Tri-S Security 10-K 2008
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 on
For the fiscal year ended December 31, 2007
For the transition period from to
Commission File Number 0-51148
Tri-S Security Corporation
(Exact Name of Registrant as Specified in Its Charter)
Royal Centre One
11675 Great Oaks Way
Alpharetta, GA 30022
(Address of Principal Executive Offices)
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: common stock, par value $0.001 per share; and
warrants to purchase common stock, par value $0.001 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filed and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated filer Smaller Reporting Company x
Indicate by check mark whether the registrant is a shell corporation (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates completed by reference to the price at which the common equity was last sold as of the last business day of the registrants most recently completed second fiscal quarter is $6,981,505.
As of April 29, 2008, 4,203,280 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
This Amendment No. 1 on Form 10-K/A (this Amendment) amends the Annual Report on Form 10-K for the year ended December 31, 2007 of Tri-S Security Corporation (the Company, we or us) filed with the Securities and Exchange Commission (the SEC) on March 31, 2008 (the Original Report). This Amendment replaces the information previously incorporated by reference in Part III of the Original Report with the actual text for Part III of the Form 10-K. Except for providing the disclosures required by Part III of Form 10-K, this Amendment does not modify or update any disclosures presented in the Original Report. Accordingly, this Amendment does not reflect events occurring after the filing of the Original Report or modify or update those disclosures contained in the Original Report which may have been affected by subsequent events. Information not affected by this Amendment is unchanged and reflects the disclosures made at the time the Original Report was filed. The Original Report, as amended by this Amendment, is referred to herein as the Annual Report.
Board of Directors
Our bylaws provide that our board of directors shall consist of between one member and nine members. Our board of directors currently consists of four members, Ronald G. Farrell, Lee K. Toole, James M. Logsdon and Dr. James A. Verbrugge. If we have more than two directors, our articles of incorporation provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. As a result, approximately one-third of our board of directors will be elected each year. Dr. Verbrugge and Messrs. Farrell, Toole and Logsdon serve as directors of the Company as follows: Mr. Logsdon serves as a Class I Director until the 2009 annual meeting of shareholders; Dr. Verbrugge serves as a Class II Director until the 2010 annual meeting of shareholders; and Messrs. Farrell and Toole each serve as Class III Directors until the 2008 annual meeting of shareholders. Messrs. Farrell, Toole and Logsdon and Dr. Verbrugge will serve as directors until the expiration of their applicable terms and until their successors have been elected and qualified or until their earlier death, resignation or removal. This classification of the board of directors may delay or prevent a change in control of the Company.
Set forth below is certain information, as of April 30, 2008, concerning each of the directors of the Company.
Certain additional information concerning the individuals named above is set forth below:
James M. Logsdon has served as a member of our board of directors, our audit committee and our compensation committee since our initial public offering in February 2005. Mr. Logsdon is a consultant with The Logsdon Group, which Mr. Logsdon founded in March 2004. The Logsdon Group provides tactical and strategic consulting services to business organizations. He served as
President, Chief Operating Officer and a director of Verso Technologies, Inc., a publicly-held technology corporation, from January 2000 until March 2004. From January 1998 to January 2000, Mr. Logsdon served as Vice President and General Manager of Branch OperationsEast for the Network Services division of GTE Corporation, a global telecommunications corporation. From January 1991 to December 1997, he served as GTEs Vice President, Sales & MarketingCommercial Markets.
Lee K. Toole has served as a member of our board of directors, our audit committee and our compensation committee since our initial public offering in February 2005. Mr. Toole founded Toole Consulting Corporation in 1997, which provides consulting services to Lucent Technologies, Inc. and GTE Corporation, among other clients. Mr. Toole retired in 1997 as a senior vice president of GTE Corporation, concluding a 36 year career in the telecommunications industry. During his career, which included 15 years with AT&T, Inc., Mr. Toole served in various executive capacities, including President of GTE China, Senior Vice PresidentAsia Pacific, Vice PresidentBusiness Development worldwide for wireless networks, and Chairman of the Board of Directors of a joint venture in Argentina which built a nationwide wireless network.
Dr. James A. Verbrugge has served as a member of our board of directors, our audit committee and our compensation committee since our initial public offering in February 2005. Dr. Verbrugge is Emeritus Professor of Finance in the Terry College of Business at the University of Georgia. From 1976 to 2001, he was the Chairman of the Department of Banking and Finance in the Terry College of Business, where he held the Chair of Banking from 1992 to 2002. He is a member of the board of directors of each of OneTravel, Inc., Crown Crafts, Inc. and Verso Technologies, Inc. and also serves on the boards of two private companies.
