Jonathan
D. Schiller, DC Bar No. 185496
Jonathan
Sherman, DC Bar No. 468539
Jack
A.
Simms, DC Bar. No. 501921
BOIES,
SCHILLER & FLEXNER LLP
5301
Wisconsin Avenue, NW
Washington,
D.C. 20015
Telephone: (202)
237-2727
Fax:
(202) 237-6131
Richard
J. Pocker, NV Bar No. 3568
BOIES,
SCHILLER & FLEXNER LLP
300
South
Fourth Street
Suite
800
Las
Vegas, NV 89101
Telephone:
(702) 382-7300
Fax: (702)
382-2755
Attorneys
for Plaintiffs
UNITED
STATES DISTRICT COURT
DISTRICT
OF NEVADA
|
D.
E. SHAW LAMINAR PORTFOLIOS, L.L.C.; LC CAPITAL MASTER FUND, LTD;
LC
CAPITAL / CAPITAL Z SPV, LP; MAGTEN ASSET MANAGEMENT CORP; MERCURY
REAL
ESTATE SECURITIES FUND LP; MERCURY REAL ESTATE SECURITIES OFFSHORE
FUND
LIMITED; BLACK HORSE CAPITAL LP; BLACK HORSE CAPITAL (QP) LP; BLACK
HORSE
CAPITAL OFFSHORE LTD; and PLAINFIELD SPECIAL SITUATIONS MASTER
FUND
LIMITED;
Plaintiffs,
-vs.-
ARCHON
CORPORATION,
Defendant.
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Case
No. ______________
COMPLAINT
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Plaintiffs
D. E. Shaw Laminar Portfolios, L.L.C., LC
Capital Master Fund, Ltd., LC Capital / Capital Z SPV, LP, Magten Asset
Management Corp, Mercury Real Estate Securities Fund LP, Mercury Real Estate
Securities Offshore Fund Limited, Black Horse Capital LP, Black Horse Capital
(QP) LP, Black Horse Capital Offshore Ltd. and Plainfield Special Situations
Master Fund Limited (together, the
“Plaintiffs”),
by and through their attorneys, Boies, Schiller and Flexner LLP, allege the
following as and for their complaint against defendant Archon Corporation
(“Archon” or “Defendant”):
JURISDICTION
AND VENUE
1. This
Court has jurisdiction of this matter under 28 U.S.C. § 1332(a), as complete
diversity of citizenship exists among the parties and the amount in controversy
exceeds the sum of $75,000, exclusive of interest and costs.
2. This
Court has personal jurisdiction over the Defendant named herein because the
Defendant is a corporation organized under the laws of the State of Nevada
with
its principal place of business in Nevada.
3. Venue
is proper in the District of Nevada pursuant to 28 U.S.C. § 1391 because the
Defendant was formed under the laws of Nevada and has its principal place
of
business in Nevada, and because a substantial portion of the transactions
and
wrongs complained of herein occurred in Nevada.
STATEMENT
OF THE CASE
4. Defendant
Archon has unilaterally altered express terms of an agreement by failing
to
properly calculate compounding dividends with respect to shares of Archon
preferred stock. Despite the agreement, Archon has calculated
non-compounding — i.e., “simple” dividends — a calculation that runs contrary to
the language of the agreement and substantially undervalues shares of Archon’s
preferred stock. Plaintiffs are shareholders of Archon’s preferred
stock. Archon’s improper calculation of non-compounding dividends
undervalues Plaintiffs’ aggregate preferred shares by more than $7
million.
5. Archon
is controlled by CEO and Chairman Paul Lowden. Lowden holds nearly
75% of Archon common shares. As a result of Archon’s breaches of the
agreement with respect to the preferred shares, Lowden is positioned to achieve
—
personally
— a net benefit of more than $8.5 million
dollars.
