SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

      (Mark One)
[X]   Annual report pursuant to section 13 or 15(d) of the Securities
      Exchange Act of 1934 [No Fee Required]

For the fiscal year ended December 31, 1996

[  ]  Transition report pursuant to section 13 or 15(d) of the Securities
      Exchange Act of 1934 [Fee Required]

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 of Incorporation)                   (I.R.S. Employer Identification No.)

2901 Las Vegas Boulevard South                              89109
Vegas, Nevada                                             ----------
-------------------------------                           (Zip Code) 
(Address of principal executive offices)

Registrant's telephone number, including area code:  (702) 734-5110
                                                     --------------

Securities registered pursuant to Section 12(b) of the Act:  None
                                                             ----

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

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

           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 Registration 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 amendment to this Form 10-K. [X]

           Based on the average price bid for the  Registrant's  Common Stock as
of March 4,  1997,  the  aggregate  market  value of the  voting  stock  held by
non-affiliates of the Registrant was approximately $46,920,000.

           As of  March  4,  1997,  the  number  of  outstanding  shares  of the
Registrant's Common Stock was 4,923,380.

Documents  incorporated by reference:  The Company's Proxy Statement dated April
16, 1997,  relating to the Annual Meeting of  Stockholders  to be held on May 8,
1997, is incorporated by reference in Part III hereof.

================================================================================
                               Page 1 of 39 Pages
                    Exhibit Index Appears on Page 34 hereof.


<PAGE>

                   RIVIERA HOLDINGS CORPORATION AND SUBSIDIARY
                    ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
                          YEAR ENDED DECEMBER 31, 1996

                                TABLE OF CONTENTS


Item 1.    Business...........................................................3

           General .......................................................... 3
           Business and Growth Strategy...................................... 4
           The Riviera....................................................... 6
           Marketing Strategy................................................ 9
           Las Vegas Market..................................................10
           The Black Hawk Project............................................11
           Colorado Market...................................................12
           Riviera Gaming Management.........................................13
           Competition.......................................................13
           Employees and Labor Relations.....................................15
           Regulation and Licensing..........................................15
           Federal Registration..............................................24

Item 2.    Properties........................................................24

Item 3.    Legal Proceedings.................................................24

Item 4.    Submission of Matters to a Vote of
             Security Holders................................................24

Item 5.    Market for the Registrant's Common Stock and
             Related Security Holder Matters.................................25

Item 6.    Selected Financial Data...........................................26

Item 7.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations.............................27
           Results of Operations.............................................27
           1996 Compared to 1995.............................................27
           1995 Compared to 1994.............................................29
           Liquidity and Capital Resources...................................30
           Forward Looking Statements........................................31
           Recently Adopted Accounting Standards.............................32

Item 8.    Financial Statements and Supplementary Data, etc..................32

Item 9.    Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure.............................32

Item 10.   Directors and Executive Officers of the Registrant................33

Item 11.   Executive Compensation....................................... ....33

Item 12.   Principal Shareholders............................................33

Item 13.   Certain Relationships and Related Transactions ...................33

Item 14.   Exhibits, Financial Statement Schedules and
             Reports on Form 8K..............................................34



                                        2

<PAGE>



                                     PART I

Item 1.    Business

General

           Riviera Holdings  Corporation,  a Nevada corporation (the "Company"),
through its wholly owned  subsidiary,  Riviera Operating  Corporation,  a Nevada
corporation  ("ROC"),  owns  and  operates  the  Riviera  Hotel  &  Casino  (the
"Riviera")  located on the Strip in Las Vegas,  Nevada.  The  Riviera  caters to
adults seeking traditional Las Vegas-style gaming and entertainment. The Riviera
is situated on a 26-acre  site across the Strip from Circus  Circus and adjacent
to the Las  Vegas  Hilton  and the Las Vegas  Convention  Center.  The  property
features approximately 2,100 hotel rooms (including 169 suites),  105,000 square
feet of casino  space,  a 100,000  square-foot  convention,  meeting and banquet
facility (one of the largest in Las Vegas),  four  full-service  restaurants,  a
430-seat buffet, four showrooms,  a 200-seat  entertainment  lounge, 47 food and
retail  concessions and approximately  2,900 parking spaces. The casino contains
approximately  1,300  slot  machines,  50 gaming  tables,  a keno  lounge  and a
200-seat race and sports book. The Riviera also offers one of the most extensive
entertainment  programs in Las Vegas, including such popular shows as Splash, An
Evening at La Cage,  Crazy Girls and Bottoms Up and  featured  comedians  at the
Riviera Comedy Club.

           Opened in 1955, the Riviera was one of the original  casino/hotels on
the Las Vegas Strip catering to high stakes gamblers. Since opening, the Riviera
has been expanded  several  times.  The most recent  expansion,  which  occurred
during 1988 through 1990,  resulted in significant  cost overruns and ultimately
contributed to the Company's  predecessor  filing for  bankruptcy  protection in
1991. In 1992 the current management team was assembled and successfully  guided
the Company  through its emergence from  bankruptcy in June 1993. As a result of
the bankruptcy,  all of the Common Stock and $100.0 million of the Company's 11%
Mortgage  Notes due December  31, 2002 (the "First  Mortgage  Notes")  under the
First  Mortgage Note Indenture (the "Note  Indenture")  were  distributed to the
secured creditors of the predecessor company.

           The new management  team  implemented new marketing  programs,  which
included targeting  California and the southwestern United States, and initiated
a number of strategic changes to reposition the Riviera,  including a shift from
"high-rollers"  to mid-level gaming customers,  particularly  slot players,  who
seek a broader  entertainment  experience.  Management  reconfigured  the casino
space to improve the flow of customer  traffic,  installed new slot machines and
bill acceptors,  reduced the number of gaming tables and de-emphasized baccarat.
Management  also decreased the volatility of gaming  revenues by reducing credit
limits,  outsourcing the Company's  sports book and shifting to parimutuel horse
wagering.  Improved hotel marketing  efforts have resulted in one of the highest
room occupancy rates on the Strip.

           On October 22, 1996,  the Company filed a  registration  statement on
Form S-1,  registration  no.  333-14593 (the  "Registration  Statement"),  for a
public  offering of its Common Stock (the  "Offering").  The Company  expects to
file an Amendment No. 1 to the  Registration  Statement  ("Amendment  No. 1") on
March 10, 1997.  The Offering,  as amended by Amendment No. 1,  contemplates  an
underwritten  offering by the Company of 1,750,000 shares of its Common Stock to
the public  and the sale of  1,250,000  shares of Common  Stock to the public by
certain selling stockholders in a secondary  underwritten  offering. The Company
also granted the underwriters an option to purchase an additional 450,000 shares
of Common Stock to cover over-allotments. Based on the last reported sales price
of $14.125 on the  American  Stock  Exchange  on March 4, 1997,  and  subject to
market  conditions,  the Company  would  receive  (excluding  the  underwriters'
over-allotment  option) net proceeds  from the Offering of  approximately  $24.1
million (after  deducting  expenses of the Offering  estimated at  approximately
$0.6 million).

                                        3

<PAGE>




Business and Growth Strategy

           Over  the past  several  years,  management  initiated  a  number  of
strategic  changes at the Riviera to  reposition  the property to compete in the
Las Vegas  gaming  market.  The Company  has  formulated  a business  and growth
strategy to maintain the competitive position of the Riviera as well as grow the
Company.  The key elements of the  Company's  business  and growth  strategy are
discussed below.

Develop New Casino/Hotels

           The  Company  intends to pursue a growth  strategy by  developing  or
acquiring casino/hotel properties in Nevada and other jurisdictions.  As part of
this  strategy,  on March 4, 1997,  the Company  entered into a letter of intent
with Eagle to form RBL as a joint  venture to develop the Black Hawk  Project at
what  management  believes is the premier gaming site in the Black  Hawk/Central
City,  Colorado gaming market.  The 71,000 square foot site,  zoned entirely for
gaming,  is the first gaming site  encountered when traveling from Denver and is
approximately  an hour drive  from and 40 miles  west of  Denver.  Approximately
three million people live within a 100-mile  radius of Black  Hawk/Central  City
and  casinos in the market  generated  gaming  revenues  of  approximately  $291
million in 1995 and $309 million in 1996.

           In addition  to the Black Hawk  Project,  the  Company  also plans to
review and selectively acquire or develop casino/hotel properties both in Nevada
and other  jurisdictions.  These other  jurisdictions  may include  Michigan and
Mexico.  Other than the Black Hawk Project,  the Company does not presently have
any agreements in principle for  involvement in any new or financially  troubled
projects.

Manage Distressed Casino/Hotel Properties

           In order to capitalize on  management's  experience in  repositioning
and managing the Riviera  through the  bankruptcy  process,  the Company  formed
Riviera Gaming  Management,  Inc.  ("RGM") for the primary  purpose of obtaining
casino management contracts with financially distressed  casino/hotels in Nevada
and other  jurisdictions.  Since  August  1996,  RGM has been  managing the Four
Queens  Hotel/Casino  ("Four Queens")  located  adjacent to the Golden Nugget on
Fremont Street in downtown Las Vegas. Under the Four Queens management contract,
RGM receives a guaranteed minimum  management fee plus additional  compensation,
based  on  earnings  before  interest,   taxes,  depreciation  and  amortization
("EBITDA")  improvement  of the Four Queens,  and warrants to purchase 20% (on a
fully diluted basis) of the equity of the Four Queens' parent.

           The Company believes that there is increasing demand for the services
of skilled gaming and hospitality  professionals.  The Company intends to pursue
management  contracts  with  other  financially  distressed  gaming  properties.
Management  is actively  reviewing and  evaluating  other  financially  troubled
gaming properties in Nevada and other jurisdictions with a view towards managing
properties with underlying sound business potential and in which the Company can
purchase an equity interest.

Continue to Improve Performance of the Riviera

           The Riviera will continue to emphasize marketing programs that appeal
to slot and  mid-level  table game  customers  with a focus on  creating  repeat
customers and increasing walk-in traffic.  Key elements of this strategy include
offering a  value-oriented  experience  by  providing a variety of hotel  rooms,
restaurants and  entertainment,  with some of Las Vegas' most popular shows, all
at reasonable  prices. The Company is continuing an extensive capital investment
program at the Riviera, including completion of the upgrade of its slot machines
in the second  quarter  of 1997 and the  refurbishment  of all its hotel  rooms,
which is expected to be completed in the fall of 1997. In addition,  the Company
will

                                        4

<PAGE>



focus its marketing to take advantage of the Riviera's  location by capitalizing
on the anticipated  increase in walk-in traffic from the addition of 1,000 rooms
across the Strip at Circus Circus and the expansions of the Las Vegas Hilton and
the Las Vegas Convention Center.

           Emphasize Slot Play. Management instituted a number of initiatives at
the  Riviera  to  increase  slot play,  including  the  replacement  of old slot
machines, the installation of bill acceptors and the addition of slot hosts. The
Company's  strategy  is to  continue to  increase  slot play  through  marketing
programs and other improvements,  including (i) completion of the Company's slot
upgrade  program in the second  quarter of 1997,  (ii)  addition of new signage,
(iii)  promotion  of  the  Riviera  Player's  Club,  (iv)  sponsorship  of  slot
tournaments,  (v) creation of  promotional  programs  and (vi)  marketing of the
"World's Loosest Corner of Slots" and "$40 for $20" slot promotions.

           Create Repeat  Customers.  Generating  customer loyalty is a critical
component  of  management's  business  strategy as  retaining  customers is less
expensive than attracting new ones. The Company  generates  repeat  customers by
(i)  providing a high level of service to its  customers  to ensure an enjoyable
experience  while at the Riviera,  (ii) responding to customer surveys and (iii)
focusing  marketing efforts and promotional  programs on customers with positive
gaming profiles.

           Provide  Extensive   Entertainment   Options.  The  Company  believes
entertainment  provides an attractive marketing tool to attract customers to the
Riviera. The Riviera offers one of the most extensive  entertainment programs in
Las Vegas,  including such well received  shows as Splash (a variety  show),  An
Evening at La Cage (a female  impersonation  show), Crazy Girls (an adult revue)
and Bottoms Up (a  burlesque-style  show) as well as featured  comedians  at the
Riviera  Comedy Club. The Company  continually  updates its shows in response to
customer  surveys and to keep them  fresh.  Tickets for the shows are offered at
reasonable prices in keeping with the Company's emphasis on mid-level customers.

           Attract Walk-In Traffic.  The Company seeks to maximize the number of
people who patronize  the Riviera that are not guests in the hotel.  The Riviera
is well situated on the Las Vegas Strip near Circus Circus, The Stardust Hotel &
Casino,  the Westward Ho Casino & Hotel,  the Las Vegas Hilton and the Las Vegas
Convention   Center.   Management   strives  to  attract  customers  from  those
facilities,  as well as  capitalize  on the  growth  in Las  Vegas  visitors  in
general,  with the goal of increasing walk-in traffic by (i) providing a variety
of quality,  value-priced  entertainment and dining options,  (ii) promoting the
"World's Loosest Corner of Slots" and "$40 for $20" slot promotions, and placing
them near the  entrances  to the casino,  (iii)  upgrading  the  exterior of the
Riviera including painting, lighting and landscaping and (iv) completing Phase I
(see "-- Further Develop the Riviera") to attract customers into the casino.

           Focus  on  Convention  Customers.   The  Riviera  targets  convention
business because it typically  provides patrons willing to pay higher room rates
and it provides certain advance planning benefits, since conventions are usually
booked two years in advance of the event date.  The  Riviera has 100,000  square
feet of  exhibit,  meeting  and  banquet  space (one of the  largest  convention
facilities  provided by a  casino/hotel  in Las Vegas)  making it  attractive to
large groups.  Management  focuses its marketing  efforts on  conventions  whose
participants  have the most active gaming profile and higher room rate,  banquet
and function  spending  habits.  The Riviera also benefits from its proximity to
the  Las  Vegas  Convention  Center  which  makes  it  attractive  to  city-wide
conventioneers  looking  to avoid  the  congestion  that  occurs  during a major
convention, particularly at the south end of the Strip.


                                        5

<PAGE>



Further Develop the Riviera

           The  Company  has  engaged  architects  and  designers  to prepare an
overall  expansion plan (the "Master  Plan") for the existing  26-acre site. The
Company believes that  implementation of the Master Plan will attract additional
customers.

           Phase I. The initial  phase of the Master Plan will  include a 40,000
square foot expansion of the 100,000 square foot convention, meeting and banquet
facility at an estimated cost of approximately  $6 million.  The Company derives
approximately 25% of its hotel occupancy from convention customers and considers
them a critical  component of its customer  base.  Management  believes  that an
expansion of the convention  space is necessary to accommodate the growth in the
size and number of the groups  that  presently  use the  facility as well as new
groups.  Phase I will also include the redevelopment of the approximately 20,000
square feet of vacant space  fronting  the Las Vegas  Strip,  across from Circus
Circus, to attract walk-in traffic as well as tourists throughout the city.

           Future   Phases.   Future  Phases  may  include   development  of  an
approximately 60,000 square foot domed shopping and entertainment  complex to be
constructed  directly over the casino and  containing  stores and  entertainment
that will appeal to the Riviera's  main target  audience,  adults aged 45 to 70.
The exit from the complex will be by an escalator  which will deliver patrons to
the casino. The Company expects to find partners to finance, develop and operate
the   entertainment   attraction  and  retail  stores.   The  Company  also  has
approximately  nine acres available for additional  development.  The Company is
exploring  a number of  options  in order to make the best use of this  valuable
land.

           As part of the  Master  Plan,  the  Company  is  considering  a joint
venture for the  development  of a  time-share  condominium  tower.  The Company
expects  to  contribute  land  to the  joint  venture  and a third  party  would
construct and sell time-share units and arrange financing.  Management  believes
that  additional  rooms  adjacent to the Las Vegas  Convention  Center  would be
particularly  attractive  to  business  customers  and  would  provide a base of
additional casino customers.  Other potential  development  projects include the
construction  of a new  hotel  tower  and  additional  parking  facilities.  The
development of a time-share tower, hotel tower or parking facility would require
additional financing, a release of restrictions under the Note Indenture and, in
the case of the  time-share  tower, a joint venture  partner,  none of which the
Company has in place at this time.

The Riviera

           The  Riviera is located  on the  corner of Las Vegas  Boulevard,  the
"Strip," and Riviera Drive, across the Strip from Circus Circus. The back of the
26-acre  property  fronts Paradise Road across from the Las Vegas Hilton and the
Las Vegas  Convention  Center.  The  Riviera  is  strategically  located to take
advantage of the high tourist  traffic along the Strip as well as the increasing
number of convention customers that use the Las Vegas Convention Center.

           Gaming.  The  Riviera has 105,000  square feet of casino  space.  The
casino  currently has  approximately  1,300 slot machines and 50 gaming  tables,
including blackjack,  craps,  roulette,  pai gow poker, Caribbean Stud(R) poker,
baccarat, Let It Ride(R) and poker. The casino also includes a keno lounge and a
200-seat race and sports book.

           Gaming  operations  at the  Riviera  are  continually  monitored  and
modified to respond to both changing market conditions and customer demand in an
effort to attract new customers, retain existing customers, and encourage repeat
customer business.  New and innovative slot and table games have been introduced
based on customer feedback. Management devotes substantial time and attention to
the type, location and player activity of all its slot machines.  The Company is
continuing an extensive capital

                                        6

<PAGE>



investment  program for the upgrade of its slot machines which is expected to be
completed in the second quarter of 1997.

