William L. Westerman


Third Amendment to Employment Agreement

Salary Continuation Agreement

                  Employment Agreement, dated as of November 21, 1996 (this
"Agreement"), by and between Riviera Holdings Corporation and its wholly-owned
subsidiary Riviera Operating Corporation (collectively the "Company") and
William L. Westerman ("Executive").
                  This   Agreement   is  intended  to  replace  the   Employment
Agreement,  dated as of January 6, 1993,  as  amended,  between  the Company and
Executive (the "Old  Agreement")  effective as of January 1, 1997 and to provide
for certain  amendments  to the terms of the Old  Agreement  effective as of the
date of this Agreement.
                  The  Company's   Board  of  Directors  and  the   Compensation
Committee of the Board of Directors  have  approved this  Agreement,  subject to
ratification by the Company's stockholders.  In entering into this Agreement and
in  particular  in  amending  the "Option  Plan"  (hereinafter  defined)  and in
granting  the  "Additional  Options"  (hereinafter  defined) to  Executive,  the
Company  acknowledges  that (i) Executive  has  surrendered  extremely  valuable
rights under the Old  Agreement,  including  the right to receive  8-3/4% of the
Company's  Operating  Income (as defined in the Old  Agreement) in excess of $20
million in each year of the Term and (ii)  Executive is not prepared to continue
to act as the Company's  chief  executive  officer unless he receives either the
benefits specified in the Old Agreement or in this Agreement.
                  If the Company's  stockholders do not ratify this Agreement by
June 30,  1997,  the Old  Agreement  will  remain in full force and effect  from
January  1,  1997,  and this  Agreement  shall be null and void,  except for the
"Special  Retirement  Credit" provisions of Section 6(a), which became effective
on November 21, 1996 and shall remain in full force and effect. If the Company's
stockholders do ratify this Agreement,  the provisions hereof shall be effective
on January  1, 1997  except  for those  provisions  which  become  effective on 
November 21, 1996.
                  In  consideration  of the mutual  agreements  hereinafter  set
forth, the parties hereto agree as follows:
                  1. Employment.  During the "Term" (hereinafter defined)
the Company agrees to employ Executive as Chairman of the Board, President and
Chief Executive Officer of the Company during the Term (as defined in Section 2
below) upon the terms and conditions and for the compensation herein provided,
and Executive agrees to be so
employed and to render the services herein specified.  Executive will also serve
as a member of the Company's Board of Directors during the Term.
                  2. Term of  Employment.  The  initial  term of  employment  of
Executive  hereunder  (the  "Initial  Term")  will  be for the  two-year  period
commencing on January 1, 1997 and ending on December 31, 1998.  The Initial Term
will be  automatically  renewed for successive one year terms (each such renewal
term being an "Extended  Term" and the Initial Term,  together with any Extended
Terms being referred to herein as the "Term") unless (i) Company gives Executive
at least 90 days' written notice of termination  ("Company Termination Notice"),
(ii)  Executive  gives Company at least 180 days written  notice of  termination
("Executive  Termination Notice") or (iii) unless the Term is terminated earlier
by  Company  or  Executive  pursuant  to the  provisions  of  Section 11 of this
Agreement.  If both a Company  Termination  Notice and an Executive  Termination
Notice have been given the termination notice first given shall control.
                  3. Duties. During the Term Executive agrees to devote his full
and exclusive business time and attention to the business of the Company and its
subsidiaries  (4 weeks vacation and sick leave in accordance  with the Company's
policy and personal time consistent with his position  excluded);  to devote his
best efforts to the best of his skill,  energy,  experience and judgment to such
duties.  Executive  shall have all the  powers and agrees to perform  all of the
duties  associated with his position as Chief Executive  Officer of the Company,
subject to such policies and  guidelines as may be  established by the Company's
Board of Directors.
                  4. Salary.  During the Term Executive shall receive a salary
at the rate of $600,000 per annum, payable bi-weekly in arrears ("Base Salary").
                  5. Bonus.  Executive  shall be entitled to  participate in the
Company's Senior Management Compensation Plan or such other Executive bonus plan
as shall be established by the Company's  Board of Directors  (collectively  the
"Plan").  When at least 80% of targeted "Net Income", as defined by the Plan, is
met, the Company has agreed that Executive  shall be entitled to receive a bonus
("Bonus") under the Plan expressed as a percentage of Base Salary depending upon
the percentage of budgeted Net Income realized as specified on Schedule A.
                  6. Retirement Benefits.
                  (a) Credits to Account.  A general ledger account (referred to
as the  "Retirement  Account"),  has been  established  by the  Company  for the
purpose  of  reflecting  retirement  benefits  for  Executive  (the  "Retirement
Benefits").  As at January 1, 1996,  the Company  had  credited  the  Retirement
Account with an aggregate of $1,710,000 and, as of
December 31,  1996,  will credit the  Retirement  Account by the amount by which
Executive's  incentive  compensation  under the Old  Agreement for the year 1996
exceeds $600,000 ("Special Retirement Credit"). On January 1 of each year during
the Term commencing  January 1, 1997, the Company shall credit to the Retirement
Account an amount  equal to the Base  Salary,  to be paid to  Executive  for the
current  year of the  Term  which  begins  on such  January  1,  subject  to the
provisions of Section 3(b).  Executive  shall be deemed to be 100% vested in all
Retirement Benefits in the Retirement  Account.  The Retirement Account shall be
credited with additional amounts  ("Interest  Payments") on April 1, 1997 and on
the first day of each  succeeding  calendar  quarter equal to the product of (i)
