SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
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
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DYNACQ INTERNATIONAL, INC.
--------------------------
(Name of Registrant as Specified in Its 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 the filing 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:
DYNACQ INTERNATIONAL, INC.
4301 VISTA ROAD
PASADENA, TEXAS 77504
September 24, 2002
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Dynacq International, Inc., which will be held on October 22, 2002, beginning at
9:30 a.m., Central Time, at 4301-B Vista, Pasadena, Texas, 77504.
Information about the Annual Meeting, including matters on which
shareholders will act, may be found in the notice of annual meeting and proxy
statement accompanying this letter. We look forward to greeting in person as
many of our shareholders as possible.
It is important that your shares be represented and voted at the meeting.
Whether or not you plan to attend the Annual Meeting, please complete, sign,
date, and promptly return the accompanying proxy in the enclosed envelope.
Returning the proxy does NOT deprive you of your right to attend the Annual
Meeting. If you decide to attend the Annual Meeting and wish to change your
proxy vote, you may do so automatically by voting in person at the meeting.
Sincerely yours,
/s/ Chiu Moon Chan
- ----------------------------
Chiu Moon Chan
PRESIDENT
DYNACQ INTERNATIONAL, INC.
4301 VISTA ROAD
PASADENA, TEXAS 77504
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On October 22, 2002
The Annual Meeting of Shareholders of Dynacq International, Inc., will be
held at 4301-B Vista, Pasadena, Texas, 77504, on October 22, 2002, at 9:30 a.m.,
Central Time, for the following purposes:
1. Election of Directors. To elect five directors to the Board of
Directors to serve until the 2002 Annual Meeting of Shareholders, or
until their respective successors are elected and qualified.
2. Ratification of Auditors. To ratify the selection of Ernst & Young
LLP, as auditors for Dynacq for the fiscal year ending August 31,
2002.
3. To transact any other business that may properly come before the
meeting.
Shareholders of record at the close of business on August 30, 2002, will be
entitled to notice of, and to vote at, this meeting.
By Order of the Board of Directors,
/s/ Chiu Moon Chan
- --------------------------------
Chiu Moon Chan
SECRETARY
Dated: September 24, 2002
Please date and sign the enclosed proxy and return it at your earliest
convenience in the enclosed envelope so that your shares will be voted if you
are not able to attend the Annual Meeting.
DYNACQ INTERNATIONAL, INC.
PROXY STATEMENT
Annual Meeting of Shareholders
The Board of Directors of Dynacq International, Inc., a Nevada corporation,
prepared this proxy statement for the purpose of soliciting proxies for our
Annual Meeting of Shareholders. Our Annual Meeting will be held at 4301-B Vista,
Pasadena, Texas, 77504, at 9:30 a.m., Central Time, on October 22, 2002, unless
adjourned or postponed. The Board is making this solicitation by mail, and
Dynacq will pay all costs associated with this solicitation. This proxy
statement and accompanying notice of Annual Meeting and proxy are first being
mailed to shareholders on or about September 24, 2002. When you see the terms
"we", "our", or "Dynacq", it refers to Dynacq International, Inc. and its
subsidiaries.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Our common stock is the only type of security entitled to vote at the
Annual Meeting. On August 30, 2002, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were 14,845,350
shares of common stock outstanding. Each stockholder of record on August 30,
2002 is entitled to one vote for each share of common stock held by the
stockholder on such date. Shares of common stock may not be voted cumulatively.
All votes will be tabulated by the inspector of election appointed for the
meeting. Abstentions and broker non-votes will be treated as shares which are
present for purposes of determining the existence of a quorum, but which are not
present for purposes of determining whether a proposal has been approved. The
term "broker non-vote" refers to shares held by a broker in street name which
are present by proxy, but which are not voted on a matter pursuant to rules
prohibiting brokers from voting on non-routine matters without instructions from
the beneficial owner of the shares. In the event a broker votes on a routine
matter, such vote will count as both present and voted for the purposes of
determining whether a proposal has been approved.
Quorum Required
Our Bylaws provide that the holders of 40% of our common stock issued and
outstanding and entitled to vote and that are present in person or represented
by proxy, shall constitute a quorum for the transaction of business at the
Annual Meeting. Abstentions and broker non-votes will be counted as present for
the purpose of determining the presence of a quorum.
