As filed with The Securities and Exchange Commission on November 26, 1997
Registration No. 333-13103
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3 TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------
AVALON COMMUNITY SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
----------------
Nevada 8999 13-3592263
(State of Incorporation (Primary Standard Industrial (I.R.S. Employer
or Organization) Classification Code No.) Identification No.)
13401 Railway Drive
Oklahoma City, Oklahoma 73114
(405) 752-8802
(Address, including zip code and telephone number,
including area code, of Registrant's principal executive office)
DONALD E. SMITH With Copies To:
Chief Executive Officer Mark A. Robertson, Esq.
AVALON COMMUNITY SERVICES, INC. Robertson & Williams
13401 Railway Drive 3033 N.W. 63rd Street, Suite 160
Oklahoma City, OK 73114 Oklahoma City, OK 73116
(405) 752-8802 (405) 848-1944
(Name, address, including zip code and telephone number,
including area code, of agent for service)
<TABLE>
<CAPTION>
Calculation of Registration Fee
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to Be Registered be Registered Per Share Offering Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock (1) 1,000,000 $ 1.50 1,500,000.00 $ 517.24
Common Stock 50,000 $ 5.125 256,250.00 88.36
Placement Agent Warrant Common Stock (1) 100,000 $ 1.50 150,000.00 51.72
Common Stock on Exercise of Warrants (1) 100,000 $ 3.33 350,000.00 120.69
Common Stock Purchase Warrants Series B (1) 275,100 $ 0.01 2,751.00 0.95
Common Stock on Exercise of Warrants (1) 275,100 $ 5.50 1,650,600.00 569.17
Common Stock Purchase Warrants Series C (1) 623,000 $ 0.01 6,230.00 2.15
Common Stock on Exercise of Warrants (1) 623,000 $ 3.33 2,180,500.00 751.90
Common Stock Purchase Warrants Series C 165,000 $ 0.01 1,650.00 0.57
Common Stock on Exercise of Warrants 165,000 $ 3.33 577,500.00 199.14
Common Stock Purchase Warrants Series D 200,000 $ 0.01 2,000.00 0.69
Common Stock on Exercise of Warrants 200,000 $ 5.125 1,025,000.00 353.45
Registration Fee (2) $2,656.03
======================================== ==================================================================
<FN>
(1) Shares being carried forward from previous registration statement.
(2) Paid with previous registrations.
</FN>
</TABLE>
Pursuant to Rule 429 (b), the Registrant has combined the Prospectus combined
the Prospectus with the with the Prospectus in Form SB-2,
Registration Number 33-83932
<TABLE>
<CAPTION>
AVALON COMMUNITY SERVICES, INC.
CROSS REFERENCE SHEET
Showing Location in Prospectus,
Filed as Part of Registration Statement, of
Information Required by Form S-2
Item Number
in Form S-2 Item Caption in Form S-2 Location in Prospectus
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus........................... Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus................................ Back Cover Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges................... Summary of Prospectus; Risk
Factors
4. Use of Proceeds............................................. Use of Proceeds
5. Determination of Offering Price............................. Front Cover Page
6. Dilution . . . ............................................. Not Applicable
7. Selling Security Holders.................................... Selling Security Holders
8. Plan of Distribution........................................ Front Cover Page; Plan of
Distribution
9. Description of the Securities to be Registered ............. Summary of Prospectus;
Description of Securities
10. Interest of Named Experts and Counsel....................... Not Applicable
11. Information with Respect to the Registrant.................. Incorporation of Certain Documents
by Reference
12. Incorporation of Certain Information
by Reference............................................. Incorporation of Certain Documents
by Reference
13. Disclosure of Commission Position on Indemni-
fication for Securities Act Liabilities.................. Part II of Registration Statement
14. Other Expenses of Issuance and
Distribution............................................. Part II of Registration Statement
15. Indemnification of Directors and Officers................... Part II of Registration Statement
16. Exhibits.................................................... Exhibits to Registration Statement
17. Undertakings................................................ Part II of Registration Statement
18. Financial Statements and Schedules.......................... Incorporation of Certain Documents
by Reference
</TABLE>
AMENDED
PROSPECTUS
AVALON COMMUNITY SERVICES, INC.
1,513,100 Shares of Common Stock
525,000 Redeemable Common Stock Purchase Warrants
Of the 1,513,100 shares of Common Stock (the "Common Stock") and the 525,000
Redeemable Common Stock Purchase Warrants (the "Warrants") of Avalon Community
Services, Inc. (the "Company") offered hereby, 325,000 Class C Warrants, 200,000
Class D Warrants and 50,000 shares of Common Stock are being sold by certain
security holders of the Company. In addition, 100,000 shares of Common Stock and
100,000 Class C Warrants are reserved for issuance by the Company to Westminster
Securities Corporation and its permitted assigns ("Westminster") upon the
exercise by Westminster of a warrant previously issued by the Company to
Westminster. Upon issuance, the resale by Westminster of such shares and
Warrants is registered hereby. Of the 1,513,000 shares of Common Stock offered
hereby, the Common Stock underlying 623,000 Class C Warrants, and 100,000 Class
C Warrants reserved for Westminster, were issued pursuant to a private placement
dated May 19, 1994 under Regulation D, Rule 506, and 165,000 Class C Warrants
were issued in a private issuance dated May 31, 1996, under a Section 4(2)
Exemption, and 200,000 Class D Warrants were issued pursuant to a private
placement dated August 2, 1996 under a Section 4(2) Exemption.. Except for the
50,000 shares of Common Stock held by certain security holders of the Company ,
and except for the 100,000 shares of Common Stock reserved for issuance to
Westminster, (the Selling Shareholders), the remaining balance of 1,363,100
shares of Common Stock are issuable by the Company upon the exercise of the
Warrants. Unless the context otherwise requires, the holders of the Common Stock
and Warrants who are selling securities hereunder are hereinafter collectively
referred to as the "Selling Shareholders." The Company will not receive any
proceeds from the sale of the Common Stock or the Warrants by the Selling
Shareholders. See "Selling Shareholders," "Plan of Distribution" and "Use of
Proceeds."
The Company's Common Stock is listed on the NASDAQ SmallCap Market System
under the symbol "CITY." The average of the bid and asked price for the Common
Stock, as reported on the NASDAQ SmallCap Market System, was $4.75 per share on
November 18, 1997. There is no established trading market for the Warrants.
INVESTMENT IN THE SECURITIES IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. See "RISK FACTORS"on page 5 of this prospectus for information that should
be considered by each prospective investor.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Selling Proceeds to
Public Commissions Shareholders Company(1)
- --------------------------------------------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Offering by Selling Shareholders(2) See Text See Text See Text See Text
Per share................................. Note (2) Note (2) Note (2) Note (2)
Per warrant...............................
Offering by Company:(3)
Per Share from Placement Agent
Warrant................................... $1.50 $-0- $-0- $1.50
Offering Price per Share of $6.00 (B) $-0- $-0- $6.00 (B)
Common Stock Underlying $3.33 (C) $-0- $-0- $3.33 (C)
Warrants(4)............................... $5.125 (D) $-0- $-0- $5.125 (D)
-------------- -------------- ----------- ---------------
Total................................... $5,782,640.00 $-0- $-0- $5,782,640.00
============================================ ============== ============== =========== ===============
<FN>
(1) Before deducting expenses payable by the Company and Selling Shareholders, which are estimated at $50,000 and before the
payment of any Warrant solicitation fees due on the Class C Warrants to Westminster Securities of 5% of the exercise price,
estimated at $179,000.
(2) The Selling Shareholders have advised the Company that they propose to offer for sale and to sell the Warrants from time to
time during the next 12 months through brokers in the over-the-counter market, in private transactions, or otherwise, at market
prices then prevailing or obtainable. Accordingly, sales prices and proceeds to the Selling Shareholders will depend upon price
fluctuations and the manner of sale. If the Warrants are sold through brokers, the Selling Shareholders will pay brokerage
commissions and other charges (which compensation as to a particular broker-dealer might be in excess of customary
commissions). Except for the payment of such brokerage commissions and charges, their share of the offering expenses and the
legal fees, if any, of the Selling Shareholders, the Company will bear the balance of all expenses in connection with
registering the securities offered hereby. Such expenses are estimated to total approximately $50,000. See "Plan of
Distribution."
(3) The offering of Common Stock by the Company is adjusted to reduce the number of shares sold by the Company and correspondingly
increase the number of shares offered by Selling Shareholders by the number of shares issued to Class C Warrant holders who
acquired such Warrants as a part of the original private placement of such Warrants. The exercise of such Warrants by the
original holders would be considered a part of the original private placement and not registered hereby. In such case, the
resale of the Common Stock by these holders is being registered for sale by Selling Shareholders hereby.
(4) Classified by B, C and D Warrants.
</FN>
</TABLE>
This Prospectus also relates to such additional securities as may be issued to
the Selling Shareholders and Westminster because of future stock dividends,
stock distributions, stock splits or similar capital readjustments.
The date of this Amended Prospectus is November 26, 1997.
AVAILABLE INFORMATION
The Company is subject to certain informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act") and, in accordance therewith, files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copies at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can also
be obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549.