the Company's average borrowing cost for the immediately  preceding fiscal year,
as determined by the Company's chief financial officer (the "Interest Rate") and
(ii) the average  outstanding balance credited to the Retirement Account for the
immediately   preceding   calendar   quarter.    Anything   in   the   foregoing
notwithstanding, in the event Executive is terminated for "Cause" (as defined in
Section  11(b)(3)),  Executive  shall  forfeit any and all rights to  Retirement
Benefits,  and the Company  shall have no further  obligation  to Executive  for
payment thereof.
                  (b) Rights to  Retirement  Account.  The Company  shall retain
beneficial  ownership  of all  monies in the  Retirement  Account,  which it may
earmark to pay the Executive's  Retirement Benefits (however,  such funds are to
be  subject  to  the  interests  of  the  general  creditors  of  the  Company).
Notwithstanding  the  foregoing,  upon the  occurrence of the earlier of (i) the
affirmative  vote of the then  holders  of a  majority  of the then  outstanding
shares of the Company's common stock approving a "Change of Control" (as defined
in Section  11(d)),  (ii) an Event of Default by the  Company  under  Subsection
11(a)(1) or Subsection  11(a)(2) or (iii) the expiration or earlier  termination
of the Term for any reason (other than "Cause" as defined in Section  11(b)(3)),
Executive may require,  upon written notice  delivered to the Company (within 30
days  following  such  event)  that,  within 30 days  following  receipt of such
notice,  the Company  establish a "Rabbi Trust" in the form  attached  hereto as
Schedule  B and  transfer  to such  Rabbi  Trust an amount of cash  equal to the
amount  credited to the  Retirement  Account,  including any  additional  amount
credited to the Retirement Account under Subsection 11(c)(2)(ii), to be held and
administered  in  accordance  with  the  terms  of such  Rabbi  Trust.  Upon the
crediting  of any Base  Salary  Credits  (as  defined  above) to the  Retirement
Account under Subsection 6(a) of this Agreement  following the  establishment of
the Rabbi Trust, the Company shall transfer an additional  amount of cash to the
Rabbi  Trust  equal to the amount of such Base  Salary  Credits,  to be held and
administered in accordance with the terms of such Rabbi Trust.
                  (c)  Benefits.  The Retirement Benefits are to be paid as
deferred compensation as follows:
                       (1)  Payment Upon Termination Including Disability.  Upon
termination of Executive's employment, other than termination by the Company
for Cause,
including, but not limited to termination because of "Disability" (as defined in
Subsection (5) below),  the Company shall pay to Executive in 20 equal quarterly
installments the amount credited to the Retirement Account as of the Termination
Date and the  Company  shall also pay to  Executive  as an addition to each such
quarterly  payment the additional  amounts  credited to the  Retirement  Account
during the preceding quarter.
                       (2)  Payment Upon Death of Executive.  Upon the death of
Executive at any time prior to the complete  payment of amounts  credited to the
Retirement  Account,  all subsequent  payments shall be made to the  Executive's
"Designated  Beneficiary"  (as defined below) in the same amount and on the same
schedule as specified in (1) above  provided that the date of death of Executive
shall be treated as the Termination  Date if no Termination  Date has previously
occurred and further  provided  that  Company  shall make within eight months of
Executive's  death a special payment equal to 60% of the value as of the date of
Executive's death of all remaining  payments  hereunder and such special payment
shall be treated a an acceleration of the final payments due.
                       (3)  Designated Beneficiaries; Death of Executive or
Designated Beneficiary.  A "Designated  Beneficiary" to whom amounts are payable
under this Subsection 6(c) shall be the person  designated in writing by the
Executive on a form  substantially  similar  to the  form  attached  hereto  as
Schedule  B (a "Beneficiary  Designation  Form") that is delivered to the
Company  prior to the Executive's  death.  Any such  Beneficiary  Designation
Form may be  revoked in writing by the  Executive  or may be  changed,  without
the consent of any prior Designated  Beneficiary,  by  the  Executive's
delivery  to  the  Company  of a Beneficiary Designation Form of later date
revoking the prior form or specifying a new Designated  Beneficiary.  If the
Executive fails to designate a Designated Beneficiary or if a Designated
Beneficiary does not survive the Executive,  all installments  payable
hereunder  shall  be  paid  to the  Executive's  personal representative  or
pursuant to the terms of the Executive's  will or the laws of descent and
distribution.  If a Designated  Beneficiary  survives the Executive,
but dies  prior to  receiving  all  remaining  installment  payments  to be paid
hereunder,  any remaining  installment  payments shall be paid to the Designated
Beneficiary's  personal   representative  or  pursuant  to  the  terms  of  such
Designated Beneficiary's will or the laws of descent and distribution.
                       (4)  Disability Determination.  Executive shall be deemed
to have become disabled  ("Disability") for purposes of this Agreement, if
Company shall find on the basis of medical  evidence  satisfactory  to it that
Executive is so totally  mentally  or  physically  disabled as to be unable to
engage in further employment  by Company and that such  disability  shall be
determined to be such that it will cause, or actually does cause or has caused,
Executive to be absent from work for a period,  or aggregate  of periods,
 in excess of three months in any one twelve month period.
                       (5) Payment Commencement.  The installment payments to be
made to the Executive or Executive's  estate,  as the case may be, under
Subsections (d)(1) or  (d)(2),  shall  commence  on the first  day of the
calendar  quarter following  the  Termination  Date.  The  installment  payments
to be made to the designated  beneficiary  upon the death of Executive shall
commence on a date to be selected by Company but within six (6) months from
