Says 'History Shows Avalon Is No Champion of Corporate Governance'
TUCSON, Ariz., Feb. 6 /PRNewswire-FirstCall/ -- The Providence
Service Corporation (NASDAQ:PRSC) today commented on the recent
announcement that an entity controlled by Avalon Correctional
Services, Inc. (Pink Sheets: CITY) together with other related
persons, including Donald E. Smith, the CEO, controlling
shareholder and sole director of Avalon, intends to initiate a
consent solicitation against the Company. "We have no doubt that
Avalon's consent solicitation is an attempt, like a 'wolf in
sheep's clothing' to disingenuously appear to be concerned with
corporate governance when in reality their consent solicitation is
part of an integrated plan to obtain substantial influence and
effective control over Providence," commented Fletcher McCusker,
Providence's CEO. "Since early November of last year, after
learning that Avalon had accumulated approximately 19.6% of
Providence's common stock and had, in its Schedule 13D, implied
that a proxy contest was within contemplation, we have sought to
constructively engage with Avalon and its principals, even
reluctantly holding an in-person meeting with them at our corporate
offices notwithstanding our significant concerns and reservations
about engaging in discussions with representatives of Avalon due
to, among other things, Avalon's colorful history as an operator of
a water park, de-certified mental health facilities and community
corrections programs and its adversarial relationships with various
regulatory and payer organizations. "While we remain open to having
future discussions with Avalon as long as they are constructive,
the Board of Directors of Providence will not be intimidated,
bullied or distracted by the threats and intimidation tactics of
one dissident stockholder. The Board remains focused on acting in
the best interests of, and building stockholder value for, ALL
Providence stockholders. As we announced late last year, our Board
of Directors is actively focused on several strategic options to
enhance shareholder value including, among other things, delevering
our debt, growing our core social services business and selling
certain non-strategic assets. As much as we prefer to focus our
full attention on delivering on Providence's significant potential
and enhancing value for ALL Providence stockholders, we will not
stand idly by while Avalon and its principals seek to further their
own agenda. We believe that the proposals being made by Avalon and
Don Smith in their consent solicitation statement are nothing more
than their latest power play intended to facilitate a future proxy
contest by them for representation on the Providence Board and,
eventually, effective control of Providence. "As we will discuss in
more detail in our Consent Revocation Statement, given Avalon's
historical approach to its own corporate governance issues and its
strong proclivity for related-party transactions over the past 15
years, particularly with its founder, CEO and sole director Don
Smith, both during its time as a public reporting company and
thereafter, we believe that Avalon has little to no credibility as
a champion of corporate governance and we look forward to detailing
their ulterior motives for this consent solicitation in our Consent
Revocation Statement. We call the attention of stockholders to the
following: -- On November 16, 1993, Avalon cautioned investors in
its prospectus filed with the SEC that Avalon has engaged in, and
would continue to engage in, transactions with companies owned
and/or controlled by its founder and CEO Don Smith, most of which
could be considered non-arm's length transactions. Avalon indicated
that such transactions could include cash advances, loan
guarantees, leased equipment, utilization of Avalon properties, and
administrative and accounting services. Avalon also advised
investors that some of the transactions with Don Smith's other
businesses may not have occurred on terms as favorable as Avalon
would have received from unrelated third parties. -- On December
31, 2004, Avalon announced that, effective December 30, 2004,
Robert O. McDonald and Dr. Charles Thomas had resigned from the
Avalon Board, leaving Don Smith as the sole remaining director of a
Nasdaq-listed public reporting company. -- On January 12, 2005,
Avalon was notified by the Nasdaq Stock Market that it could face
being delisted from Nasdaq if it did not take actions to bring
itself into compliance with various corporate governance
requirements imposed by Nasdaq. In particular, Nasdaq was concerned
that, with Don Smith as the sole remaining director on the Avalon
Board, Avalon no longer had any independent directors on its Board.
-- On January 18, 2005, Avalon, after publicly disclosing that it
was facing a possible delisting from Nasdaq, publicly disclosed
that, rather than comply with Nasdaq's corporate governance
requirements (which require that a majority of its Board of
Directors be independent), it was considering the possibility of
delisting and moving to the over-the-counter market or "pink
sheets." Avalon also publicly disclosed on this date that, given
the increasing compliance costs imposed by the Sarbanes-Oxley Act
(which includes numerous corporate governance requirements for the
protection of stockholders), ongoing costs and expenses associated
with the preparation and filing of Avalon's periodic reports with
the SEC and the increasing commitment of management's time to
regulatory requirements, Avalon was considering deregistering as a
way to avoid having to comply with all these regulatory
requirements. -- On January 24, 2005, Avalon received a letter from
Ravenswood Investment Company, which then held 7.2% of Avalon's
outstanding shares, expressing its concern with Avalon's
announcement that it was evaluating whether to remain a reporting
company and with the absence of any independent directors on the
Avalon Board. In its letter, Ravenswood reminds Avalon that good
corporate governance requires a majority of outside directors.
