As filed with The Securities and Exchange Commission on July 18, 1997
Registration No. 333-13103
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2 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, Oklahoma 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 $ 3.50 350,000.00 120.69
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 $ 3.50 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 $ 3.50 577,500.00 199.14
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 with the
Prospectus in Form SB-2, Registration Number 33-83932
AVALON COMMUNITY SERVICES, INC.
<TABLE>
<CAPTION>
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, 425,000 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 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 in connection with a
private placement of securities in 1994. Upon issuance, the resale by
Westminster of such shares and Warrants is registered hereby. The balance of
1,363,100 shares of Common Stock are issuable by the Company upon the exercise
of the Warrants, except for shares acquired by Class C Warrant holders and
Westminster who purchased such Warrants in the private placement in 1994, in
which case such shares are sold by the Selling Shareholders. 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 $4.56 per share on
June 30, 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" 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 ................... $ 3.50 (C) $-0- $-0- $ 3.50 (C)
Warrants(4) ............................... $ 5.125(D) $-0- $-0- $5.125 (D)
------------- ------------ ----------- -------------
Total ................................... $5,933,600.00 $-0- $-0- $5,933,600.00
============================================= ============= ============ =========== =============
<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 July 18, 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 filed with the Securities and Exchange Commission Registration
Statements on Form S-2 and Form SB-2 under the Securities Act of 1933, as
amended with respect to the securities offered hereby. 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, or copies thereof may be obtained therefrom upon payment of a
fee prescribed by the Commission.
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 quarter ended March 31,
1997,
(C) Information Statement for Annual Meeting of Stockholders held May 27,
1997; and
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Warrants and shares of Common Stock hereunder
shall be deemed incorporated by reference in this Prospectus and shall be deemed
to be a part hereof from the date of filing of such documents. Any statement
contained in a documents incorporated or deemed incorporated herein by reference
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained in this Prospectus or in any other subsequently filed
document which also is, or is deemed to be, incorporated by reference in this
Prospectus modified or supersedes such statement.
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 also provides substance abuse treatment
services for inmates in Nebraska and Missouri.
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............ 169,000 Class C Warrants and 365,000 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.
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 $3.50 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 and 3,410,000 Class
B shares.
Common Stock Outstanding
after this Offering.......... 4,392,750 Class A shares if all outstanding
warrants are exercised and 3,410,000 Class B
shares.
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
Three Months
Year Ended Ended
December 31, March 31,
--------------------------- --------------
1995 1996 1997
------------- ----------- --------------
Statement of Operations Data: (Reclassified) (Unaudited)
<S> <C> <C> <C>
Revenues From Continuing Operations................. $2,119,123 $3,312,687 $1,190,963
Income (Loss) From Continuing Operations............ (3,460) (59,787) (31,421)
Income (Loss) From Continuing Operations
Per Common Share.................................. 0.00 (0.02) (0.01)
Income (Loss) From Discontinued Operations.......... (81,380) (973,906) (2,529)
Income (Loss) From Discontinued Operations
Per Common Share.................................. (0.03) (0.36) --
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996 1997
------------- ----------- --------------
(Unaudited)
Balance Sheet Data:
<S> <C> <C> <C>
Total Assets........................................ $6,450,199 $9,523,525 $9,960,414
Long-Term Debt,
less Current Maturities........................... 3,449,275 5,861,514 5,819,811
Stockholder's Equity................................ 2,340,826 2,695,477 2,666,424
</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. 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.
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. The terms of such
transactions may not have been as favorable as the Company might have received
from unrelated third parties on an arms-length basis. 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 only one of its executive officers, its Chief Executive Officer,
Donald E. Smith. Mr. Smith's contract is for a five-year term and commenced in
June, 1992, providing for first-year salary of $60,000 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 him from engaging in a business
deemed similar to that of the Company for a period of one year from the
cessation of his employment. The Company is currently negotiating employment
agreements with the President and Chief Executive Officer. 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. As a result of his ownership of Class B Common Stock as discussed
under "DESCRIPTION OF SECURITIES -- Class B Common Stock," Mr. Smith will be
able to vote an additional 3,410,000 shares which increases his current voting
percentage to approximately 70% before any Warrants are exercised, and
approximately 57% of the voting rights after the exercise of all Warrants. 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 (excluding Class B Common Stock). 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 a loss in the first quarter of 1997. 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 $5,933,600 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 represent 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
The average of the bid and asked prices for the Common Stock, as reported on
the NASDAQ SmallCap Market System was $4.56 per share on June 30, 1997. The
Company had approximately 790 holders of its common stock as of March 31, 1997.