Executive's date of death.  Each installment payment shall be equal to the
amount credited to the Retirement Account immediately prior to the date of such
payment,  divided by the remaining number of installment payments to be paid.
                       (6) No Trust.  Except to the extent that a Rabbi Trust is
created pursuant to Section 6(b),  nothing contained herein and no action taken
pursuant to the  provisions  of this  Agreement  shall create or be construed
to create a trust of any kind, or a fiduciary  relationship  between  Company
and Executive, his Designated Beneficiary or any other person.
                       (7) No Assignment.  The right of Executive or any other
person to the payment of deferred  compensation  or other  benefits  under this
Agreement shall not be assigned, transferred,  pledged, or encumbered except
by will or by the laws of descent and distribution.
                       (8) Incapacity of Beneficiary.  If the Company shall find
that any person to whom any payment is payable under this Agreement is unable to
care for his other affairs because of illness or accident or is a minor,  any
payment due (unless  a prior  claim  therefor  shall  have  been  made  by a
duly  appointed guardian, committee, or other legal representative) may be paid
to the spouse, a child,  parent, or brother or sister, or to any person deemed
by Company to have incurred  expense for such person otherwise  entitled to
payment,  in accordance with the  applicable  provisions  of this Section 6.
Any such payment shall be a complete discharge of the Company's liabilities
under this Agreement.
                  7.  Profit  Sharing and 401(k)  Plan.  In addition to the Base
Salary,  Bonus  and  Retirement  Benefits,   Executive  shall  be  eligible  for
participation  in the Defined  Contribution  Plan adopted by Company by Adoption
Agreement, dated April 1, 1992, as modified pursuant to the provisions set forth
on the Term Sheet attached hereto as Schedule C and made a part hereof.
                  8.  Additional Benefits and Compensation.  During the
Term, Executive shall be entitled to:
                  (a)  life insurance,  group health  insurance,  including
major medical and  hospitalization,  comparable to such benefits  offered to
other key executives of the Company;
                  (b)  reimbursement  for all  reasonable  expenses  incurred by
Executive in  connection  with the  performance  of his duties and in accordance
with any applicable policy of the Board (including 100% of reasonable travel and
entertainment  expenses),  subject to  submission of  appropriate  documentation
therefor; and
                  (c)  four weeks paid vacation during each year of the Term.
                  9.  Options.  On November 21, 1996, the Board of Directors
took the following actions on behalf of the Company (subject to stockholder
                  (a) Amended the Company's Stock Option Plan ("Option Plan") to
increase  the number of shares  issuable  thereunder  from  480,000 to 1,000,000
million shares of common stock.
                  (b) Amended  the Option Plan to permit the grant to  Executive
of options to purchase an aggregate of 500,000 shares of common stock,  of which
options to purchase  200,000 shares have already been granted ("Old Options") to
                  (c) Granted  Executive  options  ("New  Options")  to purchase
300,000 shares of common stock at per share Fair Market Value (as defined in the
Option  Plan) on November  21,  1996,  with 25% of the New Options  being vested
immediately and 25% being vested on each of December 31, 1997, December 31, 1998
and December 31, 1999, provided that vesting of such options will be accelerated
if the Term is  terminated  for any  reason  other  than  "Cause"  or  voluntary
termination  by Executive  prior to 12/31/99  (as defined in Section  11(b)(3)),
including a "Change in Control" (as defined in Section 11(a)(2)).
                  (d) Upon  exercise by Executive of the Old Options  and/or the
New Options,  the Company will lend (the  "Loans") to Executive up to 40% of the
spread  between the option  exercise  price and the closing  market price of the
Company's  common stock,  multiplied by the number of shares being acquired upon
exercise  of such  Options  with the  principal  of each such loan and  interest
thereon at  Interest  Rate,  being  payable at the  earlier of (i) on the second
anniversary  of each such loan, or (ii) out of the proceeds from the sale of the
shares underlying each such exercised Option.  The provisions of the New Options
and the Loans are set forth in the Option Agreement,  a copy of which is annexed
hereto as Schedule D and to which reference is made for the complete  provisions
of the New Options and the Loans.
                  10.  Indemnity.
                  (a)  The Company agrees:
                       (1)  To use its best efforts to purchase and maintain
during the Term of this Agreement a Directors and Officers  Liability  Insurance
Policy covering liabilities  which  may  have  been or  will be  incurred  by
Executive  in the performance  of his  services on behalf of Company  provided,
however,  that if available, such insurance is at a cost Company believes is
                       (2)  Except as otherwise provided in Section 10(b), and
to the fullest extent  allowed by law, to indemnify and hold  Executive  free
and harmless from any  liability  for  injury or death to  persons  or damage
or  destruction  of property due to any cause  whatsoever,  either in or about
the Riviera Hotel and Casino (the "Hotel") or elsewhere,  as a result of the
performance by Executive of his duties under this Agreement irrespective of
whether alleged to be caused, wholly or partially, by Executive;
                       (3)  Except as otherwise provided in Section 10(b) below,
to reimburse  Executive upon demand for any money or other property which
Executive is  required  to pay out for any  reason  whatsoever  in  performing
his duties hereunder,  whether the  payment is for charges or debts  incurred
or assumed by Executive or any other party, or judgments,  settlements, or
expenses in defense of any claim, civil or criminal action, proceeding, charge,
or prosecution made, instituted or maintained against Executive or the Company,
jointly or severally, because of the  condition  or use of the Hotel,  or acts