           The  current  management  team has made an  effort  to  redirect  its
business  away from  high-stakes  wagerers and to focus,  instead,  on mid-level
gaming  customers  and thus  has  implemented  stricter  credit  policies  and a
reduction of baccarat  table limits.  As a result,  the percentage of table game
dollar volume represented by credit play declined from approximately 24% in 1993
to 15% in 1996.  Because the extension of credit is not as necessary for success
with mid-level gaming customers,  management  expects that providing credit, and
the risks  associated  with  possible  losses on  uncollectible  and  discounted
receivables,  will  continue  to be less  significant  to the  casino.  However,
because  management intends to maintain a balanced marketing strategy which will
include  some level of credit  being  extended,  providing  credit and the risks
associated  therewith will remain.  Receivables from casino operations  declined
from  approximately  $2.9  million at December  31, 1993 to  approximately  $2.3
million at December 31, 1996 and the allowance for bad debts and discounts  from
casino operations  declined from  approximately  $763,000 to $432,000 during the
same period. These reductions resulted primarily from the imposition of stricter
credit  standards.  Management  maintains  strict  controls over the issuance of
credit and aggressively pursues collection of its customer receivables.

           Hotel.  The  Riviera's  hotel is  comprised of five hotel towers with
approximately  2,100 rooms,  including 169 suites.  Built in 1955 as part of the
original  casino/hotel,  the  nine-story  North Tower  features 391 rooms and 11
suites.  In 1967,  the  12-story  South  Tower was  built  with 147 rooms and 31
suites. Another 220 rooms and 72 suites including penthouse suites were added to
the property through the construction of the 17-story Monte Carlo Tower in 1974.
In 1977,  the  six-story  San Remo  Tower  added 243 rooms and six suites to the
south side of the resort. The most recent phase of hotel expansion was completed
in 1988 upon the opening of the 930 room, 49 suite,  24-story Monaco Tower.  The
Company is currently  refurbishing all of its rooms,  with  approximately  1,100
completed  through the end of 1996 and the balance  expected to be  completed in
the  fall of 1997.  Management  believes  that the  Riviera  has  attained  room
occupancy  rates  that are among the  highest  on the Strip with 97.5% for 1994,
97.0% for 1995, and 98.2% for 1996 (based on available rooms).

           Restaurants.  The  quality,  value and variety of food  services  are
critical to attracting Las Vegas visitors. The Riviera offers four bars and five
restaurants  and  serves  an  average  of  approximately  5,000  meals  per day,
including  banquets and room service.  The following  table  outlines,  for each
restaurant, the type of service provided and total seating capacity:


                                                               Seating
Name                         Type                              Capacity
----                         ----                              --------

Kady's                       Coffee Shop                          290
Kristofer's                  Steak and Seafood                    162
Rik' Shaw                    Chinese                              124
Ristorante Italian           Italian                              126
World's Fare Buffet          All-you-can-eat                      432
                                                                -----
           Total.........................................       1,134
                                                                =====


           In addition,  the Riviera has a food court  operated by a third party
under a  long-term  lease  with 200 seats  and  several  fast-food  restaurants,
including Burger King(R), Panda Express(R), Pizza Hut(R) and "TCBY"(R).

                                        7

<PAGE>




           Convention  Center.  The  Riviera  features  100,000  square  feet of
convention,  meeting  and banquet  space.  The  convention  center is one of the
largest 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  Riviera  hosts   approximately  150
conventions  per year.  As of December  31,  1996,  the Riviera had over 440,000
confirmed  convention-related  room  nights  for  1997  and  1998.  On  average,
approximately  25% of the rooms are occupied for conventions.  See "Business and
Growth  Strategy -- Further  Develop the Riviera" for a description of potential
expansion of the convention center.

           Entertainment  and Other.  The Riviera has one of the most  extensive
entertainment programs in Las Vegas, offering five different regularly scheduled
shows and special  appearances  by headline  entertainers  in concert.  The five
in-house  productions are regularly  updated and changed.  In November 1994, the
award  winning  Splash  production  was  closed in order to revise  the show and
remodel  the  showroom  for the new Splash,  which  opened on June 23,  1995.  A
summary of the shows and times is outlined below:

<TABLE>
<CAPTION>
                                                                                                               Seating
Show                        Type                                 Performance Times                            Capacity
----                        ----                                 -----------------                            --------
<S>                         <C>                                  <C>                                             <C>
Splash                      Variety show                         Twice a night, seven nights per                 950
                                                                 week

An Evening at La            Female impersonation                 Twice a night, five nights per                  575
Cage                                                             week; three times on
                                                                 Wednesday

Crazy Girls                 Adult-oriented production            Twice a night, five nights per                  410
                                                                 week; three times per night on
                                                                 Saturday

Bottoms Up                  Afternoon burlesque show             Twice a day, five days per                      410
                                                                 week

The Riviera                 Stand-up comedy                      Twice a night, five nights per                  350
Comedy Club                                                      week; three times a night on
                                                                 Friday & Saturday
</TABLE>


           Other  entertainment  includes the  200-seat Le Bistro  entertainment
lounge located in the casino which offers live performances six times per night.
In addition,  the Riviera  sponsors  special events,  such as the Las Vegas Bowl
football  game,  and presents major concerts such as the Beach Boys, the Pointer
Sisters, Drew Carey and the Doobie Brothers.

           The Riviera's  pool area is  approximately  75,000 square feet and is
centrally located between the property's hotel towers. The pool area features an
olympic-size  swimming  pool.  The Riviera also has tennis  courts and a fitness
center and spa.

           The Riviera has 41 retail concessions located throughout the property
which include gift shops, a jewelry store,  men and women's  apparel  stores,  a
children's shop and a shoe store.


                                        8

<PAGE>



Marketing Strategy

           In contrast to many of the new casino/hotels  that cater to families,
the  Company  believes  its  customers  prefer  a  traditional  Las  Vegas-style
entertainment  and gaming  environment.  As a result,  the  Company  focuses its
marketing  efforts on adults.  The operating  profits of the Riviera depend upon
the level of gaming  activity  in the casino as well as revenues  from  lodging,
food  and   beverage,   conventions,   entertainment   and  retail   operations.
Accordingly,  the marketing  strategy of the Riviera is to (i) target  customers
age 45 to 70 who have more  discretionary  income and higher spending  profiles,
(ii)  achieve  maximum  occupancy  and room  rates  and  (iii)  obtain  the most
profitable mix of business.  In developing its overall marketing  programs,  the
Company  conducts   extensive,   ongoing  research  of  its  target   customers'
preferences through written surveys, one-on-one interviews and focus groups.

           The  Company  focuses on  attracting  its  guests  through a range of
entertainment  opportunities.   The  Riviera  has  one  of  the  most  extensive
entertainment  programs  in Las Vegas with five  different  regularly  scheduled
shows and special appearances by headline entertainers. In addition, the Riviera
offers a variety of  quality  dining  options,  a range of  accommodations  from
deluxe rooms to penthouse suites, numerous recreational facilities and 41 retail
outlets located  throughout the property.  The Company believes that it offers a
value-oriented experience by providing a variety of hotel rooms, restaurants and
entertainment,  with some of Las Vegas' most popular  shows,  all at  reasonable
prices.

           The Company designs  promotional offers targeted at certain mid-level
gaming patrons that are expected to provide revenues based upon their historical
gaming patterns.  The Company contacts these customers  through a combination of
direct mail and  telemarketing  by an in-house  marketing  staff and independent
representatives located in major cities. The Riviera uses a proprietary database
which is linked  to its  player  tracking  system  to help  identify  customers'
requirements and preferences; this allows the Riviera to customize promotions to
attract repeat  visitors.  The Company offers  customers  personalized  service,
credit  availability  and access to a variety of  complimentary  or reduced rate
room,  dinner and  entertainment  reservations.  Management  uses a  specialized
multi-tiered marketing approach to attract customers in each of its major market
segments. In addition,  the Company hosts an array of special events,  including
slot and table tournaments, designed to attract customers for an extended stay.

           The Company focuses its marketing efforts in the southwestern  United
States during the spring and summer months and in the  midwestern  United States
during  the fall and  winter  months  because of the  vacation  patterns  of the
Riviera's target customers in those markets. Marketing efforts in California are
consistent  throughout  the year  reflecting  the  constant  flow of  California
residents to Las Vegas.

           One of the Company's most successful permanent promotions is its "$40
for $20" slot promotion which attracts slot players to the casino. The promotion
offers $40 of slot play on certain  promotional  machines  for $20 cash.  If the
customer  does not win a jackpot of at least $40, a prize with a retail value of
at least $20 is awarded.  The sign-up  counter and the  promotion  machines  are
located near an entrance to the casino and often draw long lines of patrons. The
Company has introduced this promotion at the Four Queens and has been approached
to license  this  promotion  to other  casinos  as well,  which it may do in the
future.

           Another successful promotion is the "World's Loosest Corner of Slots"
which is an area of the casino that  contains  banks of slot  machines  with the
guaranteed  highest  payback  percentages of any similar  machines in Las Vegas.
Like the "$40 for $20" slot promotion,  the "World's Loosest Corner of Slots" is
located near an entrance to the casino to attract walk-in traffic.

           The Company targets the following segments of the Las Vegas market:


                                        9

<PAGE>



           Mid-Level  Gaming  Customers.  The Company has  developed a marketing
program intended to develop a loyal following of repeat slot and mid-level table
game customers.  Management  believes it has been able to  successfully  attract
these  patrons  using  the  Riviera's  restaurants,   hotel  accommodations  and
entertainment  and by  focusing on customer  service.  Management  has adopted a
selective  approach to the  extension  of credit to these  customers in order to
reduce  volatility of operating  results.  The Company uses its research data to
tailor promotional offers to the specific tastes of targeted customers. All slot
and table players are  encouraged to join the Riviera  Player's Club and to fill
out surveys that provide the Riviera with personal  information  and preferences
and tracks their level of play.  Members of the Riviera Player's Club earn bonus
points based upon their level of play, redeemable for free gifts,  complimentary
services or cash rebates.  Promotional  offers are made to qualifying  customers
through direct mail and telemarketing.

           Tour and Travel.  The tour and travel segment of the market  consists
of customers  from across the country who utilize  "packages" 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  the  Company  to  maintain
occupancy  rates at the  highest  levels  throughout  the year.  Management  has
developed  specialized  marketing  programs and  cultivated  relationships  with
wholesale  operators,  travel  agents and major  domestic air carriers to expand
this market.  The Company's three largest tour and travel  operators,  including
America West Vacations,  currently  account for  approximately 500 room bookings
per night.  The Company makes an effort to convert tour and travel customers who
meet the Company's target customer profile into repeat customers.

           Conventions.  This market segment  consists of two groups:  (i) those
trade organizations and groups that hold their events in the banquet and meeting
space provided by a single hotel,  and (ii) those  attending  city-wide  events,
usually held at the Las Vegas Convention  Center. The Riviera targets convention
business because it typically  provides patrons willing to pay higher room rates
and provides certain advance planning  benefits,  since  conventions are usually
booked two years in advance of the event date.  The  Riviera has 100,000  square
feet of  exhibit,  meeting  and  banquet  space (one of the  largest  convention
facilities  provided by a  casino/hotel  in Las Vegas)  making it  attractive to
large groups.  Management  focuses its marketing  efforts on  conventions  whose
participants  have the most active gaming profile and higher room rate,  banquet
and function  spending  habits.  The Riviera also benefits from its proximity to
the  Las  Vegas  Convention  Center  which  makes  it  attractive  to  city-wide
conventioneers  looking  to avoid  the  congestion  that  occurs  during a major
convention, particularly at the south end of the Strip.

           Free and  Independent  Travelers.  This  market  segment  consists of
persons  who  travel to Las  Vegas  from all  areas of the  world,  many of whom
originate  from the western United  States.  These  customers are not affiliated
with  groups  and make  their  reservations  directly  with the hotel or through
independent  travel agents. The Riviera benefits from high name recognition with
this market segment.

Las Vegas Market

           The Riviera  targets the large and  expanding  Las Vegas  tourist and
gaming market. Las Vegas is the largest city in Nevada,  with a local population
in excess of one million,  and is Nevada's principal tourist center.  Gaming and
tourism  are  the  major  attractions,  complemented  by  warm  weather  and the
availability of many  year-round  recreational  activities.  Although Las Vegas'
principal   markets  are  the  western  region  of  the  United   States,   most
significantly  Southern  California  and  Arizona,  Las Vegas  also  serves as a
destination  resort for  visitors  from all of North  America.  In  addition,  a
significant  percentage of visitors originate from Latin America and Pacific Rim
countries such as Japan, Taiwan, Hong Kong and Singapore.


                                       10

<PAGE>



           Las Vegas is one of the  largest and  fastest  growing  entertainment
markets in the  country.  According  to the Las Vegas  Convention  and  Visitors
Authority  (the  "LVCVA"),  the number of  visitors  traveling  to Las Vegas has
increased  at a steady  and  significant  rate for the last ten years  from 15.2
million in 1986 to more than 29.0 million in 1995, a compound annual growth rate
of 7.5%. Gaming has continued to be a strong and growing business with Las Vegas
Strip gaming  revenues  increasing at a compound annual growth rate of 9.9% from
$1.6 billion in 1986 to $3.6 billion in 1995.

           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
over 40% from  approximately  67,000  at the end of 1989 to 95,000 at the end of
1996,  giving Las Vegas the most hotel and motel rooms of any metropolitan  area
in the country.  Despite this  significant  increase in the supply of rooms, the
Las Vegas hotel occupancy rate exceeded 91% for each of 1993, 1994, 1995 and the
first 11 months of 1996.  Since January 1, 1996,  approximately  4,700 new hotel
rooms  opened and as of  December  31,  1996,  there were over 9,200 hotel rooms
under construction (which combined constitutes a 14.7% increase in the number of
hotel and motel rooms in Las Vegas) and the LVCVA  estimated that  approximately
60,000 additional hotel rooms were proposed for construction.

           The Company believes that the growth in the Las Vegas market has been
enhanced  as a result of a  dedicated  program  by the LVCVA and major Las Vegas
casino/hotels  to promote Las Vegas as a major  convention  site,  the increased
capacity of McCarran  Airport and the  introduction of large themed  destination
resorts  in Las  Vegas.  In 1986,  approximately  1.5  million  people  attended
conventions in Las Vegas and generated  approximately $1.0 billion of non-gaming
economic  impact.  For the  first 11 months of 1996,  the  number of  convention
delegates  had  increased  to 3.2 million  with  approximately  $3.9  billion of
non-gaming  economic  impact.  According to the LVCVA, Las Vegas was the largest
convention market in the country in 1995.

           During  the past  five  years,  McCarran  Airport  has  expanded  its
facilities to accommodate the increased  number of airlines and passengers which
it services.  The number of passengers  traveling  through  McCarran Airport has
increased  from  approximately  12.4  million in 1986 to 30.5 million in 1996, a
compound  annual  growth rate of 9.4%.  Construction  is  currently  underway on
numerous roadway  enhancements to improve access to the airport. The airport has
additional  long-term  expansion  plans underway  which will provide  additional
runways,  three  new  satellite  concourses,   60  additional  gates  and  other
facilities.

The Black Hawk Project

           The  Company  recently  signed a letter of intent  with Eagle to form
RBL, a joint  venture,  to develop a casino at what  management  believes is the
premier development site (the "Development Site") in Black Hawk,  Colorado.  The
Development Site is currently the closest gaming site to Denver and is the first
site  encountered  when  traveling from Denver to Black  Hawk/Central  City. The
Black Hawk/Central City market primarily serves the metropolitan Denver area and
is approximately an hour drive and 40 miles from central Denver.

           Located on South Main  Street,  the  Development  Site is directly in
front of the Colorado Central Station,  owned by Anchor Gaming, which management
believes is the most successful casino in Colorado due to its location, size and
availability of parking.  Unlike most other sites, the Development Site is level
and has a relatively broad footprint,  which provides  significant cost and time
savings  in  construction  relative  to other  projects  in the  market  and can
accommodate a large Las Vegas-style casino on one floor.



                                       11

<PAGE>



           The Development  Site comprises 71,000 square feet, zoned for gaming.
The casino  building  is  expected to be  approximately  62,000  square feet and
include  approximately 1,000 slot machines and 14 table games. In addition,  the
facility  will  provide  entertainment,  food  and  beverage  service  and  will
incorporate an attached covered parking  facility for 500 vehicles.  The Company
believes  that the Black Hawk  Project  could be expanded  beyond its  currently
permitted scope based on zoning waivers granted to other casino developers.

           The Company  currently  estimates  that total costs for completion of
the Black Hawk Project will be approximately $55 million.  The Company estimates
that, in addition to the equity financing of RBL,  approximately  $33 million of
third  party  mortgage  and  equipment  financing  will be  required in order to
complete  the  Black  Hawk  Project.  The  Company  currently  does not have any
commitments  for such  financing.  It is anticipated  that  construction  on the
Development Site will begin in the third quarter of 1997, with an opening of the
casino/hotel scheduled for mid-1998.

           The Black Hawk Project  joint  venture  outlined in the March 4, 1997
letter  of intent  (the  "Letter  of  Intent")  between  the  Company  and Eagle
contemplates the development of an integrated gaming,  entertainment and parking
facility on the  Development  Site.  As part of the proposed  joint  venture and
development   of  the  Black  Hawk   Project,   the  Company  will  purchase  an
approximately  80%  interest in RBL for $17.6  million and Eagle will acquire an
approximately  20% interest in RBL for $4.4 million,  assuming an  approximately
$55 million project cost and 40% equity  capitalization.  The Company intends to
use the net proceeds of the Offering to fund its investment in RBL. Eagle has an
option to increase its  ownership  interest in RBL up to 49.9% at any time prior
to the date on which RBL is  licensed  by the  Colorado  gaming  authorities  by
acquiring  such  additional  ownership  interest  from the  Company at cost.  In
addition,  the Company has committed to provide a completion  guaranty for up to
$5.0 million.  The Company will also enter into a management  agreement with RBL
that will provide for  management  fees based on gross revenue and EBITDA of the
casino.

           The Black Hawk  Project is subject to a number of  conditions.  These
conditions  include  obtaining  commitments  for  approximately  $33  million of
mortgage  and  equipment  financing  on  satisfactory  terms,  obtaining  bonded
fixed-price   construction  and  completion   contracts,   obtaining  regulatory
approvals for the Black Hawk Project and completing a development  and operating
agreement with Eagle.  There can be no assurance that these and other conditions
to the Black Hawk Project can be satisfied on terms satisfactory to the Company.

