<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )*
Correctional Systems, Inc.
- -------------------------------------------------------------------------------
(Name of Issuer)
Common Stock
- -------------------------------------------------------------------------------
(Title of Class of Securities)
22025M106
- -------------------------------------------------------------------------------
(CUSIP Number)
John Forren, Correctional Systems, Inc.,
6910 "A" Miramar Road, San Diego 619-566-9816
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
January 28, 2000
- -------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Sections 240.13d-1(e), 240.13d-1(f) or
240.13d-1(g), check the following box / /.
NOTE: Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See Section 240.13d-7(b)
for other parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
<TABLE>
<S><C>
- ------------------------------------- -----------------------------------
CUSIP NO. 22025M106 PAGE 2 OF 47 PAGES
- ------------------------------------- -----------------------------------
- ---------- --------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
John R. Forren
- ---------- --------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) / /
(b) /x/
- ---------- --------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ---------- --------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
PF
- ---------- --------------------------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) / /
- ---------- --------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------- -------- -------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 195,000*
BY EACH REPORTING -------- -------------------------------------------------------------------------------
PERSON WITH 8 SHARED VOTING POWER
0
-------- -------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
195,000*
-------- -------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ---------- --------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
195,000*
- ---------- --------------------------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS) / /
- ---------- --------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.0%
- ---------- --------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
IN
- ---------- --------------------------------------------------------------------------------------------------
*SEE ITEM 5 HEREOF.
<PAGE>
SCHEDULE 13D
- ------------------------------------- -----------------------------------
CUSIP NO. 22025M106 PAGE 3 OF 47 PAGES
- ------------------------------------- -----------------------------------
- ---------- --------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
William L. Garrison
- ---------- --------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) / /
(b) /x/
- ---------- --------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ---------- --------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
PF
- ---------- --------------------------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) / /
- ---------- --------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------- -------- -------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 910,500*
BY EACH REPORTING -------- -------------------------------------------------------------------------------
PERSON WITH 8 SHARED VOTING POWER
0
-------- -------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
910,500*
-------- -------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ---------- --------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
910,500*
- ---------- --------------------------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS) / /
- ---------- --------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
24.0%
- ---------- --------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
IN
- ---------- --------------------------------------------------------------------------------------------------
*SEE ITEM 5 HEREOF.
<PAGE>
SCHEDULE 13D
- ------------------------------------- -----------------------------------
CUSIP NO. 22025M106 PAGE 4 OF 47 PAGES
- ------------------------------------- -----------------------------------
- ----------- -------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Daniel J. Verwiel
- ----------- -------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) / /
(b) /x/
- ----------- -------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ----------- -------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
PF
- ----------- -------------------------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) / /
- ----------- -------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------- -------- -------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 528,415*
BY EACH REPORTING -------- -------------------------------------------------------------------------------
PERSON WITH 8 SHARED VOTING POWER
0
-------- -------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
528,415*
-------- -------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ----------- -------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
528,415*
- ----------- -------------------------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS) / /
- ----------- -------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.7%
- ----------- -------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
IN
- ----------- -------------------------------------------------------------------------------------------------
*SEE ITEM 5 HEREOF.
<PAGE>
SCHEDULE 13D
- ------------------------------------- -----------------------------------
CUSIP NO. 22025M106 PAGE 5 OF 47 PAGES
- ------------------------------------- -----------------------------------
- ---------- --------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Patricia A. Verwiel
- ---------- --------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) / /
(b) /x/
- ---------- --------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ---------- --------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
PF
- ---------- --------------------------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) / /
- ---------- --------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------- -------- -------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 526,726*
BY EACH REPORTING -------- -------------------------------------------------------------------------------
PERSON WITH 8 SHARED VOTING POWER
0
-------- -------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
526,726*
-------- -------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ---------- --------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
526,726
- ---------- --------------------------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS) / /
- ---------- --------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.4%
- ---------- --------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
IN
- ---------- --------------------------------------------------------------------------------------------------
*SEE ITEM 5 HEREOF.
<PAGE>
SCHEDULE 13D
- ------------------------------------- -----------------------------------
CUSIP NO. 22025M106 PAGE 6 OF 47 PAGES
- ------------------------------------- -----------------------------------
- ---------- --------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
The Estate of Lawrence G. Grossman
- ---------- --------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) / /
(b) /x/
- ---------- --------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ---------- --------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
PF
- ---------- --------------------------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) / /
- ---------- --------------------------------------------------------------------------------------------------
- ---------- --------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------- -------- -------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 760,500
BY EACH REPORTING -------- -------------------------------------------------------------------------------
PERSON WITH 8 SHARED VOTING POWER
0
-------- -------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
760,500
-------- -------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ---------- --------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
760,500
- ---------- --------------------------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS) / /
- ---------- --------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
20.9%
- ---------- --------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
IN
- ---------- --------------------------------------------------------------------------------------------------
*SEE ITEM 5 HEREOF.
<PAGE>
SCHEDULE 13D
- ------------------------------------- -----------------------------------
CUSIP NO. 22025M106 PAGE 7 OF 47 PAGES
- ------------------------------------- -----------------------------------
- ---------- --------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Martin Rickler
- ---------- --------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) / /
(b) /x/
- ---------- --------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ---------- --------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
PF
- ---------- --------------------------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) OR 2(E) / /
- ---------- --------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------- -------- -------------------------------------------------------------------------------
NUMBER OF SHARES 7 SOLE VOTING POWER
BENEFICIALLY OWNED 175,000*
BY EACH REPORTING
PERSON WITH
-------- -------------------------------------------------------------------------------
8 SHARED VOTING POWER
0
-------- -------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
175,000*
-------- -------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ---------- --------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
175,000*
- ---------- --------------------------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS) / /
- ---------- --------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
4.6%
- ---------- --------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
IN
- ---------- --------------------------------------------------------------------------------------------------
</TABLE>
*SEE ITEM 5 HEREOF.
<PAGE>
Page 8 of 47 Pages
Item 1. Security and Issuer
This Schedule 13D is filed with respect to shares of Common Stock
("Common Stock") of Correctional Systems, Inc., a California corporation (the
"Company"). The Company's principal executive offices are located at 6910 "A"
Miramar Road, San Diego, California 92121.
Item 2. Identity and Background.
(a), (b) and (c). This Schedule 13D is filed on behalf of the following
individuals (the "Filing Parties"), each of whom has the same principal business
address as the Company and hold the positions indicated with the Company or its
wholly-owned subsidiary Sentencing Concepts, Inc.:
<TABLE>
<CAPTION>
Name Affiliation with the Company
---- ----------------------------
<S> <C>
John R. Forren President, Chief Executive Officer and Director
William L. Garrison Chairman of the Board
Daniel J. Verwiel Chief Executive Officer (Sentencing Concepts, Inc.),
Director
Patricia Verwiel President (Sentencing Concepts, Inc.)
Martin Rickler Vice President, Planning & Research
Janis M. Grossman, None.
Representative of Estate
of Lawrence Grossman
</TABLE>
(d) and (e) None of the Filing Parties has, during the last five years,
been (i) convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such civil
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
(f) Each of the Filing Parties is a citizen of the United States.
Item 3. Source and Amount of Funds or Other Consideration.
All of the funds invested (or to be invested) by the Filing Parties were
(or are expected to be) his own personal funds not acquired through a loan.
<PAGE>
Page 9 of 47 Pages
Item 4. Purpose of Transaction.
The securities of the Company held by the Filing Parties were purchased
as an investment. One or more of the Filing Parties may, in the future, purchase
additional securities of the Company or dispose of securities of the Company.
Except as described below, none of the Filing Parties has any present
plans or proposals that relate to or would result in transactions of the kind
described in paragraphs (a) through (j) of Item 4 of Rule 13D-101 promulgated
under the Securities Exchange Act of 1934, as amended (the "1934 Act"). In the
future, however, each of the Filing Parties reserves the right to adopt such
plans or proposals, subject to applicable regulatory requirements, if any.
The Company, the Filing Parties and the present holders of Series A
Preferred Stock in the Company (the "Preferred Holders") are parties to an
Amended and Restated Registration Rights Agreement dated August 31, 1998, a copy
of which is attached as Exhibit C (the "Registration Rights Agreement"). The
Registration Rights Agreement grants the Preferred Holders rights to require the
Company to register the Common Stock underlying their Series A Preferred Stock
for public sale on SEC registration statement Form S-1. The Registration Rights
Agreement grants the Filing Parties rights to require the Company to register
certain of their Common Stock for public sale on SEC registration statement Form
S-3 or any similar short-form registration if such form is then available to the
Company for registration of its securities.
The Company, the Filing Parties, and the Preferred Holders are parties
to an Amended and Restated Stockholders' Agreement dated August 31, 1998, a copy
of which is attached as Exhibit D (the "Stockholders' Agreement"). The
Stockholders' Agreement provides that the Company's Board of Directors shall
consist of 6 members, one of whom shall be designated by a certain holder of the
Series A Preferred Stock of the Company (the "Preferred Designee, " who is
currently James Macdonald), and one of whom shall be designated by majority vote
of the holders of Common Stock who are parties to the Stockholders' Agreement
(which parties are the Filing Parties) (the "Common Designee," who is currently
Gary Maynard). The Preferred Holders have the right to approve the Common
Designee. The Filing Parties have no plans or proposals to change the current
composition of the Board. The Stockholders' Agreement also provides that the
Board of any subsidiary of the Company shall be the same as the Board of the
Company.
The Stockholders' Agreement also restricts the transfer of Common
Stock owned by the Filing Parties (collectively, the "Management Holders").
The Preferred Holders have a right of first refusal on any proposed transfer
of Common Stock by the Management Holders, and the Preferred Holders also
have co-sale rights on any transfer of Common Stock by a Management Holder to
a third party; provided that each Management Holder shall have the right to
transfer in any twelve-month period up to 15,000 shares of stock. Pursuant to
the Stockholders' Agreement, the Preferred Holders have a preemptive right to
purchase a certain portion of any new securities offered for sale by the
Company.