or  failures  to act of Executive,  or arising  out of or based upon any law,
regulation,  requirement, contract or award; and
                       (4)  Except as provided in Section 10(b), to defend  any
claim, action,  suit  or  proceeding  brought  against  Executive,  arising  out
of or connected  with any of the foregoing,  and to hold harmless and fully
indemnify Executive from any judgment,  loss or settlement on account thereof,
regardless of the jurisdiction in which any such claim,  actions,  suits or
proceedings may be brought.
                  (b)  Notwithstanding  the foregoing,  the Company shall not be
liable to indemnify and hold  Executive  harmless  from any liability  described
above  which  results  from  the  gross  negligence  or  willful  misconduct  of
                  (c) If  (i)  the  Company  shall  be  obligated  to  indemnify
Executive, or (ii) a suit, action, investigation,  claim or proceeding is begun,
made or  instituted  as a result  of  which  Company  may  become  obligated  to
Executive  hereunder,  Executive shall give prompt written notice to the Company
of the occurrence is such event. The Company agrees to
defend,   contest  or  otherwise   protect   against  any  such  suit,   action,
investigation,  claim or  proceeding  at the  Company's  own  cost and  expense.
Executive  shall have the right but not the obligation to participate at his own
expense in the defense  thereof by counsel of his own choice.  In the event that
the Company  fails timely to defend,  contest or otherwise  protect  against any
such suit, action, investigation,  claim or proceeding, Executive shall have the
right to defend,  contest or otherwise protect against the same and may make any
compromise  or  settlement  thereof and recover the entire cost thereof from the
Company including, without limitation, reasonable attorney's fees, disbursements
and all amounts paid or payable as a result of such suit, action, investigation,
claim, or proceeding or compromise or settlement thereof.
                  11. (a) Events of Default. The Term of employment of Executive
hereunder and any obligations of Executive hereunder (except with respect to any
obligations set forth in Section 12 hereof) may be terminated,  at the option of
the non-defaulting party (which termination by the non-defaulting party shall be
deemed  involuntary),  upon the happening of any of the following  events (which
shall be deemed to be "Events of Default"):
                           (1)      If the other party shall breach, default or
fail to comply in any material respect with any covenant or agreement  contained
in this Agreement  followed by written notice from the  non-defaulting  party to
the other and failure of the  defaulting  party either to remedy or correct such
breach,  default or noncompliance  within thirty (30) days after receipt of such
notice; and
                           (2)      A "Change in Control" (hereinafter defined),
without Executive's prior written consent, which shall be considered an Event of
Default by the Company.
                        (b) Other Termination.  In addition to the Events of
Default set forth in Section  11(a) above,  the Term of  employment of Executive
hereunder shall be terminated upon the happening of the following events:
                           (1)       The mutual consent of the parties hereof;
                           (2)       The death or Disability of Executive;
                           (3) The Executive shall have been finally adjudicated
by a court to have committed a felony,  fraud, or a crime involving  dishonesty,
whether or not involving the Company ("Cause"), provided that pending such final
adjudication, the Company shall set aside in an escrow account, which shall be a
separate,  non-commingled,  interest  bearing  account,  from  the  date  of  an
allegation  of Cause,  the  following  amounts which would not be payable in the
event of Executive's discharge for Cause: (A) the Base Salary; (B) the
Retirement Benefits and (C) the Bonus; provided, however, that (I) if such final
adjudication  or other  disposition  is  favorable  to  Executive,  all escrowed
amounts  (including  any interest  accrued  thereon) shall be paid to or for the
benefit of Executive promptly, (II) if such final adjudication is unfavorable to
Executive - i.e. Executive is found to have committed a felony, fraud or a crime
involving  dishonesty - then all escrowed funds  (including any interest accrued
thereon)  shall be paid to the  Company  promptly  and  Executive  shall have no
further interest therein; or
                  (c) Remedies. (1) The remedies of each of the parties upon the
occurrence  of an Event of  Default  by the other  party  specified  in  Section
11(a)(1)  shall be  cumulative  and not  exclusive.  However,  no party shall be
obligated to the other for punitive or other forms of  speculative or expectancy
damages. In addition to any and all such other remedies,  the provisions of this
Agreement  requiring  the  performance  of an  affirmative  act  by a  party  or
requiring a party to refrain  from the  performance  of specific  act,  shall be
enforceable by injunctive proceeding or by a suit for specific performance.
                           (2)      Upon the occurrence of an Event of Default
specified in Section  11(a)(2),  Executive  may, by giving not less than 90 days
notice to the  Company,  terminate  all of  Executive's  obligations  under this
Agreement  (except for those  specified in Section 12),  effective upon the date
specified in such notice (the "Termination  Date"), and shall be entitled to (i)
have  credited  to his  Retirement  Account an amount  equal to one year of Base
Salary (in effect upon the Termination Date) credited to the Retirement  Account
and (ii) 100% vesting on stock options held by Executive.
                  (d) "Change of Control" means any of the following: (i) all or
substantially  all of the assets of the  Company  are sold as an  entirety or as
part of a series of transactions to any person,  (ii) the Company engages in any
merger,  consolidation,  sale of capital stock,  sale of equity interests or any
other  transactions  with any other  person,  with the  effect  that  after such
transactions  the holders of common  stock of the Company  immediately  prior to
