Don't miss your opportunity to elect experience and independence
to Santa Fe Gaming's Board of Directors.
April 1, 1999
Hotel Employees & Restaurant Employees International Union
1219 28 Street NW
Washington D.C. 20007
Tel. 1-888-273-4564 Fax 1-202-333-6049
Dear Santa Fe Gaming Preferred Shareholder:
At the upcoming April 30, 1999 Annual Meeting of
Stockholders of Santa Fe Gaming Corp. ("The Company"), you have
the right to elect two Special Directors to represent you on the
Company's Board of Directors.
This is a critically important opportunity for all
Preferred Shareholders in light of the financial crisis that
confronts Santa Fe Gaming.
At this year's Annual Meeting, for the first time, two
slates of Special Directors will be submitted: one by the
Company's Board of Directors and one by Preferred Shareholders
themselves.
We write to let you know that in the coming weeks we will
be urging you to vote for two well-qualified, independent
candidates nominated by your fellow Preferred Shareholders:
1. Mr. John M. Bradham was nominated by the Company's Largest
Preferred Shareholder, Hudson Bay Partners, L.P.1 Mr. Bradham is
an attorney with experience representing hospitality industry
clients. He also has substantial experience in the area of
bankruptcy law.
2. Mr. Peter J. Siris, a Preferred Shareholder who nominated
himself and is endorsed by Hudson Bay, has direct experience
turning around troubled companies and is a well-respected
financial analyst and investment banker, with expertise in the
real estate industry.
This will be the first time Preferred Shareholders have
had the right to vote for wholly independent Directors.
Mr. Paul Lowden, Chairman of the Board of Santa Fe Gaming,
has always owned over 50% of the Company's voting Common Stock.
As a result, Mr. Lowden has controlled the election of the Board
of Directors since the issuance of the Preferred Stock in October
1993.
Since that time, Santa Fe Gaming's financial condition
has been marked by the following:
1. Preferred Shareholders' capital account as of December
31, 1998 was $22.5 million. However the Company's current
financial arrangements prohibit it from paying cash dividends to
Preferred Shareholders.
2. The Company has only had one profitable year since
October 1993.
3. The Company's Form 10-Q, filed February 16, 1999 with
the SEC, shows an accumulated deficit of $118,817,380 and a
stockholders' equity of negative $44,822,732 as of December 31,
1998.
4. The Company's Independent Auditors Report dated
December 23, 1998, prepared by Deloitte & Touche states: "The
Company's inability to meet the repayment terms of the 13 1/2%
Notes, its net losses, and its stockholders' deficiency raise
substantial doubt about its ability to continue as a going
concern."
5. The Company announced on March 22, 1999 that it had consented
to the delisting of its Preferred and Common Stocks, removing
them from the American Stock Exchange. The last day of trading on
the AMEX was April 1, 1999.
Preferred Shareholders need independent
representation on the Company's Board of Directors.
Independent Nominees Bradham and Siris will bring crucial
experience and independence to the Santa Fe Board.
We are not yet requesting your proxy. But we urge you to
carefully consider our Proxy Statement and Proxy Card, which you
will receive from us in mid-April. We also ask that you withhold
judgment on the Company's nominees to the board until you have
also reviewed our proxy materials. In the meantime, should you
have any questions, please contact us toll free at
1-888-273-4564.
Sincerely,
Matthew Walker
HERE Research Director
Toll-Free 1-888-273-4564
<PAGE>
DISCLOSURE STATEMENT
BIOGRAPHICAL INFORMATION ABOUT THE INDEPENDENT NOMINEES FOR
SPECIAL DIRECTOR
John M. Bradham, age 36, is a Partner in the law firm of Peabody
& Brown where he has practiced since 1997. He works in the
firm's Washington, D.C. office, where he practices commercial
litigation and is a member of the firm's Hospitality Practice
Group, counseling hospitality industry clients in both litigation
and non-litigation matters. Mr. Bradham is also experienced in
the area of bankruptcy law and has worked on a number of major
bankruptcy cases. From 1993 to 1997, Mr. Bradham practiced law
with the firm of Akin, Gump, Strauss, Hauer & Feld. Prior to
that, he practiced at Cadwalader, Wickersham & Taft. Mr. Bradham
is a 1987 graduate of Cornell Law School, and a 1984 graduate of
Davidson College. His address is 1255 23rd Street NW, Washington,
D.C. 20037-1170. Mr. Bradham owns no Preferred or Common Shares
of the Company.