The Company has originally filed with the Securities and Exchange Commission
Registration Statements on Form S-2, Registration Number 333-13103, filed
September 30, 1996 and Form SB-2, Registration Number 33-83932, filed September
13, 1994, under the Securities Act of 1933, which Registration Statements have
been amended from time to time. This Prospectus, filed as a part of the
Registration Statements, does not contain information set forth in or annexed as
exhibits to the Registration Statements, and reference is made to such exhibits
to the Registration Statements for the complete text thereof. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statements and to the exhibits filed as
part thereof, which may be inspected at the office of the Commission without
charge. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company, and the address is
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(A) Annual Report filed on Form 10-KSB for the fiscal year ended December
31, 1996 (File No. 0-20307),
(B) Quarterly Report on Form 10-QSB for the fiscal quarters ended March
31, 1997, June 30, 1997, and September 30, 1997.
(C) Form 8-K and 8-K/A filed on March 4, 1997 and March 19, 1997,
respectively,
(D) Information Statement for Annual Meeting of Stockholders held May 27,
1997.
(E) Form 8-K filed on October 17, 1997.
This prospectus is accompanied by a copy of the Company's last Form 10-KSB.
The Company undertakes to provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information which have been or may be incorporated in this
Prospectus by reference but not delivered herewith, except for certain exhibits
to such documents. Requests for such information should be directed to
Treasurer, Avalon Community Services, Inc. 13401 Railway Drive, Oklahoma City,
Oklahoma 73114, telephone number (405) 752-8802.
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this Prospectus
and is qualified in its entirety by the detailed information and Consolidated
Financial Statements (including the Notes thereto) appearing elsewhere in this
Prospectus or incorporated by reference. Each prospective investor is urged to
read this Prospectus in its entirety.
The Company
Avalon Community Services, Inc. ("Avalon" or the "Company") is an Oklahoma
based corporation owning and operating private correctional services. Avalon
specializes in privatized community correctional facilities and intensive
correctional programming. Avalon is currently operating in Oklahoma, Texas,
Missouri, and Nebraska with plans to significantly expand into additional states
throughout the Southwest. Avalon's business strategy is designed to escalate
Avalon into a dominant role as a provider of community correctional services on
a regional basis, by expanding its operations through new state contracts and
selective acquisitions, in order to capitalize on current rapid growth trends in
the privatized corrections industry. Avalon owns a 250-bed minimum security
facility in Oklahoma, a 255-bed minimum security facility in Tulsa, Oklahoma,
and a 144-bed medium security facility in El Paso, Texas, utilized as a
intermediate sanction facility. Avalon provides substance abuse treatment
services for inmates in Nebraska and Missouri. The Company announced an
agreement to acquire a 150-bed adult residential community corrections facility
in Tulsa, Oklahoma.
The Offering
Securities Offered by
Company........................ Up to 1,363,100 shares of Common Stock
upon the exercise of all outstanding
Warrants.
Securities Offered by Selling
Securities Holders ............ 325,000 Class C Warrants and 200,000
Class D Warrants, plus any shares of
Common Stock issued pursuant to the
exercise of Class C and Class D Warrants
by any persons who acquired the Warrants
in the original private placement of
such Warrants or by the placement agent
upon its exercise of its placement agent
warrant. The Class A Warrants previously
registered have expired. 100,000 shares
of Common Stock and 100,000 Class C
Warrants are issuable pursuant to and
upon the exercise of a placement agent's
warrant agreement. Said warrants are
included in the 325,000 Class C Warrants
listed above.
Terms of Warrants................ Each Class B Warrant Will Entitle The
Holder To Purchase One Share Of Common
Stock At A Price Of $6.00 Per Share,
Subject To Certain Adjustments. The
Warrants Are Exercisable At Any Time
Until Their Expiration In March, 1999.
The Warrants Are Subject To Redemption
By The Company At A Price Of $0.01 Per
Warrant Upon The Satisfaction Of Certain
Conditions. See "Description Of
Securities -- Warrants."
Each Class C Warrant will entitle the
holder to purchase one share of Common
Stock at a price of $3.33 per share,
subject to certain adjustments. The
Warrants are exercisable at any time
until their expiration in December,
1999. The Warrants are subject to
redemption by the Company at a price of
$0.01 per Warrant upon the satisfaction
of certain conditions. See "DESCRIPTION
OF SECURITIES -- Warrants."
Each Class D Warrant will entitle the
holder to purchase one share of Common
Stock at a price of $5.125 per share,
subject to certain adjustments. The
Warrants are exercisable at any time
until their expiration in August, 2001.
The Warrants are subject to redemption
by the Company at a price of $0.01 per
Warrant upon the satisfaction of certain
conditions. See "DESCRIPTION OF
SECURITIES -- Warrants."
Common Stock Outstanding
prior to this Offering......... 2,929,650 Class A shares.
Common Stock Outstanding
after this Offering............ 4,392,750 Class A shares if all
outstanding warrants are exercised.
Use of Proceeds ................. The proceeds of this offering may be
used by the Company to fund new
projects, expand existing operations,
retire existing indebtedness, for
working capital and general corporate
purposes. See "USE OF PROCEEDS."
Risk Factors..................... An investment in the Company involves
certain risks, including operational
risks associated with the various
businesses owned by the Company,
dependence on key individuals,
competition, the risk of illiquidity and
other risks as more fully set forth
under "RISK FACTORS."
NASDAQ Symbol.................... "CITY" on the NASDAQ Small Cap Market
System.
<TABLE>
<CAPTION>
Summary Financial Data
Nine Months
Year Ended Ended
December 31, September 30,
----------------------------- --------------
1995 1996 1997
------------- ----------- --------------
Statement of Operations Data: (Reclassified) (Unaudited)
<S> <C> <C> <C>
Revenues From Continuing Operations................. $2,119,123 $3,312,687 $4,025,972
Income (Loss) From Continuing Operations............ (3,460) (59,787) (1,831,302)
Income (Loss) From Continuing Operations
Per Common Share.................................. 0.00 (0.02) (0.62)
Income (Loss) From Discontinued Operations.......... (81,380) (973,906) (57,863)
Income (Loss) From Discontinued Operations
Per Common Share.................................. (0.03) (0.36) (.02)
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
---------------------- ---------------
1995 1996 1997
------------ ------------ ---------------
Balance Sheet Data: (Unaudited)
<S> <C> <C> <C>
Total Assets........................................ $6,450,199 $9,523,525 $13,588,682
Long-Term Debt,
less Current Maturities........................... 3,449,275 5,861,514 5,179,681
Stockholder's Equity................................ 2,340,826 2,695,477 2,649,558
</TABLE>
RISK FACTORS
An investment in the Company is speculative and involves a high degree of
risk. Prior to making an investment, prospective investors should carefully
consider the following risk factors inherent in and affecting the business of
the Company and this offering.
Limited Customer Base; No Commitment for Minimum Number of Inmate Referrals;
Uncertainty of Future Contracts. Approximately 90% percent of the Company's
business is derived from contracts with the Oklahoma Department of Corrections
("ODOC") relating to the Company's private correctional facilities in Oklahoma
City ("Carver Center") and Tulsa ("Avalon Correctional Center") and contracts
with West Texas Community Supervision and Corrections Department and Texas
Department of Criminal Justice, Parole Division, relating to the Company's
correctional facility in El Paso, Texas ("El Paso Intermediate Sanction
Facility"). The Company's contracts do not specify a commitment to send a
minimum number of inmates to the Company's private correctional facilities.
There is no guarantee that government funds will continue to be available for
the housing of inmates in halfway houses or that the various states will not
find an alternate means of alleviating prison overcrowding without the use of
outside contractors such as the Company. The Company's private correctional
operations are dependent upon the continuation of its existing contractual
relationships with the various states, as to which no guarantees can be given.
The Company's contracts have been from one year renewable contracts to fifteen
year contracts. Further, there is no guarantee that the various states will
contract for any particular number of beds during the term of any contract. The
Company would have no recourse in the event that funding for the types of
services rendered to inmates be decreased or even discontinued by the various
states, which would result in termination of the Company's existing contracts.
Significant Government Regulation: Oversight, Audits and Investigations. The
Company's business is highly regulated by a variety of governmental authorities
such as the ODOC, the Oklahoma Department of Mental Health and Substance Abuse
Services, West Texas Community Supervision and Corrections Department, Texas
Department of Criminal Justice, Parole Department, Nebraska Department of
Correctional Services, Missouri Department of Corrections, and various municipal
zoning authorities, with oversight occurring continuously. Failure by the
Company to comply with contract terms or applicable regulations could expose it
to substantial penalties, such as a reduction in population, resulting in
substantial reduction in revenue. Continued noncompliance can result in contract
cancellation. In addition, changes in existing regulations could require the
Company to modify substantially the manner in which it conducts business and,
therefore, could have a material adverse effect on the Company.
Additionally, the Company's contracts give the contracting agency the right to
conduct audits of the facilities and operations managed by the Company for the
agency, and such audits occur routinely. An audit involves a governmental
agency's review of the Company's compliance with the prescribed policies and
procedures established with respect to the facility. Further, the Company may be
subject to investigations as a result of an audit, an inmate's complaint or
other causes.
Lack of Acceptance of Privatized Correctional and Detention Facilities.