CAPITALIZATION
The following table sets forth the historical capitalization of the Company as
of December 31, 1996 and March 31, 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 March 31, 1997
----------------- --------------
(Unaudited)
<S> <C> <C>
Current Maturities
of Long-Term Debt.......................................... $ 518,866 $ 1,089,784
Long-Term Debt, less Current Maturities..................... $ 5,861,514 $ 5,819,811
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 2,929
Class B, no par, 3,410,000
shares issued and outstanding........................ --- ---
Paid-In Capital........................................... 4,066,128 4,071,023
Accumulated Deficit....................................... (1,373,578) (1,407,528)
------------ -----------
Total Stockholders' Equity.............................. $ 2,695,477 $ 2,666,424
============ ===========
</TABLE>
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1995
and 1996, and March 31, 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>
Three Months
Year Ended Ended
December 31 March 31,
------------------------- --------------
1995 1996 1997
------------------------- --------------
Statement of Operations Data: (Reclassified) (Unaudited)
<S> <C> <C> <C>
Revenues From Continuing Operations...................... $2,119,123 $3,312,687 $1,190,963
Income (Loss) From Continuing Operations................. (3,460) (59,787) (31,421)
Income (Loss) From Continuing Operations
Per Common Share....................................... 0.00 (0.02) (0.01)
Income (Loss) From Discontinued Operations............... (81,380) (973,906) (2,529)
Income (Loss) From Discontinued Operations
Per Common Share....................................... (0.03) (0.36) ---
</TABLE>
<TABLE>
<CAPTION>
December 31 March 31,
------------------------- --------------
1995 1996 1997
------------------------- --------------
Balance Sheet Data: (Unaudited)
<S> <C> <C> <C>
Total Assets............................................. $6,450,199 $9,523,525 $9,960,414
Long-Term Debt,
less Current Maturities................................ 3,449,275 5,861,514 5,819,811
Stockholder's Equity..................................... 2,340,826 2,695,477 2,666,424
</TABLE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capital Resources -
The Company's business strategy is to focus on the private community
corrections industry, expanding its operations into additional states within the
Southwest region through new state contracts and selective acquisitions. The
strategy included the necessity to divest itself of it's interest in residential
care management and assisted living centers, to allow management to concentrate
on the private corrections industry. The Company's strategy was implemented in
the fourth quarter 1996. All residential care facilities were discontinued. The
losses associated with the discontinuation of the residential care facilities
are reflected on the Consolidated Statements of Operations. A contract to sell
the Assisted Living Center in Fort Collins, Colorado, was closed in July, 1997.
The remaining assisted living center will be divested during 1997.
Working capital at December 31, 1996 was $179,000 for a current ratio of 1.18.
Current liabilities were greater than current assets as of March 31, 1997, by
$421,000, primarily due to debt maturing in the first quarter of 1998. The
Company is in the process of refinancing certain debt however no commitment is
in place. Repayment of short term and long term borrowing was approximately
$740,000 with $1,269,000 additional borrowing incurred for the quarter ended
March 31, 1997.
Warrants were exercised in 1996 for a net funding of $1.183 million, used
primarily for the purchase of El Paso Intermediate Sanction Facility in August,
1996, and operating needs. The purchase price of the facility was approximately
$3.681 million including the assumption of $2.974 million related debt, $200,000
cash, and approximately $307,000 assumption of certain liabilities. The Company
also issued 50,000 shares of common stock and 200,000 stock purchase warrants,
having a value of $200,000, relating to the acquisition.
The Company believes it has sufficient cash reserves and improving cash flows
from operations to meet its current cash requirements. Based on current
contracts, the Company expects to generate sufficient income to realize it's
deferred tax assets. Additional sources of funding may be required for future
expansion. The Company will explore other sources of funding such as additional
bank borrowing or the sale of equity securities for future expansion. Additional
funds may also be available through the exercise of the Company's outstanding
stock purchase warrants. Management is unaware of any other evident trends that
are likely to result in material increases or decreases in the liquidity of the
Company.
Results of Operations -
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995 -
The Company had a net loss in 1995 of $84,800 or $.03 per share, as compared
to a net loss in 1996 of $1,033,700 or $.38 per share. The majority of the loss
incurred in 1996 was due to a loss of $974,000 or $.36 per share loss from
discontinued residential care operations. The majority of loss in 1995, $81,400
or $.03 per share, was due to discontinued park property management. The 1995
Consolidated Statement of Operations was reclassified to reflect the
discontinuation of residential care operations in 1996.
