Thunderbird Resorts Inc (CE) News - THRSF

Thunderbird hatching up many plans, restates financials

2007-10-17 09:31 ET - News Release

Mr. Jack Mitchell reports

PRIVATE PLACEMENT OF SECURITIES OF APPROXIMATELY USD$250 MILLION; STOCK SPLIT; REGISTRATION RIGHTS; APPOINTMENT OF 3 NEW INDEPENDENT DIRECTORS; ENTERING INTO EMPLOYMENT AGREEMENTS; PAYMENT OF BONUSES TO KEY EXECUTIVES AND EMPLOYEES; NEW COMMITTEES FORMED; AMENDMENT OF STOCK OPTION PLANS AND ADOPTION OF NEW EQUITY INCENTIVE PLAN; PROPOSED AMENDMENT TO ARTICLES; TERMINATION OF SHAREHOLDER RIGHTS PLAN AND CHANGE OF CONTROL AGREEMENT; NORMAL COURSE ISSUER BID; RESTATEMENT OF 2006 AND 2007 Q2 CANADIAN GAAP AUDITED FINANCIALS

Thunderbird Resorts Inc. has arranged a private placement of 13.6 million units at a proposed offering price of $16 per unit, which, if successful, will raise approximately $217.6-million in gross proceeds and approximately $200.4-million in net proceeds after estimated fees and expenses. The offering is being placed by an investment bank pursuant to Rule 144A, Regulation S and Regulation D under the United States Securities Act of 1933 as amended. The company has also granted the bank the right to purchase or place up to another 2.04 million units which, if exercised and priced at the proposed offer price, would raise approximately an additional $32.6-million or approximately $30.4-million after additional fees and expenses. This right may be exercised in whole or in part by written notice to the company within 30 days following the offering. Each unit shall consist of one common share on a postreverse stock split basis (see below) plus a warrant. Each warrant will entitle the holder to acquire one-quarter of one common share and therefore four warrants will allow the holder of the warrants to purchase one common share at an exercise price of $16 per share (postreverse split) for a period of five years from the closing date of the offering.

The units, the common shares and the warrants will be offered by way of a private placement to residents in Canada and such other jurisdictions as may be agreed to by the company and the bank. The units, shares, or warrants sold in the U.S. will be made to investors in reliance upon applicable registration exemptions (including Rule 144A, Regulation D and Regulation S). All securities issued in the offering will be subject to resale restrictions. Closing is anticipated to occur during November subject to certain closing conditions.

Stock split

The board of directors has approved a 1:3 reverse split of the issued and outstanding common stock of the company contingent upon the consummation of the offering described herein, which if it occurs is anticipated to occur by mid-November, 2007. The board of directors was authorized to complete a reverse or forward stock split at its sole discretion by the company's stockholders at a special stockholders meeting held on Sept. 27, 2007. The company will issue a future news release announcing the effective date of the stock split and a new Cusip number once they have been determined. The reverse split affects all of the company's common shares, stock options and warrants outstanding at the effective time. Fractional shares will not be issued and each shareholder's totalled fraction will be cancelled without consideration as provided for by the vote of the shareholders in the Sept. 27, 2007, special meeting of shareholders.

The company's transfer agent, Pacific Corporate Trust Co., will send stockholders of record a letter of transmittal to effect the exchange of existing stock certificates for new shares representing postreverse split adjusted shares. Registered shareholders should follow the instructions set out in the letter of transmittal and send their presplit common share certificates together with the letter of transmittal to the transfer agent. The transfer agent will then mail back new share certificates to which the registered shareholder is entitled in accordance with the instructions given in the letter of transmittal. If you are a beneficial holder of common shares of the company (that is, you hold your shares through a brokerage account), your broker will be responsible for distributing to you the appropriate number of postreverse split common shares.

Registration rights

The company has agreed to provide certain listing or registration rights to the buyers of the units in the offering. Subject to certain penalties, the company has agreed to file its units, common shares, warrants and the shares underlying the warrants on the London Stock Exchange or Euronext, or to file a registration statement with the U.S. Securities and Exchange Commission providing for the resale of the units, common shares, warrants and the shares underlying the warrants sold in the offering within the earlier of 60 days from completion of the company's year-end audit, or 270 days from the closing date of the offering.

Appointment of new directors

The company has agreed to appoint three additional independent directors to serve on the company's board concurrent with the closing of the offering.