<PAGE>
Page 10 of 47 Pages
Item 5. Interest in Securities of the Issuer.
(a) (b) As of the date of this Schedule, each of the Filing Parties
beneficially owns the number of shares of Common Stock of the Company described
below and each has the sole power to vote or to direct the vote and sole power
to dispose or to direct the disposition of those shares:
<TABLE>
<CAPTION>
Filing Party Common Stock Percentage of Class*
- ------------ ------------ --------------------
<S> <C> <C>
John R. Forren 195,000(1) 5.0%
William L. Garrison 910,500(2) 24.0%
Daniel J. Verwiel 528,415(3) 14.7%
Patricia Verwiel 526,726(4) 14.4%
Estate of Lawrence 760,500 20.9%
Grossman
Martin Rickler 175,000(5) 4.6%
</TABLE>
* All percentages are computed pursuant to Rule 13d-3(d)(1)
(1) Includes 195,000 shares of Common Stock underlying outstanding
options that are exercisable within 60 days. Mr Forren holds outstanding options
to acquire a total of 315,000 shares of Common Stock.
(2) Includes 150,000 shares of Common Stock underlying outstanding
options that are exercisable within 60 days. Mr Garrison holds outstanding
options to acquire a total of 200,000 shares of Common Stock.
(3) Includes 33,146 shares of Common Stock underlying outstanding
options that are exercisable within 60 days. Does not include 100,000 shares of
Common Stock underlying options to which Mr. Verwiel claims he is entitled.
(4) Includes 33,146 shares of Common Stock underlying outstanding
options that are exercisable within 60 days. Does not include 100,000 shares
of Common Stock underlying options to which Ms. Verwiel claims she is
entitled.
(5) Includes 175,000 shares of Common Stock underlying outstanding
options that are exercisable within 60 days. Mr Rickler holds outstanding
options to acquire a total of 295,000 shares of Common Stock.
<PAGE>
Page 11 of 47 Pages
Each of the Filing Parties disclaims beneficial ownership of all shares
of Common Stock described herein except those shares that are owned by the
Filing Party directly.
Each of the Filing Parties disclaims the existence of a "group" among
any or all of them and further disclaims the existence of a "group" among any or
all of them and any or all of the other persons named as an officer, director,
partner or other affiliate of any Filing Party, in each case within the meaning
of Section 13(d)(3) of the 1934 Act.
(c) None.
(d) None.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships
With Respect to Securities of the Issuer.
See Item 4 hereof for a description of the Registration Rights Agreement
and the Stockholders' Agreement.
Item 7. Material to be Filed as Exhibits
Exhibit A. Agreement with respect to joint filing of Schedule 13D dated
February 4, 2000. Page 13 of 49 pages.
Exhibit B. Omitted.
Exhibit C. Amended and Restated Registration Rights Agreement dated
August 31, 1998. Page 14 of 49 pages.
Exhibit D. Amended and Restated Stockholders' Agreement dated
August 31, 1998. Page 30 of 49 pages.
After reasonable inquiry and to the best
of the undersigned's knowledge and belief, the
undersigned certify that the information set forth
in this statement is true, complete and correct.
Dated: February 4, 2000
/s/ John R. Forren
--------------------------------------
JOHN R. FORREN
<PAGE>
/s/ William L. Garrison
--------------------------------------
WILLIAM L. GARRISON
/s/ Daniel J. Verwiel
--------------------------------------
DANIEL J. VERWIEL
/s/ Patricia Verwiel
--------------------------------------
PATRICIA VERWIEL
ESTATE OF LAWRENCE G. GROSSMAN
/s/ Janis M. Grossman
--------------------------------------
by Janis M. Grossman, Representative
/s/ Martin Rickler
--------------------------------------
MARTIN RICKLER
<PAGE>
Page 13 of 47 Pages
EXHIBIT A
AGREEMENT
The undersigned agree as follows:
(1) Each of them is individually eligible to use the Schedule 13D to which this
Agreement is attached, and such Schedule 13D is filed on behalf of each of them;
(2) Each of them is responsible for the timely filing of such Schedule 13D and
any amendments thereto, and for the completeness and accuracy of the information
concerning such person contained therein; but none of them is responsible for
the completeness or accuracy of the information concerning the other persons
making the filing, unless such person knows or has reason to believe that such
information in inaccurate;
(3) Such Schedule 13D identifies each such person, contains the required
information with regard to each such person and indicates that it is filed on
behalf of all such persons; and
(4) The execution and delivery of this Agreement does not and shall not
constitute an admission by the undersigned that they constitute a "group" for
the purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and the undersigned hereby disclaim such status.
Dated: February 4, 2000
/s/ John R. Forren
- --------------------------------------
JOHN R. FORREN
/s/ William L. Garrison
- --------------------------------------
WILLIAM L. GARRISON
/s/ Daniel J. Verwiel
- --------------------------------------
DANIEL J. VERWIEL
/s/ Patricia Verwiel
- --------------------------------------
PATRICIA VERWIEL
ESTATE OF LAWRENCE G. GROSSMAN
/s/ Janis M. Grossman
- --------------------------------------
by Janis M. Grossman, Representative
/s/ Martin Rickler
- --------------------------------------
MARTIN RICKLER
<PAGE>
Page 14 of 47 Pages
EXHIBIT C
CORRECTIONAL SYSTEMS, INC.
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
Amended and Restated Registration Rights Agreement dated as of
August 31,1998 (this "AGREEMENT"), among CORRECTIONAL SYSTEMS, INC., a
California corporation (the "COMPANY"), and the Persons executing a counterpart
of this Agreement listed as Holders on the signature pages of this Agreement.
This Agreement amends and restates a Registration Rights Agreement dated July
31, 1998, among the Company and certain of the Holders ("Original Agreement").
PRELIMINARY STATEMENT
Certain of the Holders purchased the Series A Preferred
described below on the conditions, among others, that the Company grant the
registration rights set forth in the Original Agreement. The Company and the
Holders desire to amend and restate the Original Agreement to add certain
parties as Holders.
In consideration of the mutual representations and agreements
set forth in this Agreement, the Company and the Holders agree to amend and
restate the Original Agreement as follows:
AGREEMENT
SECTION J. DEFINITIONS.
A As used in this Agreement, the following terms shall have
the following meanings:
"AFFILIATE" means any entity controlling, controlled by or
under common control with a designated Person. For the purposes of this
definition, "control" shall have the meaning specified as of the date of this
Agreement for that word in Rule 405 promulgated by the Commission under the
Securities Act.
"BOARD" means the Board of Directors of the Company.
"COMMISSION" means the Securities and Exchange Commission, and
any successor thereto.
"COMMON" means the Company's Common Stock, $.001 par value per
share.
<PAGE>
Page 15 of 47 Pages
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FOUNDER" means any of Lawrence G. Grossman, William L.
Garrison, John R. Forren, Daniel J. Verwiel, Patricia A. Verwiel, and Martin
Rickler.
"HOLDERS" means (a) holders as of the date of this Agreement
of Registrable Common, each of whom is a party to this Agreement, and (b) any
subsequent legal or beneficial owner of Registrable Common who has become a
party to this Agreement in accordance with Section 13 of this Agreement. For
purposes of this Agreement, a Person will be deemed to be a Holder of
Registrable Common whenever such Person has the right to acquire such
Registrable Common (by exercise, conversion or otherwise but disregarding any
legal restrictions upon the exercise of such right), whether or not such
acquisition has actually been effected.
"INVESTOR" means any of Apex Investment Fund III, L.P., Apex
Strategic Partners, LLC, Infrastructure and Environmental Private Equity Fund
III, L.P., Environmental & Information Technology Private Equity Fund III, and
James Macdonald.
"PERSON" means an individual, partnership, corporation,
business trust, limited liability company, joint stock company, trust,
unincorporated association, joint venture, or other entity of whatever nature.
"REGISTRABLE COMMON" means (a) any shares of Common then
outstanding which were issued upon conversion of Series A Preferred; and (b) any
shares of Common then issuable upon conversion of then-outstanding Series A
Preferred; and (c) any shares of Common then outstanding which were issued as,
or were issued directly or indirectly upon the conversion of other Securities
issued as, a dividend or other distribution with respect to, or in replacement
of, Series A Preferred or other Registrable Common; and (d) any shares of Common
then outstanding which are issued in the name of a Founder or a permitted
assignee of a Founder (provided such assignee has become party to this Agreement
in accordance with Section 13 below); and (e) any shares of Common then issuable
directly or indirectly upon the conversion or exercise of other Securities
issued as a dividend or other distribution with respect to, or in replacement
of, Series A Preferred or other Registrable Common; provided, however, that
outstanding shares of Common shall no longer be Registrable Common when they
shall have been (y) effectively registered under the Securities Act and sold by
the holder thereof in accordance with such registration, or (z) sold to the
public pursuant to Rule 144.
"RULE 144" means Rule 144 promulgated by the Commission under
the Securities Act, as such rule may be amended from time to time, or any
successor Rule thereto.
"SECURITIES" means any debt or equity securities of the
Company, whether now or hereafter authorized, and any instrument convertible
into, or exercisable or exchangeable for, Securities or a Security.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
<PAGE>
Page 16 of 47 Pages
"SERIES A PREFERRED" means (a) the outstanding shares of the
Company's Series A Preferred Stock, $.001 par value; (b) any shares of Series A
Preferred issued in payment of a dividend upon any share of Series A Preferred
and (c) any other Securities issued as a dividend or other distribution with
respect to, or in replacement of, any Series A Preferred except shares of
Registrable Common.
"SHORT FORM" means Form S-2 or Form S-3 under the Securities
Act, and any other form promulgated after the date of this Agreement applicable
in circumstances substantially comparable to either of those forms, regardless
of its designation.
SECTION K. REGISTRATIONS ON LONG FORMS.
A By a written notice to the Company at any time after six (6)
months after the effective date of the first registration statement filed by the
Company covering a public offering of its Securities, the Investors owning at
least 50% of the Registrable Common issued and issuable to Investors may from
time to time request that the Company register any Registrable Common specified
in the notice, under the Securities Act and under other relevant securities
laws, for disposition in accordance with methods stated in the notice.