Total revenues for continuing operations increased by 56%, from $2.119 million
in 1995 to $3.313 million in 1996, primarily due to an increase in revenue from
the addition of a correctional facility in El Paso, Texas and to increased
census at the Avalon Correctional Center in Tulsa, Oklahoma.
Corrections. Operating income, before interest, depreciation and income taxes,
was $705,500 for 1996 as compared to $452,600 for 1995, an increase of
approximately 56%. Revenues increased from $2.119 million in 1995 to $3.313
million in 1996 directly as a result of the increase in census at Avalon
Correctional Center and the acquisition of El Paso Intermediate Sanction
Facility. The average daily inmate census increased from 198 in 1995 to 332 in
1996.
Direct operating expenses increased by 84% from 1995 to 1996, primarily as a
result of the increase in expenses at Avalon Correctional Center due to
additional census and the acquisition of El Paso Intermediate Sanction Facility.
The profit margin at Avalon Correctional Center and the El Paso Intermediate
Sanction Facility was low or negative due to low census, thereby reducing the
overall profit margin from 50% in 1995 to 41% in 1996. The census was increased
in 1997 at both facilities, improving the profit margin in 1997. El Paso
Intermediate Sanction Facility was awarded a second contract in November, 1996
bringing the facility to its full capacity. Avalon Correctional Center received
an increase of 30 additional inmates during the first quarter 1997, and is
expected to increase census again during 1997. The profit margin for Nebraska
Substance Abuse Programs was a contributing factor to lower profit margins in
1996. Substance abuse programs profit margin is typically lower than residential
correctional facilities, primarily due to higher overhead costs.
Residential Care. The 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. Net discontinued operating loss for 1995 and 1996
was $28,500 and $649,247, respectively, net of income tax allocations. Revenues
in 1995 and 1996 were $936,900 and $493,000, respectively. The decrease in
revenues of 56% in 1996 was primarily a result of a decrease in census and the
closing of the facilities in the fourth quarter 1996. The loss on the disposal
of assets related to the discontinuation is estimated to be $325,000, primarily
due to a write down of $318,000 on assets. The Company also paid $87,000 in a
litigation settlement associated with the residential care operations.
Park Management. The Company ceased operations and canceled its park
management contract in June, 1995. The loss on the disposal of operations, net
of income tax benefit of $27,400, was $34,100. Loss from operations in 1995 was
$18,800.
Corporate. General and administrative expenses increased in 1996 by 7% from
$603,300 to $645,700. The increase was a result of additional staffing,
increased legal expenses, and an increase in advertising, marketing, and
promotional costs. The increase in 1996 of $200,700 in interest expense was
primarily due to interest on the funds borrowed for the acquisition of the El
Paso Intermediate Sanction Facility, $129,300, and the construction of Avalon
Correctional Center, $96,000. Depreciation and amortization expense increased by
$69,000 primarily as a result of the acquisition of the El Paso facility and one
full year of depreciation of Avalon Correctional Center in 1996.
Three months ended March 31, 1997 compared to the three months ended March 31,
1996 -
Net loss for the three months ended March 31, 1996 was $32,000 or $.01 per
share as compared to a net loss in 1997 of $34,000 or $.01 per share. The loss
in 1996 was due to discontinued operations. The loss in 1997 was primarily due
to increased costs associated with the acquisition in August, 1996 of the El
Paso Intermediate Sanction Facility.
Net income from continuing operations, before interest and income taxes,
increased by $56,000, from $66,000 in 1996 to $122,000 in 1997 or by 80%. Net
income from continuing operations, before interest, income taxes, and
depreciation and amortization expense, increased from $131,000 in 1996 to
$220,000 in 1997. The increase in 1997 was primarily due to the El Paso
Intermediate Sanction Facility and increased census at the Avalon Correctional
Center.
Net income from continuing operations, after interest and income taxes, was
approximately $2,000 in 1996 as compared to a net loss of approximately $31,000
in 1997. The decrease in 1997 was primarily due to an $89,000 increase in
interest, primarily attributable to the acquisition of the El Paso Intermediate
Sanction Facility.
