Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment
No. )
Filed by
the Registrant ¨
Filed by
a Party other than the Registrant x
Check the
appropriate box:
o Preliminary
Proxy Statement
¨ Confidential,
for use of the Commission
x Definitive
Proxy Statement
only
(as permitted by Rule 14a-6(e)(2))
¨ Definitive
Additional Materials
¨ Soliciting
Material under Rule 14a-12
THE
PROVIDENCE SERVICE CORPORATION
(Name of
Registrant as Specified in Its Charter)
AVALON
CORRECTIONAL SERVICES, INC.
DONALD E.
SMITH
TIFFANY
SMITH
MICHAEL
BRADLEY
ERIC S.
GRAY
73114
INVESTMENTS, L.L.C.
(referred
to as “The Providence Committee for Accountability”) and
BRIAN T.
COSTELLO
(Name of
Persons(s) Filing Proxy Statement, if Other Than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
x
No
fee required.
¨
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1)
Title
of each class of securities to which transaction
applies:
(2)
Aggregate
number of securities to which transaction
applies:
(3)
Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was
determined):
(4)
Proposed
maximum aggregate value of
transaction:
(5)
Total
fee paid:
¨
Fee
paid previously with preliminary
materials:
¨
Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its
filing.
The
members of the Providence Committee for Accountability (the “Committee” or “we”)
are the beneficial owners of an aggregate of 2,302,095 shares of common stock of
the Providence Service Corporation (“Providence” or the “Company”), representing
approximately 17.9% of the outstanding shares of common stock of the Company.
For the reasons set forth in the attached Proxy Statement, we do not believe the
Board of Directors of the Company (the “Board”) is acting in the best interests
of its stockholders. We are therefore seeking your support at the annual meeting
of the stockholders (the “Annual Meeting”) scheduled to be held on Monday, June15, 2009, beginning at 9:00 a.m., local
time, at the Hacienda Del Sol Guest Ranch Resort, 5601 N. Hacienda Del Sol Road,
Tucson, Arizona85718, for the following:
1.
To
elect the Committees slate of two director nominees, Michael C. Bradley
and Captain Brian T. Costello (ret.) (the “Nominees”), to serve as class 3
directors of the Company for a three-year term until the 2012 Annual
Meeting, in opposition to the Company’s incumbent
directors.
2.
To
ratify the appointment of KPMG LLP as the independent registered public
accounting firm of the Company to serve for the 2009 fiscal year;
and
3.
To
transact such other business as may properly come before the Annual
Meeting or any of its adjournments, postponements or
reschedulings.
We are
not seeking control of the Board of Directors. Through the attached Proxy
Statement, we are soliciting proxies to elect our two nominees on the enclosed
BLUE proxy card. The
background and qualifications of the Nominees can be found in the attached Proxy
Statement.
We urge
you to carefully review the information contained in the attached Proxy
Statement and then support our efforts by signing, dating and returning the
enclosed BLUE proxy card
today. The attached Proxy Statement and the enclosed BLUE proxy card are first
being furnished to the stockholders on or about May 22, 2009.
This Proxy Statement is provided by
the Committee and not by the Board of the Company. If you have already
voted a proxy card furnished by the Company’s management, you have every right
to change your vote by signing, dating and returning a later dated
proxy.
If you
have any questions or require any assistance with your vote, please contact D.F.
King & Co., Inc., at their address or toll-free numbers listed on the
following page.
Thank
you for your support,
The
Providence Committee for
Accountability
If
you have any questions, require assistance in submitting your BLUE proxy
card,
or
need additional copies of the Committee’s proxy statement materials,
please call
D.F.
King & Co., Inc. at the phone numbers listed below.
PLEASE
SIGN, DATE AND MAIL THE ENCLOSED BLUE PROXY CARD TODAY
The
members of the Providence Committee for Accountability (the “Committee” or “we”)
are the largest stockholders of the Providence Service Corporation (“Providence”
or the “Company”). We are seeking your support at the annual meeting of the
stockholders (the “Annual Meeting”) scheduled to be held on Monday, June 15,2009, beginning at 9:00 a.m., local time, at the Hacienda Del Sol Guest Ranch
Resort, 5601 N. Hacienda Del Sol Road, Tucson, Arizona85718, for the
following:
1.
To
elect the Committees slate of two director nominees, Michael C. Bradley
and Captain Brian T. Costello (ret.) (the “Nominees”), to serve as class 3
directors of the Company for a three-year term until the 2012 Annual
Meeting, in opposition to the Company’s incumbent
directors.
2.
To
ratify the appointment of KPMG LLP as the independent registered public
accounting firm of the Company to serve for the 2009 fiscal year;
and
3.
To
transact such other business as may properly come before the Annual
Meeting or any of its adjournments, postponements or
reschedulings.
This
Proxy Statement is soliciting proxies to elect our two nominees using the
attached BLUE proxy
card. We are not seeking control of the Board of Directors.
As of May22, 2009, the approximate date on which this Proxy Statement and the enclosed
BLUE proxy card are
first being mailed to stockholders, the members of the Committee were
collectively the beneficial owners of an aggregate of 2,302,095 shares of common
stock of the Company, par value $0.001 per share (the “Shares”), which currently
represent approximately 17.9% of the issued and outstanding Shares. The
Committee is composed of Avalon Correctional Services, Inc., a Nevada
corporation (“Avalon”), 73114 Investments, LLC, an Oklahoma limited liability
corporation (“73114”), Donald E. Smith, Tiffany Smith, Michael C. Bradley, and
Eric S. Gray. Each of these entities, and the Nominees, are deemed to be
participants in this proxy solicitation.
Providence
has set the record date for determining stockholders entitled to notice of and
to vote at the Annual Meeting as April 20, 2009 (the “Record Date”). As of the
Record Date, the members of the Committee were collectively the beneficial
owners of an aggregate of 2,302,095 Shares, all of which Shares are entitled to
be voted at the Annual Meeting. The mailing address of the principal executive
offices of the Company is 5224 East Fourth Street, Tucson, Arizona85711. Shares
of record at the close of business on the Record Date will be entitled to vote
at the Annual Meeting. According to the Company, as of the Record Date, there
were 12,855,091 Shares outstanding and entitled to vote at the Annual Meeting.
The participants in this solicitation intend to vote all of their Shares FOR (i) the election of
the Nominees and (ii) the ratification of the appointment of KPMG LLP, as
described in more detail herein.
3
Important
Notice Regarding the Availability of Proxy Materials.
Under new
rules issued by the Securities and Exchange Commission (the “SEC”), we are
providing access to our proxy materials both by sending you this full set of
proxy materials, including a BLUE proxy card, and by
notifying you of the availability of our proxy materials on the Internet. Our Proxy Statement is available at www.dfking.com/prsc.
IF
ELECTED, CONSISTENT WITH THEIR FIDUCIARY DUTY, OUR NOMINEES ARE COMMITTED TO
ACTING IN THE BEST INTERESTS OF ALL STOCKHOLDERS OF PROVIDENCE. WE URGE YOU TO
VOTE YOUR BLUE PROXY CARD FOR MICHAEL C. BRADLEY AND CAPTAIN BRIAN T. COSTELLO
(RET.).
THIS
SOLICITATION IS BEING MADE BY THE COMMITTEE AND NOT ON BEHALF OF THE BOARD OF
DIRECTORS OR MANAGEMENT OF PROVIDENCE. THE COMMITTEE IS NOT AWARE OF ANY OTHER
MATTERS TO BE BROUGHT BEFORE THE ANNUAL MEETING. IF OTHER MATTERS ARE BROUGHT
BEFORE THE ANNUAL MEETING, THE PERSONS NAMED AS PROXIES IN THE ENCLOSED BLUE
PROXY CARD WILL VOTE ON SUCH MATTERS IN THEIR DISCRETION.
IF
YOU PREVIOUSLY SENT A PROVIDENCE WHITE PROXY CARD TO PROVIDENCE, YOU MAY REVOKE
THAT PROXY AND VOTE FOR THE ELECTION OF THE COMMITTEE’S NOMINEES BY SIGNING,
DATING AND RETURNING THE ENCLOSED BLUE PROXY CARD. THE LATEST DATED PROXY IS THE
ONLY ONE THAT COUNTS. ANY PROXY MAY BE REVOKED AT ANY TIME BEFORE THE ANNUAL
MEETING BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY FOR
THE ANNUAL MEETING TO OUR PROXY SOLICITOR, D.F. KING & CO., INC. OR BY
VOTING IN PERSON AT THE ANNUAL MEETING.