Peter J. Siris, age 54, has been President of The Siris Group, an
investment management and consulting firm since 1996. Since April
1998, Mr. Siris has been a Director of Crown American Realty
Trust, a real estate investment trust investing in shopping
malls. He was also a member of the Board of Directors of Crown
American Corporation, predecessor to Crown American Realty Trust,
in 1992 and 1993, and was involved in turning the company around
through a non-bankruptcy restructuring. In 1996, Mr. Siris was
Senior Vice President of ABN-Amro-Chicago Corp. In 1995, he was
Senior Vice President of Warnaco and its affiliate Authentic
Fitness, two retail businesses. From 1990 to 1995, Mr. Siris was
Managing Director of UBS Securities, focusing on analysis of
retail companies and investment banking work, including corporate
restructurings. From 1983 to 1990, he was Executive Vice
President and Director of Buckingham Research Group. From 1974 to
1979, Mr. Siris was Executive Vice President and Director of
Sirco International. Mr. Siris earned an MBA with Distinction
from the Harvard Graduate School of Business Administration in
1968. He is the author of Guerrilla Investing, which presents
strategies and techniques for individual investors. Mr. Siris'
address is 166 Bank Street, New York, New York 10014. Mr. Siris
owns or controls 128,900 Preferred Shares2 in the Company, which
represents 1.5% of the outstanding shares.
INFORMATION ABOUT THE PARTICIPANTS IN THE SOLICITATION
The participants in this solicitation will be the Hotel
Employees & Restaurant Employees International Union ("HERE") and
its Las Vegas affiliate Local 226, and the Independent nominees.*
[* It is possible that Hudson Bay and its principals may also be
deemed a "participant" under the broad definition of this term in
SEC rules. They have not instigated, financed nor drafted this
solicitation, nor entered into any contracts or arrangements with
the nominees or HERE. They advise us they do not intend to
contact shareholders about the election. In the next section we
include information required about "participants" concerning
Hudson Bay and its principals.] Over five years ago, Locals 226
and 165 of HERE were elected to represent approximately 600
employees of the Company's Santa Fe Hotel & Casino in Las Vegas.
The Locals are in negotiations with the hotel over the terms of a
collective bargaining agreement. The parties have substantial
differences but no strike has occurred or been called. In the
past, the General Counsel of the National Labor Relations Board
issued complaints against the Company's Santa Fe Hotel and the
Pioneer Hotel due to charges filed by the Locals. An NLRB case
resulting from unilateral changes by management in employment
terms, including changes to health insurance, was settled in
principle last year, with liability not yet liquidated but
estimated at several hundred thousand dollars.
While we hope the Independent Nominees might persuade
management to take a different approach to labor relations -
thereby avoiding such liabilities in the future - we have
received no assurances from the Independent Nominees concerning
labor relations, and do not ask for your support in labor
matters. Neither Independent Nominee has worked for or received
any compensation from HERE or its affiliates. It is possible
these shareholder activities may increase or decrease management
opposition to the union, or have no effect. The Locals' Joint
Executive Board has owned seven shares of Common Stock and five
shares of Preferred Stock for at least five years. HERE and the
Locals will bear the costs of this solicitation, which are
estimated at $5,000 and may include use of a professional
solicitor. About $2,000 has been spent to date. We will not seek
reimbursement from the Company. In addition, regular staff of
HERE and the Locals will solicit proxies, for which they will
receive no added compensation. Proxies will be sought by mail,
and may be sought by fax, telephone and personal meeting. The
persons named on the Proxy Card are HERE Research Director
Matthew Walker and Local 226 Research Director Courtney
Alexander. Local 226's address is 1630 S. Commerce St., Las Vegas
NV 89102, tel. 1-702- 387-7082, or toll free 1-888-273-4564; fax
1-702- 385-1197.
