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Rod Smith

Archon Avoids Lawsuit by Raising Option Price

29 June 2005

Archon Corp. on Tuesday yielded to demands of minority shareholder D.E. Shaw & Co. and raised the price for insider options to $20.50 from $1.

In return, the $15 billion New York-based real estate investment firm promised not to sue the Las Vegas-based gaming company.

D.E. Shaw had complained that Archon's chairman and majority shareholder, Paul Lowden, gave bonuses worth $4 million each to close relatives to the detriment of minority shareholders.

The investment firm, which last year was involved in a hostile bid to take over Riviera Holdings Corp., had said it would it would consider suing to protect its interest as a minority shareholder.

In a letter to Lowden, D.E. Shaw Senior Vice President Marc Sole said his firm was pleased Archon was setting a price near market value for the options being granted to Paul Lowden's brother, David, and son, Christopher.

However, he said the investment firm was still concerned that Archon had not fully complied with proxy rules and federal securities laws to disclose the justifications for the proxy grants. Sole said he hoped in the future Archon would refrain from actions that display even the appearance of impropriety.

He also urged directors to recuse themselves from voting on corporate actions that would benefit family members.

"Of course, exemplary corporate governors would also put the kibosh on estate planning masquerading as ordinary course compensation," Sole said in his letter.

Analysts declined to comment on the Archon controversy because none of them cover the company. But they said anonymously that such a rule would effectively put the company in control of minority shareholders.

While dropping immediate threats of litigation, Sole in his letter also said D.E. Shaw would remain vigilant to assure the Archon board of directors fulfils its fiduciary duties.

Lowden could not be reached for comment.

Shares of Archon were unchanged at $29.50 Tuesday in trading on the over-the-counter Bulletin Board.