Joaquin L. Daly is a managing director and senior partner in the Peru office of Provicapital, which position he has held since 2006. Previously he was with the Value Group from 2001 to 2005, and from 1994 to 2001; Mr. Daly was a director at Citigroup-Salomon Smith Barney. Mr. Daly also serves as a consultant to the Carter Center in Atlanta and previously served as a political adviser for the Secretary General of the Organization of American States from 1981 to 1991. Mr. Daly received a degree in industrial psychology from Daemen College in 1978 and a degree in hotel management from Lewis International School in 1980.

Roberto De Ocampo is the immediate past president of the Asian Institute of Management (AIM), one of Asia's leading international business and management graduate schools based in the Philippines. He is currently a member of the Asian Institute of Management's board of trustees, and is chairman of the board of advisers of the Center for Public Finance and Regional Economic Cooperation. Mr. De Ocampo was the Philippines Secretary of Finance, as well as a member of the board of governors of the World Bank and the Asian Development Bank, and an alternate governor of the International Monetary Fund from 1994 to 1998. He received a BA in economics from College-Ateneo de Manila in 1967, an MBA from the University of Michigan in 1970, and a diplomate in development administration from the London School of Economics in 1971.

Douglas Vicari served as executive vice-president and chief financial officer of Highland Hospitality Corp. from September, 2003, until July, 2007. Previously, Mr. Vicari served as senior vice-president and chief financial officer of Prime Hospitality Corp. Mr. Vicari earned a BS in accounting from the College of New Jersey and received his MBA in finance from Fairleigh Dickinson University.

The company plans on paying a fee of $4,000 per month to the independent directors on their appointment, with an incremental fee to those directors that chair any particular committee. In addition, each new director will be granted 3,333 shares of restricted stock on a postsplit basis.

Employment agreements

Effective with the consummation of the offering, the company has entered into employment agreements with Jack Mitchell, Albert Atallah, Michael Fox, Raul Sueiro, Angel Sueiro and Tino Monaldo. Mr. Mitchell and Mr. Atallah are also directors of the company. The employment agreements provide for one- to three-year employment terms, salary, benefits, bonuses, termination and severance terms. Mr. Mitchell and Mr. Atallah refrained from voting on approval of their own employment agreements and will no longer receive renumeration for serving as members of the board.

Payment of bonuses to key executives and employees

In recognition for services rendered, and upon consummation of the offering, the board of directors has approved a cash bonus to several of the company's executive officers and employees. Mr. Mitchell and Mr. Atallah declared their interest in respect of their respective bonus and refrained from voting on approval of their respective bonuses.

New committees formed

Upon the consummation of the offering, the board of directors of the company has approved the formation and charters of three new committees:

Compensation committee;
Nomination committee;
Corporate governance committee.

The company's audit committee charter will also be amended.

Upon the closing date of the offering the various committee charters shall provide as follows:

The existing audit committee will retire and five new members will be appointed consisting of Salomon Guggenheim, Jean Duval, Mr. Daly, Mr. De Ocampo and Mr. Vacari all of whom would be considered independent directors. Mr. Vacari, who qualifies as a financial expert under the New York Stock Exchange guidelines, will act as chairman of the audit committee.
Five members will be appointed to the compensation committee: Mr. Guggenheim, Mr. Duval, Mr. Daly, Mr. De Ocampo and Mr. Vacari; all of which members are considered to be independent directors. Mr. Guggenheim will act as chairman of the compensation committee.
Five members will be appointed to the corporate governance and nomination committee: Mr. Guggenheim, Mr. Duval, Mr. Daly, Mr. De Ocampo and Mr. Vacari; all of which members are considered to be independent directors. Mr De Ocampo will act as chairman of the corporate governance and nominations committee.

Proposed amendment to stock option plans

The company currently has two stock option plans in effect:

The 1997 stock option plan;
The 2005 stock option plan.

Both plans are separate and apart from one another. Upon consummation of the offering, the company's board of directors has approved and will submit to the company's stockholders for approval at the next meeting of the stockholders certain revisions and updates to the plans. These amendments include the cessation of any future grants of options under the plans.

Adoption of new equity incentive plan

The board of directors has approved and adopted a new equity incentive plan upon consummation of the offering. The 2007 plan reserves a number of shares of common stock equal to 5 per cent of the company are issued and outstanding shares in place upon the closing of the offering solely for the granting of inducement stock grants and other equity based awards. The company intends to present the 2007 plan to its stockholders for approval at the next meeting of stockholders held by the company.

