R&E GAMING CORP.
                                               POST OFFICE BOX 9660
                                         RANCHO SANTA FE, CALIFORNIA 92067

                                                           March 20, 1998

VIA FACSIMILE AND U.S. MA11L

Riviera Holdings Corporation
2901 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Fax: (702) 794-9277
Attention: Mr. William L. Westerman

     Re:    Agreement and Plan of Merger re Riviera Holdings Corporation

Dear Mr. Westerman:

               We write to advise you that, by reason of fraud in the inducement
and other  circumstances set forth below, the Agreement and Plan of Merger dated
as of  September  15, 1997 (the  "Riviera  Merger  Agreement")  by and among R&E
Gaming Corp. ("R&E Gaming"),  Riviera  Acquisition Sub, Inc. ("RAS") and Riviera
Holding Corporation ("RHC") is void.

               Alternatively,  if the Riviera  Merger  Agreement is not void, we
write  to  advise  you,  pursuant  to  Section  6.1  (d) of the  Riviera  Merger
Agreement, that RHC is in breach of the Riviera Merger Agreement.

Fraud Infecting and Invalidating the Riviera Merger Agreement

               The Riviera Merger Agreement was executed  simultaneously  and in
conjunction  with: (i) the Option and Voting Agreement dated as of September 15.
1997 (the  "Riviera  Option  Agreement")  by and among R&E Gaming  and  Morgens,
Waterfall,  Vintiadis  & Company,  Inc.  ("Morgens,  Waterfall"),  Keyport  Life
Insurance   Company   ("Keyport")   and  SunAmerica   Life   Insurance   Company
("SunAmerica");  (ii) the Agreement and Plan of Merger dated as of September 15,
1997  (the  "Elsinore  Merger  Agreement")  by and among  R&E  Gaming,  Elsinore
Acquisition Sub, Inc. ("EAS") and Elsinore Corporation  ("Elsinore"),  and (iii)
the Option and Voting  Agreement  dated as of September 15, 1997 (the  "Elsinore
Option Agreement") by and between R&E Gaming and Morgens, Waterfall.

               Section 2. 1 (e) of the concurrently executed Elsinore Option
               Agreement provides that:

               "[The Option] Seller  [Morgens,  Waterfall] is not a party to any
               agreement  or  understanding  that  would  make it subject to any
               valid claim of any  broker,  investment  banker,  finder or other
               intermediary in connection with the transactions  contemplated by
               this [Option] Agreement."



<PAGE>


Mr. William L. Westerman
March 20, 1998
Page 2

Similarly, Section 2.1 (e) of the Riviera Option Agreement provides that:

               "[Each Option]  Seller  [including  Morgens,  Waterfall] is not a
               party  to any  agreement  or  understanding  that  would  make it
               subject  to any valid  claim of any  broker,  investment  banker,
               finder or other  intermediary in connection with the transactions
               contemplated by this [Option] Agreement. "

               Prior to and after  entering into the Elsinore  Option  Agreement
and the Riviera Option  Agreement,  Morgens,  Waterfall had an agreement  and/or
understanding  with Jefferies & Company  ("Jefferies")  whereby  Jefferies would
receive a fee in excess of $1 million in  connection  with the sale of  Morgens,
Waterfall's  shares of common stock that were the subject of the Elsinore Option
Agreement.  This agreement and/or  understanding was not disclosed to R&E Gaming
and is clearly a breach of the  representations  set forth in Sections 2.1(e) of
the Elsinore Option Agreement. Further, because the Elsinore Option Agreement is
contemplated   in   the   Riviera   Option   Agreement,    the   Jefferies   fee
agreement/understanding also breaches the Riviera Option Agreement.

               All parties were aware that Jefferies was  purportedly  acting as
R&E Gaming's  exclusive  financial  advisor  regarding  the Riviera and Elsinore
mergers. Because (i) R&E Gaming was advised by Jefferies regarding the value and
price of the transaction  represented by the Riviera and Elsinore  mergers,  and
(ii) such mergers are  mutually  dependent  and  inextricably  intertwined,  the
referenced fee and the misrepresentations regarding the same created a material,
undisclosed conflict of interest which calls into question,  among other things,
the valuation of the Riviera and Elsinore  mergers in light of: (x)  projections
regarding  Elsinore's  performance  on which R&E Gaming relied and later learned
were false,  incomplete and/or misleading,  and (y) the new $175 million in debt
which RHC undertook (and paid Jefferies a substantial  fee to place) in the face
of doubtful  economic  conditions to the detriment of RHC's  firiancial  health.
This  conflict of interest  and these  misrepresentations  so  contaminated  the
underlying  negotiations  regarding  the Riviera and  Elsinore  mergers (and the
associated Option Agreements) that binding and enforceable  agreements could not
be formed in either instance.  Accordingly, the Riviera Merger Agreement is void
ab initio.