4
IMPORTANT
YOUR
VOTE IS IMPORTANT, NO MATTER HOW MANY SHARES YOU OWN. THE COMMITTEE URGES YOU TO
SIGN, DATE AND RETURN THE ENCLOSED BLUE PROXY CARD TODAY TO VOTE FOR THE
ELECTION OF THE COMMITTEE’S NOMINEES.
·
If
your Shares are registered in your own name, please sign and date the
enclosed BLUE
proxy card and return it to the Committee, c/o D.F. King & Co., Inc.,
in the enclosed envelope today.
·
If
your shares are held in a brokerage account or bank, you are considered
the beneficial owner of the Shares, and these proxy materials, together
with a BLUE voting
form, are being forwarded to you by your broker or bank. As a beneficial
owner, you must instruct your broker, trustee, or other representative how
to vote. Your broker cannot vote your shares on your behalf without your
instructions.
·
Depending
on your broker or custodian, you may be able to vote either by toll-free
telephone or by the Internet. Please refer to the enclosed voting form for
instructions on how to vote electronically. You may also vote by signing,
dating and returning the enclosed voting
form.
Since
only your latest proxy card will count, we urge you not to return any proxy card
you receive from the Company. Even if you return a management proxy card marked
“withhold” as a protest against the incumbent directors, it will revoke any
proxy card you may have previously sent to the Committee. Remember, you can vote
for our two independent nominees only on our BLUE proxy card, so please
make certain that the latest dated proxy card you return is the BLUE proxy card.
If
you have any questions, require assistance in submitting your BLUE proxy
card,
or
need additional copies of the Committee’s proxy statement materials,
please call
D.F.
King & Co., Inc. at the phone numbers listed below.
From
October 24, 2008, through November 20, 2008, the Committee acquired
2,302,095 shares of common stock of Providence believing the shares to be
undervalued. Its shares then represented approximately 18.7% of the issued and
outstanding shares of Providence common stock based on the 12,313,261 shares of
Providence common stock outstanding as of September 30, 2008 (now 17.9% based on
12,855,091 shares outstanding as of the record date).
On
November 10, 2008, the Committee filed an initial Schedule 13D (the “Schedule
13D”) with the Securities and Exchange Commission (the “SEC”). In the Schedule
13D, the Committee indicated its belief that the Providence’s shares were
undervalued and were acquired for, and are being held for, investment purposes.
The Committee also indicated that it intended to seek representation on the
Providence Board if the representation could be accomplished without triggering
existing change of control provisions in agreements between Providence and third
parties.
Also on
November 10, 2008, Donald E. Smith, the Chief Executive Officer of Avalon,
called Fletcher Jay McCusker, Providence’s Chief Executive Officer, requesting a
meeting with members of Providence’s management. Mr. Smith and
Mr. McCusker eventually agreed to meet on November 22, 2008.
On
November 18, 2008, the Providence Board appointed Craig A. Norris, the Chief
Operating Officer of the Company, to fill a vacant board position. The position
had been vacant since the April 10, 2008 resignation of Steven I. Geringer, an
independent director.
On
November 20, 2008, the Board amended and restated the bylaws of the Company. The
amendments included provisions that: (a) limited those who might call
a special meeting to stockholders holding 50% or more of the voting stock;
(b) added disclosure requirements for a stockholder to call special
meetings and to make proposals or nominate directors at an annual or special
meeting; (c) permitted the chairman to adjourn a stockholders meeting
without stockholder consent even if a quorum is present; (d) allowed only
the Board to fill board vacancies; and (d) required stockholders to
“request” a record date before soliciting consents.
On
November 21, 2008, Providence issued a press release announcing that it was
pursuing several strategic options to enhance stockholder value, including the
sale of its “non-core assets”, and that it had retained a financial advisor to
assist it in the sale. In the release, Providence stated that it “provides home
and community based social services and non-emergency transportation services”
and described its core assets as its “social services business”. The Committee
believes that the non-core assets are its non-emergency transportation services
assets, which are the assets of LogistiCare Solutions, LLC that it had acquired
in December 2007.
On
November 22, 2008, Mr. Smith, Mr. Bradley and Mr. Gray met with
Mr. McCusker and Fred D. Furman, Providence’s Executive Vice President and
General Counsel, at the Company’s offices in Tucson, Arizona, for about an hour.
After introductions, the Avalon participants asked questions about Providence,
including management’s plan for dealing with the Company’s debt levels and
maintaining debt covenant compliance. The Avalon participants also indicated an
interest in board representation. Messrs. McCusker and Furman responded
generally that they were unable to discuss any operational matters or matters
associated with the debt as they were restricted by Regulation FD. The Avalon
participants asked if Providence would have any interest in exchanging stock for
outstanding indebtedness, which they suggested would allow Providence to reduce
its debt without spending cash and increase Providence’s ability to meet its
debt covenants. No agreement or understandings were reached with regard to this
or other matters. The Avalon participants were unaware that the Board had
adopted the bylaw amendments.
6
Concerned
about the Company’s continued compliance with its coverage ratios and debt
covenants, on November 24, 2008, Mr. Smith wrote to Mr. McCusker
(by letter mistakenly dated November 21, 2008) outlining a suggestion to
swap some of the Company’s debt for newly-issued equity to improve the debt
coverage ratio compliance and to delever the Company.
Also on
November 24, 2008, Mr. Gray wrote two letters to Mr. Furman. In one
letter, Mr. Gray indicated that three members of the Avalon group were
interested in joining the Providence Board and requested policies relating to
board service, which were mentioned in the prior meeting. In a second letter,
Mr. Gray expressed his surprise at learning the Providence Board had
adopted Bylaw amendments and inquired whether the Company had requested and
received waivers from its senior credit facility lenders regarding the Company’s
covenant not to amend, modify or change its organizational documents in a manner
materially adverse to the interests of the lenders.
On
December 3, 2008, Mr. McCusker responded in writing to the correspondence
that he had received from Mr. Smith on November 25, 2008. In his letter,
Mr. McCusker said that he had referred the debt swap transaction suggested
by Mr. Smith to the Providence Board, which had determined that the
transaction was not in the best interests of the Company or its
stockholders.
Also on
December 3, 2008, Mr. Furman responded in writing to the correspondence
that he had received from Mr. Gray on November 25, 2008. In his letter,
Mr. Furman addressed the interest expressed by Mr. Gray in having
three members of the Avalon group join the Providence Board by stating that
there were no vacancies and that only two directors would be elected at the
upcoming annual meeting. Mr. Furman finally stated that he did not advise
the lenders about the Bylaw amendments based on his opinion that the amendments
could not be construed as adversely affecting the lenders.
On
December 10, 2009, the Company issued a press release announcing the
Board’s adoption on December 9, 2008, of a stockholder rights plan, as
known as a “poison pill”.
As
disclosed in a Form 8-K filed with the SEC on January 5, 2009, on
December 30, 2008, the Providence Compensation Committee awarded 380,000
shares of stock to the executive officers and non-employee directors. They
further announced that all of these awards vest immediately. The Compensation
Committee also elected to accelerate the vesting dates of all unvested stock
options and restricted stock previously awarded to eligible employees and
consultants, including stock options and restricted stock granted to senior
management and non-employee directors. The result of these actions was an
expense charge to the Company of approximately $5.8 million.
While the
Committee had purchased its shares of Common Stock believing the shares were
undervalued and represented an attractive investment opportunity, these
subsequent developments caused the Committee to reassess its position. The
Committee was troubled by the impairment charges and debt covenant problems, the
executive compensation levels, and the possible disposition of LogistiCare one
year after Providence had acquired it. The Committee was also troubled by the
Providence Board’s adoption of the Bylaw amendments and the stockholder rights
plan (the poison pill), the December 2008 grant of new stock representing 3.0%
of the outstanding shares, and the immediate acceleration of any vesting
restriction (which increased the officer and director voting power). The
Committee began considering ways to raise its concerns.
