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 26, 2004
______________
To the Shareholders:
Notice is hereby given that the 2004 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 26, 2004, at 10:00 A.M. local time, for the following purposes:
1. To elect two directors to serve for a three year term and until
the election and qualification of those directors' successors.
2. 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 2, 2004, 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 21, 2004 Randall J. Wood Corporate Secretary
AVALON CORRECTIONAL SERVICES, INC.
________________
PROXY STATEMENT
________________
GENERAL INFORMATION
This Proxy Statement together with the Annual Report on Form 10-K 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 26, 2004, 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 2, 2004, 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, 2004, there were outstanding and entitled to
vote 4,896,954 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 2003 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
23, 2004.
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
each of the nominees for director 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 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
1
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, Robert
O. McDonald, Mark S. Cooley and James P. Wilson. One director class is to be
voted on by the Shareholders.
In the 2002 annual meeting, Messrs. Smith and Wilson were elected to serve
three year terms. In the 2003 annual meeting, Mr. Cooley was elected to serve a
three year term. Board members Messrs. Smith, Cooley and Wilson are not being
voted on at this year's meeting because their terms extend beyond this year. Mr.
McDonald is nominated for a three year term to fill one of the two remaining
positions on the Board of Directors. Should Mr. McDonald become unable to serve,
proxies may be voted for another person designated by management or the Board.
Mr. McDonald has advised that he will serve if elected. Dr. Thomas is nominated
for a three year term to fill the other remaining position on the Board of
Directors. Should Dr. Thomas become unable to serve, proxies may be voted for
another person designated by management or the Board. Dr. Thomas has advised
that he will serve if elected.
The Board of Directors recommends a vote FOR the re-election of Robert O.
McDonald and the election of Charles W. Thomas, Ph.D. as Directors for terms
expiring at the 2007 Annual Meeting.
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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 Term nominated Director
Position(s) to Serve Since
Robert O. McDonald 66 Director Three years 1994
Charles W. Thomas, Ph.D. 60 Director Three Years Dec. 2000
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 and CEO of Capital West Securities and its parent, 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. 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.
Directors
The Company's current directors and director nominees are:
Name Age Position(s) with the Company
Donald E. Smith ................51 Chief Executive Officer, Director
Robert O. McDonald .............66 Director
Mark S. Cooley ................46 Director
James P. Wilson.................45 Director
Charles Thomas, Ph.D............60 Director
3
The following is a brief description of the business experience during the
past five years of each of the above-name persons (information concerning Robert
O. McDonald and Charles W. Thomas, Ph.D. 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.
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.
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, 2004, 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
Name & Address Common Percent Total
Stock of Class1 Voting
Percentage2
Donald E. Smith3
13401 Railway Drive 1,951,850 30.84% 20.04%
Oklahoma City, OK 73114
RSTW Partners III4
5847 San Felipe, Suite 4350 1,642,448 25.95% 33.13%
Houston, TX 77057
Robert O. McDonald5
3316 Preston Drive 85,310 1.35% *
Oklahoma City, OK 73120
--------
1
Percentage calculated based on total beneficial ownership in relation to total
outstanding shares plus total presently exercisable options and warrants. Shares
outstanding (4,896,954) plus options and warrants equal 6,328,548 beneficially
owned shares. Also includes 321,580 shares owned by Teresa Smith, Mr. Smith's ex
wife of which Mr. Smith disclaims any beneficial ownership in those shares, but
Mr. Smith currently retains the voting rights.
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 140,900 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 20,000 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 85,310 shares issuable to Mr. McDonald within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
5
Mark S. Cooley6
385 Inverness Drive South, Suite 460 30,010 * *
Englewood, CO 80112
Charles W. Thomas, Ph.D7
102 Woodmont Blvd., Suite 610 29,200 * *
Nashville, TN 37205
James Saffle8
13401 Railway Drive 30,000 * *
Oklahoma City, OK 73114
3,768,818 59.55% 53.17%
All executive officers and directors as a group
(6 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 51 Chief Executive Officer,
and Chairman of the Board
James L. Saffle 51 President
- --------
6 Includes 30,100 shares issuable to Mr. Cooley within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
7 Includes 27,500 shares issuable to Dr. Thomas within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
8 Includes 30,000 shares issuable to Mr. Saffle within 60 days upon exercise of
vested options granted pursuant to the Company's Stock Option Plan.