Votes Required
Proposal 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person, or represented by proxy, and entitled to
vote at the Annual Meeting. This means the five nominees for director receiving
the highest number of affirmative votes will be elected. Abstentions and broker
non-votes will not be counted toward a nominee's total. Shareholders may not
cumulate votes in the election of directors.
Proposal 2. Ratification of the appointment of Ernst & Young LLP as our
independent public accountants for the fiscal year ending August 31, 2002
requires the affirmative vote of a majority of those shares present in person,
or represented by proxy, and cast either affirmatively or negatively at the
Annual Meeting. Abstentions and broker non-votes will not be counted as having
been voted on the proposal and will have no effect on the proposal.
Proxies
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Whether or not you are able to attend the Annual Meeting, you are urged to
complete and return the enclosed proxy, which will be voted as you direct on
your proxy when properly completed. In the event no directions are specified,
such proxies will be voted FOR the nominees for election to the Board of
Directors (as set forth in Proposal No. 1), FOR Proposal No. 2, and in the
discretion of the proxy holders as to other matters that may properly come
before the Annual Meeting. You may also revoke or change your proxy at any time
before the Annual Meeting. To do this, send a written notice of revocation or
another signed proxy with a later date to the Secretary of the company at our
principal executive offices before the beginning of the Annual Meeting. You may
also automatically revoke your proxy by attending the Annual Meeting and voting
in person. All shares represented by a valid proxy received prior to the Annual
Meeting will be voted.
Solicitation of Proxies
We will bear the entire cost of solicitation, including the preparation,
assembly, printing, and mailing of this proxy statement, the proxy, and any
additional soliciting material furnished to shareholders. Copies of solicitation
material will be furnished to brokerage houses, fiduciaries, and custodians
holding shares in their names that are beneficially owned by others so that they
may forward this solicitation material to the beneficial owners. In addition, we
may reimburse these persons for their costs of forwarding the solicitation
material to the beneficial owners. The original solicitation of proxies by mail
may be supplemented by solicitation by telephone, telegram, or other means by
directors, officers, employees, or agents of the company. No additional
compensation will be paid to these individuals for any such services.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Board of Directors currently consists of five members. The Board has
nominated for re-election all the current members of the Board. Pursuant to our
Bylaws, the members of the Board of Directors serve for one-year terms. The five
nominees receiving the highest number of votes cast at the Annual Meeting will
be elected. If any of the nominees becomes unavailable for any reason or if a
vacancy should occur before the election (which events are not anticipated), the
shares represented by the enclosed proxy may be voted for such other person or
persons, recommended by the Board of Directors, as may be determined by the
holders of the proxy.
Director Nominees
Chiu Moon Chan, age 49, has served as a director and as our President,
Secretary, and Chief Executive Officer since July 1992. Mr. Chan is a registered
pharmacist and since May 1978 was employed by various health care service
organizations in Houston, Texas prior to his affiliation with Dynacq. Mr. Chan
earned a Bachelor of Science degree in Pharmacy from the University of Houston.
Philip Chan, age 51, has served as a director and as our Vice
President--Finance, Chief Financial Officer, and Treasurer since July 1992. Mr.
Chan earned advanced accounting degrees from the University of Houston and is a
CPA in the State of Texas. Prior to his employment with Dynacq, Mr. Chan had
previous corporate and outside accounting experience. Philip Chan is not related
to Chiu Moon Chan.
Stephen L. Huber, age 51, has served as a director of Dynacq since July
1992. Mr. Huber is a registered pharmacist and earned a Bachelor of Science
degree in Pharmacy from the University of Houston. Since December 1991, Mr.
Huber served as the Deputy Division Head for patient care services at the
University of Texas M.D. Anderson Cancer Center. Mr. Huber joined M.D. Anderson
in 1984 as Assistant Director of Operations. In 1999, Mr. Huber joined Cortex
Communications, Inc., a medical education company, as President and Chief
Operating Officer. Mr. Huber continues to serve as a research consultant to M.D.
Anderson.