Management of correctional and detention facilities by private entities has not
achieved complete acceptance by either governments or the public. Some sectors
of the Federal government and some state governments are legally unable to
delegate their traditional management responsibilities for correctional and
detention facilities to private companies. The operation of correctional and
detention facilities by private entities is a relatively new concept and is not
widely understood by the public and has encountered resistance from certain
groups, such as labor unions, local sheriffs departments, and groups that
believe that correctional and detention facility operations should only be
conducted by governmental agencies. Moreover, changes in dominant political
parties in any of the markets in which the Company operates could result in
significant changes to previously established views of privatization in such
market.
Requirements of Accreditation; Inspection and Risk of Loss of Accreditation.
In order to maintain its existing contracts with agencies of the State of
Oklahoma, the Company must remain accredited by the American Correctional
Association (the "ACA"), a not-for-profit organization which has developed
uniformity and industry standards for inmate care and operations of correctional
facilities and agencies. Accreditation involves a very extensive audit and
compliance procedure, and is generally granted for a three-year period. Carver
Center has been accredited since 1990 and the current accreditation expires in
1999. Avalon Correctional Center was accredited in 1996 and is accredited
through 2000. Management is not aware of any facts or circumstances which might
impair or jeopardize accreditation or reaccreditation. In addition to the ACA
accreditation, the Company must undergo periodic inspections of its premises by
agencies of the various states, as well as annual inspections by the City and
State Fire Marshal's Office.
Working Capital Requirements; Need for Additional Financing. The Company may
require additional capital to finance its operations and continued growth. There
can be no assurance that the Company will be able to obtain such working capital
or financing if and when needed, or that if obtained, it will be sufficient or
on terms and conditions acceptable to the Company. Under the terms of certain
debt agreement, the Company is limited to a leverage of 75% of total cost of any
acquisition.
Broad Discretion as to Use of Proceeds. Due to the contingent nature of the
exercise of the Warrants, it is impossible to determine at this time what
specific projects or uses would be made of the funds. The net proceeds may be
used to fund new projects, expand existing operations, retire indebtedness or
for working capital and other general corporate purposes. Management will have
broad discretion with respect to the expenditure of such funds. See "USE OF
PROCEEDS."
Potential Legal Liability. The Company's management of correctional facilities
exposes it to potential third-party claims or litigation by prisoners, or other
persons for personal injury or other damage resulting from contact with Company-
managed facilities, programs, personnel or prisoners, including damages arising
from a prisoner's escape or from a disturbance or riot at a Company-managed
facility. The Company participates in an insurance program that provides
coverage for certain liability risks faced by the Company, including accident
and personal injury and bodily injury or property damage to a third party where
the Company is found to be negligent. There can be no assurance, however, that
the Company's insurance will be adequate to cover all potential third-party
claims.
Adverse Publicity. The Company's business is subject to public scrutiny . Any
disturbances at a Company-managed facility or another privately-managed facility
may result in publicity adverse to the Company and the industry in which it
operates, which could materially adversely affect the Company's business.
Non-Arm's Length Transactions. The Company and its subsidiaries have engaged
in transactions with its Chief Executive Officer and principal stockholder which
may be considered as not having occurred at arm's length. While, the terms of
such transactions may not have been on an arms-length basis, the Company
believes that such terms are at least as favorable as with unrelated third
parties. No guarantee can be given, however, that the Company will not engage in
any non- arm's length transactions with its officers and directors in the
future.
Dependence on Key Personnel; No Key Man Insurance. The Company is heavily
dependent upon its officers and directors for its continued operation, and in
particular on its Chief Executive Officer, Donald E. Smith. The loss of Mr.
Smith's services could have a serious impact on the operation of the Company's
business. While the Company currently pays the premiums on a policy of life
insurance pertaining to Mr. Smith, the beneficiary of the policy is a banking
institution which is a lender to the Company. The Company is currently
evaluating the need to purchase a policy of key-man life insurance pertaining to
Mr. Smith.
Employment Contracts. The Company has entered into a written employment
agreement with two of its executive officers, its Chief Executive Officer,
Donald E. Smith , and its President, Jerry Sunderland. Both contracts are for a
three-year term and commenced in August, 1997, providing for a first-year salary
of $85,000 and subsequent-year salaries to be determined by the Board of
Directors of the Company. The agreement also contains provisions for severance
pay and disability payments, as well as a non-compete agreement preventing them
from engaging in a business deemed similar to that of the Company for a period
of two years from the cessation of their employment. The Company's other
officers and directors are employed by the Company pursuant to verbal
agreements.
Competition. A number of other corporations operate private correctional
facilities in the same geographic region as the Company, and still others
compete directly with the Company for contracts with state agencies. While the
Company believes that it has certain advantages in competing for state
contracts, some of the companies eligible to compete may have longer operating
histories and greater financial resources available to them. Since the award of
state contracts is pursuant to competitive bidding, it is possible that the
greater financial resources of the companies eligible to compete might enable
them to underbid the Company for such contracts.
Continued Control by Donald Smith. The Company's Chief Executive Officer,
Donald E. Smith, controls the Company through his ownership of 1,054,000 shares
of Common Stock which is approximately 36% of all Common Stock presently
outstanding. An additional 750,000 warrants may be issued to Mr. Smith upon his
guarantee of Company obligations which would further increase his voting
percentage, if exercised. See "DESCRIPTION OF SECURITIES -- Warrants."
Corporate Action Possible Without Stockholder Vote. Pursuant to Nevada
corporate statutes, the holders of a majority of the Company's Common Stock may
authorize or take corporate action without notice to or the consent of the
stockholders. The Company's minority stockholders may not have the opportunity
to approve or consent to the Company's involvement in an acquisition or other
transaction, or to the terms of such transaction. A shareholder vote may not be
made available, and in any event, such a shareholder vote would be controlled by
the majority stockholder.
Large Amount of Authorized But Unissued Shares. It is also possible that the
Company could issue additional shares of its common stock in the future to
finance the acquisition of businesses or properties. The Company's Articles of
Incorporation authorize the issuance of 24,000,000 shares of common stock (both
Common Stock and Class B Common Stock) and 1,000,000 of preferred stock, of
which 2,929,650 shares of common stock were issued and outstanding on the date
of the Prospectus. Additional shares might be issued without shareholder
approval which could have a dilutive effect on the current shareholders. On the
date of the Prospectus there were no commitments or understandings of any kind
pertaining to the Company's acquisition of businesses or properties, or the
issuance of additional shares other than as disclosed in the Prospectus. See
"DESCRIPTION OF SECURITIES".
No Dividends. The Company has never paid cash dividends on its Common Stock
and has no plans to pay cash dividends in the foreseeable future. The policy of
the Company's Board of Directors is to retain all available earnings for use in
the operation and expansion of the Company's business. Therefore, this
investment is not appropriate for investors seeking income. See "DIVIDEND
POLICY."
Non-Registration in Certain Jurisdictions of Shares Underlying the Warrants.
The Warrants registered in this Offering are not exercisable unless, at the time
of exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Warrants and such shares have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the exercising holder of the Warrants. Although the
Company will use its best efforts to have all the shares of Common Stock
issuable upon the exercise of the Warrants registered or qualified on or before
the exercise date and to maintain a current prospectus relating thereto until
the expiration of the Warrants, there is no assurance that it will be able to do
so. In this event, the Company would be unable to issue shares to those persons
desiring to exercise their Warrants unless and until the shares and Warrants
could be qualified for sale in jurisdictions in which such purchasers reside, or
an exemption from such qualification exists in such jurisdictions, and Warrant
holders would have no choice but to attempt to sell the Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "DESCRIPTION OF SECURITIES -- Warrants."
Shares Eligible for Future Sale. A substantial portion (1,107,830 shares) of
the Company's currently issued and outstanding shares of common stock are
"restricted" securities. Restricted securities may be sold only upon compliance
with Rule 144 adopted under the Securities Act of 1933 as amended, or pursuant
to a registration statement filed under the Act. Generally speaking, Rule 144
provides that a person must hold restricted securities for a period of one year,
and may then sell those securities in unsolicited brokerage transactions or in
transactions with a market maker. The holder may sell an amount equal to one
percent of the Company's outstanding common stock every three months or the
average weekly reported volume of trading during the four calendar weeks
preceding the filing of a Notice of Proposed Sale, whichever is greater. To
comply with Rule 144, an issuer must make available adequate current public
information with respect to the issuer. Under certain circumstances, the sale of
shares by a person who has satisfied a three year holding period is permitted
without any quantity limitation and whether or not there is adequate public
information available. Any such sales will likely have a depressive effect on
the market price of the Company's Common Stock.
Redemption of Warrants. The Class B Warrants are subject to redemption at
$0.01 per Warrant upon 30 days written notice if a registration statement
covering the Warrants and the underlying Common Stock is effective. Class C and
Class D Warrants are subject to redemption at $0.01 per Warrant on 30 days
written notice if a registration statement covering said Warrants is in effect
and if the bid price of the Common Stock, for a period of 30 consecutive trading
days prior to the notice of redemption, equals or exceeds $5.00 per share for
Class C Warrants and $6.00 per share for Class D Warrants. A Registration
Statement of the Company covering the Warrants and the shares of Common Stock
issuable upon the exercise of the Warrants is current at all times during the
30-day notice period and for the 30 days immediately preceding the notice
period. In the event the Company exercises the right to redeem the Warrants,
such Warrants would be exercisable until the close of business on the date fixed
for redemption in such notice. If any Warrant called for redemption is not
exercised by such date, it will cease to be exercisable and the holder will be
entitled only to the redemption price. See "DESCRIPTION OF SECURITIES --
Warrants."