The biographical information for Mr. Farrell is set forth in Item 4.5 of Part I of this Annual Report.
Our board of directors appoints our executive officers on an annual basis to serve until their successors have been elected and qualified, subject to applicable employment agreements. See Item 11 of this Annual Report. There are no family relationships among any of our directors or officers. Set forth below is certain information as of April 29, 2008, concerning each of the executive officers of the Company.
The biographical information for Messrs. Farrell and Chater is set forth in Item 4.5 of Part I of this Annual Report.
There are no family relationships among any of our executive officers or directors. No arrangement or understanding exists between any director and any other person pursuant to which any director was selected to serve as a director. To the best of our knowledge, (i) there are no material proceedings to which any director of the Company is a party, or has a material interest, adverse to the Company; and (ii) there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions that are material to the evaluation of the ability or integrity of any of the directors during the past five years.
Audit Committee and Audit Committee Financial Expert
We have a separately designated standing audit committee of the board of directors established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the audit committee are Messrs. Logsdon and Toole and Dr. Verbrugge.
Our board of directors has determined that the audit committees chairperson, Dr. Verbrugge, is an audit committee financial expert, as such term is defined in Item 401(h) of Regulation S-K. Dr. Verbrugge meets the independence requirements of Rule 4200(a)(15) of the NASD listing standards.
Pursuant to the regulations of the SEC, a person who is determined to be an audit committee financial expert will not be deemed an expert for any purpose, including, without limitation, for purposes of Section 11 of the Securities Act, as a result of being designated or identified as an audit committee financial expert pursuant to Item 401 of Regulation S-K. Furthermore, the designation or identification of a person as an audit committee financial expert pursuant to Item 401 of Regulation S-K does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee or the board of directors in the absence of such designation or identification. Moreover, the designation or identification of a person as an audit committee financial expert pursuant to Item 401 of Regulation S-K does not affect the duties, obligations or liability of any other member of the audit committee or board of directors.
Code of Ethics
The board of directors has adopted a Code of Ethics and Conduct that applies to all of our employees, including our Chief Executive Officer and Chief Financial Officer. We shall provide to any person without charge, upon request, a copy of our Code of Ethics and Conduct. Such requests should be directed to the Secretary of Tri-S Security Corporation at 11675 Great Oaks Way, Suite 120, Alpharetta, Georgia 30022.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Companys directors and executive officers, and all persons (Reporting Persons) who beneficially own more than 10% of the outstanding shares of Common Stock, to file with the SEC initial reports of ownership and reports of changes in ownership of the Common Stock and other equity securities of the Company. Reporting Persons are also required to furnish the Company with copies of all Section 16(a) forms they file. To the Companys knowledge, based solely upon a review of the copies of such forms furnished to the Company for the year ended December 31, 2007, and the information provided to the Company by Reporting Persons of the Company, no Reporting Person failed to file the forms required by Section 16(a) of the Exchange Act on a timely basis except that Mr. Toole did not file a Form 4 due on November 13, 2007 until November 15, 2007.
Summary Compensation Table
The following table sets forth all compensation paid to, earned by or accrued for the Named Executive Officers during the year ended December 31, 2007 and 2006.
Outstanding Equity Awards At 2007 Fiscal Year-End
The table below shows outstanding equity awards held by our Named Executive Officers for fiscal year ended December 31, 2007.
The following table summarizes the compensation for director fees paid to or accrued for the non-employee directors for the fiscal year ended December 31, 2007.
We compensate each member of our board of directors for their service on our board of directors at an annual rate of $15,000 per year plus $1,250 for each Board meeting and committee meeting attended by such member. We reimburse our board of director members for reasonable expenses incurred by them in attending such meetings of the board of directors and any committees of the board of directors of which they are members. Members of our board of directors are also eligible to receive stock options granted pursuant to our Stock Incentive Plan.
Employment Agreement and Post-Termination Payments.