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.
Information with Respect to Standing Committees of the Board and Meetings
Avalon Correctional Services is managed by a five member Board of
Directors, all but one of whom are independent of management. Six 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 per meeting were
paid to Messrs. McDonald, Cooley, Thomas and RSTW (of which Mr. Wilson is a
managing partner) in connection with said meetings. The Board also took action
by unanimous written consents in lieu of meetings on three (3) 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. The Board of Directors has also determined
that Mr. McDonald is qualified as an "audit committee financial expert," as
defined under applicable SEC rules. All of the members of the audit committee
are outside board members. The audit committee met three times during 2003 with
Mr. Cooley attending two of the audit committee meetings. Messrs. McDonald and
Cooley and Dr. Thomas were each paid $500 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.
Code of Conduct and Code of Ethics
The Company is in the process of reviewing, but has not yet adopted a Code
of Conduct that applies to all of the directors, officers and employees. The
Company has adopted a Code of Ethics for the Chief Executive Officer and the
Senior Financial Officers attached as Appendix A to this proxy statement.
7
Executive Compensation
The following table sets forth the compensation paid or accrued during each
of the years in the three years ended December 31, 2003, to the Company's Chief
Executive Officer, Donald E. Smith and President, James Saffle.
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 sation10
- -------- ------- ----------- --------
sation9 Awards (#)
------- ----------
Donald E. 2003 $200,000 $ 0 $14,208 20,000 $ 0
Smith, 2002 $ 90,000 $ 0 $ 683 0 $ 338
CEO 2001 $ 88,846 $20,000 $ 1,476 10,000 $ 408
James Saffle, 2003 $135,405 $ 0 $ 7,360 30,000 $ 0
President 2002 $125,000 $ 0 $ 6,533 7,500 $ 195
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 and
effective June 3, 2003, the Board of Directors increased Mr. Smith's annual
compensation to $200,000 per annum. 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. 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.
- --------
9Includes automobile usage and life and medical insurance premiums.
10Company matching of 401(k) contributions.
8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The spouse of the Company's Chairman, Ms. Tiffany Smith, is an employee of
Avalon Correctional Services and Ms. Smith serves as Vice President of Corporate
Communications. In 2003, Ms. Smith received an annual base salary of $72,000 and
a bonus of $18,705. Ms. Smith does not have an employment contract or change of
control arrangements with the Company.
Additionally, the attention of the shareholders is directed to Financial
Statement Note 9 on page 29 and Financial Statement Notes 15 and 16 on page 34
of the Company's Annual Report on Form 10-K for the year ended December 31, 2003
(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 herein above, guarantee of the Company's
financial obligations, and other related party transactions.
The Company paid interest totaling $1,312,486 during 2003 to RSTW (of which
Mr. Wilson is a managing partner).
The Company paid interest totaling $150,000 during 2003 to Pro Trust Equity
Partners (of which Mr. Cooley is a Principal).
Various stock options have been granted to the non-management members of
the Board of Directors consisting of 30,010 to Mark Cooley, 85,310 to Robert
McDonald, 20,000 to RSTW (of which Mr. Wilson is a managing partner), and 27,500
to Dr. Charles Thomas.
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.
AUDITORS FEES AND SERVICES
The services billed for fiscal years 2002 and 2003 totaled $177,000. This
is comprised of $122,000 billed for services during the 2003 engagement and
$55,000 billed for services during the 2002 engagement. The $122,000 includes
$24,000 for audit related fees and $22,000 for the restatement of the 10-K for
fiscal 2002. Specific disclosures are set forth below.
Audit Fees
For fiscal year 2003, Grant Thornton LLP, the Company's independent public
accountants, billed an aggregate of $76,000 for professional services rendered
for the audit of the consolidated financial statements for such period included
9
in the Annual Report on Form 10-K and for the reviews of the consolidated
quarterly financial statements included in the Quarterly Reports on Form 10-Q
filed with the Securities and Exchange Commission. The amount billed by Grant
Thornton LLP for the same services relating to fiscal year 2002 was $76,000,
which includes costs of $22,000 associated with certain restatements of SEC
filings for fiscal year 2002.