Earl R. Votaw, age 75, has served as a director of Dynacq since July 1992.
Mr. Votow earned a Bachelor of Arts degree from the University of the Americas
in Mexico City and a certificate of graduation from the Graduate School of
Mortgage Banking from Northwestern University of Chicago. Prior to his
retirement in December 1993, Mr. Votaw served as a director and as the President
and Chief Executive Officer of Capital Bank, a Texas chartered bank located in
Houston, Texas, where he still serves as a director.
2
Ping S. Chu, age 51, has served as a director of Dynacq since May 2002. Dr.
Chu received his Ph.D. degree in chemistry from Massachusetts Institute of
Technology before he went to medical school at the University of Miami, Florida.
Dr. Chu finished his oncology training at M.D. Anderson Cancer Center in 1989
and has been in solo private practice since completion. Dr. Chu is board
certified in internal medicine and medical oncology.
Committees of the Board and Attendance
The Board of Directors currently has standing Audit and Compensation
Committees. The Board of Directors does not have a nominating committee. All
nominees for directors are chosen by the entire Board of Directors.
The Audit Committee is currently comprised of Messrs. Huber, Votaw, and
Chu. For the year ended August 31, 2001, the Audit Committee was comprised of
Messrs. Huber and Votaw, and held one meeting during such fiscal year. The Audit
Committee is authorized to nominate our independent auditors and to review with
the independent auditors the scope and results of the audit engagement. The
Audit Committee is also authorized to review and assess our internal controls to
evaluate business risk and to ensure compliance with laws and regulations. For
further information, see the "Audit Committee Report" following Proposal 2
below.
The Compensation Committee, comprised of Messrs. Huber and Votaw, held one
meeting during our last fiscal year, and recommends compensation levels for our
executive officers and is authorized to consider and make grants of options
pursuant to any approved stock option plan and to administer the plans.
We held one Board meeting during the last fiscal year. Each director
attended at least 75% of all Board meetings and meetings of committees of which
each director was a member, either in person or by telephone conference calls.
Compensation of Directors
Messrs. Chiu Moon Chan and Philip Chan receive compensation only as
officers of Dynacq. Mr. Huber receives a consulting fee of $1,000 per month in
exchange for consultation services regarding patient care for our in-home
infusion therapy and other matters. The consulting agreement with Mr. Huber
consists of a verbal understanding between the parties and may be terminated at
any time. Mr. Huber received $12,000 in both fiscal 2000 and fiscal 2001.
The Board of Directors unanimously recommends you vote "FOR" the election
of each of the nominees listed above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of August 5, 2002, 14,831,100 shares of our common stock were
outstanding. The following table sets forth, as of August 5, 2002, information
with respect to shares beneficially owned by: (a) each person who is known by us
to be the beneficial owner of more than 5% of our outstanding shares of common
stock, (b) each of our directors and the named executive officers named in the
Summary Compensation Table below, and (c) all current directors and executive
officers as a group.
Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act. Under this rule, some shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share the
power to vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the right to
acquire shares (for example, upon exercise of an option or warrant) within sixty
days of the date as of which the information is provided. In computing the
percentage ownership of any person, the amount of shares is deemed to include
the amount of shares beneficially owned by such person by reason of such
acquisition rights. As a result, the percentage of outstanding shares of any
person as shown in the following table does not necessarily reflect the person's
actual voting power at any particular date.
3
To our knowledge, except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. All share numbers reflect two separate two
for one stock dividends affected January 2000 and March 2001. Unless otherwise
indicated, the business address of the individuals listed is Dynacq
International, Inc., 4301 Vista Road, Pasadena, Texas 77504.
SHARES BENEFICIALLY OWNED AS OF AUGUST 5, 2002
----------------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ----------------- ---------------- ----------------
Chiu M. Chan 8,430,550(1) 56.7%
Philip S. Chan 413,606(2) 2.8%
Stephen L. Huber (3) 20,000(3) Less than 1%
Earl R. Votaw (7) 38,300 Less than 1%
Ping S. Chu 195,024 1.3%
Sarah C. Garvin 73,867(4) Less than 1%
Irvin T. Gregory 51,867(5) Less than 1%
All current directors and executive officers as a group 9,223,214(6) 61.2%
(7 persons)
- -------------------
(1) Includes 60,000 shares underlying an option, which vests within 60 days of
August 5, 2002.
