R&E GAMING CORP.
P.O. Box 9660
Rancho Santa Fe, California 92067
April 2, 1998
VIA FACSIMILE (000) 000-0000 AND U.S. MAIL
Riviera Holdings Corporation
0000 Xxx Xxxxx Xxxxxxxxx
Xxxxx Xxx Xxxxx, Xxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxxxxx
Re: Agreement and Plan of Merger re Riviera Holdings Corporation
Dear Xx. Xxxxxxxxx:
On March 20, 1998 R&E Gaming Corp. ("R&E Gaming") provided Riviera
Holdings Corporation ("RHC") written notice ("March 20th Notice") that, by
reason of fraud in the inducement and other circumstances set forth in such
notice, the Agreement and Plan of Merger dated as of September 15, 1997 (the
"Riviera Merger Agreement") by and among R&E Gaming, Riviera Acquisition Sub,
Inc. ("RAS") and RHC is void.
The March 20th Notice provided further that, if the Riviera Merger
Agreement is not void, RHC was being put on notice, pursuant to Section 6.1(d)
of the Riviera Merger Agreement, that RHC was in breach of the Riviera Merger
Agreement.
Except as otherwise defined in this letter, capitalized terms
used in the remainder of this letter have the same meaning as set forth in the
Riviera Merger Agreement.
Pursuant to Section 6.1(c) R&E Gaming and RAS hereby terminate the
Riviera Merger Agreement for the following reasons:
- The Riviera Merger did not occur by April 1, 1998 because:
** the required approvals of one or more of the Gaming
Authorities have not been obtained and such Gaming
Authorities have not informed Xx. Xxxxx X. Xxxxxxx or
R&E Gaming that a review of the applications for such
approvals is scheduled by the appropriate Gaming
Authorities for a later date;
Riviera Holdings Corporation
April 2, 1998
Page 2
** The actual Consolidated EBITDA reflected in the
consolidated statement of operations of the Company for
the Projected Period has declined by 7.5% or more when
compared to the projected results for the Projected
Period, after giving effect to recalculation of earnings
to reflect reversal of cost reductions achieved through
changes in the conduct of RHC's business from its
ordinary course of business consistent with past
practice, which changes are violations of Section 2.8
and 4.1, respectively, of the Riviera Merger Agreement.
Such changes include, but are not limited to, materially
changing hotel housekeeping operations; materially
reducing advertising expenditures; eliminating service
personnel; manipulating and reducing expenditures
regarding the Black Hawk project in Colorado; and
** As set forth in the March 20th Notice, the Riviera
Option Agreement is void and, therefore, is not and was
not on April 1st in full force and effect and, in any
event, the Option Sellers have not complied in all
respects with the terms thereof in that a Seller,
Morgens, Waterfall, Vintiadis & Company, Inc. ("Morgens,
Waterfall"), was at the time of the execution of the
Riviera Option Agreement, and at least until recently
has been, a party to an agreement or understanding that
would make it subject to a valid claim of a broker,
investment banker, finder or other intermediary in
connection with the Option and Voting Agreement (the
"Elsinore Option Agreement") dated as of September 15,
1997 by and between R&E Gaming and Morgens, Waterfall.
The Elsinore Option Agreement is contemplated by Section
5.1(b) of the Riviera Option Agreement and, therefore,
such agreement or understanding is a violation of
Section 2.1(e) of the Riviera Option Agreement.
Please be further advised that, as set forth in the March 20th
Notice, RHC has breached representations, warranties and covenants of the
Riviera Merger Agreement. No cure has taken place or can take place of such
breaches and, accordingly, R&E Gaming and RAS hereby terminate the Riviera
Merger Agreement pursuant to Section 6.1(d) for the reasons set forth in the
March 20th Notice.
In accordance with the terms of Section 6.2 of the Riviera Merger
Agreement such Agreement has forthwith become void and has no effect, except
that RHC continues to be subject to the terms of Section 6.3 thereof.
Because the termination effected by this notice constitutes a
Non-Payment Termination Event, as defined in the Riviera Option Agreement, no
RHC stockholder is entitled to any funds under the Riviera Merger Agreement or
from the Escrow Agreement ("Escrow
Riviera Holdings Corporation
April 2, 1998
Page 3
Agreement") dated as of September 15, 1997, by and among R&E Gaming, RHC and
State Street Bank and Trust Company of California, N.A. R&E Gaming and RAS
hereby demand, therefore, repayment of all monies paid and return of the Letter
of Credit delivered by R&E Gaming in connection with the Escrow Agreement and
the transactions contemplated thereby.
Very truly yours,
R&E GAMING CORP.
By: /s/ Xxxxx X. Xxxxxxx
-----------------------------
Xxxxx X. Xxxxxxx
President
RIVIERA ACQUISITION SUB, INC.
By: /s/ Xxxxx X. Xxxxxxx
-----------------------------
Xxxxx X. Xxxxxxx
President
cc: Dechert Price & Xxxxxx
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxxxx, Esq.
