SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Check the appropriate box:
|_| Preliminary Proxy Statement
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(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Solicitation Material Pursuant to Section 240.14a-11(c) or Section 240.
14a-12
AVALON CORRECTIONAL SERVICES, INC.
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(Name of registrant as Specified in Charter)
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
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AVALON CORRECTIONAL SERVICES, INC.
13401 Railway Drive
Oklahoma City, OK 73114
Telephone: (405) 752-8802
Toll Free 1-800-919-9113
www.avaloncorrections.com
______________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 2003
______________
To the Shareholders:
Notice is hereby given that the 2003 Annual Meeting of Shareholders of
Avalon Correctional Services, Inc. (The "Company") will be held at Sheraton Four
Points Hotel located at 6300 East Terminal Drive, Oklahoma City, Oklahoma on
Wednesday, May 21, 2003, at 10:00 A.M. local time, for the following purposes:
1. To elect one director to serve for a three year term and until the
election and qualification of that director's successor.
2. To ratify the appointment of Grant Thornton L.L.P., independent
certified public accountants, as auditor to examine the financial
statements of the Company for the year ending December 31, 2003.
3. To consider and transact such other business as may properly be
brought before the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 4, 2003, as
the record date for the determination of shareholders entitled to notice and to
vote. Such shareholders may vote in person or by proxy. A complete list of the
shareholders entitled to vote at the Annual Meeting will be available for
examination by shareholders, for any purpose germane to the meeting, during
ordinary business hours, during a 10-day period preceding the date of the
meeting, at the executive office of the Company, 13401 Railway Drive, Oklahoma
City, Oklahoma 73114.
Shareholders are invited to attend the meeting in person. Whether or not
you plan on attending the meeting in person, it is important that your shares be
represented and voted at the meeting in accordance with your instructions.
Therefore, you are urged to fill in, sign, date and return the accompanying
proxy in the enclosed envelope. No postage is required if mailed in the United
States. Alternatively, shareholders of record may vote electronically over the
internet at www.computershare.com/us.
/s/ Randall J. Wood
April 10, 2003 Randall J. Wood
Corporate Secretary
AVALON CORRECTIONAL SERVICES, INC.
________________
PROXY STATEMENT
________________
GENERAL INFORMATION
This Proxy Statement together with the Annual Report on Form 10-KSB are
being furnished to Shareholders by the Board of Directors of Avalon Correctional
Services, Inc., (the "Company") for the Annual Meeting of Shareholders to be
held at Sheraton Four Points Hotel located at 6300 East Terminal Drive, Oklahoma
City, Oklahoma on May 21, 2003, at 10:00 a.m. local time. The Company's
Shareholders will consider and vote upon the proposals described herein and
referred to in the Notice of Annual Meeting accompanying this Proxy Statement.
The close of business on April 4, 2003, has been fixed as the record date
for the determination of the shareholders entitled to notice of, and to vote at,
the Annual Meeting. On March 31, 2003, there were outstanding and entitled to
vote 4,895,002 Shares of Common Stock. Each Share of Common Stock (the "Shares")
is entitled to one vote on each matter to be considered at the Annual Meeting.
For a description of the principal holders of such Shares, see "Voting
Securities and Principal Holders Thereof" below.
The Company's principal executive office is located at 13401 Railway Drive,
Oklahoma City, Oklahoma 73114. The company's website is
www.avaloncorrections.com. The Notice of Annual Meeting and Proxy Statement and
the 2002 Annual Report are available on the Company website at
www.avaloncorrections.com/investor.asp.
This Proxy Statement is being furnished to Shareholders on or about April
11, 2003.
SOLICITATION OF PROXIES AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of one-third (1/3) of
the votes represented by the outstanding shares of the Corporation's common
stock is necessary to constitute a quorum at the Annual Meeting. Holders of
shares are entitled to one vote per share of common stock and are not allowed to
cumulate votes in the election of directors.
A proxy for use at the annual meeting and a return envelope are enclosed.
