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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
CORRECTIONAL SYSTEMS, INC.
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(Name of Small Business Issuer in Its Charter)
CALIFORNIA 33-0607766
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
6910 "A" MIRAMAR ROAD, SAN DIEGO, CA 92121
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(Address of Principal Executive Offices) (Zip Code)
(619) 566-9816
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(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name Of Each Exchange On Which
To Be So Registered Each Class Is To Be Registered
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- --------------------------------- ------------------------------------
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Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Correctional Systems, Inc. and its subsidiaries, Sentencing Concepts, Inc.
and Reality House, Inc. (collectively, the "Company" or "CSI"), provide
management services to federal, state and local jails and community correctional
facilities and offer non-imprisonment alternatives such as electronic home
monitoring, counseling and educational programs, community service, offender
intervention and treatment, and comprehensive drug and alcohol testing. We
formed the Company in 1994 and acquired our subsidiaries in 1998.
On October 4, 1999, the shareholders of the Company approved by written
consent a re-incorporation of the Company into Delaware. Of the 3,644,400 shares
of common stock of the Company outstanding, holders of 1,978,849, or 54.3% of
the total outstanding shares voted for the re-incorporation.
A. CSI'S INSTITUTIONAL DIVISION
Our institutional division operates nine City or County jail facilities and
three Bureau of Prisons community correctional centers.
CITY JAILS
We have entered into agreements with nine cities or counties to manage and
operate their city or county jail. With the exception of one of the agreements,
each provides for payment to Correctional Systems of an amount based upon
operating expenses incurred and a management fee based on a percentage of the
operating expenses. One agreement provides for payment to Correctional Systems
of an amount based upon operating expenses incurred and the sharing of revenues
over and above the operating expenses.
JAIL POPULATION. The population of these jails are arrestees, self-pay
inmates, sentenced county work furlough inmates and sentenced federal inmates
serving short-term sentences. A facility that qualifies to handle arrestees
prior to arraignment (for not more than 96 hours) is a "Type I Facility." A
facility that qualifies to handle both arrestees prior to arraignment as well as
sentenced inmates is a "Type II Facility."
CSI SERVICES. Services provided in a CSI jail facility generally include
booking, processing, holding and programming. Other services may include,
depending upon the contract:
- Work Furlough. Inmates are allowed to leave the facility to work,
attend court-related programs and return to the facility.
- Electronic Monitoring. Inmates have an electronic monitoring device
attached at the jail facility.
- Detoxification. Arrestees under the influence are place in detox cells
up to the time prescribed by law.
- Revenue-Generation via Self-Pay and Contract Inmates. The City may
enter into intergovernmental agreements to house inmates from other
jurisdictions for a fee. With
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the approval of the court, some inmates choose to pay to serve their
sentence in City jails rather than at a County jail.
CURRENT OPERATIONS. Correctional Systems currently operates the following
nine jails:
1) The Seal Beach, California, City Jail. The Seal Beach Jail agreement has
been in effect since May 1, 1994. It is renewable each year for one-year
terms until April 2004. This Type II Facility also houses self-pay inmates,
work furlough inmates, Bureau of Prison inmates and arrestees from
surrounding cities. The Seal Beach Jail was awarded accreditation by the
American Correctional Association in August 1996.
2) The Baldwin Park, California, City Jail. The Baldwin Park City Jail
agreement has been in effect since March 1, 1996. Its term was three years
and is renewable for one-year terms. The agreement was renewed in February
1999.
3) The Montebello, California, City Jail. The Montebello City agreement has
been in effect since March 1996. It was a two-year agreement and is
renewable each year. It was renewed in January 1998 and 1999. This Type II
Facility also houses short-term city or county inmates and United States
Marshals Service inmates.
4) The Alhambra, California, City Jail. The City of Alhambra agreement has
been in effect since April 29, 1997. Its term is three years and is
renewable for two additional one-year terms. Correctional Systems also
manages Alhambra's contract to house detainees from the Immigration and
Naturalization Service.
5) The Downey, California, City Jail. The City of Downey agreement has been in
effect since May 1998 and is for a term of three years. The agreement is
renewable for two one-year terms.
6) The Bell, California, City Jail. The Bell City agreement has been in effect
since October 1998 and is for a term of three years. The agreement is
renewable for an additional three-year term.
7) The Hawthorne, California, City Jail. The City of Hawthorne agreement was
approved by the City Council on October 12, 1998. Correctional Systems
assumed complete responsibility for the Jail on November 1, 1998. The
agreement's three-year term is renewable for two one-year terms.
8) The Whittier, California, City Jail. The City of Whittier agreement was
approved by the City Council in September 1999. CSI is transitioning into
complete responsibility for the jail and expects to be fully responsible
for the facility by the end of November 1999. The agreement's three-year
term is renewable for additional three-year terms unless canceled by the
City or the Company.
9) The Lincoln County, New Mexico, County Jail. Correctional Systems entered
into a memorandum of understanding with Lincoln County, New Mexico to
provide a Jail Commander to manage their 55 bed jail as of January 5, 1998,
and to provide the County Commissioners with an evaluation of their jail.
This initial agreement had been extended five times. The present agreement
with Lincoln County is a short-term agreement from July 1999 through
December 1999, with an option to renew through June 30, 2000.
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U.S. BUREAU OF PRISON CONTRACTS
Correctional Systems operates three U.S. Bureau of Prisons community
correctional center halfway houses in Brownsville, Austin and Edinburg, Texas.
The community correctional centers ("CCC") are half-way houses that house
inmates under authority of Bureau of Prisons who are within 18 months of being
released from prison. CCCs provide transitional housing for inmates still under
federal custody and guides them through a process of vocational evaluation,
obtaining and maintaining steady employment, alcohol and other drug counseling
and testing, life skills development, anger management and family reunification.
REALITY HOUSE, BROWNSVILLE, TEXAS. Correctional Systems acquired Reality
House, Inc., a wholly-owned subsidiary, in August 1998. Reality House has been
in operation for twenty-five years and has a capacity to house 54 inmates.
MID-VALLEY HOUSE, MCALLEN, TEXAS. In August 1998, the Federal Bureau of
Prisons awarded a Community Correctional Center contract to Correctional
Systems. Mid-Valley House is capable of housing 60 inmates and has been
operational since December, 1998.
MCCABE CENTER, AUSTIN, TEXAS. Correctional Systems, Inc. acquired McCabe
Comprehensive Sanctions Center in July 1999. McCabe Center has been in operation
for the past twenty-two years. With a capacity to house 55 inmates, McCabe
Center also provides services to the U.S. Pretrial Service, the U.S. Probation
Department and the Texas Department of Corrections.
B. CSI'S ALTERNATIVE SENTENCING DIVISION
The Company's wholly-owned subsidiary, Sentencing Concepts, provides
alternatives to imprisonment for low-risk offenders. Sentencing Concepts'
programs combine punishment options and offender supervision with education and
counseling and utilize a combination of measures such as home detention via
electronic monitoring, rehabilitative counseling and education programs,
offender supervision and substance abuse testing.
Sentencing Concepts was established in 1994 and has California offices in
Anaheim, Lake Forrest, Stockton, San Luis Obispo and Santa Barbara. There are
currently more than 1,000 offenders per week receiving counseling, drug testing,
electronic monitoring or other Sentencing Concepts services. Sentencing Concepts
provides monitoring programs by contract or certification to the following
counties:
a) San Luis Obispo County, California;
b) Santa Barbara County, California;
c) Orange County, California;
d) San Joaquin County, California;
e) Contra Costa County, California;
f) Placer County, California; and
g) Lyon County, Nevada.
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In addition, Sentencing Concepts is under contract or purchase order to
provide PharmCheck-TM- Drugs of Abuse Patch to over 30 Drug Courts nationwide
and to over 75 county agencies and health care providers.
SENTENCING CONCEPTS' SERVICES
- 24-hour electronic monitoring. Sentencing Concepts provides 24-hour
monitoring services by utilizing advanced electronic monitoring
equipment, such as ankle transmitters and receiving units, to monitor
individuals through a central station.
- Scheduled compliance monitoring. This program is designed to allow
offenders to perform only certain daily activities such as employment,
school, etc. The program includes the use of a tamperproof digital
electro-optical monitoring device that is worn by an offender like a
wristwatch.
- The Shield Program. The Shield Program is specifically designed for
use in cases of domestic violence or battery, and allows for the
effective monitoring of compliance with court imposed restraining
orders.
- Monitored community service. The goal of this program is to provide
the Court with a means of utilizing community service as a sentencing
option for low risk and first-time offenders.
- Video in-home breathalyzer. This program combines a Department of
Transportation approved breath analysis testing unit with an installed
video monitor which allows for the random testing of an offender's
breath alcohol level combined with visual verification.
- Voice track monitoring. The Voice Track-Registered Trademark-
system is a computer-based voice verification device, which utilizes
telephone transmission.
- Day reporting center. The Day Reporting Center is an alternative to
custody for low risk offenders. Offenders are required to attend
regular counseling and education sessions and must submit to random
drug and alcohol testing as required by the Court.
- Chemical dependency treatment program. Sentencing Concepts offers a
State of California certified outpatient treatment program designed
specifically for individuals who have acknowledged a drug and/or
alcohol dependency problem.
- Substance abuse counseling and education. This class is designed for
the individual who is in the early stages of drug use.
- Anger management program. This program focuses on those involved with
non-domestic (i.e. physical fights between employees in a work
environment) problems relating to anger control or management.
- Batterer's treatment program. This program was designed to meet the
1996 State of California legislation that mandates attendance in a
52-week course for any person CHARGED or convicted of a domestic
battering offense.
- Drug and alcohol testing. Sentencing Concepts performs random drug and
alcohol testing of its clients. The offender pays for the tests. In
addition to the standard test by urinalysis, Sentencing Concepts is a
national distributor of the PharmCheck-TM- Drugs of Abuse Patch that
detects the use of illicit drugs.
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C. PRIVATE CORRECTIONAL INDUSTRY
OFFENDER MANAGEMENT INDUSTRY. Offender management describes the broad range
of activities related to maintaining a large group of arrested and convicted
people (adults and juveniles) during incarceration, probation and parole. It
includes prison management, jail management, inmate health care, food service,
education and training, and security monitoring. The industry has three
segments: adult secure corrections, juvenile corrections and community
corrections (work release, prerelease programs and alternative sentencing
practices such as electronic monitoring and counseling services in lieu of
incarceration).
The U.S. public expenditures on offender management are believed to exceed
$40 billion dollars annually. The U.S. adult secure prison population exceeded
1.8 million in 1998, according to a recent Bureau of Justice Statistics report.
In addition, the state prison population grew 4.1% to 1.06 million; federal
prison population grew 6.4% to 99,000; and the local jail population increased
9.4% to 567,000, according to the report. Significantly, local jails are now at
97% of capacity, up from 92% in 1996. With both federal and state prisons
operating 15% to 25% above design capacity, space is at a premium. Furthermore,
over the last ten years there has been an increase in the tendency of
politicians to demand that offenders serve more actual jail time. With prison
populations increasing and public agencies strapped for funds to build new
facilities, private companies have been moving to either manage adult and
juvenile facilities or to provide some form of alternative sentencing programs
for low risk, first-time offenders.
In addition to increasing demand for traditional correctional services,
there also appears to be a great demand for alternative sentencing practices.
According to a draft report of an Orange County, California, task force on jail
overcrowding, jail facilities should be saved for dangerous offenders, and low
risk offenders should be placed in some form of electronic monitoring or
counseling program (Los Angeles Times). The report suggests the following
alternatives:
- Greater use of electronic monitoring and house arrest
- Expansion of the County Drug Court
- Use of private jail facilities
- More work furlough and community service programs
COMPETITION. We face competition in two areas: Corrections Competition and
Alternative Sentencing Competition.
CORRECTIONAL COMPETITION
PRIVATE PRISONS: We believe there are currently approximately twelve major
private corrections firms providing correctional services to Government
Agencies. The largest of the publicly-held companies are Corrections Corporation
of America and Wackenhut Corporation who, combined, have captured the largest
share of the industry. The other large publicly-held companies include Cornell
Corrections and Correctional Services. Management Training Company (MTC) and
CiviGenics are the large privately-held companies that provide correctional
services. The following is a short list of the largest publicly-held and
privately-held companies with which CSI competes:
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- Cornell Corrections (CRN)
- Wackenhut Corporation (WAK)
- Corrections Corporation of America (PZN)
- Community Correctional Services (CSCQ)
- CiviGenics - A Private Company
- Community Corrections Corporation - A Private Company
COMMUNITY PRE-RELEASE CENTERS: With respect to the community pre-release
centers, there are a variety of competitors in both the non-profit and
for-profit arenas. These include The Salvation Army and Volunteers of America
and many other smaller non-profit organizations, and Cornell Corrections,
Community Corrections, Inc. and Behavioral Systems, Southwest, Inc., among
others, on the for-profit side. Typical Government contracts for pre-release
services are granted for two years with three one-year options.
SMALL CITY JAIL: In the small city jail market in California there appears
to be only one major competitor to Correctional Systems and that is the
Wackenhut Security Division. Other firms that have been known to bid on the
small jail business outside of California include G.W. Associates.
ALTERNATIVE SENTENCE COMPETITION
The Alternative Sentence industry includes electronic monitoring, drug and
alcohol counseling and testing and other related counseling services as referred
by the criminal courts. Sentencing Concepts combines the use of electronic
monitoring and counseling or case management services.
We are aware of only one electronic monitoring company that is
publicly-held (BI, Inc.); we believe that other electronic monitoring companies
are small, private companies or subsidiaries of larger companies, including
several security alarm companies. Sentencing Concepts leases equipment and
services as needed from several different vendors. Below is a short list of the
major companies with whom SCI competes:
- BI, Incorporated (BIAC)
- Sentinel Monitoring - A Private Company
- GSSC - A Private Company
- LCA - A Private Company
- EMS - A Private Company
- CSSS, Inc. - A Private Company
CORRECTIONAL SYSTEMS' POSITION IN THE INDUSTRY. There are approximately
twelve management firms that are presently operating secure, 24-hour, adult
correctional facilities. Correctional Systems is one of the smallest of these
twelve firms.
GOVERNMENT APPROVAL. For our jail projects, there is no outside
governmental approval required in order for the Company to provide its services
other than normal contract approval and the oversight of the governmental entity
with which we are contracting. CSI's halfway house projects (CCC's) do require
some outside governmental approval in order for us to operate, such as zoning
approval, fire and health department clearances. Several of the Alternative
Sentencing
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options are required to meet strict criteria. All equipment and programs
utilized by the Company meet or exceed the established criteria and have been
approved for use by the appropriate governmental agency.
GOVERNMENTAL REGULATIONS. Certain states either do not allow privatization
of correctional facilities or limit the type of facilities that can be
privatized. For example, the State of California prohibits county correctional
facilities from privatizing, but allows for all other jurisdictions to
privatize.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
COMPARISON OF RESULTS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 TO
SEPTEMBER 30, 1999
REVENUE. The Company continued to expand and added 1 city jail and
acquired 1 U.S. Bureau of Prisons community correction center during the
first 9 months of 1999. This internal expansion along with the acquisition of
the community correction center completed in the third quarter of 1999 and 9
full months of operations related to 1998 acquisitions caused revenue to
increase $3,351,692 or 201% from the same period last year.
OPERATING EXPENSES. Total operating expenses increased $3,256,968 to
$4,903,119 or 198% for the 9 months ended as compared to the same period last
year as a result of increased expense associated with the increase in
revenues.
TAXES. The Company recorded an income tax provision for the 9 months ended
September 30, 1999 of $18,339, which differs from the statutory rate largely as
a result of the use of net operating loss carryovers.
COMPARISON OF RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED
DECEMBER 31, 1998
REVENUE. Total revenue increased $1,953,178, or 186%, for 1998 to
$3,004,984, as compared to 1997. This is primarily due to the Company's
expansion of 4 city jails which contributed $854,546 to the increased
revenue, the addition of 2 community correction centers, which contributed
$442,342 to the increased revenue and the acquisition of a sentencing
alternative company, which contributed $649,725 to the increased revenue.
SALARIES AND WAGES. Salaries and wages increased $653,119, or 101% for 1998
to $1,301,493, as compared to 1997. The city jails contributed $294,988 to the
increase, the community correction facilities contributed $148,207 to the
increase and alternative sentencing contributed $209,924 to the increase.
OTHER OPERATING EXPENSES. Other operating expenses, which consist
primarily of food, medical and dental and appreciation, increased $773,511,
or 304%, in 1998 to $1,027,772, as compared to 1997. This was primarily due
to the city jails contributing $419,769 to the increase, the community
correction facilities contributing $108,821 to the increase and alternative
sentencing contributing $236,016 to the increase.
GROSS PROFITS. Gross profits increased $526,548, or 353% in 1998 to
$675,719, as compared to 1997, due to the expansion of our correctional
facilities management and addition of the sentencing alternative company.
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GENERAL AND ADMINISTRATIVE. General and administrative costs as a
percentage of revenue decreased to 23% for 1998 as compared to 59% for 1997,
primarily as a result of increase in revenues without the addition of
significant expense.
LIQUIDITY AND CAPITAL RESOURCES:
Net cash used in operations decreased to $(276,074) from $(436,220) for
1998 as compared to the same period in 1997 or 37%. This was primarily due to
the reduction in net loss for 1998 to $(28,408) as compared to $(460,587) for
same period in 1997 or 94%. This was offset by an increase in accounts
receivable of $221,404, due to the Company's growth, and a decrease in accounts
payable and other accrued liabilities of $(300,821), due to the additional funds
paid to creditors.
As part of its expansion policy, the Company acquired Reality House, Inc.
for approximately $1.4 million and Sentencing Concepts, Inc. for common stock
issued by the Company valued at $575,000. As part of the Sentencing Concepts
transaction $500,000 of additional funds were invested in Sentencing Concepts to
fund future expansion, additionally $100,000 was loaned to the previous owners
of Sentencing Concepts.
Resources for these acquisitions were made possible by an infusion of
equity capital in the form of preferred stock by First Analysis Securities
Corporation in an amount of approximately $2.1 million.
On July 29, 1999 the Company acquired, from a not-for profit corporation in
Texas, a building and a contract with the Bureau of Prisons that funds the
operations of the property as a community corrections facility. The total
purchase price of $1,050,000 was financed by 2 loans secured by real property.
Principal and interest payments for the loans are $5,432 at 8% and $12,800 at
9.288%. The loans run through 2011 and 2006, respectively.
Our working capital requirements have increased due to our growth. We
believe cash flows from operations will be sufficient to enable us to meet
our working capital requirements for the next 12 months. However, in order to
implement future growth plans, future equity financing will be required.
Based on total assets and annual revenues, we are significantly smaller
than many of our competitors. These competitors include large privately-held and
publicly-held companies that have substantially greater financial, marketing and
other resources than we do. These companies offer services and operate in the
markets in which we compete. The services offered by these companies in some
cases are similar to the services that we offer. We expect that competition will
increase substantially as a result of industry consolidations and alliances, as
well as the emergence of new competitors. There can be no assurance that we will
be able to compete successfully with existing or new competitors or that
competitive pressures faced by us will not materially and adversely affect our
business, operating results and financial condition.
We anticipate that we will need to undertake private placements or a
public offering of our securities at a future date, depending upon market
conditions, in order to obtain sufficient capital for us to implement our
intended growth plan. No assurance can be given that we will be successful in
raising additional investment capital in the future, or that if we are
successful, that the financial resources obtained will be sufficient for us
to successfully carry out our intended growth plan.
YEAR 2000.
We use many computer systems and related software that process dates using
two digits to define specific years. These systems may not be able to
distinguish the year 2000 from the year 1900, resulting in system failures or
miscalculations that may disrupt operations and other activities. Since
mid-1998, we have identified those systems that are not Year 2000 compliant and
have made software modifications to ensure compliance. These modifications have
not materially adversely affected our results of operations or financial
position. We have also conducted limited surveys of our major city, county,
state and federal government customers and found that those contacted are aware
of the Year 2000 problem and their own remediation requirements. However, we
have no means of assuring that their suppliers and customers will be Year 2000
compliant, and their inability to complete required remediations in a timely
manner could have an adverse effect on us.
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FORWARD LOOKING STATEMENTS
Statements in this section regarding our anticipated capital expenditures,
Year 2000 compliance and anticipated performance in future periods constitute
forward looking statements within the meaning of the Securities Exchange Act of
1934. These statements are subject to certain risks and uncertainties that could
cause actual amounts to differ materially from those projected. We believe these
forward looking statements are reasonable; however, undue reliance should not be
placed on such forward looking statements, which are based on current
expectations.
With respect to anticipated capital expenditures, we have made certain
assumptions regarding, among other things, maintenance of existing facilities
and equipment, availability and desirability of new, technologically advanced
equipment, installation and start up times, cost estimates and continued
availability of financial resources. The estimated amount of capital
expenditures is subject to certain risks, including, among other things, the
risk that unexpected capital expenditures will be required and unexpected
costs and expenses will be incurred.
With respect to Year 2000 compliance, we have performed certain
assessments to identify remediation needs of our computer systems and related
software and contacted customers to assess the impact of the Year 2000
problem on their operations. Our expectations regarding the impact of the
Year 2000 problem and our estimate of the costs to achieve Year 2000
compliance are subject to certain risks, including, among other things, the
risk that the assessments have not identified all required system
modifications, system modifications can not be completed in a timely manner,
unexpected costs and expenses will be incurred in connection with system
modifications, and major customers will not successfully achieve Year 2000
compliance in a timely manner. Further, statements regarding our performance
in future periods are subject to the specific risks identified above, as well
as to risks relating to, among other things, the competitive nature of the
corrections industry industry in general, pressures on prices due to
competitive and economic conditions, deterioration of relationships with, or
loss of, significant correctional facilities, technological advancements,
employee relations, continued availability of financial resources,
difficulties integrating acquired businesses and possible changes in
governmental policies affecting our industry.
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ITEM 3. DESCRIPTION OF PROPERTY.
The following chart lists the principal locations and size of the Company's
facilities and indicates whether the property is owned or leased and, if leased,
the lease expiration.
<TABLE>
<CAPTION>
LEASED OR OWNED
LOCATION USE SIZE LEASE EXPIRATION
<S> <C> <C> <C>
San Diego, CA Corporate and 1,200 sq. ft. Leased (Expires 06/03/2000)
Administration
Los Alamitos, CA Regional and 1,100 sq.ft. Leased (Expires 12/31/2001)
Accounting
Anaheim Administrative and 3,000 sq. ft. Leased (Expires 12/31/2000)
Program Monitoring
Lake Forrest Program Monitoring 849 sq.ft. Leased (Expires 09/30/2000)
Stockton Program Monitoring 4,000 sq.ft. Leased (Expires 10/14/2001)
San Luis Obispo Program Monitoring 715 sq. ft. Month-to-Month Lease
Santa Barbara Program Monitoring 624 sq. ft. Leased (Expires 12/31/2000)
Edinburg, Texas Community 6,400 sq.ft. Leased (Expires 12/16/2008)
Corrections Center
Brownsville, Texas Community 8,338 sq.ft. Owned
Corrections Center
Austin, Texas Community 18,000 sq. ft Owned
Corrections Center
</TABLE>
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The Company owns the real property and buildings located in Brownsville,
Texas, and Austin, Texas, at which it operates its Community Correctional
Centers for the Federal Bureau of Prisons. The real property and building in
Brownsville, Texas, is subject to a real estate lien note in the principal
amount of $788,400 which matures on March 15, 2006. The note is secured by the
real property, building and other personal property. The real property and
building in Austin, Texas, is subject to a promissory note in the principal
amount of $500,000 which matures on July 29, 2011. The note is secured by the
real property, building and other personal property.
The Company leases corporate and administrative offices in San Diego, Los
Alamitos, Anaheim, Lake Forrest, Stockton, San Luis Obispo and Santa Barbara. As
of December 31, 1998, its minimum future lease payment commitment for the next
five years under operating leases of office space, facilities and equipment is
as follows: 1999 - $208,613; 2000 - $199,328; 2001 - $140,599; 2002 - $135,535;
and 2003 - $135,850.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of shares of common stock and Preferred Stock as of October 4, 1999
for (i) each director and director nominee of the Company; (ii) each executive
officer; (iii) each person known to the Company to be the beneficial owner of
more than 5% of the outstanding shares; and (iv) all directors and executive
officers as a group. Except pursuant to applicable community property laws or as
otherwise indicated, each shareholder has sole voting and investment power with
respect to the shares beneficially owned.
<TABLE>
<CAPTION>
TYPE OF VOTING NUMBER OF % VOTING
NAME AND ADDRESS OF OWNER SECURITY SHARES SECURITIES
------------------------- -------- ------ ----------
<S> <C> <C> <C>
William L. Garrison
7341 Clear Haven
Dallas, TX 75248 common stock 760,500 (1) 10.9%
John Forren
6910-A Miramar Road
Suite 200
San Diego, CA 92121 0 (1) 0%
Gary Maynard
2001 Priestley Ave.
North Base, Building 605
Norman, OK 73072 0 0%
Daniel J. Verwiel
1815 E. Center Street
Suite 201
Anaheim, CA 92805 common stock 493,579 (1) 7.0%
Patricia Verwiel
1815 E. Center Street
Suite 201
Anaheim, CA 92805 common stock 523,580 (1) 7.5%
Estate of Lawrence G. Grossman
209 Camaro Way
San Marcos, TX 78666 common stock 760,500 (1) 10.9%
James R. Macdonald
233 S. Wacker Drive
Suite 9500
Chicago, IL 60606 A Preferred 30,303 0.4%
Apex Funds (2) A Preferred 884,351 12.6%
IEPEF Funds (3) A Preferred 1,632,657 23.3%
The Productivity Fund III, L.P. A Preferred 816,325 11.6%
Officers and Directors as a Group Common and
(12 persons) A Preferred 2,588,462 36.9%
Total Outstanding (1) common stock 3,644,400 (1) 52.0%
A Preferred 3,363,636 48.0%
Voting Securities 7,008,036 (1) 100.0%
</TABLE>
1) DOES NOT INCLUDE COMMON STOCK ISSUABLE UPON EXERCISE OF OUTSTANDING OPTIONS
(SEE OPTION TABLE. BELOW), EXCEPT COMMON STOCK THAT THE LISTED BENEFICIAL OWNER
HAS THE RIGHT TO ACQUIRE WITHIN SIXTY DAYS, FROM OPTIONS, WARRANTS, RIGHTS,
CONVERSION PRIVILEGE OR SIMILAR OBLIGATIONS.
2) INCLUDES 841,438 SHARES HELD BY APEX FUND III, L.P. AND 42,913 SHARES HELD
BY APEX STRATEGIC PARTNERS, LLC.
3) INCLUDES 1,306,126 SHARES HELD BY INFRA STRUCTURE AND ENVIRONMENTAL PRIVATE
EQUITY FUND III, L.P. AND 326,531 SHARES HELD BY ENVIRONMENTAL & INFORMATION
TECHNOLOGY PRIVATE EQUITY FUND III.
12
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their ages as of March 30,
1999 and their positions are set forth below.
<TABLE>
<CAPTION>
HELD OFFICE
NAME AGE POSITION SINCE
---- --- -------- -----------
<S> <C> <C> <C>
William L. Garrison 58 Chairman of the Board, Director 1998
John R. Forren 45 President, Chief Executive Officer, Director 1996
R. Andrew Gately 49 Chief Financial Officer 1998
Daniel J. Verwiel 37 Chief Executive Officer (SCI), Director 1998
Charles Turnbo 56 Vice President, Mid-West Regional Administrator 1996
Martin Rickler 54 Vice President, Planning & Research 1996
David S. Crouse 61 Vice President, Facility Activation 1994
Western Regional Administrator 1997
Gary Maynard 56 Director 1998
James Macdonald 42 Director 1998
</TABLE>
WILLIAM L. GARRISON. Mr. Garrison joined Correctional Systems after over 25
years of employment with the Federal Bureau of Prisons. He served as an
Assistant Regional Director of the South Central Region of the Federal Bureau of
Prisons (September 1982 through April 1985); Warden at five different prisons of
the Federal Bureau of Prisons (April 1976 to September 1982; May 1985 through
October 1988); Director of a Federal Bureau of Prisons Staff Training Center;
Correctional Programs Administrator, Case Management Supervisor and a
Correctional Officer. After leaving the Federal Bureau of Prisons, he served as
the administrator of a privately-owned prison (October 1988 through May 1989);
auditor for the American Correctional Association (1989 until the present); a
self-employed corrections consultant (October 1989 through January 1990);
Director of Operations for Detention Services, Inc. (January 1990 through
November 1990); and a self-employed corrections consultant (December 1990
through July 1993).
JOHN R. FORREN, MHA. Mr. Forren has 18 years experience in the private
corrections industry. As Vice President and Chief Operating Officer of two other
large private correctional service providers, Eclectic Communications, Inc. and
Cornell Corrections, he has "started-up" more than 15 facilities, many of them a
first for the corrections field. Mr. Forren has worked closely with such
contracting agencies as: California Department of Corrections, North Carolina
Department of Corrections, U.S. Marshal Service, Federal Bureau of Prisons, U.S.
Department Of Justice, Immigrations and Naturalization Service, Virginia
Department of Corrections and the State of North Carolina. Mr. Forren holds a
Bachelor of Science and a Master of Hospital Administration degree from the
University of LaVerne.
R. ANDREW GATELY. Mr. Gately's fiscal expertise is deeply rooted in the
financial supervision and oversight of public companies with annual revenues
from $20 million through $100 million. As Vice President and Controller of
Maxicare Health Plans, Mr. Gately was responsible for all corporate accounting,
SEC reporting and fiscal management for the company's $1 Billion in annual
revenue. As a Partner in R. Andrew Gately & Co, Mr. Gately now specializes in
financial management and audits for small publicly traded companies and devotes
fifty percent of his time to Correctional Systems, Inc. as Chief Financial
Officer.
13
<PAGE>
DANIEL J. VERWIEL. Mr. Verwiel manages the operations and development of
Sentencing Concepts. Mr. Verwiel has experience in administering contracts with
public agencies and working with state and federal legislators on the
development of legislature and prison alternatives. Prior to the formation of
Sentencing Concepts, he was a program manager for TRW (1982-1994). Mr. Verwiel
received his Bachelor of Science degree from the University of Arizona and a
Master of Business Administration degree from the University of Southern
California.
CHARLES A. TURNBO. As South Central Regional Director for the Federal
Bureau of Prisons, Mr. Turnbo was responsible for 20,000 inmates and 4,000 staff
in the states of Tennessee, Arkansas, Louisiana, Texas, Oklahoma and New Mexico.
He also served as Northeast Regional Director for the BOP. He has also been a
BOP Warden at two prisons; an Associate Warden at the FCI in Lompoc, CA, and an
instructor at the Federal Prison Staff Training Center in Dallas, Texas. Turnbo
began his 20+ year career with the BOP as the Chief of Classification and Parole
at the FCI in Seagoville, Texas. An adjunct college professor of Criminal
Justice at several different colleges, Mr. Turnbo also has a Masters Degree in
Social Work.
MARTIN RICKLER, PH.D. Dr. Rickler has devoted over 20 years to the
development of innovative programs in the areas of criminal justice, alcohol &
drug abuse treatment, and health care. Dr. Rickler was part of the team that
implemented the first privately-operated state prison in California; the first
private federal juvenile prison in the U.S.; the first psychiatric halfway house
for developmentally disabled Cuban aliens under federal detention; and the first
California Department of Corrections Return To Custody Facility. As a Programs
Designer and consultant, Dr. Rickler has created innovative treatment programs
that have garnered over $100 million in renewable government and foundation
awards. In addition to five years of counseling experience, Dr. Rickler has also
served on the faculty of the University of California, Antioch University and
the Pacifica Graduate Institute. Dr. Rickler was presented a lifetime
achievement award in 1988 by the Governor of California and the California State
Alcohol Advisory Board for his work in the substance abuse field. Dr. Rickler is
a consultant to the State of California Alcohol and Drug Programs and serves
Correctional Systems, Inc. as Vice President of Planning and Research.
DAVID S. CROUSE. As a third generation corrections professional, Mr. Crouse
brings 36 years of professional correctional experience to his current duties
Correctional Systems' Vice President of Facility Activation and Western Regional
Administrator. In his 27 years at the BOP, Mr. Crouse served as a Correctional
Treatment Specialist at a 1,000-bed jail facility that he managed from design,
through start-up and into operation; Manager of an 86-bed Youth Corrections Act
Unit; Shift Supervisor; and, Transportation Supervisor. In addition to his
extensive corrections management experience, Mr. Crouse has training and
experience in correctional counseling and has been responsible for establishing
programs utilizing a variety of treatment modalities.
CARMINE R. LANZA--DIRECTOR OF LAW ENFORCEMENT LIAISON. Mr. Lanza joined
Correctional Systems, Inc. as Director of Law Enforcement Liaison upon
retirement from a very successful 27 year law enforcement career. He served in
the ranks of Patrol Officer, Detective, Sergeant, Lieutenant, Captain and Chief
of Police. Chief Lanza headed a police department of 100 full-time employees and
managed an annual budget in excess of $8 million dollars. During Chief Lanza's 8
years as Police Chief, he brought many innovative programs to Baldwin Park,
California, including Community-Oriented Policing in which he became a
nationally recognized expert. Chief Lanza's duties at Correctional Systems
include networking with local, county, state and federal
14
<PAGE>
public safety organizations and working with these organizations and
Correctional Systems staff to develop and implement new project proposals.