           In addition, the Black Hawk Project site may be subject to an adverse
mineral  rights  claim  which,  if  validated  through the appeal of the adverse
claimant,  could materially and adversely  affect  development of the Black Hawk
Project.  Further,  certain  environmental  conditions  exist at the Black  Hawk
Project  site,  the  remediation  or  related  costs  of  which  could  increase
development costs of the Black Hawk Project significantly.

Colorado Market

           In November  1990,  the state of  Colorado  approved  limited  stakes
gaming  ($5.00 or less per  wager) in two  historic  gold  mining  areas,  Black
Hawk/Central  City and Cripple  Creek.  Because of the $5.00  maximum  bet,  the
casinos in Colorado  emphasize  gaming machine play. Black Hawk and Central City
are contiguous and are located  approximately  40 miles from Denver and 10 miles
from  Interstate  70, the main highway  connecting  Denver to many of Colorado's
major ski resorts. Cripple Creek is located approximately 45 miles from Colorado
Springs and 75 miles from Pueblo. Casinos located in the Black Hawk/Central City
area  serve  primarily  the  residents  of  Denver  and  Boulder,  Colorado  and
surrounding  communities.  Approximately  three  million  people  live  within a
100-mile radius of the Black Hawk/Central City area.

                                       12

<PAGE>




           The following table sets forth  statistical  information  relating to
the growth of the Black Hawk/Central City market compiled from data published by
the Colorado Department of Revenue:

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                   -----------------------------------------------------------

                                                      1993             1994           1995            1996
                                                   -----------     ------------     ---------     ------------

<S>                                                     <C>              <C>           <C>              <C>   
Aggregate Gaming Revenues (in millions)                 $186.2           $243.4        $291.0           $308.8

Revenue Per Slot Machine Per Day                        $69.55           $79.88        $84.94           $93.04

Average Number of Slot Machines                          6,922            7,705         8,636            8,446

Average Number of Casinos in Operation                      36               34            32               33

</TABLE>


Riviera Gaming Management

           In order to capitalize on  management's  experience in  repositioning
and managing the Riviera through the bankruptcy process, the Company formed RGM,
a wholly owned  subsidiary of the Company,  for the primary purpose of obtaining
casino management contracts with financially distressed  casino/hotels in Nevada
and other jurisdictions.  Management believes there will be an increasing demand
for their services by financially distressed casino/hotels. In addition, RGM may
provide other  services  including  assisting new venue  licensee  applicants in
designing and planning their gaming  operations and managing the start-up of new
gaming  operations.  These  services  would  include  casino  design,  equipment
selection, employee recruitment and training, control and accounting systems and
marketing programs.

           Four Queens  Management  Agreement.  Since August 1996,  RGM has been
operating  the Four  Queens  located  adjacent  to the Golden  Nugget on Fremont
Street in downtown Las Vegas under an interim management  agreement for a fee of
$83,333 per month. A long-term management agreement (the "Management Agreement")
with Elsinore Corporation ("Elsinore"),  the owner of the Four Queens, went into
effect on  February  28,  1997,  the  effective  date of the  Chapter 11 plan of
reorganization of Elsinore.

           The term of the  Management  Agreement  is  approximately  40 months,
subject to earlier  termination  or  extension.  Either  party may  terminate if
cumulative EBITDA for the first two fiscal years is less than $12.8 million. The
term can be extended by an additional  24 months at RGM's option,  if cumulative
EBITDA for the three  fiscal  years of the term is at least $19.2  million.  RGM
will be paid a fee of 25% of any  increase in annual  EBITDA over $4.0  million,
subject to a $1.0 million  minimum fee,  payable in equal monthly  installments.
RGM  has  received   warrants  for  20%  of  Elsinore's  fully  diluted  equity,
exercisable  during the term or extended term of the Management  Agreement at an
exercise  price  based on the  higher  of (i) the per  share  book  value on the
effective  date of the  Elsinore  bankruptcy  plan or (ii)  total  shareholders'
equity of $5.0 million.  Either party can terminate the Management  Agreement if
(i)  substantially all the Four Queens' assets are sold, (ii) the Four Queens is
merged or (iii) a majority of the Four  Queens' or  Elsinore's  shares are sold.
Upon such termination,  RGM will receive a $2.0 million  termination bonus minus
any amount realized or realizable upon exercise of the warrants.

Competition

           Intense  competition  exists in the gaming industry,  and many of the
Company's competitors have significantly greater resources than the Company. The
Riviera  faces  competition  from all other  casinos and hotels in the Las Vegas
area, principally  competitors located on or near the Las Vegas Strip. In recent
months,   several  of  the  Company's   direct   competitors   have  opened  new
casino/hotels or have

                                                        13

<PAGE>



commenced or completed major expansion  projects,  and other  casino/hotels  and
expansions are planned.  In addition,  a number of new mega-resorts on the Strip
have been announced and are expected to be completed  within the next two years.
Expansions or  enhancements  of existing  properties or the  construction of new
properties by competitors  could have a material adverse effect on the Company's
business.

           Management  believes that the most direct competition for the Riviera
comes from certain large casino/hotels  located on or near the Strip which offer
amenities and marketing programs similar to those offered by the Riviera.  These
facilities  currently  include Bally's Las Vegas, the Flamingo Hilton Hotel, The
Frontier Hotel and Gambling Hall,  Harrah's Las Vegas,  The Monte Carlo Resort &
Casino,  the  Sahara  Resort &  Casino,  The  Stardust  Hotel &  Casino  and the
Tropicana  Resort & Casino.  The Riviera competes on the basis of the atmosphere
and excitement  offered by the facility,  the desirability of its location,  the
quality and relative value of its hotel rooms and  restaurants,  the quality and
variety  of  entertainment  offered,   customer  service,  the  availability  of
convention  facilities,   its  marketing  strategy  and  special  marketing  and
promotional programs.

           Intense  competition also  characterizes the Black Hawk/Central City,
Colorado market. Casinos generally compete on the basis of parking, location and
size. There are many casinos currently  operating in the Black Hawk/Central City
market,  including Colorado Central Station,  Harveys Wagon Wheel  Hotel/Casino,
Gilpin Hotel Casino,  Fitzgeralds Casino Black Hawk, Bullwhackers Black Hawk and
Bullwhackers  Central City. In addition,  several new  development  projects and
expansion  plans have been  announced,  including  construction of a casino by a
joint venture  between  Jacobs  Entertainment,  Ltd. and the  owner/operator  of
Gilpin Hotel Casino.  A number of Colorado  casinos have ceased  operations  and
others  have  filed  for  protection  under  Chapter  11 of  the  United  States
Bankruptcy Code.  Others have closed  temporarily or reduced the number of their
employees.  The Company believes that many Colorado casinos may not be operating
profitably.  In Black Hawk, Anchor Gaming has announced that the construction of
a new casino  across from its existing  property has been halted,  and the joint
development  of a casino  by Nevada  Gold & Casinos  Inc.  and an  affiliate  of
Caesars World Gaming Development Corporation is also currently inactive.

           The  Company's  Black Hawk  Project may compete  for  customers  with
casinos located on Indian  reservations in southwestern  Colorado.  In addition,
the  legalization  of casino gaming in or near any  metropolitan  area,  such as
Denver,  Colorado,  from which RBL is expected to draw  customers,  would have a
material  adverse  effect on RBL's  business.  Colorado law requires local voter
approval for any expansion of limited gaming into  additional  locations.  State
and local  public  initiatives  regarding  limited  gaming in Colorado are being
actively  pursued by many persons.  Several  cities within  Colorado have active
citizens' lobbies that were able to place gaming initiatives on recent statewide
ballots.   Although  these  initiatives  failed  by  substantial   margins,  new
initiatives  could be introduced on future statewide  ballots to allow expansion
of gaming in  Colorado.  Future  initiatives,  if  passed,  could  significantly
increase the competition for gaming customers, thereby adversely affecting RBL's
business in Colorado.

           The Company also competes 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 legalized gaming in the United States,
as well as with gaming on cruise ships and international  gaming operations.  In
addition,  certain states have recently legalized or are considering  legalizing
casino gaming in specific  geographical  areas within those  states.  Any future
development  of casinos,  lotteries  or other  forms of gaming in other  states,
particularly areas close to Nevada,  such as California,  could adversely affect
the Company's operations.


                                       14

<PAGE>



Employees and Labor Relations

           As of December 31, 1996,  the Riviera  employed  approximately  2,100
persons and had  collective  bargaining  contracts  with seven  unions  covering
approximately  1,300 of such employees  including  food and beverage  employees,
rooms  department  employees,  carpenters,  engineers,  stage hands,  musicians,
electricians, painters and teamsters. The Company's agreements with the Southern
Nevada  Culinary and Bartenders  Unions,  Musicians Union and Stage Hands Union,
which cover the majority of the Company's unionized employees, were renegotiated
in 1994 and will  expire  May 31,  1997.  The  Teamsters,  Operating  Engineers,
Carpenters,  Painters and Electricians Unions' collective  bargaining agreements
were renewed in 1995 and  generally  expire in 1998.  Although  unions have been
active  in  Las  Vegas,  management  considers  its  employee  relations  to  be
satisfactory.  There can be no assurance,  however,  that new agreements will be
reached without union action or will be on terms satisfactory to the Company.

Regulation and Licensing

Nevada

           Nevada Gaming Authority. The ownership and operation of casino gaming
facilities in Nevada are subject to: (i) The Nevada  Gaming  Control Act and the
regulations  promulgated  thereunder  (collectively  the "Nevada Act"); and (ii)
various local  ordinances and regulations.  The Company's gaming  operations are
subject to the licensing and regulatory  control of the Nevada Gaming Commission
(the "Nevada  Commission"),  the Nevada State Gaming  Control Board (the "Nevada
Board"),  and the Clark  County  Liquor and Gaming  Licensing  Board (the "Clark
County  Board").  The Nevada  Commission,  the Nevada Board and the Clark County
Board are collectively referred to as the "Nevada Gaming Authorities."

           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:  (i) the prevention of unsavory or unsuitable  persons
from having a direct or indirect  involvement with gaming at any time and in any
capacity;  (ii) the  establishment  and  maintenance of  responsible  accounting
practices and procedures;  (iii) 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;  (iv) the prevention of cheating and
fraudulent  practices;  and (v)  providing a source of state and local  revenues
through  taxation  and  licensing  fees.  Change in such laws,  regulations  and
procedures could have an adverse effect on the Company's gaming operations.

           ROC is required to be licensed by the Nevada Gaming Authorities.  The
gaming  license held by ROC requires the periodic  payment of fees and taxes and
is not  transferable.  ROC is also licensed as a manufacturer and distributor of
gaming devices.  Such licenses also require the periodic payment of fees and are
not  transferable.  The  Company is  registered  by the Nevada  Commission  as a
publicly  traded  corporation  (a "Registered  Corporation")  and has been found
suitable to own the stock of ROC which is a corporate  gaming licensee under the
terms of the Nevada Act. As a  Registered  Corporation,  the Company is 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  shareholder  of, or receive any  percentage of
profits from, ROC without first obtaining licenses and approvals from the Nevada
Gaming  Authorities.  The Company and ROC have  obtained  from the Nevada Gaming
Authorities the various registrations,  approvals, permits and licenses required
in order to engage in  gaming  activities  and  manufacturing  and  distribution
activities in Nevada.


                                       15

<PAGE>



           All gaming devices that are manufactured, sold or distributed for use
or play in Nevada, or for distribution  outside of Nevada,  must be manufactured
by licensed  manufacturers,  distributed  or sold by licensed  distributors  and
approved  by the Nevada  Commission.  The  approval  process  includes  rigorous
testing by the Nevada Board, a field trial and a determination as to whether the
gaming  device  meets  strict  technical  standards  that  are set  forth in the
regulations  of the Nevada  Gaming  Authorities.  Associated  equipment  must be
administratively  approved  by the  Chairman  of the Nevada  Board  before it is
distributed for use in Nevada.

           The Nevada Gaming  Authorities may investigate any individual who has
a material  relationship to, or material involvement with, the Company or ROC 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 ROC must file applications  with the Nevada Gaming  Authorities and
may  be  required  to be  licensed  or  found  suitable  by  the  Nevada  Gaming
Authorities.  Officers,  directors  and key  employees  of the  Company  who are
actively and directly  involved in the gaming  activities of ROC 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  and, 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 the Company or ROC, the companies involved would have to sever
all  relationships  with such person.  In addition,  the Nevada  Commission  may
require the Company or ROC to terminate the employment of any person who refuses
to file appropriate applications.  Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.

           The Company and ROC 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 ROC must be
reported to or approved by the Nevada Commission.

           If it were  determined  that the Nevada Act was  violated by ROC, the
gaming  licenses it holds could be limited,  conditioned,  suspended or revoked,
subject to compliance  with certain  statutory  and  regulatory  procedures.  In
addition,  the  Company,  ROC and the  persons  involved  could  be  subject  to
substantial  fines  for  each  separate  violation  of  the  Nevada  Act  at the
discretion of the Nevada Commission. Further, a supervisor could be appointed by
the Nevada  Commission to operate the 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  licenses of ROC or the
appointment of a supervisor  could (and  revocation of any gaming license would)
materially adversely affect the Company's gaming operations.

           Any beneficial holder of the Company's voting securities,  regardless
of the  number of shares  owned,  may be  required  to file an  application,  be
investigated,  and have his suitability as a beneficial  holder of the Company's
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.


                                       16

<PAGE>



           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 a  Registered  Corporation's  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 a  Registered  Corporation's
voting  securities  may  apply to the  Nevada  Commission  for a waiver  of such
finding  of  suitability  if  such  institutional   investor  holds  the  voting
securities for investment purposes only. An institutional  investor shall not be
deemed to hold  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 the board of directors
of the  Registered  Corporation,  any change in the corporate  charter,  bylaws,
management,  policies or operations of the Registered Corporation, or any of its
gaming  affiliates,  or any other action which the Nevada Commission finds to be
inconsistent  with holding the Registered  Corporation's  voting  securities for
investment  purposes  only.  Activities  which are deemed to be consistent  with
holding voting  securities for investment  purposes only include:  (i) voting on
all matters voted on by shareholders;  (ii) 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 its  management,  policies or  operations;
and (iii) such other  activities  as the Nevada  Commission  may determine to be
consistent  with such  investment  intent.  If the  beneficial  holder of voting
securities who must be found suitable is a corporation, partnership 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.

           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 if the record owner,  after request,
fails to identify the beneficial owner. Any shareholder found unsuitable and who
holds,  directly or  indirectly,  any  beneficial  ownership of the common stock
beyond such period of time as may be prescribed by the Nevada  Commission may be
guilty of a criminal offense.  The Company is subject to disciplinary action if,
after it receives  notice that a person is unsuitable to be a shareholder  or to
have any other  relationship  with the Company or ROC, the Company (i) pays that
person any dividend or interest  upon voting  securities  of the  Company,  (ii)
allows  that  person to  exercise,  directly  or  indirectly,  any voting  right
conferred through securities held by that person, (iii) pays remuneration in any
form to that person for services rendered or otherwise,  or (iv) fails 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 the holder of
any  debt  security  of a  Registered  Corporation,  to  file  applications,  be
investigated  and be found  suitable to own the debt  security  of a  Registered
Corporation,  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
pursuant  to the Nevada  Act,  the  Registered  Corporation  can be  sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution  whatsoever;  (ii)  recognizes any voting right by such  unsuitable
person in connection  with such  securities;  (iii) pays the  unsuitable  person
remuneration in any form; or (iv) makes any payment to the unsuitable  person by
way of principal,  redemption,  conversion,  exchange,  liquidation,  or similar
transaction.


                                       17

<PAGE>



           The Company is 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.  The Company is also  required to render  maximum
assistance  in  determining  the identity of the  beneficial  owner.  The Nevada
Commission has the power to require the Company's  stock  certificates to bear a
legend indicating that the securities are subject to the Nevada Act. However, to
date, the Nevada Commission has not imposed such a requirement on the Company.

           The Company may not make a public offering of its securities  without
the prior  approval  of the Nevada  Commission  if the  securities  or  proceeds
therefrom  are  intended  to be used to  construct,  acquire or  finance  gaming
facilities  in  Nevada,  or to retire or extend  obligations  incurred  for such
purposes.  The  Company  has  received  approval  of the  Offering by the Nevada
Commission.  Approval  of a public  offering  does  not  constitute  a  finding,
recommendation  or approval by the Nevada  Commission  or the Nevada Board as to
the  accuracy or  adequacy of the  prospectus  or the  investment  merits of the
securities offered. Any representation to the contrary is unlawful.

           Changes in  control of the  Company  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 satisfy the Nevada Board and Nevada Commission in a
variety of  stringent  standards  prior to assuming  control of such  Registered
Corporation.  The Nevada Commission may also require  controlling  shareholders,
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.

           The Nevada legislature has declared that some corporate  acquisitions
opposed by management,  repurchases of voting  securities and corporate  defense
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: (i) assure the
financial  stability of corporate  gaming Licensees and their  affiliates;  (ii)
preserve the beneficial  aspects of conducting  business in the corporate  form;
and (iii) 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 thereof 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  shareholders 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 in which the ROC's  operations  are  conducted.  Depending  upon the
particular fee or tax involved, these fees and taxes are payable either monthly,
quarterly or annually and are based upon either:  (i) a percentage  of the gross
revenues  received;  (ii) the number of gaming  devices  operated;  or (iii) the
number  of table  games  operated.  A casino  entertainment  tax is also paid by
casino  operations  where  entertainment  is  furnished in  connection  with the
selling of food,  refreshments  or  merchandise.  Nevada  Licensees  that hold a
license to manufacture and distribute slot machines and gaming devices,  such as
ROC, also pay certain fees and taxes to the State of Nevada.


                                       18

<PAGE>



           Any person who is  licensed,  required  to be  licensed,  registered,
required  to be  registered,  or is  under  common  control  with  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 their  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 that are harmful to the State of Nevada or its
ability  to collect  gaming  taxes and fees,  or employ 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 Regulation.  The sale of alcoholic  beverages at the Riviera is
subject to licensing,  control and  regulation  by the Clark County  Board.  All
licenses are revocable and are not 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 affect
upon the operations of ROC.