6. The
law, however, does not permit Archon to avoid its contractual obligations
through its improper calculations; controlling shareholder Lowden should
not be
— and is not — permitted the attendant personal windfall. Plaintiffs
therefore bring this action against Archon for breach of the agreement governing
the preferred shares, anticipatory breach of that same agreement and to obtain
a
judgment declaring that Archon is obligated under its agreement with plaintiffs
to provide for calculation of compounding accrued and unpaid dividends with
respect to the preferred shares.
PARTIES
7. Plaintiff
D. E. Shaw Laminar Portfolios, L.L.C. (“Laminar”), is a limited liability
company focusing primarily on credit opportunities related to investment
strategies and is
organized
under the laws of the State of Delaware with its principal place of business
in
New York. As of the date of this Complaint, Laminar holds 707,550
shares of Exchangeable Preferred Stock, as that term is defined
below.
8. Plaintiff
LC Capital Master Fund, Ltd. (“LC Master Fund”) is a Cayman Island exempted
company with its principal place of business in the Cayman Islands.
9. Plaintiff
LC Capital / Capital Z SPV, LP is a Delaware Limited Partnership with its
principal place of business in New York. As of the date of this
Complaint, LC Master Fund and LC Capital / Capital Z SPV, LP hold, in the
aggregate, 171,776 shares of Exchangeable Preferred Stock, as that term is
defined below.
10. Plaintiff
Magten Asset Management Corp. (“Magten”), a corporation, is an asset management
company organized under the laws of the State of Delaware with its principal
place of business in New York. As of the date of this Complaint,
Magten holds 390,720 shares of Exchangeable Preferred Stock, as that term
is
defined below.
11. Plaintiff
Mercury Real Estate Securities Fund LP (“Mercury Fund”) is a Delaware limited
partnership, the general partner of which is Mercury Mayfair LLC, a Delaware
limited liability company with its principal place of business in Fairfield
County, Connecticut. The members of Mercury Mayfair LLC reside in
Fairfield County, Connecticut.
12. Plaintiff
Mercury Real Estate Securities Offshore Fund Limited (“Mercury Offshore”) is a
British Virgin Islands company with its registered office at Tortola, British
Virgin Islands. Theinvestment advisor for Mercury Offshore is Mercury
Real Estate Advisors LLC, a Delaware limited liability company the sole members
of which are residents of Fairfield County, Connecticut. As of the
date of the Complaint, Mercury Offshore and Mercury Fund (together, “Mercury”)
hold, in the aggregate, 419,468 shares of the Exchangeable Preferred Stock,
as
that term is defined below.
13. Plaintiffs
Black Horse Capital LP and Black Horse Capital (QP) LP are limited partnerships
organized in Delaware with their principal places of business in Charlotte,
North Carolina.
14. Plaintiff
Black Horse Capital Offshore Ltd. is a corporation organized in the Cayman
Islands with its principal place of business in the Cayman
Islands. As of the date of the Complaint, Black Horse Capital LP,
Black Horse Capital (QP) LP, and Black Horse Capital Offshore Ltd. (together
“Black Horse”) hold, in the aggregate, 153,751 shares of Exchangeable Preferred
Stock, as that term is defined below.
15. Plaintiff
Plainfield Special Situations Master Fund Limited (“Plainfield”), a Cayman
Islands exempt company with its principal place of business in the Cayman
Islands, is a private fund managed by Plainfield Asset Management
LLC. As of the date of this Complaint, Plainfield holds 254,546
shares of Exchangeable Preferred Stock, as that term is defined
below.
16. Defendant
Archon Corporation is a corporation organized under the laws of the State
of
Nevada with its principal place of business in Nevada.
Ownership
of Exchangeable Preferred Stock
17. On
or about September 30, 1993, Archon (then known as “Sahara Gaming Corporation”)
filed its Certificate of Designation (the “Certificate”) of the Exchangeable
Redeemable Preferred Stock of Archon with the Secretary of State of the State
of
Nevada. A true and correct copy of the Certificate is attached hereto
as Exhibit A.