Breach of the Riviera Merger Agreement

               Even if the Riviera  Merger  Agreement is somehow  deemed viable,
certain  conditions to R&E Gaming's and RAS' would-be  obligations have not been
satisfied and RHC is in breach of certain of its representations, warranties and
agreements.

        A.     Failure of Conditions

               First,  the existence  and  effectiveness  of the Riviera  Option
Agreement  was a  specific  and  material  pre-condition  to the  formation  and
performance of the Riviera Merger



<PAGE>


Mr. William L. Westerman
March 20, 1998
Page 3

Agreement.1/ The above referenced events contaminated the underlying negotiation
and execution of the Riviera Merger  Agreernent.2/  This  contamination  and the
fact that the Riviera Option Agreement was and is void precluded the creation of
a binding and enforceable merger agreement. Thus, RHC has not and cannot satisfy
a material  condition of the Riviera  Merger  Agreement  and is in breach of the
same.

               Further, Morgens,  Waterfall has breached other provisions of the
Riviera Option Agreement, including but not limited to:

               -      Morgens, Waterfall failed to provide information regarding
                      the fee and/or other issues (Section 4.3);

               -      Morgens,  Waterfall  failed to provide  prompt notice that
                      its  representations or warranties were no longer accurate
                      and/or of its  failure to comply  with its  covenants  and
                      agreements (Section 4.6);

               -      Morgens,  Waterfall  failed to  provide  prompt  notice of
                      events  that  make  the  satisfaction  of  the  conditions
                      precedent in Section 5.1 unlikely or  impossible  (Section
                      4.6);

               -      Representations and warranties claimed to be true and
                      correct, are not (Section 5.1);

               Accordingly,  Section 5.2(c) of the Riviera Merger  Agreement has
not been  complied  with in that  Morgens,  Waterfall  has not  complied  in all
respects with the terms of the Riviera Option Agreement.

               Second, Section 5.2(b) of the Riviera Merger Agreement provides:
-------------------------------------

1/     The Recitals to the Riviera Merger Agreement state:

"[R&E] Gaming and RAS are unwilling to enter into this [Merger] Agreement unless
[R&E] Gaming, contemporaneously with the execution and delivery of this [Merger]
Agreement,  enters  into . . . the  'Riviera  Option  Agreement'  with  Morgens,
Waterfall. . . ."

       Further,  Section 5.2(c) of the Riviera Merger Agreement sets forth, as a
       condition  to the  obligations  of R&E Gaming and RAS,  that "the Riviera
       Option Agreement shall be in fall force and effect and the Option Sellers
       [including  Morgens,  Waterfall] shall have complied in all respects with
       the terms thereof."

2/ By its  approval of the Riviera  Option  Agreement  and the  representations,
warranties,  covenants and conditions therein, RHC ratified the wrongful conduct
of one of its primary shareholders, Morgens, Waterfall.



<PAGE>


Mr. William L. Westerman
March 20, 1998
Page 4

               "The actual  Consolidated  EBITDA  reflected in the  consolidated
               statement of operations  of the Company for the Projected  Period
               shall  not have  declined  by 7.5% or more when  compared  to the
               Projected Results for the Projected Period."

               RHC  cannot  legitimately  meet  this  requirement  -- if at all.
Further, RHC has materially altered its business operations (in violation of the
provisions  of the  Riviera  Merger  Agreement)  in an attempt  to satisfy  this
condition. Such bad faith conduct will not satisfy this condition or other terms
of the Riviera  Merger  Agreement.  Furthermore,  there have been other changes,
including a material change in financial conditions,  which constitute a Company
Material Adverse Effect, as defined in the Riviera Merger Agreement.