such  transactions  own,  directly or  indirectly,  in the aggregate less than a
majority in voting  interest of the total voting  power  entitled to vote in the
election  (A) of  directors  of the  Company,  if the  Company is the  surviving
entity,  or (B) of directors,  managers or trustees (1) of such other person, if
the  Company  is not the  surviving  entity,  or (2) of such other  person  that
purchases all or  substantially  all of the Company's  assets;  (iii) any person
who, as of the date hereof, does not have 10% or more of the common stock of the
Company,  acquires a  majority  in voting  interest  of the total  voting  power
entitled to vote for directors of the Company  (otherwise  than by reason of the
voting  provisions  of any  preferred  stock of the  Company);  (iv) any  person
acquires more than 50% of the total voting power  entitled to vote for directors
of the  Company;  or (v) any person  acquires  more than 50% of the total voting
power  entitled to vote for  directors,  managers or trustees (X) of such person
other than the Company  surviving any of the transactions  referred to in clause
above,  or (Y) of such other person that purchases all or  substantially  all of
the  Company's  assets.  A "person" for the purposes  hereof,  shall  include an
individual corporation,  partnership, trust or group acting in concert. A person
for the purposes  hereof,  shall be deemed to be a beneficial owner as that term
is used in Rule 13d-3 promulgated under the Securities  Exchange Act of 1934, as
                  12.      Confidential Information; Non-Competition.
                  (a) During the Term and for a three year period  commencing on
the  termination  of the Term of this  Agreement  for any reason,  (i) Executive
shall hold in a fiduciary  capacity for the benefit of the Company all secret or
confidential  information,  knowledge  or data  relating  to the  Company or its
affiliates,  and their respective businesses which shall not be public knowledge
(other than information which becomes public as a result of acts of Executive or
his  representatives  in  violation  of  this  Agreement),   including,  without
limitation, customer/client lists, matters subject to litigation, and technology
or financial information of the Company or its subsidiaries,  and (ii) Executive
shall not,  without the prior  written  consent of the Company,  communicate  or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it in writing.
                  (b) Except as otherwise provided in this Section 12(b), during
the Term and for a three year period  commencing on the  termination of the Term
of  this  Agreement  for  any  reason,  the  Executive  will  not,  directly  or
indirectly,  (i) own, manage, operate,  control or participate in the ownership,
management  or control of, or be  connected  as an officer,  employee,  partner,
director,  or  consultant or otherwise  with, or have any financial  interest in
(except for (A) ownership as of the date hereof, (B) any ownership in the common
stock of the Company,  or (C) any  ownership of less than 5% of the  outstanding
equity interest in any entity) any hotel/casino located in Clark County,  Nevada
or (ii) solicit or contact any employee of the Company or its affiliates  with a
view to inducing or encouraging such employee to leave the employ of the Company
or its affiliates  for the purpose of being  employed by Executive,  an employer
affiliated  with  Executive,  or any  competitor of the Company or any affiliate
thereof. The provisions of Section 12(b) shall not apply in the event of (i) any
involuntary  termination  by the Company of  Executive's  employment  under this
Agreement or (ii) the occurrence of a Change of Control.
                  (c) Executive acknowledges that the provisions of this Section
12 are  reasonable  and  necessary  for the  protection  of Company and that the
Company will be  irrevocably  damaged if such  provisions  are not  specifically
enforced. Accordingly, Executive agrees that, in addition to any other relief to
which the Company may be entitled in the form of actual or punitive damages, the
Company shall be entitled to seek and obtain  injunctive  relief from a court of
competent jurisdiction (without posting of a bond therefor)
for the purposes of restraining Executive from any actual or threatened breach
of such provisions.
                  13.      Miscellaneous
                  (a)  This   Agreement   shall  be  governed,   construed   and
interpreted  in  accordance  with  the  internal  laws of the  State  of  Nevada
applicable to agreements executed in that State.
                  (b)  This  Agreement   supersedes  all  prior  agreements  and
understandings  among the parties,  and contains the full  understanding  of the
parties  hereto  with  respect  to  the  subject  matter  hereof.   Any  change,
modification  or waiver of this  Agreement  must be in  writing,  signed by both
parties  hereto or, in the case of a waiver,  by the party  waiving  compliance.
This Agreement may be executed in one or more counterparts,  each of which shall
be deemed an original. The captions of each article and section are intended for
convenience  only. All references herein to days, weeks and months shall mean by
calendar;  unless specifically stated to the contrary.  All references herein to
the singular shall include the plural,  and all  references to gender shall,  as
appropriate,  include other genders.  All  representations  and warranties  made
hereunder  shall  survive  the  execution  and  delivery  and  closing  of  this
Agreement.  The  Company  consents  to the  execution  of a  memorandum  of this
Agreement and the filing and recording of such memorandum with any  governmental
body or agency having  jurisdiction  over the filing or recordation of interests
in real property.  At the  termination of this  Agreement,  Executive  agrees to
execute  in  recordable   form  an   instrument   sufficient  to  evidence  said
                  (c) It is  the  intention  of the  parties  hereto  that  this
Agreement  shall not inure to the  benefit of any third  parties  not parties to
this Agreement,  and it is specifically intended that no third party beneficiary
relationships,  benefits or  obligations  shall arise or be deemed to exist as a