Subject to the rights of shareholders to revoke their proxies, the shares
represented by each proxy executed in the accompanying form of proxy will be
voted at the meeting in accordance with the instructions therein. Proxies on
which no voting instructions are indicated will be voted FOR the election of the
nominee for director and FOR the appointment of Grant Thornton, L.L.P. as
auditors and in the best judgment of proxy holders on any other matter that may
properly come before the Annual Meeting. If a broker indicates on a proxy that
it does not have discretionary authority to vote shares on a certain matter,
those shares will not be considered present and entitled to vote with respect to
1
that matter. If a shareholder indicates on a proxy card that such shareholder
abstains from voting with respect to a proposal, the shares will be considered
as present and entitled to vote with respect to that matter, and abstention will
have the effect of a vote AGAINST the proposal. In accordance with Nevada law, a
shareholder entitled to vote for the election of directors can withhold
authority to vote for all nominees for directors or can withhold authority to
vote for certain nominees for directors.
Shareholders have the unconditional right to revoke their proxies at any
time prior to the voting of their proxies at the Annual Meeting by giving
written notice to the Secretary of the Corporation or by attending the Annual
Meeting and voting in person.
The expenses of the solicitation of the proxies for the meeting, including
the cost of preparing, assembling and mailing the notice, proxy, proxy statement
and return envelopes, the handling and tabulation of proxies received, and
charges of brokerage houses and other institutions, nominees or fiduciaries for
forwarding such documents to beneficial owners, will be paid by the Corporation.
The Corporation does not intend to solicit proxies other than the mailing of
proxy materials. All Proposals require the affirmative vote of a majority of
shares represented and voting at the Annual Meeting.
ELECTION OF DIRECTOR
(Proposal One)
The by-laws of the Corporation as amended by the Board of Directors and as
ratified by the Shareholders provide that the number of directors who shall
constitute the whole board shall be such number as may be fixed from time to
time by the Board of Directors and vacancies in the Board may be filled by the
Board of Directors until the next annual meeting of the Shareholders. The
by-laws provide that the Board members are divided into three classes of
directors with the term of office of one class expiring each year. Staggered
terms for Directors are considered anti-takeover in nature, inhibiting a change
in control of the Corporation and so possibly reduce the value of the stock to
anyone attempting to acquire control of the Corporation. At present, the Board
of Directors consists of five members, Donald E. Smith, Charles Thomas, Ph.D.,
Robert O. McDonald, Mark S. Cooley and James P. Wilson. One director class
representing one position on the Board of Directors is to be voted on by the
Shareholders.
In the 2000 annual meeting, Mr. Cooley was elected to serve a three year
term. He has been nominated for re-election to fill the same position on the
Board of Directors with a term expiring in 2006. Should Mr. Cooley become unable
to serve, proxies may be voted for another person designated by management or
the Board. Mr. Cooley has advised that he will serve if elected. In the 2002
annual meeting, Messrs. Smith and Wilson were elected to serve three year terms.
In the 2001 annual meeting Mr. McDonald was elected to serve a three year term.
In the 2001 annual meeting Dr. Charles Thomas was elected to fill the vacancy
created by the retirement of former Board member Jerry Sunderland. Board members
Messrs. Smith, Wilson, McDonald and Dr. Thomas are not being voted on at this
year's meeting because their terms extend beyond this year.
2
The Board of Directors recommends a vote FOR the re-election of Mark S. Cooley
as Director for a term expiring at the 2006 Annual Meeting.
Certain Information Regarding Nominee
The name of the nominee, his age as of the date of the Annual Meeting, the
date he first became a director, his principal occupation during at least the
past five years, certain other directorships held and certain other biographical
information is as set forth below.
Name of Nominee Age Current Position(s) Term nominated to Serve Director
Since
Mark S. Cooley 45 Director Three years 1998
Mark S. Cooley was appointed as a Director of Avalon in January 1998 and
elected to a two year term in the 1998 annual meeting. Mr. Cooley was re-elected
in 2000 to an additional three year term. Mr. Cooley is a Principal of Cooley &
Company and Pro Trust Equity Partners. Mr. Cooley was with Citicorp and Chemical
Bank for twelve years in their Corporate Finance Divisions in New York and
Denver. Mr. Cooley received his Bachelors degree in Economics from DePauw
University and an MBA in Finance from Indiana University.