Other than the nominees' consent to be named in these
solicitation materials and HERE's indemnification of the
Independent Nominees against claims arising from this
solicitation, none of the participants have any contracts,
arrangements or understandings with anyone else concerning the
Company or its securities, including employment by the company,
their conduct as directors if elected, or future transactions
involving the Company. Neither Mr. Bradham nor Mr. Siris intends
to solicit holders personally; their role in this solicitation
has consisted solely of providing disclosures concerning
themselves. Other than Mr. Siris' purchasing preferred stock,
which he may continue after this proxy statement has been
prepared, the Independent Nominees have not had any transactions
in the Company's stock or with the Company. Mr. Siris'
transactions in the Company's Preferred Stock occurred as
follows: 35,000 shares purchased during January 1999, 25,100
shares purchased during February 1999, and 68,800 shares
purchased during March 1999. No purchases occurred before January
1999.
INFORMATION ABOUT NOMINATOR HUDSON BAY PARTNERS
The general partner of nominator Hudson Bay Partners,
L.P. ("Hudson") is Hudson Bay Partners, Inc., of which Mr. David
Lesser is President, sole director and sole shareholder. The
address of Hudson and Mr. Lesser is 237 Park Avenue, Suite 900,
New York, New York, 10017, telephone (212) 692-3622. Mr. Lesser,
age 33, formed Hudson Bay in May 1996. Prior to founding Hudson
Bay, from April 1995 until May 1996, he was the Senior Vice
President for Business Development of Crescent Real Estate
Equities Company, in charge of acquisition, finance and strategic
investments. From July 1988 until April 1995, Mr. Lesser worked
for Merrill Lynch & Co. in the Real Estate Investment Banking
Division where he was a Director. Mr. Lesser received a B.S. and
M.B.A. from Cornell University.
According to Hudson Bay Partners, L.P.'s 13D Amendment
filed with the SEC on March 16, 1999, Hudson beneficially owns
2,787,400 preferred shares, or 31.5% of the Preferred Stock.
Hudson and Lesser's transactions in the Company's stock for the
last two years are listed on page 6 of this Disclosure Statement.
These show Hudson has increased its stake in the preferred stock
in recent months.
Hudson and Mr. Lesser advise us as follows: neither
Independent Nominee has worked for Hudson, Mr. Lesser or their
affiliates. Hudson and Mr. Lesser have no contracts, arrangements
or understandings with anyone else concerning employment by the
Company, the conduct of directors, or future transactions with
the Company.
According to Hudson's Schedule 13D filed on January 25,
1999:
"The Filing Persons acquired the Shares described at Item
5(c) below for investment purposes. The Filing Persons have
recently held discussions with the Issuer regarding the
possibility of an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving the Issuer, or a
change in the present board of directors of the Issuer. The
Filing Persons have been advised that the Issuer has determined
to take no further action with respect to any such corporate
transaction or change in the board of directors of the Issuer at
this time. The Filing Persons intend to continue to consider
various alternative courses of action and will in the future take
such actions with respect to their respective equity ownership in
the Issuer as each Filing Person deems appropriate in light of
the circumstances existing from time to time. Such actions may
include making recommendations to management concerning various
business strategies, acquisitions, dividend policies and other
matters, pursuing a transaction or transactions involving a
change in control of the Issuer or such other actions as each
Filing Person may deem appropriate. Such actions also may
involve the purchase of additional Shares or, alternatively, may
involve the sale of all or a portion of the Shares beneficially
owned by such Filing Person in the open market or in privately
negotiated transactions to one or more purchasers.