GARY D. MAYNARD. Mr. Maynard received a Bachelor of Arts degree in 1966
from East Central State College in Oklahoma, a Master of Science degree in 1968
from Oklahoma State University at Stillwater and a Doctorate degree in
Counseling Psychology in 1973 from Oklahoma University at Norman. He commenced
service in the Oklahoma Army National Guard even before graduation and continued
this service until retirement at the rank of Brigadier General in 1995. His
service included positions of Adjutant General, Oklahoma Military Department
(June 1992 to June 1995) and Cabinet Secretary for Veterans Affairs for the
State of Oklahoma (July 1993 to January 1995). During his studies towards his
Masters degree, he was employed as a Rehabilitation Counselor (1968 to 1970) and
during his continuing studies toward his Doctorate degree, he was employed as a
Psychologist at the El Reno, Oklahoma, Federal Reformatory. Starting in 1973 and
concurrently with his service in the Oklahoma Army National Guard, he was
employed with the Oklahoma and Arkansas Department of Corrections as follows:
Chief Counselor, Lexington, Oklahoma, Regional Treatment Center (1973 to 1974);
Supervisor, Planning and Research. Oklahoma Department of Corrections (1974 to
1975); Deputy Warden, Oklahoma State Penitentiary (1975 to 1977); Assistant
Director, Arkansas Department of Corrections, Pine Bluff, Arkansas (1977 to
1980); Warden, Joseph Harp Correctional Center, Lexington, Oklahoma (May 1980 to
May 1982); Deputy Director of Institutions, Western Division, Oklahoma
Department of Corrections (May 1982 to July 1985); Warden, Oklahoma State
Penitentiary (July 1985 to July 1987); Associate Director, Oklahoma Department
of Corrections (July 1987 to December 1987); Director, Oklahoma Department of
Corrections (December 1987 to June 1992); and Director, Southwestern Region,
Oklahoma Department of Corrections (June 1995 to May 1997). Following retirement
from the Oklahoma Army National Guard, Mr. Maynard served as a consultant to the
University of Oklahoma Department of Juvenile Affairs (May 1997 to August 1997).
Mr. Maynard has been serving as the Director, Corrections and Public Safety
Programs, College of Continuing Education, University of Oklahoma since August
1997.
JAMES R. MACDONALD. Mr. Macdonald is employed by First Analysis
Corporation, an investment research firm which manages several venture capital
partnerships. He specializes in business services and outsourcing investments
with special focus on the offender management industry. He joined First Analysis
in 1997. From 1983 to 1997, he held a variety of general management and
marketing positions with Nalco Chemical Company. From 1980 to 1983, he was
employed by Ecolab, Inc. He received an MBA from Harvard Business School in 1980
and a Bachelor of Science degree in Civil Engineering from Cornell University in
1978.
15
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation, as well as
certain other compensation paid or accrued, by the Company to the Company's
President and Chief Executive Officer, John R. Forren, and the Company's Vice
President of Planning and Research, Dr. Martin Rickler, for the period from
January 1, 1997 to December 31, 1999. No other executive officer had a total
annual salary and bonus equal to or in excess of $100,000 during the reported
periods.
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- -----------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
- -----------------------------------------------------------------------------------------------------------------------------------
Restricted Securities
Name and Stock Underlying LTIP All Other
Principal Salary Bonus Other Annual Award(s) Options/ Payouts Compensation
Position Year ($) ($) Compensation ($) ($) SARs (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Forren 1999 100,000 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
President and Chief 1998 78,125 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Executive Officer 1997 46,875 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Martin Rickler 1999 100,000 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Vice-President, Planning 1998 78,125 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
and Research 1997 64,375 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR (Individual Grants)
The following table lists stock options (whether or not in tandem with
SARs) and freestanding SARs (including options and SARs that subsequently have
been transferred) made during the last completed fiscal year to each of the
named executive officers.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number of Securities Percent of Total
Underlying Options/ Options/SARs
SARs Granted Granted to Employees Exercise of Base Expiration
Name # in Fiscal Year Price ($/Sh) Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John Forren 100,000 16% 0.94 3/16/08
- ---------------------------------------------------------------------------------------------------------------------
Martin Rickler 100,000 16% 0.94 3/16/08
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Unexercised Value of
Securities Unexercised
Underlying In-The-Money
Options/SARs At Option/SARs At
Shares Acquired FY-End (#) FY-End ($)
on Exercise Value Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John Forren -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Martin Rickler -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
DIRECTOR COMPENSATION
As of June 17, 1999, Mr. Garrison, Chairman of the Board of Directors,
receives the compensation listed below:
- Salary of $60,000 per year;
- Expense reimbursement related to business activities;
- $2,500 bonus for each project with profit contribution of
$30,000-$50,000; and
- $5,000 bonus for each completed community corrections acquisition or
new project with $200,000 to $400,000 profit contribution won with
substantive input from Mr. Garrison.
In addition to serving as Chairman of the Board of Directors, Mr. Garrison
acts as Regional Administrator for the current Texas projects and performs
development duties for the company.
EMPLOYMENT AGREEMENTS
MR. FORREN AND DR. RICKLER. Both Mr. Forren and Dr. Rickler have five year
employment agreements. The agreements, effective from September 15, 1996 through
September 14, 2001, provide that Mr. Forren shall serve at no position lower
than President and Chief of Operations, and that Dr. Rickler will serve at no
position lower than Vice President of Planning and Research. The agreements
provide further:
1. BASE SALARY. The first year of employment Mr. Forren received $25,000
and Dr. Rickler received $60,000 plus a signing bonus of $5,000. The
second year both Mr. Forren and Dr. Rickler received $75,000 and both
are to receive $100,000 base salary each year thereafter.
2. EXECUTIVE BENEFITS. Standard executive health, sick leave and holiday
benefits were granted, including 30 days vacation leave annually.
3. PLACE OF EMPLOYMENT: SAN DIEGO, CALIFORNIA. It was agreed that both
Mr. Forren and Dr. Rickler would be employed within the Greater San
Diego area.
4. CONSTRUCTIVE TERMINATION. Except for standard malfeasance and such,
any termination of Mr. Forren and Dr. Rickler will be deemed a
"constructive termination" and will immediately grant the terminated
party all stock options due for the entire contract as well as one
year of the current base salary.
17
<PAGE>
VERWIELS. Daniel Verwiel and Patricia Verwiel each have entered into
employment agreements with Sentencing Concepts providing for an initial annual
salary of $75,000 each, with any increase to be approved by the compensation
committees of the Boards of Sentencing Concepts and Correctional Systems. The
Verwiel's employment agreements also contain covenants not to compete that
extend for two years following any termination of employment and confidentiality
and non-disclosure provisions.
In addition, the Employment Agreement for Daniel Verwiel provides for (i) a
bonus of $10,950, provided Mr. Verwiel was employed by Sentencing Concepts,
Correctional Systems or its subsidiary through July 31, 1999; (ii) a two (2)
year nonstatutory stock option covering up to 30,000 shares of Correctional
Systems common stock (the "Longevity Options"); and (iii) a bonus in an amount
equal to certain tax liabilities that Daniel Verwiel may incur as a result of
exercising any Longevity Options.
Each Employment Agreement also provides for the grant of (i) a 5 year
nonstatutory stock option covering 300,000 shares of Correctional Systems common
stock (the "Employment Options"); (ii) a 2 year nonstatutory stock option
covering up to 100,000 shares of Correctional Systems common stock (the
"Earn-Out Options"); (iii) a bonus in an amount equal to certain tax liabilities
that the Verwiels may incur as a result of exercising any Earn-Out Options; and
(iv) a loan in an amount necessary for the exercise of the Earn-Out Options.
The Earn-Out Option agreements grant to the Verwiels non-qualified options
to acquire up to an aggregate of 200,000 shares of Correctional Systems common
stock (100,000 shares per person) at an exercise price equal to $0.20 per share.
The Earn-Out Options vest as follows and shall be exercisable at any time after
they vest until August 1, 2000.
(i) if the Earn-Out Period Profit is equal to or greater than $50,000,
options to acquire an aggregate of 100,000 shares of Correctional
Systems common stock vest (50,000 shares for each person); and
(ii) if the Earn-Out Period Profit exceeds $50,000, then for each Dollar in
excess of $50,000, options to acquire 4 additional shares of
Correctional Systems common stock vest (2 shares for each Dollar for
each person) up to the maximum 200,000 shares. The Earn-Out Options,
however, automatically vest if there is a change in control during the
Earn-Our Period.
The Longevity Option agreement will grant to Daniel Verwiel non-qualified
options to acquire 30,000 shares of Correctional Systems common stock at an
exercise price of $0.20 per share (the "Longevity Options") exercisable on or
after July 31, 1999, provided he is still employed by Sentencing Concepts at
that time until August 1, 2000.
The Employment Option agreements will grant to the Verwiels non-qualified
options to acquire up to an additional 600,000 shares of Correctional Systems
common stock (300,000 per person).
The Employment Options vest as follows and are exercisable at any time
after they vest until the fifth anniversary of the grant:
18
<PAGE>
(i) If each is, and has at all times prior to January 1, 2002, been
employed by Correctional Systems and/or Sentencing Concepts, then
options to acquire an aggregate of 50,000 shares of Correctional
Systems common stock (25,000 Employment Options for each person) vest
on January 1, 2002;
(ii) If each is, and has at all times prior to January 1, 2003, been
employed by Correctional Systems and/or Sentencing Concepts, then
options to acquire an additional 50,000 shares of Correctional Systems
common stock (25,000 Employment Options for each person) vest on
January 1, 2003; and
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ESCROW AGREEMENT
Pursuant to the Sentencing Concepts Merger Agreement, the Company deposited
into escrow 270,000 shares of Correctional Systems common stock (the "Escrowed
Shares"), consisting of the following: 70,000 shares issuable to Daniel Verwiel
to provide incentive for Mr. Verwiel to remain in the employ of Correctional
Systems or Sentencing Concepts (the "Longevity Shares"); 100,000 shares issuable
to Patricia and Daniel Verwiel as security for the Verwiels' indemnity
obligations under the Sentencing Concepts Merger Agreement (the "Indemnification
Shares"); and 100,000 shares issuable to Patricia and Daniel Verwiel as security
for the repayment of loans by Correctional Systems to the Verwiels (described
below) contemplated by the Sentencing Concepts Merger Agreement (the "Pledged
Shares").
The Escrow Agreement provides for the release of the Escrowed Shares to the
Verwiels and/or the cancellation of such shares as follows:
Longevity Shares (70,000 shares):
(1) July 31, 1999. On July 31, 1999, 20,000 of the Longevity Shares
were released to Mr. Verwiel.
(2) July 31, 2000. If Mr. Verwiel is still employed by Sentencing
Concepts or Correctional Systems on July 31, 2000, then 50,000 of
the Longevity Shares shall be released to Mr. Verwiel. If his
employment is terminated on or before July 31, 2000, he forfeits
any right to the remaining Longevity Shares;
(3) Change of Control. If a Change of Control, as defined in the
Sentencing Concepts Merger Agreement, notwithstanding the
foregoing, any remaining Longevity Shares shall be released to
Mr. Verwiel. A "Change of Control" includes, among other
transactions, certain mergers of Correctional Systems with
another corporation or entity and any certain sales of
substantially all of the assets of Correctional Systems.
Indemnification Shares (100,000 shares):
Pursuant to the Sentencing Concepts Merger Agreement, the Verwiels
will jointly and severally indemnify the Company against damages that arise
arise out of any breach of or failure by Sentencing Concepts or any
Sentencing Concepts shareholder to perform any
19
<PAGE>
of their obligations under the Sentencing Concepts Merger Agreement. As
security for these indemnities by the Verwiels, 50,000 shares of the
Correctional Systems common stock to be issued and delivered to each of
Daniel Verwiel and Patricia Verwiel pursuant to the Sentencing Concepts
Merger Agreement, an aggregate of 100,000 shares (the "Indemnification
Shares"), shall be placed in escrow and are subject to forfeiture and
cancellation pursuant to escrow agreement described above. If no claims
under the indemnity (described below) provided by the Verwiels to
Correctional Systems have been made on or before the first anniversary of
the closing date of the Sentencing Concepts Merger Agreement, all of the
Indemnification Shares will be released from the Escrow on such date and
shall be delivered to Daniel and Patricia Verwiel (50,000 shares each). If
a claim or claims are made under the indemnities before such first
anniversary date, then the Indemnification Shares shall remain in and
subject to the Escrow Agreement until such time as the amount of such
claims made and the indemnification obligations of the Verwiels with
respect thereto have been finally determined. Once a determination is made,
a number of Indemnification Shares shall be canceled to satisfy the
indemnity obligation.
Pledged Shares (100,000 shares):
Upon repayment in full of all amounts outstanding under loans to the
Verwiels (described below) contemplated by the Sentencing Concepts Merger
Agreement, all of the Pledged Shares will be released from the Escrow on
such date and shall be delivered to Daniel and Patricia Verwiel (50,000
shares each).
LOANS
Pursuant to the Sentencing Concepts Merger Agreement, Correctional
Systems loaned to Patricia Verwiel an amount equal to $50,000 pursuant to the
terms of full recourse promissory note and security agreement. On August 18,
1998, Correctional Systems loaned Daniel Verwiel $50,000 pursuant to a
promissory note and security agreement. The promissory notes (i) bear
interest at the rate of seven percent (7%) per annum or the rate necessary to
avoid imputed interest under the Internal Revenue Code of 1986, as amended,
whichever rate is higher, (ii) provide that interest and principal shall be
due and payable on the fifth anniversary of the issuance of such notes and
(iii) are secured by a pledge of an aggregate of 100,000 shares of the
Correctional Systems common stock to be issued to Patricia and Daniel Verwiel
(50,000 shares each) pursuant to the Sentencing Concepts Merger Agreement
(the "Pledged Shares").
20
<PAGE>
STOCKHOLDERS' AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
Pursuant to the Sentencing Concepts Merger Agreement, the Verwiels became a
party to a Stockholders' Agreement and a Registration Rights Agreement, each by
and among Correctional Systems and certain of its shareholders, which agreements
constitute a portion of the Series A Preferred Agreements and set forth certain
restrictions on transfer of any of the Correctional Systems securities or
options issued to the Verwiels pursuant to the Sentencing Concepts Merger
Agreement and certain registration rights of the parties thereto. (See,
Description of Securities of Correctional Systems).
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of Correctional Systems currently consists
of Forty Million (40,000,000) shares of common stock, $0.001 par value per
share, and Ten Million (10,000,000) shares of Preferred Stock, $0.001 par
value. As of the date of this Registration Statement, 3,644,400 shares of
Correctional Systems common stock and 3,363,636 shares of Series A Preferred
Stock ("Series A Preferred") were issued and outstanding.
COMMON STOCK
VOTING RIGHTS. Holders of common stock are entitled to one vote per share
on all matters submitted to a vote of the shareholders. Shares of common stock
do not have cumulative voting rights, which means that the holders of a majority
of the shareholder votes eligible to vote and voting for the election of the
Board of Directors can elect all members of the Board of Directors.
DIVIDEND RIGHTS. Holders of record of shares of common stock are entitled
to receive dividends when and if declared by the Board of Directors out of funds
of Correctional Systems legally available therefor.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of
Correctional Systems, holders of shares of common stock are entitled to receive
pro rata all of the assets of Correctional Systems available for distribution to
shareholders after distributions are made to the holders of Correctional Systems
Preferred Stock.
PREEMPTIVE RIGHTS. Holders of common stock do not have any preemptive
rights to subscribe for or to purchase any stock, obligations or other
securities of Correctional Systems.
SERIES A PREFERRED STOCK
PREFERENCE AND RANKING. The preferences of each share of Series A Preferred
with respect to dividend payments and distributions of the Correctional Systems'
assets upon voluntary or involuntary liquidation, dissolution or winding up of
the Correctional Systems is equal to the preferences of every other share of
Series A Preferred from time to time outstanding in every respect. The Series A
Preferred ranks prior to the Correctional Systems common stock as to the payment
of dividends and the distribution of assets upon voluntary or involuntary
liquidation, dissolution or winding up of the Correctional Systems.
21
<PAGE>
VOTING RIGHTS. Each holder of Series A Preferred shall be entitled to cast
the number of votes per share thereof as equals the number of votes which could
be cast by the holders of the number of shares of common stock into which such
share of Series A Preferred are then convertible. The holders of shares of
Common and Series A Preferred shall vote together and not as separate classes or
series.
DIVIDENDS. If any dividend or other distribution payable in cash or other
property is declared on the common stock, each holder of Series A Preferred on
the record date for such dividend or distribution shall be entitled to receive
on the date of payment or distribution of such dividend or other distribution
the same cash or other property which such holder would have received on such
record date if such holder were the holder of record of the number of shares of
Common into which the shares of Series A Preferred then held by such holder are
then convertible.
CONVERSION. Subject to certain exceptions, any holder of Series A Preferred
shall have the right (an "Optional Conversion Right") at any time to convert all
or any portion of the Series A Preferred held by such holder into an equal
number of shares of common stock, subject to certain adjustments (the
"Conversion Price").
Immediately prior to the closing of any of the following events, all of the
shares of Series A Preferred then outstanding shall be converted (a "Mandatory
Conversion"), without any further action on the part of the Correctional Systems
or the holders of such Series A Preferred into the number of shares of common
stock into which the Series A Preferred would be convertible under the Optional
Conversion Right at the time of the Mandatory Conversion: (a) the consummation
of a qualified public offering or (b) (i) the common stock trading at or above
Three Hundred Fifty Percent (350%) of the Conversion Price for Twenty (20)
consecutive trading days with a minimum trading volume of Thirty Thousand
(30,000) shares per day (on a current basis, as adjusted for stock dividends,
stock splits, etc.) and (ii) Correctional Systems has completed a single sale to
the public of common stock pursuant to an effective registration statement under
the Securities Act under which the gross proceeds to the Correctional Systems of
the common stock actually sold to the public by the Correctional Systems in such
sale is at least Twenty Million Dollars ($20,000,000).
The number of shares of common stock issuable upon conversion of Series A
Preferred shall be subject to adjustment from time to time upon the happening of
certain events, including, a subdivision or combination of outstanding common
stock; certain dividends and distributions; reclassification, consolidation or
merger; and issuance of additional shares of common stock.
If at any time Correctional Systems issues additional shares of common
stock, or securities convertible into common stock, for a consideration per
share of common stock less than the Conversion Price in effect at the time of
such issuance, then the Conversion Price in effect immediately prior to the
issuance of such additional shares of common stock shall be reduced to a price
per share equal to the consideration per share received for the additional
shares of common stock.
RESTRICTED ACTS. As long as any shares of Series A Preferred are
outstanding, Correctional Systems shall not, with certain exceptions, without
the affirmative vote or written consent of the holders of at least a majority of
then outstanding Series A Preferred: (a) authorize, create or issue any shares
of any additional shares of common stock or securities convertible into common
stock; (b) issue any instrument or security exercisable for or convertible into
shares of Series A Preferred,
22
<PAGE>
or issue shares of Series A Preferred other than the first 3,363,636 shares
issued; (c) enter into, or permit any Subsidiary to enter into, any agreement,
indenture or other instrument which contains any provisions restricting the
payment of dividends on the Series A Preferred; (d) redeem, purchase or
otherwise acquire for value (or pay into or set aside for a sinking fund for
such purpose) any share or shares of Series A Preferred; (e) redeem, purchase or
otherwise acquire (or pay into or set aside for a sinking fund for such purpose)
any shares of common stock, provided, however, that this restriction shall not
apply to (i) the repurchase by resolution of the Board of shares of Common from
employees, officers, directors, consultants or other persons performing services
for the Correctional Systems or any Subsidiary pursuant to agreements under
which the Correctional Systems has the option to repurchase such shares upon the
occurrence of certain events, such as the termination of employment or (ii) the
cancellation of shares of Common subject to forfeiture; (f) merge Correctional
Systems with or into any other person or entity or other form of corporate
reorganization in which the Correctional Systems shall not be the continuing or
surviving entity (other than a reincorporation transaction) or sell all or the
majority of Correctional Systems' assets; (g) amend its Articles of
Incorporation or Bylaws; or (h) incur funded indebtedness, capitalized lease
obligations or guarantees of third party debt, in each case involving an amount
in excess of $3,000,000; (i) engage an investment bank, consultant, or other
advisor for the purpose of raising capital or refinancing securities or
indebtedness or for selling or merging Correctional Systems; (j) engage in any
transaction which could involve a conflict of interest or which involves
dealings between the Correctional Systems, insiders or affiliates; (k) declare
or pay any dividend other than pursuant to the terms of the Series A Preferred;
(l) enter into any agreement, commitment or plan of merger, reorganization or
consolidation that would result in the Correctional Systems acquiring any
business entity, or any division or segment of a business entity; or (m) file a
registration statement under the Securities Act.
LIQUIDATION RIGHTS. If Correctional Systems shall be voluntarily or
involuntarily liquidated, dissolved or wound up, the holders of the Series A
Preferred shall be entitled to receive, prior and in preferences to any
distribution to the holders of common stock, out of funds legally available for
distribution to the stockholders after payment of the debts and liabilities of
the Correctional Systems, an amount (the "Series A Liquidation Preference") per
share equal to the Series A issue price, together with an amount equal to all
accrued but unpaid dividends on the Series A Preferred. Upon distribution of the
Series A Liquidation Preference, all remaining assets of the Correctional
Systems shall be distributed to the holders of Common and Series A Preferred,
pro rata in accordance with the number of Common shares held by each of them,
assuming for such purpose that the Series A Preferred has been converted into
Common after making all adjustments provided for hereunder.
STOCKHOLDERS' AGREEMENT
RESTRICTIONS ON TRANSFER. The Stockholders' Agreement contains certain
restrictions on transfer of any of the Correctional Systems securities or
options issued to the Verwiels pursuant to the Sentencing Concepts Merger
Agreement or held by the parties thereto.
RIGHTS OF FIRST REFUSAL AND PARTICIPATION RIGHTS. The Stockholders'
Agreement contains rights of first refusal and take-along rights with respect to
proposed transfers and preemptive rights with respect to the issuance of
additional securities by Correctional Systems. The Stockholders' Agreement also
provides that if a party thereto is presented with an opportunity to purchase
securities from a stockholder that is not a party to the Stockholders'
Agreement, such party must
23
<PAGE>
share such purchase opportunity with the other parties to the Stockholders'
Agreement.
ELECTION OF DIRECTORS. The Stockholders' Agreement contains a voting
agreement providing that the parties thereto will take all action necessary to
insure that the number of directors of Correctional Systems shall not exceed six
and that the composition of the Board is as follows: (i) one of the directors is
to be designated by the holders of a majority of the common stock held by
parties to the Stockholders Agreement, provided that such nominee is not a
member of management or any employee of Correctional Systems; (ii) one of the
directors is to be designated by the holders of the Series A Preferred; and
(iii) the composition of the Board of any subsidiary of Correctional Systems
shall be the same as the Board of Correctional Systems.
ADDITIONAL APPROVALS. The Stockholders' Agreement provides that the
following actions require the prior approval of the Director designated by the
holders of the Series A Preferred:
(i) increasing the cash compensation of any executive by more than Five
Percent (5%) per year;
(ii) granting any stock options or entering into any phantom option
plans;
(iii) terminating or replacing any of the four most senior executives;
(iv) increasing the number of the directors composing the Board;
(v) causing Correctional Systems or any Subsidiary to enter into any
business other than the business presently conducted; and
(vi) forming any Subsidiary or causing it to issue any debt or equity
securities.
MANDATORY SALE. The Stockholder's Agreement provides that if Correctional
Systems has not been sold, merged with a public company or has not been the
subject of a Qualified Public Offering (as defined in the Stockholders'
Agreement) by July 21, 2003, or if Correctional Systems fails to report a profit
in any calendar year beginning with the calendar year ending December 31, 1999,
then the parties thereto will upon the request of the holders of Series A
Preferred take such action as is necessary or appropriate to cause Correctional
Systems or its outstanding securities to be sold within in six (6) months after
delivery of the sale request.
REGISTRATION RIGHTS AGREEMENT
The Registration Rights Agreement provides the holders of Series A
Preferred with two long-form demand registration rights and unlimited short-form
and piggyback registration rights. The Registration Rights Agreement also
provides certain members of management that are parties to the Registration
Rights Agreement with piggyback registration rights. Correctional Systems is
obligated to pay all expenses, other than discounts and commissions, associated
with the exercise of the Series A Preferred holders' demand registration rights.
The Registration Rights Agreement also provides that the holders of Series A
Preferred shall designate the underwriter to be used in connection with any
demand registration.
24
<PAGE>
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Until October 21, 1999, our common stock was published on the National
Association of Securities Dealers' OTC Bulletin Board ("OTCBB") under the
symbol "CRXS." The OTCBB is a quotation service that displays real-time
quotes, last-sale prices, and volume information in domestic and certain
foreign securities. Although the OTCBB is operated by the National
Association of Securities Dealers ("NASD"), it is unlike Nasdaq-Registered
Trademark- or other listed markets where individual companies apply for
listing and must meet and maintain strict listing standards; instead,
individual brokerage firms or Market Makers initiate quotations for specific
securities on the OTCBB.
In 1999, the U.S. Securities and Exchange Commission ("SEC") approved
amendments to the NASD's OTC Bulletin Board eligibility rules. The amendments
require a company with securities quoted on the OTCBB to make periodic filings
with the SEC. Prior to the eligibility rule amendments, there was no requirement
for a company quoted on the OTCBB to make publicly available reports with the
SEC or other regulator. In order to make periodic filings with the SEC, a
company must register its class of securities with the SEC under the Securities
Exchange Act of 1934 (the "1934 Act").
On November ___, 1999, the OTCBB removed the Company's symbol from the
OTCBB, as the Company had not yet registered its common stock under the 1934
Act. Until the Company becomes eligible for quotation on the OTCBB, its
securities will be traded through the "Pink Sheets," which is a paper medium
published daily but not widely disseminated.
The following market quotations for the Company's common stock were
obtained from the OTC Bulletin Board. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions. See "No Assurance of Public Market; Possible Volatility of
Market Price of common stock."
<TABLE>
<CAPTION>
HIGH LOW
1999 ---- ----
----
<S> <C> <C>
Third Quarter 0.9375 0.5625
Second Quarter 0.9375 0.3125
First Quarter 0.8125 0.3125
1998
----
Fourth Quarter 1.03125 0.28125
</TABLE>
The approximate number of security holders is 75. The Board of Directors
has never declared any dividends and does not expect to do so in the foreseeable
future.
The Company has authorized an employee stock option plan pursuant to which
it may issue options to acquire up to 1,500,000 shares of common stock. There
are presently outstanding nonstatutory options to acquire 1,431,800 shares of
common stock. Of these options outstanding, all except 256,450 are fully vested.
The unvested options vest from time to time until January 2003, at which time
all presently outstanding options will be vested.
25
<PAGE>
There are also outstanding 3,363,636 shares of Series A Preferred Stock
that are convertible on a share for share basis into common stock of the
Company.
Of the 3,644,400 shares of common stock outstanding, all except 270,000 may
be sold pursuant to Rule 144 of the Securities Act of 1933, as amended.
The sale of a significant number of the foregoing shares may cause
substantial fluctuations in the market price of our common stock. Moreover,
sales of substantial amounts of our common stock (including shares issuable upon
exercise of options) in the public market could materially and adversely affect
the market price of our common stock.
NO ASSURANCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF MARKET PRICE OF COMMON
STOCK.
Although we intend to have our common stock published on the OTCBB, there
can be no assurance that a regular trading market for our common stock will
develop. The OTCBB is an unorganized, inter-dealer, over-the-counter market
which provides significantly less liquidity than a national securities exchange
or the Nasdaq Stock Market, and quotes for securities included in the OTCBB are
not listed in the financial sections of newspapers as they are for securities
listed on a national securities exchange and the Nasdaq Stock Market. Therefore,
prices for securities traded solely on the OTCBB may be difficult to obtain and
our stockholders may be unable to resell our common stock at or near their
original offering price or at any price.
RISKS RELATING TO LOW-PRICED STOCKS; POSSIBLE ADVERSE EFFECTS OF "PENNY STOCK"
RULES ON LIQUIDITY FOR OUR COMMON STOCK.
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
is not traded on a national securities exchange or the Nasdaq Stock Market and
that has a market price of less than $5.00 per share or an exercise price of
less than $5.00 per share, subject to certain exceptions. If our common stock is
included in the OTCBB and is trading at less than $5.00 per share at any time,
trading in our common stock will be subject to the requirements of "penny stock"
regulations.
These regulations require, among other things, prior to any penny stock
transaction, the delivery of a disclosure schedule explaining the penny stock
market and the associated risks, and which impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors (generally institutions or
individual investors with assets in excess of $1,000,000 or an individual annual
income exceeding $200,000 or, together with the investor's spouse, a joint
income of $300,000). For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The broker-dealer
must also disclose the commission payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market.
These additional regulations imposed upon broker-dealers that trade "penny
stocks" may discourage broker-dealers from effecting transactions in our
securities, which could severely limit
26
<PAGE>
the market price and liquidity of such securities and the ability of holders of
our common stock to sell their securities in the secondary market.
ITEM 2. LEGAL PROCEEDINGS.
In July, 1999, Sentencing Concepts was named as a co-defendant in the case
of Dinwiddie vs. PharmChem in the Fresno County Superior Court, case No.
C98908669-5. The plaintiff in the lawsuit alleges that a drug patch that was
used to test her drug abuse caused an allergic reaction that resulted in a scar
to her upper arm. As the distributor of the patch to the Fresno County Drug
Court, Sentencing Concepts was named in the lawsuit. We believe the outcome of
the lawsuit will not result in a material adverse effect on our financial
position or results of operation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On September 1, 1998, the Company acquired 100 percent of the common stock
of Sentencing Concepts, Inc. in exchange for 1,150,000 shares of the Company's
common stock. In addition, 600,000 options were granted to the previous owners
of Sentencing Concepts with the following vesting requirements: 50,000 options
will vest upon their continued employment with the Company, through January 1,
2002 and 50,000 options will vest upon their continued employment with the
Company, through January 1, 2003. The remaining 500,000 options shall vest,
based upon pre-determined profitability levels of Sentencing Concepts,
subsequent to the acquisition. The exercise price of these 600,000 options is
$0.83.
December 1, 1997, the Company issued 10,000 shares of its common stock to
an individual in exchange for services performed.
The sales and issuances of securities described above were deemed to be
exempt from registration under the Securities Act by virtue of Section 4(2) or
Regulation D promulgated under the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the General Corporation Law of the State of California, under
most circumstances Correctional Systems' officers and directors may not be held
liable to Correctional Systems or its shareholders for errors in judgment or
other acts or omissions in the conduct of Correctional Systems' business unless
such errors in judgment, acts or omissions constitute fraud, gross negligence or
malfeasance.
27
<PAGE>
PART F/S
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Report of Independent Public Accountants.................................. F - 2
Consolidated Balance Sheet as of December 31, 1998........................ F - 3
Consolidated Statements of Operations for
the Years Ended December 31, 1998 and 1997.............................. F - 4
Consolidated Statements of Shareholders'
Equity for the Years Ended December 31, 1998 and 1997................... F - 5
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1998 and 1997.............................. F - 6
Notes to Consolidated Financial Statements................................ F - 8
Unaudited Consolidated Balance Sheet as
of September 30, 1999................................................... F - 16
Unaudited Consolidated and Subsidiaries Statement of
Income for the Nine-Months Ended September 30, 1999..................... F - 17
Unaudited Consolidated Statement of Cash
Flows for the Nine-Months Ended September 30, 1999...................... F - 18
Notes to Unaudited Consolidated Financial Statements...................... F - 19
</TABLE>
<PAGE>
PART III
Item 1. Index to Exhibits.
2.1 Certificate of Incorporation
2.2 By-laws
6.1 City Detention Facility Operations and Management Agreement
(Correctional Services, Inc. and the City of Alhambra)
6.2 Agreement Between the County of Orange and Sentencing
Concepts, Inc. for the Provision of Supervised Electronic
Confinement Services
Item 2. Description of Exhibits.