Directors
The Company's current directors and director nominees are:
Name Age Position(s) with the Company
Donald E. Smith ....................50 Chief Executive Officer, Director
Robert O. McDonald .................65 Director
Mark S. Cooley ....................45 Director
James P. Wilson.....................44 Director
Charles Thomas, Ph.D................60 Director
The following is a brief description of the business experience during the
past five years of each of the above-name persons (information concerning Mark
S. Cooley is set forth above):
Donald E. Smith is the founder of the Company's operations and has served
as the Chief Executive Officer of Avalon and its subsidiaries since their
inception. Mr. Smith has owned, managed and developed a number of private
corporations since 1985 to provide private corrections, health care and other
related services. Mr. Smith received a Bachelor of Science degree in 1974 from
Northwestern State College. Mr. Smith was employed by Arthur Andersen & Co. for
seven years prior to founding the Company.
Robert O. McDonald was appointed as a Director of Avalon in October, 1994
and elected at the 1995 Annual Meeting. Mr. McDonald is Chairman of the Board of
Directors of Capital West Securities and its parent, Affinity Holding Corp. Mr.
3
McDonald started his investment career in 1961 with Allen and Company and left
in 1967 to form McDonald Bennahum and Co., which later joined with Ladenburg
Thalmann and Co. where Mr. McDonald was a Senior Partner. Mr. McDonald joined
Planet Oil Mineral Corporation in 1971 and became president in 1973. From 1975
until 1993, Mr. McDonald was affiliated with Stifel Nicolaus & Company and
headed its municipal syndicate effort. Mr. McDonald received a Bachelor's Degree
in Finance from the University of Oklahoma in 1960. He also served as an Officer
in the United States Army and Army Reserve.
James P. Wilson was appointed as an interim Director of Avalon in September
1998, and elected by the shareholders at the 1999 annual meeting. Mr. Wilson is
a managing partner in the investment firm of Rice, Sangalis, Toole & Wilson.
Prior to founding Rice, Sangalis, Toole & Wilson, Mr. Wilson was a vice
president with First Texas Merchant Banking Group, and was also an audit manager
with Arthur Young & Co. Mr. Wilson received a BBA degree from Texas A&M
University, and is a Certified Public Accountant.
Charles W. Thomas, Ph.D. was appointed as a Director-elect of Avalon in
December 2000, and elected as a director at the 2001 shareholder meeting. Dr.
Thomas received his B.S. degree from McMurry University in 1966 and his M.A. and
Ph.D. degrees from the University of Kentucky in, respectively, 1969 and 1971.
After serving on the faculty of Virginia Commonwealth University, the College of
William and Mary, and Bowling Green State University, he became a Professor of
Criminology at the University of Florida in 1980. He retired from his academic
position in 1999. From 1997-2000, Dr. Thomas was a member of the board of
directors of Prison Realty Trust. He is now Vice President for Quality Assurance
at ConnectGov, Inc., a privately held corporation that specializes in
computer-based training and distance learning programs.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of March 31, 2003, information
concerning the beneficial ownership of the Company's Class A Common Stock by (i)
each person known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) each of the executive officers of the Company and (iv) all
directors and executive officers as a group. To the best of the Company's
knowledge, each of the persons named in the table has sole voting and investment
power with respect to all the shares of Common Stock beneficially owned by such
person as set forth opposite such person's name except as otherwise noted.
4
Amount and
Nature of
Beneficial
Ownership of
Name & Address Common Percent Total Voting
Stock of Class1 Percentage2
----- --------- -----------
Donald E. Smith3
13401 Railway Drive 1,839,537 29.62% 19.79%
Oklahoma City, OK 73114
RSTW Partners III4
5847 San Felipe, Suite 4350 1,632,448 26.28% 33.14%
Houston, TX 77057
Robert O. McDonald5
3316 Preston Drive 75,310 1.21% *
Oklahoma City, OK 73120
Mark S. Cooley6
385 Inverness Drive South, Suite 460 20,010 * *
Englewood, CO 80112
--------
1 Percentage calculated based on total beneficial ownership in relation to total
outstanding shares plus total presently exercisable options and warrants. Shares
outstanding (4,895,002) plus options and warrants equal 6,210,456 beneficially
owned shares.
2 Percentage calculated based upon actual shares owned in relation to total
shares issued and outstanding.
3 Includes 30,771 shares owned by Mr. Smith's children as well as 750,000 shares
issuable upon exercise of certain warrants received as a consequence of the
guarantee of corporate indebtedness and 120,900 shares to Mr. Smith issuable
within 60 days upon exercise of vested options granted pursuant to the Company's
Stock Option Plan.
