademarks, service marks and logos used by Riviera Las
Vegas.  The license agreement provides that additional trademarks,
service marks and logos acquired or developed by us and used at our other
facilities will be subject to the license agreement.
  Employees
and Labor Relations
  Riviera
Las Vegas
  As of
December 31, 2008, Riviera Las Vegas had 1,137 full-time equivalent employees
and had collective bargaining contracts with eight unions covering approximately
700 employees, including food and beverage employees, rooms department
employees, carpenters, engineers, stagehands, musicians, electricians, painters
and teamsters.  Riviera Las Vegas’ agreements with the Painters’ Union
and Carpenters’ Union expire on May 31, 2010 and July 31, 2011,
respectively.Agreements with the Southern Nevada Culinary and Bartenders Union, which
cover the majority of our unionized employees, were renewed in 2007 and expire
in 2012.  Our agreement with the Stagehands Union was renewed on March
13, 2009 and expires in 2012.  Our agreement with the Teamsters Union
was renewed in 2008 and now expires in 2013 and the Operating Engineers Union
and Electrician Union agreements expire in 2009.  Our collective bargaining
agreement with the Musicians Union expired in 1999 and we continue to operate
under the terms of that agreement.  Although unions have been active in Las
Vegas, Riviera Las Vegas considers its employee relations to be
satisfactory.  There can be no assurance, however, that new agreements
will be reached without union action or on terms satisfactory to Riviera Las
Vegas.
  Riviera
Black Hawk
  As of
December 31, 2008, Riviera Black Hawk had 199 full-time equivalent employees
none of whom are covered by collective bargaining
agreements.  Although there are no collective bargaining agreements in
Black Hawk casinos, we became aware in 2006 of organization activity by Local 7
of the United Food & Commercial Workers International Union.  This
activity is targeting casino employees in Black Hawk and Central
City.  There can be no assurance that the union will not succeed in
its organization effort especially with the proposed legislation which
recognizes unions based on “card counts” rather than a secret ballot
process.  If the union is successful in organizing at Riviera Black
Hawk, there can be no assurance that an agreement will be reached without union
action or on mutually satisfactory terms.
  Regulation
and Licensing
  Nevada
  Nevada
Gaming Authorities
  The
ownership and operation of casino gaming facilities in Nevada are subject to:
(1) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act") and (2) various local
ordinances and regulations.  Our gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission (the “Nevada
Commission”), the State of Nevada Gaming Control Board (the “Nevada Board”), the
Clark County Business License Department and the Clark County Liquor and Gaming
Licensing Board (collectively, the “Clark County Board”), all of which are
collectively referred to as the "Nevada Gaming Authorities."
  12
  The laws,
regulations and supervisory procedures of the Nevada Gaming Authorities are
based upon declarations of public policy which are concerned with, among other
things:  (1) the prevention of unsavory or unsuitable
persons from having a direct or indirect involvement with gaming at any time and
in any capacity; (2) the establishment and maintenance of responsible
accounting practices and procedures; (3) the maintenance of effective
controls over the financial practices of licensees, including the establishment
of minimum procedures for internal fiscal affairs and the safeguarding of assets
and revenues, providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (4) the prevention of
cheating and fraudulent practices; and (5) providing a source of state and
local revenues through taxation and licensing fees.  Changes in such
laws, regulations and procedures could have an adverse effect on our
operations.
  Riviera
Operating Corporation is required to be and is licensed by the Nevada Gaming
Authorities (a “Corporate Licensee”).  The gaming license held by
Riviera Operating Corporation requires the periodic payment of fees and taxes
and is not transferable.  Riviera Operating Corporation is also
licensed as a manufacturer and distributor of gaming devices.  Such
licenses require the periodic payment of fees and are not
transferable.  We are registered by the Nevada Commission as a
publicly traded corporation (a "Registered Corporation") and have been
found suitable to own the stock of Riviera Operating Corporation.  As
a Registered Corporation, we are required periodically to submit detailed
financial and operating reports to the Nevada Commission and to furnish any
other information, which the Nevada Commission may require.  No person
may become a stockholder of, or receive any percentage of profits from, Riviera
Operating Corporation without first obtaining licenses and approvals from the
Nevada Gaming Authorities.  We and Riviera Operating Corporation have
obtained, from the Nevada Gaming Authorities, the various registrations,
approvals, permits, findings of suitability and licenses required in order to
engage in gaming activities and manufacturing and distribution activities in
Nevada.
  The
Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, us or Riviera Operating
Corporation in order to determine whether such individual is suitable or should
be licensed as a business associate of a gaming licensee.  Officers,
directors and certain key employees of Riviera Operating Corporation must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities.  Our
officers, directors and key employees who are actively and directly involved in
the gaming activities of Riviera Operating Corporation may be required to be
licensed or found suitable by the Nevada Gaming Authorities.  The
Nevada Gaming Authorities may deny an application for licensing for any cause,
which they deem reasonable.  A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing or
a finding of suitability must pay all the costs of the
investigation.  Any change in a corporate position by a licensed
person must be reported to the Nevada Gaming Authorities. In addition to their
authority to deny an application for a finding of suitability or licensure, the
Nevada Gaming Authorities have jurisdiction to disapprove a change in a
corporate position.
  If the
Nevada Gaming Authorities were to find an officer, director or key employee
unsuitable for licensing or unsuitable to continue having a relationship with
Riviera Operating Corporation or us, we would have to sever all relationships
with such person.  In addition, the Nevada Commission may require us
or Riviera Operating Corporation to terminate the employment of any person who
refuses to file appropriate applications.  Determinations of
suitability or questions pertaining to licensing are not subject to judicial
review in Nevada.
  13
  We and
Riviera Operating Corporation are required to submit detailed financial and
operating reports to the Nevada Commission.  Substantially all
material loans, leases, sales of securities and similar financing transactions
by Riviera Operating Corporation must be reported to or approved by the Nevada
Commission.
  If it
were determined that the Nevada Act was violated by Riviera Operating
Corporation, the gaming license it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures.  In addition, we or Riviera Operating
Corporation and the persons involved could be subject to substantial fines for
each violation of the Nevada Act, at the discretion of the Nevada
Commission.  Further, a supervisor could be appointed by the Nevada
Commission to operate our casino and, under certain circumstances, earnings
generated during the supervisor's appointment (except for reasonable rental
value of the casino) could be forfeited to the State of
Nevada.  Limitation, conditioning or suspension of the gaming license
of Riviera Operating Corporation or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect our gaming
operations.
  Any
beneficial holder of our voting securities, regardless of the number of shares
owned, may be required to file an application, be investigated, and have its
suitability as a beneficial holder of our voting securities determined if the
Nevada Commission has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada.  The
applicant must pay all costs of investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.
  The
Nevada Act requires any person who acquires more than 5% of a Registered
Corporation's voting securities to report the acquisition to the Nevada
Commission.  The Nevada Act requires that beneficial owners of more
than 10% of our voting securities apply to the Nevada Commission for a finding
of suitability within thirty days after the Chairman of the Nevada Board mails
the written notice requiring such filing.  Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of our voting securities may
apply to the Nevada Commission for a waiver of such finding of suitability if
such institutional investor holds our voting securities for investment purposes
only.  An institutional investor that has obtained a waiver may, in
certain circumstances, hold up to 19% of our voting securities and maintain its
waiver for a limited period of time.  An institutional investor shall
not be deemed to hold our voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of our board of
directors, any change in our corporate charter, bylaws, management, policies or
operations, or any of our gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding our voting securities
for investment purposes only.  Activities which are deemed consistent
with holding our voting securities for investment purposes only
include:  (1) voting on all matters voted on by stockholders;
(2) making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a change
in management, policies or operations; and (3) such other activities as the
Nevada Commission may determine to be consistent with such investment
intent.  If the beneficial holder of our voting securities who must be
found suitable is a business entity or trust, it must submit detailed business
and financial information including a list of beneficial owners.  The
applicant is required to pay all costs of investigation.
  14
  Any
person who fails or refuses to apply for a finding of suitability or a license
within thirty days after being ordered to do so by the Nevada Commission or the
Chairman of the Nevada Board may be found unsuitable.  The same
restrictions apply to a record owner of stock if the record owner, after
request, fails to identify the beneficial owner.  Any stockholder who
is found unsuitable and who holds, directly or indirectly, any beneficial
ownership of stock beyond such period of time prescribed by the Nevada
Commission may be guilty of a criminal offense.  We are subject to
disciplinary action if, after we receive notice that a person is unsuitable to
be a stockholder or to have any other relationship with us or Riviera Operating
Corporation, we (1) pay that person any dividend or interest upon voting
our securities, (2) allow that person to exercise, directly or indirectly,
any voting right conferred through securities held by that person, (3) pay
remuneration in any form to that person for services rendered or otherwise, or
(4) fail to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. Additionally, the Clark
County Board has the authority to approve all persons owning or controlling the
stock of any corporation controlling a gaming licensee.
  The
Nevada Commission may, in its discretion, require any holder of our debt
securities to file applications, be investigated and be found suitable to own
such securities, if it has reason to believe that such ownership would be
inconsistent with the declared policies of the State of Nevada.  If
the Nevada Commission determines that a person is unsuitable to own such
security, then we can be sanctioned (which may include the loss of our
approvals) if, without the prior approval of the Nevada Commission, we
(1) pay to the unsuitable person any dividend, interest, or any
distribution whatsoever, (2) recognize any voting right by such unsuitable
person in connection with such securities, (3) pay the unsuitable person
remuneration in any form or (4) make any payment to the unsuitable person
by way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
  We are
required to maintain a current stock ledger in Nevada, which may be examined by
the Nevada Gaming Authorities at any time.  If any securities are held
in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming
Authorities.  A failure to make such disclosure may be grounds for
finding the record holder unsuitable. We are also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require our stock certificates to bear a legend
indicating that the securities are subject to the Nevada
Act.  However, the Nevada Commission has not imposed such a
requirement on us.
  We may
not make a public offering of our securities without the prior approval of the
Nevada Commission if the securities or proceeds are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or to retire or
extend obligations incurred for such purposes.  On September 20, 2007,
the Nevada Commission granted us prior approval to make public offerings for a
period of two years, subject to certain conditions (the “Shelf
Approval”).  The Shelf Approval also applies to any affiliated company
wholly owned by us which is a publicly traded corporation or would thereby
become a publicly traded corporation pursuant to a public
offering.  The Shelf Approval may be rescinded for good cause without
prior notice upon the issuance of an interlocutory stop order by the Chairman of
the Nevada Board.  The Shelf Approval does not constitute a finding,
recommendation or approval by any of the Nevada Gaming Authorities as to the
accuracy or adequacy of the offering memorandum or the investment merits of the
securities. Any representation to the contrary is unlawful.
  Changes
in control of a Registered Corporation through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior approval
of the Nevada Commission.  Entities seeking to acquire control of a
Registered Corporation must meet a variety of stringent standards of the Nevada
Board and Nevada Commission prior to assuming control.  The Nevada
Commission may also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
  15
  The
Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities and corporate defensive tactics
affecting Nevada corporate gaming licensees and Registered Corporations that are
affiliated with those operations may be injurious to stable and productive
corporate gaming.  The Nevada Commission has established regulations
to ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy
to:  (1) assure the financial stability of corporate gaming
licensees and their affiliates; (2) preserve the beneficial aspects of
conducting business in the corporate form; and (3) promote a neutral
environment for the orderly governance of corporate
affairs.  Approvals are, in certain circumstances, required from the
Nevada Commission before the Registered Corporation can make exceptional
repurchases of voting securities above the current market price and before a
corporate acquisition opposed by management can be consummated.  The
Nevada Act also requires prior approval of a plan of recapitalization proposed
by the Registered Corporation's board of directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.
  License
fees and taxes, computed in various ways depending on the type of gaming or
activity involved, are payable to the State of Nevada and to the county and city
in which Riviera Operating Corporation’s operations are
conducted.  Depending upon the particular fee or tax involved, these
fees and taxes are payable monthly, quarterly or annually and are based upon:
(1) a percentage of the gross revenues received; (2) the number of
gaming devices operated; or (3) the number of table games
operated.  A live entertainment tax is also paid by casinos where live
entertainment is furnished in connection with admission charges, the serving or
selling of food, refreshments or the selling of merchandise where live
entertainment is furnished.  Nevada licensees that hold a license to
manufacture and distribute slot machines and gaming devices, such as Riviera
Operating Corporation, also pay certain fees and taxes to the State of
Nevada.
  Any
person who is licensed, required to be licensed, registered, or required to be
registered, or a person who is under common control with any of such persons
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of such person’s participation in
such foreign gaming.  The revolving fund is subject to increase or
decrease in the discretion of the Nevada Commission.  Thereafter,
Licensees are required to comply with certain reporting requirements imposed by
the Nevada Act.  Licensees are also subject to disciplinary action by
the Nevada Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities or enter
into associations that are harmful to the State of Nevada or its ability to
collect gaming taxes and fees, or employ, have contact with or associate with a
person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of personal unsuitability.
  Other
Nevada Regulation
  The sale
of alcoholic beverages at Riviera Las Vegas is subject to licensing, control and
regulation by the Clark County Board.  All such licenses are revocable
and none of them are transferable. The Clark County Board has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on our
operations.
  16
  Colorado
  Colorado
Gaming and Liquor Regulation
  Summary
  In
general, Riviera Black Hawk, its principal executive officers and those of
Riviera Holdings Corporation, and any Riviera Black Hawk employees who are
involved in Colorado gaming operations are required to be found suitable for
licensure by the Colorado Gaming Commission (the “Colorado
Commission”).  Colorado also requires that persons owning, directly or
indirectly, 5% or more of our stock be certified as suitable for
licensure.  Riviera Black Hawk’s original retail gaming license was
approved by the Colorado Commission on November 18, 1999, and has been renewed
each subsequent year.
  Background
  Pursuant
to an amendment to the Colorado Constitution (the “Colorado Amendment”), limited
stakes gaming became lawful in the cities of Central City, Black Hawk and
Cripple Creek on October 1, 1991.  Until November 4, 2008, limited
stakes gaming meant a maximum single bet of $5.00 on slot machines and in the
card games of blackjack and poker.  On November 4, 2008, Colorado
voters approved through a statewide referendum, subject to approval by each of
the towns of Black Hawk, Central City and Cripple Creek with regards to casinos
located in the respective towns, to (i) increase the maximum single bet up to
$100.00, (ii) allow casinos to provide the table games of craps and roulette,
and (iii) increase the permitted hours of operation to 24 hours per day
effective July 2, 2009.  The towns of Black Hawk, Central City and
Cripple Creek subsequently each approved increasing the maximum single get to
$100, the addition of the table games of craps and roulette and increased
permitted hours of operation to 24 hours per day.
  Limited
stakes gaming is confined to the commercial district of Black Hawk, as defined
by Black Hawk on May 4, 1978.  In addition, the Colorado
Amendment restricts limited stakes gaming to structures that conform to the
architectural styles and designs that were common to the areas prior to World
War I, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures.  Under the Colorado
Amendment, no more than 35% of the square footage of any building and no more
than 50% of any one floor of any building may be used for limited stakes gaming.
Persons under the age of 21 cannot participate in limited stakes
gaming.  The Colorado Amendment also allows limited stakes gaming in
establishments licensed to sell alcoholic beverages.
  Further,
the Colorado Limited Gaming Act of 1991 (the “Colorado Act”) provides that, in
addition to any applicable license fees, a gaming tax shall be imposed upon
retail gaming licensees (casinos) up to a maximum of 40% of the adjusted gross
proceeds (“AGP”) derived from limited stakes gaming.  AGP is generally
defined as the total amounts wagered less payouts to players, except for poker
in which AGP means the monies retained by the casino as compensation (the
“rake”).  The tax rates are set by the Colorado Commission
annually.
  The
Colorado Act declares public policy on limited stakes gaming to be
that:  (1) the success of limited stakes gaming is dependent upon
public confidence and trust that licensed limited stakes gaming is conducted
honestly and competitively; the rights of the creditors of licensees are
protected; gaming is free from criminal and corruptive elements; (2) public
confidence and trust can be maintained only by strict regulation of all persons,
locations, practices, associations and activities related to the operation
of  licensed gaming establishments and the manufacture or distribution
of gaming devices and equipment; (3) all establishments where limited
gaming is conducted and where gambling devices are operated, and all
manufacturers, sellers and distributors of certain gambling devices and
equipment must therefore be licensed, controlled and assisted to protect the
public health, safety, good order and the general welfare of the inhabitants of
the state to foster the stability and success of limited stakes gaming and to
preserve the economy, policies and free competition in Colorado; and (4) no
applicant for a license or other affirmative Colorado Commission approval has
any right to a license or to the granting of the approval sought.  Any
license issued or other Colorado Commission approval granted pursuant to the
provisions of the Colorado Act is a revocable privilege, and no holder acquires
any vested rights therein.
  17
  Regulatory
Structure
  The
Colorado Act subjects the ownership and operation of limited stakes gaming
facilities in Colorado to extensive licensing and regulation by the Colorado
Commission.  The Colorado Commission has full and exclusive authority
to promulgate, and has promulgated, rules and regulations governing the
licensing, conduct and operation of limited stakes gaming.  The
Colorado Act also created the Colorado Division of Gaming within the Colorado
Revenue Department to license, regulate and supervise the conduct of
limited stakes gaming in Colorado.  The division is supervised and
administered by the Director of the Division of Gaming.
  Gaming
Licenses
  The
Colorado Commission may issue the following licenses applicable to the operation
of Riviera Black Hawk:
  ·
              operator;
  ·
              retail
      gaming;
  ·
              support;
      and
  ·
              key
      employee.
  The first
two licenses require annual or biannual renewal by the Colorado Commission.
Support and key employee licenses are issued for two-year periods and are
renewable by the Division of Gaming Director. The Colorado Commission has broad
discretion to condition, suspend for up to six months, revoke, limit or restrict
a license at any time and also has the authority to impose fines.
 An
applicant for a gaming license must complete comprehensive application forms,
pay required fees and provide all information required by the Colorado
Commission and the Division of Gaming.  Prior to licensure, applicants
must satisfy the Colorado Commission that they are suitable for licensing.
Applicants have the burden of proving their qualifications and must pay the full
cost of any background investigations.  There is no limit on the cost
of, or the time it takes to complete, such background
investigations.
  Gaming
employees must hold either a support or key employee license.  Every
large retail gaming licensee, such as Riviera Black Hawk, must have a key
employee licensee on premises and in charge of all limited stakes gaming
activities when limited stakes gaming is being conducted.  The
Colorado Commission may determine that a gaming employee is a key employee and
require that such person apply for a key employee license.
  A retail
gaming license is required for all persons conducting limited stakes gaming on
their premises.  In addition, an operator license is required for all
persons who engage in the business of placing and operating slot machines on the
premises of a retailer.  However, a retailer is not required to hold
an operator license.  No person may have an ownership interest in more
than three retail gaming licenses.  The definition of “ownership
interest” for purposes of the multiple license prohibition, however, has
numerous exclusions based on percentages of ownership interest or voting
rights.
  18
  A slot
machine manufacturer or distributor license is required for all persons who
manufacture, import and distribute slot machines in Colorado.  No
manufacturer or distributor of slot machines or associated equipment may
knowingly, without notification being provided to the Colorado Division within
ten days, have any interest in any casino operator, allow any of its officers or
any other person with a substantial interest in such business to have such an
interest, employ any person employed by a casino operator, or allow any casino
operator or any person having a substantial interest therein, to have any
interest in such business.
  The
Colorado Act and regulations thereunder (the “Colorado Regulations”) require
that every officer, director, and stockholder of private corporations, or
equivalent office or ownership holders for non-corporate applicants, and every
officer, director or stockholder holding a 5% or greater interest or controlling
interest in a publicly traded corporation, or owners of an applicant or
licensee, shall be a person of good moral character and submit to a full
background investigation conducted by the Division of Gaming and the Colorado
Commission.  The Colorado Commission may require any person having an
interest, of any kind, in a license to undergo a full background investigation
and pay the cost of investigation in the same manner as an
applicant.
  Persons
found unsuitable by the Colorado Commission may be required immediately
to terminate any interest, association, or agreement with, or relationship
to, a licensee.  A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of
a licensee or applicant also may jeopardize the licensee’s license or the
applicant’s application.  A license approval may be conditioned upon
the termination of any relationship with unsuitable
persons.  A person may be found unsuitable because of prior
acts, associations or financial conditions.  Acts that would lead to a
finding of unsuitability include, among others, those that would violate the
Colorado Act or the Colorado Regulations or that contravene the legislative
purpose of the Colorado Act.
  Duties
of Licensees
  A
licensee must keep the Division of Gaming advised of its business operations
including, but not limited to, gaming contracts and leases.  All
rules for the conduct of gaming activity pursuant to the Colorado Act or the
Colorado Regulations must be strictly followed.
  Licensees,
such as Riviera Black Hawk, have a continuing duty to report immediately to the
Division of Gaming the name, date of birth and social security number of each
person who obtains an ownership, financial or equity interest in the licensee of
5% or greater, who has the ability to control the licensee, who has the ability
to exercise significant influence over the licensee or who loans any money or
other thing of value to the licensee.  Licensees must report to the
Division of Gaming all gaming licenses, and all applications for gaming
licenses, in foreign jurisdictions.
  With
limited exceptions applicable to licensees that are publicly traded entities, no
person may sell, lease, purchase, convey or acquire any interest in a retail
gaming or operator license or business without the prior approval of the
Colorado Commission.
  All
agreements, contracts, leases, or arrangements in violation of the Colorado
Amendment, the Colorado Act or the Colorado Regulations are void and
unenforceable.
  19
  A
licensee must comply with Colorado’s Gambling Payment Intercept Act, which
governs the collection of unpaid child support costs on cash winnings from
limited gaming.
  Taxes,
Fees and Fines
  The
Colorado Amendment requires retail gaming licensees to pay in monthly increments
an annual tax of up to 40% of its AGP derived from limited stakes gaming.
Annually during April, May, and June, the Colorado Commission, as mandated by
the Colorado Regulations, conducts rule-making hearings concerning the gaming
tax rate and device fee rate for the subsequent gaming year.  The
gaming year begins on July 1st.  However,
during such hearings rigid adherence to addressing only specific, designated
subjects related to the gaming taxes is not required, and there is not a limit
to the time or practical restriction on the subject matters which the Colorado
Commission may consider in determining the various tax
rates.  Currently, the gaming tax is:
  ·
              0.25%
      on the first $2 million of these
amounts;
  ·
              2%
      on amounts from $2 million to $5
million;
  ·
              9%
      on amounts from $5 million to $8
million;
  ·
              11%
      on amounts from $8 million to $10
million;
  ·
              16%
      on amounts from $10 million to $13 million;
and
  ·
              20%
      on amounts over $13 million.
  The City
of Black Hawk assesses an annual device fee of $750.00 per device on all gaming
devices exceeding 50. There is no statutory limit on state or city device fees,
which may be increased at the discretion of the Colorado Commission or the
city.  In addition, a business improvement fee of as much as $7.42 per
device and a monthly transportation authority device fee of $6.41 per device
also may apply depending upon the location of the licensed premises in Black
Hawk.
  Black
Hawk also imposes taxes and fees on other aspects of the businesses of retail
gaming licensees, such as parking, alcoholic beverage licenses and other
municipal taxes and fees.  Significant increases in these fees and
taxes, or the imposition of new taxes and fees, may occur.
  Violation
of the Colorado Act or the Colorado Regulations generally constitutes a class 1
misdemeanor, except as may be specifically provided otherwise in the Colorado
Act, which may subject the violator to fines or incarceration or
both.  A licensee who violates the Colorado Act or Colorado
Regulations or Gambling Payment Intercept Act is subject to suspension of the
license for a period of up to six months, fines or both, or to license
revocation.
  Requirements
for Publicly Traded Corporations
  The
Colorado Commission has enacted Rule 4.5, which imposes requirements on publicly
traded corporations holding gaming licenses in Colorado and on gaming licenses
owned directly or indirectly by a publicly traded corporation, whether
through a subsidiary or intermediary company.  The term “publicly
traded corporation” includes corporations, firms, limited liability companies,
trusts, partnerships and other forms of business organizations.  Such
requirements automatically apply to any ownership interest held by a publicly
traded corporation, holding company or intermediary company thereof, where the
ownership interest directly or indirectly is, or will be upon approval of the
Colorado Commission, 5% or more of the entire licensee.  In any event,
if the Colorado Commission determines that a publicly traded corporation, or a
subsidiary, intermediary company or holding company, has the actual ability to
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require the entity to
comply with the disclosure regulations contained in Rule 4.5.
  20
  Under
Rule 4.5, gaming licensees, affiliated companies and controlling persons
commencing a public offering of voting securities must notify the Colorado
Commission no later than ten business days after the initial filing of a
registration statement with the SEC.  Licensed, publicly traded
corporations are also required to send proxy statements to the Division of
Gaming within five days after their distribution. Licensees to whom Rule 4.5
applies must include in their charter documents provisions that: restrict the
rights of the licensees to issue voting interests or securities except in
accordance with the Colorado Act and the Colorado Regulations; limit the rights
of persons to transfer voting interests or securities of licensees except in
accordance with the Colorado Act and the Colorado Regulations; and provide that
holders of voting interests or securities of licensees found unsuitable by the
Colorado Commission may, within 60 days of such finding of unsuitability, be
required to sell their interests or securities back to the issuer at the lesser
of the cash equivalent of the holders’ investment or the market price as of the
date of the finding of unsuitability.  Alternatively, the holders may,
within 60 days after the finding of unsuitability, transfer the voting interests
or securities to a suitable person, as determined by the Colorado
Commission.  Until the voting interests or securities are held by
suitable persons, the issuer may not pay dividends or interest, the securities
may not be voted, they may not be included in the voting or securities of the
issuer, and the issuer may not pay any remuneration in any form to the holders
of the securities.
  Pursuant
to Rule 4.5, persons who acquire direct or indirect beneficial ownership of
either (1) 5% or more of any class of voting securities of a publicly
traded corporation that is required to include in its articles of organization
the Rule 4.5 charter provisions, or (2) a 5% or greater beneficial interest in a
gaming licensee, directly or indirectly through any class of voting securities
of any holding company or intermediary company of a licensee (collectively such
persons are hereinafter referred to as the “qualifying persons”), must notify
the Division of Gaming within 10 days of such acquisition, must submit all
requested information, and are subject to a finding of suitability as required
by the Division of Gaming or the Colorado Commission.  Licensees also
must notify any qualifying persons of these requirements.  A
qualifying person other than an institutional investor whose interest equals 10%
or more must apply to the Colorado Commission for a finding of suitability
within 45 days after acquiring such securities.  Licensees must also
notify any qualifying persons of these requirements.  Whether or not
notified, qualifying persons are responsible for complying with these
requirements.
  A
qualifying person who is an institutional investor under Rule 4.5 and who,
individually or in association with others, acquires, directly or indirectly,
the beneficial ownership of 15% or more of any class of voting securities must
apply to the Colorado Commission for a finding of suitability within
45 days after acquiring such interests.
  The
Colorado Regulations also provide for exemption from the requirements for a
finding of suitability when the Colorado Commission finds such action to be
consistent with the purposes of the Colorado Act.
  Pursuant
to Rule 4.5, persons found unsuitable by the Colorado Commission must be removed
from any position as an officer, director, or employee of a licensee, or from a
holding or intermediary company.  Such unsuitable persons also are
prohibited from any beneficial ownership of the voting securities of any such
entities.  Licensees, or affiliated entities of licensees, are subject
to sanctions for paying dividends or distributions to persons found unsuitable
by the Colorado Commission, or for recognizing voting rights of, or paying a
salary or any remuneration for services to, unsuitable persons. Licensees or
their affiliated entities also may be sanctioned for failing to pursue efforts
to require unsuitable persons to relinquish their interest.  The
Colorado Commission may determine that anyone with a material relationship to,
or material involvement with, a licensee or an affiliated company must apply for
a finding of suitability or must apply for a key employee
license.
  21


Alcoholic
Beverage Licenses




The sale
of alcoholic beverages in gaming establishments is subject to strict licensing,
control and regulation by state and local authorities.  Alcoholic
beverage licenses are revocable and nontransferable. State and local licensing
authorities have full power to limit, condition, suspend for as long as six
months or revoke any such licenses.  Violation of state alcoholic
beverage laws may constitute a criminal offense resulting in incarceration,
fines, or both.




There are
various classes of retail liquor licenses, which may be issued under the
Colorado Liquor Code.  A gaming licensee may sell malt, vinous or
spirituous liquors only by the individual drink for consumption on the
premises.  Even though a retail gaming licensee may be issued one of
the various classes of retail liquor licenses, such gaming licensee, and persons
affiliated with that licensee, are subject to restrictions concerning what other
types of liquor licenses they may hold.  An application for an
alcoholic beverage license in Colorado requires notice, posting and a public
hearing before the local liquor licensing authority (e.g., the City of Black
Hawk) prior to approval of the same.  The Colorado Department of
Revenue’s Liquor Enforcement Division must also approve the
application.  Riviera Black Hawk’s hotel and restaurant license has
been approved by both the local licensing authority and the State Division of
Liquor Enforcement.  Such license must be, and has been, renewed
annually since its issuance.




Federal
Registration




Riviera
Operating Corporation is required to annually file with the Attorney General of
the United States in connection with the sales, distribution, or operations of
slot machines.  All requisite filings for 2008 have been
made.




Item
      1A.
            Risk
      Factors




An
investment in our securities involves a high degree of risk. We operate in a
highly competitive, dynamic and rapidly changing industry that involves numerous
risks and uncertainties.  Moreover, our debt instruments impose
restrictions on us that are for the benefit of certain of our creditors, but not
necessarily for our stockholders or us.  Anyone who is making an
investment decision regarding our securities should carefully consider the
following risk factors, as well as the other information contained or
incorporated by reference in this report.  The risks and uncertainties
described below are those that we currently believe may materially affect our
company or your investment.  Other risks and uncertainties that we do
not presently consider to be material, or of which we are not presently aware,
may become important factors that adversely affect our security holders or us in
the future.  If any of the risks discussed below actually materialize,
our business, financial condition, operating results, cash flows and future
prospects, or your investment in our securities, could be materially and
adversely affected, resulting in a loss of all or part of your
investment.


22


Risks Relating To Our
Business And Our Capital Structure




We
Are in Breach of Affirmative Covenants And Have Failed to Make Timely Payments
of Interest Under Our New Credit Facility.




In
connection with our New Credit Facility as defined in Item 7 below, we agreed to
affirmative covenants obligating us to, among other things, make all payments
under the New Credit Facility and provide to Wachovia a Deposit Account Control
Agreement, or DACA, from each of the Company’s depository banks at Wachovia’s
request.  On February 26, 2009, the Company received a notice of
default, or Notice, on its New Credit Facility from Wachovia, which relates to
the Company’s failure to provide a DACA from each of the Company’s depository
banks per a request made by Wachovia on October 14,
2008.




The DACA
that Wachovia requested the Company to execute was in a form that we ultimately
determined to contain unreasonable terms and conditions as it would enable
Wachovia to access all of the Company’s operating cash and order it to be
transferred to a bank account specified by Wachovia.  The Notice
further provides that as a result of the default, we will no longer have the
option to request LIBOR Rate loans.  As a result of losing the
availability of LIBOR Rate loans under the New Credit Facility, the interest
rate on the Term Loan will increase from approximately 7.5% to 8.5% and the
interest rate for the Revolving Credit Facility will remain the
same.




On March
25, 2009, we engaged XRoads Solution Group LLC as our financial
advisor.  Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company not pay the accrued interest of approximately
$4 million on our $245 million New Credit Facility, which was due March 30,
2009. Consequently, we elected not to make the payment. The Company’s
failure to pay interest due on any loan within our New Credit Facility within a
three-day grace period from the due date is an event of default under our New
Credit Facility.  We do not plan to pay the interest due within the
three-day grace period.  As a result of this event of default, the
Company's lenders have the right to seek to charge additional default interest
in the amount of 2% on the Company’s outstanding principal and interest under
the Credit Agreement, and automatically charge additional default interest of 1%
on any overdue amounts under the Swap Agreement.  These defaults rates
are in addition to the interest rates that would otherwise be applicable under
the Credit Agreement and Swap Agreement.  We believe that the
Company’s lenders will seek to apply these higher default interest rates as a
result of the Company’s failure to make the interest payment due on March 30,
2009.
  We
entered into discussions with Wachovia to negotiate a waiver or forbearance
regarding the Notice and the anticipated payment default and an anticipated
going concern default (see discussion below).  If we are not
successful in negotiating a waiver or forbearance agreement with the Company’s
lenders regarding the Notice and the anticipated payment and going
concern defaults, Wachovia and the lenders under the New
Credit Facility would: have the ability to accelerate repayment of all
amounts outstanding under the New Credit Facility ($227.5 million at
December 31, 2008), to commence foreclose on some or all of our assets
securing the debt, or exercise other rights and remedies granted under the New
Credit Facility and as may be available pursuant to applicable
law.  In addition, Wachovia, under our Swap Agreement, can terminate
the Swap Agreement and accelerate repayment of the amount outstanding under that
agreement ($30.2 million at December 31, 2008).  If the New Credit
Facility and interest rate swap indebtedness were to be accelerated, we would be
required to refinance or restructure the payments on that debt.  We cannot
assure you that we would be successful in completing a refinancing or consensual
out-of-court restructuring, if necessary.  If we were unable to do so, we
would likely be compelled to seek protection under Chapter 11 of the U. S.
Bankruptcy Code.
  As a
result of these factors, we have concluded that there is substantial doubt about
our ability to continue as a going concern and our auditors have issued a
modified opinion, with an explanatory paragraph, on our financial statements
within this Form 10-K that expresses substantial doubt of our ability to
continue as a going concern because we are in default under the covenants of our
New Credit Facily.


23


Our
Independent Auditors Have Expressed Doubt About Our Ability To Continue As A
Going Concern.  This Could Make It More Difficult For Us To Raise
Funds and Adversely Affect Our Relationships With Lenders, Investors And
Suppliers




Our
independent registered public accounting firm included an explanatory paragraph
that expresses doubt as to our ability to continue as a going concern in their
audit report contained in this Form 10-K report for the year ended December 31,
2008.  As discussed in Note 2 to the consolidated financial statements
within this Form 10-K report, the company has incurred recurring operating
losses, has a working capital deficiency and has an accumulated deficit. We
cannot provide any assurance that we will in fact operate our business
profitably, maintain existing financings, or obtain sufficient financing in the
future to sustain our business in the event we are not successful in our efforts
to generate sufficient revenue and operating cash flow.




Our
ability to continue as a going concern will be determined by our ability to
obtain additional funding or restructure or negotiate waivers on our existing
indebtedness and to generate sufficient revenue to cover our operating
expenses.  The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts of liabilities that might be necessary should
we be unable to continue in existence.




The
Current Disruption in the Credit Markets and its Effects on the Global and
Domestic Economies Could Adversely Affect our Business.





Recent
substantial volatility in the global capital markets and widely-documented
commercial credit market disruptions have had a significant negative impact on
financial markets, as well as the global and domestic economies.  The
effects of these disruptions are widespread and difficult to quantify, and it is
impossible to predict when the global financial markets will
improve.  There is now general consensus among economists that the
economies of the U.S. and much of the rest of the world are now in a recession,
and we are experiencing reduced demand for our hotel rooms, gaming products and
other services.   Declines in demand and in consumer and
commercial spending may drive us and our competitors to reduce pricing, in
particularly room rates, which would have a negative impact on our gross
profit.  These adverse effects would likely be exacerbated if current
global economic conditions persist or worsen, resulting in wide-ranging, adverse
and prolonged effects on general business conditions, and materially and
adversely affect our operations, financial results and liquidity.





Our
Significant Indebtedness Could Adversely Affect Our Financial Health And Prevent
Us From Fulfilling Our Obligations Under Our Outstanding
Indebtedness




We have a
significant amount of debt which could have important consequences to our
stockholders and significant effects on our business and our ability to satisfy
our debt obligations.  Our significant amount of debt
could;




·
            cause
      an event of default if we fail to comply with the restrictive covenants in
      our New Credit Facility, which could result in all of our indebtedness
      becoming immediately due and payable and would permit certain lenders to
      foreclose on our assets securing that indebtedness (We received a
      notification of default under our New Credit Facility on February 26,
      2009.  Moreover, we did not pay accrued interest on our New Credit
      Facility, which was due March 30, 2009.  We do not anticipate
      making this payment of accrued interest within the three-day grace period
      in which we can make such payment.  Pursuant to our New Credit
      Facility, the administrative agent or the lenders can accelerate the debt
      and require repayment of our Credit Agreement indebtedness.  We
      may not be able to restructure or refinance our indebtedness should this
      occur);


·
            increase
      our vulnerability to adverse economic or industry conditions or a downturn
      in our business;




·
            limit
      our ability to repay our New Credit Facility if we are required to do so
      as a result of a change in control of our company or regulatory
      requirements;




·
            limit
      our ability to obtain additional financing for future working capital
      needs and require us to dedicate a substantial portion of our cash flow
      from operations to payments on our indebtedness, thereby reducing the
      availability of our cash flow to fund working capital needs, capital
      expenditures, development projects, acquisitions and other general
      corporate purposes;




·
            limit
      our flexibility in planning for, or reacting to, changes in our business
      and industry; and




·
            place
      us at a disadvantage compared to our competitors that have
      less  financial leverage.




The
fair market value of the collateral securing our New Credit Facility may not be
sufficient to pay the amounts owed under our New Credit Facility.  As
a result, holders of our New Credit Facility may not receive full payment
following an event of default.
  Our New
Credit Facility and the guarantees thereof are secured by a security interest in
substantially all of our existing and future assets (other than certain excluded
assets), subject to certain limitations.
  The
proceeds of any sale of collateral following an event of default with respect to
our New Credit Facility may not be sufficient to satisfy, and may be
substantially less than, amounts due under the New Credit
Facility.  The total value of the collateral may be less than the
amount due under the New Credit Facility.
  The value
of the collateral in the event of liquidation will depend upon market and
economic conditions, the availability of buyers and similar
factors.  The collateral does not include contracts, agreements,
licenses (including gaming, and liquor licenses) and other rights that by their
express terms prohibit the assignment thereof or the grant of a security
interest therein.  Some of these may be material to us and such
exclusion could have a material adverse effect on the value of the
collateral.  By its nature, some or all of the collateral may not have
a readily ascertainable market value or may not be saleable or, if saleable,
there may be substantial delays in its liquidation.  To the extent
that liens, security interests and other rights granted to other parties
(including the lenders under our senior secured credit facility) encumber assets
owned by us, those parties have or may exercise rights and remedies with respect
to the property subject to their liens that could adversely affect the value of
that collateral and the ability of the trustee under the indenture governing the
New Credit Facility or the holders of the New Credit Facility to realize or
foreclose on that collateral.  Consequently, we cannot assure the
lenders that liquidating the collateral securing the New Credit Facility would
produce proceeds in an amount sufficient to pay any amounts due under the New
Credit Facility after also satisfying the obligations to pay any creditors with
prior claims on the collateral.
  24
  The
gaming licensing process, along with bankruptcy laws and other laws relating to
foreclosure and sale, as discussed below, also could substantially delay or
prevent the ability of the trustee or any holder of the New Credit Facility to
obtain the benefit of any collateral securing the New Credit
Facility.  Such delays could have a material adverse effect on the
value of the collateral.
  If the
proceeds of any sale of collateral are not sufficient to repay all amounts due
on the New Credit Facility, the holders of the New Credit Facility (to the
extent not repaid from the proceeds of the sale of the collateral), would have
only an unsecured claim against our remaining assets.
  Gaming
laws, bankruptcy laws and other factors may delay or otherwise impede the
trustee’s ability to foreclose on the collateral securing the New Credit
Facility.
  The
gaming laws of the State of Nevada and Colorado and the licensing processes,
along with other laws relating to foreclosure and sale, could substantially
delay or prevent the ability of the trustee or any lender of the New Credit
Facility to obtain the benefit of any collateral securing the New Credit
Facility.  For example, if the trustee sought to operate, or retain an
operator for, any of our gaming properties, the trustee would be required to
obtain Nevada gaming licenses.  Potential purchasers of our gaming
properties or the gaming equipment would also be required to obtain a Nevada
gaming license.  This could limit the number of potential purchasers
in a sale of our gaming properties or gaming equipment, which may delay the sale
of and reduce the price paid for the collateral.
  In
addition, the trustee’s ability to repossess and dispose of collateral is
subject to the procedural and other restrictions of state real estate,
commercial and gaming law, as well as the prior approval of the lenders under
our New Credit Facility.  Among other things, if the trustee did conduct a
foreclosure sale, and if the proceeds of the sale were insufficient, after
expenses, to pay all amounts due under the New Credit Facility, the trustee
might, under certain circumstances, be permitted to assert a deficiency claim
against us.  There can be no assurance that the trustee would be able to
obtain a judgment for the deficiency or that we would have sufficient other
assets to pay a deficiency judgment.
 Federal
bankruptcy law also could impair the trustee’s ability to foreclose upon the
collateral.  If we or a guarantor become a debtor in a case under the
United States Bankruptcy Code, as amended, or the Bankruptcy Code, the automatic
stay, imposed by the Bankruptcy Code upon the commencement of a case, would
prevent the trustee from foreclosing upon the collateral or (if the trustee has
already taken control of the collateral) from disposing of it, without prior
bankruptcy court approval.
  The
bankruptcy court might permit us to continue to use the collateral while the
bankruptcy case was pending, even with the New Credit Facility being in
default.  Under the Bankruptcy Code, lenders of New Credit Facility
and the trustee would be entitled to “adequate protection” of the interest of
lenders of New Credit Facility in the collateral, if necessary to protect
against any diminution in value during the case.  Because the
Bankruptcy Code does not define “adequate protection,” and because the
bankruptcy court has broad discretion, however, there can be no assurance that
the court would require us to provide lenders of New Credit Facility with any
form of “adequate protection,” or that any protection so ordered would, in fact,
be adequate.
  In a
bankruptcy case, the court would allow a claim for all amounts due under the New
Credit Facility, including all accrued and unpaid interest through the date of
bankruptcy.  Under the Bankruptcy Code, interest stops accruing on the
date of bankruptcy except under certain specified circumstances, and there can
be no assurance that the court would allow a claim for post-bankruptcy
interest.  If the court held that the value of the collateral securing
the New Credit Facility was less than the amount due, the trustee would be
permitted to assert a secured claim in an amount equal to the collateral’s value
and an unsecured claim for the deficiency.
  For these
and other reasons, if we or our subsidiaries become debtors in cases under the
Bankruptcy Code, there can be no assurance:
  ·
              whether
      any payments under the notes would be
made;
  ·
              whether
      or when the trustee could foreclose upon or sell the
      collateral;
  ·
              whether
      the term or other conditions or any rights of the lenders could be altered
      in a bankruptcy case without the trustee’s or the lenders’
      consent;
  ·
              whether
      the trustee or the lenders would be able to enforce the noteholders’
      rights against the guarantors under their guarantees;
  or
  ·
              whether
      or to what extent holders of the New Credit Facility would be compensated
      for any delay in payment or decline in the collateral’s
    value.
  Finally,
the trustee’s ability to foreclose on the collateral on behalf of the lenders
may be subject to the consent of third parties and practical problems associated
with the realization of the trustee’s security interest in the
collateral.