2.1 Certificate of Incorporation
2.2 By-laws
6.1 City Detention Facility Operations and Management Agreement
(Correctional Services, Inc. and the City of Alhambra)
6.2 Agreement Between the County of Orange and Sentencing
Concepts, Inc. for the Provision of Supervised Electronic
Confinement Services
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this reorganization statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
CORRECTIONAL SYSTEMS, INC.
a California Corporation
Date: January 10, 2000
/s/ John R. Forren
--------------------------
By: John R. Forren
Its: President, Chief Executive Officer
and Director
<PAGE>
CORRECTIONAL SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND FOR THE
YEARS ENDED DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Correctional Systems, Inc.:
We have audited the accompanying consolidated balance sheet of CORRECTIONAL
SYSTEMS, INC. (a California corporation) and subsidiaries as of December 31,
1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the two years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Correctional
Systems, Inc. and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Diego, California
July 29, 1999
F-2
<PAGE>
CORRECTIONAL SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C>
Cash $ 489,096
Accounts receivable 513,128
-----------
Total current assets 1,002,224
-----------
Property and equipment:
Land 78,000
Building 262,000
Furniture and equipment 116,449
Less: accumulated depreciation (32,145)
-----------
Total property and equipment 424,304
-----------
Related party notes and interest receivable 103,333
Goodwill, net of accumulated amortization of $25,565 1,467,611
Other intangibles, net of accumulated amortization of $6,818 603,182
Deposits and other assets 15,970
-----------
$ 3,616,624
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 201,220
Accrued earn-out and bonus 228,200
Line of credit 40,887
Accrued payroll and taxes 101,265
Notes payable 106,776
Deferred revenue and other liabilities 107,223
-----------
Total current liabilities 785,571
-----------
Commitments and Contingencies (Note 7)
Shareholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized, 3,363,636
issued and outstanding 3,364
Common stock, $.001 par value, 40,000,000
shares authorized, 3,644,400 shares issued and outstanding 3,644
Additional paid-in capital 3,618,462
Accumulated deficit (794,417)
-----------
2,831,053
-----------
$ 3,616,624
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CORRECTIONAL SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues $ 3,004,984 $ 1,051,806
Salaries and wages 1,301,493 648,374
Other operating expenses 1,027,772 254,261
----------- -----------
Total operating expenses 2,329,265 902,635
----------- -----------
Gross profit 675,719 149,171
General and administrative expenses 704,111 620,249
----------- -----------
Loss from operations (28,392) (471,078)
Other income (expense):
Interest income and expense, net 2,377 -
Other income (expense) (2,393) 10,491
----------- -----------
Total other income (expense) (16) 10,491
----------- -----------
Net loss $ (28,408) $ (460,587)
=========== ===========
Basic and diluted net loss per share $ (0.01) $ (0.19)
=========== ===========
Weighted average common shares outstanding 2,877,733 2,485,234
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CORRECTIONAL SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED COMMON
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------ -------- --------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 - $ - 2,484,400 $ 2,484
Issuance of common stock, net of offering costs of $1,000 - - 10,000 10
Forgiveness of board member liability - - - -
Net loss - - - -
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997 - - 2,494,400 2,494
Issuance of common stock, net of offering costs of $56,355 - - 1,150,000 1,150
Issuance of preferred stock, net of offering costs of $52,395 3,363,636 3,364 - -
Net loss - - - -
----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 3,363,636 $ 3,364 3,644,400 $ 3,644
=========== =========== =========== ===========
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
---------- --------- -------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ 913,736 $ (305,422) $ 610,798
Issuance of common stock, net of offering costs of $1,000 8,990 - 9,000
Forgiveness of board member liability 14,000 - 14,000
Net loss - (460,587) (460,587)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997 936,726 (766,009) 173,211
Issuance of common stock, net of offering costs of $56,355 517,495 - 518,645
Issuance of preferred stock, net of offering costs of $52,395 2,164,241 - 2,167,605
Net loss - (28,408) (28,408)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 $ 3,618,462 $ (794,417) $ 2,831,053
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CORRECTIONAL SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (28,408) $ (460,587)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 50,685 6,416
Loss on disposal of property and equipment - 842
Increase in accounts receivable (221,404) (97,085)
Decrease(increase) in other assets (4,326) 4,643
Increase(decrease) in accounts payable and accrued liabilities (300,821) 109,551
Increase in accrued earn-out and bonus 228,200 -
----------- -----------
Net cash used in operating activities (276,074) (436,220)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquired companies, net of cash acquired (1,377,456) -
Costs incurred in connection with issuance of common stock (56,355) -
Purchase of furniture and equipment (30,889) -
Payments received from related parties 30,000 -
Loans to related parties (100,000) (30,000)
----------- -----------
Net cash used in investing activities (1,534,700) (30,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net 2,167,605 -
Proceeds from issuance of common stock, net - 9,000
Borrowings on line of credit 14,525 123,950
Payments on line of credit - (97,588)
Payments on notes payable (6,959) -
----------- -----------
Net cash provided by financing activities 2,175,171 35,362
----------- -----------
INCREASE(DECREASE) IN CASH 364,397 (430,858)
CASH, beginning of year 124,699 555,557
----------- -----------
CASH, end of year $ 489,096 $ 124,699
=========== ===========
</TABLE>
(continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CORRECTIONAL SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(continued)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITES:
Acquisition of Sentencing Concepts, Inc.:
Accounts receivable $ 36,907 $ -
Furniture and equipment 14,164 -
Other assets 11,020 -
Accounts payable (550,428) -
Notes payable (113,735) -
--------- ---------
$(602,072) $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITY:
Forgiveness of board member liability $ - $ 14,000
========= =========
Interest paid $ 7,058 $ 1,797
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CORRECTIONAL SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND RISK FACTORS
Description of Business
Correctional Systems, Inc. and subsidiaries ("CSI" individually or the
"Company" collectively) was incorporated in the state of California on
March 31, 1994. CSI operates correctional facilities on behalf of cities
and counties under the terms of multi-year contracts with local
governmental agencies. The population of the correctional facilities
typically consists of arrestees, self-pay inmates, sentenced county work
furlough inmates, sentenced federal inmates serving short-term sentences
and individuals requiring detoxification. As a result of an acquisition in
1998 (see Note 3), the Company also operates a community correction
facility known as Reality House, Inc. (RHI). RHI primarily provides work
furlough programs and counseling, funded by the Bureau of Prisons. The
Company's subsidiary, Sentencing Concepts, Inc. (SCI), also acquired in
1998 (see Note 3), provides non-imprisonment alternatives to individuals
who would have otherwise been subject to standard judicial punishment. The
services include electronic home monitoring; drug, alcohol, and anger
management counseling; and drug use testing. The Company has contracts
with various municipal judicial systems to provide these services.
Risk Factors
Based on total assets and annual revenues, the Company is significantly
smaller than many of its competitors. These competitors include large
privately-held and publicly-held companies that have substantially greater
financial, marketing and other resources than the Company. These companies
offer services and operate in the markets in which the Company competes.
The services offered by these companies in some cases are similar to the
services that the Company offers. The Company expects that competition
will increase substantially as a result of industry consolidations and
alliances, as well as the emergence of new competitors. There can be no
assurance that the Company will be able to compete successfully with
existing or new competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, operating
results and financial condition.
The Company has grown internally, by procuring agreements to operate
correctional facilities, and externally, by acquiring existing operators
of correctional facilities. The Company intends to continue its
development and growth in this manner. Its ability to manage this
development and intended growth will depend on the efforts of its key
management and employees. The Company plans to use incentives, including
competitive compensation and stock plans, to retain well-qualified
employees and attract new employees to accommodate any expansion. There
can be no assurance, however, that the Company will be able to retain and
attract personnel with the requisite capabilities and experience. The
F-8
<PAGE>
loss of one or more current key management personnel could also materially
adversely affect the Company.
The Company anticipates that it will need to undertake private placements
or a public offering of its securities at a future date, depending upon
market conditions, in order to obtain sufficient capital to implement its
intended growth plan. No assurance can be given that it will be successful
in raising additional investment capital in the future, or that if it is
successful, that the financial resources obtained will be sufficient to
successfully carry out the Company's intended growth plan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of CSI and its
wholly-owned subsidiaries, SCI and RHI. All significant intercompany
accounts and transactions have been eliminated.
CASH
Cash includes cash in readily available checking and money market
accounts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets using the straight-line method as
follows:
Building 40 years
Furniture and equipment 3 to 5 years
GOODWILL AND INTANGIBLES
Goodwill is amortized over a period not to exceed 20 years. Other
intangibles, which represent certain operating rights, are amortized over
a period not to exceed 30 years.
LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with Statement
of Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets" ("SFAS No. 121"). SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held by an
entity be reviewed for possible impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. The Company periodically re-evaluates the
original assumptions and rationale utilized in the establishment of the
carrying value and estimated lives of its long-lived assets. The
criteria used for these evaluations include management's estimate of
the asset's continuing ability to generate income from operations and
positive cash flow in future periods as well as the strategic
significance of any intangible asset in carrying out the Company's
business objectives.
REVENUE RECOGNITION
Revenue is generally recognized as services are provided under the
provisions of contracts entered into with governmental agencies, either at
a fixed monthly rate or at a net rate per day per inmate. During 1998 and
1997, the Company received reimbursements for certain costs incurred
F-9
<PAGE>
in the amount of $1,195,799 and $549,334, respectively. These amounts are
included in revenue.
Under contracts entered into by SCI, the Company must provide services to
all clients referred by the judicial process, regardless of the client's
ability to pay. Further, the contracts allow for SCI to charge its clients
fees based on a prearranged sliding fee schedule. SCI contracts do not
guarantee a specified level of revenue nor do they provide for
reimbursement for losses relating to servicing clients who are unable to
pay. As a result, portions of SCI's clients receive services for nominal
or for no fees. Accordingly, losses for services provided are recognized
when identified. Fees received in advance of services are recorded as
deferred revenue until services are rendered. Deferred revenues in the
amount of $71,512 are included in deferred revenue and other liabilities
as of December 31, 1998.
NET LOSS PER SHARE
Basic and diluted net loss per share for the years ended December 31, 1998
and 1997 have been computed using the weighted average number of
shares of common stock outstanding during the period pursuant to Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." The
weighted average number of shares does not include the dilutive
effect of any stock options, as the effect would be antidilutive.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for
Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities
reflect the future tax consequences of the difference between the
financial reporting and tax basis of assets and liabilities using current
enacted tax rates. Due to the issuance of preferred stock to First
Analysis Securities Corporation (see Note 4), Federal tax law limits the
utilization of the net operating losses incurred prior to this event.
Therefore, the use of the net operating loss carryforward has been limited
to $6,400. Subsequent to this event, the Company incurred $45,000 of
additional net operating losses during 1998, which are not limited. The
Company's combined net operating losses expire in 2018. At December 31,
1998, the only significant deferred tax assets and liabilities is the
asset related to the net operating loss carryforward. Due to uncertainty
of future realization, the Company has recorded a full valuation allowance
against this deferred tax asset.
STOCK BASED COMPENSATION
In January 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." SFAS No. 123 requires that the Company either recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees based on new fair value accounting rules or elect
the disclosure only provisions of SFAS No. 123, under which the pro forma
net income and earnings per share using the fair value method is
disclosed. The Company has elected the disclosure only requirement (see
Note 6).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
F-10
<PAGE>
NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosure
About Segments Of An Enterprise and Related Information". SFAS No. 131
requires that public business enterprises report financial and descriptive
information about its reportable segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. The Company operates in one segment (privatized correctional
services).
In 1997, the FASB issued Statement of Financial Accounting Standards No.
130 ("SFAS No. 130"), "Reporting Comprehensive Income." This statement is
effective for fiscal years beginning after December 15, 1997. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. During the periods presented, the Company had no
items required to be disclosed as components of comprehensive income.
3. ACQUISITIONS AND PRO FORMA INFORMATION
On August 1, 1998, the Company acquired 100 percent of the common stock of
RHI and the separately owned building in which RHI operates, in exchange
for approximately $1,411,508 in cash. The excess cost over the fair market
value of the net tangible assets acquired was allocated to goodwill in the
amount of $335,176 and to other intangibles in the amount of $610,000,
which represents a special use permit issued to the property that allows
RHI to operate as a community corrections facility.
On September 1, 1998 the Company acquired 100 percent of the common stock
of SCI in exchange for 1,150,000 shares of the Company's common stock, of
which 270,000 was placed in escrow as security and will be released to the
previous principals of SCI one year after the closing date, assuming that
there are no unresolved issues, if any. In addition, 600,000 options
were granted to the previous owners of SCI with the following vesting
requirements: 50,000 options will vest upon their continued employment
with the Company, through January 1, 2002 and 50,000 options will vest
upon their continued employment with the Company, through January 1, 2003.
The remaining 500,000 options shall vest, based upon pre-determined
profitability levels of SCI, subsequent to the acquisition. The exercise
price of these 600,000 options is the mean between the average
bid and average ask price for the ten trading days prior to September 1,
1998, or approximately $0.83.
As a part of this acquisition, the Company entered into employment
agreements with the previous owners of SCI through August 2000. The
agreements provide an additional 230,000 options of which 200,000 will
vest, based upon profitability levels that SCI must attain after the
acquisition, and 30,000 that will vest upon continued employment through
July 31, 1999. These options have an exercise price of $0.20 per share. If
required, the Company will fund the exercise of these options by the
previous owners.
The acquisition of SCI was accounted for under the purchase method of
accounting. The transaction generated $1,158,000 in goodwill, which
represents the fair market value of the CSI stock issued to the former
owners of SCI, less the fair market value of the tangible net assets
F-11
<PAGE>
received by CSI. This goodwill is being amortized over 20 years using the
straight-line method.
On a pro forma basis, had the SCI and the RHI acquisitions taken place on
January 1, 1998, and January 1, 1997, respectively, the Company would have
recorded revenue, net loss, and basic and diluted net loss per share as
follows:
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
---------------------
YEAR ENDED DECEMBER 31
----------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenue $ 4,826,489 $ 3,450,486
Net loss $ (163,633) $ (615,745)
Basic and diluted net loss per share $ (0.05) $ (0.09)
</TABLE>
4. EQUITY FINANCING
On July 31, 1998, the Company entered into a stock purchase agreement with
First Analysis Securities Corporation (FASC). Under the agreement, FASC
purchased 3,363,636 shares of preferred stock for $2,220,000. The
agreement specifies that $500,000 of the $2,200,000 be spent directly by
SCI to fund expansion. The Company incurred $52,395 in costs, which are
netted against the proceeds in the statement of shareholders' equity.
The FASC shares must be converted, in total or in part, into common stock
at any time upon a "conversion event" as defined by the agreement. The
number of shares of common stock issuable upon conversion of the preferred
stock and the conversion price shall be adjusted from time to time, based
upon "certain events" as defined by the agreement. Additionally, if at any
time the Company issues additional shares of common stock, or securities
convertible into common stock, for a consideration per share of common
stock less than the conversion price in effect at the time of such
issuance, then the conversion price in effect immediately prior to the
issuance of such additional shares of common stock shall be reduced to a
price per share equal to the consideration per share received for the
additional shares of common stock.
The preferred stock has voting rights equal to the number of shares of
common stock issuable upon conversion. As long as the preferred stock is
outstanding, the Company is restricted from certain acts, as defined by
the agreement. If the Company is voluntarily or involuntarily liquidated,
the preferred stockholders shall be entitled to receive, prior to
distributions to any holder of common stock, a per share amount equal to
the preferred stock original issue price in addition to all accrued but
unpaid preferred dividends, if any (the "Series A Liquidation
Preference"). Upon distribution of the Series A Liquidation Preference,
the remaining assets would be distributed to common and preferred
stockholders on a pro rata basis.
5. RELATED PARTY NOTES AND INTEREST RECEIVABLE
As of December 31, 1998, related party notes receivable consisted of two
$50,000 loans (plus accrued interest at 7 percent) due from officers (the
President and Chief Operating Officer) of SCI. The loans are secured by
CSI common stock owned by the officers. Principal and interest are due on
July 31, 2003.
6. EMPLOYEE STOCK OPTION PLAN
The Company has reserved 1,500,000 shares of common stock for future
issuance under an employee stock option plan. Options are generally
granted at fair market value at the date of grant, expire ten years after
the date of grant and fully vest within four years of the date of grant.
F-12
<PAGE>
The following table summarizes stock option plan activity for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- --------------
<S> <C> <C>
Outstanding, December 31, 1996 1,110,625 $0.60
Granted 4,000 $1.00
---------
Outstanding, December 31, 1997 1,114,625 $0.60
Granted 634,350 $0.64
Forfeited (317,175) $0.60
---------
Outstanding, December 31, 1998 1,431,800 $0.62
=========
Exercisable, December 31, 1998 256,450 $0.20 - $1.80
=========
</TABLE>
As permitted, the Company has adopted the disclosure only provisions of
SFAS No. 123. Accordingly, no compensation expense has been recognized for
options granted. Had compensation expense been determined based on the
fair value at date of grant for the 1998 and 1997 awards consistent with
the provisions of SFAS No. 123, the Company's net loss would have been
increased to the pro forma amount as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net loss - as reported $ (28,408) $(460,587)
Net loss - pro forma $ (43,551) $(465,285)
Net loss per basic and diluted share $ (0.02) $ (0.19)
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model and using the following
weighted average assumptions for grants in 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Risk-free interest rate 5.74% 6.00%
Expected lives 10 Years 10 Years
Expected volatility 115.06% 87.41%
Expected dividend yield 0.00% 0.00%
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain office space, facilities, and equipment under
operating lease agreements. The Company is obligated to make future
minimum lease payments as of December 31, 1998 as follows:
<TABLE>
<S> <C>
1999 $ 208,613
2000 199,328
2001 140,599
2002 135,535
2003 135,850
Thereafter 593,100
----------
Total $1,413,025
==========
</TABLE>
Total rent expense for 1998 and 1997 was $48,054 and $11,873,
respectively.
The Company is involved in various legal matters in the ordinary course of
its business activities. In the opinion of management, the outcome of such
matters is not expected to have a material adverse impact on the Company's
financial position or results of operations.
F-13
<PAGE>
8. LINE OF CREDIT
During 1998 and 1997, the Company had a line of credit with a bank, which
provided for borrowings of up to $50,000 at an annual interest rate of 11
percent. The line of credit was fully repaid on April 28, 1999 with the
account subsequently being closed on May 28, 1999.
9. NOTES PAYABLE
The Company had an unsecured note payable due to the former owner of RHI
in the amount of $100,000 bearing interest at 8 percent per annum, due May
20, 1999. Interest only payments were made monthly in the amount
of $667. Principal and interest were paid in full on June 4,
1999. Additionally, the Company has a loan secured by a vehicle in the
amount of $6,776, due August 11, 2000. Principal and interest payments are
made monthly in the amount of $357.
10. SUBSEQUENT EVENTS
On July 29, 1999, the Company acquired a building, certain equipment and
intangibles in exchange for the issuance of $1,025,000 in notes payable
and $25,000 in cash. Similar to RHI, this facility provides work furlough
programs and counseling services funded under contract with the Bureau of
Prisons. The notes payable are secured by real property, with one loan in
the amount of $500,000 and principal and interest payments of $5,412
through July 2011 at 8 percent interest per annum, and the other loan in
the amount of $525,000 with principal and interest payments of $12,800
through 2006 at 9.29 percent interest per annum.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------
03/31/98 06/30/98 09/30/98 12/31/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 381,849 $ 466,686 $ 818,359 $ 1,338,090
Operating expenses and other 397,369 499,044 749,738 1,387,241
----------- ----------- ----------- -----------
Net income (loss) $ (15,520) $ (32,358) $ 68,621 $ (49,151)
=========== =========== =========== ===========
Basic and diluted net
income (loss) per share $ (.01) $ (.01) $ .02 $ (.01)
=========== =========== =========== ===========
weighted average common
shares outstanding 2,494,400 2,494,400 2,877,733 3,644,400
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------
03/31/97 06/30/97 09/30/97 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 213,305 $ 278,428 $ 309,685 $ 250,388
Operating expenses and other 319,200 389,656 401,899 401,638
----------- ----------- ----------- -----------
Net loss $ (105,895) $ (111,228) $ (92,214) $ (151,250)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (.04) $ (.05) $ (.04) $ (.06)
=========== =========== =========== ===========
Weighted average common
shares outstanding 2,484,400 2,484,400 2,484,400 2,487,733
=========== =========== =========== ===========
</TABLE>
F-14
<PAGE>
CORRECTIONAL SYSTEMS, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS AS OF SEPTEMBER 30, 1999
AND FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1999
F-15
<PAGE>
CORRECTIONAL SYSTEMS, INC.
CONSOLIDATED CONDENSED AND SUBSIDIARIES
BALANCE SHEET
SEPTEMBER 30, 1999
UNAUDITED
<TABLE>
<S> <C>
ASSETS
CASH $ 304,841
ACCOUNTS RECEIVABLES 812,583
INVENTORY 6,546
-----------
TOTAL CURRENT ASSETS 1,123,970
-----------
PROPERTY & EQUIPMENT - NET 1,544,214
GOODWILL - NET 1,410,961
INTANGIBLES - NET 590,905
NOTES REC LONG TERM RELATED PARTY AND OTHER 176,224
-----------
TOTAL ASSETS $ 4,846,274
-----------
-----------
LIABILITIES & EQUITY
ACCOUNTS PAYABLE $ 136,828
ACCRUED AND OTHER LIABILITIES 510,050
NOTES PAYABLE CURRENT 116,818
-----------
CURRENT LIABILITIES 763,696
-----------
NOTE PAYABLE LONGTERM 1,145,394
DEFERRED TAX LIABILITY 9,004
COMMITMENT AND CONTINGENCIES
SHAREHOLDERS' EQUITY
PREFERRED STOCK - PAR 3,364
CAPITAL STOCK - PAR 3,644
PAID IN-CAPITAL 3,618,461
RETAINED EARNINGS (DEFICIT) (697,289)
-----------
TOTAL SHAREHOLDERS' EQUITY 2,928,180
-----------
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,846,274
-----------
-----------
</TABLE>
F-16
<PAGE>
CORRECTIONAL SYSTEMS, INC.
CONSOLIDATED AND SUBSIDIARIES STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
<S> <C>
REVENUES $ 5,018,586
SALARIES AND WAGES 2,102,241
OTHER OPERATING EXPENSES 1,645,130
-----------
GROSS PROFIT 1,271,215
-----------
GENERAL AND ADMINISTRATIVE EXPENSE 1,125,762
-----------
INCOME FROM OPERATIONS 145,453
-----------
INTEREST EXPENSE (42,401)
INTEREST INCOME 14,543
OTHER EXPENSE (2,128)
-----------
INCOME BEFORE PROVISION FOR TAXES 115,467
-----------
INCOME TAX PROVISION (18,339)
-----------
NET INCOME $ 97,128
-----------
-----------
BASIC EARNINGS PER SHARE $ 0.03
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC 3,644,400
DILUTED EARNINGS PER SHARE $ 0.01
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING DILUTED 7,149,574
</TABLE>
F-17
<PAGE>
CORRECTIONAL SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
UNAUDITED
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 97,128
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
USED IN OPERATIONS:
DEPRECIATION AND AMORTIZATION 118,818
INCREASE IN ACCOUNTS RECEIVABLE (299,455)
INCREASE IN INVENTORY (6,546)
INCREASE IN OTHER ASSETS (57,921)
DECREASE IN ACCOUNTS PAYABLE (64,393)
INCREASE IN ACCRUED LIABILITIES 24,142
INCREASE INCOME TAXES PAYABLE 18,339
-----------
NET CASH USED IN OPERATING ACTIVITIES (169,888)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY AND EQUIPMENT (1,169,803)
-----------
NET CASH USED IN INVESTING ACTIVITIES (1,169,803)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM NOTES PAYABLE NET 1,155,436
-----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,155,436
-----------
DECREASE IN CASH (184,255)
CASH, BEGINNING OF PERIOD 489,096
-----------
CASH, END OF PERIOD $ 304,841
-----------
-----------
</TABLE>
F-18
<PAGE>
CORRECTIONAL SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 1999
1. DESCRIPTION OF BUSINESS AND RISK FACTORS
Correctional Systems, Inc. and subsidiaries ("CSI" individually or the
"Company" collectively) was incorporated in the state of California on
March 31, 1994. CSI operates correctional facilities behalf of cities
and counties under the terms of multi-year contracts with local
governmental agencies. The population of the correctional facilities
typically consists of arrestees, self-pay inmates, sentenced county
work furlough inmates, sentenced federal inmates serving short-term
sentences and individuals requiring detoxification. With the
acquisition of the Austin Recovery Center ("ARC") (see note 3) in July
1999, Company currently operates 3 community corrections facilities,
that provide work furlough programs and counseling, funded by the
Bureau of Prisons. The Company's subsidiary, Sentencing Concepts, Inc.
("SCI") provides non-imprisonment alternatives to individuals who would
have otherwise been subject to standard judicial punishment. The
services include electronic home monitoring; drug, alcohol and anger
management counseling; and drug use testing. SCI has contracts with
various municipal judicial systems to provide these services.
The accompanying consolidated condensed financial statements have not
been audited, however the Company's management believes all adjustments
have been included for a fair presentation. These financial statements
should be read in conjunction with the Company's financial statements
and notes thereto for the year ended December 31, 1998, include in the
Company's Annual Report on Form 10-SB. Interim results are not
necessarily indicative of the operating results for the entire year.
Risk Factors
Based on total assets and annual revenues, the Company is significantly
smaller than many of its competitors. These competitors include large
privately held publicly held companies that have substantially greater
financial, marketing and other resources than the Company. These
companies offer services and operate in the markets in which the
Company competes. The services offered by these companies in some cases
are similar to the services that the Company offers. The Company
expects that competition will increase substantially as a result of
industry consolidation and alliances, as well as the emergence of new
competitors. There can be no assurances that the Company will be able
to compete successfully with existing or new competitors or that
competitive pressures faced by the Company will not materially and
adversely affect its business, operating results and financial
condition.
The Company has grown internally, by producing agreements to operate
correctional facilities, and externally, by acquiring existing
operators of correctional facilities. The Company intends to continue
its development and growth in this manner. Its ability to manage this
development and intended growth will depend on the efforts of its key
management and employees. The Company plans to use incentives,
including competitive compensation and stock plans, to retain
well-qualified employees and attract new employees to accommodate any
expansion. There can be no assurance, however, that the Company will be
able to retain and attract personnel with the requisite capabilities
and experience. The loss of one or more current key management
personnel could materially adversely affect the Company.
F-19
<PAGE>
CORRECTIONAL SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 1999
1. (Continued)
The Company anticipates that it will need to undertake private
placements or a public offering of its securities at a future date,
depending upon market conditions, in order to obtain sufficient capital
to implement its intended growth plan. No assurance can be given that
it will be successful in raising additional investment capital in the
future, or that if it is successful, that the financial resources
obtained will be sufficient to successfully carry out the Company's
intended growth plan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of CSI and
its wholly-owned subsidiaries, SCI and RHI. All significant
intercompany accounts and transactions have been eliminated.
Revenue Recognition
Revenue is generally recognized s services are provided under the
provision of contracts entered into with the governmental agencies,
either at a fixed monthly rate or at a net rate per day per inmate.
Net Income Per Shares
Basic and diluted net income per share for the 9 months ended September
30, 1999 has been computed using the weighted average number of shares
of common stock (basic) and common stock equivalents (diluted),
outstanding during the period pursuant to Statement of Financial
Accounting Standard No. 128, "Earnings Per Share."
Stock Based Compensation
In January 1996, the Company adopted Statement of Financial Accounting
Standard No. 123 ("SFAS No. 123"), " Accounting for Stock-Based
Compensation." SFAS No. 123 requires that the Company either recognize
compensation expense for grants of stock, stock options, and other
equity instruments to employees based on new fair value accounting
rules or elect the disclosure only provisions of SFAS No. 123, under
which the pro forma net income and earnings per share using the
disclosure only requirements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
could differ from those estimates.
F-20
<PAGE>
CORRECTIONAL SYSTEM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 1999
3. ACQUISITIONS
On July 29, 1999 the Company acquired a building and certain equipment
in exchange for the issuance of $1,025,000 and $25,000 in cash. The
$1,025,000 was financed by 2 loans secured by real property. Monthly
principal and interest payments for the loans are $ 5,432 at 8% and
$12,800 at 9.29%. The loans run through 2011 and 2006, respectively.
This facility provides work furlough programs and counseling services
funded under contract with the Bureau of Prisons.
F-21
<PAGE>
EXHIBIT 2.1
CERTIFICATE OF INCORPORATION
OF
CORRECTIONAL SYSTEMS, INC.
ARTICLE I
The name of this corporation is Correctional Systems, Inc. (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware 19805. The name of its
registered agent at such address is Corporation Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of stock, both of
which shall be voting. One class of stock shall be Common Stock, par value
$0.001. The second class of stock shall be Preferred Stock, par value $0.001.
The total number of shares of Common Stock that the Corporation shall have
authority to issue is 40,000,000. The total number of shares of Preferred Stock
that the Corporation shall have authority to issue is 10,000,000.
The Preferred Stock, or any series thereof, shall have such
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof as shall be
expressed in the resolution or resolutions providing for the issue of such stock
adopted by the board of directors and may be made dependent upon facts
ascertainable outside such resolution or resolutions of the board of directors,
provided that the manner in which such facts shall operate upon such
designations, preferences, rights and qualifications, limitations or
restrictions of such class or series of stock is clearly and expressly set forth
in the resolution or resolutions providing for the issuance of such stock by the
board of directors. Subject to compliance with the provisions of any series of
Preferred Stock, the board of directors is authorized to increase or decrease
the number of shares of any series of Preferred Stock prior to the issuance of
that series. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of that series.
One series of Preferred Stock shall consist of 3,363,636 shares and is
designated "Series A Preferred Stock" (referred to herein as "Series A
Preferred"). The powers, preferences and rights and the qualifications,
limitations, and restrictions thereof, of the Series A Preferred are as set
forth below.
1
<PAGE>
1. PREFERENCE AND RANKING. The preferences of each share of Series A
Preferred with respect to dividend payments and distributions of the
Corporation's assets upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation shall be equal to the
preferences of every other share of Series A Preferred from time to
time outstanding in every respect. Except as otherwise provided in this
Article IV, the Series A Preferred shall rank prior to the Common Stock
as to the payment of dividends and the distribution of assets upon
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation.
2. VOTING RIGHTS. Except as otherwise required by law or expressly
provided in this Article IV each share of Series A Preferred shall
entitle the holder thereof to vote on each matter submitted to a vote
of the stockholders of the Corporation at the record date for the
determination of stockholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any
written consent of stockholders becomes effective. Each holder of
Series A Preferred shall be entitled to cast the number of votes per
share thereof as equals the number of votes which could be cast by the
holders of the number of shares of Common Stock into which such share
of Series A Preferred are then convertible. Except as otherwise
required by law or expressly provided in this Article IV, the holders
of shares of Common Stock and Series A Preferred shall vote together
and not as separate classes or series.
3. DIVIDENDS. If any dividend or other distribution payable in cash or
other property is declared on the Common Stock, each holder of Series A
Preferred on the record date for such dividend or distribution shall be
entitled to receive on the date of payment or distribution of such
dividend or other distribution the same cash or other property which
such holder would have received on such record date if such holder were
the holder of record of the number of shares of Common Stock into which
the shares of Series A Preferred then held by such holder are then
convertible.
4. CONVERSION.
(a) DEFINITIONS. The following capitalized terms shall have
the meanings ascribed to such terms below:
"Conversion Event" shall mean (a) the consummation of a
Qualified Public Offering or (b) (i) the Common Stock trading
at or above 350% of the Conversion Price for 20 consecutive
trading days with a minimum trading volume of 30,000 shares
per day (on a current basis, as adjusted for stock dividends,
stock splits, etc.) and (ii) the Corporation has completed a
single sale to the public of Common Stock pursuant to an
effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), under which the gross
proceeds to the Corporation of the Common Stock actually sold
to the public by the Corporation if such sale is at least
$20,000,000.
"Conversion Price" shall initially be the Series A Issue
Price, and shall be subject to adjustment from time to time as
provided in Section 4(f), below.
"Qualified Public Offering" shall mean the first sale to the
public of Common Stock pursuant to an effective registration
statement under the Securities Act under which (a) the gross
proceeds to the Corporation of the Common Stock
2
<PAGE>
actually sold to the public by the Corporation if such first
sale is at least $20,000,000, (b) the price per share to the
public of such Common Stock is at least 350% of the Conversion
Price then in effect and (c) the gross proceeds to the holders
of Series A Preferred, as of the date of the Certificate of
Determination for Correctional Systems, Inc., a California
Corporation, filed with the California Secretary of State on
July 28, 1998, if such first sale is at least $2,220,000.
"Series A Issue Price" of any share of Series A Preferred
shall mean $0.66, which amount shall be proportionately
increased in the event of a combination of shares of Series A
Preferred and proportionately decreased in the event of a
subdivision of shares of Series A Preferred.
(b) OPTIONAL CONVERSION RIGHT. Subject to Section 4(c) any
holder of Series A Preferred shall have the right (an
"Optional Conversion Right") at any time to convert all or any
portion of the Series A Preferred held by such holder into
that number of shares of Common Stock computed by multiplying
the number of shares to be converted by the Series A Issue
Price and dividing the result by the Conversion Price then in
effect.
(c) METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW SERIES A
PREFERRED; TRANSFER AND EXCHANGE. The Optional Conversion
Right may be exercised by a holder of Series A Preferred, in
whole or in part, by the surrender of the stock certificate or
certificates representing the Series A Preferred to be
converted, duly endorsed for transfer to the Corporation, at
the principal office of the Corporation (or at such other
place as the Corporation may designate in a written notice
sent to the holder by first-class mail, postage prepaid, at
its address shown on the books of the Corporation), together
with a written notice to the Corporation which will state: (x)
that such holder elects to convert the same; (y) the number of
shares of Series A Preferred being converted; and (z) the name
or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. In the
event of any exercise of the Optional Conversion Right (x)
stock certificates for the shares of Common Stock purchased by
virtue of such exercise shall be delivered to such holder
forthwith, and unless the Series A Preferred has been fully
converted, a new Series A Preferred stock certificate,
representing the Series A Preferred not so converted, if any,
shall also be delivered to such holder forthwith and (y) stock
certificates for the shares of Common Stock so purchased shall
be dated the date of such surrender and the holder making such
surrender shall be deemed for all purposes to be the holder of
the shares of Common Stock so purchased as of the date of such
surrender.
(d) MANDATORY CONVERSION. Immediately prior to the closing of
any Conversion Event, all of the shares of Series A Preferred
then outstanding shall be converted (a "Mandatory
Conversion"), without any further action on the part of the
Corporation or the holders of such Series A Preferred into the
number of shares of Common Stock into which the Series A
Preferred would be convertible under Section 4(b) at the time
of the Mandatory Conversion. Notice of the Mandatory
Conversion shall be mailed within three days following the
Conversion Event by the Corporation to each holder of Series A
Preferred by first-class mail, postage prepaid, to such
holder's address shown on the books of the Corporation, such
notice to specify the date on which Mandatory Conversion
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occurred and to call upon such holder to surrender to the
Corporation, in the manner and at the place designated in such
notice, the certificate or certificates representing the
shares of Series A Preferred so converted. Upon such
surrender, the Corporation shall issue and deliver to each
holder of Series A Preferred stock certificates for the shares
of Common Stock issued as a result thereof, dated the date of
such Mandatory Conversion, and such holders shall be deemed
for all purposes to be the holders of such Common Stock as of
the date of such Mandatory Conversion. At the time of
conversion, the Corporation shall pay in cash to the holder
thereof an amount equal to all accrued but unpaid dividends on
the Series A Preferred, if any.