B When it receives a registration notice under Section 2.1,
the Company shall promptly deliver a copy of the registration notice to each
Holder who is not a party to the registration notice, each of whom may then
specify, by prompt notice to the Company, a number of shares of Registrable
Common held by or issuable to it which it wishes to include in any registration
pursuant to the registration notice under Section 2.1.
C When it receives a registration notice under Section 2.1,
the Company shall use its best efforts (a) to file a registration statement
under the Securities Act as soon as practicable, and in any event within sixty
(60) days of the receipt of such request, and (b) to effect the registration
under the Securities Act of Registrable Common specified in the registration
notice under Section 2.1 and subsequent notices under Section 2.2 that are
received within twenty (20) days after the mailing of the notices under Section
2.2, all to the extent requisite to permit disposition by such Investors in
accordance with the intended methods of disposition described in the
registration notice.
SECTION L. REGISTRATIONS ON SHORT FORMS.
A If at any time the Company is a registrant entitled to use a
Short Form to register Registrable Common, Holders of at least 50% of the
Registrable Common may, by a written notice to the Company, request that the
Company register such Holder's Registrable Common specified in the notice on a
Short Form.
<PAGE>
Page 17 of 47 Pages
B When it receives a notice under this Section 3, the Company
shall use its best efforts to effect the expeditious registration under the
Securities Act, on the Short Form specified in the notice, of Registrable Common
specified in the notice.
SECTION M. INCIDENTAL REGISTRATION. The Company shall give at
least sixty (60) days' advance written notice to each Holder of the Company's
intention to register any of its Securities under the Securities Act. Each
Holder may then specify, by prompt notice to the Company, a number of shares of
Registrable Common held by it which it wishes to include in the Company's
proposed registration. Subject to the market cutback limitations of Section 9,
the Company will use its best efforts to effect the registration under the
Securities Act of Registrable Common specified by Holders under this Section 4.
SECTION N. LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding
any contrary provision of this Agreement:
A the Company shall not be required to effect more than two
(2) registrations pursuant to Section 2 (provided, however, that a
demand for registration shall not count as a registration permitted
pursuant to Section 2 under this clause (a) if either (i) the
registration statement filed with respect to such registration is not
declared effective by the Commission, or (ii) the Holders requesting
registration of Registrable Common under Sections 2.1 and 2.2 do not
register and sell at least 90% of the Registrable Common they have
requested be registered in such registration for reasons other than
their voluntary decision not to do so); and
B Section 4 shall not apply to a registration effected solely
to implement an employee benefit plan or to any other form or type of
registration which does not permit inclusion of Registrable Common
pursuant to Commission rule or practice.
SECTION O. REGISTRATION PROCEDURES.
A Whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any Registrable
Common under the Securities Act, the Company will, as expeditiously as possible:
A in the case of a registration required under Section 2, and
subject to Section 14 below, engage the underwriters designated by the
Investors giving notice under Section 2;
B before filing each registration statement or prospectus or
amendment or supplement thereto with the Commission, furnish counsel
for the sellers with copies of all such documents proposed to be filed,
which shall be subject to the reasonable approval of such counsel;
<PAGE>
Page 18 of 47 Pages
C prepare and file with the Commission a registration
statement with respect to such Registrable Common and use its best
efforts to cause such registration statement to become and remain
effective for the period provided in Section 6.2;
D prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all Registrable
Common covered by such registration statement in accordance with the
intended methods of disposition set forth in such registration
statement;
E prepare and promptly file with the Commission, and notify
each seller of such Registrable Common immediately after the filing of,
such amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or omissions
if, during such periods as a prospectus relating to such Securities is
required to be delivered under the Securities Act, any event shall have
occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they
were made, not misleading, and notify each seller immediately after its
discovery of such event;
F furnish to the underwriters and each seller of such
Registrable Common such numbers of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as such underwriters or seller may
reasonably request in order to facilitate the disposition of the
Registrable Common subject to such registration statement in accordance
with such registration statement;
G use its best efforts to register or qualify any Registrable
Common covered by such registration statement under the securities or
blue sky laws of such jurisdictions within the United States of America
as the seller or the underwriters reasonably request, and to take any
other acts which a seller or the underwriters may reasonably request
under such securities or blue sky laws to enable the consummation of
the disposition in such jurisdictions of such Registrable Common
(provided, however, that the Company may not be required under this
Agreement (i) to qualify generally to do business as a foreign
corporation in any jurisdiction in which it would not otherwise be
required to qualify, or (ii) to subject itself to taxation in any such
jurisdiction, or (iii) to consent to general service of process in any
such jurisdiction);
H provide a transfer agent and registrar for all Registrable
Common sold under the registration not later than the effective date of
the registration statement;
I use its best efforts to cause all Registrable Common sold
under the registration to be listed on each securities exchange or to
be qualified and eligible for trading in any
<PAGE>
Page 19 of 47 Pages
automated quotation system, if any, on which similar Securities issued
by the Company are then listed or traded or, if no such listing or
qualification has then occurred, to cause such Securities to be so
listed or qualified on an exchange or in a trading system that is
reasonably acceptable to the Holders of Registrable Common;
J enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
underwriters, if any, or the Holders of more than 50% of the
Registrable Common being sold reasonably request in order to expedite
or facilitate the disposition of such Registrable Common (including,
without limitation, effecting a stock split or a combination of
shares); and
K make available for inspection by the sellers of Registrable
Common, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and
other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably requested
by any such seller or underwriter in connection with such registration
statement, all subject to such limitations as the Company reasonably
deems appropriate in order to protect the Company's confidential or
proprietary information.
B Notwithstanding any contrary provision of this Section 6,
the Company shall not be required to use its best efforts to maintain the
effectiveness of any registration statement for a period in excess of 180 days
or until the sellers have sold or otherwise disposed of their Registrable Common
registered under such registration statement, whichever is earlier.
C It shall be a condition precedent to the inclusion of the
Registrable Common of any Holder in a registration effected pursuant to this
Agreement that such Holder shall (a) furnish to the Company such information
regarding such Holder, the Registrable Common of such Holder to be registered
and the intended method of disposition of such Registrable Common, and (b)
execute such indemnities, underwriting agreements, lockups (as required by
Section 11) and other documents as the Company or the managing underwriter shall
reasonably request in order to satisfy the requirements applicable to such
registration.
SECTION P. EXPENSES. The Company shall pay all expenses
incurred in effecting all registrations of Registrable Common provided for in
this Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, reasonable
fees and disbursements of counsel for the sellers selected by the Holders,
underwriting expenses other than discounts and commissions, expenses of any
audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 6.1(g) of this Agreement.
SECTION Q. INDEMNIFICATION.
<PAGE>
Page 20 of 47 Pages
A In the event of any registration of any of its Registrable
Common under the Securities Act pursuant to this Agreement, the Company agrees,
to the extent permitted by law, to indemnify and hold harmless each seller of
Registrable Common, and each Affiliate of such seller, against any losses,
claims, damages or liabilities, joint or several, arising out of or based upon:
(a) any alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement
under which such Securities were registered under the Securities Act,
any preliminary prospectus or final prospectus contained therein, or
any summary prospectus contained therein, or any Securities being
registered, or any amendment or supplement thereto, or
(b) any alleged omission to state in any such document a
material fact required to be stated therein or necessary to make the
statements therein not misleading,
except insofar as any such loss, claim, damage or liability is:
(x) caused by or contained in any information furnished in
writing to the Company by such seller expressly for use in connection
with such registration, or
(y) caused by such seller's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplement
thereto as required by the Securities Act or the rules or regulations
thereunder, or
(z) caused by the use of a prospectus or preliminary
prospectus or any amendment or supplement thereto after receipt of
notice from the Company that it should no longer be used.
In connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person who controls (within
the meaning of the Securities Act) such underwriters to the same extent as
provided above with respect to the sellers of Registrable Common. The Company
shall reimburse each Person indemnified pursuant to this Section 8.1 in
connection with investigating or defending any loss, claim, damage, liability or
action indemnified against. The reimbursements required by this Section 8.1
shall be made by periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred. The indemnities
provided pursuant to this Section 8.1 shall remain in force and effect
regardless of any investigation made by or on behalf of the indemnified party
and shall survive transfer of Registrable Common by a seller.
B In the event of any registration of any Registrable Common
under the Securities Act pursuant to this Agreement, each Holder agrees to
furnish to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any registration statement or
prospectus in connection with the registration or any amendment or supplement
thereto.
<PAGE>
Page 21 of 47 Pages
C To the extent permitted by law, and subject to the
limitation set forth in the last sentence of this Section 8.3, each Holder which
is a seller of Registrable Common in a registration pursuant to this Agreement
agrees severally and not jointly to indemnify and hold harmless the Company, its
directors and officers, each other seller of Securities in such registration,
each Affiliate of each such other seller, and each Affiliate of the Company,
against:
A any losses, claims, damages or liabilities, joint or
several, arising out of or based upon:
A any alleged untrue statement of any material fact contained,
on the effective date thereof, in any registration statement
under which such Securities were registered under the
Securities Act, any preliminary prospectus or final prospectus
contained therein, or any summary prospectus contained
therein, or any Securities being registered, or any amendment
or supplement thereto, or
B any alleged omission to state in any such document a material
fact required to be stated therein or necessary to make the
statements therein not misleading,
but only insofar as any such loss, claim, damage or liability is caused
by or contained in any information furnished in writing to the Company
by the indemnifying seller expressly for use in connection with such
registration, and excluding any such loss, claim, damage or liability
which is caused by or contained in such statements, or caused by such
omissions, based upon the authority of an expert as defined in the
Securities Act (but only if the indemnifying seller had no grounds to
believe, and did not believe, that the statements made on the authority
of an expert were untrue or that there was an omission to state a
material fact); and
B any losses, claims, damages or liabilities, joint or
several, arising out of or based upon any failure by such seller to
deliver a copy of the registration statement or prospectus or any
amendment or supplement thereto as required by the Securities Act or
the rules or regulations thereunder.
