UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K




ANNUAL
REPORT


PURSUANT
TO SECTIONS 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934


(Mark
One)




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


For
the fiscal year ended December 31, 2009




OR




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


For
the transition period from __________ to __________




Commission
file number 000-21430





RIVIERA HOLDINGS
CORPORATION


(Exact
Name of Registrant as Specified in its Charter)





Nevada
                88-0296885(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification No.)2901
      Las Vegas Boulevard SouthLas Vegas,
      Nevada
                89109(Address
      of principal executive offices)
                (Zip
      code)





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





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





Title of each class
                Name of each exchange on which
      registeredNONE
                NONE





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




Common Stock, $.001 par
value


(Title of
class)





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




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




Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.   YesxNo ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   Yes
 ̈
  No  ̈




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




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




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





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




Based on
the closing sale price of the registrant's common stock on the Pink OTC Markets
over-the-counter electronic quotation system on June 30, 2009, the aggregate
market value of the common stock held by non-affiliates of the registrant was
$6,361,258.




As of
March 25, 2010, the number of outstanding shares of the registrant's common
stock was 12,452,355.




Page
      1 of 94 pages


Exhibit
Index Appears on Page 91 hereof





RIVIERA
HOLDINGS CORPORATION AND SUBSIDIARY


ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL


YEAR
ENDED DECEMBER 31, 2009




TABLE
OF CONTENTS




Item
      1.
                Business
                1General
                1Significant
      Events
                1Riviera
      Las Vegas
                4Riviera
      Black Hawk
                7Competitive
      Environment
                8Employees
      and Labor Relations
                11Regulation
      and Licensing
                11Federal
      Registration
                21Item
      1A.
                Risk
      Factors
                21Item
      1B.
                Unresolved
      Staff Comments
                35Item
      2.
                Properties
                35Item
      3.
                Legal
      Proceedings
                36Item
      4.
                Reserved
                36Item
      5.
                Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                36Item
      6.
                Selected
      Financial Data
                37Item
      7.
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                38Results
      of Operations
                422009
      Compared to 2008
                422008
      Compared to 2007
                49Liquidity
      and Capital Resources
                54Current
      Economic Environment
                56Off-Balance
      Sheet Arrangements
                57Critical
      Accounting Policies and Estimates
                57Recently
      Issued Accounting Standards
                59Forward-Looking
      Statements
                60Item
      7A.
                Quantitative
      and Qualitative Disclosures about Market Risk
                62Item
      8.
                Financial
      Statements and Supplementary Data
                62Item
      9.
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                62Item
      9A.
                Controls
      and Procedures
                62




i





Item
      9B.
              Other
      Information
              63Item
      10.
              Directors,
      Executive Officers and Corporate Governance
              63Item
      11.
              Executive
      Compensation
              68Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              79Item
      13.
              Certain
      Relationships and Related Transactions and Director
      Independence
              81Item
      14.
              Principal
      Accounting Fees and Services
              82Item
      15.
              Exhibits,
      Financial Statement Schedules
              83




ii


PART
I




Item
      1.
            Business




General




Riviera
Holdings Corporation, a Nevada corporation (the “Company”), through its
wholly-owned subsidiary, Riviera Operating Corporation (“ROC”), owns and
operates the Riviera Hotel & Casino (“Riviera Las Vegas”) located on
the Las Vegas Boulevard in Las Vegas, Nevada. Riviera Las Vegas, which opened in
1955, has a long-standing reputation for delivering traditional Las Vegas-style
gaming, entertainment and other amenities.  The Company was
incorporated in Nevada on January 27, 1993.




The
Company, through its wholly owned subsidiary, Riviera Black Hawk, Inc. (“RBH”),
owns and operates the Riviera Black Hawk Casino (“Riviera Black Hawk”), a casino
in Black Hawk, Colorado, which opened on February 4, 2000.




The
Company determines segments based upon geographic gaming markets and reviews
corporate expenses separately.  The Company has two segments: the Las
Vegas, Nevada market and the Black Hawk, Colorado
market.  Operating results for each segment are disclosed in Note 19
of the Notes to the Consolidated Financial Statements included in this
document.




The
Company maintains an Internet website at www.rivierahotel.com and
makes available on the website, free of charge, the Company’s Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
any and all amendments to such reports, filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as soon as reasonably practicable after the Company electronically files
such material with, or furnishes it to, the United States Securities and
Exchange Commission (the “SEC”).  The Company has included its website
address in this filing only as a textual reference.  The information
contained on that website is not incorporated by reference into this Annual
Report on Form 10-K.




Significant
Events




2009
Credit Defaults




On June
8, 2007, the Company and its restricted subsidiaries, namely ROC, Riviera Gaming
Management of Colorado, Inc. and RBH (collectively, the “Subsidiaries”) entered
into a $245 million Credit Agreement (the “Credit Agreement” together with
related security agreements and other credit-related agreements, the “Credit
Facility”) with Wachovia Bank, National Association (“Wachovia”), as
administrative agent.   On February 22, 2010, the Company
received a notice from Wachovia informing the Company that Wachovia was
resigning as administrative agent, subject to the appointment of a successor
administrative agent by the Required Lenders under the Credit Agreement within
30 days of the notice or by Wachovia, and that Wachovia was resigning as the
Issuing Lender under the Credit Agreement effective as of the date of the
notice.  The Credit Facility consists of a $225 million term loan that
matures on June 8, 2014 (the “Term Loan”) and a $20 million five-year revolving
credit facility that was reduced to $3 million (“Revolving Credit
Facility”).  On June 29, 2007, in conjunction with the Credit
Facility, the Company entered into an interest rate swap agreement with Wachovia
as the counterparty that became effective June 29, 2007 (the “Swap
Agreement”).




1


As
previously disclosed on a Form 8-K filed with the SEC on March 4, 2009, the
Company received a notice of default on February 26, 2009 (the “February
Notice”) from Wachovia with respect to the Credit Facility in connection with
the Company’s failure to provide a Deposit Account Control Agreement, or DACA,
from each of the Company’s depository banks per a request made by Wachovia to
the Company on October 14, 2008.  The DACA that Wachovia requested the
Company to execute was in a form that the Company ultimately determined to
contain unreasonable terms and conditions as it would enable Wachovia to access
all of the Company’s operating cash and order it to be transferred to a bank
account specified by Wachovia.  The Notice further provided that as a
result of the default, the Company would no longer have the option to request
LIBOR Rate Loans as defined in the Credit Agreement.  Consequently,
the Term Loan was converted to an Alternative Base Rate Loan, as defined in the
Credit Agreement, effective March 31, 2009.




On March
25, 2009, the Company engaged XRoads Solution Group LLC as our financial
advisor.  Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the Credit Facility and Swap Agreement
accrued interest including default interest as described below of $17.8 million
for the twelve months ended December 31, 2009.  Consequently, we
elected not to make these payments.  The Company’s failure to pay
interest due on any loan within our Credit Facility within a three-day grace
period from the due date was an event of default under our Credit
Facility.  As a result of these events of default, the Company’s
lenders have the right to seek to charge additional default interest on the
Company’s outstanding principal and interest under the Credit Agreement, and
automatically charge additional default interest on any overdue amounts under
the Swap Agreement.  These default rates are in addition to the
interest rates that would otherwise be applicable under the Credit Agreement and
Swap Agreement.




As
previously disclosed on a Form 8-K filed with the SEC on April 6, 2009, the
Company received an additional notice of default on April 1, 2009 (the “April
Default Notice”) from Wachovia.  The April Default Notice alleges that
subsequent to the Company’s receipt of the  February Notice,
additional defaults and events of default had occurred and were continuing under
the terms of the Credit Agreement including, but not limited to: (i) the
Company’s failure to deliver to Wachovia audited financial statements without a
“going concern” modification; (ii) the Company’s failure to deliver Wachovia a
certificate of an independent certified public accountant in conjunction with
the Company’s financial statements; and (iii) the occurrence of a default or
breach under a secured hedging agreement.  The April Default Notice
also states that in addition to the foregoing events of default that there were
additional potential events of default as a result of, among other things, the
Company’s failure to pay: (i) accrued interest on the Company’s LIBOR rate loan
on March 30, 2009 (the “LIBOR Payment”), (ii) the commitment fee on March 31,
2009 (the “Commitment Fee Payment”), and (iii) accrued interest on the Company’s
ABR Loans on March 31, 2009 (the “ABR Payment” and together with the LIBOR
Payment and Commitment Fee Payment, the “March 31st Payments”).  The
Company has not paid the March 31st Payments and the applicable grace period to
make these payments has expired.  The April Default Notice states that
as a result of these events of defaults, (a) all amounts owing under the Credit
Agreement thereafter would bear interest, payable on demand, at a rate equal to:
(i) in the case of principal, 2% above the otherwise applicable rate; and (ii)
in the case of interest, fees and other amounts, the ABR Default Rate (as
defined in the Credit Agreement), which as of April 1, 2009 was 6.25%; and (b)
neither Swingline Loans nor additional Revolving Loans are available to the
Company at this time.




As a
result of the February Notice and the April Default Notice, effective March 31,
2009, the Term Loan interest rate increased to approximately 10.5% per annum and
effective April 1, 2009, the Revolver interest rate is approximately 6.25% per
annum.  The Company has incurred approximately $5 million in default
interest related to the Credit Facility and Swap Agreement for the twelve months
ended December 31, 2009.




2


On April
1, 2009, the Company also received Notice of Event of Default and Reservation of
Rights (the “Swap Default Notice”) in connection with an alleged event of
default under our Swap Agreement.  Receipt of the Swap Default Notice
was previously disclosed on a Form 8-K filed with the SEC on April 6,
2009.  The Swap Default Notice alleges that (a) an event of default
exists due to the occurrence of an event of default(s) under the Credit
Agreement and (b) that the Company failed to make payments to Wachovia with
respect to one or more transactions under the Swap Agreement.  The
Company has not paid the overdue amount and the applicable grace period to make
this payment has expired.  Any default under the Swap Agreement
automatically results in an additional default interest of 1% on any overdue
amounts under the Swap Agreement.  This default rate was in addition
to the interest rate that would otherwise be applicable under the Swap
Agreement.




On July
23, 2009, the Company received a Notice of Early Termination for Event of
Default (the “Early Termination Notice”) from Wachovia in connection with an
alleged event of default that occurred under the Swap
Agreement.  Receipt of the Early Termination Notice was previously
disclosed on a Form 8-K filed with the SEC on July 29, 2009. The Early
Termination Notice alleges that an event of default has occurred and is
continuing pursuant to Sections 5(a)(i) and 5(a)(vi)(1) of the Swap
Agreement.  Section 5(a)(i) of the Swap Agreement addresses payments
and deliveries specified under the Swap Agreement and Section 5(a)(vi)(1) of the
Swap Agreement addresses cross defaults. The Early Termination Notice provides
that Wachovia designated an early termination date of July 27, 2009 in respect
of all remaining transactions governed by the Swap Agreement, including an
interest rate swap transaction with a trade date of May 31,
2007.




On July
28, 2009, in connection with the Early Termination Notice, the Company received
a Notice of Amount Due Following Early Termination from Wachovia that claimed
the amount due and payable to Wachovia under the Swap Agreement is $26.6
million, which includes $4.4 million in accrued interest.  As of
December 31, 2009, the interest rate swap liability was $22.1 million which
equals the mark to market amount reflected in the Notice of Amount Due Following
Early Termination.  Additionally, accrued interest as of December 31,
2009 includes $5.0 million in accrued interest related to the interest rate swap
comprised of $4.4 million in accrued interest as reflected on the Notice of
Amount Due Following Early Termination and $0.6 million in default interest
pursuant to the Swap Agreement termination.




As a
result of the Early Termination Notice, the interest rates for the Term Loan and
Revolver balances are no longer locked and are now subject to changes in
underlying LIBOR rates and vary based on fluctuations in the Alternative Base
Rate and Applicable Margins.  As of December 31, 2009, our Term Loan
and Revolver bear interest at approximately 6.25%.




With the
aid of our financial advisors and outside counsel, we are continuing to
negotiate with our various creditor constituencies to refinance or restructure
our debt.  We cannot assure you that we will be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary.  If we were unable to do so, we would likely be compelled
to seek protection under Chapter 11 of the U. S. Bankruptcy Code.




Due to
the defaults discussed above (the “2009 Credit Defaults”) and the potential risk
of Bankruptcy, there is substantial doubt about the Company’s ability to
continue as a going concern.  As a result, our independent registered
public accounting firm has included an explanatory paragraph that expresses
substantial doubt as to our ability to continue as a going concern in their
audit reports contained in this Annual Report on Form 10-K for the year ended
December 31, 2009 and in our Annual Report on Form 10-K for the year ended
December 31, 2008.




3




Voluntary
Delisting from NYSE AMEX LLC




As
previously disclosed on a Form 8-K filed with the SEC on June 5, 2009, the
Company received a deficiency letter (the “Deficiency Letter”) on June 1, 2009
from NYSE Amex LLC (the “Exchange”), which was formerly known as the NYSE
Alternext US LLC and the American Stock Exchange, indicating that the Company
did not meet certain of the Exchange’s continued listing standards, as set forth
in the NYSE Amex Company Guide (the “Company Guide”), and had therefore become
subject to the continued listing evaluation and follow-upprocedures and
requirements of the Company Guide.  Specifically, the Deficiency
Letter provided notice that the Company had sustained losses which were so
substantial in relation to its overall operations or its existing financial
resources, or its financial condition had become so impaired that it appears
questionable, in the opinion of the Exchange, as to whether the Company will be
able to continue operations and/or meet its obligations as they
mature.




In order
to maintain its listing on the Exchange, the Company was required to submit a
plan of compliance to the Exchange by July 1, 2009, advising the Exchange of
action it has taken, or will take, that would bring the Company into compliance
with the Company Guide by November 27, 2009.  As the Company did not
believe that it could take the steps necessary to satisfy the continued listing
criteria of the Exchange within the prescribed time frame, the Company’s Board
of Directors approved a plan to voluntarily withdraw the Company’s common stock
from trading on the Exchange.  On June 5, 2009, the Company provided
notice to the Exchange of its intent to voluntarily delist its common stock from
the Exchange and filed a Form 25 to inform the Securities and Exchange
Commission accordingly on June 15, 2009.  Trading of the Company’s
common stock on the NYSE AMEX exchange was suspended as of the close of trading
on June 25, 2009.  Effective June 26, 2009, the Company’s common stock
is available for quotation on the Pink OTC Markets, Inc. (the “Pink Sheets”)
under the symbol “RVHL”.




Riviera
Las Vegas




General




Riviera
Las Vegas is located on the corner of Las Vegas Boulevard and Riviera Boulevard
in Clark County, Nevada, across Las Vegas Boulevard from the Circus Circus Las
Vegas Resort and Casino and the Echelon construction project and just south of
the Fontainebleau project.  Boyd Gaming Corporation, the owner of the
Echelon project, suspended construction on the project indefinitely as a result
of economic issues.  The Fontainebleau project was owned by
Fontainebleau Las Vegas LLC which filed for Chapter 11 bankruptcy protection in
June 2009.  The property was acquired by Icahn Nevada Gaming
Acquisition LLC January 2010, pending bankruptcy court
approval.  Plans for the project are unknown.




Gaming




Riviera
Las Vegas has approximately 100,000 square feet of casino space.  The
casino currently has approximately 900 slot machines, 32 gaming tables and 8
poker tables.  The casino also includes a race and sports book, which
is operated by Leroy’s, a subsidiary of American Wagering, Inc.




4




Hotel




Riviera
Las Vegas’ hotel is comprised of five towers with 2,075 guest rooms,
including 177 suites, as follows:




Tower Description
                
                Year
                    Built
                
                Std.
                    Rooms
                
                
                Suites
                
                
                Total
                
                Latest
                    Remodel
                    YearNorth
      Tower
                
                1955
                
                
                379
                
                
                
                11
                
                
                
                390
                
                2008South
      Tower
                
                1967
                
                
                132
                
                
                
                30
                
                
                
                162
                
                2008Monte
      Carlo
                
                1974
                
                
                216
                
                
                
                81
                
                
                
                297
                
                2005San
      Remo
                
                1977
                
                
                241
                
                
                
                6
                
                
                
                247
                
                2008Monaco
                
                1988
                
                
                930
                
                
                
                49
                
                
                
                979
                
                2008Total
                
                
                
                
                1,898
                
                
                
                177
                
                
                
                2,075





Restaurants




Riviera
Las Vegas offers four bars and four restaurants and offers banquet event service
as well as room service.  The following outlines the type of service
provided and total seating capacity for each restaurant:




Name
                
                Type
                
                Seating
                    CapacityKady's
                
                Coffee
      Shop
                
                290Kristofer's
                
                Steak
      and Seafood
                
                162Ristorante
      Italiano *
                
                Italian
                
                126World's
      Fare Buffet
                
                All-you-can-eat
                
                366Total
                
                
                
                944*
      closed indefinitely commencing February
2009




In
addition, Riviera Las Vegas operates three snack bars and has a 200 seat
fast-food “food court” which had several fast food locations operating during
2009.  The food court operation was managed by and leased to a third
party until November 2008 when we commenced leasing out the food court locations
to independent fast food operators.  As of December 31, 2009, seven of
nine food court locations were leased to independent fast food
operators.  In addition, Riviera Las Vegas leases space to the
operator of The Banana Leaf Restaurant which is a full service restaurant
serving Asian cuisine.  The Banana Leaf Restaurant, which is located
adjacent to the casino floor, opened in the first quarter of 2007.




Convention
Center




Riviera
Las Vegas features approximately 160,000 square feet of convention, meeting and
banquet space.  The convention center is one of the larger convention
facilities in Las Vegas and is an important feature that attracts customers. The
facility can be reconfigured for multiple meetings of small groups or large
gatherings of up to 5,000 people.  Features include ample
convention, meeting and banquet facilities in addition to teleconferencing,
wireless internet, satellite uplink capabilities and 12 skyboxes.




5




Entertainment




Riviera
Las Vegas has an extensive entertainment program.  The following
outlines the type of service provided and total seating capacity for each
entertainment center:




Name
                
                Type
                
                Seating CapacityVersailles
                
                Variety
                
                875La
      Cage
                
                Variety
                
                575Crazy
      Girls
                
                Adult
      Revue
                
                375Comedy
      Club
                
                Comedy
                
                350Le
      Bistro
                
                Variety
                
                190





A
majority of our shows are owned and operated by third parties.  We
receive ticket sales commissions and a predetermined number of complimentary
tickets that we use primarily for marketing and promotions.  In
addition, we receive any gaming and food and beverage revenues from show
patrons.




Marketing
Strategies - Gaming




Our
current marketing programs are directed at mid-level stakes gaming customers
(customers that wager less on average) as opposed to high stakes customers
(customers that wager more on average).  Mid-level stakes gaming
customers tend to provide us with a less volatile, more consistent gaming
revenue stream.  Consistent with our focus on mid-level stakes gaming
customers, we offer lower table game limits, stricter credit policies and higher
emphasis on developing more slot machine play.  Our principal strategy
is to continue to invest in our slot machines and table game products, market to
our customer base primarily through a multi-tiered player’s club program (“Club
Riviera”) and to methodically offer slot machine and poker tournaments and other
special events and promotions.




Generating
customer loyalty is a critical component of our business strategy as retaining
customers is less expensive than attracting new ones.  Consequently,
we store all of our Club Riviera player’s information in a proprietary database
program which we use for sending special offerings to Club Riviera members based
on a variety of criteria.   We frequently use discounted or
complimentary meals at our restaurants, accommodations at our hotel and tickets
at our shows to incentivize Club Riviera members and other prospective customers
to come and game at our property.   All slot machine and table
game players are encouraged to join Club Riviera.  We entice customers
to enroll in the players club with a variety of incentives including free slot
machine play offers.  Once a player joins Club Riviera, we can track
their level of play and gain useful information about their preferences. 
We offer qualifying customers personalized service, credit availability and
access to a variety of complimentary or reduced-rate hotel room, dinner and
entertainment options.  We have found that an individualized marketing
approach has been successful in generating revenue and repeat
business.




We also
seek to maximize the number of people who patronize the Riviera Las Vegas but
who are not guests in the hotel by capitalizing on Riviera Las Vegas’ Las Vegas
Strip location and proximity to the Las Vegas Convention Center, the Circus
Circus, the Sahara, the Las Vegas Hilton, the Wynn Las Vegas, the Wynn
Encore and various time-share and condominium properties.  To attract
walk-in traffic, we added the 11,000 square foot Leroy’s Race & Sports Book,
Bar & Grill which opened February 2008 adjacent to the Las Vegas Strip
sidewalk.  However, the dormant Echelon and Fontainebleau projects
have resulted in and continue to cause a significant reduction in walk-in
traffic.




6




Marketing
Strategies - Rooms




We
continue to focus on our convention customer.  To better market to
these customers, we have conducted extensive research to better understand their
preferences.  We have learned that an upgraded hotel room is a primary
differentiator.  As a result, we upgraded most of our rooms during
2007 and 2008.  Our marketing team uses our recently remodeled hotel
rooms to sell prospective convention customers.




The
convention market consists of two groups:  (1) those trade
organizations and groups that hold their events in the banquet and meeting space
provided by a single hotel and (2) those attending city-wide events,
usually held at the Las Vegas Convention Center.  We target convention
business because it typically provides patrons willing to pay higher room rates
and we are able to capitalize on certain advance planning benefits because
conventions are often booked one to two years in advance of the event
date.  We focus our marketing efforts on conventions whose
participants have the most active gaming profile and higher room rates, banquet
and function spending habits.  We also benefit from our proximity to
the Las Vegas Convention Center, which makes us attractive to city-wide
conventioneers looking to avoid the congestion that occurs during a major
convention, particularly at the south end of the Las Vegas Strip.  In
2009, we derived approximately 22% of our hotel occupancy and approximately
35% of our room revenues from convention customers and we consider them to be a
critical component of our customer base.




In
addition to our convention customer, we have found that our customers also use
tour and travel “package” options to reduce the cost of travel, lodging and
entertainment.  These packages are produced by wholesale operators and
travel agents and often emphasize mid-week and longer duration
stays.  Tour and Travel patrons often book at off-peak periods,
helping us to maintain occupancy levels throughout the year.  We have
developed specialized marketing programs and cultivated relationships with
wholesale operators, travel agents and major domestic air carriers to expand
this market.  We make an effort to convert many tour and travel
customers who meet our target customer gaming profile into repeat slot
customers.




Finally,
we are increasingly focused on customers that book their stay using the
internet.  These customers are in search of convenience, a bargain,
and the ability to reserve a hotel room shortly before arrival.  This
market segment continues to grow as consumers grow increasingly comfortable
using the internet.  Approximately 39% of our 2009 occupied rooms were
from customers that booked their stay using the internet compared to 21% in the
prior year.  We can quickly and efficiently adjust our room rate
offerings on various internet websites.  As a result, we often utilize
the internet as a vehicle for quickly booking hotel room reservations on dates
with lower occupancy.




Riviera
Black Hawk




Business




Riviera
Black Hawk, which opened on February 4, 2000, is located in Black Hawk,
Colorado, approximately 40 miles west of Denver.  Our casino is the
first casino encountered by visitors arriving from Denver on Highway
119.  It features the fourth largest number of gaming devices in the
market with approximately 750 slot machines and 9 table games.  For
Colorado gaming and tax law purposes, each slot machine or table game is
considered one gaming device.




We also
offer a variety of non-gaming amenities designed to help differentiate our
casino, including:




7




·
            parking
      spaces for 520 vehicles, of which 92% are covered, with convenient and
      free self-park and valet options;




·
            a
      252 seat casual buffet-styled
restaurant;




·
            a
      delicatessen;




·
            one
      casino bar; and




·
            a
      ballroom with seating for approximately 200
  people.




Marketing
Strategy




We
attract customers to our casino by implementing marketing strategies and
promotions designed specifically for the Black Hawk/Central City
market.  We utilize a player’s club at Riviera Black Hawk which was
modeled after Club Riviera in Las Vegas.  Our Riviera Black Hawk
player’s club is our primary tool for building customer loyalty in Black
Hawk.  Players earn points, based on gaming play, which can be
redeemed for cash, food and beverage and various other items.  In
order to generate additional visits and increase gaming revenues, we regularly
pre-select players from our player’s club database to receive various rewards
such as cash coupons, logo gift items, invitations to special events and
complimentary accommodations at our Las Vegas property.  In addition,
we promote our Riviera Black Hawk casino by advertising in local newspapers and
on the radio.




We
benefit from strong walk-in traffic, which is primarily the result of our
proximity to the Colorado Central Station and Isle of Capri
properties.  We have and continueto develop specific
marketing programs designed to attract these walk-in customers.  We
emphasize that the Riviera Black Hawk offers quality food and beverage, friendly
service and promotions designed specifically for the Black Hawk/Central
City consumer.




Until
recently, only limited stakes gaming, which is defined as a maximum single bet
of $5, was legal in the Black Hawk/Central City market.  However,
Colorado Amendment 50, which was approved by voters on November 4, 2008, allowed
residents of Black Hawk and Central City to vote to extend casino hours, approve
additional games, and increase the maximum bet limit.  On January 13,
2009, residents of Black Hawk voted to enable Black Hawk casino operators to
extend casino hours, add the table games of craps and roulette and increase the
maximum betting limit to $100.  On July 2, 2009, the first day
permissible to implement the changes associated with the passage of Colorado
Amendment 50, we increased betting limits, extended hours and commenced
operating roulette.  To increase awareness of the increased betting
limits, extended hours and the addition of roulette at Riviera Black Hawk, we
aggressively promoted the property employing several media sources including
television.  We continue to refine our marketing and promotional
strategies in order to maximize the benefits associated with the passage of
Colorado Amendment 50.




Competitive
Environment




Las
Vegas, Nevada




Las Vegas
is a highly competitive environment offering a variety of hospitality and
entertainment options.   Additionally, during 2009, more options
became available with several casinos/hotels openings or
expansions.  Additional casino/hotel openings are planned for
2010.  Available room inventory increased 8,412, or 6.0%, from 140,529
as of December 31, 2008 to 148,941 as of December 31, 2009.




8




While the
supply of new casinos/hotels continues to grow, demand has not kept
pace.  According to the Las Vegas Convention and Visitors Authority
(LVCVA), the number of people visiting Las Vegas declined 3% to 36.4 million
visitors in 2009 from 37.5 million visitors in 2008.  To attract
customers to their properties, casino/hotel operators reduced hotel room rates
and marketed gaming customers aggressively with various
offerings.  Regardless, Las Vegas hotel room occupancy, which is
defined as occupied hotel rooms divided by total available hotel rooms, declined
4.5% to 85.3% for the year ended December 31, 2009.  In addition,
average daily room rate, which is defined as hotel room revenue divided by
occupied hotel rooms, declined 22% to $92.93 for the twelve months ended
December 31, 2009.




Riviera
Las Vegas competes with all Las Vegas area casinos but primarily with certain
large casino/hotels located on or near the Las Vegas Strip.  Many of
these properties offer more and better amenities than those offered by Riviera
Las Vegas and many of our direct competitors have significantly greater
resources than we do.  To compete, we have to lower our average daily
room rates as these properties lower their average daily room
rates.  Because of our position within the market, the increase in
hotel room supply and impact of the weak economy on consumer spending, our
average daily rates declined $22.21, or 26.8%, to $60.60 from $82.81 in the
prior year.  Moreover, our hotel room occupancy declined to 77.4% from
83.8% in the prior year.




We also
compete for people who come and spend money at Riviera Las Vegas who are not
guests in our hotel.  We capitalize on our location on the Las Vegas
Strip across from the Circus Circus Hotel and Casino.  However, the
dormant Echelon and Fontainebleau projects have resulted in and continue to
cause a significant reduction in walk-in traffic.




In
addition to competing with other casinos/hotels in the Las Vegas area, we
compete to some extent with casinos in other states, riverboat and Native
American gaming ventures, state-sponsored lotteries, on and off track wagering,
card parlors and other forms of cruise ship gaming and other forms
of legalized gaming in the United States.  To a lesser extent, we
also compete with gaming on cruise ships and gaming in other parts of the
world.  In addition, certain states recently legalized or are
considering legalizing casino gaming in specific geographical areas within those
states and internationally.  Any future development of casinos,
lotteries or other forms of gaming in other states and internationally could
have a material adverse effect on our results of operations.




The
number of casinos on Native American lands has increased since the enactment of
the Indian Gaming Regulatory Act of 1988.  California voters addressed
this issue on March 7, 2000 when they voted in favor of an amendment to the
California Constitution that allows Las Vegas-style gambling on
Native American lands in that state.  Additionally, California
voters passed Propositions 94, 95, 96 and 97 which allow two tribes near San
Diego to each increase their slot machine volume from 2,000 slot machines to
7,500 slot machines and two tribes near Palm Springs to each increase their slot
machine volume from 2,000 slot machines to 5,000 slot machines.  While
new gaming jurisdictions generally have not materially impacted Las Vegas,
the expansion of gaming in California poses a more serious threat due to its
proximity to Las Vegas.




Our
current business is highly dependent on gaming in Las Vegas. Riviera Las Vegas
derives a substantial percentage of its business from tourists, including
customers from southern California and the southwestern United States. The
current economic recession has had an adverse effect on the number of visitors
traveling to Las Vegas.  A continued economic downturn along with
events in the future similar to the terrorist attacks of September 11, 2001
could have an adverse effect on both the number of visitors traveling to Las
Vegas and our financial results.




As a
result of the abovementioned competitive environment challenges in the Las Vegas
market, there can be no assurance that we will compete successfully in the
future.




9




Black
Hawk, Colorado




The Black
Hawk gaming market is characterized by intense competition.  The
primary competitive market differentiators are location, availability and
convenience of parking, number of gaming devices, promotional incentives, hotel
rooms, types and pricing of non-gaming amenities, name recognition and overall
atmosphere.  We have determined that our primary competitors are the
Ameristar Black Hawk, the Isle of Capri/Lady Luck (“Central City” property was
renamed “Lady Luck” in 2009), the Lodge and the Mardi Gras.  These are
the larger gaming facilities located in our immediate area offering considerable
amenities with established reputations in the local market.




As
described above, effective July 2, 2009, due to the passage of Colorado
Amendment 50, Black Hawk casino operators were permitted to increase betting
limits, extend hours and implement additional games.  To capitalize on
these changes, our primary competitors invested and continue to invest in their
properties.  The Ameristar Black Hawk added a 536 room hotel tower,
expanded its parking garage to 1,550 parking spaces and added a
diner.  The Isle of Capri/Lady Luck added four craps tables and three
roulette tables and plan to invest an additional $35 million to upgrade the
casino floor.  The Lodge expanded its gaming space and added 100 slot
machines, two craps tables and a roulette table.    Lastly,
the Mardi Gras remodeled two of its restaurants and added two craps tables and a
roulette table.




Currently,
Ameristar Black Hawk has 1,640 slot machines, 33 gaming tables, 536 hotel rooms
and several food and beverage outlets.  The Isle of Capri/Lady Luck
has 1,900 slot machines, 42 gaming tables, 402 hotel rooms and various food and
beverage outlets.  The Lodge has 1,000 slot machines, 39 gaming
tables, 50 hotel rooms and various food and beverage
outlets.  Finally, the Mardi Gras has 680 slot machines, 16 gaming
tables and various food and beverage outlets.




While the
passage of Colorado Amendment 50 benefited the Black Hawk/Central City gaming
market, the Colorado smoking ban, which became effective for Black Hawk/Central
City casinos on January 1, 2008, has had an adverse effect on our results of
operations.  While we have installed outdoor smoking decks to
accommodate our guests who smoke, we believe that that the smoking ban in
Colorado has had and will continue to have an adverse affect.




The
competitive environment in Colorado continues to change and the future is
uncertain.  Limited stakes gaming in Colorado is constitutionally
authorized in Central City, Black Hawk, Cripple Creek and two Native American
reservations in southwest Colorado.  However, gaming could be approved
in other Colorado communities in the future.  The legalization of
gaming closer to Denver would likely have a material adverse effect on our
results of operations.




We
compete with other forms of gaming in Colorado, including the state lottery,
horse and dog racing, as well as other forms of
entertainment.  Colorado voters previously rejected a proposal that
would have authorized video lottery terminals in five racetracks in
Colorado.  However, there is no guarantee that such a proposal or
similar one will be rejected in the future.  If these or similar
initiatives are pursued in Colorado and gain the necessary approvals, then our
Colorado operations would likely be adversely affected.




As a
result of the abovementioned competitive environment challenges in the Black
Hawk gaming market, there can be no assurance that we will compete successfully
in the future.




10




Employees
and Labor Relations




Riviera
Las Vegas




As of
December 31, 2009, Riviera Las Vegas had 893 full-time equivalent employees and
had collective bargaining contracts with eight unions covering approximately 600
employees, including food and beverage employees, rooms department employees,
carpenters, engineers, stagehands, musicians, electricians and
painters.  Riviera Las Vegas’ agreements with the Painters’ Union and
Carpenters’ Union expire on May 31, 2010 and July 31, 2011,
respectively.Agreements with the Southern Nevada Culinary and Bartenders Union, which
cover the majority of our unionized employees, were renewed in 2007 and expire
in 2013 (term of agreement was extended for one year during
2009).  Our agreement with the Stagehands Union was renewed in 2009
and expires in 2012.  Our agreement with the Teamsters Union
(primarily covers rooms department employees) was renewed in 2008 and expires in
2013.  Our Operating Engineers Union agreement was renewed in 2009 and
expires in 2011 and our Electrician Union agreement was renewed in 2009 and
expires in 2012.  Our collective bargaining agreement with the Musicians
Union expired in 1999 and we continue to operate under the terms of that
agreement.  Although unions have been active in Las Vegas, Riviera Las
Vegas considers its employee relations to be satisfactory.  There can
be no assurance, however, that new agreements will be reached without union
action or on terms satisfactory to Riviera Las Vegas.




Riviera
Black Hawk




As of
December 31, 2009, Riviera Black Hawk had 233 full-time equivalent employees
none of whom are covered by collective bargaining agreements.  There
can be no assurance that unions will not succeed in organizing parts or all of
our labor force at Riviera Black Hawk.  If any union is successful in
organizing at Riviera Black Hawk, there can be no assurance that an agreement
will be reached without union action or on mutually satisfactory
terms.




Regulation
and Licensing




Nevada




Nevada
Gaming Authorities




The
ownership and operation of casino gaming facilities in Nevada are subject to:
(1) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act") and (2) various local
ordinances and regulations.  Our gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission (the “Nevada
Commission”), the State of Nevada Gaming Control Board (the “Nevada Board”), the
Clark County Business License Department and the Clark County Liquor and Gaming
Licensing Board (collectively, the “Clark County Board”), all of which are
collectively referred to as the "Nevada Gaming Authorities."




The laws,
regulations and supervisory procedures of the Nevada Gaming Authorities are
based upon declarations of public policy which are concerned with, among other
things:  (1) the prevention of unsavory or unsuitable
persons from having a direct or indirect involvement with gaming at any time and
in any capacity; (2) the establishment and maintenance of responsible
accounting practices and procedures; (3) the maintenance of effective
controls over the financial practices of licensees, including the establishment
of minimum procedures for internal fiscal affairs and the safeguarding of assets
and revenues, providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (4) the prevention of
cheating and fraudulent practices; and (5) providing a source of state and
local revenues through taxation and licensing fees.  Changes in such
laws, regulations and procedures could have an adverse effect on our
operations.




11




Riviera
Operating Corporation is required to be and is licensed by the Nevada Gaming
Authorities (a “Corporate Licensee”).  The gaming license held by
Riviera Operating Corporation requires the periodic payment of fees and taxes
and is not transferable.  Riviera Operating Corporation is also
licensed as a manufacturer and distributor of gaming devices.  Such
licenses require the periodic payment of fees and are not
transferable.  We are registered by the Nevada Commission as a
publicly traded corporation (a "Registered Corporation") and have been
found suitable to own the stock of Riviera Operating Corporation.  As
a Registered Corporation, we are required periodically to submit detailed
financial and operating reports to the Nevada Commission and to furnish any
other information, which the Nevada Commission may require.  No person
may become a stockholder of, or receive any percentage of profits from, Riviera
Operating Corporation without first obtaining licenses and approvals from the
Nevada Gaming Authorities.  We and Riviera Operating Corporation have
obtained, from the Nevada Gaming Authorities, the various registrations,
approvals, permits, findings of suitability and licenses required in order to
engage in gaming activities and manufacturing and distribution activities in
Nevada.