Colorado

           Colorado  Gaming  Regulation.  On  November  6,  1990,  the  State of
Colorado  electorate  approved an amendment to the  Colorado  Constitution  (the
"Colorado Amendment") that legalized limited gaming. As a result, limited gaming
became  lawful in the cities of Central  City,  Black Hawk and Cripple  Creek on
October 1, 1991.  The Colorado  Amendment  defines  limited gaming as the use of
slot machines and the card games of blackjack and poker,  with a maximum  single
bet of five dollars.

           Limited  gaming is  confined  to the  commercial  districts  of these
cities as those commercial  districts were defined in city ordinances by Central
City on October 7, 1981,  by Black Hawk on May 4, 1978,  and by Cripple Creek on
December 3, 1973. In addition,  the Colorado Amendment  restricts the conduct of
limited  gaming to  structures  that  conform  to the  architectural  styles and
designs that were common to the areas prior to World War I, as determined by the
municipal  governing bodies.  Further,  the Colorado  Amendment provides that no
more than 35% of the square  footage of any building and no more than 50% of any
one floor of such  building  may be used for  limited  gaming.  Pursuant  to the
Colorado  Amendment,  limited gaming operations are prohibited between the hours
of 2:00 a.m. and 8:00 a.m. The Colorado Amendment allows limited gaming to occur
in establishments licensed to sell alcoholic beverages under the Colorado Liquor
Code.

           The Colorado  Amendment  further  provides  that,  in addition to any
other  applicable  license  fees,  up to a maximum of 40% of the adjusted  gross
proceeds  of limited  gaming  operations  may be  payable by a licensee  for the
privilege of conducting limited gaming.

           The Colorado  legislature  promulgated the Limited Gaming Act of 1991
(the "Colorado Act") to implement the provisions of the Colorado Amendment.  The
Colorado  Act was  signed  into  law on  June  4,  1991  and  has  been  amended
subsequently.

           Through the Colorado Act, the Colorado  legislature declared that its
public policy toward  limited  gaming would be that:  (i) the success of limited
gaming is  dependent  upon public  confidence  and trust that  licensed  limited
gaming is conducted honestly and competitively; that the rights of the creditors
of licensees are protected; and that gaming is free from criminal and corruptive
elements; (ii) public

                                       19

<PAGE>



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;  (iii)  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 gaming and to preserve the economy and policies
of free  competition  in the  state of  Colorado;  and (iv) no  applicant  for a
license or other affirmative  commission  approval has any right to a license or
to the granting of the approval  sought.  Any license issued or other commission
approval  granted  pursuant to the provisions of the Colorado Act is a revocable
privilege, and no holder acquires any vested right therein or thereunder.

           Pursuant to the Colorado  Act, the ownership and operation of limited
gaming facilities in Colorado are subject to extensive  regulation.  Among other
prohibitions,  the  Colorado  Act  prohibits  persons  under  the age of 21 from
participating  in limited  gaming or lingering  in gaming areas of a casino.  No
limited gaming may be conducted in Colorado unless all appropriate  licenses are
approved by and obtained from the Colorado  Limited  Gaming  Control  Commission
(the  "Colorado  Commission").  Further,  the Colorado  Commission  has full and
exclusive  authority to promulgate,  and has promulgated,  rules and regulations
related to limited gaming (the "Colorado Regulations").  Such authority does not
require any approval by or delegation of authority from the Colorado  Department
of Revenue (the "Colorado Revenue  Department").  In addition,  the Colorado Act
created  the  Division  of Gaming  within the  Colorado  Revenue  Department  to
license,  implement,  regulate and supervise the conduct of limited gaming.  The
Director  of  the  Division  (the  "Division   Director"),   under  the  general
supervision of the Colorado  Commission,  has broad powers to ensure  compliance
with  the  Colorado  Act  and  the  regulations   promulgated  by  the  Colorado
Commission.

           The  Colorado  Commission  may  issue  the  following  five  types of
licenses:  (i) slot machine  manufacturer or distributor;  (ii) operator;  (iii)
retail  gaming;  (iv) support;  and key employee.  The first three  licenses are
issued for a one-year  period  and  require  annual  renewal.  However,  support
licenses  and key  employee  licenses  are issued for two year  periods  and are
renewable.  The Colorado Commission has broad discretion to condition,  suspend,
revoke,  limit or restrict a license at any time and also has the  authority  to
impose fines.

           An  applicant  for any type of  Colorado  license  must  provide  the
following  information:  (i) personal  background  information;  (ii)  financial
information;  (iii)  participation in legal or illegal activities in Colorado or
other   jurisdictions,   including  foreign  countries;   (iv)  criminal  record
information;  (v) information  concerning all pecuniary and equity  interests in
the  applicant;  and (vi) other  information  as required.  Prior to  licensure,
applicants  must  satisfy the  Colorado  Commission  that they are  suitable for
licensing and are of good moral character.  The Colorado legislature has defined
unsuitability  or  unsuitable  in  relation to a person as the  inability  to be
licensed  by the  Colorado  Commission  because of prior acts,  associations  or
financial conditions, and, in relation to acts or practices, those which violate
or would  violate  the  statutes  or rules  or are or would be  contrary  to the
declared legislative purposes of the Colorado Act. Applicants have the burden of
proving their  qualifications to the Colorado  Commission and must submit to and
pay the full cost of any  background  investigations  as may be  ordered  by the
Colorado  Commission.  There  is  no  limit  on  the  cost  of  such  background
investigations  and no guaranty that any applicant  will receive  licensing from
the Colorado Commission.

           All natural persons employed in the field of limited gaming must hold
either a support or key employee license.  Every retail gaming licensee must
have a key employee licensee in charge of all limited gaming activities
available at all times when limited gaming is being conducted.  The Colorado

                                       20

<PAGE>



Commission  may determine that any employee of a licensee is a key employee and,
therefore, require that such person apply for licensing as a key employee.

           A retail  gaming  license is required for all persons  permitting  or
conducting limited gaming on their premises and such license may be granted only
to a retailer.  In addition, an operator license is required for all persons who
permit slot machines on their  premises or who engage in the business of placing
and operating slot machines on the premises of a retailer. No person may have an
ownership  interest  in  more  than  three  retail  licenses.   A  slot  machine
manufacturer or distributor license is required for all persons who manufacture,
import or  distribute  slot  machines in Colorado,  or who otherwise act as slot
machine manufacturers or distributors.

           The  current  practice  of the  Division  of Gaming and the  Colorado
Commission  is to require  every  officer and  director,  or  equivalent  office
holders for non-corporate applicants,  and 5% or greater beneficial shareholders
or owners of an  applicant  or  licensee to  complete  background  investigation
forms,  provide  comprehensive  information  and  submit  to a  full  background
investigation  conducted by the Division of Gaming and the Colorado  Commission.
The purpose of the  investigation is to determine each such person's or entity's
qualifications and suitability for licensure.  In addition,  all persons loaning
monies, goods or real or personal property to a licensee or applicant, or having
any interest in a licensee or applicant,  or entering into any agreement  with a
licensee or applicant, must provide any information requested by the Division of
Gaming or the Colorado  Commission;  and, in the  discretion  of the Division of
Gaming or the Colorado  Commission,  these  persons must supply all  information
relevant to a determination  of any such person's  suitability for licensure and
must  submit to a full  background  investigation  if  ordered  by the  Colorado
Commission.

           Persons found  unsuitable by the Colorado  Commission may be required
immediately  to  terminate  any interest in,  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
license application.  A license grant may be conditioned upon the termination of
any relationship with unsuitable persons.

           The Colorado Act and the Colorado  Regulations  require  licensees to
maintain  detailed books and records that accurately  account for all monies and
business  transactions.  Books and records must be furnished  upon demand to the
Colorado   Commission,   the  Division  of  Gaming  and  other  law  enforcement
authorities.  The Colorado  Regulations  also  establish  detailed and extensive
playing  procedures,  standards,  requirements  and  rules  of play  for  poker,
blackjack and slot machines.  Retail gaming  licensees must, in addition,  adopt
comprehensive   internal  control  procedures  governing  their  limited  gaming
operations.  Such  procedures  must be  approved  in advance by the  Division of
Gaming and  include the areas of  accounting,  surveillance,  security,  cashier
operations, key control and fill and drop procedures, among others.

           Licensees have a continuing duty to report to the Colorado Commission
information  concerning  persons  with a  financial  or equity  interest  in the
licensee, or who have the ability to control or exercise a significant influence
over the licensee,  or who loan money to the licensee.  Licensees are prohibited
from  engaging  in  fraudulent   acts,   which  include,   among  other  things,
misrepresenting  the  probabilities of pay out,  improperly  canceling a bet and
conducting  limited  gaming  without a valid  license.  Finally,  licensees must
report  to the  Division  of  Gaming  all  licenses,  and all  applications  for
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.

                                       21

<PAGE>




           All agreements,  contracts,  leases,  or arrangements in violation of
the Colorado Act or the Colorado Regulations are void and unenforceable.

           All slot machines, cards, chips or tokens used in limited gaming must
be approved by the Division Director or the Colorado Commission.  All such items
must meet  standards  established  by the  Division  of Gaming and the  Colorado
Commission.

           Upon  request,  an applicant or licensee  must submit to the Colorado
Commission or Director of Gaming  written  copies or summaries of all written or
oral  gaming  contracts  to which it is or will be a  party.  A gaming  contract
includes any  agreement  in which a person does  business  with a licensee.  The
Colorado  Commission  or the  Division  Director  may require  changes in gaming
contracts or may require  termination  of a gaming  contract.  Parties to gaming
contracts may be required to provide all information relevant to a determination
of their suitability for licensing.

           Colorado  has enacted an annual tax on the  adjusted  gross  proceeds
("AGP")  from limited  gaming.  AGP is  generally  defined as the total  amounts
wagered less all payments to players.  With respect to games of poker, AGP means
those sums  wagered in a hand  retained by the licensee as  compensation,  which
must be  consistent  with the  minimum and maximum  amounts  established  by the
Colorado  Commission.  Currently,  the  gaming tax on AGP is: 2% on the first $2
million  of AGP;  4% on AGP from $2 million  to $4  million;  14% on AGP from $4
million to $5 million; 18% on AGP from $5 million to $10 million; and 20% on AGP
over $10 million.  The gaming tax is paid monthly,  with  licensees  required to
file returns by the 15th of the  following  month.  Effective  October 1 of each
year, the Colorado  Commission  establishes  the gaming tax for the following 12
months.  Under the Colorado Amendment,  the Colorado Commission may increase the
gaming tax rate to as much as 40% of AGP.

           The  Colorado  Commission  requires  all gaming  licensees  to pay an
annual device fee for each slot machine,  blackjack  table and poker table.  The
current  state  device  fee,   established   October  1,  1996,  is  $100.   The
municipalities  of Central  City,  Black Hawk and Cripple  Creek also assess and
collect  their own device fees.  The current  annual device fee in Black Hawk is
$750 per device. There is no statutory limit on state or city device fees, which
may be increased at the discretion of the state or city. The state device fee is
not  prorated;  a device used at any time  during the year is assessed  the full
state fee. Local device fees may be prorated according to device usage; the City
of Black Hawk  currently  prorates  device fees such that any device used at any
time  during a calendar  quarter is subject to the device fee for such  calendar
quarter.  In  addition,  a  business  improvement  fee of $100 per  device and a
transportation  impact fee of $77 per device also may apply  depending  upon the
location of the licensed premises.

           Black  Hawk  also  imposes  taxes  and fees on other  aspects  of the
businesses of 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.

           Violations of the Colorado  Act, or any of the Colorado  Regulations,
is a criminal  offense.  Persons  violating  the  Colorado  Act or the  Colorado
Regulations may, in addition to any gaming license suspension or revocation,  be
subject to criminal prosecution resulting in incarceration, fines or both.

           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 non-transferable.  State and local
licensing authorities have full power to limit, condition, suspend or revoke any
such licenses.  Violation of the state alcoholic  beverage laws may constitute a
criminal  offense,  and  violators  may  be  subject  to  criminal  prosecution,
incarceration and fines. A gaming establishment that sells or provides alcoholic
beverages is required to have a retail gaming tavern license.


                                       22

<PAGE>



           There are various  classes of alcoholic  beverage  licenses under the
Colorado Liquor Code. However, only a retail gaming tavern license may be issued
to persons who are licensed pursuant to the Colorado Act. A retail gaming tavern
licensee may sell malt,  vinous or spirituous  liquors only by individual drinks
for consumption on the premises and must also make available sandwiches or light
snacks or contract with concessionaires to provide food services within the same
building as the licensed premises.  In no event may any person hold more than or
have  an  interest  in  more  than  three  retail  gaming  tavern  licenses.  An
application  for an  alcoholic  beverage  license in Colorado  requires  notice,
posting and a public hearing before the local liquor  licensing  authority.  The
Department's Liquor Enforcement Division also must approve the application.

           In  addition  to the  other  requirements  of the  gaming  laws,  the
Colorado  Commission  has  enacted  a special  rule,  Rule  4.5,  which  imposes
additional  requirements on publicly traded corporations holding gaming licenses
in Colorado and on gaming  licensees in Colorado  owned  directly or indirectly,
five percent or more, by publicly traded corporations. The term "publicly traded
corporation"  is a  specially  defined  term and may include  limited  liability
companies,  trusts, partnerships and other business organizations,  and may even
include entities  exempted from the registration  requirements of the securities
laws under certain circumstances.

           Under  Rule  4.5,   gaming   licensees,   affiliated   companies  and
controlling  persons thereof must notify the Colorado  Commission within 10 days
of the  initial  filing of a  registration  statement  with the  Securities  and
Exchange Commission.  Licensed publicly traded corporations are also required to
send proxy statements to the Division of Gaming within 5 days after distribution
of such  statement,  and to follow a variety  of other  reporting  requirements.
Licensees  to  whom  Rule  4.5  applies  must  include  in  their   articles  of
organization or similar charter  documents  certain  specified  provisions that:
restrict  the rights of the licensee to issue  voting  interests  or  securities
except in accordance with the Colorado gaming laws;  limit the rights of persons
to transfer  voting  interests or securities of a licensee  except in accordance
with the Colorado  gaming laws; and provide that holders of voting  interests or
securities  of a licensee  found  unsuitable by the Colorado  Commission  may be
required to sell their  interests or securities back to the issuer at the lesser
of, in general terms, the holder's investment or the market price as of the date
of the finding of unsuitability.  Alternatively,  and with  authorization by the
Colorado Commission, the holder may in limited circumstances 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 on them, the interests or
securities  may not be  voted,  or  entitled  to any  vote,  and 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 holder of the securities or interests.

           Pursuant  to  Rule  4.5,  persons  who  acquire  direct  or  indirect
beneficial  ownership of (i) 5% or more of any class of the voting securities of
a publicly traded corporation  required to contain the Rule 4.5 charter language
provisions,  or (ii) 5% or more of the 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  (all such  persons  hereinafter
referred to as "qualifying persons"),  must notify the Division of Gaming within
10 days of such  acquisition,  are required to submit all requested  information
and are  subject to a finding of  suitability.  Licensees  also must  notify any
qualifying  persons of these  requirements.  A qualifying person whose interests
equal  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 whose interests equal 15% or more must apply to the Colorado  Commission for
a finding  of  suitability  within 45 days after  acquiring  such  interests.  A
qualifying person who is an institutional investor and whose interests equal

                                       23

<PAGE>



10% or more,  but less than 15%,  may not be required to apply for  suitability,
provided such person fulfills certain reporting requirements.

           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 thereof. 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  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 interests.  The
Colorado Commission may determine that anyone with a material  relationship to a
licensee, or affiliated company, must apply for a finding of suitability.

           RBL currently  holds no gaming or liquor  licenses and will therefore
have to make  applications  for both types of  licenses in  connection  with the
Black Hawk  Project.  The failure or  inability to obtain such  licensing  could
materially and adversely affect the Black Hawk Project.

Federal Registration

           ROC 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 the present year have been made.

Item 2.    Properties

           The  Riviera  complex  is located  on the Las Vegas  Strip,  occupies
approximately  26 acres  and  comprises  approximately  1,700,000  square  feet,
including  105,000 square feet of casino space,  100,000 square foot convention,
meeting  and  banquet  facility,  approximately  2,100  hotel  rooms  (including
approximately  169 luxury suites) in five towers,  four  restaurants,  a buffet,
four showrooms,  a lounge and  approximately  2,900 parking spaces. In addition,
executive and other offices for the Riviera are located on the property.

           There are 47 food and retail  concessions  operated under  individual
leases with third parties. The leases are for periods from one year to ten years
and expire over the next five years.

           The entire  Riviera  complex is  encumbered  by a first deed of trust
securing the First  Mortgage  Notes.  See "Item  7-Management's  Discussion  and
Analysis of Financial  Condition and Results of  Operations"  and "Liquidity and
Capital Resources."

Item 3.    Legal Proceedings

           The Company is a party to several routine  lawsuits both as plaintiff
and as defendant arising from the normal operations of a hotel.  Management does
not believe that the outcome of such litigation,  in the aggregate,  will have a
material  adverse  effect on the financial  position or results of operations of
the Company.

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

           None.


                                       24

<PAGE>



                                     PART II

Item 5.    Market for the Registrant's Common Stock and Related Security
           Holder Matters

           The  Company's  Common  Stock  began  trading on the  American  Stock
Exchange on May 13, 1996 and was reported on the NASDAQ  Bulletin Board prior to
that date.  As of March 4, 1997,  based upon  information  available  to it, the
Company believes that there were  approximately  1,319 beneficial holders of the
Company's Common Stock.

           The Company has never paid any dividends on its Common Stock and does
not  currently  expect to pay any  dividends  (cash or  otherwise) on its Common
Stock for the  foreseeable  future.  The  Company's  ability to pay dividends is
primarily  dependent  upon receipt of dividends and  distributions  from ROC. In
addition,  the indenture for the First  Mortgage  Notes  restricts the Company's
ability to pay dividends on its Common Stock.

