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
January 13, 2003
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Dynacq International, Inc., which will be held on February 12, 2003, beginning
at 10:00 a.m., Central Time, at 4301 Vista Road, 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,
Chiu M. Chan
Chief Executive Officer & President
DYNACQ INTERNATIONAL, INC.
4301 VISTA ROAD
PASADENA, TEXAS 77504
-----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On February 12, 2003
-----------------------
The Annual Meeting of Shareholders of Dynacq International, Inc.
("Dynacq"), will be held at 4301 Vista Road, Pasadena, Texas, 77504, on February
12, 2003, at 10:00 a.m., Central Time, for the following purposes:
1. Election of Directors. To elect five directors to the Board of
Directors to serve until our next annual meeting of shareholders, or
until their respective successors are elected and qualified.
2. Ratification of Auditors. To ratify the appointment of Ernst & Young
LLP, as independent auditors for Dynacq for the fiscal year ending
August 31, 2003.
3. To transact any other business that may properly come before the
meeting.
Shareholders of record at the close of business on January 3, 2003, will be
entitled to notice of, and to vote at, this meeting.
By Order of the Board of Directors,
Chiu M. Chan
Chairman of the Board
Dated: January 13, 2003
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.
TABLE OF CONTENTS
ANNUAL MEETING OF SHAREHOLDERS ......................................... 1
VOTING RIGHTS AND SOLICITATION OF PROXIES .............................. 1
QUORUM REQUIRED ................................................... 1
VOTES REQUIRED .................................................... 1
Proposal 1 .................................................. 1
Proposal 2 .................................................. 1
PROXIES; REVOCABILITY OF PROXIES .................................. 2
COST OF SOLICITATION .............................................. 2
PROPOSAL 1 - ELECTION OF DIRECTORS ..................................... 2
DIRECTOR NOMINEES ................................................. 2
COMMITTEES OF THE BOARD AND ATTENDANCE ............................ 3
COMPENSATION OF DIRECTORS ......................................... 3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ......... 3
EXECUTIVE COMPENSATION AND RELATED PARTY MATTERS ....................... 4
EXECUTIVE COMPENSATION ............................................ 5
STOCK OPTIONS ..................................................... 5
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS ........... 5
LEGAL ACTIONS INVOLVING MANAGEMENT ................................ 6
COMPENSATION COMMITTEE REPORTS AND OTHER FILINGS ....................... 6
REPORT OF THE COMPENSATION COMMITTEE .............................. 6
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION ....... 7
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ........... 7
PROPOSAL 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS ......... 8
AUDIT COMMITTEE REPORT ................................................. 9
STOCK PRICE PERFORMANCE GRAPH .......................................... 9
SHAREHOLDER PROPOSALS
ANNUAL REPORT .......................................................... 11
OTHER MATTERS .......................................................... 11
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 its
Annual Meeting of Shareholders. Our Annual Meeting will be held at 4301 Vista
Road, Pasadena, Texas, 77504, at 10:00 a.m., Central Time, on February 12, 2003,
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, notice of Annual Meeting, proxy, and annual report on Form 10-K, were
mailed to shareholders on or about January 13, 2003. 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 January 3, 2003, the record date for determination of
shareholders entitled to vote at the Annual Meeting, there were 14,833,600
shares of common stock outstanding. Each shareholder of record on January 3,
2003 is entitled to one vote for each share of common stock held by the
shareholder 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 auditors for the fiscal year ending August 31, 2003 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.
1
Proxies; Revocability of Proxies
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.
Costs of Solicitation
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 M. Chan, age 50, 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 S. Chan, age 51, has served as a director and as our vice president
of 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 S. Chan is not
related to Chiu M. 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 74, 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,
2
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.
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, and held four meetings during the year. The Audit Committee, which is
governed by a written charter, 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 last 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 four Board meetings during the last 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 M. Chan and Philip S. Chan receive compensation only as
officers of Dynacq. Mr. Huber receives a consulting fee of $1,000 per month in
exchange for consultation services. 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 2001 and fiscal 2002.
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 December 16, 2002, 14,833,600 shares of our common stock were
outstanding. The following table sets forth, as of December 16, 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) 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
3
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.
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.