In connection with an underwritten offering, each seller will indemnify such
underwriters, their officers and directors and each Person who controls (within
the meaning of the Securities Act) such underwriters to the same extent as
provided above with respect to the Company and other sellers. Each seller shall
reimburse each Person indemnified pursuant to this Section 8.3 in connection
with investigating or defending any loss, claim, damage, liability or action
indemnified against. The reimbursements required by this Section 8.3 shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred. The indemnities provided
pursuant to this Section 8.3 shall remain in force and effect regardless of any
investigation made by or on behalf of the indemnified party and shall survive
transfer of Registrable Common by an indemnifying seller, and transfer of other
Securities by any other indemnified seller. Notwithstanding any contrary
provision of this Agreement, however, the liability under this Section 8 of each
Holder which is a seller of Registrable Common shall be limited in the
aggregate,
<PAGE>
Page 22 of 47 Pages
with respect to the claims of all indemnified Persons taken as a
whole, not to exceed the amount of proceeds to the indemnifying seller from the
sale of the Registrable Common sold by the indemnifying seller.
D Indemnification similar to that specified in Sections 8.1
and 8.3 (with such modifications as shall be appropriate) shall be given by the
Company and each Holder of any Registrable Common covered by any registration or
other qualification of Securities under any federal or state securities law or
regulation other than the Securities Act with respect to any such registration
or other qualification effected pursuant to this Agreement.
E In the event the Company or any Holder receives a complaint,
claim or other notice of any loss, claim or damage, liability or action, giving
rise to claim for indemnification under this Section 8, the Person claiming
indemnification shall promptly notify the Person against whom indemnification is
sought of such complaint, notice, claim or action, and such indemnifying Person
shall have the right to investigate and defend any such loss, claim, damage,
liability or action. The Person claiming indemnification shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall not be at the expense of
the Person against whom indemnification is sought (unless the Person claiming
indemnification reasonably believes that the ability of the counsel defending
such action to defend such Person's interests therein is affected adversely and
materially by a conflict of interest) and the indemnifying Person shall not be
obligated to indemnify any Person for any settlement of any claim or action
effected without the indemnifying Person's consent, which consent will not be
unreasonably withheld.
SECTION R. MARKETING RESTRICTIONS.
A If:
(a) a registration is to be made pursuant to a registration
notice under Section 2, and
(b) the offering proposed to be made by the Investor or
Investors for whom such registration is to be made is to be an
underwritten public offering, and
(c) in the opinion of the managing underwriters of such public
offering, the total amount of Securities to be included in such
offering would exceed the maximum number of shares of Common which can
be marketed without otherwise materially and adversely affecting such
offering,
then the rights of the Holders to participate in such offering shall be in the
following order of priority:
<PAGE>
Page 23 of 47 Pages
First: the Investors shall be entitled to participate in such
offering pro rata among themselves in accordance with the number of
shares of Registrable Common which each such Investor shall have
requested to be registered; and then
Second: if such maximum number of shares of Common exceeds the
aggregate number of shares of Registrable Common that all such
Investors shall have requested be registered, all Holders of other
Securities having the right to include such Securities in such
registration shall be entitled to participate PRO RATA in accordance
with the number of shares proposed to be registered by them or
otherwise allocated as they may agree;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition by
any Holder in a transaction which would require registration under the
Securities Act until the expiration of 180 days after the effective date of the
registration statement filed in connection with such registration or such
earlier time consented to by the managing underwriter.
B If:
(a) a registration is to be made pursuant to a registration
notice under Section 3 or a Holder requests registration under Section
4 of this Agreement, and
(b) the offering proposed to be made is to be an underwritten
public offering, and
(c) in the opinion of the managing underwriters of such public
offering, the total amount of Securities to be included in such
offering would exceed the maximum number of shares of Common which can
be marketed without otherwise materially and adversely affecting such
offering,
then the rights of the Holders, of the holders of other Securities having the
right to include Common in such registration and of the Company to participate
in such offering shall be in the following order of priority:
First: the Company shall be entitled to include such shares of
Common as it wishes to include in the offering; provided that the
Company shall not be entitled to include Securities in an offering
effected pursuant to Section 3 hereof unless and until all Registrable
Common that the Holders desire to include in such offering has been so
included pursuant to this Agreement; and then
Second: the Holders shall be entitled to participate in such
offering pro rata among themselves in accordance with the number of
shares of Registrable Common which each such Holder shall have
requested to be registered; and then
<PAGE>
Page 24 of 47 Pages
Third: if such maximum number of shares of Common exceeds the
aggregate number of shares of Registrable Common that all such Holders
shall have requested be registered, all holders of other Securities
having the right to include such Securities in such registration shall
be entitled to participate PRO RATA in accordance with the number of
shares proposed to be registered by them or otherwise allocated as they
may agree;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition by
any Holder in a transaction which would require registration under the
Securities Act until the expiration of 180 days after the effective date of the
registration statement filed in connection with such registration or such
earlier time consented to by the managing underwriter.
C In connection with any offering involving an underwriting of
Registrable Common pursuant to Section 4 of this Agreement, the Company shall
not be required to include any of the Registrable Common of a Holder in such
offering unless such Holder agrees to the terms of the underwriting agreed to
between the Company and the underwriter or underwriters selected by the Company.
SECTION S. SALE OF SERIES A PREFERRED TO UNDERWRITER.
Notwithstanding anything in this Agreement to the contrary, in lieu of
converting any Series A Preferred to Common prior to or simultaneously with the
filing or the effectiveness of any registration statement filed pursuant to this
Agreement, the Holder of such Series A Preferred may sell such Series A
Preferred to the underwriter of the offering being registered upon the
undertaking of such underwriter to convert such Series A Preferred into Common
before making any distribution pursuant to such registration statement and
agreeing to include such Common among the Securities being offered pursuant to
such registration statement. The Company agrees to cause such Common to be
issued within such time as will permit the underwriter to make and complete the
distribution contemplated by the underwriting and to register the Common in any
registration statement so that the Holder may make the sale described in the
first sentence of this Section 10.
SECTION T. LOCKUP AGREEMENT. Each Holder agrees in connection
with any registration of any of the Securities that, upon the request of the
Company or the underwriters managing any underwritten offering of the
Securities, he or it will not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Securities (other than
the Securities included in the registration) without the prior written consent
of the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as the
Company or the underwriters may specify.
SECTION U. COMPLIANCE WITH RULE 144. In the event that the
Company (a) registers a class of Securities under Section 12 of the Exchange
Act, (b) issues an offering circular meeting the requirements of Regulation A
under the Securities Act or (c) commences to file reports under Section 13 or
15(d) of the Exchange Act, then at the request of any Holder who proposes to
sell Securities in compliance with Rule 144, the Company shall, to the extent
necessary to enable such Holder to comply with such Rule, (y) forthwith furnish
to such Holder a written statement of
<PAGE>
Page 25 of 47 Pages
compliance with the filing requirements of the Commission as set forth in Rule
144 and (z) make available to the public and such Holders such information as
will enable the Holders to make sales pursuant to Rule 144.
SECTION V. ASSIGNABILITY OF REGISTRATION RIGHTS. The rights
set forth in this Agreement shall accrue to each subsequent Holder of
Registrable Common who shall have executed a written consent agreeing to be
bound by the terms and conditions of this Agreement as a party to this
Agreement.
SECTION W. DESIGNATION OF UNDERWRITER. In the case of any
registration effected pursuant to Section 2 or 3, the managing underwriters and
any other investment banking advisers to the Company shall be selected by the
Holders, and shall be reasonably acceptable to the Company.
SECTION X. MISCELLANEOUS.
A AMENDMENT. This Agreement may be amended to add Holders to
this Agreement, to grant rights to Holders under this Agreement or consent to
rights of other holders of Securities of the Company, superior to, on parity
with, or junior to the rights of the Holders of Registrable Common, or to effect
any other amendment to or waiver under this Agreement, by a written agreement
signed by all of the following:
(a) the Company, and
(b) the Investors holding 50% of the Registrable
Common held by all Investors, and
(c) the Holders of at least 50% of the Registrable
Common.
B SEVERABILITY. In the event that any court or any
governmental authority or agency declares all or any part of any Section of this
Agreement to be unlawful or invalid, such unlawfulness or invalidity shall not
serve to invalidate any other Section of this Agreement, and in the event that
only a portion of any Section is so declared to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate the balance of such
Section.
C SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements of the parties contained in this Agreement or made in
writing in connection herewith, shall, except as otherwise provided herein, be
binding upon and inure to the benefit of their respective successors and
assigns. In addition, and whether or not any express assignment has been made,
the provisions of this Agreement which are for the benefit of the Holders or
other Holders of Securities are also for the benefit of, and enforceable by, any
subsequent Holders of Securities, except any subsequent Holder who acquires any
such security after such Security has been sold to the public pursuant to an
effective registration statement under the Securities Act or in a sale under
Rule 144.
<PAGE>
Page 26 of 47 Pages
D NOTICES. All communications in connection with this
Agreement shall be in writing and shall be deemed properly given if hand
delivered or sent by telecopier (provided that such communication is confirmed
by same-day deposit in the United States mail) or overnight courier with
adequate evidence of delivery or sent by registered or certified mail, return
receipt requested, and, if to a Holder, addressed to such Holder's address as
shown on the books of the Company or its transfer agent, and if to the Company,
at its offices at:
Correctional Systems, Inc.
209 Camaro Way
San Marcos, Texas 78666
Attention: Lawrence G. Grossman
and
Correctional Systems, Inc.
6910 A Miramar Road, Suite 299
San Diego, California 92121
Attention: John R. Forren
with a copy to:
Smith, Silbar, Parker & Woffinden, LLP
1900 Von Karman, Suite 400
Irvine, CA 92612
Attention: Kim R. Frank, Esq.
or such other addresses or Persons as the recipient shall have designated to the
sender by a written notice given in accordance with this Section. Any notice
called for hereunder shall be deemed given when received.
E GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
agreements between California residents entered into and to be performed
entirely within California.
F COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same Agreement. A written consent executed
pursuant to Section 13 of this Agreement shall be deemed to be part of, and
constitute a counterpart of, this Agreement.
G HEADINGS. The headings used herein are solely for the
convenience of the parties and shall not control or affect the meaning or
construction of any provisions hereof.
<PAGE>
Page 27 of 47 Pages
H ENTIRE AGREEMENT. This Agreement and the other documents and
agreements executed by the parties hereto on this date or referred to herein
together constitute the entire agreement and understanding of the parties hereto
in respect of the subject matter referred to herein and therein, and there are
no restrictions, promises, representations, warranties, covenants, or
undertakings with respect to the subject matter hereof, other than those
expressly set forth or referred to herein or therein. This Agreement supersedes
all prior agreements and understandings between the parties hereto with respect
to the subject matter hereof.
I ARBITRATION. Any dispute arising in connection with this
Agreement shall be submitted to binding arbitration in accordance with Section
10.15 of the Series A Stock Purchase Agreement of even date herewith among the
Company, the Holders and certain other parties.
J CONSTRUCTION AND REPRESENTATION. The parties understand and
acknowledge that they have each been represented by (or have had the opportunity
to be represented by) counsel in connection with the preparation, execution and
delivery of this Agreement. This Agreement shall not be construed against any
party for having drafted it.
<PAGE>
Page 28 of 47 Pages
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed on the day first above written.
THE COMPANY: CORRECTIONAL SYSTEMS, INC., a California
corporation
By __________________________________________
Lawrence G. Grossman, Chairman
By: _________________________________________
William L. Garrison, Chief Executive Officer
HOLDERS:
INVESTORS: APEX INVESTMENT FUND III, L.P.
By: APEX MANAGEMENT III, LLC
By:
---------------------------------------
By:
---------------------------------------
APEX STRATEGIC PARTNERS, LLC
By: APEX MANAGEMENT III, LLC
---------------------------------------
By:
---------------------------------------
By:
---------------------------------------
INFRASTRUCTURE AND ENVIRONMENTAL
PRIVATE EQUITY FUND III, L.P., a Delaware limited
partnership
By: Infrastructure and Environmental Private
Equity Management III, L.L.C., Its
General Partner
By: First Analysis IEPEF Management Company
III, L.L.C., its Member
By: First Analysis Corporation, its Member
By: ---------------------------------------
By:
---------------------------------------
<PAGE>
Page 29 of 47 Pages
HOLDERS (Cont'd)
INVESTORS (CONT'D) ENVIRONMENTAL & INFORMATION
TECHNOLOGY PRIVATE EQUITY FUND III,
Gesellschaft burgarlichen Rechts (mit
Haftungsbeschankung), a civil partnership
with limitation of liability established
under the laws of the Federal Republic of
Germany
By: Infrastructure and Environmental Private
Equity Management III, L.L.C., its
Investment Manager
By: First Analysis IEPEF Management Company
III, L.L.C., its Member
By: First Analysis Corporation, its Member
By:
----------------------------------------
By:
----------------------------------------
THE PRODUCTIVITY FUND III, L.P., a Delaware
limited partnership
By: First Analysis Management Company III,
L.L.C., its General Partner
By: First Analysis Corporation, a Member
By:
----------------------------------------
By:
----------------------------------------
---------------------------------------------
JAMES MACDONALD
<PAGE>
Page 30 of 47 Pages
Holders (Cont'd)
FOUNDERS: ---------------------------------------------
LAWRENCE G. GROSSMAN
---------------------------------------------
WILLIAM L. GARRISON
---------------------------------------------
JOHN R. FORREN
---------------------------------------------
MARTIN RICKLER
---------------------------------------------
DANIEL J. VERWIEL
---------------------------------------------
PATRICIA A. VERWIEL
<PAGE>
Page 31 of 47 Pages
EXHIBIT D
CORRECTIONAL SYSTEMS, INC.
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT, dated as of August
31, 1998 (this "AGREEMENT"), by and among Correctional Systems, Inc., a
California corporation ("COMPANY"), the Persons executing this Agreement as
Holders of Securities, and such other Persons that become parties hereto after
the date of this Agreement in accordance with the terms and provisions contained
herein (collectively, "HOLDERS"). This Agreement amends and restates a
Stockholders Agreement dated July 31, 1998, among the Company and certain of the
Holders ("ORIGINAL AGREEMENT").
PRELIMINARY STATEMENT
Certain of the Holders own shares of the Company's Common Stock, par
value $.001 per share (the "COMMON").
Upon the terms and subject to the conditions of the Purchase Agreement
(defined below), the Investors (defined below) acquired shares of Series A
Preferred Stock, par value $.001 per share, of the Company (the "SERIES A
PREFERRED"). The Company and the Holders desire to amend and restate the
Original Agreement to add certain parties as Holders.
It is in the best interests of the Company and the Holders to
memorialize certain aspects of all of the Holders' stock ownership, including
restrictions with respect to transferring the Common and the Series A Preferred,
all as hereinafter set forth.
In consideration of the mutual covenants and agreements contained
herein, the parties agree to amend and restate the Original Agreement as
follows:
ARTICLE A
DEFINITIONS
SECTION A DEFINITIONS. As used in this Agreement, the following terms
herein shall have the following meanings:
"AFFILIATE" means, with respect to any person, any entity controlling,
controlled by or under common control with such designated person. For the
purposes of this definition, "control" shall have the meaning specified as of
the date of this Agreement for that word in Rule 405 promulgated by the
Commission under the Securities Act.
"BOARD" means the Board of Directors of the Company.
<PAGE>
Page 32 of 47 Pages
"CASH EQUIVALENTS" means (a) immediately marketable, liquid and direct
obligations issued or unconditionally guaranteed by the United States federal
government or issued by any agency thereof and backed by the full faith and
credit of the United States of America, (b) immediately marketable, liquid and
direct obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof
and, at the time of acquisition, having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc., or (c)
freely tradeable and immediately marketable equity or debt securities listed for
or admitted to trading on the New York Stock Exchange, the American Stock
Exchange or the National Association of Securities Dealers Automated Quotation
System, which in the case of any equity security are of an issue of equity
securities having an aggregate listed market value as of the day of
determination of at least $250,000,000, or in the case of a debt security are of
an issue of debt securities having an aggregate listed market value as of the
day of determination of at least $500,000,000.
"COMMISSION" means the Securities and Exchange Commission and any
successor commission or agency having similar powers.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FULLY DILUTED SECURITIES" means all issued and outstanding shares of
Common, all shares of Common issuable upon conversion of the Series A Preferred,
and all shares of Common which may be directly or indirectly issuable upon the
exercise, exchange or conversion of any other Securities.
"IEPEF" means Infrastructure and Environmental Private Equity Fund III,
L.P., a Delaware limited partnership.
"INVESTORS" means Apex Investment Fund III, L.P., Apex Strategic
Partners, LLC, IEPEF, Environmental & Information Technology Private Equity Fund
III and The Productivity Fund III, L.P.
"MANAGEMENT HOLDERS" means Lawrence G. Grossman, William L. Garrison,
John R. Forren, Daniel J. Verwiel, Patricia A. Verwiel, and Martin Rickler.
"NEW SECURITIES" means all Securities issued by the Company after the
date hereof, except (a) Common issued upon conversion of the Series A Preferred,
(b) Securities offered to the public pursuant to a Qualified Public Offering,
(c) Securities issued in connection with the acquisition of another corporation
by the Company through a merger, purchase by the Company of all or substantially
all of the assets of such other corporation or other reorganization following
which the Company owns more than 50% of the Voting Stock or assets of such other
corporation, (d) Securities issued in connection with any stock split, stock
dividend or recapitalization of the Company, (e) up to 1,325,875 shares of
Common issued from time to time upon the exercise of options outstanding as of
the date hereof, and (f) up to 174,125 shares of
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Common issued from time to time upon the exercise of options to be granted in
the discretion of the Board pursuant to the Company's 1996 Stock Option Plan.
"PERMITTED TRANSFEREE" means:
A in the case of an individual, any Person who is the spouse
or a lineal ancestor or descendant of such individual, a trust for the benefit
of such individual or other described Persons, or the estate of such individual
or his Permitted Transferees;
B in the case of any Person that is a partnership, any Person
that is a current or former limited or general partner of such Person;
C in the case of any Person that is a limited liability
company, any Person that is a current or former member of such Person;
D in the case of any Holder, any voting trust established in
compliance with all applicable laws;
PROVIDED, that any such Person has agreed in writing, in
accordance with Section 5.11 hereof, to be bound and has become bound by the
terms and conditions of this Agreement to the same extent and in the same manner
as the Holder transferring Stock to him or it; and, PROVIDED FURTHER, that the
Transfer to any such Person is effected in compliance with the registration
requirements of all applicable securities laws (or exemptions therefrom) and
that the transferor or Permitted Transferee shall have paid any costs incurred
by the Company in connection with the Transfer. The term "PERMITTED TRANSFEREES"
shall mean any combination of such Permitted Transferees. A "PERMITTED TRANSFER"
shall mean a Transfer of Securities to any Permitted Transferee.
"PERSON" means an individual, partnership, corporation, business trust,
limited liability company, joint stock company, trust, unincorporated
association, joint venture, or other entity of whatever nature.
"PRO RATA AMOUNT" means, as of any date with respect to a specified
Investor, the percentage equal to (a) the number of shares of Fully Diluted
Securities held by such Investor as of that date, divided by (b) the number of
shares of Fully Diluted Securities held on that date by all Investors, and with
respect to a specified Holder, the percentage equal to (y) the number of shares
of Fully Diluted Securities held by such Holder as of that date, divided by (z)
the number of shares of Fully Diluted Securities held on that date by all
Holders.
"PURCHASE AGREEMENT" means the Series A Preferred Stock Purchase
Agreement of even date herewith among the Company and the Investors, as such
agreement may be amended from time to time.