We
Face Intense Competition In The Two Markets Where We Operate




In Las
Vegas, competition has continued to increase as a result of factors such as the
ongoing economic recession, hotel room inventory increases, gaming floor
expansions in addition to convention, trade show and meeting space
additions.  Our success depends on the ability of Riviera Las Vegas to
attract customers and realize corresponding revenues.  Riviera Las
Vegas competes with casino resort properties and hotels in the Las Vegas
area.  Currently, there are approximately 30 major gaming properties
located on or near the Las Vegas Strip, approximately ten additional major
gaming properties in the downtown area and many additional gaming properties
located in other areas of Las Vegas.  Riviera Las Vegas competes
with these properties based on overall atmosphere, range of amenities, level of
service, price, location, entertainment offered, shopping and restaurant
facilities, theme and size.  Companies that own and operate multiple
hotel/casino facilities operate many of the gaming properties in Las
Vegas.  These companies have greater name recognition and financial
and marketing resources than we do and often market to the same target
demographic groups as we do.  Furthermore, additional major
hotel/casino openings and significant expansion of existing properties,
containing a large number of hotel rooms and attractions, are expected to occur
in Las Vegas in the coming years, which will put additional pressure on us to
remain competitive.




In Black
Hawk/Central City, the primary competitive differentiators are location,
availability and convenience of parking, number of gaming devices, promotional
incentives, hotel rooms, types and pricing of non-gaming amenities, name
recognition and overall atmosphere.  Our main competitors are the
larger gaming facilities especially those with considerable on-site or nearby
parking facilities, hotel rooms and established reputations in the local
market.  Two of the most successful casinos in Colorado are
considerably larger than Riviera Black Hawk and are located across the street
from our casino.  Three other casinos in our market offer hotel
accommodations as well as gaming facilities and thereby have some competitive
advantages over us.  The Ameristar Black Hawk property was re-branded
as the “Ameristar” on April 1, 2006.  Ameristar is adding a hotel
tower with 536 hotel rooms and expanding its parking garage to 1,550 parking
spaces.  This project is expected to be substantially complete by the
end of the second quarter of 2009.  Ameristar has approximately 1,600
gaming machines, 12 blackjack tables and 14 live poker tables.  Also,
a road, which opened in November 2004, enables drivers to bypass Black Hawk on
their way to Central City.  This road has led to significant growth in
the Central City gaming market and may give our Central City competitors an
advantage over us.


25


There
have also been efforts in Colorado by Native American tribes to acquire land to
use for construction of a casino that would operate without the limitations
imposed on the Colorado casino industry.  Additionally, there have
been efforts by other parties to amend the Colorado Constitution to permit the
installation of slot machines at five racetracks.  To date, the Native
American casino initiatives in Colorado have either been rejected or have failed
to win support from government authorities.  Moreover, in 2003, a race
track/slot machine initiative was rejected by Colorado voters.  Our
Colorado operations could be adversely affected if either one of these
initiatives gain the necessary approvals.




In
addition to the competition that we face from our competitors in Las Vegas and
Colorado, we face increasing competition from other companies in the gaming
industry generally, such as land-based casinos, dockside casinos, riverboat
casinos, casinos located on Native American land and other forms of legalized
gambling.  We risk losing market share if other casinos operate more
successfully or are enhanced or expanded or are established in or around the
locations where we conduct business.




The
number of casinos on Native American lands has increased since enactment of the
Indian Gaming Regulatory Act of 1988.  In 2000, California voters
approved an amendment to the California Constitution that allows Las Vegas-style
gaming on Native America lands in that state.  Additionally,
California voters recently passed Propositions 94, 95, 96 and 97 which allow two
tribes near San Diego to each increase their slot machine volume from 2,000
slot machines to 7,500 slot machines and two tribes near Palm Springs to each
increase their slot machine volume from 2,000 slot machines to 5,000 slot
machines.  While it is difficult to determine the impact of these new
gaming jurisdictions, the continued expansion of gaming in California poses a
more serious threat to the continued growth of Las Vegas.  We
also compete, to some extent, with other forms of gaming on both a local and
national level, including state sponsored lotteries, Internet gaming, on- and
off-track wagering and card parlors.




In
particular, the legalization of gaming or the expansion of legalized gaming in
or near any geographic area from which we attract or expect to attract a
significant number of our customers could have a significant adverse effect on
our business, financial condition, results of operations and future
prospects.




Increased
competition may also require us to make substantial capital expenditures to
maintain or enhance the competitive positions of our two
properties.  Because we are highly leveraged, after we satisfy our
obligations under our outstanding indebtedness, we might not have sufficient
financing to make such expenditures.  If we are unable to make such
expenditures, our competitive position, results of operations and future
prospects could be materially and adversely affected.




Our
Company Operates In Only the Las Vegas And Black Hawk Markets Which Exposes Us
To Greater Risks Than Gaming Companies With A Presence In More
Markets




We do not
have material assets or operations other than Riviera Las Vegas and Riviera
Black Hawk.  Therefore, we are entirely dependent upon these two
properties for our cash flow.  This makes us more sensitive to events
and conditions affecting the markets in which we operate, including the
following:




·
            continued
      or worsening national recession;




·
            weak
      local economic conditions;




·
            increased
      competitive conditions;




26


·
            inaccessibility
      due to weather conditions, road construction or closure of primary access
      routes;




·
            decline
      in air passenger traffic due to higher ticket costs or fears concerning
      air travel;




·
            a
      decline in automobile traffic due to higher gasoline
    prices;




·
            changes
      in state and local laws and regulations, including those affecting
      gaming;




·
            an
      increase in the cost of electrical power for Riviera Las Vegas as a result
      of, among other things, power shortages in California or other western
      states with which Nevada shares a single regional power
    grid;




·
            a
      decline in the number of visitors to Las Vegas or the number of Colorado
      residents who visit Black Hawk;




·
            a
      decline in the number of hotel guest in Las Vegas due to the 3% hotel room
      tax increase bill which approved by the Nevada Legislature in March 2009;
      and




·
            a
      potential increase in the gaming tax rate in any jurisdiction in which we
      operate.




We
Are Dependent On Key Personnel Whom We Might Have Difficulty Replacing Due To
A  Shortage Of Management-Level Personnel In Our Industry And Market
Perceptions About Our Prospects




Our
ability to operate successfully is dependent, in part, upon the continued
services of certain of our executive personnel.  Our loss of any of
them or our inability to attract or retain key employees in the future
could have a material adverse effect on us.  We have an employment
agreement with William L. Westerman, our Chairman of the Board, President and
Chief Executive Officer (“CEO”) who has been with us or our predecessor company
since 1991.  Mr. Westerman is employed for calendar year periods
which renew automatically unless he provides 180 days written notice or we
provide 90 days written notice of our respective intention not to
renew.  Mr. Westerman’s contract is also subject to earlier
termination upon the occurrence of certain events.  We cannot assure
you that we would find a suitable replacement for Mr. Westerman if he
retires or his employment terminates for any other reason.  There is a
shortage of skilled management-level employees in the gaming
industry.  This shortage, combined with our relatively limited
financial and marketing resources, competitive position and market perceptions
about our future prospects especially considering the notice of default we
received under our credit agreement, may make it more difficult for us to find
suitable replacements if we lose the services of our executives or other key
personnel, which in turn might make it more difficult for us to attract and
retain qualified personnel at that high level.




Regulations
Issued By Gaming Or Other Governmental Authorities Could Adversely Affect Our
Operations




As owners
and operators of gaming facilities, we are subject to extensive governmental
regulation.  The ownership, management and operation of gaming
facilities are subject to extensive laws, regulations and ordinances, which are
administered by various federal, state and local government entities and
agencies.  The gaming authorities in the jurisdictions in which we
operate have broad authority and discretion to require us and our officers,
directors, managers, employees and certain security holders to obtain various
licenses, registrations, permits, findings of suitability or other approvals. To
enforce applicable gaming regulations, gaming authorities may, among other
things, limit, suspend or revoke the licenses of any gaming entity or
individual, and may levy fines against us or individuals or may cause us to
forfeit our assets for violations of gaming laws or regulations.  Any
of these actions would have a material adverse effect on us.


27


Nevada
and Colorado state and local government authorities require us to obtain gaming
licenses and require our officers and key employees to demonstrate suitability
to be involved in gaming operations.  Those authorities may limit,
condition, suspend or revoke a license for any cause they deem
reasonable.  Also, if we violate any gaming laws or regulations, those
authorities may levy substantial fines against us or the individuals involved in
the violations.  The occurrence of any of these events could have a
material adverse effect on our business, financial condition, results of
operations and future prospects.




We can
not assure you that any new licenses, registrations, findings of suitability,
permits and approvals will be granted or that our existing ones will be renewed
when they expire.  Any failure to renew or maintain our licenses or
receive new licenses when necessary would have a material adverse effect on
us.




We are
subject to a variety of other laws, rules and regulations, including those
pertaining to zoning, environmental matters, construction, land use and the
serving of alcoholic beverages.  We also pay substantial taxes and
fees in connection with our operations as a gaming company, which taxes and fees
are subject to increases or other changes at any time.  Any changes to
these laws could have a material adverse effect on our business, financial
condition, results of operations and future prospects.




Our
compliance costs associated with these laws, regulations and licenses are
significant.  A change in the laws, regulations and licenses
applicable to our business or a violation of any of them could require us to
make material expenditures or could otherwise materially adversely affect our
business, financial condition, results of operations and future
prospects.




In Black
Hawk and in other jurisdictions from which we attract customers, gaming is
subject to local referendum.  If the results of a referendum held in a
jurisdiction in which we operate were to restrict gaming in whole or in part or
if the results of a referendum in a nearby non-gaming jurisdiction were to
permit gaming, especially video lottery terminals or slot machines in racetracks
in and around the Denver area, our results of operations could be negatively
impacted.




We
Are Subject To Potential Exposure To Environmental Liabilities




Generally,
we are subject to various federal, state and local governmental laws and
regulations relating to the use, storage, discharge, emission and disposal of
hazardous materials.  Failure to comply could result in the imposition
of severe penalties or restrictions on our operations by governmental agencies
or courts.  We experienced a diesel leak at our Las Vegas
property.  Our continuing efforts to monitor and remediate the effects
of this leak, which occurred in 2002, have been affected by construction at
neighboring projects.  We are continuing to monitor this
matter.  In order to come to final resolution regarding this issue
with the Nevada Department of Environmental Protection, we may be required to
take remediation steps including the excavation of the effected
area.  We are unable to estimate the cost of remediation at the
present time.




Riviera
Black Hawk is located within a 400-square mile area that in 1983 was designated
as the Clear Creek Central/City National Priorities List Site Study Area under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended.  Although Riviera Black Hawk is not within any of
the specific areas currently identified for investigation or remediation under
that statute, environmental problems may subsequently be discovered, including
in connection with any future construction on our
property.  Furthermore, governmental authorities could broaden their
investigations and identify areas of concern within the site and as a result, we
could be identified as a “potentially responsible party” and any related
liability could have a material adverse effect on us.  We do not have
insurance to cover environmental liabilities, if we incur any.


28


Energy
Price Increases May Adversely Affect Our Costs Of Operations And Our
Revenues




Our
casino properties use significant amounts of electricity, natural gas and other
forms of energy.  Recent substantial increases in the cost of
electricity in the United States have negatively affected our operating results
and are likely to continue to do so.  The extent of the impact is
subject to the magnitude and duration of energy price increases, but this impact
could be material.  In addition, energy price increases in cities that
constitute a significant source of customers for our properties could result in
a decline in disposable income of potential customers and a corresponding
decrease in visitation to our properties which could negatively impact our
revenues.




Our
Business, Financial Condition, Results Of Operations And Future Prospects Are
Dependent On Many Factors That Are Beyond Our Control




The
economic health of our business is generally affected by a number of factors
that are beyond our control, including:




·
            decline
      in tourism and travel due to concerns about homeland security, terrorism
      or other destabilizing events;




·
            decline
      in the Las Vegas convention
business;




·
            the
      ability to renegotiate union contracts in Las
  Vegas;




·
            intense
      competitive conditions in the gaming industry, especially the possibility
      of the approval of video lottery terminals and/or slot machines at
      racetracks in and around the Denver area, including the effect of such
      conditions on the pricing of our games and
  products;




·
            general
      economic conditions including the impact of a continued or worsening
      economic recession;




·
            economic
      conditions specific to our primary
markets;




·
            general
      condition of the banking and credit
markets;




·
            changes
      in the regulatory regimes affecting our business, including changes to
      applicable gaming, employment, environmental or tax
      regulations;




·
            inaccessibility
      to our property due to construction on adjoining or nearby properties,
      streets or walkways;




·
            substantial
      increases in the cost of electricity, natural gas and other forms of
      energy;




·
            local
      conditions in key gaming markets, including seasonal and weather-related
      factors;




·
            increased
      transportation costs;




29


·
            levels
      of disposable income of casino
customers;




·
            continued
      increases in health care costs;




·
            increases
      in gaming taxes or fees;




·
            the
      relative popularity of entertainment alternatives to casino gaming that
      compete for the leisure dollar;




·
            an
      outbreak or suspicion of an outbreak of an infectious communicable
      disease; and




·
            the
      impact of the smoking ban in Colorado on our Riviera Black Hawk property
      which became effective January 1, 2008 and the possible adoption of
      additional anti-smoking
regulations.




Any of
these factors could negatively impact our property or the casino industry
generally, and as a result, our business, financial condition and results of
operations.




We
May Incur Losses That Are Not Adequately Covered By Insurance




Insurance
may not be available in the future or adequate to cover all loss or damage to
which our business or our assets might be subjected.  Since the
terrorist attacks of September 11, 2001, insurance coverage has diminished for
certain types of damages or occurrences and is no longer available at reasonable
commercial rates.  The lack of adequate insurance for certain types or
levels of risk could expose us to significant losses if a catastrophe or lawsuit
occurs for which we do not have insurance coverage.  Any losses we
incur that are not adequately covered by insurance may decrease our future
operating income, require us to pay the costs of replacing or repairing
destroyed property and reduce the funds available for payment of our debt
obligations.




We
Are Subject To Litigation, Which, If Adversely Determined, Could Cause Us To
Incur Substantial Losses




From time
to time during the normal course of operating our business, we are subject to
various litigation claims and other legal disputes.  Some of the
litigation claims may not be covered under our insurance policies or our
insurance carriers may seek to deny coverage.  As a result, we might
be required to incur significant legal fees, which may have a material adverse
effect on us.  In addition, because we cannot predict the outcome of
any legal action, it is possible that as a result of litigation, we will be
subject to adverse judgments or settlements that could significantly reduce our
results from operations.




Homeland
Security, Terrorism And War Concerns, As Well As Other Factors Affecting
Discretionary Consumer Spending, May Harm Our Operating Results




The
strength and profitability of our business depend on consumer demand for
hotel/casino resorts, gaming in general and the types of amenities we
offer.  Changes in consumer preferences or discretionary consumer
spending could harm our business.  The terrorist attacks of
September 11, 2001, ongoing war activities and concerns about terrorism and
homeland security have had a negative impact on travel and leisure expenditures,
including lodging, gaming (in some jurisdictions) and tourism.  We
cannot predict the extent to which those events may continue to affect us,
directly or indirectly, in the future.  An extended period of reduced
discretionary spending or disruptions or declines in travel could significantly
harm our operations.


30


In
addition to concerns about war, homeland security and terrorism, other factors
affecting discretionary consumer spending include; consumers confidence in
general or regional economic conditions, consumers’ disposable income, consumers
fears of a continued or worsening economic recession or an economic
depression.  Negative changes in factors affecting discretionary
spending could reduce customer demand for the products and services we offer,
thus imposing practical limits on our pricing and harming our
operations.




If
the State of Nevada or Clark County increases gaming taxes and fees, our results
of operations could be adversely affected.





State and
local authorities raise a significant amount of revenue through taxes and fees
on gaming activities. From time to time, legislators and officials have proposed
changes in tax laws, or in the administration of such laws, affecting the gaming
industry. In addition, worsening economic conditions could intensify the efforts
of state and local governments to raise revenues through increases in gaming
taxes.  If the State of Nevada or Clark County, Nevada were to
increase gaming taxes and fees, our results of operations could be adversely
affected.  There are several gaming tax increase proposals currently
circulating in Nevada. One such proposal, a 3% increase in the room tax, was
recently approved by the Nevada legislature. These proposals would take the form
of voter referendum.  If successfully implemented, such an increase
would have a material adverse affect on our financial condition, results of
operations or cash flows.




Risks Relating To Our Common
Stock




Our
Stock Price Has Been Volatile, Which Could Result In Substantial Losses For Our
Stockholders.




On
October 1, 2008, the New York Stock Exchange (“NYSE”) Euronext acquired the
American Stock Exchange (“AMEX”).  As a result, effective December 1,
2008, all AMEX listed companies, including the Company, were placed in the NYSE
Alternext US listing platform.  On March 18, 2009, the NYSE Alternext
US changed its name to NYSE Amex.  Our stock’s average trading volume
for the three-month period ended March 23, 2009 was 29,785
shares.  The daily closing sale prices of our stock, as reported by
NYSE Amex (formerly NYSE Alternext US and AMEX), have ranged from $1.05 to
$21.99 for the 52-week period ended March 23, 2009.  The volatility of
the trading price of our stock could be due to many factors including, but not
limited to:




·
            the
      relatively low trading volume for our
stock;




·
            the
      effect of our announcement that we had terminated our strategic process to
      explore alternatives for maximizing stockholder value;




·
            the
      effect that fluctuations in our stock price will have on other parties’
      willingness to make a proposal to acquire
us;




·
            requirement
      in our Articles of Incorporation of an affirmative vote of 60% of all of
      our outstanding shares entitled to vote in order for a merger proposal to
      succeed;




·
            ownership
      of a large number of our outstanding shares by a small group of
      stockholders, coupled with our 60% affirmative vote requirement to
      effectuate a successful merger, may inhibit other parties from engaging in
      merger negotiations with us;




31


·
            fluctuations
      in Las Vegas real estate values, particularly as they affect property on
      the Las Vegas Strip;




·
            the
      current credit market and banking
environment;




·
            current
      economic conditions and expectation regarding future economic
      conditions;




·
            quarterly
      fluctuations in our financial
results;




·
            changes
      in analysts’ estimates of our financial performance or future
      prospects;




·
            announcements
      of new services or programs;




·
            additions
      or departures of key personnel;




·
            general
      conditions in our industry and in the financial markets;
    and




·
            a
      variety of other risk factors including the ones described elsewhere in
      this report.




The
Volatility Of The Las Vegas Real Estate Market Might Result In A Substantial
Decline In Our Stock Price




We
believe that the recent decline in Las Vegas Strip real estate values was a
significant cause for the drop in the trading price of our stock in 2008. The
market value of real estate located on or near the Las Vegas Strip increased
substantially during the three years preceding 2008 and the trading price of our
stock increased in conjunction.  We believe that increases and
decreases in Las Vegas Strip real estate values have significantly affected the
trading price of our stock. Our Las Vegas property, which is located near the
northern end of the Las Vegas Strip, consists of approximately 26 acres and is
recorded at a book value of $21 million based on its 1993 historical
cost.




There
Are Requirements and Limitations On Changes In Control Of Our Company That Could
Reduce The Ability To Sell Our Shares In Excess Of Current Market
Prices




Our
current debt consists of a seven year $225 million term loan which matures on
June 8, 2014 (the “Term Loan”) and a $20 million five year revolving credit
facility (the “Revolving Credit Facility” together with the Term Loan, the “New
Credit Facility”).  The terms of the New Credit Facility restrict the
ability of anyone to effect a change in control of our company.  If
anyone acquires 35% or more of our outstanding stock or if other events occur
that constitute a change in control according to our New Credit Facility, we
have to make a prompt offer to repay the New Credit Facility.  It is
unlikely that we would have the funds to repay the New Credit Facility within
the required time frame unless we obtained the necessary funding as part of the
change in control transaction which adds significantly to the funding that a
buyer would need to acquire our company.  Our New Credit Facility also
would require us to obtain the consent of holders of a majority of the
outstanding principal amount of the New Credit Facility in order for us to be a
party to a merger or to sell all or substantially all of our assets unless,
after giving effect to the transaction, we meet certain net worth or financial
ratio tests, which might be difficult or impossible for us to meet.




Early
termination of our Swap Agreement, which we entered into in conjunction with our
New Credit Facility, could result in a substantial payment if interest rates
were below the fixed swap interest rate in effect at the time we entered into
the Swap Agreement.


32


Additionally,
our Articles of Incorporation and bylaws contain provisions that could reduce
the likelihood of a change in control or acquisition of our
company.  These could limit your ability to sell your shares at a
premium or otherwise affect the price of our common stock.  These
provisions:




·
            limit
      the voting power of persons who acquire more than 10% of our outstanding
      stock without our prior approval;




·
            permit
      us to issue up to 60 million shares of common
  stock;




·
            permit
      us to increase the size of our board of directors and fill the resulting
      vacancies without a vote by stockholders;
and




·
            limit
      the persons who may call special meetings of
  stockholders.




In
addition, Nevada law contains provisions governing the acquisition of a
substantial or controlling interest in certain publicly-held Nevada
corporations, including our company.  Those laws provide generally
that any person who acquires more than a specified percentage of our outstanding
stock must obtain certain approvals from us before the acquisition or they might
be denied voting rights or the ability to engage in various transactions with
us, unless our disinterested stockholders vote to restore those
rights.  The ownership percentage that triggers some of these
restrictions is 10%, and further restrictions can be triggered at the 20%,
33-1/3% or 50.1% ownership level.




Also, a
person that seeks to acquire control must satisfy the licensing requirements of
the Nevada and Colorado gaming authorities.  The gaming
authorities may also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with a person
proposing to acquire control to be investigated and licensed as part of the
approval process relating to the transaction.




Nevada
law also provides that we may resist a change or potential change in control if
our board of directors determines that the change is not in the best interest of
our company.




On
November 19, 2008, we entered into a separate investment agreement (each an
“Investment Agreement”) with each of Plainfield Special Situations Master Fund
Limited (“Plainfield”) and Desert Rock Enterprises LLC (“Desert Rock”) relating,
among other things, to the acquisition of our common stock.   We
currently do not have any plans to issue and sell any shares of our common stock
to either Plainfield or Desert Rock.  The principal terms of each
agreement provides for, among other things, (a) that our board of directors has,
in connection with their potential acquisition of our common stock, (i) waived,
in accordance with subsection 7(g) of Article III of our Articles of
Incorporation, the voting limitation set forth in subsection 7(b) of Article III
of the Articles of Incorporation with respect to Desert Rock and Plainfield (and
their respective affiliates and related entities collectively, the “Investor
Group”), and (ii) approved the acquisition of our common stock pursuant to the
Investment Agreements in accordance with the provisions of subsection 78.438(1)
of Title 7 of the Nevada Revised Statutes, (b) each Investor Group’s agreement
not to directly or indirectly acquire any of our common stock, or otherwise
become part of a group, if immediately after giving effect to such acquisition
or group formation, the Investor Group, or any group of which it is a part,
would have beneficial ownership of our common stock in excess of fifteen percent
(15%) of the outstanding common stock, unless specifically approved in writing
by our board of directors, subject to certain limited exceptions, (c) an
agreement by each of Plainfield and Desert Rock to a standstill period (which
ends on the first date to occur of: (i) the day following the completion of our
2010 regular annual meeting of stockholders, (ii) September 1, 2010 and (iii)
the ending of any period during which any other investor is subject to a similar
standstill) during which time it will not take certain actions involving the
Company including without limitation to solicit proxies or become a participant
in a proxy solicitation with respect to our securities or submit a proposal or
offer involving a merger, business combination, acquisition tender or other
similar type transaction, except under certain limited circumstances, (d) ) an
agreement by each of Plainfield and Desert Rock not to vote any securities it
holds in excess of the amount permitted to be purchased pursuant to clause (b)
above, and (e) ) each of Plainfield and Desert Rock to seek to obtain any
approvals that may be required from the Nevada and Colorado gaming authorities
in connection with the acquisition of our common stock pursuant to the
Investment Agreements.


33


We
Have Never Paid Dividends, Do Not Intend To Pay Dividends In The Foreseeable
Future And Cannot Pay Dividends To Any Unsuitable Person




We have
never paid dividends on our stock, nor do we anticipate paying dividends in
the foreseeable future.  We intend to retain our cash flow or
earnings, if any, to use in our growth and ongoing operations.  Also,
due to gaming law considerations, our Articles of Incorporation prohibit the
payment of dividends to anyone who is deemed an “unsuitable person” or is an
affiliate of an “unsuitable person.”




Certain
Owners Of Our Stock May Have To File An Application With, And Be Investigated
By, The Nevada And/Or Colorado Gaming Authorities.  If That Owner Is
Deemed “Unsuitable,” That Stockholder Could Lose Most Of The Attributes Of Being
A Stockholder And It Could have a Detrimental Effect On US.




Any
person who acquires beneficial ownership of more than 10% of our voting
securities must apply to the Nevada Commission for a finding of suitability
within 30 days after the Chairman of the Nevada Board mails a written
notice requiring such application.  Under certain circumstances, if an
“institutional investor” (as defined in Nevada gaming regulations) acquires
beneficial ownership of more than 10% but not more than 15% of our voting
securities and holds the securities only for investment purposes, it may apply
for a waiver of such finding of suitability requirement.  In addition,
any beneficial owner of our voting securities, regardless of the number of
shares owned, may be required, at the discretion of the Nevada Commission,
to apply for a finding of suitability.  A finding of suitability is
comparable to licensing, and the applicant must pay all costs of investigation
incurred by the Nevada gaming authorities in conducting the
investigation.




Any such
person who fails to apply for a finding of suitability within 30 days after
being ordered to do so by the Nevada Commission may be found to be
unsuitable.  Any person who is found by the Nevada Commission to be
unsuitable to be a beneficial owner of our voting securities but continues such
beneficial ownership beyond the period of time prescribed by the Nevada
Commission may be guilty of a criminal offense.  We will be subject to
disciplinary action if, after we receive notice that a person is unsuitable to
be a beneficial owner of our voting securities or to have any other relationship
with us, we:




·
            pay
      that person any dividend or interest on our voting
    securities;




·
            allow
      that person to exercise, directly or indirectly, any voting right
      conferred through our voting securities held by that
    person;




·
            pay
      that person any remuneration in any form for services rendered or
      otherwise; or




·
            fail
      to pursue all lawful efforts to require that person to relinquish our
      voting securities for cash at fair market
value.




34


Colorado
requires that persons owning, directly or indirectly, 5% or more of our stock be
certified as suitable for licensure.  Persons found unsuitable by the
Colorado Commission may be required immediately to terminate any direct or
indirect beneficial interest in our voting securities.  A finding of
unsuitability with respect to any beneficial owner also may jeopardize our
license.  The annual renewal of our license may be conditioned upon the
termination of any beneficial interest in our voting securities by unsuitable
persons.




We
May Redeem Shares Due To Gaming Law Considerations, Either As Required By Gaming
Authorities Or In Our Discretion




Our
articles of incorporation provide that if a gaming authority determines that any
stockholder or its affiliates are unsuitable, or if deemed necessary or
advisable by us for gaming law considerations, we may redeem shares of our stock
that the stockholder or the stockholder’s affiliates own or
control.  The redemption price will be the amount required by the
gaming authority or, if the gaming authority does not determine the price, the
price deemed reasonable by us.  If we determine the redemption price,
that price will be capped at the market price of the shares on the date we give
the redemption notice.  We may pay the redemption price in cash, by
promissory note, or both, as required by the applicable gaming authority and, if
not so required, as we elect.




We
Do Not Meet The NYSE Amex (Formerly NYSE Alternext US and AMEX) Earnings Or Net
Worth Listing Standards




On
October 1, 2008, the NYSE Euronext acquired the AMEX.  As a result,
effective December 1, 2008, all AMEX companies were placed in the NYSE Alternext
US listing platform. On March 18, 2009, the NYSE Alternext US changed its name
to NYSE Amex.  Our common stock is listed on the NYSE Amex trading
platform under the symbol RIV.  Prior to the transition to the NYSE
Amex (formerly NYSE Alternext US) trading platform, our common stock was trading
on AMEX.  We do not currently meet the earnings or net worth standards
that were in effect with NYSE Amex.  We have been informed, however,
that according to NYSE Amex policy, NYSE Amex will not normally consider
suspending dealings in or delisting the securities of a company which is below
the earnings and net worth standards if the total market value of that company’s
publicly held shares is at least $15 million.  Based on the number of
our publicly held shares as of February 20, 2009, our shares must have a
per-share market value of at least $1.20 in order to meet that $15 million
level.  However, we cannot be sure that the NYSE Amex will continue to
follow that policy or that the price of our shares will continue to enable us to
stay at that level in the future.  If our shares were delisted from
NYSE Amex, the marketability and liquidity of our stock could be significantly
reduced.




Item
      1B.
            Unresolved
      Staff Comments




None.




Item
      2.
            Properties




Riviera
Las Vegas




Riviera
Las Vegas is located on the Las Vegas Strip, at 2901 Las Vegas Boulevard South,
Las Vegas, Nevada and occupies approximately 26 acres.  The
buildings comprise approximately 1.8 million square feet, including 100,000
square feet of casino space, a 160,000 square-foot convention, meeting and
banquet facility, 2,075 hotel rooms (including 177 luxury suites) in five
towers, three restaurants, a buffet, three snack bars, four showrooms, a lounge
and approximately 2,300 parking spaces.  In addition, executive
and other offices for Riviera Las Vegas are located on the
property.


35


There are
approximately 35 food and retail concessions operated under individual leases
with third parties. The leases are for periods from one month to, including
option periods, up to twenty years.




Riviera
Black Hawk




Riviera
Black Hawk is located on 1.63 acres of land at 400 Main Street, Black Hawk,
Colorado. The buildings include approximately 325,000 square feet and comprise
32,000 square feet of gaming space, parking spaces for approximately 520
vehicles (substantially all of which are covered), a 252-seat buffet, one bar, a
banquet room with seating for approximately 200 people and three outdoor patio
areas where patrons can smoke.




The
Riviera Las Vegas and Riviera Black Hawk properties are encumbered by deeds of
trust securing our $225 million Term Loan, which mature in June
2014.




Item
      3.
            Legal
      Proceedings




We are
party to routine lawsuits, either as plaintiff or as defendant, arising from the
normal operations of a hotel or casino. We do not believe that the outcome of
such litigation, in the aggregate, will have a material adverse effect on our
financial position or results of our operations.




Item
      4.
            Submission
      of Matters to a Vote of Security
Holders




Not
applicable.




PART
II




Item
      5.
            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities




(a)           As
a result of the NYSE Euronext acquisition of AMEX, effective December 1, 2008,
all AMEX listed companies, including the Company, were placed in the NYSE Amex
(formerly NYSE Alternext US) listing platform.  As of March 23, 2009,
we had approximately 454 stockholders of record and individual participants in
security position listings.  There are a significantly greater number
of stockholders whose shares are held in street name. Based on information we
collected as of March 23, 2009, we estimate that we have at least
1,772 beneficial holders in total.




We have
never paid dividends on our common stock and do not expect to pay dividends
(cash or otherwise) on our common stock for the foreseeable
future.  Our ability to pay dividends is primarily dependent upon
receipt of dividends and distributions from our subsidiaries, which include the
operations of Riviera Las Vegas and Riviera Black Hawk.




We do not
currently meet the earnings or net worth listing standards that were in effect
with NYSE Amex.  We have been informed, however, that according to
NYSE Amex policy, NYSE Amex will not normally consider suspending dealings in or
delisting the securities of a company that does not meet the earnings and net
worth standards if the total market value of that company’s publicly held shares
is at least $15 million and total assets and total revenues of that company are
at least $50 million each in the last fiscal year.  Based on the
number of our publicly held shares as of February 20, 2009, our shares must have
a per-share market value of at least $1.20 in order to meet that $15 million
level and our total assets and total revenues must be at least $50 million each
in the last fiscal year.  While we currently meet these standards, we
cannot be sure that the NYSE Amex will continue to follow that policy or that
the price of our shares will continue to enable us to stay at that level in the
future.  If our shares were delisted from NYSE Amex, the marketability
and liquidity of our stock could be significantly reduced.


36


The table
below sets forth the high and low sale prices by quarter for the years ended
December 31, 2008 and 2007, based on NYSE Amex (formerly NYSE
Alternext US) and AMEX reported prices by certain brokers who have had
transactions in our common stock during the year:




First
                      
                      
                      Second
                      
                      
                      Third
                      
                      
                      FourthQuarter
                      
                      
                      Quarter
                      
                      
                      Quarter
                      
                      
                      Quarter2008HIGH
                      
                      $
                      29.73
                      
                      
                      $
                      21.72
                      
                      
                      $
                      12.31
                      
                      
                      $
                      6.87LOW
                      
                      
                      18.62
                      
                      
                      
                      10.00
                      
                      
                      
                      7.35
                      
                      
                      
                      2.502007HIGH
                      
                      $
                      28.29
                      
                      
                      $
                      39.12
                      
                      
                      $
                      36.66
                      
                      
                      $
                      32.03LOW
                      
                      
                      18.99
                      
                      
                      
                      27.05
                      
                      
                      
                      22.15
                      
                      
                      
                      26.66





Equity Compensation Plan
Information (as of December 31, 2008)




A
              
              
              B
              
              
              CPlan category
              
              Number of securities to
                  be issued upon exercise
                  of outstanding options,
                  warrants and rights
              
              
              Weighted-average
                  exercise price of
                  outstanding options,
                  warrants and rights
              
              
              Number of securities
                  remaining available for
                  future issuance under
                  equity compensation plans
                  (excluding securities
                  reflected in column A)Equity
      compensation plans approved by security holders
              
              
              258,000
              
              
              $
              8.36
              
              
              
              1,078,000Equity
      compensation plans not approved by security holders (2)
              
              
              70,200
              
              
              
              N/A
              
              
              
              172,272
              (1)Total
              
              
              328,200
              
              
              $
              8.36
              
              
              
              1,250,272





(1)
            Of
      the 172,272 shares referenced in column C of the above table, 126,252 are
      from our Restricted Stock Plan and 46,020 are from our Stock Compensation
      Plan for Directors Serving on the Compensation Committee, which are
      described in Note 14 of our consolidated financial statements included in
      this report.  We have a Stock Compensation Plan, under which
      directors who are members of the Compensation Committee have the right to
      receive all or part of their annual fees in the form of Common Stock
      having a fair market value equal to the amount of their
      fees.  Of the 50,000 shares that are allocated to this plan,
      46,020 remain available for
issuance.




(2)
            Restricted
      Stock for employees issued in 2005 which was not approved by security
      holders.




37










(b) Not
Applicable




(c) Not
Applicable


38




Item
      6.
            Selected
      Financial Data




The
following table sets forth a summary of selected financial data for the Company
for the years ended December 31 (in thousands, except Net Loss Per Diluted
Common Share, and adjusted for three-for-one stock split in 2005):




2008
                          
                          
                          
                          2007
                          
                          
                          
                          2006
                          
                          
                          
                          2005
                          
                          
                          
                          2004Net
      Revenue
                          
                          $
                          169,760
                          
                          
                          $
                          205,495
                          
                          
                          $
                          200,944
                          
                          
                          $
                          202,227
                          
                          
                          $
                          201,350Net
      Loss
                          
                          $
                          (11,862
                          )
                          
                          $
                          (18,258
                          )
                          
                          $
                          (335
                          )
                          
                          $
                          (3,999
                          )
                          
                          $
                          (2,086
                          )Net
      Loss Per Diluted Common Share
                          
                          $
                          (0.96
                          )
                          
                          $
                          (1.48
                          )
                          
                          $
                          (0.03
                          )
                          
                          $
                          (0.34
                          )
                          
                          $
                          (0.20
                          )Total
      Assets
                          
                          $
                          204,960
                          
                          
                          $
                          218,462
                          
                          
                          $
                          213,682
                          
                          
                          $
                          211,769
                          
                          
                          $
                          217,536Total
      Debt
                          
                          $
                          227,847
                          
                          
                          $
                          225,514
                          
                          
                          $
                          215,004
                          
                          
                          $
                          215,431
                          
                          
                          $
                          216,467





The net
loss for 2008 includes interest expense, net of interest income, of
$17.1 million, or $1.38 per share, and a decrease in the value of
derivative instruments of $3.6 million, or $0.29 per share.  The net
loss for 2007 includes interest expense, net of interest income, of $21.9
million, or $1.77 per share, a decrease in the value of derivative instruments
of $13.3 million, or $1.08 per share, and a charge of $12.9 million, or $1.05
per share, for a loss on the early retirement of debt.  The fair value
of our derivative instrument changes with movements in interest rates and other
factors, thus, we will continue to incur either non-cash gains or non-cash
losses over the term of the Swap Agreement.




Net loss
for 2008 also includes $0.8 million for equity based compensation expense, $0.2
million for mergers, acquisitions and development costs and $0.5 million for
Sarbanes-Oxley related expenses.  Net loss for 2007 also includes $1.0
million for equity based compensation expense, $0.6 million for mergers,
acquisitions and development costs, $0.5 million for Sarbanes-Oxley related
expenses and $0.1 million for asset impairment expenses.  In addition,
net loss for 2008 includes a $2.4 million income tax
provision.  Currently, we do not believe that it is more likely than
not that we can utilize the deferred tax assets, therefore, a valuation
allowance has been provided for our net deferred tax assets.




Net loss
for 2006 includes interest expense, net of interest income, of $25.8 million, or
$2.12 per share.  Additionally, net loss for 2006 includes $0.8
million for equity-based compensation, $1.3 million for mergers, acquisitions
and development costs and $0.8 million for Sarbanes-Oxley related
expenses.




Item
      7.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations




Overview




Our
current debt consists of a seven year $225 million term loan which matures on
June 8, 2014 (the “Term Loan”) and a $20 million five year revolving credit
facility (the “Revolving Credit Facility” together with the Term Loan, the “New
Credit Facility”).  On February 26, 2009, the Company received a
notice of default on its New Credit Facility (see Note 10 to the Consolidated
Financial Statements contained in this Form 10-K for the year ended
December 31, 2008) from Wachovia Bank, National Association (“Wachovia”),
the administrative agent.  The notice of default (the “Notice”)
relates to our New Credit Facility and is the result of the Company’s failure to
provide a Deposit Account Control Agreement (a “DACA”) from each of the
Company’s depository banks per a request made by Wachovia to the Company on
October 14, 2008.  The DACA that Wachovia requested the Company to
execute was in a form that the Company ultimately determined to contain
unreasonable terms and conditions as it would enable Wachovia to access all of
the Company’s operating cash and order it to be transferred to a bank account
specified by Wachovia.  The Notice further provides that as a result
of the default, the Company will no longer have the option to request LIBOR Rate
loans.  As a result of losing the availability of LIBOR Rate loans under
the New Credit Facility, the interest rate on the Term Loan will increase from
approximately 7.5% to 8.5% and the interest rate for the Revolving Credit
Facility will remain the same.




