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
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(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.
(Name of registrant as Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per exchange Act Rules 14a-6(i)
(1) and 0-11.
1) Title of each class of securities to which transaction applies.
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined.)
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a (2) and identify for which the offsetting fee was paid
previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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 22, 2002
______________
To the Shareholders:
Notice is hereby given that the 2002 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 22, 2002, at 10:00 A.M. local time, for the following purposes:
1. To elect two directors to serve for three year terms and until the
election and qualification of each 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, 2002.
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 5, 2002, 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.
/s/ Randall J. Wood
April 5, 2002 Randall J.Wood
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 22, 2002, 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 5, 2002, 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, 2002, there were outstanding and entitled to
vote 4,847,624 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.
This Proxy Statement is being furnished to Shareholders on or about April
10, 2002.
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
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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 DIRECTORS
(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 two positions on the Board of Directors is to be voted on by the
Shareholders.
In the 1999 annual meeting, Messrs. Smith and Wilson were elected to serve
three year terms. They have been nominated for re-election to fill the two
positions on the Board of Directors with terms expiring in 2005. Should either
of Messrs. Smith or Wilson become unable to serve, proxies may be voted for
another person designated by management or the Board. Messrs. Smith and Wilson
have advised that they will serve if elected. In the 2000 annual meeting, Mr.
Cooley was elected to serve a three year term. 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. Cooley and McDonald
and Dr. Thomas are not being voted on at this year's meeting because their terms
extend beyond this year.
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The Board of Directors recommends a vote FOR the re-election of Donald E. Smith
and James P. Wilson as Directors for terms expiring at the 2005 Annual Meeting.
Certain Information Regarding Nominees
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
Donald E. Smith 49 CEO, Director Three years Inception
James P. Wilson 43 Director Three years 1999
Donald E. Smith is the founder of the Company's corrections 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.
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.
Directors
The Company's current directors and director nominees are:
Name Age Position(s) with the Company
Donald E. Smith ................49 Chief Executive Officer, Director
Robert O. McDonald .............63 Director
Mark S. Cooley ................44 Director
James P. Wilson.................43 Director
Charles Thomas, Ph.D............58 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 Donald
E. Smith and James P. Wilson is set forth above):
3
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 holding company, Affinity
Holding Corp. Mr. 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.
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 but continues to publish the results of his on-going research
on the economic, legal, and public policy aspects of privatization. From
1997-2000, Dr. Thomas was a member of the board of directors of Prison Realty
Trust. Dr. Thomas is now a private consultant who specializes in issues of
relevance to the private corrections industry.
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.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of March 31, 2001, 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.
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Amount and
Nature of
Beneficial
Ownership of Total
Common Percent Voting
Name & Address Stock of Class Percentage
Donald E. Smith (2)
13401 Railway Drive 1,898,629 24.72% 21.20%
Oklahoma City, OK 73114 (1)(2)
RSTW Partners III(3)
5847 San Felipe,Suite 4350 1,622,448 21.12% 33.47 %
Houston, TX 77057 (3)
Robert O. McDonald (2)
3316 Preston Drive
Oklahoma City, OK 73120 64,575 <5% <5%
Mark S. Cooley (2)
5575 DTC Pkwy, Suite320 10,010 <5% <5%
Englewood, CO 80111
Charles W. Thomas, Ph.D
2502 Stafford Avenue 9,200 <5% <5%
Raleigh, NC 27607
Mary L. Livers, Ph.D
13401 Railway Drive 5,000 <5% <5%
Oklahoma City, OK 73114
Clinton Johnson
13401 Railway Drive 1,650 <5% <5%
Oklahoma City, OK 73114
Randall J. Wood (2)
13401 Railway Drive 22,275 <5% <5%
Oklahoma City, OK 73114
Tiffany Smith (2)
13401 Railway Drive 59,398 <5% <5%
Oklahoma City, OK 73114
Lloyd Lovely (2)
13401 Railway Drive 3,775 <5% <5%
Oklahoma City, OK 73114
Eric S. Gray (5)
13401 Railway Drive 16,483 <5% <5%
Oklahoma City, OK 73114
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All executive officers and directors as a group
(11 persons) 3,713,443(1) 48.34% 54.80%
(2)
__________________
* Less than 1%. (1) Includes 61,542 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.
(2) Includes 120,900 shares to Mr. Smith, 64,575 shares to Mr. McDonald, 10,010
shares to Mr. Cooley, 22,275 shares to Mr. Wood, 59,398 shares to Ms. Smith,
3,075 shares to Mr. Lovely, 12,483 shares to Mr. Gray, 7,500 shares to Dr.
Thomas, 5,000 shares to Dr. Livers and 1,650 shares to Mr. Johnson issuable
within 60 days upon exercise of vested options granted pursuant to the Company's
Stock Option Plan.
(3) James P. Wilson is a managing partner of RSTW Partners III L.P. Mr. Wilson
disclaims any beneficial interest in the shares represented. 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 officers are:
Name Age Position(s) with the
Company
Donald E. Smith 49 Chief Executive Officer,
and Chairman of the Board
James L. Saffle 49 President
Mary L Livers, Ph.D 48 Chief Operating Officer
James C. Poland 55 Vice President of Texas
Operations
Randall J. Wood 44 Corporate Secretary, Vice
President and Counsel
6
Tiffany Smith 34 Vice President of Corporate
Communications, Asst.