Ronald G. Farrell. Pursuant to the employment agreement, as amended, between us and Mr. Farrell, Mr. Farrell has agreed to serve as our Chief Executive Officer and President until June 30, 2010. The agreement provides for (i) payment of a specified base salary which increases by 10% per year; (ii) payment of an annual incentive bonus equal to 5% of our EBITDA, as defined, for such year, provided that such bonus may not exceed 100% of Mr. Farrells base salary for such year; (iii) prohibitions against Mr. Farrells disclosure of confidential information, solicitation of our employees and participation in a business competitive with our business during his employment and for a period of one year following the termination of his employment; and (iv) continuation of Mr. Farrells compensation and benefits for the remainder of the term of his employment agreement if his employment is terminated by us without cause or by Mr. Farrell for good reason or upon a change of control of the Company. Pursuant to Mr. Farrells employment agreement, we also provide certain other benefits and expense reimbursements to Mr. Farrell which are consistent with his position as our Chief Executive Officer. Mr. Farrell is also entitled to participate in any employee benefit plan, stock option plan and other fringe benefit plan at the discretion of our board of directors.
Pursuant to the employment agreement, as amended between us and Ron Farrell, the following post-termination payments would be payable to Mr. Farrell as of December 31, 2007 if such termination event occurred:
The term cause means gross negligence, gross malfeasance or willful disregard for duty in the performance of the Employment Agreement, other than as a result of Executives part shall be considered willful, unless done, or omitted to be done, by him not in good faith and without reasonable belief that this action or omission was in the best interest of the Company.
The phrase change of control refers to the sale of the company, removal of executive as Chairman of Board, or one person or group gaining a majority 51% interest in the company or a majority of the members of the board of directors of the company.
Nicolas Chater. Pursuant to an employment agreement between us and Mr. Chater, Mr. Chater has agreed to serve as our Chief Financial Officer until June 30, 2010. The agreement provides for (i) payment of a base salary at a rate of $250,000 per year, (ii) payment of an annual retention bonus equal to $25,000 per year and (iii) payment of an annual performance bonus equal to 3% of our EBITDA, as defined, for such year; provided, that (a) the annual performance bonus may not exceed 100% of the base salary for such year and (b) Mr. Chaters 2008 performance bonus shall not be less than $90,000. The employment agreement also provides that, if Mr. Chaters employment is terminated by us without cause or by him for good reason, then Mr. Chater shall be entitled to receive a single lump sum in an amount equal to his then-current salary and performance bonus and shall be entitled to participate in our employee benefit, retirement and compensation plans during the twelve-month period following the date of such termination. Notwithstanding the foregoing, if Mr. Chaters employment is terminated by us without cause during the 24-month period following a change of control of the Company, then Mr. Chater will be entitled to receive a lump sum payment of his then-current performance bonus and twice his then-current base salary and shall be entitled to participate in our employee benefit, retirement and compensation plans during the 24-month period following the date of such termination.
Pursuant to the employment agreement, the following post-termination payments would be payable to Mr. Chater as of December 31, 2007 if such termination event occurred:
For purposes of Mr. Chaters employment agreement, cause for termination hereof shall exist if: (i) Mr. Chater is convicted of, or pleads guilty or nolo contendere to, any act of fraud, misappropriation or embezzlement, or any felony; (ii) in the reasonable determination of our Board of Directors, Mr. Chater has engaged in conduct or activity materially damaging to the business of the Company; or (iii) Mr. Chater has failed, without reasonable cause, to devote his full business time and best efforts to the business of the Company and, after written notice from the Company of such failure, Mr. Chater at any time thereafter again so fails.
Also for purposes of Mr. Chaters employment agreement, a change in control shall have occurred if: (i) a majority of the directors of the Company shall be persons other than persons: (a) for whose election proxies shall have been solicited by our Board of Directors, or (b) who are then serving as directors appointed by our Board of Directors to fill vacancies on the Board caused by death or resignation (but not by removal) or to fill newly-created directorships; (ii) a majority of the outstanding voting power of the Company shall have been acquired or beneficially owned by any person or group, which group does not include the Executive; or (iii) there shall have occurred, subject to certain exceptions, (a) a merger or consolidation of the Company with or into another corporation (other than certain specified mergers or consolidations), (b) a statutory exchange of shares of one or more classes or series of outstanding voting stock of the Company for cash, securities or other property, (c) the sale or other disposition of all or substantially all of the assets of the Company (in one transaction or a series of transactions), or (d) the liquidation or dissolution of the Company.
Equity Compensation Plan Information
The following table sets forth information regarding equity compensation plans under which our common stock is authorized for issuance as of December 31, 2007.