The
Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, us or Riviera Operating
Corporation in order to determine whether such individual is suitable or should
be licensed as a business associate of a gaming licensee.  Officers,
directors and certain key employees of Riviera Operating Corporation must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities.  Our
officers, directors and key employees who are actively and directly involved in
the gaming activities of Riviera Operating Corporation may be required to be
licensed or found suitable by the Nevada Gaming Authorities.  The
Nevada Gaming Authorities may deny an application for licensing for any cause,
which they deem reasonable.  A finding of suitability is comparable to
licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing or
a finding of suitability must pay all the costs of the
investigation.  Any change in a corporate position by a licensed
person must be reported to the Nevada Gaming Authorities. In addition to their
authority to deny an application for a finding of suitability or licensure, the
Nevada Gaming Authorities have jurisdiction to disapprove a change in a
corporate position.




If the
Nevada Gaming Authorities were to find an officer, director or key employee
unsuitable for licensing or unsuitable to continue having a relationship with
Riviera Operating Corporation or us, we would have to sever all relationships
with such person.  In addition, the Nevada Commission may require us
or Riviera Operating Corporation to terminate the employment of any person who
refuses to file appropriate applications.  Determinations of
suitability or questions pertaining to licensing are not subject to judicial
review in Nevada.




We and
Riviera Operating Corporation are required to submit detailed financial and
operating reports to the Nevada Commission.  Substantially all
material loans, leases, sales of securities and similar financing transactions
by Riviera Operating Corporation must be reported to or approved by the Nevada
Commission.




If it
were determined that the Nevada Act was violated by Riviera Operating
Corporation, the gaming license it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures.  In addition, we or Riviera Operating
Corporation and the persons involved could be subject to substantial fines for
each violation of the Nevada Act, at the discretion of the Nevada
Commission.  Further, a supervisor could be appointed by the Nevada
Commission to operate our casino and, under certain circumstances, earnings
generated during the supervisor's appointment (except for reasonable rental
value of the casino) could be forfeited to the State of
Nevada.  Limitation, conditioning or suspension of the gaming license
of Riviera Operating Corporation or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect our gaming
operations.




12




Any
beneficial holder of our voting securities, regardless of the number of shares
owned, may be required to file an application, be investigated, and have its
suitability as a beneficial holder of our voting securities determined if the
Nevada Commission has reason to believe that such ownership would otherwise be
inconsistent with the declared policies of the State of Nevada.  The
applicant must pay all costs of investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.




The
Nevada Act requires any person who acquires more than 5% of a Registered
Corporation's voting securities to report the acquisition to the Nevada
Commission.  The Nevada Act requires that beneficial owners of more
than 10% of our voting securities apply to the Nevada Commission for a finding
of suitability within thirty days after the Chairman of the Nevada Board mails
the written notice requiring such filing.  However, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10%, but not
more than 11% of our voting securities as a result of a stock repurchase by us
may not be required to file such an application.  Further, an
institutional investor that acquires more than 10% but not more than 25% of our
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds our voting
securities for investment purposes only.  An institutional investor
that has obtained a waiver may hold more than 25% but not more than 29% of our
voting securities and maintain its waiver where the additional ownership results
from a stock repurchase by us.  An institutional investor shall not be
deemed to hold our voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of our Board of
Directors, any change in our corporate charter, bylaws, management, policies or
operations, or any of our gaming affiliates, or any other action which the
Nevada Commission finds to be inconsistent with holding our voting securities
for investment purposes only.  Activities which are deemed consistent
with holding our voting securities for investment purposes only
include:  (1) voting on all matters voted on by stockholders;
(2) making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a change
in management, policies or operations; and (3) such other activities as the
Nevada Commission may determine to be consistent with such investment
intent.  If the beneficial holder of our voting securities who must be
found suitable is a business entity or trust, it must submit detailed business
and financial information including a list of beneficial owners.  The
applicant is required to pay all costs of investigation.




Any
person who fails or refuses to apply for a finding of suitability or a license
within thirty days after being ordered to do so by the Nevada Commission or the
Chairman of the Nevada Board may be found unsuitable.  The same
restrictions apply to a record owner of stock if the record owner, after
request, fails to identify the beneficial owner.  Any stockholder who
is found unsuitable and who holds, directly or indirectly, any beneficial
ownership of stock beyond such period of time prescribed by the Nevada
Commission may be guilty of a criminal offense.  We are subject to
disciplinary action if, after we receive notice that a person is unsuitable to
be a stockholder or to have any other relationship with us or Riviera Operating
Corporation, we (1) pay that person any dividend or interest upon voting
our securities, (2) allow that person to exercise, directly or indirectly,
any voting right conferred through securities held by that person, (3) pay
remuneration in any form to that person for services rendered or otherwise, or
(4) fail to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. Additionally, the Clark
County Board has the authority to approve all persons owning or controlling the
stock of any corporation controlling a gaming licensee.




13




The
Nevada Commission may, in its discretion, require any holder of our debt
securities to file applications, be investigated and be found suitable to own
such securities, if it has reason to believe that such ownership would be
inconsistent with the declared policies of the State of Nevada.  If
the Nevada Commission determines that a person is unsuitable to own such
security, then we can be sanctioned (which may include the loss of our
approvals) if, without the prior approval of the Nevada Commission, we
(1) pay to the unsuitable person any dividend, interest, or any
distribution whatsoever, (2) recognize any voting right by such unsuitable
person in connection with such securities, (3) pay the unsuitable person
remuneration in any form or (4) make any payment to the unsuitable person
by way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.




We are
required to maintain a current stock ledger in Nevada, which may be examined by
the Nevada Gaming Authorities at any time.  If any securities are held
in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming
Authorities.  A failure to make such disclosure may be grounds for
finding the record holder unsuitable. We are also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require our stock certificates to bear a legend
indicating that the securities are subject to the Nevada
Act.  However, the Nevada Commission has not imposed such a
requirement on us.




We may
not make a public offering of our securities without the prior approval of the
Nevada Commission if the securities or proceeds are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or to retire or
extend obligations incurred for such purposes.




Changes
in control of a Registered Corporation through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior approval
of the Nevada Commission.  Entities seeking to acquire control of a
Registered Corporation must meet a variety of stringent standards of the Nevada
Board and Nevada Commission prior to assuming control.  The Nevada
Commission may also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.




The
Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities and corporate defensive tactics
affecting Nevada corporate gaming licensees and Registered Corporations that are
affiliated with those operations may be injurious to stable and productive
corporate gaming.  The Nevada Commission has established regulations
to ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy
to:  (1) assure the financial stability of corporate gaming
licensees and their affiliates; (2) preserve the beneficial aspects of
conducting business in the corporate form; and (3) promote a neutral
environment for the orderly governance of corporate
affairs.  Approvals are, in certain circumstances, required from the
Nevada Commission before the Registered Corporation can make exceptional
repurchases of voting securities above the current market price and before a
corporate acquisition opposed by management can be consummated.  The
Nevada Act also requires prior approval of a plan of recapitalization proposed
by the Registered Corporation's board of directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.




14


License
fees and taxes, computed in various ways depending on the type of gaming or
activity involved, are payable to the State of Nevada and to the county and city
in which Riviera Operating Corporation’s operations are
conducted.  Depending upon the particular fee or tax involved, these
fees and taxes are payable monthly, quarterly or annually and are based upon:
(1) a percentage of the gross revenues received; (2) the number of
gaming devices operated; or (3) the number of table games
operated.  A live entertainment tax is also paid by casinos where live
entertainment is furnished in connection with admission charges, the serving or
selling of food, refreshments or the selling of merchandise where live
entertainment is furnished.  Nevada licensees that hold a license to
manufacture and distribute slot machines and gaming devices, such as Riviera
Operating Corporation, also pay certain fees and taxes to the State of
Nevada.




Any
person who is licensed, required to be licensed, registered, or required to be
registered, or a person who is under common control with any of such persons
(collectively, "Licensees"), and who proposes to become involved in a gaming
venture outside of Nevada, is required to deposit with the Nevada Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of such person’s participation in
such foreign gaming.  The revolving fund is subject to increase or
decrease in the discretion of the Nevada Commission.  Thereafter,
Licensees are required to comply with certain reporting requirements imposed by
the Nevada Act.  Licensees are also subject to disciplinary action by
the Nevada Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities or enter
into associations that are harmful to the State of Nevada or its ability to
collect gaming taxes and fees, or employ, have contact with or associate with a
person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of personal unsuitability.




Other
Nevada Regulation




The sale
of alcoholic beverages at Riviera Las Vegas is subject to licensing, control and
regulation by the Clark County Board.  All such licenses are revocable
and none of them are transferable. The Clark County Board has full power to
limit, condition, suspend or revoke any such license, and any such disciplinary
action could (and revocation would) have a material adverse effect on our
operations.




Colorado




Colorado
Gaming and Liquor Regulation




Summary




In
general, Riviera Black Hawk, its principal executive officers and those of
Riviera Holdings Corporation, and any Riviera Black Hawk employees who are
involved in Colorado gaming operations are required to be found suitable for
licensure by the Colorado Gaming Commission (the “Colorado
Commission”).  Colorado also requires that persons owning, directly or
indirectly, 5% or more of our stock be certified as suitable for
licensure.  Riviera Black Hawk’s original retail gaming license was
approved by the Colorado Commission on November 18, 1999, and has been renewed
each subsequent year.




Background




Pursuant
to an amendment to the Colorado Constitution (the “Colorado Amendment”), limited
stakes gaming became lawful in the cities of Central City, Black Hawk and
Cripple Creek on October 1, 1991.  Until November 4, 2008, limited
stakes gaming meant a maximum single bet of $5.00 on slot machines and in the
card games of blackjack and poker.  On November 4, 2008, Colorado
voters approved through a statewide referendum, subject to approval by each of
the towns of Black Hawk, Central City and Cripple Creek with regards to casinos
located in the respective towns, to (i) increase the maximum single bet up to
$100.00, (ii) allow casinos to provide the table games of craps and roulette,
and (iii) increase the permitted hours of operation to 24 hours per day
effective July 2, 2009.  The towns of Black Hawk, Central City and
Cripple Creek subsequently each approved increasing the maximum single get to
$100, the addition of the table games of craps and roulette and increased
permitted hours of operation to 24 hours per day.




15




Limited
stakes gaming is confined to the commercial district of Black Hawk, as defined
by Black Hawk on May 4, 1978.  In addition, the Colorado
Amendment restricts limited stakes gaming to structures that conform to the
architectural styles and designs that were common to the areas prior to World
War I, and which conform to the requirements of applicable city ordinances
regardless of the age of the structures.  Under the Colorado
Amendment, no more than 35% of the square footage of any building and no more
than 50% of any one floor of any building may be used for limited stakes gaming.
Persons under the age of 21 cannot participate in limited stakes
gaming.  The Colorado Amendment also allows limited stakes gaming in
establishments licensed to sell alcoholic beverages.




Further,
the Colorado Limited Gaming Act of 1991 (the “Colorado Act”) provides that, in
addition to any applicable license fees, a gaming tax shall be imposed upon
retail gaming licensees (casinos) up to a maximum of 40% of the adjusted gross
proceeds (“AGP”) derived from limited stakes gaming.  AGP is generally
defined as the total amounts wagered less payouts to players, except for poker
in which AGP means the monies retained by the casino as compensation (the
“rake”).  The tax rates are set by the Colorado Commission
annually.




The
Colorado Act declares public policy on limited stakes gaming to be
that:  (1) the success of limited stakes gaming is dependent upon
public confidence and trust that licensed limited stakes gaming is conducted
honestly and competitively; the rights of the creditors of licensees are
protected; gaming is free from criminal and corruptive elements; (2) public
confidence and trust can be maintained only by strict regulation of all persons,
locations, practices, associations and activities related to the operation
of  licensed gaming establishments and the manufacture or distribution
of gaming devices and equipment; (3) all establishments where limited
gaming is conducted and where gambling devices are operated, and all
manufacturers, sellers and distributors of certain gambling devices and
equipment must therefore be licensed, controlled and assisted to protect the
public health, safety, good order and the general welfare of the inhabitants of
the state to foster the stability and success of limited stakes gaming and to
preserve the economy, policies and free competition in Colorado; and (4) no
applicant for a license or other affirmative Colorado Commission approval has
any right to a license or to the granting of the approval sought.  Any
license issued or other Colorado Commission approval granted pursuant to the
provisions of the Colorado Act is a revocable privilege, and no holder acquires
any vested rights therein.




Regulatory
Structure




The
Colorado Act subjects the ownership and operation of limited stakes gaming
facilities in Colorado to extensive licensing and regulation by the Colorado
Commission.  The Colorado Commission has full and exclusive authority
to promulgate, and has promulgated, rules and regulations governing the
licensing, conduct and operation of limited stakes gaming.  The
Colorado Act also created the Colorado Division of Gaming within the Colorado
Revenue Department to license, regulate and supervise the conduct of
limited stakes gaming in Colorado.  The division is supervised and
administered by the Director of the Division of Gaming.




Gaming
Licenses




The
Colorado Commission may issue the following licenses applicable to the operation
of Riviera Black Hawk:




16




·
            operator;




·
            retail
      gaming;




·
            support;
      and




·
            key
      employee.




The first
two licenses require annual or biannual renewal by the Colorado Commission.
Support and key employee licenses are issued for two-year periods and are
renewable by the Division of Gaming Director. The Colorado Commission has broad
discretion to condition, suspend for up to six months, revoke, limit or restrict
a license at any time and also has the authority to impose fines.




An
applicant for a gaming license must complete comprehensive application forms,
pay required fees and provide all information required by the Colorado
Commission and the Division of Gaming.  Prior to licensure, applicants
must satisfy the Colorado Commission that they are suitable for licensing.
Applicants have the burden of proving their qualifications and must pay the full
cost of any background investigations.  There is no limit on the cost
of, or the time it takes to complete, such background
investigations.




Gaming
employees must hold either a support or key employee license.  Every
large retail gaming licensee, such as Riviera Black Hawk, must have a key
employee licensee on premises and in charge of all limited stakes gaming
activities when limited stakes gaming is being conducted.  The
Colorado Commission may determine that a gaming employee is a key employee and
require that such person apply for a key employee license.




A retail
gaming license is required for all persons conducting limited stakes gaming on
their premises.  In addition, an operator license is required for all
persons who engage in the business of placing and operating slot machines on the
premises of a retailer.  However, a retailer is not required to hold
an operator license.  No person may have an ownership interest in more
than three retail gaming licenses.  The definition of “ownership
interest” for purposes of the multiple license prohibition, however, has
numerous exclusions based on percentages of ownership interest or voting
rights.




A slot
machine manufacturer or distributor license is required for all persons who
manufacture, import and distribute slot machines in Colorado.  No
manufacturer or distributor of slot machines or associated equipment may
knowingly, without notification being provided to the Colorado Division within
ten days, have any interest in any casino operator, allow any of its officers or
any other person with a substantial interest in such business to have such an
interest, employ any person employed by a casino operator, or allow any casino
operator or any person having a substantial interest therein, to have any
interest in such business.




The
Colorado Act and regulations thereunder (the “Colorado Regulations”) require
that every officer, director, and stockholder of private corporations, or
equivalent office or ownership holders for non-corporate applicants, and every
officer, director or stockholder holding a 5% or greater interest or controlling
interest in a publicly traded corporation, or owners of an applicant or
licensee, shall be a person of good moral character and submit to a full
background investigation conducted by the Division of Gaming and the Colorado
Commission.  The Colorado Commission may require any person having an
interest, of any kind, in a license to undergo a full background investigation
and pay the cost of investigation in the same manner as an
applicant.




17




Persons
found unsuitable by the Colorado Commission may be required immediately
to terminate any interest, association, or agreement with, or relationship
to, a licensee.  A finding of unsuitability with respect to any
officer, director, employee, associate, lender or beneficial owner of
a licensee or applicant also may jeopardize the licensee’s license or the
applicant’s application.  A license approval may be conditioned upon
the termination of any relationship with unsuitable
persons.  A person may be found unsuitable because of prior
acts, associations or financial conditions.  Acts that would lead to a
finding of unsuitability include, among others, those that would violate the
Colorado Act or the Colorado Regulations or that contravene the legislative
purpose of the Colorado Act.




Duties
of Licensees




A
licensee must keep the Division of Gaming advised of its business operations
including, but not limited to, gaming contracts and leases.  All
rules for the conduct of gaming activity pursuant to the Colorado Act or the
Colorado Regulations must be strictly followed.




Licensees,
such as Riviera Black Hawk, have a continuing duty to report immediately to the
Division of Gaming the name, date of birth and social security number of each
person who obtains an ownership, financial or equity interest in the licensee of
5% or greater, who has the ability to control the licensee, who has the ability
to exercise significant influence over the licensee or who loans any money or
other thing of value to the licensee.  Licensees must report to the
Division of Gaming all gaming licenses, and all applications for gaming
licenses, in foreign jurisdictions.




With
limited exceptions applicable to licensees that are publicly traded entities, no
person may sell, lease, purchase, convey or acquire any interest in a retail
gaming or operator license or business without the prior approval of the
Colorado Commission.




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




A
licensee must comply with Colorado’s Gambling Payment Intercept Act, which
governs the collection of unpaid child support costs on cash winnings from
limited gaming.




Taxes,
Fees and Fines




The
Colorado Amendment requires retail gaming licensees to pay in monthly increments
an annual tax of up to 40% of its AGP derived from limited stakes gaming.
Annually during April, May, and June, the Colorado Commission, as mandated by
the Colorado Regulations, conducts rule-making hearings concerning the gaming
tax rate and device fee rate for the subsequent gaming year.  The
gaming year begins on July 1st.  However,
during such hearings rigid adherence to addressing only specific, designated
subjects related to the gaming taxes is not required, and there is not a limit
to the time or practical restriction on the subject matters which the Colorado
Commission may consider in determining the various tax
rates.  Currently, the gaming tax is:




·
            0.25%
      on the first $2 million of these
amounts;




·
            2%
      on amounts from $2 million to $5
million;




·
            9%
      on amounts from $5 million to $8
million;




·
            11%
      on amounts from $8 million to $10
million;




18




·
            16%
      on amounts from $10 million to $13 million;
and




·
            20%
      on amounts over $13 million.




The City
of Black Hawk assesses an annual device fee of $750.00 per device on all gaming
devices exceeding 50. There is no statutory limit on state or city device fees,
which may be increased at the discretion of the Colorado Commission or the
city.  In addition, a business improvement fee of as much as $7.42 per
device and a monthly transportation authority device fee of $6.41 per device
also may apply depending upon the location of the licensed premises in Black
Hawk.




Black
Hawk also imposes taxes and fees on other aspects of the businesses of retail
gaming licensees, such as parking, alcoholic beverage licenses and other
municipal taxes and fees.  Significant increases in these fees and
taxes, or the imposition of new taxes and fees, may occur.




Violation
of the Colorado Act or the Colorado Regulations generally constitutes a class 1
misdemeanor, except as may be specifically provided otherwise in the Colorado
Act, which may subject the violator to fines or incarceration or
both.  A licensee who violates the Colorado Act or Colorado
Regulations or Gambling Payment Intercept Act is subject to suspension of the
license for a period of up to six months, fines or both, or to license
revocation.




Requirements
for Publicly Traded Corporations




The
Colorado Commission has enacted Rule 4.5, which imposes requirements on publicly
traded corporations holding gaming licenses in Colorado and on gaming licenses
owned directly or indirectly by a publicly traded corporation, whether
through a subsidiary or intermediary company.  The term “publicly
traded corporation” includes corporations, firms, limited liability companies,
trusts, partnerships and other forms of business organizations.  Such
requirements automatically apply to any ownership interest held by a publicly
traded corporation, holding company or intermediary company thereof, where the
ownership interest directly or indirectly is, or will be upon approval of the
Colorado Commission, 5% or more of the entire licensee.  In any event,
if the Colorado Commission determines that a publicly traded corporation, or a
subsidiary, intermediary company or holding company, has the actual ability to
exercise influence over a licensee, regardless of the percentage of ownership
possessed by said entity, the Colorado Commission may require the entity to
comply with the disclosure regulations contained in Rule 4.5.




Under
Rule 4.5, gaming licensees, affiliated companies and controlling persons
commencing a public offering of voting securities must notify the Colorado
Commission no later than ten business days after the initial filing of a
registration statement with the SEC.  Licensed, publicly traded
corporations are also required to send proxy statements to the Division of
Gaming within five days after their distribution. Licensees to whom Rule 4.5
applies must include in their charter documents provisions that: restrict the
rights of the licensees to issue voting interests or securities except in
accordance with the Colorado Act and the Colorado Regulations; limit the rights
of persons to transfer voting interests or securities of licensees except in
accordance with the Colorado Act and the Colorado Regulations; and provide that
holders of voting interests or securities of licensees found unsuitable by the
Colorado Commission may, within 60 days of such finding of unsuitability, be
required to sell their interests or securities back to the issuer at the lesser
of the cash equivalent of the holders’ investment or the market price as of the
date of the finding of unsuitability.  Alternatively, the holders may,
within 60 days after the finding of unsuitability, transfer the voting interests
or securities to a suitable person, as determined by the Colorado
Commission.  Until the voting interests or securities are held by
suitable persons, the issuer may not pay dividends or interest, the securities
may not be voted, they may not be included in the voting or securities of the
issuer, and the issuer may not pay any remuneration in any form to the holders
of the securities.




19




Pursuant
to Rule 4.5, persons who acquire direct or indirect beneficial ownership of
either (1) 5% or more of any class of voting securities of a publicly
traded corporation that is required to include in its articles of organization
the Rule 4.5 charter provisions, or (2) a 5% or greater beneficial interest in a
gaming licensee, directly or indirectly through any class of voting securities
of any holding company or intermediary company of a licensee (collectively such
persons are hereinafter referred to as the “qualifying persons”), must notify
the Division of Gaming within 10 days of such acquisition, must submit all
requested information, and are subject to a finding of suitability as required
by the Division of Gaming or the Colorado Commission.  Licensees also
must notify any qualifying persons of these requirements.  A
qualifying person other than an institutional investor whose interest equals 10%
or more must apply to the Colorado Commission for a finding of suitability
within 45 days after acquiring such securities.  Licensees must also
notify any qualifying persons of these requirements.  Whether or not
notified, qualifying persons are responsible for complying with these
requirements.




A
qualifying person who is an institutional investor under Rule 4.5 and who,
individually or in association with others, acquires, directly or indirectly,
the beneficial ownership of 15% or more of any class of voting securities must
apply to the Colorado Commission for a finding of suitability within
45 days after acquiring such interests.




The
Colorado Regulations also provide for exemption from the requirements for a
finding of suitability when the Colorado Commission finds such action to be
consistent with the purposes of the Colorado Act.




Pursuant
to Rule 4.5, persons found unsuitable by the Colorado Commission must be removed
from any position as an officer, director, or employee of a licensee, or from a
holding or intermediary company.  Such unsuitable persons also are
prohibited from any beneficial ownership of the voting securities of any such
entities.  Licensees, or affiliated entities of licensees, are subject
to sanctions for paying dividends or distributions to persons found unsuitable
by the Colorado Commission, or for recognizing voting rights of, or paying a
salary or any remuneration for services to, unsuitable persons. Licensees or
their affiliated entities also may be sanctioned for failing to pursue efforts
to require unsuitable persons to relinquish their interest.  The
Colorado Commission may determine that anyone with a material relationship to,
or material involvement with, a licensee or an affiliated company must apply for
a finding of suitability or must apply for a key employee license.




Alcoholic
Beverage Licenses




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




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




20




Trademarks,
Service Marks and Logos




Pursuant
to a license agreement, Riviera Las Vegas licenses the use at Riviera Black Hawk
of all of the trademarks, service marks and logos used by Riviera Las
Vegas.  The license agreement provides that additional trademarks,
service marks and logos acquired or developed by us and used at our other
facilities will be subject to the license agreement.




Federal
Registration




Riviera
Operating Corporation is required to annually file with the Attorney General of
the United States in connection with the sales, distribution, or operations of
slot machines.  All requisite filings for 2009 have been
made.




Item
      1A.
            Risk
      Factors




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




Risks Relating To Our
Business And Our Capital Structure




We
Are in Breach of Covenants Under Our Credit Facility Including Timely Payments
of Interest




During
2009, the Company did not comply with all covenants under the Credit Facility,
including its obligation to make payments under the Credit Facility (see
“Significant Events – 2009 Credit Defaults” within Item 1
above).   With the aid of our financial advisors and outside
counsel, we are continuing to negotiate with our various creditor constituencies
to refinance or restructure our debt.  We are not sure if we will be
successful in completing a refinancing or consensual out-of-court
restructuring.  If we are unable to do so, we will likely be compelled
to seek protection under Chapter 11 of the U. S. Bankruptcy Code.  As
a result of the 2009 Credit Defaults described in Item 1 and the potential risk
of Bankruptcy, there is substantial doubt about the Company’s ability to
continue as a going concern (see Note 2 to the consolidated financial statements
below).




21


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




Our
independent registered public accounting firm included an explanatory paragraph
that expresses substantial doubt as to our ability to continue as a going
concern in their audit reports contained in this Annual Report on Form 10-K for
the year ended December 31, 2009 and in our Annual Report on Form 10-K for the
year ended December 31, 2008.  We cannot provide any assurance that we
will in fact operate our business profitably, maintain existing financings, or
obtain sufficient financing in the future to sustain our business in the event
we are not successful in our efforts to generate sufficient revenue and
operating cash flow.




Our
ability to continue as a going concern will be determined by our ability to
obtain additional funding or restructure or negotiate waivers on our existing
indebtedness and to generate sufficient revenue to cover our operating
expenses.  The accompanying consolidated financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.




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




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




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




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




·
            cause
      an event of default if we fail to comply with the restrictive covenants in
      our Credit Facility, as is the case with the 2009 Credit Defaults, which
      could result in all of our indebtedness becoming immediately due and
      payable and would permit certain lenders to foreclose on our assets
      securing that indebtedness (We may not be able to restructure or refinance
      our indebtedness should this
occur);




·
            cause
      us to seek protection under Chapter 11 of the U. S. Bankruptcy Code if we
      are unsuccessful in completing a refinancing or consensual out-of-court
      restructuring;




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




22




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




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




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




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




The
fair market value of the collateral securing our Credit Facility may not be
sufficient to pay the amounts owed under our Credit Facility.  As a
result, holders of our Credit Facility may not receive full payment following an
event of default.




Our
Credit Facility and the guarantees thereof are secured by a security interest in
substantially all of our existing and future assets (other than certain excluded
assets), subject to certain limitations.




The
proceeds of any sale of collateral following an event of default with respect to
our Credit Facility may not be sufficient to satisfy, and may be substantially
less than, amounts due under the Credit Facility.  The total value of
the collateral may be less than the amount due under the Credit
Facility.




The
value of the collateral in the event of liquidation will depend upon market and
economic conditions, the availability of buyers and similar
factors.  The collateral does not include contracts, agreements,
licenses (including gaming, and liquor licenses) and other rights that by their
express terms prohibit the assignment thereof or the grant of a security
interest therein.  Some of these may be material to us and such
exclusion could have a material adverse effect on the value of the
collateral.  By its nature, some or all of the collateral may not have
a readily ascertainable market value or may not be saleable or, if saleable,
there may be substantial delays in its liquidation.  To the extent
that liens, security interests and other rights granted to other parties
(including the lenders under our senior secured credit facility) encumber assets
owned by us, those parties have or may exercise rights and remedies with respect
to the property subject to their liens that could adversely affect the value of
that collateral and the ability of the trustee under the indenture governing the
Credit Facility or the holders of the Credit Facility to realize or foreclose on
that collateral.  Consequently, we cannot assure the lenders that
liquidating the collateral securing the Credit Facility would produce proceeds
in an amount sufficient to pay any amounts due under the Credit Facility after
also satisfying the obligations to pay any creditors with prior claims on the
collateral.




The
gaming licensing process, along with bankruptcy laws and other laws relating to
foreclosure and sale, as discussed below, also could substantially delay or
prevent the ability of the trustee or any holder of the Credit Facility to
obtain the benefit of any collateral securing the Credit
Facility.  Such delays could have a material adverse effect on the
value of the collateral.




If the
proceeds of any sale of collateral are not sufficient to repay all amounts due
on the Credit Facility, the holders of the Credit Facility (to the extent not
repaid from the proceeds of the sale of the collateral), would have only an
unsecured claim against our remaining assets.


23




Gaming
laws, bankruptcy laws and other factors may delay or otherwise impede the
trustee’s ability to foreclose on the collateral securing the Credit
Facility.




The
gaming laws of the States of Nevada and Colorado and the licensing processes,
along with other laws relating to foreclosure and sale, could substantially
delay or prevent the ability of the trustee or any lender of the Credit Facility
to obtain the benefit of any collateral securing the Credit
Facility.  For example, if the trustee sought to operate, or retain an
operator for, any of our gaming properties, the trustee would be required to
obtain Nevada gaming licenses.  Potential purchasers of our gaming
properties or the gaming equipment would also be required to obtain a Nevada
gaming license.  This could limit the number of potential purchasers
in a sale of our gaming properties or gaming equipment, which may delay the sale
of and reduce the price paid for the collateral.




In
addition, the trustee’s ability to repossess and dispose of collateral is
subject to the procedural and other restrictions of state real estate,
commercial and gaming law, as well as the prior approval of the lenders under
our Credit Facility.  Among other things, if the trustee did conduct a
foreclosure sale, and if the proceeds of the sale were insufficient, after
expenses, to pay all amounts due under the Credit Facility, the trustee might,
under certain circumstances, be permitted to assert a deficiency claim against
us.  There can be no assurance that the trustee would be able to
obtain a judgment for the deficiency or that we would have sufficient other
assets to pay a deficiency judgment.




Federal
bankruptcy law also could impair the trustee’s ability to foreclose upon the
collateral.  If we or a guarantor become a debtor in a case under the
United States Bankruptcy Code, as amended, or the Bankruptcy Code, the automatic
stay, imposed by the Bankruptcy Code upon the commencement of a case, would
prevent the trustee from foreclosing upon the collateral or (if the trustee has
already taken control of the collateral) from disposing of it, without prior
bankruptcy court approval.




The
bankruptcy court might permit us to continue to use the collateral while the
bankruptcy case was pending, even with the Credit Facility being in
default.  Under the Bankruptcy Code, lenders of Credit Facility and
the trustee would be entitled to “adequate protection” of the interest of
lenders of Credit Facility in the collateral, if necessary to protect against
any diminution in value during the case.  Because the Bankruptcy Code
does not define “adequate protection,” and because the bankruptcy court has
broad discretion, however, there can be no assurance that the court would
require us to provide lenders of Credit Facility with any form of “adequate
protection,” or that any protection so ordered would, in fact, be
adequate.




In
a bankruptcy case, the court would allow a claim for all amounts due under the
Credit Facility, including all accrued and unpaid interest through the date of
bankruptcy.  Under the Bankruptcy Code, interest stops accruing on the
date of bankruptcy except under certain specified circumstances, and there can
be no assurance that the court would allow a claim for post-bankruptcy
interest.  If the court held that the value of the collateral securing
the Credit Facility was less than the amount due, the trustee would be permitted
to assert a secured claim in an amount equal to the collateral’s value and an
unsecured claim for the deficiency.




For these
and other reasons, if we or our subsidiaries become debtors in cases under the
Bankruptcy Code, there can be no assurance:




·
            whether
      any payments under the notes would be
made;




·
            whether
      or when the trustee could foreclose upon or sell the
      collateral;




24




·
            whether
      the term or other conditions or any rights of the lenders could be altered
      in a bankruptcy case without the trustee’s or the lenders’
      consent;




·
            whether
      the trustee or the lenders would be able to enforce the note holders’
      rights against the guarantors under their guarantees;
  or




·
            whether
      or to what extent holders of the Credit Facility would be compensated for
      any delay in payment or decline in the collateral’s
  value.




Finally,
the trustee’s ability to foreclose on the collateral on behalf of the lenders
may be subject to the consent of third parties and practical problems associated
with the realization of the trustee’s security interest in the
collateral.




We
Face Intense Competition In The Two Markets Where We Operate




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




In
Black Hawk/Central City, the primary competitive differentiators are location,
availability and convenience of parking, number of gaming devices, promotional
incentives, hotel rooms, types and pricing of non-gaming amenities, name
recognition and overall atmosphere.  Our main competitors are the
larger gaming facilities especially those with considerable on-site or nearby
parking facilities, hotel rooms and established reputations in the local
market.  Two of the most successful casinos in Colorado are
considerably larger than Riviera Black Hawk and are located across the street
from our casino.  Three other casinos in our market offer hotel
accommodations as well as gaming facilities and thereby have some competitive
advantages over us.  Also, a road, which opened in November 2004,
enables drivers to bypass Black Hawk on their way to Central
City.  This road has led to significant growth in the Central City
gaming market and may give our Central City competitors an advantage over
us.




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


25




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




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




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




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




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




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




·
            continued
      or worsening national recession;




·
            weak
      local economic conditions;




·
            increased
      competitive conditions;




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




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




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




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




26




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




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




·
            a
      decline in hotel room rates in Las Vegas due to increased hotel room
      supply without offsetting hotel room
demand;




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




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




We
Are Dependent On Key Personnel Whom We Might Have Difficulty Replacing Due
To  Market Perceptions About Our Prospects




Our
ability to operate successfully is dependent, in part, upon the continued
services of certain of our executive personnel.  Our loss of any of
them or our inability to attract or retain key employees in the future
could have a material adverse effect on us.




Market
perceptions about our future prospects due to the 2009 Credit Defaults described
in Item 1 above and the possibility that we may have to seek protection under
Chapter 11 of the U. S. Bankruptcy Code if we are unsuccessful in completing a
refinancing or consensual out-of-court restructuring may make it more difficult
for us to find suitable replacements if we lose the services of our executives
or other key personnel, which in turn might make it more difficult for us to
attract and retain qualified personnel at that high level.




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




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




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


27


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




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




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




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




We
Are Subject To Potential Exposure To Environmental Liabilities




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




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




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




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


28




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




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




·
            the
      ability to successfully complete a refinancing or out-of-court
      restructuring our Credit Facility;




·
            the
      ability of our secured lenders to commence foreclosure proceedings as a
      result of the 2009 Credit Defaults described in Item 1
    above;




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




·
            economic
      conditions specific to our primary
markets;




·
            general
      condition of the banking and credit
markets;




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




·
            decline
      in the Las Vegas convention
business;




·
            the
      ability to renegotiate union contracts in Las
  Vegas;




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




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




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




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




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




·
            increased
      transportation costs;




·
            levels
      of disposable income of casino
customers;




·
            continued
      increases in health care costs;




·
            increases
      in gaming taxes or fees;




29


·
            increases
      in Clark County facilities inspection fees and resulting remedial
      actions;




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




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




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




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




We
May Incur Losses That Are Not Adequately Covered By Insurance




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




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




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




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




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




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


30




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




State and
local authorities raise a significant amount of revenue through taxes and fees
on gaming activities. From time to time, legislators and officials have proposed
changes in tax laws, or in the administration of such laws, affecting the gaming
industry. In addition, worsening economic conditions could intensify the efforts
of state and local governments to raise revenues through increases in gaming
taxes.  If the State of Nevada or Clark County, Nevada were to
increase gaming taxes and fees, our results of operations could be adversely
affected.  There are several gaming tax increase proposals currently
circulating in Nevada. One such proposal, a 3% increase in the room tax, was
approved in March 2009 by the Nevada legislature. These proposals would take the
form of voter referendum.  If successfully implemented, such an
increase would have a material adverse affect on our financial condition,
results of operations or cash flows.




If
Clark County increases facilities inspection fees and such inspections result in
significant remedial actions, our results of operations could be adversely
affected.




During
the last several months, Clark County Authorities commenced a program to inspect
the facilities at Las Vegas hotels and casinos primarily for building code
compliance and life and safety issues.  Inspections of Riviera Las
Vegas are scheduled for 2010 and we are responsible for the inspection costs as
well as the cost to correct any significant issues outlined in the inspector’s
report.  If the costs of these inspections and related corrective
actions are significant, it could have a material adverse affect on our
financial condition, results of operations or cash flows.




Risks Relating To Our Common
Stock




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




As
described “Significant Events -Voluntary Delisting
from NYSE AMEX LLC” within Item 1 above, we voluntarily delisted our stock from
the NYSE AMEX exchange.  As a result, trading of the Company’s common
stock on the NYSE AMEX exchange was suspended as of the close of trading on June
25, 2009.  Effective June 26, 2009, the Company’s common stock was
available for quotation on the Pink OTC Markets, Inc. (the “Pink Sheets”) under
the symbol “RVHL”.