On
January 21, 2009, 73114 Investments, L.L.C. (“73114”) sent a stockholder
demand for books and records as well as a separate stockholder demand for
inspection of the stockholder list to the Company to facilitate communication
with fellow stockholders, investigate potential wrongdoing, mismanagement, waste
of corporate assets and breaches of fiduciary duties by members of the Company’s
Board and to assess the ability of the Board to impartially consider a demand
for action related to the items described in the demands. The Committee stated
that it had become increasingly concerned about the Board’s oversight of the
Company and management’s actions at a critical juncture in the Company’s
business, particularly in connection with (a) the authorization of large
increases in the levels of executive compensation; (b) the award of
restricted stock grants under the Company’s 2006 Long Term Incentive Plan and
the acceleration of the incentive awards and grants; (c) the amendments to
the employment agreements between the Company and Messrs. McCusker, Deitch,
Furman and Norris and the financial impact thereof; (d) possible accounting
irregularities in the recording of asset values; and (e) the annual
incentive compensation program of the Company. The Committee also expressed
concern about management’s unwillingness to communicate with them about these
matters. The demands were included as exhibits to an Amendment No. 1 to
Schedule 13D, which the Committee filed with the SEC on January 22, 2009.
In the amended Schedule 13D, the Committee stated that it was considering both a
proxy contest and a consent solicitation against Providence.
7
On
January 25, 2009, Mr. Gray wrote Michael N. Deitch, Providence’s Chief
Financial Officer and Corporate Secretary, advising Providence that the
Committee was considering nominating persons for election to the Providence
Board at the 2009 Annual Meeting and asking that Mr. Deitch provide the
Committee with the director and officer questionnaire (the “Questionnaire”) and
director agreement (the “Director Agreement”) contemplated by the Providence
Bylaws.
In
letters dated January 26, 2009, Providence’s outside legal counsel
responded to the two inspection demands. As to the demand for inspection of the
stockholder list, counsel stated that Providence would make the requested list
available and the Committee has obtained the stockholder list. As to the books
and records demand, counsel for Providence refused to make any books and records
available asserting that the demand was “extraordinarily overbroad, patently
inappropriate, unduly burdensome and devoid of a proper purpose, and, as such,
represent an egregious abuse of the Section 220 demand process.” The full
text of these response letters and a press release issued by Providence were
attached as exhibits in Form 8-K filed by Providence on January 26,2009.
On
January 30, 2009, Mr. Deitch responded by letter to Mr. Gray and
enclosed copies of the requested Questionnaire and Director
Agreement.
On
February 5, 2009, the Committee filed a preliminary consent solicitation
statement with the SEC, through which the Committee would conduct a consent
solicitation to seek stockholder support for nine proposals to amend the
Providence Bylaws.
On
February 10, 2009, 73114 sent a second demand for books and records to address
the issues raised in the response letter and to narrow the documents requested.
Providence’s outside legal counsel responded in a letter dated February 18,2009, in which counsel for Providence refused to make any books and records
available for the same reasons identified in the first response letter and
accused 73114 of including “false and misleading statements” under oath that
rendered the demand “defective ab initio”.
On
February 12, 2009, Providence filed its preliminary consent revocation statement
with the SEC opposing the bylaw proposals in the Committee’s preliminary consent
solicitation statement.
On
February 19, 2009, the Committee officially notified Providence that it intended
to nominate two candidates for election as directors to the Providence Board at
the 2009 Annual Meeting.
On
February 24, 2009, the Providence Board approved amended and restated
bylaws of the Company. In a February 24, 2009 press release (Exhibit 99.1
to its Form 8-K dated February 25, 2009), Providence stated that the
amendments made “various enhancements to the Company’s corporate governance
practices. The specific corporate governance enhancements unanimously approved
by Providence’s Board of Directors include bylaw amendments to adopt and
implement a majority standard for the election of directors in uncontested
elections, bylaw amendments to make it easier for stockholders to call a special
meeting of stockholders, and bylaw amendments that make it easier for
stockholders to nominate candidates for election at the Company’s annual
meetings.”
8
On
February 27, 2009, in response to the Bylaw amendments by the Providence Board,
the Committee issued a press release announcing that it was withdrawing its
consent solicitation statement and discontinuing the consent
solicitation.
On March2, 2009, the Committee amended its Schedule 13D to report that it had withdrawn
its consent solicitation statement and discontinued the consent
solicitation.
On April
10, 11, and 12, 2009, Mr. McCusker and Mr. Smith had a number of
telephone conversations. During those conversations, which focused on whether
there was a path to avoid a contested proxy solicitation, the two discussed a
termination of the Committee’s proxy solicitation if Providence would appoint a
certain stockholder representative to the Providence Board. Except for his share
ownership in Providence, the named representative was not affiliated with the
Committee or Providence.
On April14, 2009, counsel for Providence sent counsel for the Committee a draft form of
settlement agreement relating to the Committee’s proxy
solicitation.
On April15, 2009, counsel for the Committee e-mailed counsel for Providence advising
that the Committee had rejected the settlement offer and form of proposed
settlement agreement since the agreement provided only for a representative to
be designated by the Providence Board and not the representative named in
earlier discussions. Following the rejection, the Committee and Providence
management learned independently that the named representative was unwilling to
serve on the Providence Board.
On April16, 2009, Providence issued a press release to announce that its settlement
offer and form of proposed settlement agreement had been rejected by the
Committee.
On April20, 2009, Mr. Smith sent a letter to each of Providence’s independent
directors requesting a meeting to discuss the Committee’s concerns about
Providence.
On April25, 2009, Warren S. Rustand, Providence’s lead director, replied to
Mr. Smith indicating that he and members of Providence’s executive
management team were willing to meet with Mr. Smith during the week of
April 27, 2009.
On April28, 2009, Mr. Smith, Mr. Bradley, Mr. Gray and outside legal
counsel for the Committee met with Mr. Rustand, Ms. Meints,
Mr. McCusker, Mr. Furman and outside legal counsel for Providence to
discuss a possible settlement relating to the Committee’s proxy solicitation.
The meeting occurred in Providence’s offices in Tucson, Arizona, and lasted
about two hours. The parties were unable to reach an agreement.
On April29, 2009, Mr. Smith wrote to Mr. Rustand responding to
Mr. Rustand’s April 25, 2009 letter to Mr. Smith.
REASONS
FOR OUR SOLICITATION
The
Providence Committee for Accountability is seeking your support for the election
of our Nominees. We believe the election of our Nominees will provide
independent voices in the Providence boardroom and will focus on the best
interests of the stockholders. Our Nominees are committed to exploring all
opportunities to maximize stockholder value.
If
elected, our Nominees will attempt to work with the other members of the Board
to pursue options that they believe are in the best interests of all
stockholders. In particular, our Nominees would seek to curb existing
compensation practices to officers and Directors, provide oversight and
accountability applicable to acquisitions and dispositions, and provide a voice
for stockholder interests.
9
We do not
seek to gain control of Providence’s Board, to make any merger, tender offer or
other acquisition proposal, or to engage in any transaction that would make us
an “acquiring person” under Providence’s recently adopted stockholder rights
plan.
·
We believe the Board has
excessively increased executive and director
compensation.
Based on
total compensation levels reported in the Company’s 2007, 2008 and 2009 proxy
statements filed with the SEC, from January 1, 2006, through
December 31, 2008, management’s total compensation appears to have
increased approximately 390% for Fletcher J. McCusker, the Chairman and
Chief Executive Officer, 280% for Craig A Norris, the Chief Operating
Officer, 260% for Michael N. Deitch, the Chief Financial Officer, and 280% for
Fred D. Furman, the General Counsel.
As stated
in Providence’s 2009 proxy statement, the Compensation Committee approved the
increases to bring executive compensation to the 50th
percentile when comparing compensation levels at Providence with levels in a
selected peer group of companies. We contend that the comparison was flawed in
that Providence did not fit the peer group. Of the 14 companies in the peer
group, Providence’s market capitalization was ranked 13th at
December 31, 2007, its 2007 annual revenues were ranked 13th, and
its 2007 earnings were ranked 11th.
In
addition, on December 30, 2008, the Board granted stock totaling 380,000 shares
of common stock representing 3.1% of the then issued and outstanding shares to
four executives and four Directors. The Board accelerated the normal three-year
vesting period for the stock grants, and all previously issued stock options and
restricted stock grants were vested immediately. As stated by Providence in its
Form 10-K for 2008, these awards and the acceleration of vesting resulted in a
$5.8 million charge to the Company’s financials in the fourth quarter of
2008.
