Archon preferred stockholders demand payment from $450 million sale proceeds

By Caroline Salls

Pittsburgh, March 23 - Archon Corp.'s board of directors received a demand for full payment of the company's exchangeable redeemable preferred stock from Mercury Real Estate Advisors LLC, an affiliate of Mercury Partners LLC, according to a Mercury news release.

The demand was submitted in a letter on behalf of preferred stockholders Mercury Real Estate Securities Fund LP and Mercury Real Estate Securities Offshore Fund, Ltd.

According to the letter, in May 2006, Mercury advised Archon's board that the accrued dividends on and liquidation preference of the preferred stock had been miscalculated and misrepresented by the company in its public filings, and Archon board member John Raggi replied that the method in which the company had calculated the accrued dividends and liquidation preference had been deemed appropriate by both the company and its external auditors.

However, the Mercury letter said Archon's external auditors Ernst & Young, LLP has just resigned, causing the Mercury funds to question whether the resignation had anything to do with either the claims made by the Mercury funds and various other preferred stockholders about the calculation of accrued dividends and the assurances received in response to the claims.

When the Mercury funds received no response from the company other than Raggi's letter, they filed a lawsuit against Archon in the U.S. District Court for the District of Connecticut to seek redress of these claims and a court ruling on the correctness of the calculation of the accrued unpaid dividend and liquidation preference.

The Mercury funds said the lawsuit is still pending.

According to the Mercury letter, Archon and its common stockholders have benefited from the funds provided to the company by the purchasers of its preferred stock, but there have been no dividends paid to the preferred stockholders.

However, the Mercury funds said proceeds from the $450 million sale of Archon subsidiary Sahara Las Vegas Corp. should provide the company with an opportunity to pay the full amount of the accrued unpaid dividends on the preferred stock immediately.

The funds said the dollar amount of the accrued unpaid dividends on and liquidation preference of the outstanding preferred stock is currently $8.15 per share, for a total liquidation preference of $36 million.

In addition, the funds said the company could not easily defend a decision to continue to accrue dividends at the rate of 16% on this total liquidation preference when the funds are available to pay it.

The Mercury funds said at least two other groups of preferred shareholders have also contacted the company about the use of the proceeds from the sale of the Las Vegas Boulevard property, the company's calculation of the accrued unpaid dividends on and liquidation preference of the preferred stock and the statements in the public filings.

The funds said the company should issue a statement concerning the intended use of the $450 million of sale proceeds.

Archon is a Las Vegas casino operator.

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