(e) STOCK FULLY PAID; RESERVATION OF SHARES. All shares of
Common Stock which may be issued upon conversion of Series A
Preferred will, upon issuance, be duly issued, fully paid and
nonassessable and free from all taxes, liens, and charges with
respect to the issue thereof. At all times that any Series A
Preferred is outstanding, the Corporation shall have
authorized, and shall have reserved for the purpose of
issuance upon such conversion, a sufficient number of shares
of Common Stock to provide for the conversion into Common
Stock of all Series A Preferred then outstanding, at the then
effective Conversion Price. Without limiting the generality of
the foregoing, if, at any time, the Conversion Price is
decreased, the number of shares of Common Stock authorized and
reserved for issuance upon the conversion of the Series A
Preferred shall be appropriately increased.
(f) ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF SHARES. The
number of shares of Common Stock issuable upon conversion of
Series A Preferred shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(i) SUBDIVISION OR COMBINATION OF SHARES. If the
Corporation at any time subdivides or combines the
outstanding Common Stock, the Conversion Price shall be
proportionately reduced, in the case of a subdivision of
shares, or shall be proportionately increased, in the case
of a combination of shares, as of the effective date of
such subdivision or combination or, if the Corporation
shall take a record of holders of its Common Stock for the
purpose of so subdividing or combining, as of such record
date, whichever is earlier.
(ii) CERTAIN DIVIDENDS AND DISTRIBUTIONS. If the
Corporation, at any time while any of the Series A
Preferred is outstanding, shall:
(A) STOCK DIVIDENDS. Pay a dividend payable in,
effect a split-up of, or make any other distribution
to holders of Common Stock payable in shares of
Common Stock and the Corporation has not declared
equivalent dividends on the Series A Preferred or
made equivalent distributions to the holders of
Series A Preferred as required pursuant to Section 3,
then the Conversion Price shall be adjusted, as of
the date the Corporation shall take a record of the
holders of its Common Stock for the purpose of
receiving such dividend, stock split or other
distribution (or if no such record is taken, as of
the date of such payment or other distribution), to
that price determined by multiplying the Conversion
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Price by a fraction (1) the numerator of which shall
be the total number of shares of Common Stock
outstanding, immediately prior to such dividend,
split-up or distribution and (2) the denominator of
which shall be the total number of shares of Common
Stock outstanding immediately after such dividend,
split-up or distribution (plus in the event that the
Corporation paid cash for fractional shares, the
number of additional shares which would have been
outstanding, had the Corporation issued fractional
shares in connection with said dividend, split-up or
distribution); or
(B) LIQUIDATING DIVIDENDS, ETC. Make a distribution
of its assets to the holders of its Common Stock
without an equivalent distribution to the holders of
Series A Preferred, as a dividend in liquidation or
partial liquidation or by way of return of capital or
other than as a dividend payable out of funds legally
available for dividends under the laws of the State
of Delaware, the holders of the Series A Preferred
shall, upon conversion thereof, be entitled to
receive, in addition to the number of shares of
Common Stock receivable thereupon, and without
payment of any consideration therefor, a sum equal to
the amount of such distribution as would have been
payable to them as owners of that number of shares of
Common Stock of the Corporation receivable upon such
conversion, had they been the holders of record of
such Common Stock on the record date for such
distribution; and an appropriate provision therefor
shall be made a part of any such distribution.
(iii) RECLASSIFICATION, CONSOLIDATION OR MERGER. If at any
time, as a result of: (a) a capital reorganization or
reclassification (other than a subdivision, combination or
dividend provided for in Section 4(f)(i) or Section
4(f)(ii)) or (b) a merger or consolidation of the
Corporation with another corporation (whether or not the
Corporation is the surviving corporation), the Common
Stock issuable upon the conversion of the Series A
Preferred shall be changed into or exchanged for the same
or a different number of shares of any class or classes of
stock of the Corporation or any other corporation, or
other securities convertible into such shares, then, as a
part of such reorganization, reclassification, merger or
consolidation, appropriate adjustments shall be made in
the terms of the Series A Preferred (or of any securities
into which the Series A Preferred is changed or for which
the Series A Preferred is exchanged), so that:
(A) the holders of Series A Preferred or of such
substitute securities shall thereafter be entitled to
receive, upon conversion of the Series A Preferred or
of such substitute securities, the kind and amount of
shares of stock, other securities, money and property
which such holders would have received at the time of
such capital reorganization, reclassification,
merger, or consolidation, if such holders had
converted their Series A Preferred immediately prior
to such capital reorganization, reclassification,
merger, or consolidation; and
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(B) the holders of Series A Preferred or of such
substitute securities shall thereafter be entitled to
receive, upon any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation or such other corporation, the amount
upon liquidation specified in Section 7; and
(C) the Series A Preferred or such substitute
securities shall thereafter be adjusted on terms as
nearly equivalent as may be practicable to the
adjustments theretofore provided in Section 4(f).
The provisions of this Section 4(f)(iii) shall similarly
apply to successive capital reorganizations,
reclassifications and, to the extent approved by the
holders of Series A Preferred, mergers and consolidations.
(iv) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(A) "Additional Shares of Common Stock" means all
shares of Common Stock issued by the Corporation
after the date of adoption of the Certificate of
Determination for Correctional Systems, Inc., a
California Corporation, filed with the California
Secretary of State on July 28, 1998, by its
stockholders, whether or not subsequently reacquired
or retired by the Corporation, other than:
(1) shares of Common Stock issued in
transactions giving rise to adjustments under
Sections 4(f)(i) through (iii);
(2) shares of Common Stock issued upon
conversion of shares of Series A Preferred;
(3) shares of Common Stock issuable upon
exercise of outstanding stock options to acquire
1,325,875 shares of Common Stock previously granted
by the Board;
(4) shares of Common Stock issuable upon
exercise of stock options to acquire 140,225 shares
of Common Stock to be granted pursuant to the 1996
Stock Option Plan;
(5) shares of Common Stock issuable upon
exercise of stock options to acquire shares of Common
Stock hereafter granted with the approval of the
Board; and
(6) shares of Common Stock issued and shares
of Common Stock issuable upon the exercise of any
options, warrants, or subscription rights granted
pursuant to or in connection with the acquisition by
the Corporation of another corporation by merger or
purchase of assets or other reorganization whereby
the Corporation acquires ownership of not less than
51% of the stock of such corporation.
(B) Except as otherwise provided in Section 4(f)(iv)
if at any time the Corporation issues Additional
Shares of Common Stock for a consideration per share
less than the Conversion Price in effect at the time
of such issuance, then the Conversion Price in effect
immediately
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prior to the issuance of such Additional Shares of
Common Stock shall be reduced to a price per share
equal to the consideration per share received for the
Additional Shares of Common Stock.
(v) CONVERTIBLE SECURITIES.
(A) The following terms shall have the meanings
ascribed below:
"Convertible Securities" means all rights or options
for the purchase of, stock or other securities
convertible into, Additional Shares of Common Stock
(as defined in Section 4(f)(iv), above) or other
Convertible Securities.
"Effective Price" with respect to any Convertible
Securities means the result of dividing: (i) the sum
of (x) the total consideration, if any, received by
the Corporation for the issuance of such Convertible
Securities, plus (y) the minimum consideration, if
any, payable to the Corporation upon exercise or
conversion of such Convertible Securities, plus (z)
the minimum consideration, if any, payable to the
Corporation upon exercise or conversion of any
Convertible Securities issuable upon exercise or
conversion of such Convertible Securities, by: (ii)
the maximum number of Additional Shares of Common
Stock issuable upon exercise or conversion of such
Convertible Securities or of any Convertible
Securities issuable upon exercise or conversion of
such Convertible Securities.
(B) If at any time the Corporation issues any
Convertible Securities with respect to which the
Effective Price is less than the Conversion Price (as
defined in Section 4(a), above) in effect at such
issuance, then effective automatically as of the
effectiveness of the issuance of the Convertible
Securities, the Conversion Price shall be adjusted to
a price per share equal to the Effective Price with
respect to such Convertible Securities.
(C) If adjustments have been made under this Section
4(f)(v) upon the issuance of any Convertible
Securities, then no further adjustment shall be made
under Section 4(f)(iv) upon the actual issuance of
Additional Shares of Common Stock upon the exercise
or conversion of such Convertible Securities, or upon
the issuance of Convertible Securities issuable upon
exercise or conversion of the original Convertible
Securities.
(D) If adjustments have been made under this Section
4(f)(v) upon the issuance of any Convertible
Securities and the rights, options or conversion
privilege represented by such Convertible Securities
(or by any Convertible Securities issued upon
exercise or conversion of the original Convertible
Securities) shall expire without having, been
exercised, the Conversion Price shall be re-adjusted,
effective upon such expiration, to eliminate the
effect of the adjustments previously made as a result
of the issuance of the rights, options or conversion
privileges which shall have expired (without
affecting shares of Common Stock already issued upon
the conversion of any shares of Series A Preferred
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already converted, and without affecting any other
adjustments made under this Section 4(f)).
(vi) VALUATION OF CONSIDERATION. For purposes of the
operation of Sections 4(f)(iv) and (f)(v), the
consideration received by the Corporation for any issue or
sale of securities shall:
(A) to the extent it consists of cash, be computed as
the aggregate amount of cash paid before deducting
any reasonable brokerage or underwriting commissions
or other expense paid or incurred by the Corporation
for the issuance and sale of such securities;
(B) to the extent it consists of property other than
cash, be computed at the fair value of that property
as determined in good faith jointly by the Board and
the holders of a majority of the then outstanding
Series A Preferred; and
(C) if Additional Shares of Common Stock or
Convertible Securities are issued or sold together
with other stock or securities or other assets of the
Corporation for a consideration that covers both, be
computed as the portion of the consideration so
received that may be reasonably determined in good
faith jointly by the Board and the holders of a
majority of the then outstanding Series A Preferred
to be allocable to such Additional Shares of Common
Stock or Convertible Securities.
(vii) OTHER ACTION AFFECTING COMMON STOCK. In the event
that after the date hereof the Corporation shall take any
action affecting its Common Stock, other than an action
described in any of the foregoing Sections 4(f)(i) through
4(f)(vi), inclusive, which would have an adverse effect
upon the conversion right of the Series A Preferred, the
Conversion Price shall be adjusted in such manner and at
such time as the Board may in good faith determine to be
equitable in the circumstances.
(g) NOTICE OF ADJUSTMENTS. Whenever any adjustment shall be
made pursuant to Subsection 4(f)(i) hereof, the Corporation
shall prepare a certificate signed by its President or a Vice
President and by its Treasurer, Assistant Treasurer, Secretary
or Assistant Secretary, setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board made
any determination hereunder), and the Conversion Price after
giving effect to such adjustment, and shall cause copies of
such certificate to be mailed (by first-class mail, postage
prepaid) to each holder of Series A Preferred at its address
shown on the books of the Corporation. The Corporation shall
make such certificate and mail it to each holder promptly
after each adjustment.
(h) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of Series A Preferred. If a
single holder shall surrender more than one share of Series A
Preferred for conversion at the same time, the number of full
shares of Common Stock issuable by the Corporation upon
conversion thereof shall be computed on the basis of the
aggregate number of shares of
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Series A Preferred so surrendered. In lieu of any fractional
shares to which a holder would otherwise be entitled on
conversion of Series A Preferred, the Corporation shall pay
the holder cash equal to the product of such fraction
multiplied by the fair market value of one share of the
Common Stock on the date of, conversion, as determined in
good faith by the Board.
5 RESTRICTED ACTS. As long as any shares of Series A Preferred are
outstanding the Corporation shall not, without the affirmative vote or
written consent of the holders of at least a majority of then
outstanding Series A Preferred:
(a) authorize, create or issue any shares of any Additional
Shares of Common Stock or any Convertible Securities; or
(b) issue any instrument or security exercisable for or
convertible into shares of Series A Preferred, or issue shares
of Series A Preferred other than the first 3,363,636 shares
issued; or
(c) enter into, or permit any Subsidiary to enter into, any
agreement, indenture or other instrument which contains any
provisions restricting the payment of dividends on the Series
A Preferred. "Subsidiary" means (a) any corporation at least
50% of whose outstanding Voting Stock is owned by the
Corporation or by one or more Subsidiaries or by the
Corporation and one or more Subsidiaries, (b) any partnership
of which the Corporation or one or more Subsidiaries is a
general partner or for which the Corporation or one or more
Subsidiaries possesses the power to direct the affairs of the
partnership and (c) any limited liability company of which the
Corporation or one or more Subsidiaries is a manager or a
member-manager or for the which the Corporation or one or more
Subsidiaries possesses the power to direct the affairs of the
limited liability company; or
(d) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose) any
share or shares of Series A Preferred; or
(e) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any shares of
Common Stock, provided, however, that this restriction shall
not apply to (i) the repurchase by resolution of the Board of
shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the
Corporation or any Subsidiary pursuant to agreements under
which the Corporation has the option to repurchase such shares
upon the occurrence of certain events, such as the termination
of employment or (ii) the cancellation of shares of Common
Stock subject to forfeiture; or
(f) merge the Corporation with or into any other person or
entity or other form of corporate reorganization in which the
Corporation shall not be the continuing or surviving entity
(other than a reincorporation transaction) or sell all or the
majority of the corporation's assets; or
(g) amend its Articles of Incorporation or Bylaws; or
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(h) incur funded indebtedness, capitalized lease obligations
or guarantees of third party debt, in each case involving an
amount in excess of $3,000,000; or
(i) engage an investment bank, consultant, or other advisor
for the purpose of raising capital or refinancing securities
or indebtedness or for selling or merging the Corporation; or
(j) engage in any transaction which could involve a conflict
of interest or which involves dealings between the
Corporation, insiders or affiliates; or
(k) declare or pay any dividend other than pursuant to Section
3 of this Article IV; or
(l) enter into any agreement, commitment or plan of merger,
reorganization or consolidation that would result in the
Corporation acquiring any business entity, or any division or
segment of a business entity; or
(m) file a registration statement under the Securities Act.
6. NO REISSUANCE OF SERIES A PREFERRED. No share or shares of Series A
Preferred acquired by the Corporation by reason of redemption,
purchase, or otherwise shall be reissued, and all such shares shall be
deemed canceled, retired and eliminated from the shares which the
Corporation shall be authorized to issue.
7. LIQUIDATION RIGHTS.
(a) If the Corporation shall be voluntarily or involuntarily
liquidated, dissolved or wound up, the holders of the Series A
Preferred shall be entitled to receive, prior and in
preferences to any distribution to the holders of Common
Stock, out of funds legally available for distribution to the
stockholders after payment of the debts and liabilities of the
Corporation, an amount (the "Series A Liquidation Preference")
per share equal to the Series A Issue Price, together with an
amount equal to all accrued but unpaid dividends on the Series
A Preferred. Upon distribution of the Series A Liquidation
Preference, all remaining assets of the Corporation shall be
distributed to the holders of Common Stock and Series A
Preferred, pro rata in accordance with the number of Common
shares held by each of them, assuming for such purpose that
the Series A Preferred has been converted into Common Stock
after making all adjustments provided for hereunder.
(b) If, upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to
be distributed to the holders of Series A Preferred shall be
insufficient to permit the payment in full to such holders of
the aggregate Series A Preferred Liquidation Preference
pursuant to Section 7(a), then all of the assets of the
Corporation shall be distributed ratably to the holders of the
Series A Preferred.
(c) The provisions of this Section 7 shall not apply following
or in connection with a Qualified Public Offering.
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(d) For purposes of this Section 7, a sale of all or
substantially all of the assets of the Corporation or a merger
or other combination of the Corporation with or into any other
person or entity shall not be treated as a liquidation,
dissolution or winding up of the Corporation for purposes of
this Section 7, but shall be treated pursuant to Section 4,
above.
(e) If the price per share of Common Stock at the time of such
liquidation or dissolution is at least 350% of the Conversion
Price then in effect, the provisions of this Section 7 shall
not apply.
(f) Whenever the distribution provided in this Section 7 shall
be payable in securities or property other than cash, the
value of such distribution shall be the fair market value of
such securities in other property as determined in good faith
by the Board.
The Corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common shares if at
any time the number of Common shares remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
No holders of shares of the corporation of any class, now or hereafter
authorized, shall have any preferential or preemptive rights to subscribe for,
purchase or receive any shares of the corporation of any class, now or hereafter
authorized, or any options or warrants for such shares, or any rights to
subscribe for, purchase or receive any securities convertible to or exchangeable
for such shares, which may at any time be issued, sold or offered for sale by
the corporation, except in the case of any shares of Preferred Stock to which
such rights are specifically granted by any resolution or resolutions of the
Board of Directors adopted pursuant to this Article IV.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized to
make, alter, amend, or repeal the Bylaws of the Corporation.
ARTICLE VII
The name and mailing address of the incorporator is as follows: John R.
Forren, President, Correctional Systems, Inc., 6910-A Miramar Road, Suite 200,
San Diego, California 92121.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change, or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by the laws of the State of Delaware, and all rights
conferred herein are granted subject to this reservation.
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ARTICLE IX
A. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
B. The Corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article IX, nor the
adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article IX, shall eliminate or reduce the effect of this
Article IX, with respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article IX, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the laws of the State of Delaware)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the Corporation.
IN WITNESS WHEREOF, the undersigned incorporator hereby acknowledges
that the foregoing Certificate of Incorporation is her act and deed and that the
facts stated herein are true.
-------------------------------------
JOHN R. FORREN
Incorporator
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EXHIBIT 2.2
BYLAWS
OF
CORRECTIONAL SYSTEMS, INC.
ARTICLE I
Applicability
Section 1. Applicability of Bylaws.
These Bylaws govern, except as otherwise provided by statute or its
Certificate of Incorporation, the management of the business and the conduct of
the affairs of the Corporation.
ARTICLE II
Offices
Section 1. Registered Office.
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
Delaware 19805. The name of the registered agent of the Corporation at such
address is The United States Corporation Company.
Section 2. Principal Executive Offices.
The location of the principal executive offices of the Corporation
is 6910A Miramar Road, Suite 200, San Diego, CA 92121.
Section 3. Other Offices, Changes in Offices.
The Board of Directors may establish other offices at any place or
places within or without the State of Delaware. Further, the Board of Directors
may change any office from one location to another or eliminate any office or
offices.
ARTICLE III
Meetings of Stockholders
Section 1. Place of Meetings.
Meetings of the stockholders shall be held at any place within or
without the State of Delaware designated by the Board of Directors, or, in the
absence of such designation, at the
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principal executive office of the Corporation.
Section 2. Annual Meetings.
An annual meeting of the stockholders shall be held within 180 days
following the end of the fiscal year of the Corporation at a date and time
designated by the Board of Directors. Directors shall be elected at each annual
meeting and any other proper business may be transacted thereat.
Section 3. Special Meetings.
Special meetings of the stockholders may be called for any purpose and
unless otherwise proscribed by law may be called by a majority of the Board of
Directors, the Chairman of the Board or the President. No business may be
transacted at a special meeting unless the general nature thereof was stated in
the notice of such meeting.
Section 4. Notice of Annual, Special or Adjourned Meetings.
(a) Except as provided in Sections 229 and 230 of the Delaware General
Corporation Law or as otherwise provided by applicable law, a written notice of
each meeting of stockholders shall be given in the manner described in
subdivision (c) of this section not less than 10 nor more than 60 days before
the date thereof to each stockholder entitled to vote thereat. The notice shall
state the place, date and hour of the meeting and (1) in the case of a special
meeting, the general nature of the business to be transacted or (2) in the case
of the annual meeting, those matters which the Board of Directors, at the time
of the giving of the notice, intend to present for action by the stockholders
including, whenever directors are to be elected at a meeting, the names of
nominees intended at the time of giving of the notice to be presented by the
Board for election.
(b) Notice need not be given of an adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken,
except that if the adjournment is for more than 30 days or if after the
adjournment a new record date is established for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote thereat.
(c) Notice of any meeting of the stockholders or any report shall be
given either personally or by depositing such notice in the United States Mail,
postage prepaid, addressed to the stockholder at his or her address appearing on
the books of the Corporation or given by him or her to the Corporation for the
purpose of notice or as otherwise known by the Secretary of the Corporation; or
by transmitting a notice thereof to such address by telegraph, cable or
certified delivery service (such as Federal Express, DHL, or the like). Except
as otherwise required by law, no publication of any meeting of stockholders
shall be required.
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An affidavit of mailing of any notice or report in accordance with the
provisions of these Bylaws or the Delaware General Corporation Law, executed
by the Secretary, Assistant Secretary or any transfer agent of the
Corporation, shall be prima facie evidence of the giving of the notice or
report.
Section 5. Record Date.
(a) The Board of Directors may fix a time in the future as a record
date for the determination of the stockholders (1) entitled to notice of any
meeting or to vote thereat, (2) entitled to receive payment of any dividend or
other distribution or allotment of any rights or (3) entitled to exercise any
rights in respect of any other lawful action. The record date so fixed shall be
not more than 60 nor less than 10 days prior to the date of any meeting of the
stockholders nor more than 60 days prior to any other action.
(b) In the event no record date is fixed:
(1) The record date for determining the stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the
close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is held;
and
(2) The record date for determining stockholders entitled to
give consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors has been taken, shall be the
date on which the first signed written consent setting forth the action
taken is delivered to the Corporation by delivery to (i) its registered
office in the state, (ii) its principal place of business, or (iii) the
officer or agent of the Corporation having custody of the book in which
the proceedings of meetings of stockholders are recorded; and
(3) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating to such other action, or
the 60th day prior the date of such other action, whichever is later.
(c) Only stockholders of record on the close of business on the record
date are entitled to notice and to vote or to receive a dividend, distribution
or allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer or any shares on the books of the Corporation after
the record date.
(d) A determination of stockholders of record entitled to notice of and
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board shall fix a new record date if the meeting is adjourned
for more than 30 days from the date set for the original meeting.
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Section 6. Quorum.
(a) The holders of a majority of the shares entitled to vote at a
meeting of the stockholders, represented in person or by proxy, shall constitute
a quorum for the transaction of business thereat unless otherwise provided by
statute or the Certificate of Incorporation.
(b) Except as provided in Section 6(c), the affirmative vote of a
majority of the shares represented and voting at a duly held meeting at which a
quorum is present (which shares voting affirmatively also constitute at least a
majority of the required quorum), shall be the act of the stockholders, unless
the vote of a greater number is required by statute or the Certificate of
Incorporation.
(c) The stockholders present at a duly called or held meeting at which
a quorum is present may continue to transact business until adjournment not
withstanding the withdrawal of enough stockholders to leave less than a quorum,
if any action taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum. If a quorum is not present or
represented at any meeting of stockholders, a majority of the voting interests
present or represented shall have the power to adjourn such meeting from time to
time, without notice other than announcement of same at the meeting.
Section 7. Adjournment.
Any meeting of the stockholders may be adjourned from time to time,
whether or not a quorum is present, by the vote of a majority of the shares
represented thereat either in person or by proxy. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting.
Section 8. Validation of Defectively Called, Noticed or Held Meetings.
(a) The transactions of any meeting of the stockholders, however called
and noticed, and whenever held, are as valid as though they had taken place at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote thereat, not present in person or by proxy, signs a
written waiver of notice or a consent to the holding of the meeting or an
approval of the minutes thereof. All such waivers, consents and approvals shall
be filed with corporate records or made a part of the minutes of the meeting.
(b) Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except (1) when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened and (2) that attendance at a meeting is not a waiver
of any right to object to the consideration of any matter required by the
Delaware Corporation Law to be included in the notice but not so included, if
such
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objection is expressly made at the meeting.
(c) Any written waiver of notice shall comply with Section 229 of the
Delaware Corporations Law.
Section 9. Voting.
(a) Except as otherwise provided in the Certificate of Incorporation,
each stockholder shall be entitled to one vote in person or by proxy for each
share of capital stock having voting power held by such stockholder.
(b) Every person entitled to vote shares may authorize another person
or persons to act with respect to such shares by proxy as provided in Section
212 of the Delaware Corporations Law. A proxy shall be deemed validly granted if
signed stockholder or its authorized officer, director, employee or his or agent
or if the stockholder's signature is affixed thereto by any reasonable means,
including, but not limited to facsimile signature. Any duly executed proxy shall
continue in full force and effect until the expiration of the term specified
therein or upon its earlier revocation by the person executing it prior to the
vote pursuant thereto (1) by a writing delivered to the Corporation stating that
it is revoked, (2) by a subsequent proxy executed by the person executing the
prior proxy and presented to the meeting or (3) as to any meeting, by attendance
at the meeting and voting in person by the person executing the proxy. No proxy
shall be valid after the expiration of 3 years from the date thereof unless
otherwise provided in the proxy.
Section 10. List of Stockholders Entitled to Vote.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
Section 11. Inspectors of Election.
(a) In advance of any meeting of the stockholders, the Board of
Directors may appoint
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either one or more persons (other than nominees for the office of director)
as inspectors of election to act at such meeting or any adjournments thereof.
If inspectors of election are not so appointed, or if any person so appointed
fails to appear or refuses to act, the chairman of any such meeting may
appoint inspectors of elections (or persons to replace those who so fail or
refuse to act) at the meeting. Each inspector so appointed, before entering
upon the discharge of his or her duties, shall first take and sign an oath
faithfully to execute the duties of a inspector at with strict impartiality
and according to the best of such person's ability.
(b) The duties of inspectors of election and the manner of performance
thereof shall be as prescribed in Section 231 of the Delaware Corporation Law.
Section 12. Action by Written Consent
(a) Unless otherwise provided in the Certificate of Incorporation, any
action which may be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without a vote and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes which
would be necessary to authorize or take such action at a meeting in which all
shares entitled to vote thereon were present and voted. All such consents shall
be filed with the Secretary of the Corporation and maintained with the corporate
records.
(b) Prompt notice of any stockholder approval without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE IV
Directors
Section 1. Powers.
Subject to the provisions of the Delaware General Corporation Law and
any limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
Section 2. Number and Election of Directors.
(a) The authorized number of directors of the Corporation shall be not
less than three (3) nor more than seven (7). The exact number of directors shall
be fixed from time to time, within the limits of these Bylaws, by a Bylaw
amendment duly adopted by the shareholders or the Board of Directors. The exact
number of directors shall be five (5) until such an
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amendment has been effected.
(b) Except as provided in Subsection (c) below, Directors shall be
elected at each annual meeting of the stockholders. Each director, including a
director elected to fill a vacancy, shall hold office until the expiration of
the term for which he is elected and until a successor has been elected.
(c) Vacancies on the Board of Directors may be filled by a majority of
the directors then in office, whether or not less than a quorum, or by a sole
remaining director. A vacancy in the Board of Directors exists whenever any
authorized position of director is not then filled by a duly elected director,
whether caused by death, resignation, removal, change in the authorized number
of directors or otherwise.
(d) If, at the time of filing any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Delaware Court of Chancery may, upon application of any stockholder or
stockholders holing at least ten (10) percent of the total number of the shares
at the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships or to replace the directors chosen by the directors then in office
as aforesaid, which election shall be governed by the provisions of Section 211
of the Delaware General Corporation Law as far as applicable.
Section 3. Resignation or Removal.
(a) Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors of
the Corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the resignation is effective at a future time, a
successor may be elected to take office when the resignation becomes effective.
(b) Any or all of the directors may be removed, with or without cause,
if such removal is approved by a majority of the outstanding shares entitled to
vote at an election of directors, except as follows:
(i) Unless the Certificate of Incorporation otherwise
provides, if the Corporation shall have a classified board,
stockholders may effect such removal only for cause; or
(ii) If the Corporation has cumulative voting, unless the
entire Board of Directors is removed, no director may be removed
without cause if the votes cast against removal would be sufficient to
elect such director, if then cumulatively voted, at an election of the
entire board, or, if there be classes of directors, at an election of
the class of directors of which such director is a part.
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Section 4. Fees and Compensation.
Directors may be reimbursed for their expenses, if any, for attendance
at each meeting of the Board of Directors and may be paid a fixed sum determined
by resolution of the Board for attendance at each such meeting. No such payments
shall preclude any director from serving the corporation in any other capacity
and receiving compensation in any manner therefor.
Section 5. Approval of Loans to Officers
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer, or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under statute.
ARTICLE V
Committees of the Board of Directors
Section 1. Designation of Committees.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate (1) one or more committees, each
consisting of two or more directors and (2) one or more directors as alternate
members of any committee, who may replace any absent members at any meeting of
the committee. The appointment of members or alternative members of a committee
requires the vote of a majority of the authorized number of directors. Any
member or alternate member of a committee shall serve at the discretion of the
Board.
Section 2. Powers of Committees.
Any committee, to the extent provided in the resolution of the Board of
Directors designating such committee or these Bylaws, shall have all the
authority of the Board, except with respect to:
(a) The approval of any action for which the Delaware General
Corporation Law also requires an action by the stockholders;
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(b) The amendment or appeal of the Certificate of Incorporation or
these Bylaws, the adoption of new bylaws, or the fixing of designations and the
preferences or rights of any stock of the Corporation;
(c) Adoption of any agreement of merger or consolidation under Sections
251 or 252 of the Delaware General Corporation Law.
(d) The recommendation to the stockholders of a sale, lease or exchange
of all or substantially all of the assets, property or voting stock of the
Corporation;
(e) A distribution to the stockholders of the Corporation, except at a
rate or in a periodic amount or within a price range determined by the Board of
Directors;
(f) The filling of vacancies on or fixing of compensation of directors
for serving on the Board or any committee thereof; or
(g) The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable.
ARTICLE VI
Meetings of the Board of Directors
and Committees Thereof
Section 1. Place of Meetings.
Regular meetings of the Board of Directors shall be held at any place
within or without the State of Delaware which has been designated from time to
time by the Board or, in the absence of such designation, at the principal
executive office of the Corporation. Special meetings of the Board shall be held
either at any place within or without the State of Delaware which has been
designated in the notice of the meeting or, if not stated in the notice or there
is no notice, at the principal executive office of the Corporation.
Section 2. Organization Meeting.
Immediately following each annual meeting of the shareholders, the
Board of Directors shall hold a regular meeting for the purposes of organization
and the transaction of other business. Notice of any such meeting is not
required.
Section 3. Regular Meetings.
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Regular meetings of the Board of Directors shall be held without call
at such time as shall be designated from time to time by the Board. Notice of
any such meeting is not required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called at any time
for any purpose or purposes by the Chairman of the Board, the President, any
vice president, the Secretary or any two directors (if there shall be three or
more directors) or any director (if there shall be less than three directors).
Notice shall be given of any special meeting of the Board of Directors.
Section 5. Notice of Special Meetings.
(a) Notice of the time and place of Special meetings of the Board of
Directors shall be delivered personally or by telephone to each director or sent
to each director by first-class mail or telegraph or confirmed facsimile
transmission, charges prepaid. Such notice shall be given four days prior to the
holding of the special meeting if sent by mail or 48 hours prior to the holding
thereof if delivered personally or given by telephone, telegraph or facsimile
transmission. The notice shall be deemed to have been given at the time when
delivered personally to the recipient director or a person at the office of such
recipient director who the person giving the notice reasonably believes will
promptly communicate it to the director; or deposited in the mail or sent by
other means of written communication.
(b) Notice of any special meeting of the Board of Directors need not
specify the purpose thereof and need not be given to any director (1) who signs
a waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (2) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to him. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes.
Section 6. Quorum; Telephone Meetings; Adjournment.
(a) A majority of the authorized number of directors shall constitute a
quorum for the transaction of business. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present is the act of the Board of Directors, unless action by a greater
proportion of the directors is required by law or by the Certificate of
Incorporation.
(b) A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
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(c) Members of the Board of Directors may participate in a meeting
through use of conference telephone or similar communications equipment, so long
as all members participating in such meeting can hear one another.
(d) A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. If the meeting is
adjourned for more than 48 hours, notice of any adjournment to another time or
place shall be given, prior to the time of such adjourned meeting, to the
directors who were not present at the time of the adjournment.
Section 7. Action Without a Meeting.
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, if all members of the Board, individually or
collectively, consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board. Such
action by written consent shall have the same force and effect as a unanimous
vote of such directors.
Section 8. Meetings of and Action by Committees.
The provisions of this article apply mutatis mutandis to committees of
the Board of Directors and incorporators and actions by such committees and
incorporators.
ARTICLE VII
Officers
Section 1. Officers
The Corporation shall have as officers, a president, a secretary and a
chief financial officer. The chief financial officer shall be the treasurer of
the Corporation unless the Board of Directors has by resolution designated that
treasurer shall be a separate office. The Corporation may also have, at the
discretion of the Board, a Chairman of the Board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers and such
other officers as may be appointed in accordance with the provisions of Section
3 of this article. One person may hold more than one office.
Section 2. Election of Officer.
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 3 or 5 of this article,
shall be chosen by the Board of Directors.
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Section 3. Subordinate Officers, Etc.
The Board of Directors may appoint by resolution, and may empower the
Chairman of the Board, if there be such an officer, or the President, to appoint
such other officers as the business of the Corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are determined from time to time by resolution of the Board or, in the
absence of any such determination, as are provided in these Bylaws. Any
appointment of an officer shall be evidenced by a written instrument filed with
the Secretary of the Corporation and maintained with the corporate records.
Section 4. Removal and Resignation.
(a) Any officer may be removed, either with or without cause, by the
Board of Directors or, except in case of any officer chosen by the Board, by any
officer upon whom such power of removal be conferred by resolution of the Board.
(b) Any officer may resign at any time effective upon giving written
notice to the Chairman of the Board, President, any vice president or Secretary
of the Corporation, unless the notice given pursuant hereto specifies a later
time for the effectiveness of such resignation.
Section 5. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to such office.
Section 6. Chairman of the Board.
If there is a Chairman of the Board, he shall, if present, preside at
all meetings of the Board of Directors, exercise and perform such other powers
and duties as may be from time to time assigned to him by resolution of the
Board, and if there is no president, the Chairman of the Board shall be the
chief executive officer of the Corporation and have the power and duties set
forth in Section 7 of this article.