SHARES BENEFICIAL OWNED AS OF DECEMBER 16, 2002
-----------------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES(1) PERCENT OF CLASS
- ---------------- ---------------- ----------------
Chiu M. Chan (1) 8,490,550(2) 56.8%
Philip S. Chan 474,656(3) 3.2%
Stephen L. Huber 20,000(4) Less than 1%
Earl R. Votaw 38,300 Less than 1%
Ping S. Chu 195,024 1.3%
Sarah C. Garvin 121,867(5) Less than 1%
Irvin T. Gregory 113,867(6) Less than 1%
All current directors and executive officers as a group 9,454,264(7) 61.9%
(7 persons)
- -------------------
(1) Beneficial ownership is determined in accordance with SEC rules, and
includes shares of stock underlying outstanding options that are currently
exercisable or will become exercisable within 60 days of December 16, 2002.
(2) Includes 120,000 shares underlying an option, which is exercisable within
60 days of December 16, 2002. Mr. Chan's business address is 4301 Vista
Road, Pasadena, Texas 77504.
(3) Includes 140,000 shares underlying options, which is exercisable within 60
days of December 16, 2002.
(4) Consists of an option to purchase 20,000 shares of common stock, which is
exercisable within 60 days of December 16, 2002.
(5) Includes 104,000 shares underlying an option, which is exercisable within
60 days of December 16, 2002.
(6) Includes 58,466 shares underlying an option, which is exercisable within 60
days of December 16, 2002.
(7) Includes 442,466 shares underlying options, which are exercisable within 60
days of December 16, 2002.
EXECUTIVE COMPENSATION AND RELATED PARTY MATTERS
Executive Compensation
The following table contains compensation data for our named executive
officers for the fiscal years ended August 31, 2002, 2001, and 2000. As Ms.
Garvin and Mr. Gregory were not with the company during the fiscal year ended
August 31, 2000, no information for such year is provided for them.
4
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation (1) Awards
Name and ------------------------------- Securities
Principal Position Year Salary ($) Bonus ($) Underlying Options (#)
- ------------------ ------ ---------- --------- ----------------------
Chiu M. Chan, 2002 180,000 -- --
President and CEO 2001 180,000 -- 200,000 (2)
2000 152,507 50,000 --
Philip S. Chan, CFO 2002 180,000 -- --
2001 180,000 -- 220,000 (2)
2000 97,607 11,000 --
Sarah C. Garvin, COO 2002 180,000 -- --
2001 120,000 -- 200,000 (2)
Irvin T. Gregory, CDO 2002 180,000 -- --
2001 120,000 -- 200,000 (2)
- ---------------
(1) Excludes perquisites and other personal benefits unless such compensation
was greater than $50,000 or 10% of the total annual salary and bonus of the
individual.
(2) Represents individual option grants made in December 2000, with exercise
prices of $4.4375 per share, vesting as follows: (a) 60,000 shares in
December 2001, (b) 60,000 shares in December 2002, and (c) 80,000 shares in
December 2003. Mr. Philip S. Chan received an additional option grant for
20,000 shares.
Stock Options
During the fiscal year ended August 31, 2002, no stock options or stock
appreciation rights were issued to any of our named executive officers or to any
of our directors.
The following table sets forth information concerning option exercises
during the fiscal year ended August 31, 2002 and option holdings as of August
31, 2002 with respect to our named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End (#) Options at FY-End ($)
Shares Acquired Value --------------------------- -------------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable (1)
- ---- --------------- ------------ ----------- ------------- ----------- -----------------
Chiu M. Chan -- -- 60,000 140,000 681,750 1,590,750
Philip S. Chan -- -- 80,000 140,000 909,000 1,590,750
Sarah C. Garvin -- -- 60,000 140,000 681,750 1,590,750
Irvin T. Gregory 42,534 581,935 (2) 17,466 140,000 681,750 1,590,750
- ---------------
(1) Based on the fair market value of our common stock on August 30, 2002 of
$15.80 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
5
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, which are
discussed in the "Summary Compensation Table." 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 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.