Total revenues for the first quarter 1997 as compared to the first quarter
1996, increased by $531,000. Revenue was $1,191,000 in 1997 and $660,000 in 1996
for an increase of 80%. Operating expenses increased by $403,000. Both revenue
and operating expense increases were primarily due to an increase in the average
compensated census from 226 inmates in 1996 to 382 inmates in 1997 or an
increase of 69%. The increase was primarily due to the acquisition of the El
Paso Intermediate Sanction Facility and increased census at the Avalon
Correctional Center. Substance abuse services began in correctional facilities
in Missouri during May, 1997, and will increase revenue and expenses by
approximately 20% per year.
General and administrative expenses increased by $40,000 in 1997 due primarily
to increased personnel. Interest expense increased approximately $89,000
primarily due to interest related to the acquisition of the El Paso Intermediate
Sanction Facility. Depreciation expense increased by $33,000, in 1997 as a
result of the acquisition of the El Paso Intermediate Sanction Facility.
The Company entered into agreements with affiliated entities in 1995 and 1996
to develop and manage assisted living centers in Oklahoma City, Oklahoma and
Fort Collins, Colorado. The Company received a 15% equity interest in each
assisted living center and funded start up costs of approximately $357,000 for
these centers in 1996. The Company plans to divest these operations in 1997.
With respect to each transaction with affiliates described herein, Management
believes the terms to be at least as favorable between the Company and the
affiliate as would have been in similar transactions between the Company and a
non-affiliate.
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 After the Offering
---------------------- Securities ---------------------
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 June 30, 1997 there were 2,929,650 shares of Common Stock and
3,410,000 shares of Class B Common Stock issued and outstanding.
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 is entitled to vote in all actions requiring a vote of the
stockholders, but has no liquidation rights, claim on earnings or the payment of
dividends and is non-transferable. See "RISK FACTORS" and "CERTAIN
TRANSACTIONS."
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 $3.50 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
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."
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.
<PAGE>
1,513,100 SHARES OF COMMON STOCK
______________________ 525,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
TABLE OF CONTENTS
P R O S P E C T U S
Page
------
PROSPECTUS SUMMARY ........... 3
RISK FACTORS ................. 5
THE COMPANY .................. 9 July 18, 1997
USE OF PROCEEDS .............. 9
DIVIDEND POLICY .............. 9
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 ................ 18 (405) 752-8802
EXPERTS ...................... 18
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) .................. 24,410.00
Accounting Fees ................ 9,500.00
Miscellaneous Fees ............. 7,538.00
--------------
Total ...................... $ 50,000.00
==============
- ------------
(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) Employment Agreement with Donald E. Smith (2)
(vi) Agreement and Plan of Reorganization dated June 10, 1992, between
Avalon Enterprises, Inc. and Southern Corrections Systems, Inc.
(2)
(vii) Stock Option Plan adopted by Board of Directors of Registrant on
August 16, 1994. (6)
(viii) Debt Guaranty Agreement dated May 16, 1994, between Registrant and
Donald E. Smith (6)
(ix) Placement Agent Agreement dated May 15, 1994, between Registrant
and Westminster Securities Corporation (6)
(x) Acquisition Agreement dated August 2, 1996 between Registrant,
Kensington Capital, Plc and RECOR, 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 July 16, 1997.
(Registrant) AVALON COMMUNITY SERVICES, INC.
By: \Donald 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 July 16, 1997
Donald E. Smith and Director
\Jerry M. Sunderland
------------------------ President and Director July 16, 1997
Jerry M. Sunderland
\Kathryn A. Avery
------------------------ Chief Financial Officer July 16, 1997
Kathryn A. Avery and Vice President
\Robert O. McDonald
------------------------ Director July 16, 1997
Robert O. McDonald
EXHIBIT 10.(i)
HALFWAY HOUSE SERVICE CONTRACT
THIS AGREEMENT, made and entered into this 19th day of June, 1997, by and
between the OKLAHOMA DEPARTMENT OF CORRECTIONS, Chief of Staff and Operations,
hereinafter called the "DEPARTMENT" and Southern Corrections Systems, Inc.,
hereinafter called the CONTRACTOR.
WHEREAS, the DEPARTMENT desires to purchase the services of CONTRACTOR for
those purposes and duties hereinafter enumerated on paragraph 1 and 2 below,
and;
WHEREAS, the CONTRACTOR is willing to provide such services under the terms
and conditions hereinafter set forth.
NOW THEREFORE, in consideration of these premises and agreements hereinafter
set forth, the parties hereby agree as follows:
I. Conditions and Services
-----------------------
A. Shall provide three nutritionally balanced meals daily per correctional
client.