During
the 52 weeks ended January 6, 2010, our stock’s average closing sale price as
reported on either the NYSE AMEX exchange or the Pink OTC Markets quotation
system fluctuated from a high of $4.79 per share to a low of $0.30 per
share.  On average, 26,155 shares traded per day for the three months
ended January 6, 2010.  The volatility of the trading price of our
stock could be due to many factors including, but not limited to:




·
            the
      effect of the 2009 Credit Defaults, as described in Item 1
      above;




·
            the
      possibility that the Company may have to seek protection under Chapter 11
      of the U. S. Bankruptcy Code;




·
            the
      effect of our independent auditors expressing doubt about our ability to
      continue as a going concern;




31




·
            the
      effect of the voluntary delisting from the NYSE AMEX as described in Item
      1 above;




·
            the
      relatively low liquidity and marketability associated with trading in the
      over-the-counter market;




·
            the
      relatively low trading price of and trading volume for our
      stock;




·
            current
      economic conditions and expectation regarding future economic
      conditions;




·
            quarterly
      fluctuations in our financial
results;




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




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




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




·
            the
      current credit market and banking
environment;




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




·
            announcements
      of new services or programs;




·
            additions
      or departures of key personnel;




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




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




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




Our
Credit Facility consists of a seven year $225 million term loan which matures on
June 8, 2014 and a $3 million five year revolving credit
facility.  The terms of the Credit Facility restrict the ability of
anyone to effect a change in control of our company.  If anyone
acquires 35% or more of our outstanding stock or if other events occur that
constitute a change in control according to our Credit Facility, we have to make
a prompt offer to repay the Credit Facility.  It is unlikely that we
would have the funds to repay the Credit Facility within the required time frame
unless we obtained the necessary funding as part of the change in control
transaction which adds significantly to the funding that a buyer would need to
acquire our company.  Our Credit Facility also would require us to
obtain the consent of holders of a majority of the outstanding principal amount
of the Credit Facility in order for us to be a party to a merger or to sell all
or substantially all of our assets unless, after giving effect to the
transaction, we meet certain net worth or financial ratio tests, which might be
difficult or impossible for us to meet.


32




In
addition to the above, a buyer would be required to pay our Swap balance of
$22.1 million.  Moreover, a buyer would be required to pay accrued
interest on the Credit Facility and Swap which was $17.2 million as of December
31, 2009.




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




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




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




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




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




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




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




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




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


33




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




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




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




As
defined in Nevada gaming regulations, any person who acquires more than 5% of a
Registered Corporation's voting securities must report the acquisition to the
Nevada Commission.  Nevada gaming regulations also require that
beneficial owners of more than 10% of our voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman of
the Nevada Board mails the written notice requiring such
filing.  However, an "institutional investor," as defined in the
Nevada gaming regulations, which acquires more than 10%, but not more than 11%
of our voting securities as a result of a stock repurchase by us may not be
required to file such an application.  Further, an institutional
investor that acquires more than 10% but not more than 25% of our voting
securities may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds our voting securities for
investment purposes only.  An institutional investor that has obtained
a waiver may hold more than 25% but not more than 29% of our voting securities
and maintain its waiver where the additional ownership results from a stock
repurchase by us.  However, any beneficial owner of our voting
securities, regardless of the number of shares owned, may be required, at
the discretion of the Nevada Commission, to apply for a finding of
suitability.  A finding of suitability is comparable to licensing, and
the applicant must pay all costs of investigation incurred by the Nevada gaming
authorities in conducting the investigation.




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




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




34




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




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




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




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




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




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




Item
      1B.
            Unresolved
      Staff Comments




None.




Item
      2.
            Properties




Riviera
Las Vegas




Riviera
Las Vegas is located on the Las Vegas Strip, at 2901 Las Vegas Boulevard South,
Las Vegas, Nevada and occupies approximately 26 acres.  The
building comprises approximately 1.8 million square feet. The building
includes approximately 100,000 square feet of casino space, approximately
160,000 square feet of convention, meeting and banquet facility space, 2,075
hotel rooms, three restaurants, a buffet, three snack bars, four showrooms, a
lounge and approximately 2,300 parking spaces.  In addition, the
building houses Riviera Las Vegas executive and administrative
offices.




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




Riviera
Black Hawk




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




35




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




Item
      3.
            Legal
      Proceedings




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




Item
      4.
            Reserved




PART
II




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




Effective
June 26, 2009, our common stock was available for quotation on the Pink Sheets
under the symbol “RVHL”.  Prior to that, our common stock had been
traded on the NYSE AMEX under the symbol “RIV”.  The “pink sheets” is
an over-the-counter market which generally provides significantly less liquidity
than established stock exchanges such as the NYSE AMEX, and quotes for stocks
included in the “pink sheets” are not listed in the financial sections of
newspapers. Therefore, prices for securities traded solely in the “pink sheets”
may be difficult to obtain, and shareholders may find it difficult to resell
their shares. As of March 11, 2009, we had approximately 492 stockholders of
record and individual participants in security position
listings.  There are a significantly greater number of stockholders
whose shares are held in street name. Based on information we collected as of
March 11, 2009, we estimate that we have at least 2,141 beneficial holders in
total.




As
described in “Significant Events -Voluntary Delisting
from NYSE AMEX” in Item 1 above, we voluntarily delisted our common stock from
the NYSE AMEX due to our belief that we could not take the steps necessary to
satisfy the continued listing criteria of the NYSE AMEX within the prescribed
time frame that the NYSE AMEX gave the Company to cure certain listing
deficiencies.  In order to be re-listed, we will need to meet certain
listing requirements. There can be no assurance that we will be able to meet
such listing requirements.


36




The table
below sets forth (a) the high and low sale prices of the Common Stock by quarter
for the year ended December 31, 2008 and the first  two
fiscal quarters of 2009, based on closing prices of Common Stock reported on the
NYSE AMEX exchange and (b) the high and low bid prices of the Common Stock by
quarter for the last two fiscal quarters of 2009, based on closing prices of
Common Stock reported on the Pink Sheets, which quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions:




First
                        
                        
                        Second
                        
                        
                        Third
                        
                        
                        FourthQuarter
                        
                        
                        Quarter
                        
                        
                        Quarter
                        
                        
                        Quarter2009HIGH
                        
                        $
                        4.79
                        
                        
                        $
                        2.42
                        
                        
                        $
                        0.79
                        
                        
                        $
                        0.74LOW
                        
                        
                        1.05
                        
                        
                        
                        0.34
                        
                        
                        
                        0.40
                        
                        
                        
                        0.302008HIGH
                        
                        $
                        29.73
                        
                        
                        $
                        21.72
                        
                        
                        $
                        12.31
                        
                        
                        $
                        6.87LOW
                        
                        
                        18.62
                        
                        
                        
                        10.00
                        
                        
                        
                        7.35
                        
                        
                        
                        2.50


Equity Compensation Plan
Information (as of December 31, 2009)




A
                
                
                B
                
                
                CPlan category
                
                Number of securities to
                    be issued upon exercise
                    of outstanding options,
                    warrants and rights
                
                
                Weighted-average
                    exercise price of
                    outstanding options,
                    warrants and rights
                
                
                Number of securities
                    remaining available for
                    future issuance under
                    equity compensation plans
                    (excluding securities
                    reflected in column A)Equity
      compensation plans approved by security holders
                
                
                220,800
                
                
                $
                7.82
                
                
                
                1,078,000Equity
      compensation plans not approved by security holders (2)
                
                
                35,100
                
                
                
                N/A
                
                
                
                188,172
                (1)Total
                
                
                255,900
                
                
                $
                7.82
                
                
                
                1,266,172





(1)
            Of
      the 188,172 shares referenced in column C of the above table, 142,152 are
      from our Restricted Stock Plan and 46,020 are from our Stock Compensation
      Plan for Directors Serving on the Compensation Committee, which are
      described in Notes 14 and 15 of our consolidated financial statements
      included in this report.  We have a Stock Compensation Plan,
      under which directors who are members of the Compensation Committee have
      the right to receive all or part of their annual fees in the form of
      Common Stock having a fair market value equal to the amount of their
      fees.  Of the 50,000 shares that are allocated to this plan,
      46,020 remain available for
issuance.




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




Item
      6.
            Selected
      Financial Data




Not
Applicable


37




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




2009
Credit Defaults




Our
Credit Facility consists of a $225 million term loan that matures on June 8,
2014 and a $20 million five-year revolving credit facility that was reduced to
$3 million.  Wachovia Bank, National Association, is the
administrative agent in connection with the Credit Facility.  On June
29, 2007, in conjunction with the Credit Facility, the Company entered into an
interest rate swap agreement with Wachovia as the counterparty that became
effective June 29, 2007.  On February 22, 2010, the Company received a
notice from Wachovia informing the Company that Wachovia was resigning as
administrative agent, subject to the appointment of a successor administrative
agent by the Required Lenders under the Credit Agreement within 30 days of the
notice or by Wachovia, and that Wachovia was resigning as the Issuing Lender
under the Credit Agreement effective as of the date of the notice.




As
previously disclosed on a Form 8-K filed with the SEC on March 4, 2009, the
Company received a notice of default on February 26, 2009 from Wachovia with
respect to the Credit Facility in connection with the Company’s failure to
provide a Deposit Account Control Agreement, or DACA, from each of the Company’s
depository banks per a request made by Wachovia to the Company on October 14,
2008.  The DACA that Wachovia requested the Company to execute was in
a form that the Company ultimately determined to contain unreasonable terms and
conditions as it would enable Wachovia to access all of the Company’s operating
cash and order it to be transferred to a bank account specified by
Wachovia.  The Notice further provided that as a result of the
default, the Company would no longer have the option to request LIBOR Rate Loans
as defined in the Credit Agreement.  Consequently, the Term Loan was
converted to an Alternative Base Rate Loan, as defined in the Credit Agreement,
effective March 31, 2009.




On March
25, 2009, the Company engaged XRoads Solution Group LLC as our financial
advisor.  Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the Credit Facility and Swap Agreement
accrued interest including default interest as described below of $17.8 million
for the twelve months ended December 31, 2009.  Consequently, we
elected not to make these payments.  The Company’s failure to pay
interest due on any loan within our Credit Facility within a three-day grace
period from the due date was an event of default under our Credit
Facility.  As a result of these events of default, the Company’s
lenders have the right to seek to charge additional default interest on the
Company’s outstanding principal and interest under the Credit Agreement, and
automatically charge additional default interest on any overdue amounts under
the Swap Agreement.  These default rates are in addition to the
interest rates that would otherwise be applicable under the Credit Agreement and
Swap Agreement.




As
previously disclosed on a Form 8-K filed with the SEC on April 6, 2009, the
Company received an additional notice of default on April 1, 2009 from
Wachovia.  The April Default Notice alleges that subsequent to the
Company’s receipt of the  February Notice, additional defaults and
events of default had occurred and were continuing under the terms of the Credit
Agreement including, but not limited to: (i) the Company’s failure to deliver to
Wachovia audited financial statements without a “going concern” modification;
(ii) the Company’s failure to deliver Wachovia a certificate of an independent
certified public accountant in conjunction with the Company’s financial
statement; and (iii) the occurrence of a default or breach under a secured
hedging agreement.  The April Default Notice also states that in
addition to the foregoing events of default that there were additional potential
events of default as a result of, among other things, the Company’s failure to
pay: (i) accrued interest on the Company’s LIBOR rate loan on March 30, 2009,
(ii) the commitment fee on March 31, 2009, and (iii) accrued interest on the
Company’s ABR Loans on March 31, 2009 (the ABR Payment and together with the
LIBOR Payment and Commitment Fee Payment, the are referred to as the March 31st
Payments).  The Company has not paid the March 31st Payments and the
applicable grace period to make these payments has expired.  The April
Default Notice states that as a result of these events of defaults, (a) all
amounts owing under the Credit Agreement thereafter would bear interest, payable
on demand, at a rate equal to: (i) in the case of principal, 2% above the
otherwise applicable rate; and (ii) in the case of interest, fees and other
amounts, the ABR Default Rate (as defined in the Credit Agreement), which as of
April 1, 2009 was 6.25%; and (b) neither Swingline Loans nor additional
Revolving Loans are available to the Company at this time.


38




As a
result of the February Notice and the April Default Notice, effective March 31,
2009, the Term Loan interest rate increased to approximately 10.5% per annum and
effective April 1, 2009, the Revolver interest rate is approximately 6.25% per
annum.  The Company has incurred approximately $5 million in default
interest related to the Credit Facility and Swap Agreement for the twelve months
ended December 31, 2009.




On April
1, 2009, the Company also received Notice of Event of Default and Reservation of
Rights in connection with an alleged event of default under our Swap
Agreement.  Receipt of the Swap Default Notice was previously
disclosed on a Form 8-K filed with the SEC on April 6, 2009.  The Swap
Default Notice alleges that (a) an event of default exists due to the occurrence
of an event of default(s) under the Credit Agreement and (b) that the Company
failed to make payments to Wachovia with respect to one or more transactions
under the Swap Agreement.  The Company has not paid the overdue amount
and the applicable grace period to make this payment has expired.  Any
default under the Swap Agreement automatically results in an additional default
interest of 1% on any overdue amounts under the Swap Agreement.  This
default rate was in addition to the interest rate that would otherwise be
applicable under the Swap Agreement.




On July
23, 2009, the Company received a Notice of Early Termination for Event of
Default from Wachovia in connection with an alleged event of default that
occurred under the Swap Agreement.  Receipt of the Early Termination
Notice was previously disclosed on a Form 8-K filed with the SEC on July 29,
2009. The Early Termination Notice alleges that an event of default has occurred
and is continuing pursuant to Sections 5(a)(i) and 5(a)(vi)(1) of the Swap
Agreement.  Section 5(a)(i) of the Swap Agreement addresses payments
and deliveries specified under the Swap Agreement and Section 5(a)(vi)(1) of the
Swap Agreement addresses cross defaults. The Early Termination Notice provides
that Wachovia designated an early termination date of July 27, 2009 in respect
of all remaining transactions governed by the Swap Agreement, including an
interest rate swap transaction with a trade date of May 31,
2007.




On July
28, 2009, in connection with the Early Termination Notice, the Company received
a Notice of Amount Due Following Early Termination from Wachovia that claimed
the amount due and payable to Wachovia under the Swap Agreement is $26.6
million, which includes $4.4 million in accrued interest.  As of
December 31, 2009, the interest rate swap liability was $22.1 million which
equals the mark to market amount reflected in the Notice of Amount Due Following
Early Termination.  Additionally, accrued interest as of December 31,
2009 includes $5.0 million in accrued interest related to the interest rate swap
comprised of $4.4 million in accrued interest as reflected on the Notice of
Amount Due Following Early Termination and $0.6 million in default interest
pursuant to the Swap Agreement termination.




As a
result of the Early Termination Notice, the interest rates for the Term Loan and
Revolver balances are no longer locked and are now subject to changes in
underlying LIBOR rates and vary based on fluctuations in the Alternative Base
Rate and Applicable Margins.  As of December 31, 2009, our Term Loan
and Revolver bear interest at approximately 6.25%.


39




With the
aid of our financial advisors and outside counsel, we are continuing to
negotiate with our various creditor constituencies to refinance or restructure
our debt.  We cannot assure you that we will be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary.  If we were unable to do so, we would likely be compelled
to seek protection under Chapter 11 of the U. S. Bankruptcy Code.




Due to
the defaults discussed above and the potential risk of Bankruptcy, there is
substantial doubt about the Company’s ability to continue as a going
concern.  As a result, our independent registered public accounting
firm has included an explanatory paragraph that expresses substantial doubt as
to our ability to continue as a going concern in their audit reports contained
in this Annual Report on Form 10-K for the year ended December 31, 2009 and in
our Annual Report on Form 10-K for the year ended December 31,
2008.




Overview




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




Our
capital expenditures for Riviera Las Vegas are geared primarily toward
maintaining and upgrading our hotel rooms, gaming products, convention space,
restaurants, bars and entertainment venues.  In November 2007, we
began a comprehensive hotel room remodeling project in Las Vegas.  The
hotel room remodel project was suspended during 2008 after spending $18.7
million on the project and completed four of our five hotel
towers.  Remodeled hotel rooms feature new Euro beds, flat screen
televisions, furniture, carpeting, marble floors and granite
countertops.




Our
capital expenditures for Riviera Black Hawk are geared primarily toward
maintaining and upgrading our gaming products, food and beverage venues and
overall facility.  During 2009, in addition to several slot machine
purchases, we remodeled our cashiers’ cage and relocated our player’s club
function to the new cage.




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




In
addition to the above, we continuously strive to maximize the number of people
who patronize Las Vegas but who are not guests in our hotel.  We
achieve this by capitalizing on our Las Vegas Strip location, convention center
proximity and availability of our entertainment productions and other
amenities.  We are well situated for walk-in traffic on the Las Vegas
Strip near several major properties including Circus Circus, Las Vegas Hilton,
Las Vegas Convention Center, Wynn Las Vegas, Wynn Encore and several timeshare
and condominium projects.  While we benefit from our proximity to
several major properties, the dormant Echelon and Fontainebleau construction
projects have caused a major reduction in walk-in traffic.  We
anticipate that our walk-in traffic will be adversely impacted for the
foreseeable future.


40




The Black
Hawk market caters primarily to slot machine players from the Denver
area.  Therefore, our primary marketing focus in Black Hawk is to grow
and maintain the number of quality players in our players club and utilize
effective direct marketing techniques, including direct mail offers and special
promotions, to entice customers to visit and game at our
property.  Our location is conducive to walk-in customers as the Isle
of Capri, which is one of the largest casinos in Black Hawk, is located directly
across the street from our casino.  Also, Riviera Black Hawk is the
first property off of Main Street as you drive into Black Hawk from the Denver
Metro area and our parking garage is the first and most easily accessible in the
area.




Until
recently, only limited stakes gaming, which is defined as a maximum single bet
of $5.00, was legal in the Black Hawk/Central City market.  However,
Colorado Amendment 50, which was approved by voters on November 4, 2008, allowed
residents of Black Hawk and Central City to vote to extend casino hours, approve
additional games, and increase the maximum bet limit.  On January 13,
2009, residents of Black Hawk voted to enable Black Hawk casino operators to
extend casino hours, add craps and roulette gaming and increase the maximum
betting limit to $100 per bet.  On July 2, 2009, the first day
permissible to implement the changes associated with the passage of Colorado
Amendment 50, we increased betting limits, extended hours and commenced roulette
gaming.  We are continuing to evaluate our strategy pertaining to the
passage of Colorado Amendment 50.




While the
passage of Colorado Amendment 50 benefited the Black Hawk/Central City gaming
market, the Colorado smoking ban, which became effective for Black Hawk/Central
City casinos on January 1, 2008, has had an adverse effect on our results of
operations.  We have installed outdoor smoking decks to accommodate
our guests who smoke, however, we believe that that the smoking ban in Colorado
has had and will continue to have an adverse affect.


41




Results
of Operations




2009
Compared to 2008




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




(Dollars
      in thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    Variance
      $
                    
                    
                    Variance %Net
      Revenues:Riviera
      Las Vegas
                    
                    $
                    91,880
                    
                    
                    $
                    128,031
                    
                    
                    $
                    (36,151
                    )
                    
                    
                    -28.2
                    %Riviera
      Black Hawk
                    
                    
                    42,169
                    
                    
                    
                    41,729
                    
                    
                    
                    440
                    
                    
                    
                    1.1
                    %Total
      Net Revenues
                    
                    $
                    134,049
                    
                    
                    $
                    169,760
                    
                    
                    $
                    (35,711
                    )
                    
                    
                    -21.0
                    %Property
      EBITDARiviera
      Las Vegas
                    
                    $
                    9,635
                    
                    
                    $
                    18,748
                    
                    
                    $
                    (9,113
                    )
                    
                    
                    -48.6
                    %Riviera
      Black Hawk
                    
                    
                    9,892
                    
                    
                    
                    12,209
                    
                    
                    
                    (2,317
                    )
                    
                    
                    -19.0
                    %Property
      EBITDA (1)
                    
                    $
                    19,527
                    
                    
                    $
                    30,957
                    
                    
                    $
                    (11,430
                    )
                    
                    
                    -36.9
                    %Other
      costs and expenses:Corporate
      expensesShare-based
      compensation
                    
                    
                    579
                    
                    
                    
                    795
                    
                    
                    
                    (216
                    )
                    
                    
                    -27.2
                    %Other
      corporate expense
                    
                    
                    3,496
                    
                    
                    
                    3,857
                    
                    
                    
                    (361
                    )
                    
                    
                    -9.4
                    %Depreciation
      and amortization
                    
                    
                    14,870
                    
                    
                    
                    14,883
                    
                    
                    
                    (13
                    )
                    
                    
                    -0.0
                    %Mergers,
      acquisitions and development costs, net
                    
                    
                    -
                    
                    
                    
                    191
                    
                    
                    
                    (191
                    )
                    
                    NMRestructuring
      fees
                    
                    
                    2,233
                    
                    
                    
                    -
                    
                    
                    
                    2,233
                    
                    
                    NMGain
      on retirement of bonds
                    
                    
                    (161
                    )
                    
                    
                    -
                    
                    
                    
                    (161
                    )
                    
                    NMChange
      in fair value of derivative instruments
                    
                    
                    5,320
                    
                    
                    
                    3,556
                    
                    
                    
                    1,764
                    
                    
                    
                    49.6
                    %Interest
      expense, net
                    
                    
                    18,049
                    
                    
                    
                    17,091
                    
                    
                    
                    958
                    
                    
                    
                    5.6
                    %44,386
                    
                    
                    
                    40,373
                    
                    
                    
                    4,013
                    
                    
                    
                    9.9
                    %Net
      loss before income tax provision
                    
                    
                    (24,859
                    )
                    
                    
                    (9,416
                    )
                    
                    
                    (15,443
                    )
                    
                    
                    -164.0
                    %Income
      tax provision
                    
                    
                    -
                    
                    
                    
                    (2,446
                    )
                    
                    
                    2,446
                    
                    
                    NMNet
      loss
                    
                    $
                    (24,859
                    )
                    
                    $
                    (11,862
                    )
                    
                    $
                    (12,997
                    )
                    
                    
                    -109.6
                    %Property
      EBITDA Margins (2)Riviera
      Las Vegas
                    
                    
                    10.5
                    %
                    
                    
                    14.6
                    %
                    
                    
                    -4.1
                    %Riviera
      Black Hawk
                    
                    
                    23.5
                    %
                    
                    
                    29.3
                    %
                    
                    
                    -5.8
                    %


42


(1)
            Property
      EBITDA consists of earnings before interest, income taxes, depreciation
      and amortization. EBITDA is presented solely as a supplemental disclosure
      because we believe that it is a widely used measure of operating
      performance in the gaming industry and a principal basis for valuation of
      gaming companies by certain investors.  We use property-level
      EBITDA (EBITDA before corporate expenses) as the primary measure of
      operating performance of our properties, including the evaluation of
      operating personnel.  EBITDA should not be construed as an
      alternative to operating income, as an indicator of operating performance,
      as an alternative to cash flow from operating activities, as a measure of
      liquidity, or as any other measure determined in accordance with
      accounting principles generally accepted in the United States
      of America.  We have significant uses of cash flows,
      including capital expenditures, interest payments and debt principal
      repayments that are not reflected in EBITDA.  Also, other gaming
      companies that report EBITDA information may calculate EBITDA in a
      different manner than we do (see footnote 19 for reconciliation to net
      loss).




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




Riviera
Las Vegas




Revenues




Net
revenues for the twelve months ended December 31, 2009 were $91.9 million, a
decrease of $36.1 million, or 28.2%, from $128.0 million for the comparable
period in the prior year.




Casino
revenues for the twelve months ended December 31, 2009 were $41.2 million, a
decrease of $9.4 million, or 18.6%, from $50.6 million for the comparable period
in the prior year.  Casino revenues are comprised primarily of slot
machine and table game revenues.  In comparison to the same period in
the prior year, slot machine revenue was $32.9 million, a decrease of $6.1
million, or 15.6%, from $39.0 million and table game revenue was $7.3 million, a
decrease of $3.1 million, or 30.0%, from $10.4 million.  Slot machine
and table game revenues decreased primarily due to less wagering as a result of
the slower economy, reduced hotel occupancy and less walk-in
business.  Slot machine win per unit per day for the twelve months
ended December 31, 2009 was $94.84, a decrease of $20.16, or 17.5%, from $115.00
for the comparable period in the prior year.




Room
revenues for the twelve months ended December 31, 2009 were $35.5 million, a
decrease of $16.9 million, or 32.4%, from $52.4 million for the comparable
period in the prior year.  The decrease in room rental revenues was
primarily due to a decrease in average daily room rates. The average daily room
rate, or ADR, was $60.60, a decrease of $22.21, or 26.8%, from $82.81 for the
comparable period in the prior year.  The $22.21 ADR decrease resulted
in a $13.2 million decrease in room revenues.  The decrease in ADR was
due mostly to lower leisure segment rates in 2009 and a shift in the occupied
room mix from higher rated convention segment occupancy to lower rated leisure
segment occupancy.  Leisure segment average daily room rates were
$41.42 for the twelve months ended December 31, 2009, a decrease of $21.53, or
34.2%, from $62.95 for the same period in the prior year.  Convention
segment average daily room rates were $96.41 for the twelve months ended
December 31, 2009, a decrease of $11.77, or 10.9%, from $108.18 for the same
period in the prior year.  Leisure segment and convention segment
occupied rooms comprised 62.6% and 20.8% of total occupied rooms, respectively,
for the twelve months ended December 31, 2009 in comparison to 46.9% and 34.2%,
respectively, for the same period in the prior year.  Convention
segment demand decreased substantially due to the effects of the ongoing
recession and increased competition.




Hotel
room occupancy per available room for the twelve months ended December 31, 2009
was 77.4% compared to 83.8% for the same period in the prior
year.  The 6.4% decrease in hotel room occupancy resulted in a $3.7
million decrease in room revenues.  Revenue per available room, or
RevPar, was $46.93 a decrease of $22.47, or 32.4%, from $69.40 for the
comparable period in the prior year.  RevPar is total revenue from
hotel room rentals divided by total hotel rooms available for
sale.  The decrease in RevPar was the result of a 6% decrease in total
occupied rooms and a decrease in average daily room rates as described
above.  Room revenues include $6.8 million in revenues related to
hotel room nights offered to high-value guests on a complimentary
basis.


43


Food and
beverage revenues for the twelve months ended December 31, 2009 was $17.2
million, a decrease of $6.2 million, or 26.5%, from $23.4 million for the
comparable period in the prior year.  The decrease was due to a $4.4
million decrease in food revenues and a $1.8 million decrease in beverage
revenues.  Food covers decreased 19.7% and the average check decreased
8.4% from the comparable period in the prior year as a result of the weak
economy, reduced hotel occupancy and the strategic closure of select food and
beverage outlets during low hotel occupancy periods.  Beverage
revenues decreased primarily as a result of less complimentary drinks served
from our casino bars due to reduced casino patronage.   Food and
beverage revenues include $4.1 million in revenues related to food and beverages
offered to high-value guests on a complimentary basis.




Entertainment
revenues for the twelve months ended December 31, 2009 were $8.0 million, a
decrease of $5.4 million, or 40.5%, from $13.4 million for the comparable period
in the prior year.  The decrease in entertainment revenues is
primarily due to weak economic conditions resulting in closure of select
entertainment acts and an overall reduction in ticket sales at all entertainment
venues.  Entertainment revenues include $3.4 million in revenues
related to show tickets offered to high-value guests on a complimentary
basis.




Other
revenues for the twelve months ended December 31, 2009 were $5.0 million, a
decrease of $1.4 million, or 21.4%, from $6.4 million for the same period in the
prior year.  The decrease in other revenues was due primarily to a
$0.8 million reduction in tenant rental income as a result of vacancies and rent
concessions and a $0.2 million reduction in telephone revenues as a result of
less occupancy and call volume.  Additionally, the twelve months ended
December 31, 2008 included $0.4 milllion in miscellaneous income primarily from
the reclassification of unclaimed slot token liabilities and the sale of fully
depreciated equipment.




Promotional
allowances were $14.9 million and $18.1 million for the twelve months ended
December 31, 2009 and 2008, respectively.  Promotional allowances are
comprised of food, beverage, hotel room nights and other items provided on a
complimentary basis primarily to our high-value casino players and convention
guests.  Promotional allowances decreased due to a concerted effort to
reduce promotional costs and as a result of less complimentary offering
redemptions.




Costs
and Expenses




Casino
costs and expenses for the twelve months ended December 31, 2009 were $22.2
million, a decrease of $6.4 million, or 22.1%, from $28.6 million for the
comparable period in the prior year.  The decrease in casino expenses
was due primarily to a $3.1 million reduction in slot and table game payroll and
related costs, a $2.7 million decrease in marketing and promotional costs and a
$0.6 million reduction in gaming related taxes.  Payroll and related
costs decreased in conjunction with lower casino revenues and effective cost
savings initiatives and marketing and promotional costs decreased due to a
concerted effort to reduce these costs and due to less complimentary offering
redemptions and related costs..




Room
rental costs and expenses for the twelve months ended December 31, 2009 were
$18.8 million, a decrease of $6.6 million, or 25.9%, from $25.4 million for the
comparable period in the prior year.  The decrease in room rental
costs and expenses is primarily due to a decrease of $4.6 million in room
division payroll and related costs, a reduction of $1.0 million in convention
commissions and rebates, a decrease of $0.3 million in the provision for
doubtful accounts, a decline of $0.3 million in credit card processing fees and
a reduction of $0.4 million in outside laundry, pest control, and department
supplies expenses.


44




Food and
beverage costs and expenses for the twelve months ended December 31, 2009 were
$14.2 million, a decrease of $5.0 million, or 25.9%, from $19.2 million for the
comparable period in the prior year.  The decrease was due primarily
to a $4.1 million decrease in payroll and related costs and a $2.2 million
reduction in cost of sales partially offset by a $1.3 million reduction in the
amount credited for complimentary food and beverage sales.  The cost
of food and beverage complimentary sales is reclassified to casino costs and
expenses.  Food and beverage costs and expenses decreased in
conjunction with the decrease in food and beverage revenues as described
above.




Entertainment
costs and expenses for the twelve months ended December 31, 2009 were $3.3
million, a decrease of $4.7 million, or 58.8%, from $8.0 million for the
comparable period in the prior year.  The decrease in entertainment
department costs and expenses is primarily due to a $3.8 million reduction in
contractual payments to the entertainment producers and reductions in payroll
and related costs as a result of less ticket sales due to the weak economy and
the closure of select entertainment acts.




General
and administrative expenses for the twelve months ended December 31, 2009 were
$22.5 million, a decrease of $4.3 million, or 16.2%, from $26.8 million for the
comparable period in the prior year.  The decrease in other general
and administrative expenses was due primarily to a $2.7 million reduction in
general and administrative and property maintenance payroll and related costs
primarily due to workforce reductions and the elimination of the 401k matching
contribution, a $0.5 million reduction in utilities expenses primarily due to
lower natural gas costs and a $1.0 million reduction in various general and
administrative and property maintenance operating expenses.




Depreciation
and amortization expenses for the twelve months ended December 31, 2009 were
$10.8 million, an increase of $0.2 million, or 1.5%, from $10.6 million for the
comparable period in the prior year.  The increase in depreciation and
amortization expenses was due primarily to asset additions during 2008 related
to our hotel room renovation.




(Loss)
Income from Operations




Loss from
operations for the twelve months ended December 31, 2009 was $0.3 million, a
decline of $9.6 million, or 102.8%, from income from operations of $9.3 million
for the comparable period in the prior year.  The decrease is
principally due to the $36.1 million decrease in net revenues with insufficient
offsetting reductions in costs and expenses.




EBITDA
margins were 10.5% for the twelve months ended December 31, 2009 in comparison
to 14.6% for the comparable period in the prior year.  Operating
margins decreased primarily due to the $22.21 decrease in ADR and the $6.1
million decrease in revenue in the high margin slot machine profit
center.  EBITDA was $9.6 million for the twelve months ended December
31, 2009 less depreciation and amortization expense of $10.8 million plus
management fees of $0.9 million from Riviera Black Hawk equals loss from
operations of $0.3 million.




Riviera
Black Hawk




Revenues




Net
revenues for the twelve months ended December 31, 2009 were $42.2 million, an
increase of $0.5 million, or 1.1%, from $41.7 million for the comparable period
in the prior year.  The increase was primarily due to stronger casino
revenues in the second half of 2009 as a result of the implementation of changes
permitted with the passage of Colorado Amendment 50 as described
above.  In comparison to the prior year, casino revenues were $2.8
million higher during the second six months of 2009 but $2.5 million lower
during the first six months of 2009.  For the twelve months ending
December 31, 2009, casino revenues were $41.0, an increase of $0.3 million, or
0.8%, from $40.7 million for the comparable period in the prior
year.  Casino revenues are comprised of revenues from slot machines
and revenues from table games.


45




Slot
machine revenues for the twelve months ended December 31, 2009 were $39.4
million, a decrease of $0.2 million, or 0.6%, from $39.6 million for the
comparable period in the prior year.  Slot machine revenues decreased
primarily as a result of higher deductions for cash incentives to our high-value
slot machine players and higher deductions for slot machine participation
distributions.  Slot machine revenues before the aforementioned
deductions were $51.3 million, an increase of $1.6 million, or 3.2%, from $49.7
million for the same period in the prior year.  Cash incentives given
to slot machine players increased $1.7 million, or 19.3%, to $10.5 million for
the twelve months ended December 31, 2009.  Cash incentives increased
as a result of a concerted effort to retain and build slot machine revenue
market share.  Consequently, our market share of total Black Hawk slot
machine revenues, as reported by the Colorado Department of Gaming, grew to
10.55% from 10.28% for the prior year.  Deductions for slot machine
participation distributions increased $0.3 million, or 24.9%, to $1.3 million
from $1.0 million for the prior year.  We increased the number of slot
machines with participation agreements in order to offer new, popular game
themes to our players and increase slot machine win per unit per
day.  The participation agreements require us to distribute a
predetermined percentage of the slot machine winnings to the slot machine
manufacturer in return for allowing us to use the slot machine.  There
were a total of 75 slot machines with participation agreements on the casino
floor as of December 31, 2009.  This represents a 25% increase in
total slot machines with participation agreements from the prior
year.




Amounts
wagered on slot machines during the twelve months ended December 31, 2009 were
$757.0 million, an increase of $9.5 million, or 1.3%, from $747.5 million for
the comparable period in the prior year.  The increase was primarily
due to additional slot machine play as a result of extended casino hours
permitted with the passage of Colorado Amendment 50 as described
above.  Additionally, slot machine win per unit per day increased
$14.56, or 11.4%, to $142.29 from $127.73 for the same period in the prior
year.  The increase in slot machine win per unit per day was the
result of approximately 100 fewer slot machines on the casino floor during the
twelve months ended December 31, 2009 in comparison to the same period in the
prior year. There were 759 slot machines on the casino floor as of December 31,
2009.




Table
games revenue increased $0.5 million to $1.6 million for the twelve months ended
December 31, 2009 from $1.1 million for the comparable period in the prior
year.  The increase was primarily due to increased table games
revenues in the second half of 2009 as a result of the implementation of changes
permitted with the passage of Colorado Amendment 50 as described
above.  In comparison to the prior year, table games revenues were
$0.8 million higher during the second six months of 2009 but $0.3 million lower
during the first six months of 2009.




Food and
beverage revenues were $6.3 million for the twelve months ended December 31,
2009 in comparison to $5.1 million for the comparable period in the prior
year.  Food and beverage revenues increased due to additional items
offered to high-value casino customers on a complimentary basis.  Food
and beverage revenues related to items offered on a complimentary basis were
$5.5 million and $4.4 million for the twelve months ended December 31, 2009 and
2008, respectively.  The increase was the result of efforts to
increase customer visitations and casino revenues.




Promotional
allowances were $5.5 million for the twelve months ended December 31, 2009 and
$4.4 million for the comparable period in the prior year.  Promotional
allowances are comprised of food and beverage provided on a complimentary basis
primarily to our high-value casino players.  Promotional allowances
increased due to additional food and beverage items provided to high-value
casino customers on a complimentary basis as referenced above.