Ravenswood also indicates that it is writing because Don Smith
refused to return its telephone calls. -- On February 3, 2005, with
little advance notice to stockholders, without seeking stockholder
approval, and notwithstanding the potential adverse effects on the
market for Avalon's stock, Avalon announced that it was
deregistering to avoid, among other things, having to comply with
the SEC's periodic reporting requirements and the Sarbanes-Oxley
Act (which include numerous corporate governance provisions for the
protection of stockholders). Avalon indicated in its public filings
that the financial impact of complying with the Sarbanes-Oxley Act
could jeopardize its ability to continue as a going concern. In
particular, Avalon expressed its concern with having to comply with
the provisions of the Sarbanes-Oxley Act that require management to
establish internal control structures and procedures for financial
reporting and to attest to the effectiveness of these controls in
annual reports. As a result of this decision, Avalon now continues
as a publicly-traded company that trades only on the "pink sheets,"
makes no quarterly, annual or periodic filings with the SEC, avoids
any requirement to comply with the Sarbanes-Oxley Act, including
the numerous corporate governance provisions thereof that are
intended to protect stockholders, and has only one director, Don
Smith, who, in effect, is accountable to no one. -- During 2007,
according to Avalon's annual report posted to its website, Avalon
entered into loans with certain members of its senior management
for the purchase of Avalon stock pursuant to which over $1 million
was loaned to such members of senior management. While Avalon was
no longer subject to the Sarbanes-Oxley Act at this time due to its
decision to deregister (so as to avoid compliance), these type of
loan arrangements with officers of a public company are expressly
prohibited under Section 402 of the Sarbanes-Oxley Act. -- In
addition to the other related party transactions between Avalon and
Don Smith that are discussed above, since 2001, Avalon has leased
certain vehicles from an entity controlled by Don Smith and,
pursuant to such leases, has made payments to such entity in the
aggregate of more than $800,000. -- On January 26, 2009, a
complaint was filed against Avalon and Don Smith in the United
States District Court for the Western District of Oklahoma by
Ravenswood Investment Company, L.P. and Ravenswood Investments III,
L.P., both stockholders in Avalon, alleging breaches of fiduciary
duty and self-dealing and seeking damages of not less than $10
million. "The actions by Avalon described above are only a few
illustrations of Avalon's historical approach towards corporate
governance issues and, for more in depth information, we invite
stockholders to review the historical filings made by Avalon with
the SEC prior to deregistering and, since then, the financial
reports that Avalon posts to its website,
http://www.avaloncorrections.com/. While the Providence Board
continuously seeks to improve its corporate governance and emulate
best practices by leading companies, we do not believe that Avalon
and its sole director, Don Smith, are the appropriate role models
for us to follow." Important Information The Providence Service
Corporation (the "Company") and its directors and certain executive
officers may be deemed to be participants in the solicitation of
consent revocations from stockholders in connection with a consent
solicitation by affiliates of Avalon Correctional Services, Inc.
(the "Consent Solicitation"). The Company plans to file a consent
revocation statement with the Securities and Exchange Commission
(the "SEC") in connection with the solicitation of written consents
in connection with the Consent Solicitation (the "Consent
Revocation Statement"). Information regarding the interests of such
potential participants will be included in the Consent Revocation
Statement and other relevant documents to be filed with the SEC in
connection with the Consent Solicitation. Promptly after filing its
definitive Consent Revocation Statement with the SEC, the Company
will mail the definitive Consent Revocation Statement and a form of
consent revocation card to each stockholder entitled to deliver a
written consent in connection with the Consent Solicitation. WE
URGE INVESTORS TO READ THE CONSENT REVOCATION STATEMENT (INCLUDING
ANY SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT THE
COMPANY WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION. Stockholders will be able
to obtain, free of charge, copies of the Consent Revocation
Statement and any other documents filed by the Company with the SEC
in connection with the Consent Solicitation at the SEC's website at
http://www.sec.gov/ and the Company's website at
http://www.provcorp.com/. About Providence Providence Service
Corporation, through its owned and managed entities, provides home
and community based social services and non-emergency
transportation services management to government sponsored clients
under programs such as welfare, juvenile justice, Medicaid and
corrections. Providence does not own or operate beds, treatment
facilities, hospitals or group homes, preferring to provide
services in the client's own home or other community setting. The
Company provides a range of services through its direct and managed
entities to over 74,000 clients through 870 contracts at September
30, 2008, with an estimated six million individuals eligible to
receive the Company's non-emergency transportation services related
to its LogistiCare operations. Combined, the Company has a nearly
$1 billion book of business including managed entities.
Forward-Looking Statements This press release contains
""forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "believe,"
"demonstrate," "expect," "estimate," "anticipate," "should" and
"likely" and similar expressions identify forward-looking
statements. In addition, statements that are not historical should
also be considered forward-looking statements. Readers are
cautioned not to place undue reliance on those forward-looking
statements, which speak only as of the date the statement was made.
Such forward-looking statements are based on current expectations
that involve a number of known and unknown risks, uncertainties and
other factors which may cause actual events to be materially
different from those expressed or implied by such forward-looking
statements. These factors include, but are not limited to the
global credit crisis, capital market conditions, and other risks
detailed in Providence's filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-K for the fiscal
year ended December 31, 2007. Providence is under no obligation to
(and expressly disclaims any such obligation to) update any of the
information in this press release if any forward-looking statement
later turns out to be inaccurate whether as a result of new
information, future events or otherwise. DATASOURCE: Providence
Service Corporation CONTACT: Fletcher McCusker, Chairman and CEO,
or Kate Blute, Director of Investor and Public Relations,
+1-520-747-6600, both of Providence Service Corporation; or Alison
Ziegler of Cameron Associates, +1-212-554-5469, for Providence
Service Corporation Web Site: http://www.provcorp.com/
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