           The table  below sets  forth the bid and ask sales  prices by quarter
for the years ended December 31, 1995 and 1996, based on information provided by
certain brokers who have had  transactions in the Company's  Common Stock during
the year:

                          First          Second           Third          Fourth
                         Quarter         Quarter         Quarter         Quarter
                         -------         -------         -------         -------
         1996
         ----
          BID            $ 7.50          $11.00          $14.00          $12.94
          ASK              9.75           17.75           17.13           15.63

         1995
         ----
          BID              3.00            3.50            8.25            7.00
          ASK              4.63            9.13           11.50           10.00


On March 4, 1997 (the most recent  trade date of the  Company's  common  stock),
1,200 shares were traded closing at $14.125 per share.


                                       25

<PAGE>



Item 6.    Selected Financial Data

           The following  table sets forth a summary of selected  financial data
for the Company and its predecessor for the years ended December 31:

<TABLE>
<CAPTION>
                           Year
                          Ended                Six Months Ended                          Years Ended December 31,
                         Dec. 31,         June 30,        Dec. 31,          Combined
                           1992             1993            1993              1993           1994         1995           1996
                          ------           ------          ------            ------         ------       ------         -----
                     (Predecessor)       (Predecessor)    (Successor)
                                                               (dollars in thousands*)

<S>                       <C>              <C>                <C>            <C>           <C>           <C>             <C>     
Total Operating           $144,502         $72,702            $76,221        $148,923      $153,921      $151,145        $164,409
Revenue, net

Net Income (Loss)         (80,905)(1)(2)     5,628(2)           2,607           8,235(2)      4,790         6,344           8,440

Net Income (Loss)              N/A             N/A                 $.54           N/A           $1.00         $1.26           $1.63
Per Common Share

Total Assets               143,631         150,836            143,704         143,704       151,925       157,931         167,665

Long Term Debt             133,255         119,959            114,540         114,540       113,154       110,571         109,088


<FN>
________________

*     Except for Net Income (Loss) Per Common Share

(1)   Includes a recognized loss on the permanent impairment of assets during
      the bankruptcy in the amount of $85.2 million to record the fair market
      value of the property and equipment.

(2)   There was no accrual of interest on debt  subsequent  to December 18,
      1991. If accrued,  interest expense on these  obligations  would have
      totaled $21.4  million and $10.4 million for the year ended  December
      31, 1992 and for the six months ended June 30, 1993, respectively.
</FN>
</TABLE>

                                       26

<PAGE>



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

Results of Operations

           The following table sets forth the Company's income statement data as
a percentage of net revenues  (unless  otherwise  noted) for the Company for the
periods indicated:

<TABLE>
<CAPTION>
                                                       1994              1995             1996
                                                       ----              ----             ----
Revenues:
<S>                                                     <C>              <C>               <C>  
   Casino.........................................      53.3%            51.2%             48.9%
   Rooms..........................................      23.0             26.4              25.4
   Food and Beverage..............................      14.9             14.5              13.8
   Entertainment..................................      11.0              9.5              12.7
   Other..........................................       6.1              6.3               6.9
   Less promotional allowances...................       (8.3)            (7.9)            (7.7)
                                                     -------           -------          -------
     Net revenues                                      100.0            100.0             100.0

Costs and Expenses:
   Casino(1)......................................      59.5             58.6              59.1
   Rooms(1).......................................      49.7             47.1              45.0
   Food and Beverage(1)...........................      67.9             72.0              70.3
   Entertainment(1)...............................      82.5             71.6              73.2
   Other(1).......................................      37.4             37.1              34.6
   Selling, general and administrative............      18.7             19.6              19.1
   Depreciation and amortization..................       3.7              4.5               5.0
Total Costs and Expenses..........................      87.1             86.1              85.8
Income from operations............................      12.9             13.9              14.2
Interest expense, net.............................       8.0               7.5              6.3
                                                     -------           -------          -------
Income before provision for income taxes..........       5.0              6.4               7.8
Provision for income  taxes.......................      (1.9)             (2.2)            (2.7)
                                                     -------           -------          -------
Net Income                                               3.1%             4.2%              5.1%



(1) Shown as a percentage of corresponding departmental revenue.

</TABLE>


1996 Compared to 1995

Revenues

           Net revenues increased by approximately  $13.3 million, or 8.8%, from
$151.1 million in 1995 to $164.4 million in 1996.  Casino revenues  increased by
approximately $3.0 million, or 3.9%, from $77.3 million in 1995 to $80.4 million
in 1996 due primarily to a $2.9 million, or 5.4%, increase in slot revenues as a
result of an increase in promotional  activities directed at slot players.  Room
revenues increased by approximately $2.0 million, or 5.0%, from $39.8 million in
1995 to $41.8 million in 1996 as a result of an increase in hotel occupancy from
97.0% to 98.2% (based on  available  rooms) and an increase in average room rate
of $2.40, or 4.4%. Food and beverage revenues increased  approximately $700,000,
or 3.4%,  from $21.9  million in 1995 to $22.6 million in 1996 due to additional
covers  in  the  bars  and  restaurants.  Entertainment  revenues  increased  by
approximately  $6.5  million,  or 44.8%,  from  $14.4  million  in 1995 to $20.9
million in 1996. This was principally due to the reopening of the Splash variety
show which had been closed during the first half of 1995 for show  revisions and
theater

                                       27

<PAGE>



remodeling.  Other revenues increased by approximately  $1.8 million,  or 18.7%,
from $9.5 million in 1995 to $11.3  million in 1996 due primarily to a refund of
$576,000  from a union  health and welfare  trust fund for reduced  premiums and
general increases in other revenues such as telephone, gift shops and box office
commissions.  In addition, the Company received management fees of approximately
$400,000  for  operating  the Four Queens  Hotel/Casino  in  downtown  Las Vegas
beginning  in August 1996.  Promotional  allowances  increased by  approximately
$700,000,  or 6.4%,  from $11.9  million in 1995 to $12.6 million in 1996 due to
additional  complimentary  show  tickets  for the Splash show and an increase in
complimentaries associated with casino and slot marketing programs.

Direct Costs and Expenses of Operating Departments

           Total direct costs and expenses of operating departments increased by
approximately  $7.7  million,  or 8.2%,  from  $93.7  million  in 1995 to $101.5
million in 1996.  Casino expenses  increased by approximately  $2.2 million,  or
4.8%, from $45.3 million in 1995 to $47.5 million in 1996 due to a corresponding
increase in casino  revenues and casino expenses as a percent of casino revenues
increased  from  58.6%  to  59.1%,  primarily  due  to  increased  entertainment
promotional allowances upon the reopening of Splash on June 23, 1995. Room costs
were mostly flat for 1996 compared to 1995, however,  room costs as a percentage
of room revenues  decreased from 47.1% in 1995 to 45.0% in 1996 as room revenues
increased while room costs remained relatively constant. Food and beverage costs
increased by  approximately  $150,000,  or 0.9%,  from $15.8  million in 1995 to
$15.9 million in 1996 resulting from a corresponding increase in revenues.  Food
and beverage costs as a percentage of food and beverage revenues  decreased from
72.0% in 1995 to 70.3% in 1996 because food and beverage revenue increased while
payroll  and other  costs  remained  relatively  constant.  Entertainment  costs
increased by approximately $5.0 million, or 48.0%, from $10.3 million in 1995 to
$15.3 million in 1996, due to the additional  expenses associated with operating
Splash  for a full  year in 1996.  Entertainment  expenses  as a  percentage  of
entertainment  revenues  increased  from 71.6% in 1995 to 73.2% in 1996 due to a
revision  in the  Splash  producer's  agreement.  Other  expenses  increased  by
approximately  $400,000,  or 10.9%,  from $3.5  million to $3.9 million due to a
corresponding increase in other revenues.

Other Operating Expenses

           Selling,   general   and   administrative   expenses   increased   by
approximately $1.8 million, or 6.2%, from $29.6 million in 1995 to $31.5 million
in 1996 due to increased  incentive plan costs  required to retain  personnel in
the  competitive  gaming  environment.  As a percentage  of total net  revenues,
selling,  general and  administrative  expenses  decreased from 19.6% in 1995 to
19.1% in 1996 as a result of lower general marketing  expenses and the spreading
of fixed costs over a larger revenue base in 1996. Depreciation and amortization
increased by approximately $1.4 million,  or 20.6%, from $6.8 million in 1995 to
$8.2 million in 1996.

Other Income (Expense)

           Interest expense decreased by approximately  $400,000,  or 3.0%, from
$12.5 million in 1995 to $12.1 million in 1996 while  interest  income  remained
constant  at $1.1  million  in 1995 and  1996.  This was due to a  reduction  in
average debt outstanding, an increase in average cash balances and a decrease in
the investment  yield in 1996.  Other income increased by $505,000 due to a gain
on the final payment of certain  unsecured  notes in the fourth  quarter of 1996
offset by a loss due to the change in terms of one of the Company's notes.

                                       28

<PAGE>




Net Income

           As a result of the factors  discussed  above, net income increased by
approximately $2.1 million,  or 33.0%, from $6.3 million in 1995 to $8.4 million
in 1996. The effective income tax rate was 34.4% for 1995 and 1996.

EBITDA

           EBITDA increased by approximately $3.7 million,  or 13.3%, from $27.8
million in 1995 to $31.5 million in 1996. During the same periods, EBITDA margin
increased from 18.4% to 19.2% of net revenues.

1995 Compared to 1994

Revenues

           Net revenues decreased by approximately  $2.8 million,  or 1.8%, from
$153.9 million in 1994 to $151.1 million in 1995.  Casino revenues  decreased by
approximately $4.7 million, or 5.8%, from $82.1 million in 1994 to $77.3 million
in 1995  which was  largely  due to an  approximately  $5.9  million,  or 22.9%,
decrease in table game  revenues as a result of reduced  "high-roller"  play and
the elimination of unprofitable  marketing  programs offset by an  approximately
$1.3  million,  or  2.8%,  increase  in slot  machine  revenues.  Room  revenues
increased by approximately $4.4 million, or 12.5%, from $35.4 million in 1994 to
$39.8  million  in 1995 due to a  slight  decrease  in  occupancy  offset  by an
increase of $7.18 in the average room rate. Food and beverage revenues decreased
approximately $1.1 million, or 4.6%, from $23.0 million in 1994 to $21.9 million
in 1995,  principally  due to  reduced  covers  resulting  from the  decline  in
customer  traffic  as a result of Splash  being  closed  for six  months in 1995
compared to one month in 1994. Entertainment revenues decreased by approximately
$2.5 million,  or 14.9%, from $16.9 million in 1994 to $14.4 million in 1995 due
primarily to the closure of Splash from November 1994 to June 1995. Other income
increased by approximately  $125,000, or 1.3%, from $9.4 million in 1994 to $9.5
million in 1995. Promotional allowances decreased by approximately $1.0 million,
or 7.7%,  from $12.9 million in 1994 to $11.9 million in 1995,  primarily due to
the elimination of certain marketing programs.

Direct Costs and Expenses of Operating Departments

           Total direct costs and expenses of operating departments decreased by
approximately $5.8 million, or 5.8%, from $99.5 million in 1994 to $93.7 million
in 1995. Casino expenses decreased by approximately $3.5 million,  or 7.2%, from
$48.8 million in 1994 to $45.3 million in 1995 due to a  corresponding  decrease
in casino revenues. Casino expenses as a percentage of casino revenues decreased
from 59.5% in 1994 to 58.6% in 1995 due to reduced  complimentaries.  Room costs
increased by approximately $1.2 million,  or 6.8%, from $17.6 million in 1994 to
$18.8 million in 1995,  principally due to the payment of higher credit card and
travel agent  commissions  associated  with the increase in room revenues.  Room
costs as a percentage of room revenues  decreased from 49.7% in 1994 to 47.1% in
1995 as a result of certain fixed costs being  allocated  over a larger  revenue
base. Food and beverage costs increased by approximately $180,000, or 1.2%, from
$15.6  million in 1994 to $15.8  million in 1995.  As a  percentage  of food and
beverage  revenues,  costs increased from 67.9% in 1994 to 72.0% in 1995 because
certain  fixed costs could not be reduced  commensurate  with the  reduction  of
revenue.

                                       29

<PAGE>



Entertainment  costs decreased by  approximately  $3.7 million,  or 26.1%,  from
$14.0 million in 1994 to $10.3 million in 1995 due to Splash being closed during
the first half of 1995.  Entertainment  costs as a percentage  of  entertainment
revenues  decreased  from 82.5% in 1994 to 71.6% in 1995 due to better  contract
terms with the  producer of Splash.  Other  expenses  remained  constant at $3.5
million in 1995.

Other Operating Expenses

           Selling,   general   and   administrative   expenses   increased   by
approximately  $800,000, or 2.8%, from $28.8 million in 1994 to $29.6 million in
1995. As a percentage of total net revenues, selling, general and administrative
expenses  increased  from  18.7% in 1994 to 19.6%  in 1995 due to  increases  in
payroll and maintenance offset by a decrease in workers' compensation  insurance
expense  resulting from the Company becoming  self-insured and a decrease in the
provision  for bad debts as a result of stricter  credit  policies  during 1995.
Depreciation and amortization increased by approximately $1.1 million, or 20.0%,
from $5.7 million in 1994 to $6.8 million in 1995.

Other Income (Expense)

           Interest expense decreased by approximately  $311,000,  or 2.4%, from
$12.8 million in 1994 to $12.5 million in 1995,  while interest income more than
doubled from approximately $510,000 to $1.1 million. This was due to a reduction
in  average  debt   outstanding  and  an  increase  in  average  cash  balances,
respectively, during 1995 compared to 1994.

Net Income

           As a result of the factors  discussed  above, net income increased by
approximately $1.6 million,  or 32.4%, from $4.8 million in 1994 to $6.3 million
in 1995. The effective  income tax rate for 1995 was 34.4% compared to 37.5% for
1994.

EBITDA

           EBITDA increased by approximately  $2.2 million,  or 8.6%, from $25.6
million in 1994 to $27.8 million in 1995. During the same periods, EBITDA margin
increased from 16.6% to 18.4% of net revenues.

Liquidity and Capital Resources

           The  Company  had cash  and cash  equivalents  of  $25.7  million  at
December  31,  1996,  which was an increase of $3.8 million from the balances at
December 31, 1995.  Significant  debt  service on the First  Mortgage  Notes and
other debt issued  pursuant to the Plan is paid in June and  December and should
be considered in evaluating cash increases in the first and third quarters.

           For the year ended December 31, 1996, the Company's net cash provided
by operating  activities  was $18.3 million  compared to $16.7 million for 1995.
EBITDA  for 1996 and 1995 was $31.5  million  and $27.8  million,  respectively,
which was adequate to cover the Company's debt service and capital expenditures.
Management  believes  that  sufficient  cash flow will be available to cover the
Company's debt service and enable  investment in budgeted  capital  expenditures
for the next 12 months.


                                       30

<PAGE>



           Scheduled  interest  payments on the First  Mortgage  Notes and other
indebtedness  are $12.1 million in 1996 declining to $11.0 million in 2002. Cash
flow  from  operations  is not  expected  to be  sufficient  to pay  100% of the
principal  of the First  Mortgage  Notes at maturity in 2002.  Accordingly,  the
ability of the Company to repay the First  Mortgage  Notes at  maturity  will be
dependent upon its ability to refinance the First Mortgage  Notes.  There can be
no assurance that the Company will be able to refinance the principal  amount of
the  First  Mortgage  Notes  at  maturity.  The  First  Mortgage  Notes  are not
redeemable at the option of the Company until June 1, 1998,  and  thereafter are
redeemable at premiums beginning at 104.3125% and declining each subsequent year
to par in 2001.

           The Note Indenture  provides for mandatory  redemption by the Company
upon the  order of the  Nevada  Gaming  Authorities.  The  Note  Indenture  also
provides  that, in certain  circumstances,  the Company must offer to repurchase
the First  Mortgage  Notes upon the occurrence of a change of control or certain
other events.  In the event of such mandatory  redemption or repurchase prior to
maturity,  the Company would be unable to pay the principal  amount of the First
Mortgage Notes without a refinancing.

           The  Note  Indenture   imposes   certain   financial   covenants  and
restrictions on the Company and ROC, including a minimum  consolidated net worth
requirement and limitations on the payment of dividends,  the incurrence of debt
and granting of liens,  capital expenditures and mergers and sales of assets. As
a result of these  restrictions,  the  ability of the  Company  and ROC to incur
additional  indebtedness to fund  operations or to make capital  expenditures is
limited.  In the event that cash flow from  operations is  insufficient to cover
cash  requirements,  the  Company  and ROC may not be able to obtain  additional
funds.  The Company  and ROC would be  required  to curtail or defer  certain of
their capital expenditure programs under these  circumstances,  which could have
an adverse effect on the Company's operations.

           Effective September 8, 1995, the Note Indenture was amended to permit
the  Company's  management  team to utilize  its  expertise  in  turning  around
troubled gaming  properties which are either in, or on the verge of,  bankruptcy
and managing casinos in "new venues."

            In February  1997, the Company  entered into a $15.0  million,  five
year reducing revolving line of credit  collateralized by equipment (the "Credit
Facility").  The revolving  line of credit bears  interest at prime plus 0.5% or
LIBOR plus 2.9%. The Company has not utilized this line of credit.

           During  the  reorganization  proceeding  of  Riviera,  Inc.,  certain
capital  expenditures  were deferred.  Management  considers it important to the
competitive  position of the Riviera  that  expenditures  be made to upgrade the
property.  Capital expenditures totaled approximately $8.9 million in 1994, $7.8
million in 1995 and $14.9 million in 1996. Management has budgeted approximately
$13.0 million for capital  expenditures  in 1997. The Company expects to finance
such capital expenditures from cash flow and the Credit Facility.