18. The
Certificate authorized Archon to issue the Exchangeable Redeemable Preferred
Stock (the “Exchangeable Preferred Stock”).
See
Ex.
A.
19. According
to Archon’s definitive proxy statement (the “Proxy Statement”) filed on June 1,
2007, with the Securities and Exchange Commission, as of May 11, 2007, there
were 4,413,777 shares of Exchangeable Preferred Stock issued and
outstanding. Further, according to the Proxy Statement, as of May 1,
2007, Paul Lowden, Chairman and CEO of Archon owned 18.4% of the Exchangeable
Preferred Stock and 74.7% of Archon’s common stock.
20. Plaintiffs
collectively hold 2,097,811 shares of the Exchangeable Preferred Stock, which,
based on the number of shares of Exchangeable Preferred Stock issued and
outstanding as of May 11, 2007 set forth in the Proxy Statement, amounts
to
approximately: (i) 47% of all such shares issued and outstanding; and
(ii) 57% of all such shares not owned by Paul Lowden.
The
Certificate of Designation Governs the Exchangeable Preferred
Stock
21. Paragraph
2 of the Certificate provides for payment to holders of Exchangeable Preferred
Stock of cumulative and compounding cash dividends calculated as follows
(the
“Dividend Calculation Provision”): “a rate per annum per share (the
“Dividend Rate”) initially set at 8% of (i) $2.14
plus
(ii)
accrued but unpaid dividends as to which a Dividend Payment
Date has occurred
.” Ex. A at ¶
2(a). (
emphasis
added
). Dividends accrue from the date of issuance and
are payable semi-annually (each semi-annual dividend period is defined in
the
Certificate as a “Dividend Period”) in arrears on March 31 and September 30 of
each year (or if any such day is not a business day, the first business day
immediately following), commencing on March 31, 1994 (each such date, a
“DividendPayment Date”).
See
Ex. A at ¶2(a). The
Certificate further provides that accrued but unpaid dividends on the
Exchangeable Preferred Stock are “fully cumulative” —
i.e.
, the
Exchangeable Preferred Stock “shall be fully cumulative and shall accrue
(whether or not declared), on a daily basis . . .”
See
Ex. A
at ¶2(a).
22. Paragraph
2 of the Certificate, including without limitation clause (ii) of the Dividend
Calculation Provision, makes self-evident that accrued and unpaid dividends,
which cumulate, compound at the then applicable Dividend Rate. The
amount of accrued and unpaid dividends payable for any Dividend Period,
therefore, includes “simple” dividends at the then applicable Dividend Rate on
$2.14
plus
compounded dividends at the then applicable
Dividend Rate on all accrued and unpaid dividends; any such amount not paid
in
cash on the applicable Dividend Payment Date represents the cumulative accrued
and unpaid amount as of such Dividend Payment Date.
23. In
accordance with the Certificate, rather than pay the preferred dividends
in cash
or have them accrue
,
Archon was permitted on any or all of the
first six Dividend Payment Dates to pay dividends on the Exchangeable Preferred
Stock in the form of additional shares of Exchangeable Preferred Stock at
the
rate per annum of 0.08 additional shares of Exchangeable Preferred Stock
for
each share of Exchangeable Preferred Stock. On the first six Dividend
Payment Dates, Archon elected to make such “payment in kind” dividend payments
in lieu of cash dividends or accruing dividends.
24. Archon
has never paid a cash dividend with respect to the Exchangeable Preferred
Stock. Subsequent to the sixth Dividend Payment Date and through the
date of this Complaint, Archon has chosen to accrue cumulative dividends
at the
then applicable Dividend Rate rather than pay the dividends in
cash. Ex. A at ¶ 2(a).
25. The
Dividend Rate was initially set as 8% per annum and increased, per the
Certificate, to the maximum of 16% per annum for the March 2004 Dividend
Payment
Date.