               Third,  Section 5.2(e) of the Riviera Merger  Agreement  provides
that:

               "Gaming shall have  received such  documents as Gaming or RAS may
               reasonably request for the purpose of (i) evidencing the accuracy
               at any time on or prior the Closing Date of any of the  Company's
               representations  and warranties,  (ii) evidencing the performance
               by the Company of, or the  compliance  by the Company  with,  any
               covenant or obligation  required to be performed or complied with
               by  the  Company,   (iii)  evidencing  the  satisfaction  of  any
               condition  referred  to in  Sections  5.1 and 5.2  hereof or (iv)
               otherwise  facilitating the consummation or performance of any of
               the transactions contemplated hereby."

               Over the last  several  weeks,  R&E Gaming  representatives  have
requested documents and information regarding a variety of issues including: all
action by the Board of Directors  since November 1, 1996;  communications,  work
papers  and  reports  of  RHC's   accountants   and   auditors;   support   for,
correspondence and other communications  related to the approximately $1 million
fee to Jefferies referenced in the Riviera Proxy Statement; schedules, contracts
and  reports  regarding  the  Black  Hawk  project  and site;  filings  with the
Securities Exchange  Commission;  and certain schedules,  records and agreements
relating to  employment  and staffing of all positions  throughout  RHC. RHC has
failed or refused to produce all documents  and/or has  unreasonably  delayed in
doing so.  Further,  letters were sent to the Riviera Option Sellers  requesting
assurances that no commission or fee was to be paid by any of them in connection
with the Riviera Merger Agreement or the Riviera Option  Agreement;  though such
parties were advised  that this request was  materially  important to R&E Gaming
for the reasons  described above,  responses have not been received from all the
Riviera Option Sellers.

               Fourth, Section 5.2(a) of the Riviera Merger Agreement provides:

               "The Company shall have performed in all material respects all of
               its  obligations  under this  [Merger]  Agreement  required to be
               performed  by it at or  prior  to  the  Effective  Time  and  the
               representations  and warranties of the Company  contained in this
               [Merger]  Agreement  shall be true and  correct  in all  material
               respects as of the



<PAGE>


Mr. William L. Westerman
March 20, 1998
Page 5

               date of this [Merger] Agreement and at and as of the Effective
               Time as if made at and as of such time . . . ."

As detailed below,  this condition cannot be satisfied  because RHC is in breach
of numerous representations and warranties in the Riviera Merger Agreement.

        B.     Breaches of Representations, Warranties and Covenants in the
               Riviera Merger Agreement

               RHC  has  breached   various   representations,   warranties  and
covenants contained in the Riviera Merger Agreement including, among others, the
following:

               -      RHC and/or its subsidiaries and their respective officers
               and directors failed to comply with laws in that:
               (a) they presented  false,  misleading and unrealistic  financial
               information, budgets and forecasts; (b) they participated in
               and/or failed to disclose fraudulent conduct
               by Morgens,  Waterfall; (c) they participated in and/or failed to
               disclose that Morgens, Waterfall had extracted a premium price in
               the Elsinore Merger to the detriment of the RHC shareholders; and
               (d)  Morgens,  Waterfall,  in  violation  of Nevada  gaming laws,
               exercised  its  controlling  interest in Elsinore  and RHC to (i)
               insist the two merger  transactions  be tied  together,  and (ii)
               predetermine  the outcome of the stockholder vote (Sections 2.5 &
               2.7);

               - RHC filed SEC reports that did not comply with  securities laws
               and contained  untrue  statements of material fact and/or omitted
               such facts and/or  contained  statements  that were misleading in
               that such reports fail to disclose  fully the  relationships  and
               impacts of the  proposed  Riviera and Elsinore  mergers  (Section
               2.7);

               -      RHC and/or its  subsidiaries  failed  to conduct business
               in the ordinary  course, and materially altered expenses,
               services and operations  including, but not limited to,
               that they:  (a) entered into and/or  modified
               employment   agreements,   employee   benefits  and/or  severance
               packages;   (b)   materially   changed  its  hotel   housekeeping
               operations; (c) materially reduced advertising expenditures;  (d)
               eliminated  service   personnel;   (e)  manipulated  and  reduced
               apparent  expenditures   regarding  the  Black  Hawk  project  in
               Colorado;  and (f)  have  suffered  a  Company  Material  Adverse
               Effect, as defined by the Riviera Merger Agreement (Sections 2.8,
               2.13 & 4.1);