(2) Includes 80,000 shares underlying options, which vest within 60 days of
August 5, 2002.
(3) Consists of an option to purchase 20,000 shares of common stock, which
vests within 60 days of August 5, 2002. Mr. Huber's business address is
2015 Seven Maples Drive, Kingwood, Texas 77345.
(4) Includes 60,000 shares underlying an option, which vests within 60 days of
August 5, 2002.
(5) Includes 17,466 shares underlying an option, which vests within 60 days of
August 5, 2002.
(6) Includes 237,466 shares underlying options, which vest within 60 days of
August 5, 2002.
(7) Mr. Votaw's business address is 10707 Braesridge, Houston, Texas 77071.
EXECUTIVE OFFICERS
Executive officers are elected annually by the Board and serve at the
discretion of the Board. Set forth below is information regarding our executive
officers.
Name Age Office Held
---- --- -----------
Chiu Moon Chan 49 Chairman of the Board of Directors,
Chief Executive Officer, President,
and Secretary
Philip Chan 51 Director, Vice President--Finance,
Chief Financial Officer, and Treasurer
Sarah C. Garvin 55 Chief Operating Officer and
Executive Vice President
Irvin T. Gregory 64 Chief Development Officer and
Executive Vice President
4
The biographies of Chiu Moon Chan and Philip Chan are set forth under
"Proposal 1 - Election of Directors."
Sarah C. Garvin has served as vice president/operations and strategic
planning from December 2000 and was named chief operating officer and executive
vice president in October 2001. Prior to joining Dynacq, Ms. Garvin was a
partner in Surgi+Group, Inc., which was acquired by Dynacq. From mid-1993 to
June 1996, Ms. Garvin was senior vice president of Surgical Health Corporation
and from June 1996 to June 2000 served as chief executive officer of its
spin-out subsidiary company, Physician Health Corporation.
Irvin T. Gregory has served as executive vice president of development and
chief development officer since October 2001, and served as vice president of
development from December 2000 until October 2001. Since September 2000, Mr.
Gregory served as president of Surgi+Group, Inc., which was acquired by Dynacq.
From June 1999 until September 2000, Mr. Gregory served as president of Gregory
& Associates, Inc., a surgery center consulting business. From May 1997 until
April 1999, Mr. Gregory served as president and chief executive officer of
Physicians Surgical Care, Inc., a surgery center company. From December 1994
until May 1997, Mr. Gregory served as president and chief executive officer of
Amedysis Surgery Center, Inc., a surgery center operator.
Executive Compensation
The following table contains compensation data for our named executive
officers for the year ended August 31, 2001.
SUMMARY COMPENSATION TABLE
Name and
Principal Positions Year Annual Compensation Long Term Compensation
Awards
Securities
Salary ($) Bonus ($) Underlying Options (#)
---------- --------- ----------------------
Chiu M. Chan, 2001 180,000 0 200,000
President and CEO 2000 152,507 50,000 --
1999 80,000 100,000 --
Philip S. Chan, CFO 2001 180,000 0 220,000
2000 97,607 11,000 --
1999 53,300 0 --
Sarah C. Garvin, COO 2001 120,000 0 200,000
Irvin T. Gregory, CDO 2001 120,000 0 200,000
Options, Warrants, and Stock Appreciation Rights
The following table sets forth information concerning the option issuances
to our named executive officers for the fiscal year ended August 31, 2001, in
addition, Messrs. Huber and Votaw each received options to purchase 20,000
shares of common stock, each with an exercise price of $4.4375 per share and
each expiring in December 2005.
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OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term (1)
Number of Percent of
Securities Total Options/
Underlying SARs Granted Exercise or
Options/SARs to Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) Date 5%($) 10%($)
- ----- ------------ --------------- ----------- ----------- ----- ------
Chiu M. Chan 200,000 22% 4.4375 12/5/05 245,200 541,820
Philip S. Chan 220,000 24.5% 4.4375 12/5/05 269,720 596,002
Sarah C. Garvin 200,000 22% 4.4375 12/5/05 245,200 541,820
Irvin T. Gregory 200,000 22% 4.4375 12/5/05 245,200 541,820
- ---------
(1) The 5% and 10% assumed rates of appreciation are prescribed by the rules
and regulations of the SEC and do not represent our estimate or projection
of the future trading prices of our common stock. We can provide no
assurance that any of the values reflected in this table will be achieved.