We
believe the compensation increases, large stock grants, and the acceleration of
vesting periods were unwarranted and are examples of the failure of the Board to
focus on the best interests of the stockholders.
·
We believe the Board could
provide better oversight for acquisitions and
dispositions.
In
December 2007, Providence acquired LogistiCare for approximately
$229 million, all of which was funded by new borrowings. The acquisition
greatly increased Providence’s debt levels. It did so despite LogistiCare’s
history of losses, weak EBITDA, interest deferrals and debt covenant
breaches.
On
October 22, 2008, Providence announced an estimated impairment charge related
specifically to the LogistiCare acquisition of $90 to $120 million in the
third quarter of 2008. Also, in a November 5, 2008 conference call,
management stated Providence had a debt to EBITDA coverage ratio of 4.73. They
stated that the senior debt covenants required a maximum ratio of 4.75, meaning
that the Company was within two-one hundredths of a point from a default on its
senior debt.
On
November 10, 2008, Providence finalized its earlier estimate by announcing
impairment charges relating to LogistiCare of $96.0 million. It also
announced additional impairment charges of $34.0 million relating to other
acquisitions.
On
December 18, 2008, the Company announced it was seeking strategic
alternative options, including the sale of LogistiCare.
In its
2008 Annual Report, the Company recorded additional impairment charges of
$11.0 million relating to LogistiCare and $28.9 million relating to other
acquisitions. The total impairment of intangible assets for the Company in 2008
was $169.9 million, of which $107.0 million related to
LogistiCare.
Within a
year, Providence bought LogistiCare, wrote off more than half of the purchase
price, announced it was near a default on the senior debt incurred in the
acquisition, and disclosed it would pursue the sale of LogistiCare. Providence
also wrote off $62.9 million of carrying value of other company assets in
2008.
10
We
believe these events indicate a need for better board oversight in corporate
acquisitions.
·
We question the degree of the Board’s
independence.
According
to the Company’s 2009 Proxy Statement, a director is not considered
“independent” unless the Board affirmatively determines that the director has no
material relationship with Providence other than as a director of the
Board. Any relationship that is not prohibited by the Nasdaq rules, or is
not required to be disclosed under Item 404(a) of SEC Regulation S-K, is
automatically deemed to be an immaterial relationship. Based on this approach,
the Board has determined that all the directors are independent except for
Messrs. McCusker and Norris, who are employed by Providence.
Under the
Board’s approach, a director may have other relationships with Providence yet
still be deemed “independent”. For example, Providence engages a consultant to
administer its employee benefits plans that employs three of director Warren
C. Rustand’s sons. Providence disclosed in its Proxy Statement that it paid
the consultant $345,500 in 2008, yet the Board has affirmatively determined this
relationship to be immaterial based on the dollar amounts involved.
We
believe the Board has set a minimal standard for determining
independence. While the Board’s standards may be prevalent among
similarly situated, Nasdaq companies, the standards are not
universal. For example, under the 2009 U.S. Proxy Voting Guidelines
for Risk Metrics Group, a prominent proxy advisory service, Mr. Rustand
would be an “affiliated outside director” since his sons provide professional
services to Providence in excess of $10,000 per year. We believe many
companies use higher standards in determining independence. In the
2008-2009 RiskMetrics Group Policy Survey (October 2008), 36% of responding
issuers would no longer consider a director independent if he or she were paid
any amount for professional services. An additional 20% would no
longer consider a director independent if he or she were paid $10,000 for
professional services. We believe the Board should also consider
factors beyond related party transactions – such as the length of service and
reliance on financial benefits - which are permitted under the applicable Nasdaq
rules for determining independence and that arguably affect a director’s ability
to exercise independent judgment.
Our Nominees are committed to a
course of action for the Company that supports a
thorough
and comprehensive strategic review of the Company’s corporate
governance
practices. In particular, the Nominees will:
·
Articulate
and raise their concerns about Providence’s corporate governance practices
with the rest of the Providence Board members and urge implementation of
best practices.
11
·
Seek
to adopt compensation practices that tie executive pay to Providence’s
performance.
·
Act
independently and provide necessary supervision to the senior management
of the Company.
·
Provide
an independent voice in the boardroom that we believe is necessary to
ensure the Board focuses on the interests of
stockholders.
If
elected, the Nominees will constitute a minority of the Providence Board.
Accordingly, the Nominees will, as is their fiduciary duty as directors, work
with the other members of the Board to take those steps that they deem
appropriate for the benefit of all stockholders.
PROPOSAL
NO. 1
ELECTION
OF DIRECTORS
The
Providence Board is currently composed of seven directors divided into three
classes serving staggered three-year terms. One class of directors is elected by
the stockholders annually. Two directors will be elected at the 2009 Annual
Meeting. The Committee is seeking your support at the Annual Meeting to elect
the Nominees in opposition to Providence’s director nominees to serve until the
2012 annual meeting of stockholders and until their successors are duly elected
and qualified.
The
Nominees
The
Committee has nominated a slate of highly qualified nominees who we believe
possess the expertise necessary to act with the interests of stockholders in
mind. The Nominees are independent of the Company in accordance with SEC and
NASDAQ Marketplace rules on director independence and are committed to explore
all alternatives to increase stockholder value. The Nominees have consented to
be named in this Proxy Statement and to serve as Providence directors if
elected. If elected, the Nominees are committed to acting in the best interests
of Providence stockholders and will pursue their efforts diligently and
promptly.
Set forth
below are the name, age, business address, present principal occupation,
employment history and directorships of publicly-held companies of each of the
Nominees for at least the past five years. This information has been furnished
to the Committee by the respective Nominees. Each of the Nominees is a citizen
of the United States of America. None of the entities referenced below is a
parent or subsidiary of the Company.
Name
Age
Present
Principal Occupation
and Five Year Employment
History
Michael C. Bradley
37
Michael
Bradley has served as the Chief Financial Officer of Avalon Correctional
Services, Inc. since June 2004. He was instrumental in Avalon’s debt
restructuring from 2004 to 2006, negotiating and implementing credit
instruments that better aligned Avalon’s operating and debt service needs.
He has extensive experience in project due diligence, mergers and
acquisitions, and post-implementation financial analysis. Immediately
before his employment with Avalon, Mr. Bradley was self-employed and
focused his business on consulting services relating to Sarbanes-Oxley Act
compliance, business process evaluation and integration, and litigation
support. Earlier in his career, Mr. Bradley specialized in IPO
transactions and loan workouts for the Resolution Trust Corporation as an
auditor for Ernst & Young. He received his bachelor’s of science
degree in business administration as an accounting major from Oklahoma
State University in 1993, and is licensed as a Certified Public Accountant
in Texas and Oklahoma. Mr. Bradley is not currently serving as a director
of any company with a class of securities registered pursuant to Section
12 of the Exchange Act, subject to the requirements of Section 15(d) of
the Exchange Act or registered as an investment company under the
Investment Company Act of 1940. Mr. Bradley’s principal business address
is 13401 Railway Drive, Oklahoma City, Oklahoma73114.
12
Captain Brian T. Costello (ret)
47
Captain
Costello has over 25 years of leadership and management experience with
extensive knowledge in command, control and communications. From March
2006 until April 2009, he served as Captain of the United States Navy as
the Wing Commander and Deputy Wing Commander for Strategic Communications,
Wing One, at Tinker Air Force Base in Oklahoma City. As Wing Commander, he
was responsible for the management of over 1,600 military and civilian
personnel, a $120 million operating budget, and $3.8 billion in assets.
Captain Costello was also responsible for maintaining a Lean/Six Sigma
based process improvement program that focused on cost avoidance, theory,
and best practices. From March 2005 to March 2006, Captain Costello served
as the Assistant Chief of Staff for Plans and Policy for the United States
Navy Central Command and the 5th Fleet of the United States Navy in
Bahrain. From 2002 to 2005, Captain Costello served as Deputy for
Operations for Strategic Communications Wing One at Tinker Air Force Base.
He retired from the United States Navy in April 2009 and is currently the
Principal Accounts Manager of Business Development/Midwest Region –
Government Systems for Rockwell Collins, Inc. Captain Costello received
his bachelor’s of science degree from the United States Naval Academy in
1983. Captain Costello is not currently serving as a director of any
company with a class of securities registered pursuant to Section 12 of
the Exchange Act, subject to the requirements of Section 15(d) of the
Exchange Act or registered as an investment company under the Investment
Company Act of 1940. Captain Costello’s principal business address is 2501
Liberty Parkway, Suite 650, Midwest City, Oklahoma73110.