result of this said Agreement.
                  (d)  This  Agreement  shall  inure  to the  benefit  of and be
binding upon each of the parties hereto,  their heirs,  assigns,  successors and
personal representatives,  however, as a personal service contract, it shall not
be assignable by Executive without the prior written consent of the Company.
                  (e) The  failure  or delay by either  party in any one or more
instances to enforce one or more of the terms and  conditions of this  Agreement
or to exercise any right or privilege  under this Agreement shall not thereafter
be construed as a waiver of any such term, condition, right or privilege and the
same and all other terms, conditions,  rights or privileges under this Agreement
shall  continue to remain in full force and effect as though no such  failure or
delay had occurred.
                  (f) Any and all disputes  between the parties hereto,  however
significant,  arising out of,  relating in any way to or in connection with this
Agreement (including the validity, scope, and enforceability of this arbitration
clause) will be solely  settled by an arbitration  conducted in accordance  with
the rules of the American Arbitration  Association or any similar successor body
before a panel of three arbitrators. Each party shall appoint one arbitrator. If
a party fails to nominate  an  arbitrator  within 10 days from the date when the
claimant's  request for arbitration has been  communicated to the other party in
writing,  the  appointment  shall be made within 10 days thereof by the American
Arbitration Association. The two arbitrators so appointed shall attempt to agree
upon the third  arbitrator to act as chairman.  If the two  arbitrators  fail to
nominate the chairman  within 10 days from the date of  appointment of the later
appointed  arbitrator,  the chairman shall be selected within 10 days thereof by
the American Arbitration Association.  The arbitration shall be conducted with a
view to commencing  proceedings within 30 days from the date when the claimant's
request for  arbitration  was  communicated to the other party in writing and to
rendering  the award or other  judgment  not more than 15 days  thereafter.  The
award or other judgment of the arbitrators shall be final, and the parties agree
to waive their right to any form of appeal,  to the greatest  extent  allowed by
law,  and to share  equally the fees and expenses of the  arbitrators.  Judgment
upon  any  award  of  the  arbitrators  may  be  entered  in  any  court  having
jurisdiction  or  application  may be  made  to  such  court  for  the  judicial
acceptance of the award and for order of enforcement.  Such arbitration shall be
held only in Las Vegas, Nevada.  Pending resolution of the dispute,  there shall
be no  stoppage  by either  party under the terms  hereof;  rather,  the parties
hereto shall perform diligently under this Agreement pending ultimate resolution
of the dispute. By agreeing to arbitration,  neither party hereto is waiving any
benefit of any statute of limitations or other equitable defenses.
                  (g) No voluntary or  involuntary  successor in interest of the
Company  shall  acquire  any rights or powers  under this  Agreement,  except as
specifically  set forth herein.  Otherwise,  the Company shall not assign all or
any part of this Agreement.
                  14. Notices. All notices,  requests,  demands,  directions and
other  communications  provided for hereunder  shall be in writing and delivered
personally or mailed by certified or registered mail, return receipt  requested,
to the following  addresses for each party during the Term or until such time as
written notice, as provided hereby, of a change of address to be used thereafter
is given to the other  party,  with copies to such legal  counsel as each party,
from time to time, may designate:
         Company                                       Executive
         -------                                       ---------
         2901 Las Vegas Blvd. So.                      2901 Las Vegas Blvd. So.
         Las Vegas, Nevada 89109                       Las Vegas, Nevada 89109
         Attn:  Duane Krohn, Chief                     PERSONAL & CONFIDENTIAL
                Financial Officer
Notices  delivered  personally shall be deemed to have been given upon delivery;
notices  delivered by certified or registered  mail shall be deemed to have been
given  seventy-two  (72) hours after the date  deposited in the mail,  except as
otherwise provided herein.
                  15. Government Approvals.  Notwithstanding any other terms and
provisions  set forth in this  Agreement,  if is understood  and agreed that the
engagement of Executive hereunder, the obligation of the parties hereto, and the
effect of the Agreement, shall be subject to the approval of each and all of the
terms,  covenants  and  provisions  of  this  Agreement  by  the  Nevada  Gaming
Authorities and other  Governmental  Authorities from whom approval,  if any, is
required under the laws of the State of Nevada,  the County of Clark, or any and
all other  governmental  agencies  having  jurisdiction  thereover.  Each of the
parties  hereby  covenant and agree to exercise their best good faith efforts to
proceed to obtain any and all such necessary approvals.
                  16.  Compensation  Under Old  Agreement.  Notwithstanding  the
provisions  of  Sections  4, 5 and 6 hereof,  in no event  shall the sum of Base
Salary,  Bonus and  Credits  to  Retirement  Account  (excluding  the  Interests
Payments)  payable to or for the  account of  Executive  in any year of the Term
under  this  Agreement  exceed  the sum of Base  Salary,  Bonus and  Credits  to
Retirement  Account  which  would  have been  payable  to or for the  account of
Executive under the Old Agreement and Executive shall instruct the Company as to
the reductions of Base Salary, Bonus and Credits to
Retirement Account necessary to comply with the provisions of this Section 16.
                  IN WITNESS WHEREOF,  the parties herein have entered into this
Agreement the day and year first above mentioned.
COMPANY:                                        EXECUTIVE:
By:______________________                       ________________________
                                                WILLIAM L. WESTERMAN