Forward Looking Statements

           The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain  forward-looking  statements.  Certain matters  discussed in
this  filing  could  be  characterized  as  forward-looking  statements  such as
statements  relating  to plans for future  expansion,  as well as other  capital
spending,  financing  sources and effects of regulation  and  competition.  Such
forward-looking

                                       31

<PAGE>



statements  involve  important risks and  uncertainties  that could cause actual
results  to differ  materially  from  those  expressed  in such  forward-looking
statements.

Recently Adopted Accounting Standards

           During  1996 the Company  adopted  the  provisions  of  Statement  of
Financial   Accounting  Standards  No.  121  ("SFAS  121")  Accounting  for  the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of.
SFAS 121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the  carrying  amount of an asset may not be  recoverable.  The adoption of
SFAS 121 had no impact on the financial statements of the Company.

           In October 1995, the Financial  Accounting  Standards  Board ("FASB")
issued  SFAS 123  Accounting  for  Stock-Based  Compensation  which  establishes
financial   accounting  and  reporting   standards  for   stock-based   employee
compensation  plans and for  transactions  in which an entity  issues its equity
instruments  to  acquire  goods or  services  from  non-employees.  The  Company
continues to account for  stock-based  compensation  arrangements  in accordance
with  Accounting  Principles  Board No.  25,  "Accounting  for  Stock  Issued to
Employees" and therefore the adoption of SFAS 123 had no effect on the financial
position or results of operations  of the Company.  The Company has provided the
pro  forma  and  other  additional   disclosures  about   stock-based   employee
compensation plans in its 1996 consolidated  financial statements as required by
SFAS 123.

Item 8.    Financial Statements and Supplementary Data, etc.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Table of Contents............................................................F-1
Independent Auditors' Report.................................................F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.................F-3
Consolidated Statements of Income for the Years Ended
  December 31, 1994, 1995 and 1996...........................................F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
  December 31, 1994, 1995 and 1996...........................................F-5
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1994, 1995 and 1996...........................................F-6
Notes to Consolidated Financial Statements...................................F-7

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

          None.



                                       32

<PAGE>



                                    PART III

Item 10.   Directors and Executive Officers of the Registrant

           Information  regarding this item is  incorporated by reference to the
Company's Proxy  Statement dated April 16, 1997,  relating to the Annual Meeting
of Stockholders to be held on May 8, 1997, and is made a part hereof.

Item 11.   Executive Compensation

           Information  regarding this item is  incorporated by reference to the
Company's Proxy  Statement dated April 16, 1997,  relating to the Annual Meeting
of Stockholders to be held on May 8, 1997, and is made a part hereof.

Item 12.   Principal Shareholders

           Information  regarding this item is  incorporated by reference to the
Company's Proxy  Statement dated April 16, 1997,  relating to the Annual Meeting
of Stockholders to be held on May 8, 1997, and is made a part hereof.

Item 13.   Certain Relationships and Related Transactions

           Information  regarding this item is  incorporated by reference to the
Company's Proxy  Statement dated April 16, 1997,  relating to the Annual Meeting
of Stockholders to be held on May 8, 1997, and is made a part hereof.



                                       33

<PAGE>



                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K

           (a)(1)   List of Financial Statements.

           The following  Consolidated  Financial  Statements of the Company and
the  Independent  Auditors'  Report set forth on pages F-3 through F-18 and F-2,
respectively,  are  incorporated  by reference into this Item 14 of Form 10-K by
Item 8 hereof:

           -        Consolidated Balance Sheets as of December 31, 1995 and
                    1996.
           -        Consolidated Statements of Income for the Years Ended
                    December 31, 1994, 1995 and 1996.
           -        Consolidated Statements of Shareholders' Equity for the
                    Years Ended December 31, 1994, 1995 and 1996.
           -        Consolidated Statements of Cash Flows for the Years Ended
                    December 31, 1994, 1995 and 1996.
           -        Notes to Consolidated Financial Statements.
           -        Independent Auditors' Report.

           (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.
Exhibit
Number              Description
------              -----------

3.1*                Amended  and  Restated  Articles  of  Incorporation  of  the
                    Registrant   filed  June  18,  1993  (see   Exhibit  3.1  to
                    Registration Statement Form S-1 filed with the Commission on
                    August 11, 1993)

3.2*                Bylaws of the  Registrant  (see Exhibit 3.2 to  Registration
                    Statement  Form S-1 filed with the  Commission on August 11,
                    1993)

10.1*               Lease Agreement  between  Riviera,  Inc. and Mardi Gras Food
                    Court,  Inc.  dated April 1, 1990 (see  Exhibit 10.1 to Form
                    10, Commission File No. 0-21430)


10.2*               Amendment to Lease Agreement between Riviera, Inc. and Mardi
                    Gras Food Court, Inc. dated April 1, 1990 (see Exhibit 10.2
                    to Registration Statement Form S-1 filed with the Commission
                    on August 11, 1993)


                    

<PAGE>





10.3*               Lease Agreement between Riviera, Inc. and Leroy's Horse and
                    Sports Place (see Exhibit 10.3 to Form 10, Commission File
                    No. 0-21430)

10.4*               Equipment Lease between Riviera, Inc. and G.E. Capital
                    Corporation (successor in interest to RCA Service Company)
                    (see Exhibit 10.4 to Form 10, Commission File No. 0-21430)

10.5*               Sales and  Security  Agreement  for Slot  Equipment  between
                    Riviera,  Inc. and Bally  Distributing  of Nevada,  Inc. and
                    Order re:  Motion to Approve  Adequate  Protection  Payments
                    (see Exhibit 10.5 to Form 10, Commission File No. 0-21430)

10.6*               Documents  Relating  to Sale by  Universal  Distributing  of
                    Nevada,  Inc.  of  Slot  Equipment  to  Riviera,   Inc.  and
                    Stipulation and Order re: Modification of Automatic Stay and
                    Compromise of Claim (see Exhibit 10.6 to Form 10, Commission
                    File No. 0-21430)

10.7*               Indemnity Agreement, dated June 30, 1993, from Riviera, Inc.
                    and Meshulam  Riklis in favor of the  Registrant and Riviera
                    Operating  Corporation  (see  Exhibit  10.7 to  Registration
                    Statement  Form S-1 filed with the  Commission on August 11,
                    1993)

10.8*               Indemnity   Agreement,   dated  June  30,  1993,   from  the
                    Registrant  in favor of IBJ  Schroder  Bank & Trust  Company
                    (see Exhibit 10.8 to  Registration  Statement Form S-1 filed
                    with the Commission on August 11, 1993)

10.9*               Equity Registration  Rights Agreement,  dated June 30, 1993,
                    among the Registrant and the Holders of Registerable  Shares
                    (see Exhibit 10.9 to  Registration  Statement Form S-1 filed
                    with the Commission on August 11, 1993)

10.10*              The  Registrant's  Class 4  Unsecured  Promissory  Note (see
                    Exhibit 10.10 to Registration  Statement Form S-1 filed with
                    the Commission on August 11, 1993)

10.11*              The Registrant's Class 5 (Sequoia "A") Unsecured  Promissory
                    Note (see Exhibit 10.11 to  Registration  Statement Form S-1
                    filed with the Commission on August 11, 1993)



                                      35

<PAGE>




10.12*              The Registrant's Class 5 (Sequoia "B") Unsecured
                    Promissory Note (see Exhibit 10.12 to  Registration 
                    Statement Form S-1 filed with the Commission on August 11,
                    1993)

10.13*              The   Registrant's   Class   12   Non-Negotiable   Unsecured
                    Promissory Note (see Exhibit 10.13 to Registration Statement
                    Form S-1 filed with the Commission on August 11, 1993)

10.14*              The Registrant's Class 13/14 Unsecured  Promissory Note (see
                    Exhibit 10.14 to Registration  Statement Form S-1 filed with
                    the Commission on August 11, 1993)

10.15*              Operating  Agreement,  dated  June  30,  1993,  between  the
                    Registrant and Riviera  Operating  Corporation  (see Exhibit
                    10.15 to  Registration  Statement  Form S-1  filed  with the
                    Commission on August 11, 1993).

10.16*              Adoption Agreement regarding Profit Sharing and 401(k) Plans
                    of  the  Registrant   (see  Exhibit  10.16  to  Registration
                    Statement  Form S-1 filed with the  Commission on August 11,
                    1993)

10.17*              Howard Johnson & Company Regional Defined Contribution Plan,
                    dated March 16, 1990 (adopted by the Registrant  pursuant to
                    the   Adoption   Agreement   filed  as   Exhibit   10.17  to
                    Registration Statement Form S-1 filed with the Commission on
                    August 11, 1993)

10.18*              Employment  Agreement  between Riviera,  Inc. and William L.
                    Westerman,  dated January 6, 1993 (see Exhibit 10.18 to Form
                    10, Commission File No. 0-21430)

10.19*              Form of Agreement  between the Registrant and Directors (see
                    Exhibit 10.19 to Form 10, Commission File No. 0-21430)

10.20*              Form of Termination Fee Agreement (see Exhibit 10.20 to Form
                    10, Commission File No. 0-21430)

10.21*              Form of  Employment  Agreement  between  Riviera,  Inc.  and
                    Albert Rapuano,  dated January 6, 1993 (see Exhibit 10.21 to
                    Form 10, Commission File No. 0-21430)

10.22*              Implementation  Agreement  between Riviera,  Inc. and Albert
                    Rapuano   (see  Exhibit   10.21  to   Amendment   No.  1  to
                    Registration Statement Form S-1 filed with the Commission on
                    August 19, 1993)



                                       36

<PAGE>




10.23*              Restricted  Account  Agreement,  dated June 30, 1993,  among
                    Riviera  Operating  Corporation,  IBJ Schroder  Bank & Trust
                    Company  and Bank of America  Nevada (see  Exhibit  10.22 to
                    Registration Statement Form S-1 filed with the Commission on
                    August 11, 1993)

10.24*              Disbursement  Agreement,  dated June 30,  1993,  between the
                    Registrant  and  IBJ  Schroder  Bank &  Trust  Company  (see
                    Exhibit 10.23 to Registration  Statement Form S-1 filed with
                    the Commission on August 11, 1993)

10.25*              Tax Sharing  Agreement  between the  Registrant  and Riviera
                    Operating Corporation dated June 30, 1993 (see Exhibit 10.24
                    to Amendment No. 1 to Registration  Statement Form S-1 filed
                    with the Commission on August 19, 1993)

10.26*              The  Registrant's  1993 Stock Option Plan (see Exhibit 10.25
                    to Amendment No. 1 to Registration  Statement Form S-1 filed
                    with the Commission on August 19, 1993)

10.27*              Form of Stay Bonus  Agreement  (See,  Exhibit  10.27 to Form
                    10-Q filed with the Commission November 9, 1994.

10.28*              Amendment  dated  February  19,  1995,  to  Lease  Agreement
                    between Riviera,  Inc. and Mardi Gras Food Court, Inc. (See,
                    Exhibits 10.1 --- and 10.2)

10.29*              Amendment dated September 30, 1994, to Employment  Agreement
                    between  Riviera,  Inc.  and  William  L.  Westerman.  (See,
                    Exhibit 10.18)

10.30               Management Agreement by and between Elsinore Corporation,
                    Four Queens, Inc. and Riviera Gaming Management Corp. -
                    Elsinore

10.31               Employment  Agreement  dated as of November  21, 1996 by and
                    between the Registrant,  Riviera  Operating  Corporation and
                    William L. Westerman

10.32               Revolving Line of Credit Loan Agreement  dated Februaruy 28,
                    1997  by  and  between  the  Registrant,  Riviera  Operating
                    Corporation and U.S. Bank of Nevada

10.33               Letter of Intent dated March 4, 1997 between the  Registrant
                    and Eagle Gaming, L.P.



                                       37

<PAGE>



* The exhibits thus designated are incorporated  herein by reference as exhibits
hereto. Following the description of such exhibits is a reference to the copy of
the exhibit  heretofore  filed with the Commission,  to which there have been no
amendments or changes.

           (b)      Reports on Form 8-K:

           No  reports on Form 8-K were  filed  with the  Commission  during the
fourth quarter ended December 31, 1996.



                                       38

<PAGE>


                                   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.

                                         RIVIERA HOLDINGS CORPORATION

                                         By:/s/   WILLIAM L. WESTERMAN
                                            ----------------------------------- 
                                         William L. Westerman
                                         Chief 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
---------                       -----                              ----

                                Chairman of the Board,       
/s/ WILLIAM L. WESTERMAN        Chief Executive Officer       March 10, 1997
----------------------------    and President 
William L. Westerman


                                Treasurer (Principal         
/s/ DUANE R. KROHN              Financial and Accounting      March 10, 1997
----------------------------    Officer) 
Duane R. Krohn


/s/ ROBERT R. BARENGO           Director                      March 10, 1997
----------------------------
Robert R. Barengo


/s/ WILLIAM FRIEDMAN            Director                      March 10, 1997
William Friedman


/s/ PHILIP P. HANNIFIN          Director                      March 10, 1997
----------------------------
Philip P. Hannifin


                                       39

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----

  Independent Auditors' Report..............................................F-2
  Consolidated Balance Sheets as of December 31, 1995 and 1996..............F-3
  Consolidated Statements of Income for the Years Ended
     December 31, 1994, 1995 and 1996.......................................F-4
  Consolidated Statements of Shareholders' Equity for the
     Years Ended December 31, 1994, 1995 and 1996...........................F-5
  Consolidated Statements of Cash Flows for the Years Ended
     December 31, 1994, 1995 and 1996.......................................F-6
  Notes to Consolidated Financial Statements................................F-7





                                       F-1

<PAGE>



                          INDEPENDENT AUDITORS' REPORT

Riviera Holdings Corporation
d.b.a. Riviera Hotel & Casino
Las Vegas, Nevada

    We have  audited the  accompanying  consolidated  balance  sheets of Riviera
Holdings  Corporation and subsidiaries  (the "Company")  d.b.a.  Riviera Hotel &
Casino as of December 31, 1995 and 1996, and the related consolidated statements
of income,  shareholders'  equity, and cash flows for each of the three years in
the  period  ended  December  31,  1996.  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 audits.

    We conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  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 the Company as of December 31,
1995 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended  December 31, 1996,  in  conformity  with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Las Vegas, Nevada
February 28, 1997


                                       F-2

<PAGE>



                          RIVIERA HOLDINGS CORPORATION

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                      December 31,
                                                                              ---------------------------  
                                                                               1995                1996
                                                                               ----                ----
                                                                                  (in thousands)

                                     ASSETS
<S>                                                                           <C>                 <C>    
Current Assets:
  Cash and cash equivalents (Note 1)........................................  $21,962             $25,747
  Accounts receivable, net (Notes 1 and 2)..................................    4,334               5,113
  Inventories (Note 1)......................................................    2,186               3,039
  Prepaid expenses and other assets.........................................    2,602               2,692
                                                                              -------             -------
     Total current assets...................................................   31,084              36,591
Property and Equipment, Net (Notes 1, 3, 5 and 7)...........................  121,049             127,760
Other Assets................................................................    4,759               2,853
Restricted Cash For Periodic Slot Payments (Notes 1 and 5)..................    1,039                 461
                                                                              -------             -------
          Total Assets...................................................... $157,931            $167,665
                                                                             ========            ========


                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current portion of long-term debt (Note 5)................................   $2,322              $1,550
  Accounts payable (Notes 1 and 4)..........................................    8,364               8,530
  Current income taxes payable (Note 6).....................................       51                 413
  Accrued expenses (Notes 1 and 4)..........................................    9,640               9,757
                                                                              -------             -------
     Total current liabilities..............................................   20,377              20,250
                                                                              -------             -------
Deferred Income Taxes Payable (Note 6)......................................    3,023               4,626
                                                                              -------             -------
Long-Term Debt, Net of Current Portion (Notes 1 and 5)......................  108,249             107,538
                                                                              -------             -------
Commitments and Contingencies (Notes 5, 7, 8, 9, 10 and 12)

Shareholders' Equity: (Notes 1 and 11)
  Common stock ($.001 par value; 20,000,000 shares
     authorized; 4,800,000 shares at December 31, 1995
     and 4,922,503 shares at December 31, 1996 issued
     and outstanding).......................................................        5                   5
  Additional paid-in capital................................................   12,537              13,919
  Notes receivable from employee shareholders...............................       --               (853)
  Retained earnings.........................................................   13,740              22,180
                                                                              -------             -------
     Total shareholders' equity.............................................   26,282              35,251
                                                                              -------             -------
         Total Liabilities and Shareholders' Equity........................  $157,931            $167,665
                                                                             ========            ========




                 See notes to consolidated financial statements.

</TABLE>
                                                      F-3

<PAGE>



                          RIVIERA HOLDINGS CORPORATION

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                              -----------------------------------------
                                                                               1994             1995             1996
                                                                               ----             ----             ----
                                                                                     (in thousands, except share data)
Revenues: (Note 1)
<S>                                                                           <C>              <C>              <C>    
  Casino.......................................................               $82,060          $77,337          $80,384
  Rooms........................................................                35,422           39,848           41,835
  Food and beverage............................................                22,961           21,895           22,641
  Entertainment................................................                16,945           14,423           20,883
  Other (Notes 7 and 9)........................................                 9,390            9,515           11,293
                                                                              -------
                                                                              166,778          163,018          177,036
  Less promotional allowances (Note 1).........................                12,857           11,873           12,627
                                                                              -------
          Net revenues.........................................               153,921          151,145          164,409
                                                                              -------
Costs and expenses: (Notes 1, 7 and 10)
  Direct costs and expenses of operating
     departments:
     Casino....................................................                48,826           45,325           47,509
     Rooms.....................................................                17,594           18,787           18,834
     Food and beverage.........................................                15,588           15,768           15,916
     Entertainment.............................................                13,982           10,329           15,290
     Other.....................................................                 3,516            3,527            3,913
  Other operating expenses:
     Selling, general and administrative.......................                28,822           29,618           31,454
     Depreciation and amortization.............................                 5,674            6,811            8,212
                                                                            ---------
          Total costs and expenses.............................               134,002          130,165          141,128
                                                                            ---------
Income from operations.........................................                19,919           20,980           23,281
                                                                            ---------
Other income (expense):
  Interest expense (Notes 5 and 7).............................              (12,764)         (12,453)         (12,085)
  Interest income..............................................                   510            1,149            1,167
  Other, net (Note 5)..........................................                    --               --              505
                                                                            ---------
          Total other income (expense).........................              (12,254)         (11,304)         (10,413)
                                                                            ---------
Income before provision for income taxes.......................                 7,665            9,676           12,868
Provision for income taxes (Notes 1 and 6).....................                 2,875            3,332            4,428
                                                                            ---------
Net income.....................................................             $   4,790        $   6,344       $    8,440
                                                                            =========
Weighted average common and common equivalent
  shares outstanding (Notes 1 and 11)..........................             4,800,000        5,040,720        5,177,809
                                                                            =========
Net income per common and common equivalent shares
  (Notes 1 and 11).............................................             $    1.00        $    1.26        $    1.63
                                                                            =========






                 See notes to consolidated financial statements.

