Stockholder: Archon options unfairly enrich owner’s family

By Liz Benston

Monday, June 20, 2005 | 10:48 a.m.

A major shareholder of Archon Corp. has written a letter to company President Paul Lowden, blasting a plan to award hundreds of thousands of stock options to Lowden family members.

The letter, written by New York hedge fund D.E. Shaw & Co. and published in a filing with the Securities and Exchange Commission, threatens potential legal action if the option grants are approved by shareholders at an upcoming meeting June 30.

Senate Majority Leader Bill Raggio, R-Reno, sits on Archon's board of directors. Reached this morning, Raggio defended the board's authorization of 150,000 stock options each to Archon Real Estate Projects Manager David Lowden and Director of Design and Development Christopher Lowden.

The options were authorized based on the Lowdens' past services with the company and have been disclosed to shareholders, Raggio said, referring further questions to Paul Lowden. David and Christopher are brother and son, respectively, to Paul Lowden.

Archon officials could not be reached for comment by press time.

Archon, a small public company that isn't traded on a major exchange, owns the Pioneer Hotel and Gambling Hall in Laughlin. But its primary asset of value is 27 acres of land on the Strip that was the former site of the Wet 'n Wild waterpark.

The company ended Wet 'n Wild's lease last year and has held onto the land for future development. Archon has for years discussed the possibility of developing a major casino resort on the site but is also considering selling the land.

According to a proxy statement mailed to shareholders last week, Paul Lowden chose to decline an option award approved by the board. The options would have an exercise price of $1 per share, valuing each grant at more than $4 million given Friday's stock price of $28 per share.

In his letter, D.E. Shaw Senior Vice President Marc Sole said the grants were authorized with no explanation and would dilute earnings for minority shareholders.

"When I reviewed Archon Corporation's proxy statement, filed today, I didn't know whether I should write this letter or send a resume," Sole wrote. "Indeed, there are few, if any, public companies with market capitalizations below $200 million which pay bonuses in the $4 million range to employees who do not even serve as senior executive officers."

"Your actions make us wonder whether Archon Corporation is seeking to be run as a family fief on which minority shareholders remain as serfs," the letter said.

The board also voted to reinstate an executive stock option plan that expired in 2003 and extend the plan to September 2013. That plan had about 600,000 remaining options available to issue at the expiration date.

D.E. Shaw owns about 8 percent of Archon's preferred stock, or 361,000 shares. The company also owns 4.8 percent of Archon's common stock, or another 300,000 shares.

Paul Lowden owns 76 percent of Archon's common stock. The proxy said he intends to vote his shares to consider the option grants. He is also chairman of the company's six-member board, which recommended the plan.

Two of the six members were elected by shareholders of preferred stock, which guarantees a dividend. Archon hasn't paid millions' worth of dividends on its preferred stock since 1996, entitling shareholders to elect two board members of their choosing.

Sole's letter applauded Archon management for holding onto the Strip property as Las Vegas land prices continue to skyrocket.

"Given that the company hasn't broken ground on any significant new real estate development project in recent years, it is hard for me to conclude, however, why now, in the midst of the greatest boom in land values in recent Las Vegas history, is the appropriate time for the board to grant unprecedented stock awards to relatively junior employees," it said.