On March
25, 2009, we engaged XRoads Solution Group LLC as our financial
advisor.  Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the accrued interest of
approximately $4 million on our $245 million New Credit Facility, which was due
March 30, 2009. Consequently, we elected not to make the payment. The
Company’s failure to pay interest due on any loan within our New Credit Facility
within a three-day grace period from the due date is an event of default under
our New Credit Facility.  We do not plan to pay the interest due
within the three-day grace period.  As a result of this event of
default, the Company's lenders have the right to seek to charge additional
default interest in the amount of 2% on the Company’s outstanding principal and
interest under our credit agreement (the “Credit Agreement”), and automatically
charge additional default interest of 1% on any overdue amounts under the
interest rate swap agreement (the “Swap Agreement”) we entered in conjunction
with our New Credit Facility.  These defaults rates are in addition to
the interest rates that would otherwise be applicable under the Credit Agreement
and Swap Agreement.  We believe that the Company’s lenders will seek
to apply these higher default interest rates as a result of the Company’s
failure to make the interest payment due on March 30, 2009.




We
entered into discussions with Wachovia to negotiate a waiver or forbearance
regarding the Notice and the anticipated payment default and an anticipated
going concern default (see discussion below).  If we are not
successful in negotiating a waiver or forbearance agreement with the Company’s
lenders regarding the Notice and the anticipated payment and going
concern defaults, Wachovia and the lenders under the New
Credit Facility would: have the ability to accelerate repayment of all
amounts outstanding under the New Credit Facility ($227.5 million at
December 31, 2008), to commence foreclose on some or all of our assets
securing the debt, or exercise other rights and remedies granted under the New
Credit Facility and as may be available pursuant to applicable
law.  In addition, Wachovia, under our interest rate swap agreement,
can terminate the interest rate swap agreement and accelerate repayment of the
amount outstanding under that agreement ($30.2 million at December 31,
2008).  If the New Credit Facility and interest rate swap indebtedness
were to be accelerated, we would be required to refinance or restructure the
payments on that debt.  We cannot assure you that we would be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary.  If we were unable to do so, we would likely be compelled to
seek protection under Chapter 11 of the U. S. Bankruptcy Code.




Our
independent registered public accounting firm has included an explanatory
paragraph that expresses substantial doubt as to our ability to continue as a
going concern in their audit report contained in this Form 10-K report for the
year ended December 31, 2008.




We own
and operate Riviera Las Vegas on the Las Vegas Strip in Las Vegas, Nevada, and
Riviera Black Hawk in Black Hawk, Colorado.




Our
capital expenditures for Riviera Las Vegas are geared primarily toward
maintaining and upgrading our hotel rooms, gaming products, convention space,
restaurants, bars and entertainment venues.  In November 2007, we
began a comprehensive hotel room remodel project in Las
Vegas.  Remodeled hotel rooms feature new Euro beds, flat screen
televisions, furniture, carpeting, marble floors and granite
countertops.  As of December 31, 2008, we spent $18.7 million on this
project and completed four of our five hotel towers.  We expect to
complete the remainder of the project when economic conditions
improve.  Our capital expenditures for Riviera Black Hawk are geared
primarily toward maintaining and upgrading our gaming products, food and
beverage venues and overall facility.  In order to improve customer
satisfaction, increase efficiencies, and reduce labor costs at both of our
properties, we made substantial investments in technology including kiosks for
hotel check-in, slot machine ticket redemption and player’s club point
redemptions.


39


Our
primary marketing focus in Las Vegas is to maximize gaming revenues and grow
revenue per available room, or RevPar.  To maximize gaming revenues,
we market directly to members of our Club Riviera utilizing customized mail
offerings and special promotions to entice players to visit and game at the
property.  We frequently use complimentary room, food and beverage and
entertainment products to increase player visits and gaming
revenues.  We also use various promotions to entice hotel guests that
are not members of Club Riviera to join the Club Riviera and game at the
property.  To grow RevPar, we are leveraging our recently remodeled
hotel rooms and significant convention space to entice meeting planners and
convention coordinators to choose Riviera Las Vegas for their
events.  Moreover, we are showcasing our new hotel room product to
grow our tour and travel and Internet sales.




In
addition to the above, we continuously strive to maximize the number of people
who patronize Las Vegas but who are not guests in our hotel.  We
achieve this by capitalizing on our prime Las Vegas Strip location, convention
center proximity and availability of several popular entertainment
productions.




We have
implemented and will continue to implement promotions to attract competing hotel
customers to our property to enjoy our amenities.   We are well
situated for walk-in traffic on the Las Vegas Strip near several major
properties including Circus Circus, Las Vegas Hilton, Las Vegas Convention
Center, Wynn Las Vegas and the Fontainebleau project, which is scheduled to open
late in 2009.  Additionally, we are close to several timeshare and
condominium projects.  While we benefit from our proximity to several
major properties, the closure of the Stardust, Frontier and Westward Ho and
ongoing construction activities have caused a major reduction in walk-in
traffic.  We anticipate that our walk-in traffic will be adversely
impacted for the foreseeable future.




The Black
Hawk market caters primarily to slot machine players from the Denver
area.  Therefore, our primary marketing focus in Black Hawk is to grow
and maintain the number of quality players in our players club and utilize
effective direct marketing techniques, including direct mail offers and special
promotions, to entice customers to visit and game at our
property.  Our location is conducive to walk-in customers as the Isle
of Capri, which is one of the largest casinos in Black Hawk, is located directly
across the street from our casino.  Also, Riviera Black Hawk is the
first property off of Main Street as you drive into Black Hawk from the Denver
Metro area and our parking garage is the first and most easily accessible in the
area.  Until recently, only limited stakes gaming, which is defined as
a maximum single bet of $5.00, was legal in the Black Hawk/Central City
market.  However, on January 13, 2009, residents of Black Hawk voted
to enable Black Hawk casino operators to extend casino hours, add the games of
craps and roulette and increase the maximum betting limit to $100 per
bet.  July 1, 2009 is the earliest we are permitted to implement
increased betting limits, extended hours or add the games of craps or
roulette.  We are evaluating various marketing and operating
strategies related to these changes.




Results
of Operations




2008
Compared to 2007




The
following table sets forth, for the periods indicated, certain operating data
for Riviera Las Vegas and Riviera Black Hawk. Net revenues displayed in
this table and discussed in this section are net of cash rebates and promotional
allowances. EBITDA from properties is presented on the following
schedule:


40




(Dollars in thousands)
                
                2008
                
                
                2007
                
                
                Incr/(Dec)
                
                
                Incr%Net
      Revenues:Riviera
      Las Vegas
                
                $
                128,031
                
                
                $
                151,505
                
                
                $
                (23,474
                )
                
                
                -15.5
                %Riviera
      Black Hawk
                
                
                41,729
                
                
                
                53,990
                
                
                
                (12,261
                )
                
                
                -22.7
                %Total
      Net Revenues
                
                $
                169,760
                
                
                $
                205,495
                
                
                $
                (35,735
                )
                
                
                -17.4
                %Property
      EBITDARiviera
      Las Vegas
                
                $
                18,748
                
                
                $
                30,166
                
                
                $
                (11,418
                )
                
                
                -37.9
                %Riviera
      Black Hawk
                
                
                12,209
                
                
                
                19,133
                
                
                
                (6,924
                )
                
                
                -36.2
                %Property
      EBITDA (1)
                
                $
                30,957
                
                
                $
                49,299
                
                
                $
                (18,342
                )
                
                
                -37.2
                %Other
      costs and expenses:Corporate
      expensesShare-based
      compensation
                
                
                795
                
                
                
                966
                
                
                
                (171
                )
                
                
                -17.7
                %Other
      corporate expense
                
                
                3,857
                
                
                
                4,745
                
                
                
                (888
                )
                
                
                -18.7
                %Depreciation
      and amortization
                
                
                14,883
                
                
                
                13,116
                
                
                
                1,767
                
                
                
                13.5
                %Mergers,
      acquisitions and development costs, net
                
                
                191
                
                
                
                611
                
                
                
                (420
                )
                
                
                -68.7
                %Asset
      Impairments
                
                
                -
                
                
                
                72
                
                
                
                (72
                )
                
                NMLoss
      on retirement of bonds
                
                
                -
                
                
                
                12,878
                
                
                
                (12,878
                )
                
                NMChange
      in fair value of derivative instruments
                
                
                3,556
                
                
                
                13,272
                
                
                
                (9,716
                )
                
                
                -73.2
                %Interest
      expense, net
                
                
                17,091
                
                
                
                21,897
                
                
                
                (4,806
                )
                
                
                -21.9
                %40,373
                
                
                
                67,557
                
                
                
                (27,184
                )
                
                
                -40.2
                %Net
      loss before income tax provision
                
                
                (9,416
                )
                
                
                (18,258
                )
                
                
                8,842
                
                
                
                48.4
                %Income
      tax provision
                
                
                (2,446
                )
                
                
                -
                
                
                
                (2,446
                )
                
                NMNet
      loss
                
                
                (11,862
                )
                
                
                (18,258
                )
                
                
                6,396
                
                
                
                35.0
                %Property
      EBITDA Margins (2)Riviera
      Las Vegas
                
                
                14.6
                %
                
                
                19.9
                %
                
                
                -5.3
                %Riviera
      Black Hawk
                
                
                29.3
                %
                
                
                35.4
                %
                
                
                -6.1
                %





(1)
            Property
      EBITDA consists of earnings before interest, income taxes, depreciation
      and amortization. EBITDA is presented solely as a supplemental disclosure
      because we believe that it is a widely used measure of operating
      performance in the gaming industry and a principal basis for valuation of
      gaming companies by certain investors.  We use property-level
      EBITDA (EBITDA before corporate expenses) as the primary measure of
      operating performance of our properties, including the evaluation of
      operating personnel.  EBITDA should not be construed as an
      alternative to operating income, as an indicator of operating performance,
      as an alternative to cash flow from operating activities, as a measure of
      liquidity, or as any other measure determined in accordance with
      accounting principles generally accepted in the United States
      of America.  We have significant uses of cash flows,
      including capital expenditures, interest payments and debt principal
      repayments that are not reflected in EBITDA.  Also, other gaming
      companies that report EBITDA information may calculate EBITDA in a
      different manner than we do (see footnote 18 for reconciliation to
      net.




(2)
            Property
      EBITDA margins represent property EBITDA as a percentage of net revenues
      by property.




41


Riviera
Las Vegas




Revenues




Net
revenues for the twelve months ended December 31, 2008 were $128.0 million, a
decrease of $23.5 million, or 15.5%, from $151.5 million for the comparable
period in the prior year.




Casino
revenues for the twelve months ended December 31, 2008 were $50.6 million, a
decrease of $11.1 million, or 18.1%, from $61.7 million for the comparable
period in the prior year. Casino revenues are comprised of slot machine and
table game revenues. In comparison to the same period in the prior year, slot
machine revenue was $39.0 million, a decrease of $8.2 million, or 17.3%, from
$47.2 million and table game revenue, including revenue from poker, was $11.5
million, a decrease of $3.0 million, or 20.4% from $14.5
million.  Slot machine win per unit per day for the twelve months
ended December 31, 2008 was $115.00, a decrease of $17.22, or 13.0%, from
$132.22 for the comparable period in the prior year. Slot machine and table game
revenues decreased primarily due to lower slot machine and table game amounts
wagered as a result of reduced hotel occupancy, the effect of a weak economy on
consumer spending and encumbered access due to construction at neighboring
projects.




Hotel
room rental revenues for the twelve months ended December 31, 2008 were $52.4
million, a decrease of $7.5 million, or 12.5%, from $59.9 million for the
comparable period in the prior year. The room rental revenue decrease was
primarily attributable to 16.1% and 11.5% decreases in leisure and convention
segment occupied rooms, respectively, as a result of higher travel costs, the
weaker economy and increased competition. For the twelve months ended December
31, 2008, hotel occupancy was 83.8% in comparison to 93.0% for the comparable
period in the prior year. The hotel room occupancy percentage is calculated by
dividing total occupied rooms by total rooms available for sale.  6.3%
of our hotel rooms were unavailable during 2008 due to our room remodeling
project referenced above.  For the twelve months ended December 31,
2008, 46.9% and 34.2% of total occupied rooms were leisure and convention
segment rooms, respectively.  Average daily room rental rate, or ADR,
was $82.81 for the twelve months ended December 31, 2008, a decrease of $0.06,
or 0.1%, from $82.87 for the comparable period in the prior year.  ADR
decreased primarily as a result of a $9.23, or 17.2%, leisure segment ADR
reduction mostly offset by a $9.03, or 9.1% convention segment ADR
improvement.  Revenue per available room, or RevPar, was $69.40, a
decrease of $7.65, or 9.9%, from $77.05 for the comparable period in the prior
year. The decrease in RevPar was due primarily to lower occupancy as described
above.  Room rental revenues include revenues associated with rooms
provided to high-value guests on a complimentary basis.  These
revenues were $7.8 million for the twelve months ended December 31, 2008 and are
included in promotional allowances and deducted from total
revenues.




Food and
beverage revenues for the twelve months ended December 31, 2008 were $23.4
million, a decrease of $3.7 million, or 13.7%, from $27.1 million for the
comparable period in the prior year. The decrease is due to a $2.8 million food
revenue and $0.9 million beverage revenue reduction primarily as a result of the
weak economy, reduced hotel occupancy, less gaming customers and strategic
closure of select food and beverage outlets during low volume
periods.  Food covers decreased primarily in the buffet, coffee shop
and the sports book delicatessen and drinks served decreased primarily in the
casino bars. Food and beverage revenues include items offered to high-value
guests on a complimentary basis.  These revenues were $10.1 million
for the twelve months ended December 31, 2008 and are included in promotional
allowances and deducted from total revenues.




Entertainment
revenues for the twelve months ended December 31, 2008 were $13.4 million, a
decrease of $0.1 million, or 0.5%, from $13.5 million for the comparable period
in the prior year. The decrease is primarily due to reduced ticket sales for all
of our shows except "ICE", an ice skating show that opened April 23,
2007.  Entertainment revenues include items offered to high-value
guests on a complimentary basis.  These revenues were $3.6 million for
the twelve months ended December 31, 2008 and are included in promotional
allowances and deducted from total revenues.




42


Other
revenues for the twelve months ended December 31, 2008 were $6.4 million, an
increase of $0.3 million, or 5.7%, from $6.1 million for the comparable period
in the prior year.  The increase in other revenues, which are
comprised primarily of rental income, was due to new agreements to lease
portions of our parking space and additional rental income from the Banana Leaf
Asian Restaurant, which opened in February 2008, and Club de Soleil, a timeshare
marketing company.




Costs
and Expenses




Casino
costs and expenses for the twelve months ended December 31, 2008 were $28.6
million, a decrease of $4.2 million, or 13.1%, from $32.8 million for the
comparable period in the prior year.  The decrease in casino costs and
expenses was due primarily to a reduction in slot machine and table game payroll
and related costs to partially offset the $11.1 million decrease in casino
revenue.  Reductions in slot and table game payroll and related costs
were partially offset with higher marketing and promotional costs primarily due
to increased competition and poor economic conditions.




Room
rental costs and expenses for the twelve months ended December 31, 2008 were
$25.4 million, a decrease of $2.7 million, or 9.6%, from $28.1 million for the
comparable period in the prior year.  The decrease in room rental
costs and expenses was primarily due to an 88,100, or 12.9%, reduction in
occupied hotel rooms.  As a result, payroll and related costs and
operating expenses were reduced accordingly.




Food and
beverage costs and expenses for the twelve months ended December 31, 2008 were
$19.2 million, a decrease of $3.2 million, or 14.2%, from $22.4 million for the
comparable period in the prior year. The decrease in food and beverage cost and
expenses was due primarily to a reduction in food and beverage cost of goods,
payroll and related costs and other expenses to offset a $3.7 million food and
beverage revenue decrease. Additionally, several food and beverage outlets have
been closed during low volume periods to reduce costs and expenses.




Entertainment
costs and expenses for the twelve months ended December 31, 2008 were $8.0
million, a decrease of $0.6 million, or 7.3%, from $8.7 million for the
comparable period in the prior year.  The decrease in entertainment
costs and expenses is primarily due to payroll and related costs
savings.




General
and administrative costs and expenses for the twelve months ended December 31,
2008 were $26.8 million, a decrease of $1.2 million, or 4.0%, from $28.0 for the
comparable period in the prior year.  The decrease in general and
administrative cost and expenses was primarily due a $0.8 million reduction in
the incentive compensation expense.  There was no incentive
compensation expense for the twelve months ended December 31, 2008.




Other
expenses for the twelve months ended December 31, 2008 were $1.2 million, a
decrease of $0.2 million, or 8.8%, from $1.4 million for the comparable period
in the prior year.  The decrease in other expenses was due primarily
to cost savings initiatives to partially offset the decrease in net
revenues.


43


Income
from Operations




Income
from operations for the twelve months ended December 31, 2008 was $9.3 million,
a decrease of $14.2 million, or 60.3%, from $23.5 million for the comparable
period in the prior year.  The decrease is primarily due to lower
casino and room rental revenues without offsetting reductions in costs and
expenses.  Operating margins were 7.3% for the twelve months ended
December 31, 2008 in comparison to 15.5% for the comparable period in the prior
year.  Operating margins decreased primarily due to revenue decreases
in our high margin slot machine and room rental operations and a $1.5 million
increase in depreciation and amortization expenses as a result of asset
additions mostly attributable to our hotel room remodeling project described
above.




Riviera
Black Hawk




Revenues




Net
revenues for the twelve months ended December 31, 2008 were $41.7 million, a
decrease of $12.3 million, or 22.7%, from $54.0 million for the comparable
period in the prior year.




Casino
revenues for the twelve months ended December 31, 2008 were $40.7 million, a
decrease of $11.9 million, or 22.6%, from $52.6 million for the comparable
period in the prior year.  The decrease in casino revenues is
primarily due to a slot machine revenue decrease of $11.7 million, or 22.7%, to
$39.6 million from $51.3 million for the comparable period in the prior
year.  Slot machine revenue per unit per day was $127.73, a decrease
of $28.04, or 18.0%, from $155.77 for the comparable period in the prior year.
The decrease in slot machine revenue was primarily the result of less slot
machine wagering due to the effects of high fuel costs, a weak economy and the
smoking ban in Colorado which went into effect January 1, 2008.




Food and
beverage revenues for the twelve months ended December 31, 2008 were $5.1
million, a decrease of $0.2 million, or 4.1%, from $5.3 million for the
comparable period in the prior year. The decrease is primarily due to a 10.9%
reduction in buffet covers due to fewer gaming customers. We frequently provide
high value guests with complimentary food and beverage to increase casino
revenues.  In fact, nearly three quarters of food and beverage
revenues are related to complimentary issuances.  These revenues are
included in promotional allowances and deducted from total revenues as described
in Note 1 of the Notes to the Consolidated Financial Statements included in this
document.




Other
revenues for the twelve months ended December 31, 2008 were $0.4 million, a
decrease of $0.2 million, or 29.1%, from $0.6 million for the comparable period
in the prior year.  The decrease in other revenues, which are
comprised primarily of transaction fee revenues from automatic teller machines
(ATMs), was attributable principally to a reduction in ATM transactions in
conjunction with less casino wagering.




Costs
and Expenses




Casino
costs and expenses for the twelve months ended December 31, 2008 were $19.2
million, a decrease of $4.1 million, or 17.8%, from $23.3 million for the
comparable period in the prior year. The decrease in casino expenses is
primarily due to a reduction in slot and table game payroll and related costs
which partially offsets the $11.9 million decrease in casino
revenue.




General
and administrative expenses for the twelve months ended December 31, 2008 were
$9.0 million, a decrease of $1.0 million, or 10.2%, from $10.0 million for the
comparable period in the prior year.  The decrease in general and
administrative expenses was due primarily to a $0.4 million health insurance
credit and a $0.4 million reduction in the incentive compensation
expense.  There was no incentive compensation expense for the twelve
months ended December 31, 2008.


44


Food and
beverage expenses for the twelve months ended December 31, 2008 were $1.3
million, a decrease of $0.2 million, or 10.6%, from $1.5 million for the
comparable period in the prior year.  The decrease was the primarily
due to payroll and related costs savings.




Income
from Operations




Income
from operations for the twelve months ended December 31, 2008 were $6.7 million,
a decrease of $6.0 million, or 46.7%, from $12.7 million for the comparable
period in the prior year. The decrease is primarily due to the $11.9 million
decrease in casino revenues without offsetting reductions in costs and
expenses.  Operating margins were 16.1% for the twelve months ended
December 31, 2008 in comparison to 23.3% for the comparable period in the prior
year.  Operating margins decreased primarily due to the revenue
decrease in our high margin slot machine operations and increased depreciation
and amortization expenses.




Consolidated
Operations




Income
from operations




Income
from operations for the twelve months ended December 31, 2008 were $11.2
million, a decrease of $18.6 million, or 62.3%, from $29.8 million for the
comparable period in the prior year.  The decrease is principally due
to a $35.7 million, or 17.4%, reduction in net revenues to $169.8 million from
$205.5 million for the comparable period in the prior year.  The
decrease in net revenues was partially offset by a $17.2 million, or 9.8%,
reduction in total costs and expenses to $158.5 million from $175.7 million for
the comparable period in the prior year.  Operating margins were 6.6%
for the twelve months ended December 31, 2008 in comparison to 14.5% for the
comparable period in the prior year.  Operating margins decreased
primarily as a result of the revenue reductions in our high margin slot machine
operations and a $1.8 million increase in depreciation and amortization
expense.




Other
Expense




Other
expenses for the twelve months ended December 31, 2008 were $20.6 million, a
decrease of $27.4 million, or 57.0%, from $48.0 million for the comparable
period in the prior year.  The decrease is primarily due to a $12.9
million loss on retirement of debt in the prior year, a decrease of $9.7 million
in the amount recorded for unrealized loss on derivatives and a decrease of $4.8
million in interest expense, net of interest income.  The loss on
retirement of debt resulted from the retirement of our 11% Notes as described
below under Liquidity and Capital Resources.  The decrease in the
unrealized loss on derivatives was due primarily to lower interest rates
resulting in an increase in the fair value of our interest rate swap
liability.  The decrease in interest expense was the result of reduced
borrowing costs associated with our New Credit Facility executed June
2007.




Net
Loss




Net loss
for the twelve months ended December 31, 2008 was $11.9 million, an improvement
of $6.4 million, or 35.0%, from a net loss of $18.3 million for comparable
period in the prior year.  The improvement is due to the $27.4 million
reduction in other expenses which was partially offset by the $18.6 million
decrease in consolidated income from operations and a $2.4 million income tax
provision for the twelve months ended December 31, 2008 in comparison to no
income tax provision for the prior year.  The $2.4 million income tax
provision was recorded in order to increase our valuation allowance as we
currently do not believe that it is more likely than not that we can utilize the
deferred tax assets (see Note 12 within the consolidated financial statements
below).


45


Results
of Operations




2007
Compared to 2006




The
following table sets forth, for the periods indicated, certain operating data
for Riviera Las Vegas and Riviera Black Hawk. Net revenues displayed in
this table and discussed in this section are net of cash rebates and promotional
allowances. EBITDA from properties is presented on the following
schedule:




(Dollars in thousands)
                
                2007
                
                
                2006
                
                
                Incr/(Dec)
                
                
                Incr
      %Net
      Revenues:Riviera
      Las Vegas
                
                $
                151,505
                
                
                $
                149,202
                
                
                $
                2,303
                
                
                
                1.5
                %Riviera
      Black Hawk
                
                
                53,990
                
                
                
                51,742
                
                
                
                2,248
                
                
                
                4.3
                %Total
      Net Revenues
                
                $
                205,495
                
                
                $
                200,944
                
                
                
                4,551
                
                
                
                2.3
                %Property
      EBITDARiviera
      Las Vegas
                
                $
                30,166
                
                
                $
                28,075
                
                
                $
                2,091
                
                
                
                7.4
                %Riviera
      Black Hawk
                
                
                19,133
                
                
                
                16,825
                
                
                
                2,308
                
                
                
                13.7
                %Property
      EBITDA (1)
                
                $
                49,299
                
                
                $
                44,900
                
                
                
                4,399
                
                
                
                9.8
                %Other
      costs and expenses:Corporate
      expensesShare-based
      compensation
                
                
                966
                
                
                
                813
                
                
                
                153
                
                
                
                18.8
                %Other
      corporate expense
                
                
                4,745
                
                
                
                4,644
                
                
                
                101
                
                
                
                2.2
                %Depreciation
      and amortization
                
                
                13,116
                
                
                
                12,691
                
                
                
                425
                
                
                
                3.3
                %Mergers,
      acquisitions and development costs, net
                
                
                611
                
                
                
                1,318
                
                
                
                (707
                )
                
                
                -53.6
                %Asset
      Impairments
                
                
                72
                
                
                
                18
                
                
                
                54
                
                
                
                300.0
                %Loss
      on retirement of bonds
                
                
                12,878
                
                
                
                -
                
                
                
                12,878
                
                
                NMDecrease
      in value of derivative instruments
                
                
                13,272
                
                
                
                -
                
                
                
                13,272
                
                
                NMInterest
      expense, net
                
                
                21,897
                
                
                
                25,751
                
                
                
                (3,854
                )
                
                
                -15.0
                %67,557
                
                
                
                45,235
                
                
                
                22,322
                
                
                
                49.3
                %Net
      loss
                
                $
                (18,258
                )
                
                $
                (335
                )
                
                $
                (17,923
                )
                
                
                -50.5
                %Property
      EBITDA Margins (2)Riviera
      Las Vegas
                
                
                19.9
                %
                
                
                18.8
                %
                
                
                1.1
                %Riviera
      Black Hawk
                
                
                35.4
                %
                
                
                32.5
                %
                
                
                2.9
                %





(1)
            Property
      EBITDA consists of earnings before interest, income taxes, depreciation
      and amortization. EBITDA is presented solely as a supplemental disclosure
      because we believe that it is a widely used measure of operating
      performance in the gaming industry and a principal basis for valuation of
      gaming companies by certain investors.  We use property-level
      EBITDA (EBITDA before corporate expenses) as the primary measure of
      operating performance of our properties, including the evaluation of
      operating personnel.  EBITDA should not be construed as an
      alternative to operating income, as an indicator of operating performance,
      as an alternative to cash flow from operating activities, as a measure of
      liquidity, or as any other measure determined in accordance with
      accounting principles generally accepted in the United States
      of America.  We have significant uses of cash flows,
      including capital expenditures, interest payments and debt principal
      repayments that are not reflected in EBITDA.  Also, other gaming
      companies that report EBITDA information may calculate EBITDA in a
      different manner than we do (see footnote 18 for reconciliation to
      net.




46




(2)
            Property
      EBITDA margins represent property EBITDA as a percentage of net revenues
      by property.




Riviera
Las Vegas




Revenues




Net
revenues for Riviera Las Vegas increased by approximately $2.3 million, or 1.5%,
from $149.2 million in 2006 to $151.5 million in 2007 primarily due to increased
room revenue of $3.2 million and casino revenue of $475,000 partially offset by
decreased entertainment revenue of $1.0 million.  Room revenues increased
$3.2 million, as the average room rate increased $4.40 or 5.6% from $78.47 in
2006 to $82.87 in 2007 and hotel occupancy increased slightly from 92.2% in
2006 to 92.9% in 2007.  Revenue per available room, or RevPar, increased
$4.68 from $72.37 to $77.05 or 6.5%.  Casino revenue increased as a result
of an increase in our table game drop of $3 million and higher poker
revenues.




Property
EBITDA




Property EBITDA in Las
Vegas increased $2.1 million or 7.4% from $28.1 million in 2006 to $30.2 million
in 2007 due to increased hotel and gaming revenues as described above and
effects of decreased casino marketing costs of $272,000 in our gaming
departments.




Riviera
Black Hawk




Revenues




Net
revenues for Riviera Black Hawk, which are primarily gaming revenues, increased
$2.2 million, or 4.3%, from $51.7 million in 2006 to $54.0 million in
2007.  The increase is primarily due to an increase in slot revenues as a
result of the increase in hold percentage.  The increase is a result of
the entire market’s increase in hold percentage primarily from the
popularity of lower denomination slot machines in the marketplace, which were
installed throughout 2006.




Property
EBITDA




Property
EBITDA at Riviera Black Hawk increased $2.3 million or 13.7% from $16.8 million
in 2006 to $19.1 million in 2007 due to increased slot revenues as described
above and holding costs constant for the year.




Consolidated
Operations




Net loss
increased $18.0 million in 2007 from a loss of $335,000 in 2006 to a net loss of
$18.3 million in 2007 due to an increase in other expenses as a result of a
loss on retirement of debt of $12.9 million and a loss on swap fair value
of $13.3 million (as discussed in item 6) offset by an increase in operating
income and a reduction in cash interest expense of $4.2 million as a result of
our debt refinancing in 2007.


47


Liquidity
and Capital Resources




On June
8, 2007, we and our subsidiaries entered into the New Credit Facility.  The
New Credit Facility includes the $225 million seven-year Term Loan, and has no
amortization for the first three years, and a one percent amortization for years
four through six, and a full payoff in year seven, in addition to an annual
mandatory pay down during the term of 50% of excess cash flows, as defined. The
New Credit Facility also includes the $20 million five-year Revolving Credit
Facility under which we can obtain extensions of credit in the form of cash
loans or standby letters of credit (the "Standby L/Cs").  We are permitted
to prepay the New Credit Facility without premium or penalties except for
payment of any funding losses resulting from prepayment of LIBOR rate loans. The
rate for the Term Loan and Revolving Credit Facility is LIBOR plus 2.0%. 
Pursuant to a floating rate to fixed rate Swap Agreement that became effective
June 29, 2007 that we entered into under the New Credit Facility, substantially
the entire Term Loan portion of the New Credit facility, with quarterly
step-downs, bears interest at an effective fixed rate of 7.485% per annum (2.0%
above the LIBOR Rate in effect on the lock-in date of the Swap Agreement). 
The New Credit Facility is guaranteed by the subsidiaries and is secured by a
first priority lien on substantially all of our assets.




We used
substantially all of the proceeds of the Term Loan to discharge our obligations
under the Indenture, dated June 26, 2002 (the "Indenture"), with The Bank of New
York as trustee (the "Trustee"), governing the 11% Notes. On June 8, 2007 we
deposited these funds with the Trustee and issued to the Trustee a notice of
redemption of the 11% Notes, which was finalized on July 9, 2007.




We
utilize derivative instruments for a substantial portion of our Term Loan to
manage certain interest rate risk. Our Swap Agreement has a rate of 5.41%
compared to the one month LIBOR rate in effect through December 31, 2008. 
The interest rate on loans under the Revolving Credit Facility will depend on
whether they are in the form of revolving loans or swing line loans.  For
each revolving loan, the interest rate will depend on whether we elect to treat
the loan as an "Alternate Base Rate" loan ("ABR Loan") or a LIBOR Rate
loan.  Swing line loans will bear interest at a per annum rate equal to the
Alternative Base Rate plus the applicable percentage for revolving loans that
are ABR Loans. The applicable percentage for swing line loans ranges from 0.50%
to 1%, depending on our consolidated leverage ratio.




We will
also pay fees under the Revolving Credit Facility as follows: (i) a commitment
fee in an amount equal to either .50% or 0.375% (depending on the Consolidated
Leverage Ratio) per annum on the average daily unused amount of the Revolving
Credit Facility; (ii) Standby L/C fees equal to between 2.00% and 1.50%
(depending on the Consolidated Leverage Ratio) per annum on the average daily
maximum amount available to be drawn under each Standby L/C issued and
outstanding from the date of issuance to the date of expiration; and (iii) a
Standby L/C facing fee in the amount of 0.25% per annum on the average daily
maximum amount available to be drawn under each Standby L/C.  In addition
to the Revolving Credit Facility fees, we will pay an annual administrative fee
of $35,000.




The New
Credit Facility contains affirmative and negative covenants customary for
financings of this nature including, but not limited to, restrictions on our
incurrence of other indebtedness.  The New Credit Facility contains events
of default customary for financings of this nature including, but not limited
to, nonpayment of principal, interest, fees or other amounts when due; violation
of covenants; failure of any representation or warranty to be true in all
material respects; cross-default and cross-acceleration under our other
indebtedness or certain other material obligations; certain events under federal
law governing employee benefit plans; a "change of control"; dissolution;
insolvency; bankruptcy events; material judgments; uninsured losses; actual or
asserted invalidity of the guarantees or the security documents; and loss of any
gaming licenses.  Some of these events of default provide for grace periods
and materiality thresholds.  For purposes of these default provisions, a
"change in control" includes: a person's acquisition of beneficial ownership of
35% or more of our stock coupled with a gaming license and/or approval to direct
any of our gaming operations, a change in a majority of the members of our board
of directors other than as a result of changes supported by our current board
members or by successors who did not stand for election in opposition to our
current board, or our failure to maintain 100% ownership of the
subsidiaries.




As of
December 31, 2008, we were in compliance with the financial covenant set forth
in our New Credit Facility.  Our Consolidated Leverage Ratio was 8.4 for
the four quarters ending December 31, 2008.  The maximum allowable
Consolidated Leverage Ratio pursuant to the Revolving Credit Facility is 6.5 as
of December 31, 2008.  However, the maximum Consolidated Leverage Ratio of
6.5 is applicable only if RHC has outstanding borrowings against its Revolving
Credit Facility exceeding $2.5 million as of the end of the applicable
quarter.  As of December 31, 2008, RHC had $2.5 million outstanding on its
Revolving Credit Facility.


On
February 26, 2009, the Company received a notice of default on its New Credit
Facility from Wachovia, the administrative agent.  The notice of default,
or Notice, relates to our New Credit Facility and is the result of the Company’s
failure to provide a Deposit Account Control Agreement, or DACA, from each of
the Company’s depository banks per a request made by Wachovia to the Company on
October 14, 2008.  The DACA that Wachovia requested the Company to execute
was in a form that the Company ultimately determined to contain unreasonable
terms and conditions as it would enable Wachovia to access all of the Company’s
operating cash and order it to be transferred to a bank account specified by
Wachovia.  The Notice further provides that as a result of the default, the
Company will no longer have the option to request LIBOR Rate loans. 
 As a result of losing the availability of LIBOR Rate loans under the New
Credit Facility, the interest rate on the Term Loan will increase from
approximately 7.5% to 8.5% and the interest rate for the Revolving Credit
Facility will remain the same.
  On March
25, 2009, we engaged XRoads Solution Group LLC as our financial
advisor.  Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company not pay the accrued interest of approximately
$4 million on our $245 million New Credit Facility, which was due March 30,
2009. Consequently we elected not to make the payment. The Company’s
failure to pay interest due on any loan within our New Credit Facility within a
three-day grace period from the due date is an event of default under our New
Credit Facility.  We do not plan to pay the interest due within the
three-day grace period.  As a result of this event of default, the
Company's lenders have the right to seek to charge additional default interest
in the amount of 2% on the Company’s outstanding principal and interest under
the Credit Agreement, and automatically charge additional default interest of 1%
on any overdue amounts under the Swap Agreement.  These defaults rates are
in addition to the interest rates that would otherwise be applicable under the
Credit Agreement and Swap Agreement.  We believe that the Company’s lenders
will seek to apply these higher default interest rates as a result of the
Company’s failure to make the interest payment due on March 30,
2009.
  We
entered into discussions with Wachovia to negotiate a waiver or forbearance
regarding the Notice and the anticipated payment default and an anticipated
going concern default (see discussion below).  If we are not
successful in negotiating a waiver or forbearance agreement with the Company’s
lenders regarding the Notice and the anticipated payment and going
concern defaults, Wachovia and the lenders under the New
Credit Facility would: have the ability to accelerate repayment of all
amounts outstanding under the New Credit Facility ($227.5 million at
December 31, 2008), to commence foreclose on some or all of our assets
securing the debt, or exercise other rights and remedies granted under the New
Credit Facility and as may be available pursuant to applicable law.  In
addition, Wachovia under our Swap Agreement can terminate the agreement and
accelerate repayment of the amount outstanding under that agreement ($30.2
million at December 31, 2008).  If the New Credit Facility and interest
rate swap indebtedness were to be accelerated, we would be required to refinance
or restructure the payments on that debt.  We cannot assure you that we
would be successful in completing a refinancing or consensual out-of-court
restructuring, if necessary.  If we were unable to do so, we would likely
be compelled to seek protection under Chapter 11 of the U. S. Bankruptcy
Code.


48


As a
result of these factors, we have concluded that there is substantial doubt about
our ability to continue as a going concern and our auditors have issued a
modified opinion, with an explanarory paragraph, on our financial statements
within this Form 10-K that expresses substantial doubt of our ability to
continue as a going concern because we are in default under the covenants of our
New Credit Facily.
  We had
cash and cash equivalents of $13.5 million and $28.8 million as of December 31,
2008 and 2007, respectively.  Our cash and cash equivalents decreased by
$15.4 million during the twelve months ended December 31, 2008 as a result of
$22.1 million in net cash used in investing activities partially offset by $4.3
million in net cash provided by operating activities and $2.4 million in net
cash provided by financing activities.  Cash and cash equivalents increased
$3.5 million during the twelve months ended December 31, 2007 as a result of
$19.1 million in net cash provided by operating activities partially offset by
$14.9 million in net cash used in investing activities and $0.7 million in net
cash used in financing activities.  Net cash used in investing activities
included $17.2 million and $1.5 million in capital expenditures related to our
Las Vegas hotel room renovation project for the twelve months ended December 31,
2008 and 2007, respectively.  Additionally, net cash used in investing
activities included maintenance capital expenditures of $3.2 million and $7.5
million for Las Vegas and $1.3 million and $3.1 million for Black Hawk for the
twelve months ended December 31, 2008 and 2007, respectively.  Net cash
used in investing activities for the twelve months ended December 31, 2007 also
included a $2.8 million deduction representing cash transferred to a restricted
cash account required for our workers compensation self insurance.  Net
cash provided by operating activities for the twelve months ended December 31,
2008 was $14.9 million less than the comparable period in the prior year
primarily as a result of an $18.6 million decrease in income from operations
offset by a $4.8 decrease in interest expense, net of interest income, due to
lower interest rates associated with our New Credit Facility.  Net cash
provided by financing activities for the twelve months ended December 31, 2008
included proceeds of $2.5 million from our Revolving Credit Facility.  Net
cash used in financing activities for the twelve months ended December 31, 2007
included $223.9 million for payments to retire our 11% Notes, $1.9 million for
deferred loan fees for our New Credit Facility and $225.1 million in loan
proceeds from our New Credit Facility.  The retirement of our 11% Notes and
our New Credit Facility are described below.
  Our cash
balances include amounts that could be required, upon five days' notice, to fund
our CEO's (Mr. Westerman's) pension obligation in a rabbi trust.  We pay
Mr. Westerman $250,000 per quarter from his pension plan. In exchange for these
payments, Mr. Westerman has agreed to forbear on his right to receive full
transfer of his pension fund balance to the rabbi trust. This does not limit his
ability to give the five-day notice at any time, which would require us to fund
the CEO pension obligation.  Although Mr. Westerman has expressed no
current intention to require this funding, under certain circumstances, we may
be required to disburse approximately $1.0 million for this purpose in a short
period.
  Our
ability to continue as a going concern will be determined by our ability to
obtain additional funding or restructure or negotiate waivers on our existing
indebtedness and to generate sufficient revenue to cover our operating
expenses.  The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts of liabilities that might be necessary should
we be unable to continue in existence.


Current
Economic and Operating Environment




We
believe that due to a number of factors affecting consumers, including but not
limited to a slowdown in global economies, contracting credit markets and
reduced consumer spending, the outlook for the gaming and hospitality industries
remains highly uncertain.  High travel costs have resulted in fewer
visitors coming to the Las Vegas and Black Hawk markets, resulting in lower
casino volumes and a reduced demand for hotel rooms.  Based on these
adverse circumstances, we believe that the Company will continue to experience
lower than expected hotel occupancy rates and casino volumes.




Off-Balance
Sheet Arrangements




It is not
our usual business practice to enter into off-balance sheet arrangements such as
guarantees on loans and financial commitments, indemnification arrangements and
retained interests in assets transferred to an unconsolidated entity for
securitization purposes. Consequently, we have no off-balance sheet
arrangements.


49




Contractual
Obligations




The table
under “Item 7A. Quantitative and Qualitative Disclosures about Market Risk”
summarizes our contractual obligations and commitments as of December 31,
2008.




Critical
Accounting Policies and Estimates




The
preparation of our consolidated financial statements requires us to adopt
accounting policies and to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, expenses and provision for
income taxes.  We periodically evaluate our policies, and our estimates and
assumptions related to these policies.  We operate in a highly regulated
industry.  For Riviera Las Vegas and Riviera Black Hawk, we are subject to
regulations governing operating and internal control procedures.  The
majority of our casino revenue is in the form of cash, personal checks or gaming
chips, which by their nature do not require complex estimations.  We
estimate certain liabilities with payment periods that extend for longer than
several months. Such estimates include the liability associated with customer
loyalty programs, the cost of workers compensation and property and casualty
insurance settlements and the cost of litigation.  We believe that these
estimates are reasonable based upon our past experience with the business and
based upon our assumptions related to possible outcomes in the future. Future
actual results might differ materially from these estimates.




We have
determined that the following accounting policies and related estimates are
critical to the preparation of our consolidated financial statements because
such estimates are highly uncertain or susceptible to change so as to present a
significant risk of a material impact on our financial condition or operating
performance, and such policies and estimates were selected from among available
alternatives, or require the exercise of significant management judgment to
apply.