"QUALIFIED PUBLIC OFFERING" means the first sale to the public of
Common pursuant to an effective registration statement under the Securities Act
under which (a) the gross proceeds to
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the Company of the Common actually sold to the public by the Company in such
first sale is at least $20,000,000, (b) the price per share to the public of
such Common is at least 350% of the Conversion Price (as defined in the
Company's Articles of Incorporation, as amended) of the Series A Preferred then
in effect and (c) the gross proceeds to the Investors in such first sale is at
least $2,200,000.
"SECURITIES" means any debt or equity securities of the Company,
whether now or hereafter authorized or issued, and any instrument convertible
into, or exercisable or exchangeable for, any such Securities or Security.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK" means shares of Common and Series A Preferred.
"SUBSIDIARY" means (a) any corporation at least 50% of whose
outstanding Voting Stock, or any class thereof, is owned or controlled, directly
or indirectly, by the Company or by one or more Subsidiaries or by the Company
and one or more Subsidiaries, (b) any partnership of which the Company or one or
more Subsidiaries is a general partner, for which the Company or one or more
Subsidiaries possesses the power to direct the affairs or of which the Company
or any Subsidiary owns, directly or indirectly, 50% or more of any class of
partnership interest, and (c) any limited liability company for which the
Company or one or more Subsidiaries possesses the power to direct the affairs of
the limited liability company or of which the Company or any Subsidiary owns,
directly or indirectly, 50% or more of any class of membership interest.
"THIRD PARTY" means a Person who is a prospective purchaser of Stock in
a bona fide arm's length transaction from a Holder where such purchaser is not a
Permitted Transferee of such Holder.
"TRANSFER" means any sale, assignment, transfer, negotiation, pledge,
hypothecation, other disposition, and any event or transaction in which a lien
is created.
"VOTING STOCK" as applied to the stock of any corporation, means stock
of any class or classes (however designated) having ordinary voting power for
the election of a majority of the members of the board of directors (or other
governing body) of such corporation, other than stock having such power only by
reason of the happening of a contingency.
ARTICLE B
RESTRICTIONS ON TRANSFER
SECTION A GENERAL RESTRICTIONS; EXCEPTIONS.
(a) Each Holder agrees that it or he will not Transfer any
interest in any Stock held by such Holder except Permitted Transfers or
Transfers made in accordance with the provisions of this Agreement. Any Transfer
of any Stock sought to be made in violation of this
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Agreement shall be null and void, and neither the Company nor any transfer agent
shall give any effect in the Company's stock records to such attempted Transfer.
(b) Notwithstanding the provisions of this Article 2 to the
contrary, each Management Holder shall have the right ("Management Transfer
Right"), without being subject to the transfer restrictions set forth below in
Sections 2.2 and 2.3, to Transfer in any twelve-month period up to 15,000 shares
of Stock held by such Management Holder. The Management Transfer Right shall
terminate on the fifth anniversary of this Agreement.
SECTION B RIGHTS OF FIRST REFUSAL ON PROPOSED TRANSFER.
A If a Management Holder (the "PROPOSED TRANSFEROR") wishes to Transfer
any Stock except in a Permitted Transfer, the Proposed Transferor shall do so
only for cash, Cash Equivalents or a combination of both, and shall first
deliver written notice (the "OFFER NOTICE") to the Company and each Investor
identifying the Stock proposed to be Transferred (the "OFFERED SECURITIES") and
the proposed transferee, and stating the price at which, and other material
terms on which, the Proposed Transferor wishes to Transfer the Offered
Securities, including the anticipated date of the proposed Transfer, which shall
be a date not earlier than thirty (30) days after the date the Offer Notice is
delivered.
B Delivery of an Offer Notice to the Investors shall constitute an
offer by the Proposed Transferor to Transfer all of the Offered Securities in
the aggregate, but not less than all of the Offered Securities in the aggregate
(the "OFFER"), first to the other Investors, then to the Company pursuant to
this Section 2.2, at the price and on the other terms described in the Offer
Notice.
C Upon receipt of the Offer Notice, each Investor shall have the right
to purchase the number of shares of the Offered Securities equal to such
Investor's Pro Rata Amount of such Offered Securities, exercisable by written
notice delivered to the Company and the Proposed Transferor within ten (10) days
after receipt of the Offer Notice. The participating Investors also may allocate
the right to purchase the Offered Securities between or among them in any
proportion they choose as reflected in a notice to the Proposed Transferor
within such ten-day period, with or without the purchase of Offered Securities
by the Company as described in Section 2.2(e).
D If the Investors shall not have exercised their rights to purchase
all of the Offered Securities in the aggregate, then within three (3) days after
the expiration of the period specified in Section 2.2(c) above, the Proposed
Transferor shall notify those Investors who agreed to purchase their Pro Rata
Amount of the Offered Securities of the number of shares of Offered Securities
which remain available for purchase. Each Investor shall then have the right to
purchase all of the remaining Offered Securities or, if more than one Investor
wishes to purchase all of the remaining Offered Securities, their Pro Rata
Amount of the remaining Offered Securities, with only the shares held by
Investors who wish to purchase the remaining Offered Securities considered in
computing the Pro Rata Amount. Such right shall be exercisable by
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written notice delivered to the Proposed Transferor within five (5) days after
receipt of the notice specified in this Section 2.2(d).
E If the Investors shall not have exercised their rights to purchase
all of the Offered Securities in the aggregate, then within three (3) days after
the expiration of the five-day period specified in Section 2.2(d) above, the
Proposed Transferor shall notify the Company of the number of shares of Offered
Securities which remain available for purchase by the Company. The Company shall
then have the right to purchase such remaining Offered Securities, exercisable
by written notice delivered to the Proposed Transferor within five (5) days
after receipt of the notice specified in this Section 2.2(e)
F If any of the Company and the participating Investors have either
individually or in the aggregate elected to accept an Offer in its entirety (the
"PURCHASERS"), then the Proposed Transferor shall Transfer the Offered
Securities to the Purchasers, and the Purchasers shall acquire the Offered
Securities, at the price and on the other terms described in the Offer Notice.
The consummation of the Transfer shall take place at 10:00 a.m. local time at
the offices of the Company, on the date specified for the proposed Transfer in
the Offer Notice, or at such other location or date on which the participants in
the transaction agree in writing, at which time the Purchasers shall deliver the
appropriate consideration in the form of cash or Cash Equivalents, and the
Proposed Transferor shall deliver certificates representing the Securities to be
sold, free and clear of any and all liens, claims and encumbrances whatsoever
(except those imposed by this Agreement and securities laws generally), together
with such other instruments and documents of transfer as the Purchasers shall
reasonably request.
G If the Company and the Investors do not, either individually or in
the aggregate, accept an Offer in its entirety, then the Proposed Transferor may
Transfer the Offered Securities (subject to the provisions of this Agreement,
securities laws generally and to any other agreements binding on the Proposed
Transferor) to the transferee named in the Offer Notice, at any time within the
sixty (60) day period beginning on the date that the Proposed Transferor shall
have received final notice (or by expiration of the period specified in Section
2.2(e) above) that the Company and the Investors shall not have elected to
purchase the Offered Securities in the aggregate. The provisions of this Section
2.2 shall again apply to any Transfer of Offered Securities not Transferred
within such period.
H Promptly after any sale pursuant to this Section 2.2, the Offering
Investor shall notify the Company of the consummation thereof and shall furnish
such evidence of the completion (including date of completion) of such sale and
of the terms thereof as the Company may reasonably request. The exercise or
non-exercise by any Investor of its rights under this Section 2.2 shall not
impair such Investor from exercising any rights under Section 2.3 hereof.
SECTION C TAKE ALONG RIGHTS.
A If a Proposed Transferor wishes to Transfer any Stock except in a
Permitted Transfer and neither the Company nor the Investors, either
individually or in the aggregate, accept an
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Offer with respect to such Stock in its entirety under Section 2.2, then such
Proposed Transferor may, but shall not be obligated to, Transfer his or its
Take-Along Share (as defined below) of the Offered Securities to the transferee
named in the Offer Notice on the terms and conditions set forth in the Offer
Notice only if the transferee acquires the Offered Securities as part of a
transaction in which the transferee also offers to acquire the Take-Along Share
of the Fully Diluted Securities held by each Investor (determined as of the date
of the consummation of such transaction) which chooses to Transfer in such
transaction at the same price per fully diluted Common share and on the other
material terms and conditions as specified in the Offer Notice.
B Within ten (10) days after receipt of final notice as set forth in
Section 2.2(g) (or by expiration of the period specified in Section 2.2(e)), the
Proposed Transferor will notify each Investor of the Investor's rights under
this Section 2.3.
C Any of the Investors may elect to participate in a Transfer under
this Section 2.3 with respect to all or any portion of their Take-Along Share,
by written notice delivered to the Proposed Transferor not later than fourteen
(14) days after the Investor received the notice under Section 2.3(b),
accompanied by certificates representing the appropriate number of Securities to
be sold by each such Investor pursuant to such sale, free and clear of any and
all liens, claims and encumbrances whatsoever (except those imposed by this
Agreement and securities laws generally), together with such documents and
instruments of transfer as the purchaser in such transaction may reasonably
request.
D Each participant's "TAKE-ALONG SHARE" shall equal the aggregate
number of Fully Diluted Securities that the proposed transferee offers to
acquire from the Proposed Transferor, multiplied by a percentage equal to (i)
the number of shares of Fully Diluted Securities held by the participant as of
that date, divided by (ii) the number of shares of Fully Diluted Securities
issued or issuable on that date to the Investors.
SECTION D PREEMPTIVE RIGHTS.
A Each Investor shall have the right (the "PARTICIPATION RIGHT") to
purchase its Pro Rata Amount of any New Securities that the Company may from
time to time propose to sell and issue after the date hereof, at the price and
upon the general terms specified in the New Issue Notice (as defined below)
regarding such New Securities and otherwise on the terms of this Section 2.4.