Each of the above 200,000 share option grants were made in December 2000,
and vest as follows: (a) 60,000 shares in December 2001, (b) 60,000 shares in
December 2002, and (c) 80,000 shares in December 2003. Mr. Philip Chan has an
additional option grant for 20,000 shares that vests in December 2001.
The following table sets forth information concerning option exercises
during the fiscal year ended August 31, 2001 and option holdings as of August
31, 2001 with respect to our named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Value of Unexercised
Shares Acquired Value Underlying Unexercised In-the-Money
Name on Exercise (#) Realized ($) Options at FY-End (#) Options at FY-End ($)
- ---- --------------- ------------ --------------------- ---------------------
Exercisable Unexercisable Exercisable Unexercisable (1)
Chiu M. Chan -- -- -- 200,000 -- 2,142,500
Philip S. Chan 333,606 5,679,558(2) -- 220,000 -- 2,356,750
Sarah C. Garvin -- -- -- 200,000 -- 2,142,500
Irvin T. Gregory -- -- -- 200,000 -- 2,142,500
- ----------
(1) Based on the fair market value of our common stock on August 31, 2001 of
$15.15 per share less the exercise price payable for such shares.
(2) Based on the fair market value of our common stock on the respective dates
of exercise less the exercise price payable for such shares.
Employment Contracts and Change-In-Control Arrangements
Ms. Garvin entered into a three-year employment agreement with Dynacq in
December 2000, which provides for a base salary of $120,000. Ms. Garvin receives
an expense allowance and an automobile allowance. Ms. Garvin's compensation
included an option to purchase 200,000 shares of common stock at an exercise
price of $4.4375 per share (on a post stock dividend basis), vesting as follows:
(a) 60,000 shares in December 2001, (b) 60,000 shares in December 2002, and (c)
80,000 shares in December 2003. All vesting will accelerate if Ms. Garvin is
terminated without cause, or if a change of control occurs to Dynacq. In
addition, if Ms. Garvin is terminated without cause, she will receive a
severance payment of $60,000. Upon termination of the employment agreement,
Dynacq has the option of exercising a non-compete provision, which will prevent
Ms. Garvin from competing with the Company for a period of two years, in
exchange for payment, on a monthly basis, of Ms. Garvin's base salary on
termination for the non-compete period. Mr. Gregory entered into a three-year
employment agreement with Dynacq in December 2000 on the
6
same terms and conditions as Ms. Garvin. Our 2000 Stock Option Plan provides for
accelerated vesting of the shares of common stock subject to outstanding options
in connection with certain changes in control of Dynacq.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive
officers, and the persons who beneficially own more than ten percent of our
common stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Copies of all filed reports are required to
be furnished to us. Based solely on the reports received by us and on the
representations of the reporting persons, we believe that these persons have
complied with all applicable filing requirements during the fiscal year ended
August 31, 2001; except Ms. Garvin and Mr. Gregory did not timely file their
Form 3s.
PROPOSAL 2 - RATIFY THE ELECTION OF ERNST & YOUNG LLP
The Board of Directors would like the shareholders to ratify the
appointment of Ernst & Young LLP, as independent auditors for Dynacq for the
fiscal year ending August 31, 2002. The engagement of Ernst & Young LLP, for
audit services has been approved by the Board of Directors. A representative of
Ernst & Young LLP is expected to be present at the Annual Meeting, will have the
opportunity to make a statement, and will be available to respond to appropriate
questions.
In the event the shareholders do not ratify the appointment of Ernst &
Young LLP, as independent auditors for the fiscal year ending August 31, 2002,
the Audit Committee will consider the adverse vote as direction to select other
auditors for the following year. However, because of the difficulty in making
any substitution of auditors so long after the beginning of the current year, it
is contemplated that the appointment for the current fiscal year will be
permitted to stand unless the Audit Committee finds other good reason for making
a change.