In addition, the Filing Persons, as holders of certain
bonds guaranteed by the Issuer, were among a group of creditors
of the Issuer that filed an involuntary petition under Chapter 7
of Title 11 of the United States Code (the "Bankruptcy Code")
against the Issuer.
Except as described herein, neither Hudson Bay, the
General Partner, nor Mr. Lesser has any plans or proposals which
relate to or would result in (a) the acquisition by any person of
additional securities of the Issuer or the disposition of any
such securities, (b) an extraordinary corporate transaction, such
as a merger, reorganization or liquidation, involving the Issuer
or any of its subsidiaries, (c) a sale or transfer of a material
amount of assets of the Issuer or any of its subsidiaries, (d)
any change in the present management of the Issuer, (e) any
material change in the present capitalization or dividend policy
of the Issuer, (f) any other material change in the Issuer's
business or corporate structure, (g) any other material change in
the Issuer's charter, bylaws or instruments corresponding thereto
or other actions which may impede the acquisition of control of
the Issuer by any person, (h) causing a class of securities of
the Issuer to be delisted from a national securities exchange or
to cease to be authorized to be quoted in an inter-dealer
quotation system of a registered national securities association,
(i) a class of equity securities of the Issuer becoming eligible
for termination of registration pursuant to Section 12(g)(4) of
the Securities Exchange Act of 1934, or (j) any action similar to
any of the enumerated in (a) through (i) above."
(Hudson Bay Partners, LP Schedule 13D, January 25, 1999,
page 5.)
The Form 13D was amended by Hudson Bay on March 16, 1999,
making the following disclosure:
"Since the date of filing of the Schedule 13D, the Filing
Persons have continued to pursue various alternative courses of
actions in respect of their respective equity ownership in the
Issuer, including actions that may result in an extraordinary
corporate transaction involving the Issuer, changes in the board
of directors of the Issuer and changes in the management of the
Issuer. In particular, as holders of the Shares having the right
to elect two additional directors to the board of directors of
the Issuer, the Filing Persons have proposed a slate of four
nominees for election to the board of directors of the Issuer and
proposed one nominee included in a slate of nominees for election
to the board of directors of the Issuer by the Hotel Employees &
Restaurant Employees International Union.
On February 4, 1999, the Issuer moved to dismiss the
involuntary bankruptcy proceeding referred to in the Schedule
13D."
(Hudson Bay Partners, LP Schedule 13D Amendment,
March 16, 1999)
As noted in its 13D and Amendment, Hudson has interests
in the Company in addition to owning preferred stock: it is also
a bondholder in Pioneer Finance Corporation, a subsidiary of the
Company and recipient of guaranties by the Company. Pioneer
Finance failed to pay principal and interest due on its bonds at
the December 1, 1998 maturity, and Santa Fe Gaming failed to make
that payment under its guaranty. In January 1999, Hudson
initiated discussions with management concerning the default by
Pioneer Finance. Those discussions included a proposal, which was
rejected by the Company, to convert Pioneer bonds into
subordiated debt or preferred stock of Santa Fe Gaming Corp. and
to change the composition of the Board of Directors. Since
January 1999, Hudson and eleven other creditors have filed an
involuntary bankruptcy petition against Pioneer Finance and Santa
Fe Gaming Corp. On February 23, 1999, Pioneer Finance Corp. filed
a voluntary petition under Chapter 11 of the Bankruptcy Code.
Management filed a motion to dismiss the petition against
Santa Fe Gaming Corp. On March 19, 1999, the Judge dismissed the
Santa Fe Gaming case on the condition that "all insiders," as
defined by the Bankruptcy Code, waive the statute of limitations
on potential fraudulent conveyances and preference payments. If
"all insiders" do not formally consent to waive these
limitations, the case will instead be suspended until the end of
the exclusivity period in the Pioneer Finance case. In
conjunction with this ruling, the Judge terminated the automatic
stay against Santa Fe Gaming, allowing lawsuits to be filed
against the Company.