There are
no arrangements or understanding between any of the Nominees and any member of
the Committee pursuant to which any of the Nominees was selected as a nominee.
No family member of any of the Nominees is an executive officer, director or
person nominated or chosen to become a director or executive officer of the
Company. Other than as disclosed in this Proxy Statement or in the Schedule 13D
(as amended to date) filed by the Committee with the SEC, available at the SEC’s
website, www.sec.gov, none of the participants (including the Nominees) is, or
was within the past year, a party to any contract, arrangement or understanding
with any person with respect to any securities of Providence, including, but not
limited to, joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profit, division of losses or profits,
or the giving or withholding of proxies. Mr. Bradley failed to timely file
a Form 3 to report his beneficial ownership of Company common stock upon the
initial formation of the Committee on or about October 30, 2008. This Form 3 was
filed late on February 17, 2009.
13
The
Nominees will, if elected, constitute a minority of the Board. Accordingly, the
Nominees will not be able to adopt any measures without the support of at least
some members of the current Board. The Nominees therefore should be expected to
articulate and raise their concerns about Providence’s business activities and
strategy with the other members of the Board.
The
Nominees understand that, if elected as directors of Providence, each of them
will have an obligation under Delaware law to discharge his duties as a director
in good faith, consistent with his fiduciary duties to Providence and its
stockholders.
There can
be no assurance that the actions the Nominees intend to take as described above
will be implemented if they are elected or that the election of the Nominees
will improve the Company’s business or otherwise enhance stockholder value. Your
vote to elect the Nominees does not constitute a vote in favor of the
Committee’s plans for Providence. If we are successful in our campaign in
support of our Nominees, your vote to elect the Nominees will only have the
legal effect of replacing two incumbent directors of Providence with our
Nominees.
The
Committee does not expect that the Nominees will be unable to stand for
election. If a Nominee is unable to serve or for good cause will not serve, the
Committee may seek to replace the Nominee with a substitute nominee to the
extent substitution is permissible under the Company’s advance notice provision
in the Bylaws or the Company waives the advance notice. If the Committee is
permitted to substitute a nominee, the Committee will file and deliver
supplemental proxy materials, including a revised proxy card, disclosing the
information relating to any substitute nominee that is required to be disclosed
in solicitations for proxies for election of directors under the Securities
Exchange Act of 1934, as amended. Only in such case will the shares represented
by the enclosed BLUE
proxy card be voted for a substitute nominee. If a Nominee is unable to
stand for election and the Committee is not permitted to substitute a nominee,
the shares represented by the BLUE proxy card and voted for
such Nominee will not be counted.
The
Committee believes that it has complied with the advance notice requirements
under the Company’s Bylaws for nominating persons to serve as directors at an
annual meeting. The Company is not required, however, to confirm compliance and
it has not done so. The possibility exists that the Company’s Chairman could
announce at the annual meeting that the Committee has not complied with the
advance notice provisions and refuse to recognize our Nominees. If the
Chairman’s denial is proper, the effect would be to disenfranchise those
shareholders who submitted BLUE proxy cards or otherwise
sought to vote for the Nominees, even if those shareholders control a majority
of the voting shares. If our Nominees are not recognized, the Committee believes
that the director election would be deemed uncontested, which would trigger the
majority voting standard under the bylaw amendments adopted in February 2009. In
such event, the votes of shareholders who had submitted BLUE proxy cards or otherwise
sought to vote for the Nominees would have the effect of votes cast against the
Board’s nominees and it is possible that the Board’s nominees would fail to
receive a majority of the votes present at the meeting. If the election is
contested, a plurality voting standard would apply under the Company’s Bylaws. A
plurality means that the individuals who receive the largest number of votes
cast are elected as directors up to the maximum number of directors to be chosen
at the meeting. Under a plurality standard, shares not voted (whether by
abstention, broker nonvote or otherwise) have no impact in the election of
directors.
YOU
ARE URGED TO VOTE “FOR” THE ELECTION OF THE COMMITTEE’S NOMINEES ON THE ENCLOSED
BLUE PROXY CARD
14
PROPOSAL
NO. 2
COMPANY
PROPOSAL TO RATIFY SELECTION OF
INDEPENDENT
AUDITORS
As
discussed in further detail in the Company’s proxy statement, the Audit
Committee of the Board has selected KPMG LLP as the Company’s independent
registered public accounting firm to audit the Company’s consolidated financial
statements for the fiscal year ending December 31, 2009. The Company has
submitted this proposal to stockholders for ratification as its independent
registered public accounting firm.
We intend
to vote for the ratification of the appointment of KPMG LLP as the Company’s
independent registered public accounting firm for the fiscal year ending
December 31, 2009.
OTHER
PROPOSALS
The
Committee and the other Participants know of no other business to be presented
at the Annual Meeting. If any other matters should properly come before the
Annual Meeting, which the Committee is not aware of a reasonable time before
this solicitation, it
is intended that the persons named on the enclosed BLUE proxy card will vote that
proxy on such other matters in accordance with their discretion.
RECORD
DATE AND VOTING
Only
stockholders of record at the close of business on April 20, 2009 (the “record
date”), will be entitled to vote at the Annual Meeting. According to the
Company’s proxy statement, as of the record date, the Company had issued and
outstanding 12,855,091 Shares entitled to be voted at the Annual Meeting. Each
Share is entitled to one vote on each matter submitted to a vote of
stockholders. Based on publicly available information, the Committee believes
that the only outstanding class of securities of Providence entitled to vote at
the Annual Meeting is the Shares. Shares represented by properly executed BLUE proxy cards will be voted
at the Annual Meeting as marked and, in the absence of specific instructions,
will be voted FOR
(i) the election of the Nominees to the Providence Board, (ii) the
ratification of the appointment of KPMG LLP and (iii) in the discretion of
the persons named as proxies on all other matters as may properly come before
the Annual Meeting. You are being asked to elect the Nominees. The enclosed
BLUE proxy card may only
be voted for the Nominees and does not confer voting power with respect to the
Company’s nominees. Accordingly, you will not have the opportunity to vote for
any of Providence’s nominees. You can only vote for Providence’s nominees by
executing a proxy card provided by the Company. Stockholders should refer to the
Company’s proxy statement for the names, backgrounds, qualifications and other
information concerning the Company’s nominees. The participants in this
solicitation intend to vote all of their Shares in favor of the
Nominees.
If your
shares are held in a stock brokerage account or by a bank or other nominee, you
are considered the beneficial owner of shares. These proxy materials are being
forwarded to you by your broker who is considered, with respect to those shares,
the stockholder of record. As the beneficial owner, you have the right to direct
your broker to vote your shares, and your broker or nominee has enclosed a
voting instruction card for you to use. If your shares are held by a broker or
nominee, please return your voting card as early as possible to ensure that your
shares will be voted in accordance with your instructions. You are also invited
to attend the Annual Meeting; however, since you are not a stockholder of
record, you may not vote these shares in person at the meeting.
15
QUORUM
Under
Delaware law and the Bylaws, the presence of a quorum is required to transact
business at the Annual Meeting. To be considered at the Annual Meeting, the
presence, in person or by proxy, of a majority of the votes that stockholders
are entitled to cast on the proposals is necessary to constitute a quorum for
action on that matter. Abstentions, votes withheld from any nominee and broker
non-votes will be counted as present for purposes of determining the presence or
absence of a quorum with regard to any proposal at the annual
meeting.
VOTES
REQUIRED FOR APPROVAL
Vote Required for the Election of
Directors. According
to the Company’s Proxy Statement and the Bylaws, if this is a contested
election, each director must be elected by a plurality of the votes cast at the
Annual Meeting by the holders of Shares entitled to vote. The two nominees for
election as directors who receive the greatest number of votes will be elected
directors. Stockholders may vote “for” all of the director nominees, “withhold”
authority to vote for all of the nominees or “withhold” authority to vote for
any individual nominee but vote for all other nominees. Shares that are withheld
from voting as to any nominee and broker non-votes will not affect the outcome.