On May 30, 2002, we dismissed KenWood & Associates, PC ("KenWood") as our
independent public accountants, which audited our financial statements for the
fiscal year ended August 31, 2001.
KenWood's reports on our consolidated financial statements for each of the
fiscal years ended August 31, 2001 and 2000 did not contain an adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
During the years ended August 31, 2001 and 2000 and through the date
hereof, there were no disagreements with KenWood on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure which, if not resolved to KenWood's satisfaction, would have caused
them to make reference to the subject matter of the disagreements in connection
with their reports on our consolidated financial statements for such years; and
there were no reportable events as defined in Item 304(a)(1)(v) of Regulation
S-K.
During the years ended August 31, 2001 and 2000 and through the date of our
hiring of Ernst & Young, we did not consult Ernst & Young with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our consolidated financial statements, or any other matters or reportable events
as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
Audit Fees
The aggregate fees billed by KenWood for professional services rendered for
the audit of our annual financial statements for the fiscal year ended August
31, 2001, and for the reviews of the financial statements included in our
quarterly reports for that fiscal year were $58,073.
Financial Information Systems Design and Implementation Fees
KenWood rendered no professional services to us for information technology
services relating to financial information systems design and implementation for
the fiscal year ended August 31, 2001.
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All Other Fees
KenWood rendered no other services other than the services described above
under "Audit Fees," for the fiscal year ended August 31, 2001.
The Board of Directors unanimously recommends you vote "FOR" the
ratification of the appointment of Ernst & Young LLP, as independent auditors
for the fiscal year ending August 31, 2002.
AUDIT COMMITTEE REPORT
In accordance with its written charter adopted by the Board of Directors
the Audit Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing, and
financial reporting practices of the company. The Audit Committee recommends to
the Board of Directors, subject to shareholder approval, the selection of the
company's independent accountants. The Audit Committee is currently comprised of
Messrs. Huber, Votaw, and Chu. All members are independent directors, as defined
by the National Association of Securities Dealers' listing standards. Messrs.
Huber and Votaw comprised the Audit Committee for the year ended August 31,
2001, as Dr. Chu joined the committee in May 2002.
Management is responsible for the company's internal controls. The
independent auditors for the company, for the fiscal year ended August 31, 2001,
KenWood & Associates, P.C. ("KenWood"), was responsible for performing an
independent audit of the company's consolidated financial statements in
accordance with generally accepted auditing standards and to issue a report
thereon. The Audit Committee has general oversight responsibility with respect
to financial reporting, and reviews the results and scope of the audit and other
services provided by KenWood.
The Audit Committee members are not professional accountants or auditors,
and their functions are not intended to duplicate or to certify the activities
of management and KenWood, nor can the Audit Committee certify that KenWood is
"independent" under applicable rules. The Audit Committee serves a board-level
oversight role, in which it provides advice, counsel, and direction to
management and the auditors on the basis of the information it receives,
discussions with management and the auditors and the experience of the Audit
Committee members in business, financial, and accounting matters.
In this context, the Audit Committee met and held discussions with
management and KenWood. Management represented to the Audit Committee that the
company's consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Audit Committee reviewed and
discussed the consolidated financial statements with management and KenWood. The
Audit Committee discussed with KenWood matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees).
KenWood also provided to the Audit Committee the written disclosures
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and the Audit Committee discussed with
KenWood their independence.
Based upon the Audit Committee's discussion with management and KenWood and
the Audit Committee's review of the representations of management and the report
of KenWood to the Audit Committee, the Audit Committee recommended that the
Board of Directors include the company's audited consolidated financial
statements in the Dynacq International, Inc. Annual Report on Form 10-KSB for
the year ended August 31, 2001 filed with the Securities and Exchange
Commission.
Submitted by the Audit Committee of the Board of Directors of Dynacq
International, Inc.:
Stephen L. Huber and Earl R. Votaw
8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee for the fiscal year ended August 31, 2001
consisted of Earl Votaw and Stephen Huber. Mr. Huber received fees of $12,000
for such fiscal year for certain consulting services performed for Dynacq. None
of our executive officers or Board members served on a compensation committee
for any other company.