Effect of Warrants. The holders of the Company's outstanding Warrants have the
opportunity to profit from a rise in the market value of the Common Stock of the
Company, if any, at the expense of the holders of Common Stock. A Warrant holder
may be expected to exercise Warrants at a time when the Company, in all
likelihood, would be able to obtain equity capital, if it so desired, by a
public sale of new Common Stock on terms more favorable than those provided in
the Warrants. Exercise of the Warrants could dilute the equity interest of other
stockholders in the Company. See "DESCRIPTION OF SECURITIES -- Warrants."
Illiquidity. Although the Company's Common Stock is publicly traded, the
trading is very thin and may not be an indication of the value of the Common
Stock. There is presently no established trading market for the Warrants. While
there are several securities broker-dealers making a market in the Company's
Common Stock, there is no assurance that a public market for the Company's
securities will continue to be made.
Losses. The Company incurred a net loss of $1,033,693 for the year ended
December 31, 1996 of which $59,787 was from continuing operations and $973,906
from discontinued operations. The residential care operations were discontinued
in the fourth quarter 1996, primarily due to financial losses and to the
Company's strategy to focus on the corrections industry. The Company also
incurred losses in the first three quarters of 1997. There was a loss of
$1,889,165 in the nine months ended September 30, 1997, primarily due to the
amoritization of a discount related to the private placement. See "MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -- Results of Operations."
Limitation of Liability of Officers and Directors; Indemnification. The
Company's Articles of Incorporation empower the Company to indemnify the
officers and directors against judgments, fines, and other amounts and costs
resulting from actions or proceedings in which they may be involved by reason of
their having held such positions, to the fullest extent permitted pursuant to
the laws of the State of Nevada. The Articles of Incorporation also limit the
personal liability of the Company's directors to the fullest extent permitted by
the Nevada Revised Statutes. The Nevada Revised Statutes contain provisions
entitling directors and officers to indemnification from judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
as a result of an action or proceeding in which they may be involved by reason
of being or having been a director or officer of the Company; provided said
officers or directors acted in good faith. The Company's By-Laws state that such
indemnification may not be provided in relation to matters as to which the
person seeking indemnification is adjudged to be liable for negligence or
misconduct in the performance of duty. The Company's policy, therefore, is that
no indemnification will be provided for bad faith actions and/or breaches of
management's fiduciary duties, including in connection with shareholder
derivative suits.
THE COMPANY
Avalon Community Services, Inc. (the "Company") owns and operates private
correctional facilities. Avalon Enterprises, Inc. ("Avalon") was incorporated in
Nevada in September, 1990. On June 15, 1992, Avalon acquired Southern Correction
Systems, Inc. ("SCS"). SCS, which was incorporated in 1990, was engaged in the
business of providing private correctional services. In June, 1992, Avalon's
name was changed to Avalon Community Services, Inc. The Company acquired two
affiliated companies, Elk City Properties, Inc. ("ECP") and Central Oklahoma
Properties Corp. ("COP"), effective December 31, 1993. ECP is engaged in the
business of providing residential care services and COP owns and leases certain
related real estate. All residential care operations were discontinued in 1996.
The Company, through its wholly-owned subsidiaries, owns and operates 649
private correction beds in three correctional facilities and provides substance
abuse treatment in 8 prisons. These services include the following: (a) private
correctional services through the operation of a 250-bed minimum security
facility in Oklahoma City, Oklahoma, a 255-bed minimum security facility in
Tulsa, Oklahoma, and a 144-bed medium security facility in El Paso, Texas,
utilized as an intermediate sanction facility; and (b) substance abuse treatment
services for inmates in Nebraska and Missouri.
The Company's executive office is located at 13401 Railway Drive, Oklahoma
City, Oklahoma 73114. The Company's telephone number is (405) 752-8802 and the
fax number is (405) 752-8852.
USE OF PROCEEDS
Assuming all Warrants are exercised, the Company would receive proceeds of
approximately $5,782,640 before paying approximately $225,000 in legal fees,
accounting fees, printing and selling expenses and other offering costs. Receipt
of proceeds by the Company is contingent on the exercise of the Warrants which
in turn is contingent on the market price of the Company's Common Stock.
Therefore, it is impossible at this time to determine specific project's
expenditures or use of funds. The net proceeds may be used by the Company to
fund new projects in the correctional, residential or in other areas of
privatization of traditional government services, expand existing operations,
retire existing indebtedness, or for working capital and general corporate
purposes.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock and the Warrants by the Selling Shareholders.
DIVIDEND POLICY
The Company has paid no dividends as of the date of this Prospectus nor does
it intend to pay dividends on its Common Stock in the foreseeable future. See
"DESCRIPTION OF SECURITIES." The Company currently intends to retain future
earnings to fund development and growth of its business. In the future, any
payment of dividends on Common Stock will be dependent upon the financial
condition, capital requirements and earnings of the Company and any other
factors the Board of Directors may deem relevant. Therefore, this investment is
not appropriate for investors seeking income.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed for trading on the NASDAQ SmallCap Market
System under the trading symbol "CITY". The following table reflects the range
of high and low bid prices, as reported by the NASDAQ, for each quarterly
periods. The prices represent inter-dealer prices, without mark-up, mark-down or
commission and may not rep resent actual transactions.
Quarterly Period Ended High Low
--------------------------------------------------------
March 31, 1994 2 1/4 1
June 30, 1994 2 1/8 3/4
September 30, 1994 3 1/8 1 5/8
December 31, 1994 3 1/8 2
March 31, 1995 2 1/8 1
June 30, 1995 2 11/16 1
September 30, 1995 3 1/8 1
December 31, 1995 3 3/8 2 1/4
March 31, 1996 2 1/2 2
June 30, 1996 7 5/8 2 1/2
September 30, 1996 5 7/8 4 1/8
December 31, 1996 4 3/4 3 7/8
March 31, 1997 5 1/2 3 15/16
June 30, 1997 4 7/8 3 1/2
September 30, 1997 5 3 7/8
The average of the bid and asked prices for the Common Stock, as reported on
the NASDAQ SmallCap Market System was $4.75 per share on November 18, 1997. The
Company had approximately 780 record holders of its common stock as of September
15, 1997.
CAPITALIZATION
The following table sets forth the historical capitalization of the Company as
of December 31, 1996 and September 30, 1997, as derived from the Consolidated
Financial Statements of the Company. The information shown below should be read
in conjunction with "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION"
and the Consolidated Financial Statements and Notes and other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1997
----------------- -------------------
(unaudited)
<S> <C> <C>
Current Maturities
of Long-Term Debt.......................................... $ 518,866 $1,116,611
============= ===========
Long-Term Debt, less Current Maturities..................... $ 5,861,514 $5,179,681
============= ===========
Stockholders' Equity
Common Stock, 24,000,000 shares authorized:...............
Class A, par value $.001, 2,927,135 and 2,929,650
shares issued and outstanding.......................... 2,927 2,938
Class B, no par, 3,410,000 and 0
shares issued and outstanding........................ --- ---
Paid-In Capital........................................... 4,066,128 5,909,363
Accumulated Deficit....................................... (1,373,578) (3,262,743)
------------- -----------
Total Stockholders' Equity.............................. $ 2,695,477 $2,649,558
============= ===========
</TABLE>
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1995
and 1996, and September 30, 1997, are derived from the audited Consolidated
Financial Statements of the Company. The data should be read in conjunction with
the Consolidated Financial Statements, related notes, and other financial
information included herein.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31 Sept 30,
--------------------------- ------------
1995 1996 1997
------------ ------------ ------------
Statement of Operations Data: (Reclassified) (Unaudited)
<S> <C> <C> <C>
Revenues From Continuing Operations...................... $2,119,123 $3,312,687 $4,025,972
Income (Loss) From Continuing Operations................. (3,460) (59,787) (1,831,302)
Income (Loss) From Continuing Operations
Per Common Share....................................... 0.00 (0.02) (0.62)
Income (Loss) From Discontinued Operations............... (81,380) (973,906) (57,863)
(Loss) From Discontinued Operations
Per Common Share....................................... (0.03) (0.36) (.02)
</TABLE>
<TABLE>
<CAPTION>
December 31 Sept 30,
--------------------------- ------------
1995 1996 1997
------------ ------------ ------------
Balance Sheet Data: (Unaudited)
<S> <C> <C> <C>
Total Assets............................................. $6,450,199 $9,523,525 $13,588,682
Long-Term Debt,
less Current Maturities................................ 3,449,275 5,861,514 5,179,681
Stockholder's Equity..................................... 2,340,826 2,695,477 2,649,558
</TABLE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capital Resources -
The Company's business strategy is designed to expand the Company's community
level correctional services. The Company is devoting its resources to expand and
develop new correctional facilities and to increase the number of correction
beds under management, through new contracts and selective acquisitions.