4 James P. Wilson is a managing partner of RSTW Partners III L.P. Mr. Wilson
disclaims any beneficial interest in the shares represented. The shares
represented include 10,000 shares issuable to RSTW Partners III L.P. within 60
days upon exercise of vested options granted pursuant to the Company's Stock
Option Plan.
5 Includes 75,310 shares issuable to Mr. McDonald within 60 days upon exercise
of vested options granted pursuant to the Company's Stock Option Plan.
6 Includes 20,100 shares issuable to Mr. Cooley within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
5
Charles W. Thomas, Ph.D7
102 Woodmont Blvd., Suite 610 17,500 * *
Nashville, TN 37205
James Saffle8
13401 Railway Drive 7,500 * *
Oklahoma City, OK 73114
Randall J. Wood9
13401 Railway Drive 33,210 * *
Oklahoma City, OK 73114
Tiffany Smith10
13401 Railway Drive 83,650 1.35% *
Oklahoma City, OK 73114
Lloyd Lovely11
13401 Railway Drive 8,700 * *
Oklahoma City, OK 73114
Eric S. Gray12
13401 Railway Drive 25,510 * *
Oklahoma City, OK 73114
Patrick Sullivan13
13401 Railway Drive 1,000 * *
Oklahoma City, OK 73114
--------
7 Includes 17,500 shares issuable to Dr. Thomas within 60 days upon exercise of
vested options granted pursuant to the Compan's Stock Option Plan.
8 Includes 7,500 shares issuable to Mr. Saffle within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
9 Includes 33,210 shares issuable to Mr. Wood within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
10 Includes 78,800 shares issuable to Ms. Smith within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
11 Includes 8,000 shares issuable to Mr. Lovely within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
12 Includes 21,510 shares issuable to Mr. Gray within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
13 Includes 1,000 shares issuable to Mr. Sullivan within 60 days upon exercise
of vested options granted pursuant to the Company's Stock Option Plan.
6
All executive officers and directors as a group 3,744,375 60.29% 53.13%
(11 persons)
__________________
* Less than 1%.
Note: Under the rules of the Securities and Exchange Commission, a person is
deemed to be a beneficial owner of a security if he has or shares the powers to
vote or direct the voting of such security or the power to dispose of or to
direct the disposition of such security. Accordingly, more than one person may
be deemed to be a beneficial owner of the same securities. A person is also
deemed to be a beneficial owner of any securities of which that person has the
right to acquire beneficial ownership within 60 days. Unless otherwise indicated
by footnote, the named individuals have sole voting and investment power with
respect to the shares held by them.
EXECUTIVE OFFICERS
The Company's current executive officers are:
Name Age Position(s) with the
Company
Donald E. Smith 50 Chief Executive Officer, and
Chairman of the Board
James L. Saffle 50 President
Randall J. Wood 45 Corporate
Secretary, Vice President
and Counsel
Tiffany Smith 35 Vice President of Corporate
Communications, Asst.
Corp. Secretary
Lloyd Lovely 53 Vice President of Finance
Eric Gray 46 Vice President and Counsel
Patrick Sullivan 36 Vice President of Texas
Operations
Thomas Sullivan 44 Vice President of Colorado
Operations
--------
7
Officers of the Company
The following is a brief description of the business experience during the
past five years of each of the above-name officers who are not Directors or
Director nominees:
James L. Saffle is President of the Company and its subsidiaries. Mr.
Saffle oversees the Company's operating facilities throughout three states.
Prior to joining the Company in 2001, Mr. Saffle retired as Director of the
Oklahoma Department of Corrections, where he was instrumental in leading the
department through tremendous growth and change. His distinguished career with
the Oklahoma Department of Corrections began as a Corrections Officer and
progressed through the positions of sergeant, lieutenant, training and safety
officer, chief of security, deputy warden, and warden. He further served the
department in the capacities of Southeastern Regional Director and Interim
Director until ultimately being appointed as Director by the Oklahoma Board of
Corrections. He earned his Bachelor of Science in Criminal Justice and
Psychology, and a Masters of Science degree in Human Resources.