Report of the Compensation Committee
Overview
The Compensation Committee of the Board of Directors supervises our
executive compensation. We seek to provide executive compensation that will
support the achievement of our financial goals while attracting and retaining
talented executives and rewarding superior performance. In performing this
function, the Compensation Committee reviews executive compensation surveys and
other available information.
We seek to provide an overall level of compensation to our executives that
are competitive within our industry and other companies of comparable size and
complexity. Compensation in any particular case may vary from any industry
average on the basis of annual and long-term performance as well as individual
performance. The Compensation Committee will exercise its discretion to set
compensation where in its judgment external, internal or individual
circumstances warrant it. In general, we compensate our executive officers
through a combination of base salary, annual incentive compensation in the form
of cash bonuses and long-term incentive compensation in the form of stock
options.
Base salary levels for our executive officers are set generally to be
competitive in relation to the salary levels of executive officers in other
companies within our industry or other companies of comparable size, taking into
consideration the position's complexity, responsibility and need for special
expertise. In reviewing salaries in individual cases the Compensation Committee
also takes into account individual experience and performance.
We provide long-term incentive compensation through our stock option plan.
The number of shares covered by any grant is generally determined by the then
current stock price, subject in certain circumstances, to vesting requirements.
In special cases, however, grants may be made to reflect increased
responsibilities or reward extraordinary performance.
Chief Executive Officer Compensation
Mr. Chiu Chan was elected to the position of chief executive officer in
1992. Mr. Chan's salary was increased from $152,507 to $180,000 during the
fiscal year ended August 31, 2001. Mr. Chan received no bonus during such fiscal
year. Mr. Chan received a common stock option grant of 200,000 in December 2000
vesting over a three-year period. The option has an exercise price of $4.4375
(on a post-dividend basis), which was the market price on the date of grant and
expires in December 2005.
The overall goal of the Compensation Committee is to insure that
compensation policies are established that are consistent with our strategic
business objectives and that provide incentives for the attainment of those
objectives. This is affected in the context of a compensation program that
includes base pay, annual incentive compensation and stock ownership.
The Compensation Committee: Earl Votaw and Stephen Huber
9
Stock Price Performance Graph
This section includes a line graph comparing the cumulative total
stockholder return on: our common stock against the cumulative total return of
the Russell 3000 Index and the specialty hospitals peer group ("Peer Group")
for the period of five fiscal years commencing August 30, 1996 and ending August
31, 2001. The graph and table assume that $100 was invested on August 30, 1996
in each of our common stock, the Russell 3000 Index and the Peer Group, and that
all dividends were reinvested. Our Peer Group consists of companies that we
believe are engaged in the same or similar business as Dynacq. The comparisons
shown in the graph below are based upon historical data. The stock price
performance shown in the graph below is not necessarily indicative of, nor
intended to forecast, the potential future performance of our common stock.
[CHART APPEARS HERE]
Cumulative Total Return
----------------------------------------------------------------
8/30/1996 8/29/1997 8/31/1998 8/31/1999 8/31/2000 8/31/2001
--------- --------- --------- --------- --------- ---------
Dynacq International, Inc. 100.00 61.11 52.78 178.48 397.24 1346.67
Peer Group 100.00 129.68 92.43 48.46 172.52 189.73
Russell 3000 100.00 138.37 143.22 196.16 233.75 174.29
10
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Under Rule 14a-8 of the Exchange Act, proposals that shareholders intend to
have included in our proxy statement and form of proxy for our next annual
meeting must be received no later than 120 days from the estimated mail-out date
for the proxy statement for our next annual meeting, which is scheduled for
February 2003. Moreover, with respect to any proposal by a shareholder not
seeking to have the proposal included in the proxy statement but seeking to have
the proposal considered at our next annual meeting, such shareholder must
provide written notice of such proposal to our Secretary at our principal
executive offices by no later than 45 days from the estimated mail-out date for
the proxy statement for our next annual meeting, which is scheduled for February
2003. With respect to a proposal not to be included in the proxy statement, in
the event notice is not timely given, the persons who are appointed as proxies
may exercise their discretionary voting authority with respect to such
proposals, if the proposal is considered at our next annual meeting, even if the
shareholders have not been advised of the proposal. In addition, shareholders
must comply in all respects with the rules and regulations of the Securities and
Exchange Commission then in effect and the procedural requirements of our
Bylaws.