Exhibit 10.40
                                 FIRST AMENDMENT
                             TO EMPLOYMENT AGREEMENT
                               WILLIAM L. WESTERMAN
                          RIVIERA OPERATING CORPORATION
         This AMENDMENT dated January 1, 2001, to the Employment Agreement dated
as of  November  21,  1996  (the  "AGREEMENT"),  by and among  RIVIERA  HOLDINGS
CORPORATION  ("RHC"),  and  its  wholly-owned   subsidiary,   RIVIERA  OPERATING
CORPORATION  ("ROC")  (collectively  the  "COMPANY"),  and WILLIAM L.  WESTERMAN
         WHEREAS,  This  Amendment has been  approved by the COMPANY's  Board of
Directors on December 6, 2000.
         NOW, THEREFORE,  in consideration of the mutual agreements  hereinafter
set forth, the parties hereto agree as follows:
11.              There shall be no further COMPANY contribution to the principal
                 of EXECUTIVE's retirement account following the January 1, 2001
                 COMPANY contribution.  Interest will continue to accrue.
12.              To the  extent  that  EXECUTIVE's  year 2001  incentive  bonus
                 exceeds  Four Hundred  Thousand  Dollars  ($400,000.00),  such
                 excess amount shall be applied to reduce the principal balance
                 of EXECUTIVE's  retirement account in the exact amount of such
                 excess at the time the incentive is paid (approximately  March
                 15, 2002).
13.              In the event that EXECUTIVE's Rabbi Trust has not been funded,
                 the  balance of  principal  and  interest  of such Rabbi Trust
                 shall  be  paid  to  EXECUTIVE  upon  EXECUTIVE's  retirement,
                 termination  (unless  for a cause) or upon a change in control
                 of the Company.
14.              Except as otherwise specifically provided herein, the terms and
                 conditions of the AGREEMENT shall remain in full force and
         IN WITNESS WHEREOF, the parties have duly executed this AGREEMENT as of
the day and year first written above.
By:_____________________________               By:_____________________________
     DUANE KROHN, Treasurer                         DUANE KROHN, Treasurer
- -------------------------------------------------------------------------------