Section 7. President
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the Chairman of the Board, if there be such an officer,
the President shall be the chief executive officer and general manager of the
Corporation and shall, subject to control of the Board, have general
supervision, direction and control of the business and affairs of the
Corporation. He shall preside at all meetings of the stockholders and, in the
absence of the
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Chairman of the Board, or if there be none, at all meetings of the Board. He
shall have the general powers and duties of management usually vested in the
office of president of a corporation, and shall have such other powers and
duties as may be prescribed from time to time by resolution of the Board.
Section 8. Vice President
In the absence or disability of the President, the vice presidents in
order of their rank as fixed by the Board of Directors or, if not ranked, the
Vice President designated by the Board, shall perform all the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restriction upon, the President. The vice presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board or as the President may from time
to time delegate.
Section 9. Secretary
(a) The Secretary shall keep or cause to be kept: (1) the minute book,
(2) the share register and (3) the seal, if any, of the Corporation.
(b) The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required by these
Bylaws or by law to be given, and shall have such other powers and perform such
other duties as may be prescribed from time to time by the Board or as the
President may from time to time delegate.
Section 10. Chief Financial Officer
(a) The Chief Financial Officer, who shall also be designated as the
Treasurer, shall keep, or cause to be kept, the books and records of account of
the Corporation.
(b) The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated from time to time by resolution of the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, shall render to the President and the Board, whenever
they request it, an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed from time to
time by the Board or as the President may from time to time delegate.
ARTICLE VIII
Record and Reports
Section l. Maintenance of Records.
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The Corporation shall keep or cause to be kept in written form at its
principal executive office or such other place as the Board of Directors may
order:
(a) a minute book which shall contain a record of all actions by its
stockholders, Board of Directors or committees of the Board; including (1) the
time, date and place of each meeting, (2) the manner of giving notice of each
meeting and copy thereof, (3) the names of those present at each meeting of the
Board or committees thereof, (4) the number of shares present or represented at
each meeting of the stockholders, (5) the proceedings of all meetings, (6) any
written waivers of notice, consents to the holding of a meeting or approvals of
the minutes thereof and (7) written consents for action without a meeting;
(b) a share register, or a duplicate share register, which shall
contain (1) the names of the stockholders and their addresses, (2) the number
and classes of shares held by each, (3) the number and date of certificates
issued for the same and (4) the number and date of cancellation of every
certificate surrendered for cancellation;
(c) the original or a copy of the Bylaws as amended to date; and
(d) adequate and correct books and records of account.
Section 2. Inspection of Records.
(a) Any stockholder or record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorized the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
(b) Any director shall have the right to examine the Corporation's
stock ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Delaware Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the
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inspection, or award such other and further relief as the Court may deem just
and proper.
Section 3. Annual Statement to Stockholders.
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the Corporation.
ARTICLE IX
General Matters
Section 1. Checks, Drafts, Etc.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, and any assignment or endorsement thereof, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board of Directors.
Section 2. Contracts and other Corporate Instruments.
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, agents or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized or ratified by the Board, no officer,
employee or other agent shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or to any amount.
Section 3. Certificates of Stock.
All certificates shall be signed in the name of the Corporation by the
Chairman of the Board or the President or a vice president and by the Secretary
or an assistant secretary or the treasurer or an assistant treasurer, certifying
the number of shares and the class or series thereof owned by stockholder. Any
or all of the signatures on a certificate may be by facsimile signature. In case
any officer, transfer agent who has signed or whose facsimile signature has been
placed upon certificate shall have ceased to be such officer, transfer agent or
registrar
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before such certificate is issued, it may be issued by the Corporation with
the same effect as if such person were an officer, transfer agent or
registrar as of the date of issue.
Section 4. Lost Certificates.
Except as provided in this section, no new certificate for shares shall
be issued at any time. The Board of Directors may in case any share certificate
or certificate for any other security is lost, stolen or destroyed, authorize
the issuance of a new certificate in lieu thereof, upon such terms and
conditions as the Board may require, including provision for indemnification of
the Corporation secured by a bond or other adequate security sufficient to
protect the Corporation against any claim that may be made against it, including
any expense or liability, on account of the alleged loss, theft or destruction
of such certificate or the issuance of such new certificate.
Section 5. Transfer of Stock.
(a) Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
(b) The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholder in any manner not
prohibited by the Delaware General Corporation Law.
Section 6. Registered Holders.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares (1) to receive dividends
and to vote as such owner and (2) to hold liable for calls and assessments the
person registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of another person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State of Delaware.
Section 7. Dividends.
The directors of the Corporation, subject to any restrictions contained
in (i) the Delaware General Corporation Law or (ii) the Certificate of
Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in
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property, or in shares of the Corporation's capital stock. The directors of
the Corporation may set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and may
abolish any such reserve. Such purposes shall include, but not be limited to,
equalizing dividends, repairing or maintaining any property or the
Corporation.
Section 8. Fiscal Year.
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
Section 9. Seal.
The corporation may adopt a corporate seal, which may be altered at the
discretion of the Board of Directors, and may use same by causing it or a
facsimile of it to be impressed or affixed or in any other manner reproduced.
Section 10. Representation of Shares of Other Corporations.
Any person designated by resolution of the Board of Directors or, in
the absence of such designation, the Chairman of the Board, the President or any
vice president or the Secretary, or any other person authorized by any of the
foregoing, is authorized to vote on behalf of the Corporation any and all shares
of any other corporation or corporations, foreign or domestic, owned by the
Corporation.
Section 11. Construction and Definitions.
Unless the context otherwise requires, the general provisions, rules of
construction and definitions contained in the Delaware General Corporation Law
shall govern the construction of these Bylaws.
Section 12. Amendments.
New Bylaws may be adopted or these Bylaws may be amended or repealed by
the affirmative vote of a majority of the outstanding shares entitled to vote.
Subject to the next preceding sentence, the Certificate of Incorporation may
also confer upon the Board of Directors the power to adopted, amended or
repealed bylaws.
ARTICLE X
Indemnification
(a) The Corporation shall indemnify any person who was or is a party or
is threatened
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to be made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Corporation) by reason of the fact
that he is or was a director or officer of the Corporation, or that such
director or officer is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture trust or other enterprise (collectively "Representative"),
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement (if such settlement is approved in advance by an
independent board of Directors in the manner described in Section (d), which
approval shall not be unreasonably withheld) actually and reasonably incurred
in connection with such action, suit or proceeding if he or she acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not,
of itself, create a resumption that the person did not act in good faith and
in a manner which reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he or she is or was a Representative against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such action or suit if he or she acted in good
faith and in manner reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
(c) To the extent that a Representative of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections (a) and (b), or in defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred in connection
therewith.
(d) Any indemnification under Sections (a) and (b) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that the indemnification of the Representative is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in Sections (a) and (b). Such determination shall be
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made (1) by the Board of Directors or the Executive Committee by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding or (2) or if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he or she is not entitled to be indemnified
by the Corporation as authorized in this Article X. Such expenses (including
attorney's fees) incurred by other employees or agents may be paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate;
provided, however, the Corporation shall indemnify any such party where required
to do so by law.
(f) The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this Article shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
(g) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a Representative of the
Corporation, or is or was serving at the request of the Corporation, as a
Representative against any liability asserted against and incurred by him or her
in any such capacity, or arising out of such status, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article X.
(h) For purposes of this Article X, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors and officers, and
employees or agents, so that any person who is or was a Representative of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a Representative, shall stand in the same position under and
subject to the provisions of this Article X (including, without limitation the
provisions of Section (d) with respect to the resulting or surviving corporation
as he or she would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this Article X, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the
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Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
in this Article X.
(j) The Corporation shall, if and to the extent the Board of Director
so determines by resolution, purchase and maintain insurance in any amount, or
establish a trust or other designated account, grant a security interest or use
other means, to ensure the payment of certain of its obligations arising under
this Article X and/or agreements which may be entered into between the
corporation and its officers and directors from time to time.
(k) Each director, officer and employee shall be a third party
beneficiary to the provisions of this Article X. If this Article or any portion
thereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director,
officer, employee, agent or Representative of the Corporation against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
with respect to any action, suit , proceeding or investigation, whether civil,
criminal or administrative, and whether internal or external, including a grand
jury proceeding and an action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article that shall not have been invalidated, or by any other applicable law.
* * * * *
CERTIFICATE
This is to certify that the foregoing is a true and correct copy of the
Bylaws of Correctional Systems, Inc., and that such Bylaws were duly adopted by
the Board of Directors of said Corporation as of the date set forth below.
DATED:
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Gary D. Maynard, Secretary
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EXHIBIT 6.1
CITY DETENTION FACILITY
OPERATIONS AND MANAGEMENT AGREEMENT
(Corrections Services, Inc. and
the City of Alhambra)
THIS AGREEMENT is dated as of March 28, 1997, by and between the City
of Alhambra, California, a municipal corporation ("City") and Corrections
Services, Inc., a California corporation ("Operator").
RECITALS
WHEREAS, City owns existing jail and detention facilities which will,
after remodeling, house and care for non-high-risk prisoners; and
WHEREAS, City and Operator desire to enter into an agreement whereby
Operator will provide the operation, management and supervision of a detention
facility located in City's existing jail and detention facilities in accordance
with the laws, rules, regulations, and procedures of the State of California;
and
WHEREAS, City and Operator are authorized to enter into this Agreement
under applicable law;
NOW, THEREFORE, in consideration of performance by the parties of the
covenants and conditions herein contained, the parties hereto agree as follows:
1. Definitions
A. "ACA" shall mean the American Correctional Association or its
designated successor whose headquarters are presently at 4321 Harwick Road,
College Park, Maryland 20740.
B. "ACA Standards" shall mean the Standards For Adult Local Detention
Facilities (Second Edition, April 1981, as heretofore supplemented and as same
may be modified, amended, supplemented, or supplanted in the future) published
by ACA.
C. "Assigning Agency" shall mean any federal, state or local agency
which may lawfully assign an Inmate to the Detention Facility and which has
executed an Intergovernmental Service Agreement.
D. "Board" shall mean the State of California Board of Corrections.
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E. "Certification Date" shall mean the date upon which the Detention
Facility is certified by the Board to receive Inmates.
F. "Chief of Police" shall mean the Chief of Police of City.
G. "City's Facility Representative" shall mean the person who is the
Official liaison between City and Operator on all matters pertaining to the
operation and management of the Detention Facility.
H. "Custody Criteria" shall mean those criteria used to determine an
Inmate's Custody Level and shall normally include, to the extent known to the
Operator, the Inmate's offense history, present offense, escape history, history
of violence, drug use or addiction, alcohol use or addiction, psychological
status, and present behavior.
I. "Custody Level" shall normally mean a custody designation of ether
Minimum Custody or Medium Custody which describes appropriate and adequate
supervision and housing assignments commensurate with the on-going needs and
requirements of the Inmate during his incarceration and is based on the Custody
Criteria.
J. "Day" shall mean a twenty-four (24) hour time period beginning with
twelve o'clock midnight and ending twenty-four hours later.
K. "Detention Facility" shall mean the facility located in the Police
Department Building, which shall house non-high-risk Inmates in accordance with
the applicable Minimum Standards.
L. "Department" shall mean the State of California Department of
Corrections.
M. "Employee" shall mean every person in the service of Operator under
any appointment or contract of hire or apprenticeship, express or implied, oral
or written, whether lawfully or unlawfully employed.
N. "Facility Revenue" shall mean all income or other receipts as
described in Section 10, Facility Revenue, which shall be received directly by
City or delivered by Operator to City.
0. "Fiscal Year" shall mean City's fiscal year commencing on July 1,
and ending as of June 30, of each year.
P. "For Cause" shall mean a material failure by either party to meet
the provisions of this Agreement or the failure of Operator to meet the
applicable Minimum Standards when such failure to meet the applicable Minimum
Standards affects the Operation of the Detention Facility.
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Q. "Force Majeure" shall mean the failure of performance of any of the
terms and conditions of this Agreement resulting from acts of God.
R. "Inmate" shall mean any Non-High-Risk male or female arrestee who is
to be lawfully held at the Detention Facility by City or pursuant to an
Intergovernmental Service Agreement and who is classified as Minimum Custody or
Medium Custody.
S. "Intergovernmental Service Agreement" shall mean an agreement
between City and any Assigning Agency whereby City and the Assigning Agency
agree to the terms and conditions whereby the Assigning Agency's Inmates shall
be booked and held in custody at the Detention Facility.
T. "Medium Custody" shall mean that Custody Level appropriate to an
Inmate who is classified as eligible to be assigned to the Detention Facility
but who is not eligible to be assigned to the least secure housing in the
Detention Facility and may not work outside of the Detention Facility's area.
U. "Minimum Custody" shall mean that Custody Level appropriate to an
Inmate who is classified as eligible to be assigned to the Detention Facility
and is eligible to be assigned to the least secure housing in the Detention
Facility, but may not work outside of the Detention Facility's area.
V. "Minimum Standards" shall mean the applicable federal, state, and
City requirements, laws, and statutes, applicable court orders, Board standards
(including but not limited to Title 15 of the California Code of Regulations),
Los Angeles County Health Department Rules and Regulations and ACA standards,
whether now in effect or hereafter effected or implemented, as applicable to the
Detention Facility, except as waived by City or State. Where a conflict exists
between Federal and State requirements, laws, statutes, and applicable court
orders, the Board's Standards shall apply.
W. "Perishables" shall mean those items that are easily destroyed or
spoiled.
X. "Police Department Building" shall mean the Alhambra Police
Department budding located at 211 South First Street, Alhambra, California,
which also houses the DETENTION Facility.
Y. "Service Commencement Date" shall mean the date upon which the
Operator commences the provision of operational and management services for the
Detention Facility.
2. Purpose
A. PURPOSE. The purpose of this Agreement is to establish the terms and
conditions under which Operator will operate and maintain the Detention
Facility.
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B. NATURE OF OPERATIONS. Operator shall operate, manage, supervise,
and maintain the Detention Facility for City in order to properly receive,
detain, and care for all Inmates who may be booked in the Detention Facility.
3. Grant of Operating Fights
City hereby grants to Operator the sole and exclusive right to operate
the Detention Facility for the term hereof, and Operator agrees to provide all
labor, equipment, and materials necessary to operate the Detention Facility for
the term hereof and pursuant to the terms and conditions herein specified.
4. Term of the Agreement
A. INITIAL TERM. This Agreement is effective on the date set forth in
the initial paragraph of this Agreement. The initial term of this Agreement for
the operation and management of the Detention Facility shall be for the period
commencing on the Service Commencement Date and terminating on a date three (3)
years thereafter, unless earlier terminated pursuant to the provisions of
Section 12, Default and Termination. The Service Commencement Date shall be not
later than seven (7) calendar days following the Certification Date.
B. RENEWAL OPTIONS. Following the initial three (3) year term, this
Agreement may be renewed by agreement of the parties for two (2) additional one
(1) year terms.
C. CANCELLATION. City may cancel this Agreement at any time as provided
in Section 12, Default and Termination.
5. Right of Entry
A. CITY'S RIGHT OF ENTRY. Operator hereby agrees that representatives
of City, as designated by the City Manager or the Chief of Police, shall, at all
times, have the right to enter all area and facilities pertaining to the
Detention Facility and inspect them to determine if they comply with each and
every term and condition of this Agreement and with the applicable Minimum
Standards. This right of entry shall extend to those parties with whom the City
has entered into any Intergovernmental Agency Agreement for the supply of
detainees to the City's jail facilities. Where practical, this right of entry
shall be exercised with advance notice to Operator to avoid adverse impacts to
security.
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B. LOCKS AND KEYS. For each of the aforesaid purposes, City shall at
all times receive from Operator and have the right to retain and use keys to all
gate and fence locks upon and about the Detention Facility. City shall have the
right to use such keys and any and all other means which City may reasonably
deem proper to open any lock upon or about the Detention Facility in order to
obtain entry in an emergency. Operator shall use City provided keys only and
shall not duplicate any key or change any lock without the express written
permission of the City.
C. LIABILITY OF CITY. City shall have no liability to Operator for any
exercise of City's rights under this Section 5, Right of Entry, except for (a)
City's failure to exercise due care for Operator's property; (b) City's damage
to facilities which Operator is otherwise required to maintain or repair under
this Agreement; or (c) City's failure to exercise due care for the security,
care, and custody of Inmates under Operator's supervision. Except as provided in
this Section 5.C, Operator hereby waives any claims for damages for any injury
or inconvenience to Operator or interfere with Operator's business, or any loss
occasioned thereby.
6. Operation of the Detention Facility
A. GENERAL DUTIES AND OBLIGATIONS: STANDARDS. Operator shall provide
the operation and management services necessary to operate, maintain, and manage
the Detention Facility in compliance with the applicable Minimum Standards.
B. JAIL MANUAL.. Operator shall develop a written comprehensive Jail
Manual covering all aspects of operations including the procedures that wi11 be
utilized to facilitate monitoring of the facility. The Manual shall be adequate
to permit assumption of operations by City in die event of Operator's inability
to perform its duties hereunder or of the termination of this Agreement for any
reason. Operator shall submit the Manual to City's Facility Representative for
approval thirty (30) calendar days prior to the Service Commencement Date. Upon
receipt of the Manual, City's Facility Representative will notify Operator in
writing, within ten (10) calendar days, of City's approval or required changes.
Upon receipt of any required changes, Operator shall submit completed
corrections to the Chief of Police, in writing, within five (5) calendar days.
Once the Manual has received approval, any and all subsequent proposed
additions, deletions, or modifications to such Manual must be approved in
writing by the Chief of Police prior to implementation.
C. SPECIFIED DUTIES AND OBLIGATIONS. Operator's duties and obligations
shall be set. forth in detail in the Jail Manual. In general, these shall
include, but are not limited to, the performance of the services set forth below
in accordance with the applicable Minimum Standards:
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(1) INTAKE AND RELEASE PROCESSING. Operator shall provide
intake and release processing which shall include review of Inmate's documents,
Inmate search as permitted by law, inventory and storage of Inmate's personal
property and funds, entry of Inmate data into City's and Los Angeles County's
booking systems, acceptance of Inmate custody, generation of intake and release
documents and records, including all Us Angeles County Health Department and
Board required forms and reports related to intake, photographing and
fingerprinting of Inmate, initiation of inmate health and well-being screening,
classification and housing assignment of Inmate, review of court release
documents, return of Inmate personal property and funds, completion of internal
release documentation and ascertainment of Inmate identification confirmation
prior to release, transportation as described in Section 6.C.(6),
Transportation, and any and all such other duties as may be required by
applicable statute or rule.
(2) STAFFING. Operator shall staff and operate the Detention
Facility in compliance with the applicable Minimum Standards.
(3) FOOD SERVICE. Operator shall provide food service for all
Inmates in compliance with the applicable Minimum Standards.
(4) HEALTH SERVICES. Operator shall provide health services at
the Detention Facility for all Inmates in compliance with the applicable Minimum
Standards. Such health services include, but are not limited to, determining
whether inmates require health services and arranging for treatment of inmates
pursuant to the applicable Minimum Standards and the Jail Manual. Operator may
refuse to accept custody of any Inmate who Operator determines, in good faith,
to be in need of medical attention which Operator cannot provide at the
detention facility.
(5) LAUNDRY AND INMATE CLOTHING. Operator shall provide Inmate
laundry services and Inmate clothing in compliance with the applicable Minimum
Standards.
(6) TRANSPORTATION. Operator shall provide transportation
services for Inmates in the Detention Facility to arraignments, other court
ordered appearances and Los Angeles Sheriffs Department jail facilities.
Operator shall not be required to provide transportation services for the
purpose of Inmate transfer to state facilities, in-state prisoner retrieval, or
extradition.
(7) LEGAL. Operator shall provide the Detention Facility
Inmates with ACCESS to their legal counsel in accordance with the applicable
Minimum Standards, and to the extent, if any, required by the applicable Minimum
Standards, access to a law library.
(8) VISITATION. Operator shall provide all furniture,
equipment, and supervision necessary to implement a visitation program that
meets the applicable Minimum Standards with respect to Inmate visitation.
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(9) ESSENTIALS. Operator shall provide all facility supplies,
including hygiene items, clothing, office supplies, support items, and inmate
quarters, including but not limited to mattresses, pillows, sheets, pillowcases,
and blankets, necessary to meet the applicable Minimum Standards.
(10) SAFETY. Operator shall operate and maintain the Detention
Facility in compliance with the applicable Minimum Standards relative to safety.
(11) SECURITY. Operator shall be responsible for providing
security for all Inmates in accordance with the applicable Minimum Standards
while they are inside the Detention Facility and when they are being transported
by Operator. While any Inmate is in the custody of City, an Assigning Agency,
the Sheriff, other custodial entity, or a bailiff, Operator shall not be
responsible for providing security for such Inmate, and such security shall be
the responsibility of such custodial entity or officer.
(12) DISCIPLINARY RULES AND REGULATIONS. Operator shall impose
discipline through rules, regulations, and orders pursuant to a disciplinary
system meeting the applicable Minimum Standards.
(13) RECORDS. Operator shall generate and maintain all Inmate
records in accordance with established procedures of the applicable Judicial
Council and the applicable Minimum Standards. Operator shall make available for
examination by City all data and records with respect to matters covered by this
Agreement and shall permit City to audit, examine and make excerpts or
transcripts from such data and records, and to make audits of all invoices,
materials, payrolls, personnel records and other data relating to all matters
covered by the agreement. Operator shall maintain such data and records in an
accessible location for a period of three (3) years after final payment under
this Agreement. City shall receive a copy of all such records. All inmate
records retained by Operator shall be confidential, unless required to be
disclosed or reported by law. Operator shall consult with City prior to release
of any inmate records, unless such release is mandated by law.
(14) VEHICLES MAINTENANCE AND INSURANCE. Operator shall be
responsible for procuring, insuring, maintaining, and operating all
Operator-owned vehicles. City shall insure and maintain City owned vehicles used
by Operator. All Operator staff using any vehicle in connection with the
services provided under this Agreement shall have a valid California Driver's
License, which shall be available for inspection by City.
(15) UNIFORMS. Operator shall establish a policy prescribing a
standard uniform for its corrections officers including shirts, pants, belts,
jackets, and associated uniform articles of clothing that are normally and
routinely issued to corrections officers. Operator shall provide such uniform
items to the corrections officers either directly or through a uniform
allowance.
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7. Utilities and Maintenance
A. SPECIFIED DUTIES AND OBLIGATIONS. The parties' respective duties
and obligations with respect to utilities and maintenance are as set forth
below.
(1) UTILITIES. City shall be responsible for the provision of
all utilities except as provided in Section 7.A.(2).
(2) TELEPHONE SERVICES. City shall be responsible for the
provision of and payment for all pay telephone services at the Detention
Facility. City shall be responsible for the provision of and payment for
in-house telephone services. Calls made by Operator and its employees which are
personal or corporate in nature shall be placed through pay telephones or billed
to personal or corporate credit cards and are the responsibility of Operator
and/or its employees.
(3) MAINTENANCE. Operator shall maintain the physical
structure of the Detention Facility and all tangible personal property contained
therein, in accordance with the applicable Minimum Standards, including ordinary
routine maintenance, and will in so doing, maintain, preserve and keep the
Detention Facility in good repair, working order and condition, subject to
normal wear and tear, and will, from time to time, make or cause to be made, all
necessary and proper repairs, replacements and renewals, which shall thereupon
become part of the Detention Facility. City shall, subject to the provisions of
Section 7.A.(5), Damage to Detention Facility, have responsibility for all
maintenance, repairs, replacements and renewals related to Police Department
Building systems located outside the Detention Facility (such as electrical
supply, hot water heaters, sewers, etc.), and structural or defects of the
Police Department Building which affect the Detention Facility.
(4) FIXTURES. Operator may from time to time after the Service
Commencement Date, install machinery, equipment, and other personal property in
the Detention Facility, which may be attached or affixed to the Detention
Facility. All such equipment shall constitute fixtures and remain part of the
Detention Facility and may not be removed from the Detention Facility unless
replaced by a similar item within a reasonable time period. If City has approved
such fixtures and their installation in writing, the, cost of the fixtures and
their installation shall be borne by the City; if the City has not approved such
fixtures and their installation in writing, the cost of the fixtures and their
installation shall be at the sole cost and expense of Operator.
(5) DAMAGE TO DETENTION FACILITY. Promptly after the
occurrence of any damage to or loss of the Police Department Building or the
Detention Facility that materially affects the continued operation of the
Police Department Building or the Detention Facility, the parties shall
notify each other of such loss or damage and shall jointly A ASSESS the
nature and extent of such damage or loss. As soon as practicable and
desirable thereafter, the parties shall determine to rebuild, repair or
restore such damage or loss or to terminate this
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Agreement as provided in Section 12.E, Termination for Damage. In the event
operator and City shall determine to repair, rebuild or restore the Police
Department Building or the Detention Facility, Operator and City shall mutually
determine the allocation for payment of the costs of undertaking such repair,
rebuilding or restoration. If City and Operator determine not to rebuild, repair
or restore the Police Department Building or the Detention Facility, then this
Agreement shall terminate with respect to the Detention Facility thirty (30)
days after such determination. Neither party is under any obligation to rebuild,
repair or restore the Detention Facility even though the City determines to
rebuild, repair or restore the Police Department Building. Operator shall
complete all damage reports required by the Minimum Standards, including those
required by CPD.
8. Employees
A. BACKGROUND INVESTIGATION. ORIENTATION AND TRAINING. The Operator's
duties and obligations with respect to background investigations, orientation
and training are as set forth below:
(1) BACKGROUND INVESTIGATION. A background investigation and
psychological evaluation shall be made by Operator of the jail manager,
supervisor and all prospective employees prior to any prospective employee being
hired by Operator for assignment to the Detention Facility, the results of which
investigation shall be provided to City. Operator shall maintain on file for
each employee two completed fingerprint charts, a photograph taken within the
last six months, a criminal history, and immigration information (where
applicable).
(2) ORIENTATION AND TRAINING. Operator shall provide an
orientation program for all employees as well as initial and recurring
training in compliance with the applicable Minimum Standards. Ali training
shall be conducted as close to the Detention Facility as possible.
(3) COURT APPEARANCES. Operator shall pay all costs
associated with court appearances made by Employees arising out of services
provided under this Agreement.
9. City's Responsibilities
A. COOPERATION. City shall cooperate with the Operator In all
matters of law enforcement, security and communication.
B. TRAINING. City shall assist Operator in the initial orientation
training of Operator's employees to operate the Detention Facility. All other
training shall be the responsibility of the Operator.
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C. INFORMATION. City's Police Department shall assist and cooperate
with Operator in providing Information requested and needed by Operator in the
screening of candidates for employment to the extent legally permitted. No
liability shall attach to City for such assistance, however, and Operator agrees
to fully indemnify and hold harmless City for providing such assistance.
D. CITY POLICIES AND APPLICABLE COURT ORDERS. City shall provide
Operator with copies of all City policies applicable to City's booking and
custodial procedures and with any applicable court orders.
E. UTILIZATION. City and Operator agree that it shall be to their
mutual benefit and interest that the Detention Facility be fully utilized by
maintaining the maximum Inmate population. To this end, and throughout the term
of this Agreement, City agrees to use its best efforts, at no cost to Operator,
but with the cooperation and assistance of Operator, to insure that such Inmate
population is obtained from Assigning Agencies.
F. PAYMENT. In consideration for all services provided and obligations
undertaken by Operator pursuant to this Agreement, City shall pay to Operator on
a monthly basis, within thirty (30) days of receipt of invoice, the following:
(1) Reimbursement of Operator's Direct Operating Costs for the
month in the categories identified in Exhibit A to this Agreement, provided,
however, that such Direct Operating Costs shall not exceed the Total Direct
Operating Costs for each year identified in Exhibit A. By way of illustration,
once City has reimbursed Operator for Direct Operating Costs equal to the Total
Direct Operating Costs for year one of the Agreement, City shall not reimburse
Operator for any additional costs incurred during that year.
(2) An administrative overhead fee. The monthly administrative
overhead y fee shall be equal to 15% of the Total Direct Operating Cost for the
year, as stated on Exhibit A to this Agreement, divided by twelve. The
administrative overhead fee shall also include $3.00 per day per additional
inmate over an average daily population of 26 in any given month.
The Total Direct Operating Costs and the Administrative Overhead Fee
for year 3 identified in Exhibit A to this Agreement shall be subject to a three
percent (3%) COLA in each successive option year that this Agreement is renewed
pursuant to paragraph 4.B. of this Agreement.
10. Facility Revenue
Facility Revenue is revenue due to or received by City or Operator from
any source whatsoever which results from Detention Facility operations,
including, without limitation, payments received for Inmate housing, detention,
transportation and canteen services.
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Facility Revenue shall be the sole property of the City, regardless of whether
it is paid to City or Operator.
A. ACCOUNTING. On or before the sixth (6th) working day of each
calendar month during the term of this Agreement, Operator shall calculate the
amounts due to the City from whatever source as Facility Revenue for the
preceding month and prepare and deliver to City a detailed report outlining the
Facility Revenue due for the preceding month. This report shall BE in a form
satisfactory to City and contain all detail necessary to permit City to monitor
all revenue sources.
B. BILLING AND COLLECTIONS. On or before the fourth (4th) working day
of each month, the Operator shall bill each appropriate entity for all Facility
Revenues which are then due to the City. If Operator receives any Facility
Revenue, Operator shall transmit same to City, as all Facility Revenue is the
sole property of the City.
C. AUDIT. City shall have the right to examine all books, documents,
and records maintained BY Operator related to the management of the Alhambra
jail facility pursuant to this Agreement during normal business hours after
reasonable notice. Operator shall retain all such records for a period of
three (3) years after termination of this Agreement.
11. Independent Contractor; Subcontracts
A. INDEPENDENT CONTRACTOR. Operator is associated with City only for
the Purposes and to the extent set forth in this Agreement, and with respect to
the performance of the Operation and Management Services required by this
Agreement, Operator is and shall be an independent contractor and, subject to
the terms of the Agreement, shall have the sole right to supervise, manage,
operate, control, and direct the performance of the details incident to its
duties under this Agreement, subject to the applicable Minimum Standards.
Nothing contained in this Agreement shall be deemed or construed to create a
partnership or joint venture, to create the relationships of an
employer-employee or principal-agent or to otherwise create any liability
whatsoever for either party with respect to the indebtedness, liabilities, and
obligations of the other party. Operator shall be solely responsible for (and
City shall have no obligation with respect to) payment of all Federal income,
FICA, and other taxes owed or claimed to be owed by Operator, arising out of
Operator's association with City pursuant to this Agreement, and Operator shall
indemnify and hold City harmless from and against, and shall defend City
against, any and all losses, damages, claims, costs, penalties, liabilities, and
expenses otherwise with respect to, any such taxes. City reserves the right, for
good cause, to require Operator to exclude any employee of Operator from
performing services on City's premises.
B. SUBCONTRACTS. Operator may subcontract for the performance of any
of its responsibilities provided that no subcontract, except for food services,
requiring more than $5,000 in payments by Operator to any subcontractor in any
twelve (12) month period may be entered into without the prior written approval
of
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City's Facility Representative, which approval or disapproval shall be given
within five (5) working days. No contractual relationship shall exist between
City and any subcontractor and City shall accept no responsibility whatsoever
for the conduct, actions, or omissions of any subcontractor selected by
Operator. Operator shall be responsible for the management of the subcontractors
in the performance of their work; it being understood that Operator's
responsibilities hereunder shall be considered non-delegable.
12. Default and Termination
A. NOTICE OF DEFICIENCY. In the event City determines that Operator has
failed to satisfactorily perform its contracted dudes and responsibilities in
conformance to the specifications identified in this Agreement, City shall
notify Operator of the specific nature of the deficiency. Upon receipt of such
notice Operator will be allowed twenty (20) calendar days to cure the
deficiency. If Operator determines it cannot cure the deficiency within the
twenty (20) calendar day period, Operator must submit, in writing, a plan for
curing the deficiency to City (which plan shall show in detail by what means
Operator proposes to cure the deficiency). Upon receipt of any such plan City
shall promptly review such plan and, at its discretion, which must be reasonable
in the circumstances, may allow or not allow Operator to pursue such plan of
cure. City agrees that it will not exercise its remedies hereunder with respect
to contract default for so long as Operator diligently, conscientiously, and
timely undertakes to cure the deficiency in accordance with the approved plan.
If City does not allow Operator an extension of the cure period, the twenty (20)
day time period shall be suspended during the period of time the Operator's
request for an extension of THE cure period is pending before City.
B. TERMINATION FOR DEFAULT. City may terminate Operator's operations
and T services whenever City determines that Operator has failed to
satisfactorily perform its contracted duties and responsibilities in conformance
to the specifications identified in this Agreement, and is unable to remedy such
failure in accordance with Section 12.A, Notice of Deficiency. Such termination
shall be referred to herein as "Termination for Default" This Agreement may then
be terminated by City upon service of a ten (10) day written notice to Operator.
(1) CITY'S COSTS. In the event of termination for default,
City may procure, upon such terms and in such manner as City may deem
appropriate, supplies or services similar to those terminated. Operator shall be
liable to City for all reasonable administrative and legal costs incurred by
City in terminating this Agreement and procuring such similar services.
(2) FURTHER RIGHTS. The rights and remedies of the parties
provided in this Section 12.B shall not be exclusive and are in addition to any
other rights and remedies provided by law or under this Agreement.
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(3) ERRONEOUS TERMINATION. If after Notice of Termination for
Default, it is determined by City or a court that Operator was not in default or
that Operator's failure to perform or make progress in performance was due to
causes beyond the control and without the error or negligence of Operator, the
notice of termination shall be deemed to have been issued as a Termination for
the Convenience of City and the rights ' rights and obligations of the parties
shall be governed solely by Section 12.D, Termination for Convenience.