Long-lived
Assets




We have a
significant investment in long-lived property and equipment.  We evaluate
our property and equipment and other long-lived assets for impairment in
accordance with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". For assets to be disposed of, we recognize the asset to be
sold at the lower of carrying value or fair market value less costs of disposal.
Fair market value for assets to be disposed of is generally estimated based on
comparable asset sales, solicited offers or a discounted cash flow model. For
assets to be held and used, we review fixed assets for impairment whenever
indicators of impairment exist. If an indicator of impairment exists, we compare
the estimated future cash flows of the asset, on an undiscounted basis, to the
carrying value of the asset. If the undiscounted cash flows exceed the carrying
value, no impairment is indicated. If the undiscounted cash flows do not exceed
the carrying value, then an impairment is measured based on fair value compared
to carrying value, with fair value typically based on a discounted cash flow
model.




Income
Taxes




We are
subject to income taxes in the United States. We account for income taxes in
accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS
No. 109 requires the recognition of deferred tax assets, net of applicable
reserves, and liabilities for the estimated future tax consequences attributable
to differences between financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect of a change in tax rates on the
income tax provision and deferred tax assets and liabilities is recognized in
the results of operations in the period that includes the enactment
date.


50




We have
performed an assessment of positive and negative evidence regarding the
realization of the deferred tax assets in accordance with SFAS
No. 109,Accounting for
Income Taxes. This assessment included the evaluation of estimates of
projected future taxable income and implementation of tax planning
strategies.  Due to the current economic conditions, we have reevaluated
its tax planning strategies and determined that it may not be prudent and
feasible to implement the tax planning strategies at this time.  As a
result, we have concluded that it is more likely than not that the net deferred
tax assets will not be realized.




Our
income tax returns are subject to examination by the Internal Revenue Service
(“IRS”) and other tax authorities in the locations where we operate. We assess
potentially unfavorable outcomes of such examinations based on the criteria of
FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income
Taxes” which we adopted on January 1, 2007. The Interpretation prescribes a
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. As a result, our income tax recognition
policy related to uncertain income tax positions is no longer covered by SFAS
No. 5.




FIN 48
applies to all tax positions related to income taxes subject to SFAS
No. 109. FIN 48 utilizes a two-step approach for evaluating tax positions.
Recognition (Step I) occurs when we conclude that a tax position, based on its
technical merits, is more likely than not to be sustained upon examination.
Measurement (Step II) is only addressed if the position is deemed to be more
likely than not to be sustained. Under Step II, the tax benefit is measured as
the largest amount of benefit that is more likely than not to be realized upon
settlement. FIN 48’s use of the term “more likely than not” is consistent with
how that term is used in SFAS No. 109 (i.e. likelihood of occurrence is
greater than 50%).




The tax
positions failing to qualify for initial recognition is to be recognized in the
first subsequent interim period that they meet the “more likely than not”
standard. If it is subsequently determined that a previously recognized tax
position no longer meets the “more likely than not” standard, it is required
that the tax position is derecognized. FIN 48 specifically prohibits the use of
a valuation allowance as a substitute for derecognition of tax positions. As
applicable, we will recognize accrued penalties and interest related to
unrecognized tax benefits in the provision for income taxes. During the years
ended December 31, 2008, 2007 and 2006, we recognized no amounts for
interest or penalties.




Allowance
for Credit Losses




We
maintain an allowance for estimated credit losses based on historical experience
and specific customer collection issues. Any unforeseen change in customers’
liquidity or financial condition could adversely affect our ability to collect
account balances and our operating results.




Fair Value of Interest Rate Swap
Liability




Long-term
liabilities include the approximate cost to settle our interest rate swap
instrument at the respective valuation dates less a discount based on our
current credit default rate.  The fair value of the interest rate swap
instrument is estimated based upon current and predictions of future interest
rate levels along a yield curve, the remaining duration of the instrument and
other market conditions and therefore, is subject to significant estimation and
a high degree of variability of fluctuation between periods.


51




Litigation
Cost




We assess
our exposures to loss contingencies including legal matters and we provide for
an exposure if it is judged to be probable and estimable.  However, any
accruals made in relation thereto do not include the estimated costs of defense
for any legal services that we have not yet received.  If the actual loss
from a contingency exceeds our estimate, our operating results could be
adversely impacted.




Self-insurance
Provisions




We are
self-insured for various levels of general liability and workers’
compensation.  We were also self-insured for non-union employee medical
insurance coverage through December 31, 2007. To resolve ongoing claims related
to our previous self-insurance program, we maintained reinsurance coverage to
cover us until all applicable claims were resolved.  Insurance claims and
provisions include accruals of estimated settlements for known claims as well as
accrued estimates of incurred but not reported claims.  In estimating these
costs, we consider our historical claims experience and make judgments about the
expected levels of costs per claim.  Changes in health care costs, accident
frequency and severity and other factors can materially affect the estimate for
these liabilities.




Loyalty
Club Program




We offer
to our players club members the opportunity to earn points based on their level
of gaming activities.  Points can be redeemed for cash, complimentary hotel
rooms and food and beverage.  We accrue the cash value of points earned
based upon expected redemption rates.




Recently
Issued Accounting Standards




In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162
(SFAS 162), The Hierarchy of
Generally Accepted Accounting Principles. SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (GAAP)
in the United States (the GAAP hierarchy). Because SFAS 162 applies only to
establishing hierarchy, it will not have a material impact on our consolidated
financial position, results of operations, and cash flows.




In
December 2007, the FASB issued SFAS 141R. SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation
of the nature and financial effects of the business combination. This statement
is effective for us beginning January 1, 2009. The impact of the adoption
of SFAS 141R on our consolidated financial position, results of operations will
largely be dependent on the size and nature of the business combinations
completed after the adoption of this statement.




In
February 2008, the FASB issued FSP 157-2, which delays the effective date of
SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). SFAS 157 establishes a framework for
measuring fair value and expands disclosures about fair value measurements. FSP
157-2 partially defers the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years for items within the scope of this FSP. The adoption of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities is effective for us beginning
January 1, 2009. We do not expect the impact of this adoption to be
material.


52




In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161
(SFAS 161), Disclosures about
Derivative Instruments and Hedging Activities—An Amendment of FASB Statement
No. 133. SFAS 161 applies to all derivative instruments and related
hedged items accounted for under FASB Statement No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging Activities. It requires
entities to provide greater transparency about: (a) how and why an entity
uses derivative instruments; (b) how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations;
and (c) how derivative instruments and related hedged items affect an
entity’s financial position, results of operations, and cash flows.
SFAS 161 will be effective for the financial statements issued by the
Company beginning January 1, 2009.  Because SFAS 161 applies only to
financial statement disclosures, it will not have an impact on our consolidated
financial position, results of operations, and cash flows.




In April
2008, the FASB issued FSP 142-3. This guidance is intended to improve the
consistency between the useful life of a recognized intangible asset under
SFAS 142, and the period of expected cash flows used to measure the fair
value of the asset under SFAS 141R when the underlying arrangement includes
renewal or extension of terms that would require substantial costs or result in
a material modification to the asset upon renewal or extension. Companies
estimating the useful life of a recognized intangible asset must now consider
their historical experience in renewing or extending similar arrangements or, in
the absence of historical experience, must consider assumptions that market
participants would use about renewal or extension as adjusted for SFAS 142’s
entity-specific factors. FSP 142-3 is effective for us beginning January 1,
2009. We do not expect the impact of the adoption of FSP 142-3 to be
material.




Forward-Looking
Statements




Throughout
this report we make "forward-looking statements,” as that term is defined in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Exchange Act. Forward-looking statements include the words "may," "would,"
"could," "likely," "estimate," "intend," "plan," "continue," "believe,"
"expect," “projections” or "anticipate" and similar words and include all
discussions about our ongoing or future plans, objectives or expectations. 
We do not guarantee that any of the transactions or events described in this
report will happen as described or that any positive trends referred to in this
report will continue.  These forward-looking statements generally relate to
our plans, objectives and expectations for future operations and results and are
based upon what we consider to be reasonable estimates.  Although we
believe that our forward-looking statements are reasonable at the present time,
we may not achieve or we may modify our plans, objectives and
expectations.  You should read this report completely and with the
understanding that actual future results may be materially different from what
we expect.  We do not plan to update forward-looking statements even though
our situation or plans may change in the future, unless applicable law requires
us to do so.




Specific
factors that might cause our actual results to differ from our expectations,
might cause us to modify our plans or objectives, or might affect our ability to
meet our expectations include, but are not limited to:




·
            the
      effect of the notice of default associated with our credit
      agreement;




·
            the
      effect of the termination of our previously announced strategic process to
      explore alternatives for maximizing stockholder value and the possible
      resulting fluctuations in our stock price that will affect other parties’
      willingness to make a proposal to acquire
us;




·
            fluctuations
      in the value of our real estate, particularly in Las
  Vegas;


53




·
            the
      availability and adequacy of our cash flow to meet our requirements,
      including payment of amounts due under our debt
    instruments;




·
            our
      substantial indebtedness, debt service requirements and liquidity
      constraints;




·
            the
      availability of additional capital to support capital improvements and
      development;




·
            the
      smoking ban in Colorado on our Riviera Black Hawk property which became
      effective on January 1, 2008;




·
            competition
      in the gaming industry, including the availability and success of
      alternative gaming venues, and other entertainment attractions, and the
      approval of an initiative that would allow slot machines in Colorado race
      tracks;




·
            retirement
      or other loss of our senior
officers;




·
            economic,
      competitive, demographic, business and other conditions in our local and
      regional markets;




·
            the
      effects of a continued or worsening global and national economic
      recession;




·
            changes
      or developments in laws, regulations or taxes in the gaming industry,
      specifically in Nevada where initiatives have been proposed to raise the
      gaming tax;




·
            actions
      taken or not taken by third parties, such as our customers, suppliers and
      competitors, as well as legislative, regulatory, judicial and other
      governmental authorities;




·
            changes
      in personnel or compensation, including federal minimum wage
      requirements;




·
            our
      failure to obtain, delays in obtaining, or the loss of, any licenses,
      permits or approvals, including gaming and liquor licenses, or the
      limitation, conditioning, suspension or revocation of any such licenses,
      permits or approvals, or our failure to obtain an unconditional renewal of
      any of our licenses, permits or approvals on a timely
    basis;




·
            the
      loss of any of our casino facilities due to terrorist acts, casualty,
      weather, mechanical failure or any extended or extraordinary maintenance
      or inspection that may be required;




·
            other
      adverse conditions, such as economic downturns, changes in general
      customer confidence or spending, increased transportation costs, travel
      concerns or weather-related factors, that may adversely affect the economy
      in general or the casino industry in
particular;




·
            changes
      in our business strategy, capital improvements or development
      plans;




·
            the
      consequences of the war in Iraq and other military conflicts in the Middle
      East, concerns about homeland security and any future security alerts or
      terrorist attacks such as the attacks that occurred on September 11,
      2001;


54




·
            other
      risk factors discussed elsewhere in this report;
  and




·
            a
      decline in the public acceptance of
gaming.




All
future written and oral forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. In light of
these and other risks, uncertainties and assumptions, the forward-looking events
discussed in this report might not occur.




Item
      7A.
            Quantitative
      and Qualitative Disclosures about Market
Risk




Market
risks relating to our operations result primarily from changes in interest
rates. We invest our cash and cash equivalents in US Treasury Bills with
maturities of 30 days or less. Such investments are generally not affected by
changes in interest rates.




As of
December 31, 2008, we had $227.8 million in borrowings.  The borrowings
include a balance of $225.0 million on our Term Loan which matures in 2014
and $2.5 million outstanding on our $20.0 million Revolving Credit
Facility.  The borrowings also include a balance on a capital equipment
lease, which matures in 2013, and a balance of $146,000 on our debt to the City
of Black Hawk for their special improvement district bond (SID) offering. 
Our share of the debt on the SID bonds of $1.2 million is payable over ten years
beginning in 2000.  Both the capital equipment lease and the SID bonds bear
interest at 5.5%.




We are
not susceptible to interest rate risk because our outstanding debt is primarily
at a fixed rate as a result of the interest rate swap associated with our Term
Loan.  Under this Swap Agreement, we pay a fixed rate of 5.485% plus 2% on
the notional amount, which was $213.6 million at December 31, 2008, and expires
on June 8, 2014.  The interest rate swap arrangement has periodic
step-downs beginning in 2008 and expiring June 8, 2014.  For the reasons
described in “Recent Events” in Item 1 above, this interest rate swap now
effectively fixes the interest rate on our Term Loan at approximately
8.5%.  Changes in fair value of our interest rate swap between the end of
each reporting period are recorded as an increase/(decrease) in swap fair value
as the swap does not qualify for hedge accounting.


55




Interest
Rate Sensitivity


Principal
(Notational Amount by Expected Maturity)


Average
Interest Rate




(Dollars in Thousands)


2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              Thereafter
              
              
              Total
              
              
              Fair Value
                  at 12/31/08Long
      –Term Debt Including Current PortionsEquipment
      loans and capital leases-Black Hawk
              
              $
              43
              
              
              $
              44
              
              
              $
              44
              
              
              $
              45
              
              
              $
              25
              
              
              
              
              
              $
              201
              
              
              $
              201Average
      interest rate
              
              
              5.5
              %
              
              
              5.5
              %
              
              
              5.5
              %
              
              
              5.5
              %$225
      million Term Loan
              
              $
              225,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              225,000
              
              
              $
              112,500Average
      interest rate
              
              
              8.5
              %Notes
      Payable
              
              $
              2,500
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              2,500
              
              
              $
              2,500Average
      interest rate
              
              
              6.0
              %SID
      Bonds-Black Hawk,Colorado
      casino project
              
              $
              146
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              146
              
              
              $
              146Average
      interest rate
              
              
              5.5
              %Total
      of all Long-Term Debt, Including Current Portions
              
              $
              227,689
              
              
              $
              44
              
              
              $
              44
              
              
              $
              45
              
              
              $
              25
              
              
              $
              0
              
              
              $
              227,847
              
              
              $
              115,347Other
      Long - Term Liabilities Including Current PortionCEO
      pension plan obligation
              
              $
              1,028
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              1,028
              
              
              $
              1,028Average
      interest rate
              
              
              7.5
              %Interest
      rate derivativesDerivative
      instrumentPay
      fixed
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              213,560
              
              
              
              
              
              
              $
              16,828Average
      receivable rate
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1.5
              %Average
      payable rate
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5.5
              %Expected
      Interest payments
              
              $
              17,273
              
              
              $
              16,851
              
              
              $
              16,307
              
              
              $
              15,670
              
              
              $
              15,633





A
hypothetical one percent change in interest rates would not have a material
effect on our financial statements as the interest rate swap we currently have
effectively locks most of our debt at approximately 8.5%.




FIN 48
requires that we book any future unrealized tax payments.  However, the
Company does not have any reserves for uncertain tax positions at this
time.




Item
      8.
            Financial
      Statements and Supplementary Data




Our
consolidated financial statements, including the notes to all such statements
and other supplementary data are included in this report beginning on page
F-1.


56




Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure




On March
26, 2008 we received a letter dated March 25, 2008 from Deloitte & Touche
LLP ("Deloitte") notifying the us that Deloitte was resigning as the our
independent registered public accounting firm effective as of the date of such
letter.




Deloitte's
reports on the Company's financial statements for the fiscal years ended
December 31, 2006 and 2007 contained no adverse opinion or disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting principle.  During fiscal years ended December 31, 2006
and 2007 and through March 26, 2008, there were no disagreements between us and
Deloitte on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Deloitte, would have caused Deloitte to make
reference thereto in its report on the financial statements for such
years.  During the fiscal years ended December 31, 2006 and 2007 and
through March 26, 2008, there were no "reportable events" as that term is
described in Item 304(a)(1)(v) of Regulation S-K.




On March
27, 2008, we engaged Ernst & Young LLP ("E&Y") as our new independent
registered public accounting firm. The engagement of E&Y was approved by the
Audit Committee of our Board of Directors.  During the years ended December
31, 2006 and 2007 and through March 27, 2008, we did not consult with E&Y
with respect to either (i) the application of accounting principles to a
specified transaction, either completed or proposed; (ii) the type of audit
opinion that might be rendered on the Company's financial statements; or (iii)
any matter that was either the subject of disagreement (as defined in Item
304(a)(1)(iv) of Regulation S-K) or a reportable event (as defined in Item
304(a)(1)(v) of Regulation S-K).




Item
      9A.
            Controls
      and Procedures




Conclusion
Regarding The Effectiveness Of Disclosure Controls And Procedures




The
Company maintains disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Securities Exchange Act) designed to provide
reasonable assurance that the information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms. These include controls and procedures designed to
ensure that this information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Management, with the participation of the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the Company’s disclosure
controls and procedures as of December 31, 2008. Based on this evaluation,
the Company’s Chief Executive Officer and Chief Financial Officer have concluded
that the Company’s disclosure controls and procedures were effective as of
December 31, 2008.




Management’s Report On Internal Control Over
Financial Reporting




Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act). The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance
with accounting principles generally accepted in the United
States.


57




Management,
with the participation of the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2008. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control —
Integrated Framework. Based on this evaluation, management, with the
participation of the Chief Executive Officer and Chief Financial Officer,
concluded that, as of December 31, 2008, the Company’s internal control
over financial reporting was effective.




Ernst &
Young, LLP, the independent registered public accounting firm that audited the
Company’s consolidated financial statements included in this Form 10-K, has
issued a report on the Company’s internal control over financial reporting,
which is included herein.




Limitations
of the Effectiveness of Internal Control




A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the internal control system are
met. Because of the inherent limitations of any internal control system, no
evaluation of controls can provide absolute assurance that all control issues,
if any, within a company have been detected.




Changes
In Internal Controls Over Financial Reporting




There
were no changes in The Company’s internal control over financial reporting (as
defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended
December 31, 2008, that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial
reporting.




Item
      9B.
            Other
      Information




None




Item
      10.
            Directors,
      Executive Officers and Corporate
Governance




Directors




The
following table presents information as of March 23, 2009 regarding our
directors and the directors of Riviera Operating Corporation (“ROC”), our
wholly-owned subsidiary:


58




Name
            
            Age
            
            PositionWilliam
      L. Westerman
            
            77
            
            Our
      Chairman of the Board, CEO and President; Chairman of the Board and Chief
      Executive Officer of ROCJeffrey
      A. Silver
            
            63
            
            Our
      and ROC’s DirectorPaul
      A. Harvey
            
            71
            
            Our
      and ROC’s DirectorVincent
      L. DiVito
            
            49
            
            Our
      and ROC’s DirectorJames
      N. Land, Jr.
            
            79
            
            Our
      and ROC’s Director





William
L. Westerman has been our Chairman of the Board and CEO since February
1993.  Mr. Westerman was a consultant to Riviera, Inc. (our
predecessor company) from July 1, 1991 until he was appointed Chairman of the
Board and CEO of Riviera, Inc. on January 1, 1992.  From 1973 to
June 30, 1991, Mr. Westerman was President and CEO of Cellu-Craft Inc., a
manufacturer of flexible packaging primarily for food products, and then had
several positions with Alusuisse, a multi-national aluminum and chemical
company, following its acquisition of Cellu-Craft in 1989.




Jeffrey
A. Silver has been one of our and ROC’s Directors since February 26, 2001. 
Mr. Silver is a stockholder with the law firm of Gordon & Silver, Ltd.,
in Las Vegas, Nevada.  Mr. Silver served as a Chief Deputy District
Attorney, Clark County, Nevada from 1972 to 1975 and was a Board Member with the
Nevada Gaming Control Board from 1975 through 1978 before engaging in the
private practice of law from 1979 to 1981 and 1984 to the present.  Mr.
Silver was the Chief Operating Officer (“COO”) and General Counsel of the
Landmark Hotel & Casino from 1981 to 1983, CEO of the Riviera, Inc. from
1983 to 1984 and Senior Vice President at Caesars Palace in 1984.  Mr.
Silver served on the Board of the LVCVA from 1989 to 1992 as Secretary/Treasurer
and also served as trustee.  He was a member of the Board of Directors of
the Greater Las Vegas Chamber of Commerce from 1988 to 1995 and in 1988 was its
Chairman.  Mr. Silver served for four years as a member of the United
States Travel and Tourism Advisory Board.  He was President of the
International Association of Gaming Attorneys from 1992 to 1994 and Chairman of
the American Bar Association Section of Gaming Law from 1994 to 1996. Mr. Silver
has been selected as a Gaming and Administrative Law Practitioner by numerous
legal publications, including: "Best Lawyers in the United States," 
"Superlawyers," and "Chambers USA - Americas Leading Lawyers for
Business."  He has also received the highest "AV" rating issued by
Martindale-Hubbell," a prominent legal rating service.  Effective February
23, 2009, Mr. Silver voluntarily resigned from the Board of Directors of Riviera
Holdings Corporation (the “Company”).  Mr. Silver resigned from the
Company’s Board of Directors for personal reasons and not due to any
disagreement with the Company on any matter relating to its operations, policies
or practices.




Major
General Paul A. Harvey USAF (Ret) has been one of our and ROC’s Directors since
May 18, 2001.  General Harvey is President and Chief Executive Officer
of Pearl River Resort, which is the largest gaming and resort property in the
State of Mississippi.  He also acts as a consultant to the gaming, hotel
and resort industry.  General Harvey spent 32 years on active duty in
the United States Air Force where he held numerous command positions
throughout the United States, Europe, Africa and the Middle East.  He flew
160 combat missions in Vietnam and Southeast Asia before retiring in 1991 as a
command pilot with over 5,000 flying hours.  Following retirement, he was
an Executive in Residence and Assistant to the President of William Carey
College and taught MBA studies in management and leadership.  General
Harvey was the Executive Director of the Mississippi Gaming Commission from 1993
through 1998 before becoming President and CEO of Signature Works, Inc., the
largest employer of blind and visually impaired people in the world.  In
2000 Signature Works, Inc. merged with LCI, Inc.  His present company, PDH
Associates, Inc., provides consulting service to the gaming, hotel and resort
industry.  From 1996 through 2002, General Harvey served on the board of
directors of the National Center for Responsible Gaming. He also serves on the
board of directors of Elixir Gaming Technologies, Inc., which is headquartered
in Las Vegas, Nevada and is a NYSE Amex listed company and on the board of
directors of Mikohn Gaming Corporation, d/b/a Progressive International
Corporation, also headquartered in Las Vegas, Nevada and a publicly reporting
company under the Exchange Act.  General Harvey was a Commissioner on the
Mississippi Band of Choctaw Indians Athletic and Boxing Commission from 2002
through 2007


59




Vincent
L. DiVito was appointed as one of our and ROC’s Directors effective June 14,
2002. Mr. DiVito is President and Chief Financial Officer (“CFO”) of Lonza
America, Inc., a global life sciences chemical business headquartered in
Allendale, New Jersey.  Lonza America, Inc. is part of Lonza Group, whose
stock is traded on the Swiss Stock Exchange.  Prior to September 2000, Mr.
DiVito was the Vice President and CFO of Algroup Wheaton, a global
pharmaceutical and cosmetics packaging company, after having served as the
Director of Business Development.  From 1984 to 1990 Mr. DiVito was
the Vice President of Miracle Adhesives Corp. (a division of Pratt &
Lambert, an NYSE Amex listed manufacturer of paints, coatings and
adhesives).  He also serves on the board of directors of Elixir Gaming
Technology, Inc., which is headquartered in Las Vegas, Nevada and is an NYSE
Amex-listed company. Prior to 1984, Mr. DiVito spent two years on an audit team
at Ernst & Whinney (now Ernst & Young). Mr. DiVito is a certified
public accountant and certified management accountant.




James N.
Land, Jr., is a corporate consultant and was appointed as one of our and ROC’s
Directors on April 12, 2004.  Mr. Land was first elected a Director of the
Company and ROC on January 21, 1999 and served in that position until May
31, 2002.  From 1956 to 1976, Mr. Land was employed by The First Boston
Corporation in various capacities, including Director, Senior
Vice President, Co-Head of Corporate Finance, and head of International
Operations.  From 1971 through 1999, he served as Director of various
companies, including Kaiser Industries Corporation, Marathon Oil Company, Castle
& Cooke, Inc., Manville Corporation, NWA, Inc., Northwest Airlines, and
Raytheon Company.




Executive
Officers




The
following table presents information as of February 23, 2008 regarding our and
ROC’s executive officers:


60




Name
            
            Age
            
            PositionWilliam
      L. Westerman
            
            77
            
            Our
      and ROC’s Chairman of the Board andCEO, and our Pre sident and President
      of RBHPhillip
      B. Simons
            
            46
            
            Our
      and ROC’s Treasurer and CFO andVice President of Finance of
      ROCTullio
      J. Marchionne
            
            54
            
            Our
      Secretary and General Counsel, and Secretaryand Executive Vice President
      of ROCRobert
      A. Vannucci
            
            61
            
            President
      and Chief Operating Officer of ROC





For a
description of the business experience of William L. Westerman, see “Directors”
above.




Phillip
B. Simons became our and ROC’s CFO and Treasurer and ROC’s Vice President of
Finance on May 12, 2008.  From April 2006 to May 2008, Mr. Simons, who is a
certified public accountant, was the Vice President of Finance and Chief
Financial Officer for Wheeling Island Gaming, Inc., a wholly owned subsidiary of
Delaware North Companies.  Prior to his employment with Wheeling Island
Gaming, Inc., Mr. Simons spent ten years leading the financial divisions at
various large resorts and casinos with Wyndham International, Carlson
Hospitality Worldwide, Destination Hotels and Resorts and the Villa Group. 
Prior to his experience in the hospitality and gaming industry, Mr. Simons spent
three-years employed in public accounting and consulting and several years in a
senior financial role with a major real estate developer.




Tullio J.
Marchionne became our General Counsel on January 10, 2000, was appointed as our
and ROC’s Secretary on February 17, 2000 and was elected Vice President of ROC
on February 26, 2001 and Executive Vice President in June of 2005. 
Mr. Marchionne was initially employed by Riviera, Inc., in June 1986 as a casino
dealer and served in various capacities including Pit Manager, General Counsel
and Director of Gaming Administration until September 1996, when he was
transferred to the Four Queens Hotel and Casino as Director of Casino Operations
pursuant to the management agreement our subsidiary had with the Four
Queens.  He served in that position until May 1997. 
Mr. Marchionne served as the General Manager of the Regency Casino
Thessaloniki, located in Thessaloniki, Greece, from June 1997 until December
1997.  Mr. Marchionne served as a Casino Supervisor with Bally’s Las
Vegas from February 1998 until June 1998, Director of Casino Operations at the
Maxim Hotel and Casino in Las Vegas from June 1998 until November 1998
and Director of Table Games at the Resort at Summerlin from November 1998 until
December 1999.




Robert A.
Vannucci was elected Vice President of Marketing and Entertainment of ROC on
April 26, 1994, Executive Vice President of Marketing and Entertainment on
July 1, 1998 and President of ROC on October 1, 2000.  Mr. Vannucci
had been Director of Marketing of ROC since July 19, 1993. 
Mr. Vannucci was Senior Vice President of Marketing and Operations at the
Sands Casino Hotel in Las Vegas from April 1991 to February 1993. He was
Vice President and General Manager of Fitzgerald’s Las Vegas (a casino/hotel)
from 1988 to January 1991.




Our and
ROC’s officers serve at the discretion of our and ROC’s respective Boards of
Directors, and they are also subject to the licensing requirements of the Nevada
Gaming Commission and Colorado Gaming Commission.


61




Audit Committee; Audit
Committee Financial Expert




We have a
separately-designated standing Audit Committee, established in accordance with
section 3(a)(58)(A) of the Exchange Act.  The members of our Audit
Committee are Vincent L. DiVito, Paul A. Harvey and James N. Land,
Jr.




We have
determined that the Chairman of our Audit Committee, Vincent L. DiVito, who
meets the NYSE Amex audit committee independence requirements, is an “audit
committee financial expert”, as defined in Item 407(d)(5)(ii) of SEC Regulation
S-K.  Mr. DiVito is a certified public accountant and certified management
accountant, spent two years on the audit team at Ernst & Whinney (now Ernst
& Young) and is currently the President, CFO and treasurer of a global life
sciences chemical business.




Section 16(a) Beneficial
Ownership Reporting Compliance




Section
16(a) of the Exchange Act (Section 16(a)) requires our directors and executive
officers and persons who own more than 10% of our common stock to file with the
SEC certain reports regarding ownership of our common stock.  Such persons
are required to furnish us with copies of all Section 16(a) reports they file.
Based solely on our review of such reports that were furnished to us and written
representations made to us by those reporting persons in connection with certain
of those reporting requirements, we believe that all the reporting persons met
their Section 16(a) reporting obligations on a timely basis during
2008.




Code of
Ethics




We have
adopted certain ethical policies that apply to all of our employees at the level
of Supervisor or higher, including our principal executive officer, principal
financial officer and principal accounting officer.  Those policies,
together with certain rules adopted by our Disclosure Committee, comprise what
we consider to be our code of ethics.  Those policies and rules are
available on our Internet web site at www.rivierahotel.com by clicking on the
“Investor Relations” link.




Audit
Committee




We have a
separately-designated standing Audit committee, established in accordance with
section 3(a)(58)(A) of the Exchange Act.  Our Audit Committee is
composed of Messrs. DiVito, Harvey and Land.  Our Audit Committee
recommends to our Board of Directors the selection of an auditor, reviews the
plan and scope of our audits, reviews the auditors’ critique of management and
internal controls and management’s response to such critique and reviews the
results of our audit.  In 2008, our Audit Committee met nine times. 
We have determined that the three members of our Audit Committee to be
independent, based on NYSE Amex standards that apply to us.  Our Board of
Directors has determined that Mr. DiVito, Chairman of the Audit Committee, is an
“audit committee financial expert” as defined by the rules and regulations of
the SEC.  A written charter, adopted and approved by the Board of
Directors, is available on our website at www.rivierahotel.com by clicking on
the “Investor Relations” link.


62




Item
      11.
            Executive
      Compensation




EXECUTIVE
COMPENSATION AND RELATED INFORMATION




Compensation
Discussion and Analysis




Overview of Compensation
Program and Philosophy




Our
executive compensation program is intended to meet three principal objectives:
(1) attract, reward and retain executive officers and other key employees;
(2) motivate these individuals to achieve short-term and long-term
corporate goals that enhance stockholder value; and (3) support our core
values and culture by promoting internal equity and external competitiveness. To
meet these objectives, we have adopted the following overriding
policies:




·
            Pay
      compensation that is competitive with the practices of other mid-cap
      gaming companies; and




·
            Pay
      for performance by:




·
            establishing
      challenging performance goals for our executive officers and providing
      short-term incentives through an Incentive Compensation Program that is
      based upon achievement of these goals;
and




·
            providing
      long-term, significant incentives in the form of restricted stock, or
      stock options or both in order to retain individuals with the leadership
      abilities necessary for increasing long-term stockholder value while at
      the same time aligning the interests of our officers with those of our
      stockholders.




These
policies guide our Compensation Committee (the “Committee”) in assessing the
proper allocation among long-term compensation, current cash compensation and
short-term bonus compensation. Other compensation considerations include our
business objectives, fiduciary and corporate responsibilities, competitive
practices and trends and regulatory requirements.




In
determining the particular elements of compensation that will be used to
implement our overall compensation policies, the Committee takes into
consideration a number of factors related to performance, such as our EBITDA (as
calculated below), earnings per share, profitability, the specific operational
and financial performances of our two properties (Riviera Las Vegas and Riviera
Black Hawk), competitive practices among our Peer Group (as defined below) and
the effects of prior years’ long-term incentives, mainly stock options which
were last awarded to executives in 2002.  We calculate EBITDA as follows:
earnings before interest, income taxes, depreciation, amortization, equity-based
compensation, asset impairment, and mergers, acquisitions and development costs,
net.




Our
executive compensation program, excluding the granting of stock options, is
overseen and administered by the Committee.  The granting of stock options
to executives is within the purview of our Stock Option Committee.  All of
the members of the Committee meet NYSE Amex independence standards that apply to
our directors.  Our Stock Option Committee is comprised of the two
Committee members who meet those independence standards.


63


The
Committee reviews all principal aspects of executive compensation, including
base salaries and short-term and long-term incentives.  The Committee
occasionally meets with our President and CEO, Mr. Westerman, or other
executives to obtain recommendations with respect to our compensation programs,
practices and compensation packages.  The Committee considers, but is not
bound to and does not always accept, our management’s recommendations with
respect to executive compensation. The Committee has changed several of our
management’s proposals in recent years, including fiscal 2009
proposals.




The
Committee has the ultimate authority to determine the compensation of our
executive officers, except for compensation in the form of stock options, which
is determined by our Stock Option Committee.  The Committee may, in its
discretion, delegate some or all of its authority. The Committee, though, has
not delegated any such authority in recent years.  The Committee has
authorized Mr. Westerman to make salary adjustments and bonus decisions for
all employees other than executive officers under guidelines established by the
Committee.




Elements of
Compensation




Although
the final structure may vary from year to year and officer to officer, the
Committee utilizes four major elements that comprise our executive compensation
program: (1) base salary; (2) annual incentive opportunities,
including performance and discretionary bonuses; (3) long-term incentives
such as equity-based awards; (4) retirement benefits under our 401(k) plan;
(5) severance agreements in the event of a change in control of the Company; and
(6) executive perquisites and generally available benefit programs. We have
selected these elements because we consider them to be useful or necessary
to meet one or more of the principal objectives of our compensation policy. For
instance, we establish base salary and annual target incentives with the
goal of attracting qualified executives and other key employees and adequately
compensating and rewarding them for day-to-day performance.  Our
equity-based programs provide an incentive and reward for the achievement of
long-term business objectives and retention of key executives.  We believe
these elements of compensation are and will continue to be effective in
achieving the objectives of our compensation program.  In an effort to
retain key employees, the Committee has annually renewed change of control
protections for certain executive officers and other key employees.  Those
protections would only be triggered by a change in control of the
Company.




The
Committee reviews our compensation program annually, taking into account any
decisions made by our Stock Option Committee regarding grants of stock options,
to ensure that benefit levels remain competitive within our market.  In
setting compensation levels for particular executives, the Committee considers
the proposed compensation package as a whole as well as each element of the
compensation package.  In addition, the Committee considers our stock
ownership guidelines and each executive’s past and expected future contributions
to our business. With the exception of Messrs. Westerman and Vannucci, we
do not have employment agreements with executive officers or employees. The
employment agreements with Messrs. Westerman and Vannucci are discussed
below under “Further Information Concerning Summary Compensation and Grants of
Plan-Based Awards Tables – Employment Agreements.”




Compensation
Consultant




During
2007, the Committee retained Jane Quach, a compensation consultant with over
eight years experience in executive and board compensation as well as general
Human Resources experience.  The Committee defined the scope of the
consultant’s engagement regarding executive and board compensation for the 2007
and 2008 fiscal years.  The consultant’s responsibilities included, among
other things, advising the Committee on our current executive officer
compensation packages as compared to similar companies, including our Peer
Group, as defined below.


64




Base
Salary and Annual Incentive Opportunities




Base
salary and short-term incentive awards currently make up the significant portion
of our executive compensation package.  We pay awards in order to motivate
executives to achieve our business goals.  The Committee determines each
executive’s target total annual cash compensation (salary and incentive awards)
after considering many factors, including executive compensation information
from a group of ten similar companies we consider to be within our peer group
(“Peer Group”).  This review usually occurs in the first half of each
year.  The Peer Group typically includes a range of companies in the
small-and mid-cap gaming industry with whom we compete for executives.  For
2008, the Peer Group was comprised of companies of at least a similar size and
scope of operations as we have, as measured by market capitalization, revenue,
EBITDA and enterprise value.  The Committee intends to use a similar Peer
Group for fiscal 2009.  The Peer Group consists of the following
companies:




·
            MTR
      Gaming Group, Inc.




·
            Trump
      Entertainment Resorts, Inc.




·
            Monarch
      Casino & Resort, Inc.




·
            Isle
      of Capri Casinos, Inc.




·
            Archon
      Corp.




·
            Colony
      LVH Acquisitions Inc. d/b/a Las Vegas
Hilton




·
            Century
      Casinos, Inc.




·
            Dover
      Downs Gaming & Entertainment,
Inc.




·
            YouBet.com




·
            Empire
      Resorts, Inc.




We gather
Peer Group data with respect to base salary, award targets and all equity-based
awards (including stock options, restricted stock and long-term cash-based
awards) generally through searches of publicly available information.  The
Peer Group data does not include deferred compensation benefits or general, more
commonly available benefits such as 401(k) plans and health care
coverage.




Our goal
is to target base pay at the mid-level and total cash compensation at the upper
level of the Peer Group.  When determining base salary, the Committee also
considers factors such as job performance, skill sets, prior experience, each
executive’s time in his or her position, internal consistency regarding pay
levels for similar positions or skill sets, and external pressures to attract
and retain executives under current market conditions.  Positioning the
base pay at the mid-level of our Peer Group aids us in controlling fixed costs
and attracting key executives.  Targeting total short-term compensation at
the upper level of the Peer Group provides higher incentive compensation
opportunity, rewards goal achievement and allows total short-term compensation
to be more competitive as a whole.  We analyze base pay and targeted short
term-cash compensation to determine variances with our compensation targets,
using the combination of publicly available information and survey data as
described above.  We have not awarded stock options to executives since
2002 and given the recent accounting ramifications and the retirement of certain
executives in 2006, such options will only be granted on a selective basis
going forward.  Mr. Westerman’s recommendations regarding performance
targets are a significant and useful tool for the Committee.


65




For
fiscal year 2008, the final level and mix of compensation was based on the
Committee’s understanding of the objective data related to our competitive
environment, our financial performance, the recommendations made by our
compensation consultant and the Peer Group analysis.




The
Committee did not change the base salary for Messrs. Westerman, Vannucci, 
Marchionne or Simons in 2008.  We amended Mr. Westerman’s employment
agreement on March 4, 2008, to provide for Mr. Westerman’s participation in our
performance based incentive compensation program applicable to other key
executives.  The amendment also provided for an award of a discretionary
bonus to Mr. Westerman in the amount of $300,000 paid in 2008 for his
contribution to our success in 2007.  The foregoing is consistent with the
Peer Group analysis performed by Jane Quash, our compensation consultant. 
The Committee determined that the terms of the amended employment agreement with
Mr. Westerman were appropriate.




In
November 2008, due to uncertainties with the economy, the Committee and the
Board determined not to set performance thresholds for 2009 in connection with
bonus awards under our Incentive Compensation Program.  The Committee, if
it chooses to do so, may award discretionary bonuses.  Because Mr.
Westerman is involved with and maintains a close working relationship with all
departments on a daily basis, the granting of any such discretionary awards
would be based on recommendations and a formal proposal submitted to the
Committee by the Company’s CEO.




Incentive Compensation
Program




We
maintain an annual Incentive Compensation Program for executives and key
employees to encourage and reward achievement of our business goals and to
assist in attracting and retaining key personnel.  Based on the objectives
described above, the Committee annually develops and approves specific
performance targets for the following year under our Incentive Compensation
Program, in which Messrs. Westerman, Vannucci, Marchionne and Simons participate
along with approximately 80 other key employees.




We pay
cash awards under this program only when the performance goals that the
Committee established prior to the applicable fiscal year are achieved. 
The award formula is based on the anticipated difficulty and relative importance
of achieving the performance goals.  A major component of the formula is
EBITDA of each of our two properties (Riviera Las Vegas and Riviera Black Hawk)
for property-specific personnel and combined EBITDA for corporate
personnel.  Accordingly, any awards paid for any given fiscal year will
vary depending on actual performance.  Each executive must remain an
employee through the end of the year in order to be eligible for the
award.  The Committee has discretion to increase or decrease awards when
performance goals are achieved, and to make discretionary awards when
performance goals are not achieved.




In
December 2007, the Committee established the Incentive Compensation Program
award formula and performance goals used to determine awards in 2008.  The
major factor in determining whether an award would be paid was our actual
performance during 2008 versus the predetermined goals.  The established
goals for 2008 were based on property-level EBITDA and Company EBITDA and the
participant’s employment position with us.  Under the approved formula, the
2008 award range: (i) for Messrs. Westerman and Vannucci was zero to $400,000
with a target of $200,000 if the EBITDA target was achieved, (ii) for Mr.
Marchionne was zero to $200,000 with a target of $100,000 if the EBITDA target
was achieved, and (iii) for Mr. Simons was zero to $150,000 with a target of
$75,000 if the target was achieved.  In each case, if the percentage of the
performance target achieved was less than 95%, the award was zero, increasing on
a sliding scale up to the target award if 100% of the performance target was
achieved; and with regard to Mr. Vannucci, up to the maximum award if 130% of
the performance target was achieved; and with regards to Messrs. Westerman,
Marchionne and Simons, up to a maximum award if 133% of the performance target
was achieved.


66




Mr.
Simons became the Company’s Chief Financial Officer on May 12, 2008, and was
entitled to receive 50% of any 2008 bonus award that he would be eligible to
receive based upon a full year’s employment with the Company and achieving the
foregoing targets.  All participants in our Incentive Compensation Program
had their respective awards calculated in accordance with the formula approved
by the Committee.




For
purposes of 2008 incentive compensation, property level EBITDA and Company
EBITDA target goals were (i) for Riviera Las Vegas $31.5 million, (ii) for
Riviera Black Hawk $19.5 million, and (iii) for Corporate ($4.8 million). 
As none of these EBITDA target goals were achieved, there were no incentive
bonus awards for 2008.