While bankruptcy may serve preferred holders' interests
through judicial monitoring of management's conduct, bankruptcy
may instead adversely affect preferred holders' interests: no
assurances can be offered in this regard.
After the Company learned of opposition in the election
for Special Directors, the Company sued Hudson Bay in U.S.
District Court in Las Vegas, alleging that the 13D filings by
Hudson and Mr. Lesser are misleading and that their intention
actually was and is to acquire Santa Fe or its assets, or to
effectuate a change in the control of Santa Fe, or to force
financial restructuring. The lawsuit seeks among other things to
prevent Hudson Bay from voting its Preferred Shares in this
election of Special Directors.
The following are Nominator Hudson and Mr. Lesser's transactions
in the Company's Preferred Stock:
12/30/97 31,300
12/31/97 23,000
1/2/98 1,200
3/31/98 39,200
4/1/98 25,000
4/2/98 25,000
4/13/98 10,500
4/14/98 30,100
4/16/98 700
4/22/98 1000
4/23/98 2000
4/24/98 2400
4/30/98 60,000
5/7/98 2700
5/8/98 4000
5/14/98 5000
5/18/98 3000
5/19/98 65,300
6/16/98 15,000
7/21/98 73,000
7/22/98 28,500
7/24/98 51,700
7/28/98 1000
7/29/98 1000
8/7/98 30,000
8/13/98 11,200
8/14/98 32,600
9/15/98 5700
9/16/98 10,000
9/17/98 20,000
9/18/98 10,000
9/22/98 10,000
9/23/98 10,000
9/24/98 5000
9/25/98 12,600
9/28/98 10,000
9/29/98 11,100
10/1/98 55,000
10/22/98 1500
10/26/98 11,100
10/27/98 300
10/30/98 1800
11/2/98 800
11/4/98 500
11/6/98 11,200
11/9/98 3700
11/10/98 8500
11/12/98 3300
11/18/98 10,000
11/19/98 1700
11/20/98 2100
11/23/98 5000
11/24/98 100
11/27/98 2400
11/30/98 23,500
12/2/98 9000
12/3/98 196,200
12/4/98 60,400
12/7/98 7000
12/8/98 600
12/9/98 2000
12/11/98 5000
12/21/98 1200
12/22/98 4600
12/23/98 146,500
12/24/98 55,000
12/28/98 23,700
12/29/98 87,700
12/30/98 22,900
1/4/99 66,600
1/5/99 3500
1/6/99 77,400
1/8/99 700
1/19/99 31,200
1/20/99 6000
1/21/99 100
1/25/99 12,600
1/29/99 150,000
2/10/99 31,600
2/23/99 2800
2/25/99 1200
3/1/99 160,000
3/2/99 5900
3/3/99 4100
3/4/99 2500
3/9/99 20,000
3/10/99 170,400
3/11/99 99,500
3/12/99 54,600
3/15/99 32,900
3/16/99 35,800
The following are Nominator Hudson and Mr. Lesser's trades in the
Company's Common Stock:
6/23/98 10,000
6/24/98 15,000
7/1/98 1600
9/15/98 5000
9/16/98 5000
9/22/98 4000
9/25/98 11,000
10/7/98 2000
Notes
1. According to Hudson Bay Partners, L.P.'s ("HBP") 13D
Amendment filed with the SEC on March 16, 1999, HBP beneficially
owns beneficially owns 2,787,400 preferred shares, or 31.5% of
the Preferred Stock.
2. Of the 128,00 Preferred Shares, Mr. Siris disclaims
beneficial ownership of 40,200 shares owned by his wife Barbara
Wykoff, 75,100 shares owned by his daughter, and 10,000 shares
owned by Guerrilla Partners LP, a fund managed by Mr. Siris.
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