46


Costs
and Expenses
  Costs and
expenses for the twelve months ended December 31, 2009 were $37.3 million, an
increase of $2.3 million, or 6.5%, from $35.0 million for the prior
year.  Costs and expenses increased primarily due to a $2.3 million
increase in casino costs and expenses, a $0.3 million increase in general and
administrative costs and expenses partially offset by a $0.2 million reduction
in depreciation and amortization expenses.
  Casino
costs and expenses increased primarily as a result of a $0.9 million increase in
direct marketing and promotional costs, a $0.9 million increase in advertising
expenses and a $0.4 million increase in gaming taxes.  Direct
marketing and promotional costs increased as a result of efforts to increase
property visitations and build and retain our slot machine player customer
base.  Advertising expenses increased primarily as a result of
additional costs associated with a marketing campaign to announce extended hours
and higher betting limits as permitted with the passage of Colorado Amendment 50
as described above.
  General
and administrative expenses increased primarily due to increased salaries and
wages expenses mostly due to additional cage department costs in conjunction
with increased table gaming revenues and as a result of increased benefit costs
due mostly to higher management incentive costs.
  Depreciation
and amortization expenses decreased due to lower depreciation expense due to a
reduction in depreciable assets during 2009.
  Income
from Operations
  Income
from operations for the twelve months ended December 31, 2009 were $4.9 million,
a decrease of $1.8 million, or 27.1%, from $6.7 million for the comparable
period in the prior year.  The decrease is related mostly to higher
casino costs as described above.
  EBITDA
margins were 23.5% for the twelve months ended December 31, 2009 in comparison
to 29.3% for the comparable period in the prior year.  Operating
margins decreased mostly due to increased casino and general and administrative
costs and expenses primarily as a result of our efforts to retain and build our
slot customer base and implement extended operating hours and higher betting
limits as permitted with the passage of Colorado Amendment 50 as described
above.  EBITDA was $9.9 million for the twelve months ended December
31, 2009 less depreciation and amortization expense of $4.1 million less
management fees of $0.9 million to Riviera Las Vegas equals income from
operations of $4.9 million.
  Consolidated
Operations
  (Loss)
Income from Operations
  Loss from
operations for the twelve months ended December 31, 2009 was $1.7 million, a
decline of $12.9 million, or 114.7%, from income from operations of $11.2
million for the same period in the prior year.
  The
decrease in income from operations was due to a $35.7 million decrease in
consolidated net revenues partially offset by a $22.8 million decrease in
consolidated costs and expenses.  Consolidated net revenues decreased
as a result of a $36.2 million net revenue decrease in Riviera Las Vegas and a
$0.5 million net revenues increase in Riviera Black Hawk.  The
decrease in consolidated costs and expenses was due primarily to a costs and
expenses reduction of $26.6 million in Riviera Las Vegas partially offset by
costs and expenses increases of $2.3 million and $1.5 million in Riviera Black
Hawk and Corporate, respectively.  Corporate costs and expenses
increased primarily due to restructuring fees of $2.2 million incurred during
the twelve months ended December 31, 2009 partially offset by a reduction in
general and administrative costs and expenses primarily due to lower outside
audit fees.
  47
  Total
Interest Expense, net
  Total
interest expense, net, includes gain (loss) on early retirement of debt, changes
in fair value of derivative instruments, and interest expense, net of interest
income.  Total interest expense, net, increased $2.6 million to $23.2
million for the twelve months ended December 31, 2009 in comparison to $20.6
million for the prior year.  The primary reason for the $2.6 million
increase in interest expense, net was additional expense for the change in the
fair value of derivatives of $1.7 million and an increase in interest expense,
net of interest income, of $0.9 million.  During the twelve month
period ended December 31, 2009, the change in the fair value of derivatives
resulted in a $5.3 million expenses compared to a $3.6 million expenses for the
comparable period in the prior year.  The increase in interest
expense, net of interest income, was due primarily to the assessment of default
interest expense as a result of the 2009 Credit Defaults described in Item 1
above.
  Net
Loss
  Net
losses for the twelve months ended December 31, 2009 and 2008 was $24.9 million
and $11.9 million, respectively.  The $13.0 million decline was due
primarily to the $12.9 million decrease in consolidated income from operations,
the $2.6 increase in total interest expense, net, partially offset by the $2.4
million reduction in income tax provision.  A $2.4 million income tax
provision was recorded in the prior year while no income tax provision was
recorded for the twelve months ended December 31, 2009.
  48
  2008
Compared to 2007
  The
following table sets forth, for the periods indicated, certain operating data
for Riviera Las Vegas and Riviera Black Hawk. Net revenues displayed in
this table and discussed in this section are net of cash rebates and promotional
allowances. EBITDA from properties is presented on the following
schedule:
  (Dollars
      in thousands)
                  
                  2008
                  
                  
                  2007
                  
                  
                  Variance $
                  
                  
                  Variance %Net
      Revenues:Riviera
      Las Vegas
                  
                  $
                  128,031
                  
                  
                  $
                  151,505
                  
                  
                  $
                  (23,474
                  )
                  
                  
                  -15.5
                  %Riviera
      Black Hawk
                  
                  
                  41,729
                  
                  
                  
                  53,990
                  
                  
                  
                  (12,261
                  )
                  
                  
                  -22.7
                  %Total
      Net Revenues
                  
                  $
                  169,760
                  
                  
                  $
                  205,495
                  
                  
                  $
                  (35,735
                  )
                  
                  
                  -17.4
                  %Property
      EBITDARiviera
      Las Vegas
                  
                  $
                  18,748
                  
                  
                  $
                  30,166
                  
                  
                  $
                  (11,418
                  )
                  
                  
                  -37.9
                  %Riviera
      Black Hawk
                  
                  
                  12,209
                  
                  
                  
                  19,133
                  
                  
                  
                  (6,924
                  )
                  
                  
                  -36.2
                  %Property
      EBITDA (1)
                  
                  $
                  30,957
                  
                  
                  $
                  49,299
                  
                  
                  $
                  (18,342
                  )
                  
                  
                  -37.2
                  %Other
      costs and expenses:Corporate
      expensesShare-based
      compensation
                  
                  
                  795
                  
                  
                  
                  966
                  
                  
                  
                  (171
                  )
                  
                  
                  -17.7
                  %Other
      corporate expense
                  
                  
                  3,857
                  
                  
                  
                  4,745
                  
                  
                  
                  (888
                  )
                  
                  
                  -18.7
                  %Depreciation
      and amortization
                  
                  
                  14,883
                  
                  
                  
                  13,116
                  
                  
                  
                  1,767
                  
                  
                  
                  13.5
                  %Mergers,
      acquisitions and development costs, net
                  
                  
                  191
                  
                  
                  
                  611
                  
                  
                  
                  (420
                  )
                  
                  
                  -68.7
                  %Asset
      Impairments
                  
                  
                  -
                  
                  
                  
                  72
                  
                  
                  
                  (72
                  )
                  
                  NMLoss
      on retirement of bonds
                  
                  
                  -
                  
                  
                  
                  12,878
                  
                  
                  
                  (12,878
                  )
                  
                  NMDecrease
      in value of derivative instruments
                  
                  
                  3,556
                  
                  
                  
                  13,272
                  
                  
                  
                  (9,716
                  )
                  
                  
                  -73.2
                  %Interest
      expense, net
                  
                  
                  17,091
                  
                  
                  
                  21,897
                  
                  
                  
                  (4,806
                  )
                  
                  
                  -21.9
                  %40,373
                  
                  
                  
                  67,557
                  
                  
                  
                  (27,184
                  )
                  
                  
                  -40.2
                  %Net
      loss before income tax provision
                  
                  
                  (9,416
                  )
                  
                  
                  (18,258
                  )
                  
                  
                  8,842
                  
                  
                  
                  48.4
                  %Income
      tax provision
                  
                  
                  (2,446
                  )
                  
                  
                  -
                  
                  
                  
                  (2,446
                  )
                  
                  NMNet
      loss
                  
                  $
                  (11,862
                  )
                  
                  $
                  (18,258
                  )
                  
                  $
                  6,396
                  
                  
                  
                  35.0
                  %Property
      EBITDA Margins (2)Riviera
      Las Vegas
                  
                  
                  14.6
                  %
                  
                  
                  19.9
                  %
                  
                  
                  -5.3
                  %Riviera
      Black Hawk
                  
                  
                  29.3
                  %
                  
                  
                  35.4
                  %
                  
                  
                  -6.1
                  %
 
 (1)
              Property
      EBITDA consists of earnings before interest, income taxes, depreciation
      and amortization. EBITDA is presented solely as a supplemental disclosure
      because we believe that it is a widely used measure of operating
      performance in the gaming industry and a principal basis for valuation of
      gaming companies by certain investors.  We use property-level
      EBITDA (EBITDA before corporate expenses) as the primary measure of
      operating performance of our properties, including the evaluation of
      operating personnel.  EBITDA should not be construed as an
      alternative to operating income, as an indicator of operating performance,
      as an alternative to cash flow from operating activities, as a measure of
      liquidity, or as any other measure determined in accordance with
      accounting principles generally accepted in the United States
      of America.  We have significant uses of cash flows,
      including capital expenditures, interest payments and debt principal
      repayments that are not reflected in EBITDA.  Also, other gaming
      companies that report EBITDA information may calculate EBITDA in a
      different manner than we do (see footnote 19 for reconciliation to net
      loss).
  49
  (2)
              Property
      EBITDA margins represent property EBITDA as a percentage of net revenues
      by property.
  Riviera
Las Vegas
  Revenues
  Net
revenues for the twelve months ended December 31, 2008 were $128.0 million, a
decrease of $23.5 million, or 15.5%, from $151.5 million for the comparable
period in the prior year.
  Casino
revenues for the twelve months ended December 31, 2008 were $50.6 million, a
decrease of $11.1 million, or 18.1%, from $61.7 million for the comparable
period in the prior year. Casino revenues are comprised of slot machine and
table game revenues. In comparison to the same period in the prior year, slot
machine revenue was $39.0 million, a decrease of $8.2 million, or 17.3%, from
$47.2 million and table game revenue, including revenue from poker, was $11.5
million, a decrease of $3.0 million, or 20.4% from $14.5
million.  Slot machine win per unit per day for the twelve months
ended December 31, 2008 was $115.00, a decrease of $17.22, or 13.0%, from
$132.22 for the comparable period in the prior year. Slot machine and table game
revenues decreased primarily due to lower slot machine and table game amounts
wagered as a result of reduced hotel occupancy, the effect of a weak economy on
consumer spending and encumbered access due to construction at neighboring
projects.
  Room
revenues for the twelve months ended December 31, 2008 were $52.4 million, a
decrease of $7.5 million, or 12.5%, from $59.9 million for the comparable period
in the prior year. The room rental revenue decrease was primarily attributable
to 16.1% and 11.5% decreases in leisure and convention segment occupied rooms,
respectively, as a result of higher travel costs, the weaker economy and
increased competition. For the twelve months ended December 31, 2008, hotel
occupancy was 83.8% in comparison to 93.0% for the comparable period in the
prior year. The hotel room occupancy percentage is calculated by dividing total
occupied rooms by total rooms available for sale.  6.3% of our hotel
rooms were unavailable during 2008 due to our room remodeling project referenced
above.  For the twelve months ended December 31, 2008, 46.9% and 34.2%
of total occupied rooms were leisure and convention segment rooms,
respectively.  Average daily room rental rate, or ADR, was $82.81 for
the twelve months ended December 31, 2008, a decrease of $0.06, or 0.1%, from
$82.87 for the comparable period in the prior year.  ADR decreased
primarily as a result of a $9.23, or 17.2%, leisure segment ADR reduction mostly
offset by a $9.03, or 9.1% convention segment ADR
improvement.  Revenue per available room, or RevPar, was $69.40, a
decrease of $7.65, or 9.9%, from $77.05 for the comparable period in the prior
year. The decrease in RevPar was due primarily to lower occupancy as described
above.  Room rental revenues include revenues associated with rooms
provided to high-value guests on a complimentary basis.  These
revenues were $7.8 million for the twelve months ended December 31, 2008 and are
included in promotional allowances and deducted from total
revenues.
  Food and
beverage revenues for the twelve months ended December 31, 2008 were $23.4
million, a decrease of $3.7 million, or 13.7%, from $27.1 million for the
comparable period in the prior year. The decrease is due to a $2.8 million food
revenue and $0.9 million beverage revenue reduction primarily as a result of the
weak economy, reduced hotel occupancy, less gaming customers and strategic
closure of select food and beverage outlets during low volume
periods.  Food covers decreased primarily in the buffet, coffee shop
and the sports book delicatessen and drinks served decreased primarily in the
casino bars. Food and beverage revenues include items offered to high-value
guests on a complimentary basis.  These revenues were $10.1 million
for the twelve months ended December 31, 2008 and are included in promotional
allowances and deducted from total revenues.
  50
  Entertainment
revenues for the twelve months ended December 31, 2008 were $13.4 million, a
decrease of $0.1 million, or 0.5%, from $13.5 million for the comparable period
in the prior year. The decrease is primarily due to reduced ticket sales for all
of our shows except "ICE", an ice skating show that opened April 23,
2007.  Entertainment revenues include items offered to high-value
guests on a complimentary basis.  These revenues were $3.6 million for
the twelve months ended December 31, 2008 and are included in promotional
allowances and deducted from total revenues.
  Other
revenues for the twelve months ended December 31, 2008 were $6.4 million, an
increase of $0.3 million, or 5.7%, from $6.1 million for the comparable period
in the prior year.  The increase in other revenues, which are
comprised primarily of rental income, was due to new agreements to lease
portions of our parking space and additional rental income from the Banana Leaf
Asian Restaurant, which opened in February 2008, and Club de Soleil, a timeshare
marketing company.
  Costs
and Expenses
  Casino
costs and expenses for the twelve months ended December 31, 2008 were $28.6
million, a decrease of $4.2 million, or 13.1%, from $32.8 million for the
comparable period in the prior year.  The decrease in casino costs and
expenses was due primarily to a reduction in slot machine and table game payroll
and related costs to partially offset the $11.1 million decrease in casino
revenue.  Reductions in slot and table game payroll and related costs
were partially offset with higher marketing and promotional costs primarily due
to increased competition and poor economic conditions.
  Room
rental costs and expenses for the twelve months ended December 31, 2008 were
$25.4 million, a decrease of $2.7 million, or 9.6%, from $28.1 million for the
comparable period in the prior year.  The decrease in room rental
costs and expenses was primarily due to an 88,100, or 12.9%, reduction in
occupied hotel rooms.  As a result, payroll and related costs and
operating expenses were reduced accordingly.
  Food and
beverage costs and expenses for the twelve months ended December 31, 2008 were
$19.2 million, a decrease of $3.2 million, or 14.2%, from $22.4 million for the
comparable period in the prior year. The decrease in food and beverage cost and
expenses was due primarily to a reduction in food and beverage cost of goods,
payroll and related costs and other expenses to offset a $3.7 million food and
beverage revenue decrease. Additionally, several food and beverage outlets have
been closed during low volume periods to reduce costs and expenses.
  Entertainment
costs and expenses for the twelve months ended December 31, 2008 were $8.0
million, a decrease of $0.6 million, or 7.3%, from $8.7 million for the
comparable period in the prior year.  The decrease in entertainment
costs and expenses is primarily due to payroll and related costs
savings.
  General
and administrative costs and expenses for the twelve months ended December 31,
2008 were $26.8 million, a decrease of $1.2 million, or 4.0%, from $28.0 for the
comparable period in the prior year.  The decrease in general and
administrative cost and expenses was primarily due a $0.8 million reduction in
the incentive compensation expense.  There was no incentive
compensation expense for the twelve months ended December 31, 2008.
  Other
expenses for the twelve months ended December 31, 2008 were $1.2 million, a
decrease of $0.2 million, or 8.8%, from $1.4 million for the comparable period
in the prior year.  The decrease in other expenses was due primarily
to cost savings initiatives to partially offset the decrease in net
revenues.
  51
  Income
from Operations
  Income
from operations for the twelve months ended December 31, 2008 was $9.3 million,
a decrease of $14.2 million, or 60.3%, from $23.5 million for the comparable
period in the prior year.  The decrease is primarily due to lower
casino and room rental revenues without offsetting reductions in costs and
expenses.  Operating margins were 7.3% for the twelve months ended
December 31, 2008 in comparison to 15.5% for the comparable period in the prior
year.  Operating margins decreased primarily due to revenue decreases
in our high margin slot machine and room rental operations and a $1.5 million
increase in depreciation and amortization expenses as a result of asset
additions mostly attributable to our hotel room remodeling project described
above.
  Riviera
Black Hawk
  Revenues
  Net
revenues for the twelve months ended December 31, 2008 were $41.7 million, a
decrease of $12.3 million, or 22.7%, from $54.0 million for the comparable
period in the prior year.
  Casino
revenues for the twelve months ended December 31, 2008 were $40.7 million, a
decrease of $11.9 million, or 22.6%, from $52.6 million for the comparable
period in the prior year.  The decrease in casino revenues is
primarily due to a slot machine revenue decrease of $11.7 million, or 22.7%, to
$39.6 million from $51.3 million for the comparable period in the prior
year.  Slot machine revenue per unit per day was $127.73, a decrease
of $28.04, or 18.0%, from $155.77 for the comparable period in the prior year.
The decrease in slot machine revenue was primarily the result of less slot
machine wagering due to the effects of high fuel costs, a weak economy and the
smoking ban in Colorado which went into effect January 1, 2008.
  Food and
beverage revenues for the twelve months ended December 31, 2008 were $5.1
million, a decrease of $0.2 million, or 4.1%, from $5.3 million for the
comparable period in the prior year. The decrease is primarily due to a 10.9%
reduction in buffet covers due to fewer gaming customers. We frequently provide
high value guests with complimentary food and beverage to increase casino
revenues.  In fact, nearly three quarters of food and beverage
revenues are related to complimentary issuances.  These revenues are
included in promotional allowances and deducted from total revenues as described
in Note 1 of the Notes to the Consolidated Financial Statements included in this
document.
  Other
revenues for the twelve months ended December 31, 2008 were $0.4 million, a
decrease of $0.2 million, or 29.1%, from $0.6 million for the comparable period
in the prior year.  The decrease in other revenues, which are
comprised primarily of transaction fee revenues from automatic teller machines
(ATMs), was attributable principally to a reduction in ATM transactions in
conjunction with less casino wagering.
  Costs
and Expenses
  Casino
costs and expenses for the twelve months ended December 31, 2008 were $19.2
million, a decrease of $4.1 million, or 17.8%, from $23.3 million for the
comparable period in the prior year. The decrease in casino expenses is
primarily due to a reduction in slot and table game payroll and related costs
which partially offsets the $11.9 million decrease in casino
revenue.
  52
  General
and administrative expenses for the twelve months ended December 31, 2008 were
$9.0 million, a decrease of $1.0 million, or 10.2%, from $10.0 million for the
comparable period in the prior year.  The decrease in general and
administrative expenses was due primarily to a $0.4 million health insurance
credit and a $0.4 million reduction in the incentive compensation
expense.  There was no incentive compensation expense for the twelve
months ended December 31, 2008.
  Food and
beverage expenses for the twelve months ended December 31, 2008 were $1.3
million, a decrease of $0.2 million, or 10.6%, from $1.5 million for the
comparable period in the prior year.  The decrease was the primarily
due to payroll and related costs savings.
  Income
from Operations
  Income
from operations for the twelve months ended December 31, 2008 were $6.7 million,
a decrease of $6.0 million, or 46.7%, from $12.7 million for the comparable
period in the prior year. The decrease is primarily due to the $11.9 million
decrease in casino revenues without offsetting reductions in costs and
expenses.  Operating margins were 16.1% for the twelve months ended
December 31, 2008 in comparison to 23.3% for the comparable period in the prior
year.  Operating margins decreased primarily due to the revenue
decrease in our high margin slot machine operations and increased depreciation
and amortization expenses.
  Consolidated
Operations
  Income
from operations
  Income
from operations for the twelve months ended December 31, 2008 were $11.2
million, a decrease of $18.6 million, or 62.3%, from $29.8 million for the
comparable period in the prior year.  The decrease is principally due
to a $35.7 million, or 17.4%, reduction in net revenues to $169.8 million from
$205.5 million for the comparable period in the prior year.  The
decrease in net revenues was partially offset by a $17.2 million, or 9.8%,
reduction in total costs and expenses to $158.5 million from $175.7 million for
the comparable period in the prior year.  Operating margins were 6.6%
for the twelve months ended December 31, 2008 in comparison to 14.5% for the
comparable period in the prior year.  Operating margins decreased
primarily as a result of the revenue reductions in our high margin slot machine
operations and a $1.8 million increase in depreciation and amortization
expense.
  Other
Expense
  Other
expenses for the twelve months ended December 31, 2008 were $20.6 million, a
decrease of $27.4 million, or 57.0%, from $48.0 million for the comparable
period in the prior year.  The decrease is primarily due to a $12.9
million loss on retirement of debt in the prior year, a decrease of $9.7 million
in the amount recorded for unrealized loss on derivatives and a decrease of $4.8
million in interest expense, net of interest income.  The loss on
retirement of debt resulted from the retirement of our 11% Notes as described
below under Liquidity and Capital Resources.  The decrease in the
unrealized loss on derivatives was due primarily to lower interest rates
resulting in an increase in the fair value of our interest rate swap
liability.  The decrease in interest expense was the result of reduced
borrowing costs associated with our Credit Facility executed June
2007.
  53
  Net
Loss
  Net loss
for the twelve months ended December 31, 2008 was $11.9 million, an improvement
of $6.4 million, or 35.0%, from a net loss of $18.3 million for the comparable
period in the prior year.  The improvement is due to the $27.4 million
reduction in other expenses which was partially offset by the $18.6 million
decrease in consolidated income from operations and a $2.4 million income tax
provision for the twelve months ended December 31, 2008 in comparison to no
income tax provision for the prior year.  The $2.4 million income tax
provision was recorded in order to increase our valuation allowance as we
currently do not believe that it is more likely than not that we can utilize the
deferred tax assets.  Moreover, our effective tax of 26% is lower than
the U.S. Federal rate of 35% primarily due to Management’s conclusion that it is
more likely than not it will be unable to utilize its net deferred tax asset
(see note 12 within the consolidated financial statements below)
  Liquidity
and Capital Resources
  Our
independent registered public accounting firm included an explanatory paragraph
that expresses substantial doubt as to our ability to continue as a going
concern in their audit report contained in the accompanying financial statements
for the years ended December 31, 2009 and 2008.  We cannot provide any
assurance that we will in fact operate our business profitably, maintain
existing financings, or obtain sufficient financing in the future to sustain our
business in the event we are not successful in our efforts to generate
sufficient revenue and operating cash flow.
  Our
ability to continue as a going concern will be determined by our ability to
obtain additional funding or restructure or negotiate waivers on our existing
indebtedness and to generate sufficient revenue to cover our operating
expenses.  The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts of liabilities that might be necessary should
we be unable to continue in existence.
  We had
cash and cash equivalents of $19.1 million and $13.5 million as of December 31,
2009 and 2008, respectively.  Our cash and cash equivalents increased
by $5.6 million during the twelve months ended December 31, 2009 primarily as a
result of a $9.2 million increase in net cash provided by operating activities
partially offset by a $3.6 million decrease in net cash used in investing
activities due to maintenance capital expenditures at Riviera Las Vegas and
Riviera Black Hawk.  Cash and cash equivalents would have decreased by
approximately $12.2 million had we paid accrued interest of $17.8 million
related to our Credit Facility (see note 10 to the consolidated financial
statements below).  The $9.2 million in net cash provided by operating
activities was primarily the result of the $24.9 million net loss and the $4.6
million decline due to changes in operating assets and liabilities (excluding
changes in accrued interest liability) more than offset by additions of $17.8
million for interest expense accrued but not paid, $14.9 million for non-cash
depreciation and amortization expense, $5.3 million for non-cash expense related
to changes in the fair value of derivatives and $0.6 million for non-cash stock
compensation expense.
  Cash and
cash equivalents decreased $15.4 million during the twelve months ended December
31, 2008 as a result of $22.1 million in net cash used in investing activities
partially offset by $4.3 million in net cash provided by operating activities
and $2.4 million in net cash provided by financing activities.  Net
cash used in investing activities included $17.2 million in capital expenditures
related to our Riviera Las Vegas hotel room renovation project and approximately
$4.9 million in maintenance capital expenditures for Riviera Las Vegas and
Riviera Black Hawk.  The $4.3 million in net cash provided by
operating activities was primarily the result of the $11.9 million net loss and
the $3.9 million decline due to changes in operating assets and liabilities more
than offset by additions of $14.9 million for non-cash depreciation and
amortization expense, $3.6 million for non-cash expense related to changes in
the fair value of derivatives, $0.8 million for non-cash stock compensation
expense and $0.5 million for non-cash provision for bad debts.  The
$2.5 million in net cash provided by financing activities during 2008 was the
result of a $2.5 million draw against our Revolving Credit
Facility.
  54
  On June
8, 2007, we and our subsidiaries entered into the Credit
Facility.  The Credit Facility includes a $225 million seven-year Term
Loan that has no amortization for the first three years, and a one percent
amortization for years four through six, and a full payoff in year seven, in
addition to an annual mandatory pay down during the term of 50% of excess cash
flows, as defined. The Credit Facility also includes a $20 million five-year
revolving credit facility under which the Company can obtain extensions of
credit in the form of cash loans or standby letters of credit (“Standby
L/Cs”).  Pursuant to Section 2.6 of the Credit Agreement, on June 5,
2009, the Company voluntarily reduced the Revolver commitment from $20 million
to $3 million.  As of December 31, 2009, the Company had $2.5 million
outstanding on its Revolving Credit Facility.  We are permitted to
prepay the Credit Facility without premium or penalties except for payment of
any funding losses resulting from prepayment of LIBOR rate loans. The rate for
the Term Loan and Revolving Credit Facility was LIBOR plus 2.0%.  The
Credit Facility is guaranteed by the subsidiaries and is secured by a first
priority lien on substantially all of our assets.
  We used
substantially all of the proceeds of the Term Loan to discharge our obligations
under the Indenture, dated June 26, 2002 (the "Indenture"), with The Bank of New
York as trustee (the "Trustee"), governing the 11% Notes. On June 8, 2007 we
deposited these funds with the Trustee and issued to the Trustee a notice of
redemption of the 11% Notes, which was finalized on July 9, 2007.
  Prior to
July 27, 2009, we were not susceptible to interest rate risk because our
outstanding debt was primarily at a fixed rate as a result of the interest rate
swap associated with our Term Loan.  Pursuant to a floating rate to
fixed rate Swap Agreement that became effective June 29, 2007 that we entered
into under the Credit Facility, substantially the entire Term Loan portion of
the Credit facility, with quarterly step-downs, bore interest at an effective
fixed rate of 7.485% per annum (2.0% above LIBOR Rate in effect on the lock in
date of the Swap Agreement).  Under our Swap Agreement, we paid a
fixed rate of 5.485% plus 2% on the notional amount (7.485%), which was $200.7
million at December 31, 2009, with a June 8, 2014 expiration date.
  On July
23, 2009, the Company received a Notice of Early Termination for Event of
Default (See Note 10 to the consolidated financial statements below) from
Wachovia in connection with an alleged event of default that occurred under our
Swap Agreement.  The Early Termination Notice provides that Wachovia
designated an early termination date of July 27, 2009 (the “Early Termination
Date”).  On July 28, 2009, in connection with the Early Termination
Notice, we received a Notice of Amount Due Following Early Termination from
Wachovia that claimed the amount due and payable to Wachovia under the Swap
Agreement is $26.6 million, which includes $4.4 million recorded in accrued
interest.  Pursuant to the Swap Agreement, upon the occurrence of an
Early Termination Date, no further payments by either party under the Swap
Agreement are required to be made other than the total amounts owing to Wachovia
by the Company, which were accelerated and are due immediately.
  Prior to
the Early Termination Date, for the reasons described in Item 1 above, effective
March 31, 2009, the Term Loan interest rate was increased to and locked at
approximately 10.5% per annum and effective April 1, 2009, the Revolver interest
rate was locked at approximately 6.25% per annum, plus the interest rate swap
incurred additional interest of 1% per annum on any overdue amounts under the
Swap Agreement.  As a result of the Early Termination Notice, the
interest rates for the Term Loan and Revolver balances are no longer locked and
are now subject to changes in underlying LIBOR rates and vary based on
fluctuations in the Alternative Base Rate and Applicable Margins (see Item 1
above).  As of December 31, 2009, our Term Loan and Revolver bear
interest at approximately 6.25%.
  As of the
Early Termination Date, a hypothetical one percent change in interest rates
would result in additional annual interest expense of approximately $2.3
million, which would have material effect on our financial
statements.  Prior to receipt of the Early Termination Notice, a
hypothetical one percent change in interest rates would not have a material
effect on our financial statements as the borrowings bore interest primarily at
fixed interest rates as described above.
  55
  Changes
in value of our interest rate swap between the end of each reporting period were
recorded as an increase/(decrease) in swap fair value as the swap does not
qualify for hedge accounting.
  In
addition, authoritative guidance for accounting for uncertainty in income taxes
requires that we book any future unrealized tax payments.  However,
the Company does not have any reserves for uncertain tax positions at this
time.
  We are
also required to pay fees under the Revolving Credit Facility as follows: (i) a
commitment fee in an amount equal to either .50% or 0.375% (depending on the
Consolidated Leverage Ratio) per annum on the average daily unused amount of the
Revolving Credit Facility; (ii) Standby L/C fees equal to between 2.00% and
1.50% (depending on the Consolidated Leverage Ratio) per annum on the average
daily maximum amount available to be drawn under each Standby L/C issued and
outstanding from the date of issuance to the date of expiration; and (iii) a
Standby L/C facing fee in the amount of 0.25% per annum on the average daily
maximum amount available to be drawn under each Standby L/C.  In
addition to the Revolving Credit Facility fees, we will pay an annual
administrative fee of $35,000.
  The
Credit Facility contains affirmative and negative covenants customary for
financings of this nature including, but not limited to, restrictions on our
incurrence of other indebtedness.  The Credit Facility contains events
of default customary for financings of this nature including, but not limited
to, nonpayment of principal, interest, fees or other amounts when due; violation
of covenants; failure of any representation or warranty to be true in all
material respects; cross-default and cross-acceleration under our other
indebtedness or certain other material obligations; certain events under federal
law governing employee benefit plans; a "change of control"; dissolution;
insolvency; bankruptcy events; material judgments; uninsured losses; actual or
asserted invalidity of the guarantees or the security documents; and loss of any
gaming licenses.  Some of these events of default provide for grace
periods and materiality thresholds.  For purposes of these default
provisions, a "change in control" includes: a person's acquisition of beneficial
ownership of 35% or more of our stock coupled with a gaming license and/or
approval to direct any of our gaming operations, a change in a majority of the
members of our Board of Directors other than as a result of changes supported by
our current board members or by successors who did not stand for election in
opposition to our current board, or our failure to maintain 100% ownership of
the subsidiaries.
  As of
December 31, 2009, as a result of the 2009 Credit Defaults discussed in Item 1
of this Annual Report on Form 10-K, we were not in compliance with all of the
covenants including our obligation to make interest payments under the Credit
Facility.  With the aid of our financial advisors and outside counsel,
we are continuing to negotiate with our various creditor constituencies to
refinance or restructure our debt.  We cannot assure you that we will
be successful in completing a refinancing or consensual out-of-court
restructuring.  If we are unable to do so, we will likely be compelled
to seek protection under Chapter 11 of the U. S. Bankruptcy Code.  As
a result of the 2009 Credit Defaults described in Item 1 above and the potential
risk of bankruptcy, there is substantial doubt about the Company’s ability to
continue as a going concern.
  Current
Economic Environment
  We
believe that a number of factors are affecting consumer sentiment and behavior
including the continued economic slowdown, high unemployment and decreasing home
values.  We believe that consumers have and will continue to save more
and spend less on discretionary items such as vacations and
gaming.  Thus, we believe that the outlook for the gaming and
hospitality industries remains highly uncertain.  Based on these
adverse circumstances, we believe that the Company will continue to experience
lower than expected hotel occupancy, room rates and casino
volumes.
  56
  Off-Balance
Sheet Arrangements
  It is not
our usual business practice to enter into off-balance sheet arrangements such as
guarantees on loans and financial commitments, indemnification arrangements and
retained interests in assets transferred to an unconsolidated entity for
securitization purposes. Consequently, we have no off-balance sheet
arrangements.
  Critical
Accounting Policies and Estimates
  The
preparation of our consolidated financial statements requires us to adopt
accounting policies and to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, expenses and provision for
income taxes.  We periodically evaluate our policies, and our
estimates and assumptions related to these policies.  We operate in a
highly regulated industry.  For Riviera Las Vegas and Riviera Black
Hawk, we are subject to regulations governing operating and internal control
procedures.  The majority of our casino revenue is in the form of
cash, personal checks or gaming chips, which by their nature do not require
complex estimations.  We estimate certain liabilities with payment
periods that extend for longer than several months. Such estimates include the
liability associated with customer loyalty programs, the cost of workers
compensation and property and casualty insurance settlements and the cost of
litigation.  We believe that these estimates are reasonable based upon
our past experience with the business and based upon our assumptions related to
possible outcomes in the future. Future actual results might differ materially
from these estimates.
  We have
determined that the following accounting policies and related estimates are
critical to the preparation of our consolidated financial statements because
such estimates are highly uncertain or susceptible to change so as to present a
significant risk of a material impact on our financial condition or operating
performance, and such policies and estimates were selected from among available
alternatives, or require the exercise of significant management judgment to
apply.
  Long-lived
Assets
  We have a
significant investment in long-lived property and equipment.  We
evaluate our property and equipment and other long-lived assets for impairment.
For assets to be disposed of, we recognize the asset to be sold at the lower of
carrying value or fair market value less costs of disposal. Fair market value
for assets to be disposed of is generally estimated based on comparable asset
sales, solicited offers or a discounted cash flow model. For assets to be held
and used, we review fixed assets for impairment whenever indicators of
impairment exist. If an indicator of impairment exists, we compare the estimated
future cash flows of the asset, on an undiscounted basis, to the carrying value
of the asset. If the undiscounted cash flows exceed the carrying value, no
impairment is indicated.  If the undiscounted cash flows do not exceed
the carrying value, then impairment is calculated based on fair value compared
to carrying value, with fair value typically based on a discounted cash flow
model.
  Income
Taxes
  We are
subject to income taxes in the United States. Authoritative guidance for
accounting for income taxes requires that we account for income taxes by
recognizing deferred tax assets, net of applicable reserves, and liabilities for
the estimated future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on the income tax
provision and deferred tax assets and liabilities is recognized in the results
of operations in the period that includes the enactment date.
  57
  Authoritative
guidance for accounting for income taxes also requires that we perform an
assessment of positive and negative evidence regarding the realization of the
deferred tax assets. This assessment included the evaluation of the reversal of
temporary differences.  As a result, we have concluded that it is more
likely than not that the net deferred tax assets will not be realized and thus
have provided an allowance against our entire net deferred tax asset
balance.
  Our
income tax returns are subject to examination by the Internal Revenue Service
(“IRS”) and other tax authorities in the locations where we
operate.  Authoritative guidance for accounting for uncertainty in
income taxes prescribes a minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements and
requires that we utilize a two-step approach for evaluating tax positions.
 Recognition (Step I) occurs when we conclude that a tax position, based on
its technical merits, is more likely than not to be sustained upon examination.
Measurement (Step II) is only addressed if the position is deemed to be more
likely than not to be sustained. Under Step II, the tax benefit is measured as
the largest amount of benefit that is more likely than not to be realized upon
settlement.  Note that authoritative guidance for accounting for
uncertainty in income taxes uses the term “more likely than not” when the
likelihood of occurrence is greater than 50%.
  The tax
positions failing to qualify for initial recognition is to be recognized in the
first subsequent interim period that they meet the “more likely than not”
standard. If it is subsequently determined that a previously recognized tax
position no longer meets the “more likely than not” standard, it is required
that the tax position is derecognized.  Authoritative guidance for
uncertainty in accounting for income taxes specifically prohibits the use of a
valuation allowance as a substitute for derecognition of tax positions. As
applicable, we will recognize accrued penalties and interest related to
unrecognized tax benefits in the provision for income taxes. During the years
ended December 31, 2009, 2008 and 2007, we recognized no amounts for
interest or penalties.
  Allowance
for Credit Losses
  We
maintain an allowance for estimated credit losses based on historical experience
and specific customer collection issues. Any unforeseen change in customers’
liquidity or financial condition could adversely affect our ability to collect
account balances and our operating results.
  Fair Value of Interest Rate Swap
Liability
  Current
liabilities include the approximate cost to settle our interest rate swap
instrument at the respective valuation dates less a discount based on our
current credit default rate.  The fair value of the interest rate swap
instrument is estimated based upon current and predictions of future interest
rate levels along a yield curve, the remaining duration of the instrument and
other market conditions and therefore, is subject to significant estimation and
a high degree of variability of fluctuation between periods.  As
described in Item 1 above under the heading “Significant Events – 2009 Credit
Defaults,” our interest rate swap instrument was terminated in
2009.
  Litigation
Cost
  We assess
our exposures to loss contingencies including legal matters and we provide for
an exposure if it is judged to be probable and estimable.  However,
any accruals made in relation thereto do not include the estimated costs of
defense for any legal services that we have not yet received.  If the
actual loss from a contingency exceeds our estimate, our operating results could
be adversely impacted.
  58
  Self-insurance
Provisions
  We are
self-insured for various levels of general liability and workers’
compensation.  We were also self-insured for non-union employee
medical insurance coverage through December 31, 2007. To resolve ongoing claims
related to our previous self-insurance program, we maintained reinsurance
coverage to cover us until all applicable claims were
resolved.  Insurance claims and provisions include accruals of
estimated settlements for known claims as well as accrued estimates of incurred
but not reported claims.  In estimating these costs, we consider our
historical claims experience and make judgments about the expected levels of
costs per claim.  Changes in health care costs, accident frequency and
severity and other factors can materially affect the estimate for these
liabilities.
  Loyalty
Club Program
  We offer
to our players club members the opportunity to earn points based on their level
of gaming activities.  Points can be redeemed for cash, complimentary
hotel rooms and food and beverage.  We accrue the cash value of points
earned based upon expected redemption rates.
  Recently
Issued Accounting Standards
  In May
2009, the FASB issued guidance on subsequent events.  The guidance
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued.  In addition, under the guidance, an
entity is required to disclose the date through which subsequent events have
been evaluated, as well as whether that date is the date the financial
statements were issued or the date the financial statements were available to be
issued.  The guidance does not apply to subsequent events or
transactions that are within the scope of other applicable GAAP that provide
different guidance on the accounting treatment for subsequent events or
transactions.  The guidance is effective for interim or annual
financial periods ending after June 15, 2009, and shall be applied
prospectively.  The Company adopted the guidance as of June 30,
2009, as required.  The adoption of the guidance did not have a
material impact on the Company's consolidated financial
statements.  In February 2010, the FASB issued amended guidance on
subsequent events.  The amended guidance removes the requirement for
U.S. Securities and Exchange Commission filers to disclose the date through
which subsequent events have been evaluated.  The amended guidance is
effective upon issuance, except for the use of the issued date for conduit debt
obligors.  The Company adopted the amended guidance upon issuance, as
required.  The adoption of the amended guidance did not have a
material impact on the Company's consolidated financial statements.
  In
June 2009, the FASB issued new authoritative guidance to establish the FASB
Accounting Standards Codification as the single source of authoritative
non-governmental GAAP.  The guidance is effective for interim and
annual reporting periods ending after September 15, 2009.  We
adopted the guidance effective July 1, 2009 and the adoption did not have a
material effect on our audited Consolidated Financial Statements.
  In
June 2009, the FASB issued new authoritative guidance regarding a transfer
of financial assets, the effects of a transfer on its financial statements, and
any continued involvement in transferred financial
assets.  Additionally, the concept of a qualifying special-purpose
entity was removed.  The guidance is effective for annual reporting
periods beginning after November 15, 2009 and the adoption did not have a
material effect on our audited Consolidated Financial
Statements.
  59
  In
June 2009, the FASB issued new authoritative guidance for enterprises
involved with variable interest entities.  The guidance is effective
for annual reporting periods beginning after November 15, 2009 and the
adoption did not have a material effect on our audited Consolidated Financial
Statements.
  In
August 2009, the FASB issued new authoritative guidance on measuring
liabilities at fair value.  The guidance addresses restrictions on the
transfer of a liability and clarifies how the price of a traded debt security
should be considered in estimating the fair value of the issuer’s
liability.  This guidance is effective for the first reporting period
beginning after its issuance.  We adopted the guidance effective
October 1, 2009 and the adoption did not have a material effect on our
audited Consolidated Financial Statements.
  A variety
of proposed or otherwise potential accounting standards are currently under
review and study by standard-setting organizations and certain regulatory
agencies.  Because of the tentative and preliminary nature of such
proposed standards, we have not yet determined the effect, if any, that the
implementation of any such proposed or revised standards would have on our
audited Consolidated Financial Statements.
  Forward-Looking
Statements
  Throughout
this report we make "forward-looking statements,” as that term is defined in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Exchange Act. Forward-looking statements include the words "may," "would,"
"could," "likely," "estimate," "intend," "plan," "continue," "believe,"
"expect," “projections” or "anticipate" and similar words and include all
discussions about our ongoing or future plans, objectives or
expectations.  We do not guarantee that any of the transactions or
events described in this report will happen as described or that any positive
trends referred to in this report will continue.  These
forward-looking statements generally relate to our plans, objectives and
expectations for future operations and results and are based upon what we
consider to be reasonable estimates.  Although we believe that our
forward-looking statements are reasonable at the present time, we may not
achieve or we may modify our plans, objectives and expectations.  You
should read this report completely and with the understanding that actual future
results may be materially different from what we expect.  We do not
plan to update forward-looking statements even though our situation or plans may
change in the future, unless applicable law requires us to
do so.
  Specific
factors that might cause our actual results to differ from our expectations,
might cause us to modify our plans or objectives, or might affect our ability to
meet our expectations include, but are not limited to:
  ·
              the
      effect of the 2009 Credit Defaults as described in Item 1
      above;
  ·
              the
      possibility that the Company may have to seek protection under Chapter 11
      of the U. S. Bankruptcy Code;
  ·
              the
      effect of our independent auditors expressing doubt about our ability to
      continue as a going concern;
  ·
              the
      effect of the delisting from the NYSE AMEX as described in Item 1
      above;
  ·
              the
      effect of the termination of our previously announced strategic process to
      explore alternatives for maximizing stockholder value and the possible
      resulting fluctuations in our stock price that will affect other parties’
      willingness to make a proposal to acquire
us;
  60
  ·
              fluctuations
      in the value of our real estate, particularly in Las
  Vegas;
  ·
              the
      effect of significant increases in Clark County facilities inspection fees
      and resulting remedial actions;
  ·
              the
      availability and adequacy of our cash flow to meet our requirements,
      including payment of amounts due under our debt
    instruments;
  ·
              our
      substantial indebtedness, debt service requirements and liquidity
      constraints;
  ·
              the
      availability of additional capital to support capital improvements and
      development;
  ·
              the
      smoking ban in Colorado on our Riviera Black Hawk property which became
      effective on January 1, 2008;
  ·
              competition
      in the gaming industry, including the availability and success of
      alternative gaming venues, and other entertainment attractions, and the
      approval of an initiative that would allow slot machines in Colorado race
      tracks;
  ·
              retirement
      or other loss of our senior
officers;
  ·
              economic,
      competitive, demographic, business and other conditions in our local and
      regional markets;
  ·
              the
      effects of a continued or worsening global and national economic
      recession;
  ·
              changes
      or developments in laws, regulations or taxes in the gaming industry,
      specifically in Nevada where initiatives have been proposed to raise the
      gaming tax;
  ·
              actions
      taken or not taken by third parties, such as our customers, suppliers and
      competitors, as well as legislative, regulatory, judicial and other
      governmental authorities;
  ·
              changes
      in personnel or compensation, including federal minimum wage
      requirements;
  ·
              our
      failure to obtain, delays in obtaining, or the loss of, any licenses,
      permits or approvals, including gaming and liquor licenses, or the
      limitation, conditioning, suspension or revocation of any such licenses,
      permits or approvals, or our failure to obtain an unconditional renewal of
      any of our licenses, permits or approvals on a timely
    basis;
  ·
              the
      loss of any of our casino facilities due to terrorist acts, casualty,
      weather, mechanical failure or any extended or extraordinary maintenance
      or inspection that may be required;
  ·
              other
      adverse conditions, such as economic downturns, changes in general
      customer confidence or spending, increased transportation costs, travel
      concerns or weather-related factors, that may adversely affect the economy
      in general or the casino industry in
particular;
  ·
              changes
      in our business strategy, capital improvements or development
      plans;
  61
  ·
              the
      consequences of the war in Iraq and other military conflicts in the Middle
      East, concerns about homeland security and any future security alerts or
      terrorist attacks such as the attacks that occurred on September 11,
      2001;
  ·
              other
      risk factors discussed elsewhere in this report;
  and
  ·
              a
      decline in the public acceptance of
gaming.
  All
future written and oral forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. In light of
these and other risks, uncertainties and assumptions, the forward-looking events
discussed in this report might not occur.
  Item
      7A.
              Quantitative
      and Qualitative Disclosures about Market
Risk
  Not
Applicable.
  Item
      8.
              Financial
      Statements and Supplementary Data
  Our
consolidated financial statements, including the notes to all such statements
and other supplementary data are included in this report beginning on page
F-1.
  Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
  None
  Item
      9A.
              Controls
      and Procedures
  Conclusion
Regarding The Effectiveness Of Disclosure Controls And Procedures
  The
Company maintains disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Securities Exchange Act) designed to provide
reasonable assurance that the information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the SEC’s rules and forms. These include controls and procedures designed to
ensure that this information is accumulated and communicated to the Company’s
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
Management, with the participation of the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the Company’s disclosure
controls and procedures as of December 31, 2009. Based on this evaluation,
the Company’s Chief Executive Officer and Chief Financial Officer have concluded
that the Company’s disclosure controls and procedures were effective as of
December 31, 2009.
  Management’s Report On Internal Control Over
Financial Reporting
  Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) of the Exchange Act). The Company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
in accordance with accounting principles generally accepted in the United
States.
  62
  Management,
with the participation of the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2009. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control —
Integrated Framework. Based on this evaluation, management, with the
participation of the Chief Executive Officer and Chief Financial Officer,
concluded that, as of December 31, 2009, the Company’s internal control
over financial reporting was effective.
  This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this annual report.
  Limitations
of the Effectiveness of Internal Control
  A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the internal control system are
met. Because of the inherent limitations of any internal control system, no
evaluation of controls can provide absolute assurance that all control issues,
if any, within a company have been detected.
  Changes
In Internal Controls Over Financial Reporting
  There
were no changes in the Company’s internal control over financial reporting (as
defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the
quarter ended December 31, 2009, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
  Item
      9B.
              Other
      Information
  None
  Item
      10.
              Directors,
      Executive Officers and Corporate
Governance
  Director
Qualifications
  The Board
of Directors (the “Board”) consists of four members.  The Board
believes that it is necessary for each of the Company’s directors to possess
many qualities and skills. When searching for new candidates, the Nominating
Committee considers the evolving needs of the Board and searches for candidates
that fill any current or anticipated future gap. The Board of Directors also
believes that all directors must possess a considerable amount of business
management and educational experience. The Nominating Committee first considers
a candidate’s management experience and then considers issues of judgment,
background, stature, conflicts of interest, integrity, ethics and commitment
when considering director candidates. The Nominating Committee also focuses on
education, professional experience and differences in viewpoints and
skills.  In considering candidates for our Board of Directors, the
Nominating Committee considers the entirety of each candidate’s credentials in
the context of these standards. With respect to the nomination of continuing
directors for re-election, the individual’s contributions to the Board are also
considered.  All our directors bring to our Board of Directors a
wealth of executive leadership experience derived from their service in various
leadership capacities in the private and public sectors.
  63
  Directors
  The
following table presents information as of March 23, 2010 regarding our
directors and the directors of Riviera Operating Corporation (“ROC”), our
wholly-owned subsidiary:
  Name
                