Legal Actions Involving Management
In January 2002, Dynacq and two of its officers were named as defendants in
a shareholder class action lawsuit in the United States District Court for the
Southern District of Texas alleging violations of federal securities laws and
regulations. The putative class covers those persons who purchased our shares
between November 29, 1999 and January 16, 2002. The various complaints that have
been consolidated claim that we violated Sections 10(b) and 20(a) and Rule 10b-5
under the Securities Exchange Act of 1934 (the "Exchange Act") by making
materially false or misleading statements or omissions regarding revenues and
receivables and regarding whether our operations complied with various federal
regulations. The district court has consolidated these actions and appointed a
lead plaintiff in the matter. The lead plaintiff filed a consolidated amended
complaint on September 6, 2002. We anticipate moving to dismiss that
consolidated amended complaint. These actions are at an early stage, and no
discovery has taken place at this time. We intend to defend these claims
vigorously.
In March 2002, we accepted service of a shareholder derivative action
brought in the 295th District Court of Harris County, Texas brought on behalf of
Dynacq against its officers and directors, outside auditor, and investment bank,
and two analysts affiliated with that investment bank. The suit alleges breach
of fiduciary duty, aiding and abetting breach of fiduciary duty, negligence and
breach of contract. Plaintiff makes general allegations of the defendants'
alleged misconduct in "(i) causing or allowing the Company to conduct its
business in an unsafe, imprudent and unlawful manner; (ii) failing to implement
and maintain an adequate internal control system; and (iii) exposing Dynacq to
enormous losses," including allegations that various press releases and/or
public statements issued between January 1999 and January 2002 were misleading.
Plaintiffs further allege sales by our insiders while in possession of material
non-public information. The plaintiffs made no demand on either Dynacq or its
Board of Directors prior to filing suit. A separate action was brought in United
States District Court for the Southern District of Texas making similar
allegations in federal court against only officers and directors of Dynacq. The
plaintiff in this action also did not make a demand on us prior to filing suit.
Another derivative suit making similar allegations was filed in 152nd District
Court of Harris County, Texas; however, at the plaintiff's request, the Court
dismissed that action.
The Board of Directors has appointed a Special Litigation Committee to
conduct an investigation and make a determination as to how Dynacq should
proceed on the claims asserted in the state-court shareholder derivative case.
The state district court has stayed the case until February 17, 2003 pending the
Special Litigation Committee's investigation. On November 12, 2002, the federal
district court presiding over the shareholder derivative action filed there
stayed that action pending conclusion of the shareholder class action lawsuit.
COMPENSATION COMMITTEE REPORT AND OTHER FILINGS
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
6
Committee may review 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. For the fiscal year ended August 31, 2002, Mr. Chan's salary was $180,000,
which was the same salary he received during the fiscal year ended August 31,
2001. Mr. Chan received no bonuses or other equity compensation during the
fiscal year ended August 31, 2002.
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
Compensation Committee Interlocks and Insider Participation
Our Compensation Committee for the fiscal year ended August 31, 2002
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. No
member of the Compensation Committee has been an officer or employee of Dynacq,
or any of our subsidiaries or affiliates. None of our executive officers or
Board members has served on a compensation committee for any other company.
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, 2002, except: (a) Mr. Votaw was late in reporting transactions on
five Form 4s, which were reported on a Form 5 filed in January 2002, which was
amended in February 2002; (b) Mr. Chiu M. Chan was late in reporting
transactions by his spouse on six Form 4s and in reporting transactions on two
Form 5s, all of which were reported on a Form 5 filed in January 2002; and (c)
Mr. Philip S. Chan was late in reporting transactions by his spouse on three
Form 4s and in reporting transactions on five Form 4s and one Form 5, all of
which were reported on a Form 5 filed in January 2002.
7
PROPOSAL 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
On May 30, 2002, we dismissed KenWood & Associates, PC ("KenWood") as our
independent auditors, which audited our financial statements for the fiscal year
ended August 31, 2001, and engaged Ernst & Young LLP ("Ernst & Young") as our
independent auditors for the fiscal year ended August 31, 2002.
The Board has selected Ernst & Young as our independent auditors for the
fiscal year ending August 31, 2003, at the recommendation of our Audit
Committee, subject to shareholder approval. In the event that ratification of
this selection of auditors is not approved by our shareholders, management and
the Board will review their future selection of auditors.
We expect that a representative of Ernst & Young will attend the Annual
Meeting, and the representative will have an opportunity to make a statement if
she or he so desires. The representative will also be available to respond to
appropriate questions from shareholders.