Ratification of Appointment of KPMG
LLP. The affirmative vote of the majority of the Shares present in person
or by proxy at the Annual Meeting and entitled to vote on the matter is required
to ratify the appointment of KPMG LLP as the Company's independent registered
public accounting firm for the fiscal year ending December 31, 2009. Abstentions
will have the same effect as a vote against the approval of this
proposal.
Stockholders
of record may appoint proxies to vote their shares by signing, dating and
mailing the BLUE proxy
card in the envelope provided. Shares represented by properly executed, but
unmarked, BLUE proxy
cards will be voted at the Annual Meeting as marked and will be voted FOR (i) the election of
the Nominees to the Providence Board, (ii) the ratification of the
appointment of KPMG LLP and (iii) in the discretion of the persons named as
proxies on all other matters as may properly come before the Annual
Meeting.
You are
being asked to elect the Nominees. The enclosed BLUE proxy card may only be
voted for the Nominees and does not confer voting power with respect to the
Company’s nominees. Accordingly, you will not have the opportunity to vote for
any of Providence’s nominees. You can only vote for Providence’s nominees by
executing a proxy card provided by the Company. Stockholders should refer to the
Company’s proxy statement for the names, backgrounds, qualifications and other
information concerning the Company’s nominees. The participants in this
solicitation intend to vote all of their Shares in favor of the
Nominees.
REVOCATION
OF PROXIES
Stockholders
of Providence may revoke their proxies at any time prior to exercise by
attending the Annual Meeting and voting in person (although attendance at the
Annual Meeting will not in and of itself constitute revocation of a proxy) or by
delivering a written notice of revocation. The delivery of a subsequently dated
proxy which is properly completed will constitute a revocation of any earlier
proxy. The revocation may be delivered either to the Committee in care of D.F.
King & Co., Inc. at the address set forth on the back cover of this Proxy
Statement or to Providence at 5224 East Fourth Street, Tucson, Arizona85711 or
any other address provided by Providence. Although a revocation is effective if
delivered to Providence, the Committee requests that either the original or
photostatic copies of all revocations be mailed to the Committee in care of D.F.
King & Co., Inc. at the address set forth on the back cover of this Proxy
Statement so that the Committee will be aware of all revocations and can more
accurately determine if and when proxies have been received from the holders of
record on the Record Date of a majority of the outstanding Shares. Additionally,
D.F. King & Co., Inc. may use this information to contact stockholders who
have revoked their proxies in order to solicit later dated proxies for the
election of the Nominees.
16
IF
YOU WISH TO VOTE FOR THE ELECTION OF THE COMMITTEE’S NOMINEES TO THE BOARD,
PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED BLUE PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
ADDITIONAL
INFORMATION
The
principal executive offices of The Providence Service Corporation are located at
5224 East Fourth Street, Tucson, Arizona85711. Except as otherwise noted
herein, the information concerning Providence has been taken from or is based
upon documents and records on file with the SEC and other publicly available
information.
Additional
information about the Committee may be found in the Schedule 13D filed by the
Committee with the SEC on March 2, 2009 (as amended to date), available at the
SEC’s website, www.sec.gov.
PROXY
SOLICITATION; EXPENSES
Executed
proxies may be solicited in person, by mail, advertisement, telephone,
facsimile, Internet, or email. Solicitation may be made by the Committee,
including the Nominees, employees of Avalon, 73114 and their affiliates, none of
whom will receive additional compensation for such solicitation. Proxies will be
solicited from individuals, brokers, banks, bank nominees and other
institutional holders. We have requested banks, brokerage houses and other
custodians, nominees and fiduciaries to forward all solicitation materials to
the beneficial owners of the Shares they hold of record. We will reimburse these
record holders for their reasonable out-of-pocket expenses. We do not intend to
use Internet chatrooms to solicit proxies.
Under new
rules issued by the SEC, we are providing access to our proxy materials both by
sending you this full set of proxy materials, including a BLUE proxy card, and by
notifying you of the availability of our proxy materials on the
Internet. Our Proxy Statement is available at www.dfking.com/prsc.
In
addition, the Committee has retained D.F. King & Co., Inc. (“D.F. King”) to
solicit proxies on its behalf in connection with the 2009 Annual Meeting. D.F.
King will employ approximately 30 people in its efforts. We have agreed to
reimburse D.F. King for its reasonable expenses and to pay to D.F. King a fee of
up to $75,000, plus reimbursement for its reasonable out-of-pocket expenses. The
Committee has agreed to indemnify D.F. King against certain liabilities and
expenses, including certain liabilities under the Federal securities laws.
Insofar as indemnification for liabilities arising under the Federal securities
laws may be permitted to D.F. King, we acknowledge that in the opinion of the
SEC such indemnification is against public policy and is therefore
unenforceable.
The
entire expense of our proxy solicitation is being borne by us. In the event that
the Nominees are elected to the Providence Board, we will seek reimbursement of
such expenses from Providence and will not submit such reimbursement to a vote
of stockholders. In addition to the engagement of D.F. King described above,
costs related to the solicitation of proxies include expenditures for printing,
postage, legal and related expenses and are expected to total approximately
$250,000, of which approximately $40,000 has been paid to date.
17
ADDITIONAL
INFORMATION CONCERNING THE PARTICIPANTS
The
participants in the proxy solicitation include the Committee, which is composed
of Avalon Correctional Services, Inc., a Nevada corporation (“Avalon”), Donald
E. and Tiffany Smith, Michael Bradley, Eric S. Gray, and 73114 Investments,
L.L.C., an Oklahoma limited liability company. Avalon is a leading developer and
manager of private community correctional facilities and alternative
correctional programming in the United States.
Donald E.
Smith is the Chairman, Chief Executive Officer and principal stockholder of
Avalon. Tiffany Smith is the Vice President of Communications and principal
stockholder of Avalon and the spouse of Mr. Smith. Michael Bradley is
Avalon’s Chief Financial Officer. Eric S. Gray is Avalon’s Vice President and
Corporate Counsel. 73114 is a wholly-owned subsidiary of Avalon, which is
managed by Messrs. Smith, Bradley and Gray. The principal business address
of each member of the Committee is 13401 Railway Drive, Oklahoma City, Oklahoma73114.
Captain
Brian T. Costello (ret.) is also a participant as a director nominee. He is not
employed by, or otherwise affiliated with, Avalon or the other Committee
members. His biographical information appears under the heading ‘Proposal 1:
Election of Directors – The Nominees”. Captain Costello’s principal address is
2501 Liberty Parkway, Suite 650, Midwest City, Oklahoma73110.
As of the
date of this filing, the Committee members beneficially own in the
aggregate 2,302,095 Shares, or approximately 17.9% of the Shares
outstanding, based on the 12,855,091 shares outstanding as of the record date.
As disclosed in the most recent amendment to Schedule 13D filed with the SEC on
March 2, 2009, 73114 Investments, L.L.C. owns of record 2,292,895 Shares, Donald
E. and Tiffany Smith own of record 7,200 Shares, Michael Bradley
owns of record 1,000 Shares, and Eric S. Gray owns of
record 1,000 Shares. For purposes of Rule 13d-5(b)(1) of the Securities
Exchange Act of 1934, as amended, each member of the Committee is deemed to
beneficially own the Shares of the Company beneficially owned in the aggregate
by all other members of the Committee, which means that each member of the
Committee may be deemed to beneficially own 2,302,095 Shares. The Smiths,
Bradley and Gray disclaim beneficial ownership of the Shares held by the others,
and Bradley and Gray disclaim any beneficial ownership of the Shares held by
73114. 73114 and Avalon disclaim beneficial ownership of the Shares held by the
individual Committee members. Captain Costello owns no shares of Providence,
either of record or beneficially.
Apart
from their stock ownership in the Company, none of the Committee members or the
Nominees has any interest in, or relationship with, the Company or any
substantial interest in any matter to be acted upon at the Annual Meeting. Until
accumulating their shares in Providence, the Committee members had not
previously accumulated a significant stock position in a publicly held company
other than Avalon. None of the members or Nominees has previously engaged in a
proxy or consent solicitation contest or a hostile takeover. The Committee filed
consent solicitation materials with the SEC in February 2009 to seek stockholder
support for proposed amendments to Providence’s bylaws. After the Providence
Board unanimously adopted bylaw amendments, the Committee withdrew its proposed
solicitation and never used the materials. See “Background to Solicitation”.
Neither the Committee nor any of its members seeks to acquire control of
Providence or to take it private, to make any merger, tender offer or other
acquisition proposal, or to engage in any transaction that would make us an
“acquiring person” under Providence’s recently adopted stockholder rights
plan.