Audit Related Fees
Grant Thornton LLP, billed the Company $4,500 in 2003 and $770 in 2002 for work
consisting of research and consultation on various accounting matters.
Tax Fees
The Company did not utilize Grant Thornton LLP for tax services.
All Other Fees
The Company did not utilize Grant Thornton LLP for any matters of this
nature.
The Audit Committee determined that Grant Thornton LLP retained its
independence. In making its determination regarding the independence of Grant
Thornton LLP, the Audit Committee considered whether the provision of the
services covered in the section herein regarding "Audit and Non-Audit Fees" was
compatible with maintaining such independence. All services to be performed by
the independent public accountants must be pre-approved by the Audit Committee,
which has chosen not to adopt any pre-approval policies for enumerated services
and situations, but instead has retained the sole authority for such approvals.
At this time, the Audit Committee has not completed its review process for
selection of an independent public accountant to audit the fiscal year ending
December 31, 2004. The Company does expect representatives of Grant Thornton
LLP, the Company's auditors for the year ended December 31, 2003, to attend the
annual meeting.
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 2005 Annual Meeting of Shareholders, such proposal must be
received by the Company at its address shown on this Proxy Statement prior to
January 10, 2005. Any proposals received by that date will be reviewed by the
Board to determine whether it is a proper proposal to present to the 2005 Annual
Meeting.
VOTE REQUIRED
A one-third (1/3) of the Company's Shares of Common Stock issued and
outstanding as of April 2, 2004 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.
10
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.
AUDIT COMMITTEE REPORT
The Board of Directors of Avalon Correctional Services has established an
audit committee to oversee the financial reporting process on behalf of the
Board of Directors and operates under a written charter adopted by the Board of
Directors. Messrs. McDonald and Cooley and Dr. Thomas currently serve as the
Audit Committee members for fiscal year 2004. Each of these directors satisfies
the independence requirements established for Audit Committee members under the
Nasdaq Stock Exchange Listing Standards.
The audit committee makes recommendations concerning the engagement of
independent auditors, reviews with the independent auditors the scope and
results of the audit engagement, approves professional services provided by the
independent auditors, reviews the independence of the independent auditors,
considers the range of audit and non-audit fees, and reviews the adequacy of
Avalon Correctional Service's internal accounting controls, among other matters.
The audit committee met three times during the year ended December 31, 2003.
The members of the audit committee submit this report in connection with
the committee's review of the financial reports for the fiscal year ended
December 31, 2003 as follows:
1. The audit committee has reviewed and discussed with management the
audited financial statements for Avalon Correctional Services for the
fiscal year ended December 31, 2003.
2. The audit committee has discussed with the representatives of Grant
Thornton LLP the matters that are required to be discussed with them
under provisions of Statement on Auditing Standards No.61 ("SAS 61"),
as may be modified or supplemented. SAS 61 requires the auditors to
ensure that the audit committee received information regarding the
scope and results of the audit.
3. The audit committee has discussed with Grant Thornton LLP the
auditor's independence from management and Avalon Correctional
Services, including the written disclosures and the letter from the
independent auditors required by the Independence Standards Board
Statement No. 1, as may be modified or supplemented. In addition, the
11
audit committee considered whether the provision of certain non-
audit services by Grant Thornton LLP is compatible with maintaining
its independence.
In reliance on the reviews and discussions referred to above, the audit
committee recommended to the Board of Directors (and the Board approved) that
the audited financial statements be included in Avalon Corrections Service's
annual report on Form 10-K for the fiscal year ended December 31, 2003, which
was filed with the SEC.
The Audit Committee
Robert O. McDonald, Chariman
Mark S. Cooley
Charles W. Thomas, Ph.D
ANNUAL REPORTS AND CONSOLIDATED FINANCIAL STATEMENTS
Copies of the Company's Annual Report as filed with the Securities and
Exchange Commission on Form 10-K, including consolidated financial statements
for the year ended December 31, 2003, 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 21, 2004 /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.
12
Place an "X" in the space below to indicate your vote on each item:
1. ELECTION OF DIRECTORS:
NOMINEES: ROBERT O. McDONALD AND CHARLES W. THOMAS TO SERVE A THREE
YEAR TERM
[ ] VOTE FOR THE ELECTION OF NOMINEES UNLESS OTHERWISE INSTRUCTED BELOW
(Instruction: to withhold authority to vote for an individual nominee
write that nominee's name in the space provided below.)