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 of
KenWood's dismissal, 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 Ernst & Young for professional services
rendered for the audit of our annual financial statements for the fiscal year
ended August 31, 2002 and the review of the financial statements included in our
quarterly report for the fiscal quarter ended May 31, 2002 was $228,000. During
the year, KenWood provided professional services in connection with the reviews
of the financial statements included in our quarterly reports for the periods
ended November 30, 2001 and February 28, 2002, and the aggregate fees billed by
KenWood for such services was $54,400.
Financial Information Systems Design and Implementation Fees
Neither Ernst & Young, nor KenWood rendered professional services to us for
information technology services relating to financial information systems design
and implementation for the fiscal year ended August 31, 2002.
All Other Fees
KenWood did not render any other services other than the services described
above under "Audit Fees," for the fiscal year ended August 31, 2002. Ernst &
Young provided other non-audit related services for the fiscal year ended August
31, 2002, and the aggregate fees billed for such services was $135,700.
Our Audit Committee reviews audit and non-audit services performed by Ernst
& Young, as well as the fees charged by Ernst & Young for such services. In its
review of non-audit services, the committee considers, among other items, the
possible effect of the performance of such services on Ernst & Young's
independence.
8
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, 2003.
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 auditors. 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.
Management is responsible for the company's internal controls. The
independent auditors for the company, for the fiscal year ended August 31, 2002,
Ernst & Young LLP ("Ernst & Young"), 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 Ernst & Young.
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 Ernst & Young, nor can the Audit Committee certify that Ernst
& Young 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 Ernst & Young. 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 Ernst
& Young. The Audit Committee discussed with Ernst & Young matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
Ernst & Young 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 Ernst
& Young their independence.
Based upon the Audit Committee's discussion with management and Ernst &
Young and the Audit Committee's review of the representations of management and
the report of Ernst & Young 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-K for the year ended August 31, 2002 filed with the Securities
and Exchange Commission.
Submitted by the Audit Committee of the Board of Directors of Dynacq
International, Inc.:
Stephen L. Huber Earl R. Votaw Ping S. Chu
STOCK PRICE PERFORMANCE GRAPH
This section includes a line graph comparing the cumulative total
shareholder 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 29, 1997 and ending August 31,
2002. The graph and table assume that $100 was invested on August 29, 1997 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
9
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]
FISCAL YEAR ENDING
---------------------------------------------------------------------------
August 29, August 31, August 31, August 31, August 31, August 30,
COMPANY/INDEX/MARKET 1997 1998 1999 2000 2001 2002
- -------------------- ---------- ---------- ---------- ---------- ---------- ----------
Dynacq Internet Inc. 100.00 86.37 292.06 650.04 2,203.64 2,298.18
Specialty Hospitals, Exc Psych 100.00 71.28 37.37 133.04 146.31 95.45
Russell 3000 Index 100.00 103.51 141.77 168.93 125.96 102.65
10
SHAREHOLDER PROPOSALS
Under Rule 14a-8 of the Exchange Act, proposals that shareholders wish to
have included in our proxy statement and form of proxy for our next annual
meeting must be received no later than September 12, 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
November 26, 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 SEC and the procedural requirements of our Bylaws.
ANNUAL REPORT
We have provided a copy of our Annual Report on Form 10-K with this proxy
statement. We will provide you with any exhibits to the Annual Report upon
payment of the reasonable expenses incurred by us in furnishing the exhibits.
Please send any such requests to Dynacq International, Inc., 4301 Vista Road,
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
CHIU M. CHAN, Chairman of the Board
January 13, 2003
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
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
February 12, 2003
The undersigned shareholder of Dynacq International, Inc. (the "Company") hereby
appoints Chiu M. Chan or Philip S. 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 Vista, Pasadena, Texas, 77504, on February 12,
2003 at 10:00 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 For All Withheld for All
nominees listed 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. For all nominees except:
Chiu M. Chan, Philip S. Chan, Stephen L. -------------------------------------
Huber, Earl R. Votaw, and Ping S. Chu. (write nominee(s) name)
2. Appointment of Auditors. To ratify the For Against Abstain
appointment of Ernst & Young LLP as the [_] [_] [_]
Company's independent auditors for the
fiscal year ending August 31, 2003.
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.