The Company closed a private placement of subordinated convertible debentures
in September, 1997 for a total of $4,150,000. The placement generated net
proceeds of $3,902,000 after commissions and fees of $248,000 The debentures are
convertible into common stock at $3.00 per share and bear an interest rate of
7.5%. The Company utilized approximately $950,000 of the proceeds to retire
debt. The Company utilized approximately $1,400,000 of the proceeds to purchase
the Turley Correctional Center in Tulsa, Oklahoma.
In accordance with the Securities and Exchange Commission ("SEC") Staff
position, the difference between the conversion price and the fair value as
evidenced by the quoted market price of the common stock multiplied by the
number of shares into which the Company's debentures are convertible at the date
of issue has been recorded as a discount on debt. The discount, totaling
$1,818,750, has been charged to amortization of discount on convertible
debentures as an Unusual Item in the statement of operations. The recognition of
this charge does not reduce the Company's cash flow from operations, decrease
the cash position, or increase outstanding liabilities. The accounting effect on
the balance sheet of this charge is to increase paid in capital and increase
accumulated deficit, with a zero effect to stockholders' equity.
Current assets exceeded current liabilities by $2,799,000 at of September 30,
1997 for a current ratio of 2.74. A net amount of $3,902,000 was provided in the
third quarter of 1997 from Company issued subordinated convertible debentures.
Repayment of borrowings was approximately $2,663,000 with $3,650,000 additional
borrowings incurred in 1997. Approximately $764,000 was utilized for capital
expenditures in the first nine months of 1997. The Company's capital
expenditures and net borrowings in 1997 included the acquisition of
transportation and other equipment.
Revenues increased significantly in the third quarter of 1997 and in the first
nine months of 1997. Total revenues increased by 90% to $4,025,000 in the first
nine months of 1997 compared to revenues of $2,229,000 in the first nine months
of 1996. The average compensated daily inmate census increased 60% in the first
nine months of 1997 to 391 inmate days from 244 inmate days in the first nine
months of 1996.
The Company believes it has sufficient cash reserves to meet its current cash
requirements. The Company expects to generate sufficient income from current
contracts to realize the benefits of it's deferred tax assets. Additional
sources of funding will be required for future expansion. The Company will
explore other sources of funding such as additional bank borrowing or the sale
of equity securities. Additional funds may also be available through the
exercise of Avalon's outstanding stock purchase warrants. Management is unaware
of any other evident trends that are likely to result in material decreases in
the liquidity of the Company.
Results of Operations
Three months ended September 30, 1997 compared to the three months ended
September 30, 1996 -
Net loss for the three months ended September 30, 1997 was $1,806,000 or $.61
per share as compared to a net loss of $105,000 or $.04 per share in 1996. The
loss for the three months ended September 30, 1997 was a result of a charge
against earnings in the amount of $1,818,750 for the amortization of a discount
related to the private placement completed in September 1997. In accordance with
the SEC Staff position, the difference between the conversion price and the fair
value as evidenced by the quoted market price of the common stock multiplied by
the number of shares into which the debentures are convertible at the date of
issue, $1,818,750, has been charged to amortization of discount on convertible
debentures as an Unusual Item.
Excluding the accounting effect of the Unusual Item discussed above, the
Company had net income of $13,000 or $.01 per share for the three months ended
September 30, 1997 as compared to a net loss of $105,000 or $.04 per share for
the comparable period in 1996. The significant improvement in 1997 was a result
of several positive events including an increase in profits at the Avalon
Correctional Center, the purchase of the El Paso Intermediate Sanction Facility
and negotiating one new contract for the facility, the Company being awarded a
second new contract for the El Paso Intermediate Sanction Facility, and the
Company being awarded a contract to provide services in the Ozark Correctional
Center in Missouri.
Excluding the accounting effect of the Unusual Item discussed above, the
Company had income from continuing operations, after interest and income taxes,
of $47,000 or $.02 per share for the three months ended September 30, 1997, as
compared to a loss of $89,000 or $.03 per share for the three months ended
September 30, 1996. The increase in 1997 was a result of several positive events
including an increase in profits at the Avalon Correctional Center, the purchase
of the El Paso Intermediate Sanction Facility and negotiating one new contract
for the facility in August, 1996, the Company being awarded a second new
contract for the El Paso Intermediate Sanction facility in November, 1996, and
the Company being awarded a contract to provide services in the Ozark
Correctional Center in Missouri in May, 1997. The net loss from discontinued
operations was $34,000 for the three months ended September 30, 1997 compared to
$16,000 for the three months ended September 30, 1996.
Revenues from continuing operations increased by $600,000 or 66% to $1,506,000
in the third quarter of 1997 compared to $906,000 in the third quarter of 1996.
Revenues from the El Paso Intermediate Sanction Facility increased by $158,000,
revenues from Avalon Correctional Center increased by approximately $220,000,
and revenues from Ozark Correctional Center increased by $197,000 in the third
quarter of 1997. Operating expenses for continuing operations increased by
$221,000 or 31% in the third quarter of 1997 from $725,000 to $946,000. The
increase in operating expenses was primarily attributable to $160,000 in
operating expenses for the Ozark Correctional Center. Both revenue and operating
expense increases were a result of an increase in the average compensated daily
census in the third quarter of 1997. The average compensated daily census
increased 40% to 405 inmates in the third quarter of 1997 from 290 inmates in
the third quarter of 1996. The increase in census was a result of the award of a
new contract to the Company at the El Paso Intermediate Sanction Facility and
increased census at the Avalon Correctional Center. Substance abuse services in
the Ozark Correctional Center in Missouri began during May, 1997, increasing
revenues by $196,000 in the quarter ending September 30, 1997.
General and administrative expenses increased by $42,000 in the third quarter
of 1997 primarily due to costs related to the Company's growth plan. Interest
expense increased approximately $114,000 in the third quarter of 1997 primarily
due to interest related to the purchase of the El Paso Intermediate Sanction
Facility. Depreciation expense increased by $32,000 in the third quarter of
1997, also as a result of the purchase of the El Paso Intermediate Sanction
Facility.
Nine months ended September 30, 1997 compared to the nine months ended September
30, 1996 -
Net loss for the nine months ended September 30, 1997 was $1,889,000 or $.64
per share as compared to a loss of $220,000 or $.08 per share in 1996. The loss
for the nine months ended September 30, 1997 was a result of a charge against
earnings in the amount of $1,818,750 for the amortization of a discount related
to the private placement completed in September, 1997. In accordance with the
SEC Staff position, the difference between the conversion price and the fair
value as evidenced by the quoted market price of the common stock multiplied by
the number of shares into which the Debentures are convertible at the date of
issue, $1,818,750, has been charged to amortization of discount on convertible
debentures as an Unusual Item.
Excluding the accounting effect of the Unusual Item discussed above, the
Company had a net loss of $70,000 or $.02 per share as compared to a loss of
$220,000 or $.08 per share in 1996. The significant improvement in 1997 was a
result of several positive events including an increase in profits at the Avalon
Correctional Center, the purchase of the El Paso Intermediate Sanction Facility
and negotiating one new contract for the facility in August 1996, the Company
being awarded a second new contract for the El Paso Intermediate Sanction
facility in November, 1996, and the Company being awarded a contract to provide
services in the Ozark Correctional Center in Missouri in May, 1997.
Excluding the effect of the Unusual Item, the Company had a net loss from
continuing operations, after interest and income taxes, of $13,000 in 1997 or
$.01 per share as compared to a loss of $88,000 or $.03 per share in 1996. The
increase in 1997 is attributable to the positive factors discussed above. Loss
from discontinuing operations was $58,000 in 1997 as compared to $131,000 in
1996.
Revenues from continuing operations increased by $1,797,000 or 81% in 1997 as
compared to 1996. Revenue was $4,026,000 in 1997 compared to $2,229,000 in 1996.
Revenue from the El Paso Intermediate Sanction Facility increased by $1,044,000,
revenue from Avalon Correctional Center increased by $480,000 and revenue from
the Ozark Correctional Center increased by $313,000 in 1997. Operating expenses
from continuing operations increased by $1,373,000. The increase in operating
expenses was attributable to a $837,000 increase in expenses in El Paso, a
$138,000 increase in expenses at Avalon Correctional Center, and $267,000 of
expenses incurred for the Ozark Correctional Center. Both revenue and operating
expense increases were a result of a 60% increase in the average compensated
daily census in the nine month period ending September 30, 1997. The average
compensated daily census increased to 391 inmates in 1997 from 244 inmates in
1996. The increase was attributable to the El Paso Intermediate Sanction
Facility and increased census at the Avalon Correctional Center. Substance abuse
services began in the Ozark Correctional Center in Missouri during May, 1997,
increasing revenues by $313,000 in the nine months ended September 30, 1997.
General and administrative expenses increased by $136,000 or 27% in 1997
primarily due to increased costs related to the Company's growth plan. Interest
expense increased $293,000 due primarily to interest related to the purchase of
the El Paso Intermediate Sanction Facility. Depreciation expense increased by
$98,000 in 1997, as a result of the purchase of the El Paso Intermediate
Sanction Facility.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Warrants as of December 31, 1996 by the stockholders
of the Company who are offering securities pursuant to this Prospectus (the
"Selling Stockholders"). "Beneficial Ownership" includes shares for which an
individual, directly or indirectly, has or shares voting or investment power or
both. The listing by each of the Selling Stockholders does not include shares of
Common Stock issuable upon exercise of the Warrants. None of the Selling
Stockholders are officers, directors or had a material relationship with the
Company, except Donald E. Smith, the Chief Executive Officer of the Company, who
is custodian for the Warrants for his children (for which he disclaims any
beneficial interest), and Westminster Securities Corporation who acted as a
placement agent for the Company in a 1994 private placement.