C. TERMINATION FOR OPERATOR BANKRUPTCY. In the event of the filing of
a petition of bankruptcy by or against Operator, City shall have the right to
terminate this Agreement without penalty upon the same terms and conditions as a
Termination for Default.
D. TERMINATION FOR CONVENIENCE. City, by written notice of not less
than one hundred twenty (120) days, may terminate this Agreement whenever,
City shall determine, for any reason, that such termination is in the best
interests of City. Such termination shall be referred to herein as
"Termination for Convenience."
E. TERMINATION FOR DAMAGE. Either party may terminate this Agreement
AS provided in Section 7.A.(5), Damage to Detention Facility, by giving
thirty (30) days notice of its intention not to rebuild, repair or restore
the affected premises. Such termination shall be referred to herein as
"Termination for Damage."
F. PROCEDURES FOR TERMINATION. Upon delivery to Operator of a Notice of
Termination specifying the nature of the termination under Sections 12.B, 12.C,
12.D, or 12.E, the extent to which performance of work under the Agreement is
terminated, AND the date upon which such termination becomes effective, Operator
shall:
(1) STOP WORK. Stop work under this Agreement on the date and
to the extent specified in the Notice of Termination.
(2) CEASE ORDERS. Place no further orders for materials or
services except as may be necessary for completion of such portion of the work
under the Agreement as is not terminated.
(3) TERMINATE ORDERS. Terminate all orders to the extent that
they relate to the performance of work terminated by the Notice of Termination.
(4) ASSIGN RIGHTS. Assign to City in the manner and to the
extent directed by City's Facility Representative, all of the rights, title, and
interest of Operator under the orders so terminated, in which cast City shall
have the right, at its discretion, to settle or pay any or all claims arising
out of the termination of such orders. City shall indemnify Operator against
third party claims relating to any rights assigned to City, but City shall be
deemed assigned any such third party claims and may enforce them against
Operator directly or through offset against any interest or claims Operator may
have against the City.
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(5) RESOLVE CLAIMS. With the approval or ratification of
City's Facility Representative, settle all outstanding liabilities and all
claims arising out of such termination of orders, the cost of which would be
reimbursable in whole or in part, in accordance with the provisions stated in
this Agreement.
(6) TRANSFER TITLE. Transfer title to City (to the extent that
title has not already been transferred) and deliver in the manner, at the times,
and to the extent directed by City's Facility Representative, all files, and all
computer software, data, manuals, or documentation, in any form, that relate to
work terminated by the Notice of Termination.
(7) COMPLETE PERFORMANCE. Complete the Performance of such
part of the work as shall not have been terminated by the Notice of Termination.
(8) TAKE NECESSARY ACTIONS. Take such action as may be
necessary, or as City's Facility Representative may reasonably direct, for the
protection and preservation of the property related to this Agreement which is
in the possession of Operator and in which City has or may acquire an interest.
(9) NON-DELAY. Operator shall proceed immediately with the
performance of the above obligations.
13. Insurance
A. INDEMNIFICATION AND HOLD HARMLESS. Operator agrees to defend,
indemnify, protect and hold City and its agents, officers, employees, attorneys,
volunteers and any parties with whom City has entered into an Intergovernmental
Agency Agreement for the supply of detainees to the City's facilities harmless
from and against any and all claims asserted or liability established for
damages or injuries to any person or property, including injury to Operator's
employees, agents or officers which arise from, or are connected with, or are
caused or claimed to be caused by, the acts or omissions of Operator and its
agents, officers or employees, in performing the work or services herein, and
all expenses of investigating and defending against same; provided, however,
that Operator's duty to indemnify and hold harmless shall not include any claims
or liability arising from the established sole negligence or willful misconduct
of City, its agents, officers, employees or any parties with whom City has
entered into an Intergovernmental Agency Agreement for the supply of detainees
to the City's facilities. Operator agrees to pay all reasonable attorney and
court costs in determining said sole negligence or willful misconduct of City,
its agents, officers, employees or any parties with whom City has entered into
an Intergovernmental Agency Agreement for the supply of detainees to the City's
facilities. If it is determined that City is solely at fault, City agrees to
reimburse Operator for the costs incurred in determining that the City is solely
at fault.
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B. CITY'S CHOICE OR COUNSEL. If the City is sued as a result of the
alleged actions and conduct of the Operator, the City will have the right to
select legal counsel of its own and expenses for such choice to defend the
interests of the City, and the reasonable costs an legal counsel shall be paid
by the Operator on a quarterly basis as work is being performed by the legal
counsel in defending the City.
C. LIABILITY INSURANCE. Operator shall procure a policy or policies of
Comprehensive General Liability, Public Liability and Property Damage and
Comprehensive Automobile Liability Insurance issued on an 'occurrence' basis and
not on a 'claims made' basis. Such insurance shall protect Operator against
loss, including injury or death resulting therefrom suffered or alleged to have
been suffered b any person or persons, resulting y directly or indirectly from
the performance or execution of this Agreement or any subcontract thereunder.
Operator's insurer shall be an admitted carrier in the State of California with
an A. M. Best's rating of "A" or better. Property damage insurance shall also
protect Operator against loss from liability imposed by law for damage to any
property caused directly or indirectly by the performance or execution of this
Agreement of any subcontract thereunder which insurance shall also cover
accidents arising out of the use and operation of automobiles and trucks.
Liability insurance (subject to the normal terms, conditions, and exclusions of
the Insurance Services Office (ISO) Commercial General Liability Policy Form)
must cover:
(1) ASSUMPTION OF LIABILITY. Operator's assumption of all
liability caused by or arising out of all aspects of the provision and operation
of the Detention Facility.
(2) FORM, LIMITS. The policy or policies for the insurance
identified above must be of a comprehensive form and on an "occurrence basis'
with a minimum combined single limit of Three Million Dollars ($3,000,000) and
include civil rights coverage as set forth in Section 13.F.(2), Civil Rights
Coverage, with a limit no less than Three Million Dollars ($3,000,000).
Such policies must also include Comprehensive Automobile coverage.
D. WORKERS' COMPENSATION INSURANCE. Operator shall obtain Workers'
compensation insurance, including employer's liability coverage, with a minimum
limit of One Million Dollars ($1,000,000) or the amount required by law,
whichever is greater. If any work is sublet, Operator shall require the
subcontractor to provide similar Worker's Compensation Insurance coverage,
unless such subcontractor's employees are covered by Operator's insurance.
Operator agrees to indemnify City for any damage resulting to it from any
failure of either Operator or any subcontractor to take out or maintain such
insurance.
E. ENDORSEMENTS. All insurance policies shall contain a Waiver of
Subrogation of rights against City. City, its officers, employees, attorneys,
and volunteers shall be named as additional insureds on the policy(ies) as to
comprehensive general liability, civil rights liability, and property damage
coverages.
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Endorsements shall be executed on City's appropriate standard forms entitled
"Additional Insured Endorsement."
F. CLAUSES. Each policy of insurance shall contain the following
clauses:
(1) NOTICE. It is agreed that these policies shall not be
canceled nor the coverage reduced until thirty (30) days after City's City
Manager or City Manager's designee shall have received written notice of such
cancellation or reduction. The notice shall be deemed effective on the date
delivered to said City Manager as evidenced by a properly validated return
receipt.
(2) CIVIL RIGHTS COVERAGE. Insurance provided by Operator
under Section 13.C, Liability Insurance, must protect City against civil rights
actions by Inmates involving "conditions of confinement" wherein declaratory and
injunctive relief are sought and/or monetary damages are sought.
(3) SEPARATE APPLICATION. Subject to Operator's General
Liability policy combined single limit, the insurance afforded applies
separately to each insured, against whom claim is made, or suit is brought.
(4) PRIMARY INSURANCE. The insurance provided by Operator
shall provide primary insurance to City to the exclusion of any other
insurance or insurance program that City may carry with respect to claims and
injuries arising out of activities of the contractor or otherwise insured
hereunder.
G. REASSESSMENT OF COVERAGE. At the end of each contract year City
reserves the right to review insurance coverage requirements and to require
increased insurance requirements depending upon assessment of the risk of
exposure, Operator's past experience, and the availability and affordability of
increased liability insurance coverage.
H. DEDUCTIBLES AND SELF-INSURED RETENTION. Any deductibles or
self-insured retention must be declared to and approved by City. At the option
of City, either: the insurer shall reduce or eliminate such deductibles or
self-insured retention as respects City, its officers, officials, employees and
volunteers; or Operator shall procure a bond guaranteeing payment of losses and
related investigations, claim administration and defense expenses.
I. Certificates of Insurance and Cancellation.
(1) All insurance required by this Agreement shall be procured
and maintained with financially sound insurance companies licensed to do
business in the State of California and approved by City. Certificates of
insurance and any insurance policies themselves shall contain a provision that
City shall receive written notice at least thirty (30) days prior to the
cancellation of any of the coverage provided under the policies.
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(2) In the event that any insurance described herein or any
portion thereof becomes commercially unavailable, Operator and City
shall cooperate in efforts to obtain such replacement insurance as may
be available and this Agreement shall be modified accordingly. In the
event that adequate insurance becomes commercially unavailable, City or
Operator may terminate this Agreement upon thirty (30) days prior
written notice as a Termination for Default, and Operator shall comply
with Section 12.F, Procedures for Termination.
J. WAIVER OF DEFENSES. Neither City nor Operator shall waive, release,
or otherwise forfeit any possible defense City or Operator may have regarding
claims arising from or made in connection with, the operation of the Detention
Facility by Operator without the written consent of the other party to this
Agreement. City and Operator shall preserve all such available defenses and
cooperate with each other to make such defenses available for each other's
benefit to the maximum extent allowed by law. This provision shall include any
defenses City may have regarding litigation, losses, and costs resulting from
claims or litigation pending at the time this Agreement becomes effective or
arising thereafter from occurrences prior to the effective date of this
Agreement.
K. INSURANCE NOT A WAIVER. City does not, and shall not, waive any
rights against Operator which it may have by reason of the hold-harmless
provisions of this Agreement because of the acceptance by City or the deposit
with City by Operator, of any of the insurance policies described herein. The
hold-harmless provisions of this Agreement shall apply to all damages and claims
for damages of every kind suffered, or alleged to have been suffered, by reason
of any of Operator's activities or any subcontractor's activities, regardless of
whether or not the insurance policies required by this Agreement are determined
to be applicable to any such damages or claims for damages.
14. Operator's Corporate Obligations
A. MAINTENANCE OF CORPORATE EXISTENCE AND BUSINESS. Operator shall, at
all times, maintain its corporate existence and authority to transact business
and good standing in its jurisdiction of incorporation and California. Operator
shall maintain all licenses, permits, and franchises necessary for its
businesses where the failure to so maintain might have a material adverse affect
on Operator's ability to perform its obligations under this Agreement.
B. NON-DISCRIMINATION. Operator shall not discriminate as to race,
color, creed, religion, sex, marital status, national origin, ancestry, age,
physical or mental handicap, medical condition, or sexual orientation, in the
performance of its services and duties pursuant to this Agreement, and will
comply with any rules and regulations of City relating thereto.
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C. TAXES LIENS AND ASSESSMENTS. Operator shall; (i) not create or
suffer to be created any lien or charge upon the Detention Facility or any part
thereof-, (H) pay or cause to be discharged, within sixty (60) days after the
same shall come into force, any lien or charge upon the Detention Facility or
any part thereof and all lawful claims or demand for labor, materials, supplies
or other charges which, if unpaid, might be or become a lien upon the Police
Department Building, the Detention Facility, or any part thereof; and (iii) pay
all required utility charges, including 'service charges," incurred or imposed
with respect to the Detention Facility.
D. CITY'S FACILITY REPRESENTATIVE. The Chief of Police shall appoint a
City's Facility Representative for the Detention Facility who shall work for and
be paid by City. City's Facility Representative will be the official liaison
between City and Operator on all matters pertaining to this Agreement and the
services provided hereunder. City's Facility Representative may appoint another
City employee as acting City's Facility Representative during his or her
absence, and during such time the acting City's Facility Representative shall
exercise all rights and perform all dudes of City's Facility Representative
under this Agreement.
E. RIGHT TO AUDIT. City shall, subject to limitations provided by law
with respect to rights of privacy, have the right to examine all records of
Operator related to the Detention Facility, including without limitation, all
financial books and records, maintenance records, employee records, and Inmate
records generated by Operator, its subcontractors or any other related parties
in connection with performance of this Agreement. Operator shall make the same
available for inspection by City or City's auditors at any time during normal
business hours after reasonable notice during the term hereof and for a period
of three (3) years thereafter.
F. SELF-MONITORING. Operator shall develop and submit to City for
approval, a detailed plan illustrating how Operator intends to monitor
operations of the Detention Facility to cum compliance with this Agreement.
G. MONITORING BY CITY. City may in its discretion, in coordination with
City's Facility Representative, devise its own checklist or lists for monitoring
the quality of Operator's performance with this Agreement and the applicable
Minimum Standards and Alhambra Police Department Policies, and Operator shall
cooperate fully with City and City's Facility Representative in obtaining the
requisite information needed to complete such checklists and to assess the
quality of Operator performance. Such monitoring by City shall not relieve
Operator of any of its obligations under this Agreement.
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15. Representations and Warranties
A. REPRESENTATIONS OF OPERATOR. Operator, to the best of Operator's
knowledge at the time of executing this Agreement, represents and warrants to
and for the benefit of City with the intent that City will rely thereon for
purposes of entering into this Agreement, as follows:
(1) ORGANIZATION AND QUALIFICATION. Operator has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the State of California with power and authority to
own its properties and conduct its business as presently conducted and
as proposed to be conducted pursuant to this Agreement.
(2) AUTHORIZATION. This Agreement has been duly authorized,
executed, and delivered by Operator and, assuming due execution and
delivery by City, constitutes a legal, valid, and binding agreement
enforceable against Operator in accordance with its terms.
(3) NO VIOLATION OF AGREEMENTS, ARTICLES OF INCORPORATION OR
BYLAWS. The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not conflict
with, or result in a breach of any of the terms and provisions of, or
constitute. a default under any indenture, mortgage, deed of trust,
lease, loan agreement, license, security agreement, contract,
governmental license or permit, or other agreement or instrument to
which Operator is a party or by which its properties are bound, or any
order, rule, or regulation of any court or any regulatory body,
administrative agency, or other governmental body applicable to
Operator or any of its properties, except any such conflict, breach, or
default which would not materially and adversely affect Operator's
ability to perform its obligations under this Agreement, and will not
conflict with, or result in a breach of any of the terms and provisions
of, or constitute a default under, the Articles of Incorporation (or
other corresponding charter document) or Bylaws of Operator.
(4) NO DEFAULTS UNDER AGREEMENTS. Operator is not in default,
nor is there any event in existence which, with notice or the passage
of time or both, would constitute a default by Operator, under any
indenture, mortgage, deed of trust, lease, loan agreement, license,
security agreement, contract, governmental license or permit, or other
agreement or instrument to which it is a party or by which any of its
properties are bound and which default would materially and adversely
affect Operator's ability to perform its obligations under this
Agreement.
(5) COMPLIANCE WITH LAWS. Neither Operator nor its officers
and directors purporting to act on behalf of Operator have been
advised, and have no reason to believe, that Operator or such officers
and directors have not been conducting business in compliance with all
applicable laws, rules, and regulations of the jurisdictions in which
Operator is conducting business including all safety laws and laws with
respect to
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discrimination in hiring, promotion or pay of employees or other laws affecting
employees generally, except where failure to be so in compliance would not
materially and adversely affect Operator's ability to perform its obligations
under this Agreement.
(6) NO LITIGATION. There is not now pending or, to the
knowledge of Operator, threatened, any action, suit, or proceeding to
which Operator is a party, before or by any court or governmental
agency or body, which might result in any material adverse change in
Operator's ability to perform its obligations under this Agreement, or
any such action, suit, or proceeding related to environmental or civil
rights matters; and no labor disturbance by the employees of Operator
exists or is imminent which might be expected to materially and
adversely affect Operator's ability to perform its obligations under
this Agreement
(7) TAXES. Operator has filed all necessary federal, state,
and foreign income and franchise tax returns and has paid all taxes as
shown to be due thereon, and Operator has no knowledge of any tax
deficiency which has been or might be asserted against Operator which
would materially and adversely affect Operator's ability to perform its
obligations under this Agreement.
(8) FINANCIAL STATEMENTS. Operator has delivered to City true
and correct copies of its financial statements or other financial
records which fairly present the current financial position of
Operator.
(9) NO ADVERSE CHANGE. Since the date of Operator's most
recent financial records provided to City, there has not been any
material adverse change in Operator's business or condition, nor has
there been any change in the assets or LIABILITIES or financial
condition of Operator from that reflected in such financial records
which is material to Operator's ability to perform its obligations
under this Agreement.
(10) DISCLOSURE. There is no material fact which materially
and adversely affects or in the future will (so far as Operator can now
reasonably foresee) materially and adversely affect Operator's ability
to perform its obligations under this Agreement which has not been
accurately set forth in this Agreement or otherwise accurately
disclosed in writing to City by Operator preceding the date hereof.
B. REPRESENTATIONS OF CITY: City represents and warrants to and for the
benefit of Operator with the intent that Operator will rely thereon for purposes
of entering into this Agreement as follows:
(1) AUTHORIZATION: City has the requisite power to enter into
this Operating Agreement and perform its obligations hereunder and by
proper action has duly authorized the execution, delivery, and
performance hereof.
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(2) NO VIOLATION OF AGREEMENT. The consummation of the
transactions contemplated by this Agreement and the fulfillment of the
terms hereof will not conflict with, or result in a breach of any of
their terms and provisions, or constitute a default under any
indenture, mortgage, deed of trust, lease, loan agreement, security
agreement, contract, or other agreement or instrument to which City is
a party or by which its properties are bound, or any order, rule or
regulation or any court or any regulatory body, administrative agency
or other governmental body applicable to Operator or any of its
properties, except any such contract, breach, or default which would
not materially and adversely affect City's ability to perform its
obligations under this Agreement. '
(3) NO LITIGATION: There is not now pending, or to the
knowledge of the City, threatened, any action, suit or proceeding to
which City is a party, before or by any court or governmental agency or
body, which might result in any material adverse change in City's
ability to perform its obligations under this Agreement.
(4) DISCLOSURE: There is no material fact which materially and
adversely affects or in the future will, (so far as City can now
reasonably foresee) materially and adversely affect City's ability to
perform its obligations under this Agreement or which might require
changes in or additions to the Operation and Management Services that
would increase the cost to Operator of providing such services, which
has not been accurately set forth in this Agreement or otherwise
accurately disclosed in writing to Operator by City prior to the date
hereof.
16. Conditions
A. INSURANCE. As a condition precedent to the effectiveness of this
Agreement, Operator shall provide, to City, endorsements of insurance, binders
or other proof of insurance, acceptable to City in its sole discretion,
evidencing all insurance coverage required by Section 13, Insurance.
B. SERVICE AGREEMENT. The parties intend to concurrently enter into a
service agreement, similar in form and substance to an Intergovernmental Service
Agreement, setting forth the terms and conditions upon which City's inmates
shall be booked and held in custody at the Detention Facility. THIS AGREEMENT
SHALL BE VOID AND OF NO FORCE OR EFFECT UNLESS SUCH AGREEMENT IS CONCURRENTLY
APPROVED AND SIGNED BY CITY AND OPERATOR
17. Notices
A. NOTICES. Any notices, bills, invoices, or reports required by this
Agreement shall be deemed received on (a) the day of delivery if delivered by
hand during Operator's regular business hours or by facsimile before or during
Operator's regular business hours; or (b) on the third business day following
deposit in the United States mail,
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postage prepaid, to the addresses heretofore set forth in the Agreement, or to
such other addresses as the parties may, from time to time, designate in writing
pursuant to the provisions of this section.
B. CITY:
Chief of Police
Alhambra Police Department
211 South First Street
Alhambra, California 91801
Fax: (818) 284-5978
C. OPERATOR:
Correctional System, Inc.
1666 Garnet Avenue, #1026
San Diego, California 92109
(619) 274-1028
(619) 274-1037
18. Miscellaneous Provisions
A. BINDING NATURE. This Agreement shall not be binding upon the parties
until it is approved and executed by both parties. This Agreement after properly
approved and executed by the parties, shall inure to the benefit of City and
Operator and shall be binding upon City and Operator and their respective
successors and assigns, subject to the limitations set forth in Section 18.D,
Prohibition Against Assignment, and elsewhere in this Agreement.
B. INVALIDITY AND SEVERABILITY. In the event that any provision shall
be null and void, the validity of the remaining provisions of this Agreement
shall not in any way be affected thereby.
C. TERMINOLOGY AND DEFINITIONS: All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall. include the plural and the plural
shall include the singular.
D. PROHIBITION AGAINST ASSIGNMENT: It is hereby agreed by the parties
that there will be no assignment or transfer of this Agreement or any interest
in this Agreement without the written agreement of both parties.
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E. JURISDICTION. Any and all suits for any and every breach of this
Agreement shall be instituted and maintained in any court of competent
jurisdiction in the County of Los Angeles, State of California.
F. ATTORNEY'S FEES. In the event that either party to this Agreement
shall commence any legal action or proceeding to enforce or interpret the
provisions of this Agreement, the prevailing party in such action or proceeding
shall be entitled to recover its costs of suit, including reasonable attorney's
fees and costs.
G. LAW OF CALIFORNIA: This Agreement shall be governed by and
construed, in accordance with the laws of the State of California.
H. ENTIRE AGREEMENT: Except as provided in Section 16.B, Service
Agreement, this Agreement incorporates all the agreements, covenants, and
understanding between the parties hereto, concerning the subject matter hereof,
and all. such covenants agreements and understanding have been merged into this
written Agreement. No other prior agreement or understandings, verbal or
otherwise, of the parties or their agents shall be valid or enforceable unless
embodied in this Agreement.
I. AMENDMENT: No changes to this Agreement shall be made except upon
written agreement of both parties.
J. HEADINGS: The headings used herein are for convenience of
reference only and shall not constitute a part hereof or effect the
construction or interpretation of this Agreement.
K. WAIVER. No failure on the part of any party to exercise, and no
delay in exercising, and no course of dealing with respect to any right
hereunder shall operate as a waiver thereof-, nor shall. any single or
partial exercise of any right hereunder preclude any other or further
exercise thereof or in the exercise of any other right. The remedies provided
in this Agreement are cumulative and non-exclusive of any remedies provided
by law or in equity, except as expressly set forth herein.
L. COUNTERPARTS. This Agreement may be executed in any number of,
and by THE DIFFERENT part= hereto on, separate counterparts, each of which,
when so executed, shall. be deemed to be an original, and such counterparts
shall together constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and entered into this
Agreement as of the date first set forth above.
CITY OPERATOR
CITY OF ALHAMBRA CORRECTIONAL SYSTEMS, INC.
By PAUL TALBOT, Mayor By President
ATTEST:
By:
FRANCES A. MOORE, City Clerk By Vice-President
APPROVED AS TO FORM:
LELAND C. DOLLEY,
-24-
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
<S> <C> <C>
City of Alhambra Beds Leased Beds Total Inmates
13 13 26
</TABLE>
<TABLE>
<CAPTION>
Staffing FTE Rate Year 1 Year 2 Year 3
<S> <C> <C> <C> <C> <C>
Jail Administrator 1.00 $36,000 $36,000 $37,080 $38,192
Correctional Officers 10.00 $18,560 $185,600 $191,168 $196,903
----- ------- -------- -------- --------
Subtotal 11.00 $54,560 $221,600 $228,248 $235,095
Benefits 20% $44,320 $45,650 $47,019
------- ------- -------
Total Staffing $265,920 $273,898 $282,115
Food $6.50 $61,685 $63,536 $65,442
Office Expenses $3,000 $3,100 $3,193
Liability Insurance $400 times Bed capacity $10,400 $10,700 $11,021
Inmate Clothing, Supplies, Hygiene $1,000 $1,100 $1,133
Sick Call - Routine Health Care $3,900 $4,000 $4,120
------ ------ ------
Total Direct Operating Costs $345,905 $356,333 $367,023
Administrative Overhead Fee $51,886 $53,450 $55,053
Total $397,791 $409,783 $422,077
======== ======== ========
</TABLE>
<PAGE>
[REMAINDER OF DATA ILLEGIBLE]
<PAGE>
EXHIBIT 6.2
Agreement for the Provision of
Supervised Electronic Confinement
Program Services
September 1, 1996
CHANGE NOTICE No. 2
1. COUNTY and CONTRACTOR mutually agree to amend Part III of this Contract
to add Section 46.0 entitled "Enforcement of Child Support Obligations"
to read as follows:
"In order to comply with child support enforcement
requirements of the County Of Orange, CONTRACTOR shall furnish
to the ADMINISTRATOR within thirty (30) days of the award, or
renewal, of this Contract:
(a) in the case of an individual CONTRACTOR, his/her name,
date of birth, Social Security number, and residence address;
(b) in the case of a CONTRACTOR doing business in a form other
than as an individual, the name, date of birth, Social
Security number and residence of each individual who owns an
interest of 10 percent or more in p. the contracting entity;
(b) a certification that the CONTRACTOR has fully complied
with all applicable federal and State reporting requirements
regarding its employees;
(c) a certification that the CONTRACTOR has fully complied
with all lawfully served Wage and Earnings Assignment Orders
and Notices of Assignment and will continue to so comply.
The failure of the CONTRACTOR to timely submit the data or
Certifications required by Subsections (a), (b), (c) or (d),
or to comply with all lawfully served Wage and Earnings
Assignment Orders and Notices of Assignment shall constitute a
material breach of the Contract, and failure to cure such
breach within 60 calendar days of notice from the COUNTY shall
constitute grounds for termination of the Contract.
It is expressly understood that this data will be transmitted
to governmental agencies charged with the establishment and
enforcement of child support orders, and for no other purpose.
<PAGE>
Agreement for the Provision of
Supervised Electronic Confinement
Program Services
September 1, 1996
CHANGE NOTICE No. 1
COUNTY and CONTRACTOR mutually agree to amend the nineteenth paragraph
of Part 111, Section 5.1.5 of this Contract, to read as follows:
"Provide notification of all non-emergent tampers, equipment
malfunctions, curfew violations, participant's early returns
and other inconsistencies or violations of the schedules or
rules established for the participants, to the ADMINISTRATOR
on the following calendar day by 10:00 a.m., Pacific Time,
along with a recommendation for continuance on program or
removal."
In that this change does not materially affect the scope of work required under
the Contract, the ADMINISTRATOR is authorized to prepare and sign this Change
Notice pursuant to Section 26.1 of Part III, Section, 26.0 entitled "Changes and
Amendments of Terms" of this Contract.
All other terms and conditions of this Contract shall remain in full force and
effect.
BY: Dated: 3/7/97
ADMINISTRATOR
BY Dated: 2/3/97
Project Manager
SENTENCING CONCEPTS, INC.
<PAGE>
FROM OC PROBATION 15:12 i4o, P.2
AGREEMENT BETWEEN THE COUNTY OF ORANGE
AND
SENTENCING CONCEPTS, INC.
FOR THE PROVISION OF
SUPERVISED ELECTRONIC CONFINEMENT PROGRAM SERVICES
THIS AGREEMENT entered into this first day of September, 1996, which
date is enumerated for purposes of reference only, is by and between the County
of orange, a political subdivision of the State of California, hereinafter
referred to as "COUNTY" and SENTENCING CONCEPTS, INC., a corporation,
hereinafter referred to as "CONTRACTOR". This Agreement shall be administered by
the County of Orange Correctional Administrator, hereinafter referred to as
"ADMINISTRATOR".
WITNESSETH:
WHEREAS, COUNTY, through its Chief Probation Officer, is required by
various State laws to supervise persons placed on probation; and
WHEREAS, the orange County Board of Supervisors, pursuant to Resolution
No. 89-425. has designated the Chief Probation Officer as the County
Correctional Administrator; and
WHEREAS, the Chief Probation Officer, as the County Correctional
Administrator, is authorized under California Penal Code Sections 1203.016,
1208.2, 1208.3, 1208.5 and 2900.5 to contract with public or private agencies or
entities for the provision of supervised electronic confinement /home detention
services to adult, minimum security inmates and low risk offenders, committed to
a county jail or other county correctional facility, or granted probation, or
inmates participating in a work furlough program; and
WHEREAS, CONTRACTOR is duly qualified to engage in the' business of
providing Supervised Electronic: Confinement (SEC) Program services and warrants
that it possesses the competence, expertise and personnel necessary to provide
such services; and
WHEREAS, CONTRACTOR is agreeable to the rendering of such services on
the terms and conditions hereinafter set forth:
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
<PAGE>
FROM OC PROBATION 03.27.1997 15:17 No. 8 P. 4
BOARD OF SUPERVISORS
ORANGE COUNTY, CALIFORNIA
MINUTES
AUGUST 20,1996
APPROVAL OF AGREEMENTS WITH SENTINEL MONITORING CORPORATION
GENERAL SECURITY SERVICES CORPORATION AND SENTENCING CONCEPTS INC. FOR THE
PROVISION OF SUPERVISED ELECTRONIC CONFINEMENT PROGRAM SERVICES: Probation
Department requests approval of Agreements with Sentinel Monitoring Corporation,
General Security Services Corporation and Sentencing g Concepts, Inc., for the
provision of supervised electronic confinement to low risk adult offenders.
MOTION On motion by Supervisor Bergeson, seconded by Supervisor Steiner, the
Board authorized the Chairman of the Board and the Chief Probation Officer to
execute the Agreements with Sentinel Monitoring Corporation, General Security
Services Corporation, and Sentencing Concepts, Inc., for the provision of
Supervised Electronic Confinement to low risk adult offenders for a period of
one year, September 1, 1996 through August .3 1, 1997, renewable for up to four
additional years. MOTION UNANIMOUSLY CARRIED
ITEM NO. 15
FILE 16651
i
<PAGE>
AGREEMENT BETWEEN THE COUNTY OF ORANGE
AND
SENTENCING CONCEPTS, INC.
FOR THE PROVISION OF
SUPERVISED ELECTRONIC CONFINEMENT PROGRAM SERVICES
THIS AGREEMENT entered into this first day of September, 1996, which
date is enumerated for purposes of reference only, is by and between the County
of Orange, a political subdivision of the State of California, hereinafter
referred to as "COUNTY" and SENTENCING CONCEPTS, INC., a corporation,
hereinafter referred to as "CONTRACTOR". This Agreement shall be administered by
the County of orange Correctional Administrator, hereinafter referred to as
"ADMINISTRATOR".
WITNESSETH:
WHEREAS, COUNTY, through its Chief Probation Officer, is required by
various State laws to supervise persons placed on probation; and
WHEREAS, the Orange County Board of Supervisors, pursuant to Resolution
No. 89-425, has designated the Chief Probation Officer as the County
Correctional Administrator; and
WHEREAS, the Chief Probation Officer, as the County Correctional
Administrator, is authorized under California Penal Code Sections 1203.016,
1208.2, 1208.3, 1208.5 and 2900.5 to contract with public or private agencies or
entities for the provision of supervised electronic confinement/home detention
services to adult, minimum security inmates and low risk offenders, committed to
a County jail or other county correctional facility, or granted probation, or
inmates participating in a work furlough program; and
WHEREAS, CONTRACTOR is duly qualified to engage in the business of
providing Supervised Electronic Confinement (SEC) Program services and warrants
that it possesses the competence, expertise and personnel necessary to provide
such services; and
WHEREAS, CONTRACTOR is agreeable to the rendering of such services on
the terms and conditions hereinafter set forth:
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
<PAGE>
II. TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART PAGE
<S> <C>
I. TITLE PAGE
II. TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . .
III. TERMS AND CONDITIONS. . . . . . . . . . . . . . . . . .
1.0 Term . . . . . . . . . . . . . . . . . . . . . . . 4
2.0 Contract Payments. . . . . . . . . . . . . . . . . 4
3.0 Payment/Statement. . . . . . . . . . . . . . . . . 4
4.0 Definitions. . . . . . . . . . . . . . . . . . . . 5
5.0 Scope of Work. . . . . . . . . . . . . . . . . . . 9
6.0 Personnel . . . . . . . . . . .. . . . . . . . . . 21
7.0 Quality Control. . . . . . . . . . . . . . . . . . 25
8.0 Quality Assurance. . . . . . . . . . . . . . . . . 26
9.0 Hours of Operation . . . . . . . . . . . . . . . . 27
10.0 County Furnished Property/Equipment. . . . . . . . 27
11.0 Contractor Furnished Items . . . . . . . . . . . . 27
12.0 Work Outside Scope of Contract . . . . . . . . . . 27
13.0 Disputes . . . . . . . . . . . . . . . . . . . . . 27
14.0 Tax Liability Limitation . . . . . . . . . . . . . 28
15.0 Termination for Convenience of the County. . . . . 28
16.0 Termination for Convenience of Contractor. . . . . 29
17.0 Termination for Default of Contractor. . . . . . . 29
18.0 Default for Insolvency . . . . . . . . . . . . . . 30
19.0 Independent Contractor Status. . . . . . . . . . . 30
20.0 Subcontracting . . . . . . . . . . . . . . . . . . 31
21.0 Indemnification. . . . . . . . . . . . . . . . . . 31
22.0 Insurance. . . . . . . . . . . . . . . . . . . . . 32
23.0 Covenant Against Contingent Fees . . . . . . . . . 33
24.0 Governing Laws . . . . . . . . . . . . . . . . . . 33
25.0 Compliance With Laws . . . . . . . . . . . . . . . 34
26.0 Changes and Amendments of Terms. . . . . . . . . . 34
27.0 Assignment . . . . . . . . . . . . . . . . . . . . 35
28.0 Gratuities . . . . . . . . . . . . . . . . . . . . 35
29.0 Record Retention and Inspection. . . . . . . . . . 35
30.0 Audit. . . . . . . . . . . . . . . . . . . . . . . 35
31.0 Publicity. . . . . . . . . . . . . . . . . . . . . 35
32.0 Notice of Delays . . . . . . . . . . . . . . . . . 36
33.0 Validity . . . . . . . . . . . . . . . . . . . . . 36
34.0 Waiver . . . . . . . . . . . . . . . . . . . . . . 36
35.0 Notices. . . . . . . . . . . . . . . . . . . . . . 36
36.0 Immigration Control Reform 1 Act of 1986 . . . . . 37
37.0 Assurance of Compliance with Civil Rights Laws . . 37
38.0 Nondiscrimination in Employment. . . . . . . . . . 37
</TABLE>
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART PAGE
<S> <C>
III. TERMS AND CONDITIONS (Continued)
39.0 Conflict of Interest . . . . . . . . . . . . . . . 39
40.0 Assurance of Compliance with The Americans with
Disabilities Act . . . . . . . . . . . . . . . . . 39
41.0 Confidentiality. . . . . . . . . . . . . . . . . . 39
42.0 Contingent Funding . . . . . . . . . . . . . . . . 40
43.0 Authorization Warranty . . . . . . . . . . . . . . 40
44.0 Merger . . . . . . . . . . . . . . . . . . . . . . 40
45.0 Entire Agreement . . . . . . . . . . . . . . . . . 40
IV. SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . 40
V. TECHNICAL EXHIBITS. . . . . . . . . . . . . . . . . . . . . .
Exhibit 1.0 - Performance Requirements Summary. . . . .