Amending the articles

The board of directors intends to request at the next meeting of stockholders held by the company, stockholder approval to amend the articles of the company to:

Allow the stockholders of the company to remove a director without cause by way of an affirmative vote of 66 per cent of the votes of the issued and outstanding shares;
Remove the staggered board provisions of the articles;
Adding a provision(s) forcing a stockholder to transfer or sell its shares to the company if the ownership of shares in company would result in the company losing any of its gaming licences or triggering violations under the Employee Retirement Security Act of 1974 (ERISA);
Add the cessation of any further issuances of options under these plans;
Add approval of 2007 equity investor plan.

The company believes that these changes will bring the company in line with other public gaming companies.

Termination of shareholders' rights plan

The board of directors adopted a shareholders' rights plan on July 6, 2007. The shareholders' rights plan was never submitted to the shareholders of the company.

The board of directors shall terminate the company's shareholders' rights plan at the closing of the offering.

Termination of change of control agreement

The board of directors adopted a change of control agreement the company entered into with certain key executives on June 15, 2007. The board of directors shall terminate the company's change of control agreement effective as of the closing of the offering.

Normal course issuer bid

The company intends to file a notice of intention to make a normal course issuer bid with the CNQ and provincial securities regulators. The bid is subject to CNQ and regulatory approval. The company may, but is not obligated to, expend up to $1-million to repurchase company shares.

Restatement of year-end 2006 and 2007 second quarter Canadian GAAP (generally accepted accounting principles) audited financials

The company announced that during the recent review of its financial statements in preparation for the proposed offering, management was informed of accounting policy errors related to the company's interpretation of Canadian GAAP rules. The company's audit committee of its board of directors, on the recommendation of management, has concluded that it is necessary to restate the company's audited financial statements for the years ended Dec. 31, 2006, and Dec. 31, 2005, and the company's unaudited interim financial statements for the six-month period ending June 30, 2007, respectively, for corrections of the accounting policies. The restated financials include four material non-cash adjustments:

The valuation of the compound financial instruments for debt issued with a profit participation or equity interest and the correction of capitalization of debt issuance costs associated with these and other debt agreements:
The company entered into various agreements with certain investors wherein the investor loaned cash to the company for projects in Costa Rica and the Philippines, and in conjunction with these debt agreements a profit participation/equity rider was given. The company did not value the profit participation/equity rider and book it as an additional debt issuance cost associated with the loan. Additionally, the company capitalized 100 per cent of the debt issuance costs into its assets under construction verses the amortized portion of the debt issuance costs associated with the asset while it was under construction. This resulted in an increase in retained earnings of $100,000 and a reduction in the company's net income of $200,000 for the period ended Dec. 31, 2006, as additional finance costs. The finance costs will continue to be amortized over the life of the loans in subsequent periods.
The correction associated with the company's accounting for operating leases:
The company previously did not recognize a deferred lease liability arising from the differences on the recognition of operating leases on a straight-line basis over the lease term and the actual lease payment resulting in the recognition of a deferred lease liabilities and a reduction to the Dec. 31, 2006, retained earnings in the amount of $300,000 and net income of $100,000. These amounts will be recovered in future periods.
The company clarified its accounting policy in regard to the provision for litigation to provide in full against various litigation. This resulted in a non-cash increase in long-term liabilities and a corresponding decrease in Dec. 31, 2006, net income of $1.8-million.
The company elected to adopt Section 3855 Financial Instruments -- Recognition and Measurement: Section 3865, Hedges; Section 3251, Equity; and Section 1530, Comprehensive Income, effective as of Dec. 31, 2005. This resulted in the reclassification of a warrant to a financial derivative instrument to be carried as a long-term liability on the company's balance sheet. The effect of this adjustment resulted in an increase to the retained earnings deficit of $2.3-million and a decrease to net income of $189,000 for the year ended Dec. 31, 2006, and a reduction in net income in the amount of $1.5-million for the six months ended June 30, 2007.

Accordingly, the company's financial statements as previously published and filed in respect of such periods should no longer be relied upon. The cumulative effect of the above restatements is included in the tables that accompanied the company's restated financial statements filed on SEDAR and provided to the shareholders in a mail-out.

The above described financial information represents management's best current estimates of the effects of the restatement. The company expects to file the restated financial statements, management's discussion and analysis, and any other required documents prior to the issuance of the company's third quarter results.

We seek Safe Harbor.

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