B. Shall provide at least one on duty alert staff for each 40 clients for
supervision and assistance to correctional clients at all times. One
individual should be a roving patrol when all other staff are absent.
C. Shall provide, at a minimum, 60 square feet of living space for each
individual living area.
D. Shall provide recreational facilities on grounds (i.e. pool tables, card
tables, weight room, etc.) and/or weekly transportation to facilities for
additional recreational activities. (i.e. team sports, use of gymnasium,
etc.).
E. Shall provide procedures to maintain all client information in strict
confidence and shall not release such information, be that information
pertinent to a presently or previously assigned client, without first
receiving clearance from the superintendent/designee of the host facility
and/or release from the subject client. Exception: host facility staff,
showing proper identification, are guaranteed inmate record accessibility
at any time.
F. Shall maintain facility in such condition so as to comply with all
applicable local and state fire and health codes, as well as compliance
with Life Safety Codes. Copies of each inspection shall be provided to
the DEPARTMENT at the time of the contract signing.
G. Shall maintain facility in compliance with written standards as provided
by the department. (Attachment A) The vendor must show compliance with 95
percent of the standards. Failure to comply shall result in a 90 day
probationary period, after which the department will again review the
standards ensuring compliance. If at the end of the 90 day probationary
period the facility again shows noncompliance, the Department shall
reduce the bed utilization 20 percent for the remainder of the
contracting period.
H. Shall provide a reintegration counselor to provide guidance and make
appropriate community referrals for employment and budgeting services. If
PPCS homeless inmates are provided housing at the facility, there must be
assistance from staff to help the offender find a job within 30 days and
a home within 60 days.
I. Shall provide such additional services as the DEPARTMENT may require and
which are necessary to maintain the health and safety of the inmate(s)
serviced under this contract.
J. Shall ensure a case manager/counselor maintains individual files
documenting each client's program goals, place of employment,
programmatic leaves, and any other significant events.
K. Shall ensure that each client budgets earned income according to
Department of Corrections policy and that time credits are submitted
monthly on each client in a timely manner.
L. Shall provide all transportation for offenders for program, employment,
and all other departmental activities except from one Department of
Corrections facility to another.
M. Shall provide information to departmental staff of the arrest of any
employee of the halfway house. Each halfway house employee shall be
fingerprinted by the host facility of the department.
N. At a minimum, those vendors contracting for 20 or more bed spaces per
day, shall enter into candidate status for American Correctional
Association accreditation for Standards for Adult Community Residential
Services, Second Edition, within six months after the signing of the
contract and receive such accreditation within 18 months of the
aforementioned date, if accreditation has not been obtained prior to the
signing of the contract.
II. Area of Performance
-------------------
The services of the CONTRACTOR shall be performed under the general
administration of David C. Miller, chief of Staff and Operations,
Oklahoma Department of Corrections. The CONTRACTOR will be inspected
quarterly and audited annually to ensure that the conditions and services
are being adequately provided.
III. Medical Responsibilities
------------------------
A.All medical and/or dental services shall be provided by the DEPARTMENT
unless alternate services are approved by the DEPARTMENT or such
service is a result of a medical and/or dental emergency.
1.Medical emergency shall be defined as danger or threat of the loss
of life or extremity.
2.Dental emergency shall be defined as acute problems in mouth
exhibiting symptoms of pain, swelling, bleeding, and/or elevation of
temperature.
B.The CONTRACTOR shall notify the DEPARTMENT of any medical/dental
emergency immediately after such emergency or within the first working
day after said emergency.
IV. Payment for Service
-------------------
A.As consideration for such services as outlined in Section I above, the
DEPARTMENT shall pay CONTRACTOR $31.70 per man-day, excluding dates of
arrival and departure.
B.The DEPARTMENT shall not be liable for and shall not pay CONTRACTOR
for expenses incurred by CONTRACTOR, except those herein expressly
provided.
V. Termination of Convenience
--------------------------
Either party may terminate this AGREEMENT at any time by giving written
notice to the other party of such termination and specifying the
effective date thereof, at least 30 days prior to the effective date of
such termination, and such written notice shall be by registered mail to
the DEPARTMENT at 3400 Martin Luther King Avenue, Oklahoma City, Oklahoma
73136, or to the CONTRACTOR at 13401 Railway Drive, Oklahoma City, OK,
73112. Notice given pursuant to the provisions of this paragraph shall be
deemed sufficient for all purposes.