At the
present time, no performance thresholds for 2009 have been set by the Committee
in connection with bonus awards under our Incentive Compensation Program. 
The Committee, if it chooses to do so, may award discretionary
bonuses.




Long-Term Incentive
Compensation




We
provide long-term, equity-based incentive compensation through awards of stock
options and restricted stock that generally vest over multiple years.  This
form of compensation is intended to align the interests of our executives with
those of our stockholders by creating an incentive for our executives to
maximize stockholder value.  Our equity-based compensation is also designed
to encourage our executives to remain employed with us despite a very
competitive labor market.  Because of various reasons including accounting
costs associated with awarding stock options, we target the value of our
equity-based awards to be in the lower percentiles of the Peer
Group.




Although
we have not granted employee stock options since 2002, we are authorized to do
so under our stockholder-approved Employee Plan.  Option grants approved
during scheduled Stock Option Committee meetings become effective and are priced
as of the date of approval or a predetermined future date.  Grants approved
by unanimous written consent become effective and are priced as of the date the
last Stock Option Committee member’s signature is obtained or as of a
predetermined future date as established in the written consent.  Neither
the Committee nor the Stock Option Committee grants equity-based awards in
anticipation of the release of material nonpublic information such as a
significant earnings announcement that is likely to affect the price of our
stock.  Similarly, neither the Committee nor the Stock Option Committee
times the release of material nonpublic information based on anticipated
equity-based awards.  Also, because equity-based compensation awards
typically vest over a period of time, the value to recipients of any immediate
increase in the price of our stock following a grant is attenuated.




The
Committee regularly monitors the environment in which we operate and makes
changes to our equity-based compensation program to help us meet our goals,
including achieving long-term stockholder value.  In order to continue to
attract and retain highly skilled executives, the Committee approved changes to
our equity-based compensation program in 2008 and prior years that were designed
to reward our employees for hard work and long-term commitment to our success
and growth.  During 2008, neither stock options nor restricted shares were
granted to executives or other employees.  Nevertheless, we believe stock
options can be an effective tool for meeting our goal of increasing long-term
stockholder value by tying the value of the stock options to our performance in
the future.  Employees are able to profit from stock options only if our
stock price increases in value over the term of the option period.  We
believe the price of our stock is more closely tied to land values in Las Vegas
than operating performance.  However, we do believe that stock option
awards could help us to retain certain key executives and, therefore, stock
options may be awarded on a selected basis in the future.


67


The
amount of options or restricted stock that we grant to each executive officer or
key employee and the vesting schedule for each grant is determined by a variety
of factors, including the range of equity-based awards granted by the Peer Group
and our goal of having our equity-based awards fall within the lower percentiles
of the Peer Group, as well as the performance rating each executive receives
from Mr. Westerman, who considers a number of factors in his reviews of the
performance of each executive. These include individual accomplishments, how
effectively the executive reflects our values, and the feedback regarding the
executive from other employees who have an interest in or are affected by the
executive’s job performance.




Executive
Compensation




The
following table sets forth all compensation awarded to, paid to or earned by the
following type of executive officers for the fiscal year ended December 31,
2008, 2007, and 2006: (i) individuals who served as, or acted in the capacity
of, the Company’s principal executive officer for the fiscal year ended December
31, 2008; (ii) individuals who served as, or acted in the capacity of, the
Company’s principal financial officer for the fiscal year ended December 31,
2008; (iii) the Company’s most highly compensated executive officers, other than
the chief executive officer and the chief financial officer, who were serving as
executive officers at the end of the fiscal year ended December 31, 2008 (of
which there were two); and (iv) up to two additional individuals for whom
disclosure would have been provided but for the fact that the individual was not
serving as an executive officer of the Company at the end of the fiscal year
ended December 31, 2008 (of which there were none).  We refer to these
individuals collectively as our “Named Executive Officers”.




Compensation
of Chief Executive Officer




Mr. Westerman
is party to an employment agreement with us and in 2008 received a salary of
$1,000,000.  In setting Mr. Westerman’s salary, the Committee relied
on market-competitive pay data and the strong belief that the Chief Executive
Officer significantly and directly influences Riviera’s overall
performance.  The Committee also took into consideration the overall
compensation policies discussed above.


68





SUMMARY
COMPENSATION TABLE




Name and Principal
                                                                                                                                  Position
                                                                                                                                
                                                                                                                                Year
                                                                                                                                
                                                                                                                                Salary
                                                                                                                                
                                                                                                                                
                                                                                                                                Bonus1
                                                                                                                                
                                                                                                                                
                                                                                                                                Stock
                                                                                                                                  Awards
                                                                                                                                
                                                                                                                                
                                                                                                                                Non-Equity
                                                                                                                                  Incentive Plan
                                                                                                                                  Compensation2
                                                                                                                                
                                                                                                                                
                                                                                                                                Change in Pension
                                                                                                                                  Value and Non-
                                                                                                                                  qualified Deferred
                                                                                                                                  Compensation
                                                                                                                                  Earnings5
                                                                                                                                
                                                                                                                                
                                                                                                                                All Other
                                                                                                                                  Compensation 3,4
                                                                                                                                
                                                                                                                                
                                                                                                                                Total($)
                                                                                                                                
                                                                                                                                
                                                                                                                                ($)
                                                                                                                                
                                                                                                                                
                                                                                                                                ($)
                                                                                                                                
                                                                                                                                
                                                                                                                                ($)
                                                                                                                                
                                                                                                                                
                                                                                                                                ($)
                                                                                                                                
                                                                                                                                
                                                                                                                                ($)
                                                                                                                                
                                                                                                                                
                                                                                                                                ($)William
      L. Westerman
                                                                                                                                
                                                                                                                                2008
                                                                                                                                
                                                                                                                                $
                                                                                                                                1,000,000
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                93,285
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                35,666
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                1,128,951Our
      Chairman of theBoard,
      President and
                                                                                                                                
                                                                                                                                2007
                                                                                                                                
                                                                                                                                $
                                                                                                                                1,000,000
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                300,000
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                147,054
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                30,264
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                1,477,318CEO;
      Chairman of the
                                                                                                                                
                                                                                                                                2006
                                                                                                                                
                                                                                                                                $
                                                                                                                                1,000,000
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                215,110
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                29,253
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                1,244,363Board
      and CEO of ROCand
      President of RBHRobert
      A. Vannucci
                                                                                                                                
                                                                                                                                2008
                                                                                                                                
                                                                                                                                $
                                                                                                                                400,000
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                163,000
                                                                                                                                7
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                17,169
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                580,169President
      and COO  of
                                                                                                                                
                                                                                                                                2007
                                                                                                                                
                                                                                                                                $
                                                                                                                                400,000
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                163,000
                                                                                                                                7
                                                                                                                                
                                                                                                                                $
                                                                                                                                203,411
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                12,518
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                778,929ROC
                                                                                                                                
                                                                                                                                2006
                                                                                                                                
                                                                                                                                $
                                                                                                                                423,265
                                                                                                                                6
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                163,000
                                                                                                                                7
                                                                                                                                
                                                                                                                                $
                                                                                                                                92,500
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                10,307
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                689,072Phillip
      B. Simons8
                                                                                                                                
                                                                                                                                2008
                                                                                                                                
                                                                                                                                $
                                                                                                                                111,712
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                22,451
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                134,163Our
      Treasurer and CFO;
                                                                                                                                
                                                                                                                                2007
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -Executive
      Vice President
                                                                                                                                
                                                                                                                                2006
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -Finance;
      CFO andTreasurer
      of ROC(commenced
      5/12/08)Tullio
      J. Marchionne
                                                                                                                                
                                                                                                                                2008
                                                                                                                                
                                                                                                                                $
                                                                                                                                250,000
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                52,980
                                                                                                                                7
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                15,498
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                318,478Our
      Secretary and
                                                                                                                                
                                                                                                                                2007
                                                                                                                                
                                                                                                                                $
                                                                                                                                250,084
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                35,239
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                52,980
                                                                                                                                7
                                                                                                                                
                                                                                                                                $
                                                                                                                                114,761
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                12,963
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                466,027General
      Counsel;
                                                                                                                                
                                                                                                                                2006
                                                                                                                                
                                                                                                                                $
                                                                                                                                205,769
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                42,975
                                                                                                                                7
                                                                                                                                
                                                                                                                                $
                                                                                                                                73,000
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                10,768
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                332,512Secretary,
      GeneralCounsel
      and ExecutiveVice
      President of ROCMark
      B. Lefever9
                                                                                                                                
                                                                                                                                2008
                                                                                                                                
                                                                                                                                $
                                                                                                                                74,794
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                4,803
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                79,597Former
      Treasurer and
                                                                                                                                
                                                                                                                                2007
                                                                                                                                
                                                                                                                                $
                                                                                                                                280,633
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                35,239
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                114,761
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                11,382
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                442,015CFO;
      Executive Vice
                                                                                                                                
                                                                                                                                2006
                                                                                                                                
                                                                                                                                $
                                                                                                                                149,039
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                73,000
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                -
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                11,000
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                233,039President-Finance;
      CFOand
      Treasurer of ROC(resigned,
      3/31/08)





1
            The
      reported amounts are discretionary bonus awards paid under our Incentive
      Compensation Program.




2
            The
      reported amounts are awards paid under our Incentive Compensation Program
      for achievements of our performance targets for the reported
      year.




3
            Includes
      amounts contributed under our 401k
plan.




69


4
            Includes
      premiums we paid for auto allowance, long-term health care, maintaining a
      suite for Mr. Westerman at our Las Vegas property associated with his
      duties as CEO and moving expenses to Mr. Simons in 2008 associated
      with his acceptance of our offer of
employment.




5
            Includes
      the portion of the interest earned on Mr. Westerman’s retirement account
      that exceeds the interest, which would have been earned if the interest
      rate had been 120% of the applicable federal long-term rate, with
      compounding, prescribed under Section 1274d of the Internal Revenue
      Code.  Additional interest earned on Mr. Westerman’s retirement
      account that is not reported in the above table amounted to $72,977 in
      2008, $134,055 in 2007 and $198,158 in
2006.




6
            Includes
      quarterly awards to Mr. Vannucci under his former employment
      agreement.  Under that agreement, Mr. Vannucci had the
      choice of $25,000 in cash or in restricted Common Stock per
      quarter.   Mr. Vannucci entered into a new employment
      agreement effective September 1, 2006, under which he no longer receives
      the quarterly awards.




7
            Includes
      shares granted on April 6, 2005 under our Restricted Stock Plan in
      substitution for stock options that we had attempted to grant but were
      unable to, due to expiration of the 1993
      Plan.  Mr. Vannucci received 60,000 shares and
      Mr. Marchionne received 19,500 shares.  The dollar amounts
      reported in the table for 2006, 2007 and 2008 are the amounts that we
      recognized for financial reporting purposes with respect to each of those
      years in accordance with Statement of Financial Accounting Standards
      No. 123R “FAS”.  We included those amounts in the “Equity
      compensation” line item in our Consolidated Statements of Operations for
      the years ended December 31, 2008, 2007 and 2006, which are included
      in our financial statements in our Form 10-K for the year ended
      December 31, 2008.  Please refer also to notes 1 and 13 to
      those financial statements for further information regarding our
      calculation of these amounts.  Those amounts are based on the
      reported closing price of the Common Stock on NYSE Amex on the date we
      granted those shares, which was $12.37 per
  share.




8
            Mr.
      Simons commenced his position effective May 12,
  2008.




9
            Mr.
      Lefever resigned his position effective March 31,
  2008.




In 2008
no plan-based awards were granted.




At the
present time, no performance thresholds for 2009 have been set by the Committee
in connection with bonus awards under our Incentive Compensation
Program.  The Committee, if it chooses to do so, may award
discretionary bonuses.  To the extent that we award any incentive
bonuses, our Incentive Compensation Program participants will be entitled to
cash awards and we make a ESOP contribution, our ESOP participants will be
entitled to contributions to their ESOP accounts.  Those awards and
contributions will then be reported for 2009 in next year’s Summary Compensation
Table in the Non-Equity Incentive Plan Compensation column.


70


GRANTS
OF PLAN-BASED AWARDS




All
                                                          
                                                          
                                                          All OtherOther
                                                          
                                                          
                                                          OptionStock
                                                          
                                                          
                                                          Awards:Estimated Future Payouts Under
                                                          
                                                          
                                                          Estimated Future Payouts
                                                          
                                                          
                                                          Awards:
                                                          
                                                          
                                                          Number ofNon-Equity Incentive Plan
                                                          
                                                          
                                                          Under Equity Incentive
                                                          
                                                          
                                                          Number
                                                          
                                                          
                                                          Securities
                                                          
                                                          
                                                          Exercise orAwards
                                                          
                                                          
                                                          Plan Awards
                                                          
                                                          
                                                          of Shares
                                                          
                                                          
                                                          Under-
                                                          
                                                          
                                                          Base PriceThres-
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          Thres-
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          of Stock
                                                          
                                                          
                                                          lying
                                                          
                                                          
                                                          of Optionhold
                                                          
                                                          
                                                          Target
                                                          
                                                          
                                                          Max
                                                          
                                                          
                                                          hold
                                                          
                                                          
                                                          Target
                                                          
                                                          
                                                          Max
                                                          
                                                          
                                                          or Units
                                                          
                                                          
                                                          Options
                                                          
                                                          
                                                          AwardsName
                                                          
                                                          Grant Date
                                                          
                                                          
                                                          ($)
                                                          
                                                          
                                                          ($)
                                                          
                                                          
                                                          ($)
                                                          
                                                          
                                                          (#)
                                                          
                                                          
                                                          (#)
                                                          
                                                          
                                                          (#)
                                                          
                                                          
                                                          (#)
                                                          
                                                          
                                                          (#)
                                                          
                                                          
                                                          ($/Sh)William
      L. Westerman
                                                          
                                                          
                                                          
                                                          (1)
                                                          
                                                          $
                                                          0
                                                          
                                                          
                                                          
                                                          
                                                          (1)
                                                          
                                                          $
                                                          16,000
                                                          2
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -$
                                                          0
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          400,000
                                                          3Phillip
      B. Simons
                                                          
                                                          
                                                          
                                                          (1)
                                                          
                                                          $
                                                          0
                                                          
                                                          
                                                          
                                                          
                                                          (1)
                                                          
                                                          $
                                                          7,000
                                                          2
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -(commenced
      employment 5/12/08)
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          0
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          150,000
                                                          3Robert
      A. Vannucci
                                                          
                                                          
                                                          
                                                          (1)
                                                          
                                                          $
                                                          0
                                                          
                                                          
                                                          
                                                          
                                                          (1)
                                                          
                                                          $
                                                          16,000
                                                          2
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -$
                                                          0
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          400,000
                                                          3Tullio
      J. Marchionne
                                                          
                                                          
                                                          
                                                          (1)
                                                          
                                                          $
                                                          0
                                                          
                                                          
                                                          
                                                          
                                                          (1)
                                                          
                                                          $
                                                          10,000
                                                          2
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -$
                                                          0
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          200,000
                                                          3Mark
      B. Lefever
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -(resigned
      3/31/08)





1
            At
      the present time, no performance thresholds for 2009 have been set by the
      Committee in connection with bonus awards under our Incentive Compensation
      Program.  The Committee, if it chooses to do so, may award
      discretionary bonuses.




2
            This
      line item represents the maximum ESOP plan-based award, if any, that may
      be paid in 2010 for performance in
2009.




3
            This
      line item represents the maximum Incentive Compensation Program plan-based
      award, if any, that may be paid in 2010 for performance in
      2009.




Further Information
Concerning Summary Compensation and Grants of Plan-Based Awards
Tables




The
following descriptions of our compensation agreements, plans and programs are
intended to assist in your reading and understanding of the information reported
in the Summary Compensation and Grants of Plan-Based Awards tables above and the
related footnotes.




Employment
Agreements




Mr.
Westerman serves as our Chairman of the Board, President and CEO, as Chairman of
the Board and CEO of ROC and President and CEO of Riviera Black Hawk,
Inc.


71


Under Mr.
Westerman’s employment agreement, which was last amended on March 4, 2008, he is
employed for one-year (calendar year) terms which automatically renew for
successive one-year terms unless written notice is provided by Mr. Westerman
upon at least 180 days, or by us upon at least 90 days, prior to the
termination of the then current term.  Mr. Westerman’s base
annual compensation is $1,000,000.  Under his employment agreement,
Mr. Westerman is entitled to participate in our Incentive Compensation Program
and any other executive bonus plan.  Mr. Westerman was granted a
Discretionary Bonus in the amount of $300,000, paid in 2008 for his contribution
to our performance in 2007.




Mr.
Westerman’s employment agreement required us to fund a retirement account for
him.  We no longer make principal contributions to the retirement
account, but the account continues to accrue interest.  The retirement
account had a balance, including accrued interest, of $1,028,000 as of December
31, 2008.




We credit
Mr. Westerman’s retirement account quarterly with interest on the first day of
each succeeding calendar quarter in an amount equal to the product of (1) our
average borrowing cost for the immediately preceding fiscal year, as determined
by our CFO, and (2) the average outstanding balance in the retirement account
during the preceding calendar quarter.  At the recommendation of the
Committee, in order to reduce the amount that would be payable immediately upon
Mr. Westerman’s separation from employment with us, Mr. Westerman and we agreed
that the following cash payments would be made to him commencing April 1, 2003,
and continuing on the first day of each quarter thereafter:  (1) a
distribution of $250,000 from the principal balance of his retirement account;
and (2) the quarterly interest credited to his retirement account one quarter in
arrears.  Total interest accrued to Mr. Westerman’s account in 2008
was $135,000 in 2007 was $311,000 and $400,000 in 2006.  The quarterly
distributions of principal from Mr. Westerman’s retirement account in 2008
are reported in the Pension Benefits table below but are not reported in the
Summary Compensation Table above.




We retain
beneficial ownership of Mr. Westerman’s retirement account, which is earmarked
to pay his retirement benefits.  However, upon (1) the vote of a
majority of the outstanding shares of Common Stock approving a “Change of
Control” (as discussed directly below), (2) the occurrence of a Change of
Control of the Company without Mr. Westerman’s consent, (3) a breach by us of a
material term of the employment agreement or (4) the expiration or earlier
termination of the employment agreement for any reason other than cause,
Mr. Westerman has the right to require us to establish a Rabbi Trust for
his benefit and to require us to fund it with cash equal to the amount then
credited to his retirement account, including any amount to be credited to
his retirement account upon a Change of Control.




On
February 5, 1998, Stockholders approved a merger agreement that constituted a
Change of Control under Mr. Westerman’s employment agreement.  (That
agreement was later terminated without consummation of the
merger.)  On March 5, 1998, Mr. Westerman exercised his right to
require us to establish and fund a Rabbi Trust for his benefit.  On
March 20, 1998, Mr. Westerman waived his right to have us fund the Rabbi
Trust in exchange for our agreement to fund it within five business days after
notice from him.




If Mr.
Westerman ceases to be employed by us (except for termination for cause, in
which case Mr. Westerman would forfeit all rights to monies in the retirement
account), he will be entitled to receive the amount in the retirement account
(principal and interest) in 20 equal quarterly installments commencing as of the
date he ceases to be employed.  In the event that Mr. Westerman’s
Rabbi Trust has not yet been funded, the entire balance of principal and
interest of the retirement account shall be paid directly to Mr. Westerman upon
his retirement or termination (except for cause) or upon a Change of
Control.


72


Mr.
Westerman’s agreement also provides that for 24 months following termination of
employment for any reason except cause, he shall not engage in any activity,
which is in competition with us within a 75-mile radius from the location of any
hotel or casino then operated by us.  As consideration for not
competing, we will pay Mr. Westerman a total of $500,000 in two equal annual
installments of $250,000.  The first installment will be payable
within five business days of termination of employment, with the second
installment payable on the first anniversary of termination.




In
addition to his employment agreement, on August 12, 2008 we approved a salary
continuation agreement for Mr. Westerman that expires on December 31,
2009.  The salary continuation agreement entitles Mr. Westerman to 24
months of base salary, paid in bi-weekly installments, and 24 months of health
insurance benefits in the event Mr. Westerman is terminated without cause within
24 months after a change in control of the Company, as defined in the salary
continuation agreement.  Any continued payments made to Mr Westerman
pursuant to his employment agreement shall be applied so as to reduce payments
to which he would be entitled under the salary continuation
agreement.




Robert A.
Vannucci serves as President and COO of ROC.  We entered into an
employment agreement with Mr. Vannucci effective September 1, 2006. The
agreement is for a one-year term and automatically renews for successive
one-year terms.  Mr. Vannucci’s base compensation is
$400,000.  His employment agreement also provides for a discretionary
Incentive Compensation Program award of up to $200,000 if so determined by our
Board and the Committee (or a prorated award, if so
determined).  Mr. Vannucci or we may terminate the agreement at
any time upon 30 days’ prior written notice, but if we terminate it without
cause, then Mr. Vannucci will be entitled to one year’s salary, a prorated
award under our Incentive Compensation Program, two years of health insurance
benefits and a one-year automobile allowance of $6,000, plus reimbursement of
all reasonable automobile expenses (excluding lease or loan
payments).




Incentive
Compensation Program




·
            Approximately
      110 executives and other significant employees participate in our
      Incentive Compensation Program.  Participants are eligible to
      receive an annual cash award based on our achievement of predetermined
      financial targets at Riviera Las Vegas or Riviera Black Hawk, as
      applicable, or at both locations combined for our corporate
      employees.




·
            The
      employment position held by a participant determines the award level for
      which that participant would qualify if the predetermined financial
      targets are achieved.  Our Chairman of the Board and CEO has
      discretion to change the award level assigned to any non-executive officer
      position.




·
            Before
      the beginning of each fiscal year, we determine the financial targets for
      that year, as described above.  By the time we do so, the Named
      Executive Officers and other persons who will participate in the Incentive
      Compensation Program for that year and their eligible award levels have
      already been determined (or are determined at that same
      time).  Therefore, we view the date in 2008 on which we set the
      2009 financial targets as the date on which we granted the Incentive
      Compensation Program awards that can be earned in 2009.  Those
      awards are reported in the Grants of Plan-Based Awards table above and
      will be reported next year (to the extent that the awards are actually
      earned in 2009) in the Non-Equity Incentive Plan Compensation column of
      the Summary Compensation Table.  At the present time, however,
      the Committee has not established the performance thresholds for 2009 in
      connection with bonus awards under our Incentive Compensation
      Program.  The Committee, if it chooses to do so, may award
      discretionary bonuses.  Any Incentive Plan Compensation awards,
      if any, will be reported for 2009 in next year’s Summary Compensation
      Table in the Non-Equity Incentive Plan Compensation
  column.




73


·
            There
      are no Incentive Compensation Program awards reported for 2008 in the
      Summary Compensation Table.




·
            We
      recorded accrued awards of zero, $1,715,000 and $581,000 under the
      Incentive Compensation Program for 2008, 2007 and 2006,
      respectively.




Profit-Sharing
and 401(k) Plans




We have
profit-sharing and 401(k) plans for employees who are at least 21 years of age
and are not covered by a collective bargaining agreement after one year of
service.




Under the
terms of the 401(k) plan before it was amended effective January 1, 2008, we may
contribute to the 401(k) plan an amount not to exceed 25% of the first 8% of
each participant’s compensation.  We made contributions of $270,000
and $276,000 for the years ended December 31, 2007 and 2006,
respectively.  Commencing January 1, 2008, we made contributions to
the 401(k) plan in an amount not to exceed 50% of the first 6% of each
participant’s compensation.  We made contributions of $452,000 for the
year ended December 31, 2008.  Commencing January 1, 2009, we
suspended the Company match to our 401(k) plan until further
notice.  We also pay administrative costs of the plan, which are not
material.




Prior to
2003, we suspended contributions to the profit-sharing plan, and substituted
contributions to the ESOP.




Our
contributions to the 401(k) plan for the Named Executive Officers are included
in the All Other Compensation column of the Summary Compensation
Table.




The
Employee Stock Ownership Plan




We
established the ESOP, effective January 1, 2000, to replace our contributions to
the profit-sharing plan.  The ESOP provides that all employees in the
plan year who completed a minimum of 1,000 hours of service in the plan year,
were employed through December 31 of that plan year, were at least 21 years of
age and were not covered by a collective bargaining agreement are eligible to
participate.  We make contributions to the ESOP for participants at
Riviera Las Vegas and Riviera Black Hawk relative to the combined economic
performance of both properties.  The ESOP contributions are made in
cash, which the ESOP trustee uses primarily to buy Common Stock.  For
non-bargaining employees, we make a contribution equal to 1% of each eligible
employee’s annual compensation if a prescribed annual operating results target
is attained and an additional 1% thereof for each $2.2 million by which that
target is exceeded, up to a maximum of 4% for 2008.  We contributed
$126,000 for 2007.  We did not make any contributions to the ESOP for
2008 and 2006.  Our contributions to the ESOP for the Named Executive
Officers are included in the Non-Equity Incentive Plan column of the Summary
Compensation Table.




As with
our Incentive Compensation Program awards discussed above, we establish
operating results targets for the ESOP prior to commencement of the applicable
year, at which time the participating Named Executive Officers and the potential
minimum and maximum contribution amounts are already known to us.  At
the present time, however, the Committee has not established 2009 operating
results targets for the ESOP.   Any such contributions to Named
Executive Officers will then be reported for 2009 in next year’s Summary
Compensation Table in the All Other Compensation column of the Summary
Compensation Table.


74


Deferred
Compensation Plan




Our DCP
gives eligible employees the opportunity to defer cash
compensation.  Participation in the DCP is limited to employees who
receive annual compensation of at least $100,000.  The deferred funds
that are contributed to the DCP, but not the appreciation in the value of Common
Stock that the DCP purchases with the deferred funds, are maintained on our
books as liabilities.  All elections to defer the receipt of
compensation must be made by December 1st of the
preceding the plan year to which the election relates and are irrevocable for
the duration of such year.  There were no participants in the DCP on
December 31, 2008.




There
were no contributions to the DCP through deferrals of cash compensation in 2008,
2007 or 2006.




Restricted
Stock Plan




We have a
Restricted Stock Plan to attract and retain highly competent persons as officers
and key employees.  Participants consist of such officers and key
employees as the Committee determines are significantly responsible for our
success and future growth and profitability.  Awards of restricted
stock are subject to such terms and conditions as we determine are appropriate
at the time of the awards, including restrictions on the sale or other
disposition of such stock, a vesting schedule under which the restrictions
lapse, and provisions for the forfeiture of non-vested (i.e. restricted) stock
upon termination of the participant’s employment within specified periods or
under certain conditions.




Restricted
Stock Plan grants are reported in the Stock Awards column of the Summary
Compensation Table.  The amount we report for a specified year is the
amount we recognized for financial statement reporting purposes for that year in
accordance with FAS 123R, which amount was based on the reported closing price
of the Common Stock on NYSE Amex on the date of the grant and the number of
restricted shares that became vested in the specified year.




Stock
Option Plans and Stock Grants




None of
the Named Executive Officers were granted stock options in 2008.




The share
amounts reported in the paragraph below and in the footnotes to the Summary
Compensation Table are adjusted to give effect to the March 11, 2005
three-for-one Common Stock split.




In July
2003, we attempted to grant options for 385,500 shares of Common Stock under our
1993 Plan.  Subsequently, it was determined that the 1993 Plan had
expired prior to those grants, which rendered them null and void. Two executives
to whom we attempted to grant options for a total of 48,000 shares thereafter
left our employment.  On April 6, 2005, we granted to 19 remaining
executives a total of 337,500 shares under our Restricted Stock Plan in
substitution for the 1993 Plan stock options that we had attempted to grant to
them.  Those shares are subject to a five-year vesting schedule,
vesting 20% each March 10, commencing in 2006.  The shares completely
vest upon death, disability, retirement at or after age 62, termination of
employment by us other than for cause, events of hardship as approved by the
Committee or in the event of a change in control of the Company.




Although
the 1993 Plan has expired, some options granted under the 1993 Plan are still
outstanding.


75


Effective
May 17, 2005, we implemented the Employee Plan.  One million shares of
Common Stock are allocated to the Employee Plan, in which our executive officers
and key employees are eligible to participate.  The Stock Option
Committee has discretion as to whom Employee Plan options will be granted and
the number of shares allocated to each option grant.  The option
exercise price will be the closing market price of the Common Stock (110% of the
closing market value in the case of an incentive option granted to an owner of
more than 10% of the Common Stock) on the date of the option
grant.  The options will vest over four years, with 20% vesting on the
date of grant, and an additional 20% on each anniversary of the grant, subject
to accelerated vesting upon the occurrence of certain events including a change
in control of the Company.




We have
not yet granted options under the Employee Plan.  Therefore, no
amounts are reported in the tables above.




Additional
Benefits




We offer
a number of other benefits to executive officers pursuant to benefit programs
that provide for broad-based employee participation.  These programs
include long-term and short-term disability insurance, life and accidental death
and dismemberment insurance, employee assistance and certain other
benefits.




Our
401(k) plan and other generally available benefit programs allow us to remain
competitive for employee talent, and we believe that the availability of the
benefit programs generally enhances employee productivity and
loyalty.  The main objectives of our benefit programs are to give our
employees access to quality health care, financial protection from unforeseen
events, assistance in achieving retirement financial goals and enhanced health
and productivity, in compliance with applicable legal
requirements.  These generally available benefits typically do not
specifically factor into our calculation or evaluation of an individual
executive’s total compensation or equity award-based package.




Outstanding Equity-Based
Awards




The
following table provides information as of December 31, 2008 concerning
Named Executive Officers’ unexercised stock options and restricted Common Stock
that was not vested.


76


OUTSTANDING
EQUITY AWARDS AS OF DECEMBER 31, 2008




Option Awards
                          
                          
                          Stock AwardsName
                          
                          Number of
                            Securities
                            Underlying
                            Unexercised
                            Options
                            (#)
                            Exercisable
                          
                          
                          Number of
                            Securities
                            Underlying
                            Unexercised
                            Options
                            (#)
                            Unexercisable
                          
                          
                          Equity
                            Incentive
                            Plan
                            Awards:
                            Number of
                            Securities
                            Underlying
                            Unexercised
                            Unearned
                            Options
                            (#)
                          
                          
                          Option
                            Exercise
                            Price
                            ($)
                          
                          
                          Option
                            Expiration
                            Date
                          
                          
                          Number
                            ofShares
                            orUnits
                            ofStock
                            That
                            Have Not
                            Vested
                            (#)
                          
                          
                          Market
                            Value of
                            Shares or
                            Units of
                            Stock
                            That
                            Have Not
                            Vested
                            ($)
                          
                          
                          Equity
                            Incentive
                            Plan
                            Awards:
                            Number
                            of
                            Unearned
                            Shares,
                            Units or
                            Other
                            Rights
                            ThatHave
                            Not
                            Vested
                            (#)
                          
                          
                          Equity
                            Incentive
                            Plan
                            Awards:
                            Market or
                            Payout
                            Value of
                            Unearned
                            Shares,
                            Units or
                            Other
                            Rights
                            That Have
                            Not
                            Vested
                            ($)William
      L. Westerman
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Phillip
      B. Simons
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Robert
      A. Vannucci
                          
                          
                          30,000
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          2.5625
                          
                          
                          4/25/10
                          1
                          
                          
                          24,000
                          3
                          
                          $
                          72,000
                          4
                          
                          
                          -
                          
                          
                          
                          -60,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          2.45
                          
                          
                          5/14/12Tullio
      J. Marchionne
                          
                          
                          12,000
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          2.00
                          
                          
                          8/7/11
                          2
                          
                          
                          7,800
                          3
                          
                          $
                          23,400
                          4
                          
                          
                          -
                          
                          
                          
                          -12,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          2.45
                          
                          
                          5/14/12Mark
      B. Lefever
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -(resigned
      3/31/08)





1
            Mr.
      Vannucci was awarded 30,000 options on April 25, 2000 and 60,000 options
      on May 14, 2002.  The options expire on the ten-year
      anniversary of the date of grant.




2
            Mr.
      Marchionne was awarded 12,000 options on each of August 7, 2001 and May
      14, 2002.  The options expire on the ten-year anniversary of the
      date of grant.




3
            The
      reported number represents the non-vested portions of the April 6, 2005
      Restricted Stock Plan awards of 60,000 shares and 19,500 shares to Messrs.
      Vannucci and Marchionne, respectively (See “Stock Option Plans and Stock
      Grants”).  12,000 and 3,900 shares vested on March 10, 2009 for
      Messrs. Vannucci and Marchionne,
respectively.




4
            The
      December 31, 2008 reported closing price of our Common Stock on NYSE Amex
      was $3.00 per share.




Stock Option Exercises and
Stock Vesting




The
following table provides information regarding exercises of options and vesting
of restricted stock held by the Named Executive Officers during
2008.


77


OPTION
EXERCISES AND STOCK VESTED




Option
      Awards
                        
                        
                        Stock
      AwardsName
                        
                        Number
      of
                          Shares
                          Acquired
                          on
                          Exercise
                          (#)
                        
                        
                        Value
                          Realized
                          on
                          Exercise
                          ($)
                        
                        
                        Number
      of Shares
                          Acquired
                          on
                          Vesting
                          (#)
                        
                        
                        Value
                          Realized
                          on
                          Vesting
                          ($)William
      L. Westerman
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Phillip
      B. Simons
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Robert
      A. Vannucci
                        
                        
                        30,000
                        
                        
                        $
                        581,600
                        1
                        
                        
                        12,000
                        3
                        
                        $
                        240,360
                        4Tullio
      J. Marchionne
                        
                        
                        12,000
                        
                        
                        $
                        231,450
                        2
                        
                        
                        3,900
                        3
                        
                        $
                        78,117
                        4Mark
      B. Lefever (resigned 3/31/08)
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -




1
            As
      determined by the exercise price of $2.3333 per share and the reported
      closing price of $21.72 per share of the Common Stock on NYSE Amex on the
      exercise date of March 11, 2008.




2
            As
      determined by the exercise price of $2.5625 per share and the reported
      closing price of $21.85 per share of the Common Stock on NYSE Amex on the
      exercise date of March 26, 2008.




3
            Vesting
      of restricted stock awarded on April 6, 2005 (See “Stock Option Plans and
      Stock Grants”).




4
            As
      determined by the reported closing price of $20.03 per share of the Common
      Stock on AMEX on the vesting date of March 10,
  2008.




Pension
Benefits




The
following table provides information regarding Mr. Westerman’s retirement
account.  No other Named Executive Officers have a retirement account
or pension plan with us.




For
further information regarding Mr. Westerman’s retirement account, see “Further
Information Concerning Summary Compensation Table and Grants of Plan-Based
Awards Tables-Employment Agreements” above.


78


PENSION
BENEFITS




Name
                    
                    Plan
                      Name
                    
                    
                    Number
                      of
      Years
                      Credited
                      Service
                      (#)
                    
                    
                    Present
                      Value
      of
                      Accumulated
                      Benefit
                      ($)
                    
                    
                    Payments
                      During
                      Last
                      Fiscal
                      Year
                      ($)William
      L. Westerman
                    
                    CEO
      Retirement Account
                    
                    
                    
                    16
                    
                    
                    $
                    1,028,000
                    
                    
                    $
                    1,170,000
                    1Phillip
      B. Simons
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Robert
      A. Vannucci
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Tullio
      J. Marchionne
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Mark
      B. Lefever (resigned 3/31/08)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -





1.
            In
      order to gradually reduce our obligation to Mr. Westerman, we and
      Mr. Westerman agreed that the following cash payments would be made
      to him commencing April 1, 2003, and continuing on the first day of each
      quarter thereafter:  (1) a distribution of $250,000 from the
      principal balance of his retirement account; and (2) the quarterly
      interest credited to his retirement account one quarter in
      arrears.




Nonqualified Deferred
Compensation




There
were no individuals who had DCP balance.  We make no contributions to
the DCP on behalf of participants.




DCP
accounts are held in a Rabbi Trust and the funds in those accounts are invested
in Common Stock.  Shares of Common Stock that are held through the DCP
(the “DCP Shares”) are fully vested when purchased.




We
reported no earnings on the DCP account balances in 2008 because there were no
account balances in the DCP in 2008.


79


Post
Termination and Change in Control Arrangements




Salary
Continuation Agreements




We have
salary continuation agreements, effective through December 31, 2009, with
Messrs. Westerman, Marchionne and Simons (as well as with approximately 65
other key employees and officers excluding Mr. Vannucci).  The salary
continuation agreements with Messrs. Westerman and Marchionne entitles each of
them to 24 months of base salary, payable in bi-weekly installments, and 24
months of health insurance benefits in the event their employment with the
Company is terminated without cause within 24 months after a change in control
of the Company, as defined in the salary continuation agreement.  Any
continued payments made to Mr Westerman pursuant to his employment agreement
shall be applied so as to reduce payments to which he would be entitled under
the salary continuation agreement.  The salary continuation agreement
with Mr. Simons entitles Mr. Simons to 12 months of base salary and 24 months of
health insurance benefits in the event his employment with the Company is
terminated within 24 months after a change in control of the
Company.  This payment obligation of the Company would not be subject
to a duty on the part of Messrs. Westerman, Marchionne or Simons to
mitigate by obtaining other employment.  If this payment obligation
was triggered on December 31, 2008, Messrs. Westerman, Marchionne and Simons
would be entitled to payments and benefits from us of approximately
$1,530,000, $530,000 and $205,000 respectively.  During the period
that Messrs. Westerman, Marchionne or Simons receive the base salary
payments, as the case may be, he must not hire or solicit for employment any of
our then-current employees.




Compensation
of Directors




In 2008,
Mr. DiVito was paid $75,000 in fees for services as a director and as
Chairman of our Audit Committee, consisting of a $50,000 annual fee for services
as a director and $25,000 for services as Chairman of our Audit Committee; Mr.
Harvey was paid $62,000 in fees for services as a director and as Chairman of
our Compensation Committee and Chairman of our Nominating and Governance
Committee, consisting of a $50,000 annual fee for services as a director,
$10,000 for services as Chairman of our Compensation Committee (pro-rated in
2008 from the date of Mr. Harvey’s appointment as Chairman of our Compensation
Committee on August 12, 2008) and $2,000 for services as Chairman of our
Nominating and Governance Committee and Mr. Land was paid an annual fee of
$50,000 for services as a director of the Company.  In addition to the
annual fees, each director, except Mr. Westerman, receives a meeting fee
(“Meeting Fee”) in the amount of $1,000 for each board and committee meeting
attended except that the chairman of a committee shall not receive a Meeting Fee
for attending his own committee meeting.  They are each also
reimbursed for expenses incurred in connection with attendance at meetings of
our Board of Directors and committee meetings.




Mr.
Westerman is our only director who is also employed by us, and he receives no
extra compensation for serving as a director.  We have reported for
Mr. Westerman’s compensation as a Named Executive Officer in the Summary
Compensation Table.




In 1996,
we adopted a Nonqualified Stock Option Plan for Non Employee Directors (the
“1996 Plan”), which expired in 2003.  Under the 1996 Plan, each
individual elected, re-elected or continuing as a non-employee director would
automatically receive options for 6,000 shares of Common Stock (as adjusted for
the 2005 stock split), with an exercise price equal to the fair market value of
the Common Stock on the date of grant.  In 2004, before it was
determined that the 1996 Plan had expired, we attempted to grant options to
non-employee directors for a total of 30,000 shares.  Because of the
prior expiration of the 1996 Plan, though, those options were null and
void.  At our 2005 annual meeting, Stockholders approved the issuance
of 30,000 shares of Common Stock to the non-employee directors as substitute
compensation for those options.  Messrs Silver, Harvey and DiVito each
received 6,000 shares and Mr. Land received 12,000 shares.  Those
shares are subject to restrictions on resales, assignments, pledges,
encumbrances or other transfers prior to vesting.  The shares vest at
the rate of 20% per year on each anniversary of the grant
date.  However, accelerated vesting of all of the shares will occur
upon death, disability, a change in control of the Company or under any other
termination of directorship status, except resignation prior to reaching age 62
or declining to stand for reelection prior to reaching age 62 (which would
result in forfeiture of the non-vested shares).  Mr. Silver had
attained the age of 62 prior to his resignation from our Board on February 23,
2009 resulting in the accelerated vesting of his remaining 2,400 of these
shares.


80


Also at
the 2005 annual meeting, Stockholders approved our 2005 Stock Option Plan for
Non-Employee Directors (the “Director Plan”).  The Director Plan
provides that on each anniversary of the effective date of the Director Plan,
each individual elected, re-elected or continuing as a non-employee director
will receive a nonqualified stock option for 6,000 shares with an exercise price
equal to the fair market value of the Common Stock on the date of
grant.  These options vest at the rate of 20% per year commencing on
the first anniversary of the grant.




Upon
becoming a director, Mr. Harvey was granted options to purchase 6,000 shares at
$2.20 per share on May 18, 2001. Mr. Harvey was subsequently granted options to
purchase 6,000 shares at $2.58 per share on May 10, 2002, options to purchase
6,000 shares at $1.87 per share on May 12, 2003, options to purchase 6,000
shares at $21.60 per share on May 22, 2006, options to purchase 6,000 shares at
$36.56 per share on May 17, 2007 and options to purchase 6,000 shares at $15.35
per share on May 19, 2008.