ANNUAL REPORT
We have provided a copy of our Annual Report on Form 10-KSB with this proxy
statement. We will provide exhibits to the Annual Report on Form 10-KSB upon
payment of the reasonable expenses incurred by us in furnishing these exhibits.
Please send any such requests to Dynacq International, Inc., 4301 Vista,
Pasadena, Texas 77504, Attention: Corporate Secretary.
OTHER MATTERS
The Board knows of no other business to come before the Annual Meeting.
However, if any other matters are properly brought before the Annual Meeting,
the persons named in the accompanying form of proxy or their substitutes will
vote in their discretion on those matters.
By Order of the Board of Directors
/s/ Chiu Moon Chan
------------------------------------
CHIU MOON CHAN, Chief Executive Officer
and President
September 24, 2002
Pasadena, Texas
Whether or not you plan to attend the Annual Meeting, please complete, sign,
date, and promptly return the accompanying proxy in the enclosed envelope. You
may revoke your proxy at any time prior to the Annual Meeting. If you decide to
attend the Annual Meeting and wish to change your proxy vote, you may do so
automatically by voting in person at the meeting.
Thank you for your attention to this matter. Your prompt response will greatly
facilitate arrangements for the Annual Meeting.
11
Proxy
DYNACQ INTERNATIONAL, INC.
This Proxy is solicited on behalf of the Board of Directors
of Dynacq International, Inc. for the Annual Meeting of Shareholders
to be held on October 22, 2002
The undersigned shareholder of Dynacq International, Inc. (the "Company") hereby
appoints Chiu Moon Chan or Philip Chan, or either of them, proxies for the
undersigned, each with full power of substitution, to represent and to vote as
specified in this Proxy all the shares of common stock of the Company which the
undersigned would be entitled to vote at the Annual Meeting of Shareholders of
the Company to be held at 4301-B Vista, Pasadena, Texas, 77504, on October 22,
2002 at 9:30 a.m. Central time, and any and all adjournments or postponements
thereof, with all of the powers which the undersigned would possess if
personally present. The undersigned shareholder hereby revokes any proxy or
proxies heretofore executed for such matters.
This proxy, when properly executed, will be voted in the manner as directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE DIRECTOR NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 AND
IN THE DISCRETION OF THE PROXIES AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING. The undersigned shareholder may revoke this proxy at any
time before it is voted by delivering to the Corporate Secretary of the Company
either a written revocation of the proxy or a duly executed proxy bearing a
later date, or by appearing at the Annual Meeting and voting in person.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE DIRECTOR NOMINEES IN PROPOSAL
1 AND "FOR" PROPOSAL 2.
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE ENCLOSED RETURN
ENVELOPE
1. Election of Directors. The election of the nominees listed For All Withheld for All
below to serve on the Board of Directors until the next Annual
Meeting of Shareholders or until their respective successors are
duly elected and qualified. [_] [_]
Chiu Moon Chan, Philip Chan, Stephen L. Huber, Earl R. Votaw, and For all nominees except:
Ping S. Chu.
-------------------------------------
(write nominee(s) name)
2. To ratify the appointment of Ernst & Young LLP as the For Against Abstain
Company's independent accountants for the fiscal year ending August
31, 2002. [_] [_] [_]
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting, or any adjournment or
postponement thereof.
The undersigned hereby acknowledges receipt of the Notice of Meeting and Proxy
Statement.
DATED:
--------------------------- ----------------------------------
[Signature]
----------------------------------
[Signature if jointly held]
----------------------------------
[Printed Name]
Please date and sign exactly as your name(s) is (are) shown on the share
certificate(s) to which the Proxy applies. When shares are held as
joint-tenants, both should sign. When signing as an executor, administrator,
trustee, guardian, attorney-in fact, or other fiduciary, please give full title
as such. When signing as a corporation, please sign in full corporate name by
President or other authorized officer. When signing as a partnership, please
sign in partnership name by an authorized person.