Corp. Secretary
Lloyd Lovely 52 Vice President of Finance
Clinton E. Johnson 54 Vice President of Oklahoma
Operations
Eric Gray 45 Vice President and Counsel
Robert O. McDonald 63 Director
Mark S. Cooley 44 Director
James P. Wilson 43 Director
Charles W. Thomas, Ph.D 58 Director
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.
Mary L. Livers, Ph.D. joined the Company in 2000 and serves as Chief
Operating Officer of Avalon. She has more than twenty years of correctional
management experience with the Oklahoma Department of Corrections, having served
in many positions including Deputy Warden, Administrator, Warden, Deputy
Director, Chief of Operations, Regional Director, and Associate Director. Prior
to joining the Oklahoma Department of Corrections, Dr. Livers worked four years
with the Arkansas Department of Corrections. Dr. Livers has a Bachelor of
Science degree in Sociology/Psychology and a Master of Social Work from
Louisiana State University. Dr. Livers recently completed her Adult and Higher
Education Doctoral Program at the University of Oklahoma.
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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 Companys 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
Home Care, Inc. from 1995 to 1999 and a Controller at Lyntone Belts from 1984 to
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
17 years prior to joining the Company.
James C. Poland is Avalon's Vice President of Texas Operations and has over
twenty- seven years of experience in the field of criminal justice and security
operations. He has administrative responsibility and oversight for the secure
and non-secure correctional facilities in Texas. As such, he reviews facility
incidents, employee investigations, employee disciplinary actions, and meets
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with contracting agencies. Before joining Avalon in October of 2001, Mr. Poland
was Regional Director for Texson Management Group, Inc., Vice President of
Business Development for Correctional Services Corporation, and a private
consultant. Prior to that, he held positions in the Texas Department of Criminal
Justice that included Administrator, Regional Supervisor, Parole Analyst, and
Institutional Parole Officer. Mr. Poland earned a Bachelor's degree in Political
Science
Clinton E. Johnson is the Vice President of Oklahoma Operations. Mr.
Johnson has overall responsibility for the residential and nonresidential
service delivery to Avalon's contracting agencies and customers. He oversees
operational components, including budgeting, for the facilities and programs in
Oklahoma. Additionally, he had responsibility for the emerging growth of the
community sentencing programs, day reporting, offender monitoring, supervision,
and innovative alternative programs for the state. Prior to joining Avalon in
May of 2001, he retired from the Oklahoma Department of Corrections. During his
tenure at the department, he held several positions, including probation and
parole officer, deputy warden, and assistant to the Associate Director. Mr
Johnson holds a Bachelor of Science in Sociology and a Masters in Criminal
Justice degrees.
Information with Respect to Standing Committees of the Board and Meetings
Four meetings of the Board of Directors were held during the last fiscal
year, which were attended by all of the Directors. Attendance fees of $1000.00
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. Smith,
McDonald and Cooley. Two of the members of the audit committee are outside board
members. The audit committee met three times during 2001. Messrs. McDonald and
Cooley were each paid $500.00 for each audit committee 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 the
Company's 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
9
applicable listing standards of the NASDAQ. The Board of Directrors (with the
assistance of the Committee) has the ultimate authority and responsibility to
select, evaluate, and, where appropriate, place 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.
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
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, 2001, to be filed with the Securities and
Exchange Commission.
The Audit Committee
Donald E. Smith
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, 2001, to the Company's Chief
Executive Officer, Donald E. Smith.
10
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 sation2
sation1 Awards ( #)
Donald E. 2001 $88,846 $20,000 $1,476 10,000 $408
Smith, 2000 $60,000 $1,309 35,000 $225
CEO 1999 $60,000 $1,309 66,5303
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 a retirement plan in which Donald E. Smith will
participate. The unfunded accrual for this Plan is $347,121.00. 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 their employment. The Company's other officers and directors are
employed by the Company pursuant to verbal agreements.
____________________________
1. Includes $1,325 for the use of an automobile and $151 for life insurance
premiums.
2. Company matching of 401(k) contributions of $408.19 for Mr. Smith.
3. Employee stock options of 131,900 for Don Smith granted before December 29,
1999 and years prior to 1999 were forfeited and replaced with options granted on
December 29, 1999 in the amount shown. The replacement options were granted with
an exercise price at the market value on December 29, 1999 of $1.75. All
existing employee option holders were offered the right to convert and replace
existing options with exercise prices above $1.75 with a reduced number of
options at $1.75, no change in vesting terms, and an extension of the expiration
date to ten years from the conversion date.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The attention of the shareholders is directed to Financial Statement Note 7
on pages 21 and 22 and Financial Statement Notes 13 and 14 on pages 26 and 27 of
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001
(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 the Company's
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
2002.
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, 2002 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 and 2001. 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, 2002.
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 2001 year were
$42,650.00.
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.
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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 2003 Annual Meeting of Shareholders, such proposal must be
received by the Company at its address shown on this Proxy Statement prior to
January 10, 2003. Any proposals received by that date will be reviewed by the
Board to determine whether it is a proper proposal to present to the 2003 Annual
Meeting.
VOTE REQUIRED
A one-third (1/3) of the Company's Shares of Common Stock issued and
outstanding as of April 10, 2002 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, 2001, 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 5, 2002 /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
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