<TABLE>
<CAPTION>
Before the Offering Securities After the Offering
Title Number Percent to Be Number Percent
Name of of Beneficially of Sold In Beneficially Of
Beneficial Owner Class Owned Class Offering Owned Class
- ---------------- ----------- ----------- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
John D. Kilmartin, Jr............... C Warrant 40,000 3.6 40,000 0 -
Paul & Felicia A. Pappadio.......... C Warrant 10,000 * 10,000 0 -
Donald E. Smith, Custodian.......... C Warrant 10,000 * 10,000 0 -
Westminster Securities Corporation.. C Warrant 100,000 9.1 100,000 0 -
Commercial Ventures, Inc............ C Warrant 70,000 7.9 70,000 0 -
Heather Sara Allenstein Trust
Joel Marcus, Trustee............ C Warrant 35,000 3.9 35,000 0 -
Rachel Ruth Allenstein Trust
Joel Marcus, Trustee............ C Warrant 35,000 3.9 35,000 0 -
MLPF&S Custodian for
Charles Thomas SEP.............. C Warrant 25,000 2.8 25,000 0 -
RECOR, Inc.......................... D Warrant 90,000 45.0 90,000 0 -
Edwin Bruce Lowman II............... D Warrant 90,000 45.0 90,000 0 -
R.P. Pearce, Jr.................... D Warrant 20,000 10.0 20,000 0 -
RECOR, Inc.......................... Common Stock 22,500 * 22,500 0 -
Edwin Bruce Lowman II............... Common Stock 22,500 * 22,500 0 -
R.P. Pearce, Jr.................... Common Stock 5,000 * 5,000 0 -
- ------------
<FN>
*Less than 1% of outstanding shares
</FN>
</TABLE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue 24,000,000 shares of common stock (both
Common Stock, par value $0.001 and Class B Common Stock, no par value) and
1,000,000 shares of preferred stock, par value $0.001, giving the Board of
Directors the authority to set the rights and preferences of the preferred
stock. On September 11, 1997 there were 2,937,430 shares of Common Stock.
Common Stock
The shares of Common Stock are equal in all respects unless otherwise
designated. Each issued and outstanding share of Common Stock entitles to holder
thereof to one vote on all matters submitted to a vote of the stockholders. The
Company's Certificate of Incorporation does not permit cumulative voting of
shares in the election of directors or permit preemptive rights to stockholders
to acquire additional shares, obligations, warrants or other securities of the
Company. The Certificate of Incorporation makes no provision with respect to
subscription or conversion rights, redemption privileges or sinking funds with
respect to shares of the Company's Common Stock. Subject to the rights of
holders of preferred stock (if any), dividends on Common Stock may be paid if,
as and when declared by the Board of Directors out of funds legally available
therefor. The Company has never paid cash dividends on shares of Common Stock
and does not expect to pay such dividends in the foreseeable future. The Company
intends to retain all funds available to it after payment of its commitments and
obligations for the operation and expansion of its business.
Class B Common Stock
The Company created a Class B common stock and issued 1,210,000 shares to
Donald Smith in connection with the acquisition of two affiliated entities, in
1993. The shares were issued to Mr. Smith in exchange for his personal guarantee
of substantially all of the outstanding debt of the acquired entities. The
Company has also agreed to issue one share of Class B common stock to Mr. Smith
for each dollar of certain other Company debt guaranteed by him. In the fourth
quarter 1996, the Company issued another 2,200,000 shares of Class B common
stock to Mr. Smith in exchange for his personal guarantee of outstanding debt,
for a total of 3,410,000 shares of Class B common stock outstanding. The Class B
common stock was entitled to vote in all actions requiring a vote of the
stockholders, but had no liquidation rights, claim on earnings or the payment of
dividends and was non-transferable.
The Company canceled all Class B common share of stock on August 25, 1997,
pursuant to a Change of Control Agreement between the Company and Donald E.
Smith.
Warrants - General
Adjustments and Anti-Dilution Provisions. The exercise price and the number of
shares of Common Stock purchasable upon the exercise of the Warrants are subject
to adjustment upon the occurrence of certain events, including stock dividends,
stock splits, combinations or reclassifications of the Common Stock, or sale by
the Company of shares of its capital stock. Additionally, an adjustment would be
made in the case of a reclassification or exchange of Common Stock,
consolidation or merger of the Company with or into another corporation or sale
of all or substantially all of the assets of the Company in order to enable
Warrant holders to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares of Common Stock that might otherwise have been purchased upon the
exercise of the Warrant. No adjustment to the exercise price of the shares
subject to the Warrants will be made for dividends (other than dividends in the
form of stock), if any, paid on the Common Stock or for: (i) the issuance of
restricted securities in connection with acquisitions by the Company; (ii) the
grant of stock options to persons covered by incentive stock option plans
provided that no more than 600,000 shares of Common Stock be issued pursuant to
such plans from the date of this Prospectus until the expiration or redemption
of the Warrants; (iii) warrants to accommodate lines of credit or creditors,
provided that no registration or registration rights shall be afforded such
warrants or the underlying Common Stock at any time within one year after
effectiveness of the registration of the securities issued pursuant to this
Offering; and (iv) Class B Common Stock voting shares and up to 750,000
warrants, exercisable for one share of common stock each, at an exercise price
of $1.50 to be issued to Donald E. Smith or his designee solely upon Mr. Smith's
guarantee of corporate obligations.
The Company may authorize one warrant for each one dollar of corporate
obligations guaranteed by Mr.Smith up to the maximum amount. For this exception
to the anti-dilution provisions to apply, the corporate debt must first be
approved by the Board of Directors, be bona fide, and the guarantee must be
reasonably required by the creditor. These anti-dilution provisions shall remain
in full force and effect until redemption of all Warrants then outstanding or
expiration of the Warrants. These anti-dilution provisions may be terminated by
the Company provided: (i) that the bid price of the Company's common stock shall
have been $4.00 or more for sixty (60) consecutive trading days; (ii) the
Company presents to Westminster Securities Corporation ("Westminster") as the
placement agent for the Warrants a bona fide offer, agreement, term sheet, or
Underwriting Agreement by a duly licensed broker-dealer proposing to place, on a
firm or best efforts basis, securities of the Company; and (iii) effecting the
agreement would trigger application of the anti-dilution provisions. If these
conditions are met, the Company shall notify Westminster and afford Westminster
ten (10) business days in which to match the terms offered to the Company. At
the expiration of the ten (10) day period, the Company may terminate the
anti-dilution provisions by appropriate corporate action, if Westminster has not
matched the offering. The Placement Agent, on behalf of the purchasers in this
Offering, shall be empowered to release or waive these adjustment and
anti-dilution provisions in whole or in part.
Transfer, Exchange and Exercise. The Warrants are in registered form and may
be presented to the Transfer and Warrant Agent for transfer, exchange or
exercise at any time on or prior to their expiration date, at which time the
Warrants become wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue. If the Company is unable to qualify the Common Stock underlying the
Warrants for sale in particular states, holders of the Warrants residing in such
states and desiring to exercise the Warrants will have no choice but to sell
such Warrants or allow them to expire. See "DESCRIPTION OF SECURITIES --
Transfer and Warrant Agent." Furthermore, if a Warrant is exercised prior to the
underlying Common Stock being registered, the Common Stock will be a restricted
security and subject to a holding period. See "RISK FACTORS -- Shares Eligible
for Future Sale."
Rights of Warrant Holders. Holders of the Warrants have no voting rights and
are not entitled to dividends. In the event of liquidation, dissolution, or
winding up of the affairs of the Company, holders of the Warrants will not be
entitled to participate in any liquidation distribution.
Class A and Class B Warrants
Stock purchase warrants were issued in April, 1991 in connection with an
initial public offering of Avalon Common Stock. The warrants were issued as part
of units of the Company's securities which contained one share of Common Stock,
16 Class A warrants and 16 Class B warrants per Unit offered. This initial
public offering was underwritten by Westminster Securities Corporation. The
following is a brief summary of certain provisions of the Warrants, but such
summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreements between the Company and
American Securities Transfer, Inc. (the "Transfer and Warrant Agent"). Copies of
the Warrant Agreements may be obtained from the Company upon the written request
of a Warrant holder.
The Class A Warrants expired on March 26, 1996. Each Class B warrant may be
exercised by its registered holder to purchase one share of Common Stock at an
exercise price of $6.00 until March 26, 1999. The Class B warrants may be
redeemed by the Company prior to exercise upon 30 days written notice to the
registered holders for $0.01 per warrant. The holders of the Class B warrants
have no voting rights and are not entitled to dividends. In the event of
liquidation, dissolution or winding up of the affairs of the Company, holders of
these warrants will not be entitled to participate in any liquidation
distribution.
The Company issued 145,595 shares of Common Stock during 1993 in connection
with the exercise of certain underwriter warrants, 99,095 Class A warrants and
44,900 Class B warrants, resulting in gross proceeds to the Company of
approximately $825,000. As of the date of this Prospectus, there are 275,100
Class B warrants still outstanding.