The
Redemption Price
26. Pursuant
to the Certificate, the shares of the Exchangeable Preferred Stock may be
redeemed at any time or from time to time, in whole or in part, at the election
of Archon, upon noticeand by resolution of Archon’s Board of Directors (the
“Board”).
See
Ex. A at ¶ 3(a). In
the event of an optional redemption, holders of Exchangeable Preferred Stock
“shall be entitled to receive . . . an amount per share equal” to a measurement
identified in the Certificate as the “Liquidation Preference”. Ex. A
at ¶ 3(a). The “Liquidation Preference”, in turn, is defined in the
Certificate to be equal to “the sum of (i) $2.14, plus (ii) an amount equal to
all accrued and unpaid dividends for the then current Dividend Period, through
the date of liquidation, dissolution or winding up, plus all prior Dividend
Periods, whether or not declared[.]” Ex. A at ¶ 7.
27. The
Liquidation Preference per the Certificate is therefore calculated by
multiplying the then applicable Dividend Rate for each Dividend Period by
the
sum of (a) $2.14 and (b) the aggregate amount of the accrued and unpaid
dividends calculated on a compound basis for such Dividend Period.
Calculation
of Fully Compounded Redemption Price
28. Because
Archon has never paid any cash dividends with respect to the Exchangeable
Preferred Stock, all dividends subsequent to the sixth Dividend Payment Date
have accrued and compounded at the then applicable Dividend Rate in accordance
with the Certificate.
29. As
of the date of this Complaint, when accrued and unpaid dividends with respect
to
each share of Exchangeable Preferred Stock are compounded and calculated
in
accordance with the terms of the Certificate, the Liquidation Preference
equals
$8.69 per share (the “Fully Compounded Redemption Price”).
The
Proposed Redemption Price is in Violation of the
Certificate
30. On
July 31, 2007, Archon issued a Notice of Redemption and related Letter of
Transmittal to the holders of outstanding shares of Exchangeable Preferred
Stock
announcing its intent to “redeem all of the outstanding shares of the
[Exchangeable] Preferred Stock issued and outstanding as of the close of
business on August 31, 2007” (the “Notice”). The Notice states that
issued and outstanding shares of the Exchangeable Preferred Stock will be
redeemed at “the redemption price of $5.241 per share” (the “Proposed Redemption
Price”).
31. The
Notice also states that, upon redemption, the Exchangeable Preferred Stock
will
“be delisted from further trading.”
32. Archon’s
calculation of the Proposed Redemption Price applies the per annum rate to
the
amount $2.l4
but does not apply it to
the “amount equal to all accrued
and unpaid dividends.”
33. As
set forth above, the Certificate expressly provides that the Liquidation
Preference is calculated by applying the per annum rate to the “sum of (i)
$2.14,
plus
(ii) an amount equal to all accrued and
unpaid dividends for the then current Dividend Period, through the date of
liquidation, dissolution or winding up, plus all prior Dividend Periods,
whether
or not declared[.]” Ex. A at ¶ 7. (
emphasis
added
).
34. Archon’s
calculation of accrued and unpaid dividends as of the record date of the
proposed optional redemption ignores clause (ii) of the Dividend Calculation
Provision and is therefore calculated in a manner contrary with the express
terms of the Certificate.
Effective
Difference between the Fully Compounded Redemption Price and Proposed Redemption
Price
35. The
difference between the Fully Compounded Redemption Price and Archon’s Proposed
Redemption Price is $3.45 per share of Exchangeable Preferred
Stock.
36. Per
the terms of the Certificate, and applying the Fully Compounded Redemption
Price, Plaintiffs’ aggregate ownership of the Exchangeable Preferred Stock is
valued as $18,229,978.
37. Archon’s
improper Proposed Redemption Price is calculated in a manner contrary to
the
Certificate and incorrectly values Plaintiffs’ aggregate ownership of the
Exchangeable Preferred Stock as $10,994,627.