Upon
becoming a director, Mr. DiVito was granted options to purchase 6,000 shares at
$1.87 per share on July 12, 2002. Mr. DiVito was subsequently granted options to
purchase 6,000 shares at $1.87 per share on May 12, 2003, options to purchase
6,000 shares at $21.60 per share on May 22, 2006, options to purchase 6,000
shares at $36.56 per share on May 17, 2007 and options to purchase 6,000 shares
at $15.35 per share on May 19, 2008.




Mr. Land
was granted options to purchase 6,000 shares at $21.60 per share on May 22,
2006, options to purchase 6,000 shares at $36.56 per share on May 17, 2007 and
options to purchase 6,000 shares at $15.35 per share on May 19,
2008.




Upon
becoming a director and prior to his resignation from our Board on February 23,
2009, Mr. Silver was granted options to purchase 6,000 shares at $2.35 per share
on February 26, 2001. Mr. Silver was subsequently granted options to purchase
6,000 shares at $2.18 per share on May 10, 2001, options to purchase 6,000
shares at $2.58 per share on May 10, 2002, options to purchase 6,000 shares at
$1.87 per share on May 12, 2003, options to purchase 6,000 shares at $21.60 per
share on May 22, 2006, options to purchase 6,000 shares at $36.56 per share on
May 17, 2007 and options to purchase 6,000 shares at $15.35 per share on May 19,
2008.




On
December 30, 2005, in order to avoid expensing of the unvested portion of
previously awarded options under FAS 123R, which became effective January 1,
2006, we accelerated the vesting of options granted under the 1996 Plan,
allowing all such options to become fully vested effective December 30,
2005.  In order to prevent unintended personal benefits to the
directors affected by this acceleration, we imposed a condition that each
affected director agrees not to exercise any options subject to the acceleration
until such time that those options would have become vested under the prior
vesting schedule.  All of the options subject to this accelerated
vesting would have now become vested under their prior vesting schedules.




We have a
Stock Compensation Plan, under which directors who are members of the Committee
have the right to receive all or part of their annual fees in the form of Common
Stock having a fair market value equal to the amount of their fees. Of the
50,000 shares that are allocated to this plan, 46,020 remain available for
issuance and none were issued in 2008.


81


DIRECTOR
COMPENSATION




Name
                      
                      Fees
                        Earned or
                        Paid in
                        Cash
                        ($)
                      
                      
                      Stock
                        Awards
                        ($)
                      
                      
                      Option
                        Awards
                        ($)
                      
                      
                      Non-Equity
                        Incentive Plan
                        Compensation
                        ($)
                      
                      
                      Change in
                        Pension Value
                        and
                        Nonqualified
                        Deferred
                        Compensation
                        Earnings
                      
                      
                      All Other
                        Compensation
                        ($)
                      
                      
                      Total
                        ($)Jeffrey
      A. Silver
                      
                      $
                      65,000
                      1,
      2
                      
                      $
                      22,680
                      3
                      
                      $
                      42,286
                      4,5
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      129,966(resigned
      February 23, 2009)Paul
      A. Harvey
                      
                      $
                      73,000
                      1,
      2
                      
                      $
                      22,680
                      3
                      
                      $
                      42,286
                      4,5
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      137,966Vincent
      L. DiVito
                      
                      $
                      89,000
                      1,
      2
                      
                      $
                      22,680
                      3
                      
                      $
                      65,074
                      4,5
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      176,754James
      N. Land, Jr.
                      
                      $
                      70,000
                      1,
      2
                      
                      $
                      45,360
                      3
                      
                      $
                      42,286
                      4,5
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      157,646William L.
      Westerman6
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -




1
            In
      addition to the amounts reported the Director Compensation table above,
      the following cash fees were earned in 2007, but paid in 2008: for Messrs.
      Silver and Harvey, $4,500; for Mr. DiVito, $4,000 and for Mr. Land,
      $3,000.




2
            The
      reported amounts represent the aggregate of the $50,000 fee earned for
      services as a director, fees earned as chairman of one or more of our
      committees and Meeting Fees.




3
            The
      reported amounts are what we recognized for financial statement reporting
      purposes with respect to 2008, in accordance with FAS 123R, for the
      restricted shares that we granted in 2005 in substitution for stock
      options, as explained above. We included these amounts in the “Equity
      compensation” line item in our Consolidated Statement of Operations for
      the year ended December 31, 2008, which is included in the financial
      statements of our Form 10-K for the year ended December 31,
      2008.  Please refer to notes 1 and 14 to those financial
      statements for further information regarding our calculation of these
      amounts.  Our calculations were based on the $15.19 per share
      reported closing price of the Common Stock on NYSE Amex (formerly AMEX) on
      May 27, 2008, the date when 20% of those restricted shares became
      vested.  1,200 of the restricted shares became vested for each
      of Messrs. Silver, Harvey and DiVito and 2,400 shares became vested for
      Mr. Land.




4
            The
      reported amounts are what we recognized for financial statement reporting
      purposes with respect to 2008, in accordance with FAS 123R, for stock
      options that we granted. We included these amounts in the “Equity
      compensation” line item in our Consolidated Statement of Operations for
      the year ended December 31, 2008, which is included in the financial
      statements of our Form 10-K for the year ended December 31,
      2008.  Please refer to notes 1 and 14 to those financial
      statements for further information regarding our calculation of these
      amounts.  Ours calculations were based on the Black-Scholes
      method of options valuation.




82


5
            The
      May 17, 2008 fair value of the options for 6,000 shares that we granted to
      each of Messrs. Silver, Harvey, DiVito and Land, calculated in accordance
      with FAS 123R, was $20,700, $20,700, $59,955 and $20,700 This calculation
      was based on the Black-Scholes method of options
  valuation.




6
            Mr.
      Westerman is our only director who is also employed by us, and he receives
      no extra compensation for serving as a director.  Mr.
      Westerman’s compensation as a Named Executive Officer is in the Summary
      Compensation Table.




Compensation
Committee Interlocks and Insider Participation




There are
no Compensation Committee interlocks and insider participation.




Compensation
Committee Report




The following report of the
Compensation Committee shall not be deemed “soliciting material” or “filed” with
the SEC, norshallthe
information in the report be incorporated by reference into any future filings
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that we specifically incorporate it by reference in a
filing.




The
Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis contained in this proxy statement. 
Based on such review and discussions, the Compensation Committee recommended to
the Board of Directors that the Compensation Discussion and Analysis be included
in this proxy statement.




Date:
March 23, 2009




Paul
      A. Harvey
                ChairmanVincent
      L. DiVito
                MemberJames
      N. Land, Jr.
                Member





Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters




STOCK
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS


AND
MANAGEMENT




The
following table contains information regarding the beneficial ownership of
Common Stock, as of March 30, 2009, by (i) each of our directors and each of our
Named Executive Officers, (ii) all of our directors and executive
officers as a group and (iii) each person who, to our knowledge, beneficially
owns more than 5% of the outstanding Common Stock (based on reports filed with
the SEC under section 13(d) or 13(g) of the Exchange Act or information
furnished to us).  The percentage of outstanding Common Stock
represented by each named person’s stock ownership assumes the exercise by such
person of all of his stock options that are exercisable within 60 days of
March 30, 2009, but does not assume the exercise of stock options by any other
persons.  The percentage of outstanding Common Stock represented by
the stock ownership of all of our directors and executive officers as a group
assumes the exercise by all members of that group of their respective stock
options that are exercisable within 60 days of March 30, 2009, but does not
assume the exercise of options by any persons outside of that
group.  Except as indicated in the footnotes to the table, each person
listed below has sole voting and investment power with respect to the shares set
forth opposite such person’s name.


83





Shares Beneficially OwnedName
                            
                            Number
                            
                            
                            PercentageDirectors and Executive
      Officers:William
      L. Westerman(1)(2)
                            
                            
                            4,421
                            
                            
                            
                            *Paul
      A. Harvey(1)(3)
                            
                            
                            31,200
                            
                            
                            
                            *Vincent
      L. DiVito(1)(4)
                            
                            
                            28,200
                            
                            
                            
                            *James
      N. Land, Jr. (1)(5)
                            
                            
                            23,200
                            
                            
                            
                            *Robert
      A. Vannucci (1)(6)
                            
                            
                            248,410
                            
                            
                            
                            2.0
                            %Tullio
      J. Marchionne(1)(7)
                            
                            
                            56,364
                            
                            
                            
                            *Phillip
      Simons(1)
                            
                            
                            0
                            
                            
                            
                            *All
      directors and executive officers as a group(8)
                            
                            
                            391,795
                            
                            
                            
                            3.1
                            %Beneficial Owners of More Than 5% of Common Stock:D.E.
      Shaw & Co., L.P. and related parties(9)
                            
                            
                            1,194,500
                            
                            
                            
                            9.6
                            %Plainfield
      Special Situations Master Fund Limited and related parties(10)
                            
                            
                            1,874,783
                            
                            
                            
                            15.0
                            %Desert
      Rock Enterprises LLC, the Derek J. Stevens Trust and the Gregory J.
      Stevens Trust(11)
                            
                            
                            1,874,783
                            
                            
                            
                            15.0
                            %Wayzata
      Investment Partners LLC(12)
                            
                            
                            1,004,000
                            
                            
                            
                            8.0
                            %Barry
      Sternlicht and related parties (collectively,
      the “Sternlicht/Starwood Parties”)(13)
                            
                            
                            1,016,970
                            
                            
                            
                            8.2
                            %







*
            Less
      than 1%.




1.
            The
      address for each director and executive officer is c/o Riviera Holdings
      Corporation, 2901 Las Vegas Boulevard South, Las Vegas, Nevada
      89109.




2.
            Includes
      3,065 shares held through the ESOP.




3.
            Includes
      25,200 shares which may be acquired within 60 days of March 30, 2009, upon
      the exercise of outstanding
options.




4.
            Includes
      19,200 shares which may be acquired within 60 days of March 30, 2009, upon
      the exercise of outstanding
options.




5.
            Includes
      7,200 shares which may be acquired within 60 days of March 30, 2009, upon
      the exercise of outstanding
options.




6.
            Includes
      90,000 shares which may be acquired within 60 days of March 30, 2009, upon
      the exercise of outstanding options and 5,189 shares held through the
      ESOP.




7.
            Includes
      24,000shares
      which may be acquired within 60 days of March 30, 2009, upon the exercise
      of outstanding options and 2,964 shares held through the
    ESOP.




8.
            Includes
      a total of 165,600 shares which may be acquired by directors and executive
      officers as a group within 60 days of March 30, 2009 upon the exercise of
      outstanding options and 11,218 shares held through the
    ESOP.




84


9.
            D. E. Shaw
      & Co., Inc. (“DESCO”), which is the general partner of
      D. E. Shaw & Co., L.P. (“DESCO LP”), which in turn is the
      investment adviser of D. E. Shaw Laminar Portfolios, L.L.C. (“Laminar”),
      and by virtue of David E. Shaw’s position as President and sole
      shareholder of D. E. Shaw & Co. II, Inc., which is the
      managing member of D. E. Shaw & Co., L.L.C., which in turn
      is the managing member of Laminar, David E. Shaw may be deemed
      to have the shared power to vote or direct the vote of, and the shared
      power to dispose or direct the disposition of, the 1,194,500 held in the
      name of Laminar and, therefore, David E. Shaw may be deemed to be the
      beneficial owner of such shares. David E. Shaw disclaims beneficial
      ownership of such 1,194,500 shares.  David E. Shaw is the
      President and sole shareholder of DESCO.  The address of
      Laminar, DESCO LLC, DESCO LP and Mr. Shaw is 120 W. 54th Street,
      Tower 45, 39th Floor, New York, NY 10036. This information is based on
      information reported by Laminar, DESCO LP, DESCO LLC and Mr. Shaw in a
      Schedule 13G amendment filed with the SEC on February 14,
      2008.




10.
            Plainfield
      Asset Management LLC (“Asset Management”) is the Manager of Plainfield
      Special Situations Master Fund Limited (“Master Fund”), which holds
      1,874,783 shares.  Max Holmes, as managing member and the chief
      investment officer of Asset Management, may be deemed to have the shared
      power to vote or direct the vote of (and the shared power to dispose or
      direct the disposition of) the Master Fund Shares.  None of
      Asset Management or Max Holmes owns any common shares directly, and each
      disclaims beneficial ownership of the shares held by the Master
      Fund.  The address of Master Fund, Asset Management and Mr.
      Holmes is 55 Railroad Avenue, Greenwich, CT 06830.  This
      information is based on information reported by the above parties in a
      Schedule 13D and amendments thereto filed with the SEC through February
      12, 2009.  See risk factor “There Are Requirements and
      Limitations On Changes In Control Of Our Company That Could Reduce The
      Ability To Sell Our Shares In Excess Of Current Market Prices”beginning on page __ for information regarding the Investment
      Agreement, dated  November 19, 2008, entered into with Master
      Fund, relating, among other things, to the acquisition of our common
      stock.




11.
            The
      stock ownership reported in the table is comprised of 1,617,783 shares
      held by Desert Rock Enterprises, LLC (“Desert Rock”); 167,000 shares held
      by the Derek J. Stevens Trust under agreement dated July 16, 1993
      (the “DJS Trust”); and 90,000 shares held by the Gregory J. Stevens Trust
      under agreement dated September 20, 1995 (the “GJS
      Trust”).  The DJS Trust and the GJS Trust are members of Desert
      Rock.  Derek J. Stevens is the Manager of Desert Rock and
      trustee of the DJS Trust, and he may be deemed to have shared voting and
      investment power over the shares held by Desert Rock or the DJS
      Trust.  Gregory J. Stevens is trustee of the GJS Trust and he
      may be deemed to have shared voting and investment power over the shares
      held by Desert Rock or the GJS Trust.  The address of Desert
      Rock is 3960 Howard Hughes Parkway, Suite 562, Las Vegas, NV
      89109.  The address of Derek J. Stevens, the DJS Trust, Gregory
      J. Stevens and the GJS Trust is 21777 Hoover Road, Warren, MI
      48089.  This information is based on information reported by the
      above parties in a Schedule 13D and amendments thereto filed with the SEC
      through February 23, 2009.   See risk factor “There Are Requirements and
      Limitations On Changes In Control Of Our Company That Could Reduce The
      Ability To Sell Our Shares In Excess Of Current Market Prices”beginning on page __ for information regarding the Investment
      Agreement, dated  November 19, 2008, entered into with Desert
      Rock, relating, among other things, to the acquisition of our common
      stock.




12.
            Based
      on information filed in a Schedule 13G with the SEC on January 23, 2009,
      the stock ownership reported in the table is comprised of 1,004,000 shares
      beneficially owned by Wayzata Investment Partners LLC (“Wayzata LLC”) and
      Patrick J. Halloran.  Wayzata LLC serves as investment adviser
      to Wayzata Opportunities Fund, LLC and Wayzata Opportunities Fund
      Offshore, L.P., (collectively, the “Wayzata Funds”), with respect to the
      common shares directly owned by the Wayzata Funds.  Patrick J.
      Halloran is the managing member of the Wayzata LLC. The address of Wayzata
      LLC and Patrick J. Halloran is 701 East Lake Street, Suite 300, Wayzata,
      MN 55391.




85


13.
            The
      following is based on information reported in a Schedule 13D and
      amendments thereto filed with the SEC, through December 11, 2008 by the
      Sternlicht/Starwood Parties.  The Sternlicht/Starwood Parties
      consist of Rivacq LLC; SOF U.S. Hotel Co-Invest Holdings, L.L.C.; SOF-VII
      U.S. Hotel Holdings, L.L.C.; I-1/I-2 U.S. Holdings, L.L.C.; Starwood
      Global Opportunity Fund VII-A, L.P.; Starwood Global Opportunity Fund
      VII-B, L.P.; Starwood U.S. Opportunity Fund VII-D, L.P.; Starwood U.S.
      Opportunity Fund VII-D2, L.P.; Starwood Capital Hospitality Fund I-1,
      L.P.; Starwood Capital Hospitality Fund I-2, L.P.; SOF-VII Management,
      L.L.C.; SCG Hotel Management, L.L.C.; Starwood Capital Group Global, LLC;
      and Barry Sternlicht.  Each of the Sternlicht/Starwood Parties
      is a beneficial owner of 893,770 shares except for Barry Sternlicht, who
      beneficially owns 1,016,970 shares.  Voting and investment power
      over 893,770 of the shares is shared among the Sternlicht/Starwood
      Parties.  Voting and investment power over 123,200 of the shares
      is held solely by Barry Sternlicht.  The address of the
      Sternlicht/Starwood Parties except Rivacq LLC is 591 W. Putnam Ave.,
      Greenwich, CT 06830.  The address of Rivacq LLC is One World
      Financial Center, New York, NY
10281.




Item
      13.
            Certain
      Relationships and Related Transactions and Director
      Independence




Transactions with Related
Persons




Jeffrey
A. Silver, a former director who resigned from our Board on February 23, 2009,
is a shareholder in the law firm of Gordon & Silver, Ltd., which we retained
for various legal matters during our last fiscal year.  During 2008,
we paid approximately $5,000 to Gordon & Silver, Ltd. for legal fees and
related expenses.




Please
see the “Stock Ownership of Certain Beneficial Owners and Management” section of
this proxy statement for information concerning the beneficial ownership of
Common Stock as of March 30, 2009 by Plainfield Special Situations Master Fund
Limited and related parties and Desert Rock Enterprises LLC, the Derek J.
Stevens Trust and the Gregory J. Stevens Trust.




Other
than as noted above, there were no reportable relationships or transactions for
2008.




Although
not in writing, our Board of Directors engages in discussions regarding related
party transactions reflecting our Board’s understanding of policies and
procedures which gives our Board the power to approve or disapprove potential
related party transactions of our directors and executive officers, their
immediate family members and entities where they hold a 5% or greater beneficial
ownership interest. Our Board is charged with reviewing all relevant facts and
circumstances of a related party transaction, including if the transaction is on
terms comparable to those that could be obtained in arm’s length dealings with
an unrelated third party and the extent of the related party’s interest in the
transaction.




Director
Independence




We have
adopted Corporate Governance Guidelines and a Code of Conduct applicable to each
of our directors, officers and employees.  Our Corporate Governance
Guidelines and Code of Conduct are posted on our Internet website at
www.rivierahotel.com under the “Investor Relations” link on our home
page.  The non-management members of our Board of Directors regularly
meet in executive sessions in conjunction with each regularly scheduled meeting
of the Board.


86


A
majority of our directors are independent directors, based on NYSE Amex
standards that apply to us. Our Board of Directors determines whether a director
is independent through a broad consideration of all relevant facts and
circumstances, including an assessment of the materiality of any relationship
between the Company and a director not merely from the director’s standpoint,
but also from the standpoint of persons or organizations with which the director
has an affiliation. In making its determination, our Board of Directors adheres
to the standards of the SEC and NYSE Amex.




Using
these standards, and based upon information requested from and provided by each
director concerning his background, employment and affiliations, including
family relationships, our Board of Directors has affirmatively determined that
Messrs. Harvey, DiVito and Land do not have a material relationship with the
Company (either directly or as a partner, shareholder or officer of an
organization that has a relationship with the Company) and therefore they each
qualify as independent directors.  Mr. Westerman, an executive
officer of the Company, has not been determined to be independent.




Our Board
of Directors committees include standing Audit and Compensation
Committees.




Our Audit
Committee is comprised of three members, each whom we have determined to be
independent, based on NYSE Amex standards that apply to us.  Our Board
of Directors has determined that Mr. DiVito, Chairman of the Audit
Committee, is an “audit committee financial expert” as defined by the
rules and regulations of the SEC.




Our
Compensation Committee is comprised of three members, each of whom we have
determined to be independent based on NYSE Amex standards that apply to
us.




Our
Nominating and Governance Committee is comprised of three members, each of whom
we have determined to be independent based on NYSE Amex standards that apply to
us. See “Nominating and Governance Committee” below for further
information.




Item
      14.
            Principal
      Accounting Fees and Services




Audit
Fees




We were
billed by our principal accountants, namely Ernst & Young, a total of
$500,700 for fiscal year 2008, and Deloitte & Touche LLP, the member firms
of Deloitte Touche, Tohmatsu and their respective affiliates (collectively
"Deloitte"), a total of $602,000 for fiscal year 2007 for each of their audits
of our annual consolidated financial statements, their reviews of our
consolidated financial statements in our quarterly reports on Form 10 Q and
Sarbanes-Oxley Act compliance for the respective years.




Audit-Related
Fees




We
were not billed by Ernst & Young in 2008 for audit-related fees that
are not reported above in "Audit Fees".  We were not billed by
Deloitte in 2007 for audit-related fees that are not reported above in "Audit
Fees."




Tax Fees




We were
billed by Ernst & Young $47,609 in 2008 and by Deloitte $69,618 in 2007 for
tax advice or tax planning services.


87


All Other
Fees




We were
not billed by either Ernst & Young or Deloitte for other professional
services in fiscal years 2008 and 2007, respectively.




PART
IV




Item
      15.
            Exhibits,
      Financial Statement Schedules




(a)(1)
            List
      of Financial Statements




The
following is the list of Registered Public Accounting Firm’s Reports and the
consolidated Financial Statements of the Company:




·
            Report
      of Independent Registered Public Accounting Firm on Internal Control Over
      Financial Reporting




·
            Report
      of Independent Registered Public Accounting Firm on the Consolidated
      Financial Statements for the Year Ended December 31,
  2008




·
            Report
      of Independent Registered Public Accounting Firm on the Consolidated
      Financial Statements for the Year Ended December 31,
  2007




·
            Consolidated
      Balance Sheets as of December 31, 2008 and
2007




·
            Consolidated
      Statements of Operations for the Years Ended December 31, 2008, 2007 and
      2006




·
            Consolidated
      Statements of Stockholders’ Deficit for the Years Ended December 31, 2008,
      2007, and 2006




·
            Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and
      2006




·
            Notes
      to Consolidated Financial
Statements




(a)(2)
            List
      of Financial Statement Schedules




No
financial statement schedules have been filed herewith since they are either not
required, are not applicable, or the required information is shown in the
consolidated financial statements or related notes.




(a)(3)
            List
      of Exhibits




Exhibits
required by Item 601 of Regulation S-K are listed in the Exhibit Index herein,
which information is incorporated herein by reference, and such exhibits are
filed herewith.




(b)
            The
      exhibits required by Item 601 of Regulation S-K are filed as exhibits to
      this Form 10-K.




(c)
            Not
      applicable.




88


SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




March
      31, 2009
              RIVIERA
      HOLDINGS CORPORATIONBy:
              /s/  WILLIAM L.
      WESTERMANWilliam
      L. WestermanChief
      Executive Officer and President(Principal
      Executive Officer)




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




Signature
                                
                                Title
                                
                                Date/s/ WILLIAM L. WESTERMAN
                                
                                Chairman
      of the Board, Chief
                                
                                March
      31, 2009William
      L. Westerman
                                
                                Executive
      Officer and President/s/ PHILLIP B. SIMONS
                                
                                Treasurer
      (Principal Financial
                                
                                March
      31, 2009Phillip
      S. Simons
                                
                                and
      Accounting Officer)/s/ JEFFREY A. SILVER
                                
                                Director
                                
                                March
      31, 2009Jeffrey
      A. Silver/s/ PAUL A. HARVEY
                                
                                Director
                                
                                March
      31, 2009Paul
      A. Harvey/s/ VINCENT L. DIVITO
                                
                                Director
                                
                                March
      31, 2009Vincent
      L. DiVito/s/ JAMES N. LAND, JR.
                                
                                Director
                                
                                March
      31, 2009James
      N. Land, Jr.





89




EXHIBIT
INDEX


Exhibit
                  Number
                
                Description3.1*
                
                Articles
      of Incorporation of the Company (see Exhibit 3 to Quarterly Report on Form
      10-Q filed on November 10, 2003, Commission File No.
    0-21430)3.2*
                
                Bylaws
      of the Company (see Exhibit 3.1 to Form 10-Q filed on November 9, 2007,
      Commission File No. 0-21430)3.3*
                
                Amendment
      to the Company Bylaws (see Exhibit 3.1 to Form 8-K filed on August 18,
      2008. Commission File No. 0-21430)3.4*
                
                Articles
      of Incorporation of Riviera Operating Corporation (see Exhibit 3.3 to
      Registration Statement on Form S-4 filed on September 10, 1997,
      Commission File No. 0-21430)3.5*
                
                Bylaws
      of Riviera Operating Corporation (see Exhibit 3.4 to Registration
      Statement on Form S-4 filed on September 10, 1997, Commission File
      No. 0-21430)3.6*
                
                Articles
      of Incorporation of Riviera Gaming Management, Inc. (see Exhibit 3.5 to
      Registration Statement on Form S-4 filed on September 10, 1997,
      Commission File No. 0-21430)3.7*
                
                Bylaws
      of Riviera Gaming Management, Inc. (see Exhibit 3.6 to Registration
      Statement on Form S-4 filed on September 10, 1997, Commission File
      No. 0-21430)3.8*
                
                Articles
      of Incorporation of Riviera Black Hawk, Inc. (see Exhibits 3.01 and 3.02
      to Amendment No. 1 to Registration Statement on Form S-4 filed by Riviera
      Black Hawk, Inc. on August 31, 1999, Commission File No.
      333-81613)3.9*
                
                Bylaws
      of Riviera Black Hawk, Inc. (see Exhibit 3.03 to Amendment No. 1 to
      Registration Statement on Form S-4 filed by Riviera Black Hawk, Inc. on
      August 31, 1999, Commission File No. 333-81613).10.1*
                
                Indemnity
      Agreement, dated June 30, 1993, from Riviera, Inc. and Meshulam Riklis in
      favor of the Company and Riviera Operating Corporation (see Exhibit 10.7
      to Registration Statement on  Form S-1 filed on August 11, 1993,
      Commission File No. 33-67206)10.2*
                
                Equity
      Registration Rights Agreement dated June 30, 1993, among the Company and
      the Holders of Registerable Shares (see Exhibit 10.9 to Registration
      Statement on Form S-1 filed on August 11, 1993, Commission File No.
      33-67206)10.3*
                
                Operating
      Agreement dated June 30, 1993, between the Company and Riviera Operating
      Corporation (see Exhibit 10.15 to Registration Statement on Form S-1 filed
      on August 11, 1993, Commission File No. 33-67206)10.4*
                
                Adoption
      Agreement regarding Profit Sharing and 401(k) Plans of the Company (see
      Exhibit 10.16 to Registration Statement on Form S-1 filed on August
      11, 1993, Commission File No. 33-67206)10.5*
                
                Tax
      Sharing Agreement between the Company and Riviera Operating Corporation
      dated June 30, 1993 (see Exhibit 10.24 to Amendment No. 1 to
      Registration Statement on Form S-1 filed on August 19, 1993,
      Commission File No.
33-67206)
  90
 
 10.6*
                
                Tax
      Sharing Agreement between the Company and Riviera Black Hawk, Inc.
      dated  March 31, 1999 (see Exhibit 10.12 to Registration
      Statement on Form S-4 filed on August 9, 2002, Commission File No.
      333-97907)10.7*(A)
                
                1993
      Stock Option Plan (see Exhibit 4.4 to Registration Statement on Form S-8
      filed on May 13, 1996, Commission File No.
  333-03631)10.8*(A)
                
                Stock
      Compensation Plan for Directors Serving on the Compensation Committee (see
      Exhibit 10.14 to Registration Statement on Form S-4 filed on August
      9, 2002, Commission File No. 333-97907)10.9*(A)
                
                Employment
      Agreement dated as of November 21, 1996 among the Company, Riviera
      Operating Corporation and William L. Westerman (see Exhibit 10.31 to Form
      10-K for the fiscal year ended December 31, 1996, Commission File No.
      0-21430)10.10*(A)
                
                Amendment
      to Employment Agreement between the Company and William L. Westerman
      effective January 1, 2001 (see Exhibit 10.40 to Form 10-K filed March 23,
      2001, Commission File No. 0-21430)10.11*(A)
                
                Deferred
      Compensation Plan dated November 1, 2000 (see Exhibit 10.19 to Form 10-K
      filed March 25, 2005, Commission File No. 0-21430)10.12*(A)
                
                Restricted
      Stock Plan (see Exhibit 10.20 to Form 10-K filed March 25, 2005,
      Commission File No. 0-21430)10.13*(A)
                
                Non-Qualified
      Stock Option Plan for Non-Employee Directors (see Exhibit 4.6 to
      Registration Statement on Form S-8 filed on May 13, 1996, Commission File
      No. 333-03631)10.14*(A)
                
                Second
      Amendment to Employment Agreement between the Company and William L.
      Westerman effective July 15, 2003 (see Exhibit 10.46 to Form 10-K filed on
      March 16, 2004, Commission File No. 0-21430)10.15*(A)
                
                Amendment
      of 1993 Stock Option Plan (see Exhibit 10.47 to Form 10-K filed on
      March 25, 2005, Commission File No. 0-21430)10.16*
                
                Purchase
      and License Agreement, dated September 25, 2003, between Bally Gaming,
      Inc. and Riviera Operating Corporation (see Exhibit 10.49 filed on March
      25, 2005, Commission File No. 0-21430)10.17*(A)
                
                2005
      Incentive Stock Option Plan (see Exhibit A To Schedule 14A filed on April
      22, 2005, Commission File No. 0-21430)10.18*(A)
                
                2005
      Non-Qualified Stock Option Plan for Non-Employee Directors (see Exhibit B
      to Schedule 14A filed on April 22, 2005, Commission File No.
      0-21430)10.19*(A)
                
                Incentive
      Compensation Program as amended August 3, 1995 (see Exhibit 10.51 to
      Form 10-K filed on March 15, 2006, Commission File No.
      0-21430.10.20*
      (A)
                
                Form
      of Restricted Stock Agreement under the Company’s Restricted Stock Plan
      (see Exhibit 10.52 to Form 10-K filed on March 15, 2006, Commission
      File No. 0-21430)10.21*
                
                Agreement
      and Plan of Merger, dated April 5, 2006, among Riv Acquisition Holdings
      Inc., Riv Acquisition Inc. and the Company (see Appendix A to revised
      definitive proxy materials on Schedule 14A filed on July 3, 2006,
      Commission File No. 0-21430)10.22*
      (A)
                
                Employment
      Agreement among Riviera Holdings Corporation, Riviera Operating
      Corporation and Robert A. Vannucci (see Exhibit 10.1 to Form 10-Q filed on
      November 6, 2006, Commission File No.
0-21430
  91
 
 10.23*
      (A)
                
                Forms
      of Salary Continuation Agreements with Riviera Operating Corporation and
      Riviera Black Hawk, Inc. dated May 15, 2007 (see Exhibit 10.1 to Form 10-Q
      filed on August 3, 2007, Commission File No. 0-21430)10.24*
                
                Credit
      Agreement, dated June 8, 2007, among the Company, the Company's restricted
      subsidiaries, Wachovia Bank, National Association and the Lenders that are
      parties thereto (see Exhibit 10.2 to Form 10-Q filed on August 3, 2007,
      Commission File No. 0-21430)10.25*
                
                Commitment
      letter agreement dated April 27, 2007 between the Company and Wachovia
      Bank, National Association and Wachovia Capital Markets, LLC. (see Exhibit
      10.3 to Form 10-Q filed on August 3, 2007, Commission File No.
      0-21430)10.26*
                
                Deed
      of Trust, Assignment of Leases, Rents, Security Agreement, and Fixture
      Filing dated June 8, 2007, executed by the Company in favor of First
      American Title Insurance Company as Trustee (see Exhibit 10.4 to Form 10-Q
      filed on August 3, 2007, Commission File No. 0-21430)10.27*
                
                Deed
      of Trust, Assignment of Leases, Rents, Security Agreement, and Fixture
      Filing dated June 8, 2007, executed by Riviera Black Hawk, Inc. in favor
      of The Public Trustee For Gilpin County, Colorado and Wachovia Bank,
      National Association (see Exhibit 10.5 to Form 10-Q filed on August 3,
      2007, Commission File No. 0-21430)10.28*
                
                Environmental
      Indemnity dated as of June 8, 2007 between the Company and Wachovia Bank,
      National Association (see Exhibit 10.6 to Form 10-Q filed on August 3,
      2007, Commission File No. 0-21430)10.29*
                
                Environmental
      Indemnity dated as of June 8, 2007, among the Company, Riviera Black Hawk,
      Inc. and Wachovia Bank, National Association (see Exhibit 10.7 to Form
      10-Q filed on August 3, 2007, Commission File No.
  0-21430)10.30*
                
                Credit
      Party Pledge Agreement, dated June 8, 2007, among the Company, the
      Company's restricted subsidiaries, Riviera Gaming  Management,
      Inc. and Wachovia Bank, National Association (see Exhibit 10.8 to Form
      10-Q filed on August 3, 2007, Commission File
      No. 0-21430)10.31*
                
                Gaming
      Pledge Agreement dated June 8, 2007, between the Company and Wachovia
      Bank, National Association (see Exhibit 10.9 to Form 10-Q filed on August
      3, 2007, Commission File No. 0-21430)10.32*
                
                Security
      Agreement, dated June 8, 2007, among the Company, the Company's restricted
      subsidiaries, Wachovia Bank, National Association and the Lenders that are
      parties thereto (see Exhibit 10.10 to Form 10-Q filed on August 3, 2007,
      Commission File No. 0-21430)10.33*
      (A)
                
                Third
      Amendment to Employment Agreement between the Company and William L.
      Westerman effective March 4, 2008 (see Exhibit 10.01 to Form 8-K filed on
      March 10, 2008. Commission File No. 0-21430)10.34*
                
                Material
      Definitive Agreement between the Company and Plainfield Special Situations
      Master Fund Limited (see Exhibit 10.1 to Form 8-K filed on November 19,
      2008. Commission File No. 0-21430)10.35*
                
                Material
      Definitive Agreement between the Company and Desert Rock Enterprises LLC
      (see Exhibit 10.2 to Form 8-K filed on November 19, 2008. Commission File
      No. 0-21430)10.36*
      (A)
                
                Forms
      of Salary Continuation Agreements with Riviera Operating Corporation and
      Riviera Black Hawk, Inc.  (see Exhibit 10.1 to Form 10-Q filed
      on November 10, 2008, Commission File No.
  0-21630)
  92
 
 16.1*
                
                Letter
      from Deloitte & Touche LLP, dated March 28, 2008 (see Exhibit 16 to
      Form 8-K/A filed April 8, 2008).21.1*
                
                Subsidiaries
      of the Company (see Exhibit 21.1 to Registration Statement on Form S-4
      filed with the Commission on August 9, 2002, Commission File No.
      333-97907)23.1
                
                Consent
      of Ernst & Young, LLP, Independent Registered Public Accounting
      Firm23.2
                
                Consent
      of Deloitte & Touche, LLP, Independent Registered Public Accounting
      Firm31.1
                
                Certification
      of the Principal Executive Officer of the Registrant pursuant to Exchange
      Act Rule 13a-14(a)31.2
                
                Certification
      of the Principal Financial Officer of the Registrant pursuant to Exchange
      Act Rule 13a-14(a)32.1
                
                Certification
      of the Principal Executive Officer of the Registrant pursuant to Exchange
      Act Rule 13a-14(b) and 18 USC. 135032.2
                
                Certification
      of the Principal Financial Officer of the Registrant pursuant to Exchange
      Act Rule 13a-14(b) and 18 USC.
1350
  *           These
are incorporated herein by reference as exhibits hereto.  Following
the description of each such exhibit is a reference to it as it appeared in a
specified document previously filed with the Securities and Exchange Commission,
to which there have been no amendments or changes, unless otherwise
indicated.
  (A)
Management contract or compensatory plan or arrangement
  93


RIVIERA
HOLDINGS CORPORATION




TABLE
OF CONTENTS





REPORTS
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM
      ON THE CONSOLIDATED FINANCIAL STATEMENTS
                                F-2REPORTS
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM
      ON COMPANY’S INTERNAL CONTROL OVER FINANCIAL REPORTING
                                F-3REPORTS
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM
      ON CONSOLIDATED FINANCIAL STATEMENTS
                                F-4CONSOLIDATED
      FINANCIAL STATEMENTSBalance
      Sheets as of December 31, 2008 and 2007
                                F-5Statements
      of Operations for the Years Ended December 31, 2008, 2007 and
      2006
                                F-6Statements
      of Stockholders’ Deficit for the Years EndedDecember
      31, 2008, 2007 and 2006
                                F-7Statements
      of Cash Flows for the Years EndedDecember
      31, 2008, 2007 and 2006
                                F-8Notes
      to Consolidated Financial Statements
                                F-10







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  The Board
of Directors and Stockholders of
 Riviera
Holdings Corporation
  We have
audited the accompanying consolidated balance sheet of Riviera Holdings
Corporation and subsidiaries (the “Company”) as of December 31, 2008, and the
related consolidated statement of operations, stockholders' deficit, and cash
flows for the year then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our
audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Riviera Holdings
Corporation and subsidiaries at December 31, 2008, and the consolidated results
of their operations and their cash flows for the year then ended, in conformity
with U.S. generally accepted accounting principles.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As more fully described in Note 2, the Company
has incurred recurring operating losses, has a working capital deficiency and
has an accumulated deficit.  In addition, subsequent to December 31,
2008, as discussed in Note 2, the Company was in violation of certain provisions
of its debt covenants and has received notification of default from the
administrative agent and also expects to be in violation of certain other
covenants which will require waivers from the lenders in order for the debt not
to be considered in default.  The Company has also elected to not make
its schedule interest payments on its Credit Facility. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters also are described in
Note 2.  The 2008 financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the outcome of this uncertainty.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 31, 2009 expressed an
unqualified opinion thereon.
  /s/
Ernst & Young LLP
  Las
Vegas, Nevada
 March 31,
2009


F-2




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors and Stockholders of
 Riviera
Holdings Corporation
 
 We have
audited Riviera Holdings Corporation and subsidiaries’ (the “Company”) internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). The
Company’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting, included in
Item 9A. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based onthe COSO criteria.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of the Company
as of December 31, 2008, and the related consolidated statement of operations,
stockholders’ deficit, and cash flows for the year then ended and our report
dated March 31, 2009 expressed an unqualified opinion thereon that included an
explanatory paragraph regarding the Company’s ability to continue as a goingconcern.
 
 /s/
Ernst & Young LLP
 Las
Vegas, Nevada
 March 31,
2009
 F-3




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of
Directors
 Riviera
Holdings Corporation
 Las
Vegas, NV
  We have
audited the accompanying consolidated balance sheet of Riviera Holdings
Corporation and subsidiaries (the “Company”) as of December 31, 2007, and
the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the two years in the period ended December 31, 2007.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on the financial statements based on
our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Riviera Holdings Corporation and its
subsidiaries at December 31, 2007, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
2007, in conformity with accounting principles generally accepted in the United
States of America.
  As
discussed in Note 11 to the consolidated financial statements, in 2007, the
Company changed its method of accounting for income taxes to conform to
Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement
No. 109.
 /s/
Deloitte & Touche LLP
 
  Las
Vegas, NV
 March 31,
2009


F-4




RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
BALANCE SHEETS


DECEMBER
31,


(Dollars
In Thousands)


2008
                                
                                
                                2007ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                                
                                $
                                13,461
                                
                                
                                $
                                28,819Restricted
      cash and investments
                                
                                
                                2,772
                                
                                
                                
                                2,772Accounts
      receivable—net of allowance of $559 and $436
                                
                                
                                2,457
                                
                                
                                
                                3,563Inventories
                                
                                
                                718
                                
                                
                                
                                1,455Prepaid
      expenses
                                
                                
                                2,976
                                
                                
                                
                                3,602Total
      current assets
                                
                                
                                22,384
                                
                                
                                
                                40,211PROPERTY
      AND EQUIPMENT—net
                                
                                
                                179,918
                                
                                
                                
                                172,865OTHER
      ASSETS
                                
                                
                                2,658
                                
                                
                                
                                2,940DEFERRED
      INCOME TAXES—net
                                
                                
                                -
                                
                                
                                
                                2,446Total
      assets
                                
                                $
                                204,960
                                
                                
                                $
                                218,462LIABILITIES
      AND STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIES:Current
      portion of long-term debt
                                
                                $
                                227,689
                                
                                
                                $
                                226Current
      portion of fair value of interest rate swap liabilities
                                
                                
                                16,828
                                
                                
                                
                                -Current
      portion of obligation to officers
                                
                                
                                1,028
                                
                                
                                
                                1,000Accounts
      payable
                                
                                
                                7,751
                                
                                
                                
                                10,972Accrued
      interest
                                
                                
                                98
                                
                                
                                
                                188Accrued
      expenses
                                
                                
                                10,201
                                
                                
                                
                                14,279Total
      current liabilities
                                
                                
                                263,595
                                
                                
                                
                                26,665LONG-TERM
      DEBT - Net of current portion
                                
                                
                                158
                                
                                
                                
                                225,288FAIR
      VALUE OF INTEREST RATE SWAP LIABILITIES
                                
                                
                                -
                                
                                
                                
                                13,272OBLIGATION
      TO OFFICERS - Net of current portion
                                
                                
                                -
                                
                                
                                
                                1,063Total
      liabilities
                                
                                
                                263,753
                                
                                
                                
                                266,288COMMITMENTS
      AND CONTINGENCIES (Note 13)STOCKHOLDERS’
      DEFICITCommon
      stock, $.001 par value—60,000,000 shares authorized; 17,161,824 and
      17,124,624 shares issued at December 31, 2008 and 2007,
      respectively,
                                
                                
                                17
                                
                                
                                
                                1712,493,755
      and 12,456,555 shares outstandingAdditional
      paid-in capital
                                
                                
                                19,820
                                
                                
                                
                                18,925Treasury
      stock, 4,668,069 shares at December 31, 2008 and 2007,
      respectively
                                
                                
                                (9,635
                                )
                                
                                
                                (9,635
                                )Acumulated
      deficit
                                
                                
                                (68,995
                                )
                                
                                
                                (57,133
                                )Total
      stockholders’ deficit
                                
                                
                                (58,793
                                )
                                
                                
                                (47,826
                                )Total
      liabilities and stockholders’ deficit
                                
                                $
                                204,960
                                
                                
                                $
                                218,462





The
accompanying notes are an integral part of these consolidated financial
statements.