For
information regarding purchases and sales of securities of Providence during the
past two years by the participants, see Schedule I.
The
Committee may seek reimbursement from Providence of all expenses it incurs in
connection with the solicitation. The Committee does not intend to submit the
question of such reimbursement to a vote of security holders of the
Company.
18
The
members of the Committee have entered into a Joint Filing and Solicitation
Agreement in which, among other things, (i) the parties agree to the joint
filing on behalf of each of them of statements on Schedule 13D with respect to
the securities of Providence, (ii) the parties agree to solicit proxies in favor
of the Proposals and to take all other action necessary or advisable to achieve
the foregoing (the “Solicitation”), and (iii) the Committee agrees to bear all
expenses incurred in connection with the Committee’s activities,
including approved expenses incurred by any of the parties in connection
with the Solicitation, subject to certain limitations.
Except as
set forth in this Proxy Statement (including the Schedules hereto),
(i) during the past 10 years, no participant in this solicitation has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors); (ii) no participant in this solicitation directly or
indirectly beneficially owns any securities of Providence; (iii) no
participant in this solicitation owns any securities of Providence which are
owned of record but not beneficially; (iv) no participant in this
solicitation has purchased or sold any securities of Providence during the past
two years; (v) no part of the purchase price or market value of the
securities of Providence owned by any participant in this solicitation is
represented by funds borrowed or otherwise obtained for the purpose of acquiring
or holding such securities; (vi) no participant in this solicitation is, or
within the past year was, a party to any contract, arrangement or understanding
with any person with respect to any securities of Providence, including, but not
limited to, joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profit, division of losses or profits,
or the giving or withholding of proxies; (vii) no associate of any
participant in this solicitation owns beneficially, directly or indirectly, any
securities of Providence; (viii) no participant in this solicitation owns
beneficially, directly or indirectly, any securities of any parent or subsidiary
of Providence; (ix) no participant in this solicitation or any of his or
its associates was a party to any transaction, or series of similar
transactions, since the beginning of Providence’s last fiscal year, or is a
party to any currently proposed transaction, or series of similar transactions,
to which Providence or any of its subsidiaries was or is to be a party, in which
the amount involved exceeds $120,000; (x) no participant in this
solicitation or any of his or its associates has any arrangement or
understanding with any person with respect to any future employment by
Providence or its affiliates, or with respect to any future transactions to
which Providence or any of its affiliates will or may be a party; and
(xi) no person, including any of the participants in this solicitation, who
is a party to an arrangement or understanding under which the Nominees are
proposed to be elected has a substantial interest, direct or indirect, by
security holdings or otherwise in any matter to be acted on as set forth in this
Proxy Statement. There are no material proceedings to which any participant in
this solicitation or any of his or its associates is a party adverse to
Providence or any of its subsidiaries or has a material interest adverse to
Providence or any of its subsidiaries. With respect to each of the participants
in this solicitation, none of the events enumerated in Item 401(f)(1)-(6) of
Regulation S-K of the Exchange Act occurred during the past five
years.
INFORMATION
CONCERNING PROVIDENCE
Although
we do not have any knowledge indicating that any statement made herein is
untrue, we do not take any responsibility for the accuracy or completeness of
statements taken from public documents and records that were not prepared by or
on our behalf, or for any failure by Providence to disclose events that may
affect the significance or accuracy of such information. See Schedule II for
information regarding persons who beneficially own more than 5% of the Shares
and the ownership of the Shares by the directors and management of
Providence.
The
Committee has omitted from this Proxy Statement certain disclosures required by
applicable law that is expected to be included in the Company’s proxy statement
relating to the Annual Meeting. This disclosure is expected to include, among
other things, current biographical information on Providence’s current
directors, information concerning executive compensation and other important
information.
19
WE
URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED BLUE PROXY CARD
The
following tables are reprinted from Providence’s Proxy Statement on Schedule 14A
filed with the Securities and Exchange Commission on May 1, 2009.
Principal
Stockholders
The
following table sets forth certain information, as of the Record Date, with
respect to the beneficial ownership of Providence’s Common Stock by each
stockholder known by Providence to own beneficially more than five percent of
our outstanding Common Stock. Except as otherwise specified, the named
beneficial owner has sole voting and investment power with respect to the shares
beneficially owned by such stockholder.
The
securities “beneficially owned” by each stockholder are determined as of
the Record Date in accordance with the definition of “beneficial
ownership” set forth in the regulations of the SEC. Accordingly, they may
include securities owned by or for others, including, in the case of an
individual, the spouse and/or minor children of the individual and any
other relative who has the same home as such individual, and may include
securities as to which the stockholder has or shares voting or investment
power or has the right to acquire within 60 days after the Record Date.
Beneficial ownership may be disclaimed as to certain of the
securities.
(2)
Includes
2,292,895 shares of Common Stock owned by 73114 and 7,200 shares of Common
Stock owned by Donald E. and Tiffany Smith. See note 5
below.
(3)
Includes
2,292,895 shares of Common Stock owned by 73114 and 1,000 shares of Common
Stock owned by Michael Bradley. See note 5
below.
(4)
Includes
2,292,895 shares of Common Stock owned by 73114 and 1,000 shares of Common
Stock owned by Eric S. Gray. See note 5
below.
(5)
Represents
shares of Common Stock owned by 73114. 73114 is a wholly-owned subsidiary
of Avalon Correctional Services. Donald E. Smith is CEO/President Manager
of 73114 and CEO/President of Avalon Correctional Services as well as sole
director of Avalon Correctional Services. Tiffany Smith is Secretary
Manager of 73114 and Vice President and Secretary of Avalon Correctional
Services. The Smiths are husband and wife. Mr. Bradley is Vice
President Manager of 73114 and Chief Financial Officer of Avalon
Correctional Services. Mr. Gray is Vice President Manager of 73114
and Vice President and Corporate Counsel of Avalon Correctional Services.
Messrs. Bradley and Gray disclaim beneficial ownership of the Common Stock
held by 73114. This is based on the Schedule 13D filed with the SEC on
November 10, 2008 and Schedules 13D/A filed with the SEC on
February 13, 2009 and March 2,2009.
(6)
Represents
shares of Common Stock indirectly beneficially owned by Cardinal Capital
Management, LLC. This is based on the Schedule 13G/A filed with the SEC on
February 17, 2009.
(7)
This
is based on the Schedule 13G/A filed with the SEC on February 12,2009.
(8)
Represents
shares of Common Stock indirectly beneficially owned by Zesiger Capital
Group LLC. Zesiger Capital Group LLC disclaims beneficial ownership of all
of the shares of Common Stock which are held in discretionary accounts
managed by Zesiger Capital Group LLC. This is based on the Schedule 13G/A
filed with the SEC on February 10,2009.
(9)
Represents
shares of Common Stock that may be issued upon the conversion of
Providence’s 6.5% Convertible Senior Subordinated Notes due 2014
beneficially owned by Palladium Equity Partners III, L.P. (“Palladium”).
Palladium Equity Partners III, L.L.C. (“Palladium General”) is the general
partner of Palladium. Mr. Rodriguez is the managing member of
Palladium General. This is based on the Schedule 13G filed with the SEC on
February 19, 2009.
(10)
The
shares of Common Stock are held in trust accounts for the economic benefit
of the beneficiaries of those accounts. This is based on the Schedule 13G
filed with the SEC on February 5,2009.
(11)
This
is based on the Schedule 13G/A filed with the SEC on January 12,2009.
(12)
This
is based on the Schedule 13G filed with the SEC on February 13,2009.
Management
and Directors Only
The
following table sets forth certain information, as of the Record Date, with
respect to the beneficial ownership of Providence’s Common Stock by (a) all
of Providence’s directors and each of Providence’s nominees for director,
(b) all of Providence’s executive officers named in the “Summary
Compensation Table” which follows and (c) all of Providence’s directors and
executive officers as a group. Except as otherwise specified, the named
beneficial owner has sole voting and investment power with respect to his/her
shares:
Name
No.
of shares of
Common
Stock
Beneficially
Owned
(1)
Percent
of
Voting
Power
of
Common
Stock
(1)
Michael
N. Deitch (2)
150,017
1.2
%
Fred
Furman (3)
173,464
1.3
%
Fletcher
Jay McCusker (4)
216,312
1.7
%
Craig
A. Norris (5)
133,631
1.0
%
John
Shermyen (6)
124,261
*
Hunter
Hurst, III (7)
64,000
*
Kristi
L. Meints (8)
105,429
*
Warren
S. Rustand (9)
74,000
*
Richard
Singleton (10)
74,000
*
All
directors and executive officers as a group (10
persons)(11)
1,134,779
8.5
%
*
Less
than 1%.