                Age
                
                PositionWilliam
      L. Westerman
                
                78
                
                Our
      Chairman of the Board, CEO and President; Chairman of the Board and Chief
      Executive Officer of ROCPaul
      A. Harvey
                
                72
                
                Our
      and ROC’s DirectorVincent
      L. DiVito
                
                50
                
                Our
      and ROC’s DirectorJames
      N. Land, Jr.
                
                80
                
                Our
      and ROC’s Director
 
 William L.
Westerman
  Mr.
Westerman has been our Chairman of the Board and CEO since February
1993.  Mr. Westerman was a consultant to Riviera, Inc. (our
predecessor company) from July 1, 1991 until he was appointed Chairman of the
Board and CEO of Riviera, Inc. on January 1, 1992.  From 1973 to
June 30, 1991, Mr. Westerman was President and CEO of Cellu-Craft Inc., a
manufacturer of flexible packaging primarily for food products, and then had
several positions with Alusuisse, a multi-national aluminum and chemical
company, following its acquisition of Cellu-Craft in 1989.
  Mr. Westerman’s
day to day leadership, as Chief Executive Officer of the Company, provides him
with intimate knowledge of our operations.
  Major General Paul A. Harvey
USAF (Ret)
  General
Harvey has been one of our and ROC’s Directors since May 18,
2001.  General Harvey is President and Chief Executive Officer of
Pearl River Resort, which is the largest gaming and resort property in the State
of Mississippi.  He also acts as a consultant to the gaming, hotel and
resort industry.  General Harvey spent 32 years on active duty in
the United States Air Force where he held numerous command positions
throughout the United States, Europe, Africa and the Middle East.  He
flew 160 combat missions in Vietnam and Southeast Asia before retiring in 1991
as a command pilot with over 5,000 flying hours.  Following
retirement, he was an Executive in Residence and Assistant to the President of
William Carey College and taught MBA studies in management and
leadership.  General Harvey was the Executive Director of the
Mississippi Gaming Commission from 1993 through 1998 before becoming President
and CEO of Signature Works, Inc., the largest employer of blind and visually
impaired people in the world.  In 2000 Signature Works, Inc. merged
with LCI, Inc.  His present company, PDH Associates, Inc., provides
consulting service to the gaming, hotel and resort industry.  From
1996 through 2002, General Harvey served on the board of directors of the
National Center for Responsible Gaming.  He also served on the board
of directors of Elixir Gaming Technologies, Inc., an NYSE AMEX listed company
headquartered in Las Vegas, Nevada, until deciding not to be nominated for
re-election in 2009 and served on the board of directors of Mikohn Gaming
Corporation, d/b/a Progressive International Corporation, a public reporting
company under the Exchange Act also headquartered in Las Vegas, Nevada, until
the company liquidated under Chapter 7 of the U.S. Bankruptcy Code during
2009.  General Harvey was a Commissioner on the Mississippi Band of
Choctaw Indians Athletic and Boxing Commission from 2002 through
2007.
  64
  General
Harvey has extensive knowledge of the hospitality and gaming industry from his
positions as the Chief Executive Officer of Pearl River Resort and as the
Executive Director of the Mississippi Gaming Commission and is invaluable to our
Board’s discussions of the Company’s operations and regulatory
compliance.
  Vincent L.
DiVito
  Mr.
DiVito was appointed as one of our and ROC’s Directors effective June 14, 2002.
Mr. DiVito is President and Chief Financial Officer (“CFO”) of Lonza
America, Inc., a global life sciences chemical business headquartered in
Allendale, New Jersey.  Lonza America, Inc. is part of Lonza Group,
whose stock is traded on the Swiss Stock Exchange.  Prior to September
2000, Mr. DiVito was the Vice President and CFO of Algroup Wheaton, a
global pharmaceutical and cosmetics packaging company, after having served as
the Director of Business Development.  From 1984 to 1990
Mr. DiVito was the Vice President of Miracle Adhesives Corp. (a division of
Pratt & Lambert, an NYSE Amex listed manufacturer of paints, coatings and
adhesives).  He also serves on the board of directors of Elixir Gaming
Technology, Inc., which is headquartered in Hong Kong and is an NYSE Amex-listed
company. Prior to 1984, Mr. DiVito spent two years on an audit team at Ernst
& Whinney (now Ernst & Young). Mr. DiVito is a certified public
accountant and certified management accountant.
  Mr.
DiVito has extensive knowledge of accounting and corporate governance issues
from his experience as President and Chief Financial Officer of Lonza America,
Inc and is invaluable to our Board’s discussions of the Company’s financial
issues.
  James N. Land,
Jr.
  Mr. Land
is a corporate consultant and was appointed as one of our and ROC’s Directors on
April 12, 2004.  Mr. Land was first elected a Director of the Company
and ROC on January 21, 1999 and served in that position until May 31,
2002.  From 1956 to 1976, Mr. Land was employed by The First Boston
Corporation in various capacities, including Director, Senior
Vice President, Co-Head of Corporate Finance, and head of International
Operations.  From 1971 through 1999, he served as Director of various
companies, including Kaiser Industries Corporation, Marathon Oil Company, Castle
& Cooke, Inc., Manville Corporation, NWA, Inc., Northwest Airlines, and
Raytheon Company.
  Mr.
Land has extensive knowledge of the capital markets from his senior leadership
experience with First Boston Corporation and is invaluable to our Board’s
discussions of the Company’s capital restructuring efforts and liquidity
needs.
  Board Leadership
Structure
  The Board
believes that the Company’s Chief Executive Officer is best situated to serve as
Chairman because he is the director most familiar with the Company’s business
and industry, and most capable of effectively identifying strategic priorities
and leading the discussion and execution of strategy. Independent directors and
management have different perspectives and roles in strategy development. The
Company’s independent directors bring experience, oversight and expertise from
outside the company and industry, while the Chief Executive Officer brings
company-specific experience and expertise. The Board believes that the combined
role of Chairman and Chief Executive Officer promotes strategy development and
execution, and facilitates information flow between management and the Board,
which are essential to effective governance. The Company does not have a lead
independent director.
  65
  Risk
Oversight
  The Board
has an active role, as a whole and also at the committee level, in overseeing
management of the Company’s risks. The Board regularly reviews information
regarding the Company’s regulatory compliance, credit, liquidity and operations,
as well as the risks associated with each. The Company’s Compensation Committee
is responsible for overseeing the management of risks relating to the Company’s
executive compensation plans and arrangements. The Audit Committee oversees
management of financial risks. The Nominating and Corporate Governance Committee
manages risks associated with the independence of the Board of Directors and
potential conflicts of interest. While each committee is responsible for
evaluating certain risks and overseeing the management of such risks, the entire
Board of Directors is regularly informed through committee reports about such
risks.
  Executive
Officers
  The
following table presents information as of March 23, 2010 regarding our and
ROC’s executive officers:
  Name
                
                Age
                
                PositionWilliam
      L. Westerman
                
                78
                
                Our
      and ROC’s Chairman of the Board and CEO and President of
    RBHPhillip
      B. Simons
                
                47
                
                Our
      and ROC’s Treasurer and CFO and Vice President of Finance of
      ROCTullio
      J. Marchionne
                
                55
                
                Our
      Secretary and General Counsel, and Secretary and Executive Vice President
      of ROCRobert
      A. Vannucci
                
                62
                
                President
      and Chief Operating Officer of
ROC
 
 For a
description of the business experience of William L. Westerman, see “Directors”
above.
  Phillip B.
Simons
  Mr.
Simons became our and ROC’s CFO and Treasurer and ROC’s Vice President of
Finance on May 12, 2008.  From April 2006 to May 2008, Mr. Simons, who
is a certified public accountant, was the Vice President of Finance and Chief
Financial Officer for Wheeling Island Gaming, Inc., a wholly owned subsidiary of
Delaware North Companies.  Prior to his employment with Wheeling
Island Gaming, Inc., Mr. Simons spent ten years leading the financial divisions
at various large resorts and casinos with Wyndham International, Carlson
Hospitality Worldwide, Destination Hotels and Resorts and the Villa
Group.  Prior to his experience in the hospitality and gaming
industry, Mr. Simons spent three-years employed in public accounting and
consulting and several years in a senior financial role with a major real estate
developer.
  Tullio J.
Marchionne
  Mr.
Marchionne became our General Counsel on January 10, 2000, was appointed as our
and ROC’s Secretary on February 17, 2000 and was elected Vice President of ROC
on February 26, 2001 and Executive Vice President in June of
2005.  Mr. Marchionne was initially employed by Riviera, Inc., in June
1986 as a casino dealer and served in various capacities including Pit Manager,
General Counsel and Director of Gaming Administration until September 1996, when
he was transferred to the Four Queens Hotel and Casino as Director of Casino
Operations pursuant to the management agreement our subsidiary had with the Four
Queens.  He served in that position until May
1997.  Mr. Marchionne served as the General Manager of the
Regency Casino Thessaloniki, located in Thessaloniki, Greece, from June 1997
until December 1997.  Mr. Marchionne served as a Casino
Supervisor with Bally’s Las Vegas from February 1998 until June 1998, Director
of Casino Operations at the Maxim Hotel and Casino in Las Vegas from June
1998 until November 1998 and Director of Table Games at the Resort at
Summerlin from November 1998 until December 1999.
  66
  Robert A.
Vannucci
  Mr.
Vannucci was elected Vice President of Marketing and Entertainment of ROC on
April 26, 1994, Executive Vice President of Marketing and Entertainment on
July 1, 1998 and President of ROC on October 1, 2000.  Mr.
Vannucci had been Director of Marketing of ROC since July 19,
1993.  Mr. Vannucci was Senior Vice President of Marketing and
Operations at the Sands Casino Hotel in Las Vegas from April 1991 to
February 1993. He was Vice President and General Manager of Fitzgerald’s Las
Vegas (a casino/hotel) from 1988 to January 1991.
  Our and
ROC’s officers serve at the discretion of our and ROC’s respective Boards of
Directors, and they are also subject to the licensing requirements of the Nevada
Gaming Commission and Colorado Gaming Commission.
  Audit Committee; Audit
Committee Financial Expert
  We have a
separately-designated standing Audit Committee, established in accordance with
section 3(a)(58)(A) of the Exchange Act.  The members of our Audit
Committee are Vincent L. DiVito, Paul A. Harvey and James N. Land,
Jr.
  We have
determined that the Chairman of our Audit Committee, Vincent L. DiVito, who
meets the NYSE Amex audit committee independence requirements, is an “audit
committee financial expert”, as defined in Item 407(d)(5)(ii) of SEC Regulation
S-K.  Mr. DiVito is a certified public accountant and certified
management accountant, spent two years on the audit team at Ernst & Whinney
(now Ernst & Young) and is currently the President, CFO and treasurer of a
global life sciences chemical business.
  Section 16(a) Beneficial
Ownership Reporting Compliance
  Section
16(a) of the Exchange Act (Section 16(a)) requires our directors and executive
officers and persons who own more than 10% of our common stock to file with the
SEC certain reports regarding ownership of our common stock.  Such
persons are required to furnish us with copies of all Section 16(a) reports they
file. Based solely on our review of such reports that were furnished to us and
written representations made to us by those reporting persons in connection with
certain of those reporting requirements, we believe that all the reporting
persons met their Section 16(a) reporting obligations on a timely basis during
2009.
  Code of
Ethics
  We have
adopted certain ethical policies that apply to all of our employees at the level
of supervisor or higher, including our principal executive officer, principal
financial officer and principal accounting officer.  Those policies,
together with certain rules adopted by our Disclosure Committee, comprise what
we consider to be our code of ethics.  Those policies and rules are
available on our Internet web site at www.rivierahotel.com by clicking on the
“Investor Relations” link.
  67
  Audit
Committee
  We have a
separately-designated standing Audit committee, established in accordance with
section 3(a)(58)(A) of the Exchange Act.  Our Audit Committee is
composed of Messrs. DiVito, Harvey and Land.  Our Audit Committee
recommends to our Board of Directors the selection of an auditor, reviews the
plan and scope of our audits, reviews the auditors’ critique of management and
internal controls and management’s response to such critique and reviews the
results of our audit.  In 2009, our Audit Committee met 5
times.  We have determined that the three members of our Audit
Committee to be independent based on the NYSE Ames standards that previously
applied to us.  Our Board of Directors has determined that Mr. DiVito,
Chairman of the Audit Committee, is an “audit committee financial expert” as
defined by the rules and regulations of the SEC.  A written charter,
adopted and approved by the Board of Directors, is available on our website at
www.rivierahotel.com by clicking on the “Investor Relations” link.
  Item
      11.
              Executive
      Compensation
  EXECUTIVE
COMPENSATION AND RELATED INFORMATION
  Executive Compensation
  The
following table sets forth all compensation awarded to, paid to or earned by the
following type of executive officers for the fiscal year ended December 31, 2009
and 2008: (i) individuals who served as, or acted in the capacity of, the
Company’s principal executive officer for the fiscal year ended December 31,
2009; and (ii) the Company’s three most highly compensated executive officers,
other than the chief executive officer, who were serving as executive officers
at the end of the fiscal year ended December 31, 2009.  We refer to these
individuals collectively as our “Named Executive Officers”.
  68
  SUMMARY
COMPENSATION TABLE
  Name and Principal
                                            Position
                                          
                                          Year
                                          
                                          Salary
                                          
                                          
                                          Stock
                                            Awards
                                          
                                          
                                          Non-Equity
                                            Incentive Plan
                                            Compensation (1)
                                          
                                          
                                          Change in Pension
                                            Value and Non-
                                            Qualified Deferred
                                            Compensation
                                            Earnings (2)
                                          
                                          
                                          All Other
                                            Compensation
                                            (3,4,5,6)
                                          
                                          
                                          Total($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)William
      L. Westerman
                                          
                                          2009
                                          
                                          $
                                          1,000,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          98,093
                                          
                                          
                                          $
                                          37,772
                                          
                                          
                                          $
                                          25,135
                                          
                                          
                                          $
                                          1,161,0002008
                                          
                                          $
                                          1,000,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          93,285
                                          
                                          
                                          $
                                          35,666
                                          
                                          
                                          $
                                          1,128,951Our
      Chairman of the Board, President and CEO; Chairman of the Board and CEO of
      ROC and President of RBHPhillip
      B. Simons
                                          
                                          2009
                                          
                                          $
                                          200,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          49,046
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          6,728
                                          
                                          
                                          $
                                          255,7742008
                                          
                                          $
                                          111,712
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          22,451
                                          
                                          
                                          $
                                          134,163Our
      Treasurer and CFO; Vice President of Finance; CFO and Treasurer of ROC
      (commenced 5/12/08)Robert
      A. Vannucci
                                          
                                          2009
                                          
                                          $
                                          400,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          61,234
                                          
                                          
                                          $
                                          461,2342008
                                          
                                          $
                                          400,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          17,169
                                          
                                          
                                          $
                                          417,169President
      and COO of ROCTullio
      J. Marchionne
                                          
                                          2009
                                          
                                          $
                                          250,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          49,046
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          52,068
                                          
                                          
                                          $
                                          351,1142008
                                          
                                          $
                                          250,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          15,498
                                          
                                          
                                          $
                                          265,498Our
      Secretary and  General Counsel; Secretary, General Counsel and
      Executive Vice President of ROC
 
 1
              The
      reported amounts are awards paid for achievements of our performance
      targets under our Incentive Compensation Program described
      below.
  2
              Includes
      the portion of the interest earned on Mr. Westerman’s retirement account
      that exceeds the interest, which would have been earned if the interest
      rate had been 120% of the applicable federal long-term rate, with
      compounding, prescribed under Section 1274d of the Internal Revenue
      Code.  Additional interest earned on Mr. Westerman’s retirement
      account that is not reported in the above table amounted to $10,384 in
      2009 and $72,977 in 2008.
  3
              Includes
      payment for auto allowance, executive life insurance, Company 401k
      matching contribution, long-term health
care.
  4
              Includes
      amount for maintaining a suite for Mr. Westerman at our Las Vegas
      property associated with his duties as
CEO.
  5
              Includes
      payment of moving expenses to Mr. Simons in 2008 associated with his
      acceptance of our offer of
employment.
  6
              Includes
      payment of accrued vacation balances of $52,308 for Mr. Vannucci and
      $43,269 for Mr. Marchionne in 2009.
  69
  The
      following descriptions of our compensation agreements, plans and programs
      are intended to assist in your reading and understanding of the
      information reported in the Summary Compensation and Grants of Plan-Based
      Awards tables above and the related
  footnotes.
  Employment
Agreements
  Mr.
Westerman serves as our Chairman of the Board, President and CEO, as Chairman of
the Board and CEO of ROC and President and CEO of Riviera Black Hawk,
Inc.
  Under Mr.
Westerman’s employment agreement, which was last amended on March 4, 2008, he is
employed for one-year (calendar year) terms which automatically renew for
successive one-year terms unless written notice is provided by Mr. Westerman
upon at least 180 days, or by us upon at least 90 days, prior to the
termination of the then current term.  Mr. Westerman’s base annual
compensation is $1,000,000.  Under his employment agreement, Mr. Westerman
is entitled to participate in our Incentive Compensation Program and any other
executive bonus plan.
  Mr.
Westerman’s employment agreement required us to fund a retirement account for
him.  The Company fully funded the account and commenced quarter principal
distributions equal to $250,000 plus accrued interest beginning April 1, 2003
and continuing on the first day of each quarter thereafter until October 1,
2009.  The Company credited Mr. Westerman’s retirement account with
accrued quarterly interest on the first day of each succeeding calendar quarter
in an amount equal to the product of (1) our average borrowing cost for the
immediately preceding fiscal year, as determined by our CFO, and (2) the average
outstanding balance in the retirement account during the preceding
quarter.  Total interest accrued to Mr. Westerman’s account was
$52,000, $135,000 and $311,000 for 2009, 2008 and 2007, respectively.The final
retirement account principal payment and accrued interest balance was paid to
Mr. Westerman in October 2009.
  Mr.
Westerman’s agreement also provides that for 24 months following termination of
employment for any reason except cause, he shall not engage in any activity,
which is in competition with us within a 75-mile radius from the location of any
hotel or casino then operated by us.  As consideration for not competing,
we will pay Mr. Westerman a total of $500,000 in two equal annual installments
of $250,000.  The first installment will be payable within five business
days of termination of employment, with the second installment payable on the
first anniversary of termination.
  In
addition to his employment agreement, on August 4, 2009 we approved a salary
continuation agreement for Mr. Westerman that expires on December 31,
2010.  The salary continuation agreement entitles Mr. Westerman to 12
months of base salary, paid in bi-weekly installments, and 24 months of health
insurance benefits in the event Mr. Westerman is terminated without cause within
24 months after a change in control of the Company, as defined in the salary
continuation agreement.  Any continued payments made to Mr Westerman
pursuant to his employment agreement will be applied so as to reduce payments to
which he would be entitled under the salary continuation agreement.
  Robert A.
Vannucci serves as President and COO of ROC.  We entered into an employment
agreement with Mr. Vannucci effective September 1, 2006. The agreement is for a
one-year term and automatically renews for successive one-year terms.  Mr.
Vannucci’s base compensation is $400,000 and he is entitled to participate in
our Incentive Compensation Program.  Mr. Vannucci or we may terminate
the agreement at any time upon 30 days’ prior written notice, but if we
terminate it without cause, then Mr. Vannucci will be entitled to one
year’s salary, a prorated award under our Incentive Compensation Program, two
years of health insurance benefits and a one-year automobile allowance of
$6,000, plus reimbursement of all reasonable automobile expenses (excluding
lease or loan payments).
  70
  Non-Equity
Incentive Plan Compensation
  We
maintain an annual Incentive Compensation Program for executives and key
employees to encourage and reward achievement of our business goals and to
assist in attracting and retaining key personnel.  Based on the objectives
described above, the Committee annually develops and approves specific
performance targets for the following year under our Incentive Compensation
Program, in which Messrs. Westerman, Vannucci, Marchionne and Simons participate
along with approximately 60 other key employees.
  Participants
are eligible to receive quarterly and annual cash awards based on our
achievement of predetermined financial targets at Riviera Las Vegas or Riviera
Black Hawk, as applicable, or at both locations combined for our corporate
employees.  We pay cash awards under this program only when the
performance goals that the Compensation Committee established prior to the
applicable fiscal year are achieved.  The award formula is based on the
anticipated difficulty and relative importance of achieving the performance
goals.  A major component of the formula is EBITDA of each of our two
properties (Riviera Las Vegas and Riviera Black Hawk) for property-specific
personnel and combined EBITDA for corporate personnel.  Accordingly, any
awards paid for any given fiscal year will vary depending on actual
performance.
  The
employment position held by a participant determines the award level for which
that participant would qualify if the predetermined financial targets are
achieved.  Our Chairman of the Board and CEO has discretion to change the
award level assigned to any non-executive officer position.
  The
Compensation Committee, if it chooses to do so, may award discretionary
bonuses.
  There
were no incentive bonus awards for 2008 as none of the 2008 EBITDA target goals
were achieved.
  As
previously disclosed on Item 5 within Form 10-Q filed with the SEC on August 10,
2009, the Company’s Board of Directors reinstated performance targets under the
Company’s Incentive Compensation Plan.  Under the Company’s Board of
Director’s approved formula, the Incentive Compensation Plan’s 2009 award range
for: (i) Mr. Westerman, is zero to a $200,000 target bonus if the EBITDA target
is achieved; (ii) Robert A. Vannucci, the President and Chief Operating Officer
of ROC, is zero to a $200,000 target bonus if the EBITDA target is achieved;
(iii) Mr. Marchionne, is zero to a $100,000 target bonus if the EBITDA target is
achieved; and (iv) Mr. Simons, is zero to a $100,000 target bonus if the EBITDA
target is achieved.  In each case, if the percentage of the EBITDA
performance target achieved is less than 100% but higher than 95%, the award is
50% of the target bonus; if, at or between 95% and 90%, the award is 25% of the
target bonus.  The EBITDA performance target is based on three
components: an RBH EBITDA target, an ROC EBITDA target and a consolidated EBITDA
target, each of which carry a different weight.  If the full EBITDA
threshold for a particular Company property is exceeded, a bonus pool of 7.5% of
that property’s excess EBITDA, capped at 100% of the full bonus potential for
the property, is payable to and shared by eligible participants.  Mr.
Vannucci is eligible to participate in such bonus pools.  Messrs.
Westerman, Marchionne and Simons share in a separate bonus pool equal to 2.5% of
any excess EBITDA achieved by a Company property.  For purposes of
2009 incentive compensation, property level EBITDA and Company EBITDA target
goals were (i) for Riviera Las Vegas $12.7 million, (ii) for Riviera Black Hawk
$9.0 million, and (iii) for Consolidated $17.2 million.  We recorded
$196,185 under the Incentive Compensation Program for 2009.  These
amounts are reflected in the Summary Compensation Table in the Non-Equity
Incentive Plan Compensation column above.
  71


Each
executive must remain an employee through the end of the quarter or year, as
applicable, in order to be eligible for the award.  The Committee has
discretion to increase or decrease awards when performance goals are achieved,
and to make discretionary awards when performance goals are not
achieved.




As
previously disclosed in the quarterly reports on Form 10-Q filed with the SEC on
August 10, 2009, under the discretionary portion of the Incentive Compensation
Program, the Company’s Board of Director’s established three milestones related
to our potential debt restructuring, each of which, upon achievement by certain
of the Company’s executives, will trigger the right to receive a payment of 25%
of the eligible participant’s annual salary.  The first milestone is
achieved upon receipt by the Company of a mutually agreed upon executed
agreement and accompanying plan of reorganization (“Lock-up Agreement and Plan”)
from a lender group holding a predetermined majority percentage of the aggregate
balance of the Credit Facility and the Interest Rate Swap.  The second
milestone is obtained upon confirmation of a plan of organization as defined in
the Lock-up Agreement and Plan and the third milestone is achieved upon
substantial confirmation of the plan of reorganization as defined in the Lock-up
Agreement and Plan.  As of December 31, 2009, none of the
aforementioned milestones had been met.  The named executive officers
who are eligible to receive these milestone payments are Messrs. Westerman,
Simons, Marchionne and Vannucci.




Long-Term
Incentive Compensation




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




Although
we have not granted employee stock options since 2002, we are authorized to do
so under our stockholder-approved 2005 Incentive Stock Option Plan (the
“Employee Plan”).  Option grants approved during scheduled Stock Option
Committee meetings become effective and are priced as of the date of approval or
a predetermined future date.  Grants approved by unanimous written consent
become effective and are priced as of the date the last Stock Option Committee
member’s signature is obtained or as of a predetermined future date as
established in the written consent.  Neither the Committee nor the Stock
Option Committee grants equity-based awards in anticipation of the release of
material nonpublic information such as a significant earnings announcement that
is likely to affect the price of our stock.  Similarly, neither the
Committee nor the Stock Option Committee times the release of material nonpublic
information based on anticipated equity-based awards.  Also, because
equity-based compensation awards typically vest over a period of time, the value
to recipients of any immediate increase in the price of our stock following a
grant is attenuated.




The
Committee regularly monitors the environment in which we operate and makes
changes to our equity-based compensation program to help us meet our
goals.  During 2008 and 2009, neither stock options nor restricted shares
were granted to executives or other employees.  Nevertheless, we believe
stock options can be an effective tool for meeting our goal of increasing
long-term stockholder value by tying the value of the stock options to our
performance in the future.  Employees are able to profit from stock options
only if our stock price increases in value over the term of the option
period.  We believe that stock option awards could help us to retain
certain key executives and, therefore, stock options may be awarded on a
selected basis in the future.


72




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




401(k)
Plan




We have a
401(k) plan for employees who are at least 21 years of age and are not covered
by a collective bargaining agreement after one year of service.  Under
the terms of the 401(k) plan before it was amended effective January 1, 2008, we
may contribute to the 401(k) plan an amount not to exceed 25% of the first 8% of
each participant’s compensation.  Commencing January 1, 2008, we made
contributions to the 401(k) plan in an amount not to exceed 50% of the first 6%
of each participant’s compensation.  We made contributions of $452,000 for
the year ended December 31, 2008.  Effective January 1, 2009, we suspended
the Company match to our 401(k) plan until further notice.  Our
contributions to the 401(k) plan for the Named Executive Officers are included
in the All Other Compensation column of the Summary Compensation
Table.  We also pay administrative costs of the plan, which are not
material.