Randall J. Wood joined Avalon in 1995 and serves as Corporate Secretary,
Vice President and Corporate Counsel for the Company. Prior to joining the
Company in 1995, Mr. Wood's practice was focused primarily in the field of real
property and commercial litigation. Mr. Wood practiced with the firm of Stack &
Barnes, P.C. for ten years, and was with the firm of Hammons, Vaught & Conner
prior to joining the Company. Mr. Wood is a member of the Oklahoma Bar
Association and is authorized to practice in Oklahoma Federal Courts and the
Tenth Circuit Court of Appeals. Mr. Wood is responsible for the duties of the
Corporate Secretary, management of legal matters, and compliance with government
regulations for the Company and subsidiaries. Mr. Wood received a Bachelor of
Science Degree from Oklahoma State University in 1980. Mr. Wood received his law
degree from the University of Oklahoma in 1983.
Tiffany Smith joined the Company in 1994 as the Public Information Officer
and was promoted to Assistant Corporate Secretary for the Company in 1997 and to
Vice President of Corporate Communications in 1999. Ms. Smith served for four
years as Marketing Manager for Eagle Picher Industries, a New York Stock
Exchange listed company, prior to joining Avalon. Ms. Smith has developed and is
responsible for directing the Company's Corporate Communications and Public
Relations department and implementing marketing strategies. Ms. Smith is the
primary contact for the Company's shareholders and investors. Ms. Smith received
a Bachelors Degree in Business Administration, Marketing and Management from
Missouri Southern State College. Ms. Smith is the spouse of Donald Smith, Chief
Executive Officer.
Lloyd Lovely joined the Company as Vice President of Finance in March 2000.
Mr. Lovely is a Certified Public Accountant and is primarily responsible for
financial reporting and corporate administration for the Company. Prior to
joining the company Mr. Lovely was Business Manager at the OU Health Sciences
Center, Department of Dermatology. Mr.Lovely was a Controller at Professional
HomeCare, Inc. from 1995 to 1999 and a Controller at Lyntone Belts from 1984 to
8
1995. From 1977 to 1984 Mr. Lovely was Senior Director of General Accounting at
T.G. & Y. Stores Co., Inc. Mr. Lovely holds a Bachelor of Science Degree in
Accounting and a Masters Degree in Business Administration from Central State
University.
Eric Gray joined the Company as Corporate Counsel in June 1999. Mr. Gray
serves as Vice President and Corporate Counsel for the Company and is
responsible for various administrative functions. Mr. Gray's responsibilities
include pending litigation matters, contract review and State Law compliance
issues. Mr. Gray is also responsible for special projects. Mr. Gray received a
Bachelor's Degree in Political Science and Philosophy from the University of
Pittsburgh in 1978 and the Degree of Juris Doctor with Distinction from Oklahoma
City University in 1981. Mr. Gray was engaged in the private practice of law for
18 years prior to joining the Company.
Patrick Sullivan joined the Company in 2001 as administrator of the Austin
Transitional Center. Mr Sullivan currently serves as Vice President of Texas
Operations. Mr. Sullivan has over fifteen (15) years of experience in the field
of criminal justice and security operations. His expertise is in staff
management, facility operations, and rehabilitative program and development and
service delivery. He currently has administrative responsibility and oversight
for the Company's Texas intermediate sanction secure and non-secure correctional
facilities and a post- adjudication facility for juveniles located in San
Angelo. He reviews facility incidents, employee investigations involving acts of
misconduct, all employee disciplinary actions, and routinely meets with
contracting agencies to discuss contractual strategies. Before joining Avalon,
Mr. Sullivan was Vice President of Facility Operations, Unit Director for a
Multi Use Secure Facility, Operations Director and Life Skills Coordinator for
the Texson Management Group, Inc. Prior to Texson he held positions such as
Captain of the Kyle Unit a medium secure prison, Assistant Shift Supervisor, and
Correctional Officer for the Wackenhut Corrections Corporation. Mr. Sullivan
attended Sam Houston University in Huntsville, Texas.