[ ] VOTE WITHHELD FOR NOMINEE(S):
_________________________________
2. 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 26, 2004, 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:_________________________, 2004
____________________________________
____________________________________
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 nominees as directed and FOR all other proposals outlined in the
Notice of Annual meeting of shareholders.
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Appendix A
AVALON CORRECTIONAL SERVICES, INC.
AND SUBSIDIARY COMPANIES
CODE OF ETHICS FOR THE CHIEF EXECUTIVE OFFICER
AND SENIOR FINANCIAL OFFICERS
The Chief Executive Officer, ("CEO"), Vice President of Finance and the
Corporate Controller (the "Senior Financial Officers") have an important role in
corporate governance. The Senior Financial Officers have the responsibility to
accurately prepare and report the financial condition and results of operations
of the Company in accordance with Generally Accepted Accounting Principles and
the highest standards of ethics. The CEO and the Senior Financial Officers are
subject to the specific policies set forth below. If the CEO or Senior Financial
Officers has a reporting obligation under any policy set forth below, they must
promptly bring the matter to the attention of the Chairman of the Audit
Committee.
Policy Statement
The standards set forth in this Code are designed to deter wrongdoing by
the Company's CEO and Senior Financial Officers, and to promote the following:
Honest and ethical conduct;
Avoidance of conflicts of interest;
Full, fair, accurate, timely and understandable disclosure in reports
and documents that the Company iles with, or submits to, the Securities
and Exchange Commission and in other public communications made by the
Company;
Compliance with applicable governmental laws, rules and regulations;
Prompt reporting to a person identified in this Code of possible
violations of the Code; and
Accountability for adherence to the Code.
Responsibilities
1. The CEO and Senior Financial Officers are responsible for full,
fair, accurate, timely and understandable disclosure in the
periodic reports required to be filed by the Company with the
Securities and Exchange Commission. Accordingly, it is the
responsibility of the CEO and each Senior Financial Officer to
report any untrue statement of material fact and any omission
of material fact of which he or she may become aware pertaining
to information prepared by him or her or associates in his or
her area(s) of responsibility that affect the disclosures made
by the Company in its public filings.
2. The CEO and each Senior Financial Officer shall report any
information he or she may have concerning (a) significant
deficiencies in the design or operation of disclosure and
internal controls which could adversely affect the ability of
staff in his or her area(s) of responsibility to record,
process, summarize and report financial data or (b) any fraud,
whether or not material, that involves any employee who has a
significant role in his or her area's internal controls.
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3. The CEO and each Senior Financial Officer shall report any
information he or she may have concerning any violation of this
Code of Ethics, including any actual or apparent conflicts of
interest between personal and professional relationships
involving any employee who has a significant role in his or her
area's financial reporting, disclosures or internal controls.
4. A Senior Financial Officer always has the option of reporting
directly to the Audit Committee, and such officer shall report
to the Audit Committee if he or she has reason to believe that
his or her immediate supervisor or internal audit services is
involved with the matter at issue, or if he or she has reason to
believe that his or her immediate supervisor or internal audit
services has not addressed the matter appropriately in a timely
fashion.
5. The CEO and each Senior Financial Officer shall report any
information he or she may have concerning evidence of a material
violation of securities or other laws, rule or regulations
applicable to the Company and the operation of its business, by
the Company or any agent thereof.
6. The Audit Committee shall determine, or designate appropriate
persons to determine, appropriate actions to be taken in the
event of violations of this Code of Ethics. Such actions shall
be reasonably designed to deter wrongdoing and to promote
accountability for adherence to this Code of Ethics, including,
among other things, disciplinary action up to and including
termination of employment. In determining what action is
appropriate in a particular case, the Audit Committee or its
designee shall take into account all relevant information,
including whether the violation was promptly reported, whether a
violation of the law has occurred, the nature and severity of
the violation, whether the violation was a single occurrence or
repeated occurrences, whether the violation appears to have been
intentional or inadvertent, whether the individual in question
had been advised prior to the violation as to the proper course
of action and whether or not the individual in question had
committed other violations in the past, the penalties imposed,
if any, in the past for comparable violations and other relevant
factors.
Dated: March 15, 2004.
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