The
Employee Stock Ownership Plan




We
established the ESOP, effective January 1, 2000.  On May 11, 2009, the
Company’s Board of Directors elected to terminate the ESOP based on the
recommendation of the Compensation Committee.  We did not make any
contributions to the ESOP for 2009 and 2008.




Deferred
Compensation Plan




Our
Deferred Compensation Plan (the “DCP”) gives eligible employees the opportunity
to defer cash compensation.  Participation in the DCP is limited to
employees who receive annual compensation of at least $100,000.  There were
no participants in the DCP on December 31, 2009 and there were no contributions
to the DCP through deferrals of cash compensation in 2009 and
2008.




Restricted
Stock Plan




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




Restricted
Stock Plan grants are reported in the Stock Awards column of the Summary
Compensation Table.  The amount we report for a specified year is the
amount we recognized for financial statement reporting purposes for that
year.  The amount recognized for financial statement reporting was
based on the reported closing price of the Common Stock on NYSE Amex on the date
of the grant and the number of restricted shares that became vested in the
specified year in accordance with authoritative guidance for accounting for
stock compensation under ASC Topic 718.  The amount of such grants, if
any, reflected in the Summary Compensation Table above, is the grant date fair
value computed in accordance with GAAP.


73




Stock
Option Plans and Stock Grants




None of
the Named Executive Officers were granted stock options in 2009 or
2008.




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




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




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




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




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




Additional
Benefits




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




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


74




Outstanding Equity-Based
Awards




The
following table provides information as of December 31, 2009 concerning
Named Executive Officers’ unexercised stock options and restricted Common Stock
that was not vested.




OUTSTANDING
EQUITY AWARDS AS OF DECEMBER 31, 2009




Option Awards
                                                  
                                                  
                                                  Stock AwardsName
                                                  
                                                  Number of
                                                    Securities
                                                    Underlying
                                                    Unexercised
                                                    Options
                                                    (#)
                                                    Exercisable
                                                  
                                                  
                                                  Number of
                                                    Securities
                                                    Underlying
                                                    Unexercised
                                                    Options
                                                    (#)
                                                    Unexercisable
                                                  
                                                  
                                                  Equity
                                                    Incentive
                                                    Plan
                                                    Awards:
                                                    Number of
                                                    Securities
                                                    Underlying
                                                    Unexercised
                                                    Unearned
                                                    Options
                                                    (#)
                                                  
                                                  
                                                  Option
                                                    Exercise
                                                    Price
                                                    ($)
                                                  
                                                  
                                                  Option
                                                    Expiration
                                                    Date
                                                  
                                                  
                                                  Number
                                                    of Shares
                                                    or Units
                                                    of Stock
                                                    That
                                                    Have Not
                                                    Vested
                                                    (#)
                                                  
                                                  
                                                  Market
                                                    Value of
                                                    Shares or
                                                    Units of
                                                    Stock
                                                    That
                                                    Have Not
                                                    Vested
                                                    ($)
                                                  
                                                  
                                                  Equity
                                                    Incentive
                                                    Plan
                                                    Awards:
                                                    Number
                                                    of
                                                    Unearned
                                                    Shares,
                                                    Units or
                                                    Other
                                                    Rights
                                                    That Have
                                                    Not
                                                    Vested
                                                    (#)
                                                  
                                                  
                                                  Equity
                                                    Incentive
                                                    Plan
                                                    Awards:
                                                    Market or
                                                    Payout
                                                    Value of
                                                    Unearned
                                                    Shares,
                                                    Units or
                                                    Other
                                                    Rights
                                                    That Have
                                                    Not
                                                    Vested
                                                    ($)William
      L.
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -WestermanPhillip
      B.
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -SimonsRobert
      A.
                                                  
                                                  
                                                  30,000
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  2.5625
                                                  
                                                  
                                                  04/25/101
                                                  
                                                  
                                                  
                                                  12,0003
                                                  
                                                  
                                                  $
                                                  4,2004
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Vannucci
                                                  
                                                  
                                                  60,000
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  $
                                                  2.45
                                                  
                                                  
                                                  05/14/121Tullio
      J.
                                                  
                                                  
                                                  12,000
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  2.00
                                                  
                                                  
                                                  08/07/112
                                                  
                                                  
                                                  
                                                  3,9003
                                                  
                                                  
                                                  $
                                                  1,3654
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Marchionne
                                                  
                                                  
                                                  12,000
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  $
                                                  2.45
                                                  
                                                  
                                                  05/14/122





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




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




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




4
            The
      December 31, 2009 reported closing price of our Common Stock was $0.35 per
      share.




Nonqualified Deferred
Compensation




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


75




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




We
reported no earnings on the DCP account balances in 2008 because there were no
account balances in the DCP in 2009.




Post
Termination and Change in Control Arrangements




Salary
Continuation Agreements




We have
salary continuation agreements, effective through December 31, 2010, with
Messrs. Westerman, Marchionne and Simons (as well as with approximately 52
other key employees and officers excluding Mr. Vannucci).  The salary
continuation agreements with Messrs. Westerman, Simons and Marchionne entitles
each of them to 12 months of base salary, payable in bi-weekly installments, and
24 months of health insurance benefits in the event their employment with the
Company is terminated without cause within 24 months after a change in control
of the Company, as defined in the salary continuation agreement.  Any
non-compete payments made to Mr Westerman pursuant to his employment agreement
shall be applied so as to reduce payments to which he would be entitled under
the salary continuation agreement.  This payment obligation of the Company
would not be subject to a duty on the part of Messrs. Westerman, Marchionne
or Simons to mitigate by obtaining other employment.  If this payment
obligation was triggered on December 31, 2009, Messrs. Westerman, Marchionne and
Simons would be entitled to payments and benefits from us of approximately
$1,030,000, $280,000 and $230,000 respectively.  During the period that
Messrs. Westerman, Marchionne or Simons receive the base salary payments,
as the case may be, he must not hire or solicit for employment any of our
then-current employees.




Compensation
of Directors




In 2009,
Mr. DiVito was paid $75,000 in fees for services as a director and as
Chairman of our Audit Committee, consisting of a $50,000 annual fee for services
as a director and $25,000 for services as Chairman of our Audit Committee; Mr.
Harvey was paid $62,000 in fees for services as a director and as Chairman of
our Compensation Committee and Chairman of our Nominating and Governance
Committee, consisting of a $50,000 annual fee for services as a director,
$10,000 for services as Chairman of our Compensation Committee and $2,000 for
services as Chairman of our Nominating and Governance Committee, Mr. Land was
paid a $50,000 annual fee for services as a director and Mr. Silver was paid a
$12,500 fee for services as a director prior to his resignation on February 23,
2009.  In addition to the annual fees, each director, except Mr.
Westerman, receives a meeting fee (“Meeting Fee”) in the amount of $1,000 for
each board and committee meeting attended except that the chairman of a
committee shall not receive a Meeting Fee for attending his own committee
meeting.  They are each also reimbursed for expenses incurred in connection
with attendance at meetings of our Board of Directors and committee
meetings.




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


76


In 1996,
we adopted a Nonqualified Stock Option Plan for Non Employee Directors (the
“1996 Plan”), which expired in 2003.  Under the 1996 Plan, each individual
elected, re-elected or continuing as a non-employee director would automatically
receive options for 6,000 shares of Common Stock (as adjusted for the 2005 stock
split), with an exercise price equal to the fair market value of the Common
Stock on the date of grant.  In 2004, before it was determined that the
1996 Plan had expired, we attempted to grant options to non-employee directors
for a total of 30,000 shares.  Because of the prior expiration of the 1996
Plan, though, those options were null and void.  At our 2005 annual
meeting, Stockholders approved the issuance of 30,000 shares of Common Stock to
the non-employee directors as substitute compensation for those options. 
Messrs. Silver, Harvey and DiVito each received 6,000 shares and Mr. Land
received 12,000 shares.  Those shares are subject to restrictions on
resales, assignments, pledges, encumbrances or other transfers prior to
vesting.  The shares vest at the rate of 20% per year on each anniversary
of the grant date.  However, accelerated vesting of all of the shares will
occur upon death, disability, a change in control of the Company or under any
other termination of directorship status, except resignation prior to reaching
age 62 or declining to stand for reelection prior to reaching age 62 (which
would result in forfeiture of the non-vested shares).  Mr. Silver attained
the age of 62 prior to his resignation from our Board on February 23, 2009
resulting in the accelerated vesting of his remaining 2,400 of these
shares.   In 2009, 2,400 shares for Mr. Land and 1,200 shares for each
of Messrs. DiVito and Harvey that would have vested were forfeited.




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




Upon
becoming a director, Mr. Harvey was granted options to purchase 6,000 shares at
$2.20 per share on May 18, 2001. Mr. Harvey was subsequently granted options to
purchase 6,000 shares at $2.58 per share on May 10, 2002, options to purchase
6,000 shares at $1.87 per share on May 12, 2003, options to purchase 6,000
shares at $21.60 per share on May 22, 2006, options to purchase 6,000 shares at
$36.56 per share on May 17, 2007, options to purchase 6,000 shares at $15.35 per
share on May 19, 2008 and options to purchase 6,000 shares at $1.48 per share on
May 17, 2009.




Upon
becoming a director, Mr. DiVito was granted options to purchase 6,000 shares at
$1.87 per share on July 12, 2002. Mr. DiVito was subsequently granted options to
purchase 6,000 shares at $1.87 per share on May 12, 2003, options to purchase
6,000 shares at $21.60 per share on May 22, 2006, options to purchase 6,000
shares at $36.56 per share on May 17, 2007, options to purchase 6,000 shares at
$15.35 per share on May 19, 2008 and options to purchase 6,000 shares at $1.48
per share on May 17, 2009.




Mr. Land
was granted options to purchase 6,000 shares at $21.60 per share on May 22,
2006, options to purchase 6,000 shares at $36.56 per share on May 17, 2007,
options to purchase 6,000 shares at $15.35 per share on May 19, 2008 and options
to purchase 6,000 shares at $1.48 per share on May 17, 2009.




Upon Mr.
Silver’s resignation from our Board on February 23, 2009, Mr. Silver
held  options to purchase 42,000 shares, with exercise prices ranging
from $1.87 to $36.56.




On
December 30, 2005, in order to avoid expensing the unvested portion of
previously awarded options in accordance with authoritative guidance for
accounting for stock compensation under ASC Topic 718, we accelerated the
vesting of options granted under the 1996 Plan, allowing all such options to
become fully vested effective December 30, 2005.  In order to prevent
unintended personal benefits to the directors affected by this acceleration, we
imposed a condition that each affected director agrees not to exercise any
options subject to the acceleration until such time that those options would
have become vested under the prior vesting schedule.  All of the options
subject to this accelerated vesting would have now become vested under their
prior vesting schedules.


77




We have a
Stock Compensation Plan, under which directors who are members of the Committee
have the right to receive all or part of their annual fees in the form of Common
Stock having a fair market value equal to the amount of their fees. Of the
50,000 shares that are allocated to this plan, 46,020 remain available for
issuance and none were issued in 2009.




DIRECTOR
COMPENSATION




The
following table sets forth all compensation paid to our directors for the fiscal
year ended December 31, 2009.




Name
                  
                  Fees
                    Earned or
                    Paid in
                    Cash
                    (1,2,3)
                    ($)
                  
                  
                  Stock
                    Awards
                    ($).
                  
                  
                  Option
                    Awards
                    (4)
                    ($)
                  
                  
                  Non-Equity
                    Incentive Plan
                    Compensation
                    ($)
                  
                  
                  Nonqualified
                    Deferred
                    Compensation
                    Earnings
                    ($)
                  
                  
                  All Other
                    Compensation
                    ($)
                  
                  
                  Total
                    ($)Paul
      A. Harvey
                  
                  $
                  73,000
                  
                  
                  
                  -
                  
                  
                  $
                  6,245
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  79,245Vincent
      L. DiVito
                  
                  $
                  83,000
                  
                  
                  
                  -
                  
                  
                  $
                  6,245
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  89,245James
      N. Land, Jr.
                  
                  $
                  62,000
                  
                  
                  
                  -
                  
                  
                  $
                  6,245
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  68,245William
      L. Westerman (5)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Jeffrey
      A. Silver (resigned February 23, 2009) (1)
                  
                  $
                  12,500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  12,500





1
            As
      previously disclosed on a Form 8-K filed with the SEC on February 27,
      2009, effective February 23, 2009, Jeffrey A. Silver, voluntarily
      resigned.  The Fees Earned or Paid in Cash in the Director
      Compensation table represent fees paid Mr. Silver for services in the
      first quarter ended March 31, 2009.  No additional compensation
      was awarded or paid to Mr. Silver in
2009.




2
            In
      addition to the amounts reported the Director Compensation table above,
      Mr. DiVito and Mr. Harvey were each paid $2,000 and Mr. Land was paid
      $3,000 for fees earned in 2009, but paid in
  2010.




3
            The
      reported amounts represent the aggregate of the $50,000 fee earned for
      services as a director, fees earned as chairman of one or more of our
      committees and Meeting
Fees.


78


4
            With
      the exception of ignoring the impact of the forfeiture rate, these amounts
      represent the aggregate grant date fair value of awards for grants of
      options to each listed director in fiscal 2009. The May 17, 2009 aggregate
      grant date fair value of the options for 6,000 shares that we granted to
      each of Messrs. DiVito, Harvey and Land, calculated in accordance with
      authoritative guidance for accounting for stock compensation under ASC
      Topic 718, was $6,245, respectively.  This calculation was based
      on the Black-Scholes method of options valuation.  These amounts
      do not represent the actual amounts paid to or realized by the directors
      during fiscal 2009. The value as of the grant date for stock options is
      recognized over the number of days of service required for the stock
      option to vest in full.




5
            Mr.
      Westerman is our only director who is also employed by us, and he receives
      no extra compensation for serving as a director.  Mr. Westerman’s
      compensation as a Named Executive Officer is in the Summary Compensation
      Table.




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




STOCK
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT




The
following table contains information regarding the beneficial ownership of
Common Stock, as of March 25, 2010, by (i) each of our directors and each of our
Named Executive Officers, (ii) all of our directors and executive
officers as a group and (iii) each person who, to our knowledge, beneficially
owns more than 5% of the outstanding Common Stock (based on reports filed with
the SEC under section 13(d) or 13(g) of the Exchange Act or information
furnished to us).  The percentage of outstanding Common Stock
represented by each named person’s stock ownership assumes the exercise by such
person of all of his stock options that are exercisable within 60 days of
March 25, 2010, but does not assume the exercise of stock options by any other
persons.  The percentage of outstanding Common Stock represented by
the stock ownership of all of our directors and executive officers as a group
assumes the exercise by all members of that group of their respective stock
options that are exercisable within 60 days of March 25, 2010, but does not
assume the exercise of options by any persons outside of that
group.  Except as indicated in the footnotes to the table, each person
listed below has sole voting and investment power with respect to the shares set
forth opposite such person’s name.


79




SharesBeneficiallyOwnedName
                    
                    Number
                    
                    
                    PercentageDirectors and Executive
      Officers:William
      L. Westerman(1)
                    
                    
                    4,529
                    
                    
                    
                    *Paul
      A. Harvey(1)(2)
                    
                    
                    34,800
                    
                    
                    
                    *Vincent
      L. DiVito(1)(3)
                    
                    
                    31,800
                    
                    
                    
                    *James
      N. Land, Jr. (1)(4)
                    
                    
                    25,600
                    
                    
                    
                    *Robert
      A. Vannucci (1)(5)
                    
                    
                    236,584
                    
                    
                    
                    1.9
                    %Tullio
      J. Marchionne(1)(6)
                    
                    
                    52,570
                    
                    
                    
                    *Phillip
      B. Simons(1)
                    
                    
                    7
                    
                    
                    
                    *All
      directors and executive officers as a group(7)
                    
                    
                    385,890
                    
                    
                    
                    3.1
                    %Beneficial
      Owners of More Than 5% of Common Stock:Plainfield
      Special Situations Master Fund Limited andrelated
      parties(8)
                    
                    
                    1,874,783
                    
                    
                    
                    15.1
                    %Desert
      Rock Enterprises LLC, the Derek J. Stevens Trustand
      the Gregory J. Stevens Trust(9)
                    
                    
                    1,874,783
                    
                    
                    
                    15.1
                    %Wayzata
      Investment Partners LLC(10)
                    
                    
                    1,004,000
                    
                    
                    
                    8.1
                    %Lorenzo
      Doumani Family Trust(11)
                    
                    
                    724,300
                    
                    
                    
                    5.8
                    %





*           Less
than 1%.




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




2.
            Includes
      30,000 shares which may be acquired within 60 days of March 25, 2010, upon
      the exercise of outstanding
options.




3.
            Includes
      24,000 shares which may be acquired within 60 days of March 25, 2010, upon
      the exercise of outstanding
options.




4.
            Includes
      12,000 shares which may be acquired within 60 days of March 25, 2010, upon
      the exercise of outstanding
options.




5.
            Includes
      90,000 shares which may be acquired within 60 days of March 25, 2010, upon
      the exercise of outstanding
options.




6.
            Includes
      24,000shares
      which may be acquired within 60 days of March 25, 2010, upon the exercise
      of outstanding options.




7.
            Includes
      a total of 180,000 shares which may be acquired by directors and executive
      officers as a group within 60 days of March 25, 2010 upon the exercise of
      outstanding options.




80


8.
            Plainfield
      Asset Management LLC (“Asset Management”) is the Manager of Plainfield
      Special Situations Master Fund Limited (“Master Fund”), which holds
      1,874,783 shares.  Max Holmes, as managing member and the chief
      investment officer of Asset Management, may be deemed to have the shared
      power to vote or direct the vote of (and the shared power to dispose or
      direct the disposition of) the Master Fund Shares.  None of
      Asset Management or Max Holmes owns any common shares directly, and each
      disclaims beneficial ownership of the shares held by the Master
      Fund.  The address of Master Fund, Asset Management and Mr.
      Holmes is 55 Railroad Avenue, Greenwich, CT 06830.  This
      information is based on information reported by the above parties in a
      Schedule 13D and amendments thereto filed with the SEC through February
      12, 2009.  See risk factor “There Are Requirements and
      Limitations On Changes In Control Of Our Company That Could Reduce The
      Ability To Sell Our Shares In Excess Of Current Market Prices”above for information regarding the Investment Agreement,
      dated  November 19, 2008, entered into with Master Fund,
      relating, among other things, to the acquisition of our common
      stock.




9.
            The
      stock ownership reported in the table is comprised of 1,617,783 shares
      held by Desert Rock Enterprises, LLC (“Desert Rock”); 167,000 shares held
      by the Derek J. Stevens Trust under agreement dated July 16, 1993
      (the “DJS Trust”); and 90,000 shares held by the Gregory J. Stevens Trust
      under agreement dated September 20, 1995 (the “GJS
      Trust”).  The DJS Trust and the GJS Trust are members of Desert
      Rock.  Derek J. Stevens is the Manager of Desert Rock and
      trustee of the DJS Trust, and he may be deemed to have shared voting and
      investment power over the shares held by Desert Rock or the DJS
      Trust.  Gregory J. Stevens is trustee of the GJS Trust and he
      may be deemed to have shared voting and investment power over the shares
      held by Desert Rock or the GJS Trust.  The address of Desert
      Rock is 3960 Howard Hughes Parkway, Suite 562, Las Vegas, NV
      89109.  The address of Derek J. Stevens, the DJS Trust, Gregory
      J. Stevens and the GJS Trust is 21777 Hoover Road, Warren, MI
      48089.  This information is based on information reported by the
      above parties in a Schedule 13D and amendments thereto filed with the SEC
      through February 23, 2009.   See risk factor “There Are Requirements and
      Limitations On Changes In Control Of Our Company That Could Reduce The
      Ability To Sell Our Shares In Excess Of Current Market Prices”above for information regarding the Investment Agreement,
      dated  November 19, 2008, entered into with Desert Rock,
      relating, among other things, to the acquisition of our common
      stock.




10.
            Based
      on information reported in a Schedule 13G filed with the SEC on February
      16, 2010,




by
      Wayzata Investment Partners LLC (“Wayzata LLC”), which has shared voting
      power and shared dispositive power in respect of the shares reported in
      the table above.  Voting power and dispositive power is shared
      with Patrick J. Halloran, the managing member of Wayzata
      LLC.  Wayzata LLC serves as investment adviser to Wayzata
      Opportunities Fund, LLC and Wayzata Opportunities Fund Offshore, L.P.,
      (collectively, the “Wayzata Funds”), with respect to these shares of
      common stock directly owned by the Wayzata Funds.  The address
      of Wayzata LLC and Patrick J. Halloran is 701 East Lake Street, Suite 300,
      Wayzata, MN 55391.




11.
            Based
      on information reported in a Schedule 13D filed with the SEC on May 25,
      2009, the stock ownership reported in the table above is comprised of
      724,300 shares beneficially owned by the Lorenzo Doumani Family Trust,
      Lorenzo Doumani Trustee.  The address of the Lorenzo Doumani is
      2747 Paradise Road, Suite 501, Las Vegas, NV
  89109




Item
      13.
            Certain
      Relationships and Related Transactions and Director
      Independence




Transactions with Related
Persons




Jeffrey
A. Silver, a former member of the Company’s Board of Directors who resigned from
the board effective February 23, 2009, is a shareholder in the law firm of
Gordon & Silver, Ltd. (“Gordon & Silver”).  During 2009, we
paid approximately $205,000 to Gordon & Silver for various legal services
and related expenses.




Other
than as noted above, there were no reportable relationships or transactions for
2009.


81




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




Director
Independence




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




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




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




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




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




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




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




Item
      14.
            Principal
      Accounting Fees and Services




Audit
Fees




We were
billed by our principal accountants, namely Ernst & Young, a total of
$395,300 for fiscal year 2009, and a total of $500,700 for fiscal year 2008 for
their audits of our annual consolidated financial statements, their reviews of
our consolidated financial statements in our quarterly reports on Form 10-Q and
Sarbanes-Oxley Act compliance for the respective years.


82




Audit-Related
Fees




We were
not billed by Ernst & Young in 2009 and 2008 for audit-related fees
that are not reported above in "Audit Fees".




Tax Fees




We were
billed $151,900 by Ernst & Young in 2009 for tax advice and
planning services including approximately $92,000 for tax services associated
with our potential debt restructuring.  We were billed in
$47,600 by Ernst & Young in 2008 for tax advice and tax planning
services.




All Other
Fees




We were
not billed by Ernst & Young for other professional services in fiscal years
2009 and 2008.




PART
IV




Item
      15.
            Exhibits,
      Financial Statement Schedules




(a)(1)    
List of Financial Statements




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




·
            Report
      of Independent Registered Public Accounting Firm on the Consolidated
      Financial Statements




·
            Consolidated
      Balance Sheets as of December 31, 2009 and
2008




·
            Consolidated
      Statements of Operations for the Years Ended December 31, 2009, 2008 and
      2007




·
            Consolidated
      Statements of Stockholders’ Deficit for the Years Ended December 31, 2009,
      2008 and 2007




·
            Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
      2007




·
            Notes
      to Consolidated Financial
Statements




(a)(2)  
List of Financial Statement Schedules




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




(a)(3)  
List of Exhibits


83




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




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




(c)           Not
applicable.




SIGNATURES




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




March
      26, 2010
              RIVIERA
      HOLDINGS CORPORATIONBy:
              /s/  WILLIAM
      L. WESTERMANWilliam
      L. WestermanChief
      Executive Officer and President(Principal
      Executive Officer)




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




Signature
              
              Title
              
              Date/s/
      WILLIAM L. WESTERMAN
              
              Chairman
      of the Board, Chief
              
              March
      26, 2010William
      L. Westerman
              
              Executive
      Officer and President/s/
      PHILLIP B. SIMONS
              
              Treasurer
      (Principal Financial
              
              March
      26, 2010Phillip
      S. Simons
              
              and
      Accounting Officer)/s/
      PAUL A. HARVEY
              
              Director
              
              March
      26, 2010Paul
      A. Harvey/s/
      VINCENT L. DIVITO
              
              Director
              
              March
      26, 2010Vincent
      L. DiVito/s/
      JAMES N. LAND, JR.
              
              Director
              
              March
      26, 2010James
      N. Land, Jr.




84


EXHIBIT
INDEX




Exhibit
                                            Number
                                          
                                          Description3.1*
                                          
                                          Articles
      of Incorporation of the Company (see Exhibit 3 to Quarterly Report on Form
      10-Q filed on November 10, 2003, Commission File No.
    0-21430)3.2*
                                          
                                          Bylaws
      of the Company (see Exhibit 3.1 to Form 10-Q filed on November 9, 2007,
      Commission File No. 0-21430)3.3*
                                          
                                          Amendment
      to the Company Bylaws (see Exhibit 3.1 to Form 8-K filed on August 18,
      2008. Commission File No. 0-21430)3.4*
                                          
                                          Articles
      of Incorporation of Riviera Operating Corporation (see Exhibit 3.3 to
      Registration Statement on Form S-4 filed on September 10, 1997,
      Commission File No. 0-21430)3.5*
                                          
                                          Bylaws
      of Riviera Operating Corporation (see Exhibit 3.4 to Registration
      Statement on Form S-4 filed on September 10, 1997, Commission File
      No. 0-21430)3.6*
                                          
                                          Articles
      of Incorporation of Riviera Gaming Management, Inc. (see Exhibit 3.5 to
      Registration Statement on Form S-4 filed on September 10, 1997,
      Commission File No. 0-21430)3.7*
                                          
                                          Bylaws
      of Riviera Gaming Management, Inc. (see Exhibit 3.6 to Registration
      Statement on Form S-4 filed on September 10, 1997, Commission File
      No. 0-21430)3.8*
                                          
                                          Articles
      of Incorporation of Riviera Black Hawk, Inc. (see Exhibits 3.01 and 3.02
      to Amendment No. 1 to Registration Statement on Form S-4 filed by Riviera
      Black Hawk, Inc. on August 31, 1999, Commission File No.
      333-81613)3.9*
                                          
                                          Bylaws
      of Riviera Black Hawk, Inc. (see Exhibit 3.03 to Amendment No. 1 to
      Registration Statement on Form S-4 filed by Riviera Black Hawk, Inc. on
      August 31, 1999, Commission File No. 333-81613).10.1*
                                          
                                          Indemnity
      Agreement, dated June 30, 1993, from Riviera, Inc. and Meshulam Riklis in
      favor of the Company and Riviera Operating Corporation (see Exhibit 10.7
      to Registration Statement on  Form S-1 filed on August 11, 1993,
      Commission File No. 33-67206)10.2*
                                          
                                          Equity
      Registration Rights Agreement dated June 30, 1993, among the Company and
      the Holders of Registerable Shares (see Exhibit 10.9 to Registration
      Statement on Form S-1 filed on August 11, 1993, Commission File No.
      33-67206)10.3*
                                          
                                          Operating
      Agreement dated June 30, 1993, between the Company and Riviera Operating
      Corporation (see Exhibit 10.15 to Registration Statement on Form S-1 filed
      on August 11, 1993, Commission File No. 33-67206)10.4*
                                          
                                          Adoption
      Agreement regarding Profit Sharing and 401(k) Plans of the Company (see
      Exhibit 10.16 to Registration Statement on Form S-1 filed on August
      11, 1993, Commission File No. 33-67206)10.5*
                                          
                                          Tax
      Sharing Agreement between the Company and Riviera Operating Corporation
      dated June 30, 1993 (see Exhibit 10.24 to Amendment No. 1 to
      Registration Statement on Form S-1 filed on August 19, 1993,
      Commission File No.
33-67206)




85




10.6*
                                              
                                              Tax
      Sharing Agreement between the Company and Riviera Black Hawk, Inc.
      dated  March 31, 1999 (see Exhibit 10.12 to Registration
      Statement on Form S-4 filed on August 9, 2002, Commission File No.
      333-97907)10.7*(A)
                                              
                                              1993
      Stock Option Plan (see Exhibit 4.4 to Registration Statement on Form S-8
      filed on May 13, 1996, Commission File No.
  333-03631)10.8*(A)
                                              
                                              Stock
      Compensation Plan for Directors Serving on the Compensation Committee (see
      Exhibit 10.14 to Registration Statement on Form S-4 filed on August
      9, 2002, Commission File No. 333-97907)10.9*(A)
                                              
                                              Employment
      Agreement dated as of November 21, 1996 among the Company, Riviera
      Operating Corporation and William L. Westerman (see Exhibit 10.31 to Form
      10-K for the fiscal year ended December 31, 1996, Commission File No.
      0-21430)10.10*(A)
                                              
                                              Amendment
      to Employment Agreement between the Company and William L. Westerman
      effective January 1, 2001 (see Exhibit 10.40 to Form 10-K filed March 23,
      2001, Commission File No. 0-21430)10.11*(A)
                                              
                                              Deferred
      Compensation Plan dated November 1, 2000 (see Exhibit 10.19 to Form 10-K
      filed March 25, 2005, Commission File No. 0-21430)10.12*(A)
                                              
                                              Restricted
      Stock Plan (see Exhibit 10.20 to Form 10-K filed March 25, 2005,
      Commission File No. 0-21430)10.13*(A)
                                              
                                              Non-Qualified
      Stock Option Plan for Non-Employee Directors (see Exhibit 4.6 to
      Registration Statement on Form S-8 filed on May 13, 1996, Commission File
      No. 333-03631)10.14*(A)
                                              
                                              Second
      Amendment to Employment Agreement between the Company and William L.
      Westerman effective July 15, 2003 (see Exhibit 10.46 to Form 10-K filed on
      March 16, 2004, Commission File No. 0-21430)10.15*(A)
                                              
                                              Amendment
      of 1993 Stock Option Plan (see Exhibit 10.47 to Form 10-K filed on
      March 25, 2005, Commission File No. 0-21430)10.16*
                                              
                                              Purchase
      and License Agreement, dated September 25, 2003, between Bally Gaming,
      Inc. and Riviera Operating Corporation (see Exhibit 10.49 filed on March
      25, 2005, Commission File No. 0-21430)10.17*(A)
                                              
                                              2005
      Incentive Stock Option Plan (see Exhibit A To Schedule 14A filed on April
      22, 2005, Commission File No. 0-21430)10.18*(A)
                                              
                                              2005
      Non-Qualified Stock Option Plan for Non-Employee Directors (see Exhibit B
      to Schedule 14A filed on April 22, 2005, Commission File No.
      0-21430)10.19*(A)
                                              
                                              Incentive
      Compensation Program as amended August 3, 1995 (see Exhibit 10.51 to
      Form 10-K filed on March 15, 2006, Commission File No.
      0-21430.10.20*
      (A)
                                              
                                              Form
      of Restricted Stock Agreement under the Company’s Restricted Stock Plan
      (see Exhibit 10.52 to Form 10-K filed on March 15, 2006, Commission
      File No. 0-21430)10.21*
                                              
                                              Agreement
      and Plan of Merger, dated April 5, 2006, among Riv Acquisition Holdings
      Inc., Riv Acquisition Inc. and the Company (see Appendix A to revised
      definitive proxy materials on Schedule 14A filed on July 3, 2006,
      Commission File No. 0-21430)10.22*
      (A)
                                              
                                              Employment
      Agreement among Riviera Holdings Corporation, Riviera Operating
      Corporation and Robert A. Vannucci (see Exhibit 10.1 to Form 10-Q filed on
      November 6, 2006, Commission File No.
0-21430




86





10.23*
      (A)
                                        
                                        Forms
      of Salary Continuation Agreements with Riviera Operating Corporation and
      Riviera Black Hawk, Inc. dated August 4, 2009 (see Exhibit 10.1 to Form
      10-Q filed on August 10, 2009, Commission File No.
  0-21430)10.24*
                                        
                                        Credit
      Agreement, dated June 8, 2007, among the Company, the Company's restricted
      subsidiaries, Wachovia Bank, National Association and the Lenders that are
      parties thereto (see Exhibit 10.2 to Form 10-Q filed on August 3, 2007,
      Commission File No. 0-21430)10.25*
                                        
                                        Commitment
      letter agreement dated April 27, 2007 between the Company and Wachovia
      Bank, National Association and Wachovia Capital Markets, LLC. (see Exhibit
      10.3 to Form 10-Q filed on August 3, 2007, Commission File No.
      0-21430)10.26*
                                        
                                        Deed
      of Trust, Assignment of Leases, Rents, Security Agreement, and Fixture
      Filing dated June 8, 2007, executed by the Company in favor of First
      American Title Insurance Company as Trustee (see Exhibit 10.4 to Form 10-Q
      filed on August 3, 2007, Commission File No. 0-21430)10.27*
                                        
                                        Deed
      of Trust, Assignment of Leases, Rents, Security Agreement, and Fixture
      Filing dated June 8, 2007, executed by Riviera Black Hawk, Inc. in favor
      of The Public Trustee For Gilpin County, Colorado and Wachovia Bank,
      National Association (see Exhibit 10.5 to Form 10-Q filed on August 3,
      2007, Commission File No. 0-21430)10.28*
                                        
                                        Environmental
      Indemnity dated as of June 8, 2007 between the Company and Wachovia Bank,
      National Association (see Exhibit 10.6 to Form 10-Q filed on August 3,
      2007, Commission File No. 0-21430)10.29*
                                        
                                        Environmental
      Indemnity dated as of June 8, 2007, among the Company, Riviera Black Hawk,
      Inc. and Wachovia Bank, National Association (see Exhibit 10.7 to Form
      10-Q filed on August 3, 2007, Commission File No.
  0-21430)10.30*
                                        
                                        Credit
      Party Pledge Agreement, dated June 8, 2007, among the Company, the
      Company's restricted subsidiaries, Riviera Gaming  Management,
      Inc. and Wachovia Bank, National Association (see Exhibit 10.8 to Form
      10-Q filed on August 3, 2007, Commission File
      No. 0-21430)10.31*
                                        
                                        Gaming
      Pledge Agreement dated June 8, 2007, between the Company and Wachovia
      Bank, National Association (see Exhibit 10.9 to Form 10-Q filed on August
      3, 2007, Commission File No. 0-21430)10.32*
                                        
                                        Security
      Agreement, dated June 8, 2007, among the Company, the Company's restricted
      subsidiaries, Wachovia Bank, National Association and the Lenders that are
      parties thereto (see Exhibit 10.10 to Form 10-Q filed on August 3, 2007,
      Commission File No. 0-21430)10.33*
      (A)
                                        
                                        Third
      Amendment to Employment Agreement between the Company and William L.
      Westerman effective March 4, 2008 (see Exhibit 10.01 to Form 8-K filed on
      March 10, 2008. Commission File No. 0-21430)10.34*
                                        
                                        Material
      Definitive Agreement between the Company and Plainfield Special Situations
      Master Fund Limited (see Exhibit 10.1 to Form 8-K filed on November 19,
      2008. Commission File No. 0-21430)10.35*
                                        
                                        Material
      Definitive Agreement between the Company and Desert Rock Enterprises LLC
      (see Exhibit 10.2 to Form 8-K filed on November 19, 2008. Commission File
      No. 0-21430)10.36*
      (A)
                                        
                                        Forms
      of Salary Continuation Agreements with Riviera Operating Corporation and
      Riviera Black Hawk, Inc.  (see Exhibit 10.1 to Form 10-Q filed
      on November 10, 2008, Commission File No.
  0-21630)




87





16.1*
                            
                            Letter
      from Deloitte & Touche LLP, dated March 28, 2008 (see Exhibit 16 to
      Form 8-K/A filed April 8, 2008).21.1*
                            
                            Subsidiaries
      of the Company (see Exhibit 21.1 to Registration Statement on Form S-4
      filed with the Commission on August 9, 2002, Commission File No.
      333-97907)23.1
                            
                            Consent
      of Ernst & Young LLP, Independent Registered Public Accounting
      Firm23.2
                            
                            Consent
      of Deloitte & Touche LLP, Independent Registered Public Accounting
      Firm31.1
                            
                            Certification
      of the Principal Executive Officer of the Registrant pursuant to Exchange
      Act Rule 13a-14(a)31.2
                            
                            Certification
      of the Principal Financial Officer of the Registrant pursuant to Exchange
      Act Rule 13a-14(a)32.1
                            
                            Certification
      of the Principal Executive Officer of the Registrant pursuant to Exchange
      Act Rule 13a-14(b) and 18 USC. 135032.2
                            
                            Certification
      of the Principal Financial Officer of the Registrant pursuant to Exchange
      Act Rule 13a-14(b) and 18 USC.
1350




*           These
are incorporated herein by reference as exhibits hereto.  Following
the description of each such exhibit is a reference to it as it appeared in a
specified document previously filed with the Securities and Exchange Commission,
to which there have been no amendments or changes, unless otherwise
indicated.