Thomas Sullivan joined the Company in 2002 as Vice President of Colorado
Operations. Mr. Sullivan is responsible for managing Avalon's four Colorado
residential and day reporting operations. This includes Avalon's relationships
with partners and contracting agencies, and customers that range from local
corrections boards to the Colorado Department of Corrections. Mr. Sullivan is
focused on ensuring that Avalon's Colorado operations are helping customers and
agencies utilize Avalon's programs and alternative methods that deliver results
in lowering inmate recidivism rates. Mr. Sullivan has held such positions as
Corrections Officer and Count Officer for the Montana State Prison; Assistant
Director for the Alpha Center, a 65- bed adult male community corrections
facility; Parole Officer A for the Colorado Department of Corrections, Division
of Adult Parole. He was then promoted to Regional Supervisor for the West Metro
Region in the City and County of Denver. The West Metro Region supervises the
largest concentration of parolees and inmates in the state as well as direct
supervision over three (3) Community Corrections facilities. Mr. Sullivan is a
Reserve Police Officer for the Denver Police Department and an Assigned
Patrolman on a voluntary basis with assignments in the Gang Unit and the
Narcotics Division. He holds a Bachelor of Science degree from the University of
Hawaii.
9
Information with Respect to Standing Committees of the Board and Meetings
Four (4) meetings of the Board of Directors were held during the last
fiscal year, which were attended by all of the Directors. Attendance fees of
$1,000.00 per meeting were paid to Messrs. McDonald, Thomas and Cooley in
connection with said meetings. The Board also took action by unanimous written
consents in lieu of meetings on two occasions. Board members also serving as
officers do not receive attendance fees for attendance at meetings.
The Company does not utilize a compensation or nominating committee.
However, the Board has appointed an audit committee consisting of Messrs.
McDonald and Cooley and Dr. Thomas. All of the members of the audit committee
are outside board members. The audit committee met three times during 2002 and
took action by unanimous written consent in lieu of meeting on one occasion.
Messrs. McDonald and Cooley were each paid $500.00 for each audit committee
meeting. Dr. Thomas was appointed in December and was paid $500.00 for the
December meeting. The audit committee recommends engagement of the Company's
independent auditors and is primarily responsible for (1) the scope of the
independent auditors' annual audit and their compensation, (2) the general
policies and procedures of the Company with respect to accounting and financial
controls and (3) any change in accounting principles, significant audit
adjustments proposed by the auditors and any recommendations that the auditors
may have with respect to policies and procedures.
Audit Committee Report
The Audit Committee assists the Board of Directors in its oversight of
Avalon Correctional Services, Inc.'s (the "Company") systems of internal
control, the Company's preparation of its consolidated financial statements, the
activities of the Company's internal auditing functions, the conduct of the
annual audit of the Company and the relationship between the Company and its
independent accountants. The Board of Directors of the Company, in its business
judgment, in May 2000 determined that a majority of the members of the Committee
are "independent," as required by the applicable listing standards of the
NASDAQ. The Board of Directors (with the assistance of the Committee) has the
ultimate authority and responsibility to select, evaluate, and, where
appropriate, replace the independent accountants (or to nominate the independent
accountants to be proposed for shareholder approval in any proxy statement). The
Audit Committee operates pursuant to a Charter adopted by the Board on May 24,
2000.
On December 12, 2002, Donald E. Smith, Chief Executive Officer of the
Company, resigned from the Audit Committee. The Board of Directors appointed Dr.
Charles Thomas as an independent member of the Audit Committee. All members of
the Audit Committee have been determined by the Board of Directors, in its best
business judgment, to be independent.
Management of the Company is responsible for the preparation, presentation and
integrity of the Company's financial statements. Management is responsible for
maintaining appropriate accounting and financial reporting principles and
policies and internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. The independent
accountants are responsible for planning and carrying out proper annual audits
10
and quarterly reviews of the Company's financial statements. The independent
accountants express an opinion as to the conformity of the annual financial
statements with accounting principles generally accepted in the United States of
America and also provide a review report regarding the Company's interim
financial statements. In the performance of its oversight function, the Audit
Committee has reviewed and discussed the audited financial statements with
management and the independent accountants. The Audit Committee has also
discussed with the independent accountants the matters required to be discussed
by Statement on Auditing Standards No. 61, Communication with Audit Committees,
as currently in effect. The Audit Committee has also received the written
disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1. Independence Discussions with Audit
Committees, as currently in effect. The Audit Committee has considered whether
the provision of all non-audit services by the independent accountants to the
Company is compatible with maintaining the independent accountants' independence
and has discussed with them their independence.