38. The
difference between the proper valuation of Plaintiffs’ aggregate ownership of
Exchangeable Preferred Stock and Archon’s improper valuation of Plaintffs’
aggregate ownership of Exchangeable Preferred Stock is $7,235,351.
39. By
effectuating the proposed optional redemption, Paul Lowden (the Chairman
and CEO
of Archon), as a holder of approximately 75% of the shares of Archon’s common
stock andapproximately 18% of the shares of Exchangeable Preferred Stock,
stands
to receive a net benefit of approximately $8.7 million.
40. Archon
has previously attempted to undervalue the Exchangeable Preferred Shareholders’
interests by disclosing redemption prices for the Exchangeable Preferred
Stock
in its public filings without properly compounding accrued and unpaid dividends
pursuant to the Certificate.
41. Prior
to filing this complaint, representatives of certain Plaintiffs, including,
Magten and Mercury, notified Archon that its previously stated redemption
prices
failed to compound accrued and unpaid dividends. Archon has, however,
refused to acknowledge the proper dividend calculation under the
Certificate.
BREACH
OF CONTRACT
(COUNT
I)
42. Plaintiffs
reallege and incorporate by reference paragraphs 1-41 as set forth
above.
43. The
Certificate is a valid agreement.
44. The
Certificate governs the Exchangeable Preferred Stock.
45. The
calculation of dividends of the Exchangeable Preferred Stock is governed
by
Paragraph 2(a) of the Certificate.
46. Plaintiffs
have fully performed under the terms of the Certificate.
47. Plaintiffs
purchased the Exchangeable Preferred Stock for valuable
consideration.
48. In
exchange for the consideration, Archon agreed to be bound by all terms of
the
Certificate, including the calculation of dividends contained in the
Certificate.
49. Archon’s
calculation of the redemption price does not take into account the compounding
of unpaid and accrued dividends as required by the terms of
the Certificate.
50. Although
not required to do so, Plaintiffs have notified Archon of its breach of the
Certificate.
51. Archon
has been non-responsive to inquiries from certain of the Plaintiffs and has
failed to acknowledge the validity of the dispute regarding the calculation
of
the Liquidation Preference.
52. Archon’s
calculation of the Proposed Redemption Price without compounding dividends
amounts to an unauthorized and unilateral amendment to the Certificate that
materially and adversely affects the rights of the Plaintiffs as holders
of the
Exchangeable Preferred Stock and was done without the required approval of
two-thirds of the Exchangeable Preferred Stock holders as set forth in the
Certificate.
53. Archon
is in breach of the Certificate and is liable to Plaintiffs for any and all
damages arising from the failure to compound dividends, its unauthorized
unilateral amendment to the Certificate and for Plaintiffs’ attorneys’ fees,
expenses and costs incurred in enforcing Plaintiffs’ rights under the
Certificate.
CLAIM
FOR ANTICIPATORY BREACH OF CONTRACT
(COUNT
II)
54. Plaintiffs
reallege and incorporate by reference paragraphs 1-53 as set forth
above.
55. As
set forth above, Archon’s Notice announced its intent to redeem all of the
outstanding shares of the Exchangeable Preferred Stock issued and outstanding
as
of the close of business on August 31, 2007 at the proposed redemption price
of
$5.241 per share.
56. As
set forth above, Archon’s calculation of the proposed redemption price contained
in the Notice does not take into account the compounding of unpaid and accrued
dividends as required by the terms of the Certificate.
57. Archon’s
Notice announcing the proposed redemption price of $5.241 per share of
Exchangeable Preferred Stock is a clear, positive and unequivocal repudiation
of
its duties under the terms of the Certificate.
58. Archon’s
issuance of the Notice with the proposed redemption price is an anticipatory
repudiation and material breach of the Certificate and Archon is liable to
Plaintiffs for any and all damages arising from the failure to discharge
its
duties under the Certificate and for Plaintiffs’ attorneys’ fees, expenses and
costs incurred in enforcing Plaintiffs’ rights under the
Certificate.