(A)
Management contract or compensatory plan or arrangement


88


RIVIERA
HOLDINGS CORPORATION




TABLE
OF CONTENTS


REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE CONSOLIDATED
      FINANCIAL STATEMENTS – ERNST & YOUNG LLP
                  F-2REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE CONSOLIDATED
      FINANCIAL STATEMENTS – DELOITTE & TOUCHE LLP
                  F-3CONSOLIDATED
      FINANCIAL STATEMENTSBalance
      Sheets as of December 31, 2009 and 2008
                  F-4Statements
      of Operations for the Years Ended December 31, 2009, 2008 and
      2007
                  F-5Statements
      of Stockholders’ Deficit for the Years Ended  December 31, 2009,
      2008 and 2007
                  F-6Statements
      of Cash Flows for the Years Ended December 31, 2009, 2008 and
      2007
                  F-7Notes
      to Consolidated Financial Statements
                  F-9





Report
of Independent Registered Public Accounting Firm





The Board
of Directors and Shareholders of Riviera Holdings Corporation




We have
audited the accompanying consolidated balance sheets of Riviera Holdings
Corporation and subsidiaries (the “Company”) as of December 31, 2009 and 2008,
and the related consolidated statements of operations, stockholders’ deficit,
and cash flows for each of the two years in the period ended December 31,
2009.  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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures  that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. 
Accordingly, we express no such opinion.An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and
subsidiaries at December 31, 2009 and 2008, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2009, in conformity with U.S. generally accepted accounting
principles.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As more fully described in Note 2, the Company
has incurred recurring operating losses and has a working capital
deficiency.  In addition, the Company is in default under its Credit
Facility and Swap Agreement. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard
to these matters also are described in Note 2. The 2009 financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.









Las
Vegas, Nevada


March 26,
2010


F-2




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of
Directors
 Riviera
Holdings Corporation
 Las
Vegas, Nevada
  We have
audited the accompanying consolidated statements of operations, stockholders’
equity, and cash flows of Riviera Holdings Corporation and subsidiaries (the
“Company”) for the year ended December 31, 2007. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on the financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as the evaluation of 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 results of operations and cash flows of Riviera Holdings
Corporation and its subsidiaries for the year ended December 31, 2007, in
conformity with accounting principles generally accepted in the United States of
America.
     Las
Vegas, Nevada
 March 12,
2008


F-3


RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
BALANCE SHEETS


DECEMBER
31, 2009 AND 2008


(Dollars
In Thousands)





2009
                        
                        
                        2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                        
                        $
                        19,056
                        
                        
                        $
                        13,461Restricted
      cash and cash equivalents
                        
                        
                        2,772
                        
                        
                        
                        2,772Accounts
      receivable—net of allowance of $239 and $559
                        
                        
                        2,063
                        
                        
                        
                        2,457Inventories
                        
                        
                        571
                        
                        
                        
                        718Prepaid
      expenses
                        
                        
                        2,940
                        
                        
                        
                        2,976Total
      current assets
                        
                        
                        27,402
                        
                        
                        
                        22,384PROPERTY
      AND EQUIPMENT—net
                        
                        
                        168,967
                        
                        
                        
                        179,918OTHER
      ASSETS
                        
                        
                        2,581
                        
                        
                        
                        2,658Total
      assets
                        
                        $
                        198,950
                        
                        
                        $
                        204,960LIABILITIES
      AND STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIES:Current
      portion of long-term debt
                        
                        $
                        227,544
                        
                        
                        $
                        227,689Current
      portion of fair value of interest rate swap liabilities
                        
                        
                        22,148
                        
                        
                        
                        16,828Current
      portion of obligation to officers
                        
                        
                        -
                        
                        
                        
                        1,028Accounts
      payable
                        
                        
                        5,413
                        
                        
                        
                        7,751Accrued
      interest
                        
                        
                        17,825
                        
                        
                        
                        98Accrued
      expenses
                        
                        
                        8,979
                        
                        
                        
                        10,201Total
      current liabilities
                        
                        
                        281,909
                        
                        
                        
                        263,595CAPITAL
      LEASES - Net of current portion
                        
                        
                        114
                        
                        
                        
                        158Total
      liabilities
                        
                        
                        282,023
                        
                        
                        
                        263,753COMMITMENTS
      AND CONTINGENCIES (Note 13)STOCKHOLDERS’
      DEFICITCommon
      stock, $.001 par value—60,000,000 shares authorized; 17,141,124 and
      17,161,824 shares issued at December 31, 2009 and 2008, respectively, and
      12,473,055 and 12,493,755 shares outstanding at December 31, 2009 2008,
      respectively
                        
                        
                        17
                        
                        
                        
                        17Additional
      paid-in capital
                        
                        
                        20,399
                        
                        
                        
                        19,820Treasury
      stock, 4,668,069 shares at December 31, 2009 and 2008
                        
                        
                        (9,635
                        )
                        
                        
                        (9,635
                        )Acumulated
      deficit
                        
                        
                        (93,854
                        )
                        
                        
                        (68,995
                        )Total
      stockholders’ deficit
                        
                        
                        (83,073
                        )
                        
                        
                        (58,793
                        )Total
      liabilities and stockholders’ deficit
                        
                        $
                        198,950
                        
                        
                        $
                        204,960





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


F-4


RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
STATEMENTS OF OPERATIONS


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(In
Thousands, Except Per Share Amounts)





2009
                                          
                                          
                                          2008
                                          
                                          
                                          2007REVENUESCasino
                                          
                                          $
                                          82,186
                                          
                                          
                                          $
                                          91,261
                                          
                                          
                                          $
                                          114,340Rooms
                                          
                                          
                                          35,452
                                          
                                          
                                          
                                          52,408
                                          
                                          
                                          
                                          59,890Food
      and beverage
                                          
                                          
                                          23,427
                                          
                                          
                                          
                                          28,433
                                          
                                          
                                          
                                          32,353Entertainment
                                          
                                          
                                          7,988
                                          
                                          
                                          
                                          13,424
                                          
                                          
                                          
                                          13,498Other
                                          
                                          
                                          5,453
                                          
                                          
                                          
                                          6,815
                                          
                                          
                                          
                                          6,632Total
      revenues
                                          
                                          
                                          154,506
                                          
                                          
                                          
                                          192,341
                                          
                                          
                                          
                                          226,713Less
      - promotional allowances
                                          
                                          
                                          (20,457
                                          )
                                          
                                          
                                          (22,581
                                          )
                                          
                                          
                                          (21,218
                                          )Net
      revenues
                                          
                                          
                                          134,049
                                          
                                          
                                          
                                          169,760
                                          
                                          
                                          
                                          205,495COSTS
      AND EXPENSESDirect
      costs and expenses of operating departments:Casino
                                          
                                          
                                          43,705
                                          
                                          
                                          
                                          47,752
                                          
                                          
                                          
                                          56,197Rooms
                                          
                                          
                                          18,824
                                          
                                          
                                          
                                          25,418
                                          
                                          
                                          
                                          28,121Food
      and beverage
                                          
                                          
                                          15,687
                                          
                                          
                                          
                                          20,506
                                          
                                          
                                          
                                          23,848Entertainment
                                          
                                          
                                          3,320
                                          
                                          
                                          
                                          8,049
                                          
                                          
                                          
                                          8,687Other
                                          
                                          
                                          1,169
                                          
                                          
                                          
                                          1,241
                                          
                                          
                                          
                                          1,360Other
      operating expenses:General
      and administrativeStock-based
      compensation
                                          
                                          
                                          579
                                          
                                          
                                          
                                          795
                                          
                                          
                                          
                                          966Other
      general and administrative
                                          
                                          
                                          35,313
                                          
                                          
                                          
                                          39,694
                                          
                                          
                                          
                                          42,728Mergers,
      acquisitions and development costs
                                          
                                          
                                          -
                                          
                                          
                                          
                                          191
                                          
                                          
                                          
                                          611Restructuring
      fees
                                          
                                          
                                          2,233
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Asset
      impairments
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          72Depreciation
      and amortization
                                          
                                          
                                          14,870
                                          
                                          
                                          
                                          14,883
                                          
                                          
                                          
                                          13,116Total
      costs and expenses
                                          
                                          
                                          135,700
                                          
                                          
                                          
                                          158,529
                                          
                                          
                                          
                                          175,706(LOSS)
      INCOME FROM OPERATIONS
                                          
                                          
                                          (1,651
                                          )
                                          
                                          
                                          11,231
                                          
                                          
                                          
                                          29,789Gain
      (loss) on early retirement of debt
                                          
                                          
                                          161
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (12,878
                                          )Change
      in  fair value of derivative instruments
                                          
                                          
                                          (5,320
                                          )
                                          
                                          
                                          (3,556
                                          )
                                          
                                          
                                          (13,272
                                          )Interest
      expense, net, including related party interest of $24, $135
      and  $281 in 2009, 2008 and 2007, respectively
                                          
                                          
                                          (18,049
                                          )
                                          
                                          
                                          (17,091
                                          )
                                          
                                          
                                          (21,897
                                          )Total
      interest expense, net
                                          
                                          
                                          (23,208
                                          )
                                          
                                          
                                          (20,647
                                          )
                                          
                                          
                                          (48,047
                                          )NET
      LOSS BEFORE INCOME TAX PROVISION
                                          
                                          
                                          (24,859
                                          )
                                          
                                          
                                          (9,416
                                          )
                                          
                                          
                                          (18,258
                                          )INCOME
      TAX PROVISION
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (2,446
                                          )
                                          
                                          
                                          -NET
      LOSS
                                          
                                          $
                                          (24,859
                                          )
                                          
                                          $
                                          (11,862
                                          )
                                          
                                          $
                                          (18,258
                                          )EARNINGS
      PER SHARE—Loss per share, basic and diluted
                                          
                                          $
                                          (1.99
                                          )
                                          
                                          $
                                          (0.96
                                          )
                                          
                                          $
                                          (1.48
                                          )Weighted-average
      common and common equivalent shares outstanding
                                          
                                          
                                          12,478
                                          
                                          
                                          
                                          12,393
                                          
                                          
                                          
                                          12,309





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


F-5


RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(Dollars
In Thousands)





AdditionalCommon
      Stock
                  
                  
                  Paid-In
                  
                  
                  Accumulated
                  
                  
                  Treasury
      StockShares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  TotalBALANCE—January
      1, 2007
                  
                  
                  17,131,824
                  
                  
                  $
                  17
                  
                  
                  $
                  18,165
                  
                  
                  $
                  (38,875
                  )
                  
                  
                  (4,762,393
                  )
                  
                  $
                  (9,841
                  )
                  
                  $
                  (30,534
                  )Stock-based
      compensation - stock options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  223
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  223Restricted
      stock - forfeited
                  
                  
                  (7,200
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Stock-based
      compensation - restricted stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  743
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  743Distribution
      of treasury stock - deferred compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (206
                  )
                  
                  
                  -
                  
                  
                  
                  94,324
                  
                  
                  
                  206
                  
                  
                  
                  -Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (18,258
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (18,258
                  )BALANCE—December
      31, 2007
                  
                  
                  17,124,624
                  
                  
                  
                  17
                  
                  
                  
                  18,925
                  
                  
                  
                  (57,133
                  )
                  
                  
                  (4,668,069
                  )
                  
                  
                  (9,635
                  )
                  
                  
                  (47,826
                  )Stock-based
      compensation - stock options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  191
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  191Restricted
      stock - forfeited
                  
                  
                  (4,800
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Stock-based
      compensation - restricted stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  604
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  604Stock
      issued under executive option plan
                  
                  
                  42,000
                  
                  
                  
                  -
                  
                  
                  
                  100
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (11,862
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (11,862
                  )BALANCE—December
      31, 2008
                  
                  
                  17,161,824
                  
                  
                  
                  17
                  
                  
                  
                  19,820
                  
                  
                  
                  (68,995
                  )
                  
                  
                  (4,668,069
                  )
                  
                  
                  (9,635
                  )
                  
                  
                  (58,793
                  )Stock-based
      compensation - stock options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  79
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  79Restricted
      stock - forfeited
                  
                  
                  (20,700
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Stock-based
      compensation - restricted stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  500Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (24,859
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (24,859
                  )BALANCE—December
      31, 2009
                  
                  
                  17,141,124
                  
                  
                  $
                  17
                  
                  
                  $
                  20,399
                  
                  
                  $
                  (93,854
                  )
                  
                  
                  (4,668,069
                  )
                  
                  $
                  (9,635
                  )
                  
                  $
                  (83,073
                  )





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


F-6


RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
STATEMENTS OF CASH FLOWS


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(In
Thousands)





2009
                    
                    
                    2008
                    
                    
                    2007OPERATING
      ACTIVITIES:Net
      loss
                    
                    $
                    (24,859
                    )
                    
                    $
                    (11,862
                    )
                    
                    $
                    (18,258
                    )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
                    
                    
                    14,870
                    
                    
                    
                    14,883
                    
                    
                    
                    13,116Stock-based
      compensation - restricted stock
                    
                    
                    500
                    
                    
                    
                    604
                    
                    
                    
                    743Stock-based
      compensation - stock options
                    
                    
                    79
                    
                    
                    
                    191
                    
                    
                    
                    223Provision
      for bad debts
                    
                    
                    (10
                    )
                    
                    
                    530
                    
                    
                    
                    377Asset
      impairment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    72(Gain)
      loss on early retirement of debt
                    
                    
                    (161
                    )
                    
                    
                    -
                    
                    
                    
                    12,878Amortization
      of deferred loan fees
                    
                    
                    321
                    
                    
                    
                    338
                    
                    
                    
                    956Change
      in fair value of derivative instruments
                    
                    
                    5,320
                    
                    
                    
                    3,556
                    
                    
                    
                    13,272Change
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    404
                    
                    
                    
                    576
                    
                    
                    
                    (877
                    )Inventories
                    
                    
                    147
                    
                    
                    
                    737
                    
                    
                    
                    337Prepaid
      expenses
                    
                    
                    36
                    
                    
                    
                    626
                    
                    
                    
                    400Other
      assets
                    
                    
                    (244
                    )
                    
                    
                    97
                    
                    
                    
                    185Accounts
      payable
                    
                    
                    (2,701
                    )
                    
                    
                    (3,221
                    )
                    
                    
                    (794
                    )Accrued
      expenses
                    
                    
                    (1,206
                    )
                    
                    
                    (4,078
                    )
                    
                    
                    (1,651
                    )Accrued
      interest
                    
                    
                    17,727
                    
                    
                    
                    (90
                    )
                    
                    
                    (875
                    )Deferred
      income taxes—net
                    
                    
                    -
                    
                    
                    
                    2,446
                    
                    
                    
                    -Deferred
      compensation plan obligation
                    
                    
                    -
                    
                    
                    
                    (35
                    )
                    
                    
                    (31
                    )Obligation
      to officers
                    
                    
                    (1,028
                    )
                    
                    
                    (1,000
                    )
                    
                    
                    (1,000
                    )Net
      cash provided by operating activities
                    
                    
                    9,195
                    
                    
                    
                    4,298
                    
                    
                    
                    19,073INVESTING
      ACTIVITIES:Capital
      expenditures for property and equipment—Las Vegas
                    
                    
                    (631
                    )
                    
                    
                    (20,020
                    )
                    
                    
                    (8,993
                    )Capital
      expenditures for property and equipment—Black Hawk
                    
                    
                    (2,925
                    )
                    
                    
                    (2,069
                    )
                    
                    
                    (3,099
                    )Restricted
      cash and investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,772
                    )Net
      cash used in investing activities
                    
                    
                    (3,556
                    )
                    
                    
                    (22,089
                    )
                    
                    
                    (14,864
                    )




F-7


RIVIERA
HOLDINGS CORPORATION





CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(In
Thousands)





2009
                                      
                                      
                                      2008
                                      
                                      
                                      2007FINANCING
      ACTIVITIES:Proceeds
      from long-term borrowings
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      225,112Repayments
      on long-term borrowings
                                      
                                      
                                      (44
                                      )
                                      
                                      
                                      (167
                                      )
                                      
                                      
                                      (223,885
                                      )Proceeds
      from line of credit
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,500
                                      
                                      
                                      
                                      -Cash
      paid for deferred loan fees
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,902
                                      )Exercise
      of employee stock options
                                      
                                      
                                      -
                                      
                                      
                                      
                                      100
                                      
                                      
                                      
                                      -Net
      cash (used in) provided by financing activities
                                      
                                      
                                      (44
                                      )
                                      
                                      
                                      2,433
                                      
                                      
                                      
                                      (675
                                      )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                                      
                                      
                                      5,595
                                      
                                      
                                      
                                      (15,358
                                      )
                                      
                                      
                                      3,534CASH
      AND CASH EQUIVALENTS—Beginning of year
                                      
                                      
                                      13,461
                                      
                                      
                                      
                                      28,819
                                      
                                      
                                      
                                      25,285CASH
      AND CASH EQUIVALENTS—End of year
                                      
                                      $
                                      19,056
                                      
                                      
                                      $
                                      13,461
                                      
                                      
                                      $
                                      28,819SUPPLEMENTAL
      DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES:Property
      acquired with accounts payable—Las Vegas, Nevada
                                      
                                      $
                                      118
                                      
                                      
                                      $
                                      3
                                      
                                      
                                      $
                                      1,800Property
      acquired with accounts payable—Black Hawk, Colorado
                                      
                                      $
                                      245
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      841Cash
      interest paid
                                      
                                      $
                                      48
                                      
                                      
                                      $
                                      17,050
                                      
                                      
                                      $
                                      22,494Distribution
      of deferred compensation treasury shares
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      206





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


F-8


RIVIERA
HOLDINGS CORPORATION




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 YEARS
ENDED DECEMBER 31, 2008, 2007 AND 2006


1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




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




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




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




Cash and Cash
Equivalents —Amounts classified as cash and cash equivalents
included cash held in our concentration accounts and money market accounts with
original maturities of 90 days or less Cash held in our concentration accounts
and money market accounts had a value of $8,019,000 and $5,420,000 at December
31, 2009 and 2008, respectively.




Restricted Cash
and Cash Equivalents —As of December 31, 2009 and 2008,$0.3
million in cash and $2.5 million in a certificate of deposit were held in
restricted accounts for the benefit of the State of Nevada Workers Compensation
Division as a requirement of our being self-insured for Workers
Compensation.  The certificate of deposit matures in
2010.




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




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




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





For
assets to be disposed of, we recognize the asset to be sold at the lower of
carrying value or fair market value less costs of disposal. Fair market value
for assets to be disposed of is generally estimated based on comparable asset
sales, solicited offers or a discounted cash flow model. For assets to be held
and used, we periodically assess the recoverability of property and equipment
and evaluate such assets for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be
recoverable.  If an indicator of impairment exists, we compare the
estimated future cash flows of the asset, on an undiscounted basis, to the
carrying value of the asset. If the undiscounted cash flows exceed the carrying
value, no impairment is indicated.  If the undiscounted cash flows do
not exceed the carrying value, then impairment is calculated based on fair value
compared to carrying value, with fair value typically based on a discounted cash
flow model.


F-9


There
were no asset impairment costs in 2009 and 2008.  Included in income
from operations in the fourth quarter of 2007 was $72,000 in asset impairment
costs.  The 2007 impairment costs related to the write down and
subsequent disposal associated with certain slot machines in Black Hawk,
which were no longer compliant with local gaming laws.




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




Stock-Based
Compensation— As of December 31, 2009, the Company has
four active stock-based compensation plans and two expired stock-based
compensation plans. Under the Company’s active stock compensation plans, the
Company shall at the discretion of the Company’s Compensation Committee, issue
option grants of Company common stock to those directors in lieu of cash
compensation.  The option grants issued under this plan are valued at
the market value of the shares at the date of issuance on each regularly
scheduled date for paying directors’ fees.




Income
Taxes —We are
subject to income taxes in the United States. Authoritative guidance for
accounting for income taxes requires that we account for income taxes by
recognizing deferred tax assets, net of applicable reserves, and liabilities for
the estimated future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
 Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on the income tax
provision and deferred tax assets and liabilities is recognized in the results
of operations in the period that includes the enactment date.





Authoritative
guidance for accounting for income taxes also requires that we perform an
assessment of positive and negative evidence regarding the realization of the
deferred tax assets. This assessment included the evaluation of the reversal of
future temporary differences.  As a result, we have concluded that it
is more likely than not that the net deferred tax assets will not be realized
and thus have provided an allowance against our entire net deferred tax asset
balance.





Our
income tax returns are subject to examination by the Internal Revenue Service
(“IRS”) and other tax authorities in the locations where we
operate.  Authoritative guidance for accounting for uncertainty in
income taxes prescribes a minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements and
requires that we utilize a two-step approach for evaluating tax
positions.  Recognition (Step I) occurs when we conclude that a tax
position, based on its technical merits, is more likely than not to be sustained
upon examination. Measurement (Step II) is only addressed if the position is
deemed to be more likely than not to be sustained. Under Step II, the tax
benefit is measured as the largest amount of benefit that is more likely than
not to be realized upon settlement.  Note that authoritative guidance
for accounting for uncertainty in income taxes uses the term “more likely than
not” when the likelihood of occurrence is greater than 50%.





The tax
positions failing to qualify for initial recognition is to be recognized in the
first subsequent interim period that they meet the “more likely than not”
standard. If it is subsequently determined that a previously recognized tax
position no longer meets the “more likely than not” standard, it is required
that the tax position is derecognized.  Authoritative guidance for
uncertainty in accounting for income taxes specifically prohibits the use of a
valuation allowance as a substitute for derecognition of tax positions. As
applicable, we will recognize accrued penalties and interest related to
unrecognized tax benefits in the provision for income taxes. During the years
ended December 31, 2009, 2008 and 2007, we recognized no amounts for
interest or penalties.


F-10


Fair
Value Disclosures




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




Long-Term
Debt— The fair value of the Company’s long-term debt is based
on quoted market prices.  Based on the quoted market price, the
approximate fair value of long-term debt outstanding is $136,500,000 and
$112,847,000 as of December 31, 2009 and 2008, respectively.




Interest Rate
Swaps—From
time to time, the Company enters into interest rate swaps.  The
Company’s objective in using derivatives is to add stability to interest expense
and to manage its exposure to interest rate movements or other identified risks.
 To accomplish this objective, the Company primarily uses interest rate
swaps as part of its cash flow hedging strategy.  Interest rate swaps
designated as cash flow hedges involve the receipt of variable-rate amounts in
exchange for fixed-rate payments over the life of the agreements without
exchange of the underlying principal amount.  We do not use derivative
financial instruments for trading or speculative purposes.  As such,
the Company has adopted Financial Accounting Standards Board Accounting
Standards Codification Topic815, to account for
interest rate swaps.  The pronouncements require us to recognize the
interest rate swaps as either assets or liabilities in the consolidated balance
sheets at fair value.  The accounting for changes in fair value (i.e.
gains or losses) of the interest rate swap agreements depends on whether it has
been designated and qualifies as part of a hedging relationship and further, on
the type of hedging relationship.  Additionally, the difference
between amounts received and paid under such agreements, as well as any costs or
fees, is recorded as a reduction of, or an addition to, interest expense as
incurred over the life of the swap.




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




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





On July
28, 2009, the Company received an early termination notice which claims a
termination amount due and payable under the swap agreement equal to $22.1
million plus $4.4 million in accrued interest.  As of December 31,
2009, the Company reflects a $27.1 million liability related to the interest
rate swap which includes $576,000 in accrued default interest ($22.1 million
swap liability plus $5.0 million in accrued interest equals $27.1
million).  The Company recorded $5.3 million and $3.6 million in
losses as a result of changes in the fair value of derivative instruments during
the years ended December 31, 2009 and 2008, respectively.





Fair Value
Measurement— In 2008,
the Company adopted authoritative guidance for fair value measurements and the
fair value option for financial assets and financial liabilities.  The
adoption did not have a material effect on the Company’s results of
operations.  The guidance for the fair value option for financial
assets and financial liabilities provides companies the irrevocable option to
measure many financial assets and liabilities at fair value with changes in fair
value recognized in earnings. The Company has not elected to measure any
financial assets or liabilities at fair value that were not previously required
to be measured at fair value.





Treasury
Stock—Treasury
shares are stated at cost. The Company’s Deferred Compensation Plan distributed
the remaining shares to plan participants in 2007.  As a result, no
shares were distributed under the Deferred Compensation Plan in 2009 and
2008.  94,324 shares were issued to plan participants in
2007.


F-11


Revenue
Recognition and Promotional Allowances—The
Company recognizes revenues at the time persuasive evidence of an arrangement
exists, the service is provided or the retail goods are sold, prices are fixed
or determinable and collection is reasonably assured.




Casino
Revenue —Casino
revenues are measured by the aggregate net difference between gaming wins and
losses, with liabilities recognized for funds deposited by customers before
gaming play occurs and for chips in the customers’ possession. Hotel, food and
beverage, entertainment and other operating revenues are recognized when
services are performed. Advance deposits on rooms and advance ticket sales are
recorded as customer deposits until services are provided to the
customer.




Revenues
are recognized net of certain sales incentives which are required to be recorded
as a reduction of revenue; consequently, the Company’s casino revenues are
reduced by discounts, commissions and points earned in customer loyalty
programs, such as the player’s club loyalty program.




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




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




Year
      Ended December 312009
                              
                              
                              2008
                              
                              
                              2007Food
      and beverage
                              
                              $
                              7,861
                              
                              
                              $
                              8,447
                              
                              
                              $
                              8,882Rooms
                              
                              
                              3,374
                              
                              
                              
                              3,455
                              
                              
                              
                              2,763Entertainment
                              
                              
                              988
                              
                              
                              
                              1,007
                              
                              
                              
                              918Total
      costs allocated to casino departments
                              
                              $
                              12,223
                              
                              
                              $
                              12,909
                              
                              
                              $
                              12,563




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




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


F-12


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




Advertising—The
costs of advertising are expensed as incurred and are allocated to each revenue
department based upon content.  Advertising expense was $2,923,000
$2,897,000 and $2,782,000 in 2009, 2008, and 2007, respectively.




Earnings per
Share—Diluted
earnings per share assume exercise of in-the-money stock options (those options
with exercise prices at or below the weighted average market price for the
periods presented) outstanding at the beginning of the period or at the date of
the issuance. We calculate the effect of dilutive securities using the treasury
stock method. As of December 31, 2009 and 2008, our potentially dilutive
share-based awards consisted of grants of stock options as described in Note 15
below.





For the
years ended December 31, 2009, 2008 and 2007, we recorded a net loss.
Accordingly, the potential dilution from the assumed exercise of stock options
is zero (anti-dilutive). As a result, basic earnings per share is equal to
diluted earnings per share for the years ended December 31, 2009,2008 and
2007.  As of December 31, 2009, there were no options outstanding that
could potentially dilute basic earnings per share in the future.





Recently Issued
Accounting Standards—In May 2009, the FASB
issued guidance on subsequent events. The guidance establishes general standards
of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
In addition, under the guidance, an entity is required to disclose the date
through which subsequent events have been evaluated, as well as whether that
date is the date the financial statements were issued or the date the financial
statements were available to be issued. The guidance does not apply to
subsequent events or transactions that are within the scope of other applicable
GAAP that provide different guidance on the accounting treatment for subsequent
events or transactions. The guidance is effective for interim or annual
financial periods ending after June 15, 2009, and shall be applied
prospectively. The Company adopted the guidance as of June 30, 2009, as
required. The adoption of the guidance did not have a material impact on the
Company's consolidated financial statements. In February 2010, the FASB issued
amended guidance on subsequent events. The amended guidance removes the
requirement for U.S. Securities and Exchange Commission filers to disclose the
date through which subsequent events have been evaluated. The amended guidance
is effective upon issuance, except for the use of the issued date for conduit
debt obligors. The Company adopted the amended guidance upon issuance, as
required. The adoption of the amended guidance did not have a material impact on
the Company's consolidated financial statements.





In
June 2009, the FASB issued new authoritative guidance to establish the FASB
Accounting Standards Codification as the single source of authoritative
non-governmental GAAP. The guidance is effective for interim and annual
reporting periods ending after September 15, 2009. We adopted the guidance
effective July 1, 2009 and the adoption did not have a material effect on
our Consolidated Financial Statements.





In
June 2009, the FASB issued new authoritative guidance regarding a transfer
of financial assets, the effects of a transfer on its financial statements, and
any continued involvement in transferred financial assets. Additionally, the
concept of a qualifying special-purpose entity was removed. The guidance is
effective for annual reporting periods beginning after November 15, 2009
and the adoption did not have a material effect on our Consolidated Financial
Statements.


F-13


In
June 2009, the FASB issued new authoritative guidance for enterprises
involved with variable interest entities. The guidance is effective for annual
reporting periods beginning after November 15, 2009 and the adoption did
not have a material effect on our Consolidated Financial
Statements.





In
August 2009, the FASB issued new authoritative guidance on measuring
liabilities at fair value. The guidance addresses restrictions on the transfer
of a liability and clarifies how the price of a traded debt security should be
considered in estimating the fair value of the issuer’s liability. This guidance
is effective for the first reporting period beginning after its issuance. We
adopted the guidance effective October 1, 2009 and the adoption did not
have a material effect on our Consolidated Financial Statements.





A variety of proposed or otherwise
potential accounting standards are currently under review and study by
standard-setting organizations and certain regulatory agencies. Because of the
tentative and preliminary nature of such proposed standards, we have not yet
determined the effect, if any, that the implementation of any such proposed or
revised standards would have on our Consolidated Financial
Statements.




Reclassifications—Certain
prior period amounts presented in our consolidated financial statements have
been reclassified to conform to the December 31, 2009 presentation.
These reclassifications had no effect on our net loss as previously
reported.





2.
            GOING
      CONCERN





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





As shown
in the financial statements, the Company has generated net losses of
$24.9 million, $11.9 million and $18.3 million for the years
ended December 31, 2009, 2008 and 2007, respectively, and has an
accumulated deficit of $93.9 million at December 31, 2009. The Company
has total cash and cash equivalents of $19.1 million and a net
working-capital deficit of $254.5 million at December 31, 2009. The
net working-capital deficit includes $227.5 million of the Company’s Credit
Facility and $22.1 million of the Company’s Swap Agreement.





In
connection with our Credit Facility, we agreed to several affirmative and
negative covenants.  During 2009, the Company did not comply with all
of the affirmative and negative covenants including its obligation to make
payments under the Credit Facility (see “2009 Credit Defaults” within Note
10).  With the aid of our financial advisors and outside counsel, the
Company is continuing to negotiate with its various creditor constituencies to
refinance or restructure its debt.  There is no assurance that the
Company will be successful in completing a refinancing or consensual
out-of-court restructuring and if it is unable to do so, the Company will likely
be compelled to seek protection under Chapter 11 of the U. S. Bankruptcy
Code.  The conditions and events described above raise substantial
doubt about the Company’s ability to continue as a going concern. The
accompanying consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classifications of liabilities that may result should
the Company be unable to continue as a going concern.


F-14


3.
            ACCOUNTS
      RECEIVABLE




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




2009
                        
                        
                        2008Casino
                        
                        $
                        240
                        
                        
                        $
                        279Hotel
                        
                        
                        2,062
                        
                        
                        
                        2,737Total
                        
                        
                        2,302
                        
                        
                        
                        3,016Less
      - Collection allowances
                        
                        
                        (239
                        )
                        
                        
                        (559
                        )Accounts
      receivable - net
                        
                        $
                        2,063
                        
                        
                        $
                        2,457




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




2009
                                
                                
                                2008Beginning
      balance
                                
                                $
                                559
                                
                                
                                $
                                436Write-offs
                                
                                
                                (325
                                )
                                
                                
                                (431
                                )Recoveries
                                
                                
                                15
                                
                                
                                
                                24Provision
      for doubtful collection
                                
                                
                                (10
                                )
                                
                                
                                530Ending
      balance
                                
                                $
                                239
                                
                                
                                $
                                559




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


F-15


4.
            PREPAID
      EXPENSES




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




2009
                            
                            
                            2008Prepaid
      gaming taxes
                            
                            $
                            883
                            
                            
                            $
                            1,186Prepaid
      insurance
                            
                            
                            713
                            
                            
                            
                            785Vendor
      deposits and retainers
                            
                            
                            275
                            
                            
                            
                            28Prepaid
      equipment maintenance
                            
                            
                            406
                            
                            
                            
                            338Other
                            
                            
                            663
                            
                            
                            
                            639Total
                            
                            $
                            2,940
                            
                            
                            $
                            2,976




5.
            PROPERTY
      AND EQUIPMENT




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




2009
                    
                    
                    2008Land
      and improvements
                    
                    $
                    40,752
                    
                    
                    $
                    40,752Buildings
      and improvements
                    
                    
                    145,374
                    
                    
                    
                    144,898Equipment,
      furniture, and fixtures
                    
                    
                    173,251
                    
                    
                    
                    174,283Construction
      in progress
                    
                    
                    31
                    
                    
                    
                    30Total
      cost
                    
                    
                    359,408
                    
                    
                    
                    359,963Less
      - Accumulated depreciation and amortization
                    
                    
                    (190,441
                    )
                    
                    
                    (180,045
                    )Property
      and equipment-net
                    
                    $
                    168,967
                    
                    
                    $
                    179,918




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




6.
            OTHER
      ASSETS




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




2009
                            
                            
                            2008Deposits
                            
                            $
                            384
                            
                            
                            $
                            128Deferred
      loan fees, net of accumulated amortization of $853 and
$532
                            
                            
                            1,049
                            
                            
                            
                            1,370Base
      stock
                            
                            
                            1,148
                            
                            
                            
                            1,160Total
                            
                            $
                            2,581
                            
                            
                            $
                            2,658


F-16


7.
            ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES




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





2009
                            
                            
                            2008Accounts
      payable vendors
                            
                            $
                            2,327
                            
                            
                            $
                            3,587Customer
      deposits, non-gaming
                            
                            
                            562
                            
                            
                            
                            899Other
                            
                            
                            445
                            
                            
                            
                            481Insurance
      contracts
                            
                            
                            49
                            
                            
                            
                            553Sub
      total
                            
                            
                            3,383
                            
                            
                            
                            5,520Outstanding
      chip and token liability
                            
                            
                            235
                            
                            
                            
                            392Customer
      loyality liabilities
                            
                            
                            544
                            
                            
                            
                            631Progressive
      jackpot liabilities
                            
                            
                            1,114
                            
                            
                            
                            1,009Customer
      deposits and other
                            
                            
                            137
                            
                            
                            
                            199Total
      gaming customer-related payables
                            
                            
                            2,030
                            
                            
                            
                            2,231Total
                            
                            $
                            5,413
                            
                            
                            $
                            7,751




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




2009
                          
                          
                          2008Payroll
      and related taxes and benefits
                          
                          $
                          5,567
                          
                          
                          $
                          5,995Property
      and gaming taxes
                          
                          
                          2,668
                          
                          
                          
                          2,632Professional
      fees, deferred revenues and deposits
                          
                          
                          744
                          
                          
                          
                          1,574Total
                          
                          $
                          8,979
                          
                          
                          $
                          10,201




8.
            FAIR
      VALUE MEASUREMENTS




In 2008,
the Company adopted authoritative guidance for fair value measurements and the
fair value option for financial assets and financial liabilities. The adoption
did not have a material effect on the Company’s results of
operations.





The
guidance for the fair value option for financial assets and financial
liabilities provides companies the irrevocable option to measure many financial
assets and liabilities at fair value with changes in fair value recognized in
earnings.  The Company has not elected to measure any financial assets
or liabilities at fair value that were not previously required to be measured at
fair value.  As of December 31, 2009, the Company had no assets or
liabilities measured at fair value on a recurring basis.





On July
27, 2009, the Company received from Wachovia a Notice of Amount Due Following
Early Termination of our interest rate swap agreement (see “2009 Credit
Defaults” within Note 10).  As a result, the mark to market interest
rate swap liability was adjusted to $22.1 million which is the balance as of
December 31, 2009 and reflects the amount due and payable on the Notice of
Amount Due Following Early Termination.


F-17


9.
            OBLIGATION
      TO OFFICERS




Obligation
to officers consists of the nonqualified pension plan obligation to the
Company’s Chief Executive Officer (“CEO”), including accrued interest and
deferred compensation plan liabilities, payable upon expiration of his
employment contract or a change of control of the Company.  Note that
the remaining nonqualified pension plan obligation, including accrued interest,
was paid to the Company’s CEO on October 2, 2009.