(1)
The
securities “beneficially owned” by an individual are determined as of the
Record Date in accordance with the definition of “beneficial ownership”
set forth in the regulations of the SEC. Accordingly, they may include
securities owned by or for, among others, the spouse and/or minor children
of the individual and any other relative who has the same home as such
individual, as well as other securities as to which the individual has or
shares voting or investment power or has the right to acquire under
outstanding stock options within 60 days after the Record Date. Beneficial
ownership may be disclaimed as to certain of the
securities.
(2)
Includes
87,160 shares of Common Stock held by Mr. Deitch and 62,857 shares of
Common Stock issuable upon the exercise of options that are exercisable
within 60 days of the Record Date.
(3)
Includes
87,161 shares of Common Stock held by Mr. Furman and 86,303 shares of
Common Stock issuable upon the exercise of options that are exercisable
within 60 days of the Record Date.
(4)
Includes
94,973 shares of Common Stock held by Mr. McCusker and 121,339 shares of
Common Stock issuable upon the exercise of options that are exercisable
within 60 days of the Record Date. Does not include 37,000 shares of
Common Stock held by The Fletcher J. McCusker GRAT for the benefit of Mr.
McCusker’s son, as to which Mr. McCusker disclaims beneficial
ownership.
(5)
Includes
87,798 shares of Common Stock held by Mr. Norris and 45,833 shares of
Common Stock issuable upon the exercise of options that are exercisable
within 60 days of the Record
Date.
(6)
Includes
106,404 shares of Common Stock held by Mr. Shermyen and 17,857 shares
of Common Stock issuable upon the exercise of options that are exercisable
within 60 days of the Record Date.
(7)
Includes
34,000 shares of Common Stock held by Mr. Hurst and 30,000 shares of
Common Stock issuable upon the exercise of options that are exercisable
within 60 days of the Record Date.
(8)
Includes
34,000 shares of Common Stock held by Ms. Meints and 71,429 shares of
Common Stock issuable upon the exercise of options that are exercisable
within 60 days of the Record Date.
(9)
Includes
34,000 shares of Common Stock held by Mr. Rustand and 40,000 shares
of Common Stock issuable upon the exercise of options that are exercisable
within 60 days of the Record Date.
(10)
Includes
34,000 shares of Common Stock held by Mr. Singleton and 40,000 shares
of Common Stock issuable upon the exercise of options that are exercisable
within 60 days of the Record Date.
(11)
Includes
530,618 shares of Common Stock issuable upon the exercise of options that
are exercisable within 60 days of the Record Date, 4,665 shares of Common
Stock held by the Mary J. Shea Revocable Trust, and 599,496 shares of
Common Stock in the aggregate held by Messrs. Deitch, Furman, McCusker,
Norris, Hurst, Rustand, Shermyen and Singleton, and
Ms. Meints.
IMPORTANT
Please
review this document and the enclosed materials carefully. YOUR VOTE IS VERY
IMPORTANT, no matter how many or how few shares you own.
1.
If
your shares are registered in your own name, please sign, date and mail
the enclosed BLUE
proxy card to D.F. King & Co., Inc. (“D.F. King”), in the postage-paid
envelope provided today.
2.
If
you have previously signed and returned a proxy card to Providence, you
have every right to change your vote. Only your latest dated card will
count. You may revoke any proxy card already sent to Providence by
signing, dating and mailing the enclosed BLUE proxy card in the
postage-paid envelope provided. Any proxy may be revoked at any time prior
to the 2009 Annual Meeting by delivering a written notice of revocation or
a later dated proxy for the 2009 Annual Meeting to D.F. King, or by voting
in person at the 2009 Annual
Meeting.
3.
If
your shares are held in the name of a brokerage firm, bank nominee or
other institution, only it can sign a BLUE proxy card with
respect to your shares and only after receiving your specific
instructions. Accordingly, please sign, date and mail the enclosed BLUE proxy card in the
postage-paid envelope provided, and to ensure that your shares are voted,
you should also contact the person responsible for your account and give
instructions for a BLUE proxy card to be
issued representing your
shares.
4.
After
signing the enclosed BLUE proxy card, do not
sign or return any other proxy card, even as a sign of protest, because
only your latest dated proxy card will be
counted.
If
you have any questions, require assistance in submitting your BLUE proxy card, or
need additional copies of the Committee’s proxy statement materials,
please call D.F. King & Co., Inc. at the phone numbers listed
below.
THE
PROVIDENCE COMMITTEE FOR ACCOUNTABILITY (THE “COMMITTEE”)
THE
BOARD OF DIRECTORS OF THE PROVIDENCE SERVICE CORPORATION
IS
NOT SOLICITING THIS PROXY
PROXY
The
undersigned appoints Donald E. Smith and Eric S. Gray, and each of them, agents
with full power of substitution to vote all shares of common stock of The
Providence Service Corporation (“Providence” or the “Company”) which the
undersigned would be entitled to vote if personally present at the 2009 Annual
Meeting of Stockholders of the Company scheduled to be held at the Hacienda Del
Sol Guest Ranch Resort, 5601 N. Hacienda Del Sol Road, Tucson, Arizona85718, on
Monday, June 15, 2009, at 9:00 a.m. (local time), and including at any
adjournments or postponements thereof and at any meeting called in lieu thereof
(the “Annual Meeting”).
The
solicitation is being made on behalf of The Committee and the participants:
Donald E. and Tiffany Smith, Michael Bradley, Eric S. Gray, Avalon Correctional
Services, Inc., 73114 Investments, L.L.C., and Captain Brian T. Costello
(ret.).
The
undersigned hereby revokes any other proxy or proxies heretofore given to vote
or act with respect to the shares of common stock of the Company held by the
undersigned, and hereby ratifies and confirms all action the herein named
proxies, their substitutes, or any of them may lawfully take by virtue
hereof. If properly executed, this Proxy will be voted as directed on the
reverse and in the discretion of the herein named proxies or their substitutes
with respect to any other matters as may properly come before the Annual Meeting
that are unknown to the Committee a reasonable time before this
solicitation.
IF
NO DIRECTION IS INDICATED WITH RESPECT TO THE PROPOSALS ON THE REVERSE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 and 2.
This
Proxy will be valid until the sooner of one year from the date indicated on the
reverse side and the completion of the Annual Meeting.
IMPORTANT:
PLEASE SIGN, DATE AND MAIL THIS PROXY CARD
PROMPTLY!
CONTINUED
AND TO BE SIGNED ON REVERSE SIDE
THE
COMMITTEE RECOMMENDS YOU VOTE IN FAVOR OF PROPOSAL 1
Proposal 1 – To elect Michael
C. Bradley and Captain Brian T. Costello (ret.) to serve as Class 3 directors of
the Company for a three-year term that expires at the 2012 annual meeting of the
Company’s stockholders.
Nominees:
FOR
ALL
WITHHOLD
FOR
ALL
-
Michael C.
NOMINEES
AUTHORITY
TO
EXCEPT
Bradley
VOTE
FOR ALL
NOMINEES
-
Captain Brian T.
NOMINEE(S)
WRITTEN
Costello
(ret.)
BELOW
o
o
o
Proposal 2 –To ratify the
appointment of KPMG LLP as Providence’s independent registered public accounting
firm for the 2009 fiscal year.
For
Against
Abstain
¨
¨
¨
Date:
_________________, 2009
Signature:
Signature
(if held jointly):
Title(s):
Please
sign exactly as your name appears on stock certificates or on the label affixed
hereto. When shares are held by joint tenants, both should sign. In case of
joint owners, EACH joint owner should sign. When signing as attorney, executor,
administrator, trustee, guardian, corporate officer, etc., give full title as
such.
PLEASE
SIGN, DATE AND MAIL YOUR PROXY PROMPTLY IN THE POSTAGE-PAID ENVELOPE
ENCLOSED.
Dates Referenced Herein and Documents Incorporated by Reference