CLAIM
FOR DECLARATORY RELIEF
PURSUANT
TO 28 U.S.C. § 2201
(COUNT
III)
59. Plaintiffs
reallege and incorporate by reference paragraphs 1-58 as set forth
above.
60. An
actual controversy has arisen and now exists between Plaintiffs and Archon
concerning the calculation of dividends and Liquidation Preference of the
Exchangeable Preferred Stock, which is governed by Paragraph 2(a) of the
Certificate.
61. The
parties are unable to agree upon the proper methodology for calculating accrued
and unpaid cash dividends and the Liquidation Preference under that Paragraph
2
of the Certificate.
62. Plaintiffs
claim that dividends on the Exchangeable Preferred Stock accumulate at a
compounded rate, while Archon has determined to calculate the accrued dividends
without compounding.
63. Plaintiffs
are holders of Exchangeable Preferred Stock whose interests are damaged by
Archon’s calculation, which undervalues Plaintiffs’ Exchangeable Preferred
Stock.
64. The
difference of $7,235,351 between the proper valuation of Plaintiffs’ aggregate
ownership of Exchangeable Preferred Stock and Archon’s improper valuation of
Plaintiffs’ aggregate ownership of Exchangeable Preferred Stock, is
substantial.
65. The
Certificate contains no mechanism for dispute resolution or form of relief
for
breach thereof.
66. Per
the Notice, the proposed optional redemption will take place on August 31,
2007.
67. A
judicial declaration is therefore necessary and appropriate.
68. Accordingly,
Plaintiffs seek a declaratory judgment from this Court: (a) establishing
that
the proper calculation of dividends under the Certificate involves a compounded
rate; and (b) providing for Plaintiffs’ attorneys’ fees, expenses and costs
incurred in obtaining this declaration.
PRAYER
FOR RELIEF
WHEREFORE,
Plaintiffs respectfully request this Court enter an Order: (a)
finding Archon has breached its obligations under the Certificate and awarding
Plaintiffs full compensation of any and all available damages suffered by
Plaintiffs as a result of Archon’s breach of the Certificate; (b) finding that
Archon’s issuance of the Notice with the improper redemption price is
anticipatory breach of a materialterm of the Certificate and awarding Plaintiffs
full compensation of any and all available damages suffered as a result of
Archon’s anticipatory breach of the Certificate; (c) declaring that if Archon
elects to redeem the Exchangeable Preferred Stock, the dividends be properly
calculated and compounded per the terms of the Certificate in an amount no
less
than $7,235,351 up through and including the date of final judgment; (d)
an
order calling for Archon to reimburse Plaintiffs’ attorneys’ fees, expenses and
costs incurred in enforcing Plaintiffs rights; and (e) such other and further
relief as the Court may deem appropriate.
DEMAND
FOR JURY TRIAL
Pursuant
to Rule 38(b) of the Federal
Rules of Civil Procedure, Plaintiffs hereby demand a trial by jury of all
triable issues as of right by jury in the above action.
DATED
this 27
th
day of
August,
2007.
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By:
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Richard
J. Pocker, NV Bar No. 3568
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BOIES,
SCHILLER & FLEXNER LLP
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300
South Fourth Street
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Suite
800
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Las
Vegas, NV 89101
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Telephone:
(702) 382-7300
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Fax: (702)
382-2755
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Jonathan
D. Schiller, DC Bar No. 185496
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Jonathan
Sherman, DC Bar No. 468539
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Jack
A. Simms, DC Bar. No. 501921
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BOIES,
SCHILLER & FLEXNER LLP
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5301
Wisconsin Avenue, NW
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Washington,
D.C. 20015
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Telephone: (202)
237-2727
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Fax:
(202) 237-6131
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Attorneys
for Plaintiffs
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SK
01651
0002 806069