F-5




RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
STATEMENTS OF OPERATIONS


YEARS
ENDED DECEMBER 31,


(In Thousands, Except Per Share Amounts)





2008
                                          
                                          
                                          2007
                                          
                                          
                                          2006REVENUESCasino
                                          
                                          $
                                          91,261
                                          
                                          
                                          $
                                          114,340
                                          
                                          
                                          $
                                          111,459Rooms
                                          
                                          
                                          52,408
                                          
                                          
                                          
                                          59,890
                                          
                                          
                                          
                                          56,700Food
      and beverage
                                          
                                          
                                          28,433
                                          
                                          
                                          
                                          32,353
                                          
                                          
                                          
                                          33,125Entertainment
                                          
                                          
                                          13,424
                                          
                                          
                                          
                                          13,498
                                          
                                          
                                          
                                          13,672Other
                                          
                                          
                                          6,815
                                          
                                          
                                          
                                          6,632
                                          
                                          
                                          
                                          6,431Total
      revenues
                                          
                                          
                                          192,341
                                          
                                          
                                          
                                          226,713
                                          
                                          
                                          
                                          221,387Less
      - promotional allowances
                                          
                                          
                                          (22,581
                                          )
                                          
                                          
                                          (21,218
                                          )
                                          
                                          
                                          (20,443
                                          )Net
      revenues
                                          
                                          
                                          169,760
                                          
                                          
                                          
                                          205,495
                                          
                                          
                                          
                                          200,944COSTS
      AND EXPENSESDirect
      costs and expenses of operating departments:Casino
                                          
                                          
                                          47,752
                                          
                                          
                                          
                                          56,197
                                          
                                          
                                          
                                          57,311Rooms
                                          
                                          
                                          25,418
                                          
                                          
                                          
                                          28,121
                                          
                                          
                                          
                                          27,100Food
      and beverage
                                          
                                          
                                          20,506
                                          
                                          
                                          
                                          23,848
                                          
                                          
                                          
                                          24,144Entertainment
                                          
                                          
                                          8,049
                                          
                                          
                                          
                                          8,687
                                          
                                          
                                          
                                          9,377Other
                                          
                                          
                                          1,241
                                          
                                          
                                          
                                          1,360
                                          
                                          
                                          
                                          1,437Other
      operating expensesGeneral
      and administrativeStock-based
      compensation
                                          
                                          
                                          795
                                          
                                          
                                          
                                          966
                                          
                                          
                                          
                                          813Other
      general and administrative
                                          
                                          
                                          39,694
                                          
                                          
                                          
                                          42,728
                                          
                                          
                                          
                                          41,318Mergers,
      acquisitions and development costs
                                          
                                          
                                          191
                                          
                                          
                                          
                                          611
                                          
                                          
                                          
                                          1,318Asset
      impairments
                                          
                                          
                                          -
                                          
                                          
                                          
                                          72
                                          
                                          
                                          
                                          19Depreciation
      and amortization
                                          
                                          
                                          14,883
                                          
                                          
                                          
                                          13,116
                                          
                                          
                                          
                                          12,691Total
      costs and expenses
                                          
                                          
                                          158,529
                                          
                                          
                                          
                                          175,706
                                          
                                          
                                          
                                          175,528INCOME
      FROM OPERATIONS
                                          
                                          
                                          11,231
                                          
                                          
                                          
                                          29,789
                                          
                                          
                                          
                                          25,416Loss
      on early retirement of bonds
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (12,878
                                          )
                                          
                                          
                                          -Change in  fair value of derivative instruments
                                          
                                          
                                          (3,556
                                          )
                                          
                                          
                                          (13,272
                                          )
                                          
                                          
                                          -Interest
      expense, net, including related party interest of $135 $281
      and  $400 in 2008, 2007 and 2006, respectively
                                          
                                          
                                          (17,091
                                          )
                                          
                                          
                                          (21,897
                                          )
                                          
                                          
                                          (25,751
                                          )Total
      interest expense, net
                                          
                                          
                                          (20,647
                                          )
                                          
                                          
                                          (48,047
                                          )
                                          
                                          
                                          (25,751
                                          )NET
      LOSS BEFORE INCOME TAX PROVISION
                                          
                                          
                                          (9,416
                                          )
                                          
                                          
                                          (18,258
                                          )
                                          
                                          
                                          (335
                                          )INCOME
      TAX PROVISION
                                          
                                          
                                          (2,446
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -NET
      LOSS
                                          
                                          $
                                          (11,862
                                          )
                                          
                                          $
                                          (18,258
                                          )
                                          
                                          $
                                          (335
                                          )EARNINGS
      PER SHARE DATA—Loss per share, basic and diluted
                                          
                                          $
                                          (0.96
                                          )
                                          
                                          $
                                          (1.48
                                          )
                                          
                                          $
                                          (0.03
                                          )Weighted-average
      common and common equivalent shares
                                          
                                          
                                          12,393
                                          
                                          
                                          
                                          12,309
                                          
                                          
                                          
                                          12,134





The
accompanying notes are an integral part of these consolidated financial
statements.


F-6


RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT


(Dollars
In Thousands)





AdditionalCommonStock
                
                
                Paid-In
                
                
                Accumulated
                
                
                TreasuryStockShares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                Shares
                
                
                Amount
                
                
                TotalBALANCE—January
      1, 2006
                
                
                17,082,324
                
                
                $
                17
                
                
                $
                17,301
                
                
                $
                (38,540
                )
                
                
                (4,859,091
                )
                
                $
                (10,047
                )
                
                $
                (31,269
                )Stock
      issued under executive option plan
                
                
                97,500
                
                
                
                -
                
                
                
                257
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                257Stock-based
      compensation - stock options
                
                
                -
                
                
                
                -
                
                
                
                72
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                72Restricted
      Stock – forfeited
                
                
                (48,000
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Distribution
      of treasury stock—deferred compensation trust
                
                
                -
                
                
                
                -
                
                
                
                (206
                )
                
                
                -
                
                
                
                96,698
                
                
                
                206
                
                
                
                -Stock-based
      compensation - restricted stock
                
                
                -
                
                
                
                -
                
                
                
                741
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                741Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (335
                )
                
                
                -
                
                
                
                -
                
                
                
                (335
                )BALANCE—December
      31, 2006
                
                
                17,131,824
                
                
                
                17
                
                
                
                18,165
                
                
                
                (38,875
                )
                
                
                (4,762,393
                )
                
                
                (9,841
                )
                
                
                (30,534
                )Stock-based
      compensation - stock options
                
                
                -
                
                
                
                -
                
                
                
                223
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                223Restricted
      stock – forfeited
                
                
                (7,200
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Stock-based
      compensation - restricted stock
                
                
                -
                
                
                
                -
                
                
                
                743
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                743Distribution
      of treasury stock - deferred compensation
                
                
                -
                
                
                
                -
                
                
                
                (206
                )
                
                
                -
                
                
                
                94,324
                
                
                
                206
                
                
                
                -Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (18,258
                )
                
                
                -
                
                
                
                -
                
                
                
                (18,258
                )BALANCE—December
      31, 2007
                
                
                17,124,624
                
                
                
                17
                
                
                
                18,925
                
                
                
                (57,133
                )
                
                
                (4,668,069
                )
                
                
                (9,635
                )
                
                
                (47,826
                )Stock-based
      compensation - stock options
                
                
                -
                
                
                
                -
                
                
                
                191
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                191Restricted
      stock – forfeited
                
                
                (4,800
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Stock-based
      compensation - restricted stock
                
                
                -
                
                
                
                -
                
                
                
                604
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                604Stock
      issued under executive option plan
                
                
                42,000
                
                
                
                -
                
                
                
                100
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                100Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (11,862
                )
                
                
                -
                
                
                
                -
                
                
                
                (11,862
                )BALANCE—December
      31, 2008
                
                
                17,161,824
                
                
                $
                17
                
                
                $
                19,820
                
                
                $
                (68,995
                )
                
                
                (4,668,069
                )
                
                $
                (9,635
                )
                
                $
                (58,793
                )





The
accompanying notes are an integral part of these consolidated financial
statements.


F-7





RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
STATEMENTS OF CASH FLOWS


YEARS
ENDED DECEMBER 31,


(In
Thousands)





2008
                              
                              
                              2007
                              
                              
                              2006OPERATING
      ACTIVITIES:Net
      loss
                              
                              $
                              (11,862
                              )
                              
                              $
                              (18,258
                              )
                              
                              $
                              (335
                              )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
                              
                              
                              14,883
                              
                              
                              
                              13,116
                              
                              
                              
                              12,691Stock-based
      compensation - restricted stock
                              
                              
                              604
                              
                              
                              
                              743
                              
                              
                              
                              741Stock-based
      compensation - stock options
                              
                              
                              191
                              
                              
                              
                              223
                              
                              
                              
                              72Provision
      for bad debts
                              
                              
                              530
                              
                              
                              
                              377
                              
                              
                              
                              146Asset
      impairment
                              
                              
                              -
                              
                              
                              
                              72
                              
                              
                              
                              19Loss
      on early retirement of debt
                              
                              
                              -
                              
                              
                              
                              12,878
                              
                              
                              
                              -Amortization
      of deferred loan fees
                              
                              
                              338
                              
                              
                              
                              956
                              
                              
                              
                              1,999Change
      in fair value of derivative instruments
                              
                              
                              3,556
                              
                              
                              
                              13,272
                              
                              
                              
                              -Change
      in operating assets and liabilities:Accounts
      receivable—net
                              
                              
                              576
                              
                              
                              
                              (877
                              )
                              
                              
                              335Inventories
                              
                              
                              737
                              
                              
                              
                              337
                              
                              
                              
                              693Prepaid
      expenses
                              
                              
                              626
                              
                              
                              
                              400
                              
                              
                              
                              195Accounts
      payable
                              
                              
                              (3,221
                              )
                              
                              
                              (794
                              )
                              
                              
                              (1,979
                              )Accrued
      expenses
                              
                              
                              (4,168
                              )
                              
                              
                              (2,526
                              )
                              
                              
                              906Other
      assets
                              
                              
                              97
                              
                              
                              
                              185
                              
                              
                              
                              (3
                              )Deferred
      income taxes—net
                              
                              
                              2,446
                              
                              
                              
                              -
                              
                              
                              
                              -Deferred
      compensation plan obligation
                              
                              
                              (35
                              )
                              
                              
                              (31
                              )
                              
                              
                              (32
                              )Obligation
      to officers
                              
                              
                              (1,000
                              )
                              
                              
                              (1,000
                              )
                              
                              
                              (1,000
                              )Net
      cash provided by operating activities
                              
                              
                              4,298
                              
                              
                              
                              19,073
                              
                              
                              
                              14,448INVESTING
      ACTIVITIES:Capital
      expenditures for property and equipment—Las Vegas
                              
                              
                              (20,020
                              )
                              
                              
                              (8,993
                              )
                              
                              
                              (5,651
                              )Capital
      expenditures for property and equipment—Black Hawk
                              
                              
                              (2,069
                              )
                              
                              
                              (3,099
                              )
                              
                              
                              (3,495
                              )Restricted
      cash and investments
                              
                              
                              -
                              
                              
                              
                              (2,772
                              )
                              
                              
                              -Net
      cash used in investing activities
                              
                              
                              (22,089
                              )
                              
                              
                              (14,864
                              )
                              
                              
                              (9,146
                              )


F-8




RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)


YEARS
ENDED DECEMBER 31,


(In
Thousands)





2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006FINANCING
      ACTIVITIES:Proceeds
      from long-term borrowings
                                    
                                    
                                    -
                                    
                                    
                                    
                                    225,112
                                    
                                    
                                    
                                    -Repayments
      on long-term borrowings
                                    
                                    
                                    (167
                                    )
                                    
                                    
                                    (223,885
                                    )
                                    
                                    
                                    (844
                                    )Proceeds
      from line of credit
                                    
                                    
                                    2,500
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Cash
      paid for deferred loan fees
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,902
                                    )
                                    
                                    
                                    -Exercise
      of employee stock options
                                    
                                    
                                    100
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    257Net
      cash provided by (used in) financing activities
                                    
                                    
                                    2,433
                                    
                                    
                                    
                                    (675
                                    )
                                    
                                    
                                    (587
                                    )(DECREASE)
      INCREASE IN CASH AND CASH EQUIVALENTS
                                    
                                    
                                    (15,358
                                    )
                                    
                                    
                                    3,534
                                    
                                    
                                    
                                    4,715CASH
      AND CASH EQUIVALENTS—Beginning of year
                                    
                                    
                                    28,819
                                    
                                    
                                    
                                    25,286
                                    
                                    
                                    
                                    20,571CASH
      AND CASH EQUIVALENTS—End of year
                                    
                                    $
                                    13,461
                                    
                                    
                                    $
                                    28,819
                                    
                                    
                                    $
                                    25,286SUPPLEMENTAL
      DISCLOSURES OF NONCASH FINANCING AND INVESTING
      ACTIVITIES:Property
      acquired with accounts payable—Las Vegas, Nevada
                                    
                                    $
                                    3
                                    
                                    
                                    $
                                    1,800
                                    
                                    
                                    $
                                    812Property
      acquired with accounts payable—Black Hawk, Colorado
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    841
                                    
                                    
                                    $
                                    619Non-cash
      item Main Street expansion Black Hawk
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    2,763Cash
      interest paid
                                    
                                    $
                                    17,050
                                    
                                    
                                    $
                                    22,494
                                    
                                    
                                    $
                                    24,329Distribution
      of deferred compensation treasury shares
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    206
                                    
                                    
                                    $
                                    206





The
accompanying notes are an integral part of these consolidated financial
statements.


F-9


RIVIERA
HOLDINGS CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31,


1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




Nature of
Operations —Riviera Holdings Corporation (“RHC”) and its
wholly-owned subsidiaries (together, the “Company”) own and operate the Riviera
Hotel & Casino (“Riviera Las Vegas”) on the Strip in Las Vegas,
Nevada and the Riviera Black Hawk Casino (“Riviera Black Hawk”) in Black Hawk,
Colorado.




The
Company’s operations are subject to extensive regulation in the states of Nevada
and Colorado by the respective Gaming Control Boards and various other state and
local regulatory agencies. Management believes that the Company’s procedures
comply, in all material respects, with the applicable regulations for
supervising casino operations, recording casino and other revenues, and granting
credit.




Principles of
Consolidation —The consolidated financial statements include
the accounts of Riviera Holdings Corporation and its wholly-owned subsidiaries.
All inter-company accounts and transactions have been eliminated.




Cash and Cash
Equivalents —Amounts classified as cash and cash equivalents
consist of cash held in our concentration account and money market accounts with
original maturities of 90 days or less and had a value of $5,420,000 and
$15,724,000 at December 31, 2008 and 2007, respectively.




Restricted
Cash —This cash is held as a certificate of deposit for the
benefit of the State of Nevada Workers Compensation Division as a requirement of
our being self-insured for Workers Compensation.  The cash is held in
a one-year certificate of deposit, which matures in 2009.




Inventories —Inventories
consist primarily of food, beverage, and promotional items and are stated at the
lower of cost (determined on a first-in, first-out basis) or
market.




Property and
Equipment —Property and equipment are stated at cost, and
capitalized lease assets are stated at the present value of future minimum lease
payments at the date of lease inception. Depreciation is computed by the
straight-line method over the shorter of the estimated useful lives or lease
terms, if applicable, of the related assets with lives ranging
from:




Buildings
      and improvements
                  
                  7
      to 40 yearsLand
      improvements
                  
                  15
      to 20 yearsFurniture,
      fixtures and equipment
                  
                  3
      to 7 years





The
Company periodically assesses the recoverability of property and equipment and
evaluates such assets for impairment whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. Asset impairment is
determined to exist if estimated future cash flows, undiscounted and without
interest charges, are less than the carrying amount. There were no asset
impairment costs in 2008.  Included in income from operations in the
fourth quarter of 2007 was $72,000 in asset impairment costs.  The
2007 impairment costs related to the write down and subsequent disposal of costs
associated with certain slot machines in Black Hawk, which were no longer
compliant with local gaming laws.




Other
Assets— Other assets include deferred loan offering costs,
which are amortized over the estimated life of the debt using the straight line
method. Such amortized costs are included in interest expense.


F-10


Stock-Based
Compensation— As of December 31, 2008, the Company has
five active stock-based compensation plans and two expired stock-based
compensation plans. Under the Company’s active stock compensation plans, the
Company shall at the discretion of the Company’s Compensation Committee, issue
option grants of Company common stock to those directors in lieu of cash
compensation.  The option grants issued under this plan are valued at
the market value of the shares at the date of issuance on each regularly
scheduled date for paying directors’ fees.




Income
Taxes— We
are subject to income taxes in the United States. We account for income taxes in
accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS
No. 109 requires the recognition of deferred tax assets, net of applicable
reserves, and liabilities for the estimated future tax consequences attributable
to differences between financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect of a change in tax rates on the
income tax provision and deferred tax assets and liabilities is recognized in
the results of operations in the period that includes the enactment
date.





SFAS
No. 109 requires recognition of a future tax benefit to the extent that
realization of such benefit is more likely than not. Otherwise, a valuation
allowance is applied.  The Company has performed an assessment of positive
and negative evidence regarding the realization of the deferred tax assets in
accordance with SFAS No. 109,Accounting for Income Taxes.
This assessment included the evaluation of estimates of projected future taxable
income and implementation of tax planning strategies.  Due to the
current economic conditions, the Company has reevaluated its tax planning
strategies and determined that it may not be prudent and feasible to implement
the tax planning strategies at this time.  As a result, the Company
has concluded that it is more likely than not that the net deferred tax assets
will not be realized.





Our
income tax returns are subject to examination by the Internal Revenue Service
(“IRS”) and other tax authorities in the locations where we operate. We assess
potentially unfavorable outcomes of such examinations based on the criteria of
FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income
Taxes” which we adopted on January 1, 2007. The Interpretation prescribes a
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. As a result, our income tax recognition
policy related to uncertain income tax positions is no longer covered by SFAS
No. 5.




FIN 48
applies to all tax positions related to income taxes subject to SFAS
No. 109. FIN 48 utilizes a two-step approach for evaluating tax positions.
Recognition (Step I) occurs when we conclude that a tax position, based on its
technical merits, is more likely than not to be sustained upon examination.
Measurement (Step II) is only addressed if the position is deemed to be more
likely than not to be sustained. Under Step II, the tax benefit is measured as
the largest amount of benefit that is more likely than not to be realized upon
settlement. FIN 48’s use of the term “more likely than not” is consistent with
how that term is used in SFAS No. 109 (i.e. likelihood of occurrence is
greater than 50%).




The tax
positions failing to qualify for initial recognition is to be recognized in the
first subsequent interim period that they meet the “more likely than not”
standard. If it is subsequently determined that a previously recognized tax
position no longer meets the “more likely than not” standard, it is required
that the tax position is derecognized. FIN 48 specifically prohibits the use of
a valuation allowance as a substitute for derecognition of tax positions. As
applicable, we will recognize accrued penalties and interest related to
unrecognized tax benefits in the provision for income taxes. During the years
ended December 31, 2008, 2007 and 2006, we recognized no amounts for
interest or penalties.


F-11


Fair
Value Disclosures




Cash and Cash
Equivalents, Accounts Receivable, Accounts Payable, and Accrued
Expenses—The
carrying value of these items is a reasonable estimate of their fair value due
to their short term nature.




Long-Term
Debt— The fair value of the Company’s long-term debt is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities. Based on the quoted market prices, the estimated fair value of
long-term debt outstanding is approximately $112,847,000 and $225,514,000 as of
December 31, 2008 and 2007, respectively.




Interest Rate
Swaps—From
time to time, we enter into interest rate swaps in order to manage interest rate
risks associated with our current and future borrowings. As such, the Company
have adopted SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", and as amended by SFAS 138 and 149, to account for interest
rate swaps. The pronouncements require us to recognize the interest rate swaps
as either assets or liabilities in the consolidated balance sheets at fair
value. The accounting for changes in fair value (i.e. gains or losses) of
the interest rate swap agreements depends on whether it has been designated and
qualifies as part of a hedging relationship and further, on the type of hedging
relationship. Additionally, the difference between amounts received and paid
under such agreements, as well as any costs or fees, is recorded as a reduction
of, or an addition to, interest expense as incurred over the life of the
swap.





For
derivative instruments that are designated and qualify as a cash flow hedge, the
effective portion of the gain or loss on the derivative instrument is reported
as a component of other comprehensive income (loss) and the ineffective portion,
if any, is recorded in the consolidated statement of operations.





Derivative
instruments that are designated as fair value hedges and qualify for the
"shortcut" method under SFAS 133, and as amended by SFAS 138 and 149,
allow for an assumption of no ineffectiveness. As such, there is no impact on
the consolidated statement of operations from the changes in the fair value of
the hedging instrument. Instead, the fair value of the instrument is recorded as
an asset or liability on our balance sheet with an offsetting adjustment to the
carrying value of the related debt.





As of
December 31, 2008, the Company has one interest rate swap agreement for the
notional amount of $214 million. The Company has determined that the interest
rate swap does not meet the requirements to qualify for hedge accounting and
have therefore recorded a $3.6 million loss and a $13.3 million loss for the
change in fair value of this derivative instrument in the condensed consolidated
statements of operations for the twelve month period ended December 31, 2008 and
2007, respectively.


.


Fair
Value Measurement — Effective January 1, 2008, we adopted SFAS 159, “The Fair Value
Option for Financial Assets and Financial Liabilities – Including an amendment
of FASB Statement No. 115”, we have not made any fair value elections with
respect to any eligible assets or liabilities as permitted under the provisions
of SFAS 159 to date.  We also adopted SFAS 157, “Fair Value
Measurements” for financial and nonfinancial assets and liabilities measured on
a recurring basis. We currently do not have any nonfinancial assets or
liabilities measured at fair value on a recurring basis (see note
8).


F-12


Treasury
Stock




Treasury
shares are stated at cost. The Company’s Deferred Compensation Plan distributed
the remaining shares to plan participants in 2007.  No shares were
distributed under the Deferred Compensation Plan in 2008 and 94,324 shares were
issued to plan participants in 2007.




Revenue
Recognition




Casino
Revenue—Casino revenue is the
net win from gaming activities, which is the difference between gaming wins and
losses less slot club cash points, cash vouchers, free play and other related
customer cash incentives.




Room Revenue,
Food and Beverage Revenue, Entertainment Revenue, and Other Revenue —The Company recognizes room, food and beverage, entertainment revenue,
and other revenue at the time that goods or services are provided.




Promotional
Allowances—Revenues include the estimated retail value of rooms, food and beverage,
and entertainment provided to customers on a complimentary basis. Such amounts
are then deducted as promotional allowances. The estimated cost of providing
these promotional allowances is reclassified to the casino department in the
following amounts in thousands:




Year Ended December 312008
                                
                                
                                2007
                                
                                
                                2006Food
      and beverage
                                
                                $
                                8,447
                                
                                
                                $
                                8,882
                                
                                
                                $
                                9,147Rooms
                                
                                
                                3,455
                                
                                
                                
                                2,763
                                
                                
                                
                                2,693Entertainment
                                
                                
                                1,007
                                
                                
                                
                                918
                                
                                
                                
                                629Total
      costs allocated to casino departments
                                
                                $
                                12,909
                                
                                
                                $
                                12,563
                                
                                
                                $
                                12,469




Estimates and
Assumptions—The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period.  Significant estimates used by the Company
include estimates for the recoverability and useful lives of depreciable and
amortizable assets, estimates for certain asset and liability accruals
(including self-insurance reserves and customer loyalty programs), estimates of
the ability to realize deferred tax assets, estimates for valuing stock based
compensation and estimates of the collectability of certain
receivables.  Actual results may differ materially from
estimates.




Self-Insurance
Reserves—The
Company is self-insured for various levels of general liability and workers’
compensation insurance. Insurance claims and reserves include accruals of
estimated settlements for known claims as well as accrued estimates of incurred
but not reported claims. In estimating these costs, the Company considers its
historical claims experience and makes judgments about the expected levels of
costs per claim.  Changes in health care costs, accident frequency and
severity and other factors can materially affect the estimate for these
liabilities.  The Company was self-insured for non-union medical
claims through December 31, 2007.  Effective January 1, 2008, the
Company is using a third party insurer for non-union medical
claims.




Loyalty Club
Program—The
Company provides our guests the opportunity to earn points redeemable for cash
based on their level of gaming and non-gaming activities while at our
properties. An accrual is recorded as points are earned based upon expected
redemption rates.


F-13


Advertising—The
costs of advertising are expensed as incurred and are allocated to each revenue
department based upon content.  Advertising expense was $2,897,000,
$2,782,000 and $2,814,000 in 2008, 2007, and 2006, respectively.




Recently Issued
Accounting Standards— In
May 2008, the FASB issued Statement of Financial Accounting Standards
No. 162 (SFAS 162), The
Hierarchy of Generally Accepted Accounting Principles. SFAS 162
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).
Because SFAS 162 applies only to establishing hierarchy, it will not have a
material impact on our consolidated financial position, results of operations,
and cash flows.





In
December 2007, the FASB issued SFAS 141R. SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation
of the nature and financial effects of the business combination. This statement
is effective for us beginning January 1, 2009. The impact of the adoption
of SFAS 141R on our consolidated financial position, results of operations will
largely be dependent on the size and nature of the business combinations
completed after the adoption of this statement.





In
February 2008, the FASB issued FSP 157-2, which delays the effective date of
SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). SFAS 157 establishes a framework for
measuring fair value and expands disclosures about fair value measurements. FSP
157-2 partially defers the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years for items within the scope of this FSP. The adoption of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities is effective for us beginning
January 1, 2009. We do not expect the impact of this adoption to be
material.





In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161
(SFAS 161), Disclosures about
Derivative Instruments and Hedging Activities—An Amendment of FASB Statement
No. 133. SFAS 161 applies to all derivative instruments and related
hedged items accounted for under FASB Statement No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging Activities. It requires
entities to provide greater transparency about: (a) how and why an entity
uses derivative instruments; (b) how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations;
and (c) how derivative instruments and related hedged items affect an
entity’s financial position, results of operations, and cash flows.
SFAS 161 will be effective for the financial statements issued by the
Company beginning January 1, 2009.  Because SFAS 161 applies only
to financial statement disclosures, it will not have an impact on our
consolidated financial position, results of operations, and cash
flows.





In April
2008, the FASB issued FSP 142-3. This guidance is intended to improve the
consistency between the useful life of a recognized intangible asset under
SFAS 142, and the period of expected cash flows used to measure the fair
value of the asset under SFAS 141R when the underlying arrangement includes
renewal or extension of terms that would require substantial costs or result in
a material modification to the asset upon renewal or extension. Companies
estimating the useful life of a recognized intangible asset must now consider
their historical experience in renewing or extending similar arrangements or, in
the absence of historical experience, must consider assumptions that market
participants would use about renewal or extension as adjusted for SFAS 142’s
entity-specific factors. FSP 142-3 is effective for us beginning January 1,
2009. We do not expect the impact of the adoption of FSP 142-3 to be
material.





2.
            GOING
      CONCERN





The
accompanying financial statements are prepared assuming that the Company will
continue as a going concern and contemplates the realization of assets and
satisfaction of liabilities in the ordinary course of
business.


F-14


On
February 26, 2009, the Company received a notice of default on its New Credit
Facility from Wachovia Bank, National Association (“Wachovia”), the
administrative agent.  The notice of default (the “Notice”) relates to
our New Credit Facility and is the result of the Company’s failure to provide a
Deposit Account Control Agreement (a “DACA”) from each of the Company’s
depository banks per a request made by Wachovia to the Company on October 14,
2008.  The DACA that Wachovia requested the Company to execute was in
a form that the Company ultimately determined to contain unreasonable terms and
conditions as it would enable Wachovia to access all of the Company’s operating
cash and order it to be transferred to a bank account specified by
Wachovia.





In
addition, based on extensive analyses of the Company’s current and projected
liquidity, we elected to not pay the accrued interest of approximately $4
million on the New Credit Facility, which was due March 30, 2009.  The
Company’s failure to pay interest due on any loan within our New Credit Facility
within a three-day grace period from the due date constitutes an event of
default under our New Credit Facility agreement. We do not plan to pay the
interest due within the three-day grace period.





We have
entered into discussions with Wachovia to negotiate a waiver or forbearance
regarding the Notice and the anticipated payment default.  If we are
not successful in negotiating a waiver or forbearance agreement with our lenders
regarding the Notice and the anticipated payment default, Wachovia and the
lenders under our credit agreement would: have the ability to accelerate
repayment of all amounts outstanding under the New Credit Facility
($227.5 million at December 31, 2008), to foreclose on some or all of our
assets securing the debt, or exercise other rights and remedies granted under
the New Credit Facility and as may be available pursuant to applicable
law.  In addition, Wachovia, under our interest rate swap agreement,
can terminate the interest rate swap agreement and accelerate repayment of the
amount outstanding which was $30.2 million at December 31, 2008.  If
the New Credit Facility and interest rate swap indebtedness were to be
accelerated, we would be required to refinance or restructure the payments on
that debt.  We cannot assure you that we would be successful in completing
a refinancing or restructuring, if necessary.  If we were unable to do so,
we would likely be required to seek protection under Chapter 11 of the U. S.
Bankruptcy Code.  As a result, the outstanding obligations under the
Company’s New Credit Facility and interest rate swap agreement were reclassified
from long-term to current (see Note 10).





These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern.  The accompanying financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.





3.
            ACCOUNTS
      RECEIVABLE




Accounts
receivable consist of the following at December 31 (in
thousands):




2008
                                
                                
                                2007Casino
                                
                                $
                                279
                                
                                
                                $
                                353Hotel
                                
                                
                                2,737
                                
                                
                                
                                3,646Total
                                
                                
                                3,016
                                
                                
                                
                                3,999Less
      - Collection allowances
                                
                                
                                (559
                                )
                                
                                
                                (436
                                )Accounts
      receivable - net
                                
                                $
                                2,457
                                
                                
                                $
                                3,563




Collection
allowances activity for the years ending December 31 consist of the
following (in thousands):


F-15




2008
                            
                            
                            2007Beginning
      balance
                            
                            $
                            436
                            
                            
                            $
                            163Write-offs
                            
                            
                            (431
                            )
                            
                            
                            (114
                            )Recoveries
                            
                            
                            24
                            
                            
                            
                            10Provision
      for doubtful collection
                            
                            
                            530
                            
                            
                            
                            377Ending
      balance
                            
                            $
                            559
                            
                            
                            $
                            436




The
Company manages its credit risk by evaluating customers’ credit worthiness
before extending credit.  The maximum credit losses that might be
sustained are limited to the recorded receivables less any amounts
reserved.


F-16


4.
            PREPAID
      EXPENSES




Prepaid
expenses consist of the following at December 31 (in
thousands):




2008
                            
                            
                            2007Prepaid
      gaming taxes
                            
                            $
                            1,186
                            
                            
                            $
                            1,110Prepaid
      insurance
                            
                            
                            785
                            
                            
                            
                            806Vendor
      deposits
                            
                            
                            28
                            
                            
                            
                            542Prepaid
      equipment maintenance
                            
                            
                            338
                            
                            
                            
                            254Other
                            
                            
                            639
                            
                            
                            
                            890Total
                            
                            $
                            2,976
                            
                            
                            $
                            3,602




5.
            PROPERTY
      AND EQUIPMENT




Property
and equipment consist of the following at December 31 (in
thousands):




2008
                    
                    
                    2007Land
      and improvements
                    
                    $
                    40,752
                    
                    
                    $
                    40,752Buildings
      and improvements
                    
                    
                    144,898
                    
                    
                    
                    144,795Equipment,
      furniture, and fixtures
                    
                    
                    174,283
                    
                    
                    
                    155,818Construction
      in progress
                    
                    
                    30
                    
                    
                    
                    280Total
      cost
                    
                    
                    359,963
                    
                    
                    
                    341,645Less
      - Accumulated depreciation and amortization
                    
                    
                    (180,045
                    )
                    
                    
                    (168,780
                    )Property
      and equipment-net
                    
                    $
                    179,918
                    
                    
                    $
                    172,865




Substantially
all of the Company’s property and equipment are pledged as collateral to secure
debt (see Note 10).




6.
            OTHER
      ASSETS




Other
assets consist of the following at December 31 (in thousands):




2008
                        
                        
                        2007Deposits
                        
                        $
                        128
                        
                        
                        $
                        69Deferrend
      loan fees, net of accumulated amortizationof
      $532 and $194
                        
                        
                        1,370
                        
                        
                        
                        1,708Base
      Stock
                        
                        
                        1,160
                        
                        
                        
                        1,163Total
                        
                        $
                        2,658
                        
                        
                        $
                        2,940


F-17


7.
            ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES




Accounts payable consist of the
following at December 31 (in thousands):





2008
                                  
                                  
                                  2007Accounts
      payable vendors
                                  
                                  $
                                  3,587
                                  
                                  
                                  $
                                  6,898Customer
      deposits, non-gaming
                                  
                                  
                                  899
                                  
                                  
                                  
                                  1,289Other
                                  
                                  
                                  481
                                  
                                  
                                  
                                  500Sub
      total
                                  
                                  
                                  4,967
                                  
                                  
                                  
                                  8,687Insurance
      contracts
                                  
                                  
                                  553
                                  
                                  
                                  
                                  -Outstanding
      chip and token liability
                                  
                                  
                                  392
                                  
                                  
                                  
                                  517Customer
      loyality liabilities
                                  
                                  
                                  631
                                  
                                  
                                  
                                  677Progressive
      jackpot liabilities
                                  
                                  
                                  1,009
                                  
                                  
                                  
                                  745Customer
      deposits and other
                                  
                                  
                                  199
                                  
                                  
                                  
                                  346Total
      gaming customer-related payables
                                  
                                  
                                  2,784
                                  
                                  
                                  
                                  2,285Total
                                  
                                  $
                                  7,751
                                  
                                  
                                  $
                                  10,972




Accrued
expenses consist of the following at December 31 (in
thousands):




2008
                
                
                2007Payroll
      and related taxes and benefits
                
                $
                5,884
                
                
                $
                7,805Property
      and gaming taxes
                
                
                2,632
                
                
                
                2,948Incentive
      and ESOP
                
                
                111
                
                
                
                2,166Professional
      fees, deferred revenues and deposits
                
                
                1,574
                
                
                
                1,360Total
                
                $
                10,201
                
                
                $
                14,279




8.
            FAIR
      VALUE MEASUREMENTS




Effective
January 1, 2008, we adopted SFAS 157 and effective October 10, 2008,
we adopted FSP No. SFAS 157-3, “Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active”, except as it applies to the
nonfinancial assets and nonfinancial liabilities subject to FSP 157-2. SFAS 157
clarifies that fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that market
participants would use in pricing an asset or a liability. As a basis for
considering such assumptions, SFAS 157 establishes a three-tier value hierarchy,
which prioritizes the inputs used in the valuation methodologies in measuring
fair value:




Level 1—Observable inputs
that reflect quoted prices (unadjusted) for identical assets or liabilities in
active markets.




Level 2—Include other
inputs that are directly or indirectly observable in the
marketplace.




Level 3—Unobservable
inputs which are supported by little or no market activity.


F-18




The fair
value hierarchy also requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair
value.




In
accordance with SFAS 157, we measure our cash equivalents, investments, and
interest rate swaps at fair value. Our cash equivalents and investments are
classified within Level 1 or Level 2. This is because our cash equivalents and
investments are valued using quoted market prices or alternative pricing sources
and models utilizing market observable inputs.




Assets
and liabilities measured at fair value on a recurring basis are summarized below
(in thousands):





Balance at
                  
                  
                  Quoted prices in
                  
                  
                  Significant
                  
                  
                  SignificantDecember 31,
                  
                  
                  Active Markets
                  
                  
                  Other
                  
                  
                  Unobservable2008
                  
                  
                  For Identical Assets
                  
                  
                  Observable
                  
                  
                  Inputs(Level 1)
                  
                  
                  Inputs
                  
                  
                  (Level 3)(Level 2)Assets:Cash
      Equivalents
                  
                  $
                  863
                  
                  
                  $
                  863
                  
                  
                  $
                  —
                  
                  
                  $
                  —Investments
                  
                  
                  2,772
                  
                  
                  
                  —
                  
                  
                  
                  2,772
                  
                  
                  
                  —Total
      Assets
                  
                  $
                  3,635
                  
                  
                  $
                  863
                  
                  
                  $
                  2,772
                  
                  
                  $
                  —Liabilities:Interest
      rate swaps
                  
                  $
                  16,828
                  
                  
                  $
                  —
                  
                  
                  $
                  16,828
                  
                  
                  $
                  —





The fair
values of cash equivalent assets are based on quotes for like instruments with
similar credit ratings and terms. The fair values of investments are based on
quoted prices in active markets.





The fair
value of interest rate swaps are based on quoted market prices from various
banks for similar instruments. These quoted market prices are based on relevant
factors such as the contractual terms of our interest rate swap agreement and
interest rate curves and are adjusted for the non-performance risk of either us
or our counterparties, as applicable.  If we had terminated our
interest rates swap as of December 31, 2008, we would have been required to pay
a total of $30.2 million based on the mark-to-market values of such derivative
instruments.  However, the fair value of our derivative instrument at
December 31, 2008 incorporated a $13.4 million credit valuation adjustment to
reflect the impact of the credit ratings of the Company based on the market
value of its credit default swap.   As a result, the credit
valuation adjustment reduced the fair value of our liability.




9.
            OBLIGATION
      TO OFFICERS




Obligation
to officers consists of the nonqualified pension plan obligation to the
Company’s Chief Executive Officer (“CEO”), including accrued interest and
deferred compensation plan liabilities, payable upon expiration of his
employment contract or a change of control of the Company.  See Note
14 for a description of this plan.




Obligation
to officers consists of the following at December 31, (in
thousands);


F-19




2008
                      
                      
                      2007Accrued
      interest on pension—CEO, unfunded
                      
                      $
                      1,028
                      
                      
                      $
                      2,063Less-current
      portion
                      
                      
                      (1,028
                      )
                      
                      
                      (1,000
                      )Obligation
      to officers - net of current portion
                      
                      $
                      -
                      
                      
                      $
                      1,063




10.
            LONG-TERM
      DEBT




Long-term
debt consists of the following at December 31 (in thousands):




2008
                        
                        
                        2007$225
      million Term Loan currently due
                        
                        $
                        225,000
                        
                        
                        $
                        225,000$20
      million Revolving Credit Facility
                        
                        
                        2,500
                        
                        
                        
                        -Interest
      Rate Swap
                        
                        
                        16,828Capitalized
      lease obligations (Note 11)
                        
                        
                        201
                        
                        
                        
                        2315.5%
      Special Improvement District Bonds - issued by the City of Black Hawk,
      Colorado, interest and principal payable monthly over 10 years beginning
      in 2000
                        
                        
                        146
                        
                        
                        
                        283Total
      long-term debt
                        
                        
                        244,675
                        
                        
                        
                        225,514Less-Current
      maturities by terms of debt
                        
                        
                        (244,517
                        )
                        
                        
                        (226
                        )Total
                        
                        $
                        158
                        
                        
                        $
                        225,288




Maturities
of long-term debt for the years ending December 31 are as follows (in
thousands):




2009
                  
                  $
                  244,5172010
                  
                  
                  442011
                  
                  
                  442012
                  
                  
                  452013
                  
                  
                  25Thereafter
                  
                  
                  -Total
                  
                  $
                  244,675




On June
8, 2007, RHC and its Subsidiaries entered into the New Credit
Facility.




The New
Credit Facility includes a $225 million seven-year term loan (“Term Loan”) which
has no amortization for the first three years, a one percent amortization for
years four through six, and a full payoff in year seven, in addition to an
annual mandatory pay down during the term of 50% of excess cash flows, as
defined.  The New Credit Facility also includes a $20 million
five-year revolving credit facility (“Revolving Credit Facility”) under which
the Company can obtain extensions of credit in the form of cash loans or standby
letters of credit (“Standby L/Cs”).  The Company is permitted to
prepay the New Credit Facility without premium or penalties except for payment
of any funding losses resulting from prepayment of LIBOR rate
loans.  The rate for the Term Loan and revolving Credit Facility
is LIBOR plus 2.0%. Pursuant to a floating rate to fixed rate swap agreement
that became effective June 29, 2007 that the Company entered into under the New
Credit Facility, substantially the entire Term Loan portion of the New Credit
facility, with quarterly step-downs, bears interest at an effective fixed rate
of 7.485% per annum (2.0% above the LIBOR Rate in effect on the lock-in date of
the swap agreement).  The New Credit Facility is guaranteed by the
Subsidiaries and is secured by a first priority lien on substantially all of the
Company’s assets.