VI. Duration of Agreement
---------------------
This contractual AGREEMENT shall be in effect to June 30, 1998, the end
of the current fiscal year for the state of Oklahoma.
VII. Regulations
-----------
This AGREEMENT and all rights and duties arising thereunder, shall be
governed, interpreted, and construed under the laws of the state of
Oklahoma.
IN WITNESS THEREOF, the parties have executed this AGREEMENT in triplicate on
the day and year first written above.
OKLAHOMA DEPARTMENT OF CORRECTIONS
- ----------- ----------------------------------
DATE David C. Miller, Chief of Staff and Operations
SUBSCRIBED and SWORN to before me this ___ day of _____ June 1997.
MY COMMISSION EXPIRES:
------------------------
NOTARY PUBLIC
Southern Corrections System, Inc.
- ------------ ---------------------------------
DATE (Name of Contractor and Title)
SUBSCRIBED and SWORN to before me this ____ day of ______, 1997.
MY COMMISSION EXPIRES:
-------------------------
NOTARY PUBLIC
EXHIBIT 10.ii
WORK CENTER SERVICE CONTRACT
THIS AGREEMENT, made and entered into this 19th day of June, 1997, by and
between the OKLAHOMA DEPARTMENT OF CORRECTIONS, CHIEF OF STAFF AND OPERATIONS,
hereinafter called the DEPARTMENT and Southern Corrections Systems, Inc.,
hereinafter called the CONTRACTOR.
WHEREAS, the DEPARTMENT desires to purchase the services of CONTRACTOR for
those purposes and duties hereinafter enumerated on paragraphs 1 and 2 below,
and;
WHEREAS, the CONTRACTOR is willing to provide such services under the terms
and conditions hereinafter set forth.
NOW THEREFORE, in consideration of these premises and agreements hereinafter
set forth, the parties hereby agree as follows:
I. Conditions and Services
-----------------------
A.Shall provide services for a program to house an inmate residential
center as authorized in 57 O.S., Section 561.
B.Shall make available three nutritionally balanced meals daily per
correctional client and follow an established master menu.
C.Shall provide at least one on duty alert staff for every 40 inmates
housed for supervision and assistance to correctional clients at all
times. One individual should be a roving patrol when all other staff are
absent.
D.Shall provide, at a minimum, 60 square feet of living space for each
individual living area. E. Shall provide case management services to the
assigned inmates (1 to 50) and to maintain all client information in
strict confidence and shall not release such information, be that
information pertinent to a presently or previously assigned client,
without first receiving clearance from the superintendent/designee of the
host facility and/or release from the subject client. EXCEPTION: Host
facility staff, showing proper identification, are guaranteed inmate
record accessibility at any time.
F.Shall maintain facility in such condition so as to comply with all
applicable local and state fire and health codes, as well as compliance
with Life Safety Codes. Copies of each inspection to be provided to the
DEPARTMENT.
G.Shall provide such additional services as the DEPARTMENT may require and
which are necessary to maintain the health and safety of the inmate(s)
serviced under this contract.
H.Shall ensure a case manager/counselor maintains individual files
documenting each client's crew assignment, programmatic leaves, and any
other significant events.
I.Shall provide transportation in staff driven vehicles for the inmates to
and from the work site location(s) or a common drop off/pick up site as
agreed upon by the parties. Transportation may be necessary to surrounding
areas of the immediate Oklahoma City community.
J.Shall provide regular and periodic work site inspections and to document
such inspections in a permanent log.
K.At a minimum, the Contractor shall comply with the list of requirements
which are hereby incorporated by reference into this contractual
agreement. Failure to comply with a minimum of 95 percent of the standards
will result in a 90 day probationary period, after which the department
will again review the standards. If at the end of the probationary period
the facility remains noncompliant, the department shall reduce the bed
utilization by 20 percent for the remainder of the contracting period.
This evaluation, in conjunction with the quarterly inspections, will be
utilized in consideration for future contract awards.
2. Area of Performance
--------------------
The services of the CONTRACTOR shall be performed under the general
administration of David C. Miller, Chief of Staff and Operations, Oklahoma
Department of Corrections. The CONTRACTOR will be inspected quarterly and
audited annually to ensure that the conditions and services are being
adequately provided.
3. Medical Responsibilities
------------------------
A.All medical and/or dental services shall be provided by the DEPARTMENT
unless alternate services are approved by the DEPARTMENT or such service
is a result of a medical and/or dental emergency.
1.Medical emergency shall be defined as danger or threat of the loss of
life or extremity.