               -      RHC prepared,  circulated  and/or filed proxy statements
               and reports that did not comply with
               the  securities  law and which  contained  untrue  statements  of
               material  fact  and/or   omitted  such  facts  and/or   contained
               statements  that were  misleading in that the Proxy Statement for
               Special  Meeting of Stockholders to be held February 5, 1998: (a)
               fails to disclose  that R&E Gaming was  required to pay a premium
               to Morgens, Waterfall (as an



<PAGE>


Mr. William L. Westerman
March 20, 1998
Page 6

               Elsinore  stockholder)  in order to obtain  Morgens,  Waterfall's
               agreement (as an RHC stockholder) to vote for the Riviera merger;
               (b) fails to disclose  that  Morgens,  Waterfall  has breached an
               agreement (the Elsinore  Option  Agreement)  that is an essential
               precondition  to  the  Elsinore  Merger,  which,  in  turn,  is a
               required transaction if the Riviera merger is to be effected; (c)
               discloses  that a fee is to be paid to  Jefferies in the Elsinore
               merger,  but  fails to  disclose  that  this is a breach  of that
               contemplated   transaction  or,  alternatively  and  as  Morgens,
               Waterfall maintains, that this is a false statement; (d) fails to
               disclose  that  Morgens,  Waterfall may be in violation of Nevada
               gaming laws pertaining to institutional  investors;  (e) fails to
               disclose  fully certain  relationships  and related  transactions
               involving  RHC and Elsinore  and their  officers,  directors  and
               stockholders; and (f) fails to disclose the material defaults set
               forth in this letter (Sections 2.9 & 4.2);

               -     As  set  forth   above,  a  broker  was  employed  in
               connection   with   the transactions contemplated by the Riviera
               Merger Agreement (Section 2. 10);

               -     RHC misrepresented and/or failed to disclose information
               concerning the Black Hawk project
               in  Colorado,  and  specifically  failed to disclose  information
               concerning  environmental  matters and costs of construction  and
               has exceeded the Black Hawk capital  expenditures budget provided
               for in Section  4.1,  and  failed to  appropriately  involve  R&E
               Gaming in discussions regarding these issues (Section 2.19);

               -  The  representations,  warranties,  covenants  and  conditions
               stated or agreed to by RHC are not  true,  complete  or  accurate
               (Section 2.20); and

               - RHC has suffered other changes, including a change in financial
               conditions,  which  have had a Company  Material  Adverse  Effect
               (Sections 2.1 & 2.8).

Notice of Unenforceability of and/or Intention to Terminate the
Riviera Merger Agreement

         R&E Gaming and RAS hereby give notice that the Riviera Merger Agreement
is void and unenforceable against R&E Gaming and RAS or, alternatively, of their
intention to terminate the Riviera Merger  Agreement  pursuant to Section 6.1(d)
thereof. Such a termination will constitute a Non-Payment  Termination Event, as
defined in the Riviera  Option  Agreement,  and RHC is not entitled to any funds
under the Riviera  Merger  Agreement  or from the Escrow  Agreement  dated as of
September 15, 1997 by and among R&E Gaming,  RHC and State Street Bank and Trust
Company  of  California,  N.A.  Therefore,  R&E  Gaming  and RAS  hereby  demand
repayment of all monies and Letters of Credit delivered by R&E Gaming and/or RAS
in  connection   with  the  Riviera  Merger   Agreement  and  the   transactions
contemplated thereby.



<PAGE>


Mr. William L. Westerman
March 20,1998
Page 7

Moreover,  R&E Gaming and RAS  reserve  their  rights to  terminate  the Riviera
Merger Agreement pursuant to Section 6. 1(c) thereof.

                                             Very truly yours,

                                             R&E GAMING CORP.

                                             By: _______________________________
                                                    Allen E. Paulson
                                                    President



                                            RIVIERA ACQUISITION SUB, INC.

                                            By: ________________________________
                                                     Allen E. Paulson
                                                     President



cc:     Dechert Price & Rhoads
        30 Rockefeller Plaza
        New York, New York 10112
        Fax: (212) 699-3599
        Attention:  Frederic Klink, Esq.