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




2009
                          
                          
                          2008Accrued
      interest on pension—CEO, unfunded
                          
                          $
                          -
                          
                          
                          $
                          1,028Less-current
      portion
                          
                          
                          -
                          
                          
                          
                          (1,028
                          )Obligation
      to officers - net of current portion
                          
                          $
                          -
                          
                          
                          $
                          -




10.
            LONG-TERM
      DEBT




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




2009
                                    
                                    
                                    2008$225
      million Term Loan maturing on June 8, 2014
                                    
                                    $
                                    225,000
                                    
                                    
                                    $
                                    225,000$3
      million Revolving Credit Facility
                                    
                                    
                                    2,500
                                    
                                    
                                    
                                    2,500Interest
      Rate Swap
                                    
                                    
                                    22,148
                                    
                                    
                                    
                                    16,828Capitalized
      lease obligations (Note 11)
                                    
                                    
                                    158
                                    
                                    
                                    
                                    2015.5%
      Special Improvement District Bonds - issued by the City
      of  Black Hawk, Colorado, interest and principal payable monthly
      over 10 years beginning in 2000
                                    
                                    
                                    -
                                    
                                    
                                    
                                    146Total
      long-term debt
                                    
                                    
                                    249,806
                                    
                                    
                                    
                                    244,675Less-Current
      portion of debt
                                    
                                    
                                    (249,692
                                    )
                                    
                                    
                                    (244,517
                                    )Total
                                    
                                    $
                                    114
                                    
                                    
                                    $
                                    158




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




2010
                        
                        $
                        249,6922011
                        
                        
                        442012
                        
                        
                        452013
                        
                        
                        252014
                        
                        
                        -Thereafter
                        
                        
                        -Total
                        
                        $
                        249,806




F-18


The Credit
Facility




On June
8, 2007, RHC and its Subsidiaries entered into the Credit
Facility.  The Credit Facility includes a $225 million seven-year term
loan (“Term Loan”) which has no amortization for the first three years, a one
percent amortization for years four through six, and a full payoff in year
seven, in addition to an annual mandatory pay down during the term of 50% of
excess cash flows, as defined.  The Credit Facility also includes a
$20 million five-year revolving credit facility (“Revolving Credit Facility”)
under which the Company can obtain extensions of credit in the form of cash
loans or standby letters of credit (“Standby L/Cs”).  Pursuant to
Section 2.6 of the Credit Agreement, on June 5, 2009, the Company voluntarily
reduced the Revolver commitment from $20 million to $3 million.The Company is permitted
to prepay the Credit Facility without premium or penalties except for payment of
any funding losses resulting from prepayment of LIBOR rate loans.  The
rate for the Term Loan and revolving Credit Facility is LIBOR plus 2.0%.
Pursuant to a floating rate to fixed rate swap agreement (the “Swap Agreement”)
that became effective June 29, 2007 that the Company entered into under the
Credit Facility, substantially the entire Term Loan portion of the Credit
facility, with quarterly step-downs, bears interest at an effective fixed rate
of 7.485% per annum (2.0% above the LIBOR Rate in effect on the lock-in date of
the swap agreement).  The Credit Facility is guaranteed by the
Subsidiaries and is secured by a first priority lien on substantially all of the
Company’s assets.





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





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





As of
December 31, 2009, the Company had $2.5 million outstanding against the
Revolving Credit Facility.  The ABR Loan was elected as the amount
drawn was below the $5.0 million minimum threshold required for selecting a
LIBOR Rate Loan.





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





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





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


F-19


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





2009 Credit
Defaults




As
previously disclosed on a Form 8-K filed with the SEC on March 4, 2009, the
Company received a notice of default on February 26, 2009 (the “February
Notice”) from Wachovia with respect to the Credit Facility in connection with
the Company’s failure to provide a Deposit Account Control Agreement, or DACA,
from each of the Company’s depository banks per a request made by Wachovia to
the Company on October 14, 2008.  The DACA that Wachovia requested the
Company to execute was in a form that the Company ultimately determined to
contain unreasonable terms and conditions as it would enable Wachovia to access
all of the Company’s operating cash and order it to be transferred to a bank
account specified by Wachovia.  The Notice further provided that as a
result of the default, the Company would no longer have the option to request
the LIBOR Rate loans described above.  Consequently, the Term Loan was
converted to an ABR Loan effective March 31, 2009.





On March
25, 2009, the Company engaged XRoads Solution Group LLC as our financial
advisor.  Based on an extensive analysis of our current and projected
liquidity, and with our financial advisor’s input, we determined it was in the
best interests of the Company to not pay the Credit Facility and Swap Agreement
accrued interest of $17.8 million for the twelve months ended December 31,
2009.  Consequently, we elected not to make these
payments.  The Company’s failure to pay interest due on any loan
within our Credit Facility within a three-day grace period from the due date was
an event of default under our Credit Facility.  As a result of these
events of default, the Company’s lenders have the right to seek to charge
additional default interest on the Company’s outstanding principal and interest
under the Credit Agreement, and automatically charge additional default interest
on any overdue amounts under the Swap Agreement.  These default rates
are in addition to the interest rates that would otherwise be applicable under
the Credit Agreement and Swap Agreement.





As
previously disclosed on a Form 8-K filed with the SEC on April 6, 2009, the
Company received an additional notice of default on April 1, 2009 (the “April
Default Notice”) from Wachovia.  The April Default Notice alleges that
subsequent to the Company’s receipt of the  February Notice,
additional defaults and events of default had occurred and were continuing under
the terms of the Credit Agreement including, but not limited to: (i) the
Company’s failure to deliver to Wachovia audited financial statements without a
“going concern” modification; (ii) the Company’s failure to deliver Wachovia a
certificate of an independent certified public accountant in conjunction with
the Company’s financial statement; and (iii) the occurrence of a default or
breach under a secured hedging agreement.  The April Default Notice
also states that in addition to the foregoing events of default that there were
additional potential events of default as a result of, among other things, the
Company’s failure to pay: (i) accrued interest on the Company’s LIBOR rate loan
on March 30, 2009 (the “LIBOR Payment”), (ii) the commitment fee on March 31,
2009 (the “Commitment Fee Payment”), and (iii) accrued interest on the Company’s
ABR Loans on March 31, 2009 (the “ABR Payment” and together with the LIBOR
Payment and Commitment Fee Payment, the “March 31st Payments”).  The
Company has not paid the March 31st Payments and the applicable grace period to
make these payments has expired.  The April Default Notice states that
as a result of these events of defaults, (a) all amounts owing under the Credit
Agreement thereafter would bear interest, payable on demand, at a rate equal to:
(i) in the case of principal, 2% above the otherwise applicable rate; and (ii)
in the case of interest, fees and other amounts, the ABR Default Rate (as
defined in the Credit Agreement), which as of April 1, 2009 was 6.25%; and (b)
neither Swingline Loans nor additional Revolving Loans are available to the
Company at this time.


F-20


As a
result of the February Notice and the April Default Notice, effective March 31,
2009, the Term Loan interest rate increased to approximately 10.5% per annum and
effective April 1, 2009, the Revolver interest rate is approximately 6.25% per
annum.





On April
1, 2009, we also received Notice of Event of Default and Reservation of Rights
(the “Swap Default Notice”) in connection with an alleged event of default under
our Swap Agreement.  Receipt of the Swap Default Notice was previously
disclosed on a Form 8-K filed with the SEC on April 6, 2009.  The Swap
Default Notice alleges that (a) an event of default exists due to the occurrence
of an event of default(s) under the Credit Agreement and (b) that the Company
failed to make payments to Wachovia with respect to one or more transactions
under the Swap Agreement.  The Company has not paid the overdue amount
and the applicable grace period to make this payment has expired.  As
previously announced by the Company, any default under the Swap Agreement
automatically results in an additional default interest of 1% on any overdue
amounts under the Swap Agreement.  This default rate was in addition
to the interest rate that would otherwise be applicable under the Swap
Agreement.





On July
23, 2009, the Company received a Notice of Early Termination for Event of
Default (the “Early Termination Notice”) from Wachovia in connection with an
alleged event of default that occurred under the Swap
Agreement.  Receipt of the Early Termination Notice was previously
disclosed on a Form 8-K filed with the SEC on July 29, 2009. The Early
Termination Notice alleges that an event of default has occurred and is
continuing pursuant to Sections 5(a)(i) and 5(a)(vi)(1) of the Swap
Agreement.  Section 5(a)(i) of the Swap Agreement addresses payments
and deliveries specified under the Swap Agreement and Section 5(a)(vi)(1) of the
Swap Agreement addresses cross defaults. The Early Termination Notice provides
that Wachovia designated an early termination date of July 27, 2009 in respect
of all remaining transactions governed by the Swap Agreement, including an
interest rate swap transaction with a trade date of May 31,
2007.





On July
28, 2009, in connection with the Early Termination Notice, the Company received
a Notice of Amount Due Following Early Termination from Wachovia that claimed
the amount due and payable to Wachovia under the Swap Agreement is $26.6
million, which includes $4.4 million in accrued interest.  As a result
of the Early Termination Notice, the interest rates for the Term Loan and
Revolver balances are no longer locked and are now subject to changes in
underlying LIBOR rates and vary based on fluctuations in the Alternative Base
Rate and Applicable Margins.  As of December 31, 2009, our Term Loan
and Revolver bear interest at approximately 6.25%.  As of December 31,
2009, the interest rate swap liability is $22.1 million which equals the mark to
market amount reflected as due and payable on the Notice of Amount Due Following
Early Termination described above.   Additionally, accrued
interest as of December 31, 2009 includes $5.0 million in accrued interest
related to the interest rate swap comprised of $4.4 million in accrued interest
as reflected on the Notice of Amount Due Following Early Termination and $0.6
million in default interest pursuant to the Swap Agreement
termination.





With the
aid of our financial advisors and outside counsel, we are continuing to
negotiate with our various creditor constituencies to refinance or restructure
our debt.  We cannot assure you that we will be successful in
completing a refinancing or consensual out-of-court restructuring, if
necessary.  If we were unable to do so, we would likely be compelled
to seek protection under Chapter 11 of the U. S. Bankruptcy
Code.


F-21


The
conditions and events described above raise a substantial doubt about the
Company’s ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result should the Company be unable
to continue as a going concern.




Special Improvement District
Bonds




In 2000,
the Company incurred debt totaling $1.2 million associated with Special
Improvement District Bonds issued by the City of Black Hawk, Colorado for road
improvements and other infrastructure projects benefiting Riviera Black Hawk and
neighboring casinos.  The remaining balance of the debt was $146,000
at December 31, 2008 and this amount was forgiven by the City of Black Hawk in
February 2009.  The amount forgiven plus an additional $15,000 related
to the obligation were recorded as a gain on early retirement of debt within our
consolidated statement of operations for the year ended December 31,
2009.





11.
            LEASING
      ACTIVITIES




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





The
following is a schedule by year of the minimum rental payments due under capital
leases as of December 31, 2009 (in thousands):





CapitalYears
      ending December 31,
                                      
                                      Leases2010
                                      
                                      $
                                      452011
                                      
                                      
                                      452012
                                      
                                      
                                      452013
                                      
                                      
                                      262014
                                      
                                      
                                      -Thereafter
                                      
                                      
                                      -Total
      minimum lease payments
                                      
                                      
                                      161Less-Interest
      portion of payments
                                      
                                      
                                      (3
                                      )Present
      value of net minimum lease payments
                                      
                                      $
                                      158




Property
and equipment under capital lease as of December 31, 2009 and 2008 were
$202,000 and $236,000 with accumulated amortization of $76,700 and $23,600,
respectively.





Rental
expense for equipment under operating leases for the years ended
December 31, 2009, 2008 and 2007 was approximately $928,000, $269,000 and
$1,230,000, respectively. All are cancelable within a year.





In
addition, the Company leases retail space to third parties (primarily retail
shops and fast food vendors) under terms of non-cancelable operating leases that
expire in various years through 2013, and have options to extend at the tenant’s
option.  Rental income, which is included in other revenue, for the
years ended December 31, 2009, 2008 and 2007 was approximately $2,895,000,
$3,388,000 and $2,448,000 respectively.


F-22


At
December 31, 2009, the Company had future minimum annual rental income due
under non-cancelable operating leases as follows (in thousands):





2010
                        
                        $
                        2,1732011
                        
                        
                        1,1432012
                        
                        
                        5452013
                        
                        
                        1432014
                        
                        
                        43Total
                        
                        $
                        4,047




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




12.
            INCOME
      TAXES




Components
of our provision for income taxes are as follows:





Years ended December 31,
                  
                  2009
                  
                  
                  2008
                  
                  
                  2007(In
      thousands)Federal
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -State
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      current
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Federal
                  
                  
                  -
                  
                  
                  
                  2,446
                  
                  
                  
                  -State
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      deferred
                  
                  
                  -
                  
                  
                  
                  2,446
                  
                  
                  
                  -Provision
      for income taxes
                  
                  $
                  -
                  
                  
                  $
                  2,446
                  
                  
                  $
                  -





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





Years ended December 31,
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    2007Rate
                                    
                                    
                                    Rate
                                    
                                    
                                    RateTaxes
      at federal statutory rate
                                    
                                    
                                    -35.0
                                    %
                                    
                                    
                                    -35.0
                                    %
                                    
                                    
                                    -35.0
                                    %State
      income tax, net
                                    
                                    
                                    -0.6
                                    %
                                    
                                    
                                    -0.5
                                    %
                                    
                                    
                                    -0.6
                                    %Employee
      benefits
                                    
                                    
                                    1.5
                                    %
                                    
                                    
                                    6.0
                                    %
                                    
                                    
                                    3.5
                                    %FICA
      credit
                                    
                                    
                                    -0.5
                                    %
                                    
                                    
                                    -1.9
                                    %
                                    
                                    
                                    -0.2
                                    %Other,
      net
                                    
                                    
                                    0.9
                                    %
                                    
                                    
                                    -3.7
                                    %
                                    
                                    
                                    0.7
                                    %Effect
      of rate change
                                    
                                    
                                    0.0
                                    %
                                    
                                    
                                    0.0
                                    %
                                    
                                    
                                    0.5
                                    %Valuation
      allowance
                                    
                                    
                                    33.7
                                    %
                                    
                                    
                                    61.1
                                    %
                                    
                                    
                                    31.1
                                    %Provision
      for income taxes
                                    
                                    
                                    0.0
                                    %
                                    
                                    
                                    26.0
                                    %
                                    
                                    
                                    0.0
                                    %





Under the
accounting guidance, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s net deferred income tax asset consisted
of the following:


F-23




December 31,
                
                2009
                
                
                2008(In
      thousands)Deferred
      Tax AssetsReserves
      and accruals
                
                $
                577
                
                
                $
                2,005Fair
      value of SWAP
                
                
                7,752
                
                
                
                6,003Share-based
      compensation
                
                
                461
                
                
                
                622Federal
      net operating loss carry forwards
                
                
                33,051
                
                
                
                24,197State
      net operating loss carry forwards
                
                
                526
                
                
                
                359AMT
      and other tax credits
                
                
                3,840
                
                
                
                3,732Other
                
                
                46
                
                
                
                4446,253
                
                
                
                36,962Valuation
      allowance
                
                
                (38,362
                )
                
                
                (29,974
                )Total
      Deferred Tax Asset
                
                $
                7,891
                
                
                $
                6,988Deferred
      Tax LiabilitiesPrepaid
      expenses
                
                $
                (699
                )
                
                $
                (436
                )Property
      and equipment
                
                
                (7,192
                )
                
                
                (6,552
                )Total
      Deferred Tax Liability
                
                $
                (7,891
                )
                
                $
                (6,988
                )Net
      Deferred Tax Asset (Liability)
                
                $
                -
                
                
                $
                -




Our U.S.
net operating loss carry forwards in the amount of $94.3 million at December 31,
2009 and 72.4 million at December 31, 2008 will expire in tax years ending 2012
through 2029.   Our AMT credits of $1.8 million have no
expiration date.  Our other general business tax credits of $2.0
million at December 31, 2009 and $1.8 million at December 31, 2008 will expire
in tax years ending 2010 through 2029.  Our state net operating loss
carry forwards in the amount of $17.4 million at December 31, 2009 and $12.6
million at December 31, 2008 will expire in tax years ending 2020 through
2029.  Due to certain significant changes in ownership in prior years,
some of the net operating losses and general business credits are subject to
limitation under Internal Revenue Code Sections 382 and 383.





We have
performed an assessment of positive and negative evidence regarding the
realization of the deferred tax assets in accordance with accounting guidance.
This assessment included the evaluation of the reversal of temporary
differences.  As a result, we have concluded that it is more likely
than not that the net deferred tax assets will not be realized and thus have
provided an allowance for the entire net deferred tax asset
balance.  Our valuation allowance was $38.4 at December 31, 2009,
$30.0 million at December 31, 2008 and $24.2 million at December 31,
2007.




The
Company is subject to the accounting guidance for uncertain income tax positions
as of January 1, 2007. The Company believes that its income tax filing positions
and deductions will be sustained on audit and does not anticipate any
adjustments that will result in a material adverse effect on the Company's
financial condition, results of operations, or cash flow. Therefore, no reserves
for uncertain income tax positions have been recorded pursuant to the accounting
guidance. In addition, the Company did not record a cumulative effect adjustment
related to the adoption of the accounting guidance for uncertain income tax
positions.





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


F-24


13.
            COMMITMENTS
      AND CONTINGENCIES





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





In March
2008, the Nevada Supreme Court ruled, in the matter captioned Sparks Nugget, Inc. vs. The State of
Nevada Ex Rel. Department of Taxation, that food and non-alcoholic
beverages purchased for use in providing complimentary meals to customers and to
employees was exempt from sales and use tax.  In July 2008, the Court
denied the State’s motion for rehearing. ROC had paid use tax on these items and
has filed for refunds for the periods from January 2002 through February 2008.
The amount subject to these refunds is approximately $1.1 million.  As
of December 31, 2009, the Company had not recorded a receivable related to this
matter.





14.
            EMPLOYMENT
      AGREEMENTS AND EMPLOYEE BENEFIT
PLANS





William
L. Westerman serves as Chairman of the Board, President and CEO, and as Chairman
of the Board and CEO of the Company’s wholly-owned subsidiary, Riviera Operating
Corporation (“ROC”), and CEO of Riviera Black Hawk, Inc.  Mr.
Westerman has an employment agreement with the Company.  Under Mr.
Westerman’s employment agreement, which was last amended by the Third Amendment
to the employment agreement on March 4, 2008, he is employed for one-year
(calendar year) terms,which automatically renew
for successive one-year terms unless written notice is provided by Mr.Westerman at least 180
days, or by us at least 90 days, prior to termination of the
current term.





Mr.
Westerman’s base annual compensation is $1,000,000. The Third Amendment provides
that, effective January 1, 2008, Mr. Westerman is eligible to participate
in the Company’s senior management incentive compensation plan.  Mr.
Westerman received an award under the Incentive Compensation Program of $98,000
for the Company’s 2009 performance and no award for the Company’s 2008
performance.





Mr.
Westerman’s employment agreement required the Company to fund a retirement
account for him.  The Company no longer makes principal contributions
to the retirement account. The retirement account had a balance, including
accrued interest, of $1,028,000 as of December 31, 2008.  The
remaining retirement account balance, including accrued interest, was paid to
Mr. Westerman on October 2, 2009.





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





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


F-25


Incentive
Compensation Program —the Company has an Incentive
Compensation Program covering employees who, in the opinion of the Company’s
Chairman of the Board, either serve in key executive, administrative,
professional, or technical capacities with the Company, or who have made a
significant contribution to the successful and profitable operation of the
Company. The amount of each bonus is based upon a sliding targeted scale of
earnings established annually.  The Company recorded $542,000 for
Compensation Program bonuses in 2009.  No amounts were recorded for
Compensation Program bonuses in 2008 and the Company recorded $1,676,000 for
Compensation Program bonuses in 2007.





Pension Plan
Contributions— the Company contributes to multi-employer
pension plans under various union agreements in Las Vegas to which the Company
is a party.  Contributions, based on wages paid to covered employees,
were approximately $1,468,000, $2,020,000 and $1,989,000 for the years ended
December 31, 2009, 2008 and 2007, respectively.





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





Effective
January 1, 2008 the Company amended its 401(k) Plans to match an amount not to
exceed 50% of the first 6% of each participant’s compensation.  Prior
to January 1, 2008 the Company match was 25% of the first
8%.  Effective January 1, 2009, the Company suspended the Company
match to the 401(k).  As a result, the Company made no matching
contributions in 2009.  The Company matching contributions for the
years ended December 31, 2008 and 2007 were $452,000 and $279,000, respectively.
The Company also pays administrative costs of the Profit Sharing and 401(k)
Plans, which are not significant.





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





Employee Stock
Ownership Plan— The ESOP was established prior to 2003 to
replace the profit sharing contribution component of the Profit Sharing and
401(k) Plans. The 401(k) component remains unchanged.  The ESOP
provided that all employees of Riviera Las Vegas and Riviera Black Hawk who were
employed on and completed a minimum of 1,000 hours of service by,
December 31 of that plan year, were at least 21 years of age, and were not
covered by a collective bargaining agreement were eligible to participate in the
ESOP.  The ESOP provided that the Company will make a contribution to
the ESOP’s participants at Riviera Las Vegas and Riviera Black Hawk relative to
the economic performance of each property and for the corporate participants
relative to the economic performance of the entire Company.  The Board
of Directors unanimously elected to terminate the ESOP effective May 11, 2009
due to prohibitive administrative costs.  The ESOP trust account was
closed in 2009 after distributing the remaining stock and cash amounts to the
participants.  No contributions were made to the ESOP in 2009 and
2008.  The Company contributed $316,000 to the ESOP in
2007.


F-26


Deferred
Compensation Plan— Prior to 2003, the Company adopted a
Deferred Compensation Plan (the “DCP”). The purpose of the DCP is to provide
eligible employees with the opportunity to defer the receipt of cash
compensation. Participation in the DCP is limited to employees who receive
annual compensation of at least $100,000. The deferred funds, other than the
common stock component, were maintained on the Company books as funded
liabilities under Rabbi Trusts for the benefit of the participants. All
elections to defer the receipt of compensation must be made no later than
December 1st
preceding the plan year to which the election relates and are irrevocable for
the duration of that plan year. No deferrals have been made since 2004 and the
plan distributed the remaining common stock to participants during
2007.  There was no balance in the Deferred Compensation Plan as of
December 31, 2009 and 2008, respectively.





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





Salary
Continuation Agreements— 55 key employees (excluding Mr.
Vannucci) of RHC, ROC and RBH have salary continuation agreements effective
through December 31, 2010.  The agreements entered into with 50
significant ROC and RBH employees entitles such employees to six months of base
salary and health insurance benefits, subject to such employees’ duty to
mitigate by obtaining similar employment elsewhere, in the event ROC or RBH, as
applicable, terminated their employment without cause (a “Company Termination”)
within 12 months after a change in control.  One ROC and one RBH
employee are entitled to 12 months of base salary and 24 months of health
insurance benefits in the event of a Company Termination within 24 months after
a change in control with no duty to mitigate.  In addition, the
Company entered into salary continuation agreements with William Westerman,
RHC’s Chief Executive Officer, Tullio J. Marchionne, RHC’s Secretary and General
Counsel and ROC’s Secretary and Executive Vice President and Phillip B. Simons,
RHC’s Treasurer and CFO and ROC’s Vice President of Finance which entitles each
of them to 12 months of base salary and 24 months of health insurance benefits
in the event of a Company Termination within 24 months after a change of control
of RHC with no duty to mitigate.  As of December 31, 2009, the
estimated total amount payable under all such agreements was approximately $4.2
million, which includes $525,000 in benefits.





15.
            STOCK
      OPTION PLANS




Stock
Compensation Plans—At
December 31, 2009, the Company had two active stock option plans and two
expired stock option plans, which are described below.  Under the 1993
Employee Stock Option Plan (the “1993 Option Plan”), the Company was authorized
to grant options to employees for up to one million shares of its common stock.
Under the Non-Qualified Stock Option Plan for Non-Employee Directors (the “1996
Option Plan”), the Company was authorized to grant options to non-employee
directors for up to 150,000 shares of common stock.  Under these
plans, the exercise price of each option equaled the market price of the Company
stock on the date of grant.  All options have vested under the 1996
Option Plan.





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


F-27


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





In 2005,
the Company granted 385,500 restricted shares to 21 executives under its
Restricted Stock Plan.  On December 31, 2009, 35,100 restricted shares
remained outstanding and $49,500 remained to be realized as expense related to
these shares.  On the 2009 anniversary of the grant, 35,100 shares
vested and the restrictions were lifted.


F-28


In 2009,
Robert A. Vannucci, ROC’s President and COO, elected to forfeit 12,000
restricted shares and Tullio J. Marchionne, RHC’s Secretary and General Counsel
and ROC’s Secretary, elected to forfeit 3,900 restricted
shares.  Except for accelerated vesting in the event of an executive’s
death or disability, retirement at or after age 62, termination of employment by
us other than for cause, or certain events of hardship, or in the event of a
change in control of the Company, the vesting schedule for the shares is as
follows.





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





On May
27, 2005, the Company granted a total of 30,000 shares of stock to its
non-employee directors.  Those shares are subject to restrictions on
re-sales, assignments, pledges, encumbrances or other transfers prior to
vesting.  The shares vest at the rate of 20% per year on each
anniversary of the grant date.  However, accelerated vesting will
occur upon death, disability, a change of control of the Company or under any
other termination of directorship status, except resignation prior to reaching
age 62 or declining to stand for reelection prior to reaching age 62 (which
would result in forfeiture of the non-vested shares).  In 2009, three
directors, Messrs. DiVito, Land and Harvey, elected to forfeit 4,800
shares.





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




Weighted-AveragePer ShareExerciseStock Options
                        
                        Shares
                        
                        
                        PriceOutstanding,
      December 31, 2006
                        
                        
                        234,000
                        
                        
                        $
                        4.33Automatic
      grant to directors
                        
                        
                        24,000
                        
                        
                        $
                        36.56Outstanding,
      December 31, 2007
                        
                        
                        258,000
                        
                        
                        $
                        7.33Exercised
                        
                        
                        (42,000
                        )
                        
                        $
                        2.45Automatic
      grant to directors
                        
                        
                        24,000
                        
                        
                        $
                        15.35Outstanding,
      December 31, 2008
                        
                        
                        240,000
                        
                        
                        $
                        8.99Expired
                        
                        
                        (42,000
                        )
                        
                        $
                        11.78Automatic
      grant to directors
                        
                        
                        18,000
                        
                        
                        $
                        1.48Outstanding,
      December 31, 2009
                        
                        
                        216,000
                        
                        
                        $
                        7.82


F-29





Outstanding
                      
                      Average
                      
                      Weighted-at
                      
                      Remaining
                      
                      AverageRange of
                      
                      December 31,
                      
                      Contractual
                      
                      ExerciseExercise Prices
                      
                      2009
                      
                      Life
                      
                      Price$1.33
      to $2.00
                      
                      
                      48,000
                      
                      5.61
      years
                      
                      $
                      1.76$2.18
      to $20.00
                      
                      
                      132,000
                      
                      4.28
      years
                      
                      $
                      4.23$20.00
      to $36.56
                      
                      
                      36,000
                      
                      6.92
      years
                      
                      $
                      29.08




Shares
                                
                                
                                Exercise
                                  Price
                                
                                Weighted Average
                                  Remaining Life
                                
                                Aggregate
                                  Intrinsic ValueShares
      exercisable 12/31/09
                                
                                
                                165,600
                                
                                
                                $
                                5.38
                                
                                5.48
      years
                                
                                $
                                0





One
director, Mr. Silver, resigned during 2009, subsequently, 42,000 outstanding
options expired unexercised with a weighted average exercise price of
$11.78.





Option
expense recorded in 2009, 2008 and 2007 was $79,000, $192,000 and $223,000,
respectively.  Restricted stock expense recorded in 2009, 2008 and
2007 was $500,000, $603,000 and $744,000, respectively.





The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants in 2009,
respectively: dividend yield of 0%; average expected volatility of 66% based on
the history of the stock price; risk-free interest rates of 3.66% and average
expected life of 7.5 years.  The average weighted fair value of
options granted in 2009, 2008 and 2007 was $1.04, $5.09 and $11.06 per share,
respectively.




As of
December 31, 2009, there was a total of $124,000 of unamortized
compensation related to stock options, which is expected to be recognized as
compensation over the vesting period of the related grants through May
2014.




16.
            GUARANTOR
      INFORMATION




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





17.
            LOSS
      PER SHARE





Basic
loss per share is computed by dividing net loss per share by the
weighted-average number of common shares outstanding for the
period.  Diluted loss per share is computed by dividing net income by
the weighted number of common and common-equivalent shares outstanding for the
period.  Options to purchase common stock, whose exercise price was
greater than the average market price for the period have been excluded from the
computation of diluted loss per share as their effect would have been
anti-dilutive. Such anti-dilutive options excluded from the calculation of
diluted loss per share for the years ended December 31, 2009, 2008 and 2007
were 216,000, 141,177, and 265,486, respectively based on the treasury
method.


F-30


18.
            RELATED
      PARTY TRANSACTIONS





Jeffrey
A. Silver, a former member of the Company’s board of directors who resigned from
the board effective February 23, 2009, is a shareholder in the law firm of
Gordon & Silver, Ltd. (“Gordon & Silver”).  The Company
engaged Gordon & Silver for various securities issues and other legal
matters since 1993.  The Company incurred legal expenses to the firm,
which are included in mergers, acquisitions and development cost, of $174,000 in
2007.  No legal expenses for mergers, acquisitions and development
were incurred in 2009 and 2008. The Company incurred legal expenses to the firm,
which are included in other general and administrative costs, of $14,400, $5,000
and $67,000 in 2009, 2008 and 2007, respectively.  The Company
incurred legal expenses to the firm, which are included in our refinancing
costs, of $124,000 for 2007.  In 2009, the Company incurred legal
expenses to the firm, which are included in restructuring fees, of $140,700 and
paid $50,000 to the firm as a retainer for legal services related to our
potential debt restructuring.




19.
              SEGMENT
      DISCLOSURES





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


F-31





(in
      thousands)
                                                  
                                                  2009
                                                  
                                                  
                                                  2008
                                                  
                                                  
                                                  2007Net
      revenues:Riviera
      Las Vegas
                                                  
                                                  $
                                                  91,880
                                                  
                                                  
                                                  $
                                                  128,031
                                                  
                                                  
                                                  $
                                                  151,505Riviera
      Black Hawk
                                                  
                                                  
                                                  42,169
                                                  
                                                  
                                                  
                                                  41,729
                                                  
                                                  
                                                  
                                                  53,990Total
      net revenues
                                                  
                                                  $
                                                  134,049
                                                  
                                                  
                                                  $
                                                  169,760
                                                  
                                                  
                                                  $
                                                  205,495Property
      EBITDA(1)Riviera
      Las Vegas
                                                  
                                                  $
                                                  9,635
                                                  
                                                  
                                                  $
                                                  18,748
                                                  
                                                  
                                                  $
                                                  30,166Riviera
      Black Hawk
                                                  
                                                  
                                                  9,892
                                                  
                                                  
                                                  
                                                  12,209
                                                  
                                                  
                                                  
                                                  19,133Other
      costs and expenses:Corporate
      expenseShare-based
      compensation
                                                  
                                                  
                                                  579
                                                  
                                                  
                                                  
                                                  795
                                                  
                                                  
                                                  
                                                  966Other
      corporate expenses
                                                  
                                                  
                                                  3,496
                                                  
                                                  
                                                  
                                                  3,857
                                                  
                                                  
                                                  
                                                  4,745Depreciation
      and amortization
                                                  
                                                  
                                                  14,870
                                                  
                                                  
                                                  
                                                  14,883
                                                  
                                                  
                                                  
                                                  13,116Mergers,
      acquisitions and development costs, net
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  191
                                                  
                                                  
                                                  
                                                  611Restructuring
      Fees
                                                  
                                                  
                                                  2,233
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Asset
      impairments
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  72(Gain)
      Loss on retirement of debt
                                                  
                                                  
                                                  (161
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  12,878Change
      in fair value of derivative instruments
                                                  
                                                  
                                                  5,320
                                                  
                                                  
                                                  
                                                  3,556
                                                  
                                                  
                                                  
                                                  13,272Interest
      expense
                                                  
                                                  
                                                  18,147
                                                  
                                                  
                                                  
                                                  17,429
                                                  
                                                  
                                                  
                                                  23,756Interest
      income
                                                  
                                                  
                                                  (98
                                                  )
                                                  
                                                  
                                                  (338
                                                  )
                                                  
                                                  
                                                  (1,859
                                                  )44,386
                                                  
                                                  
                                                  
                                                  40,373
                                                  
                                                  
                                                  
                                                  67,557Net
      loss before income tax provision
                                                  
                                                  
                                                  (24,859
                                                  )
                                                  
                                                  
                                                  (9,416
                                                  )
                                                  
                                                  
                                                  (18,258
                                                  )Income
      tax provision
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (2,446
                                                  )
                                                  
                                                  
                                                  -Net
      loss
                                                  
                                                  $
                                                  (24,859
                                                  )
                                                  
                                                  $
                                                  (11,862
                                                  )
                                                  
                                                  $
                                                  (18,258
                                                  )Interest
      expense:Riviera
      Las Vegas
                                                  
                                                  $
                                                  12,897
                                                  
                                                  
                                                  $
                                                  12,164
                                                  
                                                  
                                                  $
                                                  16,851Riviera
      Black Hawk
                                                  
                                                  
                                                  5,250
                                                  
                                                  
                                                  
                                                  5,265
                                                  
                                                  
                                                  
                                                  6,905$
                                                  18,147
                                                  
                                                  
                                                  $
                                                  17,429
                                                  
                                                  
                                                  $
                                                  23,756Depreciation
      expenseRiviera
      Las Vegas
                                                  
                                                  $
                                                  10,761
                                                  
                                                  
                                                  $
                                                  10,599
                                                  
                                                  
                                                  $
                                                  9,143Riviera
      Black Hawk
                                                  
                                                  
                                                  4,109
                                                  
                                                  
                                                  
                                                  4,284
                                                  
                                                  
                                                  
                                                  3,973$
                                                  14,870
                                                  
                                                  
                                                  $
                                                  14,883
                                                  
                                                  
                                                  $
                                                  13,116Asset
      impairment:Riviera
      Las Vegas
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -Riviera
      Black Hawk
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  72$
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  72December 312009
                                                  
                                                  
                                                  2008Property
      and equipment (2):Riviera
      Las Vegas
                                                  
                                                  $
                                                  109,124
                                                  
                                                  
                                                  $
                                                  119,155Riviera
      Black Hawk
                                                  
                                                  
                                                  59,843
                                                  
                                                  
                                                  
                                                  60,763$
                                                  168,967
                                                  
                                                  
                                                  $
                                                  179,918


F-32


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





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





20.
            SUBSEQUENT
      EVENTS




The
Company evaluated all subsequent events through the date that the consolidated
financial statements were issued. No material subsequent events have occurred
since December 31, 2009 that required recognition or disclosure in the
consolidated financial statements.




21.
            UNAUDITED
      QUARTERLY FINANCIAL DATA





The
following tables (amounts in thousands, except per share data) present selected
quarterly financial information for 2009 and 2008, as previously reported.
Because income (loss) per share amounts are calculated using the weighted
average number of common and dilutive common equivalent shares outstanding
during each quarter.




RIVIERA
HOLDINGS CORPORATION





UNAUDITED
QUARTERLY FINANCIAL DATA


(Amounts
in Thousands, Except per Share Data)





March 31
                
                
                June 30
                
                
                September 30
                
                
                December 31Year
      ended December 31, 2009Net
      revenues
                
                $
                34,656
                
                
                $
                34,642
                
                
                $
                34,632
                
                
                $
                30,119Operating
      income (loss)
                
                
                1,470
                
                
                
                (600
                )
                
                
                (1,007
                )
                
                
                (1,514
                )Loss
      before income tax provision
                
                
                (1,037
                )
                
                
                (13,519
                )
                
                
                (4,673
                )
                
                
                (5,630
                )Net
      loss
                
                
                (1,037
                )
                
                
                (13,519
                )
                
                
                (4,673
                )
                
                
                (5,630
                )Loss
      per share—basic
                
                $
                (0.08
                )
                
                $
                (1.08
                )
                
                $
                (0.38
                )
                
                $
                (0.45
                )Loss
      per share—diluted
                
                $
                (0.08
                )
                
                $
                (1.08
                )
                
                $
                (0.38
                )
                
                $
                (0.45
                )Year
      ended December 31, 2008Net
      revenues
                
                $
                47,962
                
                
                $
                45,615
                
                
                $
                40,208
                
                
                $
                35,975Operating
      income (loss)
                
                
                6,700
                
                
                
                5,044
                
                
                
                195
                
                
                
                (708
                )Income
      (loss) before income tax provision
                
                
                (5,783
                )
                
                
                10,073
                
                
                
                (3,464
                )
                
                
                (10,242
                )Net
      (loss) income
                
                
                (5,783
                )
                
                
                10,073
                
                
                
                (3,464
                )
                
                
                (12,688
                )Income
      (loss) per share—basic
                
                $
                (0.46
                )
                
                $
                0.81
                
                
                $
                (0.28
                )
                
                $
                (1.02
                )Income
      (loss) per share—diluted
                
                $
                (0.46
                )
                
                $
                0.80
                
                
                $
                (0.28
                )
                
                $
                (1.02
                )


F-33