</TABLE>


                                       F-4

<PAGE>



                          RIVIERA HOLDINGS CORPORATION

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              For the Years Ended December 31, 1994, 1995 and 1996
                        (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                                                        Notes
                                                                                                      Receivable
                                                                      Additional                         from
                                           Shares         Common        Paid-in       Retained         Employee
                                        Outstanding        Stock        Capital        Earnings      Shareholders        Total
                                        -----------        -----        -------        --------      ------------        -----

<S>                                       <C>               <C>        <C>             <C>             <C>             <C>    
Balances, January 1, 1994............     4,800,000         $ 5        $12,537         $2,606                --        $15,148
Net income...........................            --          --             --          4,790                --          4,790
                                         ----------         ---        -------        -------            -----         -------
Balances, December 31, 1994..........     4,800,000           5         12,537          7,396                --         19,938
Net income...........................            --          --             --          6,344                --          6,344
                                         ----------         ---        -------        -------            -----         -------
Balances, December 31, 1995..........     4,800,000           5         12,537         13,740                --         26,282
Stock issued under Employee
  Stock Purchase Plan................       137,000          --          1,543             --          $(1,383)            160
Collections of shareholders'
  receivables........................            --          --             --             --               332            332
Refunds on employee stock
  purchases..........................      (17,600)          --          (198)             --               198             --
Director Compensation
  Plan...............................         3,103          --             37             --                --             37
Net income...........................            --          --             --          8,440                --          8,440
                                         ----------         ---        -------        -------            -----         -------
Balances, December 31, 1996..........     4,922,503         $ 5        $13,919        $22,180            $(853)        $35,251
                                          =========         ===        =======        =======            =====         =======

</TABLE>















                       See notes to consolidated financial statements.


                                       F-5

<PAGE>



                          RIVIERA HOLDINGS CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                          Years Ended December 31,
                                                                                 -----------------------------------------
                                                                                 1994              1995              1996
                                                                                 ----              ----              ----
                                                                                             (in thousands)

Cash flows from operating activities:
<S>                                                                             <C>              <C>               <C>   
  Net income..............................................................      $4,790           $6,344            $8,440
  Adjustments to reconcile net income to net cash provided by
     operating activities:
     Depreciation and amortization........................................       5,674            6,811             8,212
     Provision for bad debts..............................................         991              478               524
     Provision for gaming discounts.......................................         133              143               232
     Other, net...........................................................          --               --             (505)
     Interest expense.....................................................      12,764           12,453            12,085
     Interest paid........................................................     (13,052         (12,489)          (12,072)
                                                                                      
     Changes in operating assets and liabilities:
       Decrease (increase) in accounts receivable.........................     (1,116)              126           (1,535)
       Decrease (increase) in inventories.................................       (508)               86             (853)
       Increase in prepaid expenses and other assets......................       (310)            (212)              (90)
       Decrease in restricted cash for periodic slot payments.............         591              318               578
       Increase in accounts payable.......................................       1,064            1,033               166
       Increase in accrued expenses.......................................       2,393              758               104
       Increase (decrease) in current income taxes payable................         573            (522)               362
       Increase in deferred income taxes payable..........................       2,010            1,013             1,603
       Increase in non-qualified pension plan obligation to CEO
          upon retirement.................................................         375              400             1,039
                                                                                ------           ------            ------ 
          Net cash provided by operating activities.......................      16,372           16,740            18,290
                                                                                ------           ------            ------ 
     Cash flows from investing activities:
  Capital expenditures for property and equipment.........................     (8,933)          (7,836)          (14,923)
  Decrease (increase) in other assets.....................................     (1,506)            (382)             1,906
                                                                                ------           ------            ------ 
          Net cash used in investing activities...........................     (10,439          (8,218)          (13,017)
                                                                                ------           ------            ------ 
                                                                                      
Cash flows from financing activities:
  Proceeds from long-term borrowings......................................         675              176               209
  Payments on long-term borrowings........................................     (3,371)          (3,159)           (2,226)
  Proceeds from issuance of stock to employees and directors..............          --               --               197
  Collections of notes receivable from employees..........................          --               --               332
                                                                                    --
          Net cash used in financing activities...........................     (2,696)          (2,983)           (1,488)
                                                                                ------           ------            ------ 
Increase in cash and cash equivalents.....................................       3,237            5,539             3,785
Cash and cash equivalents, beginning of period............................      13,186           16,423            21,962
                                                                                ------           ------            ------ 
Cash and cash equivalents, end of period..................................     $16,423          $21,962           $25,747
                                                                               =======          =======           =======
Supplemental disclosure of cash flow information -- Income
  taxes paid..............................................................        $292           $2,852            $2,463
                                                                                  ====           ======            ======
Supplemental disclosure of non-cash financing activities:
  Stock issued to employees for notes receivable..........................                                         $1,383
                                                                                                                   ======
  Non-cash reductions of long-term debt...................................                                           $845
                                                                                                                     ====



                 See notes to consolidated financial statements.

</TABLE>

                                       F-6

<PAGE>



                          RIVIERA HOLDINGS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Basis of Presentation

     Riviera   Holdings   Corporation   (the  "Company")  and  its  wholly-owned
subsidiary  Riviera Operating  Corporation  ("ROC") were incorporated on January
27,  1993,  in order to acquire  all assets and  liabilities  of  Riviera,  Inc.
Casino-Hotel Division on June 30, 1993, pursuant to a plan of reorganization.

     In  July  1994,  management  established  a new  division,  Riviera  Gaming
Management,  Inc. ("RGM") for the purpose of obtaining  management  contracts in
Nevada and other jurisdictions. In August 1995, RGM incorporated in the state of
Nevada as a wholly owned subsidiary of ROC.

  Nature of Operations

     The primary line of business of the Company is the operation of the Riviera
Hotel & Casino on the "Strip" in Las Vegas,  Nevada. The Company is engaged in a
single industry  segment,  the operation of a hotel/casino  with restaurants and
related  facilities.  The Company also manages the Four Queens  Hotel/Casino  in
downtown Las Vegas (see Note 9).

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

  Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
and its  wholly  owned  subsidiaries  ROC and  RGM.  All  material  intercompany
accounts and transactions have been eliminated.

  Cash and Cash Equivalents

     All highly liquid investment  securities with a maturity of three months or
less when acquired are considered to be cash  equivalents.  The Company accounts
for investment  securities in accordance with Statement of Financial  Accounting
Standards No. 115 ("SFAS 115"),  Accounting for Certain  Investments in Debt and
Equity Securities.

     The  Company's  investment  securities,  along with  certain  cash and cash
equivalents  that are not deemed  securities  under SFAS 115, are carried on the
consolidated balance sheets in the cash and cash equivalents category.  SFAS 115
addresses the accounting and reporting for investments in equity securities that
have  readily   determinable  fair  values  and  for  all  investments  in  debt
securities,   and  requires   such   securities   to  be  classified  as  either
held-to-maturity,  trading  or  available-for-sale.  Management  determines  the
appropriate  classification of its investment securities at the time of purchase
and reevaluates such  determination at each balance sheet date.  Pursuant to the
criteria  that are  prescribed  by SFAS 115,  the  Company  has  classified  its
investment securities in inventory as of December 31, 1994,

                                       F-7

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


and acquired during fiscal 1995 as held to maturity. Held to maturity securities
are required to be carried at amortized  cost. At December 31, 1996,  securities
classified as held to maturity were comprised of debt  securities  issued by the
U.S. Treasury and other U.S. government corporations and agencies and repurchase
agreements  with an amortized  cost of  $19,756,000  maturing in three months or
less.

  Inventories

     Inventories consist primarily of food, beverage,  gift shop and promotional
inventories  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 the lower of cost or  market,  and
capitalized  lease assets are stated at the lower of the present value of future
minimum lease payments at the date of lease inception or market value.  Interest
incurred during  construction of new facilities or major additions to facilities
is  capitalized  and  amortized  over the  life of the  asset.  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,  which range from 5
to 40 years. The costs of normal  maintenance and repairs are charged to expense
as incurred. Gains or losses on disposals are recognized as incurred.

  Restricted Cash for Periodic Slot Payments

     At December 31, 1995 and 1996,  the Company had  interest-bearing  deposits
with a commercial  bank in the amount of $1,039,000  and $461,000  respectively,
which are restricted as to use. These amounts represent deposits required by the
State  of  Nevada  Gaming  Control  Board to fund  periodic  slot  payments  due
customers through the year 2000.

  Fair Value Disclosure as of December 31, 1996

     Cash  and  cash  equivalents,  accounts  receivable,  restricted  cash  for
periodic slot payments,  accounts  payable and accrued  expenses -- The carrying
value of these items are a reasonable estimate of their fair value.

     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 borrowing rates currently available to the Company for
debt with similar  terms and average  maturities,  the  estimated  fair value of
long-term debt is approximately $112,588,000.

  Casino Revenue

     The  Company  recognizes,  as  gross  revenue,  the  net  win  from  gaming
activities, which is the difference between gaming wins and losses.

                                       F-8

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)



  Promotional Allowances

     Promotional allowances consist primarily of accommodations,  entertainment,
and food and beverage services furnished without charge to customers. The retail
value of such services is included in the respective revenue classifications and
is then deducted as promotional allowances.

     The estimated costs of providing  promotional  allowances are classified as
costs of the casino operating department through interdepartmental  allocations.
These  allocations  for the years ended December 31, 1994,  1995 and 1996 are as
follows:


                                                  1994       1995        1996
                                                --------   --------    ------

                                                         (in thousands)


Food and beverage..............................  $7,225     $6,570       $6,671
Rooms..........................................   1,843      1,451        1,410
Entertainment..................................   2,121      2,280        2,592
                                                -------    -------      -------
     Total costs allocated to casino........... $11,189    $10,301      $10,673
                                                =======    =======      =======



  Federal Income Taxes

     The Company and its  subsidiaries  file a consolidated  federal tax return.
The Company  accounts for income taxes in accordance  with SFAS 109,  Accounting
for Income  Taxes.  SFAS 109  requires  recognition  of deferred  tax assets and
liabilities  for the expected  future tax  consequences of events that have been
included in the  financial  statements  or tax  returns.  Deferred  income taxes
reflect the net tax effects of (i)  temporary  differences  between the carrying
amounts of assets and  liabilities  for  financial  reporting  purposes  and the
amounts used for income tax  purposes,  and (ii)  operating  loss and tax credit
carryforwards.

  Net Income Per Share

     Earnings  per common  and common  equivalent  share is  computed  using the
weighted  average  number of shares  outstanding  adjusted  for the  incremental
shares attributed to outstanding options to purchase common stock. Fully diluted
per share  amounts are  substantially  the same as primary per share amounts for
the periods presented.

     On November 16, 1995, the shareholders of the Company approved an amendment
to the Company's  Amended and Restated Articles of Incorporation to increase the
authorized  shares of common stock from  5,000,000 to 20,000,000  and a four for
one stock split.  Accordingly,  per share information,  average number of shares
outstanding and number of shares  outstanding in the  accompanying  consolidated
financial  statements  have been adjusted for the stock split as of the earliest
date presented (December 31, 1994).

                                       F-9

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)



  Estimates and Assumptions

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
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. Actual results may differ from estimates.

  Reclassifications

     Certain  reclassifications  have been  made to the 1994 and 1995  financial
statements to conform with the current year presentation.

  Recently Adopted Accounting Standards

     During 1996 the Company  adopted the provisions of Statement No. 121 ("SFAS
121"),  Accounting  for the  Impairment of Long-Lived  Assets and for Long-Lived
Assets to Be Disposed Of. SFAS 121 requires that  long-lived  assets and certain
identifiable  intangibles be reviewed for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable. The adoption of SFAS 121 had no impact on the financial position or
results of operations of the Company.

     In October 1995, the Financial  Accounting  Standards Board ("FASB") issued
Statement No. 123 ("SFAS 123"), Accounting for Stock-Based  Compensation,  which
establishes   financial  accounting  and  reporting  standards  for  stock-based
employee  compensation  plans and for transactions in which an entity issues its
equity instruments to acquire goods or services from  nonemployees.  The Company
continues to account for  stock-based  compensation  arrangements  in accordance
with Accounting  Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and therefore the adoption of SFAS 123 had no effect on the financial
position or results of  operations  of the  Company.  The  Company has  included
additional disclosures about stock-based employee compensation plans as required
by SFAS 123 (see Note 11).



                                      F-10

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


2.  Accounts Receivable

    Accounts receivable consist of the following at December 31:


                                                           1995           1996
                                                           ----           ----
                                                              (in thousands)

Casino...............................................      $2,581       $2,280
Hotel................................................       2,494        3,479
                                                           ------       ------
  Total..............................................       5,075        5,759
Less allowance for bad debts and discounts...........         741          646
                                                           ------       ------
  Total..............................................      $4,334       $5,113
                                                            ======      =======



    Changes in the casino and hotel  allowance  for bad debts and  discounts for
the years ended December 31, 1995 and 1996 consist of the following:

                                                               1995       1996
                                                               ----       ----
                                                               (in thousands)


Beginning balance..........................................  $1,424       $741
Write-offs.................................................  (1,358)      (912)
Recoveries.................................................      54         61
Provision for bad debts....................................     478        524
Provision for gaming discounts.............................     143        232
                                                             ------    -------
  Ending balance...........................................  $  741    $   646
                                                             ======    ========


3.  Property and Equipment

    Property and equipment consists of the following at December 31:

                                                               1995       1996
                                                               ----       ----
                                                               (in thousands)

Land and improvements.....................................  $21,751     $21,751
Buildings and improvements................................   75,875      77,455
Equipment, furniture, and fixtures........................   38,307      51,650
                                                             ------
     Total property and equipment.........................  135,933     150,856
Less accumulated depreciation.............................   14,884      23,096
                                                             ------     -------
     Net property and equipment........................... $121,049    $127,760
                                                           ========    ========



                                      F-11

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


4.  Accounts Payable and Accrued Expenses

    Accounts payable consist of the following at December 31:


                                                               1995       1996
                                                               ----       ----
                                                                (in thousands)

Outstanding chip and token liability.................          $854        $836
Casino account deposits..............................           642         498
Unpaid race and sports book winners..................            26          17
Miscellaneous gaming.................................           850         762
                                                             ------      ------ 
     Total liabilities related to gaming activities..         2,372       2,113
Accounts payable to vendors..........................         4,497       5,118
Hotel deposits.......................................         1,415       1,123
Other................................................            80         176
                                                             ------      ------
     Total...........................................        $8,364      $8,530
                                                             ======      ======


    Accrued expenses consist of the following at December 31:

                                                               1995       1996
                                                               ----       ----
                                                                (in thousands)

Payroll, related payroll taxes and vacation...........       $5,095      $5,244
Health and other liability claims.....................          548         450
Union benefits and dues...............................          816         663
Progressive slot machine liability....................          226         203
Taxes.................................................          518         631
Professional fees.....................................          208         176
Incentive and pension plans...........................        2,209       2,357
Interest..............................................           20          33
                                                            -------      ------
     Total............................................       $9,640      $9,757
                                                             ======      ====== 



                                      F-12

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


5.  Long-Term Debt

    Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>

                                                                                             1995           1996
                                                                                             ----           ----
                                                                                                (in thousands)


<S>                                                                                       <C>             <C>     
First Mortgage Notes maturing on December 31, 2002, bearing interest at the rate
  of 11% per annum, payable semi-annually on June 30 and December 31, redeemable
  beginning  June 1, 1998, at 104.3125%;  1999 at 102.8750%;  2000 at 101.4375%;
  and 2001 and  thereafter  at  100%.  These  notes  are  collateralized  by the
  physical structures comprising the Riviera Hotel and Casino.......................      $100,000        $100,000

Unsecured, non-interest bearing notes to settle Class 4, 5 and 12
  claims, discounted at 16.8%, paid in 1996.........................................         2,056              --

Unsecured,  non-interest bearing promissory note in an original principal amount
  of $8,000,000 (the "Class 13/14 Note") to settle the claims of the former sole
  shareholder, and his affiliates, payable to a bank in semi-annual installments
  of $500,000 to
  $750,000 discounted at 12%........................................................         4,159           4,707

Capitalized lease obligations (see Note 7)..........................................         1,341             986

Unsecured promissory notes in the original principal amount of $441,262, bearing
  interest at the rate of 8.5% per annum, payable
  monthly and maturing on December 31, 1998.........................................           266             185

Periodic slot payments due customers through 2000, prefunded by
  restricted cash (see Note 1)......................................................         1,039             461

Non-qualified  pension plan obligation to the CEO of the Company,  payable in 20
  quarterly installments upon expiration of his
  employment contract...............................................................         1,710           2,749
                                                                                          --------        --------
     Total long-term debt...........................................................       110,571         109,088
Less current maturities by terms of debt............................................         2,322           1,550
                                                                                          --------        --------
     Total..........................................................................      $108,249        $107,538
                                                                                          ========        ========
</TABLE>



    Maturities  of  long-term  debt for the years  ending  December  31, were as
follows:

                                                                 (in thousands)
1997........................................................          $1,550
1998........................................................           1,884
1999........................................................           1,817
2000........................................................           2,043
2001........................................................           1,244
Thereafter..................................................         100,550
                                                                    --------
     Total..................................................        $109,088
                                                                    ========


    The  Indenture  for the  First  Mortgage  Notes  imposes  certain  financial
covenants  and  restrictions  on the Company,  including  but not limited to the
maintenance of a minimum  consolidated net worth,  which should not be less than
$2,542,000  for any two  consecutive  fiscal  quarters,  and  limitations on (i)
dividends on common  stock,  (ii)  liquidation  of assets,  (iii)  incurrence of
indebtedness,  (iv) creation of subsidiaries  and joint ventures and (v) capital
purchases.  Capital  purchases  are  limited  to  annual  cash  expenditures  of
$6,000,000  plus 80% of  cumulative  available  cash  flow  from  the  Company's
inception

                                      F-13

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


at July 1, 1993,  to the extent that this cash flow has not been utilized in any
prior year.  Management believes the Company is in compliance with the covenants
of the Indenture.