Exhibit 2.0 - Confidentiality of CORI Information . . .
Exhibit 3.0 - Employee Acknowledgement of Employer. . .
Exhibit 4.0 - County Fee. . . . . . . . . . . . . . . .
Exhibit 5.0 - SEC Rules and Regulation. . . . . . . . .
Exhibit 6.0 - Program Fees. . . . . . . . . . . . . . .
Exhibit 7.0 - Certificate of Compliance With Orange
County Conflict of Interest Policy. . .
</TABLE>
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<PAGE>
PART III. TERMS AND CONDITIONS
1.0 TERM
Subject to the termination. provisions set forth in Sections 15.0, 16.0, 17.0,
18.0, 20.0, 22.0, 23.0, 28.0, 38.0, and 42.0 herein, the term of this Contract
shall be for a twelve (12) month period commencing on September 1, 1996,
following approval thereof by the Orange County Board of Supervisors. This
Contract may be extended upon mutual agreement between ADMINISTRATOR and
CONTRACTOR for up to four (4) additional twelve (12) month periods, with a total
service period. not to exceed five (5) years.
The term of the Contract may also be extended beyond the. stated five (5) year
expiration date on a month-to-month basis, for a period of time not to exceed
six (6) months., upon written request of ADMINISTRATOR and the written
concurrence of CONTRACTOR. All terms of the Contract in effect at the time of
extending the term shall remain in effect for the duration of the extension.
2.0 CONTRACT PAYMENTS
2.1 The Contract payments set forth in Exhibit 4.0, attached hereto and
incorporated herein by reference, and Sections 2.4 and 6.6.4 will be the total
monetary amount payable by CONTRACTOR to COUNTY for COUNTY costs.
2.2 CONTRACTOR guarantees that there will be no direct costs incurred
by the COUNTY due to operation of this program including Probation Department
staffing costs.
2.3 During the first sixty (60) days of the Contract period, the
monthly fee referenced in Exhibit 4.0 will be waived by COUNTY, in order to
allow an initial start up period of referrals to CONTRACTOR. With the exception
of Section 2.4, the first payment required of CONTRACTOR shall be due November
30, 1996, for the month of November, 1996.
2.4 CONTRACTOR shall pay COUNTY by November 1, 1996, an. amount equal to the
payment referenced in Section 4.1 of Exhibit 4.0 as a deposit against the
final non-refundable monthly fee.
3.0 PAYMENT/STATEMENT
CONTRACTOR shall pay COUNTY monthly in arrears the County fee referenced in
Section 2.0, above, and set 'forth in Exhibit 4.0, within 15 days after receipt
of a COUNTY invoice. All payments shall be by check or draft issued and payable
and mailed to:
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<PAGE>
Orange County Probation Department
P.O. Box 10178
Santa Ana, CA 92711
Attention: Orange County Correctional Administrator
Supervised Electronic Confinement Program
CONTRACTOR shall prepare monthly statements, which shall include the number of
referrals, fees charged, and monthly gross receipts. All statements shall be
submitted by the fifteenth (15) calendar day of the month and mailed to:
Orange County Probation Department
P.O. Box 10260 Santa Ana, CA 92711
Attention: Orange County Correctional Administrator
Supervised Electronic Confinement 'Program
4.0 DEFINITIONS
4.1 Ability to Pay - As used herein, the term "ability to pay" shall
mean the overall capability of the person to reimburse the costs, or a portion
of the costs, of providing program services and shall include, but shall not be
limited to, consideration of all of the following factors.
4.1.1 Present financial position including current income,
assets, and debt;
4.1.2 Reasonably discernible future financial position. In no
event shall the CONTRACTOR consider a period of more than ' six (6)
months from the date of acceptance into the program f or purposes of
determining reasonably discernible future financial position;
4.1.3 Likelihood that the person shall be able to obtain
employment within the six (6) month period from the date of acceptance
into the program; and
4.1.4 Any other factor that may bear upon the person's
financial capability to reimburse the CONTRACTOR for the cost of the
program. This shall include the person's estate and spousal income.
4.2 Abscond - As used herein, the term "abscond" shall mean a violation
of curfew guidelines and inability to be electronically monitored for more than
four (4) hours.
4.3 Assessment - As used herein, the term "assessment" shall refer to
an evaluation of a defendant by the ADMINISTRATOR or his designee to determine
suitability for participation in the Supervised Electronic Confinement Program,
hereinafter referred to as "SEC".
-5-
<PAGE>
4.4 BAT - As used herein, the term "BAT" shall mean a breath alcohol
testing device approved by the Department of Transportation.
4.5 Case Manager - As used herein, the term "Case Manager" ,shall mean
an employee of the CONTRACTOR whose responsibility it is to provide the highest
level of service to the Courts and to ensure community safety. A case manager's
duties shall include, but are not limited to, providing the participant with
program rules and regulations; assessing participant's ability to pay program
fees; ongoing monitoring and documenting the participants' compliance, or lack
thereof, with court orders; rip-porting incidents of non-compliance and other
reports as described in the SEC Rules and Regulations to the appropriate
authorities.
4.6 Contract Discrepancy Report (CDR) - As used herein, the term
"Contract Discrepancy Report" shall mean a report prepared by the ADMINISTRATOR,
or his designee, to inform the - CONTRACTOR of faulty service. A CDR requires a
response from the CONTRACTOR within ten (10) days from date of receipt, or as
otherwise specified by the ADMINISTRATOR, explaining the problem, outlining the
remedial action being taken to resolve the problem and how recurrence -of the
problem will be prevented.
4.7 Curfew - As used herein, the term "Curfew" shall mean the hours
during which a participant is required to be at the designated place of
confinement, within range of the monitoring receiver.
4.8 Days - As used herein, the term "Days" shall mean calendar days,
not business or working days.
4.9 Enrollment - As used herein, the term "Enrollment." shall mean the
process of instructing a participant in the SEC Rules and Regulations, assessing
fees, obtaining participant's signature on the CONTRACTOR'S individual
enrollment agreement, attaching transmitter to the .participant and installing
the equipment in the participant's home. Enrollment is not complete until a
successful "transmit" message is received for the equipment in the participant's
home by the CONTRACTOR'S Monitoring center.
4.10 Financial Assessment - As used herein, the term "Financial
Assessment" shall mean completing the form designed and provided by CONTRACTOR,
and previously approved by COUNTY, which determines the participant's ability to
pay those program fees as set forth in Exhibit 6.0, attached hereto and
incorporated herein by reference.
-6-
<PAGE>
4.11 Hook-up - As used herein, the term "Hook-up" shall refer to that
part of the enrollment process wherein the transmitter is fitted to the
participant.
4.12 Hours - As used herein, the term "Hours" shall mean -sequential 60
minute time frames.
4.13 Indigent Offenders - As used herein, the term "Indigent Offenders"
shall refer to those program participants who, after a financial assessment, are
found to be unable to pay any program fees and, therefore, qualify for program
participation at no fee.
4.14 Installation - As used herein, the term "Installation" shall refer
to that part of the enrollment process where the monitoring equipment is
installed in the participant's home by an authorized employee of the CONTRACTOR,
equipment switched on and successful transmit message received by CONTRACTOR'S
monitoring center.
4.15 Low-Risk offender - As used herein, the term "Low-Risk Offender"
shall mean a probationer, as defined by the National Institute of Corrections
Model Probation System; Which would include an individual whose criminal. record
including the offense for which he has been referred to the SEC program,
reflects no history of violence, drug sales or child molestation; or a work
furlough inmate found suitable to participate in the SEC program.
4.16 Mandatory Terms - As used herein, the terms "must" and "will" in
this document are synonymous with "shall" and "mandatory".
4.17 Minimum Security Inmate - As used herein, the term "Minimum
Security Inmate" shall mean an inmate who by established local classification
criteria, would be eligible for placement in a Type IV local detention facility,
as described in Title 15 of the California Code of Regulations, or for placement
into the community for work or school activities, or who is determined to be a
minimum security risk under a classification plan developed pursuant to Section
1050 of Title 15 of the California Code of Regulations.
4.18 Orientation - As used herein, the term "Orientation" shall , refer
to that part of the enrollment process where the participant is instructed in
the program guidelines, a fee assessment is completed, participant signs
required
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<PAGE>
documents to be accepted into the program, and arrangements are made for the
installation of the monitoring equipment.
4.19 Rules and Regulations- As used herein, the term "Rules and
Regulations" shall mean the Rules and Regulations, including the terms and
conditions, of the SEC program, as approved and adopted by the Board of
Supervisors, pursuant to California Penal Code Section 1203.016, and as set
forth in Exhibit 5.0, attached hereto and incorporated herein.
4.20 Subcontractor - As used herein, the use of the term
"Subcontractor" shall mean any person, entity, or organization to which the
CONTRACTOR has delegated any of its obligations hereunder.
4.21 System - As used herein, the term "System" shall mean all
hardware, software, services and documentation (including all enhancement
thereto), developed for the COUNTY's Supervised Electronic Confinement Program.
4.22 Tamper Alarm - As used herein, the term "Tamper Alarm" shall mean
the ability of the monitoring equipment installed in the participant's
designated place of confinement to notify the central station of any equipment
interference.
4.23 SEC Program - As used herein the term "SEC program" shall be
synonymous with the term "home detention program." The SEC program shall be
operated in accordance with the provisions of California Penal Code Section
1203.016. Those individuals desiring consideration for participation in the SEC
program in orange County must be evaluated by the ADMINISTRATOR for program
eligibility/suitability. Further, the ADMINISTRATOR "shall have the sole
discretionary authority to permit program participation as an alternative to
physical custody" pursuant to Penal Code .Section 1203.016(d)(2).
Given the State Legislature's intent that "home detention programs
established under this section maintain the highest public confidence,
credibility, and public safety, 11 "no public or private agency or entity may
operate a home detention program in any county without a written contract with
that county's correctional administrator" pursuant to .Penal Code Section
1203.016(j)(2). Accordingly, no public or private agency or entity may operate a
SEC program in Orange County without a written contract with the ADMINISTRATOR.
The population of the SEC program in Orange County shall be limited to
"minimum security inmates and low-risk offenders committed to a county jail or
other county correctional facility or granted probation, or inmates
participating in
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<PAGE>
a work furlough program" pursuant to Penal Section 1203.'016 (a).
Individuals not sentenced by the courts or not, granted probation
(formal, summary, relief of supervision, or informal), shall not be eligible for
participation in the SEC program and therefore shall not be under the auspices
of the ADMINISTRATOR. Consequently, electronic monitoring programs associated
with civil restraining orders, bail release of non-probationers, or electronic
monitoring for individuals not convicted of a crime shall not be within the
purview of the ADMINISTRATOR'S oversight.
5.0 SCOPE OF WORK
CONTRACTOR RESPONSIBILITIES
5.1 General
5.1.1 CONTRACTOR shall provide full electronic monitoring/home
detention services (including, but not limited to, orientation, enrollment,
consultation, monitoring, specified equipment,. installation, notification,
documentation and support services) for Court sentenced participants on a daily
twenty-four (24) hour continuous basis.
5.1.2 For purposes of this Contract, the term "consultation" shall be
interpreted to include: (1) the CONTRACTOR sharing with the COUNTY information
relating to research findings and new developments in the electronic monitoring
industry; and (2) meeting, in person, with the program participant as described
in Sections 5.1.5 and.5.1.6.4.
5.1.3 CONTRACTOR shall be responsible for the daily twenty-four (24)
hour continuous electronic monitoring of program participants. CONTRACTOR will
be expected to provide: (1) a means of verifying all departures from and returns
to the place of confinement; and ' (2) notification to the ADMINISTRATOR or his
designee, of the probable violation of the sentencing conditions. within the
time limits established in this Contract.
Notification shall include, but not be limited to, name, case number and
offense, court and judge, with date and description of incident. Since any
violation of compliance may have a
-9-
<PAGE>
negative consequence for the program participant the monitoring systems
provided by CONTRACTOR must have a very high degree of Reliability and
dependability.
5.1.4 The following are mandatory equipment and system requirements:
Receiver must be equipped with a minimum twelve (12) hour battery
back-up.
Receiver must be sealed and tamper resistant
Transmitter attached to the participant will be as inconspicuous as
possible.
Transmitter battery must have a minimum life expectancy of one (1) year
at the time of installation.
Transmitter and strap must both be equipped with tamper alarm.
Transmitter must be waterproof and hypoallergenic.
Transmitter attached to program participant will have a non-erasable
program identification marking which will identify the CONTRACTOR and
give a central telephone number.
Equipment must be simple in design, cost effective and insured.
All monitoring activity from equipment at participant's residence shall
be reported to CONTRACTOR'S monitoring center through a toll free
(1-800) telephone line.
Monitoring system software must be password protected.
Monitoring system must have flexible curfew scheduling capability tot
accommodate work/school schedules, counseling, medical, and other
authorized appointments.
Monitoring system must provide for selective pager calls and
twenty-four (24) hour pager alert for case managers.
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<PAGE>
Monitoring system must provide expansion capability.
Monitoring system must provide custom event printouts; e.g., curfew
violations, tampers and loss of service.
A routine radio frequency (RF) check must be performed automatically a
minimum of every four (4) hours to verify that the electronic
monitoring equipment is performing to specifications.
In the event CONTRACTOR learns of the development of new, improved
equipment or procedures, which COUNTY feels would be beneficial,
CONTRACTOR agrees to field test, on a pilot basis, at the request of
COUNTY, improved equipment or procedures.
5.1.5 CONTRACTOR shall comply with the SEC Rules and Regulations, attached
hereto as Exhibit 5. 0 and incorporated herein by reference, to assist
in completing the required functions of the Supervised Electronic
Confinement Program as approved by COUNTY.' CONTRACTOR will provide and
document the following support services:
Enroll program participants by the date specified by the
ADMINISTRATOR or his designee.
Provide program participants with written program Rules and
Regulations, participant complaint procedures, and equipment
instructions at the time of enrollment.
Obtain program participant's written consent to participate in
the program and to comply with the Rules and Regulations of
the program at the time of enrollment. This shall be
accomplished by obtaining participant's signature on the form
entitled "Terms and Conditions For Supervised Electronic
Confinement," as set forth in Exhibit 5.0, attached hereto and
incorporated herein by reference.
Complete a written financial assessment during program
orientation to determine the fees that the individual must pay
for program services. Fee establishment will be in accordance
with Exhibit 6.0, and will include the review of income,
available assets debt, and other pertinent financial data,
including spousal income.
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CONTRACTOR shall set the amount, frequency and method of
payment of fees for participation in the SEC program based on
ability to pay, and shall modify or suspend fee obligations *
based on any subsequent change of circumstances.
CONTRACTOR shall implement the established sliding fee scale
to determine the daily program fee based on the participant's
ability to pay in accordance with Exhibit 6.0, entitled "Daily
Program Fees Supervised Electronic Confinement Program"
attached hereto and incorporated herein by reference.
In accordance with Penal Code Section 1208.2(g) CONTRACTOR
SPECIFICALLY ACKNOWLEDGES THAT NO OFFENDER SHALL 13E DENIED
CONSIDERATION FOR, OR BE REMOVED FROM, PARTICIPATION IN THE
SEC PROGRAM BECAUSE OF AN INABILITY TO PAY PROGRAM FEES.
CONTRACTOR FURTHER ACKNOWLEDGES THAT IT MUST INCLUDE PROVISION
OF SERVICE TO INDIGENT OFFENDERS.
In the event of any dispute as to the amount, frequency or
method of payment of fees, CONTRACTOR shall refer the matter
to the ADMINISTRATOR to resolve any fee disputes.
If the participant and the ADMINISTRATOR, or his designee, are
unable to come to an agreement regarding the participant, s
ability to pay, as to amount, frequency or method of payment
of fees, the ADMINISTRATOR shall so advise the appropriate
Court, which shall then resolve any fee disputes pursuant to
California Penal Code Section 1208.2(h).
In accordance with Penal Code Section 1208.2 (f) , CONTRACTOR
acknowledges that the ADMINISTRATOR, or his designee, shall
have the option to waive the program. fees when deemed
necessary, justified, or in the interests of justice. The
program fees may be modified or waived at any time 'based on
the changing financial position of the participant.
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Once an agreement to pay a specified amount has been reached
with the participant, obtain participant's signature on a fee,
agreement form, which specifies the amount and frequency of
payment.
CONTRACTOR acknowledges that at any time during a
participant's sentence, the participant may request the
ADMINISTRATOR, or his designee, to modify or suspend the
payment of fees based on a change of circumstances regarding
ability to pay under Penal Code Section 1208.2(g).
If participant willfully fails to pay program fees after
signing a fee agreement, and has not requested a fee reduction
evaluation, CONTRACTOR may seek to remove the participant from
the SEC program by providing notification to the
ADMINISTRATOR. The ADMINISTRATOR, if unable to obtain,
compliance from the participant, may, without further order of
the Court, immediately retake the participant into custody to
serve the balance of his or her sentence pursuant to Penal
Code Section 1203.016(b).
CONTRACTOR shall specifically comply with the provisions of
California Penal Code Section 1208.2 relating to fee
collection. CONTRACTOR shall be responsible for the collection
of all fees from the participant, and shall not be required to
deposit fees directly into the COUNTY general fund.
Establish and maintain participant case files in compliance
with Probation Department's SEC Rules and Regulations, Exhibit
5.0, attached hereto and incorporated herein by reference.
Assign and install active monitoring equipment, utilizing a
random contact backup system, to all participants within
timelines established by the ADMINISTRATOR.. All equipment
utilized must be pre-approved by the ADMINISTRATOR. In
accordance with California Penal Code Section 1203.016(b),
CONTRACTOR and COUNTY agree that such equipment shall not be
used to eavesdrop or record any telephone conversations.
Monitor participant's adherence to the Supervised Electronic
Confinement Program
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Rules and Regulations and report compliance and noncompliance
to the ADMINISTRATOR as described in Probation Department's
SEC Rules and Regulations. CONTRACTOR' S FAILURE TO REPORT
AND/OR DOCUMENT ACCURATELY EACH INCIDENT OF NONCOMPLIANCE BY A
PARTICIPANT, AS REQUIRED BY SEC RULES AND REGULATIONS, SHALL
BE CONSIDERED A MATERIAL BREACH OF THIS CONTRACT.
Provide notification of all non-emergent tampers, equipment
malfunctions, curfew violations, participant's early returns
and other inconsistencies or violations of the schedules or
rules established for the participants, to the ADMINISTRATOR
on the following calendar day by 7:30 a.m., Pacific Time,
along with a recommendation for continuance on program or
removal.
Notify the ADMINISTRATOR immediately, within one hour, of any
emergency situation, including evidence that the participant
has absconded, the steps taken to ensure the health and safety
of the participants and the public, and take such action as
deemed necessary by the ADMINISTRATOR.
Track and report participant's adherence to other conditions
of probation or orders of the court, which will include, but
not be limited to, counseling, drug/alcohol testing and
required education.
Maintain complete and accurate records regarding:
CONTRACTOR'S program expense and income information.
Participant orientation, enrollment, financial
assessment and payment information.
Participant compliance or lack of compliance.
Staff training.
Assignment, installation, replacement, and removal of
participant's electronic monitoring equipment.
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Electronic monitoring equipment inventory and
maintenance service of each piece of equipment.
All information as required in the Probation
Department's SEC Rules and Regulations.
Provide staff to install and remove equipment within
established time frames as described in Section 5.1.5.
Provide repair and/or replacement of equipment within
twenty-four (24) hours of discovery of a malfunction. Provide
a plan for monitoring the participant during period of time
equipment is not functioning properly; place documented
telephone calls to the participant every two (2) hours until
equipment is repaired or replaced.
Provide documented telephonic response to tamper alarms within
five (5) minutes of occurrence. After initial contact, place
documented telephone calls to the participant every two (2)
hours until tamper is reset or transmitter replaced.
Replacement, if necessary, must occur within twenty-four (24)
hours of initial tamper alarm.. Replacements, repairs and
resets must be documented.
Provide consultation, training, and literature to participant
when deemed appropriate by ADMINISTRATOR or his designee.
Be available, at no cost to the COUNTY, when and if testimony
regarding a program participant is required in any judicial
proceeding.
Provide access, at any time, for Probation Department staff to
inspect records, offices or facilities being maintained in
conjunction with this program.
Keep the Probation Department advised of innovations,
including, but not limited to, new features, software, and
equipment in the electronic monitoring industry.
Additional services may be requested of the CONTRACTOR upon
written request of
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ADMINISTRATOR and the written concurrence of CONTRACTOR prior
to provision of service.
Provide California Department of Transportation approved
Breath Alcohol Testing (BAT) device, either separately, or in
conjunction with electronic monitoring.
Provide written internal procedures to document the receipt
and resolution of client disputes. Any disputes not resolved
through this process within ten (10) business days of the
receipt of the dispute by the CONTRACTOR will be referred to
the ADMINISTRATOR for mediation in accordance with Section
13.0.
Investigate and respond to ADMINISTRATOR in writing within
five (5) business days from receipt of a complaint whenever
ADMINISTRATOR refers a complaint. The response shall include a
statement of the facts, whether the allegation is true or
false, disciplinary action taken, if applicable, and controls
to prevent reoccurrence of the problem.
5.1.6 Other CONTRACTOR Responsibilities shall include but not be
limited to:
5.1.6.1 CONTRACTOR shall be responsible for administering its
own fund for participants determined to be indigent offenders,
and shall absorb any associated costs. An indigent offender
accounting report shall be submitted to the ADMINISTRATOR in
writing each month.
5.1.6.2 CONTRACTOR is authorized to collect a program
participation fee of no more than the equivalent of f if teen
(15) billable days in accordance with Exhibit 6. 0, plus
enrollment and installation fees in accordance with Section
5.1.6.3, from each participant if the period of participation
is less than fifteen (15) days. The program participation fee
shall be in lieu of the daily program fee set forth in Exhibit
6. 0
5.1.6.3 CONTRACTOR may attempt to recover only the following
administrative fees in a addition to the daily program fee from program
participants:
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A one-time maximum enrollment fee of $30.
A change of address fee of $30. All change
of address requests must be approved by the
ADMINISTRATOR. prior to relocation of
equipment.
An equipment repair or replacement fee for
damaged or lost equipment. Program
participants shall not be charged more than
the actual repair or replacement cost, which
may include parts, labor and mileage, in an
amount not to exceed the currently
authorized Internal Revenue Service rate.
Installation fee of $35, plus mileage in an
amount not to exceed the currently
authorized Internal Revenue Service rate.
5.1.6.4 CONTRACTOR shall see electronically monitored
participants in person a minimum of once per month.
5.1.6.5 At the discretion of the ADMINISTRATOR, if, for any
reason, CONTRACTOR cannot, within the timelines specified
herein provide an adequate number of electronic monitoring
units to accommodate its referrals, the ADMINISTRATOR may
require another contractor awarded an SEC contract to assume
supervision responsibility for those referrals without
electronic monitoring units.
COUNTY RESPONSIBILITIES
5.2 COUNTY shall provide Probation Department staff , whose duties shall
include:
5.2.1 Evaluating sentenced defendants who are recommended by the Court
or applying for the program from custody to determine suitability for the
Supervised Electronic Confinement Program. This evaluation process will
include:.
Interviewing defendant and determining eligibility for program
participation;
Accessing, interpreting and evaluating criminal history
information;
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Completing a risk assessment scale; and
Advising the defendant of the provisions of California Penal
Code Section i203. 0 16 (b) (4); namely that the participant
shall agree that the ADMINISTRATOR in charge of the county
correctional facility from which the participant was released
may, without further order of the court, immediately retake
the person into custody to serve the balance of his or her
sentence if the electronic monitoring or supervising devices
are unable for any reason to properly perform their function
at the designated place of confinement, if the person fails to
remain within the place of confinement as stipulated in the
Terms and Conditions agreement, if the person willfully fails
to pay fees to the provider of electronic confinement
services, as stipulated in the SEC Terms and Conditions
subsequent to the written notification of the participant that
the payment has no'.-. been received and that return to
custody may result, or if the person for any other reason no
longer meets the established criteria. A copy of the SEC Rules
and Regulations, including the Terms and Conditions, shall be
signed by and delivered to the participant and a copy retained
by the ADMINISTRATOR.
Reporting defendant's suitability for program participation to
the Court and the CONTRACTOR.
5.2.2 The ADMINISTRATOR or his designee, shall have the sole discretionary
authority to permit program participation as an alternative to physical
custody. All persons recommended by the Court to participate in the SEC
program who are denied participation or all persons removed from
program participation shall be notified in writing by the ADMINISTRATOR
or his designee of the specific reasons for the denial or removal. The
notice of denial or removal shall include the participant's appeal
rights, as established by Probation Department policy.
5.2.3 Acting as liaison and consultant between Probation, CONTRACTOR, and the
Court. This will. include:
Meeting with Courts and other criminal justice agency representatives;
and
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Conducting on-site inspections and audits to review and
monitor all program corn- components including, but not
limited to, participant case files, monitoring records, and
other records to ensure CONTRACTOR'S compliance to Contract
provisions.
5.2.4 The ADMINISTRATOR shall conduct an annual review on July 1 of each year
this Contract is in effect, to ensure compliance with requirements set
forth herein and approved by the Board of Supervisors and for
adjustment of the financial responsibility requirements if warranted by
caseload changes or other factors, pursuant to Penal Code Section
1203.016(j)(3)(B)(iii). Said adjustment shall be within the sole
discretion of ADMINISTRATOR.
5.3 Other COUNTY Responsibilities shall be as follows:
5.3.1 The Probation Department agrees to work 'with the Court if it
appears that an inordinate number of indigent participants are being
referred to the program, or if too few paying participants are
referred, and 'the program is in jeopardy of financial losses.
5.3.2 Participants in the Supervised Electronic Program will be advised
by the Confinement (SEC) Probation Department that the SEC program is a
voluntary program and failure to abide by the terms and conditions of
the program, including payment of fees, may result in participants,
termination from the program and return to jail to serve the remainder
of their sentences. The Probation Department will recommend to the
Courts that they give the same advisement to participants.
5.3.3 In the event that more than one (1) contractor is awarded a
contract to provide Supervised Electronic Confinement services,
ADMINISTRATOR will advise participants that they will be assigned to a
contractor based upon the date and time of their application, and will
not be allowed to choose between existing contractors. Assignment of
participants to CONTRACTOR will be in accordance with Section 5.8,
below.
5.4 Program objective:
It is mutually understood and agreed that the primary objective of the
Supervised Electronic Confinement Program is to provide complete and highly
reliable electronic
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monitoring/home detention services as an effective alternative to incarceration.
5.5 Target Population:
It is mutually understood and agreed that:
This program will basically serve as a sanction for adult minimum
security and low-risk offenders committed to Orange County Jail or'
other County correctional facilities, or granted probation, or inmates
participating in work furlough from Orange County Courts, as specified
in Section 4.23 of this Contract.
Offenders considered for program participation will be primarily those
charged with non-violent misdemeanors, civil contempt, or non-violent
felonies, such as auto theft, low grade auto and commercial burglaries,
drunk driving, welfare fraud, etc.
ADMINISTRATOR will generally exclude from participation offenders with
a history of violence, convicted of violent felonies, convicted of drug
sales, or convicted of child molestation.
Participation in the Supervised Electronic' Confinement Program will be
subject to determination on an individual case basis by the
ADMINISTRATOR when home confinement appears to be an alternative to
jail.
ADMINISTRATOR shall not consider a person's ability or inability to pay
all or a portion of the program fee for the purposes of granting or
denying a person's participation in, or assigning a person to, the
Supervised Electronic Confinement Program.
ADMINISTRATOR shall provide a copy of the Probation Department's SEC
Rules and Regulations to CONTRACTOR.
Suitable disabled offenders or those with medical restrictions may also
participate in the program, as well as caretakers of others who may
need to remain at home.
5.6 Referrals:
CONTRACTOR SHALL NOT ACCEPT PARTICIPANTS TO THIS PROGRAM WITHOUT
REFERRAL FROM THE ADMINISTRATOR. CONTRACTOR SPECIFICALLY AGREES THAT THE
AUTHORITY TO DETERMINE ELIGIBILITY FOR THE SUPERVISED ELECTRONIC CONFINEMENT
PROGRAM IS VESTED SOLELY IN THE ADMINISTRATOR OR HIS DESIGNEE PURSUANT TO PENAL
CODE , SECTION 1203.0116 (d). FURTHER, CONTRACTOR SHALL ACCEPT ALL PARTICIPANTS
REFERRED TO CONTRACTOR BY ADMINISTRATOR.
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5.7 Target Area:
The target area for the SEC Program shall be the Counties of Orange,
Los Angeles, San Bernardino, Riverside and San Diego where a program
participant resides while under the jurisdiction of the Orange County
Courts. Limited exception to the above-noted counties will be
determined by the ADMINISTRATOR as capability to serve other areas is
demonstrated by CONTRACTOR and by ADMINISTRATOR.
CONTRACTOR shall be required to provide a plan that demonstrates its
ability to monitor program participants residing within the State of
California. The plan should include current and proposed corporate
offices, monitoring centers and case management facilities where
participants would report. CONTRACTOR must continuously maintain a
reporting facility in Orange County for participants.
5.8 Case Assignment:
In the event more than one contractor is awarded a Contract for the
provision of SEC services, each contractor will be assigned
participants on a "rotational" basis, in sequential order.
ADMINISTRATOR or his designee will refer program applicants to each
contractor in the order in which the applicants are logged for program
participation referral, without regard to income, place of residence,
or Court of jurisdiction.
The assignment will be based upon the total scores (Phases I and II)
which the contractor received in the SEC Request for Proposal
evaluation; i.e. the highest scorer will receive the first referral
logged for program participation; the second highest scorer will
receive the second referral; the third highest scorer will receive the
third referral, and continuing in that sequence with all subsequent
referrals. CONTRACTORS may trade assigned inmates with the approval of
the ADMINISTRATOR.
6.0 PERSONNEL
6.1 Key County Personnel
6.1.1 Project Director
The ADMINISTRATOR's designee shall serve as the
Project Director with full authority to monitor
CONTRACTOR's performance in the daily operation of
this Contract.
6.1.2 The Project Director shall provide direction to
CONTRACTOR in areas relating to policy, information and procedural
requirements.,
6.1.3 The Project Director is not authorized to make any
changes in the terms and conditions of this Contract and is not
authorized to obligate the COUNTY in any way whatsoever beyond the
terms of the Contract except as provided in Section 26.0 hereunder.
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6.1.4 The ADMINISTRATOR will inform the CONTRACTOR of the
name, address and telephone number of the Project Director at the time
this Contract is awarded, and at the time of any subsequent changes in
the assignment of personnel
6.2 Key Contractor Personnel
CONTRACTOR SHALL NOT EMPLOY, IN ANY CAPAC1TY, ANY PARTICIPANT IN THE
SUPERVISED ELECTRONIC CONFINEMENT PROGRAM.
6.2.1. Project Manager
CONTRACTOR shall provide its own full-time officer or
employee, as on-site Project Manager. The Project Manager and
an approved alternate shall be assigned on site locally Monday
through Friday and available by pager for telephone contact
twenty-four (24) hours a day,' Monday through Sunday,
including all holidays. The Project Manager shall provide
overall management and coordination of contract services on
the CONTRACTOR's behalf, shall act as the central point of
contact with the Probation Department, and have access to
technical assistance at all times.
When the Project Manager described above cannot be present,
and with prior approval of the COUNTY Project Director, an
equally qualified individual shall be designated to act for
the Project Manager.
6.2.2 The Project Manager or approved alternate shall have full
authority to act for the CONTRACTOR on all contract matters
relating to this daily operation of the contract services.
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6.2.3 The Project Manager or approved alternate shall be available
during normal weekday work hours, 8 a.m. to 5 p.m., to meet
with COUNTY personnel designated by the COUNTY to discuss
problem areas.
6.2.4 The Project Manager must have a minimum of twelve (12) months
of demonstrated previous experience in the management and
operation of electronic monitoring/home detention services or
functions of similar scope.
6.2.5 COUNTY shall have the right to review the qualifications and
approve the Project Manager and any replacement recommended by
CONTRACTOR.
6.2.6 CONTRACTOR shall inform the COUNTY Project Director, in
writing within ten (10) business days, o f any change of
Program Manager and provide evidence of the replacement's
qualifications.
6.2 Other Contractor Personnel
6.3.1 CONTRACTOR shall be responsible for providing competent
trained staff to fulfill the services required under this
Contract. Training shall include, but not be limited to,
policies and procedures, equipment and monitoring, case
management techniques, documentation procedures, participant
compliance procedures, and participant fee assessment
procedures, and knowledge of applicable legal statutes.