                                SECOND AMENDMENT
                             TO EMPLOYMENT AGREEMENT
                              WILLIAM L. WESTERMAN
                          RIVIERA OPERATING CORPORATION
         This SECOND AMENDMENT dated as of July 15, 2003, to the Employment
Agreement by and among RIVIERA HOLDINGS CORPORATION ("RHC"), and its
wholly-owned subsidiary, RIVIERA OPERATING CORPORATION ("ROC") (collectively the
         WHEREAS, the Parties entered into an Employment Agreement dated as of
November 21, 1996 (the "Agreement"), and said Agreement is currently in effect;
         WHEREAS, on December 6, 2000, the Parties amended the Agreement by way
of a First Amendment to Employment Agreement ("First Amendment");
         WHEREAS, at the request of the RHC Compensation Committee at its March
3, 2003 meeting, in order to reduce the Company's liability to Executive, it was
decided that commencing April 1, 2003, and continuing the first day of each
quarter thereafter, Executive is to be paid the following in cash:
o        the quarterly interest credited to his Retirement Account one (1)
         quarter in arrears; and
o        a distribution of $250,000 from the principal balance of his Retirement
         WHEREAS, in addition to his $600,000 Base Salary and in accordance with
the First Amendment, Executive has received a net incentive bonus of $400,000 in
each of the preceding two (2) years based upon targets previously established;
         WHEREAS, the Company desires that its compensation arrangement with
Executive more accurately reflect the expectation of the parties; and
         WHEREAS, this Second Amendment to Employment Agreement ("Second
Amendment"), has been approved by the COMPANY's Board of Directors and the
Compensation Committee.
         NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, the parties hereto agree as follows:
1. The following shall replace Paragraph 4 of the Agreement in its entirety:
                  4(a)     Executive shall receive a salary at the rate of
                           $600,000 per annum, payable bi-weekly in arrears
                           ("Base Salary") through December 31, 2002. Effective
                           January 1, 2003, and for the remainder of the Term,
                           Executive shall receive a salary at the rate of
                           $1,000,000 per annum, bi-weekly in arrears ("Total
                  4(b)     For a period of twenty-four  (24) months  following
                           the termination of this Agreement for any reason
                           except cause ("Termination Date")  ("Non-Competition
                           Term"),  Executive hereby covenants and agrees that
                           Executive shall not, directly or indirectly (as a
                           director, officer, partner, member, manager, employee
                           or agent of any other person), engage in any business
                           activity which is in competition with the Company
                           within a radius of  seventy-five  miles from the
                           location of any hotel and/or  casino  business then
                           currently  operated by Company ("Non-Competition
                           Covenant").  As consideration for the Non-Competition
                           Covenant,  Executive shall be  entitled  to  receive,
                           and the  Company  shall  pay,  a  total  fee of Five
                           Hundred  Thousand  Dollars ($500,000.00)
                           ("Non-Competition  Fee"), in accordance with the next
                           sentence. The Non-Competition Fee shall be paid in
                           two (2) equal annual installments of Two Hundred
                           Fifty Thousand Dollars ($250,000.00).  The first
                           installment  shall be paid within five (5) business
                           days of the Termination Date and the second
                           installment shall  be  paid  on the first anniversary
                           of the Termination Date.  The Company  hereby  agrees
                           that, irrespective  of the  duration  of  the
                           Non-Competition  Covenant,  the  Company's obligation
                           to pay  the Non-Competition  Fee shall survive the
                           Executive's death and shall thereafter be paid to
                           Executive's estate (or designated  beneficiary) until
                           the entire  Non-Competition Fee has been paid in full
                         . Executive shall be entitled to the entire
                           Non-Competition Fee as delineated above
                           notwithstanding  whether Executive might be engaged
                           as a consultant for the Company and/or remains a
                           Substantial  Stockholder of the Company, as defined
                           in the Company's Articles of Incorporation,
                           subsequent to the Termination Date.
2. Paragraph 5 of the Agreement shall be changed as follows:
(i) The first sentence of Paragraph 5 shall be changed to read as follows:
                           Through December 31, 2002, Executive shall be
                           entitled to participate in the Company's Senior
                           Management Compensation Plan or such other Executive
                           bonus plan as shall be established by the Company's
                           Board of Directors (collectively the "Plan").
(ii) The following sentence shall be added to the end of Paragraph 5:
                           Effective January 1, 2003, Executive shall not be
                           eligible to participate in the Plan.
3.                Except as amended by this Second Amendment, the terms and
                  conditions of the Agreement and First Amendment to Agreement
                  shall remain in full force and effect.
         IN WITNESS WHEREOF, the parties have duly executed this AGREEMENT as of
the day and year first written above.
By:_____________________________            By:_____________________________
     DUANE KROHN, Treasurer                       DUANE KROHN, Treasurer
Top of the Document
                                 THIRD AMENDMENT
                             TO EMPLOYMENT AGREEMENT
                              WILLIAM L. WESTERMAN
                          RIVIERA OPERATING CORPORATION
         This THIRD AMENDMENT dated as of March 4, 2008, to the Employment
Agreement by and among RIVIERA HOLDINGS CORPORATION ("RHC"), and its
wholly-owned subsidiary, RIVIERA OPERATING CORPORATION ("ROC") (collectively the
"Company"), and WILLIAM L. WESTERMAN ("Executive").
         WHEREAS, the Parties entered into an Employment Agreement dated as of
November 21, 1996 (the "Agreement"), and said Agreement is currently in effect;
         WHEREAS, on December 6, 2000, the Parties amended the Agreement by way
of a First Amendment to Employment Agreement ("First Amendment");
         WHEREAS, on July 15, 2003, the Parties again amended the Agreement by
way of a Second Amendment to Employment Agreement ("Second Amendment");
         WHEREAS, the Company and Executive desire that the terms of the
Agreement and amendments thereto be further amended; and
         WHEREAS, this Third Amendment to Employment Agreement ("Third
Amendment"), has been approved by the Company's Board of Directors and
Compensation Committee.
         NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, the parties hereto agree as follows:
1.  Paragraph 5 of the Agreement, as amended by the Second Amendment, shall be
        changed as follows:
                  5.       Incentive Bonus.
                           (a) Effective January 1, 2008, Executive is eligible
                           to participate in the Company's Incentive
                           Compensation Plan (the "Plan"). The Plan provides for
                           an annual target that is established by the Company's
                           Compensation Committee and approved by the Company's
                           full Board of Directors in or around each November of
                           the year preceding the applicable year. Incentive
                           Bonuses are paid prior to March 15 of the year
                           following the year in which the Incentive Bonus is
                           earned. The Plan also provides for awards of
                           discretionary bonuses.
                           (b) Executive shall be paid a discretionary bonus in
                           the amount of $300,000 prior to March 15, 2008, for
                           his contribution to the Company's excellent
                           performance in 2007.
2.                Except as amended by this Third Amendment, the terms and
                  conditions of the Agreement, the First Amendment and Second
                  Amendment shall remain in full force and effect.
         IN WITNESS WHEREOF, the parties have duly executed this Third Amendment
as of the day and year first written above.
By: _____________________________           By: _____________________________
     Mark Lefever, Treasurer                     Mark Lefever, Treasurer
Top of the Document

Salary Continuation Agreement


On August 12, 2008, the Board of Directors (the "Board") of Riviera

         Holdings Corporation (the "Company") approved a Salary Continuation

         Agreement (the "Agreement") by and among the Company, Riviera Operating

         Corporation ("ROC"), a wholly owned subsidiaries of the Company, and

         William L. Westerman, the Company's Chief Executive Officer, President

         and Chairman of the Board. The Agreement will be effective upon the

         execution and delivery of the Agreement by Mr. Westerman and will

         expire on December 31, 2009.


         The Agreement entitles Mr. Westerman to 24 months of base salary and 24

         months of health insurance benefits in the event ROC terminates Mr.

         Westerman's employment without cause within 24 months after a change in

         control of the Company.


         The Agreement is substantially similar to the Salary Continuation

         Agreements reported on Form 8-k, filed June 2, 2008, that the Company,

         ROC and RBH, as applicable, entered into with two executive officers

         and 59 significant employees.