    Effective  September 8, 1995,  the Board of Directors  and holders of 94% of
the  Company's  First  Mortgage  Notes  approved   amendments  to  certain  note
restrictive  covenants.  Noteholders  who consented to the  modification  of the
restrictive  covenants  were paid a fee of $5.00 for each  $1,000 of Notes held,
for an aggregate  payment by the Company of $500,000  which is included in other
assets at December 31, 1995 and 1996 and amortized  over the life of the related
debt.  These costs are being  amortized  using the  straight-line  method  which
approximates  the effective  interest method over the life of the  indebtedness.
The  amendments  to the  restrictive  covenants  were  designed  to  permit  the
Company's  management  team to utilize its expertise in turning around  troubled
gaming  properties  which are  either in or on the  verge of  bankruptcy  and to
manage casinos in so called "new venues".

    During the fourth quarter of 1996, the Company made the final payment on the
note issued to settle the Class 12 claim,  which was less than what was recorded
and resulted in income of approximately $845,000. Also during the fourth quarter
of 1996,  the terms of the Class  13/14 Note was  revised,  which  resulted in a
decrease  in the  discount  rate from  16.8% to 12.0% and  increased  principal,
resulting  in  additional  expense of $340,000.  Other,  net income for the year
ended December 31, 1996 includes the net effect of the above transactions.

    In  February,  1997,  the Company  entered  into a $15.0  million  five year
reducing  revolving line of credit  collateralized  by equipment.  The revolving
line of credit bears interest at prime plus 0.5% or LIBOR plus 2.9%. The Company
has not utilized this line of credit.

    The Company has credit facilities  totaling  $1,100,000 at banks for letters
of credit issued periodically to foreign vendors for purchases of merchandise.

6.  Federal Income Taxes

    SFAS 109  requires the Company to compute  deferred  income taxes based upon
the  difference  between  the  financial  statement  and tax basis of assets and
liabilities  using  enacted  tax  rates in  effect  in the  years  in which  the
differences are expected to reverse.

    The  effective  income  tax  rates  on  income  attributable  to  continuing
operations differ from the statutory federal income tax rates for the year ended
December 31, 1994, 1995 and 1996 as follows:

<TABLE>
<CAPTION>

                                                    1994                  1995               1996
                                                   Amount       Rate     Amount   Rate      Amount   Rate
                                                   ------       ----     ------   ----      ------   ----
                                                          (dollars in thousands)

<S>                                                  <C>       <C>      <C>      <C>       <C>      <C>  
Taxes at federal statutory rate............          $2,680    35.0%    $3,386   35.0%     $4,504   35.0%
Other                                                   195     2.5       (54)   (1.0)       (76)   (1.0)
                                                     ------    ----     -----    ----      -----    ----
  Provision for income taxes...............          $2,875    37.5%    $3,332   34.0%     $4,428   34.0%
                                                     ======    ====     ======   ====      ======   ==== 
</TABLE>



                                      F-14

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


    The tax effects of the items  comprising  the  Company's  net  deferred  tax
liability consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                                1995       1996
                                                                                ----       ----
                                                                                 (in thousands)
Deferred Tax Liabilities:
<S>                                                                             <C>         <C> 
  Basis in long-term debt obligations.......................................      $640       $457
  Reserve differential for hospitality and gaming activities................     1,090      1,133
  Difference between book and tax depreciable property......................     4,430      5,226
  Other.....................................................................       383        806
                                                                                ------      -----
     Total..................................................................     6,543      7,622
                                                                                ------      -----
Deferred Tax Assets:
  Reserves not currently deductible.........................................     1,500      1,806
  Bad debt reserves.........................................................       260        226
  AMT credit................................................................     1,760        964
                                                                                ------     ------
     Total..................................................................     3,520      2,996
                                                                                ------     ------
       Net deferred tax liability...........................................    $3,023     $4,626
                                                                                ======     ======

</TABLE>

    The Company has  $964,000 of  alternative  minimum tax credit  available  to
offset future income tax liabilities. The credit has no expiration date.

7.  Leasing Activities

    The Company leases certain 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.  Management
estimates  the fair market value of the property  and  equipment  subject to the
leases approximates the net present value of the leases. The leased property and
equipment consist primarily of signs and air conditioning equipment.

    The following is a schedule by year of the minimum rental payments due under
capital leases, as of December 31, 1996:

                                                          (in thousands)
1997........................................................  $   441
1998........................................................      441
1999........................................................      429
2000........................................................      227
                                                               ------
  Total minimum lease payments..............................    1,538
Less taxes, maintenance and insurance.......................      390
Less interest portion of payments...........................      162
                                                               ------
  Present value of net minimum lease payments...............   $  986
                                                               ======


    Rental  expense for the years ended  December  31,  1994,  1995 and 1996 was
approximately $295,000, $406,000 and $334,000, respectively.

    In addition, the Company leases retail space to third parties under terms of
noncancelable  operating  leases which  expire in various  years  through  1999.
Rental income, which is included in other income,

                                      F-15

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


for the  years  ended  December  31,  1994,  1995  and  1996  was  approximately
$1,687,000, $1,533,000 and $1,573,000, respectively.

    At December 31, 1996,  the Company had future  minimum  annual rental income
due under noncancelable operating leases as follows:

                                                             (in thousands)
1997.................................................             $1,159
1998.................................................                946
1999.................................................                748
2000.................................................                494
2001.................................................                351
Thereafter...........................................                993
                                                                  ------
     Total...........................................             $4,691
                                                                  ======


8.  Commitments and Contingencies

    The  Company is party to several  routine  lawsuits  both as  plaintiff  and
defendant arising from normal operations of a hotel. Management does not believe
that the  outcome  of such  litigation  in the  aggregate  will have a  material
adverse  effect on the  financial  position  or  results  of  operations  of the
Company.

9.  Management Agreements

    Since August 1996, RGM has been  operating the Four Queens located  adjacent
to the Golden  Nugget on Fremont  Street in downtown  Las Vegas under an interim
management  agreement  for a fee of $83,333 per month.  A  long-term  management
agreement (the "Management  Agreement") with Elsinore Corporation  ("Elsinore"),
the  owner of the Four  Queens,  went into  effect on  February  28,  1997,  the
effective date of the Chapter 11 plan of reorganization of Elsinore.

    The term of the Management Agreement is approximately 40 months,  subject to
earlier  termination  or extension.  Either party may  terminate the  Management
Agreement if  cumulative  earnings  before  interest,  taxes,  depreciation  and
amortization  ("EBITDA")  for the first  two  fiscal  years is less  than  $12.8
million.  The term of the Management  Agreement can be extended by an additional
24 months at RGM's option,  if  cumulative  EBITDA for the three fiscal years of
the  term  is at  least  $19.2  million.  RGM  will  be paid a fee of 25% of any
increase in annual EBITDA over $4.0 million,  subject to a $1.0 million  minimum
fee, payable in equal monthly installments. RGM has received warrants for 20% of
Elsinore's fully diluted equity, exercisable during the term or extended term of
the Management Agreement at an exercise price based on the higher of (i) the per
share book value on the effective date of the Elsinore  bankruptcy  plan or (ii)
total  shareholders'  equity of $5.0  million.  Either party can  terminate  the
Management  Agreement if (i) substantially all the Four Queens' assets are sold,
(ii) the Four  Queens is  merged  or (iii) a  majority  of the Four  Queens'  or
Elsinore's  shares  are sold.  Upon  such  termination  RGM will  receive a $2.0
million  termination bonus minus any amount realized or realizable upon exercise
of the warrants.



                                      F-16

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


10.  Employment Agreements and Employee Benefit Plans

    The Company has an employment agreement with Mr. Westerman,  Chairman of the
Board and Chief  Executive  Officer of the Company.  This agreement  includes an
annual  base  salary,  an  incentive  bonus  based upon the  extent of  adjusted
operating   earnings,   contributions  to  a  Non-Qualified   Pension  Plan  and
contributions to a Profit Sharing and 401(k) Plan. In addition,  the Company has
termination  fee agreements with each of the Directors,  Executive  Officers and
Significant  Employees pursuant to which each of such employees will be entitled
to receive one year's salary and health  insurance  benefits if their employment
with the  Company  is  terminated  within one year of a change of control of the
Company and without cause, or the involuntary  termination of Mr. Westerman.  On
November 21, 1996,  the Company  amended Mr.  Westerman's  employment  agreement
subject to  stockholder  approval at their annual  meeting  scheduled for May 8,
1997.  If the  Company's  stockholders  do not ratify the amended  agreement the
agreement described above will remain in full force.

    The Company has an incentive  compensation  plan,  covering employees of the
Company  who, in the opinion of the  Chairman of the Board,  either serve in key
executive, administrative, professional or technical capacities with the Company
or  other  employees  who  also  have  made a  significant  contribution  to the
successful and profitable  operation of the Company.  The amount of the bonus is
based on operating earnings before depreciation, amortization, interest expense,
provision for income taxes,  extraordinary  losses and gains,  any provisions or
payments made pursuant to the Plan, and any provisions or payments made pursuant
to the incentive  compensation of the Chairman and Chief Executive  Officer.  At
December  31,  1994,  1995 and 1996 the  Company  recorded  accrued  bonuses  of
$1,430,000  and $2,123,000 and  $2,588,000,  respectively,  based upon the above
incentive  compensation plan and the incentive compensation plan established for
the Chairman of the Board under his employment agreement.

    The Company contributes to multi-employer  pension plans under various union
agreements to which the Company is a party.  Contributions,  based on wages paid
to covered employees, were approximately  $1,725,000,  $1,576,000 and $1,650,000
for the years ended December 31, 1994, 1995 and 1996. These  contributions  were
for approximately 1,364 employees  including food and beverage  employees,  room
department employees, carpenters, engineers, stage hands, electricians, painters
and  teamsters.  The  Company's  share  of any  unfunded  liability  related  to
multi-employer plans, if any, is not determinable.

    The  Company  sponsors  a Profit  Sharing  and 401(k)  Plan  which  incurred
administrative  expenses of approximately  $67,000,  $59,000 and $34,000 for the
years ended 1994, 1995 and 1996.

    The profit sharing  component of the Profit Sharing and 401(k) Plan provides
that  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  1/10th of 1% thereof for each  $200,000 by which
operating earnings is exceeded,  up to a maximum of 3% thereof.  The Company may
elect not to contribute to the Profit Sharing and 401(k) Plan if it notifies its
employees  in January of the Profit  Sharing and 401(k)  Plan year.  An employee
will become vested in the Company's  contributions based on the employee's years
of service.  An employee  will  receive a year of vesting  service for each plan
year in which the employee completed 1,000 hours of service. Vesting credit will
be  allocated in 20%  increments  for each year of service  commencing  with the
attainment of two years of service.  An employee will be fully vested  following
the completion of six years of service.

    The 401(k)  component of the Profit  Sharing and 401(k) Plan  provides  that
each  eligible  employee  may  contribute  up to 15% of such  employee's  annual
compensation, and that the Company will contribute 1%

                                      F-17

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                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


of each employee's annual  compensation for each 4% of compensation  contributed
by the employee,  up to a maximum of 2%. All non-union  employees of the Company
will be  eligible  to  participate  in the Profit  Sharing and 401(k) Plan after
twelve consecutive months of service with the Company.

    ROC is a party  to  termination  fee  agreements  with  certain  significant
employees pursuant to which each such employee is entitled to receive one year's
salary and benefits if his or her employment  with ROC is terminated  within one
year  of a  change  of  control  of the  Company  or  ROC,  or  the  involuntary
termination of Mr. Westerman's employment. The estimated total amount that would
be payable under all such agreements is  approximately  $1.3 million in salaries
and $400,000 in benefits.

    ROC is a party to stay bonus agreements with certain  significant  employees
pursuant to which each such  employee  is entitled to receive one year's  salary
(less the  amount  of any  incentive  bonus  paid in 1997 for 1996) in the event
there is a change of control of the Company.  The agreements  expire on December
31,  1997.  The  estimated  total  amount  that would be payable  under all such
agreements is approximately $300,000.

11.  Stock Option Plans

    At a meeting held on July 27, 1993, the Company's Board of Directors adopted
a stock option plan (the "Stock Option Plan") providing for the issuance of both
non-qualified  and incentive  stock options (as defined in the Internal  Revenue
Code). This stock option plan was ratified by the Company's  shareholders at the
April 26, 1994 annual meeting. The number of shares available for purchase under
the  Stock  Option  Plan  as  adopted  was  120,000  (as  adjusted  pursuant  to
antidilution  provisions).  On November 16, 1995,  the  stockholders  approved a
four-for-one  stock  split,  increasing  the  number of  shares of Common  Stock
available  for  purchase  under the Stock  Option Plan to 480,000.  Options were
granted for 228,000 shares for 1993, 132,000 shares for 1994, none for 1995, and
110,000  for 1996,  leaving  a balance  available  for  future  grants of 10,000
shares.  No options  were  exercised  or  cancelled  in 1994,  1995 or 1996.  On
November  21, 1996 the Company  amended  the Stock  Option Plan to increase  the
number of shares  available  under the Stock Option Plan from 480,000  shares to
1,000,000  shares and granted options to purchase 300,000  additional  shares to
Mr.  Westerman,  each subject to  stockholder  approval at the annual meeting of
stockholders  scheduled in May 1997. Options vest 25% one year after the date of
grant and 25% each  subsequent  year.  The term of an option  can in no event be
exercisable  more than ten years (five years in the case of an incentive  option
granted to a  shareholder  owning  more than 10% of the Common  Stock),  or such
shorter period,  if any, as may be necessary to comply with the  requirements of
state securities laws, from the date such option is granted.

    On March 5, 1996, the Board of Directors  adopted an employee stock purchase
plan (the "Stock Purchase Plan"),  which was approved by the stockholders on May
10, 1996. A total of 300,000  shares of common stock  (subject to adjustment for
capital  changes) in the aggregate may be granted under the Stock Purchase Plan.
The Stock Purchase Plan is administered by the  compensation  committee.  On May
31, 1996,  approximately 560 union and non-union  employees  participated in the
1996 employee stock purchase plan. Under the plan, 137,000 shares were issued at
a discount to  employees  at $11.26 for  $160,000  cash and the balance in notes
receivable of $1,383,000 which are payable over two years via payroll deduction.
During 1996, 17,600 shares were returned to the plan as the result of refunds to
the employees.

    On May 10, 1996, the shareholders approved a Nonqualified Stock Option Plan
for Non-Employee  Directors (the  "Nonqualified  Stock Option Plan") and a Stock
Compensation Plan for Directors serving

                                      F-18

<PAGE>


                          RIVIERA HOLDINGS CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

on the Compensation  Committee (the "Stock Compensation Plan"). The total number
of shares  available  for  purchase  under each plan is 50,000.  Pursuant to the
Nonqualified  Stock Option Plan, two directors were granted  options to purchase
an  aggregate  of 4,000  shares in 1996 at an  exercise  price of $13.25.  As of
December 31, 1996,  3,103 shares were issued pursuant to the Stock  Compensation
Plan.

    The Company  has adopted the  disclosures-only  provision  of  Statement  of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized for the Stock Option Plan.
The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes  option-pricing  model. Had compensation cost for the Stock Option
Plan been  determined  based on the fair  value at the date of grant for  awards
consistent  with the  provisions  of SFAS 123, the  Company's net income and pro
forma net  income  common  share and  common  share  equivalent  would have been
decreased to the pro forma amounts indicated below:


                                                  Years Ended December 31,
                                                  ------------------------
                                                    1995          1996
                                                    -----         ----
                                                    (in thousands, except
                                                       per share data)


Net income-as reported............................  $6,344       $8,440
Net income-pro forma..............................   6,289        8,380
Net income per common and common
  share equivalent-as reported....................   $1.26        $1.63
Net income per common and common share
  equivalent-pro forma............................   $1.25        $1.61



12.  Subsequent Event (unaudited)

    On March 4, 1997,  the  Company  entered  into a letter of intent with Eagle
Gaming, L.P. ("Eagle") to form a joint venture, Riviera Black Hawk, LLC ("RBL"),
to develop a casino (the  "Project") in the Black  Hawk/Central  City,  Colorado
gaming market for approximately $55 million, subject to satisfaction of a number
of  conditions.  The Company will manage the Project for a management  fee based
upon the gross  revenue and EBITDA of the Project.  The Company  will  initially
have an approximately  80% equity interest and Eagle an approximately 20% equity
interest in the joint venture.  Eagle has the option, prior to the Company being
licensed  by  the  Colorado  gaming  authorities,  to  acquire  up to  29.9%  of
additional  equity  interest  in the Project  from the Company at the  Company's
cost.  If  Project  costs  exceed  the  approximately  $55  million  preliminary
estimate,  the  Company  and Eagle will be  required  to bear  their  respective
pro-rata share of increased costs or their  respective  equity interests will be
adjusted.  In  addition,  the  Company  has  committed  to provide a  completion
guaranty for up to $5.0 million.



                                      F-19

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