6.3.2 CONTRACTOR'S staffing ratio for case managers must be
maintained at one (1) case manager for every fifty (50)
program participants, plus or minus 10%.
6.3.3. All operational personnel shall be able to speak, read, write,
and understand English.
6.3.4. CONTRACTOR shall demonstrate the ability to provide services
for non-English speaking participants.
6.3.5. CONTRACTOR shall ensure that by the first day of employment,
all persons with access to its computer system, database or
records of participants monitored by this system have signed
the acknowledgement form regarding confidentiality, attached
hereto as Exhibit :2.0 and,
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incorporated herein by reference, that meets the standards of
the Probation Department for COUNTY employees having access to
confidential criminal offender record information (CORI).
CONTRACTOR shall retain the original CORI form and forward a
copy to COUNTY Project Director within five (5) business days
of start of employment.
6.3.6 CONTRACTOR shall inform COUNTY's Project Director, in writing,
within ten (10) business days, of any change in CONTRACTOR'S
personnel assigned to perform any work on this program.
CONTRACTOR shall provide employee rosters, on a monthly basis,
to the COUNTY's Project Director.
6.4 Contractor Employee Acceptability
The COUNTY reserves the right to preclude the CONTRACTOR from
employment or continued employment of any individual. The CONTRACTOR
shall be responsible for removing and replacing any employee within
twenty-four (24) hours when requested to do so by the COUNTY Project
Director.
6.5 Employee Benefits and Acknowledgement of Employer
6.5.1 CONTRACTOR shall be solely responsible for providing to, or on
behalf of its employees, all legally required employee benefits. The
acknowledgement attached hereto as Exhibit 3.0 and incorporated herein by
reference, that each employee understands that they are an employee of
CONTRACTOR and not of COUNTY must be signed by each employee of CONTRACTOR
employed at the site by the first day of his or her employment. *Original
acknowledgment must be kept by the CONTRACTOR and a copy must be filed within
five (5) business days of said employment with the COUNTY Project Director.
6.5.2 COUNTY shall not assume any liability for the payment of
salaries, wages, benefits, or other compensation to, or on behalf of, any
personnel provided by the CONTRACTOR.
6.6 Employee Criminal Records and Notices
CONTRACTOR shall be responsible for ongoing implementation and
monitoring of sub-sections 6.6.1 through 6.6.4. On at least a quarterly basis,
CONTRACTOR shall report, in writing, monitoring results to ADMINISTRATOR,
indicating
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compliance or problem areas. Elements of this monitoring report shall receive
prior written approval 'from ADMINISTRATOR or his designee.
6.6.1 No personnel employed by the CONTRACTOR for this program or having
access to Probation Department information or records shall have. a
criminal arrest or conviction record unless such record has been fully
disclosed and ADMINISTRATOR has approved employment.
6.6.2 CONTRACTOR shall be under a continuing obligation to disclose any prior
or subsequent criminal arrest or conviction record information
regarding any CONTRACTOR employee assigned to this Contract or having
access to information pertaining to this Contract to ADMINISTRATOR.
6.6.3 CONTRACTOR shall submit names of its employees working in the SEC
program to the ADMINISTRATOR within five (5) business days of the Sale
of hire. ADMINISTRATOR will schedule an appointment to conduct a
background investigation/record check based on fingerprints of
employees and further reserves the right to conduct a background
investigation of CONTRACTOR'S I S employees at any time.
6.6.4 When the COUNTY is charged A fee by the State of California or a
federal agency to perform a fingerprint record check of a CONTRACTOR'S
employee, COUNTY will bill CONTRACTOR to recover actual expenses. The
current cost for this service is $32.00. . This amount is subject to
change upon notification from the State or federal agencies conducting
the fingerprint record check. This amount shall be in addition to the
CONTRACTOR'S monthly fee as set forth in Exhibit 4.0 and referenced in
Section 2.0.
7.0 QUALITY CONTROL
CONTRACTOR shall establish and maintain a Quality Control Plan to ensure that
the requirements of the Contractor met. An updated copy must be provided to the
COUNTY Project Director on or before the effective date of this Contract, and as
changes occur. The original plan and any future amendments are subject to COUNTY
review and approval and shall include, but. not be limited to:
7.1 A functional performance test and evaluation of the electronic
'monitoring equipment, with documented results,
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each time the equipment is issued to and returned by a program
participant; CONTRACTOR will provide a written plan describing how its
systems will be -tested and' how performance standards will be met.
7.2 An inspection system assuring ongoing delivery of services; it
must specify the activities to be audited/inspected on either
a scheduled or unscheduled basis, haw often audits/inspections
will be accomplished, the title of the individual(s) who will
perform and I the audits/ inspections and the methods for
identifying and preventing deficiencies in the quality of the
system. All audits/ inspection results must be documented and
available for review by COUNTY during normal business hours.
7.3 A computerized method of tracking equipment inventory,
maintenance, battery life, and service records specific to
each piece of equipment in accordance with suggested
manufacturers' maintenance specifications.
7.3 A method for ensuring uninterrupted SEC program service in the
event of a strike of CONTRACTOR'S employees.
7.5 A method f or - ensuring that of f ender record
confidentiality is maintained.
8.0 QUALITY ASSURANCE
The COUNTY will evaluate CONTRACTOR'S performance under this Contract using the
quality assurance procedures specified in Exhibit 1.0 attached hereto and
incorporated herein by reference, or such other procedures as may be necessary
to ascertain CONTRACTOR compliance with this Contract.
8.1 A Contract Discrepancy Report (CDR) will be issued by the
COUNTY Project Director when a performance requirement is not
met. CONTRACTOR shall also complete a Contract Discrepancy
Follow-up Report explaining in writing how and when
performance will be returned to acceptable levels and how the
recurrence of the problem will be prevented.
8.2 Monitoring techniques used by the COUNTY to determine the
quality of CONTRACTOR'S performance include, but, are not
limited to:
Random sampling inspections
100% inspections
Periodic reports
Site visits
8.3 The COUNTY Project-Director may assess adjustments and/or
liquidated damages involving CONTRACTOR'S non-compliance as
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provided in Exhibit 1.0, "Performance' Requirements Summary",
attached hereto and incorporated herein by reference.
8.4 CONTRACTOR shall have the right to appeal such decision
involving the assessment of adjustments or liquidated damages,
in writing to the ADMINISTRATOR within five (5) business days
of said notice.
The decision of the ADMINISTRATOR shall be final.
8.5 At ADMINISTRATOR'S direction, the COUNTY Project Director
shall chair a steering committee consisting of designated
Probation Department staff and a Project Manager for each
contractor awarded an SEC contract. The committee shall meet
on a monthly basis to discuss operational procedures, and
advise the ADMINISTRATOR. A concerted effort will be made to
resolve all problems identified. Whenever meetings are held,
the written minutes shall be taken by Probation Department
staff and distributed to the contractor(s).
9.0 HOURS OF OPERATION
The CONTRACTOR shall provide electronic monitoring/home detention
services for program participants on a daily twenty-four (24) hour continuous
basis.
10.0 COUNTY FURNISHED PROPERTY/EQUIPMENT
The COUNTY shall not provide CONTRACTOR with real property and/or
equipment necessary to operate this Contract.
11.0 CONTRACTOR FURNISHED ITEMS
CONTRACTOR shall furnish all personnel and equipment necessary to
perform all services required by this Contract.
12.0 WORK OUTSIDE OF SCOPE OF CONTRACT
CONTRACTOR agrees that any work performed outside the scope of this
Contract, without the prior written approval of COUNTY in accordance
with Section 26, entitled "Changes and Amendments of Terms", shall be
deemed to be a gratuitous effort on the part of the CONTRACTOR, and the
CONTRACTOR shall have no claim therefore against the COUNTY.
13.0 DISPUTES
Any disputes between CONTRACTOR and the COUNTY regarding the
performance of services hereunder shall be mutually resolved by the
COUNTY Project Director and the CONTRACTOR'S Program Manager. In the
event no mutual agreement can be reached, the decision of the
ADMINISTRATOR shall prevail.
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14.0 TAX LIABILITY LIMITATION
COUNTY shall have no liability or responsibility for any taxes
including, without limitation, sales, income and/or property taxes which may be
imposed in connection with or resulting from this Contract or CONTRACTOR'S
performance hereunder.
15.0 TERMINATION FOR CONVENIENCE OF THE COUNTY
15.1 Performance of services under this Contract may be terminated
by COUNTY in whole or in part, when such action is deemed by
COUNTY to be in its best interest. Termination of work shall
be effected by delivery to CONTRACTOR of a sixty (60) day
written Notice of Termination specifying the extent to which
performance of work is terminated, and the date upon which
such termination becomes effective.
15.2 After receipt of the Notice of Termination and except as,
otherwise directed by COUNTY, CONTRACTOR shall:
15.2.1 Stop services under this Contract on the date and to
the extent specified in the Notice of Termination.
15.2.2 Complete performance of that part of the work k that
is not terminated by the Notice of Termination.
15.3 After receipt of a Notice of Termination, CONTRACTOR shall
submit to COUNTY, in the form and with the certifications as
may be prescribed by COUNTY, its final termination statement.
Such statement shall be submitted promptly, but not later than
three (3) months from the effective date of termination. Upon
failure of CONTRACTOR to submit its termination statement
within the time allowed, COUNTY may -determine on the basis of
the information available to COUNTY, the amount, if any due to
COUNTY with respect to the termination and such determination
shall be final. After such determination is made, CONTRACTOR
shall. pay COUNTY the amount so determined.
15.4 Subject to the provisions of the paragraph immediately above,
COUNTY and CONTRACTOR shall negotiate an equitable amount to
be paid COUNTY as a result of the total or partial termination
of work pursuant to this Section. Said amount may include a
reasonable allowance for CONTRACTOR'S profit on work done but
shall not include an allowance on work terminated. CONTRACTOR
shall pay the agreed amount; subject to other limitations and
provided that such amount shall not exceed the total funding
obligated under this Contract as reduced by the amount of
payments otherwise made and as further reduced by the contract
price of work not terminated.
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16.0 TERMINATION FOR CONVENIENCE OF THE CONTRACTOR
16.1 Performance of services under this Contract may be terminated
in whole by CONTRACTOR, when such action is deemed by
CONTRACTOR to be in its best interest. Termination of work
shall be effected by delivery to COUNTY of a sixty (60) day
written Notice of Termination specifying the date upon which
such termination becomes effective.
16.2 After delivery of the Notice of Termination, CONTRACTOR shall
stop services under this Contract on the date specified in the
Notice of Termination.
16.3 After delivery of a Notice of Termination, CONTRACTOR shall
submit to COUNTY, in the form and with the certifications as
may be prescribed by COUNTY, its final termination statement.
Such statement shall be submitted promptly but not later than
three (3) months from the effective date of termination. Upon
failure of CONTRACTOR to submit its termination statement
within the time allowed, COUNTY may determine on the basis of
the information available to COUNTY, the amount, if any, due
to COUNTY with respect to the termination and such
determination shall be final. After such determination is
made, CONTRACTOR shall pay COUNTY the amount so determined.
16.4 Subject to the provisions of the paragraph immediately !above,
COUNTY and CONTRACTOR shall negotiate an equitable amount to
be paid COUNTY as a result of the termination of work pursuant
to this Section. Said amount may include a reasonable
allowance for CONTRACTOR'S profit on work done but shall not
include an allowance on work terminated. CONTRACTOR shall pay
the agreed amount; subject to other limitations and provided
that such amount shall not exceed -the total funding obligated
under this Contract as reduced by the amount of payments
otherwise made, . including the deposit specified in Section
2.4.
17.0 TERMINATION FOR DEFAULT OF CONTRACTOR
17.1 COUNTY may, subject to the provisions outlined below, by
written notice of default to CONTRACTOR, terminate, in whole
or in part, this Contract, in the following circumstances:
17.1.1 If CONTRACTOR fails to comply with applicable statutory
provisions and requirements or with the standards imposed by
this Contract and by the Correctional Administrator, such
failure may be cause for termination of the Contract, COUNTY
shall. provide sixty (60) days written notice to CONTRACTOR of
the lack of compliance and that the Contract may be cancelled
if the specified deficiencies are not
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corrected within the period of time designated in the notice
after receipt of notice from CONTRACTOR specifying such
deficiency. In the event the situation poses a serious threat
to public safety, COUNTY may give shorter notice, or cancel
the entire Contract, without notice, pursuant to Penal Code
Section 1203.016(J)(3).
17.2 In the event COUNTY terminates this Contract in whole or in part
as provided in this Section, COUNTY may procure, upon such terms and in such
manner as COUNTY may deem appropriate, services similar to those terminated,
either from a remaining CONTRACTOR subject to a similar Contract, or otherwise,
and CONTRA CTOR shall be liable to COUNTY for any costs incurred in securing
similar services.
17.3 If, after notice of termination of this Contract pursuant to the
provisions of this Section, it is determined fox, any reason that CONTRACTOR was
not in default under the provisions of this Section or that the default was
excusable, the rights and obligations of the parties shall be the same as if the
notice of termination had been issued pursuant to Section 15.0 entitled
"Termination for Convenience of the COUNTY".
18.0 DEFAULT FOR INSOLVENCY
18.1 COUNTY may cancel this Contract f or default in the event of
the occurrence of any of the following:
18.1.1 Insolvency of CONTRACTOR. CONTRACTOR shall be deemed
insolvent if it has ceased to pay its debts in the ordinary
course of business or cannot pay its debts as they become due
whether it has committed an act of bankruptcy or not, and
whether insolvent within the meaning of the Federal Bankruptcy
Law or not;
18.1.2 The filing of a voluntary petition to bankruptcy;
18.1.3 The appointment of a Receiver or Trustee for
CONTRACTOR;
18.1.4 The execution by CONTRACTOR of an assignment, for the
benefit of creditors.
19.0 INDEPENDENT CONTRACTOR STATUS
This Contract is by and between the County of Orange and CONTRACTOR and is not
intended and shall not be construed to create a relationship of agent, servant,
employee, joint venture, or association as between
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COUNTY and CONTRACTOR. CONTRACTOR understands and agrees that all persons
furnishing services to COUNTY pursuant to this Contract are, for purposes of
Workers' Compensation liability, employees solely of CONTRACTOR and not
employees of COUNTY. CONTRACTOR shall bear the sole responsibility and liability
for furnishing Workers, Compensation benefits to any person for injuries arising
from or connected with- services performed on behalf of CONTRACTOR pursuant to
this Contract.
20.0 SUBCONTRACTING
20.1 No performance of this Contract or any portion thereof may be
subcontracted by CONTRACTOR without the express written
consent of ADMINISTRATOR. Any attempt by CONTRACTOR to
subcontract any performance of the terms of this Contract
without the express written consent of ADMINISTRATOR shall be
null and void and shall constitute a breach of the terms of
this Contract. In the event of such a breach, this Contract
may be terminated forthwith.
20.2 In the event that ADMINISTRATOR should consent to
subcontracting, each and all of the provisions for- this
contract and any amendment thereto shall extend to and be
binding upon and inure to the benefit of the successors or
administrators of the respective parties.
20.3 In the event that ADMINISTRATOR should consent to
subcontracting, the CONTRACTOR Shall include in all
subcontracts the following provision: "This contract is a
subcontract under the terms of a prime contract with the
County of Orange. All representations and warranties ,hall
inure to the benefit of the County of Orange."
21.0 INDEMNIFICATION
21.1 COUNTY, its officers, agents and employees shall not be deemed
to have assumed any liability for the negligence or any other
act or omission of CONTRACTOR or any of its officers, agents
or employees, or for any dangerous or defective condition of
any work or property of CONTRACTOR.
CONTRACTOR shall indemnify and hold COUNTY, its officers, agents and employees
free and harmless from any claim or liability whatsoever, based or asserted upon
the condition of any work or property of CONTRACTOR, or upon any act or omission
of CONTRACTOR, its officers, agents, employees, related to this Contract, for
property damage, bodily injury or death or any other element of damage of any
kind or nature, and CONTRACTOR shall defend at its expense including attorney
fees, COUNTY, its officers, agents and employees in any legal action or claim of
any kind based upon such condition Of work or property, or alleged acts or
omissions.
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21.2 COUNTY shall indemnify and hold CONTRACTOR, its officers,
agents and employees free and harmless from any claim or
liability whatsoever, based or asserted upon any act or
omission of COUNTY, its officers, agents and employees related
to this Contract, for property damage, bodily injury or death
or any other element of damage of any kind or nature, and
COUNTY shall defend, at its expense including attorney fees,
CONTRACTOR, its officers, agents, employees in any legal
action or claim of any kind based upon such alleged acts or
omission.
22.0 INSURANCE
Without limiting CONTRACTOR'S indemnification of COUNTY, CONTRACTOR
shall provide and maintain at its own expense during the term of this
Contract the following programs of insurance covering its operations
hereunder. Such programs and evidence of insurance shall be
satisfactory to COUNTY and shall be primary to and not contributing
with any other insurance maintained by COUNTY. Certificates or other
evidence of coverage shall be delivered to Orange County Probation
Department, 909 N. Main, Santa Ana, CA 92701, Attention: orange County
Correctional Administrator, Supervised Electronic Confinement Program,
prior to commencing services under this Contract, or at any time
requested by the Orange County Board of Supervisors or the
ADMINISTRATOR. Such evidence ,.hall specifically identify this Contract
and shall contain express conditions that COUNTY is to be given written
notice by registered mail at least thirty (30) days in advance of any
modification or termination of insurance:
22.1 Liability: Such insurance shall be provided by a. company
'authorized to do surety business in California, and shall be
endorsed naming the County of Orange as an additional insured,
and shall include, but not be limited to:
22.1.1 General Liability insurance from a company authorized
to do surety business in California, written on a
commercial general liability form or on a
comprehensive general liability form covering the
hazards of premises/operations, contractual,
independent contractors, products/ completed
operations, broad form property, damage, and personal
injury with a combined single limit of not less than
one million dollars ($1,000,000) per occurrence.
a. If written with an annual aggregate limit, the policy
limit shall be three (3) times the above required
occurrence limit upon such condition of work or
property, or alleged acts or omissions.
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b If written on a claims made form, the CONTRACTOR
shall continue to name the County of Orange as an
additional insured or provide an extended two (2)
year reporting period commencing upon termination or
cancellation of this Contract.
22.1.2 Comprehensive Auto Liability Insurance endorsed for
all owned, non-owned, and hired vehicles with a
combined single limit of at least $300,000 per
occurrence.
22.2 Worker's Compensation: A program of Workers' Compensation
Insurance in an amount and form to meet all applicable
requirements of the Labor Code of the State of California,
including Employers Liability with a $1,000,000 limit covering
all persons providing services on behalf of CONTRACTOR and all
risk to such persons under this Contract.
22.3 Failure on the part of CONTRACTOR to procure or maintain
required insurance shall constitute a material breach of
contract upon which COUNTY may immediately terminate or
suspend this Contract.
22.4 ADMINISTRATOR shall review, on an annual. basis, CONTRACTOR'S
procurement of insurance to ensure compliance with the
financial responsibility required by California .Penal Code
Section 1203.016(j)(3)(B)(iii, iv, and v); and for adjustment
of required insurance if warranted by caseload changes or
other factors.
23.0 COVENANT AGAINST CONTINGENT FEES
CONTRACTOR warrants and represents that no person or selling agency has
been employed or retained to solicit or secure this Contract upon an
agreement or understanding for a commission, percentage, brokerage, or
contingent fee excepting bona fide employees or bona fide established
commercial or selling agencies maintained or employed by CONTRACTOR for
the purpose of securing business.
For breach or violation of this warranty, COUNTY shall have the right
to terminate this Contract, and, in its sole discretion, to deduct from
the contract price or consideration, or otherwise recover, the full
amount of such commission, percentage, brokerage or contingent fee.
24.0 GOVERNING LAWS
This Contract shall be construed in accordance with and governed by the
laws of the State of California.
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25.0 COMPLIANCE WITH LAWS
25.1 CONTRACTOR agrees to comply with all applicable Federal, State
and local laws, rules, regulations and ordinances, including,
but not limited to, California Penal Code Sections 1203.016,
1208.2, 1208.3, 1208.5, and 2900.5, and all provisions
required thereby to be included herein, are hereby
incorporated by this reference.
25.2 CONTRACTOR specifically agrees to comply with all appropriate
state and local building, zoning, health, safety, and fire
statutes, ordinances and regulations specified in California
Penal Code Section 1208(a), in accordance with California
Penal Code Section 1203.016(j) .
25.3 CONTRACTOR specifically agrees to operate in compliance with
any available standards promulgated by State correctional
agencies and bodies, in accordance with California Penal Code
Section 1203.016(j)(3)(B)(i.).
25.4 CONTRACTOR shall indemnify and hold COUNTY harmless from any
loss, damage or liability resulting from a violation on the
part of CONTRACTOR of such laws, rules, regulations and
ordinances.
26.0 CHANGES AND AMENDMENTS OF TERMS
COUNTY reserves the right to change any portion of the work required
under this Contract, or amend such other terms and conditions which may become
necessary. Any such revisions shall be accomplished in the following manner:
26.1 For any change which does not materially affect the scope of
work, period of performance, payments, or any other term or
condition included under this Contract, a Change Notice -shall
be prepared and signed by the ADMINISTRATOR or his designee
and CONTRACTOR'S Project Manager.
26.2 For any revision which materially affects the scope of work,
period of performance, payments, or any term and condition
included in this Contract, a negotiated modification to this
Contract shall be executed by the COUNTY Board of Supervisors
and CONTRACTOR.
26.3 As used herein, the term "materially" is defined as being a
change of more than (10%) ten percent of the contractual
agreement, a change of more than one hundred eighty (180) days
to any period of performance or a change in the work required
which, in the sole discretion of the ADMINISTRATOR or his
designee warrants execution by the Board of Supervisors.
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27.0 ASSIGNMENT
This Contract, or any interest therein, including any claims for monies
due or to become due with respect thereto, may be assigned only upon
the written consent of the other party and any prohibited assignment
shall be null and void. Any payments to any assignee of any claim under
this Contract, in consequence of such consent, shall be subject to
set-off, recoupment or other reduction for any claim which one party
may have against the other.
28.0 GRATUITIES
COUNTY may, by written notice to CONTRACTOR, terminate the right of
that CONTRACTOR to proceed under this Contract upon one (1) calendar
day's notice, if it is found that gratuities in the form of
entertainment, gifts, or otherwise are offered or given by the
CONTRACTOR, or any agent or representative of CONTRACTOR, to any
officer or employee of COUNTY with a view towards securing a contract
or securing favorable treatment with respect to the awarding, or
amending, or the making of any such determination with respect to the
performance of such Contract. In the event of such termination, COUNTY
shall be entitled to pursue the same remedies against the CONTRACTOR as
it could pursue in the event of default by CONTRACTOR.
29.0 RECORD RETENTION AND INSPECTION
Within ten (10) days of a written request from COUNTY, CONTRACTOR shall
allow COUNTY or authorized State and Federal agencies to have access to
and examine, audit, excerpt, copy or transcribe any pertinent
transaction, activity, time cards or other records relating to this
Contract. Such material, including all pertinent cost accounting,
financial records and proprietary data, shall be kept and maintained by
CONTRACTOR for a period of five (5) years after completion of this
Contract, or until such time as all audits are complete, whichever is
later. In the event records are located outside the County of Orange,
CONTRACTOR shall pay COUNTY for travel and per them costs connected
with any inspection or audit.
30.0 AUDIT
At any time during the term of this Contract or at any time after the
expiration or termination of this Contract, authorized representatives
of COUNTY may conduct an audit of CONTRACTOR regarding the services
provided to COUNTY.
31.0 PUBLICITY
CONTRACTOR shall not disclose any details in connection with this
Contract to any party, except as may be otherwise provided herein or
required by law. However, in recognizing CONTRACTOR'S
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need to identify its services and promote business, COUNTY shall not
inhibit CONTRACTOR from publicizing its role under this Contract
provided the following conditions are met:
31.1 CONTRACTOR shall develop all publicity material in a
professional manner and provide\copies of such material to
the COUNTY Project Director; and
31.2 During the course of performance of this Contract, CONTRACTOR,
its employees, agents, and officers shall not publish or
disseminate commercial advertisements, press releases,
opinions or feature articles, using the name of COUNTY without
the prior written consent of ADMINISTRATOR.
32.0 NOTICE OF DELAYS
Except as otherwise expressly provided herein, when either party has
knowledge that any actual or potential situation is delaying or
threatens to delay the timely performance of this Contract, that party
shall, within five (5) days, give notice thereof, including all
relevant information with respect thereto, to the other party.
33.0 VALIDITY
The invalidity in whole or in part of any provision of this Contract-
shall not void or affect the validity of any other provision.
34.0 WAIVER
Waiver of a breach of any provision of this Contract by COUNTY shall
not constitute a waiver of any other or subsequent breach and shall not
be construed to be a modification of the terms of this Contract.
Failure of COUNTY to enforce at any time, or from -time to time, any
provision of this Contract, shall not be construed as a waiver thereof.
The remedies of COUNTY herein shall be cumulative and in addition to
any other remedies in law or equity.
35.0 NOTICES
35.1 Notices required or permitted to be given under the terms of
this Contract or by any law now or hereafter in effect may, at
the option of the party giving notice, be given by enclosing
the same in a sealed envelope addressed to the party for whom
intended and by depositing such envelope with postage prepaid
in the United States Post Office or substation thereof, or any
public mail box; and any such notice and the envelope
containing same shall be addressed to CONTRACTOR at his place
of business, or such other place As may be hereinafter
designated in writing by CONTRACTOR, as follows:
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Sentencing Concepts, Inc.
1815 E. Center Street, Suite 201
Anaheim, California 92805
The notices and envelopes containing same to COUNTY shall be addressed to:
Michael Schumacher, Orange County
Correctional Administrator
Orange County Probation Department
P.O. Box 10260
Santa Ana, CA 92711
34.2 ADMINISTRATOR shall have authority to execute all notices
required or permitted to be given herein.
36.0 IMMIGRATION REFORM AND CONTROL ACT OF 1986
CONTRACTOR warrants that it fully complies with all laws regarding
employment of aliens and others, and that all its employees performing
services hereunder meet the citizenship or alien status requirements
contained in Federal and State statutes and regulations including, but
not limited to, the Immigration Reform and Control Act of 1986 (P.L.
99-603). CONTRACTOR shall obtain, from all covered employees performing
serviceshereunder, all-verification and other documentation of
employment eligibility status required by Federal statutes and
regulations as they currently exist and as they may be hereafter
amended. CONTRACTOR shall retain such documentation for all covered
employees for the period prescribed by law. CONTRACTOR shall indemnify,
defend, and hold harmless, the COUNTY, its officers and employees from
employer sanctions and any other liability which may be assessed
against CONTRACTOR or COUNTY or both in connection with any alleged
violation of Federal statutes or regulations pertaining to the
eligibility for employment of persons performing services under this
Contract.
37.0 ASSURANCE OF COMPLIANCE WITH CIVIL RIGHTS LAWS
CONTRACTOR hereby assures that it will comply with Subchapter VI of the
Civil Rights Act of 1964, 42 USC Sections 2000e through 2000e (17), to
the end that no person shall, on the grounds of race, creed, color,
sex, or national origin, be excluded from participation in, be denied
the benefits of, or be otherwise subjected to discrimination under this
Contract or under any project, program, or activity supported by this
Contract.
38.0 NONDISCRIMINATION IN EMPLOYMENT
38.1 CONTRACTOR certifies and agrees that all persons employed by
it, its affiliates, subsidiaries, or holding companies, 'are
and will be treated equally by it without regard to or because
of race, color, religion, ancestry, national
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origin, sex, age or condition of physical or mental
disability, marital status, or political affiliation, in
compliance with all applicable Federal and State
anti-discrimination laws and regulations.
38.2 CONTRACTOR shall take affirmative action to ensure that
qualified applicants are employed and that employees are
treated during employment, without regard to their race,
color, religion, sex, ancestry, national origin, age or
condition of physical or mental disability or marital status,
or political affiliation or Vietnam veterans. Such action
shall include, but is not limited to, the following:
employment, upgrading, demotion, transfer, recruitment, or
recruitment advertising, layoff or termination, rates of pay
or other forms of compensation and selection for training,
including apprenticeship.
38.3 CONTRACTOR shall deal with its COUNTY approved vendors without
regard to, or because of, race, color, religion, ancestry,
national origin, sex, age or condition of physical or mental
disability or marital status, or political affiliation.
38.4 CONTRACTOR shall give COUNTY representatives access to its
employment records during regular business hours to verify
compliance with the provisions of this Section when so
requested by COUNTY.
38.5 If COUNTY finds that any of the above provisions have been
violated, the same shall constitute a material breach of this
Contract upon which COUNTY may determine to, cancel,
terminate,, or suspend this Contract. While COUNTY reserves
the right to determine independently that the
anti-discrimination provisions of this Contract have been
violated, in addition, a determination by the California Fair
Employment Practices Commission or the Federal Equal
Employment Opportunity Commission that CONTRACTOR has violated
State and Federal anti-discrimination laws or regulations
shall constitute a finding by COUNTY that CONTRACTOR has
violated the anti-discrimination provisions of this Contract.
38.6 The parties agree that in the event CONTRACTOR violates the
above anti -discrimination provisions in the performance of
this Contract, COUNTY shall, at its option be entitled to a
sum of five hundred ($500.00) pursuant to California Civil
Code Section 1671 as liquidated damages in lieu of canceling,
terminating or suspending this Contract.
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39.0 CONFLICT OF INTEREST
CONTRACTOR represents and warrants that no COUNTY employee whose
position in COUNTY enables him/her to influence the award of this
Contract, and no spouse or economic dependent of such employee is or
shall be employed in any capacity by CONTRACTOR herein or does or shall
have any direct or indirect financial interest in this Contract.
CONTRACTOR shall sign the "Certificate of Compliance with Orange County
Conflict of Interest Policy", attached hereto as Exhibit 7.0 and
incorporated herein by reference. CONTRACTOR shall retain the original
certificate and forward a copy to COUNTY Project Director within five
(5) business days of the commencement of this Contract.
40.0 ASSURANCE OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT
CONTRACTOR hereby assures that it will comply with the Americans with
Disabilities Act of 1990, 42 U.S.C., Sections 12101 et. seq., to ensure
that qualified disabled individuals shall be reasonably accommodated in
accordance with the Act, and the CONTRACTOR shall not exclude from
participation in, or deny the benefit of, or otherwise subject a
disabled individual to discrimination under this Contract, or under any
project, program, or activity supported by this Contract.
41.0 CONFIDENTIALITY
CONTRACTOR shall maintain the confidentiality of all its records,
including but not limited to billings, COUNTY records, and audit
records, in accordance with all applicable Federal, State and local
laws, regulations, ordinances and directives relating to
confidentiality.
CONTRACTOR shall inform all of its officers, employees, and agents
providing services hereunder of the confidentiality provisions of -this
Contract. As a condition of employment, all employees of CONTRACTOR
assigned to this contract or having access to information pertaining to
this contract shall sign and adhere to "Confidentiality of CORI
Information", Exhibit 2.0, attached hereto and incorporated herein by
reference.
CONTRACTOR shall be responsible for safeguarding all Probation
Department information provided for use by the CONTRACTOR.
CONTRACTOR specifically agrees to comply with California Penal Code
Sections 1203.05, 1203.10, and 11140 which govern the confidentiality of adult
probation records.
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42.0 CONTINGENT FUNDING
The obligations of COUNTY under this Contract are contingent upon the
availability of County funds n of sufficient funds for the services
hereunder in the budget approved by the Orange County Board of
Supervisors each fiscal year this Contract is in effect. In the event
that such funding is terminated or reduced, COUNTY may reduce its
obligations hereunder or terminate this Contract. The decision of
COUNTY shall be binding on CONTRACTOR. COUNTY shall provide CONTRACTOR
with written notification of such determination.
43.0 AUTHORIZATION WARRANTY
CONTRACTOR represents and warrants that the signatory to this Contract
is fully authorized to obligate CONTRACTOR hereunder and that all
corporate acts necessary to the execution of this Contract have been
accomplished.
44.0 MERGER
The Technical Exhibits as stated below form a part of this Contract. In
the event of any conflict in the definition or interpretation of any
word, responsibility, service, or schedule between the Contract and the
following Exhibits, said conflict or inconsistency shall be resolved by
giving precedence first to the main body of this contract (i.e., those
provisions set forth in the Recitals and Articles of this Contract),
and then to the Exhibits in the order that they appear.
45.0 ENTIRE AGREEMENT
This Contract and the attached Exhibits 1.0 through 7.0, which are
incorporated-,herein by reference, constitute the complete and
exclusive statement of understanding between the parties which
supersedes all previous Contracts, written or oral, and all other
communications between the parties relating to the subject matter of
this Contract.
IN WITNESS THEREOF, the parties have executed this Agreement, in the
County of Orange, State of California.
BY Dan Verwiel DATED: 8/6/96
SENTENCING CONCEPTS, INC.
COUNTY OF ORANGE
BY Roger R. Stanton DATED: 8/20/96
CHAIRMAN OF THE BOARD
OF SUPERVISORS
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SIGNED AND CERTIFIED THAT A COPY
OF THIS DOCUMENT HAS BEEN DELIVERED
TO THE CHAIRMAN OF THE BOARD.
BY DATED: 9/6/96
CLERK OF THE BOARD OF SUPERVISORS
of Orange County, California
BY DATED: 9/6/96
MICHAEL A. SCHUMACHER
Chief Probation Officer/ County Correctional Administrator
APPROVED AS TO FORM
LAURENCE M. WATSON
COUNTY COUNSEL
ORANGE COUNTY, CALIFORNIA
BY:
DEPUTY COUNTY COUNSEL DATED: 7/22/96
41