Class C Warrants
The Company has issued Class C Warrants to purchase 1,000,000 shares of Common
Stock in connection with a private placement and Class C Warrants to purchase
165,000 shares of Common Stock in settlement of a lawsuit and for professional
services. The placement agent warrant given to Westminster Securities
Corporation in the private placement also includes the right to receive 100,000
Class C Warrants. In 1996, 377,000 Class C Warrants were exercised. The
following is a brief summary of certain provisions of the Warrants, but such
summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company and
American Securities Transfer, Inc. (the "Transfer and Warrant Agent"). A copy of
the Warrant Agreement may be obtained from the Company upon the written request
of a Warrant holder.
Exercise Price and Terms. Each Warrant entitles the holder thereof to purchase
one share of Common Stock at a price of $3.33 per share, subject to adjustment
in accordance with the anti-dilution and other provisions referred to above
under "Warrants-General." When the Warrants were issued, the exercise price was
$3.50 per share, however, in September of 1997, as a consequence of the
Company's private placement of convertible debentures and the conversion price
thereunder, as described in "Convertible Debentures", the exercise price was
reduced by $.017 per share pursuant to the antidilution provisions discussed
above. The holder of any Warrant may exercise such Warrant by surrendering the
certificate representing the Warrant to the Transfer and Warrant Agent, with the
election to purchase form on the reverse side of such certificate properly
completed and executed, together with payment of the exercise price. Subject to
compliance with applicable state securities laws, the Warrants may be exercised
at any time in whole or in part at the applicable exercise price until
expiration of the Warrants on December 30, 1999. See "RISK FACTORS --
Non-Registration in Certain Jurisdictions of Shares Underlying the Warrants."
Redemption of Warrants. The Class C Warrants are subject to redemption at $.01
per Warrant in the event that (i) the bid price of the Company's Common Stock
shall have been $5.00 or more for 30 consecutive trading days prior to the date
of the notice of redemption; (ii) 30 days advance written notice of redemption
shall be given to all Warrant holders of record; and (iii) a Registration
Statement of the Company covering the Warrants and the shares of Common Stock
issuable upon the exercise of the Warrants must be current at all times during
the 30 day notice period, and must have been current for 30 days prior to the
notice. In the event the Company exercises the right to redeem the Warrants,
such Warrants will be exercisable until the close of business on the date for
redemption fixed in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the holder will be
entitled only to the redemption price. See "RISK FACTORS -- Redemption of
Warrants."
Class D Warrants
The Company has issued Class D Warrants to purchase 275,000 shares of Common
Stock in a recent asset acquisition, with 75,000 Warrants later canceled. The
following is a brief summary of certain provisions of the Warrants, but such
summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company and
American Securities Transfer, Inc. (the "Transfer and Warrant Agent"). A copy of
the Warrant Agreement may be obtained from the Company upon the written request
of a Warrant holder.
Exercise Price and Terms. Each Warrant entitles the holder thereof to purchase
one share of Common Stock at a price of $5.125 per share, subject to adjustment
in accordance with the anti-dilution and other provisions referred to above
under"Warrants-General." The holder of any Warrant may exercise such Warrant by
surrendering the certificate representing the Warrant to the Transfer and
Warrant Agent, with the election to purchase form on the reverse side of such
certificate properly completed and executed, together with payment of the
exercise price. Subject to compliance with applicable state securities laws, the
Warrant may be exercised at any time in whole or in part at the applicable
exercise price until expiration of the Warrants on August 2, 2001. See "RISK
FACTORS --Non-Registration in Certain Jurisdictions of Shares Underlying the
Warrants."
Redemption of Warrants. The Class D Warrants are subject to redemption at $.01
per Warrant in the event that (i) the bid price of the Company's Common Stock
shall have been $6.00 or more for 30 consecutive trading days prior to the date
of the notice of redemption; (ii)30 days advance written notice of redemption
shall be given to all Warrant holders of record; and (iii) a Registration
Statement of the Company covering the Warrants and the shares of Common Stock
issuable upon the exercise of the Warrants must be current at all times during
the 30 day notice period, and must have been current for 30 days prior to the
notice. In the even the Company exercises the right to redeem the Warrants, such
Warrants will be exercisable until the close of business on the date for
redemption fixed in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the holder will be
entitled only to the redemption price. See "RISK FACTORS --Redemption of
Warrants."
Convertible Debentures
On September 12, 1997, the Company completed a private placement of
Convertible Debentures. Convertible Debentures in the aggregate principal amount
of $4,150,000 were issued in the private placement. The Convertible Debentures
bear interest at the rate of 7.5% per annum, with interest payments payable
semi-annually. The Convertible Debentures have a maturity date of ten years from
the date of issuance, unless otherwise earlier redeemed or converted. Under the
terms of the Debenture Purchase Agreements existing between the Debenture
Holders and the Company, all or any portion of the principal amount of the
Convertible Debentures, plus all accrued but unpaid interest thereon will be
convertible, at the option of the Debenture Holder, unless previously redeemed,
at any time prior to maturity, into Common Stock of the Company at a conversion
price of $3.00 per share. The conversion price of the Debentures is subject to
certain adjustments to prevent dilution in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transaction.
The Company has reserved 1,383,333 shares of Common stock issuable upon
conversion of the Debentures. The Debentures are not redeemable by the Company
prior to May 1, 2000. Thereafter, the Debentures are redeemable at any time and
from time to time, at the option of the Company, in whole or in part, at
redemption prices declining fro 106.5% down to 100% at maturity, plus accrued
interest, except that the Debentures cannot be redeemed unless the closing price
of the Common Stock equals or exceeds 140% of the effective conversion price per
share for at least 20 out of 30 consecutive days ending within 20 calendar days
before the notice of redemption is mailed. In connection with the private
placement, 79,000 underwriter warrants have been designated and 79,000 shares of
Common Stock have been so reserved.
The Company has agreed to file with the Securities and Exchange Commission,
within 90 days after the original issue date of the Debentures, and to use all
reasonable efforts to cause to become effective a registration statement with
respect to the resale, from time to time, of the Common Stock issuable upon
conversion of the Debentures, and to keep such registration statement effective
until three years from the latest date of original issuance of the Debentures.
The Company will record the value of the convertibility feature of the
debentures as interest expense, amortizing the discounted amount from the date
of issuance through the date the security is first convertible as per the
requirements in Staff Position Topic D-60.
Preferred Stock
The Articles of Incorporation were amended by the stockholders at the annual
meeting in June, 1994 to authorize preferred stock. The Board of Directors is
authorized to issue shares of preferred stock in series by adoption of a
resolution or resolutions for the issue of such series of preferred stock. Each
series will have such distinctive designation or title as may be fixed by the
Board of Directors prior to the issuance of any shares thereof. Upon issuance,
each series will have those voting powers, if any, and those preferences and
relative, participating, optional or other special rights, with such
qualifications, limitations or restrictions of those preferences and/or rights,
as stated in such resolution or resolutions providing for the issue of such
series of preferred stock.
Transfer and Warrant Agent
The Company has appointed American Securities Transfer, Inc., 1825 Lawrence
Street, Suite 444, Denver, Colorado 80202-1817, as its registrar and transfer
agent, and the warrant agent for the warrants issued by the Company.
PLAN OF DISTRIBUTION
The 1,513,100 shares of Common Stock and the 525,000 Warrants being offered
hereby for the benefit of the Selling Stockholders were originally issued by the
Company in (a) the Company's initial public offering wherein the Class A and
Class B Warrants were sold along with Common Stock to the public, (b) a private
placement of 50 units comprised of Common Stock and Class C Warrants to
"accredited investors" pursuant to Regulation D promulgated by the Securities
and Exchange Commission, and (c) by the Company under an asset purchase contract
and in settlement of a pending litigation against the Company. Each unit in the
private placement consisted of 20,000 shares of Common Stock and 20,000 Class C
Warrants, and were sold on a best-efforts basis by Westminster at a price of
$30,000 per unit. The private placement was completed in August, 1994. The
Company agreed to register the securities for resale by the Selling
Stockholders. See "DESCRIPTION OF SECURITIES -- Registration Rights." The
Company will not receive any of the proceeds from the sale of such securities by
the Selling Stockholders. If any Warrants are exercised, the Company will
receive proceeds from the exercise of such Warrants. For a description of the
classification of whether securities offered hereby are offered by the Company
or by Selling Stockholders, see the cover page of this Prospectus and footnotes
to the table on the cover page.
The Selling Stockholders have advised the Company that they propose to offer
for sale and to sell Warrants and Common Stock underlying the Warrants when
issued from time to time during the next 12 months through brokers in the
over-the-counter market, in private transactions, negotiated transactions, or
otherwise. Accordingly, sales prices and proceeds to the Selling Stockholders
for any shares of Common Stock or Warrants sold will depend upon market price
fluctuations and the manner of sale. Over the last 12 months the Selling
Shareholders have transferred all of the shares of Common Stock registered in
this Offering.
If the shares or Warrants are sold through brokers, the Selling Stockholders
will pay brokerage commissions and other charges, including any transfer taxes
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Stockholders will also pay the fees
associated with their Common Stock and Warrants registered hereby and expenses
of any counsel retained by them in connection with this offering. Except for the
payment of such legal fees and expenses, brokerage commissions and charges, the
Company will bear all expenses in connection with registering the shares offered
hereby.