2.Dental emergency shall be defined as acute problems in mouth exhibiting
symptoms of pain, swelling, bleeding, and/or elevation of temperature.
B.The CONTRACTOR shall notify the DEPARTMENT of any medical/dental
emergency immediately after such emergency or within the first working day
after said emergency.
4. Payment for Services
--------------------
A.As consideration for such services, the DEPARTMENT shall pay CONTRACTOR
$29.70 per man- day excluding dates of arrival and departure.
B.The DEPARTMENT shall not be liable for and shall not pay CONTRACTOR for
expenses incurred by CONTRACTOR, except those herein expressly provided.
5. Termination of Convenience
--------------------------
Either party may terminate this AGREEMENT at any time by giving written
notice to the other party of such termination and specifying the effective
date thereof, at lease 30 days prior to the effective date of such
termination, and such written notice shall be by registered mail to the
DEPARTMENT at 3400 Martin Luther King Avenue, Oklahoma City, Oklahoma 73136,
or to the CONTRACTOR at 13401 Railway Drive, Oklahoma City, OK, 73 1 12.
Notice given pursuant to the provisions of this paragraph shall be deemed
sufficient for all purposes.
6. Duration of Agreement
---------------------
This contractual AGREEMENT shall be in effect to June 30, 1998, the end of
the current fiscal year for the state of Oklahoma.
7. Regulations
-----------
This AGREEMENT and all rights and duties arising thereunder, shall be
governed, interpreted, and construed under the laws of the state of
Oklahoma.
IN WITNESS THEREOF, the parties have executed this AGREEMENT in triplicate on
the day and year first written above.
OKLAHOMA DEPARTMENT OF CORRECTIONS
- ----------- ----------------------------------
DATE David C. Miller, Chief of Staff and Operations
SUBSCRIBED and SWORN to before me this ___ day of _____ June 1997.
MY COMMISSION EXPIRES:
------------------------
NOTARY PUBLIC
Southern Corrections System, Inc.
- ------------ ---------------------------------
DATE (Name and Title)
SUBSCRIBED and SWORN to before me this ____ day of ______, 1997.
MY COMMISSION EXPIRES:
-------------------------
NOTARY PUBLIC
EXHIBIT 10.iii
HALFWAY HOUSE SERVICE CONTRACT
THIS AGREEMENT, made and entered into this 19th day of June, 1997, by and
between the OKLAHOMA DEPARTMENT OF CORRECTIONS, Chief of Staff and Operations,
hereinafter called the "DEPARTMENT" and Southern Corrections Systems, Inc.,
hereinafter called the CONTRACTOR.
WHEREAS, the DEPARTMENT desires to purchase the services of CONTRACTOR for
those purposes and duties hereinafter enumerated on paragraph 1 and 2 below,
and;
WHEREAS, the CONTRACTOR is willing to provide such services under the terms
and conditions hereinafter set forth.
NOW THEREFORE, in consideration of these premises and agreements hereinafter
set forth, the parties hereby agree as follows:
I. Conditions and Services
-----------------------
A. Shall provide three nutritionally balanced meals daily per correctional
client.
B. Shall provide at least one on duty alert staff for each 40 clients for
supervision and assistance to correctional clients at all times. One
individual should be a roving patrol when all other staff are absent.
C. Shall provide, at a minimum, 60 square feet of living space for each
individual living area.
D. Shall provide recreational facilities on grounds (i.e. pool tables, card
tables, weight room, etc.) and/or weekly transportation to facilities for
additional recreational activities. (i.e. team sports, use of gymnasium,
etc.).
E. Shall provide procedures to maintain all client information in strict
confidence and shall not release such information, be that information
pertinent to a presently or previously assigned client, without first
receiving clearance from the superintendent/designee of the host facility
and/or release from the subject client. Exception: host facility staff,
showing proper identification, are guaranteed inmate record accessibility
at any time.
F. Shall maintain facility in such condition so as to comply with all
applicable local and state fire and health codes, as well as compliance
with Life Safety Codes. Copies of each inspection shall be provided to
the DEPARTMENT at the time of the contract signing.
G. Shall maintain facility in compliance with written standards as provided
by the department. (Attachment A) The vendor must show compliance with 95
percent of the standards. Failure to comply shall result in a 90 day
probationary period, after which the department will again review the
standards ensuring compliance. If at the end of the 90 day probationary
period the facility again shows noncompliance, the Department shall
reduce the bed utilization 20 percent for the remainder of the
contracting period.