Based upon the reports, review and discussions described in this Report,
and subject to the limitations on the role and responsibilities of the
Committee, the Committee recommended to the Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2002, to be filed with the Securities and
Exchange Commission.
The Audit Committee
Dr. Charles Thomas
Robert O. McDonald
Mark S. Cooley
Executive Compensation
The following table sets forth the compensation paid or accrued during each
of the years in the three years ended December 31, 2002, to the Company's Chief
Executive Officer, Donald E. Smith and President, James Saffle.
11
Summary Compensation Table
Annual Compensation Long Term Compensation
Name and Year Salary Bonus Other Securities All Other
-------- ---- ------ ----- ----- ---------- ---------
Principal Annual Underlying Compen-
--------- ------ ---------- -------
Position Compen- Options/SAR sation15
-------- ------- ----------- --------
sation14 Awards ( #)
-------- -----------
Donald E. 2002 $90,000 $0 $683 0 $338
Smith, 2001 $88,846 $20,000 $1,476 10,000 $408
CEO 2000 $60,000 $1,309 35,000 $225
James Saffle, 2002 $125,000 $0 $6,533 7,500 $195
President
Employment Agreements
Employment Contracts. The Company has entered into a written employment
agreement with its Chief Executive Officer, Donald E. Smith. The contract was
for an initial three-year term and commenced in August, 1997, providing for a
first-year salary of $60,000 (subject to certain conditions) and subsequent-year
salaries to be determined by the Board of Directors of the Company. In September
of 1998, the Board of Directors authorized the amendment of the employment
agreement of Donald E. Smith to allow for an annual base salary of $85,000.
However, Donald E. Smith did not take this increase until 2001 pursuant to a
previous commitment regarding the sale of certain assets related to discontinued
operations. In December of 2000 the Board of Directors authorized an increase of
salary under the employment agreement to $90,000 per annum effective in 2001.
The Board of Directors has extended the term of the employment agreement for
successive one year terms since the expiration of the initial three year term.
In 1998, the Company initiated an unfunded retirement plan in which Donald E.
Smith participated. The Company terminated its retirement plan in 2002 and made
distributions totaling $461,094. The employment agreement also contains
provisions for severance pay and disability payments, as well as a non-compete
agreement preventing him from engaging in a business deemed similar to that of
the Company for a period of one year from the cessation of his employment. The
Company's other officers and directors are employed by the Company pursuant to
verbal agreements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The attention of the shareholders is directed to Financial Statement Note 9
on page 25 and Financial Statement Notes 15 and 16 on page 31 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2002 (copies of
which were mailed together with the Proxy Statements), describing in detail
certain relationships and transactions involving the Company and certain
officers and directors of the Company. Such matters pertain to the execution of
employment agreements as described hereinabove, guarantee of the Company's
--------
14Includes automobile usage and life insurance premiums.
15Company matching of 401(k) contributions.
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financial obligations, and other related party transactions.
SECTION 16A FILINGS
Messrs. Smith, Cooley and McDonald as well as RSTW Partners III are
required to file pursuant to 16(a) of the Securities and Exchange Act of 1934, a
statement of any changes in ownership of the Company's securities within 10 days
after the end of any month in which a transaction took place and an annual
statement of ownership of the Company's securities within 45 days after the end
of the Company's fiscal year. All required filings for the annual statement of
ownership on Form 5 with the Securities and Exchange Commission were made in
2003.
PROPOSAL TO RATIFY THE
ENGAGEMENT OF AUDITORS
(Proposal Two)
The Company's Board of Directors has selected Grant Thornton, L.L.P., as
the Company's independent public accountants and auditors for the fiscal year
ending December 31, 2003 and will ask the Shareholders to ratify that selection
at the Annual Meeting. Grant Thornton L.L.P., served as the Company's
independent certified accountants and auditors for the fiscal years ended
December 31, 1996, 1997, 1998, 1999, 2000, 2001 and 2002. A representative of
Grant Thornton, L.L.P., is expected to attend the Annual Meeting and will be
provided an opportunity to make a statement if desired, and/or to answer
appropriate questions from Shareholders, if any.
The Board recommends a vote FOR ratification and approval of the
appointment of Grant Thornton, LLP as the Company's independent public
accountants and auditors for fiscal year ended December 31, 2003.