The offering by the Company of the 1,363,100 shares of Common Stock underlying
the Warrants is made exclusively to the holders of the Warrants.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Robertson & Williams, Inc., a professional corporation.
EXPERTS
The consolidated balance sheet of Avalon Community Services, Inc. and
subsidiaries as of December 31, 1995 and the related consolidated statement of
operations, stockholders' equity and cash flow for the year then ended,
incorporated by reference in this Prospectus, have been incorporated by
reference herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheet of Avalon Community Services, Inc. and
subsidiaries as of December 31, 1996 and the related consolidated statement of
operations, stockholders' equity and cash flow for the year then ended,
incorporated by reference in this Prospectus, have been incorporated by
reference herein in reliance on the reports of Grant Thornton LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
No dealer, salesperson, or other person has been authorized to give any
information or to make any representation not contained in this Prospectus, and,
if given or made, such information and representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication that there has
been no change in the facts set forth in this Prospectus or in the affairs of
the Company since the date hereof.
- ---------------------- 1,513,100 SHARES OF COMMON STOCK
525,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
P R O S P E C T U S
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY........... 3
RISK FACTORS................. 5
THE COMPANY.................. 9
USE OF PROCEEDS............... 9
DIVIDEND POLICY............... 9 November 26, 1997
PRICE RANGE OF COMMON STOCK.. 10
CAPITALIZATION............... 10
SELECTED FINANCIAL DATA...... 11
MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION.................. 11
SELLING STOCKHOLDERS......... 13
DESCRIPTION OF SECURITIES.... 14 13401 Railway Drive
PLAN OF DISTRIBUTION..........18 Oklahoma City, Oklahoma 73114
LEGAL MATTERS................ 19 (405) 752-8802
EXPERTS .................... 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. Other Expenses of Issuance and Distribution.(1)
SEC Filing Fees(2)........................ $ 3,708.00
Registrar and Transfer Agent Fee.......... 2,244.00
Printing and Engraving.................... 2,600.00
Legal Fees(2)............................. 25,857.00
Accounting Fees........................... 18,000.00
Miscellaneous Fees........................ 7,591.00
-----------
Total................................. $ 60,000.00
===========
(1) All amounts are estimated except SEC filing fee.
(2) The Selling Shareholders will pay the fees associated with their
common stock and expenses of counsel retained by them in connection
with this offering.
15. Indemnification of Directors and Officers.
Chapter 78 of the Nevada Revised Statutes (Private Companies) provides that a
director, officer, employee or agent of the Corporation may be indemnified
against suit or other proceeding whether it were civil, criminal, administrative
or investigative if he becomes a party to said lawsuit or proceeding by reason
of the fact that he is a director, officer, employee or agent of the
corporation. The compensation for indemnification includes judgments, fines and
amounts paid in settlement actual and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interest of the
corporation.
However, no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been judged liable for negligence or
misconduct in the performance of his duty to the corporation, unless the court
in which the action or suit is brought shall determine that despite his
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to be indemnified for expenses such court shall
deem proper.
The By-Laws of the corporation outline the conditions under which any director
or officer of the registrant may be indemnified. Article V provides that to the
extent and in the manner permitted by the laws of the State of Nevada, the
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, other than
an action by or in the right of the corporation, by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement.
16. Exhibits.
Number Description of Exhibit
3. (i) Articles of Incorporation (1)
(ii) ByLaws (1)
(iii) Articles of Amendment to Registrant's Articles of
Incorporation (2)
(iv) Unanimous Consent of Board of Directors Authorizing Extension of
Expiration Dates of Class "A" and Class "B" Redeemable
Warrants (3)
(v) Certificate of Corporate Resolutions, dated December 15, 1993,
regarding authorization of Class B Common Stock and Amendments
to Articles (5)
4. (i) Form Stock Certificate (1)
(ii) Form of Class "A" Redeemable Warrant (1)
(iii) Form of Class "A" Warrant Agreement (1)
(iv) Form of Class "B" Redeemable Warrant (1)
(v) Form of Class "B" Warrant Agreement (1)
(vi) Form of Class "C" Redeemable Warrant (6)
(vii) Form of Class "C" Warrant Agreement (6)
(viii)Form of Class "D" Warrant Agreement (*)
5. Opinion of Robertson & Williams, Inc. Re: Legality*
10.
(i) Contract between Southern Corrections Systems, Inc. and the
Department of Corrections of the State of Oklahoma for halfway
house services for the year ended June 30, 1998 for Oklahoma
City facility.*
(ii) Contract between Southern Corrections Systems, Inc. and the
Department of Corrections of the State of Oklahoma for public
works inmates for the year ended June 30, 1998. *
(iii) Contract between Southern Corrections Systems, Inc. and the
Department of Corrections of the State of Oklahoma for halfway
house services for the year ended June 30, 1998 for Tulsa
facility. *
(v) Agreement and Plan of Reorganization dated June 10, 1992,
between Avalon Enterprises, Inc. and Southern Corrections
Systems, Inc. (2)
(vi) Stock Option Plan adopted by Board of Directors of Registrant on
August 16, 1994. (6)
(vii) Debt Guaranty Agreement dated May 16, 1994, between Registrant
and Donald E. Smith (6)
(viii)Placement Agent Agreement dated May 15, 1994, between
Registrant and Westminster Securities Corporation (6)
(ix) Acquisition Agreement dated August 2, 1996 between Registrant,
Kensington Capital, Plc and RECOR, Inc. (*)
(x) Change of Control Agreement between Donald E. Smith and Avalon
Community Services, Inc. dated August 25, 1997. *
(xi) Employment Agreement with Donald E. Smith dated August 8, 1997.*
(xii) Employment Agreement with Jerry M. Sunderland dated August 8,
1997.*
(xiii)Letter of Acceptance and Notice of Award dated February 24,
1997 between Missouri Department of Corrections and Avalon
Community Services, Inc.*
21. Subsidiaries of Registrant(5)
23. (i) Consent of Coopers & Lybrand L.L.P. - bound in Registration
Statement
(ii) Consent of Grant Thornton LLP - bound in Registration Statement
(iii) Consent of Robertson & Williams, Inc. - bound in Registration
Statement
24. Power of Attorney*
* Previously filed with this Registration.
(1) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-18 dated March 26, 1991.
(2) Incorporated herein by reference to the Registrant's Post-Effective
Amendment No. 1 to Registration Statement
on Form S-18 dated August 3, 1992.
(3) Incorporated herein by reference to the Registrant's Post-Effective
Amendment No. 2 to Registration Statement
on Form S-18 dated October 26, 1992.
(4) Incorporated herein by reference to the Registrant's Form 8-K dated
January 13, 1994.
(5) Incorporated herein by reference to Registrant's Form 10-KSB for
fiscal year ended December 31, 1993 and dated March 24, 1994.
(6) Incorporated herein by reference to the Registrant's Registration
Statement on Form SB-2 dated September 13, 1995 and amended.
(7) Incorporated by reference to Registrant's Registration Statement on
Form SB-2 dated April 16, 1996.
17. Undertakings.
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(3) To include any additional or changed material information on
the plan of distribution.
2. For the purpose of determining any liability under the Securities
Act of 1933, to treat each post-effective amendment as a new
registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona
fide offering.
3. To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Oklahoma City, State of Oklahoma, on November 24,
1997.
(Registrant) AVALON COMMUNITY SERVICES, INC.
By: \Donald E. Smith
Donald E. Smith
(Signature and Title ) Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Donald E. Smith, and each of them, his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated below:
Signature Capacity Date
\Donald E. Smith Chief Executive Officer November 26, 1997
- ------------------ and Director
Donald E. Smith
\Jerry M. Sunderland President and Director November 26, 1997
Jerry M. Sunderland
\Kathryn A. Avery Chief Financial Officer November 26, 1997
- ------------------ and Vice President
Kathryn A. Avery
\Robert O. McDonald Director November 26, 1997
Robert O. McDonald
Exhibit 23. (i)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into this Registration Statement
on Amendment No. 3 to Form S-2 (File No. 333-13103) of our report dated March
21, 1996, on our audit of the consolidated balance sheet of Avalon Community
Services, Inc. and subsidiaries as of December 31, 1995, and the related
consolidated statement of operations, stockholders' equity and cash flows for
the year then ended. We also consent to the reference to our firm under the
caption "Experts."
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
November 26, 1997
Exhibit 23. (ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into this Registration Statement
on Amendment No. 3 to Form S-2 (File No. 333-13103) of our report dated March
14, 1997, on our audit of the consolidated balance sheet of Avalon Community
Services, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flow for
the year then ended. We also consent to the reference to our firm under the
caption "Experts."
Grant Thornton LLP
Oklahoma City, Oklahoma
November 21, 1997
Exhibit 23. (iii)
CONSENT OF COUNSEL
Robertson & Williams, Inc., a professional corporation, hereby consents to the
use of its name under the heading "LEGAL MATTERS" in the Prospectus constituting
a part of this Registration Statement.
ROBERTSON & WILLIAMS, INC.
Oklahoma City, Oklahoma
November 21, 1997