F-20


The
Company used substantially all of the proceeds of the Term Loan to discharge its
obligations under the Indenture, dated June 26, 2002 (the “Indenture”),
with The Bank of New York as trustee (the “Trustee”), governing the 11%
Notes.  On June 8, 2007 the Company deposited these funds with the
Trustee and issued to the Trustee a notice of redemption of the 11% Notes, which
was finalized on July 9, 2007.





The
interest rate on loans under the Revolving Credit Facility will depend on
whether they are in the form of revolving loans or swing line
loans.  For each revolving loan, the interest rate will depend on
whether we elect to treat the loan as an “Alternate Base Rate” loan (“ABR Loan”)
or a LIBOR Rate loan.  Swing line loans will bear interest at a per
annum rate equal to the Alternative Base Rate plus the Applicable Percentage for
revolving loans that are ABR Loans.





As of
December 31, 2008, the Company had $2.5 million outstanding against the
Revolving Credit Facility.  The ABR Loan was elected as the amount
drawn was below the $5.0 million minimum threshold required for selecting a
LIBOR Rate Loan.





The
Company also pays fees under the Revolving Credit Facility as
follows:  (i) a commitment fee in an amount equal to either 0.50%
or 0.375% (depending on the Consolidated Leverage Ratio) per annum on the
average daily unused amount of the Revolving Credit Facility; (ii) Standby
L/C fees equal to between 2.00% and 1.50% (depending on the Consolidated
Leverage Ratio) per annum on the average daily maximum amount available to be
drawn under each Standby L/C issued and outstanding from the date of issuance to
the date of expiration; and (iii) a Standby L/C facing fee in the amount of
0.25% per annum on the average daily maximum amount available to be drawn under
each Standby L/C.  In addition to the Revolving Credit Facility fees,
the Company pays an annual administrative fee of $35,000.





The New
Credit Facility contains non-financial affirmative and negative covenants
customary for financings of this nature including, but not limited to,
restrictions on incurrence of other indebtedness.






F-21





The New
Credit Facility is guaranteed by the Subsidiaries, which are all of the
Company’s restricted subsidiaries. These guaranties are full, unconditional, and
joint and several.  RHC’s unrestricted subsidiaries, which have no
operations and do not significantly contribute to the Company’s financial
position or results of operations, are not guarantors of the New Credit
Facility.





As of
December 31, 2008, we were in compliance with the financial covenants associated
with our New Credit Facility.  Our Consolidated Leverage Ratio was 8.4
for the four quarters ending December 31, 2008.  The maximum allowable
Consolidated Leverage Ratio pursuant to the Revolving Credit Facility is 6.5 as
of December 31, 2008.  However, the maximum Consolidated Leverage
Ratio of 6.5 is applicable only if RHC has outstanding borrowings against its
Revolving Credit Facility exceeding $2.5 million as of the end of the applicable
quarter.  As of December 31, 2008, RHC had $2.5 million outstanding on
its Revolving Credit Facility.





On
February 26, 2009, the Company received a notice of default on its New Credit
Facility from Wachovia, the administrative agent.  The notice of
default, or Notice, relates to our New Credit Facility and is the result of the
Company’s failure to provide a Deposit Account Control Agreement, or DACA, from
each of the Company’s depository banks per a request made by Wachovia to the
Company on October 14, 2008.  The DACA that Wachovia requested the
Company to execute was in a form that the Company ultimately determined to
contain unreasonable terms and conditions as it would enable Wachovia to access
all of the Company’s operating cash and order it to be transferred to a bank
account specified by Wachovia.  The Notice further provides that as a
result of the default, the Company will no longer have the option to request
LIBOR Rate loans.   As a result of losing the availability of
LIBOR Rate loans under the New Credit Facility, the interest rate on the Term
Loan will increase from approximately 7.5% to 8.5% and the interest rate
for the Revolving Credit Facility will remain the same.


On March
25, 2009, we engaged XRoads Solution Group LLC as our financial
advisor.  Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the accrued interest of
approximately $4 million on our $245 million New Credit Facility, which was due
March 30, 2009. Consequently, we elected not to make the payment. The
Company’s failure to pay interest due on any loan within our New Credit Facility
within a three-day grace period from the due date is an event of default under
our New Credit Facility.  We do not plan to pay the interest due
within the three-day grace period.  As a result of this event of
default, the Company's lenders have the right to seek to charge additional
default interest in the amount of 2% on the Company’s outstanding principal and
interest under our credit agreement (the “Credit Agreement”), and automatically
charge additional default interest of 1% on any overdue amounts under the
interest rate swap agreement (the “Swap Agreement”) we entered in conjunction
with our New Credit Facility.  These defaults rates are in addition to
the interest rates that would otherwise be applicable under the Credit Agreement
and Swap Agreement.  We believe that the Company’s lenders will seek
to apply these higher default interest rates as a result of the Company’s
failure to make the interest payment due on March 30, 2009.
  We
entered into discussions with Wachovia to negotiate a waiver or forbearance
regarding the Notice and the anticipated payment default and an anticipated
going concern default (see discussion below).  If we are not
successful in negotiating a waiver or forbearance agreement with the Company’s
lenders regarding the Notice and the anticipated payment and going
concern defaults, Wachovia and the lenders under the New
Credit Facility would: have the ability to accelerate repayment of all
amounts outstanding under the New Credit Facility ($227.5 million at
December 31, 2008), to commence foreclose on some or all of our assets
securing the debt, or exercise other rights and remedies granted under the New
Credit Facility and as may be available pursuant to applicable
law.  In addition, Wachovia, under our interest rate swap agreement,
can terminate the interest rate swap agreement and accelerate repayment of the
amount outstanding under that agreement ($30.2 million at December 31,
2008).  If the New Credit Facility and interest rate swap indebtedness
were to be accelerated, we would be required to refinance or restructure the
payments on that debt.  We cannot assure you that we would be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary.  If we were unable to do so, we would likely be compelled to
seek protection under Chapter 11 of the U. S. Bankruptcy Code.


The 5.5%
Special Improvement District Bonds were issued by the City of Black Hawk,
Colorado. The proceeds were used for road improvements and other infrastructure
projects benefiting Riviera Black Hawk and a nearby casino. The Company’s share
of the debt was $1.2 million payable over a ten-year period that began in
2000.


F-22


11.
            LEASING
      ACTIVITIES




The
Company leases certain office equipment under capital leases. These agreements
have been capitalized at the present value of the future minimum lease payments
at lease inception and are included with property and equipment. The interest
rate on the equipment leases is 5.5%. We estimate that the fair market value of
the property and equipment subject to the leases approximates the net present
value of the leases.





The
following is a schedule by year of the minimum rental payments due under capital
leases as of December 31, 2008 (in thousands):





CapitalYears
      ending December 31,
                      
                      Leases2009
                      
                      $
                      452010
                      
                      
                      452011
                      
                      
                      452012
                      
                      
                      452013
                      
                      
                      26Thereafter
                      
                      
                      -Total
      minimum lease payments
                      
                      
                      206Less-Interest
      portion of payments
                      
                      
                      (5
                      )Present
      value of net minimum lease payments
                      
                      $
                      201




Property
and equipment under capital lease as of December 31, 2008 and 2007 were
$236,000 and $437,000 with accumulated amortization of $23,600 and $207,000,
respectively.





Rental
expense for equipment under operating leases for the years ended
December 31, 2008, 2007 and 2006 was approximately $269,000, $1,230,000 and
$503,000, respectively. All are cancelable within a year.





In
addition, the Company leases retail space to third parties (primarily retail
shops and fast food vendors) under terms of non-cancelable operating leases that
expire in various years through 2013, and have options to extend at the tenant’s
option.  Rental income, which is included in other revenue, for the
years ended December 31, 2008, 2007 and 2006 was approximately $3,388,000,
$2,448,000 and $2,069,000 respectively.


At
December 31, 2008, the Company had future minimum annual rental income due
under non-cancelable operating leases as follows (in thousands):





2009
                        
                        $
                        3,0372010
                        
                        
                        2,0902011
                        
                        
                        1,6312012
                        
                        
                        3932013
                        
                        
                        73Total
                        
                        $
                        7,224




Certain
lease arrangements at the Riviera Las Vegas contain a buyout/liquidated damages
provision. This provision provides that in the event of a major renovation or
certain other events, the Company has the right, according to an agreed-upon
formula, to buy out any remaining term of the lease by providing the tenant
twelve months written notice.


F-23


12.
            INCOME
      TAXES




Components of our provision for
income taxes are as follows:





Years ended December 31,
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006(In
      thousands)Federal
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -State
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      current
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Federal
                  
                  
                  2,446
                  
                  
                  
                  -
                  
                  
                  
                  -State
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      deferred
                  
                  
                  2,446
                  
                  
                  
                  -
                  
                  
                  
                  -Provision
      for income taxes
                  
                  $
                  2,446
                  
                  
                  $
                  -
                  
                  
                  $
                  -





The effective income tax rates differ
from statutory US federal income tax rates as follows:


Years ended December 31,
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Rate
                  
                  
                  Rate
                  
                  
                  RateTaxes
      at federal statutory rate
                  
                  
                  -35.0
                  %
                  
                  
                  -35.0
                  %
                  
                  
                  -35.0
                  %State
      income tax, net
                  
                  
                  -0.5
                  %
                  
                  
                  -0.6
                  %
                  
                  
                  0.0
                  %Employee
      benefits
                  
                  
                  6.0
                  %
                  
                  
                  3.5
                  %
                  
                  
                  189.0
                  %FICA
      credit
                  
                  
                  -1.9
                  %
                  
                  
                  -0.2
                  %
                  
                  
                  -66.3
                  %Other,
      net
                  
                  
                  -3.7
                  %
                  
                  
                  0.7
                  %
                  
                  
                  0.0
                  %Effect
      of rate change
                  
                  
                  0.0
                  %
                  
                  
                  0.5
                  %
                  
                  
                  0.0
                  %Valuation
      allowance
                  
                  
                  61.1
                  %
                  
                  
                  31.1
                  %
                  
                  
                  -87.7
                  %Provision
      for income taxes
                  
                  
                  26.0
                  %
                  
                  
                  0.0
                  %
                  
                  
                  0.0
                  %


F-24




Under
SFAS No. 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s net deferred income tax asset consisted
of the following:




December 31,
                  
                  2008
                  
                  
                  2007(In thousands)Deferred
      Tax AssetsReserves
      and accruals
                  
                  $
                  2,005
                  
                  
                  $
                  2,161Fair
      value of SWAP
                  
                  
                  6,003
                  
                  
                  
                  4,645Share-based
      compensation
                  
                  
                  622
                  
                  
                  
                  187Federal
      net operating loss carry forwards
                  
                  
                  24,197
                  
                  
                  
                  23,116State
      net operating loss carry forwards
                  
                  
                  359
                  
                  
                  
                  8AMT
      and other tax credits
                  
                  
                  3,732
                  
                  
                  
                  3,531Other
                  
                  
                  44
                  
                  
                  
                  43$
                  36,962
                  
                  
                  $
                  33,691Valuation
      allowance
                  
                  
                  (29,974
                  )
                  
                  
                  (24,225
                  )Total
      Deferred Tax Asset
                  
                  $
                  6,988
                  
                  
                  $
                  9,466Deferred
      Tax LiabilitiesPrepaid
      expenses
                  
                  $
                  (436
                  )
                  
                  $
                  (1,168
                  )Property
      and equipment
                  
                  
                  (6,552
                  )
                  
                  
                  (5,852
                  )Total
      Deferred Tax Liability
                  
                  $
                  (6,988
                  )
                  
                  $
                  (7,020
                  )Net
      Deferred Tax Asset (Liability)
                  
                  $
                  -
                  
                  
                  $
                  2,446





Our U.S.
net operating loss carry forwards in the amount of $69.1 million at December 31,
2008 will expire in tax years ending 2012 through 2028.   Our AMT
credits of $1.8 million have no expiration date.  Our other general
business tax credits of $1.9 million will expire in tax years ending 2009
through 2028.  Our state net operating loss carry forwards in the
amount of $11.9 million at December 31, 2008 will expire in tax years ending
2020 through 2028.Due to certain significant
changes in ownership in prior years, some of the net operating losses may be
subject to limitation under Internal Revenue Code Section 382.





We have
performed an assessment of positive and negative evidence regarding the
realization of the deferred tax assets in accordance with SFAS
No. 109,Accounting for
Income Taxes. This assessment included the evaluation of estimates of
projected future taxable income and implementation of tax planning
strategies.  Due to the current economic conditions, we have
reevaluated our tax planning strategies and determined that it may not be
prudent and feasible to implement the tax planning strategies at this
time.  As a result, we have concluded that it is more likely than not
that the net deferred tax assets without valuation allowance as of December 31,
2007 will not be realized. As such, we increased our valuation
allowance.  Our valuation allowance was $30.0 million at December 31,
2008 and $24.2 million at December 31, 2007.




In June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes — an interpretation of
FASB Statement No. 109" (FIN 48), which clarifies the accounting and
disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce
the diversity in practice associated with certain aspects of the recognition and
measurement related to accounting for income taxes. The Company is subject to
the provisions of FIN 48 as of January 1, 2007. The Company believes that its
income tax filing positions and deductions will be sustained on audit and does
not anticipate any adjustments that will result in a material adverse effect on
the Company's financial condition, results of operations, or cash flow.
Therefore, no reserves for uncertain income tax positions have been recorded
pursuant to FIN 48. In addition, the Company did not record a cumulative effect
adjustment related to the adoption of FIN 48.


F-25


Management
does not believe that the amounts of unrecognized tax benefits will increase
within the next twelve months.  With a few exceptions, we are no
longer subject to U.S. federal, state and local income tax examinations for
years before 1994.





13.
            COMMITMENTS
      AND CONTINGENCIES





The
Company is party to routine lawsuits arising from the normal operations of a
casino or hotel. We do not believe that the outcome of such litigation, in the
aggregate, will have a material adverse effect on the financial position,
results of operations, or cash flows of the Company.





14.
            EMPLOYMENT
      AGREEMENTS AND EMPLOYEE BENEFIT
PLANS





William
L. Westerman serves as Chairman of the Board, President and CEO, and as Chairman
of the Board and CEO of the Company’s wholly-owned subsidiary, Riviera Operating
Corporation (“ROC”), and CEO of Riviera Black Hawk Inc.





Under Mr.
Westerman’s employment agreement, which was last amended by the Third Amendment
to the employment agreement on March 4, 2008, he is employed for one-year
(calendar year) terms,which automatically renew
for successive one-year terms unless written notice is provided by Mr.Westerman at least 180
days, or by us at least 90 days, prior to termination of the current term.
Mr. Westerman’s base annual compensation is $1,000,000. The Third Amendment
provides that, effective January 1, 2008, Mr. Westerman is eligible to
participate in the Company’s senior management incentive compensation
plan.  Mr. Westerman received a discretionary bonus of $300,000
in 2008 for the Company’s 2007 performance.  Mr. Westerman did not
receive an award under the Incentive Compensation Program for the Company’s 2008
performance.





On
February 5, 1998, Stockholders approved a merger agreement that constituted a
change of control under Mr. Westerman’s employment agreement.  (That
merger agreement was terminated without consummation of the
merger.)  On March 5, 1998, Mr. Westerman exercised his right to
require the Company to establish and fund a Rabbi Trust for his
benefit.  On March 20, 1998, Mr. Westerman waived his right to have
the Company fund the Rabbi Trust in exchange for an agreement to fund it within
five business days after notice from him.





Mr.
Westerman’s employment agreement required the Company to fund a retirement
account for him.  The Company no longer makes principal contributions
to the retirement account, but the account continues to accrue interest. The
retirement account had a balance, including accrued interest, of $1,028,000 as
of December 31, 2008.





The
Company credits Mr. Westerman’s retirement account quarterly with interest on
the first day of each succeeding calendar quarter in an amount equal to the
product of (i) the Company’s average borrowing rate for the immediately
preceding fiscal year, as determined by the Chief Financial Officer, and (ii)
the average outstanding balance in the retirement account during the preceding
calendar quarter.  At the recommendation of the Committee, in order to
reduce the amount that would be payable immediately upon Mr. Westerman’s
separation from employment with the Company, Mr. Westerman and the Company
agreed that commencing April 1, 2003, and continuing the first day of each
quarter thereafter, he be paid the following in cash:  (i) a
distribution of $250,000 from the principal balance of his retirement account;
and (ii) the quarterly interest credited to his retirement account one quarter
in arrears.


F-26


The
Company retains beneficial ownership of Mr. Westerman’s retirement account,
which is earmarked to pay his retirement benefits.  However, upon (1)
the vote of a majority of the outstanding shares of common stock approving a
“change of control” (as discussed in the next paragraph), (2) the occurrence of
a change of control without Mr. Westerman’s consent, (3) a breach by the Company
of a material term of the employment agreement or (4) the expiration or earlier
termination of the employment agreement for any reason other than cause, Mr.
Westerman has the right to require the Company to establish a “Rabbi Trust” for
his benefit and to require the Company to fund it with cash equal to the amount
then credited to his retirement account, including any amount to be credited to
his retirement account upon a change of control.





In the
event that Mr. Westerman ceases to be employed by the Company (except for
termination for cause, in which case Mr. Westerman would forfeit all rights to
monies in the retirement account), he will be entitled to receive the amount in
the retirement account (principal and interest) in 20 equal quarterly
installments commencing as of the date he ceases to be employed.  In
the event that Mr. Westerman’s Rabbi Trust has not yet been funded, the
balance of principal and interest of the retirement account shall be paid
directly to Mr. Westerman upon his retirement or termination (except for cause)
or upon a change of control.





Mr.
Westerman’s agreement also provides that for a period of 24 months following
termination for any reason except cause, he shall not engage in any activity,
which is in competition with the Company within a 75-mile radius from the
location of any hotel or casino then operated by the Comany.  As
consideration for not competing, the Company will pay to Mr. Westerman a total
of $500,000 in two equal annual installments of $250,000.  The first
installment is payable within five business days of termination of employment
with the second installment payable on the first anniversary of
termination.





In
addition to Mr. Westerman, one other executive, Robert Vannucci, has an
employment agreement with the Company.





Mr.
Vannucci serves as President and COO of ROC.  The Company entered into
an employment agreement with Mr. Vannucci effective September 1,
2006.  The agreement is for a one-year term and automatically renews
for successive one-year terms.  Mr. Vannucci’s base compensation is
$400,000.   His employment agreement also provides for an annual
incentive award of $200,000 plus an amount for a stretch bonus under the
Company’s Incentive Compensation Program if Riviera Las Vegas fully achieves our
financial targets at Riviera Las Vegas in 2009 (or a prorated award, if we
partially achieve those targets).  For 2008, Mr. Vannucci did not
receive an award under the Incentive Compensation Program.  Mr.
Vannucci received an Incentive Compensation Program award of $203,458 and
$92,500 for 2007 and 2006, respectively.  Mr. Vannucci or the Company
may terminate the employment agreement at any time upon 30 days prior written
notice, but if the Company terminates it without cause, then Mr. Vannucci will
be entitled to one year’s salary, a prorated award under the Company’s Incentive
Compensation Program, two years of health insurance benefits and a one-year
automobile allowance of $6,000, plus reimbursement of all reasonable automobile
expenses (excluding lease or loan payments).





Incentive
Compensation Program —the Company has an Incentive
Compensation Program covering employees who, in the opinion of the Company’s
Chairman of the Board, either serve in key executive, administrative,
professional, or technical capacities with the Company, or who have made a
significant contribution to the successful and profitable operation of the
Company. The amount of each bonus is based upon a sliding targeted scale of
earnings established annually.  During the years ended
December 31, 2008, 2007 and 2006, the Company recorded accrued bonuses of
$111,000, $1,716,000 and $581,000 respectively.  Accrued bonuses in
2008 were for sales management personnel.


F-27


Pension Plan
Contributions— the Company contributes to multi-employer
pension plans under various union agreements in Las Vegas to which the Company
is a party.  Contributions, based on wages paid to covered employees,
were approximately $2,020,000, $1,989,000 and $1,952,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.





Profit Sharing
and 401(k) Plans —the Company has profit sharing and 401(k)
plans (the “Profit Sharing and 401(k) Plans”) for employees of Riviera Las Vegas
and Riviera Black Hawk who are at least 21 years of age and who are not covered
by a collective bargaining agreement and are eligible after ninety days of
service.





Effective
January 1, 2008 the Company amended its 401(k) Plans to an amount not to exceed
50% of the first 6% of each participant’s compensation.  Prior to
January 1, 2008 the Company match was 25% of the first 8%.  The
Company made contributions of $452,000, $279,000 and $276,000 for the years
ended December 31, 2008, 2007 and 2006, respectively. The Company also pays
administrative costs of the Profit Sharing and 401(k) Plans, which are not
significant.  Effective January 1, 2009, the Company suspended the
Company match to the 401(k) Plans indefinitely.





Prior to
2003, the Company suspended contributions to the profit sharing component of the
Profit Sharing and 401(k) Plans and the Company substituted contributions to an
Employee Stock Ownership Plan (“ESOP”), (see “Employee Stock Ownership Plan,”
directly below).





Employee Stock
Ownership Plan— The ESOP was established prior to 2003 to
replace the profit sharing contribution component of the Profit Sharing and
401(k) Plans. The 401(k) component remains unchanged.  The ESOP
provides that all employees of Riviera Las Vegas and Riviera Black Hawk who were
employed on and completed a minimum of 1,000 hours of service by,
December 31 of that plan year, were at least 21 years of age, and were not
covered by a collective bargaining agreement are eligible to participate in the
ESOP.  The ESOP provides that the Company will make a contribution to
the ESOP’s participants at Riviera Las Vegas and Riviera Black Hawk relative to
the economic performance of each property and for the corporate participants
relative to the economic performance of the entire Company.  The
Company will make a contribution equal to 1% of each eligible employee’s annual
compensation if a prescribed annual operating earnings target is attained and an
additional 1% thereof for each $2 million by which operating earnings are
exceeded, up to a maximum of 4% for 2007.  Under the ESOP, the
Company’s contributions are made in cash, which may be used to buy our common
stock and pay participants upon separation of service.  The Company
contributed $316,000 in 2007 to the ESOP.  No contributions were made
in 2006 and 2008.





Deferred
Compensation Plan— Prior to 2003, the Company adopted a
Deferred Compensation Plan (the “DCP”). The purpose of the DCP is to provide
eligible employees with the opportunity to defer the receipt of cash
compensation. Participation in the DCP is limited to employees who receive
annual compensation of at least $100,000. The deferred funds, other than the
common stock component, were maintained on the Company books as funded
liabilities under Rabbi Trusts for the benefit of the participants. All
elections to defer the receipt of compensation must be made no later than
December 1st
preceding the plan year to which the election relates and are irrevocable for
the duration of that plan year. No deferrals have been made since 2004 and the
plan distributed the remaining common stock to participants during
2007.  There was no balance in the Deferred Compensation Plan as of
December 31, 2008 and 2007, respectively.





Restricted Stock
Plan— Prior to 2003, the Company adopted a Restricted Stock
Plan to provide incentives, to attract and retain highly competent persons as
officers and key employees. Participants consist of such officers and key
employees as the Company’s Compensation Committee determines to be significantly
responsible for its success and future growth and
profitability.  Awards of restricted stock are subject to such terms
and conditions as we determine to be appropriate at the time of the grant,
including restrictions on the sale or other disposition of such shares and
provisions for the forfeiture of unvested shares for no consideration upon
termination of the participant’s employment within specified periods or under
certain conditions (Note 13).


F-28


Salary
Continuation Agreements— Approximately 62 executive officers
and certain other employees (excluding Mr. Vannucci) of ROC and RBH have salary
continuation agreements effective through December 2009.  The
agreements entered into with 53 significant ROC employees entitle 51 such
employees to six months of base salary and health insurance benefits, subject to
such employees’ duty to mitigate by obtaining similar employment elsewhere, in
the event of a Company Termination within 12 months after a change in
control.  Two ROC employees are entitled to 12 months of base salary
and 24 months of health insurance benefits in the event of a Company Termination
within 24 months after a change in control with no duty to
mitigate.  Substantially similar agreements were entered into with six
RBH employees, which include in such agreements definition of “change in
control” regarding the sale of RBH by RHC and/or ROC to a non-affiliate of
either the Company or ROC.  In addition, the Company entered into
agreements with William Westerman and Tullio J. Marchionne, RHC’s Secretary and
General Counsel and ROC’s Secretary and Executive Vice President which entitle
Mr. Westerman and Mr. Marchionne to 24 months of base salary and 24 months of
health insurance benefits in the event of a Company termination within 24 months
after a change in control of RHC.  The Company also entered into an
agreement with Phillip B. Simons, RHC’s Treasurer and CFO and ROC’s Vice
President of Finance which entitles Mr. Simons to 12 months of base salary and
24 months of health insurance benefits in the event of a Company termination
within 24 months after a change of control of RHC.  The estimated
total amount payable under all such agreements was approximately $5.7 million,
which includes $710,000 in benefits, as of December 31, 2008.





15.
            STOCK
      OPTION PLANS




Stock
Compensation Plans— At
December 31, 2008, the Company had two active stock option plans and two
expired stock option plans, which are described below.  Under the 1993
Employee Stock Option Plan (the “1993 Option Plan”), the Company was authorized
to grant options to employees for up to one million shares of its common stock.
Under the Non-Qualified Stock Option Plan for Non-Employee Directors (the “1996
Option Plan”), the Company was authorized to grant options to non-employee
directors for up to 150,000 shares of common stock.  Under these
plans, the exercise price of each option equaled the market price of the Company
stock on the date of grant.  All options have become vested under the
1996 Option Plan.  Although the 1993 Option Plan and 1996 Option Plan
have expired, some options granted under these plans are still
outstanding.





Effective
May 17, 2005, the Company implemented two new stock option plans and reserved a
total of 1,150,000 shares for options issuable under the plans.  The
Company allocated 150,000 shares to a new option plan for non-employee
directors.  The Company will grant options for 6,000 shares to each
non-employee director on each anniversary of the effective date of the
plan.  Also, the Company will grant options for 6,000 shares to each
person who becomes a non-employee director after May 17, 2005.  The
option exercise price will be the closing market price of the Company stock on
the date of the option grant.  The options will vest over five years
at 20% per year, commencing on the first anniversary of the grant.





In 2005,
the Company allocated one million shares to a new incentive stock option plan
for its officers and key employees.  Our Compensation Committee will
have discretion as to whom those options will be granted and the number of
shares to be allocated to each option grant.  The option exercise
price will be the closing market price of the Company stock on the date of the
option grant.  The options will vest over four years, with 20% vesting
on the date of grant, and an additional 20% on each anniversary of the
grant.


F-29


In March
of 2005 the Company granted 385,500 restricted shares to 21 executives under its
Restricted Stock Plan.  On December 31, 2008, 87,000 restricted shares
remained outstanding.  As of December 31, 2008, $714,086 remained to
be realized as expense related to these shares.  This amount will be
recognized straight line over the remaining 2 years.  On the 2008
anniversary of the grant, 43,500 shares vested and the restrictions were
lifted.


F-30


One
executive left the Company in 2008 and forfeited 4,800 restricted
shares.  Except for accelerated vesting in the event of an executive’s
death or disability, retirement at or after age 62, termination of employment by
us other than for cause, or certain events of hardship, or in the event of a
change in control of the Company, the vesting schedule for the shares is as
follows.





March
      10, 2006
                  
                  
                  20
                  %March
      10, 2007
                  
                  
                  40
                  %March
      10, 2008
                  
                  
                  60
                  %March
      10, 2009
                  
                  
                  80
                  %March
      10, 2010
                  
                  
                  100
                  %





On May
27, 2005, the Company granted a total of 30,000 shares of stock to its
non-employee directors.  Those shares are subject to restrictions on
re-sales, assignments, pledges, encumbrances or other transfers prior to
vesting.  The shares vest at the rate of 20% per year on each
anniversary of the grant date.  However, accelerated vesting will
occur upon death, disability, a change of control of the Company or under any
other termination of directorship status, except resignation prior to reaching
age 62 or declining to stand for reelection prior to reaching age 62 (which
would result in forfeiture of the non-vested shares).





The
activity of the 1993 Option Plan and the two director option plans (the 1996
Option Plan and the 2005 Stock Option Plan for Non-employee Directors) is as
follows:




Weighted-AveragePer
      ShareExerciseStock
      Options
                            
                            Shares
                            
                            
                            PriceOutstanding,
      December 31, 2005
                            
                            
                            310,500
                            
                            
                            $
                            2.45Automatic
      grant to directors
                            
                            
                            24,000
                            
                            
                            $
                            21.60Exercised
                            
                            
                            (97,500
                            )
                            
                            $
                            2.63Forfeited
                            
                            
                            (3,000
                            )
                            
                            $
                            2.45Outstanding,
      December 31, 2006
                            
                            
                            234,000
                            
                            
                            $
                            4.33Automatic
      grant to directors
                            
                            
                            24,000
                            
                            
                            $
                            36.56Outstanding,
      December 31, 2007
                            
                            
                            258,000
                            
                            
                            $
                            7.33Exercised
                            
                            
                            (42,000
                            )
                            
                            $
                            2.45Automatic
      grant to directors
                            
                            
                            24,000
                            
                            
                            $
                            15.35Outstanding,
      December 31, 2008
                            
                            
                            240,000
                            
                            
                            $
                            8.99




Outstanding
                  
                  Average
                  
                  Weighted-at
                  
                  Remaining
                  
                  AverageRange of
                  
                  December 31,
                  
                  Contractual
                  
                  ExerciseExercise Prices
                  
                  2008
                  
                  Life
                  
                  Price$1.33
      to $2.00
                  
                  
                  36,000
                  
                  3.82
      years
                  
                  $
                  1.91$2.18
      to $20.00
                  
                  
                  156,000
                  
                  4.93
      years
                  
                  $
                  4.44$20.00
      to $36.56
                  
                  
                  48,000
                  
                  7.92
      years
                  
                  $
                  29.08


F-31




Shares
                  
                  
                  Exercise
                    Price
                  
                  Weighted Average
                    Remaining Life
                  
                  Aggregate
                    Intrinsic ValueShares
      exercisable 12/31/08
                  
                  
                  168,000
                  
                  
                  $
                  2.34
                  
                  2.71
      years
                  
                  $
                  110,880





42,000
options were exercised in 2008 at a weighted average exercise price of
$2.45.  The total intrinsic value of options exercised during 2008 was
$23,100 as of December 31, 2008.





Option
expense recorded in 2008, 2007 and 2006 was $192,000, $223,000 and $72,000,
respectively.  Restricted stock expense recorded in 2008, 2007 and
2006 was $603,000, $744,000 and $741,000, respectively.   As of
December 31, 2008, $92,000 remains to be recorded as expense for outstanding
options.





The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
thefollowingweighted-average assumptions used for
grants in 2008, respectively: dividend yield of 0%; average expected volatility
58% based on history of the stock price; risk-free interest rates of 3.23%; and
average expected life of 2.4 years. The average weighted fair value of options
granted in 2008, 2007 and 2006 was $5.09, $11.06 and $14.30 per share,
respectively.




16.
            GUARANTOR
      INFORMATION




The New
Credit Facility is guaranteed by the Subsidiaries, which are all of the
Company’s restricted subsidiaries. These guaranties are full, unconditional, and
joint and several. RHC’s unrestricted subsidiaries, which have no operations and
do not significantly contribute to its financial position or results of
operations, are not guarantors of the New Credit Facility.





17.
            LOSS
      PER SHARE





Basic
loss per share is computed by dividing net loss per share by the
weighted-average number of common shares outstanding for the
period.  Diluted loss per share is computed by dividing net income by
the weighted number of common and common-equivalent shares outstanding for the
period.  Options to purchase common stock, whose exercise price was
greater than the average market price for the period have been excluded from the
computation of diluted loss per share as their effect would have been
anti-dilutive. Such anti-dilutive options excluded from the calculation of
diluted loss per share for the years ended December 31, 2008, 2007 and 2006
were 141,177, 265,486; and 171,353, respectively based on the treasury
method.





18.
            RELATED
      PARTY TRANSACTIONS





Jeffrey
A. Silver, a former member of the Company’s board of directors who resigned from
the board effective February 23, 2009, is a shareholder in the law firm of
Gordon & Silver, Ltd. (“Gordon & Silver”).  The Company
engaged Gordon & Silver for various securities issues and other legal
matters since 1993.  We continue to utilize the services of Gordon
& Silver. The Company incurred legal expenses to the firm which are included
in mergers, acquisitions and development cost of $174,000 and $495,000 in 2007
and 2006, respectively. No legal expenses for mergers, acquisitions and
development were incurred in 2008. The Company incurred legal expenses to the
firm, which are included in other general and administrative costs, of $5,000,
$67,000 and $56,000 in 2008, 2007 and 2006, respectively.





The
Company incurred legal expenses to the firm, which are included in our
refinancing costs of $124,000 for 2007.


F-32


19.
            SEGMENT
      DISCLOSURES





We review
our operations by our geographic gaming market segments:  Riviera Las
Vegas and Riviera Black Hawk. All inter-segment revenues have been
eliminated.





(in
      thousands)
                                                        
                                                        2008
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2006Net
      revenues:Riviera
      Las Vegas
                                                        
                                                        $
                                                        128,031
                                                        
                                                        
                                                        $
                                                        151,505
                                                        
                                                        
                                                        $
                                                        149,202Riviera
      Black Hawk
                                                        
                                                        
                                                        41,729
                                                        
                                                        
                                                        
                                                        53,990
                                                        
                                                        
                                                        
                                                        51,742Total
      net revenues
                                                        
                                                        $
                                                        169,760
                                                        
                                                        
                                                        $
                                                        205,495
                                                        
                                                        
                                                        $
                                                        200,944Property
      EBITDA(1)Riviera
      Las Vegas
                                                        
                                                        $
                                                        18,748
                                                        
                                                        
                                                        $
                                                        30,166
                                                        
                                                        
                                                        $
                                                        28,075Riviera
      Black Hawk
                                                        
                                                        
                                                        12,209
                                                        
                                                        
                                                        
                                                        19,133
                                                        
                                                        
                                                        
                                                        16,825Other
      costs and expenses:Corporate
      expenseShare-based
      compensation
                                                        
                                                        
                                                        795
                                                        
                                                        
                                                        
                                                        966
                                                        
                                                        
                                                        
                                                        813Other
      corporate expenses
                                                        
                                                        
                                                        3,857
                                                        
                                                        
                                                        
                                                        4,745
                                                        
                                                        
                                                        
                                                        4,644Depreciation
      and amortization
                                                        
                                                        
                                                        14,883
                                                        
                                                        
                                                        
                                                        13,116
                                                        
                                                        
                                                        
                                                        12,691Mergers,
      acquisitions and development costs, net
                                                        
                                                        
                                                        191
                                                        
                                                        
                                                        
                                                        611
                                                        
                                                        
                                                        
                                                        1,318Asset
      impairments
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        72
                                                        
                                                        
                                                        
                                                        18Loss
      on retirement of bonds
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        12,878
                                                        
                                                        
                                                        
                                                        -Change
      in fair value of derivative instruments
                                                        
                                                        
                                                        3,556
                                                        
                                                        
                                                        
                                                        13,272
                                                        
                                                        
                                                        
                                                        -Interest
      expense
                                                        
                                                        
                                                        17,429
                                                        
                                                        
                                                        
                                                        23,756
                                                        
                                                        
                                                        
                                                        26,366Interest
      income
                                                        
                                                        
                                                        (338
                                                        )
                                                        
                                                        
                                                        (1,859
                                                        )
                                                        
                                                        
                                                        (615
                                                        )40,373
                                                        
                                                        
                                                        
                                                        67,557
                                                        
                                                        
                                                        
                                                        45,235Net
      loss before income tax provision
                                                        
                                                        
                                                        (9,416
                                                        )
                                                        
                                                        
                                                        (18,258
                                                        )
                                                        
                                                        
                                                        (335
                                                        )Income
      tax provision
                                                        
                                                        
                                                        (2,446
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -Net
      loss
                                                        
                                                        $
                                                        (11,862
                                                        )
                                                        
                                                        $
                                                        (18,258
                                                        )
                                                        
                                                        $
                                                        (335
                                                        )Interest
      expense:Riviera
      Las Vegas
                                                        
                                                        $
                                                        12,164
                                                        
                                                        
                                                        $
                                                        16,851
                                                        
                                                        
                                                        $
                                                        18,643Riviera
      Black Hawk
                                                        
                                                        
                                                        5,265
                                                        
                                                        
                                                        
                                                        6,905
                                                        
                                                        
                                                        
                                                        7,723$
                                                        17,429
                                                        
                                                        
                                                        $
                                                        23,756
                                                        
                                                        
                                                        $
                                                        26,366Depreciation
      ExpenseRiviera
      Las Vegas
                                                        
                                                        $
                                                        10,599
                                                        
                                                        
                                                        $
                                                        9,143
                                                        
                                                        
                                                        $
                                                        9,032Riviera
      Black Hawk
                                                        
                                                        
                                                        4,284
                                                        
                                                        
                                                        
                                                        3,973
                                                        
                                                        
                                                        
                                                        3,659$
                                                        14,883
                                                        
                                                        
                                                        $
                                                        13,116
                                                        
                                                        
                                                        $
                                                        12,691Asset
      Impairment:Riviera
      Las Vegas
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        19Riviera
      Black Hawk
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        72
                                                        
                                                        
                                                        
                                                        -$
                                                        -
                                                        
                                                        
                                                        $
                                                        72
                                                        
                                                        
                                                        $
                                                        19December 31Property
      and equipment (2):
                                                        
                                                        2008
                                                        
                                                        
                                                        2007Riviera
      Las Vegas
                                                        
                                                        $
                                                        119,155
                                                        
                                                        
                                                        $
                                                        109,885Riviera
      Black Hawk
                                                        
                                                        
                                                        60,763
                                                        
                                                        
                                                        
                                                        62,980$
                                                        179,918
                                                        
                                                        
                                                        $
                                                        172,865


F-33


(1)
            Property
      EBITDA consists of earnings before interest, income taxes, depreciation
      and amortization.  EBITDA is presented solely as a supplemental
      disclosure because we believe that it is a widely used measure of
      operating performance in the gaming industry and a principal basis for
      valuation of gaming companies by certain investors.  We use
      property-level EBITDA (EBITDA before corporate expenses) as the primary
      measure of operating performance of our properties, including the
      evaluation of operating personnel.  EBITDA should not be
      construed as an alternative to operating income, as an indicator of
      operating performance, as an alternative to cash flow from operating
      activities, as a measure of liquidity, or as any other measure determined
      in accordance with accounting principles generally accepted in the United
      States of America.  We have significant uses of cash flows,
      including capital expenditures, interest payments and debt principal
      repayments that are not reflected in EBITDA.  Also, other gaming
      companies that report EBITDA information may calculate EBITDA in a
      different manner than we do.





(2)
            Property
      and equipment represent property and equipment net of accumulated
      depreciation and amortization.





20.  UNAUDITED
QUARTERLY FINANCIAL DATA





RIVIERA
HOLDINGS CORPORATION





UNAUDITED
QUARTERLY FINANCIAL DATA


(Amounts
in Thousands, Except per Share Data)


March 31
                
                
                June 30
                
                
                September 30
                
                
                December 31Year ended December 31, 2008Net
      revenues
                
                $
                47,962
                
                
                $
                45,615
                
                
                $
                40,208
                
                
                $
                35,975Operating
      income
                
                
                6,700
                
                
                
                5,044
                
                
                
                195
                
                
                
                (708
                )Income
      (loss) before tax provision
                
                
                (5,783
                )
                
                
                10,073
                
                
                
                (3,464
                )
                
                
                (10,242
                )Net
      Income (loss)
                
                
                (5,783
                )
                
                
                10,073
                
                
                
                (3,464
                )
                
                
                (12,688
                )Income
      (loss) per share—basic
                
                $
                (0.46
                )
                
                $
                0.81
                
                
                $
                (0.28
                )
                
                $
                (1.02
                )Income
      (loss) per share—diluted
                
                $
                (0.46
                )
                
                $
                0.80
                
                
                $
                (0.27
                )
                
                $
                (1.02
                )Year
      ended December 31, 2007Net
      revenues
                
                $
                52,027
                
                
                $
                53,665
                
                
                $
                52,380
                
                
                $
                47,423Operating
      income
                
                
                8,961
                
                
                
                9,439
                
                
                
                6,664
                
                
                
                4,725Income
      (loss) before tax benefit
                
                
                2,562
                
                
                
                3,574
                
                
                
                (18,254
                )
                
                
                (6,140
                )Net
      Income (loss)
                
                
                2,562
                
                
                
                3,574
                
                
                
                (18,254
                )
                
                
                (6,140
                )Income
      (loss) per share—basic
                
                $
                0.21
                
                
                $
                0.29
                
                
                $
                (1.48
                )
                
                $
                (0.50
                )Income
      (loss) per share—diluted
                
                $
                0.20
                
                
                $
                0.28
                
                
                $
                (1.47
                )
                
                $
                (0.49
                )


F-34