B Whenever the Company proposes to issue and sell any New Securities,
the Company shall give each Investor written notice (a "NEW ISSUE NOTICE")
describing the type and amount of New Securities proposed to be issued and the
price and general terms upon which the Company proposes to issue such New
Securities, specifying a proposed closing date at least forty-five (45) days
after the date each Investor shall have received the New Issue Notice, and
specifying in each case the recipient's Pro Rata Amount as of the date of the
New Issue Notice.
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C Each Investor may exercise its Participation Right with respect to
any proposed New Securities by notice to the Company, given within thirty (30)
days after the Investors shall have received the New Issue Notice describing the
New Securities.
D If any Investor does not exercise its Participation Right with
respect to any proposed New Securities within the thirty-day period, then within
three (3) days after the expiration of such thirty-day period, the Company shall
notify each Investor who proposed to purchase not less than its Pro Rata Amount
of such New Securities of the number of shares of New Securities which remain
available for purchase. Upon receipt of the notice specified in the preceding
sentence, each such Investor shall have the additional Participation Right to
purchase its Pro Rata Amount of the remaining New Securities (considering the
Fully Diluted Securities held by all Investors who purchased less than their Pro
Rata Amount of the New Securities not to be issued and outstanding for purposes
of computing the Pro Rata Amount), exercisable by written notice delivered to
the Company within five (5) days after receipt of the notice of the availability
of the balance of the New Securities. Such Investors also may allocate the right
to purchase the New Securities between or among them in any proportion they
choose (provided that no Investor's Pro Rata Amount may be reduced without its
consent) as reflected in a notice to the Company within such five-day period.
E The Company may sell the New Securities not committed for by
Investors at a price and upon general terms no more favorable to the purchasers
than those specified in the New Issue Notice with regard to such New Securities,
at any time during (and only during) the sixty (60) days following the
expiration of the last notice period specified in Section 2.4(d) above.
F If the Company does not sell, or obtain binding agreements to
purchase, all of the proposed issue not committed to be purchased by Investors
within the period specified in Section 2.4(e), the Company may, but shall not be
obligated to, sell any of such New Securities.
G The sale of any New Securities to Investors pursuant to this Section
2.4 shall be closed on the same terms, at the same place as, and simultaneously
with, the sale of any such New Securities to any other purchasers (provided that
the closing shall not take place earlier than the proposed closing date
specified in the applicable New Issue Notice without the consent of all
participating Investors).
ARTICLE C
DIRECTORS
SECTION A ELECTION OF DIRECTORS.
A The Company and each of the Holders agree that, so long as the voting
agreement set forth in this Section 3.1 remains in effect, each of them shall
take all action necessary from time to time (including, without limitation, the
voting of Securities, the execution of written consents, the calling of special
meetings, the removal of directors, the filling of vacancies on the Board, the
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waiving of notice and attendance at meetings, the amendment of the Company's
by-laws and the like) necessary to maintain the membership of the Board as
follows:
A The number of directors composing the Board shall not exceed
six (6);
B So long as the Investors own at least 50% of the Series A
Preferred held by the Investors on the date hereof or the Common issued upon
conversion thereof, IEPEF shall designate one (1) nominee for election to the
Board (such nominee being referred to herein as the "PREFERRED NOMINEE"); and
C The holders of a majority of the Common held by parties to
this Agreement shall designate one (1) nominee for election to the Board,
provided that such nominee is not a member of the Company's management or an
employee or officer of or consultant to the Company (such nominee being referred
to herein as the "INDEPENDENT NOMINEE"), and provided further that such
Independent Nominee is reasonably acceptable to the Investors (determined by the
vote of a majority of the Series A Preferred).
By their execution of this Agreement the Holders agree that the initial
Preferred Nominee shall be James Macdonald and the initial Independent Nominee
shall be Gary D. Maynard.
B The Persons entitled to name a director pursuant to Section
3.1(a)(ii) are referred to in this Section as the "PRINCIPALS" with respect to
that director. If the Principals give notice at any time to the Company and the
other Holders that an individual then serving as a director of the Company at
such Principals' designation is no longer their designee, then the Company and
the Holders shall take all action necessary to remove the director so
designated. If the Investors no longer agree that an Independent Nominee should
serve as a member of the Board, then the Company and the Holders shall take all
action necessary to remove the director so designated.
C If an individual then serving as a director of the Company dies,
resigns, or is removed as a director of the Company pursuant to Section 3.1(b)
above, then the Company and the Holders shall take all action necessary to elect
as a director of the Company any individual newly designated by the Principals
or approved by the Principals, with respect to the director who died, resigned,
or was removed.
D The Holders agree and shall vote all of their Stock to assure that
the Board elected pursuant to this Section 3.1 shall also serve as the Board (or
the equivalent governing body) of any Subsidiary of the Company.
E This Section 3.1 constitutes a voting agreement within the meaning of
Section 706 of the California Corporation Code.
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SECTION B MEETINGS; REIMBURSEMENT OF EXPENSES. The Board shall
meet not less frequently than six (6) times per year; provided that up to
three (3) meetings may be held telephonically. The Company agrees to
reimburse each director for the reasonable out-of-pocket expenses incurred by
such director in performing his or her services as a director of the Company,
including expenses incurred in connection with attendance at meetings of the
Board.
SECTION C COMMITTEES. The number of members of the Compensation and
Audit Committees of the Board shall be fixed at three (3). The Preferred Nominee
and the Independent Nominee shall be members of such committees.
SECTION D RESTRICTED ACTS. The following actions by the Company
require the prior approval of the Preferred Nominee:
A increasing the cash compensation of any Company executive by
more than 5% per year, excluding pursuant to written
employment arrangements existing as of the date of this
Agreement, or establishing compensation for Mr.
Grossman or Mr. Garrison;
B granting any stock options or entering into any phantom stock
plan or similar arrangement in excess of the 174,125 shares of
Common previously reserved for issuance under the 1996 Stock
Option Plan, and 250,000 shares of Common issuable upon the
grant, in the discretion of the Board, of options to
management of the Company;
C increasing the number of the directors composing the Board;
D causing the Company to enter into any business other than the
business presently conducted as of the date of this Agreement;
and
E forming any Subsidiary or causing it to issue any debt or
equity securities other than in connection with acquisitions,
reorganizations and transactions contemplated by the Company
at the closing of the issuance of the Series A Preferred.
ARTICLE D
MANDATORY SALE
SECTION A CAUSE OF MANDATORY SALE. If the Company has not been sold,
merged with a public company, or the subject of a Qualified Public Offering by
the fifth anniversary of the date hereof or in the event of a Financial Cause
(as defined below), then the Holders and the Company agree to take such actions
as are necessary or appropriate to cause the Company (or its issued and
outstanding Securities) to be sold (a "SALE") not less than six months after
delivery of the Sale Notice (defined herein), if written notice requesting such
Sale is delivered to the Company by Holders of a majority of the Series A
Preferred (a "SALE NOTICE") at any time after
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the fifth anniversary of the date hereof or determination of a Financial Cause.
If delivered, a Sale Notice may be rescinded by the Holders of a majority of the
Series A Preferred at any time prior to the closing of the Sale. For purposes of
this Article 4, "FINANCIAL CAUSE" means the failure of the Company to report a
profit in any calendar year beginning with the year ending December 31, 1999, as
determined by the Company's audited financial statements for such year prepared
in accordance with generally accepted accounting principles, consistently
applied, and delivered pursuant to Section 7.1 of the Purchase Agreement.
SECTION B COMPANY ACTION. Without limiting the generality of Section
4.1, the Company agrees to:
(a) call and conduct such stockholder meetings and prepare and
distribute such proxies, disclosure materials or statements and such other
documents as are necessary or appropriate to obtain stockholder approval of such
actions as may be necessary or appropriate to effect the Sale;
(b) refrain from issuing any additional securities (excluding
its obligations to issue securities pursuant to options, warrants, convertible
instruments or any similar instruments that exist as of the date of the Sale
Notice) that would cause the voting power represented by the Securities held
collectively by parties to this Agreement to represent less than the number of
votes necessary to approve the sale under California (or Delaware, if the
Company has reorganized as a Delaware corporation) law (considering the Common
Stock underlying any Securities to be issued and outstanding for such purpose)
without the consent of the Investors;
(c) refrain from registering voluntarily or taking any action
that would require the Company to register any of its equity securities under
the Exchange Act prior to receipt of any approvals required of the Company's
stockholders in connection with the Sale;
(d) engage and compensate an investment banker with respect to
the Sale who is selected for engagement by the Investors, and other
professionals as are appropriate under the circumstances to effect the Sale as
provided herein; and
(e) otherwise take such actions as are reasonably necessary or
appropriate in order to effect the sale in accordance with the terms and
conditions of this Agreement and the Purchase Agreement.
SECTION C STOCKHOLDER ACTION. Without limiting the generality of
Section 4.1, after delivery of a Sale Notice, each Holder agrees to take the
following actions promptly in order to effect the Sale within the time period
provided in Section 4.1:
(a) Vote his or its Stock, in person or by proxy, at all regular and
special meetings of the Company's stockholders;
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(b) Execute written consents of the Company's stockholders and/or such
proxies as may be convenient to vote the Holder's Stock to effect the terms and
conditions of this Agreement;
(c) Call a special meeting of the Company's stockholders;
(d) Remove members of the Board and/or fill vacancies on such Board;
(e) Waive notice of and/or attend meetings of the Company's
stockholders;
(f) Cause the Company to take and refrain from taking those actions as
are required or prohibited by Section 4.2 of this Agreement;
(g) Execute and deliver such non-competition, non-solicitation and
similar agreements as may be reasonably requested by prospective buyers in
connection with the Sale; and
(h) Otherwise take or withhold from taking any action as may be
reasonably necessary or appropriate in order to effect the Sale in accordance
with the terms and conditions of this Agreement and the Purchase Agreement.