AUDIT FEES
The aggregate fees of Grant Thornton, LLP billed for professional services
rendered for the audit of the Company's annual financial statement and the
review of the Company's quarterly financial statements for the 2002 year were
$46,445.00.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION
FEES AND ALL OTHER FEES
Grant Thornton LLP was not engaged nor paid to provide professional
services beyond the review and audit of the Company's financial statements.
SHAREHOLDER PROPOSALS
No Shareholder proposals have been submitted to the Company for
consideration at the Annual Meeting. Should a Shareholder wish to present a
proposal at the 2004 Annual Meeting of Shareholders, such proposal must be
received by the Company at its address shown on this Proxy Statement prior to
January 10, 2004. Any proposals received by that date will be reviewed by the
Board to determine whether it is a proper proposal to present to the 2004 Annual
Meeting.
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VOTE REQUIRED
A one-third (1/3) of the Company's Shares of Common Stock issued and
outstanding as of April 9, 2003 shall constitute a quorum at the Annual Meeting.
The affirmative vote of at least a majority of the Shares represented at the
Annual Meeting is required for all proposals to come before the Meeting. The
Company anticipates that all proposals will be approved.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to present a matter for action at the Annual Meeting other than as set
forth herein and in the Notice of Annual Meeting, nor has the Board been
informed that any other person intends to present any additional matter.
However, if any other matters are brought before the Meeting, the proxies served
in the enclosed form of proxy will vote in accordance with their judgment on
such matters.
ANNUAL REPORTS AND CONSOLIDATED FINANCIAL STATEMENTS
Copies of the Company's Annual Report as filed with the Securities and
Exchange Commission on Form 10-KSB, including consolidated financial statements
for the year ended December 31, 2002, are enclosed together with the Proxy
Statement. Additional copies may be obtained, upon payment of the reasonable
expenses involved, by writing to the Company at its address set forth in the
Proxy Statement.
By Order of the Board of Directors
April 10, 2003 /s/ Randall J. Wood
Randall J. Wood, Secretary
YOUR COOPERATION IN GIVING THIS MATTER YOUR IMMEDIATE
ATTENTION AND RETURNING YOUR PROXY PROMPTLY WILL BE
APPRECIATED
PROXY CARD EXEMPLAR SET FORTH BELOW.
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Place an "X" in the space below to indicate your vote on each item:
1. ELECTION OF DIRECTORS:
NOMINEE: MARK S. COOLEY, TO SERVE A THREE YEAR TERM
[ ] VOTE FOR THE ELECTION OF NOMINEE UNLESS OTHERWISE INSTRUCTED
BELOW
[ ] VOTE WITHHELD FOR NOMINEE
2. APPROVAL OF APPOINTMENT OF GRANT THORNTON LLP AS INDEPENDENT AUDITORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please sign and date this proxy card on the reverse side and return promptly
using the enclosed postage paid envelope. Alternatively, you may vote your
shares electronically over the internet at www.computershare.com/us.
AVALON CORRECTIONAL SERVICES, INC.
This proxy card is Solicited on Behalf of the Board of Directors
Donald E. Smith, Robert O. McDonald, Mark S. Cooley, James P. Wilson and Charles
W. Thomas, PhD., are and each of them is hereby appointed and authorized to
represent the undersigned at the Annual Meeting of Shareholders of Avalon
Correctional Services, Inc., to be held at The Sheraton Four Points Hotel, 6300
East Terminal Drive, Oklahoma City, Oklahoma, May 21, 2003, at 10:00 a.m. local
time, and any adjournments thereof, and to vote the number of shares of common
stock that the undersigned would be entitled to vote if personally represented,
on all proposals coming before the Meeting, in the manner specified on any other
business that may properly come before the meeting.
Date:______________________________________, 2003
_______________________________________________
_______________________________________________
Signature
This Proxy must be exactly as name appears on this Proxy Card. If shares
are held by joint tenants, both should sign. Attorneys, executors,
administrators, trustees, etc., should give full title as such. If the signer is
a corporation or other legal entity, please sign full entity name, by duly
authorized officer. If a partnership, please sign in full partnership name, by
authorized partner or person.
This Proxy, when executed, will be voted in the manner directed hereon by
the shareholder. If no direction is made, this Proxy will be voted FOR the
election of the nominee as directed and FOR all other proposals outlined in the
Notice of Annual meeting of shareholders.
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