H. Shall provide a reintegration counselor to provide guidance and make
appropriate community referrals for employment and budgeting services. If
PPCS homeless inmates are provided housing at the facility, there must be
assistance from staff to help the offender find a job within 30 days and
a home within 60 days.
I. Shall provide such additional services as the DEPARTMENT may require and
which are necessary to maintain the health and safety of the inmate(s)
serviced under this contract.
J. Shall ensure a case manager/counselor maintains individual files
documenting each client's program goals, place of employment,
programmatic leaves, and any other significant events.
K. Shall ensure that each client budgets earned income according to
Department of Corrections policy and that time credits are submitted
monthly on each client in a timely manner.
L. Shall provide all transportation for offenders for program, employment,
and all other departmental activities except from one Department of
Corrections facility to another.
M. Shall provide information to departmental staff of the arrest of any
employee of the halfway house. Each halfway house employee shall be
fingerprinted by the host facility of the department.
N. At a minimum, those vendors contracting for 20 or more bed spaces per
day, shall enter into candidate status for American Correctional
Association accreditation for Standards for Adult Community Residential
Services, Second Edition, within six months after the signing of the
contract and receive such accreditation within 18 months of the
aforementioned date, if accreditation has not been obtained prior to the
signing of the contract.
II. Area of Performance
-------------------
The services of the CONTRACTOR shall be performed under the general
administration of David C. Miller, chief of Staff and Operations,
Oklahoma Department of Corrections. The CONTRACTOR will be inspected
quarterly and audited annually to ensure that the conditions and services
are being adequately provided.
III. Medical Responsibilities
------------------------
A.All medical and/or dental services shall be provided by the DEPARTMENT
unless alternate services are approved by the DEPARTMENT or such
service is a result of a medical and/or dental emergency.
1.Medical emergency shall be defined as danger or threat of the loss
of life or extremity.
2.Dental emergency shall be defined as acute problems in mouth
exhibiting symptoms of pain, swelling, bleeding, and/or elevation of
temperature.
B.The CONTRACTOR shall notify the DEPARTMENT of any medical/dental
emergency immediately after such emergency or within the first working
day after said emergency.
IV. Payment for Service
-------------------
A.As consideration for such services as outlined in Section I above, the
DEPARTMENT shall pay CONTRACTOR $29.70 per man-day, excluding dates of
arrival and departure.
B.The DEPARTMENT shall not be liable for and shall not pay CONTRACTOR
for expenses incurred by CONTRACTOR, except those herein expressly
provided.
V. Termination of Convenience
--------------------------
Either party may terminate this AGREEMENT at any time by giving written
notice to the other party of such termination and specifying the
effective date thereof, at least 30 days prior to the effective date of
such termination, and such written notice shall be by registered mail to
the DEPARTMENT at 3400 Martin Luther King Avenue, Oklahoma City, Oklahoma
73136, or to the CONTRACTOR at 13401 Railway Drive, Oklahoma City, OK,
73112. Notice given pursuant to the provisions of this paragraph shall be
deemed sufficient for all purposes.
VI. Duration of Agreement
---------------------
This contractual AGREEMENT shall be in effect to June 30, 1998, the end
of the current fiscal year for the state of Oklahoma.
VII. Regulations
-----------
This AGREEMENT and all rights and duties arising thereunder, shall be
governed, interpreted, and construed under the laws of the state of
Oklahoma.
IN WITNESS THEREOF, the parties have executed this AGREEMENT in triplicate on
the day and year first written above.
OKLAHOMA DEPARTMENT OF CORRECTIONS
- ----------- ----------------------------------
DATE David C. Miller, Chief of Staff and Operations
SUBSCRIBED and SWORN to before me this ___ day of _____ June 1997.
MY COMMISSION EXPIRES:
------------------------
NOTARY PUBLIC
Southern Corrections System, Inc.
- ------------ ---------------------------------
DATE (Name of Contractor and Title)
SUBSCRIBED and SWORN to before me this ____ day of ______, 1997.
MY COMMISSION EXPIRES:
-------------------------
NOTARY PUBLIC
EXHIBIT 23.i
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into this Registration Statement
on Amendment No. 2 to Form S-2 (File No. 333-73103) 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 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."
COOPERS & LYBRAND L.L.P
Oklahoma City, Oklahoma
July 16, 1997
EXHIBIT 23.ii
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into this Registration Statement
on Amendment No. 2 to Form S-2 (File No. 333-73103) 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
July 17, 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
July 16, 1997