ARTICLE E
MISCELLANEOUS
SECTION A DIVIDENDS IN STOCK. If a stock dividend is paid on any
Stock held by any party to this Agreement, or if any Stock held by any party
to this Agreement is exchanged for Stock of a different class or series, or
for voting trust certificates evidencing any beneficial interest in such
Stock, or if any other event (such as a stock split, reclassification, or
similar event) shall occur so that any Holders shall receive additional or
replacement Securities (whether of the same or a different class or series),
then such Securities of the same or a different class or series, or such
voting trust certificates, as the case may be, shall thereupon become subject
to the provisions of this Agreement upon the same terms and conditions as the
Stock originally covered by this Agreement.
SECTION B LEGENDS.
A Except with respect to Stock excluded hereunder pursuant to
Section 2.1(b), each certificate evidencing any Stock that is issued to any
Holder shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER STATE OR
FOREIGN SECURITIES LAWS AND MAY NOT BE
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OFFERED, SOLD, OR TRANSFERRED EXCEPT IN COMPLIANCE THEREWITH. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS'
AGREEMENT, DATED AS OF JULY 31, 1998, COPIES OF WHICH WILL BE FURNISHED
BY THE COMPANY UPON REQUEST.
B In addition to the legends required by Section 5.2(a), except
with respect to Stock excluded hereunder pursuant to Section 2.1(b), each
certificate for Stock issued to any Holder or any subsequent transferee shall
be stamped or otherwise imprinted with any legend required pursuant to
applicable state corporation and securities laws. If any Stock shall cease to
be subject to the restrictions on transfer set forth above or otherwise
required herein, the Company shall, upon written request of the Holder
thereof, issue to such Holder a new certificate evidencing such Stock without
the applicable legend required by Section 5.2(a) endorsed thereon.
C The Company may decline to acknowledge or register a Transfer
of any Security bearing any legend required hereunder, and may instruct any
transfer agent for its Securities to decline the same, unless the Company is
reasonably satisfied that the Securities being transferred have been
registered or are exempt from registration under applicable securities laws.
SECTION C HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
SECTION D PRONOUNS. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, singular and plural as the
identity of that Person referred to requires.
SECTION E REMEDIES. The parties acknowledge that the Securities
are unique chattels and possess a special, unique and extraordinary character
which would make it difficult to assess the monetary damage which any party
hereto would sustain in the event of a breach hereof by another party hereto
and that in the event of any such breach by any Holder or the Company, the
other parties would be irreparably harmed and could not be made whole by
monetary damages. The Company and each Holder accordingly agree (a) to waive
the defense in any action for specific performance that a remedy at law would
be adequate, and (b) that an aggrieved party hereunder shall be entitled to
compel specific performance of this Agreement, in addition to any other
remedy to which they may be entitled at law or in equity.
SECTION F ENTIRE AGREEMENT. This Agreement and the other documents
and agreements executed by the parties hereto on this date or referred to
herein together constitute the entire agreement and understanding of the
parties hereto in respect of the subject matter referred to herein and
therein, and there are no restrictions, promises, representations,
warranties, covenants, or undertakings with respect to the subject matter
hereof, other than those expressly
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set forth or referred to herein or therein. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the
subject matter hereof.
SECTION G NOTICES. All communications in connection with this
Agreement shall be in writing and shall be deemed properly given if hand
delivered or sent by telecopier (provided that such communication is
confirmed by same-day deposit in the United States mail first class postage
prepaid) or overnight courier with adequate evidence of delivery or sent by
registered or certified mail return receipt requested and, if to a Holder,
addressed to such Holder at the address for notices set forth below such
Holder's name in Exhibit A to the Purchase Agreement, and if to any Holder
other than a purchaser under the Purchase Agreement, addressed to such
Holders at their addresses as shown on the books of the Company or its
transfer agent, and if to the Company, at its offices at:
Correctional Systems, Inc.
209 Camaro Way
San Marcos, Texas 78666
Attention: Lawrence G. Grossman
and
Correctional Systems, Inc.
6910 A Miramar Road, Suite 299
San Diego, California 92121
Attention: John R. Forren
or such other addresses or Persons as the recipient shall have designated to the
sender by a written notice given in accordance with this Section. Any notice
called for hereunder shall be deemed given when received.
SECTION H GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable
to agreements between California residents entered into and to be performed
entirely within California.
SECTION I SEVERABILITY. The invalidity or unenforceability of any
provisions hereof in any jurisdiction shall not affect the validity, legality
or enforceability of the remainder hereof in such jurisdiction or the
validity, legality or enforceability hereof, including any such provision, in
any other jurisdiction, it being intended that all rights and obligations of
the parties hereunder shall be enforceable to the fullest extent permitted by
law.
SECTION J AGREEMENT TO BE BOUND. Prior to the termination of this
Agreement, no Stock (the "RESTRICTED STOCK") may be Transferred to any Third
Party or Permitted Transferee (the "RESTRICTED HOLDERS") unless such
Restricted Holder, prior to such sale, transfer or other disposition, agrees
in writing, in form and substance satisfactory to the Company, to be bound by
the terms hereof to the same extent and in the same manner as the transferor
of such Restricted Stock, a copy of which writing shall be maintained on file
with the secretary of the
<PAGE>
Page 45 of 47 Pages
Company and shall include the address of such Restricted Holder to which notices
hereunder shall be sent. Each such supplementary agreement shall become
effective upon its execution by the Company and the Restricted Holder, and it
shall not require the signatures or the consent of any other party hereto. Upon
such execution such Restricted Holder shall be bound by all the restrictions
placed on Holders hereby, shall be subject to any additional restrictions set
forth in such supplementary agreement and shall enjoy only such rights as are
specifically set forth in such supplementary agreement.
SECTION K TERMINATION. This Agreement shall terminate and be of no
further force or effect upon the first to occur of (i) the consummation of a
Qualified Public Offering, or (ii) the written agreement of the Holders of
80% of the Fully Diluted Securities held by parties to this Agreement.
SECTION L SUCCESSORS, ASSIGNS, TRANSFEREES, AFFILIATES. All
representations, warranties, covenants and agreements of the parties
contained in this Agreement or made in writing in connection herewith, shall,
except as otherwise provided herein, be binding upon and inure to the benefit
of their respective successors and permitted assigns. In addition, and
whether or not any express assignment has been made, the provisions of this
Agreement which are for the benefit of the Holders are also for the benefit
of, and enforceable by, any subsequent Holders of Securities, except any
subsequent holder who acquires any such Security after such Security has been
sold to the public pursuant to an effective registration statement under the
Securities Act or in a sale under Rule 144 of the Commission.
SECTION M ASSURANCES. The Holders, by the signing hereof, hereby
agree to execute and deliver such other documents and agreements, including
but not limited to assignments, bills of sale, stock powers, or resolutions,
as may be reasonably necessary, desirable or convenient in order to effect
the purposes hereof.
SECTION N AMENDMENTS; WAIVERS. Any provision hereof may be
amended, modified or supplemented upon the consent in writing by the Company
and the Holders of at least 80% of the Fully Diluted Securities held by
parties to this Agreement, and upon the effectiveness of such amendment,
modification or supplement, all of the Holders will be deemed to be bound
thereby.
SECTION O COUNTERPARTS. This agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same Agreement.
SECTION P ARBITRATION. Any dispute arising in connection with this
Agreement (except any action for specific performance or other forms of
extraordinary equitable relief) shall be submitted to binding arbitration in
accordance with Section 10.15 of the Purchase Agreement.
SECTION Q CONSTRUCTION AND REPRESENTATION. The parties understand
and acknowledge that they have each been represented by (or have had the
opportunity to be
<PAGE>
Page 46 of 47 Pages
represented by) counsel in connection with the preparation, execution and
delivery of this Agreement. This Agreement shall not be construed against any
party for having drafted it. The parties further understand and acknowledge that
Jerue & Perkins has served as counsel only to the Investors in connection with
this Agreement and the agreements referred to herein. Any other Holders have
been advised to obtain independent counsel if they so desire.
<PAGE>
Page 47-1 of 47 Pages
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders'
Agreement as of the date first above written.
THE COMPANY: CORRECTIONAL SYSTEMS, INC., a California
corporation
By
---------------------------------
Lawrence G. Grossman, Chairman
By
---------------------------------
William L. Garrison, Chief Executive Officer
HOLDERS:
MANAGEMENT HOLDERS:
----------------------------------
LAWRENCE G. GROSSMAN
----------------------------------
WILLIAM L. GARRISON
-------------------------------------
JOHN R. FORREN
-------------------------------------
MARTIN RICKLER
-------------------------------------
DANIEL J. VERWIEL
-------------------------------------
PATRICIA A. VERWIEL
<PAGE>
Page 47-2 of 47 Pages
HOLDERS (Cont'd):
INVESTORS: APEX INVESTMENT FUND III, L.P.
By: APEX MANAGEMENT III, LLC
By:
---------------------------------
By:
---------------------------------
APEX STRATEGIC PARTNERS, LLC
By: APEX MANAGEMENT III, LLC
By:
---------------------------------
By:
---------------------------------
INFRASTRUCTURE AND ENVIRONMENTAL
PRIVATE EQUITY FUND III, L.P., a Delaware
limited partnership
By: Infrastructure and Environmental Private
Equity Management III, L.L.C., Its
General Partner
By: First Analysis IEPEF Management Company
III, L.L.C., its Member
By: First Analysis Corporation, its Member
By:
---------------------------------
By:
---------------------------------
<PAGE>
Page 47-3 of 47 Pages
HOLDERS (Cont'd)
INVESTORS: ENVIRONMENTAL & INFORMATION
TECHNOLOGY PRIVATE EQUITY FUND III,
Gesellschaft burgarlichen Rechts (mit
Haftungsbeschankung), a civil partnership with limitation
of liability established under the laws of the Federal
Republic of Germany
By: Infrastructure and Environmental Private
Equity Management III, L.L.C., its
Investment Manager
By: First Analysis IEPEF Management Company
III, L.L.C., its Member
By: First Analysis Corporation, its Member
By:
---------------------------------
By:
---------------------------------
THE PRODUCTIVITY FUND III, L.P., a Delaware limited
partnership
By: First Analysis Management Company III,
L.L.C., its General Partner
By: First Analysis Corporation, a Member
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
------------------------------------------------
JAMES MACDONALD