The following table sets forth information regarding the beneficial ownership of the common stock as of April 28, 2008 by (i) each person or group of persons known to us to beneficially own more than 5% of the outstanding shares of common stock; (ii) each of our directors; (iii) each of our Named Executive Officers; and (iv) all our executive officers and directors as a group. All beneficial ownership information reported below is based upon publicly available information and certain additional information known to us.
Related Party Transactions
A description of the employment agreements between each of the Named Executive Officers and us is set forth in Item 11 of this Annual Report.
Indebtedness of Management
Pursuant to Mr. Farrells employment agreement with us, Mr. Farrell, our Chief Executive Officer and President, would have otherwise been entitled to receive during 2004 an aggregate bonus of $435,000; however, in order to improve the financial position of the Company prior to our initial public offering, he agreed to forfeit $290,000 of such bonus and accept a cash bonus of $145,000. At the time Mr. Farrell agreed to such change in his compensation, we had already paid to Mr. Farrell $245,000 with respect to his 2004 bonus. Accordingly, Mr. Farrell agreed to repay to us $100,000 pursuant to the terms of a promissory note issued by Mr. Farrell to us dated December 31, 2004, which bears interest at a rate of 2.48% per year and was payable on December 31, 2006. The note was paid in full in December of 2006 by tender of 45,424 shares of common stock, in accordance with the terms of the note.
Exchange and Recapitalization
Pursuant to the Exchange and Recapitalization, R.G.F. Investments, Inc. (of which Mr. Farrell is the sole director, officer and shareholder) and its affiliates exchanged 2,500,000 shares of common stock held by them immediately prior to the recapitalization for 809,061 shares of common stock upon completion of the Exchange and Recapitalization. In connection with the Exchange and Recapitalization, Mr. Farrell also exchanged an option to purchase 300,000 shares of common stock at an exercise price of $0.04 per share for an option to purchase 97,087 shares of common stock at an exercise price of $0.12 per share.
We have entered into indemnification agreements with our directors pursuant to which we will indemnify them to the fullest extent permitted by applicable law if they are involved or become involved or are threatened to be involved in any investigation, action, claim suit or proceeding, whether civil, criminal, administrative or investigative, by reason of that fact that they were or are serving as an officer or director of the Company or were or are serving at our request as an agent of any other entity.
Review, Approval or Ratification of Transactions with Related Persons
It is an unwritten policy and practice of the board of directors, which is not otherwise evidenced, that all transactions which would be required to be reported pursuant to this Item 13 must be reviewed and approved by the audit committee before the Company enters into such transaction.
The board of directors has determined that three of the four members of the Board Messrs. Logsdon, Toole and Verbrugge are independent under the rules and regulations of The Nasdaq Stock Market LLC.
On July 20, 2004, we engaged Miller Ray Houser & Stewart LLP (MRH&S) as our independent registered public accounting firm to audit our financial statements in preparation for our initial public offering and for the year ended December 31, 2004. On December 21, 2005, we engaged Tauber & Balser, P.C. (Tauber) as our independent registered public accounting firm to audit our financial statements for the years ended December 31, 2005, and December 31, 2006. Tauber has also audited our financial statements for the year ended December 31, 2007.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
The audit committee is required to pre-approve the audit and non-audit services performed by the Companys independent auditors. The audit committee has adopted a policy which provides for general pre-approval of specified Audit, Audit-Related, Tax and Other Services that do not exceed enumerated dollar amounts. The policy also provides that, unless a type of service to be provided by the independent auditors has received general pre-approval, it will require specific pre-approval by the audit committee.
The audit committee has determined the Audit, Audit-Related, Tax and Other Services that are the basis for general pre-approval by the audit committee. The enumerated dollar amounts at which such general pre-approval will apply are currently under consideration by the audit committee. Until the audit committee has determined such enumerated dollar amounts, all services performed by the Companys independent auditors will require the specific pre-approval of the audit committee.
Lists of certain documents filed herewith as part of this Annual Report may be found as follows:
(i) A list of the consolidated financial statements required to be filed as a part of this Annual Report is shown in the Index to Consolidated Financial Statements.
(ii) The financial statement schedules required to be filed as a part of this Annual Report are omitted from this Annual Report because the information required by such schedules is either not applicable or is included in the consolidated financial statements and notes thereto, which statements and notes are listed on the Index to Consolidated Financial Statements and filed herewith.
(iii) A list of the exhibits required by Item 601 of Regulation S-K to be filed as a part of this Annual Report is shown on the Exhibit Index filed herewith.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.